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Preface We have been following the development of European Union (EU) Investment Policy-making from the very beginning, contributed several academic articles to this topic and organised conferences on EU Investment Law. We have also tried to ‘look into the future’ by drafting a Statute of a Multilateral Investment Court, which is the final result of a research study on the path from bilateral arbitral tribunals to a Multilateral Investment Court. The Comprehensive Economic and Trade Agreement (CETA) Investment Court System represents an intermediary step on this path. With the CETA negotiations having come to an end and the Court of Justice of the European Union (CJEU) having decided that the CETA Investment Chapter is in conformity with the EU constitutional framework, we consider that the time is ripe for a first comprehensive commentary on EU Investment Law-making. The CETA Investment Chapter will most likely serve as a blueprint for future negotiations. Compared to previous approaches in international investment law, the CETA changes the paradigm regarding the scope of application, substantive standards as well as investor-state dispute settlement, as the different contributions to this commentary will show. We have been fortunate to assemble a group of distinguished experts in the field who have commented on the provisions of the CETA Investment Chapter in an article-by-article fashion, highlighting the specifics of each provision and putting them into a broader context. We are most thankful for the support in this project we had from NOMOS, especially from Dr. Matthias Knopik, as well as from our Institutes at Vienna and Saarland University. During the different stages of the project, we relied on the support of Isabel Zewe, Michelle Diehl, Andrés E. Alvarado Garzón, Johannes Tropper and Afolabi Adekemi. Saarbrücken and Vienna, October 2021 Marc Bungenberg and August Reinisch
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Authors Afolabi Adekemi is currently a doctoral candidate at the Europa-Institut, Saarland University, Germany, where he doubles as a Research Associate at the chair for Public Law, Public International Law and European Law. He specializes in Foreign Trade Law and International Dispute Resolution, focusing on both Investor-State and International Commercial Arbitration. Andrés E. Alvarado Garzón is a Ph.D. Candidate at Saarland University in Germany, where he also works as a Research Associate at the Chair for Public Law, Public International Law and European Law of Prof. Dr. Marc Bungenberg. His research focuses primarily on the fields of International Investment Law and Trade Law. Previously, he studied law at the Universidad Externado de Colombia and he holds an LL.M. degree in European and International Law from the Europa-Institut at Saarland University. Freya Baetens (Cand. Jur./ Lic.Jur. (Ghent); LL.M. (Columbia); Ph.D. (Cambridge)) is Professor of Public International Law at the PluriCourts Centre (Faculty of Law, Oslo University) and affiliated with the Europa Institute (Faculty of Law, Leiden University). As a Member of the Brussels Bar, she regularly acts as counsel or expert in international and European disputes. She is listed on the Panel of Arbitrators and Conciliators of the International Centre for the Settlement of Investment Disputes (ICSID), the South China International Economic and Trade Arbitration Commission (Shenzhen Court of International Arbitration) and the Hong Kong International Arbitration Centre (HKIAC). Crina Baltag is Associate Professor in International Arbitration at Stockholm University and qualified attorney-at-law since 2004, with extensive practice in various aspects on International Dispute Resolution, Private and Public International Law. She is co-director of the Master in International Commercial Arbitration Law at Stockholm University and member of the Stockholm Chamber of Commerce Arbitration Institute (SCC) Board. She has published monographs and numerous articles in leading legal journals and reviews. She is the editor of Kluwer Arbitration Blog, co-managing editor of ITA Arbitration Report and member of editorial boards of prestigious journals and book series in the field, including of the Journal of International Arbitration and Bloomsbury’s Global Energy Law and Policy. She has been appointed in numerous arbitrations, as sole arbitrator and co-arbitrator under the rules of the ICC, LCIA, SIAC, FAI, and CCIR-Romania. Jens Benninghofen, Dr. iur. (Heidelberg); is legal officer at the Federal Ministry for Economic Affairs and Energy, Germany. Christina Binder, E.MA., holds the Chair for International Law and International Human Rights Law at the Bundeswehr University Munich since April 2017. Before, she was University Professor of International Law at the Department of European, International and Comparative Law at the University of Vienna. She is member of the ILA Committees on the Implementation of the Rights of Indigenous Peoples and on Human Rights in Times of Emergency. She is member of the Executive Board and former Vice-President of the European Society of International Law (ESIL). She is co-editor of the Zeitschrift für Menschenrechte, the Hungarian Yearbook of International Law and European Law and the European Yearbook of International Economic Law and has widely published in edited volumes and in peer-reviewed journals, inter alia in the
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Authors fields of Public International Law, the Law of Treaties, International Human Rights and International Investment Law. Contact: [email protected]. Gabriel Bottini is a partner at the Madrid office of Uría Menéndez and an international arbitrator. He is the former National Director of International Affairs and Disputes of the Treasury Attorney-General’s Office of Argentina. He teaches Public International Law at the University of Buenos Aires, Argentina. He has lectured at many universities and international organizations around the world and has published extensively on International Law. He has been awarded scholarships by the Fulbright Commission and other international institutions. Mr. Bottini holds a law degree magna cum laude from the University of Buenos Aires, an LL.M. from New York University School of Law, and a Ph.D. from Cambridge University. Contact: [email protected]. Colin Brown is an international trade and investment lawyer. Since November 2020 he is Head of Unit Legal Aspects of Trade and Sustainable Development and Investment in the Directorate General for Trade of the European Commission. From 2013 to 2020 he was Deputy Head of Unit of Dispute Settlement and Legal Aspects of Trade Policy. He is the head of the EU Delegation to UNCITRAL Working group III on ISDS reform. Before joining the Directorate General for Trade in October 2006, he worked for 6 years for the Legal Service of the European Commission, where he litigated WTO and EU law cases. He has been chair of the Legal Advisory Committee of the Energy Charter Treaty between 2004 and 2017. He has taught EU and WTO Law and he is guest lecturer in EU External Economic Relations Law at different universities. Marc Bungenberg is Director of the Europa-Institut and a Professor of Public Law, European Law and Public International Law at Saarland University in Germany (since 2015), permanent visiting Professor at the University of Lausanne/Switzerland (since 2011). He has taught at inter alia Sydney, Geneva, Lucerne, Lausanne, Tashkent, Copenhagen, Hamburg and Munich. He received his doctorate in Law from the University of Hannover and wrote his habilitation treatise at the Friedrich-SchillerUniversity Jena. He holds an LL.M. from Lausanne University. His main fields of research are European (Common Commercial Policy, Public Procurement and State Aid Law) and International Economic Law, particularly International Investment and WTO Law. Contact: [email protected]. Markus Burgstaller, Dr. iur. (Vienna); LL.M. (NYU); Partner at Hogan Lovells in London; admitted as attorney in New York and as solicitor in England and Wales; Member of the ICSID Panel of Arbitrators. N. Jansen Calamita is Head of Investment Law & Policy, Centre for International Law, and Research Associate Professor (CIL), Faculty of Law, National University of Singapore. He has held posts on the law faculties of the University of Oxford and the University of Birmingham and at the British Institute of International and Comparative Law. Prior to entering academia, he served in the Office of the Legal Adviser in the US Department of State and as a member of the UNCITRAL Secretariat. He is series co-editor (with Loretta Malintoppi) of International Litigation in Practice (Brill) and a member of the editorial board of the Yearbook of International Law and Policy (Oxford University Press). He continues to advise governments and international organizations on matters relating to International Investment Law and Dispute Resolution.
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Authors Armand de Mestral is Emeritus Professor, McGill University, Jean Monnet Chair in Law; Co-Director McGill – Université de Montréal, Institute of European Studies 2002-8; Interim Director, Institute of Air and Space Law McGill University, 1998-2002; Senior Fellow CIGI 2014; Panelist and arbitrator in disputes under WTO, CUFTA and NAFTA. Member of the Canadian Delegation to the UN Law of the Sea Conference 1973-1980. Consultant to NACEC and Law Commission of Canada. President, Canadian Red Cross Society 1999-2001. Appointed Member of the Order of Canada December 28, 2007. Awarded the John E. Read Medal by the CCIL in November 2017. Arnaud de Nanteuil is Full Professor at University of Paris Est Créteil in Paris, France. He is the director of the LL.M. in International Business Litigation in that University. He is the author of numerous publications in the field of International Law and International Investment Law. He published the only textbook in French exclusively dedicated to International Investment Law (Droit international de l’investissement, Pedone, 3rd edition 2020). He also serves as counsel, expert or arbitrator in investor-State cases. Lori Di Pierdomenico, LL.B. / B.C.L. (McGill), LL.M. (Arizona), is Senior Counsel in the Investment and Services division of the Trade Law Bureau at Global Affairs Canada. She regularly acts as legal counsel for the Government of Canada in many of Canada's free trade and international investment agreement negotiations, including CETA. She is responsible for leading Canada's defence in international investment disputes involving foreign investors under Canada's international investment agreements and advises on Canada's international trade obligations. Patrick Dumberry, Ph.D. (Graduate Institute of International Studies, Geneva, Switzerland), is Full Professor at the University of Ottawa (Faculty of Law, Civil Law Section). He practiced in International Law and International Arbitration for several years with law firms in Geneva (Lenz & Staehelin, Lalive), Montreal (Ogilvy Renault, now Norton Rose Fulbright) and with Canada’s Ministry of Foreign Affairs (Trade Law Bureau). He is the author of more than 80 publications in the fields of International Investment Law and International Law. He has also published 8 books with Cambridge UP, Oxford UP, Elgar Publ., Brill, Martinus Nijhoff and Wolters Kluwer. Katia Fach Gómez, Dr iur., LL.M., is a tenured Lecturer (Profesora Titular) of International Law at the University of Zaragoza (Spain). She is the author of several legal books and book chapters published in English, German and Spanish. Katia graduated summa cum laude from the University of Zaragoza, holds a European Ph.D. summa cum laude, and an LL.M. from Fordham University (NY) (summa cum laude and Edward J Hawk prize). She has taught International Investment and Commercial Arbitration, ADR, Global Law, International Litigation, Conflict of Laws, etc., at numerous universities. She is a member of the International Law Association (ILA), the International Academy of Comparative Law and the European Society of International Law (ESIL). She is designated by the Kingdom of Spain to the Panel of Conciliators of ICSID. She acts regularly as arbitrator and mediator. Her working languages are Spanish, English, German and French. Richard Happ is a Partner specialising in International Arbitration at Luther, Hamburg where he also co-heads the German-wide Complex Disputes Team. He holds degrees from the University of Kiel and carried out his legal training in Kiel, Ham-
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Authors burg and Brussels. His areas of expertise include in particular investment arbitration proceedings and energy sector arbitrations. He has arbitrated under several different arbitration rules including ICSID, SCC, DIS and UNCITRAL as well as commodity arbitration rules (GAFTA, Hamburger Warenverein). His numerous publications include two volumes of the ICSID Digest (OUP) and a commentary on the ICSID Arbitration Rules. Contact: [email protected]. Angshuman Hazarika is an Assistant Professor for Ethics and Business Law at IIM Ranchi, India. Prior to this, he worked as a Research Associate at Saarland University, Germany and has also worked in a leading law firm in India. He was awarded the Angela Merkel Scholarship by DAAD for his Master’s Degree at the Europa-Institut, Saarbrucken, Germany. The special focus of his work is on Investment Arbitration with focus on State-to-State Arbitration and the Impact of Investment Arbitration on developing countries. He is also involved in work relating to the interface of Foreign Policy, Trade and Investment and has worked on issues of Investment Screening and for Trade and Investment Dispute Resolution. Contact: [email protected]. Stephan Hobe is Professor for Public International, European, International Economic Law, Air Law, Space Law and Cyber Law at the University of Cologne. He is Deputy President of the German Society of International Law and in the Executive Board of the German Association of International Law (ILA). Furthermore, he is Managing Director of the International Investment Law Centre Cologne (IILCC). He has published 50 books and approximately 300 articles on Public International Law, European Law, International Economic Law, Air Law, Space Law and Cyber Law, as well as International Investment Law. Frank Hoffmeister is Head of Unit at the European Commission implementing the EU's Trade Defence Policy and Professor of International Economic Law at the Institute for European Studies, Brussels. Anna Holzer is an associate in the arbitration team of a leading international law firm in Frankfurt. Before, she acquired practical knowledge in the field of International Arbitration through different trainee lawyer and research assistant positions at international law firms in Frankfurt and the chair for Public Law, Public International Law and European Law at the Europa-Institut (Saarland University). She focused on International Commercial and Investment Arbitration during her studies at the London School of Economics (LSE) and worked for the German Embassy in Berne (Switzerland) and the German Federal Constitutional Court during her legal clerkship. She is also a Ph.D. candidate at Saarland University. Mattijs Kempynck is legal officer in the European Commission’s Directorate-General for Trade advising on matters of Trade Law (EU/WTO) and institutional matters. Panos Koutrakos is Professor of EU Law and Jean Monnet Professor of EU Law at City, University of London. He is the author of, amongst others, EU International Relations Law 2nd edition (Hart Publishing, 2015). He has written widely on a wide range of EU law areas, including the relationship between EU and International Law. He is the joint editor of European Law Review and a door tenant at Monckton Chambers, London. Ursula Kriebaum is Professor for Public International Law at the University of Vienna, Department of European, International and Comparative Law. She is a Member of XII
Authors the Permanent Court of Arbitration, a Member of the Panel of Arbitrators under the Agreement on the Withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union, an Alternate Member of the Court of Conciliation and Arbitration within the OSCE, a Member of the Panel of Conciliators maintained by the International Centre for Settlement of Investment Disputes and a Member of the Arbitration Panel for the Protocol on Cultural Cooperation to the Free Trade Agreement between the European Union and its Member States and the Republic of Korea. She teaches International Law, Investment Law and Human Rights Law at the University of Vienna acts as legal expert in International Investment Law and human rights law cases and as consultant for law firms and advisor to governments on Investment Law and arbitration issues. Ursula Kriebaum has published widely on International Investment Law and Arbitration as well as on Human Rights Law. Contact: https://eur-int-comp-law.univie.ac.at/en/team/kriebaum-ursula. Céline Lévesque has been a Professor at the University of Ottawa, Faculty of Law, for over 20 years and served as Dean from 2014 to 2019. She is an expert in International Investment Law. Professor Lévesque acts as an arbitrator in investor-State cases (as president and co-arbitrator). In July 2020, she was appointed to the roster of thirty panelists for Chapter 31 (State-State) Dispute Settlement under the Canada-United States-Mexico Agreement. In 2008-2009, she was a Scholar-in-Residence at the Trade Law Bureau of the Canadian Department of Foreign Affairs and International Trade. Prior to joining the university (1995-1998), she worked at the World Bank in Washington, DC, in a group specialized in private participation in infrastructure. Contact: [email protected]. Irmgard Marboe is Professor of International Law at the Department of European, International and Comparative Law at the University of Vienna. She has widely published on the issue of compensation and damages in International Investment Law. Her book Calculation of Compensation and Damages in International Investment Law is frequently quoted in investor-State arbitration cases. She is Co-Editor-in-Chief of The Journal of Damages in International Arbitration and a member of the panel of arbitrators for space-related disputes at the Permanent Court of Arbitration, The Hague. Lars Markert is a partner at Japanese law firm Nishimura & Asahi. He is admitted to the German and New York Bars, a registered foreign lawyer in Japan, and advises clients in both investor-State and international commercial arbitrations. He has experience in representing investors and states in proceedings under the ICSID Convention and the UNCITRAL Arbitration Rules, and in advising on potential claims under bilateral investment treaties and related negotiation strategies. He is the co-chair of the IPBA Investment Arbitration Sub-Committee, on the advisory board of the International Investment Law Centre Cologne, and frequently speaks, writes and lectures on new developments in Commercial and Investment Arbitration. He also sits as an arbitrator. Patricia Nacimiento is the head of the German dispute resolution team and a member of the EMEA Disputes Leadership Team at Herbert Smith Freehills. She is an expert in arbitration. She has extensive experience both as a party representative and as an arbitrator. She focuses on Investment Arbitration and the Law of Nations, also in the field of Business and Human Rights. She also has considerable expertise in crossborder Litigation and Arbitration-related Litigation. She has extensive experience
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Authors in managing large strategic dispute resolution proceedings and leading cross-border teams including the fight against corruption and money laundering. The German government has appointed her since 2007 to its panel of arbitrators and mediators at the International Centre for Settlement of Investment Disputes (ICSID). Erman Özgür, Ph.D. (CEPMLP, Dundee); LL.M. (Edinburgh); Partner, Özgür Ünüvar Bakiler Attorney Partnership (Turkey); admitted to Ankara Bar. Lecturer in Energy Law and International Investment Law & Arbitration (TOBB ETU University, Ankara). August Reinisch is Professor of International and European Law at the University of Vienna. He is a Member of the International Law Commission and of the Court of the Permanent Court of Arbitration, and membre associé of the Institut de droit international. He serves as arbitrator in investment cases and is listed on the ICSID Panel of Arbitrators. Stefanie Schacherer is a Postdoctoral Fellow at the National University of Singapore, Centre for International Law. Prior to joining NUS, she was a postdoctoral research fellow at the World Trade Institute, University of Bern funded by the Swiss National Science Foundation (SNSF). She holds a double Ph.D. from the University of Geneva and the University of Vienna, an LL.M. from King’s College London; and a Master and a Bachelor of Laws from the University of Geneva. Contact: [email protected]. Julian Scheu is Junior Professor of Public Law, International Law, and International Investment Law at the University of Cologne and head of management at the International Investment Law Centre Cologne (IILCC). His research focuses on International Economic Law, European Law, International Dispute Settlement, and Comparative Administrative Law. Prior to joining the IILCC, he worked as legal assistant with the German Arbitration Institute (DIS). Christoph Schreuer is a former Professor of International Law at Johns Hopkins University, the University of Salzburg and the University of Vienna. He is Of Counsel with Zeiler Floyd Zadkovich in Vienna and works as legal expert and arbitrator in investment cases. Lukas Stifter is a senior investment policy officer at the Austrian Federal Ministry for Digital and Economic Affairs. In this capacity, he is involved in treaty negotiations and represents Austria before international fora, inter alia UNCITRAL Working Group III and the relevant working groups of the European Union. Since July 2020, he serves as Chair of the Energy Charter Treaty Modernisation Group. Previously, he was a lecturer and researcher in Public International Law at the University of Vienna. Johannes Tropper works as a Researcher & Assistant Lecturer at the Department of European, International and Comparative Law of the University of Vienna. Previously he was a researcher for the project ‘Rule of Law and International Investment Law’, a student research assistant at the Section for European Law at the University of Vienna and an assistant at the Austrian Constitutional Court. Contact: [email protected]. Güneş Ünüvar is a Senior Research Fellow at Max Planck Institute for International, European and Regulatory Procedural Law in Luxembourg and Of Counsel at Özgür
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Authors Ünüvar Bakiler. He is currently a member of the Academic Forum for the Working Group III meetings under the auspices of UNCITRAL. He was a Carlsbergfondet Postdoctoral Fellow at iCourts, University of Copenhagen; and previously held Visiting Researcher positions at the Energy Charter Secretariat in Brussels and Columbia Law School in New York City. He holds a Ph.D. from the Faculty of Law, University of Copenhagen. He obtained his LL.M. degree from the Institute for European Studies (IES), Vrije Universiteit Brussel, and an LL.B. from the Faculty of Law, Bilkent University. Contact: [email protected]. Lukas Vanhonnaeker is an assistant Professor of law at the University of Montreal Faculty of Law. He specializes in International Economic Law, with an emphasis on International Investment Law and arbitration. He completed his bilingual (French/ English) bachelor’s degree in Law at the Facultés Universitaires Saint-Louis (Brussels, Belgium) in 2010 and his master’s degree in Law at the Catholic University of Louvain, Belgium, in 2012. He received his LL.M. in International Business Law from the Free University of Brussels in 2013 and he also holds an LL.M. (2014) and a Ph.D. (2018) from McGill University. He was also a post-doctoral research fellow at McGill University Faculty of Law. Herman Verbist is a partner in the law firm Everest Attorneys in Belgium (Ghent/ Brussels). His practise focuses on International Arbitration and Mediation. He is a trained investor-State mediator. He is a lecturer at the Europa-Institut of Saarland University, Saarbrücken, Germany, for the course case study investment mediation. He has been designated by Belgium to the ICSID Panel of Conciliators. He was a member of the IBA Committee on the elaboration of Rules for investor-State mediation. He participates in the work of UNCITRAL Working Group II. He authored or co-authored numerous books and publications in the field of Arbitration and Mediation.
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List of Abbreviations AANZFTA AB ACIA AcP ADR AFDI AG AJIL Am. J. Comp. L. Am. Rev. Int’l Arb. Am. U. Int’l L. Rev. AR Arb. Arb. Int’l ARIEL ARIO
ASEAN-Australia-New Zealand Free Trade Agreement Appellate Body ASEAN Comprehensive Investment Agreement Archiv für die civilistische Praxis alternative dispute resolution Annuaire Français de Droit International Aktiengesellschaft American Journal of International Law American Journal of Comparative Law American Review of International Arbitration American University International Law Review Arbitration Rules Arbitration Arbitration International Austrian Review of International and European Law Draft Articles on the Responsibility of International Organizations ARSIWA Draft Articles on the Responsibility of States for Internationally Wrongful Acts ASA Bull. Swiss Arbitration Association Bulletin ASEAN Association of South East Asian Nations Asia Pac. L. Rev. Asia Pacific Law Review Austrian YB Int’l Arb. Austrian Yearbook of International Arbitration B.C. Int’l & Comp. L. Rev. Boston College International and Comparative Law Review B.C. L. Rev. Boston College Law Review BIICL British Institute of International and Comparative Law BIRD Banque internationale pour la reconstruction et le développement BIT Bilateral Investment Treaty BLEU Belgium-Luxembourg Economic Union BLI Business Law International BOT build-operate-transfer Brazilian J. Int’l L. Brazilian Journal of International Law BTW Beiträge zum Transnationalen Wirtschaftsrecht Bus. Pol. Business and Politics BYIL British Yearbook of International Law CAFTA United States – Dominican Republic – Central America Free Trade Agreement Can. YBIL Canadian Yearbook of International Law Cap. Mark. Law J. Capital Markets Law Journal CARIFORUM Caribbean Forum; Forum of the Caribbean Group of African, Caribbean and Pacific (ACP) States CCJE Consultative Council of European Judges CCP Common Commercial Policy CETA Canada-EU Comprehensive Economic and Trade Agreement cf. confer (compare)
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List of Abbreviations CFSP ch. Chinese J. Int’l L. CIDS CIETAC CIGI CIRDI CJ CJCCL CJEU CJGG CJICL CLP CMLR COFACE Colum. J. Transnat’l L. COMESA CPI CPTPP Croatian Arb. YB CRS CUSMA CYELS Dalhous. Law J. DCF DFC Disp. Resol. Int’l DOB Doc. DSB DSU Duke J. Comp. & Int’l L. e.g. ECA ECHR ECJ ECT ECtHR ed ed(s) EDC EEA EFILA EJIL ELTE LJ EP XVIII
Common Foreign and Security Policy Chapter Chinese Journal of International Law Geneva Centre for International Dispute Settlement China International Economic and Trade Arbitration Commission Centre for International Governance Innovation Centre International pour le Règlement des Différends relatifs aux Investissements Court of Justice Canadian Journal of Comparative and Contemporary Law Court of Justice of the European Union The Chinese Journal of Global Governance Cambridge Journal of International and Comparative Law Current Legal Problems Common Market Law Review Compagnie Française d’assurance pour le Commerce Extérieur Columbia Journal of Transnational Law Common Market for Eastern and Southern Africa Corruption Perceptions Index Comprehensive and Progressive Agreement for Trans-Pacific Partnership Croatian Arbitration Yearbook Computer reservation system Canada-United States-Mexico Agreement Cambridge Yearbook of European Legal Studies Dalhousie Law Journal discounted cash flow U.S. International Development Finance Corporation Dispute Resolution International denial of benefits Document Dispute Settlement Body Dispute Settlement Understanding Duke Journal of Comparative and International Law exempli gratia (for example) Economic Cooperation Agreement European Convention on Human Rights European Court of Justice Energy Treaty Charter European Court of Human Rights edition editor(s) Export Development Canada European Economic Area European Federation for Investment Law and Arbitration European Journal of International Law Eötvös Loránd Universität Law Journal European Parliament
List of Abbreviations EPA esp. et al. et seq. EU EUP EuR EuZW EYIEL f(f.) FATF FDI FET FIPA FIT fn. Fordham Int’l L. J. FPS FTA FTC GA Ga. J. Int’l & Comp. L GAR GATS GATT GDP Geo. J. Int’l L. Harv. Negot. L. Rev. i.a. i.e. IAMCR IAR IBA IBRD ibid. ICA ICC ICCA ICCLR ICJ ICJ Rep. ICLQ ICS ICSID ICSID Convention ICSID Rep. ICSID Rev.-FILJ
Economic Partnership Agreement especially et alii (and others) et sequens (and the following) European Union European Union Politics Zeitschrift Europarecht Europäische Zeitschrift für Wirtschaftsrecht European Yearbook of International Economic Law and the following Financial Action Task Force Foreign Direct Investment Fair and equitable treatment Foreign Investment and Protection Agreement Feed-in tariff Footnote Fordham International Law Journal Full Protection and Security Free Trade Agreement Free Trade Commission General Assembly Georgia Journal of International and Comparative Law Global Arbitration Review General Agreement on Trade in Services General Agreement on Tariffs and Trade Gross domestic product Georgetown Journal of International Law Harvard Negotiation Law Review inter alia id est (that is) International Association for Media and Communication Research Investment Arbitration Reporter International Bar Association International Bank for Reconstruction and Development ibidem (the same) Investment Canada Act International Chamber of Commerce International Council for Commercial Association International Company and Commercial Law Review International Court of Justice ICJ Reports International and Comparative Law Quarterly International Court System International Centre for Settlement of Investment Disputes Convention on the Settlement of Investment Disputes between States and Nationals of other States ICSID Reports ICSID Review – Foreign Investment Law Journal XIX
List of Abbreviations id. IIA IIJL IISD ILA ILC ILM ILO Ind. J. Global Legal Stud. Indian J. Arb. L. infra Int’l Int’l Arb. L. Rev. Int’l Bus. Law. Int’l J. Int’l J. Cult. Policy Int’l J. Sustain. Dev. Int’l L. Forum Int’l Lawyer Int’l Trade L. Regul. INTA IOSR-JBM IPA Iran-US CTR ISA ISDS ITBLR ITLOS J. J. Air L. & Com. J. Disp. Resol. J. Ethn. Migr. Stud. J. Int’l Arb. J. Int’l Econ. L. J. Int’l. Disp. Settlement J. Intellect. Prop. L. J. Policy Analy. Manag. J. Pub. L. J. WTO & China JDI JDIA JII JIPITEC JWIT JWT KSzW L. LCIA Leiden J. Int’l L. XX
idem (the same) International Investment Agreement Institute for International Law and Justice International Institute for Sustainable Development International Law Association International Law Commission International Legal Materials International Labour Organization Indiana Journal of Global Legal Studies Indian Journal of Arbitration Law below International International Arbitration Law Review International Business Lawyer International Journal International Journal of Cultural Policy International Journal of Sustainable Development International Law Forum The International Lawyer International Trade Law and Regulation International Trademark Association International Organisation of Scientific Research Investment Protection Agreement Iran-United States Claims Tribunal Investor-State Arbitration Investor-State dispute settlement International Trade and Business Law Review International Tribunal for the Law of the Sea Journal Journal of Air Law and Commerce Journal of Dispute Resolution Journal of Ethnic and Migration Studies Journal of International Arbitration Journal of International Economic Law Journal of International Dispute Settlement Journal of International Property Law Journal of Policy Analysis and Management Journal of Public Law Journal of WTO and China Journal du Droit International Journal of Damages in International Arbitration Joint Interpretative Instrument Journal of Intellectual Property, Information Technology and Electronic Commerce Law Journal of World Investment & Trade Journal of World Trade Kölner Schrift zum Wirtschaftsrecht Law London Court of International Arbitration Leiden Journal of International Law
List of Abbreviations LIEI lit. Loy. U. Chi. L. J. LPICT ltd. m MA MAI McGill L. J. Melb. J. Int’l L. Mercosur MEUFTA MFN MIAM MIC Mich. J. Int’l L. MIGA Minn. J. Int’l L. MIA MJEL mn. Mod. L. Rev. MRO MST n. NAFTA NAFTA FTC NDP New York Convention NGO NILR No. NStZ NT NVwZ Nw. J. Int’l L. & Bus. NYC NYIL NYU Env. L. J. NYU JILP OECD OJ op. cit. OPIC ÖZöR p., pp. PACER
Legal Issues of Economic Integration litera (character) Loyola University Chicago Law Journal Law and Practice of International Courts and Tribunals Limited million Market access Multilateral Agreement on Investment McGill Law Journal Melbourne Journal of International Law Mercado Común del Sur Mexico – European Union Free Trade Agreement Most Favoured Nation Multilateral Investment Appeals Mechanism Multilateral Investment Court Michigan Journal of International Law Multilateral Investment Guarantee Agency Minnesota Journal of International Law Multilateral Investment Agreement Malaysian Journal of Economic Studies marginal number The Modern Law Review maintenance, repair, overhaul Minimum standard of treatment note North American Free Trade Agreement NAFTA Free Trade Commission non-disputing party Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 non-governmental organisation Netherlands International Law Review Number Neue Zeitschrift für Strafrecht National Treatment Neue Zeitschrift für Verwaltungsrecht Northwestern Journal of International Law & Business New York Convention Netherlands Yearbook of International Law New York University Environmental Law Journal New York University Journal of International Law and Politics Organisation for Economic Co-operation and Development Official Journal of the European Union opere citato (in the work cited) Overseas Private Investment Corporation Österreichische Zeitschrift für österreichisches Recht page(s) Pacific Agreement on Closer Economic Relations XXI
List of Abbreviations para(s). PCA PCIJ Pepp. Disp. Resol. L. J. PR Prel. Rem. Prof. Public Adm. Rev. QMJIP Quebec J. Int’l L. R.B.D.I. RAND J. Econ. RC RECIEL REIO Res Rev. Rev. Derecho del Estado RIAA RJT RTA SADC SCC SCJIL SCM Agreement SE Sec. Ser. Singap. Acad. Law J. SMBD SME SOE SPPP SSDS Suppl. supra TBT TDM TEU TFEU TIEA TPA TPF TPP TRIMS TRIPS TTIP XXII
paragraph(s) Permanent Court of Arbitration Permanent Court of International Justice Pepperdine Dispute Resolution Law Journal Performance requirements Preliminary remarks Professor Public Administration Review Queen Mary Journal of Intellectual Property Quebec Journal of International Law Revue belge de droit international RAND Journal of Economics Recueil des Cours Review of European Community and International Environmental Law Regional Economic Integration Organisation Resolution Review Revista Derecho del Estado Reports of International Arbitral Awards Revue Juridique Thémis Regional Trade Agreement Southern African Development Community Arbitration Institute of the Stockholm Chamber of Commerce Santa Clara Journal of International Law Agreement on Subsidies and Countervailing Measures State enterprise Section Series Singapore Academy of Law Journal Senior management and boards of directors small and medium-sized enterprise State-owned enterprise The School of Public Policy Publications State-State dispute settlement Supplement above Technical Barriers to Trade Transnational Dispute Management Treaty on the European Union Treaty on the Functioning of the European Union Trade and Investment Enhancement Agreement Trade Promotion Agreement Third-Party-Funding Trans-Pacific Partnership Agreement on Trade-Related Investment Measures Agreement on Trade-Related Aspects of Intellectual Property Rights EU-US Transatlantic Trade and Investment Pact
List of Abbreviations U. Kan. L. Rev. U. Toronto Fac. L. Rev. UCILR UCLA L. Rev. UK UN UNCITRAL UNCLOS UNCTAD UNESCO UNGA Univ. Bologna L. Rev. UNRIAA UNTS US/USA USITC USMCA v. Va. J. Int’l L. Vand. J. Transnat’l L. VCLT Vol. WAMR WJP WTO WTO DSU Yale J. Int’l L. Yale L. J. YB YB Int’l Inv. L. & Pol’y YB. Eur. L. YBILC ZaöRV ZEuS ZRP
University of Kansas Law Review University of Toronto Faculty of Law Review UC Irvine Law Review UCLA Law Review United Kingdom United Nations United Nations Commission on International Trade Law United Nations Convention on the Law of the Sea United Nations Conference on Trade and Development United Nations Educational, Scientific and Cultural Organisation General Assembly of the United Nations University of Bologna Law Review United Nations Report of International Arbitral Awards United Nations Treaty Service United States of America United States International Trade Commission United States-Mexico-Canada-Agreement versus (against) Virginia Journal of International Law Vanderbilt Journal of Transnational Law Vienna Convention on the Law of Treaties Volume World Arbitration and Mediation Review World Justice Project World Trade Organisation WTO Dispute Settlement Understanding Yale Journal of International Law Yale Law Journal Yearbook Yearbook on International Investment Law and Policy Yearbook of European Law Yearbook of the International Law Commission Zeitschrift für ausländisches öffentliches Recht und Völkerrecht Zeitschrift für Europarechtliche Studien Zeitschrift für Rechtspolitik
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List of Abbreviations AANZFTA AB ACIA AcP ADR AFDI AG AJIL Am. J. Comp. L. Am. Rev. Int’l Arb. Am. U. Int’l L. Rev. AR Arb. Arb. Int’l ARIEL ARIO
ASEAN-Australia-New Zealand Free Trade Agreement Appellate Body ASEAN Comprehensive Investment Agreement Archiv für die civilistische Praxis alternative dispute resolution Annuaire Français de Droit International Aktiengesellschaft American Journal of International Law American Journal of Comparative Law American Review of International Arbitration American University International Law Review Arbitration Rules Arbitration Arbitration International Austrian Review of International and European Law Draft Articles on the Responsibility of International Organizations ARSIWA Draft Articles on the Responsibility of States for Internationally Wrongful Acts ASA Bull. Swiss Arbitration Association Bulletin ASEAN Association of South East Asian Nations Asia Pac. L. Rev. Asia Pacific Law Review Austrian YB Int’l Arb. Austrian Yearbook of International Arbitration B.C. Int’l & Comp. L. Rev. Boston College International and Comparative Law Review B.C. L. Rev. Boston College Law Review BIICL British Institute of International and Comparative Law BIRD Banque internationale pour la reconstruction et le développement BIT Bilateral Investment Treaty BLEU Belgium-Luxembourg Economic Union BLI Business Law International BOT build-operate-transfer Brazilian J. Int’l L. Brazilian Journal of International Law BTW Beiträge zum Transnationalen Wirtschaftsrecht Bus. Pol. Business and Politics BYIL British Yearbook of International Law CAFTA United States – Dominican Republic – Central America Free Trade Agreement Can. YBIL Canadian Yearbook of International Law Cap. Mark. Law J. Capital Markets Law Journal CARIFORUM Caribbean Forum; Forum of the Caribbean Group of African, Caribbean and Pacific (ACP) States CCJE Consultative Council of European Judges CCP Common Commercial Policy CETA Canada-EU Comprehensive Economic and Trade Agreement cf. confer (compare)
XVII
List of Abbreviations CFSP ch. Chinese J. Int’l L. CIDS CIETAC CIGI CIRDI CJ CJCCL CJEU CJGG CJICL CLP CMLR COFACE Colum. J. Transnat’l L. COMESA CPI CPTPP Croatian Arb. YB CRS CUSMA CYELS Dalhous. Law J. DCF DFC Disp. Resol. Int’l DOB Doc. DSB DSU Duke J. Comp. & Int’l L. e.g. ECA ECHR ECJ ECT ECtHR ed ed(s) EDC EEA EFILA EJIL ELTE LJ EP XVIII
Common Foreign and Security Policy Chapter Chinese Journal of International Law Geneva Centre for International Dispute Settlement China International Economic and Trade Arbitration Commission Centre for International Governance Innovation Centre International pour le Règlement des Différends relatifs aux Investissements Court of Justice Canadian Journal of Comparative and Contemporary Law Court of Justice of the European Union The Chinese Journal of Global Governance Cambridge Journal of International and Comparative Law Current Legal Problems Common Market Law Review Compagnie Française d’assurance pour le Commerce Extérieur Columbia Journal of Transnational Law Common Market for Eastern and Southern Africa Corruption Perceptions Index Comprehensive and Progressive Agreement for Trans-Pacific Partnership Croatian Arbitration Yearbook Computer reservation system Canada-United States-Mexico Agreement Cambridge Yearbook of European Legal Studies Dalhousie Law Journal discounted cash flow U.S. International Development Finance Corporation Dispute Resolution International denial of benefits Document Dispute Settlement Body Dispute Settlement Understanding Duke Journal of Comparative and International Law exempli gratia (for example) Economic Cooperation Agreement European Convention on Human Rights European Court of Justice Energy Treaty Charter European Court of Human Rights edition editor(s) Export Development Canada European Economic Area European Federation for Investment Law and Arbitration European Journal of International Law Eötvös Loránd Universität Law Journal European Parliament
List of Abbreviations EPA esp. et al. et seq. EU EUP EuR EuZW EYIEL f(f.) FATF FDI FET FIPA FIT fn. Fordham Int’l L. J. FPS FTA FTC GA Ga. J. Int’l & Comp. L GAR GATS GATT GDP Geo. J. Int’l L. Harv. Negot. L. Rev. i.a. i.e. IAMCR IAR IBA IBRD ibid. ICA ICC ICCA ICCLR ICJ ICJ Rep. ICLQ ICS ICSID ICSID Convention ICSID Rep. ICSID Rev.-FILJ
Economic Partnership Agreement especially et alii (and others) et sequens (and the following) European Union European Union Politics Zeitschrift Europarecht Europäische Zeitschrift für Wirtschaftsrecht European Yearbook of International Economic Law and the following Financial Action Task Force Foreign Direct Investment Fair and equitable treatment Foreign Investment and Protection Agreement Feed-in tariff Footnote Fordham International Law Journal Full Protection and Security Free Trade Agreement Free Trade Commission General Assembly Georgia Journal of International and Comparative Law Global Arbitration Review General Agreement on Trade in Services General Agreement on Tariffs and Trade Gross domestic product Georgetown Journal of International Law Harvard Negotiation Law Review inter alia id est (that is) International Association for Media and Communication Research Investment Arbitration Reporter International Bar Association International Bank for Reconstruction and Development ibidem (the same) Investment Canada Act International Chamber of Commerce International Council for Commercial Association International Company and Commercial Law Review International Court of Justice ICJ Reports International and Comparative Law Quarterly International Court System International Centre for Settlement of Investment Disputes Convention on the Settlement of Investment Disputes between States and Nationals of other States ICSID Reports ICSID Review – Foreign Investment Law Journal XIX
List of Abbreviations id. IIA IIJL IISD ILA ILC ILM ILO Ind. J. Global Legal Stud. Indian J. Arb. L. infra Int’l Int’l Arb. L. Rev. Int’l Bus. Law. Int’l J. Int’l J. Cult. Policy Int’l J. Sustain. Dev. Int’l L. Forum Int’l Lawyer Int’l Trade L. Regul. INTA IOSR-JBM IPA Iran-US CTR ISA ISDS ITBLR ITLOS J. J. Air L. & Com. J. Disp. Resol. J. Ethn. Migr. Stud. J. Int’l Arb. J. Int’l Econ. L. J. Int’l. Disp. Settlement J. Intellect. Prop. L. J. Policy Analy. Manag. J. Pub. L. J. WTO & China JDI JDIA JII JIPITEC JWIT JWT KSzW L. LCIA Leiden J. Int’l L. XX
idem (the same) International Investment Agreement Institute for International Law and Justice International Institute for Sustainable Development International Law Association International Law Commission International Legal Materials International Labour Organization Indiana Journal of Global Legal Studies Indian Journal of Arbitration Law below International International Arbitration Law Review International Business Lawyer International Journal International Journal of Cultural Policy International Journal of Sustainable Development International Law Forum The International Lawyer International Trade Law and Regulation International Trademark Association International Organisation of Scientific Research Investment Protection Agreement Iran-United States Claims Tribunal Investor-State Arbitration Investor-State dispute settlement International Trade and Business Law Review International Tribunal for the Law of the Sea Journal Journal of Air Law and Commerce Journal of Dispute Resolution Journal of Ethnic and Migration Studies Journal of International Arbitration Journal of International Economic Law Journal of International Dispute Settlement Journal of International Property Law Journal of Policy Analysis and Management Journal of Public Law Journal of WTO and China Journal du Droit International Journal of Damages in International Arbitration Joint Interpretative Instrument Journal of Intellectual Property, Information Technology and Electronic Commerce Law Journal of World Investment & Trade Journal of World Trade Kölner Schrift zum Wirtschaftsrecht Law London Court of International Arbitration Leiden Journal of International Law
List of Abbreviations LIEI lit. Loy. U. Chi. L. J. LPICT ltd. m MA MAI McGill L. J. Melb. J. Int’l L. Mercosur MEUFTA MFN MIAM MIC Mich. J. Int’l L. MIGA Minn. J. Int’l L. MIA MJEL mn. Mod. L. Rev. MRO MST n. NAFTA NAFTA FTC NDP New York Convention NGO NILR No. NStZ NT NVwZ Nw. J. Int’l L. & Bus. NYC NYIL NYU Env. L. J. NYU JILP OECD OJ op. cit. OPIC ÖZöR p., pp. PACER
Legal Issues of Economic Integration litera (character) Loyola University Chicago Law Journal Law and Practice of International Courts and Tribunals Limited million Market access Multilateral Agreement on Investment McGill Law Journal Melbourne Journal of International Law Mercado Común del Sur Mexico – European Union Free Trade Agreement Most Favoured Nation Multilateral Investment Appeals Mechanism Multilateral Investment Court Michigan Journal of International Law Multilateral Investment Guarantee Agency Minnesota Journal of International Law Multilateral Investment Agreement Malaysian Journal of Economic Studies marginal number The Modern Law Review maintenance, repair, overhaul Minimum standard of treatment note North American Free Trade Agreement NAFTA Free Trade Commission non-disputing party Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 non-governmental organisation Netherlands International Law Review Number Neue Zeitschrift für Strafrecht National Treatment Neue Zeitschrift für Verwaltungsrecht Northwestern Journal of International Law & Business New York Convention Netherlands Yearbook of International Law New York University Environmental Law Journal New York University Journal of International Law and Politics Organisation for Economic Co-operation and Development Official Journal of the European Union opere citato (in the work cited) Overseas Private Investment Corporation Österreichische Zeitschrift für österreichisches Recht page(s) Pacific Agreement on Closer Economic Relations XXI
List of Abbreviations para(s). PCA PCIJ Pepp. Disp. Resol. L. J. PR Prel. Rem. Prof. Public Adm. Rev. QMJIP Quebec J. Int’l L. R.B.D.I. RAND J. Econ. RC RECIEL REIO Res Rev. Rev. Derecho del Estado RIAA RJT RTA SADC SCC SCJIL SCM Agreement SE Sec. Ser. Singap. Acad. Law J. SMBD SME SOE SPPP SSDS Suppl. supra TBT TDM TEU TFEU TIEA TPA TPF TPP TRIMS TRIPS TTIP XXII
paragraph(s) Permanent Court of Arbitration Permanent Court of International Justice Pepperdine Dispute Resolution Law Journal Performance requirements Preliminary remarks Professor Public Administration Review Queen Mary Journal of Intellectual Property Quebec Journal of International Law Revue belge de droit international RAND Journal of Economics Recueil des Cours Review of European Community and International Environmental Law Regional Economic Integration Organisation Resolution Review Revista Derecho del Estado Reports of International Arbitral Awards Revue Juridique Thémis Regional Trade Agreement Southern African Development Community Arbitration Institute of the Stockholm Chamber of Commerce Santa Clara Journal of International Law Agreement on Subsidies and Countervailing Measures State enterprise Section Series Singapore Academy of Law Journal Senior management and boards of directors small and medium-sized enterprise State-owned enterprise The School of Public Policy Publications State-State dispute settlement Supplement above Technical Barriers to Trade Transnational Dispute Management Treaty on the European Union Treaty on the Functioning of the European Union Trade and Investment Enhancement Agreement Trade Promotion Agreement Third-Party-Funding Trans-Pacific Partnership Agreement on Trade-Related Investment Measures Agreement on Trade-Related Aspects of Intellectual Property Rights EU-US Transatlantic Trade and Investment Pact
List of Abbreviations U. Kan. L. Rev. U. Toronto Fac. L. Rev. UCILR UCLA L. Rev. UK UN UNCITRAL UNCLOS UNCTAD UNESCO UNGA Univ. Bologna L. Rev. UNRIAA UNTS US/USA USITC USMCA v. Va. J. Int’l L. Vand. J. Transnat’l L. VCLT Vol. WAMR WJP WTO WTO DSU Yale J. Int’l L. Yale L. J. YB YB Int’l Inv. L. & Pol’y YB. Eur. L. YBILC ZaöRV ZEuS ZRP
University of Kansas Law Review University of Toronto Faculty of Law Review UC Irvine Law Review UCLA Law Review United Kingdom United Nations United Nations Commission on International Trade Law United Nations Convention on the Law of the Sea United Nations Conference on Trade and Development United Nations Educational, Scientific and Cultural Organisation General Assembly of the United Nations University of Bologna Law Review United Nations Report of International Arbitral Awards United Nations Treaty Service United States of America United States International Trade Commission United States-Mexico-Canada-Agreement versus (against) Virginia Journal of International Law Vanderbilt Journal of Transnational Law Vienna Convention on the Law of Treaties Volume World Arbitration and Mediation Review World Justice Project World Trade Organisation WTO Dispute Settlement Understanding Yale Journal of International Law Yale Law Journal Yearbook Yearbook on International Investment Law and Policy Yearbook of European Law Yearbook of the International Law Commission Zeitschrift für ausländisches öffentliches Recht und Völkerrecht Zeitschrift für Europarechtliche Studien Zeitschrift für Rechtspolitik
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Article 8.1 Definitions For the purposes of this Chapter: activities carried out in the exercise of governmental authority means activities carried out neither on a commercial basis nor in competition with one or more economic operators; aircraft repair and maintenance services means activities undertaken on an aircraft or a part of an aircraft while it is withdrawn from service and do not include so-called line maintenance; airport operation services means the operation or management, on a fee or contract basis, of airport infrastructure, including terminals, runways, taxiways and aprons, parking facilities, and intra-airport transportation systems. For greater certainty, airport operation services do not include the ownership of, or investment in, airports or airport lands, or any of the functions carried out by a board of directors. Airport operation services do not include air navigation services; attachment means the seizure of property of a disputing party to secure or ensure the satisfaction of an award; computer reservation system services means the supply of a service by computerised systems that contain information about air carriers' schedules, availability, fares and fare rules, through which reservations can be made or tickets may be issued; confidential or protected information means: (a) confidential business information; or (b) information which is protected against disclosure to the public; (i) in the case of information of the respondent, under the law of the respondent; (ii) in the case of other information, under a law or rules that the Tribunal determines to be applicable to the disclosure of such information; covered investment means, with respect to a Party, an investment: (a) (b) (c) (d)
in its territory; made in accordance with the applicable law at the time the investment is made; directly or indirectly owned or controlled by an investor of the other Party; and existing on the date of entry into force of this Agreement, or made or acquired thereafter;
disputing party means the investor that initiates proceedings pursuant to Section F or the respondent. For the purposes of Section F and without prejudice to Article 8.14, an investor does not include a Party; disputing parties means both the investor and the respondent; enjoin means an order to prohibit or restrain an action; enterprise means an enterprise as defined in Article 1.1 (Definitions of general application) and a branch or representative office of an enterprise; ground handling services means the supply of a service on a fee or contract basis for: ground administration and supervision, including load control and communications; passenger handling; baggage handling; cargo and mail handling; ramp Marc Bungenberg and Angshuman Hazarika
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Definitions
handling and aircraft services; fuel and oil handling; aircraft line maintenance, flight operations and crew administration; surface transport; or catering services. Ground handling services do not include security services or the operation or management of centralised airport infrastructure, such as baggage handling systems, de-icing facilities, fuel distribution systems, or intra-airport transport systems; ICSID means the International Centre for Settlement of Investment Disputes; ICSID Additional Facility Rules means the Rules Governing the Additional Facility for the Administration of Proceedings by the Secretariat of the International Centre for Settlement of Investment Disputes; ICSID Convention means the Convention on the Settlement of Investment Disputes between States and Nationals of other States, done at Washington on 18 March 1965; intellectual property rights means copyright and related rights, trademark rights, rights in geographical indications, rights in industrial designs, patent rights, rights in layout designs of integrated circuits, rights in relation to protection of undisclosed information, and plant breeders' rights; and, if such rights are provided by a Party's law, utility model rights. The CETA Joint Committee may, by decision, add other categories of intellectual property to this definition; investment means every kind of asset that an investor owns or controls, directly or indirectly, that has the characteristics of an investment, which includes a certain duration and other characteristics such as the commitment of capital or other resources, the expectation of gain or profit, or the assumption of risk. Forms that an investment may take include: (a) (b) (c) (d) (e) (f)
an enterprise; shares, stocks and other forms of equity participation in an enterprise; bonds, debentures and other debt instruments of an enterprise; a loan to an enterprise; any other kind of interest in an enterprise; an interest arising from: (i) a concession conferred pursuant to the law of a Party or under a contract, including to search for, cultivate, extract or exploit natural resources, (ii) a turnkey, construction, production or revenue-sharing contract; or (iii) other similar contracts; (g) intellectual property rights; (h) other moveable property, tangible or intangible, or immovable property and related rights; (i) claims to money or claims to performance under a contract. For greater certainty, claims to money does not include: (a) claims to money that arise solely from commercial contracts for the sale of goods or services by a natural person or enterprise in the territory of a Party to a natural person or enterprise in the territory of the other Party. (b) the domestic financing of such contracts; or (c) any order, judgment, or arbitral award related to sub-subparagraph (a) or (b). Returns that are invested shall be treated as investments. Any alteration of the form in which assets are invested or reinvested does not affect their qualification as investment;
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investor means a Party, a natural person or an enterprise of a Party, other than a branch or a representative office, that seeks to make, is making or has made an investment in the territory of the other Party; For the purposes of this definition, an enterprise of a Party is: (a) an enterprise that is constituted or organised under the laws of that Party and has substantial business activities in the territory of that Party; or (b) an enterprise that is constituted or organised under the laws of that Party and is directly or indirectly owned or controlled by a natural person of that Party or by an enterprise mentioned under paragraph (a); locally established enterprise means a juridical person that is constituted or organised under the laws of the respondent and that an investor of the other Party owns or controls directly or indirectly; natural person means: (a) in the case of Canada, a natural person who is a citizen or permanent resident of Canada; and (b) in the case of the EU Party, a natural person having the nationality of one of the Member States of the European Union according to their respective laws, and, for Latvia, also a natural person permanently residing in the Republic of Latvia who is not a citizen of the Republic of Latvia or any other state but who is entitled, under laws and regulations of the Republic of Latvia, to receive a non-citizen's passport. A natural person who is a citizen of Canada and has the nationality of one of the Member States of the European Union is deemed to be exclusively a natural person of the Party of his or her dominant and effective nationality. A natural person who has the nationality of one of the Member States of the European Union or is a citizen of Canada, and is also a permanent resident of the other Party, is deemed to be exclusively a natural person of the Party of his or her nationality or citizenship, as applicable; New York Convention means the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, done at New York on 10 June 1958; non-disputing Party means Canada, if the European Union or a Member State of the European Union is the respondent, or the European Union, if Canada is the respondent; respondent means Canada or, in the case of the European Union, either the Member State of the European Union or the European Union pursuant to Article 8.21; returns means all amounts yielded by an investment or reinvestment, including profits, royalties and interest or other fees and payments in kind; selling and marketing of air transport services means opportunities for the air carrier concerned to sell and market freely its air transport services including all aspects of marketing such as market research, advertising and distribution, but does not include the pricing of air transport services or the applicable conditions; third party funding means any funding provided by a natural or legal person who is not a disputing party but who enters into an agreement with a disputing party in
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Definitions
order to finance part or all of the cost of the proceedings either through a donation or grant, or in return for remuneration dependent on the outcome of the dispute; Tribunal means the tribunal established under Article 8.27; UNCITRAL Arbitration Rules means the arbitration rules of the United Nations Commission on International Trade Law; and UNCITRAL Transparency Rules means the UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration; Bibliography: Ruwantissa Abeyratne, Aviation Trends in the New Millenium (Routledge, Oxon 2001); Ruwantissa Abeyratne, Emergent Commercial Trends and Aviation Safety (Routledge, Oxon 2018); Nicholas Angelet, ‘CETA and the Debate on the Reform of the Investment Regime’ in Makane Moïse Mbengue and Stefanie Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (Springer Nature Switzerland, Cham 2019), 1; Thierry Ausburger, ‘Article 7. Exceptions to transparency’ in Dimitrij Euler, Markus Gehring and Maxi Scherer (eds), Transparency in International Investment Arbitration: A Guide to the UNCITRAL Rules on Transparency in Treaty-Based Investor-State Arbitration (Cambridge University Press, Cambridge 2015), 249; Cyrus Benson, Penny Madden and Ceyda Knoebel, Covered Investment (Gibson, Dunn & Crutcher LLP); Lars Bergman, Chris Doyle, Damien Neven and Lars-Hendrik Röller, ‘The Economic Characteristics of Network Industries’ in Romesh Vaitilingam (ed), Europe's Network Industries: Conflicting Priorities: Telecommunications (CEPR, London 1998), 19; Nathalie Bernasconi-Osterwalder, ‘Reply to the European Commission’s Public Consultation on Investment Protection and Investor-to-State Dispute Settlement (ISDS) in the Transatlantic Trade and Investment Partnership Agreement (TTIP)’, IISD Report, June 2014; Jan Bischoff and Matthias Wühler, ‘The Notion of Investment’ in Makane Moïse Mbengue and Stefanie Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (Springer Nature Switzerland, Cham 2019), 19; Andrea Bjorklund and Lukas Vanhonnaeker ‘National Treatment’ in Makane Moïse Mbengue and Stefanie Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (Springer Nature Switzerland, Cham 2019), 45; Marc Bungenberg and Fabian Blandfort, ‘International Investment Law and Public Procurement: An Overview’, in Katia Fach Gómez, Anastasios Gourgourinis and Catharine Titi (eds), International Investment Law and Competition Law (Springer Switzerland, Cham 2020), 25; Marc Bungenberg and Anna Holzer, ‘Potential Enforcement Mechanisms for Decisions of a Multilateral Investment Court’ in Güneş Ünüvar, Joanna Lam and Shai Dothan (eds), Permanent Investment Courts – The European Experiment (Springer, Heidelberg 2020), 75; Peter Fuchs, ‘Investor-State-Dispute-Settlement’ in Scott Sinclair, Stuart Trew and Hadrian Mertins-Kirkwood (eds), Making Sense of the CETA – An Analysis of the Final Text of the Canada-European Union Comprehensive Economic and Trade Agreement (Canadian Centre for Policy Alternatives, September 2014), 13; Ellen Gould, ‘Public Service’, in Scott Sinclair, Stuart Trew and Hadrian Mertins-Kirkwood (eds), Making Sense of the CETA- An Analysis of the Final Text of the CanadaEuropean Union Comprehensive Economic and Trade Agreement (Canadian Centre for Policy Alternatives, September 2014), 35; Richard Happ, ‘The CETA-Tribunal: is it a court? Is it an arbitration tribunal? Is it something else? An analysis of a legal chimera’, in Martin Gebauer, Thomas Klötzel and Rolf Schütze (eds), Festschrift für Roderich C. Thümmel zum 65. Geburtstag am 23.10.2020 (De Gruyter, Berlin 2020), 297; Richard Happ and Sebastian Wuschka, ‘From the Jay Treaty Commissions Towards a Multilateral Investment Court: Addressing the Enforcement Dilemma’ (2017) 6(1) Indian J. Arb. L., 113; Alexander Hoffman, Gewerbliche Prozessfinanzierung in internationalen Investitionsschiedsverfahren (Nomos, BadenBaden 2018); Alexander Klint, ‘Article 6. Hearings’ in Dimitrij Euler, Markus Gehring and Maxi Scherer (eds) Transparency in International Investment Arbitration: A Guide to the UNCITRAL Rules on Transparency in Treaty-Based Investor-State Arbitration (Cambridge University Press, Cambridge 2015), 227; Csaba Kovács, Attribution in International Investment Law (Wolters Kluwer, The Netherlands 2018); Vivian Kube, EU Human Rights, International Investment Law and Participation (Springer, Heidelberg 2019) 147; Chin Lim, Jean Ho and Martins Paparinskis, International Investment Law and Arbitration: Commentary, Awards and other materials (Cambridge University Press, Cambridge 2018); Felicia Maxim, ‘Attribution of Conduct to a State – The Subjective Element of The International Responsibility of the State For Internationally Wrongful Acts’ (2012) 2 Challenges of the Knowledge Society, 1084; Michael Meehan, ‘Airline Site-Backed study attacks Reservation Fees’ (2001) 35 Computer World, 77; Makane Moïse Mbengue and Mohamed Negm, ‘An African View on the CETA Investment Chapter’ in Makane Moïse Mbengue and Stefanie Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (Springer Nature Switzerland, Cham 2019), 239; Cameron Miles, ‘Corruption, Jurisdiction and Admissibility in International Investment Claims’ (2012) 3(2) J. Int. Disp. Settle-
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Definitions
ment, 329; Sumangal Narendra, ‘General Agreement on Trade in Services and Aviation Ground Handling Services – A Theoretical Perspective’ (2014) 16(4) IOSR-JBM, 36; Lisa Nieuwveld and Victoria Sahani, Third-Party Funding in International Arbitration (Wolters Kluwer, The Netherlands, 2 nd edn, 2017); Luca Pantaleo, The Participation of the EU in International Dispute Settlement (T.M.C Asser Press, The Hague 2019); August Reinisch, ‘Will the EU’s Proposal Concerning an Investment Court System for CETA and TTIP Lead to Enforceable Awards? – The Limits of Modifying the ICSID Convention and the Nature of Investment Arbitration’ (2016) 19(4) J. Int. Econ. L., 761; Jeswald Salacuse, The Law of Investment Treaties (2nd edn, Oxford University Press, Oxford 2015); Engela Schlemmer, ‘Investment, Investor, Nationality and Shareholders’, in Peter Muchlinski, Federico Ortino and Christoph Schreuer (eds), The Oxford Handbook of International Investment Law (Oxford University Press, Oxford 2008), 49; Christoph Schreuer, The ICSID Convention: A Commentary (2nd edn, Cambridge University Press, Cambridge 2009); Anna Tomová and Ivana Kirschnerová, ‘The Players in Airport Ground Handling: A new typology reflecting the International Expansion’ (2015) 119, Ekonomiczne Problemy Usług, Nr. 145; Eva Paloma Treves, ‘Investment Treaty Arbitration: Dual Nationals are now Welcome: A way out of ICSID’s Dual Nationality Exclusion’ (2017) 49 NYU JILP, 607; Gus Van Harten, ‘Comments on the European Commission’s Approach to Investor-State Arbitration in TTIP and CETA’ (2014) 10 Osgoode Hall Law School Legal Studies Research Paper Series, 8. A. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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B. Spirit and Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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C. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7
D. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 I. Activities Carried out in Exercise of Governmental Authority . . . . . . . . . . . . 11 1. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 2. Use of the Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 3. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 a) Activities Seen as Exercise of Governmental Authority . . . . . . . . . . . . . . . . 25 b) Activities not Seen as Exercise of Governmental Authority . . . . . . . . . . . . 34 c) Understanding of the Meaning of the Exercise of Governmental Authority under other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 II. Aircraft Repair and Maintenance Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 1. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 2. Use of the term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 3. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 III. Airport operation services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 1. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 2. Use of the Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 3. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 IV. Attachment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 1. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 2. Use of the Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 3. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 V. Computer Reservation System Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 1. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 2. Use of the Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 3. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 VI. Confidential or protected information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 1. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 2. Use of the Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 3. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 VII. Covered investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 1. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 2. Use of the Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 3. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 a) In its Territory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103 b) Made in Accordance with the Applicable Law at the Time the Investment is Made . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106 c) Directly or Indirectly Owned or Controlled by an Investor of the Other Party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
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Art. 8.1
Definitions
d) Existing on the Date of Entry into Force of this Agreement, or Made or Acquired thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VIII. Disputing Party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Use of the Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IX. Enjoin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Use of the Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . X. Enterprise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Use of the Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a) Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . b) Private or Government Ownership or Control . . . . . . . . . . . . . . . . . . . . . . . . . c) Whether for or not for Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . d) The Type of Entity: Constituted or Organised . . . . . . . . . . . . . . . . . . . . . . . . . . e) Inclusion of Branch or Representative Office . . . . . . . . . . . . . . . . . . . . . . . . . . . XI. Ground handling services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Use of the Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XII. ICSID . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Use of the Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XIII. ICSID Additional Facility Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Use of the Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XIV. ICSID Convention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Use of the term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XV. Intellectual Property Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Use of the Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XVI. Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Use of the Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a) Every Kind of Asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . b) That an Investor Owns or Controls, Directly or Indirectly . . . . . . . . . . . . . c) Characteristics of an Investment includes in it a Certain Duration and Other Characteristics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . d) Forms that an Investment May Take Include … . . . . . . . . . . . . . . . . . . . . . . . aa) Definition of investment under the ICSID Convention . . . . . . . . . . . bb) The Salini Test . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . cc) Beyond the Salini Test . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XVII. Investor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Use of the Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a) Party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . b) A Natural Person of a Party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . c) Enterprise of a Party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . d) Exclusion of Branch or Representative Office . . . . . . . . . . . . . . . . . . . . . . . . . . e) Making or Has Made an Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XVIII. Locally Established Enterprise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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113 115 116 118 119 122 123 124 125 128 129 131 138 140 141 144 145 146 149 150 152 155 159 160 161 163 169 170 171 172 176 177 178 179 184 185 189 192 194 195 198 201 202 204 208 209 210 214 217 222 223 227 228 230 233 234 242 245 247 248
Art. 8.1
Definitions 2. Use of the Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a) Juridical Person Constituted or Organised under the Laws of the Respondent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . b) Ownership or Control Directly or Indirectly . . . . . . . . . . . . . . . . . . . . . . . . . . . XIX. Natural Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Use of the Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XX. New York Convention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Use of the Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XXI. Non-Disputing Party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Use of the Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XXII. Respondent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Use of the Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XXIII. Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Use of the Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XXIV. Selling and marketing of Air Transport Services . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Use of the Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XXV. Third Party Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Use of the Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XXVI. Tribunal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Use of the term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XXVII. UNCITRAL Arbitration Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Use of the Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XXVIII. UNCITRAL Transparency Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Use of the Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
249 250 255 257 266 267 268 270 276 277 278 279 281 282 283 284 289 290 293 294 297 298 299 300 302 303 305 307 310 311 312 313 318 319 320 321 325 326 327 328 332 333 334 335
The definitions for the purpose of Chapter 8 are covered under this article. Individ- 1 ual terms are mentioned and discussed below.
A. Introduction The term ‘definition’ refers to ‘the meaning of a term as explicitly stated in a drafted 2 document such as a contract, a corporate by law, an ordinance, or a statute’. 1 Keeping this in mind, the definitions to the Investment Chapter (Chapter 8) of the CETA help to understand the meaning and context of these terms when they are used in the chapter. 1
Garner (ed), Black’s Law Dictionary 8th ed. (2004), 1281.
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While a number of terms used in the chapter are already covered through the general definitions for the CETA in Article 1.1, more specific investment related terms have been defined in Article 8.1 as they are relevant or applicable for this particular chapter. In one instance, the definition in Article 8.1 adds to the definition of the same term in Article 1.1 (→ mn. 128 ff.). 4 The presence of the definitions is to enhance a specific position and to help lay down and identify the correct meaning and serve as concepts throughout Chapter 8 of CETA. 5 This commentary to Article 8.1 CETA will analyse the listed terms, and it will also state where in Chapter 8 the specific term is used. 3
B. Spirit and Purpose 6
A number of the terms which are defined under Article 8.1 relate to the subject of general/ investment dispute resolution (inter alia disputing Party(ies), non-disputing Party etc.) and others which are applicable specifically for the process (inter alia ICSID Additional Facility Rules, New York Convention, respondent, tribunal, UNCITRAL Arbitration Rules etc.). There are however a number of terms which could be potentially relevant for other issues (inter alia activities carried out in the exercise of governmental authority, airport operation services, enterprise, selling and marketing of air transport service etc.). The chapeau of Article 8.1 however clarifies that the definitions mentioned therein are applicable for Chapter 8 only. As such, a few terms mentioned in Article 8.1 are defined again in another chapter where they are used. 2
C. Drafting History There were at least seven known Draft versions of CETA before it was finalised. The first version came into existence on 13 January 2010, second version in January 2011, third in February 2012, fourth on 15 November 2013 and the fifth version followed in the same month on 21 November. The sixth version came into existence on 4 February 2014 and the seventh version on 1 August of the same year. 8 Some definitions were present almost verbatim in the initial Drafts of the agreement as in the final version and remained unchanged. While the text of some terms was updated and evolved with later Drafts, some terms and their definitions were not found in the initial versions and only added to the agreement in the later Drafts. A few definitions underwent major revisions in each version of the agreement, inter alia key elements were added after suggestion from either Canada or the European Union. The meaning of the terms have evolved with the versions. 9 Each of the terms have their own unique drafting history and they are discussed in detail with the respective terms below. 7
D. Commentary 10
The definitions of the terms mentioned in Article 8.1 are discussed individually below with coverage of their drafting history, usage in the chapter and the commentary for the terms. 2 See inter alia, definitions of ‘aircraft repair and maintenance services’, ‘airport operation services’ and ‘computer reservation system services’ in Article 9.1 where they are used for Chapter 9.
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I. Activities Carried out in Exercise of Governmental Authority The definition in the agreement is: ‘Activities carried out in exercise of govern- 11 mental authority means activities carried out neither on a commercial basis nor in competition with one or more economic operators’.
1. Drafting History The earliest available Draft of the CETA text which dates back to 13 January 2010 12 did not contain this term. Activities carried out in exercise of governmental authority were not defined nor mentioned in this consolidated Draft. The term made an appearance in the treaty’s Draft consolidated text of January 2011 and February 2012. The text of what is now the definition of Activities carried out in exercise of governmental authority was present, almost verbatim, as an exception, in the definition of economic activity. The text read ‘economic activity’ includes any activities of an economic nature except activities carried out in the exercise of governmental authority, i.e. activities carried out neither on a commercial basis nor in competition with one or more economic operators. Activities carried out in exercise of governmental authority was included in the Definitions section in the Draft of 21 November 2013 where the text remained the same as in the earlier drafts. The definition remained virtually unchanged in the draft of 1 August 2014.
2. Use of the Term The term Activities carried out in exercise of governmental authority is solely utilised 13 in Article 8.2(2)(b) of Chapter 8 (Investment) of CETA in the context of an activity which is outside the scope of Section B and C of the CETA.
3. Commentary As per the agreement, a Party may maintain measures with respect to the establish- 14 ment or acquisition of a covered investment and continue to apply such measures to the covered investment after it has been established or acquired. But Article 8.2 CETA restricts the scope of the agreement, because measures relating to activities carried out in exercise of governmental authority are kept out of the purview of Section B, which states the provisions of Establishment of investments and Section C, which mentions the provisions related to non-discriminatory treatment under CETA. This definition is linked to Article 8.2(2)(b) CETA, which states that Section B 15 (Establishment of investments) and Section C (Non-discriminatory treatment) would not be applicable to activities carried out in exercise of governmental authority. The EU Commission has confirmed that its understanding of the term ‘Activities 16 carried out in exercise of governmental authority’ as included in EU FTAs originates from Article 1(3)(b) and (c) of the GATS.3 The meaning of services supplied in the exercise of governmental authority in GATS as well in the EU FTAs is commonly in-
3 Parliamentary Questions, Question reference: E-002278/2015, 26 March 2015, Answer given by Ms Malmström on behalf of the Commission; Bischoff and Wuhler, ‘The notion of investment’ in Mbengue and Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (2019), 19 (22); Gould, ‘Public Services’ in Sinclair et al. (eds), Making Sense of the CETA – An Analysis of the Final Text of the Canada-European Union Comprehensive Economic and Trade Agreement, Canadian Centre for Policy Alternatives (2014), 35 (37).
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terpreted with a very narrow meaning and is linked to core sovereign functions. 4 This means that services which are provided on a commercial basis and in competition with one or more suppliers are excluded.5 17 The generally accepted closed interpretation for the GATS is also carried over to the definition provided in the CETA.6 Under this interpretation, activities such as investments in the school education sector, e.g. public schools might not be covered under the purview of exemption based on ‘exercise of governmental authority’ since private schools compete with public schools.7 Already in the past, the CJEU had determined that establishing private schools does not fall into the ambit of exercise of ‘official authority’.8 This has led to a debate on whether the exemption in the CETA is wide enough for states to continue to provide services of general interest. 9 18 As provided under Article 4 of the Articles on Responsibility of States for Internationally Wrongful Acts (‘Draft Articles’)10 which are frequently used as guidelines to determine the attributability of an act to the state in investment law, 11 ‘the conduct of any State organ shall be considered an act of that State under international law, whether the organ exercises legislative, executive, judicial or any other functions.’ The wide language of Article 4 means that irrespective of the system of division of power in a state, the exercise of legislative, executive, judicial or any other state function can be covered as an exercise of governmental authority.12 Within the Draft Articles, the meaning of the term governmental authority has been frequently linked by tribunals to conduct of a state agency or private entity who are acting on behalf of a state as covered under Article 5 of the Draft Articles which states that: The conduct of a person or entity which is not an organ of the State under article 4 but which is empowered by the law of that State to exercise elements of the governmental authority shall be considered an act of the State under international law, provided the person or entity is acting in that capacity in the particular instance.
4 Krajewski, Model Clauses for the Exclusion of Public Services from Trade and Investment Agreements, available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2892522; Bischoff and Wuhler, ‘The notion of investment’ in Mbengue and Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA), 19 (22); Ministry of Employment and Investment, British Colombia, GATS and Public Service Systems, https://www.iatp.org/sites/default/files/GATS_and_Public_ Service_Systems.htm. 5 Parliamentary Questions, Question reference: E-002278/2015, 26 March 2015, Answer given by Ms Malmström on behalf of the Commission; Krajewski, Model Clauses for the Exclusion of Public Services from Trade and Investment Agreements, available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id =2892522. 6 Gould, ‘Public Services’ in Sinclair et al. (eds), Making Sense of the CETA – An Analysis of the Final Text of the Canada-European Union Comprehensive Economic and Trade Agreement, Canadian Centre for Policy Alternatives (2014), 35 (37). 7 Schwartz and Schwartz, Public Private Partnerships and Trade Agreements: Why open already open subnational markets?, Paper presented at ICPP 4 Montreal, 2019, 7, available at https://www.ippapublicp olicy.org/file/paper/5cfbe605d5bbb.pdf. 8 CJEU, Case 147/86, 15.3.1988, Commission of the European Communities v Hellenic Republic, ECLI:EU:C:1988:150, para. 9. 9 Bischoff and Wuhler, ‘The notion of investment’ in Mbengue and Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (2019), 19 (22). 10 ICSID, Practice Notes for Respondents in ICSID Arbitration (2015), p. 11; Annex to General Assembly Resolution 56/83 of 12 December 2001, UN Doc. A/RES/56/83 dated 28 January 2002. 11 Olleson, The Impact of the Ilc’s Articles on Responsibility of States for Internationally Wrongful Acts, BIICL (2007), 29. 12 Commentary to Article 4, Draft Articles on Responsibility of States for Internationally Wrongful Acts, with commentaries (2001), p. 41.
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According to the Commentary to Article 5 of the Draft Articles 13:
19
The generic term ‘entity’ reflects the wide variety of bodies which, though not organs, may be empowered by the law of a State to exercise elements of governmental authority. They may include public corporations, semipublic entities, public agencies of various kinds and even, in special cases, private companies, provided that in each case the entity is empowered by the law of the State to exercise functions of a public character normally exercised by State organs, and the conduct of the entity relates to the exercise of the governmental authority concerned.
The wide scope of bodies which can exercise governmental authority is further 20 merged with the possibility of wide interpretation of the ‘scope of governmental authority.’ Whether an entity is performing an activity within the scope of ‘governmental authority’ would be determined based on the society, history and traditions of a country and is precisely determined by the internal law of the country. 14 However, there may be exceptional cases where an entity may be categorised as an organ of the state in international law even without such a designation in domestic law. 15 Whether an entity is public or private, or if assets are owned by the state is not important, but the determining factor is that the entities exert elements of governmental authority. 16 Therefore, it is crucial that a connection is established between the entities, activities performed and the exercise of governmental authority.17 21 In the case of Eureko BV v. Poland, the arbitral tribunal observed that: [t]he principles of attribution are cumulative so as to embrace not only the conduct of any State organ but the conduct of a person or entity which is not an organ of the State but which is empowered by the law of that State to exercise elements of governmental authority. It embraces as well the conduct of a person or group of persons if he or it is, in fact, acting on the instructions of, or under the direction or control of, that State.18
The scope of exercise of governmental authority came up for consideration inter 22 alia in the dispute Saint Gobain v. Venezuela wherein the tribunal determined that governmental authority may also be vested with non-state entities. 19 The key test in this regard is the nature of activities performed by the entities. 20 This means that an entity such as an University may have the power to exercise governmental authority but may also be acting in purely commercial capacity in certain situations such as
13 Article 5, Draft Articles on Responsibility of States for Internationally Wrongful Acts is as follows: ‘Conduct of persons or entities exercising elements of governmental authority: The conduct of a person or entity which is not an organ of the State under article but which is empowered by the law of that State to exercise elements of the governmental authority shall be considered an act of the State under international law, provided the person or entity is acting in that capacity in the particular instance.’ 14 Commentary to Article 5, Draft Articles on Responsibility of States for Internationally Wrongful Acts, with commentaries (2001), p. 43; Jan de Nul N.V. Dredging International N.V. v. Arab Republic of Egypt, ICSID Case No. ARB/04/13, Award (6 November 2008), para. 160. 15 Taur Eiendom AS, EBO Invest AS and Rox Holding AS v. Republic of Latvia, ICSID Case No. ARB/16/38, Award (28 February 2020), para. 313. 16 Maxim, ‘Attribution of Conduct to a State – The Subjective Element of The International Responsibility of the State For Internationally Wrongful Acts’ (2012) 2 Challenges of the Knowledge Society, 1084 (1088). 17 Maxim, ‘Attribution of Conduct to a State – The Subjective Element of The International Responsibility of the State For Internationally Wrongful Acts’ (2012) 2 Challenges of the Knowledge Society, 1084 (1088 f.). 18 Eureko BV v Republic of Poland, Partial Award (19 August 2005), para. 132. 19 Saint Gobain Performance Plastics Europe v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/12/13, Decision on Liability and the Principles of Quantum (30 December 2016), para. 460. 20 Kovács, Attribution in International Investment Law (2018), Chapter 4.
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while entering into a contract for securing commercial benefits, in which case it would not be an act in exercise of governmental authority.21 23 The acts of persons or entities that are empowered to exercise elements of governmental authority are considered as act of a state even when they exceed authority or contravene instructions.22 However, according to the Commentary to Article 7 of the Draft Articles, such conduct cannot be attributed to the state ‘where the conduct is so removed from the scope of their official functions that it should be assimilated to that of private individuals, not attributable to the State’. Considering that acceptance of bribes cannot be considered to be in the interest of government since it only involves benefiting an official and the bribe-giver, it cannot be considered as an act ‘cloaked with governmental authority’.23 In the Yeager v. Iran case, an act of an official of a state owned airline official to demand a bribe was not attributed to the state and the tribunal determined that it might be attributable to the state or the airline only if appropriate evidence was furnished that the act was expressly or tacitly approved or the airline failed to exercise appropriate control.24 24 This attributability of actions to the state is particularly crucial in evaluating the conduct of entities that are engaged by the government to undertake expropriation of assets. a) Activities Seen as Exercise of Governmental Authority Investor-state arbitral tribunals have determined the following activities to be an exercise of governmental authority: 26 In the Yeager v. Iran case, the Tribunal held the activities of a new group of armed defence force called ‘Revolutionary Guards’ to be attributable to the state even though they were not officially ‘recognized by decree’ on the date of their acts. 25 27 In the Hamester case, the tribunal determined that a duty ‘to regulate the marketing and export of cocoa, coffee and sheanuts; to encourage the development of all aspects of cocoa production and transformation; and to fight diseases of cocoa beans’ along with the power to issue and revoke licenses and issue penalties in case the licensing conditions are violated, all fall within the exercise of governmental authority. 26 28 The tribunal in the much-discussed Maffezini case also determined that activities such as ‘undertaking of studies for the introduction of new industries … seeking and soliciting such new industries, investing in new enterprises, processing loan applications with official sources of financing, providing guarantees for such loans, and providing technical assistance’ and ‘providing subsidies and offering other inducements for the development of industries’ are ‘by their very nature typically governmental 25
21 Bosh International, Inc and B&P Ltd Foreign Investments Enterprise v. Ukraine, ICSID Case No. ARB/08/11, Award (25 October 2012), paras. 173 and 177. 22 Article 7, Draft Articles on State Responsibility. 23 Greenwald, ‘The Viability of Corruption Defenses in Investment Arbitration When the State Does Not Prosecute’, 15 April 2015, EJIL:Talk, available at: https://www.ejiltalk.org/the-viability-of-corruptio n-defenses-in-investment-arbitration-when-the-state-does-not-prosecute/. 24 Kenneth P. Yeager v. The Islamic Republic of Iran, Iran-US CTR Case No. 10199, Award No. 324-10199-1 (2 November 1987), paras. 65 f. 25 Kenneth P. Yeager v. The Islamic Republic of Iran, Iran-US CTR Case No. 10199, Award No. 324-10199-1 (2 November 1987), para 44. 26 Gustav F W Hamester GmbH & Co KG v. Republic of Ghana, ICSID Case No. ARB/07/24, Award (18 June 2010), paras. 190–192.
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tasks, not usually carried out by private entities, and, therefore, cannot normally be considered to have a commercial nature’.27 In the Flemingo Duty Free case, the tribunal determined that a body entrusted with the power to modernise and operate airports can be held liable for exercise of its powers and is exercising governmental authority.28 It further states that the activity of ‘operation and management of an international airport is an activity which is not usually carried out by private business’.29 The tribunal in UAB E “Energija” came to the conclusion that the functions of issuance of license and determination of tariff for energy supply are activities carried out in exercise of governmental authority.30 An agency formed in Croatia for the purpose of ‘issuing mandatory approvals for the transformation of social companies, organising and supervising the transformation of social companies, providing instructions for the implementation of the Law on the Transformation of Social Companies, and coordinating interests of all entities in Croatia related to foreign investment’ was found to be exercising elements of governmental authority.31 An entity formed for the management of the Suez Canal was held to be performing a state activity but the entity in itself was not held to be on organ of the state. 32 Canada has also accepted that the act of collecting customs duties is also an act carried out in exercise of governmental authority.33
29
30
31
32 33
b) Activities not Seen as Exercise of Governmental Authority Alternatively, the following activities have been determined to be outside the scope 34 of an act committed in exercise of governmental authority: In the Flughafen Zürich v. Venezuela34 dispute, the tribunal held that the claimant 35 was not exercising governmental authority even though it was a company, which had Swiss Cantonal governmental shareholding, since it was not acting on behalf of, or for the benefit of the Swiss Government. The tribunal held that management and operation of an airport was not ‘essentially governmental function’ because it does not fall within what the Tribunal described as a State’s ‘core non-delegable public activities’.35
27 Emilio Agustín Maffezini v. The Kingdom of Spain, ICSID Case No. ARB/97/7, Decision of the Tribunal on Objections to Jurisdiction (25 January 2000), para. 86. 28 Flemingo DutyFree Shop Private Limited v. Republic of Poland, UNCITRAL, Award (12 August 2016), para. 439. 29 Flemingo DutyFree Shop Private Limited v. Republic of Poland, UNCITRAL, Award (12 August 2016), para. 428. 30 UAB E Energija (Lithuania) v. Republic of Latvia, ICSID Case No. ARB/12/33, Award (22 December 2017), para. 809. 31 Gavrilovic and Gavrilovic d.o.o. v. Republic of Croatia, ICSID Case No. ARB/12/39, Award (26 July 2018), paras. 809–811. 32 Jan de Nul N.V. Dredging International N.V. v. Arab Republic of Egypt, ICSID Case No. ARB/04/13, Award (6 November 2008), paras. 161–612. 33 United Parcel Service of America Inc. v. Government of Canada, ICSID Case No. UNCT/02/1, Award on Merits (24 May 2007), para. 77. 34 Flughafen Zürich A.G. and Gestión e Ingenería IDC S.A. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/10/19. 35 HSF Notes, Flughafen Zürich A.G. and Gestión e Ingenería IDC S.A. v. Bolivarian Republic of Venezuela: when may an entity be considered a ‘governmental instrumentality’? (15 March 2020).
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The tribunal in the Staur Eiendom case also broadly came to a similar conclusion and determined that it needs to be specifically determined that an airport has to be conferred with special powers to act in governmental authority.36 37 The tribunal in Kristian Almås and Geir Almås determined that the power to lease agricultural land under a contract is not a governmental function.37 36
c) Understanding of the Meaning of the Exercise of Governmental Authority under other Agreements The CJEU has considered the meaning of Article 55 of the EC Treaty (Article 62 TFEU), which deals with the exercise of ‘official authority’, taking a restrictive view. The Court determined that the condition of an activity to be connected with exercise of official authority is fulfilled only when the activities ‘taken on their own, constitute a direct and specific connexion with the exercise of official authority’. 38 As such, activities such as providing higher education services in exchange for remuneration may be considered as an economic activity and may not benefit from the exception provided to acts under official authority.39 39 The Commission had stated in its filing to the WTO in 1999 that ‘there are no examples in the European Court of Justice jurisprudence where the Court found that an activity would fall under the scope of Article 55 (EC Treaty)’. 40 However, activities which were found not to be in exercise of official authority include private security services,41 services by traffic accident experts42 and activities related to design, programming and operation of data processing systems.43 40 It is explained further in Clause 1(b) of the GATS Annex on Financial Services wherein it is defined further with relation to financial services and it is provided that: 38
services supplied in the exercise of governmental authority’ means the following: (i) (ii) (iii)
41
activities conducted by a central bank or monetary authority or by any other public entity in pursuit of monetary or exchange rate policies activities forming part of a statutory system of social security or public retirement plans; and other activities conducted by a public entity for the account or with the guarantee or using the financial resources of the Government.
Moving ahead, Paragraph 1(c) of the same Annex of the GATS is related to the linkage of this definition with competition and provides that: For the purposes of subparagraph 3(b) of Article I of the Agreement, if a Member allows any of the activities referred to in subparagraphs (b) (ii) or (b) (iii) of this paragraph to be conducted 36 Taur Eiendom AS, EBO Invest AS and Rox Holding AS v. Republic of Latvia, ICSID Case No. ARB/16/38, Award (28 February 2020), para. 342. 37 Kristian Almås and Geir Almås v. Republic of Poland, PCA Case No. 2015-13, Award (27 June 2016), para. 212. 38 CJEU, Case 2/74, 21.6.1974, Jean Reyners v Belgian State, ECLI:EU:C:1974:68. 39 CJEU, Case C-66/18, 6.10.2020, European Commission v Hungary, ECLI:EU:C:2020:792, para. 160. 40 Joint Communication from the Parties, The European Communites-Hungary Europe Agreement, Services; The European Communities-Poland Europe Agreement, Services; and The European Communities-Slovak Republic Europe Agreement, Services, WT/REG50/2/Add.3 WT/REG51/2/Add.3 WT/ REG52/2/Add.3, 19 May 1999, p. 2. 41 CJEU, Case C-114/97, 29.10.1998, Commission of the European Communities v. Kingdom of Spain, ECLI:EU:C:1998:519, para. 39. 42 CJEU, Case C-306/89, 10.12.1991, Commission of the European Communities v. Hellenic Republic, ECLI:EU:C:1991:463, para. 7. 43 CJEU, Case C-3/88, 5.12.1989, Commission of the European Communities v. Italian Republic, ECLI:EU:C:1989:606, para. 13.
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by its financial service suppliers in competition with a public entity or a financial service supplier, ‘services’ shall include such activities.
Definitions and explanations which are used in the Annex of the GATS may not 42 be directly linked to the provision under Article 8.1 CETA since its provisions do not apply to the Chapter on Financial Services (Chapter Thirteen) of the CETA which is more likely to be closely connected to the GATS Annex on Financial Services. Nevertheless this definition and explanation can serve as an orientation also under Article 8.1 CETA. The ‘governmental authority exemption’ in the GATS came up for discussion in 43 the Appellate Body (AB) where it was indirectly indicated that the AB supports a narrow reading of the exception.44 However, in the absence of a detailed analysis by the WTO Dispute Settlement Body (DSB), a definitive interpretation of the provision and whether it should be considered narrowly or broadly is still debatable.45
II. Aircraft Repair and Maintenance Services The definition in the agreement is: ‘Aircraft Repair and Maintenance Services 44 means activities undertaken on an aircraft or a part of an aircraft while it is withdrawn from service and do not include so-called line maintenance’.
1. Drafting History The text of what is now the definition of Aircraft Repair and Maintenance Services 45 was already present in the first known consolidated draft of the CETA (i.e. of 13 January 2010) and it was defined in a manner, which resembles the final version. The text read, ‘aircraft repair and maintenance services mean such activities when undertaken on an aircraft or a part thereof while it is withdrawn from service and do not include so-called line maintenance’. It remained virtually unchanged in the draft of 21 November 2013, and the final Draft of 1 August 2014. Only some grammatical changes were introduced in the final text of CETA.
2. Use of the term Aircraft Repair and Maintenance Services is defined and mentioned in Chapter 8 46 – Investment. Further it finds mention in the chapter on Cross-Border Trade in Services (Chapter 9) and is utilised in Article 9.2(2)(e) as one of the situations where protections under that Chapter are available. The term finds mention in reservations listed within two annexes to the agreement (Annex I and Annex II) under Reservation I-C-21 and Reservation II-C-17, applicable in all Provinces and Territories of Canada.
3. Commentary The CJEU in Opinion 2/15 (Singapore Opinion) determined that the subject of 47 Aircraft Repair and Maintenance Services falls within the ambit of the Common Commercial Policy (Article 207(1) TFEU) and the European Commission has the exclusive competence to sign international agreements on this issue. 46 44 WTO AB, European Communities – Regime for the Importation, Sale and Distribution of Bananas, Appellate Body Report, WT/DS27/AB/R, 9 September 1997, paras. 219–220. 45 Ministry of Employment and Investment, British Colombia, GATS and Public Service Systems, https://www.iatp.org/sites/default/files/GATS_and_Public_Service_Systems.htm. 46 CJEU, Opinion 2/15, 16.5.2016, ECLI:EU:C:2017:376, paras. 64–68.
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The definition is identical with the definition of the same phrase in the AustraliaHong Kong Free Trade Agreement.47 This definition is also largely similar (CETA excludes the word ‘such’) to the definition of the phrase under the Annex on Air Transport Services of the GATS which under Paragraph 6(a) provides that: ‘“Aircraft repair and maintenance services” mean such activities when undertaken on an aircraft or a part thereof while it is withdrawn from service and do not include so-called line maintenance’. 49 The Background note by the WTO Secretariat on Air Transport Services provides an insight into the scope of services covered by this clause.48 The note states that the definition corresponds to the technical term in the industry called ‘maintenance, repair and overhaul’ (MRO).49 The same document states that the market for MRO is divided into four segments: Line maintenance, upkeep of components, upkeep of engines and heavy maintenance of airframes. Out of these segments, line maintenance is not covered by the CETA Investment Chapter. The airline companies are the key players in this market.50 48
III. Airport operation services The definition in the agreement is:
50
Airport operation services means the operation or management, on a fee or contract basis, of airport infrastructure, including terminals, runways, taxiways and aprons, parking facilities, and intra-airport transportation systems. For greater certainty, airport operation services do not include the ownership of, or investment in, airports or airport lands, or any of the functions carried out by a board of directors. Airport operation services do not include air navigation services.
1. Drafting History The earliest available Draft of CETA of 13 January 2010 did not mention or define Airport operation services. In the Draft of January 2011, airport operation services were mentioned and included in the scope of Investment/Establishment and in the Cross-Border Supply of Services. 52 The draft CETA Investment Chapter text of 21 November 2013 defined Airport Operation Services as: 51
the operation and management [including the development, planning and oversight], on a fee or contract basis, of airport infrastructure, including terminals, runways, taxiways and aprons, parking facilities, and intra-airport transportation systems. For greater certainty, Airport Operation Services do not include the ownership of, or investment in, airports or airport lands, or any of the functions carried out by a board of directors. Airport Operation Services do not include Air Navigation Services.
53
The same definition in the final Draft of 1 August 2014 removed the words ‘including the development, planning and oversight’, from operation and management of the airport operation services. The rest of the definition remained the same.
Article 7.1, Australia-Hong Kong Free Trade Agreement, 2019. WTO, Council for Trade in Services, Air Transport Services, Background Note by the Secretariat, S/C/W/59, 5 November 1998. 49 WTO, Council for Trade in Services, Air Transport Services, Background Note by the Secretariat, S/C/W/59, 5 November 1998, p. 2. 50 WTO, Council for Trade in Services, Air Transport Services, Background Note by the Secretariat, S/C/W/59, 5 November 1998, p. 3. 47
48
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2. Use of the Term Airport operation service is defined and mentioned in Chapter 8 – Investment, 54 where it is further used in Article 8.2(2)(a) as one of the provisions where safeguards provided under Section B (Establishment of investments) and Section C (Non-discriminatory treatment) are available for establishment or acquisition of a covered investment. It is further defined in Article 9.1 of Chapter 9 (Cross-Border Trade in Services) 55 and is used in Article 9.2(2)(e) as one of the situations where protections under the Chapter are available. The term finds further usage within Annex I (Reservation for existing measures and liberalisation commitments) where it is: (a) Included in the Schedule of the European Union Reservations for investment and cross-border trade in services in the transport sector, and (b) Within Reservations applicable in Poland for Investment in the transport sector.
3. Commentary The definition of ‘airport operation services’ in the CETA is not seen in another 56 trade agreement, although Section 68 of the Civil Aviation Act, 2012 of the UK and Chapter 7, Article 1 of the PACER Plus Agreement (yet to come into force) contain limited parts of the definition. Whether airport operation services are also covered by the GATS is not clear.51 The CETA chapter on investment disputes will cover disputes on Airport Operations Services as an exception which can be protected under Section B – Establishment of investments (market access and performance requirements) and Section C – Non-discriminatory treatment (national treatment, most-favoured-nation treatment, senior management and board of directors) of the Agreement. 52 A number of important investor state arbitration disputes have dealt with the 57 subject of airport operation services mostly as a part of a Build-Operate-Transfer (BOT) Contract.53 Notable among them are Fraport v. Philippines,54 Malicorp Ltd. v. Egypt,55 and Flughafen Zürich v. Venezuela.56
IV. Attachment The definition in the agreement is: ‘Attachment means the seizure of property of a 58 disputing party to secure or ensure the satisfaction of an award’.
1. Drafting History The definition of the term ‘attachment’ was first seen in the Chapter on Investor- 59 to-State Dispute Settlement Text in the Draft of 15 November 2013. It stated that attachment ‘means the seizure of the property of a disputing party to secure or ensure 51 WTO, Council for Trade in Services, Air Transport Services, Background Note by the Secretariat, S/C/W/59, 5 November 1998, p. 17. 52 Article 8.2 (2)(a) CETA. 53 Lim et al., International Investment Law and Arbitration: Commentary, Awards and other materials (2018), 54. 54 Fraport AG Frankfurt Airport Services Worldwide v. The Republic of the Philippines, ICSID Case No. ARB/03/25. 55 Malicorp Limited v. The Arab Republic of Egypt, ICSID Case No. ARB/08/18. 56 Flughafen Zürich A.G. and Gestión e Ingenería IDC S.A. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/10/19.
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the satisfaction of an award’. The definition remained unchanged in the later drafts of 4 February 2014, 1 August 2014 and in the final text of CETA.
2. Use of the Term 60
The term attachment is solely defined in Chapter 8 (Investment) of the CETA. Herein, the term finds use in the provision of interim measures of protection (Article 8.34).
3. Commentary The meaning of the term attachment is particularly crucial in common law in regard to immunity for foreign state assets. The meaning of the term ‘enforcement’ in English law merely refers to the ‘adjudicative jurisdiction’ of the court and a mere submission to jurisdiction of the arbitral tribunal may not amount to a waiver of immunity from attachment of the assets.57 However, in certain common law jurisdictions, submission to arbitration in general comprises an automatic waiver of immunity from attachment.58 62 Article 8.34 prohibits the tribunal from issuing an order for attachment in an interim order or recommendation. This provision provides clarity and could prevent future confusion in disputes under the CETA since the ability of arbitral tribunals to order attachment through provisional measures is doubtful if there is no explicit clarification in the investment agreement or chapter.59 Such a provision in an investment agreement – as in CETA – restricts the power of an arbitral tribunal to order attachment in interim measures even if no restrictions are present in the applicable arbitration rules since the treaty provisions are lex specialis on the issue. 60 63 In any case, an order of attachment against a state through an interim order would be highly contentious and a state may be immune to interim measures of attachment due to the principle of sovereign immunity unless it has expressly waived the requirement.61 61
V. Computer Reservation System Services 64
The definition in the agreement is: ‘Computer reservation system services means the supply of a service by computerised systems that contain information about air carriers' schedules, availability, fares and fare rules, through which reservations can be made or tickets may be issued.’
57 Lim et al., International Investment Law and Arbitration: Commentary, Awards and other materials (2018), 475. 58 Lim et al., International Investment Law and Arbitration: Commentary, Awards and other materials (2018), 465. 59 Lim et al., International Investment Law and Arbitration: Commentary, Awards and other materials (2018), 191. 60 EnCana Corporation v. Republic of Ecuador, LCIA Case No. UN 3481, Interim Award – Request for Interim Measures of Protection (31 January 2004), para. 10. 61 Liberian Eastern Timber Corporation v. Republic of Liberia, ICSID Case No. ARB/83/2, Order of the US District Court for District of Columbia (16 April 1987), para. 12; Lim et al., International Investment Law and Arbitration: Commentary, Awards and other materials (2018), 183.
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1. Drafting History The text of what is now the definition of computer reservation system services in 65 the CETA was already present, almost verbatim, in the treaty’s first known draft consolidated version of 13 January 2010. It read ‘computer reservation system services mean services supplied by computerised systems that contain information about air carriers' schedules, availability, fares and fare rules, through which reservations can be made or tickets may be issued.’ The text remained virtually unchanged in the Drafts of 21 November 2013 and 1 66 August 2014 except for a grammatical change of altering the definition from plural to singular.
2. Use of the Term Computer reservation system services is defined in Chapter 8 (Investment) and Chap- 67 ter 9 (Cross Border trade in services). The term is further referred to in Annex II Reservations applicable in Canada (Reservation II-C-17). In Chapter 8, it is further used in Article 8.2(2)(a) as one of the provisions where 68 safeguards provided under Section B (Establishment of investments) and Section C (Non-discriminatory treatment) are available for establishment or acquisition of a covered investment. In Chapter 9 it is used in Article 9.2(2)(e) as one of the situations where protections under the Chapter are available.
3. Commentary A computer reservation system (CRS) is eligible for protection under Section B 69 – Establishment of investments (market access and performance requirements) and Section C – Non-discriminatory treatment (national treatment, most-favoured-nation treatment, senior management and board of directors) during the process of establishment or acquisition of a covered investment, even though air services, or related services in support of air services and other services supplied by means of air transport are excluded.62 The definition of a CRS is similar to the definition provided for the same term 70 under Article 6(c) of the Annex on Air Transport Services for the GATS where it is a covered subject. A CRS enables the travel agencies to access airline schedules and fares, book 71 reservations and issue tickets for the airlines.63 CRS systems may also be used to book hotels, cars and other auxiliary services. Airlines are the major owners of CRS systems and earn revenues by providing booking facilities to the agents. 64 However, the definition does not exclude any non-airline owners from providing information about airline fares and schedules and hence they may also be able to design and operate CRS services.65 The revenue in CRS systems inter alia originates from: booking fees received by the owning airline or agency from other airlines utilising the system, the share of fee from travel agents utilising the system and share from revenues generated from other services provided through the CRS.66
Article 8.2 (2)(a) CETA. OECD, Trade in Services: Negotiating Issues and Approaches (2001), p. 76. 64 Abeyratne, Emergent Commercial Trends and Aviation Safety (2018), Chapter 4. 65 Abeyratne, Aviation Trends in the New Millenium (2001), Chapter 5. 66 US Department of Transportation, Study of Airline Computer Reservation Systems, DOT-P-37-88-2, May 1998, p. 42. 62
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The CRS industry has been described as an oligopoly and ‘the capital costs’ of creating such a system have been considered as a strong barrier to the entry of new players.67 The European Commission has considered that CRS contribute a major share of airline reservations and it is necessary to maintain effective competition in this market which led it to enact Regulation (EC) No 80/2009 to set the guidelines in this industry.68 73 Disputes may arise from preference granted to CRS systems owned by companies in the home country in comparison to CRS systems from a foreign investor and a resulting uneven playing field.69 72
VI. Confidential or protected information The definition in the agreement is:
74
Confidential or protected information means: (a) confidential business information; or (b) information which is protected against disclosure to the public; (i) in the case of information of the respondent, under the law of the respondent; (ii) in the case of other information, under a law or rules that the Tribunal determines to be applicable to the disclosure of such information.
1. Drafting History 75
Confidential or protected information was not defined in the earlier known Drafts of CETA of the year 2010, 2011 and 2012. The Draft of 15 November 2013 described that Confidential or protected information consists of: (a) Confidential business information; (b) Information which is protected against being made available to the public under the Agreement; (c) Information which is protected against being made available to the public, in the case of the information of the respondent, under the law of the respondent, and in the case of other information, under any law or rules determined to be applicable to the disclosure of such information by the arbitral tribunal.
The definition in this draft was elaborate and descriptive, while the next Draft of 21 November 2013 defined only confidential information, briefly and did not define protected information. It stated that ‘confidential information means confidential business information and information that is privileged or otherwise protected from disclosure under the law of a Party.’ 76 In the draft of 4th February 2014, the earlier definition in the 15th November 2013 draft was retained in its essence, with reorganisation of some words. It stated that Confidential or protected information means:
67 Bergman et al., ‘The Economic Characteristics of Network Industries’ in Vaitilingam (ed), Europe's Network Industries: Conflicting Priorities: Telecommunications (1998), 19 (23); Meehan, ‘Airline Site-Backed study attacks Reservation Fees’ (2001) 35(12) Computer World, 77. 68 Regulation (EC) No 80/2009 of the European Parliament and of the Council of 14 January 2009 on a Code of Conduct for computerised reservation systems and repealing Council Regulation (EEC) No 2299/89, OJ L 35/47. 69 USITC, The Effects of Greater Economic Integration Within the European Community on the United States, USITC Publication 2204, July 1989, p. 8–11.
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Definitions a) b)
confidential business information; information which is protected against being made available to the public, in the case of the information of the respondent, under the law of the respondent, and in the case of other information, under any law or rules determined to be applicable to the disclosure of such information by the tribunal.
In the next Draft of 1 August 2014, the text of the definition remained the same. 77 Though the final text of CETA retains the essence of the earlier draft but here the text has been organised more clearly and precisely. Unlike the previous drafts, the final CETA text uses the word ‘or’ between confi- 78 dential business information and information which is protected against disclosure to the public. The use of ‘or’ indicates the substitutive character of both business information and the information protected against disclosure to the public for the meaning of confidential or protected information.
2. Use of the Term Confidential or protected information has only been defined and mentioned in the 79 Investment Chapter of the CETA (Chapter 8). Confidential or protected information is included in a number of provisions of the Chapter, inter alia, Formal requirements (Article 8.17), Transparency of proceedings (Article 8.36), Information sharing (Article 8.37), Non-disputing Party (Article 8.38), and Consolidation (Article 8.43).
3. Commentary The definition of ‘confidential or protected information’ as provided in the CETA 80 closely resembles the definition provided under the UNCITRAL Rules on Transparency in Treaty-Based Investor-State Arbitration (‘UNCITRAL Rules’ or ‘Transparency Rules’), which are also mentioned in Article 8.36(1) as being applicable to proceedings under Section F (Resolution of investment disputes between investors and states) subject to certain modifications as prescribed in the Chapter (→ Art. 8.17 mn. 22 ff.). The determination of what is confidential business information has not been pro- 81 vided by the treaty or the UNCITRAL Rules and the final determination on this issue will be made by the arbitral tribunal in each particular proceeding on a case-by-case approach,70 after considering any such designation made by the Parties.71 Therefore, while a definition has not been provided under the treaty or the rules, definitions or the scope of confidential business information has been determined by investor-state arbitral tribunals in the past. In the Mobil Investments Canada case, information covered under the grounds of 82 business confidentiality was found to include information that: (i) describes trade secrets, or financial, commercial, scientific or technical information that is confidential business information and is treated consistently in a confidential manner by the party to which it relates, including pricing and costing information, marketing and strategic planning documents, market share data, or accounting or financial records not otherwise disclosed in the public domain; and
70 Ausburger, ‘Article 7. Exceptions to transparency’ in Euler et al. (eds), Transparency in International Investment Arbitration: A Guide to the UNCITRAL Rules on Transparency in Treaty-Based Investor-State Arbitration (2015), 249 (265). 71 Klint, ‘Article 6. Hearings’ in Euler et al. (eds), Transparency in International Investment Arbitration: A Guide to the UNCITRAL Rules on Transparency in Treaty-Based Investor-State Arbitration (2015), 227 (240); Also discussed in, Parliament of the Commonwealth of Australia, Report 188 - Investments Uruguay, ISDS UN Convention and Convention SKAO, 1 December 2019, para. 4.17.
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(ii) if disclosed, could result in material financial loss or gain to, or could reasonably be expected to prejudice the competitive position of, the disputing party to which it relates, or could interfere with contractual or other negotiations of the disputing party to which it relates.72
83
The Philip Morris tribunal provided a narrower definition which relates more closely to the circumstances of the particular case and provided the power to designate information as confidential on the basis of: business confidentiality, including information relating to past, present or contemplated future business activities of the Claimant; the financial affairs of the Claimant or any of its affiliates; the past, present, or contemplated future management or operational policies, procedures, or practices of the Claimant or any of its affiliates; the manufacturing, supply, or distribution process and techniques of the Claimant or any of its affiliates; the value of the Claimant or any of its affiliates or any of their respective assets; the granting of licenses or the provision of goods or services to or by the Claimant or any of its affiliates; and any other information that is proprietary or competitively sensitive and the public disclosure of which may cause competitive injury. 73
Based on the available case law it can be broadly considered that trade secrets, pricing and costing information, marketing, accounting and financial records, scientific and technical information and any information, the disclosure of which could cause financial loss could be covered under the ambit of confidential business information. 74 85 The definition contains different choices of law determining what confidential or protected information is. The scope of confidential or protected information except confidential business information has to be determined on two different parameters depending on whom the information belongs to. This is similar to Article 7.2(c) of the Transparency Rules. If the information is provided by the respondent state, it will be determined according to the laws of the respondent state while for any other information which was provided by any other Party (claimant or third Parties), the arbitral tribunal has the power to determine whether the information is/are protected under any law or rule which the tribunal determines is applicable to the Party providing the information.75 It may be noted here that the travaux préparatoires to Article 7.2(c) of the Transparency Rules provide that ‘information of the respondent state’ refers to information introduced by the respondent state and not to information which is connected to the respondent state otherwise.76 A similar interpretation may be taken for the provision also in the CETA. 86 For determining whether information submitted by a respondent state is eligible for protection, the tribunal has the power to interpret the laws of the state to determine whether the information can be protected but cannot choose the applicable law for evaluation of the same. In order to prevent a misuse of this provision by respondent states that invoke a legislation to protect information which would otherwise be 84
72 Mobil Investments Canada v Canada, ICSID Case No. ARB/15/6, Procedural Order No. 2 on Confidentiality (2 November 2015), p. 2. 73 Philip Morris Asia Limited v. Commonwealth of Australia, PCA Case No. 2012-12, Procedural Order No. 5 (30 November 2012), para. 53.B.1. 74 Ausburger, ‘Article 7. Exceptions to transparency’ in Euler et al. (eds), Transparency in International Investment Arbitration: A Guide to the UNCITRAL Rules on Transparency in Treaty-Based Investor-State Arbitration (2015), 249 (265). 75 Ausburger, ‘Article 7. Exceptions to transparency’ in Euler et al. (eds), Transparency in International Investment Arbitration: A Guide to the UNCITRAL Rules on Transparency in Treaty-Based Investor-State Arbitration (2015), 249 (268). 76 Ausburger, ‘Article 7. Exceptions to transparency’ in Euler et al. (eds), Transparency in International Investment Arbitration: A Guide to the UNCITRAL Rules on Transparency in Treaty-Based Investor-State Arbitration (2015), 249 (268).
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Definitions
disclosed, the arbitral tribunal has the power to conduct a good faith test to determine the purpose of any applicable law which is used to prevent disclosure of information. 77 For other information (which does not come from the respondent), the tribunal has 87 two duties: First, it has to determine the law or rules which will govern the release of such 88 information and second, it has to apply the law or rules selected by it to determine whether the information would be protected from disclosure to the public. Further, the tribunals have to undertake such a test on a case-by-case basis and will also have to review whether a disclosure will be in public interest before coming to any decision.78 In addition to the provision for confidential or protected information under the 89 treaty, any tribunal also has to adhere to the rules governing the proceedings. The ongoing project for amendment of the ICSID Rules foresees to introduce a new definition for confidential or protected information under Rule 66 of the Proposed Amended Arbitration Rules and Rule 76 of the Proposed Amended Additional Facility Arbitration Rules.79 These definitions could be taken into account while dealing with arbitration proceedings under the aforementioned rules and have to be harmoniously interpreted along with the provisions in the CETA.
VII. Covered investment The definition in the agreement is:
90
Covered investment means, with respect to a Party, an investment: (a) (b) (c) (d)
in its territory; made in accordance with the applicable law at the time the investment is made; directly or indirectly owned or controlled by an investor of the other Party; and existing on the date of entry into force of this Agreement, or made or acquired thereafter.
1. Drafting History The text of the definition of covered investment was included in the first consolidat- 91 ed draft of CETA. As per the Draft of 13 January 2010 ‘covered investment meant, with respect to a Party, an investment in its territory of an investor of the other Party on the date of entry into force of this Agreement, as well as investments made or acquired thereafter’. The definition remained the same in the drafts of January 2011 and February 2012. The text of the definition changed in the draft of 21 November 2013 and two very important types of investments, ‘investments made in accordance with the applicable law at that time’; and the ‘investments directly or indirectly owned or controlled by an investor of the other Party’, were added to the definition of covered investment. The definition stated that
77 Ausburger, ‘Article 7. Exceptions to transparency’ in Euler et al. (eds), Transparency in International Investment Arbitration: A Guide to the UNCITRAL Rules on Transparency in Treaty-Based Investor-State Arbitration (2015), 249 (271). 78 Ausburger, ‘Article 7. Exceptions to transparency’ in Euler et al. (eds), Transparency in International Investment Arbitration: A Guide to the UNCITRAL Rules on Transparency in Treaty-Based Investor-State Arbitration (2015), 249 (273). 79 ICSID Secretariat, Proposals for Amendment of the ICSID Rules, Working Paper 4, Vol. 1, February 2020, p. 66 and p. 159.
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covered investment means, with respect to a Party, an investment: a) b) c) d)
92
in its territory; made in accordance with the applicable law at that time; directly or indirectly owned or controlled by an investor of the other Party; and existing on the date of entry into force of this Agreement, as well as investments made or acquired thereafter.
The definition remained the same in the Draft of 1 August 2014. The final text of the definition of covered investments in CETA remained the same in its essence and is written more clearly and explicitly by removing pronouns.
2. Use of the Term 93
94
95
96
97
Covered investment is mentioned in the Investment Chapter under the provisions of Scope (Article 8.2), National treatment (Article 8.6), Most-favoured-nation treatment (Article 8.7), Senior management and boards of directors (Article 8.8); Treatment of investors and of covered investments (Article 8.10), Compensation for losses (Article 8.11), Transfers (Article 8.13), Formal requirements (Article 8.17) and under the section for Resolution of investment disputes between investors and states (Section F – Scope, Article 8.18). Further, covered investment is mentioned in the Chapter on Financial Services, within the provisions for investment disputes in financial services (Article 13.21) in relation to the resolution of investment disputes between investors and states previously stated under Chapter 8. In Chapter 18, which deals with State enterprises, monopolies, and enterprises granted special rights or privileges, provisions for non-discriminatory treatment to covered investments are provided (Article 18.4). In the Chapter providing for exceptions, application of taxation measure to a covered investment is discussed (Chapter 28, Article 28.7). Further, the Schedule of Canada provides for reservations applicable to Canada and its provinces related to limiting the number of covered investments. It is found in the reservations applicable in Canada or in individual provinces in relation to investments in particular sectors.80 Lastly, covered investments are discussed in Annex II Schedule of the European Union Reservations applicable in all Member States of the EU unless otherwise indicated, regarding the right to adopt or maintain any measure relating to air services or related services with respect to the establishment, acquisition or expansion of covered investments.
3. Commentary 98
The term ‘covered investment’ includes the term ‘investment’ which is also a defined term under the CETA. The term ‘covered investment’ is a recent development seen in a number of recent treaties,81 which diverges from the traditional approach under which the term ‘investment’ was widely drafted and open ended. 82 Many investment treaties including CETA continue to follow this approach wherein ‘investment means every kind of asset’ and then a list of types of property or rights is provided. 80 Reservation II-C-3; Reservation II-PT-1; Reservation II-PT-2,3,4,5; Reservation II-PT-6,7,8,9,10; Reservation II-PT-20,21,22,23,24,25; Reservation II-PT-60,61,62. 81 Inter alia Australia-Hong Kong BIT, 2019; USMCA, 2019; CPTPP, 2018; USA-Uruguay BIT, 2005. 82 Benson et al., Covered Investment, p. 4.
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Many treaties, however, were not uniform in the coverage of investments and the definition. Therefore, numerous tribunals used their discretion in the interpretation of the wide definitions provided under the treaties and either sought to limit the coverage of the term83 or even expand it,84 thereby creating inconsistent definitions. States, however, have the right to narrow the scope of investments which are protected under a treaty by bringing about a clause which limits the broad general definition of investment.85 Through an exercise of this power, the Contracting Parties have included the definition of covered investments which means that the parameters for the evaluation of coverage are provided within the treaty itself. As can be prima facie seen in the definition, it is crucial that the ‘investment’ first fulfils the definition for the term in CETA prior to it being considered as a ‘covered investment.’ For an ICSID arbitration, as per the English and Spanish language versions of the CETA, if the claim is brought by ‘an investor of a Party, on behalf of a locally established enterprise which it owns or controls directly or indirectly’86 in addition to the definition of covered investment under the CETA, a covered investment also has to be considered as an investment under the ICSID convention in what is called the double barrelled test. This is clarified in the English (and Spanish version) in Article 8.23(4), which states that a claim ‘shall satisfy the requirements of Article 25(1) of the ICSID Convention.’ An evaluation of what is considered as an investment under the ICSID convention is made below under the definition of ‘investment’ (→ mn. 194 ff.). A contrary approach is taken in the same article in the French and German language versions of CETA wherein submission of the claim under Artcle 8.23(1)(b) has been considered to be sufficient to fulfil the requirements of Article 25(1) of the ICSID Convention. The elements which have been prescribed for the decision of a ‘covered investment’ are evaluated as follows:
99
100
101
102
a) In its Territory The presence of a territorial limit within the definition of a covered investment 103 is a common feature in many investment treaties.87 Arbitral tribunals evaluate the territorial connection of an investment while making the decision of whether an investment could be covered within the treaty even when it is not explicitly stated in the definition.88 In fact, the need for a territorial link has been described as a ‘generally accepted principle’ of international investment law.89 The importance of a territorial connection is particularly significant for invest- 104 ments in the financial sector since portfolio investments could be bought and sold outside the territory of a host state without any direct inflow of funds into the host 83 Joy Mining Machinery Limited v. Te Arab Republic of Egypt, ICSID Case No. ARB/03/11, Award on Jurisdiction (6 August 2004), para. 58; see also, Global Trading Resource Corp. and Globex International, Inc. v. Ukraine, ICSID Case No. ARB/09/11, Award (1 December 2010), paras. 56–57. 84 Deutsche Bank AG v. Democratic Socialist Republic of Sri Lanka, ICSID Case No. ARB/09/02, Award (31 October 2012), paras. 284–286; Malaysian Historical Salvors v. The Government of Malaysia, ICSID Case No. ARB/05/10, Decision on the Application for Annulment (16 April 2009), paras. 61, 73–74. 85 Louis Dreyfus Armateurs SAS v. Republic of India, PCA Case No. 2014-26, Award (11 September 2018), para. 313. 86 Article 8.23(1)(b) CETA. 87 USA-Georgia BIT, 1994; AANZFTA; Canada-China BIT, 2012. 88 Benson et al., Covered Investment, p. 12. 89 Swissbourgh Diamond Mines (Pty) Limited and others v. Kingdom of Lesotho, PCA Case No. 2013-29, Judgment of the Singapore Court of Appeal (27 November 2018), para. 99.
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Definitions
state. Conflicting opinions prevail on their status with arbitrators disagreeing on whether in the absence of a direct link with the host state such investments could be protected.90 In known cases, a common factor which has led tribunals to conclude that there is a territorial link with the investments is when funds in the cases were linked to the host state which could access the funds and benefit from them. 91 105 Tribunals have also had the opportunity to discuss the importance of a link of investments to a territory in two prominent North American Free Trade Agreement (‘NAFTA’) disputes: Bayview v. Mexico92 and Canadian Cattlemen for Fair Trade v. United States,93 where the claims were rejected because of lack of investments within the territory of the host state. In Bayview, it was determined that the investments were located in US territory (home state) and not in the host state (Mexico) because the water distribution infrastructure (their investment) was located in Texas and the water rights which were linked to their investments were provided by the same US state. 94 In Canadian Cattlemen, the restriction on beef and cattle imports from farms located in Canada was not considered to be an issue covered under the treaty since they were not within the territory of the host state (USA). b) Made in Accordance with the Applicable Law at the Time the Investment is Made The requirement to comply with the applicable law is a requirement for coverage of an investment as determined by the tribunals.95 The compatibility of an investment with the applicable law is important since tribunals have considered that investments made in breach of the domestic law can result in an investment not being protected under the treaty.96 Tribunals have not been uniform on the requirement of compatibility with the domestic law for an investment to be covered under the definition of a treaty.97 Instances of corruption at the time of making an investment may mean that the investment was not made in accordance with the applicable law and the tribunal may be required to evaluate such allegations while determining if it is a covered investment.98 107 The clause ‘made in accordance with the applicable law’ as provided in this definition does not provide clarity on what would exactly cover the status of an investment 106
90 Covered investment according to: Deutsche Bank AG v. Democratic Socialist Republic of Sri Lanka, ICSID Case No. ARB/09/02, Award (31 October 2012), paras. 288, 292. Not investments according to: Dissenting Opinion of Abi-Saab in Abaclat and Others (Case formerly known as Giovanna a Beccara and Others) v. Argentine Republic, ICSID Case No. ARB/07/5, Decision on Jurisdiction and Admissibility (4 August 2011), paras. 56–57, 78, 105; Dissenting Opinion of Bernardez in Ambiente Ufcio S.P.A. and Others (Case formerly known as Giordano Alpi and Others) v. Argentine Republic, ICSID Case No. ARB/08/9, Decision on Jurisdiction and Admissibility (8 February 2013), paras. 262–263. 91 Benson et al., Covered Investment, 14. 92 Bayview Irrigation District at al. v. United Mexican States, ICSID Case No. ARB(AF)/05/1, Award (19 June 2007), paras. 93–108. 93 The Canadian Cattlemen for Fair Trade v. United States of America, UNCITRAL, Award on Jurisdiction (28 January 2008), paras. 126–127. 94 Bayview Irrigation District at al. v. United Mexican States, ICSID Case No. ARB(AF)/05/1, Award (19 June 2007), paras. 112-114. 95 On this, see also, Urbaser v. Argentine Republic, ICSID Case No. ARB/07/26, Award (8 December 2016), para. 558. 96 Benson et al., Covered Investment, 14. 97 Need for compatibility with the law: Phoenix Action, Ltd. v. Czech Republic, ICSID Case No. ARB/06/5, Award (15 April 2009), para. 101; Grupo Francisco Hernando Contreras S.L. v. Republic of Equatorial Guinea, ICSID Case No. ARB(AF)/12/2, Award on Jurisdiction (4 December 2015) [Spanish], paras. 231234. 98 Miles, ‘Corruption, Jurisdiction and Admissibility in International Investment Claims’, 2012 3(2) J. Int’l Disp. Settlement, 329 (358).
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and what conflict of law rules apply.99 By going with the prima facie interpretation of this definition, ‘applicable law’ for CETA would require the use of Article 8.31 CETA which provides that the law governing such a decision would be the ‘Agreement (CETA) as interpreted in accordance with the Vienna Convention on the Law of Treaties, and other rules and principles of international law applicable between the Parties’.100 An alternative explanation suggests that for a covered investment, in accordance with applicable law would mean that the investment is made ‘in accordance with the laws of the country where they have invested’. 101 This definition of applicable law is crucial for investor-state arbitration under the CETA since the tribunals are only allowed to consider the domestic law of a Party as a matter of fact and follow the prevailing interpretation.102 This becomes a key issue in view of the Achmea decision103 and Opinion 1/17 of the CJEU.104 c) Directly or Indirectly Owned or Controlled by an Investor of the Other Party A need for a direct or indirect link through ownership or control by an investor 108 of the other Party to an investment agreement has been held to be an essential condition for the coverage of an investment under the treaty. 105 A link has to be present between the investor and the investment made. Tribunals have however been flexible to accept jurisdiction of disputes with complex corporate structures. 106 The definition also encompasses investments in the share capital of a company incorporated in the territory of the other contracting state.107 A lack of a clear proof about the existence of a direct or indirect relationship 109 between an investor and the investment is a hindrance to the rationae temporis or rationae personae jurisdiction of a tribunal.108 An absence of a link between the investment and the claimant would prevent a tribunal from accepting jurisdiction over the dispute.109 Other than the possibility for ownership, emphasis has been placed on control over 110 the investments. This importance placed on ‘control’ indicates that in many cases there would not be a requirement of transfer of capital but a shift of control takes place. 110
99 Bischoff and Wuhler, ‘The notion of investment’, in: Mbengue and Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (2019), 19 (31). 100 Article 8.31(1) CETA. 101 Bernasconi-Osterwalder, ‘Reply to the European Commission’s Public Consultation on Investment Protection and Investor-to-State Dispute Settlement (ISDS) in the Transatlantic Trade and Investment Partnership Agreement (TTIP)’, IISD Report, June 2014, p. 3. 102 Article 8.31(2) CETA. 103 CJEU, Case C-284/16, 6.03.2018, Slowakische Republik (Slovak Republic) v Achmea BV, ECLI:EU:C:2018:158. 104 CJEU, Opinion 1/17, 30.04.2019, ECLI:EU:C:2019:341. Also, cf. → Art. 8.31 mn. 19 ff. 105 Azurix Corp. v. Argentine Republic, ICSID Case No. ARB/01/12, Award on Jurisdiction (8 December 2003), para. 63. 106 Société Générale in respect of DR Energy Holdings Limited and Empresa Distribuidora de Electricidad del Este, S.A. v. Dominican Republic, LCIA Case No. UN 7927, Preliminary Objections to Jurisdiction (19 September 2008), para. 52. 107 Emilio Agustín Maffezini v. Kingdom of Spain, ICSID Case No. ARB/97/7, Decision on Jurisdiction (25 January 2000), para. 68. 108 Highbury International AVV and Ramstein Trading Inc. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/11/1, Award (26 September 2013), para. 186. 109 Peter Franz Voecklinghaus v. Czech Republic, UNCITRAL, Final Award (19 September 2011), para. 165. 110 Schlemmer, ‘Investment, Investor, Nationality and Shareholders’ in Muchlinksi et al., The Oxford Handbook of International Investment Law (2008), 49 (60).
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In broader terms, control is considered as ‘the criterion for linking a company to the State of the entity, whether natural or legal, that controls it’. 111 111 A key part of the definition is the requirement that the investor who seeks protection must be of the ‘other Party’ and for this purpose, the investor must be a ‘natural person’ or an ‘enterprise’ of the other Party. A discussion on who is considered as a ‘natural person’ or ‘enterprise of a Party’ is made in the definition of the specific terms below (→ mn. 234 ff., 270 ff.). 112 In addition to the nationality requirement of an investment agreement, an ICSID tribunal also has to evaluate if the nationality requirement under the ICSID convention is fulfilled.112 d) Existing on the Date of Entry into Force of this Agreement, or Made or Acquired thereafter The rationae temporis jurisdiction of a tribunal over a particular jurisdiction is determined through this provision and the ‘covered investment’ has to exist on the date of entry into force of the agreement ‘or made or acquired’ after the date of entry into force of the CETA.113 This is particularly significant since tribunals cannot exercise jurisdiction for disputes arising out of violation of these principles or for investments which ceased to exist prior to entry into force of the CETA (→ Art. 8.18 mn. 93 ff.). 114 114 The specific inclusion of pre-existing investments as being covered under the agreement will help in clarifying any confusion over the applicability of the treaty to such investments in the absence of an explicit declaration.115 With the specific inclusion of the clause, all pre-existing investments are covered, signalling a favourable environment for investments in a host state.116 113
VIII. Disputing Party The definition in the agreement is:
115
disputing party means the investor that initiates proceedings pursuant to Section F or the respondent. For the purposes of Section F and without prejudice to Article 8.14, an investor does not include a Party; disputing parties means both the investor and the respondent.
1. Drafting History 116
The Draft CETA text of 13 January 2010 already contained a definition of disputing Party. The Draft stated that ‘disputing party means either the respondent Party or the investor that has made a claim under Section B’. Section B referred to Settlement of Disputes between an Investor and the Host Party. The version of the definition 111 UNCITRAL, Réforme du règlement des différends investisseurs/Etats (ISDS), Academic Forum, Glossary Working Group, para. 58. 112 Hussein Nuaman Soufraki v. United Arab Emirates, ICSID Case No. ARB/02/7, Decision of the Ad Hoc Committee on the Application for Annulment of Mr Soufraki (5 June 2007), paras. 53–54. 113 Adel A Hamadi Al Tamimi v. Sultanate of Oman, ICSID Case No. ARB/11/33, Award (27 October 2015), para. 283. 114 See also, Generation Ukraine Inc. v. Ukraine, ICSID Case No. ARB/00/9, Final Award (16 September 2003) (English Translation), para. 11.3. 115 Nordzucker AG v. Republic of Poland, UNCITRAL, Partial Award (Jurisdiction) (10 December 2008), para. 113. 116 Salacuse, The Law of Investment Treaties (2005), Chapter 7: Scope of Application of investment treaties.
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remained the same in the Drafts of January 2011 and February 2012. The text of the definition changed in the draft of 15 November 2013, stating that ‘disputing party means either the claimant or the respondent’. The version remained the same in the draft of 4 February 2014. The text of the definition changed in the draft of 1 August 2014, this version of the definition was more explicit and in reference to the resolution of investment disputes between investors and states, under the agreement. The draft stated that ‘disputing party means either the investor that initiates proceedings pursuant to Section 6 or the respondent. For the purpose of Section 6 and without prejudice to Article X-13 (Subrogation), an investor does not include a Party’. The definition remained the same in the final text of CETA, the only change being the numbering of the applicable Section and the Article as per the final organisation of the agreement. The term disputing parties was first defined in the draft of 15 November 2013, 117 stating that ‘disputing parties means both the claimant and the respondent’. The definition remained the same in the Draft of 4 February 2014. The version changed in the draft of 1 August 2014, which is also the final version of the definition in the text of CETA.
2. Use of the Term Within Chapter 8 (Investment) of the CETA, the term disputing party is used in 118 relation to recourse to mediation or its termination (Article 8.20), Third-Party-Funding (Article 8.26), constitution of the tribunal (Article 8.27), appellate tribunal (Article 8.28), ethics (Article 8.30), applicable law and interpretation (Article 8.31), interim measures of protection (Article 8.34), information sharing (Article 8.37), non-disputing Party (Article 8.38), final award (8.39), enforcement of awards (Article 8.41), and consolidation (8.43). Further, in Chapter 13, the term disputing party is used in investment disputes in financial services (Article 13.21). The term disputing parties finds mention in Chapter 8 (Investment) in connection with consultations before referral to the investor-state dispute settlement tribunal (Article 8.19), recourse to mediation or its termination (Article 8.20), possibility for agreement on rules for the investor-state dispute settlement tribunal (Article 8.23), referral to proceedings in another forum in an ongoing dispute settlement proceeding (Article 8.24), consent for resolution of proceedings through a dispute settlement tribunal (Article 8.25), agreement on proceedings through a sole arbitrator, and fee and expenses for a tribunal (Article 8.27), challenge against a member of the tribunal (Article 8.30), dismissal of claims without legal merit (Article 8.32), discontinuance of proceedings (Article 8.35), transparency of proceedings (Article 8.36), role of nondisputing Parties (Article 8.38), distribution of costs of tribunal proceedings (Article 8.39), limitation on duration of proceedings (Article 8.39), enforcement of awards (Article 8.41), consolidation of proceedings (Article 8.43), and committee on services and investment (Article 8.44).
3. Commentary The term disputing party has been included to distinguish it from a ‘non-disputing 119 party’ which normally refers to one of the state Parties to the treaty that is not a respondent to the particular proceedings. As it is prima facie seen from the definition, disputing Party only covers the investor who is a Party to an investor-state dispute and a state Party to the CETA or the European Union itself, if it is a respondent in the dispute. A state Party may be an investor but in the capacity of an investor, cannot be a
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disputing Party under Section F (except with subrogated rights under Article 8.14 CETA); (→ Art. 8.2 mn. 30 ff.). In this case, it would have to bring a claim under Chapter 29. 120 In case of mediation proceedings, the disputing parties are responsible for an agreement to have recourse to mediation and for conduct of the proceedings (See, Article 8.20 CETA below). 121 In a dispute, when both the investor and the respondent are considered together, then they are called the disputing parties.
IX. Enjoin 122
The definition in the agreement is: ‘enjoin means an order to prohibit or restrain an action’.
1. Drafting History 123
The term ‘enjoin’ was first defined in the Draft of 15 November 2013, wherein it was stated that ‘enjoin means an order to prohibit or restrain an action’. The definition remained the same in the later drafts of 4 February 2014, 1 August 2014 and in the final text of CETA.
2. Use of the Term 124
The term ‘enjoin’ is used only in Article 8.34 (Interim measures of protection) of Chapter 8 CETA.
3. Commentary The term ‘enjoin’ has been used in a number of arbitration awards in a wide variety of contexts. In the Dunkeld International Investment Ltd. v. Belize dispute, the arbitral tribunal determined that a state’s efforts to ‘enjoin’ arbitration proceedings are in violation of the provisions of the BIT.117 Alternatively, in the SGS v. Pakistan dispute, the term was used against a different background and the tribunal determined that it could not ‘enjoin a State from conducting the normal processes of criminal, administrative and civil justice within its own territory’.118 The term was used in a similar context as SGS in the Lao Holdings N.V. v. Lao dispute.119 In a third alternative context, the term ‘enjoin’ was used to refer to the limitation on the discretionary powers of the tribunal during the conduct of the proceedings under Article 17(1) of the UNCITRAL Arbitration Rules (as amended in 2010).120 126 In the CETA, the term ‘enjoin’ is used in Article 8.34 wherein it restricts the tribunal from prohibiting or restraining a measure which is under dispute before an investor-state tribunal (Article 8.34 CETA). Similar utilisation of the term is seen 125
117 Dunkeld International Investment Ltd. v. Government of Belize I, PCA Case No. 2010-13, Award (28 June 2016), para. 336. 118 SGS Société Générale de Surveillance S.A. v. Islamic Republic of Pakistan, ARB/01/13, Procedural Order No. 2 (16 October 2002), para. 36. 119 Lao Holdings N.V. v. Lao People’s Democratic Republic I, ICSID Case No. ARB(AF)/12/6, Ruling on Motion to Amend the Provisional Measure Order (30 May 2014), para. 29. 120 Aaron C. Berkowitz, Brett E. Berkowitz and Trevor B. Berkowitz (formerly Spence International Investments and others) v. Republic of Costa Rica, ICSID Case No. UNCT/13/2, Procedural Order on Stay Application (28 February 2017), para. 47.
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in a number of other investment agreements such as the USA-Uruguay BIT, 121 the CAFTA-DR,122 and the NAFTA.123 Based on the utilisation of the term to restrict the powers of a tribunal regarding 127 enjoining a measure in dispute in the arbitration proceedings, the tribunal in the Pope & Talbot v. Canada case refused to grant a claimant’s motion for interim measures under Article 1134 NAFTA (which is similar to the provision under Article 8.34 CETA).124 Also, pursuant to a similar provision, the tribunal in EnCana Corporation v. the Republic of Ecuador refused to grant an interim request against measures for recovery of incorrect tax refunds.125
X. Enterprise The definition in the agreement is: ‘enterprise means an enterprise as defined in 128 Article 1.1 (Definitions of general application) and a branch or representative office of an enterprise’.
1. Drafting History The definition of enterprise underwent major revisions over time since its appear- 129 ance in the first known Draft text of the CETA of 13 January 2010. In the first draft of 13 January 2010, ‘enterprise meant an enterprise as defined in Article [X.05] (Initial Provisions and General Definitions – Definitions of General Application), and a branch of any such entity’. However, further explanation of the term was missing. The version of January 2011 and February 2012 provided a detailed list of what 130 constitutes an enterprise. It stated that ‘enterprise means an entity constituted or organized under applicable law, whether or not for profit, and whether privately owned and controlled or governmentally owned and controlled, including a corporation, trust, partnership, sole proprietorship, joint venture or other association’. In the draft of 21 November 2013 and 1 August 2012, the text of the definition added some components to clearly define the term, stating that ‘enterprise means any entity duly constituted or otherwise organized under applicable law, whether for profit or otherwise, and whether privately-owned or controlled or governmentally owned or controlled, including any corporation, trust, partnership, joint venture, sole proprietorship or association and a branch or representative office of any such entity’. The definition stayed almost the same in the final text of CETA, wherein it stated that ‘enterprise means an enterprise as defined in Article 1.1 (Definitions of general application) and a branch or representative office of an enterprise’. While tracing this linkage, as per Article 1.1 CETA, ‘enterprise means an entity constituted or organised under applicable law, whether or not for profit, and whether privately or governmentally owned or controlled, including a corporation, trust, partnership, sole proprietorship, joint venture or other association’.
Article 28(8) USA-Uruguay BIT, 2005. Article 10.20(8) CAFTA-DR, 2004. 123 Article 1134 NAFTA. 124 Pope & Talbot v. Government of Canada, Ruling on Claimant's Motion for Interim Measures (1 January 2000). 125 EnCana Corporation v. Republic of Ecuador, LCIA Case No. UN 3481, Interim Award – Request for Interim Measures of Protection (31 January 2004). 121 122
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2. Use of the Term 131
132
133
134
135
136
137
The term enterprise is mentioned several times in the CETA. It is defined in Chapter One within General Definitions and Initial Provisions. Under Chapter 8 (Investment) it is defined in Article 8.1 and further mentioned under Market Access (Article 8.4), Performance requirements (Article 8.5), Senior management and boards of directors (Article 8.8), Denial of benefits (Article 8.16), Consultations (Article 8.19), Procedural and other requirements for the submission of a claim to the Tribunal (Article 8.22), Submission of a claim to the Tribunal (Article 8.23), Final award (8.39), and Indemnification or other compensation (Article 8.40). Beyond this specific definition of enterprise in Chapter 8, for the CETA a general definition of ‘enterprise’ has been provided under Article 1.1 CETA which is as cited above. The term enterprise is mentioned in Chapter 9 (Cross-border trade in services) under Article 9.8 which is the provision on Denial of benefits. Further, the term enterprise is defined and mentioned in Chapter 10 (Temporary entry and stays of natural persons for business purposes) under the provisions for Contractual services suppliers and independent professionals (Article 10.8) and Short-term business visitors (Article 10.9). The Chapter on Financial Services (Chapter 13) also mentions enterprise under the provisions of Specific exceptions (Article 13.17). In the Chapter on International maritime transport services (Chapter 14), enterprise is mentioned in the definition of international maritime transport service suppliers under Article 14.1. Additionally, the term enterprise is defined in the Chapter on Telecommunications (Chapter 15), and mentioned under the provisions on Access to and use of public telecommunications transport networks or services (Article 15.3), Resolution of telecommunication disputes (Article 15.12), and in the Chapter on Competition Policy (Chapter 17), it is seen in the provision for Application of competition policy to enterprises (Article 17.3). The term also finds mention in the Chapter on State enterprises, monopolies, and enterprises granted special rights or privileges (Chapter 18) under Article 18.3, which deals with special rights or privileges granted to state enterprises, monopolies and enterprises granted special rights or privileges. In the Chapter on Trade and sustainable development (Chapter 22), the term finds mention under the provisions of Cooperation and promotion of trade supporting sustainable development (Article 22.3). Further, the term enterprise is also mentioned in the Annex 10-D under the Activities of short-term business visitors.
3. Commentary 138
The definition of an enterprise in the definitions of general application (Article 1.1 CETA) is similar to the definition prescribed in the Canadian Model FIPA, 2014 126 and the draft Multilateral Agreement on Investment.127 The key components of the definition in Article 1.1 are the need for the entity to be constituted or organised under the applicable law, private or government ownership or control and it may fall within the categories already specified such as a corporation, trust, partnership, sole
126 See Article 1, Canadian Model FIPA, 2014, available at https://www.italaw.com/sites/default/files/f iles/italaw8236.pdf. 127 See Article II.2(i) Draft Multilateral Agreement on Investment, available at http://www.oecd.org/d af/mai/pdf/ng/ng987r1 e.pdf.
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proprietorship, joint venture or other association. The entity may be for profit or nonprofit (see on this also → Art. 8.2 mn. 57 and Art. 8.18 mn. 56). The definition in Article 8.1 expands this general definition to include a branch 139 or representative office. Inclusion of any entity is important since entities which are considered as an ‘enterprise’ become eligible for protection as an investment. a) Applicable Law The law of the place of the constitution of the enterprise has been determined as 140 the relevant law for determining the legal status of the enterprise. 128 The states are free to determine the types of enterprises and the persons who can incorporate the enterprises according to their domestic law. This approach reflects the opinion of the tribunal in Perenco v. Ecuador which held that: ‘[g]iven the absence of detailed general or conventional rules of international law governing the organisation, operation, management and control of an enterprise, a tribunal should in principle be guided by the more detailed prescriptions of the applicable municipal law’.129 b) Private or Government Ownership or Control The possibility for private or government ownership prima facie means that state- 141 owned entities are also covered within the definition of an enterprise. This is a development linked to the understanding that state-owned enterprises may in certain circumstances be working in a purely commercial capacity.130 In those situations, a state-owned enterprise may be similar to a private business entity and can be permitted to bring about a claim under a BIT.131 Reflecting this development of creating a distinction between the state and a state- 142 owned enterprise and its activities, the tribunal in Windstream determined that the ILC draft articles make it clear that ‘conduct of persons or entities such as State enterprises which are not formal organs of the State can only be attributable to the State if the person or entity in question is exercising governmental authority in the particular instance’.132 There may, however, be situations when an entity which is not a state enterprise 143 also performs state functions.133 c) Whether for or not for Profit The not-for-profit or non-governmental organisations (NGOs) may not be directly 144 eligible for protection under investment treaties since their activities may fall short of the investment criterion.134 These non-profit organisations may however own or 128 OECD, ‘Definition of Investor and Investment in International Investment Agreements’, in OECD, International Investment Law: Understanding Concepts and Tracking Innovations (2008), 7 (19). 129 Perenco Ecuador Ltd. v. The Republic of Ecuador and Empresa Estatal Petróleos del Ecuador(Petroecuador), ICSID Case No. ARB/08/6, Decision on Remaining Issues of Jurisdiction and on Liability (12 September 2014), para. 522. 130 Beijing Urban Construction Group Co. Ltd. v. Republic of Yemen, ICSID Case No. ARB/14/30, Decision on Jurisdiction (31 May 2017), paras. 39–44. 131 OAO Tatneft v. Ukraine, PCA UNCITRAL, Judgment of Paris Court of Appeal (29 November 2016), paras. 17–18. 132 Windstream Energy LLC v. Government of Canada, PCA Case No. 2013-22, Award (27 September 2016), para. 233. 133 Jan de Nul N.V. Dredging International N.V. v. Arab Republic of Egypt, ICSID Case No. ARB/04/13, Award (6 November 2008), para. 160. 134 Kube, EU Human Rights, International Investment Law and Participation (2019), 147.
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control crucial infrastructure such as hospitals, schools, technical institutions and equipment which may be targeted by governments.135 Recognising this problem, investment agreements such as CETA have included special provisions which would include not for profit operations and enterprises involved in such activities under the ambit of protection.136 d) The Type of Entity: Constituted or Organised 145
The type of entity which can be considered as an enterprise has to be recognised as a business association under the applicable law and cannot be ‘mere mutually beneficial business, contractual, or culturally-rooted relations’.137 Common forms of corporate entities which are constituted include inter alia limited liability companies, joint stock companies, unlimited companies, public companies, private companies, trusts etc. The form of the constituted or organised entity would be determined by the laws of the country where it is formed and may vary across countries depending on the laws of the country. While a sole proprietorship is covered under the definition of an enterprise and hence can be considered as an investor, it also has to be ‘constituted’ or ‘organised’ under the laws of the home country in some form which is legally recognised under the laws of the country.138 e) Inclusion of Branch or Representative Office
146
The terms ‘branch or representative office’ have not been defined in the CETA. In such a scenario, a reference may be made to the EU-Moldova Association Agreement and the EU-Armenia EPA. Both these agreements have defined a ‘branch’ in relation to trade in services, establishment and electronic commerce as: ‘branch’ of a juridical person means a place of business not having legal personality which has the appearance of permanency, such as an extension of a parent body, has a management structure and is materially equipped to negotiate business with third parties so that the latter, although knowing that there will, if necessary, be a legal link with the parent body, the head office of which is abroad, do not have to deal directly with such parent body but may transact business at the place of business constituting the extension.139
147
A branch or a representative office may be particularly relevant for the services sector as can be seen from the reservations provided in the CETA wherein they are mentioned in relation to financial services.140 Article 49 TFEU also considers that a branch or an agency is one of the modes through which companies established in a Member State may conduct their business.141
135 Kowalski, ‘Recognizing an Investment: An Argument for Access to the Investor-State Dispute Settlement Mechanisms for Non-Governmental Organizations’, Penn JIL, 16 April 2017, https://pennjil. com/recognizing-an-investment-an-argument-for-access-to-the-investor-state-dispute-settlement-mec hanisms-for-non-governmental-organizations/. 136 Other IIAs with similar provisions which include not for profit operations inter alia include the Colombia-UAE BIT 2017, the Singapore-Myanmar BIT 2019 and the Israel-Japan BIT 2017. 137 Grand River Enterprises Six Nations, Ltd. and others v. United States of America, UNCITRAL, Award, 12 January 2011, para. 92. 138 Bischoff and Wuhler, ‘The notion of investment’, in: Mbengue and Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (2019), 19 (33). 139 Article 203(7), EU-Moldova Association Agreement, 2014; Article 142(h), EU-Armenia Enhanced Partnership Agreement, 2017. 140 Reservations applicable in Italy and Hungary. 141 CJEU, Case C-264/96, 16.7.1998, Imperial Chemical Industries plc (ICI) and Kenneth Hall Colmer (Her Majesty's Inspector of Taxes), ECLI:EU:C:1998:370, para. 20.
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‘Representative offices’ are also seen as a form of permanent presence by states at 148 least in the insurance sector.142 This is different from branch offices which are considered as a less permanent form and are not considered eligible to acquire state-owned properties while a similar right is provided to representative offices which are listed along with forms such as limited liability companies and joint-stock companies. 143 Interestingly, while the CETA has included both branch and representative offices as enterprises and hence provided them cover under the treaty, the EU-Vietnam IPA explicitly excludes representative offices from its coverage. 144
XI. Ground handling services The definition in the agreement is:
149
ground handling services means the supply of a service on a fee or contract basis for ground administration and supervision, including load control and communications; passenger handling; baggage handling; cargo and mail handling; ramp handling and aircraft services; fuel and oil handling; aircraft line maintenance, flight operations and crew administration; surface transport; or catering services. Ground handling services do not include security services or the operation or management of centralised airport infrastructures, such as baggage handling systems, de-icing facilities, fuel distribution systems, or intra-airport transport systems.
1. Drafting History The text of the definition of ground handling services was first seen in the Draft of 150 21 November 2013, which stated, Ground handling services means the provision, on a fee or contract basis, of the following services: ground administration and supervision, including load control and communications; passenger handling; baggage handling; cargo and mail handling; ramp handling and aircraft services; fuel and oil handling; aircraft line maintenance, flight operations and crew administration; surface transport; and catering services. Ground handling services do not include security services and the operation or management of centralised airport infrastructures, such as baggage handling systems, de-icing facilities, fuel distribution systems, and intra-airport transport systems.
The definition did not undergo major revisions in the subsequent versions of the 151 text.
2. Use of the Term Ground handling services is defined in Chapter 8 (Investment) and Chapter 9 (Cross 152 Border trade in services). The term is further referred to in Annex II Reservations applicable in Canada (Reservation I-C-21) but with reference to the definition provided in Chapter 9. In Reservation II-C-18, the term is used in reference to the definitions in both Chapter 8 and 9. In Chapter 8 where it is further used in Article 8.2(2)(a) as one of the provisions 153 where safeguards provided under Section B (Establishment of investments) and Section C (Non-discriminatory treatment) are available for establishment or acquisition of a covered investment. In Chapter 9 it is used in Article 9.2(2)(e) as one of the situations where protections under the Chapter are available.
Reservations applicable in Greece (Financial Services – Insurance and insurance-related services). Reservations applicable in Hungary. 144 Article 1.2(h)(ii), fn. 2, EU-Vietnam IPA, 2019. 142
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Definitions
Finally the term ‘ground handling services’ also finds mention in reservations applicable in Investment and Cross Border trade in services to the entire EU in the air transport sector.
3. Commentary Similar to a few other aviation-related sectors, ground handling services are eligible for protection under the standards provided under Section B – Establishment of investments (market access and performance requirements) and Section C – Non-discriminatory treatment (national treatment, most-favoured-nation treatment, senior management and board of directors) of Chapter 8 CETA during the process of establishment or acquisition of a covered investment. This means that ground handling services are an exception to the standard practice of excluding ‘air services or related services in support of air services and other services supplied by means of air transport’ from the standards of protection under Section B and C of Chapter 8. 145 This exclusion of certain ground handling services from the coverage of an investment agreement is also seen in a few other IIAs.146 156 Ground handling was defined by the WTO Secretariat ‘from an operational point of view’ as ‘the services provided to aircraft, passengers and cargo at an airport.’ 147 It is considered as an essential part of the airline industry.148 The three key players in the ground handling market are airlines, airports and special ground handling organisations also called independent ground handling companies.149 In both the EU and Canada, there is a significant presence of independent ground handling companies. 150 157 Within the EU, ground handling services are regulated under the Directive 96/97/ EC151 (‘Groundhandling Directive’). There is however a significant difference between the services covered under the definition of ‘groundhandling’ under the Groundhandling Directive,152 and the definition included in the CETA. A number of the services excluded from the definition in the CETA are included in the Groundhandling Directive, inter alia certain security services, baggage handling systems, de-icing facilities, fuel distribution, and intra-airport transport. Including these centralized infrastructures which benefit from relaxations under the Groundhandling Directive, under the ambit of the definition of Ground handling services in the CETA may lead to violation of the national treatment and most-favoured-nation treatment obligations under the CETA. 158 The difference in definition between Chapter 8 CETA and the Directive can lead to the exclusion of certain ground handling services from the ambit of protection of the treaty. This may be an effort to shield certain specific services included within 155
Article 8.2(2)(a) CETA. Annex 1, HKSAR-21, Hong Kong- Australia BIT 2019; Schedule of the State of Israel, Israel-Japan BIT 2017; Schedule of Jordan, Jordan-Canada BIT 2009. 147 Note by the Secretariat, Second Review of the Air Transport Annex Developments in the Air Transport Sector (Part One), WTO, S/C/W/270, 18 July 2006, para. 294. 148 Narendra, ‘General Agreement on Trade in Services and Aviation Ground Handling Services – A Theoretical Perspective’ (2014) 16(4) IOSR-JBM, 36 (38). 149 Note by the Secretariat, Second Review of the Air Transport Annex Developments in the Air Transport Sector (Part One), WTO, S/C/W/270, 18 July 2006, para. 297. 150 Tomová and Kirschnerová, ‘The Players in Airport Ground Handling: A new typology reflecting the International Expansion’ (2015) 119 Ekonomiczne Problemy Usług, 145 (150); Note by the Secretariat, Second Review of the Air Transport Annex Developments in the Air Transport Sector (Part One), WTO, S/C/W/270, 18 July 2006, para. 327. 151 Council Directive 96/97/EC of 15 October 1996 on access to the groundhandling market at Community airports, OJ L 272/36. 152 Article 2(e) read with Annex Council Directive 96/96/EC. 145 146
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the Directive from possible coverage of Section B and C of Chapter 8 CETA. Due to the exclusions in the CETA definition, EU Member States can continue to benefit from certain relaxations included in the Groundhandling Directive and do not need to abolish them.153 These relaxations permit the EU Member States to make it compulsory for airport users to use the available centralized infrastructure and prevent the entry of other players.
XII. ICSID The definition in the agreement is: ‘ICSID means the International Centre for 159 Settlement of Investment Disputes’.
1. Drafting History The definition of ICSID remained the same in all known drafts of the CETA.
160
2. Use of the Term ICSID is defined in the Investment chapter and mentioned under the provisions 161 of Mediation (Article 8.20), Submission of a claim to the Tribunal (Article 8.23), Consent to the settlement of the dispute by the Tribunal (Article 8.25), Constitution of the Tribunal (Article 8.27), Appellate Tribunal (Article 8.28), Enforcement of awards (Article 8.41). Further, ICSID is mentioned in the chapter on Financial Services (Chapter 13) 162 under the provisions of Investment disputes in financial services (Article 13.21).
3. Commentary The International Centre for Settlement of Investment Disputes (‘ICSID’) 154 was 163 established in 1966 through the Convention on the Settlement of Investment Disputes between States and Nationals of Other States of 1965, which entered into force on 14 October 1966.155 The ICSID also sometimes referred to as the ‘Centre’ is one among the five organizations of the World Bank Group.156 Its offices are located at Washington D.C., USA and at the World Bank Conference Centre in Paris. The ICSID focusses on providing a platform for settlement of investment disputes 164 through arbitration, mediation and conciliation. The functioning of dispute resolution proceedings through ICSID is governed by the Convention and a set of rules framed under the Convention. Key among these rules are the Rules of Procedure for the Institution of Conciliation and Arbitration Proceedings (Institution Rules) i.e. the Rules of Procedure for Conciliation Proceedings (Conciliation Rules) and the Rules of Procedure for Arbitration Proceedings (Arbitration Rules).157 The ICSID has an administrative council and a secretariat. The member states of 165 the ICSID are a part of the administrative council which has the responsibility to Article 8, Council Directive 96/96/EC. ICSID, https://icsid.worldbank.org/. 155 Convention on the settlement of investment disputes between States and nationals of other States, 1965, 575 UNTS 159. 156 The other organizations are the International Bank for Reconstruction and Development (IBRD), the International Development Association (IDA), the International Finance Corporation (IFC), and the Multilateral Investment Guarantee Agency (MIGA). 157 The Institution Rules, Conciliation Rules and Arbitration Rules are available for download from https://icsid.worldbank.org/sites/default/files/ICSID Convention English.pdf. 153
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deal with the organisational matters of ICSID. The ICSID Secretariat on the other hand deals with the day to day functioning and also handles the case management functions for arbitration and conciliation cases.158 In this regard, the ICSID provides case administration services which include a dedicated case team assisting the Parties and the tribunal during the hearings, and a financial team which assists the Parties in managing the finances of the case. It also provides logistical support and hearing facilities at the World Bank offices in Washington D.C. and Paris.159 166 The Secretary General of the ICSID has the power under the Convention to register the disputes unless he or she finds ‘that the dispute is manifestly outside the jurisdiction of the Centre.’160 167 Under the CETA, the Secretary General of the ICSID has also been entrusted with additional powers which inter alia include: (a) Appointment of a mediator in investor-state mediation when requested by the parties161 (b) Appointment of a division of the tribunal consisting of three members of the CETA Tribunal if the CETA Joint Committee has not made the appointments within 90 days from the date that a claim is submitted for dispute settlement 162 (c) Appointment of a tribunal consisting of three members from a list submitted by the parties if a list has not been established under Article 13.20 of the CETA. 163 168
The ICSID Secretariat has also been entrusted with certain responsibilities under the CETA which include: (a) Receipt of request for arbitration under the ICSID Additional Facility Rules (Article 2 of Schedule C of the Additional Facility Rules) (b) Management of the account where the fees paid by the CETA state parties are deposited for disbursal as monthly retainer fee for the members of the CETA tribunal for investor-state dispute resolution164 (c) Acting as the secretariat for the tribunal formed under Article 8.27 CETA. 165
XIII. ICSID Additional Facility Rules 169
The definition in the agreement is: ‘ICSID Additional Facility Rules means the Rules Governing the Additional Facility for the Administration of Proceedings by the Secretariat of the International Centre for Settlement of Investment Disputes’.
1. Drafting History 170
The ICSID Additional Facility Rules were first defined in the CETA Draft of 15 November 2013. The definition remained the same in the final draft.
ICSID, Introducing ICSID (2018), p. 4. ICSID, Case Administration, available at https://icsid.worldbank.org/services/arbitration/case-adm inistration. 160 Article 36(1) and (3), ICSID Convention. 161 Article 8.20(3) CETA. 162 Article 8.27(17) CETA. 163 Article 13.21(2) CETA. 164 Article 8.27(12) and (13) CETA. 165 Article 8.27(16) CETA. 158
159
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2. Use of the Term The ICSID Additional Facility Rules are mentioned in Chapter 8 under the provi- 171 sions of Submission of a claim to the Tribunal (Article 8.23), Consent to the settlement of the dispute by the Tribunal (Article 8.25), Consent to the settlement of the dispute by the Tribunal (Article 8.25) and Enforcement of awards (Article 8.41).
3. Commentary The ICSID Administrative Council on 27 September 1978 authorised the ICSID 172 Secretariat to administer certain proceedings between state and nationals of other states which were outside the scope of the ICSID Convention. 166 Based on this authorisation, certain rules were adopted by the Administrative Council, which were called the Additional Facility Rules and were in force between 27 September 1978 and 31 December 2002. They were amended twice with the second version in force between 1 January 2003 – 9 April 2006 and the third version which is currently applicable, is in force since 10 April 2006.167 The Additional Facility Rules provide that the ICSID Secretariat can deal with the 173 following proceedings under these rules: (a) conciliation and arbitration proceedings for the settlement of legal disputes arising directly out of an investment which are not within the jurisdiction of the Centre because either the State party to the dispute or the State whose national is a party to the dispute is not a Contracting State; (b) conciliation and arbitration proceedings for the settlement of legal disputes which are not within the jurisdiction of the Centre because they do not arise directly out of an investment, provided that either the State party to the dispute or the State whose national is a party to the dispute is a Contracting State; and (c) fact-finding proceedings.168
The arbitration proceedings under the Additional Facility Rules are further gov- 174 erned by Schedule C – Arbitration (Additional Facility) Rules. Within the CETA, a claim may also be brought before the Tribunal under the 175 ICSID Additional Facility Rules if the investor does not fulfil the conditions for proceedings under the ICSID Convention.169 This may particularly be relevant for investors from Poland or in proceedings where Poland is a respondent, since Poland is not a Party to the ICSID Convention.
XIV. ICSID Convention The definition in the agreement is: ‘ICSID Convention means the Convention on 176 the Settlement of Investment Disputes between States and Nationals of other States, done at Washington on 18 March 1965’.
166 ICSID, Introductory Notes, available at http://icsidfiles.worldbank.org/icsid/icsid/staticfiles/facility -archive/v.htm. 167 ICSID, ICSID Additional Facility Rules, availavle at https://icsid.worldbank.org/resources/rules-an d-regulations/additional-facility-rules/overview. 168 Article 2 ICSID, Additional Facility Rules. 169 Article 8.23(2)(b) CETA.
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1. Drafting History 177
The definition of the ICSID Convention remained the same in all the versions of the CETA.
2. Use of the term 178
The ICSID Convention is mentioned in Chapter 8 (Investment) under the provision of Submission of a claim to the Tribunal (Article 8.23), Consent to the settlement of the dispute by the Tribunal (Article 8.25), Constitution of the Tribunal (Article 8.27), Appellate Tribunal (Article 8.28), and Enforcement of awards (Article 8.41).
3. Commentary 179
180
181 182
183
The Convention on the Settlement of Investment Disputes between States and Nationals of Other States of 1965 entered into force on 14 October 1966. The ICSID Convention currently has 156 contracting states and additionally 8 signatories who have not yet ratified the Convention.170 For the purposes of the CETA, the ICSID Convention governs the dispute resolution process in case a dispute is submitted under Article 8.23 (2)(a) CETA. This also means that a claim brought under the ICSID Convention would also have to comply with the requirements of the Convention.171 Further, a consent provided for investor-state dispute resolution under the CETA also is considered valid consent under the ICSID Convention according to Article 8.25(2)(a) CETA. The ICSID Convention also influences the post award phase of an award issued by a tribunal in Chapter 8 CETA. A review of investor-state dispute settlement awards issued by a tribunal undertaken under Article 8.28 CETA by an Appellate Tribunal is taken based inter alia on the grounds laid down in Article 52(1)(a) to (e) of the ICSID Convention. Further as per the provisions of Article 8.41 CETA, which govern the enforcement of awards, an award issued under the ICSID Convention cannot be enforced until 120 days have elapsed since the issuance of the award and no request for annulment or revision was filed, or if commenced, annulment or revision proceedings have been completed. The ICSID Convention might also provide an advantage for enforcement of a CETA ICS award in case it originated from a claim which was submitted under Article 8.23(2)(a) of the CETA, since such an award will ‘qualify as an award under Chapter IV, Section 6 of the ICSID Convention’.172 The provisions of Article 8.41 (6) CETA can act as an inter se modification of the ICSID Convention for the State Parties to the CETA wherein they will be required to enforce the awards from a CETA tribunal as a ‘final judgment of a court in that State’ without the possibility of appeal or any other remedy in the state where it is sought to be enforced. 173 For non-CETA states, there would be an option to consider an award arising from this scenario as a final judgment or in the alternative, consider it as a foreign arbitral award which would be required to fulfil the conditions for enforcement of such awards in the territory of the given state (interalia provisions of the NYC for State Parties to the NYC). 174
170 As on 15 October 2021 based on information provided on the Official Website of the ICSID, https://icsid.worldbank.org/about/member-states/database-of-member-states. 171 See also, Article 8.23(4) CETA. 172 Article 8.41(6) CETA. 173 See Article 8.41 CETA; Article 53 ICSID Convention. 174 See Article 8.41 CETA.
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XV. Intellectual Property Rights The definition in the agreement is:
184
intellectual property rights means copyright and related rights, trademark rights, rights in geographical indications, rights in industrial designs, patent rights, rights in layout designs of integrated circuits, rights in relation to protection of undisclosed information, and plant breeders' rights; and, if such rights are provided by a Party's law, utility model rights. The CETA Joint Committee may, by decision, add other categories of intellectual property to this definition.
1. Drafting History The definition of intellectual property rights in the first known draft of CETA of 185 13 January 2010 already contained the main pillars which defined intellectual property rights in the agreement. The draft stated: intellectual property rights means copyright and related rights, trademark rights, rights in geographical indications, rights in industrial designs, patent rights, rights in layout designs of integrated circuits, rights in relation to protection of undisclosed information, and plant breeders’ rights.
186 The version of the definition remained the same in the draft of February 2012. Two other major components were added to the definition in the draft of 21 187 November 2013 and 1 August 2014 related to the intellectual property rights provided by the domestic law and other categories of rights by the decision of the joint commission. The draft stated: intellectual property rights means copyright and related rights, trademark rights, rights in geographical indications, rights in industrial designs, patent rights, rights in layout designs of integrated circuits, rights in relation to protection of undisclosed information, and plant breeders’ rights; and, where such rights are provided by domestic law, utility model rights. The Joint Committee may, by decision, add other categories of intellectual property to this definition.
The definition in the final version of CETA remains the same except for the 188 replacement of the term domestic law to Party’s law.
2. Use of the Term The term ‘Intellectual Property Rights’ has been defined and mentioned in the 189 General Definitions and Initial Provisions of the Agreement. In the Investment chapter (Chapter 8), intellectual property rights have been defined 190 (Article 8.1) and mentioned under the provisions of Expropriation (Article 8.12), Reservations and exceptions (Article 8.15). Intellectual Property Rights are also mentioned in the chapter on Financial Services 191 under the Reservations and exceptions (Article 13.10). Intellectual Property Rights have an entire chapter, decided to it which provides for various provisions on Intellectual Property Rights under the CETA (Chapter 20).
3. Commentary The definition of intellectual property rights in the CETA is similar to the defini- 192 tion prescribed in a number of other international investment agreements. 175 There are, however, minor variations in the definition compared to the EU-Vietnam Investment Agreement and the EU-Singapore IPA, which also include goodwill within the 175
Canada-Armenia BIT, 1997; Canada-Serbia BIT, 2014.
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definition.176 Additionally, certain old EU Member State BITs included know-how within the scope of intellectual property rights.177 The definition provided under the CETA, however, may remove such inconsistencies since the treaty permits the inclusion of new categories of intellectual property which indicates that the states may be flexible in their understanding of the definition and may wish to include additional rights in the future. 193 Tribunals in the past have dealt with issues arising from intellectual property laws such as the status of trademarks as being covered under the definition of investment,178 and the inclusion of trademarks within the category of rights which can be expropriated.179 While an intellectual property right may be a protected investment, the question of existence of an intellectual property right is an issue which may be determined on the basis of the domestic law of the host state. 180 The tribunals have already dealt with questions regarding the evolution of intellectual property law in a state and its compatibility with the obligations of the state under an investment treaty.181
XVI. Investment The definition in the agreement is:
194
investment means every kind of asset that an investor owns or controls, directly or indirectly, that has the characteristics of an investment, which includes a certain duration and other characteristics such as the commitment of capital or other resources, the expectation of gain or profit, or the assumption of risk. Forms that an investment may take include: (a) (b) (c) (d) (e) (f)
an enterprise; shares, stocks and other forms of equity participation in an enterprise; bonds, debentures and other debt instruments of an enterprise; a loan to an enterprise; any other kind of interest in an enterprise; an interest arising from: (i) a concession conferred pursuant to the law of a Party or under a contract, including to search for, cultivate, extract or exploit natural resources, (ii) a turnkey, construction, production or revenue-sharing contract; or (iii) other similar contracts; (g) intellectual property rights; (h) other moveable property, tangible or intangible, or immovable property and related rights; (i) claims to money or claims to performance under a contract.
For greater certainty, claims to money does not include:
Article 1.2(h)(vi) EU-Vietnam IPA; Article 1.2(1)(g) EU-Singapore IPA. Article 1(d) Germany-Indonesia BIT, 2003; Article1 (1)(d) Bulgaria-Qatar BIT, 2007. 178 Bridgestone Licensing Services, Inc. and Bridgestone Americas, Inc. v. Republic of Panama, ICSID Case No. ARB/16/34, Decision on Expedited Objections (13 December 2017), para. 219. 179 Philip Morris Brand SARL (Switzerland), Philip Morris Products S.A. (Switzerland) and Abal Hermanos S.A. (Uruguay) v. Oriental Republic of Uruguay, ICSID Case No. ARB/10/7, Award (8 July 2016), para. 274. 180 Philip Morris Brand SARL (Switzerland), Philip Morris Products S.A. (Switzerland) and Abal Hermanos S.A. (Uruguay) v. Oriental Republic of Uruguay, ICSID Case No. ARB/10/7, Award (8 July 2016), para. 243. 181 Eli Lilly and Company v. Government of Canada, ICSID Case No. UNCT/14/2, Final Award (16 March 2017), para. 442. 176
177
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(a) claims to money that arise solely from commercial contracts for the sale of goods or services by a natural person or enterprise in the territory of a Party to a natural person or enterprise in the territory of the other Party. (b) the domestic financing of such contracts; or (c) any order, judgment, or arbitral award related to sub-subparagraph (a) or (b). Returns that are invested shall be treated as investments. Any alteration of the form in which assets are invested or reinvested does not affect their qualification as investment.
1. Drafting History A few major elements of the definition of investment in various drafts of CETA 195 have remained the same, though some key elements have been added to the definition over time. In the first draft of 13th January 2010 investment was defined as: (a) an enterprise; (b) shares, stocks and other forms of equity participation in an enterprise; (c) bonds, debentures and other debt instruments of an enterprise; (d) a loan to an enterprise; (e) an interest in an enterprise that entitles the owner to a share in income or profits of the enterprise; (f) an interest in an enterprise that entitles the owner to share in the assets of that enterprise on dissolution; (g) interests arising from the commitment of capital or other resources in the territory of a Party to economic activity in such territory, such as under: (i) contracts involving the presence of an investor’s property in the territory of the Party, including turnkey or construction contracts, or concessions, or (ii) contracts where remuneration depends substantially on the production, revenues or profits of an enterprise; (h) intellectual property rights; and (i) any other tangible or intangible, moveable or immovable, property and related property rights acquired in the expectation of or used for the purpose of economic benefit or other business purpose but investment does not mean; (j) claims to money arising solely from: (i) commercial contracts for the sale of goods or services by a national or enterprise in the territory of a Party to an enterprise in the territory of the other Party, or (ii) the extension of credit in connection with a commercial transaction, such as trade financing, other than a loan covered by subparagraph (d); or (k) any other claims to money, that do not involve the kinds of interests set out in subparagraphs (a) to (i).
196 This version remained the same in the Draft of February 2012. In the Draft of 21 November 2013, the definition was significantly altered and 197 aspects related to, an asset with characteristics of an investment, a contract related to natural resources, revenue-sharing contract, claims to performance under a contract, natural person, domestic financing, returns that are invested were included in the definition. The version of the definition remained the same in the draft of 1 August 2014 and only a few words were reorganised in the final text of CETA.
2. Use of the Term The entire chapter is based on the term ‘investment’. The term is mentioned in 198 almost all the articles of the chapter. The term is also defined in the chapter on Financial Services (Chapter 13). The term is mentioned in various definitions, inter alia of airport operation services 199 under the chapter on Cross-border trade in services (Chapter 9), of key personnel under the chapter on temporary entry and stay of natural persons for business purposes (Chapter 10), of cross-border supply of financial services or cross-border trade in financial services under the chapter on Financial Services (Chapter 13). The term is mentioned in the chapter on International maritime transport services 200 (Article 14.2, Chapter 14), within the chapter on State enterprises, monopolies, and enterprises granted special rights or privileges (Article 18.4, 18.5, Chapter 18), under the chapter on Government procurement (Article 19.1, Chapter 19), in the chapter on Regulatory cooperation (Article 21.2, 21.3. 21.4, Chapter 21), in the chapter on Trade
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and Labour (Article 23.4, Chapter 23), in the chapter on Trade and Environment (Article 24.5, 24.8, 24.9, 24.12, Chapter 24), in the chapter on Bilateral dialogues and cooperation (Article 25.4, Chapter 25), in the chapter on Administrative and institutional provisions (Article 26.1, 26.2, Chapter 26), in the chapter on Transparency (Article 27.5, Chapter 27), in the chapter on Exceptions (Article 28.3, 28.7, Chapter 28), in the chapter on Dispute Settlement (Article 29.5, Chapter 29), and in the chapter on Final provisions (Article 30.5, 30.8,30.9, Chapter 30).
3. Commentary 201
The definition of an investment under the CETA is the culmination of a number of case laws over time which have shaped the concept. The initial sentences of the definition of an investment under the CETA discuss the following key elements: a) Every Kind of Asset
The meaning of the term ‘asset’ refers to ‘rights and claims which have a financial value for the holder.’182 The first part of the sentence suggests that an investment has been defined as an asset, but the definition indicates a wide encompassing nature of the term through the use of the phrase ‘every kind of asset’. 183 In fact, it has been considered that this phrase is ‘possibly the “broadest” among similar general definitions contained in BITs.’184 In a similar context, a linkage between the terms ‘asset’ and ‘investment’ has been considered to include the ‘widest possible economic activities’ 185 and over time a broad range of assets have been considered as an investment. 186 In case the treaty does not prescribe any limitations on the definition of an asset, as it is the case under the CETA, then the tribunal or under the CETA the Investment Court System (ICS) is not expected to impose any limitations on the definition on its own account.187 The ICS is also not expected to look into the definitions of an ‘asset’ in other treaties to find limitations when the text of the treaty under which the dispute is being adjudicated does not prescribe any limitations.188 203 Referral to domestic law to determine the status of an asset is seen in a number of awards,189 but in case of the CETA, this reference is likely to remain limited to particular categories under the domestic law, and will most likely not extend beyond that since adjudicators are only permitted to consider the domestic law of a Party ‘as a matter of fact.’ (→ Art. 8.31 mn. 19 ff.). It is, however, accepted that while the definition of an ‘asset’ may be covered under the domestic law, the fact whether the particular asset 202
182
299.
William Nagel v. Czech Republic, SCC Case No. 49/2002, Final Award (9 September 2003), para.
183 SCC Limited Liability Company Amto v. Ukraine, Arbitration No. 080/2005, Final Award (26 March 2008), para. 36. 184 Jan Oostergetel and Theodora Laurentius v. Slovak Republic, UNCITRAL, Decision on Jurisdiction (30 April 2010), para. 157. 185 Mytilineos Holdings SA v. The State Union of Serbia & Montenegro and Republic of Serbia I, UNCITRAL, Partial Award on Jurisdiction (8 September 2006), para. 108. 186 Bureau Veritas, Inspection, Valuation, Assessment and Control, BIVAC B.V. v. Republic of Paraguay, ICSID Case No. ARB/07/9, Decision on Jurisdiction (29 May 2009), para. 84. 187 A11Y Ltd. v. Czech Republic, ICSID Case No. UNCT/15/1, Award (29 June 2018), para. 138. 188 Thomas Gosling and others v. Republic of Mauritius, ICSID Case No. ARB/16/32, Award (18 February 2020), para. 137. 189 National Grid P.L.C. v. Argentina Republic, UNCITRAL, Award (3 November 2008), para. 83; Urbaser v. Argentine Republic, UNCITRAL, Award, (8 December 2016), para. 558.
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is covered as an investment may be determined under the applicable law as provided in the treaty.190 b) That an Investor Owns or Controls, Directly or Indirectly The control or ownership by an investor over the asset is a key criterion for 204 determining whether a particular asset would be covered as an investment under the treaty. The control whether direct or indirect by an investor of another Party is key to determine whether it would be an investment covered under the treaty. 191 In the past, tribunals have been asked to determine the title over the assets before determining the jurisdiction over a dispute related to a particular investment.192 Control or ownership by an eligible investor is key to determine a violation of a 205 right under the treaty and the tribunal in the Emmis International Holding case stated that ‘it also follows from the basic notion that an expropriation clause seeks to protect an investor from deprivation of his property that the property right or asset must have vested (directly or indirectly) in the claimant for him to seek redress’. 193 It is further essential that the ownership or control by the eligible owner is as on the date of the alleged breach of the treaty.194 See in this regard as well the definition of an ‘investor’ and ‘covered investment’(→ mn. 108 and → Art. 8.18 mn. 104). What is exactly meant by ownership and control and the difference between the 206 two terms was explained by the tribunal in Plama Consortium Limited which stated that: ownership includes indirect and beneficial ownership; and control includes control in fact, including an ability to exercise substantial influence over the legal entity’s management, operation and the selection of members of its board of directors or any other managing body. 195
While in case of shareholding of corporations, normally ownership also means 207 control through power to appoint directors and vote as shareholders, this situation may change due to multiple classes of shares (including golden shares) now permitted under the laws of many countries. Thus, an investor may have ownership of shares but may lack control. This clause, which protects both ownership and control alternatively however increases the coverage of investments and also allows an investor to seek protection in case either of these two parameters are affected. 196 The inclusion of indirect ownership or control within the scope of the definition means that indirect shareholding may also constitute an investment.197
BG Group Plc. v. Republic of Argentina, UNCITRAL, Award (24 December 2007), para. 91. See also, Azurix Corp. v. Argentine Republic, ICSID Case No. ARB/01/12, Award on Jurisdiction (8 December 2003), para. 63. 192 Vestey Group Ltd v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/06/4, Award (15 April 2016), paras. 193 ff. 193 Emmis International Holding, B.V., Emmis Radio Operating, B.V., and MEM Magyar Electronic Media Kereskedelmi és Szolgáltató Kft. v. Republic of Hungary, ICSID Case No. ARB/12/2, Award (16 April 2014), para. 168. 194 Emmis International Holding, B.V., Emmis Radio Operating, B.V., and MEM Magyar Electronic Media Kereskedelmi és Szolgáltató Kft. v. Republic of Hungary, ICSID Case No. ARB/12/2, Award (16 April 2014), para. 169. 195 Plama Consortium Limited v. Bulgaria, ICSID Case No. ARB/03/24, Decision on Jurisdiction (8 February 2005), para. 170. 196 Bischoff and Wuhler, ‘The notion of investment’, in: Mbengue and Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (2019), 19 (28). 197 Tulip Real Estate and Development Netherlands B.V. v. Republic of Turkey, ICSID Case No. ARB/11/28, Award (10 March 2014), para. 201. 190
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c) Characteristics of an Investment includes in it a Certain Duration and Other Characteristics 208
The characteristics of an investment listed in the definition (commitment of capital or other resources, expectation of gain or profit, assumption of risk) are also reflected in a definition found in the KT Asia Award.198 The KT Asia Award regards ‘contribution or allocation of resources, duration, and risk, which includes the expectation (albeit not necessarily fulfilled) of a commercial return’ as the elements of an investment. This in turn is a modification of the Salini Test which laid down a four point test to determine an investment with the additional element of contribution to host state’s development and exclusion of the expectation of profit element. 199 In a nutshell, the Salini Test considers four criteria: contributions, a certain duration of performance of the contract, a participation in the risks of the transaction and contribution to the economic development of the host State. A discussion on the Salini test and a detailed explanation of these criteria is made below (→ mn. 214). d) Forms that an Investment May Take Include …
209
The inclusion of a ‘broad definition (“every kind of asset”) with an illustrative list of assets categories that fall within the definition of investment’ has been considered as a ‘well-established pattern.’200 The use of the phrase ‘include’ without any further qualification and linked to the phrase ‘every kind of asset’ indicates that the definition is open and may cover other forms of assets in addition to the definition provided. 201 aa) Definition of investment under the ICSID Convention
If a claim has been submitted by ‘an investor of a Party, on behalf of a locally established enterprise which it owns or controls directly or indirectly’, then the investment in question as per the German and French language versions of Article 8.23(4) CETA, is also considererd to fulfil the requirements of an investment under the ICSID convention which does not directly contain a definition of the term ‘investment’. 202 The prescribed condition for an investment to fulfil the requirements both under the ICSID Convention and the investment treaty in question (herein CETA) is called the double-barrelled test.203 The requirement is however not found in the French and German language versions. A contradictory wording is found in the English and Spanish language versions (which suggests that in addition to the conditions for an investment under the CETA, the investment would also have to fulfil the requirements of Article 25(1) ICSID Convention) on the one side, and the French and German version on the other side which excludes such a requirement. 211 In the absence of a definition, tribunals have sought to establish the criteria for determining whether a particular dispute relates to an ‘investment’ as covered under the ICSID Convention. At present, tribunals have not framed a common opinion on 210
198 KT Asia Investment Group B.V. v. Republic of Kazakhstan, ICSID Case No. ARB/09/8, Award (17 October 2013), para. 173. 199 Salini Costruttori S.p.A. and Italstrade S.p.A. v. Kingdom of Morocco [I], ICSID Case No. ARB/00/4, Decision on Jurisdiction (31 July 2001), para. 52. 200 Mytilineos Holdings SA v. The State Union of Serbia & Montenegro and Republic of Serbia I, UNCITRAL, Partial Award on Jurisdiction (8 September 2006), para. 103. 201 Nordzucker AG v. Republic of Poland, UNCITRAL, Partial Award (Jurisdiction) (10 December 2008), para. 166. 202 Article 8.23(1)(b) and Article 8.23(4) CETA, Article 25(1) ICSID Convention. 203 Malicorp Limited v. Arab Republic of Egypt, ICSID Case No. ARB/08/18, Award (7 February 2011), para. 108.
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their interpretation of the definition of an investment. At least one tribunal considered that the definition prescribed in the relevant treaty determines what would constitute an ‘investment’ under the ICSID Convention in the particular case. 204 A few tribunals have designed tests which are based on specific criteria to identify an investment while others have refrained from framing a stringent test to determine the coverage of an investment under the ICSID Convention. Finally, it is crucial to note that the double barrelled test is only relevant if a claim 212 is made under the ICSID Convention and the Rules of Procedure for Arbitration Proceedings under Article 8.23(2)(a) CETA (→ mn. 210), and is not applicable for other proceedings where only the conditions under the CETA have to be fulfilled. 205 A commonly used definition in this regard was framed by the tribunal in the Salini 213 case which was initially discussed in the Fedax case.206 According to the Salini Test, an investment needed to fulfil a four step criteria to qualify as an investment under the ICSID convention.207 The Salini criteria is merely a means to determine the existence of an investment and not a jurisdictional criteria.208 bb) The Salini Test The Salini Test considers four criteria: contributions, a certain duration of perfor- 214 mance of the contract, a participation in the risks of the transaction and contribution to the economic development of the host State for determination of whether there is an investment which satisfies the requirement under the ICSID Convention. 209 Contributions are essential for creating assets which can then be covered as protect- 215 ed investments.210 They can take any form and can constitute money, equipment, personnel, know-how and the like.211 Mere contributions will however not be protected unless they create the assets.212 When there is an evidence of contributions being made, normally, the source of funds for the contribution is not taken into account. 213 It only requires that the investor has committed a certain amount of economic or other resources.214 A further requirement of a contribution to the economic development
204 Fedax N.V. and The Republic of Venezuela, ICSID Case No. ARB/96/3, Decision of the Tribunal on Objections to Jurisdiction (11 July 1997), para. 31. 205 Mytilineos Holdings SA v. The State Union of Serbia & Montenegro and Republic of Serbia I, UNCITRAL, Partial Award on Jurisdiction (8 September 2006), para. 117. 206 Fedax N.V. and The Republic of Venezuela, ICSID Case No. ARB/96/3, Decision of the Tribunal on Objections to Jurisdiction (11 July 1997), para. 31. 207 Schreuer, The ICSID Convention: A Commentary (2009), 129; Bungenberg and Blandfort, ‘International Investment Law and Public Procurement: An Overview’, in Fach Gómez et al. (eds), International Investment Law and Competition Law (2020), 25 (33). 208 Vincent J. Ryan, Schooner Capital LLC and Atlantic Investment Partners LLC v. Republic of Poland, ICSID Case No. ARB(AF)/11/3, Award (24 November 2015), para. 197. 209 Salini Costruttori S.p.A. and Italstrade S.p.A. v. Kingdom of Morocco [I], ICSID Case No. ARB/00/4, Decision on Jurisdiction (31 July 2001), para. 52. 210 Malicorp Limited v. The Arab Republic of Egypt, ICSID Case No. ARB/08/18, Award (7 February 2011), para. 110. 211 Deutsche Bank AG v. Democratic Socialist Republic of Sri Lanka, ICSID Case No. ARB/09/2, Award (31 October 2012), para. 297. 212 Malicorp Limited v. The Arab Republic of Egypt, ICSID Case No. ARB/08/18, Award (7 February 2011), para. 110; Marco Gavazzi and Stefano Gavazzi v. Romania, ICSID Case No. ARB/12/25, Decision on Jurisdiction Admissibility and Liability (21 April 2015), para. 105. 213 Flughafen Zürich A.G. and Gestión e Ingenería IDC S.A. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/10/19, Award (18 November 2014), paras. 250–254. 214 Hassan Awdi, Enterprise Business Consultants, Inc. and Alfa El Corporation v. Romania, ICSID Case No. ARB/10/13, Award (2 March 2015), para. 200.
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of a state is provided under the Salini Test.215 What exactly constitutes a contribution to the development of the host state is however a more complicated analysis and a wide range of situations including inter alia maintaining the Suez Canal,216 constructing a pipeline,217 and providing know-how for constructing and operating a hotel have been considered as sufficient.218 Nevertheless, it is important to point out, the criterion of contribution to the economic development of a state was not included in the CETA investment definition. 216 The duration of an investment is a flexible term and has to be evaluated in light of the overall circumstances so as not to deprive limited duration projects of the status of an investment.219 The requirement of presence of risk can be fulfilled by the presence of both commercial and political risks.220 Risks can also originate from the location of the asset and the duration of the investment.221 cc) Beyond the Salini Test 217
Many tribunals have rejected the Salini Test or laid down their own criteria to determine whether a particular investment is covered under the ICSID Convention. The M.C.I. Power Group Tribunal goes on to state that: the requirements that were taken into account in some arbitral precedents for purposes of denoting the existence of an investment protected by a treaty (such as the duration and risk of the alleged investment) must be considered as mere examples and not necessarily as elements that are required for its existence.222
Additionally, tribunals have considered that the evaluation of a particular case in line with the Salini Test needs an evaluation of the entire situation and even when one criterion is not completely fulfilled it might be offset due to another criteria. 223 219 In a number of cases, particularly in recent years, tribunals have considered that there are only three essential criteria of contribution, duration and risk and they exclude the requirement of contribution to the economic development of the host state.224 This has been called the ‘Salini-light test’.225 218
215 Standard Chartered Bank (Hong Kong) Limited v. United Republic of Tanzania II, ICSID Case No. ARB/15/41, Award of the Tribunal (11 October 2019), para. 241. 216 Jan de Nul N.V. and Dredging International N.V. v. Arab Republic of Egypt, ICSID Case No. ARB/04/13, Decision on Jurisdiction (16 June 2006), para. 92. 217 Saipem S.p.A. v. People's Republic of Bangladesh, ICSID Case No. ARB/05/07, Decision on Jurisdiction and Recommendation on Provisional Measures (21 March 2007), paras. 99 ff. 218 Sistem Muhendislik Insaat Sanayi ve Ticaret A.S. v. Kyrgyz Republic, ICSID Case No. ARB(AF)/06/1, Decision on Jurisdiction (13 September 2007), para. 96. 219 Deutsche Bank AG v. Democratic Socialist Republic of Sri Lanka, ICSID Case No. ARB/09/02, Award (31 October 2012), para. 303. 220 Marco Gavazzi and Stefano Gavazzi v. Romania, ICSID Case No. ARB/12/25, Decision on Jurisdiction Admissibility and Liability (21 April 2015), paras. 109 ff. 221 A.M.F. Aircraftleasing Meier & Fischer GmbH & Co. KG v. Czech Republic, PCA Case No. 2017-15, Final Award (11 May 2020), para. 475. 222 M.C.I. Power Group I.C. and New Turbine, Inc. v. Ecuador, ICSID Case No. ARB/03/6, Award (31 July 2007), para. 165. 223 Christian Doutremepuich and Antoine Doutremepuich v. Republic of Mauritius, PCA Case No. 2018-37, Award on Jurisdiction (23 August 2019), para. 120. 224 Víctor Pey Casado and President Allende Foundation v. Republic of Chile I, ICSID Case No. ARB/98/2, Award (8 May 2008), para. 233; Saba Fakes v. Republic of Turkey, ICSID Case No. ARB/07/20, Award (14 July 2010), para. 110; Electrabel S.A. v. Republic of Hungary, ICSID Case No. ARB/07/19, Decision on Jurisdiction, Applicable Law and Liability (30 November 2012), para. 5.43. 225 Krederi Ltd. v. Ukraine, ICSID Case No. ARB/14/17, Excerpts of Award (2 July 2018), para. 237.
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The second approach taken by tribunals is the addition of new criteria to the Salini 220 Test. In the Malaysian Salvors case, the tribunal added the new parameter of ‘significant contribution’ to the existing requirement of economic development of the host state. 226 The tribunal in Phoenix Action goes a step further and adds two new criteria to the Salini Test: 5 – assets invested in accordance with the laws of the host State; 6 – assets invested bona fide.227
The Salini Test as mentioned is not directly included in the CETA, but similar 221 tests may be used by a tribunal to determine the existence of an investment . 228 In fact, if a dispute based on the CETA is brought before an ICSID Tribunal, it may be required to satisfy the double-barrelled test and fulfil the requirements of both the CETA and ICSID as per the English and Spanish language versions of the CETA (Article 8.23(4)).229
XVII. Investor The definition of Investor in the agreement is:
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Investor means a Party, a natural person or an enterprise of a Party, other than a branch or a representative office, that seeks to make, is making or has made an investment in the territory of the other Party; For the purposes of this definition, an enterprise of a Party is: (a) an enterprise that is constituted or organised under the laws of that Party and has substantial business activities in the territory of that Party; or (b) an enterprise that is constituted or organised under the laws of that Party and is directly or indirectly owned or controlled by a natural person of that Party or by an enterprise mentioned under paragraph (a).
1. Drafting History The definition of ‘investor’ has evolved with each prior known draft of CETA. The 223 first Draft of 13 January 2010 had a very basic definition which stated that ‘investor of a Party means a Party, or a national or an enterprise of a Party, that seeks to make, is making or has made an investment’. The January 2011 and February 2012 Drafts had the text of the definition proposed by both EU and Canada. In the two drafts, the EU proposed that ‘investor of a party means any person that seeks to perform or performs an economic activity through setting up an establishment’. Canada proposed that ‘investor of a party means a party or a national or an enterprise of a party that seeks to make is making or has made an investment’. In the draft of 21 November 2013, an investor was defined unlike the previous 224 draft defining investor of a Party. Canada suggested adding the term ‘a party’ to define an investor. Further, it was suggested that if the enterprise is owned or controlled by
226 Malaysian Historical Salvors Sdn, Bhd v. Government of Malaysia, ICSID Case No. ARB/05/10, Award on Jurisdiction (17 May 2007), para. 124. 227 Phoenix Action, Ltd. v. Czech Republic, ICSID Case No. ARB/06/5, Award (15 April 2009), para. 114. 228 Bischoff and Wuhler, ‘The notion of investment’, in: Mbengue and Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (2019), 19 (25). 229 Bischoff and Wuhler, ‘The notion of investment’, in: Mbengue and Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (2019), 19 (41).
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an investor of the other Party or of a non-Party, it does not mean an investor. The definition with the suggestion read: investor means [Canada: a Party] a natural person or an enterprise of a Party, that seeks to make, is making or has made an investment in the territory of the other Party. But "investor" does not mean: a) an enterprise of a Party, if the enterprise [Canada: is owned or controlled by an investor of the other Party or of a non-Party and the enterprise] has no substantial business activities in the territory of the Party under whose law it is constituted or organized; or, b) a branch or representative office of an enterprise of a Party or a non-Party. [Parties to consider alternatives regarding rights of ‘a Party’ as ‘an investor’ under this Chapter.
225
In the draft of 1 August 2014, the definition underwent substantial changes. The new definition read: investor means a Party, a natural person or an enterprise of a Party, other than a branch or a representative office, that seeks to make, is making or has made an investment in the territory of the other Party. For the purposes of this definition an ‘enterprise of a Party’ is: (a) an enterprise that is constituted or organised under the laws of that Party and has substantial business activities in the territory of that Party; or (b) an enterprise that is constituted or organised under the laws of that Party and is directly or indirectly owned or controlled by a natural person of that Party or by an enterprise mentioned under a).
226
The version of the definition in the draft of 1 August 2014 was adopted as the text of the definition in the final agreement.
2. Use of the Term 227
The term ‘investor’ is extensively used in the chapter on investment where the term is defined (Article 8.1) and is mentioned in the provisions related to Scope (Article 8.2), Market access (Article 8.4), National treatment (Article 8.6), Most-favourednation treatment (Article 8.7), Investment and regulatory measures (Article 8.9), Treatment of investors and of covered investments (Article 8.10), Compensation for losses (Article 8.11), Expropriation (Article 8.12), Transfers (Article 8.13), Subrogation (Article 8.14), Denial of benefits (Article 8.16), Formal requirements (Article 8.17), Resolution of investment disputes between investors and states (Article 8.18), Consultations (Article 8.19), Determination of the respondent for disputes with the European Union or its Member States (Article 8.21), Procedural and other requirements for the submission of a claim to the Tribunal (Article 8.22), Submission of a claim to the Tribunal (Article 8.23), Discontinuance (Article 8.35), Final award (Article 8.39), Indemnification or other compensation (Article 8.40), and Consolidation (Article 8.43).
3. Commentary 228
The definition of an investor is key to the scope of application of rights and obligations of investment agreements and to the establishment of the jurisdiction in the event of a dispute. The definition helps to establish a link of the investor with the home state. If the said link is not as per the trade agreement ‘close enough’ then one will not be able to claim rights and protection provided in the agreement. The tribunal in Amto has highlighted the importance by clarifying that the claimant has
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the burden to prove that it satisfies the definition of an investor to claim protection under a treaty.230 The CETA requires a real economic link with the economies of Canada or the 229 European Union in order for a firm to benefit from the agreement and prevents ‘shell’ or ‘mailbox’ companies established in Canada or the European Union by investors of other countries from bringing claims against Canada or the European Union and its Member States.231 The CETA does not protect so-called shell companies. To be qualified as an investor, it is necessary to have real business operations in the territory of one of the Parties. The detailed definition of an ‘investor’ complements the denial of benefits clause included in Article 8.16 CETA and would act as a potential protection against ‘treaty shopping’. a) Party The inclusion of a Party (which refers to the EU or a State Party to the CETA) with- 230 in the definition of an ‘investor’ is interesting, considering that they (the Contracting Parties to the CETA) are explicitly excluded from the eligibility of commencing a dispute under: i.
the investor-state dispute settlement procedures under Section F of Chapter 8 and specifically under Article 8.23 CETA, and ii. also under the definition of a ‘disputing party’ as discussed above.232 This means that while investments by a State Party to the CETA may be eligible for 231 protection under Section B (Establishment of investments), Section C (Non-discriminatory treatment) and Section D (Investment Protection) of Chapter 8 CETA for their investments in another State Party, the State Parties are not eligible to access investor-State dispute settlement procedures by themselves. However, there may be certain situations when an SOE which is legally distinct from the State Party may attempt recourse to investor state dispute settlement. This provides clarity on the fact that State Parties who are willing to seek protection 232 for their investments under the aforementioned provisions of Chapter 8 CETA would have to take recourse to state-to-state dispute settlement procedures under Chapter 29 CETA. It further makes any future CETA investor-state dispute settlement proceedings compliant with the ICSID Convention, since if a state Party as investor filed a dispute as an investor covered under Article 25 ICSID Convention, then the centre could not deal with it. 233 It is expected that state-to-state dispute settlement procedure provisions will mainly be used when a state Party is involved in investments conducted as a part of commercial dealings either through itself or through a state-owned enterprise. b) A Natural Person of a Party The term ‘natural person’ in the definition is linked to the definition of a ‘natural 233 person’ in Article 8.1 CETA and is discussed in detail there (→ mn. 266). The link of 230 Limited Liability Company Amto v. Ukraine, SCC Case No. 080/2005, Final award (26 March 2008), para 64. 231 Joint Interpretative Instrument on the Comprehensive Economic Trade Agreement between Canada and European Union and its Member States, (General Secretariat of the Council, 13541/16, 27 October 2016), available at http://data.consilium.europa.eu/doc/document/ST-13541-2016-INIT/en/ pdf, p. 5. 232 See, Article 8.2(4) CETA, read with the definition of a disputing Party under Article 8.1 CETA. 233 Emilio Agustín Maffezini v. Kingdom of Spain, ICSID Case No. ARB/97/7, Decision on Jurisdiction (25 January 2000), para. 74.
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the natural person to a Party to be eligible for protection as an investor is a key factor here. c) Enterprise of a Party The term ‘enterprise of a Party’ is linked to:
234
i. the definition of an enterprise under Article 1.1 CETA; and ii. to the explanation below which clarifies that ‘enterprise of a Party’ refers to (a) an enterprise that is constituted or organised under the laws of that Party and has substantial business activities in the territory of that Party, or (b) an enterprise that is constituted or organised under the laws of that Party and is directly or indirectly owned or controlled by a natural person of that Party or by an enterprise mentioned under paragraph (a).234 This definition of an enterprise of a Party is based on the ‘place of incorporation theory’ laid down in the Barcelona Traction case235 which has been reiterated through the Diallo case.236 The unique factor here in comparison to those cases is that while the place of incorporation has been provided importance, the problem of treaty shopping through shell companies or mailbox companies has been sought to be resolved through the requirement of ‘substantial business activity’ to be considered an investor under the treaty.237 236 In simple terms, the qualification criteria included above mean that if an enterprise is incorporated under the laws of a state Party, then it would be able to claim the status of an investor from that state if it fulfils any of the following two characteristics: 235
i. if the enterprise has substantial business activities in the territory of that state; or ii. if it is owned or controlled directly or indirectly by a natural person or enterprise of that state. The meaning of ‘substantial business activities’ has not been provided in the CETA, but the EU-Singapore and EU-Vietnam investment protection agreements indicate that the EU understands the term ‘substantive business operations’ in those agreements to be equivalent to the ‘concept of “effective and continuous link” with the economy of a Member State of the Union enshrined in Article 54 of the Treaty on the Functioning of the European Union’.238 238 Further discussion on the issue of ‘substantial business activities’ is found in the commentary to Article 8.2 CETA (→ Art. 8.2 mn. 53 ff.). 239 Furthermore, an enterprise may not have any shareholding by persons of a state but it may only be incorporated in that state and have substantial business activities and even then it would be able to claim its linkage as an investor from that state. This wide definition of possible investors who may use the CETA means that foreign investors are given unprecedented new rights, for example, U.S. investors who have incorporated business in Canada and have sufficient activity there would be able to 237
Article 8.1 CETA. Barcelona Traction, Light and Power Company, Limited, Judgment, ICJ Reports 1970, p. 3, 42, para. 70. 236 Ahmadou Sadio Diallo (Republic of Guinea v. Democratic Republic of the Congo), Preliminary Objections, Judgment, ICJ Reports 2007, p. 582. 237 Bernasconi-Osterwalder, Commentary to the Draft Investment Chapter of the Canada-EU Comprehensive Economic and Trade Agreement (CETA) (2013), p. 3. 238 Article 1.2(5), EU-Singapore IPA; See also, Article 1.2 (c), EU-Vietnam IPA. 234 235
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use the CETA investment provisions and ISDS to challenge measures by an EU state Party.239 The explanation linked to the ownership or control of an investor by an ‘enterprise 240 of a Party’ clarified that it includes both direct and indirect ownership and control by natural persons or enterprises of the home state where the enterprise is registered. The term ‘control’ has been held to have a flexible meaning and has to be determined in every specific scenario and the ICSID Convention does not specify a particular percentage of shareholding.240 This principle can be observed in the example of the Bogdanov case, where the claimant qualified as an investor even though it had no shareholder interest in the company but only economic interest. 241 Additionally, the presence of the possibility of indirect control means that in a potential situation where an investor incorporated in a state is controlled by a natural person of that state through multiple layers of holding companies, it would still be considered as an investor of that state.242 A further discussion on ‘ownership or control’ can be seen in the definition of 241 ‘locally established enterprise’ below (→ mn. 247). d) Exclusion of Branch or Representative Office The term ‘branch or a representative office’ in a treaty has in the past meant a 242 place of business to carry out economic activities, having a legal link with the parent body.243 The exclusion of a ‘branch or representative office’ from the definition of an investor had to be provided since they were explicitly included within the definition of an ‘enterprise’ which is otherwise covered as an investor. The exclusion of branch or representative offices here means that there is no 243 confusion on the requirement to constitute or organise an enterprise under the local laws of a state if it is sought to acquire an identity as an enterprise of that state (or to obtain the link as an investor belonging to a particular home state) while acting as an investor in another state Party (host state). In the absence of this provision, potential investors could avoid forming a local entity and structure investments through branch or representative offices which would lead to potential confusion later and reduce the clarity which is associated with the incorporation theory. This is because branch or representative offices have been explicitly included as an ‘enterprise’ under Chapter 8, and ‘enterprises’ are otherwise considered eligible to be investors. A detailed discussion on what constitutes a ‘branch or representative office’ is made 244 within the definition of an ‘enterprise’ above (→ mn. 128). e) Making or Has Made an Investment While the CETA does not provide an explanation on the difference between ‘invest- 245 ments made’ or ‘making of an investment’, under the Energy Charter Treaty (‘ECT’), ‘make investments’ or ‘making of investments’ means establishing new investments, acquiring all or part of existing investments or moving into different fields of invest239 Fuchs, ‘Investor-State-Dispute-Settlement’ in Sinclair et al. (eds), Making Sense of the CETA – An Analysis of the Final Text of the Canada-European Union Comprehensive Economic and Trade Agreement (2014), 13 (15). 240 United Utilities (Tallinn) B.V. and Aktsiaselts Tallinna Vesi v. Republic of Estonia, ICSID Case No. ARB/14/24, Award (21 June 2019), para. 366. 241 Bogdanov v. Moldova, SCC Arbitration No. V (114/2009), Final award (30 March 2010), para. 76. 242 Bischoff and Wuhler, ‘The notion of investment’, in: Mbengue and Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (2019), 19 (29). 243 Article 7.9 EU-Korea FTA.
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ment activity.244 The tribunals have interpreted the process of ‘making an investment’ as an ‘active conduct of establishing or acquiring investments’ as ‘opposed to a passive method of being granted acquisition over asset.’245 246 Since the definition of investor includes enterprises that seek to make, are making, or have made an investment, this expands the scope of application of the treaty to the pre-establishment phase.246 This extension of protection under the treaty to the pre-establishment phase is in line with the provisions of the NAFTA, the 2004 Canadian Model FIPA and the 2012 US Model BIT.247
XVIII. Locally Established Enterprise 247
The definition in the agreement is: ‘locally established enterprise means a juridical person that is constituted or organised under the laws of the respondent and that an investor of the other Party owns or controls directly or indirectly’.
1. Drafting History 248
The term ‘locally established enterprise’ was defined for the first time in the draft of 1st August 2014. It was defined as ‘locally established enterprise means a juridical person which has the nationality of the respondent and which is owned or controlled, directly or indirectly, by an investor of the other Party’. The nationality could be fluid in multi-cultural Europe and Canada and thus the lens to look at an enterprise from the nationality aspect was changed in the text of the final agreement.
2. Use of the Term 249
The term ‘locally established enterprise’ is defined in the chapter on investment (Article 8.1), Consultations (Article 8.19), Procedural and other requirements for the submission of a claim to the Tribunal (Article 8.22), Submission of a claim to the Tribunal (Article 8.23), Final award (Article 8.39), Indemnification or other compensation (Article 8.40).
3. Commentary 250
In addition to the rule discussed above in the definition of an ‘investor’ wherein, an enterprise has to be incorporated in another state Party and either have a local shareholder, or have substantial business in the country of incorporation, to be eligible as an investor to bring claims under the CETA investor-state dispute resolution provisions, an enterprise which is incorporated in the host state itself (here referred to as a ‘locally established enterprise’) has also been provided with the right to claim redressal if it is able to prove ownership or control by an ‘investor’ of another state Party.
Article 1(8) Energy Charter Treaty. SunReserve Luxco Holdings S.À.R.L, SunReserve Luxco Holdings II S.À.R.L and SunReserve Luxco Holdings III S.À.R.L v. Italian Republic, SCC Case No. V2016/32, Final Award (25 March 2020), para. 752. 246 Bernasconi-Osterwalder, Commentary to the Draft Investment Chapter of the Canada-EU Comprehensive Economic and Trade Agreement (CETA) (2013), 3; Mbengue and Negm, ‘An African View on the CETA Investment Chapter’, in Mbengue and Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (2019), 239 (247). 247 Bjorklund and Vanhonnaeker, ‘National Treatment’, in Mbengue and Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (2019), 45 (59). 244
245
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Inclusion of a possibility for locally established enterprises was required since under the WTO agreements and the body of other treaties ratified by the EU and Canada, there are opportunities for market access based on trade and investment purposes,248 leading to enterprises which are established locally but have foreign control. The inclusion of a locally established enterprise as an eligible entity which can access the CETA dispute resolution process can create new and enhanced opportunities for such businesses. This is in line with similar provisions in a number of other investment treaties which recognise that an investor of one state Party may incorporate an entity in the other state Party as a vehicle for its investment activity and still receive protection under the treaty.249 This provision is also in line with the ICSID Convention which allows a foreign investor and the host state to agree that the local company established in the host state by the foreign investor in order to make the investment may be considered as a national of another contracting state. 250 Within the dispute settlement process, tribunals have recognised the principle and have found that a foreign investor who acts through a locally incorporated entity is also eligible for protection based on the principle of indirect ownership or control, 251 and this protection may also extend to investments through complicated company structures.252 This also means that the dispute resolution provisions of CETA that are applicable to investors are applicable to locally established enterprises as well.253 A detailed discussion on the terms included in the definition is presented below:
251
252
253
254
a) Juridical Person Constituted or Organised under the Laws of the Respondent While the CETA does not provide any explanation of what would be considered 255 as a ‘juridical person’ under the laws of a country, the definitions of juridical persons in the EU-Singapore and EU-Vietnam investment agreements may provide an insight into possible interpretations. The EU-Vietnam IPA and the EU-Singapore agreements both contain an almost identical definition wherein a juridical person is: ‘any legal entity duly constituted or otherwise organised under applicable law, whether (or not) 254 for profit or otherwise, and whether privately-owned or governmentally-owned, including any corporation, trust, partnership, joint venture, sole proprietorship or association’.255 The definitions under the EU-Vietnam and Singapore agreements reflect the exist- 256 ing understanding of the term ‘locally established enterprise’ by investment arbitration tribunals wherein as a juridical person it has been understood to refer to a non-natural person,256 a legal entity duly constituted or otherwise organised under applicable law,257 which includes various types of entities, corporation, trust, partnership, sole 248 Expert Report, Market access opportunities for EU business in Canada in the context of CETA (2016/ EuropeAid/DH/SER/137-941), available at http://www.euccan.com/wp-content/uploads/2018/12/Mark et-access-opportunities-for-EU-business-in-Canada-in-the-context-of-CETA_May-2018.pdf, p. 3. 249 Article 3.27 EU-Vietnam IPA, 2019; Article 13.7(iv), India-Kyrgyz Republic BIT, 2019; Aguas del Tunari v. Republic of Bolivia, ICSID Case No. ARB/02/3, Decision on Jurisdiction (21 October 2005), para. 216. 250 Article 25(2)(b) ICSID Convention. 251 Stans Energy Corp. and Kutisay Mining LLC v. Kyrgyz Republic (II), PCA Case No. 2015-32, Award (20 August 2019), paras. 445 f. 252 Flemingo Duty free Shop Private Limited v. The Republic of Poland, UNCITRAL, Final award (12 August 2016), para. 321. 253 Articles 8.19, 8.20, 8.22, and 8.23 CETA. 254 In EU-Singapore IPA. 255 Article 1.2(4) EU-Singapore IPA, 2018; Article1.2(c) EU-Vietnam IPA, 2019. 256 Korean Model BIT, 2001. 257 Article XXVIII GATS.
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proprietorships, branches and joint ventures or association.258 It also extends to government owned companies, either wholly or partially owned.259 The domestic law of the state where the entity is registered would determine if it is a juridical person, 260 and there is no requirement for any specific form for the locally established enterprise.261 b) Ownership or Control Directly or Indirectly Control has been understood in investment treaties to mean a substantial share of ownership rights and the ability to exercise decisive influence, 262 or taking key decisions of the company.263 Control can be both de facto or having the legal capacity to control.264 Further, the word ‘control’ modified by the phrase directly or indirectly indicates that one entity may control another entity in different ways. An entity that is directly controlled implies that there is no intermediary between the two entities, while an entity that is indirectly controlled implies that there are one or more intermediary entities between the two.265 258 In the absence of a direct explanation in the CETA of what is meant by ownership or control in a locally established enterprise, a reference may be made to the EU-Vietnam and EU-Singapore Investment Protection Agreements to understand a possible understanding of the terms ‘owned’ and ‘controlled’ at least from the EU’s perspective. As per these agreements which contain nearly identical provisions with merely cosmetic differences: 257
A juridical person is: (a) owned by natural or juridical persons of the other Party if more than 50 per cent of the equity interest in it is beneficially owned by natural or juridical persons of that Party; (b) controlled by natural or juridical persons of the other Party if such natural or juridical persons have the power to name a majority of its directors or otherwise to legally direct its actions.266
The same understanding of ownership and control has been carried on to the CETA in certain specific situations as seen in the reservations.267 260 It is essential to note here that mere ownership of a majority of shares is not an indication of control and a majority shareholder may not control the company. 268 Be259
Article 1(1)(b) Korea-Japan BIT, 2002. Ceskoslovenska obchodní banka, a.s. v. Slovak Republic, ICSID Case No. ARB/97/4, Decision of the Tribunal on Objections to Jurisdiction (24 May 1999), para. 16. 260 Ioan Micula and others v. Romania II, ICSID Case No. ARB/14/29, Award (5 March 2020), para. 269. 261 Autopista Concesionada de Venezuela, C.A. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/00/5, Decision on Jurisdiction (27 September 2001), para. 105. 262 Protocol of 11 March 1986 to the US-Egypt BIT, 1992. 263 Mori Bregante, Indirect ownership, 19 August 2020, https://jusmundi.com/en/document/wiki/en-i ndirect-ownership. 264 B-Mex, LLC and others v. United Mexican States, ICSID Case No. ARB(AF)/16/3, Partial Award (19 July 2019), para. 205. 265 Aguas del Tunari v. Republic of Bolivia, ICSID Case No. ARB/02/3, Decision on Jurisdiction (21 October 2005), para 236. 266 Article 3.1(2), fn. 3, EU-Singapore IPA, 2018; similar provision can be seen in Article 1.2(c), EU-Vietnam IPA, 2019. 267 Reservation 1-PT-121. 268 Mori Bregante, Indirect ownership, 19 August 2020, https://jusmundi.com/en/document/wiki/en-i ndirect-ownership. 258 259
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yond the EU-Vietnam and EU-Singapore Investment Agreements, another definition of control can be seen in the Thunderbird v. Mexico award which states that: Control can also be achieved by the power to effectively decide and implement the key decisions of the business activity of an enterprise and, under certain circumstances, control can be achieved by the existence of one or more factors such as technology, access to supplies, access to markets, access to capital, know-how and authoritative reputation.269
The issue of direct or indirect control is also subject to interpretation and no 261 explanation for the same has been provided in the CETA. As per the Aguas del Tunari v. Bolivia case, the term ‘directly or indirectly’ means: that one entity may control another entity in one of two way. An entity that is directly controlled implies that there is no intermediary between the two entities, while an entity that is indirectly controlled implies that there is one or more intermediary entities between the two. 270
The same tribunal also determined that:
262
the phrase “controlled directly or indirectly” means that one entity may be said to control another entity (either directly, that is without an intermediary entity, or indirectly) if that entity possesses the legal capacity to control the other entity.271
A rare attempt has been made to define direct and indirect control in a BIT 263 wherein in the Nigeria-Morocco BIT, an investor who owns more than 50% of the share capital of the entity was considered to have direct control and alternatively, an investor having the power to appoint the majority of directors of the corporation or to legally supervise its activities, was considered to have indirect control. 272 A further discussion on ‘control’ can be seen in the definition of an ‘investor’ above 264 (→ mn. 222). Lastly, in the absence of a clear definition, the test for control may be determined 265 on the basis of other formal criteria such as the place of incorporation and meaning of an ‘investor’ under the treaty.273
XIX. Natural Person The definition in the agreement is:
266
natural person means: (a) in the case of Canada, a natural person who is a citizen or permanent resident of Canada; and (b) in the case of the EU Party, a natural person having the nationality of one of the Member States of the European Union according to their respective laws, and, for Latvia, also a natural person permanently residing in the Republic of Latvia who is not a citizen of the Republic of Latvia or any other state but who is entitled, under laws and regulations of the Republic of Latvia, to receive a non-citizen's passport. A natural person who is a citizen of Canada and has the nationality of one of the Member States of the European Union is deemed to be exclusively a natural person of the Party of his or her dominant and effective nationality.
International Thunderbird Gaming Corporation v. Mexico, Award (26 January 2006), para. 108. Aguas del Tunari v. Bolivia, ICSID Case No. ARB/02/3, Decision on Respondent‘s Objections to Jurisdiction (21 October 2005), para. 236. 271 Aguas del Tunari v. Bolivia, ICSID Case No. ARB/02/3, Decision on Respondent‘s Objections to Jurisdiction (21 October 2005), para. 264. 272 Fn. 1 to definition of ‘Investor’ in Article 1 of the Morocco-Nigeria BIT, 2016. 273 Yannaca-Small, ‘Chapter 1: Definition of Investor and Investment in International Investment Agreements’ in OECD, International Investment Law: Understanding Concepts and Tracking Innovations (2008), 7 (25). 269
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A natural person who has the nationality of one of the Member States of the European Union or is a citizen of Canada, and is also a permanent resident of the other Party, is deemed to be exclusively a natural person of the Party of his or her nationality or citizenship, as applicable.
1. Drafting History 267
The first three known Drafts of the CETA of 13 January 2010, January 2011 and February 2012 had a very basic definition of a natural person which was not equipped to deal with the complexity of citizenship in both Canada and the EU. The Drafts stated, ‘a natural person who is a citizen of one Party and a permanent resident of the other Party shall be deemed to be exclusively a national of the Party of his or her citizenship’. In the Draft of 21 November 2013, major changes were adopted in the definition. Canada suggested that permanent residents of Canada be considered natural persons and suggested that a natural person who has the nationality of one of the Member States of the European Union or is a citizen of Canada, and is also a permanent resident of the other Party, shall be deemed to be exclusively a natural person of the Party of his or her nationality or citizenship, as applicable. The suggestions were accepted, change suggested by the EU was to include non-citizens but permanent residents of Latvia in the definition, which was also accepted. The concept of dominant and effective nationality was also added to the definition.
2. Use of the Term In the Chapter on investment (Chapter 8), the term ‘natural person’ has been defined and used in the definition of other terms such as claims to money, investor, and natural person (Article 8.1). The term has been mentioned in the provisions on Market access (Article 8.4), Performance requirements (Article 8.5), Senior management and boards of directors (Article 8.8), Final award (Article 8.39). 269 Beyond Chapter 8, CETA includes a separate chapter on Temporary entry and stay of natural persons for business purposes (Chapter 10) wherein the definition for the term refers to contractual services suppliers, independent professionals, key professionals such as business visitors for investment purposes, investors, intra-corporate transferees, (senior personnel, specialists, graduate trainees), independent professionals or short-term business visitors who are citizens of a Party to the CETA. 274 268
3. Commentary The term ‘natural person’ has been covered in bilateral investment treaties and in the ECT. According to the latter, natural persons are defined by reference to each state’s domestic laws determining citizenship or nationality, including the permanent residents.275 NAFTA widely interprets a natural person who is a citizen or a permanent resident of a Party as the national of a Party.276 The nationality of a person is determined based on the domestic law of the state of which nationality is claimed. 277 271 The definition of a natural person is of importance in the CETA since a natural person has been permitted to bring potential disputes as an investor under the CETA. It is also unique since the definition is asymmetric in the fact that it includes both 270
Article 10.1 CETA. Article 1(7)(i) ECT. 276 Article 201 NAFTA. 277 AES Corporation v. Argentine Republic, ICSID Case No. ARB/02/17, Decision on Jurisdiction (26 April 2005), para. 78. 274
275
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citizens and permanent residents for Canada while limiting it to nationals of Member States in the EU, and secondly because it includes the special provisions for Latvia. 278 The nationality of a natural person may also be a factor to determine the nation- 272 ality of an investor which is an enterprise based on ownership or control of the enterprise by the natural person (→ mn. 222).279 An enterprise of a state may not be able to claim nationality of a state even after incorporation in that state when the natural person who holds ownership or control does not fulfil the eligibility conditions to be considered as a natural person belonging to that state in terms of the definition above, and in the alternative fails to fulfil the requirement of substantial business activities.280 Of particular importance is the detailed discussion on the criteria of determination 273 of nationality of natural persons based on the definition above in the CETA since it is a highly debated subject in disputes where a natural person of one state Party obtains nationality or permanent residence of another state Party and then submits a dispute against the state where he or she was originally a national.281 The ICSID Convention even goes ahead to bar claims by dual nationals against one of the states of which the natural person is a national.282 Under the CETA, in cases of dual nationality, it is clarified that a natural person 274 who is a citizen of Canada and has the nationality of one of the Member States of the European Union is deemed to be exclusively a natural person of the Party of his or her dominant and effective nationality. A natural person who has the nationality of one of the Member States of the European Union or is a citizen of Canada, and is also a permanent resident of the other Party, is deemed to be exclusively a natural person of the Party of his or her nationality or citizenship, as applicable.283 This means that the CETA opens the possibility for claims by dual nationals in certain situations. However, whether this is also accepted by an ICS when a claim is lodged pursuant to the ICSID Convention (ICSID Convention Article 25 excludes cases of double nationality from its jurisdiction), or the tribunals also evaluate the nationality requirement under the ICSID Convention remains to be seen, but it has been proposed that to avoid inconsistencies, investments should fulfil both criteria (ICSID and CETA). 284 In case an investor wishes to avoid the additional requirements imposed by the ICSID Con-
278 Angelet, ‘CETA and the Debate on the Reform of the Investment Regime’, in Mbengue and Schacherer (ed), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (2019), 1 (15). 279 See also, Ulysseas, Inc. v. Ecuador, Interim Award (28 September 2010), para. 170. 280 European Commission, Investment provisions in the EU-Canada free trade agreement (CETA), February 2016, p. 3; Van Harten, ‘Comments on the European Commission’s Approach to InvestorState Arbitration in TTIP and CETA’, Osgoode Hall Law School Legal Studies Research Paper Series, Research Paper No. 59, Vol. 10, Issue 13, (2014), p. 8; On this see, Mbengue and Negm, ‘An African View on the CETA Investment Chapter’, in Mbengue and Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (2019), 239 (248); See also, Ulysseas, Inc. v. Ecuador, Interim Award (28 September 2010), para. 167. 281 See, Ioan Micula and Ors. v. Romania, ICSID Case No. ARB/05/20, Decision on Jurisdiction and Admissibility (24 September 2008), paras. 69 f. 282 Article 25(2)(a), ICSID Convention; Saba Fakes v. Republic of Turkey, ICSID Case No. ARB/07/20, Award (14 July 2010), para. 61; Waguih Elie George Siag & Clorinda Vecchi v. Arab Republic of Egypt, ICSID Case No. ARB/05/15, Award (1 June 2009), para. 288. 283 Article 8.1 CETA. 284 Bischoff and Wuhler, ‘The notion of investment’, in: Mbengue and Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (2019), 19 (41).
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vention, he or she may choose any of the alternative rules (ICSID AF/UNCITRAL) for the proceedings.285 275 Tribunals in the past have used criteria similar to the one prescribed in the CETA to determine the dominant and effective nationality of person. The tribunal in the Ballantine award considered habitual residence, the individual’s personal attachment for a particular country, the centre of the person’s economic, social and family life and the circumstances in which the second nationality is acquired bearing in mind the specific context of the dispute along with naturalisation as the major factors to determine the dominant and effective nationality.286
XX. New York Convention 276
The definition in the agreement is: ‘New York Convention means the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, done at New York on 10 June 1958’.
1. Drafting History 277
The definition of ‘New York Convention’ remained the same in all the Drafts of the CETA agreement. Additionally, with the draft of 1 August 2014, it was stated that the negotiators understand that the reference to the New York Convention also captures amendments to the Convention.
2. Use of the Term 278
New York Convention is defined in the Chapter on Investment (Article 8.1) and is mentioned in the provision on Consent to the settlement of the dispute by the Tribunal (Article 8.25), and Enforcement of award (Article 8.41).
3. Commentary 279
The New York Convention287 which at present has 168 Parties provides common legislative standards for the recognition of arbitration agreements and court recognition and enforcement of foreign and non-domestic arbitral awards.288 The Convention’s principal aim is that foreign and non-domestic arbitral awards will not be discriminated against and it obliges contracting states to ensure such awards are recognised and generally capable of enforcement in their jurisdiction in the same way as domestic awards.289 The Convention provides that all State Parties will recognise and enforce arbitral awards without any further burden than what is applicable to domestic arbitration awards in the state.290 The Convention prescribes the limited grounds on
285 Article 8.23(2) CETA; See also, Treves, ‘Investment Treaty Arbitration: Dual Nationals are now Welcome: A way out of ICSID’s Dual Nationality Exclusion’ (2017) 49 NYU JILP, 607 (608). 286 Michael Ballantine and Lisa Ballantine v. The Dominican Republic, PCA Case No. 2016-17, Final award (3 September 2019), paras. 559, 582. 287 Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 (New York Convention, 1958), 330 UNTS 3. 288 UNCITRAL Status: New York Convention, 4 July 2021; https://uncitral.un.org/en/texts/arbitratio n/conventions/foreign_arbitral_awards/status2. 289 New York Convention, Objectives, 1958. 290 Article III, New York Convention, 1958.
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which an award may be refused recognition and enforcement in another contracting state and prevents onerous burden on the Party seeking enforcement. 291 For the resolution of investment disputes between investors and states, CETA 280 prescribes the procedures set out in New York Convention. For deriving consent to the settlement of a dispute by the tribunal, the respondent shall satisfy the requirements of Article II of the New York Convention which provides that the Parties shall recognise written arbitration agreements under which the Parties undertake to submit to arbitration all or any differences which may arise between them. 292 CETA provides that a final award issued by a tribunal dealing with an investor-state dispute under Chapter 8 CETA would be enforceable as an award arising out of a commercial relationship or transaction for the purposes of Article I New York Convention.293 This might ensure that the benefits from the New York Convention including the limited possibility for review and enforceability of the award in all or at least many Contracting Parties of the New York Convention are obtained by an award from the ICS.294 Nevertheless, it is the court in the country where the enforcement is supposed to take place that decides whether an ICS award is to be considered an award covered by the New York Convention.295
XXI. Non-Disputing Party The definition in the Agreement is: ‘non-disputing Party means Canada if the 281 European Union or a Member State of the European Union is the respondent, or the European Union if Canada is the respondent’.
1. Drafting History The non-disputing Party was first defined in the Draft of 15 November 2013, which 282 stated that the ‘non-disputing Party means the Party to the Agreement which is not the respondent’. This version of the definition remained in the Draft of 4 February 2014. A redrafted version of the term which provided added clarity was seen in the Draft of 1 August 2014. This version of the definition was adopted in the final agreement.
Article V, New York Convention, 1958. Article 8.25(b), CETA. 293 Article 8.41(5), CETA. 294 See in this regard the discussion in Article 8.41 (Enforcement of awards); See also, Bungenberg and Holzer, ‘Potential Enforcement Mechanisms for Decisions of a Multilateral Investment Court’, in Unuvar et al. (eds), EYIEL Special Issue: Permanent Investment Court- The European Experiment (2020), 75-118. 295 See on this, Bungenberg and Holzer, ‘Potential Enforcement Mechanisms for Decisions of a Multilateral Investment Court’, in: Unuvar et al. (eds), EYIEL Special Issue: Permanent Investment Court – The European Experiment (2020), 75–118; Happ, ‘The CETA-Tribunal: is it a court? Is it an arbitration tribunal? Is it something else? An analysis of a legal chimera’, in Gebauer et al. (eds), Festschrift für Roderich C. Thümmel zum 65. Geburtstag am 23.10.2020 (2020), 297-312; Happ and Wuschka, ‘From the Jay Treaty Commissions Towards a Multilateral Investment Court: Addressing the Enforcement Dilemma’ (2017) 6(1) Indian J. Arb. L., 113–132; Reinisch, ‘Will the EU’s Proposal Concerning an Investment Court System for CETA and TTIP Lead to Enforceable Awards? – The Limits of Modifying the ICSID Convention and the Nature of Investment Arbitration’ (2016) 19(4) J. Int’l Econ. L., 761–786. 291
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2. Use of the Term 283
The non-disputing Party is defined in the Chapter on Investment (Article 8.1) and the Chapter also includes an entire provision regulating the term (Article 8.38, Non-Disputing Party).
3. Commentary A non-disputing Party in the CETA is a ‘Party’ to the CETA which is not a respondent in the dispute. A definition of the term ‘Party’ (in Article 1.1) provides that Canada, European Union and EU Member States can be considered as Parties. Now, the definition here (Article 8.1) provides for Canada to be the non-disputing Party in case the EU or a Member State of the EU is the respondent, and the EU to be the non-disputing Party if Canada is the respondent. It is considered that the Union and the Member States will appear as a unitary entity vis-à-vis Canada when required to participate as a non-disputing Party.296 Thus, a single not directly involved EU Member State cannot be a non-disputing Party. 285 Under the provisions of CETA, if a dispute has not been resolved through consultations and a claim is submitted for dispute settlement, after receipt of the claim, the respondent shall deliver to the non-disputing Party the documents of request for consultations, notice requesting a determination of the respondent, a notice of determination of the respondent, submitted claim, request for consolidation, and other appended documents. The tribunal after consultation with the disputing Parties may invite oral and written submissions from the non-disputing Party. The tribunal must ensure that the disputing Parties are given reasonable opportunity to present their observation on a submission by the non-disputing Party. The non-disputing Party may also give evidence at its own cost and may also attend the hearing. However, the tribunal cannot draw any inferences from the absence of a submission from the non-disputing Party.297 286 The role of the non-disputing Party to the dispute becomes crucial in determining the understanding of the Parties on the interpretation of the treaty. Here, the non-disputing Party may assist the tribunal in deciding the dispute by providing its perspective on the interpretation of the treaty to ensure that the tribunal could come to a harmonious interpretation of the treaty based on the interpretation which the Parties intended to provide.298 287 Inclusion of non-disputing Parties is not a new development. Also, in ICSID cases, non-disputing Parties are generally able to join the dispute resolution proceedings with the tribunal’s permission to file submissions in the case.299 Under NAFTA Chapter 11, State Parties to a treaty which are not Parties to the dispute had a right to make submissions on a question of application or interpretation of the treaty.300 The NAFTA Commission on non-disputing Party participation provides guidance to the tribunals in determining whether to grant leave to a non-disputing Party to file a submission. 301 284
Pantaleo, The Participation of the EU in International Dispute Settlement (2019), 130. Article 8.38 CETA. 298 B-Mex LLC and others v United Mexican States, ICSID AF Case No. ARB(AF)/16/3, Procedural Order No. 7 (23 November 2018). 299 Rule 37(2) ICSID Rules of Procedure for Arbitration Proceedings. 300 Article 1128 NAFTA. 301 Section B(6), B(7) Statement of the Free Trade Commission on Non-Disputing Party participation, 7 October 2003. The tribunal must consider whether the non-disputing party submission would assist the tribunal in the determination of a factual or legal issue or insight that is different from that of the disputing parties. Whether the non-disputing party submission would address matters within the scope 296
297
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In the Resolute case, the tribunal was not convinced that the applicant fulfilled the criteria listed in the Statement of the Free Trade Commission on Non-Disputing Party participation, as the applicants made no suggestion if they could assist on factual issues.302 Similarly, if it is unlikely that the applicants would provide the tribunal with any perspective or insight different from the disputing Parties, the tribunals may deny submissions from the applicants seeking to make submissions as a non-disputing Party.303 Finally, it must be noted that the participation and role of the non-disputing Parties 288 may also be influenced by the rules under which the proceedings of the tribunal would be undertaken (→ Art. 8.38 mn. 33 ff.).
XXII. Respondent The definition in the agreement is: ‘respondent means Canada or, in the case of 289 the European Union, either the Member State of the European Union or the European Union pursuant to Article 8.21’.
1. Drafting History The first known draft of CETA of 13 January 2010 defined respondent Party as ‘a 290 Party against which a claim is made under Section B’. Section B in the draft provided for Settlement of Disputes between an Investor and the Host Party. This version of the definition remained the same in the Draft of January 2011 and February 2012. The Draft of 15 November 2013 included a clearer definition. For the EU, the determination of the respondent requires the claimant to first deliver a notice requesting a determination of the respondent to the European Union. The definition read: respondent means either Canada or, in the case of the European Union, either the respondent as determined pursuant to Article x- (Notice Requesting a Determination) or, where such determination has yet to be made, the alleged respondent identified by the claimant for purposes of mediation or in the request for consultation.
In the later Draft of 4 February 2014, it was suggested that the EU is the respondent 291 where the measures identified include measures adopted by the European Union, and the concerned Member State be the respondent where the measures identified are exclusively those of the Member State. The definition read: respondent means either Canada or, in the case of the European Union, either the respondent pursuant to Article x- (Notice Requesting a Determination of the Respondent) or, prior to a request for determination the [alleged respondent identified by the claimant for purposes of mediation or in the request for consultation] EU [European Union where the measures identified include measures adopted by the European Union, and the Member State concerned where the measures identified are exclusively those of the Member State].
In the next Draft of 1 August 2014, the term was defined briefly because by that 292 time, the provision for determining the respondent in disputes with the European of the dispute. Whether the non-disputing party has a significant interest in the arbitration and whether there is a public interest in the subject - a matter of the arbitration. The tribunal must ensure that any non-disputing party submission avoids disrupting the proceedings and neither disputing party is unduly burdened or unfairly prejudiced by such submissions. 302 Resolute Forest Products Inc. v. Government of Canada, PCA, Case No. 2016-13, Procedural order on the Participation of Prof. Robert Howse and Mr. Barry Appleton as Amici Curiae (29 June 2017). 303 Apotex Inc v. USA, ICSID Case No. ARB(AF)/12/1, Procedural order on the participation of the Applicant, Mr Barry Appleton as a Non-disputing Party (4 March 2013), para. 34.
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Union or its Member States was put in place. This version of the definition was adopted in the final text of the CETA.
2. Use of the Term 293
The term ‘respondent’ is defined in the chapter on Investment and is mentioned in the definitions of Confidential or protected information, Disputing Party, Locally established enterprise, Non-disputing Party (Article 8.1). The term is also mentioned in the provisions on Consultations (Article 8.19), Determination of the respondent for disputes with the European Union or its Member States (Article 8.21), Procedural and other requirements for the submission of a claim to the Tribunal (Article 8.22), Submission of a claim to the Tribunal (Article 8.23), Consent to the settlement of the dispute by the Tribunal (Article 8.25), Constitution of the Tribunal (Article 8.27), Claims manifestly without legal merit (Article 8.32), Claims unfounded as a matter of law (Article 8.33), Discontinuance (Article 8.35), Transparency of proceedings (Article 8.36), Information sharing (Article 8.37), Non-disputing Party (Article 8.38), Final award (Article 8.39), Indemnification or other compensation (Article 8.40), Consolidation (Article 8.43).
3. Commentary For any dispute under CETA, if a claimant brings claims against Canada, the respondent will be Canada. In case of a claim against the EU/ a Member State, a notice will have to be filed under Article 8.21 CETA for the determination of the respondent if the claim is against the European Union or a particular Member State. 295 The EU is a unique economic and political union between 27 EU countries to foster economic cooperation and to create a single market without borders, which ensures the free movement of goods, services, capital and persons and has no technical, legal and bureaucratic barriers. Thus, CETA provides for determination of the respondent for disputes with the EU or its Member States.304 296 In the event of a breach of CETA by the EU or a Member State of the EU, the investor shall deliver a notice to the EU requesting a determination of the respondent. 305 The notice must identify the measures in respect of which the investor intends to submit the claim. The EU determines and informs the investor as to whether the EU or a Member State of the EU will be the respondent. In the event that the investor is informed of the determination within 50 days of delivering such notice, if the measures identified in the notice are exclusively measures of a Member State of the EU, the Member State shall be the respondent and if the measures identified in the notice include measures of the European Union, the European Union shall be the respondent.306 294
XXIII. Returns 297
The definition in the agreement is: ‘returns mean all amounts yielded by an investment or reinvestment, including profits, royalties and interest or other fees and payments in kind’.
See About the EU, available at https://europa.eu/european-union/about-eu_en. Article 8.21 CETA. 306 Article 8.21 CETA. 304
305
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1. Drafting History The definition of the term ‘returns’ was introduced in the Draft of 21 November 298 2013, stating ‘returns means all amounts yielded by an investment or reinvestment, including profits, royalties and interest or other fees and payments in kind’. The same version was adopted in the Draft of 1 August 2014 as well as in the final agreement.
2. Use of the Term The term ‘return’ is defined in the chapter on Investment (Chapter 8) and is 299 referred to in the definition of investment (Article 8.1). The term is further mentioned in the provision on Transfers (Article 8.13).
3. Commentary It is considered that returns are a hallmark of investment for a number of invest- 300 ment treaties.307 As per the European Commission’s guide to Cost-Benefit Analysis of Investment Projects, returns are the proper measure of a project's contribution to social welfare.308 The investors can generally expect to have a reasonable return while making an investment based on the investment conditions.309 The CETA considers profit, royalties, capital gains, management, technical assistance and other fees, as well as interest, to be returns.310 The returns that are invested are also considered as investments (→ mn. 194). It has, however, been considered that this protection cannot be extended to cover returns from transactions which were not as such an investment.311 Returns expected from investments are also important in case of expropriation 301 since the damages are generally calculated on the basis of the invested value and a reasonable rate of return.312
XXIV. Selling and marketing of Air Transport Services The definition in the agreement is:
302
selling and marketing of air transport services means opportunities for the air carrier concerned to sell and market freely its air transport services including all aspects of marketing such as market research, advertising and distribution, but does not include the pricing of air transport services nor the applicable conditions.
1. Drafting History The term selling and marketing of air transport services were introduced in the first 303 consolidated draft of CETA of 13 January 2010 which states: Denmark-India BIT, Iceland-Lebanon BIT, Mexico-Greece BIT, Turkey-Denmark BIT. European Commission, Guide to Cost-Benefit Analysis of Investment Projects Economic appraisal tool for Cohesion Policy 2014-2020, 2014, p. 66. 309 AES Corporation and Tau Power B.V. v. Republic of Kazakhstan, ICSID Case No. ARB/10/16, Award (1 November 2013), para. 398. 310 Article 8.13 CETA. 311 Inmaris Perestroika Sailing Maritime Services GmbH and others v. Ukraine, ICSID Case No. ARB/08/8, Decision on Jurisdiction (8 March 2010), para. 106. 312 NextEra Energy Global Holdings B.V. and NextEra Energy Spain Holdings B.V. v. Kingdom of Spain, ICSID Case No. ARB/14/11, Decision on Jurisdiction, Liability and Quantum Principles (12 March 2019), para. 650. 307
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selling and marketing of air transport services mean opportunities for the air carrier concerned to sell and market freely its air transport services including all aspects of marketing such as market research, advertising and distribution. These activities do not include the pricing of air transport services nor the applicable conditions.
304
The definition is not found in any other Draft thereafter. Thus the same 2010 version was adopted in the final CETA, with a minor rephrasing at the end.
2. Use of the Term The terms ‘selling and marketing of air transport services’ are defined under Article 8.1 in the chapter on Investment and is referred to in Article 8.2(2)(a) as one of the provisions where safeguards provided under Section B (Establishment of investments) and Section C (Non-discriminatory treatment) are available for establishment or acquisition of a covered investment even though ‘air services’ are generally excluded. 306 It is further defined in Article 9.1 of the chapter on Cross-border trade in services (Chapter 9) where it is further utilised to explain the scope of the chapter (Article 9.2). The term also finds mention in the exceptions of Canada related to Investment and Cross-Border Trade in Services (Reservation II-C-13) and Reservations application to the European Union in Investment and Cross-Border Trade in Services. 305
3. Commentary The selling and marketing of air transport services are covered under the Annex on Air Transport Services of the GATS and the definition included in the CETA is similar to the definition provided under Paragraph 6(b) of the Annex. It is a significant part of the operating cost of an airline313 and includes marketing, market research and advertising.314 308 The definition provided in the Annex only covers selling and marketing of air transport services by the airlines directly and does not cover the situation when they are made by travel agents and CRS suppliers.315 The definition, however, covers sales by airlines not only to private clients but also to travel agencies and also includes sale or air freight services.316 309 The EU has made commitments on providing market access in this sector under the GATS. The CJEU in Opinion 2/15 (Singapore Opinion) determined that selling and marketing of air transport services fall within the ambit of the Common Commercial Policy (Article 207(1) TFEU) and the EU Commission has the exclusive competence to conclude international agreements on this issue.317 Consequently, it has also been included in the EU-Vietnam IPA,318 and the EU-Japan EPA, 2018319 and investments under this sector are eligible for protection under these agreements. 307
313 Findlay, Air transport, Paper prepared for East Asia Conference on Options for the WTO 2000 Negotiations PECC/TPF and World Bank, 20 August 1999, p. 8. 314 WTO, Air Transport and the GATS – 1995/2000 in Review, June 2006, S/C/W/163, para. 123. 315 Findlay, Air transport, Paper prepared for East Asia Conference on Options for the WTO 2000 Negotiations PECC/TPF and World Bank, 20 August 1999, p. 8. 316 Zutshi and Guzder, Trade in Services: Opportunities and Constraints, Indian Council for Research on International Economic Relations, p. 18. 317 CJEU, Opinion 2/15, 16.5.2016, ECLI:EU:C:2017:376, paras. 64–68. 318 Article 2.1(2) EU-Vietnam IPA, 2019. 319 Article 8.6(2) EU-Japan EPA, 2018.
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XXV. Third Party Funding The definition in the agreement is:
310
third party funding means any funding provided by a natural or legal person who is not a disputing party but who enters into an agreement with a disputing party in order to finance part or all of the cost of the proceedings either through a donation or grant or in return for remuneration dependent on the outcome of the dispute.
1. Drafting History The term ‘third party funding’ was not defined in seven Drafts of CETA from 311 January 2010 to August 2014. The term was defined and adopted in the final text of CETA. The recent addition of the term to CETA is understood in the context that in the past, Third-Party-Funding was a smaller niche market, but in recent years, the demand for Third-Party-Funding services in these and other jurisdictions has grown exponentially. International arbitration has seen Third-Party-Funding augmenting in the past few years.320
2. Use of the Term The term ‘third party funding’ is defined (Article 8.1) in the chapter on Investment 312 and is referred to in the provision of Third-Party-Funding (Article 8.26).
3. Commentary Third-Party-Funding has been discussed extensively by the UNCITRAL Working 313 Group III on reform of investor state-dispute settlement with a number of discussions on possible regulation of this mechanism.321 The definition of Third-Party-Funding provided in the CETA closely resembles the 314 definition included in the report of the UNCITRAL Secretariat. 322 The key elements in the definition of Third-Party-Funding in CETA are: (a) It is provided by a natural or legal person that is not a party to the dispute; (b) the provision of financing (whether full or part) in the form of donation or grant; (c) remuneration or return based on the outcome of the dispute. As per the ICCA-Queen Mary Task Force Report on Third-Party-Funding, Third- 315 Party-Funding can resemble, be co-terminus with, or complement other forms of arbitration financing, such as contingency fee arrangements, or pro bono legal services, where services of value are also provided to a Party to a dispute by an unrelated third-Party.323
320 Nieuwveld and Sahani, Third-Party Funding in International Arbitration (2017), 10 f.; See also, for a detailed understanding, Hoffmann, Gewerbliche Prozessfinanzierung in internationalen Investitionsschiedsverfahren (2018). 321 Note by the Secretariat, ‘Third-party funding’, United Nations Commission on International Trade Law Working Group III (Investor-State Dispute Settlement Reform) Thirty-seventh session New York, 1–5 April 2019, A/CN.9/WG.III/WP.157, 24 January 2019. 322 Note by the Secretariat, ‘Third-party funding’, United Nations Commission on International Trade Law Working Group III (Investor-State Dispute Settlement Reform) Thirty-seventh session New York, 1–5 April 2019, A/CN.9/WG.III/WP.157, 24 January 2019, p. 2. 323 International Council for Commercial Arbitration (ICCA), Report of the ICCA–Queen Mary task force on third-party funding in international arbitration (2018) p. 36.
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Recent years have seen a significant increase in the number of funders and the number of funded International Investment Disputes cases.324 However this funding was unregulated at the treaty level and raised various policy issues many of which are unique to the specific context in which claimants are permitted to sue states in ad hoc arbitration, other concerns such as conflict of interest and confidentiality issues also arise. CETA has attempted to address some of these issues. It has a provision for disclosure of the name and address of the third Party funder by the disputing Party benefiting from the funding to the other disputing Party and to the tribunal. The disclosure shall be made at the time of the submission of the claim when the financing agreement/donation/grant is made, or after the submission of the claim without delay as soon as the financing agreement is concluded.325 317 Tribunals keeping in mind their duty to protect the integrity and transparency of the arbitral proceedings, have several times in the past ordered claimants to reveal the nature of their Third-Party-Funding arrangements,326 or the identity of their funders.327 316
XXVI. Tribunal 318
The definition in the agreement is: ‘Tribunal means the tribunal established under Article 8.27’.
1. Drafting History 319
The term tribunal was first defined in the Draft of 1 August 2014, as per which a tribunal was established under the provisions of the article providing for the submission of a claim to arbitration or consolidation. The text of the definition remained the same in the final text of CETA but the tribunal was suggested to be established under the provisions of the article providing for Constitution of the Tribunal or Consolidation. The definition finally states ‘Tribunal means the tribunal established under Article 8.27’.
2. Use of the term 320
The term has been mentioned numerous times throughout the Chapter, but a reference is required to Article 8.27 for the specific context of this definition. For this particular situation, the tribunal is formed to decide on investor-state investment disputes.
3. Commentary 321
CETA has provided for establishing a body called a ‘Tribunal’ to decide claims and resolve the disputes that have not been resolved through consultations.328 While the
324 International Council for Commercial Arbitration (ICCA), Report of the ICCA–Queen Mary task force on third-party funding in international arbitration (2018). 325 Article 8.26 CETA. 326 Muhammet Cap & Sehil Insaat Endustri ve Tivaret Ltd. Sti v. Turkmenistan, ICSID Case No. ARB/12/6; Tennant Energy v Government of Canada, PCA Case No 2018-54, Procedural Order No. 4 (27 February 2020), p. 96. 327 EuroGas Inc. and Belmont Resources Inc v. Slovak Republic, ICSID Case No. ARB/14/14; South American Silver v. Plurinational State of Bolivia, PCA Case No. 2013-15. 328 Article 8.23 CETA read with Article 8.27 CETA.
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Black’s Law Dictionary defines it as ‘a court or other adjudicatory body’,329 a more focussed definition refers to it as ‘specialist judicial bodies which decide disputes in a particular area of law’.330 Under traditional investor-state dispute arbitration, investor-state disputes are usu- 322 ally decided by arbitral ad-hoc tribunals of three members: one chosen by the foreign investor, one by the challenged government and a third by mutual agreement of both Parties (or, failing that, by an outside appointing authority). Decisions from such tribunals (called ‘awards’) are subject to limited or no review in any court, whether domestic or international.331 Under the CETA, instead of forming an ad-hoc tribunal, the CETA Joint Commit- 323 tee establishes a permanent tribunal, or roster, made up of 15 members with a set five-year term to be appointed by the EU and Canada. Five of them will be Canadian and five European nationals, with the remainder appointed from third countries. Investment disputes under CETA will be decided by three members selected from this roster by the investment tribunal president (a rotating position) one must be from the Canadian pool, one from the EU pool, and a final chosen from among the third country group who will serve as chair of that particular case.332 Decisions from the tribunal formed under Article 8.27 CETA are still called ‘awards’.333 The members of the tribunal shall possess the qualifications required in their 324 respective countries for appointment to judicial office, or be jurists of recognised competence. They shall have demonstrated expertise in public international law. It is desirable that they have expertise in particular in international investment law, in international trade law and the resolution of disputes arising under international investment or international trade agreements.334
XXVII. UNCITRAL Arbitration Rules The definition in the agreement is: ‘UNCITRAL Arbitration Rules means the arbi- 325 tration rules of the United Nations Commission on International Trade Law’.
1. Drafting History The definition of UNCITRAL Arbitration Rules has remained the same in all the 326 versions of the CETA as adopted in the final CETA.
2. Use of the Term The term ‘UNCITRAL Arbitration Rules’ is defined in the investment chapter and 327 referred to in the provisions on Submission of a claim to the Tribunal (Article 8.23), Enforcement of awards (Article 8.41), and Consolidation (Article 8.43).
Black’s Law Dictionary, 8th edn, p. 4694. See https://www.judiciary.uk/about-the-judiciary/who-are-the-judiciary/judicial-roles/tribunals/f ee-paid-judiciary-page-1/. 331 Fuchs, ‘Investor-State-Dispute-Settlement’ in Sinclair et al. (eds), Making Sense of the CETA- An Analysis of the Final Text of the Canada-European Union Comprehensive Economic and Trade Agreement (2014), 13 (14). 332 Article 8.27 CETA. 333 Article 8.28(1) CETA and Article 8.39 CETA. 334 Article 8.27(4) CETA. 329
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3. Commentary The UNCITRAL Arbitration Rules335 provide a set of procedural rules upon which Parties may agree for the conduct of arbitral proceedings arising out of their commercial relationship and are widely used in ad hoc arbitrations (including investor state arbitrations) as well as administered arbitrations. 329 The UNCITRAL Arbitration Rules were initially adopted in 1976 and have been used for the settlement of a broad range of disputes, including disputes between private commercial Parties where no arbitral institution is involved, investor-State disputes, State-to-State disputes and commercial disputes administered by arbitral institutions.336 330 CETA provides for submission of a claim to the Tribunal for resolution of dispute under the UNCITRAL Arbitration Rules, 337 by serving the notice to the respondent,338 as per Article 3 of the UNCITRAL Arbitration Rules. When the dispute has been filed under the UNCITRAL Arbitration Rules, the tribunal will follow these rules during the conduct of the dispute. 331 As of date, the UNCITRAL Arbitration Rules were last amended in 2013 when a new Article 1, paragraph 4 was added to include the UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration into the UNCITRAL Arbitration Rules. 328
XXVIII. UNCITRAL Transparency Rules 332
The definition in the agreement is: ‘UNCITRAL Transparency Rules means the UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration’.
1. Drafting History 333
UNCITRAL Transparency Rules were first defined in the draft of 4 February 2014 on the suggestion of Canada and the definition remained the same in the draft of 1 August 2014 and the final CETA.
2. Use of the Term 334
UNCITRAL Transparency Rules have been defined in this chapter (Article 8.1) and referred to in the provisions on Transparency of proceedings (Article 8.36) and Non-disputing Party (Article 8.38).
3. Commentary 335
Recognising the need for provisions on transparency in the settlement of treatybased investor-State disputes, particularly taking into account the public interest in-
335 The latest version of the rules is available for download from https://www.uncitral.org/pdf/english /texts/arbitration/arb-rules-2013/UNCITRAL-Arbitration-Rules-2013-e.pdf. 336 UN General Assembly, Resolution 31/98, Arbitration Rules of the United Nations Commission on International Trade Law, 15 December 1976, A/RES/31/98. 337 Article 8.23(2)(c) CETA. 338 Article 8.23(7)(c) CETA.
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volved in ISDS, the UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration were added to the text of the UNCITRAL Arbitration Rules in 2013. 339 With an emphasis on transparency, CETA has included separate articles for trans- 336 parency in investor-state dispute settlement proceedings and provides that inter alia the request for consultations, the notice requesting a determination of the respondent, the notice of determination of the respondent, the agreement to mediate, the notice of intent to challenge a member of the tribunal, the decision on the challenge to a member of the tribunal, the request for consolidation, the written submission made to the tribunal and exhibits shall be included in the list of documents to be made available to the public under the UNCITRAL Transparency Rules.340
339 UN General Assembly, Resolution 68/109, United Nations Commission on International Trade Law Rules on Transparency in Treaty-based Investor-State Arbitration and Arbitration Rules, 16 December 2013, A/RES/68/109. 340 Article 8.36 CETA and Article 8.38 CETA.
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Article 8.2 Scope 1. This Chapter applies to a measure adopted or maintained by a Party in its territory relating to: (a) an investor of the other Party; (b) a covered investment; and (c) with respect to Article 8.5, any investments in its territory. 2. With respect to the establishment or acquisition of a covered investment, Sections B and C do not apply to a measure relating to: (a) air services, or related services in support of air services and other services supplied by means of air transport, other than: (i) aircraft repair and maintenance services; (ii) the selling and marketing of air transport services; (iii) computer reservation system (CRS) services; (iv) ground handling services; (v) airport operation services; or (b) activities carried out in the exercise of governmental authority. 3. For the EU Party, Sections B and C do not apply to a measure with respect to audio-visual services. For Canada, Sections B and C do not apply to a measure with respect to cultural industries. 4. Claims may be submitted by an investor under this Chapter only in accordance with Article 8.18, and in compliance with the procedures set out in Section F. Claims in respect of an obligation set out in Section B are excluded from the scope of Section F. Claims under Section C with respect to the establishment or acquisition of a covered investment are excluded from the scope of Section F. Section D applies only to a covered investment and to investors in respect of their covered investment. 5. This Chapter does not affect the rights and obligations of the Parties under the Agreement on Air Transport between Canada and the European Community and its Member States, done at Brussels on 17 December 2009 and Ottawa on 18 December 2009. Bibliography: Rudolf Adlung, ‘Public Services and the GATS’ (2006) 9(2) J. Int’l Econ. L., 455; Cyrus Benson, Penny Madden and Ceyda Knoebel, Covered Investment (Gibson, Dunn & Crutcher LLP); Clyde H. Crockett, ‘Extraterritorial Expropriations’ (1980) 13 Ind. L. Rev., 655; Jan Bischoff and Matthias Wühler, ‘The Notion of Investment’ in Makane Moïse Mbengue and Stefanie Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (Springer Nature, Switzerland 2019); Aron Broches, ‘The Convention on the Settlement of Investment Disputes between States and Nationals of other States’ (1972/II) 136 RC, 331; Marc Bungenberg, ‘The Scope of Application of EU (Model) Investment Agreements’ (2014) 15(3-4) JWIT, 402; Maria Chochorelou, ‘The European Identity Rationale in the EU Free Trade Agreements: Economic rather than Cultural Objectives?’ 2019 2, Cuadernos Europeos de Deusto, 227; James Crawford and Simon Olleson, ‘The Application of the Rules of State Responsibility’ in Marc Bungenberg, Jörn Griebel, Stephan Hobe, August Reinisch (eds), International Investment Law: A Handbook (Nomos, Baden-Baden 2015), 411; Paul Dempsey, ‘Flights of Fancy and Flights of Fury: Arbitration and Adjudication of Commercial and Political Disputes in International Aviation’ (2004) 32(2) Ga. J. Int'L & Comp. L., 231; Katharina Diel-Gligor and Rudolf Hennecke, ‘Investment in accordance with the law’ in Marc Bungenberg, Jörn Griebel, Stephan Hobe, August Reinisch (eds), International Investment Law: A Handbook (Nomos, Baden-Baden 2015), 566; Rudolf Dolzer and Christoph Schreuer, Principles of International Investment Law (1st edn, Oxford University Press, Oxford, 2008); Jaap Dronkers and Maarten Vink, ‘Explaining Access to Citizenship in Europe: How Citizenship Policies Affect Naturalization Rates’ (2012) 13(3) EUP, 390; María Trinidad García Leiva, ‘The EU-Canada CETA and the diversity of cultural industries: hegemony or resistance? Some notes’, Paper presented at the IAMCR 2015 conference in Montreal,
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Canada, July 12-16, 2015; Ellen Gould, in Scott Sinclair, Stuart Trew, Hadrian Mertins-Kirkwood (eds), Making Sense of the CETA – An Analysis of the Final Text of the Canada-European Union Comprehensive Economic and Trade Agreement (Canadian Centre for Policy Alternatives, September 2014); Michael Hahn and Pierre Sauvé, ‘Research for the CULT Committee - Culture and Education in CETA’, in European Parliament (2016); Frank Hoffmeister, ‘Litigating against the European Union and its Member States – Who Responds under the ILC’s Draft Articles on International Responsibility of International Organizations’ (2010) 21(3) EJIL, 723; Rainer Hofmann, ‘The Protection of Individuals under Public International Law’ in Marc Bungenberg, Jörn Griebel, Stephan Hobe, August Reinisch (eds), International Investment Law: A Handbook (Nomos, Baden-Baden 2015) 46; Kurt Hübner, Tugce Balik, and Anne-Sophie Deman, CETA: The Making of the Comprehensive Economic and Trade Agreement between Canada and the EU (Ifri Canada Program, Paris 2016); Christina Knahr, ‘The Territorial Nexus between an investment and the host state’ in Marc Bungenberg, Jörn Griebel, Stephan Hobe, August Reinisch (eds), International Investment Law: A Handbook (Nomos, Baden-Baden 2015) 590; Sabine Konrad, ‘Protection for Non-Profit Organizations’ in Marc Bungenberg, Jörn Griebel, Stephan Hobe, August Reinisch (eds), International Investment Law: A Handbook (Nomos, Baden-Baden 2015) 550; Markus Krajewski, ‘Public Services and Trade Liberalization: Mapping the Legal Framework’ (2003) 6(2) J. Int’l Econ. L., 341; Hannes Lenk, ‘Issues of Attribution: Responsibility of the EU in Investment Disputes under CETA’ (2016) 13(1) TDM, 21; Alexandre Maltais, ‘Cultural reservation’ in Scott Sinclair, Stuart Trew and Hadrain Mertins-Kirkwood (eds), Making Sense of the CETA (Canadian Centre for Policy Alternatives, September 2014); Makane Moïse Mbengue and Mohamed Negm, ‘An African View on the CETA Investment Chapter’ in Makane Moïse Mbengue and Stefanie Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (Springer Nature, Switzerland 2019), 239; Markus Perkams, ‘Protection for Legal Persons’ in Marc Bungenberg, Jörn Griebel, Stephan Hobe, August Reinisch (eds), International Investment Law: A Handbook (Nomos, Baden-Baden 2015) 638; Lucy Reed and Jonathan Davis, ‘Ratione Personae: Who is a Protected Investor?’ in Bungenberg et al. (eds), International Investment Law: A Handbook (2015), 614; August Reinisch, ‘The Scope of Investor-State Dispute Settlement in International Investment Agreements’ (2013) 21(1) Asia Pac. L. Rev., 3; August Reinisch and Lukas Stifter, ‘European Investment Policy and ISDS’ (2015) 11(12) ELTE LJ; Lilian Richieri Hanania, ‘Trade, culture and the European Union cultural exception’ (2019) 25(5) Int. J. Cult. Policy, 568; Krista Schefer, International Investment Law (3rd edn., Edward Elgar Publishing, Cheltenham, 2020); Philipp Stegmann, Responsibility of the EU and the Member States under EU International Investment Protection Agreements (Springer, Switzerland 2019); Andrew Steinberg and Charles Kotuby Jr., ‘Bilateral Investment Treaties and International Air Transportation: A New Tool for Global Airlines to Redress Market Barriers’ (2011) 76 J. Air L. & Com., 457; Catharine Titi, ‘International investment law and the European Union: towards a new generation of international investment agreements’, (2015) 26(3) EJIL, 639; Gus Van Harten, ‘The European Union’s Emerging Approach to ISDS: a Review of the Canada-Europe CETA, Europe-Singapore FTA, and European-Vietnam FTA’ (2016) 1(1) U. Bologna L. Rev., 138; Maarten Vink and Gérard-René de Groot, ‘Citizenship Attribution in Western Europe: International Framework and Domestic Trends’ (2010) 36(5) J. Ethn. Migr. A. Introduction and Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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B. Spirit and Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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C. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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D. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. Scope of Application of the CETA Investment Chapter – para. 1 . . . . . . . . . 1. A Measure Adopted or Maintained by a Party in its Territory . . . . . . . . . a) A Measure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . b) Adopted or Maintained by a Party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . c) In its Territory (I) – territorial limit of a measure . . . . . . . . . . . . . . . . . . . . . . 2. Relating to an Investor of the other Party (Qualifying Investors) . . . . . . a) Natural Person of a Party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . aa) The Issue of Nationality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . bb) The Issue of Dual Nationality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . b) An Enterprise of a Party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . aa) Enterprise Constituted under the Laws of a Party (corporate nationality) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . bb) Substantial Business Activity in the Territory of a Party . . . . . . . . . . cc) Directly or Indirectly Owned or Controlled by a Natural Person or an Enterprise of a Party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . c) A Party (Qualifying as an Investor) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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Scope 3. Having a Covered Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a) In its territory (II) – territorial limit of a covered investment . . . . . . . . . . b) Made in Accordance with the Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . c) Directly Owned or Controlled by an Investor of the Other Party . . . . . . . d) Existing on the date of entry into force of this Agreement, or Made/ Acquired thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. Measures Relating to Performance Requirements . . . . . . . . . . . . . . . . . . . . . . II. Sectoral Exceptions from the Scope of Application . . . . . . . . . . . . . . . . . . . . . . . . 1. The Air Services and Related Services Exception – para. 2(a) . . . . . . . . . . 2. Activities in Exercise of Governmental Authority – para. 2(b) . . . . . . . . . a) Activities Carried out Neither on a Commercial Basis . . . . . . . . . . . . . . . . . b) Nor in Competition with one or more Economic Operators . . . . . . . . . . . . 3. The Cultural-Exception Clause – para. 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a) Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . b) Interpretation of the Cultural Exclusion Clause Based on Local Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . c) Making Sense of the Difference Between the Clause Chosen by the Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. Section F Procedure for Claims under Chapter 8 and Exceptions . . . . . . . . . 1. The Section F General Procedure for Claims by an Investor – para. 4 (1st sentence) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Specific Types of Claims (Section B and C Obligations) Excluded from Coverage – para. 4 (2nd – 3rd sentence) . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Specific Inclusion under the Chapter – para. 4 (4th sentence) . . . . . . . . . IV. Non-Effect of CETA Chapter 8 on Canada/EC and Member States Air Transport Agreement – para. 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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E. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
A. Introduction and Overview 1
One critical component of every international treaty is the determination of the scope of application. This provision is a fundamental guide in ascertaining what exactly the Contracting Parties have committed to, and what they have ‘excluded’ from the scope of application. This is what Article 8.2 CETA is essentially all about. The article determines what is covered and what is excluded from the rights and obligations provided by the Parties under the CETA Investment Chapter (Chapter 8). Especially, it excludes Investor-State Dispute Settlement (ISDS) from specific sections and situations.
B. Spirit and Purpose While bilateral investment flows did already represent a notable share of CanadaEU and the Member States total foreign direct investment (FDI), the CETA Parties recognised opportunities in increasing bilateral investment flows.1 Thus, the Parties favoured the inclusion of an investment promotion and protection chapter in the CETA to address the barriers to investment between the Parties and promote FDI flows. 3 In achieving this objective, the EU/Canada strategy focused on setting out more precisely the scope of coverage of the CETA Investment Chapter. Especially from the EU perspective, this was a necessary step due to concerns about some of Canada’s investment measures, which affect the level of predictability that foreign investors 2
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need in certain cases.2 Also, this move was purposed to protect Parties against the risk of undesirable interpretations of their treaty commitments, since tribunals are more likely to exceed their scope of authority when limits to it are not defined in the statute.3 Therefore a precise scope of coverage was required to limit the fear of ‘floodgates’ of ISDS-cases undermining the EU and its Member States right to regulate. Ultimately, Article 8.2 offers investors and Parties that reasonable degree of certain- 4 ty and predictability as to whom and what is exactly covered and excluded under the CETA Investment Chapter, including a precise scope of coverage of the investor-state dispute settlement procedure, thereby safeguarding Parties from the over-reaching breadth of ISDS tribunals in relation to the scope of claims that may be submitted for settlement.4 Noteworthy that while Article 8.2 touches on the scope of the CETA “ISDS”, it must essentially be distinguished from Article 8.18 which also deals with the same subject. While the former deals with the general coverage of the CETA Investment Chapter, the latter deals with the jurisdictional requirements for submitting a claim before the Investment Court System (ICS). In other words, the Parties moved from a general premise (i.e. Article 8.2) to a more specific premise by narrowing down the jurisdiction of the CETA ICS only to those factors stipulated in Article 8.18.
C. Drafting History The first version of Article 8.2 CETA was Article X.1 of the Consolidated CETA 5 Draft of 13 January 2010.5 Article X.1 introduced the scope and coverage of the CETA Investment Chapter, which in addition to the current scope of coverage notably included measures adopted by a Party relating to Article X.12 (Health, Safety and Environmental Measures) and Article X.13 (Corporate Social Responsibility). Article X.12 of the CETA 2010 draft prohibited a Party from relaxing its domestic health, safety or environmental measures just to encourage the establishment, acquisition, expansion or retention of an investment in its territory. Article X.13 that followed, provided that each Party should encourage enterprises operating within its territory or under its jurisdiction to incorporate corporate social responsibility in their practices and internal policies. While both provisions undoubtedly serve a very important cause, it is surprising that Article X.12 and X.13 were later expunged from subsequent drafts to the CETA Investment Chapter post-2010. In 2011, Parties introduced an exception list under Article X.1(1)(c) lit. a-e, carving 6 out a wide range of sectors to which the CETA Investment Chapter does not apply, 6
2 House of Commons of Canada, Negotiations Toward a Comprehensive Economic and Trade Agreement (CETA) Between Canada and The European Union: Report of the Standing Committee on International Trade, March 2012, p. 16. 3 See, Reinisch, ‘The Scope of Investor-State Dispute Settlement in International Investment Agreements’ (2013) 21(1) Asia Pac. L. Rev., 3 (3 ff.) (study elaborating especially on the controversies that arise from investment treaties with an imprecise dispute settlement clause). 4 Reinisch and Stifter, ‘European Investment Policy and ISDS’ (2015) 11(12) ELTE LJ (Analysing the concern States often raise against the ISDS). 5 Investment Chapter, leaked version of the CETA draft text of 13 January 2010, ‘Draft Consolidated Text: Canada-EU Comprehensive Economic and Trade Agreement’, available at: https://wiki.laquadratu re.net/images/3/33/CETA_draft_jan_2010.pdf. 6 Article X.1 (Investment/Establishment Chapter), leaked version of the CETA draft text of January 2011, ‘Canada-EU CETA Draft Consolidated Text – Post Round VI’, available at: https://wiki.laquadrat ure.net/images/6/69/CETA_draft_jan_2011.pdf.
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and also included reservations with respect to public undertakings,7 and subsidies granted or grants provided by a Party.8 It is notable that the exception list at this stage was quite broad and remained unaltered in the 2012 CETA Draft Text, 9 7 However, the 2013 CETA Draft Text10 witnessed the first major revision with the narrowing down of both the scope of application and exception list included in earlier drafts. First, Article X.12 and X.13 included in the 2010-2012 drafts were both removed from the CETA Investment Chapter scope of application, and secondly, the broad exception list provided in the 2011-2012 draft was narrowed down to ‘air services and related services in support of air services,11 including ‘activities carried out in the exercise of governmental authority.’12 These two areas with regard to the establishment or acquisition of a covered investment were specifically exempted from the CETA section on ‘establishment of investments’ and the section on ‘non-discriminatory treatment’. This is the first time such specificity with respect to the scope of application is offered by the Parties. 8 In August 2014, the CETA Parties again decided to broaden the exceptions from the Investment Chapter scope of coverage. First, the air services exception clause was extended with the inclusion of ‘other services supplied by means of air transport’, this added a wide range of air services into the exception list. 13 Also, for the first time Parties introduced a cultural-exception clause with the EU Party exempting its audiovisual services and Canada exempting its cultural industries from the application of the CETA section on establishment of investments and the section on non-discriminatory treatment.14 Furthermore, the 2014 CETA Draft text for the first time introduced the ISDS procedure, specifying the scope of claims that may be submitted to arbitration and what claims are excluded from the scope of the ISDS procedure. 15 Finally, the 2014 CETA Draft clarified the non-effect of the CETA Investment Chapter
7 Article X.1(2) (Investment/Establishment Chapter), leaked version of the CETA draft text of January 2011, ‘Canada-EU CETA Draft Consolidated Text – Post Round VI’. 8 Article X.1(3) (Investment/Establishment Chapter), leaked version of the CETA draft text of January 2011, ‘Canada-EU CETA Draft Consolidated Text – Post Round VI’. 9 Article X.1 (Investment/Establishment Chapter), leaked version of the CETA draft text of February 2012, ‘Draft CETA Investment Text’, available at: https://wiki.laquadrature.net/images/c/cc/CETA-Draf t_Consolidated_text-February_2012.pdf. 10 Article X.1 (Investment Chapter), leaked version of the CETA draft text of February 2013, ‘Draft CETA Investment Text’, available at: https://www.laquadrature.net/files/CETA-Draft-Investment-Text -Nov21-2013-203b-13.pdf. 11 See, for a limited air services still falling within the scope of coverage as seen in Article X.1(2)(a) (lit.i-v) (Investment Chapter), leaked version of the CETA draft text of February 2013, ‘Draft CETA Investment Text’, available at: https://www.laquadrature.net/files/CETA-Draft-Investment-Text-Nov21 -2013-203b-13.pdf. 12 Article X.1(2)(b) (Investment Chapter), leaked version of the CETA draft text of February 2013, ‘Draft CETA Investment Text’. 13 See, Article X.1(2)(b) (Investment: Scope of Application), leaked version of the consolidated CETA draft of 1 August 2014, ‘Consolidated CETA Text’, available at: https://old.laquadrature.net/files/ceta-co mplet.pdf. 14 See, Article X.1(3) (Investment: Scope of Application), leaked version of the consolidated CETA draft of 1 August 2014, ‘Consolidated CETA Text’, available at: https://old.laquadrature.net/files/ceta-co mplet.pdf. 15 Article X.1(4) (Investment: Scope of Application), leaked version of the consolidated CETA draft of 1 August 2014, ‘Consolidated CETA Text’, available at: https://old.laquadrature.net/files/ceta-complet .pdf.
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on the Parties rights and obligations arising under the Canada/European Community and Member States Air Transport Agreement.16 August 2014 marked the end of technical negotiations regarding the CETA. How- 9 ever, the 2014 Draft underwent one last major revision after the EU required that the dispute resolution clause incorporating the traditional ISDS be revisited. In a public consultation held by the EU Commission in 2014,17 a lack of support for traditional ISDS via arbitration by European stakeholders was revealed. This later culminated in the European Parliament (EP) issuing a resolution to the Commission containing stipulations directing the reform of the investment protection provisions under the CETA.18 As a result, the CETA Parties agreed to commit further substantial amendments into the already finalised CETA Text of 2014 during the legal scrubbing, by including all the main elements of the EU's new approach on investment, as outlined in the EU's TTIP proposal of November 2015 and contained in the recently concluded EU-Vietnam FTA.19 As a result, the 2014 finalised CETA Text went through a legal scrubbing, and 10 the draft agreement made public in 2016 saw Article X.1(4) of the old draft evolve into the present Article 8.2(4) incorporating the new procedure for the submission of investor claims in compliance with Section F of the CETA,20 this foreseeing the ICS. The finalized CETA Draft was eventually signed by the Parties on 30 October 2016. 21
D. Commentary Article 8.2 CETA can be characterized as having several essential elements. Firstly, 11 it sets out in paragraph 1 the scope of application of the CETA Investment Chapter (subsection I), secondly, in paragraph 2 and 3 what is exempted from this scope or part of the scope (subsection II), and thirdly in paragraph 4 it sets out the dispute settlement procedure for settling investors’ claims that fall within the scope of the Investment Chapter (subsection III). Lastly, in paragraph 5, it is clarified that the EU-Canada Air Transport Agreement is not affected by the CETA Investment Chapter (subsection IV). These elements are examined in the following analysis.
16 Article X.1(5) (Investment: Scope of Application), leaked version of the consolidated CETA draft of 1 August 2014, ‘Consolidated CETA Text’, available at: https://old.laquadrature.net/files/ceta-complet .pdf. 17 European Commission Staff Working Document, Online public consultation on investment protection and investor-to-state dispute settlement (ISDS) in the Transatlantic Trade and Investment Partnership Agreement (TTIP), 13 January 2015, SWD(2015) 3 final, available at: https://trade.ec.europa.eu/doclib/d ocs/2015/tradoc.pdf. 18 See in this regard, European Parliament, European Parliament Resolution of 8 July 2015 containing the European Parliament’s recommendations to the European Commission on the negotiations for the Transatlantic Trade and Investment Partnership (TTIP), 2014/2228(INI). See, ‘Regarding the Rules, para. (xv)’. 19 European Commission, Press Release, 29 February 2016, CETA: EU and Canada agree on new approach on investment in trade agreement, available at: https://ec.europa.eu/commission/presscorner/ detail/en/IP. 20 Article 8.2(4) (Investment: Scope), Finalised CETA Draft Text, available at: https://trade.ec.europa. eu/doclib/docs/2016/february/tradoc_154329.pdf. 21 CJEU, Press Release No 52/19 (Opinion 1/17), 30 April 2019, No 52/19; Hübner et. al., CETA: The Making of the Comprehensive Economic and Trade Agreement between Canada and the EU (2016).
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I. Scope of Application of the CETA Investment Chapter – para. 1 12
According to Article 8.2 CETA, Chapter 8 applies to a measure adopted or maintained by a Party in its territory (1), relating to an investor of the other Party (2), with a covered investment (3), and a measure with respect to Article 8.5 (performance requirement) on any investment within its territory (4).
1. A Measure Adopted or Maintained by a Party in its Territory a) A Measure The term ‘measure’ is not specifically defined under the CETA Investment Chapter. However, the meaning of this term is discernible from the definitions of general application offered in Article 1.1 CETA. There it is expressed: ‘measure includes a law, regulation, rule, procedure, decision, administrative action, requirement, practice or any other form of measure by a Party’.22 14 This provision suggests an intention of the Parties to have a non-exhaustive list of what may constitute a state measure directed towards an investor of the other Party. Particularly, the last sentence of the provision, i.e. ‘any other form of measure by a Party’ suggests a catch-all phrase that offers a tribunal a lot of flexibility in deciding what may constitute a State measure outside what is already determined in the list, for instance, a Parties’ omission to act though not expressly listed may also qualify as a measure under the ‘catch-all phrase’ if a tribunal deems it so fit. Notably, irrespective of the form a measure takes, its primary aim should be the promotion of investment flows between the EU and Canada, protecting investors, and ensuring fair treatment.23 This is in line with the main goal of international investment law, seeking the promotion and protection of foreign investment. 15 Notwithstanding this primary policy objective to implement measures targeted at promoting investment flows, the Parties have ensured that this objective is balanced with the Parties rights to also implement measures targeted at promoting legitimate public policy objectives. According to the directives that authorized the negotiation of EU FTAs with Canada, India and Singapore, the provisions of these FTAs shall be: 13
without prejudice to the right of the EU and the Member States to adopt and enforce … measures necessary to pursue legitimate public policy objectives such as social, environmental, security, public health and safety in a non-discriminatory manner. The agreement shall respect the policies of the EU and its Member States for the promotion and protection of cultural diversity. 24
In view of the foregoing, the CETA was finalized balancing the Members obligation to implement measures that promote investment flows between the Parties, with the host states’ right to regulate for legitimate public policy objectives such as inter-alia, environmental, public health and safety measures. 17 The emphasis in the CETA on the right of States to regulate for legitimate public policy objectives especially affects two of the most important standards in international investment law i.e. expropriation and fair and equitable treatment (FET) standards.25 However, the degree of specificity offered in the CETA to determine whether 16
Article 1.1 CETA (Definitions of general application). See, Chapter 8, CETA (introductory note). 24 See, Council of the EU, 3109th General Affairs Council Meeting, Press Release, 12 September 2011, 13. 25 See on this, Titi, ‘International investment law and the European Union: towards a new generation of international investment agreements’, (2015) 26(3) EJIL, 639 (655). 22
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or not an indirect expropriation26 or breach of FET27 has taken place preserves the regulatory space of the Parties to adopt or maintain measures without prejudice to the guaranteed rights of the investors under the treaty. b) Adopted or Maintained by a Party As earlier discussed, it can be understood that a measure can be in form of a ‘law, regulation, rule, procedure, decision, administrative action, requirement, practice or any other form of measure by a Party’.28 The determination of when can it be said that any of these measures has been adopted or maintained by a Party is particularly critical to the issue of attribution of international responsibility because only when a specific conduct (such as an adopted or maintained measure) is considered to be an act of a state or international organisation, can the state or international organisation be held internationally responsible for such a conduct if found in breach of an international obligation.29 In order to determine the attribution of international responsibility to a state or international organisation, deference to the International Law Commission (ILC) Draft Articles on the Responsibility of States for Internationally Wrongful Acts (ARSIWA), and the Responsibility of International Organizations (ARIO) is the common practice. Both these ILC Drafts are regarded as the most authoritative rules on international responsibility to date.30 For an adopted or maintained measure to be regarded as an act attributable to a Party for the purpose of international responsibility, both the ARSIWA and ARIO follow the ‘organic model of attribution’,31 which recognises the notion that states or international organizations cannot act by themselves but through their organs, agents and other entities. Article 4(1) ARSIWA provides ‘the conduct of any state organ shall be considered an act of that state under international law’. Similarly, Article 6(1) ARIO provides: ‘the conduct of an organ or an agent of an international organization in the performance of functions of that organ or agent shall be considered an act of that organization under international law’. The central rationale behind this ‘organic model of attribution’ is based on the acceptance that states and international organizations respectively exercise control over their organs, agents and entities, therefore the conduct of persons or entities constituting the organs of a state is ‘necessarily attributable to it because they are in fact the instruments of its actions’32. This same reasoning applies to international organizations. This reading is further confirmed by Article 4 and 8 ARSIWA, and Article 6 and 7 ARIO which is centred around the notion of ‘control’. Importantly, following Article 4(2) ARSIWA, whether or not a person or an entity will be treated as an organ of Canada or an EU Member State will depend on the internal law of the concerned CETA State Party.33 However, a State cannot avoid See in this regard, Annex 8-A CETA, para. 3. See in this regard, Article 8.10 CETA para. 2. 28 Article 1.1 CETA (Definitions of general application). 29 Stegmann, Responsibility of the EU and the Member States under EU International Investment Protection Agreements (2019), 80 f. 30 Stegmann, Responsibility of the EU and the Member States under EU International Investment Protection Agreements (2019), 80 f. 31 Stegmann, Responsibility of the EU and the Member States under EU International Investment Protection Agreements (2019), 83. 32 Application of the Convention on the Prevention and Punishment of the Crime of Genocide (Bosnia and Herzegovina v. Serbia and Montenegro), Judgment, 11 July 1996, ICJ Rep. 2007, 43. 33 See further, ARSIWA Commentary, Chapter II, para. 6. 26
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attribution for an adopted or maintained measure by a person or entity under its control simply by denying such person or entity the designation of an organ under its domestic law. In this regard, the principle that a State cannot invoke its own domestic law to escape international responsibility will fully apply.34 In the case of an International Organization such as the EU being a CETA Party, a similar provision is found in Article 6(2)(c)(d) ARIO, which subjects the determination of the organs of an international organisation to the rules of the organization. Thus, since under EU law, the European Parliament, the Council, the Commission, and the CJEU are all regarded as EU organs, the adopted or maintained measures of these organs can be attributable to the EU for the purpose of international responsibility under the CETA. 23 The attribution of international responsibility to a Party under the CETA is particularly more challenging in the context of the relationship between the EU and its Member States. The EU as a CETA Party has regulatory powers, but it rarely directly adopts or maintains any measure that has the potential to trigger international responsibility for a breach of international duty, save for a limited policy area. 35 Instead, it is the EU Member States through their legislative, administrative and judicial organs that generally adopt internal measures to give effect to EU law within their respective borders.36 This arrangement, particularly the challenges it creates for prospective claimants against the EU is best illustrated in the ongoing Nord Stream 2 case. 37 In the EU Memorial on Jurisdiction, the EU objected to the jurisdiction of the tribunal on the ground that the Directive 2019/692 in issue could not have caused damages to the claimant’s investment since it had no direct effect on Nord Stream. Arguing that being a ‘Directive’, the EU measure only mandates the ‘result to be achieved’ but how that result is achieved is within the discretion of Member States in their respective territories, in this case, Germany.38 Thus, the EU contends that only the adopted measure by Germany pursuant to the Directive can cause damages to Nord Stream, and if at all it does, such German measures cannot be attributable to the EU under international law based on the ARIO.39 24 It should be noted that the ARIO itself does not provide explicit guidance on how to manage the attribution of international responsibility when it comes to the relationship between the EU and its Member States in the adoption of EU measures. This unclear status had prompted an EU proposal in 2004 to the ILC to consider including special rules of attribution for the EU and its Member States within the framework of the ILC Draft Articles, a suggestion not taken by the ILC. 40 Rather, the ILC Special Rapporteur Gaja favoured the position that though the Union neither aids and assists nor directs and controls Member States when they implement EU law, the Union bears additional responsibility for the implemented EU measure attributable to 34 Crawford and Olleson, ‘The Application of the Rules of State Responsibility’ in Bungenberg et al. (eds), International Investment Law: A Handbook (2015), 411 (425). 35 See, Article 291(2) TFEU. 36 See, Article 291(1) TFEU, provides that ‘Member States shall adopt all measures of national law necessary to implement legally binding Union Acts’. 37 Nord Stream 2 AG v. The European Union, PCA Case No. 2020-07, Respondent's Memorial on Jurisdiction and Request for Bifurcation (15 September 2020). 38 Nord Stream 2 AG v. The European Union, PCA Case No. 2020-07, Respondent's Memorial on Jurisdiction and Request for Bifurcation (15 September 2020), paras. 145 ff. 39 Nord Stream 2 AG v. The European Union, PCA Case No. 2020-07, Respondent's Memorial on Jurisdiction and Request for Bifurcation (15 September 2020), paras. 195 ff. 40 Hoffmeister, ‘Litigating against the European Union and its Member States – Who Responds under the ILC’s Draft Articles on International Responsibility of International Organizations’ (2010) 21(3) EJIL, 723 (728).
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the Member State. 41 However, in 2009, the ILC adopted the lex specialis rule, according to which: These draft articles do not apply where and to the extent that the conditions for the existence of an internationally wrongful act or the content or implementation of the international responsibility of an international organization, or of a State in connection with the conduct of an international organization, are governed by special rules of international law. Such special rules of international law may be contained in the rules of the organization applicable to the relations between an international organization and its members.42
As a result, where specific rules on attribution of responsibility can be identified 25 which apply to the EU and its Member States, such rules shall prevail over the application of the ILC traditional rules on attribution. Notably, as an international agreement, the CETA provisions can indeed qualify as lex specialis, although its provisions do not explicitly address the issue of attribution of international responsibility for measures adopted or maintained by Parties, its special procedure on the determination of respondent for disputes with the EU or its Member States could be significant in this regard. According to Article 8.21 CETA, the EU has an exclusive right to determine 26 whether the EU or its Member States’ will act as respondent, save for when it fails to communicate the decision within 50 days of receiving a notice from the Canadian claimant-investor for such determination.43 Given the statement of the EU Council of 27 October 2016,44 the procedure for determining an EU respondent under section F CETA is embedded in Regulation 912/2014.45 While this EU regulation lays out the procedure to determine whether the EU or any of its Member States would act as respondents in ISDS disputes under EU IIAs, it essentially regulates the apportionment of financial responsibilities between the EU and its Member States linked to ISDS tribunals.46 Albeit the determination of an EU or Member State respondent may be binding on the CETA ICS, it is debatable whether this internal EU decision can automatically attribute international responsibility to a Party for an award due under the CETA, especially since the determination of the respondent is independent of the question of attribution of international responsibility.47 Hence, a tribunal may not be precluded from taking its own decision on who is internationally responsible for an adopted EU or Member State measure in breach of the CETA, guided either by the traditional rules of attribution, or other identified lex specialis scenarios that could be relevant to the issue of international responsibility as determined by the tribunal. 48
41 Hoffmeister, ‘Litigating against the European Union and its Member States – Who Responds under the ILC’s Draft Articles on International Responsibility of International Organizations’ (2010) 21(3) EJIL, 723 (729). 42 Article 64, ARIO. 43 See, Article 8.21 para. 4 CETA. 44 Council of the EU, Statement of the Council on the Application of Regulation (EU) No. 912/2014, 13436/1/16 REV 1, 27 October 2016, para. 5. 45 Regulation (EU) 912/2014 of the European Parliament and of the Council of 23 July 2014 establishing a framework for managing financial responsibility linked to investor-State dispute settlement tribunals established by international agreements to which the European Union is party, OJ L 257/121. 46 Chapter II – Article 3, Regulation 912/2014. 47 Lenk, ‘Issues of Attribution: Responsibility of the EU in Investment Disputes under CETA’ (2016) 13(1) TDM, 21 https://www.transnational-dispute-management.com/article.asp?key=2318. 48 On other lex specialis scenarios that could be relevant for international responsibility under the CETA – see, Stegmann, Responsibility of the EU and the Member States under EU International Investment Protection Agreements (2019), 105 f.
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c) In its Territory (I) – territorial limit of a measure Another critical factor to consider regarding the CETA scope of application is that Chapter 8 as agreed by the Parties only applies to a measure adopted or maintained by a Party ‘in its territory’. By this provision, the extraterritorial application of potential measures of a host state in a third state does not raise a claim for coverage under the CETA even when the measures may have affected investments in the third country, made by an investor of an opposite state Party to the CETA. This is achieved through the provisions of Article 8.2(b) which limit the CETA scope of coverage to ‘covered investments’ only. A perusal of the definition of ‘covered investments’ later discussed below reveals that a ‘covered investment’ always has to be made in the territory of the host state (→ mn. 64). 28 The importance for the concerned measure of a state to have an effect on investment within the territory of the state for it to be eligible for protection under an investment treaty was highlighted in the Grand River case wherein it was clarified that the investments have to be situated within the territory of the state for it to be eligible for protection under the treaty.49 It is based on the principle that there is a territorial limitation on all acts of foreign states, and states will not be able to enforce their extraterritorial jurisdiction.50 29 The requirement that measures in question must have affected investments within the same territory was also expressed in Canadian Cattlemen which mentioned that protection under the investment treaty is limited only to measures of a host state which affect investments within the territory of that host state. 51 This principle was confirmed in Bayview Irrigation wherein Mexican measures on controlling water flow which affected investments located in US territory were held to be outside the territoriality requirement of NAFTA and the tribunal clarified that the measures in question must affect investments located within the territory of the same state to be eligible for protection.52 27
2. Relating to an Investor of the other Party (Qualifying Investors) By general definition, an investor is a person who has made an investment. 53 However, qualification as an investor under Chapter 8 CETA may also be satisfied pre-investment. Pursuant to Article 8.1 CETA, an investor means ‘a Party, a natural person or an enterprise of a Party, other than a branch or a representative office, that seeks to make, is making or has made an investment in the territory of the other Party’. By this definition, the status of an investor appears satisfied from the moment a Party, a natural person or an enterprise of a Party seeks to make an investment. However, as later discussed in this contribution, the qualification as an investor is subject to certain limitations, particularly with respect to the right to submit a claim under Article 8.18. 31 Notably, the above provision also indicates that government-controlled entities are not necessarily excluded from the definition of an investor under the CETA. Therefore, although not expressly provided, a state-owned enterprise (SOE) may qualify as 30
49 Grand Rover Enterprises, Et. Al. v. USA, NAFTA Tribunal, Award (12 January 2011), paras. 5 and 89 ff. 50 Crockett, ‘Extraterritorial Expropriations’ (1980) 13 Indiana Law Review, 655 (657). 51 Canadian Cattlement for Fair Trade v. USA, NAFTA/UNCITRAL Tribunal, Award (28 January 2008), para. 126. 52 Bayview Irrigation District v. United Mexican States, NAFTA Tribunal, Award (19 June 2007), para. 105. 53 Schefer, International Investment Law (2020), 145.
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an investor under the CETA, provided its activities are ‘essentially commercial rather than governmental in nature’.54 These categories of qualifying investors to which the CETA apply is further developed below. a) Natural Person of a Party Article 8.1 CETA delineates the criteria that must be met before an investor may 32 qualify as a natural person of a Party. Firstly, in the case of Canada, it requires the investor to be a citizen or permanent resident of Canada, while in the case of the EU, a natural person must have the nationality of one of the Member States of the EU.55 Noteworthy that while both the citizens and permanent residents of Canada will qualify as natural persons of a Party, this treatment is not accorded vice-versa, as permanent residents of the EU are not covered by the definition of natural persons, thus excluded from the scope of Chapter 8 CETA. The only exceptions are permanent residents of Latvia, who by Latvian law are entitled to receive a non-citizen’s passport and may be treated as natural persons of a Party for the purposes of section F. 56 This definition indicates an important distinction between Canada and the EU as to who may qualify as a natural person to which Chapter 8 of the CETA applies. aa) The Issue of Nationality Typically, an individual’s nationality is determined by the law of the country whose 33 nationality is claimed, following the established principle of international law that questions of nationality are within the domaine reservé of States.57 This principle is equally recognised under the CETA, as Article 8.1 CETA provides that the domestic laws of respective EU Member States will be crucial for determining a natural person from the EU, however, the provision is silent on this point with respect to Canada. 58 Nevertheless, it can be presumed that a tribunal called upon to determine whether an investor is a natural person from Canada may defer to the Canadian law on citizenship or permanent residence, in line with the general principle of international law that domestic laws of States determine nationality.59 Notably, the reference made to the respective laws of Member States in determining 34 EU nationality is surprising as it would have been sufficient to refer to the necessity of being an EU Citizen.60 The outcome nevertheless would have been the same as EU citizenship is defined in Article 20(1) TFEU stating that – ‘Every person holding the nationality of a Member State shall be a citizen of the Union. Citizenship of the Union shall be additional to and not replace national citizenship.’ Because European citizenship is accessory to national citizenship – one cannot 35 be an EU citizen without being a national of a Member State – there is also no common EU policy on its acquisition. However, the CJEU points out that ‘[i]t is for 54 CSOB v. Slovakia Ceskoslovenska Obchodni Banka, A.S. v. The Slovak Republic, ICSID Case No. ARB/97/4; Broches, ‘The Convention on the Settlement of Investment Disputes between States and Nationals of other States’ (1972/II) 136 RC, 331 (331 ff.). 55 Article 8.1 CETA (Definition: natural person). 56 Article 8.1 CETA (Definition: natural person). 57 Hofmann, ‘The Protection of Individuals under Public International Law’ in Bungenberg et al. (eds), International Investment Law: A Handbook (2015), 46 (60). 58 Article 8.1 CETA (Definition: natural person). 59 Reed and Davis, ‘Ratione Personae: Who is a Protected Investor?’ in Bungenberg et al. (eds), International Investment Law: A Handbook (2015), 614 (619). 60 Bungenberg, ‘The Scope of Application of EU (Model) Investment Agreements’ (2014) 15(3-4) JWIT, 402 (406).
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each Member State, having due regard to Union law, to lay down the conditions for the acquisition and loss of nationality.’61 Furthermore, the Court held that it is not an abuse of rights process to acquire nationality in a Member State solely to take advantage of the guarantees laid down in EU Law.62 Among the Member States, a great variety in the rules and practices with respect to the acquisition of citizenship exists.63 36 That said, the determination of nationality deriving from national law is not a strange practice in international dispute resolution. In performing this function, tribunals do not necessarily interpret the domestic law on nationality but rather are guided by the local authorities' interpretations of the relevant national law. As observed by the Soufraki tribunal: It is accepted in international law that nationality is within the domestic jurisdiction of the State, which settles, by its own legislation, the rules relating to the acquisition (and loss) of its nationality […]. But it is no less accepted that when, in international arbitral or judicial proceedings, the nationality of a person is challenged, the international tribunal is competent to pass upon that challenge. It will accord great weight to the nationality law of the State in question and to the interpretation and application of that law by its authorities […].64
Nonetheless, any decision by a tribunal regarding the nationality of an investor is simply a declarative act to assert or decline jurisdiction over an investment claim; nationality for domestic law purposes remains the exclusive prerogative of sovereign national authorities.65 38 However, though the domestic authorities have the constitutional prerogative to determine who carries their nationality under their respective national laws, such determination might only constitute prima-facie evidence rather than being conclusive, and subject to rebuttal before an international tribunal. As was held in the Soufraki case: 37
The Tribunal had the power to determine whether it had jurisdiction to hear the dispute. In determining whether the jurisdictional requirements of the ICSID Convention and the BIT have been satisfied, the Tribunal is empowered to make its own investigation into the nationality of parties regardless of the presence of official government nationality documents. Certificates of nationality constitute prima facie – not conclusive – evidence, and are subject to rebuttal. In fine, the Tribunal did not manifestly exceed its powers in deciding that it had to determine for itself Mr. Soufraki’s nationality.66
39
Likewise, as observed by the SIAG v. Egypt Tribunal: Whether a person is a national of a particular State is determined, in the first place, by the law of the State whose nationality is claimed […]. But an international tribunal is not bound by
61 ECJ, Case C-396/90, 07.07.1992, Micheletti v. Delegación del Gobierno en Cantabria, ECLI:EU:C:1992:295, which established that dual-nationals of a Member State and a non-Member State were entitled to freedom of movement. 62 CJEU, Case C-200/02, 19.10.2004, Kunqian Catherine Zhu and Man Lavette Chen v Secretary of State for the Home Department, ECLI:EU:C:2004:639. 63 See on this Dronkers and Vink, ‘Explaining Access to Citizenship in Europe: How Policies Affect Naturalisation Rates’ (2012) 13(3) EUP, 390 (390 ff.); Vink and de Groot, ‘Citizenship Attribution in Western Europe: International Framework and Domestic Trends’ (2010) 36(5), J. Ethn. Migr., 713 (713 ff.). 64 See, Hussein Nuaman Soufraki v. United Arab Emirates, ICSID Case No. ARB/02/7, Award (7 July 2004), para. 55. 65 Hussein Nuaman Soufraki v. United Arab Emirates, ICSID Case No. ARB/02/7, Decision of The Ad Hoc Committee on the Application for Annulment of Mr. Soufraki (5 June 2007), para. 55. 66 Hussein Nuaman Soufraki v. United Arab Emirates, ICSID Case No. ARB/02/7, Decision of The Ad Hoc Committee on the Application for Annulment of Mr. Soufraki (5 June 2007), para. 76.
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the national law in question under all circumstances. Situations where nationality provisions of national law may be disregarded include cases of ineffective nationality lacking a genuine link between the State and the individual. Other instances where national rules need not be followed are certain situations of involuntary acquisition of nationality in violation of international law or cases of withdrawal of nationality that are contrary to international law.67
The SIAG’s tribunal’s observation clearly indicates that under international law, 40 tribunals are permitted to disregard decisions under domestic law regarding the nationality of an individual on certain grounds, for instance where there is no genuine link between the individual and the state, or in cases of involuntary acquisition of nationality or revocation of nationality contrary to international law. The Nottebohm decision likewise confirms this position, as the ICJ declined jurisdiction over Liechtenstein’s claim on the grounds that Mr. Nottebohm on whose behalf it brings the international claim had no genuine connection with Liechtenstein to be recognised as a national of the state under international law.68 Thus, at its very best, deference to domestic law to determine the nationality of 41 an individual investor will be persuasive rather than being a binding authority on the CETA ICS, given the jurisprudence on the nationality of persons as settled under international law. bb) The Issue of Dual Nationality As could be observed in the foregoing discussion, determining the nationality of a 42 natural person to come under the scope of application of an investment treaty is not always straightforward. However, this can become more complicated where a natural person of a Party who seeks the benefit of an investment treaty is equally a national of the other Party against whom the treaty benefit is sought. Under the international law structure of dispute settlement developed from The 43 Hague Convention (1930), ‘A State may not afford diplomatic protection to one of its nationals against a State whose nationality such persons also possesses’.69 This principle has so far found an effect in the ICSID Convention, which precludes a dual national from submitting a claim under the convention against one of its countries of nationality.70 67 Waguih Elie George Siag and Clorinda Vecchi v. The Arab Republic of Egypt, ICSID Case No. ARB/05, Decision on Jurisdiction, and Partial Dissenting Opinion of Professor Francisco Orrego Vicuña (11 April 2007), para. 145. 68 Nottebohm Case (Liechtenstein v. Guatemala), Judgment (Second Phase), 6 April 1955, ICJ Reports 1955, 4-65. 69 Article 4 Convention on Certain Questions Relating to The Conflict of Nationality Laws, The Hague (12 April 1930), League of Nations, Treaty Series, vol. 179, p. 89. 70 See, Article 25(1)(a) ICSID which provides the jurisdiction of the centre applies to disputes between a contracting state and national of another contracting state, however Article 25(2)(a) defines national of another contracting state as a natural person who is a national of a contracting state ‘other than the state party to the dispute […]’; see, Champion Trading Company, Ameritrade International, Inc. v. Arab Republic of Egypt, ICSID Case No. ARB/02/9, Decision on Jurisdiction (21 October 2003), p. 16. The ICSID Tribunal opined inter-alia: ‘According to the ordinary meaning of the terms of the Convention (Article 25 (2)(a)) dual nationals are excluded from invoking the protection under the Convention against the host country of the investment of which they are also a national […]’; also see, Report of The Executive Directors on the Convention on the Settlement of Investment Disputes Between States and Nationals of other States, para. 29, stating: ‘It should be noted that under clause (a) of Article 25(2) a natural person who was a national of the State party to the dispute would not be eligible to be a party in proceedings under the auspices of the Centre, even if at the same time he had the nationality of another State. This ineligibility is absolute and cannot be cured even if the State party to the dispute had given its consent.’
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However, in contrast to what applies under the general rule of international law and ICSID, it is typical to find under most BITs and Multilateral Investment Treaties (MITs) that such preclusion does not exist to prevent nationals with the nationality of a respondent State from seeking treaty protection.71 Similarly, the CETA follows this pattern by extending investment protection to natural persons with dual nationality status from both the EU and Canada.72 Notably, for such dual nationals to come under the scope of the CETA Investment Chapter, the CETA explicitly adopts the dominant and effective nationality test doctrine.73 The dominant and effective nationality of a natural person is already an established criterion under public international law.74 45 Accordingly, though a natural person may have the nationality of both the EU and Canada according to the laws of both Parties, the recognised nationality to qualify as an investor of a Party coming within the scope of the CETA investment protection, is the Party where such natural person has the closest and most genuine connection. Such determination should be based on an objective analysis of the Court. 46 However, the CETA is silent on what indicators are to be present to determine a dual nationals’ place of dominant and effective nationality. Could it be the place of residence, where the dual national has personal and family ties, or place of economic connections, etc.? In the absence of statutory guidance, it is safe to conclude that this is one of the areas where the CETA tribunals will have full discretion on how to proceed, most probably guided by the existing jurisprudence that has been laid down by other international tribunals on the issue of dominant and effective nationality. 75 47 Finally, on natural persons, the CETA also clarifies the nationality status of persons who are nationals of Canada or one of the EU Member States, and at the same time permanent residents of the other Party. Such persons are exclusively deemed as natural persons of the Party of their nationality or citizenship as applicable.76 44
b) An Enterprise of a Party It is common to find the scope of application of investment treaties extending beyond natural persons to legal persons. The term legal person is synonymous with the term used in other IIAs such as a juridical person,77 company,78 or organisation,79 or the term ‘enterprise’ as adopted under the CETA. 49 Importantly, the CETA sets out two cumulative criteria required to qualify as an enterprise of a Party. The first is that the enterprise is constituted or organised under the laws of a Party, while the second may be satisfied under two scenarios i.e. either by having substantial business activities in the territory of that Party of incorporation, or 48
71 Reed and Davis, ‘Ratione Personae: Who is a Protected Investor?’ in Bungenberg et al. (eds), International Investment Law: A Handbook (2015), 614 (624). 72 Article 8.1 CETA (See: Definition of natural persons). 73 Article 8.1 CETA (See: Definition of natural persons). 74 See especially the Mergé Case (United States v. Italy) (1955) 14 R.I.A.A., 236 (247) (10 June 1955) in which the Italian–U.S. Conciliation Commission held that, in dual nationality cases, it is the effective nationality to which priority should be given, was a principle of international law. 75 Notable cases where Tribunals have dealt with the question of dual nationality includes inter-alia; Iran–US CTR, Case No. A/18, Decision No. DEC 32-A18-FT (6 April 1984); Mergé Case (Italian–US Conciliation Commission), Decision No. 55 (10 June 1955) 14 R.I.A.A. 236 (1955); Egypt v. USA, Award (8 June 1932) 2 R.I.A.A. 1161 (1932). 76 Article 8.1 CETA (see: Definition of natural persons). 77 Article 1.2 EU-Vietnam IPA, signed 30 June 2019 (not in force); Article 1 Armenia-Korea Rep. BIT, signed 19 October 2018 (in force since 3 October 2019). 78 Article I (1)(b) Ecuador-United States of America BIT, signed 27 August 1993 (terminated). 79 Article 1(7) ECT.
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if it is ‘directly or indirectly owned or controlled by a natural person of that Party or by an enterprise mentioned under paragraph (a)’.80 aa) Enterprise Constituted under the Laws of a Party (corporate nationality) It is a standard requirement in most IIAs that an enterprise is constituted or organ- 50 ised under the laws of a contracting Party to qualify as an investor of that Party. 81 Such incorporation confers what is called a ‘corporate nationality’ on the incorporated enterprise, which is arguably the most important attribute the enterprise must possess to come under the scope of application of the relevant IIA. However, though it is common to have IIAs mandate incorporation under the laws 51 of the State to acquire corporate nationality, whenever this requirement is sole and not combined with additional requirements under the treaty, the risk of treaty abuse becomes very high, especially with investors who might take advantage of the sole criterion to set up shell companies in the territory of a state in order to gain treaty benefits with no economic link or benefit to the state of incorporation. To curtail such abuse, the EU Commission, as well as the European Parliament, 52 have averred that ‘shell companies’ will not be protected under EU investment agreements and thus the possibilities of ‘treaty shopping’ via shell companies should be excluded.82 This interest has been preserved under the CETA by means of an additional criterion as discussed below. bb) Substantial Business Activity in the Territory of a Party As discussed above, having incorporation under the laws of a Party as the sole 53 criterion for corporate nationality tends to be abused, like acquiring a corporate nationality of convenience for just treaty benefits with no economic presence in the state of nationality. To curtail such mischiefs, states often incorporate a combination of criteria for defining an investor’s corporate nationality, rather than having a sole criterion under the IIA. Some of the additional criteria often used in IIAs are ‘the seat criterion, the control criterion, or criterion of real economic activity’. 83 The last criterion is closely related to what is adopted under the CETA, i.e. having substantial business activity in the territory of a Party. The term ‘substantial business activity’ has not been defined in the CETA. Notably, 54 some investment dispute tribunals have answered similar questions on what constitutes a substantial business activity. For instance, in Amto v. Ukraine, the tribunal took the view that there must simply be a business activity, where the materiality and not the magnitude of the business is the decisive factor. As observed by the tribunal: The ЕСТ does not contain a definition of 'substantial', nor does the Final Act of the European Energy Charter Conference that would serve as guidance for interpretation. As stated above, the purpose of Article 17(1) is to exclude from ЕСТ protection investors which have adopted a
See Article 8.1 CETA (Definition: Enterprise of a Party). See, definition ‘enterprise’: Article 3.1.1 Brazil-United Arab Emirates BIT (2019); definition ‘company of a Party’: Article 1 Australia-Uruguay BIT (2019); definition ‘legal person’: Article 1.2(b) Cabo Verde-Hungary BIT (2019); noteworthy that there are exceptions to this common approach, for instance, Article 1.4 Argentina-Germany BIT (1991), provides that ‘companies’ means legal entities with or without legal personality that have their seat in the territory of one of the Contracting Parties. 82 European Parliament, European Parliament Resolution of 6 April 2011 on the future European international investment policy, 2010/2203 (INI), para.11, available at: https://op.europa.eu/en/publication-de tail/-/publication/7d0f4921-0c8a-11e2-8e28-01aa75ed71a1/language-en. 83 Perkams, ‘Protection for Legal Persons’ in Bungenberg et al. (eds), International Investment Law: A Handbook (2015), 638 (638 ff.). 80 81
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nationality of convenience. Accordingly, 'substantial' in this context means 'of substance, and not merely of form'. It does not mean 'large', and the materiality not the magnitude of the business activity is the decisive question. In the present case, the Tribunal is satisfied that the Claimant has substantial business activity in Latvia, on the basis of its investment related activities conducted from premises in Latvia, and involving the employment of a small but permanent staff. 84
In another decision adopting the Amto v. Ukraine award reasoning, an ICSID Tribunal in Masdar Solar v. Spain concluded that while there is no definition of ‘substantial business activity’ in the ECT, ‘substantial’ in this context does relate to ‘substance and not merely of form’ or size.85 56 The above cases illustrate that investment dispute tribunals have been quite liberal in their definition of the term ‘substantial business activity’. Particularly, the form, size or magnitude of a business activity does not matter as much as the substance delivered by that business, thus, even a small-sized business carried out by a few personnel or employees of an enterprise will suffice as substantial, provided there is substance or materiality in that activity to the investment. For example, another ICSID Tribunal had held that though there exists no significant jurisprudence on the question of substantial business activities, tribunals are willing to find such activities exist based on relatively small activities both in terms of quality and quantity. 86 Essentially, a substantial business activity from the few available jurisprudence is determined by the substance or materiality of the activities involved, not in the form or size of the business. 57 On the issue of enterprises coming within the scope of the CETA Investment Chapter, it is possible, that this may also include enterprises not engaged in commercial activities, such as non-profit organisations. According to the general definitions offered in Article 1.1 CETA, an enterprise is an entity constituted under the applicable law, whether or not for profit and whether privately or governmentally owned or controlled. Thus, in principle, non-profit organizations may be covered under the CETA Investment Chapter. However, coverage under Chapter 8 CETA could be expected only if the non-profit organization seeking protection fulfils the minimum criteria of engaging in a substantial business activity in the territory of a Party. For instance, a hospital that provides a ‘real economic activity’ in the form of services to the community could meet this criterion, even if it operates as a not-for-profit organisation.87 55
cc) Directly or Indirectly Owned or Controlled by a Natural Person or an Enterprise of a Party 58
Another essential condition for an enterprise to be considered as an investor is direct or indirect ownership or control over the enterprise by a natural person or an enterprise of that Party. A link has to be present showing the relationship between the enterprise which seeks to be considered as an investor and the natural person or an enterprise of that Party that controls or owns it, even though it may be through a 84 Limited Liability Company Amto v. Ukraine, Arbitration No. 080/2005, Final Award (26 March 2008), para. 69. 85 Masdar Solar & Wind Cooperatief U.A. v. Kingdom of Spain, ICSID Case No. ARB/14/1, Award (16 May 2018), paras. 252 ff. 86 NextEra Energy Global Holdings B.V. and NextEra Energy Spain Holdings B.V. v. Kingdom of Spain, ICSID Case No. ARB/14/11, Decision on Jurisdiction, Liability and Quantum Principles (12 March 2019), para. 260. 87 Konrad, ‘Protection for Non-Profit Organizations’ in Bungenberg et al. (eds), Handbook on International Investment Law: A Handbook (2015), 555 (paras. 20 f.).
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complex structure.88 Ownership is considered to include indirect or beneficial ownership,89 and generally includes an ability to make key decisions such as the appointment of directors. The meaning of control is ‘an ability to exercise substantial influence over the legal 59 entity’s management, operation and the selection of members of its board of directors or any other managing body’.90 It includes an ability to exercise decisive influence,91 or take key decisions of the company.92 The meaning of direct and indirect control is subject to interpretation but a definition which has been put forward by a tribunal and can provide an understanding is that: ‘An entity that is directly controlled implies that there is no intermediary between the two entities, while an entity that is indirectly controlled implies that there is one or more intermediary entities between the two’. 93 c) A Party (Qualifying as an Investor) Investment treaties are typically designed to promote and protect the activities of 60 private foreign investors.94 However, besides a natural person or an enterprise of a Party, Article 8.1 CETA expressly states that an investor also means a ‘Party’. This suggests that any right or protection applicable to a private foreign investor under Article 8.2, is also applicable to a CETA Party (i.e. Canada, EU or any of its Member States) who may qualify as an investor. Notably, the CETA has not clarified the circumstances that must exist for a Party to 61 qualify as an investor within the scope of Chapter 8 CETA. The most probable hypothesis is that a Party may qualify as an investor when it concerns a State-Owned Enterprise (SOE). In practice, SOEs are recognised as eligible investors when they act in a commercial and not governmental capacity (→ Art. 8.18 mn. 51 ff.). 95 Hence, it should be acceptable that provided an SOE’s activity is essentially commercial rather than governmental in nature, such state-affiliated entity should also qualify as an investor with the benefit of coverage under Article 8.2 CETA.
3. Having a Covered Investment The notion of a ‘covered investment’ cannot be discussed without first establishing 62 what qualifies as an ‘investment’ itself under the CETA, because if no investment exists according to the definition provided in the treaty, then ultimately there is nothing to protect. Accordingly, Article 8.1 CETA provides: Investment means every kind of asset that an investor owns or controls, directly or indirectly, which has the characteristics of an investment, such as the commitment of capital or other
88 Société Générale in respect of DR Energy Holdings Limited and Empresa Distribuidora de Electricidad del Este, S.A. v. Dominican Republic, LCIA Case No. UN 7927, Preliminary Objections to Jurisdiction, 19 September 2008, para. 52. 89 Plama Consortium Limited v. Bulgaria, ICSID, Case No. ARB/03/24, Decision on Jurisdiction, 8 February 2005, para. 170. 90 Plama Consortium Limited v. Bulgaria, ICSID, Case No. ARB/03/24, Decision on Jurisdiction, 8 February 2005, para. 170. 91 Protocol of 11 March 1986 to the US-Egypt BIT, 1992. 92 Mori Bregante, Indirect ownership, 19. August 2020, https://jusmundi.com/en/document/wiki/en-i ndirect-ownership. 93 Aguas del Tunari v. Bolivia, ICSID Case No. ARB/02/3, Decision on Respondent’s Objections to Jurisdiction (21 October 2005), para. 236. 94 Dolzer and Schreuer, Principles of International investment Law (2008), 46. 95 CSOB v. Slovakia Ceskoslovenska Obchodni Banka, A.S. v. The Slovak Republic, ICSID Case No. ARB/97/4, Decision on Jurisdiction (24 May 1999), para. 17.
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resources, the expectation of gain or profit, or the assumption of risk, and a certain duration. Forms that an investment may take include: […]
The above definition foresees an asset-based open-list approach and contains a conceptual chapeau that defines ‘investment', followed by illustrative examples (→ Art. 8.1 mn. 201 ff.) .96 However, the qualification of an asset as an ‘investment’ is not sufficient for it to come under the CETA scope of application as defined in Article 8.2 since, in addition, an investment must also qualify as a ‘covered investment’. 97 63 To determine what qualifies as a covered investment, Article 8.1 stipulates a covered investment means with respect to a Party, an investment: (a) (b) (c) (d)
in its territory; made in accordance with the applicable law at the time the investment is made; directly or indirectly owned or controlled by an investor of the other Party; and existing on the date of entry into force of this Agreement, or made or acquired thereafter;
a) In its territory (II) – territorial limit of a covered investment First, this issue must be distinguished from the earlier discussion which has to do with the territorial limit of a measure adopted by a Party to which the CETA applies/or does not apply (→ mn. 27 ff.). The present discussion specifically relates to the making of an investment within the territory of a Party, since an investment made outside the territory of a Party will not be covered under Chapter 8 CETA. The need for a territorial link to accord an investment treaty protection has been described as a ‘generally accepted principle’ of international investment law.98 65 While the determination of an investment located in the territory of a Party should not be problematic,99 especially since the CETA has explicitly defined the term territory,100 some cases might still prove quite challenging. In practice, cases involving financial instruments or payments, which involved no direct activity in the host state has been fairly disputed on the issue of territorial nexus.101 For instance, the respondent State in Inmaris v. Ukraine objected to the Tribunal's jurisdiction on the basis that the claimant’s investment was not made in its territory since the funds transferred for a reconstruction project in its territory were not paid directly to Ukraine, but to another country (Germany) through a trustee contract. 102 Similarly in Abaclat et al. v. Argentina, the respondent State also contended that the claimant's investment (purchase of security bonds) was not made in its territory because there was no transfer of money to Argentina but a location outside Argentina beyond its territorial scope.103 64
96 See further, Bungenberg, ‘The Scope of Application of eu (Model) Investment Agreements’ (2014) 15, JWIT, 402 (415 f.). 97 Bischoff and Wühler, ‘The Notion of Investment’, in Mbengue and Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (2019), 19 (21). 98 Swissbourgh Diamond Mines (Pty) Limited and others v. Kingdom of Lesotho, PCA Case No. 2013-29, Judgment of the Singapore Court of Appeal (27 November 2018), para. 99. 99 See, Knahr, ‘The Territorial Nexus between an investment and the host state’ in Bungenberg et al. (eds), International Investment Law: A Handbook (2015), 590 ff. 100 See fn. 5 of Article 8.2 CETA. 101 Bischoff and Wühler, ‘The Notion of Investment’, in Mbengue and Schacherer (eds.), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (2019), 19 (30). 102 Inmaris Perestroika Sailing Maritime Services GmbH and Others v. Ukraine, ICSID Case No. ARB/08/8, Decision on Jurisdiction (8 March 2010), paras. 123 ff. 103 Abaclat and Others v. Argentina, ICSID Case No. ARB/07/5, Decision on Jurisdiction (4 August 2011), paras. 341 ff.
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In both cases cited above, the tribunals decided in favour of the claimants. For 66 example, the Abaclat tribunal concurring with another similar decision in Fedax v. Republic of Venezuela,104 held that: […] the determination of the place of the investment firstly depends on the nature of such investment. With regard to an investment of a purely financial nature, the relevant criteria cannot be the same as those applying to an investment consisting of business operations and/or involving manpower and property. With regard to investments of a purely financial nature, the relevant criteria should be where and/or for the benefit of whom the funds are ultimately used, and not the place where the funds were paid out or transferred. Thus, the relevant question is where the invested funds ultimately made available to the Host State and did they support the latter‘s economic development?
Therefore, in disputes surrounding purely financial investments, it is possible to 67 foresee a much broader interpretation of the territorial link, without requiring evidence of direct physical contribution in the territory of a Party to constitute a covered investment within the defined scope of Article 8.2. Aside from intangible assets, whether an investment is covered by the territorial scope of a treaty can still be in issue even with physical assets. In practice, it is not uncommon to find cases where the execution of an investment in a host state’s territory requires certain activities to take place abroad. This was exactly the case in SGS v. Pakistan,105 and SGS v. Philippines.106 In both cases cited above, the investments at issue related to pre-shipment inspec- 68 tion services carried out outside the territories of the respondent states. In SGS v. Pakistan, while indeed the operation of the investment was outside the territory of Pakistan, the fact that the contract between the Parties (the PSI Agreement) required SGS to make certain expenditures in the territory of Pakistan was sufficient to establish the territorial nexus according to the tribunal.107 In SGS v. Philippines, the tribunal found that the investment operations organised through a liaison office in Manila with a considerable number of employees was ‘a substantial and non-severable aspect of the overall service provided in the Philippines’,108 despite finding that a major part of the investment was performed abroad. These two cases confirm that in practice there is no requirement that the operation 69 of an investment is entirely situated in the territory of the host state. For instance, an activity in the investor’s home state targeted towards the operation of the investment in the host state’s territory will nonetheless be covered under the territorial scope of the relevant treaty. This same position is confirmed by the tribunal in LESI Dipenta v. Algeria where it was held that: ‘Nothing prevents investments from being committed, in part at least, from the contractor’s home country, as long as they are allocated to the project to be carried out abroad.’109
104 Fedax N.V. v. Republic of Venezuela, ICSID Case No. ARB/96/3, Decision of the Tribunal on Objections to Jurisdiction (11 July 1997), para. 41. 105 SGS Société Générale de Surveillance S.A. v. Pakistan, ICSID Case No. ARB/01/13, Decision on Jurisdiction, 6 August 2003 (2003) 42 ILM 1290; (2005) 8 ICSID Rep. 406. 106 SGS Société Générale de Surveillance S.A. v. Philippines, ICSID Case No. ARB/02/6, Decision on Jurisdiction, 29 January 2004; (2005) 8 ICSID Rep. 518. 107 SGS Société Générale de Surveillance S.A. v. Philippines, ICSID Case No. ARB/02/6, Decision on Jurisdiction, 29 January 2004; (2005) 8 ICSID Rep. 518, paras. 135 ff. 108 SGS Société Générale de Surveillance S.A. v. Philippines, ICSID Case No. ARB/02/6, Decision on Jurisdiction, 29 January 2004; (2005) 8 ICSID Rep. 518, paras. 101 ff. 109 L.E.S.I. S.p.A. et ASTALDI S.p.A. v. Algeria, ICSID Case No. ARB/05/3, Award, 10 January 2005, para. 14.
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Applying this jurisprudence to the CETA, it can be concluded that an investment activity not entirely situated in the host CETA Party may nonetheless satisfy the territorial nexus of Article 8.2. Ultimately, a CETA tribunal must determine what is the degree of activity that must be present in the territory of the host state for the investment as a whole to be considered covered within the CETA territorial scope. For this determination, there is no one size fits all answer, a tribunal will have to access each case based on its facts and circumstances to determine whether there is sufficient territorial nexus for the investment as a whole to come under the coverage of the treaty.110 b) Made in Accordance with the Applicable Law
For an investment to come within the CETA scope of application as contemplated in Article 8.2, such an investment has to comply with the applicable law at the time the investment was made.111 Meanwhile, the CETA does not furnish conflict of law rules to derive the applicable law concerning the making of an investment. 72 In the absence of such rules, a CETA tribunal would have to exercise its discretion and possibly seek guidance from former ISDS case-law. Often, when investment tribunals are faced with similar compliance provisions, the focus is on whether the investment was incorporated in accordance with the laws of a host state. 112 The emphasis is to be made on the fact that the ‘in accordance with the law’ provisions usually refer to the legality (or illegality) of the making of the investment, rather than qualification of a certain act as an ‘investment’ under the respective national law. 113 The question of a qualification of ‘investment’ for the purposes of international investment law would usually be governed by laws other than that of the host State, e.g. by applicable investment treaties. Furthermore, it is argued that such legality requirements do not concern any subsequent conduct of an investor or the operation of an investment. In other words, anything done or not done after the investment had already been made would not usually invalidate it.114 73 Additionally, under contemporary international law, a certain degree of severity of violations of applicable laws by investors is demanded in order to serve as grounds for excluding such investments from the scope of coverage or protection of the applicable treaty. Examples of such violations include corruption, fraud, or other grave violations of domestic and international laws. Accordingly, minor infractions of the laws of the host state would usually not be sufficient to render an investment illegal to exclude 71
110 Knahr, ‘The Territorial Nexus between an investment and the host state’ in Bungenberg et al. (eds), International Investment Law: A Handbook (2015), 590 ff. 111 Article 8.1 CETA (See definition: covered investment). 112 Diel-Gligor and Hennecke, ‘Investment in accordance with the law’ in Bungenberg et. al. (eds), Handbook on International Investment Law (2015), 566 (569). 113 Salini Costruttori S.p.A. and Italstrade S.p.A. v. Kingdom of Morocco [I], ICSID Case No. ARB/00/4, Decision on Jurisdiction, 31 July 2001, para. 46: ‘The Tribunal cannot follow the Kingdom of Morocco in its view that paragraph 1 of Article 1 refers to the law of the host State for the definition of ‘investment’. In focusing on “the categories of invested assets (...) in accordance with the laws and regulations of the aforementioned party”, this provision refers to the validity of the investment and not to its definition. More specifically, it seeks to prevent the Bilateral Treaty from protecting investments that should not be protected, particularly because they would be illegal’. 114 See, Vannessa Ventures Ltd. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/04/6, Award, 16 January 2013, para. 167; Teinver S.A., Transportes de Cercanías S.A. and Autobuses Urbanos del Sur S.A. v. Argentine Republic, ICSID Case No. ARB/09/1, Decision on Jurisdiction, 21 December 2012, para. 257; Gustav F.W. Hamester GmbH & Co. KG v. Republic of Ghana, ICSID Case No. ARB/07/24, Award, 18 June 2010, para. 127; Bernhard von Pezold and others v. Republic of Zimbabwe, ICSID Case No. ARB/10/15, Award, 28 July 2015, para. 420.
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such investment from the scope of treaty coverage. This line of reasoning could be expected to apply under the CETA if a Party opts to deny an investment the benefits of coverage under Article 8.2 on the grounds of illegality. c) Directly Owned or Controlled by an Investor of the Other Party According to Article 8.1 CETA, for an investment to qualify as a covered invest- 74 ment, such must be directly or indirectly owned or controlled by an investor of the other Party.115 This factor makes ‘ownership’ or ‘control’ of an investment a fundamental condition that must exist for an investor to come under the CETA scope of application contemplated in Article 8.2. However, the CETA does not define the terms ‘owned or controlled’, and likewise there are no general or conventional rules of international law with specific rules on defining these terms.116 Considering ISDS case-law, the term ownership ‘or’ control has been viewed as 75 indicating a legislative intent to require only one of these conditions be met to have a covered investment. This was the view adopted by the tribunal in Plama Consortium Limited v. Bulgaria.117 The ICSID Tribunal further held that: […] ownership includes indirect and beneficial ownership; and control includes control in fact, including an ability to exercise substantial influence over the legal entity's management, operation and the selection of members of its board of directors or any other managing body […] 118
With respect to ownership, following the above reasoning, either legal or beneficial 76 ownership in an investment could be sufficient to bring an investor within the scope of application of Chapter 8. This is possible since Article 8.1 also permits indirect ownership. Concerning ‘control’, the above reasoning may also be applied to affirm that both legal or de-facto control is sufficient to establish a covered investment. Going by its ordinary meaning, ‘control’ can be exercised in various forms one of which is by facts (de-facto). However, in the absence of finding a legal control, a tribunal must be satisfied that a de-facto control has been proved beyond a reasonable doubt to establish an investors’ standing within the treaty’s scope of application.119 d) Existing on the date of entry into force of this Agreement, or Made/Acquired thereafter Article 8.1 defines a covered investment as one that is ‘existing on the date of entry 77 into force of this Agreement, or made or acquired thereafter’. This definition of a covered investment further indicates the temporal scope of application of the CETA Investment Chapter. With respect to pre-existing investments, the CETA obligations may only become 78 applicable and binding on the Parties for events that occurred after the entry into force of the CETA and not before that. It is a settled principle of international law Article 8.1 CETA (See definition: covered investment). See, as observed by the PCA Tribunal in: Mason Capital L.P. and Mason Management LLC v. Republic of Korea, PCA Case No. 2018-55, Decision on Respondent Preliminary Objections (22 December 2019), para. 135. 117 Plama Consortium Limited v. Bulgaria, ICSID Case No. ARB/03/24, Decision on Jurisdiction (8 February 2005), para. 170: ‘In the Tribunal’s view, the word ‘or’ signifies that ownership and control are alternatives: in other words, only one needs to be met for the first limb to be satisfied’. 118 Plama Consortium Limited v. Bulgaria, ICSID Case No. ARB/03/24, Decision on Jurisdiction (8 February 2005), para. 170. 119 See, International Thunderbird Gaming Corporation v. Mexico, UNCITRAL, Arbitral Award (26 January 2006), para. 106. 115
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that a treaty shall not have a retroactive effect. 120 The same principle is reflected in Article 13 ARSIWA, stating that ‘an act of a State does not constitute a breach of an international obligation unless the State is bound by the obligation in question at the time the act occurs.’121 79 Several ISDS tribunals have also upheld this legal principle. For instance, NAFTA Tribunals have applied the non-retroactive rule, notwithstanding a provision in the NAFTA similar to Article 8.1 CETA providing that ‘this Chapter covers investments existing on the date of entry into force of this Agreement as well as investments made or acquired thereafter’.122 80 However, the non-retroactive rule may not preclude the consideration of acts that occurred prior to the entry into force, which have a continuous connection to a claim or breach that took place after the entry into force of the CETA. An act or measure pre-dating a treaty's entry into force can be taken into account to the extent that they may assist in understanding the significance of acts that do fall within the scope of the treaty ratione temporis.123
4. Measures Relating to Performance Requirements Article 8.2.1(c) CETA provides the Investment Chapter applies to a measure adopted or maintained by a Party in its territory with respect to Article 8.5. Article 8.5 prohibits the imposition of performance requirements as a condition for entry or operation of an investment in the territory of a Party. Accordingly, Article 8.5(1) lit. a-g and (2) lit. a-d lay out the list of performance requirements a Party must not impose in connection with the ‘establishment, acquisition, expansion, conduct, operation, and management of any investments in its territory’ (→ Art 8.5 mn. 8 and 24). This wording indicates that the prohibitions listed in Article 8.5(1) and (2) should apply to preentry activities in relation to an investment and operates throughout the lifecycle of an investment. Also, the listed prohibitions are exhaustive, thus the scope of Article 8.5(1) and (2) may not be broadened beyond their express terms.124 82 By general definition, performance requirements are ‘stipulations, imposed on investors, requiring them to meet certain specified goals with respect to their operations in the host state’.125 This requirement may be mandatory or non-mandatory and typi81
120 Now codifed in Article 28 VCLT (1969): ‘Unless a different intention appears from the treaty or is otherwise established, its provisions do not bind a party in relation to any act or fact which took place or any situation which ceased to exist before the date of the entry into force of the treaty with respect to that party’. 121 See further the commentary to Article 13 Draft Articles on Responsibility of States for Internationally Wrongful Acts with commentaries (2001). 122 See Article 1101 NAFTA (Investment coverage); Concerning its interpretation, see: Marvin Roy Feldman Karpa v. United Mexican States, ICSID Case No. ARB(AF)/99/1, Interim Decision on Preliminary Jurisdictional Issues (6 December 2000), para. 62, the Tribunal concluded i.a: ‘[…] the scope of application of NAFTA in terms of time defines also the jurisdiction of the Tribunal ratione temporis. Given that NAFTA came into force on January 1, 1994, no obligations adopted under NAFTA existed, and the Tribunal's jurisdiction does not extend, before that date. NAFTA itself did not purport to have any retroactive effect. Accordingly, this Tribunal may not deal with acts or omissions that occurred before January 1, 1994’; also see, Mondev International Ltd. v. United States of America, ICSID Case No. ARB(AF)/99/2, Award (11 October 2002), paras. 57 f. 123 See, Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v. Islamic Republic of Pakistan, ICSID Case No. ARB/03/29, Award (27 August 2009), paras. 132, 283. 124 The wording ‘following requirements’ as expressed in Article 8.5(1) and (2) is indicative of its exhaustive nature. 125 See Cargill, Incorporated v. Republic of Poland II, UNCITRAL, Award (5 March 2008), para. 541; see also UNCTAD, Foreign Direct Investment and Performance Requirements: New Evidence from Selected Countries, UNCTAD/ITE/IIA/2003/7 (2003), 2.
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cally used by host countries to advance their domestic developmental agenda. Since performance requirements may constitute an impediment to FDI flows, some IIAs contain specific provisions prohibiting such requirements,126 this includes the CETA as enacted in Article 8.5(1) lit. a-g and (2) lit. a-d. From an EU and Member States perspective, an express treaty prohibition of 83 performance requirements has so far been absent from EU Member State treaties as well as from EU FTAs,127 Canada on the other hand has experience regarding the operation of this rule given a similar, but not identical provision in the NAFTA. 128 Notably, the prohibition of performance requirement under the CETA is not abso- 84 lute. For the listed exceptions in Article 8.5(3) – (6), a Party may impose certain requirements on investments within its territory. Also, pursuant to Article 8.15, the prohibitions listed in Article 8.5(1) – (2) are subject to the reservations and exceptions entered by the Parties in the CETA Annexes. A further carve out from Article 8.5 are the sectoral exceptions contained in Article 8.2 now examined below.
II. Sectoral Exceptions from the Scope of Application 1. The Air Services and Related Services Exception – para. 2(a) As a foreign investor, the right of entry and operation in the air service sector of 85 a state is traditionally derived and regulated under a special international agreement, such as the bilateral or multilateral air service agreements between states. 129 These air service agreements are different from traditional IIAs by the very fact that they serve a specific purpose. Air service agreements define the legal rights between states particularly in the 86 commercial civil aviation sector,130 which in turn may be exercised by their nationals. Thus, giving the special regime regulating international civil aviation, the air services sector can be excluded from the scope of other international agreements dealing with trade in services. For instance, an attempt by the United States in 1989 to propose an inclusion of air transportation in the GATS was not successful, only a limited range of aviation services such as aircraft repair and maintenance, sales and marketing, and computer reservation services are therefore covered by the GATS substantive guarantees.131 Notably, the CETA maintains a similar approach as Parties have also excluded stipulated air services from the scope of Chapter 8. Article 8.2(2) provides that: With respect to the establishment or acquisition of a 87 covered investment, Sections B and C do not apply to a measure relating to:
126 Article 14.10 USMCA (Investment Chapter); Article 8, United States of America – Uruguay BIT (2005); Paragraph 6, Annex Canada-Venezuela BIT (1996). 127 Mbengue and Negm, ‘An African View on the CETA Investment Chapter’ in Mbengue and Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (2019), 239 (256). 128 See, Article 1106 NAFTA (Chapter 11 – Investment). 129 See for instance, United States of America – Kazakhstan Air Transport Agreement (2019); Multilateral Agreement on the Establishment of a European Common Aviation Area (2006). 130 Dempsey, ‘Flights of Fancy and Flights of Fury: Arbitration and Adjudication of Commercial and Political Disputes in International Aviation’ (2004) 32(2) Ga. J. Int'l & Comp. L., 231 (234). 131 Steinberg and Kotuby Jr., ‘Bilateral Investment Treaties and International Air Transportation: A New Tool for Global Airlines to Redress Market Barriers’ (2011) 76 J. Air L. & Com., 457 (470); See further, GATS Annex on Article II Exemptions – Annex on Air Transport Services, para. 3.
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(a) air services, or related services in support of air services and other services supplied by means of air transport, other than:132 (i) aircraft repair and maintenance services (ii) the selling and marketing of air transport services (iii) computer reservation system (CRS) services (iv) ground handling services (v) airport operation services
Therefore, save for the abovementioned covered air services, Section B (establishment of investment) and C CETA (non-discriminatory treatment) do not apply with respect to the establishment or acquisition of an investment in the air service sector. Thus, a Party has full regulatory autonomy as to what measures it can adopt in this regard. For instance, at the point of establishment or acquisition, a Party can adopt a measure that imposes a limit on foreign shareholding of airline investments in its territory, or also discriminate against foreign airlines (i.e. treat them differently from comparable domestic airlines), without incurring liability under the CETA. 89 Nevertheless, the air services exclusion from the scope of CETA Section B and C is limited to the establishment and acquisition phase. Therefore, once an investment in the air service sector is fully established, a host State may not adopt a measure that impairs the substantive rights of the covered investment post establishment, for instance, the guaranteed rights to, inter alia, ‘fair and equitable treatment’, ‘full protection and security’ or protection against direct and indirect expropriation. Any such impairment may give rise to an actionable claim under Article 8.18. 88
2. Activities in Exercise of Governmental Authority – para. 2(b) 90
According to Article 8.2(2)(b) CETA, with respect to the establishment or acquisition of a covered investment, Sections B and C do not apply to a measure relating to activities carried out in the exercise of governmental authority. This CETA provision as confirmed by the EU Commission originates from Article I(3)(b) WTO GATS which incorporates a similar provision excluding governmental activities from the GATS scope of application.133 Activities supplied in the exercise of governmental authority in GATS as well in the EU FTAs is commonly interpreted narrowly and typically linked to core sovereign functions.134 According to Article 8.1 CETA, such activities mean ‘activities carried out neither on a commercial basis nor in competition with one or more economic operators.’
For definition of the covered air services listed in Article 8.2.2(a)(i-v), see Article 8.1 CETA. Parliamentary Questions, Question reference: E-002278/2015, 26 March 2015, Answer given by Ms Malmström on behalf of the Commission; Bischoff and Wuhler, ‘The notion of investment’, in: Mbengue and Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (2019), 19 (22); Gould, ‘Public Services’ in Sinclair et al. (eds), Making Sense of the CETA- An Analysis of the Final Text of the Canada-European Union Comprehensive Economic and Trade Agreement (2014), 35 (37). 134 Krajewski, Model Clauses for the Exclusion of Public Services from Trade and Investment Agreements, Available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2892522; Bischoff and Wuhler, ‘The notion of investment’, in Mbengue and Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (2019), 19 (22); Ministry of Employment and Investment, British Colombia, GATS and Public Service Systems, https://www.iatp.org/sites/default/files/GATS_and_Public_ Service_Systems.htm. 132
133
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a) Activities Carried out Neither on a Commercial Basis By ordinary definition, an activity is commercial if it is intended to make money, 91 or relating to a business intended to make money.135 Thus the word ‘commercial’ implies the notion of profitability. Therefore, if an activity is carried out without the intention to make a profit, it can be said that such an activity is one carried out on a non-commercial basis.136 In this regard, the intention not to make a profit is critical from the outset. For instance, it might go too far to interpret governmental activities intended for profit, but ended up in a loss, as activities carried out on a non-commercial basis simply because they turned out unprofitable. Notably, given the WTO GATS example, the definition of what is commercial and what is not may not simply be viewed from the point of profitability, this issue has for long been debated with various interpretations and no definitional benchmarks.137 Typical activities considered as non-commercial falling outside the GATS sec- 92 toral scope of application include social security schemes, and any other public service, such as health or education provided at non-commercial conditions. 138 b) Nor in Competition with one or more Economic Operators Aside from been carried out on a non-commercial basis, a governmental activity 93 must not be in competition with other economic operators to qualify as an activity in the exercise of governmental authority, to which Section B and C of the CETA do not apply. The decisive term here is the word ‘competition’ which raises the question of when exactly can a governmental activity be deemed to be in competition with other economic operators. By definition, the term competition is ‘the struggle for commercial advantage, or 94 action of two or more commercial interests to obtain the same business from third parties.’139 This definition denotes the occurrence of competition between two or more entities after the ‘same business’. The word ‘same business’ can also be equated as ‘like business’, however, it is arguable that two or more entities do not have to engage in like activities to determine whether they are in a competition, as a competition may also exist where the actors engage in different activities but targeted at the same end result. For instance, while a rail service operation from city A to B is different from a bus service operation from city A to B, still both activities share the same end result putting them in competition against each other due to the availability of alternatives to the end users. If this analogy is applied to the concept of competition in Article 8.2(2)(b) CETA, a governmental activity may be supplied in competition with that of another economic operator, even though the two activities are not ‘like’. Nonetheless, it is unclear how far the notion of competition can go, before gov- 95 ernmental activities e.g. in the health, education or transportation sector can be considered as being in competition with other economic operators. For example, if a research institution on technology in a State controlled university offers its expertise on computer software design and programming to the automobile industry, can it 135 See, Cambridge Dictionary definition of the word ‘Commercial’, available at: https://dictionary.ca mbridge.org/de/worterbuch/englisch/commercial. 136 Krajewski, ‘Public Services and Trade Liberalization: Mapping the Legal Framework’ (2003) 6(2) J. Int’l Econ. L., 341 (351); Also see, Hahn and Sauvé, ‘Research for the CULT Committee – Culture and Education in CETA’, in European Parliament (2016), 18 f. 137 Adlung, ‘Public Services and the GATS’ (2006) 9(2) J. Int’l Econ. L., 455 (462). 138 See, WTO, The General Agreement on Trade in Services (GATS): objectives, coverage and disciplines: What is Covered?, available at: https://www.wto.org/english/tratop_E/serv_e/gatsqa_e.htm. 139 Black’s Law Dictionary (9th ed.), p. 322.
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be said that such exercise by a state controlled university is a governmental activity in competition with other economic operators offering software design and programming services? Answering yes to this question is indeed arguable because as long as state learning institutions are active economic operators in an open market, they are positioned as readily available alternatives within the relevant market. This may be treated accordingly as governmental activities in competition with one or more economic operators coming within the scope application of Section B and C CETA. 96 Overall, just like the air services exemption, the exemption of activities carried out in the exercise of governmental authority from the scope of CETA Section B and C is limited to the establishment and acquisition phase. Such exempted governmental activities can already be deduced from the CETA Annexes. For example, Annexes I of the EU reservation list provide that: Any Member State of the EU, when selling or disposing of its equity interests in, or the assets of, an existing state enterprise or an existing governmental entity providing health, social or education services, may prohibit or impose limitations on the ownership of such interests or assets, and on the ability of owners of such interests and assets to control any resulting enterprise, by investors of Canada or of a third country or their investments. With respect to such a sale or other disposition, any Member State of the EU may adopt or maintain any measure relating to the nationality of senior management or members of the boards of directors, as well as any measure limiting the number of suppliers.140
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The above reservation confirms that the sale or disposal of a governmental activity in the health, social or education sector to Canadian or third-country investors may be limited at the point of acquisition, likewise the control of such a public sector enterprise. By implication, this reservation allows an EU Party to adopt a measure deviating from its market access obligations under Section B, including its Section C obligations on national treatment, senior management and board of directors. Nevertheless, as expressly stated in Article 8.2 para. 2, the non-application of Section B and C to investments considered as activities in exercise of governmental authority is with respect to the ‘establishment or acquisition’ of such an investment. Thus, once an investment is fully established, a Party may not adopt a measure that deviates from the post establishment protection guaranteed under the CETA.
3. The Cultural-Exception Clause – para. 3 98
A cultural exemption clause has been included as Clause 3 of Article 8.2 as follows: ‘For the EU Party, Sections B and C do not apply to a measure with respect to audio-visual services. For Canada, Sections B and C do not apply to a measure with respect to cultural industries.’ a) Background
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The clause on exemption of ‘audio-visual services’ and ‘cultural industries’ called a ‘cultural exception clause’ was not included in the text of the WTO Agreements but is found in a number of EU FTAs.141 The United Nations Educational, Scientific and Cultural Organization Convention on the Protection and Promotion of the Diversity of Cultural Expressions (UNESCO Convention) of which the Commission is also 140 Annexes 1: Reservations applicable to the EU (Sector: Health, Social and Educational Services – Investment). 141 Hahn and Sauvé, ‘Research for the CULT Committee – Culture and Education in CETA’, in European Parliament, (2016), 25; Chochorelou, ‘The European Identity Rationale in the EU Free Trade Agreements: Economic rather than Cultural Objectives?’ 2019 (2), Cuadernos Europeos de Deusto, 227.
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a Party was the first step towards the inclusion of the Commission in the process of negotiating on the issue of cultural services in FTAs. This was later formalised by the inclusion of Article 207(4)(a) TFEU which permitted the Council and the Commission to work together on the inclusion of cultural issues in the agreements. 142 As of now, it is recognised that cultural products have a major role in democratic 100 societies with the power to influence the opinion of the citizens and hence deserve special attention. 143 Additionally, the protection of cultural diversity is also considered an issue covered under the ‘right to regulate’ of the Parties. 144 In this Chapter of the CETA, the inclusion of the cultural exception clause means that certain protections granted to a foreign investor and investor-state dispute settlement would not be applicable for the issues covered under the clause.145 The EU and Canada had a long drawn discussion on the exact provisions under 101 which the audio-visual services and cultural industries would be regulated with regard to the CETA. The final clause, which was included, reflected the traditional approach of both the countries, in including a broader exception for Canada,146 and a targeted exemption for audio-visual services for the EU.147 Beyond the initial optics, the decision to include the specific provisions by the Parties is seen to be well thought out based on the specific challenges that they face.148 b) Interpretation of the Cultural Exclusion Clause Based on Local Requirements For the EU, audio-visual services with a particular focus on cultural diversity is 102 a very sensitive sector among the Member States which led to the enactment of the Audio-visual Media Services Directive of 10 March 2010, amended by Directive 2018/1808.149 Canada on the other hand faces challenges in the news and print media sector and also had specific demands from Quebec regarding protection for its cultural diversity which encouraged it to stick to its past policy of wide cultural exception clauses.150 142 Chochorelou, ‘The European Identity Rationale in the EU Free Trade Agreements: Economic rather than Cultural Objectives?’ 2019 2, Cuadernos Europeos de Deusto, 227 (232). 143 Hahn and Sauvé, ‘Research for the CULT Committee – Culture and Education in CETA’, in European Parliament (2016), 25. 144 Joint Interpretative Instrument on the Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union and its Member States, OJ L 11, p. 3. 145 Hahn and Sauvé, ‘Research for the CULT Committee – Culture and Education in CETA’, in European Parliament (2016), 34; Government of Canada, What you need to know about CETA and Culture, Flyer, http://boykoborissov.bg/sites/default/files/pictures/ceta_and_culture.pdf. 146 Maltais, ‘Cultural Exceptions’ in Sinclair et al. (eds), Making Sense of the CETA (2014), 49 (54). 147 García Leiva, ‘The EU-Canada CETA and the diversity of cultural industries: hegemony or resistance? Some notes’, Paper presented at the IAMCR 2015 conference in Montreal, Canada, July 12-16, 2015, 5; Hahn and Sauvé, ‘Research for the CULT Committee – Culture and Education in CETA’, in European Parliament (2016), 29 f. 148 Hahn and Sauvé, ‘Research for the CULT Committee – Culture and Education in CETA’, in European Parliament (2016), 38. 149 Richieri Hanania, ‘Trade, culture and the European Union cultural exception’ (2019) 25(5) Int. J. Cult. Policy, 568 (574); Directive 2010/13/EU of the European Parliament and of the Council of 10 March 2010 on the coordination of certain provisions laid down by law, regulation or administrative action in Member States concerning the provision of audiovisual media services (Audiovisual Media Services Directive), OJ L 95/1; Directive 2018/1808/EU of the European Parliament and of the Council of 14 November 2018 amending Directive 2010/13/EU on the coordination of certain provisions laid down by law, regulation or administrative action in Member States concerning the provision of audiovisual media services (Audiovisual Media Services Directive) in view of changing market realities, OJ L 303/69. 150 Hahn and Sauvé, ‘Research for the CULT Committee – Culture and Education in CETA’, in European Parliament (2016), 37 f.
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The EU and Canada have clarified the interpretation of the terms in a response to the WTO.151 The EU considers that the definition of ‘audio-visual services’ is not a closed definition due to the ‘rapidly-changing nature of the audio-visual sector’. In the absence of a definition within the agreement, the definition of the term is likely to be linked to the ‘Services Sectoral Classification List’ of the GATT, which includes ‘audio-visual services’.152 104 The definition of ‘cultural industries’, the sector excluded by Canada, is linked to the definition provided in Article 1.1 of the CETA.153 Canada has further clarified that ‘live performances’ which include theatrical and musical performances are not covered under the cultural exemption provided under the CETA.154 This is also true for the ‘audio-visual services’ exemption of the EU.155 103
c) Making Sense of the Difference Between the Clause Chosen by the Parties The ‘cultural exception clause’ was first seen in the EU-Chile FTA 156 and has been a common feature of EU-FTAs since then. In the CETA, the specific feature of the cultural exception clause was that while the EU excluded only the ‘audio-visual services’, which were not defined, Canada chose to include the concept of ‘cultural industries’, which was already defined in the CETA. The EU decision to exclude only the audio-visual sector is considered to have an economic motive beyond the mere concern of cultural protection.157 Both the Parties have tried to convey that the difference in approach between the two Parties is consistent with their approaches in past agreements and is sufficient to protect their respective cultural sectors and comply with international obligations, and one approach is not necessarily better than the other.158 106 The EU approach to only include audio-visual services has however been criticised as being very limited and based on ‘the EU’s understanding that only ‘Hollywood’ represents a threat to Europe’s cultural industries and its cultural diversity’.159 In the 105
151 WTO, Comprehensive Economic And Trade Agreement Between Canada and the European Union (Goods And Services), Questions and Replies, WT/REG389/2, 6 June 2018, p. 7. 152 WTO, Services Sectoral Classification List, MTN.GNS/W/120, 10 July 1991; Hahn and Sauvé, ‘Research for the CULT Committee – Culture and Education in CETA’, in European Parliament (2016), 33. 153 ‘cultural industries’ means persons engaged in: (a) the publication, distribution or sale of books, magazines, periodicals or newspapers in print or machine-readable form, except when printing or typesetting any of the foregoing is the only activity; (b) the production, distribution, sale or exhibition of film or video recordings; (c) the production, distribution, sale or exhibition of audio or video music recordings; (d) the publication, distribution or sale of music in print or machine-readable form; or (e) radio-communications in which the transmissions are intended for direct reception by the general public, and all radio, television and cable broadcasting undertakings and all satellite programming and broadcast network services. 154 WTO, Comprehensive Economic and Trade Agreement Between Canada and the European Union (Goods And Services), Questions and Replies, WT/REG389/2, 6 June 2018, p. 15. 155 Hahn and Sauvé, ‘Research for the CULT Committee – Culture and Education in CETA’, in European Parliament (2016), 33. 156 Article 91(e) and Article 135(d) EU-Chile Association Agreement 2002. 157 Chochorelou, ‘The European Identity Rationale in the EU Free Trade Agreements: Economic rather than Cultural Objectives?’, 2019 2 Cuadernos Europeos de Deusto, 227 (235). 158 Government of Canada, What you need to know about CETA and Culture, http://boykoborissov.bg/ sites/default/files/pictures/ceta_and_culture.pdf. 159 Hahn and Sauvé, ‘Research for the CULT Committee – Culture and Education in CETA’, in European Parliament (2016), p. 30.
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case of Canada as well, there is an opinion that the clause is insufficient in the absence of a broader clause in the agreement.160
III. Section F Procedure for Claims under Chapter 8 and Exceptions 1. The Section F General Procedure for Claims by an Investor – para. 4 (1st sentence) The first sentence of Article 8.2(4) provides that: ‘Claims may be submitted by an 107 investor under this Chapter only in accordance with Article 8.18, and in compliance with the procedures set out in Section F.’ Article 8.18 is a part of Section F, which sets out the procedure for investor claims. 108 As per this provision, for investor claims to be valid, they should fulfil the conditions laid down in Article 8.18, and the other procedures laid down in Section F. While Article 8.18 provides the basic information about the scope of claims and the general conditions for screening the eligibility of claims, the rest of Section F contains the provisions about the different dispute resolution provisions (Article 8.19 - Consultations, Article 8.20 - Mediation, Article 8.23 - Arbitration Tribunal and Article 8.28 Appellate Tribunal), the procedures to be followed by the tribunals, the constitution of the tribunals, applicable law, and the ancillary conditions on conduct of proceedings and enforcement of awards.
2. Specific Types of Claims (Section B and C Obligations) Excluded from Coverage – para. 4 (2nd – 3rd sentence) The second and third sentences of Article 8.2(4) state that:
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Claims in respect of an obligation set out in Section B are excluded from the scope of Section F. Claims under Section C with respect to the establishment or acquisition of a covered investment are excluded from the scope of Section F.
As per the second sentence of Article 8.2(4), claims relating to Section B, which in- 110 corporates the market access obligations (Article 8.4) and performance requirements (Article 8.5), cannot be brought under the investor-state dispute settlement procedure of the CETA. This is unlike the NAFTA, which permits access to both ISDS and inter-state dispute settlement for the enforcement of its performance requirements obligation.161 The third sentence deals with exclusion of certain disputes based on a violation of 111 obligations under Section C (non-discriminatory treatment) which includes inter alia national treatment (Article 8.6), most-favoured nation treatment (Article 8.7) and appointment of senior management and board of directors (Article 8.8), from the ambit of investor-state dispute resolution provisions under Section F. As per this third sentence of Article 8.2(4), claims which are linked to the protection under these standards provided under Section C, when they relate to establishment or acquisition of a ‘covered investment’, cannot be dealt with under the investor-state dispute resolution options provided under Section F. For the purposes of this sentence, the definition of the term ‘covered investment’ can be found under Article 8.1 CETA, and is discussed in Maltais, ‘Cultural Exceptions’ in Sinclair et al. (eds), Making Sense of the CETA (2014), 49 (55). See further in this regard, Van Harten, ‘The European Union’s Emerging Approach to ISDS: a Review of the Canada-Europe CETA, Europe-Singapore FTA, and European-Vietnam FTA’ (2016) 1(1) U. Bologna L. Rev., 138 (159 f.). 160
161
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detail in the prior chapter of this contribution (→ Art. 8.1 mn. 90) as well as in this current chapter (→ mn. 62 ff.). 112 It is important to note the difference between the second and third sentences of Article 8.2(4). Under the second sentence, disputes of any type based on obligations under Section B are not permitted to be brought under the investor-state dispute settlement provisions (Section F). Compared to this, disputes related to Section C are prohibited only when they are related to the ‘establishment or acquisition of a covered investment’, which means that post establishment disputes based on obligations under Section C related to a covered investment would be covered under the investor-state dispute settlement provisions, as further clarified under Article 8.18(1). 113 Disputes, which are excluded from the investor-state dispute settlement provisions can nonetheless be submitted under the inter-state dispute settlement provisions of the CETA.162
3. Specific Inclusion under the Chapter – para. 4 (4th sentence) The fourth sentence of Article 8.2(4) provides that ‘Section D applies only to a covered investment and to investors in respect of their covered investment’. 115 Section D deals with Article 8.9 (Investment and regulatory measures), Article 8.10 (Treatment of investors and of covered investment), Article 8.11 (Compensation for losses), Article 8.12 (Expropriation), Article 8.13 (Transfers) and Article 8.14 (Subrogation). 116 Based on a reading of the sentence, it could be prima facie interpreted that for a dispute related to a provision under Section D of the Chapter 8 to be eligible for protection under the investor-state dispute settlement conditions, two requirements have to be fulfilled: 114
a. It has to relate to a covered investment, and b. it applies to investor in relation to their covered investment. The definition of an ‘investor’ and a ‘covered investment’ under Article 8.1 CETA as earlier discussed in this contribution would be applicable here (→ mn. 30 ff. and → mn. 62 ff.). 118 Firstly, a key factor which needs to be understood from the requirements is that merely being a ‘covered investment’ from the perspective of the host state (as included in the definition of a ‘covered investment’) is not sufficient to claim the benefits of Section D. Additionally, it would also be required that an ‘investor’ (as defined under the provisions in Article 8.1) is claiming the protective standards as provided in Section D for their covered investments. 119 This excludes the possibility for a claim of the benefits of protection under Section D by: 117
i. any Party other than an investor; or ii. by an investor in respect to any investments which do not fall within the definition of a covered investment. 120
Secondly, the provision under Article 8.2(4) has to be read in conjunction with Article 8.18 sub-paragraph 1(b) wherein claims are permitted by ‘an investor of a Party’ before a tribunal ‘that the other Party has breached an obligation under… Section D.’ In the absence of the aforementioned special qualification under Article 8.2(4), investors could use this wide provision under Article 8.18 sub-paragraph 1(b) 162
144
See Chapter 29 CETA.
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to potentially raise claims for violation of commitments under Section D for purely fictional or abstract situations where no ‘covered investment’ has been actually affected. These claims could potentially be pre-emptive and could also be numerous, which could affect the functioning of the entire dispute resolution process. Now with the existence of this provision under Article 8.2(4) investors would first 121 need to have a ‘covered investment’ under the treaty before they can claim a violation of the standards of protection under Section D by the host state through a tribunal formed under Article 8.18.
IV. Non-Effect of CETA Chapter 8 on Canada/EC and Member States Air Transport Agreement – para. 5 Article 8.2(5) CETA provides that:
122
This Chapter does not affect the rights and obligations of the Parties under the Agreement on Air Transport between Canada and the European Community and its Member States, done at Brussels on 17 December 2009 and Ottawa on 18 December 2009.
The agreement, which is not affected by CETA Chapter 8 is an ‘air transport 123 agreement’ between the EU and Canada, which was signed in 2009. 163 The agreement replaced the then-existing bilateral agreements on aviation between the EU Member States and Canada.164 The agreement specially regulates investment in the aviation sector of the contracting Parties. Thus, Article 8.2(5) CETA unequivocally clarifies that Chapter 8 CETA does not affect the rights and obligations of the Parties arising under the Air Transport Agreement between Canada – the European Community and its Member States. This includes, inter alia, rights relating to investment (Article 4), fair and equal treatment (Article 13), dispute settlement – providing for consultation, mediation, and if both fails, State to State arbitration (Article 21), under the air transport agreement.165 A need for specifically excluding the affected agreement may have been felt because 124 certain specific air transport services such as aircraft repair and maintenance services, the selling and marketing of air transport services, computer reservation system (CRS) services, ground handling services, and airport operation services have been specifically included under the scope of protection of Chapter 8 CETA. As such, no confusion was sought to be created between the CETA and the rights and obligations under the air transport agreement, which fully applies independently of the CETA. The aforementioned air transport agreement also has a separate independent dispute settlement provision with the possibility for consultations followed by arbitration. 166
E. Conclusion The extremely important issue of the scope of coverage for a measure under the in- 125 vestment protection chapter of the CETA underwent multiple rounds of negotiations. 163 European Commission, International aviation: Canada, https://ec.europa.eu/transport/modes/air/i nternational_aviation/country_index/canada_en. 164 European Commission, The EU-Canada aviation agreements – Q&A, MEMO/09/218, 6 May 2009, https://ec.europa.eu/commission/presscorner/detail/en/MEMO_09_218. 165 Agreement on Air Transport between Canada and the European Community and its Member States, OJ L 207/32. 166 Article 21, Agreement on Air Transport between Canada and the European Community and its Member States, OJ L 207/32.
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As seen from the text of the treaty and the Joint Interpretative Instrument of the CETA, the Parties to the agreement wanted to ensure that foreign investors could obtain judicial protection for their investments against any sovereign measures which may be in violation of the standards of protection under the Chapter, while at the same time ensuring that the right to regulate for the host state is protected. 126 This in turn has meant that the article on the scope of the Chapter is a balancing exercise between ensuring the protection of investors in as many sectors as possible, while ensuring national interests in sensitive industries such as entertainment and aviation are protected, and local regulations could continue to determine their functioning. This was done to protect local interests in these sensitive industries. 127 On the other hand, a broad exception for ‘activities carried out in the exercise of governmental authority’ from market access prohibition, performance requirements, and key investment protection standards such as national treatment and mostfavoured nation treatment indicates that the Parties want to protect their right to regulate and ensure wide leeway in performance of any actions, which are normally considered a part of sovereign functions.
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Article 8.3 Relation to other chapters 1. This Chapter does not apply to measures adopted or maintained by a Party to the extent that the measures apply to investors or to their investments covered by Chapter Thirteen (Financial Services). 2. A requirement by a Party that a service supplier of the other Party post a bond or other form of financial security as a condition for supplying a service in its territory does not of itself make this Chapter applicable to measures adopted or maintained by the Party relating to the supply of that cross-border service. This Chapter applies to measures adopted or maintained by the Party relating to the posted bond or financial security to the extent that such bond or financial security is a covered investment. Bibliography: Kenneth Bachman, Scott Benedict and Ricardo Anzaldúa, ‘Financial Services Under the North American Free Trade Agreement: An Overview’ (1994) The Int’l Lawyer, 291; European Commission Directorate General for Trade, The Economic Impact of the Comprehensive Economic and Trade Agreement (2017); Patrick Leblond, ‘CETA and Financial Services: What to Expect?’ (2016) 91 CIGI Papers, 1; NAFTA Free Trade Commission, Notes of Interpretation of Certain Chapter Eleven Provisions, 31 July 2001; Christoph Ohler, ‘CETA, TTIP, TiSA, and Financial Services’ in Stefan Griller, Walter Obwexer, and Erich Vranes (eds.) Mega-Regional Trade Agreements: CETA, TTIP, and TiSA (Oxford: OUP, 2017); Todd Weiler, ‘NAFTA Article 1105 and the Free Trade Commission: Just Sour Grapes, or Something More Serious’ (2001) 29 Int'l Bus. Law., 291. A. Introduction and Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
B. Spirit and Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8
C. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. 13 January 2010 and January 2011 Drafts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. February 2012 Draft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. 21 November 2013 Draft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV. 1 August 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15 16 21 23 25
D. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. Financial Services Dispute Resolution under NAFTA and CETA . . . . . . . . . II. Financial Services Dispute Resolution under EU FTAs and IPAs . . . . . . . . .
27 27 35
E. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
38
A. Introduction and Overview Article 8.3, entitled ‘Relation to other chapters’, includes a carve-out with regard 1 to Financial Services, which is separately codified in Chapter 13 of CETA. 1 The provision precludes the reach of foreign investment protection provisions in Chapter 8 to financial securities instruments to the extent that such instruments are related to cross-border services unless an alternative investment protection provision is provided under Chapter 13.2 The first paragraph of Article 8.3 is the carve-out: to the extent that the measures by either Party relate to investors or investments in the financial services, such measures are specifically excluded from the coverage of investment protection under Chapter 8. The second paragraph of Article 8.3 clarifies that a financial instrument, be it a bond or another form of financial security, is only protected under Chapter 8 if the security in question is a covered investment under CETA. 1 2
Chapter 13 CETA: ‘Financial Services’. Article 8.3 CETA.
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The provision is closely intertwined with Chapter 13 on Financial Services. The most distinctive feature of Chapter 13 is that CETA obliges both Canada and the EU to provide investment protection to investors and investments in Financial Services through the Investment Court System (ICS) except for prudential measures. 3 On the other hand, disputes in Financial Services that do not fall within the scope of the exception codified under Article 8.3 are handled by a state-state arbitration panel established as per Chapter 29 of CETA.4 A Financial Services Committee is also established to monitor the implementation of Chapter 13.5 3 This structure under CETA resembles similarities to those provisions provided under Chapter 14 of the North American Free Trade Agreement (NAFTA) 6 and its successor, Chapter 17 of the US-Mexico-Canada Agreement (USMCA). 7 Chapter 11, Article 1112 of NAFTA on ‘Relation to Other Chapters’ provides the following: 2
1. In the event of any inconsistency between this Chapter and another Chapter, the other Chapter shall prevail to the extent of the inconsistency. 2. A requirement by a Party that a service provider of another Party post a bond or other form of financial security as a condition of providing a service into its territory does not of itself make this Chapter applicable to the provision of that crossborder service. This Chapter applies to that Party's treatment of the posted bond or financial security.
4
Similarly, the recently drafted Chapter 14, Article 14.3 of the USMCA on ‘Relation to Other Chapters’ reads8: 1. In the event of any inconsistency between this Chapter and another Chapter of this Agreement, the other Chapter shall prevail to the extent of the inconsistency. 2. This Chapter does not apply to measures adopted or maintained by a Party to the extent that they are covered by Chapter 17 (Financial Services). 3. A requirement of a Party that a service supplier of another Party post a bond or other form of financial security as a condition for the cross-border supply of a service does not of itself make this Chapter applicable to measures adopted or maintained by the Party relating to the cross-border supply of the service. This Chapter applies to measures adopted or maintained by the Party relating to the posted bond or financial security, to the extent that the bond or financial security is a covered investment. 4. For greater certainty, consistent with Article 15.2.2(a) (Scope), Article 15.5 (Market Access), and Article 15.8 (Development and Administration of Measures) apply to measures adopted or maintained by a Party relating to the supply of a service in its territory by a covered investment.
5
Both NAFTA Chapter 14 and the USMCA Chapter 17 opt for investor-State arbitration, albeit limited to certain substantive protections in the investment chapters of both treaties. CETA’s Chapter 13, on the other hand, provides resort to the Investment Court System (ICS). Chapter 13 of CETA provides that investors and investments in 3 Article 13.16 CETA. Chapter 13 was one of the last chapters on which the Parties reached an agreement. Leblond, ‘CETA and Financial Services: What to Expect?’ (2016) 91 CIGI Papers, 1: ‘The contentious issue was the extent to which the agreement could affect Canada’s ability to regulate its financial services industry’. 4 Chapter 29 CETA: ‘Dispute Settlement’. 5 Articles 13.18 and 13.20 CETA. Structure of the Financial Services Committee is provided under Article 13.18: ‘The Financial Services Committee established under Article 26.2.1(f) (Specialised committees) shall include representatives of authorities in charge of financial services policy with expertise in the field covered by this Chapter. For Canada, the Committee representative is an official from the Department of Finance Canada or its successor.’ On the other hand, it is predicted that the EU most likely appoints an official from the European Commission’s Directorate-General for Financial Stability, Financial Services and Capital Markets Union. Leblond, ‘CETA and Financial Services: What to Expect?’ (2016) 91 CIGI Papers, 3. 6 Chapter 14 North American Free Trade Agreement (NAFTA): ‘Financial Services’. 7 Chapter 17 US-Mexico-Canada Free Trade Agreement (USMCA): ‘Financial Services’. 8 Article 14.3 USMCA.
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financial service suppliers and in financial institutions may benefit from investment protection as per Chapter 8.9 Article 13.2 of CETA, defining the scope of the provision, reads10: 1. This Chapter applies to a measure adopted or maintained by a Party relating to: (a) financial institutions of the other Party; (b) an investor of the other Party, and an investment of that investor, in a financial institution in the Party's territory; and (c) cross-border trade in financial services. 2. For greater certainty, the provisions of Chapter Eight (Investment) apply to: (a) a measure relating to an investor of a Party, and an investment of that investor, in a financial service supplier that is not a financial institution; and (b) a measure, other than a measure relating to the supply of financial services, relating to an investor of a Party or an investment of that investor in a financial institution. 3. Articles 8.10 (Treatment of investors and of covered investments), 8.11 (Compensation for losses), 8.12 (Expropriation), 8.13 (Transfers), 8.14 (Subrogation), 8.16 (Denial of benefits), and 8.17 (Formal requirements) are incorporated into and made a part of this Chapter. 4. Section F of Chapter Eight (Resolution of investment disputes between investors and states) is incorporated into and made a part of this Chapter solely for claims that a Party has breached Article 13.3 or 13.4 with respect to the expansion, conduct, operation, management, maintenance, use, enjoyment, and sale or disposal of a financial institution or an investment in a financial institution, or Article 8.10 (Treatment of investors and of covered investments), 8.11 (Compensation for losses), 8.12 (Expropriation), 8.13 (Transfers), or 8.16 (Denial of benefits).
Article 13.3 and 13.4 of CETA further incorporate NT and MFN provisions in 6 Chapter 8 of CETA, limiting their scope to treatment accorded to its own and third Party financial institutions and investments of its own and third Party investors in financial institutions, respectively.11 Compared to Chapter 14 of NAFTA and Chapter 17 of USMCA, Chapter 13 of CETA also incorporates an FET standard as codified under Article 8.10 of CETA. To the extent, defined under Chapter 13, Chapter 8 applies to protection of investments and investors in Financial Services.12 A definition of Financial Services is adopted in Article 13.1 of CETA and resem- 7 bles similarities with that included in Annex on Financial Services in the General Agreement on Trade and Services (GATS).13 Article 8.1 of CETA on the definition of investment and investor is also referenced hereunder. Within the scope of Financial Services ‘investor means “investor” as defined in Article 8’, except for the purposes of Chapter 13. Specifically with regard to ‘loans’ and ‘debt instruments’, Chapter 13, Article 13.1 provides that ‘a loan to or debt instrument issued by a financial institution is an investment in that financial institution only if it is treated as regulatory capital by the Party in whose territory the financial institution is located’. According to Article 13.1 ‘a loan granted by or debt instrument owned by a financial institution, other than a loan to or debt instrument of a financial institution referred to [above]’ is not considered an investment.14
Article 13.21 CETA. Article 13.2 CETA. 11 Article 13.3 and 13.4 CETA. 12 Article 13.21 CETA; Article 8.3 CETA. 13 Annex on Financial Services of the General Agreement on Trade and Services (GATS); Ohler, ‘CETA, TTIP, TiSA, and Financial Services’ in Griller et al. (eds), Mega-Regional Trade Agreements: CETA, TTIP, and TiSA (2017), 193 (195). 14 Article 13.1 CETA; Article 8.1 CETA. 9
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B. Spirit and Purpose One may argue that this exception to Chapter 8 of CETA was codified with the intention to address different levels of development and regulation of financial services in the Contracting Parties. Canada and the EU regulate in detail the activities of their financial institutions involved in securities transactions, insurance, banking and related activities. Both in Canada and in the EU such regulations carry a macro-economic character and involve prudential measures.15 As such, challenges in the institution of regulations and the interpretation of these regulations may differ substantially. While the Contracting Parties aimed to promote and encourage cross-border investments in financial institutions as a matter of policy, they (particularly Canada) chose not to commit the regulatory measures in financial services to investor-State dispute resolution (ISDS), albeit subject to certain exceptions.16 9 This is particularly compelling considering the trade volume in financial services between the EU and Canada.17 Treatment of financial services under CETA created particular anxiety on both sides. The Contracting Parties were concerned that the incumbent investor-State dispute resolution could damage regulatory sovereignty of the EU and Canada, could endanger ‘the stability of financial systems and consumer protection’.18 It was the intention of the drafters (or at least Canada) to exclude, for instance, a European financial institution from challenging the FET ‘nature of certain regulatory rules and procedures that apply in Canada, arguing that they prevent it from competing on an equal footing with an already established Canadian competitor’.19 10 The structure set out under Article 8.3 and Chapter 13 is similar with Canada’s experience in the making of NAFTA and its bilateral investment treaties (BITs). Like NAFTA, under CETA, drafters included a separate chapter on Financial Services, namely Chapter 13.20 Under Chapter 13, ICS is made available to claims concerning investors and investments in Financial Services. However, as opposed to NAFTA, pursuant to Chapter 13 of CETA provisions for NT and MFN are not specifically excluded but, as discussed above, are limited to the protection of investments in 8
15 Leblond, ‘CETA and Financial Services: What to Expect?’ (2016) 91 CIGI Papers, 6 f. As illustrated below, purpose of NAFTA Chapter 14 resemble similarities with that of CETA Chapter 13. See Fireman’s Fund Insurance Company v. The United Mexican States, ICSID Case No. ARB(AF)/02/01 (hereinafter Fireman’s Fund v. Mexico), Award (17 July 2006), paras. 1-4. 16 See Article XI, Canada-Ecuador Agreement for the Promotion and Reciprocal Protection of Investments (Canada-Ecuador BIT) (1996): ‘Investment in Financial Services’; Annex II, Canada-Croatia Agreement for the Promotion and Protection of Investments (Canada-Croatia BIT) (1997): ‘Annex II, Specific Rules Regarding Article XII, Settlement of Disputes between an Investor and the Host Contracting Party, I. Prudential Measures’. 17 European Commission Directorate General for Trade, The Economic Impact of the Comprehensive Economic and Trade Agreement (2017), 15: ‘Another important services sector to be mentioned is financial services, accounting for the third largest EU services surplus to Canada. The EU financial services sector exported over €1.44 billion to Canada in 2015, whereas Canadian exports in that category amounted to €348 million. In this specific sector, the European trade surplus stood at 76% of exports to Canada.’; as a reflection, it is notable that the Parties (particularly Canada) dedicated a substantial amount of effort in the negotiation of Chapter 13. See Canada-European Union Comprehensive Economic and Trade Agreement (CETA) Negotiations Financial Services Offer (4 August 2014), Auf dem Weg in die Paralleljustiz (Tagesschau, 14 August 2014), available at . 18 Leblond, ‘CETA and Financial Services: What to Expect?’ (2016) 91 CIGI Papers, 1 (5 f.). 19 Leblond, ‘CETA and Financial Services: What to Expect?’ (2016) 91 CIGI Papers, 1 (5 f.). 20 See Bachman et al., ‘Financial Services Under the North American Free Trade Agreement: An Overview’ (1994) The Int’l Lawyer, 291-312.
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financial institutions.21 The investment protection under Chapter 13 of CETA is also broader compared to Chapter 14 of NAFTA, providing, in addition, protection under Article 8.10 of CETA, which may be considered as the equivalent of Article 1105 of NAFTA on the Minimum Standard of Treatment.22 One could argue that these provisions reflect the well-established investment pro- 11 motion and protection policies in the North American hemisphere with regard to financial services. In addition to respective structures of NAFTA and the USMCA, both Canada and the US include provisions in their respective BITs that carry similarities with the structure established under Chapters 8 and 13 of CETA. However, in terms of the protections and the flexibility they offer, these provisions are narrower compared to CETA. The US-Rwanda BIT of 2008, for instance, regulates Financial Services under Arti- 12 cle 20.23 The provision conditions the scope of arbitration with regard to ‘measures relating to financial services for prudential reasons’ to a pre-dispute resolution option under the jurisdiction of the ‘competent financial authorities’ of the Parties to the BIT.24 Similarly, the Ecuador-Canada BIT of 1996 includes a separate section on ‘Investment in Financial Services’ under Article XI. Article XI(1) removes measures for prudential reasons from the scope of the treaty, including measures such as ‘the protection of investors, depositors, financial market participants, policy-holders, policy-claimants, or persons to whom a fiduciary duty is owed by a financial institution’. 25 Article XI(3) of the Canada-Ecuador BIT further includes a prerequisite with regard to such measures relating to financial measures26: Where an investor submits a claim to arbitration […] and the disputing Contracting Party invokes paragraphs (1) […], the tribunal established […] shall at the request of that Contracting Party, seek a report in writing from the Contracting Parties on the issue of whether and to what extent the said paragraph […] are a valid defence to the claim of the investor. The tribunal may not proceed pending receipt of a report under this Article.
Article XI(3)(b) of the same provision directs Contracting Parties to an alternative 13 dispute resolution method under Article XV of the BIT (after the arbitration has been commenced), whereby, similar to the US-Rwanda BIT, the Parties are invited to prepare a written report, either on the basis of agreement following consultations, or by means of an arbitral panel.27 Accordingly, the Parties are required to engage their financial services authorities for consultations. The report is then transmitted to the tribunal, and becomes binding on the tribunal. Similarly, the Canada-Croatia BIT excludes those ‘reasonable’ measures taken by 14 a Contracting Party for ‘prudential reasons’ such as ‘the protection of […] financial market participants’, the maintenance of safety, soundness, integrity or financial responsibility of financial institutions and ensuring the integrity and stability of a Contracting Party’s financial system.28 The BIT also explicitly provides that MFN ‘does not Articles 13.2 and 13.21 CETA. NAFTA Free Trade Commission, Notes of Interpretation of Certain Chapter 11 Provisions, 31 July 2001), available at ; Weiler, ‘NAFTA Article 1105 and the Free Trade Commission: Just Sour Grapes, or Something More Serious’ (2001) 29 Int'l Bus. Law., 491 (493). 23 Article 20 US-Rwanda Treaty Concerning the Encouragement and Reciprocal Protection of Investment (US-Rwanda BIT) (2008). 24 Articles 20(1) and 20(3)(a) US-Rwanda BIT (2008). 25 Article XI Canada-Ecuador BIT (1996). 26 Article XI(3) Canada-Ecuador BIT (1996). 27 Article XI(3)(b) Canada-Ecuador BIT (1996). 28 Annex I, III. General Exemptions and Exceptions, para. 3, Canada-Croatia BIT (1997). 21 22
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apply in respect of financial services’.29 Finally, concerning prudential measures, the BIT adopts specific rules on dispute settlement and, similar to the Canada-Ecuador BIT, requires that an arbitral tribunal seek a written report on the above mentioned exceptions, consulted between the financial services authorities of the Contracting Parties. When transmitted, the report becomes binding on the tribunal. 30 As explored below, such provisions are adopted under Chapters 8 and 13 of CETA, albeit with certain additional and complex layers resulting from the procedural novelties presented by the ICS method adopted under Chapter 8.
C. Drafting History 15
A number of earlier drafts of CETA31 illustrate that the structure on Financial Services and investment protection accorded under CETA Article 8.38 has evolved notably. Below this transformation is scrutinised.
I. 13 January 2010 and January 2011 Drafts A first draft of Article 8.3 (together with Chapter 13 on Financial Services) was proposed by Canada provided in the draft of 13 January 2010 of CETA. Article 8.3 in the January 2011 draft is identical to this earlier draft. As such this section assesses both drafts within this sub-section.32 17 Article X.2 on Relation to Other Chapters reads: 16
1. 2.
3. 4.
18
In the event of any inconsistency between this Chapter and another Chapter, the other Chapter shall prevail to the extent of the inconsistency. A requirement by a Party that a service provider of the other Party post a bond or other form of financial security as a condition of providing a service into its territory does not of itself make this Chapter applicable to measures adopted or maintained by the Party relating to the provision of that cross-border service. This Chapter shall apply to measures adopted or maintained by the Party relating to the posted bond or financial security, to the extent that such bond or financial security is a covered investment. This Chapter does not apply to measures adopted or maintained by a Party to the extent that they are covered by Chapter [XY] (Financial Services). Articles [X.04] (Cross-Border Trade in Services – Market Access) and [X.07] (Cross- Border Trade in Services – Domestic Regulation) are hereby incorporated into and made a part of this Chapter and apply to measures adopted or maintained by a Party affecting the supply of a service in its territory by a covered investment. CAN [“CAN” inserted in the January 2011 Draft]
Footnote 35 attested to the provision further reads: It is understood by the Parties that any reservation taken by a Party pursuant to Article [X.05] (Cross-Border Trade in Services – Reservations) against Article [X.04] (Cross-Border Trade in Services – Market Access) applies to measures of that Party covered under Paragraph 4.
19
As a matter of drafting policy, and as identified above, the earlier versions of Article 8.3 of CETA and its interrelation with Chapter 13 mimics Canada’s investment treaty 29 Annex I, General and Specific Exceptions, Special Provisions, I. MFN Exceptions, para. 2, CanadaCroatia BIT (1997). 30 Annex II, Specific Rules Regarding Article XII, Settlement of Disputes between an Investor and the Host Contracting Party, I. Prudential Measures, paras. 2-4, Canada-Croatia BIT (1997). 31 Auf dem Weg in die Paralleljustiz (Tagesschau, 14 August 2014). 32 Article X.2 Draft consolidated CETA text (as at 13 January 2010) and Article X.2 Draft consolidated CETA text (as at January 2011).
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programme, whereby Canada sets out a distinct dispute resolution method in which financial services authorities of both Contracting Parties are involved. In addition, the substantive protections offered within Chapter 13 may not always be consistent with those provided under Chapter 8, given the multi-layered exceptions under the financial services investment protection provisions. It could be assumed that the Contracting Parties aimed at addressing such inconsistencies the two chapters may present in sub-paragraph 1 above. As also discussed, sub-paragraph 2, which is adopted in the final version of Article 20 8.3 with minor modifications, ensures that financial securities instruments, such as bank guarantees and bonds, would benefit from the substantive protections offered under Chapter 8 to the extent that the instrument in question qualifies as a covered investment. Sub-paragraph 3 is the first draft with which the Contacting Parties aim at carving out measures that fall within the ambit of Chapter 13 on Financial Securities. Draft sub-paragraph 4, on the other hand, concerns investments in Cross-Border Trade in Services. This draft offered substantive protections to investments against measures that would fall within the scope of Article (now) 9.6 on Market Access. However, by adopting Article (now) 9.7 on Reservations, it could be assumed that the Contracting Parties also aimed at excluding such benefits to ‘a service supplier of a third country [that] owns or controls the enterprise [that makes an investment]’ or if the measure concerning Market Access ‘relates to maintenance of international peace and security; and prohibits transactions with the enterprise or would be violated or circumvented if the benefits of this Chapter were accorded to the enterprise’. 33 The final draft of Article 8.3 of CETA, as discussed below, does not make any reference to Chapter 9 on Cross-Border Trade in Services.
II. February 2012 Draft The draft of February 2012 of CETA provided the following34: 1. 2.
3.
21
In the event of any inconsistency between this Chapter and another Chapter, the other Chapter shall prevail to the extent of the inconsistency. A requirement by a Party that a service provider of the other Party post a bond or other form of financial security as a condition of providing a service into its territory does not of itself make this Chapter applicable to measures adopted or maintained by the Party relating to the provision of that cross-border service. This Chapter shall apply to measures adopted or maintained by the Party relating to the posted bond or financial security, to the extent that such bond or financial security is a covered investment. This Chapter does not apply to measures adopted or maintained by a Party to the extent that they are covered by Chapter [XY] (Financial Services).] CAN
With the above draft of Article 8.3, the Contracting Parties excluded sub-paragraph 22 4 and the reference to Chapter 9 on Cross-Border Trade in Services. While the remaining provisions that first appeared in the draft of January 2010 were retained, the Contracting Parties agreed not to extend the reach of substantive provisions on protection to Cross-Border Trade in Services.
33 34
Articles 9.6 and 9.7 CETA. Article X.2 Draft consolidated CETA text (as at February 2012).
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III. 21 November 2013 Draft 23
The draft of 21 November 2013 of CETA provided the following 35: 1.
2.
24
This Chapter does not apply to [EU: treatment and] [CAN: measures adopted or maintained] by a Party to the extent that the [measures] apply to investors or to their investments covered by Chapter [XY] (Financial Services).] [This does not prejudge EU's position regarding coverage of the Chapter on Financial Services]. A requirement by a Party that a service provider of the other Party post a bond or other form of financial security as a condition of providing a service into its territory does not of itself make this Chapter applicable to measures adopted or maintained by the Party relating to the provision of that cross-border service. This Chapter shall apply to [EU treatment and] [CAN: measures adopted or maintained] by the Party relating to the posted bond or financial security, to the extent that such bond or financial security is a covered investment.
The draft of 21 November 2013 entitled X.2 – Relation to other chapters differed notably from the version of February 2012. Subparagraph 1 of previous drafts had established that other chapters would have taken precedence if there had been an inconsistency between the chapter in question and Chapter 8 on Investment. Having removed the reference to Cross-Border Services in Trade under Chapter 9 and having included cross references in Chapter 13 to substantive provisions of protection under Chapter 8, it could be assumed that the drafters considered subparagraph of the earlier versions unnecessary. The previous subparagraph 1 is replaced with the previous subparagraph 3. An adjustment on the language of the new subparagraph 1 was also proposed by the EU. Whereas the EU suggested the use of ‘treatment’ as opposed to ‘measures adopted or maintained’ in describing the scope of an action by a Party to CETA. It could be argued that the EU advocated a broader coverage of financial securities instruments under Chapter 8 by proposing the term ‘treatment’ – which could be argued to – at least semantically – cover both direct and indirect; and formal and informal conduct by the Parties.
IV. 1 August 2014 25
The draft of 1 August 2014 of CETA provided the following36: 1. 2.
26
This Chapter does not apply to measures adopted or maintained by a Party to the extent that the measures apply to investors or to their investments covered by Chapter [XY] (Financial Services). A requirement by a Party that a service provider of the other Party post a bond or other form of financial security as a condition of providing a service into its territory does not of itself make this Chapter applicable to measures adopted or maintained by the Party relating to the provision of that crossborder service. This Chapter shall apply to measures adopted or maintained by the Party relating to the posted bond or financial security, to the extent that such bond or financial security is a covered investment.
The draft of 1 August 2014 is the final draft of Article 8.3 of CETA. It illustrates that the Contracting Parties eventually agreed to subject those specific ‘measures adopted or maintained by a Party’ as opposed to a ‘treatment’, reflecting a more general state conduct, concerning investors and investments in Financial Services.
35 36
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Article X.2 Draft consolidated CETA text (as at 21 November 2013). Article X.2 Draft consolidated CETA text (as at 1 August 2014).
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Relation to other chapters
D. Commentary I. Financial Services Dispute Resolution under NAFTA and CETA Since the structure in CETA with regard to protection of investors and investments in Financial Services resemble similarities with the structure adopted under NAFTA’s Chapter 14 (and the USMCA’s Chapter 17), it would be most useful to scrutinize in more detail the practice of investment protection under Chapter 14 of NAFTA in order to examine what one could expect from the investment protection provisions embodied in Chapter 13 of CETA. That being said, as opposed to examples of investor-State arbitration cases conducted under Chapter 11, there are only a handful of cases that analyse or mention Chapter 14 of NAFTA.37 One such case, Fireman’s Fund v. Mexico, was administered under Chapter 14.38 It is considered to be the first Chapter 14 case under NAFTA. 39 This was a case pursued by Fireman’s Fund Insurance Company, a US insurance company, which owned debentures issued by a Mexican financial services company. In the aftermath of the Mexican financial crisis of 1994, Fireman’s Fund complained of Mexico’s alleged measures that refused to allow repurchase of the Claimant’s USdenominated debentures on the same terms as the repurchase of peso-denominated debentures.40 The claim was brought pursuant to Chapters 11 and 14 of NAFTA, more specifically under Article 1102 on National Treatment, Article 1105 on the Minimum Standard of Treatment, Article 1110 on Expropriation and Compensation and Article 1405 on National Treatment. In its defence, Mexico challenged the jurisdiction ratione materiae of the Tribunal with regard to Article 1102, 1105 and 1405 of NAFTA, on the basis that the measures complained of by Fireman’s Fund were exclusively governed by Chapter 14 of NAFTA on Financial Services. Mexico, however, did not object to the Tribunal’s jurisdiction to hear the Claimant’s claims on the breach of Article 1110 of NAFTA on Expropriation and Compensation, which was made applicable by operation of Article 1401(2) of Chapter 14.41 In arguing the above, Mexico specifically relied on Article 1101(3) of NAFTA 42, which, similar to Article 8.3(1) of CETA, provided that: ‘This Chapter does not apply to measures adopted or maintained by a Party to the extent that they are covered by Chapter Fourteen (Financial Services).’
37 See e.g. Canfor Corporation v. United States of America; Terminal Forest Products Ltd. v. United States of America, UNCITRAL, US Objection to Jurisdiction (16 October 2003), 29. 38 Fireman’s Fund Insurance Company v. The United Mexican States, ICSID Case No. ARB(AF)/02/01, Award (17 July 2006). Also see Canfor Corporation v. United States of America; Terminal Forest Products Ltd. v. United States of America, UNCITRAL, Decision on Preliminary Question (6 June 2006), para. 239. The Tribunal in obiter and by analogy considered the interplay between NAFTA’s dispute resolution provisions and Chapter 14 on financial services while assessing the interplay between antidumping and countervailing duty measures in Chapter 19 and dispute resolution provisions. 39 Fireman’s Fund Insurance Company v. The United Mexican States, ICSID Case No. ARB(AF)/02/01, Award (17 July 2006), para. 1. 40 Fireman’s Fund Insurance Company v. The United Mexican States, ICSID Case No. ARB(AF)/02/01, Award (17 July 2006), paras. 5-8. 41 Fireman’s Fund Insurance Company v. The United Mexican States, ICSID Case No.ARB(AF)/02/01, Decision on the Preliminary Question (17 July 2003), para. 2. 42 Fireman’s Fund Insurance Company v. The United Mexican States, ICSID Case No. ARB(AF)/02/01, Decision on the Preliminary Question (17 July 2003), para. 65.
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27
28
29
30
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In its ‘Decision on the Preliminary Question’ of 17 July 2003, the Tribunal extensively discussed the background to the structure on Financial Services under NAFTA together with the interplay between Chapters 11 and 14. According to the Tribunal (similar to CETA – based on the above explained cross references between Chapters 8 and 13), Chapter 14 of NAFTA incorporated several provisions of Chapter 11 on Investment including Article 1110 on Expropriation and Compensation and Article 1115 to 1138 on the procedural aspects of investor-state dispute resolution. However, the Tribunal pointed out that Chapter 14 on Financial Services did not incorporate Article 1102 on National Treatment and Article 1105 on the Minimum Standard of Treatment.43 32 In putting the above carve-out (i.e. Article 1101(3) of NAFTA) into operation, the Tribunal weighed the intentions of drafters of the Agreement. According to the Tribunal, the drafters were particularly concerned about opening up ‘the transborder exchange of financial services, particularly with Mexico, and to integrate Mexico more fully into the international financial system’.44 The Tribunal further noted: 31
[…] on the other hand, the architects of the NAFTA understood that the principles of open access and national treatment were not suitable in all respects for the financial sector, which is subject to regulation on prudential and macroeconomic grounds by each of the state Parties. Accordingly, the negotiators of the NAFTA from the beginning contemplated a separate chapter on financial services, and for the most part the negotiations of what became Chapter Fourteen were carried on by separate teams drawn from the Finance/Treasury ministries rather than from the trade and commerce ministries of the respective governments.45
33
In regard to dispute settlement, the drafters of Chapter 14 drew on the two provisions for dispute settlement contained in the NAFTA. Disputes concerning prudential regulations, including allegations of violation of national treatment, were committed to state-to-state dispute settlement pursuant to Chapter 20; disputes about alleged expropriation as well as denials of transfers of payments and certain other prohibitions (Articles 1109–1111 and 1113–1114) were committed to investor-state dispute settlement pursuant to Chapter 11. The Tribunal noted: 74. The overall principles of the NAFTA are maintained in Chapter Fourteen, including the principle that an investor of one state Party should be permitted to establish a financial institution in the territory of another state Party (Article 1403(1), and the principle that each state Party is to accord national treatment to investors of another Party (Article 1405). But only an investor engaged in financial services in … its home country is entitled to establish a financial institution in the territory of another state Party (Article 1403(5)), and each of the three state Parties adopted significant reservations to Chapter Fourteen, reflecting differences in legislation and regulations in force at the time the NAFTA was negotiated, as well as different distribution of regulatory authority between the national governments and the respective state or provincial governments. Moreover, the reservations permitted to be taken by Mexico reflected Mexico's insistence that its financial sector not be overwhelmed by the major banks and other financial institutions based in the United States of America.46
34
The structure embodied in CETA with respect to resolution of Financial Services disputes carry notable similarities to the characteristics identified by the Tribunal in 43 Fireman’s Fund Insurance Company v. The United Mexican States, Decision on the Preliminary Question (17 July 2003), para. 66. 44 Fireman’s Fund Insurance Company v. The United Mexican States, Decision on the Preliminary Question (17 July 2003), para. 70. 45 Fireman’s Fund Insurance Company v. The United Mexican States, Decision on the Preliminary Question (17 July 2003), para 70. 46 Fireman’s Fund Insurance Company v. The United Mexican States, Decision on the Preliminary Question (17 July 2003), para. 74.
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ICSID Case No. ARB(AF)/02/01, ICSID Case No. ARB(AF)/02/01, ICSID Case No. ARB(AF)/02/01, ICSID Case No. ARB(AF)/02/01,
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Relation to other chapters
Fireman’s Fund v. Mexico. That being said, while CETA’s Chapter 13 on Financial Services offers substantive protections that are one-step broader compared to those under NAFTA, the dispute resolution method (except for prudential measures) under CETA is the ICS as opposed to the incumbent investor-State arbitration. Both NAFTA, as per Article 1404 and Chapter 20, and CETA, as per Article 13.20(1) and Chapter 29, encompass an exclusive dispute resolution method with regard to matters concerning Financial Services. On the other hand, CETA sets out some detailed provisions concerning the constitution of an ICS tribunal if the disputed matter concerns an investment or an investor in Financial Services. Article 13.21(2) requires that, in such case, ‘a division of the tribunal shall be composed’ of the members chosen by the CETA Joint Committee. According to Article 13.20(4) ‘[t]he individuals included on the list shall have expertise or experience in financial services law or regulation or the practice thereof, which may include the regulation of financial service suppliers’. 47 With regard to carving out of prudential measures, similar to NAFTA, CETA, as per Article 13.21(1)(b), allows a respondent state to invoke Article 13.16(1) on prudential measures as a preliminary matter and within 60 days of a submission of a claim to the tribunal as per Article 8.23.48
II. Financial Services Dispute Resolution under EU FTAs and IPAs Turning to financial services dispute resolution under numerous other EU Free 35 Trade Agreements (FTAs) and investment protection agreements (IPAs), one could identify certain similarities. However, to a large extent, these agreements do not entail a structure whereby investors or investments in Financial Services are treated distinctly and are subject to an exclusive dispute resolution method (alternative to the investor-State arbitration or ICS) as provided under NAFTA, USMCA or CETA. The draft EU-Vietnam IPA, for instance, carves out prudential measures ‘in accor- 36 dance with Article VII of the General Agreement on Trade in Services or its Annex on Financial Services’ from the coverage of the MFN treatment under its Investment Chapter.49 No exception specific to Financial Services, as in Article 8.3 of CETA, is provided under the EU-Vietnam IPA. Similarly, a prudential carve-out is provided within the EU-Singapore IPA at Article 4.4, whereby prudential measures concerning Financial Services are excluded from the coverage of the Agreement. 50 The EU-Mexico FTA’s Investment Chapter, on the other hand, does include an 37 exemption specific to Financial Services at Article 4, providing a cross reference to the chapter on Financial Services. However, its language is one that is closer to NAFTA’s Article 1103 compared to CETA’s Article 8.3.51 It could be argued that NAFTA Contracting Parties’ experience in Financial Services has guided and has been instructive on the drafters of the new generation EU FTAs and IPAs with Canada and Mexico.
E. Conclusion While Article 8.3 may be a brief provision compared to the more comprehensive 38 provisions of Chapter 8 on Investment, it is a key component of the interplay between Article 13.20(4) CETA. Article 13.21 CETA. 49 Article 2.4(4)(c) EU-Vietnam IPA. 50 Article 4.4 EU-Singapore IPA. 51 Investment Chapter, Article 4 EU-Mexico FTA. 47
48
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the substantive provisions embodied in Chapter 8 and Chapter 13 on Financial Services. As discussed above, the structure established under CETA with regard to treatment of investors and investments in the Financial Services is reflective of the multi-layered exceptions provisions under NAFTA. Protection of investments in Financial Services under CETA could however be considered one step broader compared to NAFTA, particularly since CETA allows application of the rather narrow FET standard in the treatment of Financial Services investors (and, as flagged above, despite the concerns of the Parties to limit a financial services institutions access to the FET standard). It is also notable that the dispute resolution method, i.e. ICS, under Chapter 8 is made available to disputes concerning investments in Financial Services. It is important that drafters provided in Chapter 13 that the ICS tribunal shall include members from the list of CETA Joint Committee knowledgeable in financial services law. 39 This structure is largely absent in other EU FTAs or IPAs. It is therefore arguable that this multi-layered structure, which in essence replicates NAFTA, is an essential component of the trade deal between the EU and Canada given the trade volume between Canada and the EU in financial services. As reported by the EU, financial services accounts for the third largest EU service surplus to Canada standing at 76% of exports to Canada. Whereas the EU financial services exported over EUR 1.44 billion to Canada in 2015, Canadian exports amounted to EUR 348 million.52 It is not surprising that financial services constituted a substantial and important portion of negotiations between the Canadian and EU drafters, and protection of investments in Financial Services caused anxiety on both sides. 40 The result of this multi-layered and complex structure under Chapters 8 and 13 of CETA is that any future disputes concerning investments in Financial Services will be subject of a robust and industry specific scrutiny at both the jurisdiction and merits phases. Where, for instance, Canada disagrees with an EU Financial Services institution that it does not qualify for investment protection under CETA, it will have the opportunity to bring its objection before the Financial Services Committee, a decision of which will be binding on the ICS tribunal. Where, for example, a claim by an EU Financial Services investor goes forward with its claims under Chapters 8 and 13, the ICS tribunal will include members who are experts in financial services law while assessing the merits of the dispute.
52 European Commission Directorate General for Trade, The Economic Impact of the Comprehensive Economic and Trade Agreement (2017), 15.
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Article 8.4 Market access 1. A Party shall not adopt or maintain with respect to market access through establishment by an investor of the other Party, on the basis of its entire territory or on the basis of the territory of a national, provincial, territorial, regional or local level of government, a measure that: (a) imposes limitations on: (i) the number of enterprises that may carry out a specific economic activity whether in the form of numerical quotas, monopolies, exclusive suppliers or the requirement of an economic needs test; (ii) the total value of transactions or assets in the form of numerical quotas or the requirement of an economic needs test; (iii) the total number of operations or the total quantity of output expressed in terms of designated numerical units in the form of quotas or the requirement of an economic needs test;4 (iv) the participation of foreign capital in terms of maximum percentage limit on foreign shareholding or the total value of individual or aggregate foreign investment; or (v) the total number of natural persons that may be employed in a particular sector or that an enterprise may employ and who are necessary for, and directly related to, the performance of economic activity in the form of numerical quotas or the requirement of an economic needs test; or (b) restricts or requires specific types of legal entity or joint venture through which an enterprise may carry out an economic activity. 2. For greater certainty, the following are consistent with paragraph 1: (a) a measure concerning zoning and planning regulations affecting the development or use of land, or another analogous measure; (b) a measure requiring the separation of the ownership of infrastructure from the ownership of the goods or services provided through that infrastructure to ensure fair competition, for example in the fields of energy, transportation and telecommunications; (c) a measure restricting the concentration of ownership to ensure fair competition; (d) a measure seeking to ensure the conservation and protection of natural resources and the environment, including a limitation on the availability, number and scope of concessions granted, and the imposition of a moratorium or ban; (e) a measure limiting the number of authorisations granted because of technical or physical constraints, for example telecommunications spectrum and frequencies; or (f) a measure requiring that a certain percentage of the shareholders, owners, partners, or directors of an enterprise be qualified or practice a certain profession such as lawyers or accountants.4 Bibliography: Fiona C. Beveridge, ‘Taking Control of Foreign Investment: A Case Study of Indigenisation in Nigeria’ (1991) 40(2) Int’l L. & Comp. Law. Q., 302; Marc Bungenberg and Fabian Blandfort, 4 Sub-subparagraphs 1(a) (i), (ii) and (iii) do not cover measures taken in order to limit the production of an agricultural good.
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‘Investment Screening – A New Era of European Protectionism?’ in Michael Hahn and Guillaume Van der Loo (eds), Law and Practice of the Common Commercial Policy: The First 10 Years After the Treaty of Lisbon (Brill, Boston 2020); Paul Craig and Gráinne de Búrca, EU Law: Text, cases, and Materials (6th edn, Oxford University Press, Oxford 2015); Rudolf Dolzer and Christoph Schreuer, Principles of International Investment Law (2nd edn, Oxford University Press, Oxford 2012); Ignacio Gómez-Palacio and Peter T. Muchlinski, ‘Admission and Establishment’ in Peter T. Muchlinski, Federico Ortino and Christoph Schreuer (eds), The Oxford Handbook of International Investment Law (Oxford University Press, Oxford 2008); Robert Stephen Milne, ‘The Politics of Malaysia’s New Economic Policy’ (1976) 49(2) Pac. Aff., 235; Peter T. Muchlinski, Federico Ortino, and Christoph Schreuer, The Oxford Handbook of International Investment Law (Oxford University Press, Oxford 2008); Peter T. Muchlinski, ‘The Rise and Fall of the Multilateral Agreement on Investment: Where Now?’ (1999) 34(3) Int’l Lawyer, 1033; OECD, Competition Issues in Joint Ventures, Series Roundtables on Competition Policy (2000), available at http://www.oecd.org (last accessed 18 October 2021); Oserheimen A. Osunbor, ‘Nigeria’s Investment Laws on the State’s Control of Multinationals’ (1988) 3(1) ICSID Rev., 38; Jeswald W. Salacuse, The Three Laws of International Investment: National, Contractual, and International Frameworks for Foreign Capital (Oxford University Press, Oxford 2013); Ramasamy Thillainathan and Kee-Cheok Cheong, ‘Malaysia’s New Economic Policy, Growth and Distribution: Revisiting the Debate’ (2016) 53(1) Malays. J. Econ. Stud., 51; Niki Tobi, ‘Legal Aspects of Foreign Investments and Financing of Energy Products in Nigeria’ (1991) 14(1) Dalhous. Law. J., 5; Lukas Vanhonnaeker, ‘The Impacts of Local Equity Requirements on Competition’ in Katia Fach Gómez, Anastasios Gourgourinis and Catharine Titi (eds), EJIL (Springer, Cham 2020). A. Introduction and Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
B. Spirit and Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5
C. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21
D. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. The Controlled Market Access Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. The MFN and NT-based Entry Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. Article 8.4 of the CETA: The GATS-Type ‘Negative List’ Approach . . . . . . . 1. The Approach of Article 8.4 to Market Access . . . . . . . . . . . . . . . . . . . . . . . . . . 2. The Limits to Market Access and the Preservation of the Parties’ Economic Sovereignty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Article 8.4 and Dispute Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
32 33 35 40 41 46 49
E. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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A. Introduction and Overview 1
Article 8.4 of the CETA1 is designated as referring to ‘Market Access’.2 Broadly speaking, a market access clause can be described as a provision defining the parameters through which goods, services, or foreign direct investment (FDI) can enter a given domestic market. As such this Article uses concepts that can be applied in a variety of contexts covering both the pre- and post-establishment phases of the investment process. When the potential investor is making plans to invest in Canada or the EU, such plans can be encouraged or discouraged by laws and governmental 1 Comprehensive Trade and Economic Agreement between Canada and the European Union (CETA), signed 30 October 2016, provisionally entered into force 21 September 2017. 2 While the right of admission relates to the investment’s right of entry (e.g. registration or licencing requirements), the right of establishment concerns ‘the conditions under which the investor is allowed to carry out its business during the period of the investment’ (e.g. taxes or transfers of funds) (see Dolzer and Schreuer, Principles of International Investment Law (2012), 88). While market access combines elements of both admission and establishment, the right to market access can be distinguished from that of establishment insofar as it ‘will allow the investor to do business in the host state, but without the grant of a right to set up a permanent business presence’. If an investor is looking for a permanent business presence, a right of establishment would be required (see Muchlinski, Ortino and Schreuer, The Oxford Handbook of International Investment Law (2008), 230).
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Market access
policies dealing expressly or implicitly with the right of access of FDI to either jurisdiction. These laws or policies explicitly regulate foreign investments and are designed to protect certain sensitive areas of economic activity, which are either reserved for domestic investors or where the entry of a foreign investor may be subject to a regulatory process whose purpose is to ensure that the foreign investment is aligned with the national interest. This clause is unusual in two important respects. First, it deals with the pre-estab- 2 lishment phase of the foreign investment process. The great majority of investment chapters in regional trade agreements (RTAs) and bilateral investment agreements (BITs) deal only with the post-establishment phase. Some, as will be discussed below, address the pre-establishment phase under the rubric of Most-Favoured-Nation (MFN) treatment or National Treatment (NT). In these cases, this is the only reference to commitments applicable to the pre-establishment phase. A ‘market access’ Article is rarely found in the investment chapter of RTAs or BITs and a self-standing market access Article in such instruments represents a recent development and more particularly illustrates the recent practice of the European Union. A second aspect sets this Article apart from others in CETA: the exclusion of decisions on the entry of foreign investment from investor-state dispute settlement under chapter 8. The notion of market access is a trade law concept derived from agreements such 3 as the GATT and many early RTAs dealing with the treatment of goods. There is a long and rich history which can assist in the interpretation of various clauses designed to facilitate the entry of foreign goods into the market and to ensure their fair treatment under legislation and governmental practice. The concept of market access has subsequently been extended to the treatment of foreign services. It is essentially an economic and administrative concept. Historically it has applied to trade issues arising once the goods have entered the market. From trade, under the GATT and RTAs, the concept has been used for investment protection since the inception of many BIT negotiations, but until recently, only with respect to the post-investment phase. A number of free trade agreements (FTAs) and BITs have extended the MFN and NT principles to the pre-investment phase. Article 8.4 appears to be an extension of this development. Whether such a self-standing Article will become more common in RTAs and BITs cannot yet be predicted with any extent of confidence but the fact that both Canada and the EU could agree on the inclusion of Article 8.4 in the CETA reflects the degree of mutual confidence and comparability of legal systems that exist between the two jurisdictions. This commentary first addresses the spirit and purpose of Article 8.4 by identifying 4 the policy underpinnings of market access regulation. Understanding the rationale for market access regulation as well as how it is implemented through legislation is key to recognise the significance of the approach adopted by CETA through the incorporation of Article 8.4. Second, this commentary provides an overview of the drafting history of Article 8.4 and highlights some of the choices that were made by the Parties when including this provision in the CETA’s investment chapter. Third, a commentary of Article 8.4 is proposed in the light of the approach – and its evolution – generally adopted in international investment agreements with respect to market access.
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B. Spirit and Purpose Market access in the context of international investment law concerns the state’s regulation of the entry of FDI within its territory. The right of states to regulate such entry, which is undisputed and recognized under customary international law, is rooted in the state’s sovereign control over its territory. This right is absolute in the sense that it cannot be altered except through express consent given by the states themselves. As will be seen below, states sometimes abdicate their right under international law to deny entry of FDI in their territory. The abdication of this right is, however, rarely unconditional and will often be subject to exceptions and exclude specific sectors of the economy. 6 States have generally adopted a restrictive stance towards market access for FDI by heavily regulating what can and cannot enter their domestic market and under what conditions. 7 The most restrictive approach to market access is the absolute bar from entry of foreign investors in certain sectors of the economy. Such prohibitions, which are frequent and generally found in domestic laws,3 aim to shield some economic sectors from the influence of foreigners. Restricting access to a domestic market is sometimes done through outright prohibition, or via ‘softer’ measures such as imposing local equity requirements or by allowing entry after a screening process, such as the one provided in the Canadian Investment Canada Act4 or the European Union’s screening framework created by Regulation 2019/452.5 The regulation of market access through sector prohibitions and/or limitation aims, on its face,6 to protect national security interests or strategic sectors. It is thus not surprising that most domestic investment laws prohibit or limit FDI in sectors such as armaments and others deemed to affect national security. 8 Softer measures, which also allow states to control market access, are so-called local equity – or joint venture – requirements. These requirements ‘provide that the foreign investor cannot hold a majority stake in a domestic company in order to guarantee that control of the economic operations rests with the host state or the local partner’ 7 and are often provided in domestic investment laws.8 5
3 For example, Iceland bars entry to FDI in its fishing industry (see Act on Investment by Non-residents in Business Enterprises, No 34 of 25 March 1991, article 4); South Korea enforces a similar ban in the TV and radio broadcasting sector (see Broadcasting Act, No 13978 (2016), article 14); and Ghana prohibits foreign investments, among others, in the operation of beauty salons, the production of exercise books or the retail of pharmaceutical products (see Ghana Investment Promotion Centre Act, No 865 (2013) section 27(c), (e) and (f)). 4 Investment Canada Act, R.S.C., 1985, c. 28 (1 st Supp.). 5 Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019 establishing a framework for the screening of foreign direct investments into the Union. On the EU’s screening framework for FDI, see Bungenberg and Blandfort, ‘Investment Screening – A New Era of European Protectionism?’ in Hahn and Van der Loo (eds), Law and Practice of the Common Commercial Policy: The First 10 Years After the Treaty of Lisbon (2020). 6 An argument can be made that under the cover of legitimate justifications such as the protection of national security interests or so-called ‘indigenisation’ policies, host states pursue, in fact, ‘the goal of protecting or strengthening the interests of some national elites on domestic markets’ (Vanhonnaeker, ‘The Impacts of Local Equity Requirements on Competition’ in Fach Gómez, Gourgourinis and Titi (eds), EYIEL (2020), 62). See Salacuse, The Three Laws of International Investment: National, Contractual, and International Frameworks for Foreign Capital (2013), 94. 7 Vanhonnaeker, ‘The Impacts of Local Equity Requirements on Competition’ in Fach Gómez, Gourgourinis and Titi (eds), EYIEL (2020), 52. 8 In the EU, for instance, air carriers must be owned, directly or through a majority ownership, and effectively controlled by EU nationals or by EU member states (see article 4 of Council Regulation
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Local equity requirements thus generally limit the participation of foreign investors 9 in local companies to 49% and pursue several policy objectives, including the promotion of the transfer of technology and skills to local actors, increasing the likelihood that the operation will be conducted in accordance with national interests or with so-called ‘indigenisation policies’ which aim to guarantee the participation of local populations in the economy of the host state by mandating that foreign investors enter the host state’s market through a joint venture with a private local partner. 9 Another likely objective pursued by local equity requirements, although generally not made explicit, is to protect the domestic market and its local actors from external competition.10 Domestic investment laws also regulate market access through performance re- 10 quirements which specify how a given project must operate in the host state 11 or by defining the contributions that investments must make to the economy of the host state.12 Other means of controlling market access can consist of restrictions on what for- 11 eign investors can acquire, such as prohibitions with respect to the acquisition of land
(EEC) No 2407/92 of 23 July 1992 on licensing of air carriers). In Canada, ownership requirements restricting FDI apply in the telecommunications sector, where Canadians must own no less than 80% of the carrier’s voting interests (see Telecommunications Act, SC 1993, c 38, s 16(3)). Similar rules can be found in other Canadian industries, such as broadcasting (see Broadcasting Act, SC 1991, c 11, s3(1)), insurance (see Insurance Companies Act, SC 1991, c 47, s 10(1)) or air transportation (see Canada Transportation Act, SC 1996, c 10, ss 55(1)(c), 61). 9 See e.g. Milne, ‘The Politics of Malaysia’s New Economic Policy’ (1976) 49(2) Pac. Aff., 235; OECD, Competition issues in joint ventures, Series Roundtables on Competition Policy (2000), available at http:// www.oecd.org (last accessed 18 October 2021); Thillainathan and Cheong, ‘Malaysia’s new economic policy, growth and distribution: revisiting the debate’ (2016) 53(1) Malays. J. Econ. Stud., 51; Tobi, ‘Legal aspects of foreign investments and financing of energy products in Nigeria’ (1991) 14(1) Dalhous. Law. J., 5; Beveridge, ‘Taking control of foreign investment: a case study of indigenisation in Nigeria’ (1991) 40(2) Int’l L. & Comp. Law. Q., 302; Osunbor, ‘Nigeria’s investment laws on the State’s control of multinationals’ (1988) 3(1) ICSID Rev. – FILJ, 38; Section 2 of the Broad-Based Black Economic Empowerment Amendment Act, 2013, Act No 46 of 2013, Government Gazette Republic of South Africa, Vol. 583, 27 January 2014, No. 37271; Section 3(1) of the Indigenisation and Economic Empowerment Act, 2007, Act 14/2007. 10 See generally Vanhonnaeker, ‘The Impacts of Local Equity Requirements on Competition’ in Fach Gómez, Gourgourinis and Titi (eds), EJIL (2020). 11 It is noteworthy that some requirements imposed on foreign investors by domestic laws can be incompatible with WTO law. For instance, in the FIRA case, the WTO Panel concluded that local content requirements (undertakings pertaining to the purchase of certain products from domestic sources) imposed on foreign investors by the Canadian Foreign Investment Review Act were inconsistent with the national treatment obligation of article III(3) of the GATT. With respect to performance requirements (the export of a certain amount or percentage of output) imposed on foreign investors by the Foreign Investment Review Act, the Panel concluded that they were not inconsistent with GATT obligations. See Canada – Administration of the Foreign Investment Review Act, L/5504, Panel Report of 7 February 1984. 12 See e.g. Article 2(ii) of the Arab Republic of Egypt’s Law No 43 of 1974 concerning the investment of Arab and foreign funds and the free zones, as amended by Law No. 32 of 1977 (in ILM, vol. 16, No 6, November 1977, 1476 ff.): ‘The term ‘Invested Capital’ in the application of the provisions of this Law shall be deemed to mean the following: (…) ii – Machinery, equipment, transportation equipment, raw materials and commodity requirements imported from abroad and necessary for the establishment or expansion of the project, provided that such are compatible with modern technological developments and have not been previously used, unless the Authority’s Board of Directors grants exemption from such condition. (…). [emphasis added]’; see also Salacuse, The Three Laws of International Investment: National, Contractual, and International Frameworks for Foreign Capital (2013), 96 f.
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and / or natural resources13 or the specification of areas and sectors of the economy in which FDI is encouraged.14 12 The approach adopted by a given state to market access depends on numerous factors, including the state of development and the needs and priorities of that state. Indeed, foreign investors often offer access to capital in the host state, technical knowledge and other possible benefits such as wide foreign distribution channels which have the potential to benefit the host state both in economic and social terms, for example through the creation of jobs. Host states, on the other hand, can be attractive to foreign investors, for example, for their geographical location, natural resources, infrastructure or low-cost labour. These elements form a complex bundle of factors to be taken into account when prospective foreign investors negotiate with the host state the possibility of entering the latter’s domestic market. They are also factors taken into account by states when defining their market access policies such as the competitive state of their domestic sector-specific markets, their needs for goods, services or technology. All these factors will have an impact on the perceived desirability of FDI by host states and will thus necessarily determine how they regulate market access for such operations. 13 Whereas domestic investment laws generally aim to protect domestic markets, either by limiting the number of foreign investors that are allowed to enter them or by regulating the nature and conditions under which FDI are allowed to enter them, international trade and investment law seek to achieve the opposite. One of the objectives pursued by international trade and investment law is to break down barriers to market access to achieve a broader level of trade and investment liberalization. The pressure of the process of globalization has thus, to a certain extent, pushed states to liberalize trade and establishment conditions amongst other means through the conclusion of international agreements.15 14 An example of the importance of market access in the process of economic integration is the European Union. In that context, the ‘right to establishment’ is one of the key principles underlying the internal market sometimes known as the ‘four freedoms’. The EU provides that within the Union, any individual or corporation 16 from any of the EU member states can enjoy the right of establishment provided in Article 49 of the TFEU: (…) restrictions on the freedom of establishment of nationals of a Member State in the territory of another Member State shall be prohibited. Such prohibition shall also apply to restrictions on the setting-up of agencies, branches or subsidiaries by nationals of any Member State established in the territory of any Member State. Freedom of establishment shall include the right to take up and pursue activities as self-employed persons and to set up and manage undertakings, in particular companies or firms within the meaning of the second paragraph of Article 54, under the conditions laid down for its own
See e.g. Article XII of the Constitution of the Republic of The Philippines. See e.g. the Arab Republic of Egypt’s Law No. 8 of 1997 concerning investment guarantees and incentives and the Republic of Panama’s Law No. 8 of 14 June 1994 ‘Where by tourist activities are promoted in the Republic of Panama’. 15 See Gómez-Palacio and Muchlinski, ‘Admission and Establishment’ in Muchlinski, Ortino and Schreuer (eds), The Oxford Handbook of International Investment Law (2008), 228 f. 16 Article 54 of the Treaty on the Functioning of the European Union (TFEU) provides that: ‘Companies or firms formed in accordance with the law of a Member State and having their registered office, central administration or principal place of business within the Union shall, for the purposes of this Chapter, be treated in the same way as natural persons who are nationals of Member States. “Companies or firms” means companies or firms constituted under civil or commercial law, including cooperative societies, and other legal persons governed by public or private law, save for those which are non-profit-making.’ 13
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nationals by the law of the country where such establishment is effected, subject to the provisions of the Chapter relating to capital.17
This provision, which is subject to limited exceptions and justifications18 interpret- 15 ed restrictively by the CJEU,19 has been construed broadly by the Court,20 in line with its approach towards EU integration. Although the economic partnerships created by RTAs and BITs do not reach the 16 degree of integration achieved by the EU, the latter has gradually moved towards the broader integration of market access provisions in its recent agreements, such as with Singapore21 or Japan22 which are similar to the provision of CETA’s Article 8.4. These provisions are largely similar to GATS Article XVI which stands as a second example of model for market access. Article XVI of the GATS provides that: 1.
2.
With respect to market access through the modes of supply identified in Article I, each Member shall accord services and service suppliers of any other Member treatment no less favourable than that provided for under the terms, limitations and conditions agreed and specified in its Schedule. In sectors where market-access commitments are undertaken, the measures which a Member shall not maintain or adopt either on the basis of a regional subdivision or on the basis of its entire territory, unless otherwise specified in its Schedule, are defined as: (a) limitations on the number of service suppliers whether in the form of numerical quotas, monopolies, exclusive service suppliers or the requirements of an economic needs test; (b) limitations on the total value of service transactions or assets in the form of numerical quotas or the requirement of an economic needs test; (c) limitations on the total number of service operations or on the total quantity of service output expressed in terms of designated numerical units in the form of quotas or the requirement of an economic needs test; (d) limitations on the total number of natural persons that may be employed in a particular service sector or that a service supplier may employ and who are necessary for, and directly related to, the supply of a specific service in the form of numerical quotas or the requirement of an economic needs test; (e) measures which restrict or require specific types of legal entity or joint venture through which a service supplier may supply a service; and (f) limitations on the participation of foreign capital in terms of maximum percentage limit on foreign shareholding or the total value of individual or aggregate foreign investment.
The GATS’ market access provision adopts a ‘positive-list’ – or ‘bottom-up’ – 17 approach by creating a right to establishment where a GATS member state makes specific commitments under Article XVI. In those sectors where a given member state has undertaken market access commitments, it is bound to abide by the prohibitions of limitations on the supply of services provided in the provision. For example, in the sectors in which market access commitments are made, a state cannot impose local equity requirements pursuant to Article XVI(2)(f). Although the GATS’ market access clause is an important step towards liberaliza- 18 tion, the positive-list approach it adopts does not create a general obligation to remove impediments to the entry and establishment of services. In fact, theoretically, if a Article 49 TFEU. Articles 45 and 46 TFEU. 19 See generally Craig and de Búrca, EU Law: Text, cases, and Materials (2015), Chapter 22. 20 Craig and de Búrca, EU Law: Text, cases, and Materials (2015), Chapter 22. 21 EU-Singapore Trade and Investment Agreement, signed 19 October 2018, entered into force 21 November 2019, article 8.10 (Chapter on Services, Establishment and Electronic Commerce). 22 Agreement between the EU and Japan for an Economic Partnership, signed 17 July 2018, entered into force 1 February 2019, article 8.7 (Chapter on Trade in services, investment liberalisation and electronic commerce). 17 18
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country decides to make no market access commitments in given sectors, this provision creates no obligation at all: ‘[e]ach member of GATS is obliged to do no more than set out specific market access commitments that it is prepared to undertake in a schedule drawn up in accordance with Article XX of the GATS’.23 19 The positive-list approach to market access adopted by the GATS can be described as a soft model of liberalization because it allows for a gradual process of liberalization by giving the time to countries to consider which sectors it would like to open to foreign competition. The adoption of this approach in the GATS is easily understandable in the light of the fact that anything more would probably have resulted in the failure of the negotiations as a consequence of a likely opposition from developing countries which generally favour a more gradual process of liberalization.24 20 The more limited, or at least slower, process of liberalization provided under a positive-list approach must be differentiated from closed-list market access provisions recently included in agreements with a more limited scope in terms of participants. Several examples exist, amongst which Article 8.4 of the CETA, as will be analysed in greater detail below.
C. Drafting History Both the EU and Canada entered into their ambitious endeavour to conclude the CETA with the aim of strengthening their bilateral economic partnership and reaching its full potential by eliminating remaining barriers in certain areas.25 This goal was made explicit in the context of the scoping exercise undertaken in 2008 and 2009 by EU and Canadian leaders (the ‘Joint Scoping Group’) which aimed to ‘define the scope of a deepened economic agreement and to establish the critical points for its successful conclusion, particularly the involvement of Canada’s provinces and territories and the EU Member States in areas under their competencies’.26 In this regard, one of the findings of the Joint Scoping Group was that the ‘scope of the negotiations on investment should cover pre- and post-establishment in all sectors in order to improve market access’.27 22 The emphasis on market access in the context of the negotiations of the CETA is also apparent in the EU Commission’s Negotiation Directives approved by the Council of the EU in April 2009,28 according to which ‘[t]he Agreement shall provide for the progressive and reciprocal liberalisation of establishment and of trade in services with the aim to ensure the highest level of market access opportunities (…)’.29 21
23 Gómez-Palacio and Muchlinski, ‘Admission and Establishment’ in Muchlinski, Ortino and Schreuer (eds), The Oxford Handbook of International Investment Law (2008), 246. 24 Gómez-Palacio and Muchlinski, ‘Admission and Establishment’ in Muchlinski, Ortino and Schreuer (eds), The Oxford Handbook of International Investment Law (2008), 246 f. 25 Joint Scoping Group of the Government of Canada and the European Commission, Joint Report on the EU-Canada Scoping Exercise, Ottawa and Brussels, 9 March 2009, 1. 26 Joint Scoping Group of the Government of Canada and the European Commission, Joint Report on the EU-Canada Scoping Exercise, Ottawa and Brussels, 9 March 2009, 1. 27 Joint Scoping Group of the Government of Canada and the European Commission, Joint Report on the EU-Canada Scoping Exercise, Ottawa and Brussels, 9 March 2009, 6. 28 Council of the European Union, Recommendation from the Commission to the Council in order to authorize the Commission to open negotiations for an Economic Integration Agreement with Canada, Document 9036/09 WTO 80 SERVICES 21 CDN 13 RESTREINT UE, 24 April 2009. 29 Council of the European Union, Recommendation from the Commission to the Council in order to authorize the Commission to open negotiations for an Economic Integration Agreement with Canada, Document 9036/09 WTO 80 SERVICES 21 CDN 13 RESTREINT UE, 24 April 2009, para. 22 [emphasis added].
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This common intention of the negotiating Parties materialized in the first available 23 draft of the investment chapter of 13 January 2010, which provides in paragraph 4 of Article X.2 (‘Relation to Other Chapters’) that: Articles [X.04] (Cross-Border Trade in Services – Market Access) and [X.07] (Cross- Border Trade in Services – Domestic Regulation) are hereby incorporated into and made a part of this Chapter and apply to measures adopted or maintained by a Party affecting the supply of a service in its territory by a covered investment.
This approach, which consists of importing the market access provision from the services chapter of the same agreement is consistent with previous practice in this regard. In a subsequent version of the CETA’s draft investment chapter of January 2011, a new approach was adopted by the negotiating Parties consisting of including a separate clause on market access, thus independent from the market access provision of the Chapter on Cross Border Trade in Services, in Article X.3 of the investment chapter. An important difference between this early market access provision and the final version of the text is the absence of the existing provision’s second paragraph providing enhanced clarification by specifying which measures must be deemed consistent with paragraph 1. This change in the approach adopted towards market access in the investment chapter seems to have been initiated by the EU30 and is consistent with the modified negotiating directives approved by the Council of the EU in July 2011, 31 according to which ‘the chapter on investment protection shall be a separate one, not linked to the market access commitments taken elsewhere in the agreement’. 32 One possible explanation behind the decision to include a self-standing market access provision in the investment chapter is to guarantee market access obligations for service and non-service related investments. This approach to market access with respect to FDI in the CETA was maintained in subsequent drafts of the text, with minor textual modifications brought to the clause such as the explicit application of the provision to covered investments with respect to the territory of a sub-national government,33 or with respect to the establishment by an investor of a Party.34 It is the version of November 2013 of the CETA which brought the most important changes to the investment chapter’s market access provision by adding a paragraph 2 to increase certainty with respect to how the clause must be interpreted by listing measures which must be deemed consistent with paragraph 1. In addition to adding certainty with respect to how Article 8.4 of the CETA must be interpreted, this second paragraph, which differentiates Article 8.4 from the GATS’s Article XVI on market 30 See Comprehensive Trade and Economic Agreement between Canada and the European Union (CETA), draft of February 2012. 31 Council of the European Union, Recommendation from the Commission to the Council on the modification of the negotiating directives for an Economic Integration Agreement with Canada in order to authorize the Commission to negotiate, on behalf of the Union, on investment, Document 12838/11 WTO 270 FDI 19 CDN 5 SERVICES 79 RESTREINT UE, 14 July 2011. 32 Council of the European Union, Recommendation from the Commission to the Council on the modification of the negotiating directives for an Economic Integration Agreement with Canada in order to authorize the Commission to negotiate, on behalf of the Union, on investment, Document 12838/11 WTO 270 FDI 19 CDN 5 SERVICES 79 RESTREINT UE, 14 July 2011, para. 26 e. 33 See Comprehensive Trade and Economic Agreement between Canada and the European Union (CETA), draft of February 2012. 34 See Comprehensive Trade and Economic Agreement between Canada and the European Union (CETA), draft of 21 November 2013.
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access, may also be understood as the intention of the Parties to preserve some leeway to regulate market access. 29 The text of Article X.4 in the draft text of the investment chapter of 21 November 2013 was ultimately adopted in largely similar terms in the final version of Article 8.4 of the CETA which is found in Chapter 8 Section B of the CETA’s investment chapter together with Article 8.5, dealing with the more specific issue of performance requirements.35 30 Article 8.4 is composed of a first part which lists a series of measures which are prohibited with respect to the pre-establishment phase of the investment process and a second part explaining that certain widely adopted prudential regulatory practices are not to be deemed to be in conflict with the prohibitions. The six categories of prohibited measures are easily identified as drawn from trade law and investment law and have often been applied to the treatment of goods once allowed into the domestic market: 1.
31
A Party shall not adopt or maintain with respect to market access through establishment by an investor of the other Party, on the basis of its entire territory or on the basis of the territory of a national, provincial, territorial, regional or local level of government, a measure that: (a) imposes limitations on: (i) the number of enterprises that may carry out a specific economic activity whether in the form of numerical quotas, monopolies, exclusive suppliers or the requirement of an economic needs test; (ii) the total value of transactions or assets in the form of numerical quotas or the requirement of an economic needs test; (iii) the total number of operations or the total quantity of output expressed in terms of designated numerical units in the form of quotas or the requirement of an economic needs test; (iv) the participation of foreign capital in terms of maximum percentage limit on foreign shareholding or the total value of individual or aggregate foreign investment; or (v) the total number of natural persons that may be employed in a particular sector or that an enterprise may employ and who are necessary for, and directly related to, the performance of economic activity in the form of numerical quotas or the requirement of an economic needs test; (b) restricts or requires specific types of legal entity or joint venture through which an enterprise may carry out an economic activity.
Similarly, the six categories of prudential measures deemed not to conflict with the prohibitions present few difficulties of interpretation,36 although one may expect disagreements between the investor and the state as to the scope of these justificatory clauses. 2.
For greater certainty, the following are consistent with paragraph 1: (a) a measure concerning zoning and planning regulations affecting the development or use of land, or another analogous measure; (b) a measure requiring the separation of the ownership of infrastructure from the ownership of the goods or services provided through that infrastructure to ensure fair competition, for example in the fields of energy, transportation and telecommunications; (c) a measure restricting the concentration of ownership to ensure fair competition;
See Article 8.5 CETA. Furthermore, in the absence of investment arbitration case law on this question and of the similarities between this clause and that of the GATS, one may expect extensive reliance on the large body of case law available under the WTO agreement. 35
36
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a measure seeking to ensure the conservation and protection of natural resources and the environment, including a limitation on the availability, number and scope of concessions granted, and the imposition of a moratorium or ban; a measure limiting the number of authorisations granted because of technical or physical constraints, for example telecommunications spectrum and frequencies; or a measure requiring that a certain percentage of the shareholders, owners, partners, or directors of an enterprise be qualified or practice a certain profession such as lawyers or accountants.
D. Commentary International investment agreements follow similar objectives as trade agreements 32 and the WTO regime. As such, investment agreements are also designed to regulate market access. Yet, to this day only a minority of such agreements extend their scope of application to the pre-establishment phase and even fewer provide for a market access provision similar to that of Article XVI of the GATS. In that respect, Article 8.4 of the CETA stands out as an exception to the traditional approach which may well signal an evolution in treaty-making in international investment law. Three approaches to market access can be identified in IIAs.
I. The Controlled Market Access Model The controlled market access model is the most widely used approach in invest- 33 ment treaties regulating FDI only once the operation has been established in the host state. Under this model, state sovereignty with respect to the regulation of market access is preserved and, subject to their other international obligations, host states remain free to regulate the admission and establishment of FDI through domestic laws and regulations. In fact, IIAs often explicitly provide that FDI is subject to the laws and regulations 34 of the host state via so-called ‘in accordance with the laws of the host state’ provisions. Under this model, the entry of foreign investors and investments in the host state market is conditioned upon the respect of restrictions imposed on market access for FDI provided in the laws of the host state. As highlighted above, such barriers can include outright prohibition of access to certain sectors of the economy, local equity requirements, or screening procedures. This approach’s emphasis on the economic sovereignty of host states also involves the broad discretionary powers left to host states in the application of their domestic laws on FDI, thus allowing them to discriminate, during the entry phase, between both domestic and foreign investors and between foreign investors of different countries regardless of whether applicable IIAs exist with NT and MFN provisions. This is a direct consequence of the fact that the protection against discriminatory treatment guaranteed under these traditional standards of protection generally does not apply to the pre-establishment phase.
II. The MFN and NT-based Entry Model Departing from the traditional approach to market access and pre-establishment 35 rights adopted in IIAs, i.e. the controlled market access model, some agreements extend non-discrimination protection to the pre-establishment phase. In particular, this is done through broadly drafted NT and MFN provisions which encompass the
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pre-establishment phase through references to the ‘establishment’ and ‘acquisition’ of investments. Such pre-establishment NT and MFN obligations are sometimes accompanied by a negative list of exceptions allowing host states to exclude some sectors from pre-establishment non-discrimination protection. This mechanism further entails a ‘standstill’ by excluding the possibility for states to claw back open sectors into the list of exceptions and thus to re-instate controlled market access. 36 Such provisions can be found in particular in some US and Canadian IIAs and have been inserted in the recently concluded USMCA:37 Article 14.4: National Treatment 1. Each Party shall accord to investors of another Party treatment no less favorable than that it accords, in like circumstances, to its own investors with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments in its territory. 2. Each Party shall accord to covered investments treatment no less favorable than that it accords, in like circumstances, to investments in its territory of its own investors with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments. (…) Article 14.5: Most-Favored-Nation Treatment 1. Each Party shall accord to investors of another Party treatment no less favorable than the treatment it accords, in like circumstances, to investors of any other Party or of any non-Party with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments in its territory. 2. Each Party shall accord to covered investments treatment no less favorable than that it accords, in like circumstances, to investments in its territory of investors of any other Party or of any non-Party with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments. (…)
37
These two provisions are subject to the reservations made by the Parties in Article 14.12(2) of the USMCA, pursuant to which: Article 14.4 (National Treatment), Article 14.5 (Most-Favored-Nation Treatment), Article 14.10 (Performance Requirements), and Article 14.11 (Senior Management and Boards of Directors) do not apply to any measure that a Party adopts or maintains with respect to sectors, sub-sectors, or activities, as set out by that Party in its Schedule to Annex II.
According to the UNCTAD Mapping IIAs project,38 out of the 2574 mapped IIAs, 154 IIAs currently in force have an MFN provision covering both the post- and pre-establishment phases and 139 IIAs in force contain an NT provision covering both the post- and pre-establishment phases. 126 of these treaties contain both an MFN and an NT provision applying both to the post- and pre-establishment phases. 39 Under this approach, host states are not barred from regulating market access for FDI. However, if they decide to do so, it must be done on a non-discriminatory basis with respect to those sectors which are not excluded from pre-establishment protection. The extension of the scope of protection to the pre-establishment phase through the NT and MFN principles has far-reaching consequences on the economic sovereignty of host states and was one of the reasons for the ultimate failure to conclude the MAI.39 38
37 Agreement between the United States of America, the United Mexican States, and Canada, signed 30 November 2018, entered into force 1 July 2020. 38 See https://investmentpolicy.unctad.org/international-investment-agreements/iia-mapping (last accessed 18 October 2021). 39 See Muchlinski, ‘The Rise and Fall of the Multilateral Agreement on Investment: Where Now?’ (1999) 34(3) Int’l Lawyer, 1033 (1041 ff.). It is noteworthy that the question of pre-establishment rights was a contentious topic in the negotiations of the ECT (Energy Charter Treaty, signed 17 December
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III. Article 8.4 of the CETA: The GATS-Type ‘Negative List’ Approach Article 8.4 of the CETA demonstrates an important step towards economic liberal- 40 ization by going much further than the MFN and NT-based entry model. Indeed, although the CETA’s NT and MFN provisions apply to the pre-establishment phase, the CETA also prohibits the Parties to the agreement from imposing limitations on market access pursuant to Article 8.4.
1. The Approach of Article 8.4 to Market Access Although provisions on market access are rarely included in investment treaties, 41 Article 8.4 is not the first attempt on the part of the EU or Canada to regulate market access through their FTAs, even if generally not via investment chapters or agreements. In the EU, a similar provision to that of Article 8.4 of the CETA can be found 42 in Article 8.10 of the EU-Singapore FTA (Chapter 8 – Services, establishment and Electronic Commerce) or 8.7 of the EU-Japan FTA (Chapter 8 – Trade in Services, Investment Liberalization and Electronic Commerce). A largely similar clause can also be found in Article 906 of the Canada-Peru FTA.40 Although the Article is provided in Chapter 9 on Cross Border Trade in Services, it is incorporated by reference in the Investment Chapter through Article 802(4) of the FTA. These Articles are drafted in less precise terms compared to those of the CETA. In particular, they generally miss the second paragraph of Article 8.4 of the CETA. The move towards the integration of broader market access obligations in investment 43 chapters and agreements can be understood as an attempt to guarantee that the standards of the GATS on market access (Article XVI) would apply in a similar manner to investments as they do to services. In this regard, providing for market access obligations in the chapter on services of an FTA alone is not sufficient as these 1994, entered into force 16 April 1998) which led to an interim solution of a soft-law nature provided in article 10 of the Treaty [footnote omitted]: ‘(…) (2) Each Contracting Party shall endeavour to accord to Investors of other Contracting Parties, as regards the Making of Investments in its Area, the Treatment described in paragraph (3). (…) (4) A supplementary treaty shall, subject to conditions to be laid down therein, oblige each party thereto to accord to Investors of other parties, as regards the Making of Investments in its Area, the Treatment described in paragraph (3). That treaty shall be open for signature by the states and Regional Economic Integration Organizations which have signed or acceded to this Treaty. Negotiations towards the supplementary treaty shall commence not later than 1 January 1995, with a view to concluding it by 1 January 1998. (5) Each Contracting Party shall, as regards the Making of Investments in its Area, endeavour to: (a) limit to the minimum the exceptions to the Treatment described in paragraph (3); (b) progressively remove existing restrictions affecting Investors of other Contracting Parties. (6) (a) A Contracting Party may, as regards the Making of Investments in its Area, at any time declare voluntarily to the Charter Conference, through the Secretariat, its intention not to introduce new exceptions to the Treatment described in paragraph (3). (b) A Contracting Party may, furthermore, at any time make a voluntary commitment to accord to Investors of other Contracting Parties, as regards the Making of Investments in some or all Economic Activities in the Energy Sector in its Area, the Treatment described in paragraph (3). Such commitments shall be notified to the Secretariat and listed in Annex VC and shall be binding under this Treaty.’ 40 Free Trade Agreement between Canada and Peru, signed 29 May 2008, entered into force 1 August 2009.
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provisions often explicitly provide that they do not apply to services made through an investment. The CETA’s Article 9.1, for instance, provides that ‘cross-border trade in services or cross-border supply of services (…) does not include the supply of a service in the territory of a Party by a person of the other Party’. 41 Furthermore, providing a stand-alone market access clause in investment chapters or agreements themselves guarantees that market access obligations exist even for non-service related investments. 44 Both Article 8.4 of the CETA and the practice of the EU and Canada in their other agreements with respect to market access find their origins in Article XVI of the GATS. However, while Article 8.4 of the CETA and Article XVI of the GATS share numerous similarities, some important differences must be highlighted. 45 First, through the addition of its second paragraph, Article 8.4 provides enhanced precision and certainty as to how the provision must be applied, compared to that of the GATS. Second, and more importantly, by contrast to the GATS, the CETA adopts a negative-list approach to market access. The switch effectuated by the Parties from a positive- to a negative-list approach may be the indication that they intended to go further than the level of liberalization provided under the WTO agreement. In particular, by guaranteeing market access for all sectors of the economy except for those provided by the Parties in their respective schedules, the latter committed to a faster and arguably stronger liberalization.
2. The Limits to Market Access and the Preservation of the Parties’ Economic Sovereignty Notwithstanding the negative-list approach adopted in Article 8.4 of the CETA and thus the arguably stronger impact of the Article in terms of liberalization compared to that of Article XVI of the GATS, the Parties preserved to some extent their regulatory power with respect to market access in some sectors and areas of the economy. Indeed, although Article 8.4 on market access demonstrates significant progress towards liberalization compared to the traditional approach adopted by international investment agreements, it also preserves the economic sovereignty of the Parties to regulate market access in some respects. 47 First, by contrast with Article XVI of the GATS or market access provisions provided in other FTAs, Article 8.4 is accompanied by a paragraph 2 listing, ‘for greater certainty’, a series of measures potentially impeding market access which are deemed consistent with paragraph 1 of the provision. Article 8.4 also contains a footnote providing that its ‘[s]ub-subparagraphs 1(a)(i), (ii) and (iii) do not cover measures taken in order to limit the production of an agricultural good’. 48 Second, Article 8.4 is subject to the reservations and exceptions provided in Article 8.15. In this regard, in addition to existing non-conforming measures, 42 the measures adopted or maintained by the Parties with respect to a sector, subsector or activity 46
41 See also Article 915 of the Canada-Peru FTA: ‘cross-border trade in services or cross-border supply of services means the supply of a service:
(a) from the territory of one Party into the territory of the other Party; (b) in the territory of one Party by a person of that Party to a person of the other Party; or (c) by a national of a Party in the territory of the other Party, but does not include the supply of a service in the territory of a Party by a covered investment, as defined in Article 847 (Investment – Definitions);’ [emphasis added]. 42 Such measures are listed by the Parties in their respective Schedules provided in Annex I of the CETA.
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which they have set out in their schedule to Annex II fall outside the scope of Article 8.4. Those reservations, with a varying scope of application (some of them applying to ‘all sectors’), amount to more than 15 for Canada, more than 70 for the Canadian Provinces and more than 220 for the EU and its member states. 43
3. Article 8.4 and Dispute Settlement Lastly, the CETA creates a complicated relationship between market access and 49 dispute settlement under the investment chapter by excluding claims arising under Article 8.4 of the CETA from the scope of investor-state dispute settlement (ISDS). This exclusion from ISDS arising from the inclusion of Article 8.4 in Section B of the investment chapter can be interpreted as a sign that the Parties consider market access decisions and eventually the denial of market access to a foreign investor as too sensitive to be the object of a dispute between a private investor and one of the Parties. This approach, which was adopted under the Canada-Peru FTA, was also chosen in 50 the CETA. In this regard, Article 8.2(4) of the CETA provides that: Claims in respect of an obligation set out in Section B [i.e., Articles 8.4 and 8.5] are excluded from the scope of Section F. Claims under Section C with respect to the establishment or acquisition of a covered investment are excluded from the scope of Section F. Section D applies only to a covered investment and to investors in respect of their covered investment.
Interestingly, this provision also excludes NT and MFN claims from the scope of 51 ISDS to the extent that they concern the establishment and acquisition of an investment. In addition, in its Annex 8-C, the CETA excludes from the scope of Section F of Chapter 8 (ISDS) and from the scope of Chapter 29 (dispute settlement) any Canadian decision following a review under the Investment Canada Act while explicitly providing that: [f]or greater certainty, this exclusion is without prejudice to the right of a Party to have recourse to Chapter Twenty-Nine (Dispute Settlement) with respect to the consistency of a measure with a Party’s reservations, as set out in the Party's Schedule to Annexes I, II or III, as appropriate. 44
In light of the above, any dispute arising under Article 8.4 or having to do with 52 the establishment and acquisition of investments will have to be settled pursuant to Chapter 29 of the CETA, state-to-state dispute settlement.
E. Conclusion Explicit provisions on market access and the extension of the scope of application 53 of IIAs to the pre-establishment phase are not the norm in international investment law. In this regard, the CETA thus stands in sharp contrast with traditional IIAs by not only extending the scope of application of its non-discrimination standards of protection to the pre-establishment phase but also by including an explicit provision on market access in its investment chapter. Article 8.4, which is largely similar to Article XVI of the GATS, is undisputedly a new provision which has been negotiated in only a handful of investment agreements – although provisions on market access have been inserted in other chapters of FTAs – and thus, unsurprisingly, no known investment arbitration cases (whether investor-state or state-to-state proceedings) have dealt with market access clauses. 43 44
See the Schedules of the CETA Parties provided in Annex II of the CETA. See also Article 8.45 of the CETA.
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Although it is too early to assert that Article 8.4 initiates a new trend in investment treaty making, it does constitute a confirmation that both the EU and Canada are prepared to extend market access clauses to the pre-investment phase of foreign investments. The ‘negative list’ approach adopted by Article 8.4, in particular, can be interpreted as a strong signal that the Parties seek to achieve rapid and broad market access for their respective investors. However, the drafting of this provision also makes it visible that market access remains closely linked to the economic sovereignty of states which the Parties want to protect. This is especially apparent from the second paragraph of Article 8.4 as well as from its exclusion from the scope of ISDS under the CETA. 55 Whether the inclusion of such clauses will become the consistent policy of both Parties in subsequent agreements has yet to be determined. 54
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Article 8.5 Performance requirements* 1. A Party shall not impose, or enforce the following requirements, or enforce a commitment or undertaking, in connection with the establishment, acquisition, expansion, conduct, operation, and management of any investments in its territory to: (a) export a given level or percentage of a good or service; (b) achieve a given level or percentage of domestic content; (c) purchase, use or accord a preference to a good produced or service provided in its territory, or to purchase a good or service from natural persons or enterprises in its territory; (d) relate the volume or value of imports to the volume or value of exports or to the amount of foreign exchange inflows associated with that investment; (e) restrict sales of a good or service in its territory that the investment produces or provides by relating those sales to the volume or value of its exports or foreign exchange earnings; (f) transfer technology, a production process or other proprietary knowledge to a natural person or enterprise in its territory; or (g) supply exclusively from the territory of the Party a good produced or a service provided by the investment to a specific regional or world market. 2. A Party shall not condition the receipt or continued receipt of an advantage, in connection with the establishment, acquisition, expansion, management, conduct or operation of any investments in its territory, on compliance with any of the following requirements: (a) to achieve a given level or percentage of domestic content; (b) to purchase, use or accord a preference to a good produced in its territory, or to purchase a good from a producer in its territory; (c) to relate the volume or value of imports to the volume or value of exports or to the amount of foreign exchange inflows associated with that investment; or (d) to restrict sales of a good or service in its territory that the investment produces or provides by relating those sales to the volume or value of its exports or foreign exchange earnings. 3. Paragraph 2 does not prevent a Party from conditioning the receipt or continued receipt of an advantage, in connection with an investment in its territory, on compliance with a requirement to locate production, provide a service, train or employ workers, construct or expand particular facilities, or carry out research and development in its territory. 4. Subparagraph 1(f) does not apply if the requirement is imposed or the commitment or undertaking is enforced by a court, administrative tribunal or competition authority to remedy a violation of competition laws. 5. The provisions of: (a) subparagraphs 1(a), (b) and (c), and 2(a) and (b), do not apply to qualification requirements for a good or service with respect to participation in export promotion and foreign aid programs;
* The author wishes to thank Mag. Philipp Janig for valuable research assistance in the preparation of this contribution.
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(b) this Article does not apply to procurement by a Party of a good or service purchased for governmental purposes and not with a view to commercial resale or with a view to use in the supply of a good or service for commercial sale, whether or not that procurement is “covered procurement” within the meaning of Article 19.2 (Scope and coverage). 6. For greater certainty, subparagraphs 2(a) and (b) do not apply to requirements imposed by an importing Party relating to the content of a good necessary to qualify for preferential tariffs or preferential quotas. 7. This Article is without prejudice to World Trade Organization commitments of a Party. Reference to the Respective Provisions in Other EU Treaties: See the nearly identically worded Art 8.8 of the 2019 EU-Vietnam Free Trade Agreement; see also Art 8.11 of the 2018 Agreement between the European Union and Japan for an Economic Partnership. Bibliography: Nathalie Bernasconi-Osterwalder and Howard Mann, ‘CETA and Investment: What Is It About and What Lies Beyond?’ in Makane Moise Mbengue and Stefanie Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (Springer, 2019) 339; Andrea Bjorklund, ‘NAFTA Chapter 11’ in Chester Brown (ed), Commentaries on Selected Model Investment Treaties (Oxford University Press, Oxford 2013), 465; David Collins, Performance Requirements and Investment Incentives Under International Economic Law (Edward Elgar Publishing, Cheltenham 2015); Alexandre Genest, Performance Requirement Prohibitions in International Investment Law (Brill/Nihoff, Leiden/Boston 2019); Alexandre Genest, ‘Performance Requirement Prohibitions, Lemire v. Ukraine and Mobil v. Canada: Stuck between a Rock and a Hard Place’ (2013) 47 Revue Juridique Themis, 433; Gus van Harten, ‘The European Union’s Emerging Approach to ISDS: a Review of the Canada-Europe CETA, Europe-Singapore FTA, and European-Vietnam FTA’ (2016) 1(1) Univ. Bologna L. R., 138; Kurt Hübner, Tugce Balik and Anne-Sophie Deman, ‘CETA: The Making of the Comprehensive Economic and Trade Agreement between Canada and the EU’, Notes de l’Ifri, April 2016; Audrina Keng Yuerong, Benedict Teow Kang Yong, Heloisa Pereira and Uma Jitendra Sharma, Memorandum: Prohibitions on Performance Requirements in Investment Treaties (University of Singapore 2018); Howard Mann, ‘Investment Liberalization: Some Key Elements and Issues in Today’s Negotiating Context’ (2007), Issues in International Investment Law: Background Papers for Developing Country Investment Negotiators’ Forum; Suzy Nikièma, ‘Performance Requirements in Investment Treaties’, Best Practices Series (IISD, Manitoba 2014); Sergio Puig and Meg Kinnear, ‘NAFTA Chapter Eleven at Fifteen: Contributions to a Systemic Approach in Investment Arbitration’ (2010) 25 ICSID Rev., 225; Daniel Price, ‘An Overview of the NAFTA Investment Chapter: Substantive Rules and Investor-State Dispute Settlement’ (1993) 27, Int’l. Lawyer, 727; UNCTAD, Foreign Direct Investment and Performance Requirements: New Evidence from Selected Countries (United Nations, New York and Geneva 2003). A. Introduction and Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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B. Spirit and purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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C. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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D. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. Article 8.5 paragraph 1 lit. a-g . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Introduction/Generalities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Chapeau of paragraph 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. List of prohibited performance requirements in lit. a-g . . . . . . . . . . . . . . . . a) Export a given level or percentage of a good or service . . . . . . . . . . . . . . . . . b) Domestic content . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . c) Territorial nexus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . d) Volume and value of imports and exports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . e) Domestic supply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . f) Technology transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . g) Exclusive supply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Article 8.5 paragraph 2 lit. a-d . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Introduction/Generalities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7 7 7 8 11 13 14 15 16 17 18 20 21 21
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E. Performance requirements and financial services . . . . . . . . . . . . . . . . . . . . . . . . . . .
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F. Carve-outs/Reservations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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H. Dispute Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
A. Introduction and Overview The incorporation of prohibition of performance requirements in Article 8.5 of 1 the CETA is expression of a new type of investment agreements which combine both investment protection and trade related elements.1 The prohibition follows a more general trend towards a limitation of performance requirements in trade and investment agreements and may be explained with the criticism of the latter. 2 Traditionally, mainly developing economies have used performance requirements. 2 Performance requirements are broadly defined as ‘stipulations, imposed on investors, requiring them to meet certain specified goals with respect to their operations in the host state’.3 Performance requirements may cover all aspects of an investment and can be mandatory and non-mandatory. Mandatory performance requirements condition entry into the market on compliance with certain requirements (e.g. the requirement to enter only upon creation of joint ventures or only upon the investors’ commitments to transfer a given technology) or establish conditions to be allowed to pursue operations (e.g. the requirement to export a given amount of production or to buy certain components from the domestic market): the investor thus has no choice if seeking to start or to continue to operate. In contrast, non-mandatory performance requirements, which are also known as ‘advantage-conditioning performance requirements’, subject (‘condition’) the access to (certain) investment incentives (‘advantages’), such as fiscal exemptions, subsidies or grants in connection with an investment in the host state’s territory, to an investor’s compliance with the performance requirement. 4
1 Note that Article 8.5 of the CETA is nearly identically worded as Article 1106 of the NAFTA; as regards exceptions to the prohibitions, see also Article 1108 of the NAFTA. 2 For a general overview of performance requirements including their criticism see Genest, Performance Requirement Prohibitions in International Investment Law (2019); see also Nikièma, ‘Performance Requirements in Investment Treaties’, IISD Best Practices Series, December 2014. 3 See Yuerong et al., Memorandum: Prohibitions on Performance Requirements in Investment Treaties (2018), 11; see also UNCTAD, Foreign Direct Investment and Performance Requirements: New Evidence from Selected Countries, UNCTAD/ITE/IIA/2003/7 (2003), 2. 4 See Yuerong et al., Memorandum: Prohibitions on Performance Requirements in Investment Treaties (2018), 13.
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Performance requirements are therewith often considered as interventionist tools 5 which prevent the establishment of investments through the back door because they make an investment uneconomical.6 3 The prohibition of performance requirements as incorporated in Article 8.5 of the CETA should thus facilitate the establishment of foreign investments. 7 Article 8.5 enshrines a rather far reaching approach in relation to the prohibition: it prohibits mandatory and non-mandatory requirements in connection with the establishment, acquisition, expansion, management, conduct or operation of investments in the host state. A close to identical prohibition to Article 8.5 of the CETA is incorporated in Article 8.8 of the 2019 EU-Vietnam Free Trade Agreement 8; an even more extensive and slightly differently worded prohibition in Article 8.11 of the 2018 Agreement between the European Union and Japan for an Economic Partnership.9 Performance requirements also figured in the TTIP negotiations (see Articles 2-6 (Performance requirements) of the 2015 EU Proposal).10 They likewise play a role in the current EU-China negotiations.11 Still, the majority of EU (trade and) investment agreements – including EU-Singapore – do not incorporate a specific provision on the prohibition of performance requirements.12 5 Indeed, the use of performance requirements has diminished since the 1970 s also due to their prohibition in investment agreements. See for further reference, Bjorklund, ‘NAFTA Chapter 11’ in Chester Brown (ed), Commentaries on Selected Model Investment Treaties (2013), 465 (486). 6 It was for instance noted accordingly that performance requirements may prevent investments since ‘the imposition of performance requirements can be used to frustrate the right of establishment through the back door by allowing governments to impose significant demands that make an investment uneconomical.’ (Howard Mann, ‘Investment Liberalization: Some Key Elements and Issues in Today’s Negotiating Context’ (2007), Issues in International Investment Law: Background Papers for Developing Country Investment Negotiators’ Forum, 5. 7 Systematically, Article 8.5 is placed in Section B of the Investment Chapter, ‘Establishment’. As held by Puig and Kinnear: ‘The main rationale for prohibiting the adoption of performance requirements is to deter the use of measures that distort international trade and investment flows by conditioning investment or its protection on the fulfilment of certain requirements’ (Puig and Kinnear, ‘NAFTA Chapter Eleven at Fifteen: Contributions to a Systemic Approach in Investment Arbitration’ (2010) 25 ICSID Review, 225 (247 f.)). This prohibition, according to some experts, ensures that ‘sourcing and sales decisions are based on the investor’s judgment, not by the dictates of the host government.’ (Price, ‘An Overview of the NAFTA Investment Chapter: Substantive Rules and Investor-State Dispute Settlement’ (1993) 27 Int’l Lawyer, 727. 8 EU-Vietnam Free Trade Agreement, January 2019, https://trade.ec.europa.eu/doclib/docs/2018/sept ember/tradoc_157355.pdf. 9 Agreement between the European Union and Japan for an Economic Partnership, 17 July 2018, https://investmentpolicy.unctad.org/international-investment-agreements/treaty-files/5693/download. 10 EU proposal of July 2015, https://trade.ec.europa.eu/doclib/docs/2015/july/tradoc_153669.pdf. 11 See European Commission, ‘EU to evaluate Chinese offer for European investors’, Brussels, 19 December 2019, https://trade.ec.europa.eu/doclib/press/index.cfm?id=2096. 12 See https://investmentpolicy.unctad.org/international-investment-agreements/treaty-files/5714/d ownload; EU-Armenia – https://investmentpolicy.unctad.org/international-investment-agreements/tre aty-files/5669/download; EU-SADC – https://investmentpolicy.unctad.org/international-investment-a greements/treaty-files/5812/download; EU-Kazakhstan – https://investmentpolicy.unctad.org/internat ional-investment-agreements/treaty-files/4736/download (see also Interim Agreement https://investme ntpolicy.unctad.org/international-investment-agreements/treaty-files/5811/download); EU-Georgia – https://investmentpolicy.unctad.org/international-investment-agreements/treaty-files/3124/download ; EU-Moldova – https://investmentpolicy.unctad.org/international-investment-agreements/treaty-files /3125/download; EU-Ukraine – https://investmentpolicy.unctad.org/international-investment-agreem ents/treaty-files/3123/download; EU-Central America – https://investmentpolicy.unctad.org/internatio nal-investment-agreements/treaty-files/5518/download; EU-Colombia, Peru – https://investmentpolicy .unctad.org/international-investment-agreements/treaty-files/5405/download; EU-Iraq – https://invest mentpolicy.unctad.org/international-investment-agreements/treaty-files/2632/download; EU-Korea – https://investmentpolicy.unctad.org/international-investment-agreements/treaty-files/2602/download (see also Framework Agreement https://investmentpolicy.unctad.org/international-investment-agreem
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B. Spirit and purpose Article 8.5 (Performance requirements) is situated in Section B (Establishment of 4 Investments) of Chapter 8 of the CETA and forms part of a bundle of provisions which aim at reducing restrictions on the entry of foreign investments. These include market access (Article 8.4) as well as non-discriminatory treatment provisions in Section C (national treatment (Article 8.6), MFN-treatment (Article 8.7)) with Articles 8.6 and 8.7 being applicable to the establishment and the post-establishment phase. The structure of Article 8.5 is as follows: Paragraphs 1 and 2 contain lists of 5 prohibited performance requirements in connection with investments: a more extensive list of prohibited mandatory requirements in paragraph 1 and a less extensive list of non-mandatory prohibited requirements (i.e. certain advantage conditioning requirements) in paragraph 2. Paragraphs 3 to 6 establish carve-outs/exceptions to these lists of prohibitions.13 Paragraph 7 contains a non- prejudice clause as regards existing WTO-Commitments.
C. Drafting History Performance requirements did not figure prominently during the preparations of 6 the CETA in the EU. Neither the 2010 Commission Communication 14, the 2010 Council Conclusions15 nor the 2011 European Parliament Resolutions16 referred to them. The prohibition of performance requirements was incorporated, however, in the 2013 draft CETA Investment Text.17 Then Article X.5 of the 2013 draft Text was very similar to the final wording in Article 8.5: It contained largely identical prohibitions of mandatory and advantage-conditioning performance requirements.18 Only the envisaged structure of draft Article X.5 differed slightly from Article 8.5 ents/treaty-files/3484/download); EU-Eastern and Southern Africa States – https://investmentpolicy.un ctad.org/international-investment-agreements/treaty-files/5810/download; EU-Cameroon – https://inv estmentpolicy.unctad.org/international-investment-agreements/treaty-files/4678/download. 13 These carve-outs generally relate to certain parts of the prohibitions enumerated in paras. 1 and 2 of Article 8.5. Only public procurement (Article 8.5 para. 5 lit. b) is generally exempt and may be subject to according performance requirements. 14 Commission Communication, Towards a Comprehensive European International Investment Policy, 7 July 2010, COM(2010) 343 final. 15 Council of the EU, Conclusions on a Comprehensive European International Investment Policy, 3041st Foreign Affairs Council Meeting, 25 October 2010. 16 European Parliament, European Parliament Resolution of 6 April 2011 on the future European international investment policy, 2010/2203(INI). 17 Draft CETA Investment Text of 21 November 2013, www.tradejustice.ca/about-ceta/sample-page/. 18 Article X.5 (Performance Requirements) of the 2013 Draft CETA Investment Text: ‘1). Neither Party may impose, or enforce any of the following requirements, or enforce any commitment or undertaking, [EU: or condition the receipt or continued receipt of an advantage,] in connection with the establishment, acquisition, expansion, management, conduct or operation of all investments in its territory to: (a) export a given level or percentage of goods or services; (b) achieve a given level or percentage of domestic content; (c) purchase, use or accord a preference to goods produced or services provided in its territory, or to purchase goods or services from natural persons or enterprises in its territory; (d) relate in any way the volume or value of imports to the volume or value of exports or to the amount of foreign exchange inflows associated with such investment; (e) restrict sales of goods or services in its territory that such investment produces or provides by relating such sales in any way to the volume or value of its exports or foreign exchange earnings; (f) transfer technology, a production process or other proprietary knowledge to a natural person or enterprises in its territory; or (g) supply exclusively from the territory of the Party a good produced or a service provided by the investment to a specific regional or world market. [CAN: 2. A measure that requires an investment to use a technology to meet generally applicable health, safety or environmental requirements shall not be construed to be
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insofar as the EU proposed to incorporate advantage conditioning performance requirements (current paragraph 2) alongside mandatory performance requirements in paragraph 1; Canada wanted to incorporate them in a separate paragraph 3. Likewise, the envisaged exceptions differ slightly, with a Canadian proposal clarifying in Article X.5 paragraph 2 that: ‘2. A measure that requires an investment to use a technology to meet generally applicable health, safety or environmental requirements shall not be construed to be inconsistent with subparagraph 1(f). […]’. What is more, the clarification now incorporated in Article 8.5 paragraph 6, that certain performance conditioning requirements (local content, local supply) do not apply to goods which qualify for preferential tariffs or preferential quotas, was not incorporated yet in the 2013 draft CETA Investment Text.
D. Commentary I. Article 8.5 paragraph 1 lit. a-g 1. Introduction/Generalities 7
Paragraph 1 is divided into a chapeau and a list of prohibited performance requirements in subparagraphs lit. a-g which must not be imposed in connection with the establishment, acquisition, expansion, conduct, operation and management of investments in a CETA-Party’s territory. The exhaustive list in subparagraphs lit. a-g 19 enumerates typical performance requirements which are prohibited.
inconsistent with subparagraph 1(f). For greater certainty, Articles X.03 (National Treatment) and X.04 (Most-Favoured-Nation Treatment) apply to the measure.] [CAN: 3. Neither Party may condition the receipt or continued receipt of an advantage, in connection with the establishment, acquisition, expansion, management, conduct or operation of all investments in its territory, on compliance with any of the following requirements: (a) to achieve a given level or percentage of domestic content; (b) to purchase, use or accord a preference to goods produced in its territory, or to purchase goods from producers in its territory; (c) to relate in any way the volume or value of imports to the volume or value of exports or to the amount of foreign exchange inflows associated with such investment; or (d) to restrict sales of goods or services in its territory that such investment produces or provides by relating such sales in any way to the volume or value of its exports or foreign exchange earnings.] 4. a) Nothing in paragraph [EU: 1] [CAN: 3] shall be construed to prevent a Party from conditioning the receipt or continued receipt of an advantage, in connection with an investments in its territory, on compliance with a [EU: non-discriminatory] requirement to locate production, provide a service, train or employ workers, construct or expand particular facilities, or carry out research and development in its territory, [EU alternative instead of ‘non-discriminatory’: provided that the requirement is applied to all investors in comparable circumstances]. b) Subparagraph 1(f) does not apply when the requirement is imposed or the commitment or undertaking is enforced by a court, administrative tribunal or competition authority to remedy an alleged violation of competition laws. 5. The provisions of: (a) subparagraphs 1(a), (b) and (c), and 3(a) and (b), do not apply to qualification requirements for goods or services with respect to participation in export promotion and foreign aid programs; [CAN: (b) subparagraphs 1(b), (c), (f) and (g), and 3(a) and (b), do not apply to procurement by a Party or a state enterprise; and] [EU: This Article shall not apply to measures governing public procurement falling within the scope of Article III: 8 (a) GATT or Article XIII:1 GATS.]” See also Article X.14 (Reservations and Exceptions) of the 2013 Draft CETA Investment Text which contains similar references to existing and future non-conforming measures as current Art 8.15.’ 19 The wording ‘the following requirements’ in the chapeau of Article 8.5 para. 1 is indicative of an exhaustive list.
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2. Chapeau of paragraph 1 The wording – a Party ‘shall not impose, or enforce [...]’ –, makes clear that para- 8 graph 1 provides for mandatory prohibitions of performance requirements. The obligation is thus strict. The ensuing list of prohibited requirements in lit. a-g is exhaustive (arg.: ‘the following requirements’). The prohibitions cover the entire lifecycle of an investment: they contain obliga- 9 tions during the establishment phase such as the establishment, acquisition or expansion of an investment as well as post-establishment obligations, relating to the conduct, operation and management of investments. Performance requirements are not only prohibited for investors of Parties to the 10 CETA but in relation to ‘any investments in a Party’s territory’, thus including investments from third states/non-parties. This is likewise confirmed in Article 8.2 of the CETA which establishes a broader scope for Article 8.5 than for the other provisions of Chapter 8; namely as relating to any investments in a Party’s territory. 20 This general application of prohibition of performance requirements ensures a level playing field for all investments. In the case to the contrary, Parties might prefer investors from third states because they can impose performance requirements on these. 21 In line with these considerations, the scope of Article 8.5 in relation to prohibition of performance requirements is broad and covers all investments on a Party’s territory. 22
3. List of prohibited performance requirements in lit. a-g The (exhaustive) list of prohibited performance requirements as contained in sub- 11 paragraphs lit. a to g is comparatively long. Not included in the prohibitions (and therefore permissible) are nonetheless certain ‘typical’ performance requirements which rather relate to structure and management of companies such as necessary joint ventures with local companies, training and employment requirements or minimum capitalisation requirements.23 12 More particularly, the list of prohibited performance requirements is as follows. a) Export a given level or percentage of a good or service Article 8.5 para 1 lit. a rules out the requirement to export a given level or percent- 13 age of a good or service. It thus prevents that states attempt to reduce the competition between goods produced by a foreign investor with those produced by local investors, which would give a CETA-Party the benefits of FDI – increased employment of locals, development of infrastructure – without the corresponding risk of competition in the 20 Article 8.2 (Scope): ‘1. This Chapter applies to a measure adopted or maintained by a Party in its territory relating to: (a) an investor of the other Party; (b) a covered investment; and (c) with respect to Article 8.5, any investments in its territory. […]’ (emphasis added). 21 As held by Bjorklund in relation to the de facto identical provision Article 1106 of the NAFTA: ‘The gain achieved by the Parties with respect to the banning of these requirements would thereby be negated.’ (Bjorklund, ‘NAFTA Chapter 11’ in Chester Brown (ed), Commentaries on Selected Model Investment Treaties (2013), 465 (486). 22 An ICSID tribunal specified respectively in relation to the similar provision in Article 1106 of the NAFTA that the reference to ‘any investment’ also comprised a (state) Party’s own investors (Archer Daniels Midland Company and Tate & Lyle Ingredients Americas, Inc. v. The United Mexican States, ICSID Case No. ARB (AF)/04/5, Award (21 November 2007), para. 221.). See for further reference Puig and Kinnear, ‘NAFTA Chapter Eleven at Fifteen: Contributions to a Systemic Approach in Investment Arbitration’ (2010) 25 ICSID Rev., 225 (239). 23 See respectively Genest, Performance Requirements Prohibitions in International Investment Law (2019), 88 f., who refers to a total of 12 to 14 measures generally identified as performance requirements.
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domestic market.24 The prohibition of lit. a also counters developmental strategies that are based on the obligation to produce inside the country and secure profits as well as inflow of foreign exchange through the export of goods.25 The prohibition of lit. a is comprehensive, covering both goods and services, as explicitly specified by the reference to ‘of a good or service’.26 b) Domestic content 14
Article 8.5 para 1. lit. b rules out the requirement to introduce a certain level or percentage of domestic content. The therewith prohibited ‘domestic content rule’, which mandates that firms use a specific percentage of local materials, is among the most popular performance requirements. It assists inter alia domestic industry by providing a ready market for manufactured goods.27 At the same time, local content requirements may diminish the value of the investment when the production of goods comes at an increased cost. Also, they may not be feasible where the imposing state lacks sufficient capacity to satisfy the needs of foreign investors. 28 All this is reflected in the prohibition of lit. b. As will be shown below, also conditioning the receipt of an advantage on satisfying local content requirements is prohibited: Article 8.5 para. 2 lit. a contains the same prohibition as Article 8.5 para. 1 lit. b (→ mn. 25). c) Territorial nexus
15
Article 8.5 para 1. lit. c prevents that investors are compelled to rely on local subsidiaries by ruling out that investors may be obliged to use or accord preference or purchase a local good or having to rely on a local service. Such performance requirements may indeed, similar to lit. b, have a detrimental influence on the investment and diminish the value of the investment when the goods produced or services provided by the investment come at an increased cost because of the necessary preferences to local supply. The prohibition is extensive, and not only covers goods but also services.29 24 See for further details on export requirements also Yuerong et al., Memorandum: Prohibitions on Performance Requirements in Investment Treaties (2018), 15-6. 25 See e.g. also Collins, Performance Requirements and Investment Incentives Under International Economic Law (2015), 12, for further reference. 26 See Pope and Talbot for a case on export performance requirements under the nearly identically worded Article 1106 para. 1. lit. a of the NAFTA (Pope & Talbot Inc. v. The Government of Canada, UNCITRAL, Interim Award, 26 June 2000, paras. 69-80: no violation). See for further reference Yuerong et al, Memorandum: Prohibitions on Performance Requirements in Investment Treaties (2018), 42; see also Genest, Performance Requirements Prohibitions in International Investment Law (2019), 107 ff. 27 Collins, Performance Requirements and Investment Incentives Under International Economic Law (2015), 11, with further references. 28 See for details Collins, Performance Requirements and Investment Incentives Under International Economic Law (2015), 23-4. 29 As will be shown below, a similar – though less far reaching prohibition is incorporated (→ mns. 26-27) for advantage conditioning requirements: the latter prohibits the receipt of advantages only for goods, not for services. As regards relevant case law see Lemire v. Ukraine for a narrow interpretation of a domestic content requirement in Article II.6 Ukraine-US BIT (Joseph Charles Lemire v. Ukraine, ICSID Case No. ARB/06/18, Decision on Jurisdiction and Liability (14 January 2010), especially paras. 510-511). See also Merill & Lynch v. Canada where the Tribunal likewise concluded that Article 1106 of the NAFTA was not breached (Merrill & Ring Forestry L.P. v. Government of Canada, ICSID Case No. UNCT/07/1, Award (31 March 2010), especially paras. 113, 115 and 121). Both cases thus point to a narrow interpretation of prohibition of performance requirements focusing on the object of a measure. See however Mobil Oil v Canada for a broad interpretation of prohibition of performance requirements focusing on the effects of a measure where the Tribunal found Article 1106 of the NAFTA to be breached. (Mobil Investments Canada Inc. and Murphy Oil Corporation v. Government of Canada,
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d) Volume and value of imports and exports Article 8.5 para 1 lit. d rules out mandatory trade balancing requirements. These 16 are the limitation of imports of investors to a proportion or equivalent quantity of their exports, notably through requirements that investors generate sufficient foreign exchange earnings with their exports in order to cover, in whole or in part, or even exceed their foreign exchange expenses incurred by imports in the host Party. 30 Lit. d thus prevents that investors are forced to establish a correlation between the import and export flows or the amount of foreign exchange inflows associated with the investment. Article 8.5 para. 2 lit. c prohibits the receipt of an advantage for the latter in identical wording. e) Domestic supply Article 8.5 para. 1 lit. e, prevents foreign exchange earning requirements through 17 sales restrictions of goods and services at domestic level. Similar to lit. d, lit. e rules out establishing a relation between such restrictions and the export of goods or foreign exchange earnings; here however with respect to domestic sales of an investor’s goods or services by relating those sales to the volume or value of its exports or to foreign exchange earnings. Lit. e thus prevents that investors are obliged to secure a minimum of foreign exchange inflow in order to be allowed to sell on the local market. 31 Article 8.5 para. 2 lit. d prohibits the receipt of an advantage for the imposition of these requirements in identical wording to lit. e. f) Technology transfer Article 8.5 para. 1 lit. f rules out technology transfer requirements and an obliga- 18 tory transfer of related knowledge (production process or other proprietary knowledge) which would compel investors to transfer technology to the local level that might not normally be used by domestic producers or investors in the host Party. It thus prevents that CETA-Parties use technology transfer requirements to acquire advanced technology that would normally remain with the investor, to pursue or push the development of the domestic industry.32 Nevertheless, there are certain limitations to the prohibition of technology transfer. 19 In accordance with Article 8.5 para. 4, the prohibition will not apply if the obligation is imposed to remedy a violation of competition laws (see below). Also, in accordance with Article 8.15 para. 4, a Party may derogate from the prohibition of Article 8.5 (→ mn. 33) in relation to intellectual property rights, if this is permitted by the TRIPS agreement.33 Finally, the prohibition of technology transfer requirements is not conICSID Case No. ARB(AF)/07/4, Decision on Liability and on Principles of Quantum (22 May 2012), para. 246). See Yuerong et al., Memorandum: Prohibitions on Performance Requirements in Investment Treaties (2018), 46 for further reference. See also Genest, ‘Performance Requirement Prohibitions, Lemire v. Ukraine and Mobil v. Canada: Stuck between a Rock and a Hard Place’ (2013) 47 Revue Juridique Themis, 433 for further reference. 30 See for further reference Genest, Performance Requirement Prohibitions in International Investment Law (2019), 94 f. 31 See for further reference Genest, Performance Requirement Prohibitions in International Investment Law (2019), 100. 32 See for details on technology transfer requirements Yuerong et al, Memorandum: Prohibitions on Performance Requirements in Investment Treaties (2018), 17. 33 Article 8.15 para. 4 of the CETA: ‘In respect of intellectual property rights, a Party may derogate from Articles 8.5.1(f), 8.6, and 8.7 if permitted by the TRIPS Agreement, including any amendments to the TRIPS Agreement in force for both Parties, and waivers to the TRIPS Agreement adopted pursuant to Article IX of the WTO Agreement.’
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tained in the list of non-mandatory performance requirements of Article 8.5 para. 2 lit. a-d. It remains thus permissible to incentivize technology transfer through the provision of an advantage to the foreign investor. g) Exclusive supply 20
Article 8.5 para 1. lit. g prevents that investors are compelled to send goods or services to a specific market exclusively from a CETA-Party’s territory and are thus limited in their entrepreneurial choice. Such an obligation would indeed tie investors and reduce their flexibility. Competition with other production sites would consequently be restricted. At the same time, no such prohibition is incorporated in the list of nonmandatory performance requirements in para. 2 lit. a-d. It remains thus permissible to incentivize investors to pursue according exclusive supply policies.
II. Article 8.5 paragraph 2 lit. a-d 1. Introduction/Generalities 21
Article 8.5 para. 2 concerns the prohibition of performance requirements in connection with the receipt of an advantage, i.e. non-mandatory performance requirements. In contrast to paragraph 1, the prohibitions of paragraph 2 are no preconditions for investments in the territory of a Party. Rather, they concern acts where a benefit is offered to incentivize an investor to voluntarily accept certain performance requirements. The rationale of Article 8.5 paragraph 2 thus differs from paragraph 1. Since the investor accepts the advantages or benefits a priori voluntarily, the prohibitions of paragraph 2 aim primarily at upholding the macro-economic equilibrium, thus the interest of the investor’s home state not to suffer disadvantages in trade, e.g. by being prevented to export because of the local content rule. 34 Non-mandatory performance requirements imply thus less far reaching limitations for investors. This is also reflected in the more limited scope of the prohibitions of paragraph 2 as compared to paragraph 1: the list of prohibited advantage-conditioning requirements is less extensive than the list of prohibited mandatory requirements contained in paragraph 1. Moreover, certain acts are explicitly exempted from the scope of paragraph 2 in accordance with Article 8.5 para. 3, including the location of production; the training and employment of workers; the carrying out of research and development in the Party’s territory. Thus, it remains possible for CETA-Parties to incentivize investors to engage in these activities.
2. Chapeau of paragraph 2 22
Likewise advantage conditioning requirements may have trade distorting effects. In line with this (and although less far-reaching than Article 8.5 para. 1), paragraph 2 prohibits advantage conditioning requirements in relation to a list of actions contained in lit. a-d.35 The prohibition covers both, the receipt of an advantage as one-off act as well as the continued receipt of an advantage. As paragraph 1, paragraph 2 covers the 34 The prohibition of advantages thus reflects a pro-trade and pro-export bias toward the interests of home state exporters compared with the interests of home-states’ foreign investors abroad. Indeed, an investor might be inclined to accept certain performance requirements in exchange for advantages. See Genest, Performance Requirement Prohibitions in International Investment Law (2019), 116 f. and 126, respectively, for further reference. 35 See the comparable prohibition in Article 1106 para. 3 of the NAFTA.
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entire lifecycle of an investment: the pre-establishment phase (i.e. establishment, acquisition, expansion) as well as the post-establishment phase (i.e. management, conduct, operation). Also the prohibitions contained in Article 8.5 para. 2 relate not only to investors/in- 23 vestments of the other Party but are applicable to ‘any investment’ on the territory of the Party. They therefore apply also to investors of third states. Extending the prohibition of advantage conditioning requirements to these investors follows similar considerations as the prohibition of mandatory performance requirements in relation to the latter: the Parties should not be pushed to prefer investors from third states to investors from CETA-Parties simply because third state investors can be subjected to (mandatory or advantage conditioning) performance requirements.36
3. List of prohibited performance requirements in lit. a-d The list of prohibitions of advantage conditioning requirements as contained in 24 lit. a-d is less extensive than the list of prohibited mandatory performance requirements in paragraph 1. First, the – exhaustive – list37 of Article 8.5 para. 2 is shorter. Fewer advantage conditioning performance requirements are prohibited: paragraph 2 lists only four – rather than seven – requirements. For example, to incentivize an investor to technology transfer is not prohibited accordingly. What is more, the scope of certain prohibitions in paragraph 2 is reduced: most importantly, certain advantage conditioning requirements are prohibited only for goods but not for services. This being said, the formulation of the prohibitions in paragraph 2 mostly corresponds to those contained in paragraph 1 with largely identical wording.38 a) Domestic content Article 8 para. 2 lit. a prohibits the advantage conditioning requirement to achieve 25 a given level or percentage of domestic content. The prohibition thus mirrors the prohibition of paragraph 1 lit. b concerning mandatory performance requirements. It follows similar considerations (→ mn. 14). b) Territorial nexus Article 8.5 para. 2 lit. b rules out the advantage conditioning requirement of a Party 26 to ‘purchase, use or accord a preference to a good produced in its territory, or to purchase a good from a producer in its territory.’ Article 8.5 para. 2 lit. b thereby prevents that investors are pushed to give preference to locally produced goods. This contributes to upholding the competition between the goods from different markets. 36 Puig and Kinnear, ‘NAFTA Chapter Eleven at Fifteen: Contributions to a Systemic Approach in Investment Arbitration’ (2010) 25 ICSID Rev., 225 (249) in relation to the similar worded Art. 1106 para. 3 of the NAFTA and the respective case law. ADM v. Mexico and Corn Products v. Mexico came to different conclusions whether Mexico’s high fructose corn syrup tax on soft drinks while exempting those with Mexican sugar therewith giving an advantage to the largely domestic sugar industry in Mexico: the ADM tribunal found a breach of Article 1106 para. 3 of the NAFTA on that basis whereas the Corn Products Tribunal did not find a breach (Archer Daniels Midland Company and Tate & Lyle Ingredients Americas, Inc. v. The United Mexican States, ICSID Case No. ARB (AF)/04/5, Award (21 November 2007), para. 227; Corn Products International, Inc. v. United States of America, ICSID Case No. ARB (AF)/04/1, Decision on Responsibility (15 January 2008), paras. 79-80). 37 Again, the list in para. 2 lit. a-d is exhaustive: ‘A Party shall not condition [...] on compliance with any of the following requirements’ (emphasis added). 38 Note however that, as mentioned above, the prohibition in lit. b only covers goods and does not relate to services.
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Para. 2 lit. b mirrors Article 8.5 para. 1 lit. c. Nevertheless, it is less far-reaching since it only refers to goods but not to services. Accordingly, investors may be incentivized through advantage conditioning requirements to use locally provided services. The reason for this more restricted prohibition as compared to mandatory performance requirements may be the possible usefulness to rely on locally provided services (e.g. as regards availability, local workforce) and also the more limited trade-distorting effects. It seems thus reasonable to give more room to Parties to incentivize investors to rely on local services which is not prohibited accordingly. c) Volume and value of imports and exports
28
Article 8.5 para. 2 lit. c, which outrules the advantage conditioning requirement to ‘relate the volume or value of imports to the volume or value of exports or to the amount of foreign exchanges inflows associated with that investment’ mirrors the prohibition in Article 8.5 para. 1 lit. d (→ mn. 16). d) Domestic supply
29
Article 8.5 para. 2 lit. d, which prevents the advantage conditioning requirement to ‘supply exclusively from the territory of the Party a good produced or a service provided by the investment to a specific regional or world market’ mirrors the prohibition Article 8.5 para. 1 lit. e (→ mn. 17).
III. Expectations as outlined in Article 8.5 paragraphs 3-6 1. Generalities on exceptions Article 8.5 paragraphs 3 to 6 contain exceptions from the prohibitions of paragraphs 1 and 2. These relate to different parts of Article 8.5 and vary in scope. Only the exception for public procurement (‘procurement by a Party of a good or service purchased for governmental purposes’) is general. Governmental procurement is exempt from all prohibitions: mandatory as well as advantage conditioning performance requirements may thus be imposed. 31 In restricting the scope of prohibited performance requirements, the different exceptions of paragraphs 3 to 6 allow the Parties to impose certain conditions on investments in their territory. They reflect the Parties’ regulatory space. 39 The exceptions listed are complemented by the reservations contained in the Annexes to the CETA which list the Parties’ existing and future non-conforming measures to liberalisation commitments (→ mns. 44-45). A further, general exception is incorporated in Article 8.2 para. 2 which establishes the non-application of inter alia Article 8.5 to air-services; activities carried out in the exercise of governmental authority; audio-visual services (EU) and cultural industries (Canada) (→ mn. 43). Overall, paragraphs 3-6 provide for a careful delineation of the prohibitions incorporated in the first two paragraphs of Article 8.5. 30
39 See in this sense also the Preamble of the CETA: ‘RECOGNISING that the provisions of this Agreement protect investments and investors with respect to their investments, and are intended to stimulate mutually-beneficial business activity, without undermining the right of the Parties to regulate in the public interest within their territories; […]’ (emphasis added).
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2. Paragraph 3 Article 8.5 para. 3 provides legal certainty insofar as it explicitly exempts certain 32 acts from the list of prohibitions of advantage conditioning performance requirements in paragraph 2. It is lawful accordingly to incentivize an investor to locate production, provide a service, train or employ workers, construct or expand particular facilities, or carry out research and development in a Party‘s territory.40 CETA-Parties are thus left a certain room to push for compliance with domestic priorities through the conferral of advantages to investors in areas of potential key interest to them, including the location of production; the training and employment of (usually local) workers; the carrying out of research and development in the Party’s territory. Paragraph 3 thus explicitly permits incentives for areas or activities which seem particularly advantageous to the interests of a Party and have, at the same time, not overly negative consequences for the economy of the other Party or other investments.
3. Paragraph 4 Article 8.5 para. 441 provides for instances where technology transfer requirements 33 are – notwithstanding their prohibition in Article 8.5 para. 1 lit. f – nonetheless permissible: i.e. when they aim at remedying an alleged violation of competition laws. Still, the exception of paragraph 4 is carefully circumscribed: There needs to be the determination of uncompetitive behaviour in an appropriate judicial or administrative process with a competent authority which imposes or enforces the transfer for violation of competition laws. Only under these conditions, technology transfer requirements may be imposed. The terms ‘imposes’ or ‘enforces’ relate to the adoption of a decision by the respective authority as well as to the latter’s enforcement.
4. Paragraph 5 Article 8.5 para. 5 lit. a establishes that the prohibition of certain mandatory as well 34 as of certain advantage conditioning requirements does not apply when these are qualification requirements for goods or services with respect to export promotion and foreign aid programmes.42 In these instances, a Party may oblige an investor to export a given level or percentage of good or service; to achieve a given level or percentage of domestic content; to purchase, use or accord a preference to goods produced or services provided in a Party‘s territory. CETA-Parties may thus condition the participation in programmes for foreign aid or export promotion aid by imposing the abovementioned requirements.43 Article 8.5 para. 5 lit. b establishes a general exception for government procurement 35 by exempting it from the prohibition of performance requirements. Imposing performance requirements are thus permissible for the purchase of goods or services for governmental purposes under condition that these are not purchased with a view to commercial resale nor for the use in the supply of a good or service for commercial sale. This leaves due freedom to states to impose certain conditions in relation to government procurement. Indeed, while to open public procurement and to shift from 40 See also the comparable Article 1106 para. 4 of the NAFTA. See generally, not specifically related to the CETA, Genest, Performance Requirement Prohibitions in International Investment Law (2019), 162 f. 41 See also the comparable Article 1106 para. 1 lit. f of the NAFTA. 42 See also Article 1108 para. 8 lit. a of the NAFTA; see for further reference Genest, Performance Requirement Prohibitions in International Investment Law (2019), 167. 43 See respectively in relation to the NAFTA, Bjorklund, ‘NAFTA Chapter 11’ in Chester Brown (ed), Commentaries on Selected Model Investment Treaties (2013), 465 (490).
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non-discriminatory to unconditional access was considered as one of the main successes during the CETA negotiations,44 the possible imposition of certain conditions as made possible inter alia through the exception incorporated in Article 8.5 para. 5 lit. b reflects the special position generally conferred to public procurement. 36 The special position of government procurement, where different rules apply and also performance requirements may be imposed, finds reflection also in other provisions of the CETA. More particularly, Article 8.15 (Reservations and exceptions) para. 5 establishes a – nearly identically worded – general carve-out for public procurement from (pre-)establishment obligations.45 Likewise, the Parties’ Explanatory Note to the CETA illustrates the specific position of government procurement. 46
5. Paragraph 6 37
Article 8.5 para. 6 provides a carve-out from the prohibition of advantage conditioning requirements as regards the domestic content rule (para. 2 lit. a) as well as from the requirement of domestic/local supply (to purchase, use or give preference to a local product or a local producer (para. 2 lit. b)) when it comes to qualifying for preferential tariffs or preferential quotas. 47 Paragraph 6 renders inapplicable the prohibition of advantage conditioning domestic content and domestic supply requirements accordingly. The carve-out of paragraph 6 thus allows that domestic production or content requirements be imposed e.g. on goods which benefit from preferential tariffs or preferential quota schemes. In fact, according requirements are implicit in the very idea of preferential tariffs or preferential quotas, which are based on requirements of local content/origin of goods. This is reflected in the wording of paragraph 6, ‘[f]or greater certainty’ which makes clear that it contains a clarification rather than a new rule.48 This may be indeed particularly relevant in the context of development cooperation.49
44 See Hübner et al., ‘CETA: The Making of the Comprehensive Economic and Trade Agreement between Canada and the EU’, Notes de l’Ifri (2016), 7, 14. 45 See Article 8.15 of the CETA: ‘[…] 5. Articles 8.4, 8.6, 8.7 and 8.8 do not apply to: (a) procurement by a Party of a good or service purchased for governmental purposes and not with a view to commercial resale or with a view to use in the supply of a good or service for commercial sale, whether or not that procurement is ‘covered procurement’ within the meaning of Article 19.2 (Scope and coverage); […]’. 46 Council of the EU Joint Interpretative Instrument on the Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union and its Member States, 27 October 2016, 9: ‘12. Government Procurement: CETA maintains the ability of procuring entities within the European Union and its Member States and Canada, in accordance with their respective legislation, to use environmental, social and labour related criteria, such as the obligation to comply with and adhere to collective agreements, in procurement tenders. Canada and the European Union and its Member States will be able to use such criteria in their procurement in a way that is not discriminatory and does not constitute an unnecessary obstacle to international trade. They will be able to continue to do so under CETA.’ 47 Note that the clarification of para. 6 was not incorporated in then Article X.5 of the 2013 Draft CETA Investment Text yet. 48 As held by Bjorklund in relation to the nearly identical Article 1108 para. 8 lit. c of the NAFTA: ‘In other words, for a good to qualify as Mexican and thereby subject to preferential treatment under the NAFTA it must achieve a certain percentage of Mexican content under the NAFTA’s rules of origin.’ (Bjorklund, ‘NAFTA Chapter 11’ in Chester Brown (ed), Commentaries on Selected Model Investment Treaties (2013), 465 (489)). 49 See generally Genest, Performance Requirement Prohibitions in International Investment Law (2019), 169.
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IV. The non-prejudice clause of Article 8.5. paragraph 7 Article 8.5 para. 7 clarifies that the CETA-Parties’ existing WTO-commitments 38 continue to be applicable. The ‘non-prejudice’-clause incorporated in paragraph 7 thus constitutes a preservations-of-rights-clause that leaves untouched other commitments which are potentially more favourable to investors. Preservation of rights clauses/non-derogation provisions as established in para- 39 graph 7 thus ensure that covered investments benefit from more favourable treatment afforded to an investment in other agreements,50 such as, in case of paragraph 7, those of the WTO. The scope of this reference to ‘World Trade Organization commitments’ is all encompassing and comprises, inter alia, related annexes, protocols as well as successor agreements (see respectively Art. 1.6 of the CETA). 51 The spirit of Article 8.5 para. 7 which establishes that WTO-commitments remain 40 untouched is also in line with the Preamble of the CETA which enshrines the CETAParties’ commitment to build upon WTO obligations/pre-existing commitments. 52 Likewise Article 1.5 of the CETA which details the ‘Relation to the WTO Agreement and other agreements’ explicitly refers to the fact that the parties honour existing (WTO-)commitments.53
E. Performance requirements and financial services Financial services may incorporate the prohibition of performance requirements 41 established in Article 8.5 at a later stage if specific negotiations for the sector fail. Chapter 13, Financial Services – insurance, banking and other financial services and services incidental or auxiliary to a service of financial nature (see definition, Article 13.1 of the CETA) – contains according references to Article 8.5 in some provisions, including Article 13.9 and Article 13.17 of the CETA. 54
F. Carve-outs/Reservations Certain areas are exempt from the prohibition of performance requirements as 42 incorporated in Article 8.5. These carve-outs take different forms. First, certain exceptions are directly incorporated in paragraphs 3 to 6 of Article 8.5 (→ mns. 30-37). Second, Article 8.2 of the CETA generally exempts certain areas from liberalisation; 43 more particularly, from (pre-)establishment obligations as contained in Sections B and
Genest, Performance Requirement Prohibitions in International Investment Law (2019), 214. Article 1.6 of the CETA (Reference to other agreements): ‘When this Agreement refers to or incorporates by reference other agreements or legal instruments in whole or in part, those references include: (a) related annexes, protocols, footnotes, interpretative notes and explanatory notes; and (b) successor agreements to which the Parties are Party or amendments that are binding on the Parties, except where the reference affirms existing rights.’ See respectively also Article 28.10 of the CETA as regards WTO Waivers. 52 In the Preamble of the CETA, ‘[t]he Parties (Canada and EU and its Member States) resolve to [...] further strengthen their close economic relationship and build upon their respective rights and obligations under the Marrakesh Agreement Establishing the World Trade Organization, done on 15 April 1994, and other multilateral and bilateral instruments of cooperation; […]’. 53 Article 1.5 of the CETA: ‘The Parties affirm their rights and obligations with respect to each other under the WTO Agreement and other agreements to which they are party.’ 54 See also the exceptions as regards financial services in Article 13.10 of the CETA. 50
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C of Chapter 8 (thus including Article 8.5).55 These relate, in particular, to areas of strategic importance for the Parties such as air-services (Article 8.2 lit. a); as well as, more generally, to activities which are carried out ‘in the exercise of government authority’ (Article 8.2 lit. b). Also, the audio-visual services in the EU and cultural industries in Canada are exempt from (pre-)establishment obligations. 44 Third, Annexes I and II to the CETA56 contain reservations/lists of non-conforming measures as provided by the Parties in accordance with Article 8.15 (Reservations and Exceptions) of the CETA.57 Annex I to the CETA lists according reservations for existing measures and liberalisation commitments, Annex II contains reservations and preserves regular space for future measures. The Annexes are, in accordance with Article 30.1 of the CETA, an integral part of the CETA. 45 In particular sectoral carve-outs – with exceptions established for specific sectors such as agriculture, fisheries, forestry, energy, health services, social services, educational services, etc. – are common.58 Also, Canada reserved the right to deny EU investors rights or preferences provided to aboriginal peoples (Reservation II-C-1, aboriginal affairs) and to adopt or maintain privileges for a socially or economically disadvantaged minority (Reservation II-C-8, minority affairs). Reservations differ in terms of geographic scope: certain exceptions relate to the entirety of a Party’s territory – i.e. Canada and the EU;59 others contain carve-outs only for specific Canadian provinces (e.g. Alberta, British Colombia, Manitoba, New Brunswick, New Foundland and Labrador, Yukon) and also most EU member states have provided specific carveouts for their respective territories especially as regards future regulatory measures. 60 55 Article 8.2 (Scope) of the CETA: ‘[…] 2. Sections B [Art 8.5, performance requirements] and C do not apply to a measure relating to: (a) air services, or related services in support of air services and other services supplied by means of air transport, other than: (i) aircraft repair and maintenance services; (ii) the selling and marketing of air transport services; (iii) computer reservation system (CRS) services; (iv) ground handling services; (v) airport operation services; or (b) activities carried out in the exercise of governmental authority. 3. For the EU Party, Sections B and C do not apply to a measure with respect to audio-visual services. For Canada, Sections B and C do not apply to a measure with respect to cultural industries.’ 56 See for further reference also Genest, Performance Requirement Prohibitions in International Investment Law (2019), 190. 57 See Article 8.15 of the CETA (Reservations and exceptions): ‘1. Articles 8.4 through 8.8 do not apply to: (a) an existing non-conforming measure that is maintained by a Party at the level of: (i) the European Union, as set out in its Schedule to Annex I; (ii) a national government, as set out by that Party in its Schedule to Annex I; (iii) a provincial, territorial, or regional government, as set out by that Party in its Schedule to Annex I; or (iv) a local government; […]’. 58 In Annex I, Canada reserved, for example, the right to impose requirements concerning the transfer of technology, production processes or proprietary knowledge in certain instances under the Investment Canada Act (I-C-1) to maintain measures in relation to social services (I-C-9) as well to energy (oil and gas) as established in certain acts (I-C-16; I-C-17) at the federal level. At the level of provinces, carve-outs are made, for example, as regards the imposition of measures concerning alcoholic beverages (Alberta, I-PT-5; New Brunswick, I-PT-61); gambling and betting (Alberta, I-PT-12); forestry and logging products (British Colombia, I-PT-14; I-PT-24; I-PT25; I-PT-26); fisheries (Manitoba, I-PT-42); forestry (Manitoba, I-PT-53; New Brunswick, I-PT-59); mining (New Brunswick, I-PT-60); energy (crude petroleum and natural gas) (New Foundland and Labrador, I-PT-62) or trade in services (Yukon I-PT-192). The EU reserved rights as regards future measures in the area of fishing and aquaculture; recreational, cultural and sporting services; gambling and betting services (with the exception of Malta); educational services, health services, social services; air-transport (transport, space transport); and energy. 59 Generally, the prohibitions contained in Article 8.5 relate to Canada’s territory, its exclusive economic zone and the continental shelf; as regards the European Union, they generally relate to the territories of its member states (see Article 1.3 of the CETA). 60 In Annex II, different EU member states reserved rights as regards measures in the sectors of health services (Belgium, Bulgaria, Cyprus, Finland, Germany, Malta, Slovak Republic, Slovenia,
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In accordance with Article 13.10 of the CETA, a reservation inter alia to Article 46 8.5 constitutes a reservation to the according provisions in the Chapter on financial services. Further carve-outs from Article 8.5 are possible in accordance with Article 28 47 para. 3 of the CETA which provides for GATT like exceptions inter alia in relation to Section B of Chapter 8.61
G. Transparency and other requirements General obligations of the CETA-Parties, most importantly those on transparency 48 (publication, provision of information) enshrined in Chapter 27 of the CETA, generally also apply to the prohibition of performance requirements: ‘Chapter 27: Transparency Article 27.1 Publication 1. Each Party shall ensure that its laws, regulations, procedures and administrative rulings of general application respecting any matter covered by this Agreement are promptly published or made available in such a manner as to enable interested persons and the other Party to become acquainted with them. 2.To the extent possible, each Party shall: (a) publish in advance any such measure that it proposes to adopt; and (b) provide interested persons and the other Party a reasonable opportunity to comment on such proposed measures. Article 27.2 Provision of information 1. At the request of the other Party, a Party shall, to the extent possible, promptly provide information and respond to questions pertaining to any existing or proposed measure that materially affects the operation of this Agreement. […]’
H. Dispute Settlement The enforcement of the prohibition of performance requirements in Article 8.5 is 49 not subject to ISDS as provided for in Chapter 8 of the CETA but rather to state-tostate dispute settlement. According to Article 8.18 of the CETA, Section B – including UK); education services (Cyprus, Finland, Malta); fisheries (Denmark); social services (Cyprus, Czech Republic, Poland, Portugal, Romania, Ireland, Finland, Germany, Greece, Ireland, Italy, Malta, Slovak Republic, Slovenia, Spain, UK); energy (Cyprus, Finland, France); security consultation and guard services (Croatia); transport services (Croatia); recreational, cultural, sporting services (Germany); electricity (nuclear fuel) (Hungary, Sweden); business services/auditing services (UK); all sectors as regards enterprises of strategic importance to national security (Lithuania). 61 Article 28.3 of the CETA: ‘General exceptions 1. For the purposes of […] Sections B (Establishment of investment) and C (Non-discriminatory treatment) of Chapter Eight (Investment), Article XX of the GATT 1994 is incorporated into and made part of this Agreement. The Parties understand that the measures referred to in Article XX (b) of the GATT 1994 include environmental measures necessary to protect human, animal or plant life or health. The Parties understand that Article XX(g) of the GATT 1994 applies to measures for the conservation of living and non- living exhaustible natural resources. 2. For the purposes of […] Sections B (Establishment of investments) and C (Non-discriminatory treatment) of Chapter Eight (Investment), subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between the Parties where like conditions prevail, or a disguised restriction on trade in services, nothing in this Agreement shall be construed to prevent the adoption or enforcement by a Party of measures necessary: (a) to protect public security or public morals or to maintain public order (1); (b) to protect human, animal or plant life or health (2); or (c) to secure compliance with laws or regulations which are not inconsistent with the provisions of this Agreement including those relating to: (i) the prevention of deceptive and fraudulent practices or to deal with the effects of a default on contracts; (ii) the protection of the privacy of individuals in relation to the processing and dissemination of personal data and the protection of confidentiality of individual records and accounts; or (iii) safety.’ See also the exception in Article 28.6 of the CETA as regards national security as well as the exception in Article 28.9 of the CETA applicable to culture.
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Article 8.5 – falls outside the jurisdiction of the tribunal established under Chapter 8. 62 Accordingly, in case of disputes, the rules of state-to-state disputes of Chapter 29 of the CETA (dispute settlement) apply.63 50 Therefore, the CETA is less extensive than e.g. the NAFTA as regards the enforcement of prohibition of performance requirements: whereas under the NAFTA recourse to ISDS is possible alongside state-to-state enforcement, under the CETA only state to state enforcement is permissible.64 Interestingly, this was also the approach chosen in the recent USMCA (United States-Mexico-Canada Agreement) where disputes on prohibition of performance requirements cannot be made subject to ISDS neither.65 51 In any way, in light of existing practice concerning the incorporation of prohibition of performance requirements in other trade and/or investment agreements, only a limited number of disputes which relate to Article 8.5 should be expected to be forthcoming. Generally, only very few disputes concerning the prohibition of performance requirements are brought forward.66
I. Conclusion 52
The prohibition of performance requirements contained in Article 8.5 is extensive. Mandatory performance requirements are prohibited in relation to both, goods and services. Also, and although to a lesser extent, advantage conditioning requirements/ non-mandatory performance requirements are prohibited. Pre- and post-establishment obligations are contained. Article 8.5 of the CETA thus has the features of a socalled ‘TRIMS+’-Clause Pre- and Post-establishment.67 The far reaching prohibition of Art. 8.5 reduces the scope of the Parties’ possible use of regulatory powers and limits the possible obligations which may be imposed on foreign investors. It was observed accordingly that: A[n] […] issue for understanding the results of the CETA negotiations comes from the market access provisions in Chapter 8; [...] CETA does this by expanding the scope of investors‘ unfettered 62 Article 8.18 of the CETA, when determining the scope of jurisdiction of the ISDS tribunal established under Chapter 8, does not mention Section B; that is why market access (Article 8.4) and performance requirements (Article 8.5) are outside the tribunal’s jurisdiction. (Article 8.18 para. 5: ‘The Tribunal constituted under this Section shall not decide claims that fall outside of the scope of this Article.’). 63 See respectively Article 29 para. 2 of the CETA: ‘Except as otherwise provided in this Agreement, this Chapter applies to any dispute concerning the interpretation or application of the provisions of this Agreement.’ 64 See for further reference e.g. van Harten, ‘The European Union’s Emerging Approach to ISDS: a Review of the Canada-Europe CETA, Europe-Singapore FTA, and European-Vietnam FTA’ (2016) 1(1) Univ. Bologna L. R., 138 (159 f.). 65 See Yuerong et al., Memorandum: Prohibitions on Performance Requirements in Investment Treaties (2018), 61. 66 As noted by Yuerong et al., Memorandum: Prohibitions on Performance Requirements in Investment Treaties (2018), 7: ‘Out of a universe of around 800 investor-state disputes and more than 500 disputes at the WTO, only a few dozen relate, directly or indirectly, to PPRs.’ 67 For further reference on the different types of prohibition of performance requirements see Nikièma, ‘Performance Requirements in Investment Treaties’, IISD Best Practices Series, December 2014, 7 f. As regards Article 8.5 of the CETA particularly see Bernasconi-Osterwalder and Mann, ‘CETA and Investment: What Is It About and What Lies Beyond?’ in Mbengue and Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (2019), 339 (354): ‘[...] Article 8.5 imposes an extensive series of prohibitions on governments to impose performance requirements on foreign investors. While some of these are already contained in the WTO Agreement on Trade related Investment Measures (TRIMS), they are reiterated and broadened here [...]’.
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market access rights, and denying host states the use of development tools and policies that could help ensure a more equitable distribution of economic rents and of investments. Briefly, what is set out in these provisions is a vast swath of prohibitions on the governments’ ability to regulate investors’ access to different sectors of the economy, combined with limits on the ability of governments to maximize the contribution of an investment to economic development in the home state.68
This stands for a more general controversy concerning the prohibition of performance requirements: some consider such prohibition as an undue broadening of investors’ rights to the detriment of (especially developing) states’ interest in using performance requirements to promote local industries and achieve an according export balance. Article 8.5, the (prohibition of) performance requirements, would thus overly restrict the Parties’ regulatory space and unilaterally support investors’ rights to maximize profits.69 At the same time, the incorporation of prohibition performance requirements in Article 8.5 of the CETA can also be viewed in a more benevolent light. First, the prohibition of performance requirements is generally less problematic when an agreement is concluded between parties with equal industries as Canada and the EU.70 Moreover, the CETA text itself incorporates a number of safeguards. These include carve-outs where certain sectors are explicitly exempted from the prohibition of performance requirements such as governmental procurement; air-services; cultural industries (Canada) and audio-visual industries (EU). Therefore, sensitive and priority sectors are exempted from the prohibition and the Parties are consequently able to establish performance requirements. Also, reservations are possible: the lists provided in Annexes I and II allow the CETA-Parties to exempt existing and future non-conforming measures. This increases the Parties’ regulatory space in a tailor-made way. 71 Finally, Article 8.5 is only subject to state-to-state dispute settlement and not to ISDS. Investors thus cannot claim a violation of Article 8.5 before the investment tribunal. Also this should attenuate the effects of the – substantively – far reaching performance requirements in Article 8.5.
68 Bernasconi-Osterwalder and Mann ‘CETA and Investment: What Is It About and What Lies Beyond?’ in Mbengue and Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (2019), 339 (353). 69 Further doubts on the prohibition of performance requirements are nurtured by partly contradicting approaches of arbitral tribunals to the prohibition of performance requirements which are detrimental to legal certainty. See e.g., Genest, ‘Performance Requirement Prohibitions, Lemire v. Ukraine and Mobil v. Canada: Stuck between a Rock and a Hard Place’ (2013) 47 Revue Juridique Themis, 433 for details. 70 See respectively Bernasconi-Osterwalder and Mann, ‘CETA and Investment: What Is It About and What Lies Beyond?’ in Mbengue and Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (2019), 339 (354). 71 See the recommendations along these lines in Nikièma, ‘Performance Requirements in Investment Treaties’, IISD Best Practices Series, December 2014, 16.
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Article 8.6 National treatment 1. Each Party shall accord to an investor of the other Party and to a covered investment, treatment no less favourable than the treatment it accords, in like situations to its own investors and to their investments with respect to the establishment, acquisition, expansion, conduct, operation, management, maintenance, use, enjoyment and sale or disposal of their investments in its territory. 2. The treatment accorded by a Party under paragraph 1 means, with respect to a government in Canada other than at the federal level, treatment no less favourable than the most favourable treatment accorded, in like situations, by that government to investors of Canada in its territory and to investments of such investors. 3. The treatment accorded by a Party under paragraph 1 means, with respect to a government of or in a Member State of the European Union, treatment no less favourable than the most favourable treatment accorded, in like situations, by that government to investors of the EU in its territory and to investments of such investors. Reference to the Respective Provisions in Other EU Treaties: Article 2.3 EU-Vietnam IPA, Article 2.3 EU-Singapore IPA, Article 8.5 EU-Vietnam FTA, Article 8.8 EUJapan EPA. Bibliography: Freya Baetens, ‘Discrimination on the Basis of Nationality: Determining Likeness in Human Rights and Investment Law’ in Stephan Schill (ed), International Investment Law and Comparative Public Law (Oxford University Press, Oxford 2010), 279; Andrea Bjorklund, ‘National Treatment’ in August Reinisch (ed), Standards of Investment Protection (Oxford University Press, Oxford 2008), 29; Andrea Bjorklund, ‘The National Treatment Obligation’ in Katia Yannaca-Small (ed), Arbitration under International Investment Agreements (2nd edn, Oxford University Press, Oxford 2018), 532; Andrea Bjorklund and Lukas Vanhonnaeker, ‘National Treatment’ in Makane Moïse Mbengue and Stefanie Schacherer (eds), Foreign Investment under the Comprehensive Economic and Trade Agreement (CETA) (Springer Nature Switzerland, Cham 2019), 45; Jonathan Bonnitcha, Lauge Skovgaard Poulsen and Michael Waibel, The Political Economy of the Investment Treaty Regime (Oxford University Press, Oxford 2017), 93; Louis-Marie Chauvel, ‘The Influence of General Exceptions on the Interpretation of National Treatment in International Investment Law’ (2017) 14 Brazilian J. Int’l L., 140; Leïla Choukroune, ‘National Treatment in International Investment Law and Arbitration: A relative Standard for Autonomous Public Regulation and Sovereign Development’ in Anselm Kamperman Sanders (ed), The Principle of National Treatment in International Economic Law: Trade, Investment and Intellectual Property (Edward Elgar Publishing, Cheltenham 2014), 183; Nicholas DiMascio and Joost Pauwelyn, ‘Nondiscrimination in Trade and Investment Treaties: Worlds Apart or Two Sides of the Same Coin?’ (2008) 102 AJIL, 48; Rudolf Dolzer and Christoph Schreuer, Principles of International Investment Law (2nd edn, Oxford University Press, Oxford 2012), 198; Meg Kinnear, Andrea Bjorklund and John Hannaford, Investment Disputes under NAFTA: An Annotated Guide to NAFTA Chapter 11 (Kluwer Law International, Alphen aan den Rijn 2006-2009), 1102/1; Jürgen Kurtz, ‘National Treatment, Foreign Investment and Regulatory Autonomy: The Research for Protectionism or Something More?’ in Philippe Kahn and Thomas Wälde (eds), New Aspects of International Investment Law (Martinus Nijhoff Publishers, Leiden 2007), 311; Jürgen Kurtz, ‘The Use and Abuse of WTO Law in Investor-State Arbitration: Competition and Discontents’ (2009) 20 EJIL, 749; Jürgen Kurtz, ‘The Merits and Limits of Comparativism: National Treatment in International Investment Law and the WTO’ in Stephan Schill (ed), International Investment Law and Comparative Public Law (Oxford University Press, Oxford 2010), 243; Céline Lévesque, ‘The Challenges of ‘Marrying’ Investment Liberalisation and Protection in the Canada-EU CETA’ in August Reinisch, Marc Bungenberg and Christian Tietje (eds), EU and Investment Agreements (Nomos Verlagsgesellschaft, Baden-Baden 2013), 121; Céline Lévesque, ‘The inclusion of GATT Article XX exceptions in IIAs: a potentially risky policy’ in Roberto Echandi and Pierre Sauvé (eds), Prospects in International Investment Law and Policy (Cambridge University Press, Cambridge 2013), 363; Céline Lévesque and Andrew Newcombe, ‘Canada’ in Chester Brown (ed), Commentaries on Selected Model Investment Treaties (Oxford University Press, Oxford 2013), 53; Campbell
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McLachlan, Laurence Shore and Matthew Weiniger, International Investment Arbitration: Substantive Principles (2nd edn, Oxford University Press, Oxford 2017), 336-343; Andrew Mitchell, David Heaton and Caroline Henckels, Non-Discrimination and the Role of Regulatory Purpose in International Trade and Investment Law (Edward Elgar Publishing, Cheltenham 2016); Andrew Newcombe and Lluís Paradell, The Law and Practice of Investment Treaties: Standards of Treatment (Kluwer Law International, Alphen aan den Rijn 2009), 147; Federico Ortino, ‘Non-Discriminatory Treatment in Investment Disputes’ in Pierre-Marie Dupuy, Ernst-Ulrich Petersmann, and Francesco Francioni (eds), Human Rights in International Investment Law and Arbitration (Oxford University Press, Oxford 2009), 344; Jean Raby, ‘The Investment Provisions of the Canada—United States Free Trade Agreement: A Canadian Perspective’ (1990) 84 AJIL, 394; August Reinisch, ‘National Treatment’ in Marc Bungenberg, Jörn Griebel, Stephan Hobe and August Reinisch (eds), International Investment Law: A Handbook (C.H.Beck-Hart Publishing-Nomos, Baden-Baden 2015), 846; August Reinisch and Christoph Schreuer, International Protection of Investments. The Substantive Standards (Cambridge University Press, Cambridge 2020), 587; Borzu Sabahi, ‘National Treatment – Is Discriminatory Intent Relevant’ in Todd Weiler (ed), Investment Treaty Arbitration and International Law, Volume 1 (JurisNet LLC, New York 2008), 269; Matteo Sarzo, ‘The National Treatment Obligation’ in Andrea Gattini, Attila Tanzi and Filippo Fontanelli (eds), General Principles of Law and International Investment Arbitration (Brill/Nijhoff, Leiden/Boston 2018), 378; Georg Schwarzenberger, ‘The Principles and Standards of International Economic Law’ (1966) 117 RC, 1; Wenhua Shan, ‘Is Calvo Dead?’ (2007) 55 Am. J. Comp. L., 123; Donald Shea, The Calvo Clause: A Problem of Inter-American and Internaional Law and Diplomacy (University of Minnesota Press, Minneapolis, 1955); Sylvie Tabet, ‘Beyond the Smoking Gun – Is a Discriminatory Objective Necessary to Find a Breach of National Treatment?’ in Todd Weiler (ed), Investment Treaty Arbitration and International Law, Volume 1 (JurisNet LLC, New York 2008), 299; Michael Trebilcock, Advanced Introduction to International Trade Law (1st edn, Edward Elgar Publishing, Cheltenham 2015); Antonios Tzanakopoulos, ‘National Treatment and MFN in the (Invisible) EU Model BIT’ (2014) 15 JWIT 484; UNCTAD, National Treatment, UNCTAD Series on Issues in International Investment Agreements, Volume IV, UNCTAD/ITE/IIT/11 (1999); Pieter Verloren Van Themaat, The Changing Structure of International Economic Law (Martinus Nijhoff, The Hague 1981); Peter Van den Bossche and Werner Zdouc, The Law and Policy of the World Trade Organization (4th edn, Cambridge University Press, Cambridge 2017); Todd Weiler and Ian Laird, ‘Standards of Treatment’ in Peter Muchlinski, Federico Ortino and Christoph Schreuer (eds), The Oxford Handbook of International Investment Law (Oxford University Press, Oxford 2008), 259; Todd Weiler, ‘Treatment No Less Favorable Provisions within the Context of International Investment Law: Kindly Please Check Your International Trade Law Conceptions at the Door’ (2013) 12 SCJIL, 77. A. Introduction and Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
B. Object and Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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C. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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D. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. Scope of the National Treatment Obligation in Article 8.6(1) . . . . . . . . . . . . . 1. ‘Each Party shall accord to an investor of the other Party and to a covered investment …’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. ‘… treatment […] it accords in like situations to its own investors and to their investments ...’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. ‘… treatment no less favourable than the treatment it accords ...’ . . . . . . 4. ‘… with respect to the establishment, acquisition, expansion, conduct, operation, management, maintenance, use, enjoyment and sale or disposal of their investments in its territory’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. National Treatment by Sub-federal Canadian Governments and EU Member States and Their Sub-federal Governments in Article 8.6(2)-(3) III. Reservations and Exceptions to National Treatment . . . . . . . . . . . . . . . . . . . . . . .
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E. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
28 30 40 45 48 55 63
A. Introduction and Overview Chapter Eight of the CETA includes Section C titled ‘Non-discriminatory treat- 1 ment’ and in Article 8.6 provides for national treatment of foreign investors, according to which each Contracting Party ‘shall accord to an investor of the other Party and to a Johannes Tropper
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covered investment, treatment no less favourable than the treatment it accords, in like situations to its own investors and to their investments’. 2 National treatment is considered the central pillar of non-discrimination as it prohibits discrimination of foreign investors on the basis of nationality.1 Compared to other investment protection standards, such as fair and equitable treatment, national treatment is considered a relative or contingent standard, i.e. it is coupled to the treatment provided to domestic investors.2 Accordingly, the assessment whether a national treatment obligation has been met, requires identifying a domestic comparator (‘like circumstances’/ ‘like situations’-analysis) and identifying whether the foreign investor has been treated less favourably than the domestic comparator. Finally, one has to determine whether any discrimination of the foreign investor is justified by some legitimate purpose (→ mn. 24 f.). 3 National treatment clauses are a fairly common feature of international investment agreements (IIAs), although not as common as clauses guaranteeing most-favourednation (MFN) treatment.3 While national treatment provides for non-discrimination between domestic and foreign investors and their investments in the host state, MFNtreatment generally guarantees non-discrimination between foreign investors or foreign investments in the host state (→ Art. 8.7 mn. 4). 4 The historical antecedents of national treatment provisions in IIAs can be traced back to agreements concluded between Italian city-states in the eleventh century and agreements of German city-states in the Hanseatic League in the twelfth and thirteenth century.4 These agreements granted concessions to merchants of other cities based on the principle non-discrimination between local and foreign merchants.5 Since the 19th century national treatment clauses had been typically incorporated in trade and commerce treaties (Friendship, Commerce and Navigation Treaties), 6 and in 1 Bjorklund, ‘National Treatment’ in Reinisch (ed), Standards of Investment Protection (2008), 29 (29); see also United Nations Conference on Trade and Development (UNCTAD), National Treatment, UNCTAD/ITE/IIT/11 (Vol. IV) (1999), 1: ‘The national treatment standard is perhaps the single most important standard of treatment enshrined in international investment agreements (IIAs).’ 2 Vento Motorcycles, Inc. v. Mexico, ICSID Case No. ARB(AF)/17/3, Award (6 July 2020), para. 240; see also Newcombe and Paradell, The Law and Practice of Investment Treaties: Standards of Treatment (2009), 148-149; Weiler and Laird, ‘Standards of Treatment’ in Muchlinski et al. (eds), The Oxford Handbook of International Investment Law (2008), 259 (262). 3 Approximately 60 per cent of IIAs include national treatment obligations, whereas 95 per cent include MFN-treatment obligations, see Bonnitcha et al., The Political Economy of the Investment Treaty Regime (2017), 93; see also DiMascio and Joost Pauwelyn, ‘Nondiscrimination in Trade and Investment Treaties: Worlds Apart or Two Sides of the Same Coin?’ (2008) 102 AJIL, 48 (67): ‘Although national treatment provisions were included in even the earliest BITs, what mattered in the first decades (1960s to 1980s) were rules on expropriation and other minimum standards. National treatment in the investment context gained prominence only in the late 1990 s.’ 4 Schwarzenberger, ‘The Principles and Standards of International Economic Law’ (1966) 117 RdC, 1 (21); van Themaat, The Changing Structure of International Economic Law (1981), 19; Trebilcock, Advanced Introduction to International Trade Law (2015), 53. 5 UNCTAD, National Treatment, UNCTAD/ITE/IIT/11 (Vol. IV) (1999), 7; Bjorklund, ‘The National Treatment Obligation’ in Yannaca-Small (ed), Arbitration under International Investment Agreements (2018), 532 (533). 6 See e.g. Article 3 Brazil-United States Treaty of Amity, Commerce, and Navigation (1828): ‘The two high contracting parties […] mutually agree that the citizens and subjects of each […] shall enjoy all the rights, privileges, and exemptions in navigation and commerce, which native citizens or subjects do or shall enjoy, […]’; Article 1 and Article 2 Treaty of Commerce and Navigation between Austria-Hungary and the United States (1829); Article 1, Treaty of Commerce and Navigation between the United Kingdom of Great Britain and Ireland and Russia, and Separate Articles (1859); Article 2, Treaty of Friendship, Commerce and Navigation between the United Kingdom of Great Britain and Ireland and Colombia (1866).
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the 20th century national treatment in such treaties was often not limited to questions of trade.7 The most prominent national treatment obligation can still be found in classic 5 trade law, namely Article III of the General Agreement on Tariffs and Trade (GATT), which essentially prohibits discrimination against foreign goods as compared to domestic goods.8 This particular provision and its interpretations in the reports of GATT/WTO panels and the Appellate Body have also been discussed and occasionally relied upon by investment tribunals.9 The national treatment obligation enshrined in Article 8.6 of the CETA resembles 6 provisions of IIAs concluded by Canada rather than European approaches to national treatment since the obligation does not only cover already established investments (post-establishment phase), but also the establishment, acquisition and expansion of investments. Accordingly, the temporal scope of application of Article 8.6 extends to the pre-investment, pre-establishment or pre-entry phase (→ mn. 45 f.). Despite its novelty from a European perspective, various exceptions and reservations to national treatment have been incorporated in other provisions of the CETA (→ mn. 47, 55 ff.), thus limiting the potential scope of application.
B. Object and Purpose The overall purpose of the national treatment obligation is to guarantee non-dis- 7 crimination to foreign investors10 in order to ensure ‘a level playing field between foreign and local investors’.11 The provision is ‘aimed at assuring that foreign investors receive equal treatment with nationals of the host country.’12 Thus, it follows an ‘anti-protectionist purpose’.13 7 See e.g. Article V(1) (national treatment for access to courts), Article VII(1) (national treatment for commercial and philanthropic activities), Article IX(2) (national treatment for acquisition of property), Article X (national treatment for obtaining and maintaining patents and trademarks), United States-Denmark Treaty of Friendship, Commerce and Navigation (1951) 421 UNTS, 105; Article V(1), Article VII(5), Article VIII(2), Article IX, Article X(1), United States-Pakistan Treaty of Friendship, Commerce and Navigation (1961) 404 UNTS, 259. 8 Article III General Agreement on Tariffs and Trade (GATT) (1947) 55 UNTS, 194; General Agreement on Tariffs and Trade (1994), Marrakesh Agreement Establishing the World Trade Organization, Annex 1A, 1867 UNTS, 187. 9 For an overview of the case law addressing this matter see Reinisch and Schreuer, International Protection of Investments: The Substantive Standards (2020), 609-615; see also Kurtz, ‘The Merits and Limits of Comparativism: National Treatment in International Investment Law and the WTO’ in Schill (ed), International Investment Law and Comparative Public Law (2010), 243. 10 Corn Products International Inc. v. Mexico, ICSID Case No. ARB(AF)/04/1, Decision on Responsibility (15 January 2008), para. 109; Archer Daniels Midland Company and Tate & Lyle Ingredients Americas, Inc. v. Mexico, ICSID Case No. ARB(AF)/04/5, Award (21 November 2007), para. 193; Occidental Exploration and Production Company v. Ecuador, LCIA Case No. UN3467, Final Award (1 July 2004), para. 173. 11 Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v. Pakistan, ICSID Case No. ARB/03/29, Award (27 August 2009), para. 387; see also Dolzer and Schreuer, Principles of International Investment Law (2012), 198. 12 Mohammad Ammar Al-Bahloul v. Tajikistan, SCC Case No. V064/2008, Partial Award on Jurisdiction and Liability (2 September 2009), para. 271; see also Gavrilovic and Gavrilovic d.o.o. v. Croatia, ICSID Case No. ARB/12/39, Award (26 July 2018), para. 1190; see also Choukroune, ‘National Treatment in International Investment Law and Arbitration: A relative Standard for Autonomous Public Regulation and Sovereign Development’ in Sanders (ed), The Principle of National Treatment in International Economic Law: Trade, Investment and Intellectual Property (2014), 183 (184). 13 Reinisch and Schreuer, International Protection of Investments: The Substantive Standards (2020), 607.
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In particular, the obligation to accord national treatment should prevent nationality-based discrimination,14 although tribunals do not generally require proof of intent to discriminate on the basis of nationality (or discriminatory intent in general) in order to find a violation of national treatment.15 A measure that is on its face neutral, but in fact discriminatory vis-à-vis foreign investors may breach national treatment even in the absence of proven intent to discriminate on the basis of the investor’s foreign nationality.16 9 From a state’s perspective, national treatment may serve ‘to eliminate distortions in competition and thus is seen to enhance the efficient operation of the economies involved.’17 In this regard states may be inclined to submit to national treatment obligations in order to escape domestic political pressure to favour domestic investors and rather ensure access to the best products or services irrespective of the investors’ nationality. 10 The levelling of the playing field or assurance of equal treatment does not try to limit the rights of foreign investors, but rather aims at ‘expanding the rights of foreigners’.18 As the wording of national treatment clauses indicates, these provisions intend to secure treatment at least as favourable as the treatment accorded to national investors and do not regard national treatment as the maximum that can be granted to foreign investors.19 In contrast, the Argentine diplomat and jurist Carlos Calvo argued in the late 19th century that national treatment was the most that foreign investors and their properties could expect.20 In this sense, national treatment would constitute the ‘ceiling’ of investment protection. However, this is not the modern understanding 8
14 Marvin Roy Feldman Karpa v. Mexico, ICSID Case No. ARB(AF)/99/1, Award (16 December 2002), para. 181: ‘It is clear that the concept of national treatment as embodied in NAFTA and similar agreements is designed to prevent discrimination on the basis of nationality, […]’; Champion Trading Company and Ameritrade International, Inc. v. Egypt, ICSID Case No. ARB/02/9, Award (27 October 2006), para. 125, national treatment ‘prohibits discrimination based on nationality’; see also Casinos Austria International GmbH and Casinos Austria Aktiengesellschaft v. Argentina, ICSID Case No. ARB/14/32, Decision on Jurisdiction (29 June 2018), para. 249. 15 See e.g. Cargill, Incorporated v. Poland II, UNCITRAL, Final Award (5 March 2008), para. 345; Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v. Pakistan, ICSID Case No. ARB/03/29, Award (27 August 2009), para. 390; see also Sabahi, ‘National Treatment – Is Discriminatory Intent Relevant’ in Weiler (ed), Investment Treaty Arbitration and International Law, Volume 1 (2008), 269 (295-297); Tabet, ‘Beyond the Smoking Gun – Is a Discriminatory Objective Necessary to Find a Breach of National Treatment?’ in Weiler (ed), Investment Treaty Arbitration and International Law, Volume 1 (2008), 299; Bjorklund, ‘The National Treatment Obligation’ in Yannaca-Small (ed), Arbitration under International Investment Agreements (2018), 532 (548-552). 16 S.D. Myers, Inc. v. Canada, UNCITRAL, Partial Award (13 November 2000), para. 254; Pope & Talbot Inc. v. Canada, UNCITRAL, Award on the Merits of Phase 2 (10 April 2001), para. 79; Marvin Roy Feldman Karpa v. Mexico, ICSID Case No. ARB(AF)/99/1, Award (16 December 2002), para. 181; International Thunderbird Gaming Corporation v. Mexico, UNCITRAL, Arbitral Award, (26 January 2006), para. 177; Occidental Exploration and Production Company v. Ecuador, LCIA Case No. UN3467, Final Award (1 July 2004), para. 177; Gavrilovic and Gavrilovic d.o.o. v. Croatia, ICSID Case No. ARB/12/39, Award (26 July 2018), para. 1206. 17 UNCTAD, National Treatment, UNCTAD/ITE/IIT/11 (Vol. IV) (1999), 3. 18 Reinisch, ‘National Treatment’ in Bungenberg et al. (eds), International Investment Law: A Handbook (2015), 846 (848). 19 Shan, ‘Is Calvo Dead?’ (2007) 55 Am. J. Comp. L., 123 (125-126); cf. Dolzer and Schreuer, Principles of International Investment Law (2012), 198. 20 Shea, The Calvo Clause: A Problem of Inter-American and Internaional Law and Diplomacy (1955), 17-21.
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of national treatment, as already found in FCN treaties, contemporary IIAs and the CETA.21
C. Drafting History Of the seven available draft versions of the CETA, four deal with investment protection standards including national treatment. All four drafts contain a national treatment obligation, but the drafting history reveals that its scope of application was subject to some discussion. The draft texts in particular indicate that the question whether national treatment should also apply to the pre-investment or pre-establishment phase required some attention by the negotiators, although the issue was relatively promptly settled. The IIAs concluded by Canada typically guarantee national treatment to investors in the pre-establishment phase covering the ‘establishment, acquisition [and] expansion’ of investments.22 In contrast, the EU member states thus far had largely avoided such pre-establishment clauses in their IIAs and only provided national treatment in the post-establishment phase, typically expressed by reference to ‘conduct, operation, management, maintenance, use, enjoyment’.23 While not explicitly referring to any standards of investment protection, the Joint Report on the EU-Canada Scoping Exercise of 2009 had already stated that ‘the negotiations on investment should cover pre- and post-establishment in all sectors in order to improve market access and provide for the non-discriminatory treatment of investors and investments, […]’.24 In addition, the 2011 Negotiating Directives from the Council of the EU to the EU Commission seem to have provided a broad authorization to the negotiating team as they stated that the negotiations should aim to include ‘unqualified national treatment’.25 The earliest available draft of the CETA text dating back to 13 January 2010 is a consolidated Canadian draft version of CETA, which includes a national treat-
21 Cf. Schwarzenberger, ‘The Principles and Standards of International Economic Law’ (1966) 117 RC, 1 (78); DiMascio and Pauwelyn, ‘Nondiscrimination in Trade and Investment Treaties: Worlds Apart or Two Sides of the Same Coin?’ (2008) 102 AJIL, 48 (67). 22 See e.g. Article 1102 North American Free Trade Agreement (NAFTA) (1992); Article 3 CanadaPeru BIT (2006); Article 4 Canada-Kuwait BIT (2011); Article 8.3 Canada-Republic of Korea FTA (2014); see further Lévesque and Newcombe, ‘Canada’ in Brown (ed), Commentaries on Selected Model Investment Treaties (2013), 53 (75-76). 23 See e.g. Article 3 Denmark Model BIT 2000; Article 3 Serbia-United Kingdom BIT (2002); Article 3 Sweden Model BIT 2002; Article 3 Italy Model BIT 2003; Article 5 France Model BIT 2006; Article 4 France-Kenya BIT (2007); Article 3 Germany-Oman BIT (2007); Article 4 Greece-India BIT (2007); Article 4 Senegal-Spain BIT (2007); Article 3 Germany Model BIT 2008; Article 3 United Kingdom Model BIT 2008. 24 Joint Report on the EU-Canada Scoping Exercise, 5 March 2009, p. 6. 25 Council of the European Union, Recommendation from the Commission to the Council on the modification of the negotiating directives for an Economic Integration Agreement with Canada in order to authorise the Commission to negotiate, on behalf of the Union, on investment, 14 July 2011, 12838/11, para. 26c(b).
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ment obligation26 virtually identical to the Canadian Model BIT 200427 and Article 1102(1)-(3) NAFTA.28 This version already incorporates the national treatment obligation for the pre-establishment phase and substantially corresponds to the text of the final version of this provision. 15 While the EU had not yet approved the extension of the temporal scope of national treatment in the subsequent draft versions of January 201129 and February 2012,30 it largely approved the extension to the pre-establishment phase in the draft version dating back to 21 November 2013.31 In general, the EU was earlier willing to extend 26 Article X.3 leaked version of the CETA draft text of 13 January 2010, ‘Draft Consolidated Text: Canada-EU Comprehensive Economic and Trade Agreement’, accessed via https://wiki.laquadrature.ne t/images/3/33/CETA_draft_jan_2010.pdf (last accessed 28 February 2021): ‘1. Each Party shall accord to investors of the other Party treatment no less favourable than that it accords, in like circumstances, to its own investors with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments in its territory. 2. Each Party shall accord to covered investments treatment no less favourable than that it accords, in like circumstances, to investments of its own investors with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments in its territory. 3. The treatment accorded by a Party under paragraphs 1 and 2 means, with respect to a sub-national government, treatment no less favourable than the most favourable treatment accorded, in like circumstances, by that sub-national government to investors, and to investments of investors, of the Party of which it forms a part.’ 27 Article 3 Canada Model BIT 2004: ‘1. Each Party shall accord to investors of the other Party treatment no less favourable than that it accords, in like circumstances, to its own investors with respect to the establishment, acquisition, expansion, management, conduct, operation and sale or other disposition of investments in its territory. 2. Each Party shall accord to covered investments treatment no less favourable than that it accords, in like circumstances, to investments of its own investors with respect to the establishment, acquisition, expansion, management, conduct, operation and sale or other disposition of investments in its territory. 3. The treatment accorded by a Party under paragraphs 1 and 2 means, with respect to a sub-national government, treatment no less favourable than the treatment accorded, in like circumstances, by that sub-national government to investors, and to investments of investors, of the Party of which it forms a part.’ 28 Article 1102(1)-(3) North American Free Trade Agreement (NAFTA) (1992): ‘1. Each Party shall accord to investors of another Party treatment no less favorable than that it accords, in like circumstances, to its own investors with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments. 2. Each Party shall accord to investments of investors of another Party treatment no less favorable than that it accords, in like circumstances, to investments of its own investors with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments. 3. The treatment accorded by a Party under paragraphs 1 and 2 means, with respect to a state or province, treatment no less favorable than the most favorable treatment accorded, in like circumstances, by that state or province to investors, and to investments of investors, of the Party of which it forms a part.’ 29 Article X.4(1) leaked version of the CETA draft text of January 2011, ‘Canada-EU CETA Draft Consolidated Text – Post Round VI’, accessed via https://wiki.laquadrature.net/images/6/69/CET A_draft_jan_2011.pdf (last accessed 28 February 2021): ‘Each Party shall accord to investors of the other Party and [CAN/EU: covered investments] treatment no less favourable than that it accords [, in like circumstances,] CAN to its own [like] EU investors [and investments] EU [with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments in its territory] CAN.’ 30 Article X.4 leaked version of the CETA draft text of February 2012, ‘Canada-EU CETA Draft Consolidated Text’, accessed via https://wiki.laquadrature.net/images/c/cc/CETA-Draft_Consolidated_ text-February_2012.pdf (last accessed 28 February 2021). 31 Article X.7(1) leaked version of the CETA draft text of 21 November 2013, ‘Draft CETA Investment Text’, accessed via https://www.laquadrature.net/files/CETA-Draft-Investment-Text-Nov21-2 013-203b-13.pdf (last accessed 28 February 2021): ‘Each Party shall accord to investors of the other Party and to covered investments, treatment no less favourable than the treatment it accords, in like
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national treatment to the pre-establishment phase than to extend MFN-treatment to the pre-establishment phase.32 Following the November draft, the EU still needed to answer in the affirmative whether an ‘expansion’ of investments should be covered by national treatment as well. The final draft of August 2014 clarified this by including ‘expansion’ as proposed by Canada.33 In addition, negotiators from Canada and the EU needed to decide whether the 16 national treatment obligation should include a reference to comparators (investors/investments ‘in like circumstances’). The first consolidated draft version from January 201034 reflects the Canadian treaty practice of including references to comparators (‘in like circumstances’) in national treatment provisions.35 While BITs concluded by EU member states had often omitted such comparators,36 the second draft version of January 2011 indicates that the EU in principal agreed to the inclusion of comparators, but proposed an alternative wording of the provision using the terminology ‘like investors and investments’ and ‘like establishments and investors’ instead.37 In April 2011 the European Parliament also proposed the inclusion of comparators. 38 The exact
situations to its own investors and to their investments with respect to the establishment [EU: and], acquisition [EU: of an enterprise], [CAN: expansion], conduct, operation, management, maintenance, use, enjoyment and sale or disposal of their investments in its territory.’ 32 Article X.8 leaked version of the CETA draft text of 21 November 2013, ‘Draft CETA Investment Text’, accessed via https://www.laquadrature.net/files/CETA-Draft-Investment-Text-Nov21-2013-2 03b-13.pdf (last accessed 28 February 2021): ‘[s]ubject to agreement by EU on inclusion of an MFN obligation regarding ‘establishment, acquisition, expansion of an investment’. 33 Article X.6 leaked version of the consolidated CETA draft of 1 August 2014, ‘Consolidated CETA Text’, accessed via https://old.laquadrature.net/files/ceta-complet.pdf (last accessed 28 February 2021). 34 Article X.3 leaked version of the CETA draft text of 13 January 2010, ‘Draft Consolidated Text: Canada-EU Comprehensive Economic and Trade Agreement’, accessed via https://wiki.laquadrature.ne t/images/3/33/CETA_draft_jan_2010.pdf (last accessed 28 February 2021). 35 See e.g. Article 1102 North American Free Trade Agreement (NAFTA) (1992); Article 3 CanadaPeru BIT (2006); Article 4 Canada-Kuwait BIT (2011); Article 8.3 Canada-Republic of Korea FTA (2014); see further Lévesque and Newcombe, ‘Canada’ in Brown (ed), Commentaries on Selected Model Investment Treaties (2013), 53 (75-76). 36 See e.g. Article 3 Denmark Model BIT 2000; Article 3 Serbia-United Kingdom BIT (2002); Article 3 Sweden Model BIT 2002; Article 3 Italy Model BIT 2003; Article 5 France Model BIT 2006; Article 4 France-Kenya BIT (2007); Article 3 Germany-Oman BIT (2007); Article 4 Greece-India BIT (2007); Article 4 Senegal-Spain BIT (2007); Article 3 Germany Model BIT 2008; Article 3 United Kingdom Model BIT 2008. Although more recent BITs sometimes include such comparators, see e.g. Article 4 Mexico-United Kingdom BIT (2006); Article 4 Ethiopia-Spain BIT (2009). 37 Article X.4(1)-(2) leaked version of the CETA draft text of January 2011, ‘Canada-EU CETA Draft Consolidated Text – Post Round VI’, accessed via https://wiki.laquadrature.net/images/6/69/CETA_dra ft_jan_2011.pdf (last accessed 28 February 2021): ‘1. Each Party shall accord to investors of the other Party and [CAN/EU: covered investments] treatment no less favourable than that it accords [, in like circumstances,] CAN to its own [like] EU investors [and investments] EU [with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments in its territory] CAN [2. Each Party shall accord to covered investments treatment no less favourable than that it accords, in like circumstances, to investments of its own investors with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments in its territory.] CAN 2. The treatment accorded by a Party under paragraph[s] CAN I [and 2] CAN means, with respect to a [regional/provincial or local/municipal] EU [sub-national] CAN government, treatment no less favourable than the most favourable treatment accorded [, in like circumstances,] CAN by that [regional/provincial or local/municipal] EU [subnational] CAN government to [its own like establishments and] EU investors, [ and to investments of investors, of the Party of which it fonns a part] CAN [ or to those of other provinces or municipalities, whichever is the more favourable] EU.’ 38 European Parliament, European Parliament Resolution of 6 April 2011 on the future European international investment policy, 2010/2203(INI), para. 19: ‘non-discrimination (national treatment and most
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wording still had not been settled in the draft version from February 2012, 39 but in the version from 21 November 2013 the EU and Canada had agreed on an adapted wording of the Canadian approach using the phrase ‘in like situations’ instead of ‘in like circumstances’.40 17 In the second consolidated draft version from January 2011 the EU proposed three paragraphs typically not found in IIAs, which the EU intended to become an understanding on national treatment.41 Similar or identical provisions can be found, for instance, in the General Agreement on Trade in Services (GATS) 42 or free trade agreements, including the CACM-EU Association Agreement43 and the EU-Korea FTA.44 18 Paragraph 4 of these proposed additions to the national treatment obligation clarified that the national treatment obligation did not only cover de jure discrimination of foreign investors or establishments, but also de facto discrimination (‘formally identical […] treatment shall be considered to be less favourable if it modifies the conditions of competition in favour of […]’).45 Furthermore, it clarified that formally different treatment could still be in conformity with the national treatment obligation if the conditions of competition were not modified in favour of domestic investors or establishments.46 Finally, paragraph 5 addressed that the national treatment obligation did not establish a legal basis ‘to compensate for any inherent competitive disadvantages’ resulting from ‘the foreign character of the relevant investors’. The latter clarification favoured nation), with a more precise wording in the definition mentioning that foreign and national investors must operate “in like circumstances” […]’. 39 Article X.4 leaked version of the CETA draft text of February 2012, ‘Canada-EU CETA Draft Consolidated Text’, accessed via https://wiki.laquadrature.net/images/c/cc/CETA-Draft_Consolidated_ text-February_2012.pdf (last accessed 28 February 2021). 40 Article X.7(1) leaked version of the CETA draft text of 21 November 2013, ‘Draft CETA Investment Text’, accessed via https://www.laquadrature.net/files/CETA-Draft-Investment-Text-Nov21-2 013-203b-13.pdf (last accessed 28 February 2021): ‘Each Party shall accord to investors of the other Party and to covered investments, treatment no less favourable than the treatment it accords, in like situations to its own investors and to their investments with respect to the establishment [EU: and], acquisition [EU: of an enterprise], [CAN: expansion], conduct, operation, management, maintenance, use, enjoyment and sale or disposal of their investments in its territory’ [emphasis added]. 41 Article X.4 leaked version of the CETA draft text of January 2011, ‘Canada-EU CETA Draft Consolidated Text – Post Round VI’, accessed via https://wiki.laquadrature.net/images/6/69/CETA_dra ft_jan_2011.pdf (last accessed 28 February 2021): ‘3. A Party may meet the requirement of paragraph 1 and 2 by according to establishments and investors of the other Party, either formally identical treatment or formally different treatment to that it accords to its own like establishments and investors. 4. Formally identical or formally different treatment shall be considered to be less favourable if it modifies the conditions of competition in favour of establishments and investors of the Party compared to like establishments and investors of the other Party. 5. Specific commitments assumed under this Article shall not be construed to require any Party to compensate for any inherent competitive disadvantages which result from the foreign character of the relevant investors.] EU Comments: Articles 3 to 5 proposed by the EU to be included in the understanding on national treatment.’ 42 Article XVII General Agreement on Trade in Services (GATS) 33 ILM, 1167 (1994). 43 Article 165(2)-(4) Agreement Establishing an Association between Central America, on the One Hand, and the European Union and its Member States, on the Other (2012). 44 Article 7.12(2)-(4) Free Trade Agreement between the European Union and the Republic of Korea (2010). 45 Cf. Van den Bossche and Zdouc, The Law and Policy of the World Trade Organization (2017), 401, 409. 46 Cf. Van den Bossche and Zdouc, The Law and Policy of the World Trade Organization (2017), 409; see also European Communities — Regime for the Importation, Sale and Distribution of Bananas (III), WT/DS27/R/USA, 22 May 1997, Report of the Panel, para. 7.327; Argentina — Measures Relating to Trade in Goods and Services, WT/DS453/AB/R, 14 April 2016, Report of the Appellate Body, para. 6.103.
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relates to disadvantages such as ‘language barriers, cultural differences, or the physical distance between the service suppliers and the service consumers.’ 47 While Canada and the EU agreed on a shared understanding relating to the mean- 19 ing of direct and indirect expropriation attached to the CETA in Annex 8-A (→ Art. 8.12 mn. 38), no understanding on national treatment came to fruition. The draft text from January 2011 is the only available document, which contains these clarifying paragraphs. Apparently, Canada and the EU decided that there was no need to include such a shared understanding since the case law of investment tribunals shows that national treatment obligations cover both de jure and de facto discrimination irrespective of whether the wording proposed by the EU forms part of the respective treaty text. 48 The various drafts following the first available Canadian draft version dating back 20 to January 2010 also indicate that early on the EU preferred to merge the paragraph on guaranteeing national treatment to investors with the paragraph guaranteeing national treatment to investments. The original Canadian version essentially follows its Model BIT with two separate paragraphs,49 which seems superfluous in light of the identical guarantee of national treatment to investors and investments. Thus, eventually the draft version from 21 November 2013 only includes one paragraph providing national treatment to both investors and investment: ‘[e]ach Party shall accord to investors of the other Party and to covered investments, treatment no less favourable than the treatment it accords, in like situations to its own investors and their investments [….]’.50 All drafts texts devote a paragraph to sub-national or sub-federal governmental 21 entities taking account of the fact that Canada is a federal state and the EU consists of independent member states, some of which are also federal states. The original Canadian version refers to the national treatment obligation of ‘a sub-national government’,51 whereas the EU proposal refers to ‘regional/provisional or local/municipal government’.52 The draft text from 21 November 2013 merely reflects the Canadian 47 Van den Bossche and Zdouc, The Law and Policy of the World Trade Organization (2017), 411 (citing Canada — Certain Measures Affecting the Automotive Industry, WT/DS139/R, WT/DS142/R, 11 February 2000, Report of the Panel, para. 10.301). 48 See e.g. Corn Products International Inc. v. Mexico, ICSID Case No. ARB(AF)/04/1, Decision on Responsibility (15 January 2008), para. 109; Alpha Projektholding GmbH v. Ukraine, ICSID Case No. ARB/07/16, Award (8 November 2010), para. 426; Casinos Austria International GmbH and Casinos Austria Aktiengesellschaft v. Argentina, ICSID Case No. ARB/14/32, Decision on Jurisdiction (29 June 2018), para. 249. 49 Article 3 Canada Model BIT 2004. 50 Article X.7(1) leaked version of the CETA draft text of 21 November 2013, ‘Draft CETA Investment Text’, accessed via https://www.laquadrature.net/files/CETA-Draft-Investment-Text-Nov21-2013 -203b-13.pdf (last accessed 28 February 2021). 51 Article X.3(3) leaked version of the CETA draft text of 13 January 2010, ‘Draft Consolidated Text: Canada-EU Comprehensive Economic and Trade Agreement’, accessed via https://wiki.laquadrature.n et/images/3/33/CETA_draft_jan_2010.pdf (last accessed 28 February 2021): ‘The treatment accorded by a Party under paragraphs 1 and 2 means, with respect to a sub-national government, treatment no less favourable than the most favourable treatment accorded, in like circumstances, by that sub-national government to investors, and to investments of investors, of the Party of which it forms a part.’ 52 Article X.4(2), leaked version of the CETA draft text of January 2011, ‘Canada-EU CETA Draft Consolidated Text – Post Round VI’, accessed via https://wiki.laquadrature.net/images/6/69/CETA_dra ft_jan_2011.pdf (last accessed 28 February 2021): ‘The treatment accorded by a Party under paragraph[ s] CAN 1 [and 2] CAN means, with respect to a [regional/provincial or local/municipal] EU [sub-natio nal] CAN government, treatment no less favourable than the most favourable treatment accorded [, in l ike circumstances,] CAN by that [regional/provincial or local/municipal] EU [subnational] CAN gover nment to [its own like establishments and] EU investors, [and to investments of investors, of the Party of which it forms a part] CAN [or to those of other provinces or municipalities, whichever is the more f avourable] EU.’
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version with the comment ‘Text to be adjusted for the EU regarding “sub-national government” in relation to the Member States’.53 22 The final 2014 draft includes a single paragraph referring to ‘a government in Canada other than at the federal level’ and to a ‘government of or in a Member State of the European Union’.54 Presumably to achieve greater clarity, this single paragraph was subsequently separated into two paragraphs for the eventually signed CETA. One paragraph addresses the national treatment obligation of subdivisons in Canada and one paragraph the national treatment obgliation of subdivisions in the EU.55
D. Commentary Article 8.6 provides in paragraph 1 for national treatment vis-à-vis foreign investors from the other Party and their investments if they are in like situations to domestic investors and their investments. National treatment in paragraph 1 extends to both the pre- and post-establishment phase. Paragraphs 2 and 3 stipulate that the national treatment obligation of paragraph 1 also applies to sub-national/sub-federal levels. 24 When assessing an alleged violation of national treatment, investment tribunals have developed a three-step analysis.56 Firstly, they enquire whether foreign and domestic investors are in ‘like circumstances’ or ‘like situations’. If this is the case, the inquiry proceeds to whether foreign investors have received less favourable treatment than the ‘like’ domestic investors. Finally, tribunals consider whether there is any legitimate purpose for the differential treatment, which might serve as a justification. 25 There are deviations from this three-step model. In particular tribunals have addressed justifications for differential treatment in their analysis of ‘like circumstances’/’like situations’. In doing so, the existence of a legitimate purpose, which justifies treating foreign investors differently, indicates that the respective foreign and domestic investors are in fact not in ‘like circumstances’/‘like situations’. 57 26 The three-step test is partially reflected in the wording of Article 8.6(1) since it includes a reference to ‘like situations’ and ‘no less favourable’ treatment. While potential justifications for a breach of Article 8.6(1) are not incorporated in the provision itself, they can be taken into account either in connection with ‘like situations’ or as a 23
53 Article X.7(2) leaked version of the CETA draft text of 21 November 2013, ‘Draft CETA Investment Text’, accessed via https://www.laquadrature.net/files/CETA-Draft-Investment-Text-Nov21-2013 -203b-13.pdf (last accessed 28 February 2021). 54 Article X.6(2) leaked version of the consolidated CETA draft of 1 August 2014, ‘Consolidated CETA Text’, accessed via https://old.laquadrature.net/files/ceta-complet.pdf (last accessed 28 February 2021): ‘The treatment accorded by a Party under paragraph 1 means, with respect to a government in Canada other than at the federal level, or, with respect to a government of or in a European Member State, treatment no less favourable than the most favourable treatment accorded, in like situations, by that government to investors of that Party in its territory and to investments of such investors.’ 55 Article 8.6(2)-(3) CETA. It should be noted that some publicly available versions of the CETA include only one merged paragraph on the national treatment obligation of the subdivisons and thus only two paragraphs in total. However, the official versions of the CETA published by the Canadian government and the EU include three separate paragraphs. 56 See e.g. Archer Daniels Midland Company and Tate & Lyle Ingredients Americas, Inc. v. Mexico, ICSID Case No. ARB (AF)/04/5, Award (21 November 2007), para. 196; Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v. Pakistan, ICSID Case No. ARB/03/29, Award (27 August 2009), para. 399; Grand River Enterprises Six Nations, Ltd., et al. v. USA, UNCITRAL, Award (12 January 2011), para. 163; Olin Holdings Limited v. Libya, ICC Case No. 20355/MCP, Final Award (25 May 2018), para. 204. 57 See e.g. S.D. Myers, Inc. v. Canada, UNCITRAL, Partial Award (13 November 2000), para. 250; Pope & Talbot Inc. v. Canada, UNCITRAL, Award on the Merits of Phase 2 (10 April 2001), paras. 78, 87, 88; Rusoro Mining Ltd. v. Venezuela, ICSID Case No. ARB(AF)/12/5, Award (22 August 2016), para. 563.
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completely separate element. In this respect, Article 28.3 (‘General Exceptions) might be of import and influence the interpretation of justifications (→ mn. 38; → mn. 61).
I. Scope of the National Treatment Obligation in Article 8.6(1) The analysis of the scope of Article 8.6(1) in the succeeding paragraphs largely fol- 27 lows the three-step analysis against the backdrop of the wording of the provision, but addresses justifications for differential treatment in connection with ‘like situations’.
1. ‘Each Party shall accord to an investor of the other Party and to a covered investment …’ Both investors and investments benefit from national treatment. The inclusion of 28 investors in addition to investments within the scope of application becomes particularly relevant in the pre-establishment phase where an investment has not been made yet (→ mn. 45 f.).58 The CETA explicitly defines investor and covered investment in Article 8.1 (→ 29 Art. 8.1 mn. 90 ff.; mn. 194 ff.; mn. 222 ff.).
2. ‘… treatment […] it accords in like situations to its own investors and to their investments ...’ The treatment that must be guaranteed to foreign investors must be measured 30 against the treatment provided to domestic investors and their investments in ‘like situations’. Hence, the question whether domestic investors and their investment are ‘in like situations’ as compared to foreign investors is the central element of a national treatment analysis. Failure to establish the existence of ‘like situations’ will result in a dismissal of national treatment claims without any further analysis on whether the treatment in question was discriminatory.59 The terms ‘like circumstances’ or ‘like situations’ can be used interchangeably. 31 Accordingly, previous case law on ‘like circumstances’ will also be instructive for ‘like situations’-analyses under the CETA. The concept of ‘like situations’ is highly fact or context dependent and requires 32 a case-by-case analysis.60 In the abstract the term ‘situations’ has ‘no unalterable meaning across the spectrum of fact situations’61 and ‘the concept of “like” can have a range of meanings, from “similar” all the way to “identical”’. 62 58 Bjorklund and Vanhonnaeker, ‘National Treatment’ in Mbengue and Schacherer (eds), Foreign Investment under the Comprehensive Economic and Trade Agreement (CETA) (2019), 45 (59): ‘Indeed, if a NT provision applies to the pre-entry phase, the investor by definition has not made an investment yet; thus, in order to be effective, the NT provision must apply to investors’; cf. Newcombe and Paradell, Law and Practice of Investment Treaties: Standards of Treatment (2009), 159; see also Article 8.1: ‘investor means a Party, a natural person or an enterprise of a Party, […] that seeks to make […] an investment’. 59 See e.g. Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v. Pakistan, ICSID Case No. ARB/03/29, Award (27 August 2009), para. 411. 60 Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v. Pakistan, ICSID Case No. ARB/03/29, Award (27 August 2009), para. 389; Renée Rose Levy de Levi v. Peru, ICSID Case No. ARB/10/17, Award (26 February 2014), para. 396; Apotex Holdings Inc. and Apotex Inc. v. USA, ICSID Case No. ARB(AF)/12/1, Award (25 August 2014), para. 8.15. 61 Pope & Talbot Inc. v. Canada, UNCITRAL, Award on the Merits of Phase 2 (10 April 2001), para. 75 (footnote omitted). 62 Pope & Talbot Inc. v. Canada, UNCITRAL, Award on the Merits of Phase 2 (10 April 2001), para. 75 (footnote omitted).
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If foreign and domestic investors operate in the same economic or business sectors63 and/or if they are in a competitive relationship,64 investment tribunals will generally regard them as being in ‘like situations’. However, the operation in the same economic or business sector or the existence of a competitive relationship do not necessarily and by itself suffice to affirm the existence of ‘like situations’ between foreign and domestic investors.65 Tribunals also take into account whether the same legal regime or regulatory measures are applied to foreign and domestic investors in order to assess whether investors are ‘in like situations’.66 Additionally, investment tribunals have occasionally interpreted ‘like situations’ widely, not limited to investors in the same economic or business sector, 67 and in other cases narrowly, focussing on investors in identical situations, not merely in comparable situations.68 Ultimately, the exact contours of ‘like situations’ will depend on the specific facts of each case. A legitimate purpose or objective public policy rationale may justify differential treatment of foreign and domestic investors and either constitutes a third element of the three-step analysis69 or is already taken into account when assessing the ‘like situations’ (→ mn. 25).70 If it is treated as part of the ‘like situations’-analysis, the identification of a legitimate justification for differential treatment will place the investors in dissimilar situations and thus will negate the existence of ‘like situations’. Tribunals have accepted a wide array of objective, non-protectionist policy rationales to explain and justify differential treatment.71 Generally any different treatment 63 Pope & Talbot Inc. v. Canada, UNCITRAL, Award on the Merits of Phase 2 (10 April 2001), para. 78; S.D. Myers, Inc. v. Canada, UNCITRAL, Partial Award (13 November 2000), para. 250; Marvin Roy Feldman Karpa v. Mexico, ICSID Case No. ARB(AF)/99/1, Award (16 December 2002), para. 171; Olin Holdings Limited v. Libya, ICC Case No. 20355/MCP, Final Award (25 May 2018), para. 205. 64 S.D. Myers, Inc. v. Canada, UNCITRAL, Partial Award (13 November 2000), para. 251; United Parcel Service of America Inc. v. Canada, ICSID Case No. UNCT/02/1, Separate Statement of Dean Ronald A. Cass (24 May 2007), para. 17; Cargill, Incorporated v. Poland II, UNCITRAL, Award (5 March 2008), para. 312. 65 Champion Trading Company, Ameritrade International, Inc. v. Egypt, ICSID Case No. ARB/02/9, Award (27 October 2006), paras. 130-156; Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v. Pakistan, ICSID Case No. ARB/03/29, Award (27 August 2009), paras. 399-411. 66 Merrill & Ring Forestry L. P. v. Canada, ICSID Case No. UNCT/07/1, ICSID Administrated, Award (31 March 2010), para. 89; Grand River Enterprises Six Nations, Ltd. and others v. USA, UNCITRAL, Award (12 January 2011), paras. 166-167; Apotex Holdings Inc. and Apotex Inc. v. USA, ICSID Case No. ARB(AF)/12/1, Award (25 August 2014), para. 8.24. 67 Occidental Exploration and Production Company v. Ecuador, LCIA Case No. UN3467, Final Award (1 July 2004), para. 167-177 (comparing all foreign and domestic exporters). 68 Methanex Corporation v. USA, UNCITRAL, Final Award of the Tribunal on Jurisdiction and Merits (3 August 2005), Part IV, Chapter B, paras. 17-19 (comparing only identical foreign and domestic investors). 69 Mitchell et al., Non-Discrimination and the Role of Regulatory Purpose in International Trade and Investment Law (2016), 160 (arguing in favour of treating justifications as a separate element rather than as part of the ‘like circumstances’ analysis); see also Parkerings-Compagniet AS v. Lithuania, ICSID Case No. ARB/05/8, Award (11 September 2007), para. 368. 70 Newcombe and Paradell, The Law and Practice of Investment Treaties: Standards of Treatment (2009), 176-177: ‘A necessary element of any like circumstances analysis is a consideration of whether there is a non-discriminatory rationale or purpose for regulatory distinctions that result in less favourable treatment’. 71 For instance, ‘ensuring that the sugar industry was in the hands of solvent enterprises’ in GAMI Investments, Inc. v. Mexico, UNCITRAL, Final Award (15 November 2004), para. 114; governmental assistance to Canada Post ‘to ensure the widest-possible distribution of Canadian publications to individual Canadian consumers at affordable and uniform prices throughout the country’ in United Parcel Service of America Inc. v. Canada, ICSID Case No. UNCT/02/1, Award on the Merits (24 May
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‘to protect the public interest’72 can qualify as a legitimate purpose. However, tribunals typically emphasize that there must be a reasonable or rational connection between the legitimate purpose and the differential treatment. 73 The CETA-Tribunal might also have recourse to the exceptions clauses in order to 38 identify a potential legitimate purpose (→ mn. 61). The reference to Article XX GATT74 in the general exceptions clause of Article 28.3 might play a crucial role in this respect (→ mn. 55 ff.).75 It remains to be seen if the reference to Article XX GATT will cause a shift in case law: Will it render justifications for differential treatment a more prominent criterion in the national treatment analysis or rather limit the invocation of legitimate purposes?76 The incorporation of Article XX GATT could set more stringent criteria for the exercise of the right to regulate with respect to national treatment as tribunals might be inclined to consider only those public policy objectives listed in Article XX GATT and assess whether the discrimination was indeed ‘necessary’ to achieve the objective.77 2007), para. 175; import restrictions for drugs manufactured abroad to protect the public health in Apotex Holdings Inc. and Apotex Inc. v. USA, ICSID Case No. ARB(AF)/12/1, Award (25 August 2014), paras. 8.40-8.58. 72 S.D. Myers, Inc. v. Canada, UNCITRAL, Partial Award (13 November 2000), para. 250. 73 S.D. Myers, Inc. v. Canada, UNCITRAL, Partial Award (13 November 2000), para. 246; Pope & Talbot Inc. v. Canada, UNCITRAL, Award on the Merits of Phase 2 (10 April 2001), para. 78; Marvin Roy Feldman Karpa v. Mexico, ICSID Case No. ARB(AF)/99/1, Award (16 December 2002) para. 170; GAMI Investments, Inc. v. Mexico, UNCITRAL, Final Award (15 November 2004), para. 114; Clayton/Bilcon v. Canada, PCA Case No. 2009-04, Award on Jurisdiction and Liability (17 March 2015), para. 723; see also Mitchell et al., Non-Discrimination and the Role of Regulatory Purpose in International Trade and Investment Law (2016), 142-145. 74 Article XX GATT: ‘Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade, nothing in this Agreement shall be construed to prevent the adoption or enforcement by any contracting party of measures: (a) necessary to protect public morals; (b) necessary to protect human, animal or plant life or health; […] (e) relating to the products of prison labour; (f) imposed for the protection of national treasures of artistic, historic or archaeological value; (g) relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption; […].’ 75 Article 28.3(1) CETA: ‘For the purposes of […] C (Non-discriminatory treatment) of Chapter Eight (Investment), Article XX of the GATT 1994 is incorporated into and made part of this Agreement. […]’. 76 Bjorklund and Vanhonnaeker, ‘National Treatment’ in Mbengue and Schacherer (eds), Foreign Investment under the Comprehensive Economic and Trade Agreement (CETA) (2019), 45 (64); Lévesque, ‘The Challenges of ‘Marrying’ Investment Liberalisation and Protection in the Canada-EU CETA’ in Reinisch, Bungenberg and Tietje (eds), EU and Investment Agreements (2013), 121 (143-144). 77 See Chauvel, ‘The Influence of General Exceptions on the Interpretation of National Treatment in International Investment Law (2017) 121 Brazilian J. Int’l L., 140; see also Newcombe, ‘The Use of General Exceptions in IIAs: Increasing Legitimacy or Uncertainty?’ in Lévesque and De Mestral (eds), Improving International Investment Agreements (2013), 267 (276-281); Lévesque, ‘The inclusion of GATT Article XX exceptions in IIAs: a potentially risky policy’ in Echandi and Sauvé (eds), Prospects in International Investment Law and Policy (2013), 363 (366-367): ‘[A] tribunal tasked with interpreting an IIA that includes both a national treatment provision and a general exceptions clause would arguably have less leeway –and not more – to balance investment protection and other goals of public policy. Specifically, I do not believe that tribunals could give the expression ‘in like circumstances’ as broad an interpretation as NAFTA Chapter 11 tribunals have because it would make the exception provision redundant. In other words, there is no need for recourse to the exception clause if legitimate objectives are fully considered as part of the interpretation of the primary obligation. Such an interpretation
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While such a limitation on regulatory flexibility would constitute an unintended consequence, it is still uncertain how the CETA-Tribunal will interpret and apply the incorporation of Article XX GATT. However, one NAFTA tribunal largely treated Article XX GATT and the approaches followed by NAFTA tribunals with respect to potential justifications for differential treatment as equivalent. 78 This seems to suggest that neither the absence nor the inclusion of Article XX GATT is necessarily decisive for assessing whether a justification for discrimination exists and which criteria must be fulfilled for its lawful invocation.
3. ‘… treatment no less favourable than the treatment it accords ...’ Foreign investors and their investments must be accorded ‘treatment no less favourable than the treatment that [the Party] accords’ to domestic investors and their investments. Two questions arise in this connection, firstly, which measures or acts qualify as ‘treatment’ and secondly, what level of treatment is sufficiently favourable to foreign investors. 41 The term ‘treatment’ has generally been interpreted broadly by investment tribunals and covers all types of regulatory as well as non-regulatory activities by state organs that have a practical effect on foreign investors and investments. 79 Thus, all legislative, administrative and judicial measures but also any other acts, including commercial activities, attributable to a state can qualify as ‘treatment’. 80 In practice, virtually any governmental acts and behaviour vis-à-vis investors and investments fall within the category of ‘treatment’ under the CETA. 42 What level of treatment is sufficiently favourable to foreign investors? Does the host state need to provide the best treatment given to any of its domestic investors, the treatment generally provided to domestic investors or the treatment provided to 40
would go against the principle of effectiveness in treaty interpretation.’ (footnotes omitted); see also DiMascio and Pauwelyn, ‘Nondiscrimination in Trade and Investment Treaties: Worlds Apart or Two Sides of the Same Coin?’ (2008) 102 AJIL, 48 (77, 82-83). 78 Clayton/Bilcon v. Canada, PCA Case No. 2009-04, Award on Jurisdiction and Liability (17 March 2015), paras. 721, 723: ‘Article 1102 [NAFTA] is not attached to any “justification” clause, such as Article XX of GATT, 1947, which permits an exception to its norms in cases where a state has adopted reasonable measures to pursuing certain domestic policy objectives. […] The approach taken in Pope & Talbot, would seem to provide legally appropriate latitude for host states, even in the absence of an equivalent of Article XX of the GATT, to pursue reasonable and non-discriminatory domestic policy objectives through appropriate measures even when there is an incidental and reasonably unavoidable burden on foreign enterprises;’ see also S.D. Myers, Inc. v. Canada, UNCITRAL, Separate Concurring Opinion by Dr. Bryan Schwartz (12 November 2000), para. 129: ‘Read in its proper context, however, the phrase “like circumstances” in Article 1102 in many cases does require the same kind of analysis as is required in Article XX cases under the GATT’ (emphasis in original). 79 Merrill & Ring Forestry L. P. v. Canada, ICSID Case No. UNCT/07/1, ICSID Administrated, Award (31 March 2010), para. 79; S.D. Myers, Inc. v. Canada, UNCITRAL, Partial Award (13 November 2000), para. 254; Siemens A.G. v. Argentina, ICSID Case No. ARB/02/8, Decision on Jurisdiction (3 August 2004), para. 85: ‘“Treatment” in its ordinary meaning refers to behavior in respect of an entity or a person’. 80 See e.g. Pope & Talbot Inc. v. Canada, UNCITRAL, Award on the Merits of Phase 2 (10 April 2001), paras. 18, 31; United Parcel Service of America Inc. v. Canada, ICSID Case No. UNCT/02/1, Award on the Merits (24 May 2007), para. 85 (finding that the processing of items by customs’ authorities and the assignment of costs related to the processing of items constitutes ‘treatment’); Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v. Pakistan, ICSID Case No. ARB/03/29, Award (27 August 2009), para. 388: ‘national treatment […] is not limited to regulatory treatment. It may also apply to the manner in which a State concludes an investment contract and/or exercises its rights thereunder.’; see also Reinisch and Schreuer, International Protection of Investments: The Substantive Standards (2020), 661: ‘Treatment comprises all forms of measures and behaviour attributable to a state; it is not limited to legal treatment.’
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the least favourably treated domestic investor?81 Tribunals have often interpreted ‘no less favourable’ treatment as requiring to provide the best treatment accorded to any domestic investor or investment in like circumstances.82 Moreover, tribunals have not ascribed any weight to the different wordings of 43 ‘treatment no less favourable than the treatment’ accorded to domestic investors and ‘treatment no less favourable than the most favourable treatment accorded’ to domestic investors (→ mn. 54). Rather, both versions require to provide the best or most favourable treatment.83 Treatment can be less favourable if there is direct/de jure or indirect/de facto dis- 44 crimination vis-à-vis the foreign investors. In other words, discriminatory treatment explicitly linked to foreign nationality and treatment that is practically discriminatory on the basis of nationality albeit neutral on its face are prohibited.84 In this connection, discriminatory intent is generally no pre-requisite for finding a violation of national treatment. Rather, the practical discriminatory effect vis-à-vis foreign investors is determinative (→ mn. 8).
4. ‘… with respect to the establishment, acquisition, expansion, conduct, operation, management, maintenance, use, enjoyment and sale or disposal of their investments in its territory’ National treatment is not only granted in the post-establishment phase, i.e. ‘con- 45 duct, operation, management, maintenance, use, enjoyment and sale or disposal of their investments’, but also in the pre-establishment or pre-investment phase, i.e. ‘establishment, acquisition, expansion’ of investments. This extension to pre-establishment or pre-investment liberalizes market access as 46 ‘foreign investors thereby receive a right of entry on equal footing with national investors.’85 The guarantee of national treatment to pre-establishment in Article 8.6 is additional to the provision on market access for foreign investors contained in Article 8.4 (→ Art. 8.4 mn. 1 ff.). However, numerous exceptions and reservations are included in the CETA and its 47 annexes, which exclude the application of national treatment both in the pre-establishment and post-establishment phase (→ mn. 55 ff.). In addition, the investor-state dispute settlement mechanism under the CETA is limited to breaches of national treatment in the post-establishment phase (→ Art. 8.18 mn. 73; → Art. 8.2 mn. 111 f.). An investor may only bring a claim that national treatment has been breached ‘with respect to the expansion, conduct, operation, management, maintenance, use and sale or 81 Marvin Roy Feldman Karpa v. Mexico, ICSID Case No. ARB(AF)/99/1, Award (16 December 2002), para. 185. 82 S.D. Myers, Inc. v. Canada, UNCITRAL, Partial Award (13 November 2000), para. 240; Pope & Talbot Inc. v. Canada, UNCITRAL, Award on the Merits of Phase 2 (10 April 2001), paras. 41-42; Archer Daniels Midland Company and Tate & Lyle Ingredients Americas, Inc. v. Mexico, ICSID Case No. ARB(AF)/04/5, Award (21 November 2007), paras. 196, 205; see also Methanex Corporation v. USA, UNCITRAL, Final Award of the Tribunal on Jurisdiction and Merits (3 August 2005), Part IV, Chapter B, para. 21, finding obiter dicta that the foreign investor is entitled to the same treatment ‘accorded to some members of the domestic class’. 83 Pope & Talbot Inc. v. Canada, UNCITRAL, Award on the Merits of Phase 2 (10 April 2001), paras. 41-42. 84 See e.g. Archer Daniels Midland Company and Tate & Lyle Ingredients Americas, Inc. v. Mexico, ICSID Case No. ARB (AF)/04/5, Award (21 November 2007), para. 193; Alpha Projektholding GmbH v. Ukraine, ICSID Case No. ARB/07/16, Award (8 November 2010), para. 426; Total S.A. v. Argentina, ICSID Case No. ARB/04/01, Decision on Liability (27 December 2010), para. 211. 85 Reinisch, ‘National Treatment’ in Bungenberg et al. (eds), International Investment Law: A Handbook (2015), 846 (851).
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disposal of its covered investment’86 and ‘claims with respect to the expansion of a covered investment’ are limited to measures that affect ‘existing business operations’ and that lead to a ‘loss or damage with respect to the covered investment’. 87 A breach of national treatment in cases of ‘establishment’ or ‘acquisition’ is completely excluded from the scope of dispute settlement.
II. National Treatment by Sub-federal Canadian Governments and EU Member States and Their Sub-federal Governments in Article 8.6(2)-(3) Paragraph 2 and paragraph 3 deal with the national treatment obligation of subdivisions (i.e. states, territories, provinces or regions) of the Parties. These paragraphs address the fact that Canada is a federal state composed of ten provinces and three territories, the EU is composed of 27 member states, and several EU member states are themselves federal states and each of these subdivisions possesses a certain level of regulatory autonomy and authority within its territory. 49 In the Canadian context, national treatment extends to ‘a government in Canada other than at the federal level’, i.e. sub-federal governments. In the EU context both ‘a government of and in a Member State of the European Union’ must respect national treatment, i.e. the national governments of EU member states are covered as well as sub-federal governments at the regional or provincial levels in EU member states. 88 50 However, the extent of national treatment owed to foreign investors by sub-EU level governments or sub-federal governments in the EU and Canada, respectively, remains slightly ambiguous. 51 It has been argued that unlike paragraph 1, national treatment in paragraphs 2 and 3 applies ‘in a more limited sense’ and ‘permits some degree of local favouritism’. 89 According to this view, the phrases ‘treatment […] accorded, in like situations, by that government to investors of Canada in its territory’ and ‘treatment […] accorded, in like situations, by that government to investors of the EU in its territory’ only establish an obligation to provide the same level of treatment to foreign investors as to investors from outside the respective province or outside the respective EU member state (best out-of-state or best out-of-province treatment). Thus, ‘investors of Canada’ would not cover the local investors of the province or territory as comparators, only investors from other Canadian provinces or territories. Likewise, ‘investors of the EU’ would only cover investors from other EU member states as comparators. Such a reading allows a subdivision to discriminate in favour of its local investors. For instance, the Canadian province Alberta may provide preferential treatment to local investors from Alberta and would only be required to provide to investors from the EU the treatment accorded to investors from other Canadian provinces and territories.90 48
Article 8.18(1)(a) CETA. Article 8.18(2) CETA. 88 See also Tzanakopoulos, ‘National Treatment and MFN in the (Invisible) EU Model BIT’ (2014) 55 JWIT, 484 (498-499) (discussing the ‘draft text’ of 21 November 2013’ and arguing that national treatment should also apply to sub-national governments of EU Member States). 89 Bjorklund and Vanhonnaeker, ‘National Treatment’ in Mbengue and Schacherer (eds), Foreign Investment under the Comprehensive Economic and Trade Agreement (CETA) (2019), 45 (66). 90 This argument is based on the reasoning in Bjorklund and Vanhonnaeker, ‘National Treatment’ in Mbengue and Schacherer (eds), Foreign Investment under the Comprehensive Economic and Trade Agreement (CETA) (2019), 45 (65-66) and Bjorklund, ‘The National Treatment Obligation’ in Yannaca-Small (ed), Arbitration under International Investment Agreements (2018), 532 (558-559); see also Kinnear, 86
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The opposite view is that sub-EU level governments or sub-federal governments in 52 EU member states or Canada cannot discriminate in favour of their local investors, but rather need to provide the same treatment to foreign investors as to any investor ‘coming from the same or from another province or Member State (or its provinces)’ 91 – best in-state or best in-province treatment. The language of paragraphs 2 and 3 arguably lends support to this second view since ‘investors of Canada’ and ‘investors of the EU’ do not contain any qualifications indicating an exclusion of in-province investors in Canada or investors from the same EU member state.92 If the CETA had intended to exclude those investors, language to such an effect could have been incorporated in this provision.93 Hence, sub-EU level, sub-federal and sub-national governments must provide the same level of national treatment to foreign investors of the other Party as they provide to any Canadian and EU investor in its territory, respectively. However, paragraphs 2 and 3 do not oblige governments to guarantee the same 53 level of favourable treatment as provided by the governments of other provinces, territories or member states under their domestic laws.94 Rather, they are only required to provide the best treatment available under its own laws.95 For example, if France provides tax incentives to attract foreign investors, Germany will not be required to provide the same tax incentives to Canadian investors despite both being EU Member States. Another issue concerning the scope of the obligation is the level of national 54 treatment owed under Article 8.6(2)-(3). Paragraphs 2 and 3 refer to ‘treatment no less favourable than the most favourable treatment accorded’ by the government to domestic investors. This leads to the question whether a higher standard of national treatment must be provided under paragraphs 2 and 3 than under paragraph 1. 96 Bjorklund and Hannaford, Investment Disputes under NAFTA: An Annotated Guide to NAFTA Chapter 11 (2006-2009), 1102.54 a; UNCTAD, National Treatment, UNCTAD/ITE/IIT/11 (Vol. IV) (1999), 25-26; Raby, ‘The Investment Provisions of the Canada–United States Free Trade Agreement: A Canadian Perspective’ (1990) 84 AJIL, 394 (410). 91 Tzanakopoulos, ‘National Treatment and MFN in the (Invisible) EU Model BIT’ (2014) 55 JWIT, 484 (499); see also Kinnear, Bjorklund and Hannaford, Investment Disputes under NAFTA: An Annotated Guide to NAFTA Chapter 11 (2006-2009), 1102.54 a; Newcombe and Paradell, The Law and Practice of Investment Treaties: Standards of Treatment (2009), 188-189. 92 See the discussion on Article 1102(3) NAFTA in Resolute Forest Products Inc. v. Canada, UNCITRAL, PCA Case No. 2016-13, Decision on Jurisdiction and Admissibility (30 January 2018), paras. 278-283; see also Pope & Talbot Inc. v. Canada, UNCITRAL, Award on the Merits of Phase 2 (10 April 2001), para. 41 and footnote 15; S.D. Myers, Inc. v. Canada, UNCITRAL, Partial Award (13 November 2000), para. 240. 93 See e.g. Article 3(3) United States Model BIT 2012: ‘The treatment to be accorded by a Party under paragraphs 1 and 2 means, with respect to a regional level of government, treatment no less favorable than the treatment accorded, in like circumstances, by that regional level of government to natural persons resident in and enterprises constituted under the laws of other regional levels of government of the Party of which it forms a part, and to their respective investments’; see also Article 3(3) Rwanda-USA BIT (2008); Article 3(3) USA-Uruguay BIT (2005); cf. Bjorklund, ‘National Treatment’ in Reinisch (ed), Standards of Investment Protection (2008), 29 (56). 94 Cf. Resolute Forest Products Inc. v. Canada, UNCITRAL, PCA Case No. 2016-13, Decision on Jurisdiction and Admissibility (30 January 2018), para. 290: ‘Article 1102(3) should not be read so as to impose, vis-à-vis foreign investments, a requirement of uniformity of treatment by the different component units of the three federal States which are Parties to NAFTA.’ 95 Cf. Bjorklund, ‘National Treatment’ in Reinisch (ed), Standards of Investment Protection (2008), 29 (56); Tzanakopoulos, ‘National Treatment and MFN in the (Invisible) EU Model BIT’ (2014) 55 JWIT, 484 (500). 96 Cf. Tzanakopoulos, ‘National Treatment and MFN in the (Invisible) EU Model BIT’ (2014) 55 JWIT, 484 (498); see also Reinisch and Schreuer, International Protection of Investments: The Substantive Standards (2020), 657.
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While the difference in the wording of paragraph 1 on the one hand, and paragraphs 2 and 3 on the other hand may suggest that a higher standard of treatment is owed by sub-national, sub-federal governments and governments of EU member states than at the Canadian federal level and EU level, investment tribunals have thus far rejected such a reading with respect to Article 1102 NAFTA.97 Whether the CETA-Tribunal will ascribe any significance to these different wordings in the paragraphs of Article 8.6, remains to be seen. Most likely, ‘most favourable treatment’ will merely be understood as a clarification that the best treatment provided to domestic investors must also be given to foreign investors of the other Party.98
III. Reservations and Exceptions to National Treatment Unlike previous IIAs concluded by EU Member States, the CETA contains detailed exceptions and reservations to the Investment Chapter. While Article 8.6 itself does not include a specific exception or carve-out, various exceptions or carve-outs can be found elsewhere in the CETA, particularly in Article 8.15 on ‘Reservations and Exceptions’ (→ Art. 8.15 mn. 1 ff.). In addition, Chapter 28 of the CETA, titled ‘Exceptions’, includes exceptions clauses applicable to various Chapters of the CETA, including the Investment Chapter. 56 Two specific exceptions are found in Article 8.2, which inter alia excludes the application of the non-discriminatory treatment standards of national treatment and MFNtreatment to certain sectors. Article 8.2(2) exempts the establishment or acquisition of investments in ‘air services’ and ‘activities carried out in the exercise of governmental authority’ from the twin non-discriminatory treatment standards (→ Art. 8.2 mn. 87). Article 8.2(3) exempts governmental measures taken in Canada in the cultural industries, and governmental measures taken in the EU in the audio-visual services sector from the non-discriminatory treatment standards (→ Art. 8.2 mn. 98 ff.). Additionally, another specific exception in Article 8.2(4) limits investor-state dispute settlement with respect to breaches of national treatment to the post-establishment phase (→ mn. 47; → Art. 8.2 mn. 111 f.). 57 Article 8.15 (‘Reservations and Exceptions’) is similar to Article 9 of the Canadian Model BIT (2004).99 Article 8.15(1)100 precludes the application of the national treat55
97 Pope & Talbot Inc. v. Canada, UNCITRAL, Award on the Merits of Phase 2 (10 April 2001), paras. 41-42, stating ‘that the language of Article 1102(3) was intended simply to make clear that the obligation of a state or province was to provide investments of foreign investors with the best treatment it accords any investment of its country, not just the best treatment it accords to investments of its investors’ and concluding that it ‘interprets the treatment required by Articles 1102(1) and 1102(2), on the one hand, and 1102(3) on the other, to be identical’; see also Bjorklund, ‘National Treatment’ in Reinisch (ed), Standards of Investment Protection (2008), 29 (55-56). 98 Cf. Pope & Talbot Inc. v. Canada, UNCITRAL, Award on the Merits of Phase 2 (10 April 2001), paras. 41-42. 99 Article 9 Canadian Model BIT (2004). 100 Article 8.15(1) CETA: ‘Articles 8.4 through 8.8 do not apply to: (a) an existing non-conforming measure that is maintained by a Party at the level of: (i) the European Union, as set out in its Schedule to Annex I; (ii) a national government, as set out by that Party in its Schedule to Annex I; (iii) a provincial, territorial, or regional government, as set out by that Party in its Schedule to Annex I; or (iv) a local government; (b) the continuation or prompt renewal of a non-conforming measure referred to in subparagraph (a); or
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ment obligation and other obligations to certain existing non-conforming measures of the Parties set out in their respective schedules to Annex I (→ Art. 8.15 mn. 26 ff.). 101 Some of those are specific to a province or member state, others apply to specific or all sectors in the EU or Canada.102 Article 8.15(2)103 allows the Parties to derogate from reservation to national treatment and other obligations with respect to future non-conforming measures to be taken in a sector, subsector or activity, as set out in the respective Party’s schedule to Annex II (→ Art. 8.15 mn. 41 ff.).104 Article 8.15(4)105 permits derogations from national treatment and other obligations in respect of intellectual property rights if permitted under the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) (→ Art. 8.15 mn. 48 f.). Finally, Article 8.15(5)(a) stipulates that the national treatment obligation and other obligations do not apply to government procurement (→ Art. 8.15 mn. 50 ff.) and Article 8.15(5)(b) provides that the national treatment obligation and other obligations do not apply to subsides or government support relating to trade in services (→ Art. 8.15 mn. 59 ff.).106 A relatively broad exceptions clause forms part of Article 28 (‘Exceptions’), which is similar to Article 10 of the Canadian Model BIT (2004).107 The various paragraphs of Article 28 provide for exceptions that apply to various Chapters of the CETA, including Chapter Eight (Investment). Article 28.3(1) inter alia stipulates that for the purposes of the non-discrimination rules of Chapter Eight (Investment), Article XX GATT is incorporated in the CETA,108 specifically referring to Article XX(b)
(c) an amendment to a non-conforming measure referred to in subparagraph (a) to the extent that the amendment does not decrease the conformity of the measure, as it existed immediately before the amendment, with Articles 8.4 through 8.8.’ 101 Bjorklund and Vanhonnaeker, ‘National Treatment’ in Mbengue and Schacherer (eds), Foreign Investment under the Comprehensive Economic and Trade Agreement (CETA) (2019), 45 (62). 102 The Canadian reservations in its Schedule to Annex I comprise more than 240 pages and the EU and its member states’ reservations in their Schedule to Annex I comprise more than 200 pages. 103 Article 8.15(2) CETA: ‘Articles 8.4 through 8.8 do not apply to a measure that a Party adopts or maintains with respect to a sector, subsector or activity, as set out in its Schedule to Annex II.’ 104 The Canadian reservations in its Schedule to Annex II comprise almost 100 pages and the EU and its member states’ reservations in their Schedule to Annex II comprise more than 150 pages. 105 Article 8.15(4) CETA: ‘In respect of intellectual property rights, a Party may derogate from Articles 8.5.1(f), 8.6, and 8.7 if permitted by the TRIPS Agreement, including any amendments to the TRIPS Agreement in force for both Parties, and waivers to the TRIPS Agreement adopted pursuant to Article IX of the WTO Agreement.’ 106 Article 8.15(5) CETA: ‘Articles 8.4, 8.6, 8.7 and 8.8 do not apply to: (a) procurement by a Party of a good or service purchased for governmental purposes and not with a view to commercial resale or with a view to use in the supply of a good or service for commercial sale, whether or not that procurement is "covered procurement" within the meaning of Article 19.2 (Scope and coverage); or (b) subsidies, or government support relating to trade in services, provided by a Party.’ 107 Article 10 Canadian Model BIT (2004). 108 Article 28.3(1) CETA: ‘For the purposes of Article 30.8.5 (Termination, suspension or incorporation of other existing agreements), Chapters Two (National Treatment and Market Access for Goods), Five (Sanitary and Phytosanitary Measures), and Six (Customs and Trade Facilitation), the Protocol on rules of origin and origin procedures and Sections B (Establishment of investment) and C (Non-discriminatory treatment) of Chapter Eight (Investment), Article XX of the GATT 1994 is incorporated into and made part of this Agreement. The Parties understand that the measures referred to in Article XX (b) of the GATT 1994 include environmental measures necessary to protect human, animal or plant life or health. The Parties understand that Article XX(g) of the GATT 1994 applies to measures for the conservation of living and non-living exhaustible natural resources.’
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and Article XX(g) on environmental protection and conservation.109 This inclusion may play an important role when addressing justifications in the three-step national treatment analysis (→ mn. 38).110 62 Additionally, Article 28.6 (‘National Security’) provides a security exceptions clause largely identical to Article XXI GATT and applies to the whole agreement. 111 A specific rule on taxation measures permits the Parties of the CETA to determine whether a certain measure qualifies as a taxation measure under the CETA if a dispute under Chapter 8 arises and whether it breaches the non-discrimination standards (Article 28.7(7).112
E. Conclusion The national treatment provision in the CETA follows the purpose of guaranteeing non-discrimination to foreign investors as compared to similarly situated domestic investors. National treatment must be provided by the EU, federal or national governments and sub-federal or sub-national governments in the EU and Canada. 64 While the national treatment provision in the CETA by and large follows traditional Canadian approaches to national treatment, it departs from typical European investment treaties insofar as it does not only secure national treatment in the post-establishment phase, but also in the pre-establishment phase. 63
Article XX GATT. Cf. Bjorklund and Vanhonnaeker, ‘National Treatment’ in Mbengue and Schacherer (eds), Foreign Investment under the Comprehensive Economic and Trade Agreement (CETA) (2019), 45 (64). 111 Article 28.6 CETA: ‘Nothing in this Agreement shall be construed: (a) to require a Party to furnish or allow access to information if that Party determines that the disclosure of this information would be contrary to its essential security interests; or (b) to prevent a Party from taking an action that it considers necessary to protect its essential security interests: (i) connected to the production of or traffic in arms, ammunition and implements of war and to such traffic and transactions in other goods and materials, services and technology undertaken, and to economic activities, carried out directly or indirectly for the purpose of supplying a military or other security establishment; (ii) taken in time of war or other emergency in international relations; or (iii) relating to fissionable and fusionable materials or the materials from which they are derived; or (c) prevent a Party from taking any action in order to carry out its international obligations for the purpose of maintaining international peace and security.’ 112 Article 28.7(7)(a)-(c) CETA: ‘(a) Where an investor submits a request for consultations pursuant to Article 8.19 (Consultations) claiming that a taxation measure breaches an obligation under Sections C (Non-discriminatory treatment) or D (Investment protection) of Chapter Eight (Investment), the respondent may refer the matter for consultation and joint determination by the Parties as to whether: (i) the measure is a taxation measure; (ii) the measure, if it is found to be a taxation measure, breaches an obligation under Sections C (Non-discriminatory treatment) or D (Investment protection) of Chapter Eight (Investment); or (iii) there is an inconsistency between the obligations in this Agreement that are alleged to have been breached and those of a tax convention. (b) A referral pursuant to subparagraph (a) cannot be made later than the date the Tribunal fixes for the respondent to submit its counter-memorial. Where the respondent makes such a referral the time periods or proceedings specified in Section F (Resolution of investment disputes between investors and states) of Chapter Eight (Investment) shall be suspended. If within 180 days from the referral the Parties do not agree to consider the issue, or fail to make a joint determination, the suspension of the time periods or proceedings shall no longer apply and the investor may proceed with its claim. (c) A joint determination by the Parties pursuant to subparagraph (a) shall be binding on the Tribunal.’ 109
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However, investor-state dispute settlement with respect to breaches of national 65 treatment is only available for the post-establishment phase. Moreover, the CETA incorporates various, detailed exceptions and reservations to national treatment and other standards of investment protection, thus curtailing its potentially wide scope of application. The incorporation of Article XX GATT for the purposes of national treatment may influence the interpretation of legitimate purposes which may justify discrimination vis-à-vis foreign investors. It remains uncertain whether this incorporation might in fact place more stringent requirements on the invocation of legitimate purposes than the ones established in previous cases by investment tribunals.
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Article 8.7 Most-favoured-nation treatment 1. Each Party shall accord to an investor of the other Party and to a covered investment, treatment no less favourable than the treatment it accords in like situations, to investors of a third country and to their investments with respect to the establishment, acquisition, expansion, conduct, operation, management, maintenance, use, enjoyment and sale or disposal of their investments in its territory. 2. For greater certainty, the treatment accorded by a Party under paragraph 1 means, with respect to a government in Canada other than at the federal level, or, with respect to a government of or in a Member State of the European Union, treatment accorded, in like situations, by that government to investors in its territory, and to investments of such investors, of a third country. 3. Paragraph 1 does not apply to treatment accorded by a Party providing for recognition, including through an arrangement or agreement with a third country that recognises the accreditation of testing and analysis services and service suppliers, the accreditation of repair and maintenance services and service suppliers, as well as the certification of the qualifications of or the results of or work done by those accredited services and service suppliers. 4. For greater certainty, the ‘treatment’ referred to in paragraphs 1 and 2 does not include procedures for the resolution of investment disputes between investors and states provided for in other international investment treaties and other trade agreements. Substantive obligations in other international investment treaties and other trade agreements do not in themselves constitute ‘treatment’, and thus cannot give rise to a breach of this Article, absent measures adopted or maintained by a Party pursuant to those obligations. Reference to the Respective Provisions in Other EU Treaties: Article 8.6 EU-Vietnam FTA, Article 8.9 EU-Japan EPA, Article 8 EU-Mexico FTA. Bibliography: Simon Batifort and Heath J. Benton, ‘The New Debate on the Interpretation of MFN Clauses in Investment Treaties: Putting the Brakes on Multilateralization’ (2017) 111 AJIL 873; Walid Ben Hamida, ‘Clause de la Nation la Plus Favorisée et Mécanismes de Règlement des Différends: Que Dit l’Histoire?’ (2007) 4 JDI 1127; Okezie Chukwumerije, ‘Interpreting Most-Favoured-Nations Clauses in Investment Treaty Arbitrations’ (2007) 8 JWIT 597; Claire Crépet Daigremont, ‘Most Favoured Nation Treatment’ in Makane Moïse Mbengue and Stefanie Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (Springer International Publishing, Cham, Switzerland 2018), 71; Rudolf Dolzer, ‘Meistbegünstigungsklauseln in Investitionsschutzverträgen’ in Jürgen Bröhmer (ed), Internationale Gemeinschaft und Menschenrechte: Festschrift für Georg Ress zum 70. Geburtstag am 21. Januar 2005 (Carl Heymanns Köln 2005) 47; Zachary Douglas, ‘The MFN Clause in Investment Arbitration: Treaty Interpretation Off the Rails’ (2011) 2 J. Int’l Disp. Settlement 97; Patrick Dumberry, ‘The Importation of the FET Standard through MFN Clauses: an Empirical Study of BITs’ (2017) 32 ICSID Rev.-FILJ 116; Meinhard Hilf and Robin Geiß, ‘Most Most-Favoured-Nation Clause’ in Rüdiger Wolfrum (ed), Max Planck Encyclopedia of Public International Law, vol. VII (Oxford University Press, Oxford 2013), 384; Marie-France Houde and Fabrizio Pagani, ‘Most-Favoured-Nation Treatment in International Investment Law’ in OECD (ed), International Investment Law: A Changing Landscape (OECD Publishing 2005) 127; Tomoko Ishikawa, ‘Interpreting the Most-Favoured-Nation Clause in Investment Treaty Arbitration: Interpretation as a Process of Creating an Obligation?’ in Charles Sampford, Spencer Zifcak and Derya Aydin Okur (eds), Rethinking International Law and Justice (Ashgate 2015) 127; Meg Kinnear, ‘A Further Update on Most-Favoured-Nation Treatment – In Search of a Constant Jurisprudence’ in Arthur W. Rovine (ed), Contemporary Issues in International Arbitration and Mediation: The Fordham Papers 2009 (Martinus Nijhoff 2010) 15; Jürgen Kurtz, ‘The Delicate Extension of Most-Favoured-Nation Treatment to Foreign Investors: Maffezini v Kingdom of Spain’ in Todd Weiler (ed), International Investment Law and Arbitration (Cameron May 2005) 523; Jürgen Kurtz, ‘The MFN
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Standard and Foreign Investment: An Uneasy Fit?’ (2004) 6 JWIT 861; Céline Lévesque and Andrew Newcombe, ‘Canada’ in Chester Brown (ed), Commentaries on Selected Model Investment Treaties (Oxford University Press, Oxford 2013), 53; Julie Maupin, ‘MFN-Based Jurisdiction in Investor-State Arbitration: Is There any Hope for a Consistent Approach?’ (2011) 14 J. Int’l Econ. L. 157; Martins Paparinskis, ‘MFN Clauses and International Dispute Settlement: Moving beyond Maffezini and Plama?’ (2011) 26 ICSID Rev. – FILJ 14; August Reinisch, ‘Most Favoured Nation Treatment’ in Marc Bungenberg, Jörn Griebel, Stephan Hobe and August Reinisch (eds), International Investment Law. A Handbook (Beck/ Hart/Nomos 2015) 807; August Reinisch, ‘Putting the Pieces together … an EU Model BIT?’, in Marc Bungenberg and August Reinisch (guest eds), The Anatomy of the (Invisible) EU Model BIT, 15 JWIT (2014), 679; August Reinisch and Christoph Schreuer, International Protection of Investments. The Substantive Standards (Cambridge University Press, Oxford 2020); Klaus Sachs and Susanne Häusler, ‘Import of Umbrella Clauses by Way of Invoking Most-Favored-Nation-Treatment Clauses in International Investment Treaty Law’ in Reinhold Geimer, Athanassios Kaissis and Roderich C. Thümmel (eds), Ars aequi et boni in mundo: Festschrift für Rolf A. Schütze zum 80. Geburtstag (C.H. Beck 2014) 499; Stephan W. Schill, ‘Allocating Adjudicatory Authority: Most-Favoured-Nation Clauses as a Basis of Jurisdiction – A Reply to Zachary Douglas’ (2011) 2 J. Int’l Disp. Settlement 353; Stephan W. Schill, The Multilateralization of International Investment Law (Cambridge University Press, Oxford 2009); Stephan W. Schill, ‘MFN Clauses as Bilateral Commitments to Multilateralism: A Reply to Simon Batifort and J. Benton Heath’ (2017) 111 AJIL, 914; Georg Schwarzenberger, International Law as applied by International Courts and Tribunals (3rd edn, London 1957); Brigitte Stern, ‘ICSID Arbitration and the State’s Increasingly Remote Consent: Apropos the Maffezini Case’ in Steve Charnovitz, Debra P Steger and Pieter van den Bossche (eds), Law in the Service of Human Dignity: Essays in Honour of Florentino Feliciano (Cambridge University Press, Oxford 2005) 246; Pavel Šturma, ‘Goodbye, Maffezini?: On the Recent Developments of Most-Favoured-Nation Clause Interpretation in International Investment Law’ (2016) 15 LPICT 81; Guido S. Tawil, ‘Most Favoured Nation Clauses and Jurisdictional Clauses in Investment Treaty Arbitration’ in Christina Binder, Ursula Kriebaum, August Reinisch and Stephan Wittich (eds), International Investment Law for the 21st Century 9-30 (Oxford University Press, Oxford 2009) 9; Michael J. Trebilcock, Advanced Introduction to International Trade Law (1st edn, Edward Elgar Publishing, Cheltenham 2015); Antonios Tzanakopoulos, ‘National Treatment and MFN in the (Invisible) EU Model BIT’ in Marc Bungenberg and August Reinisch (guest eds), The Anatomy of the (Invisible) EU Model BIT, 15 JWIT (2014), 484; UNCTAD, Most Favoured-Nation Treatment, Series on International Investment Agreements II, UNCTAD/DIAE/IA/2010/1 XIII (2010). A. Introduction and Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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B. Object and Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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C. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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D. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. Scope of the MFN Obligation in Article 8.7(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. ‘In like Situations’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. ‘Treatment No Less Favourable’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Pre-Investment Stage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. MFN Treatment Also Accorded on the Provincial (Canada) and Member State (EU) Level . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. Exceptions from MFN Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV. Exclusion of Procedural and Substantive Advantages . . . . . . . . . . . . . . . . . . . . . . 1. MFN and Procedural Advantages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. MFN and Substantive Advantages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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E. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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A. Introduction and Overview Like its twin non-discrimination standard, i.e. national treatment, most-favoured- 1 nation (MFN) treatment aims at creating a level playing field among competitors. While national treatment secures treatment no less favourable than that accorded to a Party’s own investors, MFN ensures non-discrimination compared to investors from third countries.
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The CETA’s MFN clause in Article 8.7(1) corresponds to the clauses traditionally found in bilateral and multilateral investment treaties. Only the inclusion of the pre-investment phase, leading to a liberalization of access, is unusual compared to the classic European BITs; this apparently follows the Canadian tradition. Paragraphs 2 to 4 of Article 8.7 further specify details concerning the scope of application of MFN treatment, with paragraph 4 containing the most important limitations. This paragraph clarifies not only that the controversial ‘importation’ of better procedural treatment under the so-called Maffezini doctrine is not possible under CETA’s MFN clause; it also excludes the importation of better substantive treatment that has been routinely accepted by investment tribunals. 3 MFN clauses have been inserted in investment agreements and their predecessors, FCN treaties since their first appearance.1 Historically, trade agreements particularly emphasize MFN treatment for goods. Even today, Article I of the GATT 1994 is one of the cornerstones of the modern WTO architecture. It basically serves to ‘multilateralize’ tariff concessions negotiated between individual WTO members, by automatically extending such (tariff) treatment to all other WTO members. 2 2
B. Object and Purpose The main purpose of MFN treatment in the investment context is to ensure that investors of the treaty Party/Parties are not treated less favourably than those from third countries. Thus, in the CETA context the EU (and its member states), on the one hand, and Canada (and its provinces), on the other hand (→ mn. 32), have to treat investors from the other Party no less favourably than those of any third country. 5 On a more general level, the ILC expressed the notion of MFN treatment by characterizing it as ‘[…] treatment accorded by the granting State to the beneficiary State, or to persons or things in a determined relationship with that State, not less favourable than treatment extended by the granting State to a third State or to persons or things in the same relationship with that third State.’3 6 In other contexts, MFN clauses have served the purpose of importing treatment obligations extended by the contracting Parties to third Parties. In this sense, one can say that a ‘basic’ treaty requires an improved treatment along the lines of a third Party treaty. Thus, MFN clauses in treaties achieve a dynamic revision of basic treaty obligations by incorporating treatment standards expressly laid down in third Party treaties. This ‘“ingenious” legal shorthand’ to treaty revision has been considered a great contribution to the rationalization of the treaty-making process 4 and has been particularly applied in the GATT context to multilateralize tariff concessions. 4
1 Hilf and Geiß, ‘Most Most-Favoured-Nation Clause’ in Wolfrum (ed), Max Planck Encyclopedia of Public International Law, vol. VII (2013), 384. 2 Trebilcock, Advanced Introduction to International Trade Law (2015), 36. 3 Article 5 ILC Draft Articles on most-favoured-nation clauses with commentaries 1978 (ILC Draft Articles), Yearbook of the International Law Commission, 1978, vol. II, Part Two, 16. 4 See Schwarzenberger, International Law as applied by International Courts and Tribunals (1957), 243: ‘This drafting device […] contributes greatly to the rationalization of the treaty-making process and leads to the automatic self-revision of treaties which are based on the most-favoured-nation standard. It makes unnecessary the incorporation in the treaty between grantor and the beneficiary of the most-favoured-nation treatment of any of the relevant treaties between the grantor and third States and their deletion whenever such treaties cease to be in force. So long as this last-mentioned aspect of the matter is kept in mind, most-favoured-nation clauses are correctly described as drafting (and deletion) by reference’.
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In investment jurisprudence MFN clauses have been relied upon in order to invoke 7 more favourable substantive treatment contained in third Party treaties as well as, more controversially, more favourable procedural treatment, ranging from admissibility requirements to jurisdictional ones (→ mn. 44 ff.). Since Article 8.7(4) clarifies that the MFN clause is neither intended to permit in- 8 vestors to ‘import’ procedural nor substantive advantages from third country treaties, the remaining purpose of this markedly curtailed MFN treatment is to ensure no less favourable actual treatment by the Contracting Parties extended to investors from the other Parties.
C. Drafting History The leaked draft consolidated CETA text of 13 January 2010 already contained 9 language, tabled by Canada, for the MFN clause in CETA’s investment chapter. 5 This version, which closely resembled NAFTA’s MFN clause6 adapted to the EU-Canadian context, neither excluded the importation of procedural nor of substantive treatment. The 2011 Council Negotiating Directives to the Commission, which stated that the negotiations should aim to include ‘unqualified most-favoured nation treatment’7 were sufficiently broad to accommodate this traditional, NAFTA-style MFN clause. The leaked CETA draft of January 20118 still contained neither a Maffezini- nor a 10 substantive treatment exception (→ mn. 43 ff.). This version of the CETA text already exhibited annotations by the EU to Canada’s initial proposal. While many typical European BITs did not contain any reference to ‘in like circum- 11 stances’ or ‘in like situations’, Canadian BIT practice usually included such references to comparators. The drafting history shows that Canada already suggested the inclusion of such a reference in the first version of the draft in 2010. 9 In addition, the 5 Article X.4, leaked version of the CETA draft text of 13 January 2010, ‘Draft Consolidated Text: Canada-EU Comprehensive Economic and Trade Agreement’, accessed via https://wiki.laquadrature .net/images/3/33/CETA_draft_jan_2010.pdf (last accessed 8 July 2020): ‘1. Each Party shall accord to investors of the other Party treatment no less favourable than that it accords, in like circumstances, to investors of a non-Party with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments in its territory. 2. Each Party shall accord to covered investments treatment no less favourable than that it accords, in like circumstances, to investments of investors of a non-Party with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments in its territory. 3. For greater certainty, the treatment accorded by a Party under paragraphs 1 and 2 means, with respect to a sub-national government, treatment accorded, in like circumstances, by that sub-national government to investors, and to investments of investors, of a non-Party.’ 6 Article 1103(1) North American Free Trade Agreement (1992): ‘Each Party shall accord to investors of another Party treatment no less favorable than that it accords, in like circumstances, to investors of another Party or of a non-Party with respect to the establishment, acquisition, expansion, management, conduct, operation and sale or other disposition of investments.’ 7 Council of the European Union, Recommendation from the Commission to the Council on the modification of the negotiating directives for an Economic Integration Agreement with Canada in order to authorise the Commission to negotiate, on behalf of the Union, on investment, 14 July 2011, para. 26c(c), available at http://data.consilium.europa.eu/doc/document/ST-12838-2011-EXT-2/en/pdf (last accessed 8 July 2020). 8 Article X.5, leaked version of the CETA draft text of January 2011, ‘Canada-EU CETA Draft Consolidated Text – Post Round VI’, accessed via https://wiki.laquadrature.net/images/6/69/CETA_dra ft_jan_2011.pdf (last accessed 8 July 2020). 9 Article X.4, leaked version of the CETA draft text of 13 January 2010, ‘Draft Consolidated Text: Canada-EU Comprehensive Economic and Trade Agreement’, accessed via https://wiki.laquadrature.ne t/images/3/33/CETA_draft_jan_2010.pdf (last accessed 8 July 2020).
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European Parliament also wished to include such language.10 However, the January 2011 version shows that the EU apparently did not agree on the Canadian blueprint of according MFN treatment ‘in like circumstances’; instead, the EU proposed different wording, namely by referring to ‘like establishments and investors’.11 In this early 2011 version, the EU had also added a number of other amendments to the draft text. First, the EU proposed to accord to ‘establishments and investors’ (instead of merely to investors) of the other Party treatment no less favourable than accorded to like establishments and investors ‘of [a]major trading economy in the context of an economic integration agreement’. The EU offered a definition of ‘major trading economy’ in paragraph 4 of this version of the CETA: such an economy would have had a share of world merchandise exports of above 1 percent as an individual country, or a share of above 1.5 percent as a group of countries. Second, in this early 2011 draft version the EU first introduced exceptions to the MFN clause with respect to the recognition of qualifications, licences or prudential measures and with respect to international tax agreements. The leaked version of February 2012 had not changed in any meaningful way compared to the 2011 version, except that it now contained another exception to MFN treatment with respect to ‘economic integration agreements that create an internal market in services and establishment, an [sic!] to which a Party is a signatory’. 12 This typical Regional and International Organization (REIO) clause was intended to exclude benefits under free trade agreements, like NAFTA, or customs unions, like the EU, to the other CETA Party. The 2013 draft of the CETA investment text13 suggests that by November 2013, the EU and Canada had agreed on according MFN treatment ‘in like situations’ – this phrase remained part of the CETA’s final MFN clause. Furthermore, the EU’s proposal of covering ‘establishments’ in addition to investors and the reference to ‘major trading economy’ had disappeared by November 2013. The two 2011 exceptions and the additional 2012 REIO clause were in essence still part of the 2013 draft.14 The 2013 draft indicates that Canada and the EU had agreed 10 European Parliament, European Parliament resolution of 6 April 2011 on the future European international investment policy, 2010/2203(INI), para. 19: ‘non-discrimination (national treatment and most favoured nation), with a more precise wording in the definition mentioning that foreign and national investors must operate “in like circumstances”’. 11 Article X.5(1), leaked version of the CETA draft text of January 2011, ‘Canada-EU CETA Draft Consolidated Text – Post Round VI’, accessed via https://wiki.laquadrature.net/images/6/69/CET A_draft_jan_2011.pdf (last accessed 8 July 2020): ‘Each Party shall accord to [establishments and] EU investors of the other Party [a] EU treatment no less favourable than that it accords; [in like circumstances,] CAN to [like establishments and] EU investors [of major trading economy in the context of an economic integration agreement] EU [of a non-Party with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments in its territory] CAN.’ ‘EU’ or ‘CAN’ apparently denotes which party proposed the text contained in the respective preceding squared brackets’. 12 Article X.5, leaked version of the CETA draft text of February 2012, ‘Draft CETA Investment Text’, accessed via https://wiki.laquadrature.net/images/c/cc/CETA-Draft_Consolidated_text-February_2012. pdf (last accessed 8 July 2020). 13 Article X.8, leaked version of the CETA draft text of 21 November 2013, ‘Draft CETA Investment Text’, accessed via https://www.laquadrature.net/files/CETA-Draft-Investment-Text-Nov21-2013-203b -13.pdf (last accessed 8 July 2020). 14 Article X.8(3) Draft CETA Investment Text 21 November 2013: ‘Paragraph 1 shall not be construed to oblige a Party to extend to the investors of the other Party the benefit of any treatment resulting from: (a) treatment granted as a process of economic integration, which includes commitments to abolish substantially all barriers to investment, together with the approximation of legislation of the parties on a broad range of matters within the purview of this Agreement. (b) any international agreement for
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on these three exceptions in principle, but had issues with the exact location of these exceptions in the text. Ultimately, the REIO exception was placed in a rather low-profile annex on the basis Article 8.15 (→ mn. 38). The tax treaty exception was moved to Article 28.7(6) CETA (→ mn. 36 f.). Only the exception regarding treatment providing for recognition remained in the final MFN clause under paragraph 3. The November 2013 version of the MFN clause was the first to contain the exclusion of the Maffezini doctrine.15 However, this version did not yet bar the importation of better substantive treatment. Subsequently, the draft of the MFN provision underwent some significant changes. In the version of 1 August 2014,16 the MFN clause was almost identical to the final version and now also contained the qualification that it may not be invoked to import better substantive treatment (→ mn. 51 ff.).17 Hence, the substantive treatment exception was apparently added to the MFN clause between 21 November 2013 and 1 August 2014.18 Whether the MFN clause should also apply in the so-called pre-establishment phase of an investment, usually expressed by reference to ‘the establishment, acquisition, expansion’, or shall be limited to the post-establishment phase, usually expressed by reference to ‘conduct, operation, management, maintenance, use, enjoyment’, was apparently not subject to long controversies, although all earlier versions, including the 2013 draft text, indicated that this inclusion was still subject to EU approval. 19 While the MFN clauses of most BITs, including those of EU member states, usually do not include any reference to the pre-establishment phase, such language regarding the pre-investment, pre-establishment or pre-accession stage of investments has been traditionally included in Canadian (as well as US) BITs.20 This difference of approaches is rather significant since the Canadian/US tradition entails implicit investment liberalization commitments, namely that as soon as one contracting Party has made such commitments towards any third Party it also applies towards the other contracting Party. The Joint Report on the EU-Canada Scoping Exercise of 2009 did not refer to MFN treatment per se, but the sub-section on investment laid down that the negotiations should cover the pre- and post-establishment phase of investments. Hence, both Canada and the EU Commission advocated for an investment liberalization approach21 and
the avoidance of double taxation or other international agreement or arrangement relating wholly or mainly to taxation. (c) existing or future measures providing for recognition’. 15 Article X.8(4) Draft CETA Investment Text 21 November 2013: ‘For greater certainty, the ‘treatment’ referred to in Paragraph 1 and 2 does not include investor-to-state dispute settlement procedures provided for in other international investment treaties and other trade agreements’. 16 Article X.7, leaked version of the consolidated CETA draft of 1 August 2014, ‘Consolidated CETA Text’, accessed via https://old.laquadrature.net/files/ceta-complet.pdf (last accessed 8 July 2020). 17 Article X.7(4) CETA draft of 1 August 2014: ‘Substantive obligations in other international investment treaties and other trade agreements do not in themselves constitute ‘treatment’, and thus cannot give rise to a breach of this article, absent measures adopted by a Party pursuant to such obligations’. 18 See Reinisch ‘Putting the Pieces together … an EU Model BIT?’, in Bungenberg and Reinisch (guest eds), The Anatomy of the (Invisible) EU Model BIT, 15 JWIT (2014), 679 (696). 19 Article X.8 Draft CETA Investment Text 21 November 2013: ‘Subject to agreement by EU on inclusion of an MFN obligation regarding “establishment, acquisition, expansion” of an investment’. 20 Lévesque and Newcombe, ‘Canada’ in Brown (ed), Commentaries on Selected Model Investment Treaties (2013), 53 (76). 21 Commission Communication, Towards a Comprehensive European International Investment Policy, 7 July 2010, COM(2010)343 final, 5 (Commission White Paper).
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thus promptly agreed on including a reference to the pre-establishment phase both in the MFN and the national treatment clause. 22 All drafts, including Canada’s 2010 proposal, suggested to refer to a ‘government in Canada other than at the federal level’ and to a ‘government of or in a Member State of the European Union’ in more general terms as ‘sub-national government.’ 22 The negotiators clarified that this text was ‘to be adjusted for the EU regarding ‘sub-national government’ in relation to the Member States.’23 It ultimately became Article 8.7(2).
D. Commentary Article 8.7(1) obligates each treaty Party to accord to investors and investments of the Party ‘treatment no less favourable’ than the treatment it accords ‘in like situations’ to investors and investments of third Parties and it clarifies that the treatment envisaged relates to ‘the establishment, acquisition, expansion, conduct, operation, management, maintenance, use, enjoyment and sale or disposal of their investments.’ 24 This wording indicates that the Parties intentionally opted for the three-step test or analysis developed by NAFTA tribunals,24 but also followed by investment tribunals under other IIAs.25 25 This test helps to identify cases of discrimination by first identifying comparators, i.e. whether the complaining investor is ‘in like circumstances’ or ‘in like situations’ compared to investors from a third state allegedly receiving more favourable treatment, secondly, by identifying whether the complaining investors were indeed treated ‘less favourably’ and, thirdly, whether there exist any (inherent) justifications for the differential treatment.26 23
22 Article X.8(2) Draft CETA Investment Text 21 November 2013: ‘For greater certainty, the treatment accorded by a Party under paragraph 1 means, with respect to a sub-national government, treatment accorded, in like situations, by that sub-national government to investors, and to investments of investors, of any third country’. 23 Article X.8(2) Draft CETA Investment Text 21 November 2013: ‘Text to be adjusted for the EU regarding “sub-national government” in relation to the Member States’. 24 E.g., Pope & Talbot Inc. v. The Government of Canada, UNCITRAL (NAFTA), Award on the Merits (10 April 2001); Grand River Enterprises Six Nations, Ltd., et al. v. United States of America, UNCITRAL (NAFTA), Award (12 January 2011), para. 163; Apotex Holdings Inc. and Apotex Inc. v. United States of America, ICSID Case No. ARB(AF)/12/1, Award (25 August 2014), para. 8.53. 25 E.g., Parkerings v. Lithuania, ICSID Case No. ARB/05/8, Award (11 September 2007), paras. 368 f.; GEA Group Aktiengesellschaft v. Ukraine, ICSID Case No. ARB/08/16, Award (31 March 2011), para. 342; MNSS B.V. and Recupero Credito Acciaio N.V. v. Montenegro, ICSID Case No. ARB(AF)/12/8, Award (4 May 2016), para. 358. See also Reinisch/Schreuer, International Protection of Investments. The Substantive Standards (2020), 623 ff., 727 ff. 26 Grand River Enterprises Six Nations, Ltd., et al. v. United States of America, UNCITRAL (NAFTA), Award (12 January 2011), para. 163: ‘To assess whether there was a violation of either Article 1102 or 1103, the Claimants urged the Tribunal to utilize the three-step analytical model articulated by the Pope & Talbot. That is, the Tribunal should: — Identify comparable domestic investors and/or investments, — Determine whether the domestic investors/investments receive more favorable treatment, and then — Determine whether the difference in treatment is justified in the circumstances’.
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I. Scope of the MFN Obligation in Article 8.7(1) 1. ‘In like Situations’ Article 8.7(1) expressly includes a reference to ‘in like situations’. This corresponds 26 to many IIAs, clarifying that the treatment under MFN concerns investments and/or investors ‘in like situations’ or ‘in like circumstances’.27 As a matter of practice, though, many tribunals regard the requirement of ascer- 27 taining whether the allegedly discriminated investor or investment is in a comparable, similar or like situation to be inherent in scrutinizing compliance with MFN treatment, regardless of the specific wording of the MFN clause.28 Investment tribunals often seek to identify whether the investors and the allegedly 28 better treated third Parties are active in the same business sector, 29 a test that is particularly pertinent in national treatment cases.30
2. ‘Treatment No Less Favourable’ Like most MFN clauses, Article 8.7(1) demands treatment ‘no less favourable’ 29 than that accorded to investors and investments of third Parties, as opposed to ‘most-favourable’ or ‘equal’ treatment. Hence, host states may accord more favourable treatment to the investor or investment covered by the MFN clause. This corresponds to the consistent jurisprudence of investment tribunals.31
3. Pre-Investment Stage By including the terms ‘with respect to the establishment, acquisition, expansion,’ 30 Article 8.7(1) clearly covers the so-called pre-investment stage and in effect leads to a liberalization of market access in so far as access is granted to investors from third Parties. This extends the MFN clause’s scope of application beyond the post-establishment phase in which it certainly applies.
27 Article 1103 NAFTA (1992); Article 4 US Model BIT (2012); Article 4 Canadian Model FIPA (2004). 28 Parkerings-Compagniet AS v. Republic of Lithuania, ICSID Case No. ARB/05/8, Award (11 September 2007), para. 369, in regard to a BIT not containing any reference to like situations/circumstances, ‘[t]he essential condition of the violation of a MFN clause is the existence of a different treatment accorded to another foreign investor in a similar situation. Therefore, a comparison is necessary with an investor in like circumstances.’ 29 Grand River Enterprises Six Nations, Ltd., et al. v. United States of America, UNCITRAL (NAFTA), Award (12 January 2011), para. 166; MNSS B.V. and Recupero Credito Acciaio N.V. v. Montenegro, ICSID Case No. ARB(AF)/12/8, Award (4 May 2016), para. 362. 30 See, e.g., S.D. Myers, Inc. v. Government of Canada, UNCITRAL (NAFTA), Partial Award (13 November 2000), para. 250; Pope & Talbot Inc. v. The Government of Canada, UNCITRAL (NAFTA), Award on the Merits of Phase 2 (10 April 2001), para. 78. 31 Daimler Financial Services AG v. Argentine Republic, ICSID Case No. ARB/05/1, Award (22 August 2012), para. 243: ‘More fundamentally, however, the “different = less favourable” hypothesis proves false in situations where the provisions of the basic treaty may actually be more favorable than those of the comparator treaty. As the ILC noted, “while most-favoured-nation treatment excludes preferential treatment of third States by the granting State, it is fully compatible with preferential treatment of the beneficiary State by the granting State” […]’.
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II. MFN Treatment Also Accorded on the Provincial (Canada) and Member State (EU) Level Article 8.7(2) clarifies that the MFN obligation pursuant to paragraph 1 also applies to ‘a government in Canada other than at the federal level, or, […] a government of or in a Member State of the European Union.’ 32 In other words, MFN treatment must be accorded not only by the EU and the Canadian federal government, but also by Canadian provinces and EU Member States.32 Since the provision refers to ‘government of or in’ an EU member state, it probably also covers sub-national governments in federal EU member states. This was unclear33 in all the drafts prior to 2014, as the relevant paragraph broadly referred to ‘sub-national governments’. The 2013 draft was the first version that stated that the text regarding ‘sub-national government’ had to be adjusted to the EU context. 34 31
III. Exceptions from MFN Treatment Article 8.7(3) contains a very specific exception from the MFN obligation under paragraph 1: the MFN obligation does not encompass agreements that provide for the recognition of accreditations within the services industries. This provision is much more detailed than the 2013 draft which only excluded ‘existing or future measures providing for recognition.’35 This exception is also found outside CETA’s investment chapter, in Article 9.5(3) concerning cross-border trade in services. 36 34 No longer contained in Article 8.7 are the usual exceptions in regard to REIOs and taxation treaties, as they were originally envisioned in Article X.8(3)(a) and (b) of the 2013 Draft (→ mn. 13, 15). 35 Article X.8(3)(a) of the 2013 Draft provided that ‘[p]aragraph 1 shall not be construed to oblige a Party to extend to the investors of the other Party the benefit of any treatment resulting from: (a) treatment granted as a process of economic integration, which includes commitments to abolish substantially all barriers to investment, together with the approximation of legislation of the parties on a broad range of matters within the purview of this Agreement. […].’ 36 Article X.8(3)(b) of the 2013 Draft provided that ‘[p]aragraph 1 shall not be construed to oblige a Party to extend to the investors of the other Party the benefit of any treatment resulting from: […] (b) any international agreement for the avoidance of double taxation or other international agreement or arrangement relating wholly or mainly to taxation. […].’ 33
32 Daigremont, ‘Most Favoured Nation Treatment’ in Mbengue and Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (2019) 71 (77). 33 See also Tzanakopoulos, ‘National Treatment and MFN in the (Invisible) EU Model BIT’ in Bungenberg and Reinisch (guest eds.), The Anatomy of the (Invisible) EU Model BIT, 15 JWIT (2014), 484 (498). 34 Article X.8(2) Draft CETA Investment Text 21 November 2013: ‘Text to be adjusted for the EU regarding ‘sub-national government’ in relation to the Member States’. 35 Article X.8(3)(c) Draft CETA Investment Text 21 November 2013. 36 See also Daigremont, ‘Most Favoured Nation Treatment’ in Mbengue and Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (2019), 71 (79).
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The latter exception has migrated to the general CETA Chapter on ‘Exceptions’. Article 28.7(6) CETA specifically exempts investments, services and financial services from MFN obligations with regard to treaty-based taxation advantages.37 What is more surprising is the partial disappearance of the usual REIO clause from the investment chapter. An obscure version of a REIO clause has moved to an annex as envisaged by Article 8.15, the general ‘reservations and exceptions’ provision of the investment chapter.38 Article 8.15(2) contains a rather oblique reference of the possibility to specific, mostly sectoral exceptions from the investment obligations (including MFN) the Parties can make in annexes to the agreement. On this basis, the EU and its Member States have inserted numerous reservations.39 The EU also inserted a reservation relating to MFN treatment and applying to all sectors, safeguarding its ‘right to adopt or maintain any measure which accords differential treatment to a country pursuant to any existing or future bilateral or multilateral agreement which: (a) creates an internal market in services and investment; (b) grants the right of establishment; or (c) requires the approximation of legislation in one or more economic sectors.’40 This exception specifically refers to the European Economic Area (EEA), Stabilisation Agreements, and EU-Swiss Confederation bilateral agreements as covered examples.41
37 Article 28.7(6): ‘Articles 8.7 (Most-favoured-nation treatment [investments]), 9.5 (Most-favourednation treatment [cross-border trade in services]) and 13.4 (Most-favoured-nation treatment [financial services]) do not apply to an advantage accorded by a Party pursuant to a tax convention’. 38 Article 8.15: ‘1. Articles 8.4 through 8.8 do not apply to: (a) an existing non-conforming measure that is maintained by a Party at the level of: (i) the European Union, as set out in its Schedule to Annex I; (ii) a national government, as set out by that Party in its Schedule to Annex I; (iii) a provincial, territorial, or regional government, as set out by that Party in its Schedule to Annex I; or (iv) a local government. (b) the continuation or prompt renewal of a non-conforming measure referred to in subparagraph (a); or (c) an amendment to a non-conforming measure referred to in subparagraph (a) to the extent that the amendment does not decrease the conformity of the measure, as it existed immediately before the amendment, with Articles 8.4 through 8.8. 2. Articles 8.4 through 8.8 do not apply to a measure that a Party adopts or maintains with respect to a sector, subsector or activity, as set out in its Schedule to Annex II. […] 5. Articles 8.4, 8.6, 8.7 and 8.8 do not apply to: (a) procurement by a Party of a good or service purchased for governmental purposes and not with a view to commercial resale or with a view to use in the supply of a good or service for commercial sale, whether or not that procurement is “covered procurement” within the meaning of Article 19.2 (Scope and coverage); or (b) subsidies, or government support relating to trade in services, provided by a Party.’ Article 8.15 largely corresponds to the ‘Reservations and Exceptions’ clauses contained in Canadian investment treaties. See Lévesque and Newcombe, ‘Canada’ in Brown (ed), Commentaries on Selected Model Investment Treaties (2013), 53 (85). 39 The reservations by the EU comprise more than 20 pages, followed by individual EU member state reservations. 40 ANNEX II Schedule of the European Union Reservations applicable in the European Union (applicable in all Member States of the EU unless otherwise indicated): ‘The EU reserves the right to adopt or maintain any measure which accords differential treatment to a country pursuant to any existing or future bilateral or multilateral agreement which: (a) creates an internal market in services and investment; (b) grants the right of establishment; or (c) requires the approximation of legislation in one or more economic sectors’. 41 ANNEX II Schedule of the European Union Reservations applicable in the European Union.
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Further exceptions from the MFN obligation concern sensitive industries, such as air services and activities ‘carried out in the exercise of governmental authority’. However, these exceptions only apply to the establishment or acquisition of investments in these industries,42 as well as to audio-visual services (for the EU Party only) and to cultural industries (for Canada only).43 42 MFN treatment is also excluded for certain forms of government procurement as well as subsidies.44 41
IV. Exclusion of Procedural and Substantive Advantages 43
Article 8.7(4) clarifies that neither procedural nor substantive advantages contained in third Party treaties can be ‘imported’ into the CETA via its MFN clause.
1. MFN and Procedural Advantages Article 8.7(4) first sentence aims at ensuring that the so-called Maffezini doctrine cannot be invoked under CETA’s MFN clause. In what remains a controversial approach under many BITs, a number of investment tribunals have held that an MFN clause can be relied upon in order to invoke more favourable dispute settlement provisions contained in third Party BITs. 45 In 2000, the ICSID tribunal in Maffezini v. Spain45 was apparently the first one to hold that an investor could rely on the broadly formulated MFN clause contained in the 1991 Argentina-Spain BIT in order to avoid an 18-month waiting period before resorting to investment arbitration. The tribunal found that he was entitled to invoke the more favourable dispute settlement provisions of the Chile-Spain BIT 1991 which permitted the institution of investment arbitration without such a waiting period. 46 Subsequently, numerous tribunals have similarly permitted claimants to invoke MFN clauses in order to by-pass waiting periods,46 some even to overcome jurisdictional hurdles.47 47 Many other tribunals have rejected such an approach and stressed that an MFN clause cannot have the effect of supplanting consent to arbitration where no such 44
Article 8.2(2)(a) and (b). Article 8.2(3). 44 Article 8.15(5). 45 Emilio Agustín Maffezini v. The Kingdom of Spain, ICSID Case No. ARB/97/7, Decision on Jurisdiction (25 January 2000). 46 Siemens A.G. v. The Argentine Republic, ICSID Case No ARB/02/08, Decision on Jurisdiction, (3 August 2004); Gas Natural SDG, S.A. v. The Argentine Republic, ICSID Case No ARB/03/10, Decision on Jurisdiction (17 June 2005); Suez, Sociedad General de Aguas de Barcelona SA, and InterAguas Servicios Integrales del Agua SA v. The Argentine Republic, ICSID Case No ARB/03/17, Decision on Jurisdiction, (16 May 2006); Suez, Sociedad General de Aguas de Barcelona S.A., and Vivendi Universal S.A. v. The Argentine Republic, ICSID Case No. ARB/03/19 and AWG Group Ltd. v. The Argentine Republic, UNCITRAL, Decision on Jurisdiction (3 August 2006). 47 RosInvestCo UK Ltd v. The Russian Federation, SCC Case No Arb V079/2005, Award on Jurisdiction (5 October 2007). 42
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consent was contained in the basic treaty.48 Some tribunals even denied the possibility to overcome mere procedural hurdles like waiting periods through MFN clauses. 49 Meanwhile the issue has become an exemplary field that exposes the lack of co- 48 herence and predictability of investment standards and their application by arbitral tribunals. Some tribunals have even acknowledged that the issue has become ‘one of the quaestiones vexatae (or maybe the quaestio vexata)’ in investment arbitration, 50 that it has given rise to the ‘most heated debate,’51 and that through MFN clauses one enters a ‘fiercely contested no-man’s land in international law.’52 One of the practical responses to this lack of clarity has been that a number of more 49 recent IIAs expressly provide whether they allow53 or disallow54 the importation of better procedural treatment through an MFN clause. Article 8.7(4) first sentence stands in the tradition of such clarifying language. It 50 emphasizes ‘[f]or greater certainty’, that ‘procedures for the resolution of investment disputes between investors and states provided for in other international investment treaties and other trade agreements’ are not included in the notion of ‘treatment’. This broad wording ensures that not only the possibility to get access to ISDS and thus import jurisdiction is excluded where none would be available under the investment chapter of the CETA; it also affects mere procedural advantages such as avoiding waiting or consultation periods which most tribunals have characterized as mere admissibility conditions.
48 Salini Costruttori S.p.A and Italstrade S.p.A v. The Hashemite Kingdom of Jordan, ICSID Case No. ARB/02/13, Decision on Jurisdiction (29 November 2004); Plama Consortium Limited v. Republic of Bulgaria, ICSID Case No. ARB/03/24, Decision on Jurisdiction (8 February 2005); Telenor Mobile Communications A.S. v. The Republic of Hungary, ICSID Case No. ARB/04/15, Decision on Jurisdiction (13 September 2006); Renta 4 S.V.S.A, Ahorro Corporación Emergentes F.I., Ahorro Corporación Eurofondo F.I., Rovime Inversiones SICAV S.A., Quasar de Valors SICAV S.A., Orgor de Valores SICAV S.A., GBI 9000 SICAV S.A. v. The Russian Federation, SCC Case No. 24/2007, Award on Preliminary Objections (20 March 2009); Tza Yap Shum v. The Republic of Peru, ICSID Case No. ARB/07/6, Decision on Jurisdiction and Competence (19 June 2009); Austrian Airlines AG v. The Slovak Republic, UNCITRAL, Final Award (9 October 2009) (redacted version); ICS Inspection and Control Services Limited (United Kingdom) v. The Argentine Republic, PCA Case No. 2010-9 (UNCITRAL Rules), Award on Jurisdiction (10 February 2012); ST-AD GmbH v. The Republic of Bulgaria, UNCITRAL, PCA Case No. 2011-06, Award on Jurisdiction (18 July 2013). 49 Wintershall Aktiengesellschaft v. Argentine Republic, ICSID Case No ARB/04/14, Award (8 December 2008). 50 Tza Yap Shum v. The Republic of Peru, ICSID Case No. ARB/07/6, Decision on Jurisdiction and Competence (19 June 2009), para. 193. 51 Daimler Financial Services AG v. Argentine Republic, ICSID Case No. ARB/05/1, Award (22 August 2012), para. 157. 52 Garanti Koza LLP v. Turkmenistan, ICSID Case No. ARB/11/20, Decision on the Objection to Jurisdiction for Lack of Consent (3 July 2013), para. 40. 53 See Article 3(3) UK Model IPPA (2008): ‘For the avoidance of doubt it is confirmed that the treatment provided for in paragraphs 1 and 2 above shall apply to the provisions of Articles 1 to 12 of this agreement.’; Article 3(3) Austrian Model BIT (2008): ‘Each Party shall accord to investors of the other Party and to their investments or returns treatment no less favourable than that it accords to its own investors and their investments or to investors of any third State and their investments or returns with respect to the management, operation, maintenance, use, enjoyment, sale and liquidation as well as dispute settlement of their investments or returns, whichever is more favourable to the investor’. 54 Colombia-Switzerland BIT (2006), annex: ‘For greater certainty, it is further understood that the most favourable nation treatment […] does not encompass mechanisms for the settlement of investment disputes provided for in other international agreements concluded by the Party concerned.‘; Article 4(3) Singapore-UAE BIT (2011): ‘For greater certainty, paragraph 1 a shall not be construed as granting to investors options or procedures for the settlement of disputes other than those set out in this Agreement’.
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2. MFN and Substantive Advantages 51
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Article 8.7(4) second sentence goes beyond just excluding the Maffezini doctrine for purposes of ISDS under CETA. It also limits what investment tribunals routinely have accepted, i.e. to permit the ‘importation’ of more favourable substantive treatment. 55 It does so in different words than the exclusion of the Maffezini doctrine in Article 8.7(4) first sentence. Instead of ‘clarifying’ that substantive treatment is not included in the notion of treatment, it states that ‘substantive obligations’ in third treaties ‘do not in themselves constitute “treatment”’ and ‘thus’ cannot give rise to a breach of the MFN obligation and it adds an exception to the exclusion (‘absent measures adopted or maintained by a Party pursuant to those obligations’). What this complicated wording appears to intend is to ensure that investors cannot claim that one of the CETA Parties extended more favourable treatment in third Party treaties, such as a broader FET clause or an umbrella clause, and that such ‘treatment’ should now also be available to the CETA investors as a result of the MFN clause in Article 8.7(1). This would eliminate treaty shopping (or ‘standard shopping’) and is understandable since it would defeat the purpose of curtailing the scope of FET or excluding an umbrella clause, if such better investor treatment contained in other treaties could – through reliance on an MFN clause – be made available also to CETA investors.56 Accordingly, excluding substantive obligations of third treaties from the MFN clause is in line with the overall aim of the CETA’s investment chapter to recalibrate – i.e. restrain – the scope of investment protection.57 This seems to represent a trend in the newest generation of IIAs, as the MFN clauses in other recent IIAs or drafts thereof contain similar wording restricting the importation of substantive obligations. 58 The final part of the second sentence of Article 8.7(4) indicates, however, that a limited form of ‘importing’ better substantive treatment stipulated in third Party treaties is to be granted to CETA investors if a CETA Party adopts or maintains ‘measures’ ‘pursuant to those obligations’.59 This appears to be the case, for instance, where one of the CETA Parties not only promises broader FET rights than those provided for in Article 8.10 CETA (such as full transparency or broader stability and respect of legitimate expectations), but also takes measures ‘pursuant to those obligations’. It is unclear what exactly would constitute such measures. A literal interpretation suggests that these conditions are 55 Vladimir Berschader and Moise Berschader v. The Russian Federation, SCC Case No. 080/2004, Award (21 April 2006), para. 179; OAO Tatneft v. Ukraine, PCA UNCITRAL, Award (29 July 2014), para. 365; Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v. Islamic Republic of Pakistan, ICSID Case No. ARB/03/29, Award (27 August 2009), para. 155; Hesham Talaat M. Al-Warraq v. The Republic of Indonesia, UNCITRAL, Final Award (15 December 2014), para. 541. 56 Schill, ‘MFN Clauses as Bilateral Commitments to Multilateralism: A Reply to Simon Batifort and J. Benton Heath’ (2017) 111 AJIL, 914 (929). 57 See European Commission, Investment provisions in the EU-Canada free trade agreement (CETA), 1 February 2016 on the right to regulate in CETA, available at https://trade.ec.europa.eu/doclib/docs/201 3/november/tradoc_151918.pdf (last accessed 8 July 2020). 58 See Article 8.9.5 EU-Japan Economic Partnership Agreement (entry into force 1 February 2019); Article 8.6.5 EU-Vietnam Trade Agreement and an Investment Protection Agreement (signed 30 June 2019); Article 7.4 Draft Pan-African Investment Code (31 December 2016); Article 5.7 Protocol of Cooperation and Intra-Mercosur Investment Facilitation (entry into force 30 July 2019). 59 A similar interpretative problem is likely to arise under the Article 8.6.5 EU-Vietnam Trade Agreement and an Investment Protection Agreement (signed 30 June 2019): ‘Substantive obligations in such agreements do not in themselves constitute “treatment” and thus cannot be taken into account when assessing a breach of this Article. Measures by a Party pursuant to those substantive obligations shall be considered “treatment”’.
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fulfilled if a CETA Party not only promises more transparency, broader stability or respect of legitimate expectations than under Article 8.10 CETA in a third Party treaty, but actually accords such treatment, i.e. takes or maintains measures pursuant to those obligations. Hence a CETA Party promising such more favourable treatment, but not actually according it to third Party investors, would not be covered by the obligation. It is unlikely that the negotiating Parties intended such an absurd result, privileging a Party violating its obligations emanating from third Party treaties over a rule-abiding one. What was more likely intended by the treaty negotiators through inserting a reference to ‘measures adopted or maintained by a Party pursuant to those obligations’ was to emphasize that the obligation under the MFN clause should only apply to actual ‘measures adopted or maintained by a Party’, what is also sometimes referred to as factual or de facto treatment,60 and not to abstract legal promises to accord some forms of treatment, thus pre-empting treaty shopping.61 This intention can also be gleaned from other EU IIAs expressing this aim in similar, but different terms. For instance, the EU-Japan Economic Partnership Agreement also limits the importation of substantive obligations through its MFN clause, but does so less cryptically than the CETA. It clarifies that only ‘actions or inactions of a Party’ in relation to substantive provisions can constitute ‘treatment’ and thus give rise to a breach. 62 A clarifying footnote to this provision states that the mere ‘implementation’ of treaty obligations into domestic law does not amount to ‘actions or inactions of a Party.’ 63 Such wording also suggests that this new generation of MFN clauses only covers actual treatment accorded to third Party investors and not abstract legal promises contained in other IIAs. In the past practice of investment arbitration, MFN clauses have been mainly relied upon in order to ‘import’ more favourable treatment obligations (of a procedural or substantive character) under a third Party IIA. Claims concerning actual factually discriminating treatment have been rare and have often been unsuccessful. 64 60 The terminology de facto and de jure treatment is unfortunate in this context. In particular, in trade jurisprudence it rather focuses on whether measures are openly discriminatory or only indirectly, de facto affect certain groups. 61 Daigremont, ‘Most Favoured Nation Treatment’ in Mbengue and Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (2019), 71 (88): ‘In this way, MFN treatment forbids de facto discrimination, not de jure discrimination arising from differences in clauses or in formulations in investment agreements.’ See also European Commission, Investment provisions in the EU-Canada free trade agreement (CETA), 1 February 2016, available at https://trade.ec.europa.eu /doclib/docs/2013/november/tradoc_151918.pdf (last accessed 8 July 2020): ‘CETA does not allow investors to “import” and use in the dispute settlement procedures the substantive provisions from other agreements (e.g. from Treaties of EU Member States) that they consider are more advantageous to their interests’; this also corresponds to the Canadian position in some NAFTA cases, arguing that it requires a comparison between actual treatment and not between treaty standards. See Lévesque and Newcombe, ‘Canada’ in Brown (ed), Commentaries on Selected Model Investment Treaties (2013) 53 (78). 62 Article 8.9.5 EU-Japan Economic Partnership Agreement (entry into force 1 February 2019): ‘Substantive provisions in other international agreements concluded by a Party with a third country do not in themselves constitute treatment under this Article. For greater certainty, actions or inactions of a Party in relation to those provisions can constitute treatment and thus can give rise to a breach of this Article to the extent that the breach is not established solely based on the said provisions’. 63 Fn. to Article 8.9.5. EU-Japan Economic Partnership Agreement: ‘For greater certainty, the mere transposition of those provisions into domestic legislation does not change their qualification as international law provisions and consequently their coverage under this paragraph’. 64 Parkerings-Compagniet AS v. Republic of Lithuania, ICSID Case No. ARB/05/8, Award (11 September 2007) (denying MFN violation because the investor was not in like circumstances with a third Party comparator); AES Summit Generation Limited and AES-Tisza Erömü Kft. v. Republic of Hungary, ICSID
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As a result of the specific limitations of Article 8.7(4), the practical importance of CETA’s MFN clause will be considerably reduced.
E. Conclusion CETA’s MFN clause departs from the MFN provisions traditionally found in bilateral and multilateral investment treaties in a number of ways. The inclusion of the pre-investment phase may have a ‘liberalization’ effect, re-enforcing the effects expected from the inclusion of access to the national treatment obligation. 64 However, the explicit exclusion of the ‘importation’ of more favourable procedural treatment under the so-called Maffezini doctrine and of better substantive treatment will considerably limit the practical use of CETA’s MFN clause. What is left is a standard ensuring that de facto treatment of investors of the other Party be no less favourable than that enjoyed by investors from third states. 63
Case No. ARB/07/22, Award (23 September 2010) (denying MFN violation because there was no less favourable treatment); MNSS B.V. and Recupero Credito Acciaio N.V. v. Montenegro, ICSID Case No. ARB(AF)/12/8, Award (4 May 2016) (denying MFN violation because there were justifiable reasons for different treatment).
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Article 8.8 Senior management and boards of directors A Party shall not require that an enterprise of that Party, that is also a covered investment, appoint to senior management or board of director positions, natural persons of any particular nationality. Bibliography: Vivienne Bath, ‘The South and Alternative Models of Trade and Investment Regulation – Chinese Investment and Approaches to International Investment Agreements’ in Fabio Morosini and Michelle Ratton Sanchez Badin (eds), Reconceptualising International Investment Law from the Global South (Cambridge University Press, Cambridge 2017), 47; Michael Hahn and Pierre Sauvé, ‘Research for the CULT Committee – Culture and Education in CETA’, (European Parliament, 2016); Barbara Kotschwar, ‘Mapping investment provisions in regional trade agreements: towards an international investment regime?’ in Antoni Estevadeordal, Kati Suominen, Robert Teh (eds), Regional Rules in the Global Trading System (Cambridge University Press, Cambridge 2009), 365; Koutrakos et. al. (eds), Exceptions from Free Movement Law – Derogation, Justification and Proportionality (2016); Junianto James Losari, ‘An International Investment Agreement for East Asia: Issues, Recent Developments and Refinements’ in Ing, Richardson, Urata (eds), East Asian integration: goods, services and investment (2019), 230; Andrew Newcombe and Luis Paradell, Law and Practice of Investment Treaties – Standards of Treatment (Kluwer 2009); Laura Puccio, Wilhelm Schöllmann and Giulio Sabbati. ‘CETA and public services’, (European Parliament, 2017); UNCTAD, World Investment Report 2012 (United Nations Publications, New York and Geneva 2012), Erich Vranes, ‘The Contents of CETA, TTIP and TiSA - The (Envisaged) Trade Disciplines’ in Stefan Griller, Walter Obwexer, and Erich Vranes (eds), Mega-Regional Trade Agreements: CETA, TTIP, and TiSA: New Orientations for EU External Economic Relations (Oxford University Press, 2017), 47. A. Introduction and Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
B. Spirit and Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3
C. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10
D. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13
E. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17
A. Introduction and Overview This provision is about the application of the non-discrimination principle to se- 1 nior management and members of boards of directors of companies which constitute covered investments. It is laid down in Article 8.8 CETA and part of the limited number of provisions of Chapter 8 on investment protection that applied provisionally pending ratification of the Agreement.1 Its interpretation and application are subject to the jurisdiction of the CETA Tribunal pursuant to Article 8.18(1)(a) CETA. Neither the personal scope nor the substantive content of Article 8.8 CETA were 2 obvious at the time of the negotiation of CETA, as there is no uniformity on the matter in international treaty-making. This chapter will set out the implications of the provision and will shed light on the EU and international policy context against which it was adopted.
1 Article 1(a) of Council Decision 2017/38 on the provisional application of the Comprehensive Economic and Trade Agreement (CETA) between Canada, of the one part, and the European Union and its Member States, of the other part [2017] OJ L 11/1080.
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B. Spirit and Purpose 3
4
5
6
7
From the perspective of international investment law, the appointment of senior management and boards of directors pertains to two different but overlapping interests.2 On the one hand, States have the sovereign power to regulate the movement of persons into their territory and to determine the conditions under which they may enter.3 They also have an interest to promote the employment of their citizens in every way possible, for instance by linking it to the implementation of investment activities protected under international treaties. On the other hand, senior management and boards of directors are central to the successful pursuit of investment activities and, therefore, the achievement of the objectives of investment treaties. The confidence that foreign investors may have in their own employees, irrespective of their nationality, is also central to their willingness to carry out investment projects. How to strike the balance between these interests is not uncontested and has not been approached in a uniform manner in practice. The provision laid down in Article 8.8 CETA is broad in scope, as it imposes the non-discrimination requirement on both senior management and board of directors. In fact, it has been viewed as ‘very liberal’.4 It is, however, not absolute as it is subject to a range of exceptions. These are as follows. First, there is a general exception laid down in Article 28.3.2 about public security or public morals or to maintain public order, the protection of human, animal or plant life or health, compliance with laws or regulations which are not inconsistent with the provisions of this Agreement including those relating to the prevention of deceptive and fraudulent practices or to deal with the effects of a default on contracts; the protection of the privacy of individuals in relation to the processing and dissemination of personal data and the protection of confidentiality of individual records and accounts; or safety. It is noteworthy that a deviation from the non-discrimination principle in order to protect public security and public order is provided ‘only where a genuine and sufficiently serious threat is posed to one of the fundamental interests of society’ (Article 28.3.2, footnote 31). Aiming to confine any deviation from the non-discrimination principle to high exceptional circumstances, this wording is familiar from Article XIV GATS which construes the public security and public order exceptions in identical terms.5 It is also familiar from EU law itself, as exceptions from the fundamental provisions of free movement are construed in similarly narrow terms.6 Second, there is a standstill exception which applies to existing non-conforming measures. This covers: existing non-conforming measures adopted at EU, State, provincial, territorial, regional government as set out in the schedules in Annex I See UNCTAD, World Investment Report 2012, 151. See Newcombe and Paradell, Law and Practice of Investment Treaties – Standards of Treatment (2009), 142 ff. 4 Losari, ‘An International Investment Agreement for East Asia: Issues, Recent Developments and Refinements’ in Ing, Richardson, Urata (eds), East Asian integration: goods, services and investment (2019), 230 (249). 5 Footnote 5 to Article XIV GATS. 6 See, for instance, Article 27(2) subparagrpah 3 of Directive 2004/38 on the rights of citizens of the Union and their family members to move and reside freely within the territory of the Member States [2004] OJ L 158/77. The reference in this provision to ‘a genuine, present and sufficiently serious threat affecting one of the fundamental interests of society’ draws from prior case-law of the European Court of Justice (eg CJEU, Case 67/74, 26.02.1975, Bonsignore, EU:C:1975:34, para. 6). On exceptions under EU law, see Koutrakos et. al. (eds), Exceptions from Free Movement Law – Derogation, Justification and Proportionality (2016). 2
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or a local government (Article 8.15(1)(a) CETA); the continuation or renewal of the above existing non-conforming measures (Article 8.15(1)(b) CETA); the amendments of the above existing non-conforming measures in so far as they do not decrease the conformity of the measure with the national treatment obligation (Article 8.15(1) CETA). Third, there is an exception that applies to sectors, subsectors and activities laid 8 down in Annex II (Article 8.15(2) CETA) and covers future measures, as it enables the Parties to adopt new or even more restrictive measures in these areas. 7 The analysis of the above exceptions, the negative listing approach that is adopted 9 by the Parties and the scope of the relevant schedules is beyond the scope of this Chapter (→ Art. 8.15 mn. 22 ff.). At this juncture, suffice it to point out the volume and range of the reservations.8 As these may reflect the heated debate about the reach of investment protection under international law, they are indicative of the ensuing concern of the EU to protect its and the Member States’ regulatory space. 9
C. Drafting History The scope of Article 8.8 CETA evolved over the period of the negotiation of 10 the Agreement. Originally, the Canadian side proposed that the non-discrimination requirement covered only senior management and suggested the right of either Party to impose a nationality and residence requirement for a majority of the board of directors, ‘provided that the requirement does not materially impair the ability of the investor to exercise control over its investment’. This was consistent with Canadian treaty practice, as it reflected the approach adopted in the Canadian Model BIT. 10 We also find it in other treaties, both bilateral (such as the US-South Korea Free Trade Agreement11), and multilateral, such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP),12 NAFTA,13 ASEAN Comprehensive Investment Agreement,14 and the Dominican Republic Central America Free Trade Agreement.15 The EU, on the other hand, proposed a non-discrimination clause which would 11 not only cover senior management and membership of the board of directors but also residency or prior residency in the territory of a Party. This reflects partly other agreements negotiated by the EU: the EU-Japan Agreement for an Economic Partnership, for instance, includes a clause of broader scope, as it applies to executives, managers and members of the boards of directors,16 and the EU-Mexico Agreement 7 For the exceptions covering existing and future measures, see Vranes, ‘The Contents of CETA, TTIP and TiSA – The (Envisaged) Trade Disciplines’ in Griller et. al. (eds), Mega-Regional Trade Agreements: CETA, TTIP, and TiSA: New Orientations for EU External Economic Relations (2017), 47 (61 f.). 8 See Puccio et. al. CETA and public services, European Parliament (2017), especially the helpful tables at p. 26 ff. (https://www.europarl.europa.eu/RegData/etudes/IDAN/2017/599268/EPRS_IDA(2017)5992 68_EN.pdf). 9 See, for instance, Hahn and Sauvé, Culture and Education in CETA – Research for the CULT Committee European Parliament (2016), 22-3. (https://www.europarl.europa.eu/RegData/etudes/STUD/2016/5 85902/IPOL_STU(2016)585902_EN.pdf). 10 Article 8(1) and (2). 11 Article 11.9(1)-(2). 12 Article 9.11 CPTPP. 13 Article 1107(1) and (2). 14 Article 8.1-2. 15 Article 10.10(1)-(2). 16 Article 8(10) ([2018] OJ L 330/3).
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prohibits any nationality requirement for senior management and any nationality or residence requirement of a combination thereof for members of boards of directors. 17 The EU practice on the matter is, nonetheless, not uniform: 18 for instance, there is no corresponding provision in either the EU-Vietnam Investment Protection Agreement or the EU-Singapore Investment Protection Agreement. 19 12 The scope of the finalised provision of Article 8.8 addresses a concern by the EU that existing nationality requirements in Canada impeded investment in sectors such as telecommunications. On the other hand, nationality limitations exist in certain Member States too.20 The overall scheme of Article 8.8, its broad scope supplemented by general as well as sectoral exceptions, provides for a balanced approach to the interests that underpin the treatment of senior management and boards of directors.
D. Commentary The term ‘covered investment’ is defined in Article 8.1 CETA with reference to four conditions that must be met cumulatively: the investment must be located in the territory of a Party to the Agreement; must be made in accordance with the applicable law at the time the investment is made; must be directly or indirectly owned or controlled by an investor of the other Party; must exist on the date of entry into force of this Agreement, or made or acquired thereafter. 14 The wording of Article 8.8 is not a model of clarity. The subject of the prohibition laid down therein (‘[a] party’) appears to be identical to the State under whose legislation the beneficiary of the provision has been constituted (‘an enterprise of that Party’). Viewed literally, this would suggest that it is the home, rather than the host, State that may be prevented from imposing nationality requirements to senior management and board of director positions of its companies. While the current formulation is found in all drafts of CETA, such a reading is not sustained by either the definition of covered investment in Article 8.1 or the purpose of the provision laid down in Article 8.8. It is also noteworthy that the mirror provision laid down in Article 13.8 CETA which applies to financial services leaves no room for confusion (‘A Party shall not require that a financial institution of the other Party appoint to senior management or board of director positions, natural persons of any particular nationality’). 13
Article 10. There is also no consistency in international practice either. There are, for instance, treaties which leave their provision on senior management and boards of directors largely unqualified, a case in point being the Economic Community of West African States (ECOWAS) Supplementary Act (Article 9(1)-(2) Supplementary Act A/SA.3/12/08 Adopting Community Rules on Investment and the Modalities for the Implementation with ECOWAS.) On the other hand, investment treaties concluded by China do not normally include nationality provisions regarding senior management and boards of directors (see Bath, ‘The South and Alternative Models of Trade and Investment Regulation – Chinese Investment and Approaches to International Investment Agreements’ in Morosini and Ratton Sanchez Badin (eds), Reconceptualising International Investment Law from the Global South (2017), 47 (62)). See also Kotschwar, ‘Mapping investment provisions in regional trade agreements: towards an international investment regime?’ in Estevadeordal et. al. (eds), Regional Rules in the Global Trading System (2009), 365 (394) and the tables at 401 ff. 19 We also find relevant provisions in agreements with no investment chapters. The Association Agreement with Mercosur refers only to the composition of the boards of directors in the context of trade in services and establishment and in a qualified manner (Footnote 6 to Article 6(1)). 20 See Assessing the Costs and Benefits of a Closer EU – Canada Economic Partnership (A Joint Study by the European Commission and the Government of Canada), p. 92. 17 18
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Article 8.8 does not provide any detail about the definition of ‘senior management 15 or board of director positions’. The term ‘senior management’ is not defined in CETA itself. The mirror provision of Article 13.8 CETA, applicable to financial services, uses the same formulation. Other international agreements provide more detail as to the personal scope of this clause. The South Korea-Japan BIT, for instance, refers to ‘executives, managers or members of boards of directors’.21 The drafting history of the provision and the later addition of board of director positions to the original reference to senior management suggest that the Parties intended the scope of the clause to be construed broadly. The only other part of CETA where some detail is provided is in the specific context of temporary entry and stay of natural persons for business purposes in Chapter 10 CETA. In particular, Article 10(c)(i) refers to ‘senior personnel’ and defines it as follows: ‘natural persons working in a senior position within an enterprise who: (A) primarily direct the management of the enterprise or direct the enterprise, or a department or sub-division of the enterprise; and (B) exercise wide latitude in decision making, which may include having the authority to personally recruit and dismiss or to take other personnel actions (such as promotion or leave authorisations), and (I) receive only general supervision or direction principally from higher level executives, the board of directors, or stockholders of the business or their equivalent; or (II) supervise and control the work of other supervisory, professional or managerial employees and exercise discretionary authority over day-to-day operations’. While Article 10(c)(i) refers to ‘senior personnel’ rather than ‘senior management’, the argument that the former may support the definition of the latter by analogy is plausible. The reference to directing the management of the enterprise in Article 10(c)(i) CETA may support this view. Be that as it may, the broad formulation of Article 8.8 CETA needs to be viewed in the light of the exceptions outlined above in Section A (‘Spirit and Purpose’). Consistently with similar provisions in other agreements (→ mn. 10), the clause 16 laid down in Article 8.8 does not distinguish between existing or new senior management members or board of directors positions. On the other hand, the material scope of its prohibition is not intended to be so broad as to override the immigration rules of the Parties. It is not, in other words, about granting an unlimited right of entry into the territory of the host State. It is, instead, about preventing the host State from introducing legislation aiming to impose the participation of its nationals in the management or control of an investment by another Party. In doing so, it promotes investment by enabling investors from other Parties to maintain or appoint to senior positions individuals of their choice. Again, however, this broad scope ought to be viewed along with the accompanying exceptions.
E. Conclusion The clause laid down in Article 8.8 is broad regarding both its personal and 17 material scope, hence reflecting the ambition of the Parties to CETA and the high level of liberalisation introduced by the Agreement. On the other hand, its objective to encourage investment by unshackling the senior management choices of foreign investors from nationality requirements is not without constraints: being accompanied by a range of exceptions, this provision should be viewed in its proper context that also aims not to ignore the vital interests of the Parties. 21
Article 8.1 CETA.
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Article 8.9 Investment and regulatory measures 1. For the purpose of this Chapter, the Parties reaffirm their right to regulate within their territories to achieve legitimate policy objectives, such as the protection of public health, safety, the environment or public morals, social or consumer protection or the promotion and protection of cultural diversity. 2. For greater certainty, the mere fact that a Party regulates, including through a modification to its laws, in a manner which negatively affects an investment or interferes with an investor's expectations, including its expectations of profits, does not amount to a breach of an obligation under this Section. 3. For greater certainty, a Party's decision not to issue, renew or maintain a subsidy: (a) in the absence of any specific commitment under law or contract to issue, renew, or maintain that subsidy; or (b) in accordance with any terms or conditions attached to the issuance, renewal or maintenance of the subsidy, does not constitute a breach of the provisions of this Section. 4. For greater certainty, nothing in this Section shall be construed as preventing a Party from discontinuing the granting of a subsidy1 or requesting its reimbursement where such measure is necessary in order to comply with international obligations between the Parties or has been ordered by a competent court, administrative tribunal or other competent authority2, or requiring that Party to compensate the investor therefor. Reference to the Respective Provisions in Other EU Treaties: Article 16.2(1) EUJapan Free Trade Agreement (FTA); Ch ‘Investment’ Article 1 EU-Mexico FTA; Article 2.2 EU-Singapore Investment Protection Agreement (IPA); Article 2.2 EUVietnam IPA. Bibliography: José E. Alvarez, ‘“Beware: Boundary Crossings” – A Critical Appraisal of Public Law Approaches to International Investment Law’ (2016) 17 JWIT, 171; Jonathan Bonnitcha, Lauge N. Skovgaard Poulsen and Michael Waibel, The Political Economy of the Investment Treaty Regime (Oxford University Press, Oxford 2017); Garrett W. Brown, Iain McLean and Alistair McMillan, A Concise Oxford Dictionary of Politics and International Relations (4th edn, Oxford University Press, Oxford 2018); James Crawford, Brownlie’s Principles of Public International Law (8th edn, Oxford University Press, Oxford 2012); Patrick Dumberry, ‘Fair and Equitable Treatment’ in Makane Moïse Mbengue and Stefanie Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (Springer Nature Switzerland, Cham 2019), 95; David Gaukrodger, ‘The Balance between Investor Protection and the Right to Regulate in Investment Treaties: A Scoping Paper’, (2017) 2 OECD Working Papers on International Investment, 1; David Gaukrodger, ‘“Indirect Expropriation” and the “Right to Regulate” in International Investment Law’ (2004) 4 OECD Working Papers on International Investment; Herwig C. H. Hofmann and Claire Micheau (eds), State Aid Law of the European Union (Oxford University Press, Oxford 2016); Jola Gjuzi, Stabilization Clauses in International Investment Law: A Sustainable Development Approach (Springer, Heidelberg 2018); Caroline Henckels, Proportionality and Deference in Investor-State Arbitration – Balancing Investment Protection and Regulatory Autonomy (Cambridge University Press, Oxford 2015); Caroline Henckels, ‘Indirect Expropriation and the Right to Regulate: Revisiting Proportionality Analysis and the Standard of Review in Investor-State Arbitration’ (2012) 15 J. Int’l Econ. L. 223; Caroline Henckels, ‘Balancing Investment Protection and Sustainable Development in Investor-State Arbitration: The Role of Deference’ in Andrea Bjorklund (ed), YB Int’l. Inv. L. & Pol’y 2012-2013 (Oxford University Press, Oxford 2014), 305; Lise Johnson, Lisa Sachs and Nathan Lobel, ‘Aligning International Investment Agreements with the Sustainable Development Goals’, (2019) 58 In the case of the European Union, ‘subsidy’ includes ‘state aid’ as defined in its law. In the case of the European Union, ‘competent authority’ is the European Commission, in accordance with Article 108 of the Treaty on the Functioning of the European Union. 1
2
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Colum. J. Transnat’l L., 58; Benedict Kingsbury and Stephan W. Schill, ‘Public Law Concepts to Balance Investors’ Rights with State Regulatory Actions in the Public Interest – the Concept of Proportionality’, in Stephan W. Schill (ed), International Investment Law and Comparative Public Law (Oxford University Press, Oxford 2010), 75-104; Ursula Kriebaum, ‘Regulatory Takings: Balancing the Interests of the Investor and the State’, (2007) 8 JWIT, 717; Yulia Levashova, The Right of States to Regulate in International Investment Law: The Search for Balance between Public Interest and Fair and Equitable Treatment (Kluwer Law International, Alphen aan den Rijn 2019); Isabelle Michou, ‘Dérogations à la protection et droit de réglementer’ in Tarek El Ghadban, Charles-Maurice Mazuy and Alexandre Senegacnik (eds), La protection des investissements étrangers: vers une réaffirmation de l’État ? – The protection of foreign investments: a reaffirmation of the State?: Actes du colloque du 2 juin 2017 (Pedone 2018), 57; Howard Mann, ‘Investment Liberalization: Some Key Elements and Issues in Today’s Negotiating Context’ (2007) Issues in International Investment Law (International Institute for Sustainable Development (IISD)); Arnaud de Nanteuil, ‘Expropriation’ in Makane Moïse Mbengue and Stefanie Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (Springer Nature Switzerland, Cham 2019), 127; Frederico Ortino, ‘Investment Treaties, Sustainable Development and Reasonableness Review: A Case Against Strict Proportionality Balancing’ (2017) 30 Leiden J. Int’l. L., 71; Emily Reid , Balancing Human Rights, Environmental Protection and International Trade: Lessons from the EU Experience (Hart Publishing, Oxford 2015); August Reinisch, ‘The Interpretation of International Investment Agreements’, in Marc Bungenberg, Jörn Griebel, Stephan Hobe and August Reinisch (eds), International Investment Law – A Handbook (C.H.Beck/Hart/Nomos, Baden-Baden 2015), 372; Christian Riffel, ‘The CETA Opinion of the European Court of Justice and Its Implications – Not That Selfish After All’ (2019) 22 J. Int’l Econ. L., 503; Stefanie Schacherer, International Investment Law and Sustainable Development: Key Cases from the 2010 s (International Institute for Sustainable Development (IISD), Winnipeg 2018), https://www.iisd.org/sites/default/files/publications/investment-law-sustainable-development-te n-cases-2010 s.pdf (last accessed 24 June 2020); Stefanie Schacherer, ‘The CETA Investment Chapter and Sustainable Development: Interpretative Issues’ in Makane Moïse Mbengue and Stefanie Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (Springer Nature Switzerland, Cham 2019), 207; Stephan W. Schill and Vladislav Djanic, ‘International Investment Law and Community Interests’ (2016) Society of International Economic Law (SIEL) Working Paper No. 2016/01; Stephan W. Schill , ‘Deference in Investment Treaty Arbitration: Re-Conceptualizing the Standard of Review’ (2012) 3 J. Int’l. Disp. Settlement, 577; Aikaterini Titi, The Right to Regulate in International Investment Law (Nomos, Baden-Baden 2014); Catharine Titi, ‘The Right to Regulate’, in Makane Moïse Mbengue and Stefanie Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (Springer Nature Switzerland, Cham 2019), 159; André von Walter, ‘Balancing Investors’ and Host States’ Rights – What Alternatives for Treaty- makers?’ in Marc Bungenberg, Jörn Griebel and Steffen Hindelang (eds), Special Issue: International Investment Law and EU Law (Springer, Berlin Heidelberg 2011), 141. A. Introduction and Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
B. Spirit and Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. Preamble . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. The CETA Joint Interpretative Instrument . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. The Right to Regulate under CETA Chapters on Sustainable Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV. Other CETA Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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C. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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D. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. Article 8.9(1) – The Principle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Reaffirming the Right to Regulate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. ‘Legitimate Policy Objectives’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. General Regulation and Specific Measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Article 8.9(2) – Balancing Investment Protection with States’ Regulatory Measures in the Public Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Guiding the Discretionary Powers of CETA Tribunals . . . . . . . . . . . . . . . . . a) A Deferential Standard of Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . b) Proportionality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Remaining Discretionary Powers of CETA Tribunals . . . . . . . . . . . . . . . . . . a) With Respect to Indirect Expropriation (Article 8.12 and Annex 8-A CETA) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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Investment and regulatory measures b) With Respect to FET Including Legitimate Expectations (Article 8.10 CETA) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. Article 8.9(3) – ‘A Party’s Decision Not to Issue, Renew or Maintain a Subsidy’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. A Specific Commitment under Law or Contract . . . . . . . . . . . . . . . . . . . . . . . 2. The Decision Is in Accordance with the Terms or Conditions of the Subsidy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV. Article 8.9(4) – Unlawful Subsidies due to International Law Obligations or Order by any Competent Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. EU State Aid Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. International Law Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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E. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
38
25 26 28 32
A. Introduction and Overview 1
Article 8.9 CETA on ‘Investment and Regulatory Measures’ confirms governments’ right to regulate. The provision is at the centre of a continuous and vigorous debate on how to ensure a proper balance between private business interests and the prerogative of States to regulate public welfare issue. As the reform debate of the last decade has repeatedly highlighted, international investment agreements (IIAs) came under criticism as their substantive protection standards do not leave enough policy flexibility for States. The broadly worded protection standards together with the investor-State dispute settlement (ISDS) system afford high levels of discretion to adjudicators, which creates uncertainties. While, it would be wrong to affirm that arbitral tribunals have denied the State’s right to regulate (and re-regulate) in the past, they have been criticised for adopting approaches that are more responsive to the particular interests of private business. Under CETA, a foreign investor can directly invoke the substantive protection standards against the host State or the EU. Therefore, investment tribunals under the Investment Court System (ICS) are in charge of undertaking the balance between the host States’ right to regulate and the investors’ rights. 3 As the present commentary shows, Article 8.9 is a central provision of CETA. It serves interpretative purposes seeking to guide the discretionary powers of adjudicators when weighing the various public and private interests at stake in future cases.
B. Spirit and Purpose 2
A first feature of Article 8.9 CETA is that the provision is cross-cutting and should therefore not be read in isolation. The cross-cutting elements are highlighted in the first paragraph of Article 8.9 CETA as it starts with ‘[f]or the purpose of this Chapter’, which means that the core statement on the right to regulate interacts with the whole Investment Chapter of CETA. The following paragraphs 2 to 4 of Article 8.9 CETA then refer more specifically to Section D on ‘Investment Protection’. 4 Being the first provision of Section D, the statement on the right to regulate seeks to set the tone 3 Acknowledged by the Court of Justice of the European Union (CJEU); see CJEU, Opinion 1/17, 30.04.2019, ECLI:EU:C:2019:341 (hereafter: Opinion 1/17), para. 137: ‘[…] the CETA Tribunal might, in the course of its examination of the relevant facts, which may include the primary law on the basis of which the contested measure was adopted, weigh the interest constituted by the freedom to conduct business, relied on by the investor bringing the claim, against the public interest, set out in the EU and FEU Treaties and the Charter, relied on by the Union in support of its defence’. 4 See the wording ‘Under this Section’ (8.9(2)); ‘provisions of this Section’ (8.9(3)); ‘nothing in this Section’ (8.9(4)).
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for the application and interpretation of the investment protection standards: fair and equitable treatment (FET) (Article 8.10), compensation for losses (Article 8.11), expropriation (Article 8.12 and Annex 8-A) as well as transfers and subrogation (Article 8.13). In practice, the link between Article 8.9 CETA and the clauses on FET and indirect expropriation will be the most relevant one. Beyond the provision of Article 8.9 CETA, one finds references to the right to regulate in the general treaty structure of CETA, which further underline the cross-cutting purposes of the principle.
I. Preamble A number of references to the right to regulate can be found in the preamble of 3 the CETA. Whilst the CETA contains a multi-purpose preamble that indicates a set of objectives and principles including human rights, democracy, the rule of law and sustainable development, three recitals are especially relevant for the right to regulate: Recital 6: Recognizing that the provisions of this Agreement preserve the right of the Parties to regulate within their territories and the Parties’ flexibility to achieve legitimate policy objectives, such as social, environmental, security, public health and safety, promotion and protection of cultural diversity; Recital 8: Recognizing that the provisions in this Agreement protect investments and investors with respect to their investments, and are intended to stimulate mutually-beneficial business activity, without undermining the right of the Parties to regulate in the public interest, within their territory; Recital 11: Implementing this Agreement in a manner consistent with the enforcement of their respective labour and environmental laws and that enhances their levels of labour and environmental protection, and building upon their international commitments on labour and environmental matters;
II. The CETA Joint Interpretative Instrument The particular elaboration history of CETA revealed it necessary for the Parties to 4 adopt, at the moment of signature, the Joint Interpretative Instrument. 5 As the right to regulate and the need to safeguard the levels of protection feature prominently in the Interpretative Instrument, its content should also be mentioned in the discussion on Article 8.9 CETA. At the outset of the instrument, the Parties to CETA recall ‘that Canada and the European Union and its Member States recognise the importance of the right to regulate in the public interest and have reflected it in the Agreement’. 6 The right to regulate is then further emphasised throughout the instrument. The four most relevant passages are the following: Point 1 d: The European Union and its Member States and Canada will therefore continue to have the ability to achieve the legitimate public policy objectives that their democratic institutions set, such as public health, social services, public education, safety, environment, public morals, privacy and data protection and the promotion and protection of cultural diversity. CETA will also not lower our respective standards and regulations related to food safety, product safety, consumer protection, health, environment or labour protection. Imported goods, service suppliers and investors must continue to respect domestic requirements, including rules and regulations. The
5 Joint Interpretative Instrument on the Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union and its Member States, 14 January 2017, OJ L 11/3. 6 Joint Interpretative Instrument on the Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union and its Member States, 14 January 2017, OJ L 11/3.
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European Union and its Member States and Canada reaffirm the commitments with respect to precaution that they have undertaken in international agreements. Point 2: CETA preserves the ability of the European Union and its Member States and Canada to adopt and apply their own laws and regulations that regulate economic activity in the public interest, to achieve legitimate public policy objectives such as the protection and promotion of public health, social services, public education, safety, the environment, public morals, social or consumer protection, privacy and data protection and the promotion and protection of cultural diversity. Point 6 a: CETA includes modern rules on investment that preserve the right of governments to regulate in the public interest including when such regulations affect a foreign investment, while ensuring a high level of protection for investments and providing for fair and transparent dispute resolution. CETA will not result in foreign investors being treated more favourably than domestic investors. CETA does not privilege recourse to the investment court system set up by the agreement. Investors may choose instead to pursue available recourse in domestic courts. Point 6 b: CETA clarifies that governments may change their laws, regardless of whether this may negatively affect an investment or investor's expectations of profits. Furthermore, CETA clarifies that any compensation due to an investor will be based on an objective determination by the Tribunal and will not be greater than the loss suffered by the investor.
III. The Right to Regulate under CETA Chapters on Sustainable Development The sustainable development chapters of CETA7 confirm the Parties’ right to regulate in the fields of social and environmental protection. These chapters contain the Parties’ commitments to ensure that their laws and policies ‘provide for and encourage high levels of domestic protection’ and to ‘continuously endeavour to improve these laws and policies’.8 The right to regulate is however limited when the Parties seek to lower their standards. First, Parties are not allowed to lower their standards in manners that would be in non-compliance with their international commitments including those of CETA. Second, Parties are not ‘to waive or otherwise derogate from, or offer to waive’ its labour and environmental laws and standards, in order to encourage trade or ‘the establishment, acquisition, expansion or retention of an investment in its territory’. The function of these provisions is to avoid a situation where international competition for foreign investment leads to a lowering of environmental and labour standards. 6 The chapters on the environment (Chapter 23) and labour (Chapter 24) of CETA also introduce both an implicit reference to the precautionary principle. The Parties to CETA commit themselves not to ‘use the lack of full scientific certainty as a reason to postpone cost-effective protective measures’.9 In the field of the environment ‘where there are threats of serious or irreversible damage’; and in the field of labour ’in case of 5
7 Chapter 22 on ‘Trade and Sustainable Development’ serves as a framework chapter establishing institutional rules. The following chapters deal more with questions of ‘Trade and Labour’ (Chapter 23) and of ‘Trade and Environment’ (Chapter 24). Relevant for the right to regulate are, in particular, Articles 23.2 and 23.4; 24.3 and 24.5 CETA. 8 Articles 23.2 and 24.3 CETA. 9 CETA does not mention the precautionary principle explicitly. The CETA Joint Interpretative Instrument, makes a cautious reference to precaution, see point 1(d) in fine: ‘The European Union and its Member States and Canada reaffirm the commitments with respect to precaution that they have undertaken in international agreements’. The precautionary principle in relation to the right to regulate is not without implications. It adds to the right to regulate that labour and environmental legislation can be based on the precautionary principle meaning that the right to regulate captures the idea that regulatory intervention may still be legitimate, even if supporting evidence is incomplete.
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existing or potential hazards or conditions that could reasonably be expected to cause injury or illness to a natural person.’10
IV. Other CETA Provisions The drafters of CETA have reaffirmed the Parties’ rights to regulate in a number of 7 other provisions.11 A provision that points to public interest concerns is Article 28.3 CETA on General Exceptions. The provision is a WTO-style exception clause tailored according to Article XX of the GATT and Article XIV of the GATS. 12 The chapeau states that: subject to the requirement that measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between the Parties where like conditions prevail, or a disguised restriction on trade in services, nothing in this Agreement shall be construed to prevent the adoption or enforcement by a Party of measures necessary.
The chapeau is then followed by an exhaustive list of policy objectives, such as ‘to 8 protect human, animal or plant life or health’ and those ‘relating to the conservation of exhaustible natural resources if such measures are applied in conjunction with restrictions on domestic investors or on the domestic supply or consumption of services’. This provision thus contains safeguards to regulations that are made for public interest purposes. It should be noted that the CETA General Exception clause applies to Section C of the Investment Chapter (including the establishment of the investment and obligations in relation to national treatment and most-favoured nation treatment) but not to Section D on investment protection.13 Finally, the right to regulate also interacts to a certain extent with the system of 9 ISDS.14 For the EU, the Investment Court System (introduced by CETA) offers a way to help enshrine government’s right to regulate.15 Without entering into a discussion on how the ISDS system interrelates with the right to regulate, the remainder of the present commentary considers certain questions related to CETA tribunals’ discretion in the balancing exercise between investment protection standards and the States’ right to regulate.
C. Drafting History The CETA was negotiated and concluded when public interest in trade and in- 10 vestment agreements has considerably grown. National parliaments and civil society Articles 23.3(3) and 24.9(2) CETA. See Joint Interpretative Instrument, ‘Concordance Table’, listing Article 5.4 (on the WTO SPS Agreement) and Article 6.1.5 (Principles on customs and trade facilitation). The right to regulate has also been reaffirmed under Chapter 21 on Regulatory Cooperation, see Articles 21.2(1) and 21.2(2). 12 Article 28.3(2) CETA. 13 CETA provides: ‘For the purpose of […] Sections B (Establishment of investment) and C (Non-discriminatory treatment) of Chapter Eight (Investment), Article XX of the GATT 1994 is incorporated into and made part of this Agreement. The Parties understand that the measures referred to in Article XX (b) of the GATT 1994 include environmental measures necessary to protect human, animal or plant life or health. The Parties understand that Article XX (g) of the GATT 1994 applies to measures for the conservation of living and non-living exhaustible natural resources’. 14 Gaukrodger, ‘The Balance between Investor Protection and the Right to Regulate in Investment Treaties: A Scoping Paper’, (2017) 2 OECD Working Papers on International Investment, 1 (5). 15 See News archive of the European Commission (16 September 2015), available at http://trade.ec.eu ropa.eu/doclib/press/index.cfm?id=1364 (last accessed 24 June 2020). 10
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groups have started to become more active in influencing the outcomes of the negotiations.16 CETA, together with the Transatlantic Trade and Investment Partnership (TTIP), which was to be concluded between the EU and the United States, were in the forefront of debate and have received unprecedented public attention. Whilst CETA was initially negotiated in the absence of public scrutiny, the negotiations with the United States provoked massive public opposition, mainly so in the course of the year 2015. This explains why the initial draft text of CETA after the finalised negotiations in summer 2014 did not contain a specific provision on regulatory measures (Article 8.9 CETA) nor any other provision in the CETA Investment Chapter specifically dealt with the right to regulate.17 In light of the public pressure, the EU has adopted, during the TTIP negotiations a strong position on fostering the right to regulate. 18 This shift in policy approach of the EU had a direct impact on CETA. In a policy paper, the European Commission set out how the right to regulate was to be strengthened: An operational provision (an Article) which will refer to the right of Governments to take measures to achieve legitimate public policy objectives, on the basis of the level of protection that they deem appropriate. Such provision is recognition of the right of domestic authorities to regulate matters within their own borders which exists already under international law. It allows setting the right context in which investment protection standards are applied. A provision clarifying that the agreement shall not be construed as preventing a Party from discontinuing the granting of state aid, and/or requesting the reimbursement of state aid already paid when such state aid has been declared prohibited by its competent authorities. 19
11
The final CETA text signed on 28 October 2016 by Canada and the EU and its Member States, then contained Article 8.9 CETA on ‘Investment and Regulatory Measures’. Despite this novel provision in the CETA text of 2016, the signature of CETA was jeopardised and delayed for a few days by the persistent objections from the Walloon Parliament, which refused to give its consent to the federal Belgian government to sign the agreement. In order to convince the Walloons, the EU and Canada had signed a ‘Joint Interpretative Instrument’ on CETA.20 This document, having legal force, clarifies what has been agreed by Canada and the EU on a number of controversial areas, including the governments’ right to regulate.
The negotiations of CETA began in May 2009. Former Chapter 10, Section 4, which started off with the fair and equitable treatment (FET) standard, the version is of 5 August 2014 and still available at https://www.tagesschau.de/wirtschaft/ceta -dokument-101.pdf (last accessed 24 June 2020). 18 Commission, Concept paper, Investment in TTIP and beyond – the path for reform, Enhancing the Right to Regulate and Moving from Current ad hoc Arbitration towards and Investment Court, 5 May 2015, available at http://trade.ec.europa.eu/doclib/docs/2015/may/tradoc_153408.PDF (last accessed 24 June 2020). 19 Commission, Concept paper, Investment in TTIP and beyond – the path for reform, Enhancing the Right to Regulate and Moving from Current ad hoc Arbitration towards and Investment Court, 5 May 2015. 20 Joint Interpretative Instrument on the Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union and its Member States, 14 January 2017, OJ L 11/3 (hereafter: Joint Interpretative Instrument). 16
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D. Commentary I. Article 8.9(1) – The Principle The first paragraph of Article 8.9 CETA starts off with ‘[f]or the purpose of this 12 Chapter’ indicating that the whole CETA Investment Chapter is concerned with the right to regulate. The paragraph then continues with the general statement that: […] the Parties reaffirm their right to regulate within their territories to achieve legitimate policy objectives, such as the protection of public health, safety, the environment or public morals, social or consumer protection or the promotion and protection of cultural diversity.
In the context of international investment law, the State’s right to regulate can be 13 resumed as to encompass two elements.21 On the one hand, States have the right to regulate foreign investment in a way as to advance its public policy objectives, and, on the other hand, States have the right to protect the public welfare from possible negative impacts of foreign investment within their territory. 22
1. Reaffirming the Right to Regulate Article 8.9(1) CETA is first of all a reaffirmation of the right to regulate. The 14 provision operates as mutual recognition of the right of domestic authorities to regulate matters that fall within their borders. It functions as a reminder that the right to regulate constitutes a basic attribute of sovereignty under international law. Put differently, the right to regulate is not granted by the CETA or any other international treaty. The CETA formulation can be distinguished from agreements following North-American approaches, which mostly use language saying that the right to regulate protects measures ‘otherwise consistent with’ the treaty obligations. 23 The latter formulation does not act as a recognition of an inherent right, but rather as an expression of the primacy of the agreement in the case of conflict. 24 The purpose of reaffirming the right to regulate in Article 8.9(1) CETA lies within the provision’s interaction with the other provisions of the CETA Investment Chapter, mostly with the investment protection standards. In this respect, Article 8.9(1) CETA does not operate as a general exception clause excluding a Contracting Party’s liability based on the CETA investment protection standards.25 Article 8.9(1) CETA rather serves interpretative purposes and adjudicators have to take the provision into account when
21 Mann, ‘Investment Liberalization: Some Key Elements and Issues in Today’s Negotiating Context’ (2007) Issues in International Investment Law (International Institute for Sustainable Development (IISD)). See generally, Titi, The Right to Regulate in International Investment Law (2014). 22 Negative impacts can be externalities such as the pollution of the environment. 23 Comprehensive and Progressive Trans-Pacific Partnership Agreement (CPTPP), Article 9.16: ‘Nothing in this Chapter shall be construed to prevent a Party from adopting, maintaining or enforcing any measure otherwise consistent with this Chapter that it considers appropriate to ensure that investment activity in its territory is undertaken in a manner sensitive to environmental, health or other regulatory objectives.’ Originating from NAFTA, Article 1114 (on ‘Environmental Measures’). 24 See Johnson et al., ‘Aligning International Investment Agreements with the Sustainable Development Goals’, (2020) 58 Colum. J. Transnat’l L., 58 (101). The authors prescribe the North-American approach as ‘self-cancelling’ language for the right to regulate. 25 Exceptions are justifications that, under certain conditions, a State’s responsibility is excluded when it would otherwise be engaged for the violation of an international obligation; see Crawford, Brownlie’s Principles of Public International Law (2012), 563.
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an investment protection standard clashes with a host State’s regulatory measure. 26 CETA makes the inherent right to regulate of the Contracting Parties the starting point of legal analysis. In the words of the European Commission, a specific provision on the right to regulate ‘allows setting the right context in which investment protection standards are applied’.27 The inclusion of a specific provision on the right to regulate should namely assure that not only the economic interests of investors are taken into account but that such interests need to be balanced with the sovereign right of States to regulate in the broader public interest.
2. ‘Legitimate Policy Objectives’ 15
The first paragraph of Article 8.9 CETA also serves Canada and the EU to state the public policy objectives, which they consider to be legitimate. The set of areas include ‘the protection of public health, safety, the environment or public morals, social or consumer protection or the promotion and protection of cultural diversity’. The list of policy areas in Article 8.9(1) CETA has to be understood as indicative and not exhaustive.28 At the same time, the indicative list covers the most typical public interest areas for which regulation is essential in order to achieve them. These objectives are considered ‘legitimate’ as they serve a public interest. 29 Defining what is of public interest mainly belongs to the State (or the EU where applicable). Likewise, setting the level of protection in order to best achieve such public interest is a matter that is to be decided by the State/EU.30 Accordingly, the public interest and the level of protection are unilaterally defined at the domestic level. The term ‘legitimate policy objective’ should, therefore, be understood in a flexible manner at the international level.31 As far as Canada, the EU and its Member States are concerned, domestic legislators and decision-makers enact regulation in the public interest and base the legitimacy thereof on the democratic adoption process as well as on constitutional objectives and principles. 32 Moreover, the legitimacy of domestic regulation can derive 26 This is not to say that in past cases, under traditional IIAs, arbitral tribunals did not take the public interests into account. See in particular, Philip Morris Brands SÀRL, Philip Morris Products SA and Abal Hermanos SA v. Oriental Republic of Uruguay, ICSID Case No. ARB/10/7, Award (8 July 2016). 27 Commission, Concept paper, Investment in TTIP and beyond – the path for reform, Enhancing the Right to Regulate and Moving from Current ad hoc Arbitration towards and Investment Court, 5 May 2015, para I.3. 28 Article 8.9(1) CETA the list of legitimate policy objectives starts off with ‘such as’. 29 The public interest can be defined by ‘the common interest of persons in their capacity as members of the public’. The idea of the public ‘refers to an unknown group of individuals, in the sense that it is not known exactly who might be adversely affected by (for instance) and aircraft hijack or overcrowding in a stadium.’ The definition supposes ‘that persons can share and interest when they consider themselves as potential members of a non-specified group, abstracting from their particular positions and private interests’. In the given example, ‘a person who never used airports might put that consideration aside and consider what arrangements for security her or she would favour supposing her or she were a member of that relevant public’. See Brown et al., A Concise Oxford Dictionary of Politics and International Relations (2018). 30 Under CETA this level should not go below a certain international minimum level as regards social and environmental standards (→ mn. 4). 31 E.g. the ‘“public interest” is largely indeterminate and is, anyway, a judgement entrusted to the authorities of the host state […]’. See Blusun S.A., Jean-Pierre Lecorcier and Michael Stein v. Italian Republic, ICSID Case No. ARB/14/3, Final Award (27 December 2016), para. 218. 32 For the EU, see Opinion 1/17, para. 151: ‘It must be emphasised, in that regard, that EU legislation is adopted by the EU legislature following the democratic process defined in the EU and FEU Treaties, and that that legislation is deemed, by virtue of the principles of conferral of powers, subsidiarity and proportionality laid down in Article 5 TEU, to be both appropriate and necessary to achieve a legitimate objective of the Union. In accordance with Article 19 TEU, it is the task of the Courts of the European Union to ensure review of the compatibility of the level of protection of public interests established by
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from or be supported by international law. In the latter respect, international agreements on environmental protection or on public health protection have served States to underscore the legitimacy of regulatory choices.33
3. General Regulation and Specific Measures A last issue in relation to Article 8.9(1) CETA is whether the right to regulate 16 only concerns general regulation or also specific measures such as, individual administrative decisions. In the general debate, the impact of investment treaties on the right to regulate is often perceived to be greater when cases involve a review of legislation adopted by parliaments.34 If the legislation is the outcome of a parliamentary debate, an ISDS case hence involves the direct interaction of investment treaties with democratic decision-making. Such challenges to laws have been possible under the broad provisions of many investment treaties.35 The question of how frequently ISDS cases have evaluated parliamentary action is debated. According to one analysis, approximately one in three investment treaty arbitrations concern measures of general application.36 At the same time, a distinction between ‘general’ and ‘specific’ measures should be done with caution as the latter may be part of broader public policy changes. For instance, a cancellation of an individual mining permit may result from a general change in State policy towards mining adopted for public policy reasons. 37 And even conduct, such as an individual administrative decision addressed to a single investor may be motivated by a legitimate regulatory objective. A typical example in this respect is where an investment permit to operate in a regulated industry is cancelled for failure to comply with environmental conditions attached to that permit. For the sake of CETA, and as clarified by the CJEU,38 Article 8.9(1) makes a very general statement seeking to safeguard the Parties’ rights to regulate for both, general regulation and specific measures. This finding is corroborated by Article 1.1 of CETA (contained in the Chapter on ‘General Definitions and Initial Provisions’) that suggests that under CETA no distinction is made between general regulation and specific decisions. The provision defines the term ‘measure’ as including ‘a law, regulation, rule, procedure, decision, administrative action, requirement, practice or any other form of measure by a Party’. Accordingly, Article 8.9(1) CETA should not be limited to general legislation but to include any regulatory action of a State.
such legislation with, inter alia, the EU and FEU Treaties, the Charter and the general principles of EU law’. 33 E.g. in Philip Morris v. Uruguay, the WHO Framework Convention on Tobacco Control (FCTC) served to underscore the legitimacy of the domestic measure. See Philip Morris Brands SÀRL, Philip Morris Products SA and Abal Hermanos SA v. Oriental Republic of Uruguay, ICSID Case No. ARB/10/7, Award (8 July 2016), para. 306: ‘The Challenged Measures were taken by Uruguay with a view to protect public health in fulfilment of its national and international obligations. […]’. 34 Gaukrodger, ‘The Balance between Investor Protection and the Right to Regulate in Investment Treaties: A Scoping Paper’, (2017) 2 OECD Working Papers on International Investment, 1 (14). See also CJEU, Opinion 1/17, para. 143: CETA ‘[…] does not however preclude that measure from being one of general application or from implementing an act of general application’. 35 Gaukrodger, ‘The Balance between Investor Protection and the Right to Regulate in Investment Treaties: A Scoping Paper’, (2017) 2 OECD Working Papers on International Investment, 1 (14). 36 Williams Z, ‘Risky Business or Risky Politics: What Explains Investor-State Disputes?’ (2016) Investment Treaty News (ITN): https://www.iisd.org/itn/fr/2014/08/12/risky-business-or-risky-politics -what-explains-investor-state-disputes/. 37 Bonnitcha et al., The Political Economy of the Investment Treaty Regime (2017), 241. 38 CJEU, Opinion 1/17, paras. 141 f.; see at para. 142: ‘the disputes brought against the Union may relate to any form of act or practice of the Union’.
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II. Article 8.9(2) – Balancing Investment Protection with States’ Regulatory Measures in the Public Interest 17
The second paragraph of Article 8.9 CETA is a follow-up to the first paragraphs and provides the clarification that ‘the mere fact that a Party regulates, including through a modification of its laws, in a manner which negatively affects an investment or interferes with an investor’s expectations […] does not amount to a breach of an obligation under this Section [i.e. the investment protection section]’. 39 The second paragraph of Article 8.9 CETA points to the balancing exercise between investors’ interests and States’ regulatory measures in the public interest. The provision creates a direct link to the CETA investment standards, especially to FET and indirect expropriation.40 Since Article 8.9, paragraphs 1 and 2, CETA serve interpretative purposes, the question is to what extent the reaffirmation of the right to regulate impacts on the discretionary powers of CETA tribunals when applying and interpreting the investment protection standards of the agreement.
1. Guiding the Discretionary Powers of CETA Tribunals41 18
Article 8.9(1-2) CETA taken together with the agreement’s preamble and the Joint Interpretative Instrument make it clear that Canada and the EU have been careful to place economic and non-economic objectives on an equal footing suggesting a wide margin of discretion for the adoption of non-economic measures at the domestic level. In its Opinion 1/17, the CJEU had to decide whether the mere fact that a CETA tribunal in its examination of the relevant facts of a case can weigh the business interest of an investor against public interests undermines the EU constitutional framework. 42 Due to a number of provisions contained in CETA, including Article 8.9, the Court was satisfied that the EU constitutional framework is preserved. In relation to Article 8.9(1-2) CETA together with the Joint Interpretative Instrument, the Court made the following interesting statements concerning the discretion enjoyed by CETA tribunals: It is apparent from the reading of those provisions43 that the discretionary powers of the CETA Tribunal and Appellate Tribunal do not extend to permitting them to call into question the level of protection of public interest determined by the Union following a democratic process.’ 44 ‘[…] the Parties have taken care to ensure that those tribunals have no jurisdiction to call into question the choices democratically made within a Party relating to, inter alia, the level of protection of health and life of humans and animals, the preservation of food safety, protection of plants
Emphasis added. Titi, ‘The Right to Regulate’, in Mbengue and Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (2019) 171. See also, Henckels, ‘Indirect Expropriation and the Right to Regulate: Revisiting Proportionality Analysis and the Standard of Review in Investor-State Arbitration’ (2012) 15 J. Int’l Econ. L., 223. 41 ‘CETA tribunals’ means tribunals of first instance and the CETA Appellate Tribunal. 42 CJEU, Opinion 1/17, para. 137: ‘[…] in the course of its examination of the relevant facts, which may include the primary law on the basis of which the contested measure was adopted, weigh the interest constituted by the freedom to conduct business, relied on by the investor bringing the claim, against public interests, set out in the EU and FEU Treaties and in the Charter, relied on by the Union in support of its defence’. 43 The Court examined the following provisions of CETA: With respect to Section C (non-discriminatory measures), Article 28.3(2) and with respect to Section D (investment protection) Article 8.9(1 f.) together with the Joint Interpretative Instrument, pts 1 d and 2 thereof. See, CJEU, Opinion 1/17, paras 152 ff. 44 CJEU, Opinion 1/17, para. 154. Emphasis added. 39
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and environment, welfare at work, product safety, consumer protection, or equally fundamental rights.45
The Court’s main concern has been the level of protection finding that CETA 19 tribunals cannot ‘call into question’ the choices of the Contracting Parties in setting the level of protection.46 The Court assumes that CETA tribunals have no jurisdiction to review the level of protection. At least from an EU law perspective, calling into question the level of protection would be unconstitutional. Opinion 1/17 suggests that public interest consideration including the level of protection should be the domaine réservé of States and accordingly, adjudicators seized under the CETA should observe deference when reviewing regulatory choices of the Contracting Parties. a) A Deferential Standard of Review A deferential standard of review towards State measures protecting public interests 20 alleviates conflicts.47 In general, the standard of review refers to the degree of scrutiny that an adjudicator adopts when it reviews a decision or measure of a primary decision-maker. When reviewing host State measures, investment tribunals can adopt different standards of review. At the one extreme, one would find a tribunal that shows total reliance on the decision of the host State; and on the other extreme; one would find a tribunal that looks at the legal and factual issues de novo.48 This being said, the standard of review can be very deferential or very strict. There are ‘legitimacy’ reasons for why a given tribunal does or does not adopt a deferential approach.49 A strong argument for a deferential approach is that a State’s decision-making is in principle proximate to its society and is embedded in a specific national context. Public authorities (of a State or of the EU) are better situated to assess the specific societal needs. As far as Canada and the EU are concerned, regulatory measures benefit from democratic legitimacy. And the domestic legislator appears to be in a better position to decide certain trade-offs than investment tribunals. By according policy-makers deference when reviewing their regulatory choices, CETA tribunals can accord the necessary space for safeguarding non-economic public interests.
CJEU, Opinion 1/17, para. 160. Emphasis added. CJEU, Opinion 1/17, para. 148: ‘[…] the jurisdiction of those tribunals would adversely affect the autonomy of the EU legal order if it were structured in such a way that those tribunals might […] call into question the level of protection of a public interest that led to the introduction of such restrictions by the Union with respect to all operators who invest in the commercial or industrial sector at issue of the internal market, rather than confine itself to determining whether the treatment of an investor or a covered investment is vitiated by a defect mentioned in Section C or D of Chapter Eight of the CETA’; see also paras. 149 f. 47 Henckels, ‘Balancing Investment Protection and Sustainable Development in Investor-State Arbitration: The Role of Deference’ in Bjorklund (ed), YB Int’l Inv. L. & Pol’y 2012-2013 (2014), 305, 308. 48 Schill and Djanic, ‘International Investment Law and Community Interests’ (2016) Society of International Economic Law (SIEL) Working Paper No. 2016/01, 19. 49 There can also be practical reasons that might require deference. This is mainly because the primary decision-maker has more expertise or institutional competence with respect to the issue at stake than the investment tribunal. For instance, measures to combat climate change often involve important scientific research and expertise, which the tribunal may not possess. 45
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b) Proportionality 21
Deference is linked to proportionality50 since a deferential standard of review has consequences on the intensity with which the method of review, i.e. the proportionality analysis is applied. In regulatory disputes, courts and tribunals generally use the proportionality analysis51 to determine whether an interference with a right or interest is justifiable, or whether the decision-maker has gone beyond the bounds of its discretion.52 Investment tribunals have, in cases that concern measures taken by the host State to protect public interests, used proportionality when applying the concept of indirect expropriation or when interpreting the FET standard.53 For the CETA, proportionality analysis can serve as an instructive tool for adjudicators when confronted with regulatory disputes concerning public welfare measures. At the same time, vesting arbitrators the powers of a full proportionality balancing between public and private interests might raise concerns of legitimacy due to the intrusiveness of the review. The three prongs of proportionality (suitability, necessity and proportionality stricto sensu) constitute an ascending series in terms of the intrusiveness of the review of a public decision.54 In particular, ‘suitability’ and ‘necessity’ are different from proportionality in the strict sense because the two former take as given the objectives that the public authority is pursuing, such as environmental protection, including for instance the specific levels of protection.55 When it comes to the third step, the proportionality analysis in the strict sense, adjudicators intrude into the very choices of the public measure, as they balance between the costs and benefits of the decision taken by the public authorities. For CETA, adjudicators are incentivised to pay deference to the choices made by public authorities. And following the reasoning of the CJEU in its Opinion 1/17, a proportionality test stricto sensu does not appear to be permissible when applying the investment protection standards of CETA. From the EU law perspective, doing so would be incompatible with the EU treaties. 56
2. Remaining Discretionary Powers of CETA Tribunals 22
Article 8.9(2) CETA is linked to the investment protection standards of CETA, such as FET and indirect expropriation. The CETA drafters have had the intention to better 50 Schill, ‘Deference in Investment Treaty Arbitration: Re-Conceptualizing the Standard of Review’ (2012) 3 J. Int’l. Disp. Settlement, 577 (600 ff.); Henckels, Proportionality and Deference in Investor-State Arbitration: Balancing Investment Protection and Regulatory Autonomy (2015) 34 f. 51 Generally understood to comprise a three-fold test: an analysis of the suitability of the measure to achieve the objective; a determination of the necessity of the measure in light of available alternatives, and lastly a balancing test that evaluates the importance of achieving the objective vis-à-vis the importance of avoiding the harm to the protected right or interest caused by the measure (i.e. proportionality stricto sensu). 52 Henckels, Proportionality and Deference in Investor-State Arbitration: Balancing Investment Protection and Regulatory Autonomy (2015), 23 f. 53 Kingsbury and Schill, ‘Public Law Concepts to Balance Investors’ Rights with State Regulatory Actions in the Public Interest – the Concept of Proportionality’ in Schill (ed), International Investment Law and Comparative Public Law (2010), 75, 89 ff. Early tribunals applied the principle of proportionality in a rather unclear and sometimes implicit manner, see e.g. Técnicas Medioambientales Tecmed SA v. United Mexican States, ICSID Case No. ARB (AF)/00/2, Award (29 May 2003), para. 122; LG&E Capital v. Argentina, ICSID Case No. ARB/02/1, Decision on Liability (3 October 2006), para. 195. 54 Ortino, ‘Investment Treaties, Sustainable Development and Reasonableness Review: A Case Against Strict Proportionality Balancing’ (2017) 30 Leiden J. Int’l L., 71 (88). 55 Ortino, ‘Investment Treaties, Sustainable Development and Reasonableness Review: A Case Against Strict Proportionality Balancing’ (2017) 30 Leiden Leiden J. Int’l L., 71 (88). 56 Riffel, ‘The CETA Opinion of the European Court of Justice and Its Implications – Not That Selfish After All’ (2019) 22 J. Int’l Econ. L., 503 (519); coming to the same conclusion.
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safeguard regulatory space through the recalibration of the core investment standards making them more precise and predictable.57 According to the CJEU, the wording of the clauses of FET and indirect expropriation, in particular, would contain enough safeguards so that CETA tribunals cannot call into question the choices made with respect to the level of protection. Yet, CETA tribunals will assess the rights provided by FET and indirect expropriation, which includes the taking into account of the regulatory measure, its purpose and its effects on the investment. a) With Respect to Indirect Expropriation (Article 8.12 and Annex 8-A CETA) The CETA provision on indirect expropriation contains itself a general exception in 23 favour of public interest measures codifying the ‘police power doctrine’. 58 Generally speaking, the doctrine allows preventing public interest measures from being qualified as indirect expropriation, without taking into account the interference of the measure with foreign property.59 Article 8.9(2) CETA on ‘Regulatory Measures’ confirms the police power doctrine as it states that ‘the mere fact’ that a Party regulates ‘in a manner which negatively affects an investment (…)’ does not amount to a breach of the protection standards. In this sense, Article 8.9(2), just as the police power doctrine does, rejects the opposite ‘sole effect’ doctrine. Conversely, Article 8.9, first and second paragraph, of CETA do not add any new element to the police power doctrine. It seems important to underline that the formulation of the police power doctrine 24 under CETA leaves tribunals with the discretion to assess the proportionality of the measure at stake. Under CETA, the police power exception does not apply ‘in the rare circumstances when the impact of a measure or series of measures is so severe in light of its purpose that it appears manifestly excessive’.60 When CETA tribunals interpret the term ‘manifestly excessive’ they inevitably take into account the impact of the measure and weigh it with the public interest at stake. In other words, they engage in a proportionality analysis. The legitimacy of the State measure alone may not suffice under CETA to qualify as a police power measure.61 b) With Respect to FET Including Legitimate Expectations (Article 8.10 CETA) Article 8.9(2) CETA also creates a link to the concept of legitimate expectations 25 under the FET standard as it states that when a regulatory measure merely ‘interferes with an investor's expectations’ does not amount to a breach under the agreement. 62 57 Commission, Concept paper, Investment in TTIP and beyond – the path for reform, Enhancing the Right to Regulate and Moving from Current ad hoc Arbitration towards and Investment Court, 5 May 2015, 6. 58 Annex 8-A(3) CETA: ‘For greater certainty, except in the rare circumstance when the impact of a measure or series of measures is so severe in light of its purpose that it appears manifestly excessive, non-discriminatory measures of a Party that are designed and applied to protect legitimate public welfare objectives, such as health, safety and the environment, do not constitute indirect expropriations’. 59 De Nanteuil, ‘Expropriation’, in Mbengue and Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (2019), 127 (150). 60 Annex 8-A(3) CETA. Emphasis added. 61 De Nanteuil, ‘Expropriation’, in Mbengue and Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (2019), 127 (151 f.). The author points out that under the ‘radical’ application of the police power doctrine the mere fact of public purpose is sufficient to exclude the existence of indirect expropriation (→ Art. 8.12 mn. 79). 62 Article 8.10(4) CETA: ‘When applying the above fair and equitable treatment obligation, the Tribunal may take into account whether a Party made a specific representation to an investor to induce
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Article 8.9(2) CETA reiterates that legitimate expectations cannot constitute a standalone element under the FET provision of CETA and hence interference with the expectations of investors can per se not amount to a breach of the FET obligation. Article 8.9(1-2) CETA serves once again as a reaffirmation of the safeguards that are contained in the investment protection standards. As far as the FET provision is concerned, CETA tribunals dispose of discretionary powers especially when they interpret whether there was ‘targeted discrimination’ in intent or effect or whether the State conduct was ‘manifestly arbitrary’ or constituted a ‘fundamental’ breach of due process.63 By focussing their review on controlling government procedure and curtailing discrimination, CETA tribunals can (and should) accord deference in terms of how host governments balance the competing interest in substance including the level of public interest protection.64
III. Article 8.9(3) – ‘A Party’s Decision Not to Issue, Renew or Maintain a Subsidy’ Paragraph 3 of Article 8.9 CETA specifically addresses the question of State subsidies. In this vein, the provision sets out that a host States’ ‘decision not to issue, renew or maintain a subsidy […] does not constitute a breach of the [investment protection] provisions’. The carve-out applies unless one of the situations mentioned under letters (a) and (b) exists.65 Under letter (a), the granted regulatory flexibility does not apply when the Party in question has made a ‘specific commitment’ to investors under national law or contract. Under letter (b), the carve-out does not apply when the decision not to issue, renew or maintain the subsidy was taken ‘in accordance with any terms or conditions attached to the issuance, renewal or maintenance of the subsidy’. 27 The question of regulatory space and flexibility relating to State subsidies has become increasingly relevant in fostering and advancing energy transition from fossil to renewable energies due to reasons of climate change and resource depletion. Renewable energies often require State subsidies to be vital in the energy market. In this respect, States use feed-in tariffs (FIT) as a type of subsidy. Regulatory changes concerning FIT schemes have provoked a wave of claims by foreign investors active in the field of renewable energy because where governments decide to modify such incentives there may be an indirect expropriation or a FET violation.66 26
a covered investment, that created a legitimate expectation, and upon which the investor relied in deciding to make or maintain the covered investment, but that the Party subsequently frustrated’. 63 Dumberry, ‘Fair and Equitable Treatment’ in Mbengue and Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (2019), 95 (107 f.). 64 See on this distinction, William Ralph Clayton, William Richard Clayton, Douglas Clayton, Daniel Clayton and Bilcon of Delaware Inc. v. Government of Canada, PCA Case No. 2009-04, Award on Jurisdiction and Liability (17 March 2015), para. 598: ‘in arriving at its conclusion in this case, the Tribunal is not suggesting that there is the slightest issue with the level of protection for the environment provided in the laws of Canada and Nova Scotia. Each is free under NAFTA to adopt laws that are as demanding as they choose in exercising their sovereign authority. Canada and Nova Scotia have both adopted high standards. There can be absolutely no issue with that under Chapter Eleven of NAFTA. The Tribunal’s concern is actually that the rigorous and comprehensive evaluation defined and prescribed by the laws of Canada was not in fact carried out’. 65 A similar formulation can be found under the FET provision of the CPTPP Agreement, Article 9.6.5: ‘For greater certainty, the mere fact that a subsidy or grant has not been issued, renewed or maintained, or has been modified or reduced, by a Party, does not constitute a breach of this Article, even if there is loss or damage to the covered investment as a result’. 66 As the Spain case show, the question of whether and under what circumstances, economic operators investing in this particular field can or cannot expect that such subsidies be granted without subse-
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1. A Specific Commitment under Law or Contract Under Article 8.9(3), lit. a CETA, the carve-out for subsidies does not apply, where 28 the host State has made a ‘specific commitment’ under law or contract to the investor.67 As several of the recent renewable energy cases highlight, the question of whether a specific commitment has been made to the investor is a central element in assessing the legality of regulatory changes in light of the foreign investors’ legitimate expectations. Without entering into a detailed discussion on these cases, a few points with respect to Article 8.9(3) CETA can be mentioned here. As a starting point, one can note that Article 8.9(3) CETA requires the specific commitment to be in law or in contract. This excludes debates on whether such commitment can be made through different means, such letters68 or oral statements of State officials69. Controversies arise on the question on the ‘specificity’ of the commitment. 70 Ac- 29 cording to tribunal in Crystallex v. Venezuela a commitment of the State is sufficiently specific when it is ‘precise as to its content and clear as to its form’. 71 An important issue in the renewable energy cases is namely whether a specific commitment can derive from a general legal framework. Some tribunals even though they found that the commitment was not specific, concluded that the investor had legitimate expectations. For instance, in Novenergia II v. Spain, the tribunal followed previous arbitral case 30 law that has adopted a flexible approach towards the specificity of the commitments finding that State conduct that objectively creates such expectations is sufficient. 72 In the case CUBE Infrastructure v. Spain,73 the tribunal considered that Spain created legitimate expectations by enacting legislation that created a special regime of benefits and incentives. It averred that there is no need for specific commitment for a legitiquent adaptation or modifications is hotly debated. The great number of investor claims against Spain illustrates this issue, which are based on the change in regulation on subsidies relating to solar energy. For an overview of the cases, see Schacherer, International Investment Law and Sustainable Development: Key Cases from the 2010 s (IISD, 2018), 10 ff. 67 Compare with Article 8.10(4) CETA: ‘When applying the above fair and equitable treatment obligation, the Tribunal may take into account whether a Party made a specific representation to an investor to induce a covered investment, that created a legitimate expectation, and upon which the investor relied in deciding to make or maintain the covered investment, but that the Party subsequently frustrated.’ (Emphasis added). 68 E.g. a letter was accepted to create legitimate expectations in Crystallex International Corporation v. Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/11/2, Award, (4 April 2016), para. 561. 69 E.g. oral statements have been accepted to create legitimate expectations in Total S.A. v. Argentine Republic, ICSID Case No. ARB/04/1, Decision on Liability (27 December 2010), paras. 118-120; see also International Thunderbird Gaming Corporation v. The United Mexican States, UNCITRAL, Separate Opinion of Prof. Thomas Wälde (1 Dec 2005), paras. 31-32. 70 E.g. Philip Morris Brands SÀRL, Philip Morris Products SA and Abal Hermanos SA v. Oriental Republic of Uruguay, ICSID Case No. ARB/10/7, Award (8 July 2016), para. 426: ‘legitimate expectations depend on specific undertakings and representations made by the host State to induce investors to make an investment. Provisions of general legislation applicable to a plurality of persons or of category of persons, do not create legitimate expectations that there will be no change in the law’ (→ Art. 8.10 mn. 30). 71 Crystallex International Corporation v. Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/11/2, Award, (4 April 2016), para. 547. 72 Novenergia II – Energy & Environment (SCA) (Grand Duchy of Luxembourg), SICAR v. The Kingdom of Spain, SCC Case No. 2015/063, Award (15 February 2018), para. 650: ‘The Claimant has argued that legitimate expectations arise naturally from undertakings and assurances made by, or on behalf of, the state and that such undertakings and assurances need not be specific. The arbitral tribunal in Electrabel, acknowledged that ‘[w]hile specific assurances given by the host State may reinforce the investor's expectations, such an assurance is not always indispensable’. The Tribunal agrees. A multitude of arbitral tribunals have established that undertakings or assurances can be explicit or implicit […].’ Emphasis in original. 73 Cube Infrastructure Fund SICAV and others v. Kingdom of Spain, ICSID Case No. ARB/15/20, Decision on Jurisdiction, Liability and Partial Decision on Quantum (19 February 2019).
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mate expectation to arise, especially when it comes to highly regulated industries. 74 In contrast hereto is the statement of the tribunal in Blusun v. Italy, another renewable energy case, which held that ‘[in] the absence of a specific commitment, the state has no obligation to grant subsidies such as feed-in tariffs, or to maintain them unchanged once granted.’75 For disputes under CETA, Article 8.9(3)(a) CETA clarifies, in the case of subsidies, that a specific commitment is required. 31 Where a specific commitment has been given to the investor ‘under contract’, the carve-out provided by Article 8.9(3) CETA does also not apply. The specificity in such case is likely to be more easily established. A clear and specific commitment by the State would be the case of a stabilization clause in the investment contract. The constraining nature of stabilization clauses has been accepted even in cases of regulatory power exercised during severe economic crises or similar situations. 76
2. The Decision Is in Accordance with the Terms or Conditions of the Subsidy 32
Letter (b) of Article 8.9(3) CETA serves as a reminder that States need to respect the terms and conditions that were attached to the issuance, renewal or maintenance of the subsidy. A State not executing in good faith such terms and conditions cannot benefit from the regulatory flexibility granted by Article 8.9(3) CETA. This being so, States could place explicit caveats providing for the alteration of their legislative framework and incentives in place at the time of the initial investments. States may also reserve a pre-determined timeframe of initial investment for a shorter period of time. Such planning may have the effect of providing a certain leeway for States should the need arise to make changes to its legislative framework in response to changing economic factors. At the same time, such caveats might lead to shying away foreign investors to risk their capital.
74 Cube Infrastructure Fund SICAV and others v. Kingdom of Spain, ICSID Case No. ARB/15/20, Decision on Jurisdiction, Liability and Partial Decision on Quantum (19 February 2019), para. 388: ‘The Tribunal does not consider it necessary that a specific commitment be made to each individual claimant in order for a legitimate expectation to arise. At least in the case of a highly-regulated industry, and provided that the representations are sufficiently clear and unequivocal, it is enough that a regulatory regime be established with the overt aim of attracting investments by holding out to potential investors the prospect that the investments will be subject to a set of specific regulatory principles that will, as a matter of deliberate policy, be maintained in force for a finite length of time. Such regimes are plainly intended to create expectations upon which investors will rely; and to the extent that those expectations are objectively reasonable, they give rise to legitimate expectations when investments are in fact made in reliance upon them’. 75 Blusun S.A., Jean-Pierre Lecorcier and Michael Stein v. Italian Republic, ICSID Case No. ARB/14/3, Final Award (27 December 2016), para. 319. See for a similar approach, Charanne and Construction Investments v. Spain, SCC Case No. V 062/2012 (Award, 21 January 2016), para. 490. 76 See, CMS Gas Transmission Company v. The Republic of Argentina, ICSID Case No. ARB/01/8, Award (12 May 2005), para. 277: ‘It is not a question of whether the legal framework might need to be frozen as it can always evolve and be adapted to changing circumstances, but neither is it a question of whether the framework can be dispensed with altogether when specific commitments to the contrary have been made. The law of foreign investment and its protection has been developed with the specific objective of avoiding such adverse legal effects.’ The Tribunal concluded that Argentina had violated the FET clause by adopting measures which contradicted its contractual stability commitments. For more details, Gjuzi, Stabilization Clauses in International Investment Law: A Sustainable Development Approach (2018) 349 ff.
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IV. Article 8.9(4) – Unlawful Subsidies due to International Law Obligations or Order by any Competent Authority The fourth and last paragraph of Article 8.9 CETA starts off once more with the 33 formulation ‘for greater certainty’. The paragraph provides that nothing in the Section on investment protection ‘shall be construed as preventing a Party from discontinuing the granting of a subsidy or requesting its reimbursement where such measure is necessary’ on the basis of international law or EU law. Different than 8.9(3) CETA, the fourth paragraph is concerned with unlawful subsidies. Article 8.9(4) CETA is a carve-out clause functioning as an exception to the application of the investment protection standards if a subsidy is illegal either by virtue of EU law or by virtue of international law.
1. EU State Aid Law Article 8.9(4) CETA has been introduced upon the request of the EU. The carve-out 34 is essential to safeguard the EU regime of State aid law. This specific legal regime of EU law basically functions as a subsidy control at the EU level. Article 107 TFEU provides that: any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the internal market.
The competent authority to decide whether a given State aid is compatible with the 35 EU internal market is the European Commission.77 If the Commission has taken a negative decision concerning an aid that has already been paid out, the Commission requires the Member State to recover the aid with interest from the beneficiary. 78 Article 8.9(4) CETA hence provides EU Member States with the necessary leeway to comply with EU law obligations on State aid. It prevents that a Member State’s decision to discontinue the granting and potentially the recovery of a measure involving unlawful State aid amounts to a breach of the investment protection standards, namely so the FET clause. The Micula case highlights the tension between international investment law and 36 EU State aid law.79 In a decision of 2015, the European Commission declared the payment of compensation under an ICSID award of € 82 million plus interest in favour of Mr Ioan Micula et al. to be illegal State aid. The Commission ordered Romania not to make any payments under the award and to recover any payments already made. The Commission reasoned that the award reinstated the benefits of an incentive scheme that itself constituted incompatible aid, and which Romania was required to terminate before joining the EU. Mr Micula et al. initiated annulment proceedings against the decision of the Commission.80 In its judgment, the General Court annulled the ComArticle 108 TFEU. In such a scenario, the Commission opens a ‘recovery case’ to enforce the implementation of its decision. If the Member State does not comply with the decision in due time, the Commission may refer it to the CJEU. The aim of recovery is to remove the undue advantage granted to a company (or companies) and to restore the market to its state before the aforementioned aid was granted. For more details, see Hofmann and Micheau (eds), State Aid Law of the European Union (2016). 79 Ioan Micula, Viorel Micula, S.C. European Food S.A, S.C. Starmill S.R.L. and S.C. Multipack S.R.L. v. Romania, ICSID Case No. ARB/05/20, Final Award (11 December 2013). 80 EGC, Cases T‑624/15, T‑694/15 and T‑704/15, 18.06.2019, European Food SA and Others v. European Commission, ECLI:EU:T:2019:423. 77
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mission’s decision in full. It upheld the arguments that the Commission had no prerogative over the payments under the award because the investors’ right to compensation arose out of events arising before Romania’s accession to the EU and therefore could not be covered by EU State aid rules.81 If the facts of a case arise well after a Member State’s accession to the EU, a conflict between EU law and international investment law is very likely. Article 8.9(4) CETA seeks to prevent this type of future situations, where an obligation to pay compensation under the ICSID Convention has the same economic effect as the unlawful aid that was to be recovered.
2. International Law Obligations 37
Subsidies can also be unlawful by virtue of international law. For example, the WTO Agreement on Subsidies and Countervailing Measures (SCM) prohibits two categories of subsidies, namely export subsidies and local content subsidies.82 Article 8.9(4) CETA also provides an exception to the application of the investment protection standards in the case of unlawful subsidies due to international (trade) law obligations. In the near future, the international community might adopt legally binding instruments on the prohibition or the reduction of certain State subsidies. This discussion is particularly relevant in the debate on climate change mitigation. In order to implement the 2015 Paris Agreement, binding rules on the removal of environmentally harmful fossil fuel subsidies could constitute an important next development.83 Article 8.9(4) CETA can in this respect also serve as an exception to investment protection when a CETA Party has to implement an international law obligation, which requires from it to discontinue a subsidy for reasons of climate change mitigation, typically fossil-fuels subsidies.
E. Conclusion 38
Article 8.9 CETA on regulatory measures is a central provision in the overall structure of CETA and the agreement’s Investment Chapter. It sets the tone for the application and interpretation of the investment protection standards. Especially, the first and the second paragraphs of Article 8.9 CETA operate as a reaffirmation of the sovereign right of States to regulate in the public interest. These provisions have been included in order to better safeguard regulatory space for legitimate public welfare objective in the case of an investor claim alleging a breach of its investment guarantees. The concrete benefits of such provisions should, however, not be overestimated. The reason is that reaffirmations of the right to regulate, including the provision of Article 8.9(1-2) CETA do not prevent liability for regulatory measures, they make simply clear that governments may adopt and maintain the measure but are obliged to pay compensation if they violate any of the investment protection standards. In the past, the pivotal issue in arbitral cases concerning the right to regulate of States 81 Efforts to enforce the award continue, with actions pending in multiple jurisdictions including the UK, US and Belgium. The General Court’s decision was appealed by the Commission before the Court of Justice on 27 August 2019, see CJEU, Case C-638/19 P, Commission v. European Food and Others. 82 Article 3 SCM. 83 It is interesting to note that both the Asia-Pacific Economic Cooperation (APEC) and the G20 have established peer review processes to help members meet their commitments to phase out inefficient fossil fuel subsidies. See, International Institute for Sustainable Development (IISD) and Global Subsidies Initiative (GSI), ‘Building on Momentum: Recommendation from the GSI Fossil Fuel Subsidy Reform at the G20’, Policy Brief, June 2016, https://www.iisd.org/sites/default/files/publications/buildin g-on-momentum-recommendations-ffsr-g20.pdf (last accessed 24 June 2020).
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has not been that legitimate regulatory objectives were not sufficiently recognised but how to strike an adequate balance between the regulatory purposes and investment protection. Article 8.9(1-2) CETA add little as to how to weigh the stated objectives in relation to investors’ rights leaving it up to the adjudicators interpreting the treaty. Those provisions that are dealing with the actual balancing mainly remain the FET and indirect expropriation clauses. In the course of the balancing exercise, adjudicators are, however, invited to take nuanced approaches. The overall structure of CETA and its related instruments provide guidance for adjudicators in this respect. Finally, through a deferential standard of review CETA tribunals can leave the Contracting Parties enough policy space to regulate in the public interest without surrendering their adjudicative function. Deference should, in particular, be accorded for regulatory changes that are the result themselves of a fair balancing of the opposed (public and private) interests at stake.
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Article 8.10 Treatment of investors and of covered investments 1. Each Party shall accord in its territory to covered investments of the other Party and to investors with respect to their covered investments fair and equitable treatment and full protection and security in accordance with paragraphs 2 through 6. 2. A Party breaches the obligation of fair and equitable treatment referenced in paragraph 1 if a measure or series of measures constitutes: (a) denial of justice in criminal, civil or administrative proceedings; (b) fundamental breach of due process, including a fundamental breach of transparency, in judicial and administrative proceedings. (c) Manifest arbitrariness; (d) Targeted discrimination on manifestly wrongful grounds, such as gender, race or religious belief; (e) Abusive treatment of investors, such as coercion, duress and harassment; or (f) A breach of any further elements of the fair and equitable treatment obligation adopted by the Parties in accordance with paragraph 3 of this Article. 3. The Parties shall regularly, or upon request of a Party, review the content of the obligation to provide fair and equitable treatment. The Committee on Services and Investment, established under Article 26.2.1(b) (Specialized Committee), may develop recommendations in this regard and submit them to the CETA Joint Committee for decision. 4. When applying the above fair and equitable treatment obligation, a tribunal may take into account whether a Party made a specific representation to an investor to induce a covered investment, that created a legitimate expectation, and upon which the investor relied in deciding to make or maintain the covered investment, but that the Party subsequently frustrated. 5. For greater certainty, ‘full protection and security’ refers to the Party’s obligations relating to physical security of investors and covered investments. 6. For greater certainty, a breach of another provision of this Agreement, or of a separate international agreement does not establish a breach of this Article. 7. For greater certainty, the fact that a measure breaches domestic law does not, in and of itself, establish a breach of this Article. In order to ascertain whether the measure breaches this Article, the Tribunal must consider whether a Party has acted inconsistently with the obligations in paragraph 1. Reference to the Respective Provisions in Other EU Treaties: Singapore Free Trade Agreement and Investment Protection Agreement, signed on 18 October 2018, and not yet in force; EU-Vietnam Free Trade Agreement, signed on 30 June 2019, not yet in force; Modernization of the Trade part of the EU-Mexico Global Agreement, text agreed on 21 April 2018, and not yet in force; Belgium and Luxembourg Model BIT, Article 4; Netherlands Model BIT, Article 9. Bibliography: Guillermo Aguilar Alvarez and William Park, ‘The New Face of Investment Arbitration: NAFTA Chapter 11’ (2003) 28 Yale J. Int’l L., 365; José Alvarez, ‘The Return of the State’ (2011) 20(2) Minn. J. Int’l L., 223; Nathalie Bernasconi-Osterwalder, ‘Commentary to the Draft Investment Chapter of the Canada-EU Comprehensive Economic and Trade Agreement (CETA)’, IISD Report, May 2013; Nathalie Bernasconi-Osterwalder, and Howard Mann, ‘A Response to the European Commission’s December 2013 Document “Investment Provisions in the EU-Canada Free Trade Agreement (CETA)”’, IISD Report, February 2014; Enrique Boone Barrera, ‘The Case for Removing the Fair and Equitable Treatment Standard from NAFTA’ (2017) 128 CIGI Papers; Gabriel Cavazos Villanueva, The Fair and
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Equitable Treatment Standard: The Mexican Experience (VDM Verlag Dr. Müller, 2008); Alexandra Diehl, The Core Standard of International Investment Protection: Fair and Equitable Treatment (Kluwer Law International, Alphen aan den Rijn 2012); Patrick Dumberry, The Fair and Equitable Treatment Standard: A Guide to NAFTA Case Law on Article 1105 (Kluwer Law International, Alphen ann den Rijn 2013); Patrick Dumberry, ‘Denial of Justice under NAFTA Article 1105: A Review of 20 Years of Case Law’ (2014) 32(2) ASA Bulletin, 246; Patrick Dumberry, ‘Moving the Goal Post! How Some NAFTA Tribunals Have Challenged the FTC Note of Interpretation on the Fair and Equitable Treatment Standard Under NAFTA Article 1105’ (2014) 8(2) WAMR 51; Patrick Dumberry, ‘The Prohibition against Arbitrary Conduct and the Fair and Equitable Treatment Standard under NAFTA Article 1105’ (2014) 15 JWIT, 117; Patrick Dumberry, ‘The Protection of Investors’ Legitimate Expectations and the Fair and Equitable Treatment Standard under NAFTA Article 1105’ (2014) 31(1) J. Int. Arb., 47; Patrick Dumberry, ‘Shopping for a Better Deal: The Use of MFN Clauses to Get ‘Better’ Fair and Equitable Treatment Protection’ (2016) 33 Arb. Int’l, 1; Patrick Dumberry, ‘Has the Fair and Equitable Treatment Standard become a Rule of Customary international Law?’ (2017) 8(1) J. Int’l Dispute Settlement, 155; Patrick Dumberry, ‘The Importation of the FET Standard through MFN Clauses: An Empirical Study of BITs’ (2017) 32(1), ICSID Rev., 116; Patrick Dumberry, ‘Fair and Equitable Treatment’, in Makane Moïse Mbengue and Stefanie Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (Springer, 2018), 95; Patrick Dumberry, Fair and Equitable Treatment: Its Interaction with the Minimum Standard and its Customary Status (Brill Research Perspectives in International Investment Law and Arbitration, 2018); Patrick Dumberry, ‘The ‘Minimum Standard of Treatment’ in International Investment Law: The Fascinating Story of the Emergence, the Decline and the Recent Resurrection of a Concept’, in Luca Pasquet, Klara Polackova Van der Ploeg, and Léon Castellanos Jankiewicz (eds), International Law and Time: Narratives and Techniques: Proceedings of the conference International Law and Time (Springer,forthcoming); Florian Dupuy, and Pierre-Marie Dupuy, ‘What to Expect from Legitimate Expectations? A Critical Appraisal and Look into the Future of the ‘Legitimate Expectations’ Doctrine in International Investment Law’, in Mohamed Abdel Raouf, Philippe Leboulanger, and Nassib G. Ziadé (eds), Festschrift Ahmed Sadek El-Kosheri: From the Arab World to the Globalization of International Law (Kluwer Law International, Alphen aan den Rijn 2015), 273; David Gantz, ‘The Evolution of FTA Investment Provisions: From NAFTA to the United States - Chile Free Trade Agreement’ (2003) 19(4) Am. U. Int’l L. Rev., 679; Caroline Henckels, ‘Protection Regulatory Autonomy through Greater Precision in Investment Treaties: The TPP, CETA, and TTIP’ (2016) 19(1) J. Int’l Econ. L., 27; Flavien Jadeau, and Fabien Gélinas, ‘CETA’s Definition of the Fair and Equitable Treatment Standard: Toward a Guided and Constrained Interpretation’ (2016) 13(1) TDM; Roland Kläger, Fair and Equitable Treatment in International Investment Law (Cambridge University Press, Cambridge 2011); Ursula Kriebaum, ‘FET and Expropriation in the Comprehensive Economic Trade Agreement between the European Union and Canada (CETA)’ (2016) 13(1) TDM; Ursula Kriebaum, ‘FET and Expropriation in the (Invisible) EU Model BIT’ (2014) 15 JWIT, 454; Yulia Levashova, The Right of States to Regulate in International Investment Law: The Search for Balance Between Public Interest and Fair and Equitable Treatment (Kluwer Law International, Alphen aan den Rijn 2019); Céline Lévesque, ‘Influences on the Canadian FIPA Model and the US Model BIT: NAFTA Chapter 11 and Beyond’ (2007) 44 Can. YBIL, 249; Céline Lévesque and Andrew Newcombe, ‘Commentary on the Canadian Model FIPA, in Chester Brown (ed), Commentaries on Selected Model Investment Treaties (Oxford University Press, Oxford 2013), 62; OECD, ‘Fair and Equitable Treatment Standard in International Investment Law’ 2004/03 (2004), OECD Working Papers on International Investment; Martins Paparinskis, The International Minimum Standard and Fair and Equitable Treatment (Oxford University Press, Oxford 2013); Fulvio Maria Palombino, Fair and Equitable Treatment and the Fabric of General Principles (TMC Asser Press, The Hague and Springer, Berlin and Heidelberg 2018); Roman Picherack, ‘The Expanding Scope of the Fair and Equitable Treatment Standard: Have Recent Tribunals Gone Too Far?’(2008) 9(4) JWIT, 255; Stefanie Schacherer, ‘TPP, CETA and TTIP Between Innovation and Consolidation—Resolving Investor–State Disputes under Mega-regionals’ (2016) 7(3) J. Int’l Disput. Settlement, 628; Andrea Schernbeck, Der Fair and Equitable Treatment Standard in internationalen Investitionsschutzabkommen (Nomos, Baden-Baden, Zürich/St. Gallen 2013); Stephan Schill, The Multilateralization of International Investment Law (Cambridge University Press, Cambridge 2009); Iona Tudor, The Fair and Equitable Treatment Standard in International Foreign Investment Law (Oxford University Press, Oxford 2008); UNCTAD, ‘Fair and Equitable Treatment’ (2012) UNCTAD Series on Issues in International Investment Agreements II, UNCTAD/DIAE/IA/2011/5; Güneş Ünüvar, ‘The Vague Meaning of Fair and Equitable Treatment Principle in Investment Arbitration and New Generation Clarifications’ (2016) 55(2) iCourts Working Paper Series; Güneş Ünüvar, ‘Is CETA the Promised Breakthrough? Interpretation and Evolution of Fair and Equitable Treatment and Indirect Expropriation Provisions’, in Mads Andenas and Luca Pantaleo (eds), The EU as an Actor in International Economic Law (TMC Asser Press, The Hague, forthcoming); Kenneth Vandevelde, ‘A Comparison of the 2004 and 1994 US Model BITs’ (2008-2009) 1 YB Pol’y, 283; Anthony VanDuzer, ‘Investor-State Dispute Settlement in
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CETA: Is It the Gold Standard?’ (2016) C.D. Howe Institute Commentary No. 459; Ottawa Faculty of Law Working Paper No. 2016-44; Gus Van Harten, ‘ISDS in the Revised CETA: Positive Steps, But Is It a ‘Gold Standard’?’ (2016) CIGI Investor-State Arbitration Commentary Series No. 6; Todd Weiler, The Interpretation of International Investment Law: Equality, Discrimination and Minimum Standards of Treatment in Historical Context (Martinus Nijhoff, Leiden and Boston 2013). A. Introduction and Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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B. Spirit and Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. The Provision is the First FET Clause to Include a Closed List of Elements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. The Clause is the Natural Outcome of a New Generation of FET Clauses III. The Absence of any Reference to the MST Under Custom . . . . . . . . . . . . . . . . IV. The Provision Reflects 25 Years of NAFTA Case Law . . . . . . . . . . . . . . . . . . . . . .
2 2 4 8 9
C. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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D. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. Article 8.10(2)(a): Denial of Justice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Article 8.10(2)(b): Breach of Due Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. Article 8.10(2)(c): Arbitrary Conduct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV. Article 8.10(2)(c): Discrimination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V. Article 8.10(2)(e): Abusive Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VI. Article 8.10(2)(f) and (3): Review Mechanism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VII. Article 8.10(4): Investor’s Legitimate Expectations . . . . . . . . . . . . . . . . . . . . . . . . VIII. Article 8.10(5): Full Protection and Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16 17 20 23 25 26 27 29 33
E. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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A. Introduction and Overview 1
Under Article 8.10, CETA Parties have the obligation to accord covered investments of investors two types of substantive protections: the ‘fair and equitable treatment’ (FET) standard and full protection and security. The FET standard has been the object of a number of studies in recent years.1 Since the 1990 s, the FET standard has been included in the vast majority of bilateral investment treaties (BITs). My own analysis shows that less than 5% of BITs do not include any formal and binding FET obligation for host States.2 The FET standard is now also found in several multilateral in1 Tudor, The Fair and Equitable Treatment Standard in International Foreign Investment Law (2008); Cavazos Villanueva, The Fair and Equitable Treatment Standard: The Mexican Experience (2008); Kläger, Fair and Equitable Treatment in International Investment Law (2011); Diehl, The Core Standard of International Investment Protection: Fair and Equitable Treatment (2012); Paparinskis, The International Minimum Standard and Fair and Equitable Treatment (2013); Weiler, The Interpretation of International Investment Law: Equality, Discrimination and Minimum Standards of Treatment in Historical Context (2013); Schernbeck, Der Fair and Equitable Treatment Standard in internationalen Investitionsschutzabkommen (2013); Palombino, Fair and Equitable Treatment and the Fabric of General Principles (2018); Levashova, The Right of States to Regulate in International Investment Law: The Search for Balance Between Public Interest and Fair and Equitable Treatment (2019); Dumberry, The Fair and Equitable Treatment Standard: A Guide to NAFTA Case Law on Article 1105 (2013); Dumberry, Fair and Equitable Treatment: Its Interaction with the Minimum Standard and its Customary Status (2018). 2 See Dumberry, ‘Has the Fair and Equitable Treatment Standard become a Rule of Customary international Law?’ (2017) 8(1) J. Int’l Dispute Settlement,155 (157). Yet, it should be added that even when a BIT does not contain an FET clause, an investor may invoke a broadly worded most favoured nation (MFN) clause contained in that treaty to rely on provisions found in another treaty entered into by the host State that provide for a ‘better’ treatment (i.e. the presence of an FET clause rather than no such protection at all). This is the conclusion reached so far by investment tribunals which have accepted the importation of FET protection through broad MFN clauses (with the exception of İçkale İnşaat Limited Şirketi v. Turkmenistan, ICSID Case No. ARB/10/24, Award (8 March 2016), paras. 326ff.). See, analysis in: Dumberry, ‘The Importation of the FET Standard through MFN Clauses: An Empirical Study of
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vestment treaties, in a number of recent free trade agreements (FTAs) containing investment chapters, as well as in a number of other multilateral economic instruments. While the vast majority of BITs include an FET clause, there nevertheless remains a considerable degree of variation in the content of the clause. This is an important point given that arbitral tribunals generally interpret the scope of FET clauses differently depending on their wording.3 Many arbitral tribunals have thus interpreted a ‘unqualified’ or ‘stand-alone’ FET clause (i.e., not mentioning ‘international law’) as providing a higher level of standard of treatment for investors when compared to an FET clause which is expressly linked to ‘international law’ or to the minimum standard of treatment (MST) existing under custom.
B. Spirit and Purpose I. The Provision is the First FET Clause to Include a Closed List of Elements Article 8.10 is very unique and novel for several reasons when compared to other 2 types of FET clauses that are typically found in BITs and IIAs. 4 It is neither a ‘stand alone’ FET clause nor a provision where the standard is explicitly linked to that existing under custom. Article 8.10 CETA is in fact the first FET clause contained in an IIA that specifically enumerates the different situations resulting in a breach of the obligation. This is a closed list defining specifically what the Parties consider to be the FET standard. Canada had never before adopted such a FET clause. This is also the case for the EU since the CETA was the first FTA containing a comprehensive investment chapter concluded by the EU. This special type of FET clause has now found its way in other trade agreements 3 recently signed by the EU.5 Thus, similar clauses (further discussed below) are found in the EU-Singapore Investment Protection Agreement (IPA), 6 in the EU-Vietnam FTA7 and, more recently, in the text adopted by the Parties in the context of the modernisation of the EU-Mexico Global Agreement.8 It should be added that the proposed text of the (now doomed) Transatlantic Trade and Investment Partnership (TTIP) between the EU and the United States also contained an FET clause with similar language to that provided by Article 8.10.9 Interestingly, the new Model BITs adopted in 2018 by both Belgium-Luxembourg and the Netherlands contain a very
BITs’ (2017) 32(1) ICSID Rev.,116 (120 ff.); Dumberry, ‘Shopping for a Better Deal: The Use of MFN Clauses to Get ‘Better’ Fair and Equitable Treatment Protection’, (2016) 33 Arb. Int’l, 1. 3 UNCTAD, ‘Fair and Equitable Treatment’ (2012) UNCTAD Series on Issues in International Investment Agreements II, 8, 22; OECD, ‘Fair and Equitable Treatment Standard in International Investment Law’ 2004/03(2004), OECD Working Papers on International Investment, 40. 4 On this question, see: Dumberry, ‘Fair and Equitable Treatment’, in Mbengue and Schacherer (eds), Foreign Investment under the Comprehensive Economic and Trade Agreement (CETA) (2018), 95 (97 ff.). 5 All documents can be found here: http://ec.europa.eu/trade/policy/countries-and-regions/agreeme nts/ (last accessed on 6 June 2019). 6 EU-Singapore Free Trade Agreement and Investment Protection Agreement, signed on 18 October 2018, and not yet in force. 7 EU-Vietnam Free Trade Agreement, signed on 30 June 2019, not yet in force. 8 Modernization of the Trade part of the EU-Mexico Global Agreement, text agreed on 21 April 2018, not yet in force. 9 European Commission, Draft Text TTIP – Investment [TTIP], Article 3, available at http://trade.ec. europa.eu/doclib/docs/2015/september/tradoc_153807.pdf (last accessed on 6 October 2019).
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similar closed list of FET elements.10 The same is true for the latest Indian Model BIT (which, notably, does not use the terms FET or MST, but instead refers to the expression ‘violation of customary international law’).11 As further explained in the next section, Canada has, however, not adopted this model in its own subsequent IIAs.
II. The Clause is the Natural Outcome of a New Generation of FET Clauses Many States have started reacting to the varied (and sometimes conflicting) interpretations given by tribunals regarding the meaning and the scope of the FET standard. They have increasingly explicitly specified in their BITs that the standard is not only linked to international law, but that it is a reference to the MST under custom.12 The clearest example of such a reaction is that of the NAFTA Parties regarding Article 1105 NAFTA after three controversial awards that had been rendered in the year 2000 (Metalclad,13 S.D. Myers,14 and Pope and Talbot15). Under the aegis of the Free Trade Commission (‘FTC’), they issued in 2001 the ‘Notes of Interpretation of Certain Chapter 11 Provisions’, interpreting the FET standard restrictively by expressly limiting the level of protection to be accorded to foreign investors to the level of protection existing under the MST. The United States and Canada have subsequently followed this path in their respective Model BITs (both adopted in 2004). For instance, Article 5(1) of the US Model BIT provides that ‘[e]ach Party shall accord to covered investments treatment in accordance with customary international law, including fair and equitable treatment and full protection and security’.16 5 Clearly, Canada and the United States decided to adopt such language to refute the expanding interpretation applied by some NAFTA tribunals and to incorporate the clarification provided in the FTC Note.17 Recent BITs and FTAs of the United States18 4
10 Belgium and Luxembourg Model BIT, Article 4, available at https://www.lachambre.be/flwb/pdf/5 4/1806/54K1806007.pdf. (last accessed on 6 October 2019); Netherlands Model BIT, Article 9, available at https://www.internetconsultatie.nl/investeringsakkoorden (last accessed on 6 October 2019). 11 India’s Model BIT (2016), Article 3.1: ‘No Party shall subject investments made by investors of the other Party to measures which constitute a violation of customary international law through: (i) Denial of justice in any judicial or administrative proceedings; or (ii) fundamental breach of due process; or (iii) targeted discrimination on manifestly unjustified grounds, such as gender, race or religious belief; or (iv) manifestly abusive treatment, such as coercion, duress and harassment (…)’. This type of clause is found in the 2018 Belarus-India BIT. 12 UNCTAD, ‘Fair and Equitable Treatment’(2012) UNCTAD Series on Issues in International Investment Agreements II, 29. 13 Metalclad Corporation v. Mexico, ICSID No.ARB(AF)/97/1, Award (30 August 2000), paras. 70, 76. 14 S.D. Myers, Inc. v. Canada, UNCITRAL, First Partial Award (13 November 2000), para. 266. 15 Pope and Talbot Inc. v. Canada, UNCITRAL, Award on the Merits of Phase II (10 April 2001). 16 US Model BITArticle 5(2) further states that: ‘For greater certainty, paragraph 1 prescribes the customary international law minimum standard of treatment of aliens as the minimum standard of treatment to be afforded to covered investments. The concepts of ‘fair and equitable treatment’ and ‘full protection and security’ do not require treatment in addition to or beyond that which is required by that standard, and do not create additional substantive rights …’. It is noteworthy that both the 2004 and 2012 US Model BITs also explicitly add what customary international law actually means; i.e., ‘a general and consistent practice of States that they follow from a sense of legal obligation’ (See, footnote to Article 5 referring to Annex A). 17 Lévesque, ‘Influences on the Canadian FIPA Model and the US Model BIT: NAFTA Chapter 11 and Beyond’ (2007) 44 Can. YBIL, 249 (255); Vandevelde, ‘A Comparison of the 2004 and 1994 US Model BITs’ (2008-2009) 1 YB. Int’l Invest. L. & Pol’y, 283 (291); Lévesque and Newcombe, ‘Commentary on the Canadian Model FIPA’, in Chester Brown (ed), Commentaries on Selected Model Investment Treaties (2013) 62 (78 ff.). 18 US-Uruguay BIT (2006), Article 5(1)(2); US-Rwanda BIT (2012), Article 5(1)(2).
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contain the same FET clause. The same is true for recent BITs (and FTAs) that Canada entered into19 as well as a number of Mexico’s BITs.20 While such specific language is clearly the result of the NAFTA experience, the phenomenon is not limited to the North American context. Many other States have also recently adopted the same types of FET clauses referring to the MST.21 Another recent phenomenon is States becoming ‘more precise about the content 6 of the FET obligation and more predictable in its implementation and subsequent interpretation’.22 One example is the US Model BIT that clarifies that the obligation to provide FET under Article 5(1) ‘includes the obligation not to deny justice in criminal, civil, or administrative adjudicatory proceedings in accordance with the principle of due process embodied in the principal legal systems of the world’.23 This addition is also featured in the United States’ most recent BITs and FTAs as well as some of Canada’s investment treaties.24 The same approach was adopted in the recently signed Canada-United States-Mexico Agreement (CUSMA, which will replace NAFTA) 25 as well as by other States in the context of ASEAN, 26 COMESA,27 CAFTA-DR28 and the new Transpacific Partnership agreement (without the United States). 29 Article 8.10 CETA therefore seems to be the natural and logical outcome of States’ 7 willingness to ever increase the degree of specificity of the content of the FET clause in order to narrow its scope and to circumscribe its interpretation by tribunals. 30 The provision is certainly by far the most comprehensive and detailed illustration of such a trend. 19 See, Canada-Czech Republic BIT (2009), Article 3; Canada-Jordan BIT (2009), Article 5; Canada-Latvia BIT (2009), Article 5; Canada-Peru BIT (2006), Article 5; Canada-Romania BIT (2009), Article 2; Canada-Slovakia BIT (2010), Article 3; Canada-Colombia FTA (2011), Article 805. See also: Canada-China BIT (2012) (not using, however, the expression ‘custom’ per se, but referring instead to its two elements). 20 Australia-Mexico BIT (2005), Protocol, clause 1; Czech Republic-Mexico BIT (2002), Protocol; Iceland-Mexico BIT (2005), Protocol; India-Mexico BIT (2007), Article 5; Trinidad and Tobago-Mexico BIT (2006), Article 5; United Kingdom-Mexico BIT (2006), Article 3. 21 UNCTAD, ‘Fair and Equitable Treatment’ (2012) UNCTAD Series on Issues in International Investment Agreements II, 25, referring to several agreements. 22 .UNCTAD, ‘Fair and Equitable Treatment’ (2012) UNCTAD Series on Issues in International Investment Agreements II, 29, 13, 30. 23 The Model BIT further specifies at Article 5(3) that ‘A determination that there has been a breach of another provision of this Treaty, or of a separate international agreement, does not establish that there has been a breach of this Article’. 24 Gantz, ‘The Evolution of FTA Investment Provisions: From NAFTA to the United States – Chile Free Trade Agreement’ (2003) 19(4) Am. U. Int’l L. Rev., 679 (724 ff.). See, for instance, Canada-Colombia FTA (2011), Article 805; Canada-Romania BIT (2011) Article II(2). 25 Canada-United States-Mexico Agreement (CUSMA), signed on 30 November 2018, not yet in force. See, Article 14.6(1). The provision only finds application in disputes involving an US or a Mexican investor against either Mexico or the United States. The chapter on investor-state dispute settlement does not apply to Canada and Canadian investors. The provision can only be invoked in disputes relating to ‘covered government contracts’ (mentioned at Annex 14-E), which includes oil and gas production, power generation, transportation, telecoms and certain other infrastructure investments. 26 ASEAN Comprehensive Investment Agreement (2009), Article 11. 27 Investment Agreement for COMESA (2007), Article 14. 28 CAFTA-DR, Article 10.5. 29 Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), Article 9.6. 30 Jadeau and Gélinas, ‘CETA’s Definition of the Fair and Equitable Treatment Standard: Toward a Guided and Constrained Interpretation’ (2016) 13(1) TDM, 2 ff.; Ünüvar, ‘The Vague Meaning of Fair and Equitable Treatment Principle in Investment Arbitration and New Generation Clarifications’ (2016) 55(2) iCourts Working Paper Series, 22; Ünüvar, ‘Is CETA the Promised Breakthrough? Interpretation and Evolution of Fair and Equitable Treatment and Indirect Expropriation Provisions’, in Andenas and Pantaleo (eds), The EU as an Actor in International Economic Law (forthcoming).
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III. The Absence of any Reference to the MST Under Custom 8
One of the most notable features of Article 8.10 CETA is the important fact that it does not refer to ‘international law’, the MST or to custom. This is quite a novel approach for Canada since all of its recent investment treaties contain such a reference. The Parties certainly believed that there was no need to expressly link the FET to the standard existing under the MST precisely because the clause contains a comprehensive enumeration of the elements they considered to be comprised in the FET ‘box’. In any event, the elements listed at Article 8.10 CETA are those which are generally considered to be existing under the concept of the MST. As such, the omission of a reference to the MST should not be interpreted as a possible setback to the contemporary importance of that standard.31 One writer has recently referred to Article 8.10 CETA as a MST clause with another name.32
IV. The Provision Reflects 25 Years of NAFTA Case Law One of the most distinct aspects of Article 8.10 is that its content is to a very large extent based on how NAFTA tribunals have interpreted Article 1105 over the last 25 years. As explained elsewhere by the present author,33 two main conclusions emerge from NAFTA case law.34 10 On the one hand, tribunals have recognized that the FET standard under Article 1105 contains only a limited number of specific elements of protection that must be accorded to investors. Thus, NAFTA tribunals have generally adopted the ‘shopping list’ approach used by a number of writers whereby the FET standard is described as comprising a number of ‘elements’.35 The best example is the following extract from the Waste Management award which has since then been endorsed by many tribunals: 9
Taken together, the S.D. Myers, Mondev, ADF and Loewen cases suggest that the minimum standard of treatment of fair and equitable treatment is infringed by conduct attributable to the State and harmful to the claimant if the conduct is arbitrary, grossly unfair, unjust or idiosyncratic, is discriminatory and exposes the claimant to sectional or racial prejudice, or involves a lack of due process leading to an outcome which offends judicial propriety – as might be the case with a manifest failure of natural justice in judicial proceedings or a complete lack of transparency and
31 Dumberry, ‘The ‘Minimum Standard of Treatment’ in International Investment Law: The Fascinating Story of the Emergence, the Decline and the Recent Resurrection of a Concept’, in Pasquet, Polackova Van der Ploeg, and Castellanos Jankiewicz (eds), International Law and Time: Narratives and Techniques: Proceedings of the conference International Law and Time (forthcoming). 32 Boone Barrera, ‘The Case for Removing the Fair and Equitable Treatment Standard from NAFTA’ (2017) 128 CIGI Papers, 10. 33 Dumberry, The Fair and Equitable Treatment Standard: A Guide to NAFTA Case Law on Article 1105 (2013), 44 ff. 34 The same conclusion was reached by the tribunal in Apotex Holdings Inc & Apotex Inc. v. United States, ICSID Case No. ARB(AF)/12/1, Award (25 August 2014), part IX, paras. 9.41, 9.47. 35 See, for instance, Glamis Gold, Ltd. v. United States, UNCITRAL, Award (8 June 2009), para. 627; Cargill, Inc. v. Mexico, ICSID No. ARB(AF)/05/02, Award (18 September 2009), para. 296; Mobil Investments Canada Inc. & Murphy Oil Corporation v. Canada, ICSID No. ARB(AF)/07/4, Decision on Liability and on Principles of Quantum (22 May 2012) para. 152; Eli Lilly and Company v Canada, UNCITRAL Case No. UNCT/14/2, Final Award (16 March 2017), para. 222; William Ralph Clayton, William Richard Clayton, Douglas Clayton, Daniel Clayton and Bilcon of Delaware, Inc. v Canada, UNCITRAL PCA Case No. 2009-04, Award on Jurisdiction and Liability (17 March 2015), para. 442; Mesa Power Group, LLC v. Canada, UNCITRAL PCA Case No. 2012-17, Award (24 March 2016), para. 502. See, however, the reasoning of the tribunal in Windstream Energy Llc v. Canada, UNCITRAL, Award (27 September 2016), paras. 347 ff, which does not follow this approach.
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candour in an administrative process. In applying this standard it is relevant that the treatment is in breach of representations made by the host State which were reasonably relied on by the claimant. Evidently the standard is to some extent a flexible one which must be adapted to the circumstances of each case.36
Out of the numerous elements that are typically enumerated by writers as compo- 11 nents of the FET standard, NAFTA tribunals have found that only a few of them are actually covered by Article 1105. In this respect, NAFTA case law sharply contrasts with the position adopted by non-NAFTA tribunals which have been increasingly willing to recognize new requirements as components of the ever-enlarged concept of the FET standard.37 In this respect, it is quite telling that the list of elements contained at Article 8.10(2) CETA does not include investor’s ‘legitimate expectations’ (a point further discussed below). On the other hand, NAFTA tribunals38 (with the exception of the recent Bilcon 12 award39) have consistently required proof of a high threshold of severity and gravity in order to conclude that the host State has breached any of the elements contained within the FET standard under Article 1105.40 As pointed out by the Glamis and Cargill tribunals, the existence of such a high threshold is clear given NAFTA tribunals’ consistent use of qualifiers such as ‘manifest’, ‘gross’, ‘evident’, ‘blatant’, and ‘complete’.41 This is indeed one aspect that clearly differentiates it from awards rendered by non-NAFTA tribunals which have often used a lower threshold of liability when applying an unqualified FET clause. Article 8.10 CETA has adopted the NAFTA case law approach by using the terms ‘fundamental’ breach of due process and ‘manifest’ arbitrariness (a point further discussed below).
C. Drafting History The history behind the drafting of the clause and the compromise that was ulti- 13 mately reached by the Parties is quite interesting.42 From the outset of the negotiation, 36 Waste Management, Inc. v. Mexico (‘Number 2’), ICSID Case No. ARB(AF)/00/3, Award, 30 April 2004, para. 98. 37 Picherack, ‘The Expanding Scope of the Fair and Equitable Treatment Standard: Have Recent Tribunals Gone Too Far?’ (2008) 9(4) JWIT, 255 (271). 38 Glamis Gold, Ltd. v. United States, UNCITRAL, Award (8 June 2009), para. 627; Mesa Power Group, LLC v. Canada, UNCITRAL PCA Case No. 2012-17, Award (24 March 2016), paras. 504, 512; Cargill, Inc. v. Mexico, ICSID No. ARB(AF)/05/02, Award (18 September 2009) paras. 285, 296; Waste Management, Inc. v. Mexico (‘Number 2’), ICSID Case No. ARB(AF)/00/3, Award, 30 April 2004, para. 115; ADF Group Inc. v. United States, ICSID No. ARB(AF)/00/1, Award (9 January 2003), para. 190; International Thunderbird Gaming Corporation v. Mexico, UNCITRAL, Award (26 January 2006), para. 194; Eli Lilly and Company v Canada, UNCITRAL Case No. UNCT/14/2, Final Award (16 March 2017), paras. 222-223; Apotex Holdings Inc & Apotex Inc. v. United States, ICSID Case No. ARB(AF)/12/1, Award (25 August 2014), part IX, paras. 9.47-9. 39 William Ralph Clayton, William Richard Clayton, Douglas Clayton, Daniel Clayton and Bilcon of Delaware, Inc. v. Canada, UNCITRAL PCA Case No. 2009-04, Award on Jurisdiction and Liability (17 March 2015), paras. 440-444. 40 Two NAFTA awards have taken a different stance: Pope and Talbot Inc. v. Canada, UNCITRAL, Award on the Merits of Phase II (10 April 2001), para. 118; Merrill & Ring Forestry L.P. v. Canada, UNCITRAL, Award (31 March 2010), paras. 210, 213. 41 Cargill Inc. v. Mexico, ICSID No. ARB(AF)/05/02, Award (18 September 2009), para. 616; Glamis Gold, Ltd. v. United States, UNCITRAL, Award (8 June 2009), para. 616. See also: Eli Lilly and Company v Canada, UNCITRAL Case No. UNCT/14/2, Final Award (16 March 2017), paras. 222-223. 42 For an analysis of earlier drafts, see: Bernasconi-Osterwalder and Mann, ‘A Response to the European Commission’s December 2013 Document “Investment Provisions in the EU-Canada Free
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the EU apparently favored the inclusion of a minimalist ‘unqualified’ (or ‘stand-alone’) FET clause that is typically found in EU member States’ BITs. On the contrary, having been the respondent in many NAFTA arbitration cases in the last 25 years, Canada wanted to adopt a more detailed FET clause that would expressly link the standard to the one currently existing under the MST in custom.43 A 2012 document from the European Commission reveals that, at the time, Canada’s position was ‘a problem for the EU as it may significantly reduce the level of protection for investment afforded by the FET standard itself’.44 14 Regardless of the EU’s initial position on the matter, as its member States have become increasingly respondents in investment cases in recent years, 45 the advantages of adopting circumscribed language for the FET clause became more apparent. The 2012 EU document mentioned above thus indicates that one possible solution of compromise between the position of the Parties would be to ‘spell out the criteria’ for the application of the FET standard, ‘thereby codifying a generally accepted outcome of jurisprudence that both sides are comfortable with’.46 This is indeed what the Parties did. As mentioned above, the most striking feature of Article 8.10 is the fact that the final list of elements it contains (and their actual contours) is to a very large extent based on how NAFTA tribunals have interpreted Article 1105. At the time of drafting, the Parties certainly also had in mind the ‘alternative way to qualify, clarify and/or narrow down the FET standard’ which had been put forward in a 2012 UNCTAD report to ‘replace the general FET provision’ and which listed the following specific obligations: (a) (b) (c) (d) (e)
15
Denial of justice and flagrant violations of due process; Manifestly arbitrary treatment; Evident discrimination; Manifestly abusive treatment involving continuous, unjustified coercion or harassment; Infringement of legitimate expectations based on investment-inducing representations or measures, on which the investor has relied.47
As further explained in the next section, while the content of Article 8.10 is in many ways similar to the UNCTAD model, it is also different regarding some specific elements (notably, legitimate expectations).
D. Commentary 16
Given the fact that the content of Article 8.10 largely reflects how NAFTA tribunals have interpreted Article 1105 over the last 25 years, CETA tribunals will likely be inspired and influenced by NAFTA case law when interpreting this provision. For this Trade Agreement (CETA)”’, IISD Report, February 2014, 5, discussing the following documents: Draft CETA Investment Chapter (21 November 2013) and Draft CETA Investor-to-State Dispute Settlement (4 February 2014). 43 In fact, Canada proposed that the provision be entitled ‘MST’ (see Draft Text dated 7 February 2013). 44 European Commission, EU Canada Comprehensive Trade Agreement – Landing Zones, 6 November. 2012, DS 1744/12 (available at: http://www.lapresse.ca/html/1633/Document_UE_2.pdf.), 9. 45 See, Jadeau and Gélinas, ‘CETA’s Definition of the Fair and Equitable Treatment Standard: Toward a Guided and Constrained Interpretation’ (2016) 13(1) TDM, 5ff. 46 European Commission, EU Canada Comprehensive Trade Agreement – Landing Zones, 6 November 2012, DS 1744/12 (available at: http://www.lapresse.ca/html/1633/Document_UE_2.pdf.), 9. 47 UNCTAD, ‘Fair and Equitable Treatment’ (2012) UNCTAD Series on Issues in International Investment Agreements II, 108.
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reason, the different elements contained at Article 8.10 will be examined in light of NAFTA case law.
I. Article 8.10(2)(a): Denial of Justice All NAFTA tribunals (as well as others48) have held that there exists an obligation 17 not to deny justice and to respect due process under Article 1105. 49 While NAFTA awards have sometimes examined the two concepts together, 50 Article 8.10 CETA lists them as separate elements of the FET. The same pattern is found in both the EU-Singapore and EU-Vietnam FTAs, but not in the EU-Mexico agreement. The additional language at Article 8.10 CETA specifying the types of proceedings (criminal, civil and administrative) regarding which such a breach may be committed is borrowed from the FET clause contained in the US Model BIT and other agreements signed by the United States (including CAFTA). The same language is found in the agreements subsequently signed by the EU with Singapore, Vietnam and Mexico. In light of NAFTA case law on denial of justice, a number of conclusions can be 18 reached with respect to the parameters of this obligation.51 A foreign investor must have exhausted all remedies made available by domestic courts before a complaint for denial of justice can be filed before a tribunal. Case law shows that this obligation is, however, limited to those remedies that are ‘effective and adequate and are reasonably available to the complainant’.52 A tribunal must assess the justice system of the host State as a whole rather than focusing on individual domestic court decisions. The Mondev tribunal (endorsed by others, including Loewen) has put forward a general ‘test’: a denial of justice occurs whenever a decision by a domestic court is ‘clearly improper and discreditable’ in the sense that it would ‘shock or surprise’ any impartial observer and would raise ‘justified concerns as to the judicial propriety of the
48 For instance, Jan Oostergetel and Theodora Laurentius v. The Slovak Republic, UNCITRAL, Final Award (23 April 201), para. 272. 49 Robert Azinian, Kenneth Davitian, & Ellen Baca v. Mexico, ICSID No. ARB(AF)/97/2, Award (1 November 1999), paras. 102 f.; Metalclad Corporation v. Mexico, ICSID No. ARB(AF)/97/1, Award (30 August 2000), paras. 91, 93; Pope and Talbot Inc. v. Canada, UNCITRAL, Award on the Merits of Phase II (10 April 2001), para. 181; Pope and Talbot v. Canada, UNCITRAL, Award in Respect of Damages (31 May 2002), para. 68; Mondev International Ltd. v. United States, ICSID No. ARB(AF)/99/2, Award (11 October 2002), paras. 96, 126-127; Loewen Group, Inc. and Raymond L. Loewen v. United States, ICSID No. ARB(AF)/98/3, Award (26 June 2003), paras. 54 f., 87, 119, 122, 124-137; Glamis Gold, Ltd. v. United States, UNCITRAL, Award (8 June 2009), para. 22; Waste Management, Inc. v. Mexico (“Number 2”), ICSID Case No. ARB(AF)/00/3, Award, 30 April 2004, paras. 95, 97 f.; International Thunderbird International Gaming Corporation v. Mexico, UNCITRAL, Award (26 January 2006), para. 194; Methanex Corporation v. United States, UNCITRAL, Award (3 August 2005), Part IV, Chapter C, Page 8, para. 15; S.D. Myers, Inc. v. Canada, UNCITRAL, First Partial Award (13 November 2000), para. 134; Mobil Investments Canada Inc. & Murphy Oil Corporation v. Canada, ICSID No. ARB(AF)/07/4, Decision on Liability and on Principles of Quantum (22 May 2012), para. 152; Apotex Holdings Inc & Apotex Inc. v. United States, ICSID Case No. ARB(AF)/12/1, Award (25 August 2014), part IX, para. 9.16. 50 See, Dumberry, The Fair and Equitable Treatment Standard: A Guide to NAFTA Case Law on Article 1105 (2013), 225 ff. See, for instance, International Thunderbird Gaming Corporation v. Mexico, UNCITRAL, Award (26 January 2006), para. 186; Apotex Holdings Inc & Apotex Inc. v. United States, ICSID Case No. ARB(AF)/12/1, Award (25 August 2014), part IX, para. 9.41. 51 Dumberry, The Fair and Equitable Treatment Standard: A Guide to NAFTA Case Law on Article 1105 (2013), 225. See also: Dumberry, ‘Denial of Justice under NAFTA Article 1105: A Review of 20 Years of Case Law’ (2014) 32(2) ASA Bulletin, 246 (264). 52 Loewen Group, Inc. and Raymond L. Loewen v. United States, ICSID No. ARB(AF)/98/3, Award (26 June 2003), para. 168.
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outcome’ of the case.53 These findings suggest a high threshold of severity for a verdict of a denial of justice; only the most severe cases will be considered in breach of Article 1105.54 This conclusion is also supported by other tribunals’ references to ‘gross denial of justice’ that is ‘falling below acceptable international standards’.55 19 NAFTA case law has shown that a denial of justice occurs when the host State does not provide the investor with a fair trial, such as when a domestic court ‘refuses to entertain a suit’, when it is subject to ‘undue delay’, or, more generally, when a court ‘administer[s] justice in a seriously inadequate way’.56 A fair trial also requires that States provide investors with discrimination-free litigation. Also, a court decision in breach of municipal law does not constitute a denial of justice per se unless it is also discriminatory against a foreign investor or unless a ‘clear and malicious misapplication of the law’ by the court can be demonstrated.57 Interestingly, echoes of these limits can be found in the EU-Mexico text which goes further than CETA. The clause indicates that when assessing an allegation of denial of justice a tribunal should take into account ‘whether the measure or series of measures involves gross misconduct that offends judicial propriety’, adding that ‘the mere fact that an investor’s challenge of the impugned measure in domestic proceeding has been rejected or dismissed or has otherwise failed does not in itself constitute a denial of justice’. 58 While Article 8.10 regarding denial of justice does not contain this specific language, it nevertheless does refer, more generally, to the fact that a breach of domestic law does not ipso facto establish a breach of the FET standard (Article 8.10(7)).
II. Article 8.10(2)(b): Breach of Due Process 20
NAFTA tribunals have consistently recognized the existence of a due process obligation under Article 1105.59 They have concluded that such an obligation is breached 53 Mondev International Ltd. v. United States, ICSID No. ARB(AF)/99/2, Award (11 October 2002), para. 127; see also Loewen Group, Inc. and Raymond L. Loewen v. United States, ICSID No. ARB(AF)/98/3, Award (26 June 2003), para. 133. 54 Eli Lilly and Company v Canada, UNCITRAL Case No. UNCT/14/2, Final Award (16 March 2017), para. 224, speaking of the ‘considerable deference’ which needs to be ‘accorded to the conduct and decisions’ of national courts and adding that it is appropriate for a tribunal to assess their work ‘only [in] very exceptional circumstances, in which there is clear evidence of egregious and shocking conduct’. 55 International Thunderbird Gaming Corporation v. Mexico, UNCITRAL, Award (26 January 2006), para. 194; Glamis Gold, Ltd. v. United States, UNCITRAL, Award (8 June 2009), paras. 22, 24, 614, 616, 625 and 627, where the Tribunal refers on many occasions to ‘gross’ denial of justice and a ‘complete’ lack of due process. See also, Cargill Inc. v. Mexico, ICSID No. ARB(AF)/05/02, Award (18 September 2009), para. 296; Eli Lilly and Company v Canada, UNCITRAL Case No. UNCT/14/2, Final Award (16 March 2017), paras. 222 f. 56 Robert Azinian, Kenneth Davitian, & Ellen Baca v. Mexico, ICSID No. ARB(AF)/97/2, Award (1 November 1999), paras. 102 f. 57 Robert Azinian, Kenneth Davitian, & Ellen Baca v. Mexico, ICSID No. ARB(AF)/97/2, Award (1 November 1999), paras 102 f. 58 EU-Mexico text, Article 15(2), fn. 16. See also, EU-Singapore IPA, Article 2.4(2)(a), fn. 2: ‘For greater certainty, the sole fact that the covered investor's claim has been rejected, dismissed or unsuccessful does not in itself constitute a denial of justice’. 59 See, inter alia, Glamis Gold, Ltd. v. United States, UNCITRAL, Award (8 June 2009), para. 22; Waste Management, Inc. v. Mexico (‘Number 2’), ICSID Case No. ARB(AF)/00/3, Award (30 April 2004), para. 98; International Thunderbird Gaming Corporation v. Mexico, UNCITRAL, Award (26 January 2006), para. 85; Chemtura Corporation v. Canada, UNCITRAL, Award (2 August 2010), para. 145; Apotex Holdings Inc & Apotex Inc. v. United States, ICSID Case No. ARB(AF)/12/1, Award (25 August 2014), part IX, paras. 9.41 ff. and 9.49.
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whenever an investor is not informed and not invited to a hearing discussing a permit application and whenever it is not given any opportunity to appear and to present evidence before an administrative body.60 Yet, much will depend on the specific circumstances of each case.61 With respect to permit approval/renewal, NAFTA case law suggests that a State does not breach its due process obligation when mere administrative ‘irregularities’ are committed, unless such irregularities are ‘grave enough to shock a sense of judicial propriety’.62 Such would be the case if an investor is denied a permit based on reasons that are unrelated to specific existing requirements for issuing that permit,63 for example, when an administrative order is not ‘adequately detailed and reasoned’.64 NAFTA tribunals have required a high threshold of gravity referring, for instance, 21 to a ‘complete’ lack of due process.65 In contrast, while the majority of the Bilcon tribunal mentioned that ‘the imprudent exercise of discretion or even outright mistakes [by administrative authorities] do not, as a rule, lead to a breach’ of the FET standard,66 its reasoning suggests that it actually applied a much lower threshold. 67 In his dissenting opinion, McRae emphasised the existence of a high threshold (‘the NAFTA standard is not the domestic law standard’68), adding that ‘whether Canadian law has been complied with is a relevant consideration in deciding whether there has been a violation of Article 1105 NAFTA, it is not of itself sufficient to establish such a violation’.69 Other intra-EU awards have come to the same conclusion.70 It is 60 International Thunderbird Gaming Corporation v. Mexico, UNCITRAL, Award (26 January 2006), para. 198. 61 A good illustration is the reasoning of the Apotex Holdings Inc & Apotex Inc. v. United States, ICSID Case No. ARB(AF)/12/1, Award (25 August 2014), paras. 9.36, 9.50, 9.53, 9.58, 9.61, and 9.65. 62 International Thunderbird Gaming Corporation v. Mexico, UNCITRAL, Award (26 January 2006), para. 200; Metalclad Corporation v. Mexico, ICSID No.ARB(AF)/97/1, Award (30 August 2000), para. 91. These awards referred to a finding made by the ICJ in the ELSI case: E.L.S.I. (USA v. Italy) (Judgment) [1989] ICJ Reports 15, para. 128: ‘Arbitrariness is not so much something opposed to a rule of law, as something opposed to the rule of law. [...] It is a wilful disregard of due process of law, an act which shocks, or at least surprises, a sense of judicial propriety.’ 63 Metalclad Corporation v. Mexico, ICSID No. ARB(AF)/97/1, Award (30 August 2000), para. 93. 64 International Thunderbird Gaming Corporation v. Mexico, UNCITRAL, Award (26 January 2006), para. 198. 65 Glamis Gold, Ltd. v. United States, UNCITRAL, Award (8 June 2009), para. 627; Cargill, Inc. v. Mexico, ICSID No. ARB(AF)/05/02, Award (18 September 2009), para 296, ‘an utter lack of due process so as to offend judicial propriety’; Eli Lilly and Company v. Canada, UNCITRAL Case No. UNCT/14/2, Final Award (16 March 2017), paras. 222 f.; Mesa Power Group, LLC v. Canada, UNCITRAL PCA Case No. 2012-17, Award (24 March 2016), para. 502 (referring to ‘gross’ unfairness, ‘complete’ lack of transparency and candor in an administrative process; lack of due process ‘leading to an outcome which offends judicial propriety’; and ‘manifest failure’ of natural justice in judicial proceedings); Loewen v. United States, ICSID No. ARB(AF)/98/3, Award (26 June 2003), para. 132: ‘(m)anifest injustice in the sense of a lack of due process leading to an outcome which offends a sense of judicial propriety’. 66 William Ralph Clayton, William Richard Clayton, Douglas Clayton, Daniel Clayton and Bilcon of Delaware, Inc. v. Canada, UNCITRAL PCA Case No. 2009-04, Award on Jurisdiction and Liability (17 March 2015), para. 437. 67 William Ralph Clayton, William Richard Clayton, Douglas Clayton, Daniel Clayton and Bilcon of Delaware, Inc. v. Canada, UNCITRAL PCA Case No. 2009-04, Award on Jurisdiction and Liability (17 March 2015), paras. 590 ff. 68 William Ralph Clayton, William Richard Clayton, Douglas Clayton, Daniel Clayton and Bilcon of Delaware, Inc. v. Canada, UNCITRAL PCA Case No. 2009-04, Award on Jurisdiction and Liability (17 March 2015), Dissenting opinion of McRae, para. 42. 69 William Ralph Clayton, William Richard Clayton, Douglas Clayton, Daniel Clayton and Bilcon of Delaware, Inc. V. Canada, UNCITRAL PCA Case No. 2009-04, Award on Jurisdiction and Liability (17 March 2015), Dissenting opinion of McRae, para. 31. 70 Oostergetel v. Slovak Republic, UNCITRAL, Final Award (23 April 2012), para. 273, examining denial of justice and noting: ‘To meet the applicable test, it will not be enough to claim that municipal
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noteworthy that Article 8.10(2)(b) CETA contains the same high threshold referring to ‘fundamental’ breach of due process in judicial and administrative proceedings. 71 The same qualifier found its way into agreements subsequently signed by the EU with Mexico, Singapore and Vietnam. 22 One interesting feature of Article 8.10(2)(b) CETA is the reference to ‘fundamental breach of transparency’ as one situation in violation of the due process obligation. 72 In fact, in an earlier draft, the EU had proposed to add such a ‘transparency’ obligation along the list of elements mentioned in paragraph 2.73 Canada rejected that proposal based on its own NAFTA experience. Thus, all NAFTA tribunals that have examined the concept of transparency have come to the conclusion that it is not a stand-alone element of the FET standard and that it does not impose any obligation on host States under Article 1105.74 The only exception is the Metalclad award,75 which was set aside in judicial review before a B.C. Court precisely with regards to this point. 76 Article 8.10.2(b) CETA seems to have endorsed the position taken by the Waste Management tribunal, which considered the concept of transparency as relevant to assess whether the due process obligation had been breached.77 The addition of the qualifier ‘fundamental’ may have been a compromise between the positions of the Parties on the matter. Interestingly, the Mesa award rendered in 2016 refers to the notion of ‘complete’ lack of transparency.78 law has been breached, that the decision of a national court is erroneous, that a judicial procedure was incompetently conducted, or that the actions of the judge in question were probably motivated by corruption’; see also, ECE Projektmanagement v. The Czech Republic, UNCITRAL, PCA Case No. 2010-5, Award (19 September 2013), para. 4.764: ‘[…]It has also to be accepted that it is not the role of an international tribunal to sit on appeal against the legal correctness or substantive reasonableness of individual administrative acts or the judgments of a municipal court reviewing them. Its role is rather to assess whether the decision makers and the courts acted fairly and consistently with accepted standards of due process, and that their decision making was not tainted by improper motives. It follows that the possibility that a decision was wrong under domestic law is not in and of itself a breach of the standard of fair and equitable treatment, although it may in appropriate circumstances constitute a relevant factor to be weighed in the balance alongside the availability of effective remedies. Ιn other words, the standard is about the operation of the State's administrative and legal system as a whole.’ 71 Kriebaum, ‘FET and Expropriation in the Comprehensive Economic Trade Agreement between the European Union and Canada (CETA)’ (2016) 13(1) TDM, 17, noting that the language used is rather ambiguous insofar as it is not clear whether it requires that a fundamental rule be breached or that a breach be serious, or a combination of both. 72 This additional language is not found in the EU-Singapore IPA, EU-Vietnam FTA and the EUMexico agreement. 73 See: Bernasconi-Osterwalder, ‘Commentary to the Draft Investment Chapter of the Canada-EU Comprehensive Economic and Trade Agreement (CETA)’, IISD Report, May 2013, the draft referred to: ‘g. A disregard of the principle of effective transparency in any applicable administrative or judicial procedures’. 74 Glamis Gold, Ltd. v. United States, UNCITRAL, Award (8 June 2009), para. 561; Cargill, Inc. v. Mexico, ICSID No. ARB(AF)/05/02, Award (18 September 2009), para. 294. See, however, Merrill & Ring Forestry L.P. v. Canada, UNCITRAL, Award (31 March 2010), para. 231, noting that a ‘requirement for transparency may not at present be proven to be part of the customary law standard, as the judicial review of Metalclad rightly concluded, it is nonetheless approaching that stage’. 75 Metalclad Corporation v. Mexico, ICSID No. ARB(AF)/97/1, Award (30 August 2000), paras. 70, 76. 88, 99. 76 Mexico v. Metalclad, Supreme Court of British Columbia, Judgment and Reasons for Decision (2 May 2001), paras. 68, 72. 77 Waste Management, Inc. v. Mexico (‘Number 2’), ICSID Case No. ARB(AF)/00/3, Award (30 April 2004), para. 98. See also, UNCTAD, ‘Fair and Equitable Treatment’ (2012) UNCTAD Series on Issues in International Investment Agreements II,90 concluding that ‘transparency, consistency, legality and stability of regulatory framework’ are not part of custom. 78 Mesa Power Group, LLC v. Canada, UNCITRAL PCA Case No. 2012-17, Award (24 March 2016), para. 502. The tribunal also mentioned that ‘the existence of an obligation of transparency under
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III. Article 8.10(2)(c): Arbitrary Conduct While several NAFTA tribunals have come to the conclusion that there exists a 23 prohibition of arbitrary conduct under the MST,79 all of them have listed it as a stand-alone element of the FET standard under Article 1105. Determining arbitrariness requires examining whether a measure/policy ‘lacked a justification, and whether there [is] a reasonable relationship between the justification supplied and the terms’ 80 of the measure adopted while taking into account the ‘deference which NAFTA Chapter 11 tribunals owe a State when it comes to assessing how to regulate and manage its affairs’.81 Other awards involving European countries have adapted the same reasoning.82 Accordingly, the threshold of severity applied by NAFTA tribunals regarding arbitrary conduct has been consistently high. They have thus referred to treatment that ‘rises to the level that is unacceptable from the international perspective’,83 to ‘wholly arbitrary’ conduct,84 and to ‘manifest arbitrariness falling below international standards’.85 For instance, the Glamis tribunal stated that Article 1105 ‘requires something greater than mere arbitrariness, something that is surprising, shocking, or exhibits a manifest lack of reasoning’86 and sets the threshold of liability at ‘manifest arbitrariness’.87 It is therefore not surprising that Article 8.10(2)(c) CETA international law and under Article 1105 of the NAFTA in particular is a controversial issue’, but decided that it was not ‘necessary to enter into the merits of this debate in the context of this dispute’ (para. 595). 79 Dumberry, The Fair and Equitable Treatment Standard: A Guide to NAFTA Case Law on Article 1105 (2013), 181 ff.; see also: Dumberry, ‘The Prohibition against Arbitrary Conduct and the Fair and Equitable Treatment Standard under NAFTA Article 1105’ (2014) 15 JWIT, 117 (117 ff.). See: S.D. Myers, Inc. v. Canada, UNCITRAL, First Partial Award (13 November 2000), para. 263; Waste Management, Inc. v. Mexico (‘Number 2’), ICSID Case No. ARB(AF)/00/3, Award (30 April 2004), para. 98; Gami Investments, Inc. v. Mexico, UNCITRAL, Award (15 November 2004), paras. 98, 103; International Thunderbird Gaming Corporation v. Mexico, UNCITRAL, Award (26 January 2006), para. 194; Merrill & Ring Forestry L.P. v. Canada, UNCITRAL, Award (31 March 2010), para. 208; Cargill, Inc. v. Mexico, ICSID No. ARB(AF)/05/02, Award (18 September 2009), paras. 292-293; Mobil Investments Canada Inc. & Murphy Oil Corporation v. Canada, ICSID No. ARB(AF)/07/4, Decision on Liability and on Principles of Quantum (22 May 2012), para. 152; Glamis Gold, Ltd. v. United States, UNCITRAL, Award (8 June 2009), para. 626; Eli Lilly and Company v Canada, UNCITRAL Case No. UNCT/14/2, Final Award (16 March 2017), paras. 122, 416 ff.; Mesa Power Group, LLC v. Canada, UNCITRAL PCA Case No. 2012-17, Award (24 March 2016), para. 502. 80 Mesa Power Group, LLC v. Canada, UNCITRAL PCA Case No. 2012-17, Award (24 March 2016), para. 579. 81 Mesa Power Group, LLC v. Canada, UNCITRAL PCA Case No. 2012-17, Award (24 March 2016), para. 553. 82 AES Summit Generation Limited and AES-Tisza Erömü Kft v. The Republic of Hungary, ICSID Case No. ARB/07/22, Award (23 September 2010), paras. 10.3.7-10.3.9: ‘There are two elements that require to be analyzed to determine whether a state’s act was unreasonable: the existence of a rational policy; and the reasonableness of the act of the state in relation to the policy. A rational policy is taken by a state following a logical (good sense) explanation and with the aim of addressing a public interest matter. Nevertheless, a rational policy is not enough to justify all the measures taken by a state in its name. A challenged measure must also be reasonable. That is, there needs to be an appropriate correlation between the state’s public policy objective and the measure adopted to achieve it. This has to do with the nature of the measure and the way it is implemented’. 83 S.D. Myers, Inc. v. Canada, UNCITRAL, First Partial Award (13 November 2000), para. 263. 84 Waste Management, Inc. v. Mexico (“Number 2”), ICSID Case No. ARB(AF)/00/3, Award (30 April 2004), para. 115 (emphasis added). 85 International Thunderbird Gaming Corporation v. Mexico, UNCITRAL, Award (26 January 2006), para. 194. 86 Glamis Gold, Ltd. v. United States, UNCITRAL, Award (8 June 2009), para. 617. 87 Glamis Gold, Ltd. v. United States, UNCITRAL, Award (8 June 2009), para. 626 f. See also Eli Lilly and Company v Canada, UNCITRAL Case No. UNCT/14/2, Final Award (16 March 2017), paras. 222 f.;
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follows the same approach by referring to ‘manifest’ arbitrariness.88 The same concept is also found in agreements signed by the EU with Vietnam, Singapore and Mexico. Interestingly, the EU-Mexico text contains additional language in a footnote which further narrowly defines the concept of ‘manifest arbitrariness’.89 24 NAFTA tribunals have consistently stated that ‘something more’ than simple illegality is required to constitute an arbitrary conduct.90 NAFTA tribunals have required, for instance, that a governmental conduct amounts to an ‘outright and unjustified repudiation’91 of its own laws/regulations, that there be a ‘manifest lack of reasons’ 92 for such legislation or that such law specifically targets an investor with the express intention to cause damage to its investment.93 This approach is clearly adopted at Article 8.10(7) CETA, providing that ‘the fact that a measure breaches domestic law does not, in and of itself, establish a breach’ of the FET standard.94 The FET clause contained in the EU-Mexico text is even more explicit on this point.
IV. Article 8.10(2)(c): Discrimination 25
With one exception95 NAFTA tribunals96 have come to the conclusion that nationality-based discrimination is not covered by Article 1105 and that custom does not contain any general prohibition of discrimination against foreign investors. The reasoning of some tribunals97 can be interpreted as suggesting that Article 1105 Cargill, Inc. v. Mexico, ICSID No. ARB(AF)/05/02, Award (18 September 2009), para. 296, referring to measures ‘arbitrary beyond a merely inconsistent or questionable application of administrative or legal policy or procedure so as to constitute an unexpected and shocking repudiation of a policy's very purpose and goals (…)’. 88 See the analysis in: Kriebaum, ‘FET and Expropriation in the Comprehensive Economic Trade Agreement between the European Union and Canada (CETA)’ (2016) 13(1) TDM,17ff., indicating that the qualifier ‘manifest’ refers to the obvious and clear nature of the arbitrary conduct rather than to its gravity or seriousness. 89 EU-Mexico text, Article 15(2), see fn. 16 indicating that ‘For greater certainty, in determining whether a measure or series of measures amounts to a breach of fair and equitable treatment, a tribunal shall take into account (…): ‘whether the measure or series of measures were patently not founded on reason or fact, or were patently founded on illegitimate grounds such as prejudice or bias. The mere illegality, or a merely inconsistent or questionable application of a policy or procedure, does not in itself constitute manifest arbitrariness as referred to in the subparagraph 2 (c), while a total and unjustified repudiation of a law or regulation, or a measure without reason, or a conduct that is specifically targeted to the investor or its covered investment with the purpose of causing damage are likely to constitute manifest arbitrariness as referred to in the subparagraph 2 (c)’. 90 In William Ralph Clayton, William Richard Clayton, Douglas Clayton, Daniel Clayton and Bilcon of Delaware, Inc. v. Canada, UNCITRAL PCA Case No. 2009-04, Award on Jurisdiction and Liability (17 March 2015), para. 591, the majority of the tribunal adopted a much lower threshold. The opposite position is put forward by McRae in his dissenting opinion, paras. 36-38. 91 Gami Investments, Inc. v. Mexico, UNCITRAL, Award (15 November 2004), paras. 91, 103 f. 92 Glamis Gold, Ltd. v. United States, UNCITRAL, Award (8 June 2009), paras. 759, 763-5, 803, 817. 93 Cargill, Inc. v. Mexico, ICSID No. ARB(AF)/05/02, Award (18 September 2009), paras. 298, 300 f.; Glamis Gold, Ltd. v. United States, UNCITRAL, Award (8 June 2009), paras. 542, 689, 763-765, 793 f. 94 While the EU-Mexico text contains the same clause, it is not included in agreements signed with Vietnam and Singapore. 95 Merrill & RingForestry L.P. v. Canada, UNCITRAL, Award (31 March 2010), para. 208. 96 Methanex Corporation v. United States, UNCITRAL, Award (3 August 2005), Part IV, Chapter C, Page 8, paras. 14-27; Grand River Enterprises Six Nations, Ltd., et al. v. United States, UNCITRAL, Award (12 January 2011), paras. 208 f.; Glamis Gold, Ltd. v. United States, UNCITRAL, Award (8 June 2009), para. 542, fn. 1087. 97 Waste Management Inc. v. Mexico (‘Number 2’), ICSID Case No. ARB(AF)/00/3, Award (30 April 2004), para. 98, endorsed by Mobil Investments Canada Inc. & Murphy Oil Corporation v. Canada, ICSID No. ARB(AF)/07/4, Decision on Liability and on Principles of Quantum (22 May 2012), para. 152; Mesa
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covers some types of specific ‘discrimination’ (other than nationality-based), such as ‘sectional or racial prejudice’.98 Article 8.10(2)(d) CETA has endorsed this approach by referring to ‘targeted discrimination on manifestly wrongful grounds, such as gender, race or religious belief’. While the expression ‘targeted’ is borrowed from the Cargill and Glamis awards,99 and the expression ‘manifestly wrongful’ is likely based on Glamis,100 it is not entirely clear why the other elements of this provision were included.101The same clause is also found in the EU-Vietnam FTA. Importantly, the EU-Mexico agreement does not refer to discrimination as a separate ground for breach of the FET standard, but rather as an example of ‘manifest arbitrariness’. Strikingly, discrimination is completely absent from the FET clause of the EU-Singapore IPA.
V. Article 8.10(2)(e): Abusive Treatment The last element of the FET standard mentioned at Article 8.10(2)(e) is ‘Abusive 26 treatment of investors, such as coercion, duress and harassment’. It is not entirely clear why the Parties decided to add such a treatment as a specific element of the FET standard rather than to include it under other general concepts, such arbitrariness, discrimination or even ‘fundamental breach of due process’. In fact, this is the only element in the list which does not seems to have been directly borrowed from NAFTA case law. Its origin is likely the 2012 UNCTAD Report mentioned above 102 as well as other awards that have used these terms in the past.103 The same type of clause is also found in subsequent agreements signed by the EU with Singapore, Vietnam and Mexico.104
Power Group, LLC v. Canada, UNCITRAL PCA Case No. 2012-17, Award (24 March 2016), para. 502; Eli Lilly and Company v Canada, UNCITRAL Case No. UNCT/14/2, Final Award (16 March 2017), paras. 416, 431 ff. 98 The terms are used in Waste Management, Inc. v. Mexico (‘Number 2’), ICSID Case No. ARB(AF)/00/3, Award (30 April 2004), para. 98. 99 Cargill, Inc. v. Mexico, ICSID No. ARB(AF)/05/02, Award (18 September 2009), paras. 300, 550; Glamis Gold, Ltd. v. United States, UNCITRAL, Award (8 June 2009), para. 828. 100 While the tribunal in Glamis Gold, Ltd. v. United States, UNCITRAL, Award (8 June 2009) paras. 542, fn. 1087, 559, fn. 1128, examined discrimination-related allegations in the context of arbitrariness, it nevertheless referred some 11 times to the terms ‘evident discrimination’ alongside other elements of the FET standard (paras. 22, 24, 616, 627, 762, 765, 776, 779, 788, 824, 828). 101 Kriebaum, ‘FET and Expropriation in the (Invisible) EU Model BIT’ (2014) 15 J. World Invest. & Trade, 454 (474 ff.). 102 UNCTAD, ‘Fair and Equitable Treatment’ (2012) UNCTAD Series on Issues in International Investment Agreements II, 108. 103 See, for instance, Ioan Micula, Viorel Micula, S.C. European Food S.A, S.C. Starmill S.R.L. and S.C. Multipack S.R.L. v. Romania [I], ICSID Case No. ARB/05/20, Final Award (11 December 2013) para. 519; Waguih Elie George Siag and Clorinda Vecchi v. The Arab Republic of Egypt, ICSID Case No. ARB/05/15, Award, 1 June 2009, para. 450. 104 Article 2.4(2)(d) EU-Singapore IPA (‘harassment, coercion, abuse of power or similar bad faith conduct’); Article 2.5(2)(e) EU-Vietnam FTA (‘abusive treatment such as coercion, abuse of power or similar bad faith conduct’). The EU-Mexico agreement also refers to ‘harassment, coercion, or abuse of power’, adding (at fn. 16) that a tribunal shall take into account ‘whether a Party acted ultra vires, whether the episodes of alleged harassment or coercion were repeated and sustained’.
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VI. Article 8.10(2)(f) and (3): Review Mechanism The Parties initially intended the list of elements to be non-exhaustive. Thus, the February 2013 draft refers to the EU proposal using the words ‘notably’ and ‘not exclusively’ before the list of obligations. Canada’s proposal mentioned that it ‘includes’ such obligations. Such language was not kept in the final text, which contains a closed list of elements. Interestingly, in a previous draft, the Parties had included another paragraph indicating that the FET protection could also cover treatment elements other than those specifically enumerated in the second paragraph if they were ‘contrary to the fair and equitable treatment obligation recognized in the general practice of States accepted as law.’105 This was a clear reference to the concept of custom under international law. This addition essentially acknowledged the evolving nature of the FET standard and the fact that new situations could eventually become contrary to custom in the future. This feature was, however, not kept in the final text. This is most likely because the Parties felt that any such evolution could be taken into account by the periodic review mechanism (provided for at paras. 2(f) and 3) whereby they may add new situations that they consider to be in breach of the standard. 106 Interestingly, the ‘Joint Interpretative Declaration’ also explains that such a review may also be used to limit the possibility of tribunals giving extensive and liberal interpretation to the standard: ‘The European Union and Canada are committed to review regularly the content of the obligation to provide fair and equitable treatment, to ensure that it reflects their intentions (including as stated in this Declaration) and that it will not be interpreted in a broader manner than they intended’.107 28 While similar review mechanisms are found in the EU-Singapore IPA and the EU-Mexico text,108 the EU-Vietnam FTA differs in requiring a formal amendment. 109 27
VII. Article 8.10(4): Investor’s Legitimate Expectations 29
In an earlier draft, the EU proposed to put legitimate expectations along the list of stand-alone elements mentioned at para. 2.110 This proposal was, however, rejected by Canada, which put forward a language very similar to what would eventually become Article 8.10(4). Canada’s position was influenced by NAFTA case law. Thus, only
105 See, Bernasconi-Osterwalder and Mann, ‘A Response to the European Commission’s December 2013 Document “Investment Provisions in the EU-Canada Free Trade Agreement (CETA)”’, IISD Report, February 2014, 5, discussing the following documents: Draft CETA Investment Chapter (21 November 2013,) and Draft CETA Investor-to-State Dispute Settlement (4 February 2014). 106 On this point, see: Kriebaum, ‘FET and Expropriation in the Comprehensive Economic Trade Agreement between the European Union and Canada (CETA)’ (2016) 13(1) TDM, 21 f. 107 ‘Joint Interpretative Declaration on the Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union and its Member States’, para. 3. 108 EU-Singapore IPA, Article 2.4(4); EU-Mexico text, Article 15(7). 109 EU-Vietnam FTA, Article 2.5(3). 110 See: Bernasconi-Osterwalder, ‘Commentary to the Draft Investment Chapter of the Canada-EU Comprehensive Economic and Trade Agreement (CETA)’, IISD Report, May 2013, discussing a Draft Text of 7 February 2013, ‘f. A breach of legitimate expectations of investors arising from a government’s specific representations or investment-inducing measures’.
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the Glamis111 and Bilcon112 awards support the view that the concept of legitimate expectations constitutes a stand-alone element of the FET standard under Article 1105.113 This is the approach which has been prominent amongst many tribunals outside NAFTA.114 On the contrary, NAFTA tribunals have generally followed the reasoning of the Mobil tribunal (as well as other tribunals115) whereby the host State’s failure to respect an investor’s legitimate expectations is only a ‘factor’ to be taken into account when assessing whether or not other well-established elements of the standard have been breached.116 CETA clearly adopted the narrow approach favoured by most NAFTA tribunals. Another notable feature of NAFTA case law, which eventually found its way into 30 Article 8.10(4) CETA, is that NAFTA tribunals have repeatedly narrowly qualified the concept of legitimate expectations in order to significantly reduce its scope of application. They have endorsed the four-elements definition adopted by the Thunderbird tribunal: (1) conduct or representations must have been made by the host State; (2) the claimant must have relied on such conduct or representations to make its investment; (3) such reliance by the claimant on these representations was ‘reasonable’; and (4) the host State subsequently repudiated these representations therefore causing damage to the investor.117 Another manifestation of the narrow approach favored by NAFTA tribunals is the fact that they have continued to further restrictively qualify these four requirements in subsequent awards. Thus, the Glamis award (subsequently endorsed by other tribunals118) required that an investor’s expectations be based on ‘definitive, unambiguous and repeated’119 specific ‘commitments’120 (or ‘assurances’121) made by 111 Glamis Gold, Ltd. v. United States, UNCITRAL, Award (8 June 2009), para. 627. The tribunal in Eli Lilly and Company v Canada, UNCITRAL Case No. UNCT/14/2, Final Award (16 March 2017), para. 381 endorsed the reasoning of the Glamis award on this point, but decided not to take position on the question. 112 William Ralph Clayton, William Richard Clayton, Douglas Clayton, Daniel Clayton and Bilcon of Delaware, Inc. v. Canada, UNCITRAL PCA Case No. 2009-04, Award on Jurisdiction and Liability (17 March 2015), paras. 444-5, 448-9, 455ff., 470, 589. See, however, the Dissenting opinion of McRae, paras. 5, 33, 39. 113 Dumberry, The Fair and Equitable Treatment Standard: A Guide to NAFTA Case Law on Article 1105 (2013). See also: Dumberry, Fair and Equitable Treatment: Its Interaction with the Minimum Standard and its Customary Status (2018), 138 ff. See also: Dumberry, ‘The Protection of Investors’ Legitimate Expectations and the Fair and Equitable Treatment Standard under NAFTA Article 1105’, (2014) 31(1) J. Int’l Arb., 47 (60). 114 See, the analysis in: Dupuy and Dupuy, ‘What to Expect from Legitimate Expectations? A Critical Appraisal and Look into the Future of the ‘Legitimate Expectations’ Doctrine in International Investment Law’, in Raouf, Leboulanger, and Ziadé (eds), Festschrift Ahmed Sadek El-Kosheri: From the Arab World to the Globalization of International Law (Kluwer 2015), 273 (298). 115 Waste Management, Inc. v. Mexico (‘Number 2’), ICSID Case No. ARB(AF)/00/3, Award (30 April 2004), para. 98; Cargill Inc. v. Mexico, ICSID No. ARB(AF)/05/02, Award (18 September 2009), para. 296 (where the tribunal does not list the concept of legitimate expectations amongst the elements of the FET standard under Article 1105); Mesa Power Group, LLC v. Canada, UNCITRAL PCA Case No. 2012-17, Award (24 March 2016), para. 502. 116 Mobil Investments Canada Inc. & Murphy Oil Corporation v. Canada, ICSID No. ARB(AF)/07/4, Decision on Liability and on Principles of Quantum (22 May 2012), para. 152. 117 International Thunderbird Gaming Corporation v. Mexico, UNCITRAL, Award (26 January 2006), para. 147. 118 Cargill, Inc. v. Mexico, ICSID No. ARB(AF)/05/02, Award (18 September 2009), para. 290; Mobil Investments Canada Inc. & Murphy Oil Corporation v. Canada, ICSID No. ARB(AF)/07/4, Decision on Liability and on Principles of Quantum (22 May 2012), paras. 152, 170; Grand River Enterprises Six Nations, Ltd., et al. v. United States, UNCITRAL, Award (12 January 2011), para. 141. 119 Glamis Gold, Ltd. v. United States, UNCITRAL, Award (8 June 2009), para. 802. 120 Glamis Gold, Ltd. v. United States, UNCITRAL, Award (8 June 2009), para. 767. 121 Glamis Gold, Ltd. v. United States, UNCITRAL, Award (8 June 2009), paras. 800 f.
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the host State which have ‘purposely and specifically induced the investment’ 122 by the investor.123 Article 8.10(4) CETA contains the same qualifying language, referring to ‘specific’ representations made to an investor to ‘induce’ an investment. Yet, what is (perhaps surprisingly) missing from this provision is the basic requirement (mentioned in several NAFTA awards,124 and even in Bilcon125) that reliance by the claimant on such representation must be objectively ‘reasonable’ and not only ‘reasonable’ from the subjective perspective of the investor.126 Interestingly, the EU-Singapore agreement does contain a reference to ‘specific or unambiguous’ representations being ‘reasonably relied upon’ by an investor.127 31 It should be further added that NAFTA tribunals have held that legitimate expectations cannot simply be based on the host State’s existing domestic legislation on foreign investments at the time when the investor makes its investment. 128 The distinctive feature of NAFTA case law is reflected at Article 8.9(2) CETA indicating in clear terms that ‘the mere fact that a Party regulates, including through a modification to its laws, in a manner which negatively affects an investment or interferes with an investor's expectations, including its expectations of profits, does not amount to a breach of an obligation under this Section’. 32 The EU-Vietnam and EU-Singapore FTAs also adopted the same approach as Article 8.10(4) CETA.129 It is noteworthy that both agreements also contain a specific provision dealing with similar protection arising from ‘written agreements’ entered into by the State and an investor if a number of conditions are fulfilled. 130 At the opposite side of the spectrum, the Trans-Pacific Partnership (TPP) and CUSMA explicitly excluded legitimate expectations from the obligations covered by the FET clause. 131 Glamis Gold, Ltd. v. United States, UNCITRAL, Award (8 June 2009), para. 766. See also, para. 767. It should be added that the majority of the tribunal in William Ralph Clayton, William Richard Clayton, Douglas Clayton, Daniel Clayton and Bilcon of Delaware, Inc. v. Canada, UNCITRAL PCA Case No. 2009-04, Award on Jurisdiction and Liability (17 March 2015) adopted a much broader approach on the issue. See, however, the dissenting opinion of McRae, paras. 5, 33, 39. 124 International Thunderbird Gaming Corporation v. Mexico, UNCITRAL, Award (26 January 2006), para. 147 (referring to ‘reasonable and justifiable expectations’); Glamis Gold, Ltd. v. United States, UNCITRAL, Award (8 June 2009), paras. 621-2; Waste Management, Inc. v. Mexico (‘Number 2’), ICSID Case No. ARB(AF)/00/3, Award (30 April 2004), para. 98; Mobil Investments Canada Inc. & Murphy Oil Corporation v. Canada, ICSID No. ARB(AF)/07/4, Decision on Liability and on Principles of Quantum (22 May 2012), para. 152. 125 William Ralph Clayton, William Richard Clayton, Douglas Clayton, Daniel Clayton and Bilcon of Delaware, Inc. v. Canada, UNCITRAL PCA Case No. 2009-04, Award on Jurisdiction and Liability (17 March 2015), paras. 445, 455 ff. 126 Kriebaum ‘FET and Expropriation in the Comprehensive Economic Trade Agreement between the European Union and Canada (CETA)’ (2016) 13(1) TDM, 21. 127 EU-Singapore IPA, Article 2.4(3). 128 Glamis Gold, Ltd. v. United States, UNCITRAL, Award (8 June 2009), para. 620, 766; Mobil Investments Canada Inc. & Murphy Oil Corporation v. Canada, ICSID No. ARB(AF)/07/4, Decision on Liability and on Principles of Quantum (22 May 2012), paras. 153, 620; Mesa Power Group, LLC v. Canada, UNCITRAL PCA Case No. 2012-17, Award (24 March 2016), para. 619. 129 EU-Singapore IPA, Article 2.4(3), fn. 2. The EU-Vietnam FTA, Article 2.5(4), does not contain the additional language found in Article 8.9(2) CETA. 130 EU-Vietnam FTA, Article 2.5(6), indicating that the investor must have relied on the written agreement (concluded after the date of the entry into force of the agreement) to make its investment and that the breach of the agreement must have ‘caused actual damages’ to that investment. The written agreement must also ‘creates an exchange of rights and obligations’ binding on both parties and should not contain an arbitration clause. Annex 3 further explains the different conditions which need to be fulfilled regarding other written agreements concluded before the entry into force of the agreement. See, also EU-Singapore IPA, Article 2.4(6), containing a specific clause dealing with written agreements. 131 Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), Article 9.6.4.: ‘For greater certainty, the mere fact that a Party takes or fails to take an action that may be inconsistent 122
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VIII. Article 8.10(5): Full Protection and Security Article 8.10 obliges the Parties to provide investors with the FET standard, but also 33 with full protection and security. Article 8.10(5) simply adds that this obligation concerns only ‘physical’ protection and security of investors. The aim is clearly to exclude ‘legal’ protection, such as to provide investors with a stable investment environment. 132 The provision codifies this important distinction which has been established by several tribunals. In any event, some aspects related to this ‘legal’ security aspect are covered by some elements included in the FET ‘box’ under Article 8.10 CETA.
E. Conclusion In my view, the degree of specificity of the CETA FET clause is a welcome develop- 34 ment. The reference to the MST in IIAs has not been entirely successful at harmonizing the interpretation of the standard and limiting its scope.133 Thus, faced with the binding FTC Note that links the FET to the MST, several NAFTA tribunals (Pope & Talbot, Mondev, ADF, Merrill & Ring and Bilcon) have simply ‘moved the goal post’. 134 They have thus interpreted customary international law broadly by emphasizing its evolutionary character. Under the CETA FET clause, a tribunal would no longer have the freedom to that. In the CETA, the ‘evolution’ has effectively been stopped with the specific enumeration of elements contained in the FET clause. 135 It is noteworthy in this context that the Parties have defined the FET in their ‘Joint Interpretative Declaration’ clause as a ‘clearly defined investment protection standard’ adding that it ‘provides clear guidance to dispute resolution Tribunals on how th[is] standard should be applied’.136 In my view, the clause contains the most appropriate language to limit the discretion of tribunals to define FET widely. In theory, one could argue that it is still possible for a tribunal to give a wide 35 interpretation to any of the specific elements contained in the enumeration set out at Article 8.10 CETA. As such, even a closed list of what constitutes a FET breach would not prevent a tribunal like Merrill & Ring to interpret the concept of arbitrariness or due process in a very broad manner.137 The likelihood of such a possibility is somewhat diminished by the use of qualifiers at Article 8.10 CETA (‘manifest’ arbitrariness, ‘fundamental’ breach of due process’). At the end of the day, what makes such an with an investor’s expectations does not constitute a breach of this Article, even if there is loss or damage to the covered investment as a result.’ See also: CUSMA, Article 14.6(4). 132 Such a broad interpretation has been adopted by the tribunal in: Azurix Corp. v. Argentina, ICSID Case No. ARB/01/12, Award (14 July 2006), para. 408. 133 Jadeau and Gélinas,‘CETA’s Definition of the Fair and Equitable Treatment Standard: Toward a Guided and Constrained Interpretation’ (2016) 13(1) TDM, 11 f.; Ünüvar, ‘The Vague Meaning of Fair and Equitable Treatment Principle in Investment Arbitration and New Generation Clarifications’ (2016) 55(2) iCourts Working Paper Series, 22 f.; Boone Barrera, ‘The Case for Removing the Fair and Equitable Treatment Standard from NAFTA’ (2017) 128 CIGI Papers, 9. 134 Dumberry, The Fair and Equitable Treatment Standard: A Guide to NAFTA Case Law on Article 1105 (2013), 89-124; Dumberry, ‘Moving the Goal Post! How Some NAFTA Tribunals Have Challenged the FTC Note of Interpretation on the Fair and Equitable Treatment Standard Under NAFTA Article 1105’, (2014) 8(2) WAMR, 251. 135 There remains, of course, the possibility under Article 8.10(3) for the Parties to review and update the content of the standard. 136 ‘Joint Interpretative Declarationon the Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union and its Member States’, para. 3. 137 See, the comments in: Caroline Henckels, ‘Protecting Regulatory Autonomy through Greater Precision in Investment Treaties: The TPP, CETA and TTIP’, (2016) 19(1) J. Int.l Econ. L. 27.
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outcome less likely is not so much the new restrictive language adopted at Article 8.10 CETA, but rather the establishment of a permanent Tribunal of first instance and an Appellate Tribunal.138 This will ensure that the same adjudicators decide on every case, thereby allowing for a more consistent and coherent jurisprudence with regards to the FET standard.139 This is ultimately the best safeguard against any future attempts by arbitral tribunals to adopt a broad interpretation of the FET standard. Moreover, Article 8.31(3) CETA provides the possibility for the CETA Joint Committee to adopt a binding interpretation ‘where serious concerns arise as regards matters of interpretation that may affect investment’. In their ‘Joint Interpretative Declaration’, the Parties added that they were ‘committed to using [such mechanism] to avoid and correct any misinterpretation of CETA by Tribunals.’140 36 Ultimately, the CETA FET clause is emblematic of the fact that in the new century the pendulum is clearly swinging in the direction of States increasingly trying to regain control of investor-State arbitration.141 For Stephan Schill, changes that have occurred in the last decade are ‘aimed at shifting power back from arbitral tribunals to the Contracting Parties in order to regain control over the interpretation of the obligations’ under investment treaties.142 José Alvarez calls this recent phenomenon the ‘Return of the State’.143 The approach adopted by Canada and the EU in the CETA is arguably the most vivid demonstration of States narrowly defining the FET clause in their treaties and leaving arbitrators with a limited margin of appreciation. The same approach has been adopted by the EU in agreements subsequently concluded with three other States and has also been followed by Belgium-Luxembourg and the Netherlands in their respective Model BITs. The latest Indian Model BIT also contains a similar explicit list of FET elements. There are good reasons to believe that the CETA FET clause will increasingly be used by other States in the future.
138 Articles 8.27, 8.28. See, Schacherer, ‘TPP, CETA and TTIP Between Innovation and Consolidation—Resolving Investor–State Disputes under Mega-regionals’ (2016) 7(3) J. Int. Dispute Settlement, 628 (631); Van Harten, ‘ISDS in the Revised CETA: Positive Steps, But Is It a ‘Gold Standard’?’ (2016) CIGI Investor-State Arbitration Commentary Series No. 6; VanDuzer, ‘Investor-State Dispute Settlement in CETA: Is It the Gold Standard?’ (2016) C.D. Howe Institute Commentary No. 459; Ottawa Faculty of Law Working Paper No. 2016-44. 139 See, Schacherer, ‘TPP, CETA and TTIP Between Innovation and Consolidation—Resolving Investor–State Disputes under Mega-regionals’, (2016) 7(3) J. Int. Dispute Settlement, 628 (631). 140 ‘Joint Interpretative Declarationon the Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union and its Member States’, para. 3. 141 See, Aguilar Alvarez and Park, ‘The New Face of Investment Arbitration: NAFTA Chapter 11’, (2003) 28 Yale J. Int’l L. 365. 142 Schill, The Multilateralization of International Investment Law (2009), 271. 143 Alvarez, ‘The Return of the State’ (2011) 20(2) Minn. J. Int’l L., 223.
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Article 8.11 Compensation for losses Notwithstanding Article 8.15.5(b), each Party shall accord to investors of the other Party, whose covered investments suffer losses owing to armed conflict, civil strife, a state of emergency or natural disaster in its territory, treatment no less favourable than that it accords to its own investors or to the investors of a third country, whichever is more favourable to the investor concerned, as regards restitution, indemnification, compensation or other settlement. Reference to the Respective Provisions in Other EU Treaties: Article 2.6 EU-Vietnam IPA; Article 2.5 EU-Singapore IPA; Article 17 EU-Mexico Agreement in Principle, announced on 21 April 2018, Chapter on Investment. Bibliography: Black’s Law Dictionary (10th edn, Thomson Reuters, St. Paul 2014); Chester Brown, Commentaries on Selected Model Investment Treaties (Oxford University Press, Oxford 2013); Rudolf Dolzer and Margrete Stevens, Bilateral Investment Treaties (Brill, Leiden 1995); Gleider I. Hernández, ‘The interaction between investment law and the law of armed conflict in the interpretation of full protection and security clauses’ in Freya Baetens (ed) Investment Law within International law - Integrationist Perspectives (Cambridge University Press, Cambridge, 2013), 21; Christina Knahr, ‘Investment “In the Territory” of the Host State’ in Christina Binder, Ursula Kriebaum, August Reinisch, and Stephan Wittich (eds), International Investment Law for the 21st Century (Oxford University Press, Oxford 2009), 42; Christina Knahr, ‘The Territorial Nexus between an Investment and the Host State’ in Marc Bungenberg, Jörn Griebel, Stephan Hobe, August Reinisch (eds), International Investment Law (Hart, Oxford/New York/Sydney 2015), 590; Merryl Lawry-White, ‘International Investment Arbitration in a Jus Post Bellum Framework’ (2015) 16 JWIT, 633; Andrew Newcombe and Lluís Paradell, Law and Practice of Investment Treaties: Standards of Treatment, (Kluwer Law International, Alphen aan den Rijn 2009); Facundo Pérez-Aznar, ‘Investment Protection in Exceptional Situations: Compensation-for-Losses Clauses in IIAs’ (2017) 32 ICSID Rev., 696; August Reinisch and Christoph Schreuer, International Protection of Investments – The Substantive Standards (Cambridge University Press, Cambridge 2020); Michail Risvas, ‘Non-discrimination and the Protection of Foreign Investments in the Context of an Armed Conflict’ in Katia Fach Gómez, Anastasios Gourgourinis and Catharine Titi (eds) International Investment Law and the Law of Armed Conflict (Springer, Cham 2019), 199; Christoph Schreuer, ‘The protection of investments in armed conflicts’ in Freya Baetens (ed) Investment Law within International law - Integrationist Perspectives (Cambridge University Press, Cambridge, 2013), 3; Christoph Schreuer, ‘War and Peace in International Investment Law’ in Katia Fach Gómez, Anastasios Gourgourinis and Catharine Titi (eds) International Investment Law and the Law of Armed Conflict (Springer, Cham 2019), 1; Shorter Oxford English Dictionary (6th edn, Oxford University Press, Oxford 2007); Suzanne Spears and Maria Fogdestam Agius, ‘Protection of Investments in War-Torn States: A Practitioner’s Perspective on War Clauses in Bilateral Investment Treaties’ in Katia Fach Gómez, Anastasios Gourgourinis and Catharine Titi (eds) International Investment Law and the Law of Armed Conflict (Springer, Cham 2019), 283; Kenneth J. Vandevelde, Bilateral Investment Treaties, History, Policy, and Interpretation (Oxford University Press, Oxford 2010); Kenneth J. Vandevelde, U.S. International Investment Treaties (Oxford University Press, Oxford 2009). A. Introduction and Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. Compensation-for-Losses Clauses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Related Treaty Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Extended War Clauses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Security Clauses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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B. Spirit and Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. Conditions for the Application of Compensation-for-Losses Clauses . . . . . II. Application of IIAs during Armed Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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C. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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D. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. ‘Notwithstanding Article 8.15.5(b) …’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. ‘… each Party shall accord to investors of the other Party …’ . . . . . . . . . . . . . .
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III. ‘… whose covered investments …’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV. ‘… suffer losses owing to armed conflict, civil strife, a state of emergency or natural disaster …’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V. ‘… in its territory …’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VI. ‘… treatment no less favourable than that it accords to its own investors or to the investors of a third country, whichever is more favourable to the investor concerned …’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VII. ‘… as regards restitution, indemnification, compensation or other settlement.’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24 25 33 36 37
E. Tribunal Practice on Compensation-for-Losses Clauses . . . . . . . . . . . . . . . . . . . . I. The Early Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. The Cases against Argentina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. The Cases against Zimbabwe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV. The Cases against Libya . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V. The Cases under Italian BITs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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F. Summary and Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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A. Introduction and Overview I. Compensation-for-Losses Clauses Many bilateral investment treaties contain clauses referring to war or to other forms of armed conflict, state of emergency, revolution, insurrection, civil disturbance, or similar events. In their simple form these clauses provide for national treatment and most favoured nation (MFN) treatment in relation to any measures such as restitution or compensation that the States may take. These clauses are usually referred to as compensation-for-losses clauses.1 2 These clauses are common in BITs and have a long history. Already the BIT between Germany and Pakistan of 1959 contained a compensation-for-losses clause. 2 Canada’s BITs, starting in 1989, routinely contain compensation-for-losses clauses. 3 The inclusion of these clauses is also common in the BITs of EU countries such as 1
1 See Dolzer and Stevens, Bilateral Investment Treaties (1995), 83 ff.; Newcombe and Paradell, Law and Practice of Investment Treaties (2009), 315 f.; Vandevelde, U.S. International Investment Treaties (2009), 431 ff.; Vandevelde, Bilateral Investment Treaties (2010), 309 ff.; Pérez-Aznar, ‘Investment Protection in Exceptional Situations’ (2017) 32 ICSID Rev., 696 (698); Spears and Fogdestam Agius, ‘Protection of Investments in War-Torn States: A Practitioner’s Perspective on War Clauses in Bilateral Investment Treaties’ in Fach Gómez, Gourgourinis and Titi (eds) International Investment Law and the Law of Armed Conflict (2019), 283; Risvas, ‘Non-discrimination and the Protection of Foreign Investments in the Context of an Armed Conflict’ in Fach Gómez, Gourgourinis and Titi (eds) International Investment Law and the Law of Armed Conflict (2019), 199. 2 Treaty between the Federal Republic of Germany and Pakistan for the Promotion and Protection of Investments, 1959, Article 3(3): ‘Nationals or companies of either Party who owing to war or other armed conflict, revolution or revolt in the territory of the other Party suffer the loss of investments situate there, shall be accorded treatment no less favourable by such other Party than the treatment that Party accords to persons residing within its territory and to nationals or companies of a third party, as regards restitution, indemnification, compensation or other considerations. With respect to the transfer of such payments each Party shall accord to the requests of nationals or companies of the other Party treatment no less favourable than is accorded to comparable requests made by nationals or companies of a third party.’ 3 See UNCTAD, International Investment Agreements Navigator, Canada. See also Canada’s Model FIPA, Article 12(1), in Brown, Commentaries on Selected Model Investment Treaties (2013), 92: ‘Each Party shall accord to investors of another Party, and to covered investments, non-discriminatory treatment with respect to measures it adopts or maintains relating to losses suffered by investments in its territory owing to armed conflict, civil strife or a national disaster’.
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Germany, France and the Netherlands.4 The Model BITs of Austria, France, Germany, Italy, Latvia, Netherlands and the United Kingdom foresee compensation-for-losses clauses.5 Multilateral treaties, such as the NAFTA (Article 1105(2)), the USMCA (Article 3 14.7(1)) and the ECT (Article 12(1)) also contain the obligation to grant non-discriminatory treatment with respect to measures adopted relating to losses suffered owing to armed conflict or civil strife.
II. Related Treaty Provisions 1. Extended War Clauses Some treaties, unlike the CETA, contain extended war clauses. These extended 4 war clauses also relate to war or to other armed conflict, state of emergency, revolution, insurrection, civil disturbance, or similar events. They typically include the non-discrimination provision of the compensation for losses. But they go beyond it in that they also contain absolute standards. Under these clauses, losses suffered by investors at the hand of the host State’s forces or authorities through requisitioning or destruction not required by the necessities of the situation are treated in analogy to expropriation. In other words, such acts require compensation that is prompt, adequate and effective. Article 12 of the Energy Charter Treaty is an example for such an extended war clause.6 Under an extended war clause, compensation is due only if the adverse act was 5 caused by government forces or authorities and not by rebel forces. The duty to make restitution or pay compensation in the case of requisitioning does not hinge on military necessity: even if the requisitioning was mandated by military necessity, restitution or compensation is still due. By contrast, in the case of destruction, restitution or compensation is due only if the forces acted in excess of military necessity. In other words, collateral damage arising from military action that is lawful under the ius in bello need not be compensated.7 Unlike the compensation-for-losses clauses, extended
Pérez-Aznar, ‘Investment Protection in Exceptional Situations’ (2017) 32 ICSID Rev., 696 (698). Brown, Commentaries on Selected Model Investment Treaties (2013), 33, 269, 310, 335, 450, 577, 730. 6 Article 12 ECT: Compensation for Losses ‘(1) Except where Article 13 applies, an Investor of any Contracting Party which suffers a loss with respect to any Investment in the Area of another Contracting Party owing to war or other armed conflict, state of national emergency, civil disturbance, or other similar event in that Area, shall be accorded by the latter Contracting Party, as regards restitution, indemnification, compensation or other settlement, treatment which is the most favourable of that which that Contracting Party accords to any other Investor, whether its own Investor, the Investor of any other Contracting Party, or the Investor of any third state. (2) Without prejudice to paragraph (1), an Investor of a Contracting Party which, in any of the situations referred to in that paragraph, suffers a loss in the Area of another Contracting Party resulting from (a) requisitioning of its Investment or part thereof by the latter’s forces or authorities; or (b) destruction of its Investment or part thereof by the latter’s forces or authorities, which was not required by the necessity of the situation, shall be accorded restitution or compensation which in either case shall be prompt, adequate and effective.’ 7 For application of clauses of this type see Asian Agricultural Products Ltd. (AAPL) v. Sri Lanka, ICSID Case No. ARB/87/3, Final Award (27 June 1990), paras. 58-64; American Manufacturing & Trading, Inc. v. Republic of Zaire, Award (21 February 1997), paras. 7.02-7.15; Strabag v. Libya, ICSID Case No. ARB(AF)/15/1, Award (29 June 2020), paras. 213-228. 4
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war clauses grant absolute rights. They reflect the principles of the laws of war on the protection of private property as codified in The Hague and Geneva Conventions. 8 The EU’s agreements with Vietnam, Singapore, and Mexico contain extended war clauses. The absence of an extended war clause in the CETA evidently reflects an expectation of lower risk in the relations with Canada. This Commentary is restricted to the compensation-for-losses provision of CETA’s Article 8.11.
2. Security Clauses Compensation-for-losses clauses, like Article 8.11 CETA, should be distinguished from security clauses. Some investment treaties contain clauses that reserve far-reaching discretion to States in times of war and armed conflict. Under these non-precluded measures clauses, States may use essential security interests to justify action that is otherwise prohibited.9 7 Some security clauses, like Article XI of the US-Argentina BIT, 10 simply refer to ‘measures necessary’. This means that the invocation of these clauses remains subject to the scrutiny of tribunals. Other clauses are self-judging. This means that the State taking the measures explicitly reserves the right to decide which measures it considers necessary. The NAFTA (Article 2102) and the ECT (Article 24(3)) 11 contain self-judging security clauses. 8 Article 28.6 of the CETA contains a broad self-judging security clause: 6
National security Nothing in this Agreement shall be construed: (a) to require a Party to furnish or allow access to information if that Party determines that the disclosure of this information would be contrary to its essential security interests; or (b) to prevent a Party from taking an action that it considers necessary to protect its essential security interests: (i) connected to the production of or traffic in arms, ammunition and implements of war and to such traffic and transactions in other goods and materials, services and technology 8 For more extensive discussion see Lawry-White, ‘International Investment Arbitration in a Just Post Bellum Framework’ (2015) 16 JWIT, 633 (649); Spears and Fogdestam Agius, ‘Protection of Investments in War-Torn States: A Practitioner’s Perspective on War Clauses in Bilateral Investment Treaties’ in Fach Gómez, Gourgourinis and Titi (eds) International Investment Law and the Law of Armed Conflict (2019), 283 (292). 9 See Lawry-White, ‘International Investment Arbitration in a Just Post Bellum Framework’ (2015) 16 JWIT, 633 (651); Pérez-Aznar, ‘Investment Protection in Exceptional Situations’ (2017) 32 ICSID Rev., 696 (697, 699); Spears and Fogdestam Agius, ‘Protection of Investments in War-Torn States: A Practitioner’s Perspective on War Clauses in Bilateral Investment Treaties’ in Fach Gómez, Gourgourinis and Titi (eds) International Investment Law and the Law of Armed Conflict (2019), 283 (307). 10 See e.g. US-Argentina BIT (1991), Article XI: ‘This Treaty shall not preclude the application by either Party of measures necessary for the maintenance of public order, the fulfillment of its obligations with respect to the maintenance or restoration of international peace or security, or the Protection of its own essential security interests.’ 11 ECT, Article 24(3): Exceptions ‘(3) The provisions of this Treaty other than those referred to in paragraph (1) shall not be construed to prevent any Contracting Party from taking any measure which it considers necessary: (a) for the protection of its essential security interests including those (i) relating to the supply of Energy Materials and Products to a military establishment; or (ii) taken in time of war, armed conflict or other emergency in international relations; (b) relating to the implementation of national policies respecting the non-proliferation of nuclear weapons or other nuclear explosive devices or needed to fulfil its obligations under the Treaty on the Non-Proliferation of Nuclear Weapons, the Nuclear Suppliers Guidelines, and other international nuclear non-proliferation obligations or understandings; or (c) for the maintenance of public order.’
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(c)
undertaken, and to economic activities, carried out directly or indirectly for the purpose of supplying a military or other security establishment; (ii) taken in time of war or other emergency in international relations; or (iii) relating to fissionable and fusionable materials or the materials from which they are derived; or prevent a Party from taking any action in order to carry out its international obligations for the purpose of maintaining international peace and security.
Therefore, the obligations under the CETA, including those under Chapter Eight 9 dealing with investment, are subject to a far-reaching limitation. A Party remains free to take any action that it considers necessary to protect its essential security interests in time of war or other emergency. This security clause is limited to war and emergencies in international relations. It does not extend to domestic emergencies.
B. Spirit and Purpose I. Conditions for the Application of Compensation-for-Losses Clauses The operation of compensation-for-losses clauses depend on several conditions. 10 There must be an unusual circumstance such as a present or past armed conflict, civil strife, a state of emergency or a natural disaster. This unusual circumstance must have led to a loss on the part of a protected investor. In addition, the host State must have taken measures of restitution, indemnification, compensation, or other settlement. It is under these conditions that the obligation of national and MFN treatment arises. Therefore, clauses of this type typically do not create absolute rights to restitution, 11 indemnification, compensation or other settlement beyond non-discrimination. Their effect depends on measures taken by the host State in relation to national investors or investors of a third State. Absolute, non-contingent obligations of the host State in times of armed conflict, 12 civil strife, a state of emergency or natural disaster are most likely to arise under a clause that guarantees full protection and security.12 The CETA contains such an obligation in its Article 8.10.13
II. Application of IIAs during Armed Conflict The continued application of treaties in times of armed conflict may be subject 13 to doubt. In 2011 the ILC presented Draft Articles on the effects of armed conflicts on treaties.14 The Draft Articles contain a presumption of continuity of treaties: the existence of an armed conflict does not ipso facto terminate or suspend the operation 12 Hernández, ‘The interaction between investment law and the law of armed conflict in the interpretation of full protection and security clauses’ in Baetens (ed) Investment Law within International law – Integrationist Perspectives (2013), 21; Schreuer, ‘The protection of investments in armed conflicts’ in Baetens (ed) Investment Law within International law – Integrationist Perspectives (2013), 3 (6 ff.). Generally, on clauses guaranteeing full protection and security see Reinisch and Schreuer, International Protection of Investments – The Substantive Standards (2020), 536-586. 13 CETA Article 8.10 (5) provides: ‘For greater certainty, “full protection and security” refers to the Party's obligations relating to the physical security of investors and covered investments.’ 14 Adopted by the International Law Commission at its sixty-third session, in 2011, and submitted to the General Assembly as a part of the Commission’s report covering the work of that session (A/66/10). YBILC (2011), vol. II, Part Two.
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of treaties.15 The Draft Articles refer to certain factors that indicate whether a treaty is susceptible to termination, withdrawal or suspension.16 In addition ‘[w]here a treaty itself contains provisions on its operation in situations of armed conflict, those provisions shall apply.’17 Compensation-for losses-clauses, like Article 8.11 of CETA, are provisions that operate in situations of armed conflict. 14 The ILC Draft Articles also refer to treaties the subject matter of which involves an implication that they continue to operate, in whole or in part, during armed conflict. 18 A list of treaties annexed to that provision includes ‘[t]reaties of friendship, commerce and navigation and agreements concerning private rights.’19 In its Commentary the ILC speaks of ‘treaties of FCN and analogous agreements concerning private rights, including bilateral investment treaties.’20 This would speak in favour of the general operation of BITs in times of armed conflict. 15 Under the ILC Draft Articles, any termination or suspension of a treaty in times of armed conflict would not operate ipso facto but would be subject to procedural requirements. An intention by a State Party to terminate or suspend a treaty requires notification. A State Party thus affected may object. This would trigger formal dispute settlement procedures.21 Even where suspension or termination does take place, the treaty may contain clauses that are separable.22 16 Therefore, to the extent that the ILC Draft Articles represent the law governing the effects of armed conflict on treaties, they tend to support the principle of the continued applicability of investment treaties.23
15 Article 3: General principle ‘The existence of an armed conflict does not ipso facto terminate or suspend the operation of treaties: (a) as between States parties to the conflict; (b) as between a State party to the conflict and a State that is not.’ 16 Article 6: Factors indicating whether a treaty is susceptible to termination, withdrawal or suspension In order to ascertain whether a treaty is susceptible to termination, withdrawal or suspension in the event of an armed conflict, regard shall be had to all relevant factors, including: (a) the nature of the treaty, in particular its subject matter, its object and purpose, its content and the number of parties to the treaty; and (b) the characteristics of the armed conflict, such as its territorial extent, its scale and intensity, its duration and, in the case of non-international armed conflict, also the degree of outside involvement. 17 Article 4: Provisions on the operation of treaties ‘Where a treaty itself contains provisions on its operation in situations of armed conflict, those provisions shall apply’. 18 Article 7: Continued operation of treaties resulting from their subject matter ‘An indicative list of treaties the subject matter of which involves an implication that they continue in operation, in whole or in part, during armed conflict, is to be found in the annex of the present draft articles’. 19 Annex to Article 7, lit (e). 20 Commentary 48 to Annex to Article 7. 21 See Article 9. 22 See Article 11. 23 See also Hernández, ‘The interaction between investment law and the law of armed conflict in the interpretation of full protection and security clauses’ in Baetens (ed) Investment Law within International law – Integrationist Perspectives (2013), 21 (29); Schreuer, ‘The protection of investments in armed conflicts’ in Baetens (ed) Investment Law within International law – Integrationist Perspectives (2013), 3 (3).
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C. Drafting History All drafts leading to Article 8.11 of CETA contained a compensation-for-losses 17 clause. Its inclusion was based upon a Canadian initiative. Early drafts differed from the final text in several respects. They said: Notwithstanding paragraph 4(b) of Article X.14 (Reservations and Exceptions), each Party shall accord to investors of the other Party, and to covered investments, non-discriminatory treatment with respect to measures it adopts or maintains relating to compensation for losses suffered by investments in its territory owing to armed conflict, civil strife or a natural disaster. 24
Therefore, these early drafts referred to non-discriminatory treatment without 18 specifying national and MFN treatment. Also, the measures adopted by the host State are simply referred to as compensation for losses without further elaboration. The events triggering the clause only covered armed conflict, civil strife, and natural disaster. The Draft CETA Investment Text of 21 November 2013, as well as subsequent 19 drafts, show several changes vis-à-vis the earlier drafts. It lists national treatment and MFN treatment as two separate forms of non-discrimination. The non-discriminatory treatment required of the host State is no longer limited to compensation but also extends to restitution, indemnification and other settlement. The triggering events are extended to also cover a state of emergency. A comparative examination of the respective clauses in the Canadian Model FIPA 20 and in European Model BITs indicates that the original text in the early CETA drafts up to 2012 bears a strong resemblance to the Canadian model.25 The more recent version, which became the final text of Article 8.11, reflects additions from the Model BITs of European countries, notably Austria, France, Germany, Latvia, The Netherlands and the United Kingdom.26 The obvious conclusion is that the original initiative for the inclusion of the compensation-for-losses clause came from Canada and that subsequent amendments were undertaken to bring it into line with European model clauses.
D. Commentary I. ‘Notwithstanding Article 8.15.5(b) …’ The provision of Article 8.11 is to apply notwithstanding27 Article 8.15.5(b). Article 21 8.15 is headed ‘Reservations and exceptions’. Article 8.15.5(b) provides in relevant part: Articles 8.4, 8.6, 8.7 and 8.8 do not apply to: (b) subsidies, or government support relating to trade in services, provided by a Party.
24 Draft consolidated CETA text as at 13.1.2010; Draft of January 2011; Draft Consolidated Text February 2012. 25 Brown, Commentaries on Selected Model Investment Treaties (2013), 92. 26 Brown, Commentaries on Selected Model Investment Treaties (2013), 33, 269, 310, 450, 577, 730. 27 The Shorter Oxford English Dictionary, 1952 explains the meaning of ‘notwithstanding’ in the following terms: ‘In spite of, without regard to or prevention by.’ ‘Nevertheless, all the same.’ ‘Although; in spite of the fact that’. Black’s Law Dictionary, 1231 explains ‘notwithstanding’ as follows: ‘Despite; in spite of. Not opposing; not availing to the contrary’.
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Articles 8.4, 8.6, 8.7 and 8.8 relate to market access, performance requirements, national treatment, MFN treatment and senior management. It follows that the nonapplication of these provisions to subsidies or government support relating to trade in services does not apply where the compensation-for-losses provision of Article 8.11 becomes operative. This means that Articles 8.4, 8.6, 8.7 and 8.8 will apply in the context of Article 8.11 even in cases involving subsidies, or government support relating to trade in services.
II. ‘… each Party shall accord to investors of the other Party …’ 23
Like all protections contained in IIAs, Article 8.11 applies in the relations of the Contracting Parties. It creates rights for Canadian investors in the EU and for EU investors in Canada. It does not create rights for EU investors in other EU Member States. Nor does it create rights for investors of third States.
III. ‘… whose covered investments …’ 24
The concept of a covered investment is defined in Article 8.1 of the CETA in the following terms: covered investment means, with respect to a Party, an investment: (a) (b) (c) (d)
in its territory; made in accordance with the applicable law at the time the investment is made; directly or indirectly owned or controlled by an investor of the other Party; and existing on the date of entry into force of this Agreement, or made or acquired thereafter;
IV. ‘… suffer losses owing to armed conflict, civil strife, a state of emergency or natural disaster …’ The losses must be the consequence of at least one of the enumerated events. The ILC Draft Articles on the Effects of Armed Conflict on Treaties, Article 2(b) define ‘armed conflict’ in the following terms: ‘“Armed conflict” means a situation in which there has been a resort to armed force between States or protracted resort to armed force between governmental authorities and organized armed groups.’ 28 27 The Appeals Chamber of the United Nations International Criminal Tribunal for the Former Yugoslavia defined ‘armed conflict’ in the following terms: 25 26
an armed conflict exists whenever there is a resort to armed force between States or protracted armed violence between governmental authorities and organized armed groups or between such groups within a State.29
28 29
This would cover international as well as non-international armed conflicts. Civil strife is the use of armed force within a State that goes beyond sporadic incidents of violence. Protocol II to the Geneva Conventions describes non-international armed conflicts in the following terms:
UN Doc A/65/10. Prosecutor v. Dusko Tadić, Decision on the Defence Motion for Interlocutory Appeal on Jurisdiction (2 October 1995), para. 70, available at https://www.icty.org/x/cases/tadic/acdec/en/51002.htm (last accessed 7 September 2020). 28 29
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armed conflicts … which take place in the territory of a High Contracting Party between its armed forces and dissident armed forces or other organized armed groups which, under responsible command, exercise such control over a part of its territory as to enable them to carry out sustained and concerted military operations and to implement this Protocol. 2. This Protocol shall not apply to situations of internal disturbances and tensions, such as riots, isolated and sporadic acts of violence and other acts of a similar nature, as not being armed conflicts.30
A state of emergency is primarily a domestic law concept 31 under which the gov- 30 ernment is entitled to take extraordinary measures for the safety and protection of its citizens. The imposition of a state of emergency will normally require a formal declaration. Typical situations justifying the declaration of a state of emergency are armed conflict, civil strife and natural disasters. Therefore, there is considerable overlap among the categories of extraordinary events listed in Article 8.11. In addition to the events listed in Article 8.11, a state of emergency may be declared on economic grounds. A state of emergency may also be triggered by large scale industrial accidents caused by human negligence or acts of terrorism not covered by the concept of civil strife. The justification for the declaration of a state of emergency is often disputed. Article 8.11 of CETA, like other compensation-for-losses clauses, is not concerned with the legality of a state of emergency under national or international law but with the consequences flowing from it. A natural disaster is an event, not caused by human action that affects the life or 31 well-being of a large number of people or the environment. Various events can cause natural disasters. These include conflagration, flooding, drought, earthquake, volcanic eruptions, tsunamis, and impact of extra-terrestrial objects. Epidemics, pandemics and other health crises are also covered by the concept of a natural disaster. The existence of any of these extraordinary events does not, by itself, trigger the 32 operation of Article 8.11 of CETA. In addition to the existence of an armed conflict, civil strife, a state of emergency or natural disaster, Article 8.11 requires remedial measures by the government in response to these events.
V. ‘… in its territory …’ The reference to ‘its territory’ relates to the ‘other Party’, i.e. the host State. Under 33 a textual interpretation the reference to the host State’s territory could refer either to the losses suffered or to the events describes as armed conflict, civil strife, a state of emergency or natural disaster. A grammatical interpretation favours the latter alternative. Therefore, the extraordinary events listed in Article 8.11 must be linked to the host State’s territory. References to the host State’s territory32 are a well-known phenomenon in interna- 34 tional investment law. Many definitions of the term ‘investment’ in BITs and other 30 Protocol Additional to the Geneva Conventions of 12 August 1949, relating to the Protection of Victims of Non-International Armed Conflicts (Protocol II), 8 June 1977, Article 1, available at https://i hl-databases.icrc.org/applic/ihl/ihl.nsf/Treaty.xsp?action=openDocument&documentId=AA0C5BCBA B5C4A85C12563CD002D6D09 (last accessed 7 September 2020). 31 The European Convention on Human Rights, Article 15, and the UN Covenant on Civil and Political Rights, Article 4, refer to a public emergency threatening the life of the nation. These provisions permit a limited restriction of the rights guaranteed by these treaties. 32 A footnote to CETA’s Article 8.2 (Scope), defines the seaward extension of the Parties’ territories as follows: ‘For greater certainty, the obligations of this Chapter apply to the Exclusive Economic Zones and Continental Shelves, as provided in the United Nations Convention on the Law of the Sea, done at Montego Bay on 10 December 1982: (a) of Canada as referred to in Article 1.3(a) (Geographical scope
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IIAs refer to investments ‘in the territory’ of the host State. Problems have arisen mainly where respondent States have questioned the nexus of investments to their territories.33 The issue has arisen, in particular, in the context of investments through financial instruments and pre-shipment inspections. Tribunals have held that the performance of the relevant activities need not take place in the territory of the host State at least not entirely. What matters is that the economic effect of the investment is felt in the host State’s territory.34 35 In analogy to the practice concerning the existence of an investment in a State’s territory, it will be appropriate to interpret the reference to ‘territory’ in Article 8.11 of the CETA, as relating to the effects of the armed conflict, civil strife, state of emergency or natural disaster on the territory of either Canada or the EU. This means that the extraordinary event need not take place in the territory of the Parties at least not entirely. What matters is that the event has triggered measures to remedy or alleviate the consequences of the event that has caused the losses. An example would be measures in reaction to a major volcanic eruption outside the territory of either Party that causes disruption to air traffic and agriculture in Canada and/or the EU.
VI. ‘… treatment no less favourable than that it accords to its own investors or to the investors of a third country, whichever is more favourable to the investor concerned …’ 36
National treatment and MFN treatment are standard features in IIAs. 35 The CETA guarantees national treatment in Article 8.6 and MFN treatment in Article 8.7. The guarantee of national and MFN treatment in Article 8.11 serves the purpose of confirming the application of these standards also to measures taken in reaction to the extraordinary events described there. It also serves the purpose of dispelling any doubt that Article 8.11 remains applicable in times of armed conflict 36 or other exceptional circumstances.
of application); and (b) to which the Treaty on European Union and the Treaty on the Functioning of the European Union are applied as referred to in Article 1.3(b) (Geographical scope of application).’ 33 See Knahr, ‘Investment “In the Territory” of the Host State’ in Binder et al (eds), International Investment Law for the 21st Century, 42; Knahr, ‘The Territorial Nexus between an Investment and the Host State’ in Bungenberg et al (eds), International Investment Law, 590. 34 Fedax v. Venezuela, ICSID Case No. ARB/96/3, Decision on Jurisdiction (11 June 1997), para. 41; CSOB v. Slovakia, ICSID Case No. ARB/97/4, Decision on Jurisdiction (24 May 1999), paras. 77 f.; SGS v. Philippines, ICSID Case No. ARB/02/6, Decision on Jurisdiction (29 January 2004), paras. 99-112; Renta 4 v. Russian Federation, SCC No. 24/2007, Award on Preliminary Objections (20 March 2009), para. 144; Abaclat v. Argentina, ICSID Case No. ARB/07/5, Decision on Jurisdiction and Admissibility (4 August 2011), para. 374; Ambiente Ufficio S.P.A. et al. v. Argentina, ICSID Case No. ARB/08/9, Decision on Jurisdiction and Admissibility (8 February 2013), paras. 498, 508; Alpha Projektholding v. Ukraine, ICSID Case No. ARB/07/16, Award (8 November 2010), paras. 275-285; Inmaris Perestroika v. Ukraine, ICSID Case No. ARB/08/8, Decision on Jurisdiction (8 March 2010), paras. 123, 124; Deutsche Bank AG v. Sri Lanka, ICSID Case No. ARB/09/2, Award (31 October 2012), para. 292. 35 For detailed treatment see Reinisch and Schreuer, International Protection of Investments – The Substantive Standards (2020), 587-812. 36 The ILC Draft Articles on the effects of armed conflicts on treaties, YBILC (2011), vol. II, Part Two, state in Article 4: ‘Where a treaty itself contains provisions on its operation in situations of armed conflict, those provisions shall apply.’
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VII. ‘… as regards restitution, indemnification, compensation or other settlement.’ The list of measures covered by Article 8.11 is as comprehensive as it is diverse. 37 Some of the terms, such as ‘restitution’ and ‘compensation’ have a technical meaning under the law of State responsibility.37 This does not justify an interpretation of Article 8.11 in terms of the law of State responsibility which is premised on the existence of an internationally wrongful act of a State. Clauses providing for compensation for losses operate independently of any illegality that may have led to the losses. Their triggering events are measures by States designed to remediate losses caused by extraordinary circumstances irrespective of any illegality that may have caused these losses. For similar reasons, the use of the term ‘compensation’ does not justify an interpre- 38 tation in analogy to the law on expropriation. Compensation for losses in the sense of Article 8.11, is fundamentally different from a State’s duty to make amends for a taking of private property. The broad enumeration of measures listed in Article 8.11 indicates that its object 39 and purpose is to capture a wide spectrum of measures taken to set off losses caused by extraordinary events.38 Any form of redress designed to remediate losses suffered as a consequence of the events listed in Article 8.11 are covered. In most cases these compensatory measures will be in the form of financial benefits. These may take the form of payment ex gratia or based on legislation. The benefits may take the form of a tax waiver or tax rebate. Restitution or replacement in kind would also be covered.
E. Tribunal Practice on Compensation-for-Losses Clauses39 I. The Early Cases In AAPL v. Sri Lanka,40 the Tribunal applied the compensation-for-losses provision 40 in Article 4(1) of the UK-Sri Lanka BIT.41 The Tribunal interpreted the clause as a renvoi to the BIT’s provision on full protection and security on Article 2(2), which, it concluded, imposed a duty of due diligence upon the host State.42 In AMT v. Zaire,43 the Tribunal rejected an attempt to use the compensation-for- 41 losses provision in Article IV(1) of the US-Zaire BIT as an argument against the
37 See Articles 34 to 36 of the ILC’s Articles on Responsibility of States for International Wrongful Acts, adopted on 9 August 2001; YBILC (2001) vol. II (Part Two). General Assembly Resolution 56/83 of 12 December 2001, A/56/49(Vol. I)/Corr.4. 38 The German Model BIT of 2009 also speaks of ‘other valuable consideration.’ 39 For a detailed discussion of tribunal practice see Pérez-Aznar, ‘Investment Protection in Exceptional Situations’ (2017) 32 ICSID Rev., 696 (705 ff.). 40 Asian Agricultural Products Ltd. v. Republic of Sri Lanka, ICSID Case No. ARB/87/3, Final Award (27 June 1990). 41 UK-Sri Lanka BIT, Article 4(1): ‘Nationals or companies of one Contracting Party whose investments in the territory of the other Contracting Party suffer losses owing to war or other armed conflict, revolution, a state of emergency, revolt, insurrection or riot in the territory of the latter Contracting Party shall be accorded by the latter Contracting Party treatment, as regards restitution, indemnification, compensation or other settlement, no less favourable than that which the latter Contracting Party accords to its own nationals or companies or to nationals or companies of any third State.’ 42 At paras. 65-67. See also the dissenting opinion by Arbitrator Asante at paras. 41-44. 43 American Manufacturing & Trading, Inc. v. Republic of Zaire, ICSID Case No. ARB/93/1, Award (21 February 1997).
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claim’s admissibility.44 On the merits, it found that the Respondent had violated the commitment of protection and security in the BIT’s Article II(4). 45 This finding was ‘reinforced’ by the clause on compensation for losses.46
II. The Cases against Argentina In the cases brought against Argentina and decided between 2005 and 2012, the Respondent routinely relied on the compensation-for-losses clauses in the respective BITs. Argentina claimed the existence of an economic national emergency and argued that the compensation-for-losses clause constituted a lex specialis governing emergency situations exempting it from the BITs’ other substantive obligations. The Tribunals have consistently rejected this argument. 43 In CMS v. Argentina,47 the first of these cases, Argentina invoked Article IV(3) of its BIT with the United States.48 The Tribunal rejected Argentina’s argument in the following terms: 42
The plain meaning of the Article is to provide a floor treatment for the investor in the context of the measures adopted in respect of the losses suffered in the emergency, not different from that applied to nationals or other foreign investors. The Article does not derogate from the Treaty rights but rather ensures that any measures directed at offsetting or minimizing losses will be applied in a non-discriminatory manner.49
44
The Tribunal in Enron v. Argentina,50 followed this line of argument and said: 320. The Tribunal must note that the only meaning of Article IV(3) is to provide a minimum treatment to foreign investments suffering losses in the host country by the simultaneous interplay of national and most favored nation treatment, and this is only in respect of measures the State “adopts in relation to such losses”, that is corrective or compensatory measures. 321. While there is no reason to exclude from this Article economic emergency measures in given circumstances of particular gravity, it still would not allow derogation from rights under the Treaty as it refers to a different matter. Even less so can it be read as a general escape clause from treaty obligations and thus does not result in excluding wrongfulness, liability and eventual
At para. 5.31. US-Congo (formerly Zaire) BIT (1984), Article IV(1): ‘1. Nationals or companies of either Party whose investments in the territory of the other Party suffer: (a) damages due to war or other armed conflict between such other Party and a third country, or (b) damages due to revolution, state of national emergency, revolt, insurrection, riot or act of violence in the territory of such other Party, shall be accorded treatment no less favorable than that which such other Party accords to its own nationals or companies or to nationals or companies of any third country, whichever is the most favorable treatment, when making restitution, indemnification, compensation or any other settlement with respect to such damages.’ 46 At para. 6.14. 47 CMS Gas Transmission Company v. The Republic of Argentina, ICSID Case No. ARB/01/8, Award (12 May 2005). 48 Argentina-US BIT (1991), Article IV(3): ‘Nationals or companies of either Party whose investments suffer losses in the territory of the other Party owing to war or other armed conflict, revolution, state of national emergency, insurrection, civil disturbance or other similar events shall be accorded treatment by such other Party no less favorable than that accorded to its own nationals or companies or to nationals or companies of any third country, whichever is the more favorable treatment, as regards any measures it adopts in relation to such losses.’ 49 At para. 375. 50 Enron Corporation and Ponderosa Assets, L.P. v. Argentine Republic, ICSID Case No. ARB/01/3, Award (22 May 2007). See also Decision on Annulment (30 July 2010), paras. 396-398 refusing to annul the Award on this ground. 44
45
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compensation. Accordingly, the Tribunal concludes that state of necessity cannot be justified under this Article in the terms that the Respondent has invoked it. 51
The Tribunal in El Paso v. Argentina,52 relied on the Award in CMS and found 45 that ‘Article IV(3) applies to measures adopted in response to a loss, not to measures that cause a loss.’ It concluded ‘that the violations committed by Argentina cannot be excused by Article IV(3)’.53 In LG&E v. Argentina,54 the Tribunal found that the Respondent’s actions were excused by a state of necessity. With respect to the compensation-for-losses clause, it found that Argentina had taken measures without discriminating between different groups of investors.55 In the cases involving the UK-Argentina BIT, the interpretation of its Article 4 56 by 46 tribunals was similar. In BG Group v. Argentina,57 the Tribunal quoted CMS and said: … Article 4 of the BIT does not more than ensure that the State does not treat the foreign investor less favorably than its own investor or investors of any third State with regard to “restitution, indemnification, compensation or other settlement” in case the foreign investor suffers losses due to, inter alia, a state of national emergency.58
The Tribunal in National Grid v. Argentina,59 also rejected the idea that the compen- 47 sation-for-losses clause replaced other substantive standards. It said: It is evident from the foregoing that the purpose of Article 4 is not to exclude compensation for losses arising from, among other situations, national emergency but rather the contrary. The commitment of the parties is to ensure that their respective investors do not lose out in such situations.60
In AWG v. Argentina,61 the Tribunal interpreted Article 4 of the Argentina-UK 48 BIT together with Article 5(3) of the Argentina-France BIT. It categorically rejected Argentina’s suggestion that these compensation-for-losses clauses superseded other provisions of the BIT and said: 270. The Tribunal cannot agree with Argentina’s interpretation of the above-quoted BIT provisions. The clear meaning of those provisions is to impose on Contracting Parties an obligation of equality of treatment of investments for losses resulting from war, civil disturbance, and national emergencies. The provision contains no reference whatsoever to other obligations imposed by the BITs on Contracting Parties, let alone to provide for an exemption from such obligations. Had the Contracting Parties, after carefully negotiating a complex set of legal obligations to protect 51 At paras. 320 f. See also the identical reasoning in Sempra Energy International v. The Argentine Republic, ICSID Case No. ARB/02/16, Award (28 September 2007), paras. 362 f. 52 El Paso Energy International Company v. The Argentine Republic, ICSID Case No. ARB/03/15, Award (31 October 2011). See also Decision on Annulment (22 September 2014), para. 250 refusing to annul the Award on this ground. 53 At paras. 559 f. 54 LG&E Energy Corp., LG&E Capital Corp., and LG&E International, Inc. v. Argentine Republic, ICSID Case No. ARB/02/1, Decision on Liability (3 October 2006). 55 At paras. 244 f. 56 UK-Argentina BIT (1990), Article 4: ‘Investors of one Contracting Party whose investments in the territory of the other Contracting Party suffer losses owing to war or other armed conflict, revolution, a state of national emergency, revolt, insurrection or riot or resulting from arbitrary action by the authorities in the territory of the latter Contracting Party shall be accorded by the latter Contracting Party treatment, as regards restitution, indemnification, compensation or other settlement, no less favourable than that which the latter Contracting Party accords to its own investors or to investors of any third State. Resulting payments shall be freely transferable.’ 57 BG Group Plc. v. The Republic of Argentina, UNCITRAL, Final Award (24 December 2007). 58 At para. 382. Italics original. 59 National Grid plc v. The Argentine Republic, UNCITRAL, Award (3 November 2008). 60 At para. 253. 61 AWG Group Ltd. v. The Argentine Republic, UNCITRAL, Decision on Liability (30 July 2010).
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and promote investments, intended that such obligations would not apply in times of war, civil disturbance, or national emergency, they certainly would have so stated specifically. Indeed, in many other BITs, contracting parties have included exception provisions to provide for limited exemptions from BIT obligations in particular situations. The Contracting Parties of the BITs in question in these cases could also have done so if they had wished, but they did not. 271. The Tribunal considers that the above-quoted BIT provisions mean what they say: they impose on Argentina an obligation of equality of treatment with respect to investment losses sustained as a result of war, civil disturbance, and national emergency. They do not exempt Argentina from its other treaty obligations under the BITs. The Tribunal therefore rejects Argentina’s interpretation of the applicable BIT provisions and its claimed defense to its liability for violating such other provisions.62
The cases against Argentina involving the BIT with France follow the same pattern. In Suez & Vivendi v. Argentina,63 the Tribunal was identical with the AWG Tribunal.64 Its interpretation of the compensation-for-losses clause in that case extended to Article 5(3) of the Argentina-France BIT.65 50 Total v. Argentina66 also involved Article 5(3) of the Argentina-France BIT. The Tribunal found that this provision did not exonerate Argentina from its BIT breaches. It noted that the compensation-for-losses clause had the opposite purpose of an exculpatory clause since it offers an additional guarantee to the investor. The Tribunal also excluded its application to an economic emergency. The Tribunal said: 49
Contrary to Argentina’s position, the ordinary meaning of the terms used in Article 5(3) do not support the conclusion that this clause is an escape clause for emergency cases. … Contrary to Argentina’s arguments, Article 5(3) is not applicable to an economic emergency, unless the economic emergency, which hits one of the Parties, has led to a “national emergency” where losses have occurred such as those that are a result of war, uprising or any other kind of civil disturbance. The Tribunal can find no basis on which to uphold Argentina’s argument that the provision legitimizes the government of the host country taking measures that in time of national economic emergency inflict losses on foreign investors. The losses suffered by Total were not “a result of … national emergency” but, rather, a result of regulatory measures passed by Argentina. In any case, the provision operates only when compensation of losses has been granted by a Party to its own investors or to a third Party’s investors. In such an event, Article 5(3) imposes the duty to treat investors protected by the BIT no less favourably than other investors. 67
51
In EDF v. Argentina,68 the Respondent, once again, argued that ‘Article 5(3) comprises a general exception for acts which occurred during extraordinary circumstances that would otherwise be contrary to the State’s obligations under the BIT.’ The only re-
At paras. 270 f. Suez, Sociedad General de Aguas de Barcelona, S.A.and Vivendi Universal, S.A. v. Argentine Republic, ICSID Case No. ARB/03/19, Decision on Liability (30 July 2010). 64 The cases were consolidated into one, operating under the ICSID as well as the UNCITRAL Rules and applying several BITs. 65 Argentina-France BIT (1991), Article 5(3): ‘Investors of either Contracting Party whose investments have suffered losses as a result of war or any other armed conflict, revolution, state of national emergency or uprising in the territory or maritime zone of the other Contracting Party shall be accorded by the latter Party treatment which is no less favorable than that accorded to its own investors or to investors of the most-favored nation.’ 66 Total S.A. v. The Argentine Republic, ICSID Case No. ARB/04/01, Decision on Liability (27 December 2010). See also Decision on Annulment (1 February 2016), paras. 223-228 refusing to annul the Award on this ground. 67 At para. 229. 68 EDF International S.A., SAUR International S.A. and León Participaciones Argentinas S.A. v. Argentine Republic, ICSID Case No. ARB/03/23, Award (11 June 2011). See also Decision on Annulment, 5 February 2016, paras. 306-316 refusing to annul the Award on this ground. 62 63
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maining obligation would be national and MFN treatment.69 The Tribunal found that ‘[t]he plain language of Article 5(3) makes clear that it serves as a non-discrimination provision, not a shield against host state liability for treaty violation.’70 It added that the compensation-for-losses clause was best understood against the background of the rules of customary international law on State Responsibility toward foreign investors during periods of war, and other extraordinary circumstances. It found that Article 5(3) leaves those customary rules untouched merely supplementing their content by requiring equality of treatment.71
III. The Cases against Zimbabwe The two available cases against Zimbabwe closely follow the reasoning in the 52 Argentinean cases. Funnekotter v. Zimbabwe,72 involved the Netherlands-Zimbabwe BIT’s compensation-for-losses clause.73 The Tribunal said: … contrary to what the Respondent submits, Article 7 does not exonerate Contracting Parties from their obligation under Article 6 in case of national emergency or riot. It only provides in such a case for a further guarantee of equal treatment with nationals of the Contracting Party or nationals of Third Parties.74
In von Pezold v. Zimbabwe,75 the Respondent sought to rely on the compensation- 53 for-losses provisions in the BITs with Germany76 and Switzerland. The Respondent argued that this provision relieved them from affording full protection and security. 77 The Tribunal held that the provision on war and revolution did not apply to the case before it and found that the guarantee of full protection and security had been violated.78 For the Tribunal the reference to restitution in Article 4(3) of the BIT with Germany confirmed its power to award restitution of seized property. 79
At paras. 1153-1155. At para. 1157. 71 At paras. 1158-1160. 72 Bernardus Henricus Funnekotter and others v. Republic of Zimbabwe, ICSID Case No. ARB/05/6, Award (22 April 2009). 73 Netherlands-Zimbabwe BIT (1996), Article 7: ‘Nationals of the one Contracting Party who suffer losses in respect of their investments in the territory of the other Contracting Party owing to war or other armed conflict, revolution, a state of national emergency, revolt, insurrection or riot shall be accorded by the latter Contracting Party treatment, as regards restitution, indemnification, compensation or other settlement, no less favourable than that which that Contracting Party accords to its own nationals or to nationals of any third State, whichever is more favourable to the nationals concerned.’ 74 At para. 104. 75 Bernhard von Pezold and Others v. Republic of Zimbabwe, ICSID Case No. ARB/10/15, Award (28 July 2015). 76 Germany-Zimbabwe BIT (1995), Article 4(3): ‘Nationals or companies of either Contracting Party whose investments suffer losses in the territory of the other Contracting Party owing to war or other armed conflict, revolution, a state of national emergency or revolt shall be accorded treatment no less favourable by such other Contracting Party than that which the latter Contracting Party accords to its own nationals or companies or to nationals or companies of any third State, whichever is the more favourable, as regards restitution, indemnification, compensation or other valuable consideration. Such payments shall be freely transferable.’ 77 At paras. 588, 592. 78 At paras. 597-599. 79 At para. 710. At para. 713, the Tribunal added that the BIT with Switzerland mirrored the BIT with Germany and that Article 7(1) of the Swiss BIT, like Article 4(3) of the German BIT, recognised the possibility of restitution. 69
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IV. The Cases against Libya The civil war in Libya, in the wake of the overthrow of the Gaddafi regime, has led to a series of cases involving mostly the compensation-for-losses clause in Article 5 of the Libya-Turkey BIT.80 That clause follows the well-known pattern of compensation-for-losses clauses, also reflected in Article 8.11 CETA, with one exception: in the Libya-Turkey BIT the treatment by the host State, which in many other BITs is itemized as relating to ‘restitution, indemnification, compensation or other settlement,’ is not specified but referred to generically as ‘measures’. 55 At the time of writing, only a small number of decisions were available while several others were unpublished or pending. 56 In Öztaş v. Libya,81 the Tribunal noted that neither Party had relied on Article 5 of the Libya-Turkey BIT. A question concerning this provision by the Tribunal to the Parties did not evoke any meaningful response.82 The Tribunal proceeded to apply the provision sua sponte and said: 54
While neither of the Parties seeks to rely on Article 5, it does seem to a majority of the Arbitral Tribunal to be the proper and only remedy for Claimant in respect of such losses as it may have suffered as a result of the Libyan Revolution if the conditions of Article 5 are met. Article 2.2 83 is not the proper remedy for such losses. Accordingly, Claimant is entitled to receive compensation on terms as favourable as those enjoyed by Libyan investors or (if more favourable) those enjoyed by investors from a third country. This is in fact what Claimant received. 84
In the absence of evidence that Libya had treated other investors any differently than Claimant, the Tribunal rejected the claim. 58 It appears that the Öztaş Tribunal embraced the theory, rejected by numerous tribunals in the cases against Argentina, that the compensation-for-losses clause displaced the other protections under the BIT. The weight of this decision is diminished by the fact that the matter was not argued before the Tribunal which seems to have been unaware of extensive authority to the contrary. 59 Shortly thereafter, in Cengiz v. Libya,85 the meaning of Article 5 of the Libya-Turkey BIT was fully argued and carefully analysed by the Tribunal. The Tribunal rejected Respondent’s argument that Article 5 was a lex specialis that superseded the BIT’s substantive protections. Rather, the FPS (full protection and security) standard and the compensation-for-losses clause had to be applied cumulatively because they had distinct subject-matters.86 The Tribunal said: 57
The FPS standard only provides limited protection to a foreign investor; the protection is only triggered if the host State directly causes harm to the investment or fails to meet a standard of due diligence. The State may provide an increased level of protection to its own investors, or to
80 Libya-Turkey-BIT (2009), Article 5: ‘Investors of either Contracting Party whose investments suffer losses in the territory of the other Contracting Party owing to war, insurrection, civil disturbance or other similar events shall be accorded by such other Contracting Party treatment no less favourable than that accorded to its own investors or to investors of any third country, whichever is the most favourable treatment, as regards any measures it adopts in relation to such losses.’ 81 Öztaş Construction, Construction Materials Trading Inc. v. State of Libya, ICC Case No. 21603/ZF/ AYZ, Final Award (14 June 2018). 82 At paras. 165 ff. 83 Article 2.2. of the Libya-Turkey BIT provides for fair and equitable treatment, protection and security and protection against arbitrary and discriminatory treatment. 84 At para. 167. 85 Cengiz Inşaat Sanayi ve Ticaret A.Ş. v. The State of Libya, ICC, Case No. 21537/ZF/AYZ,Final Award (7 November 2018). 86 At paras. 350 ff.
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investors of a third country; in such case Article 5 comes into operation, and such heightened standard must also be applied to Turkish (or Libyan) investors.87
The Tribunal, after citing CMS, Suez, AAPL and Funnekotter, and after distinguish- 60 ing LESI, concluded: that Article 5 of the BIT does not cover the same subject matter as Article 2(2), and that both provisions are independent; and create separate obligations for the host State: under Article 2(2) the State is obliged to provide FPS to protected investments, while Article 5 creates a separate duty: if the State accords measures to protect its own investors or investors of a third party to compensate losses from war or civil disturbances, such treatment must be extended to the investor protected by the BIT.88
The Cengiz Tribunal proceeded to examine whether Libya had, in fact, provided to 61 any Libyan or foreign investor a treatment more favourable than that awarded to the Claimant.89 It found that it had to apply the following method: Application of the War Clause in Article 5 requires a three-step approach: – – –
First, an appropriate comparator must be identified, i.e. an investor which is in a situation similar to that of Cengiz, and which has suffered losses owing to war or similar events; Second, Claimant must prove that Libya has applied to this comparator “measures [ ... ] in relation to such losses”, which are more favourable than those accorded to Cengiz; Third, lack of a reasonable or objective justification for the difference of treatment. 90
The Tribunal found that construction companies that had received compensation 62 in the form of new contracts did not represent an appropriate comparator since Cengiz had requested monetary compensation.91 The Tribunal’s overall conclusion was as follows: … after carefully weighing the evidence marshalled, the Tribunal concludes that Claimant has not been able to prove that any other contractor in a comparable situation was accorded a treatment which was more favourable than that metered to Cengiz …92
Information from secondary sources suggests that additional decisions mirror the 63 outcome of the Cengiz Award.93
V. The Cases under Italian BITs Cases under Italian BITs deserve separate examination, since some of these treaties 64 have features that distinguish them from standard compensation-for-losses clauses, including Article 8.11 CETA. Specifically, under compensation-for-losses clauses in some Italian BITs, the host State’s obligations do not depend upon the existence of measures such as restitution, indemnification, compensation or other settlement. 94
At para. 361. At para. 370. 89 At paras. 453 ff. 90 At para. 459. 91 At para. 461. 92 At para. 470. 93 Way2B ACE v. Libya, ICC, Award (24 May 2018); Güriş v. Libya, ICC, Partial Award on Jurisdiction and Liability (4 February 2020); In Strabag v. Libya, ICSID Case No. ARB(AF)/15/1, Award (29 June 2020), paras. 221-228, the Tribunal rejected the lex specialis argument with respect to the extended war clause in Article 5(2) of the Austria-Libya BIT. 94 See Italian Model BIT (2003), Article IV: Compensation for Damages or Losses 87 88
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In RFCC v. Morocco,95 Article 4 of the Italy-Morocco BIT96 provided for adequate compensation for losses suffered as a consequence of war, armed conflict, a state of emergency and analogous situations. The damage to Claimant’s investment had occurred as a consequence of bad weather conditions. The Tribunal found that under this clause the host State only bears an obligation to compensate for losses arising from conditions analogous to armed force or a political emergency. The compensation-for-losses clause did not cover losses caused by exceptional climatic conditions. 97 66 In LESI and ASTALDI v. Algeria,98 Article 4(5) of the Italy-Algeria BIT99 provided for an obligation of national and MFN treatment in case of war, other armed conflict, revolution, national state of emergency or revolt. The provision contained no reference to restitution, compensation, or similar measures. 67 The Tribunal held that the BIT’s full protection and security (FPS) clause and Article 4(5) provided for different levels of protection and were incapable of being applied cumulatively. In the Tribunal’s view Article 4(5) was a lex specialis derogating from the obligations under the FPS clause in situations of war, other armed conflict, revolution, national state of emergency or revolt. Under these circumstances, the national and MFN standard of Article 4(5) replaced the FPS standard. Since this resulted in a considerable reduction of the level of protection, Article 4(5) had to be interpreted restrictively.100 68 On the facts, the Tribunal found that the violent conditions in Algeria at the relevant time triggered the application of Article 4(5). The measures taken by the Algerian authorities were, in the Tribunal’s view, reasonable and proportionate. The Claimants’ 65
‘Should investors of either Contracting Parties incur losses or damages on their investments in the territory of the other Contracting Party due to war, other forms of armed conflict, a state of emergency, civil strife or other similar events, the Contracting Party in whose territory the investment has been effected shall offer adequate compensation in respect of such losses or damages, irrespective of whether they have been caused by governmental forces or other subjects. Compensation payments shall be made in freely convertible currency, freely transferable without undue delay. The investors concerned shall receive in any case the same treatment as the nationals of the other Contracting Party and, at all events, no less favourable treatment than investors of Third States.’ 95 Consortium RFCC v. Royaume du Maroc, ICSID Case No. ARB/00/6, Award (22 December 2003). 96 Italy-Morocco BIT (1990), Article 4: Indemnisations pour dommages ou pertes ‘1) Au cas où les investissements effectués par des investisseurs de l'une des Parties Contractantes subiraient des dommages du fait de guerres, conflits armés, états d’urgence, ou autres événements analogues dans le territoire de l'autre Partie Contractante, ils reçoivent une indemnisation juste et adéquate pour la perte subie de la part de la Partie Contractante sur le territoire de laquelle l’investissement a subi ladite perte. 2) Les investisseurs des deux Parties Contractantes bénéficieront, pour ce qui est des questions prévues au présent article de cet Accord, du même traitement réservé aux investisseurs de la Partie Contractante ou, en tout cas, d'un traitement non moins favorable que celui réservé aux investisseurs d'un Etat tiers.’ 97 At paras. 55-57, 79 f. 98 L.E.S.I. S.p.A. and ASTALDI S.p.A. v. République Algérienne Démocratique et Populaire, ICSID Case No. ARB/05/3, Award (12 November 2008). 99 Italy-Algeria BIT (1991), Article 4(5): ‘Les nationaux ou personnes morales de l’un des Etats contractants dont les investissements auront subi des pertes dues à la guerre ou à tout autre conflit armé, révolution, état d’urgence national ou révolte survenus sur le territoire de l’autre Etat contractant, bénéficient, de la part de ce dernier, d’un traitement non moins favorable que celui accordé à ses propres nationaux ou personnes morales ou à ceux de la nation la plus favorisée.’ The Italian version of this BIT represents the above provision as Article 4(6). See UNCTAD International Investment Agreements Navigator. 100 At paras. 174 f.
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treatment was no worse than that accorded to nationals or other investors. 101 The Tribunal’s conclusion was as follows: Compte tenu de la situation sécuritaire qui régnait après la conclusion du Contrat dans l’Etat algérien, l’article 4.5 de l’Accord – lex specialis – est applicable. La Défenderesse, ayant pris plusieurs mesures de sécurité pour offrir une protection au Groupement, a rempli son obligation de moyens qui est de protéger l’investisseur par un traitement non moins favorable que celui accordé à ses propres nationaux. L’article 4.5 de l’Accord n’est pas violé. 102
Therefore, the Tribunal accepted the theory according to which the clause replaced 69 or superseded other substantive protections under the BIT and reduced the host State’s obligation to non-discriminatory treatment. As set out above, this result is in stark contrast to the findings of a large number of other tribunals. This seeming contradiction may be explained, at least in part, by the difference in wording between the clause at stake in LESI and a genuine compensation-for-losses clause. Article 4(5) of the Italy-Algeria BIT simply provides for non-discriminatory treatment in the situations described there. By contrast, the classical compensation-for-losses clauses, including Article 8.11 CETA, specify that non-discrimination is to apply to measures of compensation. Impregilo v. Argentina,103 involved Article 4 of the Argentina-Italy BIT. 104 This provi- 70 sion provided for non-discriminatory treatment with regard to indemnification (‘indemnizaciones’) in the situations of violence and emergency described there. Therefore, it followed the pattern of the classical compensation-for-losses clauses also reflected in Article 8.11 CETA. The Tribunal was ‘satisfied that the economic crisis in Argentina in 2002 could 71 be regarded as a political-economic occurrence similar to a national emergency and that Article 4 of the BIT is therefore applicable to the situation.’ The Tribunal found that this provision did not create an exception from the BIT’s other obligations but merely added an obligation of national and MFN treatment with regard to damages. 105 The Tribunal quoted from the decisions in CMS and in Suez and added that ‘Article 4 applies to measures adopted in response to a loss, not to measures that cause a loss’ and that ‘any violations committed by Argentina cannot be excused by Article 4.’ 106
F. Summary and Conclusions Article 8.11 of the CETA provides for non-discrimination in the form of national 72 treatment and MFN treatment. This non-discrimination applies if a State has made provision for restitution, indemnification, compensation, or other settlement in extraordinary emergency situations. These situations are described as armed conflict, civil strife, a state of emergency or a natural disaster. This description of the situations At paras. 176-181. At para. 182. 103 Impregilo S.p.A. v. Argentine Republic, ICSID Case No. ARB/07/17, Award (21 June 2011). 104 Argentina-Italy BIT (1990), Article 4: Resarcimiento por Daños y Perjuicios ‘En caso que los inversores de una de las Partes Contratantes sufrieran pérdidas en sus inversiones en el territorio de la otra Parte por causa de guerra o de otros conflictos armados, estados de emergencia u otros acontecimientos político-económicos similares, la Parte Contratante en cuyo territorio se ha efectuado la inversión concederá en lo relativo a indemnizaciones un tratamiento no menos favorable del que otorgue a sus propios ciudadanos o personas jurídicas o a los inversores de un tercer Estado.’ 105 At para. 339. 106 At paras. 341 and 343. 101
102
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covered by Article 8.11 is extremely wide. It is not restricted to emergencies of an international nature but includes purely domestic events. It is not restricted to violent situations but includes political and economic crises. It is not restricted to man-made situations of distress but includes natural disasters. 73 The obligation to provide non-discriminatory treatment is not triggered by the extraordinary emergency situations described in Article 8.11. It relates to the application of remedial measures in reaction to these situations taken by a Party. 74 The remedial measures are defined in the widest possible terms. They cover any step taken by the State to reimburse damage incurred by a covered investor. The remedial measures may be taken by the State in pursuance of a legal obligation under international or national law or ex gratia. The measure may take the form of monetary compensation or restitution in kind. 75 Article 8.11 contains no indication that it is meant to replace other substantive obligations under Chapter 8, section D (Investment protection) of the CETA. Therefore, it does not affect the guarantee of full protection and security under Article 8.10. This question dominates the practice on compensation-for-losses clauses in BITs. Tribunals have overwhelmingly held that compensation-for-losses clauses and other protection standards are to be applied cumulatively.
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Article 8.12 Expropriation 1. A Party shall not nationalise or expropriate a covered investment either directly, or indirectly through measures having an effect equivalent to nationalisation or expropriation ("expropriation"), except: a. for a public purpose; b. under due process of law; c. in a non-discriminatory manner; and d. on payment of prompt, adequate and effective compensation. For greater certainty, this paragraph shall be interpreted in accordance with Annex 8-A. 2. The compensation referred to in paragraph 1 shall amount to the fair market value of the investment at the time immediately before the expropriation or the impending expropriation became known, whichever is earlier. Valuation criteria shall include going concern value, asset value including the declared tax value of tangible property, and other criteria, as appropriate, to determine fair market value. 3. The compensation shall also include interest at a normal commercial rate from the date of expropriation until the date of payment and shall, in order to be effective for the investor, be paid and made transferable, without delay, to the country designated by the investor and in the currency of the country of which the investor is a national or in any freely convertible currency accepted by the investor. 4. The affected investor shall have the right, under the law of the expropriating Party, to a prompt review of its claim and of the valuation of its investment, by a judicial or other independent authority of that Party, in accordance with the principles set out in this Article. 5. This Article does not apply to the issuance of compulsory licences granted in relation to intellectual property rights, to the extent that such issuance is consistent with the TRIPS Agreement. 6. For greater certainty, the revocation, limitation or creation of intellectual property rights, to the extent that these measures are consistent with the TRIPS Agreement and Chapter Twenty (Intellectual Property), do not constitute expropriation. Moreover, a determination that these measures are inconsistent with the TRIPS Agreement or Chapter Twenty (Intellectual Property) does not establish an expropriation. Reference to the Respective Provisions in Other EU Treaties: Article 2.7 (Expropriation) and Annex 4 (Understanding on Expropriation) EU-Vietnam Investment Protection Agreement; Article 2.6 (Expropriation), Annex 1 (Expropriation), Annex 2 (Land Expropriation), Annex 3 (Expropriation and Intellectiual Property Rights); EU-Singapore Investment Protection Agreement. Bibliography: George Aldrich, The Jurisprudence of the Iran–United States Claims Tribunal (Clarendon Press, Oxford 1996); Olav Alt, ‘Neue Schiedssprüche zum Recht der Verstaatlichung’ (1985) 35 ÖZÖR, 265; Alexei Barbuk, ‘The NAFTA Chapter 11 Arbitration and Protection of Legitimate Expectations’ (2004) 3 TDM, 1; Charles Brower and Jason Brueschke, The Iran-United States Claims Tribunal (Martinus Nijhoff, The Hague 1998); Ian Brownlie, ‘Legal Status of Natural Resources in International Law (Some Aspects)’ (1979) 162 RC, 245; John Bullington, ‘Problems of International Law in the Mexican Constitution of 1917’ (1927) 21 Am. J. Int’l L., 685; Jorge Castaneda, ‘La Charte des Droits et Devoirs Economiques des États, Note Sur Son Processus D’élaboration’ (1974) 20 AFDI, 31; George Christie,
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‘What Constitutes a Taking of Property under International Law?’ (1962) 38 BYIL, 305; Daniel Clough, ‘Regulatory Expropriations and Compensation under NAFTA’ (2005) 6 JWIT, 553; Paul Comeaux and Stephan Kinsella, Protecting Foreign Investment Under International Law, Legal Aspects of Political Risk (1st edn, Oceana Publications, New York 1997); Carlos Correa and Jorge Viñuales, ‘Intellectual Property Rights as Protected Investments: How Open are the Gates?’ (2016) 19 J. Int’l Econ. L., 91; Francesco Costamagna, ‘Investor’ Rights and State Regulatory Autonomy: the Role of the Legitimate Expectation Principle in the CMS v. Argentina case’ (2006) 2 TDM; Johanne Cox, Expropriation in Investment Treaty Arbitration (Oxford University Press, Oxford 2019); James Crawford, Brownlie's Principles of Public International Law (8th edn, Oxford University Press, Oxford 2012); Bernardo Cremades and David Cairns, ‘The Brave New World of Global Arbitration’ (2002) 3 JWIT, 173; Lisa Diependaele, Julian Cockbain and Sigrid Sterckx, ‘Eli Lilly v Canada: the uncomfortable liaison between intellectual property and international investment law’ (2017) 7 QMJIP, 283; Rudolf Dolzer and Margrete Stevens, Bilateral Investment Treaties (Martinus Nijhoff, The Hague, Boston and London 1995); Rudolf Dolzer, Eigentum, Enteignung und Entschädigung im geltenden Völkerrecht (Springer, Berlin, Heidelberg 1985); Rudolf Dolzer, ‘Indirect Expropriation of Alien Property’ (1986) 1 ICSID Rev., 41; Rudolf Dolzer, ‘Grenzen nationaler Steuerhoheit im völkerrechtlichen Investitionsschutz’ in Klaus Grupp and Ulrich Hufeld (eds), Recht – Kultur – Finanzen, Festschrift für Reinhard Mußgnug zum 70. Geburtstag am 26. Oktober 2005 (C.F. Müller-Verlag, Heidelberg 2005), 189; Rudolf Dolzer, ‘Indirect Expropriations: New Developments?’ (2002) 11 NYU Env. L. J., 64; Martin Domke, ‘Foreign Nationalisations, Some Aspects of Contemporary International Law’ (1961) 55 Am. J. Int’l L., 585; Zachary Douglas, ‘The Hybrid Foundations of Investment Treaty Arbitration’ (2003) 74 BYIL, 151; Zachary Douglas, International Law of Investment Claims (Cambridge University Press, Cambridge 2009); Clara Ducimetière, ‘Intellectual Property under the Scrutiny of Investor-State Tribunals: Legitimacy and New Challenges, Journal of Intellectual Propety, Information Technology and E-Commerce Law’ (2018) 9 JIPITEC, 266; Joshua Elcombe, ‘Regulatory Powers vs. Investment Protection under NAFTA’s Chapter 1110: Metalclad, Methanex, and Glamis Gold’ (2010) 68 U. Toronto Fac. L. Rev., 71; Stephen Fietta, ‘International Thunderbird Gaming Corporation v. The United Mexican States: an indication of the limits of the “legitimate expectation” basis of claim under Article 1105 of NAFTA?’ (2006) 2 TDM; Gerald Fitzmaurice, ‘The Juridical Clauses of the Peace Treaties’ (1943-II) 73 RC, 259; Louis Fortier, ‘Caveat Investor: The Meaning of Expropriation and the Protection Afforded Investors Under NAFTA’ (2003) 20 ICSID News, 1; Louis Fortier and Stephen Drymer, ‘Indirect Expropriation in the Law of International Investment: I Know It When I See It, or Caveat Investor’ (2004) 19 ICSID Rev., 293; Gérard Fouilloux, La Nationalisation et le Droit International Public (Librairie Générale de droit et de Jurisprudence, Paris 1962); Gabriele Gagliani, ‘International Economic Disputes, Investment Arbitration and Intellectual Property: Common Descent and Technical Problems’ (2017) 51 JWT, 335; Francisco Garcia-Amador, ‘ILC Fourth Report on State Responsibility, Responsibility of the State for Injuries Caused in its Territory to the Person or Property of Aliens – Measures Affecting Acquired Rights’ (1959) 2 YBILC, 1; Christopher Gibson, 'A Look at the Compulsory License in Investment Arbitration: The Case of Indirect Expropriation' (2009) 6 TDM, 3; Green Hackworth, Digest of International Law, vol. 3 (U.S. Government Printing Office, 1942), 655; John Herz, ‘Expropriation of Foreign Property’ (1941) 35 Am. J. Int’l Law, 243; Rosalyn Higgins, Conflict of Interests; International law in a Divided World (Dufour Editions, London 1965); Rosalyn Higgins, ‘The Taking of Property by the State: Recent Developments in International Law’ (1982) 176 RC, 259; Cynthia Ho, ‘A Collision Course Between TRIPS Flexibilities and Investor-State Proceedings’ (2016) 6 UC Irvine Law Review, 74; Kaj Hobér, Investment Arbitration in Eastern Europe (JurisNet, 2007); Frank Hoffmeister and Güneş Ünüvar, ‘From BITS and Pieces towards European Investment Agreements’ in Marc Bungenberg, August Reinisch, Christian Tietje (eds), EU and Investment Agreements: Open Questions and Remaining Challenges (Hart, 2013), 57; John Huerta, ‘Peruvian Nationalization and the Peruvian–American Compensation Agreements’ (1977) 10 NYU JILP, 1; Robert Jennings and Arthur Watts, Oppenheim’s International Law, vol. 1 (Oxford University Press, Oxford 1992); Ursula Kriebaum, Eigentumsschutz im Völkerrecht: Eine vergleichende Untersuchung zum internationalen Investitionsrecht sowie zum Menschenrechtsschutz (Duncker & Humblot, Berlin 2008); Ursula Kriebaum, ‘Regulatory Takings: Balancing the Interests of the Investor and the State’ (2007) 8 JWIT, 717; Ursula Kriebaum, ‘Arbitrary or Discriminatory Treatment’ in Marc Bungenberg, Jörn Griebel, Stephan Hobe, August Reinisch (eds), International Investment Law (C.H. Beck, Hart, Nomos, 2015), 790; Ursula Kriebaum, ‘Expropriation’ in Marc Bungenberg, Jörn Griebel, Stephan Hobe, August Reinisch (eds), International Investment Law (C.H. Beck, Hart, Nomos, 2015), 959; Ursula Kriebaum, ‘FET and Expropriation in the Comprehensive Economic Trade Agreement between the European Union and Canada’ (2016) 13 TDM, 1; Ursula Kriebaum, ‘Investment Arbitration – Rule of Law Demands of the Domestic Judiciary (Denial of Justice, Effective Means, Judicial Expropriation)’ in August Reinisch and Stephan Schill (eds), Investment Protection Standards and the Rule of Law (2020, forthcoming); Lahra Liberti, ‘Intellectual Property Rights in International Investment Agreements: An Overview’, OECD Working Papers on International Investment (2010/01); Richard Lillich, ‘The Current Status of the Law of State Responsibility for Injuries
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to Aliens’ in Richard B. Lillich (ed), International Law of State Responsibility for Injuries to Aliens (University Press of Virginia, 1983), 1; Vaughan Lowe, ‘Regulation or Expropriation?’ (2002) 55 CLP, 447; Campbell McLachlan, Laurence Shore, Matthew Weiniger, International Investment Arbitration: Substantive Principles (2nd edn, Oxford University Press, Oxford 2017); Bryan Mercurio, ‘Awakening the Sleeping Giant: Intellectual Property Rights in International Investment Agreements’ (2012) 15 J. Int’l Econ. L., 876; Arnaud de Nanteuil, ‘Expropriation’ in Makane Moïse Mbengue and Stefanie Schacherer (eds.), Foreign Investment under the Comprehensive Economic and Trade Agreement (CETA), Studies in European Economic Law and Regulation (2019), 127; Andrew Newcombe, ‘The Boundaries of Regulatory Expropriation in International Law’ (2005) 20 ICSID Rev., 1; Andrew Newcombe and Lluís Paradell, Law and Practice of Investment Treaties (Kluwer Law International, 2009); Francisco Vicuña, ‘Regulatory Authority and Legitimate Expectations: Balancing the Rights of the State and the Individual under International Law in a Global Society’ (2003) 5 Int’l L. Forum, 188; Martins Paparinskis, ‘Regulatory Expropriation and Sustainable Development’ in Marie-Claire Cordonier Segger, Markus Gehring, Andrew Newcombe (eds), Sustainable Development in World Investment Law (Wolters Kluwer Law & Business, 2011), 299; Jan Paulsson and Zachary Douglas, ‘Indirect Expropriation in Investment Treaty Arbitration’ in Norbert Horn and Stefan Kröll (eds), Arbitrating Foreign Investment Disputes: Procedural and Substantive Legal Aspects (Wolters Kluwer Law & Business, 2004), 145; Matti Pellonpää and Malgosia Fitzmaurice, ‘Taking of Property in the Practice of the Iran–United States Claims Tribunal’ (1988) 19 NYIL, 53; Matti Pellonpää, ‘Compensable Claims before the Tribunal: Expropriation Claims’ in Richard Lillich and Daniel Magraw (eds), The Iran–United States Claims Tribunal: Its Contribution to the Law of State Responsibility (Brill, New York 1998), 185; Markus Perkams, ‘The Concept of Indirect Expropriation in Comparative Public Law – Searching for Light in the Dark’ in Stephan Schill (ed), International Investment Law and Comparative Public Law (Oxford University Press, Oxford 2010), 107; Steven Ratner, ‘Regulatory Takings in Institutional Context: Beyond the Fear of Fragmented International Law’ (2008) 102 Am. J. Int’l Law, 475; August Reinisch, ‘Legality of Expropriation’ in August Reinisch (ed), Standards of Investment Protection (Oxford University Press, Oxford 2008), 171; August Reinisch, ‘National Treatment’, in Marc Bungenberg, Jörn Griebel, Stephan Hobe, August Reinisch (eds), International Investment Law (C.H. Beck, Hart, Nomos, 2015), 846; Michael Reisman and Robert Sloane, ‘Indirect Expropriation and its Valuation in the BIT Generation’ (2003) 74 BYIL, 115; Michael Reisman and Mahnoush Arsanjani, ‘The Question of Unilateral Governmental Statements as Applicable Law in Investment Disputes’ (2004) 19 ICSID Rev., 328; Giorgio Sacerdoti, ‘Bilateral Treaties and Multilateral Instruments on Investment Protection’ (1979) 269 RC, 251; Gary Sampliner, ‘Arbitration of Expropriation Cases Under U.S. Investment Treaties – A Threat to Democracy or the Dog That Didn’t Bark?’ (2003) 18 ICSID Rev., 1; Christoph Schreuer and Ursula Kriebaum, ‘The Concept of Property in Human Rights Law and International Investment Law’ in Stephan Breitenmoser, Bernhard Ehrenzeller, Marco Sassoli, Walter Stoffel and Beatrice Wagner Pfeifer (eds), Liber Amicorum Luzius Wildhaber, Human Rights Democracy and the Rule of Law (Nomos, 2007), 743; Nico Schrijver, Sovereignty Over Natural Resources: Balancing Rights and Duties (Cambridge University Press, 1997); Georg Schwarzenberger, ‘The Abs–Shawcross Draft Convention on Investments Abroad: A Critical Commentary’ (1960) 9 J. Pub. L., 147; Malcolm Shaw, International Law (9th edn, Cambridge University Press, Cambridge 2021); Alfred Siwy, ‘Indirect Expropriation and the Legitimate Expectations of the Investor’ in Christian Klausegger, Peter Klein, Florian Kremslehner, Alexander Petsche, Nikolaus Pitkowitz, Jenny Power, Irene Welser and Gerold Zeiler (eds), Austrian Arbitration Yearbook (Beck, Stämpfli & Manz, 2007), 355; Ignaz Seidl-Hohenveldern, ‘Communist Theories on Confiscation and Expropriation. Critical Comments’ (1958) 7 Am. J. Comp. L., 541; Ignaz Seidl-Hohenveldern, International Economic Law (Kluwer Law International, The Hague 1999); Elizabeth Snodgrass, ‘Protecting Investor’s Legitimate Expectations: Recognizing and Delimiting a General Principle’ (2006) 21 ICSID Rev., 1; Lukas Vanhonnaeker, Intellectual Property Rights as Foreign Direct Investments: from Collision to Collaboration (Edward Elgar Publishing, Cheltenham 2015); Wil Verwey and Nico Schrijver, ‘The Taking of Foreign Property under International Law: A New Legal Perspective?’ (1984) 15 NYIL, 3; Thomas Wälde, ‘A Requiem for the “New International Economic Order”, The Rise and Fall of Paradigms in International Economic Law and a Post-Mortem with Timeless Significance’ in Gerhard Hafner and Ignaz Seidl-Hohenveldern (eds), Liber Amicorum Professor Ignaz Seidl-Hohenveldern, in Honour of His 80th Birthday (Martinus Nijhoff, The Hague 1998), 771; Thomas Wälde and Abba Kolo, ‘Environmental Regulation, Investment Protection and “Regulatory Taking” in International Law’ (2001) 50 ICLQ, 811; Todd Weiler, ‘Methanex Corp. v. U.S.A.: Turning the Page on NAFTA Chapter Eleven?’ (2005) 6 JWIT, 903; Burns Weston, ‘“Constructive Takings” under International Law: A Modest Foray into the Problem of “Creeping Expropriation”’ (1975) 16 Va. J. Int’l L., 103; Burns H. Weston, ‘The Charter of Economic Rights and Duties of States and the Deprivation of Foreign-Owned Wealth’ (1981) 75 Am. J. Int’l L., 437; Gillian White, Nationalisation of Foreign Property (Stevens, 1961); Lester H. Woolsey, ‘The Expropriation of Oil Properties by Mexico’ (1938) 32 Am. J. Int’l L., 519.
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A. Introduction and Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
B. Spirit and Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13
C. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14
D. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. Protected Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Different Forms of Expropriatory Measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Direct Expropriations and Nationalisations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Indirect Expropriations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a) The Different Approaches of Tribunals with Regard to Indirect Expropriation and Regulatory Measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . aa) Sole Effects Doctrine: Applied by NAFTA and BIT Tribunals . . . . . bb) Police Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . cc) The Balancing Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . b) The CETA Formula for the Existence of an Indirect Expropriation . . . . aa) Case-by-Case, Fact-Based Inquiry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . bb) The Economic Impact – Para. 1 and Para. 2(a) of Annex 8-A . . . . cc) The Duration – Para. 2(b) of Annex 8-A . . . . . . . . . . . . . . . . . . . . . . . . . dd) The Reasonable Investment Backed Expectations – Para. 2(c) of Annex 8-A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ee) The Character of a Measure – Para. 2(d) of Annex 8-A . . . . . . . . . . c) The Regulation Exception . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . d) Case Law Applying Treaties with an Indirect Expropriation Test and a Regulation Exception . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. Lawfulness of an Expropriation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Public Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Non-Discrimination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Due process and Judicial Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV. TRIPS-Related Measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19 19 20 21 25 30 33 34 36 38 39 41 44 49 67 73 86 94 95 110 135 143 144
E. Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149
A. Introduction and Overview From the outset of the negotiations, it was clear that expropriation would be part of the substantive standards of the CETA.1 2 For a long time, customary international law rules on the treatment of aliens and treaties of friendship, commerce and navigation governed to a large extent the protection of property of foreigners.2 Since the second half of the twentieth century, bilateral and regional investment treaties, special chapters in free trade agreements and human rights treaties have contained norms regulating expropriation. 3 The expropriation of foreign property was never prohibited but linked to certain conditions (public purpose/non-discrimination/compensation) which had to be fulfilled for its legality.3 The general assumption was that any expropriation of foreign property without compensation would lead to an unjustified wealth transfer from the investor’s home State to the expropriating State. Compensation became the clearing 1
1 On the Expropration provisions in the CETA see also: De Nanteuil, ‘Expropriation’ in Mbengue and Schacherer (eds), Foreign Investment under the Comprehensive Economic and Trade Agreement (CETA) (2019), 127; Kriebaum, ‘FET and Expropriation in the Comprehensive Economic Trade Agreement between the European Union and Canada’ (2016) 13 TDM, 1. 2 For a historical perspective of the public international law norms on the protection of property see e.g. Lillich (ed), ‘The Current Status of the Law of State Responsibility for Injuries to Aliens’ in Lillich, International Law of State Responsibility for Injuries to Aliens (1983), 1 f.; Verwey and Schrijver, ‘The Taking of Foreign Property under International Law: A New Legal Perspective?’ (1984) 15 NYIL, 3 (4 ff.). 3 See e.g. Jennings and Watts, Oppenheim’s International Law, vol. 1 (1992), 919 f.
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mechanism between two principles of international law: the permanent sovereignty over territory and natural resources, and the respect of acquired rights of foreigners. 4 The large scale nationalisations in the aftermath of the 1917 revolutions in the 4 Soviet Union and Mexico as well as the decolonisation process led to an increasing hostility towards foreign investment and to an erosion of the standard of the required compensation.5 Capital exporting countries claimed that the Hull formula (adequate, prompt, effective compensation) reflected the customary legal provision on the issue. 6 Developing States and communist countries challenged this standard and argued that only appropriate but not full compensation would be due.7 The UNGA resolutions in the 1960s and 1970s reflect this development. 8 These resolutions culminated in the adoption of a Charter of Economic Rights and Duties of States in 1974 by majority. 9 This charter provided that national law governs compensation; therefore, national courts or tribunals should decide disputes regarding the requirement and amount of compensation in case of an expropriation. Capital exporting countries either voted against this resolution or abstained. Triggered by the steadily growing uncertainty of the customary rules of international law, States increasingly started to conclude treaties on the protection of investment in the second half of the twentieth century. This phenomenon was further accelerated by the fact that following the debt crisis in the 1980s, many developing countries changed their policy towards foreign investment and strived to create an investment friendly climate.10 4 See e.g. Schrijver, Sovereignty Over Natural Resources: Balancing Rights and Duties (1997); GarciaAmador, ‘ILC Fourth Report on State Responsibility, Responsibility of the State for Injuries Caused in its Territory to the Person or Property of Aliens – Measures Affecting Acquired Rights’ (1959) 2 YBILC, 1 (1); Jennings and Watts, Oppenheim’s International Law, vol. 1 (1992), 915. 5 See e.g. Fouilloux, La Nationalisation et le Droit International Public (1962); Hackworth, Digest of International Law (1942), 655 ff.; Bullington, ‘Problems of International Law in the Mexican Constitution of 1917’ (1927) 21 Am. J. Int’l L., 685; Woolsey, ‘The Expropriation of Oil Properties by Mexico’ (1938) 32 Am. J. Int’l L., 519; Herz, ‘Expropriation of Foreign Property’ (1941) 35 Am. J. Int’l L., 243 (256 f.); White, Nationalisation of Foreign Property (1961); Domke, ‘Foreign Nationalisations, Some Aspects of Contemporary International Law’ (1961) 55 Am. J. Int’l L., 585; Huerta, ‘Peruvian Nationalization and the Peruvian–American Compensation Agreements’ (1977) 10 NYU JILP, 1. 6 Note from Secretary of State Hull of 22 August 1938 to the Mexican Foreign Minister Eduardo Hay: ‘(…) The Government of the United States merely adverts to a self-evident fact when it notes that the applicable precedents and recognized authorities on international law support its declaration that, under every rule of law and equity, no government is entitled to expropriate private property, for whatever purpose, without provision for prompt, adequate and effective payment therefore. (…)’ Reprinted in Hackworth, Digest of International Law (1942), 658 f. 7 For a critical assessment of the communist position, see e.g. Seidl-Hohenveldern, ‘Communist Theories on Confiscation and Expropriation. Critical Comments’ (1958) 7 Am. J. Comp. L., 541. 8 See e.g. Verwey and Schrijver, ‘The Taking of Foreign Property under International Law: A New Legal Perspective?’ (1984) 15 NYIL, 3 (27 f.); UNGA, Resolution on Permanent Sovereignty over Natural Resources, UNGA Res. 1803 (XVII), 14 December 1962; UNGA, Resolution on Permanent Sovereignty over Natural Resources, UNGA Res. 3171 (XXVIII), 17 December 1973; UNGA, Declaration of the Establishment of a New International Economic Order (on the occasion of the Special Session on a New International Economic Order), UNGA Res. 3201, 1 May 1974. 9 Charter of Economic Rights and Duties of States, UNGA Res. 3281 (XXIX), 12 December 1974. See e.g. Castaneda, ‘La Charte des Droits et Devoirs Èconomiques des États, Note Sur Son Processus D’élaboration’ (1974) 20 AFDI, 31; Brownlie, ‘Legal Status of Natural Resources in International Law (Some Aspects)’ (1979) 162 RC, 245 (255); Weston, ‘The Charter of Economic Rights and Duties of States and the Deprivation of Foreign-Owned Wealth’ (1981) 75 Am. J. Int’l L., 437; Dolzer, Eigentum, Enteignung und Entschädigung im geltenden Völkerrecht (1985), 24 ff. 10 Wälde, ‘A Requiem for the “New International Economic Order”, The Rise and Fall of Paradigms in International Economic Law and a Post-Mortem with Timeless Significance’ in Hafner and Seidl-Hohenveldern (eds), Liber Amicorum Professor Ignaz Seidl-Hohenveldern, in Honour of His 80th Birthday (1998), 771.
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Most of these primarily bilateral treaties contain express guarantees against uncompensated expropriation and provide that fair market value should be the amount of compensation due in case of an expropriation. In this way, treaty law incorporated the standard prevalent in classical public international law and reflected in the Hull formula. Whereas the question of the amount of compensation due in the case of an expropriation dominated the debate throughout the twentieth century, the focus of controversy has since changed. The question of what constitutes a compensable taking became the center of the discussion.11 In international investment law, the duty to compensate is linked to the incident of an expropriation. The essential question, therefore, is not whether an expropriation was lawful or unlawful but whether or not it has occurred. The circumstance of the expropriation alone attracts the obligation to compensate. To find out whether an expropriation has occurred, tribunals have to establish first that the right, which allegedly has been expropriated, was protected by international law, especially by the property protection clause of a relevant investment treaty. 12 Second, tribunals have to examine whether the interference did indeed amount to an expropriation. Once an expropriation is established, full compensation is due. If the interference did not amount to an expropriation, there is no right to compensation. Therefore, the question whether an expropriation can be established, is of decisive importance. This leads to an ‘all or nothing’ decision.13 Up to the 1950 s, cases arising from uncompensated expropriations dominated international investment law. More recently, there has been controversy about the requirements of an expropriation. As a reaction, the State Parties to the CETA attempted to include contours of these requirements into the text of the expropriation clause. Traditionally, an expropriation must meet four requirements in order to be legal: 1. 2. 3. 4.
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Public purpose Nondiscrimination Due process Compensation
These requirements are generally accepted and also reflected in nearly all investment treaties. The most important condition is compensation. It is common ground that expropriations can be direct or indirect. The critical issue concerns the measures that constitute indirect expropriations.14 Dolzer, ‘Indirect Expropriations: New Developments?’ (2002) 11 NYU Env. L. J., 64 (65). Schreuer and Kriebaum, ‘The Concept of Property in Human Rights Law and International Investment Law’ in Breitenmoser, et al. (eds), Liber Amicorum Luzius Wildhaber, Human Rights Democracy and the Rule of Law (2007), 743–762. 13 See Kriebaum, ‘Regulatory Takings: Balancing the Interests of the Investor and the State’ (2007), 8 JWIT, 717 (719 ff.). 14 On indirect expropriation, see e.g. Lowe, ‘Regulation or Expropriation?’ (2002) 55 CLP, 447; Dolzer, ‘Indirect Expropriations: New Developments?’ (2002) 11 NYU Env. L. J. 64 (65); Reisman and Sloane, ‘Indirect Expropriation and Its Valuation in the BIT Generation’ (2003) 74 BYIL, 115; Sampliner, ‘Arbitration of Expropriation Cases Under U.S. Investment Treaties: A Threat to Democracy or the Dog That Didn’t Bark?’ (2003) 18 ICSID Rev., 1; Paulsson and Douglas, ‘Indirect Expropriation in Investment Treaty Arbitration’ in Horn and Kröll (eds), Arbitrating Foreign Investment Disputes: Procedural and Substantive Legal Aspects (2004), 145–158; Fortier and Drymer, ‘Indirect Expropriation in the Law of International Investment: I Know It When I See It, or Caveat Investor’ (2004) 19 ICSID Rev., 293; Clough, ‘Regulatory Expropriations and Compensation under NAFTA’ (2005) 6 JWIT, 553; Newcombe, ‘The Boundaries of Regulatory Expropriation in International Law’ (2005) 20 ICSID Rev., 1; Kriebaum, ‘Regulatory Takings’: Balancing the Interests of the Investor and the State’ (2007) 8 JWIT, 717 (719 ff.); 11
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This article first highlights the problems raised by the expropriation standard but 12 also the different approaches and changing requirements with respect to expropriation provisions in investment treaty practices; thus setting the background against which the expropriation provision of the CETA and the regulation exception attached to it are scrutinized. It demonstrates that reference to ‘intention’ in the criteria for establishing an indirect expropriation is problematic and not in line with international judicial practice in general. It shows that CETA adopts a police powers approach in the context of indirect expropriations and allows for a certain balancing between the interests of the investor and of the State.
B. Spirit and Purpose The drafters of the Treaty had the intention to reaffirm the right to regulate of the 13 State Parties to the CETA and to clarify when an indirect expropriation will not occur. For that purpose, they wanted to combine a classical expropriation provision, that can be found in thousands of Bilateral Investment Treaties (BITs), with criteria how to establish an indirect expropriation as well as with a regulation exception.
C. Drafting History The transfer of the negotiations of investment treaties to the European Commission 14 (Commission) from the EU Member States has triggered discussions on the content of the treaties to be negotiated by the Commission. This has occurred despite or because of the scarcity of official and publicly available documents. These discussions also concerned the substantive standards for investment protection. It was clear from the outset that expropriation would be part of the substantive 15 standards. Already, the Commission’s International Investment Policy Communication of July 2010,15 the Council of the European Union (Council) conclusions of 25 October 2010,16 and the European Parliament’s resolution of 6 April 201117 all contain references to an expropriation standard. Therefore, despite the absence of a formal instrument setting out the exact standards that the EU would want to include in its future investment protection treaties, it was certain that the instruments would contain provisions on expropriation. This inclusion is hardly surprising seeing that clauses on expropriation figure 16 prominently in all recently concluded investment treaties of EU Member States. The discussions and uncertainties have turned around the exact contours of the expropriation provisions. In its negotiation directives for the negotiations with Canada, India, and Singapore, the Council has called for ‘the highest possible level of legal protection
Ratner, ‘Regulatory Takings in Institutional Context: Beyond the Fear of Fragmented International Law’ (2008) 102 Am. J. Int’l L., 475; Paparinskis, ‘Regulatory Expropriation and Sustainable Development’ in Segger, et al. (eds), Sustainable Development in World Investment Law (2011), 299; Kriebaum, ‘Expropriation’ in Bungenberg et al. (eds), International Investment Law (2015), 959; Cox, Expropriation in Investment Treaty Arbitration (2019), 53-58, 99-276. 15 Commission Communication, Towards a Comprehensive European international investment policy, 7 July 2010, COM (2010) 343 final. 16 Council of the EU, Conclusions on a Comprehensive European international investment policy, 25 October 2010. 17 European Parliament, European Parliament Resolution of 6 April 2011 on the future European international investment policy, 2010/2203 (INI).
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and certainty for European investors’ in these countries.18 On the one hand, Commission officials have stated that the Commission would ‘go for the “gold standard” of investment protection provisions’.19 On the other hand, it has to take into account not only offensive but also defensive interests of Member States. 20 17 Most of the BITs concluded by EU Member States until 2020 stick to the classical expropriation formula without any definition of indirect expropriation.21 Therefore, one could argue that this would represent the gold standard. However, the Commission announced on 26 November 2013 in a fact sheet on ‘Investment Protection and Investor-to-State Dispute Settlement in EU Agreements’ that it intended to reaffirm the States’ right to regulate in the context of indirect expropriation. For that purpose, it would combine a method for establishing an indirect expropriation with a regulation exception: Clarifying and improving investment protection rules: – –
18
Right to regulate: the EU agreements reaffirm the right of the Parties to regulate to pursue legitimate public policy objectives; ‘Indirect expropriation’: future EU agreements will provide a detailed set of provisions giving guidance to arbitrators on how to decide whether or not a government measure constitutes indirect expropriation. In particular, when the state is protecting the public interest in a non-discriminatory way, the right of the state to regulate should prevail over the economic impact of those measures on the investor.22
The provision on expropriation finally adopted reflects these intentions.
D. Commentary I. Protected Interests 19
Article 8.12 of CETA protects investments against uncompensated expropriation. It is in line with practically unanimous treaty language. The CETA contains a broad definition of investment in Article 8.1 CETA. The object of protection against uncompensated expropriation, therefore, is defined by international law. However, the local
18 Council, Negotiating Directives (Canada, India and Singapore) (12 September 2011) . 19 Hoffmeister and Ünüvar, ‘From BITS and Pieces towards European Investment Agreements’ in Bungenberg, et al. (eds), EU and Investment Agreements: Open Questions and Remaining Challenges (2013), 57 (70 f.). 20 Hoffmeister and Ünüvar, ‘From BITS and Pieces towards European Investment Agreements’ in Bungenberg, et al. (eds), EU and Investment Agreements: Open Questions and Remaining Challenges (2013), 57 (70 f.). 21 See e.g. Austria-Kazakhstan BIT (2010) Article 7: Expropriation and Compensation ‘(1) A Party shall not expropriate or nationalise directly or indirectly an investment of an investor of the other Party or take any measures having equivalent effect (hereinafter referred to as expropriation) except: (a) for a purpose which is in the public interest, (b) on a non-discriminatory basis, (c) in accordance with due process of law, (d) accompanied by payment of prompt, adequate and effective compensation in accordance with paragraphs (2) and (3) of this Article.’ 22 Commission Fact Sheet, Investment Protection and Investor-to-State Dispute Settlement in EU Agreements, November 2013, .
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law decides on the existence and scope of property rights mentioned in the definition of investment.23
II. Different Forms of Expropriatory Measures Like many treaties in force that deal with the protection of investments, the CETA 20 provisions on expropriation include direct as well as indirect nationalisations or expropriations and measures having an effect equivalent to expropriation.
1. Direct Expropriations and Nationalisations In line with the case law of arbitral tribunals, Article 1(a) of Annex 8-A CETA provides that a ‘direct expropriation occurs when an investment is nationalised or otherwise directly expropriated through formal transfer of title or outright seizure.’ Often, the transfer of title is the decisive criterion to distinguish a direct expropriation from an indirect one. In case of a transfer of title, the expropriation is also referred to as formal expropriation. Direct expropriations require, in addition to the transfer of title, that the owner is deprived of the possibility to make use of the investment, which is in nearly all cases a side effect of the title transfer. Direct or formal expropriations are characterised by a forcible deprivation of property by means of administrative or legal measures: ‘the direct one [expropriation], understood as the forcible appropriation by the State of the tangible or intangible property of individuals by means of administrative or legislative action.’24 The term ‘nationalisation’ is usually employed where expropriations involve complete sectors of the economy and the assets are usually transferred to the State. 25 Although nationalisations are relatively rare, recent examples can be found in Venezuela and Bolivia.26
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2. Indirect Expropriations Article 8.12 also explicitly provides for protection against uncompensated indirect 25 expropriations.27 In the case of an indirect expropriation, the investor retains owner23 Douglas, International Law of Investment Claims (2009), 72; Kriebaum, Eigentumsschutz im Völkerrecht: Eine vergleichende Untersuchung zum internationalen Investitionsrecht sowie zum Menschenrechtsschutz (2008), 56–65. 24 LG&E Energy Corp., et al. v. Argentina, ICSID Case No. ARB/02/1, Decision on Liability (3 October 2006), para. 187. See also e.g. Ioannis Kardassopoulos v. Georgia, ICSID Case No. ARB/05/18 and Ron Fuchs v. Georgia, ICSID Case No. ARB/07/15, Award (3 March 2010), para. 387; Burlington Resources Inc. v. Ecuador, ICSID Case No. ARB/08/5, Decision on Liability (14 December 2012), para. 538. 25 Famous examples of nationalisations are the communist expropriations in the Soviet Union after the 1917 revolution, the Mexican nationalisations after the revolution in 1917 and the Iranian nationalisations of the Oil Industry in 1951 and the nationalisation of the insurance and banking industry after the Iranian Revolution 1979. See e.g. Seidl-Hohenveldern, ‘Communist Theories on Confiscation and Expropriation. Critical Comments’ (1958), 7 Am. J. Comp. L., 541; Bullington, ‘Problems of International Law in the Mexican Constitution of 1917’ (1927) 21 Am. J. Int’l L., 685; Aldrich, The Jurisprudence of the Iran-United States Claims Tribunal (1996), 171. 26 See e.g. Guaracachi America, Inc. and Rurelec PLC v. Bolivia, UNCITRAL, PCA Case No. 2011-17, Award (corrected) (31 January 2014); OI European Group B.V. v. Venezuela, ICSID Case No. ARB/11/25, Award (10 March 2015), para. 328; Quiborax S.A. and Non Metallic Minerals S.A. v. Bolivia, ICSID Case No. ARB/06/2, Award (16 September 2015); Tenaris S.A. and Talta – Trading e Marketing Sociedade Unipessoal Lda. v. Venezuela II, ICSID Case No. ARB/12/23, Award (12 December 2016), para. 318. 27 On indirect expropriation, see e.g. Lowe, ‘Regulation or Expropriation?’ (2002) 55 CLP, 447; Dolzer, ‘Indirect Expropriations: New Developments?’ (2002) 11 NYU Env. L. J., 64 (65); Reisman and Sloane, ‘Indirect Expropriation and Its Valuation in the BIT Generation’ (2003) 74 BYIL, 115; Samplin-
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ship of the investment but loses the ability to enjoy the economic benefits arising therefrom. An indirect expropriation leaves the title untouched but deprives the investor of the possibility to utilise the investment in a commercially meaningful way. Today, it is generally accepted that certain types of measures affecting foreign property will be considered an expropriation even though the owner retains the formal title. 26 The abundant scholarly writings on the issue of expropriation of foreign-owned property seem to agree that a large variety of indirect interference with the investors’ economic interests are included in this concept.28 Already fifty years ago, Professor Christie wrote: (...) interference with an alien’s property may amount to expropriation even when no explicit attempt is made to affect the legal title to the property, and even though the respondent State may specifically disclaim any such intention. (...) There are several well-known international cases in which it has been recognized that property rights may be so interfered with that it may be said that to all intents and purposes those property rights have been expropriated even though the State in question has not purported to expropriate.29
27
Investment protection treaties usually did not attempt to define the notion of indirect expropriation but left this task to investment tribunals interpreting them. In this context, legitimate regulation or the right to regulate has been the object of considerable debate. It is impossible to compensate a foreign investor for every measure taken by a host State that has some adverse effect, however minimal, on its business operations. Such a requirement would severely impair the State in its sovereign functions.30
er, ‘Arbitration of Expropriation Cases Under U.S. Investment Treaties: A Threat to Democracy or the Dog That Didn’t Bark?’ (2003) 18 ICSID Rev., 1; Paulsson and Douglas, ‘Indirect Expropriation in Investment Treaty Arbitration’ in Horn and Kröll (eds), Arbitrating Foreign Investment Disputes: Procedural and Substantive Legal Aspects (2004), 145–158; Fortier and Drymer, ‘Indirect Expropriation in the Law of International Investment: I Know It When I See It, or Caveat Investor’ (2004) 19 ICSID Rev., 293; Clough, ‘Regulatory Expropriations and Compensation under NAFTA’ (2005) 6 JWIT, 553; Newcombe, ‘The Boundaries of Regulatory Expropriation in International Law’ (2005) 20 ICSID Rev., 1; Kriebaum, ‘Regulatory Takings: Balancing the Interests of the Investor and the State’ (2007) 8 JWIT, 717 (719 ff.).; Ratner, ‘Regulatory Takings in Institutional Context: Beyond the Fear of Fragmented International Law’ (2008) 102 Am. J. Int’l L., 475; Paparinskis, ‘Regulatory Expropriation and Sustainable Development’ in Segger, et al. (eds), Sustainable Development in World Investment Law (2011), 299; Kriebaum, ‘Expropriation’ in Bungenberg et al. (eds), International Investment Law (2015), 959. 28 See e.g. Weston, ‘“Constructive Takings” under International Law: A Modest Foray into the Problem of “Creeping Expropriation”’ (1975) 16 Va. J. Int’l L., 103; Dolzer, ‘Indirect Expropriation of Alien Property’ (1986) 1 ICSID Rev., 41–65; Sacerdoti, ‘Bilateral Treaties and Multilateral Instruments on Investment Protection’ (1979) 269 RC, 251 (382 f.); Comeaux and Kinsella, Protecting Foreign Investment Under International Law, Legal Aspects of Political Risk (1997), 12–15; Dolzer, ‘Indirect Expropriations: New Developments?’ (2002) 11 NYU Env. L. J., 64 (65); Cremades and Cairns, ‘The Brave New World of Global Arbitration’ (2002) 3 JWIT, 173 (194 f.); Reisman and Sloane, ‘Indirect Expropriation and Its Valuation in the BIT Generation’ (2003) 74 BYIL, 115; Sampliner, ‘Arbitration of Expropriation Cases Under U.S. Investment Treaties: A Threat to Democracy or the Dog That Didn’t Bark?’ (2003) 18 ICSID Rev., 1, 5 ff.; Kriebaum, Eigentumsschutz im Völkerrecht: Eine vergleichende Untersuchung zum internationalen Investitionsrecht sowie zum Menschenrechtsschutz (2008), 253 f.; Perkams, ‘The Concept of Indirect Expropriation in Comparative Public Law – Searching for Light in the Dark’ in Schill (ed), International Investment Law and Comparative Public Law (2010), 107. 29 Christie, ‘What Constitutes a Taking of Property under International Law?’ (1962) 38 BYIL, 305 (309 f.). 30 See Telenor Mobile Communications A.S. v. Hungary, ICSID Case No. ARB/04/15, Award (13 September 2006), para. 64: ‘It is well established that the mere exercise by government of regulatory powers that create impediments to business or entail the payment of taxes and other levies does not of itself constitute expropriation’.
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At the same time, however, the fact that a regulatory measure serves some legiti- 28 mate public purpose cannot automatically lead to the conclusion that no expropriation has occurred.31 With this dilemma as a background, the CETA treaty gives guidance to investment 29 tribunals on how to distinguish the exercise of normal regulatory powers that do not lead to a compensation requirement from indirect expropriations that require compensation. Its Annex 8-A provides for definitions of direct and indirect expropriation. The language is inspired by the US and the Canadian Model-BITs of 2004, 32 which in turn are based on US takings law as well as by the case law of investment tribunals.
31 See e.g. ADC Affiliate Limited, et al. v. Hungary, ICSID Case No. ARB/03/16, Award (2 October 2006), paras. 423 f. 32 Annex B.13(1) of Canada’s Model Foreign Investment Protection and Promotion Agreement 2004 reads in this regard: ‘The Parties confirm their shared understanding that: a) Indirect expropriation results from a measure or series of measures of a Party that have an effect equivalent to direct expropriation without formal transfer of title or outright seizure; b) The determination of whether a measure or series of measures of a Party constitute an indirect expropriation requires a case-by-case, fact-based inquiry that considers, among other factors: i) the economic impact of the measure or series of measures, although the sole fact that a measure or series of measures of a Party has an adverse effect on the economic value of an investment does not establish that an indirect expropriation has occurred; ii) the extent to which the measure or series of measures interfere with distinct, reasonable investment-backed expectations; and iii) the character of the measure or series of measures; c) Except in rare circumstances, such as when a measure or series of measures are so severe in the light of their purpose that they cannot be reasonably viewed as having been adopted and applied in good faith, non-discriminatory measures of a Party that are designed and applied to protect legitimate public welfare objectives, such as health, safety and the environment, do not constitute indirect expropriation.’ Annex B of US Model Bilateral Investment Treaty 2004 reads in this regard: Annex B Expropriation ‘The Parties confirm their shared understanding that: 1. Article 6 [Expropriation and Compensation](1) is intended to reflect customary international law concerning the obligation of States with respect to expropriation. 2. An action or a series of actions by a Party cannot constitute an expropriation unless it interferes with a tangible or intangible property right or property interest in an investment. 3. Article 6 [Expropriation and Compensation](1) addresses two situations. The first is direct expropriation, where an investment is nationalized or otherwise directly expropriated through formal transfer of title or outright seizure. 4. The second situation addressed by Article 6 [Expropriation and Compensation](1) is indirect expropriation, where an action or series of actions by a Party has an effect equivalent to direct expropriation without formal transfer of title or outright seizure. (a) The determination of whether an action or series of actions by a Party, in a specific fact situation, constitutes an indirect expropriation, requires a case-by-case, fact-based inquiry that considers, among other factors: (i) the economic impact of the government action, although the fact that an action or series of actions by a Party has an adverse effect on the economic value of an investment, standing alone, does not establish that an indirect expropriation has occurred; (ii) the extent to which the government action interferes with distinct, reasonable investment-backed expectations; and (iii) the character of the government action. (b) Except in rare circumstances, non-discriminatory regulatory actions by a Party that are designed and applied to protect legitimate public welfare objectives, such as public health, safety, and the environment, do not constitute indirect expropriations.’
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a) The Different Approaches of Tribunals with Regard to Indirect Expropriation and Regulatory Measures 30
It is generally accepted by investment arbitration tribunals that one can speak of an expropriation only if there is a total or at least substantial deprivation of an investment.33 In many cases, legitimate regulation will not lead to a substantial deprivation of all or most of the benefits of the investment for a substantial period of time. In such cases, tribunals deny the existence of an expropriation due to a lack of sufficient severity.34 33 See eg. Metalclad Corporation v. Mexico, ICSID Case No. ARB(AF)/97/1 (NAFTA), Award (30 August 2000), para. 103; Pope & Talbot Inc. v. Canada, UNCITRAL (NAFTA), Interim Award (26 June 2000), para. 102; CMS Gas Transmission Company v. Argentina, ICSID Case No. ARB/01/8, Award (12 May 2005), para. 262; Telenor Mobile Communications A.S. v. Hungary, ICSID Case No. ARB/04/15, Award (13 September 2006), paras. 64 f.; Compañia de Aguas del Aconquija SA and Vivendi Universal v. Argentina (Vivendi II), ICSID Case No. ARB/97/3, Award (20 August 2007), paras. 7.5.11, 7.5.17, 7.5.24– 7.5.30; Sempra Energy International v. Argentina, ICSID Case No. ARB/02/16, Award (28 September 2007), para. 284; Merrill & Ring Forestry L.P. v. Canada, ICSID Case No. UNCT/07/1, Award (31 March 2010), para. 145; Suez, Sociedad General de Aguas de Barcelona, S.A. and InterAgua Servicios Integrales del Agua, S.A. v. Argentina, ICSID Case No. ARB/03/19, Decision on Liability (30 July 2010), paras. 132– 134; Chemtura Corporation v. Canada, UNCITRAL (NAFTA), Award (2 August 2010), paras. 244–249; AES Summit Generation Limited and AES-Tisza Erömü Kft v. Hungary, ICSID Case No. ARB/07/22, Award (23 September 2010), para. 14.3.1; Alpha Projektholding GmbH v. Ukraine, ICSID Case No. ARB/07/16, Award (8 November 2010), para. 408; Total S.A. v. Argentina, ICSID Case No. ARB/04/01, Decision on Liability (27 December 2010), para. 195; El Paso Energy International Company v. Argentina, ICSID Case No. ARB/03/15, Award (31 October 2011), paras. 233, 244–256; Spyridon Roussalis v. Romania, ICSID Case No. ARB/06/1, Award (7 December 2011), paras. 328, 354. Kriebaum, Eigentumsschutz im Völkerrecht: Eine vergleichende Untersuchung zum internationalen Investitionsrecht sowie zum Menschenrechtsschutz (2008), 297–325. 34 See e.g. Spyridon Roussalis v. Romania, ICSID Case No. ARB/06/1, Award (7 December 2011), paras. 354–357; White Industries Australia v. India, UNCITRAL, Final Award (30 November 2011), para. 12.3.6; El Paso Energy International Company v. Argentina, ICSID Case No. ARB/03/15, Award (31 October 2011), paras. 245–256, 299; Sergei Paushok, et al. v. Mongolia, UNCITRAL, Award on Jurisdiction and Liability (28 April 2011), paras. 331–336; Total S.A. v. Argentina, ICSID Case No. ARB/04/01, Decision on Liability (27 December 2010), paras. 195–199; AES Summit Generation Limited and AES-Tisza Erömü Kft v. Hungary, ICSID Case No. ARB/07/22, Award (23 September 2010), paras. 14.3.1–14.3.4; Chemtura Corporation v. Canada, UNCITRAL (NAFTA), Award (2 August 2010), paras. 244–247, 259, 264–265, 267; Suez, Sociedad General de Aguas de Barcelona, S.A. and InterAgua Servicios Integrales del Agua, S.A. v. Argentina, ICSID Case No. ARB/03/19, Decision on Liability (30 July 2010), paras. 123– 129, 134, 140, 145; Merrill & Ring Forestry L.P. v. Canada, ICSID Case No. UNCT/07/1, Award (31 March 2010), paras. 145, 152; Toto Costruzioni Generali S.p.A. v. Lebanon, ICSID Case No. ARB/07/12, Decision on Jurisdiction (11 September 2009), paras. 183–186; Glamis Gold, Ltd. v. USA, UNCITRAL (NAFTA), Award (8 June 2009), para. 536; National Grid PLC v. Argentina, UNCITRAL, Award (3 November 2008), para. 154; Metalpar S.A. and Buen Aire S.A. v. Argentina, ICSID Case No. ARB/03/5, Award on the Merits (6 June 2008), paras. 173–174; Corn Products International, Inc v. Mexico, ICSID Case No. ARB (AF)/04/1 (NAFTA), Decision on Responsibility (15 January 2008), paras. 82, 87, 91–94; BG Group Plc v. Argentina, UNCITRAL, Award (24 December 2007), paras. 268–272; Archer Daniels Midland Company and Tate & Lyle Ingredients Americas, Inc. v. Mexico, ICSID Case No. ARB (AF)/04/5 (NAFTA), Award (21 November 2007), paras. 240, 244–252; Sempra Energy International v. Argentina, ICSID Case No. ARB/02/16, Award (28 September 2007), paras. 285–286; Tokios Tokelės v. Ukraine, ICSID Case No. ARB/02/18, Award (26 July 2007), paras. 120–122; Enron Corporation and Ponderosa Assets, L.P. v. Argentina, ICSID Case No. ARB/01/3, Award (22 May 2007), paras. 245 f.; Eastern Sugar B.V. (Netherlands) v. Czech Republic, SCC Case No. 088/2004, Partial Award (27 March 2007), para. 210; PSEG Global, Inc., et al. v. Turkey, ICSID Case No. ARB/02/5, Award (19 January 2007), paras. 278 ff.; LG&E Energy Corp., et al. v. Argentina, ICSID Case No. ARB/02/1, Decision on Liability (3 October 2006), paras. 189–191, 198-200; Telenor Mobile Communications A.S. v. Hungary, ICSID Case No. ARB/04/15, Award (13 September 2006), paras. 79–80; Azurix Corp. v. Argentina, ICSID Case No. ARB/01/12, Award (14 July 2006), para. 322; Iurii Bogdanov, et al. v. Moldova, SCC, Arbitral Award (22 September 2005), para. 4.2.5; CMS Gas Transmission Company v. Argentina, ICSID Case No. ARB/01/8, Award (12 May 2005), paras. 262–264; Occidental Exploration and Production Company v. Ecuador, LCIA
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Tribunals that have had to decide on the existence of indirect expropriations have 31 grappled with the distinction between regulatory expropriation and legitimate regulation in a number of cases.35 Three main lines of authority exist with regard to the method by which the line 32 is drawn by arbitral tribunals between regulation not requiring compensation and regulatory expropriation. aa) Sole Effects Doctrine: Applied by NAFTA and BIT Tribunals A number of tribunals have disregarded regulatory purposes. They focus on the 33 effects of a measure to determine whether an expropriation exists. If the interference is substantial, that is, if it deprives the investor of all or most of the benefits of the investment permanently or for a substantial period of time, an expropriation will have occurred. This is called the sole effects doctrine.36 bb) Police Powers Other tribunals infer from the existence of a public interest in the interference 34 that no expropriation will have occurred if the interference is nondiscriminatory and in accordance with the due process requirements.37 This is called the radical police powers approach.38 In the case of regulations, tribunals following this approach apply three of the 35 criteria (public interest, nondiscrimination, due process) traditionally used to decide on the legality of an expropriation to determine whether an expropriation occurred at all. This approach seems to take the compliance with these three conditions for Case No. UN3467, Final Award (1 July 2004), para. 89; Nykomb Synergetics Technology Holding AB v. Latvia, SCC, Arbitral Award (16 December 2003), para. 4.3.1; Pope & Talbot Inc. v. Canada, UNCITRAL (NAFTA), Interim Award (26 June 2000), paras. 96, 102; S.D. Myers, Inc. v. Canada, UNCITRAL (NAFTA), First Partial Award (13 November 2000), paras. 283–288. 35 See e.g. Southern Pacific Properties (Middle East) Limited v. Egypt, ICSID Case No. ARB/84/3, Award (20 May 1992) 3 ICSID Rep. 189, paras. 158–159. 36 See e.g. Dolzer, ‘Indirect Expropriations: New Developments?’ (2002) 11 NYU Env. L. J. 64, (80); Kriebaum, ‘Expropriation’ in Bungenberg, et al. (eds), International Investment Law (2015), 959, 996 ff.; Examples of cases where tribunals applied the sole effects doctrine are Tippetts, et al. v. TAMS-AFFA Consulting Engineers of Iran, Iran-US Claims Tribunal No. 141-7-2, Award (29 June 1984) 6 IUSCTR, 219; Phelps Dodge International Corp., et al. v. Iran, Iran-US Claims Tribunal No. 217-99-2, Award (19 March 1986), 10 IUSCTR, 121; Biloune and Marine Drive Complex Ltd. v. Ghana Investments Centre and the Government of Ghana, UNCITRAL, Award on Jurisdiction and Liability (27 October 1989), 95 ILR ,183 (209); Southern Pacific Properties (Middle East) Limited v. Egypt, ICSID Case No. ARB/84/3, Award (20 May 1992) 3 ICSID Rep.,189; Metalclad Corporation v. Mexico, ICSID Case No. ARB(AF)/97/1 (NAFTA), Award (30 August 2000), paras. 111–112; Compañia de Aguas del Aconquija SA and Vivendi Universal v. Argentina (Vivendi II), ICSID Case No. ARB/97/3, Award (20 August 2007), paras. 7.5.20, 7.5.21; Merrill & Ring Forestry L.P. v. Canada, ICSID Case No. UNCT/07/1, Award (31 March 2010), para. 143. 37 See e.g. Chemtura Corporation v. Canada, UNCITRAL (NAFTA), Award (2 August 2010), para. 266. 38 Kriebaum, ‘Regulatory Takings: Balancing the Interests of the Investor and the State’ (2007) 8 JWIT, 717 (725–727). For tribunals following this approach, see e.g. Methanex Corporation v. USA, UNCITRAL (NAFTA), Award (3 August 2005) 44 ILM, 1343, part IV, ch. C, para. 7; Fireman’s Fund Insurance Company v. Mexico, ICSID Case No. ARB (AF)/02/1, Award (17 July 2006), paras. 176 (j), (k); Saluka Investments B.V. (The Netherlands) v. Czech Republic, UNCITRAL, Partial Award (17 March 2006), para. 255. On the discussion of this approach, see e.g. Weiler, ‘Methanex Corp. v. U.S.A.: Turning the Page on NAFTA Chapter Eleven?’ (2005) 6 JWIT, 903 (918 f.); Kriebaum, ‘Regulatory Takings: Balancing the Interests of the Investor and the State’ (2007) 8 JWIT, 717 (726); Elcombe, ‘Regulatory Powers vs Investment Protection under NAFTA’s Chapter 1110: Metalclad, Methanex, and Glamis Gold’ (2010) 68 U. Toronto Fac. L Rev., 71.
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a legal expropriation as evidence of the absence of an expropriation and, hence, as obviating the fourth criterion, compensation. Therefore, under this theory and with rare exceptions, only illegal regulatory takings will be considered expropriations. cc) The Balancing Approach A third group of tribunals considers the context and purpose of the interference and applies a proportionality test.39 To establish whether an expropriation occurred, these tribunals first decide whether a substantial deprivation has occurred. If this is the case, they will balance the interests of the investor against the public purpose of the interference. 37 The Award in Tecmed40 can serve as an example for this approach. It balanced the public interest presumably pursued by the interference against the charge imposed on the investor.41 In doing so, it applied a proportionality test and, in that way, established a relationship between the two criteria of ‘effect’ and ‘purpose’ of the interference. 42 It held that the situation prevailing in the region did not give rise to a serious urgent situation, crisis, or social emergency. It weighed this fact against the deprivation of the economic value of the investment and reached the conclusion that the interference did amount to an expropriation. It stated that three factors are of particular relevance in the balancing process: (1) the reasonableness of the government measures with respect to their goals; (2) the deprivation of economic rights (i.e., the effect of the measure); and (3) the legitimate expectations of the investor. Other tribunals welcomed and followed this approach.43 36
b) The CETA Formula for the Existence of an Indirect Expropriation 38
Like the US and the Canadian Model BIT, the CETA Annex 8-A 44 has incorporated the method used by the US Supreme Court in the case Penn Central Transportation Co v. New York City45 to establish the existence of an indirect expropriation. The Annex clarifies that the provision covers direct and indirect expropriations. The criteria listed 39 See e.g. Técnicas Medioambientales Tecmed, S.A. v. Mexico, ICSID Case No. ARB(AF)/00/2, Award (29 May 2003), paras. 114-151; ICSID Case No. ARB/01/12, Award (14 July 2006), paras. 311 f., 322; LG&E Energy Corp., et al. v. Argentina, ICSID Case No. ARB/02/1, Decision on Liability (3 October 2006), paras. 189, 194 f.; Invesmart v. Czech Republic, UNCITRAL, Award (26 June 2009), paras. 497 f., 501, 504, 520; El Paso Energy International Company v. Argentina, ICSID Case No. ARB/03/15, Award (31 October 2011), paras. 233, 237–243, 297–99; PL Holdings S.à.r.l. v. Poland, SCC Case No. V 2014/163, Partial Award (28 June 2017), paras. 354 f., 374, 377, 379, 384, 387, 391; WNC Factoring Limited v. Czech Republic, UNCITRAL, PCA Case No. 2014-34, Award (22 February 2017), paras. 394 ff.; Marfin Investment Group v. Cyprus, ICSID Case No. ARB/13/27, Award (26 July 2018), paras. 826-829, 868-870, 878, 901. 40 Técnicas Medioambientales Tecmed, S.A. v. Mexico, ICSID Case No. ARB(AF)/00/2, Award (29 May 2003), paras. 114-151. 41 Técnicas Medioambientales Tecmed, S.A. v. Mexico, ICSID Case No. ARB(AF)/00/2, Award (29 May 2003), para. 122 (based on the judgment in Matos and Silva: Matos e Silva v. Portugal, Application No. 15777/89, ECtHR, (16 September 1996), para. 92). See Kriebaum, ‘Regulatory Takings: Balancing the Interests of the Investor and the State’ (2007) 8 JWIT, 717 (726). 42 Técnicas Medioambientales Tecmed, S.A. v. Mexico, ICSID Case No. ARB(AF)/00/2, Award (29 May 2003), para. 122. 43 See e.g. Azurix Corp. v. Argentina, ICSID Case No. ARB/01/12, Award (14 July 2006), paras. 311 f., 322; LG&E Energy Corp., et al. v. Argentina, ICSID Case No. ARB/02/1, Decision on Liability (3 October 2006), paras. 189, 194–195; El Paso Energy International Company v. Argentina, ICSID Case No. ARB/03/15, Award (31 October 2011), para. 233. 44 Comprehensive Economic and Trade Agreement (CETA)’ (29 February 2016) Annex 8-A (‘CETA’). 45 Penn Central Transportation Co v. New York City, (1978) 438 US, 104.
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in Annex 8-A(2) include the economic impact of a measure, the interference with investment-backed expectations, and the character of the governmental action. Annex 8-A Expropriation The Parties confirm their shared understanding that: 1. Expropriation may be either direct or indirect: (a) direct expropriation occurs when an investment is nationalised or otherwise directly expropriated through formal transfer of title or outright seizure; and (b) indirect expropriation occurs if a measure or series of measures of a Party has an effect equivalent to direct expropriation, in that it substantially deprives the investor of the fundamental attributes of property in its investment, including the right to use, enjoy and dispose of its investment, without formal transfer of title or outright seizure. 2. The determination of whether a measure or series of measures of a Party, in a specific fact situation, constitutes an indirect expropriation requires a case-by-case, fact-based inquiry that takes into consideration, among other factors: (a) the economic impact of the measure or series of measures, although the sole fact that a measure or series of measures of a Party has an adverse effect on the economic value of an investment does not establish that an indirect expropriation has occurred; (b) the duration of the measure or series of measures by a Party; (c) the extent to which the measure or series of measures interferes with distinct, reasonable investment-backed expectations; and (d) the character of the measure or series of measures, notably their object, context and intent. 3. For greater certainty, except in the rare circumstance where the impact of the measure or series of measures is so severe in light of its purpose that it appears manifestly excessive, non-discriminatory measures by a Party that are designed and applied to protect legitimate public welfare objectives, such as health, safety and the environment, do not constitute indirect expropriations. 46
aa) Case-by-Case, Fact-Based Inquiry The text of Annex 8-A(2) takes up issues that commentators as well as tribunals 39 have repeatedly pointed out: there is and will be no magic formula from which the existence of an indirect expropriation can be deduced. Rather, a case-by-case and fact-based inquiry is necessary to establish whether an indirect expropriation has occurred.47 The Tribunal shall be guided in its decision by the four factors enumerated in literas a to d in Para 2 of Annex 8-A: a b c d
the economic impact the duration reasonable investment backed expectations the character of a measure
Therefore, Annex 8-A(2) follows, in principle, the approach of the US Supreme 40 Court in Penn Central Transportation Co v. New York City48 and of those tribunals that made a global assessment of a variety of factors in addition to the severity and duration of the State measure(s) interfering with an investment. These tribunals also took into account factors such as the legitimate expectations of the investor and the purpose of the measure. This approach has been described above as the balancing approach (→ mn. 36-37). ‘CETA’, Ch. 8, annex 8-A (‘Expropriation’). See e.g. Christie, ‘What Constitutes a Taking of Property under International Law?’ (1962) 38 BYIL, 305 (338); Reisman and Sloane, ‘Indirect Expropriation and Its Valuation in the BIT Generation’ (2003) 74 BYIL, 115 (122); Fortier, ‘Caveat Investor: The Meaning of Expropriation and the Protection Afforded Investors Under NAFTA’ (2003) 20 ICSID News, 1; Dolzer, ‘Indirect Expropriations: New Developments?’ (2002) 11 NYU Env. L. J., 64 (76); McLachlan, et al., International Investment Arbitration Substantive Principles (2017), 389. 48 Penn Central Transportation Co v. New York City (1978) 438 US, 104. 46
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bb) The Economic Impact – Para. 1 and Para. 2(a) of Annex 8-A The text of Annex 8-A refers twice to the effect of the state interferences with the investment. In paragraph 1, it states that the measure or series of measures must have an effect equivalent to direct expropriations. Therefore, it adopts one of the two typical formulas found in BITs to describe indirect expropriations ‘measures having an effect equivalent’ or ‘measures tantamount to expropriation’. In addition, it requires, in line with the case law of arbitration tribunals, a substantial deprivation of the fundamental attributes of property. It explicitly but not exhaustively mentions the right to use, enjoy and dispose of property. 42 Paragraph 2 contains four factors that tribunals shall take into consideration when deciding on the existence of an indirect expropriation. Litera (a) deals with the economic impact of the measure or measures. A mere adverse effect on the economic value of an investment does not establish that an indirect expropriation has occurred. 43 This is in line with the case law of arbitral tribunals which generally accept that one can speak of an expropriation only if there is a total or at least substantial deprivation of an investment.49 In many cases, legitimate regulation will not lead to a substantial deprivation of all or most of the benefits of the investment for a substantial period of time. In such cases, tribunals deny the existence of an expropriation due to a lack of sufficient severity.50 41
49 See e.g. Metalclad Corporation v. Mexico, ICSID Case No. ARB(AF)/97/1 (NAFTA), Award (30 August 2000), para. 103; Pope & Talbot Inc. v. Canada, UNCITRAL (NAFTA), Interim Award (26 June 2000), para. 102; CMS Gas Transmission Company v. Argentina, ICSID Case No. ARB/01/8, Award (12 May 2005), para. 262; Telenor Mobile Communications A.S. v. Hungary, ICSID Case No. ARB/04/15, Award (13 September 2006), paras. 64–65; Compañia de Aguas del Aconquija SA and Vivendi Universal v. Argentina (Vivendi II), ICSID Case No. ARB/97/3, Award (20 August 2007), paras. 7.5.11, 7.5.17, 7.5.24– 7.5.30; Sempra Energy International v. Argentina, ICSID Case No. ARB/02/16, Award (28 September 2007), para. 284; Merrill & Ring Forestry L.P. v. Canada, ICSID Case No. UNCT/07/1, Award (31 March 2010), para. 145; Suez, Sociedad General de Aguas de Barcelona, S.A. and InterAgua Servicios Integrales del Agua, S.A. v. Argentina, ICSID Case No. ARB/03/19, Decision on Liability (30 July 2010), para. 132–134; Chemtura Corporation v. Canada, UNCITRAL (NAFTA), Award (2 August 2010), paras. 244–249; AES Summit Generation Limited and AES-Tisza Erömü Kft v. Hungary, ICSID Case No. ARB/07/22, Award (23 September 2010), para. 14.3.1; Alpha Projektholding GmbH v. Ukraine, ICSID Case No. ARB/07/16, Award (8 November 2010), para. 408; Total S.A. v. Argentina, ICSID Case No. ARB/04/01, Decision on Liability (27 December 2010), para. 195; El Paso Energy International Company v. Argentina, ICSID Case No. ARB/03/15, Award (31 October 2011), paras. 233, 244–256; Spyridon Roussalis v. Romania, ICSID Case No. ARB/06/1, Award (7 December 2011), paras. 328, 354. Kriebaum, Eigentumsschutz im Völkerrecht: Eine vergleichende Untersuchung zum internationalen Investitionsrecht sowie zum Menschenrechtsschutz (2008), 297–325. 50 See e.g. Spyridon Roussalis v. Romania, ICSID Case No. ARB/06/1, Award (7 December 2011), paras. 354–359; White Industries Australia v. India, UNCITRAL, Final Award (30 November 2011), para. 12.3.6; El Paso Energy International Company v. Argentina, ICSID Case No. ARB/03/15, Award (31 October 2011), paras. 245–256, 299; UNCITRAL, Award on Jurisdiction and Liability (28 April 2011), paras. 331–336; Total S.A. v. Argentina, ICSID Case No. ARB/04/01, Decision on Liability (27 December 2010), paras. 195–199; AES Summit Generation Limited and AES-Tisza Erömü Kft v. Hungary, ICSID Case No. ARB/07/22, Award (23 September 2010), paras. 14.3.1–14.3.4; Chemtura Corporation v. Canada, UNCITRAL (NAFTA), Award (2 August 2010), paras. 244–247, 259, 264–265, 267; Suez, Sociedad General de Aguas de Barcelona, S.A. and InterAgua Servicios Integrales del Agua, S.A. v. Argentina, ICSID Case No. ARB/03/19, Decision on Liability (30 July 2010), paras. 123–129, 134, 140, 145; Merrill & Ring Forestry L.P. v. Canada, ICSID Case No. UNCT/07/1, Award (31 March 2010), paras. 145, 152; Toto Costruzioni Generali S.p.A. v. Lebanon, ICSID Case No. ARB/07/12, Decision on Jurisdiction (11 September 2009), paras. 183–186; Glamis Gold, Ltd. v. USA, UNCITRAL (NAFTA), Award (8 June 2009), para. 536; National Grid PLC v. Argentina, UNCITRAL, Award (3 November 2008), para. 154; Metalpar S.A. and Buen Aire S.A. v. Argentina, ICSID Case No. ARB/03/5, Award on the Merits (6 June 2008), paras. 173–174; Corn Products International, Inc v. Mexico, ICSID Case No. ARB (AF)/04/1 (NAFTA), Decision on Responsibility (15 January 2008), paras. 82, 87, 91–94; BG Group Plc v. Argentina, UNCITRAL, Award (24 December 2007), paras. 268–272; Archer Daniels Midland Company and Tate
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cc) The Duration – Para. 2(b) of Annex 8-A Arbitral tribunals have consistently looked at the duration of a deprivation to deter- 44 mine whether an expropriation has occurred. Neither the text of the CETA Annex 8-A nor other treaties or the case law of tribunals provide a fixed time frame. The Tribunal in Middle East Cement held that the deprivation of rights granted 45 under a license for four months that according to Egypt would have expired after these four months amounted to an expropriation.51 The Tribunal in Wena52 considered the exclusion from the management of a hotel for twelve months as sufficient, whereas the Tribunal in S.D. Myers53 considered an 18 months ban on export as not long enough. The Iran–US Claims Tribunal considered in Phelps Dodge International Corp. v. Iran 54 that a deprivation of the management of a company for five years with no perspective of change amounts to an expropriation. What is important is the effect over time and not the intended duration of a mea- 46 sure. Therefore, measures that were originally intended to be permanent but where reversed after a short period of time will not amount to an expropriation. Conversely, even temporary measures that have an equivalent effect to a permanent loss will be considered expropriatory.55
& Lyle Ingredients Americas, Inc. v. Mexico, ICSID Case No. ARB (AF)/04/5 (NAFTA), Award (21 November 2007), paras. 240, 244–252; Sempra Energy International v. Argentina, ICSID Case No. ARB/02/16, Award (28 September 2007), 285–286; Tokios Tokelės v. Ukraine, ICSID Case No. ARB/02/18, Award (26 July 2007), paras. 120–122; Enron Corporation and Ponderosa Assets, L.P. v. Argentina, ICSID Case No. ARB/01/3, Award (22 May 2007), paras. 245–246; Eastern Sugar B.V. (Netherlands) v. Czech Republic, SCC Case No. 088/2004, Partial Award (27 March 2007), para. 210; PSEG Global, Inc., et al. v. Turkey, ICSID Case No. ARB/02/5, Award (19 January 2007), paras. 278–280; LG&E Energy Corp., et al. v. Argentina, ICSID Case No. ARB/02/1, Decision on Liability (3 October 2006), paras. 189–191, 198-200; Telenor Mobile Communications A.S. v. Hungary, ICSID Case No. ARB/04/15, Award (13 September 2006), paras. 79 f.; Azurix Corp. v. Argentina, ICSID Case No. ARB/01/12, Award (14 July 2006), para. 322; Iurii Bogdanov, et al. v. Moldova, SCC, Arbitral Award (22 September 2005), para. 4.2.5; CMS Gas Transmission Company v. Argentina, ICSID Case No. ARB/01/8, Award (12 May 2005), paras. 262–263; Occidental Exploration and Production Company v. Ecuador, LCIA Case No. UN3467, Final Award (1 July 2004), para. 89; Nykomb Synergetics Technology Holding AB v. Latvia, SCC, Arbitral Award (16 December 2003), para. 4.3.1; Pope & Talbot Inc. v. Canada, UNCITRAL (NAFTA), Interim Award (26 June 2000), paras. 96, 102; S.D. Myers, Inc. v. Canada, UNCITRAL (NAFTA), First Partial Award (13 November 2000), paras. 283–288. 51 Middle East Cement Shipping and Handling Co. S.A. v. Egypt, ICSID Case No. ARB/99/6, Award (12 April 2002), paras. 103, 107. 52 Wena Hotels Limited v. Egypt, ICSID Case No. ARB/98/4, Award (8 December 2000), 6 ICSID Rep. 89, para. 99 (fn. omitted): ‘Putting aside various other improper actions, allowing an entity (over which Egypt could exert effective control) to seize and illegally possess the hotels for nearly a year is more that an ephemeral interference “in the use of that property or with the enjoyment of its benefits”’. 53 S.D. Myers, Inc. v. Canada, UNCITRAL (NAFTA), First Partial Award (13 November 2000), para. 284 (fn. omitted): ‘In this case the closure of the border was temporary. SDMI’s venture into the Canadian market was postponed for approximately eighteen months. Mr. Dana Myers testified that this delay had the effect of eliminating SDMI’s competitive advantage. This may have significance in assessing the compensation to be awarded in relation to CANADA’s violations of Article 1102 and 1105, but it does not support the proposition on the facts of this case that the measure should be characterized as an expropriation within the terms of Article 1110’. 54 Phelps Dodge International Corp., et al. v. Iran, Iran-US Claims Tribunal No. 217-99-2, Award (19 March 1986), 10 IUSCTR, 121. 55 See e.g. Consortium RFCC v. Morocco, ICSID Case No. ARB/00/6, Award (22 December 2003), para. 68; Achmea B.V. (formerly known as “Eureko B.V.”) v. Slovakia, PCA Case No. 2008-13, Final Award (7 December 2012), paras. 289, 292; Marion Unglaube and Reinhard Unglaube v. Costa Rica, ICSID Case No. ARB/08/1 and ARB/09/20, Award (16 May 2012), paras. 226, 227, 234; Olin Holdings Limited v. Libya, ICC Case No. 20355/MCP, Final Award (25 May 2018), para. 165.
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However, as stated by the tribunal in Azurix:56 ‘Unfortunately, there is no mathematical formula to reach a mechanical result. How much time is needed must be judged by the specific circumstances of each case.’57 48 Concerning an interference lasting for several years, it can be assumed that the time requirement of a not merely ephemeral interference is fulfilled. 47
dd) The Reasonable Investment Backed Expectations – Para. 2(c) of Annex 8-A Like the US and the Canadian Model BITs of 2004, Annex 8-A of the CETA states that tribunals shall take reasonable investment backed expectations into consideration when deciding on the occurrence of an expropriation. 50 Already before the explicit mention of legitimate expectations in the context of an indirect expropriation, tribunals increasingly used the concept in this context. 58 51 However, legitimate expectations are not in themselves the protected rights. Therefore, a substantial deprivation of an underlying acquired right is a prerequisite for the application of the concept.59 The investor must have a legitimate expectation to be able to exercise a right acquired under host State law, which at the same time according to investment law qualifies as an investment. 52 A number of tribunals have included ‘legitimate expectations’ into the formula describing the required severity of an interfering measure for the occurrence of an expropriation.60 The Award in LG&E61 can serve as an example: 49
In evaluating the degree of the measure’s interference with the investor’s right of ownership, one must analyze the measure’s economic impact – its interference with the investor’s reasonable expectations – and the measure’s duration.62
Azurix Corp. v. Argentina, ICSID Case No. ARB/01/12, Award (14 July 2006), para. 322. Azurix Corp. v. Argentina, ICSID Case No. ARB/01/12, Award (14 July 2006), para. 313. 58 See Dolzer, ‘Indirect Expropriation of Alien Property’ (1986) 1 ICSID Rev., 41 (62); Dolzer, ‘Indirect Expropriations: New Developments?’ (2002) 11 NYU Env. L. J., 64 (78 f.); Orrego Vicuña, ‘Regulatory Authority and Legitimate Expectations: Balancing the Rights of the State and the Individual under International Law in a Global Society’ (2003) 5 Int’l L. Forum, 188–197; Fortier and Drymer, ‘Indirect Expropriation in the Law of International Investment: I Know It When I See It, or Caveat Investor’ (2004) 19 ICSID Rev., 293 (306 f.); Barbuk, ‘The NAFTA Chapter 11 Arbitration and Protection of Legitimate Expectations’ (2004) 3 TDM, 1; Dolzer, ‘Grenzen nationaler Steuerhoheit im völkerrechtlichen Investitionsschutz’ in Grupp and Hufeld (eds), Recht – Kultur – Finanzen, Festschrift für Reinhard Mußgnug zum 70. Geburtstag am 26. Oktober 2005 (2005), 189; Fietta, ‘International Thunderbird Gaming Corporation v. The United Mexican States: an indication of the limits of the “legitimate expectation” basis of claim under Article 1105 of NAFTA?’ (2006) 2 TDM; Costamagna, ‘Investor’ Rights and State Regulatory Autonomy: the Role of the Legitimate Expectation Principle in the CMS v. Argentina case’ (2006) 2 TDM; Snodgrass, ‘Protecting Investor’s Legitimate Expectations: Recognizing and Delimiting a General Principle’ (2006) 21 ICSID Rev., 1; Siwy, ‘Indirect Expropriation and the Legitimate Expectations of the Investor’ in Klausegger, et al. (eds), Austrian Arbitration Yearbook (2007), 355. For legitimate expectations in the context of the FET standard (→ Art. 8.10 mn. 29 ff.). 59 Newcombe and Paradell, Law and Practice of Investment Treaties (2009), 92–98, 350; Douglas, ‘The Hybrid Foundations of Investment Treaty Arbitration’ (2003) 74 BYIL, 151 (197); Douglas, The International Law of Investment Claims, 56. 60 See e.g. Antoine Goetz, et al. v. Burundi, ICSID Case No. ARB/95/3, Award (10 February 1999), (2004) 6 ICSID Rep., 5, para. 124; Metalclad Corporation v. Mexico, ICSID Case No. ARB(AF)/97/1 (NAFTA), Award (30 August 2000), para. 103; Occidental Exploration and Production Company v. Ecuador, LCIA Case No. UN3467, Final Award (1 July 2004), paras. 87–89; CME Czech Republic B.V. v. Czech Republic, UNCITRAL, Partial Award (13 September 2001), para. 606; Consortium RFCC v. Morocco, ICSID Case No. ARB/00/6, Award (22 December 2003), para. 69. 61 LG&E Energy Corp., et al. v. Argentina, ICSID Case No. ARB/02/1, Award (25 July 2005). 62 LG&E Energy Corp., et al. v. Argentina, ICSID Case No. ARB/02/1, Award (25 July 2005), para. 190. 56
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In a number of cases, tribunals have referred to the concept when establishing the 53 existence of an expropriation63 or denying it because of the lack of an interference with legitimate expectations.64 Particularly, in situations where specific commitments had been made by the gov- 54 ernment and then not honoured, tribunals have relied on this principle. The Tribunal in Revere Copper65 said in this regard: We regard these principles as particularly applicable where the question is, as here, whether actions taken by a government contrary to and damaging to the economic interests of aliens are in conflict with undertakings and assurances given in good faith to such aliens as an inducement to their making the investments affected by the action.66
Both, tribunals applying the sole effects doctrine and tribunals favouring the police 55 powers doctrine have relied on the concept of ‘legitimate expectations’ to assess whether an indirect expropriation had occurred. In Metalclad,67 a Tribunal that followed the sole effects doctrine, used the interference with legitimate expectations when it found in favour of an indirect expropriation: These measures, taken together with the representations of the Mexican federal government, on which Metalclad relied, and the absence of a timely, orderly or substantive basis for the denial by the Municipality of the local construction permit, amount to an indirect expropriation. 68
The Tribunal in Methanex,69 which applied the police powers approach also relied 56 on this concept. It said that for deciding whether an indirect expropriation has occurred in case of regulatory changes, it is important to consider whether a breach of legitimate expectations based on specific government assurances has occurred: (...) as a matter of general international law, a non-discriminatory regulation for a public purpose, which is enacted in accordance with due process and, which affects, inter alios, a foreign investor or investment is not deemed expropriatory and compensable unless specific commitments had been given by the regulating government to the then putative foreign investor contemplating investment that the government would refrain from such regulation. 70
Tribunals applying a balancing approach to establish the existence of an expropria- 57 tion also used the concept of ‘legitimate expectations’. They balanced the legitimate
63 See e.g. Biloune and Marine Drive Complex Ltd. v. Ghana Investments Centre and the Government of Ghana, UNCITRAL, Award on Jurisdiction and Liability (27 October 1989), 95 ILR ,183 (208 f.); Southern Pacific Properties (Middle East) Limited v. Egypt, ICSID Case No. ARB/84/3, Award (20 May 1992) 3 ICSID Rep. 189, para. 108; CME Czech Republic B.V. v. Czech Republic, UNCITRAL, Partial Award (13 September 2001), paras. 529 f.; Eureko B.V. v. Poland, Ad Hoc Arbitration, Partial Award (19 August 2005), paras. 242 f. 64 See e.g. Marvin Roy Feldman Karpa v. Mexico, ICSID Case No. ARB(AF)/99/1, Award (16 December 2002), 7 ICSID Rep., 341, paras. 146 ff.; Generation Ukraine Inc. v. Ukraine, ICSID Case No. ARB/00/9, Award (16 September 2003), para. 20.37; Occidental Exploration and Production Company v. Ecuador, LCIA Case No. UN3467, Final Award (1 July 2004), para. 89. 65 In the Matter of Revere Copper & Brass Inc. v. Overseas Private Investment Corporation, Award (24 August 1978), 56 ILR, 258, 290. 66 Revere Copper & Brass Inc. v. Overseas Private Investment Corporation, Award (24 August 1978), 56 ILR, 258, 271. 67 Metalclad Corporation v. Mexico, ICSID Case No. ARB(AF)/97/1 (NAFTA), Award (30 August 2000), para. 103. 68 Metalclad Corporation v. Mexico, ICSID Case No. ARB(AF)/97/1 (NAFTA), Award (30 August 2000), para. 107. 69 Methanex Corporation v. USA, UNCITRAL (NAFTA), Award (3 August 2005), 44 ILM, 1343, part IV, ch. C, para. 7. 70 Methanex Corporation v. USA, UNCITRAL (NAFTA), Award (3 August 2005), 44 ILM, 1343, part IV, ch. C, para. 7.
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expectations of the investor against the interest of the State to interfere with property rights to achieve a public purpose.71 58 The CETA text, like the Model BITs that contain a reference to ‘legitimate expectations’ in their clauses on expropriation, neither define the concept nor describe the potential sources of such expectations.72 The sources can be diverse: from an expectation based on the prevailing regulatory system at the time of the investment to specific government assurances to a particular investor. All the text requires is that they are distinct. 59 However, not every expectation is legitimate and ‘Bilateral Investment Treaties are not insurance policies against bad business judgments’.73 60 The Tribunal in Thunderbird74 proposed the following definition of ‘legitimate expectations’ in the context of the fair and equitable treatment standard: Having considered recent investment case law and the good faith principle of international customary law, the concept of “legitimate expectations” relates, within the context of the NAFTA framework, to a situation where a Contracting Party’s conduct creates reasonable and justifiable expectations on the part of an investor (or investment) to act in reliance on said conduct, such that a failure by the NAFTA Party to honour those expectations could cause the investor (or investment) to suffer damages.75
This means that an expectation is only legitimate if it has been created by the State in an attributable way.76 62 In the context of indirect expropriations, a number of tribunals either found that the expectations that were frustrated had emanated from a specific undertaking by the State or denied the existence of such expectations for lack of such an undertaking. 77 61
71 See e.g. Técnicas Medioambientales Tecmed, S.A. v. Mexico, ICSID Case No. ARB(AF)/00/2, Award (29 May 2003), paras. 122, 149, 150. 72 US Model BIT 2004, Annex B, Expropriation 4: ‘(a) The determination of whether an action or series of actions by a Party, in a specific fact situation, constitutes an indirect expropriation, requires a case by case, fact-based inquiry that considers, among other factors: (…) (ii) the extent to which the government action interferes with distinct, reasonable investment-backed expectations’, available at http://www.state.gov/documents/organization/38710.pdf. Canada Model BIT (FIPA), Annex B.13(1) Expropriation: ‘The Parties confirm their shared understanding that b) The determination of whether a measure or series of measures of a Party constitute an indirect expropriation requires a case-by-case, fact-based inquiry that considers, among other factors: (…) ii) the extent to which the measure or series of measures interfere with distinct, reasonable investmentbacked expectations; and (…)’, available at http://www.dfait-maeci.gc.ca/tna-nac/documents/2004-FIPA -model-en.pdf. 73 Emilio Agustín Maffezini v. Spain, ICSID Case No. ARB/97/7, Award (13 November 2000) 5 ICSID Rep. 419, para. 64: ‘Bilateral Investment Treaties are not insurance policies against bad business judgments.’; Wälde and Kolo, ‘Environmental Regulation, Investment Protection and “Regulatory Taking” in International Law’ (2001) 50 ICLQ, 811 (839). 74 International Thunderbird Gaming Corporation v. Mexico, UNCITRAL (NAFTA), Award (26 January 2006). 75 International Thunderbird Gaming Corporation v. Mexico, UNCITRAL (NAFTA), Award (26 January 2006), para. 147 (fn. omitted). 76 See International Thunderbird Gaming Corporation v. Mexico, UNCITRAL (NAFTA), Separate Opinion, Thomas Wälde (26 January 2006), para. 21. 77 See e.g. In the Matter of Revere Copper & Brass Inc. v. Overseas Private Investment Corporation, Award (24 August 1978), 56 ILR, 258, 290; Técnicas Medioambientales Tecmed, S.A. v. Mexico, ICSID Case No. ARB(AF)/00/2, Award (29 May 2003), paras. 149 f.; Metalclad Coproation v. Mexico, ICSID Case No. ARB(AF)/97/1 (NAFTA), Award (30 August 2000), para. 107; Methanex Corporation v. USA, UNCITRAL (NAFTA), Award (3 August 2005), 44 ILM, 1343, part IV, ch. D, p. 4, para. 7; International Thunderbird Gaming Corporation v. Mexico, UNCITRAL (NAFTA), Award (26 January 2006), paras. 147, 208; EnCana Corporation v. Ecuador, UNCITRAL, LCIA Case No. UN 3481, Award (3 February
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They did not necessarily ask for a contract between the State and the investor but for explicit or implicit assurances or representations made by the State. The Tribunal in Azurix stated in this regard: The expectations as shown in that case [TecMed] are not necessarily based on a contract but on assurances explicit or implicit, or on representations, made by the State which the investor took into account in making the investment.78
The Tribunal in Grand River also required a specific assurance for the existence 63 of a legitimate expectation. Furthermore, it clarified that in the event of an unsettled situation in domestic law and a lack of specific assurances made to an investor, the investor would not have had a legitimate expectation: 140. The Tribunal understands the concept of reasonable or legitimate expectations in the NAFTA context to correspond with those expectations upon which an investor is entitled to rely as a result of representations or conduct by a state party. As the tribunal in Thunderbird Gaming explained, the ‘concept of “legitimate expectations” relates (...) to a situation where a Contracting Party’s conduct creates reasonable and justifiable expectations on the part of an investor (or investment) to act in reliance on said conduct, such that a failure by the NAFTA Party to honour those expectations could cause the investor (or investment) to suffer damages.’ The question of reasonable expectations, therefore, is not equivalent to whether or not an investor is ultimately right on a contested legal proposition that would favor the investor. 141. (…) Ordinarily, reasonable or legitimate expectations of the kind protected by NAFTA are those that arise through targeted representations or assurances made explicitly or implicitly by a state party.79
Therefore, a regulatory interference with an investment that is of the necessary 64 severity and frustrates a government assurance amounts to an expropriation. On the other hand, a breach of explicit assurances is, of course, not always a requirement for the existence of an expropriation. To be ‘legitimate’ expectations must be objective. The Tribunal in ECE v. Czech 65 Republic applied in this context a standard of reasonableness.80 Therefore, the specificity of the assurance (stabilization clause, contract, specific 66 government program) as well as the regulatory environment (highly regulated field or not) will be relevant factors in the assessment of the legitimacy of an expectation. ee) The Character of a Measure – Para. 2(d) of Annex 8-A The Canadian Model BITs of 2004 and 2014 and the US Model BITs of 2004 and 67 2012 only refer to the character of a measure.81 2006), 12 ICSID Rep. 427, para. 173; El Paso Energy International Company v. Argentina, ICSID Case No. ARB/03/15, Award (31 October 2011), paras. 294, 295; Merrill & Ring Forestry L.P. v. Canada, ICSID Case No. UNCT/07/1, Award (31 March 2010), para. 150; Total S.A. v. Argentina, ICSID Case No. ARB/04/01, Decision on Liability (27 December 2010), para. 197; Grand River Enterprises Six Nations, Ltd., et al. v. USA, UNCITRAL (NAFTA), Award (12 January 2011), para. 140; Sergei Paushok, et al. v. Mongolia, UNCITRAL, Award on Jurisdiction and Liability (28 April 2011), para. 302. See also Reisman and Arsanjani, ‘The Question of Unilateral Governmental Statements as Applicable Law in Investment Disputes’ (2004) 19 ICSID Rev., 328. 78 Azurix Corp. v. Argentina, ICSID Case No. ARB/01/12, Award (14 July 2006), para. 318. 79 Grand River Enterprises Six Nations, Ltd., et al. v. USA, UNCITRAL (NAFTA), Award (12 January 2011), para. 140. 80 ECE v. Czech Republic, UNCITRAL, PCA Case No. 2010-5, Award (19 September 2013), para. 4.813. 81 Annex B.10(1)b(iii) Canada’s Model Foreign Investment Protection Agreement 2014 (https://www. italaw.com/sites/default/files/files/italaw8236.pdf); Annex B 2012 US Model BIT, para. 4(a)iii (https://2 009-2017.state.gov/documents/organization/188371.pdf).
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Article 2(d) of the Annex on expropriation in the CETA further specifies ‘character’ by referring to the object, the context, and the intent of the measure. The mention of ‘intent’ is highly problematic. It may be attributed to the EU: First, it adds to the Canadian and US model BITs, and it also appears in another text negotiated by the EU with a third state.82 Second, the three elements, ‘object’, ‘context’, and ‘intent’, are not contained in the Canada-China BIT of 2012, which also relies on the US formula of economic impact, expectations, and character to determine the existence of an expropriation. The reference to ‘intent’ in this context is problematic, because it is unclear what is meant. On the one hand the use of the term ‘intent’ can mean that tribunals shall consider the aim and purpose of the measure.83 On the other hand, it could imply a requirement to show an intent to expropriate on the part of the State. Such an interpretation would be highly problematic. It is inherent in the concept of an indirect expropriation that any intention to expropriate is not made explicit. To insist on a manifestation of the intention to expropriate on the part of the host State would impose a virtually impossible burden of proof on the investor, who would have to demonstrate the motivations behind government action. International judicial practice is almost unanimous in holding that an intention of the host State to expropriate is not essential.84 The first possible interpretation, namely that tribunals shall also consider the object and purpose as well as the context of the measure follows the approach of those tribunals that balance the effect of the measures on the investment with the purpose pursued by the measures (→ mn. 36-37). Interpreted in this manner, the text provides for a middle approach that follows neither the ‘sole effects’ nor the ‘police powers’ doctrine. As already discussed above, already in the past an ever-increasing number of tribunals has adopted this approach (→ mn. 36-37). In cases where the character of the measure is clearly regulatory and not a physical interference, the regulation exception in paragraph 3 of Annex 8-A CETA discussed below becomes relevant. c) The Regulation Exception
The CETA text contains a regulation exception like the one in Annex B to the Canadian Model BIT of 2004.85 Measures adopted in the public interest will only exceptionally be considered indirect expropriations. 74 The inclusion of the exception in the Annex to the US and Canadian 2004 Model BITs was most probably a reaction to the Award in Metalclad,86 which followed the 73
Text unpublished. Both are synonyms for ‘intent’ (21st Century Thesaurus, 2nd ed, 1999). See also: De Nanteuil, ‘Expropriation’ in Mbengue and Schacherer (eds), Foreign Investment under the Comprehensive Economic and Trade Agreement (CETA) (2019), 127 (138). 84 See e.g. Christie, ‘What Constitutes a Taking of Property under International Law?’ (1962) 38 BYIL, 305 (310); Dolzer, ‘Indirect Expropriations: New Developments?’, (2002) 11 NYU Env. L. J., 64 (90); Reisman and Sloane, ‘Indirect Expropriation and Its Valuation in the BIT Generation’ (2003) 74 BYIL, 115 (131); Kriebaum, Eigentumsschutz im Völkerrecht: Eine vergleichende Untersuchung zum internationalen Investitionsrecht sowie zum Menschenrechtsschutz (2008), 342–347; Kriebaum, ‘Expropriation’ in Bungenberg, et al. (eds), International Investment Law (2015), 959 (995). 85 Annex B.13(1) of Canada’s Model Foreign Investment Protection and Promotion Agreement 2004, see fn 32. 86 ICSID Case No. ARB(AF)/97/1 (NAFTA), Award (30 August 2000), para. 107. 82
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sole effects doctrine. In turn, the decision in Methanex87 of 2005, the first to follow the police powers approach, was most probably a reaction to the new formula in the 2004 US Model BIT. 75 The CETA Annex 8-A on expropriation reads in this regard: For greater certainty, except in the rare circumstance where the impact of the measure or series of measures is so severe in light of its purpose that it appears manifestly excessive, non-discriminatory measures by a Party that are designed and applied to protect legitimate public welfare objectives, such as health, safety and the environment, do not constitute indirect expropriations. 88
Therefore, the provision takes the compliance with two of the conditions for a legal expropriation (public interest, nondiscrimination) as evidence of the absence of an expropriation and, hence, as obviating the fourth traditional requirement: compensation. As a consequence, essentially only illegal regulatory takings will be considered expropriations. Furthermore, whereas the regulation exception in Annex B(4)b of the US Model BITs of 2004 and 2012 refers to ‘regulatory actions’, the Canadian Model BITs of 2004 and 2014 refer in their Annex B.13(1)(c)/Annex B.10(1)(c) to ‘a measure or series of measures’ that is applied to protect public welfare objectives. The CETA text follows the Canadian approach and also refers to ‘measure or series of measures’ without specifying that these cover only regulations. It thus allows for a wider exception than the US Model BITs’ text. The regulation exception of CETA limits the margin of appreciation of its permanent investment tribunal when balancing the legitimate expectations of investors with the public interest in the interfering measure. The ‘except in rare circumstances’ formula indicates that the drafters wanted to narrow the application of the concept of indirect expropriation. The second element of the clause requires an assessment of whether measures are ‘so severe in light of [their] ... purpose that [they appear] ... manifestly excessive’. This will involve a proportionality test. Although the CETA clause only implicitly requires a proportionality test, a certain balancing remains possible and necessary. Another draft text used by the EU in the TTIP negotiations 89 contains an interesting variation of the formula used in the CETA text. It reads:
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For greater certainty, non-discriminatory measures of general application taken by a Party that are designed to protect legitimate public policy objectives do not constitute indirect expropriation, if they are necessary and proportionate in light of the above mentioned factors and are applied in such a way that they genuinely meet the public policy objectives for which they are designed.
The ‘necessary’ and ‘proportionate’ criteria in this text are similar to the criteria 81 used by the European Court of Human Rights to establish whether an interference with one of the Convention rights constitutes a violation of that right. 90 This refers 87 Methanex Corporation v. USA, UNCITRAL (NAFTA), Award (3 August 2005) 44 ILM, 1343, part IV, ch. D, para. 7. 88 CETA ch. 8, annex 8-A(3). 89 European Commission, TTIP: EU Draft Proposal on Trade in Services Investment and E-Commerce, 2 July 2013, TDM, . 90 Already in its judgment James v. United Kingdom, the European Court of Human Rights had pointed out that ‘there must be a reasonable relationship of proportionality between the means employed and the aim sought to be realised’ (James v. United Kingdom, Application No. 8793/79, ECtHR (21 February 1986), para. 50). For a recent affirmation, see Vistiņš und Perepjolkins v. Lithuania [GC], Application No. 71243/01, ECtHR (25 October 2012), para. 108: ‘In particular, there must be a reasonable relationship of proportionality between the means employed and the aim sought to be realised by any measure
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to the proportionality test common in the case law of the European Court of Human Rights to establish whether one of the norms of the Convention had been breached and adds an interesting European touch to the regulation exception. This formula openly speaks of a proportionality requirement and mentions two objective criteria, ‘necessary’ and ‘proportionate’, which are well known from human rights law, for the assessment of the exception. 82 Starting with the above-mentioned Tecmed Award,91 an increasing number of tribunals used a balancing approach and some explicitly a proportionality test to assess whether a regulatory expropriation had occurred. This happened also in cases where the applicable treaty did not contain an explicit regulation exception. 92 Marfin v. Cyprus can serve as an example for such an approach. The Cyprus-Greece BIT contains a classic expropriation provision without an explicit regulation exception. The Tribunal first assessed whether the measure deprived the investor of the economic enjoyment of their rights.93 In a next step, it announced a number of criteria among them proportionality to assess whether an expropriation had occurred: The Tribunal considers that the economic harm consequent to the non-discriminatory application of generally applicable regulations adopted in order to protect the public welfare do not constitute a compensable taking, provided that the measure was taken in good faith, complied with due process and was proportionate to the aim sought to be achieved.94
83
It stated that Article 4, the expropriation provision of the treaty, must be interpreted in accordance with Article 31(3)(c) of the Vienna Convention on the Law of Treaties.95 It considered customary international law to be relevant in the context of this article and held that a normal exercise of regulatory power will not lead to a compensable taking.96 For that purpose, the measures must be ‘taken bona fide for the purpose of protecting the public welfare, must be non-discriminatory and proportionate’.97
depriving a person of his possessions’. In Gillow v. United Kingdom the European Commission on Human Rights pointed out that there is a close parallel between the proportionality test used in Article 8 of the European Convention on Human Rights and the one applied with regard to expropriations under Article 1 of the Optional Protocol (Gillow v. United Kingdom, Application No. 9063/80, Series A No. 109, annex 44, para. 154). In Article 8, ‘necessary in a democratic society’ is explicitly mentioned in the text of the norm: ‘Whereas the Commission has recognised a close parallel between the test of necessity in respect of deprivations of property and interferences with the right to respect for one’s home under Article 8’. 91 Técnicas Medioambientales Tecmed, S.A. v. Mexico, ICSID Case No. ARB(AF)/00/2, Award (29 May 2003), paras. 114-151 (→ mn. 37). 92 LG&E Energy Corp., et al. v. Argentina, ICSID Case No. ARB/02/1, Decision on Liability (3 October 2006), paras. 189, 194–195; Invesmart v. Czech Republic, UNCITRAL, Award (26 June 2009), paras. 497, 498, 501, 504, 520; El Paso Energy International Company v. Argentina, ICSID Case No. ARB/03/15, Award (31 October 2011), paras. 233, 237–243, 297–299; Philip Morris Brands Sàrl, et al. v. Uruguay, ICSID Case No. ARB/10/7, Award (8 July 2016), para. 306; PL Holdings S.à.r.l. v. Poland, SCC Case No. V 2014/163, Partial Award (28 June 2017), paras. 354, 355, 374, 377, 379, 384, 387, 391; WNC Factoring Limited v. Czech Republic, UNCITRAL, PCA Case No. 2014-34, Award (22 February 2017), paras. 394-396; Marfin Investment Group v. Cyprus, ICSID Case No. ARB/13/27, Award (26 July 2018), paras. 826-829, 868-870, 878, 901. 93 Marfin Investment Group v. Cyprus, ICSID Case No. ARB/13/27, Award (26 July 2018), para. 823. 94 Marfin Investment Group v. Cyprus, ICSID Case No. ARB/13/27, Award (26 July 2018), para. 826. 95 Marfin Investment Group v. Cyprus, ICSID Case No. ARB/13/27, Award (26 July 2018), para. 827. 96 Marfin Investment Group v. Cyprus, ICSID Case No. ARB/13/27, Award (26 July 2018), para. 828. For such an approach see also e.g. Philip Morris Brands Sàrl, et al. v. Uruguay, ICSID Case No. ARB/10/7, Award (8 July 2016), para. 290. 97 Marfin Investment Group v. Cyprus, ICSID Case No. ARB/13/27, Award (26 July 2018), para. 829.
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The Tribunal in PL Holdings v. Poland further refined the test. It found that the 84 measure, a forced sale of shares, amounted to an indirect expropriation. 98 For that purpose, it assessed whether the measures ordered by the authorities were proportionate to the public purpose they sought to achieve.99 The Tribunal found that the ‘principle [of proportionality] is understood in largely similar terms across jurisdictions’.100 It indicated a number of criteria that had to be fulfilled to satisfy the principle: [A] measure must (a) be one that is suitable by nature for achieving a legitimate public purpose, (b) be necessary for achieving that purpose in that no less burdensome measure would suffice, and (c) not be excessive in that its advantages are outweighed by its disadvantages. 101
Canada, that had made submissions in Bear Creek v. Peru 102 and in Eco Oro Minerals 85 v. Colombia103 as non-disputing-Party, pointed to the regulation exceptions in the respective FTAs but did in neither of the two submissions elaborate on what is to be understood by ‘rare circumstances’.104 d) Case Law Applying Treaties with an Indirect Expropriation Test and a Regulation Exception Case law that explicitly deals with the indirect expropriation test and the regulation 86 exception is so far rare. The CAFTA, applicable in the RDC v. Guatemala case, contains in Annex 10-C(4) such a clause and a regulation exception. But the Tribunal dismissed the allegations of an indirect expropriation because of a lack of severity of the interference.105 Likewise, the Tribunal in Al Tamimi v. Oman106 did not have to deal with the indirect expropriation test and the ‘except in rare circumstances’ formula contained in Annex 10-B.4 of the US-Oman FTA of 2006. The Tribunal found that the lease on which the investment had been based had been terminated by a commercial decision and was not a sovereign act imputable to Oman.107 All the other 98 PL Holdings S.à.r.l. v. Poland, SCC Case No. V 2014/163, Partial Award (28 June 2017), paras. 320-323. 99 PL Holdings S.à.r.l. v. Poland, SCC Case No. V 2014/163, Partial Award (28 June 2017), para. 354. 100 PL Holdings S.à.r.l. v. Poland, SCC Case No. V 2014/163, Partial Award (28 June 2017), para. 355. 101 PL Holdings S.à.r.l. v. Poland, SCC Case No. V 2014/163, Partial Award (28 June 2017), para. 355 (emphases added). 102 Submission of Canada Pursuant to Article 832 of the Canada-Peru Free Trade Agreement (9 June 2016) (Bear Creek Mining Corporation v. Peru, ICSID Case No. ARB/14/21, Award (30 November 2017), para. 338): ‘A non-discriminatory measure that is designed to protect legitimate public welfare objectives does not constitute indirect expropriation except in rare circumstances where its impacts are so severe in the light of its purpose that it cannot be reasonably viewed as having been adopted and applied in good faith.’ 103 Eco Oro Minerals Corp. v. Republic of Colombia, ICSID Case No. ARB/16/41, Submission of Canada Pursuant to Article 827(2) of the Canada-Colombia Free Trade Agreement (27 February 2020), para. 11: ‘… The use of the phrase “except in rare circumstances” and the reference to measures that “cannot reasonably be viewed as having been adopted and applied in good faith” are consistent with the high degree of deference that States’ regulatory choices should be accorded. Therefore, bona fide non discriminatory regulatory measures to protect the environment even if they are based on precaution (i.e. in dubio pro ambiente) will ordinarily not require compensation even if they affect the value and/or viability of an investment of an investor of another Party.’ 104 See fn. 103, 103. 105 Railroad Development Corporation (RDC) v. Guatemala, ICSID Case No. ARB/07/23, Award (29 June 2012), para. 152. 106 Adel A Hamadi Al Tamimi v. Oman, ICSID Case No. ARB/11/33, Award (3 November 2015). 107 Adel A Hamadi Al Tamimi v. Oman, ICSID Case No. ARB/11/33, Award (3 November 2015), para. 352.
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acts emanating from the State that the Claimant invoked could not have an effect on Claimant’s investment, which had ceased to exist with the termination of the lease. 108 In Bear Creek v. Peru,109 the Tribunal had to apply the Canada-Peru FTA of 2008. This treaty has an expropriation clause that refers for interpretation purposes to Annex 812.1. dealing with indirect expropriation. This Annex is similar, though not identical, to the one of the CETA. The case concerned a mining project. In an attempt to deal with social unrest of the local population in the area of the mining project, the government issued a decree (Decree 032), which prohibited the mining. This had the effect of revoking the mining rights granted to the investor in an earlier decree (Decree 083) and preventing it from continuing its future operations of the mine. Concerning the economic impact of the expropriatory measure, the Tribunal found that ‘there was an obvious economic impact’ which had deprived the investor of all major rights it had obtained through Decree 083.110 It found that Decree 032 had interfered with the investor’s reasonable expectations to develop its project based on the express governmental authorization it had acquired through Decree 083.111 According to the Tribunal, Bear Creek would not have invested the amounts it invested without such express governmental authorization. Concerning the ‘character of the measure’, the Tribunal engaged in a fact-finding exercise.112 It focussed on the circumstances under which the Decree 032 was adopted. It highlighted four factual elements. First, the authorities met without inviting the investor to participate.113 Second, Respondent did not produce the evidence upon which Decree 032 was issued, namely that the investment would have been obtained illegally.114 Therefore, the reasonableness of the revocation was not proven. Third, the government knew and approved the participation of a straw man in the authorization procedure. Therefore, this could not have constituted a legal justification to revoke Decree 083.115 Fourth, it was not the investor’s conduct, which was repeatedly endorsed by governmental authorities, that caused the social unrest in the area.116 Given all these elements, the Tribunal held that Decree 032 constituted an indirect expropriation.117 It did not enter into a discussion of Annex 812.1(c) that contains the ‘except in rare circumstances’ clause. The Tribunal established that the measures had violated the due process and the compensation requirements and therefore were an
108 Adel A Hamadi Al Tamimi v. Oman, ICSID Case No. ARB/11/33, Award (3 November 2015), para. 376. 109 Bear Creek Mining Corporation v. Peru, ICSID Case No. ARB/14/21, Award (30 November 2017). 110 Bear Creek Mining Corporation v. Peru, ICSID Case No. ARB/14/21, Award (30 November 2017), para. 375. 111 Bear Creek Mining Corporation v. Peru, ICSID Case No. ARB/14/21, Award (30 November 2017), para. 376. 112 Bear Creek Mining Corporation v. Peru, ICSID Case No. ARB/14/21, Award (30 November 2017), paras. 377 ff. 113 Bear Creek Mining Corporation v. Peru, ICSID Case No. ARB/14/21, Award (30 November 2017), para. 383. 114 Bear Creek Mining Corporation v. Peru, ICSID Case No. ARB/14/21, Award (30 November 2017), para. 381. 115 Bear Creek Mining Corporation v. Peru, ICSID Case No. ARB/14/21, Award (30 November 2017), para. 395. 116 Bear Creek Mining Corporation v. Peru, ICSID Case No. ARB/14/21, Award (30 November 2017), para. 412. 117 Bear Creek Mining Corporation v. Peru, ICSID Case No. ARB/14/21, Award (30 November 2017), paras. 415 f.
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illegal expropriation.118 Thereafter, the Tribunal discussed a claim of ‘police powers’ raised by Peru. However, it did not discuss it under the ‘regulation exception’ contained in Annex 812.1(c) although both parties had presented arguments addressing the regulation exception. It treated Peru’s police powers argument as an exception to finding a breach of the expropriation provision to be analysed under Article 2201 119 which contains a ‘general exceptions’ clause similar to Article ‘Article 8.9 Investment and regulatory measures’ of the CETA. Article 2201 of the Canada-Peru FTA sets out an exhaustive list of three exceptions 93 to breaches of the investment chapter of the FTA. The Tribunal held that ‘the interpretation of the FTA must lead to the conclusion that no other exception from general international law or otherwise can be considered applicable in this case’.120 This led to an exclusion of the police powers doctrine. Applying the general exception clause to the facts, the Tribunal underlined that nothing in Decree 032 referred to any of the reasons allowing for exceptions provided for under FTA Article 2201. 121 It concluded that the two breaches of Article 812 of the FTA were, therefore, in breach of the FTA.122
III. Lawfulness of an Expropriation Article 8.12.1 contains the typical four conjunctive criteria for a lawful expropria- 94 tion:123 public purpose, due process of law, non-discriminatory manner, payment of prompt, adequate and effective compensation.
1. Public Purpose Investment protection treaties uniformly contain the requirement of a public pur- 95 pose for the legality of an expropriation. Such a requirement for the legality of expro-
118 Bear Creek Mining Corporation v. Peru, ICSID Case No. ARB/14/21, Award (30 November 2017), paras. 446 ff. 119 Article 2201: General Exceptions ‘For the purposes of Chapter Eight (Investment), subject to the requirement that such measures are not applied in a manner that constitute arbitrary or unjustifiable discrimination between investments or between investors, or a disguised restriction on international trade or investment, nothing in this Agreement shall be construed to prevent a Party from adopting or enforcing measures necessary: (a) to protect human, animal or plant life or health, which the Parties understand to include environmental measures necessary to protect human, animal or plant life or health; (b) to ensure compliance with laws and regulations that are not inconsistent with this Agreement; or (c) for the conservation of living or non-living exhaustible natural resources.’ 120 Bear Creek Mining Corporation v. Peru, ICSID Case No. ARB/14/21, Award (30 November 2017), para. 473. 121 Article 8.9 CETA: ‘1. For the purpose of this Chapter, the Parties reaffirm their right to regulate within their territories to achieve legitimate policy objectives, such as the protection of public health, safety, the environment or public morals, social or consumer protection or the promotion and protection of cultural diversity. 2. For greater certainty, the mere fact that a Party regulates, including through a modification to its laws, in a manner which negatively affects an investment or interferes with an investor’s expectations, including its expectations of profits, does not amount to a breach of an obligation under this Section.’ 122 Bear Creek Mining Corporation v. Peru, ICSID Case No. ARB/14/21, Award (30 November 2017), para. 478. 123 That the criteria are conjunctive rather than disjunction was for example explicitly expressed in: Bernardus Henricus Funnekotter, et al. v. Zimbabwe, ICSID Case No. ARB/05/6, Award (22 April 2009), para. 98; Adel A Hamadi Al Tamimi v. Oman, ICSID Case No. ARB/11/33, Award (3 November 2015), para. 347.
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priations also exists under customary international law.124 In the literature, there is agreement that an expropriation must be for a public purpose.125 96 Article 8.12.1 does not contain a definition of what is understood by public purpose and does not contain a declaratory or exhaustive list of goals that qualify as public purpose. 97 In practice, the public purpose requirement was rarely controversial. Apart from the Tribunal in LIAMCO,126 international courts as well as investment tribunals confirmed the requirement of a public purpose for the legality of an expropriation. 127 Tribunals grant States a large, though not unlimited, margin of discretion. 128 They have only rarely found that there was no valid public purpose present and an expropriation was therefore illegal. In academic writing, it is rightly pointed out that the requirement has a general preventive function against abusive expropriations.129 Tribunals have used it as such in extreme cases. 98 However, since Annex 8-A.3 relies in its ‘regulation exception’ on the protection of ‘legitimate public welfare objectives’ this legality requirement fulfills an additional purpose. It serves as one factor in the balancing equation whether the rare circumstances are present and an indirect expropriation has occurred although a state claims to have taken a measure in the public interest. This may require a less deferential approach on the part of tribunals concerning the public purpose invoked by the State interfering with an investment.
124 See Reinisch, ‘Legality of Expropriation’ in Reinisch (ed), Standards of Investment Protection (2008), 171 (173 ff.). 125 See e.g. Schwarzenberger, ‘The Abs-Shawcross Draft Convention on Investments Abroad: A Critical Commentary’ (1960) 9 J. Pub. L., 147; Higgins, Conflict of Interests; International law in a Divided World (1965), 56 f.; Higgins, ‘The Taking of Property by the State: Recent Developments in International Law’ (1982-III) 176 RC, 259 (261, 288 ff.); Verwey and Schrijver, ‘The Taking of Foreign Property under International Law: A New Legal Perspective?’ (1984) 15 NYIL, 3 (15 f.); Pellonpää and Fitzmaurice, ‘Taking of Property in the Practice of the Iran-United States Claims Tribunal’ (1988) 19 NYIL, 53 (60 ff.); Dolzer and Stevens, Bilateral Investment Treaties (1995), 104 ff.; Brower and Brueschke, The Iran–United States Claims Tribunal (1998), 492 ff.; Pellonpää, ‘Compensable Claims before the Tribunal: Expropriation Claims’ in Lillich, et al. (eds), The Iran–United States Claims Tribunal: Its Contribution to the Law of State Responsibility (1998), 200 ff.; Reinisch, ‘Legality of Expropriation’ in Reinisch (ed), Standards of Investment Protection (2008) 171 (178 ff.). Of a different view e.g. Shaw, International Law (2021), 725 ff. 126 Libyan American Oil Company (LIAMCO) v. Libya, Award (12 April 1977), (1981) 20 ILM, 1. 127 For early cases see e.g. Certain German Interests in Polish Upper Silesia (Germany v. Poland), Judgment, 25 August 1925, PCIJ, (ser. A) No. 6, 22; Amco Asia Corporation and Others v. Indonesia, Award (20 November 1984) 1 ICSID Rep. 413, para. 190; American International Group v. Iran, Iran-US Claims Tribunal, Award No. 93-2-3 (19 December 1983), 4 IUSCTR 96, 105; INA Corporation v. Iran, Iran-US Claims Tribunal, Award No. 184-161-1 (13 August 1985), 8 IUSCTR 373, 378; Amoco International Finance Corporation v. Iran, et al., Iran-US Claims Tribunal, Partial Award No. 310-56-3 (14 July 1987), 15 IUSCTR 189, para. 145; Compañía del Desarrollo de Santa Elena, S. A. v. Costa Rica, ICSID Case No. ARB/96/1, Award (17 February 2000), 5 ICSID Rep., para, 71; Antoine Goetz, et al. v. Burundi, ICSID Case No. ARB/95/3, Award (10 February 1999), (2004) 6 ICSID Rep., 5, para. 126. 128 The tribunal in Amoco can serve as an example. It said with regard to the margin of appreciation of States and its limits: ‘It is clear that, as a result of the modern acceptance of the right to nationalize, this term is broadly interpreted, and that States, in practice are granted extensive discretion. An expropriation, the only purpose of which would have been to avoid contractual obligations of the State or of an entity controlled by it, nevertheless, could not be considered as lawful under international law. (Amoco International Finance Corporation v. Iran, et al., Iran-US Claims Tribunal, Partial Award No. 310-56-3 (14 July 1987) 15 IUSCTR 189, para. 145). 129 See e.g. Higgins, ‘The Taking of Property by the State: Recent Developments in International Law’ (1982-III) 176 RC, 259 (261, 292); Seidl-Hohenveldern, International Economic Law (1999), 134.
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An early case where a Tribunal denied the existence of a public purpose was Walter 99 Fletcher Smith.130 There, the expropriated land was used for the private use of a third Party. The Tribunal denied the existence of a public purpose: From a careful examination of the testimony and of the records, the Arbitrator is impressed that (…) the expropriation proceedings were not, in good faith, for the purpose of public utility. (…) While the proceedings were municipal in form, the properties seized were turned over immediately to the defendant company, ostensibly for public purposes, but, in fact, to be used by the defendant for purposes of amusement and private profit, without any reference to public utility.131
In LETCO,132 the investor had been de facto deprived of its concession agreement 100 to log timber in a certain area in Liberia by successively reducing the area covered by the concession. At the same time, the government granted concessions on these parts of the concession territory to other foreign investors without invoking any public purpose for doing so. The tribunal found that an illegal expropriation had occurred: ‘even if the argument as to nationalization had been raised, it would have failed. (…) the taking of LETCO’s property was not for a bona fide public purpose.’133 The Tribunal in ADC v. Hungary134 equally found that the public purpose require- 101 ment in case of an expropriation of an airport operation and management contract was not fulfilled. It pointed out that the mere invocation of a public purpose is not enough: The Tribunal can see no public interest being served by the Respondent’s depriving actions of the Claimant’s investments in the Airport Project.135 In the Tribunal’s opinion, a treaty requirement for ‘public interest’ requires some genuine interest of the public. If mere reference to ‘public interest’ can magically put such interest into existence and therefore satisfy this requirement, then this requirement would be rendered meaningless since the Tribunal can imagine no situation where this requirement would not have been met. 136
The Tribunal in Siemens137 raised the issue of a lack of public purpose but did 102 not decide it. Finally, it decided that the expropriation was illegal because of a lack of compensation. It said with regard to the requirement of a public purpose: ‘From this perspective, while the public purpose of the 2000 Emergency Law is evident, its application through Decree 669/01 to the specific case of Siemens’ investment and the purpose of same are questionable.’138 The Tribunal in Kardassopoulos and Fuchs v. Georgia139 also discussed the issue. 103 It found that despite the problematic way in which the expropriation occurred it 130 In the Claim of Walter Fletcher Smith v. The Compañia Urbanizadora del Parque y Playa de Marianao (USA v. Cuba), Award (2 May 1929) II RIAA, 915. 131 In the Claim of Walter Fletcher Smith v. The Compañia Urbanizadora del Parque y Playa de Marianao (USA v. Cuba), Award (2 May 1929) II RIAA, 917 ff. 132 Liberian Eastern Timber Corporation (LETCO) v. Liberia, ICSID Case No. ARB/83/2, Award (31 March 1986) 2 ICSID Rep. 313, 338. 133 Liberian Eastern Timber Corporation (LETCO) v. Liberia, ICSID Case No. ARB/83/2, Award (31 March 1986) 2 ICSID Rep. 313, 338. 134 ADC Affiliate Limited, et al. v. Hungary, ICSID Case No. ARB/03/16, Award (2 October 2006), paras. 423 f. 135 ADC Affiliate Limited, et al. v. Hungary, ICSID Case No. ARB/03/16, Award (2 October 2006), para. 429. 136 ADC Affiliate Limited, et al. v. Hungary, ICSID Case No. ARB/03/16, Award (2 October 2006), para. 432. 137 Siemens AG v. Argentina, ICSID Case No. ARB/02/8, Award (6 February 2007). 138 Siemens AG v. Argentina, ICSID Case No. ARB/02/8, Award (6 February 2007), para. 273. 139 Ioannis Kardassopoulos v. Georgia, ICSID Case No. ARB/05/18 and Ron Fuchs v. Georgia, ICSID Case No. ARB/07/15, Award (3 March 2010).
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was arguable that it was in Georgia’s interest.140 The public purpose accepted by the Tribunal was the development of Georgia’s oil pipeline infrastructure which was considered to be a key national interest: Beginning with the first criterion, the Tribunal finds that, on all the evidence, it is arguable that the expropriation of Mr. Kardassopoulos’ rights was in the Georgian public interest. As the Claimants acknowledge, the Respondent is entitled to a measure of deference in this regard. The Tribunal heard both fact and expert industry witnesses who asserted that the development of Georgia’s oil pipeline infrastructure was of crucial national importance to the country’s political independence in the region and its economic development. The Tribunal finds this evidence compelling in light of all the circumstances prevailing in Georgia and the wider region during the relevant period. 141
A number of tribunals did not second-guess the existence of a public purpose but deferred to the wide discretion of host States.142 105 However, some recent awards do scrutinize whether an expropriation was for a public purpose. The Tribunal in Vestey v. Venezuela, although admitting that the Respondent deserves broad deference in deciding what is in the public interest, did not grant the State unlimited latitude in assessing the public purpose: ‘International tribunals should thus accept the policies determined by the state for the common good, except in situations of blatant misuse of the power to set public policies.’ 143 106 It stated that it would also take the post-expropriation measures into account to assess whether the measure was really for the purpose invoked and capable to further it: 104
The Tribunal must also assess whether the impugned expropriatory measure was “for” the public purpose as Article 5(1) of the BIT requires. In doing so, it must consider all the relevant circumstances, including the government’s post-expropriation conduct. While the objective is not to review the effectiveness of the measures, the government’s failure to advance a declared purpose may serve as evidence that the measure was not taken in furtherance of such purpose. Thus, the idea is to determine whether the measure had a reasonable nexus with the declared public purpose or in other words, was at least capable of furthering that purpose.144
107
In Teinver v. Argentina, the Tribunal stated that its ‘analysis of whether the expropriation was in the public interest must go beyond a State’s declaration.’ 145 However, it agreed with Respondent that the State enjoys a certain margin of appreciation on how to serve the public interest. It held: a State must be accorded a certain amount of deference in determining how to advance its public interest once a public interest has been demonstrated as the reasons for which an expropriation
140 Ioannis Kardassopoulos v. Georgia, ICSID Case No. ARB/05/18 and Ron Fuchs v. Georgia, ICSID Case No. ARB/07/15, Award (3 March 2010), para. 392. 141 Ioannis Kardassopoulos v. Georgia, ICSID Case No. ARB/05/18 and Ron Fuchs v. Georgia, ICSID Case No. ARB/07/15, Award (3 March 2010), para. 391. 142 See e.g. Guaracachi America, Inc. and Rurelec PLC v. Bolivia, UNCITRAL, PCA Case No. 2011-17, Award (corrected) (31 January 2014), para. 437; Quiborax S.A. and Non Metallic Minerals S.A. v. Bolivia, ICSID Case No. ARB/06/2, Award (16 September 2015), paras. 243-245; Copper Mesa Mining Corporation v. Ecuador, UNCITRAL, PCA No. 2012-2, Award (redacted) (15 March 2016), para. 6.64; CC/Devas (Mauritius) Ltd., et al. v. India, UNCITRAL, PCA Case No. 2013-09, Award on Jurisdiction and Merits (25 July 2016), para. 413; Rusoro Mining Limited v. Venezuela, ICSID Case No. ARB(AF)/12/5, Award (22 August 2016), para. 385; Olin Holdings Limited v. Libya, ICC Case No. 20355/MCP, Final Award (25 May 2018), paras. 168 f. 143 Vestey Group Ltd. v. Venezuela, ICSID Case No. ARB/06/4, Award (15 April 2016), para. 294. 144 Vestey Group Ltd. v. Venezuela, ICSID Case No. ARB/06/4, Award (15 April 2016), para. 296 (fn. omitted). 145 Teinver S.A., et al. v. Argentina, Award (21 July 2017), para. 984.
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occurred. Further, there is no requirement at international law that expropriation, in order to be in the public interest, must be the only means available for the State to meet that interest. 146
108 It found that the measure was in the public interest.147 It remains to be seen how closely tribunals that will have to apply a treaty text 109 which contains a ‘regulation exception’ similar to the one in CETA Annex 8-A will examine whether the expropriation was for a public purpose especially in cases where the exception is invoked by the State.
2. Non-Discrimination Like most investment protection treaties, 148 Article 8.12.1(c) CETA requires that for 110 an expropriation to be legal it must not be discriminatory.149 The CETA, like the other treaties, does not contain any definition of discrimination. 111 Black’s Law Dictionary150 includes the following definitions for ‘discrimination’: 1. 2.
The effect of a law or established practice that confers privileges on a certain class or that denies privileges to a certain class because of race, age, sex, nationality, religion, or disability. Differential treatment; esp. a failure to treat all persons equally when no reasonable distinction can be found between those favoured and those not favoured.
Discrimination in the field of expropriation is also prohibited by customary inter- 112 national law.151 This is reflected in the US Third Restatement of the Law of Foreign Teinver S.A., et al. v. Argentina, Award (21 July 2017), para. 985. Teinver S.A., et al. v. Argentina, Award (21 July 2017), paras. 984, 986. 148 Exceptions are e.g. Article 5 of the Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Arab Republic of Egypt for the Promotion and Protection of Investments of 11 June 1975; Article 5 of the Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the People’s Republic of China concerning the Promotion and Reciprocal Protection of Investments of 15 May 1986; Article 4 of the Treaty between the Federal Republic of Germany and the Argentine Republic concerning the Reciprocal Encouragement and Protection of Investments of 9 April 1991; Article VI of the Agreement between the Government of the Kingdom of Thailand and the Government of the Democratic Socialist Republic of Sri Lanka for the Promotion and Protection of Investments of 3 January 1996; Article 5 of the Treaty between the Federal Republic of Germany and the Federal Republic of Nigeria concerning the Encouragement and Reciprocal Protection of Investments of 28 March 2000. For a quantitative analysis of investment protection treaties on this issue see Verwey and Schrijver, ‘The Taking of Foreign Property under International Law: A New Legal Perspective?’ (1984) 15 NYIL, 3 (67). However, even in cases where the provision on expropriation does not contain such a requirement the public international law prohibition of discriminatory expropriation is applicable. For further details see Kriebaum, Eigentumsschutz im Völkerrecht: Eine vergleichende Untersuchung zum internationalen Investitionsrecht sowie zum Menschenrechtsschutz (2008), 511 ff. 149 See e.g. Article 5 of the Agreement on encouragement and reciprocal protection of investments between the Kingdom of the Netherlands and the Czech and Slovak Federal Republic of 29 April 1991: ‘Neither Contracting Party shall take any measures depriving (…) investors of the other contracting Party of their investment unless the following conditions are complied with: (…) the measures are not discriminatory’. Article 5 of the Agreement between the United Mexican States and the Republic of Austria on the Promotion and Protection of Investments of 18 February 1998: ‘(1) A Contracting Party shall not expropriate (…) an investment of an investor of the other Contracting Party (…) except: (…) (b) on a non-discriminatory basis, (…).’ Article 1110 of NAFTA: ‘1. No Party may (…) nationalize or expropriate an investment of an investor (…) except: (…) (b) on a non-discriminatory basis; (…)’ (emphasis added). 150 Black’s Law Dictionary (10th ed., 2014). 151 See e.g. Reinisch, ‘Legality of Expropriation’ in Reinisch (ed), Standards of Investment Protection (2008), 171 (186 ff.); Kriebaum, Eigentumsschutz im Völkerrecht: Eine vergleichende Untersuchung zum internationalen Investitionsrecht sowie zum Menschenrechtsschutz (2008), 509 ff.; Hobér, Investment Arbitration in Eastern Europe: Recent Cases on Expropriation (2007), 40; Crawford, Brownlie's Principles of Public International Law (2012) 624 ff.; Jennings and Watts, Oppenheim’s International Law, vol. 1 (1992), 20, 932; White, Nationalisation of Foreign Property (1961), 5, 119–144; Domke, ‘Foreign Nationalisations, 146
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Relations 1987.152 It contains a prohibition of discrimination in case of expropriations in § 712 (State Responsibility for Economic Injury to Nationals of Other States): A State is responsible under international law for injury resulting from: (1) a taking by the state of the property of a national of another state that (…) (b) is discriminatory, or (…).
113
This approach is confirmed by national courts that also consider non-discrimination as a requirement for the legality of an expropriation under international law. The US Court of Appeals, Ninth Circuit, held in Siderman de Blake and Other v. Argentina and Others:153 In West, we described three requisites under international law for a valid taking. (…) Second, ‘aliens [must] not be discriminated against or singled out for regulation by the state.’ (…) If a taking violates any one of the aforementioned proscriptions, it violates international law. 154
114
115
116 117 118
In Banco Nacional de Cuba v. Chemical Bank New York Trust Company and Others 155 the US Court of Appeals, Ninth Circuit, stated that a discriminatory expropriation is illegal under international law: ‘As a general principle of international law, a state is liable to a private person who is a national of another state if it takes the foreign national’s property and the taking is “discriminatory”.’156 The Tribunal in Amoco v. Iran157 held that discrimination in the field of expropriation is also prohibited by customary international law: ‘Discrimination is widely held as prohibited by customary international law in the field of expropriation.’158 The same is true for judge Lagergren in his separate opinion in INA159 and the arbitral Tribunal in LIAMCO.160 A number of investment tribunals had to deal with the question of whether or not a discriminatory expropriation had occurred. The Tribunal in Aminoil161 denied the existence of discrimination. First, it found no hints that the difference in treatment was caused by the nationality of the investor. Second, it found that the State had a reasonable justification for treating Arabian Oil differently from Aminoil. It said:
Some Aspects of Contemporary International Law’ (1961) 55 Am. J. Int’l Law 585, 600 ff.; Fitzmaurice, ‘The Juridical Clauses of the Peace Treaties’ (1943-II) 73 RC, 259 (349); Herz, ‘Expropriation of Foreign Property’ (1941) 35 Am. J. Int’l Law, 243 (249). 152 Restatement (Third) of the Foreign Relations Law of the United States, vol. 2 (1986), 196. 153 US Court of Appeals, Ninth Circuit, Siderman de Blake and Other v. Argentina and Others, Judgment of 22 May 1992, (1996) 103 ILR, 454–480. 154 US Court of Appeals, Ninth Circuit, Siderman de Blake and Other v. Argentina and Others, Judgment of 22 May 1992, (1996) 103 ILR, 467 ff. 155 US Court of Appeals, Ninth Circuit, Banco Nacional de Cuba v. Chemical Bank New York Trust Company and Others, Judgment of 10 June 1987, (1993) 92 ILR, 431–441. 156 US Court of Appeals, Ninth Circuit, Banco Nacional de Cuba v. Chemical Bank New York Trust Company and Others, Judgment of 10 June 1987, (1993) 92 ILR, 438. 157 Amoco International Finance Corporation v. Iran, et al., Iran-US Claims Tribunal, Partial Award No. 310-56-3 (14 July 1987), 15 IUSCTR 189, para. 145. 158 Amoco International Finance Corporation v. Iran, et al., Iran-US Claims Tribunal, Partial Award No. 310-56-3 (14 July 1987), 15 IUSCTR 189, para. 140. 159 INA Corporation v. Iran, Iran-US Claims Tribunal, Award No. 184-161-1 (13 August 1985) 8 IUSCTR 373, 385. 160 Libyan American Oil Company (LIAMCO) v. Libya, Award (12 April 1977), (1981) 20 ILM, 141– 219, 194. 161 Kuwait v. American Independent Oil Companiy (Aminoil), Award (24 March 1982) 21 ILM 1982, 976.
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The question (…) arises whether the nationalisation of Aminoil was not thereby tainted with discrimination, and whether this differentiation does not show that the Decree Law had other objects than that of realising a programme of economic development. The Tribunal does not think so. First of all, it has never for a single moment been suggested that it was because of the American nationality of the Company that the Decree Law was applied to Aminoil’s Concession. Next, and above all, there were adequate reasons for not nationalising Arabian Oil.162
Therefore, the Tribunal apparently found that the two companies were in a compa- 119 rable situation but that a difference in treatment was justified. The Tribunal in LETCO163 decided that a discriminatory expropriation had oc- 120 curred. It based this finding on the fact that Liberia, shortly after the expropriation, had granted concessions on the same land to other foreign investors without invoking any specific reasons for expropriating LETCO. It said: There was no evidence of any stated policy on the part of the Liberian Government to take concessions of this kind into public ownership for the public good. On the contrary, evidence was given to the Tribunal that areas of the concession taken away from LETCO were granted to other foreign-owned companies; (…). Leaving aside the lack of any legislative enactment, the taking of LETCO’s property was not for a bone fide public purpose, was discriminatory (…). 164
The dispute in LIAMCO v. Libya165 concerned the nationalisation of a US oil 121 company. The Tribunal did not find a discrimination since the nationalisation had neither targeted exclusively US oil companies nor had all US oil companies been nationalised. Furthermore, the guidelines for negotiations with the oil companies were not formulated in a discriminatory manner: LIAMCO was not the first company to be nationalized, nor was it the only oil company nor the only American company to be nationalized by the first nationalization Act, nor was it nationalized alone on the date of the second nationalization Act. Other companies were nationalized before it, other American and Non-American companies were nationalized with it and after it, and other American companies are still operating in Libya. Thus, it may be concluded from the above that the political motive was not the predominant motive for nationalization, and that such motive per se does not constitute a sufficient proof of a purely discriminatory measure.166
There was no unjustified distinction in treatment. The oil companies that were not 122 nationalised had agreed to renegotiate the concession agreements. The Iran–US Claims Tribunal pointed out in Amoco v. Iran167 that it is not sufficient 123 proof of discrimination that one company of foreign nationality was expropriated while a company of a different nationality operating in the same sector was not. It found this to be a consequence of the specific circumstances prevalent in the case:
162 Kuwait v. American Independent Oil Companiy (Aminoil), Award (24 March 1982) 21 ILM 1982, 976, para. 87. 163 Liberian Eastern Timber Corporation (LETCO) v. Liberia, ICSID Case No. ARB/83/2, Award (31 March 1986), 2 ICSID Rep. 313, 338. 164 Liberian Eastern Timber Corporation (LETCO) v. Liberia, ICSID Case No. ARB/83/2, Award (31 March 1986) 2 ICSID Rep. 313, 338. 165 Libyan American Oil Company (LIAMCO) v. Libya, Award (12 April 1977), (1981) 20 ILM 1. See Alt, ‘Neue Schiedssprüche zum Recht der Verstaatlichung’ (1985) 35 ÖZÖR, 265. 166 Libyan American Oil Company (LIAMCO) v. Libya (LIAMCO) v. Libya, Award (12 April 1977), (1981) 20 ILM 1, 60. 167 Amoco International Finance Corporation v. Iran, et al., Iran-US Claims Tribunal, Partial Award No. 310-56-3 (14 July 1987) 15 IUSCTR 189, para. 145.
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That the Special Commission did not include the contract with IJPC among those which were nullified, the Respondents submit, was an exception due to specific circumstances. 168 The Tribunal finds it difficult, in the absence of any other evidence, to draw the conclusion that the expropriation of a concern was discriminatory only from the fact that another concern in the same economic branch was not expropriated. Reasons specific to the non-expropriated enterprise, or to the expropriated one, or to both, may justify such a difference of treatment. 169
124
In Eureko B.V. v. Poland,170 the Tribunal decided that the refusal to conduct a public offering guaranteed to the investor in addition to a share purchase agreement, was a discriminatory expropriation. The authorities adopted this measure to prevent a major Polish insurance company from coming under foreign control.171 The Tribunal found this to be discriminatory: Furthermore, the measures taken by the RoP in refusing to conduct the IPO are clearly discriminatory. As the Tribunal noted earlier, these measures have been proclaimed by successive Ministers of the State Treasury as being pursued in order to keep PZU under majority Polish control and to exclude foreign control such as that of Eureko. That discriminatory conduct by the Polish Government is blunt violation of the expectations of the Parties in concluding the SPA and the First Addendum. For the above stated reasons, the Tribunal finds that the RoP has breached Article 5 of the Treaty.172
In ADC v. Hungary,173 the Claimant was deprived of its right to operate and manage Budapest International Airport. 126 Hungary claimed it had to pass the regulation leading to the expropriation to harmonise Hungarian law with EU law. Hungary took over the airport operation and management but subsequently handed it over to another foreign investor. Hungary argued that the treatment could not have been discriminatory since the investor was the only foreign company concerned by the measure. The Tribunal rejected this argument and stated that the group of comparison is foreign investors as a whole: 125
The Tribunal cannot accept the Respondent’s argument that as the only foreign parties involved in the operation of the Airport, the Claimants are not in a position to raise any claims of being treated discriminately. It is correct for the Respondent to point out that in order for a discrimination to exist, particularly in an expropriation scenario, there must be different treatments to different parties. However and unfortunately, the Respondent misses the point because the comparison of different treatments is made here between that received by the Respondent-appointed operator and that received by foreign investors as a whole. The Tribunal therefore rejects the contentions made by the Respondent and concludes that the actions taken by the Respondent against the Claimants are discriminatory.174
127
Since there was only one foreign terminal operator, a comparison with other foreign terminal operators was impossible. The Tribunal compared the Claimant to foreign investors as a whole. It did not mention why such a cross sector comparison 168 Amoco International Finance Corporation v. Iran, et al., Iran-US Claims Tribunal, Partial Award No. 310-56-3 (14 July 1987) 15 IUSCTR 189, para. 141. 169 Amoco International Finance Corporation v. Iran, et al., Iran-US Claims Tribunal, Partial Award No. 310-56-3 (14 July 1987) 15 IUSCTR 189, para. 142. 170 Eureko B.V. v. Poland, Ad Hoc Arbitration, Partial Award (19 August 2005), paras 242 f. 171 Eureko B.V. v. Poland, Ad Hoc Arbitration, Partial Award (19 August 2005), paras. 242 f. 172 Eureko B.V. v. Poland, Ad Hoc Arbitration, Partial Award (19 August 2005), paras. 242 f. 173 ADC Affiliate Limited, et al. v. Hungary, ICSID Case No. ARB/03/16, Award (2 October 2006), paras. 423 f. 174 ADC Affiliate Limited, et al. v. Hungary, ICSID Case No. ARB/03/16, Award (2 October 2006), paras. 441 ff.
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was justified in this case. Rather, it should have argued that no reasonable arguments had been brought forward to justify why a transfer of the control over the airport operation and management to a company somehow under the control of the Hungarian State was necessary, if later on control could again be transferred to a foreign company. The dispute in Kardassopoulos and Fuchs v. Georgia175 concerned concession rights 128 over certain oil and gas pipelines held by an investment vehicle (Tramex) and a State-owned national oil company (SakNavtobi) via a joint venture company (GTI). These rights were terminated when the government decided to cooperate with another foreign investor. The Claimants considered this expropriation also to be discriminatory. The Tribunal rejected this claim since the difference in treatment was not based on the foreignness or the nationality of the investor and it affected both the foreign and Georgian investors in GTI. It said: [T]his was not a case in which the Georgian government discriminated against Tramex or Mr. Kardassopoulos qua foreign investor, but rather a case in which it determined that there was a better deal to be had with a different foreign investor. The Tribunal is not convinced that there has been a breach of the non-discrimination element of the ECT’s expropriation provision.
The Tribunal confirmed that no discriminatory intent is required for discrimination. The Pezold v. Zimbabwe case is an exception because the discrimination was not based on nationality but on race, which is also covered by the non-discrimination obligation of expropriation clauses. The Tribunal stated in an obiter dictum that the Claimants ‘were targeted as a result of their skin colour and, hence the taking was discriminatory’.176 The Tribunal in UP and C.D v. Hungary177 held that the intentional exclusion of foreign investors from the meal voucher system in Hungary was discriminatory. 178 Investment tribunals have generally held that discrimination is a distinction in treatment in a similar situation because of a certain characteristic (such as race, age, sex, nationality, religion, or disability) without a reasonable justification. So far, they have nearly always been confronted with distinctions in treatment based on nationality. However, the protection against discrimination is wider than the national treatment standard.179 National treatment only covers a distinction based on nationality between foreigners and nationals (→ Art. 8.6 mn. 30 ff.). Discrimination can occur between foreigners and nationals180 as well as between different groups of foreigners181 based either on the foreignness or another characteristic. 175 Ioannis Kardassopoulos v. Georgia, ICSID Case No. ARB/05/18 and Ron Fuchs v. Georgia, ICSID Case No. ARB 07/15, Award (3 March 2010), para 387. 176 Bernhard von Pezold, et al. v. Zimbabwe, ICSID Case No. ARB/10/15, Award (28 July 2015), para. 501. 177 UP (formerly Le Chèque Déjeuner) and C.D Holding Internationale v. Hungary, ICSID Case No. ARB/13/35, Award (9 October 2018). 178 UP (formerly Le Chèque Déjeuner) and C.D Holding Internationale v. Hungary, ICSID Case No. ARB/13/35, Award (9 October 2018), para. 417. 179 On the national treatment standard see e.g. Reinisch, ‘National Treatment’, in Bungenberg, et al. (eds), International Investment Law (2015), 846. 180 See e.g. Fitzmaurice (n 151), 259, 349; White, Nationalisation of Foreign Property (1961), 119; Jennings and Watts, Oppenheim’s International Law, vol. 1 (1992), 920. 181 See e.g. BP Exploration Company (Libya) Limited v. Libya, Award (10 October 1973), (1979) 53 ILR 297, 313 ff., 329; Liberian Eastern Timber Corporation (LETCO) v. Liberia, ICSID Case No. ARB/83/2, Award (31 March 1986) 2 ICSID Rep. 313, 338. White Nationalisation of Foreign Property (1961), 119; Fitzmaurice, ‘The Juridical Clauses of the Peace Treaties’ (1943-II) 73 RC, 259 (349).
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Three conditions have to be fulfilled for discrimination to occur.182 First, there must be an appropriate comparator.183 Second, there must have been a difference in treatment. Third, the distinction within the basis of comparison must have been unreasonable.184 134 If there is no comparator in the same sector, a cross sector approach may be useful. In such a situation, the margin of discretion of States and the potential to consider reasons as compelling should increase the wider the circle of areas of activity used for comparison is. 133
3. Due process and Judicial Review Article 8.12.1(b) CETA requires that expropriations and nationalisation be accomplished under due process of law in order to be lawful. Article 8.12.4 CETA requires in addition, that the investor has a right to have the legality reviewed. This remedy has to be a judicial or independent authority and has to examine the expropriatory measure as well as the valuation of the expropriated investment. 136 Older treaties as well as the US Third Restatement of the Law of Foreign Relations 1987185 do not contain the requirement that expropriations have to take place in accordance with due process of law. The condition is frequently, but not always, included in investment protection treaties since the 1990s. 186 137 Arbitral practice on the due process requirement is limited. Most arbitral tribunals require that already during the process leading to the expropriation certain procedural guarantees must be observed. Sometimes they combine this with a possibility to challenge an expropriation that has already occurred. This also depends on the formulation of the respective provisions in the applicable investment protection treaty. Some treaties specify that a remedy against the expropriation is part of the due process 135
182 Kriebaum, Eigentumsschutz im Völkerrecht: Eine vergleichende Untersuchung zum internationalen Investitionsrecht sowie zum Menschenrechtsschutz (2008), 523. 183 On basis of comparison see e.g. Kriebaum, ‘Arbitrary or Discriminatory Treatment’ in Bungenberg, et al. (eds), International Investment Law (2015), 790 (803 f). 184 On justification for the difference in treatment see e.g. Kriebaum, ‘Arbitrary or Discriminatory Treatment’ in Bungenberg, et al. (eds), International Investment Law (2015), 790 (804 ff.). 185 Restatement (Third) of the Foreign Relations Law of the United States, vol. 2 (1986), 196: ‘§ 712 State Responsibility for Economic Injury to Nationals of Other States A State is responsible under international law for injury resulting from: (1) a taking by the state of the property of a national of another state that (a) is not for a public purpose, or (b) is discriminatory, or (c) is not accompanied by provision for just compensation; (…).’ 186 For a quantitative analysis of older treaties see: Verwey and Schrijver, ‘The Taking of Foreign Property under International Law: A New Legal Perspective?’ (1984) 15 NYIL, 3 (66).
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guarantee,187 others, like the CETA, contain a separate guarantee that requires that there is a meaningful remedy against expropriations available.188 Some tribunals were confronted with the question of whether compliance with 138 the local law or compliance with an international due process standard is due. Most of them found that the expropriating State has to comply with an international due process standard.189 However, this standard includes a requirement to comply with the local law.190 Some tribunals have tested the expropriation procedure only against the local law. 139 Here, the formulation of the relevant expropriation clause was of particular relevance. The Tribunal in Goetz v. Burundi191 found that the expropriation was in accordance with the legal procedure provided in host State law. This was inspired by the formulation of the clause in the BIT that requires an expropriation in accordance with a legal procedure.192 The Tribunal in ADC summarised the procedural due process guarantees required 140 by international law in the context of an expropriation as follows: The Tribunal agrees with the Claimants that ‘due process of law’, in the expropriation context, demands an actual and substantive legal procedure for a foreign investor to raise its claims against the depriving actions already taken or about to be taken against it. Some basic legal mechanisms, 187 See e.g. Article 5 (3) of the Agreement between the United Mexican States and the Republic of Austria on the Promotion and Protection of Investments of 29 June 1998: ‘(1) A Contracting Party shall not expropriate or nationalise, directly or indirectly, an investment of an investor of the other Contracting Party or take any measures having equivalent effect (hereinafter referred to as “expropriation”) except: (a) for a purpose which is in the public interest, (b) on a non-discriminatory basis, (c) in accordance with due process of law, and (d) accompanied by payment of compensation in accordance with paragraphs (2) and (3) below (…). (3) Without prejudice to Articles 12 and 13, due process of law includes the right of an investor of a Contracting Party which claims to be affected by expropriation by the other Contracting Party to prompt review of its case, including the valuation of its investment and the payment of compensation in accordance with the provisions of this Article, by a judicial authority or another competent and independent authority of the latter Contracting Party.’ 188 See e.g. Article III (3) of the Treaty between the United States of America and the Kingdom of Morocco concerning the Encouragement and Reciprocal Protection of Investments of 22 July 1985: ‘(…) 3. A national, or company of either Party that asserts that all or part of its investment has been expropriated shall have a right to prompt review by the appropriate judicial or administrative authorities of the other Party to determine whether any such expropriation and any compensation, conforms to the principles of international law.’ Article 5(4) of the Agreement between the Republic of Chile and the Republic of Austria for the Promotion and Reciprocal Protection of Investment of 8 September 1997: ‘(…) (4) The investor affected shall have a right to access, under the law of the Contracting Party making the expropriation, to the judicial or, if applicable, other independent authority of that Party, in order to review the legality of any such expropriation and the amount of compensation.’ 189 Amoco International Finance Corporation v. Iran, et al., Iran-US Claims Tribunal, Partial Award No. 310-56-3 (14 July 1987) 15 IUSCTR 189, para. 283; Mobil Oil Iran Inc., et al. v. Iran, et al., Iran-US Claims Tribunal, Partial Award No. 311-74/76/81/150-3 (14 July 1987), 16 IUSCTR 3, para. 73; Middle East Cement Shipping and Handling Co. S.A. v. Egypt, ICSID Case No. ARB/99/6, Award (12 April 2002), para. 143; Ioannis Kardassopoulos v. Georgia, ICSID Case No. ARB/05/18 and Ron Fuchs v. Georgia, ICSID Case No. ARB/07/15, Award (3 March 2010), para. 394. See also Brower and Brueschke, The Iran–United States Claims Tribunal (1998), 502 ff. 190 Newcombe and Paradell, Law and Practice of Investment Treaties (2009), 376. 191 Antoine Goetz, et al. v. Burundi, ICSID Case No. ARB/95/3, Award (10 February 1999), (2004) 6 ICSID Rep., 5, para. 124. 192 Convention entre l’Union économique Belgo-Luxembourgeoise et la République du Burundi concernant l’encouragement et la protection réciproques des investissements, Article 4: ‘Mesures privatives et restrictives de propriété (…) auquel cas les conditions suivantes doivent êtres remplies: a) les mesures sont prises selon une procédure légale (…).’
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such as reasonable advance notice, a fair hearing and an unbiased and impartial adjudicator to assess the actions in dispute, are expected to be readily available and accessible to the investor to make such legal procedure meaningful. In general, the legal procedure must be of a nature to grant an affected investor a reasonable chance within a reasonable time to claim its legitimate rights and have its claims heard. If no legal procedure of such nature exists at all, the argument that ‘the actions are taken under due process of law’ rings hollow. And that is exactly what the Tribunal finds in the present case.193
The Tribunal in Kardassopoulos194 applied the criteria used by ADC with approval.195 Like the Tribunal in OI European Group v. Venezuela,196 it linked the due process requirements to the ‘rule of law’.197 142 Investment tribunals have required the observance of the following international due process standards in the context of expropriation: 141
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reasonable advance notice of the expropriation;198 right to be heard before a license is revoked;199 • a procedure established by the local law that is accessible for investors to raise its claims against the depriving actions already taken or about to be taken against it and compliance with this procedure;200 • within this procedure, a fair hearing before an unbiased and impartial adjudicator has to take place;201
193 ADC Affiliate Limited, et al. v. Hungary, ICSID Case No. ARB/03/16, Award (2 October 2006), para. 435. 194 Ioannis Kardassopoulos v. Georgia, ICSID Case No. ARB/05/18 and Ron Fuchs v. Georgia, ICSID Case No. ARB/07/15, Award (3 March 2010), para. 387. 195 Ioannis Kardassopoulos v. Georgia, ICSID Case No. ARB/05/18 and Ron Fuchs v. Georgia, ICSID Case No. ARB/07/15, Award (3 March 2010), paras. 395 ff. 196 OI European Group B.V. v. Venezuela, ICSID Case No. ARB/11/25, Award (10 March 2015), para. 387. 197 Waguih Elie George Siag and Clorinda Vecchi v. Egypt, ICSID Case No. ARB/05/15, Award (1 June 2009), para. 442; Ioannis Kardassopoulos v. Georgia, ICSID Case No. ARB 05/18 and Ron Fuchs v. Georgia, ICSID Case No. ARB/07/15, Award (3 March 2010), para. 394. On rule of law demands and expropriation see also e.g. Kriebaum, ‘Investment Arbitration – Rule of Law Demands of the Domestic Judiciary (Denial of Justice, Effective Means, Judicial Expropriation)’ in Reinisch and Schill (eds), Investment Protection Standards and the Rule of Law (2020, forthcoming). 198 Middle East Cement Shipping and Handling Co. S.A. v. Egypt, Award (12 April 2002), para. 143; ADC Affiliate Limited, et al. v. Hungary, ICSID Case No. ARB/03/16, Award (2 October 2006), para. 435; Ioannis Kardassopoulos v. Georgia, ICSID Case No. ARB 05/18 and Ron Fuchs v. Georgia, ICSID Case No. ARB 07/15, Award (3 March 2010), paras. 395 ff.; Vestey Group Ltd. v. Venezuela, ICSID Case No. ARB/06/4, Award (15 April 2016), para. 309. But, see e.g. OI European Group B.V. v. Venezuela, ICSID Case No. ARB/11/25, Award (10 March 2015), para. 392; Koch Minerals Sàrl, et al. v. Venezuela, ICSID Case No. ARB/11/19, Award (30 October 2017), para. 7.23. 199 Bear Creek v. Perú, Award, 30 November 2017, paras. 443 ff. But, see Guaracachi America, Inc. and Rurelec PLC v. Bolivia, UNCITRAL, PCA Case No. 2011-17, Award (corrected) (31 January 2014), para. 439. 200 ADC Affiliate Limited, et al. v. Hungary, ICSID Case No. ARB/03/16, Award (2 October 2006), para. 435; Ioannis Kardassopoulos v. Georgia, ICSID Case No. ARB 05/18 and Ron Fuchs v. Georgia, ICSID Case No. ARB/07/15, Award (3 March 2010), paras. 395 f., 402; OI European Group B.V. v. Venezuela, ICSID Case No. ARB/11/25, Award (10 March 2015), para. 328; Bernhard von Pezold, et al. v. Zimbabwe, ICSID Case No. ARB/10/15, Award (28 July 2015), para. 499. 201 ADC Affiliate Limited, et al. v. Hungary, ICSID Case No. ARB/03/16, Award (2 October 2006), para. 435; Ioannis Kardassopoulos v. Georgia, ICSID Case No. ARB 05/18 and Ron Fuchs v. Georgia, ICSID Case No. ARB 07/15, Award (3 March 2010), paras. 395, 397; OI European Group B.V. v. Venezuela, ICSID Case No. ARB/11/25, Award (10 March 2015), para. 392; Copper Mesa Mining Corporation v. Ecuador, UNCITRAL, PCA No. 2012-2, Award (redacted) (15 March 2016), para. 6.69; Rusoro Mining Limited v. Venezuela, ICSID Case No. ARB(AF)/12/5, Award (22 August 2016), para. 389.
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a hearing within a reasonable time following the expropriation by such an unbiased and impartial adjudicator.202
4. Compensation In practice, by far the most important requirement for the legality of an expropria- 143 tion is monetary compensation. Article 8.12. 1(d) requires the payment of prompt, adequate and effective compensation as a guarantee for the lawfulness of an expropriation. Article 8.12. paras. 2 and 3 further specify the compensation requirements for the legality of an expropriation.203
IV. TRIPS-Related Measures Articles 8.12.5. and 8.12.6. of the CETA provide for a coordination between the TRIPS agreement and the CETA Treaty, on the one hand, and the investment chapter and Chapter 20 of the CETA, on the other hand, as far as expropriations of intellectual property rights are concerned. Interferences with intellectual property rights have been tested in several investment arbitrations over the last years. 204 Para. 5 contains an exception for compulsory licences in the context of intellectual property rights from the scope of protection of Article 8.12 CETA. This applies under the condition that the compulsory license was issued in accordance with the TRIPS Agreement. This means that an arbitral tribunal will be competent to evaluate whether a compulsory licence has been issued in accordance with the conditions of the TRIPS Agreement.205 Para. 6 of Article 8.12 deals with intellectual property rights more generally. It provides that a revocation, limitation or creation of intellectual property rights that is consistent with the TRIPS Agreement and Chapter Twenty (Intellectual Property) of the CETA, does not constitute an expropriation. This again creates an exception 202 ADC Affiliate Limited, et al. v. Hungary, ICSID Case No. ARB/03/16, Award (2 October 2006), para. 435; Ioannis Kardassopoulos v. Georgia, ICSID Case No. ARB 05/18 and Ron Fuchs v. Georgia, ICSID Case No. ARB 07/15, Award (3 March 2010), paras. 396, 404. 203 On the issue of compensation in case of an expropriation see (→ Art. 8.39 mn. 32 ff.; Art. 8.40 mn. 46 ff.). 204 See e.g. Philip Morris Asia Ltd. v. Australia, UNCITRAL, PCA Case No. 2012-12, Award on Jurisdiction and Admissibility (17 December 2015); Philip Morris Brands Sàrl, et al. v. Uruguay, ICSID Case No. ARB/10/7, Award (8 July 2016), para. 306; Eli Lilly and Company v. Canada, ICSID Case No. UNCT/14/2, Award (16 March 2017). Further on Intellectual Property Rights and investment arbitration see e.g. Vanhonnaeker, Intellectual Property Rights as Foreign Direct Investments: from Collision to Collaboration (2015); Gibson, 'A Look at the Compulsory License in Investment Arbitration: The Case of Indirect Expropriation' (2009) 6 TDM, 3; Liberti, ‘Intellectual Property Rights in International Investment Agreements: An Overview’, OECD Working Papers on International Investment (2010/01), http://dx.doi.org/10.1787/5kmfq1njzl35-en; Mercurio, ‘Awakening the Sleeping Giant: Intellectual Property Rights in International Investment Agreements’ (2012) 15 J. Int’l Econ. L., 876; Ho, ‘A Collision Course Between TRIPS Flexibilities and Investor-State Proceedings’ (2016) 6 UC Irvine Law Review, 74; Correa and Viñuales, ‘Intellectual Property Rights as Protected Investments: How Open are the Gates?’ (2016) 19 J. Int’l Econ. L., 91; Diependaele, et al., ‘Eli Lilly v Canada: the uncomfortable liaison between intellectual property and international investment law’ (2017) 7 QMJIP, 283; Gagliani, ‘International Economic Disputes, Investment Arbitration and Intellectual Property: Common Descent and Technical Problems’ (2017) 51 JWT, 335; Ducimetière, ‘Intellectual Property under the Scrutiny of Investor-State Tribunals: Legitimacy and New Challenges, Journal of Intellectual Propety, Information Technology and E-Commerce Law’ (2018) 9 JIPITEC, 266 (https://www.jipitec.eu/issues/jipitec-9-3-2018/4804). 205 De Nanteuil, ‘Expropriation’ in Mbengue and Schacherer (eds), Foreign Investment under the Comprehensive Economic and Trade Agreement (CETA) (2019), 127 (153).
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145
146
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from the protection of Article 8.12. of the CETA. The tribunal will first have to establish, whether the above mentioned measures cumulatively are in accordance with the TRIPS Agreement and Chapter 20 of CETA. If this is the case, the measures would not qualify as expropriation. 148 Furthermore, para. 6 provides that a finding of violation of the TRIPS or Chapter 20 does not automatically establish that an expropriation has occurred. In such a situation, the tribunal will have to assess whether the above discussed elements of an expropriation exist.
E. Conclusions 149
150
151
152
153
Article 8.12 CETA contains the traditional protection against expropriations that are not in the public interest, not carried out in accordance with due process, in a discriminatory manner or not against prompt, adequate and effective compensation. The Annex further specifies how an indirect expropriation is to be established. It contains a regulation exception that is a novelty compared to traditional European BITs. Therefore, Article 8.12, and in particular Annex 8-A on expropriation, are a recent example of an investment protection treaty that reaffirms the State’s right to regulate in the context of indirect expropriation. This was the stated aim of the EU and is in line with the approaches taken by Canada and the United States in their model BITs since 2004. As a consequence, the CETA adopts an approach on indirect expropriations that allows for a certain balancing between the interests of the investor and the State. Its regulation exception implicitly requires a proportionality test. Further novelties are the provisions in Article 8.12.5 and 6 on the coordination with the TRIPS agreement and Chapter 20 of CETA in the field of intellectual property rights. This introduces, on the one hand, an extension of the competence of investment arbitral tribunals. On the other hand, they provide for certain exceptions of intellectual property rights from the scope of protection of the expropriation provision of the CETA.
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Article 8.13 Transfers1 1. Each Party shall permit all transfers relating to a covered investment to be made without restriction or delay in a freely convertible currency and at the market rate of exchange applicable on the date of transfer. Such transfers include: (a) contributions to capital, such as principal and additional funds to maintain, develop or increase the investment; (b) profits, dividends, interest, capital gains, royalty payments, management fees, technical assistance and other fees, or other forms of returns or amounts derived from the covered investment; (c) proceeds from the sale or liquidation of the whole or a part of the covered investment; (d) payments made under a contract entered into by the investor or the covered investment, including payments made pursuant to a loan agreement; (e) payments made pursuant to Articles 8.11 and 8.12; (f) earnings and other remuneration of foreign personnel working in connection with an investment; and (g) payments of damages pursuant to an award issued under Section F. 2. A Party shall not require its investors to transfer, or penalise its investors for failing to transfer, the income, earnings, profits or other amounts derived from, or attributable to, investments in the territory of the other Party. 3. Nothing in this Article shall be construed to prevent a Party from applying in an equitable and non-discriminatory manner and not in a way that would constitute a disguised restriction on transfers, its laws relating to: (a) (b) (c) (d)
bankruptcy, insolvency or the protection of the rights of creditors; issuing, trading or dealing in securities; criminal or penal offences; financial reporting or record keeping of transfers when necessary to assist law enforcement or financial regulatory authorities; and (e) the satisfaction of judgments in adjudicatory proceedings. Reference to the Respective Provisions in Other EU Treaties: Articles 63-66, 75 and 215.1 TFEU; Article 2.7 EU-Singapore IPA; Article 2.8 EU-Vietnam IPA. Bibliography: Rudolf Dolzer and Christoph Schreuer, Principles of International Investment Law (2nd edn, Oxford University Press, New York 2012); European Commission Communication, Towards a Comprehensive European International Investment Policy, 7 July 2010, COM (2010) 343 final; Rudolf Geiger, Daniel-Erasmus Khan and Markus Kotzur (eds), European Union Treaties: Treaty on European Union Treaty on the Functioning of the European Union (C.H. Beck, München 2015); Carsten Kern, ‘Transfer of Funds’ in Marc Bungenberg, Jörn Griebel, Stephan Hobe, and August Reinisch (eds), International Investment Law (Beck, Hart, Nomos 2015), 870; Abba Kolo and Thomas Wälde, ‘Capital Transfer Restrictions under Modern Investment Treaties’, in August Reinisch (ed), Standards of Investment Protection (1st edn, Oxford University Press, Oxford 2008), 205; Abba Kolo and Thomas Wälde, Economic Crises, Capital Transfer Restrictions and Investor Protection under Modern Investment Treaties', (2008) 3 Cap. Mark. Law J., 154; Elsa Milanesi, ‘European Union Restrictions to the Free Movement of Capital v. BITs Guarantees: Learning from the European Court of Justice Case Law’, in Giorgio Sacerdoti, Pia Acconci, Mara Valenti and Anna De Luca (eds), General Interests of Host States in International Investment Law (1st edn, Cambridge University Press, Cambridge 2014), 287; Matthias 1 The author wishes to thank her colleague at Herbert Smith Freehills, Jacky Lui BCom/LLB (UNSW Sydney), LL.M. (Humboldt University of Berlin) for his valuable support.
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Ruffert, Free Flow of Capital, Max Planck Encyclopedias of International Law (2014); Jeswald Salacuse, The Law of Investment Treaties (3rd edn, Oxford University Press, Oxford 2021); Catharine Titi, ‘The Right to Regulate’ in Makane Moïse Mbengue and Stefanie Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (1st edn, Springer, Switzerland 2019), 160; UNCTAD, Transfer of Funds, UNCTAD/ITE/IIT/20 (2000); UNCTAD, International Investment Agreements: Key Issues (Volume 1) UNCTAD/ITE/IIT/2004/10 (2004); UNCTAD, ‘International Investment Arrangements: Trends and Emerging Issues’, UNCTAD Series on International Investment Policies for Development (2006) and Kenneth Vandevelde, Bilateral Investment Treaties: History, Policy, and Interpretation (Oxford University Press 2010). A. Introduction and Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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B. Spirit and Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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C. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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D. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. The Individual Requirements under Article 8.13(1) . . . . . . . . . . . . . . . . . . . . . . . 1. ‘All transfers relating to a covered investment’ . . . . . . . . . . . . . . . . . . . . . . . . . . 2. ‘… without restriction or delay ...’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. ‘… freely convertible currency ...’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. ‘... at the market rate of exchange ...’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5. Included Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a) Funds to Maintain, Develop or Increase the Investment . . . . . . . . . . . . . . . b) Amounts Derived from the Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . c) Proceeds from the Sale or Liquidation of the Investment . . . . . . . . . . . . . . . d) Payments (including loans) Made under a Contract Entered into by the Investor or the Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . e) Payments Made Pursuant to Claims for Compensation for Losses or Expropriation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . f) Earnings and Other Remuneration of Foreign Persons Working in Connection with an Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . g) Payment of Damages Pursuant to an Award Issued through an Investor-State Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. Transfers Shall Not Be Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV. Limitations to Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Application of Laws of Host States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Application in Equitable and Non-Discriminatory Manner . . . . . . . . . . . . 3. No Disguised Restriction on Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. Exemption Clauses in Other CETA Provisions . . . . . . . . . . . . . . . . . . . . . . . . .
13 14 18 19 22 25 27 28 31 33 37
E. Conclusion and Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
39 42 46 48 49 52 55 66 73 76 80
A. Introduction and Overview Free transfer clauses may be among the most underestimated provisions in the area of investment protection. They are not at the centre of attention in investment disputes and are explicitly dealt with in only a few cases. At the same time, an investment can be successfully implemented and operated only if properly protected by free transfer clauses. Operating an investment may require for example the purchase of equipment, technology and material, the use of labour and consultancy or similar contributions with a monetary value. This guarantee allows the investor to transfer funds into the host State so as to establish and run the investment. And it allows to transfer funds out of the host State so as to profit from a lawful operation of the investment. 2 The UNCTAD Report on the Transfer of Funds categorises the types of transfers into three broad categories, the first consisting of ‘outward transfer of amounts derived from or associated with protected investments’. The second comprising, ‘outward transfer of amounts arising from the host country’s performance of other investor 1
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protection obligations under an agreement’ while the third relates to ‘inward transfer of amounts to be invested by a foreign investor.’2 For an investor, an investment may only be of interest if there is an enforceable guarantee of free transfer of funds both into and out of the host State. As the tribunal in Continental v. Argentina stated, the right to transfer ‘is fundamental to the freedom to make a foreign investment and an essential element of the promotional role of BITs.’3 The general interest of the investor may collide with the general interest of a State to control the transfer of funds, for example in times of crisis. As a matter of principle the State will seek to preserve a policy space so as to enact the necessary measures and regulate capital flows where necessary.4 This chapter will first look at the spirit and purpose of Article 8.13 before briefly addressing the drafting history, which assists in a proper interpretation of this provision. The ensuing section comments on the individual requirements of free transfer and the non-exhaustive list of included transfers. The broad guarantee of free transfer is complemented by the prohibition in Article 8.13(2) for the home State to require its investor to transfer or to penalise the investor for not transferring the funds into the host State. The last part looks at the lawful limitations that can be enacted by the State in specific areas of laws. The importance of Article 8.13 CETA is made clearer through Articles 8.13(1)(e) and (g) of CETA. Both provisions expressly include transfers of compensation for expropriation (under Articles 8.11 and 8.12; → Art. 8.11 and Art. 8.12), as well as transfers of payments of damages pursuant to an award under Section F of CETA (→ Art. 8.18). In this manner, it can be said that Article 8.13 not only secures regular capital flows, but also the effectiveness of other CETA provisions. In the case of an overly restrictive measure by a host State, that restriction might further qualify as indirect expropriation under Article 8.12.5 Rules on transfers of funds also exist and originate from supranational or international institutions such as the International Monetary Fund (IMF) and the European Union (EU), as well as international investment agreements.6 International investment agreements have been considered lex specialis to the IMF Rules.7 Article 63 TFEU prohibits all restrictions on the movement of capital and payments between Member States and Member States and third countries.
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B. Spirit and Purpose Article 8.13 reflects this natural tension between the interests of the host State 8 and the investors. It is intended to offer a viable solution by providing broad and precise guarantees for the investor while maintaining possibilities for the State to limit free transfers where needed. Both guarantees and limitations are expressed in rather precise terms. Article 8.13 has opted for a broad guarantee of transfers with UNCTAD, Transfer of Funds, UNCTAD/ITE/IIT/20 (2000), 30–32. Continental Casualty Company v. Argentina, ICSID Case No. ARB/09/9, Award (5 September 2008), para. 239. 4 Salacuse, The Law of Investment Treaties (2021), 344. 5 See the definition of 'direct' and 'indirect' expropriation under Annex 8-A(1)(a) and (b), CETA. 6 Kern, ‘Transfer of Funds’, in Bungenberg et al. (eds), International Investment Law (2015), 870 (873). 7 Continental Casualty Company v. Argentina, ICSID Case No. ARB/09/9, Award (5 September 2008), paras. 241 ff.; Kern, ‘Transfer of Funds’, in Bungenberg et al. (eds), International Investment Law (2015), 870 (881); Dolzer and Schreuer, Principles of International Investment Law (2012), 214. 2
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a non-exhaustive list exemplifying the permitted transfers while at the same time allowing the State to apply its laws in specified areas as long as these are applied in an equitable and non-discriminatory manner.
C. Drafting History Throughout its negotiation period, structure and wording of Article 8.13 have been revised. Also its systematic embedding within CETA changed in the course of drafting. As noted in an earlier Chapter (→ Art. 8.1 mn. 7), a number of drafts of CETA (including Article 8.13 and its then equivalent) came into existence over the course of the negotiation history of the CETA. Overall, there were seven drafts between 13 January 2010 and 1 August 2014. These drafts are a useful tool to shed light on the Parties' understanding of the final and agreed wording of Article 8.13. 10 Earlier versions of the Article (the drafts between 2011 and 2013) were included under the general heading of ‘Payments and Capital Movements’.8 Within that chapter, the provision was organised into separate Articles on ‘Current Payments’, and ‘Capital Movements’ as proposed by the EU on the one hand, against ‘Transfers’, proposed by Canada on the other.9 A further Article on ‘Safeguard Measures’ appears in these earlier drafts.10 This has subsequently been re-organised, with Article 8.13 now to cover for ‘Transfers’. The provisions relating to capital movements and safeguards have subsequently been moved into Chapter 28, on ‘Exceptions’. This is useful to note as it may assist in the interpretation of whether a Party has applied its laws in an ‘equitable and non-discriminatory manner’ or whether an application ‘would constitute a disguised restriction on transfers’ (see Article 8.13(3)). 11 Article 8.13(2) has similarly been the subject of repeated reorganisation leading over time to a more concise and effective wording of the Parties' obligations. In this context it is worthwhile to note that the initially foreseen guarantee of free transfer in a currency ‘in which the capital was originally invested’ was changed to a guarantee relating to a freely convertible currency. Under the earlier version, a transfer might have been questionable in a scenario where an investment was financed locally and no foreign currency was used for the investment.11 In its negotiations directions, the Council of the EU stated that negotiations on the standards of treatment should aim at the free transfer of funds of capital and payments by investors12, thereby opting for a less restrictive view. 12 The drafting history reflects that from the outset the free transfer provision would co-exist with the Parties' other obligations. In the EU context, any restrictions to the free transfer of capital was to be consistent with the TFEU’s Chapter on capital and payments (Articles 63 to 66).13 This intention is also expressed in earlier drafts of the CETA, which refers to keeping each Party’s status quo over the restriction on transfers. The earlier drafts foresaw the keeping of ‘existing arrangements’, as well as 9
See Articles 8.1–8.3 of the drafts of CETA of 13 January 2010, January 2011 and February 2012. See Articles 8.1–8.3 of the drafts of CETA of 13 January 2010, January 2011 and February 2012. 10 See Articles 8.1–8.3 of the drafts of CETA of 13 January 2010, January 2011 and February 2012. 11 Vandevelde, Bilateral Investment Treaties (2010), 321. 12 Council of the EU, Recommendation from the Commission to the Council on the modification of the negotiating directives for an Economic Integration Agreement with Canada in order to authorise the Commission to negotiate, on behalf of the Union, on investment, 14 July 2011, 12838/11. 13 Commission Communication, Towards a Comprehensive European International Investment Policy, 7 July 2010, COM (2010) 343 final, 8. 8
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commitments regarding investments, including pursuant to the WTO Agreement, the OECD Codes of Liberalisation and OECD National Treatment Instrument.14
D. Commentary The following section addresses in detail, the specific requirements for transfers 13 under Article 8.13.
I. Structure Article 8.13 CETA is structured into three main parts. The first paragraph establishes the general obligation of host States to permit the free transfer of funds. This obligation is subject to certain conditions, namely that transfers must be related to a ‘covered investment’, they must be permitted without restriction or delay, in a freely convertible currency and at the market exchange rate. That general obligation is followed by a non-exhaustive list of the types of transfers that may fall within this provision. In its second paragraph Article 8.13 CETA establishes that a home State shall not require its investors to transfer or to penalise its investors for failing to transfer amounts derived or attributable to a covered investment made in the host State. This provision expressly protects the investor in their freedom to transfer or not to transfer funds from their investments in the host State into their home States. The third paragraph allows the Parties to limit the transfer on the basis of their own laws. This limitation, however, is narrow and subject to a number of requirements. The State is allowed to apply certain of its laws only in an equitable and non-discriminatory manner. In addition, the limitation must not equal to a disguised restriction of transfers. The laws that might be applicable in this context are contained in the exhaustive list under (a) to (e). The exemption provisions in Articles 28.4 and 28.5 CETA on temporary safeguards for capital movements and restrictions in the event of serious balance of payment or external financial difficulties are to be read in light of the transfer of funds provision in Article 8.13 CETA. This third part demonstrates that international investment agreements do not exist in a vacuum and States enjoy sovereign powers to regulate the affairs in their territory.
14 See for example, Draft Article 8.2, CETA of 13 January 2010, January 2011, February 2012, which contain the following provisions: ‘Notwithstanding paragraph 1, a Party may restrict transfers of returns in kind in circumstances where it could otherwise restrict such transfers under the WTO Agreement. Without prejudice to other provisions in this Agreement, the Community and its Member States, within the scope of their respective competences, and Canada recall their international commitments with regard to investment, and especially the OECD Codes of Liberalisation and OECD National Treatment Instrument. Without prejudice to other provisions in this Agreement, the Parties shall not introduce any new restrictions on the movement of capital and current payments between residents of the Parties and shall not make the existing arrangements more restrictive. The Parties may hold consultations with a view to further facilitating the movement of capital between them in order to promote the objectives of this Agreement.’
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II. The Individual Requirements under Article 8.13(1) 18
This section sets out the formal prerequisites for the obligation of the Parties to permit transfers of funds.
1. ‘All transfers relating to a covered investment’ Article 8.13(1) CETA obliges the Parties to permit ‘all transfers relating to a covered investment’. The same wording can be found in a number of other treaties. 15 Transfer is to be understood in a broad way. In the case in Biwater Gauff v. Tanzania the tribunal held that: ‘The free transfer principle is aimed at measures that would restrict the possibility to transfer, such as currency control restrictions or other measures taken by the host State which effectively imprison the investors’ funds, typically in the host State of the investment.’16 20 In Global Telecom v. Canada the Tribunal specified that a ‘transfer’ included: ‘expatriation outside the host State, whether or not that movement consists of a repatriation to the investor’s country.’17 21 The meaning of ‘covered investments’ is to be considered in light of the definition of an ‘investment’ under Article 8.1 CETA (→ Art. 8.1 mn. 194–221). This includes every type of ‘asset’ that an investor owns or controls, and meets the criterion of being made for a certain duration, a commitment of capital or other resources, in expectation of profit, and the assumption of risk (see also the Salini test, → Art. 8.1 mn. 214 ff.). 19
2. ‘… without restriction or delay ...’ 22
The timing and manner in which a transfer is permitted is crucial in properly and effectively guaranteeing a free transfer of capital. The requirement to permit a 15 Vandevelde, Bilateral Investment Treaties (2010), 317; see for example, Article 7(1) of the Agreement between the Government of the Republic of Austria and the Government of the Republic of Armenia for the Promotion and Protection of Investments of 17 October 2001; Article 5(1) of the Agreement on Encouragement and Reciprocal Protection of Investments between the Federal Democratic Republic of Ethiopia and the Kingdom of the Netherlands of 16 May 2003; Article 8(1) of the Agreement between the Belgium-Luxembourg Economic Union and the Republic of the Sudan on the Reciprocal Promotion and Protection of Investments of 7 November 2005; Article VI(1) of the Agreement between the Government of the Republic of Nicaragua and the Government of the Italian Republic on the Promotion and Protection of Investments of 20 April 2004; Article 7(1) of the Agreement on the Promotion and Protection of Investment between the Government of the Republic of Finland and the Government of the Republic of Armenia of 5 October 2004; Article 7(1) of the Agreement between the Federal Democratic of Ethiopia and the Kingdom of Denmark concerning the Promotion and Reciprocal Protection of Investments of 24 April 2001; Article 5(1) of the Agreement between the Swiss Federal Council and the Government of the People's Democratic Republic of Algeria concerning the Promotion and Reciprocal Protection of Investments of 30 November 2004; Article 9(1) of the Agreement between the Government of Australia and the Government of the Republic of India on the Promotion and Protection of Investments of 26 February 1999; Article 5 of the Treaty between the Federal Republic of Germany and the Democratic Republic of Timor-Leste concerning the Encouragement and Reciprocal Protection of Investments of 10 August 2005; Article 6(1) of the Agreement between the Government of the United Mexican States and the Government of the Republic of Iceland on the Promotion and Reciprocal Protection of Investments of 24 June 2005; Article 7(1) of the Agreement between the Government of the Republic of Indonesia and the Government of the Republic of India for the Promotion of Protection of Investments of 10 February 1999. 16 Biwater Gauff (Tanzania) Ltd. v. United Republic of Tanzania, ICSID Case No. ARB/05/22, Award (24 July 2008), para. 735. 17 Global Telecom Holding S.A.E. v. Canada, ICSID Case No. ARB/16/16, Award (27 March 2020), para. 703.
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transfer without restriction or delay is a necessary corollary to the general obligation of allowing free transfer. The wording in Article 8.13 CETA is common to investment treaty drafting practices.18 While Article 8.13 CETA leaves open to interpretation the precise scope in which a transfer would be restricted or the subject of a delay, it is submitted in doctrine that any such time period should satisfy the requirement of ‘promptness’.19 Some investment treaties expressly set out a time frame for any such ‘delay’.20 The issue of delay was considered by a tribunal in Karkey Karadeniz v. Pakistan 21, 23 where the tribunal found that Pakistan had violated its obligations by failing to allow Karkey’s right to transfer assets related to its investments ‘without unreasonable delay.’22 The conduct in question involved the detaining of three of the investors’ vessels and freezing of bank accounts. It further involved that a fourth vessel was only released after the investors pursued and obtained an order from the arbitral tribunal mandating its release, and requiring an appellate court in Pakistan to reverse a decision of the Sindh High Court, ordering that Pakistan comply with the tribunal’s orders.23 Inter alia, the investors were successful on their claims against Pakistan that it had violated its obligations to permit the investors the free transfer of their investments without restriction or delay.24 The issue of restriction was considered by a tribunal in Metalpar v. The Argentine 24 Republic.25 The purported restriction related to a letter of advice given by a bank, advising the investors that they were prohibited from making remittances to shareholders in US dollars, as a result of legislative acts of the Argentinian government. 26 The investors were unsuccessful on that claim, having relied solely on the letter of advice as their reasoning for a ‘restriction’. The tribunal dismissed the investors’ claim, holding instead that the investors knew of the regulations, and chose not to comply with the government’s established procedures which otherwise consisted of requesting
18 See for example, Article 12(1) of the Agreement between the Government of Canada and the Government of the People's Republic of China for the Promotion and Reciprocal Protection of Investments; Article 11(1) of the Netherlands model Investment Agreement (2019); Article 6 of the Agreement between the United Kingdom of Great Britain and Northern Ireland and Bosnia and Herzegovina for the Promotion and Protection of Investments of 2 October 2002; Article 7(1) of the United States model Investment Agreement (2012); Article 5(1) of the Agreement on Encouragement and Reciprocal Protection of Investments between the Federal Democratic Republic of Ethiopia and the Kingdom of the Netherlands of 16 May 2003. 19 Vandevelde, Bilateral Investment Treaties (2010), 320. 20 For example, see the Article 6(4) of the Agreement between the Republic of Austria and the Republic of the Philippines for the Promotion and Reciprocal Protection of Investments of 11 April 2002, which provides that, ‘[t]he term “without undue delay” means such period as is normally required for the completion of necessary formalities for the transfer of payments. The said period shall commence on the day on which the request for transfer has been submitted and may on no account exceed two months.’ For a further discussion, see Salacuse, The Law of Investment Treaties (2021), 353. 21 Karkey Karadeniz Elektrik Uretim A.S. v. Islamic Republic of Pakistan, ICSID Case No. ARB/13/1, Award (22 August 2017). 22 Karkey Karadeniz Elektrik Uretim A.S. v. Islamic Republic of Pakistan, ICSID Case No. ARB/13/1, Award (22 August 2017), para. 655. 23 Karkey Karadeniz Elektrik Uretim A.S. v. Islamic Republic of Pakistan, ICSID Case No. ARB/13/1, Award (22 August 2017), para. 651. 24 Karkey Karadeniz Elektrik Uretim A.S. v. Islamic Republic of Pakistan, ICSID Case No. ARB/13/1, Award (22 August 2017), paras. 655-656. 25 Metalpar S.A. and Buen Aire S.A. v. The Argentine Republic, ICSID Case No. ARB/03/5, Award on the Merits (Unofficial English Translation) (6 June 2008). 26 Metalpar S.A. and Buen Aire S.A. v. The Argentine Republic, ICSID Case No. ARB/03/5, Award on the Merits (Unofficial English Translation) (6 June 2008), paras. 176–178.
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authorisation of the central bank of Argentina.27 The tribunal went on further to suggest that, ‘[s]hould it be concluded that the events were the result of incorrect advice provided by [the bank] to [the investors], the consequences of that error could not be charged to Argentina either.’28
3. ‘… freely convertible currency ...’ The permission of free transfer is only effective if the currency of the transfer is one that is freely convertible or widely usable. In general, such transfers would be made in the investor’s home currency or a currency useful to the covered investment. The final wording of Article 8.13 is common to international investment treaty practices. 29 The amendment from previous drafts which included the wording ‘in the convertible currency in which the capital was originally invested, or in any other convertible currency agreed to by the investor and the Party concerned’ (→ mn. 9 ff.) suggests that the intention of the Parties was to offer the broadest guarantee possible. Further, there is no longer flexibility of host States to negotiate an agreement with an investor, over the currencies for which a transfer is permitted.30 The earlier wording could have negated a right of transfer in a scenario where an investment was locally-financed, so that no foreign currency was used for the investment (→ mn. 9 ff.). The chosen version does not contain such restrictions. 26 By comparison, a distinction is also drawn between a ‘freely convertible’ and a ‘freely usable’ currency. The language of a ‘freely usable’ currency is adopted in several other treaty instruments,31 and has been defined in the IMF Articles of Agreement. 32 Freely usable currency connotes that a currency is widely used as a means of international payment and widely traded in principal exchange markets.33 This may be attractive to an investor for the additional protection that a currency is more likely to be widely convertible and accepted as a means of payment. As of the date of this writing, the IMF regards five currencies as freely usable currencies, they are: the US Dollar, the Euro, the Chinese Yuan, the Japanese Yen and the British Pound Sterling. 25
27 Metalpar S.A. and Buen Aire S.A. v. The Argentine Republic, ICSID Case No. ARB/03/5, Award on the Merits (Unofficial English Translation) (6 June 2008), para. 179. 28 Metalpar S.A. and Buen Aire S.A. v. The Argentine Republic, ICSID Case No. ARB/03/5, Award on the Merits (Unofficial English Translation) (6 June 2008), para 179. 29 See for example, Article 12(2) of the Agreement between the Government of Canada and the Government of the People's Republic of China for the Promotion and Reciprocal Protection of Investments of 9 September 2012; Article 11(1) of the Netherlands Model Investment Agreement (2019); Article 14(2) of the Energy Charter Treaty of 17 December 1994; Article 5(1) of the Agreement on Encouragement and Reciprocal Protection of Investments between the Federal Democratic Republic of Ethiopia and the Kingdom of the Netherlands of 16 May 2003; Article 6(1) of the Agreement between the Government of the Kingdom of Sweden and the Government of the Republic of Kazakhstan on the Promotion and Reciprocal Protection of Investments of 25 October 2004; Article 7(2) of the Agreement between the Government of the Kingdom of Thailand and the Government of the Argentine Republic for the Promotion and Reciprocal Protection of Investments of 18 February 2000. 30 Further discussion on the different styles of language used in these provisions are contained in Salacuse, The Law of Investment Treaties (2021), 352. 31 See for example, Article 7(2) of the United States Model Investment Agreement (2012) and Article 9.9.2 of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) (2018). 32 Article XXX(f) of the Articles of Agreement of the International Monetary Fund states that, ‘[a] freely usable currency means a member's currency that the Fund determines (i) is, in fact, widely used to make payments for international transactions, and (ii) is widely traded in the principal exchange markets.’ 33 Article XXX(f) of the Articles of Agreement of the International Monetary Fund.
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4. ‘... at the market rate of exchange ...’ Article 8.13 further specifies that the ‘market rate of exchange’ shall be used for the 27 transfer. This wording is similarly used in international investment treaty protection practice.34 Use of the market rate takes matters further outside of the control of the host State, as compared with the requirement of an ‘official exchange rate’. 35 Further, the express stipulation of a market exchange rate serves to clarify any ambiguities that may have arisen between an obligation to permit transfers at the official or market rate of exchange. Although it may be relevant to the investor, Article 8.13(1) does not indicate whether the exchange rate at the date of the request for transfer is to be applied or that of the actual date of the transfer. None of the earlier drafts of Article 8.13 have provided for this either. It is suggested in doctrine that in such cases the exchange rate of the date of transfer would be used.36 This makes the requirement of ‘without restriction or delay’ even more important.
5. Included Transfers Article 8.13(1) CETA provides a non-exhaustive list of transfers covering the most 28 common types of transfers.37 By comparison other treaties grant a more simplistic, general right to transfer ‘capital and returns’.38 While the language used to define the list of transfers in Article 8.13(1) CETA is 29 non-exhaustive, transfers that take place outside of this list still may require additional reasoning. The tribunal in Continental Casualty v. Argentina, relied heavily on the fact that the specific kind of transfer was not included within the non-exhaustive list.39 The subject of dispute in that case was a short-term placement made outside of Argentina. Such a transfer was described by the tribunal to be ‘merely a change of type, location and currency of part of an investor’s existing investment, namely a 34 See for example, Article 12(2) of the Agreement between the Government of Canada and the Government of the People's Republic of China for the Promotion and Reciprocal Protection of Investments of 9 September 2012; Article 11 of the Netherlands model Investment Agreement (2019); Article 7(2) of the United States model Investment Agreement (2012); Article 6(2) of the Agreement between the Government of the Kingdom of Sweden and the Government of the Republic of Kazakhstan on the Promotion and Reciprocal Protection of Investments of 25 October 2004; Article 7(3) of the Agreement between the Government of the Republic of Indonesia and the Government of the Republic of India for the Promotion of Protection of Investments of 10 February 1999. 35 Vandevelde, Bilateral Investment Treaties (2010), 321. The use of an official exchange rate was considered in the award in Rusoro Mining Ltd. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/12/5, Award (22 August 2016). In that decision, the applicable treaty language adopted a broader reference to a ‘rate of exchange applicable on the date of transfer’ (para. 566). The tribunal considered that the host State’s guarantee to investors was (inter alia), simply to be ‘at the Official Exchange Rate prevailing at the date of transfer’ (para. 578). This was cognisant of circumstances where Venezuela was empowered to exercise its monetary sovereignty (being compatible with its guarantees under the relevant bilateral investment treaty), by choosing to impose a more stringent exchange control mechanism, where Venezuelan residents were required to acquire foreign currency only after obtaining administrative authorisation, to sell a high percentage of foreign currency earned to the Venezuelan Central Bank, and in which the official exchange rate was established by fiat currency of the Venezuelan Central Bank (para. 578). 36 Vandevelde, Bilateral Investment Treaties (2010), 321–322. 37 Vandevelde, Bilateral Investment Treaties (2010), 316 ff. 38 For example, see, Article 6 of the Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the People's Republic of Bangladesh for the Promotion and Protection of Investments of 19 June 1980, which states that: ‘Each Contracting Party shall in respect of investments guarantee to nationals or companies of the other Contracting Party the free transfer of their capital and their returns from it.’ 39 Continental Casualty Company v. Argentina, ICSID Case No. ARB/09/9, Award (5 September 2008), para. 241.
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part of the freely disposable funds, held short term at its banks by [its investment company], in order to protect them from the impending devaluation, by transferring them to bank accounts outside Argentina.’40 The tribunal held that the transfer failed to meet the requirements of being a transfer ‘related to an investment’. 41 30 Article 8.13 safeguards the effectiveness of the protection from expropriation as well as the effectiveness of arbitral awards by including transfers of compensation for expropriation in the sense of Articles 8.11 and 8.12 as well as transfers of payments of damages pursuant to an award under Section F of CETA. a) Funds to Maintain, Develop or Increase the Investment Article 8.13(1)(a) covers the principal amount and any additional amount invested into maintaining, developing or increasing the investment. This could be of relevance for investors purchasing raw materials or deploying labour from non-local sources. 32 UNCTAD has described these transfers to consist of inward transfers to be invested by a foreign investor and categorises these into two categories: 31
The first type are those that are made for purposes of making a new investment; the second type are those that are made to develop or maintain an existing investment (e.g. increased capitalization of a foreign affiliate). Almost all foreign investment agreements cover the latter type, on the basis that the right of an investor to provide additional infusions of capital into an existing investment is an important attribute of investment protection. However, only those agreements that require the host country to admit new investments include the first type of transfers in the transfer provisions. Most bilateral investment agreements do not include such admission obligations.42
b) Amounts Derived from the Investment Amounts derived from the investment are guaranteed to be freely transferred. This is the fundamental reason for the making of an investment in the first place. Article 8.13(1)(b) includes profits, dividends, interest, capital gains, royalty payments, management fees, technical assistance and other fees, or other forms of returns or amounts derived from the investment. The precise manner in how these amounts are derived, may vary, especially with newer industries and the changing ways in which States and private investors contract. The wording of Article 8.13(1)(b) includes ‘other forms of returns or amounts derived from the investment.’ This is sufficiently broad and may cover for example, transfers of returns in kind. In earlier drafting the wording ‘returns in kind’ was explicitly included.43 34 The adoption of production-sharing agreements with host States, particularly with oil and mineral companies, has seen investment returns be paid in the form of minerals or petroleum produced. Several treaties, such as the Energy Charter Treaty 44 and the USMCA45, expressly make clear that returns in kind are in principle to be freely transferred as authorised or specified under the underlying sharing or other agreement.46 33
40 Continental Casualty Company v. Argentina, ICSID Case No. ARB/09/9, Award (5 September 2008), para. 241. 41 Continental Casualty Company v. Argentina, ICSID Case No. ARB/09/9, Award (5 September 2008), para. 244. 42 UNCTAD, International Investment Agreements: Key Issues (Volume 1) UNCTAD/ITE/IIT/2004/10 (2004), 270. 43 See Article 8.2(1)(b) of the drafts of CETA of 13 January 2010, January 2011 and February 2012. 44 Article 14(1)(6) of the Energy Charter Treaty of 17 December 1994. 45 Article 14.9(4) of the Agreement between the United States of America, the United Mexican States, and Canada of 1 July 2020. 46 For a further discussion, see Salacuse, The Law of Investment Treaties (2021), 352.
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A restriction on the transfer of dividends was raised by the investors in OI Euro- 35 pean Group v. Venezuela.47 The investors argued that the Venezuelan government’s unfavourable application of a foreign exchange rate to the dividend payment constituted a violation of the free transfer provision. The tribunal did not find in the investors’ favour, on the basis that the investors had elected to obtain a foreign currency transfer through an alternative market and not the official market. Pursuant to the tribunal this constituted a tacit waiver of the option to obtain a rate through the Venezuelan government, and it therefore was not appropriate for the investors to later complain of an unfavourable exchange rate: Having declared the dividend in favor of OIEG, the Companies had the option of resorting to the official market or the parallel market to convert the VEB to USD. Initially, they attempted to access the official market because they [sic] exchange rate was better, although there were uncertainties concerning the administrative authorization. A few months after submitting the third request to CADIVI, and without waiting for the government agency to act, the Companies freely decided to abandon the official market route, opting for the alternative and buying the foreign currency in the parallel market, and in this process, they not only spent the amount of the dividends owed (VEB 160,272,487), but a significantly higher figure (VEB 402,573,736). By opting for the parallel market, the companies tacitly waived the option of obtaining the foreign currency through CADIVI. Once the dividends are converted into USD through the parallel market and the funds repatriated to the parent company through this procedure, it is inappropriate for Claimant to complain that the exchange rate was unfavorable and that CADIVI's decision was overdue and denied the request. The Companies themselves were the ones who opted for the parallel market.48
A ban on the distribution of profits was considered in Achmea v. Slovak Republic 36 (I), where the Slovak Republic was due to introduce a ban on profits in the health insurance industry (and an associated ban on their transfer). 49 The tribunal found that such a ban on the distribution on profits, violated the free transfer provision: 50 47 OI European Group B.V. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/11/25, Award (10 March 2015) (English translation), para. 597: ‘OIEG accuses the Bolivarian Republic of having breached this guarantee in two ways: First, because the request to transfer funds between OldV/Favianca and OIEG experienced unwarranted delays; the requests were submitted in May, November, and June 2009 and were denied on 8 September 2011-almost three and a half years later-by CADIVI, the body of the Republic in charge of exchange control; furthermore, the decision was made just one week after the presentation of this arbitration, and never ended up being communicated to the Venezuelan Companies. Second, because CADIVI denied the transfer of the dividends declared by OldV on 21 May 2008 and 15 June 2009 and by Favianca on 24 November 2008 to their parent company; CADIVI's decision was based on an inaccurate inference: that the dividends had allegedly already been paid to OIEG; in reality, the dividends appeared in the balance of the Venezuelan Companies as "accounts payable" because they had been forwarded to the group in the form of a loan.’ 48 OI European Group B.V. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/11/25, Award (10 March 2015) (English translation), paras. 632–633. 49 Achmea B.V. (formerly Eureko B.V.) v. Slovak Republic I, PCA Case No. 2008-13, Final Award (7 December 2012), para. 280: ‘The Tribunal is satisfied that the ability to distribute profits (and even more, the ability to distribute profits coupled with the ability to transfer a client portfolio for value) was as a matter of fact an essential precondition of Eureko’s decision to invest in the Slovak Republic. It accepts the evidence of Mr Van Duin that, had Eureko’s management been aware of a real possibility that a ban on profits (and subsequently a ban on transfers) was about to be introduced by the Government, the investment in the Slovak Republic would not have been made at all. It accepts also that, while Eureko’s management were aware of the possibility of far-reaching reforms being introduced in the organisation of health insurance in the Slovak Republic after the 2007 election, they were not aware that such reforms would include a ban on profits and a ban on transfers that would prevent the realisation of any profits from their investment.’ 50 Achmea B.V. (formerly Eureko B.V.) v. Slovak Republic I, PCA Case No. 2008-13, Final Award (7 December 2012), para. 286.
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The Tribunal finds that the ban on profits was inconsistent with Respondent’s obligations under [the free transfer provision]. In principle, any losses arising from the application of that ban to Claimant would be recoverable in damages. In the present case, however, the facts are such that the violation and the injury arising from the temporary adoption of the ban on profits are subsumed within the violation and the injury arising from the breach of the ‘fair and equitable treatment’ obligation. The Tribunal accordingly records that Respondent was in breach of [the free transfer provision], but it is not necessary to consider the question of losses arising from that breach any further.
c) Proceeds from the Sale or Liquidation of the Investment Article 8.13(1)(c) includes proceeds from the sale or liquidation of the whole or a part of the covered investment. The guarantee of the free transfer of funds deriving from the sale or liquidation of the investment is of particular importance for an investor wishing to withdraw from his investment or where the investment otherwise ends. 38 A sale of personal property does not fall within this category as the tribunal found in Global Telecom v. Canada: 37
While it could be argued that the sale of personal property involves a ‘transfer’ of ownership, this is not the meaning of ‘transfer of investments and returns’ used in Article IX(1) of the BIT.[…] [t]he Tribunal agrees with Canada’s submission that the purpose of Article IX is to protect cross-border movements of funds related to the investment.51
d) Payments (including loans) Made under a Contract Entered into by the Investor or the Investment Article 8.13(1)(d) includes payments made under a contract entered into by the investor or the covered investment, including payments made pursuant to a loan agreement. Foreign investment usually bears with it significant initial outlays and considerable operating expenses. Further, investors may serve to benefit either through local or international markets, and the means in which they decide to finance their investment. Locality, contractual setting and risk appetite are also likely to vary. Therefore, the guarantee that payments made under a contract entered into by the investor or the investment is of considerable importance. 40 It may also be the case, investors contract with State-owned entities. In the context of a coal mining contract, an investor may enter into multiple contracts with a State entity in order to develop and mine coal in the host State. This may include an underlying agreement for the supply of equipment, and the development of the mine. Agreements to finance the development may also form part of the transaction. This was the situation in White Industries v. India, where the tribunal held that an assertion of a contractual right over a bank guarantee (against the State entity), did not amount to a restriction on the movement of capital by a host State: 39
White's case for breach of Article 9 of the BIT is based upon the conduct of Coal India in calling on the Bank Guarantees, and its subsequent retention of those funds following the making of the Award. The Tribunal concludes this claim must fail. Apart from the fact that Article 9 is clearly aimed at restrictions on the movement of capital and exchange of currency imposed by a Contracting Party, rather than the assertion of a contractual right to funds provided for in a bank guarantee, the claim is entirely based on the conduct of Coal India. 51 Global Telecom Holding S.A.E. v. Canada, ICSID Case No. ARB/16/16, Award (27 March 2020), paras. 702–704.
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Accordingly, the Tribunal having determined that the conduct of Coal India is not attributable to the Republic, there is no basis for a claim that India acted in any way in breach of its obligations created by Article 9 of the BIT.52
In the case in Pezold and Ors v. Zimbabwe, the investors argued that Zimbabwe’s 41 refusal to release foreign currency reserves to enable repayment of a loan to the investors, was in breach of the applicable free transfer provision.53 Further, that Zimbabwe’s conduct in forcing the investors to pay for tobacco in Zimbabwean Dollars, and its subsequent failure to release the investors’ US Dollars earned through the sale of tobacco, was a breach. The tribunal sided with the investors’ arguments, and found that such conduct amounted to a breach of the free transfer provision. 54 e) Payments Made Pursuant to Claims for Compensation for Losses or Expropriation Article 8.13(1)(e) includes payments made pursuant to claims under Articles 8.11 42 and 8.12. This guarantees that any such payment made to an investor in compensation-for-loss or for expropriation, is freely transferrable from the host State. The CETA contains provisions for both compensation for losses and expropriation, pursuant to Articles 8.11 and 8.12 respectively. The Article 8.11 compensation-for-loss provision is subject to several conditions. 55 43 It requires a circumstance of a present or past armed conflict, civil strife, a state of emergency or a natural disaster leading to a loss and subsequent measures of restitution, indemnification, compensation, or other settlement by the host State. In that situation, the obligations of national and MFN treatment arises (→ Art. 8.11 mn. 10). In the context of expropriation, Article 8.12 protects investments against expropria- 44 tion without payment of compensation (→ Art. 8.12 mn. 19). Exchange restrictions 52 White Industries Australia Limited v. Republic of India, UNCITRAL, Final Award (30 November 2011), paras. 13.2.1–13.2.4. 53 Bernhard von Pezold and Others v. Republic of Zimbabwe, ICSID Case No. ARB/10/15, Award (28 July 2015), paras. 602-603, stating: ‘The Claimants contend that […] the State must permit an investor to transfer funds out of the country if the investor has the necessary funds to do so, and that it amounts to a promise that, in all circumstances, it will have sufficient foreign currency reserves available to German and Swiss investors so that it can honour its obligations under the standard. The Claimants allege that the Respondent breached this standard on 31 December 2001 when it refused to release the necessary foreign currency in order to enable the Forrester Estate to repay the foreign currency Forrester Loans to Elisabeth. The Claimants also allege that, between 2004 and 2008, the Respondent forced the von Pezold Claimants to be paid for their tobacco in Zimbabwean Dollars; that between 2003 and 2009, the Respondent forced the Claimants to exchange some of their US Dollar proceeds from the Border Estate’s exports in return for Zimbabwean Dollars; and finally that the Respondent has refused to release US Dollars that were earned through the sale of tobacco (that is, the Forrester Tobacco Shortfall, the Border Liquidation Shortfall and the Forrester Conversion Amount). The result is that the Claimants have been unable to transfer their returns on investment out of Zimbabwe.’ 54 Bernhard von Pezold and Others v. Republic of Zimbabwe, ICSID Case No. ARB/10/15, Award (28 July 2015), paras. 608–609: ‘The Tribunal considers that the Respondent breached this provision of the Swiss BIT in refusing to release foreign currency to allow the Forrester Estate to repay the Loans to Elisabeth in 2001. The FTP provisions were further breached between 2004 and 2008 when the Respondent forced the Claimants to be paid for tobacco in Zimbabwean Dollars and between 2003 and 2009 when it forced the Claimants to exchange US currency for Zimbabwean Dollars (the Forrester Tobacco Value Shortfall and the Border Liquidation Shortfall). The Respondent’s failure to release US Dollars earned through the sale of tobacco also breached this standard (the Forrester Conversion Amount).’ 55 Article 8.11 of CETA states: ‘Notwithstanding Article 8.15.5(b), each Party shall accord to investors of the other Party, whose covered investments suffer losses owing to armed conflict, civil strife, a state of emergency or natural disaster in its territory, treatment no less favourable than that it accords to its own investors or to the investors of a third country, whichever is more favourable to the investor concerned, as regards restitution, indemnification, compensation or other settlement.’
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that substantially diminish the value of an investment may lead an investor to invoke the expropriation clause of an investment treaty or customary international law. Article 8.12(3) CETA expressly requires the compensation to be made transferrable without delay to the country designated by the investor and in the currency of the country of which the investor is a national or otherwise in any freely convertible currency accepted by the investor. 45 This includes the situation where the investor was deprived of the opportunity to repatriate funds in order to purchase necessary raw materials or equipment. The burden is then for the investor to show that such a restriction substantially deprived it of the underlying value of the investment, thereby amounting to an expropriation. 56 f) Earnings and Other Remuneration of Foreign Persons Working in Connection with an Investment Article 8.13(1)(f) includes earnings and other remuneration of foreign persons working in connection with an investment. This makes clear that funds and remuneration obtained by foreign employees and contractors in connection with the investment are freely transferable. Investors, in the course of conducting the investment, may seek to hire the expertise of a foreign consultant or specialist. Article 8.13(1)(f) resolves any ambiguity as to whether a foreign employee may freely repatriate remuneration.57 It is noted that even without a specific reference to the repatriation of earnings or the remuneration of foreign persons, that such a transfer would fall under the heading of payments made in connection with an investment (→ mn. 39 ff.). 58 47 The investors in Ryan and Ors v. Poland argued that Poland had prevented management fees of the investors’ foreign consultants, from being freely transferred pursuant to the BIT.59 It was argued that tax proceedings in Poland were effectively an imprisoning of the funds. The tribunal held that Poland did not restrict any transfer, and that the management fees had been paid, collected and transferred already. 60 46
g) Payment of Damages Pursuant to an Award Issued through an Investor-State Arbitration 48
Article 8.13(1)(g) includes payment of damages pursuant to an award issued under Section F of the CETA. Section F of the CETA concerns the resolution of investment disputes between investors and States. This item guarantees that any award of damages would in fact be transferrable outside of the host State. This serves as an effective guarantee to the investor, in the event they sought to claim damages by commencing investor-State arbitration proceedings against a host State. Any effect of restitution through an award of damages, would then be guaranteed to be freely transferred out of the host State, if the investor so desired.
56 For further discussion, see Kolo and Wälde, ‘Capital Transfer Restrictions under Modern Investment Treaties’, in Reinisch (ed), Standards of Investment Protection (2008), 205 (227). 57 For further discussion, see Salacuse, The Law of Investment Treaties (2021), 345. 58 Salacuse, The Law of Investment Treaties (2021), 345. 59 Ryan, Schooner Capital LLC, and Atlantic Investment Partners LLC v. Republic of Poland, ICSID Case No. ARB(AF)/11/3, Award (24 November 2015), para. 499. 60 Ryan, Schooner Capital LLC, and Atlantic Investment Partners LLC v. Republic of Poland, ICSID Case No. ARB(AF)/11/3, Award (24 November 2015), para. 507: ‘(…) [T]he Tribunal notes that the tax proceedings were initiated and the decisions issued after the Management Fees had already been paid, collected and – in fact – transferred. Had there been no transfer of these fees by [the Claimant], there would have been no dispute about the fees being deductible costs.’
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III. Transfers Shall Not Be Required This is a provision that is found in international investment agreements predomi- 49 nantly where Canada is a contracting Party.61 Article 8.13(2) sets out that no Party shall require its investors to transfer, or 50 otherwise penalise their investors for failing to transfer the income, earnings, profits or other amounts derived from or attributable to investments made in the territory of the host State. This provision is a further guarantee of the investor and its freedom to freely dispose of funds. At the same time it could be to the benefit of the host State by giving a preference towards retaining and reinvesting the foreign investor’s profits within its territory, as opposed to making a transfer abroad.62 The Government of Canada published a Statement on the Implementation of the 51 United States-Mexico-Canada Agreement (USMCA),63 which contains a similar provision to Article 8.1(2). In that context, the Government of Canada noted that the free transfer provision permitted investors to transfer funds in respect of a covered investment, into and out of the host State, freely and without delay, and ‘prohibits forced repatriation of funds by the home government.’64 The tribunal in The Canadian Cattlemen for Fair Trade v. United States, whilst deciding on a different issue, also commented on the equivalent Article of the NAFTA: Article 1109 relating to ‘Transfers’, while not referring specifically to Article 1102, is another example of a provision that this Tribunal considers would be significantly different if Article 1102(1) had been intended to cover domestic investors. Article 1109(1) requires that host countries permit the free transfer of profits from investment within its territory. Article 1109(3) goes on to prohibit a Party from requiring its investors to transfer back profits from investments in the territory of another Party, or from penalizing them for failing to make such transfers – i.e., from leaving such profits outside the home country. Had the NAFTA Parties intended for domestic investors to be protected by Chapter Eleven, even if just in Articles 1102 and 1103 as Claimants argue, Article 1109 would have needed a complementary provision to Article 1109(3)’s repatriation focused prohibition, prohibiting home countries from imposing limitations on the expatriation of profits. 65
IV. Limitations to Transfers Article 8.13 reflects the contrasting interests of host State and investor. In certain 52 situations, host States may have a legitimate interest to limit the transfers. This may be 61 See for example, Article 14.9(3) of the Agreement between the United States of America, the United Mexican States, and Canada of 1 July 2020: ‘A Party shall not require its investors to transfer, or penalize its investors that fail to transfer, the income, earnings, profits, or other amounts derived from, or attributable to, investments in the territory of another Party.’ See also, Article 14(4) of the Canadian Model Investment Agreement (2004): ‘Neither Party may require its investors to transfer, or penalize its investors that fail to transfer, the income, earnings, profits or other amounts derived from, or attributable to investments in the territory of the other Party.’ A similar type of provision also appears in Article 1109(3) of the (now terminated) North American Free Trade Agreement between Canada, the United States and Mexico of 17 December 1992: ‘No Party may require its investors to transfer, or penalize its investors that fail to transfer, the income, earnings, profits or other amounts derived from, or attributable to, investments in the territory of another Party.’ 62 Salacuse, The Law of Investment Treaties (2021), 345. 63 Article 14.9, Canada-United States-Mexico Agreement: Canadian Statement on Implementation, Canada Gazette, Part I, Volume 154, Number 34: Global Affairs Canada (22 August 2020). Online version accessible at: https://gazette.gc.ca/rp-pr/p1/2020/2020-08-22/html/sup1-eng.html. 64 Article 14.9, Canada-United States-Mexico Agreement: Canadian Statement on Implementation, Canada Gazette, Part I, Volume 154, Number 34: Global Affairs Canada (22 August 2020). 65 The Canadian Cattlemen for Fair Trade v. United States of America, UNCITRAL, Award on Jurisdiction (28 January 2008), para. 152.
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the case in relation to large transfers that deplete foreign exchange reserves needed for other purposes. Also the concern of capital flight during general economic difficulties may exacerbate a host State’s domestic problems. 66 In that respect, an unrestricted free transfer of funds provision may be detrimental to a host State. The power of host States to impose capital controls are often inconsistent with their international obligations, particularly those owed to foreign investors. Succinctly put, liberalisation of financial markets is considerably advantageous to both investor and host State. However, times of financial crises require that host States exercise power to restrict the investor's right to transfer.67 53 Article 8.13(3) of CETA, amongst other provisions, reflects the reality that investment treaty protections are negotiated against the background of a host State’s monetary sovereignty.68 It follows that a host State enjoys the exclusive right to determine domestic monetary policy, including its monetary unit, providing its legal definition, fixing the exchange rate and to regulate, restrict or to prohibit the conversion and transfer of foreign exchange.69 As discussed below, Article 8.13(3) contains express parameters in which a host State may apply its laws, insofar as such application is equitable, non-discriminatory and is not otherwise disguised as a restriction on transfers. 54 The CETA also contains safeguards for the balance of payments and restrictions in the face of financial difficulties. Particularly in times of economic crises, host States may seek to restrict the flow of capital to and from its capital account in order to protect its domestic economy. The tools to effect these restrictions vary, but are employed on an understanding that sudden increases (capital inflows) or decreases (capital outflows) of capital are likely to cause undesirable price volatility in domestic financial markets.70 The original scope of Article 8.13 was proposed generally as ‘Payments and Capital Movements’, which was sub-divided into two Articles: ‘Current Payments’, and ‘Capital Movements’ as proposed by the EU on the one hand, against ‘Transfers’, proposed by Canada on the other.71 A further Article on ‘Safeguard Measures’ appeared in these earlier drafts.72 This has subsequently been re-organised, with Article 8.13 now to cover only for ‘Transfers’. The provisions relating to capital movements and payments, and temporary safeguard measures for serious balance of payment and external financial difficulties (now Articles 28.4 and 28.5), were moved into Chapter 28, on ‘Exceptions’. This is noteworthy as the interpretation of the host State’s right to apply its laws under Article 8.13(3), should be guided by the principles set out in Chapter 28.73 This is particularly so in interpreting whether a host State has applied its laws in an ‘equitable and non-discriminatory manner’ or whether an application ‘would constitute a disguised restriction on transfers’.
66 UNCTAD Conference on Trade and Development, ‘International Investment Arrangements: Trends and Emerging Issues’, UNCTAD Series on International Investment Policies for Development (2006), 39. 67 Dolzer and Schreuer, Principles of International Investment Law (2012), 215. 68 Dolzer and Schreuer, Principles of International Investment Law (2012), 213. 69 Salacuse, The Law of Investment Treaties (2021), 345. 70 Dolzer and Schreuer, Principles of International Investment Law (2012), 212. 71 See Articles 8.1–8.3 of the drafts of CETA of 13 January 2010, January 2011 and February 2012. 72 See Articles 8.1–8.3 of the drafts of CETA of 13 January 2010, January 2011 and February 2012. 73 See also, Titi, ‘The Right to Regulate’ in Mbengue and Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (2019), 159 (177).
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1. Application of Laws of Host States Most countries have laws regulating international monetary payments. This is particularly the case where economies are rapidly moving into the digital space. Money laundering, crime and terrorism financing, creditor protection and tax evasion are some such areas that host States may seek to regulate its domestic affairs. 74 This places host States in a unique position between having to balance its obligation towards foreign investors, with those of regulating for matters of genuine domestic public interest. Foreign investors in a situation of economic crisis, may find themselves caught in the hands of governmental measures that restrict their ability to transfer funds abroad. 75 Article 8.13(3)(a) to (e) of CETA reflects the governance position occupied by host States. It provides that nothing in Article 8.13 is to be construed against a host State’s application (in an equitable and non-discriminatory manner, and not in a manner constituting a disguised restriction on transfers) of its laws relating to securities, crime and penal offences, financial reporting and screening, adjudicatory and enforcement proceedings of creditors' rights. The general point here is that Article 8.13(3) qualifies an otherwise expansive reading of the transfer provision, and applies in exception to the movement of funds.76 This type of provision has been used in other investment treaty provisions. 77 The areas in which host States have the right to regulate vis-à-vis their obligations in relation to permitting the free transfer of funds, is representative of the modern dilemma faced by host States when inviting foreign investment. It is noted in doctrine that good governance requires governments to have legal authority to oversee and regulate transfers in order to protect creditors, fight crime and terrorism, and prevent tax evasion.78 It remains that host States have obligations outside of those owed to foreign investors. Inter alia, host States by virtue of Article 8.13(3) of CETA, may continue to apply their laws whilst respecting as far as possible, the rights of foreign investors. The categories at Article 8.13(3)(a) and (e) allow host States to restrict transfers in order to satisfy judgments in adjudicatory proceedings or to protect creditors' rights.79 This is cognisant to the situation where a foreign investor may become Party to civil, administrative or criminal proceedings, where it is possible a monetary judgment against them may be entered. The proceeds of the amounts derived from the investment and received by the investor, may be attached and (by operation of Article 8.13(3)(a) and/or (e)), restrict an investor from making such a transfer. 80 The purpose
74 A useful discussion is contained in Ruffert, Free Flow of Capital, Max Planck Encyclopedias of International Law (2014), 1. 75 Salacuse, The Law of Investment Treaties (2021), 348. 76 This point was submitted in Canada's defence and considered by the tribunal in Global Telecom Holding S.A.E. v. Canada, ICSID Case No. ARB/16/16, Award (27 March 2020), paras. 695 and 703. 77 See for example, Article 14.9(5) of the Agreement between the United States of America, the United Mexican States, and Canada of 1 July 2020; Article 6(3) of the Agreement between the Government of the United Mexican States and the Government of the Republic of Iceland on the Promotion and Reciprocal Protection of Investments of 24 June 2005; Article 12(3) of the Agreement between the Government of Canada and the Government of the People's Republic of China for the Promotion and Reciprocal Protection of Investments of 9 September 2012; and Article 11(3) of the Netherlands Model Investment Agreement (2019). It is noted that all of these provisions (except for the Dutch Model BIT) contain a ‘good faith’ obligation to a host State’s application, rather than applications of law that would otherwise constitute a ‘disguised restriction on transfers’, as contained in Article 8.13(3) CETA. 78 Salacuse, The Law of Investment Treaties (2021), 356. 79 A further discussion is contained in UNCTAD, Transfer of Funds, UNCTAD/ITE/IIT/20 (2000), 36. 80 UNCTAD, Transfer of Funds, UNCTAD/ITE/IIT/20 (2000), 35-36.
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of both provisions is then to protect a host State's insolvency laws, adjudicatory and enforcement procedures. The categories at Articles 8.13(b) and (d) allow host States to restrict transfers for the purposes of financial reporting and record keeping for law enforcement or financial regulatory purposes. Article 8.13(b) and (d) makes clear that the obligation to permit transfers does not require that host States abandon existing measures in place regarding law enforcement and financial regulation.81 This includes the situation where a resident seeks to purchase foreign exchange to make investments abroad. A host State may impose restrictions on how this can be done, such as requesting for written evidence of the purpose of the payment, so as to assure that the foreign exchange would not be transferred by the resident for the purpose of making its own outward investment.82 It is noted that any such imposition of a restriction should not give rise to an 'undue delay', otherwise in breach of Article 8.13(1). The category at Article 8.13(c) reflects the special legal problems of money laundering and terrorism finance. Preventing the proceeds of crime from entering the financial system is part of a broader, global initiative of the Financial Action Task Force (FATF). 83 Based on a G7 initiative, both Canada and the European Commission are members to the FATF, and represent a broader concern toward crime prevention. The FATF is a body established to develop and promote national policies to combat money laundering and terrorism finance. Article 8.13(3)(c) can be said to be in line with this objective, such that both Parties are able to impose restrictions against such criminal offences. It is also noted, that exchange restrictions have been imposed by the Security Council of the United Nations on the basis of suspects of terrorism, where transfers of capital involving suspects of terrorism were 'frozen' in States where they were invested.84 In the EU context, the European Parliament and Council have powers to take measures against financing terrorism under Article 75 TFEU. In the EU context, Member States are bound by all applicable EU laws. This includes the provisions on the free movement of capital as contained in the TFEU. To protect the financing of investments, the EU guarantees the free movement of capital within its internal market (including third countries).85 This is a fundamental freedom enabling the cost-oriented location of production in the EU. 86 The relevant provisions of EU law are found largely in Articles 63 to 66 TFEU. 87 The EU’s guarantees of the free movement of capital to third countries are largely in line with the obligations to permit free transfers under Article 8.13 CETA. The TFEU provides similarly for the EU and Member States’ powers to limit the free movement of capital. In principle, these limits are largely consistent with the Parties’ rights to limit movements of capital (including free transfers) under the CETA. However, due to a difference in the wording of the provisions, there may be a cause for inconsistency. UNCTAD, Transfer of Funds, UNCTAD/ITE/IIT/20 (2000), 35. UNCTAD, Transfer of Funds, UNCTAD/ITE/IIT/20 (2000), 35. 83 Ruffert, Free Flow of Capital, Max Planck Encyclopedias of International Law (2014), 27–28. 84 See for example, United Nations Security Council Committee, Resolution 1333 (2000) adopted by the Security Council at its 4251st meeting (19 December 2000). 85 Kotzur, in Geiger, Khan and Kotzur (eds), European Union Treaties: Treaty on European Union Treaty on the Functioning of the European Union (2015), Article 63 TFEU, mn. 3. 86 Kotzur, in Geiger, Khan and Kotzur (eds), European Union Treaties: Treaty on European Union Treaty on the Functioning of the European Union (2015), Article 63 TFEU, mn. 3. 87 An in depth discussion of the EU law and its overlap with transfer provisions is contained in Milanesi, ‘European Union Restrictions to the Free Movement of Capital v. BITs Guarantees: Learning from the European Court of Justice Case Law’, in Sacerdoti et al. (eds), General Interests of Host States in International Investment Law (2014), 287 (292). 81 82
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The EU guarantees the free movement of capital with third countries, pursuant to 63 Article 63(2) TFEU. This is consistent with the guarantee of free transfers under Article 8.13 CETA. The EU retains the power to impose restrictions on such movements (see Article 64 TFEU). This includes – exceptionally under Article 64(3) TFEU – the power of the European Council to take measures, which may ‘constitute a step backwards in Union law as regards the liberalisation of the movement of capital to or from third countries’. There is also a reservation of rights to the Member States of the EU, to make national restrictions, particularly in the application of their tax laws, prudential supervision of financial institutions, to lay down procedures for the declaration of capital movements for administrative or statistical information, or where justified on grounds of public policy or public security. Additionally, Article 66 TFEU provides the European Council with the power to 64 take safeguard measures in relation to third countries, where there are serious difficulties for the operation of economic and monetary union, for a period not exceeding six months, if such measures are strictly necessary. Where necessary, the EU also has the power to create a framework of administra- 65 tive measures, regarding capital movements and payments, with the aim of preventing and struggling against terrorism and related activities in the area of freedom, security and justice. This could include measures to freeze funds, financial assets or economic gains.88 A further limitation to the free movement of capital between the Member States of the EU and third countries may be adopted by the European Council, pursuant to a previous resolution adopted in light of the EU Common Foreign and Security Policy (CFSP) (see Article 215.1 TFEU). 89
2. Application in Equitable and Non-Discriminatory Manner While host States have a right to enact laws in the areas specified in Article 66 8.13(3), such right is subject to the condition that the State acts in an equitable and non-discriminatory manner. This language corresponds to the wording of free transfer provisions in other treaty instruments.90 An investor’s transfer rights would also be influenced by the national treatment clause at Article 8.6 of CETA, the MFN clause at 88 See Milanesi, ‘European Union Restrictions to the Free Movement of Capital v. BITs Guarantees: Learning from the European Court of Justice Case Law’, in Sacerdoti et al. (eds), General Interests of Host States in International Investment Law (2014), 287 (294); and Article 75 TFEU: ‘Where necessary to achieve the objectives set out in Article 67 [Principles; this article is contained in Title V: Area of Freedom, Security and Justice], as regards preventing and combating terrorism and related activities, the European Parliament and the Council, acting by means of regulations in accordance with the ordinary legislative procedure, shall define a framework for administrative measures with regard to capital movements and payments, such as the freezing of funds, financial assets or economic gains belonging to, or owned or held by, natural or legal persons, groups or non-State entities. The Council, on a proposal from the Commission, shall adopt measures to implement the framework referred to in the first paragraph. The acts referred to in this Article shall include necessary provisions on legal safeguards.’ 89 See Milanesi, ‘European Union Restrictions to the Free Movement of Capital v. BITs Guarantees: Learning from the European Court of Justice Case Law’, in Sacerdoti et al. (eds), General Interests of Host States in International Investment Law (2014), 287 (294); and Article 215.1 TFEU: ‘1. Where a decision, adopted in accordance with Chapter 2 of Title V of the Treaty on European Union, provides for the interruption or reduction, in part or completely, of economic and financial relations with one or more third countries, the Council, acting by a qualified majority on a joint proposal from the High Representative of the Union for Foreign Affairs and Security Policy and the Commission, shall adopt the necessary measures. It shall inform the European Parliament thereof.’ 90 See for example, Article 14(4) of the Energy Charter Treaty of 17 December 1994; Article 7(4) of the Agreement between the Government of the Republic of Austria and the Government of the Republic of Armenia for the Promotion and Protection of Investments of 17 October 2001; and, Article
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Article 8.7 of CETA and the FET clause at Article 8.10 of CETA. In doctrine the view is held that if a host State gave more expansive treatment of transfer rights to a third country’s investor, an investor under CETA may be entitled to equivalent treatment by virtue of the MFN clause.91 67 It is submitted that the general obligations of host States (for example, under Articles 8.6, 8.7 and 8.10 CETA) would apply to any exchange restrictions imposed by host States.92 This includes that measures taken must result from the non-discriminatory application of the law or that any such law is applied fairly and equitably. By practical application, there is the possibility that where a tribunal has already found a breach of a general standard, that any consequential breach of Article 8.13(3) would be ‘absorbed’ by the breach of the general obligation. This was considered by the tribunal in Achmea v. Slovak Republic (I). The tribunal found that any injury arising from the temporary adoption of the ban on profits, was subsumed within the violation and the injury arising from the breach of the FET obligation.93 68 For a fuller summary of the legal content of national treatment and MFN, reference is made to the commentaries on Articles 8.6 and 8.7 of CETA. It suffices to note here that a breach of the national treatment or MFN standards requires that a foreign investor (see wording on ‘in like situations’)94 be treated worse off than a domestic investor (see wording on ‘treatment no less favourable’)95. In that sense, a breach of the national treatment or MFN standard likely involves discrimination.96 In the context of exchange restrictions, it is envisaged that a particular investor or a group of investors may be targeted by the imposition of an exchange restriction measure, amounting to arbitrary or discriminatory treatment. Where a restriction is imposed against domestic law of a host State, may also be evidence of discriminatory or arbitrary conduct. Discriminatory and national treatment breaches are frequently raised in situations of national economic emergency.97 Emergency measures are adopted which may have the effect of unfairly favouring domestic investors, rather than foreign investors. 69 For a fuller summary of the legal content of fair and equitable treatment, reference is made to the commentary on Article 8.10 of CETA. It suffices here to note that breaches of Article 8.10(2) include denials of justice in criminal, civil or administrative proceedings; fundamental breaches of due process, including a fundamental breach of transparency, in judicial and administrative proceedings; manifest arbitrariness; targeted discrimination on manifestly wrongful grounds, such as gender, race or religious belief; abusive treatment of investors, such as coercion, duress and harassment; 12(3) of the Agreement between the Government of Canada and the Government of the People's Republic of China for the Promotion and Reciprocal Protection of Investments. 91 Salacuse, The Law of Investment Treaties (2021), 348. 92 UNCTAD, Transfer of Funds, UNCTAD/ITE/IIT/20 (2000), 36. 93 Achmea B.V. (formerly Eureko B.V.) v. Slovak Republic I, PCA Case No. 2008-13, Final Award (7 December 2012), para. 427: ‘The Tribunal finds that the ban on profits was inconsistent with Respondent’s obligations under this Article. In principle, any losses arising from the application of that ban to Claimant would be recoverable in damages. In the present case, however, the facts are such that the violation and the injury arising from the temporary adoption of the ban on profits are subsumed within the violation and the injury arising from the breach of the “fair and equitable treatment” obligation. The Tribunal accordingly records that Respondent was in breach of Article 4, but it is not necessary to consider the question of losses arising from that breach any further.’ 94 See wording of the provisions, and for example, in this commentary (→ Art 8.7 mn. 26 ff.). 95 See wording of the provisions, and for example, in this commentary (→ Art. 8.7 mn. 29). 96 For further commentary, see Kolo and Wälde, 'Economic Crises, Capital Transfer Restrictions and Investor Protection under Modern Investment Treaties', (2008) 3 Cap. Mark. Law J., 154 (180). 97 For further commentary, see Kolo and Wälde, 'Economic Crises, Capital Transfer Restrictions and Investor Protection under Modern Investment Treaties', (2008) 3 Cap. Mark. Law J., 154 (181).
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or breaches of any further elements of the fair and equitable treatment obligation adopted by the Parties in accordance with Article 8.10(3). 98 In the context of exchange restrictions, the cancellation or refusal by the host State to grant a foreign exchange permit or a failure to afford an investor a fair hearing on a question involving tax or monetary law, likely entails a breach of the FET standard.99 It is envisaged that a host State's failure to observe principles of natural justice by the courts would amount to procedural impropriety and a lack of due process, effectively in breach of its obligation to afford FET. The requirement that host States exercise their rights in an equitable and non- 70 discriminatory manner ensures that such an exercise remains proportionate to the conduct it seeks to curtail. These requirements appear to be an adoption of the customary international law position.100 By example, an exchange restriction should not discriminate or target nationals of a State or a treaty partner. 101 This is to say that a differentiation is not justified, if it is not economically needed, takes on an arbitrary or offensive character, is a misuse of discretion or otherwise unfair or inequitable. Measures taken in respect of Article 65 TFEU do not constitute arbitrary discrimi- 71 nation or a disguised restriction on the free movement of capital and payments. 102 It is noted here, the difference in language used in the TFEU, as opposed to that in Article 8.13(3) CETA. The TFEU provides express categories where the EU and Member States may regulate, such as in areas of freedom, security and justice. While outside the scope of this chapter, breaches of the free transfer provision may 72 also be raised together with other substantive breaches, such as claims for expropriation. Where expropriation is invoked, it would be necessary to show that the host State's exchange restrictions had the effect of substantially and permanently depriving value of the investment. It is possible this would amount to indirect expropriation. 103
3. No Disguised Restriction on Transfers Host states must apply their laws in the areas specified in Article 8.13(3) in a 73 manner that would not otherwise constitute a disguised restriction on transfers. Other treaties provide for different requirements in this context, requesting host States for example to act in ‘good faith’.104 The explicit exclusion of a disguised restriction on transfers is a further means to clarify the obligation of the Parties by excluding a possible use of an exchange restriction as a means for avoiding either State’s commitments to the free transfer of funds. This provides an investor with possible grounds to arguing that an apparently justified measure of a host State, was in fact a disguised restriction on transfers.
For further discussion, see in this commentary, (→ Art. 8.10 mn. 17 ff.). Kolo and Wälde, 'Economic Crises, Capital Transfer Restrictions and Investor Protection under Modern Investment Treaties', (2008) 3 Cap. Mark. Law J., 154 (180). 100 Kolo and Wälde, 'Economic Crises, Capital Transfer Restrictions and Investor Protection under Modern Investment Treaties', (2008) 3 Cap. Mark. Law J., 154 (175) and footnote 88. 101 Kolo and Wälde, 'Economic Crises, Capital Transfer Restrictions and Investor Protection under Modern Investment Treaties', (2008) 3 Cap. Mark. Law J., 154 (175) and footnote 88. 102 Article 65(3) TFEU: ‘The measures and procedures referred to in paragraphs 1 and 2 shall not constitute a means of arbitrary discrimination or a disguised restriction on the free movement of capital and payments as defined in Article 63.’ 103 For a further discussion, see, Kolo and Wälde, 'Economic Crises, Capital Transfer Restrictions and Investor Protection under Modern Investment Treaties', (2008) 3 Cap. Mark. Law J., 154 (171). 104 For examples, see in this chapter, fn. 77. 98
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The issue of restricting a transfer or the effective imprisonment of an investor’s funds was considered in the case in Ryan and Ors v. Poland.105 In that case, the investors argued that the Polish government took measures to increase the costs of transferring funds and subjected them to ‘unreasonable demands or burdens’.106 The investors argued that even though there was no formal prohibition on the transfer of funds, that their freedom to transfer was violated by the ‘improper application of the tax law which resulted in [the investors] being deprived of the right to calculate, collect and freely transfer the Management Fees to its U.S. contractors.’ 107 The tribunal concluded that the procedures set by the Polish tax authorities (that a claim on tax deductions were to be supported by proper documentation) was not to be regarded a ‘clog on the right to free transfer of funds.’108 75 A host State’s right to impose exchange controls also falls within its monetary sovereignty. This is a careful balancing act of the host State, reserved exclusively to that State’s policy-making. The tribunal in OI European Group v. Venezuela conceded to this view: 74
[The free transfer provision] only guarantees the conversion and transfer of funds ‘with no restriction or undue delay.’ […] [I]t allows the State to create restrictions or delays for justified cause. The introduction of exchange control systems is part of the economic and financial sovereignty of the States, and does not constitute an ‘undue restriction’ for purposes of the BIT. Having created an exchange control system, the State may legitimately opt for a single structure or prefer, as Venezuela has done, a dual system with an official market and another parallel market. The choice of one or the other alternative is a policy decision, outside the scope of an arbitral tribunal's review.109
4. Exemption Clauses in Other CETA Provisions The CETA contains temporary safeguards for capital movements and restrictions in the event of serious balance of payment or external financial difficulties (Articles 28.4 and 28.5 of CETA). These provisions permit the Parties to restrict the movement of capital (including transfers), in situations of economic crises. The systematic placement of these provisions into Chapter 28 of the CETA could suggest that these exceptions are also of general application, beyond the transfer of funds provision. This is noted because restrictions on transfers are often discussed in light of the balance of payment difficulties. 77 The exemption at Article 28.4 is expressly worded for the benefit of the EU. 110 It provides that the EU may impose safeguard measures as necessary, in situations of capital movements that may cause serious difficulty for the operation of the economic and monetary union of the EU. Such measures are to be proportionate to the difficulty, and for a period of no longer than 180 days. Article 28.4(2) expressly provides that measures taken pursuant to Article 28.4 are not arbitrary nor discriminatory against Canada or its investors. 76
105 Ryan, Schooner Capital LLC, and Atlantic Investment Partners LLC v. Republic of Poland, ICSID Case No. ARB(AF)/11/3, Award (24 November 2015). 106 Ryan, Schooner Capital LLC, and Atlantic Investment Partners LLC v. Republic of Poland, ICSID Case No. ARB(AF)/11/3, Award (24 November 2015), para. 497. 107 Ryan, Schooner Capital LLC, and Atlantic Investment Partners LLC v. Republic of Poland, ICSID Case No. ARB(AF)/11/3, Award (24 November 2015), para. 498. 108 Ryan, Schooner Capital LLC, and Atlantic Investment Partners LLC v. Republic of Poland, ICSID Case No. ARB(AF)/11/3, Award (24 November 2015), para. 509. 109 OI European Group B.V. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/11/25, Award (10 March 2015) (English translation), para. 624. 110 Article 28.4(1) and (2) of CETA.
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The exemption at Article 28.5 requires that the restrictions are consistent with 78 the IMF Articles of Agreement, are proportionate, applied non-discriminatorily and temporary (not exceeding 180 days).111 The exemptions at Articles 28.4 and 28.5 of CETA are favourable for host States. 79 These provisions may be considered as a supplement to a host States invocation of the defence of necessity under customary international law. The defence of necessity is often used as a basis for derogation from the obligation to permit free transfers. A further discussion of the defence and the customary international law position is provided by Kern, Kolo and Wälde.112
E. Conclusion and Summary The free transfer provision is a defining feature of most international investment agreements and a corollary to core provisions securing the effective protection of investments. Article 8.13 CETA at its core secures the right of an investor to freely transfer their funds. It covers a broad range of situations in which an investor likely conducts their investment, from the initial investment through to the proceeds of sale or liquidation and to the repatriation of profits. This guarantee made under Article 8.13 CETA, is largely in line with international standards. The right to free transfers is limited by the right of the host State to invoke certain areas of its laws as long as this is done in an equitable and non-discriminatory manner. This allows the host State to take appropriate action in areas of particular relevance or even vulnerability for a State so as to adequately address situations of crises or emergency, or to defend for example against money laundering, tax evasion or even terrorism financing. Article 8.13 CETA can be said to sit on the more comprehensive end of transfer provisions, representing a modern approach towards free transfers. Being set out in three main paragraphs, Article 8.13 provides clear guidance as to whom or what obligations are owed. In the context of the EU, this was seen in the EU's existing framework for the free movement of capital in its internal market, as guaranteed in the TFEU. In that respect, Article 8.13 CETA is balanced to the interests of both Parties and seeks to secure the autonomy of either State in pursuing genuine limitations to such transfers. Whilst simultaneously, giving a foreign investor the guarantee of a right to freely transfer and potential grounds to argue against any arbitrary, discriminatory or otherwise disguised restrictions on transfers, as may be imposed by host States.
Article 28.5(2)(a) to (d) of CETA. Kern, ‘Transfer of Funds’, in Bungenberg et al. (eds), International Investment Law (2015), 870 (882); Kolo and Wälde, 'Economic Crises, Capital Transfer Restrictions and Investor Protection under Modern Investment Treaties', (2008) 3 Cap. Mark. Law J., 154 (163). 111
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Article 8.14 Subrogation If a Party, or an agency of a Party, makes a payment under an indemnity, guarantee or contract of insurance that it has entered into in respect of an investment made by one of its investors in the territory of the other Party, the other Party shall recognise that the Party or its agency shall be entitled in all circumstances to the same rights as those of the investor in respect of the investment. These rights may be exercised by the Party or an agency of the Party, or by the investor if the Party or an agency of the Party so authorises. Reference to the Respective Provisions in Other EU Treaties: Article 2.8 EU-Singapore IPA; Article 2.9 EU-Vietnam IPA. Bibliography: Yas Banifatemi, Elise Edson, ‘Article 25(1)’, in Julien Fouret, Remy Gerbay, Gloria Alvarez and Denis Parchajev, The ICSID Convention, Regulations and Rules (E. Elgar, Cheltenham, 2020) 102; Walid Ben Hamida, ‘Sovereign FDI and International Investment Agreements: Questions Relating to the Qualification of Sovereign Entities and the Admission of their Admission of their Investments under Investment Agreements’ (2010) 9 LPICT, 17; Aaron Broches, ‘La Convention et L’Assurance-Investissement: Le Problème dit de la Subrogation’, in Centre de Recherche sur le Droit des Marchés et des Investissements internationaux de la Faculté de Droit et des Sciences Economiques de Dijon (ed), Investissements étrangers et arbitrage entre états et personnes privées: la convention B.I.R.D. du 18 Mars 1965, (Pedone, Paris 1969), 161; Dominique Carreau, Patrick Juillard, Régis Bismuth, Andrea Hamann, Droit international économique (6th edn, Dalloz, Paris 2018); Arghyrios Fatouros, Government Guarantees to Foreign Investor (Columbia University Press, New York 1962), Kathryn Gordon, ‘Investment Guarantees and Political Risk Insurance: Institutions, Incentives and Development’ (2008) OECD Investment Policy Perspectives,, 91, Jean-Pierre Laviec, Protection et promotion des investissements (Presses Universitaires de France, Paris 1985); Guy Lepage, ‘Les mécanismes de garantie et d’assurance des investissements étrangers’ in Sabrina Robert-Cuendet (ed), Droit des investissements internationaux (Bruylant, Brussels 2017), 389; Theodor Meron, Investment Insurance in International Law, (Oceana Publications, Leiden 1976); Theodor Meron, ‘OPIC Investment Insurance is Alive and Well’ (1979), 73 Am. J. Int’l L., 104; Arnaud de Nanteuil, International Investment Law (E. Elgar, Cheltenham 2020); Abdourahmane Niang, ‘Les systèmes nationaux et international de garantie’ in Patrick Daillier, Géraud de la Pradelle, Habib Ghérari (eds), Droit de l’économie internationale, (Pedone, Paris, 2004), 699; Michel Noinville, La COFACE: La garantie des risques à l’exportation (Dunod, Paris 1993); OECD, Investir dans le tiers monde, (4th edn, OECD Publications, Paris 1978); Christoph Schreuer, Lauretta Malintoppi, August Reinisch, Anthony Sinclair (eds), The ICSID Convention: A Commentary (2 nd edn, Cambridge University Press, Cambridge 2009); Ibrahim Shihata, ‘Arab Investment Guarantee Corporation’ (1972) 6 JWT, 185; Ibrahim Shihata, ‘Towards a Greater Depoliticization of Investment Disputes: The Roles of ICSID and MIGA’ (1986) 1 ICSID Rev., 1; Jürgen Voss, ‘Sources on Investment Insurance’ (1987) 2 ICSID Rev., 249; Nassim. Ziade, ‘ICSID Clauses in the Subrogation Context’ (1990) 7 News From ICSID, 4.
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A. Introduction and Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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B. Spirit and Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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C. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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D. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. Scope . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. ‘A Party, or an agency of a Party’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a) Covered Organs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . b) Excluded Organs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. ‘A payment under an indemnity, guarantee or contract of insurance’ . . 3. ‘In respect of an investment’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. ‘The same rights as those of the investor’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a) Substantial Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . b) Procedural Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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Subrogation 2. ‘These rights might be exercised by the Party or an agency of the Party, or by the investor’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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E. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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A. Introduction and Overview Subrogation clauses in investment protection treaties are meant to organize the 1 relationship between, on the one hand, the legal protection that an investor may get from such treaty and, on the other hand, the financial protection the same investor might get from an insurance company (if its investment operation is covered by an insurance). Their general aim is both to ensure a full protection of the investor and to avoid any overlap between the protection granted by the treaty and the one provided by the insurance. However, investment insurance can take various forms: it can be public or private, 2 it can be based on a contract or on a general program of the State and it does not always cover the exact same risks as investment protection treaties. This paper then explores the subrogation clause that is included in the CETA investment chapter in order to analyse its exact scope and effect. We will see that this provision cannot apply to all existing insurance mechanisms and that its effect is mainly to transfer, under certain circumstances, the (procedural) rights of the investor to the organ that is in charge of the insurance. We will therefore follow a practical approach in order to reach a good understanding of the protection that this provision is likely to provide to investment operations in Europe and in Canada.
B. Spirit and Purpose Subrogation is a well-known mechanism in insurance law.1 In the context of invest- 3 ment law, it is meant to apply when an insurer has compensated an investor for a loss incurred by the action of the Host State. In such a case, the insurer is subrogated in the rights held by the investor according to the applicable treaty – if any. 2 Subrogation clauses are included in a great number of investment treaties. In a survey covering instruments signed between 1995 and 2006, UNCTAD noted that ‘[p]ractically all BITs concluded since 1995 include a provision on subrogation. Although the wording may vary, the substantial content of these clauses is very similar’. 3 It is thus hardly surprising that a subrogation clause is included in the CETA investment chapter. There is no official statistic on the amount of European or Canadian foreign 4 investment that is covered by an insurance mechanism so that it is hard to precisely assess the practical stakes of subrogation clauses. Yet a general overview could be based on the biannual report of the International Union of Credit and Investment Insurers (Berne Union), which is an international not-for profit association, which represents the global export credit and investment insurance industry. Since the report is based on the collection of data coming from export credit agencies of 85 countries,
Schreuer et al. (eds), The ICSID Convention: A Commentary (2009), Article 25, mn. 364. On the general question of investment insurance in international law, see Fatouros, Government Guarantees to Foreign Investor (1962); Lepage, ‘Les mécanismes de garantie et d’assurance des investissements étrangers’ in Robert-Cuendet (ed), Droit des investissements internationaux (2017), 389-408, as well as all the references mentioned in this contribution. 3 UNCTAD, Bilateral Investment Treaties 1995-2006: Trends in Investment Rulemaking (2007), 114. 1
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it provides relevant information on the importance of investment insurance in the world. 5 The 2018 report indicates that the value of investment insurance represented approximately 3% of the total amount of transnational investment flux. 4 It might not seem to be a lot, but considering the fact that the total value of investment flux was USD 1.45 trillion in 2019, 3% still represents an important economic value. 5 Of course, these figures reflect the worldwide situation and are not applicable per se to Canada and the European Union. But they still give a general idea of the practical importance of investment insurance.
C. Drafting History 6
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The presence of a subrogation clause in the CETA investment chapter has been considered from the beginning of the negotiations as a core element of investment protection: indeed, in 2011, when the Commission asked the Council the authorization to negotiate the investment chapter on behalf of the Union, it indicated that the protection rules to be negotiated should include ‘rules concerning subrogation’ in addition to the traditional protections such as an expropriation clause, non-discrimination treatments or fair and equitable treatment.6 Yet it does not seem that the clause has been the object of much discussions. Indeed, as early as 2013, in the third (out of seven) version of the CETA investment chapter, a drafting of the subrogation clause was adopted which is the one of the final text (only two purely formal changes without any legal effect were added afterwards). 7 The main evolution that can be identified is that, in the two first drafts of the CETA investment Chapter (in January 2011 and February 2012 – the subrogation clause was the same in both versions), the clause was divided in two paragraphs. It was turned into one in 2013 and three main changes have been introduced but they did not really modify the basic meaning of the clause, except for one. First, the merger of the two paragraphs reduced the length of the subrogation clause by deleting any reference to the obligation for the host State to recognize the subrogation. In the final draft, this obligation to recognize is implicit, since the insurer is automatically subrogated in the rights of the investor. There was, actually, no need to formally recall an obligation to recognize the subrogation: it is simpler to state that the insurer is subrogated. Thus the final version is both simpler and shorter. Second, the final version of the subrogation clause includes a further precision with regards to its scope, which was not included in the first drafts. The final text provides that subrogation is possible only when a Party or an agency thereof has made a payment ‘in respect of an investment made by one of its investors in the territory of the other Party’. We will comment on this later, but one could consider that this mention is somehow superfluous: indeed, the scope of the whole investment chapter is limited to investments made by investors of a Party on the territory of the other Party The report can be downloaded at: https://www.berneunion.org/DataReports. This figure is provided by the UNCTAD, World Investment Report 2020 at 2. This figure does not take into account the radical the dramatic drop that will inevitably be caused by the Covid-19 situation. 6 See Doc. 12838/11 WTO 270 FDI 19 CDN 5 SERVICES 79 RESTREINT UE, 14 July 2011, which was partially declassified by the Council document 12838/11 EXT 2 of 15 December 2015, at 26, c) h). 7 The two differences between the text adopted on 21 November 2013 and the final one are: replacement of ‘such rights’ by ‘these rights’ at the beginning of the second sentence; replacement of the two mentions of ‘an agency thereof ’ by ‘an agency of a Party’. It can be assumed that these changes did not imply any legal consequence. 4
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(→ mn. 26). Yet, this precision can have been deemed to be necessary since insurance contracts covering situations in EU or in Canada might apply to economic operations or situation that do not qualify as investments within the meaning of the CETA. Such operations cannot be covered by the subrogation clause. However, the introduction of this precision did not change the scope of the subrogation clause which is, in any event, limited to investments covered by the treaty in which it is included. Finally, a third change can be identified which is the smallest but also maybe the 11 most important: whereas the first versions of the subrogation clauses only mentioned a payment made under a ‘guarantee’ or a ‘contract’, the final version also applies to payments made under an ‘indemnity’. Even though the exact meaning of this word in the context of investment insurance is not totally clear (→ mn. 21), this change reveals a will to broaden the material scope of the clause. Above all, reference to ‘indemnity’ can probably be interpreted as a desire not to limit the scope of the clause to situations where there is a formal insurance contract at stake, since investment insurance is quite diverse and can, for example, be granted in the context of a general program of a State.8 Therefore, one can suppose that this term was introduced in order not to limit the hypothesis of subrogation to situations where the investor is covered by a formal insurance contract.
D. Commentary Even if the wording of the subrogation clause of the CETA is rather classic, some 12 precisions shall be brought in relation to the scope of the provision (I) and its possible effects (II).
I. Scope The first set of questions raised by Article 8.14 of the CETA is related to its scope, 13 both ratione personae (1) and ratione materiae (2). Of course, the whole provision is only applicable where there is an operation that can qualify as an investment within the meaning of the treaty (3).
1. ‘A Party, or an agency of a Party’ The first question relates to the ratione personae scope of the provision, namely: 14 who can benefit from the subrogation. Article 8.14 states in this respect that it applies to ‘a Party or an agency of a Party’ which calls for precision. Indeed, it only covers the situation where an investor benefits from a guarantee (that may be an insurance contract but it can also take another form; → mn. 27) granted not by a private but by a public body – being the State itself or one of its agency (a) which leads to the exclusion of several types of insurance mechanisms (b). a) Covered Organs Most of the time, investment guarantee is not granted by the State itself but by a 15 specific body that is more or less State-controlled. One of the first organ of this kind was created in the United States and thus is not directly relevant in the context of the CETA, but it is still worth mentioning since it has greatly inspired several States. 8
This question is addressed in the comment of this part of the provision (→ mn. 21).
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In the implementation of the Marshall Plan, US companies investing in Europe indeed faced a great risk in terms of currency convertibility due to the important restrictions on money transfers in European countries.9 Therefore, upon suggestion of the American Bar Association, the US Government accepted to provide US companies investing in Europe a guarantee against this risk. This guarantee was later broadened and assumed by a public company: the Overseas Private Investment Corporation (OPIC), which was created in 1969 and has been amended several times 10 until it was recently renamed US International Development Finance corporation (DFC). 11 Similar systems can be found in several States, where they were sometimes established even before the US. This is especially so in Europe, which explains why the CETA investment chapter includes a reference to these agencies. A little more than twenty States have set up domestic insurance agencies covering foreign investment. 12 Almost all those agencies are private companies but which are owned and/or controlled by the State, so that they have to be considered as ‘agencies of a Party’ within the meaning of article 8.14 without the slightest doubt.13 17 In France, for example, everything started with a purely private initiative before the Second World War: in 1927, a private insurance company was created in order to offer a guarantee for foreign credit.14 Yet in 1946 the French State created the COFACE (Compagnie Française pour le Commerce Extérieur) as a public company.15 It was privatized in 1994, but the French State continued to insure foreign investment through this company until 2017. In 2017, the public guarantee was transferred to BPI France Assurance Export (BPI standing for Banque Publique d’Investissement – Public Investment Bank), which is a subsidy of BPI France, a State-owned company acting in the name of the French State.16 Since this date, COFACE has been a classic private insurance company. Similar situations can be found in other States, both in Europe (for instance in Germany, the insurance of private investment is partly provided by the State through Treuarbeit AG17) and in Canada where this mission is endorsed by the EDC (Export Development Canada) which is a State company. 18 There is no doubt that such companies, since they are possessed or controlled by the States, shall be considered as ‘agencies of the Parties’ within the meaning of Article 8.14. What matters in that respect is then the status of the company, which depends on domestic law. 16
Laviec, Protection et promotion des investissements (1985), Chapter VI, para. 4 at 3. See Meron, ‘OPIC Investment Insurance is Alive and Well’ (1979) 73 Am. J. Int’l L. 104-111, at 104-105. 11 See, OPIC transformed into the DFC, https://www.opic.gov/ (accessed 20 May 2020). 12 Voss ‘Sources on Investment Insurance’ (1987) 2 ICSID Rev., 249. 13 Niang, ‘Les systèmes nationaux et international de garantie’ in Dailler, de la Pradelle, Ghérari (eds), Droit de l’économie internationale, (2004), 699, 700-701. Japan is the only country where insurance is directly provided by the State through the Ministry of International Trade and Industry. 14 Noinville, La COFACE. La garantie des risques à l’exportation (1993), 2. 15 Bill No. 45-15 of 2 December 1945 and Decree No. 46-1332 of 1 June 1946. The name of the company could be translated as: French company for foreign trade. 16 Article L. 432.2 of the French Code des assurances states that the Agency acts under the control of the State, on its behalf and in its name (‘sous son contrôle, pour son compte et en son nom’). 17 OECD, Investir dans le Tiers-Monde, (1978) 27. Yet this statement may be outdated as it seems that the company has now disappeared since it has been included within the PWC group. 18 See: https://www.edc.ca/en/about-us.html. 9
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b) Excluded Organs The wording of Article 8.14 clearly suggests that it only covers the guarantee that is 18 granted by a Party (namely, the States Parties or the EU) or one of their agencies. This leads to the exclusion of two kinds of guarantees. The first one is the one that might be granted by any international body. An 19 example is the Multilateral Investment Guarantee Agency, which is part of the World Bank Group together with the International Centre for the Settlement of Investment Disputes and was established by the Seoul Convention in 1985.19 Its functioning is quite similar to that of the domestic insurance organs but as an international organization, it is not covered by Article 8.14. One can also mention the Inter-Arab Investment Guarantee Corporation which was set up in 1972.20 The existence of international insurance bodies which are not covered by Article 8.14 is important to notice since the European Union might be tempted to set up a European Insurance Agency in order to provide guarantees to European investments abroad. However, if it was created, such an agency would undoubtedly fall within the scope of Article 8.14. This is so because the European Union is itself a Party to the CETA. Therefore, any agency of the EU would indeed be considered as an agency of a Party and not as an international body. Other categories of excluded agencies are the private ones. Indeed, the wording 20 of Article 8.14 is crystal clear in this respect: an ‘agency of a Party’ clearly refers to public bodies. Therefore, a private insurance company could not be considered as being covered by the article. However, this situation does not seem to create any loophole in the protection since it has been noticed that public insurance systems were precisely set up by States because private insurers were not ready to take the risk of insuring large-scale investment operation abroad, especially when such operations were planned in developing countries.21 Furthermore, when the guarantee is assumed by a powerful State, it might prevent host States from infringing the investor’s rights, by fear of facing a direct dispute with the country granting the guarantee. 22 That is why foreign investment guarantee is assumed by States and by State agencies in most (if not all) cases. Article 8.14 seems to have taken this situation into account. But in the event that an investor is insured by a private insurance company, which cannot be excluded as a matter of principle, such a company would not be allowed to be subrogated in the rights held by the investor according to the investment chapter of the CETA. Therefore, if such an insurance company was to compensate the investor for a loss covered by the insurance contract, it would be deprived of the right to seek compensation against the Host State of the investment. This could justify why private insurers will be even less willing to offer insurances to investment operations abroad than they are now.
2. ‘A payment under an indemnity, guarantee or contract of insurance’ Article 8.14 of the CETA is also limited with regards to its ratione materiae scope. 21 Subrogation is indeed possible only when a Party or an agency of a Party has made a payment to the investor under an ‘indemnity, guarantee or contract of insurance’. This may raise difficulties since the exact scope of the provision is not the clearest in this respect. The only certainty that can be deduced from this wording is that the Convention establishing the Multilateral Investment Guarantee Agency, UNTS vol. 1508, I-26012. Convention Establishing the Inter-Arab Investment Guarantee Corporation, 1971. See on this institution Shihata, ‘Arab Investment Guarantee Corporation’ (1972) 6 JWT, 185. 21 Laviec, Protection et promotion des investissements (1985), Chapter VI, para. 9 at 5. 22 Meron, ‘OPIC Investment Insurance is Alive and Well’ (1979) 73 Am. J. Int’l L. 104-111, at 105. 19
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subrogation is not limited to situations where a third Party (being a State or a State agency) has made a payment to an investor in the context of an insurance contract. The reference that is made to ‘indemnity’ and ‘guarantee’ indeed suggests that the scope is wider, but then, how wide? 22 For sure, the first – and probably the most frequent – hypothesis is that of an insurance contract. As we just recalled, several States and International Organizations have set up insurance agencies that are meant to offer a protection against a limited number of risks to investors. Should one of the covered risks take place, the protected investor benefiting from the insurance contract is entitled to get compensation from the insurer. Even though practices may vary from one State to another, the covered risks are generally more or less the same. For instance, the Multilateral Investment Guarantee Agency – to which Article 8.14 of the CETA is not applicable (→ mn. 19) but which is a good example of the general trend – grants a guarantee against any loss due to currency transfer, expropriation (and similar measures), breach of contract, war and civil disturbance23. Those guarantees are similar to the one granted in the U.S. by the DFC.24 In France, the guarantee is more limited since it only covers infringement to property rights and breach of contract.25 Yet, in all cases the guarantee works like any insurance, in which ‘one party (the insurer) undertakes to indemnify another party (the insured) against the risk of loss, damage, etc. arising from the occurrence of some specified contingencies.’26 23 The next question is then to determine which kind of payments might be covered by the reference to ‘indemnity’ or ‘guarantee’. This wording suggests that it might go beyond the cases where there is an insurance contract, which can be easily explained. Indeed, all the existing mechanisms do not themselves use the term ‘insurance’ but rather refer in general to ‘guarantee’.27 Besides many investment treaties also refer to the general term of ‘guarantee’ alongside ‘insurance’.28 This can be explained by the fact that insurance is only a way of setting up a guarantee but is not the only one. It has thus been suggested that the word ‘guarantee’ referred to a protection granted by the State or a public body whereas ‘insurance’ referred to protection by a private insurance company.29 However, it is not sure that this distinction is fully relevant for us since the mechanisms at stake are very close, if not identical, whatever the nature of the guarantor/insurer. But it can be an explanation and would confirm that the use of one word or the other is actually indifferent when it comes to the substance of the protection. Nevertheless, it is also true that the guarantee might be granted in a manner that is not strictly speaking an insurance. For example, many investment operations are based on a loan which itself cannot be granted without collateral or safety deposit: the State agency, in some cases, can be in a position to offer such a
Article 11 of the Seoul Convention. https://www.dfc.gov/what-we-offer-our-products/political-risk-insurance. 25 https://www.bpifrance.fr/Toutes-nos-solutions/Garanties-et-assurances/Assurance-investissement -a-l-international/Assurance-investissement. 26 Garner, Black’s Law Dictionary (9th ed) definition of insurance. 27 See in particular the Seoul convention establishing the Multilateral Investment Guarantee Agency (emphasis added). 28 For example, the Energy Charter Treaty mentions ‘a payment under an indemnity or guarantee’ (Article 15). The same formulae as that of Article 8.14 of the CETA can be found in Article 7 of the Korea-Armenia BIT – which is the one that most recently entered into force (3 October 2019). A reference to ‘guarantee’, ‘insurance’ and ‘indemnity’ can also be found in Article 9.13 of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (2018). 29 Carreau et al., Droit international économique (2018), 643-644. 23
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guarantee.30 Therefore, if a covered investor were to lose its investment because of an act of the Host State, it would not be in a position to reimburse its loan, so that the State agency would need to do it in its place. There is here a guarantee, which is not exactly an insurance. What shall then be inferred from the wording used, it is the appreciation of the 24 material scope of Article 8.14 must be flexible. What matters is the substance of the relationship between the investor and the State agency rather than the form or formal name of the contract between them. The main requirement in that respect is that, according to the contract, the State agency might be in a position to pay a certain amount of money to the investor, in relation to a loss due to an act of the Host State. In most cases, such a contract will take the form of an insurance, but not systematically. That is why Article 8.14 includes this open expression. However, one last question might be asked: is there a need for a contract between 25 the investor and the body granting the guarantee for Article 8.14 to apply? The drafting of the provision suggests that it is not the case, since it only refers to a contract in relation with an insurance coverage (‘an indemnity, a guarantee or a contract of insurance’). In other situations, what matters is that a payment is made in the context of a guarantee, but such guarantee does not have to rely upon a contract. Conversely, if the payment is made in the context of an insurance, it seems that subrogation is only possible if there is a contract between the insurer and the investor. It is, nevertheless, highly likely that such payment will be made on the basis of a contract in a great majority of situations. But it might not always be the case: for example, a State might adopt a program granting automatically a guarantee to domestic companies investing abroad upon respect of certain conditions. Therefore, the distinction between insurance and other types of guarantees could also be explained by this element: for the subrogation to be possible, a contract is only required when the guarantee is made under the form of an insurance and might not be necessary for other forms of guarantees.
3. ‘In respect of an investment’ This point can be addressed much more briefly since it is not really an issue in 26 relation with Article 8.14. It is rather a transversal question, in relation with the scope of chapter 8 of the CETA.31 Like any agreement of this kind, it is indeed applicable only to ‘investments’ within the meaning of the chapter. Thus, in the context of Article 8.14, it simply means that subrogation is only possible when the operation benefiting from the guarantee indeed falls within the definition of investment applicable in the context of the CETA. There is no specificity of Article 8.14 in this respect but it is important to recall that the provision, like any other of Chapter 8, can only apply as soon as an investment is identified.32
30 https://www.bpifrance.fr/Toutes-nos-solutions/Garanties-et-assurances/Assurance-Caution-Expor t-et-garantie-des-prefinancements-a-l-international/Assurance-Caution-Export. 31 On the definition of ‘investment’ within the meaning of Chapter 8, see → Art. 8.1 mn. 201. 32 For a recent study of this issue, see Banifatemi and Edson, ‘Article 25(1)’, in Fouret, Gerbay, Alvarez The ICSID Convention, Regulations and Rules (2020) 102, 114 ff. See also De Nanteuil, International Investment Law (2020), 135 ff.
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II. Effect 27
Once it is established that Article 8.14 is applicable, the exact effect of this applicability has to be identified. There are two issues here: first, the question of the exact scope of the rights that can be transferred to the State agency (1) and then the way such right can be exercised (2).
1. ‘The same rights as those of the investor’ 28
Article 8.14 is a subrogation clause, which means that its main effect is to transfer rights from one subject to another. Therefore, once the Agency offering the guarantee has made the payment to the investor, the rights of the latter are transferred to the former. However, behind this simple statement, there are several delicate issues. We shall address them here by making a distinction between substantial (a) and procedural rights (b). a) Substantial Rights
The wording of Article 8.14 suggests that the entity providing the guarantee to the investor enjoys, once it has made the payment, the same rights as the insured investor. The provision indeed states that the guarantor/insurer ‘shall be entitled in all circumstances to the same rights as those of the investor in respect of the investment’. What matters here is that a reference is made to the investment, which means that the rights which are transferred are the ones that are linked to the qualification of an operation as an investment. In that respect, Article 8.2 provides: ‘This Chapter applies to a measure adopted or maintained by a Party in its territory relating to: (a) an investor of the other Party; (b) a covered investment’. Therefore, any right granted by the chapter shall apply to the entity offering the guarantee. 30 As regards the substantial aspect of such rights, it means that all the protections of Chapter 8 are potentially applicable to the guarantor/insurer: the prohibition of performance requirements (Article 8.5), non-discrimination clauses (Article 8.6-8.8), fair and equitable treatment (Article 8.10), protection against expropriation (Article 8.12), etc. It thus seems that the effect of the subrogation clause is to extend the scope ratione personae to the whole chapter, upon the respect of certain conditions. However, those conditions might have an effect on the scope of the protection that a guarantor might claim under Article 8.14. 31 Indeed, this provision allows for subrogation only in the case where a State entity has made a payment to an investor on the basis of an insurance contract or any other type of guarantee (→ mn. 21). Yet, such payment is generally possible only in limited cases, that are defined either in the insurance contract between the insurer and the investor or in the conditions set forth by the guarantor to grant its protection. In other words, the guarantee is neither general nor absolute. As we have seen, insurance mechanisms are generally granted only in a limited number of cases: expropriation, currency transfer issues and war disturbance.33 Those cases are more limited than the protection that is granted by the CETA investment chapter. This is so because investment treaties tend to protect against the political risk in general, which is much broader than the insured risks as a matter of principle.34 This discrepancy between 29
33 See Meron, Investment Insurance in International Law (1976) 65. See also Laviec, Protection et promotion des investissements (1985), para. 19 at 8. 34 See Gordon, ‘Investment Guarantee and Political Risk Insurance: Institutions, Incentives and Development’ (2008) OECD Investment Policy Perspectives 2008, 91 (93).
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the protection granted by Chapter 8 and the possible guarantee or insurance is not without consequences. Indeed, if we apply Article 8.14 strictly, it means that an insurer might offer a payment to an investor in case of occurrence of a covered risk and then benefit from a broader protection than the one that it granted to the investor. This is so because Article 8.14 offers a right to subrogation upon conditions that are defined in the guarantee but which is not limited in its scope once established. This interpretation may be supported by the wording of the article, which states that the guarantor/insurer shall be entitled to the same rights as the investor ‘in all circumstances’. For instance, one might imagine an insurance contract providing for a protection only in the case of expropriation and money transfer issues. A covered investor might be expropriated and suffer from a breach of Fair and equitable treatment at the same time. In that case, the insurer can only compensate the investor on the basis of the expropriation. But if our interpretation is correct, the insurer would be subrogated in all the rights of the investor according to Chapter 8, hence including Fair and equitable treatment. Therefore, one of the main effects of Article 8.14 might be, in certain circumstances, to broaden the protection that a guarantor/insurer might enjoy compared with the one that the latter might grant to an investor. However, this interpretation could also be contested based on the very object and 32 purpose of subrogation clauses. In that respect, the UNCTAD clearly identified the aim of subrogation clause: In order to enable insurance agencies to recover what they have paid to investors, most BITs include a provision on subrogation. Accordingly, the contracting parties recognize the subrogation to the home country of any rights that the investor may have against the host country as a result of a violation of the BIT, provided that the former has paid compensation for the loss under an insurance contract.35
This tends to prove that the object of the subrogation clause is only to subrogate 33 the insurer in the rights of the investor within the limits of the guarantee that it has granted to such an investor, and not to extend his rights in any manner. It seems indeed logical that the insurer can only ask compensation for what it has lost, i.e., the compensation offered to the investor for the risk covered by the guarantee. Article 8.14 might be misleading in that respect: even if it suggests that the guarantor/insurer may be entitled to all the rights granted by Chapter 8, it cannot genuinely produce such effect because it is simply not meant to do so. Its purpose is to ensure that the guarantor/insurer can get compensation for having paid for the consequences of an act of the Host State and not to transform it into an investor within the meaning of the whole Chapter 8. This is important since, as already mentioned, there are several kinds of rights that 34 are provided by this chapter but which are very unlikely to be covered by insurance contracts or guarantees. Even if there are many common points with the protection offered by the CETA investment chapter, there is no doubt that the protection provided by the latter is wider. For instance, there is no example of a guarantee against discrimination whereas the CETA includes three Articles specifically dedicated to this issue.36 One might also mention the fair and equitable provision, which includes several precise protections like the prohibition of arbitrariness or of harassment, which are quite unlikely to be covered by any insurance contract. As a consequence, one can 35 UNCTAD, Bilateral Investment Treaties 1995-2006: Trends in Investment Rulemaking (2007), 114, emphasis added. 36 They are Article 8.6 (national treatment), Article 8.7 (most-favoured nation treatment) and Article 8.8 (prohibition of nationality requirement in nominations of managers and directors).
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assume that, according to Article 8.14, an insurer or guarantor is not in a position to be subrogated in all the rights of an investor according to Chapter 8 strictly speaking. It is only subrogated in the rights that it has itself covered in the insurance contract or in the guarantee – whatever its exact nature. b) Procedural Rights As regards procedural rights, the issue is slightly different. The wording of Article 8.14 suggests that subrogation covers all the rights granted to investors by Chapter 8 as a whole, thus including the right to refer to the dispute settlement mechanism that is set up by section F of the chapter. Indeed, Article 8.18 clearly states that ‘an investor of a Party may submit to the Tribunal constituted under this section a claim that the other Party has breached an obligation etc.’. Therefore, the right to resort to the dispute settlement mechanism of the CETA is a right granted to investors under Chapter 8 and thus is likely to be transferred to any entity that has made a payment to a covered investor provided that the other conditions of Article 8.14 are fulfilled. Nevertheless, an in-depth analysis allows us to overcome this very formal approach. There are indeed several reasons why it seems that Article 8.14 cannot allow the guarantor/insurer to subrogate into the investor’s procedural rights, despite what its wording seems to suggest at first glance. 36 The first reason is the one that has just been mentioned: the object and purpose of the subrogation clause imposes to establish a direct link between the insured risks and the rights that can be the object of the clause. In other words, an insurer can only be subrogated in the rights of the investor for which it has offered the investor a guarantee. Yet, in most cases this guarantee does not include any rights of procedural nature: none of the guarantees offered to economic actors investing abroad in EU countries or in Canada includes the right to resort to arbitration.37 37 But there are other reasons in that sense. In particular, it is clear that Article 8.14 is limited in its scope ratione personae to public bodies or States themselves (→ mn. 15). Therefore, if the subrogation clause extended to procedural rights, it would mean that in some circumstances State organs or even State Parties may be in a position to file a claim against the Host State of the investment, on the basis of Article 8.14. One of the issues raised by this situation is that in this hypothesis, the dispute becomes a State-to-State case, for which another specific procedure has been set up in Chapter 29 of the CETA (Dispute settlement). That situation would entail a great deal of uncertainty as to the applicable rules of procedure: should they be those of Chapter 8, which were meant to apply to Investor-State disputes, or those of Chapter 29, applicable to inter-State disputes? This inconsistency might lead to think that this solution is not acceptable. 38 Furthermore, it has to be recalled that, according to Article 8.23 of the CETA, an investor can file a claim under several rules of arbitration: the ICSID convention, the ICSID Additional Facility Rules, the UNCITRAL Arbitration Rules or ‘any other rules on agreement of the disputing parties’. Considering the importance of ICSID in the settlement of investment disputes,38 it is highly likely that investors will mainly invoke the ICSID Convention when filing their claims on the basis of the CETA investment 35
37 De Nanteuil, International Investment Law, (2020), 353. See also → mn. 16 f., the guarantees granted by the US, French and Canadian insurance mechanisms. 38 According to the latest data available, in 2018, investors initiated 71 new publicly-known treaty cases, among them a little less than 50 were brought to ICSID, see UNCTAD, World Investment Report 2019 (2019), 102-103.
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chapter. But it is quite interesting to note that the issue of subrogation had been raised in the context of ICSID during the negotiations of the Washington convention, especially around the right to file a claim before an arbitral tribunal. Indeed, it had been anticipated that in case of a guarantee offered by a State to an investor, the subrogation mechanism would allow such State to file a claim against the Host State, which is not what the ICSID Convention was made for.39 The history of the drafting of the convention clearly shows that the possibility to admit a State-to-State dispute in case of a subrogation was considered and a version of Article 25 of the convention including that possibility, upon consent of the Host State, was even submitted. 40 But it was rejected in the end so that access to ICSID tribunals was eventually limited to investors. Therefore, there is no doubt that a claim made by a State Party would not be admissible before an ICSID tribunal, so that in the context of the CETA, the subrogation of a State in the rights of an investor would not allow such a State to file a claim under the ICSID convention. The same would probably apply if the guarantee is granted by a State agency. It is 39 true that the public character of an entity does not necessarily exclude its qualification as an investor in the context of ICSID and might then allow for a recourse to arbitration41 but it is hardly admissible that a State-owned and controlled insurance organ can be considered as such. Indeed, the main issue in the case of a public-owned investment for jurisdiction purposes is to determine whether the entity acts in the name of the State or exercises any governmental function. An analogy could be made here with the rules on attribution in State responsibility.42 Yet in the case of an insurance agency, many elements seem to advocate that the State is indeed the one acting through the entity: it is the one that finances the guarantee, that defines the covered risks, and the purpose is to promote national investors abroad. On the other hand, sovereign funds which purpose is not that different might also be considered as investors in the context of ICSID43 so that the question cannot probably be answered in general: the answer ultimately depends on the exact status and powers of the insurance company. However, Article 8.23 of the CETA also refers to other dispute settlement mech- 40 anisms such as the UNCITRAL arbitration rules or any other rules of arbitration upon agreement of the Parties. As regards the UNCITRAL rules, one can notice that there is no similar limitation and that there is no compelling reason to exclude an interstate case under this text. Its preamble even provides that: ‘the Arbitration Rules are recognized as a very successful text and are used in a wide variety of circumstances covering a broad range of disputes, including […] State-to-State disputes’. Even if the practice is scant, if not nonexistent, the possibility for a State to file a claim against another State on the basis of the UNCITRAL Arbitration Rules shall not be excluded as a matter of principle. Therefore, the problem is not necessarily the same and the 39 Broches, ‘La Convention et L’Assurance-Investissement: Le Problème dit de la Subrogation’, in Centre de Recherche sur le Droit des Marchés et des Investissements internationaux de la Faculté de Droit et des Sciences Economiques de Dijon (ed), Investissements étrangers et arbitrage entre états et personnes privées: la convention B.I.R.D. du 18 Mars 1965, (1969) 161 (166). 40 Ziade, ‘ICSID Clauses in the Subrogation Context’ (1990) 7 News From ICSID, 4. 41 See in particular Beijing Urban Construction Group Ltd v. Republic of Yemen, ICSID Case No. ARB/14/30, Decision on Jurisdiction (31 May 2017), paras. 31 ff. 42 Beijing Urban Construction Group Ltd v. Republic of Yemen, ICSID Case No. ARB/14/30, Decision on Jurisdiction (31 May 2017), para. 33. See also Ceskoslovenska Obchodini Banka A.S. v. The Slovak Republic, ICSID Case No. ARB/97/4, Decision on Objections to Jurisdiction (24 May 1999) para. 20. 43 See Ben Hamida, ‘Sovereign FDI and International Investment Agreements: Questions Relating to the Qualification of Sovereign Entities and the Admission of their Investments under Investment Agreements’ (2010) 9 LPICT, 17.
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subrogation of the State in the procedural rights of the investor could indeed be admitted. 41 However, this does not solve all the issues since the problem remains in the context of ICSID. That is probably the reason why the last sentence was included in Article 8.14, in order to consider this hypothesis.
2. ‘These rights might be exercised by the Party or an agency of the Party, or by the investor’ Considering the fact that recourse to ICSID might be delicate in the context of a subrogation clause when the guarantee is offered by the State or a State entity, a possibility might be to allow the investor to file the claim in the name of the insurer. This case is covered by the last sentence of Article 8.14, which is probably a manner to preserve the possibility to have recourse to ICSID even when the guarantee is public. It is interesting to recall here that this possibility is clearly a way to fill a gap that has been left intentionally in the ICSID Convention. As already mentioned, the drafting history of the Convention indeed suggests that, until a fairly late stage of the negotiations, it had been considered to offer Member States or public agencies of Member States the possibility to file claims against other Member States after having been subrogated in the rights of an investor. In late 1964 – only a few months before the adoption of the final text –, Article 25 still included a provision allowing for this. 44 This possibility was eventually set aside, since it did not seem really compatible with the core objective of ‘depoliticization’ of investment disputes.45 It would indeed have been difficult to reach such a finality whilst allowing States to introduce disputes against one another. One core aspect of this depoliticization process is, of course, the prohibition of exercising diplomatic protection as per Article 27 of the ICSID convention, except in exceptional cases for enforcement purposes. 46 43 One can thus easily understand why the State or public agency that offered a guarantee to an investor cannot file a claim against the Host State. The issue here is that the latter is the one at the origin of the damage but might remain free from any suit: the investor having been compensated cannot file a claim anymore and the home State (or home State agency) having compensated the investor cannot either file such a claim against the host State in the context of the ICSID Convention. In that context, the last sentence of Article 8.14 is fully relevant since it authorizes the investor, even after having been compensated by an insurance or guarantee mechanism, to file the claim against the Host State. The absence of subrogation of the (public) insurer in the procedural rights of the investor can thus be cured, to a large extent, by this provision. Besides, there is a priori no need for a further consent by the respondent State since such consent is included in article 8.14. As a consequence, an investor can be in a position to file a claim in the name of its home State when the latter has made a payment according to a guarantee or insurance contract. 44 It will then be the responsibility of the investor and its State of nationality to define the exact terms of their relationship in such a context but as a matter of principle, 42
See Ziade, ‘ICSID Clauses in the Subrogation Context’ (1990) 7 News From ICSID, 4. Shihata, ‘Towards a Greater Depoliticization of Investment Disputes: The Roles of ICSID and MIGA’ (1986) 1 ICSID Rev., 1. 46 Article 27(1) states that: ‘No Contracting State shall give diplomatic protection, or bring an international claim, in respect of a dispute which one of its nationals and another Contracting State shall have consented to submit or shall have submitted to arbitration under this Convention, unless such other Contracting State shall have failed to abide by and comply with the award rendered in such dispute’. 44
45
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it seems that the investor shall give back to the State all the money it might get as compensation from the arbitral tribunal. The main advantage of all this for a private investor is probably in terms of time: with an insurance mechanism, an investor facing serious damage (for example, an expropriation) can get compensation from the insurer in a reasonable delay. For a private company, it might be the only way to avoid bankruptcy whereas a State, in principle, does not face this risk. Therefore, the financial burden of the damage can be supported by the insuring State in the period between the occurrence of the damage and the moment when an arbitral tribunal can condemn the Host State to compensate for such damage. In this respect, even if it might seem to be a simple technical provision at first sight, this last sentence of Article 8.14 can prove eventually to be of core importance for the protection of investments in the context of the CETA.
E. Conclusion The presence of a subrogation clause in the CETA investment chapter undoubtedly 45 participate to the establishment of a full protection of investment between the EU and Canada. The clause encompasses an important variety of situations and thus might be relevant in most situations where investors are protected by a guarantee or an insurance. However, a detailed analysis of the provision also highlights the persistence of some uncertainties, specifically in relation to the exact scope of the clause. But this uncertainty is probably the result of a will not to limit too narrowly the applicability of the subrogation mechanism, considering the important variety in investment insurance. The uncertainty should thus rather be considered to be a manner of ensuring that the clause will cover a wide range of situations in order to provide the best possible protection to foreign investment between EU and Canada.
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Article 8.15 Reservations and exceptions 1. Articles 8.4 through 8.8 do not apply to: a. an existing non-conforming measure that is maintained by a Party at the level of: i. the European Union, as set out in its Schedule to Annex I; ii. a national government, as set out by that Party in its Schedule to Annex I; iii. a provincial, territorial, or regional government, as set out by that Party in its Schedule to Annex I; or iv. a local government; b. the continuation or prompt renewal of a non-conforming measure referred to in subparagraph (a); or c. an amendment to a non-conforming measure referred to in subparagraph (a) to the extent that the amendment does not decrease the conformity of the measure, as it existed immediately before the amendment, with Articles 8.4 through 8.8. 2. Articles 8.4 through 8.8 do not apply to a measure that a Party adopts or maintains with respect to a sector, subsector or activity, as set out in its Schedule to Annex II. 3. Without prejudice to Articles 8.10 and 8.12, a Party shall not adopt a measure or series of measures after the date of entry into force of this Agreement and covered by its Schedule to Annex II, that require, directly or indirectly an investor of the other Party, by reason of nationality, to sell or otherwise dispose of an investment existing at the time the measure or series of measures become effective. 4. In respect of intellectual property rights, a Party may derogate from Articles 8.5.1(f), 8.6, and 8.7 if permitted by the TRIPS Agreement, including any amendments to the TRIPS Agreement in force for both Parties, and waivers to the TRIPS Agreement adopted pursuant to Article IX of the WTO Agreement. 5. Articles 8.4, 8.6, 8.7 and 8.8 do not apply to: a. procurement by a Party of a good or service purchased for governmental purposes and not with a view to commercial resale or with a view to use in the supply of a good or service for commercial sale, whether or not that procurement is "covered procurement" within the meaning of Article 19.2 (Scope and coverage); or b. subsidies, or government support relating to trade in services, provided by a Party. Reference to the Respective Provisions in Other EU Treaties: Article 8.1 (Objective and Scope), Article 8.12 (Schedule of Specific Commitments) EU-Singapore FTA; Article 2.1 (Scope), Article 2.3.2 (National Treatment) EU-Singapore IPA; Article 8.1 (Objectives and Scope) EU-Vietnam FTA; Article 2.1 (Scope); Article 2.3.2 (National Treatment) EU-Vietnam IPA. Other Agreements: North American Free Trade Agreement (‘NAFTA’), Article 1108 (Reservations and Exceptions); Comprehensive and Progressive Trans-Pacific Partnership (‘TPP’), Article 9.12 (Non-Conforming Measures); United States-MexicoCanada Agreement (‘USMCA’), Article 14.12 (Non-Conforming Measures).
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Bibliography: Andrea Bjorklund, ‘NAFTA Chapter 11’ in Chester Brown (ed.), Commentaries on Selected Model Investment Treaties (Oxford University Press, Oxford, 2013); Lee M. Caplan and Jeremy K Sharpe, ‘United States’, in Chester Brown (ed), Commentaries on Selected Model Investment Treaties, (Oxford University Press, Oxford, 2013); Charles-Emmanuel Côté, ‘From Sea to Sea: Regulatory Space of Federal and Provincial Governments in Canada under CPTPP and CETA Investment Chapters’ (2019) 16(5) TDM; Claus-Dieter Ehlermann and Martin Goyette, ‘The Interface between EU State Aid Control and the WTO Disciplines on Subsidies’, EStAL4:2006, 695; Meg N. Kinnear, Andrea Kay Bjorklund, and John F. G. Hannaford, Investment Disputes under NAFTA: An Annotated Guide to NAFTA Chapter 11 (Kluwer Law International, Alphen aan den Rijn, 2006); Céline Lévesque and Andrew Newcombe, ‘Canada’ in Chester Brown (ed), Commentaries on Selected Model Investment Treaties, (Oxford University Press, Oxford 2013); Andrew Newcombe and Lluís Paradell, Law and Practice of Investment Treaties: Standards of Treatment (Kluwer Law International, Alphen aan den Rijn 2009); Laura Puccio, Wilhelm Schöllmann and Giulio Sabbati, CETA and public services (European Parliamentary Research Service, 2017); Henning Grosse Ruse-Khan, ‘Protecting Intellectual Property Under BITs, FTAs, and TRIPS: Conflicting Regimes or Mutual Coherence,’ in Kate Miles and Chester Brown (eds), Evolution in Investment Treaty Law and Arbitration (Cambridge University Press, Cambridge 2011), 485 = Max Planck Institute for Intellectual Property & Competition Law Research Paper No. 11-02; Henning Grosse Ruse-Khan, ‘The International Law Relation Between TRIPS and Subsequent TRIPS-Plus Free Trade Agreements: Towards Safeguarding TRIPS Flexibilities’ (2011) 18(2) J. Intell. Prop. L., 325; Henning Grosse Ruse-Khan, ‘Litigating Intellectual Property Rights in Investor-State Arbitration: From Plain Packaging to Patent Revocation’ (2014) Legal Studies Research Paper, No. 52/2014 = Max Planck Institute for Innovation & Competition Research Paper No. 14-13; Stephan W. Schill and Heather L. Bray, ‘The Brave New (American) World of International Investment Law’ in Thilo Rensman (ed.), Mega-Regional Trade Agreements (Cham, Springer 2016); Catharine Titi, ‘International Investment Law and the European Union: Towards a New Generation of International Investment Agreements’ (2015) 26 (3) EJIL; J. Anthony VanDuzer, Penelope Simons and Graham Mayeda, Integrating Sustainable Development into International Investment Agreements: a Guide for Developing Country Negotiators (Commonwealth Secretariat, London 2013); European Commission’s Directorate-General For Trade, The Economic Impact of the Comprehensive Economic and Trade Agreement (Luxembourg 2017); United Nations Conference on Trade and Development, ‘Preserving Flexibility in IIAs: The Use of Reservations’, UNCTAD Series on International Investment Policies for Development (United Nations, Geneva, 2006) (available at: https://u nctad.org/en/Docs/iteiit20058_en.pdf, last accessed 2 September 2020); United Nations Conference on Trade and Development, Dispute Settlement, World Trade Organization, 3.7 Subsidies and Countervailing Measures (United Nations, New York and Geneva, 2003) (available at: https://unctad.org/en/Docs/edm misc232add15_en.pdf, last accessed 2 September 2020). A. Introduction and Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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B. Spirit and Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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C. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. Paragraphs 1 and 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Paragraph 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. Paragraph 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV. Paragraph 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V. Joint Interpretive Instrument . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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D. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. Reservations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Annex I – Reservations for Non-Conforming Measures . . . . . . . . . . . . . . . a) Sub-paragraph 8.15(1)(a) – ‘… as set out by that Party in its Schedule to Annex I …’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . b) Sub-paragraph 8.15.1(b)—‘… the Continuation or Prompt Renewal of a Non-Conforming Measure …’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . c) Sub-paragraph 8.15.1(c)—‘… an Amendment to a Non-Conforming Measure … to the Extent that the Amendment does not Decrease to the Conformity of the Measure, as it existed immediately before the Amendment …’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Annex II – Reservations for Future Measures . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Exceptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Exception for TRIPS Agreement-consistent Measures . . . . . . . . . . . . . . . . . 2. Exception for Procurement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a) ‘… Procurement by a Party …’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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E. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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A. Introduction and Overview Article 8.15 CETA sets out the framework for a Party’s reservations and also sets out discipline-specific exceptions for the Investment Chapter. The disciplines in the CETA Investment Chapter apply on a ‘negative list’ basis. This means that the disciplines to the Investment Chapter generally apply to a Party’s measures relating to investments in all economic sectors unless a Party makes a reservation, or the activity is otherwise subject to an exception. CETA is the first agreement in which the EU lists its reservations on a negative list basis and the first agreement under which Canada has detailed its sub-federal (provincial and territorial) reservations. 2 There are two types of reservations a Party may make under Article 8.15. First, a Party may reserve the application of several specific investment disciplines 1 to non-conforming measures it currently has in place (as set out in the Party’s Annex I). These reservations are subject to the ‘ratchet’ mechanism. Ratchet means that any future liberalisation measure taken by a Party cannot be reversed in the future, and the new level of liberalisation is locked in going forward.2 The second type of reservation a Party may take are for future measures (as set out in the Party’s Annex II). The ratchet mechanism does not apply to Annex II reservations, and therefore a Party reserves for itself the ability to take more restrictive measures in these sectors in the future. As such, Annex II reservations enable a ‘policy space’ for the Party for possible future restrictions for the identified activity.3 3 Article 8.15 further provides a number of obligation-specific exceptions. Unlike a reservation which a Party makes unilaterally, an exception applies for the benefit of both Parties.4 There are several exceptions listed in Article 8.15, such as for measures relating to government procurement, subsidies, or government support relating to 1
1 Article 8.15 provides that Party may unilaterally reserve the application of one or more investment disciplines to certain measures or sectors, namely: Market access (MA), Performance requirements (PRs), National treatment (NT), Most-favoured-nation treatment (MFN), and Senior management and boards of directors (SMBD), which are CETA Articles 8.4 through 8.8, respectively. By contrast, a Party may not reserve its measures or sectors from the application of all other investment disciplines, including Treatment of investors and covered investments (Article 8.10), which sets out the minimum standard of treatment of an investment, and Expropriation (Article 8.12), among others. 2 Puccio, Schöllmann and Sabbati, CETA and Public Services (2017), p. 6. On the NAFTA’s parallel provision, Article 1108(1) NAFTA (Reservations and Exceptions): ‘[NAFTA] Article 1108(1) works as a kind of one-way ratchet. The Parties may maintain existing non-conforming measures, but may not amend them so as to increase the non-conformity of the measure. Thus, all amendments must be geared to investment liberalization.’ Bjorklund, ‘NAFTA Chapter 11’ in Brown (ed.), Commentaries on Selected Model Investment Treaties (2013), 490-491. 3 Puccio, Schöllmann and Sabbati, CETA and Public Services (2017), p. 6. 4 VanDuzer, Simons and Mayeda, Integrating Sustainable Development into International Investment Agreements: a Guide for Developing Country Negotiators (2013), 117.
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trade in services. Moreover, Article 8.15 permits a Party to derogate from select CETA obligations where the Party is acting consistently with the TRIPS Agreement. This Chapter reviews the mechanism for making an Annex I or Annex II reserva- 4 tion under the CETA’s Investment Chapter. This Chapter explores the CETA’s Joint Interpretive Instrument, which expressly links the Reservations and Exceptions Article to the concept of the Party’s ‘right to regulate’. Finally, this Chapter reviews each exception as laid out in the Chapter.
B. Spirit and Purpose CETA Chapter Eight’s broad reach of application over the entire life-cycle of an 5 investment in all sectors, including pre-establishment protections, requires the tools necessary to safeguard a Party’s right to regulate.5 As one commentator put it, ‘no mega-regional seeks to commit to unfettered liberalization’6 and the Reservations and exceptions Article is a critical constituent in the menagerie of devices a Party has within the CETA for balancing its policy goals with its international investment obligations.7 Through the two types of reservations it takes under the Investment Chapter, a 6 Party may achieve its policy goals as it reserves the application of certain investment disciplines to its existing non-conforming measures (under Annex I); and, for those more sensitive areas of activities for which the Party may take a non-conforming measure in the future, (under Annex II). Ultimately, reservations are intended to provide national policy makers the regulatory flexibility they require to put in place the sort of policies necessary to ensure that a country not only attracts foreign investment, but also that the impacts of FDI fit with its long-term development strategy. 8 A Party’s reservations, which are required to be set out in its Schedule to Annexes I 7 and II, also achieve greater transparency for investors, as the Party’s existing non-con-
5 Article 8.15 is based on the North American model (following Article 1108 NAFTA), and the United States Model BIT (Article 14) and Canadian model FIPA (Article 9). Commentators on the latter agreement: ‘The core reservations exist to exclude any claims for non-compliance for specified existing and future measures. To a large extent, they are made necessary since FIPAs offer pre-establishment protections, as seen above, notably through the obligations of national and MFN treatment and performance requirement prohibitions. For this reason, European-style BITs do not include long annexes of reservations while most Canadian FIPAs and US BITs do.’ Lévesque and Newcombe, ‘Canada’ in Brown (ed.), Commentaries on Selected Model Investment Treaties (2013). 6 Schill and Bray, ‘The Brave New (American) World of International Investment Law), in Rensmann (ed), Mega-Regional Trade Agreements, (2016), p. 131. 7 UNCTAD, ‘Preserving Flexibility in IIAs: The Use of Reservations’ (2006) UNCTAD Series on International Investment Policies for Development, 1 (available at: https://unctad.org/en/Docs/iteiit20 058_en.pdf, last accessed 2 September 2020). See also on mega-regionals generally, Schill and Bray, ‘The Brave New (American) World of International Investment Law’, in Rensmann (ed), Mega-Regional Trade Agreements (2016), 132 ‘… mega-regionals are also recalibrating the substantive standards of treatment traditionally contained in BITs in order to strengthen the state’s sovereign right to pursue public policies (so-called “policy space” or “regulatory space”). This goal is achieved, inter alia, by limiting the scope of application of investment protection standards in mega-regionals (…) making room for more policy space in the formulation of substantive standards of treatment (…), and introducing new institutional safeguards that allow contracting parties to increase control over investor-state dispute settlement (…)’. 8 ‘At the same time, the use of reservations should not frustrate the overall transparency-enhancing and policy-guiding objectives of the agreement’ UNCTAD, ‘Preserving Flexibility in IIAs: The Use of Reservations' (2006) UNCTAD Series on International Investment Policies for Development, 1 (available at: https://unctad.org/en/Docs/iteiit20058_en.pdf, last accessed 2 September 2020).
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forming measures are detailed under the Agreement as well as the manner in which the measure is non-conforming or could become more restrictive in the future. 8 Exceptions, on the other hand, carve certain types of government measures out of the application of select disciplines in the Investment Chapter. Thus, they provide a Party significant flexibility in that issue area. In general, exceptions that apply to all obligations provide more flexibility to host states, while narrower exceptions provide greater certainty and predictability for investors.9 CETA’s Investment Chapter exceptions may be differentiated from the general exceptions set out in Chapter 28 of the Agreement. They have a narrower scope of application as they only apply to a few of the Investment Chapter’s disciplines, mainly those aligned with the right to establishment.
C. Drafting History I. Paragraphs 1 and 2 The 2010 negotiating text of paragraphs 1 and 2, which set out the mechanism for making a reservation to specific disciplines of the Chapter, is modelled after the NAFTA.10 There are two context-specific modifications in respect of paragraphs 1 and 2 that occurred since the 2010 version of the negotiation text. First, the EU’s proposed addition of the Market Access discipline (i.e. Article 8.4 CETA) to the negotiation text in 2011 necessitated its further proposal of adding the Market Access provision against which a Party may make its reservations. Thus, Market Access appeared in the chapeau to Article X.14.1 (Reservations and Exceptions) and Article X.14.2 as an EU proposal by the negotiation text of February 2012.11 The November 21, 2013 negotiation text shows Canada’s acceptance of the EU’s proposed inclusion of a Market Access discipline to what would eventually become Article 8.15.1 and 2. The CETA would also become the first Agreement for Canada to detail its federal and sub-federal Market Access reservations.12 10 The second context-specific modification was ensuring all levels of governance relevant to the CETA are reflected in a Party’s ability to take reservations. ‘[T]he level of the European Union as set by the EU in its schedule to Annex I’ was proposed for inclusion under subparagraph 1(a) by the EU in the February 2012 text and accepted by the November 2013 version.13 Moreover, the term ‘sub-national’ was bracketed in the 2012 text by Canada throughout the entire investment text, pending the satisfactory outcome in the definition of that term to include those regional levels of government applicable in EU Member States. By 2013, the Parties had settled instead 9
9 Van Duzer et al., Integrating Sustainable Development into International Investment Agreements: a Guide for Developing Country Negotiators (2013), 235. 10 Article 1108(1) and (3) NAFTA. 11 CETA draft text, version of 21 November 2013. 12 Prior to the CETA, Canada generally set out an omnibus Annex II reservation on the Market Access respecting investment measures bound to its GATS commitments. See for example, CPTPP Articles 10.2.2 (Scope), 10.5 (Market Access) and Annex II reservation for Market Access (Article 10.5), which provides, in relevant part: ‘Canada reserves the right to adopt or maintain a measure that is not inconsistent with:(a) Canada’s obligations under Article XVI of GATS [footnote omitted] ; and (b) Canada’s Schedule of Specific Commitments under the GATS (GATS/SC/16, GATS/SC/16/Suppl.1, GATS/SC/16/Suppl.1/Rev.1, GATS/SC/16/Suppl.2, GATS/SC/16/Suppl.2/Rev.1, GATS/SC/16/ Suppl.3, GATS/SC/16/Suppl.4 and GATS/SC/16/Suppl.4/Rev.1).’. 13 CETA draft text, version of 21 November 2013.
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on the alternative ‘provincial, territorial or regional government’ to reflect the term ‘sub-national’ levels of government.
II. Paragraph 3 Paragraph 3 also has its roots in the NAFTA, which was proposed by the United 11 States under that agreement.14 This provision has not generally formed part of Canada’s FTA model15 since NAFTA, though the provision is found in agreements that Canada has since negotiated or concluded with the United States. 16 The CETA departs from its NAFTA counterpart reflecting proposals by both Parties by the November 21, 2013 text: 3. Without prejudice to Article X [Expropriation] and Article X [Treatment of Investors and Covered Investments], no Party may adopt any measure [CAN: or series of measures] after the date of entry into force of this Agreement and covered by its schedule to Annex II, [EU: the effect of which is] [CAN: which is designed] to require an investor of the other Party, by reason of nationality, to sell or otherwise dispose of an investment existing at the time the measure [CAN: or series of measures] becomes effective.
The term ‘series of measures’ proposed by Canada harmonizes the language of 12 paragraph 3 with that found in Articles 8.10 (Treatment of investors and of covered investments) and 8.12 (Expropriation). The EU accepted this proposed addition by August 2014 . The EU proposal that the measure or series of measures has the ‘effect of ’ requiring a sale by reason of an investor’s nationality and Canada’s counter-proposal that such measure or series of measures be ‘designed’ to require the sale were both dropped in favour of the final agreed text of Article 8.15.3 that the requirement can be ‘direct or indirect.’ This is a clear nod that the Agreement protects against both direct and indirect acts of expropriation.17
III. Paragraph 4 This paragraph, permitting derogations from NT, MFN and PRs disciplines, was 13 eventually accepted by the EU, as originally proposed by Canada in 2010. The text of paragraph 4 remained a bracketed Canadian proposal through to the 21 November 2013 negotiation text, when most of the text of what would become Article 8.15 is accepted by the EU. Subparagraph 1(f) of the performance requirements article 18 remained a Canadian proposal, but was fully accepted by the EU in the August 2014 version of the text, thus clearing the way for its inclusion under what would become Article 8.15(4) CETA.19 14 Kinnear, Bjorklund and Hannaford, Investment Disputes under NAFTA: An Annotated Guide to NAFTA Chapter 11 (2006), p. 1108-7. Article 1108(4) NAFTA provides: ‘No Party may, under any measure adopted after the date of entry into force of this Agreement and covered by its Schedule to Annex II, require an investor of another Party, by reason of its nationality, to sell or otherwise dispose of an investment existing at the time the measure becomes effective’. 15 Rather, it is found in the U.S. model. Article 14(3) U.S. 2012 Model BIT (Non-Conforming Measures) (available at https://ustr.gov/sites/default/files/BIT%20text%20for%20ACIEP%20Meeting.pdf, last accessed 2 September 2020). 16 Article 9.12.4 (Non-Conforming Measures) USMCA; Article 14.12.3 (Non-Conforming Measures) TPP. 17 See CETA, Annex 8A – Expropriation. 18 This would later become Article 8.5(1)(f) CETA. 19 CETA text, 1 August 2014.
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IV. Paragraph 5 14
The 2010 version of the CETA negotiation text provided that NT, MFN and SMBD disciplines do not apply to: procurement by a Party or a state enterprise; or subsidies or grants provided by a Party or a state enterprise, including government-supported loans, guarantees and insurance.
15
This entire proposal would be bracketed in the January 2011 text as Canadian proposals, which is verbatim Article 1108(7) NAFTA. By February 2012, the EU proposed that Market Access be added to the chapeau of paragraph 5. The sub-paragraphs were further reflected as accepted text but for two Canadian-proposed brackets: (a) procurement by a Party or a state enterprise; or (b) subsidies or government support provided by a Party [CAN: or State enterprise] including direct or potential transfer of funds, the foregoing of government revenue (such as a tax credit), and the provision of goods or services [CAN: other than general infrastructure].
The text of August 2014 reflects significant refinements and modifications to the sub-paragraphs (a) and (b). With respect to sub-paragraph (a), ‘procurement by a Party’ was further defined by a GATT/GATS-like qualification to government procurement,20 by adding that the procurement for the purposes of the Article is ‘of a good or service purchased for governmental purposes and not with a view to commercial resale or with a view to use in the supply of a good or service for commercial sale.’ The refinements to sub-paragraph (a) in the text of August 2014 also makes explicit that procurement for the purposes of the Article is not in any way tied to the CETA’s Chapter on Government Procurement, which was an important distinction that was made in several NAFTA Chapter 11 cases, discussed further below (→ mn. 51 ff.). 17 With respect to sub-paragraph (b), the Parties settled on ‘subsidies, or government support relating to trade in services, provided by a Party.’ In this regard, the Parties agreed to remove the phrase ‘including direct or potential transfer of funds, the foregoing of government revenue (such as a tax credit), and the provision of goods or services [CAN: other than general infrastructure]’. Deletion of the agreed text suggests that the Parties agreed that it was unnecessary to include additional language under paragraph (b).21 18 The reference to state enterprises (SEs) in this provision follows Canada’s usual approach since NAFTA to specifically reference state enterprises in the Investment Chapter where the enterprise ‘exercises any regulatory, administrative or other governmental authority that the Party has delegated to it.’ 22 However, CETA’s approach generalized this principle of state responsibility over the entire agreement with Article 1.10 (Persons exercising delegated governmental authority). 23 References to SEs where they are exercising governmental authority are therefore presumed and consequently, 16
Article III:8(a) GATT; Article XIII:1 GATS. See Section D.II.2.b) (→ mn. 52 ff.). The CETA’s Chapter on Subsidies (Chapter Seven) provides that a subsidy for the purposes of the Agreement is a measure fulfilling the conditions set out in Article 1.1 of the SCM Agreement. As demonstrated below, the SCM sets out a broad definition of subsidy, therefore making any specific references to the types of subsidies redundant in Article 8.15.5. 22 See Articles 1503(2), 1116(1)(a), 1117(1)(a) NAFTA. 23 Article 1.10 CETA provides: ‘Unless otherwise specified in this Agreement, each Party shall ensure that a person that has been delegated regulatory administrative or other governmental authority by a Party, at any level of government, acts in accordance with the Party’s obligations as set out under this Agreement in the exercise of that authority.’ A person is defined under the CETA as ‘a national or an enterprise of a Party’. 20
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Canada’s proposed references to include ‘state enterprise’ throughout the Investment Chapter, including in subparagraphs (a) and (b) of Article 8.15 are dropped in the agreed text of 1 August 2014. In this regard, CETA also includes a specific Chapter on SEs.24 The Parties indicat- 19 ed that it was a mutual objective to ensure that CETA’s disciplines are not circumvented through the activities of such enterprises.25 Significantly, procurement by a Party26 and a Party’s Annex I and II reservations27 are carved out of Chapter Eighteen. As stated by the Commission’s Directorate-General for Trade: Appropriate carve-outs are foreseen to ensure that these disciplines do not affect the commitments and exceptions agreed for public procurement and in the services and investment schedules of reservations. Notably, the carve-outs ensure that public authorities in the EU and Canada maintain the right to resort to public monopolies or enterprises granted special rights in order to provide public services and guarantee that the market access reservations for public services are not affected.28
V. Joint Interpretive Instrument The link between Article 8.15 CETA and the right to regulate is made explicit in 20 the CETA’s Joint Interpretive Instrument (JII), which was a document negotiated and concluded between the Parties at the time of the signature of CETA, and which is intended by the Parties to be an ‘agreed interpretation’ of the provisions of CETA. 29 The JII identifies paragraph 4 on Public Services as relevant to the interpretation of Article 8.15. Paragraph 4 of the JII provides: a)
b)
The European Union and its Member States and Canada affirm and recognise the right of governments, at all levels, to provide and support the provision of services that they consider public services including in areas such as public health and education, social services and housing and the collection, purification and distribution of water. CETA does not prevent governments from defining and regulating the provision of these services in the public interest. CETA will not require governments to privatise any service nor prevent governments from expanding the range of services they supply to the public.
24 CETA Chapter 18 (State Enterprises, Monopolies, and Enterprises Granted Special Rights or Privileges). 25 European Commission’s Directorate-General For Trade, The Economic Impact of the Comprehensive and Economic Trade Agreement (2017), 63. 26 Article 18.2.2 (Scope) CETA: ‘This Chapter does not apply to the procurement by a Party of a good or service purchased for governmental purposes and not with a view to commercial resale or with a view to use in the supply of a good or service for commercial sale, whether or not that procurement is a "covered procurement" within the meaning of Article 19.2 (Scope and coverage)’. 27 Article 18.2.4 (Scope) CETA: ‘Articles 18.4 [Non-discriminatory treatment] and 18.5 [Commercial considerations] do not apply to a measure of a covered entity if a reservation of a Party, taken against a national treatment or most-favoured nation treatment obligation, as set out in that Party’s Schedule to Annex I, II, or III, would be applicable if the same measure had been adopted or maintained by that Party’. 28 European Commission’s Directorate-General For Trade, The Economic Impact of the Comprehensive and Economic Trade Agreement (2017), 63. 29 Paragraph 1(e) of the JII provides: ‘This interpretative instrument, provides, in the sense of Article 31 of the Vienna Convention on the Law of Treaties, a clear and unambiguous statement of what Canada and the European Union and its Member States agreed in a number of CETA provisions that have been the object of public debate and concerns and provides an agreed interpretation thereof. This includes, in particular, the impact of CETA on the ability of governments to regulate in the public interest, as well as the provisions on investment protection and dispute resolution, and on sustainable development, labour rights and environmental protection.’
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CETA will not prevent governments from providing public services previously supplied by private service suppliers or from bringing back under public control services that governments had chosen to privatise. CETA does not mean that contracting a public service to private providers makes it irreversibly part of the commercial sector.
The JII was intended to be a ‘clear and unambiguous’ statement linking a Party’s reservations and exceptions in the Investment Chapter to its right to regulate. The JII does not, nor was it intended by the Parties, to alter the meaning of the CETA text. Rather, it is identified as a legally binding document according to Article 31 of the Vienna Convention of the Law of Treaties (VCLT), and as a result, will need to be taken into account in the interpretation of Article 8.15, including a Party’s Annex I and II reservations.
D. Commentary I. Reservations As previously noted, the CETA’s Investment Chapter applies on a negative list basis. This is sometimes referred to as a ‘list it or lose it’, or ‘top-down’ approach, whereby all measures that fall within the scope of the Chapter are subject to its substantive and procedural obligations fully and immediately unless a reservation (or exception) applies.30 23 CETA’s reservations were negotiated by the Parties and incorporated into the Agreement. As such, reservations pursuant to Article 8.15 should not be understood in the sense of a reservation to a treaty as described in the VCLT, as a unilateral statement by one of the treaty parties.31 Rather, the term reservation is used in the treaty text itself to specify matters to which the obligations do not apply. 32 24 Article 8.15 sets out the two types of reservations that a Party may take from MA, PRs, NT, MFN, SMBD (Articles 8.4 through 8.8, respectively) under the CETA Investment Chapter. First, a Party may take reservations for its existing non-conforming measures (Annex I) (→ mn. 25 ff.). 25 Second, a Party may take reservations for future measures (Annex II), in which a Party may exclude a sector or activity (→ mn. 47 ff.). 22
1. Annex I – Reservations for Non-Conforming Measures 26
Paragraph 1 of Article 8.15 provides that a Party must set out in its Schedule to Annex I any measure that the Party maintains that does not conform to the specific disciplines of the Investment Chapter (namely, MA, PRs, NT, MFN and SMBD). A Party is required to set out its non-conforming measures for its regional level governments and above. Therefore, the European Union is required to set out its non-conforming measures for three levels of government (EU-level, national level 30 UNCTAD, ‘Preserving Flexibility in IIAs: The Use of Reservations' (2006) UNCTAD Series on International Investment Policies for Development, 13 available at: https://unctad.org/en/Docs/iteiit200 58_en.pdf, last accessed 2 September 2020). 31 Article 2 (Use of terms) VCLT ‘… a unilateral statement, however phrased or named, made by a State, when signing, ratifying, accepting, approving or acceding to a treaty, whereby it purports to exclude or to modify the legal effect of certain provisions of the treaty in their application to that State’. See Newcombe and Paradell, Law and Practice of Investment Treaties: Standards of Treatment (2009), 482. 32 Newcombe and Paradell, Law and Practice of Investment Treaties: Standards of Treatment (2009), 482.
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of government for its Member States, and regional level of government within each Member State). Canada, on the other hand must set out its non-conforming measures for two levels of government (federal, and provincial and territorial). Sub-paragraph 1(a)(iv) of Article 8.15 provides that all non-conforming measures a Party maintains at the local level of government are automatically grandfathered, and therefore, they are not required to be listed in a Party’s Annex I reservations. a) Sub-paragraph 8.15(1)(a) – ‘… as set out by that Party in its Schedule to Annex I …’ A Party’s Schedule to Annex I describes how each of its measures is reserved from 27 the application of the Agreement. The Headnote to Annex I sets out the format for each reservation, and further provides instruction on the interpretation and application of Annex I entries.33 Each reservation provides seven descriptive elements for which the reservation is made, namely the (1) Sector,34 (2) Sub-Sector,35 (3) Industry Classification,36 (4) Type of Reservation (i.e. the obligation against which the Party makes its reservations),37 (5) Level of Government,38 (6) Measures and (7) Description.39 The Annex I Headnote instructs that all the elements must be considered when 28 interpreting a Party’s reservation, although a commitment to liberalisation that is detailed in the reservation prevails over all other elements. To the extent that a Party makes no commitment to liberalisation, the Measures element prevails over all other elements unless there is a discrepancy between the Measures elements and the other elements that is ‘so substantial and material’ that it would be unreasonable to conclude that the Measures element prevails.40 The measure element is therefore key in determining the scope and meaning of a 29 Party’s Annex I entries. A ‘measure’, is broadly defined in the Agreement to include virtually any form of state action,41 though the CETA Parties have primarily referred to the enacting instrument to which their reservations relate. The Annex I Headnote further provides the following additional guidance on a Party’s entry for the measure element, whether it is a law or other measure: i. ii.
33 34
3(a). 35
3(b).
means the measure as amended, continued or renewed as of the date of entry into force of this Agreement; includes any subordinate measure adopted or maintained under the authority of and consistent with the measure; and
CETA, Annex I Headnote (Reservations for existing measures and liberalisation commitments). ‘[R]efers to the general sector in which the reservation is taken;’ Annex I, Headnote, paragraph ‘[R]efers to the specific sector in which the reservation is taken;’ Annex I, Headnote, paragraph
36 ‘[R]efers, where applicable, to the activity covered by the reservation according to the CPC, ISIC rev 3.1, or as expressly otherwise described in a Party's reservation;’ Annex I, Headnote, paragraph 3.(c). Annex I, paragraph 7 clarifies: ‘ISIC rev 3.1 means the International Standard Industrial Classification of all Economic Activities as set out in Statistical Office of the United Nations, Statistical Papers, Series M, N° 4, ISIC rev 3.1, 2002.’ 37 ‘[S]pecifies the obligation […] for which a reservation is taken;’ Annex I, Headnote, paragraph 3(d). 38 ‘[I]ndicates the level of government maintaining the measure for which a reservation is taken;’ Annex I, Headnote, paragraph 3(f). 39 ‘[S]ets out the non-conforming aspects of the existing measure for which the reservation is taken. It may also set out commitments for liberalisation.’ Annex I, Headnote, paragraph 3(g). 40 CETA, Annex I Headnote, paragraph 4. 41 Article 1.1 CETA (General definitions): ‘measure includes a law, regulation, rule, procedure, decision, administrative action, requirement, practice or any other form of measure by a Party’.
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includes: (A) for a European Union Directive, any laws or other measures which implement the Directive at Member State level; and (B) for Canada, any laws or other measures at the national or sub-national level that implement agreements between the federal government and the provinces and territories;42
The measure element of a Party’s Annex I reservations, should not be read in isolation of paragraphs 8.15(1)(b) and (c), which further describe the scope of a Party’s measure entry under Annex I. b) Sub-paragraph 8.15.1(b)—‘… the Continuation or Prompt Renewal of a NonConforming Measure …’
31
Article 8.15(1)(b) permits a Party to ‘continue’ or ‘promptly renew’ any measure that it lists in its Schedule to Annex I, or that is grandfathered, without affecting the application of the reservation to the measure. The Annex I explanatory headnote, subparagraph 3(f)ii. also acknowledges that a reservation’s measure element includes ‘the measure as … continued or renewed as of the date of entry into force of this Agreement.’ Accordingly, it is clear that it is not required that the measure remains static as of the date the Agreement enters into force (or, in the CETA’s case, as of the date of its provisional application). A government is free to make changes to its laws and regulations, though must do so in a manner consistent with subparagraph 8.15.1(c). c) Sub-paragraph 8.15.1(c)—‘… an Amendment to a Non-Conforming Measure … to the Extent that the Amendment does not Decrease to the Conformity of the Measure, as it existed immediately before the Amendment …’
The phrase in subparagraph 1(c) describes the ‘ratchet’ mechanisms applicable to all Annex I reservations of a Party. It provides that any amendment that decreases the conformity of the measure with the Party’s obligation falls outside the coverage of the Party’s Annex I reservation. By requiring that existing non-conforming measures not become more restrictive, and that a Party be bound by any liberalization of these measures, the ‘ratchet’ rule ensures that a Party’s investment climate remains stable and predictable for foreign investors.43 33 The scope of one of Canada’s Annex I reservation for non-conforming measures was in issue in the NAFTA case, Mobil v. Canada. 34 The Tribunal was required to determine whether a new update to guidelines applying to Canada’s reserved measure was a 'subordinate measure' within the meaning of Annex I Headnote subparagraph 3(f)ii. According to the tribunal, the ordinary meanings of the words indicate that there are two conditions that must be met to be a subordinate measure. Moreover, these conditions are cumulative and exhaustive. First, the subordinate measure must be ‘adopted or maintained under the authority of …the measure.’ This determination is essentially a matter of domestic law. 44 If the subordinate measure is in place under the authority of the reserved measure as a 32
CETA, Annex I Headnote, paragraph 3(f). See in Caplan and Sharpe, ‘United States’ in Brown (ed.), Commentaries on Selected Model Investment Treaties (2013), 808-809. 44 Mobil Investments Canada Inc. & Murphy Oil Corporation v. Canada, ICSID Case No. ARB(AF)/07/04, Decision on liability (22 May 2012), para. 350. On the facts of the case, the Tribunal concluded it was a matter of Canadian law to determine whether the subordinate measure, namely the 2004 Guidelines, were adopted ‘under the authority of ’ the reserved non-conforming measure. 42
43
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matter of domestic law, it meets the first requirement of subparagraph 3(f)ii. of the Annex I Headnote. Second, the subordinate measure must be ‘consistent with’ the reserved measure set 35 out in the Party’s Schedule to Annex I. The determination of the subordinate measure’s consisten[cy] with the measure 36 must be in reference to both the Party’s law governing the measure, and the governing agreement (in this case, the NAFTA). The majority tribunal determined that considerations of consistency include the context of the reservations that the Parties negotiated, the obligation from which the listed measure is reserved, and the degree of the reserved measure’s and the subordinate measure’s non-conformity with that obligation, in light of the other elements of the reservation that would be relevant: As the Majority sees it, when the reserved measure provides a general framework and the NAFTA Party then introduces subordinate measures that are under the authority of and consistent with that reservation, they are altering their framework of laws and associated measures, in the manner reflected in such subordinate measures. The resulting regulatory framework becomes the relevant benchmark against which new subordinate measures are then evaluated for purposes of consistency.45
The Majority’s concern was that the Party could potentially circumvent the ratchet 37 through a subordinate measure that expands the non-conforming features of a reservation.46 The Majority viewed the new guidelines as having introduced expenditure requirements, reporting requirements, and financial administrative adjustments that result in a set of additional obligations with respect to the investor’s projects that are different in nature and degree than those previously applied to these investment projects:47 In our view, the treaty interpreter should at least consider whether the specific attributes of the subsequent measure are connected with the attainment of the object and purpose of the reserved measure, and whether it represents a continuation of the approach of the reserved measure together with the existing subordinate measures. Or in the alternative, whether it represents a change in approach through the new subordinate measure that alters the legal framework in a fundamental manner.48
The majority ultimately determined that the new guidelines altered the legal frame- 38 work of the reserved measure in such a way as to render the local content regime incompatible with the performance requirements discipline under NAFTA, as applied to the investor’s projects, and therefore was not a reserved measure. Tribunal member Philippe Sands parted with this view, however. Taking note of the 39 specific requirements under paragraph 1108(1)(c), 45 Mobil Investments Canada Inc. & Murphy Oil Corporation v. Canada, ICSID Case No. ARB(AF)/07/04, Decision on liability (22 May 2012), para. 338. 46 The majority in Mobil described it thus: ‘While the amendment standard in Article 1108 and the consistency standard in paragraph 2(f) are not identical provisions, they are substantively reinforcing and tug in the same direction, namely, to ensure that the reservations are not expanded or altered to such a degree so as to enlarge the non-conformity of the reservation vis-a-vis the obligation against which the measure is reserved. An evaluation of “consistency” and that of an amendment both consider whether and how the scope of the reservation has been impacted. Here, an evaluation of “consistency” under the NAFTA must consider the consistency with the reserved and subordinate measures in the context of the recognized and limited exception to Article 1106.’ Mobil Investments Canada Inc. & Murphy Oil Corporation v. Canada, ICSID Case No. ARB(AF)/07/04, Decision on liability (22 May 2012), para. 341. 47 Mobil Investments Canada Inc. & Murphy Oil Corporation v. Canada, ICSID Case No. ARB(AF)/07/04, Decision on liability (22 May 2012), paras. 398-404. 48 Mobil Investments Canada Inc. & Murphy Oil Corporation v. Canada, ICSID Case No. ARB(AF)/07/04, Decision on liability (22 May 2012), para. 410.
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an amendment to a measure that has been reserved will only benefit from the reservation “to the extent that the amendment does not decrease the conformity of the measure, as it existed immediately before the amendment, with [Article 1106].” This requires an assessment of ‘conformity’ immediately before the amendment is adopted, and an assessment of the effect of the amendment on ‘conformity’. If the amendment decreases conformity it will not benefit from the reservation. As already noted, there is no such requirement for assessing a new subordinate measure. The NAFTA Parties have not explicitly determined that there is any requirement that a new subordinate measure should “not decrease the conformity of the measure, as it existed immediately before” the adoption of the new subsidiary measure. On its face, therefore, a new ‘subordinate measure’ may lead to a situation in which additional burdens are imposed, so that conformity may be decreased, but the requirements of ‘authority’ and ‘consistency’ are still met (all three NAFTA Parties confirm that this is the approach they intended and drafted).49
40
Tribunal Member Sands provides a textual interpretation of the treaty’s Annex I reservation mechanism, which may be contrasted with the Majority’s decision that was guided by their strict interpretation and application of what entails a subordinate measure for the purposes of Annex I.
2. Annex II – Reservations for Future Measures Article 8.15.2 CETA provides the mechanism for a Party to make reservations for future measures. Like under Annex I, a Party may reserve the application of one or more obligations (MA, PRs, NT, MFN and SMBD), though under Annex II, the reservation is for any measure a Party may take in the future with respect to a sector, sub-sector or activity. 42 Thus, this Annex sets out those economic sectors and activities where new restrictive measures can be implemented in the future – regardless of whether or not the non-conforming measures are currently applied.50 As with Annex I, the reservation applies at all stages of investment.51 43 Each Annex II reservation sets out the following six elements, Sector 52, Sub-Sector,53 Industry Classification,54 Type of Reservation,55 Description56 and any Existing Measures.57 Reservations for future measures typically include strategic or sensitive sectors where the government wishes to preserve maximum flexibility under the 41
49 Mobil Investments Canada Inc. & Murphy Oil Corporation v. Canada, ICSID Case No. ARB(AF)/07/04, Partial Dissenting Opinion – Professor Philippe Sands Q.C., (17 May 2012) at para. 24. 50 UNCTAD, ‘Preserving Flexibility in IIAs: The Use of Reservations', (2006) UNCTAD Series on International Investment Policies for Development, 26 (available at: https://unctad.org/en/Docs/iteiit 20058_en.pdf, last accessed 2 September 2020): ‘This category of measures, which can pertain to any of the substantive obligations covered by Annex I reservations, can be compared to sectors, subsectors and modes of supply under GATS in which WTO members have either scheduled an “unbound” commitment or that they have left outside their county schedules.’ 51 Côté, ‘From Sea to Sea: Regulatory Space of Federal and Provincial Governments in Canada under CPTPP and CETA Investment Chapters’ (2019) 16(5) TDM, 20. 52 ‘[R]efers to the general sector in which the reservation is taken’; CETA, Annex II, Headnote, para. 3 a. 53 ‘[R]efers to the specific sector in which the reservation is taken’; CETA, Annex II, Headnote, para. 3 b. 54 ‘[R]efers, where applicable, to the activity covered by the reservation according to the CPC, ISIC rev 3.1, or as expressly otherwise described in a Party's reservation’; CETA, Annex II, Headnote, para. 3 c. 55 ‘[S]pecifies the obligation referred to in paragraph 1 for which a reservation is taken.’ 56 ‘[S]ets out the scope of the sector, sub-sector or activities covered by the reservation.’ 57 ‘[I]dentifies, for transparency purposes, existing measures that apply to the sector, sub-sector or activities covered by the reservation.’
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treaty.58 The European Union has taken Annex II reservations for its future measures regarding such sectors as fishing and aquaculture, water collection, purification and distribution, telecommunications and education services. EU Member States have also taken national level of government reservations.59 Canada, on the other hand, has taken Annex II reservations for future measures 44 regarding matters such as aboriginal affairs, agriculture, fisheries, social services, drinking water, and transport.60 Such reservations apply to measures of governments at any level in Canada. The provinces and territories have also taken certain additional reservations that apply at that level of government. Article 8.15.3 CETA places an important limitation on a Party’s Annex II reserva- 45 tions. It prohibits a Party from adopting a measure that requires that an investor, specifically because of its nationality, dispose of its investment, even if a Party has taken an Annex II reservation against the national treatment obligation. While Parties have identified certain economic sectors for future measures in Annex II, paragraph 3 specifies that this will not have retroactive effect over existing investments. Thus, Article 8.15.3 provides that a Party may not require an investor of another Party to sell an existing investment that does not conform with subsequent legislation or regulation.61 Moreover, this restriction is without prejudice to the application of Articles 8.10 (Treatment of investors and of covered investments) and 8.12 (Expropriation) disciplines, which may equally apply in the event of a forced divestiture of an investment. As of September 17, 2017, the Parties have provisionally applied most of the 46 CETA.62 The instrument of notification on provisional application clarifies that Article 8.15.3 is not provisionally applied between the Parties.63 Thus, the restriction on requirements to sell or otherwise dispose of foreign owned investments on activities covered in the Parties’ Annex II reservations is not yet in effect, until all Parties have ratified the Agreement.
II. Exceptions An exception normally refers to items that are excluded from the purview of the 47 treaty.64 Therefore, Parties need not take reservations to excepted issues, as those issues were never made part of the treaty in the first place. Thus, one may infer 58 Lévesque and Newcombe, ‘Canada’ in Brown (ed.), Commentaries on Selected Model Investment Treaties (2013), 86. 59 See Annex II EU Party. European Commission’s Directorate-General For Trade, The Economic Impact of the Comprehensive and Economic Trade Agreement (2017), 22. 60 Professor Côté provides a detailed analysis of Canada’s reservations in ‘From Sea to Sea: Regulatory Space of Federal and Provincial Governments in Canada under CPTPP and CETA Investment Chapters’ (2019) 16(5) TDM. 61 Kinnear, Bjorklund and Hannaford, Investment Disputes under NAFTA: An Annotated Guide to NAFTA Chapter 11 (2006), p. 1108-14. 62 Notice concerning the provisional application of the Comprehensive Economic and Trade Agreement (CETA) between Canada, of the one part, and the European Union and its Member States, of the other Part. Official Journal of the European Union. L238/9 (16.9.2017): ‘(a) only the following provisions of Chapter Eight of the Agreement (Investment) shall be provisionally applied, and only in so far as foreign direct investment is concerned: Articles 8.1 to 8.8, Article 8.13, Article 8.15, with the exception of paragraph 3 thereof, and Article 8.16’. 63 Id. The CETA may not fully enter into force until all Parties (the EU, the EU Member States and Canada) have each ratified the Agreement. 64 Newcombe and Paradell, Law and Practice of Investment Treaties: Standards of Treatment (2009), 483.
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whether the agreement excepts the particular item from coverage, or whether the Parties were required to take a reservation to ensure that they were not subject to a particular obligation.65 The exceptions under Article 8.15 are Chapter-specific and may be distinguished from the general exceptions found under Chapter 28 (Exceptions) of the Agreement,66 which also apply to investment measures.
1. Exception for TRIPS Agreement-consistent Measures An ‘investment’ for the purposes of the CETA’s Investment Chapter includes ‘intellectual property rights,’67 which therefore opens the door to the substantive standards of the CETA’s Investment Chapter in respect of IP rights holders. Investment protections for IP beyond the standards of the TRIPS Agreement (sometimes referred to as ‘TRIPS-plus’), have created controversies over undue limitations of national sovereignty in areas such as public health, food security, technological advancement, promotion of domestic industries and access to knowledge.68 Although the TRIPS Agreement contains flexibility that preserves policy space for the WTO Members, 69 this may not necessarily be the case under a FTA. Therefore, cross-references that a Party is acting consistently under the FTA where its measures are permitted under the TRIPS ensure that investment standards do not interfere with the exercise of TRIPS flexibilities.70 49 Article 8.15.4 provides that, in respect of intellectual property rights, a Party may derogate from certain provisions of the Investment Chapter if the offending measure is otherwise consistent with TRIPS Agreement. Therefore, to the extent that a Party’s measure is consistent with its TRIPS obligations, the same measure may not be challenged under the CETA for breach of a Party’s obligations concerning (i) the prohibition on a requirement to transfer technology, production process or other proprietary knowledge (Article 8.5.1(f)); (ii) NT (Article 8.6) and (iii) MFN (Article 8.7).71 While this exception generally strives to provide coherence for a Party in respect of both its CETA and TRIPS commitments, if invoked, it would be necessary for an investment tribunal to determine whether a Party is acting consistently with its 48
65 Kinnear, Bjorklund and Hannaford, Investment Disputes under NAFTA: An Annotated Guide to NAFTA Chapter 11 (2006), p. 1108-12. 66 See Article 28.3(1) and (2) (General Exceptions) CETA. 67 Article 8.1(g) (Definitions) CETA. 68 Grosse Ruse-Khan, ‘Protecting Intellectual Property Under BITs, FTAs, and TRIPS: Conflicting Regimes or Mutual Coherence,’ in Miles and Brown (eds), Evolution in Investment Treaty Law and Arbitration (Cambridge University Press, Cambridge 2011), 485 = Max Planck Institute for Intellectual Property & Competition Law Research Paper No.11-02. 69 Grosse Ruse-Khan, ‘The International Law Relation Between TRIPS and Subsequent TRIPS-Plus Free Trade Agreements: Towards Safeguarding TRIPS Flexibilities’ (2011) 18 J. Intell. Prop. L., 325 (328): ‘In recent years, however, various institutions, policy makers and NGOs have highlighted the importance of TRIPS flexibilities—especially in the public health and human rights context—and have called for safeguarding the right of WTO Members to exercise them against TRIPS-plus obligations in FTAs.’ 70 Grosse Ruse-Khan, ‘The International Law Relation Between TRIPS and Subsequent TRIPS-Plus Free Trade Agreements: Towards Safeguarding TRIPS Flexibilities’ (2011) 18 J. Intell. Prop. L., 325 (363). 71 Briefly, pursuant to Articles 3 and 4 of the TRIPS Agreement, WTO Members may take certain exceptions to the TRIPS Agreement’s national treatment and MFN treatment obligations, such as with respect to pre-existing international agreements on intellectual property. Article 5 of the TRIPS Agreement also permits WTO Members to derogate from the national treatment and MFN treatment obligations with respect to ‘procedures provided in multilateral agreements concluded under the auspices of [the World Intellectual Property Organization] relating to the acquisition or maintenance of international property rights’. See also Caplan and Sharpe 'United States' in Brown (ed), Commentaries on Certain Bilateral Investment Agreements (2013), 809-810.
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TRIPS Agreement obligations.72 This raises concerns whether the investment tribunal would have the expertise or qualifications for reviewing WTO law, and the impacts these awards would have over WTO jurisprudence.
2. Exception for Procurement Article 8.15.5(a) provides that the Investment Chapter’s disciplines on MA, NT, 50 MFN and SMBD do not apply to ‘procurement by a Party of a good or service purchased for governmental purposes and not with a view to commercial resale or with a view to use in the supply of a good or service for commercial sale.’ a) ‘… Procurement by a Party …’ While not explicitly stated, the exception of ‘procurement by a Party’ encompasses 51 procurement at all levels of government. Therefore, for the EU, procurement at the EU level, EU Member State (central) level and sub-central levels of government, while for Canada, this would include procurement at the federal and sub-federal levels. Early NAFTA tribunals that have considered the issue under the NAFTA’s parallel provision noted specific contextual support for concluding that the concept of ‘Party’ is not limited to the central level of government. Just as both the Chapter on Government Procurement and the Investment Chapter’s Article for non-conforming measures refer to sub-federal measures, the exception for government procurement covers sub-federal procurement measures.73 These reasons are equally relevant in the CETA context on the issue. b) ‘… Procurement … of a Good or Service Purchased for Governmental Purposes and not with a View to Commercial Resale or with a View to use in the Supply of a Good or Service for Commercial Sale’ The procurement exception in the CETA text is modelled on the WTO’s procure- 52 ment exceptions set out in GATT and the GATS.74 At the time, this represented a 72 Grosse Ruse-Khan raises the following general concern on investment tribunals interpreting and applying TRIPS Agreement safeguards in FTAs: ‘it is the operation of safeguard clauses which explicitly refer to international IP norms that may lead investment tribunals to applying and interpreting these norms. In light of the scarcity of authoritative decisions on international IP law, investment tribunals have little guidance to expect from the existing WTO case-law. For lack of a better alternative, their decisions may rather serve as de facto precedence for WTO panels. Given that investment tribunals cannot be expected to have comparable expertise in WTO law (let alone in specific IP matters) and do not have equivalent support as available from the WTO Secretariat, this prospect is rather worrying,’ in Litigating Intellectual Property Rights in Investor-State Arbitration: From Plain Packaging to Patent Revocation, (2004) Legal Studies Research Paper, No. 52/2014 = Max Planck Institute for Innovation & Competition Research Paper No.14-13. 73 In ADF v. United States for example, the tribunal determined that ‘Party’ in Articles 1108(7)(a) and (8)(b) NAFTA encompassed both federal and sub-federal governmental units. In reaching this conclusion, the tribunal took note that the NAFTA’s Chapter on Government Procurement included both federal and sub-federal procurement, and that the Article in which the government procurement exception is found, set out reservations at all levels of government of a Party. ADF Group Inc. (Can.) v. United States, ICSID Case No. ARB/AF/00/1, Award (9 January 2003), paras. 163 ff. 74 Article III:8(a) (National Treatment on Internal Taxation and Regulation) GATT: ‘8. (a) The provisions of this Article shall not apply to laws, regulations or requirements governing the procurement by governmental agencies of products purchased for governmental purposes and not with a view to commercial resale or with a view to use in the production of goods for commercial sale’; Article XIII:1 (Government Procurement) GATS: ‘Articles II, XVI and XVII shall not apply to laws, regulations or requirements governing the procurement by governmental agencies of services purchased for governmental purposes and not with a view to commercial resale or with a view to use in the supply of
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departure for Canada from its past approach in its trade agreements,75 which do not further qualify the term ‘procurement by a Party’ The EU’s carve out for procurement in its FTA and IPA with Singapore, on the other hand, follows the CETA’s approach. 76 53 The CETA Investment Chapter’s carve out for government procurement is different in scope from the NAFTA-type exclusion for ‘procurement by a Party …’. 77 Several NAFTA tribunals, (for example ADF v. United States,78 UPS v. Canada79 and Mercer v. Canada80), have concluded ‘procurement by a Party’ broadly refers to a ‘procurement’ by a government, as that term is plainly understood, and without further limitation, services for commercial sale.’ The WTO Appellate Body noted that GATT’s exception for government procurement under Article III:8(a) contains several elements, namely: (i) ‘laws, regulations or requirements governing the procurement by governmental agencies’; (ii) the procurement of ‘products’; (iii) ‘purchased for governmental purposes’; and (iv) products purchased ‘not for a commercial resale’. Appellate Body Reports, Canada – Certain Measures Affecting the Renewable Energy Generation Sector / Canada – Measures Relating to the Feed-in Tariff Program, WT/DS412/AB/R / WT/DS426/AB/R, adopted 24 May 2013, DSR 2013:I, p. 7. 75 Canada has since concluded two major trade agreements, the CPTPP and the CUSMA, which both contain CETA’s language on the procurement carve out for investment. 76 See EU-Singapore FTA, Article 8.1.2 (d) EU-Singapore Investment Protection Agreement (Objective and Scope), Article 2.1.3(a) (Scope). Contrast with a very different approach taken in the EU-Vietnam FTA, Article 8.1.5 (Objectives and Scope) ‘Nothing in this Chapter shall be construed as limiting the obligations of the Parties under Chapter 9 (Government Procurement) or to impose any additional obligation relating to government procurement’. The EU-Vietnam Investment Protection Agreement, Article 2.1.6 (Scope) clarifies that a Party’s obligations concerning government procurement are set out in the agreement’s chapter on government procurement: ‘With the exception of Articles 2.1 (Scope), 2.2 (Investment and Regulatory Measures and Objectives) and 2.5 (Treatment of Investment) to 2.9 (Subrogation), nothing in this Agreement shall be construed as limiting the obligations of the Parties under Chapter 9 (Government Procurement) of the Free Trade Agreement or to impose any additional obligation with respect to government procurement. For greater certainty, measures with respect to government procurement that are in compliance with Chapter 9 (Government Procurement) of the Free Trade Agreement shall not be considered a breach of Articles 2.1 (Scope), 2.2 (Investment and Regulatory Measures and Objectives) and 2.5 (Treatment of Investment) to 2.9 (Subrogation).’ 77 Article 1108(7)(a) and (8)(b) NAFTA. 78 In ADF, the dispute arose out of the claim of a Canadian steel supplier participating as a sub-contractor in a highway construction project. The governmental entity responsible for the construction, the Virginia Department of Transportation, received federal funding to implement the project. The use of federal funds triggered the application of the Buy America Act, a statute which favours domestic producers participating in government-funded projects. In reaching its conclusion that the procurement exception applied, the ADF tribunal observed that the term ‘procurement’ in Article 1108(7)(a) of the NAFTA was to be understood broadly as the act of obtaining or purchase. 79 United Parcel Service of America v. Government of Canada, ICSID Case 2007, Award on the Merits (24 May 2007), the Canadian customs service had entered into a contract entitled ‘Postal Imports Agreement’ (the ‘PIA’) with Canada Post. Under the PIA, Canada Post was to render services including the collection of customs duties and excise taxes from the addressees of postal parcels. Canadian Customs paid a fee to Canada Post in consideration for these services. The claimant UPS, a US investor, alleged that it had received less favourable treatment than Canada Post under the PIA. Canada invoked the procurement defence under Article 1108(7)(a) of the NAFTA arguing that the national treatment provision did not apply to the PIA as it was a procurement contract. The majority tribunal, referring on ADF, concluded that the PIA is a procurement contract under which Canada Post performs services (including the collection of customs duties and excise taxes from the addressees of postal parcels) for Canadian Customs for a fee. The minority tribunal member, Dean Ronald A. Cass found instead that the PIA was more akin to informal government conduct resulting in the exchange of money than it did procurement. United Parcel Service of America v. Government of Canada, ICSID Case 2007, Award on the Merits (24 May 2007), para. 73 ff. 80 Mercer International Inc. v. Government of Canada, ICSID Case No. ARB(AF)/12/3, Award (6 March 2018), para. 6.35-6: ‘the Tribunal decides that the phrase “procurement by a Party or a state enterprise”, in its context and in the light of NAFTA’s object and purpose, signifies the buying of goods or services for or by a State or state enterprise … under the [Electricity Purchase Agreement], the state enterprise (BC Hydro) is acting as the buyer of the goods or services at issue.’
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which may be generally summarized as obtaining by purchase a good or a service. 81 The Mercer tribunal specifically found that the additional GATT/GATS language on government procurement82 was not relevant in the NAFTA interpretation of the procurement exception. Thus the additional qualification to the procurement exception in CETA narrows the scope of the exception as compared with its NAFTA counterpart. This difference in scope was made apparent with the consideration of the Canadian province of Ontario, the Feed-in Tariff (FIT) program for renewable energy for which the government procurement exception was invoked both under both WTO dispute settlement and NAFTA investment dispute settlement, which yielded different results. In the WTO case, Canada—Measures Relating to the Feed-in Tariff Program, 83 the 54 EU and Japan challenged the Feed-in Tariff (FIT) program of the Province of Ontario on the basis that the program discriminated against foreign suppliers of equipment and components for renewable energy facilities by requiring minimum thresholds for domestic content levels, and did not meet the parameters of the government procurement exception to those disciplines.84 The Panel determined that the FIT Program constituted ‘procurement,’ and it also 55 found that the procurement was undertaken ‘with a view to commercial resale’. Thus, it held that the FIT Program was not covered by the terms of Article III:8(a) GATT. 85 The Appellate Body did not comment on whether the FIT Program constituted procurement for the purposes of Article III:8(a) GATT, but did acknowledge that the FIT Program involved the purchase of electricity.86 The NAFTA Chapter 11 tribunal Mesa v. Canada explicitly examined the NAFTA’s 56 procurement exception as compared with that under the GATT, stating: Article 1108(7)(a) of the NAFTA is broader than Article III:8(a) of the GATT. Once it is established that there has been ‘procurement’ by a Party or state enterprise, Article 1108(7)(a) excludes
81 According to the ADF tribunal: ‘In its ordinary or dictionary connotation, ‘procurement’ refers to the act of obtaining, as by effort, labor or purchase. To procure means to ‘get; to gain; to come into possession of’. In the world of commerce and industry, ‘procurement’ may be seen to refer ordinarily to the activity of obtaining by purchase goods, supplies, services and so forth. Thus, governmental procurement refers to the obtaining by purchase by a governmental agency or entity of title to or possession of, for instance, goods, supplies, materials and machinery.’ See ADF Group Inc. (Can.) v. United States, ICSID Case No. ARB/AF/00/1, Award (9 January 2003), para. 45. 82 The Claimant in Mercer referred the Tribunal US model practise which also defined the exception as ‘procurement of a good or service purchased for governmental purposes and not with a view to commercial resale or with a view to use in the supply of a good or service for commercial sale’. 83 Appellate Body Reports, Canada – Certain Measures Affecting the Renewable Energy Generation Sector / Canada – Measures Relating to the Feed-in Tariff Program, WT/DS412/AB/R / WT/DS426/AB/R, adopted 24 May 2013, DSR 2013:I, p. 7, paras. 5.124, 5.128, 5.132. 84 Specifically, the European Union and Japan alleged the FIT Program’s requirement for participating electricity generators to source a minimum quota of goods and services from Ontario breached Article III:4 of GATT; Article 2.1 of TRIMS and Articles 3.1(b) and 3.2 of the SCM Agreement. 85 Panel Reports, Canada – Certain Measures Affecting the Renewable Energy Generation Sector / Canada – Measures Relating to the Feed-in Tariff Program, WT/DS412/R and Add.1 / WT/DS426/R and Add.1, adopted 24 May 2013, as modified by Appellate Body Reports WT/DS412/AB/R / WT/DS426/AB/R, DSR 2013:I, p. 237, paras. 7.148-7.152. The Panel held that the Government of Ontario's purchases of electricity under the FIT Program and Contracts are undertaken ‘with a view to commercial resale’, because the purchased electricity is introduced into commerce in competition with private-sector electricity retailers. 86 Appellate Body Reports, Canada – Certain Measures Affecting the Renewable Energy Generation Sector / Canada – Measures Relating to the Feed-in Tariff Program, WT/DS412/AB/R / WT/DS426/AB/R, adopted 24 May 2013, DSR 2013:I, para. 5.84.
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all claims of [national treatment, most-favoured nation treatment] and domestic content in connection with such procurement.87
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The Mesa Tribunal would go on to conclude that Ontario’s FIT Program constituted ‘procurement’ for the purposes of the NAFTA’s exception because it involved the purchase of electricity (by a state enterprise) and therefore the exception for procurement applied.88 c) ‘… whether or not that Procurement is “Covered Procurement” within the Meaning of Article 19.2 (Scope and Coverage) ...’
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Article 8.15(5)(a) clarifies that the concept of procurement under the Investment Chapter is unrelated to the scope of government procurement in the Government Procurement Chapter of the CETA. In the absence of this clarification, early NAFTA cases were required to consider whether there was a link between the Investment Chapter’s carve out for procurement of a Party and the scope of the Government Procurement Chapter of that Agreement.89 Since the Chapter on Government Procurement covers specific types of procurement by specific government bodies, this would have significantly narrowed the scope of the exception. Likewise, linking the Investment Chapter’s government procurement exception to CETA’s Chapter on Government Procurement would have the effect of narrowing the procurement exception considerably.
3. Exception for Subsidies or Government Support relating to Trade in Services 59
Article 8.15.5(b) further excludes subsidies and government support for trade in services from the application of the MA, NT, MFN and SMBD disciplines. The exception from the application of non-discrimination disciplines of the Investment Chapter for subsidies is part of the broader exclusion of subsidies and government support from the application of cross-border trade in services disciplines, in general. 90 a) ‘… Subsidies …’
The concept of subsidies is not defined in the Investment Chapter. Article 7.1.1 (Definition of a subsidy), however, suggests that the Parties have an agreement-wide understanding of a subsidy. It provides, ‘[f] or the purpose of this Agreement, a subsidy means a measure related to trade in goods which fulfils the conditions set out in Article 1.1 of the SCM Agreement.’ Thus, the SCM Agreement’s definition of subsidy is likely to be found to be relevant for the purpose of the subsidy exception under Article 8.15. 61 Article 1.1 of the SCM Agreement91 generally defines a subsidy as a ‘financial contribution’ which confers a ‘benefit’ on a recipient. The SCM Agreement lists four types (or broad categories) of government measures constitute a financial contribution: 60
87 Mesa Power Group, LLC v. Canada, UNCITRAL, PCA Case No. 2012-17, Award (24 March 2016), para. 459. 88 Mesa Power Group, LLC v. Canada, UNCITRAL, PCA Case No. 2012-17, Award (24 March 2016), para. 460. 89 See ADF Group Inc. (Can.) v. United States, ICSID Case No. ARB/AF/00/1, Award (9 January 2003), para 45. 90 Article 9.2(g) (Scope); Financial Services Chapter, Article 13.10.7(b). 91 Article 1.1 of the SCM Agreement: ‘For the purpose of this Agreement, a subsidy shall be deemed to exist if:
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– – – –
Direct transfer of funds (e.g. grants, loans and equity infusion) and potential direct transfers of funds or liabilities (loan guarantees) (subpara. (i)); Government revenue that is otherwise due is foregone or not collected (e.g. tax credits and other fiscal incentives) (subpara. (ii)); Provision of goods or services other than general infrastructure or government purchase of goods (subpara. (iii)); Government payments to a funding mechanism or government entrustment or direction to a private body to carry out one the type of functions illustrated in subparas. (i) to (iii) and which would normally be vested in the government and the practice, in no real sense, differs from practices normally followed by governments (subpara. (iv));
While the chapeau to Article 1.1 of the SCM Agreement indicates that the four 62 categories are exhaustive, the wording for each category is broad, and therefore presumably a rather large scope of the different types of measures that may confer a financial contribution.92 The EU further clarified in a footnote to Article 8.9 CETA (Investment and regula- 63 tory measures) that the term ‘subsidy’ includes state aid as defined in its law. 93 Thus, it is reasonable to suggest that the Parties understood EU state aid as a subsidy for the purposes of the exception in Article 8.15. That said, the clarification that state aid pursuant to EU law does not likely broaden the scope of the exception since the definition of subsides under the SCM Agreement and EU law are generally similar. 94
(a)(1) there is a financial contribution by a government or any public body within the territory of a Member (referred to in this Agreement as "government"), i.e. where: (i) a government practice involves a direct transfer of funds (e.g. grants, loans, and equity infusion), potential direct transfers of funds or liabilities (e.g. loan guarantees); (ii) government revenue that is otherwise due is foregone or not collected (e.g. fiscal incentives such as tax credits); (iii) a government provides goods or services other than general infrastructure, or purchases goods; (iv) a government makes payments to a funding mechanism, or entrusts or directs a private body to carry out one or more of the type of functions illustrated in (i) to (iii) above which would normally be vested in the government and the practice, in no real sense, differs from practices normally followed by governments; or (a)(2) there is any form of income or price support in the sense of Article XVI of GATT 1994; and (b) a benefit is thereby conferred.’ 92 United Nations Conference on Trade and Development, Dispute Settlement, World Trade Organization, 3.7 Subsidies and Countervailing Measures (2003), p. 11. Ehlermann and Goyette, ‘EU State Aid Versus WTO Disciplines on Subsidies’, EStAL4:2006, 697. 93 Article 8.9.4 CETA provides, ‘[f]or greater certainty, nothing in this Section shall be construed as preventing a Party from discontinuing the granting of a subsidy[FN5] or requesting its reimbursement where such measure is necessary in order to comply with international obligations between the Parties or has been ordered by a competent court, administrative tribunal or other competent authority, or requiring that Party to compensate the investor therefor.’ [FN5: ’In the case of the European Union, “subsidy” includes “state aid” as defined in its law.’]. 94 Ehlermann and Goyette, ‘The Interface between EU State Aid Control and the WTO Disciplines on Subsidies’, EStAL4:2006, 714.
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b) ‘… Government Support relating to Trade in Services …’ Pursuant to Article 8.15, government support for trade in services is also excepted from the application of MA NT, MFN and SMBD.95 The phrase is not further defined under the Agreement, although a contextual interpretation suggests that the Parties understood at least some forms of government support that relates to trade in services fall outside the scope of what normally entails a subsidy.96 65 Moreover, the government support is only, somewhat ambiguously, in relation to trade in services. 66 The language for this exception represents to some extent a departure for both Parties, which both have normally employed for this exception, (i.e. ‘subsidies or grants provided by a Party, including government-suported loans, guarantees and insurance’ from the application of certain establishment disciplines).97 64
c) ‘… Provided by a Party.’ 67
Just as with the procurement exception, the term ‘Party’ in Article 8.15.5(b) encompasses all levels of government, and therefore would include any subsidy or government support relating to trade in services provided at any level of government (see → mn. 51).
E. Conclusion Under CETA, the EU has for the first time adopted a NAFTA-style negative list approach for its existing and future non-conforming measures, marking a monumental shift away from its earlier FTAs espousing the positive list approach. While the Commission touted the obvious known benefit of transparency under the negative list approach, public concerns that the CETA interferes with a Party’s right to regulate resounded. 69 At its core, however, the CETA’s Reservations and exceptions article is instrumental to ensuring a Party’s continued right to regulate, as made apparent with the JII’s 'clear and unambiguous statement' that Article 8.15 protects a Party’s right to regulate. A Party is able to reserve for itself any regulatory space it needs for its own policy planning, recognizes and maintains the flexibilities found in the TRIPS Agreement, and further exempts procurement and subsides from the Investment Chapter’s nondiscrimination and market access disciplines. By that same token, transparently listed non-conforming measures provide critical stability to investors and their investments. 68
95 Such government support is further carved out from the scope of the Cross-Border Trade in Services Chapter. 96 ‘Subsidies, or government support relating to trade in services …’. Notably, the carve out in the Cross-Border Trade in Services Chapter acknowledges some overlap between what is understood as a subsidy and government support relating to cross-border trade in services. Article 9.2.2(g) CETA: ‘a subsidy, or other government support relating to cross-border trade in services, provided by a Party’. 97 It is not clear why both Parties depart from their model approaches under CETA. As explained, Canada’s model language (i.e. ‘subsidies or grants provided by a Party or a state enterprise, including government-supported loans, guarantees and insurance’) was replaced by the 21 November 2013 version of the text with agreement on 'subsidies or government support provided by a Party […]' text without further indication of attribution or source. Canada’s most recent FTAs include its NAFTA model approach, such as the CPTPP and the CUSMA. The EU’s FTAs and IPAs with Singapore and Vietnam reflect the same language as Canada’s model. For example, EU-Singapore IPA, Article 2.1.2 (Scope): ‘Notwithstanding any other provision in this Agreement, Article 2.3 (National Treatment) shall not apply to subsidies or grants provided by a Party, including government-supported loans, guarantees and insurance.’
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Article 8.16 Denial of benefits* A Party may deny the benefits of this Chapter to an investor of the other Party that is an enterprise of that Party and to investments of that investor if: (a) an investor of a third country owns or controls the enterprise; and (b) the denying Party adopts or maintains a measure with respect to the third country that: (i) relates to the maintenance of international peace and security; and (ii) prohibits transactions with the enterprise or would be violated or circumvented if the benefits of this Chapter were accorded to the enterprise or to its investments. Annex 8-E – Joint declaration on articles 8.16, 9.8, and 28.6 With respect to Articles 8.16, 9.8 (Denial of benefits) and 28.6 (National security), the Parties confirm their understanding that measures that are “related to the maintenance of international peace and security” include the protection of human rights.
Reference to the Respective Provisions in Other EU Treaties: Energy Charter Treaty, Article 17; EU-Mexico Global Agreement, text of the agreement in principle announced on 21 April 2018, Chapter on Investment, Article 20. Bibliography: Yas Banifatemi and André von Walter, ‘Commentary on the French Model BIT’ in Chester Brown (ed), Commentaries on Selected Model International Investment Agreements (Oxford University Press, Oxford, 2013), 245; Yas Banifatemi, ‘Taking Into Account Control Under Denial of Benefits Clauses’ in Banifatemi (ed), Jurisdiction in Investment Treaty Arbitration, IAI Series on International Arbitration No 8 (JurisNet LLC and IAI, New York, 2018) 223; James Chalker, ‘Making the Energy Charter Treaty Too Investor Friendly: Plama Consortium Limited v. the Republic of Bulgaria’ (2006) 3(5) TDM, 1; Rudolf Dolzer and Christoph Schreuer, Principles of International Investment Law (2 nd edn, Oxford University Press, Oxford, 2012); Mark Feldman, ‘Setting Limits on Corporate Nationality Planning in Investment Treaty Arbitration’ (2012) 27(2) ICSID Rev., 281; Mark Feldman, ‘Denial of Benefits after Plama v. Bulgaria’ in Meg Kinnear, Geraldine Fisher et al. (eds), Building International Investment Law: The First 50 Years of ICSID (Kluwer Law International, The Netherlands, 2015) 463; Lindsay Gastrell and Paul-Jean Le Cannu, ‘Procedural Requirements of “Denial-of-Benefits” Clauses in Investment Treaties: A Review of Arbitral Decisions’ (2015) 30(1) ICSID Rev., 78; Jean-Francois Hébert, ‘Issues of corporate nationality in investment arbitration’ in Armand de Mestral and Céline Lévesque (eds) Improving International Investment Agreements (Routledge, London, 2013), 230; Meg Kinnear, Andrea Bjorklund and John Hannaford, Investment Disputes under NAFTA: An Annotated Guide to NAFTA Chapter 11 (Kluwer Law International, The Netherlands, 2009); Barton Legum, ‘Defining Investment and Investor: Who is Entitled to Claim?’ (2005), Symposium co-organised by ICSID, OECD, and UNCTAD (online); Céline Lévesque and Andrew Newcombe, ‘Commentary of the Canadian Model FIPA’ in Chester Brown (ed), Commentaries on Selected Model International Investment Agreements (Oxford University Press, Oxford, 2013), 53; Loukas Mistelis and Crina Baltag, ‘Denial of Benefits and Article 17 of the Energy Charter Treaty’ (2009) 113(4) Penn State Law Review, 1301; Loukas Mistelis and Crina Baltag, ‘Denial of Benefits Clause’ in Max Planck Encyclopedias of Internatinal Law (Oxford University Press, Oxford, 2019); August Reinisch, ‘The Austrian Model BIT 2008’ in Chester Brown (ed), Commentaries on Selected Model International Investment Agreements (Oxford University Press, Oxford, 2013), 15; Jeswald Salacuse, ‘BIT by BIT: The Growth of Bilateral Investment Treaties and their Impact on Foreign Investment in Developing Countries’ (1990) 24(3) Int’l Lawyer, 655; Anthony Sinclair, ‘Investment Protection for “Mailbox Companies” Under the 1994 Energy Charter Treaty’ (2005) 5 TDM, 1; Laurence Shore, ‘The Jurisdiction Problem in Energy Charter Treaty Claims’ (2007) 10 Int’l Arb. L. Rev., 58; Rachel Thorn and Jennifer Doucleff, ‘Disregarding the Corporate Veil and Denial of Benefits Clauses: Testing Treaty Language and the Concept of “Investor”’, in Michael Waibel, * The author would like to thank Peter Knowlton for his able research assistance. Many thanks also to Professors Crina Baltag, Mark Feldman and Loukas Mistelis for their comments on an earlier draft of this chapter. All errors are mine.
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Asha Kaushal, et al. (eds), The Backlash Against Investment Arbitration, (Kluwer Law International, The Netherlands, 2010), 3; Kenneth Vandevelde, U.S. International Investment Agreements (Oxford University Press, New York, 2009); Kenneth Vandevelde, The First Bilateral Investment Treaties – U.S. Postwar Friendship, Commerce and Navigation Treaties (Oxford University Press, Oxford, 2017); Tania Voon, Andrew Mitchell and James Munro, ‘Legal Responses to Corporate Manoeuvering in International Investment Arbitration’ (2014) 5(1) J. Int’l Disp. Settlement, 41; Herman Walker Jr., ‘Provisions on Companies in United States Commercial Treaties’ (1956) 50(2) Am. J. Int’l L., 373. A. Introduction and Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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B. Spirit and Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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C. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. Background on the Drafting of DOB Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . II. The Evolution of Draft DOB CETA Text . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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D. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. The Impact of Case-law on the ‘Downsizing’ of CETA’s DOB Provision II. The Pared-down DOB Provision and its Likely Rare Application . . . . . . . . . 1. A Right of Denial Without Prior Notice or Consultation . . . . . . . . . . . . . . 2. Classic Workings, but Ownership and Control Left Undefined . . . . . . . . 3. A Narrower Ambit for Denial, Including Newly Formulated Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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E. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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A. Introduction and Overview 1
CETA Parties have opted to include in the investment chapter of their agreement a right of denial of benefits (DOB),1 a provision which, although gaining in popularity, is found only in a minority of IIAs.2 DOB provisions have been more commonly found in the practice of certain States, including the US (where they are said to originate), Canada, Austria and Australia.3 2 Canada has included DOB clauses in all the IIAs it signed since the adoption of its 2004 Model Foreign Investment Promotion and Protection Agreement (FIPA). 4 The EU has included a DOB clause in its agreement in principle on investment with Mexico,5 but not in its IPAs nor FTAs with Vietnam or Singapore.6 However, other provisions of the latter agreements seek to achieve similar objectives.
1 Canada-European Union Comprehensive Economic and Trade Agreement (signed 30 October 2016), Article 8.16. 2 UNCTAD’s IIA Navigator indicates 221 out of 2.577 IIAs it mapped included DOB clauses (of those 221, 38 are not in force and 13 have been terminated), online (as of 30 April 2020): ; see Mistelis and Baltag, ‘Denial of Benefits Clause’ in Max Planck Encyclopedias of International Law (2019), 1 (para. 1). 3 Mistelis and Baltag, ‘Denial of Benefits Clause’ in Max Planck Encyclopedias of International Law (2019), 1 (paras. 12-34); Banifatemi, ‘Taking Into Account Control Under Denial of Benefits Clauses’ in Banifatemi (ed), Jurisdiction in Investment Treaty Arbitration (2018), 223 (223-233). 4 Based on the FIPAs and FTAs publically available as of March 2020, online at : . 5 EU-Mexico Global Agreement, text of the agreement in principle announced on 21 April 2018, Chapter on Investment, Article 20. 6 In order to avoid issues of implementation the agreements with Vietnam and Singapore respectively were divided between FTAs (EU exclusive competence) and IPAs (mixed competence of EU and Member States). See EU-Vietnam Free Trade Agreement and EU-Vietnam Investment Protection Agreement (signed 30 June 2019); EU-Singapore Free Trade Agreement and EU-Singapore Investment Protection Agreement (signed 19 October 2018). It should be recalled that those FTAs cover the liberalisation or establishment of investments. For our purposes, references will mostly be made to the IPAs and interactions between the FTAs and the IPAs will not be addressed.
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DOB provisions have attracted a lot of attention in recent years, namely due to increasing concerns regarding treaty shopping and abuse of rights in ISDS. 7 The rising volume of awards including interpretations of DOB provisions has also led certain States to modify the wording of such provisions in their newer IIAs. The CETA clearly falls in this category and its Parties appear to have made the deliberate choice to avoid some of the outcomes reached, notably in the interpretation of the DOB provision of the ECT.8 The CETA’s DOB provision stands out in what it omits as well as what it covers. In the past, Respondent States have mostly invoked DOB provisions in order to prevent third country investors from benefitting, through a ‘shell’ or a ‘mailbox’ company constituted in the other Party to the IIA, from the protection of the Treaty. The decision to invoke (or not) the DOB clause was made on a discretionary, case by case basis. In CETA, the key concept of ‘substantial business activities’ typically used to ascertain the reality of connections to the relevant home State, appears not in the DOB provision, but at Article 8.1, in the definition of investor. A number of consequences flow from this choice. First, the traditional concerns about ‘free-riding’ and ‘reciprocal obligations’ are now dealt with through a firm jurisdictional requirement (via the definitions) rather than on a discretionary basis. Second, the coverage of the DOB provision, now focused on concerns related to economic and diplomatic relations with third countries, is significantly reduced. Further, the cumulative requirements related to the purposes of maintenance of international peace and security as well as that of prohibiting certain transactions or preventing circumvention/violation of measures with respect to a third country, reduce it even further. As a result, CETA’s DOB provision will (most likely) rarely be used. In a nutshell, the CETA Parties have opted to include in their agreement a ‘classical’ DOB clause (i.e. discretionary, case by case), but one that differs from past IIA treaty practice due to its limited and narrow scope. This chapter will provide an overview of the purpose(s) of DOB provisions, background on their drafting history as well as some draft CETA DOB text, before offering a detailed commentary on Article 8.16.
3
4
5
6
7
B. Spirit and Purpose DOB provisions of modern IIAs have been linked to the post WWII practice of 8 the US that included in its Friendship, Commerce and Navigation (FCN) treaties a provision by which State Parties reserved to themselves the right to deny the rights and privileges under the Treaty to certain corporations of the home State due to their ownership or control by nationals or corporations of third States (more on the drafting in the next section).9 The idea of preventing ‘free riding’ and of ‘piercing the
7 See e.g. Mistelis and Baltag, ‘Denial of Benefits Clause’ in Max Planck Encyclopedias of International Law (2019), 1 (para. 11); Gastrell and Le Cannu, ‘Procedural Requirements of “Denial-of-Benefits” Clauses in Investment Treaties: A Review of Arbitral Decisions’ (2015) 30(1) ICSID Rev., 78 (81-82); Hébert, ‘Issues of corporate nationality in investment arbitration’ in de Mestral and Lévesque (eds), Improving International Investment Agreements (2013), 230 (230-231). 8 Energy Charter Treaty (signed 17 December 1994), Article 17. 9 Vandevelde, The First Bilateral Investment Treaties: U.S. Postwar Friendship, Commerce, and Navigation Treaties (2017), 394; Banifatemi, ‘Taking Into Account Control Under Denial of Benefits Clauses’ in Banifatemi (ed), Jurisdiction in Investment Treaty Arbitration (2018), 223 (224-225); Mistelis and Baltag, ‘Denial of Benefits and Article 17 of the Energy Charter Treaty’ (2009) 113 Penn State Law Review, 1301 (1302-1304).
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corporate veil’ were already present at the time: such provisions allowed a Party ‘in case of need to prevent third country interests from getting a “free-ride” through the medium of a dummy or “front” corporation chartered under the laws of the other Party.’10 Another way to express this concern is through the concept of ‘reciprocal obligations’. As explained by commentators, such provisions act as a ‘safety measure for safeguarding the principle of reciprocity embodied in investment treaties.’ 11 9 In more recent times, DOB provisions have been associated with the concept of ‘treaty-shopping’ and strategies for the acquisition of favourable nationality. 12 In the literature as well as cases, the concept of abuse of rights has been discussed in this context.13 10 As modern IIAs typically contain broad definitions of the terms investor and investment, including DOB clauses allows States to counteract this breath by permitting them to deny protection to certain investors in circumstances where they deem it unacceptable or impermissible.14 11 As will be seen in more detail below, DOB clauses in IIAs cover two distinct sets of circumstances. One relates to the lack of sufficient economic connection to the home State of a company owned or controlled by investors of a third State. The other relates to the status of diplomatic or economic relations between the host State of the investment and a third State. In the latter case, the goal of preventing circumvention or violation of existing measures against a State are often explicitly stated. One can readily imagine scenarios where such situations would arise: say under NAFTA,15 Cuban nationals that owned and controlled a company in Canada, which invested in the US, could have made a claim for damages as an investor under NAFTA Chapter 11.16 In this case, the US would have had the option of invoking NAFTA’s DOB 10 US State Dept. 1953, cited in Vandevelde, The First Bilateral Investment Treaties: U.S. Postwar Friendship, Commerce, and Navigation Treaties (2017), 394.; Walker, ‘Provisions on Companies in United States Commercial Treaties’ (1956) 50(2) Am. J. Int’l L., 373 (388). See also US Non-disputing Party (NDP) Submissions referring to its long standing policy re DOB clauses and safeguarding against ‘free-rider’ investors, cited e.g. in Pac Rim Cayman LLC v. El Salvador, ICSID Case No. ARB/09/12, Decision on the Respondent’s Jurisdictional Objections (1 June 2012), para. 4.55, and in Bridgestone Licensing Services, Inc. and Bridgestone Americas, Inc. v. Panama, ICSID Case No. ARB/16/34, Decision on Expedited Objections (13 December 2017), para. 290. 11 Mistelis and Baltag, ‘Denial of Benefits and Article 17 of the Energy Charter Treaty’ (2009) 113 Penn State Law Reveiw, 1301 (1303). See also Walker, ‘Provisions on Companies in United States Commercial Treaties’ (1956) 50(2) Am. J. Int’l L., 373 (388); Salacuse, ‘BIT by BIT: The Growth of Bilateral Investment Treaties and Their Impact on Foreign Investment in Developing Countries’ (1990) 24(3) Int’l Lawyer, 655 (665); Sinclair, ‘Investment Protection for “Mailbox Companies” under the 1994 Energy Charter Treaty’ (2005) 5 TDM, 1 (5). 12 See e.g. Dolzer and Schreuer, Principles of International Investment Law (2012), 55. 13 See e.g. Feldman, ‘Setting Limits on Corporate Nationality Planning in Investment Treaty Arbitration’ (2012) 27(2) ICSID Rev, 281; Voon, Mitchell and Monro, ‘Legal Responses to Corporate Manoeuvring in International Investment Arbitration’ (2014) 5 J. Int’l Disp. Settlement, 41. 14 See e.g. Limited Liability Company Amto v. Ukraine, SCC Case 080/2005, Final Award (26 March 2008), para. 61; Mistelis and Baltag, ‘Denial of Benefits Clause’ in Max Planck Encyclopedias of International Law (2019), 1 (paras. 3-5); Thorn and Doucleff, ‘Disregarding the Corporate Veil and Denial of Benefits Clauses: Testing Treaty Language and the Concept of “Investor”’ in Waibel et al. The Backlash against Investment Arbitration (2010), 3 (9-10); Legum, ‘Defining Investment and Investor: Who is Entitled to Claim?’ (2005), Symposium co-organised by ICSID, OECD, and UNCTAD, 1(4); Feldman, ‘Setting Limits on Corporate Nationality Planning in Investment Treaty Arbitration’ (2012) 27(2) ICSID Rev., 281 (293). See also Kinnear et al., Investment Disputes under NAFTA: An Annotated Guide to NAFTA Chapter 11 (2009), 1113-5 and -6. 15 North American Free Trade Agreement (signed 17 December 1992), Article 1113. 16 See Banifatemi, ‘Taking Into Account Control Under Denial of Benefits Clauses’ in Banifatemi (ed), Jurisdiction in Investment Treaty Arbitration (2018), 223 (226). See also Gastrell and Le Cannu, ‘Procedural Requirements of “Denial-of-Benefits” Clauses in Investment Treaties: A Review of Arbitral
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provision. While such a scenario could come up in relation to a number of countries affected by sanctions or embargos, commentators have noted that there are no known such cases of a DOB provisions being invoked as of 2018.17 In the context of CETA, the Parties appear to be most concerned with the prover- 12 bial ‘mailbox’ company. In the Statement of Interpretation issued by the Parties on 27 October 2016 (a few days before CETA’s signature), they emphasised that: 6.
Investment Protection […] d) CETA requires a real economic link with the economies of Canada or the European Union in order for a firm to benefit from the agreement and prevents ‘shell’ or ‘mail box’ companies established in Canada or the European Union by investors of other countries from bringing claims against Canada or the European Union and its Member States. 18
As mentioned above, these concerns will be dealt with in CETA under the defini- 13 tions and scope provisions, and not under the DOB provision, for reasons explored below.
C. Drafting History In this Section, some sample DOB provisions will first be highlighted, especially 14 those that have had an influence on the treaty practice of the CETA Parties or that involve them. Secondly, draft CETA text will be analysed in order to demonstrate how it evolved through the different negotiations rounds.
I. Background on the Drafting of DOB Provisions Excerpts from the 1955 Standard Draft US FCN Treaty provide a useful starting 15 point. While paragraph e) of Article XXI(1) is most on point, paragraph d) also has relevance to the text of CETA’s DOB provision: 1.
The present Treaty shall not preclude the application of measures: […] (d) necessary to fulfill the obligations of a Party for the maintenance or restoration of international peace and security, or necessary to protect its essential security interests; (e) denying to any company in the ownership or direction of which nationals of any third country or countries have directly or indirectly the controlling interest, the advantages
Decisions’ (2015) 30(1) ICSID Rev., 78 (79), who refer to the US Letter of Submittal of the US-Bolivia BIT (citing Cuba and Libya as examples). 17 Banifatemi, ‘Taking Into Account Control Under Denial of Benefits Clauses’ in Banifatemi (ed), Jurisdiction in Investment Treaty Arbitration (2018), 223. 18 Joint Interpretative Instrument on the Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union and its Member States, Brussels, 27 October 2016, 13541/16. See also CETA – Canadian Statement on Implementation (2017), under Chapter 8 Investment, Section F: ‘CETA addresses abuse of the investment dispute settlement provisions. An investor is precluded from making a claim if the investment is made through fraudulent misrepresentation, concealment, corruption or conduct amounting to an abuse of process. Moreover, because of the definition of “investors” in CETA, a claim against Canada by a so-called “shell” or “mail box” company in the European Union, that does not have business activities in the European Union, will not be possible as such companies will not be considered investors of the European Union. Similarly, Canadian companies that are not owned by Canadians and that do not have business activities in Canada will not be considered an investor of Canada and may not bring a claim against the European Union under this Section.’
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Denial of benefits of the present Treaty, except with respect to recognition of juridical status and with respect to access to courts; […]19
16
Jumping ahead to the 1983 US Model BIT, it is interesting to note that the notion of DOB appears in the definitions. Specifically, Article 1(b) provides: ‘company of a Party’ means a company duly incorporated […] under the applicable laws […] The juridical status of a company of a Party shall be recognized by the other Party and its political subdivisions. Each Party reserves the right to deny to any of its own companies or to a company of the other Party the advantages of this Treaty […] if nationals of any third country control such company, provided that whenever one Party concludes that the benefits of this Treaty should not be extended to a company of the other Party for this reason, it shall promptly consult with the other Party to seek a mutually satisfactory resolution to this matter. 20
17
According to a commentator, the addition in 1983 of a requirement for consultation followed BIT negotiations with Panama, during which a concern arose that ‘a host party might use the denial of benefits clause as a pretext for unilaterally and arbitrarily denying treaty protection to a company owned or controlled by nationals of the other party but allegedly controlled by third-country nationals.’21 This new clause aimed at preventing this possibility. 18 While the requirement for consultations in relation to a DOB is no longer present in the 1984 US Model BIT (as it may have been thought that the general consultation provision could be used for this purpose22), it found its way in the text of NAFTA and the 2004 Canadian Model FIPA (more on this below). 19 The 1984 US Model BIT is also worthy of mention as it is the first time the DOB clause (still in the definitions at Article 1) adds specifics regarding the circumstances for denial common to DOB provisions in IIAs: 2.
Each Party reserves the right to deny to any company the advantages of this Treaty if nationals of any third country control such company and, in the case of a company of the other Party, that company has no substantial business activities in the territory of the other Party or is controlled by nationals of a third country with which the denying Party does not maintain normal economic relations.23
20
In 1994, DOB finally has its own provision in the US Model BIT, apart from the definitions, along similar lines as above but using the term ‘benefits’ as opposed to ‘advantages’, and adding ownership as an alternative to control.24 21 From an historical perspective, one could say the CETA Parties have not so much innovated as gone back in time by moving the contemporary key aspect of the DOB provision to the definitions. Yet, they did innovate in their formulation of the second prong of the DOB provision (related to economic and diplomatic relations) that is self-standing. 22 Getting closer to Canada’s IIA practice, the next milestone is the DOB provision of NAFTA. Article 1113 provides that: 19 Vandevelde, The First Bilateral Investment Treaties: U.S. Postwar Friendship, Commerce, and Navigation Treaties (2017), Appendix, Excerpts from the 1955 Standard Draft U.S. FCN Treaty, 555. See also Vandevelde, U.S. International Investment Agreements (2009), 148. 20 Vandevelde, U.S. International Investment Agreements (2009), Appendix B, The 1983 Model, 779-780. 21 Vandevelde, U.S. International Investment Agreements (2009), 150-151. 22 Vandevelde, U.S. International Investment Agreements (2009), 152. 23 Vandevelde, U.S. International Investment Agreements (2009), Appendix C, The 1984 Model, 790 and 153. 24 Vandevelde, U.S. International Investment Agreements (2009), Appendix G, The 1994 Model, 823.
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Denial of benefits 1.
2.
A Party may deny the benefits of this Chapter to an investor of another Party that is an enterprise of such Party and to investments of such investor if investors of a non-Party own or control the enterprise and the denying Party: (a) does not maintain diplomatic relations with the non-Party; or (b) adopts or maintains measures with respect to the non-Party that prohibit transactions with the enterprise or that would be violated or circumvented if the benefits of this Chapter were accorded to the enterprise or to its investments. Subject to prior notification and consultation in accordance with Articles 1803 (Notification and Provision of Information) and 2006 (Consultations), a Party may deny the benefits of this Chapter to an investor of another Party that is an enterprise of such Party and to investments of such investors if investors of a non-Party own or control the enterprise and the enterprise has no substantial business activities in the territory of the Party under whose law it is constituted or organized.25
It is notable that ‘normal economic relations’ (in US practice) has been specified 23 and detailed in the context of NAFTA. It is also noteworthy that ‘prior notifications and consultations’ have been included. As will be discussed further below, this feature has attracted a lot of controversy, not so much in the context of NAFTA, but in cases under the ECT – despite the fact that the ECT DOB provision does not (explicitly) include such a requirement. As with NAFTA, the ECT was being negotiated in the early 1990 s. The DOB provi- 24 sion of the ECT provides the following: Article 17: Non-Application of Part III in Certain Circumstances Each Contracting Party reserves the right to deny the advantages of this Part to: (1) a legal entity if citizens or nationals of a third state own or control such entity and if that entity has no substantial business activities in the Area of the Contracting Party in which it is organised; or (2) an Investment, if the denying Contracting Party establishes that such Investment is an Investment of an Investor of a third state with or as to which the denying Contracting Party: (a) does not maintain a diplomatic relationship; or (b) adopts or maintains measures that: (i) prohibit transactions with Investors of that state; or (ii) would be violated or circumvented if the benefits of this Part were accorded to Investors of that state or to their Investments.26
The DOB provision of the ECT has been interpreted on numerous occasions and 25 early decisions have been the object of a number of criticisms. 27 In this context, it is not surprising that some States’ treaty practices have evolved 26 in parallel. Let’s take again the example of Canada. DOB provisions were not included in Canadian FIPAs before the conclusion of NAFTA and, even afterwards, only one
25 NAFTA, Article 1113. For a description of the travaux préparatoires related to this provision, see Kinnear et al., Investment Disputes under NAFTA: An Annotated Guide to NAFTA Chapter 11 (2009), 1113-1 to 1113-4. 26 ECT, Article 17. See also Banifatemi, ‘Taking Into Account Control Under Denial of Benefits Clauses’ in Banifatemi (ed), Jurisdiction in Investment Treaty Arbitration (2018), 223 (231-232). 27 See e.g. Mistelis and Baltag, ‘Denial of Benefits Clause’ in Max Planck Encyclopedias of International Law (2019), 1, Sinclair, ‘Investment Protection for “Mailbox Companies” under the 1994 Energy Charter Treaty’ (2005) 5 TDM, 1 (5-6); Shore, ‘The Jurisdiction Problem in Energy Charter Treaty Claims’ (2007) 10 Int’l Arb. L. Rev., 58; Chalker, ‘Making the Energy Charter Treaty Too Investor Friendly: Plama Consortium Limited v. the Republic of Bulgaria’ (2006) 3(5) TDM, 1 (11-20); Hébert, ‘Issues of corporate nationality in investment arbitration’ in de Mestral and Lévesque (eds), Improving International Investment Agreements (2013), 230 (244-245).
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FIPA based on the ‘NAFTA Model’ included such a provision.28 The 2004 Model FIPA did include a DOB provision and all FIPAs concluded since have as well. 29 The only substantive change in the Model as compared to NAFTA’s DOB provision is the removal of the wording ‘does not maintain diplomatic relations with the non-Party.’ 30 27 Most relevant in the context of CETA are the FIPAs initially concluded between Canada and current EU Member States before they joined the Union. 31 They can be divided into two categories: those that were modified in 2009-2010 (under impetus from the EU to ensure compliance with EU law)32 and those not updated since. The FIPAs that predate the 2004 Model do not include DOB clauses, 33 while the post-2004 do and follow the Model.34 It is interesting to note that none of the FIPAs signed after this period (2009-2010) make reference to the need for ‘prior notification and consultation’ within the DOB clause.35 28 On a last historic note, DOB provisions were also found in the practice of some other EU Member States, such as Austria. According to UNCTAD’s IIA navigator, Austria has signed over 20 BITs including a DOB clause and it also figures in its 2008 Model BIT, with a focus on ‘substantial business activity’.36 In conclusion, both sides to CETA were familiar with DOB provisions and the issues they raised. They then had to decide whether CETA would include a DOB provision and how it should be drafted.
II. The Evolution of Draft DOB CETA Text 29
During the course of the CETA negotiations a number of drafts were either leaked or made available by the negotiating Parties. Four different versions of the DOB clause will be highlighted here, spanning 2010 to 2014, and demonstrating how the text evolved through time.
28 See Canada-Costa Rica FIPA (signed 18 March 1998) Annex I, Article III(7). Notably, this clause only focuses on ‘substantial business activities’ and does not cover diplomatic or economic relations. 29 2004 Canadian FIPA Model, Article 18. Reproduced in Lévesque and Newcombe, ‘Commentary of the Canadian Model FIPA’ in Brown (ed), Commentaries on Selected Model International Investment Agreements (2013), 53 (101). 30 See Lévesque and Newcombe, ‘Commentary of the Canadian Model FIPA’ in Brown (ed), Commentaries on Selected Model International Investment Agreements (2013), 53 (101). 31 Listed in CETA, Chapter 30, Annex 30-A. 32 Lévesque and Newcombe, ‘Commentary of the Canadian Model FIPA’ in Brown (ed), Commentaries on Selected Model International Investment Agreements (2013), 53 (59-60). 33 FIPAs with Poland (signed 6 April 1990), Hungary (signed 3 October 1991), Croatia (signed 3 February 1997). 34 FIPAs with the Czech Republic (signed 6 May 2009), Latvia (signed 5 May 2009), Romania (signed 8 May 2009), Slovak Republic (20 July 2010). 35 It is notable that this segment of the clause (re prior notification and consultation) already does not appear in another 2009 FIPA being negotiated around the same time as some of the European Member FIPAs were being updated. See e.g. Article 18(2) Canada-Jordan FIPA (signed 28 June 2009). The DOB provision of the Peru FIPA (signed in 14 November 2006) was modified in the Canada-Peru FTA (signed 29 May 2008) and this segment was also removed. 36 See UNCTAD IIA Navigator and Reinisch, ‘The Austrian Model BIT 2008’ in Brown (ed), Commentaries on Selected Model International Investment Agreements (2013), 15 (36). It should be noted that other Civil Law countries, such as France, do not solely rely on the incorporation test in the definition of investor, but also on the location of head office or headquarters as well. In this manner, the connection to the economic fiber of the country is already required. See Banifatemi and von Walter, ‘Commentary on the French Model BIT’ in Brown (ed), Commentaries on Selected Model International Investment Agreements (2013), 245 (252-256).
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A consolidated draft dated 13 January 2010 includes Canadian text for a DOB 30 provision. The Article is similar in structure and content to the one in the 2004 FIPA Model, except that it covers not only ‘investors of a non-Party’ but also investors ‘of the denying Party’. This further possibility allows a State Party to have recourse to the DOB provision in order to deny the benefits of the Treaty to its own investors (in scenarios that recall the Tokios Tokeles v. Ukraine case).37 Article X.16: Denial of Benefits 1.
2.
A Party may deny the benefits of this Chapter to an investor of the other Party that is an enterprise of that Party and to investments of that investor if investors of a non-Party own or control the enterprise and the denying Party adopts or maintains measures with respect to the non-Party that prohibit transactions with the enterprise or that would be violated or circumvented if the benefits of this Chapter were accorded to the enterprise or to its investments. A Party may deny the benefits of this Chapter to an investor of the other Party that is an enterprise of that Party and to investments of that investor if investors of a non-Party or of the denying Party own or control the enterprise and the enterprise has no substantial business activities in the territory of the Party under whose law it is constituted or organized. 38 (emphasis added)
Later, that possibility was removed from the DOB provision (see 2013 text below), 31 but a similar mechanism would operate through the definitions (→ Art. 8.1 mn. 234 and Art. 8.2 mn. 48 ff.). A January 2011 draft includes Canadian text closer in structure to the final CETA 32 Article 8.16. A key addition in this case is the reference to the maintenance of international peace and security as well as the protection of human rights. As displayed on the first page of this commentary, the final CETA text does not include the reference to human rights, which now appears in a separate joint declaration. [Article X.16: DeniaI of Benefits 1.
2.
A Party may deny the benefits of this Chapter to an investor of the other Party that is an enterprise of that Party and to investments of that investor if: a) investors of a non-Party own or control the enterprise; and b) the denying Party adopts or maintains measures with respect to the non-Party that: i. are related to maintenance of international peace and security or the protection of human rights. ii. prohibit transactions with the enterprise or would be violated or circumvented if the benefits of this Chapter were accorded to the enterprise or to its investments. A Party may deny the benefits of this Chapter to an investor of the other Party that is an enterprise of that Party and to investments of that investor if investors of a non-Party or of the denying Party own or control the enterprise and the enterprise has no substantial business activities in the territory of the Party under whose law it is constituted or organized.] CAN
33
Right below the Canadian text appears a EU proposal: [Should the juridical person have only its registered office or central administration in the territory of the European Union or of Canada respectively, it shall not be considered as a European Union or Canadian juridical person respectively, unless it engages in substantive business operations [footnote 21] in the territory of the European Union or of Canada, respectively;] EU
37 See Tokios Tokeles v. Ukraine, ICSID Case No. ARB/02/18, Decision on Jurisdiction (29 April 2004). In this case, the Respondent objected to the claim because claimant, a Lithuanian company, was owned and controlled almost entirely by Ukrainian nationals. 38 The January 2010 Draft was published on the Bilaterals.org website: Other draft texts are available with the author.
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Footnote 21 attached to the concept of ‘substantive business operations’, clarifies the EU’s understanding: The EC understands that the concept of "effective and continuous link" with the economy of a Member State enshrined in Article 48 of the EC Treaty is equivalent to the concept of "substantive business operations" Accordingly, for a juridical person set up in accordance with the laws of Canada and having only its registered office or central administration in the territory of Canada, the EC shall only extend the benefits of this Agreement if that juridical person possesses an effective and continuous economic link with the economy of Canada.
35
As noted in the introduction, the criteria around ‘substantive business operations’ was later moved to the definitions and the content of the footnote is found in a Declaration made by the EU at the time of CETA’s signature (→ mn. 53). 36 The 21 November 2013 draft text displays the separation between the different concerns traditionally covered by DOB provisions. The definitions now include an expanded definition of ‘investor’ which would cover ‘shell’ or ‘mailbox’ companies: investor means [CAN: a Party] a natural person or an enterprise of a Party, that seeks to make, is making or has made an investment in the territory of the other Party. But "investor" does not mean: a) an enterprise of a Party, if the enterprise [CAN: is owned or controlled by an investor of the other Party or of a non-Party and the enterprise] has no substantial business activities in the territory of the Party under whose law it is constituted or organized; or, […]
37
And the DOB provision (Canadian text) is scaled back: [Article X.15: Denial of Benefits 1.
A Party may deny the benefits of this Chapter to an investor of the other Party that is an enterprise of that Party and to investments of that investor if: a) investors of a non-Party own or control the enterprise; and b) the denying Party adopts or maintains measures with respect to the non-Party that: i. are related to maintenance of international peace and security or the protection of human rights; and ii. prohibit transactions with the enterprise or would be violated or circumvented if the benefits of this Chapter were accorded to the enterprise or to its investments.] CAN
38 39
Of note, the protection of human rights still appears in this proposal. The 1 August 2014 DOB clause is almost in final form, save for a few changes: ‘non-Party’ has been replaced by ‘third country’; the singular form of ‘investor’ and ‘measure’ has been used throughout and ‘the protection of human rights’ no longer appears in the clause. Further, the definition of ‘investor’ and of ‘enterprise of a Party’ that it includes appear in final form in the text and will be treated below. 40 The next section of this commentary explores the reasons why some of the changes were likely made and analyses their meaning and impact.
D. Commentary 41
As mentioned in the introduction, the CETA DOB provision is notable in what was omitted from it as well as what was added to it. While the segment related to ‘substantial business activities’ is covered in this book in the chapter on definitions (→ Art. 8.1 mn. 234 ff. and Art. 8.2 mn. 48 ff.), it is worthwhile to briefly note here the likely reasons for this placement and the probable impact on recourse to Article 8.16.
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I. The Impact of Case-law on the ‘Downsizing’ of CETA’s DOB Provision Issues related to the interpretation of DOB provisions in IIAs have mainly come 42 to the fore since the mid-2000. In most cases, the ECT or an IIA in which the US was a Party was being applied. With time, two distinct lines of authorities formed, one for the ECT and another for treaties such as CAFTA, the US-Bolivia BIT and the US-Ecuador BIT.39 While the DOB provision has been discussed in the context of NAFTA awards,40 there has not been a decision based on Article 1113.41 43 On the whole, Tribunals faced similar questions, including: – – – – – –
When challenged in an ISDS proceeding, is the exercise of the denial a jurisdictional, admissibility or merits issue? What does the denying State need to do exactly to exercise its right of denial? Is there such a thing as automatic application of the DOB provision? When does the denial need to occur: before the investment is made? before the dispute has arisen? before the filing of the IIA claim? etc. Is there a need for consultations and notice before the denial (whether the provision states this explicitly or not)? Who has the burden of proof regarding different segments of the DOB provision, such as ‘ownership or control’ or ‘substantial business activities’? Does the denial apply only prospectively or also retroactively? In other words, if the denial is exercised during an ISDS proceeding, what is its effect?
A detailed analysis of the case-law answering these questions is beyond the scope of 44 this commentary and has been done elsewhere.42 Rather, reference will be made to a few cases that encapsulate the issues CETA Parties faced when drafting Article 8.16. The first decisions interpreting DOB provisions in IIAs were rendered under the 45 ECT. Plama v. Bulgaria did so in a detailed way in 2005,43 followed by a number of other decisions that approved of the approach adopted by this Tribunal.44 In a
39 Dominican Republic – Central America – US Free Trade Agreement (signed 5 August 2004); US-Bolivia BIT (signed 17 April 1998); and the US-Ecuador BIT (signed 27 August 1993). 40 E.g. Waste Management, Inc. v. Mexico, ICSID (Add.Fac.) Case No. ARB(AF)/00/3, Award (30 April 2004), para. 80. 41 Canada invoked NAFTA Article 1113(2) in St. Marys v. Canada, but the case settled, following the inadvertent disclosure by Claimant of prejudicial documents concerning its status, before the Tribunal could interpret the provision. Canada asserted that Saint-Marys was owned and controlled by a Brazilian conglomerate, that had no substantial business activities in the US at relevant times. Claimant eventually admitted as much in the consent award. See St. Marys VCNA, LLC v. Canada, UNCITRAL, Consent Award (12 April 2013), 5 and 8. 42 For e.g. Mistelis and Baltag, ‘Denial of Benefits Clause’ in Max Planck Encyclopedias of International Law (2019), 1; Banifatemi, ‘Taking Into Account Control Under Denial of Benefits Clauses’ in Banifatemi (ed), Jurisdiction in Investment Treaty Arbitration (2018), 223; Gastrell and Le Cannu, ‘Procedural Requirements of “Denial-of-Benefits” Clauses in Investment Treaties: A Review of Arbitral Decisions’ (2015) 30(1) ICSID Rev., 78. 43 Plama Consortium Limited v. Bulgaria, ICSID Case No. ARB/03/24, Decision on Jurisdiction (5 February 2005). 44 See e.g. Yukos Universal Limited (Isle of Man) v. Russian Federation, UNCITRAL, PCA Case No. AA 227, Interim Award on Jurisdiction and Admissibility (30 November 2009); Liman Caspian Oil BV and NCL Dutch Investment BV v. Kazakhstan, ICSID Case No. ARB/07/14, Excerpts of Award (22 June 2010); Khan Resources Inc., Khan Resources B.V. and CAUC Holding Company Ltd. v. Mongolia, UNCITRAL, Decision on Jurisdiction (25 July 2012); Anatolie Stati, Gabriel Stati, Ascom Group S.A. and Terra Raf Trans Traiding Ltd v. Kazakhstan, SCC Case V (116/2010), Award (19 December 2013).
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nutshell, considering the specific language of Article 17 and emphasizing the object and purpose of the ECT, the Tribunal ruled that: – – – – – 46
The application of the DOB provision is a matter for the merits and not of jurisdiction;45 The right of denial has to be exercised by the State (at its option). It does not apply automatically;46 The denial has to occur before the investment is made in the host State; 47 The denial has to be associated with publicity or other notice, so as to be reasonably available to investors and their advisers;48 The denial has prospective effects only from the date it has been made. 49
The Tribunal’s reasoning on effects is revealing of its general approach to the interpretation of Article 17: In the Tribunal’s view, therefore, the object and purpose of the ECT suggest that the right’s exercise should not have retrospective effect. A putative investor, properly informed and advised of the potential effect of Article 17(1), could adjust its plans accordingly prior to making its investment. If, however, the right’s exercise had retrospective effect, the consequences for the investor would be serious. The investor could not plan in the ‘long term’ for such an effect (if at all); and indeed such an unexercised right could lure putative investors with legitimate expectations only to have those expectations made retrospectively false at a much later date. 50
47
The crux of the matter appeared to be the notice to putative investors, but the Tribunal did not explain how advance notice through a ‘general declaration in a Contracting State’s official gazette’ or ‘a statutory provision in a Contracting State’s investment or other laws’ (as it suggested) would provide the certainty needed by individual investors.51 Or, as a commentator put it, ‘But those examples fail to reflect the case-by-case nature of denial of benefits analysis.’52 A number of commentators have raised issues concerning the soundness and practicality of this approach.53 45 Plama Consortium Limited v. Bulgaria, ICSID Case No. ARB/03/24, Decision on Jurisdiction (5 February 2005), paras. 143, 147-149. The Tribunal emphasised that under Article 17, as indicated by its title (‘Non-Application of Part III’), only the provision of substantive protections (or advantages) can be denied, and not access to arbitration that is provided in Part V, in particular by Article 26 dealing with Investor-State arbitration. 46 Plama Consortium Limited v. Bulgaria, ICSID Case No. ARB/03/24, Decision on Jurisdiction (5 February 2005), paras. 155-158. For the Tribunal, this interpretation is consistent with the different IIA practices of ECT Contracting States in relation to ‘entities incorporated in a state with no significant business there’, citing the Netherlands as an example of a State with a generous approach (para. 155). 47 Plama Consortium Limited v. Bulgaria, ICSID Case No. ARB/03/24, Decision on Jurisdiction (5 February 2005), para. 161. Cases that followed under the ECT diverge somewhat on timing: e.g. Ascom Group S.A. and Terra Raf Trans Traiding Ltd v. Kazakhstan, SCC Case V (116/2010), Award (19 December 2013): notice is required and must be given before the dispute arises (para. 745). 48 Plama Consortium Limited v. Bulgaria, ICSID Case No. ARB/03/24, Decision on Jurisdiction (5 February 2005), para. 157. 49 Plama Consortium Limited v. Bulgaria, ICSID Case No. ARB/03/24, Decision on Jurisdiction (5 February 2005), paras. 162 and 165. 50 Plama Consortium Limited v. Bulgaria, ICSID Case No. ARB/03/24, Decision on Jurisdiction (5 February 2005), para 162. 51 Plama Consortium Limited v. Bulgaria, ICSID Case No. ARB/03/24, Decision on Jurisdiction (5 February 2005), para. 157. 52 Feldman, ‘Denial of Benefits after Plama v. Bulgaria’ in Kinnear et al. (eds), Building International Investment Law: The First 50 Years of ICSID (2015), 463 (473). See also Mistelis and Baltag, ‘Denial of Benefits and Article 17 of the Energy Charter Treaty’ (2009) 113 Penn State Law Reveiw, 1301 (1320). 53 See e.g. Mistelis and Baltag, ‘Denial of Benefits and Article 17 of the Energy Charter Treaty’ (2009) 113 Penn State Law Reveiw, 1301 (1315 and 1319-21); Mistelis and Baltag, ‘Denial of Benefits Clause’ in Max Planck Encyclopedias of International Law (2019), 1 (paras. 52-53); Sinclair, ‘Investment Protection
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In contrast, Tribunals interpreting DOB provisions in IIAs to which the US is a 48 Party have adopted a different approach or perspective to their use. 54 The following passage from the award in Guaracachi and Rurelec v. Bolivia55 illustrates the contrast well: 372. Whenever a BIT includes a denial of benefits clause, the consent by the host State to arbitration itself is conditional and thus may be denied by it, provided that certain objective requirements concerning the investor are fulfilled. All investors are aware of the possibility of such a denial, such that no legitimate expectations are frustrated by that denial of benefits. 373. No one can accept more than what is being offered. In this case, what was offered by both Bolivia and the US, in the BIT concluded between them, was a package of benefits to investors of both countries, including the benefit of being able to submit disputes to arbitration, coupled with an express prior reservation of the right to deny those benefits if and when the Respondent so decides (subjective requirement) and if the investor’s company is or becomes a ‘shell company’ controlled by a company incorporated in a third country (objective requirement). The reservation of the right of denial of benefits contained in Article XII operates on the Contracting Parties’ offer of consent to arbitration as much as every other benefit conferred by the BIT. Hence, any US investor who invests in Bolivia already knows in advance of the possibility of a denial of benefits by Bolivia—as long as the Article XII requirements are met—and, if it decides to accept the offer of arbitration made by Bolivia in the BIT, it accepts it at face value. […] 381. The consequence of the denial of benefits is that the Tribunal (which forms part of the package of benefits afforded under the BIT) will be deprived of jurisdiction over the present dispute. Accordingly, as a jurisdictional issue, it must be raised at the latest in the respondent’s statement of defence, as it was here.56
Commentators have attempted to explain the differences in DOB provision inter- 49 pretation drawing on language, purpose and contextual differences in the IIAs. For example, maybe one factor was that the ECT is a multilateral treaty with over fifty State Parties that needed to accommodate the varying policies of member States in relation to mailbox companies (thus the emphasis in Plama v. Bulgaria on public notices to classes of investors57). Another distinction could be that the ECT is limited to the energy sector, where typically a high level of government regulation is present and host States would have more ready access to information about the putative investors.58
for “Mailbox Companies” under the 1994 Energy Charter Treaty’ (2005) 5 TDM, 1 (5-6); Chalker, ‘Making the Energy Charter Treaty Too Investor Friendly: Plama Consortium Limited v. the Republic of Bulgaria’ (2006) 3(5) TDM, 1 (20); Shore, ‘The Jurisdiction Problem in Energy Charter Treaty Claims’ (2007) 10 Int’l Arb. L. Rev., 58; Feldman, ‘Setting Limits on Corporate Nationality Planning in Investment Treaty Arbitration’ (2012) 27(2) ICSID Rev., 281 (300); Hébert, ‘Issues of corporate nationality in investment arbitration’ in de Mestral and Lévesque (eds), Improving International Investment Agreements (2013), 230 (244-245). 54 See e.g. Ulysseas, Inc. v. Ecuador, UNCITRAL, Interim Award (28 September 2010); Pac Rim Cayman LLC v. El Salvador, ICSID Case No. ARB/09/12, Decision on the Respondent’s Jurisdictional Objections (1 June 2012); Guaracachi America, Inc. and Rurelec PLC v. Bolivia, PCA Case No. 2011-17, Award (31 January 2014); Bridgestone Licensing Services, Inc. and Bridgestone Americas, Inc. v. Panama, ICSID Case No. ARB/16/34, Decision on Expedited Objections (13 December 2017). 55 Guaracachi America, Inc. and Rurelec PLC v. Bolivia, PCA Case No. 2011-17, Award (31 January 2014). 56 Guaracachi America, Inc. and Rurelec PLC v. Bolivia, PCA Case No. 2011-17, Award (31 January 2014), paras. 372-373, 381. 57 Plama Consortium Limited v. Bulgaria, ICSID Case No. ARB/03/24, Decision on Jurisdiction (5 February 2005), para. 157. 58 See Gastrell and Le Cannu, ‘Procedural Requirements of “Denial-of-Benefits” Clauses in Investment Treaties: A Review of Arbitral Decisions’ (2015) 30(1) ICSID Rev., 78 (95-96); Sinclair, ‘Investment Protection for “Mailbox Companies” under the 1994 Energy Charter Treaty’ (2005) 5 TDM, 1 (5). See
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50
Whether one agrees with these possible explanations or not, it remains that the text of the DOB provisions, say comparing the ECT to the US-Bolivia BIT, remain very similar and neither clause includes language on notice to investors, the timing of the exercise of the denial nor its effects. Thus, it is possible (even likely) that different tribunals could reach divergent outcomes under a single treaty. Under such circumstances, it is not surprising that the Parties to CETA appear to have preferred to ‘downsize’ the DOB provision and to clarify some matters by including a key segment of the provision in the definitions instead. 51 Indeed, this approach has the merit of side-stepping some of the questions listed above and of clarifying the responses to some others.59 Under CETA, for the Tribunal to ascertain its jurisdiction over ‘an investor of the other Party’, as provided in Article 8.2 (scope),60 it will have to verify that the relevant definitions of Article 8.1 are met, including, in relevant circumstances, that of enterprise: investor means a Party, a natural person or an enterprise of a Party, other than a branch or a representative office, that seeks to make, is making or has made an investment in the territory of the other Party; For the purposes of this definition, an enterprise of a Party is: (a) an enterprise that is constituted or organised under the laws of that Party and has substantial business activities in the territory of that Party; or (b) an enterprise that is constituted or organised under the laws of that Party and is directly or indirectly owned or controlled by a natural person of that Party or by an enterprise mentioned under paragraph (a);61
52
In the case of ‘mailbox’ or ‘shell companies’, the language used ensures the issue will be treated as a matter of jurisdiction; it also evacuates questions related to the exercise of the denial (since it is no longer one), its timing or its effects in time. 53 Further, as Claimant has the burden to establish its claim, it will have to provide evidence of the different elements provided for in the definitions, including the ‘substantial business activities in the territory’ of the home State. 62 The issue of burden of proof has been the subject of debate in the case-law. In brief, since it was the Respondent that was exercising its right of denial, Claimants argued that the State had also Banifatemi, ‘Taking Into Account Control Under Denial of Benefits Clauses’ in Banifatemi (ed), Jurisdiction in Investment Treaty Arbitration (2018), 223 (254). 59 It is interesting to note that such an approach was also used in the Canada-Burkina Faso FIPA (signed 20 April 2015), but not in the other FIPAs that followed. 60 CETA, Article 8.2 (Scope): ‘1. This Chapter applies to a measure adopted or maintained by a Party in its territory relating to: a. an investor of the other Party; […]’. 61 CETA, Article 8.1. 62 At the time of CETA’s signature, the EU made public a Declaration stating that the Commission considered the expression ‘substantial business activities’ equivalent to ‘substantive business operations’ used in the WTO context, itself equivalent to the concept of ‘effective and continuous link’ in EU Law. After giving the example of a Canadian company and how the standard would apply to it, the Declaration concludes as follows: ‘This will be the basis of the Commission’s attitude in the implementation of CETA.’ See Commission Declaration on the meaning of the term “substantial business activities" in Article 8.1 of the Agreement ("Definitions" of investment), Statements to the Council minutes, no. 31, Brussels, 27 October 2016, 22. While the IPAs with Vietnam and Singapore as well as the Agreement in principle with Mexico include the substance of the declaration in the text of their respective agreements, the CETA does not. Yet, the Parties to CETA, in their Statement of Interpretation dated 27 October 2016, did make reference to the requirement for ‘a real economic link with the economies of Canada or the European Union’, see Joint Interpretative Instrument on the Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union and its Member States, Brussels, 27 October 2016, 13541/16. For US practice on this topic, see Thorn and Doucleff, ‘Disregarding the Corporate Veil and Denial of Benefits Clauses: Testing Treaty Language and the Concept of “Investor”’ in Waibel et al. The Backlash against Investment Arbitration (2010), 3 (10-11).
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the burden to prove all the elements of the DOB provision, including third country ownership and control as well as lack of substantial business activities. Respondents argued that Claimants were in the best position to provide that information. Tribunals generally agreed with Claimants and imposed the burden on Respondents,63 although some adopted a more flexible approach64 than others.65 As for CETA and ‘substantial business activities’, the burden is now clear: it belongs to Claimant. The move away from a discretionary provision, to be invoked by the Respondent, to a requirement of the definition of investor that needs to be met by the Claimant will assuage many State concerns. In a recent development, it is revealing that the European Commission also seeks to 54 neutralise the impact of some of the ECT case-law by suggesting changes to the text of Article 17 in the ongoing process of ECT modernisation.66 In a draft proposal dated 2 March 2020, the Commission proposes changes along these lines: – –
–
–
clarifying that the DOB provision applies to substance and dispute settlement; moving to the definition of investor the elements relating to ‘substantial business activities’ (reformulated as ‘substantive business activities’ and (in a footnote) as understood by the EU to be equivalent to its concept of ‘effective and continuous link’); adding to the text the content of the CETA declaration regarding maintenance of peace and security (as including human rights), while removing the segment relating to the maintenance of diplomatic relations; clarifying that no prior publicity or additional formality is required in order for a Contracting Party to deny benefits;67
As the process of modernisation of the ECT continues, it will be interesting to see whether other States coalesce around the EU’s position on DOB, also reflected in CETA.
63 In Plama Consortium Limited v. Bulgaria, ICSID Case No. ARB/03/24, Award (27 August 2008), paras. 82, 92, the Tribunal determined that proof of ownership and control under Article 17(1) ECT had to be provided by Claimants, but without giving its reasons. See Thorn and Doucleff, ‘Disregarding the Corporate Veil and Denial of Benefits Clauses: Testing Treaty Language and the Concept of “Investor”’ in Waibel et al. The Backlash against Investment Arbitration (2010), 3 (23-24); Mistelis and Baltag (2009), ‘Denial of Benefits and Article 17 of the Energy Charter Treaty’ (2009) 113 Penn State Law Reveiw, 1301 (1312-1314). 64 See e.g. Limited Liability Company Amto v. Ukraine, SCC Case 080/2005, Final Award (26 March 2008), paras. 63-65 (demonstrating flexibility re duty of disclosure of evidence, tribunal questioning and possibility to draw negative inferences); Pac Rim Cayman LLC v. El Salvador, ICSID Case No. ARB/09/12, Decision on the Respondent’s Jurisdictional Objections (1 June 2012), paras. 460-492 (burden on Respondent, but weight given to evidence put forward or not by Claimant); Bridgestone Licensing Services, Inc. and Bridgestone Americas, Inc. v. Panama, ICSID Case No. ARB/16/34, Decision on Expedited Objections (13 December 2017), para. 289 (burden on Respondent, but: ‘As, however, Panama has to prove a negative in relation to matters that fall essentially within the knowledge of the Claimants, the evidential burden is readily shifted.’). 65 See e.g. Generation Ukraine Inc. v. Ukraine, ICSID Case No. ARB/00/9, Final Award (16 September 2003), paras. 15.7-15.9 (Tribunal blames Respondent for the ‘paucity of the [its] own factual submissions’ on third-Party control). See also Feldman, ‘Setting Limits on Corporate Nationality Planning in Investment Treaty Arbitration’ (2012) 27(2) ICSID Rev., 281 (296-298); Banifatemi, ‘Taking Into Account Control Under Denial of Benefits Clauses’ in Banifatemi (ed), Jurisdiction in Investment Treaty Arbitration (2018), 223 (234-235). 66 See Council of the EU, Negotiating Directives for the Modernisation of the Energy Charter Treaty – Adoption, 2 July 2019, 10745/19 ADD 1. 67 See European Commission, ECT Modernisation: Revised Draft EU proposal, 20 April 2020, WK 3937/2020 INIT. The initial proposal, dated 2 March 2020, already included those changes.
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II. The Pared-down DOB Provision and its Likely Rare Application 55
This part of the commentary explores three characteristics of the DOB provision the CETA Parties have agreed on. Article 8.16 retains language usually found in DOB provisions (especially in US based IIAs), while it omits some problematic language in relation to prior notice and consultation (1). Somewhat surprisingly, the key concepts of ownership and control are left undefined, while the approach to DOB is classic (2). On the whole, the limited circumstances for denial provided for as well as the use of cumulative conditions in the provision will likely ensure the rare application of Article 8.16 (3).
1. A Right of Denial Without Prior Notice or Consultation 56
As for the right of denial, CETA Parties have opted for the introductory language found namely in NAFTA, Canada’s 2004 Model FIPA and CAFTA: ‘A Party may deny the benefits of this Chapter’.68 However, all mentions of a need for prior notification or consultations have been omitted from Article 8.16. This should clarify as a general matter that a Party may validly exercise its right of denial after a claim by an investor has been made under CETA in order to benefit from the protections of the investment chapter.69 57 The US has made Non-disputing Party (NDP) submissions on this point in a number of cases, highlighting the difficulties Respondent States would otherwise face: Requiring the respondent to invoke the denial of benefits provision before a claim is filed would place an untenable burden on that Party. It would require the respondent, in effect, to monitor the ever-changing business activities of all enterprises in the territory of the other Party that attempt to make, are making, or have made investments in the territory of the respondent. This would include conducting, on a continuing basis, factual research, for all such enterprises, on their respective corporate structures and the extent of their business activities in the other Party. To be effective, such monitoring would in many cases require foreign investors to provide business confidential and other types of non-public information for review. Requiring the Parties to conduct this kind of continuous oversight in order to be able to invoke the denial of benefits provision under Article 10.12.2 [of the US-Panama TPA] before a claim is submitted to arbitration would undermine the purpose of the provision.70 [footnotes omitted]
68 NAFTA, Article 1113; Canadian Model FIPA, Article 18; CAFTA, Article 10.12.2. While Article 8.16 is clearly formulated as a ‘right’ to be exercised by States, Articles 13.2(4) and 13.21(1)(a) of the Financial Services Chapter, which incorporate some articles of Chapter 8, contain language implying the provision also entails an obligation that could be the subject of an investor claim under Chapter 13: ‘investment disputes […] in which an investor claims that a Party has breached Articles […] 8.16 (Denial of benefits)’ (Article 13.21(1)(a)). Such language is problematic on many levels and will not be explored further in the context of this commentary. 69 It is noteworthy that in the FIPA they signed in 2012, Canada and China included in the DOB provision a clarification to the effect that a ‘Contracting Party may deny the benefits of this Agreement pursuant to paragraphs 1 and 2 at any time, including after the initiation of arbitration proceedings in accordance with Part C.’ Such text is also found in the FIPA signed with Hong Kong in 2016, but not in other Canadian FIPAs. 70 Submission of the United States of America (28 August 2017), in Bridgestone Licensing Services, Inc. and Bridgestone Americas, Inc. v. Panama, ICSID Case No. ARB/16/34, para 19. See to the same effect, citation of the US NDP submission in Pac Rim Cayman LLC v. El Salvador, ICSID Case No. ARB/09/12, Decision on the Respondent’s Jurisdictional Objections (1 June 2012), para. 4.56. See also Kinnear et al., Investment Disputes under NAFTA: An Annotated Guide to NAFTA Chapter 11 (2009), 1113-7; Legum, ‘Defining Investment and Investor: Who is Entitled to Claim?’ (2005), Symposium co-organised by ICSID, OECD, and UNCTAD, 1 (4-5); Vandevelde, U.S. International Investment Agreements (2009), 165.
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Further, if the CETA Tribunal/Appellate Tribunal follow the interpretation given to 58 similarly worded provisions in IIAs to which the US is a Party, they will hold that the application of Article 8.16 is a matter of jurisdiction. Indeed, such Tribunals have held that as a condition of consent to arbitration, the application of the DOB provision is a jurisdictional question.71 While Article 8.16 does not provide guidance as to the exact timing of the denial, 59 applicable procedural rules do provide limits for making objections to jurisdiction. In the case of the ICSID Arbitration Rules, they provide that such objections be made as early as possible and no later than ‘the expiration of the time limit fixed for the filing of the countermemorial.’72 While the UNCITRAL Arbitration rules provide that: ‘A plea that the arbitral tribunal does not have jurisdiction shall be raised no later than in the statement of defence.’73 These rules have been applied in a number of cases.74 As a result, Article 8.16 should not give rise to debates concerning the retroactive 60 or prospective application of the provision. Indeed, holding that the denial only has prospective effect would be to deny it any useful effect. The Tribunal in Guaracachi and Rurelec v. Bolivia expresses this reality well: 376. The same must be said in relation to the supposedly retroactive application of the clause. The Tribunal cannot agree with the Claimants when they argue that the Respondent is precluded from applying the denial of benefits clause retroactively. The very purpose of the denial of benefits is to give the Respondent the possibility of withdrawing the benefits granted under the BIT to investors who invoke those benefits. As such, it is proper that the denial is “activated” when the benefits are being claimed. […] 378. On the contrary, the Tribunal agrees that the denial can and usually will be used whenever an investor decides to invoke one of the benefits of the BIT. It will be on that occasion that the respondent State will analyse whether the objective conditions for the denial are met and, if so, decide on whether to exercise its right to deny the benefits contained in the BIT, up to the submission of its statement of defence.75
As noted above, in its recent draft proposal on the modernisation of the ECT, the 61 European Commission suggests the addition of language at Article 17 clarifying that benefits can be denied ‘without any prior publicity or additional formality related to its intention to exercise the right conferred by this Article.’ 76 71 See e.g. Guaracachi America, Inc. and Rurelec PLC v. Bolivia, PCA Case No. 2011-17, Award (31 January 2014), para. 372; Bridgestone Licensing Services, Inc. and Bridgestone Americas, Inc. v. Panama, ICSID Case No. ARB/16/34, Decision on Expedited Objections (13 December 2017), para. 288 (goes to competence). 72 ICSID Arbitration Rules, Rule 41. 73 UNCITRAL Arbitration Rules, Article 23(2). 74 See e.g. Pac Rim Cayman LLC v. El Salvador, ICSID Case No. ARB/09/12, Decision on the Respondent’s Jurisdictional Objections (1 June 2012), para. 485; Ulysseas, Inc. v. Ecuador, UNCITRAL, Interim Award (28 September 2010), para. 172; Guaracachi America, Inc. and Rurelec PLC v. Bolivia, PCA Case No. 2011-17, Award (31 January 2014), para 381. See, however, NextEra Energy Global Holdings B.V. and NextEra Energy Spain Holdings B.V. v. Spain, ICSID Case No. ARB/14/11, Decision on Jurisdiction, Liability and Quantum Principles (12 March 2019). In this case, the Tribunal highlighted that ‘the filing of the claim was not the first time that Respondent was aware of a potential ECT claim by NextEra.’ (para. 264). The Tribunal found extensive contacts between NextEra and the Spanish authorities, with a clear understanding the American investor operated through a Dutch company. It held the Spanish authorities could not wait three years (until the Memorial on Jurisdiction) to deny benefits under Article 17(1) ECT, a period during which they had given encouragements and assurances to NextEra (paras. 264-271). 75 Guaracachi America, Inc. and Rurelec PLC v. Bolivia, PCA Case No. 2011-17, Award (31 January 2014), paras. 376-378. See also Ulysseas, Inc. v. Ecuador, UNCITRAL, Interim Award (28 September 2010), para. 173. 76 European Commission, ECT Modernisation: Revised Draft EU proposal, 20 April 2020, WK 3937/2020 INIT.
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2. Classic Workings, but Ownership and Control Left Undefined 62
As to whom benefits are denied, the formulation of Article 8.16 is classic: ‘to an investor of the other Party that is an enterprise of that Party and to investments of that investor if an investor of a third country owns or controls the enterprise’. Many of the terms used are defined at Article 8.1 (e.g. ‘investor’ and ‘investment’) or under the general definitions of CETA at Article 1.1 (e.g. ‘enterprise’ and ‘third country’). 77 Also at Article 8.1 are references to the concepts of direct or indirect ownership and control of an investment by an investor of the other Party. Yet, the key terms of ownership and control are not defined in Articles 1, 8.1 nor 8.16. 63 It is notable that the terms ‘own’ and ‘control’ are often not defined in earlier generation IIAs either. 78 One commentator quotes the US State Department as of 1955 holding that: ‘The denial of benefits provision granted to the denying party broad “latitude” to interpret the word “controlling”, which could include any means of legal control. The provision permitted the denying party to “look behind the superficialities in order to find the real control as well as the interests on whose behalf, or for whose actual benefit, the control was exercised.”’ [footnotes omitted]. 79 The Canada-Costa Rica FIPA (signed in 1998) is a rare example of a FIPA defining control. 80 64 However, it is interesting to note that early drafts of the CETA text include proposed EU language on the topic. By November of 2013, the EU’s proposal for a definition of ‘juridical person’ along the line found in the GATS,81 appeared to have been rebuffed by Canada: EU [(y) A juridical person is: (i) (ii)
owned by natural or juridical persons of the other Party if more than 50 per cent of the equity interest in it is beneficially owned by natural or juridical persons of that Party; controlled by natural or juridical persons of the other Party if such natural or juridical persons have the power to name a majority of its directors or otherwise to legally direct its actions.]
[Canada Note: At the Rules table it was decided not to define ownership and control. Indeed, the definition of investment’s chapeau uses our preferred “directly or indirectly” in respect of ownership and control. Furthermore, CAN considers a specific definition of ownership and control for a juridical person to be unnecessary.]
77 CETA, Article 1.1: ‘third country means a country or territory outside the geographic scope of application of this Agreement’. See also Article 1.3 – Geographical scope of application. 78 See Banifatemi, ‘Taking Into Account Control Under Denial of Benefits Clauses’ in Banifatemi (ed), Jurisdiction in Investment Treaty Arbitration (2018), 223 (237-238). Some Tribunals have interpreted those terms in their decisions. In Plama Consortium Limited v. Bulgaria, ICSID Case No. ARB/03/24, Decision on Jurisdiction (5 February 2005), para. 170, the Tribunal held that: ‘ownership includes indirect and beneficial ownership; and control includes control in fact, including an ability to exercise substantial influence over the legal entity’s management, operation and the selection of members of its board of directors or any other managing body.’ 79 Vandevelde, The First Bilateral Investment Treaties: U.S. Postwar Friendship, Commerce, and Navigation Treaties (2017), 395. 80 Canada-Costa Rica FIPA, in the definitions under Article 1. g. ‘investment’ (in reference to the power of the investor ‘to name a majority of its directors or otherwise to legally direct the actions of the enterprise which owns the investment.’). 81 General Agreement on Trade in Services, Marrakesh Agreement Establishing the World Trade Organization (signed 15 April 1994), at Article XXVIII. Other Parties have found inspiration in the GATS and included an almost identical provision within the text of their DOB clause. See e.g. Agreement Between Australia and Japan for an Economic Partnership (signed 8 July 2014) at Article 14.17 See also Mistelis and Baltag, ‘Denial of Benefits Clause’ in Max Planck Encyclopedias of International Law (2019), 1 (paras. 92-93).
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While the proposed definition and note remained in the 4 February 2014 draft, it can no longer be found in the 1 August 2014 draft. Notably, the EU IPAs with Vietnam and Singapore both include definitions of ownership and control.82 As noted in the introduction, these agreements do not include DOB provisions per se. However, as with CETA (and the EU-Mexico Global Agreement83), the concern about ‘mailbox’ or ‘shell’ companies is now dealt with through the definitions. One issue that arose in case-law is how far up the chain of ownership or control does the Tribunal have to go to meet the standards set in the IIAs. In other words, how many layers of corporate veil must the Tribunal pierce to ascertain whether a third country investor owns and controls the enterprise? As is well known, corporate structures can be highly complex and make this exercise perilous.84 The CETA’s DOB clause does not directly address this issue, nor the one about the burden of proof regarding ownership and control. As mentioned above, the Claimant will bear the burden in relation to the definition of investor at Article 8.1, including (as applicable) as to ownership or control of an enterprise. While this provision provides some clues as to the treatment of the chain of ownership and control, the DOB provision does not. Yet, it remains useful to contrast the approaches taken. Under the definition of ‘enterprise of a Party’ at paragraph (b) two scenarios are covered: ownership and control of the enterprise (i.e. the investor) by a natural person or by another enterprise.85 As an example of the first scenario, if an enterprise constituted in Canada does not have substantial business activities in that country (running afoul of paragraph a), Claimant would have to show that the enterprise is owned or controlled by a citizen or permanent resident of Canada (i.e. a natural person). In order to meet that test, the ultimate owner or controller of the enterprise would need to be established by Claimant.86 As an alternative, in the second scenario under (b), where the enterprise constituted in Canada is directly or indirectly owned or controlled by another enterprise constituted in Canada, Claimant would have to demonstrate that such owner or controlling enterprise has substantial business activities in the territory of Canada to qualify (as the ‘owned or controlled’, enterprise itself does not, otherwise it would fall under paragraph (a)). Stated differently, it appears that for legal persons the Tribunal 82 See EU-Vietnam IPA, Chapter 1, Article 1.2(c). The EU-Singapore IPA, offers different formulations: see Chapter 1, Article 1.2 (Definitions) para. 5 and Chapter 3, Section A (Resolution of Disputes Between Investors and Parties), Article 3.1 (Scope and Definitions), para. 2(c), at footnote 2 where ownership and control are defined for locally established companies. 83 See EU-Mexico agreement in principle, Chapter on Investment, Article 3 (Definitions). 84 See Thorn and Doucleff, ‘Disregarding the Corporate Veil and Denial of Benefits Clauses: Testing Treaty Language and the Concept of “Investor”’, in Waibel et al. (eds), The Backlash against Investment Arbitration (2010), 3, (15-18); Voon et al., ‘Legal Responses to Corporate Manoeuvring in International Investment Arbitration’ (2014) 5 J. Int’l Disp. Settlement, 41 (56-57). Double Taxation Treaties raise many similar issues that are beyond the scope of this chapter. 85 CETA Article 8.1. The full text of the definition of investor (and entreprise of a Party) is cited above (→ mn. 51). 86 This interpretation would be consistent with the one adopted by the Tribunal in Ulysseas, Inc. v. Ecuador, UNCITRAL, Interim Award (28 September 2010), para. 170: ‘Only natural persons may be at the upper end of the chain of control of a company, the last company in the chain having natural persons as shareholders or general partners. This means that in order to satisfy the control test under Article I(2) of the BIT the natural person who is the ultimate controller of Ulysseas must be identified.’ The wording of the DOB clause in the US-Ecuador BIT as well as the definition of ‘national’ were key to this reasoning. In particular, the term ‘national’ used in the DOB clause (i.e. ‘if nationals of any third country control such company’) was defined as referring specifically to ‘natural persons’.
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could stop going up the chain of ownership and control once it identified an enterprise constituted in the home State that has substantial business activities there. 87 72 Returning to the DOB provision, the only indication provided is that ‘A Party may deny the benefits […] if: (a) an investor of a third country owns or controls the enterprise.’ The Respondent would presumably bear that burden, but the Tribunal would have to decide on the question of how many layers of corporate veil have to be lifted to ascertain that fact. 73 If the Respondent was not successful in demonstrating third country ownership or control, the analysis could stop there. If it was, the Respondent would still need to prove that condition (b) of Article 8.16 analysed in the next section is met.
3. A Narrower Ambit for Denial, Including Newly Formulated Conditions 74
In Article 8.16, the CETA Parties have focused on the traditional dimension of DOB clauses that relates to the economic and diplomatic relations between denying States and third States. As described above, specific language on the topic appeared in the 1984 US Model BIT and got more sophisticated in NAFTA with the addition of language on preventing the circumvention or violation of existing measures against a third State (→ mn. 19 and 22). The Canadian Statement on Implementation for CETA confirms the consistent aim as ensuring ‘that the integrity of a Party’s sanction regime is maintained and cannot be circumvented.’88 75 The CETA provision, however, offers some new formulations. Specifically, Article 8.16 provides that: b.
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the denying Party adopts or maintains a measure with respect to the third country that: i. relates to the maintenance of international peace and security; and ii. prohibits transactions with the enterprise or would be violated or circumvented if the benefits of this Chapter were accorded to the enterprise or to its investments.’
It is notable that the notion of maintenance of diplomatic relations, which appeared both in NAFTA and the ECT, has been replaced by the maintenance of international peace and security. In Canadian FIPAs, the latter language is not found in DOB provisions, but it is found in general exceptions clauses covering actions taken in pursuance of the Parties’ obligations specifically under the UN Charter.89 87 CETA’s Canadian Statement on Implementation appears, however, to suggest that both in the case of natural and legal persons the ‘ultimate’ owner or controller has to be established. See Canadian Statement, CETA – Canadian Statement on Implementation (2017) under Chapter 8, 1. Section A: ‘the term “investor” is defined as Party, or a natural person or enterprise of a Party. It clarifies that for an “enterprise of a Party” to qualify as an investor of that Party, it has to be constituted or organised under the laws of that Party and to either (1) have substantial business activities in the territory of that Party, (2) be ultimately owned or controlled by an enterprise of that Party that has substantial business activities in the territory of that Party, or (3) be ultimately owned or controlled by a natural person of that Party.’ (emphasis added). 88 CETA – Canadian Statement on Implementation (2017), under Chapter 8, 1. Section E. 89 See Canadian Model FIPA 2004, Article 10.4: ‘Nothing in this Agreement shall be construed: […] (c) to prevent any Party from taking action in pursuance of its obligations under the United Nations Charter for the maintenance of international peace and security.’ All FIPAs signed by Canada since the adoption of the Model include this provision. It should be noted that both the IPAs and the FTAs between EU-Vietnam and EU-Singapore include such security exceptions (see EU-Vietnam IPA, Article 4.8 and EU-Vietnam FTA Article17.13; EU-Singapore IPA, Article 4.5 and EU-Singapore FTA Article16.11). One difference is that the agreements with Singapore do not refer to the UN Charter, but to ‘taking any action for the purpose of maintaining international peace and security’ more generally. In the absence of a separate DOB clause in any of these agreements, it has been argued that the security exceptions, together with the qualified definitions related to juridical persons and substantive business operations, could produce effects similar to that of a DOB clause.
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To shed some light on the concept of maintenance of international peace and security (used without the UN connection), the CETA Parties have agreed on a joint declaration to the effect that: ‘the Parties confirm their understanding that measures that are "related to the maintenance of international peace and security" include the protection of human rights.’90 As noted above in the drafting history section of this commentary, some of the draft CETA texts (between January 2011 and 21 November 2013) include the terms ‘or the protection of human rights’ under (i). It is unclear why the Parties decided to have recourse to a declaration instead. Nonetheless, this updated language likely reflects recent legislative evolutions regarding economic sanctions, such as the Canadian Special Economic Measures Act, which has provided since 2017 that the government can impose economic measures in circumstances where ‘gross and systematic human rights violations have been committed in a foreign state’.91 The law would cover UN sanctions, but also other measures namely flowing from the identification by Canada of certain grave breaches of international peace and security.92 The language used in Article 8.16 and the declaration regarding human rights would thus appear to have broadened the scope of application of the DOB clause. Yet, it has to be noted that the conjunction ‘and’ is used between (i) and (ii). In other words, the conditions are cumulative. As an illustration, the EU could deny the benefits of CETA’s investment chapter to a Canadian company owned or controlled by nationals of third country X—the target of EU economic sanctions or measures93—because said measures ‘would be violated or circumvented if the benefits of this Chapter were accorded to the [Canadian] enterprise or to its investments’, but the measure would also need to relate to ‘the maintenance of international peace and security’ for the DOB clause to be applicable. This is a different approach to the one used in NAFTA, the ECT or CAFTA for example, where the conditions related to the maintenance of diplomatic relations and the prohibited transactions/anti-violation/anti-circumvention language were alternative scenarios linked with an ‘or’.94 Remarkably, the approach is also different from the one adopted in the EU-Mexico agreement in principle which omits any reference to the ‘maintenance of international peace and security’. Also, the DOB provision adds a segment relating to prohibited transactions/anti-violation/anti-circumvention specifying that the measures can be adopted or maintained ‘with respect to the non-Party, or with respect to enterprises or natural persons of the non-Party period.’95 The new wording should facilitate the Parties’ recourse to the DOB provision when an enterprise (of the home State) is owned or controlled by an investor of a third country who is the subject of restrictive measures under a ‘Sergei Magnitsky’-type law for gross violations of internationally recognised human rights. The EU is currently looking to adopt a ‘new horizontal global human rights sanctions regime to tackle serious human rights violations and
90 This declaration applies to Article 8.16, but also to Article 9.8 (Denial of benefits for Cross-border trade in services) and 28.6 (National security exception). The latter provision does not mention the UN Charter either. 91 Special Economic Measures Act, S.C. 1992, c. 17, 4.1 (1.1) c). 92 Special Economic Measures Act, S.C. 1992, c. 17, 4.1 (1.1) c). 93 See EU sanctions policy and sanctions map online at: . 94 See NAFTA, Article 1113, ECT, Article 17; CAFTA, Article 10.12.2. 95 EU-Mexico Global Agreement, text of the agreement in principle announced on 21 April 2018, Chapter on Investment, Chapter on Investment, Article 20.
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abuses’,96 while Estonia, Latvia, Lithuania and the United Kingdom (as well as Canada) already have their own ‘Magnitsky’-type laws.97
E. Conclusion 83
The CETA’s DOB clause stands out in a number of ways when compared to the ones included in key agreements that Canada and the EU are or were Party to (such as NAFTA and the ECT). The concerns that have attracted most attention in the last fifteen years or so, relating to ‘mailbox’ or ‘shell’ companies, are now addressed as a jurisdictional matter, outside the purview of the DOB clause. In all appearances, the CETA Parties were willing to let go of the benefits of a discretionary mechanism in favour of a clear bar on jurisdiction in such circumstances. They were helped along by divergent case-law that prompted a course correction. 84 Article 8.16 of CETA now focuses on a narrower set of issues related to economic and diplomatic relations with third countries. In the process, the Parties took the opportunity to clarify some of the procedural aspects (e.g., regarding notification), while leaving other aspects to the interpretation of the Tribunal (e.g., regarding ownership and control: definition or burden of proof). The coverage of the clause is also limited by the cumulative language used linking the maintenance of international peace and security with sanctions-like scenarios. The declaration related to human rights would, in principle, appear to broaden its potential application, but only time will tell whether this innovation will offer more occasions for application than has been the case for similar matters in the past.
96 European Commission, Q&A: The EU Action Plan for Human Rights and Democracy, 25 March 2020. 97 For Canada, see: Justice for Victims of Corrupt Foreign Officials Act (Sergei Magnitsky Law) (S.C. 2017, c. 21); For other references, see Council of Europe, Sergei Magnitsky and beyond – fighting impunity by targeted sanctions, Report, Doc. 14661, 30 October 2018.
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Article 8.17 Formal requirements Notwithstanding Articles 8.6 and 8.7, a Party may require an investor of the other Party, or its covered investment, to provide routine information concerning that investment solely for informational or statistical purposes, provided that those requests are reasonable and not unduly burdensome. The Party shall protect confidential or protected information from any disclosure that would prejudice the competitive position of the investor or the covered investment. This paragraph does not prevent a Party from otherwise obtaining or disclosing information in connection with the equitable and good faith application of its laws. Similar provisions in other EU Treaties: Article 11 ‘Formal Requirements’ – Investment Chapter – EU-Mexico Global Agreement. Bibliography: Padideh Ala’i and Matthew D’Orsi, ‘Transparency in International Economic Relations and the Role of the WTO’ in Padideh Ala’i and Robert G Vaughn (eds), Research Handbook on Transparency (Edward Elgar 2014), 368; Eugene Beaulieu and Dylan Klemen, ‘Trade Policy Trends: CETA Ratification’ (2019) 12(36) The School of Public Policy Publications – SPP Policy Brief, 1; Andrea Bianchi, ‘On Power and Illusion: The Concept of Transparency in International Law’ in Andrea Bianchi and Anne Peters (eds), Transparency in International Law (Cambridge University Press 2013), 1; Ljiljana Biukovic, ‘Transparency Norms, the World Trade System and Free Trade Agreements: The Case of CETA’ (2012) 39(1) LIEI, 93; Marc Bungenberg and Andrés E. Alvarado Garzón ‘One Size Fits All? Transparency in Investment and Commercial Arbitration’ in Zlatan Meškić, Ivana Kunda, Dusan V. Popović and Enis Omerović (eds), Balkan Yearbook of European and International Law 2019 (Springer 2020), 1; Martin Burgi and Meinrad Dreher (eds) Beck’scher Vergaberechtskommentar III (C.H. Beck, München 2017); Paul Comrie-Thomson, ‘A Statement of Arbitral Jurisprudence: The Case for a National Law Obligation to Publish International Commercial Arbitral Awards’ (2017) 34 (2) J. Int. Arb., 275; Jost Delbrück, Exercising public authority beyond the state: Transnational democracy and/or alternative legitimation strategies? (2003) 10(1) Ind. J. Global Legal Stud., 29; Mark Fenster, ‘The Opacity of Transparency’ (2006) 91(3) Iowa Law Review, 885; Mary Graham, Democracy by Disclosure: The Rise of Technopopulism (The Brookings Institution 2002); Kurt Hübner, Tugce Balik and Anne-Sophie Deman, ‘CETA: The making of the Comprehensive Economic and Trade Agreement Between Canada and the EU’ (April 2016) Notes de l’Ifri, 1; Meg Kinnear, Andrea K. Bjorklund and John F.G. Hannaford, Investment Disputes under NAFTA: An annotated guide to NAFTA Chapter 11 (Kluwer Law International 2006); Torsten Körber, Heike Schweitzer and Daniel Zimmer (eds), Wettbewerbsrecht: Band 3. Fussionskontrolle Kommentar zum Europäischen und Deutschen Kartellrecht (C.H. Beck, München 2020); Akira Kotera, ‘Regulatory Transparency’ in Peter Muchlinski, Federico Ortino and Christoph Schreuer (eds), The Oxford Handbook of International Investment Law (Oxford University Press 2008), 618; Horst Günter Krenzler, Christoph Hermann and Marian Niestedt (eds), EU-Außenwirtschafts- und Zollrecht (C. H. Beck, München 2019); Ulrich Loewenheim, Karl M Meessen, Alexander Riesenkampff, Christian Kersting and Hans Jürgen Meyer-Lindemann (eds), Kartellrecht: Kommentar zum Deutschen und Europäischen Recht (4th edn, C.H. Beck, München 2020); Julie A Maupin, ‘Transparency in International Investment Law: The Good the Bad and the Murky’ in Andrea Bianchi and Anne Peters (eds), Transparency in International Law (Cambridge University Press 2013), 142; Peter Muchlinski, ‘Corporate Social Responsibility’ in Peter Muchlinski, Federico Ortino and Christoph Schreuer (eds), The Oxford Handbook of International Investment Law (Oxford University Press 2008), 638; Peter Oliver, ‘Chapter 13. Privacy and Data Protection: The Rights of Economic Actors’ in Sybe de Vries, Ulf Bernitz and Stephen Weatherill (eds), The EU Charter of Fundamental Rights as a Binding Instrument: Five Years Old and Growing (Bloomsbury 2016), 287; Anne Peters, ‘Towards Transparency as a Global Norm’ in Andrea Bianchi and Anne Peters (eds), Transparency in International Law (Cambridge University Press 2013), 534; Anne Peters, ‘The Transparency Turn of International Law’ (2015) CJGG, 3; Avinash Poorooye and Ronán Feehily, ‘Confidentiality and Transparency in International Commercial Arbitration: Finding the Right Balance’ (2017) 22 Harv. Negat. L. Rev., 275; Herman Pünder and Martin Schellenberg (eds), Vergaberecht III (Nomos, Baden-Baden 2019); Elisa Ravasi, Human Rights Protection by the ECtHR and the ECJ: A Comparative Analysis in Light of the Equivalency Doctrine (Brill 2017), 256; Catherine A. Rogers, ‘Transparency in International Commercial Arbitration’ (2006) 54 (5) U. Kan. L. Rev., 1301; David Weil, Archon Fung, Mary Graham and Elena Fagotto, ‘The Effectiveness of Regulatory Disclosure Policies’
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(2006) 25(1) J. Policy Analy. Manag., 155; Carl-Sebastian Zoellner, ‘Transparency: an Analysis of an Evolving Fundamental Principle in International Economic Law’ (2006) 27 Mich. J. Int’l L., 579. A. Introduction and Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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B. Spirit and Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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C. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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D. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. Scope of Application: ‘Routine Information’ as an Undefined Concept . . . 1. Why ‘Routine Information Concerning the Investment’ is Needed? . . . a) Transparency as a Guiding Principle in International Investment Law b) The ‘Request for Information’ of Article 8.17 CETA as Corporate Transparency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. ‘Routine Information’: Delimiting its Meaning . . . . . . . . . . . . . . . . . . . . . . . . . II. Protection of ‘Confidential or Protected Information’ . . . . . . . . . . . . . . . . . . . . . 1. Definition: What Does ‘Confidential or Protected Information’ Mean? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a) ‘Confidential Information’ as a Broad Concept . . . . . . . . . . . . . . . . . . . . . . . . b) Detailed Provisions on ‘Confidential Information’ . . . . . . . . . . . . . . . . . . . . . c) Considerable Leeway for the Interpretation of ‘Confidential or Protected Information’ in Article 8.17 CETA . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. How to Ensure the Protection of ‘Confidential or Protected Information’ in the Application of Article 8.17 CETA? . . . . . . . . . . . . . . . . . a) Application for Confidential Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . b) Balance of Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . c) Safeguarding ‘Confidential or Protected Information’ by the Corresponding Authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. Caveats . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Compatibility with Articles 8.6 and 8.7 CETA . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Request Must Be Reasonable and not unduly Burdensome . . . . . . . . . . . . 3. Equitable and Good Faith Application of its Laws . . . . . . . . . . . . . . . . . . . . . .
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E. Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15 18 21 22 26 31 34 35 36 39 41 45 46 47 49 50
A. Introduction and Overview Closing the Section E on ‘Reservations and Exceptions’ of the CETA Investment Chapter, Article 8.17 CETA allows each Contracting Party to request routine information from the investors of the other Contracting Party solely for informational or statistical purposes. This prerogative presents a seemingly broad scope of application given that it does not establish what ‘routine information’ means or when exactly a Contracting Party may request such information (→ mn. 9 ff.). However, Article 8.17 CETA itself contains some outer limits, which mark how this provision should be read and applied. 2 In particular, the Contracting Parties must ensure in every case the protection of investor’s confidential or protected information (→ mn. 21 ff.). Furthermore, Article 8.17 CETA expressly stipulates three caveats, which protect investors from possible abuses of the state: first, the request for routine information is compatible with Articles 8.6 and 8.7 CETA; second, it must be reasonable and not unduly burdensome; third, in any case, Article 8.17 CETA does not prevent Contracting Parties from obtaining and disclosing information by the equitable and good faith application of their laws (→ mn. 45 ff.). 3 In this sense, Article 8.17 CETA plays a double role: whilst it confers on the Contracting Parties the prerogative to request information from the investor, it may also serve as an exception to the substantive standards of protection. Accordingly, a Contracting Party may avail itself from this provision to gather information from an 1
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investor of the other Contracting Party at any point in time. Moreover, when facing an investment claim for the violation of a standard of protection of the CETA Investment Chapter, the respondent may strive to justify some of its actions by arguing that it was requesting routine information within the parameters of Article 8.17 CETA.
B. Spirit and Purpose The spirit and purpose of Article 8.17 CETA seems to be twofold. On the one 4 hand, this provision expressly contemplates that the request for routine information must entail informational and statistical purposes. Accordingly, this provision may be construed as tool to achieve transparency, which is considered as one of the guiding principles of international investment law.1 On the other hand, Article 8.17 CETA was also conceived as an exception given that it closes the Section E on ‘Reservations and Exceptions’ of the CETA Investment Chapter. In this sense, should an investor challenge a host state’s request for routine information under one of the substantive standards of protection provided for in CETA, the state could justify such request under Article 8.17 thereof, as long as it had complied with the requirements or outer limits established therein.
C. Drafting History CETA negotiations were carried out behind closed doors and a few draft texts 5 have been made public. Understandably, Canada and the EU wanted to keep a broad room of manoeuvre in the negotiations, considering the economic interests at stake: the EU is the second largest trading partner of Canada, while Canada is the eleventh largest trading partner of the EU.2 However, the most serious setback of the CETA negotiations was not the allegedly non-transparent process of negotiations, but rather the increasing rejection of the traditional investor-state dispute settlement (ISDS) system, i.e. investment arbitration. Thus, negotiators decided to announce in February 2016 that CETA would have a new model of investment court, to solve investor-state disputes.3 As stated by the Commission, the investment court system was ‘[b]uilt around the same key elements as domestic and international courts, it enshrines governments’ right to regulate and ensures transparency and accountability’. 4 The introduction of an investment court in the CETA Investment Chapter did not 6 take its toll on the wording of Article 8.17 CETA. This provision seems rather to be inspired by Article 1111 of the North American Free Trade Agreement (NAFTA). 5 Peters, ‘The Transparency Turn of International Law’ (2015) CJGG, 3 (4). Beaulieu and Klemen, ‘Trade Policy Trends: CETA Ratification’ (2019) 12(36) The School of Public Policy Publications – SPP Policy Brief, 1, available at https://www.policyschool.ca/wp-content/uploads/20 19/11/TradePolicyTrends.Beaulieudylanklemen-final.pdf, last accessed 23 July 2020. 3 Hübner et al., ‘CETA: The making of the Comprehensive Economic and Trade Agreement Between Canada and the EU’ (2016) Notes de l’Ifri, 1 (30). 4 EU Commission, Press Release 16 September 2015, available at https://ec.europa.eu/commission/pr esscorner/detail/en/IP_15_5651, last accessed 23 July 2020. 5 Article 1111 NAFTA: ‘1. Nothing in Article 1102 shall be construed to prevent a Party from adopting or maintaining a measure that prescribes special formalities in connection with the establishment of investments by investors of another Party, such as a requirement that investors be residents of the Party or that investments be legally constituted under the laws or regulations of the Party, provided that such formalities do not materially impair the protections afforded by a Party to investors of another Party and investments of investors of another Party pursuant to this Chapter. 2. Notwithstanding Articles 1102 or 1103, a Party may require an investor of another Party, or its investment in its territory, to 1
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Originally, the leaked draft consolidated CETA text of 13 January 2010 contained a strikingly similar provision to Article 1111 NAFTA.6 7 Subsequently, the leaked CETA draft of 21 November 2013 contemplated a provision called ‘Formal Requirements’, which resembled the Paragraph 2 of the original blueprint.7 This 2013 version included the current wording of Article 8.17 CETA, except for the last sentence. Nevertheless, Canada proposed an addition to the draft article: ‘[n]othing in this paragraph shall be construed to prevent a Party from otherwise obtaining or disclosing information in connection with the equitable and good faith application of its laws’.8 In 2016, after some years of legal scrubbing, the EU and Canada agreed on the current version of Article 8.17 CETA collecting the 2013 version with a modified version of Canada’s proposal.9 8 The newly signed United States-Mexico-Canada Agreement (USMCA) foresees exactly the same provision of NAFTA in Article 14.13 thereof. 10 Under Article 1111(2) NAFTA (or Article 14.13(2) USMCA for that matter), it is not conceivable that a request for routine information can impair the substance of investors’ rights, leading to a violation of the treaty.11 Given the resemblance of Article 8.17 CETA, one could similarly argue that a request of information could never amount to a violation of the treaty. There is nevertheless a conspicuous distinction between the NAFTA and CETA provisions. Unlike Article 1111(2) NAFTA, Article 8.17 CETA qualifies such requests for routine information and it explicitly states: ‘provided that those requests are reasonable and not unduly burdensome.’ This contribution posits that an investor provide routine information concerning that investment solely for informational or statistical purposes. The Party shall protect such business information that is confidential from any disclosure that would prejudice the competitive position of the investor or the investment. Nothing in this paragraph shall be construed to prevent a Party from otherwise obtaining or disclosing information in connection with the equitable and good faith application of its law’. 6 Article X.15 – Chapter on Investment and Services, Draft Consolidated CETA text of 13 January 2010, available at https://wiki.laquadrature.net/images/3/33/CETA_draft_jan_2010.pdf, last accessed 23 July 2020: ‘1. Nothing in Article X.3 (National Treatment) shall be construed to prevent a Party from adopting or maintaining a measure that prescribes special formalities in connection with the establishment of covered investments, such as a requirement that investments be legally constituted under the laws or regulations of the Party, provided that such formalities do not materially impair the protections afforded by a Party to investors of the other Party and covered investments pursuant to this Chapter. 2. Notwithstanding Articles X.3 (National Treatment) and X.4 (Most-Favoured-Nation Treatment), a Party may require an investor of the other Party, or its covered investment, to provide information concerning that investment solely for informational or statistical purposes, provided that such requests are reasonable and not unduly burdensome. The Party shall protect any confidential information from any disclosure that would prejudice the competitive position of the investor or the covered investment. Nothing in this paragraph shall be construed to prevent a Party from otherwise obtaining or disclosing information in connection with the equitable and good faith application of its laws’. 7 Article X-16: Formal Requirements – Draft CETA Investment Text of 21 November 2013, available at https://www.laquadrature.net/files/CETA-Draft-Investment-Text-Nov21-2013-203b-13.pdf, last accessed 23 July 2020: ‘Notwithstanding Articles X- (National Treatment) and X- (Most-FavouredNation Treatment), a Party may require an investor of the other Party, or its covered investment, to provide routine information concerning that investment solely for informational or statistical purposes, provided that such requests are reasonable and not unduly burdensome. The Party shall protect any confidential information from any disclosure that would prejudice the competitive position of the investor or the covered investment’. 8 Article X-16: Formal Requirements – Draft CETA Investment Text of 21 November 2013. 9 Article 8.17 CETA Text released by the EU Commission in February 2016, available at http://trade.e c.europa.eu/doclib/docs/2016/february/tradoc_154329.pdf, last accessed 23 July 2020. 10 The USMCA Agreement was signed originally on 30 November 2018, but afterwards a revised agreement was signed on 10 December 2019 and entered into force on 1 July 2020. 11 Kinnear et al., Investment Disputes under NAFTA: An annotated guide to NAFTA Chapter 11 (2006) 1111-5.
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could not entirely support a treaty claim only on the violation of Article 8.17 CETA arguing that the request for information was unreasonable. Instead, this qualification serves as a caveat, which if not observed by the Contracting Party may render the Article 8.17 CETA inoperative (→ mn. 47-48).
D. Commentary I. Scope of Application: ‘Routine Information’ as an Undefined Concept The scope of application of Article 8.17 CETA is broadly established hinging on the 9 undefined concept of ‘routine information’. However, the application of Article 8.17 CETA might be instructed by a two-step analysis: first, the rationale behind such a provision, which it seems to evoke the concept of transparency, particularly, corporate transparency (→ mn. 10 ff.); second, the delimitation of the ‘routine information’ concept (→ mn. 18-20 ff.).
1. Why ‘Routine Information Concerning the Investment’ is Needed? The state prerogative to require foreign investors to provide routine information 10 stems from the conception of transparency as a guiding principle in international investment law (→ mn. 11 ff.) particularly, Article 8.17 CETA portrays a subcategory of transparency, i.e. corporate transparency (→ mn. 15-17). a) Transparency as a Guiding Principle in International Investment Law Transparency, as an ideal standard of behaviour, seems to be deeply rooted in 11 the modern society.12 Furthermore, transparency has become a criterion/standard of legitimacy within the democratic model,13 because it enhances accountability of the governments,14 public participation and due process.15 It is thus safe to assume that transparency, when related to the idea of a democratic model and accountability, inevitably underpins the rule of law,16 which represents all the standards for the
12 Bianchi, ‘On Power and Illusion: The Concept of Transparency in International Law’ in Bianchi and Peters (eds), Transparency in International Law (2013), 1 (2): ‘Transparency epitomizes the prevailing mores in our society and becomes a standard of (political, moral and, occasionally, legal) judgment of people’s conduct’. 13 Delbrück, ‘Exercising public authority beyond the state: Transnational democracy and/or alternative legitimation strategies?’ (2003) 10(1) Ind. J. Global Legal Stud., 29 (42); Fenster, ‘The Opacity of Transparency’ (2006) 91(3) Iowa Law Review, 885 (895). 14 Peters, ‘The Transparency Turn of International Law’ (2015) CJGG, 3 (8). In fact, it seems that developed countries promote (impose) transparency obligations on developing countries by means of economic agreements, improving government’s accountability, see Biukovic, ‘Transparency Norms, the World Trade System and Free Trade Agreements: The Case of CETA’ (2012) 39(1) LIEI 93 (96). 15 Ala’i and D’Orsi, ‘Transparency in International Economic Relations and the Role of the WTO’ in Ala’i and Vaughn (eds), Research Handbook on Transparency (2014), 368 (369). 16 Poorooye and Feehily, ‘Confidentiality and Transparency in International Commercial Arbitration: Finding the Right Balance’ (2017) 22 Harv. Negat. L. Rev., 275 (285). Similarly, Rogers, ‘Transparency in International Commercial Arbitration’ (2006) 54(5) U. Kan. L. Rev., 1301 (1337); Comrie-Thomson, ‘A Statement of Arbitral Jurisprudence: The Case for a National Law Obligation to Publish International Commercial Arbitral Awards’ (2017) 34(2) J. Int. Arb., 275 (280); Biukovic, ‘Transparency Norms, the World Trade System and Free Trade Agreements: The Case of CETA’ (2012) 39(1) LIEI 93 (94).
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proper functioning of a legal system.17 Particularly, it can be argued that ‘formal notions of the rule of law require self-enacting, publicly accessible, and comprehensible legislation that limits and confines all exercise of public authority, and that facilitates the private ordering of individual behaviour as a result.’18 12 Consequently, in international law, transparency has increasingly become a legitimising principle in different fields, including trade and investment law. 19 Nevertheless, in spite of being often-cited, transparency has not a unique meaning applicable to every aspect of international law: It may pertain to an obligation upon the state pertaining to its internal regulations and procedures, it can be framed in the relation between subjects of international law, but it may also denote the openness of international law and its actors towards the civil society.20 The latter conception of transparency is mostly used in international economic law,21 whereby it is sought to ensure accountability and effective governance of the state. 22 In this sense, obligations on transparency may promote compliance with international agreements, since they can permit the verification of the market access commitments as well as the scrutiny of the regulatory action of the other states.23 13 There is an apparent incongruity nonetheless: treaties are negotiated behind doors, limiting access of the broader society, but at the same time, those treaties contain obligations on transparency of the states vis-à-vis foreign investors.24 CETA is the perfect example of this. However, it is only an ‘apparent incongruity’ because civil society cannot be granted full access to treaty negotiations, otherwise, the negotiations might be stalled.25 14 Moreover, a complete and unconstrained transparency has never been the goal in international investment law. There are certain limits, which may be portrayed as ‘things the public has no right to know’,26 including information protected by legal privilege, classified information of the state (pertaining to national security) and trade secrets, among others. An unlimited transparency would also have the entity
17 Bungenberg and Alvarado-Garzón ‘One Size Fits All? Transparency in Investment and Commercial Arbitration’ in Meškić et al. (eds), Balkan Yearbook of European and International Law 2019 (2020), 1 (9): ‘[I]n a more-or-less comprehensive approach, the rule of law may be framed in terms of the requirements of a well-ordered legal system, including the prohibition of arbitrary power; laws that are general, prospective, clear and consistent; and courts accessible and structured to judge legal claims. In other terms, the rule of law does not place emphasis only on the exercise of power within the constraints of certain public norms but also stresses on the fact that a legal system is provided with legal certainty and predictability’. 18 Fenster, ‘The Opacity of Transparency’ (2006) 91(3) Iowa Law Review, 885 (897). 19 Peters, ‘The Transparency Turn of International Law’ (2015) CJGG, 3 (4). 20 Zoellner, ‘Transparency: an Analysis of an Evolving Fundamental Principle in International Economic Law’ (2006) 27 Mich. J. Int’l L., 579 (580 f.). 21 Zoellner, ‘Transparency: an Analysis of an Evolving Fundamental Principle in International Economic Law’ (2006) 27 Mich. J. Int’l L., 579 (581). 22 Kotera, ‘Regulatory Transparency’ in Muchlinski et al. (eds), The Oxford Handbook of International Investment Law (2008), 618 (628). 23 Fenster, ‘The Opacity of Transparency’ (2006) 91(3) Iowa Law Review, 885 (901). 24 Maupin, ‘Transparency in International Investment Law: The Good the Bad and the Murky’ in Bianchi and Peters (eds), Transparency in International Law (2013), 142 (152). 25 Bungenberg and Alvarado-Garzón ‘One Size Fits All? Transparency in Investment and Commercial Arbitration’ in Meškić et al., (eds) Balkan Yearbook of European and International Law 2019 (2020), 1 (3). 26 Maupin, ‘Transparency in International Investment Law: The Good the Bad and the Murky’ in Bianchi and Peters (eds), Transparency in International Law (2013), 142 (152); Graham, Democracy by Disclosure: The Rise of Technopopulism (2002) 5.
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to transgress people’s rights, who have shared their personal information with the government, in other words, it would entail a breach of the right to privacy. 27 b) The ‘Request for Information’ of Article 8.17 CETA as Corporate Transparency Pursuant to Article 8.17 CETA, investors must provide routine information of 15 their investment when the Contracting Party so requires, however, this goes beyond the traditional understanding of transparency of public institutions towards the civil society in international investment law, given that the obligation to disclose is placed upon the foreign investors. This raises the question whether transparency requirements can be imposed on economic (private) actors. Undeniably, when it comes to transparency, private actors and the state start from a different footing: unlike the state, private actors enjoy liberty and rights such as privacy and business secrecy, they pursue economic activities in their own interest, and they are not entitled to unilaterally enact binding law upon other actors or to enforce it.28 Nevertheless, there are examples of disclosure (transparency) obligations upon private persons. For instance, in financial law, private actors have the obligation to present regular reports to inform shareholders, brokers, analysts, investors and regulatory authorities about the economic performance of the specific company.29 This mandatory transparency in the financial system is deemed to be ‘effective both in reducing investor risks and in improving corporate governance.’30 The disclosure of information by private Parties has been deemed as a form of 16 regulation,31 which essentially responds to the calls for corporate accountability.32 The transparency of corporate action has a defined policy justification: having an informed government allows to target economic and political incentives more easily, something that otherwise could not be achieved given the information asymmetries both in market and political processes.33 In this sense, Article 8.17 CETA epitomises a form of corporate transparency. It 17 empowers Contracting Parties to request, from investors of the other Party, routine information concerning their investment, however, the purpose of that request and the ensuing use of the information obtained is strictly limited: solely for informational or statistical purposes. Certainly, neither Article 8.17 CETA nor any other CETA provision establish the consequences for non-compliance with the obligation to provide routine information.34 One may argue that a Contracting Party could impose sanctions to the 27 Fenster, ‘The Opacity of Transparency’ (2006) 91(3) Iowa Law Review, 885 (902); Delbrück, ‘Exercising public authority beyond the state: Transnational democracy and/or alternative legitimation strategies?’ (2003) 10(1) Ind. J. Global Legal Stud., 29 (42). 28 Peters, ‘Towards Transparency as a Global Norm’ in Bianchi and Peters (eds), Transparency in International Law (2013), 534 (551 f.). 29 Weil et al., ‘The Effectiveness of Regulatory Disclosure Policies’ (2006) 25(1) J. Policy Analy. Manag., 155 (167). 30 Weil et al., ‘The Effectiveness of Regulatory Disclosure Policies’ (2006) 25(1) J. Policy Analy. Manag., 155 (169). 31 This idea started in the 1930 s, when, facing the consequences of the great depression, the US enacted legislation requiring companies that sold securities to reveal information about their earnings, liabilities, and similar; see Graham, Democracy by Disclosure: The Rise of Technopopulism (2002) 2. 32 Muchlinski, ‘Corporate Social Responsibility’ in Muchlinski et al. (eds), The Oxford Handbook of International Investment Law (2008), 638 (676). 33 Weil et al., ‘The Effectiveness of Regulatory Disclosure Policies’ (2006) 25(1) J. Policy Analy. Manag., 155 (156). 34 This is considerably different to other fields such as EU Antitrust Law. Here, for instance, if the Commission issues a binding request for information and the concerned company does not comply with it in a timely manner or it submits incomplete information, the Commission can impose fines;
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reluctant investor under domestic law, however, this possibility lacks a legal basis in the treaty.
2. ‘Routine Information’: Delimiting its Meaning The reasons behind the need for routine information might elucidate, to certain extent, the scope of application of Article 8.17 CETA. However, given the lack of definition of ‘routine information’ it is not clear when exactly a Contracting Party may exercise its prerogative to request such information. Although this may pose some obstacles to the application of Article 8.17 CETA, there are certainly some useful precisions by means of treaty interpretation. 19 Pursuant to Article 31(1) Vienna Convention on the Law of Treaties (VCLT), a ‘treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.’ In this sense, CETA has been officially translated into all official languages of the EU.35 There, the concept of ‘routine information’ has been translated as ‘Routineinformationen’ in German, and as ‘información rutinaria’ in Spanish, which do not seem helpful for the purpose of interpretation. However, in the official translation into French, the concept reads as ‘renseignements d'usage’, which means ‘standard information’. Furthermore, in the Italian and Portuguese official translations, the concept appears as ‘informazioni periodiche’ and ‘informações periódicas’ respectively, which means ‘periodic information’. Without intending to restrict the meaning of ‘routine information’ in CETA, it certainly denotes information happening as a normal part of the investment, usual or standard in the course of such investment. Thus, extraordinary information, outside the normal/regular operation of the investment would fall outside the scope of Article 8.17 CETA. 20 Another issue refers to when exactly can a Contracting Party make use of the prerogative to request routine information. According to Article 8.17 CETA, a Contracting Party may require either an investor or its covered investment, thus, the definitions provided for in Article 8.1 CETA become relevant. Here, the concept of investor is broader than covered investment because the former refers to ‘a Party, a natural person or an enterprise of a Party, other than a branch or a representative office, that seeks to make, is making or has made an investment in the territory of the other Party’, whereas the latter circumscribes to investments already made. 36 Given these definitions, a Contracting Party may request routine information under Article 8.17 CETA at any point in time, as from the moment the investor is seeking to invest until even after the investment has started operations. 18
II. Protection of ‘Confidential or Protected Information’ 21
Article 8.17 CETA imposes a corresponding obligation upon the Contracting Parties to protect ‘confidential or protected information from any disclosure that would prejudice the competitive position of the investor or the covered investment.’ In order see Barthelmeß and Rudolf, in Loewenheim et al. (eds), Kartellrecht: Kommentar zum Deutschen und Europäischen Recht (2020), Article 18 VerfVO, mn. 26. 35 OJ L 11, 14.1.2017, p. 23–1079. 36 Article 8.1 CETA: ‘For the purposes of this Chapter (…) covered investment means, with respect to a Party, an investment: (a) in its territory; (b) made in accordance with the applicable law at the time the investment is made; (c) directly or indirectly owned or controlled by an investor of the other Party; and (d) existing on the date of entry into force of this Agreement, or made or acquired thereafter’.
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to understand this obligation, it is necessary to define the concept of ‘confidential and protected information’ (→ mn. 22 ff.), and how to ensure its protection in the application of Article 8.17 CETA (→ mn. 35 ff.).
1. Definition: What Does ‘Confidential or Protected Information’ Mean? Pursuant to Article 31(4) VCLT, when the Parties have chosen a definition for a 22 specific concept, that definition must be preferred.37 The CETA Contracting Parties have attributed a special meaning to a variety of concepts, including ‘confidential and protected information’. In accordance with Article 8.1 CETA, the following definition has been established: confidential or protected information means: (a) confidential business information; or (b) information which is protected against disclosure to the public; (i) in the case of information of the respondent, under the law of the respondent; (ii) in the case of other information, under a law or rules that the Tribunal determines to be applicable to the disclosure of such information;
Certainly, this definition is not only used for Article 8.17 CETA, but for all pro- 23 visions in the CETA Investment Chapter where the term ‘confidential or protected information’ is mentioned. Nevertheless, in the case of Article 8.17 CETA, the definition set forth in Article 8.1 CETA must be further clarified. The ‘confidential or protected information’ that Article 8.17 CETA seeks to protect pertains to investor’s information, thus, the reference ‘in the case of information of the respondent, under the law of the respondent’ of Article 8.1 CETA, is not relevant at this point. Moreover, Article 8.1 CETA also refers to the applicable law determined by the Tribunal. However, that would be possible only if a dispute is referred to the Tribunal for dispute resolution, otherwise, the provision does not present much utility. In this sense, for the purposes of Article 8.17 CETA, the definition of ‘confidential or protected information’ provided for by Article 8.1 CETA is unsatisfactory, limited to an undefined concept of ‘confidential business information’. Perhaps the restricted usability of the definition in Article 8.1 CETA comes from 24 the seemingly inspiration source of this article, namely, the UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration (UNCITRAL Rules on Transparency). Catalogued as an exception to transparency, Article 7 UNCITRAL Rules on Transparency defines ‘confidential or protected information’ as follows: Article 7 Exceptions to Transparency (…) (2) Confidential or protected information consists of: a. Confidential business information; b. Information that is protected against being made available to the public under the treaty; c. Information that is protected against being made available to the public, in the case of the information of the respondent State, under the law of the respondent State, and in case of other information, under any law or rules determined by the arbitral tribunal to be applicable to the disclosure of such information; or d. Information the disclosure of which would impede law enforcement
Although the definition of Article 8.1 CETA is not as extensive, the wording is 25 similar, with the difference that the sole scope of application of the UNCITRAL Rules
37 Article 31(4) VCLT: ‘A special meaning shall be given to a term if it is established that the parties so intended’.
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on Transparency is circumscribed to investor-State arbitration.38 This means that the definition of ‘confidential or protected information’ was conceived exclusively for dispute settlement proceedings, whereas the definitions of Article 8.1 CETA are applicable to the entire CETA Investment Chapter, not only dispute resolution. Certainly, the application of Article 8.17 CETA extends beyond dispute resolution proceedings as above-mentioned in the scope of application (→ mn. 18-20), where the lack of definition of ‘confidential or protected information’ may become troublesome. Consequently, it is put forward that, for the purpose of Article 8.17 CETA, the definition of ‘confidential or protected information’ must be concretized on a case-by-case basis. Guidance for such exercise may be taken from a comparative perspective. a) ‘Confidential Information’ as a Broad Concept 26
There are different approaches to the concept of confidential information in other fields of law. The World Trade Organization (WTO) Anti-dumping Agreement, for instance, provides a useful definition of confidential information, specifically, Article 6.5 thereof states: Any information which is by nature confidential (for example, because its disclosure would be of significant competitive advantage to a competitor or because its disclosure would have a significantly adverse effect upon a person supplying the information or upon a person from whom that person acquired the information), or which is provided on a confidential basis by parties to an investigation shall, upon good cause shown, be treated as such by the authorities (…).
The EU has adopted the same definition of confidential information by means of Article 19(1) Regulation (EU) 2016/1036.39 Certainly, it is a broad definition, because it protects anyone providing information to the Commission, even if they are not ‘parties’ nor ‘interested parties’ in the anti-dumping investigations, and it has been suggested that such provision should not be narrowed by interpretation.40 Nevertheless, there are some indicators of what kind of information must be considered confidential, for instance, referring to the consequences of its disclosure, e.g. giving a significant advantage to competitors or having a significantly adverse effect upon the disclosing Party. 28 Similarly, in the field of merger control, business secrets and other confidential information are to be identified by the possible harmful consequences of their disclosure or their passing to third Parties.41 Such interpretation of business secrets should also be used in state aid, as the Commission recognised: ‘[t]here is no reason why the notions of business secret and other confidential information should be interpreted differently from the meaning given to these terms in the context of antitrust and merger procedures.’42 Additionally, the Commission considers another factor in the 27
Article 1 UNCITRAL Rules on Transparency. Regulation (EU) 2016/1036 of the European Parliament and of the Council of 8 June 2016 on the protection against dumped imports from countries not members of the European Union, Article 19(1): ‘Any information which is by nature confidential (for example, because its disclosure would be of significant competitive advantage to a competitor or would have a significantly adverse effect upon a person supplying the information or upon a person from whom the person supplying the information has acquired the information) or which is provided on a confidential basis by parties to an investigation shall, if good cause is shown, be treated as such by the authorities’. 40 Müller-Ibold, in Krenzler, Hermann and Niestedt (eds), EU-Außenwirtschafts- und Zollrecht (2019), Article 19 AD-GVO mn. 8 f. 41 Körber, in Körber, Schweitzer and Zimmer (eds), Wettbewerbsrecht: Band 3. Fussionskontrolle Kommentar zum Europäischen und Deutschen Kartellrecht (2020), Article 17 Abs. 2 FKVO, mn. 9. 42 Commission, Communication of 1 December 2003 on professional secrecy in State aid decisions, C(2003) 4582, para. 9. 38 39
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framework of state aid, namely, that the information has actual or potential economic value.43 At least as a starting point, it is observed that the concept of business secrets in anti-dumping, antitrust law and merger control, and state aid focuses on the consequences of disclosure, which might work as a guideline in the context of Article 8.17 CETA. From a human rights perspective, the European Court of Human Rights (ECtHR) 29 has not expressly recognised the protection of business secrets under any of the provisions of the European Convention of Human Rights (ECHR).44 It is however considered that the protection of business secrets constitutes a legitimate reason to restrict the freedom of speech.45 Finally, from the perspective of the Canadian legal system, the definition of confi- 30 dential information seems to be more flexible and it is the judge, who decides in each case. The standard for identifying an obligation to keep information confidential can be traced back to 1948, specifically to Lord Greene’s decision in Saltman Engineering Co. v. Campbell Engineering Co.46 Following this landmark decision, judges in Canada apply a reasonable man test to determine if the circumstances, in which information was disclosed, give rise to an obligation to keep such information confidential. 47 Given that the Canadian standard of ‘a reasonable man’ to determine if confidentiality is required hinges on the specific circumstances of each case, it does not provide workable indications to be applied to Article 8.17 CETA. b) Detailed Provisions on ‘Confidential Information’ There are other provisions on ‘confidential information’ with a more detailed 31 wording. For instance, the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) refers to the protection of certain secret information with commercial value. Without defining this type of information, Article 39(2) TRIPS provides: Natural and legal persons shall have the possibility of preventing information lawfully within their control from being disclosed to, acquired by, or used by others without their consent in a manner contrary to honest commercial practices so long as such information: (a) is secret in the sense that it is not, as a body or in the precise configuration and assembly of its components, generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question; 43 Commission, Communication of 1 December 2003 on professional secrecy in State aid decisions, C(2003) 4582, para. 10. 44 Oliver, ‘Chapter 13. Privacy and Data Protection: The Rights of Economic Actors’ in de Vries, Bernitz and Weatherill (eds), The EU Charter of Fundamental Rights as a Binding Instrument: Five Years Old and Growing (2016), 287 (309): ‘There appears to be no direct authority from the ECtHR as to whether business secrets are protected under Article 8, or indeed some other provision of the ECHR or its protocols such as Article 1 of Protocol 1 on the right to property’. 45 Oliver, ‘Chapter 13. Privacy and Data Protection: The Rights of Economic Actors’ in de Vries, Bernitz and Weatherill (eds), The EU Charter of Fundamental Rights as a Binding Instrument: Five Years Old and Growing (2016), 287 (309). 46 Lord Greene in Saltman Engineering Co. v. Campbell Engineering Co. (1948), 65 R.P.C. 203 (C.A.): ‘The information, to be confidential, must, I apprehend, apart from contract, have the necessary quality of confidence about it, namely, it must not be something which is public property and public knowledge. On the other hand, it is perfectly possible to have a confidential document, be it a formula, a plan, a sketch, or something of that kind, which is the result of work done by the maker upon materials which may be available for the use of anybody; but what makes it confidential is the fact that the maker of the document has used his brain and thus produced a result which can only be produced by somebody who goes through the same process’. 47 International Corona Resources Ltd. v. Lac Minerals Ltd., (1989) 2 S.C.R. 574, 61 D.L.R. (4th) 14.
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(b) has commercial value because it is secret; and (c) has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret.
In other words, a person is protected from the unlawful disclosure of information that is secret, has commercial value due to its secrecy, and has reasonably been kept secret by its holder. A similar provision is found in the Directive (EU) 2016/943, but in this case, as a definition of ‘trade secret’.48 Although this Directive seeks to harmonise procedures and ensure availability of ‘civil redress against the unlawful acquisition, use and disclosure of trade secrets’49 the requirements set forth in Article 2(1) Directive (EU) 2016/943 reflect the international practice in TRIPS Agreement. Moreover, the rationale behind this definition of ‘trade secret’ seems to concur with the above-mentioned definition of ‘confidential information’ in the WTO Anti-dumping Agreement, by highlighting the harmful consequences of its disclosure. 50 33 Furthermore, perhaps with the aim to overcome the uncertainty of a broad concept, the Commission has issued a non-exhaustive list of criteria to determine business secrets in the context of state aid decisions. For example, the effort or investment to acquire the concerned information, the extent to which measures have been taken to protect the information, the value of the information for the company and its competitors, among others.51 Certainly, CETA does not refer to the aforementioned criteria for the definition of ‘confidential business information’, however, they may provide clearer guidelines to identify what information falls within that category for the purpose of Article 8.17 CETA. 32
48 Directive (EU) 2016/943 of the European Parliament and of the Council of 8 June 2016 on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure, Article 2(1): ‘trade secret means information which meets all of the following requirements: (a) it is secret in the sense that it is not, as a body or in the precise configuration and assembly of its components, generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question; (b) it has commercial value because it is secret; (c) it has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret’. 49 Article 6(1) Directive (EU) 2016/943. 50 Directive (EU) 2016/943, Recital 14: ‘Such definition should therefore be constructed so as to cover know-how, business information and technological information where there is both a legitimate interest in keeping them confidential and a legitimate expectation that such confidentiality will be preserved. Furthermore, such knowhow or information should have a commercial value, whether actual or potential. Such know-how or information should be considered to have a commercial value, for example, where its unlawful acquisition, use or disclosure is likely to harm the interests of the person lawfully controlling it, in that it undermines that person's scientific and technical potential, business or financial interests, strategic positions or ability to compete. The definition of trade secret excludes trivial information and the experience and skills gained by employees in the normal course of their employment, and also excludes information which is generally known among, or is readily accessible to, persons within the circles that normally deal with the kind of information in question’ (emphasis added). 51 Commission, Communication of 1 December 2003 on professional secrecy in State aid decisions, C(2003) 4582, para. 13: ‘In general, the Commission will apply the following non-exhaustive list of criteria to determine whether information can be deemed to constitute business secrets: (a) the extent to which the information is known outside the company; (b) the extent to which measures have been taken to protect the information within the company, for example, through non compete clauses or non-disclosure agreements imposed on employees or agents, etc; (c) the value of the information for the company and its competitors; (d) the effort or investment which the undertaking had to undertake to acquire the information; (e) the effort which others would need to undertake to acquire or copy the information; (f) the degree of protection offered to such information under the legislation of the Member State concerned’.
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c) Considerable Leeway for the Interpretation of ‘Confidential or Protected Information’ in Article 8.17 CETA It must be concluded at this point, that the definition of ‘confidential or protected 34 information’ for the purpose of Article 8.17 CETA cannot invariably be found in the definitions of Article 8.1 CETA. Only a case-by-case analysis would fulfil the task, nonetheless, a comparative approach may be useful. The concept of ‘business secrets’ in other fields such as anti-dumping, antitrust law and merger control, and state aid, glimpses that due regard must be given to the possible harmful consequences of disclosure. Moreover, without suggesting a strict definition, it is argued that the definitions in Article 39(2) TRIPS, Article 2(1) Directive (EU) 2016/943 and the nonexhaustive list of criteria to determine ‘business secrets’ published by the Commission may provide clearer guidelines to identify in each case what constitutes ‘confidential business information’ warranting protection in the framework of Article 8.17 CETA.
2. How to Ensure the Protection of ‘Confidential or Protected Information’ in the Application of Article 8.17 CETA? Ensuring the protection of ‘confidential or protected information’ in the framework 35 of Article 8.17 CETA must be a joint task between the investor providing the information and the state authority receiving it. Unfortunately, CETA has no specific provisions to this effect. However, a comparative approach may be illustrative on how to ensure the protection of such information in practice. a) Application for Confidential Treatment First point of comparison is found in anti-dumping procedures. As set out at 36 the WTO level, the interested Party must request the confidential treatment of the information supplied to the investigating authority and it must prove ‘good cause’ supporting its request.52 Similarly, at the EU level, the person involved in anti-dumping procedures must apply for confidential treatment of the information supplied to the Commission, and must justify why the confidential treatment is appropriate in that case.53 This indicates that there is no ex officio application or justification by the investigating authority, i.e. Commission.54 The justification or ‘good cause’ must be furnished in both cases, information that is considered confidential by nature, as well as information provided on confidential basis.55 A slightly different approach is taken in the context of antitrust law and merger 37 control. Although the concerned Party must request confidential treatment of its information as well, the Commission is obliged to confidentiality even in the absence 52 European Communities – Definitive Anti-Dumping Measures on Certain Iron or Steel Fasteners from China, WT/DS397/AB/R 15 July 2011, Report of the Appellate Body; Korea – Anti-Dumping Duties on Imports of Certain Paper from Indonesia, WT/DS312/r 28 October 2005, Panel Report, para 7.335; Guatemala – Definitive Anti-Dumping Measure on Grey Portland Cement from Mexico, WT/DS156/R 24 October 2000, Panel Report, para. 8.219. 53 Müller-Ibold, in Krenzler, Hermann and Niestedt (eds), EU-Außenwirtschafts- und Zollrecht (2019), Article 19 AD-GVO mn. 10. 54 Müller-Ibold, in Krenzler, Hermann and Niestedt (eds), EU-Außenwirtschafts- und Zollrecht (2019), Article 19 AD-GVO mn. 10. 55 Korea – Anti-Dumping Duties on Imports of Certain Paper from Indonesia, WT/DS312/r 28 October 2005, Panel Report, para 7.335; Guatemala – Definitive Anti-Dumping Measure on Grey Portland Cement from Mexico, WT/DS156/R 24 October 2000, Panel Report, para 8.219; similarly, Müller-Ibold, in Krenzler, Hermann and Niestedt (eds), EU-Außenwirtschafts- und Zollrecht (2019), Article 19 AD-GVO mn. 10.
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of such request, as long as the circumstances indicate that confidentiality must be respected.56 Moreover, should the information be possibly passed on to third interested Parties during merger control investigations, it is recommended to provide the Commission with an additional non-confidential version for handing over to those third interested Parties.57 38 Consequently, a similar process for the application of Article 8.17 CETA could be established. Should the concerned investor consider that the routine information (or part thereof) is to be treated as confidential, it must request confidential treatment of that information to the relevant authority of the Contracting Party and state the reasons for such request. This seems to enable a communication channel between the authority (host state) and foreign investors, which may facilitate the identification of confidential information and its necessary protection. However, it is suggested that even in the absence of such request, if a confidentiality obligation arises from the circumstances, this must be respected. Finally, one may propose a similar approach as the one taken by the Court of Justice of the European Union (CJEU), recognising a rebuttable presumption against confidential treatment of information traced back to five or more years.58 b) Balance of Interests 39
In the application of Article 8.17 CETA, the respective authorities of each Contracting Party must strike a balance between the transparency as public interest and protecting confidential or protected information as a private interest. Accordingly, it is suggested that a balance of interests is applied on a case-by-case basis, where the practice of the CJEU and the WTO might be illustrative. In the context of protection of confidential information, the CJEU has recognised the necessity to weigh it up against the right of defence of the other Parties.59 Consequently, in cases such as Diamanthandel v. Commission, Hilti v. Commission, and Deutsche Telekom v. Commission, the Court has stated that, for each document or piece of information, it must analyse the competing interests at stake, namely, the protection of information that the applicant requested to be treated confidential and the interest of interveners to exercise their legitimate procedural rights. 60 Furthermore, as decided by the WTO Appellate Body, in anti-dumping investigations, before taking a decision on confidential treatment of certain information, the respective authority should balance the interests
56 Körber, in Körber, Schweitzer and Zimmer (eds), Wettbewerbsrecht: Band 3. Fussionskontrolle Kommentar zum Europäischen und Deutschen Kartellrecht (2020), Article 17 Abs. 2 FKVO, mn. 11. 57 Barthelmeß and Rudolf, in Loewenheim et al. (eds), Kartellrecht: Kommentar zum Deutschen und Europäischen Recht (2020), Article 18 VerfVO, mn. 48. 58 CJEU, Case C-162/15 P, 14.03.2017, Evonik Degussa v. Commission, ECLI:EU:C:2017:205, para. 64: ‘[I]t must be pointed out that information which was secret or confidential, but which is at least five years old, must as a rule, on account of the passage of time, be considered historical and therefore as having lost its secret or confidential nature unless, exceptionally, the party relying on that nature shows that, despite its age, that information still constitutes essential elements of its commercial position that of interested third parties’. Similarly, EGC, Case T-462/12, 15.07.2015, Pilkington Group v Commission, ECLI:EU:T:2015:508, para. 58. 59 Ravasi, Human Rights Protection by the ECtHR and the ECJ: A Comparative Analysis in Light of the Equivalency Doctrine (2017), 256. 60 Order of the President of the Eighth Chamber of the General Court in Case T-108/07, 08.05.2012, Diamanthandel v. Commission, ECLI:EU:T:2012:226, paras. 37 ff. Similarly, Order of the Court of First Instance (Second Chamber) in Case T-30/89, 04.04.1990, Hilti v. Commission, ECLI:EU:T:1990:27, para. 11; Order of the President of the Fifth Chamber of the Court of First Instance in Case T-271/03, 15.06.2006, Deutsche Telekom v. Commission, ECLI:EU:T:2006:163, para 10.
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of the interested Party on protecting its information with the negative effects its nondisclosure may entail on due process and transparency.61 Against this backdrop, one may conclude that there might be cases where the 40 protection of confidential information pursuant to Article 8.17 CETA may impinge on other interests such as transparency. Therefore, it is suggested, similarly to the practice of the CJEU and the WTO, that the protection of ‘confidential or protected information’ should be similarly balanced against other legitimate interests in every case. c) Safeguarding ‘Confidential or Protected Information’ by the Corresponding Authorities As recalled by the CJEU in its Opinion 1/17,62 all international agreements entered 41 by the EU must be compatible with the Charter of Fundamental Rights of the European Union (the Charter). In relation with Article 8.17 CETA, Article 41 of the Charter becomes particularly relevant because it provides for the right to good administration, whereby a person’s affairs must be ‘handled impartially, fairly and within a reasonable time by the institutions, bodies, offices and agencies of the Union’, which includes the protection of confidential information and business secrets.63 Therefore, in the context of Article 8.17 CETA, the protection of confidential information by the staff/personnel of the state authority handling and processing such information must be ensured. Certainly, the EU has already certain safeguards in place. Article 339 Treaty on 42 the Functioning of the European Union (TFEU) imposes the obligation of professional secrecy upon members, officials and other servants of the EU institutions. 64 Such obligation covers confidential information and business secrets.65 Similarly, pursuant to Article 21 Directive (EU) 2014/2466 contracting authorities in public procurement procedures shall not disclose confidential information of economic operators. Although the above-mentioned provisions present a valid starting point for CETA, it is perhaps the example of the German Competition Act (Gesetz gegen Wettbewerbsbeschränkungen – GWB) providing a more valuable input. According to § 164 GWB, the members of the public procurement chamber are 43 subject to a duty of confidentiality in relation to classified or other confidential information they receive.67 In this sense, all relevant personnel of the public procurement 61 European Communities – Definitive Anti-Dumping Measures on Certain Iron or Steel Fasteners from China, WT/DS397/AB/R 15 July 2011, Report of the Appellate Body, para 539. At the EU level, the Commission seems to favour the applicants’ request for confidentiality, see Müller-Ibold, in Krenzler, Hermann and Niestedt (eds), EU-Außenwirtschafts- und Zollrecht (2019), Article 19 AD-GVO mn. 11. 62 CJEU, Opinion 1/17, 30.04.2019, Request for an opinion submitted by the Kingdom of Belgium ECLI:EU:C:2019:341, paras. 165 ff. 63 Article 41(2)(b) Charter of Fundamental Rights of the European Union. 64 Article 339 TFEU: ‘The members of the institutions of the Union, the members of committees, and the officials and other servants of the Union shall be required, even after their duties have ceased, not to disclose information of the kind covered by the obligation of professional secrecy, in particular information about undertakings, their business relations or their cost components’ (emphasis added). 65 EGC, Case T-353/94, 18.09.1996, Postbank v. EC Commission, ECLI:EU:T:1996:119, para. 86. 66 Directive (EU) 2014/24 of the European Parliament and the Council of 26 February 2014 on public procurement and repealing Directive 2004/18/EC. 67 Whether this provision applies to classified information, ie concerning national security interests, as well as confidential business information is controversial, see Schellenberg, in Pünder and Schellenberg (eds), Vergaberecht III (2019) § 164 GWB, mn. 4, fn. 2; Wittschurky, in Burgi and Dreher (eds) Beck’scher Vergaberechtskommentar III (2017) § 164 GWB, mn. 9. Nevertheless, for the purpose of the confidential treatment deployed by the respective staff, it constitutes a fitting example.
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chamber, who might inter alia receive, process, or transport classified or other confidential information, are bound by express confidentiality obligations,68 and they must undergo a security check before taking office.69 44 Therefore, in view of the application of Article 8.17 CETA, each Contracting Party may ensure that all its staff receiving, administering, processing, etc., ‘confidential or protected information’ not only are bound to confidentiality obligations, but also, that they are subject to a security check, in order to protect the prospective information they may encounter. Hence, the obligation to protect ‘confidential or protected information’ imposed by Article 8.17 CETA might be easier to comply with.
III. Caveats 45
There are three caveats to the application of Article 8.17 CETA: first, the request must be compatible with the protection granted under Articles 8.6 and 8.7 CETA (→ mn. 46) second, the request must be reasonable and not unduly burdensome (→ mn. 47-48) third, the Contracting Parties may nonetheless obtain and disclose information by the equitable and good faith application of their laws (→ mn. 49).
1. Compatibility with Articles 8.6 and 8.7 CETA 46
The first caveat in Article 8.17 CETA to the request for routine information concerning the foreign investment consists of the guarantee of non-discriminatory treatment. Particularly, such request must not impair foreign investors’ rights embedded in Article 8.6 CETA (national treatment; → Art. 8.6 mn. 23 ff.) and Article 8.7 CETA (most-favoured nation treatment; → Art. 8.7 mn. 23 ff.). This caveat must be read as that investors enjoy protection under the substantive standards of national treatment or most-favoured nation treatment, however, this does not prevent the host state from requesting routine information for informational or statistical purposes. Although it is hardly conceivable that a merely discriminatory request for routine information by itself may suffice to support a claim for the breach of the national treatment or mostfavoured nation treatment standards, this caveat constitutes a safeguard for the Contracting Parties.
2. Request Must Be Reasonable and not unduly Burdensome 47
As pointed out in the Drafting History (→ mn. 5-8) Article 8.17 CETA shares a similar wording to Article 1111(2) NAFTA, which was reproduced in Article 14.13(2) USMCA. Nevertheless, Article 8.17 CETA contains an important clarification: the request for routine information shall be ‘reasonable and not unduly burdensome.’ Given the ‘and’ connector, it is safe to assume that those requirements are cumulative. Certainly, these terms provide a considerable room for interpretation since no specific legal meaning was attached to them in the provision itself or anywhere else in CETA. In fact, the ordinary meaning pursuant to Article 31(1) VCLT suggests that by qualifying the request for information as ‘reasonable’, it implies that the request must be fair,
68 Wittschurky, in Burgi and Dreher (eds) Beck’scher Vergaberechtskommentar III (2017) § 164 GWB, mn. 22. 69 Schellenberg, in Pünder and Schellenberg (eds), Vergaberecht III (2019) § 164 GWB, mn. 7; Wittschurky, in Burgi and Dreher (eds) Beck’scher Vergaberechtskommentar III (2017) § 164 GWB, mn. 15.
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practical and based on sound judgment; whereas considering the request ‘not unduly burdensome’ signifies that it must not be excessively difficult to carry out. Consequently, such assessment would be on a case-by-case basis, but it poses the 48 question: what happens if a request for routine information under Article 8.17 CETA is either unreasonable or unduly burdensome? In that case, Article 8.17 CETA becomes inoperative, which brings about two scenarios: first, the Contracting Party cannot rely on such provision to oblige an investor of the other Contracting Party to provide any kind of information; second, the Contracting Party cannot rely on Article 8.17 CETA as an exception to the substantive standards of protection set forth in the Treaty.
3. Equitable and Good Faith Application of its Laws Finally, Article 8.17 CETA clarifies that in any case, a Contracting Party may obtain 49 and disclose information according to the equitable and good faith application of its laws. This last caveat is not limited to the concept of ‘routine information’. This seems understandable nonetheless, considering sectors as corporate finance where strict disclosing regulations are normally in place.70 This may suggest that, even if the requirements of Article 8.17 CETA are not met, a Contracting Party may still obtain and disclose investor’s information following its own internal regulations. Suffice it to say that the application of domestic law must be assessed under the criteria of equity and good faith, thus, strict compliance with the internal regulation may not be enough, for instance, if the claimant investor can prove that the respondent Contracting Party was not acting in good faith.
E. Conclusions The inclusion of Article 8.17 CETA does not constitute an innovation in inter- 50 national investment treaties. The drafting history reveals that a similar provision in NAFTA inspired the final Article 8.17 CETA. Concerning its application, this provision entails a double character: on the one hand, it grants to the Contracting Parties the prerogative to request information from the investor; on the other hand, it plays the role of an exception to the substantive standards of protection. There are certainly some caveats in place, which protect investor from possible abuses of the state. However, this provision seems to be more state-focused. This is in line with a systematic interpretation, considering other CETA provisions that portray restrictions on the most-favoured nation treatment, the recognition of the right to regulate, or the reservations and exceptions to the substantive standards of protection. It seems that the CETA Contracting States have been accorded due deference to determine and undertake certain actions as it is the case in Article 8.17 CETA.
70 There are disclosing obligations of a company’s performance towards, regulatory authorities, shareholders, creditors etc. See Weil et al., ‘The Effectiveness of Regulatory Disclosure Policies’ (2006) 25(1) J. Policy Analy. Manag., 155 (167).
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Article 8.18 CETA (Scope) 1. Without prejudice to the rights and obligations of the Parties under Chapter Twenty-Nine (Dispute Settlement), an investor of a Party may submit to the Tribunal constituted under this Section a claim that the other Party has breached an obligation under: (a) Section C, with respect to the expansion, conduct, operation, management, maintenance, use, enjoyment and sale or disposal of its covered investment, or (b) Section D, where the investor claims to have suffered loss or damage as a result of the alleged breach. 2. Claims under subparagraph 1(a) with respect to the expansion of a covered investment may be submitted only to the extent the measure relates to the existing business operations of a covered investment and the investor has, as a result, incurred loss or damage with respect to the covered investment. 3. For greater certainty, an investor may not submit a claim under this Section if the investment has been made through fraudulent misrepresentation, concealment, corruption, or conduct amounting to an abuse of process. 4. A claim with respect to restructuring of debt issued by a Party may only be submitted under this Section in accordance with Annex 8-B. 5. The Tribunal constituted under this Section shall not decide claims that fall outside of the scope of this Article. Reference to the Respective Provisions in Other EU Treaties: Article 1.2 EU-Vietnam Investment Protection Agreement, signed 30 June 2019, (not in force). Bibliography: Andrés Eduardo Alvarado Garzón, ‘From State-Controlled Enterprises to Investment Screening: Paving the Way for Stricter Rules on Foreign Investment’ (2019) TDM, 1; Jan Bischoff and Richard Happ, ‘Ratione Materiae: The Notion of Investment’ in Marc Bungenberg, Jörn Griebel, Stephan Hobe, August Reinisch (eds), International Investment Law: A Handbook (Nomos, Baden-Baden 2015), 495; Andrea Bjorklund and Lukas Vanhonnaeker, ‘National Treatment’ in Makane Moïse Mbengue and Stefanie Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (Springer Nature, Switzerland 2019), 45; Aron Broches, ‘The Convention on the Settlement of Investment Disputes between States and Nationals of other States’ (1972/II) 136 RC, 331; Marc Bungenberg, ‘The Scope of Application of EU (Model) Investment Agreements’ (2014) 15, JWIT, 402; Marc Bungenberg, ‘The Division of Competences Between the EU and Its Member States in the Area of Investment Politics’ in Marc Bungenberg, Jörn Griebel, Steffen Hindelang (eds), European Yearbook of International Economic Law: International Investment Law and EU Law (Springer 2011), 29; Richard Corbett, Francis Jacobs and Darren Neville, The European Parliament (8 th edn, John Harper Publishing, London 2011); Paul Craig and Gráinne De Búrca, EU law: Text, Cases and Materials (6th edn, Oxford University Press, Oxford 2015); Claire Crépet-Daigremont, ‘Most Favoured Nation Treatment’ in Makane Moïse Mbengue and Stefanie Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (Springer Nature, Switzerland 2019), 71; Andrés Delgado Casteleiro, The international responsibility of the European Union: From Competence to Normative Control (Cambridge University Press, Cambridge 2016); Nicolas Diebold, ‘Standards of Non-Discrimination in International Economic Law’ (2011) 60(4) ICLQ, 831; Katharina Diel-Gligor and Rudolf Hennecke, ‘Investment in accordance with the law’ in Marc Bungenberg, Jörn Griebel, Stephan Hobe, August Reinisch (eds), International Investment Law: A Handbook (Beck/Hart/Nomos, Munich/Oxford/Baden-Baden 2015), 566; Rudolf Dolzer and Christoph Schreuer, Principles of International Investment Law (Oxford University Press, Oxford 2008); Zachary Douglas, ‘The Plea of Illegality in Investment Treaty Arbitration’ (2014) 29(1) ICSID Rev., 155; Jaap Dronkers and Maarten Vink, ‘Explaining Access to Citizenship in Europe: How Citizenship Policies Affect Naturalization Rates’ (2012) 13(3) EUP, 390; Carlos Esplugues, Foreign Investment, Strategis Assets and National Security (Intersentia Ltd., Cambridge 2018), Nicolas Hachez and Jan Wouter, ‘International Investment Dispute Settlement in the 21st Century: Does the Preservation of the Public Interest Require an Alternative to
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the Arbitral Model’, Leuven Centre for Global Governance Studies Working Paper No. 81 (2012); Kurt Hübner, Tugce Balik, and Anne-Sophie Deman, CETA: The Making of the Comprehensive Economic and Trade Agreement between Canada and the EU (Ifri Canada Program, Paris 2016); Robert Jennings and Arthur Watts, Oppenheim's International Law (9th edn, Longman 1992); David Judge and David Warnshaw, The European Parliament (2nd edn, Palgrave Macmillan, London 2008); Christina Knahr, ‘The Territorial Nexus between an investment and the host state’ in Marc Bungenberg, Jörn Griebel, Stephan Hobe, August Reinisch (eds), International Investment Law: A Handbook (Beck/Hart/Nomos, Munich/Oxford/Baden-Baden 2015), 590; Sabine Konrad, ‘Protection for Non-Profit Organizations’ in Marc Bungenberg, Jörn Griebel, Stephan Hobe, August Reinisch (ed), International Investment Law: A Handbook (Beck/Hart/Nomos, Munich/Oxford/Baden-Baden 2015), 555; Mattias Kumm, ‘An Empire of Capital?: Transatlantic Investment Protection as the Institutionalization of Unjustified Privilege’ (2015); Céline Lévesque and Andrew Newcombe, ‘Canada’ in Chester Brown (ed), Commentaries on Selected Model Investment Treaties (Oxford University Press, Oxford 2013), 53; Yuefen Li, ‘How international investment agreements have made debt restructuring even more difficult and costly’, Investment Policy Brief, No. 10; Aloysius Llamzon, ‘Yukos Universal Limited (Isle of Man) v. The Russian Federation: The State of the “Unclean Hands” Doctrine in International Investment Law: Yukos as both Omega and Alpha’ (2015) 30(2) ICSID Rev., 315; Aloysius Llamzon and Anthony Sinclair, ‘Investor Wrongdoing in Investment Arbitration: Standards Governing Issues of Corruption, Fraud, Misrepresentation and Other Investor Misconduct’ in Albert Jan van den Berg (ed), Legitimacy: Myths, Realities, Challenges (ICCA International Arbitration Congress Series No. 18, Kluwer 2015), 451; Krista Nadakavukaren, International Investment Law: Text, Cases and Materials (Edward Elgar, United Kingdom 2013); OECD, Guidelines on Corporate Governance of State-Owned Enterprises (2015 Edition, OECD Publishing, Paris 2015); Markus Perkams, ‘Protection for Legal Persons’ in Marc Bungenberg, Jörn Griebel, Stephan Hobe, August Reinisch (eds), International Investment Law: A Handbook (Beck/Hart/Nomos, Munich/Oxford/BadenBaden 2015), 638; Lucy Reed and Jonathan Davis, ‘Ratione Personae: Who is a Protected Investor?’ in Marc Bungenberg, Jörn Griebel, Stephan Hobe, August Reinisch (eds), International Investment Law: A Handbook (Nomos, Baden-Baden 2015), 614; August Reinisch and Lukas Stifter, ‘European Investment Policy and ISDS’ (2015) ELTE LJ., 11; August Reinisch, ‘The Scope of Investor-State Dispute Settlement in International Investment Agreements.’ (2013) 21(1), Asia Pac. L. Rev., 3; Berthold Rittberger, Building Europe’s Parliament (Oxford University Press, Oxford 2015); Karl Sauvant, Lisa Sachs, Wouter Schmit Jongbloed (eds), Sovereign Investment: Concerns and Policy Reactions (Oxford University Press, Oxford 2012); Christoph Schreuer, The ICSID Convention: a commentary (Cambridge University Press, Cambridge 2009); Daniel Shapiro and Steven Globerman, ‘The International Activities and Impacts of StateOwned Enterprises’ in Karl Sauvant, Lisa Sachs and Wouter Smit Jongbloed (eds), Sovereign Investment: Concerns and Policy Reactions (Oxford University Press, Oxford 2012); Catharine Titi, ‘The Right to Regulate’ in Mbengue and Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (Springer Nature, Switzerland 2019), 159; UNCTAD, Bilateral Investment Treaties 1959-1999 (United Nations, New York and Geneva 2000); UNCTAD, International Investment Agreements: Key Issues, Volume I (United Nations, New York and Geneva 2004); UNCTAD, Bilateral Investment Treaties 1995-2006: Trends in Investment Rulemaking (United Nations, New York and Geneva, 2007); UNCTAD, Most-Favoured-Nation Treatment, UNCTAD Series on Issues in International Investment Agreements II (United Nations, New York and Geneva 2010); Maarten Vink and Gérard-René de Groot, ‘Citizenship Attribution in Western Europe: International Framework and Domestic Trends’ (2010) 36(5) J. Ethn. Migr. Stud., 713; Michael Waibel, ‘Investment Arbitration: Jurisdiction and Admissibility’ in Marc Bungenberg, Jörn Griebel, Stephan Hobe, August Reinisch (eds), International Investment Law: A Handbook (Beck/Hart/Nomos, Munich/Oxford/Baden-Baden 2015), 1212; André von Walter and Maria Luisa Andrisani, ‘Resolution of Investment Disputes’ in Makane Moïse Mbengue and Stefanie Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (Springer Nature, Switzerland 2019), 185. A. Introduction and Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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B. Spirit and Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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C. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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D. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. Scope of Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Investors Concerned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a) Investor of a Party (Meaning) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . aa) A Natural Person of a Party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . bb) An Enterprise of a Party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16 17 18 21 23 39
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CETA (Scope) (1) Enterprise constituted under the laws of a Party (corporate nationality) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2) Having substantial business activities or being directly or indirectly owned or controlled by a natural person of that Party or by an enterprise mentioned under paragraph (a) . . . cc) A Party (Qualifying as an Investor) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . dd) Other Juridical Entities: (Non-Profit Organizations) . . . . . . . . . . . . . b) The other Party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Subjects-Matter of Disputes Covered . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a) Breach of Obligation under Section C Resulting in Loss or Damage . . . . aa) Breach of National Treatment (NT) Clause – Article 8.6 . . . . . . . . . bb) Breach of Most Favoured Nation (MFN) Clause – Article 8.7 . . . . cc) Non-Imposition of Senior Management or Board Appointment – Article 8.8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . b) Breach of Obligation under Section D Resulting in Loss or Damage . . . 3. Covered Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a) Territorial Coverage (ratione loci) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . b) Temporal Coverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . c) In Accordance with the Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . d) Owned or Controlled (directly or indirectly) . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Limits on the Scope of Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Claims Founded on Illegality (Applying the Clean Hands Doctrine) . . 2. Exclusion of Debt Restructuring Claims save for Violating Article 8.6 or 8.7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
41 44 51 56 57 67 69 71 74 78 80 85 88 92 96 101 106 107 113
E. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
A. Introduction and Overview Chapter 8 (Section F) of the Comprehensive and Economic Trade Agreement (CETA) establishes the dispute settlement mechanism for the Resolution of investment disputes between investors and States under the CETA. A significant component of this section is the introduction of an Investment Court System (ICS) 1 as a replacement for the traditional ISDS mechanism which has become largely unpopular amongst policy makers especially in the EU.2 2 Like every other court system having its scope of authority rooted in a statute, the ICS equally has its scope of authority rooted under Section F, precisely Article 8.18 CETA. Firstly, it preserves the right of Parties' to the dispute settlement procedure under Chapter 29 CETA (state-to-state arbitration), then proceeds to set out the ‘Scope’ of investor-state disputes capable of being decided by a Tribunal constituted under the ICS. In this context, Article 8.18 encapsulates the scope of such Tribunal’s jurisdiction and the requirements that must be satisfied before jurisdiction can be successfully invoked. 3 Just as Article 25 of the ICSID Convention contains requirements relating to the jurisdiction (ratione materiae) and (ratione personae) of disputes falling under the scope of the Convention,3 Article 8.18 likewise delineates the (ratione personae) and (ratione materiae) of disputes capable of falling under the jurisdictional scope of the CETA ICS, which will be addressed in this commentary, including an analysis of the 1
Article 8.27 CETA. Hachez and Wouters, ‘International Investment Dispute Settlement in the 21st Century: Does the preservation of the public interest require an alternative to the arbitral model?’, Leuven Centre for Global Governance Studies Working Paper No. 81 (2012), 5 ff., available at: http://dx.doi.org/10.2139/ssrn.200932 7; Kumm, ‘An Empire of Capital?: Transatlantic Investment Protection as the Institutionalization of Unjustified Privilege’ (2015), 1 ff., available at: https://intr2dok.vifa-recht.de/receive/mir_mods_00001160. 3 Schreuer et al., The ICSID Convention: A Commentary (2009), 82, para. 3. 1
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‘ratione loci’ and ‘ratione temporis’ necessary to invoke the jurisdiction of the ICS under Section F of the CETA. Also, this commentary looks into certain restrictions laid out in Article 8.18 that 4 further limits the scope of investment disputes that can be heard or determined by the ICS. These limits particularly relate to Investors' conduct that can jeopardize recourse to the CETA dispute settlement mechanism, and claims involving debt restructuring not in accordance with Annex 8-B. Before getting into a detailed analysis of Article 8.18 CETA, it is helpful to first 5 understand the spirit and purpose behind the provisions, including the drafting history. This will help form an informed opinion as to whether the intended purpose regarding the scope of the dispute resolution mechanism has been well captured in the final provisions of Article 8.18.
B. Spirit and Purpose The subject heading of Article 8.18 CETA is titled ‘Scope’. By legal definition, the 6 word ‘scope’ literarily means ‘a précis appearing after a title and showing concisely what subject matter is included and what is excluded’.4 This definition precisely captures the spirit and purpose of Article 8.18, its provisions expressly delineate what subject matter is included and what is excluded from the dispute resolution mechanism set out in Section F. The purpose behind this explicit determination is mainly to restrict Tribunals from 7 exercising jurisdiction over claims that are not included within their scope of authority. To curtail the risk of an undesirable investment claim, the EU/Canada strategy was to delineate more precisely the scope of actionable investment claims under the CETA. Tribunals are more likely to exceed their scope of authority when limits to it are not explicitly and precisely defined in the statute.5 This is quite common when dispute resolution clauses in IIAs are broadly worded, for example with words like ‘disputes relating to an investment’6, or ‘disputes concerning an investment’.7 Such broadly worded clauses have sometimes been interpreted to the discontent of States, for instance, to include contractual claims i.e. claims arising not from a breach of an IIA itself but a breach of contractual relationship external to the IIA. 8 With this clarifying approach, both the States and Investors have a higher degree of certainty as to the judicial protection afforded to them under the CETA. In summary, the spirit and purpose behind Article 8.18 CETA can simply be 8 characterised as guaranteeing certainty over what is included to, or excluded from the dispute settlement mechanism of the CETA, thereby safeguarding Parties from the
Garner, Black’s law dictionary (9th ed.), 1464. On the controversies that arise from investment treaties with an unprecise dispute settlement clause, see, Reinisch, ‘The Scope of Investor-State Dispute Settlement in International Investment Agreements’ (2013) 21(1), Asia Pac. L. Rev., 3 (3 ff.). 6 Article 26(1) ECT: ‘Disputes between a Contracting Party and an Investor of another Contracting Party relating to an Investment of the latter in the Area of the former, which concern an alleged breach of an obligation of the former under Part III shall, if possible, be settled amicably.’ 7 Article 10(1) Germany-Oman BIT (2007): ‘Disputes concerning investments between a Contracting State and an investor of the other Contracting State should as far as possible be settled amicably between the parties in dispute.’ 8 See, Reinisch, ‘The Scope of Investor-State Dispute Settlement in International Investment Agreements’ (2013) 21(1), Asia Pac. L. Rev., 3 (3 ff.); Reinisch and Stifter, ‘European Investment Policy and ISDS’ (2015) ELTE L.J., 11(12). 4
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over-reaching breadth of investor-state arbitration in relation to the scope of claims that may be submitted to arbitration.9
C. Drafting History The first version of Article 8.18 CETA was Article X.18 of the Consolidated CETA Draft of 13 January 2010.10 Aside from retaining investment arbitration as the mechanism for Investor-State disputes, the year 2010 CETA draft also did not expressly limit the scope of claims that may be submitted to a breach of the non-discriminatory or investment protection standards, neither did it provide a limitation of investment claims to disputes post-establishment as concluded in the final text. 10 Article X.18 remained unaltered in the 201111 and 201212 CETA Draft Text, however, in the Draft CETA ISDS Text of 15 and 21 November 2013, the first significant amendment to Article X.18 was observed. Firstly, the scope of claims that could be submitted to arbitration was expressly narrowed down to claims concerning a breach of the non-discriminatory or investment protection standards of the CETA. 13 Secondly, the ISDS mechanism was clarified to only cover post-establishment disputes, 14 and finally, a provision on claims regarding the restructuring of public debt was introduced.15 11 In the subsequent draft of 1 August 2014, an additional limitation to the scope of claims that may be submitted to investment arbitration was revealed, i.e. exclusion of claims based on investments that can be characterised as lacking clean hands. 16 The August 2014 draft also introduced the jurisdictional clause that a tribunal ‘may’ not decide claims that fall outside the scope of Article X.17, 17 however, the word ‘may’ was later revised to ‘shall’ as revealed in the finalized CETA Draft Text of September 2014.18 This revision further denotes the Parties’ intention to ensure that a CETA 9
9 Reinisch and Stifter, ‘European Investment Policy and ISDS’ (2015) ELTE L.J., 11(12) (Analysing the concern States often raise against the ISDS). 10 Investment Chapter, leaked version of the CETA draft text of 13 January 2010, ‘Draft Consolidated Text: Canada-EU Comprehensive Economic and Trade Agreement’, available at: https://wiki.laquadratu re.net/images/3/33/CETA_draft_jan_2010.pdf. 11 Article X.18 (Investment/Establishment Chapter), leaked version of the CETA draft text of January 2011, ‘Canada-EU CETA Draft Consolidated Text – Post Round VI’, available at: https://wiki.laquadrat ure.net/images/6/69/CETA_draft_jan_2011.pdf. 12 Article X.18 (Investment/Establishment Chapter), leaked version of the CETA draft text of February 2012, ‘Draft CETA Investment Text’, available at: https://wiki.laquadrature.net/images/c/cc/CETA -Draft_Consolidated_text-February_2012.pdf. 13 Article X.-1 (Investor-to-State Dispute Settlement Text), leaked version of the CETA draft text of 15 November 2013, available at: https://www.laquadrature.net/files/Draft-CETA-DisputeSettlement-no v-15.pdf. 14 Article X.-1 (Investor-to-State Dispute Settlement Text), leaked version of the CETA draft text of 15 November 2013, available at: https://www.laquadrature.net/files/Draft-CETA-DisputeSettlement-no v-15.pdf. 15 Section 6 (Investor-State Dispute Settlement), leaked version of the CETA draft text of 21 November 2013, ‘Draft CETA Investment Text’, available at: https://www.laquadrature.net/files/CETA-Draft-I nvestment-Text-Nov21-2013-203b-13.pdf. 16 Article X.17(3) (Investor-State Dispute Settlement Text), leaked version of the consolidated CETA draft of 1 August 2014, ‘Consolidated CETA Text’, available at: https://old.laquadrature.net/files/ceta-co mplet.pdf. 17 Article X.17(4) (Investor-to-State Dispute Settlement Text), leaked version of the consolidated CETA draft of 1 August 2014, ‘Consolidated CETA Text’, available at: https://old.laquadrature.net/files/ ceta-complet.pdf. 18 Article 8.18(5) (Resolution of Investment Disputes), Finalised CETA Draft Text September 2014, available at: http://trade.ec.europa.eu/doclib/docs/2014/september/tradoc_152806.pdf.
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tribunal does not extend its jurisdiction beyond the scope of the ISDS clause explicitly agreed to by the Parties. The finalised CETA Draft Text of September 2014 underwent one last major revision after the EU required that the dispute resolution clause in the investment chapter (which provided for ISDS) be revisited. In a public consultation held by the EU Commission in 2014,19 an overwhelming lack of support for ISDS by European stakeholders was revealed, this later culminated in the European Parliament (EP) issuing a resolution to the Commission containing a number of stipulations directing the reform of the investment protection provisions under the CETA. 20 With the EP’s competences strengthened by the Treaty of Lisbon, 21 it became imperative that the EU Commission negotiating on behalf of EU Member States approach its Canadian counterpart to address the recommendations set out in the EP’s resolution. Although this EP Resolution was primarily directed towards the TTIP negotiations, its adverse effect on the CETA Investment Chapter could not be overlooked. As a result, the CETA Parties agreed to commit further substantial amendments into the finalised CETA Text of 2014, by including all the main elements of the EU’s new approach on investment, especially shifting from arbitration to an ICS as outlined in the EU’s TTIP proposal of November 2015 and included in the recently concluded EU-Vietnam free trade agreement.22 After over seven years of intensive negotiations, the finalized CETA Draft was eventually signed by the Parties on 30 October 2016.23 The previous Article X.17 evolved into Article 8.18 reflecting the new EU approach for settling Investor-State disputes through an Investment Court System, as opposed to ad-hoc arbitration contemplated in earlier CETA Drafts pre-dating 2016.
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D. Commentary Essentially, Article 8.18 encompasses two main elements i.e. firstly, it delineates the 16 ‘scope of jurisdiction’ of the ICS over investor-state dispute claims (subsection I), and secondly, it provides the ‘limits on the scope of jurisdiction’ (subsection II).
19 European Commission Staff Working Document, Online public consultation on investment protection and investor-to-state dispute settlement (ISDS) in the Transatlantic Trade and Investment Partnership Agreement (TTIP), 13 January 2015, SWD(2015) 3 final, available at: https://trade.ec.europa.eu/doclib/d ocs/2015/tradoc.pdf. 20 See in this regard, European Parliament, European Parliament resolution of 8 July 2015 containing the European Parliament’s recommendations to the European Commission on the negotiations for the Transatlantic Trade and Investment Partnership (TTIP), 2014/2228(INI). See, ‘Regarding the Rules, para. (xv)’. 21 Treaty of Lisbon Amending the Treaty on European Union and the Treaty Establishing the European Community, signed 13 December 2007, OJ C306/01 of 17 December 2007; On the strengthening of the EP by the Treaty of Lisbon see, Craig and Búrca, EU Law: Text, Cases, and Materials (2015), 50; Bungenberg, ‘The Division of Competences Between the EU and Its Member States in the Area of Investment Politics’ in Bungenberg et. al. (eds), International Investment Law and EU Law (2011), 29 (29ff); Rittberger, Building Europe’s Parliament (2005); Judge and Earnshaw, The European Parliament (2008); Corbett et al., The European Parliament (2011). 22 Commission, Press Release, 29 February 2016, CETA: EU and Canada agree on new approach on investment in trade agreement, available at: https://ec.europa.eu/commission/presscorner/detail/en/IP. 23 CJEU, Press Release, April 2019, No 52/19 (Opinion 1/17); Hübner et. al., CETA: The Making of the Comprehensive Economic and Trade Agreement between Canada and the EU (2016).
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I. Scope of Jurisdiction 17
Earlier in this work, a legal definition for the term ‘scope’ was given ( → mn. 6). ‘Jurisdiction’ on the other hand can be defined as the power of a tribunal to hear a case, including the limits to such authority.24 In that context, and for the purpose of this discussion, the ‘scope of jurisdiction’ may be defined as the boundaries within which a CETA Tribunal can exercise its power to hear an investor-state dispute within the limits of Article 8.18. Typically, the scope of jurisdiction of investment tribunals can be bifurcated into several essential elements.25 Article 8.18 captures these essential elements in the following order as discussed.
1. Investors Concerned Under international investment law, it is a fundamental jurisdictional requirement that the disputing Parties before an international investment tribunal are the investors concerned under the dispute settlement clause of the relevant IIA i.e. coming under its ratione personae scope. In this regard, the burden of proof lies on a claimant who asserts that the ratione personae jurisdiction of a tribunal has been met, or the respondent who asserts otherwise.26 19 Although the term ratione personae is not expressly used under Article 8.18, nevertheless, its opening paragraph indicates a legislative intention to define the persons concerned under the dispute settlement scope of Section F CETA. It provides inter alia, that ‘[…] an investor of a Party may submit to the Tribunal constituted under this Section a claim that the other Party has breached an obligation under […]’ 27. This provision delineates two personal characters (disputing Parties) that must be present before an ICS Tribunal can validly exercise its jurisdiction ratione personae under the CETA. 20 Using the CETA provisions and existing legal jurisprudence of international law, the following submissions will expatiate on who exactly may qualify as an ‘investor of a Party’ (a), and who is that ‘other Party’ (b), against whom a claim may be submitted. 18
a) Investor of a Party (Meaning) 21
Traditionally, the use of dispute settlement mechanisms adopted by States in their respective IIA’s is strictly reserved to disputes between a State Party and an Investor from another State Party.28 Thus, for a treaty-claim to be successfully lodged against a State, the claimant-investor must as a pre-condition establish that it qualifies as an investor i.e. (national of another State Party) as ‘defined’ in the underlying IIA 24 See, Waste Management v. Mexico, ICSID Case No. ARB(AF)/98/2, Dissenting Opinion of Keith Highet (8 May 2000), para. 58; Ethyl Corporation v. Government of Canada, UNCITRAL, Award on Jurisdiction (24 June 1998), para. 58. 25 Waibel, ‘Investment Arbitration: Jurisdiction and Admissibility’ in Bungenberg et. al. (eds), Handbook on International Investment Law (2015), 1212 (1241); see also, Lao Holdings N.V. v. Lao People’s Democratic Republic I, ICSID Case No. ARB(AF)/12/6, Decision on Jurisdiction (21 February 2014), para. 64. 26 Vito G. Gallo v. Government of Canada, PCA Case No. 2008-03, Award (15 September 2011), para. 277 (notes that the maxim ‘he who asserts must prove’ also applies to the jurisdictional phase of investment disputes); see also, Philip Morris Asia Limited v. Commonwealth of Australia, PCA Case No. 2012-12, Award on Jurisdiction and Admissibility (17 December 2015), para. 495. 27 Article 8.18 para. 1 CETA. 28 See, Article 25(1) ICSID: ‘The jurisdiction of the Centre shall extend to any legal dispute […], between a Contracting State (or any constituent subdivision or agency of a Contracting State designated to the Centre by that State) and a national of another Contracting State […]’; see also Article 26(1) ECT.
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to the dispute. As observed in Valores Mundiales, the ICSID Tribunal agreeing with Schreuer’s opinion concluded inter alia that, any reasonable determination of the nationality of legal persons contained in national laws or treaties must be accepted by ICSID commissions or tribunals as the relevant criterion to establish its ratione personae jurisdiction.29 Similarly, to have the legal standing to submit a claim pursuant to Section F, a claimant must establish that it is an ‘investor of a Party’ i.e. EU (Member State) or Canada, according to the definition of this term set out in the CETA. For the purpose of Section F, an ‘Investor of a Party’ can be determined by the 22 definition of an investor provided in Article 8.1, meaning: […] A Party, a natural person or an enterprise of a Party, other than a branch or a representative office, that seeks to make, is making or has made an investment in the territory of the other Party […].30
This definition stipulates three categories of persons that may qualify as an investor of a Party, i.e. a natural person (aa), an enterprise of a Party (bb), or a Party (cc). aa) A Natural Person of a Party As indicated above, Article 8.1 CETA defines an ‘investor’ as a natural person of a 23 Party, but not stopping there, it further delineates the criteria that must be met before an investor may qualify as a natural person of a Party. Firstly, in the case of Canada, it requires the investor to be a citizen or permanent 24 resident of Canada, while in the case of the EU, a natural person must have the nationality of one of the Member States of the EU.31 Noteworthy that while both the citizens and permanent residents of Canada will qualify as natural persons of a Party, this treatment is not accorded vice-versa, as permanent residents of the EU are exempted from the definition of natural persons, thus excluding them from the scope of Section F, the only exceptions are permanent residents of Latvia, who by Latvian law are entitled to receive a non-citizen’s passport and may be treated as natural persons of a Party for the purposes of Section F.32 This definition indicates an important distinction between Canada and the EU as to who may qualify as a natural person to benefit from the dispute settlement regime offered in Section F CETA, thereby falling under the ratione personae scope of Article 8.18. Nationality according to Domestic Law: In order to qualify as a national of a Party, 25 Article 8.1 CETA provides that the domestic laws of respective EU Member States will be crucial for determining a natural person from the EU, however, the provision is silent on this point with respect to Canada.33 Nevertheless, it can be presumed that a tribunal called upon to determine whether an investor is a natural person from Canada may defer to the Canadian law on citizenship or permanent residence, in line with the general principle of international law that domestic laws of States determine nationality.34 29 Valores Mundiales, S.L. and Consorcio Andino S.L. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/13/11, Award (25 July 2017), paras. 274-283. 30 Note that for the purposes of Section F, a Party (EU/Canada) may qualify as an investor of a Party only for the purposes of Article 8.14 (subrogation), but may not in other cases. In this regard see, Article 8.1 definition (disputing Party): ‘[…] For the purposes of Section F and without prejudice to Article 8.14, an investor does not include a Party’. 31 Article 8.1 CETA (Definition: natural person). 32 Article 8.1 CETA (Definition: natural person). 33 Article 8.1 CETA (Definition: natural person). 34 Reed and Davis, ‘Ratione Personae: Who is a Protected Investor?’ in Bungenberg et. al. (eds), Handbook on International Investment Law (2015), 614 (619).
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Notably, the reference made to the respective laws of Member States in determining EU nationality is somewhat surprising as it would have been sufficient to refer to EU Citizenship. The outcome nevertheless would have been the same as EU citizenship is defined in Article 20(1) Treaty on the Functioning of the European Union (TFEU) stating that – ‘Every person holding the nationality of a Member State shall be a citizen of the Union. Citizenship of the Union shall be additional to and not replace national citizenship.’ 27 Because European citizenship is accessory to national citizenship – one cannot be an EU citizen without being a national of a Member State – there is also no common EU policy on its acquisition. However, the CJEU points out that ‘[i]t is for each Member State, having due regard to Union law, to lay down the conditions for the acquisition and loss of nationality.’35 Furthermore, the Court held that it is not an abuse of rights to acquire nationality in a Member State solely to take advantage of the guarantees laid down in EU Law.36 Among the Member States, a great variety in the rules and practices with respect to the acquisition of citizenship exists. 37 28 That said, the determination of nationality derived from national law is not new to international dispute resolution. In performing this function, tribunals do not necessarily interpret the domestic law on nationality but rather are guided by the local authorities' interpretations of the relevant national law as observed by the Soufraki v. UAE tribunal: 26
it is accepted in international law that nationality is within the domestic jurisdiction of the State, which settles, by its own legislation, the rules relating to the acquisition (and loss) of its nationality […]. But it is no less accepted that when, in international arbitral or judicial proceedings, the nationality of a person is challenged, the international tribunal is competent to pass upon that challenge. It will accord great weight to the nationality law of the State in question and to the interpretation and application of that law by its authorities […].38
Noteworthy, any decision by a tribunal regarding the nationality of an investor is simply a declarative act for the purpose of asserting or declining jurisdiction over an investment claim, as the determination of nationality for domestic law purposes remains the exclusive prerogative of sovereign national authorities.39 29 However, though the domestic authorities have the constitutional prerogative to determine who carries their nationality under their respective national laws, such determination might only constitute prima-facie evidence rather than being conclusive, and subject to rebuttal before an international tribunal. As concluded by the ICSID tribunal in the Soufraki case: In determining whether the jurisdictional requirements of the ICSID Convention and the BIT have been satisfied, the Tribunal is empowered to make its own investigation into the nationality of parties regardless of the presence of official government nationality documents. Certificates of 35 CJEU, Case C-369/90, 07.07.1992, Micheletti v. Delegación del Gobierno en Cantabria, ECLI:EU:C:1992:295, which established that dual-nationals of a Member State and a non-Member State were entitled to freedom of movement. 36 CJEU, Case C-200/02, 19.10.2004, Kunqian Catherine Zhu and Man Lavette Chen v Secretary of State for the Home Department, ECLI:EU:C:2004:639. 37 See on this Dronkers and Vink, ‘Explaining Access to Citizenship in Europe: How Policies Affect Naturalisation Rates’ (2012) 13(3) EUP, 390 (390 ff.); Vink and de Groot, ‘Citizenship Attribution in Western Europe: International Framework and Domestic Trends’ (2010) 36(5) J. Ethn. Migr. Stud., 713 (713 ff.). 38 See Hussein Nuaman Soufraki v. United Arab Emirates, ICSID Case No. ARB/02/7, Award (7 July 2004), para. 55. 39 Hussein Nuaman Soufraki v. United Arab Emirates, ICSID Case No. ARB/02/7, Decision of The Ad Hoc Committee on the Application for Annulment of Mr. Soufraki (5 June 2007), para. 55.
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nationality constitute prima facie – not conclusive – evidence, and are subject to rebuttal […] In fine, the Tribunal did not manifestly exceed its powers in deciding that it had to determine for itself Mr. Soufraki’s nationality.40
Further, as observed by the SIAG v. Egypt Tribunal citing Schreuer’s comments: Whether a person is a national of a particular State is determined, in the first place, by the law of the State whose nationality is claimed […]. But an international tribunal is not bound by the national law in question under all circumstances. Situations where nationality provisions of national law may be disregarded include cases of ineffective nationality lacking a genuine link between the State and the individual. Other instances where national rules need not be followed are certain situations of involuntary acquisition of nationality in violation of international law or cases of withdrawal of nationality that are contrary to international law’. 41
The SIAG tribunal’s observation clearly indicates that under international law, 30 tribunals are permitted to disregard decisions under domestic law regarding the nationality of an individual on certain grounds, for instance where there is no genuine link between the individual and the state, or in cases of involuntary acquisition of nationality or revocation of nationality contrary to international law. The Nottebohm decision likewise confirms this position, as the ICJ declined jurisdiction over Liechtenstein’s claim on the grounds that Mr. Nottebohm on whose behalf it brings the international claim had no genuine connection with Liechtenstein to be recognised as a national of the state under international law.42 Thus, at its very best, deference to domestic law for the purpose of determining the nationality of an individual investor will simply be persuasive rather than being a binding authority on the CETA ICS, given the jurisprudence on the nationality of persons as settled under international law. Natural Persons with Dual Nationality: Under international law, as a general rule 31 concerning the nationality of claims, a claimant may not submit a claim against a State, if such person is also a national of that State against whom the claim is submitted. This principle developed from the Hague Convention (1930) which provides that ‘a State may not afford diplomatic protection to one of its nationals against a State whose nationality such persons also possesses’.43 This principle has so far found effect in the ICSID Convention which precludes a dual national from submitting a claim under the convention against one of its countries of nationality. As held in Champion Trading Company v. Egypt, the ICSID Tribunal opined inter-alia: According to the ordinary meaning of the terms of the Convention (Article 25 (2)(a)), dual nationals are excluded from invoking the protection under the Convention against the host country of the investment of which they are also a national […].44 40 Hussein Nuaman Soufraki v. United Arab Emirates, ICSID Case No. ARB/02/7, Decision of The Ad Hoc Committee on the Application for Annulment of Mr. Soufraki (5 June 2007), para. 76. 41 Waguih Elie George Siag and Clorinda Vecchi v. The Arab Republic of Egypt, ICSID Case No. ARB/05, Decision on Jurisdiction, and Partial Dissenting Opinion of Professor Francisco Orrego Vicuña (11 April 2007), para. 145. 42 Nottebohm Case (Liechtenstein v. Guatemala), ICJ, Judgment (Second Phase), 6 April 1955, ICJ Reports 1955, 4-65. 43 Article 4 Convention on Certain Questions Relating to The Conflict of Nationality Laws, The Hague (12 April 1930), League of Nations, Treaty Series, vol. 179, p. 89. 44 Champion Trading Company, Ameritrade International, Inc. v. Arab Republic of Egypt, ICSID Case No. ARB/02/9, Decision on Jurisdiction (21 October 2003), p. 16; Also see, Report of The Executive Directors on the Convention on the Settlement of Investment Disputes Between States and Nationals of other States, para. 29, stating ‘It should be noted that under clause (a) of Article 25(2) a natural person who was a national of the State party to the dispute would not be eligible to be a party in proceedings under the auspices of the Centre, even if at the same time he had the nationality of another State. This ineligibility is absolute and cannot be cured even if the State Party to the dispute had given its consent’.
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However, in contrast to what applies under the general rule of international law and ICSID, it is typical to find under most BITs and Multilateral Investment Treaties (MITs) that such preclusion does not exist to prevent nationals with the nationality of a respondent State from submitting treaty claims.45 Similarly, the CETA follows this pattern by extending investment protection to natural persons with dual nationality status from both the EU and Canada.46 Notably, in order to determine the nationality of an EU/Canada dual national for the purpose of submitting a claim under Section F, the CETA explicitly adopts the dominant and effective nationality test doctrine.47 The dominant and effective nationality of a natural person is already an established criterion under public international law.48 Article 7 of the ILC Articles on Diplomatic Protection shows that a ‘State of nationality may not exercise diplomatic protection in respect of a person against a State of which that person is also a national unless the nationality of the former State is predominant, both at the date of injury and at the date of the official presentation of the claim.’49 Further it may be argued that the inclusion of the dominant and effective nationality doctrine constitutes a lex specialis rule under the CETA, therefore, the general rule that a claimant may not submit an international claim against its State of nationality also recognised by ICSID may not preclude a dual national from submitting a claim under the ICSID rules pursuant to Article 8.23(2) CETA. Accordingly, though a natural person may have the nationality of both the EU and Canada ‘according to the laws’ of both Parties, the recognised nationality for the purposes of section F should be the State Party where such natural person has the closest and most genuine connection, based on an objective analysis of the Court. However, although it is prima-facie apparent, that the dominant and effective nationality doctrine will be the test for determining nationality in cases of dual nationality under Section F, the relevant provision is not clear as to how this test is to be applied, precisely unknown are the indicators the Court must follow to determine the dominant and effective nationality of a claimant. Is it the claimant's place of residence, where he or she has personal and family ties, or place of economic connections, etc.? In the absence of statutory guidance, it is safe to conclude that this is one of the areas where the CETA tribunals will have full discretion on how to proceed, most probably guided by the existing jurisprudence that has been laid down by other international tribunals on the issue of dominant and effective nationality.50 Although not explicitly stated in the CETA, it can be deduced from its provisions that claims by dual nationals can only be submitted pursuant to Article 8.18 if the 45 Reed and Davis, ‘Rationae Personae: Who is a Protected Investor’, in Bungenberg et al. (eds), Handbook on International Investment Law (2015), 614 (624). 46 Article 8.1 CETA (See, Definition of natural person). 47 Article 8.1 CETA (See, Definition of natural person). 48 See especially the Mergé Case (United States v. Italy) (1955) 14 R.I.A.A. 236, 247 (10 June 1955) in which the Italian–U.S. Conciliation Commission held that it is a principle of international law that in dual nationality cases, it is the effective nationality to which priority should be given. 49 Draft Articles on Diplomatic Protection 2006; Text adopted by the International Law Commission at its 58th session, in 2006, and submitted to the General Assembly as a part of the Commission’s report covering the work of that session. The report appears in Official Records of the General Assembly, Sixty-first Session, Supplement No. 10 (A/61/10), available at: https://legal.un.org/ilc/texts/instruments/ english/. 50 Notable cases where Tribunals have dealt with the question of dual nationality includes inter alia; Iran–US CTR, Case No. A/18, Decision No. DEC 32-A18-FT, (6 April 1984); Mergé Case (Italian–US Conciliation Commission), Decision No. 55 (10 June 1955), 14 RIAA 236 (1955); Egypt v. USA, Award (8 June 1932), 2 RIAA 1161 (1932).
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dominant and effective nationality of the claimant/natural person is not that of the respondent state. This conclusion is derived from Article 8.1 CETA, which provides that a dual national is ‘deemed to be “exclusively” a natural person of the Party of his or her dominant and effective nationality’. By this exclusivity, the second nationality can only be regarded as ‘other Party’ for the purpose of Article 8.18, which provides an investor ‘may submit to the Tribunal constituted under this Section a claim that the “other Party” has breached […]’. The above point raises another important issue which the CETA is silent on, it 37 is not clear precisely at what time should the dominant and effective nationality be established in a particular State to acquire the exclusive nationality of that State Party for the purpose of submitting a claim under Article 8.18: should it have been established before the investment was made, or before the dispute arises, or by the time the claim was submitted which is much later in time. For instance, assuming the relevant time is the dominant and effective nationality before the investment was made, if the Tribunal finds this nationality to be the one of the respondent State Party, then its ratione personae jurisdiction would have failed, notwithstanding that at the time the dispute arises or when the claim was submitted, the dominant and effective nationality was no longer the one of the respondent state. In the absence of clear statutory guidance, it is left to the CETA ICS on which approach to follow. Finally, on natural persons, the CETA also clarifies the nationality status of persons 38 who are nationals of Canada or one of the EU Member States, and at the same time permanent residents of the other Party. Such persons are exclusively deemed as natural persons of the Party of their nationality or citizenship as applicable.51 bb) An Enterprise of a Party Besides the ‘natural persons’ of a Party who may qualify as an ‘investor of a Party’ 39 falling under the ratione personae scope of Article 8.18, the CETA likewise adds an ‘enterprise of a Party’ to that qualification (→ mn. 22). Typically, all IIAs include an ‘enterprise’ in their definition of the term ‘investor’. The term ‘enterprise’ used in the CETA is similar to the term used in other IIAs like juridical person,52 legal person,53 company54 or other organisation,55 however, the CETA has its own standard criteria that must be met to qualify as an enterprise of a Party. Under the CETA, two standard criteria must be met cumulatively to qualify as 40 an enterprise of a Party. The first is that the enterprise is constituted (incorporated) under the laws of a Party, while the second may be satisfied under two scenarios i.e. either by having substantial business activities in the territory of that Party of incorporation, or alternatively, the enterprise is ‘directly or indirectly owned or controlled by a natural person of that Party or by an enterprise mentioned under paragraph (a)’. 56 (1) Enterprise constituted under the laws of a Party (corporate nationality) Regarding the first criterion, it is quite common to find in most IIAs the require- 41 ment that an enterprise must possess legal personality by incorporation under the laws Article 8.1 CETA (See, Definition of natural person). Article 1.2 EU-Vietnam IPA, signed 30 June 2019 (not in force); Article 1 Armenia-Korea Rep. BIT, signed 19 October 2018 (in force since 3 October 2019). 53 Article 1.2 Argentina-United Arab Emirate BIT, signed 16 April 2018 (not in force). 54 Article I (1)(b) Ecuador-United States of America BIT, signed 27 August 1993 (terminated). 55 Article 1(7) ECT. 56 See, Article 8.1 CETA (Definition of Enterprise of a Party). 51
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of a contracting Party to qualify as an investor of that Party. 57 Such incorporation confers what is called a ‘corporate nationality’ on the incorporated enterprise, which is arguably the most important attribute the enterprise must possess to come under the ratione personae scope of a dispute tribunal under the relevant IIA. In principle, the corporate nationality should confer on the enterprise the same legal rights accorded to natural nationals of the contracting state of incorporation. 42 However, though it is common to have IIAs mandate incorporation under the laws of the State to acquire corporate nationality, whenever this is the sole requirement and not combined with additional requirements under the treaty, the risk of treaty abuse becomes very high, especially with investors who might take advantage of the sole criterion to set up shell companies in the territory of a state in order to gain treaty benefits with no economic link or benefit to the state of incorporation. 43 To curtail such abuse, the EU Commission as well as the European Parliament has averred that ‘shell companies’ will not be protected under EU investment agreements and thus the possibilities of ‘treaty shopping’ via shell companies should be excluded. 58 This interest has been preserved under the CETA with an additional criterion set out in the CETA as discussed below. (2) Having substantial business activities or being directly or indirectly owned or controlled by a natural person of that Party or by an enterprise mentioned under paragraph (a) Having Substantial Business Activities: As already indicated, having incorporation under the laws of a Party as the sole criterion for corporate nationality tends to be abused, like acquiring a corporate nationality of convenience just for treaty benefits with no economic presence in the State of nationality. To curtail such mischiefs, states often incorporate a combination of criteria for defining corporate nationality, rather than having a sole criterion under the IIA. Some of the additional criteria often used in IIAs are ‘the seat criterion, the control criterion, or the criterion of real economic activity’.59 The last criterion is closely related to what is adopted under the CETA i.e. having substantial business activity in the territory of a Party. 45 Unfortunately, the term ‘substantial business activity’ has not been defined in the CETA, this leaves the ICS with discretion to define what will constitute a substantial business activity needed to satisfy the corporate nationality of a Party. Notably, some investment dispute tribunals have answered similar questions on what constitutes a substantial business activity. For instance in Amto v. Ukraine,60 the tribunal took the view that there must simply be a business activity that need not be large, as the materiality and not the magnitude of the business is the decisive factor: 44
The ЕСТ does not contain a definition of 'substantial', nor does the Final Act of the European Energy Charter Conference that would serve as guidance for interpretation. As stated above, 57 See, definition ‘enterprise’: Article 3.1.1 Brazil-United Arab Emirates BIT (2019); definition ‘company of a Party’: Article 1 Australia-Uruguay BIT (2019); definition ‘legal person’: Article 1.2(b) Cabo Verde-Hungary BIT (2019); Noteworthy that there are exceptions to this common approach, for instance, Article 1.4 Argentina-Germany BIT (1991), provides that ‘companies’ means legal entities with or without legal personality that have their seat in the territory of one of the Contracting Parties. 58 European Parliament, European Parliament Resolution of 6 April 2011 on the future European international investment policy, 2010/2203 (INI), para.11, available at: https://op.europa.eu/en/publication-de tail/-/publication/7d0f4921-0c8a-11e2-8e28-01aa75ed71a1/language-en. 59 Perkams, ‘Protection for Legal Persons’ in Bungenberg et al. (eds), Handbook on International Investment Law (2015), 638 (638 ff.). 60 Limited Liability Company Amto v. Ukraine, Arbitration No. 080/2005, Final Award (26 March 2008).
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the purpose of Article 17(1) is to exclude from ЕСТ protection investors which have adopted a nationality of convenience. Accordingly, 'substantial' in this context means 'of substance, and not merely of form'. It does not mean 'large', and the materiality not the magnitude of the business activity is the decisive question. In the present case, the Tribunal is satisfied that the Claimant has substantial business activity in Latvia, on the basis of its investment related activities conducted from premises in Latvia, and involving the employment of a small but permanent staff. 61
In another decision adopting the Amto v. Ukraine award reasoning, an ICSID Tribunal concluded that while there is no definition of ‘substantial business activities’ in the ECT, ‘substantial’ in this context does relate to ‘substance and not merely of form’ or size.62 From the above cases cited, it appears that investment dispute tribunals have been quite liberal in their definition of the term ‘substantial business activity’. Particularly, the form, size or magnitude of a business activity does not matter as much as the substance delivered by that business. Thus, even a small-sized business carried out by a few personnel or employees of an enterprise will suffice as substantial, provided there is substance or materiality in that activity to the investment. For example, another ICSID Tribunal had held that though there exists no significant jurisprudence on the question of substantial business activities, tribunals are willing to find such activities exist based on relatively small activities both in terms of quality and quantity.63 Essentially, a substantial business activity from the modest available jurisprudence is determined by the substance or materiality of the activities involved, not in the form or size of the business. However, going by another ICSID decision, such activities would likely be those attributable alone to the enterprise, as an enterprise may not be able to aggregate to itself separate activities of other natural or legal persons as its own activities. Therefore, activities relating to a collective group of companies might be excluded for the purpose of determining the substantial business activities of an enterprise.64 Directly or indirectly owned or controlled by a natural person or an enterprise: Article 8.1 defines an enterprise of a Party to include an enterprise constituted under the laws of that Party and is directly or indirectly owned or controlled by a natural person of that Party or by an enterprise mentioned in paragraph (a). This inclusion means that even though an incorporated enterprise has no substantial business activity in the territory of a Party, such an enterprise may still be regarded as a qualifying investor if it is directly or indirectly owned or controlled by a natural person or an incorporated enterprise with substantial business activity in the territory of that Party. Also, an enterprise of a Party includes a locally established enterprise constituted under the laws of the respondent and that an investor of the other Party owns or controls directly or indirectly.65 From the above definitions, it is apparent that to successfully submit a claim as an enterprise, the element of ownership or control directly or indirectly is a decisive 61 Limited Liability Company Amto v. Ukraine, Arbitration No. 080/2005, Final Award (26 March 2008), para. 69. 62 Masdar Solar & Wind Cooperatief U.A. v. Kingdom of Spain, ICSID Case No. ARB/14/1, Award (16 May 2018), paras. 252 ff. 63 NextEra Energy Global Holdings B.V. and NextEra Energy Spain Holdings B.V. v. Kingdom of Spain, ICSID Case No. ARB/14/11, Decision on Jurisdiction, Liability and Quantum Principles (12 March 2019), para. 260. 64 See in this regard, Pac Rim Cayman LLC. v. Republic of El Salvador, ICSID Case No. ARB/09/12, Decision on Jurisdictional Objections (1 June 2012), paras. 4.66 f. 65 See, subsequent discussions on the meaning of ownership or control, directly or indirectly (→ mn. 101).
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factor. However, the definitions of these decisive terms are not given in the CETA text, leaving early CETA Tribunals to rely on existing jurisprudence on this question for guidance. Ownership is considered to include indirect or beneficial ownership66 and generally includes an ability to make key decisions such as the appointment of directors. The meaning of control is recognised as ‘an ability to exercise substantial influence over the legal entity’s management, operation and the selection of members of its board of directors or any other managing body’.67 It also includes an ability to exercise decisive influence68 or take key decisions of the company.69 Further, the meaning of direct and indirect control is subject to interpretation but a definition which has been put forward by a tribunal and can provide an understanding is that: ‘An entity that is directly controlled implies that there is no intermediary between the two entities, while an entity that is indirectly controlled implies that there is one or more intermediary entities between the two’.70 50 Notably, the use of the term ‘owned or controlled’ in Article 8.1 of the CETA at least suggest a legislative intent to have ownership and control distinct from each other. Therefore, satisfying one of it directly or indirectly will be sufficient to submit a claim as an aggrieved investor under the CETA.71 cc) A Party (Qualifying as an Investor) 51
Investment treaties are typically designed to promote and protect the activities of private foreign investors.72 However, besides a natural person or an enterprise of a Party, Article 8.1 CETA expressly states that an investor also means a ‘Party’. This suggests that any right or protection applicable to a private foreign investor under the CETA is also available to a CETA Party (i.e. Canada, EU or any of its Member States) who may qualify as an investor. Notably, the CETA has not clarified the circumstances that must exist for a Party to qualify as an investor within the scope of Chapter 8 CETA. The most probable hypothesis is that a Party may qualify as an investor when it concerns a State-Owned Enterprise (SOE). The topic of sovereign investors is one recurrent discussion in international investment law literature,73 this was also broadly discussed in a resolution adopted by the European Parliament on 9 July 2008, 74 as well as mentioned in the Resolution on the then-upcoming BIT negotiations with China 66 Plama Consortium Limited v. Bulgaria, ICSID, Case No. ARB/03/24, Decision on Jurisdiction (8 February 2005), para. 170. 67 Plama Consortium Limited v. Bulgaria, ICSID, Case No. ARB/03/24, Decision on Jurisdiction, 8 February 2005, para. 170. 68 Protocol of 11 March 1986 to the US-Egypt BIT, 1992. 69 Mori Bregante, Indirect ownership, 19. August 2020, https://jusmundi.com/en/document/wiki/en-i ndirect-ownership. 70 Aguas del Tunari v. Bolivia, ICSID Case No. ARB/02/3, Decision on Respondent’s Objections to Jurisdiction (21 October 2005), para. 236. 71 See Plama Consortium Limited v. Bulgaria, ICSID Case No. ARB/03/24, Decision on Jurisdiction (8 February 2005), para. 170: ‘In the Tribunal’s view, the word ‘or’ signifies that ownership and control are alternatives: in other words, only one need to be met for the first limb to be satisfied.’ 72 Dolzer and Schreuer, Principles of International investment Law (2008), 46. 73 See, e.g., the dedicated volume Sauvant, Sachs and Schmit Jongbloed (eds), Sovereign Investment: Concerns and Policy Reactions (2012); OECD, Guidelines on Corporate Governance of State-Owned Enterprises (2015), 14; Esplugues, Foreign Investment, Strategic Assets and National Security (2018), 189; Shapiro and Globerman, ‘The International Activities and Impacts of State-Owned Enterprises’ in Sauvant, Sachs and Jongbloed (eds), Sovereign Investment: Concerns and Policy Reactions (2012), 98 (132). 74 European Parliament, European Parliament Resolution of 9 July 2008 on sovereign wealth funds, B6-0304/2008/P6-TA-PROV(2008)0355, 41.
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of 9 October 2013.75 Notwithstanding this abundance of discussions, the role of SOEs as qualifying foreign investors remains controversial.76 Notably, the final CETA text permits enterprises to be owned by a government.77 For the purpose of submitting a claim as an investor under Section F, an SOE of a Party that offers investment insurance services will be entitled in all circumstances to the same rights as those of the insured investor including the right of claim under the ‘subrogation clause’.78 However, it is uncertain if this same benefit of the right to claim as an investor is accorded to SOEs not offering investment insurance services, as the Final CETA Text appears to have excluded such possibility. This conclusion may be drawn from the ordinary meaning of the term ‘disputing Party’ provided in Article 8.1 stating that for the purposes of ‘section F’ and without prejudice to Article 8.14 (subrogation), an investor does not include a Party. Giving its strong connection with the government, an SOE could be seen as a Party, barring it from submitting a claim under Section F, save the claim is brought under the subrogation clause. Despite this uncertainty, it can be legitimately argued that the ground for disqualifying an ‘SOE’ as an investor of a Party should not be based on its form of investment (whether for insurance services or not), but rather on whether the SOE is acting as an agent for the government or discharging an essentially governmental function. 79 Thus, what needs to be determined is whether the State-affiliated entity has acted on behalf of the state making a ‘political’ investment, or whether it has acted motivated by purely economic considerations. In concert with this view, the CSOB v. Slovakia tribunal concluded that the relevant inquiry is whether the activities are ‘essentially commercial rather than governmental in nature.’80 To be able to distinguish between economic and political purposes, it is necessary to be able to evaluate the activities and thus the objectives of the respective entity, which is only possible if information on these activities are available. Therefore transparency on the part of governments will go a long way in this regard. In a nutshell, even though the CETA is silent on this, an SOE driven by commercial objectives should not be precluded from submitting a claim to the ICS under Article 8.18 simply because of its affiliation with the government. The determination of whether an SOE qualifies as an investor within the meaning of CETA can take place already in the pre-establishment or pre-market-access phase by a governmental authority or irrespectively, by the ICS tribunal when deciding on jurisdiction.
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dd) Other Juridical Entities: (Non-Profit Organizations) Pursuant to Article 1.1 CETA, an enterprise is an entity constituted under the appli- 56 cable law, whether or not for profit and whether privately or governmentally owned or controlled. Thus, in principle, non-profit organizations are covered under the CETA 75 European Parliament, European Parliament Resolution of 9 October 2013 on the EU-China negotiations for a bilateral investment agreement, 2013/2674(RSP), points 12, 15 and 32, available at: https://ww w.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT+TA+P7-TA-2013-0411+0+DOC+XML+ V0//EN. 76 Alvarado Garzón, ‘From State-Controlled Enterprises to Investment Screening: Paving the Way for Stricter Rules on Foreign Investment’ (2019) TDM, 1, available at: https://www.transnational-dispute-m anagement.com/journal-advance-publication-article.asp?key=1772. 77 See Article 8.1 (definition of “Enterprise”), and Article 1.1 CETA. 78 See Article 8.14 CETA. 79 Broches, ‘The Convention on the Settlement of Investment Disputes between States and Nationals of other States’ (1972/II) 136 RC, 331 (331 ff.). 80 CSOB v. Slovakia Ceskoslovenska Obchodni Banka, A.S. v. The Slovak Republic, ICSID Case No. ARB/97/4.
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Investment Chapter. However, coverage under Section F could be expected only if the non-profit organization seeking protection fulfils the minimum criterion of engaging in a substantial business activity in the territory of a Party. For instance, a hospital that provides a ‘real economic activity’ in the form of services to the community could meet this criterion, even if it operates as a not-for-profit organisation. 81 b) The other Party 57
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Depending on the nationality of a claimant-investor, the ‘other Party’ and therefore the Respondent against whom a claim may be submitted as contemplated under Article 8.18 can either be one of the CETA Parties i.e. the EU or any of its Member States on the one hand, or Canada on the other hand.82 While the case of Canada as a responding Party may be a straight catch, suing the EU or any of its Member States as a responding Party surely requires more diligent prosecution. When the claimant-investor is a citizen of the EU, then the other Party/Respondent under Article 8.18 is undoubtedly ascertained to be Canada. This is irrespective of the case that the challenged measure at the center of the dispute arises from a Canadian provincial authority. However, on the reverse, when the claimant-investor is a Canadian national, the other Party is unascertained until after the procedure laid out in Article 8.21 CETA has been followed to determine whether the EU or one of its Member States is the proper respondent. As a mixed agreement (i.e. the EU and its member States on one side, and Canada on the other side), the CETA requires the independent ratification of the EU and its member States in line with Opinion 2/15 of the CJEU.83 The presence of the EU and its Member States as signatories and independent Parties to the CETA makes them both potential respondents, which creates an extra procedural hurdle for a Canadian claimant-investor who cannot ascertain beforehand the respondent to its claim until after fulfilling the procedure laid out in Article 8.21. Article 8.21 CETA introduced a special procedure for the determination of respondent between the EU and any of its Member States when a claim is lodged by a Canadian investor. This provision makes the determination of the proper respondent to a dispute under Article 8.18 the exclusive prerogative of the EU, save for when it fails to act on it. Such determination is not open to challenge by the disputing Parties or a review suo moto by the ICS Tribunal.84 As a first procedural step in identifying the respondent, a claimant after 90 days of failure to settle the dispute through a consultation request, shall deliver to the EU a notice requesting a determination of the respondent.85 The notice shall identify the impugned measures in respect of which the investor intends to submit the claim. 86 After this notice has been given, the EU will make a determination of the proper respondent to the claim, deciding whether the EU or a Member State shall be the 81 Konrad, ‘Protection for Non-Profit Organizations’ in Bungenberg et al. (eds), Handbook in International Investment Law, 555 (paras. 20 f.). 82 See, Article 1.1 CETA (General Definitions: Parties). 83 See, CJEU Opinion 2/15, 16.05.2017, Free Trade Agreement between the European Union and the Republic of Singapore, ECLI:EU:C:2017:376, paras. 286 ff. 84 See, Article 8.21 para. 6 CETA, pursuant to this provision, the EU or any of its Member States are estopped from challenging the determination of respondent made pursuant to Article 8.21 para. 3 or 4, likewise, pursuant to para. 7 the Tribunal is also bound by such determination. 85 Article 8.21 para. 1 CETA. 86 Article 8.21 para. 2 CETA.
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respondent.87 If such determination is not communicated by the EU after 50 days of delivering the notice for determination, the non-EU investor can go ahead with the respondent being a Member State if the measures identified in the notice are exclusively measures of a Member State, or with the EU as a respondent if the impugned measure identified in the notice includes measures of the EU.88 From the above procedural framework, certain features therein deserve special mention, firstly, the procedural requirement mandating a non-EU claimant to deliver a notice of request to the EU for the determination of respondent is a novel approach in comparison to the ECT. The ECT is another EU IIA also having the EU as well as its Member States as Parties but does not include a mandatory notice of request. 89 Within 50 days of submitting such request, the determination of an EU/Member State respondent is strictly an internal affair of the EU. Nothing in the relevant provision suggests that any information supplied in the notice by the non-EU claimant will be relevant in reaching a decision on the proper respondent to a claim under Article 8.18. The New EU-Mexico Agreement also adopts a similar approach.90 Secondly, it is worth noting that upon receipt of the notice requesting determination pursuant to Article 8.21, the CETA itself is silent about the internal procedure to be followed by the EU in determining the proper respondent. However, according to the statement of the EU Council of 27 October 2016,91 the procedure for determining an EU respondent is embedded in Regulation 912/2014.92 This EU regulation provides a framework for managing the financial responsibilities linked to ISDS tribunals constituted under EU IIAs, and part of its provisions lays out a procedure to determine in which cases the EU or any of its Member States can appear as respondents in EU IIAs. According to the provision of Regulation (EU) 912/2014, the EU shall act as the respondent where the dispute concerns treatment afforded by the institutions, bodies, offices, or agencies of the Union.93 However, where the dispute is concerning, fully or partially, a treatment afforded by a Member State, the EU through the Commission and the Member State concerned shall enter into consultations on the management of the dispute, putting into consideration any deadlines laid down in the Regulation and the agreement concerned.94 In determining the proper respondent in this case, as a general rule, the member state concerned shall act as the respondent, save for when within 45 days of receiving the notice for arbitration, the EU has made a determination to be the Respondent following earlier consultation with the Member State concerned on the dispute, 95 or when the Member State has confirmed to the Commission in writing that it does not intend to act as the respondent.96 Consequently, it can be inferred from these Article 8.21 para. 3 CETA. Article 8.21 para. 4 CETA. 89 Casteleiro, The International Responsibility of the European Union: From Competence to Normative Control (2016), 217. 90 Article 5, New EU-Mexico Agreement: The Agreement in Principle (Investment Dispute Resolution), available at: https://trade.ec.europa.eu/doclib/press/. 91 Council of the European Union, Statement of the Council on the Application of Regulation (EU) No 912/2014, 13436/1/16 REV 1, Brussels, 27 October 2016. 92 Regulation (EU) 912/2014 of the European Parliament and of the Council of 23 July 2014 establishing a framework for managing financial responsibility linked to investor-State dispute settlement tribunals established by international agreements to which the European Union is party, Official Journal of the European Union, L 257/121 (28 August 2014). 93 Article 4.1 Regulation (EU) 912/2014. 94 Article 5 and Article 6.2 Regulation (EU) 912/2014. 95 Article 9.1(a) Regulation (EU) 912/2014. 96 Article 9.1(b) Regulation (EU) 912/2014. 87
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rules that there is no possibility for both the EU and a Member State to be joined as Respondents in a dispute, and this same conclusion can be drawn from the CETA. 97
2. Subjects-Matter of Disputes Covered As earlier introduced in this contribution, the scope of jurisdiction of an investment tribunal can be bifurcated into several essential elements (→ mn. 17). The second essential element as captured under the CETA is the scope of possible claims i.e. subject matter which can be submitted to the ICS. Article 8.18 explicitly limits the ICS subject matter scope to examination of breaches concerning Section C (non-discriminatory treatment) obligation, and Section D (investment protection) obligation under the CETA.98 This provision makes Article 8.18 different from the analogous provisions found under the ICSID Convention or the ECT as they both make no reference to any specific subject matter out of which an investment dispute may be submitted.99 This specificity has narrowed down the scope of dispute settlement in the CETA, giving Parties the guarantee that only specific treaty claims will be admissible before the ICS. This in effect curtails the power of a CETA Tribunal to overreach its scope of jurisdiction, which has often been the case with investment tribunals dealing with broad ISDS clauses in other IIAs.100 68 Article 8.18 allows an investor of a Party only to submit a claim against the other Party for loss or damage suffered due to a breach of an obligation under: 101 67
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Section C (non-discriminatory treatment), with respect to the expansion, conduct, operation, management, maintenance, use, enjoyment and sale or disposal of its covered investment, or; Section D (investment protection).
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Section C of the CETA simply guarantees the right to ‘non-discriminatory treatment’ for the covered investments in the territory of the Parties (i.e. EU-Canada). This right to non-discrimination has a long-standing history in international trade relations which has become a central pillar of modern international economic law. 102 Although there is no universally agreed definition of this right, it has been noted by investment dispute tribunals that this right exists only in relation to unequal treatment of similarly situated groups or equal subjects.103 As will be revealed below, the CETA 97 Article 8.21 para. 3 CETA, ‘The European Union shall, after having made a determination, inform the investor as to whether the European Union “or” a Member State of the European Union shall be the respondent’. Also see similarly ‘para. 4’. 98 Walter and Andrisani, ‘Resolution of Investment Disputes’ in Mbengue and Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (2019), 185 (199). 99 See Article 25(1) ICSID Convention; Article 26(1) ECT. 100 See, Reinisch, ‘The Scope of Investor-State Dispute Settlement in International Investment Agreements’ (2013) 21(1) Asia Pac. L. Rev., 3 (3 ff.). 101 Section C and D of the CETA as currently headed appear to create a distinction between the purpose the two section serves, but of course a protection against discrimination is also an investment protection, so the separate heading between section C and D appears superfluous. 102 Diebold, ‘Standards of Non-Discrimination in International Economic Law’, (2011) 60 ICLQ, 831. 103 CMS Gas Transmission Company v. Republic of Argentina, ICSID Case No. ARB/01/8, Award (12 May 2005), para. 293; Metalpar S.A. and Buen Aire S.A. v. Argentine Republic, ICSID Case No. ARB/03/5, Award (6 June 2008), paras. 162 ff. (Noting that treating different categories of subjects differently is not unequal treatment; the principle of equality only applies between equal subjects, not between unequal subjects; Joseph Charles Lemire v. Ukraine II, ICSID Case No. ARB/06/18, Decision on Jurisdiction and Liability (14 January 2010), para. 261. (The ICSID Tribunal citing pertinent precedents, held discrimi-
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accords this right of non-discrimination chiefly in a similar pattern as adopted in most IIAs, through the traditional National Treatment (NT) and the Most Favoured Nation treatment (MFN) doctrine, with provisions on treatment of Senior management and boards of director positions. However, the non-discriminatory treatment obligations of both the EU, its Member 70 States and Canada towards the covered investments from investors are not absolute. The three non-discriminatory treatment standards guaranteed under Section C (i.e. NT, MFN, Senior management and boards of directors) are all subject to the reservations and exceptions declared by both CETA Parties under Article 8.15. 104 Also, the three aforementioned rights are only actionable with respect to the expansion, conduct, operation, management, maintenance, use, enjoyment and sale or disposal of a covered investment, while claims relating to establishment, or acquisition of an investment are excluded from the scope of Article 8.18. 105 aa) Breach of National Treatment (NT) Clause – Article 8.6 It is a standard treatment in international trade and investment law that Contract- 71 ing Parties to an IIA provide to foreign investors and their investments treatment no less favourable than that accorded to their own local investors and investments. 106 The CETA NT clause is found in Article 8.6. The NT obligation under the CETA seems to bare no significant difference from 72 that found in other existing IIAs. However, despite this general observation, the European Commission seemed to have achieved the demands given to it by the European Parliament and Council to negotiate a precisely worded national treatment clause. 107 This demand to the Commission ensured that the CETA text was finalized with the express mention of the specific situations to which national treatment shall apply i.e. establishment, acquisition, expansion, conduct, operation, management, maintenance, use, enjoyment and sale or disposal of their investments in its territory. 108 This suggests an exhaustive list outside of which no claim on breach of NT may arise. This specificity creates a ratione materiae scope of NT which can be a subject matter of claim under Article 8.18 CETA. This feature adopted in the CETA is quite different from the general NT standards found in many other IIAs without such an exhaustive list of specific situations to which the NT obligation applies.109 nation requires more than different treatment, to amount to discrimination, a case must be treated differently from similar cases without justification). 104 See Article 8.15 CETA (reservations and exceptions), also see in this regard, Annex 1 of the CETA Investment and Services Annexes, which details the reservations for existing measures and liberalisation commitments. 105 Canada’s statement on the implementation of CETA, Chapter 8 (Section F), available at: https://w ww.international.gc.ca/trade-commerce/trade-agreements-accords-commerciaux/agr-acc/ceta-aecg/ca nadian_statement-enonce_canadien.aspx?lang=eng#a13. 106 Bjorklund and Vanhonnaeker, ‘National Treatment’ in Mbengue and Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (2019), 45. 107 European Parliament, European Parliament Resolution of 6 April 2011 on the future European international investment policy, 2010/2203(INI), available at: https://www.europarl.europa.eu/sides/getD oc.do?pubRef=-//EP//TEXT+TA+P7-TA-2011-0141+0+DOC+XML+V0//EN. 108 Article 8.6 para. 1 CETA. 109 For example, see the national treatment provisions under Article 10(7) ECT (extends NT to ‘related activities including management, maintenance, use, enjoyment or disposal’. The word ‘related activities including …’ indicates the NT list here is not exhaustive but including the listed); Article 14.4 USMCA (extends NT to ‘establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments’. The word ‘other disposition of investments’ also indicates the list is non-exhaustive); Article 5.1 Brazil-India BIT, (extends NT to management, conduct, operation, sale or other disposition of investments. The word ‘other disposition also entails the listed NT coverage
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Another significant point worth noting is that, although Section C of the CETA provides quite an expansive list of cases whereby an investor of a Party should be accorded the NT, Article 8.18 has limited the cases whereby a claim could be brought against a State Party for breach of NT under section C to post-entry violations. In particular, the breach of NT in cases of ‘establishment’ and ‘acquisition’ has been excluded from the ratione materiae scope of Article 8.18. 110 bb) Breach of Most Favoured Nation (MFN) Clause – Article 8.7
Like NT standard, the most favoured nation (MFN) clause also has a very long history in international economic law and has been included quite conspicuously in almost all BITs.111 By its definition, any treatment in the form of favour, privilege, opportunity, advantage, given to investors or investments from a third state, same treatment must be accorded to investors and investment from the other contracting State. As described by the ICJ, the MFN clauses serve the ‘intention to establish and maintain at all times fundamental equality without discrimination as between the countries concerned’.112 This is the general form the CETA MFN clause is also expected to take. 75 However, in relation to Article 8.18, the submission of a claim for a breach of an MFN obligation in Section C has been narrowed down by the provisions of Article 8.7, most importantly with the provision that, the MFN treatment ‘does not include procedures for the resolution of investment disputes between investors and States provided for in other international investment treaties and other trade agreements’ 113. This provision ensures that not only the possibility to get access to the ICS and thus import jurisdiction is excluded where none would be available under the Investment Chapter of the CETA; it also affects mere procedural advantages such as avoiding waiting or consultation periods which most tribunals have characterized as mere admissibility conditions (→ Art. 8.7 mn. 50). This exclusion of procedural privileges from the CETA MFN clause seems to have put to rest the concerns raised by the undesirable consequence of the Maffezini award which allowed the extension of MFN treatment beyond substantive guarantees to procedural privileges.114 76 Also, substantive obligations offered by a Party in third Party IIAs cannot by themselves give rise to a breach of Article 8.7, ‘absent measures adopted or maintained by a Party pursuant to those obligations.’115 The legislative intent that can be gleaned from this provision is that a breach of the MFN clause that may lead to a claim under Article 8.18 has been limited to de facto and not de jure treatment. 116 Thus, the factual treatment accorded to third-Party investors and not abstract legal promises contained 74
is non-exhaustive); Article 2.1 Argentina-Japan BIT (no specificity at all included, simply requires NT be accorded ‘with respect to investment activities’). 110 In this regard, read together the provisions of Article 8.6 para. 1 CETA, and Article 8.18 para. 1(a). 111 Crépet-Daigremont, ‘Most Favoured National Treatment’ in Mbengue and Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (2019), 71; UNCTAD, Bilateral Investment Treaties 1959–1999 (2000), 20; UNCTAD, International Investment Agreements: Key Issues, Volume I (2004), 25; UNCTAD, Bilateral Investment Treaties 1995–2006: Trends in Investment Rulemaking (2007), 43; UNCTAD, Most-Favoured-Nation Treatment, 1. 112 Case Concerning Rights of Nationals of the United States of America in Morocco (France v. USA), Judgment, 27 August 1952, p. 192. 113 Article 8.7 para. 4 CETA. 114 Emilio Agustín Maffezini v. The Kingdom of Spain, ICSID Case No. ARB/97/7, Decision of the Tribunal on Objections to Jurisdiction (25 January 2000), paras. 54 ff. 115 Article 8.7 para. 4 CETA (second sentence). 116 Crépet-Daigremont, ‘Most Favoured National Treatment’ in Mbengue and Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (2019), 71 (88).
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in other IIAs constitutes a breach of Article 8.7.117 This restriction on the importation of substantive guarantees offered by Parties in third IIAs further limits the scope of investment protection that could be the subject of a claim under Article 8.18. Further, the CETA MFN clause does not apply when it concerns treatment related 77 to recognition in certain specified fields.118 Similarly, the arguments made earlier regarding the exclusion of NT with respect to ‘establishment and acquisition’ from the dispute settlement scope of Article 8.18 also apply to the MFN treatment (→ mn. 73).119 cc) Non-Imposition of Senior Management or Board Appointment – Article 8.8 The third non-discriminatory treatment accorded to covered investments in the 78 CETA which can give rise to a claim under Article 8.18 is the prohibition of any law or measure that requires the reservation of senior management or board of directors positions to individuals of any particular nationality.120 Although this freedom of appointment regardless of nationality is not novel, the CETA notably extends this treatment to both senior management and board of directors positions, which is unlike several other IIAs that only allow such liberties for senior management positions but not extended to the board of directors.121 This treatment seeks to further enhance the investors' ability to exercise full con- 79 trol over their investment without undue impairment through mandatory nationality appointments, particularly from the host-state. Any such impairment will be inconsistent with the substantive rights of an investor under the CETA, which can give rise to a claim under Article 8.18 where the investor claims to have suffered a loss or damage due to the alleged imposition of appointment. b) Breach of Obligation under Section D Resulting in Loss or Damage A breach of an obligation under Section D CETA simply amounts to a breach of the 80 investment protection standards Parties are obliged to accord to covered investments within their respective territories. The investment protection standards under the 117 Canada has maintained a similar position in some NAFTA cases, arguing that it requires a comparison between actual treatment and not between treaty standards. See Lévesque and Newcombe, ‘Canada’ in Brown (ed), Commentaries on Selected Model Investment Treaties (2013). 53 (78); See also, European Commission, Investment provisions in the EU-Canada free trade agreement (CETA), 1 February 2016, available at https://trade.ec.europa.eu/doclib/docs/2013/november/tradoc_151918.pdf: ‘CETA does not allow investors to ‘import’ and use in the dispute settlement procedures the substantive provisions from other agreements (e.g. from Treaties of EU Member States) that they consider are more advantageous to their interests.’ 118 Article 8.7 para. 3. (MFN treatment): ‘does not apply to treatment accorded by a Party providing for recognition, including through an arrangement or agreement with a third country that recognises the accreditation of testing and analysis services and service suppliers, the accreditation of repair and maintenance services and service suppliers, as well as the certification of the qualifications of or the results of or work done by those accredited services and service supplier’. 119 Canada’s statement on the implementation of CETA, Chapter 8 (Section F), available at: https://w ww.international.gc.ca/trade-commerce/trade-agreements-accords-commerciaux/agr-acc/ceta-aecg/ca nadian_statement-enonce_canadien.aspx?lang=eng#a13: ‘An investor may bring a claim in respect of its covered investment for a breach by a Party of the following substantive obligations: National treatment, “most-favoured-nation treatment” and senior management and boards of directors…An investor cannot bring a claim that relates to the establishment or the acquisition of an investment’ [emphasis added]. 120 Article 8.8 CETA. 121 See, Article 14.11 para. 1 and 2 USMCA (investment chapter); Article V(1) and (2) Canada-Costa Rica BIT (1998); Article 9(1) and (2) US-Uruguay BIT (2005); Article 8(1) and (2) Canada-Nigeria BIT (2014); Article V(1)(a) and (b) Canada-South Africa BIT (1995); Article V(1)(a) and (b) Canada-Thailand BIT (1995).
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CETA include Fair and Equitable Treatment and Full Protection and Security (Article 8.10), Compensation for losses (Article 8.11), Expropriation (Article 8.12), Transfers (Article 8.13), and Subrogation (Article 8.14).122 81 In relation to Article 8.18, a significant point to note is that the right of an investor to submit a claim for a breach of Section D has been limited by the statutory recognition that none of the rights under Section D shall preclude a state’s right to regulate for public policy objectives. Precisely, Article 8.9(1) CETA affirms the Parties’ right to regulate within their territories ‘to achieve legitimate policy objectives’, such as the protection of public health, safety, the environment or public morals, social or consumer protection, or the promotion and protection of cultural diversity. For greater certainty, Article 8.9(2) further clarifies that the mere fact that a Party regulates, including through a modification to its laws which negatively affects an investment or interferes with an investor's expectations, including its expectations of profits, does not amount to a breach of an obligation under Section D. 82 Notably, Article 8.9(1-2) CETA does not operate as a general exception clause excluding a Contracting Party’s liability under Section D, but rather serves interpretative purposes that adjudicators must take into account when investment protection standards clash with a host State’s regulatory measure (→ Art. 8.9 mn. 14). 123 Giving the interpretive purpose of Article 8.9, an important question that arises is to what extent can the Parties’ right to regulate impact on the ICS power to entertain jurisdiction pursuant to Article 8.18 over an alleged breach of Section D. 83 From the CJEU observation in Opinion 1/17 in relation to Article 8.9(1-2), Parties have taken care to ensure that CETA tribunals: […] have no jurisdiction to call into question the choices democratically made within a Party relating to, inter alia, the level of protection of public order or public safety, the protection of public morals, the protection of health and life of humans and animals, the preservation of food safety, protection of plants and the environment, welfare at work, product safety, consumer protection or, equally, fundamental rights.124
Therefore, at least from an EU law perspective, Article 8.9(1-2) confirms that the CETA ICS will have no jurisdiction to review democratically made choices of Parties in relation to the level of protection pursued to achieve legitimate public policy objectives within their territories. Opinion 1/17 suggests that public interest consideration including the level of protection should be the domaine réservé of States and accordingly, adjudicators seized under the CETA should observe deference when reviewing regulatory choices of the Contracting Parties (→ Art. 8.9 mn. 19). 84 Nevertheless, the right to regulate is not unlimited and must be exercised within its boundaries.125 Annex 8-A 3 of the CETA (though related to expropriation) offers a possible guide on what could be the expected boundaries of State Parties’ power to regulate. Essentially, aside from pursuing a ‘legitimate public welfare objective’, the regulated measure must not be ‘manifestly excessive’, nor ‘discriminatory’. 126 The proSection D, CETA. See Titi, ‘The Right to Regulate’ in Mbengue and Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (2019), 159 (171). 124 CJEU, Opinion 1/17, 30.04.2019, ECLI:EU:C:2019:341, para. 160. 125 ADC Affiliate Limited and ADC & ADMC Management Limited v. Republic of Hungary, ICSID Case No. ARB/03/16, Award, 2 October 2006, para. 423; Marfin Investment Group Holdings S.A. and others v. Republic of Cyprus, ICSID Case No. ARB/13/27, Award, 26 July 2018, para. 870 (the ICSID Tribunal finds that unless the regulatory measure at issue is shown to be arbitrary, capricious and unrelated to a rational policy, or manifestly lacking even-handedness, a tribunal should not intervene). 126 Annex 8-A 3, provides: ‘For greater certainty, except in the rare circumstance when the impact of a measure or series of measures is so severe in light of its purpose that it appears manifestly excessive, 122 123
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portionality analysis typically applied by investment tribunals in disputes concerning states’ right to regulate127 can also be instructive to adjudicators when interpreting investors’ rights under the CETA. However, it must be noted that a full proportionality balancing between public and private interests may go beyond the ICS powers. Following CJEU Opinion 1/17, a proportionality test stricto sensu does not appear to be permissible when applying the investment protection standards of CETA (→ Art. 8.9 mn. 21).
3. Covered Investment The notion of ‘covered investment’ cannot be discussed without first considering 85 what qualifies as an ‘investment’ itself under the CETA, because if no investment exists according to the definition provided in the treaty, then by effect there is nothing to cover. Accordingly, Article 8.1 CETA provides: ‘Investment means every kind of asset that an investor owns or controls, directly or indirectly, which has the characteristics of an investment, such as the commitment of capital or other resources, the expectation of gain or profit, or the assumption of risk, and a certain duration. Forms that an investment may take include […]’. The above definition foresees an asset-based openlist approach and contains a conceptual chapeau that defines ‘investment', followed by illustrative examples (→ Art. 8.1 mn. 201 ff.).128 However, the qualification of an asset as an ‘investment’ is not sufficient for it to enjoy the protection under Chapter 8 since, in addition, an investment must qualify as a ‘covered investment’.129 Article 8.18 requires that the investor must have suffered a loss in relation to its ‘covered investment’ as a result of the alleged breach. Hence, the determination of a covered investment in addition to having a qualifying investment under the CETA is of paramount importance to establish the jurisdiction of a CETA tribunal. To determine what qualifies as a covered investment for the purpose of Article 86 8.18, a tribunal shall be guided by the provisions of Article 8.1 which stipulates that a covered investment means with respect to a Party, an investment: (a) (b) (c) (d)
in its territory; made in accordance with the applicable law at the time the investment is made; directly or indirectly owned or controlled by an investor of the other Party; and existing on the date of entry into force of this Agreement, or made or acquired thereafter;
Although Article 8.18 is silent on this point, the above definition of a covered 87 investment is indicative of the ICS territorial scope (a); temporal scope (b); and additional requirements for jurisdiction, such as conformity with the applicable law (c); including ownership or control (d).
non-discriminatory measures of a Party that are designed and applied to protect legitimate public welfare objectives, such as health, safety and the environment, do not constitute indirect expropriations.’ 127 Técnicas Medioambientales Tecmed SA v. United Mexican States, ICSID Case No. ARB (AF)/00/2, Award (29 May 2003), para. 122; LG&E Capital v. Argentina, ICSID Case No. ARB/02/1, Decision on Liability (3 October 2006), para. 195; PL Holding Sarl v. Republic of Poland, SCC Case No V2014/163, Partial Award, (28 June 2017), para. 355. 128 See further, Bungenberg, ‘The Scope of Application of EU (Model) Investment Agreements’ (2014) 15, JWIT, 402 (415 f.). 129 Bischoff and Wühler, ‘The Notion of Investment’, in Mbengue and Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (2019), 19 (21).
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a) Territorial Coverage (ratione loci) The determination of a covered investment implicitly defines the territorial limits of a tribunal’s jurisdiction over a submitted claim under Article 8.18. Pursuant to Article 8.1, the jurisdictional scope of a tribunal over a claim is limited to investments made in the territory of a Party. Only then can the investment fall under the protection of a Party to trigger the obligations of that Party towards the investment under the CETA. This is keeping with the principles of jurisdiction in international law that States cannot reasonably be expected to protect investments outside their territorial jurisdiction.130 89 While the determination of an investment located in the territory of a Party should not be problematic,131 especially since the CETA explicitly offers guidance in this regard,132 some cases might still prove quite challenging. In practice, cases involving financial instruments or payments, which involved no direct activity in the host state have been fairly disputed on the issue of territorial nexus.133 For instance, the respondent State in Inmaris v. Ukraine objected to the Tribunal’s jurisdiction on the basis that the claimant’s investment was not made in its territory due to the fact that the funds transferred for a reconstruction project in its territory were not paid directly to Ukraine, but to another country (Germany) through a trustee contract. 134 Similarly in Abaclat et al. v. Argentina, the respondent State also contended that the claimant's investment (purchase of security bonds) was not made in its territory because there was no transfer of money to Argentina but to a location outside Argentina beyond its territorial scope.135 90 In both cases cited above, the tribunals decided in favour of the claimants. For example, the Abaclat tribunal concurring with another similar decision in Fedax v. Republic of Venezuela136 held that: 88
[…] the determination of the place of the investment firstly depends on the nature of such investment. With regard to an investment of a purely financial nature, the relevant criteria cannot be the same as those applying to an investment consisting of business operations and/or involving manpower and property. With regard to investments of a purely financial nature, the relevant criteria should be where and/or for the benefit of whom the funds are ultimately used, and not the place where the funds were paid out or transferred. Thus, the relevant question is where the invested funds ultimately made available to the Host State and did they support the latter‘s economic development?
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Therefore, in disputes surrounding purely financial investments, it is possible to foresee a much broader interpretation of the territorial link, without requiring evidence of direct physical contribution in the territory of a Party to constitute a covered investment for the purposes of submitting a claim under Article 8.18. Besides intangi130 Waibel, ‘Investment Arbitration: Jurisdiction and Admissibility’ in Bungenberg et. al. (ed), Handbook on International Investment Law (2015), 1212 (1248). 131 See, Knahr, ‘The Territorial Nexus between an investment and the host state’ in Bungenberg et. al. (ed), Handbook on International Investment Law (2015), 590 (590 ff.). 132 See, footnote 5 of Article 8.2 CETA. 133 Bischoff and Wühler, ‘The Notion of Investment’, in Mbengue and Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (2019), 19 (30); also cf. → Art. 8.2 mn. 65 ff. 134 Inmaris Perestroika Sailing Maritime Services GmbH and Others v. Ukraine, ICSID Case No. ARB/08/8, Decision on Jurisdiction, 8 March 2010, paras. 123 ff. 135 Abaclat and Others v. Argentina, ICSID Case No. ARB/07/5, Decision on Jurisdiction, 4 August 2011, paras. 341 ff. 136 Fedax N.V. v. Republic of Venezuela, ICSID Case No. ARB/96/3, Decision of the Tribunal on Objections to Jurisdiction, 11 July 1997, para. 41.
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ble assets, also investments involving physical contribution is not immune from ‘ratione loci’ challenge (→ Art. 8.2 mn. 67 ff.). b) Temporal Coverage Pursuant to Article 8.18 CETA, it is settled that a claim can only be submitted following a breach of the substantive obligations under Section C or D resulting in loss or damage to a covered investment. However, at what point do these substantive obligations become binding and enforceable against a Party, Article 8.18 is silent on that point. Notably, the definition of a covered investment in Article 8.1 offers us a clue as to the temporal application of the obligations under Section C and D, it stipulates that a covered investment is one that is: ‘existing on the date of entry into force of this Agreement, or made or acquired thereafter’. Concerning the application to pre-existing investments, the obligations of Section C and D may only become binding on the Parties with respect to measures adopted after the entry into force of the CETA having a negative effect on an investment, and not before that. It is a settled principle of international law that a treaty shall not have a retroactive effect.137 The same principle is reflected in Article 13 of the ILC Draft Articles on Responsibility of States for Internationally Wrongful Acts, stating that: ‘An act of a State does not constitute a breach of an international obligation unless the State is bound by the obligation in question at the time the act occurs.’ 138 Several ISDS tribunals have also affirmed this position. For instance, NAFTA Tribunals have applied the non-retroactive rule notwithstanding a provision in the NAFTA similar to Article 8.1 CETA providing that ‘this Chapter covers investments existing on the date of entry into force of this Agreement as well as investments made or acquired thereafter.139 However, the non-retroactive rule may not preclude the consideration of acts that occurred prior to the entry into force which has a continuous connection to the claim or breach that took place after the entry into force. An act pre-dating a treaty's entry into force can be taken into account to the extent that they may assist in understanding the significance of acts that do fall within the scope of the treaty ratione temporis.140
137 Now codifed in Article 28 VCLT (1969): ‘Unless a different intention appears from the treaty or is otherwise established, its provisions do not bind a party in relation to any act or fact which took place or any situation which ceased to exist before the date of the entry into force of the treaty with respect to that party.’ 138 See further the commentary to Article 13, Draft Articles on Responsibility of States for Internationally Wrongful Acts, with commentaries (2001). 139 See, Article 1101 NAFTA (Investment coverage); Concerning its interpretation, see: Marvin Roy Feldman Karpa v. United Mexican States, ICSID Case No. ARB(AF)/99/1, Interim Decision on Preliminary Jurisdictional Issues, 6 December 2000, para. 62, The Tribunal concluded i.a.: ‘[…] the scope of application of NAFTA in terms of time defines also the jurisdiction of the Tribunal ratione temporis. Given that NAFTA came into force on January 1, 1994, no obligations adopted under NAFTA existed, and the Tribunal’s jurisdiction does not extend, before that date. NAFTA itself did not purport to have any retroactive effect. Accordingly, this Tribunal may not deal with acts or omissions that occurred before January 1, 1994’; also see, Mondev International Ltd. v. United States of America, ICSID Case No. ARB(AF)/99/2, Award, 11 October 2002, paras. 57 f. 140 See, Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v. Islamic Republic of Pakistan, ICSID Case No. ARB/03/29, Award, 27 August 2009, paras. 132, 283.
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c) In Accordance with the Applicable Law The CETA has set an additional jurisdictional hurdle for claimant-investors by requiring that a covered investment must be one made in accordance with the applicable law at the time the investment was made.141 Therefore, as one of the first steps, the relevant applicable law is to be determined in order to establish whether an investment has passed the legal conformity test. 97 The CETA does not furnish conflict of law rules to derive the applicable law concerning the making of an investment. Thus, in the absence of such rules, a CETA tribunal would have to exercise its discretion and possibly seek guidance from past ISDS case-law. Often, when investment tribunals are faced with similar compliance provisions, the focus is on whether the investment was incorporated in accordance with the laws of a host state.142 The emphasis is to be made on the fact that the ‘in accordance with the law’ provisions usually refer to the legality (or illegality) of the making of the investment, rather than qualification of a certain act as an ‘investment’ under the respective national law.143 The question of a qualification of ‘investment’ for the purposes of international investment law would usually be governed by laws other than that of the host State, e.g. by applicable investment treaties. 98 Furthermore, it is argued that such legality requirements do not concern any subsequent conduct of an investor or the operation of an investment. In other words, anything done or not done after the investment had already been made would not usually invalidate it.144 99 Additionally, under contemporary international law, a certain degree of severity of violations of applicable laws by investors is demanded in order to serve as grounds for challenging the jurisdiction of arbitral tribunals. Examples of such violations include corruption, fraud, or other grave violations of domestic and international laws. The existence of such unlawful acts should be duly proven by the alleging Party to the satisfaction of the arbitral tribunal.145 Minor infractions of the laws of the host state would usually not be sufficient to render an investment illegal for the purposes of protection under Article 8.18 of the CETA. Also, there is an existing view that where failure to comply with a law of the host state is due to the failure of the host itself, then such failure may not deny an investor of its rightful claim because a host state may not avoid jurisdiction under an investment treaty by invoking its own failure to comply 96
Article 8.1 CETA (Definition: covered investment). Diel-Gligor and Hennecke, ‘Investment in accordance with the law’ in Bungenberg et. al. (ed), Handbook on International Investment Law (2015), 566 (569). 143 Salini Costruttori S.p.A. and Italstrade S.p.A. v. Kingdom of Morocco [I], ICSID Case No. ARB/00/4, Decision on Jurisdiction, 31 July 2001, para. 46: ‘The Tribunal cannot follow the Kingdom of Morocco in its view that paragraph 1 of Article 1 refers to the law of the host State for the definition of "investment". In focusing on “the categories of invested assets (...) in accordance with the laws and regulations of the aforementioned party”, this provision refers to the validity of the investment and not to its definition. More specifically, it seeks to prevent the Bilateral Treaty from protecting investments that should not be protected, particularly because they would be illegal.’ 144 See, Vannessa Ventures Ltd. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/04/6, Award, 16 January 2013, para. 167; Teinver S.A., Transportes de Cercanías S.A. and Autobuses Urbanos del Sur S.A. v. Argentine Republic, ICSID Case No. ARB/09/1, Decision on Jurisdiction, 21 December 2012, para. 257; Gustav F.W. Hamester GmbH & Co. KG v. Republic of Ghana, ICSID Case No. ARB/07/24, Award, 18 June 2010, para. 127; Bernhard von Pezold and others v. Republic of Zimbabwe, ICSID Case No. ARB/10/15, Award, 28 July 2015, para. 420. 145 Energoalians SARL v. Republic of Moldova, UNCITRAL, Award, 23 October 2013, para. 261. 141
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with the domestic law.146 A further elaboration on illegal investments is addressed later in this contribution (→ mn. 107 ff.). From the foregoing discussions, it is hardly debated that conformity with the appli- 100 cable law is compulsory for an investment claim to fall within the jurisdictional scope of Article 8.18. Although the claiming investor would have to satisfy a CETA tribunal of its standing on at least a prima facie basis, the burden of proving illegality would nevertheless usually lie on the respondent State. The current investment arbitration practice is not consistent as to the applicable standard of proof, however, some tribunals have required a high threshold of proof to be met for allegations of illegality. 147 Finally, if and when an investment had been found to be made unlawfully, the tribunal would have to ultimately refuse to exercise jurisdiction over such investment claims, as they would be precluded under the CETA and general principles of international law.148 d) Owned or Controlled (directly or indirectly) According to Article 8.1, for an investment to qualify as a covered investment, such 101 must be directly or indirectly owned or controlled by an investor of a Party (→ mn. 21 ff.). This factor makes ‘ownership’ or ‘control’ of an investment an essential jurisdictional requirement that must exist before an investor can successfully submit a claim pursuant to Article 8.18. However, the CETA does not define the terms ‘owned or controlled’, and likewise there are no general or conventional rules of international law with specific rules on defining these terms.149 Without any statutory guidance, the next available interpretive guide will be case- 102 law. Considering ISDS case-law, the term ownership ‘or’ control has been viewed as indicating a legislative intent to require only one of these conditions be met to have a covered investment. This was the view adopted by the tribunal in Plama Consortium Limited v. Bulgaria, in the tribunal’s view, the word ‘or’ signifies that ownership and control are alternatives: in other words, only one needs to be met. 150 The ICSID Tribunal further held that: […] ownership includes indirect and beneficial ownership; and control includes control in fact, including an ability to exercise substantial influence over the legal entity's management, operation and the selection of members of its board of directors or any other managing body[…] 151
With respect to ownership, following the above reasoning, both legal or beneficial 103 ownership in an investment could be sufficient to afford an investor the right of claim under Article 8.18. This is in fact possible since Article 8.1 also permits indirect ownership. Concerning ‘control’, the above reasoning (→ mn. 102) may also be applied to affirm that both legal or de-facto control is sufficient to satisfy the 146 Karkey Karadeniz Elektrik Uretim A.S. v. Islamic Republic of Pakistan, ICSID Case No. ARB/13/1, Award, 22 August 2017, paras. 624 ff.; Ioannis Kardassopoulos v. Georgia, ICSID Case No. ARB/05/18, Decision on Jurisdiction, 6 July 2007, para. 202. 147 Energoalians SARL v. Republic of Moldova, UNCITRAL, Award, 23 October 2013, para. 261; Inceysa Vallisoletana S.L. v. Republic of El Salvador, ICSID Case No. ARB/03/26, 2 August 2006, para. 202. 148 cf. Bungenberg, ‘The Scope of Application of EU (Model) Investment Agreements’ (2014) 15, JWIT, 402 (418 f). 149 See, as observed by the PCA Tribunal in: Mason Capital L.P. and Mason Management LLC v. Republic of Korea, PCA Case No. 2018-55, Decision on Respondent Preliminary Objections, 22 December 2019, para. 135. 150 Plama Consortium Limited v. Bulgaria, ICSID Case No. ARB/03/24, Decision on Jurisdiction, 8 February 2005, para. 170. 151 Plama Consortium Limited v. Bulgaria, ICSID Case No. ARB/03/24, Decision on Jurisdiction, 8 February 2005, para. 170.
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control requirement for a covered investment under Article 8.1 CETA. Since the term ‘control’, is not defined under the CETA, then going by its ordinary meaning, ‘control’ can be exercised in various forms one of which is by facts (de-facto). However, in the absence of finding a legal control, a tribunal must be satisfied that a de-facto control has been proved beyond a reasonable doubt to establish the claimants standing,152 and in both cases i.e. ownership or control, the burden of proof should rest on the claimant asserting its standing before the tribunal. As noted by the tribunal in Vito Gallo, it is well recognised in investment arbitration decisions that tribunals lack jurisdiction unless the claimant can establish that the investment was owned or controlled by the investor.153 104 Also, it is worth considering the significance of timing on ownership or control of an investment for the purpose of submitting a claim under Article 8.18: should ownership or control be required at the time the investment was made or acquired, or at the time of the alleged breach, or at a much later date when the disputed claim was submitted. This consideration is especially important for scenarios which the CETA is silent about, like ‘assignment of claims’, or even in a simple restructuring of investment, where a would-be claimant may not qualify as an investor with legal standing, if ownership or control is required at the time the investment (subject matter of claim) was made, or required at the time of the breach. 105 In order not to impose an outright ban on cases involving assignment of claims, or other legitimate scenarios of change in ownership or control, the relevant time for the purpose of Article 8.18 should be ownership or control at the time the claim was submitted. A similar conclusion was reached by the ICSID tribunal in El Paso v. Argentina, where the panel concluded that ownership is required at the time of consent to arbitration and registration of the claim.154 An exception could however be allowed to preclude jurisdiction in instances where a claimant’s standing was acquired through abuse of process or in breach of good faith. More so, this approach should be preferred since Article 8.18 already provides an adequate safeguard to exclude claims that may amount to an abuse of process. An otherwise legitimate claim should not just be denied the benefits of a covered investment simply because the investment was owned or controlled out of time.
II. Limits on the Scope of Jurisdiction 106
Even after a claimant has satisfied all the foregoing requirements for invoking a tribunal’s jurisdiction, a claim will still be inadmissible under Article 8.18 if the claim is founded upon illegality i.e. without clean hands (1) or the claim relates to debt restructuring not submitted in accordance with Annex 8-B(2).
1. Claims Founded on Illegality (Applying the Clean Hands Doctrine) 107
Although the term ‘clean hands’ does not expressly appear in Article 8.18, by providing that an investor may not submit a claim ‘if the investment has been made through fraudulent misrepresentation, concealment, corruption, or conduct amount152 See, International Thunderbird Gaming Corporation v. Mexico, UNCITRAL, Arbitral Award, 26 January 2006, para. 106. 153 See, Vito G. Gallo v. Government of Canada, PCA Case No. 2008-03, Award, 15 September 2011, para. 328. 154 El Paso Energy International Company v. Argentine Republic, ICSID Case No. ARB/03/15, Award, 31 October 2011, para. 146.
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ing to an abuse of process’,155 Article 8.18 enlists a number of unlawful conducts which if committed by an investor will render a claim founded on such illegality inadmissible following the doctrine of clean hands. This doctrine has deep roots stemming from different Roman law principles which 108 include i.a.: ex delicto non orituractio, meaning (‘an unlawful act cannot serve as the basis of an action at law’); and ex turpicausa non oritur actio, meaning (‘an action cannot arise from a dishonourable cause’); in English law, it is an established legal principle that he who comes to equity must come with clean hands. 156 Essentially, the clean hands doctrine precludes a claimant from benefitting from its own wrong. Since the clean hands doctrine is derived from domestic legal principles, its general 109 application under international law remains unsettled.157 However, what is settled in international investment arbitration is that a claim cannot arise out of an illegality, which is also in consonance with the doctrine of clean hands. Therefore, several ISDS tribunals have applied it in the context of the treaty requirement that a covered investment must be made ‘in accordance with the laws’ of the host state. 158 However, this interpretation is not void of criticisms, as there are dissenting arguments such as those advanced by Cremades in Fraport AG v. Philippines,159 and by Douglas.160 These dissenting views have however not changed the majority opinion that the clean hands obligation is derived from the legality requirement in a treaty that an investment is made ‘in accordance with the laws’ of the host state.161 Giving a critical look at the additional limitation on the scope of Article 8.18 110 regarding the exclusion of investments founded on illegality such as fraud, misrepresentation, corruption, and other grave misconduct, it appears that this provision is a tautology of what is already guaranteed in the definition of a covered investment under Article 8.1 which requires an investment to be ‘made in accordance with the applicable law at the time the investment is made’. There is no doubt that the laws of Article 8.18 para. 3 CETA. Llamzon, ‘Yukos Universal Limited (Isle of Man) v. The Russian Federation: The State of the “Unclean Hands” Doctrine in International Investment Law’ (2015) 30(2) ICSID Rev., 315 (316). 157 See, South American Silver Limited v. Plurinational State of Bolivia, PCA Case No. 2013-15, Award, 30 August 2018, paras. 444 f. 158 Llamzon and Sinclair, ‘Investor Wrongdoing in Investment Arbitration: Standards Governing Issues of Corruption, Fraud, Misrepresentation and Other Investor Misconduct’ in van den Berg (ed), Legitimacy: Myths, Realities, Challenges (2015), 451 (513). 159 Fraport AG v. the Republic of the Philippines, ICSID Case No. ARB/03/25, Dissenting Opinion of Bernardo M. Cremades, paras. 12 ff. (Opining that clauses such as ‘in accordance with the laws of contracting states’ by ordinary meaning simply defines what is accepted as an investment according to the laws of the host state, because certain assets cannot be owned by foreign investors according to the laws of the land e.g. land, natural resources, public utility franchise, shareholding in corporations exceeding constitutional restrictions etc. This should not be misunderstood for illegality). 160 Douglas, ‘The Plea of Illegality in Investment Treaty Arbitration’ (2014) 29(1), ICSID Rev., 155 (158) (Douglas is suggesting that the doctrine of separability rooted in commercial arbitration should also apply to investment arbitration, ‘the tribunal’s adjudicative power is undiminished by the possibility that the transaction may ultimately be adjudged to be void for illegality. The illegality of the underlying transaction does not, in other words, infect the validity of the arbitration agreement’). 161 Inceysa Vallisoletana S.L. v. Republic of El Salvador, ICSID Case No. ARB/03/26, 2 August 2006, paras. 248 ff.; Plama Consortium Limited v. Republic of Bulgaria, ICSID Case No. ARB/03/24, Award, 27 August 2008, paras. 133 ff. (Due to claimant’s material misrepresentation to the respondent-state, the tribunal found the investment was not made in accordance with the laws of the host State and international law, therefore finds the claim inadmissible); Veteran Petroleum Limited (Cyprus) v. Russia, PCA Case No. 2005-05/AA228, Judgment of Court of Appeal in the Hague II, 18 February 2020, para. 5.1.11.5 (Here, the Hague CA affirmed that a claim founded on illegality will bar jurisdiction if the treaty contains the requirement that an investment must have been made in accordance with the law of the host state). 155
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both Canada and EU Member States prohibit an investment based on illegality such as fraud, corruption, etc. Therefore, it is expected that such investments tainted with unclean hands cannot qualify as a covered investment for the purposes of Article 8.18. This opinion is also well established in ISDS case-laws as discussed above. 111 The only factor that could have made this extra limitation to jurisdiction in Article 8.18 innovative is if the legality requirement extended ex-post, but so far that is not the indication from the text. In practice, it is recognised that illegal acts pertaining to the acquisition of an investment are especially relevant for a tribunal’s jurisdiction, but unlawful acts ex-post the acquisition of investment is a question for the merits. As observed by the tribunal in Urbaser v. Argentina, the requirement for compliance with the laws of the host State is focused on the entry and the initiation of the investment, the subsequent conduct and operation of the investment is relevant within the framework of the application of the BIT and comes under the tribunal’s jurisdiction on the merits.162 Apparently, this is also the intended effect of Article 8.1 as it explicitly requires compliance with the applicable law at the time the investment was made. Although, Article 8.18 does not make any specific reference to the time the investment was made, by stating that ‘an investor may not submit a claim under this Section if the investment has been ‘made’ through fraudulent misrepresentation […]’, the reference to the word ‘made’ also denotes the point of acquisition. Therefore, subsequent unlawful conduct may not impugn the jurisdiction of a tribunal under Article 8.18(3) CETA. 112 However, it is arguable that an investor’s obligation to conduct or operate an investment in good faith without sharp practices amounting to grave misconduct such as those listed in Article 8.18(3) can extend beyond the time when the investment was made. In principle, an investment tribunal is constituted to protect an ‘investment’, but not an ‘illegality’, therefore once a responding Party can show overwhelming evidence that an investment is tainted in illegal conducts such as fraudulent misrepresentation, concealment, corruption, or conduct amounting to an abuse of process, such impugned conducts can render whatever argument that is left for the merits mute, no matter the timing when it occurs.
2. Exclusion of Debt Restructuring Claims save for Violating Article 8.6 or 8.7 113
The final limitation to the scope of jurisdiction under Article 8.18 is with respect to claims arising from public debt restructuring issued by a Party. Public debt restructuring may become unavoidable when a state incurs an unsustainable debt burden, ranging from debt overhang to severe liquidity problems.163 In that case, a public debt restructuring may be the only way out for the debtor state to address its unsustainable debt profile, in order to avoid imminent economic peril. 162 Urbaser S.A. and Consorcio de Aguas Bilbao Biskaia, Bilbao Biskaia Ur Partzuergoa v. Argentine Republic, ICSID Case No. ARB/07/26, Decision on Jurisdiction, 19 December 2012, para. 260; Also see, Teinver S.A., Transportes de Cercanías S.A. and Autobuses Urbanos del Sur S.A. v. Argentine Republic, ICSID Case No. ARB/09/1, Decision on Jurisdiction, 21 December 2012, para. 257; , Vannessa Ventures Ltd. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/04/6, Award, 16 January 2013, para. 167; Douglas, ‘The Plea of Illegality in Investment Treaty Arbitration’ (2014) 29(1), ICSID Rev., 155 (156). 163 Li, ‘How international investment agreements have made debt restructuring even more difficult and costly’ (2018), Investment Policy Brief, No. 10, p. 6, available at: https://www.southcentre.int/wp-con tent/uploads/2018/02/IPB10_How-international-investment-agreements-have-made-debt-restructurin g-even-more-difficult-and-costly_EN.pdf.
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When a public debt restructuring occurs, it is not unusual to find state creditors 114 like bond investors submit treaty claims against the state for a violation of protected treaty rights such as FET or illegal expropriation i.a,164 occasioned by the loss of value or prolongation of maturity of the bonds. However, under the CETA, the submission of investor claims arising from public debt restructuring issued by a Party has also been explicitly narrowed, putting a further limit on the jurisdictional powers of the ICS tribunals. Essentially, no claim may be submitted with respect to the restructuring of public 115 debt except in accordance with Annex 8-B.165 Annex 8-B provides that: No claim that a restructuring of debt of a Party breaches an obligation under Sections C and D may be submitted, or if already submitted continue, under Section F if the restructuring is a negotiated restructuring at the time of submission, or becomes a negotiated restructuring after such submission, except for a claim that the restructuring violates Article 8.6 or 8.7. 166
E. Conclusion Article 8.18 sets out the scope of the CETA investor-state dispute settlement regime. 116 Undoubtedly, the provision reveals a new approach to the drafting of ISDS clauses by expressly limiting actionable investment claims to specific treaty breaches. This approach differs from the ISDS clause found in older IIAs like the ECT, which unlike the CETA appears broadly worded.167 Furthermore, investor claims may be submitted over a breach of Section C (non-discriminatory treatment) only with respect to the expansion, conduct, operation, management, maintenance, use, enjoyment and sale or disposal of a covered investment. Hence, an investor cannot bring claims relating to the acquisition or establishment of an investment.168 This degree of specificity is also absent in the scope of investor-state dispute settlement found in other EU IIAs such as the EU-Vietnam IPA,169 and EU-Singapore IPA.170 The CETA Parties also ensured that some of the criticisms that have for long 117 plagued the conventional ISDS regime do not manifest in the CETA ICS. For instance, having a business activity in the territory of a Party is a critical condition to qualify as a protected ‘investor’.171 Therefore, a so-called ‘shell’ or ‘mailbox’ company cannot 164 See in this regard, Abaclat and others v. Argentine Republic, ICSID Case No. ARB/07/5, Jurisdiction and Admissibility, 4 August 2011; Fedax N.V. v. Republic of Venezuela, ICSID Case No. ARB/96/3, Award, 9 March 1998; Poštová banka, a.s. and ISTROKAPITAL SE v. Hellenic Republic, ICSID Case No. ARB/13/8, Award, 9 April 2015. 165 Article 8.18 para 4 CETA. 166 CETA, Annex 8-B. 2. 167 Article 26(1) ECT provides for the submission of disputes ‘relating to an Investment’, this is a broad term short of been specific to particular treaty claims. 168 Canada’s statement on the implementation of CETA, chapter 8 (section f), available at: https://ww w.international.gc.ca/trade-commerce/trade-agreements-accords-commerciaux/agr-acc/ceta-aecg/cana dian_statement-enonce_canadien.aspx?lang=eng#a13. 169 Article 3.27(1) EU-Vietnam Investment Protection Agreement, signed 30 June 2019, (not in force): ‘This Section applies to a dispute between, on the one hand, a claimant of one Party and, on the other hand, the other Party concerning any measure which allegedly constitutes a breach of the provisions of Chapter 2 (Investment Protection) and which allegedly causes loss or damage to the claimant or, where the claim is brought on behalf of a locally established company owned or controlled by the claimant, to the locally established company.’ 170 Article 3.1(1) EU-Singapore Investment Protection Agreement, signed 15 October 2018, (not in force): ‘This Section shall apply to a dispute between a claimant of one Party and the other Party concerning treatment alleged to breach the provisions of Chapter Two (Investment Protection) which breach allegedly causes loss or damage to the claimant or its locally established company.’ 171 Article 8.1 CETA (See: Definition, an enterprise of a Party).
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bring a claim under Article 8.18. Also, an investor who seeks access to the ICS for a claim must come with clean hands, as investments tainted in fraudulent misrepresentation, concealment, corruption or conduct amounting to an abuse of process, may not be submitted under Article 8.18.172 Furthermore, by reaffirming the Parties’ right to regulate,173 the CETA places a limit on the jurisdiction of a CETA tribunal to call into question the choices democratically made within a Party relating to legitimate policy objective (→ mn. 83). 118 Overall, Article 8.18 is commendable for the degree of certainty it offers as to the scope of claims that falls under the dispute settlement mechanism of Section F. The final text to an extent reflects the Parties’ intention to delineate more precisely the scope of actionable investment claims, thereby curtailing the discretionary power of CETA tribunals in exercising jurisdiction over unintended claims falling outside the scope of Article 8.18 CETA.174
Article 8.18 para. 3 CETA. Article 8.9 para. 1 CETA. 174 Article 8.18 para. 5 CETA, confirms that a CETA tribunal shall not decide a claim that falls outside the scope of Article 8.18. 172
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Article 8.19 Consultations* 1. A dispute should as far as possible be settled amicably. Such a settlement may be agreed at any time, including after the claim has been submitted pursuant to Article 8.23. Unless the disputing parties agree to a longer period, consultations shall be held within 60 days of the submission of the request for consultations pursuant to paragraph 4. 2. Unless the disputing parties agree otherwise, the place of consultation shall be: (a) Ottawa, if the measures challenged are measures of Canada; (b) Brussels, if the measures challenged include a measure of the European Union; or (c) the capital of the Member State of the European Union, if the measures challenged are exclusively measures of that Member State. 3. The disputing parties may hold the consultations through videoconference or other means where appropriate, such as in the case where the investor is a small or medium-sized enterprise. 4. The investor shall submit to the other Party a request for consultations setting out: (a) the name and address of the investor and, if such request is submitted on behalf of a locally established enterprise, the name, address and place of incorporation of the locally established enterprise; (b) if there is more than one investor, the name and address of each investor and, if there is more than one locally established enterprise, the name, address and place of incorporation of each locally established enterprise; (c) the provisions of this Agreement alleged to have been breached; (d) the legal and the factual basis for the claim, including the measures at issue; and (e) the relief sought and the estimated amount of damages claimed. The request for consultations shall contain evidence establishing that the investor is an investor of the other Party and that it owns or controls the investment including, if applicable, that it owns or controls the locally established enterprise on whose behalf the request is submitted. 5. The requirements of the request for consultations set out in paragraph 4 shall be met with sufficient specificity to allow the respondent to effectively engage in consultations and to prepare its defence. 6. A request for consultations must be submitted within: (a) three years after the date on which the investor or, as applicable, the locally established enterprise, first acquired or should have first acquired, knowledge of the alleged breach and knowledge that the investor or, as applicable, the locally established enterprise, has incurred loss or damage thereby; or (b) two years after an investor or, as applicable, the locally established enterprise, ceases to pursue claims or proceedings before a tribunal or court under the law of a Party, or when such proceedings have otherwise ended and, in any event, no later than 10 years after the date on which the investor or, as applicable, the locally established enterprise, first acquired or should * This work was partly supported by the Research Council of Norway through its Centres of Excellence funding scheme (project number 223274) and the FRIPRO Young Research Talents (project number 274946). The author is grateful for the input of Niall Moran and Simon Weber.
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have first acquired knowledge of the alleged breach and knowledge that the investor has incurred loss or damage thereby. 7. A request for consultations concerning an alleged breach by the European Union or a Member State of the European Union shall be sent to the European Union. 8. In the event that the investor has not submitted a claim pursuant to Article 8.23 within 18 months of submitting the request for consultations, the investor is deemed to have withdrawn its request for consultations and, if applicable, its notice requesting a determination of the respondent, and shall not submit a claim under this Section with respect to the same measures. This period may be extended by agreement of the disputing parties. Reference to the Respective Provisions in Other EU Treaties: – EU-Mexico Free Trade Agreement (in principle), agreed on 23 April 2018, Article 3, (MEUFTA) – EU-Vietnam Investment Protection Agreement, signed on 30 June 2019, Article 3.3, (EUVIPA) – Investment Protection Agreement between the European Union and its Member States and the Republic of Singapore, signed on 19 October 2018, Article 3.3 (EUSIPA) – Comprehensive and Progressive Agreement for Trans-Pacific Partnership, entered into force on 30 December 2018, Article 9.18 (CPTPP) – Canada-US-Mexico Agreement, entered into force on 1 July 2020, Article 14.D.2 (CUSMA) – Agreement between the Government of Canada and the Government of the Republic of Moldova for the Promotion and Protection of Investments, entered into force on 23 August 2019, Article 21 (Canada-Moldova BIT) Bibliography: Freya Baetens, ‘The European Union’s Proposed Investment Court System: Addressing Criticisms of Investor-State Arbitration While Raising New Challenges’ (2016) 43(4) LIEI, 367; Freya Baetens, Gerard Kreijen and Andrea Varga, ‘Determining International Responsibility under the New Extra-EU Investment Agreements: What Foreign Investors in the EU Should Know’ (2014) 5 Vand. J. Transnat’l L., 1203; Marc Bungenberg and August Reinisch, From Bilateral Arbitral Tribunals and Investment Courts to a Multilateral Investment Court (2nd edn, Springer, Berlin/Heidelberg 2020); CharlesEmmanuel Côté, ‘From SEA To SEA: Regulatory Space of Government in Canada under CPTPP and CETA Investment Chapters’ (2019) 5 TDM; Zachary Douglas, The international law of investment claims (Cambridge University Press, New York 2019); ECHR, The ECHR in facts & figures 2018, March 2019; David Gaukrodger and Kathryn Gordon, ‚Investor-State Dispute Settlement: A Scoping Paper for the Investment Policy Community’, OECD Working Papers on International Investment, 2012/03, OECD Publishing; Patricia Goff, Canadian Trade Negotiations In An Era of Deep Integration (Centre for International Governance Innovation (CIGI) Papers, No. 88 — February 2016); Pierre Marc Johnson, Patrick Muzzi and Véronique Bastien, ‘The voice of Quebec in the CETA negotiations’ (2013) 68(4) Int’l J., 560; Kurt Hübner, Tugce Balik and Anne-Sophie Deman, ‚CETA: the Making of the Comprehensive Economic and Trade Agreement Between Canada and the EU’, Notes de l’Ifri, April 2016; Lars Markert, Streitschlichtungsklauseln in Investitionsschutzabkommen: Zur Notwendigkeit der Differenzierung von jurisdiction und admissibility in Investitionsschiedsverfahren (Nomos, Baden-Baden 2019); Makane Moïse Mbengue and Mohamed Negm, ‘An African View on the CETA Investment Chapter’ in Makane Moïse Mbengue and Stefanie Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (Springer, Cham 2019), 259; Luca Pantaleo, The Participation of the EU in International Dispute Settlement: Lessons from EU Investment Agreements (Asser Press, 2019); Stephan Schill, ‘Authority, Legitimacy, and Fragmentation in the (Envisaged) Dispute Settlement Disciplines in Mega-Regionals’ in Stefan Griller, Walter Obwexer, and Erich Vranes (eds), Mega-Regional Trade Agreements: CETA, TTIP, and TiSA: New Orientations for EU External Economic Relations (Oxford University Press, Oxford 2017), 111; Christoph Schreuer, ‘Travelling the BIT Route. Of Waiting Periods, Umbrella Clauses and Forks in the Road’ (2004) 5 JWIT, 231; United States Trade Representative (Robert Lighthizer), Report on the Appellate Body of the World Trade Organization, Office of the United States Trade Representative, February 2020; Simon Weber, ‘Open Doors for Small or Medium Sized
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Enterprises to Investor State Dispute Resolution?’, Regulating for Globalization, Wolters Kluwer, 24 January 2019. A. Introduction and Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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B. Spirit and Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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C. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. Existing Canada-EU Member States BITs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. CETA Negotiations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. From January 2010 to 15 November 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. From November 2013 to October 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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D. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. Paragraph-by-Paragraph . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Paragraph 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Paragraph 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Paragraph 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. Paragraph 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5. Paragraph 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6. Paragraph 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7. Paragraph 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8. Paragraph 8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Consultations in Other Recent Agreements of the Contracting Parties . . . 1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Consultations in Other Recent EU Agreements . . . . . . . . . . . . . . . . . . . . . . . . a) Type A: Article 3 MEUFTA and Article 8.19 CETA . . . . . . . . . . . . . . . . . . . b) Type B: Article 3.3 EUVIPA and Article 3 EUSIPA . . . . . . . . . . . . . . . . . . . . 3. Consultations in Other Recent Canadian Agreements . . . . . . . . . . . . . . . . . a) Article 9.18 CPTPP and Article 14.D.2 CUSMA . . . . . . . . . . . . . . . . . . . . . . b) Recent Canadian BIT Practice: Article 21 Canada-Moldova BIT . . . . . .
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E. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. Reaching an Amicable Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Serving as a Bar to Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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A. Introduction and Overview This Chapter considers the provision on Consultations in CETA’s Investment 1 Chapter, focusing on the Article’s background and content, as compared to equivalent articles in other recent Agreements of the EU and Canada, as well as in relation to scholarly commentary concerning consultations. More specifically, the Chapter first considers the spirit and purpose of Article 8.19 (Section B), situating it in the context of the different forms of non-judicial/amicable dispute settlement and the three key functions that consultations articles in all EU investment agreements are intended to serve. Subsequently, the Chapter elaborates on the Article’s drafting history, including a comparison with existing Canada-EU Member State BITs and its development over the course of the CETA negotiations (Section C). This is followed by a paragraph-by-paragraph commentary of the Article and a comparative analysis of equivalent articles in other recent agreements of the Contracting Parties, with specific focus on EUVIPA, EUSIPA and MEUFTA (insofar as the EU is concerned) and CUSMA, CPTPP and the Canada-Moldova BIT (insofar as Canada is concerned). In its conclusion (Section E), the Chapter refers back to the spirit and purpose of Article 8.19 as outlined in Section B so as to examine whether Article 8.19 is likely to achieve its intended objectives in practice, in particular in terms of assisting the disputing Parties to reach an amicable settlement and serving as a bar to jurisdiction.
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B. Spirit and Purpose At the outset, it is worthwhile to recall the distinction between the different forms of non-judicial/amicable dispute settlement. Here, the term settlement has to be preferred over resolution, as the dispute is ‘settled’ as opposed to ‘resolved’ by a court or tribunal. Whereas the result of the latter is a binding decision, which can be subject to enforcement, the former does not necessarily lead to a legally binding decision. Amicable dispute settlement is comprised of two categories. The first category contains forms of amicable settlement directly between the Parties without the involvement of a third Party such as negotiations and consultations. The second category contains amicable settlement mechanisms that involve a third (neutral) Party such as conciliation and mediation – hence classic alternative dispute settlement (occasionally referred to as ADR). 3 As a result, negotiations and consultations constitute the most basic form of dispute settlement. They can be seen as a form of bona fide requirement, which expects a Party (that allegedly suffered from a damage) to enter into an exchange with another Party (that allegedly caused the damage) to find a mutually agreeable way to remedy the damage without involving a third Party. In other words, consultations are a way of attempting to settle a dispute before resorting to ADR or judicial resolution in front of a court or tribunal. Consultations are always an option, as long as the disputing Parties agree, even when they are not prescribed by the applicable treaty. Article 8.19 CETA concretises consultations, by including their written manifestation and setting out a procedure of how these ‘exchanges’ are to happen. Unlike the default mode of international dispute settlement, in which consultations are optional, Article 8.19 CETA elevates consultations to a mandatory requirement, in which disputing Parties have to engage before any judicial dispute resolution can proceed. 4 Consultations under EU investment agreements are intended to serve at least three key functions. First, they have the same purpose as all other consultations: to offer an opportunity to reach an amicable settlement. Second, they define the contours of the dispute by acting as a jurisdictional barrier ratione materiae, since ‘[a]n investor may only submit a claim pursuant to Article 8.23 if the investor does not identify a measure in its claim that was not identified in its request for consultations’. 1 Third, consultations function as jurisdictional barrier ratione tempore, in that they act as a mechanism for filtering out claims given the mandatory time limits. In particular, ‘the substantial link created by EU investment agreements between the pre-litigation and the litigation stage will have a clear filtering-out effect, at least indirectly’. 2 2
C. Drafting History I. Existing Canada-EU Member States BITs 5
Consultations between Contracting Parties are provided for in all seven of Canada’s existing BITs with individual EU Member States – consultations between the investor and the host State, however, are absent. For example, the Canada-Slovakia BIT provides for consultations between the Contracting Parties: ‘[a]ny dispute between the Article 8.22(1)(e) CETA. Pantaleo, The Participation of the EU in International Dispute Settlement: Lessons from EU Investment Agreements (2019), 80. 1
2
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Contracting Parties concerning the interpretation or application of this Agreement shall, whenever possible, be settled amicably through consultations.’3 Similar provisions can be found in the Canada-Czech Republic BIT, the Canada-Croatia BIT, the Canada-Latvia BIT and the Canada-Romania BIT.4 The latter two BITs additionally prescribe consultations between the financial services authorities of the Contracting Parties in case an investor submits a claim for which the Respondent State invokes a prudential measures justification.5 The Canada-Hungary and Canada-Poland BITs do not provide for formal consultations between the Contracting Parties in case of dispute, but rather recourse to ‘diplomatic channels’.6 In its section on definitions, the former BIT stipulates that ‘in case of disagreement concerning the nationality of an investor, consultations shall take place between the Contracting Parties with a view to achieve a mutually satisfactory solution’.7 Such disagreement would presumably arise in case of a dispute between the investor and the host State.
II. CETA Negotiations As pointed out in other chapters of this book, the negotiating history of CETA’s 6 investment chapter was rather eventful. The EU and its Member States encountered considerable civil society opposition to foreign investment protection and InvestorState dispute settlement (ISDS).8 Facilitated by a change in federal government in Canada (from Conservative PM Stephen Harper to Liberal PM Justin Trudeau), 9 this mechanism underwent an overhaul in 2018: the EU’s proposed Investment Court
3 Article XII(1) Canada-Slovakia BIT, signed 27 July 2010, entered into force 14 March 2012, available at: https://investmentpolicy.unctad.org/international-investment-agreements/treaty-files/634/d ownload. This BIT also provides for consultations between Contracting Parties outside the context of dispute settlement such as the promotion of investment by inappropriate means (Article II), necessary steps to ensure compatibility with the Treaty on the Functioning of the EU (Article XI) and denial of benefits to third state investors (Article XV). 4 Article XII Canada-Czech Republic BIT, signed 6 May 2009, entered into force 22 January 2012, available at https://investmentpolicy.unctad.org/international-investment-agreements/treaty-files/6 06/download; Article XIII Canada-Croatia BIT, signed 3 February 1997, entered into force 30 January 2001, available at https://investmentpolicy.unctad.org/international-investment-agreements/treaty-fi les/604/download; Article XV Canada-Latvia BIT, signed 5 May 2009, entered into force 24 November 2011, available at https://investmentpolicy.unctad.org/international-investment-agreements/treaty-file s/618/download; Article XV Canada-Romania BIT, signed 8 May 2009, entered into force 23 November 2011, available at https://investmentpolicy.unctad.org/international-investment-agreements/treaty-files /3503/download. 5 Article XI(3) Canada-Latvia BIT; Article XI (3) Canada-Romania BIT. 6 Article XI(1) Canada-Hungary BIT, signed 3 October 1991, entered into force 21 November 1993, available at https://investmentpolicy.unctad.org/international-investment-agreements/treaty-files/615 /download; Article XI Canada-Poland BIT, signed 6 April 1990, entered into force 22 November 1990, available at https://investmentpolicy.unctad.org/international-investment-agreements/treaty-files/62 9/download. Both BITs do provide for consultation ‘upon request’ with regard to the ‘interpretation or application of [the] Agreement’ (Article X) outside the context of a dispute. 7 Article I, last paragraph, Canada-Hungary BIT. 8 See e.g., European Commission Staff Working Document, Online public consultation on investment protection and investor-to-state dispute settlement (ISDS) in the Transatlantic Trade and Investment Partnership Agreement (TTIP), 13 January 2015, SWD(2015). The 145.686 replies submitted ‘collectively reflect a rejection of ISDS as a matter of principle’ (p.132). Report available at: https://trade.ec.europa.eu/docli b/docs/2015/january/tradoc_153044.pdf. 9 Hübner et al., ‘CETA: the Making of the Comprehensive Economic and Trade Agreement Between Canada and the EU’ Notes de l’Ifri, April 2016, 13.
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System (ICS) was instead incorporated into CETA’s investment chapter, a first for the EU.10 7 CETA’s Article on Consultations underwent a number of changes during the negotiations. This evolution of Article 8.19 is evident in comparisons of the draft versions of the investment chapter. The three main versions of the Consultations Article were Article X.19 from the January 2010 version, Article x-4 of the 15 November 2013 version, and Article 8.19 of the final text. The first version is now compared to the second main version, before this is compared to the final text. The January 2010 version of Article 8.19 (labelled Article X.19) is markedly different to the two other versions as it contains only three paragraphs. This version of Article 8.19 was unchanged in the subsequent draft texts of January 2011 and February 2012, which were both also labelled Article X.19.
1. From January 2010 to 15 November 2013 8
9
10
11
12
Provisions on consultations were already included as Article X.19 in the draft text of the CETA Investment Chapter released in January 2010. A paragraph-by-paragraph comparison of the January 2010 draft text of this Article with the version of 15 November 2013 allows to track this Article’s development. On a preliminary note, readers ought to be aware that the draft text of 15 November 2013 only contained the ISDS provisions: the absence of any substantive provisions explains why the provision on consultations was included as Article x-4 (in the 2013 version) rather than Article X.19 (in the 2010 version). First paragraph: Article x-4.1 (2013 version) is quite similar to its predecessor, Article X.19.1 (2010 version), setting out the conditions for holding consultations in an attempt to resolve the issue amicably before an investor may submit a claim to arbitration. The main difference is that the requirement to hold consultations ‘within 30 days’ is extended to 60 days in the 2013 version. The place of consultation (‘the capital of the respondent Party’) is given greater specificity in Article x-4.1 (2013 version), setting out when this will be Ottawa, Brussels, or a Member State. Second paragraph: Article x-4.2 (2013 version) is considerably shorter than its predecessor, Article X.19.2 (2010 version), which was a lengthy paragraph laying out six conditions for an investor to submit a claim to arbitration. For example, Article x-4.2 (2013 version) does not contain any equivalent to Article X.19.2(a), (e) and (f) (2010 version) because the latter provisions related to the Article that preceded it, Article X.18 (Claim by an Investor of a Party on Its Own Behalf or on Behalf of an Enterprise). Equally, Article x-4 (2013 version) does not contain any equivalent to Article X.19.2(b) (2010 version), which states that as a requirement for submitting a claim, ‘at least six months have elapsed since the events giving rise to the claim’. On the other hand, Article x-4.2 (2013 version) is very similar to Article X.19.2(c) and (d) (2010 version), which deal with the mandatory information to be included in the notice of intent to submit a claim to arbitration. Third and following paragraphs: Article x-4.3 (2013 version) does not contain any provisions equivalent to those of Article X.19.3 (2010 version), which concerned waivers from enterprises where an investor brings a claim on their behalf and once more relates to Article X.18 (Claim by an Investor of a Party on Its Own Behalf or on Behalf of an Enterprise) (2010 version). 10 For a critical review, see Baetens, ‘The European Union’s Proposed Investment Court System: Addressing Criticisms of Investor-State Arbitration While Raising New Challenges’ (2016) 43 LIEI, 367 (384).
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Instead, Article x-4.3-6 (2013 version) contains elements that were not included 13 in Article X.19 (2010 version). Article x-4.3 relates to the time period within which a request for consultations may be made; Article x-4.4 precludes claims being inadmissible where failure to request consultations is a result of actions taken by the Respondent; Article x-4.5 provides that alleged breaches by the EU or a Member State must be sent to the EU; and Article x-4.6 sets out the time limit for bringing a claim to arbitration pursuant to submitting the request for consultations.
2. From November 2013 to October 2016 As discussed in the previous section, the draft text of 15 November 2013 formed the second main version of the Consultations Article, i.e. Article x-4, containing six paragraphs. In the subsequent draft text of 21 November 2013, no provisions on ISDS (including consultations) were incorporated: the text merely noted ‘Latest Consolidated ISDS text to be inserted here’. Article x-4 (2013 version) then re-emerged in the February 2014 draft text, again containing six paragraphs that were nearly identical to the 2013 text. The next major change occurred in the draft text of 1 August 2014, where the Consultations Article (Article X.18) was moved to Section 6 (ISDS) and expanded to seven paragraphs. In a comparison with the final text of CETA signed on 30 October 2016 and the draft text published on 1 August 2014, the main differences are those that would fall under the category of ‘legal scrubbing’.11 As a result, it would seem instructive to compare the final version of the Consultations Article (Article 8.19 of the 2016 version) with the second main version of the Consultations Article (Article x-4 of the 2013 version) paragraph-by-paragraph. First, second, third and fourth paragraphs: Article x-4.1 (2013 version) was split up into two separate paragraphs (Article 8.19.1 and 8.19.2) (2016 version) without adding any additional content. Article 8.19.3 (2016 version) on the use of videoconferences has no equivalent in Article x-4 (2013 version). Article 8.19.4 (2016 version) is a rearranged version of Article x-4.2 (2013 version). The final version merges the requirement previously in subparagraph (b) (‘evidence establishing that it is an investor of the other Party’) into the information that must be provided under subparagraph (a). Article x-4.4 (2013 version) precluding claims being inadmissible where failure to request consultations is a result of actions taken by the Respondent, did not make it into the final version of the Consultations Article. Fifth, sixth, seventh and eighth paragraphs: Article 8.19.5 (2016 version) on the requirement to set out the details referred to in Article 8.19.4 with ‘sufficient specificity’ to allow the Respondent to effectively engage in consultations and to prepare its defence had no counterpart in Article x-4 (2013 version). Article 8.19.6 (2016 version) is very similar to Article x-4.3 (2013 version). Differences are limited to legal scrubbing (e.g., ‘3’ is changed to ‘three’, ‘submitted within the later of ’ is changed to ‘submitted within’). Concerning requests for consultations pursuant to local remedies, the time period is restricted from ‘no later than 15 years’ (2013 version) to ‘no later than 10 years’ (2016 version). Article 8.19.7 (2016 version) is virtually identical to Article x-4.5 (2013 version). Article 8.19.8 (2016 version) is also highly similar to Article x-4.6 (2013 version), apart from the fact that the 2013 text stated that ‘the claimant shall be deemed to … have waived its rights to bring a claim’ which is replaced with ‘the investor is deemed to have withdrawn its request for consultations’ in the 2016 text.
11
Available at: http://mappinginvestmenttreaties.com/specials/ceta/.
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D. Commentary I. Paragraph-by-Paragraph 1. Paragraph 1 The first paragraph sets out an obligation to resort to an amicable settlement of the dispute ‘as far as possible’. Obviously, this is an obligation of conduct, not of result. Presumably a request for consultations would be submitted by an aspiring claimant (investor) and once submitted, consultations have to commence in less than 60 days, unless otherwise agreed. The provision does not expressly clarify what happens should the respondent (State or EU) refuse to engage in consultations, once it has received the request for consultations. Article 8.22.1(b) CETA stipulates that an investor may only submit a claim to the Tribunal, after it has allowed ‘at least 180 days to elapse from the submission of the request for consultations’. It can thus be assumed that, in case a respondent does not agree to commence consultations, a claimant nevertheless has to ‘sit and wait’ until the 180-day period has elapsed (‘cooling-off period’). 19 The provision also does not clarify ‘the extent to which serious attempts of amicable settlement’ need to be made, so again, the claimant would be expected to wait until 180 days have passed even if no (serious) consultations are taking place.12 The only alternative would be if, in spite of not (or not seriously) engaging in consultations, the respondent would agree to conditionally or unconditionally waive or shorten the waiting period, even though this possibility is not expressly provided for in Article 8.19 CETA. In this sense, Article 8.19.1 CETA in conjunction with Article 8.22.1(b) CETA sets a bar ratione tempore to the Tribunal’s jurisdiction, as ‘[u]pon request of the respondent, the Tribunal shall decline jurisdiction if the investor or, as applicable, the locally established enterprise fails to fulfil any of the requirements of paragraphs 1 and 2’.13 20 Even after commencing ICS proceedings, the disputing Parties may still decide to have recourse to amicable settlement. In this case, both dispute Parties must consent. The provision does not require any specific form for such consent, but written consent would be advisable. 18
2. Paragraph 2 21
If consultations are requested, the default option is to hold them in the capital of the respondent responsible for the challenged measures. The disputing Parties can depart from this rule and agree on another location as it can be deemed preferable to hold the consultations in a neutral environment, or at a site that is relevant for the particular case. CETA does not impose any limitations on this alternative location.
3. Paragraph 3 22
This third paragraph was not included in earlier drafts of Article 8.19 CETA. It arguably demonstrates the European Commission’s new approach to small and medium-sized enterprises (SMEs) and its willingness to facilitate access to ICS, after
12 Bungenberg and Reinisch, From Bilateral Arbitral Tribunals and Investment Courts to a Multilateral Investment Court (2017), 82. 13 Article 8.22(4) CETA.
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the criticism incurred in this regard.14 Instead of meeting physically, the disputing Parties may hold the consultations via videoconference. The provision would also allow for the consultations to be held through ‘other means’, which at the current stage of technology includes teleconferences. Such ‘other means’ must be appropriate for consultations – presumably excluding technology that would not meet security standards. This provision is, however, not limited to SMEs – it applies whenever it is deemed appropriate, including also for example situations in which disputing Parties have to adapt to lockdown measures during pandemics.
4. Paragraph 4 The fourth paragraph sets out the ‘pillars’ of the consultation proceedings by listing 23 the relevant information to be included in the request for consultations, which must be submitted to the other Party. The provision does not specify how this must be done but it can at least be expected to be in written form, e.g. email or letter. In addition to general information such as the name and address of the investor(s) and, if applicable, their locally established enterprises, the investor is required to set out the CETA provisions which allegedly have been breached. There is no need to set out extensively how and why the State has breached the protection standards of CETA (see also Article 8.19.5) but the request for consultations must set out the basis of the claim. Moreover, already at the consultations stage, investors should bear in mind the provision set out in Article 8.22.1(e) CETA: an investor may only submit a claim pursuant to Article 8.23 if it ‘does not identify a measure in its claim that was not identified in its request for consultations’. If the investor wishes to bring a claim against a measure that did not form part of its request for consultations, it would need to submit a new request for consultations, with the ensuing costs in terms of finances and time, unless the respondent would decide not to invoke this as a bar to the Tribunal’s jurisdiction. Finally, the investor is expected to state the relief sought and the estimated amount 24 of damages claimed. Article 8.22.1 does not expressly state whether any changes to the relief and damages sought in the claim submitted to the Tribunal as compared to the request for consultations could, similarly to measures left unidentified in the request for consultations, lead to a Tribunal refusing jurisdiction. Presumably this would not be the case, but a Tribunal might well look unfavourably at any significant increases. Article 8.22.1(d) CETA stipulates that an investor may only submit a claim to the Tribunal, if it ‘has fulfilled the requirements related to the request for consultations’. In this sense, Article 8.19.4 CETA in conjunction with Article 8.22.1(d) CETA sets a bar ratione materiae to the Tribunal’s jurisdiction, as ‘[u]pon request of the respondent, the Tribunal shall decline jurisdiction if the investor or, as applicable, the locally established enterprise fails to fulfil any of the requirements of paragraphs 1 and 2’. 15 This demonstrates the considerable importance of the request for consultations.
5. Paragraph 5 The relevant information included in the request for consultations is to be suffi- 25 ciently specific, however, one could debate what the term ‘sufficient specificity’ exactly entails in this context. This question is not entirely new as at least two Investor-State arbitral tribunals had to interpret a similar requirement in the dispute settlement 14 Weber, Open Doors for Small or Medium Sized Enterprises to Investor State Dispute Resolution?, Regulation for Globalization, 24 January 2019. 15 Article 8.22(4) CETA.
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provision of the BLEU-Burundi BIT, which stated that every dispute had to be notified to the respondent by means of a ‘sufficiently detailed’ memorandum. 16 In both cases, the Tribunal concluded that an extensive written memorial as required at the trial stage was not needed.17 In one of these cases, Houben v. Burundi, the investor had not even listed all allegedly violated BIT articles in its notification, but the Tribunal still held that the memorandum had been sufficiently detailed, as the response of the host State showed that it had understood the nature of the claim (‘la nature de la demande’) and the fact that the investor intended to pursue its rights before an ICSID tribunal.18 Focusing on the purpose of a rule (effective engagement in consultations and ability to prepare a defence) in the interpretation of this CETA provision, might similarly allow ICS Tribunals to avoid losing themselves in a theoretical discussion on the meaning of the term ‘sufficient specificity’.
6. Paragraph 6 26
Paragraph six contains two ratione temporis requirements for a request for consultations. Point (a) limits the time to three years after the relevant entity first acquired knowledge of the breach and the incurred loss. Point (b) extents this period for another two years after the investor has decided to not pursue claims before another dispute resolution body of a State Party, which is a prerequisite for filing an ICS claim.19 The limit for such action is ten years after the relevant entity first acquired knowledge of the breach and the incurred loss. These time limits resemble statutes of limitations for similar claims under domestic law. They serve to avoid claims arising long after the facts have taken place when providing adequate supporting evidence might have become problematic, in particular for an unsuspecting host State. Of the near 3.300 concluded IIAs, only agreements with either the United States or Canada as a Party contain such an arrangement.20
7. Paragraph 7 27
Canadian investors who wish to avail themselves of the opportunity to request consultations should send such request to the EU, regardless of whether their dispute is with the EU or with one or more Member States. Moreover, whereas the provision states that ‘the EU’ is to receive the request for consultations, the likely recipient is the European Commission. Some have lamented the fact that Article 8.19(7) does not explicitly ‘indicate who, and on the basis of what rules, will determine what Party (whether the EU or a Member State) will take part in the consultations.’ 21 Moreover, CETA uses the same ambiguous language in the corresponding provision concerning
16 Article 8(2) BLEU (Belgium-Luxembourg Economic Union)-Burundi BIT, signed 13 April 1989, entered into force 12 September 1993, available at https://investmentpolicy.unctad.org/international-in vestment-agreements/treaty-files/335/download. 17 Antoine Goetz et consorts v. République du Burundi, ICSID Case No. ARB/95/3, Award (10 February 1999) paras. 91-92; Joseph Houben v. Republic of Burundi, ICSID Case No. ARB/13/7, Award (12 January 2016) paras. 138-147. 18 Joseph Houben v. Republic of Burundi, ICSID Case No. ARB/13/7, Award (12 January 2016) para. 145. 19 Article 8.22(1)(f) CETA. 20 See European Commission, Investment provisions in the EU-Canada free trade agreement (CETA), February 2016, 6. By the end of 2019, 2.654 IIAs were in force (3.284 IIAs in total minus 349 terminated IIAs), UNCTAD, IIA Issues Note, July 2020, Issue 1, 1. 21 Pantaleo, The Participation of the EU in International Dispute Settlement: Lessons from EU Investment Agreements (2019), 79.
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‘the determination of the respondent’.22 However, this centralised approach was already agreed upon internally in 2014 through Regulation 912/2014 ‘in order to ensure that the interests of the Union can be appropriately safeguarded’,23 but needed to be incorporated in the individual EU-third country FTAs in order to become binding for third Parties.24
8. Paragraph 8 The last paragraph of Article 8.19 limits the time for a submission of the dispute to 28 the ICS under Article 8.23 to 18 months after submitting the request for consultations. After 18 months have elapsed, the investor is barred from bringing a claim to the ICS disputing the legality of the measures specified in its request for consultations. If the consultations take longer than initially expected, i.e. because of the specific circumstances of the case, external factors or because an agreement is in sight, the disputing Parties may extend the period by mutual agreement. It is unclear whether a new time period of 18 months will commence if the investor submits an amended request for consultations, in case any information was missing in or only discovered after the submission of the original request. Like previous paragraphs setting time limits, paragraph 8 indicates the intention of the Contracting Parties to avoid ‘surprises’ and to ensure a smooth and predictable dispute settlement process.
II. Consultations in Other Recent Agreements of the Contracting Parties 1. Introduction In order to better understand the CETA Consultations Article, it is worthwhile to 29 consider it in the context of the wider treaty practice of the Contracting Parties. For this purpose, the present Commentary compares Article 8.19 CETA to the equivalent provisions in the investment chapters of three recent EU agreements: EUVIPA, EUSIPA and MEUFTA. 25 Subsequently, this Commentary examines the Consultations Articles in three recent Canadian agreements: CUSMA, CPTPP and the Canada-Moldova
Article 8.21 CETA. Preamble, paragraph 11, Regulation (EU) No 912/2014 of the European Parliament and of the Council of 23 July 2014 establishing a framework for managing financial responsibility linked to investor-to-state dispute settlement tribunals established by international agreements to which the European Union is Party, OJ L 257 (28 August 2014) p. 121-134. 24 Baetens et al., ‘Determining International Responsibility under the New Extra-EU Investment Agreements: What Foreign Investors in the EU Should Know’ (2014) 5 Vand. J. Transnat’l L., 1203. 25 On 16 May 2017, the CJEU published Opinion 2/15 in which it found, among other, that investment protection (insofar as it relates to non-direct investment) and ISDS were shared competences of the EU and its Member States and therefore required ratification by the national parliaments of the latter (CJEU, Opinion 2/15, 16.05.2017), (ECLI:EU:C:2017:376). The EU-Singapore, the EU-Vietnam and the EU-Mexico FTAs (which contained an investment chapter) were subsequently divided into two agreements, separating the trade part from the investment provisions. The EU-Singapore Investment Protection Agreement was signed on 19 October 2018 and is currently awaiting ratification by the national parliaments (https://trade.ec.europa.eu/doclib/press/index.cfm?id=961). The EU-Vietnam Investment Protection Agreement was signed on 30 June 2019 and is currently also awaiting ratification by the national parliaments (http://trade.ec.europa.eu/doclib/press/index.cfm?id=1437). The negotiations between the EU and Mexico were concluded on 28 April 2020 and the text is currently undergoing legal revision and translation before being opened up for ratification by the national parliaments (https://trade.ec.europa.eu/doclib/press/index.cfm?id=2142). 22
23
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BIT.26 The latter treaty is the most recent BIT signed by Canada and can be considered representative for all recent Canadian BITs due to their similarity. 30 On a preliminary note, one of the major differences between the recent agreements of Canada compared to those of the EU is length. While the Consultations Articles in Canada’s most recent agreements (the Canada-Moldova BIT, CUSMA and CPTPP) contain two, three and four subparagraphs respectively, those in the EU’s most recent agreements (EUVIPA, EUSIPA and MEUFTA) contain nine, seven and seven subparagraphs respectively. CETA contains eight subparagraphs and thus more closely reflects the EU style in this respect.
2. Consultations in Other Recent EU Agreements 31
The Consultation Articles of the four EU Agreements compared here, can be divided into two types. Article 3 of MEUFTA is similar to Article 8.19 in CETA so they will be referred to below as Type A.27 Article 3.3 of EUVIPA and Article 3.3 of EUSIPA are identical and will be referred to as Type B. a) Type A: Article 3 MEUFTA and Article 8.19 CETA
32
As a caveat: the publicly available version of Article 3 MEUFTA should not be considered final but rather summarises the negotiating results ‘at the time of the agreement in principle in April 2018’.28 Differences between the Consultation Articles of CETA and MEUFTA are minimal. Both treaties include, for example, the specification that videoconferences may be appropriate where an SME is involved. The CETA Article on Consultations contains only eight subparagraphs, whereas MEUFTA contains nine. This is not due to any additional content but rather to the fact that the time limits for the submission of a request for consultations are stipulated in one paragraph in CETA (Article 8.19.6), while they are split into two subparagraphs in MEUFTA (Article 3.6 and 3.7). It may well be that in the final scrubbing phase (currently ongoing) these two paragraphs will be merged. b) Type B: Article 3.3 EUVIPA and Article 3 EUSIPA
33
Type B Articles on Consultation are not very different from Type A Articles. However, two of the subparagraphs in Type A Artices are not found in Type B Articles. More precisely, Article 8.19.2 and Article 8.19.5 CETA deal with the place 26 The CUSMA was signed on 30 November 2018 and entered into force on 1 July 2020 (https://ww w.international.gc.ca/trade-commerce/trade-agreements-accords-commerciaux/agr-acc/cusma-ace um/text-texte/toc-tdm.aspx?lang=eng ); the Agreement between the Government of Canada and the Government of the Republic of Moldova for the Promotion and Protection of Investments was signed on 12 June 2018 and entered into force on 23 August 2019 (https://investmentpolicy.unctad.org/inte rnational-investment-agreements/treaty-files/5806/download ); the Comprehensive and Progressive Agreement for Trans-Pacific Partnership was signed on 8 March 2018 and entered into force on 30 December 2018 (https://www.mfat.govt.nz/assets/CPTPP/Comprehensive-and-Progressive-Agreement -for-Trans-Pacific-Partnership-CPTPP-English.pdf). 27 Some EU Member States have been developing their own approach such as the Netherlands, which adopted a new Model BIT in 2018. The new Dutch Model BIT contains one novel element in relation to consultations: ‘The time periods in paragraphs 4 and 5 shall not render a claim inadmissible where the investor can demonstrate that the failure to request consultations or submit a claim is due to the investor’s inability to act as a result of actions taken by the other disputing party, provided that the investor acts as soon as reasonably possible after it is able to act.’ available at: https://www.rijksoverheid. nl/documenten/publicaties/2019/03/22/nieuwe-modeltekst-investeringsakkoorden. 28 See ‘New EU-Mexico agreement, The agreement in principle,’ DG TRADE website (23 April 2018). Available at: https://trade.ec.europa.eu/doclib/docs/2018/april/tradoc_156791.pdf.
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of consultation and the requirement that submissions be of ‘sufficient specificity’ to allow the Respondent to effectively engage in consultations and to prepare its defence, respectively.29 Aside from this, a key difference is that Type A Articles place a time limit on the commencement of consultations, as can be seen in Article 8.19.1 CETA: ‘Unless the disputing parties agree to a longer period, consultations shall be held within 60 days of the submission of the request for consultations’. No such specification is made in Type B Articles. Incidentally, such a specification is included in the Canada-Mongolia BIT of 2016: ‘consultations shall be held within 30 days of the submission’. In CETA, this was changed to ‘consultations shall be held within 60 days of the submission’. Interestingly, the Canada-Moldova BIT (discussed below) retained the CETA timing (60 days). It would seem the EU convinced Canada that 60 days was better, Canada was trying to be consistent, or perhaps it was just path dependency. Another difference between the two types of Articles can be found in the list of 34 information to be submitted as part of the request for consultations, in accordance with Article 8.19.4(b) CETA as opposed to Article 3.3.2 EUVIPA/EUSIPA. CETA provides that ‘if there is more than one investor, the name and address of each investor and, if there is more than one locally established enterprise, the name, address and place of incorporation of each locally established enterprise’ has to be mentioned in the request. This specification is absent from Type B Articles and also does not feature in any other EU or Canadian agreements. It seems to be unique to CETA. A final difference lies in the order of the subparagraphs, which differs considerably. 30 Given the highly similar content, this would not seem to have any material effect. It is difficult to say why the order was changed as the precise genesis of the two types of Articles has not been disclosed. The first appearance of a Type A Consultations Article can be unearthed in the CETA 2014 draft. An early Type B can be discovered in a draft of the investment chapter of the EU-Singapore FTA of the same year. Possibly this reflects the varying approach of different departments of the EU Directorate-General (DG) for Trade: Type A for the Americas and Type B for Asia. In the DG Trade today, Latin America is treated similarly to Asia but this is not typical of the Commission’s approach and may not have been the case at the time of drafting of these Consultations Articles.
3. Consultations in Other Recent Canadian Agreements The Articles dealing with Consultations in Canada’s most recent agreements, in 35 particular CPTPP and CUSMA, differ greatly from the corresponding Article in CETA, in that the latter Article is more extensive. As an illustration: the CPTPP 29 Article 8.19.2 CETA: ‘Unless the disputing parties agree otherwise, the place of consultation shall be: (a) Ottawa, if the measures challenged are measures of Canada; (b) Brussels, if the measures challenged include a measure of the European Union; or (c) the capital of the Member State of the European Union, if the measures challenged are exclusively measures of that Member State.’ Article 8.19.5 CETA: ‘The requirements of the request for consultations set out in paragraph 4 shall be met with sufficient specificity to allow the respondent to effectively engage in consultations and to prepare its defence.’ 30 Type B subparagraph 1 corresponds to (≙) Type A subparagraph 1. Differences in the length of these two subparagraphs are explained by the fact that the second type is preceded by an Article on Amicable Resolution, which replaces some of the ground covered by Article 8.19.1 CETA. Type B subparagraph 3 ≙ Type A subparagraph 7 Type B subparagraph 4 ≙ Type A subparagraph 2 Type B subparagraph 6 ≙ Type A subparagraph 3 Type B subparagraph 7 ≙ Type A subparagraph 6 Type B subparagraph 8 ≙ Type A subparagraph 3.
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Article on Consultations counts less than 100 words while CETA’s Consultations provision numbers over 600. a) Article 9.18 CPTPP and Article 14.D.2 CUSMA The only information contained in the Consultations Articles of CPTPP and CUSMA (three and two subparagraphs respectively) is that the disputing Parties ‘should initially seek to resolve the dispute through consultation and negotiation’31 and that ‘[f]or greater certainty, the initiation of consultations and negotiations shall not be construed as recognition of the jurisdiction of the tribunal’.32 While CETA provides that the lack of consultations, or consultations that do not fulfil the prescribed requirements, may be sanctioned by a Tribunal finding that it has no jurisdiction to hear the case, no such penalty is foreseen in either the CPTPP or CUSMA. An explanation could be that the United States is a Party to CUSMA and participated in the drafting of the CPTPP. Generally speaking, the US seems to prefer shorter, less prescriptive articles. The Consultations Article in CUSMA may have been considered of less relevance to Canada since it has opted out of the Investor-State dispute resolution provisions of that treaty. 37 The CPTPP and CUSMA Articles on Consultations differ in only one respect: Article 9.18 CPTPP contains a second subparagraph, which states that ‘[t]he claimant shall deliver to the respondent a written request for consultations setting out a brief description of facts regarding the measure or measures at issue.’ CETA requires more than this ‘brief description’: it requires notice to be given of the provisions that have been allegedly breached, the legal and the factual basis for the claim, as well as the relief sought, etc.33 Moreover, Article 8.19 CETA contains four stipulations for which there is no equivalent at all in CPTPP or CUSMA. First, CETA provides for a requirement that consultations ‘shall be held within 60 days’ of the request being submitted. 34 Second, it clarifies the place and manner of consultations.35 Third, it requires that submissions be of ‘sufficient specificity’ to allow the respondent to effectively engage in consultations and to prepare its defence.36 Fourth, CETA contains a statement as to the statute of limitations for requests for consultations.37 38 CPTPP and CUSMA add that ‘consultation and negotiation’ may include the use of good offices, conciliation or mediation. Mediation is covered in a separate article in CETA although, unlike consultations, this is not mandatory for the Parties in CETA. 38 Lastly, unlike CETA and CUSMA, CPTPP sets a time limit of six months on the length of consultations on the Submission of a Claim to Arbitration.39 Again, this may be due to the influence of the US as a Party to the negotiations as it tends to favour legal 36
Article 9.18.1 CPTPP and Article 14.D.2 CUSMA. Article 9.18.3 CPTPP. 33 CETA, Article 8.19.4: ‘1. The investor shall submit to the other Party a request for consultations setting out: (a) the name and address of the investor and, if such request is submitted on behalf of a locally established enterprise, the name, address and place of incorporation of the locally established enterprise; (b) if there is more than one investor, the name and address of each investor and, if there is more than one locally established enterprise, the name, address and place of incorporation of each locally established enterprise; (c) the provisions of this Agreement alleged to have been breached; (d) the legal and the factual basis for the claim, including the measures at issue; and (e) the relief sought and the estimated amount of damages claimed.’ 34 Article 8.19.1 CETA. 35 Article 8.19.2 and 3 CETA. 36 Article 8.19.5 CETA. 37 Article 8.19.6 CETA. 38 Article 8.20 CETA. 39 Article 9.19 CPTPP. 31 32
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certainty and swift proceedings (although in that case, one could have expected this provision to have been included in CUSMA as well).40 b) Recent Canadian BIT Practice: Article 21 Canada-Moldova BIT Article 21 (Conditions Precedent to Submission of a Claim to Arbitration) Canada- 39 Moldova BIT (2018) differs considerably from the Consultations Articles in CPTPP and CUSMA. Its content is much closer to Article 8.19 CETA even though its structure is different. Commonalities with CETA include, first, that both treaties provide that Parties have to engage in consultations for at least 60 days before the investor can submit a claim to arbitration.41 Second, both set out information to be provided to the respondent in submissions including the investor’s details, provisions of the Agreement that have been breached, the legal and factual basis for the claim, and the relief sought.42 Third, both set out the statute of limitations for submitting a claim as well as a waiver of the right to initiate domestic court proceedings. 43
E. Conclusion I. Reaching an Amicable Settlement There has been relatively little scholarly commentary on Article 8.19 CETA except 40 to note the similar trend in several recent treaties to impose a period of mandatory consultations. CETA is seen as going ‘slightly further than TPP’ in requiring consultation (and emphasizing that mediation can take place at any time during the course of a dispute) in the hope of placing a check on the ‘unregulated escalation’ of disputes. 44 Whether such alleged ‘unregulated escalation’ of Investor-State proceedings is based on actual fact, can be disputed: since the entry into force of the first BITs which gave investors the right to bring cases against host States in the 1960 s, only approximately 1.000 cases have been initiated (only approximately one third of which were actually won by the claimant – and mostly only with a fraction of the compensation claimed).45 In comparison, in 2018 alone, the European Court of Human Rights received about 43.000 applications and delivered 1.014 judgments concerning 2.738 applications, of which 86% were won by the claimants.46 But even leaving this aside, the question is whether the CETA Consultations Article will achieve its goal of lowering the number of investment disputes. 40 United States Trade Representative (Robert Lighthizer), Report on the Appellate Body of the World Trade Organization (2020), p. 26-32 and 120, https://ustr.gov/about-us/policy-offices/press-office/pre ss-releases/2020/february/ustr-issues-report-wto-appellate-body. See also Bungenberg and Reinisch, From Bilateral Arbitral Tribunals and Investment Courts to a Multilateral Investment Court - Options Regarding the Institutionalization of Investor-State Dispute Settlement (2017) 81. 41 Article 21.1 Canada-Moldova BIT. 42 Article 21.2(c) Canada-Moldova BIT. 43 Article 21.2(e)-(f) Canada-Moldova BIT. 44 Schill, ‘Authority, Legitimacy, and Fragmentation in the (Envisaged) Dispute Settlement Disciplines in Mega-Regionals’ in Griller et al. (eds), Mega-Regional Trade Agreements: CETA, TTIP and TiSA: New Orientations for EU External Economic Relations (2017), 111 (138). See Art 8.23(1)(b) CETA and Art 9.19(1) TPP. 45 See the UNCTAD Investment Dispute Settlement Navigator, updated as of 31 December 2019, https://investmentpolicy.unctad.org/investment-dispute-settlement. For information on the damages claimed please refer to the tab ‘Damages’ on the tab bar. 46 See ECHR, The ECHR in facts & figures 2018, March 2019, p. 4-6, available at https://www.echr.coe. int/Documents/Facts_Figures_2018_ENG.pdf.
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An indirect reference to consultations (or negotiations) can be found in almost all existing investment agreements: one OECD study estimates that 81% of BITs require an attempt to settle a dispute amicably, 10% of BITs recommend to make such attempt.47 Such provisions are usually subjected to some kind of time limit after which arbitral proceedings can be initiated. Will expanding upon the existing provisions, as CETA does, in fact result in a higher number of cases being settled before the initiation of dispute settlement proceedings? Arguably, imposing compulsory consultations beyond what is already included in the existing investment agreements was not necessary.48 42 If Parties are of a mind to reach an amicable settlement, they already do so: it is often the preferred option for all Parties involved, particularly if they wish to continue their commercial relationship. As such disputes never develop into fully-fledged cases, they are not included in the relevant statistics, unless Parties reach a settlement after the initiation of the proceedings, which is also frequently the case. For example, roughly 44% of ICSID cases are settled or discontinued before a final ruling is made. 49 From this perspective, it is difficult to see what added benefit CETA could offer – on the contrary, one could argue that the more formalised the consultations are, the more they resemble litigation, the less likely they will lead to an amicable solution. Under CETA, the investor essentially has to spend time and finances on preparing an extensive outline of the facts, legal arguments and evaluation of damages which would otherwise be postponed until the first round of written submissions in the adjudicatory proceedings. This means that the extensive requirements of CETA may act as a perverse incentive to bring a claim: the investor is ready for litigation before the amicable settlement has even started. 41
II. Serving as a Bar to Jurisdiction Article 8.19 CETA is more likely to serve its second and third function: offering the Respondent an opportunity to argue that the Tribunal does not have jurisdiction because either the request for consultations did not contain all required information or the time limits were not respected. Based on the wording of Article 8.22.4 (‘[u]pon the request of the respondent, the Tribunal shall decline jurisdiction if the investor […] fails to fulfil any of the requirements’), it would seem unlikely that the Tribunal could exercise anything more than the most marginal de minimis test before declining jurisdiction. Whether this will have any other effect than extending the duration and cost of such cases is debatable. Unless the statutory time limits have passed, the investor will most likely simply resubmit an amended version of its request for consultations before proceeding, once again to litigation. It is doubtful such a démarche would serve procedural economy for any of the Parties involved. 44 It could be that the CETA Tribunal regards the spirit rather than the letter of the law and, in doing so, follows the example of the International Court of Justice (ICJ). In the Military and Paramilitary Activities case, the ICJ found that prior negotiations amounting to no more than a formality should not be insisted upon as a prerequisite 43
47 Gaukrodger and Gordon, ‚Investor-State Dispute Settlement: A Scoping Paper for the Investment Policy Community’, OECD Working Papers on International Investment, 2012/03, p. 15. http://dx.doi.org/ 10.1787/5k46b1r85j6f-en. 48 Bungenberg and Reinisch, From Bilateral Arbitral Tribunals and Investment Courts to a Multilateral Investment Court (2017) 81. 49 https://icsid.worldbank.org/en/Documents/ICSID%20Fact%20Sheet%20-%20ENGLISH.pdf.
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for jurisdiction. 50 In this case, the US had argued that Nicaragua was obliged to ‘make every effort to achieve a solution to the security problems of Central America through the Contadora process’, this being ‘a precondition to the reference of a dispute to the Security Council [which must] a fortiori apply with even greater force with respect to the Court’. The decisive criterion for disregarding waiting periods was the ‘evident futility of any negotiations’: this should only form a bar to a court’s or tribunal’s competence in ‘extreme circumstances’.51 The application of these seemingly straightforward provisions can lead to questions of ‘surprising complexity’ in investment disputes.52 Insofar as publicly available, there is no case law concerning consultations in In- 45 vestor-State arbitration. However, imposing a consultation round would seem similar to requirements imposing a waiting period, which have already formed the object of disputes. It is therefore instructive to examine how tribunals have dealt with the non-fulfilment of such requirement. For example, in Ethyl Corp v. Canada (1999) the tribunal had to assess the condition under Article 1120 NAFTA that a dispute could only be brought ‘provided six months have elapsed since the events giving rise to a claim’. The tribunal found that there was no chance of Canada changing its mind and thus 46 it was not deprived of jurisdiction.53 The claimant was reprimanded for ‘jumping the gun’ however, as the matter would have been resolved had they waited and so costs were awarded against them. More recently, in Murphy Exploration and Production Company International v. 47 Ecuador, the arbitral tribunal did not assume jurisdiction due to the claimants not respecting a cooling off period.54 It even stated that not complying with such a period ‘constitutes a grave noncompliance, and that because of such noncompliance, this Tribunal lacks competence to hear this case’.55 In Mesa Power Group v. Canada, the tribunal considered the object and purpose of waiting periods: ‘to appraise the State of a possible dispute and to provide it with an opportunity to remedy the situation before the investor initiates an arbitration.’56 In Teinver Transportes de Cercanías and Autobuses Urbanos del Sur v. Argentina, the tribunal considered the term ‘cannot be settled within six months’ to mean ‘that the Parties are obligated to make their best efforts to amicably settle their dispute, and that they are required to do so for six months before proceeding to the next step’.57 This stands opposed to ‘simply requiring that the Parties wait for six months after the dispute began before they proceed to the next step in the dispute settlement process’.58 In other words, this tribunal examined 50 Military and Paramilitary Activities in and against Nicaragua (Nicaragua v. United States of America), Judgment, 26 November 1984, ICJ Reports (1984), 392 (438-441). 51 Schreuer, ‘Travelling the BIT Route. Of Waiting Periods, Umbrella Clauses and Forks in the Road’ (2004) 5 JWIT, 231 (238 f.). 52 Schreuer, ‘Travelling the BIT Route. Of Waiting Periods, Umbrella Clauses and Forks in the Road,’ (2004) 5 JWIT, 231 (256). 53 Ethyl Corp v. Canada, UNCITRAL (NAFTA), Award on Jurisdiction (24 June 1999), para 85. 54 Murphy Exploration and Production Company International v. Republic of Ecuador, ICSID Case No. ARB/08/4, Award on Jurisdiction (15 December 2010), para. 152. 55 Murphy Exploration and Production Company International v. Republic of Ecuador, ICSID Case No. ARB/08/4, Award on Jurisdiction (15 December 2010), para. 152. 56 Mesa Power Group, LLC v. Government of Canada, UNCITRAL, PCA Case No. 2012-17, Award (24 March 2016), paras. 296 ff. 57 Teinver S.A., Transportes de Cercanías S.A. and Autobuses Urbanos del Sur S.A. v. The Argentine Republic, ICSID Case No. ARB/09/1, Decision on Jurisdiction (21 December 2012), para. 108. 58 Teinver S.A., Transportes de Cercanías S.A. and Autobuses Urbanos del Sur S.A. v. The Argentine Republic, ICSID Case No. ARB/09/1, Decision on Jurisdiction (21 December 2012), para. 108.
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the difference between a mere waiting period (cooling-off period), as many existing BITs do, and a period during which the Parties are expected to actively engage in consultations, as CETA does. In Casinos Austria v. Argentina,59 the tribunal found that no breach of the period for amicable consultations laid down in Article 8(2) of the Argentina-Austria BIT had occurred. The six-month consultations period referred to in the BIT ‘cannot be read as a period that has to be fully exhausted’. 60 The tribunal found that the requirement had to be read in connection with the requirement to make use of domestic remedies. Foreign investors ‘can only be expected and required to engage in amicable consultations as long as this is possible in light of existing deadlines under domestic law’.61 48 It remains to be seen how an ICS Tribunal will interpret the consultation requirement of Article 8.19 CETA. As the above shows, the Tribunal will be able to have recourse to the interpretation of cooling off and waiting period provisions by arbitral tribunals. However, said case law only provides for limited guidance as no dispute resolution forum, apart from the ICJ, had to deal with a mandatory consultation requirement. Nevertheless, it would seem unrealistic to expect that the requirement to engage in consultations would in any significant manner lower the number of disputes, even if an ICS tribunal, unlike the ICJ, would regard it as a strict prerequisite for jurisdiction.
59 Casinos Austria International GmbH and Casinos Austria Aktiengesellschaft v. Argentine Republic, ICSID Case No. ARB/14/32, Decision on Jurisdiction (29 June 2018), para. 313. 60 Casinos Austria International GmbH and Casinos Austria Aktiengesellschaft v. Argentine Republic, ICSID Case No. ARB/14/32, Decision on Jurisdiction (29 June 2018), para. 312. 61 Casinos Austria International GmbH and Casinos Austria Aktiengesellschaft v. Argentine Republic, ICSID Case No. ARB/14/32, Decision on Jurisdiction (29 June 2018), para. 312.
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Article 8.20 Mediation 1. The disputing parties may at any time agree to have recourse to mediation. 2. Recourse to mediation is without prejudice to the legal position or rights of either disputing party under this Chapter and is governed by the rules agreed to by the disputing parties including, if available, the rules for mediation adopted by the Committee on Services and Investment pursuant to Article 8.44.3(c). 3. The mediator is appointed by agreement of the disputing parties. The disputing parties may also request that the Secretary General of ICSID appoint the mediator. 4. The disputing parties shall endeavour to reach a resolution of the dispute within 60 days from the appointment of the mediator. 5. If the disputing parties agree to have recourse to mediation, Articles 8.19.6 and 8.19.8 shall not apply from the date on which the disputing parties agreed to have recourse to mediation to the date on which either disputing party decides to terminate the mediation. A decision by a disputing party to terminate the mediation shall be transmitted by way of a letter to the mediator and the other disputing party. Reference to the Respective Provisions in Other EU Treaties: Article 15.4 EU-Vietnam IPA; Article 15.1-10 EU-Singapore IPA; Article 21.6 EU-Japan EPA. Bibliography: Kevin Ackhurst, Stephen Nattrass and Erin Brown, ‘CETA, the Investment Canada Act and SOEs: A Brave New World for Free Trade’ (2016) 31(1) ICSID Rev., 58; Alan Anderson, Ben Beaumont and Herman Verbist, ‘The United Nations Convention on International Settlement Agreements Resulting from Mediation: Its Genesis, Negotiation and Future’, in David Campbell, The Comparative Law Yearbook of International Business Vol. 41 a (Wolters Kluwer, Alphen aan den Rijn 2020), 35; Arvid Bell, From Two-Party to Multi-Party Dispute Resolution: A Negotiation Analysis Perspective, Harvard University, 18 June 2020; Serapine Chew, Lucy Reed and Christopher Thomas, Survey on Obstacles to Settlement of Investor-State Disputes, National University of Singapore, Centre for International Law, November 2016; IBA, ‘Consistency, efficiency and transparency in investment treaty arbitration’, A report by the IBA Arbitration Subcommittee on Investment Treaty Arbitration, November 2018, 46; United Nations, Dispute Settlement, General Topics, 1.3. Permanent Court of Arbitration (United Nations, New York and Geneva 2003); Roberto Echandi and Priyanka Kher, ‘Can International Investor-State Disputes be Prevented? Empirical Evidence from Settlements in ICSID Arbitration’ (2014) 29(1) ICSID Rev., 43; Kun Fan, ‘Mediation of Investor-State Disputes: A Treaty Survey’ (2020) 2 J. Disp. Resol., 327; Mark Feldman, ‘Review of Cases 2015-2016- Key Procedural Developments’, Singapore International Arbitration Academy Singapore, 4 November 2016; History of the ICSID Convention, Vol. II-1, 14, para. 9; APEC Committee on Trade and Investment Experts Group, International Investment Agreement Negotiators Handbook: APEC/UNCTAD Modules, APEC Secretariat, Singapore, December 2012, 144; Anna Joubin-Bret, ‘Chapter 10: Investor-State Mediation (ISM): A Comparison of Recent Treaties and Rules’, in Arthur Rovine, Contemporary Issues in International Arbitration and Mediation: The Fordham Papers (Nijhoff 2014), 166; Catherine Kessedjian, Anne van Aaken, Runar Lie, Loukas Mistelis, ‘Mediation in Future Investor-State Dispute Settlement’, Academic Forum on ISDS Concept Paper 2020/16, 5 March 2020; Meg Kinnear, ‘Modernizing ICSID’s Rules for Investment Dispute Resolution’, 2019/1, 55; Deborah Masucci, ‘Mediating Collective Interests’; Barton Legum, ‘Investor-State Mediation and State Authority’, 18 June 2020; Frauke Nitschke, ‘The IBA’s Investor-State Mediation Rules and the ICSID Dispute Settlement Framework’ (2014) 29(1) ICSID Rev., 112; Frauke Nitschke, ‘The ICSID Conciliation Rules in Practice’, in Catharine Titi and Katia Fach Gómez (eds), Mediation in International Commercial and Investment Disputes (Oxford University Press, Oxford, 2019), 123; Frauke Nitschke, ‘A Preview of ICSID’s New Investor-State Mediation Rules’; Frauke Nitschke, ‘ICSID’s Proposed Mediation Rules’, presented at a webinar of UNCITRAL Working Group III on the Role of mediation in ISDS on 18 June 2020; Frauke Nitschke, ‘Expanding the Pie in Investment Dispute Settlement: ICSID’s Proposed Mediation Rules’, 18 June 2020, available at; Antonio Parra, The History of ICSID (Oxford University Press, Oxford 2012); Luke Peterson, ‘In an Apparent First, Investor and Host-State Agree to Try Mediation under IBA Rules to Resolve an Investment Treaty Dispute’, IAR, 14 April 2016; Proposals for Amend-
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ments of the ICSID Rules, Working Paper 1, 2 August 2018, Vol. 3; Elsa Sardinha, ‘Towards a New Horizon in Investor-State Dispute Settlement? Reflections on the Investment Tribunal System in the Comprehensive Economic Trade Agreement’ (2017) 54, Can. YBIL, 311; Timothy Schnabel, ‘The Singapore Convention on Mediation: A Framework for the Cross-Border Recognition and Enforcement of Mediated Settlements’ (2019) 19(1) Pepp. Disp. Resol. L.J.; Christoph Schreuer, The ICSID Convention: A Commentary (Cambridge University Press, 2001); Catharine Titi and Katia Fach Gómez, Mediation in International Commercial and Investment Disputes (Oxford Universty Press, Oxford 2019); Herman Verbist, ‘UNCITRAL Instruments on Enforcement of International Commercial Settlement Agreements Resulting from Mediation’ (2018) 4 TDM; Herman Verbist, ‘UNCITRAL Working Group II Instruments on Enforcement of International Commercial Settlement Agreements Resulting from Mediation’, January 2019; Herman Verbist, ‘The Amended UNCITRAL Model Law on International Commercial Mediation 2018’, in Dirk de Meulemeester, Maxime Berlingin and Benoît Kohl (eds), 50 years of solutions – 50 ans de solutions – 50 jaar oplossingen: Liber amicorum (Wolters Kluwer, Malines, Liège, Waterloo 2018), 457; Herman Verbist, ‘Mediation as an Alternative Method to Settle Investor-State Disputes’, in Julien Chaisse, Leïla Choukroune and Sufian Jusoh (eds), Handbook of International Investment Law and Policy (Springer, Singapore 2021); Herman Verbist, ‘Chapter 16 – Mediation as a Method to Settle Trade and Investment Disputes’, in Alan Anderson and Ben Beaumont (eds), The Investor-State Dispute Settlement System: Reform, replace or Status Quo? (Wolters Kluwer, 2020); Daniel Weinstein, ‘Making Mediation more Attractive for Investor-State Disputes’, 26 March 2019, Kluwer Arbitration Blog; Chunlei Zhao, ‘Investor-State Mediation in a China-EU Bilateral Investment Treaty: Talking About Being in the Right Place at the Right Time’, (2018) 17 Chinese J. Int’l L., 111-135. A. Introduction and Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
B. Spirit and Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. Data on Investor-State Mediation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. International Chamber of Commerce . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Permanent Court of Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Stockholm Chamber of Commerce . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. International Centre for Settlement of Investment Disputes . . . . . . . . . . . II. ADR Contributes to Case Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. Legal Framework and Rules for Amicable Settlement of Investor-State Disputes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. IBA Rules for Investor-State Mediation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Energy Charter Treaty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. UNCITRAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a) UNCITRAL Model Law on International Commercial Mediation and International Settlement Agreements Resulting from Mediation 2018 b) UNCITRAL Convention on International Settlement Agreements Resulting from Mediation 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . c) UNCITRAL Mediation Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . d) UNCITRAL Notes on Mediation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . e) UNCITRAL Working Group III on Possible ISDS Reform . . . . . . . . . . . . . 4. ICSID . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4 5 6 7 8 9 10 13 13 14 17
C. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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D. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. Conditions for Mediation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Rules Applicable to Mediation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. Code of Conduct for Mediators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV. Mediation Provision in CETA Chapter 29 – Dispute Settlement for Disputes other than Investment Disputes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
46 46 51 58
E. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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18 19 23 24 27 32
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A. Introduction and Overview 1
The Comprehensive Economic and Trade Agreement (CETA) signed on 30 October 2016 between the European Union and Canada contains various provisions on dispute settlement, including Consultation, Mediation, Arbitration and the Invest-
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ment Court System.1 This Chapter focuses on the mediation provisions, which are contained in Article 8.20 regarding the resolution of investment disputes between investors and States. Also, attention is given to rules for mediation for use by Parties in investment disputes as well as the code of conduct for mediators in investment disputes which were adopted on 18 May 2020. The objective of mediation is to facilitate the finding of a mutually agreed solution through a comprehensive and expeditious procedure with the assistance of a mediator.2 Mediation involves engaging a neutral third Party who helps the disputing Parties establish a dialogue and find an amicable solution to the dispute. Informal and flexible, this procedure is essentially an ‘assisted negotiation’.3 In addition to the provisions on investor-State dispute settlement proceedings con- 2 tained in Chapter 8 on Investment, CETA contains a separate chapter, Chapter 29 – Dispute settlement, which provides a series of settlement techniques for disputes other than investment disputes between investors and States : (i) cooperation in order to arrive at a mutually satisfactory resolution if any matter that might affect its operation (Article 29.1); (ii) a recourse under the WTO Agreement or under any other agreement to which the Parties are a part (Article 29.3); (iii) consultations with the other Party (Article 29.4); (iv) mediation (Article 29.5); (v) arbitration (Article 29.6-18) and (vi) a mutually agreed solution (Article 29.19). CETA provides a greater variety of dispute settlement techniques than other Trade 3 and Investment Agreements signed recently by the European Union. This Chapter shall hereafter examine the spirit and the purpose of the provisions on mediation as well as the drafting history before examining the provisions themselves and compare these provisions with other Trade Agreements recently signed by the European Union.
B. Spirit and Purpose Even though arbitration continues to be the go-to dispute solution mechanim 4 for resolving investor-State disputes, there are alternative methods available to settle investor-State disputes. Recent Investment Treaties contain provisions on mediation. 4 This is the case of i.a. CETA; the Free Trade Agreement between the European Union and Singapore (Chapter 15: Mediation Mechanism); the Free Trade Agreement between the European Union and Vietnam (Article 15.4: Mediation Mechanism); the new Model BIT of the Belgian-Luxembourg Economic Union of 28 March 2019
1 Council Decision (EU) 2017/37 of 28 October 2016 on the signing on behalf of the European Union of the Comprehensive Economic and Trade Agreement (CETA) between Canada, of the one part, and the European Union and its Member States, of the other part (OJ L 11, 14 January 2017); Council Decision (EU) 2017/38 of 28 October 2016 on the provisional application of the Comprehensive Economic and Trade Agreement (CETA) between Canada, of the one part, and the European Union and its Member States, of the other part (OJ L 11/1080, 14 January 2017). 2 Comprehensive Economic and Free Trade Agreement (CETA) between Canada, on the one part, and the European Union and its Member States, of the other part, signed in Brussels on 30 October 2016, Annex 29-C, Article 1, OJ L 11/456, 14 January 2017. 3 APEC Committee on Trade and Investment Experts Group, International Investment Agreement Negotiators Handbook: APEC/UNCTAD Modules, APEC Secretariat, Singapore, December 2012, 144. 4 See in this respect also: Joubin-Bret, ‘Chapter 10: Investor-State Mediation (ISM): A Comparison of Recent Treaties and Rules’, in Rovine (ed), Contemporary Issues in International Arbitration and Mediation: The Fordham Papers (2014), 152 (166).
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(Article 19.C)5 and the new Netherlands Model BIT of 22 March 2019 (Articles 17 and 18).6
I. Data on Investor-State Mediation 5
There is little information available on investor-State mediation.7 According to the latest UNCTAD data, a significant percentage of the known investor-State arbitration proceedings in the period from 1987 until 2019 settled, namely 139 out of 674 concludud cases (i.e. 20,62%).8
1. International Chamber of Commerce 6
In the commercial field, the International Chamber of Commerce (ICC) publishes annually statistical information on cases it handles including mediations.9 In 2014, the ICC adopted Mediation Rules,10 which may apply to investor-State disputes. The ICC has so far administered only one-treaty based mediation, which ended unsuccessfully, due to the partial participation of a Party.11 5 See: Belgian Parliament, Doc 54 1806/007, 28 March 2019; see: https://www.dekamer.be/flwb/pdf/5 4/1806/54K1806007.pdf (accessed 2 August 2020). 6 See: https://investmentpolicy.unctad.org/international-investment-agreements/treaty-files/5832/do wnload (accessed 2 August 2020). 7 See UNCITRAL Working Group III, Possible Reform of investor-State dispute settlement (ISDS) – Dispute prevention and mitigation – Means of alternative dispute resolution, 15 January 2020, 39th session, A/CN.9/WG.III/WP.190, para. 37; Kessedjian et al., ‘Mediation in Future Investor-State Dispute Settlement’, Academic Forum on ISDS Concept Paper 2020/16, 5 March 2020, available at: https://www.jus.u io.no/pluricourts/english/projects/leginvest/academic-forum/papers/2020/isds-af-mediation-paper-16 -march-2020.pdf (accessed 14 August 2020). 8 UNCTAD Investment Policy hub, https://investmentpolicy.unctad.org/investment-dispute-settle ment (accessed 6 July 2020); UNCTAD International Investment Agreements Notes, July 2020, Issue 2, available at: https://unctad.org/en/PublicationsLibrary/diaepcbinf2020d6.pdf (accessed 8 July 2020). 9 ICC Statistical information is published annually in the ICC Dispute Resolution Bulletin. See e.g.: ICC DR Bull. 2015/1, 17-20; ICC DR Bull. 2016/1, 19; ICC DR Bull. 2017/2, 114-115; ICC DR Bull. 2018/2, 64-65; ICC DR Bull. 2019/1, 26. Further information can also be found in Verbist, ‘Chapter 16 – Mediation as a Method to Settle Trade and Investment Disputes’, in Anderson and Beaumont (eds), The Investor-State Disputes Settlement System: Reform, replace or Status Quo? (2020). 10 Available at: https://iccwbo.org/dispute-resolution-services/mediation/mediation-rules (accessed 21 June 2020). 11 See: UNCITRAL Working Group III, Possible Reform of investor-State dispute settlement (ISDS) – Dispute prevention and mitigation – Means of alternative dispute resolution, 15 January 2020, 39th session, A/CN.9/WG.III/WP.190, para. 37. Following submission of claim to arbitration under the France-Philippines BIT, the Claimant, Systra, and the Philippines agreed to conduct a mediation under the 2012 International Bar Association Rules for Investor-State Mediation, to be administered by the ICC International Centre for ADR, as set out by Feldman, ‘Review of Cases 2015-2016 – Key Procedural Developments’, Singapore International Arbitration Academy Singapore, 4 November 2016, available at: https://cil.nus.edu.sg/wp-content/uploads/2016/10/Day3-Review-of-Cases-2015-2016-by-Mark-F eldman.pdf; see also: Peterson, ‘In an Apparent First, Investor and Host-State Agree to Try Mediation under IBA Rules to Resolve an Investment Treaty Dispute’, IAR (14 April 2016), online: ; Sardinha, ‘Towards a New Horizon in Investor-State Dispute Settlement? Reflections on the Investment Tribunal System in the Comprehensive Economic Trade Agreement’ (2017) 54 Can. YBIL, 311, available at: https://www.cambridge.org/core/journals/ca nadian-yearbook-of-international-law-annuaire-canadien-de-droit-international/article/towards-a-n ew-horizon-in-investorstate-dispute-settlement-reflections-on-the-investment-tribunal-system-in-th e-comprehensive-economic-trade-agreement-ceta/FF482D991CE549CBE1098431B52FFF16 (accessed 14 August 2020); Kessedjian et al., ‘Mediation in Future Investor-State Dispute Settlement’, Academic Forum on ISDS Concept Paper 2020/16, 5 March 2020, available at: https://www.jus.uio.no/pluricourt
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2. Permanent Court of Arbitration The Permanent Court of Arbitration (PCA) administers many investor-State arbi- 7 trations.12 In 1962, the PCA elaborated a set of ‘Rules of Arbitration and Conciliation for settlement of investment disputes between two parties of which only one is a State’, which inspired the subsequent adoption of the ICSID Convention by the World Bank.13 The PCA released in 1996 Optional Conciliation Rules, based on the UNCITRAL Conciliation Rules.14 The PCA has so far not administered any investorState mediation.15
3. Stockholm Chamber of Commerce The Arbitration Institute of the Stockholm Chamber of Commerce (SCC) admin- 8 isters many investor-State arbitrations.16 The SCC adopted Mediation Rules in 2014 which may apply to investor-State disputes.17 The SCC has sofar not administered any investor-State mediation.18
4. International Centre for Settlement of Investment Disputes The International Centre for Settlement of Investment Disputes (ICSID) is the 9 world’s leading institution devoted to international investment dispute settlement. The Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention)19 established ICSID and provides procedures for the settlement by conciliation or arbitration of investment disputes between States and foreign investors.20 At the outset, conciliation was the preferred method for investment dispute settlement because (a) the World Bank had had successful experience with conciliation, and (b) conciliation did not in any way infringe or appear to infringe upon a country’s sovereignty. Conciliation being more acceptable than arbitration, it was likely to be more effective.21 The drafters of the Convention s/english/projects/leginvest/academic-forum/papers/2020/isds-af-mediation-paper-16-march-2020.p df (accessed 14 August 2020); Fan, ‘Mediation of Investor-State Disputes: A Treaty Survey’ (2020) 2, J. Disp. Resol., 327 (331), available at: https://www.ssrn.com (accessed 14 August 2020). 12 Statistical information on the PCA available at: https://pca-cpa.org/en/documents/publications/ (accessed 21 June 2020). 13 United Nations, Dispute Settlement, General Topics, 1.3. Permanent Court of Arbitration (2003), 6, available at: https://unctad.org/en/Docs/edmmisc232add26_en.pdf (accessed 21 June 2020). 14 United Nations, Dispute Settlement, General Topics, 1.3. Permanent Court of Arbitration (2003), 11. 15 See UNCITRAL Working Group III, Possible Reform of investor-State dispute settlement (ISDS) – Dispute prevention and mitigation – Means of alternative dispute resolution, 15 January 2020, 39th session, A/CN.9/WG.III/WP.190, paras. 41, 44; Statistical information on the PCA available at: https://pca-cpa.o rg/en/documents/publications/ (accessed 21 June 2020). 16 Statistical information on the SCC case load available at: https://sccinstitute.com/statistics/ (accessed 21 June 2020). 17 Available at: https://sccinstitute.com/media/49819/medlingsregler_eng_web.pdf (accessed 21 June 2020). 18 See UNCITRAL Working Group III, Possible Reform of investor-State dispute settlement (ISDS) – Dispute prevention and mitigation – Means of alternative dispute resolution, 15 January 2020, 39th session, A/CN.9/WG.III/WP.190, paras. 41, 44. 19 The Convention was adopted on 16 March 1965 by the World Bank in Washington and has thus far 154 Contracting States and nine signatory States. Available at: https://icsid.worldbank.org/en/Pages/ about/Database-of-Member-States.aspx (accessed 21 June 2020). 20 Parra, The History of ICSID (2012), 1. 21 See: History of the ICSID Convention, Vol. II-1, 14, para. 9, available at: https://icsid.worldbank.or g/sites/default/files/publications/History%20of%20the%20ICSID%20Convention/History%20of%20 ICSID%20Convention%20-%20VOLUME%20II-1.pdf (accessed 11 July 2021); Nitschke, ‘The ICSID
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envisioned conciliation and arbitration to be on an equal footing.22 In actual practice, resort to conciliation has been minimal.23 So far, there have been 12 ICSID registered conciliation cases, of which nine are concluded and three are still pending. 24 The ICSID statistics on these 12 conciliations indicate that in 78 percent of the cases, the Conciliation Commission issued a report, whilst in the remaining 22 percent proceedings were discontinued. In the conciliations where the Conciliation Commission issued a report, the report recorded in 86 percent of the cases a failure of the Parties to reach agreement, whilst in the remaining 14 percent of the cases, the Conciliation Commission recorded an agreement of the Parties.25 The latest ICSID caseload statistics indicate that 65 percent of all arbitration proceedings under the ICSID Convention and Additional Facility Rules are decided by a tribunal. However, 35 percent of the disputes are settled or the proceedings are otherwise discontinued, including 5 percent of cases where a settlement agreement is embodied in an award at the Parties’ request.26
II. ADR Contributes to Case Settlement 10
Data shows that ADR contributes to case settlement.27 A study on the 410 arbitrations registered between 1970 and 2012 at ICSID under the ICSID Convention and Additional Facility Rules shows that 104 disputes were discontinued before any award on the merits had been rendered, which represents over 25 percent of the total number of disputes registered at ICSID in that period.28 The study also showed that out of the total number of arbitration disputes between 1970 and 2012 that were discontinued, 88 percent were settlements. Only 9 arbitration proceedings at ICSID were discontinued because of lack of payment of advances. This means that between 1970 and 2012, 22 percent of all treaty-based disputes were settled.29 Most of the settlements during that period (39 percent) took place in the early stage of the arbitration, between the registration of the dispute and before the discussion on jurisdiction begins.30 The fact that settlements are tending to take place in early stages of the process means that the Conciliation Rules in Practice’, in Titi and Fach Gómez (eds), Mediation in International Commercial and Investment Disputes (2019), 123. 22 Nitschke, ‘The ICSID Conciliation Rules in Practice’, in Titi and Fach Gómez (eds), Mediation in International Commercial and Investment Disputes (2019), 123. 23 Schreuer, The ICSID Convention: A Commentary (2001), 8, para. 22. 24 UNCITRAL, Settlement of Commercial Disputes, International Commercial Arbitration: Draft UNCITRAL Notes on Mediation, 3 January 2020, A/CN.9/1027, available at: https://undocs.org/en/A /CN.9/1027; Kessedjian et al., ‘Mediation in Future Investor-State Dispute Settlement’, Academic Forum on ISDS Concept Paper 2020/16, 5 March 2020, available at: https://www.jus.uio.no/pluricourts/eng lish/projects/leginvest/academic-forum/papers/2020/isds-af-mediation-paper-16-march-2020.pdf (accessed 14 August 2020). 25 ICSID Caseload Statistics, Issue 2021-1, para. 8, Charts 10 and 11; available at: https://icsid.worldb ank.org/sites/default/files/publications/Caseload%20Statistics/en/The%20ICSID%20Caseload%20Statis tics%20%282020-1%20Edition%29%20ENG.pdf (accessed 11 July 2021). 26 Ibid., para. 7, Chart 9.A. 27 IBA Arbitration Subcommittee on Investment Treaty Arbitration, ‘Consistency, efficiency and transparency in investment treaty arbitration’, November 2018, 46, available at: http://www.ibanet.org (accessed 14 August 2020). 28 Echandi and Kher, ‘Can International Investor-State Disputes be Prevented? Empirical Evidence from Settlements in ICSID Arbitration’ (2014) 29(1) ICSID Rev., 41 (43). 29 Echandi and Kher, ‘Can International Investor-State Disputes be Prevented? Empirical Evidence from Settlements in ICSID Arbitration’ (2014) 29(1) ICSID Rev., 41 (50 and 52). 30 Echandi and Kher, ‘Can International Investor-State Disputes be Prevented? Empirical Evidence from Settlements in ICSID Arbitration’ (2014) 29(1) ICSID Rev., 41 (57).
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assessment leading to the conclusion of a settlement can be undertaken by the Parties themselves, without the help of the arbitral tribunal. 31 This fact also suggests that cases which are settled in the early phases of the arbitration process, could have been prevented from reaching international arbitration had the space/platform to pursue an informed and interest-based negotiation process been provided to the Parties prior to the registration of the case.32 As the study concludes, the significant number of arbitration disputes settled at early stages of the proceedings reveals the potential for establishing mechanisms to enable States and investors to effectively manage their conflicts and find mutually agreed solutions before such grievances escalate into an international arbitration. Such mechanism could not only reduce the growing caseload, but more importantly, could strengthen the relations between investors and host States by promoting problem solving without incurring the economic and political costs of international arbitration.33 Even if the Parties are unable to reach a negotiated settlement of the entirety of 11 the claims in issue, the use of ADR mechanisms can certainly help to streamline the dispute such that only a portion of it remains to be determined by a tribunal. Thus, ADR techniques may reduce the time and costs of arbitral proceedings. 34 While arbitration usually offers only the investor the right to commence a dispute, both an investor and State may initiate mediations or consultations. Mediations, conciliation or consultation procedures are motivated more by the needs and interests of the Parties than their legal rights. Therefore, a State may still be encouraged to mediate a dispute over arbitrating it.35 Furthermore, mediation may be better suited to the participation of non-Party 12 stakeholders, who may not have standing to participate in the arbitration process. Participation of these non-Parties in the mediation process may assist with the implementation of any agreements that are reached. In the investor-State context, the confidentiality, procedural flexibility, and range of outcome choices make mediation even more attractive, as does the possibility of using mediation in tandem with the existing arbitration structure, notably during treaty-imposed ‘cooling off ’ periods. Additionally, as a less adversarial means of dispute resolution, mediation might alleviate certain concerns of investors, especially foreign ones, who might otherwise be hesitant to sue the government.36
31 Echandi and Kher, ‘Can International Investor-State Disputes be Prevented? Empirical Evidence from Settlements in ICSID Arbitration’ (2014) 29(1) ICSID Rev., 41 (59). 32 Echandi and Kher, ‘Can International Investor-State Disputes be Prevented? Empirical Evidence from Settlements in ICSID Arbitration’ (2014) 29(1) ICSID Rev., 41 (59). 33 Echandi and Kher, ‘Can International Investor-State Disputes be Prevented? Empirical Evidence from Settlements in ICSID Arbitration’ (2014) 29(1) ICSID Rev., 41 (65). 34 IBA Arbitration Subcommittee on Investment Treaty Arbitration, ‘Consistency, efficiency and transparency in investment treaty arbitration’, November 2018, 46. 35 IBA Arbitration Subcommittee on Investment Treaty Arbitration, ‘Consistency, efficiency and transparency in investment treaty arbitration’, November 2018, 47. 36 Fan, ‘Mediation of Investor-State Disputes: A Treaty Survey’ 2020 (2) J. Disp. Resol., 327 (331), available at: https://www.ssrn.com (accessed 14 August 2020).
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III. Legal Framework and Rules for Amicable Settlement of Investor-State Disputes 1. IBA Rules for Investor-State Mediation 13
On 4 October 2012, the International Bar Association (IBA) adopted the IBA Rules for investor-State Mediation37, which are stand-alone rules for the settlement of investor-State disputes containing eleven Articles. They were so far used in an ICSID Conciliation (Case No. CONC/(AF)/12/2).38 The IBA Investor-State Mediation Rules are sufficiently different and do not overlap with ICSID Conciliation. 39 As regards confidentiality, Article 10(3)(a) of the IBA Rules provides that the existence of a mediation process itself is not submitted to confidentiality requirements, but that the documents exchanged and given to the mediator and the mediation process are confidential.40 Pursuant to Article 4(1), there shall be a sole mediator, unless the Parties designate two co-mediators. If the Parties have not jointly designated a mediator within 21 days, the Parties shall, within 14 days, agree on an institution or person that shall assist them in choosing a mediator (Designating Authority) in accordance with the procedure set out in Appendix C (Choice of Mediator Through Designating Authority) (Article 4(6)). If the Parties do not agree on a Designating Authority within 14 days, then the Secretary-General of the Permanent Court of Arbitration at The Hague shall select a Designating Authority upon the request of either Party (Article 4(7)). Article 8(1) provides that the mediation shall be conducted in accordance with the Parties’ wishes and with the assistance of the mediator. Pursuant to Article 9, as soon as practicable following the mediator’s designation, the mediator shall convene a mediation management conference with the Parties, whether in person, by telephone or by any other means of telecommunication, to discuss: (a) the conduct of the mediation, in particular any outstanding procedural issues such as the languages and location of the mediation sessions; (b) a provisional timetable for the conduct of the mediation; (c) confidentiality and privacy arrangements, including any legal disclosure obligation that may affect such arrangements; (d) the applicability of any relevant prescription or limitation periods and whether the Parties wish to address such periods by agreement; (e) whether the Parties wish to agree in writing not to commence or not to continue any arbitral or judicial proceedings relating to the differences or disputes that are the subject of the mediation while the mediation is pending; (f) whether special arrangements for the approval of a settlement agreement need to be made; and (g) the financial arrangements, such as the calculation and payment of the mediator’s fees and expenses.
37 See: https://www.ibanet.org/MediaHandler?id=C74CE2C9-7E9E-4BCA-8988-2A4DF573192C (accessed 11 July 2021). 38 Joubin-Bret, ‘Chapter 10: Investor-State Mediation (ISM): A Comparison of Recent Treaties and Rules’, in Rovine (ed), Contemporary Issues in International Arbitration and Mediation: The Fordham Papers (2014), 152 (166). 39 Nitschke, ‘The IBA’s Investor-State Mediation Rules and the ICSID Dispute Settlement Framework’ (2014) 29(1) ICSID Rev., 112 (126). 40 Joubin-Bret, ‘Chapter 10: Investor-State Mediation (ISM): A Comparison of Recent Treaties and Rules’, in Rovine (ed), Contemporary Issues in International Arbitration and Mediation: The Fordham Papers (2014), 152 (162).
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2. Energy Charter Treaty The Energy Charter Treaty (ECT), which was signed in December 1994 and en- 14 tered into force in April 1998,41 provides the possibility to settle investment disputes through mediation. Its Article 26 allows Parties to a dispute to agree to use good offices, structured negotiation, mediation or conciliation using existing mechanisms or even agreeing on a tailor-made mechanism.42 Article 7.7 provides a specialised conciliation mechanism for transit disputes related to the transit and supply of electricity, natural gas, oil and oil products through cross-border grids and pipelines. The conciliation rules were last amended in 2015 and a commentary was endorsed by the Conference in 2016.43 In 2016, the Energy Charter Conference adopted a Guide on Investment Mediation, 15 recognising mediation as a helpful instrument to facilitate the amicable resolution of investment disputes and encouraged its Contracting Parties to consider to use mediation on a voluntary basis as one of the options at any stage of the dispute to facilitate its amicable solution and to consider the good offices of the Energy Charter Secretariat. The Guide was prepared with the support of the International Mediation Institute, ICSID, the Arbitration Institute of the Stockholm Chamber of Commerce (SCC), the International Court of Arbitration of the International Chamber of Commerce (ICC), UNCITRAL and the Permanent Court of Arbitration (PCA). 44 The latest ECT caseload statistics indicate that of the 131 arbitration cases handled thusfar under the ECT, nine cases have been settled of which four were embodied in an award. 45 In 2018, the Energy Charter Secretariat developed a draft Model Instrument on 16 Management of Investment Disputes, with a draft Explanatory Note. 46 The Energy Charter draft Model Instrument recommends States to create a Responsible Body for resolution of disputes arising out of International Investment Agremeents or of Investments Contracts. This proposed instrument also provides negotiation, mediation and other amicable settlement mechanisms to settle investment disputes arising out of International Investment Agreemets or out of International Investment Contracts (Article 22-24 thereof).
3. UNCITRAL In 2018, the United Nations Commission on International Trade Law 17 (UNCITRAL) adopted two instruments that provide for common legislative standards for the enforcement of international commercial settlement agreements resulting from mediation and make such type of dispute settlement more efficient: (i) a Convention on International Settlement Agreements Resulting from Mediation, and (ii) the 41 There are currently 53 signatories and Contracting Parties to the Treaty. This includes both the European Union and Euratom. Treaty, available at: https://www.energycharter.org/process/energy-char ter-treaty-1994/energy-charter-treaty/ (accessed 21 June 2020). 42 Available at: https://www.energycharter.org/what-we-do/dispute-settlement/amicable-resolution-o f-disputes/ (accessed 21 June 2020). 43 Available at: https://www.energycharter.org/fileadmin/DocumentsMedia/CCDECS/2015/CCDEC2 01511.pdf (accessed 21 June 2020). 44 Available at: https://www.energycharter.org/fileadmin/DocumentsMedia/CCDECS/2016/CCDEC2 01612.pdf (accessed 2 August 2020). 45 Available at: https://www.energychartertreaty.org/fileadmin/DocumentsMedia/Statistics/All_statis tics_-_15_June_2020.pdf (accessed 21 June 2020). 46 Energy Charter Secretariat, Model Instrument on Management Of Investment Disputes, 23 December 2018, CCDEC2018 – 26 INV, see: https://www.energycharter.org/fileadmin/DocumentsMedia/CCDEC S/2018/CCDEC201826_-_INV_Adoption_by_correspondence_-_Model_Instrument_on_Management _of_Investment_Disputes (accessed 2 August 2020).
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UNCITRAL Model Law on International Commercial Mediation and International Settlement Agreements Resulting from Mediation, 2018. UNCITRAL adopted both instruments without creating any expectation that interested States may adopt either instrument.47 Both instruments were prepared by Working Group II (Dispute Resolution) of UNCITRAL. a) UNCITRAL Model Law on International Commercial Mediation and International Settlement Agreements Resulting from Mediation 2018 18
On 25 June 2018, the Commission of UNCITRAL at it session in New York adopted the Model Law on International Commercial Mediation and International Settlement Agreements resulting from Mediation 2018, 48 amending the UNCITRAL Model Law on International Commercial Conciliation 2002.49 On 20 December 2019, the General Assembly recommended that all States give favourable consideration to the Model Law on International Commercial Mediation and International Settlement Agreements resulting from Mediation 2018, amending the UNCITRAL Model Law on International Commercial Conciliation 2002, when the States revise or adopt legislation relevant to mediation, bearing in mind the desirability of uniformity of the law of mediation procedures and the specific needs of international commercial mediation practice.50 b) UNCITRAL Convention on International Settlement Agreements Resulting from Mediation 2019
On 20 December 2018, the General Assembly of the United Nations adopted the Convention on International Settlement Agreements Resulting from Mediation (Singapore Convention). It called upon the Member States and regional economic integration organisations that wish to strengthen the legal framework on international dispute resolution to consider becoming a Party to the Convention.51 20 The Singapore Convention provides States with consistent standards on the crossborder enforcement of international settlement agreements resulting from media19
47 UNCITRAL, Report of Working Group II (Dispute Settlement) on the work of its 68th session (New York, 5-9 February 2018), 19 February 2018, A/CN.9/934, paras. 140-142. 48 See generally: UNCITRAL, Report of the United Nations Commission on International Trade Law, Fifty-first session (25 June-13 July 2018), 31 July 2018, A/73/17, paras. 18–49. See also Verbist, ‘The Amended UNCITRAL Model Law on International Commercial Mediation 2018’, in De Meulemeester et al. (eds), 50 years of solutions – 50 ans de solutions – 50 jaar oplossingen: Liber amicorum (2018), 457. 49 Legislation based on or influenced by the UNCITRAL Model Law on International Commercial Conciliation (2002) has been adopted in 33 States in a total of 45 jurisdictions; see: https://uncitral.un.o rg/en/texts/arbitration/modellaw/commercial_conciliation/status (accessed 21 May 2020). 50 UN General Assembly Document, Resolution adopted by the General Assembly on 20 December 2018, 73rd session (2018-2019), adopting document A/73/496, 10-17, 11 January 2019, A/RES/73/198, available at: http://research.un.org/en/docs/ga/quick/regular/73 (accessed 16 August 2020). 51 UN General Assembly Document, Resolution adopted by the General Assembly on 20 December 2018, 73rd session (2018-2019), adopting document A/73/496, 10-17, 11 January 2019, A/RES/73/198; United Nations Convention on International Settlement Agreements Resoluting from Mediation (Singapore Convention on mediation), available at: http://undocs.org/en/A/RES/73/198. See also: Verbist, ‘UNCITRAL Instruments on Enforcement of International Commercial Settlement Agreements Resulting from Mediation’ (2018) 4, 6; Verbist, ‘UNCITRAL Working Group II Instruments on Enforcement of International Commercial Settlement Agreements Resulting from Mediation’, January 2019, available at: https://static1.squarespace.com/static/5a4599e6bce17688a9e7bde2/t/5c3a6bb5562fa75d70fc4da3/154 7332534675/H+Verbist+WG+II+Paper+and+Appendices+-+JAN2019.pdf (19 March 2019).
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tion.52 It does not require the disputing Parties to have had an agreement to mediate. It applies regardless of whether the Parties had a prior agreement or not. As a consequence, an eventual settlement agreement may address issues outside of the scope of an agreement to mediate, unlike the New York Convention’s requirement that an arbitral award may only address issues within the scope of an agreement to arbitrate.53 The Singapore Convention does not apply to settlement agreements concluded to resolve a dispute arising from transactions engaged in by one Party as a consumer for personal, family or household purposes and does not apply to settlement agreements relating to family, inheritance or employment law. Also, the Singapore Convention does not apply to settlement agreements that have been approved by a court or concluded in the course of proceedings before a court. It also does not apply to settlement agreements that are enforceable as a judgment in the State of that court. Furthermore, it does not apply to settlement agreements that have been recorded and are enforceable as an arbitral award. Article 1(3) of the Singapore Convention provides that it will be for the competent authority where enforcement is sought to determine under its law whether a settlement agreement reached out-of-court can be laid down in a judgment or not. Each Party to the Singapore Convention shall enforce a settlement agreement in accordance with its rules of procedure and under the conditions laid down in it. The rules of procedure may thus differ in the States adhering to the Singapore Convention. It does not contain in its title the term ‘enforcement’, but provides for a ‘direct’ enforcement of settlement agreements resulting from mediation, in accordance with the rules of procedure of the State for enforcement and the conditions laid down in it. Article 8 provides the possibility for States to make two reservations when signing 21 it. This allows States to declare that the Singapore Convention shall not apply to settlement agreements to which they are themselves or to which State agencies are a Party (Article 8(1)(a)). States may also make the reservation that the Singapore Convention shall only operate on an opt-in basis, if the Parties to a settlement agreement have agreed to the application of it (Article 8(1)(b)). 54 Moreover, even without an explicit provision in the Singapore Convention, Parties to a settlement agreement will be able to exclude its application.55 The Singapore Convention also provides flexibility for the timing at which States may declare a reservation (Article 8(3)) or withdraw it (Article 8(5)). Pursuant to Article 8, the Singapore Convention will apply
52 UN General Assembly Document, Resolution adopted by the General Assembly on 20 December 2018, 73rd session (2018-2019), adopting document A/73/496, 10-17, 11 January 2019, A/RES/73/198; see also Anderson et al., ‘The United Nations Convention on International Settlement Agreements Resulting from Mediation: Its Genesis, Negotiation and Future’, in Campbell (ed), The Comparative Law Yearbook of International Business Vol. 41 a (2020), 35. 53 Schnabel, ‘The Singapore Convention on Mediation: A Framework for the Cross-Border Recognition and Enforcement of Mediated Settlements’ (2019) 19 (1), Pepp. Disp. Resol. L.J., available at: https:/ /papers.ssrn.com/sol3/papers.cfm?abstract_id=3239527. Mr. Schnabel negotiated the Singapore Convention on behalf of the United States in UNCITRAL Working Group II. 54 UNCITRAL, Report of Working Group II (Dispute Settlement) on the work of its 68th session (New York, 5-9 February 2018), 19 February 2018, A/CN.9/934, paras. 38-39. 55 UNCITRAL, Report of Working Group II (Dispute Settlement) on the work of its 68th session (New York, 5-9 February 2018), 19 February 2018, para. 38.
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to settlements reached in the context of investment disputes, 56 unless the States would formulate a reservation or a declaration excluding such settlements.57 22 Forty-six countries signed the Convention on 7 August 2019, the day it opened for signatures. This is the highest number of first-day signatories of an UNCITRAL Convention to date.58 Singapore was the first country to sign.59 Meanwhile, 53 countries have signed the Convention and 6 countries have ratified the Convention. 60 Pursuant to Article 14, the Singapore Convention shall enter into force six months after the deposit of the third instrument of ratification, acceptance, approval, or accession. Following the deposit of the instrument of ratification by Qatar on 12 March 2020, the Singapore Convention has entered into force on 12 September 2020. 61 c) UNCITRAL Mediation Rules 23
In addition to the two instruments which provide for common legislative standards for the enforcement of international commercial settlement agreements resulting from mediation, UNCITRAL has also prepared Rules on Mediation which can be used ad hoc by the Parties in conducting mediations. The draft UNCITRAL Mediation Rules (2020), which update the UNCITRAL Conciliation Rules (1980), are submitted for
56 Nitschke, ‘A Preview of ICSID’s New Investor-State Mediation Rules’, Kluwer Mediation Blog, 10 January 2020, available at: http://mediationblog.kluwerarbitration.com/2020/01/10/a-preview-of-ic sids-new-investor-state-mediation-rules/?doing_wp_cron=1591366099.2868781089782714843750 (accessed 5 June 2020). 57 UNCITRAL, Report of Working Group II (Arbitration and Conciliation) on the work of its 63rd session (Vienna, 7-11 September 2015), 17 September 2015, A/CN.9/861, paras. 44-46; UNCITRAL, UNCITRAL Working Group II (Dispute Settlement), Settlement of commercial disputes, International commercial conciliation: preparation of an instrument on enforcement of international commercial settlement agreements resulting from conciliation, 30 June 2016, A/CN.9/WG.II/WP.198, para. 24; UNCITRAL, Report of Working Group II (Dispute Settlement) on the work of its 65th session (Vienna, 12-23 September 2016), 30 September 2016, A/CN.9/896, paras. 61-62; UNCITRAL, UNCITRAL Working Group II (Dispute Settlement), Settlement of commercial disputes, International commercial mediation: preparation of instruments on enforcement of international commercial settlement agreements resulting from mediation, 23 November 2017, A/CN.9/WG.II/WP.205, para. 28. For the discussion at UNCITRAL Working Group II on Article 8 of the Singapore Convention on Mediation, see: UNCITRAL, Report of Working Group II (Dispute Settlement) on the work of its 68th session (New York, 5-9 February 2018), 19 February 2018, A/CN.9/934, paras. 72-93. 58 Herbert Smith Freehills, ‘46 countries sign the new Singapore Convention on mediated settlements today’, 7 August 2019; Komindr, ‘UNCITRAL and Legal Innovations in International Commercial Mediation’ (2020) 11 Korean Arb. Rev., 26 (31). 59 The 46 signatories of the Singapore Convention as of 7 August 2019 are: Afghanistan, Belarus, Belize, Brunei, Chile, China, Colombia, Republic of the Congo, Democratic Republic of the Congo, Kingdom of Eswatini, Fiji, Georgia, Grenada, Haiti, Honduras, India, Iran, Israel, Jamaica, Jordan, Kazakhstan, Laos, Malaysia, Maldives, Mauritius, Montenegro, Nigeria, North Macedonia, Palau, Paraguay, Philippines, Qatar, South Korea, Samoa, Saudi Arabia, Serbia, Sierra Leone, Singapore, Sri Lanka, Timor Leste, Turkey, Uganda, Ukraine, the United States, Uruguay and Venezuela. Subsequently, 8 other countries signed the Singapore Convention: Armenia (26 September 2019), Chad (26 September 2019), Ecuador (25 September 2019), Gabon (25 September 2019), Guinea-Bissau (25 September 2019), Rwanda (28 January 2020), Ghana (22 July 2020) and Brazil (4 June 2021); see: UNCITRAL website: https://uncitral.un.org/en/texts/mediation/conventions/international_settlement_agreements/status (accessed 11 July 2021). 60 The six countries having ratified the Singapore Convention are: Belarus (15 July 2020), Ecuador (9 September 2020, Fiji (25 February 2020), Qatar (12 March 2020), Saudi Arabia (5 May 2020) and Singapore (25 February 2020); see: https://uncitral.un.org/en/texts/mediation/conventions/internationa l_settlement_agreements/status (accessed 17 January 2021). 61 Available at: http://www.unis.unvienna.org/unis/en/pressrels/2020/unisl393.html (accessed 17 January 2021).
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adoption to the Commission of UNCITRAL.62 These UNCITRAL Mediation Rules should apply when the Parties agree to them (Article 1.1). d) UNCITRAL Notes on Mediation UNCITRAL also drafted Notes on Mediation (Notes) taking account of the newly 24 adopted instruments on international commercial mediation.63 The Notes first state the main features of mediation: it is a non-adjudicatory, flexible and voluntary process based on Party autonomy and the legal framework: the Singapore Convention, mediation laws and the Mediation Rules. The Notes further list and briefly describe matters relevant to mediation pursuant to the different phases of mediation, which are commencement of the mediation; selection and appointment of a mediator; preparatory steps; conduct of the mediation; settlement agreement; termination of the mediation; mediation in the investor-State dispute settlement context. Regarding the preparatory steps, the Notes state that it is common for the parties 25 and the mediator to sign terms of reference, which will cover various elements of the mediation and mediators’ involvement in the process. The terms of reference may contain an outline of the dispute, relevant rules determining the conduct of the mediation, such as the ethical standards applicable to the mediator and relevant disclosure obligations as well as the Parties’ agreement regarding confidentiality (Point 3 (a)). The Notes add that it is advisable for the Parties to consider at the outset of the mediation the extent to which they wish the mediation to remain confidential, and to check applicable law and rules to ensure that the confidentiality obligations are clearly spelled out and sufficiently safeguarded (Point 3 (d)). The draft Notes also refer to mediation in the investor-State dispute settlement 26 context and address the issue of third Parties. Mediation can be efficiently used during the ‘cooling-off period’, as well as in parallel track during or even after arbitral, judicial or other dispute resolution proceedings have been commenced or concluded. A number of specific issues are highlighted which may arise in the investor-State dispute settlement context and which should be envisioned at the start of the mediation: (a) selection and appointment of a mediator; (b) confidentiality and transparency; (c) third Parties; (d) authority to settle. A dispute may affect and concern the civil society and/or other interested stakeholders. These third Parties may be allowed by the Parties to participate in the mediation and make submissions, if they meet certain criteria as agreed by them. If the Parties have agreed that third Parties may attend mediation sessions, the mediator and the Parties should be mindful of the interests that are represented and the authority of each representative (Point 7 (c)). e) UNCITRAL Working Group III on Possible ISDS Reform Since 2017, UNCITRAL Working Group III (WG III) started discussing a possible 27 reform of ISDS.64 WG III noted that resort to arbitration is the predominant means used in resolving investor-State disputes and it observed that alternative dispute reso62 UN General Assembly, UNCITRAL, 54th session, Vienna, 28 June-16 July 2021, Settlement of Commercial Disputes, International commercial Mediation: Draft UNCITRAL Mediation Rules, 8 April 2021, A/CN.9/1074, 2. 63 UN General Assembly, UNCITRAL, 54th session, Vienna, 28 June-16 July 2021, Settlement of Commercial Disoutes, International commercial Mediation: Draft UNCITRAL Notes on Mediation, 8 April 2021, A/CN.9/1075. 64 Working papers and submissions of governments for UNCITRAL Working Group III on InvestorState Dispute Settlement Reform are available at: https://uncitral.un.org/en/working_groups/3/investor -state (accessed 5 June 2020).
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lution methods are available, but they seem to be rarely used, despite the existing legal framework.65 The UNCITRAL Commission entrusted WG III with a broad mandate to work on the possible reform of investor-State dispute settlement. From the start of its discussions, the Working Group considered whether work should be limited to arbitration or should include other types of existing ISDS mechanisms. There was a generally shared view that alternative dispute resolution methods, including mediation, ombudsman, consultation, conciliation and any other amicable settlement mechanisms, could operate to prevent the escalation of disputes to arbitration and could alleviate concerns about the costs and duration of arbitration. WG III decided to concentrate its work first on identifying concerns regarding arbitration and to consider other types of ISDS mechanisms subsequently as part of a holistic approach to addressing those concerns.66 28 At its 38th session, WG III agreed on a project schedule on reform options and requested the Secretariat to undertake preparatory work on dispute prevention and mitigation as well as on means of alternative dispute resolution. The UNCITRAL Secretariat prepared for the discussion in WG III a note in which it makes proposals focusing on the ‘prevention’ of disputes, rather than ‘post-dispute’ regulation as cost-effective approach to the reform of ISDS.67 With respect to alternative dispute resolution methods, the Secretariat’s note points out that investment treaties foresee a time frame, more commonly known as the ‘cooling-off ’ period, ranging from three to eighteen months during which the disputing Parties may attempt amicable settlement before arbitration. Often, investment treaties include a two-tiered dispute settlement clause, providing first for some form of alternative dispute resolution before culminating, at the second tier, with a resolution of the investor-State dispute by an arbitral tribunal.68 The note points out that it is difficult to collect accurate data on the use of alternative dispute resolution methods, as these methods are usually confidential. It also refers to studies and publications made on the subject of obstacles to settlement in ISDS that identify many reasons for the difficulties encountered, such as fear of public criticism, fear of allegations of corruption, fear of setting a precedent, difficulties regarding access to public funds to organise the defence, as well as difficulties regarding intergovernmental coordination in short time frames.69
65 UNCITRAL Working Group III, Possible Reform of investor-State dispute settlement (ISDS) – Dispute prevention and mitigation – Means of alternative dispute resolution, 15 January 2020, 39th session, A/ CN.9/WG.III/WP.190, para. 37. 66 UN General Assembly, UNCITRAL, 51st session, New York, 25 June-13 July 2019, Report of Working Group III (Investor-State Dispute Settlement Reform) on the work of its 34th session (Vienna, 27 November-1 December 2017), Part I, 19 December 2017, A/CN.9/930/Rev.1, paras. 31-33, para. 74. 67 UNCITRAL Working Group III, Possible Reform of investor-State dispute settlement (ISDS) – Dispute prevention and mitigation – Means of alternative dispute resolution, 15 January 2020, 39th session, A/ CN.9/WG.III/WP.190, para. 5. 68 UNCITRAL Working Group III, Possible Reform of investor-State dispute settlement (ISDS) – Dispute prevention and mitigation – Means of alternative dispute resolution, 15 January 2020, 39th session, A/ CN.9/WG.III/WP.190, paras. 11-44. 69 UNCITRAL Working Group III, Possible Reform of investor-State dispute settlement (ISDS) – Dispute prevention and mitigation – Means of alternative dispute resolution, 15 January 2020, 39th session, A/ CN.9/WG.III/WP.190, para. 44; Chew et al., Survey on Obstacles to Settlement of Investor-State Disputes, National University of Singapore, Centre for International Law, November 2016, available at: https://c il.nus.edu.sg/wp-content/uploads/2018/09/NUS-CIL-Working-Paper-1801-Report-Survey-on-Obs tacles-to-Settlement-of-Investor-State-Disputes.pdf (accessed 21 June 2020). See also: Titi and Fach Gómez, Mediation in International Commercial and Investment Disputes (2019); Verbist, ‘Mediation as an Alternative Method to Settle Investor-State Disputes’, in Chaisse et al. (eds), Handbook of International Investment Law and Policy (2021), https://www.springer.com/gp/book/9789811336140.
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On 18 June 2020, WG III organised a webinar on the role of mediation in ISDS, 70 in 29 cooperation with the Academic Forum.71 After discussion, WG III at its 39th session requested the UNCITRAL Secretariat to 30 prepare model clauses reflecting best practices on the amicable settlement or cooling off period, including an adequate length of time and clear rules on how such period could be complied with, in order to encourage disputing Parties to use mediation as a possible step to avoid resorting to arbitration. The Secretariat was also requested to prepare guidelines and best practices for participants in ISDS mediation, covering matters such as (i) the organizational aspects that States might need to consider at the national level to minimize structural or policy impediments and to ensure that mediation could be effectively used; (ii) the representation of public interest in the mediation; and (iii) the setting up of lists or rosters of qualified mediators in the field of ISDS. Secondly, the UNCITRAL Secretariat was requested to work with interested organizations, such as ICSID, to develop or to adapt rules for mediation in the ISDS context as well as model clauses that could be used in investment treaties or a potental multilateral instrument on ISDS reform.72 Moreover, in order to allow making progress on the discussion regarding mediation 31 in investor state arbitration, a virtual pre-intersessional meeting was organised on 9 November 2020 by the UNCITRAL Secretariat in cooperation with the Department of Justice of Hong Kong SAR and the Asian Academy of International Law on the use of mediation in ISDS.73
4. ICSID In 2016, ICSID commenced a Rules amendment project and sought public and 32 State input on potential changes. In the framework of the Rules revision process, the ICSID Secretariat published meanwhile four working papers: a first working paper on 2 August 2018,74 a second working paper on 15 March 2019,75 a third working paper on 26 August 2019,76 a fourth working paper on 28 February 202077 and a
70 The papers presented at the webinar of 18 June 2020 are available on the website of UNCITRAL: https://uncitral.un.org/en/mediationwebinar (accessed 21 June 2020): Kessedjian et al., ‘Mediation in Future Investor-State Dispute Settlement, Academic Forum’; Bell, ‘From Two-Party to Multi-Party Dispute Resolution: A Negotiation Analysis Perspective’, Harvard University; Masucci, ‘Mediating Collective Interests’; Legum, ‘Investor-State Mediation and State Authority’; Nitschke, ‘Expanding the Pie in Investment Dispute Settlement: ICSID’s Proposed Mediation Rules’. 71 The purpose of the Academic Forum is for academics active in the field of ISDS to exchange views, explore issues and options, test ideas and solutions, and make a constructive contribution to the ongoing discussions on possible reform of ISDS, in particular the discussions in the context of Working Group III; available at: https://www.jus.uio.no/pluricourts/english/projects/leginvest/academic-forum/. 72 UN General Assembly, t UNCITRAL, 54th session, Vienna, 28 June-16 July 2021, Report of Working Group III (Investor-State Dispute Settlement Reform) on the work of its 39th session (Vienna, 5-9 October 2020), 10 November 2020, A/CN.9/1044, paras. 36-40. 73 The papers presented at the virtual pre-intersessional meeting of 9 November 2020 and background papers are available on the website: https://aail.org/past-event-2020-uncitral-wgiii/ (accessed 17 January 2021). 74 Available at: https://icsid.worldbank.org/sites/default/files/publications/WP1_Amendments_Vol_3 _WP-updated-9.17.18.pdf (accessed 11 July 2021). 75 Available at: https://icsid.worldbank.org/sites/default/files/amendments/VOL_2.pdf (accessed 11 July 2021). 76 Available at: https://icsid.worldbank.org/sites/default/files/amendments/WP_3_VOLUME_1_EN GLISH.pdf (accessed 11 July 2021). 77 ICSID, ‘Proposals for Amendment of the ICSID Rules’, Working Paper #4, February 2020, available at: https://icsid.worldbank.org/en/Documents/WP_4_Vol_1_En.pdf (accessed 2 June 2020).
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fifth a fourth working paper on 15 June 2021.78 ICSID proposes amendments to the Conciliation Rules, which aim to make the rules more user-friendly and the conciliation process even more flexible, and in order to allow the Parties to benefit from the enforcement mechanism of the Singapore Convention on Mediation. 79 With the revision process, ICSID also proposes a set of stand-alone Mediation Rules. ICSID started working on Mediation Rules in 2018. It does so, while taking into account that about 40 percent of ICSID arbitrations are either settled amicably or otherwise discontinued.80 As part of the revision process, ICSID also published a draft Code for Adjudicators in Investor-State Dispute Settlement.81 33 The Working Papers of ICSID for the revision of the Rules provide an explanation of how the mediation framework fits into the ICSID system, as well as an overview of the process contemplated under the proposed Mediation Rules, before explaining the specific proposed provisions. While there are some similarities between the ICSID conciliation framework and the proposed Mediation Rules, the Mediation Rules differ in terms of: (i) the institution of the proceeding; (ii) the appointment of the mediator; (iii) the role of the mediator; (iv) the conduct of the proceedings; and (v) the fact that mediation under the proposed Mediation Rules is an entirely voluntary process, allowing a Party to withdraw at any time.82 34 The proposed Mediation Rules contain 22 rules. They will have fewer sections than the Arbitration Rules and the Conciliation Rules.83 The mediator's role is to assist the Parties in reaching a mutually acceptable resolution of all or part of the dispute (Rule 17(1) of the draft ICSID Mediation Rules). The Rules provide that the Secretariat is authorised to administer mediation proceedings in relation to an investment involving a State or a Regional Economic Integration Organization (REIO), which the Parties agree in writing to submit to the Centre (Rule 2(1)). There shall be one mediator or two co-mediators (Rule 13(1)). Each mediator shall be appointed by agreement of the Parties. The Parties may, at any time, jointly request the Secretary-General to assist them in the appointment of a mediator (Rule 13(3) and (4)). The Rules do not refer to a list of mediators. All information relating to the mediation and all documents generated or obtained during the mediation are in principle confidential. They will not be confidential if: (a) the Parties agree otherwise; (b) the information or documents are independently available; or (c) disclosure is required by law (Rule 10(1)). The fact that the Parties have or have had recourse to mediation is not confidential, unless the Parties agree otherwise (Rule 10(2)). Any position taken, admissions or offers of settlement made, or views expressed by a Party during the mediation is without prejudice to the legal positions it may take in any other proceedings (Rule 11). A Party may withdraw from a mediation at any moment (Rule 22(1)). The formal notice of termination (Rule 22(2)) is intended to facilitate the enforcement of any settlement 78 ICSID, ‘Proposals for Amendment of the ICSID Rules’, Working Paper #5, June 2021, available at: https://icsid.worldbank.org/sites/default/files/publications/WP%205-Volume1-ENG-FINAL.pdf (accessed 11 July 2021). 79 See: Nitschke, ‘The ICSID Conciliation Rules in Practice’, in Titi and Fach Gómez (eds), Mediation in International Commercial and Investment Disputes (2019), 123, paras. 141, 143. 80 See: Nitschke, ‘The ICSID Conciliation Rules in Practice’, in Titi and Fach Gómez (eds), Mediation in International Commercial and Investment Disputes (2019), 123, para. 143. 81 Available at: https://icsid.worldbank.org/resources/code-of-conduct (accessed 11 July 2021). 82 Available at: https://icsid.worldbank.org/sites/default/files/publications/WP1_Amendments_Vol_3 _WP-updated-9.17.18.pdf, para. 1328 (accessed 11 July 2021). 83 As set out in ICSID, ‘Proposals for Amendment of the ICSID Rules’, Working Paper #4, February 2020, available at: https://icsid.worldbank.org/en/Documents/WP_4_Vol_1_En.pdf (accessed 2 June 2020).
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agreement reached as a result of the mediation, allowing for such settlement to benefit from the framework of the United Nations Convention on International Settlement Agreements Resulting from mediation.84 The proposed Mediation Rules complement the existing ICSID Arbitration and 35 Conciliation Rules. They may be used either independently of or in conjunction with arbitration or conciliation proceedings.85 The proposed Mediation Rules are stand-alone rules, in other words separate from the ICSID Convention and Additional Facility Rules.86 The proposed Mediation Rules respond to the increased demand for mediation of investment disputes generally, ICSID’s activities in this sphere, and requests by users and Member States for ICSID mediation. The ICSID Mediation Rules will be the first set of institutional mediation rules designed specifically for investment disputes. The introduction of the Mediation Rules will add to the array of dispute resolution services currently offered by ICSID. The new Mediation Rules will assist Member States to implement their International Investment Agreement provisions offering investment mediation. They provide an investment dispute-specific mediation framework, apt for use either independently of, or in conjunction with, arbitration or conciliation proceedings.87 Promoting mutually agreeable settlements through mediation while offering also investor-State conciliation and arbitration facilities is not necessary a contradictory approach; it may in fact be the most effective way to achieve sustainable investment dispute settlement and economic development. 88 In addition, ICSID makes its facilities available for the purpose of supporting 36 efforts by Parties to resolve investment disputes through mediation. ICSID has also organised numerous events on investment mediation, including a series of trainings for investor-State mediators, aimed at developing the skills necessary to mediate investment disputes. It also provides an array of information on investment mediation on its website.
C. Drafting History The negotiation directives given to the European Commission in 2009 for the 37 CETA negotiations stated:89 84 ICSID, Proposals for Amendments of the ICSID Rules, Working Paper 1, 2 August 2018, Vol. 3, para. 1398, available at: https://icsid.worldbank.org/sites/default/files/publications/WP1_Amendments _Vol_3_WP-updated-9.17.18.pdf (accessed 11 July 2021); Fan, ‘Mediation of Investor-State Disputes: A Treaty Survey’ (2020) 2, J. Disp. Resol., 327 (340). 85 Nitschke, ‘ICSID’s Proposed Mediation Rules’, presented at a webinar of UNCITRAL Working Group III on the Role of mediation in ISDS on 18 June 2020, https://uncitral.un.org/sites/uncitral.un.or g/files/media-documents/uncitral/en/frauke_nitschke_pp_english_6-16-20.pdf. 86 Kinnear, ‘Modernizing ICSID’s Rules for Investment Dispute Resolution’ (2019) 1 ICC DR Bull., 55; Nitschke, ‘The ICSID Conciliation Rules in Practice’, in Titi and Fach Gómez (eds), Mediation in International Commercial and Investment Disputes (2019), 123. 87 Arbitral tribunals in investor-State arbitrations have sometimes suggested Parties to consider mediation in order to resolve their dispute and that such steps can be taken in parallel with the continuation of the arbitration. See e.g. Achmea B.V. v. Slovakia, UNCITRAL, PCA Case No. 2008-13, Final Award (7 December 2012), para. 60. See: Weinstein, ‘Making Mediation more Attractive for Investor-State Disputes’, Kluwer Arbitration Blog, 26 March 2019, available at: http://arbitrationblog.kl uwerarbitration.com/2019/03/26/making-mediation-more-attractive-for-investor-state-disputes/?doing _wp_cron=1597410699.5633749961853027343750 (accessed 15 August 2020). 88 Nitschke, ‘The IBA’s Investor-State Mediation Rules and the ICSID Dispute Settlement Framework’ (2014) 29(1) ICSID Rev., 112 (132). 89 Council of the EU, Recommendation from the Commission to the Council in order to authorize the Commission to open negotiations for an Economic Integration Agreement with Canada, 24 April 2009.
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45. The Agreement will include an appropriate and well functioning dispute settlement mechanism, which will ensure that the parties will observe mutually agreed rules. The Agreement will include provisions for expedient problem-solving such as a flexible mediation mechanism. This mechanism would be without prejudice to the parties’ rights and obligations or to dispute settlement provided for under the Agreement.
38
The updated negotiation directions given to the European Commission in 2011 stated that: The Agreement shall aim to provide for an effective and state-of-the-art investor-to-state dispute settlement mechanism. It should provide for investors a wide range of arbitration fora as currently available under the Members States’ bilateral investment agreements (BITs). 90
It was not until 15 November 2013 that a provision on mediation was introduced (then Article X-5) after a provision on consultation (then Article x-4) and before the provisions on arbitration (then Articles X-6 to X-25).91 The first draft of the article on mediation proposed in 2013 provided that ‘the mediation shall be governed by the disputing Parties, including, if available, the rules established by the Services and Investment Committee pursuant to Article X-26(5)(d)’. 92 40 In 2013, mediation as a settlement technique was introduced in the CETA texts, on the one hand, in Chapter 8 on Investment and, on the other hand, in Chapter 29 on Dispute Settlement. The Scope of the two Chapters is different and, therefore, the scope of the mediation provisions in the two chapters differs as well. The first text elaborated during the CETA negotiations contained only provisions on the settlement of investor-State disputes through arbitration.93 It was only after the discussion of 15 November 2013 that a provision on mediation was introduced (then Article X-5) between a provision on consultation (then Article X-4) and provisions on arbitration (then Articles X-6 to X-25).94 The provision on mediation provided at that point of time that ‘the mediation shall be governed by the disputing parties, including, if available, the rules established by the Services and Investment Committee pursuant to Article X-26(5)(d)’.95 41 On 14 October 2015, the ‘Trade for all’ communication of the European Commission96 set out that the Commission would, in parallel with its bilateral efforts, ‘engage with partners to build consensus for a fully-fledged, permanent International Investment Court’.97 Pursuant to this ‘Trade for all’ communication, the European Commission will 39
in a first step, include modern provisions in bilateral agreements, putting stronger emphasis on the right of the state to regulate, something which was not sufficiently highlighted in the past. EU bilateral agreements will begin the transformation of the old investor–state dispute settlement into 90 Council of the EU, Recommendation from the Commission to the Council in order to authorize the Commission to open negotiations for an Economic Integration Agreement with Canada, 14 July 2011. 91 EU-Canada Comprehensive Economic and Trade Agreement Investor-to-State Dispute Settlement text after discussions on 15 November 2013, INTA. 92 EU-Canada Comprehensive Economic and Trade Agreement Investor-to-State Dispute Settlement text, 4 February 2014, INTA. 93 Draft Consolidated CETA text as at 13 January 2010, Chapter Investment and Services. 94 EU-Canada Comprehensive Economic and Trade Agreement Investor-to-State Dispute Settlement text after discussions on 15 November 2013, INTA. 95 EU-Canada Comprehensive Economic and Trade Agreement Investor-to-State Dispute Settlement text, 4 February 2014, INTA. 96 ‘Trade for all – New EU Trade and Investment Strategy’, 14 October 2015, https://ec.europa.eu/tra de/policy/in-focus/new-trade-strategy/ (accessed 12 August 2020). 97 European Commission, ‘The Multilateral Investment Court Project’, European Commission, 21 December 2016, http://trade.ec.europa.eu/doclib/press/index.cfm?id=1608 (accessed 12 August 2020).
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a public Investment Court System composed of a Tribunal of first instance and an Appeal Tribunal operating like traditional courts. There will be a clear code of conduct to avoid conflicts of interest, independent judges with high technical and legal qualifications comparable to those required for the members of permanent international courts, such as the International Court of Justice and the WTO Appellate Body.98
Moreover, pursuant to this ‘Trade for all communication’ of 14 October 2015, the European Commission would ‘use dispute settlement procedures as necessary, including in FTAs; use the mediation mechanism agreed in recent FTAs to tackle non-tariff barriers quickly’.99 In November 2015, the investor-to-State dispute settlement provisions were includ- 42 ed in the finalised CETA text.100 CETA included investor-State dispute settlement methods in Chapter 8 – Investment with respect to the ‘Resolution of investment disputes between investors and states’:101 (i) consultations in order to reach a mutually agreed solution (Article 8.19); (ii) Mediation (Article 8.20); (iii) submision to the Investment Tribunal (Article 8.21-8.43). Mediation under this CETA-Chapter is governed by the rules agreed to by the disputing Parties including, if available, the rules for mediation adopted by the Committee on Services and Investment pursuant to Article 8.44.3(c).102 In February 2016, CETA added provisions anticipating the transition from the 43 bilateral Investment Court System (ICS) included in the agreement to a permanent Multilateral Investment Court.103 To ensure policy coherence at EU level, the European Commission intended to propose similar transitional provisions in the context of all other on-going or future bilateral EU trade and/or investment negotiations. 104 This was, however, not the case with all the subsequent free trade agreements negotiated by the European Union. The EU-Singapore Free Trade Agreement105 provides the following dispute settlement methods: (i) consultations with the aim of reaching a mutually agreed solution (Article 14.3); (ii) arbitration (Article 14.4-22); (iii) a mutually agreed solution (Article 14.15); (iv) a recourse under the WTO Agreement (Article 14.21), and (v) mediation (Article 15.1-10). Annex 14-A to the EU-Singapore FTA contains the Rules of Procedure for Arbitration, of which some rules are also applicable to
98 European Commission, ‘The Multilateral Investment Court Project’, European Commission, 21 December 2016, http://trade.ec.europa.eu/doclib/press/index.cfm?id=1608 (accessed 12 August 2020). 99 European Commission, ‘Trade for all – Towards a more responsible trade and investment policy’ (2015), p. 21, see: https://trade.ec.europa.eu/doclib/docs/2015/october/tradoc_153846.pdf (accessed 12 August 2020). 100 European Commission, ‘CETA: EU and Canada agree on new approach on investment in trade agreement’, European Commission Press Release, 29 February 2016; https://ec.europa.eu/commission/ presscorner/detail/lt/IP_16_399 (accessed 12 August 2020). 101 Comprehensive Economic and Free Trade Agreement (CETA) between Canada, on the one part, and the European Union and its Member States, of the other part, signed in Brussel on 30 October 2016, OJ L 11/23, 14 January 2017. 102 Article 8.44 CETA was Article X.26 in the draft of 15 November 2013 (p. 17 thereof); it was Article X.26 in the draft of 4 February 2014 (p. 18 thereof) and it was Article X.42 in the Final draft of 1 August 2014 (p. 177 thereof). 103 European Commission, ‘Trade for all – Towards a more responsible trade and investment policy’ (2015), p. 16, see: https://trade.ec.europa.eu/doclib/docs/2015/october/tradoc_153846.pdf (accessed 12 August 2020); Article 8.29 CETA. 104 European Commission, ‘The Multilateral Investment Court Project’, 21 December 2016, http://tra de.ec.europa.eu/doclib/press/index.cfm?id=1608 (accessed 12 August 2020). 105 Free Trade Agreement between the European Union and the Republic of Singapore, signed in Brussels on 19 October 2018, OJ L 294/3, 14 November 2019.
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mediation under the FTA,106 and Annex 14-B provides the Code of Conduct for Arbitrators and Mediators.107 The EU-Vietnam Free Trade Agreement108 provides the following settlement methods: (i) consultations in order to reach a mutually agreed solution (Article 15.3); (ii) mediation (Article 15.4); (iii) arbitration (Article 15.5-13).109 Annex 15-B to the EU-Vietnam FTA contains the Code of Conduct for Arbitrators and Mediators110 and Annex 15-C deals with the mediation mechanism.111 The EU-Japan Economic Partnership Agreement does not cover the protection of investment, on which negotiations are ongoing between the two sides for a potential agreement on the protection of investments112, but it contains the following dispute settlements methods: (i) consultations (Article 21.5); (ii) mediation (Article 21.6); (iii) arbitration (Article 21.7-21.30) and (iv) a mutually agreed solution (Article 21.26). 113 44 On 11 October 2019, the European Commission published a proposal for a Council Decision on the position to be taken on behalf of the European Union in the Committee on Services and Investment as regards the adoption of: (i) rules for mediation for use by disputing Parties in investment disputes114 and (ii) a code of conduct for Members of the Tribunal, the Appellate Tribunal and mediators.115 This code of conduct116 and the rules for mediation for use by disputing Parties in investment 106 Free Trade Agreement between the European Union and the Republic of Singapore, signed in Brussels on 19 October 2018, OJ L 294/651-656; Article 15.5 FTA – Selection of the Mediator provides that: ‘Annex 14-B shall apply to mediators, mutatis mutandis. Rules 4 to 9 and Rules 46 to 49 of Annex 14-A shall also apply, mutatis mutandis’. 107 Free Trade Agreement between the European Union and the Republic of Singapore, signed in Brussels on 19 October 2018, OJ L 294/657-658. 108 Free Trade Agreement between the European Union and the Socialist Republic of Viet Nam, signed in Hanoi on 30 June 2019, OJ L 186/1, 12 June 2020. 109 Press statement by the President of the European Commission Jean-Claude Juncker, the President of the European Council Donald Tusk and the Prime Minister of Viet Nam Nguyen Tan Dung, 2 December 2015, https://ec.europa.eu/commission/presscorner/detail/en/STATEMENT_15_6217; European Commission, ‘EU-Vietnam Free Trade Agreement Now Available Online’, 2 February 2016, https://ec.europa.eu/commission/presscorner/detail/en/IP_16_184 (accessed 12 August 2020); Free Trade Agreement between the European Union and the Socialist Republic of Viet Nam, signed in Hanoi on 30 June 2019, OJ L 186/3. 110 Free Trade Agreement between the European Union and the Socialist Republic of Viet Nam, signed in Hanoi on 30 June 2019, OJ L 186/1313-1314. 111 Free Trade Agreement between the European Union and the Socialist Republic of Viet Nam, signed in Hanoi on 30 June 2019, OJ L 186/1315-1318. 112 See: European Commission, ‘Key elements of the EU-Japan Economic Partnership Agreement’, 12 December 2018, https://ec.europa.eu/commission/presscorner/detail/en/MEMO_18_6784 (accessed 9 August 2020). 113 Agreement between the European Union and Japan for an Economic Partnership, signed in Tokyo on 17 July 2018, OJ L 330/3, 27 December 2018. 114 European Commission, Proposal for a Council Decision on the position to be taken on behalf of the European Union in the Committee on Services and Investment established under the Comprehensive Economic and Trade Agreement (CETA) between Canada, of the one part, and the European Union and its Member States, of the other part as regards the adoption of rules for mediation for use by disputing parties in investment disputes, 11 October 2019, COM (2019) 460 final – 2019/0219. 115 European Commission, Proposal for a Council Decision on the position to be taken on behalf of the European Union in the Committee on Services and Investment established under the Comprehensive Economic and Trade Agreement (CETA) between Canada, of the one part, and the European Union and its Member States, of the other part of the other part as regards the adoption of a code of conduct for Members of the Tribunal, the Appellate Tribunal and mediators, 11 October 2019, COM (2019) 459 final. 116 Council Decision (EU) 2020/680 of 18 May 2020 on the position to be taken on behalf of the European Union in the Committee on Services and Investment established under the Comprehensive Economic and Trade Agreement (CETA) between Canada, of the one part, and the European Union and its Member States, of the other part, as regards the adoption of a code of conduct for Members of the Tribunal, Members of the Appellate Tribunal and mediators, OJ L 161/5, 25 May 2020.
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disputes117 were adopted by decisions of the European Council of 18 May 2020. These decisions shall enter into force on the date of entry into force of CETA. 118 The European Court of Justice in an Opinion of 30 April 2019, held that Section F 45 of Chapter Eight of CETA is compatible with EU primary law. 119 After the European Parliament adopted CETA on 15 February 2017120 and after Canada ratified CETA on 16 May 2017,121 CETA entered provisionally into force on 21 September 2017. 122 However, as regards Chapter 8 on Investment, only the Articles 8.1 to 8.8, 8.13, 8.15 with the exception of paragraph 3 thereof and Article 8.16 entered into force provisionally.123 The provisions on investment protection and the dispute settlement mechanism (Investment Court System) have not yet entered into force. 124
D. Commentary I. Conditions for Mediation Chapter 8 on Investment contains a series a of settlement techniques: (i) consulta- 46 tions between the disputing Parties with a view to settling the investor-State dispute amicably (Article 8.19); (ii) mediation (Article 8.20); (iii) determination by the Investment Tribunal, if a dispute has not been resolved through consultations (Article 8.21– 8.38). The Scope of the dispute resolution provisions of Chapter 8 – Section F – Resolu- 47 tion of investment disputes between investors and States is laid down in Article 8.18: Without prejudice to the rights and obligations of the Parties under Chapter Twenty-Nine (Dispute Settlement), an investor of a Party may submit to the Investment Tribunal constituted under this Section a claim that the other Party has breached an obligation under: 1.(a) Section C, with respect to the expansion, conduct, operation, management, maintenance, use, enjoyment and sale
117 Council Decision (EU) 2020/681 of 18 May 2020 on the position to be taken on behalf of the European Union in the Committee on Services and Investment established under the Comprehensive Economic and Trade Agreement (CETA) between Canada, of the one part, and the European Union and its Member States, of the other part, as regards the adoption of rules for mediation for use by disputing parties in investment disputes, OJ L 161/7, 25 May 2020. 118 Council Decision (EU) 2020/680 of 18 May 2020, Article 2, OJ L 161/6, 25 May 2020; Council Decision (EU) 2020/681 of 18 May 2020, Article 2, OJ L 161/7, 25 May 2020. 119 CJEU, Opinion 1/17, 30.04.2019, ECLI:EU:C:2019:341. 120 European Parliament, European Parliament legislative resolution of 15 February 2017 on the draft Council decision on the conclusion of the Comprehensive Economic and Trade Agreement (CETA) between Canada, of the one part, and the European Union and its Member States, of the other part, 2016/0205(NLE). 121 Parliament of Canada, ‘C 30, An Act to implement the Comprehensive Economic and Trade Agreement between Canada and the European Union and its Member States and to provide for certain other measures’, Royal Assent, 16 May 2017, https://www.parl.ca/LegisInfo/BillDetails.aspx?Language= E&billId=8549249 (accessed 12 August 2020). 122 European Commission, ‘EU-Canada trade agreement enters into force’, 20 September 2017, https://ec.europa.eu/commission/presscorner/detail/en/IP_17_3121 (accessed 12 August 2020). 123 Council Decision (EU) 2017/38 of 28 October 2016 on the provisional application of the Comprehensive Economic and Trade Agreement (CETA) between Canada, of the one part, and the European Union and its Member States, of the other part, OJ L 11/1080, 14 January 2017; Notice concerning the provisional application of the Comprehensive Economic and Trade Agreement (CETA) between Canada, of the one part, and the European Union and its Member States, of the other part, OJ L 2338/9, 16 September 2017. 124 Joint Interpretative Statement on the Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union and its Member States, OJ L 11/3, 20, 14 January 2017, para. 36.
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or disposal of its covered investment, or (b) Section D, where the investor claims to have suffered loss or damage as a result of the alleged breach,
and only if the investment has not: 3. […] been made through fraudulent misrepresentation, concealment, corruption, or conduct amounting to an abuse of process.
Moreover, Annex 8-B puts restraints for claims with respect to the restructuring of a debt issued by a Party. 48 Article 8.19 provides that as a first dispute settlement method there should be consultations between the Parties. Unless the disputing Parties agree to a longer period, consultations shall be held within 60 days of the submission of the request for consultations by the investor to the other Party.125 49 While arbitration usually offers only the investor the right to commence a dispute, both an investor and a State may initiate mediations or consultations. The mediator is appointed by agreement of the disputing Parties. The disputing Parties may also request that the Secretary General of ICSID appoints the mediator. 126 ICSID has Panels of Conciliators and of Arbitrators consisting of designees of the ICSID Contracting States and of the Chairman of the Administrative Council.127 Article 8.20(3) CETA does not state that the Secretary General of ICSID when asked to appoint the mediator shall be required to select the mediator from the ICSID Panels of Conciliators and of Arbitrators. 50 If the disputing Parties agree to have recourse to mediation, the provisions of Articles 8.19.6 and 8.19.8 on consultations shall not apply from the date on which the disputing Parties agreed to have recourse to mediation to the date on which either disputing Party decides to terminate the mediation.128 If a dispute has not been resolved through consultations, a claim may be submitted pursuant to Article 8.23 of CETA to the investment tribunal established under CETA.129 As a consequence, consultation is a condition precedent to the submission of a claim to the investment tribunal whilst mediation is an option available at any time to the disputing Parties.130 The mediation mechanism in Article 8.20, as an alternative to arbitration, gives smaller enterprises greater accessibility to the resolution process.131 The Parties who accept to submit a dispute to mediation shall endeavour to reach a resolution of the dispute within 60 days from the appointment of the mediator. This is a short period of time. A decision by a disputing Party to terminate the mediation shall be transmitted by way of a letter to the mediator and the other disputing Party.132
125 Article 8.19(1) CETA. Article 8.19 was Article X.4 in the CETA draft of 4 February 2014 (p. 3 thereof) and it was Article X.18 in the Final draft of 1 August 2014 (p. 160 thereof). 126 Article 8.20(3) CETA. 127 Article 13.1 ICSID Convention. The ICSID Panel of Conciliators can be consulted on the ICSID website: https://icsid.worldbank.org/about/arbitrators-conciliators/database-of-icsid-panels. 128 Article 8.20(5) CETA. 129 Article 8.23(1) CETA. Article 8.23 was Article X.22 in the Final draft of 1 August 2014 (p. 165 thereof). 130 IBA Arbitration Subcommittee on Investment Treaty Arbitration, ‘Consistency, efficiency and transparency in investment treaty arbitration’, November 2018, 48, available at: http://www.ibanet.org (accessed 14 August 2020). 131 Ackhurst et al., ‘CETA, the Investment Canada Act and SOEs: A Brave New World for Free Trade’ (2016) 31(1) ICSID Rev., 58 (64); see also: Joint Interpretative Statement on the Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union and its Member States, OJ L 11/3, 6, 14 January 2017, para. 13. 132 Article 8.20(5) CETA.
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II. Rules Applicable to Mediation The mediation is governed by the rules agreed to by the disputing Parties including, if available, the rules for mediation adopted by the Committee on Services and Investment pursuant to Article 8.44.3(c). The Committee on Services and Investment is a specialised committee of the CETA Joint Committee established under Article 26.2.1(b) of CETA.133 It addresses inter alia matters concerning cross-border investment and it may (pursuant to Article 8.44.3(c) of CETA, in agreement of the Parties, and after completion of their respective internal requirements and procedures) adopt rules for mediation for use by disputing Parties as referred to in Article 8.20. Since 2018, the European Commission has been working with the Member States in the Trade Policy Committee on Services and Investment of the Council and with Canada on a package of several draft decisions, including a code of conduct for Members of the Investment Tribunal, the Appellate Tribunal and mediators in accordance with Article 8.44.2 of CETA134, and rules for mediation for use by disputing Parties in accordance with Article 8.44.3(c) of CETA.135 This code of conduct136 and the rules for mediation for use by disputing Parties in investment disputes137 were adopted by decisions of the European Council of 18 May 2020 and of the Committee on Services and Investment of 29 January 2021. Article 1 of Council Decision (EU) 2020/681 of 18 May 2020 states: ‘The position to be taken on behalf of the European Union in the Committee on Services and Investment as regards the adoption of rules of mediation for use by disputing parties in investment disputes shall be based on the draft decision of the Committee on Services and Investment’, with a reference in a footnote thereby to: ‘See document ST 6967/20 on http://register.consilium.europa.eu.’138 The rules for mediation for use by disputing Parties in investment disputes are largely similar to the rules of procedure for disputes arising under CETA which are
Article 26.1 CETA. European Commission, Proposal for a Council Decision on the position to be taken on behalf of the European Union in the Committee on Services and Investment established under the Comprehensive Economic and Trade Agreement (CETA) between Canada of the one part, and the European Union and its Member States, of the other part as regards the adoption of a code of conduct for Members of the Tribunal, the Appellate Tribunal and mediators, 11 October 2019, (COM 2019) 459 final; Council of the EU, Draft decision of the Committee on services and investment adopting a code of conduct for Members of the Tribunal, Members of the Appellate Trubunal and mediators, 7 May 2020, 6966/20. 135 European Commission, Proposal for a Council Decision on the position to be taken on behalf of the European Union in the Committee on Services and Investment as regards the adoption of rules for mediation for use by disputing parties in investment disputes, 11 October 2019, (COM 2019) 460 final; Council of the EU, Draft decision of the Committee on services and investment adopting rules for mediation for use by disputing parties in investment disputes, 6967/20. 136 Council Decision (EU) 2020/680 of 18 May 2020 on the position to be taken on behalf of the European Union in the Committee on Services and Investment established under the Comprehensive Economic and Trade Agreement (CETA) between Canada, of the one part, and the European Union and its Member States, of the other part, as regards the adoption of a code of conduct for Members of the Tribunal, Members of the Appellate Tribunal and mediators, OJ L 161/5, 25 May 2020. 137 Council Decision (EU) 2020/681 of 18 May 2020 on the position to be taken on behalf of the European Union in the Committee on Services and Investment established under the Comprehensive Economic and Trade Agreement (CETA) between Canada, of the one part, and the European Union and its Member States, of the other part, as regards the adoption of rules for mediation for use by disputing parties in investment disputes, OJ L 161/7, 25 May 2020. 138 Council of the EU, Draft decision of the Committee on Services and Investment adopting rules for mediation for use by disputing parties in investment disputes, 7 May 2020, 6967/20. 133
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contained in Annex 29-C.139 Whilst Annex 29-C provides 9 Articles, the rules for mediation in investment disputes adopted by the European Council on 18 May 2020 140 and by the Committee on Services and Investment on 29 January 2021 141 provide 11 Articles: Article 1 – Definitions For the purposes of this Decision, the following definitions apply: (a) the definitions in Article 1.1 (Definitions of general application) of Chapter One (General definitions and initial provisions) of the Agreement; (b) the definitions in Article 8.1 (Definitions) of Chapter Eight (Investment) of the Agreement; (c) “agreement to mediate” means an agreement made pursuant to Article 3(4) of this Decision; and (d) “mediator” means a natural person who conducts mediation in accordance with Article 8.20 (Mediation) of the Agreement. Article 2 – Objective and Scope The objective of the mediation mechanism is to facilitate the finding of a mutually agreed solution through a comprehensive and expeditious procedure with the assistance of a mediator. Article 3 – Initiation of the Procedure 1. Either disputing party may request, at any time, the commencement of a mediation procedure. Such request shall be addressed to the other disputing party in writing. 2. If the request concerns an alleged breach of the Agreement by the authorities of the European Union or by the authorities of the Member States of the European Union, and no respondent has been determined pursuant to Article 8.21 (Determination of the respondent for disputes with the European Union or its Member States) of the Agreement, it shall be addressed to the European Union. If the request is accepted, the response shall specify whether the European Union or the Member State concerned will be a disputing party to the mediation. 3. The disputing party to which the request is addressed shall give sympathetic consideration to the request and accept or reject it in writing within 10 days of its receipt. 4. If the disputing parties agree to a mediation procedure, they shall sign an agreement to mediate, in writing, setting out rules agreed to by the disputing parties, which shall include the rules in this Decision. The agreement to mediate may include an agreement not to commence or not to continue any other dispute settlement proceedings relating to the problems or disputes that are subject to the mediation procedure: (a) while the mediation procedure is pending; or (b) if the disputing parties have reached a mutually agreed solution. An agreement pursuant to subparagraph 4(b) of this Article shall cease to apply if a disputing party, or both disputing parties, provide written notice, transmitted by way of a letter to the mediator and the other disputing party, terminating the mediation procedure. Article 4 – Appointment of the Mediator 1. If both disputing parties agree to a mediation procedure, a mediator shall be appointed in accordance with the procedure set out in Article 8.20.3 of the Agreement. The disputing parties shall endeavour to agree on a mediator within 15 days from the receipt of the reply to the request. Such agreement may include appointing a mediator from the Members of the Tribunal established according to Article 8.27.2 of the Agreement or Members of the Appellate Tribunal established according to Article 8.28.3 of the Agreement. 2. The disputing parties may, by written consent, agree to replace the mediator. If a mediator resigns, is incapacitated or otherwise becomes unable to perform his or her duties, a new mediator shall be appointed pursuant to Article 8.20.3 of the Agreement and in accordance with paragraph 1 of this Article. 3. A mediator shall not be a national of either Party, unless the disputing parties agree otherwise.
139 CETA, OJ L 11/456, 14 January 2017, L/11/456; see also: http://data.consilium.europa.eu/doc/doc ument/ST-10973-2016-ADD-5/en/pdf#page=38 (accessed 8 August 2020). 140 Council Decision (EU) 2020/681 of 18 May 2020, Article 2, OJ L 161/7, 25 May 2020. 141 Committee on Services and Investment, Decision No 002/2021 adopting rules for mediation for use by disputing parties in investment disputes, 29 January 2021, available at: https://trade.ec.europa.eu /doclib/docs/2021/january/tradoc_159404.pdf (accessed 7 February 2021), https://www.international.gc .ca/trade-commerce/trade-agreements-accords-commerciaux/agr-acc/ceta-aecg/rules-mediation-regles .aspx?lang=eng (accessed 7 February 2021).
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4. The mediator shall assist, in conformity with the Decision of the Committee on Services and Investment on the Code of Conduct for Members of the Tribunal, Members of the Appellate Tribunal and Mediators, the disputing parties in reaching a mutually agreed solution. Article 5 – Rules of the Mediation Procedure 1. Within 10 days from the appointment of the mediator, the disputing party having invoked the mediation procedure shall present, in writing, a detailed description of the problem to the mediator and to the other disputing party. Within 20 days from the receipt of this submission, the other disputing party may provide, in writing, its comments to the description of the problem. Either disputing party may include in its description or comments any information that it deems relevant. 2. The mediator may decide on the most appropriate way of bringing clarity to the problem concerned. In particular, the mediator may organise meetings between the disputing parties, consult the disputing parties jointly or individually, seek the assistance of or consult with relevant experts and stakeholders and provide any additional support requested by the disputing parties. However, before seeking the assistance of or consulting with relevant experts and stakeholders, the mediator shall consult with the disputing parties. 3. The mediator may offer advice and propose a solution for the consideration of the disputing parties who may accept or reject the proposed solution or may agree on a different solution. However, the mediator shall not make a determination on the consistency of any measure at issue with the Agreement. 4. The procedure shall take place in the territory of the Party that is a disputing Party, or by mutual agreement in any other location or by any other means. 5. The disputing parties shall endeavour to reach a mutually agreed solution within 60 days from the appointment of the mediator. Pending a final agreement, the disputing parties may consider possible interim solutions. 6. On request of the disputing parties, the mediator shall issue to the disputing parties, in writing, a draft factual report, providing a brief summary of: (a) any measure at issue in these procedures; (b) the procedures followed; and (c) any mutually agreed solution reached as the final outcome of these procedures, including possible interim solutions. The mediator shall provide the disputing parties 15 days from the issuance of the draft factual report to comment on the draft report. After considering the comments of the disputing parties submitted within this period, the mediator shall submit, in writing, a final factual report to the disputing parties within 15 days from the receipt of comments of the disputing parties. The factual report shall not include any interpretation of the Agreement. 7. In accordance with Article 8.20.5 of the Agreement, the mediation procedure shall be terminated by written notice of a disputing party, or of both disputing parties, transmitted by way of a letter to the mediator and the other disputing party, on the date that the notice is given. Article 6 – Implementation of a Mutually Agreed Solution 1. If a mutually agreed solution is adopted by the disputing parties, each disputing party shall take the measures necessary to implement the mutually agreed solution within the agreed timeframe. 2. The implementing disputing party shall inform the other disputing party in writing of any steps or measures taken to implement the mutually agreed solution. Article 7 – Relationship to Dispute Settlement 1. The procedure under this mediation mechanism is not intended to serve as a basis for dispute settlement under other dispute settlement procedures set out in the Agreement or in another agreement. A disputing party shall not rely on or introduce as evidence in other dispute settlement procedures, nor shall any adjudicative body take into consideration: (a) positions taken, admissions made or views expressed by a disputing party in the course of the mediation procedure; (b) the fact that a disputing party has indicated its willingness to accept a solution to the problems or disputes that are subject to the mediation procedure; (c) advice given, proposals made or views expressed by the mediator; or (d) the content of a draft or final factual report by a mediator. 2. Subject to Article 3(4) of this Decision, the mediation mechanism is without prejudice to the rights and obligations of the Parties and the disputing parties under Section F (Resolution of investment disputes between investors and states) of Chapter Eight (Investment) and Chapter Twenty-nine (Dispute Settlement) of the Agreement. 3. The disputing parties’ agreement to mediate and any mutually agreed solutions shall be made publicly available. The versions disclosed to the public shall not contain any information that a disputing party has designated as confidential. Unless the disputing parties agree otherwise, all other steps of the
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mediation procedure, including any advice or proposed solution, shall be confidential. However, any disputing party may disclose to the public that mediation is taking place. Article 8 – Time Limits Any time limit referred to in this Decision may be modified by mutual agreement between the disputing parties. Article 9 – Costs 1. Each disputing party shall bear its own expenses derived from the participation in the mediation procedure. 2. The disputing parties shall share jointly and equally the expenses derived from organisational matters, including the remuneration and expenses of the mediator. Remuneration of the mediator shall be in accordance with that foreseen for Members of the Tribunal under Article 8.27.14 of the Agreement Article 10 – Authentic texts This Decision is drawn up in duplicate in the Bulgarian, Croatian, Czech, Danish, Dutch, English, Estonian, Finnish, French, German, Greek, Hungarian, Italian, Latvian, Lithuanian, Maltese, Polish, Portuguese, Romanian, Slovak, Slovenian, Spanish and Swedish languages, each version being equally authentic. Article 11 – Entry into force This Decision shall be published and shall enter into force on the date of entry into force of Section F (Resolution of investment disputes between investors and states) of Chapter Eight (Investment) of the Agreement, subject to the Parties’ exchange of written notifications, through diplomatic channels, certifying that they have completed the necessary internal requirements and procedures.
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The major difference with the mediation rules concerning CETA Chapter 29 and contained in Annex 29-C is that these rules provide (Article 6.1) that mediations conducted under Chapter 29 are confidential, in principle, with the exceptions that: (i) the Parties may agree otherwise; (ii) any Party may disclose to the public that a mediation is taking place, and (iii) the confidentiality does not extend to factual information already existing in the public domain. The rules for mediation for use by disputing Parties in investment disputes (Article 7.3) provide that the disputing Parties’ agreement to mediate and any mutually agreed solutions shall be made publicly available. However, the versions of the agreements disclosed to the public may not contain any information that a disputing Party has designated as confidential. Unless the disputing Parties agree otherwise, all other steps of the mediation procedure, including any advice or proposed solution, shall be confidential. In any event, any disputing Party may disclose to the public that mediation is taking place. The principle that the disputing Parties’ agreement to mediate and any mutually agreed solutions shall be made publicly available takes into account Article 8.36 containing the provisions on transparency of proceedings under Chapter 8. Article 8.36 provides that the UNCITRAL Transparency Rules, as modified by Chapter 8, shall apply in connection with proceedings under Chapter 8.142 The request for consultations, the notice requesting a determination of the respondent, the agreement to mediate, the notice of intent to challenge a member of the Tribunal, the decision on challenge to a member of the Tribunal and the request for consolidation shall be included in the list 142 Article 8.36(1) CETA. UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration are applicable to investor-Stae arbitrations initiated under the UNCITRAL Arbitration Rules pursuant to an investor-State treaty concluded on or after 1 April 2014. Parties to a Treaty can agree on the application of these Rules to a Treaty signed before 1 April 2014. Such consent can be expressed by States ratifying the United Nations Convention on Transparency in Treaty-based Investor-State Arbitration (the ‘Mauritius Convention on Transparency’). The Transparency Rules and the Mauritius Convention on Transparency are available at the website of UNCITRAL: https://uncitral.un.org/en/text s/arbitration (accessed 9 August 2020).
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of documents to be made available to the public under Article 3(1) of the UNCITRAL Transparency Rules.143 The mediation rules for use by disputing Parties in investment disputes provide, 56 like the mediation rules for Chapter 29 contained in Annex 29-C, short time limits for the setting in motion of the mediation. When a Party requests mediation pursuant to Article 3, the other Party shall give sympathetic consideration to the request and reply in writing within 10 days of receiving it.144 The Parties shall agree on a mediator, if possible, no later than 15 days after the receipt of the reply to the request for mediation. The Parties may include appointing a mediator from the members of the Tribunal established according to Article 8.27.2 of CETA or of the Appellate Tribunal established according to Article 8.28.3 of CETA.145 Within 10 days after the appointment of the mediator, the disputing Party having invoked the mediation procedure shall present, in writing, a detailed description of the problem to the mediator and to the other disputing Party.146 Within 20 days after the date of delivery of this submission, the other disputing Party may provide, in writing, its comments to the description of the problem.147 The Parties shall endeavour to reach a mutually agreed solution within 60 days from the appointment of the mediator.148 Pending a final agreement, the Parties may consider possible interim solutions.149 On request of the disputing Parties, the mediator shall issue to the disputing Parties, in writing, a draft factual report, providing a brief summary of (1) any measure at issue in the procedure, (2) the procedure followed and (3) any mutually agreed solution reached as the final outcome of the procedure, including possible interim solutions. The mediator shall provide the disputing Parties 15 days to comment on the draft report. After considering the comments of the disputing Parties submitted within the period, the mediator shall submit, in writing, a final factual report to the disputing Parties within 15 days. The factual report shall not include any interpretation of CETA.150 Any time limit referred to in this Annex may be modified by mutual consent between the Parties. 151 The mediation procedure shall be terminated by a written notice of a disputing Party, or of both disputing Parties, transmitted by way of a letter to the mediator and to the other disputing Party, on the date that the notice is given. 152 Also like the mediation rules for Chapter 29 contained in Annex 29-C, 153 the 57 mediation rules for use by disputing Parties in investment disputes provide a specific
Article 8.36.2 CETA. Council of the EU, Draft decision of the Committee on Services and Investment adopting mediation for use by disputing parties in investment disputes, 7 May 2020, 6967/20, Article 3.3. 145 Council of the EU, Draft decision of the Committee on Services and Investment adopting mediation for use by disputing parties in investment disputes, 7 May 2020, 6967/20, Article 4.1. 146 Council of the EU, Draft decision of the Committee on Services and Investment adopting mediation for use by disputing parties in investment disputes, 7 May 2020, 6967/20, Article 5.1. 147 Council of the EU, Draft decision of the Committee on Services and Investment adopting mediation for use by disputing parties in investment disputes, 7 May 2020, 6967/20, Article 5.1. 148 Article 8.20.4 CETA. 149 Council of the EU, Draft decision of the Committee on Services and Investment adopting mediation for use by disputing parties in investment disputes, 7 May 2020, 6967/20, Article 5.5. 150 Council of the EU, Draft decision of the Committee on Services and Investment adopting mediation for use by disputing parties in investment disputes, 7 May 2020, 6967/20, Article 5.6. 151 Council of the EU, Draft decision of the Committee on Services and Investment adopting mediation for use by disputing parties in investment disputes, 7 May 2020, 6967/20, Article 8. 152 Council of the EU, Draft decision of the Committee on Services and Investment adopting mediation for use by disputing parties in investment disputes, 7 May 2020, 6967/20, Article 5.7. 153 Article 5 of Annex 29-C. 143
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feature relating to the enforcement of the agreed outcome: 154 If a mutually agreed solution has been adopted by the disputing Parties, each disputing Party shall take the measures necessary to implement the mutually agreed solution within the agreed timeframe. The implementing disputing Party shall inform the other disputing Party in writing of any steps or measures taken to implement the mutually agreed solution.
III. Code of Conduct for Mediators Mediators acting in investment disputes are bound by a code of conduct, which is identical to the code of conduct for the members of the Investment Tribunal and for the members of the Appellate Tribunal. This code of conduct is largely similar to the code of conduct for mediators serving in disputes arising under Chapter 29 of CETA and which is contained in Annex 29-B.155 59 Article 1 of Council Decision (EU) 2020/680 of 18 May 2020 states: ‘The position to be taken on behalf of the European Union in the Committee on Services and Investment as regards the adoption of a code of conduct for Members of the Tribunal, Members of the Appellate Tribunal and mediators shall be be based on the draft decision of the Committee on Services and Investment’, with a reference in a footnote thereby to: ‘See document ST 6966/20 on http://register.consilium.europa.eu.’ 156 60 The code of conduct adopted by the European Council on 18 May 2020 157 and by the Committee on Services and Investment on 29 January 2021 158 provides 12 Articles: 58
Article 1 – Definitions For the purposes of this Decision, the following definitions apply: (a) the definitions in Article 1.1 (Definitions of general application) of Chapter One (General definitions and initial provisions) of the Agreement; (b) the definitions in Article 8.1 (Definitions) of Chapter Eight (Investment) of the Agreement; (c) “Appellate Tribunal” means the appellate tribunal established under Article 8.28 (Appellate Tribunal) of Chapter Eight (Investment) of the Agreement; (d) “assistant” means a natural person, other than a person employed by the ICSID Secretariat, who, under the terms of appointment of a Member, conducts research for or provides assistance to the Member; (e) “candidate” means a natural person who has submitted an application or is otherwise aware that he or she is under consideration for selection as a Member; (f) “mediator” means a natural person who conducts mediation in accordance with Article 8.20 (Mediation) of the Agreement; and (g) “Member” means a Member of the Tribunal or of the Appellate Tribunal established pursuant to Section F (Resolution of investment disputes between investors and states) of Chapter Eight (Investment) of the Agreement.
154 Council of the EU, Draft decision of the Committee on Services and Investment adopting rules for mediation for use by disputing parties in investment disputes, 7 May 2020, 6967/20, Article 6. 155 CETA, OJ L 11/453-455, 14 January 2017. 156 Council of the EU, Draft decision of the Committee on services and investment adopting a code of conduct for Members of the Tribunal, Members of the Appellate Trubunal and mediators, 7 May 2020, 6966/20. 157 Council Decision (EU) 2020/680 of 18 May 2020, Article 2, OJ L 161/16. 158 Committee on Services and Investment, Decision No 001/2021 adopting a code of conduct for Members of the Tribunal, Member of the Appellate Tribunal and mediators, 29 January 2021, available at: https://trade.ec.europa.eu/doclib/docs/2021/january/tradoc_159403.pdf (accessed 7 February 2021), https://www.international.gc.ca/trade-commerce/trade-agreements-accords-commerciaux/agr-acc/ceta -aecg/code-conduct-conduite.aspx?lang=eng (accessed 7 February 2021).
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Candidates, Members and former Members shall avoid impropriety and the appearance of impropriety, and shall observe high standards of conduct so that the integrity and impartiality of the dispute settlement mechanism is preserved. Article 3 – Disclosure Obligations 1. Candidates shall disclose to the Parties any past and present interest, relationship or matter that is likely to affect, or that could reasonably be seen as likely to affect, their independence or impartiality, that creates or could reasonably be seen as creating a direct or indirect conflict of interest, or that creates or might reasonably be seen as creating an appearance of impropriety or bias. To this end, candidates shall make all reasonable efforts to become aware of any such interests, relationships or matters. The disclosure of past interests, relationships or matters shall cover at least the last five years prior to a candidate submitting an application or otherwise becoming aware that he or she is under consideration for selection as a Member. 2. Members shall communicate matters concerning actual or potential violations of this code of conduct, in writing, to the Parties and, when relevant to a dispute, to the disputing parties. 3. Members shall at all times continue to make all reasonable efforts to become aware of any interests, relationships or matters referred to in paragraph 1 of this Article. Members shall at all times disclose such interests, relationships or matters throughout the performance of their duties by informing the Parties and, where relevant, the disputing parties. 4. In order to ensure that relevant information is provided by candidates and Members, disclosures shall be made through a standardised form with the possibility to add or enclose any document, and in accordance with any other procedures established by the Parties. Article 4 – Independence, Impartiality and Other Obligations of Members 1. In addition to the obligations established in Article 2 of this Decision, Members shall be and shall appear to be independent and impartial, and shall avoid direct and indirect conflicts of interest. 2. Members shall not be influenced by self-interest, outside pressure, political considerations, public clamour, loyalty to a Party, disputing party or any other person involved or participating in the proceeding, fear of criticism or financial, business, professional, family or social relationships or responsibilities. 3. Members shall not, directly or indirectly, incur any obligation, accept any benefit, enter into any relationship, or acquire any financial interest that is likely to affect or appear to affect their independence or impartiality. 4. Members shall not engage in ex parte contacts concerning the proceeding. 5. Members shall perform their duties thoroughly and expeditiously throughout the course of the proceeding and shall do so with fairness and diligence. 6. Members shall consider only those issues raised in the proceeding and which are necessary for a decision or award and shall not delegate this duty to any other person. 7. Members shall take all appropriate steps to ensure that their assistants are aware of, and comply with, Articles 2 (Responsibilities to the Process), 3(2) and (3) (Disclosure Obligations), 4(1) to (5) (Independence and Impartiality and Other Obligations of Members), 5(1) and (3) (Obligations of Former Members) and 6 (Confidentiality) of this Decision mutatis mutandis. 8. Members shall take appropriate account of other dispute settlement activities under the Agreement and, in particular, of decisions or awards rendered by the Appellate Tribunal. Article 5 – Obligations of Former Members 1. Former Members shall avoid actions that may create the appearance that they were biased in carrying out their duties or derived advantage from the decisions or awards of the Tribunal or the Appellate Tribunal. 2. Members shall undertake that for a period of three years after the end of their term, they shall not act as representatives of any of the disputing parties in investment disputes before the Tribunal or the Appellate Tribunal. 3. Without prejudice to the possibility to continue to serve on a division until the closure of the proceedings of that division, Members shall undertake that after the end of their term, they shall not become involved: (a) in any manner whatsoever in investment disputes which were pending before the Tribunal or the Appellate Tribunal before the end of their term; (b) in any manner whatsoever in investment disputes directly and clearly connected with disputes, including concluded disputes, which they have dealt with as Members of the Tribunal or the Appellate Tribunal.
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4. If the President of the Tribunal or of the Appellate Tribunal is informed or otherwise becomes aware that a former Member is alleged to have acted inconsistently with the obligations set out in paragraphs 1, 2 and 3, or any other part of this Decision while a Member, he or she shall examine the matter, provide an opportunity to the former Member to be heard, and, after verification, inform thereof: (a) the professional body or other such institution with which that former Member is affiliated; (b) the Parties; (c) if it involves a specific dispute, the disputing parties; and (d) the President of any other relevant international court or tribunal in view of the initiation of appropriate measures. The President of the Tribunal or of the Appellate Tribunal shall make public his or her decision to take the actions referred to in subparagraphs (a) to (d) above, together with the reasons therefor. Article 6 – Confidentiality 1. Members and former Members shall not at any time disclose or use any non-public information concerning a proceeding or acquired during a proceeding, except for the purposes of the proceeding, and shall not, in any case, disclose or use any such information to gain personal advantage or advantage for others or to adversely affect the interest of others. 2. Members shall not disclose an order, decision, award or parts thereof prior to its publication in accordance with the transparency provisions of Article 8.36 (Transparency of proceedings) of the Agreement. 3. Members or former Members shall not disclose any deliberation of the Tribunal or Appellate Tribunal, or any Member’s views, except in an order, decision or award Article 7 – Expenses Each Member shall keep a record and render a final account of their time devoted to the procedure and of their expenses incurred, as well as the time and expenses of their assistant. Article 8 – Sanctions 1. For greater certainty, the provisions of this code of conduct shall be applied together with the obligations set out in Article 8.30.1 of the Agreement and the procedures provided for in Articles 8.30.2, 8.30.3 and 8.30.4 of the Agreement shall apply to violations of this code of conduct. 2. For greater certainty, the CETA Joint Committee shall provide a Member the opportunity to be heard prior to the issuance of any decision pursuant to Article 8.30.4 of the Agreement. Article 9 – Mediators 1. The rules set out in this Decision as applying to candidates shall apply, mutatis mutandis, to natural persons who are aware that they are under consideration for appointment as mediators. 2. The rules set out in this Decision as applying to Members shall apply, mutatis mutandis, to mediators from the date on which he or she is appointed as mediator to the date on which: (a) the disputing parties adopt a mutually agreed solution; (b) the mediator provides a written declaration resigning from his or her duties as mediator; or (c) a disputing party, or both disputing parties, provide written notice by way of a letter transmitted to the mediator and the other disputing party terminating the mediator’s mandate or the mediation procedure, whichever is earlier. 3. The rules set out in this Decision as applying to former Members shall apply, mutatis mutandis, to former mediators. Article 10 – Consultative Committees 1. The President of the Tribunal and the President of the Appellate Tribunal shall each be assisted by a Consultative Committee for ensuring the proper application of this code of conduct, of Article 8.30 (Ethics) of the Agreement and for the execution of any other task, where so provided. 2. The Consultative Committees referred to in paragraph 1 of this Article shall be composed of the respective Vice-President and of the two most senior Members of the Tribunal or of the Appellate Tribunal. Article 11 – Authentic texts This Decision is drawn up in duplicate in the Bulgarian, Croatian, Czech, Danish, Dutch, English, Estonian, Finnish, French, German, Greek, Hungarian, Italian, Latvian, Lithuanian, Maltese, Polish, Portuguese, Romanian, Slovak, Slovenian, Spanish and Swedish languages, each version being equally authentic.
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This Decision shall be published and shall enter into force on the date of entry into force of Section F (Resolution of investment disputes between investors and states) of Chapter Eight (Investment) of the Agreement, subject to the Parties’ exchange of written notifications, through diplomatic channels, certifying that they have completed the necessary internal requirements and procedures.
As set out in Article 9, the code of conduct applies not only to mediators from 61 the date on which he or she is appointed as mediator until the date of termination of the mediation, but it also applies to candidates who are aware that they are under consideration for appointment as mediator and also to former mediators.
IV. Mediation Provision in CETA Chapter 29 – Dispute Settlement for Disputes other than Investment Disputes Chapter 29 with the CETA Dispute settlement provisions contains a series of settlement techniques for disputes other than investment disputes: (i) cooperation in order to arrive at a mutually satisfactory resolution if any matter that might affect its operation (Article 29.1); (ii) a recourse under the WTO Agreement or under any other agreement to which the Parties are a part (Article 29.3); (iii) consultations with the other Party (Article 29.4); (iv) mediation (Article 29.5); (v) arbitration (Article 29.6-18) and (vi) a mutually agreed solution (Article 29.19). Chapter 29 ‘applies to any dispute concerning the interpretation or application of the provisions of this Agreement’, ‘except as otherwise provided in this Agreement’ (Article 29.2). The general mediation provision of CETA is contained in Article 29.5 – Mediation which states: ‘The Parties may have recourse to mediation with regard to a measure if the measure adversely affects trade and investment between the Parties. Mediation procedures are set out in Annex 29-C. The mediator shall assist, in an impartial and transparent manner, the Parties in bringing clarity to the measure and its possible trade effects, and in reaching a mutually agreed solution.159 The procedural rules for the mediation procedure are contained in Annex 29-C, whilst a code of conduct for mediators is contained in Annex 29-B. Paragraphs 3 through 7 and 48 through 54 of the Rules of Procedure for Arbitration contained in Annex 29-A shall also apply, mutatis mutandis, to the mediator.160 The rules for mediation procedures for disputes arising under CETA, which are set out in Annex 29-C, contain in total 9 Articles:161 Article 1 – Objective; Article 2 – Initiation of the proceeding; Article 3 – Selection of the mediator; Article 4 – Rules of procedure for mediation; Article 5 – Implementation of a mutually agreed solution; Article 6 – Confidentiality and relationship to dispute settlement; Article 7 – Time limits; Article 8 – Costs; Article 9 – Review. These mediation rules are nearly identical to the mediation rules contained in the EU-Singapore FTA (Article 15.1-10) 162 and in the EU-Vietnam FTA (Article 15.4 and Annex 15-C). 163
Article 3.3 of Annex 29-C. Article 3.3 of Annex 29-C. 161 CETA, OJ L 11/456, 14 January 2017; see also: http://data.consilium.europa.eu/doc/document/ST -10973-2016-ADD-5/en/pdf#page=38 (accessed 8 August 2020). 162 Free Trade Agreement between the European Union and the Republic of Singapore, signed in Brussels on 19 October 2018, OJ L 294/3, 14 November 2019. 163 Zhao, ‘Investor-State Mediation in a China-EU Bilateral Investment Treaty: Talking About Being in the Right Place at the Right Time’ (2018) 17 Chinese J. Int’l L., 111, available at: https://academic.oup. com/chinesejil/article/17/1/111/4816232 (accessed 14 August 2020). 159
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A Party may request, at any time, that the Parties enter into a mediation proceeding by sending a request in this regard to the other Party in writing. 164 The mediation proceeding may only be initiated by mutual consent of the Parties. 67 The mediation rules provide short time limits for the setting in motion of the mediation. When a Party requests mediation pursuant to paragraph 1, the other Party shall give good faith consideration to the request and reply in writing within 10 days of receiving it.165 The Parties shall agree on a mediator, if possible, no later than 15 days after the receipt of the reply to the request for mediation. 166 Within 10 days after the appointment of the mediator, the Party requesting the mediation procedure shall present, in writing, a detailed description of the problem to the mediator and to the other Party, in particular of the operation of the measure at issue and its trade effects.167 Within 20 days after the date of delivery of this submission, the other Party may provide, in writing, its comments to the description of the problem. 168 The Parties shall endeavour to reach a mutually agreed solution within 60 days from the appointment of the mediator. Pending a final agreement, the Parties may consider possible interim solutions, especially if the measure relates to perishable goods. 169 On request of the Parties, the mediator shall issue to the Parties, in writing, a draft factual report, providing a brief summary of the measure at issue in the proceeding, the procedure followed and any mutually agreed solution reached as the final outcome of the proceeding, including possible interim solutions. The mediator shall provide the Parties 15 days to comment on the draft report. After considering the comments of the Parties submitted within the period, the mediator shall submit, in writing, a final factual report to the Parties within 15 days. The factual report shall not include any interpretation of this Agreement.170 Any time limit referred to in this Annex may be modified by mutual consent between the Parties.171 68 A mediator shall not be a citizen of either Party, unless the Parties agree otherwise.172 Mediators are bound by the Code of Conduct (Annex 29-B), which contains provisions applying to arbitrators as well as mediators and dealing with the duties and responsibilities, including duties of independence and impartiality and disclosure obligations related thereto, confidentiality and expenses.173 The procedure shall take place in the territory of the Party to which the request was addressed, or, by mutual consent of the Parties, in any other location or by any other means. 174 69 The mediator may decide on the most appropriate way of bringing clarity to the measure concerned and its possible trade-related impact. In particular, the mediator may organise meetings between the Parties, consult the Parties jointly or individually, seek the assistance of or consult with relevant experts and stakeholders and provide any additional support requested by the Parties. However, before seeking the assistance of or consulting with relevant experts and stakeholders, the mediator shall 66
Article 2.1 of Annex 29-C. Article 2.2 of Annex 29-C. 166 Article 3.1 of Annex 29-C. 167 Article 4.1 of Annex 29-C. 168 Article 4.1 of Annex 29-C. 169 Article 4.5 of Annex 29-C. 170 Article 4.7 of Annex 29-C. 171 Article 7 of Annex 29-C. 172 Article 3.2 of Annex 29-C. 173 Annex 29-B – Code of Conduct for Arbitrators and Mediators, CETA, OJ L 11/453, 14 January 2017, L/11/453; also available at: http://data.consilium.europa.eu/doc/document/ST-10973-2016-ADD -5/en/pdf#page=32 (accessed 8 August 2020). 174 Article 4.4 of Annex 29-C. 164
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consult with the Parties.175 The mediator may offer advice and propose a solution for the consideration of the Parties, which may accept or reject the proposed solution or may agree on a different solution. However, the mediator may not advise or comment on the consistency of the measure at issue with this Agreement. 176 The solution may be adopted by means of a decision of the CETA Joint Committee. 177 Where the Parties have agreed to a solution, each Party shall take the measures necessary to implement the mutually agreed solution within the agreed timeframe. 178 The implementing Party shall inform the other Party in writing of any steps or measures taken to implement the mutually agreed solution.179 Mutually agreed solutions shall be made publicly available. However, the version disclosed to the public may not contain any information that a Party has designated as confidential.180 Unless the Parties agree otherwise, and without prejudice to Article 4.6, all stages of the proceeding, including any advice or proposed solution, are confidential. However, any Party may disclose to the public that mediation is taking place. The obligation of confidentiality does not extend to factual information already existing in the public domain. 181 A Party shall not rely on or introduce as evidence in other dispute settlement proceedings under this Agreement or any other agreement, nor shall an arbitration panel take into consideration: (a) positions taken by the other Party in the course of the mediation proceeding or information gathered under Article 4.2; (b) the fact that the other Party has indicated its willingness to accept a solution to the measure subject to mediation; or (c) advice given or proposals made by the mediator.182 The mediation proceeding is without prejudice to the Parties' rights and obligations under the provisions on Dispute Settlement of CETA or any other agreement. 183 The proceeding shall be terminated:184 (a) by the adoption of a mutually agreed solution by the Parties, on the date of adoption; (b) by a written declaration of the mediator, after consulting with the Parties, that further efforts at mediation would be to no avail; (c) by a written declaration of a Party after exploring mutually agreed solutions under the mediation proceeding and after having considered any advice and proposed solutions by the mediator. Such declaration may not be issued before the period set out in Article 4.5 has expired; or (d) at any stage of the procedure by mutual agreement of the Parties. Each Party shall bear its costs of participation in the mediation proceeding. 185 The Parties shall share jointly and equally the costs of organisational matters, including the remuneration and expenses of the mediator. Remuneration of the mediator shall be in accordance with that of the chairperson of an arbitration panel in paragraph 8 of Annex 29-A.186 In addition to mediation, Chapter 29 provides also other dispute settlement techniques.
Article 4.2 of Annex 29-C. Article 4.3 of Annex 29-C. 177 Article 4.6 of Annex 29-C. 178 Article 5.1 of Annex 29-C. 179 Article 5.2 of Annex 29-C. 180 Article 4.6 of Annex 29-C. 181 Article 6.1 of Annex 29-C. 182 Article 6.4 of Annex 29-C. 183 Article 6.2 of Annex 29-C. 184 Article 4.8 of Annex 29-C. 185 Article 8.1 of Annex 29-C. 186 Article 8.2 of Annex 29-C. 175
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Article 29.3 provides the possibility to have: recourse to dispute settlement under the WTO Agreement or under any other agreement to which the Parties are party’. However, ‘if an obligation is equivalent in substance under this Agreement and under the WTO Agreement, or under any other agreement to which the Parties are party, a Party may not seek redress for the breach of such an obligation in the two fora.
In such case, once a dispute settlement proceeding has been initiated under one agreement, the Party shall not bring a claim seeking redress for the breach of the substantially equivalent obligation under the other agreement, unless the forum selected fails, for procedural or jurisdictional reasons, other than termination under paragraph 20 of Annex 29-A, to make findings on that claim. A mediator may not serve as a panellist in a dispute settlement proceeding under CETA or under the WTO Agreement involving the same matter for which she or he has been a mediator. 187 75 Article 29.4(5) on Consultations provides that ‘The Parties shall make every attempt to arrive at a mutually satisfactory resolution of the matter through consultations.’ Article 29.4(6) confirms that consultations are ‘confidential and without prejudice to the rights of the Parties in proceedings under this Chapter’. Article 29.4(7) provides that ‘Consultations shall take place in the territory of the responding Party unless the Parties agree otherwise. Consultations may be held in person or by any other means agreed to by the Parties.’ Consultations are not required before initiating a mediation proceeding. However, a Party should normally avail itself of the other relevant cooperation or consultation provisions in CETA before initiating the mediation proceeding.188 76 Article 29.4(8) obliges the Parties to make a choice between the procedure to follow in order to obtain relief, as it provides: ‘A Party's proposed measure may be the subject of consultations under this Article but may not be the subject of mediation under Article 29.5 or the dispute settlement procedures under Section C.’ 77 The last section of Chapter 29, provides for the submission of a dispute to an ‘arbitration panel’ in case no amicable settlement has been reached within 45 days of the date of receipt of the request for consultation (Article 29.6(1)(a)) or within 25 days of the date of receipt of the request for consultations for matters referred to in Article 29.4.4 (Article 29.6(1)(b)). If the Parties reach a mutually agreed solution while a dispute is pending before an arbitration, the Parties shall notify the ‘CETA Joint Committee and the arbitration panel of any such solution. Upon notification of the mutually agreed solution, the arbitration panel shall terminate its work and the proceedings shall be terminated.’
E. Conclusion 78
Article 8.20 CETA and the rules for mediation for use by Parties in investment disputes as well as the code of conduct for mediators in investment disputes serve the purpose to facilitate the finding of a mutually agreed solution of a dispute between an investor and a state through a comprehensive and expeditious procedure with the assistance of a mediator.189 These mediation provisions were not included in the first texts of the CETA negotiations, as the first text elaborated during the CETA Article 6.5 of Annex 29-C. Article 6.3 of Annex 29-C. 189 Comprehensive Economic and Free Trade Agreement (CETA) between Canada, on the one part, and the European Union and its Member States, of the other part, signed in Brussel on 30 October 2016, Annex 29-C, Article 1, OJ L 11/456, 14 January 2017. 187
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negotiations contained only provisions on the settlement of investor-State disputes through arbitration. The mediation provisions were inserted in order to respond to a growing desire for settling investor-State disputes and, more generally, disputes arising under CETA through alternative settlement techniques. The mindset in mediation is completely different from arbitration. Although there is little information available on investor-State mediation, the data 79 available show that a significant number of investor-State disputes are settled amicably at an early stage. This reveals the potential for a mediation mechanism, which can not only reduce the growing caseload of investor-State arbitrations, but more importantly, could strengthen the relations between investors and host States by promoting problem solving without incurring the economic and political costs of international arbitration. Even if the Parties are unable to reach a negotiated settlement of the entirety of the claims in issue, the use of ADR mechanisms can certainly help to streamline the dispute such that only a portion of it remains to be determined by a tribunal. Thus, mediation techniques may reduce the time and costs of arbitral proceedings. While arbitration usually offers only the investor the right to commence a dispute, both an investor and State may initiate mediations or consultations. Mediations, conciliation or consultation procedures are motivated more by the needs and interests of the Parties than their legal rights. Furthermore, mediation may be better suited to the participation of non-Party stakeholders, who may not have standing to participate in the arbitration process. Participation of these non-Parties in the mediation process may assist with the implementation of any agreements that are reached. The CETA mediation rules provide short time limits for the setting in motion of 80 the mediation and for the whole process, so that the mediation should not be seen as delaying the dispute settlement proceedings.
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Article 8.21 Determination of the respondent for disputes with the European Union or its Member States 1. If the dispute cannot be settled within 90 days of the submission of the request for consultations, the request concerns an alleged breach of this Agreement by the European Union or a Member State of the European Union and the investor intends to submit a claim pursuant to Article 8.23, the investor shall deliver to the European Union a notice requesting a determination of the respondent. 2. The notice under paragraph 1 shall identify the measures in respect of which the investor intends to submit a claim. 3. The European Union shall, after having made a determination, inform the investor as to whether the European Union or a Member State of the European Union shall be the respondent. 4. In the event that the investor has not been informed of the determination within 50 days of delivering its notice requesting such determination: (a) if the measures identified in the notice are exclusively measures of a Member State of the European Union, the Member State shall be the respondent; (b) if the measures identified in the notice include measures of the European Union, the European Union shall be the respondent. 5. The investor may submit a claim pursuant to Article 8.23 on the basis of the determination made pursuant to paragraph 3, and, if no such determination has been communicated to the investor, on the basis of the application of paragraph 4. 6. If the European Union or a Member State of the European Union is the respondent, pursuant to paragraph 3 or 4, neither the European Union, nor the Member State of the European Union may assert the inadmissibility of the claim, lack of jurisdiction of the Tribunal or otherwise object to the claim or award on the ground that the respondent was not properly determined pursuant to paragraph 3 or identified on the basis of the application of paragraph 4. 7. The Tribunal shall be bound by the determination made pursuant to paragraph 3 and, if no such determination has been communicated to the investor, the application of paragraph 4. Reference to the Respective Provisions in Other EU Treaties: Article 3.32 EU-Vietnam IPA; Article 3.5 EU-Singapore IPA. Bibliography: Ian Brownlie, Principles of Public International law (7th edn, Oxford University Press, Oxford 2008); James Crawford, ‘The ILC's Articles on Responsibility of States for Internationally Wrongful Acts: A Retrospect’ (2002) 96(4) AJIL, 874; Till Müller-Ibold and Christoph Hermann, ‘Die Entwicklung des europäischen Außenwirtschaftsrechts’ (2018) 18 EuZW, 749; Katja Ziegler, ‘The Relationship between EU Law and International Law’, in Dennis Patterson and Anna Södersten (eds), Companion to European Union Law and International Law (Wiley-Blackwell 2016), 42. A. Introduction and Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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B. Spirit and Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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C. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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D. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. Preliminary Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. The Respondent During Consultations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Financial Responsibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. CETA Compared to other EU Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Determination of the Respondent by the European Union . . . . . . . . . . . . . . . .
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Determination of the respondent for disputes with the EU 1. Article 8.21 para. 1: Delivery of the Notice for Determination of the Respondent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Article 8.21 para. 2: Content of the Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Consequences of a Valid Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. Consequences of a Defective Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5. Coherence of the Notice for Determination of the Respondent and the Submitted Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6. Article 8.21 para. 3: Determination of the Respondent by the European Union . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. Determination of the Respondent by Application of Article 8.21 para. 4 1. Scope of Application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Competence to Identify the Respondent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Identification of the Proper Respondent Pursuant to lit. (a) and (b) . . . 4. Article 8.21 para. 4 lit. (a): Measures of a Member State . . . . . . . . . . . . . . . . 5. Article 8.21 para. 4 lit. (b): Measures of the EU or of the EU and Member States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6. Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV. Article 8.21 para. 5: Right to Submit a Claim Against the Proper Respondent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V. Article 8.21 para. 6: Clarification Concerning Objections to the Claim . . . VI. Article 8.21 para. 7: Binding Force of the Determination of Respondent E. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Art. 8.21 18 22 28 30 32 33 39 40 43 45 47 49 53 55 56 58 59
A. Introduction and Overview The provision prescribes the procedure for determination of the respondent if a 1 Canadian investor intends to submit a claim pursuant to Article 8.23 CETA against the European Union (hereinafter: ‘EU’ or ‘Union’) or a Member State of the European Union (hereinafter: ‘Member State’). Any Canadian investor wishing to submit a claim pursuant to Article 8.23 CETA 2 against the EU or one of its Member States has to deliver a notice to the EU requesting the determination of the proper respondent. The EU shall then determine the respondent in accordance with its internal law, specifically ‘Regulation (EU) No. 912/2014 of the European Parliament and of the Council of 23 July 2014 establishing a framework for managing financial responsibility linked to investor-to-state dispute settlement tribunals established by international agreements to which the European Union is party (‘Regulation No. 912/2014’)’ within 50 days. As a fall-back rule, in case the EU does not make the determination within the 3 prescribed period of 50 days after the investor has submitted the notice, the claim can be filed against the legal entity (EU or Member State) which commissioned the measures on which the claim is based. In case measures of both the EU and a Member State are in dispute, the claim is to be submitted against the EU.
B. Spirit and Purpose Article 8.21 provides a simplified and practical regime for determination of the 4 proper respondent for claims of Canadian investors pursuant to Article 8.23 against the EU or a Member State. Article 8.21 was necessitated by the possibility that Canadian investors and their investments in the EU may be affected by concurrent or interrelated measures of a Member State and the EU, the general principle of Union law that international responsibility for treatment subject to investment disputes fol-
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lows the division of competences between the Union and the Member States, 1 the general inability of the EU and the Member States to conduct proceedings within the areas of exclusive competence of the respective other, subject to exceptions in Regulation No. 912/2014 (→ mn. 35), and the fact that the CETA does not provide for a joint responsibility of the EU and its Member States for measures commissioned by EU-Parties against Canadian investors within the EU. The EU is an international organization2 with far-reaching legislative, executive, judicative and treaty-making powers which it may exercise alongside, in addition to or in place of its Member States’ sovereign powers in accordance with the Treaty of the European Union (TEU) and the Treaty on the Functioning of the European Union (TFEU). The powers of the EU include the power to bind the Member States and control their policies in areas of EU competence through directly applicable regulations, through directives requiring implementation by Member States, through court decisions and decisions of the European Commission. As a consequence, Canadian investors in the EU may be subject to laws, policies, court decisions and executive measures from the organs and authorities of the Member States as well as the organs and authorities of the EU. Often measures of the EU and the Member States complement each other, are intrinsically interwoven or affect an investor or investment simultaneously making it difficult to determine which measure actually gives rise to international responsibility pursuant to Chapter 8 CETA. Since CETA does not allow an investor-state claim pursuant to Article 8.23 to be submitted against several respondents jointly unless all respondents agree to a joint proceeding pursuant to Article 8.43 para. 5, each claim case by a Canadian investor requires the determination of one proper EU-respondent. Article 8.21 makes it unnecessary for Canadian investors to analyse the complex rules on the division of competence between the EU and its Member States in order to determine the entity responsible for the measures on which the claim is based and avoids costly parallel proceedings against the EU and the concerned Member State in case measures of a particular Member State and of the EU have contributed to the alleged breach of CETA. Article 8.21 also safeguards the budget and non-financial resources of the EU, its Member States and the investor from being burdened, even temporarily, by the costs of unnecessary or unwarranted litigation and awards due to the investor’s inability to properly determine the EU-Party responsible for the measures allegedly in breach of CETA and correspondingly the proper respondent against whom the claim needs to be submitted. When interpreting and applying Article 8.21 two important limits have to be observed: –
Article 8.21 does not create international responsibility as such and cannot be relied upon to establish the responsibility of the respondent for private acts, natural phenomena, acts of a third states or other types of acts, omissions or measures not attributable under international law to either the EU or to a Member State. Consequently, Article 8.21 does not relieve the tribunal from applying general
1 Recital (3) Regulation No. 912/2014 of the European Parliament and of the Council of 23 July 2014 establishing a framework for managing financial responsibility linked to investor-to-state dispute settlement tribunals established by international agreements to which the European Union is Party. 2 Ziegler, ‘The Relationship between EU Law and International Law’, in Patterson and Södersten (eds), Companion to European Union Law and International Law (2016), 44.
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principles of international law concerning attribution and responsibility when deciding the claim on substance. Article 8.21 does not create a general joint liability of the EU and its Member States. The EU and its Member States have signed CETA as a so-called ‘mixed’ agreement,3 each EU-Party acting as a distinct subject of international law 4 and within its own area of competence but without accepting joint responsibility for investment claims. Consequently, Article 8.21 can only be applied to answer the binary question whether the EU or one particular Member State should assume the role of respondent and be held liable under CETA for the measures commissioned in the course of one particular, self-contained cause of action or set of interconnected events, if the tribunal finds those measures to be in breach of CETA. Article 8.21 does not allow the tribunal or the investor to extent the respondent’s responsibility to unconnected measures, treatment, acts or omissions commissioned by other EU-Parties to CETA which would need to be litigated in a separate claim case.
C. Drafting History A first draft of the text that would eventually become Article 8.21 appears to have 10 been introduced into the CETA negotiations in late 2013. Except for a few minor differences, the negotiating documents of that time already contain the text of Article 8.21 para. 1 and 6 and a rudimentary draft of para. 7. A general rule as to who shall act as respondent if the EU does not make a timely determination, reassembling para. 4 of the final Article 8.21, was also contained in this draft. Article 8.21 was finally agreed in the consolidated CETA text published on 5 11 August 2014 (which still contained arbitration for ISDS).5 When Chapter 8 CETA was reworked during legal scrubbing in the course of 2015/2016, Article 8.21 saw only minor editorial changes but remained stable on substance. Article 8.21 has been analysed by Yves Bot, Advocate General to the European 12 Court of Justice for the Court’s opinion 1/17 on CETA and found not objectionable
3 ‘Mixed agreements’ are international agreements in which both the EU and all of its Member States participate as Contracting Parties. They are concluded with subjects of international law, which are not Member States of the EU if the Treaties establishing the EU do not give the Union exclusive competence over all of the aspects covered by the agreement. According to Article 5(2) TFEU the ‘Union shall act only within the limits of the competences conferred upon it by the Member States in the Treaties to attain the objectives set out therein. Competences not conferred upon the Union in the Treaties remain with the Member States’ (see: Müller-Ibold and Hermann, ‘Die Entwicklung des europäischen Aussenwirtschaftsrechts’ (2018) 18 EuZW, 749; CJEU, Opinion 2/15, 16.05.2017, ECLI:EU:C:2017:376 (concerning the Free Trade Agreement between the European Union and Singapore); CJEU, Case C-600/14, 5.12.2017, Federal Republic of Germany v. Council of the European Union, ECLI:EU:C:2017:935, para. 68; CJEU, Opinion 1/94, 15.11.1994, ECLI:EU:C:1994:384). Mixed agreements of the EU and its Member States can be characterized as incomplete plurilateral treaties under international law. Such agreements create binding rights and obligations under international law between the EU and the relevant third state and between each of the EU Member States and the relevant third state but not inter partes between the EU Members States or between the Member States and the Union. However, according to Article 216 TFEU such treaties become part of Union law and may create binding rights and obligations between Member States or between Member States and the Union under Union law and can be interpreted by the Court of Justice of the European Union. 4 For the EU, see: Article 47 TFEU. 5 http://trade.ec.europa.eu/doclib/docs/2014/september/tradoc_152806.pdf.
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from the perspective of Union Law.6 In its opinion 1/17, the Court did not scrutinize Article 8.21 but held CETA in general to be compatible with Union law. 7
D. Commentary I. Preliminary Questions 1. The Respondent During Consultations The respondent determined pursuant to Article 8.21 is only the respondent for the purpose of an investment claim to be submitted to the tribunal pursuant to Article 8.23. For the consultation phase preceding the claim, there is no need to determine the appropriate ‘EU respondent’. According to Article 8.19 para. 7 (→ Art. 8.19 mn. 27), a Canadian investor’s request for consultation concerning an alleged breach of Chapter 8 CETA by the EU or a Member State shall be sent to the EU regardless of whether the EU or a Member State afforded the treatment allegedly in breach of CETA and independent of who will eventually act as respondent in a corresponding claim case should the dispute not be settled during consultations. 14 Pursuant to Article 5 and Article 7 para. 2 of Regulation No. 912/2014 the EU delegation for the consultations consists either of representatives of the EU Commission or, if the request for consultations identifies treatment fully or partially afforded by a Member State, of representatives of the EU Commission and the concerned Member State. 13
2. Financial Responsibility 15
Article 8.21 does not regulate the EU’s and the Member States’ financial responsibility vis-à-vis each other for awards rendered against the Union or a Member State. If and to what extent the EU or a Member State, who has acted as respondent, can ultimately request the other EU-Party to bear the financial responsibility for a successful claim of a Canadian investor, is exclusively a matter of the internal law of the EU and governed by Article 3 of Regulation No. 912/2014.
3. CETA Compared to other EU Agreements 16
The procedure for determination of the respondent agreed in Article 8.21 CETA is broadly comparable to the procedure in the later signed EU-Vietnam Investment Protection Agreement (EU-VNM-IPA)8 and EU-Singapore Investment Protection Agreement (EU-SGP-IPA).9 Neither of those agreements have entered into force, yet. The differences between CETA and those later agreements concern the notice for determination of respondent which is called the ‘notice of intent’, the required content
Opinion of Advocate General Yves Bot in Opinion 1/17, 29.01.2019, ECLI:EU:C:2019:72, para. 161. CJEU, Opinion 1/17, 30.04.2019, ECLI:EU:C:2019:341. 8 Council of the EU, Investment Protection Agreement between the European Union and its Member States, of the one part, and the Socialist Republic of Viet Nam, of the other part, signed on 30 June 2019 in Hanoi (not in force), 7 May 2019, https://data.consilium.europa.eu/doc/document/ST-5932-2019-INIT/ en/pdf. 9 Investment Protection Agreement between the European Union and its Member States, of the one part, and the Republic of Singapore, of the other part, signed on 19 October 2019 (not in force), 18 September 2018, https://data.consilium.europa.eu/doc/document/ST-7980-2018-INIT/en/pdf. 6
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of such notices and the time available to the EU to make the determination of the respondent (60 days instead of 50 days).
II. Determination of the Respondent by the European Union By default, the EU has the right to determine the respondent before a Canadian 17 investor submits a claim to the tribunal pursuant to Article 8.23 CETA against either the EU or a Member State.
1. Article 8.21 para. 1: Delivery of the Notice for Determination of the Respondent Article 8.21 para. 1 sets out that the ‘investor’ shall submit a notice for determination of the respondent to the EU if the dispute cannot be settled within 90 days of submission of the request for consultations. The term ‘investor’ is defined in Article 8.1. Since Article 8.21 applies only when the investor’s claim concerns an alleged breach of CETA by the EU or one of its Member States, only Canadian investors can submit the notice. In case the claim is to be filed on behalf of a Canadian investor’s locally established company in accordance with Article 8.23 para. 1 lit. (b) it is also the Canadian investor-claimant who has to submit the notice for determination of the respondent. The 90-days period is to be understood as a minimum period, meaning that the investor can submit the notice as soon as 90 days have elapsed after the request for consultation has been submitted in accordance with Article 8.19 or at any later point in time. Since Chapter 8 CETA lacks a dedicated provision for the computation of time limits, the 90-days-period should be calculated in accordance with established practices from the day following the day on which the relevant event occurred, i.e. the request for consultation was submitted to the EU.10 The notice for determination of respondent can be submitted starting from the 91st day counted from this day. Article 8.21 para. 1 only regulates that the notice shall be delivered to the ‘European Union’ without specifying the exact institution or addressee to whom the request shall be sent. Legally there are several options: The contact point according to Article 26.5 CETA, or the European Commission which is responsible for the external representation of the Union in the area of trade which does not fall under the competence of the High Representatives for Foreign and Security Policy in accordance with Article 17 TEU. So far, the EU has not published a specific contact point for claims pursuant to Article 8.23 CETA. In the absence of such a specific contact point, the notice for determination of the respondent should be sent to the President of the European Commission11 with a copy to the Commissioner for Trade.
10 For State-State-Arbitration in accordance with Chapter 29, CETA contains a rule for computation of time limits, see: para. 53 Annex 29A (Rules of Procedure for Arbitration) https://data.consilium.euro pa.eu/doc/document/ST-10973-2016-ADD-5/en/pdf#page=18; see also Regulation 29 (1) ICSID Administrative and Financial Regulations, http://icsidfiles.worldbank.org/icsid/icsid/staticfiles/basicdoc /partC.htm. In order to improve legal certainty for investors and respondents, it would be preferable if the CETA Committee on Services and Investment enacted rules of procedure containing a provision on the computation of time limits in accordance with Article 8.44 para. 3 lit. (b). 11 https://ec.europa.eu/commission/commissioners/2019-2024/president_en.
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2. Article 8.21 para. 2: Content of the Notice 22
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According to Article 8.21 para. 2 the notice for determination of the respondent shall identify the ‘measures’ in respect of which the investor intends to submit a claim. This requirement shall ensure the EU receives all necessary information to properly determine the respondent according to its internal law. To comply with para. 2 the investor must describe all measures upon which he intends to base the claim with all relevant details to the best of his knowledge and also identify the authors or perpetrators of the measures, if known (→ Art. 8.19 mn. 5). The measures have to belong to an interconnected set of events and constitute a coherent cause of action for which either one particular Member State or the EU could be internationally responsible. The investor may not group measures belonging to several unconnected events or unrelated causes of action into one notice for determination of the respondent with a view to submitting a common claim in respect of all such events or causes of action against one single EU respondent.12 The term ‘measure’ is circumscribed loosely in Article 1.1. CETA: ‘Measure includes a law, regulation, rule, procedure, decision, administrative action, requirement, practice or any other form of measure by a Party’ without actually defining the limits of the term or specifying the general characteristics of a ‘measure’. However, according to common understanding, a ‘measure’ is not just any act but an act or step performed in order to achieve a particular aim.13 Accordingly, acts of a preparatory or purely internal nature such as internal deliberations (within a court, administration or parliament) or the passing of information from one institution to another cannot be considered a ‘measure’ pursuant to para. 2 which would require identification in the notice for determination of the respondent. Also, acts which did not have an external legal or factual effect on the investor or the investment and which could not have contributed to the alleged breach of CETA14 do not need to be included. Depending on the particular measure or measures in respect of which the investor intends to submit a claim, the information required to be provided in the notice for determination of the respondent pursuant to para. 2 may vary. If, for example, the investor intends to challenge a law, act, rule, regulation or directive, the exact title, the date of adoption and reference in the relevant official journal should be provided. If the investor intends to submit a claim in respect of an administrative or judicial decision, the name of the court, public authority, agency, office or administrative body which rendered the decision, its affiliation (EU or Member State), the date and file or docket number of the decision, an outline of the various stages or instances of the proceedings (including any review procedures and appeals) and a short summary of all decisions rendered in the course of the proceedings should be provided. Ideally, the investor should attach full copies of the relevant decisions and specify whether to his knowledge the decisions were made with reference to the EU Treaties, a regulation or directive of the EU or a decision or ruling of an institution, agency or body of the EU. In case the investor intends to base his claim on a violation of a duty to act (omission), Article 8.21 para. 2 also entails the obligation of the investor to state which official action would have had to be performed by the EU or one of is Member States 12 This is particularly important with respect to the application of Article 8.21 para. 4, since there is no general joint liability of the EU and its Member States, see also above, → mn. 9. 13 The Oxford Learners Dictionary defines measure: ‘an official action that is done in order to achieve a particular aim’, https://www.oxfordlearnersdictionaries.com/definition/english/measure_2; The Merriam Webster Legal Dictionary defines: ‘a step planned or taken as a means to an end’, https://www.m erriam-webster.com/dictionary/measure#legalDictionary. 14 See Article 8.19 para. 4 (c).
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according to Chapter 8 of CETA in order to avoid a violation of CETA and/or avert or at least decrease the losses or damages for which the investors intends to claim compensation. In practice, the measures in respect of which the investor intends to submit a claim 27 will already have been specified in the request for consultation delivered to the EU pursuant to Article 8.19. para. 4 (d) and para. 7, provided the relevant requirements for the request for consultation have been duly complied with by the investor. Consequently, it would normally be sufficient for the investor to refer to the request for consultation in the notice for determination of the respondent and clearly indicate in respect of which of the measures identified therein he intends to submit the claim.
3. Consequences of a Valid Notice A notice for determination of the respondent complying with Article 8.21 para. 1 28 and 2 will trigger the 50-day-period pursuant to Article 8.21 para. 4 during which the EU has to inform the investor of the respondent. Additionally, the notice for determination of the respondent fixes the measures in 29 respect of which the investor can submit the claim (→ mn. 32). Should the investor change his mind before the claim is submitted pursuant to Article 8.23, an updated notice for determination or respondent needs to be sent to the EU complying with the requirements of Article 8.21 paras. 1 and 2. Any such new notice will trigger a new 50-day-period pursuant to para. 4. After the claim has been submitted, no new measures may be added to the claim by the investor.
4. Consequences of a Defective Notice An incomplete, unclear, premature or otherwise defective notice for the determina- 30 tion of the respondent obliges the tribunal to decline jurisdiction pursuant to Article 8.22 para. 1(c) and para. 4 upon application of the respondent. A defective notice for determination of respondent will also not trigger the 50-day- 31 period pursuant to Article 8.21 para. 4. Thus, the investor cannot rely on the application of para. 4 if the EU does not determine the respondent based on a defective notice with 50 days.
5. Coherence of the Notice for Determination of the Respondent and the Submitted Claim Unlike Article 3.35 para. 1(e) of the EU-Vietnam Investment Protection Agree- 32 ment15 and Article 3.7 para. 1(e) of the EU-Singapore Investment Protection Agreement16 Article 8.22 para. 1 CETA does not explicitly require the measures identified in the claim ‘to be based on the measures’ identified in the notice for determination of respondent. Article 8.22 para. 1(e) CETA only obliges the investor to abstain from including any measures in the claim which were previously not identified in the request for consultation. However, this must be considered a redactional mistake rather 15 Council of the EU, Investment Protection Agreement between the European Union and its Member States, of the one part, and the Socialist Republic of Viet Nam, of the other part, signed on 30 June 2019 in Hanoi (not in force), 7 May 2019, https://data.consilium.europa.eu/doc/document/ST-5932-2019-INIT/ en/pdf. 16 Council of the EU, Investment Protection Agreement between the European Union and its Member States, of the one part, and the Republic of Singapore, of the other part, signed on 19 October 2019 (not in force), 18 September 2018, https://data.consilium.europa.eu/doc/document/ST-7980-2018-INIT/en/pdf .
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than a purposeful policy decision. Nothing in the available negotiating materials on Chapter 8 CETA suggests that the negotiating Parties had any intention of allowing the investor to submit the claim based on additional, fewer or different measures than those identified in the notice for determination or respondent. Considering that any material deviation between the measures identified in the notice for determination of the respondent and the claim would likely invalidate the EU’s determination of the respondent under EU internal rules and defeat the purpose of Article 8.21 to allow the EU to properly apply Regulation No. 912/2014 to claims by Canadian investors, any such deviation should be considered falling under Article 8.22 para. 1(c) and require the tribunal to decline jurisdiction upon application of the respondent.
6. Article 8.21 para. 3: Determination of the Respondent by the European Union Article 8.21 para. 3 obliges the EU to determine the respondent following the receipt of the investor’s notice and inform the investor of its decision. 34 The EU-internal rules for determination of the respondent are contained in Article 4 and Article 9 of Regulation No. 912/2014. Applicable provisions of CETA will also have to be considered by the EU, since CETA, after having entered into force, will become part of Union law pursuant to Article 216 para. 2 TFEU. 35 Pursuant to Article 4 of Regulation No. 912/2014 the Union is the respondent ‘where a dispute exclusively concerns treatment afforded by the institutions, bodies, offices or agencies of the Union’.17 Conversely, where a Member State exclusively afforded the treatment giving rise to the claim or would bear the potential financial responsibility arising from a dispute, such Member State would be the respondent pursuant to Article 9 of Regulation No. 912/2014.18 However, by way of exception the EU Commission may decide that the EU should act as the respondent in disputes involving treatment afforded by a Member State pursuant to Article 9 para. 1 lit (a) of Regulation No. 912/2014 if (i) the treatment afforded by a Member State was required by Union law,19 or (ii) the dispute also involves treatment afforded by the Union, 20 or (iii) where similar treatment is being challenged in a related claim against the Union in the World Trade Organisation (WTO), provided a panel has been established, the claim concerns the same specific legal issue and it is necessary to ensure a consistent argumentation in the WTO case.21 Pursuant to Article 9 para. 1 lit. (b) of Regulation No. 912/2014 Member States may also decline to act as the respondent and request the EU to defend their case. 36 Since CETA does not foresee the possibility of a claim case against several respondents collectively, unless each respondent agrees to a joint proceeding pursuant to Article 8.43 para. 5 CETA, the EU Commission cannot determine that several Member States together shall be respondents for the same claim case unless each concerned Member State agrees to such joint proceedings. Thus, if a Canadian investor indicated an intention to file a claim against several Member States in respect of a joint obligation undertaken or acts committed by them outside the purview of the EU Treaties or in respect of an international organization formed by Member States outside of the EU 33
See recital 8 of Regulation No. 912/2014. See also recital 9 of Regulation No. 912/2014. 19 Cf. Article 9 para. 2 lit (a) and Article 3 para. 1 lit (c) of Regulation No. 912/2014. 20 Cf. Article 9 para. 2 lit (b) of Regulation No. 912/2014. 21 Cf. Article 9 para. 3 of Regulation No. 912/2014. 17
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framework,22 every Member State, determined to be respondent pursuant to Article 8.21 would need to be sued in an individual claim case unless consolidation pursuant to Article 8.43 para. 5 CETA can be agreed. Article 8.21 CETA and Regulation No. 912/2014 do not regulate who shall be 37 respondent in case the EU believes that the measures in respect of which the investor intends to submit the claim can neither be attributed to the EU nor to a Member State, e.g. because they are believed to constitute private acts, acts of a third state or a force of nature. In such a case the appropriate response to the notice for determination of respondent would need to be coordinated between the EU and the Member States on an individual basis. While a claim against the EU or a Member State with respect to measures not attributable to either one of them can obviously not be successful on substance in accordance with generally recognized principles of responsibility, 23 the EU may wish to determine a respondent anyway, in order to prevent the investor from bringing the claim against a respondent determined by the investor. As explained below in para. 57, the determination of the respondent by the EU would not constitute an admittance of responsibility. Pursuant to Article 8.21 para. 7, the EU’s determination of the respondent is 38 non-justiciable by the tribunal under CETA or general international law. Internally within the EU, the European Court of Justice has jurisdiction pursuant to Article 263 and Article 216 TFEU with respect to CETA, Regulation No. 912/2014 and the decisions adopted by the European Commission.
III. Determination of the Respondent by Application of Article 8.21 para. 4 Article 8.21 para. 4 contains a fall-back rule in case the EU does not make the 39 determination of the respondent within 50 days of having received the notice for determination of respondent.
1. Scope of Application Article 8.21 para. 4 only applies if the investor has submitted a valid notice for 40 determination of the respondent to the EU pursuant to Article 8.21 paras. 1 and 2 and the EU has not informed the investor of the respondent within 50 days from having received the investor’s notice pursuant to para. 3. Unless the CETA Committee on Services and Investment enacts supplementary 41 rules of procedure concerning the computation of time limits, the 50-days period should be calculated from the day following the day on which the EU receives the notice for determination of respondent until the end of the 50 th day thereafter (→ mn. 20). Para. 4 does not apply where the measures identified by the investor in the notice 42 for determination of respondent are neither measures of the EU nor of a Member State and may not be relied upon to invoke a general joint liability of the EU-Parties to CETA (→ mn. 9).
22 Cf. Article 23 of the Agreement on a Unified Patent Court, https://www.unified-patent-court.org/s ites/default/files/upc-agreement.pdf. 23 See, Brownlie, Principles of Public International Law (2008), 445 ff.
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2. Competence to Identify the Respondent It is the tribunal’s obligation to properly apply Article 8.21 para. 4 if the investor submits a claim with reference to this paragraph. According to Article 8.21 para. 7 (→ mn. 58),24 the tribunal is bound by the application of para. 4 but not by the investor’s identification of the respondent. Thus, should the tribunal conclude that the investor, despite having complied with the requirements regarding the notice for determination of respondent, has submitted the claim under reference to para. 4 against the wrong CETA Party as respondent, such respondent cannot be held responsible for the alleged breaches of CETA and the claim has to be rejected. 44 This also applies where the investor has chosen to submit the claim under the ICSID Convention or the ICSID Additional Facility Rules pursuant to Article 8.23 para. 7 a) or b). Being only the administrating authority of the case neither the ICSID Secretary General nor the ICSID Secretariat have the authority to determine the respondent. ICSID will only check the claim for certain formalities and organize the delivery of the claim to the recipient identified by the investor. 25 43
3. Identification of the Proper Respondent Pursuant to lit. (a) and (b) Article 8.21 para. 4 lit. (a) and lit. (b) require the proper attribution of the measures in respect of which the investor intends to submit the claim to the EU or to a Member State. 46 Since CETA does not contain rules on attribution, reference to general (customary) international law, including the Draft Articles on the Responsibility of States for Internationally Wrongful Acts26 and the Draft Articles on the Responsibility of International Organizations,27 to the extent these Draft Articles have attained the status of customary rules of international law,28 and to the internal law of the EU and the Member States in accordance with Article 8.31 para. 2 CETA may be required. Since Article 8.21 para. 4 requires the determination of the respondent according to objective criteria, in order to protect the interests of those Contracting Parties to CETA who will not become Party to the proceedings, neither the EU nor a Member State may acknowledge or assume a measure as one of its own for the purpose of Article 8.21.29 45
4. Article 8.21 para. 4 lit. (a): Measures of a Member State 47
If the investor intends to submit a claim exclusively with respect to measures of a Member State of the EU, such Member State shall be the respondent. Measures 24 Article 8.21 para. 7 does not relieve the tribunal of the duty to check whether the investor has properly determined the respondent pursuant to para. 4. 25 See, Article 36(2) Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention, https://icsid.worldbank.org/sites/default/files/ICSID%20Co nvention%20English.pdf); Article 3(1) ICSID Additional Facility Rules (2006), Schedule C, Arbitration (Additional Facility) Rules, https://icsid.worldbank.org/sites/default/files/AFR_2006%20English-final. pdf. 26 Yearbook of the International Law Commission, 2001, vol. II (Part Two). 27 Yearbook of the International Law Commission, 2011, vol. II, (Part Two). 28 See, Crawford, The ‘ILC's Articles on Responsibility of States for Internationally Wrongful Acts: A Retrospect’ (2002) 96 AJIL, 874 (889-890); Noble Ventures, Inc. v. Romania, ICSID Case No. ARB/01/11, Award (12 October 2005), para. 69 (‘While those Draft Articles are not binding, they are widely regarded as a codification of customary international law’). 29 See, Article 11 Draft Articles on the Responsibility of States for Internationally Wrongful Acts and Article 9 of the Draft Articles on the Responsibility of International Organizations.
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of Member States can be any attributable legislative, juridical or executive acts (→ mn. 24). According to generally accepted principles, a measure would be attributable to a Member State if it was commissioned by an organ of that Member State or by an organ of another state placed at the disposal of the concerned Member State or by a person or institution exercising governmental authority for such Member State, or by a person or institution acting on the instructions or under the direction or control of a Member State.30 Whether a particular person, body or institution is an organ of a Member State must be determined by reference to the concerned Member State’s internal law.31 Lit. (a) does not apply if a measure of a Member State includes a measure of the EU 48 in which case lit. (b) applies.
5. Article 8.21 para. 4 lit. (b): Measures of the EU or of the EU and Member States In case the measures identified in the investor’s notice for the determination of respondent include measures of the EU, the Union shall be respondent. In accordance with generally accepted principles of international law, 32 a measure can be considered a measure of the EU if it was commissioned by an organ or agent of the EU or by an organ or agent of another subject of international law placed at the disposal of the EU provided such organ or agent acted in its official capacity and within the overall functions of the EU. Whether a particular person, body or institution is an organ or agent of the EU must be determined by reference to the EU’s internal law, such as the Treaty of the European Union and the Treaty on the Functioning of the European Union and any applicable secondary law.33 Organs of the EU are, for example, the EU Commission, the High Representative for Foreign Affairs, the Council, the Court of Justice or the European Parliament. The term ‘includes’ leads to the application of lit. (b) in three distinct scenarios: (i) the notice for determination or the respondent exclusively identifies measures of the European Union such as, for example, a regulation or directive of the Council and the European Parliament, a decision of the European Commission or a judgment of the European Court of Justice, (ii) the notice identifies several interconnected measures of which at least one was commissioned by the EU and (iii) the notice identifies exclusively measures of a Member State but at least one of such measures includes a measure of the European Union. Whether or not a measure of a Member State includes a measure of the EU in the third scenario, has to be determined from an objective standpoint. It is immaterial whether the investor had knowledge of the relevant measure of the EU or intends to base his claim upon such (underlying) EU-measure. Arguably, the proper test to determine whether a Member State’s measure includes a measure of the EU would be to ask whether the Member State’s measure was caused, directed or ordered by the Union, 30 See, Brownlie, Principles of Public International law (2008), 445 ff.; Articles 4 to 10 of the Draft Articles on the Responsibility of States for Internationally Wrongful Acts, Yearbook of the International Law Commission, 2001, vol. II (Part Two). 31 See, Article 4(2) Draft Articles on the Responsibility of States for Internationally Wrongful Acts, Yearbook of the International Law Commission, 2001, vol. II. 32 See, Brownlie, Principles of Public International law (2008), 445 ff.; Articles 6 to 8 of the Draft Articles on the Responsibility of International Organizations, Yearbook of the International Law Commission, 2011, vol. II (Part Two). 33 Article 6(2) Draft Articles on the Responsibility of International Organizations, Yearbook of the International Law Commission, 2011, vol. II (Part Two).
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49 50
51
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Determination of the respondent for disputes with the EU
for example by way of a regulation, directive or executive or judicial decision. For practical purposes this means that lit. (b) would apply instead of lit. (a) if, for example, the investor submits a claim in respect of (iii.a) the application of an EU regulation by a Member State (iii.b) the proper execution or application of a judgment of the European Court of Justice by a Member State or (iii.c) an implementing act of a Member States which does not go beyond what is required by the corresponding EU directive, (iii.d) the revocation of a subsidy by a Member State following a decision of the European Commission or (iii.e) other comparable measures. On the contrary, a measure of a Member State cannot be considered to include a measure of the EU if the Member State’s measure constitutes a misapplication of EU law, is inconsistent with or unrequired by EU law and does not follow or implement an applicable direction, order or binding decision of an organ, agent or court of the Union.
6. Procedure If the investor intends to rely upon Article 8.21. para. 4, the following information concerning the respondent should be contained in the request for dispute settlement pursuant to Article 8.23 in order to enable the tribunal to confirm the respondent determined by the investor: (i) the name and contact details of the respondent as identified by the investor pursuant to Article 8.21 para. 4, (ii) evidence on the date on which the notice for determination of the respondent pursuant to Article 8.21 para. 3 was delivered to the EU, (iii) evidence that the notice was correct and complete, i.e. that it complied with the requirements of para. 2 and (iv) a written assurance that the EU did not determine the respondent within 50 days of delivery of the notice for determination of respondent. 54 Where the investor relies upon para. 4, the tribunal should provide the respondent identified by the investor with an opportunity to submit observations on the identification pursuant to para. 4 as early as possible in the proceedings in order to assure itself that the requirements concerning the notice for determination of the respondent have been complied with and the EU has indeed not determined the respondent in accordance with para. 3. 53
IV. Article 8.21 para. 5: Right to Submit a Claim Against the Proper Respondent 55
Article 8.21 para. 5 clarifies that the investors may submit a claim pursuant to Article 8.23 against the respondent determined by the EU in accordance with para. 3 or by application of para. 4. The provision underlines the mandatory nature of Article 8.21. The tribunal can only render an award against the proper respondent determined or identified in accordance with Article 8.21 para. 3 or para. 4.
V. Article 8.21 para. 6: Clarification Concerning Objections to the Claim 56
Article 8.21 para. 6 only applies if either the EU has determined the respondent pursuant to para. 3 and the investor has followed this determination by submitting the claim against such respondent (→ mn. 32) or, in the event no timely determination has been made by the EU, the investor has submitted the claim against the proper respondent pursuant to para. 4 (→ mn. 40 ff.). If either of these conditions are met, nei-
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ther the Union nor a Member State may assert the inadmissibility of the claim, lack of jurisdiction of the tribunal or otherwise object to the claim or award on the ground that the respondent was not properly determined pursuant to paragraph 3 or identified by application of paragraph 4. This also excludes the possibility to make the determination or identification of the respondent a ground for annulment, setting aside or appeal pursuant to Article 8.28 or pursuant to any applicable arbitration rules. Specifically, para. 6 prevents the respondent from invoking the EU’s or Member States’ internal laws and regulations, including those on competence, to question its status as respondent once it has been determined pursuant to para. 3 or 4. The purpose of Article 8.21 para. 6 is to ensure that the identity of the respondent 57 is fixed from the beginning of the claim proceedings in order to allow an orderly conduct of proceedings, including the proper delivery of documents and writs, and the passing of a binding and enforceable award pursuant to Article 8.39. However, as has been noted above (→ mn. 9), neither the determination of the respondent by the EU in accordance with para. 3 nor the application of para. 4 constitutes an admittance of responsibility on the part of the EU or a Member State or restricts the respondent’s defence in any other way.
VI. Article 8.21 para. 7: Binding Force of the Determination of Respondent Article 8.21 para. 7 clarifies that the tribunal is bound by the determination of the 58 respondent made by the EU and, in the absence of a determination by the EU, must apply para. 4 to determine the respondent. Thus, it is not possible for the investor and any EU-Party to CETA to agree on a respondent for a particular proceeding or request the tribunal to apply other rules than Article 8.21 to determine the respondent. Furthermore, para. 7 obliges the tribunal to apply para. 4, if relied upon by the investor, regardless of whether the CETA-Party against whom the investor has submitted the claim objects to being the proper respondent or not.
E. Conclusion Article 8.21 CETA is the first provision agreed by the European Union and its 59 Member States in an international investment agreement which regulates the determination of the respondent. The Energy Charter Treaty (ECT), the only international investment protection agreement signed collectively by the EU and its Member States before CETA, does not contain a comparable provision. However, the EU and its Member States have submitted a statement pursuant to Article 26(3)(b)(ii) ECT to the Energy Charter Secretariat which calls for the application of Regulation 912/2014 to determine the proper respondent in ECT disputes.34 So far, neither this statement nor Regulation No. 912/2014 have been tested by international tribunals. Thus, it will be interesting to see how tribunals will handle Article 8.21 CETA in practice. Given the straightforward drafting and clear purpose of the provision to avoid conflict of CETA’s investment dispute settlement mechanism with the EU’s internal division of competence and the EU’s internal rules on financial responsibility, specifically Regulation 912/2014, one would not expect unsurmountable difficulties for investors and tribunals in applying and complying with Article 8.21 CETA. 34
Official Journal of the European Union, L 115, 2 May 2019, p. 1.
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Article 8.22 Procedural and other requirements for the submission of a claim to the Tribunal 1. An investor may only submit a claim pursuant to Article 8.23 if the investor: (a) delivers to the respondent, with the submission of a claim, its consent to the settlement of the dispute by the Tribunal in accordance with the procedures set out in this Section; (b) allows at least 180 days to elapse from the submission of the request for consultations and, if applicable, at least 90 days to elapse from the submission of the notice requesting a determination of the respondent; (c) has fulfilled the requirements of the notice requesting a determination of the respondent; (d) has fulfilled the requirements related to the request for consultations; (e) does not identify a measure in its claim that was not identified in its request for consultations; (f) withdraws or discontinues any existing proceeding before a tribunal or court under domestic or international law with respect to a measure alleged to constitute a breach referred to in its claim; and (g) waives its right to initiate any claim or proceeding before a tribunal or court under domestic or international law with respect to a measure alleged to constitute a breach referred to in its claim. 2. If the claim submitted pursuant to Article 8.23 is for loss or damage to a locally established enterprise or to an interest in a locally established enterprise that the investor owns or controls directly or indirectly, the requirements in subparagraphs 1(f) and (g) apply both to the investor and the locally established enterprise. 3. The requirements of subparagraphs 1(f) and (g) and paragraph 2 do not apply in respect of a locally established enterprise if the respondent or the investor’s host state has deprived the investor of control of the locally established enterprise, or has otherwise prevented the locally established enterprise from fulfilling those requirements. 4. Upon request of the respondent, the Tribunal shall decline jurisdiction if the investor or, as applicable, the locally established enterprise fails to fulfil any of the requirements of paragraphs 1 and 2. 5. The waiver provided pursuant to subparagraph 1(g) or paragraph 2 as applicable shall cease to apply: (a) if the Tribunal rejects the claim on the basis of a failure to meet the requirements of paragraph 1 or 2 or on any other procedural or jurisdictional grounds; (b) if the Tribunal dismisses the claim pursuant to Article 8.32 or Article 8.33; or (c) if the investor withdraws its claim, in conformity with the applicable rules under Article 8.23.2, within 12 months of the constitution of the division of the Tribunal. Reference to the Respective Provisions in Other EU Treaties: Article 3.7 EU-Singapore IPA; Article 3.35 EU-Vietnam IPA.
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Bibliography: Gloria Maria Alvarez et al., ʿA Response to the Criticism against ISDS by EFILAʾ (2016) 33 J. Int.’l Arb., 1; Rudolf Dolzer and Christoph Schreuer, Principles of International Investment Law (2 nd edn, Oxford University Press, Oxford 2012); Philip Hainbach, ʿThe EU's Approach to Investor-State Arbitration in the Comprehensive Economic and Trade Agreement (CETA)ʾ (2016) 13 TDM, 1; Steffen Hindelang, ‘Study on Investor-State Dispute Settlement (ISDS) and Alternatives to Dispute Resolution in International Investment Law’ (2016) 13 TDM, 1; Damien Nyer, ʿThe Investment Chapter of the EU-Canada Comprehensive Economic and Trade Agreementʾ (2015) 32 J. Int.’l Arb., 697; Luca Pantaleo, 'Investment disputes under CETA. Taking the best from past experience?' in Luca Pantaleo and Mads Andenas (eds), The European Union as a Global Model for Trade and Investment (University of Oslo Faculty of Law Legal Studies Research Paper Series No. 2016-02, 2016), 61; Luca G. Radicati di Brozolo and Federica Iorio, ‘Arbitration Under Investment Protection Agreements Between The EU and Non-Member States’ in Loukas Mistelis and Laurence Shore (eds), WAR (JurisNet, USA 2015), 20; August Reinisch and Lukas Stifter, ʿEuropean Investment Policy and ISDSʾ (2015) ELTE L.J., 11; Elsa Sardinha, ʿThe New EU-Led Approach to Investor-State Arbitration: The Investment Tribunal System in the Comprehensive Economic Trade Agreement (CETA) and the EU–Vietnam Free Trade Agreementʾ (2017) 32 ICSID Rev., 625; Christian J. Tams, ʿProcedural Aspects of Investor-State Dispute Settlement: The Emergence of a European Approach?ʾ (2014) 15 JWIT, 585; John A. VanDuzer, ʿInvestor-state Dispute Settlement in CETA: Is it the Gold Standardʾ (2016) 459 C.D. Howe Institute Commentary, 2; André von Walter and Maria Luisa Andrisani, ʿResolution of Investment Disputesʾ in Makane Moïse Mbengue and Stefanie Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (2018), 185. A. Introduction and Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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B. Spirit and Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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C. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9
D. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. Consent to the Settlement of the Dispute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Consultations and Determination of the Respondent . . . . . . . . . . . . . . . . . . . . . III. Definition of the Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV. Parallel Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V. Locally Established Enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12 13 14 20 22 27
E. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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A. Introduction and Overview Article 8.22 CETA sets out a list of procedural and other requirements for the submission of an investment claim to the Tribunal. Article 8.22(4) CETA makes clear that the requirements in Article 8.22(1) CETA are jurisdictional in nature. Hence, a failure on the investor’s part to comply with any of these requirements will result in a finding that the Tribunal lacks jurisdiction over the relevant claim. Where an investor claims damages allegedly suffered by a locally incorporated company that it owns or controls, directly or indirectly, the requirements in subparagraphs (f) and (g) apply to the local company too, unless the host state has deprived the investors of control of the local company or has otherwise prevented the local company from fulfilling these requirements.1 Pursuant to Article 8.22(5) CETA, a waiver relating to the right to commence proceedings before national courts ceases to apply where either the Tribunal dismisses the investment claim at the initial stage of a case,2 or the investor withdraws such claim within 12 months of the constitution of the division of the Tribunal. Article 8.22(2) and (3) CETA. Specifically, the waiver ceases to apply where the Tribunal dismisses the claim on grounds that: (i) it lacks jurisdiction; (ii) the claim is manifestly without legal merit pursuant to Article 8.32 CETA; or (iii) the claim is unfounded as a matter of law pursuant to Article 8.33 CETA. 1
2
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3
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Procedural and other requirements for the submission of a claim to the Tribunal
B. Spirit and Purpose In general, investment treaties define the procedural framework in which arbitration proceedings are conducted rather loosely, especially when compared with domestic procedural rules.3 By contrast, CETA extensively addresses a number of relevant procedural issues, including the composition of the Tribunal, applicable law, transparency, remedies and allocation of costs with a view to enhancing legal certainty. Consistent with this approach, Article 8.22 CETA provides for a detailed determination of the requirements for the submission of an investment claim to the Tribunal and the legal consequences arising from a failure to comply with any such requirement.4 These clarifications are welcome in relation to issues such as the effects of non-compliance with the procedural requirements set forth in a treaty in relation to which international arbitral practice has long been divided (→ mn. 14). 6 In addition to promoting legal certainty, Article 8.22 CETA seeks to address some concerns about investor-state dispute settlement (ISDS) by adopting the best practices found in Canada’s foreign investment protection instruments.5 7 For instance, Article 8.22(1)(d) CETA makes consultations a condition precedent to submit a claim to arbitration, thereby providing the respondent with an early opportunity to engage in informal discussions with the investor for the settlement of the dispute.6 Article 8.22(1)(b) CETA, which provides for a consistent time delay (180 days after the submission of the request for consultation) before an investment claim may be filed, and Article 8.22(1)(e) CETA, which imposes a full disclosure of the domestic measures challenged in the request for consultation, are also designed to favour an early and amicable resolution of the dispute. 8 Article 8.22(1)(f) and (g) CETA seek to address another concern about ISDS, namely the risk that the respondent state faces multiple proceedings in relation to the same domestic measures for which an investment claim is filed before the Tribunal. 7 These provisions require that, to submit an investment claim to the Tribunal, an investor discontinues any other proceedings pending before domestic courts based on the same measures and waives its right to pursue relief for that measure other than through investment arbitration.8 Additionally, Article 8.22(1)(f) and (g) CETA are aimed at clarifying, from a procedural perspective, the relationship between the domestic and international legal orders.9 As such, these provisions should be read in 5
3 Hindelang, ʿStudy on Investor-State Dispute Settlement (ISDS) and Alternatives to Dispute Resolution in International Investment Lawʾ (2016) 13 TDM, 1 (14). 4 Some authors have labelled this approach as ‘paternalistic’: Reinisch and Stifter, ʿEuropean Investment Policy and ISDSʾ (2015) ELTE L.J., 11 (18). 5 VanDuzer, ʿInvestor-state Dispute Settlement in CETA: Is it the Gold Standardʾ (2016) 459 C.D. Howe Institute Commentary, 2 (5). 6 See, e.g., Article 22(1) Canada 2014 Model FIPA, Article 21(1) Canada – Côte d’Ivoire Foreign Investment Promotion and Protection Agreement (2014) (Canada-Côte d'Ivoire BIT), Article 22(1) Agreement for the Promotion and Reciprocal Protection of Investments between Canada and the Republic of Guinea (2015) (Canada-Guinea BIT) and Article 21(1) Agreement Between the Government of Canada and the Government of the Hong Kong Special Administrative Region of the People's Republic of China for the Promotion and Protection of Investments (2016) (Canada-Hong Kong, China SAR BIT). 7 Alvarez et al., ʿA Response to the Criticism against ISDS by EFILAʾ (2016) 33 J. Int.’l Arb., 1 (3). 8 See, e.g., Article 22(2) Canada 2014 Model FIPA, Article 21(2) Canada-Côte d'Ivoire BIT, Article 22(5) Canada-Guinea BIT and Article 22(2) Canada-Hong Kong, China SAR BIT. 9 Walter and Andrisani, ʿResolution of Investment Disputesʾ in Moïse Mbengue and Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (2018), 185 (201).
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conjunction with other rules sharing the same purpose, including Articles 8.18 and 8.32 CETA.10
C. Drafting History Unlike other procedural rules in CETA, such as those regarding the constitution 9 of the Tribunal, the Appellate Tribunal and the establishment of a multilateral court, Article 8.22 CETA did not undergo major revisions in the various versions of the text. The first version of Article 8.22 CETA was Article X.19 of the Consolidated Draft of the Comprehensive Economic and Trade Agreement of 13 January 2010 (Draft CETA of 13 January 2010) which already contained the main pillars of Article 8.22, namely a detailed list of procedural requirements for the submission of an investment claim, including prior consultations and waiver of existing and future claims before domestic courts. After four years of negotiations between the EU and Canada, a revised Consolidat- 10 ed CETA Text was officially published on 26 September 2014 (Draft CETA of 26 September 2014). Article X.19 Draft CETA of 13 January 2010, which became Article X.21 Draft CETA of 26 September 2014, was subject to limited amendments that mainly consisted of: (i) providing for a more stringent time frame between request for consultation and submission of a claim; (ii) clarifying the jurisdictional character of the requirements for the submission of a claim; and (iii) introducing the new requirement that a claim shall not identify measures that were not identified in the request for consultation. By contrast, the suggestion of the European Parliament to introduce ‘the obligation to exhaust local judicial remedies where they are reliable enough to guarantee due process’ did not find its way in the revised text of the article.11 In the view of the Commission, prior exhaustion of local remedies does not represent common practice in investment arbitration since only few treaties require exhaustion of local remedies before submitting an investment claim and some ‘even contain an explicit rejection of this idea, inter alia because it is considered to increase the cost and duration of litigation’.12 In the final text of CETA resulting from the so-called ‘legal scrubbing’ process, 11 Article 8.22 CETA is almost identical to Article X.21 Draft CETA of 26 September 2014. The only modification worth mentioning is the extension of the scope of the waiver and the obligation to discontinue existing domestic proceedings under Article 8.22(1)(f) and (g), which now make reference to ʿa claim or proceeding before a tribunal or courtʾ, as opposed to a ʿclaim or proceeding seeking compensation or damage before a tribunal or courtʾ.13
10 Article 8.18(1) CETA limits the jurisdiction of the Tribunal to treaty claims (as opposed to purely contractual claims), whereas Article 8.31(2) CETA limits the possibility for the Tribunal to interpret and apply the domestic law of the host state. 11 European Parliament, European Parliament resolution of 6 April 2011 on the future European international investment policy, 2010/2203(INI), para. 31. See also Tams, ʿProcedural Aspects of Investor-State Dispute Settlement: The Emergence of a European Approach?ʾ (2014) 15 JWIT, 585 (610). 12 European Commission, Concept paper, Investment in TTIP and beyond – the path for reform, 5 May 2015, 10. 13 Article X.21 Draft CETA of 26 September 2014 (emphasis added).
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Procedural and other requirements for the submission of a claim to the Tribunal
D. Commentary 12
Article 8.22(1) CETA sets out the procedural and other requirements that any investor must satisfy for the submission of an investment claim to the Tribunal. These requirements, which are expressly characterized as jurisdictional requirements pursuant to Article 8.22(4) CETA, are examined in sub-Sections I-IV below.
I. Consent to the Settlement of the Dispute 13
Pursuant to Article 8.22(1)(a) CETA, an investor shall deliver its consent to the settlement of the dispute by the Tribunal along with the submission of the claim. This provision should be read in conjunction with Article 8.25(1) CETA which contains the respondent’s consent to arbitration (or offer of consent) as customary in international investment agreements providing for ISDS.
II. Consultations and Determination of the Respondent Investment treaties providing for ISDS frequently require that amicable settlement through consultations or negotiations must first be attempted for periods ranging from three to twelve months.14 Consistent with this, CETA sets out elaborate provisions on consultations and (voluntary) mediation and makes consultations a condition precedent for the submission of a claim to arbitration. 15 Specifically, in order to submit a claim to the Tribunal, an investor must: (i) fulfil the requirements relating to a request for consultation (Article 8.22(1)(d) CETA);16 and (ii) wait at least 180 days from the submission of the request for consultations (Article 8.22(1)(b) CETA). 15 Arbitral practice covering the nature of consultations requirements is broadly inconsistent. In Murphy Exploration v. Ecuador, for instance, the Tribunal held that the consultations provision in Article VI of the Ecuador-United States BIT ʿconstitutes a fundamental requirement that Claimant must comply with, compulsorily, before submitting a request for arbitrationʾ.17 By contrast, the Tribunal in SGS v. Pakistan concluded that consultations periods should be treated ʿas directory and procedural rather than as mandatory and jurisdictional in natureʾ so that non-compliance with 14
14 See Article 26(2) Energy Charter Treaty (ECT) and Article 1118 North American Free Trade Agreement (NAFTA). See also Dolzer and Schreuer, Principles of International Investment Law (2012), 268. 15 See Article 8.19, 8.20 and 8.22 CETA. 16 The requirements relating to a request for consultation are set out in Article 8.19 CETA. Specifically, Article 8.19(4) CETA states that a request for consultations shall contain: ‘(a) the name and address of the investor and, if such request is submitted on behalf of a locally established enterprise, the name, address and place of incorporation of the locally established enterprise; (b) if there is more than one investor, the name and address of each investor and, if there is more than one locally established enterprise, the name, address and place of incorporation of each locally established enterprise; (c) the provisions of this Agreement alleged to have been breached; (d) the legal and the factual basis for the claim, including the measures at issue; and (e) the relief sought and the estimated amount of damages claimed’. 17 Murphy Exploration and Production Company International v. Republic of Ecuador, ICSID Case No. ARB/08/4, Award on Jurisdiction (15 December 2010), para. 149. See also Burlington Resources Inc. v. Republic of Ecuador and Empresa Estatal Petróleos del Ecuador (PetroEcuador), ICSID Case No. ARB/08/5, Decision on Jurisdiction (2 June 2010), para. 317 f.
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Art. 8.22
consultations obligations cannot deprive an arbitral tribunal of its jurisdiction.18 In light of this inconsistency, the clarification offered by Article 8.22 CETA regarding the jurisdictional nature of the consultations requirement is to be welcomed. If a dispute cannot be resolved by way of consultations and concerns an alleged breach of CETA by the EU or a Member State, the investor must deliver to the EU a notice requesting a determination of the respondent.19 In other words, Canadian investors must request the EU to determine the appropriate respondent (either the EU itself or a Member State) based on the EU rules on the allocation of financial responsibility for investor-state arbitration.20 The EU shall inform the investor of its determination within 50 days of the delivery of the notice requesting such determination.21 Against this background, Article 8.22(1)(b) and (d) CETA state that in order to submit a claim to the Tribunal, an investor must: (i) fulfil the requirements of the notice requesting a determination of the respondent;22 and (ii) wait at least 90 days from the submission of such notice.23 With regard to the first requirement, Article 8.21 CETA clarifies that the notice requesting a determination of the respondent shall identify the measures that the investor intends to challenge and shall not be submitted before 90 days have elapsed from the submission of the request for consultations.24 With regard to the second requirement, the 90-day time period from the submission of the notice requesting a determination of the respondent adds up to the 180 days that an investor must wait from the submission of the request for consultations. Thus, Article 8.22(1)(b) CETA provides for a variable cooling-off period which may last from six to nine months depending on the identity of the respondent. 25 These temporal limitations should be read in conjunction with the statutes of limitation set forth in Article 8.19(6) CETA whereby an investor must submit a request for consultations within: (i) three years of the date on which it first acquired, or should have first acquired, knowledge of the alleged breach and knowledge that it has incurred loss or damage; or (ii) two years of the exhaustion of proceedings before a domestic court and, in any event, no later than 10 years after it first acquired, or should have first acquired knowledge of the alleged breach. Under CETA, therefore, investors must comply with a rigid sequence of cooling-off periods and statutes of limitations in order to be able to submit an investment claim to the Tribunal.
18 SGS Société Générale de Surveillance S.A. v. Islamic Republic of Pakistan, ICSID Case No. ARB/01/13, Decision of the Tribunal on Objections to Jurisdiction (6 August 2003), para. 184. See also Ethyl Corporation v. The Government of Canada, UNCITRAL, Award on Jurisdiction (24 June 1998), para. 84; Casinos Austria International GmbH and Casinos Austria Aktiengesellschaft v. Argentine Republic, ICSID Case No. ARB/14/32, Decision on Jurisdiction (29 June 2018), para. 280. 19 Article 8.21(1) CETA. See in this context also Statement submitted to the Energy Charter Treaty (ECT) Secretariat pursuant to Article 26(3)(b)(ii) of the ECT replacing the statement made on 17 November 1997 on behalf of the European Communities, Official Journal, L 115/1 (2 May 2019). 20 See Regulation (EU) No 2014/912/EU. See also Radicati di Brozolo and Iorio, ‘Arbitration Under Investment Protection Agreements Between The EU and Non-Member States’ in Mistelis and Shore (eds) WAR (2015), 20 (21). 21 Article 8.21(3) and (4) CETA. 22 Article 8.22(1)(c) CETA. 23 Article 8.22(1)(b) CETA. 24 Article 8.21(1) and (2) CETA. 25 Pantaleo, 'Investment disputes under CETA. Taking the best from past experience?' in Pantaleo and Andenas (eds), The European Union as a Global Model for Trade and Investment (2016), 61 (64).
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17
18
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Procedural and other requirements for the submission of a claim to the Tribunal
III. Definition of the Case Article 8.22(1)(e) states that, in order to submit its claim to the Tribunal, an investor shall not identify a measure in its claim that was not identified in the request for consultation. This provision reflects the WTO practice that the request for consultations and the request for the establishment of a panel set the boundaries of the dispute so that a claimant is not allowed to supplement its original claims at a later stage of a case.26 By contrast, most arbitration rules, including the ICSID Arbitration Rules, the ICSID Additional Facility Rules and the 2010 UNCITRAL Rules, provide for the possibility to bring ancillary claims and/or amend original claims.27 21 It is unclear whether under Article 8.22(1)(e) CETA an investor will be permitted to amend its claims by including measures subsequently adopted by the respondent where such measures arise out of and/or are directly related to the same factual matrix of the original claim. That is certainly permitted under established arbitral practice, as the contrary holding would require an investor to file multiple subsequent and related actions and would lead to inefficiency and likely inequity.28 Yet, it has been noted that even if the applicable arbitration rules allowed amended claims, the unconditional prohibition in Article 8.22(1)(e) CETA could be deemed as paramount, thus leading the Tribunal to decline its jurisdiction over the claim.29 It may be possible that the request for consultation is drafted sufficiently broad to avoid this unwelcome conclusion. 20
IV. Parallel Claims Article 8.22(1)(f) and (g) CETA require that, in order to submit an investment claim to the Tribunal, an investor withdraw or discontinue, and waive the right to initiate, any proceedings before a tribunal or court under domestic or international law with respect to the measure alleged to constitute a breach referred to in its claim. 30 Pursuant to Article 8.22(5) CETA, the waiver ceases to apply where either the Tribunal dismisses the claim on grounds that: it lacks jurisdiction, the claim is manifestly without legal merit, or the claim is unfounded as a matter of law, or the investor withdraws such a claim within 12 months of the constitution of the division of the Tribunal. 23 Article 8.22(1)(f) and (g) CETA address the risk that multiple claims are brought before domestic courts and investment tribunals and, at the same time, define the boundaries between the national and international legal orders.31 This provision 22
26 Article 4 and 6 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU). See also Sardinha, ʿThe New EU-Led Approach to Investor-State Arbitration: The Investment Tribunal System in the Comprehensive Economic Trade Agreement (CETA) and the EU– Vietnam Free Trade Agreementʾ (2017) 32 ICSID Rev., 625 (655). 27 See Rule 40 ICSID Arbitration Rules, Article 47 ICSID Additional Facility Rules and Article 22 2010 UNCITRAL Rules. 28 See Metalclad Corporation v. The United Mexican States, ICSID Case No. ARB(AF)/97/1, Award (30 August 2000), paras. 66-69. 29 Sardinha, fn. 27, 660. 30 The waiver generally takes the form a written statement submitted along with the Request for Arbitration. 31 European Commission, fn. 12, 10-11.
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Art. 8.22
should therefore be read in conjunction with Article 8.24 CETA which seeks to coordinate investment proceedings under CETA and other international agreements. 32 As noted in section C above, in the course of the legal scrubbing performed 24 between 2014 and 2016, the scope of Article 8.22(f) and (g) CETA was extended so as to include all types of claims before domestic courts, as opposed to compensation claims only.33 Article 8.22(f) and (g) CETA appears therefore to be better equipped to address the risk that investment tribunals and domestic courts may reach diverging outcomes with regard to the same dispute, as it also prevents investors from pursuing non-monetary claims before domestic courts, such as claims challenging the legality of domestic measures, while they are seeking monetary compensation before the Tribunal.34 This approach is consistent with the approach in Article 1121(2)(b) NAFTA. Although Article 8.22(f) and (g) CETA are capable of avoiding all types of parallel 25 proceedings and possible ensuing diverging outcomes, some authors have pointed out that the approach adopted in CETA falls short of addressing the legitimacy concerns surrounding the ISDS mechanism.35 Specifically, the decision not to follow the proposal of the European Parliament to require the prior exhaustion of local judicial remedies would fail to recognize that both the EU and Canada have properly functioning judicial systems which do not justify that investors be given the possibility to bypass democratically accountable domestic courts.36 Requiring prior exhaustion of local remedies may be reasonable in other contexts. 37 26 However, for the purposes of CETA this view appears to overlook the following circumstances. First, investors are often prevented from bringing a claim before domestic courts for the alleged violation of an investment treaty, as most domestic courts cannot directly apply international instruments. For instance, Canadian and US domestic courts are expressly precluded from ruling upon NAFTA-based claims.38 Second, even though the quality of the judicial systems of EU Member States is generally high, the performance of individual Member States vary markedly, including on matters such as accessibility to the judicial system, length of proceedings and perceived independence of the judiciary.39
32 Article 8.24 CETA reads as follows: ʿWhere a claim is brought pursuant to this Section and another international agreement and: (a) there is a potential for overlapping compensation; or (b) the other international claim could have a significant impact on the resolution of the claim brought pursuant to this Section, the Tribunal shall, as soon as possible after hearing the disputing parties, stay its proceedings or otherwise ensure that proceedings brought pursuant to another international agreement are taken into account in its decision, order or awardʾ. See Nyer, ʿThe Investment Chapter of the EU-Canada Comprehensive Economic and Trade Agreementʾ (2015) 32 J. Int.’l Arb., 697 (708-709). 33 See Article X.21 Draft CETA of 26 September 2014. 34 This occurred, for instance, in the Vattenfall case, where the investor commenced proceedings before the German courts while the ICSID proceedings were still pending: see Hainbach, ʿThe EU's Approach to Investor-State Arbitration in the Comprehensive Economic and Trade Agreement (CETA)ʾ (2016) 13 TDM, 1 (25). 35 Hainbach, fn. 35, 25-26; Hindelang, fn. 3, 61-63. 36 See European Parliament, fn. 12, para. 31. See also Hainbach, fn. 35, 25-26; Hindelang, fn. 3, 61-63. 37 This is particularly true with regard to other areas of public international law, such as international human rights law, where prior exhaustion of local remedies represents the general rule; see, e.g., Article 35(1) European Convention on Human Rights (ECHR). 38 Alvarez, fn. 7, 26. 39 European Commission, The 2019 EU Justice Scoreboard, COM(2019) 198/2.
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Procedural and other requirements for the submission of a claim to the Tribunal
V. Locally Established Enterprises 27
Article 8.22(2) and (3) CETA focus on locally incorporated companies. Specifically, pursuant to Article 8.22(2) CETA, where an investment claim concerns loss or damage suffered by a locally incorporated company, the requirements under Article 8.22(1) (f) and (g) CETA to withdraw or discontinue, and waive the right to initiate, any proceedings before a domestic court with respect to the measure alleged to constitute a breach of CETA also extend to the locally incorporated company. Article 8.22(3) provides for an exception to this rule in the event that the respondent or the investor’s host state have deprived the investor of control of the locally incorporated company, or have otherwise prevented such company from fulfilling the requirements under Article 8.22(1)(f) and (g) CETA.
E. Conclusion 28
Article 8.22 CETA spells out the procedural framework for the submission of an investment claim to the Tribunal. In this respect, Article 8.22 CETA appears to be more advanced than the majority of existing investment instruments, including because it sets out: (i) a detailed determination of the requirements for the submission of an investment claim to the Tribunal; and (ii) the jurisdictional consequences arising from a failure to comply with any such requirement. In addition, Article 8.22 CETA seeks to address some issues of ISDS that have recently given rise to concern including by: (i) making consultations a condition precedent to file an investment claim; and (ii) reducing the risk of multiple proceedings relating to the same domestic measures.
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Article 8.23 Submission of a claim to the Tribunal 1. If a dispute has not been resolved through consultations, a claim may be submitted under this Section by: (a) an investor of a Party on its own behalf; or (b) an investor of a Party, on behalf of a locally established enterprise which it owns or controls directly or indirectly. 2. A claim may be submitted under the following rules: (a) the ICSID Convention and Rules of Procedure for Arbitration Proceedings; (b) the ICSID Additional Facility Rules if the conditions for proceedings pursuant to paragraph (a) do not apply; (c) the UNCITRAL Arbitration Rules; or (d) any other rules on agreement of the disputing parties. 3. In the event that the investor proposes rules pursuant to subparagraph 2(d), the respondent shall reply to the investor’s proposal within 20 days of receipt. If the disputing parties have not agreed on such rules within 30 days of receipt, the investor may submit a claim under the rules provided for in subparagraph 2(a), (b) or (c). 4. For greater certainty, a claim submitted under subparagraph 1(b) shall satisfy the requirements of Article 25(1) of the ICSID Convention. 5. The investor may, when submitting its claim, propose that a sole Member of the Tribunal should hear the claim. The respondent shall give sympathetic consideration to that request, in particular if the investor is a small or medium-sized enterprise or the compensation or damages claimed are relatively low. 6. The rules applicable under paragraph 2 are those that are in effect on the date that the claim or claims are submitted to the Tribunal under this Section, subject to the specific rules set out in this Section and supplemented by rules adopted pursuant to Article 8.44.3(b). 7. A claim is submitted for dispute settlement under this Section when: (a) the request under Article 36(1) of the ICSID Convention is received by the Secretary-General of ICSID; (b) the request under Article 2 of Schedule C of the ICSID Additional Facility Rules is received by the Secretariat of ICSID; (c) the notice under Article 3 of the UNCITRAL Arbitration Rules is received by the respondent; or (d) the request or notice initiating proceedings is received by the respondent in accordance with the rules agreed upon pursuant to subparagraph 2(d). 8. Each Party shall notify the other Party of the place of delivery of notices and other documents by the investors pursuant to this Section. Each Party shall ensure this information is made publicly available. Reference to the Respective Provisions in Other EU Treaties: Article 3.6 EU-Singapore IPA; Article 3.33 EU-Vietnam IPA. Bibliography: Gloria Maria Alvarez et al., ʿA Response to the Criticism against ISDS by EFILAʾ (2016) 33 J. Int.’l Arb., 1; Freya Baetens, ‘The EU’s Proposed Investment Court System (ICS): Addressing Criticisms of Investor-State Arbitration While Raising New Challenges’ (2016) 43 LIEI, 4; Benedetta Cappiello, ʿISDS in European International Agreements: Alternative Justice or Alternative to Justice?ʾ (2016) 13 TDM, 1; Rudolf Dolzer and Christoph Schreuer, Principles of International Investment Law (2nd edn, Oxford University Press, Oxford 2012); David A. Gantz, ʿThe CETA Ratification Saga: The Demise of ISDS in EU Trade Agreements?ʾ (2017) 49 Loy. U. Chi. L. J., 361; Damien Nyer, ʿThe
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Investment Chapter of the EU-Canada Comprehensive Economic and Trade Agreementʾ (2015) 32 J. Int.’l Arb., 697; August Reinisch, ʿWill the EU’s Proposal Concerning an Investment Court System for CETA and TTIP Lead to Enforceable Awards?—The Limits of Modifying the ICSID Convention and the Nature of Investment Arbitrationʾ (2016) 19 J. Int.’l Econ. L., 761; Elsa Sardinha, ʿThe New EU-Led Approach to Investor-State Arbitration: The Investment Tribunal System in the Comprehensive Economic Trade Agreement (CETA) and the EU–Vietnam Free Trade Agreementʾ (2017) 32 ICSID Rev., 625; Christoph Schreuer, Loretta Malintoppi, August Reinisch, Anthony Sinclair, The ICSID Convention – A Commentary (2nd edn, Cambridge University Press, Cambridge 2010); Christian J. Tams, ʿProcedural Aspects of Investor-State Dispute Settlement: The Emergence of a European Approach?ʾ (2014) 15 JWIT, 585; André von Walter and Maria Luisa Andrisani, ʿResolution of Investment Disputesʾ in Makane Moïse Mbengue and Stefanie Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (2018), 185. A. Introduction and Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
B. Spirit and Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7
C. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10
D. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. Claimant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Arbitration Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. Small and Medium-Sized Enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV. Time of Submission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V. Communication and Publication Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . .
14 15 18 29 30 32
E. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
33
A. Introduction and Overview Article 8.23 CETA sets out the procedural framework for the new investment tribunal system introduced by CETA. As illustrated in detail in sections B and D below, the functioning of this new investment tribunal system is based on existing and well-established arbitration rules. 2 Pursuant to Article 8.23(1) and (2) CETA, if a dispute has not been resolved through consultation, an investor may submit a claim to the Tribunal – including on behalf of a locally incorporated company that it owns or controls, directly or indirectly1 – under the following rules: 1
a) b) c) d)
the ICSID Convention and ICSID Arbitration Rules; the ICSID Additional Facility Rules, where the ICSID Convention does not apply; the UNCITRAL Rules; or any other rules agreed upon by the disputing parties.
These rules are those in effect when the claim is submitted to the Tribunal, as amended and supplemented by the specific procedural provisions set forth in CETA. 2 4 If an investor proposes alternative rules pursuant to subparagraph (d) but the Parties fail to reach an agreement on such rules within 30 days of the receipt of the investor’s proposal, the investor may fall back on the rules indicated in subparagraphs (a), (b) or (c).3 Moreover, an investor may propose that a sole-member Tribunal hear the claim. The respondent should give sympathetic consideration to this proposal, particularly where the investor is a small or medium-sized enterprise or the value of the claim is relatively low. 3
1 In this case, pursuant to Article 8.23(4) CETA, the claim shall satisfy the condition under Article 25 ICSID which requires that the locally incorporated company be controlled by the foreign investor. 2 Article 8.23(6) CETA. 3 Article 8.23(3) CETA.
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Pursuant to Article 8.23(7) CETA, an investment claim shall be deemed submitted 5 to arbitration when: a) the Request for Arbitration is received by the Secretary-General of ICSID; b) the Request to institute arbitration proceedings under the ICSID Additional Facility Rules is received by the Secretariat of ICSID; c) the notice under Article 3 UNCITRAL Rules is received by the respondent; or d) the request or notice initiating proceedings is received by the respondent in accordance with the arbitration rules agreed upon by the parties pursuant to Article 8.23(2)(d) CETA. Each Contracting Party shall: (i) notify the other Party of the place of delivery of 6 notices and other documents by the investors; and (ii) ensure that this information is made publicly available.4
B. Spirit and Purpose Public criticism of ISDS had a considerable impact on the negotiations between 7 the EU and Canada and eventually resulted in the introduction of a new investment tribunal system in the final text of CETA.5 In a nutshell, this new investment tribunal system is a two-tier system for investor-state dispute settlement (ISDS) consisting of the Tribunal as tribunal of first instance and the Appellate Tribunal as second instance.6 Against this backdrop, Article 8.23 CETA is aimed at providing the new investment 8 tribunal system with the procedural framework to operate. This procedural framework might also serve the permanent multilateral investment court and appellate mechanism once it will be established by the Contracting Parties to CETA. 7 The approach of Article 8.23(2) CETA is that the new investment tribunal system operates on the basis of existing arbitration rules, including the ICSID Convention and ICSID Arbitration Rules, the ICSID Additionally Facility Rules; the UNCITRAL Rules or other arbitration rules depending on the investor’s choice. This is justified by the fact that the EU and its Member States are not necessarily Parties to all conventions establishing arbitration rules (for instance, neither the EU nor Poland are Parties to the ICSID Convention). Some provisions of Article 8.23 CETA pursue public policy objectives with a view 9 to addressing some of the perceived shortcomings of the ISDS system. For instance, Article 8.23(5) CETA – where it provides that the respondent shall give sympathetic consideration to the proposal that a sole-member Tribunal hear the claim where such a proposal comes from a small or medium-sized enterprise – seeks to enhance access to justice by reducing the costs of arbitration proceedings. Similarly, Article 8.23(8) CETA, which requires that information concerning the place of delivery of notices and
Article 8.23(8) CETA. See Group of the Progressive Alliance of Socialists and Democrats (S&D), Position Paper on Investor–state dispute settlement mechanisms in ongoing trade negotiations, 4 March 2015, (http://www.social istsanddemocrats.eu/sites/default/files/position_paper_investor_state_dispute_settlement_ISDS_en_15 0304_3.pdf); European Commission, Concept paper, Investment in TTIP and beyond – the path for reform, 5 May 2015, 3 f. 6 Articles 8.27 and 8.28 CETA. 7 Article 8.29 CETA. See Cappiello, ʿISDS in European International Agreements: Alternative Justice or Alternative to Justice?ʾ (2016) 13 TDM, 1 (15). 4
5
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other documents by the investor be made publicly available, is aimed at enhancing transparency.
C. Drafting History Although CETA ʿmoves decisively away from the traditional approach of investment dispute resolutionʾ,8 the provisions of Article 8.23 CETA are not particularly innovative and thus underwent very limited revision. In this respect, the first version of Article 8.23 CETA, Article X.20 of the Consolidated Draft of the Comprehensive Economic and Trade Agreement of 13 January 2010 (Draft CETA of 13 January 2010) already contained the main pillars of Article 8.23, namely the identification of existing arbitration rules – as amended and supplemented by specific provisions contained in CETA – as the procedural framework for the new investment tribunal system. Only the reference to ‘other arbitration rules’ agreed upon by the Parties was added at a later stage, in the revised Consolidated CETA Text of 26 September 2014 (Draft CETA of 26 September 2014).9 11 In 2011, the European Parliament called the Commission to:10 10
a) reform the dispute settlement provisions of each of the new EU investment treaties (including CETA) with a view to taking into consideration the fact that ʿthe EU cannot use existing International Centre for Settlement of Investment Disputes (ICSID) and United Nations Commission on International Trade Law (UNCITRAL) dispute settlement mechanisms since the EU as such is a member of neither organisation’;11 and b) propose solutions to enhance access to investment arbitration for small and medium-sized enterprises. 12
Following the European Parliament’s suggestions, Article X.20 Draft CETA of 13 January 2010, which became Article X.22 Draft CETA of 26 September 2014, was revised so as to include the possibility for: a) the disputing parties to choose ʿany other arbitration rulesʾ in addition to the ICSID Arbitration Rules, the ICSID Additional Facility Rules and the UNCITRAL Rules (at the same time the Commission started exploring with interested Parties the possibility for the EU to join the ICSID Convention);12 and b) investors to propose that the claim be heard by a sole-member Tribunal, a proposal to which the respondent shall give sympathetic consideration where expressed by a small or medium-sized enterprise. 8 Joint Interpretative Instrument on the Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union and its Member States, 14 January 2017, 4. See also Gantz, ʿThe CETA Ratification Saga: The Demise of ISDS in EU Trade Agreements?ʾ (2017) 49 Loy. U. Chi. L. J., 361 (365 f.). 9 Article X.21 Draft CETA of 26 September 2014. 10 European Parliament, European Parliament resolution of 6 April 2011 on the future European international investment policy, 2010/2203(INI), paras. 33 f. 11 It has been noted that reference to the UNCITRAL Rules reveals a puzzling understanding on the European Parliament’s part of UNCITRAL; see Tams, ʿProcedural Aspects of Investor-State Dispute Settlement: The Emergence of a European Approach?ʾ (2014) 15 JWIT, 585 (590). 12 Typically, existing arbitration rules, albeit designed for international commercial arbitration, can be used in investment arbitration cases. Moreover, a number of arbitral institutions have issued arbitration rules designed specifically for investment arbitration: see, e.g., BAC Rules on International Investment Arbitration 2019, CIETAC Investment Arbitration Rules 2017 and SIAC Investment Arbitration Rules 2017.
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In the final text of CETA resulting from the so-called ‘legal scrubbing’ process, 13 Article 8.23 CETA is almost identical to Article X.22 Draft CETA of 26 September 2014.
D. Commentary Article 8.23 CETA sets out the procedural framework for the new investment 14 tribunal system. This procedural framework is examined in sub-sections I-V below.
I. Claimant Article 8.23(1) CETA states that if the disputing Parties fail to resolve a dispute 15 through consultations, the investor may submit a claim to the Tribunal either on its own behalf or on behalf of a locally incorporated company that it owns or controls directly or indirectly. Article 8.23(4) CETA clarifies that where an investor submits a claim on behalf of a locally incorporated company, ʿthe requirements of Article 25(1) ICSID Conventionʾ must be satisfied. It has been suggested that the reference to Article 25(1) ICSID Convention may be a drafting error; a more accurate reference may have been to Article 25(2)(b) ICSID Convention which states in relevant part: 13 National of another Contracting State means: […] any juridical person which had the nationality of the Contracting State party to the dispute on that date and which, because of foreign control, the parties have agreed should be treated as a national of another Contracting State for the purposes of this Convention.
The application of Article 25(2)(b) ICSID Convention requires: (i) an agreement 16 between the disputing Parties; and (ii) the actual foreign control of the investor over the locally incorporated company.14 The first requirement is to be satisfied by the provision on locally incorporated companies contained in Article 8.23(1) CETA, coupled with the investor’s consent to the settlement of the dispute by the Tribunal. 15 The second requirement calls for the Tribunal to carry out a factual analysis to ascertain whether the locally incorporated company is under the control of the investor. 16 In the absence of such control, the Tribunal shall decline its jurisdiction.17 Unlike the EU-Vietnam Free Trade Agreement (EU-Vietnam FTA), which express- 17 ly prohibits mass claims, Article 8.23(1) CETA is silent on this point. 18
13 Sardinha, ʿThe New EU-Led Approach to Investor-State Arbitration: The Investment Tribunal System in the Comprehensive Economic Trade Agreement (CETA) and the EU–Vietnam Free Trade Agreementʾ (2017) 32 ICSID Rev., 625 (661). 14 Dolzer and Schreuer, Principles of International Investment Law (2012), 52. 15 Schreuer et al., The ICSID Convention – A Commentary (2010), 312. 16 Klöckner Industrie-Anlagen GmbH and others v. United Republic of Cameroon and Société Camerounaise des Engrais, ICSID Case No. ARB/81/2, Award (21 October 1983); Société Ouest Africaine des Bétons Industriels v. Senegal, ICSID Case No. ARB/82/1, Decision on Jurisdiction (1 August 1984); Autopista Concesionada de Venezuela, C.A. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/00/5, Decision on Jurisdiction (27 September 2001); Millicom International Operations B.V. and Sentel GSM SA v. The Republic of Senegal, ICSID Case No. ARB/08/20, Decision on Jurisdiction (16 July 2010). 17 Vacuum Salt Products Ltd. v. Republic of Ghana, ICSID Case No. ARB/92/1, Award (16 February 1994), paras. 35-55. 18 Article 7(6) EU-Vietnam FTA.
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II. Arbitration Rules 18
Pursuant to Article 8.23(2)(a)-(d) CETA, an investor submitting a claim to the Tribunal may choose among the following arbitration rules: a) the ICSID Convention and ICSID Arbitration Rules; b) the ICSID Additional Facility Rules, where the conditions for proceedings under paragraph (a) do not apply; c) the UNCITRAL Rules; or d) any other rules agreed upon by the disputing Parties.19
The foregoing rules shall be the rules in force when the claim is submitted to the Tribunal, as amended and supplemented by specific provisions contained in CETA.20 Yet, irrespective of the investor’s choice of arbitration rules: (i) the ICSID fee structure shall apply to the determination of fees and expenses of the members of the Tribunal;21 and (ii) the ICSID Secretariat shall act as Secretariat for the Tribunal and provide it with appropriate support.22 20 At the time of writing, arbitration under the ICSID Convention and the ICSID Arbitration Rules is available only to EU investors, except Polish investors, and Canadian investors bringing a claim against any Member States other than Poland. Since neither the EU nor Poland is a Party to the ICSID Convention, an ICSID tribunal would lack jurisdiction over claims brought by Polish investors against Canada or by Canadian investors against the EU and/or Poland pursuant to Article 25(1) ICSID Convention. 23 In these cases, an investor may opt for the ICSID Additional Facility Rules or choose the other arbitration rules available pursuant to Article 8.23(2) CETA. 21 The decision to include the ICSID Convention in Article 8.23(2) CETA was probably based on the aspiration of the EU to become a Party to the ICSID Convention in the future.24 This would require a modification of Article 67 ICSID Convention since it currently restricts membership to states that are members of the World Bank or at least Parties to the ICJ Statute. Some authors have advanced the assumption that the provision of Article 8.23(2) CETA would represent an inter se modification of the ICSID Convention to allow the EU to become a Party of that treaty. 25 Even if this assumption were correct, such inter se modification would probably be deemed incompatible with the object and purpose of the ICSID Convention to provide mechanisms to resolve investment disputes between states and nationals of other states. 26 19
19 Pursuant to Article 8.23(3) CETA: ʿIn the event that the investor proposes rules pursuant to subparagraph 2(d), the respondent shall reply to the investor’s proposal within 20 days of receipt. If the disputing parties have not agreed on such rules within 30 days of receipt, the investor may submit a claim under the rules provided for in subparagraph 2(a), (b) or (c)ʾ. 20 Article 8.23(6) CETA. 21 Article 8.27(14) CETA. 22 Article 8.27(16) CETA. 23 Reinisch, ʿWill the EU’s Proposal Concerning an Investment Court System for CETA and TTIP Lead to Enforceable Awards?—The Limits of Modifying the ICSID Convention and the Nature of Investment Arbitrationʾ (2016) 19 J. Int.’l Econ. L., 761 (769). 24 Commission Communication, Towards a comprehensive European international investment policy, 7 July 2010, COM(2010) 343 final, 10. 25 Reinisch, ʿWill the EU’s Proposal Concerning an Investment Court System for CETA and TTIP Lead to Enforceable Awards?—The Limits of Modifying the ICSID Convention and the Nature of Investment Arbitrationʾ (2016) 19 J. Int.’l Econ. L., 761 (769); Sardinha, ʿThe New EU-Led Approach to Investor-State Arbitration: The Investment Tribunal System in the Comprehensive Economic Trade Agreement (CETA) and the EU–Vietnam Free Trade Agreementʾ (2017) 32 ICSID Rev., 625 (661). 26 Article I(2) ICSID Convention.
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Submission of a claim to the Tribunal
The arbitration rules governing the proceedings before the Tribunal are ʿsubjectʾ 22 to the specific rules set out in Section F of CETA and ʿsupplementedʾ by the specific rules adopted by the Committee Services and Investment pursuant to Article 8.44.3(b) CETA.27 A number of these specific rules diverge markedly from the rules set out in the ICSID Convention. Specifically: a) Article 8.27(7) CETA vests the President of the Tribunal with the power to appoint the Members of the Tribunal hearing a case on a rotation, random and unpredictable basis, whereas Article 37(2)(b) ICSID Convention gives the disputing Parties the right to appoint their arbitrators; b) Article 8.31 CETA expressly excludes that the domestic law of the host state could be part of the law applicable by the Tribunal, whereas Article 42 ICSID Convention states that an ICSID tribunal shall apply the law agreed upon by the Parties and, absent such agreement, the domestic law of the host state and such rules of international law as may be applicable; and c) Article 8.28 CETA provides for the possibility to appeal an award rendered by the Tribunal, including on the basis of errors in the application of the applicable law and the appreciation of the relevant facts, whereas Article 53 ICSID Convention is clear that an ICSID award ʿshall not be subject to any appeal or to any other remedyʾ except for the exceptional and limited annulment procedure set forth in Article 52 ICSID Convention.28 In light of the foregoing, one could argue whether these inter se modifications of 23 the ICSID Convention are permissible as a matter of international law. The rules concerning agreements to modify multilateral treaties between certain of the Parties only are set forth in Article 41 Vienna Convention on the Law of Treaties (VCLT) which reads in relevant part: 1.
Two or more of the parties to a multilateral treaty may conclude an agreement to modify the treaty as between themselves alone if: a. the possibility of such a modification is provided for by the treaty; or b. the modification in question is not prohibited by the treaty and: i. does not affect the enjoyment by the other parties of their rights under the treaty or the performance of their obligations; ii. does not relate to a provision, derogation from which is incompatible with the effective execution of the object and purpose of the treaty as a whole.
Since the ICSID Convention does not contain provisions on inter se modifications, 24 the criteria under Article 41(1)(b)(i) and (ii) VCLT must be satisfied. The criterion under Article 41(1)(b)(i) VCLT requires that inter se modifications 25 do not prejudice the rights of the Contracting Parties or add to their burden. 29 In this respect, the modifications of the ICSID Convention contained in CETA (which apply to a limited number of Contracting Parties and their nationals) do not appear
Article 8.23(6) CETA. Pursuant to Article 52(1) ICSID Convention, a request for annulment may only be based on the following grounds: (a) that the Tribunal was not properly constituted; (b) that the Tribunal has manifestly exceeded its powers; (c) that there was corruption on the part of a member of the Tribunal; (d) that there has been a serious departure from a fundamental rule of procedure; or (e) that the award has failed to state the reasons on which it is based. 29 International Law Commission, ʿDraft Articles on the Law of Treaties with commentariesʾ (1966) YBILC 1966, 220 (235). 27 28
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to ʿaffect the enjoyment by the other parties of their rights under the treaty or the performance of their obligationsʾ.30 26 Likewise, the above-mentioned inter se modifications do not appear to undermine the execution of the object and purpose of the ICSID Convention as a whole. Albeit departing from some of the features of the ICSID arbitration system, the investment tribunal system introduced in CETA pursues the very same objective and purpose of the ICSID Convention, namely providing facilities for the conciliation and arbitration of investment disputes between states and investors of other states. 31 27 The foregoing conclusion that the inter se modifications contained in CETA appear to be permissible pursuant to Article 41(1) VCLT does not imply that the other state Parties to the ICSID Convention are obliged to recognize an award rendered under the modified rules of the ICSID Convention as an ICSID award. 32 This is particularly true where the relevant award is the outcome of an appeal proceeding, which is expressly prohibited by the ICSID Convention.33 This means that an investor that chooses to submit a claim to the Tribunal under the ICSID Convention pursuant to Article 8.23(2)(a) CETA could lawfully be denied the possibility to enforce the ensuing award under the ICSID regime in the territory of a state that is Party to the ICSID Convention but not to CETA.34 28 By contrast, it is unlikely that analogous enforcement issues could arise in cases where the claim was submitted to the Tribunal under the UNCITRAL Rules or other arbitration rules. In this respect, none of the specific rules introduced in CETA seem to affect the possibility that a CETA award be recognized and enforced under the New York Convention.35
III. Small and Medium-Sized Enterprises 29
While CETA contemplates by default a panel of three arbitrators,36 Article 8.23(5) CETA provides that an investor may, when submitting its claim, propose that it be heard by a sole arbitrator and that the ʿrespondent shall give sympathetic considera30 Reinisch, ʿWill the EU’s Proposal Concerning an Investment Court System for CETA and TTIP Lead to Enforceable Awards?—The Limits of Modifying the ICSID Convention and the Nature of Investment Arbitrationʾ (2016) 19 J. Int.’l Econ. L., 761 (774). 31 Preamble, paras. 4 and 5, and Article 1(2) ICSID Convention. For a detailed analysis of the compatibility of the single provisions of CETA with the ICSID Convention see Reinisch, ʿWill the EU’s Proposal Concerning an Investment Court System for CETA and TTIP Lead to Enforceable Awards?—The Limits of Modifying the ICSID Convention and the Nature of Investment Arbitrationʾ (2016) 19 J. Int.’l Econ. L., 761 (776 ff.). 32 Baetens, ‘The EU’s Proposed Investment Court System (ICS): Addressing Criticisms of InvestorState Arbitration While Raising New Challenges’ (2016) 43 LIEI, 4; Reinisch, ʿWill the EU’s Proposal Concerning an Investment Court System for CETA and TTIP Lead to Enforceable Awards?—The Limits of Modifying the ICSID Convention and the Nature of Investment Arbitrationʾ (2016) 19 J. Int.’l Econ. L., 761 (781). 33 Article 53 ICSID Convention. 34 Article 54(1) ICSID Convention provides a particularly advantageous enforcement system for ICSID awards, as it obliges each contracting state to ʿrecognize an award rendered pursuant to this Convention as binding and enforce the pecuniary obligations imposed by that award within its territories as if it were a final judgment of a court in that Stateʾ. 35 With regard to the permanent nature of the Tribunal (as opposed to the ad hoc nature of arbitral tribunals), Article I(2) New York Convention clarifies that the term arbitral award – recognizable and enforceable under the New York Convention – ʿshall include not only awards made by arbitrators appointed for each case but also those made by permanent arbitral bodies to which the parties have submittedʾ. 36 Article 8.27(6) CETA.
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tion to such request, in particular where the investor is a small or medium-sized enterprise or the compensation or damages claimed are relatively lowʾ. As illustrated in section B above, this provision seeks to promote access to justice by lessening the financial burden on smaller claimants and should be read in conjunction with other provisions sharing the same purpose, including:37 a) Article 8.19(3) CETA which provides for the possibility to hold consultations through videoconference; b) Article 8.20 CETA which provides for a framework to settle investment disputes through voluntary mediation; and c) Article 8.27(14) CETA which adopts the ICSID fee structure (which is generally less costly than that used in UNCITRAL and other ad hoc arbitrations) irrespective of the arbitration rules governing the proceedings.38
IV. Time of Submission Article 8.23(7) CETA clarifies when an investment claim shall be deemed as sub- 30 mitted depending on the arbitration rules governing the proceedings. Specifically, a claim is submitted when: a) the request for arbitration is received by the Secretary-General of ICSID; b) the request to institute arbitration proceedings under the ICSID Additional Facility Rules is received by the Secretariat of ICSID; c) the notice under Article 3 UNCITRAL Rules is received by the respondent; or d) the request or notice initiating proceedings is received by the respondent in accordance with the arbitration rules agreed upon by the parties pursuant to Article 8.23(2)(d) CETA. This provision is particularly relevant in light of the strict temporal limitations that 31 CETA imposes on investors (→ Art. 8.22 mn. 14 ff.).
V. Communication and Publication Requirements Pursuant to Article 8.23(8) CETA, each Contracting Party shall notify the other 32 Party of the place of delivery of notices and other documents by the investors and ensure that this information be made publicly available. This provision appears to be in line with the spirit of CETA which guarantees the highest level of transparency in ISDS.39
37 Walter and Andrisani, ʿResolution of Investment Disputesʾ in Moïse Mbengue and Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (2018), 185 (198); Nyer, ʿThe Investment Chapter of the EU-Canada Comprehensive Economic and Trade Agreementʾ (2015) 32 J. Int.’l Arb., 697 (706). 38 Sardinha, ʿThe New EU-Led Approach to Investor-State Arbitration: The Investment Tribunal System in the Comprehensive Economic Trade Agreement (CETA) and the EU–Vietnam Free Trade Agreementʾ (2017) 32 ICSID Rev., 625 (638). 39 Walter and Andrisani, ʿResolution of Investment Disputesʾ in Moïse Mbengue and Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (2018), 185 (198).
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E. Conclusion 33
Article 8.23 CETA provides for the procedural framework for the new investment tribunal system introduced by CETA to operate. This procedural framework is largely based on existing and well-established arbitration rules, including the ICSID Arbitration Rules, the ICSID Additional Facility Rules and the UNCITRAL Rules. Yet, Article 8.23 CETA also seeks to address some thorny issues of ISDS, including by: (i) enhancing access to justice for small and medium-sized enterprises; ad (ii) imposing stringent communication and publication requirements thereby ensuring a high level of transparency.
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Article 8.24 Proceedings under another international agreement Where a claim is brought pursuant to this Section and another international agreement and: (a) there is a potential for overlapping compensation; or (b) the other international claim could have a significant impact on the resolution of the claim brought pursuant to this Section, the Tribunal shall, as soon as possible after hearing the disputing parties, stay its proceedings or otherwise ensure that proceedings brought pursuant to another international agreement are taken into account in its decision, order or award. Reference to the Respective Provisions in Other EU Treaties: Article 3.34.8 EU-Vietnam Investment Protection Agreement (draft); Article 8 of EU-Mexico Global Agreement (draft). Bibliography: Julian Arato, Kathleen Claussen, Jaemin Lee and Giovanni Zarra, ‘Reforming Shareholder Claims in ISDS’, 9 Academic Forum on ISDS Concept Paper (PluriCourts, Oslo 2019); Laurence Boisson de Chazournes, ‘Plurality in the Fabric of International Courts and Tribunals: The Threads of Managerial Approach’ (2017) 28 EJIL, 13; Tillman Rudolf Braun, ‘Globalization-Driven Innovation: The Investor as a Partial Subject in Public International Law’ (2014), 15 JWIT, 73; Marc Bungenberg and August Reinisch, From Bilateral Arbitral Tribunals and Investment Courts to a Multilateral Investment Court - Options Regarding the Institutionalization of Investor-State Dispute Settlement (2 nd edn, Springer, Berlin 2020); Charles-Emmanuel Côté, ‘An Experienced, Developed Democracy: Canada and Investor-State Arbitration’, in Armand De Mestral (ed), Second Thoughts: investor-state arbitration between developed democracies (Centre for International Governance Innovation Ontario 2017), 89; Filip De Ly and Audley Sheppard, ‘ILA Final Report on Lis Pendens and Arbitration’ (2009) 25 Arb. Int’l., 3; European Union, The Economic Impact of the CETA – An analysis prepared by the European Commission’s Directorate-General for Trade (2017); Tom Fecák, International Investment Agreements and EU Law (Kluwer Law International, Alphen aan den Rijn 2016); Norah Gallagher, ‘Parallel Proceedings, Res Judicata and Lis Pendens: Problems and Possible Solutions’, in Loukas A Mistelis and Julian D M Lew (eds), Pervasive Problems in International Arbitration (Kluwer Law International, Alphen aan den Rijn 2006); Katharina Gatzsche, Aufhebungen und Abänderungen von Investitionsschutzabkommen – Eine Untersuchung zur Reichweite von Survival Clauses in BITs (Nomos, Baden-Baden 2019); Robin F. Hansen, ‘Parallel Proceedings in Investor-State Treaty Arbitration: Responses for Treaty-Drafters, Arbitrators and Parties’ (2010) 73 Mod. L. Rev., 523; Kaj Hobér, ‘Does Investment Arbitration have a Future?’, in Marc Bungenberg, Jörn Griebel, Stephan Hobe and August Reinisch (eds), International Investment Law – A Handbook (Nomos, Baden-Baden 2015), 1873; Wolfgang Kühn, Bohuslav Klein, Jeremy Carver, Hans Bagner and Tore Wiwen-Nilsson, ‘How to Avoid Conflicting Awards – The Lauder and CME Cases’ (2004) 5 JWIT, 7; Andreas Kulick (ed), Reassertion of Control over the Investment Treaty Regime (Cambridge University Press, Cambridge 2016); Craig Miles and David Weiss, ‘Overview of Principles Reducing Damages’ in John A Trenor (ed), The Guide to Damages in International Arbitration (3rd edn, Law Business Research, London 2018), 84; Rodrigo Polanco, The Return of the Home State to Investor-State Disputes - Bringing Back Diplomatic Protection? (Cambridge University Press, Cambridge 2019); August Reinisch, ‘The challenge of fostering greater coherence in international investment law’, in Roberto Echandi and Pierre Sauvé (eds), Prospects in International Investment Law and Policy - World Trade Forum (Cambridge University Press, Cambridge 2013), 236; Anne Peters, Beyond Human Rights - The Legal Status of the Individual in International Law (Cambridge University Press, Cambridge 2016); August Reinisch, ‘The Issues Raised by Parallel Proceedings and Possible Solutions’, in Michael Waibel, Asha Kaushal, Kyo-Hwa Chung, Claire Balchin (eds), The Backlash Against Investment Arbitration. Perceptions and Reality (Kluwer Law International, Alphen aan den Rijn 2010), 113; August Reinisch, ‘The Judicata and Lis Pendens as Procedural Tools to Avoid Conflicting Dispute’ (2004) 3 LPICT, 37; Borzu Sabahi, Kabir Duggal and Nicholas Birch, ‘Limits on Compensation for Internationally Wrongful Acts’, in Marc Bungenberg, Jörn Griebel, Stephan Hobe and August Reinisch (eds), International Investment Law – A Handbook (Nomos, Baden-Baden 2015), 1115; Elsa Sardinha, ‘Towards a New Horizon in Investor–State Dispute Settlement? Reflections on the Investment Tribunal System in the Comprehensive Economic Trade Agreement (CETA)’ (2017) 54 Can. YBIL, 311; Stephan W. Schill and Geraldo Vidigal,
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Cutting the Gordian Knot: Investment Dispute Settlement à la Carte (International Centre for Trade and Sustainable Development and the Inter-American Development Bank, Geneva 2018); Stephan W. Schill, ‘Investitionsschutz in EU-Freihandelsabkommen: Erosion gesetzgeberischer Gestaltungsmacht?’ (2018) 78 ZaöRV, 33; Christoph Schreuer, ‘Coherence and consistency in international investment law’, in Roberto Echandi and Pierre Sauvé (eds), Prospects in International Investment Law and Policy World Trade Forum (Cambridge University Press, Cambridge 2013), 391; Christopher Stevenson, ‘Hans Off: The Struggle for Hans Island and the Potential Ramifications for International Border Dispute Resolution’ (2007) 30 B. C. Int’l & Comp. L. Rev., 263; Anne van Aaken, ‘Fragmentation of International Law: The Case of International Investment Protection’, 17 Finnish Yearbook of International Law (2006), 91; André von Walter and Maria Luisa Andrisani, ‘Resolution of Investment Disputes’, in Makane Moïse Mbengue and Stefanie Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (Springer, Berlin 2019), 185; Hanno Wehland, ‘The Regulation of Parallel Proceedings in Investor-State Disputes’ (2016) 31 ICSID Rev., 576; Katia Yannaca-Small, ‘Parallel Proceedings’, in Peter Muchlinski, Federico Ortino and Christoph Schreuer (eds), The Oxford Handbook of International Investment Law (Oxford University Press, Oxford 2008), 1010; Tania Voon, Andrew Mitchell and James Munro, ‘Parting Ways: The Impact of Mutual Termination of Investment Treaties on Investor Rights’ (2014), 29 ICSID Rev., 451. A. Introduction and Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. General Remark . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Related Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. Comparable Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1 1 4 6
B. Spirit and Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. Avoidance of Conflicts by Parallel and Related Proceedings . . . . . . . . . . . . . . II. Harmonious Coordination of Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9 9 13
C. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16
D. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. Potentially Significant Impact by Related Proceedings . . . . . . . . . . . . . . . . . . . . 1. Existence of Related Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a) Potential of Related ISDS Proceedings under BITs . . . . . . . . . . . . . . . . . . . . . b) Potential of Related ISDS Proceedings under Other International Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . c) Potential of Related Proceedings State-to-State Dispute Settlement . . . . 2. Significant Impact on the Resolution of the CETA Claim . . . . . . . . . . . . . . a) Potential for Overlapping Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . b) Potential for Other Significant Impact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Tribunal’s Duty to Take Into Account Related Proceedings . . . . . . . . . . . . . . . 1. Stay of the Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Other Means of Taking Account of Related Proceedings . . . . . . . . . . . . . . .
20 21 22 23 25 27 30 30 31 32 33 35
E. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
38
A. Introduction and Overview I. General Remark Article 8.24 addresses the relationship between the resolution of investment disputes between investors and states under Section F CETA and dispute settlement proceedings initiated under other international agreements. 2 The provision requires the Tribunal to harmoniously coordinate the dispute settlement under Section F with related proceedings brought pursuant to another international agreement. To do so, the Tribunal shall, as soon as possible after hearing the disputing Parties, stay its proceedings or otherwise ensure that the proceedings brought pursuant to another international agreement are taken into account in its decision, order or award. 1
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Art. 8.24
The application of Article 8.24 requires a situation in which proceedings related to 3 the investment dispute have the potential to significantly impact on the CETA dispute settlement procedure. Accordingly, the Tribunal’s duty to take into account the proceedings brought pursuant to another international agreement is subject to two conditions: First, claims must be brought pursuant to Section F and another international agreement. Second, the Tribunal must identify a potential for overlapping compensation pursuant to lit. a) or, alternatively under lit. b), conclude that the other international claim could have a significant impact on the resolution of the CETA claim.
II. Related Provisions Article 8.24 must be read in line with Article 8.22-1(f) and (g) (→ Art. 8.22 4 mn. 22-26). These provisions set out the procedural requirements for the submission of a claim to the Tribunal. Before submitting a claim under Section F, an investor must waive any claim potentially leading to parallel proceedings. If such a claim is already pending, the investor must withdraw or discontinue any existing proceeding before a tribunal or court under domestic or international law. If the existence of a related claim based on another international agreement should 5 nevertheless come to light in the course of pending proceedings, Article 8.24 complements the requirements set out in Article 8.22-1(f) and (g) by obliging the Tribunal to take such related proceedings into account.1 In combination, these provisions ensure a strict limitation of parallel, overlapping, and subsequent proceedings.2
III. Comparable Provisions Article 8.24 is an example of a relatively new generation of explicit rules to coordi- 6 nate international proceedings and not yet common in investment treaty practice. 3 This may change in the future, as a few examples such as Article 14 Belarus-India 7 BIT (2018) suggest. The clause reflects Article 14.1 Indian Model BIT (2015) and the identical wording illustrates that Article 8.24 CETA has already influenced recent BIT practice. In the event of the establishment of a multilateral investment court, it seems possible that a similar provision could be included into the reformed ISDS mechanism.4 Comparable provisions can also be found in recent EU treaty practice, as Article 8 3.34-8 EU-Vietnam Investment Protection Agreement and Article 8 of EU-Mexico Global Agreement show. Both provisions are mainly comparable but more precise than Article 3.24. For example, while Article 8.24 only refers to a claim brought (pursuant to this Section and another international agreement), the aforementioned 1 von Walter and Andrisani, ‘Resolution of Investment Disputes’ in Mbengue and Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (2019), 185 (201). 2 Schill and Vidigal, Cutting the Gordian Knot: Investment Dispute Settlement à la Carte (2018), 8 f.; Sardinha, ‘Towards a New Horizon in Investor–State Dispute Settlement? Reflections on the Investment Tribunal System in the Comprehensive Economic Trade Agreement (CETA)’ (2017) 54 Can. YBIL, 311 (347); Polanco, The Return of the Home State to Investor-State Disputes (2019), 159. 3 Sardinha, ‘Towards a New Horizon in Investor–State Dispute Settlement? Reflections on the Investment Tribunal System in the Comprehensive Economic Trade Agreement (CETA)’ (2017) 54 Can. YBIL, 311 (347). 4 Suggesting such an inclusion: Bungenberg and Reinisch, From Bilateral Arbitral Tribunals and Investment Courts to a Multilateral Investment Court – Options Regarding the Institutionalization of Investor-State Dispute Settlement (2020), mn. 251.
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provisions make additional reference to the inter-state dispute resolution mechanism between the Contracting Parties.5
B. Spirit and Purpose I. Avoidance of Conflicts by Parallel and Related Proceedings 9
To identify the spirit and purpose of Article 8.24 it is helpful to start with the Canadian Statement on Implementation for the CETA Agreement (Canadian Statement) which – according to its introduction – ‘sets out the role of CETA in the context of the Government of Canada’s general approach to trade policy, the Government’s interpretation of the rights and obligations contained within the Agreement’ 6. According to the Canadian Statement: Article 8.24 addresses the scenario where parallel proceedings are brought under CETA and another international agreement by different but related investors. When there is a potential for overlapping compensation or the other international claim could have a significant impact on the resolution of the claim brought under CETA, the Tribunal must either stay its proceedings or ensure that the proceedings brought under another international agreement are taken into account.
What at first sight seems to be a mere paraphrase of the provision gives helpful guidance for identifying its purpose. The Canadian Statement implicitly specifies that Article 8.24 is not limited to parallel proceedings in the narrow sense, meaning that its application does not require two claims which are brought between identical disputing Parties and concern the same issues. 11 This is sensible and should be read as a direct reaction of the treaty drafters to investment arbitration’s often perceived deficit of coherence and consistency. 7 In principle, truly parallel claims do not require an explicit procedural rule since the admissibility of the second claim would be hindered by the lis pendens (and res judicata) doctrine which is generally accepted and applied in international dispute settlement.8 Its application requires that proceedings must have been conducted before international courts or arbitral tribunals between the same Parties and concerning the same issues.9 However, due to the variety of corporate manifestations involved in international investments (shareholders, groups of companies, subsidiaries, etc.), 10
5 Article 3.34-8 EU-Vietnam IPA (draft), available at https://trade.ec.europa.eu/doclib/press/index. cfm?id=1437 (accessed on 30 April 2020); Article 8 EU-Mexico Global Agreement (draft), available at https://trade.ec.europa.eu/doclib/press/index.cfm?id=1833 (accessed on 30 April 2020). 6 Canadian Statement on Implementation for the CETA Agreement, available at https://www.internat ional.gc.ca/trade-commerce/trade-agreements-accords-commerciaux/agr-acc/ceta-aecg/canadian_state ment-enonce_canadien.aspx?lang=eng (accessed on 30 April 2020). 7 See Hobér, ‘Does Investment Arbitration have a Future?’ in Bungenberg et al. (eds), International Investment Law – A Handbook (2015), 1873 (mn. 9); Schreuer, ‘Coherence and consistency in international investment law’ in Echandi and Sauvé (eds), Prospects in International Investment Law and Policy - World Trade Forum (2013), 391 (401). 8 See Reinisch, ‘The Judicata and Lis Pendens as Procedural Tools to Avoid Conflicting Dispute’ (2004) 3 LPICT, 37 (48 ff.); De Ly and Sheppard, ‘ILA Final Report on Lis Pendens and Arbitration’ (2009) 25 Arb. Int’l., 3 (4.47 f.). 9 Reinisch, ‘The Judicata and Lis Pendens as Procedural Tools to Avoid Conflicting Dispute’ (2004) 3 LPICT, 37 (50 f.). Summarizing these requirements as ‘identity of the parties, grounds, and relief’: Yannaca-Small, ‘Parallel Proceedings’, in Muchlinski et al. (eds), The Oxford Handbook of International Investment Law (2008), 1010 (1022).
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Art. 8.24
the aforementioned ‘same parties’- requirement is often not satisfied. 10 Hence, in the context of ISDS, the doctrine of lis pendens (and res judicata) does often not fulfil its traditional function of promoting judicial economy and legal security.11 This systemic weakness of the ISDS regime is prominently illustrated by Lauder v. Czech Republic and CME v. Czech Republic.12 Despite both UNCITRAL proceedings concerned the same issues between nearly identical but formally distinct Parties, the tribunals rendered diametrically opposing awards.13 Consequently, the two cases have become the textbook example for international investment law’s deficit of coherence and consistency. 14 Against this background, Article 8.24 is part of the ‘new clear rules’ included in the ISDS mechanism under the CETA to avoid ‘abuses by investors, notably by preventing the possibility of multiple proceedings before different jurisdictions’15. In addition, since arbitral jurisdiction in ISDS originates from the ISDS clause of 12 a specific treaty, it is not unproblematic for investment tribunals to justify a stay of proceedings in view of parallel claims.16 This all the more applies to claims which are not strictly parallel but only to some extent related, because they either concern a different dispute or – as the Canadian Statements puts it – are brought ‘by different but related investors’. In such a situation, the Tribunal might be hesitant to take account of the related claim. As a result, adjudicators might – like the tribunals in the Lauder and CME cases – opt for complying with their mandate and conduct the proceedings independently from the other claim.17 Guided by the principle of efficient procedural management and the desire to avoid conflicting decisions, it is this situation which Article 8.24 wants to avoid.
10 See Reinisch, ‘The Judicata and Lis Pendens as Procedural Tools to Avoid Conflicting Dispute’ (2004) 3 LPICT, 37 (55 ff.). Emphasizing that practical application of lis pendens is be severely limited by the principle’s strict requirements: Wehland, ‘The Regulation of Parallel Proceedings in Investor-State Disputes’ (2016) 31 ICSID Rev., 576 (586), Yannaca-Small, ‘Parallel Proceedings’, in Muchlinski et al. (eds), The Oxford Handbook of International Investment Law (2008), 1010 (1023); Fecák, International Investment Agreements and EU Law (2016), 303 f. 11 Identifying the protection of defendants (by protecting Parties from oppressive litigation tactics) as an additional function: Reinisch, ‘The Judicata and Lis Pendens as Procedural Tools to Avoid Conflicting Dispute’ (2004) 3 LPICT, 37 (44). 12 CME Czech Republic B.V. v. Czech Republic, UNCITRAL, Partial Award (13 September 2001); CME Czech Republic B.V. v. Czech Republic, UNCITRAL, Final Award (14 March 2003); Ronald S. Lauder v. Czech Republic, UNCITRAL, Final Award (3 September 2001). 13 See in more detail: Reinisch, ‘The Judicata and Lis Pendens as Procedural Tools to Avoid Conflicting Dispute’ (2004) 3 LPICT, 37 (39 ff.); Kühn et al., ‘How to Avoid Conflicting Awards – The Lauder and CME Cases’ (2004) 5 JWIT 7 ff. 14 Reinisch, ‘The challenge of fostering greater coherence in international investment law’, in Echandi and Sauvé (eds), Prospects in International Investment Law and Policy - World Trade Forum (2013), 236. 15 European Union, The Economic Impact of the CETA - An analysis prepared by the European Commission’s Directorate-General for Trade (2017), 28. 16 Gallagher, ‘Parallel Proceedings, Res Judicata and Lis Pendens: Problems and Possible Solutions’, in Mistelis and Lew (eds), Pervasive Problems in International Arbitration (2006), 329 (340, 347 f., 349). Noting that some investment tribunals have exercised their discretion to stay proceeding under the res judicata and lis pendens doctrine: Reinisch, ‘The Judicata and Lis Pendens as Procedural Tools to Avoid Conflicting Dispute’ (2004) 3 LPICT, 37 (52 ff.); Hansen, ‘Parallel Proceedings in Investor-State Treaty Arbitration: Responses for Treaty-Drafters, Arbitrators and Parties’ (2010) 73 Mod. L. Rev., 523 (546 f.). 17 In this sense, the CME tribunal did indeed recall in its final award (at para. 435) that ‘the fact that one tribunal is competent to resolve the dispute brought before it does not necessarily affect the authority of another tribunal, constituted under a different agreement, to resolve a dispute—even if it were the ‘same’ dispute’.
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II. Harmonious Coordination of Proceedings From a conceptual point of view, the inclusion of a provision such as Article 8.24 reveals the treaty drafters’ attempt to limit the effects of the fragmentation of international law.18 By ordering tribunals to take account of related proceedings, the provision explicitly addresses the issue of external divergence and can be understood as procedural response to the difficulties caused by the fragmented regime of international investment protection.19 14 Put differently, Article 8.24 paves the way for a more holistic approach to ISDS by backing adjudicators that are willing to actively engage with regime interaction. By explicitly underlining the procedural powers of the Tribunal to take account of related proceedings, the provision seeks not only to ensure procedural efficiency, but also to contribute to a harmonious co-existence of the different dispute resolution fora under which investors and the Contracting Parties may have legal standing. 15 That the Tribunal ‘shall […] stay its proceedings or otherwise ensure that proceedings brought pursuant to another international agreement are taken into account’ concretizes and limits the traditionally wide discretional powers of the Tribunal to conduct the proceedings.20 Hence, the provision leaves little room for dispute settlement in ‘clinical isolation’ that refuses to acknowledge the inter-relation and potential conflicts arising out of parallel proceedings in a fragmented legal landscape. In this sense, the provision reflects the re-assertion of control of Contracting Parties, 21 actively shaping the scope of the tribunal’s procedural powers by more specific treaty language. 13
C. Drafting History 16
A provision on coordinating proceedings under another international agreement was introduced at a relatively late stage in the drafting process. From the very beginning, the publicly available drafts of the CETA contained provisions on consolidation
18 See International Law Commission, Report of the Study Group of the International Law Commission – Fragmentation of International Law: Difficulties Arising from the Diversification and Expansion of International Law, U.N. Doc. A/CN.4/L.682 (2006); van Aaken, ‘Fragmentation of International Law: The Case of International Investment Protection’, 17 Finnish Yearbook of International Law (2006), 91 ff. 19 Speaking of a ‘laudable attempt’ in that regard: Côté, ‘An Experienced, Developed Democracy: Canada and Investor-State Arbitration’, in De Mestral (ed), Second Thoughts: investor-state arbitration between developed democracies (2017), 89 (115). Noting that a substantive multilateralization of BITs would contribute to the unity investment law, but is unlikely to happen: Reinisch, ‘The Judicata and Lis Pendens as Procedural Tools to Avoid Conflicting Dispute’ (2004) 3 LPICT, 37 (74 f.). 20 Article 15.1 UNCITRAL Rules: ‘Subject to these Rules, the arbitral tribunal may conduct the arbitration in such manner as it considers appropriate, provided that the parties are treated with equality and that at any stage of the proceedings each party is given a full opportunity of presenting his case’. Article 44 ICSID Convention: ‘Any arbitration proceeding shall be conducted in accordance with the provisions of this Section and, except as the parties otherwise agree, in accordance with the Arbitration Rules in effect on the date on which the parties consented to arbitration. If any question of procedure arises which is not covered by this Section or the Arbitration Rules or any rules agreed by the parties, the Tribunal shall decide the question’. 21 With respect to the general trend of control re-assertion by states: Kulick (ed), Reassertion of Control over the Investment Treaty Regime (2016).
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and requirements for the submission of claims, aiming to avoid parallel proceedings under the CETA.22 In the draft text of 4 February 2014, the provision on ‘Procedural and Other 17 Requirements to Submit a Claim to Arbitration’ (now Article 8.22) contained an additional paragraph 2bis, making for the first time reference to claims brought ‘both pursuant to this Section and another international agreement’.23 Content and structure of Article X-7.2bis were already very close to what should become Article 8.24. ‘After hearing the disputing parties’, the provision enabled the Tribunal to ‘stay its proceedings or otherwise ensure that proceedings pursuant to another international agreement are taken into account’.24 Its scope of application required ‘a potential for [double] redress’ or that ‘the other international claim could have a significant impact on the resolution of the claim brought pursuant to this Section’.25 Only 6 months later, two notable changes were made in the draft text of 1 August 2014. First, in terms of structure, paragraph 2bis was dissolved out of the provision 18 on ‘Procedural and Other Requirements to Submit a Claim to Arbitration’ and transformed into a separate article on ‘Proceedings under different international agreements’.26 This dissolvement does not only constitute a formal upgrading of the provision. It also acknowledges that the necessity to coordinate proceedings brought under the CETA and another international agreement can occur at any time and is independent from the submission of a claim. From a systematic point of view, it was therefore logical to separate Article 8.24 from Article 8.22. The second notable change introduced in the version of 1 August 2014 concerned 19 the replacement of the term ‘potential for [double] redress’27 by ‘overlapping compensation’.28 The Contracting Parties hereby clarify that no potential for identical compensation is needed, as the word ‘double’ might suggest. Instead, a mere overlap of compensations is sufficient to trigger the application of Article 8.24. In sum, the drafting process shows that Article 8.24 – once introduced – was undisputed and accepted by the Contracting Parties.
D. Commentary The provision applies to related proceedings having a potentially significant impact 20 on the resolution of the CETA claim (→ mn. 21 ff.). If a claim with such a potential has been identified, the Tribunal has the duty to take account of the related proceedings in its decision, order or award (→ mn. 32 ff.).
I. Potentially Significant Impact by Related Proceedings The identification of a potentially significant impact by related proceedings re- 21 quires a two-step approach. First, related proceedings in the meaning of Article 8.24 22 Thus, Article X-24.2 of the draft consolidated CETA text, version as of 13 January 2010, made clear that a tribunal ‘shall not have jurisdiction to decide a claim, or a part of a claim, over which a Tribunal established or instructed under this Article has assumed jurisdiction’. 23 Article X-7.2bis of the draft consolidated CETA text, version as of 4 February 2014. 24 Article X-7.2bis of the draft consolidated CETA text, version as of 4 February 2014. 25 Article X-7.2bis of the draft consolidated CETA text, version as of 4 February 2014. 26 See Article X.23 of the draft consolidated CETA text, version as of 1 August 2014. 27 Article X-7.2bis of the draft consolidated CETA text, version as of 4 February 2014. 28 Article X.23 of the draft consolidated CETA text, version as of 1 August 2014.
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have to be pending (→ mn. 22 ff.). Second, these proceedings must have a potentially significant impact on the resolution of the CETA claim (→ mn. 30 ff.).
1. Existence of Related Proceedings 22
As described above, Article 8.24 does not require a strictly parallel claim involving identical Parties and issues. Instead, the provision’s scope of application is more flexible and includes all claims ‘brought pursuant another international agreement’.29 Consequently, there are several types of claims related to the proceedings under Section F which may become relevant. First and foremost, this concerns proceedings initiated by the investor under investment treaties (→ mn. 23 ff.) and other international agreements (→ mn. 25 ff.). In addition, claims brought under a State-to-State dispute settlement mechanisms are potentially relevant, too (→ mn. 27 ff.). a) Potential of Related ISDS Proceedings under BITs
The closest relationship with ISDS proceedings under CETA may occur where claims are brought under other international investment agreements. Canada is not a member to the Energy Charter Treaty, but there are several bilateral investment treaties with EU Member States which are currently in force. 30 European and Canadian investors could therefore bring claims against Canada or one of the concerned EU Member States. 24 In principle, these treaties shall cease to have effect and be replaced by the CETA from the date of its entry into force pursuant to Article 30.8-1. However, as Article 30.8-2 sets out, a claim can be brought under these BITs if the treatment that is object of the claim was accorded when the respective treaty was not terminated and no more than three years have elapsed since the date of its termination. Hence, even after the entry into force of the CETA, parallel ISDS claims remain possible for at least three more years. But even afterwards, a potential for parallel claims remains. Like most investment treaties, the agreements listed in Annex 30-A contain a so-called sunset or survival clause pursuant to which the treaty shall remain in force after its termination for a period of ten to fifteen years.31 In principle, such clauses do not protect investors in case of mutual termination by the Contracting Parties. 32 The possibility to immediately deprive a sunset clause of its of legal effects is in line with Article 54(b) VCLT and takes account of the contracting States’ capacity to terminate a treaty by mutual consent as ‘masters of the agreement’. 33 This does not undermine the purpose of sunset clauses which are meant to protect foreign investors from an 23
29 Stating that this formulation requires ‘something akin to connexité’: Boisson de Chazournes, ‘Plurality in the Fabric of International Courts and Tribunals: The Threads of Managerial Approach’ (2017) 28 EJIL, 13 (51 f.). 30 Annex 30-A of the CETA lists the investment treaties between Canada and Slovakia (2010), Romania (2009), Czech Republic (2009), Latvia (2009), Croatia (1997), Hungary (1991), Poland (1990), and Malta (1982). Except for the last one, all agreements are available at https://investmentpolicy.uncta d.org/international-investment-agreements/countries/35/canada?type=bits (accessed on 30 April 2020). 31 As an example, Article 15.7 Canada - Slovakia BIT (2010) provides for a sunset period of fifteen years. 32 See for example Voon et al., ‘Parting Ways: The Impact of Mutual Termination of Investment Treaties on Investor Rights’ (2014), 29 ICSID Rev., 451 (468, 473); Gatzsche, Aufhebungen und Abänderungen von Investitionsschutzabkommen (2019), 222. 33 Kim, ‘Investment Law and the Individual’ in Bungenberg et al. (eds), International Investment Law – A Handbook (2015), 1600 f. (mn. 67 ff.).
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unexpected unilateral treaty termination by the host State. 34 However, this position is not undisputed.35 In any event, it would be for the arbitral tribunal established under the specific investment treaty to rule on whether the sunset clause has been effectively terminated by the entry into force of Article 30.8-1. This means that there is at least the potential of parallel proceedings under bilateral investment treaties for ten to fifteen years after the entry into force of the CETA. b) Potential of Related ISDS Proceedings under Other International Agreements In addition to investment treaties, investors might bring related claims under other 25 international dispute resolution mechanisms. Litigation related to the right to property under Article 1 Protocol No. 1 European Convention of Human Rights (ECHR) would be a practical example for related claims brought by Canadian investors against EU Member States.36 That international human rights litigation has the potential to interact with ISDS is illustrated by the Yukos case which has given rise to parallel proceedings before three investment tribunals37 and the European Court of Human Rights38. It is questionable whether related claims in the meaning of Article 8.24 could arise 26 out of European Union law. This seems possible since Canadian investors may either directly or through a local subsidiary have legal standing to initiate proceedings under EU law, such as the action for annulment under Article 263-4 TFEU before the Court of Justice of the European Union. Such a claim could be related to an investment dispute and would be based on the TFEU, which is technically an agreement under international law. However, in the context of the CETA, such a claim would probably qualify as a domestic remedy and therefore not qualify as a claim brought pursuant to (‘another international agreement’) in the meaning of Article 8.24. c) Potential of Related Proceedings State-to-State Dispute Settlement As laid out by the Canadian Statement, one of the main purposes of Article 8.24 is 27 to avoid the conflicts arising out of parallel ISDS proceedings. Furthermore, an interpretation of the clause suggests that it also applies to related claims between States. The wording of the clause requires that (‘a claim is brought pursuant to this Section and another international agreement’). While only an investor can have standing concerning a claim ‘brought pursuant to this Section’, nothing suggests that the same must apply to the claim brought pursuant (‘another international agreement’). Hence, it is not clear from the wording whether the provision is limited to related ISDS proceedings or includes claims brought pursuant to State-to-State dispute settlement. 34 Voon et al., ‘Parting Ways: The Impact of Mutual Termination of Investment Treaties on Investor Rights’ (2014), 29 ICSID Rev., 451 (466). 35 Voon et al., ‘Parting Ways: The Impact of Mutual Termination of Investment Treaties on Investor Rights’ (2014), 29 ICSID Rev., 451 (453). Arguing that States have tied themselves to the observation of the survival period also in case of mutual termination: Braun, ‘Globalization-Driven Innovation: The Investor as a Partial Subject in Public International Law’ (2014), 15 JWIT, 73 (114); Peters, Beyond Human Rights - The Legal Status of the Individual in International Law (2016), 324. 36 Schill, ‘Investitionsschutz in EU-Freihandelsabkommen: Erosion gesetzgeberischer Gestaltungsmacht?’ (2018) 78 ZaöRV, 33 (fn. 125). 37 Veteran Petroleum Limited (Cyprus) v. Russia, PCA Case No. 2005-05/AA228, Final Award (18 July 2014); Yukos Universal Limited (Isle of Man) v. Russia, UNCITRAL, PCA Case No. 2005-04/AA227, Final Award (18 July 2014); Hulley Enterprises Limited (Cyprus) v. Russia, UNCITRAL, PCA Case No. 2005-03/AA226, Final Award (18 July 2014). 38 OAO Neftyanaya Kompaniya Yukos v. Russia, ECtHR, Application No. 14902/04, Judgement (31 July 2014).
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A systemic understanding of the provision suggests that this is the case. First, it seems relevant that parallel ISDS proceedings are in principle already excluded by Article 8.22-1 (f) and (g). Hence, the scope of Article 8.24 would be fairly limited if it would only cover related claims by an investor against a Contracting Party. Such an interpretation would be in line with subsequent EU treaty negotiations. The wording of comparable provisions such as Article 3.34-8 EU-Vietnam IPA and Article 8 EU-Mexico Global Agreement explicitly refer to claims under State-to-State dispute settlement. Finally, including such claims seems appropriate in light of the provision’s second function, which lays in the harmonious coordination of international dispute settlement proceedings. Therefore, State-to-State disputes such as those under the WTO, UNCLOS, or any other international framework might qualify as claims brought pursuant to ‘another international agreement’. 29 Problematic are related claims between the Contracting Parties under the CETA. While it would in principle make perfect sense to take account of such claims under Article 8.24, the wording which unequivocally requires ‘another international agreement’ makes it difficult to qualify the CETA as such. Hence, any interpretation based on the provision’s wording must conclude that related disputes between the EU and Canada under Chapter 29 are not covered by Article 8.24.39 28
2. Significant Impact on the Resolution of the CETA Claim a) Potential for Overlapping Compensation 30
The claim giving rise to the related proceedings must have a potentially significant impact on the resolution of the CETA claim. One instance of such a significant impact is explicitly set out in lit. a) and concerns the ‘potential for overlapping compensation’. The prohibition of double compensation is generally recognized in international dispute settlement.40 In the present context it could arise where the related claim is brought by the investor, while no such risk exists in case of a related State-to-State claim. Pursuant to Article 8.39-1 the Tribunal may, separately or in combination, award monetary damages and restitution of property against the respondent. Hence, if the related proceedings initiated by the investor may also lead to the restitution of property or the payment of damages, a potential for overlapping compensation exists. In line with Article 8.40 no potential of overlapping compensation exists in regard to any ‘indemnification or other compensation pursuant to an insurance or guarantee contract in respect of all or part of the compensation sought’. b) Potential for Other Significant Impact
31
In addition to the risk of overlapping compensation, any ‘significant impact on the resolution of the [CETA] claim’ would qualify as relevant pursuant to lit. b). In principle, all kinds of claims relevant under Article 8.24 could have such an impact, including State-to-State proceedings. The outcome of any trade dispute under WTO rules could serve as an example for such a significant impact. A less obvious but nevertheless imaginable example would be a boundary dispute in the Artic Sea whose outcome 39 Nevertheless suggesting such an interpretation: von Walter and Andrisani, ‘Resolution of Investment Disputes’, in Mbengue and Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (2019), 185 (201). 40 Miles and Weiss, ‘Overview of Principles Reducing Damages’ in Trenor (ed), The Guide to Damages in International Arbitration (2018), 84 (91); Sabahi et al., ‘Limits on Compensation for Internationally Wrongful Acts’, in Bungenberg et al. (eds), International Investment Law – A Handbook (2015), 1115 (mn. 2).
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might have a significant impact on the resolution of a CETA concerning an investment project in that area.41
II. Tribunal’s Duty to Take Into Account Related Proceedings Once a related claim has been identified, the Tribunal ‘shall, as soon as possible 32 after hearing the disputing parties, stay its proceedings or otherwise ensure that proceedings brought pursuant to another international agreement are taken into account in its decision, order or award’. Hence, as soon as a related claim has been identified by the Tribunal, it must give the Parties an opportunity to provide their views regarding its potential impact on the resolution of the pending claim.
1. Stay of the Proceedings After a hearing has been granted to the disputing Parties, the Tribunal must assess 33 whether the requirements laid out above are met. In the affirmative, the Tribunal might order a stay of proceedings. Pursuant to Article 15.1 UNCITRAL Rules the arbitral tribunal is the master of its own proceedings. Hence, the competence to stay proceedings lays within its procedural powers.42 The same applies to ICSID arbitration,43 where the tribunal in SPP v. Egypt recalled that in case of two independent proceedings concerning the same dispute, ‘[…] in the interest of international judicial order, either of the tribunals may, in its discretion and as a matter of comity, decide to stay the exercise of its jurisdiction pending a decision by the other tribunal’ 44. Consequently, the order to stay the proceedings is a legitimate exercise of the tribunal’s procedural powers and does not constitute a refusal to exercise jurisdiction.45 Article 8.24 explicitly sets out this competence and enables the Tribunal to have 34 considerable discretion to order a stay on such terms as the Tribunal considers appropriate, including a partial stay concerning only some of the issues at dispute. 46 The stay of the proceedings has of course no impact on Article 8.35 pursuant to which the investor is deemed to have withdrawn its claim after 180 consecutive days of inactivity (→ Art. 8.35 mn. 18-22).
2. Other Means of Taking Account of Related Proceedings In view of the potential conflicts arising out of parallel and related proceedings it 35 must be recalled that the stay of proceedings does in itself neither avoid overlapping claims nor the risk of double recovery.47 Article 8.24 therefore rightly specifies that 41 See for example the so-called Hans Island dispute between Canada and Denmark: Stevenson, 'Hans Off: The Struggle for Hans Island and the Potential Ramifications for International Border Dispute Resolution' (2007) 30 B. C. Int'l & Comp. L. Rev., 263. 42 S.D. Myers v. Canada, UNCITRAL, Procedural Orders No. 18 (26 February 2001), para. 7. See also William Ralph Clayton, William Richard Clayton, Douglas Clayton, Daniel Clayton and Bilcon of Delaware v. Canada, UNCITRAL, PCA Case No. 2009-04, Procedural Order No. 19 (10 August 2015), para. 16. 43 Reinisch, ‘The Issues Raised by Parallel Proceedings and Possible Solutions’ in Waibel et al. (eds), The Backlash Against Investment Arbitration (2010), 113 (123 f.). 44 Southern Pacific Properties (Middle East) Limited v. Egypt, ICSID Case No. ARB/84/3, Decision on Preliminary Objections to Jurisdiction (27 November 1985), para. 84. 45 Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v. Pakistan, ICSID Case No. ARB/03/29, Decision on Jurisdiction (14 November 2005), para. 266. 46 De Ly and Sheppard, ‘ILA Final Report on Lis Pendens and Arbitration’ (2009) 25 Arb. Int’l., 3 (33). 47 Arato et al., ‘Reforming Shareholder Claims in ISDS’ (2019), 9 Academic Forum on ISDS Concept Paper, mn. 26.
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the Tribunal may, in addition or instead of ordering a stay of proceedings, ‘otherwise ensure that proceedings brought pursuant to another international agreement are taken into account’. 36 In cases under lit. a), where a risk of overlapping compensation has been identified, the traditional method applied by investment tribunals would consist of taking account of the related claim in the context of damage calculation. 48 However, in proceedings under the CETA, the most straight forward reaction by the Tribunal would be to request the investor to withdraw or discontinue the related proceedings. Such a request would efficiently exclude a risk of double compensation and be in accordance with Article 8.22-1 (f). A less restrictive option could consist in requesting the investor to issue a guarantee of reimbursement in case both claims should lead to the award of damages.49 37 In cases under lit. b), where the related claim could have a significant impact on the resolution of the CETA claim but does not concern the risk of overlapping compensation, the reaction of the Tribunal is less straight forward and requires a case-by-case analysis. Depending on the nature of the potential impact, the Tribunal could have multiple ways to ‘otherwise ensure’ that proceedings brought pursuant to the other international agreement are taken into account. Procedurally, this could be done by admitting submissions by a non-disputing Party involved in the related proceedings. Such a Party could give an input of potential relevance to the resolution of the CETA claim.50 Alternatively, the Tribunal could stay the proceedings until the related claim is settled. The outcome of the related proceedings could be taken into account in the Tribunal’s assessment of the facts or legal reasoning. Adopting such an approach, which may especially be appropriate in case of related State-to-State disputes, Article 8.24 could be read as the procedural counterpart of Article 31(3)(c) VCLT and serve as a procedural gateway for non-investment considerations. Whether the provision will ever fulfil such a systemically relevant function largely depends on whether future Tribunals established under Section F will make use of the considerable discretional powers Article 8.24 grants in case of related proceedings.
E. Conclusion 38
Article 8.24 provides guidance on the coordination of parallel and related investorState and State-to-State proceedings. The provision is part of recent EU treaty practice and responds to much debated inconsistencies in investment arbitration. Against this background, Article 8.24 concretizes the discretional powers of the Tribunal to conduct the proceedings and paves the way for a more holistic approach to ISDS.
48 Miles and Weiss, ‘Overview of Principles Reducing Damages’ in Trenor (ed), The Guide to Damages in International Arbitration (2018), 84 (91 f.); Ronald S. Lauder v. Czech Republic, UNCITRAL, Final Award (3 September 2001), para. 172; British Caribbean Bank Limited (Turks & Caicos) v. Belize, PCA Case No. 2010-18, Award (19 December 2014), para. 190 (citing with approval Lauder for this proposition). 49 See Venezuela Holdings BV, Mobil Cerro Negro Holding Ltd, Mobil Venezolana de Petróleos Holdings Inc, Movil Cerro Negro Ltd, and Mobil Venezolana de Petróleas Inc v. Venezuela, ICSID Case No. ARB/07/27, Award (9 October 2014), paras. 378-381; Miles and Weiss, ‘Overview of Principles Reducing Damages’ in Trenor (ed), The Guide to Damages in International Arbitration (2018), 84 (91 f.). 50 The EU Commission has for example submitted statements as non-disputing Party in a series of investment arbitrations related to EU law. See for example the Tribunal’s order pursuant to ICSID Arbitration Rule 37(2) in Electrabel S.A. v. Hungary, ICSID Case No. ARB/07/19, Procedural Order No. 4 (28 April 2009), para. 22.
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In this sense, the provision supports adjudicators that actively engage with regime interaction. The fact that Article 8.24 does not seem to apply to related claims between the 39 Contracting Parties under the CETA is problematic and begs the question which role the provision will play in practice. In any event, Article 8.24 could become vital in ensuring the harmonious co-existence of different dispute resolution fora in the fragmented legal landscape of international investment protection.
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Article 8.25 Consent to the settlement of the dispute by the Tribunal* 1. The respondent consents to the settlement of the dispute by the Tribunal in accordance with the procedures set out in this Section. 2. The consent under paragraph 1 and the submission of a claim to the Tribunal under this Section shall satisfy the requirements of: (a) Article 25 of the ICSID Convention and Chapter II of the ICSID Additional Facility Rules regarding written consent of the disputing parties; and, (b) Article II of the New York Convention for an agreement in writing Reference to the Respective Provisions in Other EU Treaties: Article 3.6 EU-Singapore Investment Protection Agreement, Article 3.36 EU-Vietnam Investment Protection Agreement. Bibliography: Andrea Bjorklund and Jonathan Brosseau, ‘L’accord commercial entre le Canada et l’Union européenne prévoit-il une résolution des différends par arbitrage ou règlement judiciaire?’(2018) 31 Quebec J. Int’l L., 1; Gary Born, International Arbitration: Law and Practice (2nd edn, Kluwer Law International, Alphen aan den Rijn, 2015); Marc Bungenberg and August Reinisch, From Bilateral Arbitral Tribunals and Investment Courts to a Multilateral Investment Court – Options Regarding the Institutionalization of Investor-State Dispute Settlement (2nd edn, Springer, Berlin, 2020); Horia Ciurtin, ‘Paradoxes of (Sovereign) Consent: On the Uses and Abuses of a Notion in International Investment Law’, in Crina Baltag (ed), ICSID Convention after 50 Years: Unsettled Issues (Kluwer Law International, Alphen aan den Rijn, 2016), 25; Graham Coop and Gunjan Sharma, ‘Chapter IV: Investment Arbitration, Procedural Innovations to ISDS in Recent Trade and Investment Treaties: A Comparison of the USMCA and CETA’, in Christian Klausegger et al. (eds), Austrian YB Int’l Arb. 2019 (Manz’sche Verlags- und Universitätsbuchhandlung, Vienna, 2019), 467; Zachary Douglas, ‘The Hybrid Foundations of Investment Treaty Arbitration’ (2003) 74 BYIL, 151; Christopher Drahozal and Christopher Gibson, The Iran-U.S. Claims Tribunal at 25: the cases everyone needs to know for investor-state & international arbitration (Oxford University Press, Oxford, 2007); Meg Kinnear, Andrea Bjorklund and John Hannaford, ‘Article 1122 – Consent to Arbitration’, in Investment Disputes under NAFTA: An Annotated Guide to NAFTA Chapter 11 (Kluwer Law International, Alphen aan den Rijn, 2006), 1122-1; Claudia Lach, Joshua Toews and Grace Tran, ‘Whether Multilateral Investment Court Awards Could Be Enforced Using the ICSID Convention, the New York Convention and/or an Alternative Method’ (30 April 2019) TradeLab CML 3385: International Trade and Investment Practicum; Lars Markert and Helene Bubrowski, ‘National Setting Aside Proceedings in Investment Arbitration’ in Marc Bungenberg, Jörn Griebel, Stephan Hobe and August Reinisch (eds), International Investment Law (Nomos, Baden-Baden, 2015), 1460; Lars Markert, Streitschlichtungsklauseln in Investitionsschutzabkommen (Nomos, Baden-Baden, 2010); Jan Paulsson, ‘Arbitration Without Privity’ (1995) 10 ICSID Rev., 232; August Reinisch, ‘Will the EU’s Proposal Concerning an Investment Court System for CETA and TTIP Lead to Enforceable Awards? – The Limits of Modifying the ICSID Convention and the Nature of Investment Arbitration’ (2016) 19 J. Int’l Econ. L., 761; Borzu Sabahi, Noah Rubins and Don Wallace, Jr., Investor-State Arbitration (2nd edn, Oxford University Press, Oxford, 2019); Josefa Sicard-Mirabal and Yves Derains, Introduction to Investor-State Arbitration (2nd edn, Kluwer Law International, Alphen aan den Rijn, 2018); Philipp Stegmann, Responsibility of the EU and the Member States under EU International Investment Protection Agreements – Between Traditional Rules, Proceduralisation and Federalisation (Springer, Berlin, 2019); Ameyavikrama Thanvi, ‘The Investment Court System under the EU-Canada Comprehensive Economic and Trade Agreement: Proposal and Some Unaddressed Issues’ (2019) 8 Indian J. Arb. L., 97; Albert van den Berg, ‘Appeal Mechanism for ISDS Awards: Interaction with the New York and ICSID Conventions’ (2019) 34 ICSID Rev., 156.
* The author would like to thank Ms. Audrey Husni, associate, and Dr. Benedikt Yuji Kaneko, associate, at Nishimura & Asahi Tokyo for their invaluable research and formatting assistance. The views expressed in this commentary, as well as any inaccuracies, are the author’s own.
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A. Introduction and Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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B. Spirit and Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. The importance of consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. The procedural qualification of consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. Comparable consent provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV. Consent in context . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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C. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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D. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. Paragraph 1 of Article 8.25 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. ‘The respondent’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. ‘Consents’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. ‘To the settlement of the dispute’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. ‘By the Tribunal’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5. ‘In accordance with the procedures set out in this Section’ . . . . . . . . . . . . . II. Paragraph 2 of Article 8.25 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. ‘The consent under paragraph 1’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. ‘And the submission of a claim to the Tribunal under this section’ . . . . . 3. ‘Shall satisfy the requirements of ’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. ICSID and ICSID Additional Facility Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5. New York Convention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
43 43 43 47 50 52 56 63 63 64 67 73 78
E. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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A. Introduction and Overview Article 8.25 constitutes a key provision for investor-state dispute settlement (‘ISDS’). It establishes the consent of the respondent to the settlement of an investment dispute in accordance with Section F of Chapter 8 of CETA (‘Section F’), dealing with the ‘resolution of investment disputes between investors and states’. For consensual dispute settlement as foreseen by Section F, consent forms the indispensable basis for the conduct of proceedings. Without consent, the Tribunal lacks the jurisdiction to decide the dispute.1 Article 8.25 consists of two paragraphs. The first paragraph stipulates the respondent’s consent to the settlement of an investment dispute. The second paragraph clarifies that the respondent’s consent, on the one hand, and the investor’s submission of a claim to the Tribunal, on the other hand, shall satisfy the in writing requirement under the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States of 18 March 1965 (‘ICSID Convention’) 2 and its Additional Facility Rules, as well as under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 10 June 1958 (‘New York Convention’). 3 The first paragraph of Article 8.25 is remarkably concise for a provision that forms the basis of ISDS under CETA. This is possible because it clarifies that a respondent provides consent ‘in accordance with the procedures set out in this Section’, i.e. Section F. The devil thus lies in the detail: whether and how a putative respondent effectively consented is determined by other provisions in Section F. Insofar as claims are within the scope of CETA (→ Art. 8.2 mn. 1 and → Art. 8.18 mn. 1), Article 8.25 thus serves as a gateway to dispute settlement for an investor, but leaves it to other provision in Section F to establish conditions and requirements for consent.
Sicard-Mirabal and Derains, Introduction to Investor-State Arbitration (2018), 42. 575 U.N.T.S. 160. 3 330 U.N.T.S. 38.
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The second paragraph of Article 8.25 addresses the ‘without privity’ nature of ISDS4 on the basis of international investment agreements (‘IIA’). It reflects the practical reality that most modern IIA contain the States’ standing consent to dispute settlement which can be matched with an investor’s consent by the mere submission of a claim to a tribunal. This is similar to the consent contained in national investment laws, 5 but differs from ISDS on the basis of investment contracts. Investment contracts normally contain an arbitration clause with the express written consent of both contractual Parties to the settlement of an investment dispute. Article 8.25(2) clarifies that even without an express written agreement between the disputing Parties, the investor’s submission of a claim to the Tribunal shall satisfy the in writing requirement under the ICSID Convention and its Additional Facility Rules, as well as under the New York Convention. 6 After an overview of the ‘Spirit and Purpose’ of Article 8.25 (→ mn. 7 ff.) and its ‘Drafting History’ (→ mn. 37 ff.), the two paragraphs of Article 8.25 will be analysed in more detail (→ mn. 43 ff.). 5
B. Spirit and Purpose I. The importance of consent Article 8.25 and its expression of consent forms the basis, or the gateway, for the ISDS system contained in CETA. 8 It is generally accepted that alternative dispute resolution, i.e. dispute resolution outside the jurisdiction of national courts, requires an agreement by the disputing Parties to put their dispute before a neutral decision maker. This is particularly and widely accepted for international arbitration.6 7
II. The procedural qualification of consent Section F avoids the mention of ‘international arbitration’ in connection with the settlement of a dispute by the Tribunal under CETA. This is probably due to the fact that the Contracting Parties wanted to assuage the criticism surrounding investorState arbitration by introducing a different form of ISDS in the form of a standing ‘Tribunal’. The European Union calls such standing Tribunal an ‘investment court system’ (‘ICS’), emphasizing the structural difference to investment arbitration. 7 CETA neither employs the label of ‘international arbitration’, nor of an ‘investment court system’. With respect to the latter, Article 8.27 simply clarifies that the ‘Tribunal’ is a standing body and its fifteen members are appointed by the CETA Joint Committee. 10 The lack of references to ‘international arbitration’ and the existence and structure of the Tribunal raises the question of the legal qualification of ‘consent’ under Article 8.25. After all, the disputing Parties’ right to participate in the selection of arbitrators 9
See generally, Paulsson, ‘Arbitration Without Privity’ (1995) 10 ICSID Rev., 232 ff. Paulsson, ‘Arbitration Without Privity’ (1995) 10 ICSID Rev., 232 (234); Sabahi et al., Investor-State Arbitration (2019), 310. 6 ‘It is elementary that “arbitration” is a consensual process that requires the agreement of the parties’, in Born, International Arbitration: Law and Practice (2015), 3. 7 See, e.g., European Commission, CETA – Summary of the final negotiating results, February 2016, 11. 4
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is seen as one of the key characteristic of international arbitration.8 This right is plainly lacking in the case of the Tribunal established under Article 8.27 (→ Art. 8.23 mn. 22). Nevertheless, when read in context with other provisions of CETA, from a purely 11 procedural perspective an arbitral qualification of consent in Article 8.25 remains justified.9 First, pursuant to Article 8.23(2), an investor may submit a claim to the Tribunal under (a) the ICSID Convention and its Arbitration Rules, (b) the ICSID Additional Facility Rules,10 (c) the UNCITRAL Arbitration Rules, or (d) any other rules to which the disputing Parties agree. Thus, the procedure for the settlement of the dispute by the Tribunal basically follows established (investment) arbitration rules. 11 Furthermore, Article 8.25(2) clarifies that the respondent State’s consent and the investor’s submission of a claim to the Tribunal shall satisfy the in writing requirement under the ICSID Convention and its Additional Facility Rules, as well as under the New York Convention. These requirements serve to evidence the existence of arbitral agreements. Finally, Article 8.39 clarifies that the Tribunal renders its final decision in the form of an award (→ Art. 8.39 mn. 1), which is the usual form of a final decision with respect to a dispute in international arbitrations. Article 8.41(5) characterizes a final award under Section F as ‘arbitral award’ for purposes of Article I of the New York Convention. If the final award was rendered by a Tribunal under the procedures of the ICSID Convention and its Arbitration Rules, Article 8.41(6) qualifies the final award as an award under the ICSID Convention. The fact that the disputing Parties cannot appoint their decision makers turns ISDS 12 under CETA into a somewhat atypical form of international arbitration.12 However, the particular framework is not without precedent. Arbitral claims have been heard since the early 1980 s before the Iran-US Claims Tribunal, constituted of nine tribunal members, which have not been appointed by the Parties. Despite this being the case, the proceedings are generally perceived as international arbitrations13 – and the CJEU, Opinion 1/17, 30.04.2019, ECLI:EU:C:2019:341, para. 195. van den Berg, ‘Appeal Mechanism for ISDS Awards: Interaction with the New York and ICSID Conventions’ (2019) 34 ICSID Rev., 156 (164): ‘Both the first-instance tribunal and the appellate tribunal under CETA function on the basis of arbitration’; see also Reinisch, ‘Will the EU’s Proposal Concerning an Investment Court System for CETA and TTIP Lead to Enforceable Awards?’ (2016) 19 J. Int’l Econ. L., 761 (768); Thanvi, ‘The Investment Court System under the EU-Canada Comprehensive Economic and Trade Agreement: Proposal and Some Unaddressed Issues’ (2019) 8 Indian J. Arb. Law, 97 (111-112); Bjorklund and Brosseau, ‘L’accord commercial entre le Canada et l’Union européenne prévoit-il une résolution des différends par arbitrage ou règlement judiciaire?’(2018) 31 Quebec J. Int’l L., 1 (33). 10 As Poland and the European Union are the only Parties to CETA which are not member states of the ICSID Convention, the ICSID Additional Facility Rules would be applicable to proceedings involving them as respondent. 11 The CJEU noted that the ‘ISDS mechanism […] contains […] a number of elements that continue to be based on traditional arbitration mechanisms in relation to investments’, see CJEU, Opinion 1/17, 30.04.2019, ECLI:EU:C:2019:341, para. 193; → Art. 8.23 mn. 8. However, Article 8.23(6) stipulates that the available arbitration rules are subject to the specific rules set out in Section F and supplemented by rules adopted pursuant to Article 8.44.3(b). For some of the deviations this entails, → Art. 8.23 mn. 22. 12 See CJEU, Opinion 1/17, 30.04.2019, ECLI:EU:C:2019:341, paras. 193-194: ‘[T]he envisaged ISDS mechanism is, as was observed before the Court, ‘hybrid’ in nature, in that it contains, in addition to characteristics of judicial bodies, a number of elements that continue to be based on traditional arbitration mechanisms in relation to investments. As regards the last point, it must be observed that, while the rules contained in Section F of Chapter Eight of the CETA on the bringing of cases before the CETA Tribunal are largely inspired by traditional ISDS mechanisms, that is not the case with respect to the rules on the composition of that Tribunal and on dealing with those cases’; → Art. 8.23 mn. 22. 13 Drahozal and Gibson, The Iran-U.S. Claims Tribunal at 25: the cases everyone needs to know for investor-state & international arbitration (2007), vii-viii. 8
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Claims Tribunal’s structure may have influenced the EU’s proposal for an ICS, as implemented in the form of a ‘Tribunal’ in CETA (→ Art. 8.27 mn. 4, 6). 13 The key to an arbitral qualification of consent is that despite there being a standing body, the Parties can freely consent to dispute settlement. 14 This remains the case under CETA, as the ‘consent’ contained in Article 8.25 constitutes the respondent’s offer to settle a dispute before the Tribunal. The investor remains at liberty to accept such consent by submitting a claim, containing the investor’s reciprocal consent. 14 Apart from meeting the requirements for purposes of the ICSID Convention and the New York Convention, qualifying the consent in Article 8.25 as ‘arbitral consent’ may also become relevant for practical purposes. Insofar as existing investment arbitration case law on the issue of ‘consent’ exists, it may well serve as guidance in decision-making concerning issues of consent for the Tribunal and its divisions. This is particularly likely where prior case law has been dealing with provisions in IIAs that are comparable in structure to Article 8.25. Particularly NAFTA case law will be relevant in this context, considering that in many aspects involving ‘consent’, the ISDS provisions in CETA and NAFTA resemble each other.15
III. Comparable consent provisions 15
Article 1122 of NAFTA is remarkably similar to Article 8.25: Article 1122 Consent to Arbitration 1. Each Party consents to the submission of a claim to arbitration in accordance with the procedures set out in this Agreement. 2. The consent given by paragraph 1 and the submission by a disputing investor of a claim to arbitration shall satisfy the requirement of: (a) Chapter II of the ICSID Convention (Jurisdiction of the Centre) and the Additional Facility Rules for written consent of the parties; (b) Article II of the New York Convention for an agreement in writing; and (c) Article I of the InterAmerican Convention for an agreement.
The main difference between the two provisions lies in the fact that Article 1122 NAFTA constitutes a ‘consent to arbitration’, whereas CETA avoids the label ‘arbitration’. Also, Article 1122 NAFTA contains the additional clarification that consent under the provision shall satisfy the requirement of ‘Article I of the InterAmerican Convention for an agreement’. Other than that, differences lie mainly in the definitions of terms in NAFTA and CETA. 17 Article 8.25 is also very similar to Article 25 of the Canadian Model BIT 2014, with even the article numbering in the respective texts (‘25’) being the same: 16
Article 25 Consent to Arbitration 1. Each Party consents to the submission of a claim to arbitration in accordance with the procedures set out in this Agreement. Failure to meet a condition precedent listed in Article 22 (Conditions Precedent to Submission of a Claim to Arbitration) nullifies that consent. 2. The consent given in paragraph 1 and the submission by an investor of a claim to arbitration satisfies the requirement of:
14 Reinisch, ‘Will the EU’s Proposal Concerning an Investment Court System for CETA and TTIP Lead to Enforceable Awards?’ (2016) 19 J. Int’l Econ. L., 761 (768). 15 For case law in connection with Article 1122 NAFTA, which seems to have served as a model for Article 8.25 CETA, see ‘Article 1122 – Consent to Arbitration’ in Kinnear et al., Investment Disputes under NAFTA: an Annotated Guide to NAFTA Chapter 11 (2006), 1122-1 ff.
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(a) Chapter II of the ICSID Convention (Jurisdiction of the Centre) and the ICSID Additional Facility Rules for written consent of the disputing parties; and (b) Article II of the New York Convention for an agreement in writing.
Article 8.25 differs from Article 25 of the Canadian Model BIT 2014 mainly with 18 respect to the definitions used and the lack of reference to ‘consent to arbitration’. One other difference is that Article 25(1) of the Canadian Model BIT 2014 expressly states that if ‘conditions precedent’ to consent in Article 22 of the Canadian Model BIT 2014 are not met, the consent is nullified. This clarifies that the Parties to an IIA based on the Canadian Model BIT only grant consent to ISDS where certain conditions stated elsewhere in such IIA are met. CETA addresses this in a similar manner in Article 8.22. The provision contains several conditions, stipulates that an ‘investor may only submit a claim’ if these are met, and provides that the Tribunal shall decline jurisdiction upon request of the respondent if this is not the case (see Article 8.22(1) and (4) CETA; → Art. 8.22 mn. 2). Finally, Article 8.25 differs from both of the abovementioned provisions by refer- 19 ring to ‘the respondent’ instead of ‘the parties’ as consenting. This corresponds to the mechanism under Article 8.21, which will be addressed in more detail below. Interestingly, the consent provision in the EU-Singapore Investment Protection 20 Agreement, which also incorporates an ICS, looks less similar than the aforementioned provisions: Article 3.6 Submission of Claim to Tribunal 1. No earlier than three months from the date of the notice of intent delivered pursuant to Article 3.5 (Notice of Intent), the claimant may submit the claim to the Tribunal under one of the following dispute settlement rules: (a) the Convention on the Settlement of Investment Disputes between States and Nationals of Other States of 18 March 1965 (hereinafter referred to as the “ICSID Convention”) provided that both the respondent and the State of the claimant are parties to the ICSID Convention; (b) the ICSID Convention in accordance with the Rules on the Additional Facility for the Administration of Proceedings by the Secretariat of the International Centre for Settlement of Investment Disputes (hereinafter referred to as “ICSID Additional Facility Rules”), provided that either the respondent or the State of the claimant is a party to the ICSID Convention; (c) the arbitration rules of the United Nations Commission on International Trade Law (UNCITRAL); or (d) any other rules if the disputing parties so agree. 2. Paragraph 1 of this Article shall constitute the consent of the respondent to the submission of a claim under this Section. The consent under paragraph 1 and the submission of a claim under this Section shall be deemed to satisfy the requirements of: (a) Chapter II of the ICSID Convention, and the ICSID Additional Facility Rules, for written consent of the disputing parties; and (b) Article II of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, done at New York on 10 June 1958 (hereinafter referred to as “New York Convention”) for an “agreement in writing”.
The two paragraphs of Article 3.6 of the EU-Singapore Investment Protection 21 Agreement (‘IPA’) combine the content of Articles 8.23(2) and 8.25. However, the content of Article 3.6(2) of the EU-Singapore IPA is practically identical to Article 8.25, except for the facts that it does not refer to the ‘Tribunal’ and contains only one paragraph establishing ‘consent’ and referencing the ICSID and New York Conventions. The consent provision in the EU-Vietnam IPA, which likewise incorporates an ICS, 22 also differs in form from Article 8.25, but not so much in substance:
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Article 3.36 Consent 1. The respondent consents to the submission of a claim under this Section. 2. The claimant shall deliver its consent in accordance with the procedures provided for in this Section at the time of submitting a claim pursuant to Article 3.33 (Submission of a Claim). 3. The consent under paragraphs 1 and 2 requires that: (a) the disputing parties shall refrain from enforcing an award rendered pursuant to this Section before such award has become final pursuant to Article 3.55 (Final Award); and (b) the disputing parties shall refrain from seeking to appeal, review, set aside, annul, revise or initiate any other similar procedure before an international or domestic court or tribunal, as regards an award pursuant to this Section. 4. The consent under paragraphs 1 and 2 shall be deemed to satisfy the requirements of: (a) Article 25 of the ICSID Convention and the ICSID Additional Facility Rules for written consent of the disputing parties; and (b) Article II of the New York Convention of 1958 for an agreement in writing.
Article 3.36(1) of the EU-Vietnam IPA stipulates the respondent’s consent, while Article 3.36(2) requires the consent of the claimant. The parallel provision to the latter is found in Article 8.22(1)(a) of CETA (→ Art. 8.22 mn. 13). 24 Considering the mutual consent required under Article 3.36 of the EU-Vietnam Investment Protection Agreement, Article 3.36(4) refers to paragraphs 1 and 2 for purposes of the ICSID and New York Conventions, whereas Article 8.25(2) has to refer to consent under paragraph 1 as well as ‘the submission of a claim to the Tribunal’. 25 Finally, Article 3.36(3) of the EU-Vietnam IPA establishes requirements with respect to an ensuing award; it is not quite clear how those relate to consent. As such, it is understandable that Article 8.25 does not contain a similar provision. 26 In conclusion, Article 8.25 resembles more closely the provisions in Article 1122 of NAFTA and Article 25 of the Canadian Model BIT 2014 than the provisions in the European Union’s IPAs with an ICS. Article 8.25 thus seems to reflect a strong influence by Canada. By contrast, the European Union still seems to search for a uniform approach when establishing consent in agreements containing an ICS. However, the existing differences are mainly formal; in substance, all provisions address consent to the settlement of a dispute by the Tribunal in essentially the same manner. 23
IV. Consent in context While the consent clause in Article 8.25 at first blush appears to be very broad, it needs to be kept in mind that a respondent State consents only ‘in accordance with the procedures set out in this Section.’ 28 As stated above, this means that consent is conditioned upon the requirements set out in Article 8.22 being met. Pursuant to Article 8.22(1), this includes (a) consent of the investor to the settlement of the dispute by the Tribunal, (b) compliance with ‘cooling off ’ periods, (c) fulfilment of the requirements of the notice requesting a determination of the respondent under Article 8.21, (d) fulfilment of the requirements related to the investor’s request for consultations under Article 8.19 (→ Art. 8.19 mn. 4, 23-24, 43), (e) the claim not covering a measure that was not previously identified in the request for consultations, (f) withdrawal or discontinuance of ongoing arbitration or local court proceedings with respect to a measure covered by the claim, and – as a flip-side to that –, (g) a waiver to institute such proceedings (→ Art. 8.22 mn. 13-26). Modifications apply to locally established enterprises, which the investor controls directly or indirectly, or used to control, pursuant to Article 8.22(2) and (3) (→ Art. 8.22 mn. 27). 27
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Apart from those procedural limits, consent will not extend beyond the scope of resolution of investment disputes between investors and states set by Article 8.18. CETA includes Article 8.18 to clearly delimit the range of actionable investment claims, and to prevent that the Tribunal oversteps what the Contracting Party have granted as jurisdictional authority (→ Art. 8.18 mn. 7). For example, Article 8.18(2) clarifies that a claim on the basis of discriminatory treatment under Section C of Chapter 8 may be submitted only to the extent the measure relates to the existing business operations of a covered investment and the investor has, as a result, incurred loss or damage with respect to the covered investment (→ Art. 8.18 mn. 67-70). Per Article 8.18(3), an investor may not submit a claim under Section F if the investment has been made through fraudulent misrepresentation, concealment, corruption, or conduct amounting to an abuse of process (→ Art. 8.18 mn. 107). Article 8.18(4) clarifies that a claim with respect to restructuring of debt issued by a Party may only be submitted under Section F in accordance with Annex 8-B (→ Art. 8.18 mn. 113). CETA’s Contracting Parties’ right to regulate is enshrined in Article 8.9, with the reminder in Article 8.9(2) that the mere fact that a Party regulates does not amount to a breach of an obligation under Section F. This provisions should be seen as interpretative guidance to Tribunals assessing a breach, rather than as a carve-out of the right to regulate from the scope of Section F (→ Art. 8.9 mn. 14). The legal consequence of the limitation of the scope is that pursuant to Article 8.18(5), a Tribunal constituted under this Section shall not decide claims that fall outside of the scope of Article 8.18. This language, however, leaves open how to qualify the procedural effect of the limitation of the scope. Unlike 8.22(4), the provision does not oblige a Tribunal to decline jurisdiction. This may be a function of the uncertainty about what an investor will be claiming. If all of the investor’s claims are outside the permissible scope of resolution of investment disputes between investors and States per Article 8.18, there is no respondent consent to the settlement of such dispute under Article 8.25. A Tribunal would thus have to decline its jurisdiction. However, if the investor’s claims are partially outside and partially within the scope, a Tribunal would retain its jurisdiction over the settlement of the dispute, and would only partially decline jurisdiction with respect to those claims that are outside of the scope. Under certain circumstances, a Tribunal might also reject claims that are out of scope as ‘inadmissible’ (→ Art. 8.18 mn. 106).16 While Article 8.18 is clear in its limitations, Article 8.7(4) contains an additional clarification that most-favoured-nation treatment does not include procedures for the resolution of investment disputes between investors and states provided for in other international investment treaties and other trade agreements. Thus, IIA concluded by a CETA Contracting Party with third Parties cannot be used to expand the CETA Contracting Party’s consent, or for the investor to avail itself of more favourable procedural provisions (→ Art. 8.7 mn. 2; 43-50; → Art. 8.7 mn. 51-62 for limitations of substantive advantages). Article 8.2 defining the ‘Scope’ of Chapter 8 in its paragraph 4 contains an additional limitation with respect to ISDS claims. It stipulates in more general terms that claims under Chapter 8 may only be submitted by an investor in accordance with Article 8.18, and in compliance with the procedures set out in Section F (→ Art. 8.2 mn. 108). Claims in respect of an obligation set out in Section B, dealing with market access and performance requirements, are generally excluded from the scope of ISDS (→ Art. 8.2 mn. 110). Equally excluded are claims under Section C (‘Non-discrimina16
See also Markert, Streitschlichtungsklauseln in Investitionsschutzabkommen (2009), 110-114.
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tory treatment’) insofar as they relate to the establishment or acquisition of a covered investment (→ Art. 8.2 mn. 111-112) – but not insofar as covered by Article 8.18(1) (a), (2). Article 8.2(4) further clarifies that the investment protections in Section D only apply to a covered investment and to investors in respect of their covered investment (→ Art. 8.2 mn. 114-121). 33 Article 8.31(2) clarifies that the ‘Tribunal shall not have jurisdiction to determine the legality of a measure, alleged to constitute a breach of this Agreement, under the domestic law of the disputing Party.’ Thus, the Tribunal is precluded from determining questions of EU law or under the domestic laws of Member States (→ Art. 8.31 mn. 58-59). 34 The EU Commission explained the limitation of the scope of ISDS as follows: Investment dispute settlement under CETA is strictly limited to breaches of the few investment protection provisions which enshrine fundamental principles such as nondiscrimination, expropriation only for a public purpose and against adequate compensation and fair and equitable treatment (see explanations above) and which has caused damage to a specific investor. But a claim cannot be brought to investment dispute settlement simply because an action has an impact on investors’ profits. Also it cannot be used by an investor to claim a breach of another part of the CETA agreement. For example, it cannot be used to obtain market access by investors. This is an important clarification.17
The limited scope of (consent to) ISDS is one of the key reasons the Court of Justice of the European Union considered CETA’s ISDS mechanism under Chapter F to be compatible with the autonomy of the EU legal order. It specifically addressed the Tribunal’s lack of jurisdiction to determine questions of EU law and the preservation of the right to regulate by narrowing CETA’s scope of ISDS. 18 36 Where claims fall outside the scope of CETA, Article 8.25 does not apply. A Tribunal thus would not have jurisdiction because the basis for consent by the respondent would be missing. 35
C. Drafting History As with all clauses in CETA relating to the introduction of an ICS for purposes of ISDS, the most remarkable aspect of the drafting history of Article 8.25 is that it was changed quasi ‘last minute’ in the course of the legal review of the agreed draft text. 19 38 To start in chronological order, the initial draft of Article 8.25 on 13 January 2010 was essentially based on the Canadian model for investment arbitration consent clauses: 37
Article X.21 Consent to Arbitration 1. Each Party consents to the submission of a claim to arbitration in accordance with the procedures set out in this Section. Failure to meet any of the conditions precedent in Article X.19 (Conditions Precedent to Submission of a Claim to Arbitration) shall nullify that consent. 2. The consent given in paragraph 1 and the submission by an investor of a claim to arbitration shall satisfy the requirement of:
17 European Commission, Investment provisions in the EU-Canada free trade agreement (CETA), February 2016, 4 (emphasis in the original). 18 CJEU, Opinion 1/17, 30.04.2019, ECLI:EU:C:2019:341, paras. 121, 132, 152-160. 19 European Commission, CETA: EU and Canada agree on new approach on investment in trade agreement, Press Release, 29 February 2016; see also Coop and Sharma, ‘Chapter IV: Investment Arbitration, Procedural Innovations to ISDS in Recent Trade and Investment Treaties: A Comparison of the USMCA and CETA’ in Klausegger et al. (eds), Australian YB Int’l Arb. 2019 (2019), 467 (470).
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(a) Chapter II of the ICSID Convention (Jurisdiction of the Centre) and the ICSID Additional Facility Rules for written consent of the parties to the dispute; and (b) Article II of the New York Convention for an agreement in writing.
This wording stayed the same for the next negotiation round in 2012. Towards 39 the end of 2013, the EU Commission suggested that the second sentence of the first paragraph referring to conditional consent be deleted. More importantly, it suggested language replacing ‘Each Party’, taking into account that not only the negotiating Parties Canada and the European Union, but also the EU Member States give consent. The EU Commission clarified that it was still working on a draft text in this respect. The EU Commission in early 2014 considered whether to merge the consent clause 40 with the provision on ‘Submission of a claim to Arbitration’, which is now reflected in similar fashion in Article 8.23. However, in August 2014, this suggestion was rejected in favour of a shorter consent clause, which constituted the version published as agreement in principle on the CETA draft text in September 2014 (‘Final Draft’): Article X.24 Consent to Arbitration 1. The respondent consents to the submission of a claim to arbitration under this Section in accordance with the procedures set out under this Agreement. 2. The consent under paragraph 1 and the submission of a claim to arbitration under this Chapter shall satisfy the requirements of: (a) Article 25 of the ICSID Convention and Chapter II (Institution of Proceedings) of the ICSID Additional Facility Rules for written consent of the disputing parties; and, (b) Article II of the New York Convention for an agreement in writing.
Article X.24 of the Final Draft was in substance already very close to Article 41 8.25. In particular, it replaced the notion of the Parties’ consent with the formulation that the ‘respondent consents’, considering that the Final Draft in its Article X.20 incorporated the mechanism for the determination of a respondent on the EU side that can now be found in Article 8.21. The main difference between Article 8.25 and all prior versions is that the latter 42 clearly spelled out that consent was one to ‘arbitration’. This label has been expunged in the final version of CETA. In order to do so, the wording ‘consents to the submission of a claim to arbitration’ was changed to ‘consents to the settlement of the dispute by the Tribunal’. As pointed out above, the substitution of ‘arbitration’ by reference to the ‘Tribunal’ in Article 8.25 does however not change the character of ‘consent’ as ‘arbitral consent’. This is not least clarified by way of paragraph 2 of Article 8.25, in which the consent is qualified as meeting the requirements of what can be considered the two most relevant arbitration-related conventions, the ICSID Convention and the New York Convention.
D. Commentary I. Paragraph 1 of Article 8.25 1. ‘The respondent’ Contrary to the provisions on consent contained in NAFTA and in the Canadian 43 Model BIT of 2014 which provide for the consent of ‘[e]ach Party’ to the treaty, Article 8.25 refers to the consent of the ‘respondent’ rather than to the consent of the Parties to CETA. As the drafting history of CETA shows, this is a function of the particular structure of Section F. Under Article 8.21, if a Canadian investor brings a
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claim, the settlement of the dispute by the Tribunal may involve either the European Union or an EU Member State. 44 Article 8.21 provides for a special mechanism aimed at determining the appropriate respondent to a claim raised by an investor. If an investor’s request for consultations concerns an alleged breach of the Agreement by the European Union or an EU Member State and the investor intends to submit a claim pursuant to Article 8.23, the investor shall not only identify the measures in respect of which it intends to submit a claim (Article 8.21(2)), but also deliver to the European Union a notice requesting a determination of the respondent under Article 8.21(1). The respondent then is determined either by a determination of the European Union (Article 8.21(3)) 20 or by way of a default mechanism (Article 8.21(4)) – neither of which, however, allows for a challenge to the investor’s claim or any ensuing award (Article 8.21(6)). 45 Due to the mechanism specified by Articles 8.21 and 8.25 allowing to determine EU Member States as consenting respondents to an ISDS proceeding under CETA, CETA is qualified as a ‘mixed agreement’ under EU law, requiring ratification by all EU Member States.21 46 CETA’s qualification as mixed agreement may well be the reason for the change of the wording from ‘party’ to ‘respondent’ over the course of the drafting history of Article 8.25. Towards the end of 2013, the EU Commission suggested replacing the wording of ‘Each Party’ and in August 2014 introduced the wording ‘The respondent’ (→ mn. 39 ff.). Notwithstanding that the EU Commission in 2016 still preferred to present CETA as an ‘EU-only’ agreement, the European Council in February 2014 seems to have adopted the position that CETA was a mixed agreement. 22 Also in June 2014, a letter signed by 21 chairs of relevant national parliament committees requested that the European Commission consider CETA as a mixed agreement.23 This coincidences with the changes to the wording, which may have reflected the uncertainty as to who would end up being CETA’s Contracting Party (or Parties) on the European side.
2. ‘Consents’ In general, the term ‘consent’ is somewhat unclear as it can stand for an offer to arbitrate, which would amount to unilateral consent, or for an agreement to arbitrate, in which case mutual consent to arbitration would be created. In Article 8.25, it evidently constitutes the unilateral consent of the respondent, or the making of a standing offer to investors whose claims fall within the scope of CETA to accept the offer and submit a claim to the Tribunal. 48 As pointed out above, from a procedural perspective the respondent’s consent is to be qualified as ‘arbitral consent’ or an ‘offer’ to conclude an agreement for the settle47
20 The European Union (and if necessary, the CJEU), and not the Tribunal, determines the proper respondent on the side of the European Union and its Member States. This was a relevant factor for considering the CETA’s ISDS mechanism to be compatible with the autonomy of the EU legal order, see CJEU, Opinion 1/17, 30.04.2019, ECLI:EU:C:2019:341, para. 132. 21 So noted by the CJEU for the FTA between the EU and Singapore, see CJEU, Opinion 2/15, 16.05.2017, ECLI:EU:C:2017:376, paras. 292-293: ‘Such a regime, which removes disputes from the jurisdiction of the courts of the Member States, cannot be of a purely ancillary nature […] and cannot, therefore, be established without the Member States’ consent. It follows that approval of Section B of Chapter 9 of the envisaged [EU-Singapore free trade] agreement falls not within the exclusive competence of the European Union, but within a competence shared between the European Union and the Member States’. 22 European Parliament, Parliamentary Question for written answer E-004944-16 to the Commission, 20 June 2016. 23 European Parliament Research Service, Is CETA a mixed agreement?, PE 586.597, 1 July 2016, 1 f.
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ment of the dispute by the Tribunal in accordance with the procedures set out in Section F (→ Art. 8.22 mn. 13). This is underscored by the fact that Article 8.22(1)(a) requires the consent of the investor to the settlement of the dispute by the Tribunal in the sense of an ‘acceptance’ (→ Art. 22 mn. 13).24 However, this procedural perspective only properly covers the relationship between 49 a respondent and an investor under Article 8.25. When it comes to the relationship between the Contracting Parties to CETA, an additional (and not mutually exclusive) public international law qualification is warranted.25 While from a contractual perspective an offer to arbitrate can be withdrawn up until the moment it is accepted, this is not the case for the Contracting Parties’ ‘consent’ under Article 8.25. The consent in CETA flows from a mutual public international law obligation entered into by CETA’s Contracting Parties to grant the respective investors of the counter-Party the right to ISDS. A unilateral ‘withdrawal’ of the offer of consent is therefore impossible under the principle of pacta sunt servanda,26 which is also embodied in Article 26 of the 1969 Vienna Convention on the Law of Treaties (‘VCLT’).27
3. ‘To the settlement of the dispute’ The consent refers ‘to the settlement of the dispute’, a phrase which substitutes 50 (and thus avoids) the term ‘arbitration’ which was contained in earlier drafts of the provision. Both designate the objective of finally settling the dispute by way of a neutral third-party decision-maker – which normally in ISDS would be an arbitral tribunal but in the framework of CETA is the Tribunal. When read in context, the phrase ‘to the settlement of the dispute’ does not refer to 51 an inter partes ‘settlement’ in the form of a procedural and/or substantive agreement between the disputing Parties to settle the matter and end the dispute (→ Art. 8.19 mn. 2). The fact that Article 8.25 envisages the settlement of the dispute ‘by the Tribunal’ makes this obvious.
4. ‘By the Tribunal’ As Article 8.27 makes apparent, CETA contemplates the establishment of an ‘in- 52 vestment court system’ for purposes of settling disputes arising out of an investment falling within the scope of Section F. The ‘Tribunal’ is not to be confused with the arbitral tribunals usually in charge of 53 ISDS on the basis of an IIA. Arbitral tribunals will generally be established on an ad hoc basis by way of selection by the disputing Parties.28 The ‘Tribunal’ referred to in Article 8.25 is a standing body established on the basis of Article 8.27. It comprises fifteen members appointed by the CETA Joint Committee for a five-year term, which can be renewed once (8.27(2) and (4)). 24 See also Douglas, ‘The Hybrid Foundations of Investment Treaty Arbitration’ (2003) 74 BYIL, 151 (184). 25 See also Ciurtin, ‘Paradoxes of (Sovereign) Consent: On the Uses and Abuses of a Notion in International Investment Law’ in Baltag (ed), ICSID Convention after 50 Years: Unsettled Issues (2016), 25 (58). 26 For an in-depth analysis of the doctrinal underpinnings see Markert, Streitschlichtungsklauseln in Investitionsschutzabkommen (2009), 118-131. 27 1155 U.N.T.S. 331. 28 This is at least true for the selection of the co-arbitrators. The disputing Parties can also agree on the presiding arbitrator. However, where no Party-agreement can be reached, under the applicable arbitration rules the presiding arbitrator is usually selected by the arbitral tribunal, the institution or by an appointing authority.
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Despite this difference, a ‘Tribunal’ in charge of the settlement of a particular investment dispute will, at first blush, not look too different from an arbitral tribunal. Article 8.27(6) stipulates that the Tribunal shall hear cases in divisions consisting of three members of the Tribunal – which is similar to the three-person arbitral tribunals commonly in charge of ISDS. Furthermore, under Article 8.27(7), such ‘divisions’ are composed on a rotation basis, ensuring that their composition is random and unpredictable, while giving equal opportunity to all members of the Tribunal to serve. This resembles the ad hoc nature of investment arbitral tribunals. 55 The difference lies in the fact that even if divisions are composed on a rotation basis, they always consist of three of the same 15 Tribunal members. 29 Furthermore, unlike investment arbitration tribunals that deal with a multitude of differing IIA, the 15 Tribunal members will only settle disputes arising out of CETA. It is thus expected that the standing Tribunal will achieve a higher consistency and conformity of outcomes than would be possible for investment arbitration tribunals deciding disputes on the basis of varying IIA.30 54
5. ‘In accordance with the procedures set out in this Section’ The reference to ‘the procedures set out in this Section’ refers to the procedures applying to the settlement of an investment dispute set out in Section F. This phrase has two aspects. 57 First, it reaffirms that a respondent provides consent with the expectation that the settlement of the dispute by the Tribunal will unfold under the procedures set out in Section F. The reference to ‘procedures’ places an emphasis on the procedural aspects of Section F. These are embodied in the requirement for consultations (Article 8.19), a potential mediation (Article 8.20), the respondent determination procedure if a claim is brought against the European Union or its Member States (Article 8.21), the compliance with specific procedural requirements (Article 8.22), the selection of the claimant entity and the applicable arbitration rules (Article 8.23), parallel proceedings (Article 8.24), early dismissal proceedings (Article 8.32 and 8.33), interim measures (Article 8.34), discontinuance (Article 8.35), transparency of proceedings (Article 8.36) and information sharing (Article 8.37), involvement of non-disputing Parties (Article 8.38), issuance of a final award (Article 8.39) and its enforcement (Article 8.41), and consolidation of claims (Article 8.43). Other provisions in Section F are not procedural, such as the scope of Section F (Article 8.18), or have no direct procedural impact, such as disclosure of third Party funding (Article 8.26) or ethics (Article 8.30). Some provisions are of a mixed institutional and procedural nature, such as the provisions on setting up the Tribunal (Article 8.27) and the Appellate Tribunal (Article 8.28). They establish the decision-making bodies, but at the same time contain rules how these bodies should operate, e.g. how an appeals procedure is to be conducted (Article 8.28(9)). 58 It is not obvious why a respondent gives consent to the settlement of the dispute ‘in accordance with the procedures’ in Section F, rather than giving consent to the settlement of the dispute ‘in accordance with’ Section F. However, it could indicate that when it comes to mere procedural aspects, the respondent and the investor – in line with the principle of Party autonomy governing consensual dispute settlement – may 56
29 Another difference is that Article 8.27(6) prescribes certain nationalities of the division members, which is uncommon in ad hoc investment arbitrations. 30 Cf. Bungenberg and Reinisch, From Bilateral Arbitral Tribunals and Investment Courts to a Multilateral Investment Court (2020), para. 52.
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agree to deviate from provisions of CETA once the dispute has started. When it comes to the choice of the rules governing the dispute settlement, this is explicitly stated in Article 8.23(2)(d) (→ Art. 8.23 mn. 8). Similarly, if an investor does not fulfil the requirements of Article 8.22(1) and (2), a Tribunal shall decline jurisdiction ‘[u]pon the request of the respondent’ (→ Art. 8.22 mn. 2). Where the respondent makes no request, it can waive the investor’s deviation from Article 8.22(1) and (2). Such explicitly or implicitly consensual deviation from CETA is, however, not possible for non-procedural provisions, such as the scope of Section F or institutional provisions with respect to the Tribunal or the Appellate Tribunal.31 A second, not immediately apparent aspect of the reference to ‘in accordance with the procedures in this Section’ is that the respondent’s consent can be seen as conditional with respect to the investor complying with procedural and other requirements for submission of a claim to the Tribunal.32 As the drafting history of Article 8.25 shows (→ mn. 38), the conditional nature of consent was initially expressly included in the first draft of the provision. While this language is not reflected in the final version of Article 8.25, the reference to ‘in accordance with the procedures in this Section’ may be understood as one to Article 8.22, which states: Procedural and other requirements for the submission of a claim to the Tribunal; ‘1. An investor may only submit a claim pursuant to Article 8.23 if the investor: […]’. Article 8.22 thus lays out conditions precedent to the submission of a claim under Section F (→ Art. 8.22 mn. 1). By providing for consent ‘in accordance’ with the conditions laid out in Article 8.22, Article 8.25 effectively constitutes the respondent’s conditional consent.33 An investor has to be aware that the respondent will raise objections to the settlement of a claim by the Tribunal, and deny it has consented to it, if the investor fails to comply with the requirements set forth under Section F. Without the respondent’s consent to the settlement of the dispute, a Tribunal would have to deny its jurisdiction. This is clarified by Article 8.22(4) which states: ‘Upon request of the respondent, the Tribunal shall decline jurisdiction if the investor or, as applicable, the locally established enterprise fails to fulfil any of the requirements of paragraphs 1 and 2.’ Even if one were to qualify Article 8.22 as ‘pre-procedural’ rather than ‘procedural’ in the sense of Article 8.25, and therefore deny the understanding of a conditional consent, the outcome would be the same. Pursuant to Article 8.22(4), the Tribunal would have to decline jurisdiction if the requirements of Article 8.22 are not fulfilled (→ Art. 8.22 mn. 2).
31 The distinction might of course remain academic, as in practice it would be highly unusual for a respondent to agree to a deviation from procedural ISDS provisions for a particular dispute. 32 Stegmann, Responsibility of the EU and the Member States under EU International Investment Protection Agreements (2019), 157. 33 See in this connection also Methanex Corporation v. United States of America, UNCITRAL, First Partial Award (7 August 2002), para. 120: ‘In order to establish the necessary consent to arbitration, it is sufficient to show […] that all pre-conditions and formalities required under Article 1118-1121 are satisfied’. Article 1121(1)(a) of NAFTA, similarly to Article 8.22(1)(a) of CETA, requires that a ‘disputing investor may submit a claim under Article 1116 to arbitration only if: (a) the investor consents to arbitration in accordance with the procedures set out in this Agreement’.
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II. Paragraph 2 of Article 8.25 1. ‘The consent under paragraph 1’ 63
The consent under paragraph 1’ refers to the unilateral ‘offer’ of consent of the respondent to the settlement of the dispute with the investor by the Tribunal (→ Art. 8.22 mn. 13). This consent needs to be reciprocated by the investor’ consent pursuant to Article 8.22(1)(a).
2. ‘And the submission of a claim to the Tribunal under this section’ ‘The submission of a claim under this section’ constitutes the consent of the investor, which matches the respondent’s ‘consent under paragraph 1’. 65 In ISDS, the submission of a claim to the arbitral institution or the respondent 34 is usually seen as implicit consent sufficient for perfecting the arbitration agreement. 35 66 Under CETA, the investor provides more than a mere implicit ‘acceptance’ of the respondent State’s ‘offer’. In order to comply with the procedural requirements for the submission of a claim to the Tribunal, under Article 8.22(1)(a) an investor has to ‘deliver[] to the respondent, with the submission of a claim, its consent to the settlement of the dispute by the Tribunal in accordance with the procedures set out in this Section’. The purpose of the provision was aptly summarized by Paulsson in 1995 on the basis of the very similar Article 1121 of NAFTA: 64
One of the further conditions precedent to arbitration, defined in Article 1121, is that an investor must ‘consent’ to arbitration when he submits a claim. This notion, which would be nonsense in the traditional context of international arbitration, is a consequence of arbitration without privity; or, to put it in another way, it creates privity at the time of initiating arbitration. This is important for the finality of awards; otherwise the defendant State would be exposed to a lose/lose proposition where an unfavorable award would be final but a favorable one could be resisted by the investor for lack of an agreement by him to arbitrate (whether under the ICSID Convention or the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards). 36
3. ‘Shall satisfy the requirements of ’ The ‘without privity’ nature of ISDS does not require a written arbitration agreement contained in the same document, as would be the case in an investment contract. Rather, the contracting states to an IIA stipulate their consent in the IIA, which then can be matched by a later consent of the investor once a claim or dispute under the IIA has arisen. 68 It is for this reason that Article 8.25(2) clarifies that the ‘staggered’ consent in the viewpoint of the Contracting Parties to CETA shall fulfil the – slightly divergent – requirements of the ICSID Convention and its Additional Facility Rules and those of the New York Convention. 69 While the intent of Article 8.25(2) is easily understood, its effect might be more of a declaratory nature. 67
34 In investment arbitrations, at the time of the submission of a claim, the arbitral tribunal will normally not yet be constituted. 35 Limited Liability Company Amto v. Ukraine, SCC Case No. 080/2005, Final Award (26 March 2008), para. 46: ‘A request for arbitration is by its very nature a consent to arbitrate because a legal proceeding cannot be requested by a party without their own participation in the proceeding. To request legal process is to submit to this process. An unconditional request to initiate arbitration proposed by another is the consent that completes the arbitration agreement and establishes the jurisdiction of the arbitral tribunal.’ 36 Paulsson, ‘Arbitration Without Privity’ (1995) 10 ICSID Rev., 232 (247).
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It is questionable whether the provision is necessary as a legal matter. Article 70 8.25(1) contains the respondent’s written consent which has to be matched by the investor’s consent under Article 8.22(1)(a) (→ Art. 8.22 mn. 13). While the latter provision does not expressly require written consent, under Article 8.22(1)(a) the investor is to ‘deliver[] … its consent’ together ‘with the submission of a claim’. As a practical matter, given that the submission of a claim must be in writing, the requirement to ‘deliver[]’ consent at the same time indicates that the consent must also be in writing. Thus, both disputing Parties would have delivered written consent. From this perspective, the main reason why Article 8.25(2) may be justified is that ‘its existence has the considerable merit of precluding debate.’37 Furthermore, at least in case of the European Union, the question is whether Arti- 71 cle 8.25(2) has legal effect under public international law. After all, the Contracting Parties of CETA stipulate that their understanding of Article 8.25(1) ‘shall satisfy the requirements’ of two other multilateral treaties – to which the European Union is not a Party.38 Given that CETA is a mixed agreement, the European Union also cannot act on behalf of its Member States on ISDS matters. This precludes the possibility to qualify Article 8.25(2) as an inter se agreement to modify multilateral treaties between certain of the Parties only, which under strict conditions is provided for by Article 41 of the VCLT.39 For the same reason, Article 8.25(2) could also not be seen as interpretative guidance in the sense of a subsequent agreement between the Contracting Parties under Article 31(3)(a) of the VCLT. While this may not become an issue in practice, the main goal of Article 8.25(2) 72 might be to clearly indicate the intent and understanding of the Contracting Parties to CETA.40 Whether the requirements of the ICSID Convention and the New York Convention really are fulfilled remains in the autonomous assessment of the adjudicating bodies called upon to decide these issues under the respective Conventions.
4. ICSID and ICSID Additional Facility Rules Article 25(1) of the ICSID Convention requires that the investment dispute be one 73 ‘which the parties to the dispute consent in writing to submit to the Centre’. Under Article 8.23(2)(a), an investor may submit a claim to the Tribunal under ‘the 74 ICSID Convention and Rules of Procedure of Arbitration Proceedings’ (→ Art. 8.23 mn. 8). In this case, the respondent’s consent under Article 8.25(1) and the investor’s submission of a claim under Article 8.25(2), including the investor’s consent under Article 8.22(1)(a), would be consent in writing for purposes of Article 25(1). 37 See Paulsson, ‘Arbitration Without Privity’ (1995) 10 ICSID Rev., 232 (247, fn. 28), with respect to the related provision in NAFTA. 38 Lach et al., ‘Whether Multilateral Investment Court Awards Could Be Enforced Using the ICSID Convention, the New York Convention and/or an Alternative Method’ (2019) Trade Lab, 1 (26 ff.), noting that because the EU is not an ICSID Convention Party ‘and cannot be a Contracting Party to the ICSID Convention, an inter se modification could not be created between Canada and the EU’. The EU could only become a contracting party to ICSID after a revision of Article 67 of the ICSID Convention, which limits membership to states, see Reinisch, ‘Will the EU’s Proposal Concerning an Investment Court System for CETA and TTIP Lead to Enforceable Awards?’ (2016) 19 J. Int’l Econ. L., 761 (769). 39 For an introduction, see Reinisch, ‘Will the EU’s Proposal Concerning an Investment Court System for CETA and TTIP Lead to Enforceable Awards?’ (2016) 19 J. Int’l Econ. L., 761 (771-776). 40 One commentator notes that such a provision is included by the contracting Parties for the ‘avoidance of doubt’ that ‘consent and the submission of the claim shall be deemed to satisfy the requirements of article II of the New York Convention for an “agreement in writing”, see van den Berg, ‘Appeal Mechanism for ISDS Awards: Interaction with the New York and ICSID Conventions’ (2019) 34 ICSID Rev., 156 (183).
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Article 25(1) of the ICSID Convention does cover ‘staggered’ consent in writing. The ICSID Convention was issued together with a Report of the Executive Directors of the World Bank, which provides ‘[b]rief comment on a few principal features […] useful to member governments in their consideration of the Convention.’ 41 The Report makes clear: Consent of the parties must exist when the Centre is seized (Articles 28(3) and 36(3)) but the Convention does not otherwise specify the time at which consent should be given. […] Nor does the Convention require that the consent of both parties be expressed in a single instrument. Thus, a host State might in its investment promotion legislation offer to submit disputes arising out of certain classes of investments to the jurisdiction of the Centre, and the investor might give his consent by accepting the offer in writing.42
While at the time of the report the concept of IIA as a basis for ISDS was unknown, the principle of a staggered consent was already accepted for ISDS on the basis of investment laws. 77 If an investor submits a claim to the Tribunal pursuant to Article 8.23(2)(b) under ‘the ICSID Additional Facility Rules’, the situation is similar. This situation may arise where the respondent is the European Union or Poland, neither of which are members to the ICSID Convention. In this case, the respondent’s consent under Article 8.25(1) and the investor’s submission of a claim under Article 8.25(2), including the investor’s consent under Article 8.22(1)(a), would form part of the request for arbitration which has to ‘set forth the relevant provisions embodying the agreement of the parties to refer the dispute to arbitration’ under Article 3(1)(b) of the ICSID Additional Facility Rules (→ Art. 8.23 mn. 20). 76
5. New York Convention Under Article 8.23(2)(c), an investor may submit a claim to the Tribunal under ‘the UNCITRAL Arbitration Rules’ (→ Art. 8.23 mn. 8, 28). A dispute about the arbitration agreement43 or an ensuing arbitral award to be enforced in a jurisdiction different from the arbitral seat can become subject to the New York Convention (→ Art. 8.23 mn. 28). Canada and all EU Member States, but not the European Union, are member states of the New York Convention. 79 Under Article 8.23(2)(d), an investor may submit a claim to the Tribunal under ‘any other rules on agreement of the disputing parties’ (→ Art. 8.23 mn. 8, 28). If the disputing Parties agree to a set of arbitration rules, the enforcement of the arbitration agreement or of an ensuing arbitral award may likewise be governed by the New York Convention. 80 Article II(1) of the New York Convention requires an ‘agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen or which may arise between them in respect of a defined legal relationship’. 78
41 International Bank for Reconstruction and Development, Report of the Executive Directors of the International Bank for Reconstruction and Development on the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, 18 March 1965, para. 14. 42 International Bank for Reconstruction and Development, Report of the Executive Directors of the International Bank for Reconstruction and Development on the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, 18 March 1965, para. 24. 43 The issue of an ‘agreement in writing’ can become relevant when a court of a Contracting Party is requested by one of the Parties in dispute to refer the Parties to arbitration on a matter governed by the arbitration agreement under Article II(3) of the New York Convention.
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If an arbitration agreement referred to in Article II is lacking, enforcement of the 81 award may be refused under ground (a) of Article V(1) of the New York Convention. 44 Like the ICSID Convention, the New York Convention accepts the concept of a 82 ‘staggered’ consent. Article II(2) of the New York Convention clarifies that the ‘term “agreement in writing” shall include […] an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams.’ While the respondent’s consent in CETA and an investor’s consent as part of the submission of a claim do not constitute an ‘exchange of letters or telegrams’, the scope of Article II(2) of the New York Convention is sufficiently wide (‘shall include’) to cover the issue. Ultimately it is up to the national courts seized on the matter to decide whether 83 an arbitration agreement in the sense of Article II(1) of the New York Convention exists. So far, national courts seem to have raised no issues about a ‘without privity’ and ‘staggered’ consent.45 This needs to be contrasted with general objections against the validity of the arbitration agreement on the basis of jurisdictional or admissibility requirements under IIA. These are quite often re-litigated in national courts, mostly already at the setting-aside and not necessarily at the enforcement stage. 46
E. Conclusion Article 8.25 is highly relevant for ISDS, as consent forms the indispensable basis for the settlement of a dispute before the Tribunal. Without consent, the Tribunal lacks the jurisdiction to decide the dispute. Considering its importance, Article 8.25 is a remarkably concise provision. However, it is important to understand Article 8.25 in the context of other provisions that either condition respondent’s consent or limit the scope of the respondent’s consent, the scope of dispute settlement in Section F, or the scope of investment protection under CETA’s Chapter 8. While the ISDS mechanism in CETA has undergone significant changes to ultimately evolve into an ICS, Article 8.25 has largely remained the same – despite having originally been drafted for ISDS in the form of investment arbitration. This illustrates the ‘arbitral’ origin and character of the provision. Paragraph 2 of Article 8.25 attempts to ensure that the respondent’s consent in paragraph 1 and the matching consent of the investor meet the respective in-writing criteria for arbitration agreements under the ICSID Convention and the New York Convention. This is to preclude a debate as to whether the formal requirements for the settlement of the dispute by the Tribunal were met, particularly when it comes to the validity and enforcement of an ensuing award. Whether the provision is necessary, or in case of the European Union, legally effective, is debatable. The main goal of Article 8.25(2) might thus be to clearly indicate the intent and understanding of the Contracting Parties to CETA. The final assessment of this question will, however, remain with ICSID tribunals and ad hoc Committees, and in case of the New York Convention, with national courts.
44 van den Berg, ‘Appeal Mechanism for ISDS Awards: Interaction with the New York and ICSID Conventions’ (2019) 34 ICSID Rev., 156 (183). 45 For examples, see Reinisch, ‘Will the EU’s Proposal Concerning an Investment Court System for CETA and TTIP Lead to Enforceable Awards?’ (2016) 19 J. Int’l Econ. L., 761 (784, fn. 149 and 151). 46 For an overview, Markert and Bubrowski, ‘National Setting Aside Proceedings in Investment Arbitration’ in Bungenberg et al. (ed), International Investment Law (2015), 1460 (1464 ff.).
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Article 8.26 Third party funding 1. Where there is third party funding, the disputing party benefiting from it shall disclose to the other disputing party and to the Tribunal the name and address of the third party funder. 2. The disclosure shall be made at the time of the submission of a claim, or, if the financing agreement is concluded or the donation or grant is made after the submission of a claim, without delay as soon as the agreement is concluded or the donation or grant is made. Reference to the Respective Provisions in Other EU Treaties: Article 3.37 EU-Vietnam IPA; Article 3.8 EU-Singapore IPA; Article 10 EU-Mexico Global Agreement. Bibliography: Bernardo Cremades, ‘Concluding Remarks’, Dossier of the ICC Institute of World Business Law: Third Party Funding in International Arbitration (2013), 153; Daniel Chen, ‘Can markets stimulate rights? On the alienability of legal claims’ (2015) 46(1) RAND J. Econ., 23; Antonio Crivellaro, ‘Third-party funding and “mass” claims in investment arbitrations’, Dossier of the ICC Institute of World Business Law: Third Party Funding in International Arbitration (2013), 137; Nadia Darwazeh and Adrien Leleu, ‘Disclosure and Security for Costs or How to Address Imbalances Created by Third-Party Funding’ (2016) 33(2) J. Int.’l Arb., 125; Pia Eberhardt and Cecilia Olivet, ‘Speculating on Injustice. Third-Party Funding in Investment Disputes’, in Pia Eberhardt and Cecilia Olivet (eds), Profiting from Injustice (CEO, Brussels and Amsterdam, 2012); John Fellas, ‘Third-Party Funding: The Award of Costs and Security for Costs’, in Sherlin Tung, Fabricio Fortese and Crina Baltag (eds), Finances in International Arbitration: Liber Amicorum Patricia Shaughnessy (Wolters Kluwer, Alphen aan den Rijn, 2019), 107; Frank Joseph Garcia, ‘Third-Party Funding as Exploitation of the Investment Treaty System’ (2018) 59(8) B. C. L. Rev., 1; David Keohane, ‘Oxus leaps after securing legal funding’, Financial Times, 1 March 2012; Richard Kreindler and Aren Goldsmith, ‘Should Parties Disclose the Existence of a Third-Party Funder? (Disclosure and Conflicts of Interest)’, in Sherlin Tung, Fabricio Fortese and Crina Baltag (eds), Finances in International Arbitration: Liber Amicorum Patricia Shaughnessy (Wolters Kluwer, Alphen aan den Rijn, 2019), 255; Carolyin Lamm and Eckhard Hellbeck, ‘Third-party funding in investor-state arbitration. Introduction and overview’, Dossier of the ICC Institute of World Business Law: Third Party Funding in International Arbitration (2013), 101; Rebecca Lowe, ‘Speculate and arbitrate to accumulate’, IBA, available at ; Angelynn Meya, ‘Third-party funding in international investment arbitration. The Elephant in the Room’, Dossier of the ICC Institute of World Business Law: Third Party Funding in International Arbitration (2013), 122; Lisa Bench Nieuwveld and Victoria Shannon Sahani, Third-Party Funding in International Arbitration (2nd edn, Kluwer Law International, Alphen aan den Rijn, 2017); Luke Peterson, ‘Philip Morris disputes: Another intervener is OK’ed to make arguments in Uruguay case; Bloomberg and Gates announce legal defence & support fund’, IAR, 19 March 2015; Philippe Pinsolle, ‘Note on third-party funding and nationality issues in investment arbitration’, in Karl Sauvant (ed), YB Int’l Inv. L. & Pol’y 2010-2011 (Oxford University Press, Oxford, 2012), 639; Victoria Shannon Sahani, ‘A Thought-Experiment Regarding Access to Justice in International Arbitration’, in Jean Kalicki and Mohamed Abdel Raouf (eds), Evolution and Adaptation: The Future of International Arbitration (Wolters Kluwer, Alphen aan den Rijn, 2019), 504; Elsa Sardinha, ‘The New EU-Led Approach to Investor-State Arbitration: The Investment Tribunal System in the Comprehensive Economic Trade Agreement (CETA) and the EU-Vietnam Free Trade Agreement’ (2017) 32(3) ICSID Rev., 625; Rachel Denae Thrasher, ‘Expansive Disclosure: Regulating Third-Party Funding for Future Analysis and Reform’ (2018) 59(8) B. C. L. Rev., 2935; ICC Commission Report, ‘Decisions on Costs in International Arbitration’ (2015) 2 ICC Dispute Resolution Bulletin; ICCA, ‘Report of the ICCA-Queen Mary Task Force on Third-Party Funding in International Arbitration’ (2018) 4 ICCA Reports; ICSID, ‘Proposals for Amendment of the ICSID Rules’ (2020) 1 (4) ICSID Working Papers.
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A. Introduction and Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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B. Spirit and Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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C. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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D. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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Third party funding I. Third Party Funding within the Framework of CETA . . . . . . . . . . . . . . . . . . . . . II. Disclosure of the Existence of Third Party Funding . . . . . . . . . . . . . . . . . . . . . . . III. Third Party Funding and Security for Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV. Other Relevant Concerns with Third Party Funding . . . . . . . . . . . . . . . . . . . . . .
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E. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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A. Introduction and Overview Third-Party-Funding (TPF) is slowly becoming a common feature of international 1 arbitration and litigation after being traditionally prohibited or unregulated in national legislations. With the increased awareness of what TPF entails, as well as of its consequences on the arbitration proceedings, the past five years have seen a growth in the regulation of TPF. CETA Parties have included, late in the process, the provisions of Article 8.26 which broadly address TPF. To start with, this chapter first looks at TPF in context. Article 8.26 must be read 2 together with Article 8.1 of CETA which provides for the definition of the notion of TPF. The chapter continues with the analysis of the provisions of Article 8.26 on the disclosure obligations when a disputing Party benefits from TPF. Further, a brief comment is reserved to TPF and security for costs. This is particularly relevant as CETA, unlike other international investment agreements (IIAs) of the EU, such as EU-Vietnam Investment Protection Agreement, does not include provisions on this matter. Also on this line, the chapter addresses other concerns raised by TPF, but not contained in Article 8.26 of CETA, such as the legal standing of the disputing Party benefiting from TPF. As a conclusion, the chapter places the discussion on TPF and CETA in the context of the current investor-State dispute settlement (ISDS) reform before UNCITRAL Working Group III.
B. Spirit and Purpose Provisions on TPF are recent additions to IIAs and most of these, including those of 3 CETA, are broad and focused on disclosure obligations. As such, Article 8.26 of CETA requires the disputing Party benefiting from the funding to disclose the name and address of the third Party funder. As it will be discussed below, the purpose of such provision is to ensure that the independence and impartiality of arbitrators remains unaffected by the existence of TPF. The timing of such disclosure is also important, for the same purpose, and this is reflected in paragraph 2 of the Article 8.26. Article 8.26 comes to reflect the intention of CETA Parties to include provisions 4 built upon the Member States’ experience and best practice.1 As such, besides CETA, other IIAs concluded by the EU contain similar provisions on TPF, including Article 3.37 of the EU-Vietnam Investment Protection Agreement, the first one to contain such TPF provisions, and Article 3.8 of the Singapore Investment Protection Agreement.2
1 Council of the EU, Recommendation from the Commission to the Council on the modification of the negotiating directives from an Economic Integration Agreement with Canada in order to authorise the Commission to negotiate, on behalf of the Union, on investment, Brussels, 15 December 2015, 12838/11/EXT 2, para. 26 a, 4. 2 For Canada, see for example, Article G-23 bis of the Canada-Chile Free Trade Agreement, revision of 2017.
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C. Drafting History As it is understood, TPF provisions in CETA were only introduced in the final draft of the treaty and there are no publicly available records of their negotiation. The late addition to the text is mainly explained by the fact that TPF has gained traction only in the past years and it continues to remain rather unregulated in national jurisdictions. 6 The provisions of CETA on TPF reflect the broad approach taken by most recent IIAs, as mentioned above. With stakeholders adopting an inclusive approach to TPF and arbitration and further grasping the consequences of TPF in this context, additional regulation might be warranted. For example, the ICSID Rules amendment process contemplates giving the arbitral tribunal additional powers in relation to TPF, such as ordering disclosure of further information regarding the funding agreement and the third Party funder.3 5
D. Commentary I. Third Party Funding within the Framework of CETA 7
Before addressing the provisions of Article 8.26 of CETA and the implications thereof on arbitration proceedings, a useful overview must include few words on the definition of TPF. The need of an adequate definition of the notion of TPF, reflecting the range of TPF arrangements and the constant evolution of the field is achieved in Article 8.1 of CETA, which defines TPF as ‘any funding’, ‘either through a donation or grant, or in return for remuneration dependent on the outcome of the dispute’, ‘provided by a natural or legal person who is not a disputing party’: Third party funding means any funding provided by a natural or legal person who is not a disputing party but who enters into an agreement with a disputing party in order to finance part or all of the cost of the proceedings either through a donation or grant, or in return for remuneration dependent on the outcome of the dispute.4
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Article 8.1 covers both for-profit funding (‘in return for remuneration dependent on the outcome of the dispute’) and not-for-profit funding (‘through a donation or grant’) and provides for a broad definition of TPF.5 The available case law involving TPF confirms that the common arrangement is the for-profit funding, in which the 3 ICSID, Proposal for Amendment of ICSID Rules, Working Paper 5, Rule 14(5). See also Rule 53 on Security for Costs. 4 See similar definition in EU-Vietnam Investment Protection Agreement (signed on 30 June 2019), Article 3.28; EU-Singapore Investment Protection Agreement (signed on 19 October 2018), Article 3.1; Canada-Chile Free Trade Agreement (CCFTA) (in force since 5 February 2019), Article G-23 bis. 5 See also the ICC Commission Report, ‘Decisions on Costs in International Arbitration’ (2015) 2, ICC Dispute Resolution Bulletin, fn 44: ‘A third-party funder is an independent party that provides some or all of the funding for the costs of a party to the proceedings (usually the claimant), most commonly in return for an uplift or success fee if successful’; Singapore Bill defines third-party funding contract and third-party funder by excluding the not-for-profit funding: ‘‘Third‑Party Funder’ means a person who carries on the business of funding all or part of the costs of dispute resolution proceedings to which the person is not a party; ‘third‑party funding contract’ means a contract or agreement by a party or potential party to dispute resolution proceedings with a Third‑Party Funder for the funding of all or part of the costs of the proceedings in return for a share or other interest in the proceeds or potential proceeds of the proceedings to which the party or potential party may become entitled’. (Singapore Civil Law (Amendment) Bill No. 38/2016, Article 5B(10)).
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funder advances a certain amount to the beneficiary, which is used for the payment of the advances on the costs of arbitration and the legal costs, broadly speaking. At the end of the arbitration, if the beneficiary prevails, it shall pay the funder the advanced amount, as well as a premium on the funded amount. There are few arbitrations in which certain stakeholders have advanced the necessary funds as a donation. In Bernardus Henricus Funnekotter v. Zimbabwe, the claim was partially funded by the Open Society Initiative for Southern Africa.6 Similarly, in Philip Morris v. Uruguay, Uruguay received financing from the Bloomberg Foundation.7 The wording of CETA is quite clear that is not placing any assumption of which 9 Party may benefit from TPF. It is nonetheless true that the case law shows that only in limited circumstances respondent States resorted to TPF.8 In Philip Morris v. Uruguay, as mentioned above, Uruguay received financing from the Bloomberg Foundation, and in RSM v. Grenada, Grenada was funded by Global Petroleum Group.9 In both cases, the funder had no interest in a financial return, but it did have an interest in the funded Party prevailing in the dispute. In Philip Morris v. Uruguay, the Foundation had the public interest in place, in particular by funding the ‘Campaign for Tobacco Free Kids’; while in RSM v. Grenada, the funder had been promised the oil exploration rights which previously belonged to RSM. As to the broadness of the definition of TPF in Article 8.1 of CETA, this appears to be in line with the position that ‘[t]he reason why it is so difficult to reach a firm definition for litigation or arbitration funding derives from the many forms in which it manifests itself’.10
II. Disclosure of the Existence of Third Party Funding Article 8.26 of CETA, in the context of resolution of investment disputes between 10 investors and States, provides for the disclosure of the name and address of the third-Party funder, either at the time of the submission of the claim, if existing at that time, or as soon as the funding is in place, if this occurs after the submission of the claim. Hence, the disclosure obligation is continuous and the existence of TPF must be revealed as soon as in place, irrespective of the form TPF takes. Some authors consider that the beneficiary of the TPF must disclose, in addition 11 to the name and address of the third-Party funder, the ‘existence and nature of the
6 Bernardus Henricus Funnekotter and others v. Republic of Zimbabwe, ICSID Case No. ARB/05/6, Award (22 April 2009), reported in Philippe Pinsolle, ‘Note on third-party funding and nationality issues in investment arbitration’, in Karl Sauvant (ed), YB Int’l Inv. L. & Pol’y 2010-2011 (2012), 639 (641). 7 Philip Morris Brands Sàrl, Philip Morris Products S.A. and Abal Hermanos S.A. v. Oriental Republic of Uruguay, ICSID Case No. ARB/10/7, Award (8 July 2016) (formerly FTR Holding SA, Philip Morris Products S.A. and Abal Hermanos S.A. v. Oriental Republic of Uruguay). See Luke Peterson, ‘Philip Morris disputes: Another intervener is OK’ed to make arguments in Uruguay case; Bloomberg and Gates announce legal defence & support fund’, IAR, 19 March 2015. 8 While this might raise a presumption that, generally, States would have the (public) funds to satisfy an award and/or to cover the costs of arbitration, such presumption would not ponder in two fundamental issues: the size of the economy of the respondent State (take as example, Grenada v. US) and the obligation of a prevailing State to bear the (high) costs of arbitration. Similarly, the fact that public funds are involved might be a further concern raised in relation to TPF and States. 9 RSM Production Corporation v. Grenada, ICSID Case No. ARB/05/14, Award (13 March 2009). See also, ATA Construction, Industrial and Trading Company v. The Hashemite Kingdom of Jordan, ICSID Case No. ARB/08/2, Order Taking Note of The Discontinuance of the Proceeding (11 July 2011), para. 34. 10 Cremades, ‘Concluding Remarks’, Dossier of the ICC Institute of World Business Law: Third Party Funding in International Arbitration (2013), 153.
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third-party funding arrangement’.11 However, this conclusion cannot be upheld in the context of the CETA. In contrast, indeed, the EU-Vietnam [FTA] Investment Protection Agreement provides in Article 3.37(1) that ‘the disputing party benefiting from it [TPF] shall notify … the existence and nature of the funding arrangement, and the name and address of the third party funder’. 12 If there is no voluntary disclosure of the existence of a TPF, 12 it is unlikely that arbitrators and the opposing Party be aware of such arrangement. As such, the past years have witnessed an increased pressure on stakeholders to move towards formalizing the disclosure of the existence of TPF, preferably at an early stage of the arbitration, together with the identity of the funder, for arbitrators to properly assess their potential conflicts in the specific dispute. It is a truism to state that arbitrators, while having a (continuous) duty to disclose situations likely to give rise to doubts as to their independence and impartiality,13 they must also be aware of such situation. TPF, given its inherent contractual nature of the arrangement, is unlikely to be readily available to arbitrators for them to assess potential conflicts raised by this – such as when the funder provides for funds to a dispute in which the arbitrator’s law firm is the legal representative of the funded Party. 13 Similar to CETA, the disclosure of the existence of TPF is enforced under applicable laws, rules and soft law, usually for the purpose of avoiding conflicts related to TPF. Recent national legislation was adopted in order to address TPF. For example, the Hong Kong Arbitration and Mediation Legislation (Third Party Funding) (Amendment) Ordinance 2017 provides in Section 98U that ‘[i]f a funding agreement is made, the funded party must give written notice of—(a) the fact that a funding agreement has been made; and (b) the name of the third party funder.’ Singapore Civil Law (Amendment) Bill No. 38 of 2016 provides in Article 5B(2) that ‘[a] contract under which a qualifying Third‑Party Funder provides funds to any party for the purpose 11 Sardinha, ‘The New EU-Led Approach to Investor-State Arbitration: The Investment Tribunal System in the Comprehensive Economic Trade Agreement (CETA) and the EU-Vietnam Free Trade Agreement’ (2017) 32(3) ICSID Rev., 625 (662). 12 A funded party might have the obligation to disclose funding arrangements under its obligations as listed company. See, the statement of Oxus Gold PLC, a London-listed mining company, in March 2012, that it had entered into a funding agreement with Calunius Capital LLP for financing the arbitration proceedings against Uzbekistan. (David Keohane, ‘Oxus leaps after securing legal funding, Financial Times, 1 March 2012). See, Oxus Gold v. Republic of Uzbekistan, UNCITRAL, Award (17 December 2015). See also, EuroGas Inc. and Belmont Resources Inc. v. Slovak Republic, ICSID Case No. ARB/14/14; Angelynn Meya, ‘Third-party funding in international investment arbitration. The Elephant in the Room’, Dossier of the ICC Institute of World Business Law: Third Party Funding in International Arbitration (2013), 122. Arguably, and as confirmed in Oxus and EuroGas, the disclosure of the TPF has a positive impact on the company’s valuation. Further, some arbitral tribunals take a proactive approach and include the obligation to disclose the existence of TPF in the Procedural Order No. 1. For example, in Julio Miguel Orlandini-Agreda v. Bolivia, as early as Procedural Order No. 1, the tribunal took a proactive approach in requesting parties to submit a written notice disclosing the use of third party funding to cover the costs of this arbitration and the identity of the third party funder: ‘11.1 The Parties shall submit a written notice disclosing the use of third party funding to cover the costs of this arbitration and the identity of the third party funder. Such notice shall be sent to the Tribunal once the third party funding agreement has been signed. 11.2 Each Party bears the ongoing duty to disclose any change in the information addressed in Section 11.1 occurred after the initial disclosure, including termination or withdrawal of the funding agreement’ (Julio Miguel Orlandini-Agreda and Compania Minera Orlandini Ltda v. Bolivia, UNCITRAL, PCA Case No. 2018-39, Procedural Order No. 1 (4 February 2019), Section 11). 13 2014 IBA Guidelines on Conflicts of Interest in International Arbitration, Standard 3(a); UNCITRAL Arbitration Rules 2010, Article 11: ‘When a person is approached in connection with his or her possible appointment as an arbitrator, he or she shall disclose any circumstances likely to give rise to justifiable doubts as to his or her impartiality or independence’ etc.
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of funding all or part of the costs of that party in prescribed dispute resolution proceedings is not contrary to public policy or otherwise illegal by reason that it is a contract for maintenance or champerty.’ Certain arbitration rules have specific provisions concerning TPF, some of which 14 might become relevant in the context of Article 8.26 of CETA. Article 27 of CIETAC Investment Arbitration Rules provides for a definition of TPF, without differentiating between for-profit and not-for-profit funding, as well as for the obligations of the parties in disclosing such funding and of the tribunal in taking into consideration the third-Party arrangement for the purpose of the costs of arbitration and other fees. 14 The 2021 ICC Arbitration Rules provide in Article 11(7) that each Party must disclose the existence and identity of ‘any non-party which has entered into an arrangement for the funding of claims or defences and under which it has an economic interest in the outcome of the arbitration.’ The Amendment Process of the ICSID Arbitration Rules also includes a provision dedicated to TPF. The new Rule 14 provides, among others, for the disclosure of the name and address of ‘any non-party from which the party, directly or indirectly, has received funds for the pursuit or defense of the proceeding through a donation or grant, or in return for remuneration dependent on the outcome of the proceeding.’15 Soft law provisions also address TPF from the perspective of potential conflicts 15 of interests raised in connection with this. The 2014 IBA Guidelines on Conflicts of Interest in International Arbitration explain that third-Party funders, given their economic interest in the award may be considered to be equivalent of a Party, and, as such, must be considered in the context of the General Standard 6(b): 14 CIETAC International Investment Arbitration Rules, in force as from 1 October 2017, Article 27: ‘1. In these Rules, a “third party funding” means the situation where a natural person or an entity, who is not a party to the dispute, provides funds to a party to the arbitration to cover all or part of that party’s costs for the arbitral proceedings, through an agreement with the party accepting the funding. 2. As soon as the third party funding agreement is concluded, the party accepting the funding shall notify in writing, without delay, to the other party or parties, the arbitral tribunal, and the IDSC or the CIETAC Hong Kong Arbitration Center that administers the case, of the existence and nature of the third party funding arrangement, and the name and address of the third party funder. The arbitral tribunal shall have the power to order the disclosure by the party accepting the funding of any relevant information of the third party funding arrangement. 3. When making a decision on the costs of arbitration and other fees, the arbitral tribunal may take into account the existence of any third party funding arrangement, and the fact whether the requirements set forth in the preceding Paragraph 2 are complied with by the party or parties accepting the funds’. 15 Rule 14, ICSID, ‘Proposals for Amendment of the ICSID Rules’, Working Paper #4, February 2020: ‘Notice of Third-Party Funding (1) A party shall file a written notice disclosing the name and address of any non-party from which the party, directly or indirectly, has received funds for the pursuit or defense of the proceeding through a donation or grant, or in return for remuneration dependent on the outcome of the proceeding (“third-party funding”). (2) A non-party referred to in paragraph (1) does not include a representative of a party. (3) A party shall file the notice referred to in paragraph (1) with the Secretary-General upon registration of the Request for arbitration, or immediately upon concluding a third-party funding arrangement after registration. The party shall immediately notify the Secretary-General of any changes to the information in the notice. (4) The Secretary-General shall transmit the notice of third-party funding and any notification of changes to the information in such notice to the parties and to any arbitrator proposed for appointment or appointed in a proceeding for purposes of completing the arbitrator declaration required by Rule 19(3)(b). (5) The Tribunal may order disclosure of further information regarding the funding agreement and the non-party providing funding pursuant to Rule 36(3) if it deems it necessary at any stage of the proceeding’.
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Third-party funders and insurers in relation to the dispute may have a direct economic interest in the award, and as such may be considered to be the equivalent of the party. For these purposes, the terms ‘third-party funder’ and ‘insurer’ refer to any person or entity that is contributing funds, or other material support, to the prosecution or defence of the case and that has a direct economic interest in, or a duty to indemnify a party for, the award to be rendered in the arbitration. 16
Further, the IBA Guidelines impose on both arbitrators and parties a duty to investigate, in order to address any information that might affect the independence and impartiality of arbitrators.17 This includes the obligation to disclose ‘of any relationship, direct or indirect, … between the arbitrator and any person or entity with a direct economic interest in, or a duty to indemnify a party for, the award to be rendered in the arbitration’,18 which also contemplates ‘an entity providing funding for the arbitration, or having a duty to indemnify a party for the award.’ 19 Another useful soft law document, is the ICCA-Queen Mary Task Force Principles on Third-Party Funding.20 Principle A2 of this document provides that ‘[a]rbitrators and arbitral institutions have the authority to expressly request that the parties and their representatives disclose whether they are receiving support from a third-party funder and, if so, the identity of the funder.’21 17 Even in the absence of specific provisions, tribunals have ordered parties to disclose their TPF arrangements for the purpose of conflicts check. In Ballantine v. Dominican Republic, the claimant was ordered to produce the funding agreement to the tribunal for purposes of assessing conflicts of interest.22 In Interocean Oil v. Nigeria, the tribunal granted the investor’s request for Nigeria to produce information regarding the identity of the funder (institution or person) for the proceedings for purposes of assessing questions of conflicts of interest.23 In EuroGas v. Slovak Republic, the tribunal ordered the claimants to disclose the identity of their third-Party funder and undertake that the funder observes the normal duties of confidentiality.24 18 As to the disclosure of the funding agreement, arbitral tribunals have showed reluctance in ordering this, absent compelling prima facie evidence.25 This is relevant in the context of Article 8.26 of CETA which does not provide for the disclosure of the funding arrangement, in full or in part. In Guaracachi v. Bolivia, the tribunal refused to order the production of the third-Party funding agreement, but it also noted that ‘the Claimants have neither denied this [i.e. that the agreement would not 16
16 Explanation to General Standard 6(b). General Standard 6(b) provides for the following: ‘If one of the parties is a legal entity, any legal or physical person having a controlling influence on the legal entity, or a direct economic interest in, or a duty to indemnify a party for, the award to be rendered in the arbitration, may be considered to bear the identity of such party’. 17 General Standard 7(a) and (d). 18 General Standard 7(a). 19 Explanation to General Standard 7. 20 The Principles are Appendix to the ‘Report of the ICCA-Queen Mary Task Force on Third-Party Funding in International Arbitration’ (2018) 4 ICCA Reports, 14. 21 See further on TPF regulation in Kreindler and Goldsmith, ‘Should Parties Disclose the Existence of a Third-Party Funder? (Disclosure and Conflicts of Interest)’, in Tung, Fortese and Baltag (eds), Finances in International Arbitration: Liber Amicorum Patricia Shaughnessy (2019), 255. 22 Michael Ballantine and Lisa Ballantine v. The Dominican Republic, UNCITRAL, PCA Case No. 2016-17, Procedural Order No. 16 (2 October 2018), para. 9. 23 Interocean Oil Development Company and Interocean Oil Exploration Company v. Federal Republic of Nigeria, ICSID Case No. ARB/13/20, Procedural Order No. 5 (15 October 2016), para. 96. 24 EuroGas Inc. and Belmont Resources Inc. v. Slovak Republic, ICSID Case No. ARB/14/14, Award (18 August 2017), paras. 108 and 110; and Procedural Order No. 8 of 23 September 2016, paras. 8-10. 25 The proposed Rule 14(5) of the ICSID Arbitration Rules provides that ‘The Tribunal may order disclosure of further information regarding the funding agreement and the non-party providing funding pursuant to Rule 36(3) if it deems it necessary at any stage of the proceeding’.
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cover the payment of a possible award on costs against the claimants], nor produced the “agreement” or any other document contradicting this assertion.’ 26 As such, the tribunal, by applying the IBA Guidelines on the Taking of Evidence in International Arbitration, concluded that it ‘will draw such inferences as it deems appropriate when deciding on the Respondent’s Request for cautio judicatum solvi (security for costs).’27 In Manuel Garcia Armas v. Bolivia, the tribunal requested the third-Party funding agreement to be initially transmitted to the tribunal and to the PCA and ICSID, and after having received it, it had decided that a redacted version should be provided to respondent to protect its legitimate interests, while protecting claimants’ legitimate interest to keep certain information confidential.28 In Sehil v. Turkmenistan, after initially rejecting the request of respondent for ordering claimants to disclose their alleged third-Party funding arrangements,29 the tribunal went back to the issue, following respondent renewed request.30 The tribunal requested claimants to disclose the following: ‘whether its claims in this arbitration are being funded by a third-Party funder, and, if so, shall advise Respondent and the Tribunal of the name or names and details of the third-party funder(s), and the nature of the arrangements concluded with the third-party funder(s), including whether and to what extent it/they will share in any successes that Claimants may achieve in this arbitration.’31 In deciding so, the arbitral tribunal took into consideration at least the following factors: the integrity of the process and any potential conflicts of interest; and an eventual request for security for costs.32 The tribunal added that it ‘is sympathetic to Respondent’s concern that if it is successful in this arbitration and a costs order is made in its favour, Claimants will be unable to meet these costs and the third-party funder will have disappeared as it is not a party to this arbitration.’33 In relation to the disclosure of TPF, if a Party fails to comply with such obligation 19 under the applicable rules or laws, or with the order of the arbitral tribunal to do so, the question raised is whether there is any consequence attached to such failure. Article 8.26 of CETA does not address this. In fact, few IIAs expressly address this concern. For example, Article 14.32(3) of Indonesia-Australia Comprehensive Economic Partnership Agreement provides that ‘[i]f a disputing investor fails to disclose third party funding under this Article, the tribunal may order the suspension or
26 Guaracachi America, Inc. and Rurelec PLC v. The Plurinational State of Bolivia, UNCITRAL, PCA Case No. 2011-17, Procedural Order No. 13 (21 February 2013), paras. 8 and 10. 27 Guaracachi America, Inc. and Rurelec PLC v.The Plurinational State of Bolivia, UNCITRAL, PCA Case No. 2011-17, Procedural Order No. 13 (21 February 2013), para. 10. 28 Manuel Garcia Armas et al v. Bolivarian Republic of Venezuela, UNCITRAL, PCA Case No. 2016-08, Procedural Order No. 9 (20 June 2018), paras. 2-3: ‘dar traslado a la Demandada de los textos del Acuerdo de Financiamiento y sus Anexos, tal cual fueron transmitidos por los Demandantes al Tribunal. El Tribunal estima que de tal forma se protege tanto el interés legítimo de la Demandada en conocer lo dispuesto en el Acuerdo de Financiamiento, en particular, respecto del evento de una condena en costas adversa a los Demandantes, como el interés de los Demandantes, igualmente legítimo, de que se proteja cierta información, por ellos omitida en los documentos comunicados al Tribunal’. 29 Muhammet Çap & Sehil Inşaat Endustri ve Ticaret Ltd. Sti. v. Turkmenistan, ICSID Case No. ARB/12/6, Procedural Order No. 3 (12 June 2015), para. 1. 30 Muhammet Çap & Sehil Inşaat Endustri ve Ticaret Ltd. Sti. v. Turkmenistan, ICSID Case No. ARB/12/6, Procedural Order No. 3 (12 June 2015), para. 2. 31 Muhammet Çap & Sehil Inşaat Endustri ve Ticaret Ltd. Sti. v. Turkmenistan, ICSID Case No. ARB/12/6, Procedural Order No. 3 (12 June 2015), para. 13. 32 Muhammet Çap & Sehil Inşaat Endustri ve Ticaret Ltd. Sti. v. Turkmenistan, ICSID Case No. ARB/12/6, Procedural Order No. 3 (12 June 2015), paras. 9-10. 33 Muhammet Çap & Sehil Inşaat Endustri ve Ticaret Ltd. Sti. v. Turkmenistan, ICSID Case No. ARB/12/6, Procedural Order No. 3 (12 June 2015), para. 12.
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termination of the proceedings.’34 Before reluctant parties, arbitral tribunals have usually reserved the right to draw the appropriate inferences. In Guaracachi v. Bolivia, the tribunal decided that it ‘will draw such inferences as it deems appropriate when deciding on the Respondent’s Request for cautio judicatum solvi (security for costs)’, 35 since ‘the Claimants have neither denied this [i.e. that the agreement would not cover the payment of a possible award on costs against the claimants], nor produced the “agreement” or any other document contradicting this assertion.’36
III. Third Party Funding and Security for Costs 20
It may be that the existence of TPF raises concerns as to the possible impecuniosity of the funded Party, which, in turn, might affect its ability to pay for the costs of arbitration. This situation is also fuelled by the fact that the funding agreement is usually not disclosed in the arbitration proceedings and, consequently, the other Party and the arbitral tribunal may not assess the appropriateness of the provisions of the funding agreement in addressing the adverse costs in arbitration. As such, it has been suggested that ‘arbitral tribunals should be more amenable to granting security for costs, especially when an impecunious claimant is being funded and the respondent is faced with a serious risk of a hit-and-run arbitration.’37 As explained by the ICC Report on Decisions on Costs in International Arbitration, If there is evidence of a funding arrangement that is likely to impact on the non-funded party’s ability to recover costs, that party might decide to apply early in the proceedings for interim or conservatory measures to safeguard its position on costs, including but not limited to seeking security for those costs or some form of guarantee or insurance. Such measures may be appropriate to protect the non-funded party and put both parties on an equal footing in respect of any recovery of costs.38
21
The CETA does not address the issue of TPF in the context of provisional measures/security for costs.39 A different approach is adopted by the EU-Vietnam Investment Protection Agreement which expressly provides in Article 3.37(3) on security for costs, that ‘[w]hen applying Article 3.48 (Security for Costs), the Tribunal shall take into account whether there is third-party funding.’40 The Amendment Process of the ICSID Arbitration Rules also takes into consideration the existence of TPF for the purpose of security for costs. The proposed Rule 53(4) provides that ‘[t]he existence of third-party funding may form part of such evidence but is not by itself sufficient to 34 Indonesia-Australia Comprehensive Economic Partnership Agreement, ratified on 10 February 2020. 35 Guaracachi America, Inc. and Rurelec PLC v. The Plurinational State of Bolivia, UNCITRAL, PCA Case No. 2011-17, Procedural Order No. 13 (21 February 2013), para. 10. 36 Guaracachi America, Inc. and Rurelec PLC v. The Plurinational State of Bolivia, UNCITRAL, PCA Case No. 2011-17, Procedural Order No. 13 (21 February 2013), paras. 8 and 10. 37 Darwazeh and Leleu, ‘Disclosure and Security for Costs or How to Address Imbalances Created by Third-Party Funding’ (2016) 33 (2) J. Int.’l Arb., 125. 38 ICC Commission Report, ‘Decisions on Costs in International Arbitration’ (2015) 2 ICC Dispute Resolution Bulletin 2015, 17. 39 Article 8.34 of CETA, on Interim measures of protection, provides that: ‘A Tribunal may order an interim measure of protection to preserve the rights of a disputing party or to ensure that the Tribunal’s jurisdiction is made fully effective, including an order to preserve evidence in the possession or control of a disputing party or to protect the Tribunal’s jurisdiction.’ 40 Article 21(3) of the 2019 Slovak Model BIT also provides for the possibility of the tribunal to order security for costs where a party receives TPF: ‘A tribunal shall order security for costs if it considers that there is a reasonable doubt that the claimant funded by the third party funder would be not capable of satisfying a costs award.’
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justify an order for security for costs.’ The provision comes to codify the decisions of ICSID arbitral tribunals on this issue. Arbitral tribunals have generally refused to consider TPF as being the determina- 22 tive factor in ordering security for costs. In South American Silver v. Bolivia, the tribunal rejected respondent’s request for security for costs, as no ‘exceptional circumstance’ existed to warrant the same,41 as well as because ‘the mere existence of the funder is not sufficient to order it’:42 The Tribunal considers that while the existence of a third-party funder may be an element to be taken into consideration in deciding on a measure as the one requested by Bolivia, this element alone may not lead to the adoption of the measure. The existence of the third-party funder alone does not evidence the impossibility of payment or insolvency. It is possible to obtain financing for other reasons. The fact of having financing alone does not imply risk of non-payment. ... In sum, the existence of a funder is an element to take into account, but tribunals have been clear in that the existence of the funder alone is not sufficient to grant security for costs. 43
The tribunal added that if the existence of these third parties alone, without con- 23 sidering other factors, becomes determinative on granting or rejecting a request for security for costs, respondents could request and obtain the security on a systematic basis, increasing the risk of blocking potentially legitimate claims. Nevertheless, the tribunal ordered claimant to disclose the name of third-Party funder and rejected respondent's request to disclose the terms of the financing agreement. 44 In RSM v. Saint Lucia, although the tribunal ordered security for costs, it did qualify 24 the decision by explaining that TPF was one of the elements taken into consideration: in this case the circumstances which were brought forward in other proceedings occur cumulatively. Those circumstances are, in summary, the proven history where Claimant did not comply with cost orders and awards due to its inability or unwillingness, the fact that it admittedly does not have sufficient financial resources itself and the (also admitted) fact that it is funded by an unknown third party which, as the Tribunal sees reasons to believe, might not warrant compliance with a possible costs award rendered in favour of Respondent.45
Relying on the decision of the tribunal in RSM v. Saint Lucia, the arbitral tribunal 25 in EuroGas v. Slovak Republic concluded that it ‘is of the view that financial difficulties and third party-funding –which has become a common practice– do not necessarily 41 South American Silver Limited v. Bolivia, PCA Case No. 2013-15, Procedural Order No. 10 (11 January 2016), para. 68: ‘There is agreement that the standard to grant the measure is very strict, given that it shall be granted only in case of extreme and exceptional circumstances, for example, when there is evidence of constant abuse or breach that may cause an irreparable harm if the measure is not granted. This element is not proven in this case by Bolivia. There is no action of SAS in this arbitration, nor has it been proven with respect to other arbitrations, that meet this standard’. 42 South American Silver v. Bolivia, PCA Case No. 2013-15, Procedural Order No. 10 (11 January 2016), para. 81. 43 South American Silver v. Bolivia, PCA Case No. 2013-15, Procedural Order No. 10 (11 January 2016), paras 75-78. 44 South American Silver v. Bolivia, PCA Case No. 2013-15, Procedural Order No. 10 (11 January 2016), para. 77. 45 RSM Production Corporation v. Saint Lucia, ICSID Case No. ARB/12/10, Decision on Saint Lucia’s Request for Security for Costs (13 August 2014), para. 86. See recently, Dirk Herzig as Insolvency Administrator over the Assets of Unionmatex Industrieanlagen GmbH v. Turkmenistan, ICSID Case No. ARB/18/35, Decision on Security for Costs (27 January 2020), where the majority ordered claimant to provide security for costs in the light of the factual framework of the case, considering as ‘critical’ factor the fact that: ‘because of the terms of the third-party funding contract, Turkmenistan faces not a risk but, on the basis of the factual record before it, a certainty that it could not collect a costs award’ (para. 59).
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constitute per se exceptional circumstances justifying that the Respondent be granted an order of security for costs.’46 In Eskosol v. Italy, the tribunal’s decision on the security for costs requested by Italy relied heavily on the facts of the case. The tribunal explained that it was not aware ‘of any terms in Eskosol’s third-party funding agreement that would require the funder to meet an eventual costs award rendered against Eskosol’, but it did take into consideration that ‘the funder apparently has assisted Eskosol in obtaining the ATE Insurance policy, with a commencement date of October 8, 2015, for the specific purpose of “protecting [Eskosol] from the risk of a potential adverse costs order or order for security for costs”’.47
IV. Other Relevant Concerns with Third Party Funding 26
Besides the issue of potential conflicts of interest generated by the existence of a TPF, certain cases have revealed that TPF is likely to raise objections as to the legal standing of the funded Party. Such concern is not addressed by Article 8.26 of CETA, but in the event of such situation occurring in practice, this must be addressed in the context of the definition of ‘investor’ under Article 8.1 of CETA. This objection is, undoubtedly, more evident in cases when the Party holding the real interest in the dispute does not hold the nationality required under the applicable treaty.48 In Teinver v. Argentina, Argentina challenged jurisdiction on the basis that the funder, Burford Capital Limited ‘and not Claimants, … is the real party interested in this arbitration’. 49 Further, according to Argentina, ‘Burford does not meet the basic jurisdictional requirements under the ICSID Convention’ as it ‘is not an investor in Argentina, nor is it a company organized in Spain that could invoke the Treaty relied upon by Claimants
46 EuroGas Inc. and Belmont Resources Inc. v. Slovak Republic, Procedural Order No. 3 of 23 June 2015, para. 123. See also Commerce Group Corp. and San Sebastian Gold Mines, Inc. v. The Republic of El Salvador, ICSID Case No. ARB/09/17, Order of the Committee Discontinuing the Proceeding and Decision on Costs (28 August 2013), para. 68 where the Ad-Hoc Committee pointed out that El Salvador requested security for costs, denied by the Committee by highlighting that ‘it had not been provided with any evidence that the Applicants’ conduct amounted to an abuse.’ Also, Decision on El Salvador's Application for Security for Costs of 20 September 2012. Commerce Group was negotiating with several third-party funders the necessary amount to cover the expenses with the annulment proceedings. See Claimants' Request for Additional Time to Find Financial Resources of 18 June 2012. 47 Eskosol S.p.A. in liquidazione v. Italian Republic, ICSID Case No. ARB/15/50, Procedural Order No. 3 (12 June 2017), para. 37. 48 See, Ceskoslovenska Obchodni Banka, A.S. v. The Slovak Republic, ICSID Case No. ARB/97/4, Decision of the Tribunal on Objections to Jurisdiction (24 May 1999), para. 32: ‘In the light of what has just been said, it is not really necessary for the Tribunal to address Respondent’s contention that the assignments herein question transformed the Czech Republic into the real party in interest because it became, for all practical purposes, the beneficial owner of the disputed claims and because Claimant, as a result, no longer has a real economic interest in the outcome of these proceedings. But even if the Tribunal, for purposes of the argument, were to accept this contention, it would not follow that this case would have to be dismissed for lack of jurisdiction. This conclusion is compelled by the consideration that absence of beneficial ownership by a claimant in a claim or the transfer of the economic risk in the outcome of a dispute should not and has not been deemed to affect the standing of a claimant in an ICSID proceeding, regardless whether or not the beneficial owner is a State Party or a private party. It must be emphasized, moreover, that the second assignment does not deprive claimant of an interest in the outcome of the case because the assignment becomes effective only after these proceedings terminate and because the assignor remains entitled to a share (either 25 or 10%) of the amount received by the assignee’. 49 Teinver S.A., Transportes de Cercanías S.A. and Autobuses Urbanos del Sur S.A. v. The Argentine Republic, ICSID Case No. ARB/09/1, Decision on Jurisdiction (21 December 2012), para. 245.
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to institute this arbitration proceeding.’50 In response, claimants argued that ‘Burford is not a party to the arbitration. The Claimants did not sell or transfer the claim to Burford. Rather, Burford funds the arbitration in exchange for a percentage of the recovery in the case of a successful claim.’51 The tribunal rejected Argentina’s contentions based on the date of the funding agreement: ‘allegations made by Respondent concerns an event—the Claimants’ reorganizations, the Assignment Agreement and the Funding Agreement—that post-dates the filing of the arbitration, the Tribunal finds this sufficient grounds to reject Respondents’ objection.’52 In Quasar de Valors SICAV S.A. et al. v Russian Federation, Quasar was funded by Group Menatep Limited, a former majority shareholder in the Russian oil company Yukos, with no requirement that Quasar reimburse Menatep.53 Russia argued that claimants engaged in an abuse of process as the ‘Claimants are not the real parties in interest and have no genuine interest in the arbitration’ and ‘their abuse is allowing this arbitration to be filed in their names when the only real party-in-interest is Group Menatep Limited, a Gibraltar entity with no rights under the Spain/Soviet bilateral investment treaty.’ 54 Russia further explained that ‘[i]nitiating satellite arbitrations for harassment or tactical purposes is an abuse of process.’55 The tribunal held that it understands that the argument of Russia that claimants ‘have no stake in this claim, and are not domini litis in terms of choosing counsel, experts, or other strategic alternatives in the prosecution of these derivate claims’ ‘is a reaction to the Claimants' disclosure that their costs of prosecuting this case are born entirely by another party, namely Menatep, in part in order to establish that portfolio investors in Yukos are able to recover under BITs to which the Russian Federation is a party.’56 The tribunal held that Russia’s ‘objection is unpersuasive’ since, among others, ‘the Claimants have no legal obligation to share the proceeds with Menatep, and nothing more than a moral debt of gratitude to consider whether they will voluntarily pass on a proportion of any proceeds in recognition of the costs incurred by Menatep’.57 50 Teinver S.A., Transportes de Cercanías S.A. and Autobuses Urbanos del Sur S.A. v. The Argentine Republic, ICSID Case No. ARB/09/1, Decision on Jurisdiction (21 December 2012), para. 246. 51 Teinver S.A., Transportes de Cercanías S.A. and Autobuses Urbanos del Sur S.A. v. The Argentine Republic, ICSID Case No. ARB/09/1, Decision on Jurisdiction (21 December 2012), para. 254. 52 Teinver S.A., Transportes de Cercanías S.A. and Autobuses Urbanos del Sur S.A. v. The Argentine Republic, ICSID Case No. ARB/09/1, Decision on Jurisdiction (21 December 2012), para. 254. The Ad-Hoc Committee addressed ‘Argentina’s argument that the Burford Funding Agreement was the vehicle of a fraud to the ICSID system by allowing a third party, who was not an investor, to act against Argentina’ and that, ‘as a consequence, the Tribunal manifestly exceeded its powers in accepting to entertain a claim made in bad’ (Decision on Argentina’s Application for Annulment of 29 May 2019, para. 91) The Committee found no merits to Argentina’s argument, since Funding Agreement with Burford was made 16 months after the Request for Arbitration (Decision on Argentina’s Application for Annulment of 29 May 2019, para. 93) and, further, the Funding Agreement does not provide for any assignment in favour of Burford of the interests in dispute or of the proceeds of the award. (Decision on Argentina’s Application for Annulment (29 May 2019), para. 93). 53 Quasar de Valors SICAV S.A. et al. (Formerly Renta 4 S.V.S.A et al.) v. Russian Federation, SCC Arbitration No. 24/2007, Award (20 July 2012). 54 Quasar de Valors SICAV S.A. et al. (Formerly Renta 4 S.V.S.A et al.) v. Russian Federation, SCC Arbitration No. 24/2007, Award (20 July 2012), paras. 11-12. 55 Quasar de Valors SICAV S.A. et al. (Formerly Renta 4 S.V.S.A et al.) v. Russian Federation, SCC Arbitration No. 24/2007, Award (20 July 2012), para. 12. 56 Quasar de Valors SICAV S.A. et al. (Formerly Renta 4 S.V.S.A et al.) v. Russian Federation, SCC Arbitration No. 24/2007, Award (20 July 2012), para. 31. 57 Quasar de Valors SICAV S.A. et al. (Formerly Renta 4 S.V.S.A et al.) v. Russian Federation, SCC Arbitration No. 24/2007, Award (20 July 2012), para. 32. An interesting point in the discussion is the amount of the costs submitted by the parties in the proceedings: claimants, US$ 14,572,671.57; respondent, US$ 9,412,260.73 (para. 220), compared to the amount of the damages awarded to the
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Third party funding
Also not addressed by CETA, TPF could become relevant in the context of allocation of costs of arbitration.58 However, it is not often that tribunals give consideration to this. This would likely be possible when tribunals decide that the losing Party bears at least part of the costs of the other Party.59 In the joint cases Ioannis Kardassopoulos v. Georgia and Ron Fuchs v. Georgia, Georgia argued that the costs of the claimants should not be covered since they ‘have been borne in part by a third party investor it is questionable whether such costs are properly recoverable.’60. The tribunal rejected Georgia’s submission and held that it is unaware of any principle supporting the proposition that a third-Party financing arrangement should be taken into consideration in determining the amount of recovery by the claimants of their costs: The Tribunal is not persuaded in the circumstances of these cases that the Claimants should not be allowed to recover their reasonable costs. The Tribunal observes that among those factors identified by the Respondent in support of its submissions on costs is the fact that the Claimants have an arrangement with a third-party concerning the financing of these proceedings. The Tribunal knows of no principle why any such third party financing arrangement should be taken into consideration in determining the amount of recovery by the Claimants of their costs. … It is difficult to see why in this case a third party financing arrangement should be treated any differently than an insurance contract for the purpose of awarding the Claimants full recovery. 61
28
In RSM v. Grenada, the Ad-Hoc Committee held, in respect to RSM’s submission, ‘that the Committee should not order costs where those costs have allegedly been met by “an undisclosed third party”, the Committee concurs with the Tribunal in Ioannis Kardassopoulos and Ron Fuchs v Georgia …, which stated that it knew “of no principle why any ... third party financing arrangement should be taken into consideration in determining the amount of recovery” by parties of the costs incurred in arbitration proceedings.’62 Similarly, in ATA v. Jordan¸ the Ad-Hoc Committee held claimants, little over US$ 2,000,000 (para. 227); see also, RosInvestCo UK Ltd. v. Russian Federation, SCC Case No. V079/2005, in which the costs were financed by Elliot Group, of which claimant was particle for a detailed discussion on RosInvestCo see Crivellaro, ‘Third-party funding and “mass” claims in investment arbitrations’, Dossier of the ICC Institute of World Business Law: Third Party Funding in International Arbitration (2013), p. 137. 58 See ICC Commission Report, ‘Decisions on Costs in International Arbitration’ (2015) 2 ICC Dispute Resolution Bulletin, para. 87: ‘Where a successful claimant or counterclaimant has been funded by a third party, the third-party funder is usually repaid (at least) the costs of the arbitration from the sum awarded. Therefore, the successful party will itself ultimately be out of pocket upon reimbursing such costs to the third-party funder and may therefore be entitled to recover its reasonable costs, including what it needs to pay to the third-party funder, from the unsuccessful party. The tribunal will need to determine whether these costs were actually incurred and paid or payable by the party seeking to recover them, and were reasonable. The fact that the successful party must in turn reimburse those costs to a third-party funder is, in itself, largely immaterial’. 59 Although this is not always the case. For example, in Philip Morris Brands Sàrl, Philip Morris Products S.A. and Abal Hermanos S.A. v. Oriental Republic of Uruguay, ICSID Case No. ARB/10/7, Award (8 July 2016), where Uruguay received not-for-profit TPF, the tribunal simply decided that claimants would reimburse part of the costs of the respondent: ‘In view of the outcome of the case and the significant disproportion between the Parties’ respective costs, the Tribunal deems it fair and reasonable that the costs of the proceedings be paid by the Parties as follows: each Party shall bear its own costs but the Claimants shall reimburse the Respondent for part of the latter’s costs in the amount of US$ 7,000,000.00 and, in addition, pay all fees and expenses of the Tribunal and ICSID’s administrative fees and expenses’ (para. 588). 60 Ioannis Kardassopoulos v. Georgia, ICSID Case No. ARB/05/18, and Ron Fuchs v. Georgia, ICSID Case No. ARB/07/15, Award(s) (3 March 2010), para. 686. 61 Ioannis Kardassopoulos v. Georgia, ICSID Case No. ARB/05/18, and Ron Fuchs v. Georgia, ICSID Case No. ARB/07/15, Award(s) (3 March 2010), para. 691. 62 RSM Production Corporation v. Saint Lucia, ICSID Case No. ARB/12/10, Order of the Committee Discontinuing the Proceeding and Decision on Costs (28 April 2011), para. 68.
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that it ‘knows of no principle why any ... third party financing arrangement should be taken into consideration in determining the amount of recovery by [parties]of their costs’ incurred in arbitration proceedings.’63
E. Conclusion International arbitration has seen TPF augmenting in the past few years. 64 As 29 summarized by the recent ICCA-Queen Mary Task Force on Third-Party Funding in International Arbitration, ‘third-party funding of litigation and, more recently, arbitration, is an undeniable and important reality. Anecdotal reports suggest that 63 ATA Construction, Industrial and Trading Company v. The Hashemite Kingdom of Jordan, ICSID Case No. ARB/08/2, Order Taking Note of The Discontinuance of the Proceeding (11 July 2011), para. 34; see also, Essar Oilfields Services Ltd. v. Norscot Rig Management Pvt Ltd. [2016] EWHC 2361 (Comm.), in which the High Court rejected the challenge against the decision of the arbitral tribunal to award funding costs in an ICC arbitration. In the arbitration, Norscot, the funded party, requested and was awarded by the tribunal not only the legal fees and other expenses with the attorneys, but also the premium on the amount advanced by the funder, of £ 1.94 million. (para. 5) The tribunal relied on the provisions of both the 1998 ICC Arbitration Rules providing that tribunal may award ‘reasonable and other costs’ (Article 31(1)), and the 1996 English Arbitration Act, referring to the authority of the tribunal to award ‘the legal and other costs to the parties’ (Sections 59 and 63). The High Court concluded that the term ‘“other costs” can include the costs of obtaining litigation funding’ (para. 68). Further, it held that ‘[t]he arbitrator's exercise of his discretion here to award to Norscot the costs of its third party funding, … is nonetheless a telling example of the good sense of reading ‘other costs’ in this way.” (para. 69) The Court concluded that ‘the arbitrator's interpretation of “other costs” was correct, in that it extended in principle to the costs of obtaining third party legal funding’ and ‘[w]hether then to Award it is a matter of discretion’ (para. 70). For a discussion on whether a similar conclusion would be reached under the US Federal Arbitration Act, see John Fellas, ‘Third-Party Funding: The Award of Costs and Security for Costs’, in Tung, Fortese and Baltag, Finances in International Arbitration: Liber Amicorum Patricia Shaughnessy (ed) (2019), 107 (110 ff.). Another issue raised in the context of TPF is the confidentiality of the arbitration proceedings, somehow antagonistic to CETA’s Article 8.36. In S&T Oil Equipment and Machinery Ltd. v. Romania, ICSID Case No. ARB/07/13, the counsel for S&T withdrew from the case on the ground that its client failed to disclose a critical piece of evidence. (Lowe, ‘Speculate and arbitrate to accumulate’, IBA, available at ). S&T’s funder, Juridica International Ltd., also withdrew its funding alleging ‘material misinterpretation’ about the facts underlying the case. Following the withdrawal of the funding, the ICSID arbitration was discontinued and Juridica filed an LCIA arbitration against S&T to recover its funding. Against this, S&T filed a complaint against Juridica in the US District Court of the Southern District of Texas alleging that, among others, Juridica violated attorney-client privilege and relied on privileged documents to terminate the funding agreement. (Lamm and Hellbeck, ‘Thirdparty funding in investor-state arbitration. Introduction and overview, Dossier of the ICC Institute of World Business Law: Third Party Funding in International Arbitration (2013), p.101) While it is common for the funded party and the funder to address issues of confidentiality of the claim at an early stage, through a Non-Disclosure Agreement, and later, in the funding arrangement, it is still unclear how this is translated into the arbitration proceedings, with respect to a confidentiality obligation binding the parties, the tribunal and the institution, including witnesses and experts. Most of the arbitration rules would not include provisions concerning the confidentiality of the arbitration proceedings. Those which do include provisions in this respect limit the confidentiality obligations to the institution, the tribunal and to the secretary of the tribunal: ‘Unless otherwise agreed by the parties, the SCC, the Arbitral Tribunal and any administrative secretary of the Arbitral Tribunal shall maintain the confidentiality of the arbitration and the award’. (Article 3 of the 2017 Stockholm Chamber of Commerce Arbitration Institute (SCC) Arbitration Rules). 64 As explained, ‘Although there is some debate about the exact start of third-party funding, commercial third-party funding industry has existed, arguably, for about three decades in Australia, for about two decades in Germany, for about sixteen years in the U.K., and for about a decade in the U.S. In the past, third-party funding was a smaller niche market, but in recent years, the demand for third-party funding services in these and other jurisdictions has grown exponentially’. (Nieuwveld and Sahani, Third-Party Funding in International Arbitration (2017), p. 10 f.
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the global market for dispute funding – both litigation and arbitration – is currently estimated as exceeding US$ 10 billion and rapidly growing.’65 Faced with this novel situation, the new generation of IIAs has started including provisions concerning TPF and addressing the main procedural issues in this regard. CETA follows this trend. As explained, the main concern remains with the potential conflicts raised by the existence of TPF, in particular with respect to the members of the arbitral tribunals and their independence from the parties in dispute and their funders. Another concern is with the perception that a Party receives funding because of its impecuniosity and, as such, in the event of an unfavourable award, the funded Party (or the funding agreement in place) would not cover the adverse costs of the arbitration. Some of the recent IIAs, but not CETA, address this situation with reference to security for costs which may be granted by arbitral tribunals. 30 All in all, it is also useful to put the discussion in perspective, as the ISDS system is currently subject to advanced reform discussions, in particular under the auspices of the UNCITRAL Working Group III, where the issue of TPF has made its way on the list of further concerns with ISDS.66 The issue is discussed in light of the concerns identified by the Working Group III, i.e. concerns pertaining to the lack of consistency, coherence, predictability and correctness of arbitral decisions by ISDS tribunals; concerns pertaining to arbitrators and decision makers; concerns pertaining to cost and duration of ISDS cases.67 As raised during the sessions of the Working Group III, TPF is likely to impact investment dispute proceedings at least on the following aspects: conflicts of interest of arbitrators arising out of TPF, influence of TPF in decisions on cost allocation, relevance of TPF for decisions on security for costs, protection of privileged information disclosed to a third-party funder, control of third-party funders over the arbitration process.68 Further, as broad as a TPF definition may be, this is still necessary to be drafted, as States suggested the need of ‘a clear definition of “third-party funding” (or “third-party funder”)’. 69 Most perceptions with respect to TPF are, no doubt, alimented by the fact that few jurisdictions took a proactive approach in regulating the funders – see Hong Kong and Singapore – while in also few other instances the funders have adopted a self-regulation approach, as in the UK.70 31 However, with the number of funded claims flourishing, certain perceptions have commenced to emerge in relation to TPF. Advocates for TPF argue that it provides financial access to justice and incentivizes meritorious claims.71 TPF may be linked to 65 ICCA, ‘Report of the ICCA-Queen Mary Task Force on Third-Party Funding in International Arbitration’ (2018) 4 ICCA Reports, 17. 66 Further details are available here , last visited 1 April 2020. See, specifically, UNCITRAL, Report of Working Group III (Investor-State Dispute Settlement Reform) on the work of its thirty-seventh session (New York, 1-5 April 2019), A/ CN.9/970, p. 5 f. 67 See UNCITRAL, Report of Working Group III (Investor-State Dispute Settlement Reform) on the work of its thirty-sixth session (Vienna, 29 October–2 November 2018), A/CN.9/964. 68 UNCITRAL, Possible Reform of Investor-State Dispute Settlement (ISDS). Third-Party Funding – Possible Solutions, A/CN.9/WG.III/WP.172, p. 2 f. 69 UNCITRAL, Possible Reform of Investor-State Dispute Settlement (ISDS). Third-Party Funding – Possible Solutions, A/CN.9/WG.III/WP.172, p. 4. The paper resumes the conclusions of the Working Group III as to the elements of a definition of TPF: funding provided by the counsel of the disputing party; different forms of insurance policies, equity investment by third-party funders (p. 5). 70 See, the Association of Litigation Funders, as well as the Code of Conduct for Litigation Funders, published by the Civil Justice Council in November 2011 (). 71 As pointed out by Cremades, ‘the founder has the greatest interest in the fact that an arbitral award cannot be questioned in the future.’ (Cremades, ‘Concluding Remarks’, Dossier of the ICC Institute of
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access to justice relating to the ‘financial ability to proceed forward in arbitration’. 72 The debate is still not settled and, certainly, this is not the space to embark on this quest. As explained by one author, ‘the availability of TPF … seems to place a thumb on one side of the scales of justice.’73 Further, for the funded Party, TPF may have the benefits of distributing risk, by not freezing funds in an arbitration over a period of several years. Some voices highlight the drawbacks of allowing TPF – or at least without proper regulation: increased conflicts of interest; certain control over the claim by the Third Party Funder, creating a blurred line as to the proper Party in the proceedings; decreased net recovery of the claim (funders will generally expect a 1 to 7 recovery of their investment); as well as an alleged increase in the number of arbitrations.74 While the availability of TPF may result in an increase of arbitration claims, these would certainly not be unmeritorious claims, as mentioned above. Few scholars are more vehement in concluding that ‘allowing third-party funding in investment arbitration risks creating unjustifiable wealth transfers from the citizens of target states for the benefit of speculators.’75 The discussions in the UNCITRAL Working Group III on ISDS Reform have also pointed out certain perceptions with respect to the impact of TPF on the ISDS system overall, such as the increase of the number of ISDS cases and frivolous claims; impact on the promotion and protection of investments; imbalance in the system, as respondent States generally do not have access to TPF. 76 In this context, it is interesting to point out that limited number of IIAs, such as the Argentina-UAE Agreement, expressly prohibit TPF.77 As seen above, TPF comes with certain benefits and drawbacks. However, a certain 32 degree of regulation, as in Articles 8.1 and 8.26 of CETA, could address at least part of the highlighted concerns.
World Business Law: Third Party Funding in International Arbitration (2013), 153. On the funding process, see ICCA, ‘Report of the ICCA-Queen Mary Task Force on Third-Party Funding in International Arbitration’ (2018) 4 ICCA Reports, 30 ff. 72 Sahani, ‘A Thought-Experiment Regarding Access to Justice in International Arbitration’, in Kalicki and Raouf (eds), Evolution and Adaptation: The Future of International Arbitration (2019), 504 (506). 73 Thrasher, ‘Expansive Disclosure: Regulating Third-Party Funding for Future Analysis and Reform’ (2018) 59(8) B. C. L. Rev., 2935 (2936). 74 On the rise of claims as a result of the availability of TPF there are certain empirical studies, but only related to court proceedings. See Chen, ‘Can markets stimulate rights? On the alienability of legal claims’ (2015) 46(1) RAND Journal of Economics, 23 (37 ff.). 75 Garcia, ‘Third-Party Funding as Exploitation of the Investment Treaty System’ (2018) 59(8) B. C. L. Rev., 1. See further on a similar position, Eberhardt and Olivet, ‘Speculating on Injustice. Third-Party Funding in Investment Disputes’, in Eberhardt and Olivet (eds), Profiting from Injustice (2012), 56. 76 UNCITRAL, Possible Reform of Investor-State Dispute Settlement (ISDS). Third-Party Funding – Possible Solutions, A/CN.9/WG.III/WP.172, p. 3. 77 Argentina-United Arab Emirates Agreement for the Reciprocal Promotion and Protection of Investments (signed on 16 April 2018), Article 24: ‘Third party funding is not permitted.’
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Article 8.27 Constitution of the Tribunal 1. 2.
3. 4.
5.
6.
7.
8.
9.
The Tribunal established under this Section shall decide claims submitted pursuant to Article 8.23. The CETA Joint Committee shall, upon the entry into force of this Agreement, appoint fifteen Members of the Tribunal. Five of the Members of the Tribunal shall be nationals of a Member State of the European Union, five shall be nationals of Canada1) and five shall be nationals of third countries. The CETA Joint Committee may decide to increase or to decrease the number of the Members of the Tribunal by multiples of three. Additional appointments shall be made on the same basis as provided for in paragraph 2. The Members of the Tribunal shall possess the qualifications required in their respective countries for appointment to judicial office, or be jurists of recognised competence. They shall have demonstrated expertise in public international law. It is desirable that they have expertise in particular, in international investment law, in international trade law and the resolution of disputes arising under international investment or international trade agreements. The Members of the Tribunal appointed pursuant to this Section shall be appointed for a five-year term, renewable once. However, the terms of seven of the 15 persons appointed immediately after the entry into force of this Agreement, to be determined by lot, shall extend to six years. Vacancies shall be filled as they arise. A person appointed to replace a Member of the Tribunal whose term of office has not expired shall hold office for the remainder of the predecessor's term. In principle, a Member of the Tribunal serving on a division of the Tribunal when his or her term expires may continue to serve on the division until a final award is issued. The Tribunal shall hear cases in divisions consisting of three Members of the Tribunal, of whom one shall be a national of a Member State of the European Union, one a national of Canada and one a national of a third country. The division shall be chaired by the Member of the Tribunal who is a national of a third country. Within 90 days of the submission of a claim pursuant to Article 8.23, the President of the Tribunal shall appoint the Members of the Tribunal composing the division of the Tribunal hearing the case on a rotation basis, ensuring that the composition of the divisions is random and unpredictable, while giving equal opportunity to all Members of the Tribunal to serve. The President and Vice-President of the Tribunal shall be responsible for organisational issues and shall be appointed for a two-year term and shall be drawn by lot from among the Members of the Tribunal who are nationals of third countries. They shall serve on the basis of a rotation drawn by lot by the Chair of the CETA Joint Committee. The Vice-President shall replace the President when the President is unavailable. Notwithstanding paragraph 6, the disputing parties may agree that a case be heard by a sole Member of the Tribunal to be appointed at random from the third country nationals. The respondent shall give sympathetic consideration to a request from the claimant to have the case heard by a sole Member of the
1) Either Party may instead propose to appoint up to five Members of the Tribunal of any nationality. In this case, such Members of the Tribunal shall be considered to be nationals of the Party that proposed his or her appointment for the purposes of this Article.
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10. 11. 12. 13.
14.
15. 16. 17.
Tribunal, in particular where the claimant is a small or medium-sized enterprise or the compensation or damages claimed are relatively low. Such a request shall be made before the constitution of the division of the Tribunal. The Tribunal may draw up its own working procedures. The Members of the Tribunal shall ensure that they are available and able to perform the functions set out under this Section. In order to ensure their availability, the Members of the Tribunal shall be paid a monthly retainer fee to be determined by the CETA Joint Committee. The fees referred to in paragraph 12 shall be paid equally by both Parties into an account managed by the ICSID Secretariat. In the event that one Party fails to pay the retainer fee the other Party may elect to pay. Any such arrears by a Party shall remain payable, with appropriate interest. Unless the CETA Joint Committee adopts a decision pursuant to paragraph 15, the amount of the fees and expenses of the Members of the Tribunal on a division constituted to hear a claim, other than the fees referred to in paragraph 12, shall be those determined pursuant to Regulation 14(1) of the Administrative and Financial Regulations of the ICSID Convention in force on the date of the submission of the claim and allocated by the Tribunal among the disputing parties in accordance with Article 8.39.5. The CETA Joint Committee may, by decision, transform the retainer fee and other fees and expenses into a regular salary, and decide applicable modalities and conditions. The ICSID Secretariat shall act as Secretariat for the Tribunal and provide it with appropriate support. If the CETA Joint Committee has not made the appointments pursuant to paragraph 2 within 90 days from the date that a claim is submitted for dispute settlement, the Secretary General of ICSID shall, at the request of either disputing party appoint a division consisting of three Members of the Tribunal, unless the disputing parties have agreed that the case is to be heard by a sole Member of the Tribunal. The Secretary General of ICSID shall make the appointment by random selection from the existing nominations. The Secretary-General of ICSID may not appoint as chair a national of either Canada or a Member State of the European Union unless the disputing parties agree otherwise.
Bibliography: Colin Brown, ‘The first 10 Years of the European Union’s Policy on Investment Dispute Settlement, From Initial Reforms to the Multilateral Investment Court’, in Michael Hahn and Guillaume Van der Loo (eds), Law and Practice of the Common Commercial Policy, The first 10 years after the Treaty of Lisbon, Studies in EU External Relations, Vol. 18 (Brill, Leiden 2020), 73; David Gaukroder, ‘Adjudicator Compensation Systems and Investor-State Dispute Settlement’, OECD Working Papers on International Investment, No. 2017/05, 24 November 2017; André von Walter and Maria Andrisani, ‘Resolution of Investment Disputes’, in Makane Mbengue and Stefanie Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (Springer, Switzerland 2019). A. Introduction and Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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B. Spirit and Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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C. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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D. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. The Composition of the tribunal (paras. 2 and 3) . . . . . . . . . . . . . . . . . . . . . . . . . . II. Qualifications of Tribunal Members (para. 4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. Term of Office of Tribunal Members (para. 5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV. Composition of Divisions (paras. 6, 7 and 9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V. Organisation of the Tribunal (para. 8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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VI. Working Procedures (para. 10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VII. Availability and Remuneration of Tribunal Members (paras. 11 to 15) . . . VIII. Secretariat (para. 16) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IX. Fall Back Situation (para. 17) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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E. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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A. Introduction and Overview This provision forms one of the key innovations of the Investment Court System (ICS) as rolled out in CETA.1 It installs a permanent tribunal where the adjudicators are appointed at random for any particular case. It hence removes the choice, which has previously been given to the disputing Parties as to the appointment of an arbitrator. This is the first time this has happened in an agreement providing for investor state dispute settlement. As noted in general in this Commentary, the Investment Court System in CETA takes a revolutionary approach to investor state dispute settlement. Article 8.27 is at the core of this revolution. 2 This approach, with some variations, has henceforth been the approach which the EU has followed in all of the agreements it has negotiated providing for investor state dispute settlement. 3 This chapter sets out the logic behind this provision, explains the negotiating history and then engages in a detailed analysis of the provision. 1
B. Spirit and Purpose This provision provides for one of the key parts of the investment dispute settlement process. Historically, there are no comparable provisions in bilateral investment treaties since they tended to incorporate by reference existing arbitration rules (ICSID, UNCITRAL Arbitration Rules etc.) rather than lay down specific rules for the composition of the tribunal. This provision hence has as a specific purpose to depart from the standard approach of utilising ICSID or UNCITRAL and instead institutes specific rules for the composition of the tribunal. As already noted, this was intended as an innovative move away from the prevailing approach to investment dispute settlement. There is no precedent for this, even if inspiration was drawn from particular existing mechanisms, in particular by combining the EU’s approach to state-to-state dispute settlement with some organisational elements from the WTO Appellate Body. 5 The basic structure, of a 15 person tribunal, equally divided between nationals of the EU, of Canada and of persons from a 3rd country acting as chair is found also in the EU’s state-to state dispute settlement approach.2 It has been a standard feature of that approach since the EU-Korea and EU-CARIFORUM agreements. The 15 person structure features in the first version of the CETA investor to state dispute settlement chapter, as a roster which would operate as a fall-back in the event that the disputing Parties were unable to agree on arbitrators for a specific case. The permanency, and the removal of the choice of the disputing Parties, stems from the policy debate of 4
1 See in general von Walter and Andrisani, ‘Resolution of Investment Disputes’ Mbengue and Schacherer (eds), Foreign Investment under the Comprehensive Economic and Trade Agreement (CETA) (2019), 185 (189). 2 See, for example, Chapter 29 of CETA. The most recent example at the time of writing is the EU-Viet Nam FTA, OJ L 186/3, 12 June 2020. See chapter 15 thereof.
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2014/2015 on a reformed approach to investor-state dispute settlement. 3 That is, of course, the more radical element, bringing forth a significant change in investor-state dispute settlement. Other elements are drawn from the WTO Appellate Body. In many ways this was 6 the closest model available for the EU to draw on. This is because the EU wished to create a permanent body with permanent members whilst not, at least initially, employing the members full time. This was how the WTO Appellate Body was conceived. As will be seen, the provisions in question melded the EU’s bilateral state-to-state dispute settlement approach with the functioning of the WTO Appellate Body. This fundamental policy shift is driven by an age-old concern about the importance 7 of perception in contributing to the legitimacy of an adjudicative process. It resides in the insight that in order for an adjudicative system to maintain legitimacy it must be understandable to the public and their elected representatives as being fair. This has translated into the creation of permanent judges who can decide a case independently from the disputing Parties.4 This basic understanding of the adjudicative process, that the disputing Parties do not choose their judges, is well understood by the general public from their knowledge of domestic courts (and can equally be seen in many international courts). It may be less important or even irrelevant in contractual disputes, where there is no public impact. However, investor state dispute settlement is a form of dispute settlement analogous to public law, where decisions of the public authorities are challenged and where public funds are involved.5 Asking citizens to accept that such decisions can be challenged and public funds paid out in this way requires that the adjudicative process retains the necessary legitimacy through the creation of permanent mechanisms.
C. Drafting History The final version of Article 8.27 only emerged after the text of the agreement was 8 adjusted to include the elements introduced into the new EU approach on investorstate dispute settlement which dated from the 2014-2015 debate on the future shape of EU policy investment protection and investment dispute settlement policy. All the earlier versions of this provision were based on the EU’s initial approach which foresaw that the Parties would be free to choose their arbitrator, and that the disputing Parties would seek to agree on the presiding arbitrator.6 It then envisaged that in the event of a failure to either appoint an arbitrator or to agree on the presiding arbitrator, the arbitrator to be appointed would be drawn from a roster previously established by the Parties. The approach differed slightly from the EU’s standard state-to-state approach in the sense that if such a situation arose in the investment chapter then the person to be appointed would be drawn by the Secretary General of ICSID rather than by lot. This can easily be seen if one compares the approach in the different 3 For an overview, see Brown, ‘The First 10 Years of the European Union’s Policy on Investment Dispute Settlement, From Initial Reforms to the Multilateral Investment Court’, in Hahn and Van der Loo (eds), Law and Practice of the Common Commercial Policy The first 10 years after the Treaty of Lisbon, Studies in EU External Relations, Vol. 18 (2019) 73-97. 4 See, Gaukrodger, ‘Adjudicator Compensation Systems and Investor-State Dispute Settlement’, OECD Working Papers on International Investment, No. 2017/05, 24 November 2017, https://doi.or g/10.1787/c2890bd5-en. 5 For an explanation of the European Union’s views on this matter in the multilateral context see the document A/CN.9/WG.III/WP.145, https://undocs.org/en/A/CN.9/WG.III/WP.145. 6 See for example, Article X-10 ‘Constitution of the Tribunal’ in the version of 15 November 2013.
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earlier versions of the text with the final outcome of the state to state provisions of the agreement (see Article 29.7 of the Agreement). This slight change in approach was considered justified in the field of investment since it allowed the Secretary General to appoint a person considered as best suited to handle a specific dispute. 9 It is to be noted at the same time that even this modified approach was not the position, which Canada had started from. Rather Canada’s standard approach to investor state dispute settlement was to provide that in the event of disagreement the Secretary General of ICSID would have a free choice of which person to appoint rather than being required to draw from a pre-established roster. The idea of giving this task to the Secretary General and that she was to draw from the roster rather than this taking place by selection by lot reflected a compromise between the EU and Canada precisely to provide that the person selected could be as well suited as possible to the characteristics of the specific case. 10 This approach was largely replaced by the new approach on the EU side, which came out of the reform discussions of 2014/15. These discussions led the EU to put forward a new text for the ongoing TTIP negotiations with the United States. The core of Article 8.27 can be found in the text in particular the final version is very similar to Article 9 of that text which provides for a Tribunal of First Instance. 7 As can be seen, much of the text of Article 8.27 finds its origin in Article 9 of the EU proposed text for TTIP. It nevertheless contains some very limited features, such as the role of the ICSID Secretary General in the event that the members of the tribunal have not been appointed, which have been taken over from the text as it existed before the text was revised to bring it in line with the EU’s new approach in February 2016. It is this revision in February 2016, which led to the text in its final form as assessed in this chapter.
D. Commentary I. The Composition of the tribunal (paras. 2 and 3) Article 8.27 paragraphs 2 and 3 set out the system by which the tribunal is constituted. The EU and Canada are given the chance to nominate 5 persons each, with 5 persons from a 3rd country being appointed as the chair of a tribunal. This is modelled on the EU’s standard approach to bilateral state-to-state dispute settlement. 8 The persons are not however, appointed separately by the EU and Canada but rather are appointed by the CETA Joint Committee. The CETA Joint Committee works on the basis of mutual consent (Article 26.3.3 CETA). This implies that both Parties must give their agreement to all of the persons who are appointed, implying, of course, that Canada must agree to the persons nominated by the EU and vice versa. This is done in order to ensure that all persons appointed have the confidence of the two Parties. In the EU, this decision is made on the basis of Article 218(9) TFEU, that requires a Commission proposal and a Council decision. To the extent this matter is considered as touching on a competence of the Member States then a decision of the Member States will also be required. 12 Footnote 1 to Article 8.27(2) has been added to provide flexibility to either the EU or Canada to appoint persons who are not of their nationality. This is provided 11
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See https://trade.ec.europa.eu/doclib/docs/2015/september/tradoc_153807.pdf. See, for example, the state to state dispute settlement chapter of CETA (chapter 29).
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to cater for the possibility that either Party may consider that there are insufficient qualified or available persons to be nominated having their own nationality. This is a feature that the EU has accepted to include in its agreements, particularly for countries with a small population where the numbers of potentially qualified persons may be small.9 Paragraph 2 permits the CETA Joint Committee to increase or decrease the num- 13 ber of members of the tribunal. This is a purely administrative power, given to the Committee because neither Canada nor the EU can predict the future workload of the tribunal. This ability to adjust the numbers (by multiples or three) allows the Committee to take account of developments and ensures that the tribunal can function effectively. Similar mechanisms are found in other international adjudicatory mechanisms.10 Within the European Union, this decision will have to be taken on the basis of Article 218(9) TFEU.
II. Qualifications of Tribunal Members (para. 4) Paragraph 4 sets out the qualifications required of tribunal members. The first 14 sentence, requiring that persons either be qualified for judicial office or jurists of recognised competence, is drawn from the Statute of the International Court of Justice.11 This standard is chosen by reference to the most prominent of the permanent international courts and is intended to underline the step change in approach heralded by the CETA Investment Court System. The contrast to the standard ISDS system is obvious. There is no comparable requirement in the ICSID system, for example, which does not even require that arbitrators necessarily be lawyers or have expertise in law. A second requirement is of expertise in public international law. This is intentional- 15 ly placed above expertise in investment law (which is nevertheless desirable) because of the intention to highlight the correct interpretation of the text of the agreement according to the canons of public international law. This harks back to the origin of the investor state dispute settlement mechanism as a treaty based mechanism, a creation of public international law. It follows that expertise in international investment law is desirable but not a necessary qualification. Expertise in international trade law is also mentioned as desirable. This is because of the fact that the investment chapter is part of the larger CETA agreement and hence understanding international trade rules is a useful attribute for being able to effectively interpret the investment provisions of CETA.
III. Term of Office of Tribunal Members (para. 5) The term of office of members of the tribunal is set in paragraph 5. They are 16 appointed for five years, which is renewable once. The term is set at five years in order to allow for renewal of the list, given the novelty of the Investment Court System. One notable feature is the express stipulation that members of the tribunal can 17 continue to fulfil their duties on a particular case even if their term has expired. See Article 3.9(2) of the EU-Singapore Investment Protection Agreement. See, for an example, Article 36(2) of the Statute of the International Criminal Court. 11 Article 2 of the Statute of the International Court of Justice provides: ‘The Court shall be composed of a body of independent judges, elected regardless of their nationality from among persons of high moral character, who possess the qualifications required in their respective countries for appointment to the highest judicial offices, or are jurisconsults of recognized competence in international law.’ 9
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This is done in order to avoid any doubts as to the ability of the tribunal members to complete cases they have been assigned to and reflects a common approach in adjudicatory systems for ensuring the effective administration of justice. It has been developed and made explicit when there was a debate about the permissibility of tribunal members served beyond their term in the WTO Appellate Body.
IV. Composition of Divisions (paras. 6, 7 and 9) Paragraph 6 provides that cases should be heard by divisions made up of three tribunal members with one having Canadian nationality, the second an EU nationality and the third, the chair, being a national of neither Canada nor the EU. This is modelled on the EU’s approach to state-to-state dispute settlement where similarly tribunals are made up of three persons, one from each Party and one, the chair, from a third country. The objective behind this structure is to ensure that a person chosen by both Parties sits on any tribunal after approval by the Parties acting together in the Joint Committee. This ensures in an unquestionable manner the legitimacy of the rulings of the tribunal. 19 As with other permanent adjudicative mechanisms the President of the Tribunal is responsible for allocating cases to a particular division. This role is analogous to the role of the president in a domestic court in allocating cases. The President is required to ensure that there is a rotation, that equal opportunities to members are provided, but that the process be random and unpredictable. This is done in order to ensure that the disputing Parties do not know in advance the identity of the persons hearing their cases to avoid, for example, that they time the lodging of their dispute in the expectation of having an adjudicator who would be perceived as being more sympathetic to their case. The language in question is drawn from Article 6(2) of the WTO Appellate Body Working Procedures for Appellate Review, which has the same objective.12 20 Paragraph 9 provides for an exception to the norm of the three person tribunal by providing for situations in which one person (a third country national) may hear the case. This is done in order to permit less expensive proceedings. There is no requirement on the respondent to accept a one person tribunal, but the respondent is required to give sympathetic consideration to such a request, particularly when the claimant is a small or medium sized company or the damages claimed are relatively small. This is not an obligation on the respondent because cases involving small or medium sized companies or relatively small amounts of damages may nevertheless have important systemic consequences, and hence the respondent may prefer the three person tribunal. This provision is novel in investor state dispute settlement. It is a deliberate attempt to make the access of small and medium sized enterprises to investor state dispute settlement more practical. This issue is an issue of importance for the European Union and its Member States, which stated in Declaration 36 accompanying the approval of CETA: 18
There will be better and easier access to this new court for the most vulnerable users, namely SMEs and private individuals. To that end:
12 See Article 6(2) of the Working Procedures WT/AB/WP/6 of 16 August 2010 which provide: ‘The Members constituting a division shall be selected on the basis of rotation, while taking into account the principles of random selection, unpredictability and opportunity for all Members to serve regardless of their national origin’.
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The adoption by the Joint Committee of additional rules, provided for in Article 8.39.6 of the CETA, intended to reduce the financial burden imposed on applicants who are natural persons or small and medium-sized enterprises, will be expedited so that these additional rules can be adopted as soon as possible. Irrespective of the outcome of the discussions within the Joint Committee, the Commission will propose appropriate measures of (co)-financing of actions of small and medium-sized enterprises before that Court and the provision of technical assistance.13
V. Organisation of the Tribunal (para. 8) Paragraph 8 foresees that the President of the Tribunal shall be responsible for 21 organisational issues. This is drawn from the standard approach in standing courts, be they domestic or international, which typically give the President of the tribunal a series of organisational tasks. The tasks of the President are foreseen in other provisions. The President is in particular responsible for selecting the division to hear a particular case (Article 8.27(7)), to establish a consolidated division in the event of consolidation (Article 8.43(7)) or for proposing the removal of a Tribunal member who has not respected the ethical obligations placed on them Article 8.40(4). The President and vice-President are to be chosen from the persons appointed to the tribunal who are not nationals of either Canada or the European Union and to be selected by lot. They are to serve for a two year term.
VI. Working Procedures (para. 10) Paragraph 10 specifically provides for the possibility of the Tribunal to adopt 22 working procedures. This idea is modelled on the WTO Appellate Body, which has adopted Working Procedures both to manage the organisation of the Appellate Body and in order to manage disputes before it. There is no obligation for the Tribunal to adopt such procedures. Whether to adopt such procedures and the specific content of any such procedures will be a decision for the first members of the Tribunal.
VII. Availability and Remuneration of Tribunal Members (paras. 11 to 15) One of the main necessary changes in moving to a more permanent structure is to 23 ensure the availability of the Tribunal members on a more structured basis in order to promote collegiality between the adjudicators. This is intended to promote both the functioning of the permanent mechanism through more structured exchanges and to seek to ensure consistency in outcomes. It is more likely that a division, which is part of a permanent mechanism will follow a precedent established by a division of another part of the same permanent mechanism. It is also the nature of a permanent mechanism that Tribunal members need to be available to serve on a division. It would make no sense to appoint persons who are unable to serve because they have taken on such a high number of other obligations, for example arbitral appointments, that they are not readily available. Paragraph 11 therefore provides that Tribunal members should be available to serve.
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Statements to be entered in the Council minutes, OJ L 11/9, 14 January 2017.
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Paragraph 12 provides that Tribunal members shall be paid a retainer fee. This was considered to be desirable because Tribunal members need to be available and because pursuant to Article 8.30 once appointed they need to refrain from acting as counsel or Party-appointed experts in other investment disputes (they can still act as arbitrators or have other quasi-judicial functions). The retainer is modelled on the functioning of the WTO Appellate Body. The amount of the retainer is left for a later decision, to be made by the Parties through the Joint Committee. The fact that the retainer is to be adopted by decision allows the Parties to set it at a rate which can be considered desirable to attract candidates but also allows them to adjust it over time to take account of relevant factors. 25 This is the set up the Parties chose in advance of the system actually functioning, and before, for example, the number and frequency of cases is known. It was decided that the Tribunal members would be paid a retainer fee to ensure their availability and on account of them having to refrain from acting as counsel or expert. However, they would not be paid a full salary and instead provision was made in paragraph 15 for a power for the CETA Joint Committee to transform the retainer into a full salary. This is reflected in the Declaration 36 made in the context of the approval of CETA in the EU which sets as an objective the creation of a system of full time employed judges: ‘The judges will be paid by the European Union and Canada on a permanent basis. The system should progress towards judges who are employed full time.’ 14 26 Paragraph 14 provides for the situation, which prevails until the adjudicators are moved to a permanent salary. This provides for adjudicators to receive, in addition to the retainer, fees equivalent to the ICSID fees in force at the time of submission of the claim. This is done to ensure that the level of fees is fixed in advance of the dispute taking place. The reference to the ICSID fee structure also ensures that the fees evolve with the ICSID fee structure. The final sentence of paragraph 14 recalls the cost-shifting provision of Article 8.39.5 and recalls that cost-shifting applies to the fees of the adjudicators. 27 This is in distinction to the retainer fee, which is regulated in paragraph 13. That is to be paid by the Parties and will not be borne by the disputing Parties. Logically, it will not be subject to cost-shifting. It is foreseen that disbursements of the retainer fee be managed by the ICSID Secretariat and that if one Party fails to pay the other Party can fill the gap, but that the non-paying Party remains liable, with interest. 24
VIII. Secretariat (para. 16) It is foreseen that the ICSID Secretariat provide secretariat services for the Tribunal. The EU can task the ICSID Secretariat with such services even though the EU is not Party to the ICSID Convention. This is because there is no limitation in the ICSID Convention as to the disputes which can be administered by the ICSID Secretariat. It is hence a decision for the ICSID Secretariat to take with the EU and Canada as to whether an effective arrangement can be made which is satisfactory to all Parties. On the EU side, given the Agreement establishes the basis for ICSID to act as secretariat, the Commission would need to conclude a financing agreement with the ICSID Secretariat setting out the necessary arrangements. 29 This has two elements. First, the day to day administration of the standing Tribunal. Second, the administration of specific disputes. 28
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See, for an example, Article 36(2) of the Statute of the International Criminal Court.
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This is done for a number of reasons. First, awards issued pursuant to the Invest- 30 ment Chapter will include ICSID awards, hence need the ICSID Secretary General to certify the awards. Second, given the EU’s intention to use the Investment Court System in all of its agreements, it was desirable to have a single institution with as great a multilateral reach as possible to administer the mechanism. This can be seen in the fact that the EU has used ICSID as the secretariat in all of the other agreements providing for the ICS which it has negotiated. Third, the ICSID Secretariat brings the obvious benefit of having an extensive experience in the management of investment disputes.
IX. Fall Back Situation (para. 17) The final paragraph in the Article deals with the scenario where there has been no 31 appointment to the Tribunal. This was a particular concern for Canada, which had experienced the failure to appoint a roster in the context of the North American Free Trade Agreement. Hence, it was decided to appoint the ICSID Secretary General as appointing authority. However, consistently with the EU’s state-to-state dispute settlement practice the Secretary General is to choose from the nominations which have been made (i.e. nominations which have been made by Canada and the European Union even if the persons have not in fact been formally appointed). This is intended to ensure that the persons appointed in such circumstances have had some vetting from the two Parties. The selection has to be made on a random basis. This is provided to ensure, as was the case for the selection of a division, that the disputing Parties cannot time the submission of their claim in order to ensure a particular composition of tribunal perceived as more suitable to the case. This element, adapted to take into account the permanent nature of the system and removing the original ability of the Secretary General to choose the adjudicator considered best suited for the particular case, is the only remnant of the previous text which had been provisionally agreed between the EU and Canada before the revisions brought about by the developments in EU investment policy.
E. Conclusion The Tribunal at First Instance is one of the key innovations of the investment 32 chapter of CETA, being the very first permanent structure for the adjudication of investment disputes. Its structure is novel for investment dispute settlement, drawing on different influences to create a new mechanism. It is intended as one part of a new system, which will address a significant number of the concerns which exist in the existing system of dispute settlement.
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Article 8.28 Appellate Tribunal 1. An Appellate Tribunal is hereby established to review awards rendered under this Section. 2. The Appellate Tribunal may uphold, modify or reverse the Tribunal's award based on: (a) errors in the application or interpretation of applicable law; (b) manifest errors in the appreciation of the facts, including the appreciation of relevant domestic law; (c) the grounds set out in Article 52(1) (a) through (e) of the ICSID Convention, in so far as they are not covered by paragraphs (a) and (b). 3. The Members of the Appellate Tribunal shall be appointed by a decision of the CETA Joint Committee at the same time as the decision referred to in paragraph 7. 4. The Members of the Appellate Tribunal shall meet the requirements of Article 8.27.4 and comply with Article 8.30. 5. The division of the Appellate Tribunal constituted to hear the appeal shall consist of three randomly appointed Members of the Appellate Tribunal. 6. Articles 8.36 and 8.38 shall apply to the proceedings before the Appellate Tribunal. 7. The CETA Joint Committee shall promptly adopt a decision setting out the following administrative and organisational matters regarding the functioning of the Appellate Tribunal: (a) administrative support; (b) procedures for the initiation and the conduct of appeals, and procedures for referring issues back to the Tribunal for adjustment of the award, as appropriate; (c) procedures for filling a vacancy on the Appellate Tribunal and on a division of the Appellate Tribunal constituted to hear a case; (d) remuneration of the Members of the Appellate Tribunal; (e) provisions related to the costs of appeals; (f) the number of Members of the Appellate Tribunal; and (g) any other elements it determines to be necessary for the effective functioning of the Appellate Tribunal. 8. The Committee on Services and Investment shall periodically review the functioning of the Appellate Tribunal and may make recommendations to the CETA Joint Committee. The CETA Joint Committee may revise the decision referred to in paragraph 7, if necessary. 9. Upon adoption of the decision referred to in paragraph 7: (a) a disputing party may appeal an award rendered pursuant to this Section to the Appellate Tribunal within 90 days after its issuance; (b) a disputing party shall not seek to review, set aside, annul, revise or initiate any other similar procedure as regards an award under this Section; (c) an award rendered pursuant to Article 8.39 shall not be considered final and no action for enforcement of an award may be brought until either: (i) 90 days from the issuance of the award by the Tribunal has elapsed and no appeal has been initiated; (ii) an initiated appeal has been rejected or withdrawn; or (iii) 90 days have elapsed from an award by the Appellate Tribunal and the Appellate Tribunal has not referred the matter back to the Tribunal; 610
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(d) a final award by the Appellate Tribunal shall be considered as a final award for the purposes of Article 8.41; and (e) Article 8.41.3 shall not apply. Bibliography: Freya Baetens, ‘The European Union’s Proposed Investment Court System: Addressing Criticisms of Investor-State Arbitration While Raising New Challenges’ (2016) 43(4) LIEI, 367; Gabriel Bottini, ‘Present and Future of ICSID Annulment: The Path to an Appellate Body?’ (2016) 31(3) ICSID Rev., 719; Marc Bungenberg and August Reinisch, From Bilateral Tribunals and Investment Courts to a Multilateral Investment Court, EYIEL (2nd edn, Springer 2020); Jansen Calamita, ‘The (In)Compatibility of Appellate Mechanisms with Existing Instruments of the Investment Treaty Regime’ (2017) 18 JWIT (2017), 585; Alexsia Chan and Beverly Crawford, ‘The puzzle of public opposition to TTIP in Germany’ (2017) 19(4) Bus. Pol., 683; Armand de Mestral, ‘Negotiating CETA with the European Union and Some Thoughts on the Impact of Mega-Regional Trade Agreements on Agreements Inter Partes and Agreements with Third Parties’, in Marc Bungenberg, Markus Krajewski, Christian Tams, Jörg Philipp Terhechte, Andreas Ziegler (eds), EYIEL (Springer, Cham 2017), 437; Pierre-Marie Dupuy, ‘International Law and Domestic (Municipal) Law’ in The Max-Planck encyclopedia of public international law, Vol. 5 (2 nd edn, Oxford University Press, Oxford 2011), 836; Tarzisio Gazzini, ‘Can Authoritative Interpretation under Article IX:2 of the Agreement Establishing the WTO Modify the Rights and Obligations of Members?’ (2008) 57(1) ICLQ, 169; Hillion Christophe and Panos Koutrakos, Mixed Agreements Revisited: The EU and its Member States in the World (Hart, Oxford, 2010); Frank Hoffmeister, ‘The EU Contribution to the Progressive Development of Institutional Aspects in International Investment Law’ (2017) 50(2) R.B.D.I., 566; Frank Hoffmeister and Güneş Ünüvar, ‘From BITs and Pieces towards European Investment Agreements’ in Marc Bungenberg, August Reinisch, Christian Tietje (eds), EU and Investment Agreements (1st edn, Nomos; Baden-Baden 2013), 57; Gary Clyde Hufbauer, ‘WTO Judicial Appointments: Bad Omen for the Trading System’, Peterson Institute for International Economics (2011); ICSID, Updated Background Paper on Annulment for the Administrative Council of ICSID, 5 May 2016, available at: https://icsid.worldbank.org/en/Documents/resources/Background%20Paper%20on %20Annulment%20April%202016%20ENG.pdf; Christoph Ohler, ‘Democratic Legitimacy and the Rule of Law in Investor-State Dispute Settlement under CETA’, in Marc Bungenberg, Markus Krajewski, Christian Tams, Jörg Philipp Terhechte, Andreas Ziegler (eds), EYIEL (Springer, Cham 2017), 227; August Reinisch, ‘Will the EU’s Proposal Concerning an Investment Court System for CETA and TTIP lead to Enforceable Awards? – The Limits of Modifying the ICSID Convention and the Nature of Investment Arbitration’ (2016) 19(4) J. Int.’l Econ. L., 761; Laurens Timmer, ‘Manifest Excess of Powers as a Ground for the Annulment of ICSID Awards’ (2013) 14 JWIT, 775; August Reinisch, ‘The EU and Investor-State Dispute Settlement: WTO Litigators Going “Investor-State Arbitration” and Back to a Permanent “Investment Court”’, in Marc Bungenberg, Markus Krajewski, Christian Tams, Jörg Philipp Terhechte, Andreas Ziegler (eds), EYIEL (Springer, Cham 2017), 247; USTR, ‘Report on the Appellate Body of the World Trade Organization’, February 2020; Albert Van den Berg, ‘Appeal Mechanisms for ISDS Awards – Interaction with the New York and ICSID Conventions’ (2019) 34(1) ICSID Rev., 156; André von Walter and Maria Luisa Andrisani, ‘Resolution of Investment Disputes’ in Makane Moïse Mbengue and Stefanie Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (Springer, 2018), 185. A. Introduction and Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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B. Spirit and Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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C. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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D. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. The establishment of the Appellate Tribunal (paragraph 1) . . . . . . . . . . . . . . . II. The standards of review (paragraph 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. The Members of the Appellate Tribunal (paragraphs 3-5) . . . . . . . . . . . . . . . . . IV. The organization and administration of the Appellate Tribunal (paragraphs 5 and 7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V. The conduct of appeals before the Appellate Tribunal (paragraphs 6 and 9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VI. The decision of the Appellate Tribunal (paragraphs 2 and 9) . . . . . . . . . . . . . . VII. Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VIII. No annulment of a CETA Appeal Award . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IX. The periodic review (paragraph 8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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E. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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A. Introduction and Overview The establishment of a two-tier system for the settlement of investment disputes is one of the major novelties in CETA and the field of investor-state dispute settlement (ISDS) in general.1 Article 8.28 on the Appellate Tribunal thus constitutes a new feature, by which the Parties expressed their willingness to deviate from the axiom of the finality of arbitral awards. The Article sits logically in between Article 8.27 on the constitution of the Tribunal of first instance and Article 8.29 on the declaration of intent for furthering a ‘Multilateral Investment Court’. 2 The structure of this chapter follows the paragraphs of Article 8.28. Section B and C first introduce the spirit and purpose of the Article and its drafting history. Section D then contains the actual commentary of the provision Article 8.28(1) addressed in its sub-section I, while sub-section II assesses in detail the different standards of review the Appellate Tribunal may employ pursuant to Article 8.28(2). Sub-sections III through V elaborate on the composition and functioning of the Appellate Tribunal, predominantly by examining Commission proposals for Council positions on the matters laid down in paragraph three to seven and nine. The types of decisions the Appellate Tribunal may take figure in sub-section VI, with the enforcement thereof being the subject of sub-section VII. Finally, sub-section VIII sets out the arguments on why ICSID annulment of a decision by the Appellate Tribunal is impossible and sub-section IX briefly surveys the periodic review in Article 8.28(8). Section E concludes. 1
B. Spirit and Purpose One can best understand the ratio behind Article 8.28 of CETA by, firstly, taking note of both Parties’ support for appellate jurisdiction in the WTO and, secondly, by recalling how the idea of an appellate mechanism in international investment arbitration gained traction within the European Union. 4 It is widely known that the European Union and Canada looked to the WTO Appellate Body as an inspiration for the design of the CETA Appellate Tribunal. Both Parties strongly believe in the WTO Appellate Body’s role in safeguarding the international rule of law and staunchly support reform that would safeguard it.2 In a spirit of imitatio et aemulatio, Canada and the Union went further than merely transposing ideas by also addressing aspects of international appellate adjudication that have proved to be controversial at the Appellate Body (→ mn. 17, 25 or 37). Moreover, the Parties were prudent not to bypass familiar concepts from international investment law. This can be seen particularly in the dynamic integration of the ICSID annulment grounds in Article 8.28(2)(c) of CETA and the question of enforcement of arbitral awards issued by the Appellate Tribunal (→ mn. 26-31 and 58 ff.). 3
1 Von Walter and Andrisani, ‘Resolution of Investment Disputes’ in Mbengue and Schacherer (eds), Foreign Investment under the Comprehensive Economic and Trade Agreement (CETA) (2019), 185 (189). 2 The Parties’ commitment to WTO appellate jurisdiction is evidenced by the fact that (i) they were the first to conclude an ‘Interim Appeal Arbitration’ agreement remedying inter partes the absence of a functioning Appellate Body in July 2019, see https://trade.ec.europa.eu/doclib/docs/2019/july/trad oc_158273.pdf; and (ii) they were founding Members of the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) which elaborated on the text of (i) and included other WTO Members, crucially China. See the Statement on a Mechanism for Developing, Documenting and Sharing Practices and Procedures in the Conduct of WTO Disputes, JOB/DSB/1/Add.12, 30 April 2020.
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When the European Union designed its investment policy after the entry into force 5 of the Lisbon Treaty in 2009, the Commission’ regarded ISDS as ‘a key part of the inheritance that the Union receives from Member State BITs’. 3 At the same time, it identified three main challenges for transposing ISDS systems to the European level. Among them were not only the improvement of transparency and rules of ethics or a code of conduct of arbitrators, but also provisions against the ‘atomization of disputes and interpretations’.4 As consistency and predictability were key issues in the Commission’s view, the use of quasi-permanent arbitrators (as in the EU's FTA practice) and/or appellate mechanisms, where there is a likelihood of many claims under a particular agreement, was to be considered, but was not immediately pursued (→ mn. 7 ff.). A new impetus derived from a public consultation organized by the then EU 6 Trade Commissioner Karel De Gucht (2010-2014).5 In view of the mounting criticism against ISDS from anti-TTIP and anti-globalization NGOs in Europe,6 he asked towards the end of his mandate for input particularly on the topic of ISDS reform. He received replies from nearly 150.000 respondents.7 As to the question of an appellate mechanism, ‘the proposal [was] neither fully opposed nor fully supported’. 8 Specifically, the Commission observed that general support existed for the concept of an appellate mechanism, but that respondents’ endorsement depended chiefly on the exact modalities of the mechanism, with a preference for multilateral solutions. 9 All in all, this exercise yielded a careful endorsement from the civil society on the topic of an appellate mechanism, which made this an important element for the next Trade Commissioner, Cecilia Malmström (2015-2019). Accordingly, the EU’s reform proposal of November 2015, entitled the ‘Investment Court System’ (ICS), 10 stressed the necessity of including an appellate instance in all ISDS chapters to which the EU would become a Party.
3 Commission Communication, Towards a comprehensive European international investment policy, 7 July 2010, COM(2010) 343 final, p. 9. 4 Commission Communication, Towards a comprehensive European international investment policy, 7 July 2010, COM(2010) 343 final, p. 10. 5 Commission Staff Working Document, Report on the Online public consultation on investment protection and investor-to-state dispute settlement (ISDS) in the Transatlantic Trade and Investment Partnership Agreement (TTIP), 13 January 2015, SWD(2015) 3 final, p. 140, available at: https://trade.ec.europa.eu/d oclib/docs/2015/january/tradoc_153044.pdf. 6 For an overview of the criticism see Ohler, ‘Democratic Legitimacy and the Rule of Law in Investor-State Dispute Settlement under CETA’ in Bungenberg et al. (eds), EYIEL (2017), 227-245; Chan and Crawford, ‘The puzzle of public opposition to TTIP in Germany’ (2017) 19(4) Bus. Pol., 683-708. 7 Commission Staff Working Document, Report on the Online public consultation on investment protection and investor-to-state dispute settlement (ISDS) in the Transatlantic Trade and Investment Partnership Agreement (TTIP), 13 January 2015, SWD(2015) 3 final, p. 9-10. 8 Commission Staff Working Document, Report on the Online public consultation on investment protection and investor-to-state dispute settlement (ISDS) in the Transatlantic Trade and Investment Partnership Agreement (TTIP), 13 January 2015, SWD(2015) 3 final, p. 24. 9 Commission Staff Working Document, Report on the Online public consultation on investment protection and investor-to-state dispute settlement (ISDS) in the Transatlantic Trade and Investment Partnership Agreement (TTIP), 13 January 2015, SWD(2015) 3 final, p. 24-25. 10 European Commission, European Union's proposal for Investment Protection and Resolution of Investment Disputes in the Transatlantic Trade and Investment Partnership (TTIP), EU-US TTIP Negotiations, 12 November 2015, available at: https://trade.ec.europa.eu/doclib/docs/2015/november/tradoc_15395 5.pdf. For a good analysis of this text see Baetens, ‘The European Union’s Proposed Investment Court System: Addressing Criticisms of Investor-State Arbitration While Raising New Challenges’ (2016) 43(4) LIEI, 367-384.
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C. Drafting History The drafting history of Article 8.28 of CETA roughly mirrors the growing support within the Union for an appellate mechanism, as described in the previous section. 8 When the Council of the European Union amended the negotiating directives to cover investment in the ongoing talks with Canada in 2011, it stipulated in Point 26 d: ‘The agreement shall aim to provide for an effective and state-of-the-art investor-tostate dispute settlement mechanism. State-to-state dispute settlement will be included, but will not interfere with the right of investors to have recourse to the investor-to state dispute settlement mechanism. It should provide for investors a wide range of arbitration fora as currently available under the Member States’ bilateral investment agreements (BIT’s).’11 The reference to the ‘state-of-the-art investor-to-state dispute settlement’ was construed by reference to the Member States BITs, in which no appeal mechanism existed. Hence, the initial focus for the new investment chapter with Canada (and India and Singapore in parallel) was laid on robust protection standards and a modernized process for conducting ISDS.12 9 Accordingly, in early negotiating years, there was no trace of discussion on an appellate mechanism in the drafts. The first mention of ‘whether, and if so, under what conditions, an appellate mechanism could be created under [CETA]’ is found in the versions of the text dated November 2013,13 only a few months before the public consultations on ISDS reform would take place in the Union. In the version of the text that both chief negotiators initialled in August 2014, Article X.42(1)(c) reiterated the intention to explore the possibility of an appellate mechanism in the Committee on Services and Investment. As Canada agreed with the main aspects of the EU’s ICS proposal published in November 2015,14 the 2014 CETA text was subsequently changed during the process of legal scrubbing. The CETA agreement, as signed on 30 October 2016,15 finally contained Article 8.28 as a new feature. 10 In paragraph 6(g) of the Joint Interpretative Instrument on the Agreement, adopted on the day of signature,16 both Parties stated: ‘CETA is the first agreement to include an Appeal mechanism which will allow the correction of errors and ensure the consistency of the decisions of the Tribunal of first instance’. This wording explains that a main driver for establishing a second tier was the lack of consistency and 7
11 Council of the European Union, EU Doc 12838/11 of 15 December 2011 (declassified): Recommendation from the Commission to the Council on the modification of the negotiating directives for an Economic Integration Agreement with Canada in order to authorise the Commission to negotiate, on behalf of the Union, on investment, p. 5. 12 For a summary of the EU approach on designing its new investment policy in 2010-2012 see Hoffmeister and Ünüvar, ‘From BITS and Pieces towards European Investment Agreements’ in Bungenberg et al. (eds), EU and Investment Agreements (2013), 57–85. 13 This language figures first in the ‘Investor-to-State Dispute Settlement text after discussions on 15 November 2013’ in Article x-26(1)(c) and was subsequently integrated in the ‘Draft CETA Investment Text’ of 21 November 2013. 14 On Canada’s perspective see De Mestral, ‘Negotiating CETA with the European Union and Some Thoughts on the Impact of Mega-Regional Trade Agreements on Agreements Inter Partes and Agreements with Third Parties’ in Bungenberg et al. (eds), EYIEL (2017) 437-455. 15 See for the full text: Comprehensive Economic and Trade Agreement (CETA) between Canada, of the one part, and the European Union and its Member States, of the other part (OJ L 11/23). 16 Joint Interpretative Instrument on the Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union and its Member States (OJ L 11/3).
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predictability of international investment arbitration, which has occurred in some high-profile cases of the past.17 Moreover, for the EU side, Declaration No. 36 of the Council and the Commission, 11 entered into the minutes of the Council when adopting the decision on signature, 18 contained a number of further specifications on how the future appellate mechanism should be designed. The two EU institutions declared: ‘The appeal mechanism laid down in Article 8.28 of the CETA will be organised and improved to render it wholly fit to ensure consistency of decisions rendered at first instance and thus to contribute to legal certainty. This presupposes in particular: The composition of the Appellate Tribunal will be organised so as to ensure the greatest possible continuity. Each Member of the Appellate Tribunal will have the obligation to keep informed of decisions by divisions of the Appellate Tribunal of which he or she is not a Member. The Appellate Tribunal should have the option to sit as a “Grand Chamber” in cases raising important questions of principle or on which divisions of the Appellate Tribunal are divided’. At the same time, the Council and the Commission underlined that the provisions on investment dispute resolution and thus on the Appellate Tribunal would be excluded from provisional application (→ mn. 13).
D. Commentary I. The establishment of the Appellate Tribunal (paragraph 1) According to Article 8.28(1), the Appellate Tribunal is ‘hereby established’. The 12 Canadian Parliament ratified the agreement on 16 May 2017.19 The European Parliament gave its consent on 15 February 2017 to a draft conclusion decision of the Council of the European Union.20 However, as a ‘mixed agreement’, CETA also requires the approval of all Member States.21 At the time of writing, only 15 Member States have done so.22 CETA has thus not yet entered into force. In theory, dispute settlement provisions of an investment agreement can also be 13 provisionally applied. Famously, a tribunal established under the Energy Charter Treaty affirmed its jurisdiction to decide the Yukos case brought against the Russian Federation, although the latter had only expressed its agreement to provisional application.23 In the case of CETA, such a step was not taken. In view of the ECJ’s opinion on the EU-Singapore FTA of May 2017, according to which non-direct investment and 17 For examples and background on this issue, see von Walter and Andrisani, ‘Resolution of Investment Disputes’ in Mbengue and Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (2018), 185 (187 f.). 18 Statement by the Commission and the Council on investment protection and the Investment Court System (‘ICS’), OJ L 11/20. 19 Bill C-30, An Act to implement the Comprehensive Economic and Trade Agreement between Canada and the European Union and its Member States and to provide for certain other measures (S.C. 2017, c. 6). 20 European Parliament, European Legislative Resolution of 15 February 2017 on the draft Council decision on the conclusion of the Comprehensive Economic and Trade Agreement (CETA) between Canada, of the one part, and the European Union and its Member States, of the other part, P8_TA(2017)0030. 21 For a detailed account of legal nature and practice of mixed agreements, refer to Hillion and Koutrakos (eds), Mixed agreements revisited: The EU and its Member States in the world (2010). 22 For a list of the Member States that have already expressed their consent to be bound, please refer to: https://www.consilium.europa.eu/en/documents-publications/treaties-agreements/agreement/?id=2 016017. 23 Yukos Universal Limited (Isle of Man) v. The Russian Federation, UNCITRAL, PCA Case No. AA 227, Interim award on Jurisdiction and Admissibility (20 November 2009), paras. 393 ff.
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dispute settlement provisions fall within an area of shared competence between the EU and its Member States,24 the Council refrained from treading into those waters. The Council decision of 28 October 2016 on signature and provisional application25 enumerated Articles 8.1-8.8, Article 8.13, Article 8.15 with the exception of paragraph 3, and Article 8.16 as part of the provisionally applied provisions as of 21 September 2017.26 This does not include investment protection and ISDS. Accordingly, the Appellate Tribunal is not yet established. The relevant date remains the entry into force of CETA upon full ratification of both sides. 14 The above does not mean that Parties are prevented from preparing for that situation. Therefore, in Article 6(f) of the Joint Interpretative Instrument (→ mn. 21), 27 Canada and the EU have announced their intention to immediately begin further work on the implementation of the provisions on investment dispute resolution. In particular, they can adopt the necessary implementation decisions in advance with the objective to make the Appellate Tribunal fully operational on day one. Against that background, the Commission proposed to the Council on 11 October 2019 four draft legal acts, which the EU would share with Canada for adoption well ahead of the agreement’s entry into force (→ mn. 21, 33 and 39-44). 28 On 29 January 2021, these four draft decisions were adopted by consensus between the EU and Canada: 29 (1) Decision No. 1/2021 of the Joint Committee setting out the administrative and organisational matters regarding the functioning of the Appellate Tribunal;30 (2) Decision No. 2/2021 of the Joint Committee adopting a procedure for the adoption of interpretations in accordance with Articles 8.31.3 and 8.44.3(a) CETA as an Annex to its Rules of Procedure;31 (3) Decision No. 1/2021 of the Committee on Services and Investment adopting a code of conduct for Members of the Tribunal, Members of the Appellate Tribunal and mediators;32 (4) Decision No. 2/2021 of the Committee on Services and Investment adopting rules for mediation for use by disputing parties in investment disputes.33 As Decision No. 1/2021 of the Joint Committee fulfils the requirements of Article 8.29(9)(a) CETA, the Appellate Tribunal can thus hear any appeal upon entry into force of CETA. 15 The Appellate Tribunal’s task under paragraph 1 is to ‘review awards’ of the first instance Tribunal. The standards of review are laid down in paragraph 2. The Appellate Tribunal has the power to accept or reject appeals and no other remedy against first instance awards is allowed. Any decision of the Appellate Tribunal is therefore binding and final. 24 CJEU, Opinion 2/15 of the Court (Full Court), 16 May 2017, ECLI:EU:C:2017:376, paras. 225-256 and 285-304. 25 Council Decision 2017/38 on the provisional application of CETA (OJ L 11/1080). 26 See the Notice concerning the provisional application of the CETA (OJ L 238/9). 27 Joint Interpretative Instrument on the Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union and its Member States (OJ L 11/13). 28 European Commission, Press Release of 11 October 2019, available at: https://trade.ec.europa.eu/d oclib/press/index.cfm?id=2070. 29 European Commission, Press Release of 29 January 2021, available at: http://trade.ec.europa.eu/do clib/press/index.cfm?id=2240&title=The-EU-and-Canada-adopt-rules-putting-in-place-the-CETA-inv estment-court. 30 https://trade.ec.europa.eu/doclib/docs/2021/january/tradoc_159401.pdf. 31 https://trade.ec.europa.eu/doclib/docs/2021/january/tradoc_159402.pdf. 32 https://trade.ec.europa.eu/doclib/docs/2021/january/tradoc_159403.pdf. 33 https://trade.ec.europa.eu/doclib/docs/2021/january/tradoc_159404.pdf.
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Finally, Article 8.28(1) emphasizes that the awards must be ‘rendered under this 16 Section’. The Appellate Tribunal is hence only competent to hear cases which have been previously decided by the first instance Tribunal. It has no jurisdiction to hear other cases so as to become a general appellate court for investment cases. For this purpose, Canada and the EU strive to erect a ‘Multilateral Investment Court’, as laid down in Article 8.29.
II. The standards of review (paragraph 2) Article 8.28(2) sets out the standards of review of the Appellate Tribunal. In sharp 17 contrast to the ICSID annulment procedure under Article 52 of the ICSID Convention34 (→ mn. 26-31), the Appellate Tribunal is not restricted to assessing issues of due process but can also look at the proper interpretation of the law and the proper assessment of the facts. This is the result of taking the finality of arbitral awards of its pedestal and prioritizing legal accuracy instead.35 The competence to review ‘the proper assessment of the facts’ also distinguishes the Appellate Tribunal from the WTO’s Appellate Body, where appeals are limited to ‘issues of law covered in the panel report and legal interpretations developed by the panel’ (Article 17.6 of the Dispute Settlement Understanding (DSU)).36 At the same time, Article 11 of the DSU obliges WTO panels to ‘make an […] objective assessment of the facts of the case’. The Appellate Body has long held that ‘whether or not a panel has made an objective assessment of the facts before it, is […] a legal question which, if properly raised, would fall within the scope of appellate review’.37 This approach brings limited factual considerations into the aforementioned terms of reference of the Appellate Body in Article 17.6 of the DSU. The WTO Membership has fervently used the option to appeal panel reports on the basis of Article 11 of the DSU, 38 one of the thorns in the thigh of the United States in their criticism of the WTO Dispute Settlement Body in general and the Appellate Body in specific.39 By clearly mentioning the ‘appreciation of facts’ as part of the standards of the Appellate Tribunal, the EU and Canada have avoided any similar debate. Hence, the Appellate Tribunal is designed as a fully-fledged second tier with full authority to review procedural law, substantive law and the appreciation of the facts. Lit. (a) refers to the ‘application and interpretation of applicable law’. This empow- 18 ers the Appellate Tribunal to review how the CETA Tribunal has interpreted the applicable law and applied it to the facts. Accordingly, three concepts need to be dis-
34 Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (UNTS 575, p. 159). 35 Von Walter and Andrisani, ‘Resolution of Investment Disputes’ in Mbengue and Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (2018), 185 (191). 36 Understanding on Rules and Procedures Governing the Settlement of Disputes, Annex 2 of the WTO Agreement (UNTS 1869, p. 401). 37 Appellate Body Report, EC Measures Concerning Meat and Meat Products (Hormones), 16 January 1998, WT/DS26/AB/R, WT/DS48/AB/R, mn. 132; Appellate Body Report, United States – Definitive Safeguard Measures on Imports of Wheat Gluten from the European Communities, 22 December 2000, WT/DS166/AB/R, mn. 151. 38 See the graph at USTR, ‘Report on the Appellate Body of the World Trade Organization’, February 2020, p. 45, available at: https://ustr.gov/sites/default/files/Report_on_the_Appellate_Body_of_the_Wo rld_Trade_Organization.pdf. 39 See for an explanation of their critique USTR, ‘Report on the Appellate Body of the World Trade Organization’, February 2020, pp. 37-46, where the approach to domestic law is also lamented.
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tinguished, namely (i) ‘applicable law’, (ii) the ‘application’ and (iii) the ‘interpretation’ thereof. 19 The applicable law is defined in Article 8.31. It includes, besides the CETA text, other rules and principles of international law applicable between the Parties. Accordingly, customary international law and other international treaty law binding the EU, its Member States and Canada is relevant for deciding CETA disputes (→ Art. 8.31 mn. 54 ff.). 20 The application of the law refers to the question whether the Tribunal has operated a correct judicial syllogism. If a correctly interpreted rule says that in the event of ‘A’, the legal consequence is ‘B’, the Tribunal must award ‘B’ if the facts amount to ‘A’. It can, however, not award the legal consequence ‘C’. In some cases, it may also draw an analogy, for example if there is an unintended gap in the rules. In that case, similar facts to ‘A’ may also lead to ‘B’ if the interests are comparable and the likely intention of the Parties was to allow for such analogous treatment. If, however, there are indications that the similar facts were deliberately left out by the Parties from triggering the consequence ‘B’, then an analogy is not permissible. 21 As expressly stated in Article 8.31(1), the interpretation of the law should follow the rules laid down in Articles 31-33 of the Vienna Convention on the Law of Treaties (VCLT).40 According to these rules, the Tribunal should establish the meaning of a rule by analyzing its text, context, and object and purpose. The negotiating history of a treaty is only a supplementary means of interpretation if no clear result can be otherwise achieved (Article 32 VCLT). In contrast, an agreement of the Parties upon conclusion of a treaty constitutes relevant context (Article 31(2)(b) VCLT). This is the case for the ‘Joint Interpretative Instrument’ issued by the Parties upon signature on 30 October 2016.41 In order to reassure the Member States of the legal nature of this instrument, the Council Legal Service even entered the following statement to the minutes of the Council decision of 28 October 2016:42 The Council Legal Service hereby confirms that, by virtue of Article 31(2)(b) of the Vienna Convention on the Law of Treaties, the Joint Interpretative Instrument to be adopted by the parties on the occasion of the signature of CETA, of which it forms the context, constitutes a document of reference that will have to be made use of if any issue arises in the implementation of CETA regarding the interpretation of its terms. To this effect, it has legal force and a binding character.
22
In addition, a subsequent agreement of the Parties may also become relevant context according to Article 31(3)(b) VCLT. For example, Article IX:2 of the Marrakech Agreement43 provides a mechanism that the General Council of the WTO may issue authoritative interpretations on WTO law. Under CETA, the relevant body is the CETA Joint Committee, established under Article 26.1. It comprises representatives of Canada and representatives of the European Union. It meets once a year and is co-chaired by the Canadian Minister for Trade and the European Commissioner for Vienna Convention on the Law of Treaties (UNTS 1155, p.331). Joint Interpretative Instrument on the Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union and its Member States (OJ L 11/13). 42 Statement by the Council Legal Service on the legal nature of the Joint Interpretative Instrument (OJ L 11/22). 43 Marrakesh Agreement Establishing the World Trade Organization (UNTS 1867, p. 3). It is understood that the utilisation of this provision by the WTO Members in the Ministerial Conference or the General Council would imply a binding interpretation on both the entire Membership of the WTO and its Dispute Settlement Body. See in this regard Appellate Body Report, United States – Tax Treatment for "Foreign Sales Corporations", 24 February 2000, WT/DS108/AB/R, mn. 122; Gazzini, ‘Can Authoritative Interpretation under Article IX:2 of the Agreement Establishing the WTO Modify the Rights and Obligations of Members?’ (2008) 57(1) ICLQ, 169-181. 40
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Trade, or their designated representatives. It decides by mutual consent (Article 26.3) and can adopt decisions during a meeting or by written procedure (Article 10.2 of the Rules of Procedure).44 Among its tasks is also to adopt a joint interpretation to clarify ‘serious concerns […] as regards matters of interpretation that may affect investment’ (Article 8.31(3)). In January 2021, the Joint Committee adopted Decision 2/2021 on the procedure 23 to be followed in this field.45 Under this Decision, any interpretation from the Joint Committee should be prepared in the Committee on Services and Investment. Once adopted by the Joint Committee it would become ‘binding on the Tribunal and the Appellate Tribunal’.46 The Joint Committee could also decide that an interpretation shall have binding effect only ‘from a specific date’.47 While this follows the precedence from the NAFTA agreement, where the Parties have curtailed an extensive interpretation of the notion of indirect expropriation,48 the significance of the instrument should nevertheless not be overstated. First, Parties cannot interfere in an ongoing case, as this would compromise the independence and impartiality of the Appellate Tribunal (Article 8.28(4) in conjunction with Article 8.30(1)). Second, any interpretation can only provide ‘context’, but cannot override an otherwise clear legal term used in CETA itself. Under lit. (b) the Appellate Tribunal can review ‘manifest errors in the appreciation 24 of facts’. As the notion ‘manifest’ indicates, the Tribunal must have erred in such a way that the higher instance can easily detect the mistake. This would be the case, for example, if the Tribunal had rejected a fact although it was properly proven or – conversely – if it assumed a fact without a proper proof. More difficult are situations where a Tribunal takes certain scientific advice for a fact. If for example, the question before the Tribunal was, whether certain emissions from an investor’s factory in the host country has caused harm or was likely to cause harm for the environment, the Tribunal would have to rely on the assessment of the local authorities and, if appropriate, on independent advice sought during the proceedings. In such a situation, the Appellate Tribunal could only correct the Tribunal if it had condoned obvious scientific mistakes. If, however, there is a margin of appreciation about the harmfulness of cer44 Decision 001/2018 of the CETA Joint Committee of 26 September 2018 adopting its Rules of Procedure and of the Special Committees, OJ L 190/16. 45 See above Note 31. For the proposal of the European Commission see, Proposal for a Council decision on the position to be taken on behalf of the European Union in the CETA Joint Committee established under the Comprehensive Economic and Trade Agreement (CETA), between Canada, of the one part, and the European Union and its Member States, of the other part as regards the adoption of a decision on the procedure for the adoption of interpretations in accordance with Articles 8.31.3 and 8.44.3(a) of CETA as Annex to its Rules of Procedure, 11 October 2019, COM(2019) 458 final. 46 European Commission, Annex to the Proposal for a Council decision on the position to be taken on behalf of the European Union in the CETA Joint Committee established under the Comprehensive Economic and Trade Agreement (CETA), between Canada, of the one part, and the European Union and its Member States, of the other part as regards the adoption of a decision on the procedure for the adoption of interpretations in accordance with Articles 8.31.3 and 8.44.3(a) of CETA as Annex to its Rules of Procedure, 11 October 2019, COM(2019) 458 final, Article 5, first sentence of the proposed Draft Joint Committee Decision. 47 European Commission, Proposal for a Council decision on the position to be taken on behalf of the European Union in the CETA Joint Committee established under the Comprehensive Economic and Trade Agreement (CETA), between Canada, of the one part, and the European Union and its Member States, of the other part as regards the adoption of a decision on the procedure for the adoption of interpretations in accordance with Articles 8.31.3 and 8.44.3(a) of CETA as Annex to its Rules of Procedure, 11 October 2019, COM(2019) 458 final, Article 5, second sentence of the proposed Draft Joint Committee Decision. 48 NAFTA Free Trade Commission, Notes of Interpretation of Certain Chapter 11 Provisions, 31 July 2001, available at: http://www.sice.oas.org/tpd/nafta/Commission/CH11understanding_e.asp.
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tain substances or causal chains or other issues of prospective uncertainty, the appreciation of such facts by the Tribunal would have to be accepted. 25 As one important example of the appreciation of facts lit. (b) also mentions the appreciation of relevant domestic law. This goes back to the old dictum of the Permanent Court of International Justice: From the standpoint of International Law and of the Court which is its organ, municipal laws are merely facts which express the will and constitute the activities of States, in the same manner as do legal decisions or administrative measures. The Court is certainly not called upon to interpret the Polish law as such; but there is nothing to prevent the Court's giving judgment on the question whether or not, in applying that law, Poland is acting in conformity with its obligations towards Germany under the Geneva Convention.49
There are two important consequences. First, a CETA Tribunal shall not pronounce itself on the question whether the measure at issue is in line with domestic law or not. If it did so, the Appellate Tribunal would have the power to correct that mistake. Second, a CETA Tribunal can come to a conclusion about the compatibility of national law with international obligations flowing from CETA. This standard is comparable to the one exercised in WTO litigation.50 At the same time, the CETA Tribunal is bound to apply Article 8.31(2), 3rd sentence, namely to ‘follow the prevailing interpretation given to the domestic law by the courts or authorities of that Party’. If there is a ‘manifest’ mistake in its understanding of the national law, the Appellate Tribunal can also overturn such findings. In their foresight, the Parties also explicitly acknowledged that ‘any meaning given to domestic law by the Tribunal shall not be binding upon the courts or the authorities of that Party’ (Article 8.31(2) in fine). 26 Lit. (c) incorporates the annulment grounds under Articles 52(1)(a)–(e) of the ICSID Convention as additional grounds of review. The Appellate Tribunal can draw inspiration from the existing and future ICSID jurisprudence on that provision, as the apparent object and purpose of lit. (c) is to provide for a consistent approach with ICSID practice on these matters. Otherwise, the CETA Parties would not have dynamically incorporated these grounds but chosen to (re-)formulate them in their own way. At the same time, the annulment process under ICSID is designed to safeguard the integrity, not the outcome, of ICSID arbitration proceedings, 51 whereas Article 8.28(2) provides for a full review of the first instance award. Therefore, it is necessary to, first, examine how a specific annulment grounds applies in its ICSID context52 and, second, 49 PCIJ, Certain German Interests in Polish Upper Silesia (Germany v. Poland), Judgment, 25 August 1925, Series A, No. 6, p. 19. For a critical analysis see Dupuy, International Law and Domestic (Municipal) Law in The Max-Planck encyclopedia of public international law, Vol. 5 (2011), 836, mn. 33. He points out that if domestic law were to be a pure fact in international adjudication, the prohibition to invoke domestic law as a justification for failure to perform treaty obligations would become nonsensical – it is clear that a mere fact cannot override legal obligations. This would ‘well serve as a basis for the argument that international law attributes a certain legal value to provisions of municipal law applicable under certain conditions on the international level, albeit not with the same force as the rules of international law’. 50 See Appellate Body Report, United States – Section 211 Omnibus Appropriations Act of 1998, 2 January 2002, WT/DS176/AB/R, mn. 105: ‘Under the DSU, a panel may examine the municipal law of a WTO Member for the purpose of determining whether that Member has complied with its obligations under the WTO Agreement. Such an assessment is a legal characterization by a panel. And, therefore, a panel's assessment of municipal law as to its consistency with WTO obligations is subject to appellate review under Article 17.6 of the DSU’. 51 Soufraki v. United Arab Emirates, ICSID Case No. ARB/02/7, Decision on Annulment (5 June 2007), para. 20. 52 For a detailed overview see ICSID, Updated Background Paper on Annulment for the Administrative Council of ICSID, 5 May 2016, available at: https://icsid.worldbank.org/en/Documents/resources/Backgr ound%20Paper%20on%20Annulment%20April%202016%20ENG.pdf >.
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to assess whether the issue is in line with the CETA appeal system. If there is a conflict, the CETA appeal system takes precedence over any aspect of the ICSID annulment ground at issue since Articles 52(1)(a)–(e) of the ICSID Convention are only incorporated ‘in so far as they are not covered by Article 8.28(2)(a) or (b)’. Pursuant to lit. (a) of Article 52 of the ICSID Convention, the Appellate Tribunal 27 can hear claims that the CETA Tribunal was not properly constituted. It shall hence secure the integrity of the tribunal. For that claim, the relevant review standard is the entire body of Article 8.27. In addition, this scarcely raised ground of annulment 53 has become relevant in order to clarify the principle of finality of arbitration awards in the ICSID system. The ad hoc Committee in EDF International v. Argentina ruled that the ‘constitution’ of a tribunal is broader than merely the content of Articles 37-39 of the ICSID Convention54 and allowed for a limited de novo review of a decision by a tribunal rejecting a challenge relating to its constitution sensu lato. In particular, it could check whether ‘the decision [of the tribunal] is so plainly unreasonable that no reasonable decision-maker could have come to such a decision’.55 While one could see this ruling as a nod towards a more expansive ICSID annulment procedure, it is hard to imagine circumstances in which the latter standard of review would be met. 56 In any case, this limitation is not relevant for CETA appeals, as the Appellate Tribunal may assess ‘the application and interpretation of the applicable law’ under Article 8.28(2) (a) and ‘manifest errors in the appreciation of facts’ under Article 8.28(2)(b) CETA. The Appellate Tribunal can also assess whether the CETA Tribunal has manifestly 28 exceeded its power in accordance with Article 52 lit. (b) of the ICSID Convention. This annulment ground covers two categories:57 Manifest excess of powers relating to jurisdiction and manifest excess of powers relating to the applicable law (see for example the decisions of the ad hoc Committees in Sempra v. Argentine58 and in Vivendi II v. Argentine).59 As the latter point is covered by Article 8.28(2)(a), only the former constitutes an additional ground of appeal in CETA arbitration. In this field, ad hoc Committees have ruled that both the faulty exercise and the faulty rejection of jurisdiction by tribunals can justify annulment.60 In the CETA context, that means that the Appellate Tribunal can check whether the proper respondent (Article 8.21) has given consent under Article 8.25(1) and whether a proper submission of an eligible applicant contains the consent of the latter under Article 8.25(2) at first instance. The nationali-
53 ICSID, Updated Background Paper on Annulment for the Administrative Council of ICSID, 5 May 2016, paras. 77 ff. 54 EDF International S.A., SAUR International S.A. and León Participaciones Argentinas S.A. v. Argentine Republic, ICSID Case No. ARB/03/23, Decision on Annulment (5 February 2016), paras. 120 and 126. 55 EDF International S.A., SAUR International S.A. and León Participaciones Argentinas S.A. v. Argentine Republic, ICSID Case No. ARB/03/23, Decision on Annulment (5 February 2016), paras. 144 ff. 56 See Bottini, ‘Present and Future of ICSID Annulment: The Path to an Appellate Body?’ (2016) 31(3) ICSID Rev., 719 (720). 57 Timmer, ‘Manifest Excess of Powers as a Ground for the Annulment of ICSID Awards’ (2013) 14 JWIT, 775 (785). 58 Sempra Energy International. v. Argentina, ICSID Case No. ARB/02/16, Decision on Annulment (29 June 2010), para. 164. 59 Compañía de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic, ICSID Case No. ARB/97/3, Decision on Annulment (10 August 2010) (hereafter ‘Vivendi II’), para. 251. 60 Adem Dogan v. Turkmenistan, ICSID Case No. ARB/09/9, Decision on Annulment (15 January 2016), para. 105; Ioan Micula, Viorel Micula and others v. Romania, ICSID Case No. ARB/05/20, Decision on Annulment (26 February 2016), para. 125; TECO Guatemala Holdings, LLC v. Republic of Guatemala, ICSID Case No. ARB/10/23, Decision on Annulment (5 April 2016), para. 77 with further references.
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ty of the applicant will often be a decisive factor in this respect and may be reviewed by the higher instance, as in Soufraki.61 29 The Appellate Tribunal will also be able to assess whether a Member of a CETA Tribunal was involved in corruption under lit. (c). This ground for annulment has never been raised in a case before an ad hoc Committee, although it was included in the initial application for annulment in Vivendi II.62 Inspiration for the interpretation of the term corruption can be drawn from the UN Convention against Corruption,63 to which both Canada and the EU are a Party, through Article 31(3)(c) VCLT. Read in the light of Article 15 thereof, an arbitrator shall not ask for or accept, directly or indirectly, an undue advantage for himself or herself or another person or entity, in order to influence his performance on the Tribunal. Such a broad reading is also supported by Article 4(3) of the Code of Conduct under Decision 1/2021 of the Committee on Services and Investment, according to which ‘Members shall not, directly or indirectly, incur any obligation, accept any benefit, enter into any relationship, or acquire any financial interest that is likely to affect or appear to affect their independence and impartiality’. 30 Lit. (d) enables the Appellate Tribunal to rule on allegations of a serious departure from a fundamental rule of procedure. Parties rely on this annulment ground to challenge a Tribunal’s failure to apply core principles of good administration of justice, as e.g. the equal treatment of Parties64 or the right to be heard.65 This provision does not concern a Tribunal’s disregard for ‘ordinary’ arbitration rules as those comprised in the ICSID Arbitration Rules.66 The line between a fundamental rule of procedure and a mere ordinary one is hard to draw, however. In Enron v. Argentine, the Committee ruled that when an ordinary rule of procedure is breached, the principle of Party autonomy, a fundamental rule of procedure, is also breached because an agreement between the Parties on procedural matters has not been applied.67 Given the public law nature of the CETA arbitration system, though, the Appellate Tribunal under CETA is not required to give as much weight to agreements between the Parties on procedural matters. It would be more important to verify whether the Arbitral Tribunal itself has properly conducted the proceedings at first instance. 61 Soufraki v. United Arab Emirates, ICSID Case No. ARB/02/7, Decision on Annulment (5 June 2007) paras. 47-78. 62 Compañía de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic, ICSID Case No. ARB/97/3, Decision on Annulment (10 August 2010), paras. 2 and 17. 63 UN General Assembly, United Nations Convention Against Corruption, 31 October 2003, A/58/422. 64 Iberdrola Energía, S.A. v. Republic of Guatemala, ICSID Case No. ARB/09/5, Decision on Annulment, (13 January 2015), para. 105; Tulip Real Estate and Development Netherlands B.V. v. Republic of Turkey, ICSID Case No. ARB/11/28, Decision on Annulment (30 December 2015), paras. 72, 84 and 145; Total S.A. v. Argentine Republic, ICSID Case No. ARB/04/1, Decision on Annulment (1 February 2016), paras. 309 and 314. 65 Malicorp Limited v. Arab Republic of Egypt, ICSID Case No. ARB/8/18, Decision on the Application for Annulment (3 July 2013), paras. 29 and 36; Iberdrola Energía, S.A. v. Republic of Guatemala, ICSID Case No. ARB/09/5, Decision on Annulment, (13 January 2015), para. 105; Occidental, Occidental Petroleum Corporation and Occidental Exploration and Production Company v. Republic of Ecuador, ICSID Case No. ARB/06/11, Decision on Annulment, 2 November 2015, para. 60; Tulip Real Estate and Development Netherlands B.V. v. Republic of Turkey, ICSID Case No. ARB/11/28, Decision on Annulment (30 December 2015), paras. 80 and 145; Total S.A. v. Argentine Republic, ICSID Case No. ARB/04/1, Decision on Annulment (1 February 2016), paras. 309 and 314. 66 ICSID Rules of Procedure for Arbitration Proceedings, 2003, online at: http://icsidfiles.worldbank. org/icsid/icsid/staticfiles/basicdoc/partf.htm. 67 Enron Corporation and Ponderosa Assets, L.P. v. Argentine Republic, ICSID Case No. ARB/01/3, Decision on Annulment (30 July 2010), paras. 195 and 197.
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Finally, the Appellate Tribunal will be able to assess whether the CETA Tribunal 31 award should be nullified because of a failure to state the reasons on which it is based pursuant to lit. (e) of Article 52(1) of the ICSID Convention. This ground for annulment is the counterpart of the obligation to ‘state the reasons upon which [the award] is based’ in Article 48(3) of the ICSID Convention and is invoked frequently before ad hoc Committees. While the decisions by the Mine v. Guinea68 and Klöckner v. Cameroon69 ad hoc Committees only applied a light-touch test to the reasoning of the tribunals by ensuring that the reasoning was not ‘contradictory or frivolous’, 70 other Committees have been more assertive in their scrutiny.71 In order to ensure full transparency about the process and the outcome of a CETA investment case, the Appellate Tribunal can equally investigate whether the stated reasons at first instance are logic, consistent and complete.
III. The Members of the Appellate Tribunal (paragraphs 3-5) Paragraphs 3-5 deal with the appointment, qualification and internal organization 32 of the ‘Members of the Appellate Tribunal’. The notion is a careful compromise. On the one hand, the reference to an ‘Appellate Tribunal’ reinforces the political message that the body has the highest levels of guarantees for independence and impartiality. On the other hand, a ‘Member’ is not a ‘judge’. This choice for this denomination can be explained by reference to the universal enforcement mechanism for investment awards.72 Under the New York Convention73 and the ICSID Convention any investment award that is sought to be enforced in a national legal order, must emanate from ‘arbitration’.74 In order to stress the ‘hybrid’ nature75 of the Appellate Tribunal, the Parties therefore decided not to design it as a ‘court’ with ‘judges’. While the Appellate Tribunal itself is established by law upon the entry into force of 33 CETA, the individual Members need to be appointed by a decision of the Joint Committee. Article 8.27 prescribes a number of 15 Members of the CETA Tribunal, with a possibility to increase or reduce them, but the Parties have been silent on the number of Members of the Appellate Tribunal. Article 8.28(5) only indicates that there must be three Members in a division deciding a case. In its Decision 1/2021 (→ mn. 14) the Joint Committee decided that there should be six Members. Two Members should be selected by nominations proposed by Canada, two Members should be selected from nominations proposed by the EU, and two Members should not have the nationality of either Canada or an EU Member State but should be selected from nominations 68 Maritime International Nominees Establishment v. Republic of Guinea, ICSID Case No. ARB/84/4, Decision on Annulment (22 December 1989). 69 Klöckner Industrie-Anlagen GmbH and Others v. Republic of Cameroon, ICSID Case No. ARB/81/2, Decision on Annulment (3 May 1985). 70 The Government of Sudan v. The Sudan People’s Liberation Movement/Army, Permanent Court of Arbitration, Final Award (22 July 2009), para. 529. 71 ICSID, Updated Background Paper on Annulment for the Administrative Council of ICSID, 5 May 2016, para. 106. 72 For a succinct overview of enforcement mechanisms for investment awards, see Bungenberg and Reinisch, ‘From Bilateral Arbitral Tribunals and Investment Courts to a Multilateral Investment Court’ EYIEL (2020), 155-159. 73 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (UNTS 330, p. 3). 74 See Article 54 of the ICSID Convention and Article III of the New York Convention. 75 Reinisch, ‘The EU and Investor-State Dispute Settlement: WTO Litigators Going “Investor-State Arbitration” and Back to a “Permanent Investment Court”’, in Bungenberg et al. (eds), EYIEL (2017), 247 (288).
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by either side. This arrangement roughly mirrors the agreed methodology for the nomination of the Members of the lower instance (Article 8.27(2)). Consequently, the Appellate Tribunal is entirely composed of individuals who are nominated by the Parties. This deviates from the composition of any ad hoc Committee, established under Article 53(3) of the ICSID Convention. There, none of the three members ‘shall be a national of the State party to the dispute or of the State whose national is a party to the dispute’. According to Article 8.28(4) the Members of the Appellate Tribunal must bear the same qualifications as the Members of the CETA Tribunal. This means that they must qualify for the highest legal offices in their home country and have demonstrated expertise in public international law. It is also ‘desirable’ for them to have expertise in international investment law, international trade law and the resolution of disputes in these disciplines. It follows that Canada and the EU have put the bar very high. The necessary qualification is similar to the one for international judges serving in the International Court of Justice76 or a regional Human Rights Court (European Court of Human Rights77 or Inter-American Court of Human Rights).78 Moreover, the Parties also wished to counterbalance the impression that investment arbitrators are necessarily linked with corporate interests or large international law firms. Rather, the typical profile of a Member of the Appellate Tribunal would be a highly qualified ex-judge, a former senior civil servant, or a University professor with experience how to balance between private and public interests. By virtue of Article 8.28(4), Members of the Appellate Tribunal are also required to comply with the ethical standards as laid down by Article 8.30. In that respect, the Code of Conduct of 29 January 2021 (→ mn. 14) applies for the Members of the Tribunal and the Appellate Tribunal alike. It envisages a responsibility to ‘avoid impropriety and the appearance of impropriety’ and the need to observe ‘high standards of conduct’ (Article 2). Members would have to disclose interests and relationships that could compromise their independence and impartiality (Article 3) and take solemn commitments safeguarding these guarantees (Article 4). Article 5 sets a number of requirements for former Members, followed by confidentiality requirements for the entire present or former bench (Article 6). Members should also keep records of their expenses and have a right to be heard in case of sanctions (Articles 7 and 8). According to Article 2(3) of Joint Committee Decision 1/2021 (→ mn. 14), the regular tenure for a Member of the Appellate Tribunal should be nine years (half of the very first six Members should serve only six years, though, in order to start the regular rotation on the bench). In order to avoid political pressures connected with a possible prolongation of the term, as sadly experienced by some WTO Appellate Body Members,79 their term should be non-renewable. Another lesson learnt from the WTO is the proposed rule that Appellate Tribunal Members may ‘finish’ their case even after their term at the Tribunal has expired. This echoes Section 15 of the AB’s
76 77
14.
Article 2 of the Statute of the International Court of Justice. Article 21 of the European Convention on Human Rights, as amended by Protocols Nos. 11 and
Article 4 of the Statute of Inter-American Court of Human Rights. One of the first examples of this political pressure is the Obama administration’s refusal to reappoint former Appellate Body Member Jennifer Hillman, see Hufbauer, ‘WTO Judicial Appointments: Bad Omen for the Trading System’, Peterson Institute for International Economics (2011), available at: https://www.piie.com/blogs/realtime-economic-issues-watch/wto-judicial-appointments-bad-omen-tra ding-system. 78
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Working Procedures,80 whose legality is contested by the United States.81 However, when the Joint Committee is to adopt the proposed decision, there can be no doubt that such prolongation of a Member’s tenure for the sole purpose of bringing the case to a close is warranted by the need for an expeditious and effective process. Otherwise, a full case would have to be re-started and heard before a newly composed division, which is neither in the interest of the disputing Parties nor in the interest of a proper administration of justice. As reward for their work, the members of the Appellate Tribunal must receive some 38 financial compensation. However, there is uncertainty about the future workload. If there are only very few cases, arrangements for partial work are more appropriate, whereas a salary for full-time work is the best solution for a highly demanded Appellate Tribunal. In Article 2(10)-(13) of Decision No. 1/2021 of the Joint Committee, both alternatives are mentioned. Members should first receive a retainer fee, which may be transformed into a regular salary by a decision of the Joint Commission. The costs shall be borne equally by the Parties.
IV. The organization and administration of the Appellate Tribunal (paragraphs 5 and 7) The organization of the Appellate Tribunal largely depends on a decision of the Joint Committee under paragraph 7 of Article 8.28. Such a decision is binding under Article 26.3. It can cover the six areas enumerated in lit. (a) to (f). The ‘catch-all’ clause in lit. (g) also enables the Joint Committee to address any other element that it deems necessary for the functioning of the Appellate Tribunal. Decision 1/2021 of the Joint Committee (→ mn. 14) has covered the following grounds: The Tribunal should be presided by a President and a Vice-President who replaces the President in the latter’s absence. According to Article 2(4) of the Decision, the two members of the Appellate Tribunal with third-country nationality will be selected for these functions for a two-year term in order to strengthen the Appellate Tribunal’s appearance of impartiality. Any appeal is heard by a division of three members. According to Article 8.28(5) they are ‘randomly’ assigned to the case. At the same time, there should be no over-representation of members proposed by either side. Therefore, under Article 2(5) of the Decision, every division should comprise a Canadian, a European and a thirdcountry national, who would function as chair. However, the precise allocation of the six members to the two divisions should be random. The President should decide about the composition of a division ‘in each case’, while giving equal opportunity to all Members to serve.82 This proposal seems to over-complicate matters. It would be perfectly in line with Article 8.28(5) to foresee two stable divisions of three Members each. Once a new appeal comes in, the President could decide ‘randomly’ to which division to refer the case, either on the basis of pre-determined criteria (such as the legal basis of a claim), or of strict alternation. Article 8.28(5) does not refer to any other body of the Appellate Tribunal than the division of three members. Nevertheless, in line with its Declaration No. 36, 83 the EU WTO, Working Procedures for Appellate Review, 16 August 2010, WT/AB/WP/6. USTR, ‘Report on the Appellate Body of the World Trade Organization’, February 2020, pp. 32-37. 82 Article 2(6) of the CETA Joint Committee Decision 1/2021. 83 Statement by the Commission and the Council on investment protection and the Investment Court System (‘ICS’), OJ L11/20. 80
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39
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41
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side pushed for a sort of ‘Grand Chamber’. Such a ‘division of six Members’ should be able to hear an appeal in three scenarios: (a) serious question of interpretation; (b) joint request of the disputing parties; (c) majority decision of the Members of the Appellate Tribunal. Canada agreed with this point, and hence Article 2(7) of Decision 1/2021 of the Joint Committee foresees such a special division as an additional organizational matter under Article 8.28(7)(g). 43 The Appellate Tribunal can issue detailed rules for these and any other organizational matters in its working procedures.84 While the Appellate Tribunal enjoys discretion on how to organize its internal work, these rules must be in line with Article 8.28 and the binding Decisions of the Joint Committee. 44 An important point for the work of the Tribunal is the question of administrative support. In international investment litigation, such support is usually offered by the chosen forum, i.e. a national Chamber of Commerce, the International Court of Arbitration in The Hague85 or the ICSID Secretariat in Washington.86 In the EU’s view, close cooperation with the ICSID Secretariat is the preferred option because of its relevant expertise. Moreover, such choice reaffirms the credibility of the entire ICSID system against some exaggerated criticism against the alleged pro-Western bias of the World Bank and its institutions. Accordingly, the Joint Committee designated the ICSID Secretariat as the Secretariat for the Appellate Tribunal. 87 The extra expenses for ICSID support for the Appellate Tribunal shall be borne by the EU and Canada jointly.
V. The conduct of appeals before the Appellate Tribunal (paragraphs 6 and 9) Either disputing Party (the investor or the respondent) may bring an appeal against an award of the Tribunal. Under Article 8.28(9)(a), the Party has 90 days after its issuance to do so. In its notice of appeal, it must quote the grounds for the appeal, as enumerated in paragraph 2. It is also possible that both sides appeal at the same time for different reasons. The Appellate Tribunal is then free to accept the ‘cross-appeals’ as one and deal with them in one case. As aforementioned, no other remedy is allowed against the first instance award (Article 8.28(9)(b)). 46 The proceedings before the Appellate Tribunal shall be open and transparent. To achieve this, Article 8.28(6) makes two guarantees which are applicable at first instance level equally operational for appeals, namely Articles 8.36 (transparency) and 8.38 (non-disputing parties). As per its broad power under Article 8.27(7)(b), the Joint Committee can also add other relevant provisions. In its Decision 1/2021 (→ mn. 14), the Joint Committee referred to Articles 8.20 (mediation), 8.24 (proceedings under other international agreements), 8.26 (Third-Party Funding), 8.31 (applicable law), 8.34 (interim measures of protection), 8.35 (discontinuance), 8.39 (final award), and 8.40 (indemnification or other compensation).88 47 Above all, the Appellate Tribunal is bound to observe the UNCITRAL transparency rules (Article 8.36).89 This means that all written documents that are relevant for the 45
Article 2(8) of the CETA Joint Committee Decision No. 1/2021. Article 1(5) of the ICC Rules of Arbitration. 86 Article 3 of the ICSID Convention. 87 Article 2(14) of CETA Joint Committee Decision No. 1/2021. 88 Article 3(7) of CETA Joint Committee Decision No. 1/2021. 89 On the linkage between these transparency rules and the aforementioned consistency of application and interpretation of CETA, refer to von Walter and Andrisani ‘Resolution of Investment Disputes’ 84
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appeal should be made publicly available, including the notice of appeal, preliminary objections (if any), submissions of the Parties on admissibility and the merits. Moreover, the decision of the Appellate Tribunal must be published. The only exception relates to confidential information, which may be redacted (Article 8.36(6)). The hearing before the Appellate Tribunal shall be open to the public. This includes 48 the possibility of live-streaming. If parts of the hearing touch upon confidential issues, those parts may be held in private. A good indicator whether certain information is worthy of protection is its classification under national law of either Party. According to Article 8.38(2) the Appellate Tribunal shall also admit submissions 49 of the non-disputing Party, who is to be kept informed by the respondent. That provision allows either Canada or the EU to present its views before the Appellate Tribunal on cases relating to the other Party. The question may come up whether an EU Member State may also present its individual view towards the Appellate Tribunal when a European investor has brought a case against Canada. The answer is in the affirmative if the subject matter of the case clearly falls within the shared competence of the Union and its Member State (see Article 1.1. CETA, which defines a Party as the Union and/or its Member States depending on which competence is at play). However, since the European Court of Justice held that foreign direct investment falls into exclusive EU competence under Article 207(1) TFEU, 90 that scenario may only arise, when questions of indirect investment are under scrutiny before the Appellate Tribunal. In such a case, the Commission and the Member State concerned need to cooperate and consult each other according to Article 6 of Regulation No. 912/2004. 91 It should be added, though, that there is no duty to participate, and the Appellate Tribunal shall draw no inference from the absence of a statement from the non-disputing Party (Article 8.38(3)). If a non-disputing Party takes a position, the respondent shall be given reasonable opportunity to comment upon such intervention. The option to participate in front of the Appellate Tribunal for the non-disputing Party exists for both written submissions or oral positions at the hearing. An important concern on establishing a two-tier system in investment arbitration, 50 which was also raised in the public consultation of 2014,92 is the time factor. If a host government treats an investment illegally, the possibility to go into appeal will only prolong the suffering for the investor and diminish the efficiency of the entire dispute settlement system. However, rather than denying a second tier altogether, clear time limits may mitigate this risk. Against that background, Article 3(5) of the Joint Committee Decision No. 1/2021 introduces 180 days as the regular time span for decisions of the Appellate Tribunal. Going beyond this delay to 270 days, would trigger the need to justify. In exceptional cases, the Appellate Tribunal could also pass the latter deadline. In view of the two-years timeline prescribed for the first instance in Article 8.39(7), this brings the ordinary amount of time needed for a complete CETA investment case to less than three years.
in Mbengue and Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA)’ (2018), 185 (187 f.). 90 CJEU, Opinion 2/15 of the Court (Full Court), Free Trade Agreement between the European Union and the Republic of Singapore, 16 May 2017, ECLI:EU:C:2017:376, paras. 225-256 and 285-304. 91 Regulation No. 912/214 of the European Parlament and the Council of 23 July 2014 establishing a framework for managing financial responsibility linked to investor-to-state dispute settlement tribunals established by international agreements to which the European Union is party (OJ L 257/121). 92 Commission Staff Working Document, Report on the Online public consultation on investment protection and investor-to-state dispute settlement (ISDS) in the Transatlantic Trade and Investment Partnership Agreement (TTIP), 13 January 2015, SWD(2015) 3 final, p. 24.
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VI. The decision of the Appellate Tribunal (paragraphs 2 and 9) 51
52
53
54
55
The powers of the Appellate Tribunal are described in the chapeau Article 8.28(2). Probably inspired by language stemming from Article 17.13 DSU, it may ‘uphold, modify or reverse’ the Tribunal’s award. The first alternative is the easiest. Here, the Appellate Tribunal rejects the grounds of appeal and upholds the findings of the Tribunal, which then become final and binding (Article 8.28(9) in conjunction with Article 8.39 CETA) and can be enforced under Article 8.41 CETA. Interestingly, Article 3(4) 2nd sentence of Decision No. 1/2021 of the Joint Committee foresees that there should be also a ‘fast-track’ procedure. The Appellate Tribunal is asked to reject appeals ‘on an expedited basis where it is clear that the appeal is manifestly unfounded’. The threshold of ‘manifestly unfounded’ is hard to prescribe, though. It appears that such is the case, if the appeal is brought too late or does not raise any valid ground of appeal as enumerated in Article 8.28(2). Moreover, obvious factual or legal errors, which are manifest to any first reader of the appeal brief, could lead to an expedited procedure of rejection. Examples for manifestly unfounded appeals in the jurisprudence of the European Court of Justice (ECJ) relating to Article 181 of its Rules of Procedures are the lack of clarity, the lack of coherent structure or a mere abstract repetition of the appeal grounds. 93 They may serve as an inspiration also to the Appellate Tribunal as the ‘filtering function’ of Article 3(4) Joint Committee Decision and Article 181 of the ECJ’s Rules of Procedure is comparable. Under the second alternative, the Appellate Tribunal ‘modifies’ the award. This broad term gives a large margin of discretion to the Appellate Tribunal to uphold the appeal in parts. It may also accept one or several claims, but reject others, and thereby modify the award. In its decision, the Appellate Tribunal should indicate precisely how it has modified the relevant findings and conclusions of the Tribunal.94 In the case of a ‘reversal’, the Appellate Tribunal would entertain the appeal as such. This would lead to the annulment of the Tribunal’s award. In this case, the Appellate Tribunal also has two possibilities. Either it completes the analysis and renders an award itself, which substitutes the annulled one, or it remands the case. In the first scenario the award of the Appellate Tribunal is in itself final and enforceable under Article 8.41 by virtue of Article 8.28(9)(d). This means that the Appellate Tribunal’s award should be treated as if it had been issued by the Tribunal. It then becomes immediately enforceable as the waiting time in Article 8.41(3) would not apply (Article 8.29(e)). In the second scenario, the Tribunal would have to re-open the proceedings and take on board the findings and conclusions from the Appellate Tribunal. If possible, the original division of the Tribunal should be dealing with the remand.95 Provided that it properly implements the direction from the Appellate Tribunal, the second award of the Tribunal should then become final. However, it is not excluded that the case could go for a second time to the Appellate Tribunal if either side disagrees with the second award. Such second appeal may only touch upon issues which were sub iudice in the first appeal. All other matters have become res iudicata and cannot be re-opened again. The Appellate Tribunal shall also take a decision on the costs and apply mutatis mutandis Article 8.39(5) in its award. Accordingly, the unsuccessful Party shall bear 93 CJEU, Joined Cases C‑208/17 P to C‑210/17 P, 12.09.2018, NF, NG and NM v. European Council, ECLI:EU:C:2018:705, paras. 10-15 with further references. 94 Article 3(2) second sentence of Joint Committee Decision No. 1/2021. 95 Article 3(3) second sentence of Joint Committee Decision No. 1/2021.
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the costs of the entire proceeding in accordance with the ‘loser pays principle’, which serves to prevent the misuse of the CETA dispute settlement system. 96 The Appellate Tribunal may also split the costs if this is appropriate in view of the relative success of the claims. In order to make sure that the losing Party is able to pay the costs, the disputing Party, which brings the appeal, should lodge a security in advance. The division of the Appellate Tribunal may also order any other security, according to the Decision of the Joint Committee.97 The Appellate Tribunal also has the power to order interim measures of protection 56 (Article 8.34, provided that the provision will be made applicable by a Decision of the Joint Committee). The word ‘order’ indicates that such interim measures are legally binding on the Parties – the wording is e.g. stronger than ‘indicate’ under Article 41 of the ICJ’s Statute.98 The binding nature is further confirmed by the context and object and purpose of the provision. The Appellate Tribunal could not exercise a ‘fully effective’ jurisdiction if the Parties could easily circumvent its authority by ignoring such interim measures. Moreover, the second sentence of Article 8.34 clarifies that an order may ‘include’ a recommendation. This presupposes that the order itself is binding. The Appellate Tribunal may just decide whether to add a recommendation to it or not. Article 8.28(9)(c)(ii) also mentions the possibility that an appeal is withdrawn. In 57 that case, the Appellate Tribunal does not have to take a decision, but simply take note of the withdrawal and order the applicant to bear the costs. The effect of the withdrawal is that the first instance award immediately becomes final and enforceable.
VII. Enforcement An eminently important question is whether an award rendered by the CETA 58 Appeal Tribunal is enforceable under Article 54 of the ICSID Convention or Article V of the New York Convention, depending on whether the investor has chosen ICSID or UNCITRAL rules for the first instance. If the dispute at first instance is governed by ICSID rules (Article 8.23(2)(a)), 59 enforcement is possible in any ICSID State if the CETA award qualifies as ‘an award rendered pursuant to this Convention’ (Article 54(1) ICSID Convention). On the one hand, two points could militate against this proposition. First, the investor’s right to nominate an arbitrator under Article 37(2) of the ICSID Convention is missing in the CETA system, as all arbitrators are nominated in advance by the two Parties (Article 8.27(2)). Moreover, the ICSID arbitrators should normally not have the nationality of either Party under Article 39 of the ICSID Convention, whereas the CETA system makes sure that at least one Canadian and one European national would become member of the CETA bench. If one takes the view that deviating from those two principles makes CETA awards radically different from ICSID awards, then the consequence is that the enforcement provisions of the ICSID Convention are not available. On the other hand, the EU and Canada have deliberately decided to qualify the first instance bench as an ‘Arbitration Tribunal’ and expressed their conviction in Article 96 Von Walter and Andrisani, ’Resolution of Investment Disputes’ in Mbengue and Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA)’ (2018), 185 (195). 97 Article 3(6) second sentence of Joint Committee Decision No. 1/2021. 98 Irrespective of this wording, the ICJ has found that its interim orders have binding effect. See LaGrand (Germany v. United States of America) ICJ, LaGrand (Germany v. United States of America), Merits, 27 June 2001, [2001] ICJ Reports (2001), 466 (109).
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8.41(6) that the award is enforceable under the ICSID Convention. Moreover, the other ICSID Parties can continue to use the traditional ICSID system, and the modifications on the composition of the CETA Tribunal do not put the effective execution of ICSID awards into jeopardy. Hence, the CETA deviations from Articles 37(2) and 39 of the ICSID Convention could either constitute a permissible inter-se modification under Article 41 of the VCLT99 or – somehow simpler – Article 8.41(6) constitutes a permissible dynamic interpretation of Article 54(1) of the ICSID Convention emanating from the EU and Canada.100 In any case, the better arguments speak in favor of the view that already a first instance award is fully enforceable under the ICSID Convention in the EU or Canada. Only if enforcement action does not take place in Europe or in Canada, but in another ICSID State, then third country judges are not bound by this joint EU-Canadian approach. They are free to accept treating an award from the CETA Arbitration Tribunal as a final judgment or, in the alternative, to insist that its national requirements for enforcing foreign awards have to be met. 60 A second question arises when such an ICSID-based CETA award underwent an appeal before the CETA Appellate Tribunal. Article 53(1) of the ICSID Convention may pose an additional hurdle at first sight for proper enforcement. Under this provision, an ICSID award shall ‘not be subject to any appeal’. Accordingly, it is argued that the establishment of an appeal under CETA would be incompatible with the ICSID Convention unless all State Parties agree to amend the Convention by unanimity. 101 However, upon further reflection, such a view is overly formalistic. Under Article 41 VCLT, the EU and Canada have agreed, inter se, to provide an appeal mechanism. Such a step is compatible with the effective execution of the object and purpose of the ICSID Convention as a whole, because an appeal mechanism will ultimately also result in a final award and may actually increase the legitimacy of ISDS. 102 Such an award from the Appellate Tribunal would then constitute the one and only ‘award rendered pursuant to this Convention’ within the meaning of Article 54(1) ICSID Convention (Article 8.41(6)). As this award is deemed to constitute a final judgment of a court in the enforcing state, no ground of refusal can be invoked in Canada or the European Union. Again, it is only if the award of the Appellate Tribunal is enforced in other ICSID countries that it remains an open question whether the ICSID enforcement regime kicks in,103 as these countries are not bound by Article 8.41(6) CETA. 61 If the dispute at first instance is governed by UNCITRAL rules (Article 8.23(2)(c)), the national arbitration law of the country in which the arbitral tribunal will sit, would govern the dispute and any enforcement action in that country. In other places, enforcement would be governed by Article V of the New York Convention (Article 8.41(5)), which allows the invocation of a couple of refusal grounds. 62 If such an UNCITRAL award is appealed, the traditional approach would be to verify whether or not UNCITRAL rules and the national arbitration law in question
99 Reinisch, ‘Will the EU’s Proposal Concerning an Investment Court System for CETA and TTIP lead to Enforceable Awards? – The Limits of Modifying the ICSID Convention and the Nature of Investment Arbitration’ (2016) 19(4) J. Int.’l Econ. L., 761 (771-776). 100 See Hoffmeister, ‘The EU contribution to the progressive development of institutional aspects of international investment law’ (2017) 2 R.B.D.I. (2017) 566 (583). 101 Calamita, ‘The (In)Compatibility of Appellate Mechanisms with Existing Instruments of the Investment Treaty Regime’ (2017) 18 JWIT (2017), 585 (604 f.). 102 Van den Berg, ‘Appeal Mechanisms for ISDS Awards – Interaction with the New York and ICSID Conventions’ (2019) 34(1) ICSID Rev., 156 (170) with further references. 103 Van den Berg, ‘Appeal Mechanisms for ISDS Awards – Interaction with the New York and ICSID Conventions’ (2019) 34(1) ICSID Rev., 156 (178).
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allows for an appeal.104 If not, these rules would first have to be adapted. However, if that approach was correct, an investor could easily circumvent Article 8.28 by choosing UNCITRAL rules and a national law without an appeal possibility. That was evidently not the intention of the EU and Canada, who gave their consent in Article 8.25(1) to first instance litigation subject to the condition that an appeal mechanism exists. Therefore, in an UNCITRAL-based CETA claim the governing law automatically changes at appeal state: rather than the national arbitration law, it is CETA itself, which governs the possibility of and the conduct of the appeal in line with the principles described above. The award of the Appellate Tribunal in such an UNCITRAL case also constitutes 63 an ‘arbitral award’ under the New York Convention, whose Article I(2) specifically refers not only to awards rendered by an ad-hoc mechanism, but also to ‘permanent arbitral bodies’. Although, the genesis of this term does not point to the second instance, the term and the object and purpose would cover a permanent Appellate Tribunal.105 Accordingly, the same rules as for the first instance awards applies for UNCITRAL-based awards for the Appellate Tribunal under domestic arbitration law or Article V of the New York Convention.
VIII. No annulment of a CETA Appeal Award Article 8.41(3)(a) lays down the obligation not to seek enforcement of a CETA 64 award in the case of a final award issued under the ICSID Convention until: (i)
120 days have elapsed from the date the award was rendered and no disputing party has requested revision or annulment of the award; or (ii) enforcement of the award has been stayed and revision or annulment proceedings have been completed. A similar formulation is used also in Article 8.41(3)(b), referring to proceedings under the ICSID Additional Facility. Both provisions seem to suggest that the ICSID Annulment Procedure would still be available in the CETA context. It has therefore been submitted that an ICSID ad hoc Committee could at least review the procedural integrity of the appellate process to satisfy the principle of Quis custodiet ipsos custodes? (Who will guard the guards themselves?).106 This line of reasoning is not convincing. First, as shown by the broad grounds of 65 appeal under Article 8.28(2), the Appellate Tribunal already integrates the functions of an ICSID ad hoc Committee. As the ICSID ad hoc Committee is itself not subject to a further external review, there is no reason of due process to establish another layer visà-vis the Appellate Tribunal. Second, under Article 8.28(9)(e), the Articles 8.41(3) lit. (a) and (b) are not applicable to an award by the Appellate Tribunal. Therefore, also the implicit presumption in those provisions that an annulment procedure would be admissible against a first-instance CETA award does not play out for second-instance awards. Third, the object and purpose of Article 8.28 as a whole clearly speaks against such a possibility. The EU and Canada have established an appeal system with very 104 Van den Berg, ‘Appeal Mechanisms for ISDS Awards – Interaction with the New York and ICSID Conventions’ (2019) 34(1) ICSID Rev., 156 (171). 105 Van den Berg, ‘Appeal Mechanisms for ISDS Awards – Interaction with the New York and ICSID Conventions’ (2019) 34(1) ICSID Rev., 156 (179 f.). 106 Van den Berg, ‘Appeal Mechanisms for ISDS Awards – Interaction with the New York and ICSID Conventions’ (2019) 34(1) ICSID Rev., 156 (187).
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high safeguards on the quality of the arbitrators and with full respect of due process requirements. This makes another external control not only superfluous, but also counter-productive when it comes to rendering justice within a reasonable time. Hence, any attempt to bring an ICSID-based CETA appeal award before an ICSID ad hoc Committee would be inadmissible.
IX. The periodic review (paragraph 8) 66
Under Article 8.28(8), the Committee on Services and Investment shall regularly review the functioning of the Appellate Tribunal. The underlying idea is that the experts from Canada and the EU discuss whether the Appellate Tribunal is performing as expected or whether there is a need to re-adjust. Such fine-tuning could trigger a change of the Joint Committee’s Decision under Article 8.28(7) or the issuing of an interpretative declaration by the Joint Committee. If, however, Article 8.28 were to be changed, the formal amendment procedure for CETA as a whole under Article 30.2 CETA would have to be used.
E. Conclusion 67
The Appellate Tribunal foreseen under Article 8.28 is one of the major innovations of CETA. Its mechanics draw on the Parties’ positive experiences with the WTO Appellate Body and should be well suited for the existing international arbitration architecture. If the Appellate Tribunal produces high-quality decisions advancing the legal correctness and consistency of the first instance awards in a timeframe that does not hinder swift resolution of disputes, it might serve as a sturdy foundation for moving to a two-tier system also at a global stage.
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Article 8.29 Establishment of a multilateral investment tribunal and appellate mechanism The Parties shall pursue with other trading partners the establishment of a multilateral investment tribunal and appellate mechanism for the resolution of investment disputes. Upon establishment of such a multilateral mechanism, the CETA Joint Committee shall adopt a decision providing that investment disputes under this Section will be decided pursuant to the multilateral mechanism and make appropriate transitional arrangements. Reference to the Respective Provisions in Other EU Treaties: Article 3.41, Section b, Chapter 3 of EU-Vietnam-FTA; Article 3.12, Section a, Chapter 3, EU-Singapore IPA; Article 14, Section on Resolution of Investments, EU-Mexico Global Agreement. Bibliography: Andrés Eduardo Alvarado Garzón, ‘Designing a Multilateral Investment Court: Blueprints for a New Route in Investor-State Dispute Settlement’ (2019) 22(3) ZEuS, 475; Andrea Bjorklund, Marc Bungenberg, Manjiao Chi and Catharine Titi, ‘Selection and Appointment of International Adjuducators: Structural Options for ISDS Reform’, Academic Forum on ISDS Concept Paper 2019/11, 17 September 2019; José Alvarez Zárate, ‘Legitimacy Concerns of the Proposed Multilateral Investment Court: Is Democracy Possible?’ (2018) 59 B.C. L Rev., 2765; Hannah Ambrose and Vanessa Naish, ‘An Investment Court system or an Appeals mechanism?’ Arbitration Blog, 15.2.2017; American Bar Association Section on International Law, ‘Investment Treaty Working Group: Task Force Report on the Investment Court System Proposal, Initial Task Force Discussion Paper’, 14.10.2016; Helmut Aust, ‘Eine völkerrechtsfreundliche Union? Grund und Grenze der Öffnung des Europarechts zum Völkerrecht’ (2017) 52(1) EuR, 106; Jorun Baumgartner, Treaty Shopping in International Investment Law (Oxford University Press, Oxford 2016); Charis Benedetti, ‘The proposed Investment Court System: does it really solve the problems?’ (2019) 42 Revista Derecho del Estado, 83; Cherie Blair, ‘A global investment court for a changing era of trade’, Financial Times, 24.1.2017; Kateryna Bondar, ‘Allocation of costs in investor-state and commercial arbitration: towards a harmonized approach’ (2016) 32 Arb. Int’l, 45; Charles Brower and Jawad Ahmad, ‘From the Two-Headed Nightingale to the Fifteen-Headed Hydra: The Many Follies of the Proposed International Investment Court’ (2018) 41 Fordham Int’l L. J., 791; Colin Brown, ‘A Multilateral Mechanism for the Settlement of Investment Disputes. Some Preliminary Sketches’ (2017) 32 ICSID Rev.-FILJ, 673; Colin Brown, ‘The First 10 Years of the European Union’s Policy on Investment Dispute Settlement – From Initial Reforms to the Multilateral Investment Court’, in Michael Hahn and Guillaume Van der Loo (eds), Law and Practice of the Common Commercial Policy, The first 10 years after the Treaty of Lisbon (Brill 2020), 73: Marc Bungenberg, ‘The Scope of Application of EU (Model) Investment Agreements’, (2014) 15 JWIT, 402; Marc Bungenberg and Fabian Blandfort, ‘Expropriation’, in August Reinisch and Stefan Schill (eds), Substantive Standards and the Rule of Law (2022); Marc Bungenberg and Angshuman Hazarika, ‘Rule of law in the EU legal order’ (2019) 3 ZEuS, 383; Marc Bungenberg and Anna-Maria Holzer, ‘Potential Enforcement Mechanisms for Decisions of a Multilateral Investment Court’, in Günes Ünüvar, Joanna Lam and Shai Dothan (eds), Permanent Investment Courts, Special Issue EYIEL (Springer 2019), 75; Marc Bungenberg and August Reinisch, Von bilateralen Schieds- und Investitionsgerichten zum multilateralen Investitionsgerichtshof (Nomos, Baden-Baden 2018); Marc Bungenberg and August Reinisch, From Bilateral Arbitral Tribunals and Investment Courts to a Multilateral Investment Court (2nd edn, Springer 2020); Marc Bungenberg and August Reinisch, Draft Statute of the Multilateral Investment Court (2020); Marc Bungenberg and August Reinisch, Draft Statute of the Multilateral Investment Court (Nomos, Baden-Baden 2021); Marc Bungenberg and Catharine Titi, ‘CETA Opinion – Setting Conditions for the Future of ISDS’, EJIL:Talk!, 5 June 2019; Jansen Calamita, ‘The Challenge of Establishing a Multilateral Investment Tribunal at ICSID’ (2017) 32 ICSID Rev.-FIJL, 611; Jansen Calamita, ‘The (In) Compatibility of Appellate Mechanisms with Existing Instruments of the Investment Treaty Regime’ (2017) 18(4) JWIT, 585; Council of Europe, Consultative Council of European Judges (CCJE), The Evaluation of Judges’ Work, the Quality of Justice and Respect for Judicial Independence, Opinion No. 17, 24.10.2014; Council of Europe, Consultative Council of European Judges (CCJE), The Role of Court Presidents, Opinion No. 19, 10.11.2016; Patrick Dumberry, ‘Expropriation’, in Makane Mbengue and Stefanie Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA), (Springer 2019), 95; European Commission, Investment in TTIP and be-
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yond – the path for reform, Concept Paper, May 2015; European Commission, Establishment of a Multilateral Investment Court for investment dispute resolution, Impact Assessment, Roadmap of 1.8.2016; European Commission, Multilateral reform of investment dispute resolution, Impact assessment, 13.9.2017, SWD(2017) 303 final; European Parliament, European Parliament resolution of 5 July 2016 on a new forward-looking and innovative future strategy for trade and investment, P8_TA-PROV(2016)0299; Athina Fouchard Papaefstratiou, ‘TTIP: the French Proposal for a Permanent European Court for Investment Arbitration’, Kluwer Arbitration Blog, 22.7.2015; Alvaro Galindo, David Attanasio and Ana María Durán, ‘The New York Convention’s Concept of Arbitration and the Enforcement of Multilateral Investment Court Decisions’ in Katia Fach Gómez and Ana López-Rodríguez (eds), 60 Years of the New York Convention: Key Issues and Future Challenges, (Kluwer Law International 2019), 459; David Gaukrodger and Kathryn Gordon, ‘Investor-State Dispute Settlement: A Scoping Paper for the Investment Policy Community’, OECD Working Paper No. 2012/3; Shiva Ghahremani and Ivan Prandzhev, ‘Multilateral Investment Court: A Realistic Approach to Achieve Coherence and Consistency in International Investment Law?’ EFILA Blog, 14.3.2017; Umair Ghori, ‘The International Investment Court System: The Way Forward for Asia?’ (2018) 21 Int’l Trade and Business L. Rev., 205; Christoph Grabenwarter and Katharina Struth, ‘Justiz- und Verfahrensgrundrechte’ in Dirk Ehlers (ed), Europäische Grundrechte und Grundfreiheiten, (4th edn, De Gruyter, Berlin 2015), 198; Nicolas Hachez and Jan Wouters, ‘International Investment Dispute Settlement in the 21st Century: Does the Preservation of the Public Interest Require an Alternative to the Arbitral Model?’ Leuven Centre for Global Governance Studies Working Paper No. 81, 22.2.2012; Sabine Hackspiel, ‘Art. 255 AEUV’ in Hans von der Groeben, Jürgen Schwarze, Armin Hatje (eds), Europäisches Unionsrecht (7th edn, Nomos, Baden-Baden 2015); Richard Happ and Sebastian Wuschka, ‘From the Jay Treaty Commissions Towards a Multilateral Investment Court: Addressing the Enforcement dilemma’ (2017) 6 Indian J. Arb. L., 113; Christoph Herrmann, Wolfgang Weiß and Christoph Ohler, Welthandelsrecht (2nd edn, C.H. Beck, München 2007); Matthew Hodgson, ‘Costs in Investment Treaty Arbitration: The Case for Reform’ (2014) 1 TDM; Matthew Hodgson, ‘Counting the costs of investment treaty arbitration’, GAR News, 24.3.2014; Matthew Hodgson, ‘Costs in Investment Treaty Arbitration: The Case for Reform’ in Jean Kalicki and Anna Joubin-Bret (eds), Reshaping the Investor-State Dispute Settlement System (Brill Nijhoff, Leiden 2015), 748; Frank Hoffmeister, ‘The EU contribution to the progressive development of institutional aspects in international investment law’ (2017) 2 R.B.D.I., 566; David Howard, ‘Creating Consistency Through a World Investment Court’ (2017) 41 Fordham Int’l L. J., 1; Robert Howse, ‘International Investment Law and Arbitration: A Conceptual Framework’, IILJ Working Paper 2017/1; Robert Howse, ‘Designing a Multilateral Investment Court: Issues and Options’ (2017) 36(1) YB Eur. L., 209; Holger Kastler, Föderaler Rechtsschutz: Personenbezogene Daten in einem Raum der Freiheit (Springer, Heidelberg 2017); Rebecca Katz, ‘Modeling an International Investment Court After the World Trade Organization Dispute Settlement Body’ (2016) 22 Harv. Negot. L. Rev., 163; UNCITRAL (2017 b), Report of the United Nations Commission on International Trade Law, Fiftieth Session (3–21 July 2017), A/72/17, 2017; Gabrielle Kaufmann-Kohler and Michele Potestà (2017) ‘The Composition of a Multilateral Investment Court and of an Appeal Mechanism for Investment Awards’, CIDS Supplemental Report, 15 November 2017; Gabrielle Kaufmann-Kohler and Michele Potestà, ‘Can the Mauritius Convention Serve as a Model for the Reform of Investor-State Arbitration in Connection With the Introduction of a Permanent Investment Tribunal or an Appeal Mechanism? – Analysis and Roadmap’, CIDS - Geneva Centre for International Dispute Settlement; Lise Johnson and Brooke Guven, Securing Adequate Legal Defense in Proceedings under International Investment Agreements: A Scoping Study, (CCSI, November 2019); Markus Krajewski, Modell-Investitionsschutzvertrag mit Investor-Staat-Schiedsverfahren für Industriestaaten unter Berücksichtigung der USA, Bundesministerium für Wirtschaft und Energie, 4.5.2015; Mattias Kumm, ‘An Empire of Capital?: Transatlantic Investment Protection as the Institutionalization of Unjustified Privilege’, Verfassungsblog, 27.5.2015; Andrej Lang, ‘Die Autonomie des Unionsrechts und die Zukunft der Investor-Staat-Streitbeilegung in Europa nach Achmea’ (2018) 156 BTW; Ruth Mackenzie, ‘The selection of international judges’, in Cesare Romano, Karen Alter and Yuval Shany (eds), The Oxford Handbook of International Adjudication (Oxford University Press, Oxford 2014), 737; Cecilia Malmström, Speech: remarks at the European Parliament on Investment in TTIP, 18.3.2015; Laura Puccio and Roderick Harte, ‘From Arbitration to the Investment Court System (ICS)’, European Parliamentary Research Service, June 2017, PE 607.251; August Reinisch, ‘Will the EU’s Proposal Concerning an Investment Court System for CETA and TTIP Lead to Enforceable Awards? — The Limits of Modifying the ICSID Convention and the Nature of Investment Arbitration’ (2016) 19(4) J. Int’l Econ. L., 761; August Reinisch, ‘The Likely Content of Future EU Investment Agreements’, in Marc Bungenberg, Jörn Griebel, Stephan Hobe, and August Reinisch (eds), International Investment Law: A Handbook (BeckHart-Nomos 2015), 1884; August Reinisch, ‘The European Union and Investor-State Dispute Settlement: From Investor-State Arbitration to a Permanent Investment Court’, in Armand de Mestral (ed), Second Thoughts: Investor-State Arbitration between Developed Democracies (CIGI Press 2017), 333; August Reinisch and Lukas Stifter, ‘The EU’s New “Investment Court System”’, in Ernest Gnan und Ralf
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Kronberger (eds.), Schwerpunkt Außenwirtschaft 2015/2016. Transatlantische Handels- und Investitionspartnerschaft zwischen der EU und den USA (TTIP) (Vienna facultas 2016) 235; August Reinisch and Céline Braumann, ‘Investment Court Systems’, in Max Planck Encyclopedia of International Procedural Law (online version 2018); Christoph Safferling, ‘Audiatur et altera pars – die prozessuale Waffengleichheit als Prozessprinzip?’ (2014) 24(4) NStZ, 181; Stephan Schill (2019) ‘From investor-state dispute settlement to a multilateral investment court? Evaluating options from an EU law perspective’, Committee on International Trade, European Parliament (2019); Stephan Schill, ‘Do Investment Treaties Chill Unilateral State Regulation to Mitigate Climate Change?’ (2007) 24 J. Int'l Arb., 469; Christoph Schreuer, Loretta Malintoppi, August Reinisch and Anthony Sinclair, The ICSID Convention: A Commentary (Cambridge University Press, Cambridge 2009); Werner Schröder (ed), Strengthening the Rule of Law in Europe: from a Common Concept to Mechanisms of Implementation (Hart Publishing, Oxford 2016); Taylor St John and Yulia Chernykh, ‘Déjà vu? Investment Court Proposals from 1960 and Today’, EJIL:Talk!, 15 May 2018; Catharine Titi, ‘Opinion 1/17 and the Future of Investment Dispute Settlement: Implications for the Design of a Multilateral Investment Court’, in Lisa Sachs, Lise Johnson and Jesse Coleman (eds), YB Int’l Inv. L. & Pol’y (2019); Gus Van Harten, Investment Treaty Arbitration and Public Law (Oxford Scholarship, Oxford 2009); Christoph Vedder, ‘Die außenpolitische Zielbindung der gemeinsamen Handelspolitik’ in Marc Bungenberg and Christoph Herrmann (eds), Die gemeinsame Handelspolitik der Europäischen Union nach Lissabon (Nomos, Baden-Baden 2011), 121; Olaf Weber, WTO-Streitbeilegung und EuGH im Vergleich: Zur gerichtsförmigen Konfliktlösung in Handelspräferenzzonen (Nomos, Baden-Baden 2007). A. Introduction and Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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B. Spirit and Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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C. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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D. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. First Sentence: Pursuing the Establishment of a MIC . . . . . . . . . . . . . . . . . . . . . . 1. An International Obligation to Establish? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Scope of the Mandate: Multilateral Investment Tribunal and Appellate Mechanism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Possible Cornerstones of a MIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a) Organisational Structure and Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . b) Two-tiered Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . c) Procedural Aspects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . d) Transparency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . e) Costs of the MIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . f) Institutional Structure/Organs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . aa) The Judges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . bb) Secretariat . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . cc) Investment Advisory Centre . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . g) Decisions and Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. Draft Statute of a MIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Second Sentence: The Task of the CETA Joint Committee to adopt Appropriate Transition Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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E. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17 21 22 28 30 34 36 40 41 44 45 47 51 52 53
A. Introduction and Overview Article 8.29 CETA encourages the CETA Contracting Parties to pursue the tablishment of a multilateral investment tribunal and appellate mechanism for settlement of investment disputes. The background of this provision seems to be increased public criticism of traditional investment arbitration1 that has led the
es- 1 the the EU
1 Cf. e.g. Van Harten, Investment Treaty Arbitration and Public Law (2009), Schill, ‘Do Investment Treaties Chill Unilateral State Regulation to Mitigate Climate Change?’ (2007) 24 J. Int'l Arb., 469; Hachez and Wouters, ‘International Investment Dispute Settlement in the 21st Century: Does the Preservation of the Public Interest Require an Alternative to the Arbitral Model?’ Leuven Centre for Global Governance Studies Working Paper No. 81, 22.2.2012; Kumm, ‘An Empire of Capital?: Transatlantic
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to consider the creation of a permanent court to replace it. The idea of a Multilateral Investment Court (MIC) was first mentioned by then Commissioner for Trade, Cecilia Malmström, in March 2015. Furthermore, since July 2017 the United Nations Commission on International Trade Law (UNCITRAL) Working Group III2 has been discussing different options for the reform of Investor-State Dispute Settlement (ISDS), including the establishment of a multilateral court for the settlement of investment disputes.3
B. Spirit and Purpose Article 8.29 CETA embodies the EU position of abolishing investment arbitration from its negotiated investment chapters and agreements. The European Parliament has expressly stated its opposition to traditional investment arbitration.4 This has been communicated to EU trading partners. From the EU’s point of view, in addition to the basic values listed in Article 2 Treaty on European Union (TEU), to which the Court of Justice of the European Union (CJEU) refers as the EU constitutional framework, 5 the specifications of Article 21 TEU are decisive for the specific design of a new system of dispute settlement.6 The EU is thus to primarily engage in a multilateral approach, respecting the rule of law and democracy as the structural principles that have to guide all further considerations. The experience of the Council of Europe may be used,7 which has set out the fundamental requirements of the rule of law in court systems. 3 In this context, the EU follows a twofold approach: the first and immediate step consists of the introduction of bilateral investment courts via new investment treaties, which has been sketched not only in CETA, but also in the EU-Vietnam Investment Protection Agreement (IPA), the EU-Singapore IPA and the EU-Mexico Global Agreement; the second step would be to establish a multilateral investment court, which 2
Investment Protection as the Institutionalization of Unjustified Privilege’, Verfassungsblog, 27.5.2015; Cf. also the European Citizens Initiative ‘Stop TTIP’, 10.07.2017; Cf. for US opposition: Open letter by the Alliance for Justice to the US Congress (2015). 2 UNCITRAL Working Group III is composed of the 60 member States of the Commission and attended by observers from other UN member States, non-member States, intergovernmental organizations and invited non-governmental organizations. 3 UNCITRAL, Possible future Work in the Field of Dispute Settlement: Reforms of Investor-State Dispute Settlement (ISDS), A/CN.9/917 20 April 2017, paras. 29 ff. On the feasibility and design of such multilateral investment court see, Bungenberg and Reinisch, From Bilateral Arbitral Tribunals and Investment Courts to a Multilateral Investment Court (2020); Bungenberg and Reinisch, Draft Statute of the Multilateral Investment Court (2021). 4 European Parliament, European Parliament resolution of 8 July 2015 containing the European Parliament’s recommendations to the European Commission on the negotiations for the Transatlantic Trade and Investment Partnership (TTIP), P8_TA(2015)0252, 2014/2228(INI), para. 2.d)xv). 5 CJEU, Opinion 1/17, 30.04.2019, ECLI:EU:C:2019:341, para. 110. 6 See for instance Vedder, ‘Die außenpolitische Zielbindung der gemeinsamen Handelspolitik’, in Bungenberg and Herrmann (eds), Die gemeinsame Handelspolitik der Europäischen Union nach Lissabon (2011), 121 (122 ff.). 7 See for instance the documents of the European Commission for Democracy through Law (Venice Commission), available at https://www.venice.coe.int/WebForms/pages/?p=01_main_reference_docum ents (6.6.2019). See furthermore Council of Europe, Consultative Council of European Judges (CCJE), The Role of Court Presidents, Opinion No. 19, 10.11.2016; Council of Europe, Consultative Council of European Judges (CCJE), The Evaluation of Judges’ Work, the Quality of Justice and Respect for Judicial Independence, Opinion No. 17, 24.10.2014.
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should replace the bilateral courts and investment arbitration in the long term. 8 This latter step is precisely the driver of Article 8.29 CETA. At the multilateral level, the UNCITRAL Working Group III was mandated to 4 first, identify and consider concerns regarding ISDS; second, consider whether reform was desirable in light of any identified concerns; and third, if the Working Group III were to conclude that reform was desirable, develop any relevant solutions to be recommended to the Commission.9 Consensus to develop solutions (thus entering stage 3 of the UNCITRAL WG III mandate) was reached at the Thirty-seventh session in New York from 1–5 April 2019.10 The options on the table range from modifications of the method of appointment of arbitrators, preliminary rulings, to the establishment of an appellate body,11 but they also include a complete overhaul of investment arbitration through a MIC.12 In May 2021, it was estimated that discussions within UNCITRAL WG III will last at least until 2025.13 Undisputedly, the idea of a MIC to settle investment disputes has caused an in- 5 tensive debate.14 Comprehensive studies on the topic were presented, among others, 8 Alvarado Garzón, ‘Designing a Multilateral Investment Court: Blueprints for a New Route in Investor-State Dispute Settlement’ (2019) 22(3) ZEuS 475 (478 ff.). 9 UNCITRAL, Report of the United Nations Commission on International Trade Law, Fiftieth Session (3–21 July 2017), A/72/17, 2017, paras. 264 and 447. 10 UNCITRAL, Working Group III, ‘Report of Working Group III (Investor-State Dispute Settlement Reform) on the work of its thirty-seventh session (New York, 1-5 April 2019), A/CN.9/970, 9 April 2019. 11 UNCITRAL Working Group III, ‘Possible Reform of Investor-State Dispute Settlement (ISDS)’ A/ CN.9/WG.III/WP.149, 5 September 2018, paras. 26 ff. 12 UNCITRAL, ‘Possible future Work in the Field of Dispute Settlement: Reforms of Investor-State Dispute Settlement (ISDS)’, A/CN.9/917, 20 April 2017, paras. 29 ff. On the feasibility and design of such multilateral investment court see, Bungenberg and Reinisch, From Bilateral Arbitral Tribunals and Investment Courts to a Multilateral Investment Court (2020); Bungenberg and Reinisch, Draft Statute of the Multilateral Investment Court (2021). 13 UNCITRAL Working Group III, ‘Workplan to implement investor-State dispute settlement (ISDS) reform and resource requirements’ A/CN.9/WG.III/WP.206, 17 March 2021, paras. 10 ff. 14 Cf. European Commission, Establishment of a Multilateral Investment Court for investment dispute resolution, Impact Assessment, Roadmap of 1.8.2016; Ghahremani and Prandzhev, ‘Multilateral Investment Court: A Realistic Approach to Achieve Coherence and Consistency in International Investment Law?’ EFILA Blog, 14.3.2017; Blair, ‘A global investment court for a changing era of trade’, Financial Times, 24.1.2017; Ambrose and Naish, ‘An Investment Court system or an Appeals mechanism?’ Arbitration Blog, 15.2.2017; Kaufmann-Kohler and Potestà, ‘The Composition of a Multilateral Investment Court and of an Appeal Mechanism for Investment Awards’, CIDS Supplemental Report, 15 November 2017; Kaufmann-Kohler and Potestà, ‘Can the Mauritius Convention Serve as a Model for the Reform of Investor-State Arbitration in Connection With the Introduction of a Permanent Investment Tribunal or an Appeal Mechanism? – Analysis and Roadmap’, CIDS – Geneva Centre for International Dispute Settlement; Howse, ‘International Investment Law and Arbitration: A Conceptual Framework’, IILJ Working Paper 2017/1; Happ and Wuschka, ‘From the Jay Treaty Commissions Towards a Multilateral Investment Court: Addressing the Enforcement dilemma’ (2017) 6 Indian J. Arb. L., 113; Hoffmeister, ‘The EU contribution to the progressive development of institutional aspects in international investment law’ (2017) 2 R.B.D.I., 566; Brown, ‘A Multilateral Mechanism for the Settlement of Investment Disputes. Some Preliminary Sketches’ (2017) 32 ICSID Rev.-FILJ, 673; Katz, ‘Modeling an International Investment Court After the World Trade Organization Dispute Settlement Body’ (2016) 22 Harv. Negot. L. Rev., 163; Alvarez Zárate, ‘Legitimacy Concerns of the Proposed Multilateral Investment Court: Is Democracy Possible?’ (2018) 59 B.C. L Rev., 2765; Ghori, ‘The International Investment Court System: The Way Forward for Asia?’ (2018) 21 Int’l Trade and Business L. Rev., 205; Howard, ‘Creating Consistency Through a World Investment Court’ (2017) 41 Fordham Int’l L. J., 1; Howse, ‘Designing a Multilateral Investment Court: Issues and Options’ (2017) 36(1) YB Eur. L., 209; Brower and Ahmad, ‘From the Two-Headed Nightingale to the Fifteen-Headed Hydra: The Many Follies of the Proposed International Investment Court’ (2018) 41 Fordham Int’l L. J., 791; Benedetti, ‘The proposed Investment Court System: does it really solve the problems?’ (2019) 42 Revista Derecho del Estado, 83; Schill ‘From investor-state dispute settlement to a multilateral investment court? Evaluating options from an EU
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by Kaufmann-Kohler/Potestá15 and Bungenberg/Reinisch16; Bungenberg/Reinisch also submitted a first Draft Statute of a MIC in 2020 to the UNCITRAL Working Group III.17
C. Drafting History While the initial 2011 negotiation mandate from the EU’s Council of Trade Ministers to the EU Commission concerning CETA and other free trade agreements (FTAs) called for traditional ISDS in the form of traditional investment arbitration, 18 in March 2015, the Socialists and Democrats in the EU Parliament proposed the establishment of a permanent investment court instead.19 The European Parliament then adopted a resolution calling for the establishment of a permanent Investment Court System (ICS) with a built-in appellate structure.20 7 The idea of an Investment Court Proposal is nothing totally new. An international investment court was already discussed in the International Law Association (ILA) Conferences in 1958,21 1960,22 and 1962.23 During these discussions a ‘Draft Statute of the Foreign Investments Court’24 was presented, and compared with the ‘Draft Statutes of the Arbitral Tribunal for Foreign Investment’.25 Many crucial points of 6
law perspective’, Committee on International Trade, European Parliament (2019); Bungenberg and Reinisch, From Bilateral Arbitral Tribunals and Investment Courts to a Multilateral Investment Court (2020) and Calamita, ‘The Challenge of Establishing a Multilateral Investment Tribunal at ICSID’ (2017) 32 ICSID Rev.-FIJL, 611 (2017). 15 Kaufmann-Kohler and Potestà, ‘The Composition of a Multilateral Investment Court and of an Appeal Mechanism for Investment Awards’, CIDS Supplemental Report, 15 November 2017; KaufmannKohler and Potestà, ‘Can the Mauritius Convention Serve as a Model for the Reform of Investor-State Arbitration in Connection With the Introduction of a Permanent Investment Tribunal or an Appeal Mechanism? – Analysis and Roadmap’, CIDS – Geneva Centre for International Dispute Settlement. 16 Bungenberg and Reinisch, From Bilateral Arbitral Tribunals and Investment Courts to a Multilateral Investment Court (2020). 17 Bungenberg and Reinisch, Draft Statute of the Multilateral Investment Court (2020), . 18 See, e.g. the leaked Council Negotiating Directives (Canada, India, and Singapore), 12 September 2011; available at https://www.bilaterals.org/?eu-negotiating-mandates-on&lang%C2%BCen&lang=e n: ‘Enforcement: the agreement shall aim to provide for an effective investor-to-state-dispute settlement mechanism. State-to-state dispute settlement will be included, but will not interfere with the right of investors to have recourse to the investor-to-state dispute settlement mechanism. It should provide for investors a wide range of arbitration fora as currently available under the Member States’ bilateral investment agreements (BIT’s).’ 19 Group of the Progressive Alliance of Socialists and Democrats (S&D), Position Paper on investor–state dispute settlement mechanisms in ongoing trade negotiations, 4 March 2015, available at https:/ /www.socialistsanddemocrats.eu/sites/default/files/position_paper_investor_state_dispute_settlement_ ISDS_en_150304.pdf. 20 European Parliament, European Parliament Resolution of 5 July 2016 on a new forward-looking and innovative future strategy for trade and investment, P8_TA-PROV 2016/0299, para. 68. 21 ‘Nationalization’ (1958) 48 International Law Association Reports of Conferences, 130 (148-149). 22 ‘Juridical Aspects of Nationalization and Foreign Property’ (1960) 49 International Law Association Reports of Conferences, 175 (206). 23 ‘Juridical Aspects of Nationalization and Foreign Property’ (1962) 50 International Law Association Reports of Conferences (101-156). 24 ‘Juridical Aspects of Nationalization and Foreign Property’ (1960) 49 International Law Association Reports of Conferences 175, 235 (Annex II). 25 ‘Juridical Aspects of Nationalization and Foreign Property’ (1960) 49 International Law Association Reports of Conferences 175, 225 (Annex I).
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today’s reform discussion at ICSID, UNCITRAL and elsewhere were already discussed in the ILA Draft Statutes (e.g. appointment systems, double hatting among others). 26 The MIC itself was first mentioned by Commissioner Cecilia Malmström in the 8 INTA Committee on 18 March 2015 and at the informal Foreign Affairs Council on 25 March 2015.27 In a report prepared for the German Ministry of Economics, Markus Krajewski suggested a permanent court for investment disputes between developed countries.28 At almost the same time, the French Government proposed the idea of a permanent appeal mechanism.29 In May 2015, the Commission presented its Concept Paper ‘Investment in TTIP 9 and beyond – the path for reform, enhancing the right to regulate and moving from current ad hoc arbitration towards an Investment Court’ responding to the outcome of a previous public consultation,30 and envisaging the creation of an appeal mechanism and a roster from which adjudicators could be chosen by the disputing Parties, and also foreseeing the idea of a permanent court.31 Soon after, in July 2015, the European Parliament adopted a resolution on the TTIP stating: […] to replace the ISDS system with a new system for resolving disputes between investors and states which is subject to democratic principles and scrutiny, where potential cases are treated in a transparent manner by publicly appointed, independent professional judges in public hearings and which includes an appellate mechanism, where consistency of judicial decisions is ensured, the jurisdiction of courts of the EU and of the Member States is respected, and where private interests cannot undermine public policy objectives.32
The mid-September 2015 Commission draft text of the TTIP investment chapter 10 can be regarded as an implementation of these ideas by proposing an ‘Investment Court System’.33 It was further elaborated on in the November 2015 Commission pro-
26 St John and Chernykh, ‘Déjà vu? Investment Court Proposals from 1960 and Today’, EJIL:Talk!, 15 May 2018 . 27 Malmström, Speech: remarks at the European Parliament on Investment in TTIP, 18.3.2015, available at http://trade.ec.europa.eu/doclib/docs/2015/march/tradoc_153258.pdf (5.4.2019). 28 The text was prepared at the request of the German Ministry of Economic Affairs by Prof. Dr. Markus Krajewski of University of Erlangen-Nürnberg, to consult at: https://www.rph1.rw.fau.de/fi les/2016/02/150429-muster-bit-fr-industriestaaten-krajewski-englischebersetzung.pdf. 29 The French paper ‘Vers un nouveau moyen de régler les différends entre États et investisseurs’ of May 2015 is available (in French) at https://www.tresor.economie.gouv.fr/Institutionnel/Niveau2/Pages /c2b2c6b7-8c01-4765-9718-26cf3e79a1ad/files/7338d794-68e8-48f0-abc9-c83d4da395ed. 30 European Commission, Investment in TTIP and beyond – the path for reform, Concept Paper, May 2015. 31 European Commission, Investment in TTIP and beyond – the path for reform, Concept Paper, May 2015, 11: ‘[…] the creation of a fixed list of arbitrators will already move ISDS procedures closer to a permanent court. A development that would institutionalise ISDS even further is to establish an actual permanent investment court with tenured judges. Pursuing such an investment court for each individual EU agreement that includes ISDS presents obvious, technical and organizational challenges. […] Therefore, the EU should pursue the creation of one permanent court. This court would apply to multiple agreements and between different trading partners, also on the basis of an opt-in system. The objective would be to multilateralise the court either as a self-standing international body or by embedding it into an existing multilateral organization. Work has already begun on how to start this process, in particular on aspects such as architecture, organisation, costs and participation of other partners.’ 32 See Point (d)(xv) of European Parliament, European Parliament resolution of 8 July 2015 containing the European Parliament’s recommendations to the European Commission on the negotiations for the Transatlantic Trade and Investment Partnership (TTIP), P8_TA(2015)0252, 2014/2228(INI). 33 Commission draft text TTIP – Investment, 16 September 2015, available at https://trade.ec.europa. eu/doclib/docs/2015/september/tradoc_153807.pdf.
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posal for Investment Protection and Resolution of Investment Disputes in TTIP. 34 The November 2015 proposal introduced the movement towards a Multilateral Investment Court into the negotiations.35 The EU then had to introduce these new approaches into the negotiations with Canada – which at that time had been closed with the agreement undergoing legal scrubbing.36 It became obvious that, from a political perspective, the entire CETA would be in danger if no new ISDS approaches were taken up into the draft agreement. Thus, the Investment Court System was introduced into CETA only during legal scrubbing.37 The inclusion of the Investment Court System into CETA also created the ‘dynamic for the work towards the creation of the Multilateral Investment Court’.38 An ICS was then also included in the February 2016 CETA text agreed with Canada39 and in the January 2016 agreement with Vietnam.40 Together with CETA’s ICS, Article 8.29 was inserted into the text of Chapter 8, addressing the MIC-project for the first time. In July 2016, the European Parliament also ‘share[d] the ambition of establishing, in the medium term, a multilateral solution to investment disputes’.41 The EU-Vietnam IPA, the EU-Singapore IPA, and the EUMexico Global Agreement stated in almost the same wording that the Parties to the agreement intended to transfer the respective bilateral investment court system to a multilateral system. 11 The Joint Interpretative Instrument adopted by the EU and Canada parallel to the CETA-signature on 14 January 2017 states: […] CETA represents an important and radical change in investment rules and dispute resolution. It lays the basis for a multilateral effort to develop further this new approach to investment dispute resolution into a Multilateral Investment Court. The EU and Canada will work expeditiously towards the creation of the Multilateral Investment Court. It should be set up once a minimum critical mass of participants is established, and immediately replace bilateral systems such as the one in CETA, and be fully open to accession by any country that subscribes to the principles underlying the Court.42
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Furthermore, the Council of the European Union (EU Council or Council) declared that ‘the Council supports the European Commission’s efforts to work towards 34 See, Section 3: Article 9 and Article 10, EU’s proposal for Investment Protection and Resolution of Investment Disputes of 12 November 2015 (TTIP), available at http://trade.ec.europa.eu/doclib/docs/20 15/november/tradoc_153955.pdf. 35 Article 12 of the text provided that: ‘Upon the entry into force between the Parties of an international agreement providing for a multilateral investment tribunal and/or a multilateral appellate mechanism applicable to disputes under this Agreement, the relevant parts of this section shall cease to apply. The […] Committee may adopt a decision specifying any necessary transitional arrangements.’ 36 Brown, ‘The First 10 Years of the European Union’s Policy on Investment Dispute Settlement – From Initial Reforms to the Multilateral Investment Court’, in Hahn and Van der Loo (eds), Law and Practice of the Common Commercial Policy, The first 10 years after the Treaty of Lisbon (2020), 73 (91). 37 Brown, ‘The First 10 Years of the European Union’s Policy on Investment Dispute Settlement – From Initial Reforms to the Multilateral Investment Court’, in Hahn and Van der Loo, Law and Practice of the Common Commercial Policy, The first 10 years after the Treaty of Lisbon (2020), 73 (91). 38 Brown, ‘The First 10 Years of the European Union’s Policy on Investment Dispute Settlement – From Initial Reforms to the Multilateral Investment Court’, in Hahn and Van der Loo, Law and Practice of the Common Commercial Policy, The first 10 years after the Treaty of Lisbon (2020), 73 (91). 39 See, Chapter 8: Article 8.27 and Article 8.28, revised text of CETA made public on 29 February 2016, available at http://trade.ec.europa.eu/doclib/docs/2016/february/tradoc_154329.pdf. 40 See, Section B: Article 3.38 and Article 3.39, EU–Vietnam FTA Investment Chapter: Agreed text as of January 2016, published on 1 February 2016, available at http://trade.ec.europa.eu/doclib/press/index .cfm?id=1437. 41 European Parliament, European Parliament Resolution of 5 July 2016 on a new forward-looking and innovative future strategy for trade and investment, P8_TA-PROV 2016/0299, para. 68. 42 OJ L11/3 of 14 January 2017, ‘Joint Interpretative Instrument on the Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union and its Member States’, para. 6(i).
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the establishment of a multilateral investment court, which will replace the bilateral system established by CETA, once established, and according to the procedure foreseen in CETA’.43 Consequently, in March 2018, the EU Council gave the Commission a mandate to negotiate a MIC.44
D. Commentary I. First Sentence: Pursuing the Establishment of a MIC The first sentence of Article 8.29 CETA provides that the CETA Contracting Parties 13 ‘shall pursue with other trading partners the establishment of a multilateral investment tribunal and appellate mechanism for the resolution of investment disputes’. This entails several aspects: first, whether there is an ‘obligation’ to establish a multilateral court (→ mn. 14 ff.); second, what is the scope of the mandate given to the CETA Contracting Parties (→ mn. 17 ff.); third, what are the possible cornerstones of a MIC (→ mn. 21 ff.); fourth, how a MIC could look like (→ mn. 51 ff.).
1. An International Obligation to Establish? Article 8.29 CETA opens with ‘[t]he parties shall pursue …’, which indicates an 14 obligation to work towards the proposed goal of a MIC. Thus, CETA includes an obligation for the CETA Contracting Parties to strive for the establishment of a multilateral investment tribunal and appellate body with other trading partners.45 This has been evinced in more recent trade and investment agreements of the EU, for instance with Singapore, Mexico and Vietnam, whereby similar provisions have been included. Moreover, it seems that the EU is insisting on investment court system provisions during its negotiations with Chile, China and Indonesia and it ‘has been clear that it will be a necessary component of any future investment protection agreement, until such time as a Multilateral Investment Court is in place’.46 At the international level, on 10 July 2017, UNCITRAL decided to work on a 15 reform of investment arbitration, including the possible establishment of a Multilateral Investment Court.47 In this sense, the EU has propounded the idea of replacing exist43 Declaration no. 36 ‘Statement by the Commission and the Council on investment protection and the Investment Court System (‘ICS’)’ (OJ 2017 L 11/9 of 14 January 2017). 44 Council of the EU, Negotiating directives for a Convention establishing a multilateral court for the settlement of investment disputes (1 March 2018). 45 Puccio and Harte, ‘From arbitration to the investment court system (ICS)’, European Parliamentary Research Service, June 2017, PE 607.251, 29; point 2.4.3. 46 Brown, ‘The First 10 Years of the European Union’s Policy on Investment Dispute Settlement – From Initial Reforms to the Multilateral Investment Court’, in Hahn and Van der Loo, Law and Practice of the Common Commercial Policy, The first 10 years after the Treaty of Lisbon (2020), 73 (93). 47 Official Records of the General Assembly, Seventy-second Session, Supplement No. 17 (A/ 72/17), para. 264: ‘[…] the Commission [the United Nations Commission for International Trade Law] entrusted Working Group III with a broad mandate to work on the possible reform of investor-State dispute settlement (ISDS). In line with the UNCITRAL process, Working Group III would, in discharging that mandate, ensure that the deliberations, while benefiting from the widest possible breadth of available expertise from all stakeholders, would be government-led with high-level input from all governments, consensus-based and be fully transparent. The Working Group would proceed to: (i) first, identify and consider concerns regarding ISDS; (ii) second, consider whether reform was desirable in light of any identified concerns; and (iii) third, if the Working Group were to conclude that reform was desirable, develop any relevant solutions to be recommended to the Commission. The Commission agreed that broad discretion should be left to the Working Group in discharging its mandate, and that any solutions
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ing dispute settlement mechanisms with a multilateral investment court before the UNCITRAL Working Group III on ISDS reform.48 Some states are open to structural reforms i.e. standing courts,49 some others acknowledge the potential benefits of a MIC but demand a reform on the substantive standards of protection as well, 50 whereas there are some states that oppose the permanent court systems as an alternative to investment arbitration.51 16 Canada, the EU and its Member States could request accession to the MIC in negotiations with third countries as a way to increase the membership to the multilateral mechanism. Indeed, the EU has a very extensive network of association, stabilisation, cooperation, free trade and partnership agreements worldwide. In the wake of repeated renegotiations, accession to the MIC could be included. However, one may wonder whether the CETA Contracting Parties are still allowed to conclude agreements foreseeing traditional investment arbitration, especially with those states that refuse to engage in a multilateral reform of ISDS. In this respect, it has to be taken into account that any agreement not at least envisaging the MIC option would possibly undermine the obligation embedded in Article 8.29 CETA, thus, it is arguable that the CETA Contracting Parties would/should refrain from such practice.
2. Scope of the Mandate: Multilateral Investment Tribunal and Appellate Mechanism 17
Article 8.29 CETA envisions a two-tier structure, namely a multilateral investment court with an appellate mechanism. This idea has permeated the EU policy thereafter, whereby the EU Commission52 and the Council53 have set the goal of establishing a multilateral court for the settlement of investment disputes as built-in, two-instance system. Indeed, the Council clearly mentioned: The multilateral court should be composed of a tribunal of first instance and an appeal tribunal. The appeal tribunal should have the competence to review decisions issued by the tribunal of first
devised would be designed taking into account the ongoing work of relevant international organizations and with a view of allowing each State the choice of whether and to what extent it wishes to adopt the relevant solution(s).’ 48 UNCITRAL Working Group III, ‘Possible reform of investor-State dispute Settlement: Submission from the European Union and its Member States’, A/CN.9/WG.III/WP.159/Add.1, 24 January 2019. 49 UNCITRAL Working Group III, ‘Possible reform of investor-State dispute Settlement: Submission from the Republic of Korea’, A/CN.9/WG.III/WP.179, 31 July 2019. China, for example, supports the creation of a permanent appeal mechanism, see UNCITRAL Working Group III, ‘Possible reform of investor-State dispute Settlement: Submission from the Government of China’, A/CN.9/WG.III/WP.177, 19 July 2019. Similarly, UNCITRAL Working Group III, ‘Possible reform of investor-State dispute Settlement: Submission from the Government of Morocco, A/CN.9/WG.III/WP.195, 11 February 2020. 50 UNCITRAL Working Group III, ‘Possible reform of investor-State dispute Settlement: Submission from the Government of South Africa’, A/CN.9/WG.III/WP.176, 17 July 2019, paras. 77 ff. 51 UNCITRAL Working Group III, ‘Possible reform of investor-State dispute Settlement: Submission from the Government of Bahrain’, A/CN.9/WG.III/WP.180, 29 August 2019, paras. 26 ff.; UNCITRAL Working Group III, ‘Possible reform of investor-State dispute Settlement: Submission from the Government of the Russian Federation’, A/CN.9/WG.III/WP.188, 31 December 2019, paras. 15-17. 52 European Commission, Multilateral Reform of Investment Dispute Resolution accompanying the document Recommendation for a Council Decision Authorising the Opening of Negotiations for a Convention Establishing a Multilateral Court for the Settlement of Investment Disputes (Impact Assessment), 13 September 2017, SWD (2017) 302 final . 53 Council of the EU, Negotiating directives for a Convention establishing a multilateral court for the settlement of investment disputes, 20 March 2018 .
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instance, on the grounds of errors of law or manifest errors in the appreciation of facts or, as appropriate, serious procedural shortcomings.54
However, there was some uncertainty regarding the compatibility of international 18 court systems, such as the purported MIC, with EU law. Already in the past, the CJEU had emphasised the principle of autonomy of EU law,55 which had meant that the European Union could not accede to the European Convention on Human Rights and Fundamental Freedoms.56 Furthermore, uncertainty about such compatibility was exacerbated by the Achmea decision,57 whereby the CJEU ruled against the EU law-conformity of bilateral intra-EU investment treaties and the settlement of disputes based thereon. This issue was clarified, and currently, there is little doubt about the compatibility 19 of an investment court with EU law, through Opinion 1/17 of 30 April 2019 rendered by the CJEU, wherein the Court confirmed the compatibility of the CETA Investment Court System with the EU Treaties. The CJEU recalled that: an international agreement providing for the creation of a court responsible for the interpretation of its provisions and whose decisions are binding on the European Union, is, in principle, compatible with EU law. Indeed, the competence of the European Union in the field of international relations and its capacity to conclude international agreements necessarily entail the power to submit to the decisions of a court that is created or designated by such agreements as regards the interpretation and application of their provisions.58
Therefore, according to the CJEU’s CETA Opinion, the European Union can only 20 participate in such a multilateral investment court as long as this new dispute settlement mechanism fulfils certain conditions.59
3. Possible Cornerstones of a MIC The establishment of a multilateral court offers the possibility of a complete 21 overhaul of dispute settlement mechanisms in international investment law. It may provide for its own rules of procedure, adapted to the specific needs of the disputes to be adjudicated, as well as its own recognition and enforcement mechanism for decisions rendered. For instance, a judicial limitation of the subject matter of the case, e.g. through terms of reference,60 a limitation on reimbursement of legal fees by the unsuccessful Party and the reimbursement of the necessary costs, 61 investigative powers of the court,62 or an acceleration principle with prescribed procedural 54 Council of the EU, Negotiating directives for a Convention establishing a multilateral court for the settlement of investment disputes, 20 March 2018, para. 10 . 55 See already CJEU, Opinion 1/91, 14.12.1991, ECLI:EU:C:1991:490, paras. 30 ff.; CJEU, Opinion 1/09, 8.3.2011, ECLI :EU:C:2011:123, para. 67. 56 CJEU, Opinion 2/13, 18.12.2014, ECLI:EU:C:2014:2454. 57 CJEU, C-284/16, 6.3.2018, Slovak Republic v. Achmea BV, ECLI:EU:C:2018:158. 58 CJEU, Opinion 1/17, 30 April 2019, ECLI:EU:C:2019:341, para. 106. 59 See on the CJEU CETA Opinion 1/17 Bungenberg and Titi, ‘CETA Opinion – Setting Conditions for the Future of ISDS’, EJIL:Talk!, 5 June 2019, ; Titi, ‘Opinion 1/17 and the Future of Investment Dispute Settlement: Implications for the Design of a Multilateral Investment Court’, in Sachs et al. (eds), YB Int’l Inv. L. & Pol’y (2019). 60 Bungenberg and Reinisch, From Bilateral Arbitral Tribunals and Investment Courts to a Multilateral Investment Court (2020), 142. 61 Bungenberg and Reinisch, From Bilateral Arbitral Tribunals and Investment Courts to a Multilateral Investment Court (2020), 94 ff. 62 Bungenberg and Reinisch, From Bilateral Arbitral Tribunals and Investment Courts to a Multilateral Investment Court (2020), 142 ff.
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timelines, such as in WTO law.63 Bungenberg/Reinisch presented in a feasibility study comprehensive ideas on the set-up of a Multilateral Investment Court in August 2017 to the German Ministry of Economic Affairs,64 on 20 March 2018, the Council gave the EU Commission a mandate to negotiate the establishment of such a multilateral court for investment disputes (EU-Negotiating Mandate),65 and the EU and its Member States presented an outline of the envisaged end-product within UNCITRAL (EUUNCITRAL Outline).66 All these documents more or less point into the same direction. Finally, Bungenberg/Reinisch presented a first Draft Statute of a Multilateral Investment Court in October 2020. Basic ideas are presented in the following. a) Organisational Structure and Jurisdiction Incorporating the MIC or the Multilateral Investment Appeals Mechanism (MIAM) into another organisation does not appear to be advisable as other organisations are either completely different in their structure or it may require certain procedures to amend their statutes which might be too difficult to achieve in practice. For instance, the WTO and ICJ do not provide access for individuals, they would therefore require fundamental restructuring in order to allow claims by investors. Also integration into ICSID does not seem to be an option since the ICSID Convention does not provide for permanent judges or an appeals mechanism.67 23 A new investment court should therefore be designed as an independent international organisation, based on a treaty, equipped with its own organs, and possessing independent legal personality.68 This is not to suggest that the MIC could not share the infrastructure of other institutions, such as the ITLOS, the WTO, ICSID or the Permanent Court of Arbitration, as is also mentioned in the EU Negotiating Mandate: 22
12. The Convention should include the necessary flexibilities to adapt to an evolving membership, as well as to possible evolutions in the nature of agreements that could be submitted to the jurisdiction of the court. The Convention should not exclude the possibility for the court to rely on the secretarial support of an existing international organisation, nor to be integrated into the structure of any such organisation at a later stage.69
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A statute for the establishment of a MIC or a MIAM would constitute an international treaty that should allow the accession of all states, independent customs unions or Regional Economic Integration Organisations (REIOs) as well as territories with independent powers (e.g. Hong Kong, Macao, Taiwan).
63 Bungenberg and Reinisch, From Bilateral Arbitral Tribunals and Investment Courts to a Multilateral Investment Court (2020), 139 ff. 64 Bungenberg and Reinisch, Machbarkeitsstudie Von bilateralen Schieds- und Investitionsgerichten zum multilateralen Investitionsgerichtshof: Optionen für die Institutionalisierung der Investor-Staat-Streitbeilegung, 21. August 2017. https://www.bmwi.de/Redaktion/DE/Publikationen/Studien/machbarkeitsstudie -bilaterale-schieds-und-investitionsgerichte.pdf?__blob=publicationFile&v=10. 65 See, Council of the EU, Negotiating directives for the establishment of a multilateral court for the resolution of investment disputes, 5.4.2019, available at http://data.consilium.europa.eu/doc/document/S T-12981-2017-ADD-1-DCL-1/de/pdf. 66 UNCITRAL, European Union and its Member States – ‘Establishing a standing mechanism for the settlement of international investment disputes’, 18 January 2019 (A/CN.9/WG.III/WP.159/Add.1). 67 See for instance Calamita, ‘The Challenge of Establishing a Multilateral Investment Tribunal at ICSID’ (2017) 32 ICSID Rev.-FIJL, 611. 68 See Bungenberg and Reinisch, Von bilateralen Schieds- und Investitionsgerichten zum multilateralen Investitionsgerichtshof (2018), 251 ff. 69 Council of the EU, Negotiating directives for a Convention establishing a multilateral court for the settlement of investment disputes, (1 March 2018), para. 12.
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The founding agreement of a MIC could be designed as an opt-in convention, open 25 in the long term to accession of other states and international organisations. 70 In this regard, the 2018 Mandate states: 18. The Convention establishing the multilateral court should be open for signature and accession by any interested country and regional economic integration organisation that is a party to an investment agreement. It should allow for an early entry into force as soon as a minimum number of ratification instruments have been deposited.71
This opt-in convention could determine that the new court’s jurisdiction extends to 26 certain groups of existing investment agreements between MIC Members. By joining the MIC, this would in part complement or even replace all other dispute resolution mechanisms provided for in bilateral treaties. This would mean that existing investment agreements between MIC Members would not have to be renegotiated independently. Accordingly, the EU Negotiating Mandate provides: 8. The principal mechanism of the Convention should be that the jurisdiction of the multilateral court extends to a bilateral agreement when both Parties to the agreement have agreed to submit disputes arising under the agreement to the jurisdiction of the multilateral court. In the case of multilateral agreements, the Convention should allow two or more Parties to such an agreement to agree to submit disputes under the multilateral agreement to the jurisdiction of the multilateral court. It should be explored whether the Convention could also be utilised if only the respondent state is Party to the Convention.72
Thus, the MIC would determine its own jurisdiction. The personal and subject- 27 matter jurisdiction of the MIC should for the most part derive from International Investment Agreements (IIAs) that have allegedly been violated. b) Two-tiered Structure A two-tiered court offers certain advantages compared to a mere appellate mecha- 28 nism in terms of the implementation of rule of law considerations and systemic coherence, as there would be no shift from investment arbitration to an international court between the first and second instance. The EU-Negotiating Mandate summarizes: 10. The multilateral court should be composed of a tribunal of first instance and an appeal tribunal. The appeal tribunal should have the competence to review decisions issued by the tribunal of first instance, on the grounds of errors of law or manifest errors in the appreciation of facts or, as appropriate, serious procedural shortcomings. The Convention should include provisions for the completion of the proceedings in light of the findings of the appeal tribunal, which should have the power, when appropriate, to send back cases to the tribunal of first instance (‘remand’). 73
Similarly, the EU-UNCITRAL Outline provides for a two-instance tribunal namely: 3.2 First instance 13. A standing mechanism should have two levels of adjudication. A first instance tribunal would hear disputes. It would conduct, as arbitral tribunals do today, fact finding and then apply the applicable law to the facts. It would also deal with cases remanded back to it by the appellate
70 See for instance also Kaufmann-Kohler and Potestà, ‘Can the Mauritius Convention Serve as a Model for the Reform of Investor-State Arbitration in Connection with the Introduction of a Permanent Investment Tribunal or an Appeal Mechanism – Analysis and Roadmap’, CIDS Report 2016, 75 ff. 71 Council of the EU, Negotiating directives for a Convention establishing a multilateral court for the settlement of investment disputes, (1 March 2018), para. 18. 72 Council of the EU, Negotiating directives for a Convention establishing a multilateral court for the settlement of investment disputes, (1 March 2018), para. 8. 73 Council of the EU, Negotiating directives for a Convention establishing a multilateral court for the settlement of investment disputes, (1 March 2018), para. 10.
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tribunal where the appellate tribunal could not dispose of the case. It would have its own rules of procedure.74 3.3 Appellate tribunal 14. An appellate tribunal would hear appeals from the tribunal of first instance. Grounds of appeal should be error of law (including serious procedural shortcomings) or manifest errors in the appreciation of the facts. It should not undertake a de novo review of the facts. 75 15. Mechanisms for ensuring that the possibility to appeal is not abused should be included. These may include, for example, requiring security for cost to be paid. 76
c) Procedural Aspects 30
There should be the requirement of an application procedure and the Parties should have a right to an efficient and expedient procedure, which should be conducted in an inquisitorial manner. The instrument setting out the MIC could explicitly address issues such as frivolous claims and treaty shopping, which often affect investment arbitration proceedings.77 The EU-Negotiating Mandate suggests: 9. The Convention should include appropriate procedural safeguards, including provisions against frivolous claims. It should also be explored whether the Convention should include amicable dispute resolution mechanisms and other procedural provisions on, inter alia, parallel claims or joint interpretations.78
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And in regard to representation of third Parties in disputes, the EU-UNCITRAL Outline states: 29. It should also be provided that third parties, for example representatives of communities affected by the dispute, be permitted to participate in investment disputes. 79
Additional procedural or admissibility requirements could be provided, such as the fact that in case of dual nationality, the effective nationality is to be determined, or also to what extent state-owned enterprises should be entitled to act as claimant. 80 33 There should be a maximum duration for the proceedings of both the first and the second instance. Only in exceptional cases should a prolonged duration be permissible — as full-time judges hear the cases, the maximum duration of proceedings should be shorter than in ad hoc cases. Full-time judges could contribute to faster, more efficient and thus cheaper procedures. The EU-Negotiating Mandate states in this regard: 32
74 UNCITRAL, European Union and its Member States – ‘Establishing a standing mechanism for the settlement of international investment disputes’, 18 January 2019 (A/CN.9/WG.III/WP.159/Add.1), para. 13. 75 UNCITRAL, European Union and its Member States – ‘Establishing a standing mechanism for the settlement of international investment disputes’, 18 January 2019 (A/CN.9/WG.III/WP.159/Add.1), para. 14. 76 UNCITRAL, European Union and its Member States – ‘Establishing a standing mechanism for the settlement of international investment disputes’, 18 January 2019 (A/CN.9/WG.III/WP.159/Add.1), para. 15. 77 Bungenberg and Reinisch, Von bilateralen Schieds- und Investitionsgerichten zum multilateralen Investitionsgerichtshof (2018), 115 ff. Generally also Baumgartner, Treaty Shopping in International Investment Law (2016), 114 ff. 78 Council of the EU, Negotiating directives for a Convention establishing a multilateral court for the settlement of investment disputes, (1 March 2018), para. 9. 79 UNCITRAL, European Union and its Member States – ‘Establishing a standing mechanism for the settlement of international investment disputes’, 18 January 2019 (A/CN.9/WG.III/WP.159/Add.1), para. 29. 80 See generally also Bungenberg, ‘The Scope of Application of EU (Model) Investment Agreements’, (2014) 15 JWIT, 402 (410 ff.).
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15. One objective of the negotiations should be that the multilateral court operates in an effective way, both in terms of costs and length of procedures.81
d) Transparency For the purposes of transparency, it is advisable to adopt the UNCITRAL Rules 34 on Transparency.82 The requirements of the UNCITRAL Transparency Rules and the United Nations Convention on Transparency in Treaty-Based Investor-State Arbitration (Mauritius Convention) regarding transparency should be fully incorporated in the procedural rules. Hearings should be open to the public and third Parties should have the opportunity to deliver statements. Procedural documents should, in principle, be published unless material interests such as trade secrets or security issues are at stake. Additionally, third interested Parties could file submissions on pending cases. This is emphasised by the EU-Negotiating Mandate as follows: 13. Proceedings before the multilateral court should be conducted in a transparent manner, including the possibility of submitting third party interventions, similar to or utilising the rules and standards provided for within the UNCITRAL Rules on Transparency for treaty-based investor-state arbitration.83
As well as in the EU-UNCITRAL Outline:
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28. A high level of transparency of the proceedings should be ensured. The UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration would be a good example of a minimum standard which could be applied.84
e) Costs of the MIC From an economic and practical point of view, a MIC only makes sense in the event 36 of a critical minimum number of contracting states, similar to the practice of other international courts.85 Assuming that arbitration proceedings currently give rise to administrative costs of approximately EUR 750,000 per case on average, 86 and that around 70 procedures a year are initiated, the use of only a part of this sum would be enough for the cost-neutral operation of an MIC. The EU-UNCITRAL Outline emphasises in this respect: 4.3 Duration and costs87
81 Council of the EU, Negotiating directives for a Convention establishing a multilateral court for the settlement of investment disputes, (1 March 2018), para.15. 82 United Nations Convention on Transparency in Treaty-based Investor-State Arbitration (‘Mauritius Convention on Transparency’) of 10.12.2014 (in force since 1.4.2014); UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration (‘Rules on Transparency’ of 1.2014 (in force since 1.4.2014). See also Bungenberg and Reinisch, Von bilateralen Schieds- und Investitionsgerichten zum multilateralen Investitionsgerichtshof (2018), 146 ff. 83 Council of the EU, Negotiating directives for a Convention establishing a multilateral court for the settlement of investment disputes, (1 March 2018), para. 15. 84 UNCITRAL, European Union and its Member States – ‘Establishing a standing mechanism for the settlement of international investment disputes’, 18 January 2019 (A/CN.9/WG.III/WP.159/Add.1), para. 28. 85 See on this regard the International Criminal Court, ICC Statute, Art. 126, para. 1. 86 Hodgson, ‘Costs in Investment Treaty Arbitration: The Case for Reform’, (2014) 1 TDM, 1; Hodgson, ‘Counting the costs of investment treaty arbitration’, GAR News, 24.3.2014, Table 2. 87 UNCITRAL, European Union and its Member States – ‘Establishing a standing mechanism for the settlement of international investment disputes’, 18 January 2019 (A/CN.9/WG.III/WP.159/Add.1), paras. 51-56.
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51. A standing mechanism will lead to a reduction of the costs and duration of proceedings in a number of ways, which would contribute to ensure effective access for small and medium-sized enterprises to the standing mechanism. 52. First, time will not be spent choosing arbitrators. ICSID estimates that on average it takes 6–8 months to appoint arbitrators. The appointment of arbitrators also implies a cost, as counsel spend time considering which arbitrators would best suit the interests of their client. The time spent appointing tribunal members is considered to be one of the three most time consuming elements of ISDS proceedings and hence will involve significant counsel costs. 53. Second, significantly less time and money would be spent on challenges. Under the current ICSID rules, proceedings are suspended whilst challenges are resolved. A permanent mechanism would remove entirely, or in very large part, the need for and frequency of challenges. Instead, adjudicators would be considered independent and impartial on account of their tenure and it would only be in very specific limited cases that a potential conflict of interest might arise and would need to be dealt with. 54. Third, adjudicators in a standing mechanism will not have incentives that may impact on costs and duration. For example, the fact that their remuneration would not be linked to the time spent on a particular case would remove perceived incentives to prolong the time of proceedings in terms of management of the case. It is more likely to lead to better case management. For example, permanent adjudicators would have no interest in longer pleadings or longer hearings than strictly necessary. It has been argued that arbitrators are loath to disagree with appointing counsel for example on the length of hearings or on the utility of post-hearing briefs. 55. Fourth, predictability will impact on costs and duration. Once a particular interpretation of a norm is established (e.g. by consistent rulings of first instance tribunals or by an appeal mechanism), then it will not be relitigated. Conversely, the current system encourages relitigation because there is no guarantee that one ad hoc tribunal will follow an interpretation, however well-reasoned, of another ad hoc tribunal. Removing this lack of predictability will therefore also reduce the costs and duration of proceedings. 56. A standing mechanism will also bring a significant advantage in the management of multiple claims. The more treaties are subject to the jurisdiction of the standing mechanism, the more effective the standing mechanism will be in handling related cases brought under different treaties (e.g. in avoiding or better handling a CME/Lauder situation). This may happen, for example, through joinder of cases, consolidation, stay of proceedings or even dismissal of cases.
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In first calculations, the EU Commission assumed that the maintenance costs of a MIC would amount to approximately EUR 10 million per year.88 The costs should be in general shared by the Parties, but taking into account their economic development. The EU-Negotiating Mandate states in this regard: 15. The fixed costs of the court, including costs of remuneration of its members and costs of administrative and secretarial support, should in principle be borne by the Contracting Parties to the Convention establishing the multilateral court with a possible contribution from the disputing parties through Court fees, which should not be linked to the remuneration of the Members of the Court. The distribution of such costs among the Contracting Parties should be decided on an equitable basis which shall take into account various factors, including the Parties' level of economic development.89
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The EU-UNCITRAL Outline suggests: 3.13 Financing90
88 European Union, Possible Reform of Investor State Dispute Settlement (ISDS), Submission from the European Union and its Member States, A/CN.9//WP.P159//Add.1, 24 January 2019. 89 Council of the EU, Negotiating directives for a Convention establishing a multilateral court for the settlement of investment disputes, (1 March 2018), para. 15. 90 UNCITRAL, European Union and its Member States – ‘Establishing a standing mechanism for the settlement of international investment disputes’, 18 January 2019 (A/CN.9/WG.III/WP.159/Add.1), paras. 33-34.
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33. Contributions to the financing of a standing mechanism would be made, in principle, by the contracting parties. These would be weighted in accordance with their respective level of development, so that developing or least developed countries would bear a lesser burden than developed countries. The weighting mechanism adopted could be derived from or based on the weighting applied in other international organizations. Consideration should also be given to requiring that users of the standing mechanism pay certain fees, although care should be taken not to tie these fees directly to the remuneration of the adjudicators and should not be so high as to become a hurdle for small and medium sized enterprises to bring a case. 34. Contributions could be managed through a trust fund, as for the Caribbean Court of Justice. This would ensure that the standing mechanism could effectively operate on a medium-to-long term perspective.
The costs of proceedings could furthermore be allocated to the Parties depending 39 on the outcome of the case; however, MIC members should cover the permanent costs of the court, as it would be difficult to allocate the costs to specific proceedings. Fixed MIC fees could be foreseen to shift part of the financial burden to the Parties. Small and medium-sized enterprises and individual investors should not be deterred from initiating justified cases before the MIC as a result of court fees. f) Institutional Structure/Organs The MIC could provide for a plenary body, a bench of judges, a secretariat and an 40 advisory centre. The heart of a MIC would be the bench of judges. The appointment of judges may address concerns of bias and conflict of interest in investment arbitration. Judges at the MIC should be appointed for a long period of time and be elected according to regional groups. aa) The Judges The judges to be appointed to the MIC would have to demonstrate special exper- 41 tise, in particular in international law, economic law and possibly constitutional law. Likewise, they must be independent and impartial as well as permanently available as full-time judges. These qualification requirements should be reflected in a specially designed appointment and selection process.91 These procedures can be based on the work of the Council of Europe.92 The independence of the Court should be guaranteed. Members of the Court (both of the tribunal of first instance and of the appeal tribunal) should be subject to stringent requirements regarding their qualifications and impartiality. Strong rules on ethics and conflict of interests, including a code of conduct for the Members of the Court and challenge mechanisms shall be included in the Convention. The Members of the Court should receive a permanent remuneration. They should be appointed for a fixed, long and non-renewable period of time and enjoy security of tenure, as well as all necessary guarantees of impartiality and independence.
91 See on this, Andrea Bjorklund, Marc Bungenberg, Manjiao Chi and Catharine Titi, ‘Selection and Appointment of International Adjuducators: Structural Options for ISDS Reform’, Academic Forum on ISDS Concept Paper 2019/11, 17 September 2019; Olof Larsson, Theresa Squatrito, Øyvind Stiansen, and Taylor St John, ‘Selection and Appointment in International Adjudication: Insights from Political Science’, Academic Forum on ISDS Concept Paper 2019/10, 17 September 2019; Malcolm Langford, Daniel Behn, and Maria Chiara Malaguti, ‘The Quadrilemma: Appointing Adjudicators in Future Investor-State Dispute Settlement’, Academic Forum on ISDS Concept Paper 2019/12, 13 October 2019. 92 Bungenberg and Reinisch, Von bilateralen Schieds- und Investitionsgerichten zum multilateralen Investitionsgerichtshof (2018), 59 ff.
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Members of the Court should be appointed through an objective and transparent process. Different methods of appointment should be explored including, for example, the possibility that all Parties to the Convention are entitled to appoint a Member of the Court, or the possibility that Members of the Court are appointed through other methods inspired by existing international courts such as the International Court of Justice or the International Criminal Court, taking into account, inter alia, the expected size of the Court and the need to ensure effectiveness and cost-efficiency. Any such method shall ensure that the Members of the Court who are appointed are of a high quality with the necessary professional and ethical standing to fulfil their duties. Any method of appointment of the Members of the Court shall provide also for regional balance and gender representation in addition to ensuring the efficient and effective management of the Court. Moreover, Members of the Court should be appointed to hear a particular case by a transparent and objective method. 43 With respect to the adjudicators, the EU-UNCITRAL Outline suggests: 93 42
3.4 Full-time adjudicators 16. Adjudicators would be employed full-time. They would not have any outside activities. The number of adjudicators should be based on projections of the workload of the permanent body. 17. They would be paid salaries comparable to those paid to adjudicators in other international courts. 3.5 Ethical requirements 18. Adjudicators would be subject to strict ethical requirements. High ethical standards would be ensured in part through the adjudicators being full-time and prohibited from having other activities, in particular other remunerated or political activities. Adjudicators would be required to ensure that there is no risk of conflict of interest in particular cases. To this end, adjudicators should disclose past interests, relationships or matters that could affect their independence or impartiality and, after the end of their term, they should remain subject to obligations to ensure that their independence and impartiality in office are not called into question. 19. Independence from governments would be ensured through a long-term non-renewable term of office (many international tribunals provide for nine year terms, for example), combined with a robust and transparent appointment process. 3.6 Qualifications 20. It is suggested to use comparable qualification requirements as for other international courts. That would imply that adjudicators have the qualifications required in their respective countries for appointment to the highest judicial offices or are jurisconsults of recognised competence in international law (see for example, Art. 2 of the Statute of the International Court of Justice). Specific criteria could be set out on required expertise in certain areas of law, and it would be desirable to have persons with judicial experience and case-management skills. 3.7 Diversity 21. Mechanisms should be used to ensure that both geographical and gender diversity is ensured. Art. 36(8) of the Rome Statute of the International Criminal Court provides an example of the types of rules which can be set for adjudicators in a permanent body. 3.8 Appointment process 22. It is vital to ensure the neutrality of adjudicators. A robust and transparent appointment process would be necessary to ensure the independence and impartiality of the adjudicators. All ideas to ensure neutrality should be considered, but inspiration can be drawn, inter alia, from recently created international or regional courts which have screening mechanisms to ensure that the adjudicators appointed do in fact meet the necessary standards of judicial independence. The persons appointed to the screening mechanisms should be independent. These could, for example, be ex officio appointments (for example, the President of the International Court of Justice, other senior or recently retired judges from international or domestic supreme courts). Candidates for 93 UNCITRAL, European Union and its Member States – ‘Establishing a standing mechanism for the settlement of international investment disputes’, 18 January 2019 (A/CN.9/WG.III/WP.159/Add.1), paras. 16-24.
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the standing mechanism could be both proposed by the contracting parties and apply directly for appointment. Consideration should be given to allowing non-nationals of contracting parties to be appointed. They would be subject to a vote requiring a significant majority of votes of the contracting parties. 23. When appointing adjudicators to the standing mechanism, the contracting parties would be expected to appoint objective adjudicators, rather than ones that are perceived to lean too heavily in favour of investors or states, because they are expected to internalize not only their defensive interests, as potential respondents in investment disputes, but also their offensive interests, i.e. the necessity to ensure an adequate level of protection to their investors. They will therefore take a longer term perspective. 24. To hear each particular case, adjudicators would be appointed to divisions of the standing mechanism on a randomised basis to ensure that the disputing parties would not be in a position to know in advance who will hear their case.
bb) Secretariat A Secretariat should support the judiciary, administer the procedures and devote 44 itself to public relations work. cc) Investment Advisory Centre In addition, an Investment Advisory Centre could be set up as an independent 45 body of the MIC. A helpful guide in this regard is the Columbia Centre for Sustainable Development (CCSI) study on how to better secure ‘adequate legal defense’ for parties in ISDS proceedings.94 Such an advisory centre could support respondent states as well as small and medium size enterprises that do not have sufficient financial resources to afford time-consuming and costly legal action before the MIC. The EU-UNCITRAL Outline states: 3.15 Assistance mechanism 38. A mechanism should be foreseen to ensure that all disputing parties can operate effectively in the investment dispute settlement regime. Such mechanism could aid least developed and developing countries in litigation in international investment disputes and possibly in other aspects of the application of international investment law. Such an initiative may form part of the process of establishing a standing mechanism.95
Similarly, the EU-Negotiating Mandate envisages support to developing and least 46 developed countries as well as to small and medium-sized enterprises:96 16. The Union should strive to ensure that support can be made available to ensure that developing and least developed countries can operate effectively in the investment dispute settlement regime. Such an initiative may form part of the process of establishing a multilateral investment court or may be conducted separately. 17. The Convention should include appropriate provisions aimed at ensuring the access of small and medium-sized enterprises and natural persons to the multilateral court by seeking, inter alia, to reduce costs.
94 See, Lise Johnson and Brooke Guven, Securing Adequate Legal Defense in Proceedings under International Investment Agreements: A Scoping Study, (CCSI, November 2019). available at: https://sc holarship.law.columbia.edu/sustainable_investment_staffpubs/70. 95 UNCITRAL, European Union and its Member States – ‘Establishing a standing mechanism for the settlement of international investment disputes’, 18 January 2019 (A/CN.9/WG.III/WP.159/Add.1), para. 38. 96 UNCITRAL, European Union and its Member States – ‘Establishing a standing mechanism for the settlement of international investment disputes’, 18 January 2019 (A/CN.9/WG.III/WP.159/Add.1), paras. 16-17.
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g) Decisions and Enforcement 47
The decisions of the MIC should be limited to (declaratory) findings of violations of applicable IIAs and the award of damages and/or compensation. Certainly, MIC decisions need to be enforceable to be efficient. The EU Negotiating Mandate thus states: 14. Decisions of the multilateral court should benefit from an effective international enforcement regime.97
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Also the EU-UNCITRAL Outline focuses on this aspect: 3.12 Enforcement98 30. Effective enforcement of awards of a standing mechanism is vital. Given that it would feature an appeal mechanism, there is no need for review of awards at the domestic level or through ad hoc international mechanisms (i.e. the function of annulment or set-aside currently exercised by national courts and ICSID annulment committees would be exercised by the broader review provided by the appeal mechanism). Therefore, there should not be review of such awards at domestic level. 31. It is suggested that the instrument creating a standing mechanism should create its own enforcement regime, which would not provide for review at domestic level. 32. It would also be the case that awards under a future standing mechanism could additionally be capable of enforcement under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Enforcement is possible for awards made by ‘permanent arbitral bodies’ (see Art. 1(2) of the Convention). There is no reason to consider that awards of a standing mechanism could not be regarded as such of a ‘permanent arbitral body’ and hence enforceable, provided of course that the disputing parties had given their consent, which by definition they would have done. It might be necessary to include mechanisms to prevent the disputing parties activating setaside procedures at a later stage.
As the MIC procedure will most likely not be covered by the ICSID Convention, the enforcement mechanism of the ICSID Convention will not apply to MIC decisions. Enforcement pursuant to the New York Convention would require that MIC decisions embody arbitral awards as defined by this Convention. It is currently unclear whether this would be accepted by the domestic courts of the enforcement state, especially with respect to enforcement in non-member states of the MIC. In light of the desire for legal certainty, the MIC should have its own enforcement mechanism, which would become more effective as more states decide to join the MIC. 50 One could also consider the establishment of a fund (enforcement fund) to which all MIC Members have to contribute and which could serve to expeditiously satisfy final claims up to a certain amount. Claims against the losing Party arising from a MIC decision could be subrogated to the fund. The fund or the MIC could then enforce these subrogated claims against the losing Party in arrears. The Negotiating Mandate as well as the EU Submission to UNCITRAL discuss this. 49
4. Draft Statute of a MIC 51
A first Draft Statute of a Multilateral Investment Court setting out the necessary cornerstones to address the concerns of investment dispute settlement was introduced
97 Council of the EU, Negotiating directives for a Convention establishing a multilateral court for the settlement of investment disputes, (1 March 2018), para. 14. 98 UNCITRAL, European Union and its Member States – ‘Establishing a standing mechanism for the settlement of international investment disputes’, 18 January 2019 (A/CN.9/WG.III/WP.159/Add.1), paras. 30-32.
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in 2020 by the authors of this commentary.99 The ‘Draft Statute of the Multilateral Investment Court’ is based on the study ‘From Bilateral Arbitral Tribunals and Investment Courts to a Multilateral Investment Court’.100 This Draft Statute was meant to demonstrate that it is possible to create a treaty-based Multilateral Investment Court (MIC).
II. Second Sentence: The Task of the CETA Joint Committee to adopt Appropriate Transition Arrangements The second sentence of Article 8.29 CETA provides that once the establishment of 52 a MIC is completed, ‘the CETA Joint Committee shall adopt a decision providing that investment disputes under this Section will be decided pursuant to the multilateral mechanism and make appropriate transitional arrangements’. This reflects the EU’s two-step approach on ISDS reform: the creation of bilateral investment courts as an immediate response to criticism of the existing system and the final goal to establish a multilateral investment court to take charge over the settlement of investment disputes. Accordingly, Article 8.29 CETA provides the transition path from the bilateral to a multilateral system, which will be led by the CETA Joint Committee. Indeed, such transition would perfect the reform of ISDS from the EU’s perspective and, at the same time, it would render Section F, Chapter 8 of CETA inoperative.
E. Conclusion Article 8.29 CETA lays the groundwork for the future multilateralisation of inter- 53 national investment law and dispute settlement. The CETA Contracting Parties are clearly encouraged to pursue a multilateral court with a built-in appellate mechanism, which the EU has proposed already at the international level in the UNCITRAL Working Group III. It is to be noted that, in principle, it would be feasible to set up a multilateral court for investment disputes, taking full account of efficiency and legitimacy considerations. Even for the purpose of interpreting substantive standards of protection, the MIC is deemed to play a fundamental role from the point of view of democratic legitimacy. The further development will depend on the political will of the negotiating Parties. 54 Canada, the EU with its Member States, as well as Singapore, Mexico and Vietnam have already spoken out in favour of a MIC and, in the case of CETA, the Joint Committee could undertake the pertinent transition agreements. However, it remains to be seen whether it will be possible to persuade other countries to accede to or support a MIC.
99 Bungenberg and Reinisch, Draft Statute of the Multilateral Investment Court (2020), . 100 Bungenberg and Reinisch, Von bilateralen Schieds- und Investitionsgerichten zum multilateralen Investitionsgerichtshof (2018); From Bilateral Arbitral Tribunals and Investment Courts to a Multilateral Investment Court (2020).
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Article 8.30 Ethics* 1. The Members of the Tribunal shall be independent. They shall not be affiliated with any government1). They shall not take instructions from any organisation, or government with regard to matters related to the dispute. They shall not participate in the consideration of any disputes that would create a direct or indirect conflict of interest. They shall comply with the International Bar Association Guidelines on Conflicts of Interest in International Arbitration or any supplemental rules adopted pursuant to Article 8.44.2. In addition, upon appointment, they shall refrain from acting as counsel or as party-appointed expert or witness in any pending or new investment dispute under this or any other international agreement. 2. If a disputing party considers that a Member of the Tribunal has a conflict of interest, it may invite the President of the International Court of Justice to issue a decision on the challenge to the appointment of such Member. Any notice of challenge shall be sent to the President of the International Court of Justice within 15 days of the date on which the composition of the division of the Tribunal has been communicated to the disputing party, or within 15 days of the date on which the relevant facts came to its knowledge, if they could not have reasonably been known at the time of composition of the division. The notice of challenge shall state the grounds for the challenge. 3. If, within 15 days from the date of the notice of challenge, the challenged Member of the Tribunal has elected not to resign from the division, the President of the International Court of Justice may, after receiving submissions from the disputing parties and after providing the Member of the Tribunal an opportunity to submit any observations, issue a decision on the challenge. The President of the International Court of Justice shall endeavour to issue the decision and to notify the disputing parties and the other Members of the division within 45 days of receipt of the notice of challenge. A vacancy resulting from the disqualification or resignation of a Member of the Tribunal shall be filled promptly. 4. Upon a reasoned recommendation from the President of the Tribunal, or on their joint initiative, the Parties, by decision of the CETA Joint Committee, may remove a Member from the Tribunal where his or her behaviour is inconsistent with the obligations set out in paragraph 1 and incompatible with his or her continued membership of the Tribunal. Reference to the Respective Provisions in Other EU Treaties: Article 3.40 EU-Vietnam IPA, Article 3.11 EU-Singapore IPA, Article 13 of the new EU-Mexico Trade Agreement and Article 11 TTIP. Bibliography: Ariel Anderson, ‘Saving Private ISDS: The Case for Hardening Ethical Guidelines and Systematizing Conflicts Checks’ (2018) Geo. J. Int’l L., 1143; Marc Bungenberg, ‘Towards a more balanced international investment law 2.0?’ in Christoph Hermann, Bruno Simma and Rudolf Streinz (eds), Trade policy between law, diplomacy and scholarship. Liber amicorum in memoriam Horst G. Krenzler (Springer, Berlin, 2015), 15; Marc Bungenberg and August Reinisch, From Bilateral Arbitral Tribunals and Investment Courts to a Multilateral Investment Court. Options Regarding the Institutionalization of * The author is member of Spanish research project DER2017-85585-P and of the Aragonese research group LegMIBIO. 1) For greater certainty, the fact that a person receives remuneration from a government does not in itself make that person ineligible.
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Investor-State Dispute Settlement, Special Issue (2nd edn, Springer, Switzerland, 2020); Nicolette Butler, ‘Treating the symptoms rather than the cause: a critique of ICSID’s 2018 rules amendment proposals’ (2019) Int’l Trade L. Regul. 117; Juan Pablo Charris Benedetti, ‘The proposed Investment Court System: does it really solve the problems?’ (2019) 42 Revista Derecho del Estado, 83; Maria Nicole Cleis, The Independence and Impartiality of ICSID Arbitrators (Brill Nijhoff, Leiden, 2017); Jonathan Cowe, ‘“It’s not me, it’s you:” Arbitrator’s Conduct and the Public’s Opinion of ISDS’ (2019) 85(3) Arbitration, 251; John R Crook, ‘Dual Hats and Arbitrator Diversity: Goals in Tension’ (2019) 113 AJIL, 284; Karel Daele, Challenge and disqualification of arbitrators in international arbitration (Kluwer, Netherlands, 2012); Otto L O De Witt Wijnen, Nathalie Voser and Neomi Rao, ‘Background information on the IBA guidelines on conflicts of interest in international arbitration’ (2004) 5 BLI, 433.; James Devaney, ‘An Independent Panel for the Scrutiny of Investment Arbitrators: an Idea Whose Time Has Come?’ (2019) 18 LPICT, 369; Fernando Dias Simoes, ‘Hold on to your hat! Issue conflicts in the TTIP proposal for an investment court’ (2018) 17(1) LPICT 98; Georgios Dimotropoulos, ‘Constructing the independence of international investment arbitrators: past, present and future’ (2016) 36(2) Nw. J. Int'l L. & Bus., 371; Katia Fach Gómez, ‘Recusación de árbitros: algunas reflexiones en torno a los tribunales de inversiones internacionales’ in José Manuel Álvarez Zárate and Maciej Zenkiewicz (eds), El Derecho Internacional de las Inversiones: Desarrollo actual de normas y principios (Universidad Externado de Colombia, Bogotá, forthcoming 2020); Katia Fach Gómez, Key Duties of International Investment Arbitrators. A Transnational Study of Legal and Ethical Dilemmas (Springer, Switzerland 2019); Katia Fach Gómez, ‘Diversity and the Principle of Independence and Impartiality in the Future Multilateral Investment Court’ (2018) LPICT, 1, 78; Juan Fernández-Armesto, ‘Counsel and arbitrator in investment arbitration: does the mixing of the roles nix neutrality?’ (2012) IBA Arbitration Day, 1; Xavier Fernández-Pons, Rodrigo Polanco and Ramón Torrent, ‘CETA on Investment: the Definitive Surrender of EU Law to GATS an NAFTA/BITS’ (2017) 54 CMLR, 1319; José Carlos Fernández Rozas, ‘Contenido ético del deber de revelación del árbitro y consecuencias de su trasgresión’ (2013) 6(3) Revista de arbitraje comercial y de inversiones, 799; Daniel García Barragán, Alexandra Mitretodis and Andrew Tuck, ‘The New NAFTA: Scaled-Back Arbitration in the USMCA’ (2019) 36(6) J. Int.’l Arb., 739; Chiara Giorgetti, ‘The Draft Code of Conduct for Adjudicators in Investor-State Dispute Settlement: An Important Step Forward in the Reform Process?’, EJIL: Talk!, 13 August 2020; Simon Greenberg ‘Tackling guerrilla challenges against arbitrators: institutional perspective’ (2010) 7(2) TDM, 1; Daniel Greineder, 'The Limitations of Soft Law Instruments and Good Practice Protocols in International Commercial Arbitration' (2018) 36(4) ASA Bull., 907; Steffen Hindelang and Teoman M. Hagemeyer, ‘In Pursuit of an International Investment Court. Recently Negotiated Investment Chapters in EU Comprehensive Free Trade Agreements in Comparative Perspective’, July 2017, EP/EXPO/B/INTA/2017/02; Steffen Hindelang and CarlPhilipp Sassenrath, ’The investment chapters of the EU’s international trade and investment agreements in a comparative perspective’, EP/EXPO/B/INTA/2015/01, September 2015, PE534.998; Robert Howse, ‘Designing a multilateral investment court: issues and options’ (2017) 36 YB Eur. L., 209; Lukas Florian Innerebner, ‘Politicization of a Future International Investment Tribunal's Appointment and How to Avoid it’ (2019) 1(1) Trento Student Law Review, 137; Mark R Joelson, ‘A critique of the 2014 international bar association guidelines of conflicts of interest in international arbitration’ (2015) 26(3) Am. Rev. Int’l Arb., 483; Markus Krajewski, Modalities for investment protection and ISDS in TTIP from a trade union perspective (Friedrich Ebert Stiftung, Bonn, 2014), 1; Yarik Kryvoi, ‘ICSID Arbitration Reform: Mapping Concerns of Users and How to Address Them’ (2018); Malcolm Langford, Daniel Behn and Runar H Lie, ‘The revolving door in international investment arbitration’ (2017) 20(2) J. Int.’l Econ. Law, 301; Judith Levine, ‘Late-in the-day arbitrator challenges and resignations’, in Chiara Giorgetti (ed) Challenges and recusals of judges and arbitrators in international courts and tribunals (Brill, Leiden, 2015), 247; Judith Levine, ‘Symposium: A Focus on Ethics in International Courts and Tribunals. Ethical Dimensions of Arbitrator Resignations’ (2019) 113 AJIL, 5; Sam Luttrell, Bias challenges in international commercial arbitration. The need for a real danger test (Wolters Kluwer, Alphen aan den Rijn, 2009); Ricardo Dalmaso Marques and Fernanda Marques Dal Mas, ‘Managing Conflict of Interest in International Arbitration: The Role of the IBA Guidelines’ in Julien Chaisse, Leïla Choukroune and Sufian Jusoh (eds), Handbook of International Investment Law and Policy (Springer, Switzerland, 2020), 1; Natali Cinelli Moreira ‘The arbitrator’s duty of disclosure analyzed through case-law: are the IBA guidelines on conflict of interest in international arbitration enough to create consistency?’ (2014) 40 Revista de Arbitragem e Mediaçao, 115; Ramón Mullerat Obe, ‘The IBA guidelines on conflicts of interest revisited. Another contribution to the revision of an excellent instrument, which needs a slight daltonism treatment’ (2012) 14 Spain Arb. Rev, 61; Sophie Nappert, ‘Escaping from Freedom? The Dilemma of an Improved ISDS Mechanism’ (2015) The 2015 EFILA Inaugural Lecture; Sebastian Perry, ‘Stockholm: the double-hat syndrome’ (2012) 7(2) GAR, 43; Natalie Pita, ‘Sail We Must: Why ICSID Proceedings Should Not Lie At Anchor For Arbitrator Challenges’ (2019) 30 Duke J. Comp. & Int’l L., 163; Laura Puccio and Roderick Harte, ‘From arbitration to the investment court system (ICS): the evolution of CETA rules’, June 2017, European Parliament Research Service, PE 607.251;
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August Reinisch and Lukas Stifter, ‘CETA’s New Take on ISDS: Toward an International Investment Court’, 22 June 2016; Christian Riffel, ‘The CETA Opinion of the European Court of Justice and its Implications—Not that Selfish After All’ (2019) 22 J. Int.’l Econ. Law, 503; Catherine A. Rogers, ‘Fit and function in legal ethics: developing a code of conduct for international Arbitration’ (2001) 23 Mich. J. Int.’l Law, 341; Noah Rubins and Bernhard Lauterburg, ‘Independence, impartiality and duty of disclosure in investment arbitration’ in Christina Knahr, Christian Koller, Walter Rechberger and August Reinisch (eds) Investment and commercial arbitration. Similarities and divergences (Eleven International Publishing, The Hague, 2010), 153; Stephan W Schill and Geraldo Vidigal, ‘Cutting the Gordian Knot: Investment Dispute Settlement à la Carte’ (2018) RTA Exchange. Geneva: International Centre for Trade and Sustainable Development (ICTSD) and the Inter-American Development Bank (IDB); Thomas Schultz, ‘The Ethos of Arbitration’, in Thomas Schultz and Federico Ortino (eds.), The Oxford Handbook of International Arbitration (Oxford University Press, Oxford, forthcoming 2020); Ana Stanic, ‘Challenging arbitrators and the importance of disclosure: recent cases and reflections’ (2009) 16 Croatian Arbitration Yearbook, 205; Vanina Sucharitkul, ‘ICSID and UNCITRAL Draft Code of Conduct: Potential Ban on Multiple Roles Could Negatively Impact Gender and Regional Diversity, as well as Generational Renewal’, Kluwer Arbitration Blog, 20 June 2020; Catharine Titi ‘International Investment Law and the European Union: Towards a New Generation of International Investment Agreements’ (2015) 26(3) EJIL, 639; Catharine Titi, ‘The European Unión’s proposal for an international investment court: significance, innovations and challenges ahead’ (2017) TDM, 1; Catharine Titi, ‘Opinion 1/17 and the Future of Investment Dispute Settlement: Implications for the Design of a Multilateral Investment Court’ (2021) YB Int’l Inv. L. & Pol’y 2019; Marieke van Hooijdonk and Yves Herinckx, ‘The Impact of the IBA Guidelines and Rules on the Search for the Truth in Arbitration’ in Luc Demeyere (ed), Do arbitral awards reveal the truth? (Wolters Kluwer, Alphen ann den Rijn, 2019), 93; Abhisar Vidyarthi and Sikander Hyatt Khan, ‘Ensuring impartiality in disqualification challenges under the ICSID regime’ (2019) ICCLR, 29; André von Walter and Maria Luisa Andrisani, ‘Resolution of Investment Disputes’ in Makane Moïse Mbengue an Stefanie Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (Springer, Switzerland 2019), 185; Sun Yingzhe, ’Trends in Rule-Making for International Investment Agreement from the Perspective of CETA Chapter Eight (Investment)’ (2018) 8(1) J. WTO & China, 87. A. Introduction and Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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B. Spirit and Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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C. Drafting History of Article 8.30 CETA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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D. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 I. Paragraph 1 of Article 8.30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 1. Independence and Impartiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 2. Prohibition on Governmental Affiliation and on Taking Instructions from Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 3. Avoidance of Conflicts of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 4. Positioning against ‘Double Hatting’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 II. Paragraph 2 of Article 8.30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 1. Conflict of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 2. Challenge Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 III. Paragraph 3 of Article 8.30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 1. Resignation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 2. Decision on Challenge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 IV. Paragraph 4 of Article 8.30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102 V. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
A. Introduction and Overview 1
This commentary focuses on Article 8.30 CETA, which is entitled ‘Ethics’ and sets ethical rules for the Members of the CETA Tribunal and the Appellate Tribunal. The European Commission presents this precept in a succinct paragraph, highlighting the key issues addressed and the main novelties with respect to the traditional ISDS system:
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CETA establishes strict rules of ethical behaviour for the Members of the Tribunal which guarantee their full independence and impartiality. Situations where a Member of the Tribunal can act as a counsel or an expert in pending or new investment disputes are prohibited. Further, CETA has a binding code of conduct for the Members of the Tribunal. The code is based on the ethical rules of the International Bar Association, subject to further revision. It prevents conflicts of interest. In case a Member of the Tribunal is found not to comply with the code, he/she will be replaced. That decision is taken by an independent outside party -the President of the International Court of Justice and not by the remaining Members of the division of the Tribunal hearing the case as is often the case in existing agreements.1
B. Spirit and Purpose The pioneering group of scholars who first showed an interest in studying the ethi- 2 cal status quo with respect to the individuals who resolved international investment disputes found themselves in a highly nebulous and fragmented scenario, consisting of a hotchpotch of documents with different degrees of binding force. The many IIAs operating at global level did not include systematic texts on adjudicators’ ethical duties until recently; they either contained a few brief references to key duties such as independence, impartiality and confidentiality or were completely silent. The rules of the arbitration institutions in charge of managing investment disputes made some references to ethics, but they were usually allusions and lacked a robust structure. 2 Other very diverse contexts such as commercial arbitration, mediation and national and international courts had a stronger tradition of identifying and systematizing the duties of adjudicators, but the situation there was also far from stable.3 In view of this scenario Article 8.30 CETA can be seen as a spearhead contradicting 3 the well-grounded claim that ‘international arbitration dwells in an ethical no man’s land’.4 One of the many manifestations of the EU’s will to take the lead in the foreign direct investment area is precisely its interest in setting down in writing the ethical regime for investment adjudicators in CETA and other IIAs. As will be detailed in the following section, during the Agreement negotiations between Canada and the European Union the content and length of the current Article 8.30 CETA increased in direct proportion to the controversy that this multifaceted topic generated among stakeholders. The Parties’ growing interest in adjudicator ethics must be understood within a much broader framework of deep structural reforms, which attempt to judicialise the role of former arbitrators who are now Tribunal Members. That is, international Agreements such as CETA incorporate a new system of resolving investment disputes between investors and states that presents ‘features associated with the rule of law with respect to the administration of justice’.5 1 European Commission, Investment provisions in the EU-Canada free trade agreement (CETA), 1 February 2016, https://trade.ec.europa.eu/doclib/docs/2013/november/tradoc_151918.pdf, p. 5. 2 A report commissioned by the European Parliament’s Committee on International Trade stated: ’Currently, only few treaties explicitly provide for such standards. In lieu thereof, the codes of conduct of the respective arbitration institution may provide guidance’. Hindelang and Sassenrath, ‘The Investment Chapters of the EU’s International Trade and Investment Agreements in a Comparative Perspective’, September 2015, EP/EXPO/B/INTA/2015/01, PE534.998, p. 64. 3 Fach Gómez, Key Duties of International Investment Arbitrators. A Transnational Study of Legal and Ethical Dilemmas (2019), 8–11. 4 Rogers, ‘Fit and Function in Legal Ethics: Developing a Code of Conduct for International Arbitration’ (2001) 23 Mich. J. Int.’l Law, 341 (342). 5 Schill and Vidigal, ‘Cutting the Gordian Knot: Investment Dispute Settlement à la Carte’ (2018) RTA Exchange. Geneva: International Centre for Trade and Sustainable Development (ICTSD) and the Inter-American Development Bank (IDB), p. 9.
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The current version of Article 8.30 CETA studied here can be viewed as a box with a false bottom. That is, readers should not be misled by the conciseness of its four paragraphs: in addition to the fact that these paragraphs address issues such as conflict of interest, double hatting and adjudicator challenges over which rivers of ink have flowed in the investment milieu, these paragraphs also incorporate two lengthy and highly relevant texts by reference: the 2014 IBA Guidelines on Conflicts of Interest and the prospective CETA code of conduct. 5 In short, Article 8.30 CETA can be viewed in terms of a compact star that is announcing its transformation to a potentially enormous black hole via the two texts referred to. This fundamental change, which is not without problems, as will be seen later, is part of an ‘ethics explosion’ that is currently manifesting itself in many different ways.6 Along with the EU’s strong desire to regulate the ethical aspects of adjudicators in the various IIAs that it is currently negotiating, there is also a growing number of non-European IIAs and Model Agreements whose Articles incorporate references to ethics. ICSID, hitherto the heavyweight par excellence in the investment resolution field, has also underlined the growing importance of ethical issues in the course of its rule amendment process, and has therefore partnered with UNCITRAL to present a 2020 Draft Code of Conduct for Adjudicators in Investor-State Dispute Settlement. 6 A statement was recently made within the framework of UNCITRAL Working Group III that would have been unthinkable at the time the CETA Agreement negotiations began: ‘there is broad agreement on the importance of codes of conduct and other ethical requirements for arbitrators’.7 Let us therefore move on to an analysis of how CETA has contributed to building current awareness regarding adjudicator ethics. 4
C. Drafting History of Article 8.30 CETA This section dealing with the drafting history of Article 8.30 CETA reviews the different available versions of CETA and analyses the positioning and content of the references to adjudicator ethics incorporated into these versions. The review makes it possible to see how the provision has changed and expanded over time, and the reasons that prompted the EU and Canada to modify their approach to adjudicator ethics. 8 The first available version of CETA, dated 13 January 2010, devoted an Article to party-appointed arbitrators. Paragraph 2 of Article X.22 began by requiring a certain expertise from arbitrators (‘Arbitrators shall have expertise or experience in public international law, international investment or international trade rules, or the resolution of disputes arising under international investment or international trade agreements’), declaring immediately afterwards that: ‘arbitrators shall be independent of, and not be affiliated with or take instructions from, either disputing party’. The January 2011 and February 2012 versions of CETA literally repeat the text reproduced above. 7
6 The ‘pull effect’ of adjudicator ethics has also reached other areas such as commercial arbitration. See for example the Public Consultation Draft launched in August 2020 by the ICCA regarding its Guidelines on Standards of Practice in International Arbitration. 7 UNCITRAL Working Group III, Possible reform of investor-State dispute settlement (ISDS). Ensuring independence and impartiality on the part of arbitrators and decision makers in ISDS, 30 August 2018, A/CN.9/WG.III/WP.151, para. 10.
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The same sentence (‘arbitrators shall be independent of, and not be [affiliated] with 9 or [take instructions] from any disputing party’) also appeared in the next version of CETA, dated 15 November 2013, but the last part had been extended (‘the government of a Party with regard to trade and investment matters’). Furthermore, the piece of text had been moved to an Article entitled ‘Constitution of the Tribunal’ (Article X-10), and also contained two new sentences: Arbitrators shall comply with the International Bar Association Guidelines on Conflicts of Interest in International Arbitration or any supplemental rules adopted pursuant to article x-26 [Committee on Services and Investment]. Arbitrators who serve on the list established pursuant to paragraph 4 shall not, for that reason alone, be deemed to be affiliated with the government of a Party.8
In spite of the fact that this version of CETA still contained no provision specifically 10 entitled ‘Ethics’, the allusions in Article X-10 may be defined as ethical in nature, constituting the first recognizable germ of the current Article 8.30 CETA. Additionally, Section 2 of Article X-26 CETA, referring to the Committee on Ser- 11 vices and Investment, stated that: The Committee shall, on agreement of the Parties, and after completion of the respective legal requirements and procedures of the Parties, decide to: (...) b) adopt a code of conduct for arbitrators to be applied in disputes arising out of this chapter, which may replace or supplement the rules in application, and that may address topics including: i. disclosure obligations; ii. the independence and impartiality of arbitrators; and iii. confidentiality. The Parties shall make best efforts to ensure that the decisions referred to in (a) and (b) are adopted no later than the entry into [application/force] of the Agreement, and in any event no later than two years after the entry into [application/force] of the Agreement. [Note: agreed in principle that the time periods run from provisional application, if any. Drafting to be checked in the light of the general and final provisions of CETA]
The next available version of CETA, dated 4th February 2014, showed a draft that 12 was still under intense negotiation, with many issues in square brackets on which the EU and Canada had not yet reached an agreement.9 With regard to Article X-10 on ‘Constitution of the Tribunal’, this version reproduced the text from the previous version and also contained two new paragraphs, proposed by the EU and for which Canada’s consent was still pending: [6 bis. In the event that a disputing party considers that an arbitrator does not meet the requirements set out in paragraph 6, the disputing party may request the Secretary General of ICSID to issue a ruling. That request must be made within 20 days of: a) the appointment of the arbitrator; or, b) the disputing party becoming aware of the facts giving rise to the alleged failure to meet the requirements. 6 ter. The Secretary General of ICSID shall, after hearing the disputing parties and giving the arbitrator the possibility to submit any observations, issue a decision within 30 days of receipt of the request.]
With this proposed addition, the 4th February 2014 version represented a step 13 forward in the direction of the current Article 8.30 CETA. The 1 August 2014 version of the Consolidated CETA Text, which was globally 14 leaked within the first fortnight of that month,10 was better-rounded than the versions 8 As indicated in the version itself, ‘square bracketed black text indicates text provisionally agreed but subject to further examination’. 9 As indicated in the version itself, ‘square bracketed blue text indicates EU draft text not provisionally agreed by Canada’. 10 Stockton, ‘Text of Canada-EU Trade Agreement (CETA) Leaked’ (August 14, 2014), http://www.tr uenorthtimes.ca/2014/08/14/text-canada-eu-trade-agreement-ceta-leaked/.
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previously commented on. Chapter 10 was entitled ‘Investment’, and the bracketed text that characterized previous versions had disappeared. Chapter 10 was organised into 6 Sections (Scope and Definitions; Establishment of Investments; Non-Discriminatory Treatment; Investment Protection, Reservations and Exceptions and InvestorState Dispute Settlement). It was followed by 2 Annexes, a Declaration and a Joint Declaration. Section 6, headed ‘Investor-State Dispute Settlement’, made up of 27 Articles (Article X.17-Article X.43). In this section, Article X. 25 on the ‘Constitution of the Tribunal’ – not in brackets – showed that Canada had approved the challenge procedure proposed by the European Union in the February 2014 version. The August 2014 provision thus addressed the issues of independence, affiliations and instructions, conflicts of interest and the arbitrator challenge mechanism. This provision’s proximity to the current Article 8.30 CETA is unquestionable. Additionally, and as established since the November 2013 version, the August 2014 version also contained an Article X.42.2 that alluded to the adoption of a code of conduct for arbitrators by the CETA Committee on Services and Investment. 15 The EU made the Consolidated CETA Text public on 26th September 2014, possibly as a result of the leak. As far as Section 6 of Chapter 10 is concerned, the content of the September version, while containing many changes in format, was practically identical to the August 2014 version.11 There was thus no Article entitled ‘Ethics’, although Article X.25 contained the already-cited mentions of arbitrator ethics, and Article X.42 also reproduced the aforementioned text referring to the Committee. 16 Like their counterpart in the 2015 European Union–Singapore Free Trade Agreement (EUSFTA)12, the two latter 2014 versions of the Investor-State Dispute Settlement section in Chapter 10 of CETA are a sample of what scholars have defined as ISDS 2.0.13 That is, following the incorporation of the notion of ‘foreign direct investment’ into Article 207 of the Treaty on the Functioning of the European Union (TFEU), this supranational organization began its reflections on how to configure European international investment policy. At first the EU preferred to hedge its bets, proposing a series of changes that left intact the basic pillars of the traditional Investor-State Dispute Settlement (ISDS) system, 14 whose shining light was the International Centre for the Settlement of Investment Disputes (ICSID). That is why both versions of the 2014 Consolidated CETA Text still referred to claims submitted to arbitration, alluded to party-appointed arbitrators, left the decision regarding arbitrator
11 Consolidated CETA Text, 26th September 2014 version. https://www.bilaterals.org/IMG/pdf/-9.pdf; http://www.s2bnetwork.org/wp-content/uploads/2015/10/CETA-Text-for-training.pdf. 12 Chapter 9, Investment Protection, EU-Singapore FTA (2015). https://www.bilaterals.org/?eu-singa pore-fta-draft-investment&lang=en. 13 This term, which refers to an improved ISDS system, is used by authors such as: Bungenberg, ‘Towards a more balanced international investment law 2.0?’ in Hermann et al. (eds) Trade policy between law, diplomacy and scholarship. Liber amicorum in memoriam Horst G. Krenzler (2015), 15 (15). 14 The following statement is proof of the EU’s respect for the ISDS status quo: ‘In order to ensure effective enforcement, investment agreements also feature investor-to-state dispute settlement, which permits an investor to take a claim against a government directly to binding international arbitration. Investor-state dispute settlement, which forms a key part of the inheritance that the Union receives from Member State BITs, is important as an investment involves the establishment of a long-term relationship with the host state which cannot be easily diverted to another market in the event of a problem with the investment.’ Commission Communication, Towards a comprehensive European international investment policy, 7 July 2010, COM(2010)343 final.
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challenges to the Secretary-General of ICSID, and did not foresee the existence of an appeal level, among other aspects.15 Section 6 of Chapter 10 of both 2014 versions of CETA contained improvements 17 that justified the ISDS 2.0 label, such as restrictions on submitting claims, objections to claims that manifestly lacked legal merit and claims that were unfounded as a matter of law, measures to enhance the transparency of the proceedings, etc. 16 Nevertheless, new developments of this type turned out to be insufficient, in light of a series of factors that converged on those dates.17 At that time, social scrutiny of the Transatlantic Trade and Investment Partnership 18 (TTIP) was at its peak, and this brought with it important consequences with respect to the drafting of CETA.18 The 2015 European Commission Report on the Online public consultation on investment protection and investor-to-state dispute settlement in the TTIP reflected the intense discomfort of numerous NGOs, civil society groups and other stakeholders with the then hegemonic ISDS system. 19 On the basis of this document, in May 2015 the EU issued its concept paper ‘Investment in TTIP and beyond the path for reform’, proposing a new model of dispute resolution which revolved around a permanent two-tier investment court.20 Commissioner Malmstöm consequently stated that: What has clearly come out of the debate is that the old, traditional form of dispute resolution suffers from a fundamental lack of trust. However, EU investors are the most frequent users of the existing model, which individual EU countries have developed over time. This means that Europe
15 Titi ‘International Investment Law and the European Union: Towards a New Generation of International Investment Agreements’ (2015) 26(3) EJIL, 639; Titi, ‘The European Union’s proposal for an international investment court: significance, innovations and challenges ahead’ (2017) TDM, 1. 16 The 2014 CETA text contained important new items such as: ‘clearly defined standards of protection, full transparency of proceedings, a ban on forum shopping, governmental control of interpretation of the agreement, a strict code of conduct, early dismissal of unfounded claims and the loser pays principle to avoid vexatious claims’. European Commission, Press Release, CETA: EU and Canada agree on new approach on investment in trade agreement, 29 February 2016, https://ec.europa.eu/commission/p resscorner/detail/en/IP_16_399. 17 August Reinisch and Lukas Stifter, ‘CETA’s New Take on ISDS: Toward an International Investment Court’ (22 June 2016), https://www.cigionline.org/publications/cetas-new-take-isds-toward-inter national-investment-court. 18 Referring to Article 11 TTIP, Nappert ironizes: ‘clearly insufficient thought has been given to the feasibility and practical application in real life of what are listed as independence and impartiality prerequisites. More refined and informed reflection is needed. This is undoubtedly the clearest instance of rushed political appeasement of the entire proposal, and in that context I cannot resist pointing out the delightful irony of requiring from Judges and Members of the Appeals Tribunal that they are to discharge their duties without being influenced by “outside pressure, political considerations, public clamour, or fear of criticism” (Code of Conduct, Article 5(1)) – when in fact the originators of the proposal themselves were very much influenced by precisely these factors, chief amongst them “public clamour”’. Nappert, Escaping from Freedom? The Dilemma of an Improved ISDS Mechanism (2015) The 2015 EFILA Inaugural Lecture, https://efila.org/wp-content/uploads/2015/11/Annual_lecture_Sophi e_Nappert_full_text.pdf. 19 The General Considerations in the Report indicate: ‘The collective submissions reflect a widespread opposition to investor-State dispute settlement (ISDS) in TTIP or in general. There is also quite a majority of replies opposing TTIP in general (…) By contrast, a large majority of business associations and the majority of large companies strongly support investment protection and ISDS in TTIP, while small companies are more critical’. Commission Staff Working Document, Online public consultation on investment protection and investor-to-state dispute settlement (ISDS) in the Transatlantic Trade and Investment Partnership Agreement (TTIP), 13 January 2015, SWD (2015) 3 final. 20 European Commission Concept Paper, Investment in TTIP and beyond – the path for reform. Enhancing the right to regulate and moving from current ad hoc arbitration towards an Investment Court, 5 May 2015.
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must take the responsibility to reform and modernise it. We must take the global lead on the path to reform.21
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In the same vein, the European Parliament passed a firm resolution in July 2015 asking the European Commission to: replace the ISDS system with a new system for resolving disputes between investors and states which is subject to democratic principles and scrutiny, where potential cases are treated in a transparent manner by publicly appointed, independent professional judges in public hearings and which includes an appellate mechanism, where consistency of judicial decisions is ensured, the jurisdiction of courts of the EU and of the Member States is respected, and where private interests cannot undermine public policy objectives.22
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The stance taken by the EU and Canada vis-à-vis their Trade Agreement was not oblivious to this desire for fundamental change. Despite the fact that in 2014 the EU and Canada announced that they had arrived at a complete CETA text, and that only a legal review and translation into the other 22 EU treaty languages was pending, 23 the European Commission issued a press release on 29th February 2016 with the significant heading: ‘CETA: EU and Canada agree on new approach on investment in trade agreement’.24 The Joint Statement issued by EU Trade Commissioner Cecilia Malmström and Canadian Trade Minister Chrystia Freeland, stated that, thanks to the new approach: Canada and the EU will strengthen the provisions on governments’ right to regulate; move to a permanent, transparent, and institutionalised dispute settlement tribunal; revise the process for the selection of tribunal members, who will adjudicate investor claims; set out more detailed commitments on ethics for all tribunal members; and agree to an appeal system. 25
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Both 2016 documents thus included explicit references to the ethical rules applicable to these newly created adjudicators, highlighting their benefits: ‘the Agreement includes more detailed commitments on ethics to avoid any conflicts of interest. Members of the Tribunal and the appeal Tribunal will, for instance, be barred from working as lawyers or experts in any other investment dispute’26 and ‘the Members of the Tribunal competent to hear investment disputes will be appointed by the EU and Canada and will be highly qualified and beyond reproach in terms of ethics’.27 21 European Commission News Archive, Commission proposes new Investment Court System for TTIP and other EU trade and investment negotiations, 16 September 2015. The classic ISDS system had also been harshly criticized at Canadian level. Thus, the Standing Committee on International Trade of the Canadian House of Commons reported in year 2012 that the New Democratic Party opposed including investor-state arbitration in CETA and recommended that Canada follow the lead of Australia in rejecting investor-state arbitration in future trade and investment agreements. House of Commons of Canada, Negotiations Toward a Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union. Report of the Standing Committee on International Trade, March 2012, 49. 22 European Parliament, Resolution of 8 July 2015 containing the European Parliament's recommendations to the European Commission on the negotiations for the Transatlantic Trade and Investment Partnership (TTIP), A8-0175/2015. 23 Government of Canada, ‘Chronology of events and key milestones’, https://www.international.gc.c a/trade-commerce/trade-agreements-accords-commerciaux/agr-acc/ceta-aecg/chronology-chronologie .aspx?lang=eng. 24 European Commission, Press Release, CETA: EU and Canada agree on new approach on investment in trade agreement, 29 February 2016. 25 European Commission, Joint Statement: Canada-EU Comprehensive Economic and Trade Agreement (CETA), 29 February 2016. 26 European Commission, Press Release, CETA: EU and Canada agree on new approach on investment in trade agreement, 29 February 2016. 27 European Commission, Press Release, CETA: EU and Canada agree on new approach on investment in trade agreement, 29 February 2016.
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It could even be deduced from reading the documents that there is a connection between fulfilling these ethical commitments and the adjudication of the dispute ‘in full accordance with the rule of law’,28 ensuring ‘that citizens can trust it to deliver fair and objective judgements’.29 As a result of these two further years of negotiation, the final version of CETA, 22 which reflected the new approach,30 was published in the Official Journal of the European Union (OJ) dated 14th January 2017. Chapter 8 is entitled ‘Investment’ and is divided into 6 sections (Section A-Definitions and scope, Section B-Establishment of investments, Section C-Non-discriminatory treatment, Section D-Investment protection, Section E-Reservations and exceptions, and Section F-Resolution of investment disputes between investors and States). Three Annexes, a Declaration and two Joint declarations at the end of the Agreement also refer to Chapter 8. The referred Section F (Resolution of investment disputes between investors and States) is made up of 27 Articles (Article 8.18-Article 8.45). Article 8.30 is entitled ‘Ethics’ and brings together the ethical aspects to be found in a provision that essentially referred to the constitution of the Tribunal in previous versions of CETA. Furthermore, Article 8.44.2 states that: The Committee on Services and Investment shall, on agreement of the Parties, an after completion of their respective internal requirements and procedures, adopt a code of conduct for the Members of the Tribunal to be applied in disputes arising out of this Chapter, which may replace or supplement the rules in application, and may address topics including: (a) disclosure obligations; (b) the independence and impartiality of the Members of the Tribunal; and (c) confidentiality. The Parties shall make best efforts to ensure that the code of conduct is adopted no later than the first day of the provisional application or entry into force of this Agreement, as the case may be, and in any event no later than two years after such date.
CETA provisionally entered into force on 21 September 2017, but the Articles on 23 investment dispute resolution – including Article 8.30 CETA – were excluded from the provisional application’s scope.31 They will not enter into force until all EU Member States have ratified CETA in accordance with their own constitutional procedures. 32 The OJ dated 14th January 2017 included a series of statements to be recorded in 24 Council minutes. Statement 36 declared that: ‘The ethical requirements for members of the Tribunals, already provided for in CETA, will be set out in detail as soon as possible and allowing sufficient time so that Member States can consider them in their ratification processes, in an obligatory and binding code of conduct (which is also already provided for in CETA)’.33 28 European Commission, Press Release, CETA: EU and Canada agree on new approach on investment in trade agreement, 29 February 2016. 29 European Commission, Press Release, CETA: EU and Canada agree on new approach on investment in trade agreement, 29 February 2016. 30 Comparing the 2014 and the 2016 versions, Yingzhe, ’Trends in Rule-Making for International Investment Agreement from the Perspective of CETA Chapter Eight (Investment)’ (2018) 8(1) J. WTO & China, 87. 31 On the contrary, the establishment of the Committee on Services and Investment benefits from the provisional application of CETA. European Council, Council Decision (EU) 2017/38 of 28 October 2016 on the provisional application of the Comprehensive Economic and Trade Agreement (CETA) between Canada, of the one part, and the European Union and its Member States, of the other part, 14 January 2017, OJ L 11, 1080. 32 European Parliament, Parliamentary Questions. Answer given by Ms. Malmström on behalf of the Commission, 26 January 2017, E-007582/2016. 33 The Statement further specifies that: ‘This Code will include in particular: detailed rules of conduct applicable to candidates for appointment as members of the Tribunal or the Appellate Tribunal, in particular concerning disclosure of their past and current activities that might affect their appointment
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In line with this, on 25th July 2018 the European Commission sent Canada an EU proposal entitled ‘Revised draft decisions on the appellate tribunal, the code of conduct and the rules for mediation for the implementation of the Investment Court System’.34 This 25-page document, ‘shared informally with Canada in order to have preliminary exchanges on these texts’, included the first EU proposal on the Code of Conduct for Members of the Tribunal, The Appellate Tribunal and Mediators (hereinafter, 2018 CETA draft code of conduct). The proposed code was structured as follows: Definitions (Article 1) Responsibilities to the Process (Article 2); Disclosure Obligations (Article 3); Duties of Members (Article 4); Independence and Impartiality of Members (Article 5); Obligations of Former Members (Article 6); Confidentiality (Article 7); Expenses (Article 8); Sanctions (Article 9); Mediators (Article 10); Consultative Committees (Article 11) and Entry into force (Article 12). 26 The specific Committee on Services and Investment had its first meeting – the only one reported so far – on 18th September 2018.35 Its joint report informed that: 25
The Parties discussed draft rules for a code of conduct for the Members of the Tribunal and Members of the Appellate Tribunal and for mediators, pursuant to Article 8.44.2 of CETA. Those rules include disclosure obligations, more detailed rules on independence and impartiality, obligations of former Members, as well as rules on confidentiality, expenses and sanctions. 36
The CETA Joint Committee held its first meeting – again, the only one reported so far – on 26th September 2018. Its report, which focuses on other aspects of CETA such as climate, gender and SMEs, alludes to investment only once, as follows: ‘The Parties also recognised the advances made on the Investment Court System by the Services and Investment Committee in line with the commitments undertaken for further work at the time of CETA ratification’.37 28 On 11th October 2019 the European Commission issued a Proposal for a Council Decision on the position to be taken on behalf of the European Union as regards the adoption of a Code of Conduct for Members of the Tribunal, the Appellate Tribunal and mediators.38 The Proposal contains an Annex with an 11-Article draft code of conduct which would supplement Article 8.30 CETA (hereinafter, 2019 CETA 27
or the exercise of their duties; detailed rules of conduct applicable to members of the Tribunal and the Appellate Tribunal during their term of office; detailed rules of conduct applicable to members of the Tribunal and the Appellate Tribunal at the end of their term of office; including the prohibition of the exercise of specific duties or professions for a specified period after the end of their term of office; a sanction mechanism in the event of non-compliance with the rules of conduct which is effective and fully respects the independence of judicial power’. European Commission and European Council, Statement by the Commission and the Council on investment protection and the Investment Court System, 14 January 2017, OJ L 11, 22. 34 European Commission, Revised draft decisions on the appellate tribunal, the code of conduct and the rules for mediation for the implementation of the Investment Court System (ICS) under CETA as sent to Canada, WK 9338/2018 INIT, 25 July 2018. 35 Government of Canada, Canada-European Union Comprehensive Economic and Trade Agreement (CETA) – Governance and committees, https://www.international.gc.ca/trade-commerce/trade-a greements-accords-commerciaux/agr-acc/ceta-aecg/committees-comites.aspx?lang=eng. 36 The report also anticipated the Committee’s work plan: ‘Both Parties confirmed their willingness to continue working on the abovementioned items. They agreed that the discussions and presentations provided a strong basis from which the technical work should continue with the aim to agree at technical level on a set of draft decisions at the latest by the 1 st quarter of 2019. The Parties agreed that the next discussion about these items should be via videoconference in mid-October this year’. European Commission, Joint Report of the Committee on Services and Investment, 18 September 2018. 37 European Commission, Report of the Meeting of the CETA Joint Committee, 26 September 2018. 38 European Commission, Proposal for a Council Decision on the position to be taken on behalf of the European Union in the Committee on Services and Investment established under the Comprehensive Economic and Trade Agreement (CETA) between Canada, of the one part, and the European Union and its
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draft code of conduct).39 The proposed code has the following structure: Definitions (Article 1) Responsibilities to the Process (Article 2); Disclosure Obligations (Article 3); Independence, Impartiality and Other Obligations of Members (Article 4); Obligations of Former Members (Article 5); Confidentiality (Article 6); Expenses (Article 7); Sanctions (Article 8); Mediators (Article 9); Consultative Committees (Article 10) and Entry into force (Article 11).40 The text’s content and its differences from the 2018 version are studied in later sections of this commentary. On 7th May 2020 the European Council released a Draft Decision of the Committee 29 on Services and Investment adopting a code of conduct for Members of the Tribunal, Members of the Appellate Tribunal and mediators. Consequently, the Council Decision (EU) 2020/680 of 18th May 2020 stated that: The position to be taken on behalf of the European Union in the Committee on Services and Investment as regards the adoption of a code of conduct for Members of the Tribunal, Members of the Appellate Tribunal and mediators shall be based on the draft decision of the Committee on Services and Investment.41
At the time of writing there is no news that the CETA Committee on Services and 30 Investment has met, either virtually or face-to-face; thus the formal adoption of a code of conduct for CETA Members of the Tribunal, Appellate Tribunal and mediators is still pending. However, given the schedule referred to above, this is expected to occur in the near future.
D. Commentary Article 8.30 of CETA is made up of four paragraphs and the English version has the 31 title ‘Ethics’.42 This section studies the content of the current Article 8.30 of CETA in detail. It also analyses the new developments in this version with respect to the 2014 versions of CETA, as well as the contents of equivalent Articles in recent Investment
Member States, of the other part of the other part as regards the adoption of a code of conduct for Members of the Tribunal, the Appellate Tribunal and mediators, 11 October 2019, COM/2019/459 final. 39 European Council, Draft Decision of the Committee on Services and Investment adopting a code of conduct for Members of the Tribunal, Members of the Appellate Tribunal and mediators, ST 6966 2020 INIT, 7 May 2020. It is therefore not appropriate to consider Annex 29 – B CETA (Code of conduct for arbitrators and mediators) applicable to Chapter 8 on investments, since the former is connected only to Chapter 29 (dispute settlement between the EU and Canada regarding the way in which they apply or interpret CETA). 40 In light of the list of working papers distributed by the RELEX.1.A Unit of the General Secretariat of the Council to the Trade Policy Committee (Services & Investments) in the January – June 2019 period, it appears that the EU document already included Canada’s comments on this draft code of conduct. European Council, List of working papers distributed by the RELEX.1.A Unit of the General Secretariat of the Council to delegations in the period January – June 2019, 23 July 2020, 9841/20. 41 European Council, Council Decision on the position to be taken on behalf of the European Union in the Committee on Services and Investment established under the Comprehensive Economic and Trade Agreement (CETA) between Canada, of the one part, and the European Union and its Member States, of the other part, as regards the adoption of a code of conduct for Members of the Tribunal, Members of the Appellate Tribunal and mediators, Council Decision (EU) 2020/680, 25 May 2020, OJ L 161, 5. 42 Versions of Article 8.30 in other languages have slightly different titles. In French, German and Italian the title is: ‘Règles d’éthique’, ‘Ethikregeln’, ‘Norme etiche’. The Spanish version is entitled ‘Deontología’ (Deontology, which is an unnecessary alteration of the translation into the other languages mentioned (that is, the Spanish version could have been titled Ética’ or Reglas éticas’ – ‘Ethics’ or ‘Ethics Rules’ –). Article 3.40 EU-Vietnam IPA, Article 3.11 EU-Singapore IPA, Article 13 EU-Mexico Agreement and Article 11 TTIP also chose the title ‘Ethics’ for their Articles.
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Protection Agreements (IPAs) signed by the EU,43 such as the EU-Vietnam and EUSingapore IPA,44 and also in important drafts that are currently being or have been negotiated by the EU, such as the EU-Mexico Agreement and TTIP (hereinafter, EU IIAs).45 Specific mentions are likewise made to Model BITs approved in recent years. Additionally, the section also contains references to the codes of conduct included in the four EU IIAs mentioned above and to the 2018 and 2019 CETA draft code of conduct. Reference is also made to other changes regarding adjudicator ethics which may be relevant in the context of CETA, such as the 2020 ICSID-UNCITRAL Draft Code of Conduct for Adjudicators in Investor-State Dispute Settlement. 46
I. Paragraph 1 of Article 8.30 32
Despite its brevity, Paragraph 1 of Article 8.30 CETA brings to the fore some of the most controversial issues surrounding adjudicators in international investment disputes. The paragraph opens with a requirement for independence on the part of Members of the Tribunal, and analysing this leads the reader to reflect on the content of the notion of independence and its relationship to other notions such as impartiality. Likewise, the wording of the first paragraph of Article 8.30 CETA bans Members of the Tribunal from any governmental affiliation and from taking instructions from others with regard to matters related to disputes. CETA adjudicators are also instructed on avoiding conflicts of interest and are required to comply with certain ethical rules (the IBA Guidelines on Conflicts of Interest or supplemental rules such as a CETA Code of Conduct). Finally, this opening section takes a stand against the phenomenon known as ‘double hatting’.
43 Other recently approved IIAs such as the Australia-Japan EPA and the Indonesia-Australia CEPA are outside the scope of this study. Despite their unquestionable interest, they are not analysed here since neither the EU nor Canada are participants. 44 Article 3.40, Sub-Section 4 (Investment Tribunal System), Section B (Resolution of Disputes between Investors and Parties), Chapter 3 (Dispute Settlement) of the EU-Vietnam IPA (hereinafter, Article 3.40 EU-Vietnam IPA) (IPA signed on 30 June 2019) and Article 3.11 Section A (Resolution of Disputes Between Investors and Parties), Chapter 3 (Dispute Settlement) of the EU-Singapore IPA (hereinafter, Article 3.11 EU-Singapore IPA) (IPA needs to be ratified by all EU Member States according to their own national procedures before it can enter into force and FTA entered into force on 21 November 2019). 45 Article 13 of the Section [X]: Resolution of Investment Disputes of the EU-Mexico Agreement (the legal scrubbing of the whole agreement is being finalised) and Article 11, Section 3 (Resolution of Investment Disputes and Investment Court System), Chapter II (Investment) Transatlantic Trade and Investment Partnership (TTIP) (hereinafter, Article 11 TTIP). In spite of the fact that the TTIP negotiations ground to a halt at the end of 2016, the text is considered pioneering on various issues and therefore deserves to be referenced in this commentary. 46 ICSID and UNCITRAL, Draft Code of Conduct for Adjudicators in Investor-State Dispute Settlement, 2020, https://uncitral.un.org/en/codeofconduct.
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1. Independence and Impartiality Paragraph 1 of Article 8.30 begins with the obligation47 on the part of the Members 33 of the Tribunal48 to be independent.49 The provision contains no express reference to the notion of impartiality, a noteworthy omission given that most relevant texts in this field handle both notions together. For example, Article 8.44(2) CETA clearly connects the two terms (‘The Committee on Services and Investment shall (…) adopt a code of conduct for the Members of the Tribunal (…) and may address topics including: (..) (b) the independence and impartiality of the Members of the Tribunal’). The Joint Interpretative Instrument on CETA also binds the two notions together: CETA moves decisively away from the traditional approach of investment dispute resolution and establishes independent, impartial and permanent investment Tribunals (…) Strict ethical rules for these individuals have been set to ensure their independence and impartiality, the absence of conflict of interest, bias or appearance of bias. The European Union and its Member States and Canada have agreed to begin immediately further work on a code of conduct to further ensure the impartiality of the members of the Tribunals (…).50
Likewise, Article 4 of the 2019 CETA draft code of conduct refers to ‘Independence, 34 Impartiality and Other Obligations of Members’. Along the same lines, the Codes of Conduct of the EU-Vietnam IPA, the EU-Singapore IPA, the EU-Mexico Agreement and TTIP all contain Articles entitled ‘Independence and Impartiality of Members’. Equally, assessing the ‘candidates’ profiles and suitability, including their indepen- 35 dence and impartiality’, is one of the tasks assigned to the panel in charge of assisting the European Commission in selecting candidates to perform the duties of members of international investment courts and tribunals established pursuant to bilateral or multilateral treaties with third countries to which the European Union is a Party. 51 47 An analysis of this paragraph in various languages shows differences in the use of verb tenses in the first paragraph. While the English and German versions use modal verbs (‘shall’, ‘müssen’, ‘dürfen’, etc.), the Spanish version uses the indicative future (‘serán’, ‘estarán’, etc.) and the French version the present (‘sont’, ‘ont’, etc.). 48 Article 3.40 EU-Vietnam IPA, Article 3.11 EU-Singapore IPA, Article 13 EU-Mexico Agreement and Article 11 TTIP are more detailed on this matter, referring not only to the Members of the Tribunal, but also to ‘the Members of the Appeal Tribunal’. Although Article 8.28 CETA indeed refers to the need for the Members of the Appellate Tribunal to comply with the ethical standards in Article 8.30 CETA (‘The Members of the Appellate Tribunal shall meet the requirements of Article 8.27.4 and comply with Article 8.30.’), the option chosen by the texts referred to above seems clearer than that in the CETA text and reflects the fact that the structure of the Agreement is better. It would therefore have been preferable for CETA to include an express reference to the Members of the Appeal Tribunals in Article 8.30 CETA itself and not in a different provision. As far as this commentary is concerned, the references to the Members of the Tribunal can also be extended to the Members of the Appellate Tribunal, unless expressly stated otherwise. The 2019 CETA draft code of conduct simplifies this issue, stating in Article 1 that ‘Member means a Member of the Tribunal or of the Appellate Tribunal established pursuant to Section F (Resolution of investment disputes between investors and states) of Chapter Eight (Investment) of the Agreement’. In spite of the fact that Article 8.30 of CETA does not specify to what extent these ethical rules are also applicable to former Members of the Tribunal, this issue has been resolved in the 2019 CETA draft code of conduct – just like in the EU-Vietnam IPA, EU-Singapore IPA, EU-Mexico Agreement and TTIP. All these codes of conduct contain an Article entitled ‘Obligations of former members’ that provides content on former members’ independence. 49 Article 3.40 EU-Vietnam IPA, Article 3.11 EU-Singapore IPA, Article 13 EU-Mexico Agreement and Article 11 TTIP have opted for the more emphatic wording, ‘shall be chosen from persons whose independence is beyond doubt’. 50 Canada and the European Union, Joint Interpretative Instrument on the Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union and its Member States, 27 October 2016, 14 January 2017, OJ L 11, 3. 51 European Commission, Mechanism for the selection and appointment of members of international investment courts established pursuant to bilateral or multilateral treaties in which the EU is Party, 3
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Article 8.30 CETA’s textual prioritising of the notion of independence – to the detriment of the notion of impartiality – might originate in a narrow interpretation of the ICSID Convention, in which Article 14 literally only alludes to persons ‘who may be relied upon to exercise independent judgment’.52 Moreover, both scholars and various ICSID decisions on arbitrator disqualification53 have endeavoured to profile the two notions differently, being stated that: Independence is characterized by the absence of external control, in particular of relations between the arbitrator and a party which may influence the arbitrator’s decision. Impartiality, on the other hand, means the absence of bias or predisposition towards one party and requires that the arbitrator hears the party without any favour and bases his or her decision only on factors related to the merits of the case.54
37
Despite these attempts to define independence and impartiality by highlighting their differences, various recent challenge decisions in the international investment milieu appear to have taken a more practical and realistic approach: ‘The concepts of independence and impartiality are often seen as distinct, although the borderline between the two concepts is not easy to find’,55 since they both ‘protect parties against arbitrators being influenced by factors other than those related to the merits of the case’.56 The positive response recently issued by an ICSID ad hoc Committee to an annulment application from the Kingdom of Spain has to be interpreted along the same lines. The Eiser case treated the notions of independence and impartiality as inseparable and the Committee concluded that the ‘independence and impartiality of an arbitrator is a fundamental rule of procedure. This means that the arbitrator has a duty not only to be impartial and independent but also to be perceived as such by an independent and objective third-party observer’.57 A further approach that also leads to a joint understanding of both terms was recently advocated by the CJEU in Opinion 1/17: The requirement of independence is, for its part, inherent in the task of adjudication and has two aspects. The first aspect, which is external in nature, presupposes that the body concerned exercises its functions wholly autonomously, without being subject to any hierarchical constraint or subordinated to any other body and without taking orders or instructions from any source whatsoever (…) The second aspect, which is internal in nature, is linked to impartiality and seeks
December 3018, WK 14982/2018 INIT. On this type of issue, Devaney, ‘An Independent Panel for the Scrutiny of Investment Arbitrators: An Idea Whose Time Has Come?’ (2019) 18 LPICT, 369. 52 The Spanish version of this provision refers to impartiality and not to independence: ‘inspirar plena confianza en su imparcialidad de juicio’ (‘inspire full confidence in their impartiality of judgment’). Nevertheless, this terminological difference does not pose real problems, ‘since both versions are equally authentic, it is therefore generally accepted that, under the ICSID Convention, arbitrators have to be both impartial and independent’. Saint-Gobain Performance Plastics Europe v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/12/13, Decision on Claimant's Proposal to Disqualify Mr. Bottini from the Tribunal under Article 57 of the ICSID Convention (27 February 2013), para. 55. 53 Cleis, The Independence and Impartiality of ICSID Arbitrators (2017); Dimotropoulos, ‘Constructing the independence of international investment arbitrators: past, present and future’ (2016) 36(2) Nw. J. Int'l L. & Bus., 371. 54 Saint-Gobain Performance Plastics Europe v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/12/13, Decision on Claimant's Proposal to Disqualify Mr. Bottini from the Tribunal under Article 57 of the ICSID Convention (27 February 2013), para. 55. 55 National Grid plc v. the Argentine Republic, UNCITRAL, Decision on the Challenge to Mr Judd L. Kessler (3 December 2007), para. 76. 56 ConocoPhillips Petrozuata B.V., ConocoPhillips Hamaca B.V. and ConocoPhillips Gulf of Paria B.V. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/07/30, Decision on the Proposal to Disqualify L. Yves Fortier, Q.C., Arbitrator (27 February 2012), para. 55. 57 Eiser Infrastructure Limited and Energía Solar Luxembourg S.à r.l. v. Kingdom of Spain, ICSID Case No. ARB/13/36. Decision on annulment (English) (11 June 2020), para. 239.
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to ensure that an equal distance is maintained from the parties to the proceedings and their respective interests with regard to the subject matter of those proceedings (…). 58
For all these reasons, Article 8.30’s lack of express reference to the necessary 38 impartiality of CETA Tribunal Members should not be interpreted as a conceptual but rather a mere terminological omission, which, in addition, is temporary. 59 That is, although Article 8.30 CETA does not expressly require it, impartiality is also demanded from CETA adjudicators. In addition, the code of conduct to be adopted – presumably soon – by the CETA Committee on Services and Investment will directly address the issue of impartiality. More specifically, it will do so in a way that is intrinsically connected with the notion of independence, that is, via a joint Article on Independence and Impartiality that already exists in the 2018 and 2019 CETA draft codes of conduct and is based on the structure in previous codes of conduct such as Vietnam and Singapore.60 This also seems to be the approach that will prevail at global level in the end, as reflected in Article 4 (‘Independence and Impartiality’) of the 2020 ICSID-UNCITRAL Draft Code of Conduct for Adjudicators in Investor-State Dispute Settlement (hereinafter, 2020 ICSID-UNCITRAL Draft Code of Conduct). Until all this happens, it must again be stressed that the most appropriate approach is to deem the duty of impartiality to be de facto covered by the current wording of Article 8.30 CETA. Furthermore, it fits perfectly with the spirit and content of the IBA Guidelines, which are addressed later on. After initially declaring that ‘the Members of the Tribunal shall be independent’, 61 39 the remainder of the Paragraph 1 of Article 8.30 CETA gives no definition as such of the term ‘independence’, but rather a partial enumeration of some of the contents of this highly complex notion – which, moreover, frequently merges with the notion of impartiality. The enumeration is fairly briefly worded and is almost identical to both Paragraph 6 of the Article devoted to the ‘Constitution of the Tribunal’ in the last two 2014 CETA versions and its counterpart Articles – entitled ‘Ethics’ – in the EU-Vietnam IPA, EU-Singapore IPA, EU-Mexico Agreement and TTIP. 62 However, it should be recalled that there is still an important difference; at present the last four texts have to be read together with their respective codes of conduct, whose finished Articles on ‘Independence and Impartiality’ gloss and exemplify both terms more appropriately. Although it has not done so at the time of writing, CETA is expected to adopt its code of conduct in the near future and it will then be in a comparable situation to the aforementioned IIAs.63 For now, the 2019 version of the 58 CJEU, Opinion 1/17, 30 April 2019, Accord ECG UE-Canada, ECLI:EU:C:2019:341, paras. 202 f. A study of this opinion can be found in: Riffel, ‘The CETA Opinion of the European Court of Justice and its Implications—Not that Selfish After All’ (2019) 22 J. Int.’l Econ. Law, 503; Titi, ‘Opinion 1/17 and the Future of Investment Dispute Settlement: Implications for the Design of a Multilateral Investment Court’ (2021) YB Int’l Inv. L. & Pol’y 2019, 514-541. 59 In fact, it can even be understood that this omission no longer exists, taking into account the fact that Article 8.30 CETA adopts the IBA Guidelines, which frequently allude to the notion of impartiality. 60 Article 5 of their respective codes of conduct (‘Independence and Impartiality of Members’). 61 Considering the importance of this duty, the lack of any time limits seems essential. Therefore, the fact that this wording, which was included in Article X-10 of the November 15 th 2013 version of CETA, has been deleted is a positive development: ‘6. [For a period of at least twelve months prior to the constitution of the tribunal until six months after the publication of the final award,] arbitrators shall be independent (...).’ 62 Differences that merit attention among these texts will be commented on in footnotes. 63 In the academic context it was suggested that there are two possible drafting approaches for the purpose of drawing the ‘red line’ for judges and arbitrators regarding their conduct: ‘One is the provision of a “code of conduct” for the individual agreement. The other is the reference to an existing “external” legal framework. It has been commented that unlike other EU-IIAs that contain codes of
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CETA draft code of conduct64 establishes the following in terms of independence and impartiality:65 1. In addition to the obligations established in Article 2 of this Decision. Members shall be and shall appear66 to be independent and impartial, and shall avoid direct and indirect conflicts of interest. 2. Members shall not be influenced by self-interest, outside pressure, political considerations, public clamour, loyalty to a Party, disputing party or any other person involved or participating in the proceeding, fear of criticism or financial, business, professional, family or social relationships or responsibilities. 3. Members shall not, directly or indirectly, incur any obligation, accept any benefit, enter into any relationship, or acquire any financial interest that is likely to affect or appear to affect their independence or impartiality. 4. Members shall not engage in ex parte contacts concerning the proceeding. 67
conduct of their own, ‘CETA, for now, pursues an approach closer to the “traditional” one taken in investor-State arbitration and references the International Bar Association Guidelines on Conflicts of Interest in International Arbitration’. Hindelang and Hagemeyer, ‘In Pursuit of an International Investment Court. Recently Negotiated Investment Chapters in EU Comprehensive Free Trade Agreements in Comparative Perspective’, July 2017, EP/EXPO/B/INTA/2017/02, 1 (16). Once the CETA code of conduct is approved, CETA would have to be interpreted as constituting a new tertium genus combining these two approaches (reference to an existing ‘external’ legal framework + code of conduct). 64 The non-exhaustive list in this provision shows clear similarities with Article 4 of 2020 ICSIDUNCITRAL Draft Code of Conduct for Adjudicators in Investor-State Dispute Settlement (Independence and Impartiality): ‘1. Adjudicators shall at all times be independent and impartial. 2. In particular, adjudicators shall not: (a) Be influenced by self-interest, outside pressure, political considerations, public clamour, loyalty to a party to the proceedings, or fear of criticism; (b) Allow any past or ongoing financial, business, professional, family or social relationships to influence their conduct or judgement; (c) Take action that creates the impression that others are in a position to influence their conduct or judgement; (d) Use their position to advance any personal or private interests; or (e) Directly or indirectly, incur an obligation or accept a benefit that would interfere, or appear to interfere, with the performance of their duties.’ ICSID and UNCITRAL, Draft Code of Conduct for Adjudicators in Investor-State Dispute Settlement, 2020, https://uncitral.un.org/en/codeofconduct. 65 The full title reads: ‘Independence, Impartiality and Other Obligations of Members’. In the author’s opinion, leaving this catch-all section to the end of the article is not appropriate. Duties like fairness, diligence, and non-delegation of responsibilities more than merit a separate article, as was the case in in the 2018 CETA draft code of conduct (Article 4 – ‘Duties of Members’, followed by an Article 5 – ‘Independence and Impartiality of Members’). The same structure has been chosen for the 2020 ICSID-UNCITRAL Draft Code of Conduct for Adjudicators in Investor-State Dispute Settlement: Article 3 – Duties and Responsibilities + Article 4 – Independence and Impartiality. ICSID and UNCITRAL, Draft Code of Conduct for Adjudicators in Investor-State Dispute Settlement, 2020, https:/ /uncitral.un.org/en/codeofconduct. 66 Including this reference to ‘shall appear’ might originate in the reflections of UNCITRAL Working Group III. It was concluded that: ‘(…) In order to be considered effective, the ISDS framework should not only ensure actual impartiality of arbitrators but also the appearance of those qualities’. UNCITRAL Working Group III, Possible reform of investor-State dispute settlement (ISDS). Ensuring independence and impartiality on the part of arbitrators and decision makers in ISDS, 30 August 2018, A/CN.9/WG.III/ WP.151, para. 10. 67 The rest of the draft provision refers to other Member obligations: ‘5. Members shall perform their duties thoroughly and expeditiously throughout the course of the proceeding and shall do so with fairness and diligence. 6. Members shall consider only those issues raised in the proceeding and which are necessary for a decision or award and shall not delegate this duty to any other person.
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To turn now to the basic structure that Article 8.30.1 CETA currently provides 40 regarding independence68 – which is likely to be extended when the CETA code of conduct is finally approved – the first paragraph of Article 8.30 mainly refers to the prohibition on governmental affiliation and on taking instructions from others (2), the avoidance of conflicts of interest (3) and opposition to the phenomenon known as ‘double hatting’ (4).
2. Prohibition on Governmental Affiliation and on Taking Instructions from Others Article 8.30.1 states that Members of the Tribunal ‘shall not be affiliated with 41 any government’.69 A footnote explains that: ‘For greater certainty, the fact that a person receives remuneration from a government does not in itself make that person ineligible’.70 This clarification has broader material scope in other texts such as Article 3.40 EU-Vietnam IPA, Article 3.11 EU-Singapore IPA and Article 13 EU-Mexico Agreement. The first two provisions also deem that an individual who ‘was formerly employed by the government, or has family relationship with a person who receives an income from the government’ is still eligible. The third provision argues that ‘the mere fact that a person is employed by a public university, or that a former government employee is receiving a pension from the government’ does not necessarily imply that the person has to be viewed to be affiliated with the government. 71 The European Commission itself explained the spirit of clarifications of this type 42 during the oral procedure before the European Court of Justice, in line with a request for an opinion submitted by the Kingdom of Belgium, giving rise to Opinion 1/17: the Members of the envisaged tribunals will most likely not be employed full-time and may include, for example, Members, such as law professors, who receive remuneration from a State
7. Members shall take all appropriate steps to ensure that their assistants are aware of, and comply with, Articles 2 (Responsibilities to the Process), 3(2) and (3) (Disclosure Obligations), 4(1) to (5) (Independence and Impartiality and Other Obligations of Members), 5(1) and (3) (Obligations of Former Members) and 6 (Confidentiality) of this Decision mutatis mutandis. 8. Members shall take appropriate account of other dispute settlement activities under the Agreement and, in particular, of decisions or awards rendered by the Appellate Tribunal.’ These duties have been studied in greater detail in: Fach Gómez, Key Duties of International Investment Arbitrators. A Transnational Study of Legal and Ethical Dilemmas (2019). 68 As will be explained later, this notion of independence also has to be ‘rounded off ’ with the content of the IBA Guidelines. 69 The 2016 wording is better structured, with different phrasing depending on whether to affiliation or taking instructions is alluded to. The 2014 wording was more cumbersome in contrast: ‘Arbitrators shall be independent of, and not be affiliated with or take instructions from, a disputing party or the government of a Party with regard to trade and investment matters. Arbitrators shall not take instructions from any organisation, government or disputing party with regard to matters related to the dispute’. 70 The 2014 CETA texts reflect the same approach using different wording: ‘Arbitrators who serve on the list established pursuant to paragraph 3 shall not, for that reason alone, be deemed to be affiliated with the government of a Party’. This sentence is not in a footnote but is included in the main body of Article X.25.6. 71 Authors like Howse advocate moderation in this matter: ‘The CETA model allows, however, the possibility that a judge could continue to receive financial payments from a state party to the tribunal. While this kind of exception to what would be a general norm of independence may be understandable in certain cases—for example, retired judges or university professors receiving state pensions or university professors in states where they are compensated as civil servants—it should be seen as an exception that is strictly limited to a non-contingent, fixed right to payments that has been acquired under law prior to accepting the judicial appointment.’ Howse, ‘Designing a Multilateral Investment Court: Issues and Options’ (2017) 36 YB Eur. L., 209 (228).
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but are not however involved, directly or indirectly, in the determination of the policies of the government of that State.72
Although this is a priori a reasonable starting point, the view is that it may be reversible, if derived from a case-by-case analysis. Namely, there might be cases in which public remuneration would indeed be a relevant factor – or ‘red flag’– in detecting the non-independence of a Member of the Tribunal.73 44 To exemplify independence, Article 8.30.1 CETA continues by declaring that the Members of the Tribunal ‘shall not take instructions from any organisation, or government with regard to matters related to the dispute’.74 This sentence is interpreted, sensu contrario, by the European Court of Justice in Opinion 1/17 to the effect that binding interpretations of CETA adopted by the CETA Joint Committee under Article 8.31(3) are the only scenario in which Members can be subject to instructions in the exercise of their duties. Opinion 1/17 also connects the duty of independence with the CETA text’s inclusion of a series of guarantees that are favourable to adjudicators with regard to certain key factors enabling them to remain impervious to this kind of external instruction (appointment by the Contracting Parties, avoiding nomination by the disputing Parties Article 8.27(2); length of service Article 8.27(5); level of remuneration Article 8.27(15) etc.).75 43
3. Avoidance of Conflicts of Interest 45
Article 8.30 CETA states that Members of the Tribunal ‘shall not participate in the consideration of any disputes that would create a direct or indirect conflict of interest. They shall comply with the International Bar Association Guidelines on Conflicts of Interest in International Arbitration or any supplemental rules adopted pursuant to Article 8.44.2’.76 The first line referring to direct or indirect conflict of interest is a new development compared to the 2014 CETA versions, which directly alluded to the IBA Guidelines without incorporating this previous entry. The EU IIAs with which a comparative analysis is being carried out here (i.e. EU-Vietnam IPA, EU-Singapore IPA, EU-Mexico Trade Agreement, and TTIP) have a common structure where this issue CJEU, Opinion 1/17, 30 April 2019, Accord ECG UE-Canada, ECLI:EU:C:2019:341, para. 240. With the same underlying reasoning, it has been argued that: ‘Doubts are justified as to whether government-appointed employees, officials or consultants can assume unbiased positions if the appointing state’s interests are at stake. To avoid the perception of lack of independence and apprehension of bias, it would thus be necessary to set high standards. The WTO Appellate Body, for instance, requires its judges to be “unaffiliated with any government”’. Innerebner, ‘Politicization of a Future International Investment Tribunal’s Appointment and How to Avoid it’ (2019) 1(1) Trento Student Law Review, 137 (151). 74 The CETA version of 26 September 2014 adds ‘disputing party’ to the list of public or private institutions from which instructions should not be taken. 75 It is interesting to highlight the connection between these characteristics of CETA and the structure of the WTO dispute resolution system: ‘The members of the Tribunal of first instance are appointed for a 5-year term renewable once. For each particular case, the members are appointed to divisions of the Tribunal on a random basis. This mechanism draws on the rules and experience of the WTO Appellate Body and is intended to contribute to the independence of the Tribunal, since the disputing parties will not be in a position to know in advance who will hear their case.’ Von Walter and Andrisani, ‘Resolution of Investment Disputes’ in Mbengue and Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (2019), 185 (193). 76 One aspect that leads to questions as to the quality of these CETA translations is that in Spanish the IBA Guidelines on Conflicts of interest in International Arbitration are called ‘las directrices de la Asociación Internacional de Abogados sobre conflictos de interés en el arbitraje internacional’, when a mere Google search of the referred document shows that the official title of the guidelines refers to ‘conflictos de intereses’ (plural). IBA, Guidelines on Conflicts of Interest in International Arbitration, Resolution of the International Bar Association Council of 23.10.2014. 72
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is concerned, which differs from the legislative option embodied by CETA: like CETA the provisions stipulate that adjudicators shall not participate in the consideration of any disputes that would create a direct or indirect conflict of interest, but then there is no reference to the IBA Guidelines in these EU IIAs; instead there is a stipulation that adjudicators shall comply with their code of conduct in the respective IIA Annex. 77 Neither the text of Article 8.30 CETA nor the 2019 CETA draft code of conduct 46 provides an express definition of direct or indirect conflict of interest, in spite of the fact that two of the latter’s provisions refer to this notion. That is, much of the terminology used in Article 4 (‘Independence, Impartiality and Other Obligations of Members’) and Article 3 (‘Disclosure Obligation’) of the 2019 CETA draft code of conduct can be subsumed under the very broad concept of conflict of interest. Conflict of interest is undoubtedly a tricky term to tackle through an ex ante definition, and is easier to outline by means of examples. The EU has prioritised this legislative option so far, as CETA and the other EU IIAs discussed here reflect. The International Bar Association (IBA) Guidelines on Conflicts of Interest in 47 International Arbitration is a 27-page text incorporated into CETA by reference via Article 8.30, but not into the other EU IIAs analysed here. 78 The Guidelines were drafted as a soft law document, which was initially approved by the IBA Council in May 2004 and whose current version dates from 2014. To summarise the key content,79 the Guidelines are divided into two parts. Part I is made up of seven General Standards: General Principle; Conflicts of Interest; Disclosure by the Arbitrator; Waiver by the Parties; Scope; Relationships, and Duty of Arbitrator and Parties. Part II focuses on the General Standards’ application in practice, classifying a wide range of situations are three non-exhaustive lists. The Red List contains both a non-waivable section that addresses grave situations in which the conflict cannot be resolved, and a waivable section covering other serious situations that both need to be disclosed and require the Parties’ agreement regarding arbitrators that are affected by this type of conflict. The Orange List refers to another range of situations which require disclosure and in which timely objections may arise if, in the eyes of the Parties, they may give 77 Annex 11 EU-Vietnam IPA; Annex 7 EU-Singapore IPA; Annex 1. Section 19 EU-Mexico Trade Agreement and Annex II Chapter 2 TTIP. 78 However, some highly representative examples of the latest batch of model agreements do impose the application of the IBA Guidelines. For instance, Article 20.6 of the 2019 Netherlands Model Investment Agreement declares: ‘Arbitrators shall comply with the International Bar Association Guidelines on Conflicts of Interest in International Arbitration and any supplemental rules agreed upon by the Contracting Parties. The Contracting Parties will negotiate a Code of Conduct with the aim to include in this Agreement additional requirements on ethics for the Members of the Tribunal’; Article G5 of the 2019 Belgium-Luxembourg Economic Union Model BIT states that ‘Arbitrators shall comply with the International Bar Association Guidelines on Conflicts of Interest in International Arbitration.’; Article 18 of the 2019 Slovakia Model BIT states that: ‘They shall comply with the International Bar Association Guidelines on Conflicts of Interest in International Arbitration. In so doing they shall comply with Annex II of this Agreement (Code of Conduct)’; and Article 15 of the 2015 Norwegian Draft Model Agreement declares that: ‘Members of the Tribunal shall comply with the International Bar Association Guidelines on Conflicts of Interest in International Arbitration and any Code of Conduct adopted by the Joint Committee pursuant to Article [The Joint Committee]’. See https://investmentpoli cy.unctad.org/international-investment-agreements/model-agreements. 79 Dalmaso Marques and Marques Dal Mas, ‘Managing Conflict of Interest in International Arbitration: The Role of the IBA Guidelines’ in Chaisse, Choukroune and Jusoh (eds), Handbook of International Investment Law and Policy (2020), 1; van Hooijdonk and Yves Herinckx, ‘The Impact of the IBA Guidelines and Rules on the Search for the Truth in Arbitration’ in Luc Demeyere (ed), Do arbitral awards reveal the truth? (2019), 93; Mullerat Obe, ‘The IBA guidelines on conflicts of interest revisited. Another contribution to the revision of an excellent instrument, which needs a slight daltonism treatment’ (2012) 14 Spain Arb. Rev, 61; De Witt Wijnen, Voser and Rao, ‘Background information on the IBA guidelines on conflicts of interest in international arbitration’ (2004) 5 BLI, 433.
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rise to justifiable doubts as to an arbitrator’s impartiality or independence. The Green List covers a series of situations in which no disclosure is needed, as there is neither any apparent nor actual conflict of interest according to the relevant objective point of view.80 48 Since being approved the Guidelines have been taken into account and applied by some investment arbitration tribunals outside the ICSID framework. By way of example, in the Vito v. Government of Canada case, which was heard under UNCITRAL Arbitration Rules and Chapter 11 of NAFTA, the Deputy Secretary General of ICSID based his decision on the IBA Guidelines.81 Likewise, the PCA decision upholding a challenge against an arbitrator in the Perenco v. Ecuador case stated that: ‘it is a reasonable interpretation of the challenged arbitrator’s comments and, applying the IBA Guidelines, would give rise to justifiable doubts about his impartiality’. 82 49 However, the praxis derived from the highly relevant ICSID context shows that the IBA Guidelines have not yet served as a real basis for challenge decisions. Although they have been praised in a good number of cases (being described as ‘useful references’, ‘instructive’,83 ‘the preeminent set of guidelines for assessing arbitrator conflicts’,84 ‘having persuasive authority’,85 ‘furnishing a useful indication’,86 and constituting ‘a most valuable source of inspiration’87), in most cases the conclusion is that ICSID adjudicators are solely bound by the standard set out in the ICSID
80 IBA, Guidelines on Conflicts of Interest in International Arbitration, Resolution of the International Bar Association Council of 23.10.2014. 81 The Decision states: ‘In the instant case, from the point of view of a “reasonable and informed third party” (General Standard 2I of the IBA Guidelines on Conflicts of Interest in International Arbitration), i.e., a “fair minded, rational, objective observer” (Challenge Decision of 11 January 1995, op. cit. at 236), there would be justifiable doubts about Mr. Thomas’ impartiality and independence as an arbitrator if he were not to discontinue his advisory services to Mexico for the remainder of this arbitration. Mr. Thomas must therefore now choose whether he will continue to advise Mexico, or continue to serve as an arbitrator in this case. Mr. Thomas shall inform me of his choice (with copies being sent to the parties, the two other arbitrators and the PCA) within seven (7) days of his receipt of the present decision.’ Vito G. Gallo v. The Government of Canada, UNCITRAL, PCA Case No. 55798, Decision on the Challenge to Mr. J. Christopher Thomas, QC (14 October 2009), para. 36. 82 Perenco Ecuador Ltd. v. Republic of Ecuador and Empresa Estatal Petróleos del Ecuador (Petroecuador), ICSID Case No. ARB/08/6, Decision on Challenge to Arbitrator, PCA Case No. IR-2009/1 (8 December 2009), para. 53. 83 Fábrica de Vidrios Los Andes, C.A. and Owens-Illinois de Venezuela, C.A. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/12/21, Reasoned Decision on the Proposal for Disqualification of Arbitrator L. Yves Fortier, Q.C. (28 March 2016), para. 34. 84 Universal Compression International Holdings, S.L.U. v. The Bolivarian Republic of Venezuela, ICSID Case No. Arb/10/9, Decision on the Proposal to Disqualify Prof. Brigitte Stern and Prof. Guido Santiago Tawil, Arbitrators (20 May 2011), para. 74. 85 Alpha Projektholding GmbH v. Ukraine, ICSID Case No. ARB/07/16, Decision on Respondent’s Proposal to Disqualify Arbitrator Dr. Yoram Turbowicz (19 March 2019), para. 56. 86 Tidewater Inc., Tidewater Investment SRL, Tidewater Caribe, C.A., et al. v. The Bolivarian Republic of Venezuela, ICSID Case No. ARB/10/5, Decision on Claimants’ Proposal to Disqualify Professor Brigitte Stern, Arbitrator (23 December 2010), para. 41. 87 Urbaser S.A. and Consorcio de Aguas Bilbao Bizkaia, Bilbao Biskaia Ur Partzuergoa v. The Argentine Republic, ICSID Case No. ARB/07/26, Decision on Claimants’ Proposal to Disqualify Professor Campbell McLachlan, Arbitrator (12 August 2010), para. 37.
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Convention.88 (‘The IBA Guidelines are not binding in an ICSID challenge’89; they ‘are not law for ICSID tribunals’90 but ‘merely indicative’91). Taking this approach into account, the application of the IBA Guidelines imposed 50 by CETA represents a step forward towards the endorsement of this document – which is no longer soft law92 in this CETA context – in the investment arbitration milieu. This obligation to comply with the IBA Guidelines has also been recently included in the Annex 14-D (Mexico-United States Investment Disputes) of the United States Mexico Canada Agreement (USMCA).93 A priori, a decontextualized analysis of these IBA Guidelines creates a positive 51 impression; they were drafted and updated by a prestigious institution that listened to the voices of relevant stakeholders and thus reflect an unquestionable attempt at clarification in an area that was crying out for it, as well as being the most comprehensive text currently available. To take a step further and focus on the CETA context, the Agreement’s reference to the IBA Guidelines is to be applauded for its sensitivity and audacity. As early as 2013 the European Union and Canada recognized that conflicts of interest in investment arbitration should be combated, and they did so by resorting to the text that was probably the gold standard at the time: the IBA Guidelines. The question arises as to whether adopting the IBA Guidelines via Article 8.30 CETA, although innovative and courageous, is the most practical and advisable option nowadays. Some scholars have criticised certain aspects of the Guidelines, including their lack of sensitivity regarding various peculiarities of the investment arbitration regime, which are non-existent in the commercial context. 94 Besides that, it 88 Blue Bank International & Trust (Barbados) Ltd. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB 12/20, Decision on the Parties’ Proposals to Disqualify a Majority of the Tribunal (12 November 2013), para. 62. 89 Burlington Resources Inc. v. Republic of Ecuador, ICSID Case No. ARB/08/5 (formerly Burlington Resources Inc. and others v. Republic of Ecuador and Empresa Estatal Petróleos del Ecuador (PetroEcuador)), Decision on the Proposal for Disqualification of Professor Francisco Orrego Vicuña (13 December 2013), para. 69. 90 Repsol, S.A. and Repsol Butano, S.A. v. Argentine Republic, ICSID Case No. ARB/12/38, Decision on the Proposal for Disqualification of Francisco Orrego Vicuña and Claus von Wobeser (13 December 2013), para. 74. 91 Participaciones Inversiones Portuarias SARL v. Gabonese Republic, ICSID Case No. ARB/08/17, Decision on the Proposal to Disqualify an Arbitrator (12 November 2009), para. 24. 92 Greineder, 'The Limitations of Soft Law Instruments and Good Practice Protocols in International Commercial Arbitration' (2018) 36(4) ASA Bull., 907. 93 Article 14.D.6.5 of Annex 14-D Mexico-United States Investment Disputes of the USMCA (also known as the ‘new NAFTA’) on ‘Selection of Arbitrators’ – entered into force on July 1 st 2020 – states that: ‘Arbitrators appointed to a tribunal for claims submitted under Article 14.D.3.1 shall: (a) comply with the International Bar Association Guidelines on Conflicts of Interest in International Arbitration, including guidelines regarding direct or indirect conflicts of interest, or any supplemental guidelines or rules adopted by the Annex Parties’. Agreement between the United States of America, the United Mexican States, and Canada (entered into force 1 July 2020). It should be noted that the referred Annex 14D only addresses investment disputes via arbitration for the United States and Mexico. Accordingly, United States and Mexican investors will continue to have recourse to investor – state arbitration. Canada did not join Annex 14-D on ISDS, possible because it failed to impose in the context of the new NAFTA its approach, embodied in CETA, in favour of creating a standing investment court. García Barragán, Mitretodis and Tuck, ‘The New NAFTA: Scaled-Back Arbitration in the USMCA’ (2019) 36 (6) J. Int.’l Arb., 739 (741 f.). 94 Joelson, ‘A critique of the 2014 international bar association guidelines of conflicts of interest in international arbitration‘ (2015) 26(3) Am. Rev. Int’l Arb., 483; Cinelli Moreira ‘The arbitrator’s duty of disclosure analyzed through case-law: are the IBA guidelines on conflict of interest in international arbitration enough to create consistency?‘ (2014) 40 Revista de Arbitragem e Mediaçao, 115 (142); Krajewski, Modalities for investment protection and ISDS in TTIP from a trade union perspective (2014), 17; Rubins and Lauterburg, ‘Independence, impartiality and duty of disclosure in investment arbitration’
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cannot be denied that CETA’s reference to an external text such as the IBA Guidelines is not without complications. Clearly specifying the CETA adjudicators’ ethical duties requires not only detailed knowledge of two texts that have been issued at different times by different authors, but also interpreting and trying to align them. As will be shown later, a harmonious connection between the content of Article 8.30 CETA, the CETA code of conduct and the IBA Guidelines may in some cases be hard to come by as well as creating insecurities. In short, there is no certainty that the consequences of requiring the application of the IBA Guidelines in the CETA Agreement were carefully considered when deciding to include this reference to the Guidelines in the CETA negotiations. For reasons such as these, the fact that any reference to the IBA Guidelines has been omitted from both the 2020 ICSID-UNCITRAL Draft Code of Conduct and the aforementioned EU-IIAs may be understandable. What is more difficult to understand is that the texts dispensing with the IBA Guidelines have produced only very brief codes of conduct that in most cases cannot be equated with these IBA Guidelines as regards conflicts of interest.95 52 If there is a genuine will, as there seems to be,96 to draw up a code of conduct for investment adjudicators who would possibly work in a harmonized Multilateral Investment Court (MIC) context, one of the many decisions that will have to be taken is whether the prospective text is detailed enough to stand alone, or whether references to previous texts created in other legal contexts will still have to be included. In the latter case, deciding on which specific text is to be referred to is by no means a trivial task.97 53 In view of what has been discussed so far, we must not settle for the conservative solution of continuing to depend on texts created in other contexts. International investment law has an unquestionable practical relevance and sufficient academic significance to merit a code of conduct for adjudicators that fully meets the needs of this extremely sophisticated sector. Present and future efforts must therefore concentrate on creating a sufficiently mature and comprehensive code of conduct for investment in Knahr, Koller, Rechberger and Reinisch A (eds) Investment and commercial arbitration. Similarities and divergences (2010), 153 (179). The CJEU recently underlined the differences between the arbitration referred to primarily in the Guidelines and the judicial nature of the CETA court: ‘Article 8.30 of the CETA makes reference to the power of the Committee on Services and Investment, the subject of Article 8.44 of that agreement, to adopt “supplemental rules” in that regard, the use of the term “supplemental” ensuring that that committee does not possess any power to diminish the effect of the prohibition on conflict of interest already contained in that agreement, but will have to confine itself, while maintaining the high standard of independence that stems from that prohibition, to adapting the rules stated in the IBA Guidelines to the realities of an investment tribunal that is primarily judicial in nature.’ CJEU, Opinion 1/17, 30 April 2019, Accord ECG UE-Canada, ECLI:EU:C:2019:341, para. 243. 95 It should be noted, however, that both the code of conduct linked to the EU-Mexico Agreement and the 2020 ICSID-UNCITRAL Draft Code of Conduct have developed an Article on the subject of 'Disclosure Obligations' (Article 3 and Article 5, respectively). These Articles exemplify the type of information that should be disclosed, although the lists are less detailed than those in the IBA Guidelines. 96 Giorgetti, ‘The Draft Code of Conduct for Adjudicators in Investor-State Dispute Settlement: An Important Step Forward in the Reform Process?’, EJIL: Talk!, 13 August 2020, https://www.ejiltalk.org/t he-draft-code-of-conduct-for-adjudicators-in-investor-state-dispute-settlement-an-important-step-for ward-in-the-reform-process/. 97 Howse suggests exploring texts other than the IBA Guidelines: ‘I would question the relevance of the IBA Guidelines for the operation of a multilateral court. These guidelines did little to provide an effective route to challenging arbitrator conflicts in the context of investor–state arbitration, where in many instances professional or business relationships that could give rise to a perception of conflict were not found to be disqualifying factors for arbitrators. The Code of Conduct for WTO Appellate Body Members, or ethics rules applicable to judges of the ICJ or the ECJ may be more relevant.’ Howse, ‘Designing a Multilateral Investment Court: Issues and Options’ (2017) 36 YB Eur. L., 209 (228).
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adjudicators. It is true that the combination of the IBA Guidelines and CETA has not yet been implemented in practice, so it is not known whether it would produce satisfactory results. But almost a decade after the IBA Guidelines were first referred to in a draft of CETA the situation has changed considerably, and a more ambition approach is needed. At the moment the future seems to be walking a path in which tribunals such as that established by CETA would transition towards the creation of a Multilateral Investment Tribunal and its appellate mechanism,98 and where the transitory combination Article 8.30 CETA+CETA code of conduct+IBA Guidelines would pass the baton to an all-embracing code of conduct with a vocation for universality. 99
4. Positioning against ‘Double Hatting’ Section 1 of Article 8.30 CETA concludes by stating that: ‘In addition, upon ap- 54 pointment, they shall refrain from acting as counsel or as party-appointed expert or witness in any pending or new investment dispute under this or any other international agreement’.100 The last sentence is a novelty compared to the 2014 versions of CETA, which included no statements of this type. The EU-IIAs cited here for comparative purposes do include this phrase, although with some slight nuances.101 Along with conflict of interest, few current issues concerning investment adjudica- 55 tors are as controversial as what is known as ‘double hatting’.102 The fact that the sentence reproduced above has been included in the Article in CETA referring to ethics may be interpreted as one of the many consequences of the participation and empowerment of civil society in the international investment field. 103 The publication of works that are extremely critical of the modus operandi of some of the professionals who participate in the ever increasing number of investment arbitrations has raised an intense debate around this matter.104 Assuming that self-imposed safeguards in matters of double hatting are not the general rule but the exception, 105 the controversy 98 Nevertheless, some authors do consider that this is not the best possible option: Charris Benedetti, ‘The proposed Investment Court System: does it really solve the problems?’ (2019) 42 Revista Derecho del Estado, 83. 99 Also in this sense, Anderson, ‘Saving Private ISDS: The Case for Hardening Ethical Guidelines and Systematizing Conflicts Checks’ (2018) Geo. J. Int’l L., 1143 (1173). 100 Another point of language to note in this paragraph is that the English term ‘counsel’ is translated as ‘Rechtsberater’ and ‘avocat-conseil’ in the French and German versions, respectively. However, in the Spanish version the term loses ‘legal intensity’, as it is translated as ‘asesores’ instead of ‘asesores jurídicos’ o ‘abogados’. 101 For example, Article 3.40 EU-Vietnam IPA, refers in plural to ‘party-appointed experts or witnesses’; all four texts (Article 3.40 EU-Vietnam IPA, Article 3.11 EU-Singapore IPA, Article 13 EU-Mexico Agreement and Article 11 TTIP) refer to ‘investment protection dispute’; Article 3.40 EU-Vietnam IPA refers to ‘any other agreement or under domestic laws and regulations’ and the other three to ‘any other agreement or domestic law’. 102 Underlining both the positive and negative aspects of this professional rotation: Crook, ‘Dual Hats and Arbitrator Diversity: Goals in Tension’ (2019) 113 AJIL, 284; Fernández-Armesto, ‘Counsel and arbitrator in investment arbitration: does the mixing of the roles nix neutrality?’ (2012) IBA Arbitration Day, 1; Perry, ‘Stockholm: the double-hat syndrome’ (2012) 7(2) GAR, 43. 103 On this topic, Cowe, ‘“It's not me, it's you”: arbitrator's conduct and the public's opinion of ISDS’ (2019) 85(3) Arbitration, 251. 104 A document that is highly representative of this current of the harsh criticism of agents in the classic ISDS system is the following: Corporate Europe Observatory and Transnational Institute, ‘Profiting from injustice. How law firms, arbitrators and financiers are fuelling an investment arbitration boom’ (CEO and TI, Brussels/Amsterdam, November 2012). Very interesting, also from a comparative perspective is: Natalie Bernasconi-Osterwalder and Martin Dietrich Brauch, Is ‘Moonlighting’ a problem? The role of ICJ judges in ISDS (2017). 105 However, in recent years some hopeful expressions of goodwill have been made public by institutions and individuals. Investment Treaty News, 'Judges of the International Court of Justice decide to no
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surrounding this issue has generated tangible consequences in the negotiation phase of IIAs undertaken by powers that, like the European Union and Canada, have always shown themselves willing to be pioneers, including in the most social and human aspects of their international investment policy. 56 In this sense, the EU has publicly expressed its satisfaction with the wording of the last sentence of Paragraph 1 of Article 8.30 of CETA: CETA introduces stringent qualification requirements and strict and enforceable rules on ethics, including, – again a first – a strict prohibition on double hatting (where an arbitrator also acts as counsel in other cases) which will ensure that members of the Tribunal have the necessary impartiality, expertise and knowledge to assess cases.106
The fact that CETA specifies that Members of the Tribunal and Appellate Tribunal must refrain from acting as counsel or party-appointed expert or witness in any pending or new investment dispute under this or any other international agreement is undoubtedly a significant step forward.107 However, doubts may arise as to whether this sentence in Article 8.30.1 CETA, per se, actually amounts to a strict prohibition on double hatting, as the EU states. What is striking is that the CETA section on the resolution of investment disputes between investors and states lacks a statement that is present in other recent EU-IIAs and state that their adjudicators ‘shall not permitted to engage in any occupation, whether gainful or not, unless an exception is exceptionally granted by the President of the Tribunal or the Appeal Tribunal’.108 58 The two examples that follow show that the last part of Article 8.30.1 CETA may have taken a more belligerent stance against double hatting. First, the restrictive wording of Article 8.30.1 seems to indicate that only the three professional activities of the investment milieu that are expressly referred to (counsel, party-appointed expert and witness) constitute controversial overlaps from an ethical perspective, and in principle CETA adjudicators may therefore engage in other occupations. This approach would authorize the practice of many highly diverse professions and activities – both in the investment arbitration and the commercial arbitration arena109 – that CETA adjudicators could feasibly carry out110 given their profiles, especially if their duties on the 57
longer participate as arbitrators in ISDS cases' https://cf.iisd.net/itn/2018/12/21/judges-of-the-internati onal-court-of-justice-decide-to-no-longer-participate-as-arbitrators-in-isds-cases. 106 European Commission, The Economic Impact of the Comprehensive Economic and Trade Agreement, 5 February 2018, 30. 107 Some texts have more restrictive wording, such as Article 29.13 of the South African Development Community Model Bilateral Investment Treaty Template: ‘Avoidance of Conflict of Interest of Arbitrators. (…) the above requirements include the requirement not to act concurrently as counsel in another actual or potential treaty-based arbitration involving a foreign investor and a State’. 108 Article 3.38.17 and 3.39.17 EU-Vietnam IPA, Article 3.9.15 and 3.10.13 EU-Singapore IPA, Article 111.15 and 12.14 EU-Mexico Agreement and Article 9.15 and 10.14 TTIP. In its request to the CJEU for an opinion the Kingdom of Belgium expressed its surprise of the fact that CETA: ‘does not require those Members to declare their outside activities nor a fortiori that those activities should be subject to prior approval. The relevant international instruments, however, such as the European Charter on the statute for judges, state that the exercise of such activities must be declared and must be the object of a prior authorisation’. CJEU, Opinion 1/17, 30 April 2019, Accord ECG UE-Canada, ECLI:EU:C:2019:341, para. 69. 109 These include: investment arbitrator, legal assistant to an investment arbitration tribunal, adviser to a third-party funder, corporation board member, lobbyist, commercial arbitrator, legal assistant to a commercial arbitration tribunal, national or international judge, mediator, conciliator, academic, etc. 110 On the contrary, the wording – still provisional – of Article 6 of the 2020 ICSID-UNCITRAL Draft Code of Conduct would make it possible to prevent the simultaneous exercise of the role of counsel and adjudicator (in ICSID, on the CETA Tribunal, as well as in a prospective Multilateral Investment Court): ‘Limit on Multiple Roles: Adjudicators shall [refrain from acting]/[disclose that they
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CETA Tribunal were not initially full-time.111 From the author’s perspective it seems inappropriate to ignore the ethical conflict that may arise, for example, if a CETA Tribunal Member acted simultaneously as arbitrator in a case managed by ICSID or another ISDS arbitration institution.112 It should be borne in mind that the panorama of conflict resolution arising from international investments will be characterized by a ‘coexistence in flux’ in years to come: the CETA Tribunal will foreseeably end up being replaced by a Multilateral Investment Tribunal (pursuant to Article 8.29 CETA), which in the short term will be unable to replace the various arbitration institutions that are currently preeminent in this legal area. Revolving doors do not seem to be disappearing in this context; quite the opposite.113 For all these reasons, it would seem preferable to have worded the last sentence of 59 Article 8.30 CETA (‘they shall refrain from acting as counsel or as party-appointed expert or witness in any pending or new investment dispute under this or any other international agreement’) differently. Options could include one or various of the following: providing a longer list of prohibited professional activities; stating that the list is not exhaustive;114 omitting any such list because the admissible external activities of CETA Tribunal Members would be approved on a case by case basis by an external authority to whom the Members should report -the President of the respective tribunal, for example, or the CETA Joint Committee; 115 or omitting any prohibitions list entirely because the admissible activities would be determined through an extensive duty of disclosure that could lead to a disqualification or removal decision following Articles 8.30.2, 8.30.3 and 8.30.4 CETA. A second example showing that Article 8.30.1 CETA could have taken a tougher 60 stance against double hatting is the fact that the provision does not provide for any pre-service limitation that would be applicable to CETA adjudicators, since the express wording only refers to the period ‘upon appointment’. Although it is true that this is the almost unanimous legislative option nowadays, this CETA provision could still have opted to take a more proactive approach regarding ex ante quarantine periods, as the 2019 Netherlands Model Investment Agreement currently does. Its Article 20.5 states that: ‘Members of the Tribunal shall not act as legal counsel or shall not have acted as legal counsel for the last five years in investment disputes under this or any other international agreement’.116 act] as counsel, expert witness, judge or in any other relevant role at the same time as they are [within X years of] acting on matters that involve the same parties, [the same facts][and/or] [the same treaty]’. 111 As UNCITRAL Working Group III indicates: ‘It was mentioned that relevant distinctions might need to be made between the rules in a code of conduct for ad hoc arbitrators, and for adjudicators/judges in a permanent body. It was stated that it would be likely be easier to ensure compliance in a permanent body (for example, with regard to double-hatting, post-award remedies, pre-appointment contacts and parity of fees)’. UNCITRAL Working Group III. Report on the work of its thirty-eight session (Vienna, 14-18 October 2019), 23 October 2019, A/CN.9/1004, para. 55. 112 Dias Simoes ‘Hold on to your hat! Issue conflicts in the TTIP proposal for an investment court’ (2018) 17(1) LPICT, 98. 113 Reflecting on this issue, Langford et al. ‘The revolving door in international investment arbitration’ (2017) 20(2) J. Int.’l Econ. Law, 301. 114 These two options are cumulatively reflected in Article 6 of the 2020 ICSID-UNCITRAL Draft Code of Conduct: ‘(…) counsel, expert witness, judge or in any other relevant role (…)’. 115 Although it seems reasonable to prioritize the figure of the President of the Court in this matter, as texts such as the EU-Vietnam IPA, EU-Singapore IPA, EU-Mexico Agreement and TTIP do, it does not seem a priori a rejectable alternative that CETA policy on its adjudicators’ other activities can be outlined by a collegiate body such as CETA Joint Committee, which is also in charge of removing Members from a Tribunal via Article 8.30.4 CETA. 116 See https://investmentpolicy.unctad.org/international-investment-agreements/model-agreements .
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In short, when viewed in isolation, the last sentence of Article 8.30 CETA fails to provide a clear answer to all the controversial questions regarding ‘multiple hatting’ 117 that may arise in the present investment context. Moreover, it does not seem to constitute a strict prohibition on double hatting. However, the scene changes if the IBA Guidelines are complied with, as the CETA Article itself requires; and also if the analysis of the CETA anti-double hatting policy incorporates the content of the prospective CETA code of conduct. This can be seen from the following two examples referring to the duty of disclosure and the ex post quarantine period. 62 First, it should be noted that the IBA Guidelines revolve around a broad disclosure obligation,118 complemented by the principle that ‘[a]ny doubt as to whether an arbitrator should disclose certain facts or circumstances should be resolved in favour of disclosure’.119 Although this text does not expressly refer to the figure of multiple hatting, its red and orange lists both cover a good number of situations that can be subsumed under this notion, so that the disclosure duty comes into play in these cases. Although the joint application of Article 8.30 CETA and the IBA Guidelines raises the difficulties of interpretation and harmonization mentioned above, it seems that complying with the latter indeed broadens the wording of the former. If this analysis’ focus on the disclosure duty is extended to cover the 2019 CETA draft code of conduct, Article 3 appears to provide a de facto modification of the last sentence of Article 8.30.1 CETA. The former (‘Disclosure obligations’) dedicates its first section to CETA Tribunal candidates. That is, according to the definition offered by the code itself, it is aimed at the ‘natural person who has submitted an application or is otherwise aware that he or she is under consideration for selection as a Member’. The first section states that: 61
Candidates shall disclose to the Parties any past and present interest, relationship or matter that is likely to affect, or that could reasonably be seen as likely to affect, their independence or impartiality, that creates or could reasonably be seen as creating a direct or indirect conflict of interest, or that creates or might reasonably be seen as creating an appearance of impropriety or bias. To this end, candidates shall make all reasonable efforts to become aware of any such interests, relationships or matters. The disclosure of past interests, relationships or matters shall cover at least the last five years prior to a candidate submitting an application or otherwise becoming aware that he or she is under consideration for selection as a Member.
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This provision, which imposes a duty of disclosure covering at least the previous five years on CETA candidates,120 is not as radical as the 5-year ban contained in the above referred 2019 Netherlands Model Investment Agreement, but if it is breached 117 The many possible combinations of activities within the adjudicators’ professional careers have led the author to use the term ‘multiple hatting’ in her research, which also seems to have been chosen recently by 2020 ICSID-UNCITRAL Draft Code of Conduct (‘Limit on Multiple Roles’ – Article 6). 118 General Standard 3 (Disclosure by the Arbitrator): ‘(a) If facts or circumstances exist that may, in the eyes of the parties, give rise to doubts as to the arbitrator’s impartiality or independence, the arbitrator shall disclose such facts or circumstances to the parties, the arbitration institution or other appointing authority (if any, and if so required by the applicable institutional rules) and the co-arbitrators, if any, prior to accepting his or her appointment or, if thereafter, as soon as he or she learns of them.’ IBA, Guidelines on Conflicts of Interest in International Arbitration, Resolution of the International Bar Association Council of 23.10.2014. 119 General Standard 3 (d). IBA, Guidelines on Conflicts of Interest in International Arbitration, Resolution of the International Bar Association Council of 23.10.2014. 120 Most of the texts analysed (the codes of conduct in the EU-Vietnam IPA, EU-Mexico Agreement, EU-Singapore IPA and TTIP) lack the last sentence in the 2019 CETA draft code of conduct in favour of specifying a 5-year time period. The 2020 ICSID-UNCITRAL Draft Code of Conduct imposes disclosure within the past five years on both candidates and adjudicators when dealing with ‘any professional, business and other significant relationships’.
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by candidates – already Members – sanctions could apply (Article 8 of the 2019 CETA draft Code),121 resulting in disqualification, resignation or removal of the CETA Member from the Tribunal (Articles 8.30.2, 8.30.3 and 8.30.4 CETA). 122 Article 3 of the 2019 CETA draft code of conduct also devotes the following two 64 paragraphs to the Tribunal Members’ disclosure obligations:123 Members shall communicate matters concerning actual or potential violations of this code of conduct in writing to the Parties and, when relevant to a dispute, to the disputing parties. Members shall at all times continue to make all reasonable efforts to become aware of any interests, relationships or matters referred to in paragraph 1 of this Article. Members shall at all times disclose such interests, relationships or matters throughout the performance of their duties by informing the Parties and, where relevant, the disputing parties. 124
In short, the IBA Guidelines, the 2019 CETA draft code of conduct and the other 65 codes examined here reflect the importance attached to the duty of disclosure. 125 As the author has argued in a previous study, the time has come to implement a series of regulatory reforms that seek a firm reshaping of the profile of the duty of disclosure
121 Article 8 2019 CETA draft code of conduct (Sanctions): ‘1. For greater certainty, the provisions of this code of conduct shall be applied together with the obligations set out in Article 8.30.1 of the Agreement and the procedures foreseen in Article 8.30 paragraphs 2 and 3 and Article 8.30.4 of the Agreement shall apply to violations of this code of conduct. 2. For greater certainty, the CETA Joint Committee shall provide a Member the opportunity to be heard prior to the issuance of any decision pursuant to Article 8.30.4 of the Agreement.’ 122 To some stakeholders the sanctions provided for in Article 8.30 CETA are not severe enough if the adjudicator has committed double hatting: ‘Moreover the consequences of any breach of these obligations are insufficient. Parties to a dispute may challenge the appointment of a Member of a Tribunal in a specific case on ‘conflict of interest’ grounds. This may lead to a disqualification of the Member from hearing that particular case, but CETA does not appear to impose any other sanctions on the Member for failing to have declared the conflict. The provisions also fail to ensure that – if the conflict of interest is confirmed and the Member disqualified – that decisions already taken by the Tribunal in that case would be annulled or even reviewed. It is also not guaranteed that such a finding will automatically lead to the removal of the Member from the Tribunal and no guarantee is provided that they might not adjudicate in further cases, even if their conduct breaches the International Bar Association Guidelines. The Ethics provisions state that the CETA Joint Committee ‘may’ remove a Member of the Tribunal, but they are not obliged to do so. Nor do these provisions bar Members who have been disqualified from reappointment. Given the gravity of concerns about ISDS to date, these provisions would not appear to deepen the integrity of the judicial system created under CETA’s investment chapter. While some ‘revolving door’ issues – concerning the ability of lawyers to work simultaneously as both counsel and adjudicator in multiple investment disputes – in the ISDS system appear to have been addressed, this has been done very lightly and the results are unconvincing.’ ICTUR and Greenpeace, ‘Investor protection in CETA: Gold standard or missed opportunity?’, 2016, https://www.greenpeace.org/eu-unit/issues/democracy-europe/1229/investor-protection-in-ceta/, p. 12. 123 Article 5 of the 2020 ICSID-UNCITRAL Draft Code of Conduct (Conflicts of Interest: Disclosure Obligations) does not distinguish between candidates and Members, which is typical of recent EU-IIAs. 124 If these paragraphs from Article 3 of the 2019 CETA draft code of conduct are compared with the usual EU IIAs, some differences emerge. For example, while the CETA draft code and the codes of the EU-Mexico Agreement and TTIP require Members to communicate such matters in writing to the Parties and, when relevant to a dispute, to the disputing Parties; the EU-Vietnam IPA code of conduct only imposes this obligation with respect to the disputing Parties; the EU-Singapore IPA code of conduct requires it with respect to the disputing Parties and the non-disputing Party; and the 2020 ICSID-UNCITRAL Draft Code of Conduct does not stipulate to whom they should be communicated. 125 The importance of the disclosure duty is also being underlined in the course of the amendment of the ICSID rules, with proposed Rule 19.3 b) requiring an enhanced declaration of independence and impartiality (‘a signed declaration in the form published by the Center, addressing matters including the arbitrator’s independence, impartiality, availability and commitment to maintain the confidentiality of the proceeding’). ICSID, Proposals for amendment of the ICSID rules, February 2020, Working Paper #4, Volume 1.
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in the entire international investment field.126 That is, it is time to de-dramatize this crucial duty of the investment adjudicators.127 In relation to CETA, the fact that both the IBA Guidelines and the CETA draft code of conduct give significant weight to the adjudicators’ disclosure obligations indirectly entails a considerable increase in the opposition to double hatting that is so blandly pointed out in Article 8.30.1 CETA. 66 Second, in spite of the fact that Article 8.30.1 CETA does not directly address post-service restrictions on its adjudicators, Articles 5.2 and 5.3 of the 2019 CETA draft code of conduct, devoted to the ‘Obligations of Former Members’, specify that: Members shall undertake that for a period of three years after the end of their term, they shall not act as representatives of any of the disputing parties in investment disputes before the Tribunal or the Appellate Tribunal. Without prejudice to the possibility to continue to serve on a division until the closure of the proceedings of that division, Members shall undertake that after the end of their term, they shall not become involved: (a) in any manner whatsoever in investment disputes which were pending before the Tribunal or the Appellate Tribunal before the end of their term; (b) in any manner whatsoever in investment disputes directly and clearly connected with disputes, including concluded disputes, which they have dealt with as Members of the Tribunal or the Appellate Tribunal.
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This text is very similar to its counterpart in the EU-Vietnam IPA and the EU-Mexico Agreement codes of conduct.128 It is accompanied by the lengthy Article 5.4 CETA draft code of conduct, which also appears in the two above referred codes and imposes the following duty: If the President of the Tribunal or of the Appellate Tribunal is informed or otherwise becomes aware that a former Member is alleged to have acted inconsistently with the obligations set up in paragraphs 1 through 3 of this Article, or any other part of this Decision while a Member, he or she shall examine the matter, provide the opportunity to the former Member to be heard, and, after verification, inform thereof: (a) the professional body or other such institution with which that former Member is affiliated; (b) the Parties; (c) if it involves a specific dispute, the disputing parties; and (d) the President of any other relevant international court or tribunal in view of the initiation of appropriate measures. The President of the Tribunal or of the Appellate Tribunal shall make public its decision to take the actions referred to in subparagraphs (a) through (d) above, together with the reasons therefor.
126 Scholarly approaches such as the following must be taken into consideration: ‘A breach of these disclosure requirements in a proceeding should be penalized and should lead to a prima facie disqualification in this procedure due to bias’. Bungenberg and Reinisch, From Bilateral Arbitral Tribunals and Investment Courts to a Multilateral Investment Court. Options Regarding the Institutionalization of Investor-State Dispute Settlement (2020), 50. 127 Fach Gómez, Key Duties of International Investment Arbitrators. A Transnational Study of Legal and Ethical Dilemmas (2019), 193 ff. In this sense, the text that has been incorporated into the still-in-negotiations Article 3.6 of the Code of Conduct of the EU-Mexico Agreement is compelling, underlining that a mere disclosure is not necessarily synonymous with a violation of the Agreement on Ethics Article: ‘Any doubt as to whether a Member should disclose certain interest, relationship or matter should be resolved in favour of disclosure. Disclosure of an interest, relationship or matter is without prejudice as to whether the interest, relationship or matter is covered by this Code of Conduct, or whether it is inconsistent with Article 13, para. 1 (Ethics).’ 128 The only relevant difference between these texts and Article 5.2 and 5.3 of the 2019 CETA draft code is that the latter firstly refers to the ban with a three-year time limit. For their part, the EU-Singapore IPA and TTIP codes of conduct devote a shorter Article to the 'Obligations of Former Members', consisting of a single paragraph with very similar wording to Article 5.1 of the 2019 CETA draft code of conduct (that is: ‘Former Members shall avoid actions that may create the appearance that they were based in carrying out their duties or derived advantage from the decisions or award of the Tribunal or the Appellate Tribunal’). USMCA and the 2020 ICSID-UNCITRAL Draft Code of Conduct do not contain any provision referring to former Members.
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Therefore, Article 5 of the 2019 CETA draft code of conduct closes the gap in 68 Article 8.30.1 CETA regarding the post-service limitations applicable to CETA adjudicators.129 In addition, this and the previous example referring to disclosure show how the 2019 CETA draft code of conduct may supplement130 the IBA Guidelines when dealing with issues such as conflicts of interest, a possibility that is pointed out in Article 8.30.1 CETA itself (‘or any supplemental rules adopted pursuant to Article 8.44.2’). Taking into account the fact that multiple provisions from two different texts 69 (Article 8.30.1 CETA, Articles 3 and 5 of the CETA code of conduct, and General Standard 3 of the IBA Guidelines) would have to be consulted in order to identify the CETA double hatting regime, and therefore to determine if this Agreement really does impose a strict prohibition on the matter, the question arises as to whether the CETA code of conduct should contain a provision specifically devoted to ‘multiple hatting’. The 2020 ICSID-UNCITRAL Draft Code of Conduct includes an Article referring to the ‘Limit on Multiple Roles’, although both the embryonic nature of its draft wording131 and the open questions highlighted in the commentary reinforce the idea that the treatment of multiple hatting still lacks consensus among international investment law stakeholders. However, it can be ventured that this open debate seems to have started leaning 70 slightly towards single-hat adjudicator profiles. A recent EU statement within the UNCITRAL Working Group III framework may be interpreted as adopting a position in favour of achieving stricter ethical regulation against multiple hatting in this global forum: Adjudicators would be subject to strict ethical requirements. High ethical standards would be ensued through the adjudicators being full-time and prohibited from having other activities, in particular other remunerated or political activities. Adjudicators would be required to ensure that there is no risk of conflict of interest in particular cases. To this end, adjudicators should disclose past interests, relationships or matters that could affect their independence or impartiality and, after the end of their term, they should remain subject to obligations to ensure that their independence and impartiality in office are not called into question. (…) A system of full-time adjudicators will be better able to ensure independence and impartiality. In fact, it is only by moving away from appointment by the disputing parties to a system of adjudicators on long, non-renewable terms that the concerns on independence and impartiality can be definitively addressed. This will bring double-hatting (i.e. acting as counsel and arbitrator) to an end. 132
In the same vein, highly reputable scholars could not have been more forceful in 71 their arguments against double hatting. Howse declares his hope for real change via a future MIC133 by stating that: 129 In this sense, the 2019 draft Code constitutes an improvement of the CETA system. In favour of this type of consideration: ‘Stipulating a cooling-off period during which the former judges may not engage in certain occupations would speak for the quality and independence of the MIC’, Bungenberg and Reinisch, From Bilateral Arbitral Tribunals and Investment Courts to a Multilateral Investment Court. Options Regarding the Institutionalization of Investor-State Dispute Settlement (2020), 50. 130 Supplement: ‘something added to complete a thing or to reinforce or extend something’. See https://www.collinsdictionary.com/es/. 131 Article 6. Limit on Multiple Roles: ‘Adjudicators shall [refrain from acting]/[disclose that they act] as counsel, expert witness, judge or in any other relevant role at the same time as they are [within X years of] acting on matters that involve the same parties, [the same facts][and/or] [the same treaty]’. 132 UNCITRAL Working Group III, Possible reform of investor-State dispute settlement (ISDS). Submission from the European Union and its Member States, 24 January 2019, A/CN.9/WG.III/WP.159/Add.1, paras. 18 and 47. 133 As Schultz argues: ‘To take just one example: if one or several international investment courts come to replace investment arbitration, but the judges on these courts are the same as the current
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When the same small community is engaged in the roles of both arbitrator and counsel (which includes arbitrator appointment), they have closely interlocking financial and professional interests. An arbitrator may well see a fellow arbitrator or counsel in a case as someone before whom they might appear as counsel in a different case or who might, as counsel, be in a position to recommend their appointment in future cases. In such a system, genuine independence of justice is illusive. One of the main functions of transitioning to a multilateral investment court will be to simply put an end to that kind of crony system (as opposed to hemming it in, or trying to, by specific conflict rules). Simply put, the persons appointed will have to end their financial and professional entanglements with the commercial law firm world, or that part of it that deals in investor –state arbitration.134
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To return to CETA, the fact that voices are still being raised to justify the relative permanence of the multiple hatting phenomenon cannot be ignored. It is pointed out, among other arguments, that implanting a strict single hatting requirement from the very beginning would have the unfortunate effect of scaring off highly qualified candidates from agreeing to serve on the CETA Tribunal, especially when it is first launched and the workload is likely to be very low.135 Perhaps for this reason, tightening up the regulation of double hatting as the court becomes more consolidated might be justified.136 The same substantive rationale underlies the complaint that single hatting could have a negative effect on gender and regional diversity, as well as young adjudicators’ access to the Tribunal.137 These are issues of undoubted importance on which the author has already reflected in a previous work. However, the response required by these urgent challenges should not entail retaining multiple hatting practices. 138
II. Paragraph 2 of Article 8.30 73
Paragraphs 2 and 3 of Article 8.30 CETA affirm the right of any of the disputing Parties to demand the replacement of a Member of the Tribunal if he or she is considered to incur in a conflict of interest. Viewing this right from the adjudicator’s perspective, disqualification for ethical reasons is, at least theoretically, 139 the sanction that is most commonly applied to adjudicators in the international investment law
investment arbitrators, have the same ethos, how much change can we really expect?’. Schultz, ‘The Ethos of Arbitration’, in Schultz and Ortino (eds), The Oxford Handbook of International Arbitration (forthcoming 2020). 134 Howse, ‘Designing a multilateral investment court: issues and options’ (2017) 36 YB Eur. L., 209 (228). 135 Scholars point out a relevant fact in this matter: ‘The main reason for the retainer system is the relatively low annual average of cases brought under investment agreements. For example, the North American Free Trade Agreement (NAFTA) and the Energy Charter Treaty, two of the treaties with the largest total number of investor-state disputes, averaged respectively 2.7 and 6.6 cases per year’. Puccio and Harte, ‘From arbitration to the investment court system (ICS): the evolution of CETA rules’ (2017) European Parliament Research Service, p. 3. 136 Von Walter and Andrisani, ‘Resolution of Investment Disputes’ in Mbengue and Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (2019), 185 (193). 137 Sucharitkul, ‘ICSID and UNCITRAL Draft Code of Conduct: Potential Ban on Multiple Roles Could Negatively Impact Gender and Regional Diversity, as well as Generational Renewal’, Kluwer Arbitration Blog, 20 June 2020, http://arbitrationblog.kluwerarbitration.com/2020/06/20/icsid-and-unci tral-draft-code-of-conduct-potential-ban-on-multiple-roles-could-negatively-impact-gender-and-regio nal-diversity-as-well-as-generational-renewal/. 138 Fach Gómez, ‘Diversity and the Principle of Independence and Impartiality in the Future Multilateral Investment Court’ (2018) LPICT, 78. 139 As will be detailed later, the ratio of successful challenges in the investment arbitration framework has been very low so far.
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milieu.140 As the sentence by sentence analysis below explains, these paragraphs in Article 8.30 CETA go into the challenge procedure within the CETA framework in some detail, thus giving teeth to a series of ethical duties that should no longer be deemed merely soft law.141
1. Conflict of Interest Paragraph 2 of Article 8.30 CETA referring to ethics begins with the following 74 hypothesis: ‘If a disputing party considers that a Member of the Tribunal has a conflict of interest (…)’. The same sentence also appears in the other EU IIAs that are being object of comparative analysis throughout this commentary.142 It is clear from the drafting history of this provision that this particular sentence was worded differently in the three 2014 versions of CETA: ‘If a disputing party considers that an arbitrator does not meet the requirements set out in paragraph 6 (…)’. 143 It is not known what caused the change in drafting in the current version of CETA, which now refers solely to the notion of conflict of interest instead of referring to all the issues addressed in the provision’s previous paragraph.144 There can be no absolute certainty as to whether this reference encompasses all the relevant issues in Paragraph 1 of Article 8.30, although this is assumed to have been the aim of the drafters of the latest version of the provision. 145 A priori, this change in wording is not valued as a clear improvement as such, but the current drafting of CETA might be able to minimize the problems that provisions like Article 57 of the ICSID Convention have raised in terms of the threshold for disqualification and standard of proof.146 140 UNCITRAL Working Group III uses the term ‘sanction’ along with lighter terms such as ‘consequence for noncompliance’, ‘enforcement mechanism’ or ‘measure’. 141 For example, a recently issued UNCITRAL Working Group III document regarding the drafting of a code of conduct emphasizes that ‘it was generally felt that it would not be prudent to rely on voluntary compliance and that the consequences for non-compliance (sanctions) would need to be clearly set forth’. UNCITRAL Working Group III. Report on the work of its thirty-eighth session, (Vienna, 14-18 October 2019), 23 October 2019, A/CN.9/1004, para. 62. It is estimated that this approach will end up prevailing globally. 142 Article 3.40 EU-Vietnam IPA, Article 3.11 EU-Singapore IPA, Article 13 EU-Mexico Agreement and Article 11 TTIP. 143 Article 9.21 of the 2014 version of the EUSFTA (‘Constitution of Tribunal’) had the same wording: ‘If a disputing Party considers that an arbitrator does not meet the requirements set out in paragraph 7 (…)’. In the same vein, Article 15 of the 2015 Norway Model Agreement, entitled ‘conflict of interest and code of conduct’, currently states that: ‘If a disputing party considers that a Member does not meet the requirements set out therein (…)’. 144 Some recent texts go into more detail about the reasons that justify opening an adjudicator challenge. The drafting of Article 35.5 of the 2019 Morocco Model BIT is clearer in this sense, declaring that: ‘Une partie au différend peut demander la récusation d’un arbitre pour des motifs valables, y compris un conflit d’intérêts réel ou apparent’. Article 19.3 of the 2015 India Model BIT states: ‘A disputing party may challenge an arbitrator appointed under this Treaty: (a) if facts or circumstances exist that may, in the eyes of the parties, give rise to justifiable doubts as to the arbitrator’s independence, impartiality or freedom from conflicts of interest (…)’. The latter text is based on Article 12.2 of the UNCITRAL Model Law on International Commercial Arbitration (‘An arbitrator may be challenged only if circumstances exist that give rise to justifiable doubts as to his impartiality or independence, or if he does not possess qualifications agreed to by the parties’). Model Law on International Commercial Arbitration (United Nations Commission on International Trade Law [UNCITRAL]) UN Doc A/40/17, Annex I (updated version). 145 A priori, it is worth noting that Article 8.30 CETA does not expressly allude to well-known and controversial figures in this area such as the issue conflict or repeat appointments. However, it should not be forgotten that the IBA Guidelines, which CETA incorporates by reference, do address these issues. 146 Article 57 of the ICSID Convention: ‘A party may propose to a Commission or Tribunal the disqualification of any of its members on account of any fact indicating a manifest lack of the qualities re-
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2. Challenge Procedure Paragraph 2 of Article 8.30 CETA goes on to state that if a disputing Party considers a Member of the Tribunal to have a conflict of interest, ‘it may invite the President of the International Court of Justice to issue a decision on the challenge to the appointment of such Member’. If this this sentence is compared with the three versions of CETA from 2014, it is clear that a substantial change has taken place in the course of the CETA negotiations. The 2014 versions did not refer to the President of the International Court of Justice as the authority required to issue a decision, 147 but to the Secretary General of ICSID.148 76 If the scope of the analysis is broadened and other recent IIAs that address the question of adjudicator challenges are considered, a lack of uniformity vis-à-vis the authority in charge of issuing a decision on referred challenges becomes evident. 149 While the authority chosen in the EU-Vietnam IPA, EU-Singapore IPA, EU-Mexico Agreement and TTIP is the President of the Tribunal or the President of the Appeal Tribunal,150 the 2015 India Model BIT opts for the Secretary-General of ICSID or the Secretary-General of the Permanent Court of Arbitration – depending on the rules under which the arbitration is submitted,151 and the 2019 Netherlands Model Investment Agreement appoints the President of the International Court of Justice as its selected authority.152 77 The first reaction to this disparity regarding the authority in charge of deciding on adjudicator challenges is that all the aforementioned formulas – including CETA’s – rule out the classic solution in the traditional ICSID mechanism: 75
The decision on any proposal to disqualify a conciliator or arbitrator shall be taken by the other members of the Commission or Tribunal as the case may be, provided that where those members
quired by paragraph (1) of Article 14. A party to arbitration proceedings may, in addition, propose the disqualification of an arbitrator on the ground that he was ineligible for appointment to the Tribunal under Section 2 of Chapter IV.’ Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (International Centre for Settlement of Investment Disputes [ICSID]) 575 UNTS 159. On this issue, Daele, Challenge and disqualification of arbitrators in international arbitration (2012). 147 The references in the Spanish and French versions to ‘el presidente de la Corte Internacional de Justicia’ and ‘le président de la Court internationale de Justice’ should capitalize the words ‘presidente’ ‘président’, as the Statute of the International Court of Justice does. 148 Article 9.21.8 of the 2014 version of the EUSFTA (‘Constitution of Tribunal’) opted for the same option. ICSID’s own website states that: ‘The Secretary-General acts as appointing authority in proceedings not conducted under the ICSID Convention or the Additional Facility Rules, and decides proposals for disqualification of arbitrators, upon request’. In the recent Proposals for Amendment of the ICSID Rules, the Draft on Schedule of Fees indicates that: ‘A non-refundable fee of US$10,000 is payable to the Centre by a party requesting that the Secretary-General decide a disqualification proposal in proceedings not conducted under the ICSID Convention, Additional Facility, Fact-Finding or Mediation Rules’. ICSID, Proposals for Amendment of the ICSID Rules, February 2020, Working Paper #4, Volume 1. 149 In the search for global standardization, it will be relevant to know which option the future multilateral investment tribunal and appellate mechanism opts for. 150 Articles 3.40, 3.11, 12 and 11, respectively. This choice has been harshly criticized: ‘[Article 11 TTIP] imports probably one of ISDS’ most problematic practices in the ICSID context, and that is to have a Judge or Member, the President of the TFI or the Appeal Tribunal, decide on ethical challenges to fellow Judges or Members (Article 11 (2)-(4)) in instances where the challenged individual refuses to resign. Surely that aspect alone falls foul of the Code of Conduct. Note that no possibility of an appeal from, or review of, this decision is provided.’ Sophie Nappert, Escaping from Freedom? The Dilemma of an Improved ISDS Mechanism, The 2015 EFILA Inaugural Lecture, https://efila.org/wp-content/uploads/ 2015/11/Annual_lecture_Sophie_Nappert_full_text.pdf. 151 Article 19.7 referring to Article 18.3 India Model BIT. 152 Article 20.7 2019 of the Netherlands Model Investment Agreement.
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are equally divided, or in the case of a proposal to disqualify a sole conciliator or arbitrator, or a majority of the conciliators or arbitrators, the Chairman of the Administrative Council shall take that decision.153
The author of this comment has developed her critical opinion about the disqualifi- 78 cation mechanism currently in force at ICSID in previous works.154 In short, a system whose starting point is that the individuals charged with making a decision about their challenged colleagues are in fact the unchallenged co-arbitrators is a far cry from being the optimum solution.155 The shadow of endogamy might be one of the reasons why only five out of 76 requests for arbitrator disqualification submitted so far have been successful, according to information provided by ICSID. 156 The fact that the Chairman of the ICSID Administrative Council157 signed three of the successful objections could be interpreted in the same light.158 For these reasons, the fact that the Proposals for Amendment of the ICSID Rules 79 currently under negotiation represent a real effort to modernise the arbitrator disqual153 Articles 58 and 57 of the ICSID Convention and Rule 9 of the Arbitration Rules. This solution is still prioritized in some recent texts, such as the 2019 Morocco Model BIT (Article 35.5) and the 2015 Norway Model Agreement (Article 15). 154 Fach Gómez, ‘Recusación de árbitros: algunas reflexiones en torno a los tribunales de inversiones internacionales’ in Álvarez Zárate and Zenkiewicz (eds), El Derecho Internacional de las Inversiones: Desarrollo actual de normas y principios (2020), forthcoming. 155 The argument is as follows: ‘unchallenged co-arbitrators, who are in most cases responsible for settling challenges brought by parties, may sometimes have erred on the side of leniency when judging their colleagues’ actions or omissions in connection with the duty of disclosure. The author believes that the very wording of ICSID provisions and a sense of endogamy among the somewhat limited group of arbitrators are two factors that may have prevented breaches of this duty from being sanctioned with disqualification’. Fach Gómez, Key Duties of International Investment Arbitrators. A Transnational Study of Legal and Ethical Dilemmas (2019), 193. 156 ICSID, Decisions on Disqualification, https://icsid.worldbank.org/cases/content/tables-of-deci sions/disqualification. These statistics only include challenges that have been handled by ICSID in arbitrations governed by the ICSID Convention. Therefore, successful challenges such as those in Perenco v. Ecuador (challenge decided on by the Secretary General of the Permanent Court of Arbitration, applying the IBA Guidelines and following an Agreement concluded by the parties on October 2, 2008 in ICSID Case No. ARB/08/6) and in CC/Devas v. India (challenge decided on by the President of the International Court of Justice, as established in Article 8(2)(d)(i) of the 2000 BIT Mauritius-India) are not included in these statistics. Perenco Ecuador Ltd. v. Republic of Ecuador and Empresa Estatal Petróleos del Ecuador (Petroecuador), ICSID Case No. ARB/08/6, Decision on Challenge to Arbitrator (8 December 2009), CC/Devas (Mauritius) Ltd., Devas Employees Mauritius Private Limited and Telecom Devas Mauritius Limited v. India, PCA Case No. 2013-09, Decision on the Respondent’s Challenge to the Hon. Marc Lalonde and Prof. Francisco Orrego Vicuña (30 September 2013). 157 Article 5 of the ICSID Convention clarifies that the President of the Bank shall be ex officio Chairman of the Administrative Council. 158 The question arises as to whether the Chairman of the ICSID Administrative Council’s attitude may be more inclined to admit challenges than that of the arbitrators that make up a specific ICSID tribunal. In contrast to a tribunal’s temporary mandate, the President of the ICSID Administrative Council is a senior official with a long-term mandate (five years, renewable), who also has the administrative support of the team of experts making up the ICSID Secretariat. In addition, as seen in Abaclat and Others v. Argentine Republic, ICSID Case No. ARB/07/5, ICSID may request a recommendation on the request for disqualification from a relevant third party outside the ICSID milieu (for example, the Secretary General of the Permanent Court of Arbitration). If these scenarios are compared, one may be led to believe that the outcome of a challenge decided on by the Chairman of the ICSID Administrative Council is more predictable, and that there are fewer possibilities that contradictions will arise. One might therefore speculate that the party in an ICSID arbitration that has resorted to arbitrator challenge has sometimes actually forced the Chairman of the ICSID Administrative Council’s intervention, thus avoiding the co-arbitrators’ intervention in the challenge. This may be achieved, for instance, by presenting a request for disqualification that refers to more than one member of the tripartite panel (‘proposal to disqualify a majority of the Tribunal’), although in reality the real focus of interest was one single member.
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ification mechanism is a positive development.159 The reality, however, is that the content of Article 58 ICSID Convention (‘the decision on any proposal to disqualify a conciliator or arbitrator shall be taken by the other members of the Commission or Tribunal’) is a stumbling block that cannot easily be overcome simply by amending the ICSID Rules.160 Therefore, despite this reform, ICSID will not participate fully in the overall progress made in the issue, the main feature of which is that challenge decisions are either passed on to a higher tier in the hierarchy and/or outsourced to an authority other than the one resolving the investment dispute. This trend is reflected in the drafting of the different versions of CETA, which, as already indicated, have moved from appointing the Secretary General of ICSID161 to appointing the President of the International Court of Justice as competent authority to decide on a challenge against a Member of the Tribunal. 80 A further aspect of Paragraph 2 of Article 8.30 CETA that is worthy of comment is the provision’s use of the modal verb ‘may’ (‘it may invite the President of the International Court of Justice (…)’).162 A different option, which uses the modal verb ‘shall’, appears in the August and September 2014 versions, in the respective Articles of the EU-Vietnam IPA, EU-Singapore IPA, EU-Mexico Agreement and TTIP and the 2019 Netherlands Model Investment Agreement. 163 Although from a grammatical perspective the auxiliary verbs ‘may’ and ‘shall’ involve interpretative differences, the challenge mechanism must in any case be interpreted as an option that the system makes available to the Parties to the dispute. That is, deciding whether or not to recuse an adjudicator is part of the complex procedural strategy of those participating in these international claims in the investment field. This reflection connects with the essence of the current debate surrounding challenges to investment adjudicators. On the one hand, an academic sector and a practitioners’ sector both emphasize the fact 159 The reform seeks to increase the number of cases in which decisions on arbitrator challenges are outsourced and do not fall to the co-arbitrators. See Rule 23 (Decision on the Proposal for Disqualification): ‘(1) The decision on a proposal shall be made by the arbitrators not subject to the proposal or by the Chair in accordance with Article 58 of the Convention. (2) For the purposes of Article 58 of the Convention: (a) if the arbitrators not subject to a proposal are unable to decide the proposal for any reason, they shall notify the Secretary General and they shall be considered equally divided. (…)’ This involves a reinforced intervention by the Chairman of the ICSID Administrative Council (Rule 23: ‘Decision on the Proposal for Disqualification. (2)(b) If a subsequent proposal is filled while the decision on a prior proposal is pending, both proposals shall be decided by the Chair as if they were a proposal to disqualify a majority of the Tribunal’). However, even with the implementation of this proposed reform, there will still be cases in which co-arbitrators will consider themselves able to decide on the challenge proposal. ICSID, Proposals for Amendment of the ICSID Rules, February 2020, Working Paper #4, Volume 1. An study of this proposed reform is contained in: Pita, ‘Sail We Must: Why ICSID Proceedings Should Not Lie At Anchor For Arbitrator Challenges’ (2019) 30 Duke J. Comp. & Int’l L., 163. 160 Noting that amending the Convention would be ‘a rather elaborate and time-consuming process as it requires the consent of all the Member States’. Vidyarthi and Hyatt Khan, ‘Ensuring impartiality in disqualification challenges under the ICSID regime’ (2019) ICCLR, 29 (36). In the same vein, Yarik Kryvoi, ‘ICSID Arbitration Reform: Mapping Concerns of Users and How to Address Them’ (2018), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3280782, 1 (5). 161 In the 2014 versions the system was still structured as an arbitration that also relied on ICSID on various issues. 162 The following texts also favour the use of ‘may’: the February 2014 version of CETA (Article X-10), the ICSID Convention (Article 57); the Proposals for Amendment of the ICSID Rules (Rule 22); the 2019 Morocco Model BIT (Article 35.5), the 2015 Norway Model Agreement (Article 15) and the 2015 India Model BIT (Article 19.3). 163 Article 3.40 EU-Vietnam IPA, Article 3.11 EU-Singapore IPA, Article 13 EU-Mexico Agreement, Article 11 TTIP and Article 20.7 2019 Netherlands Model Investment Agreement.
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that challenges are an unquestionable Party right, a significant manifestation of due process that guarantees the participation of independent adjudicators in the dispute 164 – or, those without conflicts of interest, to use the terminology prioritized by Article 8.30 CETA. A different sector, however, focuses on the dysfunctionalities that the use – and abuse – of the adjudicator challenge mechanism may create. It has thus been expressly pointed out that this challenge is one of the key tools in the ‘guerrilla tactics’ that have infiltrated many arbitral claims regarding international investments. 165 Cases such as ConocoPhillips v. Venezuela166 or Victor Pey Casado v. Chile,167 epitomes of endless sagas of challenges, come to mind in this context. The repeated challenges in these cases did not only generate extremely negative effects vis-à-vis the cost and duration of investment arbitrations, but also with regard to the declining legitimacy of the investment arbitration system in a general sense. Paragraph 2 of Article 8.30 CETA explains the challenge mechanism in more detail, 81 stating that: Any notice of challenge shall be sent to the President of the International Court of Justice within 15 days of the date on which the composition of the division of the Tribunal has been communicated to the disputing party, or within 15 days of the date on which the relevant facts came to its knowledge, if they could not have reasonably been known at the time of composition of the division.
These specifications, together with those in Paragraph 3 of Article 8.30 CETA 82 commented on below, aim to furnish the CETA challenge system with celerity and predictability. As will be explained later, rather than including ground-breaking novelties, such procedure-related sentences instead take from the essence of previous provisions on this matter.168 They incorporate some minor improvements, while sometimes failing to include aspects from a comparative context that would have fitted in well with this Article. Although it is not expressly stated in Article 8.30.2 CETA, the phrase ‘any notice 83 of challenge shall be sent (...)’ should be interpreted in the sense that the ‘disputing party’, who is also the grammatical subject of the previous sentence, is the person in charge of sending the notice of challenge.169 Under CETA the Party has to send the
164 This type of reflection appears in ICSID arbitrations. For example: ‘the challenge of arbitrators is a procedural right of the Parties, granted under the ICSID regime (...) As there are no concrete circumstances indicating the contrary, the exercise of this procedural right cannot be characterized as abusive’. RSM Production Corporation v. Saint Lucia, ICSID Case No. ARB / 12/10, Decision on Claimant’s Proposal for the Disqualification of Dr. Gavan Griffith QC (23 October 2014), para. 75. The connection between the challenge and the duty of disclosure in the of investment arbitration context has been underlined in the academic sphere, with the latter being classified as a ‘life insurance of the arbitration system’ that has a ‘purifying effect’. Fernández Rozas, ‘Contenido ético del deber de revelación del árbitro y consecuencias de su trasgresión’ (2013) 6(3) Revista de arbitraje comercial y de inversiones, 799 (811); Stanic, ‘Challenging Arbitrators and the Importance of Disclosure: Recent Cases and Reflections’ (2009) 16 Croatian Arbitration Yearbook, 205. 165 Greenberg ‘Tackling Guerrilla Challenges Against Arbitrators: Institutional Perspective’ (2010) 7(2) TDM, 1; Luttrell, Bias Challenges in International Commercial Arbitration. The Need for a Real ‘Danger Test’ (2009). 166 ConocoPhillips Petrozuata B.V., ConocoPhillips Hamaca B.V. and ConocoPhillips Gulf of Paria B.V. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/07/30. 167 Victor Pey Casado and President Allende Foundation v. Republic of Chile, ICSID Case No. ARB/98/2. 168 Some academic commentators have alluded to the phenomenon of: ‘“GATSizing”, “NAFTAsizing” and “BITsizing” EU law’. Fernández-Pons, Polanco and Torrent, ‘CETA on Investment: the Definitive Surrender of EU Law to GATS an NAFTA/BITS’ (2017) 54 CMLR, 131. 169 The same interpretation is applicable to Article 3.40 EU-Vietnam IPA, Article 3.11 EU-Singapore IPA, Article 13 EU-Mexico Agreement and Article 11 TTIP.
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notice of challenge170 directly to the President of the International Court of Justice. This structure, in which the interested Party submits its notice to the authority in charge of deciding the challenge without the intervention of intermediaries, is also the option set out in the EU-IIAs examined for comparison here. 171 This system represents a change with respect to ICSID methodology, in which the disputing Party files its proposal with the ICSID Secretary-General, who in turn is responsible for sending it to the authority in charge of deciding on the challenge (either the members of the tribunal or the Chairman of the Administrative Council, depending on the case).172 This direct transmission mechanism, which is outlined in CETA, seems a priori preferable in terms of speed and cost reduction. However, the provision’s current content raises questions as to how the other interested subjects (the challenged Member, the other disputing Party, the division and the Tribunal, at least) will find out about the challenge request. In systems such as ICSID, the agent responsible for transmitting the disqualification proposal is clearly specified (‘The Secretary-General shall forthwith: (a) transmit the proposal to the members of the Tribunal and, if it relates to a sole arbitrator or to a majority of the members of the Tribunal, to the Chairman of the Administrative Council; and b) notify the other party of the proposal’).173 While the recipients of the challenge communication were also expressly indicated in the August and September 2014 versions of CETA, (‘The notice of an intention to challenge shall be promptly communicated to the other disputing party, to the arbitrator or arbitrators, as applicable, and to the Secretary-General of ICSID’), the current version of CETA is silent in this regard. Not only does this not seem to be the best option,174 but it also raises doubts as to whether the disputing Party itself or the President of the International Court of Justice should forward the notice of challenge to the other interested subjects.175 Whoever it is, the task must be undertaken quickly, since the President has to endeavour to issue the decision and to notify it within 45 days of receiving the notice – having previously complied with the due process requirements set out in Article 8.30.3 CETA. 84 The penultimate sentence of Article 8.30.2 CETA reproduces an alternative deadline structure that is not unknown in the sector, having previously been incorporated into texts such as Article 13 UNCITRAL Arbitration Rules176 as well as all the 2014 170 ‘Notice of challenge’ has been translated in the Spanish version of CETA as ‘anuncio de recusación’. It would have been more appropriate to use the term ‘aviso de recusación’ – which is also the notion used by the Italian and French versions of Article 8.30.2 CETA (‘avisso di ricusazione’, ‘avis de contestation’). It seems that by resorting to this terminology, CETA discards the use of the common term within the ICSID context: ‘disqualification proposal’ ‘propuesta de recusación’ (Article 57 of the ICSID Convention). 171 Article 3.40 EU-Vietnam IPA, Article 3.11 EU-Singapore IPA, Article 13 EU-Mexico Agreement and Article 11 TTIP. 172 Rule 9 ICSID Arbitration Rules. ICSID Rules of Procedure for Arbitration Proceedings (April 2006) (hereinafter, ICSID Arbitration Rules or ICSID Rules). 173 Rule 9 ICSID Arbitration Rules. In the same vein, Article 13 of the UNCITRAL Arbitration Rules. UNCITRAL Arbitration Rules. UN Doc A/31/98, 31st Session Supp No 17. 174 Conversely, recent texts such as the 2019 Morocco Model BIT (Article 35.5) and the 2015 India Model BIT (Article 19.4) do specify to whom the notice of challenge should be communicated. 175 If the August and September 2014 versions of CETA are taken as valid references, the person in charge of said communication would have to be the disputing party that wished to initiate the challenging procedure. If the disputing Party were responsible for this communication, it could be done simultaneously so that all interested Parties received the notice of challenge at the same time. 176 Article 13.1 UNCITRAL Arbitration Rules: ‘A party that intends to challenge an arbitrator shall send notice of its challenge within 15 days after it has been notified of the appointment of the challenged arbitrator, or within 15 days after the circumstances mentioned in Articles 11 and 12 became known to that party’. UNCITRAL Arbitration Rules. UN Doc A/31/98, 31st Session Supp No 17.
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versions of the CETA text.177 The CETA drafting is characterized by its focusing on two different dates in the investment dispute resolution procedure (‘the date on which the composition of the division of the Tribunal has been communicated to the disputing party’, and ‘the date on which the relevant facts178 came to its knowledge, if they could not have reasonably been known at the time of composition of the division’), and by stipulating that the said notice of challenge must be sent within one of the two time frames that will be referred to later. This formula seems set to become generalised within the international investment resolution context, since the ICSID reform process currently underway has proposed replacing the controversial wording of its current ICSID Arbitration Rule 9179 (the disqualification proposal should be filed ‘promptly, and in any event before the proceeding is declared closed’) with the following text: Proposal for Disqualification of Arbitrators. (1)(a) The proposal shall be filed after the constitution of the Tribunal and within 21 days after the later of: (i) the constitution of the Tribunal; or (ii) the date on which the party proposing the disqualification first knew or first should have known of the facts on which the proposal is based.180
Where the time frames are concerned the vast majority of texts examined, 181 in- 85 cluding Article 8.30.2 CETA,182 opt to establish a period of 15 days in both cases. Rule 22 (1)(a) reproduced above, which was proposed during the ICSID reform process, breaks with this trend and prefers a slightly longer period of 21 days.183 Paragraph 2 of Article 8.30 CETA ends with this brief sentence: ‘The notice of 86 challenge shall state the grounds for the challenge’. This reference, which appeared in the 2014 versions of CETA, is also included in the EU-IIAs and the Model Agreements alluded to in this commentary.184 A supplemental request has been incorporated into the prospective ICSID Arbitration Rule 22(1)(b):185 ‘the proposal shall include the grounds on which it is based, a statement of the relevant facts, law and arguments, and any supporting documents’.186 The higher level of exigency that derives from Rule
177 The following texts include the same or very similar wording: Article 3.40 EU-Vietnam IPA, Article 3.11 EU-Singapore IPA, Article 13 EU-Mexico Agreement, Article 11 TTIP, Article 20.7 of the 2019 Netherlands Model Investment Agreement, Article 35.5 of the 2019 Morocco Model BIT and Article 19.3 of the 2015 India Model BIT. 178 ‘Relevant facts’ has been translated as ‘hechos pertinentes’, ‘faits pertinents’, y ‘fatti in questione’ in the Spanish, French and Italian version. With regard to the Spanish version, ‘relevante’ and ‘pertinente’ are not synonymous adjectives as indicated by the Real Academia Española de la Lengua (RAE) (Royal Spanish Academy of Language). 179 Levine, ‘Late-in-the-Day Arbitrator Challenges and Resignations’, in Giorgetti (ed) Challenges and Recusals of Judges and Arbitrators in International Courts and Tribunals (2015), 250. 180 Rule 22.1 ICSID Arbitration Rules. ICSID, Proposals for Amendment of the ICSID Rules, February 2020, Working Paper #4, Volume 1. 181 They include Article 3.40 EU-Vietnam IPA, Article 3.11 EU-Singapore IPA, Article 13 EU-Mexico Agreement, Article 11 TTIP, Article 20.7 of the 2019 Netherlands Model Investment Agreement, Article 35.5 of the 2019 Morocco Model BIT and Article 19.3 of the 2015 India Model BIT. 182 The February 2014 version of CETA incorporated a 20-day period. 183 Rule 22.1 ICSID Arbitration Rules. Proposals for Amendment of the ICSID Rules, February 2020, Working Paper #4, Volume 1. 184 Article 3.40 EU-Vietnam IPA, Article 3.11 EU-Singapore IPA, Article 13 EU-Mexico Agreement and Article 11 TTIP. Likewise, Article 20.7 of the 2019 Netherlands Model Investment Agreement, Article 35.5 of the 2019 Morocco Model BIT and Article 19.3 of the 2015 India Model BIT. 185 Current Rule 9 only specifies: ‘stating its reasons therefor’. 186 Rule 22.1 (b) ICSID Arbitration Rules. Proposals for Amendment of the ICSID Rules, February 2020, Working Paper #4, Volume 1.
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22 is to be valued positively,187 as it helps to avoid future delays in the challenge procedure and may also be a factor that prevents frivolous challenges from being presented. It would therefore be advantageous if the CETA Tribunal were as demanding de facto as the future ICSID system with respect to the documentation that the disputing Party has to present at the beginning of a procedure regarding a challenge to a Member of the Tribunal.188 87 Finally, in relation to the notice of challenge, it must be taken into account that Article 8.36(2) CETA specifies that: the notice of intent to challenge a Member of the Tribunal, the decision on challenge to a Member of the Tribunal (…) shall be included in the list of documents to be made available to the public under Article 3(1) of the UNCITRAL Transparency Rules.189
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This measure is undoubtedly positive, as it increases the predictability of the future CETA challenge system.
III. Paragraph 3 of Article 8.30 1. Resignation 89
Paragraph 3 of Article 8.30 CETA opens with the following hypothesis: ‘If, within 15 days from the date of the notice of challenge, the challenged Member of the Tribunal has elected not to resign from the division (…)’. This sentence recognizes the right of a CETA Tribunal Member to resign from the division as a consequence of a challenge request initiated by one of the disputing Parties.190 Although CETA does not provide a precise definition of the notion of resignation, the term is interpreted 187 This recent proposal in the ICSID context may be based on the ICSID Secretary-General’s practice of deciding on challenges in proceedings that are not conducted under the ICSID Convention or the ICSID Additional Facility Rules. In this case: ‘The proposal for disqualification should include the following information and supporting documents: a description of the basis for disqualification; the provision(s) designating the Secretary-General of ICSID as the authority to decide the proposal for disqualification; contact details for all parties to the dispute and tribunal members (i.e., mailing address, e-mail, telephone, fax); and signature of the requesting party or its duly authorized representative. A proposal signed by a representative must enclose proof of the authorization to act, for example, a power of attorney. The proposal for disqualification shall be accompanied by a non-refundable fee of US$10,000 per challenge. This fee covers all disbursements and services rendered in deciding on the proposal for disqualification. The fee should be paid by wire transfer. Wire transfer instructions may be obtained by contacting the ICSID Secretariat by e-mail. The proposal for disqualification should be accompanied by two hard copies for the Centre, one copy for each member of the Tribunal, and as many additional hard copies as there are opposing parties identified in the case. The proposal should also include the same number of electronic devices containing copies of the request and its accompanying documents. (…).’ ICSID, Deciding Challenges, https://icsid.worldbank.org/services/appoi ntments-challenges/deciding-challenges. 188 Perhaps this issue could also be expressly addressed via Article 8.44 CETA. 189 In the same vein, Article 3.46 EU-Vietnam IPA, Article 18 TTIP and Article 19.3 EU-Mexico Agreement (explicitly referring only to the notice of challenge). Article 3.16-Annex 8 EU-Singapore IPA does not refer explicitly to either the notice of intent to challenge or the challenge decision. 190 The same wording appears in Article 3.40 EU-Vietnam IPA, Article 3.11 EU-Singapore IPA, Article 13 EU-Mexico Agreement, Article 11 TTIP and in the Article 20.8 of the 2019 Netherlands Model Investment Agreement Netherlands. The August and September 2014 versions of CETA contained the following text, partially inspired by Article 13.3 of the UNCITRAL Arbitration Rules, which no longer appears in the current CETA version: ‘When an arbitrator has been challenged by a disputing party, the disputing parties may agree to the challenge, in which case the disputing parties may request the challenged arbitrator to resign. The arbitrator may, after the challenge, elect to resign. A decision to resign does not imply acceptance of the validity of the grounds for the challenge’. A similar drafting can still be found in Article 19 of the 2015 India Model BIT.
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to mean the same as that used in the ICSID context, and resignation is therefore understood to differ from other circumstances such as incapacity, inability to perform the duties of his/her office or death, which have involuntary origins. The current version of CETA contains no further stipulations as to the formal characteristics of voluntary resignation,191 how it should be processed, or whether some kind of external consent is required. By way of comparison, the present ICSID system provides more instructions on resignations.192 For instance, Rule 8.2 ICSID Arbitration Rules states that: An arbitrator may resign by submitting his resignation to the other members of the Tribunal and the Secretary-General. If the arbitrator was appointed by one of the parties, the Tribunal shall promptly consider the reasons for his resignation and decide whether it consents thereto. The Tribunal shall promptly notify the Secretary-General of its decision.193
Article 56.3 ICSID Convention complements this by stating that: ‘If a conciliator 90 or arbitrator appointed by a Party shall have resigned without the consent of the Commission or Tribunal of which he was a member, the Chairman shall appoint a person from the appropriate Panel to fill the resulting vacancy’.194 Taking into consideration that there have been and still are cases of resignation in 91 the practice of investment arbitration,195 that these cases are highly controversial and that ICSID’s resignation scheme cannot be fully extrapolated to any interpretation of the CETA provision,196 the latter should address this issue in more detail, as well as the question of vacancies in the division, which will be alluded to later (→ mn. 97-101).
191 Article 9 of the 2019 CETA draft code of conduct does require from the mediator ‘a written declaration resigning from his or her duties’. European Council, Draft Decision of the Committee on Services and Investment adopting a code of conduct for Members of the Tribunal, Members of the Appellate Tribunal and mediators, ST 6966 2020 INIT, 7 May 2020. 192 The Proposals for Amendment of the ICSID Rules contain the following Rule 25 (Resignation): ‘(1) An arbitrator may resign by notifying to the Secretary-General and the other members of the Tribunal and providing reasons for the resignation. (2) If the arbitrator was appointed by a party, the other members of the Tribunal shall promptly notify the Secretary-General whether they consent to the arbitrator’s resignation for the purposes of Rule 26(3)(a).’ ICSID, Proposals for Amendment of the ICSID Rules, February 2020, Working Paper #4, Volume 1. 193 As Levine indicates, this provision can help curb the ‘suspect resignations’ that usually come about late in proceedings. Levine, ‘Late-in the-Day Arbitrator Challenges and Resignations’, in Giorgetti (ed) Challenges and Recusals of Judges and Arbitrators in International Courts and Tribunals (2015), 247 (287). This is not, however, the typical factual assumption provided by Article 8.30 CETA, in which resignation is a quick response to a notice of challenge that has been sent as soon as possible, as already stated. The approach outlined initially is still present, however, in the UNCITRAL Working Group III context: ‘It was suggested that there should be limitations as well as sanctions regarding resignation of arbitrators (for example, only upon authorization), as it could delay the proceedings significantly’. UNCITRAL Working Group III. Report on the work of its thirty-eighth session (Vienna, 14-18 October 2019), 23 October 2019 A/CN.9/1004, para. 59. 194 Article 56.3 ICSID Convention is an exception to the basic rule in Article 15.2 ICSID Convention: ‘In case of death or resignation of a member of a Panel, the authority which designated the member shall have the right to designate another person to serve for the remainder of that member’s term’. Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (International Centre for Settlement of Investment Disputes [ICSID]) 575 UNTS 159. 195 Some of these cases are referred to in: Judith Levine, ‘Symposium: A Focus on Ethics in International Courts and Tribunals. Ethical Dimensions of Arbitrator Resignations’, (2019) 113 AJIL, 5. 196 For instance, depriving a Party of the right to appoint a substitute arbitrator when the partyappointed arbitrator has resigned without the co-arbitrators’ consent, as laid down in Article 56.3 ICSID Convention, is the kind of sanction that has no place in the current CETA scheme, in which party-appointed adjudicators no longer exist.
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Article 8.44(1) and (3) CETA may be the mechanism that enables issues that are currently only sketched out in the Agreement to develop more fully in the future. 197 92 Another issue to note regarding the opening sentence of Article 8.30.3 CETA (‘If, within 15 days from the date of the notice of challenge, the challenged Member of the Tribunal has elected not to resign from the division’) refers to the 15-day period established there. The reference to the ‘date of the notice of challenge’ suggests that the 15-day deadline begins from the point at which the disputing Party sends a notice of challenge to the President of the International Court of Justice, fulfilling the requirement in Article 8.30.2 CETA. Should the challenged Member become aware of the notice later on, a possibility that has already been suggested here, the subsequent notification date, i.e. the date on which the notice of challenge is received, would not seem to be relevant for calculating the 15-day period. This interpretation would mean that the challenged adjudicator has even less time to decide whether to resign or not.
2. Decision on Challenge 93
Paragraph 3 of Article 8.30 CETA goes on to state that: ‘(…) the President of the International Court of Justice may, after receiving submissions from the disputing parties and after providing the Member of the Tribunal an opportunity to submit any observations, issue a decision on the challenge’. This sentence raises some issues of interpretation, such as the following: First, if the challenge mechanism follows its logical path, this sentence refers to interventions by both the disputing Parties and the challenged arbitrator. Not only is the Member of the Tribunal’s submission understood to be optional (‘an opportunity to submit’),198 but also that of the disputing Party who did not initiate the challenge. In fact, the current ICSID Arbitration Rule 9 does not even expressly provide for such intervention on the part of the other Party; the only requisite that this Rule establishes vis-à-vis the non-challenging Party is that the Secretary-General provide notification of the disqualification proposal. Second, the reference in Article 8.30.3 CETA to ‘any observations’ on the part of a challenged Member suggests that the length and content of his/her submission is not subject to any limits. The proposed wording of Rule 22 of the amendment of the ICSID Rules is more restrictive, however: ‘the arbitrator to whom the proposal relates may file a statement that is limited to factual information relevant to the proposal’. 199 The rationale for this restrictive ICSID approach, a priori hardly justifiable, can be found in the pre-eminence of the principle of urgency that should inspire the entire procedure. Third, Article 8.30.3 CETA’s use of a plural (‘submissions from the disputing parties’) begs the question with regard to the challenging Party as to whether the Article is 197 Article 8.44 CETA (Committee on Services and Investment): ‘1. The Committee on Services and Investment shall provide a forum for the Parties to consult on issues related to this Chapter, including: (…) (b) possible improvements of this Chapter, in particular in the light of experience and developments in other international fora and under the Parties’ other agreements (…) 3. The Committee Services and Investment may, on agreement of the Parties, and after completion of their respective internal requirements and procedures: (…) (b) adopt and amend rules supplementing the applicable dispute settlement rules, and amend the applicable rules on transparency. These rules and amendments are binding on the Tribunal established under this Section (…) (e) make recommendations to the CETA Joint Committee on the functioning of the Appellate Tribunal pursuant to Article 8.28.8 (…).’ 198 In the same vein, Rule 9 ICSID Rules states that: ‘The arbitrator to whom the proposal relates may (…)’. 199 Rule 22(1)(d). ICSID, Proposals for Amendment of the ICSID Rules, February 2020, Working Paper #4, Volume 1.
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simply referring to the original notice of challenge again, or whether the challenging Party in fact has to submit a second submission to the President of the International Court of Justice. If this is so, the second submission would supposedly develop content that were merely outlined in the initial notice, and provide documentary support. Rule 22 of the on-going amendment of the ICSID rules is oriented towards this possibility, establishing that each disputing Party may intervene twice during the challenge procedure. That is, apart from the disqualification proposal and its response, ‘each party may file a final written submission on the proposal’.200 Fourth, in addition to the speculations stemming from the wording of Article 8.30.3 CETA, the reality is that this provision is extremely sparse in its specifications for the features of the challenge procedure.201 For example, it does not specify whether the reasoning behind the decision must be provided or not. Likewise, no time frame for subjects’ interventions is established, in contrast to the detailed information in the future Rule 22 ICSID: (c) the other party shall file its response and supporting documents within 21 days after receipt of the proposal’, the arbitrator’s statement ‘(d) shall be filed within five days after receipt of the response’ (d) (e) each party may file a final written submission of the proposal within seven days after the earlier of receipt of the statement or expiry of the time limit referred to in paragraph (1)(d).202
Details of this type are understood to facilitate the processing of the challenge 94 mechanism, and they are absent from CETA. Another important question raised by this sentence in Article 8.30.3 CETA is how 95 the use of the verb ‘may’ should be interpreted in this context (‘The President of the International Court of Justice may (…) issue a decision on the challenge’). Unlike the ‘may’ used in the current version of CETA, the other texts consulted use verb ‘shall’. 203 Making the President’s intervention merely optional does not promote legal certainty, transparency and celerity. The reference to the President in Article 8.30.3 CETA is also understood to have been agreed on previously at institutional level. It would not therefore seem logical if, after being cited in the text of the Agreement, in practice the President were to decide not to issue a decision on a CETA Tribunal challenge. All of which leads to the conclusion that using the verb ‘may’ in this context is not the best option. Despite the Article’s literal wording, interpreting it to mean that the President of the International Court of Justice has the obligation to intervene is also a better match with the content of the next sentence in Article 8.30.3 CETA. Paragraph 3 goes on to specify that: ‘The President of the International Court of 96 Justice shall endeavour to issue the decision and to notify the disputing parties and the other Members of the division within 45 days of receipt of the notice of challenge’. In this sentence the verb once again gives the reader pause for thought. ‘Shall endeavour to’ is less imperative wording than that used in other texts (such as ‘shall’ in the
200 Rule 22(1)(e). ICSID, Proposals for Amendment of the ICSID Rules, February 2020, Working Paper #4, Volume 1. 201 This issue might also be solved via Article 8.44 CETA. 202 Rule 22. Proposal for Disqualification of Arbitrators. ICSID, Proposals for Amendment of the ICSID Rules, February 2020, Working Paper #4, Volume 1. According to ICSID’s own explanations, the rules ‘stipulate[s] an expedited schedule for parties filing a challenge’. ICSID Secretariat, Proposals for Amendment of the ICSID Rules, August 2018, Working Paper #1 (Synopsis), 5. 203 They include the February, August and September 2014 versions of CETA, the respective Articles of the EU-Vietnam IPA, EU-Singapore IPA, EU-Mexico Agreement and TTIP, the ICSID Arbitration Rules, the Proposals for Amendment of the ICSID Rules, the 2019 Netherlands Model Investment Agreement, the 2019 Morocco Model BIT, and the 2015 India Model BIT.
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EU-IIAs,204 in the 2014 versions of CETA and the 2019 Netherlands Model Investment Agreement205). The wording chosen for CETA, in which the President is only asked to try to issue the decision within the period within the 45-day period referred to, recalls the current wording of Rule 9.5 ICSID Rules (‘shall use his best efforts’), which also foresees possible delays in the period initially set in the Article.206 Article 8.30.3 CETA establishes 45 days from the time the President receives the notice of challenge, and the same time period appears in the EU-IIAs,207 the August and September 2014 versions and the 2019 Netherlands Model Investment Agreement. 208 The February 2014 version shortened this term to 30 days, as do the current ICSID Rule 9 and the proposed ICSID Rule 23.209 97 The third paragraph of Article 8.30 CETA ends with the following sentence: ‘A vacancy210 resulting from the disqualification or resignation of a Member of the Tribunal shall be filled promptly’.211 This text must be read in conjunction with Article 8.27 CETA, which refers to the Tribunal of First Instance (Article 8.27(5): ‘Vacancies shall be filled as they arise. A person appointed to replace a Member of the Tribunal whose term of office has not expired shall hold office for the remainder of the predecessor’s term’, and also with the following text in Article 8.28 CETA referring to the Appellate Tribunal (Article 8.28(7)): ‘The CETA Joint Committee shall promptly adopt a decision setting out the following administrative and organisational matters regarding the functioning of the Appellate Tribunal: (…) (c) procedures for filling a vacancy on the Appellate Tribunal and on a division of the Appellate Tribunal constituted to hear a case’.212 By way of a reminder, the CETA Tribunal is formed as follows (Article 8.27(2) and (5)): The CETA Joint Committee shall, upon the entry into force of this Agreement, appoint 15 Members of the Tribunal. Five of the Members of the Tribunal shall be nationals of a Member State of the European Union, five shall be nationals of Canada [Either Party may instead propose to appoint up to five Members of the Tribunal of any nationality. In this case, such Members of the Tribunal shall be considered to be nationals of the Party that proposed his or her appointment for 204 Article 3.40 EU-Vietnam IPA, Article 3.11 EU-Singapore IPA, Article 13 EU-Mexico Agreement, and Article 11 TTIP. 205 Article 20.8 of the 2019 Netherlands Model Investment Agreement. 206 The wording of Rule 9.5 only refers to cases in which the ICSID Chairman has to decide on a proposal to disqualify an arbitrator. When it is the unchallenged members who are to decide, Rule 9.4 establishes that ‘they shall promptly consider and vote on the proposal in the absence of the arbitrator concerned’. The proposed Rule 23 ICSID, which no longer distinguishes between decisions made by arbitrators not subject to the disqualified proposal and by the Chair, uses the following wording: ‘shall use best efforts to decide any proposal’. ICSID, Proposals for Amendment of the ICSID Rules, February 2020, Working Paper #4, Volume 1. 207 Article 3.40 EU-Vietnam IPA, Article 3.11 EU-Singapore IPA, Article 13 EU-Mexico Agreement, and Article 11 TTIP. 208 Article 20.8 of the 2019 Netherlands Model Investment Agreement. 209 According to this proposal the 30-day period will start: ‘after the later of the expiry of the time limit referred to in Rule 22(1)(e) or the notice in Rule 23(2)(a)’. ICSID, Proposals for Amendment of the ICSID Rules, February 2020, Working Paper #4, Volume 1. 210 The use of the definite Article (‘la vacante’) in the Spanish version is not justified when other versions use the indefinite (‘a vacancy’, ‘un poste qui deviant vacant’ ‘eine frei gewordene Stelle’). The change in the structure of the sentence in the Italian version is also difficult to understand. (‘Il membro del tribunale ricusato o dimissionario è sostituito senza indugio’). 211 The same wording appears in Article 20.8 of the 2019 Netherlands Model Investment Agreement. 212 In this vein, the 2018 European Commission document entitled ‘Revised draft decisions’ states that: ‘Vacancies in the Appellate Tribunal shall be filled as they arise’. European Commission, Revised draft decisions on the appellate tribunal, the code of conduct and the rules for mediation for the implementation of the Investment Court System (ICS) under CETA as sent to Canada, 25 July 2018, WK 9338/2018 INIT, 4.
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the purposes of this Article ] and five shall be nationals of third countries. (…) The Members of the Tribunal appointed pursuant to this Section shall be appointed for a five-year term, renewable once. However, the terms of seven of the 15 persons appointed immediately after the entry into force of this Agreement, to be determined by lot, shall extend to six years (…). 213
The other EU-IIAs examined here have a somewhat different vacancy structure. 98 None of them includes the reference in Article 8.30.3 CETA on how to fill a vacancy arising from the disqualification or resignation of a Member of the Tribunal. The wording in the EU-Vietnam IPA, EU-Singapore IPA, EU-Mexico Agreement and 2016 EU-Japan FTA regarding the vacancies of both the Tribunal of First Instance and the Appeal Tribunal is as follows in all cases: ‘Vacancies shall be filled as they arise. A person appointed to replace a person whose term of office has not expired shall hold office for the remainder of the predecessor's term’. These IIAs only allude to the application of these precepts for filling vacancies that may arise in case of the removal of an adjudicator.214 For their part, the Articles on the ‘Constitution of the Tribunal’ (X.25) in the Au- 99 gust and September 2014 versions of CETA, which still revolved around the figure of the party-appointed arbitrator, stated that: ‘A vacancy resulting from the disqualification or resignation of an arbitrator shall be filled promptly pursuant to the procedure provided for in this Article’. That is, the provision itself specified that: (…) One arbitrator shall be appointed by each of the disputing parties and the third, who will be the presiding arbitrator, shall be appointed by agreement of the disputing parties. If the disputing parties agree to appoint a sole arbitrator, the disputing parties shall seek to agree on the sole arbitrator. If a Tribunal has not been constituted within 90 days from the date that a claim is submitted to arbitration, or where the disputing parties have agreed to appoint a sole arbitrator and have failed to do so within 90 days from the date the respondent agreed to submit the dispute to a sole arbitrator, the Secretary-General of ICSID shall appoint the arbitrator or arbitrators not yet appointed in accordance with paragraph 3.
The current ICSID Arbitration Rules, which also structure the system around 100 arbitrators appointed by the Parties to the dispute, contains Rule 11 entitled ‘Filing Vacancies on the Tribunal’,215 and Rule 26 in the Proposals for Amendment of the ICSID Rules is devoted to ‘Vacancy on the Tribunal’.216 These two texts share a system of filling vacancies that refers back to the method by which the original appointment was made (that is, arbitrator(s) appointed by the Parties’ agreement; or failing that, one arbitrator appointed by each Party and the third, who will be president of the Tribunal, appointed by agreement of the Parties; or if the latter is not possible, at the request of either Party and after consulting both Parties as far as possible, the Chairman must appoint the arbitrator or arbitrators that have not yet been appointed). Both texts also specify the cases in which the Chairman of the Administrative Council must appoint an individual from the Panel of Arbitrators. These texts ultimately establish mechanisms to cover vacancies arising from the 101 disqualification or resignation of an adjudicator which are consistent with the way in which the adjudicator was initially chosen. Furthermore, all these texts, including CETA, contain logical indications about the speed with which these mechanisms Article 8.27 CETA. TTIP also includes this sentence regarding the Tribunal of First Instance and the Appeal Tribunal: (‘Vacancies shall be filled as they arise. A person appointed to replace a person whose term of office has not expired shall hold office for the remainder of the predecessor's term’), but it makes no reference to how fill a vacancy either for reasons of disqualification, resignation or removal. 215 Rule 11 of the ICSID Rules of Procedure for Arbitration Proceedings (April 2006). 216 ICSID, Proposals for Amendment of the ICSID Rules, February 2020, Working Paper #4, Volume 1. 213
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should be implemented (‘promptly’). It is imperative for vacancies to interfere as little as possible with the smooth running and completion of investment disputes. 217
IV. Paragraph 4 of Article 8.30 Paragraph 4 of Article 8.30 CETA states: ‘Upon a reasoned recommendation from the President of the Tribunal, or on their joint initiative, the Parties, by decision of the CETA Joint Committee, may remove a Member from the Tribunal where his or her behaviour is inconsistent with the obligations set out in paragraph 1 and incompatible with his or her continued membership of the Tribunal’. This text, whose wording is somewhat convoluted,218 establishes a mechanism for removing CETA adjudicators that might be partially based on provisions such as Article 46 of the Rome Statute of the International Criminal Court.219 103 Article 8.30.4 CETA provides for two possible ways of initiating the removal procedure: either by reasoned recommendation from the President of the CETA Tribunal 220 or a joint initiative from the Parties to CETA221 – that is, Canada and the European 102
217 Some authors have proposed incorporating the figure of the emergency arbitrator in the context of the – usually lengthy – process of constituting ICSID tribunals. Butler, Treating the symptoms rather than the cause: a critique of ICSID’s 2018 rule amendment proposals (2019) Int’l Trade L. Regul. 117 (129). Perhaps the use of emergency arbitrators at other points after the constitution of the panel might also be explored. 218 A first reading of the beginning of this paragraph could raise the question as to whether the CETA Joint Committee only has to issue a decision if the removal has been initiated on the Parties’ joint initiative or whether the Committee also has to issue a decision if President of the Tribunal the has initiated the removal. Article 8.2 of the 2019 CETA draft code of conduct, which will be analysed later, lends weight to the second option. European Council, Draft Decision of the Committee on Services and Investment adopting a code of conduct for Members of the Tribunal, Members of the Appellate Tribunal and mediators, 7 May 2020, ST 6966 2020 INIT. 219 Article 46 of the Rome Statute (Removal from Office): ‘1. A judge, the Prosecutor, a Deputy Prosecutor, the Registrar or the Deputy Registrar shall be removed from office if a decision to this effect is made in accordance with paragraph 2, in cases where that person: (a) Is found to have committed serious misconduct or a serious breach of his or her duties under this Statute, as provided for in the Rules of Procedure and Evidence; or (b) Is unable to exercise the functions required by this Statute. 2. A decision as to the removal from office of a judge, the Prosecutor or a Deputy Prosecutor under paragraph 1 shall be made by the Assembly of States Parties, by secret ballot: (a) In the case of a judge, by a two-thirds majority of the States Parties upon a recommendation adopted by a two-thirds majority of the other judges; (b) In the case of the Prosecutor, by an absolute majority of the States Parties; (c) In the case of a Deputy Prosecutor, by an absolute majority of the States Parties upon the recommendation of the Prosecutor. 3. A decision as to the removal from office of the Registrar or Deputy Registrar shall be made by an absolute majority of the judges. 4. A judge, Prosecutor, Deputy Prosecutor, Registrar or Deputy Registrar whose conduct or ability to exercise the functions of the office as required by this Statute is challenged under this article shall have full opportunity to present and receive evidence and to make submissions in accordance with the Rules of Procedure and Evidence. The person in question shall not otherwise participate in the consideration of the matter.’ UN General Assembly, Rome Statute of the International Criminal Court (last amended 2010), 17 July 1998. 220 When this reasoned recommendation was issued, the President could have been assisted by the Consultative Committee referred to in Article 10 of the 2019 CETA draft code of conduct. European Council, Draft Decision of the Committee on Services and Investment adopting a code of conduct for Members of the Tribunal, Members of the Appellate Tribunal and mediators, 7 May 2020, ST 6966 2020 INIT. 221 The Italian version of Article 8.30.4 writes ‘parti’ in lowercase, as opposed to the other versions, which use uppercase. This could lead readers to the mistaken belief that the article actually refers to
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Union and its Member States,222 which in turn is reflected in a decision of the CETA Joint Committee.223 The initiative may therefore be launched either from within the CETA Tribunal itself or from the CETA Parties – that is, a non-judicial body. 224 For an active CETA Member to be removed, his or her behaviour must be inconsistent with the obligations of Article 8.30.1 CETA and also incompatible with continued membership of the Tribunal.225 It must therefore violate the ethical obligations of CETA adjudicators226 – which, it should not be forgotten, also includes the IBA Guidelines, and must be such that it cannot be put right in a way that would allow the Member in question to continue with his or her CETA appointment. Challenges, which are regulated in the two preceding paragraphs of CETA, and 104 removals, which are regulated in Paragraph 4, have a common purpose. Both are mechanisms for sanctioning CETA adjudicators with the aim of protecting and guaranteeing the CETA Tribunal’s permanence and reputation. Nevertheless, there are significant differences between these two control mechanisms: in contrast to removal, a challenge refers solely to one particular case among those assigned to the adjudicator, the mechanism must be initiated by a disputing Party in the case, and a specific disqualification does not deprive the adjudicator of his or her membership
the ‘disputing parties’ (called, ‘le parti della controversia’ in Italian) instead of referring to Canada and the European Union and its Member States. Terminology like 'Vertragsparteien', used in the German version of Article 8.30.4, bypasses such possible doubts. 222 Article 3.11.5 EU-Singapore IPA does not provide for the possibility of the Parties setting the removal mechanism in motion, ‘on their own initiative’. 223 Article 26.1 CETA:‘Joint Committee: The Parties hereby establish the CETA Joint Committee comprising representatives of the European Union and representatives of Canada. The CETA Joint Committee shall be co-chaired by the Minister for International Trade of Canada and the Member of the European Commission responsible for Trade, or their respective designees’. Several organizations have directed harsh criticism at the way in which CETA structures and presents this Committee: ‘The CETA Joint Committee has several important powers, but there are no rules which determine how the Committee can be publically held accountable for its decisions, nor are there any clear rules on its composition, decision making, and transparency (…) These factors contribute to making ICS unpredictable and potential prey to influences seeking to undermine public interest decision making processes. The powers of the CETA Joint Committee are problematic because it can change features of the agreement without democratic oversight or accountability and undermine the power of courts to interpret EU law.’ BEUC et al, Joint Analysis of CETA’s Investment Court System (ICS). Prioritising Private Investment over Public Interest, July 2016, https://epha.org/wp-content/uploads/2016/07/Joint-Analysis -CETA-ICS-1.pdf. 224 The Kingdom of Belgium raised doubts in the European Court of Justice regarding the characteristics of the removal under CETA, considering that: ‘it follows from the European Charter on the statute for judges and from the recommendations of the CCJE that any decision to remove a judge must involve an independent body, be given in accordance with a fair procedure that respects the rights of defense, and be open to an appeal before a higher judicial body. In any event, in order to guarantee the independence of judges, it should not be possible for them to be removed by the executive’. The Court dismissed the doubts. CJEU, Opinion 1/17, 30 April 2019, Accord ECG UE-Canada, ECLI:EU:C:2019:341, para. 65. 225 The English version uses two different adjectives to describe behaviour that would lead to removal: ‘inconsistent with the obligations set out in paragraph 1 and incompatible with his or her continued membership of the Tribunal’. The same dichotomy holds in the French version (‘n’est pas conforme (…) et est incompatible’) and in the German version (‘nicht (…) entspricht und (…) unvereinbar ist’). The Spanish and Italian versions, on the other hand, use one single adjective (‘sea incompatible con (…) y con (….)’; and ‘sia incompatibile con (…) e con’). 226 In relation to the MIC – and translatable to this analysis of CETA – scholars have pointed out that removal would be justified ‘in the event of serious breaches, such as a breach of confidentiality or the delegation of judicial tasks to employees’. Bungenberg and Reinisch, From Bilateral Arbitral Tribunals and Investment Courts to a Multilateral Investment Court. Options Regarding the Institutionalization of Investor-State Dispute Settlement (2020), 50.
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of the Tribunal.227 The fact that it is the last paragraph of Article 8.30.4 CETA 228 that incorporates the removal mechanism229 may be understood to be a sign that there are situations in which disqualification falls short. It may also reflect a lack of faith in voluntary compliance – in the form of resignation – as a sufficiently effective mechanism for protecting CETA adjudicators’ adequacy in terms of ethics. 105 The 2014 versions of CETA do not address the removal mechanism230 and the current Article 8.30 on ‘Ethics’ is the first time that this issue has been referred to in the Canada-EU context.231 This inclusion is clearly a step in the right direction, since it provides an additional tool when it comes to guaranteeing the ethical standards of CETA adjudicators, who have long-term appointments and are part of an institution with a vocation for permanence.232 Nevertheless, if this text of Article 8.30.4 CETA is compared with other EU IIAs, the latter go into more detail and take into account certain circumstances that should have been clarified in Article 8.30.4 CETA. Article 3.40.5 EU-Vietnam IPA, Article 3.11.5 EU-Singapore IPA and Article 13.5 EU-Mexico Agreement233 prefer the reasoned recommendation to come from the President of the Appeal Tribunal and stipulate that ‘if the behaviour in question is alleged to be that of the President of the Appeal Tribunal then the President of the Tribunal shall submit the reasoned recommendation’. These three Articles also expressly provide for the possibility that it is a Member of the Appeal Tribunal and not a Member of the Tribunal who is the object of the removal. The same is understood to occur in the CETA context, but to arrive at this conclusion, even in a roundabout way, readers need to refer to Article 8.28.4 CETA: ‘The Members of the Appellate Tribunal shall meet the requirements of Article 8.27.4 and comply with Article 8.30’. Finally, unlike the three EU IIAs mentioned above, Article 8.30.4 CETA does not specify whether or not the paragraphs regarding vacancies in the Articles on the Tribunal and the Appeal Tribunal ‘shall apply mutatis mutandis for filling vacancies that may arise pursuant to this paragraph’. 106 Likewise, if the provisions that other international tribunals devote to the removal of their members are analysed, they also suggest that the mechanism indicated by 227 However, there can be links between these two procedures; for example, an – unfairly – unsuccessful challenge might be a ‘red flag’ that triggers the removal mechanism. 228 In this sense, Paragraphs 2 and 3 of Article 8.30 CETA on the one hand and 4 on the other, would represent some kind of grading in the severity of the sanction. This would be in line with the position adopted by UNCITRAL Working Group III in support of the fact that ‘different types of sanctions would be provided, depending on the type of non-compliances’. UNCITRAL Working Group III. Report on the work of its thirty-eight session (Vienna, 14-18 October 2019), 23 October 2019, A/CN.9/1004, para. 77. 229 Time will tell whether this sanction mechanism is applied more frequently in the CETA context than it has been in other international courts. As UNCITRAL Working Group III stated: ‘It may also be noted that although rarely used, institutional rules typically provide for the power of the institution to revoke an arbitrator who is unwilling or unable to discharge her or his duties in accordance with the rules’. UNCITRAL Working Group III, Possible reform of investor-State dispute settlement (ISDS). Background information on a code of conduct. Note by the Secretariat, 31 July 2019, A/CN.9/WG.III/ WP.167, para. 60. 230 The recent Model Agreements referred to here do not address the issue of adjudicator removal either (2019 Netherlands Model Investment Agreement, 2019 Morocco Model BIT, 2015 Norway Model Agreement, and 2015 India Model BIT). 231 The 2019 CETA draft of code of conduct also fails to address this issue. European Council, Draft Decision of the Committee on Services and Investment adopting a code of conduct for Members of the Tribunal, Members of the Appellate Tribunal and mediators, 7 May 2020, ST 6966 2020 INIT. 232 Possibly through the establishment of a multilateral investment tribunal and appellate mechanism (Article 8.29 CETA). 233 Article 11 TTIP contains no paragraph 5 in its article on ethics, so the question of adjudicator removal is not expressly addressed.
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Article 8.30.4 CETA requires greater clarification. For example, CETA’s brief Section 4 fails to specify either how much room for manoeuvre – if any – a Member with a removal pending has, or what his or her rights of defence are. Instead, within the framework of the dismissal234 provided for in Article 18 of the Statute of the International Court of Justice,235 Article 6 of the Rules of the Court specifies that: In any case in which the application of Article 18 of the Statute is under consideration, the Member of the Court concerned shall be so informed by the President or, if the circumstances so require, by the Vice-President, in a written statement which shall include the grounds therefor and any relevant evidence. He shall subsequently, at a private meeting of the Court specially convened for the purpose, be afforded an opportunity of making a statement, of furnishing any information or explanations he wishes to give, and of supplying answers, orally or in writing, to any questions put to him.236
The Parties to the CETA Agreement seem to have perceived Article 8.30.4’s short- 107 comings,237 and perhaps for this reason paragraph 2 of Article 8 of the 2019 CETA draft code of conduct, entitled ‘Sanctions’, declares that: ‘For greater certainty, the CETA Joint Committee shall provide a Member the opportunity to be heard prior to the issuance of any decision pursuant to Article 8.30.4 of the Agreement’. 238 Article 8.1 of the 2019 CETA draft code of conduct is forcefully worded when 108 it comes to underlining the fact that adjudicators’ non-compliance with the code of conduct entails sanctions such as disqualification or removal: ‘Sanctions. 1. For greater certainty, the provisions of this code of conduct shall be applied together with the obligations set out in Article 8.30.1 of the Agreement and the procedures provided for in Article 8.30 paragraphs 2 and 3 and Article 8.30.4 of the Agreement shall apply to violations of this code of conduct’ It is worth noting that the Article on sanctions of the CETA draft code of conduct has no counterpart in the codes of conduct of the other EU IIAs analysed throughout this commentary.239 The 2020 ICSID-UNCITRAL Draft Code of Conduct for Adjudicators in Investor-State Dispute Settlement devotes Article 12 to the Enforcement of the Code of Conduct, but the provision currently contains a very short generic text that is still in the process of being finalised. 240 The vigorous wording of Article 8.1 of the 2019 CETA draft code of conduct is in line with the on-going deliberations in the framework of the UNCITRAL Working Group III, 234 The different terminology used in these texts to refer to this type of phenomenon (removal, dismissal, revoke, etc.) sometimes complicates the tasks of interpretation and comparison. 235 Article 18.1 of the Statute of the ICJ: ‘No member of the Court can be dismissed unless, in the unanimous opinion of the other members, he has ceased to fulfill the required conditions’. United Nations, Statute of the International Court of Justice, 18 April 1946. Section IV subsection 1 of the Rules of Procedure and Evidence of the International Criminal Court, entitled ‘Removal from office and disciplinary measures’ offers a series of rules detailing key definitions, rights of the defence and procedure. 236 Rules of the International Court of Justice, 1 July 1978. 237 The details of the application of Article 8.30.4 CETA may be further determined through the mechanisms provided in Article 8.44 CETA. 238 European Council, Draft Decision of the Committee on Services and Investment adopting a code of conduct for Members of the Tribunal, Members of the Appellate Tribunal and Mediators, 7 May 2020, ST 6966 2020 INIT. This wording was included in the 2018 CETA draft code of conduct (Article 9.2) European Commission, Revised draft decisions on the appellate tribunal, the code of conduct and the rules for mediation for the implementation of the Investment Court System (ICS) under CETA as sent to Canada, 25 July 2018, WK 9338/2018 INIT. 239 That is, there are no articles on sanctions in the codes of conduct in: Annex 11 EU-Vietnam IPA, Annex 7 EU-Singapore IPA, Annex 1. Section 19 EU-Mexico Trade Agreement or Annex II Chapter 2 TTIP. 240 ICSID and UNCITRAL, Draft Code of Conduct for Adjudicators in Investor-State Dispute Settlement, 2020, https://uncitral.un.org/en/codeofconduct.
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which are likely to guarantee the successful enforcement of its prospective Code of Conduct for Adjudicators in Investor-State Dispute Settlement. 241
V. Conclusion Although Article 8.30 CETA on ethics contains little over 400 words, it has given rise to a legal commentary that, while never intended to be exhaustive, has nevertheless turned out to be far longer. As the ‘Spirit and Purpose’ section anticipates, Article 8.30 CETA may be viewed as a compact star that is ready to expand in a universe in which ethical challenges to investment adjudicators are becoming increasingly systemised throughout various highly diverse galaxies (UNCITRAL, ICSID, IIAs, Model Agreements, etc.). 110 The drafting history of Article 8.30 CETA, whose wording became more protracted as respective versions of CETA came to fruition, is a clear example of the growing interest aroused by ethical issues emerging in the investment dispute field in recent years. The fact that the notion of ‘adjudicator ethics’ is frequently used nowadays seems to be an implicit recognition that a kind of framework of stable consensuses exists in this matter. On the other hand, not so long ago, the ethical issues generated during the exercise of investment arbitration failed to carry much specific weight in the legal field, being pushed into the background whenever possible. Within this development framework, Article 8.30 CETA represents an outstanding contribution in a highly promising legal sector. 111 To sum up, Article 8.30.1 CETA opens with a requirement for independence on the part of Members of the Tribunal and the Appellate Tribunal. It bans these adjudicators from having any governmental affiliation and from taking instructions from others with regard to matters related to disputes. It also instructs Members on avoiding conflicts of interest, explicitly requiring them to comply with the ethical rules derived from the IBA Guidelines on Conflicts of Interest and supplemental rules such as a CETA Code of Conduct. Finally, the first paragraph takes a stand against double hatting. Paragraphs 2 and 3 of Article 8.30 CETA affirm the right of any of the disputing Parties to demand the replacement of a Member of the Tribunal if a conflict of interest is felt to be involved. These two paragraphs outline – not always in much detail – the CETA challenge procedure that could end in an adjudicator’s disqualification. Paragraph 4 of this provision includes a stricter sanction, removal, which would deprive the CETA adjudicator of his or her membership of the Tribunal. 112 The CETA provision on ‘Ethics’ must be seen as one of the many pieces that the European Union has relied on to carry out its objective of shelving the traditional ISDS and paving the way for a Multilateral Investment Court. In this sense, putting the ethical rules that the Members of the CETA Tribunal and the Appellate Court must comply with in writing is an effective way of announcing that these individuals are not expected to commit the same faux pas as some party-appointed arbitrators in the past, which have provoked virulent criticism from certain stakeholders. To the onlookers it appears that adjudicators who are subject to written and systematized ethical rules are adjudicators who are positioned on the side of the rule of law. This conception on the part of the EU legislator may explain Article 8.30 CETA’s incorporation by reference of the IBA Guidelines on conflicts of interest. Is there a better way to prove that the 109
241 UNCITRAL Working Group III. Report on the work of its thirty-eight session (Vienna, 14-18 October 2019), 23 October 2019, A/CN.9/1004, para. 77.
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EU’s desire for change is unstoppable than by transforming a highly reputed 27-page soft law document into a mandatory text for the CETA Members of the Tribunal? As argued in this commentary, including the IBA Guidelines in the CETA universe 113 is a kind of daring experiment, which has rarely been replicated within the investment regulatory field; neither has it been put into practice by CETA so far due to the exclusion of Article 8.30 from the provisional application of the CETA Agreement. Despite the lack of real data here, fitting in the IBA Guidelines with the CETA provisions on ethics is unlikely to be a harmonious procedure. It is also felt that implementing a CETA ethical code of conduct will considerably reduce the scope of action of the IBA Guidelines, which were originally drawn up with international business arbitration in the spotlight. This all leads to the belief that the IBA Guidelines’ presence in the investment milieu will end up being diluted in a future in which the answers to ethical controversies will be found in tailor-made texts for investment adjudicators. That is why Article 8.30 CETA has always been examined here hand in hand with an analysis of the 2019 CETA draft code of conduct and other texts such as the 2020 ICSID-UNCITRAL Draft Code of Conduct for Adjudicators in Investor-State Dispute Settlement, facilitating comparison and suggestions for improvement regarding the ethical regulation of CETA adjudicators. Looking to the future, if investment tribunals such as the CETA Tribunal did 114 come together in a Multilateral Investment Tribunal, their codes of conduct – when approved, in CETA’s case – might be replaced by a text such as that currently under negotiation in the dual UNCITRAL and ICSID context. Were this to be the case – which also presupposes that CETA will take full effect in the future – the question arises as to whether a ‘good code of conduct’ in the sense of containing high quality provisions might result in a partial hollowing out of the ‘Ethics’ provisions currently in the bodies of various IIAs. Ultimately, will the time come when Articles like Article 8.30 CETA are no longer needed? By way of an attempt to answer this question, some procedural aspects such as the challenge mechanism seem to have achieved an acceptable level of organisation and development in CETA – although there is still room for improvement, as frequently mentioned here. However, with regard to more substantive issues, it is symptomatic that, for example, Article 8.30 CETA only grants 31 words to its treatment of the highly controversial figure of double hatting. Unless the mechanism in Article 8.44 CETA that converts Article 8.30 CETA into a ‘living text’ is put into operation efficiently, a code of conduct may indeed displace important aspects of an Article such as the CETA provision on ethics. As its drafters anticipated, this succinct CETA provision will not be able to rule without support from other texts such as the referred code.
Katia Fach Gómez
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Article 8.31 Applicable law and interpretation 1. When rendering its decision, the Tribunal established under this Section shall apply this Agreement as interpreted in accordance with the Vienna Convention on the Law of Treaties, and other rules and principles of international law applicable between the Parties. 2. The Tribunal shall not have jurisdiction to determine the legality of a measure, alleged to constitute a breach of this Agreement, under the domestic law of a Party. For greater certainty, in determining the consistency of a measure with this Agreement, the Tribunal may consider, as appropriate, the domestic law of a Party as a matter of fact. In doing so, the Tribunal shall follow the prevailing interpretation given to the domestic law by the courts or authorities of that Party and any meaning given to domestic law by the Tribunal shall not be binding upon the courts or the authorities of that Party. 3. Where serious concerns arise as regards matters of interpretation that may affect investment, the Committee on Services and Investment may, pursuant to Article 8.44.3(a), recommend to the CETA Joint Committee the adoption of interpretations of this Agreement. An interpretation adopted by the CETA Joint Committee shall be binding on the Tribunal established under this Section. The CETA Joint Committee may decide that an interpretation shall have binding effect from a specific date. Reference to the Respective Provisions in Other EU Treaties: Article 3.42 EU-Vietnam IPA; Article 3.13 EU-Singapore FTA; Article 2.31 EU-Indonesia FTA (draft); Article X.15 EU-Mexico Global Agreement (draft). Bibliography: Anne van Aaken, ‘Delegating Interpretative Authority in Investment Treaties: The Case of Joint Administrative Commissions’ in Jean Kalicki and Anna Joubin-Bret (eds), Reshaping the Investor-State Dispute Settlement System (Brill Nijhoff, Leiden/Boston 2015), 21; Katharina Berner, ‘Authentic Interpretation in Public International Law’ (2016) 76 ZaöRV, 845; Laurence Boisson de Chazournes and Campbell McLachlan ‘The Intersection of Investment Arbitration and Public International Law’ (2016) 31(2) ICSID Rev. (Special Issue), 255; Gary Born, International Commercial Arbitration (2nd edn, Kluwer Law International, Alphen aan den Rijn 2014); Gary Born, ‘The Law Governing International Arbitration Agreements’ (2014) 26 Sing. Acad. Law J., 814; Marc Bunberg and August Reinisch, From Bilateral Arbitral Tribunals and Investment Courts to a Multilateral Investment Court (2 nd edn, Springer Berlin 2020); Megan Clifford and Christophe Douaire de Bondy, ‘Determining State Intention – A Canadian Perspective’ in Emmanuel Gaillard and Yas Banifatemi (eds), Jurisdiction in Investment Treaty Arbitration (JurisNet, Huntington 2018), 127; James Crawford, ‘A Consensualist Interpretation of Article 31(3) of the Vienna Convention on the Law of Treaties’ in Georg Nolte (ed), Treaties and Subsequent Practice (Oxford University Press, Oxford 2013), 29; Jost Delbrück and Rüdiger Wolfrum, Völkerrecht Band I/3: Die Formen des völkerrechtlichen Handelns; Die inhaltliche Ordnung der internationalen Gemeinschaft (2nd edn, De Gruyter Recht, Berlin 2002); Rudolf Dolzer and Christoph Schreuer, Principles of International Investment Law (2nd edn, Oxford University Press, Oxford 2012); Patrick Dumberry, The Formation and Identification of Rules of Customary International Law in International Investment Law (Cambridge University Press, Cambridge 2016); Patrick Dumberry, ‘The Emergence of the Concept of ‘General Principle of International Law’ in Investment Arbitration Case Law’ (2020) 11(2) J. Int’l Dispute Settlement, 194; Patrick Dumberry, A Guide to General Principles of Law in International Investment Arbitration (Oxford University Press, Oxford 2020); Michael Ewing-Chow and Junianto Losari, ‘Which Is to Be the Master? Extra-Arbitral Interpretative Procedures for IIAs’ in Jean E. Kalicki and Anna Joubin-Bret (eds), Reshaping the Investor-State Dispute Settlement System (Brill–Nijhoff Publishers, Leiden 2015), 91; Maria Fanou, 'The CETA ICS and the Autonomy of the EU Legal Order in Opinion 1/17 – A Compass for the Future' (2020) CYELS, 1; Ole Fauchald, ‘The Legal Reasoning of ICSID Tribunals—An Empirical Analysis’ (2008) 19(2) EJIL, 301; Julien Fouret, Rémy Gerbay, and Gloria Alvarez (eds), The ICSID Convention, Regulations and Rules: A Practical Commentary (Edward Elgar Publishing, Cheltenham/Northampton 2019); Emmanuel Gaillard and Yas Banifatemi,
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‘The Meaning of “and” in Article 42(1), Second Sentence, of the Washington Convention: The Role of International Law in the ICSID Choice of Law Process’ (2003) 18 ICSID Rev., 375; Anastasios Gourgourinis, ‘The Distinction between Interpretation and Application of Norms in International Adjudication’ (2011) 2(1) J. Int’l Disp. Settlement, 31; Bernd Grzeszick, ‘Völkervertragsrecht in der parlamentarischen Demokratie – CETA als Präzedenzfall für die demokratischen Anforderungen an völkerrechtliche Verträge’ (2016) NVwZ, 1753; Jarrod Hepburn, ‘Applicable Law in TPP Investment Disputes’ (2016), 17 Melb. J. Int’l L., 1; Jarrod Hepburn, ‘CETA’s New Domestic Law Clause’ (2016) EJIL Talk!; Rainer Hofmann and Christian Tams, ‘International Investment Law: Situating an Exotic Special Regime within the Framework of General International Law’ in Rainer Hofmann and Christian Tams (eds), International Investment Law and General International Law - From Clinical Isolation to Systemic Integration? (Nomos, Baden-Baden 2011), 9; Virtus Chitoo Igbokwe, ‘Determination, Interpretation and Application of Substantive Law in Foreign Investment Treaty Arbitrations’ (2006) 23(4) J. Int.’l Arb., 267; Tomoko Ishikawa, 'Keeping Interpretation in Investment Treaty Arbitration “on Track”: The Role of State Parties' in Jean Kalicki and Anna Joubin-Bret (eds), Reshaping the Investor-State Dispute Settlement System (Brill Nijhoff, Leiden/Boston 2015), 115; Robert Jennings and Arthur Watts (eds), Oppenheim's International Law: Volume 1 Peace (9th edn, Longman, London 1992); Gabrielle KaufmannKohler, ‘Interpretative Powers of the Free Trade Commission and the Rule of Law’ in Emmanuel Gaillard and Frédéric Bachand (eds), Fifteen Years of NAFTA Chapter 11 Arbitration (JurisNet, Huntington 2011), 175; Joshua Karton, ‘Choice of Law and Interpretive Authority in Investor-State Arbitration’ (2017) 3 CJCCL, 217; Hege Kjos, Applicable Law in Investor-State Arbitration: The Interplay Between National and International Law (Oxford University Press, Oxford 2013); Jürgen Kurtz, ‘Building Legitimacy Through Interpretation in Investor-State Arbitration’ in Zachary Douglas, Joost Pauwelyn and Jorge Viñuales (eds), The Foundations of International Investment Law: Bringing Theory into Practice (Oxford University Press, Oxford 2014), 257; Campbell McLachlan, ‘Investment Treaties and General International Law’ (2008) 57(2) ICLQ, 361; Campbell McLachlan, Laurence Shore and Matthew Weiniger, International Investment Arbitration: Substantive Principles (2nd edn, Oxford University Press, Oxford 2017); Eleni Methymaki and Antonios Tzanakopoulos, ‘Masters of Puppets? Reassertion of Control through Joint Investment Treaty Interpretation’ in Andreas Kulick (ed), Reassertion of Control over the Investment Treaty Regime (Cambridge University Press, Cambridge 2016), 155; Andrew Mitchell and David Heaton, ‘The Inherent Jurisdiction of WTO Tribunals: The Select Application of Public International Law Required by the Judicial Function’ (2010) 31(3) Mich. J. Int’l L., 559; Andrew Newcombe and Lluis Paradell, Law and Practice of Investment Treaties: Standards of Treatment (Kluwer Law International, Alphen aan den Rijn 2009); Martins Paparinskis, The International Minimum Standard and Fair and Equitable Treatment (Oxford University Press, Oxford 2013); Antonio Parra, ‘Applicable Substantive Law in ICSID Arbitrations Initiated Under Investment Treaties’ (2001) 16(1) ICSID Rev., 20; Jan Paulsson, ‘International Arbitration and the Generation of Legal Norms: Treaty Arbitration and International Law’ in Albert Jan van den Berg (ed), ICCA Congress Series No. 13 (Kluwer Law International, The Hague 2007), 879; August Reinisch and Christoph Schreuer, International Protection of Investments: The Substantive Standards (Cambridge University Press, Cambridge 2020); Michael Reisman, ‘The Regime for Lacunae in the ICSID Choice of Law Provision and the Question of Its Threshold’ (2000) 15(2) ICSID Rev., 362; Odysseas Repousis and Anthony Sinclair, ‘Provisional Measures in ICSID Proceedings’ (2017) 32(2) ICSID Rev., 431; Christian Riffel, ‘The CETA Opinion of the European Court of Justice and its Implications – Not that Selfish After All’ (2019) 22(3) J. Int’l Econ. L., 503; Anthea Roberts, ‘Power and Persuasion in Investment Treaty Interpretation: The Dual Role of States’ (2010) 104(2) Am. J. Int’l L., 179; Marianne Roth, ‘Interim Measures’ (2012) 2 J. Disp. Resol. 425; Jeswald Salacuse, The Law of Investment Treaties (2nd edn, Oxford University Press, Oxford 2015); Jeswald Salacuse, The Three Laws of International Investment: National, Contractual, and International Frameworks for Foreign Capital (Oxford University Press, Oxford 2013); Andrea Saldarriaga, ‘Investment Awards and the Rules of Interpretation of the Vienna Convention: Making Room for Improvement’ (2013) 28(1) ICSID Rev., 197; Elsa Sardinha, ‘Towards a New Horizon in Investor-State Dispute Settlement? Reflections on the Investment Tribunal System in the Comprehensive Economic Trade Agreement (CETA)’ (2016) 54 Can. YBIL, 311; Monique Sasson, Substantive Law in Investment Treaty Arbitration: The Unsettled Relationship between International Law and Municipal Law (2nd edn, Kluwer Law International, Alphen aan den Rijn 2017); Stephan Schill, ‘Investitionsschutz in EU-Freihandelsabkommen: Erosion gesetzgeberischer Gestaltungsmacht?’ (2018) 78 ZaöRV, 33; Christoph Schreuer, Loretta Malintoppi, August Reinisch and Anthony Sinclair (eds), The ICSID Convention: A Commentary (Cambridge University Press, Cambridge 2009); Georg Schwarzenberger, ‘Myths and Realities of Treaty Interpretation: Articles 27–29 of the Vienna Draft Convention on the Law of Treaties’ (1969) 22(1) CLP, 205; Linda Silberman and Franco Ferrari, ‘Getting to the Law Applicable to the Merits in International Arbitration and the Consequences of Getting it Wrong’ in Franco Ferrari and Stefan Kröll (eds), Conflict of Laws in International Arbitration (Sellier European Law Publishers, Munich 2011), 257; Bruno Simma and Dirk Pulkowski, ‘Two Worlds, but Not Apart: International Investment Law and General International Law’
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in Marc Bungenberg, Jörn Griebel, Stephan Hobe and August Reinisch (eds), International Investment Law: A Handbook (1st edn, C.H. Beck/Hart/Nomos, Munich/Oxford/Baden-Baden 2015), 361; Ole Spiermann, ‘Investment Arbitration: Applicable Law’ in Marc Bungenberg, Jörn Griebel, Stephan Hobe and August Reinisch (eds), International Investment Law: A Handbook (1 st edn, C.H. Beck/Hart/Nomos, Munich/Oxford/Baden-Baden 2015) 1373; Brigitte Stern, ‘Interpretation in International Trade Law’ in Malgosia Fitzmaurice and Panos Merkouris (eds), Treaty Interpretation and the Vienna Convention on the Law of Treaties: 30 Years on (Martinus Nijhoff, Leiden 2010), 111; Patricia Stöbener de Mora and Stephan Wernicke, ‘Riskante Vorgaben für Investitionsschutz und Freihandel – Das CETA-Gutachten des EuGH’ (2019) EuZW 970; Christopher Thomas and Harpreet Kaur Dhillon, ‘Applicable Law under International Investment Treaties’ (2014) 26 Singap. Acad. Law J., 975; Mark Eugen Villiger, Commentary on the 1969 Vienna Convention on the Law of Treaties (Martinus Nijhoff Publishers, Leiden/Boston 2008); Michael Waibel, ‘International Investment Law and Treaty Interpretation’ in Rainer Hofmann and Christian Tams (eds), International Investment Law and General International Law: From Clinical Isolation to Systemic Integration? (Nomos, Baden-Baden 2011), 29; Michael Waibel, Asha Kaushal, Kyo-Hwa Chung and Claire Balchin (eds), The Backlash Against Investment Arbitration. Perceptions and Reality (Kluwer Law International, Alphen aan den Rijn 2010); Romesh Weeramantry, Treaty Interpretation in Investment Arbitration (Oxford University Press, Oxford 2012); Todd Weiler, The Interpretation of International Investment Law (Martinus Nijhoff Publishers, Leiden 2013); Trinh Hai Yen, The Interpretation of Investment Treaties (Martinus Nijhoff Publishers, Leiden 2014).
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A. Introduction and Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. General Remark . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Agreement on Applicable Substantive Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. Applicable Legal Sources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Ambiguous Meaning of Article 8.31-1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Applicability of the CETA and Other Rules and Principles of International Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Sources of Applicable Law Are Governed by the Lex Specialis Principle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV. Relationship between International and Domestic Law . . . . . . . . . . . . . . . . . . . V. Appeal and Enforceability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1 1 6 11 11
B. Spirit and Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. General Remark . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Interpretation, Application, and Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Interpretation and Application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Interpretation and Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. Methodological Framework for Decision-Making . . . . . . . . . . . . . . . . . . . . . . . . . IV. Autonomy of the Domestic Legal Order . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V. Distribution of Interpretative Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Joint Interpretation Mechanism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Legal Nature of Joint Interpretations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24 24 25 26 27 30 34 37 39 43
C. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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D. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. Article 8.31-1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Scope of the Choice-of-Law Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Applicability of All Sources of International Law . . . . . . . . . . . . . . . . . . . . . . . II. Article 8.31-2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Exclusion of Domestic and EU law from the Applicable Law . . . . . . . . . . 2. Considering Domestic and EU Law as a Matter of Fact . . . . . . . . . . . . . . . . 3. Authoritative Character of Prevailing Interpretations of Domestic Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. Article 8.31-3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Joint Interpretation Mechanism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Interaction with Article 8.44-3(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. No Practical Implications from the ‘serious concerns’-Requirement . . 4. Rule of law and Non-retroactivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
49 49 49 54 58 58 60 64 67 67 68 69 70
E. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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Applicable law and interpretation
A. Introduction and Overview I. General Remark Article 8.31 is of central importance for the Investment Court System (ICS) because it ‘sets out the applicable law for Tribunals tasked with the settlement of disputes under the Agreement’.1 Specifically, the provision determines the substantive law applicable to the settlement of investment disputes and applies to proceedings before the Tribunal (Article 8.27) and the Appellate Tribunal (Article 8.28). In a nutshell, the overarching aim of Article 8.31 is to promote legal predictability and political accountability. To do so, the provision has three different functions. For each of them, a separate paragraph is dedicated. Taken together, all of them are central to the legitimacy of the investor state dispute settlement (ISDS) mechanism under the CETA. Article 8.31-1 establishes a general principle which is complemented by a clarification ‘for greater certainty’ in Article 8.31-2 and an additional safeguard mechanism established by Article 8.31-3. Article 8.31-1 is a substantive choice-of-law clause which defines the legal standard relevant for the resolution of claims brought by investors pursuant to Article 8.23. With respect to the Tribunal’s decision on the merits, the adjudicators ‘shall apply this Agreement as interpreted in accordance with the Vienna Convention on the Law of Treaties, and other rules and principles of international law applicable between the Parties’. This makes clear that the provisions of the CETA are the primary legal source in the settlement of ISDS claims. To complement the CETA, the Tribunal may also apply other rules and principles of international law applicable between the Parties. Implicitly, the provision hereby establishes a hierarchy of relevant legal sources pursuant the lex specialis principle. In addition, Article 8.31-1 provides explicit guidance on how the CETA provisions should be interpreted. As a clarification ‘for greater certainty’, Article 8.31-2 defines the complex relationship between international and domestic law. That domestic law is not part of the applicable substantive law is already expressed by the choice-of-law made under Article 8.31-1. The function of Article 8.31-2 lays in shielding the domestic legal order from the activities of the ICS. It makes sure that the Tribunal cannot apply domestic law in a legal sense but must appreciate domestic law as a matter of fact. The term domestic law refers to the national laws of Canada and the EU Member States, including the law of the European Union. Consequently, any meaning given to domestic law by the Tribunal shall not be binding upon domestic courts or authorities. In contrast, the Tribunal shall follow the prevailing legal interpretation by domestic institutions. The provision therefore not only specifies the role of domestic law but also protects the autonomy of domestic legal orders from ISDS proceedings. In Opinion 1/17, the CJEU considered that this limitation of the Tribunal’s jurisdiction is central for the compatibility of the CETA ICS with the principle of autonomy under EU law. Finally, Article 8.31-3 establishes a joint interpretation mechanism by which the Contracting Parties remain in constant control of the interpretative process. The oversight carried out by the Contracting Parties through the CETA Joint Committee ensures that the law-making functions delegated to the Tribunal are exercised within 1 Canadian Government, Canada-European Union Comprehensive Economic and Trade Agreement – Canadian Statement on Implementation, available at: https://www.international.gc.ca/trade-commerce/tr ade-agreements-accords-commerciaux/agr-acc/ceta-aecg/canadian_statement-enonce_canadien.aspx?l ang=eng#a13.
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3
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the boundaries of the CETA.2 In this sense, Article 8.31-3 is a safeguard measure which ensures that the political responsibility for the Agreement remains with the Contracting Parties.
II. Agreement on Applicable Substantive Law Article 8.31-1 is a choice-of-law-clause which determines the law applicable to decisions of ‘the Tribunal established under this Section’. In principle, the Tribunal’s mission is to decide claims concerning the allegation of an investor of a Party that the other Party has breached an obligation under Sections C and D.3 In the course of deciding claims submitted pursuant to Article 8.23, the Tribunal must render decisions on jurisdiction, the merits, and procedural issues. Accordingly, choice-of-law-clauses can at least relate to three different types of decisions concerning jurisdictional, substantive, and procedural issues.4 7 Article 8.31-1 does not apply to procedural or jurisdictional decisions. The applicable law to jurisdictional and procedural questions is subject to specific choice-of-lawclauses.5 These specific rules are included in the definitions of jurisdictional concepts such as ‘investment’ (rationae materiae) or ‘investor’ (ratione personae) and are either explicitly or implicitly linked to domestic law.6 That Article 8.1 requires investments to be made ‘in accordance with the applicable law at the time the investment is made’ illustrates the specificity of jurisdictional choice-of-law-clauses. Here, the term ‘applicable law’ refers to the laws applicable to the respective assets and therefore differs from the applicable law to the ‘decision’ of the Tribunal in the sense of Article 8.31-1. 7 The applicable law to procedural questions must be determined by Section F CETA in conjunction with the applicable dispute settlement rules. In case of non-ICSID proceedings,8 the proceedings will also be governed by the national arbitration law at the seat of the tribunal (lex arbitri). 8 Instead, one of the central functions of Article 8.31 is to determine the substantive law applicable to the merits of investment disputes under Chapter 8. To do so, Article 6
2 Schill, ‘Investitionsschutz in EU-Freihandelsabkommen: Erosion gesetzgeberischer Gestaltungsmacht?’ (2018) 78 ZaöRV, 33 (74 f. and 76). 3 See Articles 8.18-1, 8.23-1 and 8.27-1. Article 8.18-5 furthermore emphasizes that the ‘Tribunal constituted under this Section shall not decide claims that fall outside of the scope of this Article’. 4 McLachlan et al., International Investment Arbitration: Substantive Principles (2017), para. 3.89; Thomas and Dhillon, ‘Applicable Law under International Investment Treaties’ (2014), 26 Singap. Acad. Law J., 975. In addition, the law applicable to the validity of the arbitration agreement may be seen as an additional category to consider. See Born, ‘The Law Governing International Arbitration Agreements’ (2014), 26 Singap. Acad. Law J., 814. Emphasizing that jurisdictional issues such as the existence of an investment are often inseparable from the merits: Newcombe and Paradell, Law and Practice of Investment Treaties: Standards of Treatment (2009), 77. 5 However, if such specific rules direct the Tribunal to consider domestic law in a jurisdictional or procedural context, it must nevertheless observe Article 8.31-2. In contrast to 8.31-1, the provision on the factual status of domestic law has a general scope of application. 6 See Article 8.1 pursuant to which an ‘investment means […] (i) a concession conferred pursuant to the law of a Party’ and ‘an enterprise of a Party is: (a) an enterprise that is constituted or organised under the laws of that Party […]’. 7 See for a comprehensive overview on choice-of-law analyses conducted by international dispute settlement bodies dating back to 1926: Iran v. United States, IUSCT Cases No. A15 (II:A), Partial Award No. 604 (10 March 2020), paras. 137-141. However, the separate opinions in that case also illustrate that the application of general principles of private international law in treaty-based proceedings is controversial. 8 When submitting a claim, the investor may choose the applicable dispute settlement rules in accordance with Article 8.23-2.
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8.31-1 must be read and applied in conjunction with the applicable law provision contained in the relevant arbitration rules. Pursuant to Article 8.23-2, a claim by an investor may be submitted under the ICSID Convention and Rules of Procedure for Arbitration Proceedings (a) or the ICSID Additional Facility Rules (b). Alternatively, claims may be submitted under the UNCITRAL Arbitration Rules (c) or any other rules on agreement of the disputing Parties (c) (→ Art. 8.23 mn. 18-29). With respect to the applicable law, Article 42.1 ICSID Convention provides that 9 the arbitral tribunal ‘shall decide a dispute in accordance with such rules of law as may be agreed by the parties. In the absence of such agreement, the Tribunal shall apply the law of the Contracting State Party to the dispute (including its rules on the conflict of laws) and such rules of international law as may be applicable’. Article 35.1 UNCITRAL Rules provides that the arbitral tribunal ‘shall apply the rules of law designated by the parties as applicable to the substance of the dispute. Failing such designation by the parties, the arbitral tribunal shall apply the law which it determines to be appropriate’.9 Both provisions illustrate the importance of Party autonomy in international dispute settlement.10 Accordingly, it is first and foremost for the disputing Parties to agree on the applicable law to the merits of their dispute. 11 Only as a default option, the rules either designate the relevant sources of law or call on the arbitral tribunal to apply the law it determines to be appropriate. Technically, the choice-of-law made in Article 8.31-1 by the Contracting Parties 10 is not directly addressed by the aforementioned provisions. However, Article 8.31-1 excludes the default options because it forms the basis for a separate agreement between the disputing Parties on the applicable law. By submitting a claim pursuant to Article 8.23, the investor implicitly accepts the choice-of-law made by the Contracting Parties under Article 8.31-1 and hereby perfects an agreement on the applicable law between the disputing Parties in the sense of Article 42.1 ICSID Convention or Article 35.1 UNCITRAL Arbitration Rules.12
III. Applicable Legal Sources 1. Ambiguous Meaning of Article 8.31-1 The most fundamental aspect relevant to Article 8.31 concerns the question which 11 legal sources form part of the applicable law. Keeping in mind the distinction between interpretation and application of a legal norm (→ mn. 25), the exact meaning of 9 Other sets of rules on which the disputing Parties might agree under Article 8.23-2(d) contain provisions similar to Article 35.1 UNCITRAL Rules. See for example Article 22.1 SCC Rules or Article 21.1 ICC Rules. 10 See Schreuer et al. (eds), The ICSID Convention: A Commentary (2009), Article 42 ICSID Convention, mn. 21; Gaillard and Banifatemi, ‘The Meaning of “and” in Article 42(1), Second Sentence, of the Washington Convention: The Role of International Law in the ICSID Choice of Law Process’ (2003) 18 ICSID Rev., 375. 11 See the first sentences of Article 42.1 ICSID Convention, Article 35.1 UNCITRAL Rules, Article 22.1 SCC Rules, and Article 21.1 ICC Rules; Dolzer and Schreuer, Principles of International Investment Law (2012), 289. 12 Dolzer and Schreuer, Principles of International Investment Law (2012), 289; Spiermann, ‘Investment Arbitration: Applicable Law’ in Bungenberg et al. (eds), International Investment Law: A Handbook (2015), 1373 (1385). In the context of ICSID arbitration: Schreuer et al. (eds), The ICSID Convention: A Commentary (2009), Article 42 ICSID Convention, mn. 23; Igbokwe, ‘Determination, Interpretation and Application of Substantive Law in Foreign Investment Treaty Arbitrations’ (2006) 23(4) J. Int.’l Arb., 267 (285); Antoine Goetz et consorts v. Burundi, ICSID Case No. ARB/95/3, Award (10 February 1999), para. 94.
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Article 8.31-1 is ambiguous. In Opinion 1/17, the CJEU concluded that ‘the power of interpretation and application conferred on that Tribunal is confined to the provisions of the CETA and that such interpretation or application must be undertaken in accordance with the rules and principles of international law applicable between the Parties’13. Thus, according to the CJEU, the Tribunal would only have jurisdiction to apply provisions of the CETA. Other rules and principles of international law applicable between the Parties in the sense of Article 8.31-1 can only come into play at the level of interpreting provisions of the CETA. This approach is practical where a provision of the CETA needs to be interpreted because its meaning is unclear. However, problems arise as soon as a gap in the CETA occurs. The Tribunal would have no choice but to go beyond the explicit choice-of-law made in Article 8.31-1 and apply other relevant rules or principles of international law to solve the issue. Hence, the CJEU’s reading seems overly narrow by suggesting that the applicable law in the sense of Article 8.31-1 only consists of the CETA itself.14
2. Applicability of the CETA and Other Rules and Principles of International Law In light of the above, a syntactical deconstruction of Article 8.31-1 seems necessary.15 The question is whether ‘and other rules and principles of international law’ relates to ‘interpreted’ or ‘shall apply’. The narrow reading adopted by the CJEU suggests that it relates to ‘interpreted’. However, this seems to neglect the comma which is separating the sentence.16 Considering the comma leads to an understanding of the sentence pursuant to which the ‘rules and principles of international law’ are separated from ‘interpreted’ by the comma and thus directly relate to ‘shall apply’. Putting aside the reference to the VCLT which relates to the question of interpretation, Article 8.31-1 directs the Tribunal to ‘apply this Agreement […] and other rules and principles of international law applicable between the Parties.’ 13 Given that the possibility to take external norms into account in the context of interpretation is already provided for by Article 31.3(c) VCLT, this broader understanding of Article 8.31-1 reflects the well-established principle of effectiveness according to which ‘the process of interpretation should not render futile provisions of a treaty to which the parties have agreed unless the text, context or purpose clearly so demand’. 17 12
13 CJEU, Opinion 1/17, 30.04.2019, EU-Canada CET Agreement, ECLI:EU:C:2019:341, para. 122. See below for further discussion of Opinion 1/17 (→ mn. 35). 14 However, equally authentic versions of Article 8.31-1 support this narrow reading. The wording in German, Spanish, Portuguese, and Hungarian is for example clearly pointing in that direction. Also considering that the CETA is the only applicable legal source: Grzeszick, ‘Völkervertragsrecht in der parlamentarischen Demokratie – CETA als Präzedenzfall für die demokratischen Anforderungen an völkerrechtliche Verträge’ (2016) NVwZ, 1753 (1757). 15 Article 8.31-1 states that ‘the Tribunal established under this Section shall apply this Agreement as interpreted in accordance with the Vienna Convention on the Law of Treaties, and other rules and principles of international law applicable between the Parties.’ 16 In addition to the English version, the wording of Article 8.31-1 in French, Dutch, Polish, and Swedish also contain a comma. Pursuant to Article 30.11, each version of the CETA is equally authentic. 17 United Parcel Service of America Inc. v. Canada, ICSID Case No. UNCT/02/1, Award on the Merits (24 May 2007), para. 60. See also Occidental Exploration and Production Company v. Ecuador, LCIA Case No. UN3467, Final Award (1 July 2004), para. 68; Klöckner Industrie-Anlagen GmbH and others v. Cameroon, ICSID Case No. ARB/81/2, Decision on Annulment (3 May 1985), para. 62; Constitution of the Maritime Safety Committee of the Inter-Governmental Maritime Consultative Organization, Advisory Opinion, 8 June 1960, ICJ Reports (1960), 150 (160); Border and Transborder Armed Actions (Nicaragua v. Honduras), Judgment, ICJ Reports (1988), 69 (89).
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The drafting history of Article 8.31-1 also supports this broader reading (→ 14 mn. 45). According to the first three versions from 2010-2012, the Tribunal was meant to ‘decide the issues in dispute in accordance with this Agreement and applicable rules of international law’.18 There is no reason to conclude that the reference to the VCLT in the draft of 15 November 2013 was introduced to exclude ‘other rules and principles of international law’ from the applicable law.19 Instead, it seems more plausible that the explicit reference to the VCLT was introduced as a reminder to the Tribunal to take the rules of interpretation seriously.20 Consequently, the applicable law consists of the CETA itself and other rules and principles of international law applicable between the Parties.21 The discussion whether EU law is part of international law is not relevant in that regard since EU law is not applicable ‘between the Parties’. It is therefore principally excluded from the applicable law.
3. Sources of Applicable Law Are Governed by the Lex Specialis Principle A question of practical importance is how these two applicable legal sources relate 15 to each other. For the purpose of interpreting Article 8.31-1, the relevant context in the sense of Article 31.1 VCLT is the rendering of decisions on claims brought by investors under Section F CETA. In light of this context, a good faith interpretation of Article 8.31-1 must conclude that the relationship between provisions of the CETA and other rules and principles of international law is governed by the lex specialis principle.22 This corresponds to the widely accepted principle that the law applicable to any investment treaty claim is ‘the treaty itself specifically, and international law generally’.23 Thus, the provisions of the CETA are the primary legal source, complemented in case of lacunae by other rules and principles of international law applicable between the Parties. By explicitly limiting the scope of Section F, the Contracting Parties have made 16 clear that they expect the Tribunal to exercise its dispute resolution mandate within the legal boundaries established by Article 8.18. However, the reference to ‘other rules and principles of international law’ in Article 8.31-1 acknowledges a generally accepted point: although any process of interpretation must start with the relevant See the draft versions of January 2010, January 2011, and February 2012. It is noteworthy that subsequent Canadian treaty practice also contains provisions calling for the application of other rules of international law. See e.g., Article 14.D.9 United States–Mexico–Canada Agreement (USMCA); Article 32-1 Agreement between the Government of Canada and the Government of the Republic of Moldova for the Promotion and Protection of Investments. 20 In this sense, the reference in Article 8.31-3 to ‘serious concerns […] as regards matters of interpretation’ also reflects a certain degree of scepticism. See for a further discussion below (→ mn. 37). 21 See also (without discussion): Opinion of Advocate General Bot in Opinion 1/17, 29.1.2019, EU-Canada CET Agreement, ECLI:EU:C:2019:72, para. 122; Riffel, ‘The CETA Opinion of the European Court of Justice and its Implications – Not that Selfish After All’ (2019) 22(3) J. Int’l Econ. L., 503 (518). 22 See generally Newcombe and Paradell, Law and Practice of Investment Treaties: Standards of Treatment (2009), 91 (109 f.). 23 Azurix Corp. v. Argentina, ICSID Case No. ARB/01/12, Annulment Decision (1 September 2009), para. 146. See also MTD Equity Sdn. Bhd. and MTD Chile S.A. v. Chile, ICSID Case No. ARB/01/7, Annulment Decision (21 March 2007), paras. 61, 72; Compañía de Aguas del Aconquija S.A. and Vivendi Universal v. Argentina S.A., ICSID Case No. ARB/97/3, Decision on Annulment (3 July 2002), para. 96; Consorzio Groupement L.E.S.I. – DIPENTA v. Algeria, Award (10 January 2005), para. 24; Técnicas Medioambientales Tecmed S.A. v. Mexico, ICSID Case No. ARB (AF)/00/2, Award (29 May 2003), para. 120; Middle East Cement Shipping and Handling Co. S.A. v. Egypt, ICSID Case No. ARB/99/6, Award (12 April 2002), paras. 85 ff.; Newcombe and Paradell, Law and Practice of Investment Treaties: Standards of Treatment (2009), 86, 100; Parra, ‘Applicable Substantive Law in ICSID Arbitrations Initiated Under Investment Treaties’ (2001) 16(1) ICSID Rev., 20 (21); Karton, ‘Choice of Law and Interpretive Authority in Investor-State Arbitration’ (2017) 3 CJCCL, 217 (257, 264). 18
19
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provisions of the applicable investment treaty, the latter is ‘governed by international law’24 and does neither establish a self-contained regime nor exist in isolation from general international law.25 17 Against this background, Article 8.31-1 constitutes a complete choice-of-law which leaves no room for the application of fallback provisions such as the second sentence of Article 42.1 ICSID Convention.26 The applicable substantive law is therefore composed of the CETA as the primary legal source which is supplemented by general international law if necessary. 18 But even if the narrow reading is adopted according to which Article 8.31-1 directs the Tribunal to exclusively apply ‘this Agreement’, the CETA remains, as any other treaty, not self-contained but embedded in the system of international law. A good faith interpretation of Article 8.31-1 must therefore come to the conclusion that the Contracting Parties, by designating the treaty as the only applicable legal source, implicitly agreed on general international law to supplement the treaty provisions in case of lacunae.27
IV. Relationship between International and Domestic Law 19
In defining the legal sources applicable to the merits of investments claims, Article 8.31 also addresses and clarifies the complex relationship between international and domestic law.28 On the one hand, by definition, ‘a treaty is governed by international law, and not by municipal law’.29 On the other hand, a multitude of issues regarding foreign investments are intrinsically linked to the much more detailed national laws of the host State.30 These two fundamental principles make it difficult to map domestic Article 2.1 (a) VCLT. Asian Agricultural Products Ltd. v. Sri Lanka, ICSID Case No. ARB/87/3, Award (27 June 1990), para. 21; Simma and Pulkowski, ‘Two Worlds, but Not Apart: International Investment Law and General International Law’, in Bungenberg et al. (eds), International Investment Law: A Handbook (2015), 361 ff.; Campbell McLachlan, ‘Investment Treaties and General International Law’ (2008) 57(2) ICLQ, 361; Hofmann and Tams, ‘International Investment Law: Situating an Exotic Special Regime within the Framework of General International Law’ in Hofmann and Tams (eds), International Investment Law and General International Law - From Clinical Isolation to Systemic Integration? (2011) 9 (11); Boisson de Chazournes and McLachlan, ‘The Intersection of Investment Arbitration and Public International Law’ (2016) 31(2) ICSID Rev. (Special Issue), 255; Kurtz, ‘Building Legitimacy Through Interpretation in Investor-State Arbitration’, in Douglas et al. (eds), The Foundations of International Investment Law: Bringing Theory into Practice (2014), 257 (280). 26 In principle, applicable law provisions in arbitration rules allow for a partial choice-of-law. In case of an incomplete choice, the arbitral tribunal might rely on the default option to identify the applicable substantive law. See Schreuer et al. (eds), The ICSID Convention: A Commentary (2009), Article 42 ICSID Convention, mn. 137; Autopista Concesionada de Venezuela, C.A. v. Venezuela, ICSID Case No. ARB/00/5, Award (23 September 2003), para. 96. 27 See Parra, ‘Applicable Substantive Law in ICSID Arbitrations Initiated Under Investment Treaties’ (2001) 16(1) ICSID Rev., 20 (21); Newcombe and Paradell, Law and Practice of Investment Treaties: Standards of Treatment (2009), 86. 28 Speaking of a relationship that ‘has been the subject of much doctrinal dispute’: Jennings and Watts (eds), Oppenheim's International Law: Volume 1 Peace (2008), para. 18. See specifically with respect to investment law the comprehensive studies conducted by Kjos, Applicable Law in Investor-State Arbitration: The Interplay Between National and International Law (2013); Sasson, Substantive Law in Investment Treaty Arbitration: The Unsettled Relationship between International Law and Municipal Law (2017). 29 Azurix Corp. v. Argentina, ICSID Case No. ARB/01/12, Annulment Decision (1 September 2009), para. 146. 30 Barcelona Traction (Belgium v. Spain), Judgment, 5 February 1970, ICJ Reports (1970), 3 (33); Iran v. United States, IUSCT Cases No. A15 (II:A), Partial Award No. 604 (10 March 2020), para. 137; Igbokwe, 24 25
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law within the system of investment treaty arbitration. The systemically inherent relevance of domestic law in the assessment of treaty breaches has led some tribunals to the conclusion that international and domestic laws are equally relevant and applicable,31 even in cases where choice-of-law provisions such as Article 8.31-1 are limited to international law.32 Alternatively, it seems possible to consider national law only relevant to incidental and preliminary questions.33 In any event, the application of domestic and international law are two separate and independent operations in which a breach of one type of law has no direct influence on the other. 34 If international and domestic law are both considered to be relevant and applicable, it remains uncertain how they exactly interact.35 Against this background, Article 8.31 establishes a clear hierarchy between international and domestic law. As stated above, Article 8.31-1 makes clear that the law applicable to the merits of investment disputes is the CETA itself combined with relevant norms of international law as a complementary legal source. In addition, Article 8.31-2 clarifies that ‘the Tribunal may consider, as appropriate, the domestic law of a Party as a matter of fact’. Taken together, both provisions define the relationship between international and 20 domestic law for substantive decisions to be taken under Section F. On the one hand, the role of domestic law is limited to a factual appreciation whereas international law is defined as the only relevant legal standard.36 On the other hand, the possibility for the Tribunal to ‘consider, as appropriate, the domestic law of a Party as a matter of
‘Determination, Interpretation and Application of Substantive Law in Foreign Investment Treaty Arbitrations’ (2006) 23(4) J. Int’l. Arb., 267 (289); Hepburn, ‘Applicable Law in TPP Investment Disputes’ (2016) 17 Melb. J. Int’l L., 1 (15, 17). Examples from arbitral practice include all aspects of contract law, the acquisition of property, operating permits, or the competence of public officials. See with further references: Newcombe and Paradell, Law and Practice of Investment Treaties: Standards of Treatment (2009), 93 ff.; Spiermann, ‘Investment Arbitration: Applicable Law’ in Bungenberg et al. (eds), International Investment Law: A Handbook (2015), 1373 (1387); Salacuse, The Three Laws of International Investment: National, Contractual, and International Frameworks for Foreign Capital (2013), 89 ff. 31 MTD Equity Sdn. Bhd. and MTD Chile S.A. v. Chile, ICSID Case No. ARB/01/7, Annulment Decision (21 March 2007), para. 72; Total S.A. v. Argentina, ICSID Case No. ARB/04/01, Decision on Liability (27 December 2010), paras. 38 f.; CMS Gas Transmission Company v. Argentina, ICSID Case No. ARB/01/8, Award (12 May 2005), paras. 116 f. 32 See e.g., EnCana Corporation v. Ecuador, UNCITRAL, LCIA Case No. UN3481, Award (3 February 2006), para. 184; Antoine Goetz et consorts v. Burundi, ICSID Case No. ARB/95/3, Award (10 February 1999), para. 69; Newcombe and Paradell, Law and Practice of Investment Treaties: Standards of Treatment (2009), 86 f.; Dolzer and Schreuer, Principles of International Investment Law (2012), 293; Kjos, Applicable Law in Investor-State Arbitration: The Interplay Between National and International Law (2013), 242. 33 Spiermann, ‘Investment Arbitration: Applicable Law’ in Bungenberg et al. (eds), International Investment Law: A Handbook (2015), 1373 (1381). Referring to an ‘implicit renvoi of international law to domestic law’: Newcombe and Paradell, Law and Practice of Investment Treaties: Standards of Treatment (2009), 97. See also Venezuela Holdings, B.V., et al. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/07/27, Decision on Annulment (9 March 2017), para. 181. 34 ELSI (United States v. Italy), Judgment, 20 July 1989, ICJ Reports 15 (1989), 15 (51) (‘what is a breach of treaty may be lawful in the municipal law and what is unlawful in the municipal law may be wholly innocent of violation of a treaty provision’). See also Antoine Goetz et consorts v. Burundi, ICSID Case No. ARB/95/3, Award (10 February 1999), para. 99; Newcombe and Paradell, Law and Practice of Investment Treaties: Standards of Treatment (2009), 78 f., 97. 35 Newcombe and Paradell, Law and Practice of Investment Treaties: Standards of Treatment (2009), 88 referring to CMS Gas Transmission Company v. Argentina, ICSID Case No. ARB/01/8, Award (12 May 2005), para. 117 (‘all these rules are inseparable and will, to the extent justified, be applied by the Tribunal’). 36 See for similar conclusion in arbitral practice, e.g., Petrobart Limited v. Kyrgyzstan, SCC Case No. 126/2003, Arbitral Award (29 March 2005), para. VII.1.B.8; MTD Equity Sdn. Bhd. and MTD Chile S.A. v. Chile, ICSID Case No. ARB/01/7, Award (25 May 2004), para. 204.
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fact’ in Article 8.31-2 acknowledges the systemically inherent relevance of domestic law in international investment law. In the words of the CJEU, the provision serves: no other purpose than to reflect the fact that the CETA Tribunal, when it is called upon to examine the compliance with the CETA of the measure that is challenged by an investor and that has been adopted by the investment host State or by the Union, will inevitably have to undertake, on the basis of the information and arguments presented to it by that investor and by that State or by the Union, an examination of the effect of that measure. 37
21
In this sense, the aim of Article 8.31-2 is to proactively address the practical need of the Tribunal to take somehow regard of domestic law.38 Despite this practical importance, however, Article 8.31-2 leaves no room for applying domestic law as a legal standard.
V. Appeal and Enforceability Rules on the applicable law agreed by the disputing Parties are potentially outcomedeterminative and an essential element of the arbitration agreement. 39 Observing Article 8.31 is therefore no mere formality but in several respects crucial for the dispute settlement activity of the ICS. In principle, the failure to base a decision on the applicable law corresponds to an erroneous analysis of a conflict-of-laws issue, which is often treated like any other error of law.40 Hence, the decision of the Tribunal would be subject to an appeal pursuant Article 8.28-2(a) based on ‘errors in the application or interpretation of applicable law’. Due to Article 8.31-2, an appreciation of domestic laws which manifestly departs from the meaning adopted by national courts or authorities would justify an appeal pursuant to Article 8.28-2(b). 23 In case of a final award,41 an erroneous conflict-of-laws analysis could adversely affect enforceability.42 However, due to the limited scope of judicial review in international arbitration, the threshold is higher in the context of enforcement than it is before the Appellate Tribunal. Here, a simple error of law will not suffice and given that final arbitral awards are in principle not reviewed on the merits one must distinguish between mistakes in the application of the correct law and application of the wrong law.43 Against this background, an award which is based on the wrong law or no law 22
CJEU, Opinion 1/17, 30.04.2019, EU-Canada CET Agreement, ECLI:EU:C:2019:341, para. 131. Fanou, ‘The CETA ICS and the Autonomy of the EU Legal Order in Opinion 1/17 – A Compass for the Future’ (2020) 22 CYELS, 1 (19). 39 Schreuer et al. (eds), The ICSID Convention: A Commentary (2009), Article 42 ICSID Convention, mn. 15; Newcombe and Paradell, Law and Practice of Investment Treaties: Standards of Treatment (2009), 78; Bjorklund and Vanhonnaeker, in Fouret et al. (eds), The ICSID Convention, Regulations and Rules: A Practical Commentary (2019), Article 42 ICSID Convention, mn. 4.241. 40 See Born, International Commercial Arbitration (2014), 2151. 41 Final awards are rendered by the Tribunal pursuant to Article 8.39. Given that it is the task of the Appellate Tribunal to ensure the proper application or interpretation of applicable law, the following also applies to final awards rendered by the Appellate Tribunal pursuant to Article 8.28-9(d). 42 Spiermann, ‘Investment Arbitration: Applicable Law’ in Bungenberg et al. (eds), International Investment Law: A Handbook (2015), 1373 (1374); Igbokwe, ‘Determination, Interpretation and Application of Substantive Law in Foreign Investment Treaty Arbitrations’ (2006) 23(4) J. Int.’l Arb., 267 (285). 43 Schreuer et al. (eds), The ICSID Convention: A Commentary (2009), Article 42 ICSID Convention, mn. 15 f., Article 52 ICSID Convention, mn. 192; Bjorklund and Vanhonnaeker, in: Fouret et al. (eds), The ICSID Convention, Regulations and Rules: A Practical Commentary, Article 42 ICSID Convention, mn. 4.243 (with further references). See accordingly for arbitral awards enforceable under the New York Convention: Silberman and Ferrari, ‘Getting to the Law Applicable to the Merits in International Arbitration and the Consequences of Getting it Wrong’ in Ferrari and Kröll (eds), Conflict of Laws in International Arbitration (2011), 257 (310). 37
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at all would amount to a serious violation of the arbitration agreement, 44 especially if the arbitrators do not provide a reasoned decision.45 In the case of ICSID awards, the non-application or gross misapplication of Article 8.31 could therefore lead to an annulment based on a ‘manifest excess of powers’ in the sense of Article 52.1(b) ICSID Convention.46 For non-ICSID awards, the enforcement could be refused on the basis of Article V(1)(c) or (d) of the New York Convention. 47
B. Spirit and Purpose I. General Remark The primary function of Article 8.31 is to determine the applicable substantive 24 law. However, the spirit and purpose of the provision go far beyond that. From a conceptional point of view, Article 8.31 lays at the intersection between interpretation, application, and amendment of treaty provisions and provides a methodological framework for the Tribunal’s decision-making process. In addition to much more detailed substantive investment protection standards in the CETA,48 the introduction of a joint interpretation mechanism by Article 8.31-3 ensures that the Contracting Parties remain in permanent control over the activities of the ICS. Finally, Article 8.31 illustrates that the Contracting Parties want to preserve the autonomy of the domestic legal order from the ISDS mechanism established under Section F.
II. Interpretation, Application, and Amendment Article 8.31 is closely related to the interpretation, application, and amendment 25 of treaty provisions. Identifying the distinctive elements of these legal concepts is an important precondition to decipher the spirit and purpose of Article 8.31.
1. Interpretation and Application It is noteworthy that Article 8.31-1 distinguishes between applying the CETA and 26 interpreting its provisions ‘in accordance with the Vienna Convention on the Law of Treaties’. Article 8.31-2 provides that the ‘Tribunal may consider, as appropriate, the domestic law of a Party as a matter of fact’. This suggests that the Contracting Parties want the Tribunal to clearly differentiate between the application of a legal norm, its Newcombe and Paradell, Law and Practice of Investment Treaties: Standards of Treatment (2009), 78. Silberman and Ferrari, ‘Getting to the Law Applicable to the Merits in International Arbitration and the Consequences of Getting it Wrong’ in Ferrari and Kröll (eds), Conflict of Laws in International Arbitration (2011), 257 (313); Venezuela Holdings, B.V., et al. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/07/27, Decision on Annulment (9 March 2017), paras. 187 ff. 46 Schreuer et al. (eds), The ICSID Convention: A Commentary (2009), Article 42 ICSID Convention, mn. 20, Article 52 ICSID Convention, mn. 191 ff. 47 Silberman and Ferrari, ‘Getting to the Law Applicable to the Merits in International Arbitration and the Consequences of Getting it Wrong’ in Ferrari and Kröll (eds), Conflict of Laws in International Arbitration (2011), 257 (316); Karton, ‘Choice of Law and Interpretive Authority in Investor-State Arbitration’ (2017) 3 CJCCL, 217 (229). Article V(1)(c) refers to an award which ‘deals with a difference not contemplated by or not falling within the terms of the submission to arbitration’. Article V(1)(d) applies to cases where ‘the arbitral procedure was not in accordance with the agreement of the parties’. 48 See e.g., in the context of expropriation: Article 8.12-1 and its interpretation in accordance with Annex 8-A. 44
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interpretation, and the appreciation of facts.49 The wording of Article 8.31-1 reflects the widely accepted principle that interpretation and application of a legal norm constitute two distinct, though interrelated concepts.50 Interpretation of a legal norm is the process of determining its precise meaning, whereas its application consists in determining the consequences which the norm attaches to the concrete facts of the case at hand.51 Judicial decision-making is therefore a twofold task – first determine what a treaty provision actually means before applying it to the established facts of the case. 52 Within this process, the act of interpretation is operationally limited and auxiliary since its purpose is to clarify the meaning of a norm, but only where this is actually necessary.53 In practice however, the theoretical line between these two concepts is blurry and not easy to draw.54 Nevertheless, Article 8.31 unequivocally directs the Tribunal to carefully observe this conceptional difference.
49 The need to give tribunals a clear direction is for example illustrated by the use of general legal principles in the decision-making process. Pointing out that tribunals rarely explain whether a general legal principle is applied to fill a gap or used as interpretative guidance: Dumberry, ‘The Emergence of the Concept of ‘General Principle of International Law’ in Investment Arbitration Case Law’ (2020) 11 J. Int’l Disp. Settlement, 194 (196). Making a similar observation regarding WTO Panels: Mitchell and Heaton, ‘The Inherent Jurisdiction of WTO Tribunals: The Select Application of Public International Law Required by the Judicial Function’ (2010) 31(3) Mich. J. Int’l L., 559 (570). See with respect to the need to clarify the role of domestic law: Newcombe and Paradell, Law and Practice of Investment Treaties: Standards of Treatment (2009), 88. 50 Case concerning a boundary dispute between Argentina and Chile concerning the delimitation of the frontier line between boundary post 62 and Mount Fitzroy, Decision (21 October 1994), 22 RIAA 3, para. 75; Schwarzenberger, ‘Myths and Realities of Treaty Interpretation: Articles 27–29 of the Vienna Draft Convention on the Law of Treaties’ (1969) 22(1) CLP, 205 (212); Gourgourinis, ‘The Distinction between Interpretation and Application of Norms in International Adjudication’ (2011) 2(1) J. Int’l Disp. Settlement, 31 (33). 51 Case concerning the Factory at Chorzów, Dissenting Opinion of Judge Ehrlich, 26 July 1927, PCIJ Report Series A No. 9 (1927), 35 (39); Schwarzenberger, ‘Myths and Realities of Treaty Interpretation: Articles 27–29 of the Vienna Draft Convention on the Law of Treaties’ (1969) 22(1) CLP, 205 (212); Gourgourinis, ‘The Distinction between Interpretation and Application of Norms in International Adjudication’ (2011) 2(1) J. Int’l Disp. Settlement, 31 (43); Weeramantry, Treaty Interpretation in Investment Arbitration (2012), para. 2.36. 52 Schwarzenberger, ‘Myths and Realities of Treaty Interpretation: Articles 27–29 of the Vienna Draft Convention on the Law of Treaties’ (1969) 22(1) CLP, 205 (212); Gourgourinis, ‘The Distinction between Interpretation and Application of Norms in International Adjudication’ (2011) 2(1) J. Int’l Disp. Settlement, 31 (45); Empresas Lucchetti, S.A. and Lucchetti Peru, S.A. v. Peru, ICSID Case No. ARB/03/4, Decision on Annulment (5 September 2007), para. 68; Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v. Pakistan, ICSID Case No. ARB/03/29, Decision on Jurisdiction (14 November 2005), para. 186; Canfor Corporation v. United States, UNCITRAL, Decision on Preliminary Question (6 June 2006), para. 175. 53 Case concerning the delimitation of the continental shelf between Great Britain and France, Arbitral Award (14 March 1978), 18 RIAA, para. 29; Vladimir Berschader and Moïse Berschader v. Russia, SCC Case No. 080/2004, Award (21 April 2006), para. 95; LG&E Energy Corp., LG&E Capital Corp., and LG&E International, Inc. v. Argentina, ICSID Case No. ARB/02/1, Decision on Liability (3 October 2006), para. 89; Gourgourinis, ‘The Distinction between Interpretation and Application of Norms in International Adjudication’ (2011) 2(1) J. Int’l Disp. Settlement, 31 (44). There is no consensus as to whether a (conscious or subconscious) interpretive process is of secondary nature or to some extent a necessary part of every application of a legal norm. See Schwarzenberger, ‘Myths and Realities of Treaty Interpretation: Articles 27–29 of the Vienna Draft Convention on the Law of Treaties’ (1969) 22(1) CLP, 205 (212). 54 Weeramantry, Treaty Interpretation in Investment Arbitration (2012), para. 2.37; Mitchell and Heaton, ‘The Inherent Jurisdiction of WTO Tribunals: The Select Application of Public International Law Required by the Judicial Function’ (2010) 31(3) Mich. J. Int’l L., 559 (570); ILC, Fragmentation of International Law: Difficulties Arising from the Diversification and Expansion of International Law, 13 April 2006, UN Doc A/CN4/L682, 212 f., para. 423, fn. 580.
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2. Interpretation and Amendment Article 8.31-3 establishes a joint interpretation mechanism which is meant to en- 27 sure that the Contracting Parties remain in permanent control over the activities of the ICS. The possibility to adopt joint interpretations enables the Contracting Parties to proactively ‘avoid and correct any misinterpretation of CETA by the Tribunal’. 55 To some extent, provisions like Article 8.31-3 seem to reflect the dissatisfaction of States with the way in which investment treaties have been interpreted by arbitral practice.56 But if the Contracting Parties actively participate in the process of treaty interpretation, the question arises where the difference between interpretation and amendment of the treaty lays. It is in principle clear that interpretation and amendment are two distinct concepts, 28 and that the interpretation of a treaty provision can only lead to clarify and specify its meaning but not change it.57 Thus, the outcome of an interpretation only sheds light on the meaning which was always there, whereas an amendment alters a norm in content and scope.58 An important consequence is that the principle of non-retroactivity does apply to amendments, but principally not to interpretations. 59 However, distinguishing between the two is difficult.60 It has been observed that every treaty interpretation ultimately involves some element of ‘creativity’ compelling the adjudicators to make a value judgment about choosing one out of several possible meanings. 61 It is therefore not surprising that there are no generally accepted formal criteria to distinguish between interpretation and amendment, apart from those that may be potentially provided for in the respective treaty.62 It is, however, generally accepted that States have a wide scope for the interpretation of their treaties. 63 Accordingly, the ILC’s Draft Conclusion 7.3 presumes ‘that the parties to a treaty, by an agreement or a practice in the application of the treaty, intend to interpret the treaty, not to amend or 55 Council of the EU, Joint Interpretative Instrument on the Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union and its Member States, 27 October 2016, 13541/16, 5. 56 Methymaki and Tzanakopoulos, ‘Masters of Puppets? Reassertion of Control through Joint Investment Treaty Interpretation’ in Kulick (ed), Reassertion of Control over the Investment Treaty Regime (2016), 155 (180 f.). 57 Gourgourinis, ‘The Distinction between Interpretation and Application of Norms in International Adjudication’ (2011) 2(1) J. Int’l Disp. Settlement, 31 (44). 58 Methymaki and Tzanakopoulos, ‘Masters of Puppets? Reassertion of Control through Joint Investment Treaty Interpretation’ in Kulick (ed), Reassertion of Control over the Investment Treaty Regime (2016), 155 (177). 59 Kaufmann-Kohler, ‘Interpretative Powers of the Free Trade Commission and the Rule of Law’ in Gaillard and Bachand (eds), Fifteen Years of NAFTA Chapter 11 Arbitration (2011), 175 (189); Methymaki and Tzanakopoulos, ‘Masters of Puppets? Reassertion of Control through Joint Investment Treaty Interpretation’ in Kulick (ed), Reassertion of Control over the Investment Treaty Regime (2016), 155 (179). See below, → mn. 67 ff. for a detailed discussion of the principle of non-retroactivity under Article 8.31-3. 60 Kaufmann-Kohler, ‘Interpretative Powers of the Free Trade Commission and the Rule of Law’ in Gaillard and Bachand (eds), Fifteen Years of NAFTA Chapter 11 Arbitration (2011), 175 (191). 61 Stern, ‘Interpretation in international trade law’ in Fitzmaurice and Merkouris (eds), Treaty Interpretation and the Vienna Convention on the Law of Treaties: 30 Years on (2010), 111 (114 f.); Weiler, The Interpretation of International Investment Law (2013), 37. In this sense comparing the process of interpretation to a political act: Methymaki and Tzanakopoulos, ‘Masters of Puppets? Reassertion of Control through Joint Investment Treaty Interpretation’ in Kulick (ed), Reassertion of Control over the Investment Treaty Regime (2016), 155 (178 f.); Karton, ‘Choice of Law and Interpretive Authority in Investor-State Arbitration’ (2017), 3 CJCCL, 217 (263). 62 Second Report of Special Rapporteur Nolte, Subsequent Agreements and Subsequent Practice in Relation to the Interpretation of Treaties, 26 March 2014, UN Doc. A/CN.4/671, para. 163. 63 Second Report of Special Rapporteur Nolte, Subsequent Agreements and Subsequent Practice in Relation to the Interpretation of Treaties, 26 March 2014, UN Doc. A/CN.4/671, para. 163.
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to modify it’.64 Against this background, the Tribunal should take a deferential, nonintrusive approach to interpretations adopted pursuant Article 8.31-3.65 Considering that the Contracting Parties remain at all times the masters of the treaty, there seems to be very little room for the Tribunal to substantively review or limit the content of a joint interpretation without risking appeal or annulment of the award.66 Only if the interpretation adopted pursuant to Article 8.31-3 is unclear or vague, it might be necessary to engage in a subsequent interpretation to shed light on the Parties’ intended meaning.67 29 Adopting a formal approach to the difficult distinction between interpretation and amendment therefore seems appropriate. Where the procedure pursuant to Article 8.44-3(a) is followed, the CETA has been interpreted. Accordingly, the outcome of a procedure pursuant to Article 30.2-1 constitutes an amendment of the treaty. The risk of circumventing the amendment procedure through the issuance of a joint interpretation is very limited, given that the politically relevant requirements such as the consent of the Contracting Parties and the completion of their internal procedures are the same.68 Which procedure to take is therefore a formal governance decision to be taken by the Parties in their capacity as masters of the treaty. For the Tribunal, the difficult question whether an interpretation amounts to an amendment is therefore of limited practical relevance.69
III. Methodological Framework for Decision-Making 30
In sum, a methodological framework can be drawn from the spirit and purpose of Article 8.31. After having first determined the facts of the case through the taking of evidence,70 which includes an appreciation of potentially relevant domestic laws
64 ILC, ‘Draft conclusions on subsequent agreements and subsequent practice in relation to the interpretation of treaties’ in Report of the International Law Commission: Seventieth session (30 April–1 June and 2 July–10 August 2018), UN Doc. A/73/10, Conclusion 7.3. 65 See also Ewing-Chow and Losari, ‘Which Is to Be the Master? Extra-Arbitral Interpretative Procedures for IIAs’ in Kalicki and Joubin-Bret (eds), Reshaping the Investor-State Dispute Settlement System (2015), 91 (111). 66 See Ewing-Chow and Losari, ‘Which Is to Be the Master? Extra-Arbitral Interpretative Procedures for IIAs’ in Kalicki and Joubin-Bret (eds), Reshaping the Investor-State Dispute Settlement System (2015), 91 (96, 97 at fn. 32). In the NAFTA context some tribunals were tempted to review the joint interpretations’ validity, but eventually unanimously accepted them. See Pope & Talbot Inc., UNCITRAL, Award in Respect of Damages (31 May 2002), para. 47; Merrill & Ring Forestry L.P. v. Canada, ICSID Case No. UNCT/07/1, Award (31 March 2010), para. 192; Mondev International Ltd. v. United States, ICSID Case No. ARB(AF)/99/2, Award (11 October 2002), para. 121; Chemtura Corporation v. Canada, UNCITRAL (NAFTA), Award (2 August 2010), para. 120; ADF Group Inc. v. United States, ICSID Case No. ARB (AF)/00/1, Award (9 January 2003), para. 177. 67 Ewing-Chow and Losari, ‘Which Is to Be the Master? Extra-Arbitral Interpretative Procedures for IIAs’ in Kalicki and Joubin-Bret (eds), Reshaping the Investor-State Dispute Settlement System (2015), 91 (98 f.). Emphasizing that States should adopt clear interpretations that do not require further interpretation by tribunals: Kaufmann-Kohler, ‘Interpretative Powers of the Free Trade Commission and the Rule of Law’ in Gaillard and Bachand (eds), Fifteen Years of NAFTA Chapter 11 Arbitration (2011), 175 (189). 68 According to Article 26.1-1, the CETA Joint Committee comprises representatives of the European Union and representatives of Canada. Pursuant to Article 26.3-3 ‘the CETA Joint Committee shall make its decisions and recommendations by mutual consent’. 69 See accordingly, e.g., in the context of NAFTA that there was ‘no need to embark upon an inquiry into the distinction between an ‘interpretation’ and an ‘amendment’ of Article 1105(1)’: ADF Group Inc. v. United States, ICSID Case No. ARB (AF)/00/1, Award (9 January 2003), para. 177. 70 Armed Activities on the Territory of the Congo (Democratic Republic of the Congo v. Uganda), Judgment, 19 December 2005, ICJ Reports (2005), 168 (200): ‘In accordance with its practice, the Court will
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pursuant to Article 8.31-2, the Tribunal should structure its decision-making process in three steps: First, the applicable law should be identified in accordance with choice-of-law 31 clause contained in Article 8.31-1.71 The Tribunal must primarily identify the relevant provisions of the CETA.72 Where no relevant CETA provision exists, the Tribunal must identify relevant rules and principles of international law as gap-fillers. Potentially relevant are all sources of international law in the sense of Article 38 Statue of the ICJ, including customary international law, general principles of international law, and other international treaties applicable between the Contracting Parties. However, in view of the comprehensive and detailed regulatory regime established by the CETA, the Tribunal will in most cases be capable of identifying a relevant lex specialis provision. The second step consists in determining the meaning of the applicable law. Where 32 the normative scope and meaning of a norm is not clear, the Tribunal must engage in the process of interpretation. Here, priority must first be given to any authentic interpretation adopted pursuant to Article 8.31-3.73 Should the meaning remain unclear, the Tribunal must proceed with the interpretative process in accordance with the VCLT. The principles of interpretation ‘are to be followed in a holistic fashion […] so as to yield an interpretation that is harmonious and coherent and fits comfortably in the treaty as a whole’.74 In addition to customary international law and general principles of international law, external treaty norms applicable between the Contracting Parties may again become relevant. At this stage, the conceptual distinction between applying a legal norm and using it as interpretative guidance is relevant. 75 A rule or principle of international law may, despite being excluded from direct applicability by a lex specialis provision of the CETA, be relevant in the context of interpreting that same provision. For example, Article 8.39 covers the compensation of investors and would therefore be the primary legal source in that regard. However, general principles of international law such as the duty to mitigate damages might be directly applicable as gap-filler since the CETA does not contain a comparable lex specialis provision.76 In addition, general principles on compensation might clarify the meanfirst make its own determination of the facts and then apply the relevant rules of international law to the facts which it has found to have existed’. 71 See generally Gourgourinis, ‘The Distinction between Interpretation and Application of Norms in International Adjudication’ (2011) 2(1) J. Int’l Disp. Settlement, 31 (46). 72 Recalling that in every choice-of-law analysis, the arbitrators must first identify, with fidelity, the law the Parties have chosen: Reisman, ‘The Regime for Lacunae in the ICSID Choice of Law Provision and the Question of Its Threshold’ (2000) 15(2) ICSID Rev., 362 (368). See also Newcombe and Paradell, Law and Practice of Investment Treaties: Standards of Treatment (2009), 78 f. 73 An authentic interpretation traditionally possesses two distinctive features: Firstly, it emanates from the entity that created the interpreted norm. And secondly, it has the same legal value as the interpreted norm. See Berner, ‘Authentic Interpretation in Public International Law’ (2016) 76 ZaöRV, 845 (846 f.). See further details below, → mn. 37 on the legal nature of joint interpretations adopted under Article 8.31-3. 74 WTO Appellate Body Report, United States – Continued Existence and Application of Zeroing Methodology, 19 February 2009, WT/DS350/AB/R, para. 268. 75 See with respect to the distinction between direct applicability of international law rules compared to their use as external interpretive guidance: Kurtz, ‘Building Legitimacy Through Interpretation in Investor-State Arbitration’ in Douglas et al. (eds), The Foundations of International Investment Law: Bringing Theory into Practice (2014), 257 (280); Gourgourinis, ‘The Distinction between Interpretation and Application of Norms in International Adjudication’ (2011) 2(1) J. Int’l Disp. Settlement, 31 (51). 76 See e.g., tribunals referring to general principles of international law with respect to the duty to mitigate damages: Middle East Cement Shipping and Handling Co. S.A. v. Egypt, ICSID Case No. ARB/99/6, Award (12 April 2002), para. 167; Hrvatska Elektroprivreda d.d. v. Slovenia, ICSID Case
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ing of terms such as ‘fair market value’ referred to in Article 8.39-1(b). Here, general principles would come into play in accordance with the rules of interpretation of the VCLT. 33 Thirdly, once the meaning of the applicable law is clarified by interpretation, the relevant norms must finally be applied to the facts of the case. 77 In most instances, this task requires to establish whether the CETA has been breached by the Respondent and which, if any, legal consequences derive from this finding. Only at this stage, the Tribunal ‘may consider, as appropriate, the domestic law of a Party as a matter of fact’ pursuant to Article 8.31-2. Consequently, it would be problematic if the Tribunal would refer to domestic law in context of interpretation. Instead, the Tribunal must first clarify the meaning of the applicable international law by interpretation. Only afterwards, domestic law is considered as a matter of fact in the context of application. 78 What at first glance seems to be a methodological detail is indeed important since attributing interpretative value to domestic law could potentially alter the outcome of the interpretative process. This in turn, could amount to the application of the wrong law.79 As outlined above, a violation of Article 8.31-1 could adversely affect the decisions finality and enforceability (→ mn. 22).
IV. Autonomy of the Domestic Legal Order 34
Article 8.31 plays a central role in preserving the autonomy and integrity of the Contracting Parties’ domestic legal order. Especially from a European perspective, it is essential to ensure that the ICS established under Section F does not infringe on the autonomy of the European legal order in the sense the CJEU has developed this concept in its jurisprudence.80 The CJEU has repeatedly affirmed that the accession of the EU to ‘an international agreement providing for the creation of a court responsible for the interpretation of its provisions and whose decisions are binding on the European Union, is, in principle, compatible with EU law’.81 However, the Court requires that such a treaty contains indispensable conditions for safeguarding the powers and competences of the EU institutions. In the past, the Court has blocked the Union’s accession to the European Economic Area Court, the Unified Patent Court, and the European Court of Human Rights because of incompatibility with the autonomy of EU law as enshrined in Article 267 and 344 TFEU.82 It is therefore not surprising that No. ARB/05/24, Award (17 December 2015), para. 215. See generally: Dumberry, A Guide to General Principles of Law in International Investment Arbitration (2020). 77 See e.g., in the context of jurisdiction: Phoenix Action, Ltd. v. Czech Republic, ICSID Case No. ARB/06/5, Award (15 April 2009), para. 73. 78 In accordance with its factual nature, the content of the relevant domestic law must be established separately, in the process of evidence taking. 79 The relevance of this methodological aspect is illustrated by the explicit distinction between ‘examination’ and ‘interpretation’ emphasised by the CJEU. See CJEU, Opinion 1/17, 30.04.2019, EU-Canada CET Agreement, ECLI:EU:C:2019:341, para. 131. Against this background, the Opinion of Advocate General Bot lacks precision when it states that Article 8.31-2 ‘guarantees that the CETA Tribunal can interpret EU law only if there is no guidance in that regard within the EU legal order […]’. See Opinion of Advocate General Bot in Opinion 1/17, 29.1.2019, EU-Canada CET Agreement, ECLI:EU:C:2019:72, para. 139. 80 See inter alia, CJEU, Opinion 1/00, 18.04.2002, Agreement on the establishment of a European Common Aviation Area, EU:C:2002:231, paras. 20 f., and Opinion 2/13, 19.12.2014, Accession of the Union to the ECHR, EU:C:2014:2454, para. 183. 81 CJEU, Opinion 1/17, 30.4.2019, EU-Canada CET Agreement, ECLI:EU:C:2019:341, para. 106. 82 CJEU, Opinion 1/91, 4.12.1991, European Economic Area Agreement, ECLI:EU:C:1991:490, paras. 44 ff.; CJEU, Opinion 1/09, 9.3.2011, Agreement on the Establishment of a Unified Patent Litigation System,
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the Contracting Parties to the CETA payed much attention to ensure that the ICS would neither apply EU law nor national law of the EU Member States. The spirit of caution which characterises Article 8.31 does not come out of the 35 blue, but is a reaction to arbitral practice which has repeatedly and explicitly rejected the ‘absolute monopoly of the ECJ over the interpretation and application of EU law’.83 It is through this lens the wording of Article 8.31 must be seen. Its aim is to ensure that the ICS would survive a judicial scrutiny by the CJEU. In 2018, the CJEU famously concluded in its Achmea judgement that an ISDS clause contained in a bilateral investment treaty concluded between Member States was incompatible with EU law.84 However, in its much-awaited Opinion 1/17,85 the Court concluded in 2019 that the CETA was indeed compatible with EU law because the ICS had no jurisdiction to interpret and apply rules of EU law other than the provisions of the CETA.86 Article 8.31 was of central importance in this context. 87 In view of the Court’s history of strictly scrutinising external dispute settlement bodies, it is fair to say that the provision efficiently fulfilled its function of defining the relationship between the domestic legal order and the ISDS regime in a way which does not adversely affect the autonomy of the EU legal order. Accordingly, Article 8.31 was already taken into consideration by Advocate General Bot in Opinion1/17.88 The Court adopted the reading of the Advocate General (AG) who had observed that Article 8.31-2 ‘illustrates the approach adopted by the Parties, in accordance with which the CETA Tribunal is to interpret as little as possible the domestic law of each of the Parties and is to take account of it as it stands’.89 At the same time, the AG highlighted that the provision contains ‘safeguards to prevent the CETA Tribunal from being able to impose an interpretation of EU law within the EU legal order’.90 The unequivocal wording of Article 8.31 convinced the Court that the Tribunal had no power to interpret or apply EU law except for the provisions of the CETA.91 With respect to the fact that the CETA has no direct institutional ties with the EU system, the CJEU observed that since:
ECLI:EU:C:2011:123, para. 89; CJEU, Opinion 2/13, 18.12.2014, Accession to the European Convention of Human Rights, EU:C:2014:2454, para. 258. 83 European American Investment Bank AG (EURAM) v. Slovakia, UNCITRAL, PCA Case No. 2010-17, Award on Jurisdiction (22 October 2012), para. 248. See also Achmea B.V. v. Slovakia, UNCITRAL, PCA Case No. 2008-13, Award on Jurisdiction, Arbitrability and Suspension (26 October 2010), paras. 282 f. 84 CJEU, Case C‑284/16, 6.3.2018, Slowakische Republik (Slovak Republic) v. Achmea BV, ECLI:EU:C:2018:158. 85 The Court clearly distinguished the ICS established by the CETA from the ISDS clause in Achmea with regard to the principle of mutual trust applicable between EU Member States. See CJEU, Opinion 1/17, 30.4.2019, EU-Canada CET Agreement, ECLI:EU:C:2019:341, paras. 126 ff. 86 CJEU, Opinion 1/17, 30.4.2019, EU-Canada CET Agreement, ECLI:EU:C:2019:341, para. 136. 87 CJEU, Opinion 1/17, 30.4.2019, EU-Canada CET Agreement, ECLI:EU:C:2019:341, paras. 120 ff. 88 Opinion of Advocate General Bot in Opinion 1/17, 29.1.2019, EU-Canada CET Agreement, ECLI:EU:C:2019:72, paras. 121 ff. 89 Opinion of Advocate General Bot in Opinion 1/17, 29.1.2019, EU-Canada CET Agreement, ECLI:EU:C:2019:72, para. 129; CJEU, Opinion 1/17, 30.4.2019, EU-Canada CET Agreement, ECLI:EU:C:2019:341, para. 150. 90 Opinion of Advocate General Bot in Opinion 1/17, 29.1.2019, EU-Canada CET Agreement, ECLI:EU:C:2019:72, para. 140. 91 CJEU, Opinion 1/17, 30.4.2019, EU-Canada CET Agreement, ECLI-EU-C-2019-341, para. 122. As discussed above (→ mn. 11), the Court’s reading of Article 8.31-1 is too narrow. However, this is irrelevant in the context of assessing potential infringements on the autonomy of the EU legal order. Even if one adopts the view that ‘other rules and principles of international law applicable between the Parties’ form part of the applicable law in the sense of Article 8.31-1, the Tribunal would still not be entitled to apply EU or Member States law.
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the CETA Tribunal and Appellate Tribunal stand outside the EU judicial system and since their powers of interpretation are confined to the provisions of the CETA in the light of the rules and principles of international law applicable between the Parties, it is, moreover, consistent that the CETA makes no provision for the prior involvement of the Court that would permit or oblige that Tribunal or Appellate Tribunal to make a reference for a preliminary ruling to the Court. 92
36
Considering that Article 8.31 passed the difficult hurdle of confirmation by the CJEU, the provision’s cautious approach has proved successful and will most likely serve as model clause for the applicable law in future EU investment treaty negotiations.93
V. Distribution of Interpretative Powers Article 8.31-3 introduces a joint interpretation mechanism which concerns the interpretation of the treaty and enables the Contracting Parties to modify the applicable law. At the same time, the provision establishes an ex-post control of the ICS by distributing the use of interpretative powers between the Contracting Parties and the Tribunal once the CETA is in force. 38 The provision is therefore not only an attempt to reassert control but should also be seen as a friendly reminder to Tribunals and investors that the Contracting Parties remain the masters of the treaty.94 Article 8.31-3 explicitly reaffirms the fundamental principle of treaty law according to which the interpretative authority of a dispute settlement body is never absolute but is always shared with the Parties to the treaty (→ mn. 37).95 37
1. Joint Interpretation Mechanism 39
The aim of a joint interpretation mechanism is to ensure that the tribunal’s interpretation does not deviate from the initial policy considerations behind the treaty. 96 In this sense, Article 8.31-3 ‘ensures that the Tribunal respects the intent of the Parties as set out in the Agreement’.97 Accordingly, the interpretation of treaty provisions is not a monologue held by the Tribunal, but rather a ‘constructive dialogue’ between the ICS and the Contracting Parties.98 This process enables the Contracting Parties to develop and express new policy priorities and thereby promote political legitimacy CJEU, Opinion 1/17, 30.4.2019, EU-Canada CET Agreement, ECLI-EU-C-2019-341, para. 134. See with respect to the creation of a multilateral investment court foreseen in Article 8.29: Bungenberg and Reinisch, From Bilateral Arbitral Tribunals and Investment Courts to a Multilateral Investment Court (2020), para. 387. 94 Methanex Corporation v. United States, UNCITRAL (NAFTA), Final Award (3 August 2005), pt. IV, ch. C, para. 20 (‘clear beyond peradventure (“any investor contemplating an investment in reliance on NAFTA must be deemed to be aware of it”’); Roberts, ‘Power and Persuasion in Investment Treaty Interpretation: The Dual Role of States’ (2010) 104(2) Am. J. Int’l L., 179 (208, 216); Methymaki and Tzanakopoulos, ‘Masters of Puppets? Reassertion of Control through Joint Investment Treaty Interpretation’ in Kulick (ed), Reassertion of Control over the Investment Treaty Regime (2016), 155 (160 f.). 95 Roberts, ‘Power and Persuasion in Investment Treaty Interpretation: The Dual Role of States’ (2010) 104(2) Am. J. Int’l L., 179; UNCTAD, Interpretation of IIAs: What States Can Do, December 2011, IIA Issue Note No. 3, 3. 96 Clifford and Douaire de Bondy, ‘Determining State Intention – A Canadian Perspective’ in Banifatemi (ed), Jurisdiction in Investment Treaty Arbitration (2018), 135-136. 97 Council of the EU, Joint Interpretative Instrument on the Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union and its Member States, 27 October 2016, 13541/16, 5. 98 Roberts, ‘Power and Persuasion in Investment Treaty Interpretation: The Dual Role of States’ (2010) 104(2) Am. J. Int’l L., 179 (225); UNCTAD, Interpretation of IIAs: What States Can Do, December 2011, IIA Issue Note No. 3, 3. 92
93
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and long-term acceptance of the CETA.99 Against this background, the provision can be seen as a policy response to what is often referred to as the backlash against investment arbitration.100 It is an instrument by which States effectively reassert control over the ISDS mechanism included in their investment treaties.101 The most well-known example of a joint interpretation mechanism was Article 40 1131.2 NAFTA which has been replaced by Article 14.D.9.2 USMCA. 102 In the context of NAFTA, the wide-reaching effect of joint interpretations was prominently illustrated by the Free Trade Commission’s note by which the ‘fair and equitable treatment’ standard was limited to the customary minimum standard of treatment of aliens. 103 Since then, joint interpretation mechanisms have been included in many inter- 41 national investment treaties and Article 8.31-3 reflects the treaty practice of the Contracting Parties.104 In Opinion 1/17, the CJEU recalled that such provisions are ‘neither illegitimate nor unusual, under international law’.105 From an historical perspective, this is especially true in the case of Canada which included this type of clause in all of its comprehensive FTAs and in its 2004 Model FIPA. 106 With respect to the EU, the inclusion of a joint interpretation mechanism is indeed a novelty which cannot be found in the BITs traditionally concluded by its Member States. 107 That Article 8.31-3 explicitly refers to ‘serious concerns […] as regards matters of 42 interpretation’ may reflect a certain scepticism towards the Tribunal. Indeed, treaty interpretation conducted by arbitral tribunals in ISDS proceedings is frequently criticized and has led to the conclusion that the misapplication of the rules of treaty interpretation is at the root of unintended and inconsistent findings.108 However, the 99 Clifford and Douaire de Bondy, ‘Determining State Intention – A Canadian Perspective’ in Banifatemi (ed), Jurisdiction in Investment Treaty Arbitration (2018), 137. 100 See generally Waibel et al. (eds), The Backlash Against Investment Arbitration. Perceptions and Reality (2010). 101 See generally Kulick (ed), Reassertion of Control over the Investment Treaty Regime (2016). Recalling that the Contracting Parties own their treaty: Crawford, ‘A Consensualist Interpretation of Article 31(3) of the Vienna Convention on the Law of Treaties’, in Nolte (ed), Treaties and Subsequent Practice (2013), 29 (31). 102 Article 1131.2 North American Free Trade Agreement (NAFTA); replaced by Article 14.D.9.2 USMCA. 103 NAFTA Free Trade Commission, Notes of Interpretation of Certain Chapter 11 Provisions, 31 July 2001. 104 See e.g., Article 3.42 EUVIPA (draft); Article 3.13-3 EU-Singapore FTA; Article 2.31-5 EU-Indonesia FTA (draft); Article X.15.5-7 EU-Mexico Global Agreement (draft); Article 28 Canada-European Free Trade Association (EFTA) FTA; Article N-01 Canada-Chile Free Trade Agreement (CCFTA); Article 8.32 Canada-Colombia Free Trade Agreement; Article 9.25-3 Trans-Pacific Partnership (TPP) incorporated into the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). See for comparable provisions in other investment treaties with extra-arbitral interpretation mechanisms: Ewing-Chow and Losari, ‘Which Is to Be the Master? Extra-Arbitral Interpretative Procedures for IIAs’ in Kalicki and Joubin-Bret (eds), Reshaping the Investor-State Dispute Settlement System (2015), 91 (99). 105 CJEU, Opinion 1/17, 30.04.2019, EU-Canada CET Agreement, ECLI:EU:C:2019:341, para. 233. 106 Clifford and Douaire de Bondy, ‘Determining State Intention – A Canadian Perspective’ in Banifatemi (ed), Jurisdiction in Investment Treaty Arbitration (2018), 136. 107 See European Commission, Concept paper “Investment in TTIP and beyond – the path for reform. Enhancing the right to regulate and moving from current ad hoc arbitration towards an Investment Court”, 5 May 2015, 5 f. 108 For example, in a study of 229 decisions, significant methodological flaws in arbitral approaches to treaty interpretation were found in 180 cases. See Yen, The Interpretation of Investment Treaties (2014), 32 ff., 99 f. Coming to a similar conclusion: Weeramantry, Treaty Interpretation in Investment Arbitration (2012), para. 6.11. A heavily criticised example is the ‘in dubio pro investore’ approach to treaty interpretation adopted by the tribunal in Noble Ventures, Inc. v. Romania, ICSID Case No. ARB/01/11, Final Award (12 October 2005), para. 52. See also Waibel, ‘International Investment Law and Treaty Interpre-
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political dimension of the term ‘serious concerns’ should not be overstated either (→ mn. 69).
2. Legal Nature of Joint Interpretations 43
Assessing the legal nature of interpretations adopted under Article 8.31-3 is more than a methodological detail. On the one hand, a joint interpretation constitutes a ‘subsequent agreement’ in the sense of Article 31.3(a) VCLT. 109 On the other hand, the soft language of Article 31.3 VCLT (‘taking into account’) does not seem to properly reflect the binding legal force of a joint interpretation.110 This is furthermore illustrated by the universally accepted view that the general rules of interpretation enshrined in Article 31 VCLT are not hierarchical, but constitute a single ‘holistic exercise’ of interpretation giving equal weight to all of its elements.111 This methodological mismatch suggests that joint binding interpretations such as the ones adopted pursuant to Article 8.31-3 and 8.44-3(a) are more than just subsequent agreements in the sense of Article 31.3(a) VCLT.112 Instead, they constitute authentic interpretations of the CETA which can give a special meaning to the term at issue but also amend, extend, or delete a text.113 In other words, the joint interpretations adopted under Article 8.31-3 constitute a special regime which has the potential to override the general rules of treaty interpretation.114 Consequently, there is no substantive distinction between interpretation and amendment to observe in case the CETA Joint Committee adopts an interpretation pursuant to Article 8.31-3.115 tation’, in Hofmann and Tams (eds), International Investment Law and General International Law: From Clinical Isolation to Systemic Integration (2011), 29 (39 f.); Methymaki and Tzanakopoulos, ‘Masters of Puppets? Reassertion of Control through Joint Investment Treaty Interpretation’ in Kulick (ed), Reassertion of Control over the Investment Treaty Regime (2016), 155 (157). Tracing inconsistent outcomes back to uncertainties in the applicable law: Karton, ‘Choice of Law and Interpretive Authority in InvestorState Arbitration’ (2017), 3 CJCCL, 217 (224). 109 See e.g., CJEU, Opinion 1/17, 30.04.2019, EU-Canada CET Agreement, ECLI:EU:C:2019:341, para. 233; Methanex Corporation v. United States, UNCITRAL (NAFTA), Final Award of the Tribunal on Jurisdiction and Merits (3 August 2005), Pt. II Ch.B, p. 10, para. 21. 110 Methymaki and Tzanakopoulos, ‘Masters of Puppets? Reassertion of Control through Joint Investment Treaty Interpretation’ in Kulick (ed), Reassertion of Control over the Investment Treaty Regime (2016), 155 (169). 111 Jennings and Watts (eds), Oppenheim's International Law: Volume 1 Peace (2008), para. 632; Villiger, Commentary on the 1969 Vienna Convention on the Law of Treaties, Article 31 VCLT, mn. 29; Delbrück and Wolfrum, Völkerrecht Bd I/3: Die Formen des völkerrechtlichen Handelns; Die inhaltliche Ordnung der internationalen Gemeinschaft (2002), 640; ILC, Report on the work of its eighteenth session 4 May - 19 July 1966, YBILC 66 II (1966), 219 f., para. 8; Methymaki and Tzanakopoulos, ‘Masters of Puppets? Reassertion of Control through Joint Investment Treaty Interpretation’ in Kulick (ed), Reassertion of Control over the Investment Treaty Regime (2016), 155 (169). 112 Implying that such interpretations may be more than subsequent agreements in the sense of Article 31.3 VCLT: Newcombe and Paradell, Law and Practice of Investment Treaties: Standards of Treatment (2009), 117 (‘In any case, those interpretations may constitute evidence of a subsequent agreement […] [emphasis added]’). 113 See Villiger, Commentary on the 1969 Vienna Convention on the Law of Treaties (2008), Article 31 VCLT, mn. 16. 114 Jennings and Watts (eds), Oppenheim's International Law: Volume 1 Peace (2008), para. 630; Roberts, ‘Power and Persuasion in Investment Treaty Interpretation: The Dual Role of States’ (2010) 104(2) Am. J. Int’l L., 179 (208); Ewing-Chow and Losari, ‘Which Is to Be the Master? Extra-Arbitral Interpretative Procedures for IIAs’ in Kalicki and Joubin-Bret (eds), Reshaping the Investor-State Dispute Settlement System (2015), 91 (103). 115 Noting that joint interpretations eliminate any distinction between interpretations and amendments: Roberts, ‘Power and Persuasion in Investment Treaty Interpretation: The Dual Role of States’ (2010) 104(2) Am. J. Int’l L., 179 (208). See above, → mn. 27, for the formal nature of this distinction in the context of the CETA.
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The joint interpretation mechanism of Article 8.31-3 is of course not the only 44 way the Contracting Parties may, in their capacity as masters of the treaty, make use of their interpretative powers.116 They can also directly enter into a subsequent agreement outside of the Joint Committee. In this case, the question arises whether such a subsequent agreement is to be taken into account by the Tribunal in accordance with Article 31.3 VCLT or whether here as well, the authentic interpretation by the Parties potentially overrides the general rules of interpretation.117 Therefore, the creation of a treaty-based interpretation mechanism such as Article 8.31-3 reduces the ambiguity associated with the legal nature of subsequent statements.118
C. Drafting History Given that Article 8.31 addresses fundamental issues of the ISDS mechanism, it 45 is unsurprising that the first draft of the CETA published in January 2010 already contained a provision on applicable law and interpretation. This provision remained unchanged in the consolidated drafts of January 2011 and February 2012. According to this first version of the provision, the Tribunal was supposed to ‘decide the issues in dispute in accordance with this Agreement and applicable rules of international law’. There was no guidance on how the Tribunal should interpret the applicable law. The relationship between international and domestic law was not addressed at this stage of the drafting process either. The draft did, however, already foresee a binding interpretation by the Joint Committee, referred to as ‘Commission’ at that time. In addition, the draft provided for an obligation of the Tribunal to request such an interpretation ‘on request of the respondent Party’ in case the latter relied on a reservation or exception as a defence. Thus, the Tribunal would have been obliged to routinely implicate the Commission in the settlement of claims. 119 In other words, the representatives of the Contracting Parties would have been primarily responsible to interpret the scope of exceptions and reservations at the occasion of concrete disputes. This, however, would only apply at the request of the respondent Party. Such a procedure would have undermined the procedural equality of arms between the disputing Parties. A significantly increased risk of politicizing the dispute settlement 116 Roberts, ‘Power and Persuasion in Investment Treaty Interpretation: The Dual Role of States’ (2010) 104(2) Am. J. Int’l L., 179 (216); Ewing-Chow and Losari, ‘Which Is to Be the Master? ExtraArbitral Interpretative Procedures for IIAs’ in Kalicki and Joubin-Bret (eds), Reshaping the Investor-State Dispute Settlement System (2015), 91 (113); Karton, ‘Choice of Law and Interpretive Authority in Investor-State Arbitration’ (2017), 3 CJCCL, 217 (241 f.). 117 See Clayton v. Canada, UNCITRAL, PCA Case No. 2009-04, Award on Damages (10 January 2019), para. 377 (‘The NAFTA Parties have an option to make a binding interpretation under Article 1131(2) but the fact they have not done so means that treaty interpretation simply follows the normal interpretative rules, which include taking account of subsequent agreements and subsequent practice of the parties’). In contrast suggesting that subsequent agreements constitute a different situation, which override normal interpretative rules: Villiger, Commentary on the 1969 Vienna Convention on the Law of Treaties (2008), Article 31 VCLT, mn. 16. The ILC provides that ‘[t]he interpretation resulting from an interpretative declaration made in respect of a bilateral treaty by a State or an international organization party to the treaty and accepted by the other party constitutes the authentic interpretation of that treaty.’ See: ILC, Yearbook of the International Law Commission, 1999, Vol. II, UN Doc. A/CN.4/SER.A/1999/ Add.l (Part 2), 125, Rule 1.5.3. 118 See Ishikawa, 'Keeping Interpretation in Investment Treaty Arbitration “on Track”: The Role of State Parties' in Kalicki and Joubin-Bret (eds), Reshaping the Investor-State Dispute Settlement System (2015), 115 (148). 119 According to the draft, the Commission was supposed to submit its interpretation to the Tribunal within 60 days. If the Commission did not do so, it was up to the Tribunal to decide the issue.
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process would have been the consequence of such a unilaterally granted privilege. Against this background, it was positive that this sort of preliminary ruling procedure was not retained in the final version.120 46 Instead, the consolidated draft of 15 November 2013 removed the interpretation mechanism upon request and limited its use to cases in which ‘serious concerns arise as regards matters of interpretation’. It was certainly wise to disconnect the adoption of interpretations by the Commission from the request of a State or the Union in their capacity as disputing Parties in ongoing proceedings. This clear shift suggests that the Contracting Parties are perfectly aware of the potential political implications associated with the joint interpretation mechanism. It remains to be seen whether the Contracting Parties will make use of their interpretative powers responsibly. 121 It is noteworthy that the EU proposed to limit the binding force of the provision to instances ‘where the treatment on which the claim is based occurred after the date on which the interpretation was adopted by the Committee’. This important precision was not retained in the final version. The Contracting Parties instead agreed on a wording providing much more flexibility since it is now up to the Committee to ‘decide that an interpretation shall have binding effect from a specific date’. In view of potentially adverse effects on the Tribunal’s independence, the CJEU made sure in Opinion 1/17 that the principle of non-retroactivity must be observed in the practice under Article 8.31-3 (→ mn. 67).122 47 At the same time, the draft of 15 November 2013 contained important amendments of the choice-of-law clause since the explicit differentiation between application and interpretation was introduced. The Tribunal was directed to apply the relevant Sections of the CETA ‘interpreted in accordance with the Vienna Convention on the Law of Treaties, and other rules and principles of international law applicable between the Parties’. As discussed above, the comma is meant to separate the reference to the VCLT from ‘other rules and principles of international law applicable between the Parties’. Considering the drafting process, this newly introduced reference to the VCLT was not meant to modify the applicable law itself. As stated in the previous version, the Tribunal must still ‘decide the issues in dispute in accordance with this Agreement and applicable rules of international law’. Instead, the explicit reference to the VCLT was most likely meant to ensure that the Tribunal would interpret the applicable law in a predictable and widely accepted way. This further guidance on how the Tribunal should make use of its interpretative powers to some extent compensates the restricted scope of the joint interpretation mechanism now being limited to cases where ‘serious concerns arise as regards matters of interpretation’. In light of the above, there is little to suggest that the Contracting Parties had the intent to limit the legal value of ‘other rules and principles of international law’ to mere instruments of interpretative guidance. Since these legal sources have been part of the applicable law from the very beginning of the drafting process, the Contracting Parties would have most likely chosen a much clearer wording. The EU wanted to make the Tribunal to take into account of the ‘generally and internationally accepted principles of public or administrative law’. Given it is unclear which principles exactly meet this threshold, 120 However, as of August 2020, Article X.15-6 EU-Mexico Global Agreement (2018) contains a similar provision. 121 In their Joint Declaration Concerning Article 8.12-6 (Annex 8-D), the Contracting Parties have already expressed the intention to make use of Article 8.31-3 to specify the validity and scope of intellectual property rights. The same intention is implicitly expressed by Article 8.10-2 in the context of regularly reviewing the obligation to provide fair and equitable treatment. 122 CJEU, Opinion 1/17, 30.4.2019, EU-Canada CET Agreement, ECLI:EU:C:2019:341, para. 237.
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such a wording would have increased the risk of unpredictable outcomes significantly. It is therefore good that the Contracting Parties did not include this reference in the final version. The consolidated drafts in February and August 2014 did not contain significant 48 changes. It is only at the very final stage of the drafting process that the Contracting Parties introduced the provision on domestic law in Article 8.31-2. The emphasis on domestic law might be a reaction to Opinion 2/13 rendered in December 2014 by which the CJEU blocked the Union’s accession to the ECHR.123 In its opinion, the Court emphasized that no international agreement can have ‘the effect of binding the EU and its institutions, in the exercise of their internal powers, to a particular interpretation of the rules of EU law’.124 Article 8.31-2 mirrors Article 13 of the EU’s November 2015 TTIP proposal.125 Given that Canada included a similar provision in its 2008 FTA with Colombia, the late inclusion of Article 8.31-2 was most likely not subject to controversial debates.126
D. Commentary I. Article 8.31-1 1. Scope of the Choice-of-Law Clause With respect to the provision’s scope of application the question arises whether 49 the term ‘decision’ refers to every kind of binding ruling rendered by the Tribunal established pursuant to Article 8.27 in the course of its dispute settlement mandate or whether Article 8.31 is only relevant to certain types of decisions. In terms of terminology, Article 8.38-1(b)(iv) distinguishes between ‘orders, awards and decisions of the Tribunal’. However, this formal distinction is not helpful for the purpose of determining the scope of Article 8.31-1. Instead, the substantive content of a given decision is important. Like Article 42.1 50 ICSID Convention,127 Article 8.31-1 determines the applicable substantive law and is therefore only relevant for decisions on the merits. Primarily these are final awards (Article 8.39). Decisions on the objection that a claim is manifestly without legal merit (Article 8.32-5) or unfounded as a matter of law (Article 8.33-1) are also of substantive nature. Even though these early dismissal decisions are taken in a specific procedural context, they nevertheless relate to the merits and not to jurisdiction or procedure. From a systematic point of view, this is finding is supported by Article 8.22-5(a) which Opinion 2/13, 19.12.2014, Accession of the Union to the ECHR, EU:C:2014:2454. Opinion 2/13, 19.12.2014, Accession of the Union to the ECHR, EU:C:2014:2454, para. 183. 125 European Union, Proposal for Investment Protection and Resolution of Investment Disputes, tabled for discussion with the United States and made public on 12 November 2015, available at https://trade.e c.europa.eu/doclib/docs/2015/november/tradoc_153955.pdf. 126 Pointing to the fact that Colombia itself appears to have first spearheaded the provision in its 2007 Model BIT and in agreements signed as far back as 2006 with Japan, the UK, India, Belgium, China, Peru and Switzerland: Hepburn, ‘CETA’s New Domestic Law Clause’ (2016) EJIL Talk! (March 17, 2016), available at: https://perma.cc/AU58-4CN7. 127 Schreuer et al. (eds), The ICSID Convention: A Commentary (2009), Article 42 ICSID Convention, mn. 3 f.; Bjorklund and Vanhonnaeker, in: Fourt et al. (eds), The ICSID Convention, Regulations and Rules: A Practical Commentary, Article 42 ICSID Convention, mn. 4.246; Siemens v. Argentina, ICSID Case No. ARB/02/8, Jurisdiction (3 August 2004), para. 31; Azurix Corp. v. Argentina, ICSID Case No. ARB/01/12, Jurisdiction (8 December 2003), paras. 48 ff.; CMS Gas Transmission Company v. Argentina, ICSID Case No. ARB/01/8, Jurisdiction (17 July 2003), paras. 87 ff. 123
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addresses ‘procedural or jurisdictional grounds’, whereas decisions pursuant to Article 8.32 or Article 8.33 are treated separately under Article 8.22-5(b). 51 Accordingly, Article 8.31-1 does not apply to procedural or jurisdictional decisions. The applicable law to jurisdictional questions is subject to special rules contained in the definitions of jurisdictional concepts such as investor (ratione personae) or investment (rationae materiae) pursuant to Article 8.1. The same applies to decisions on procedural questions such as the decisions to stay proceedings (Article 8.24), the order of discontinuance (Article 8.35), the transparency of proceedings (Article 8.36-5), on submissions from a non-disputing Party (Article 8.38-2-4), or the consolidation of proceedings (Article 8.43). Decisions on procedural issues are governed by the applicable dispute settlement rules set out in Section F in conjunction with the arbitration rules applicable under Article 8.23-2 and Article 8.36-1. 128 52 Less clear is the applicability of Article 8.31 on interim measures of protection pursuant to Article 8.34. In principle, an interim measure is ‘a facet of the tribunal's overall procedural powers’129 and therefore of procedural nature.130 The applicable law as defined by Article 8.31 is nevertheless indirectly relevant when the provisional measure concerns the merits. Hence, it makes sense to consider Article 8.31-1 to be relevant when the Tribunal orders a provisional measure to preserve the substantive rights of a disputing Party. 53 Article 8.31-1 primarily concerns decisions on the merits taken by the Tribunal constituted in accordance with Article 8.27. However, the provision also applies to the Appellate Tribunal and its decisions pursuant to Article 8.28-2 to ‘uphold, modify or reverse the Tribunal's award based on (a) errors in the application or interpretation of applicable law or (b) manifest errors in the appreciation of the facts, including the appreciation of relevant domestic law’.131 Given that it is the task of the Appellate Tribunal to ensure the proper application or interpretation of applicable law, final awards rendered by the Appellate Tribunal pursuant to Article 8.28-9(d) must also comply with Article 8.31-1.
2. Applicability of All Sources of International Law 54
The explicit reference to the VCLT gives a clear guidance on how the CETA should be interpreted. This can be seen as a reaction of the Contracting Parties to the practice of ISDS tribunals which often cite the VCLT, 132 but nevertheless show 128 In addition, the Committee on Services and Investment may adopt additional rules and amendments under Article 8.44.3(b). 129 Biwater Gauff (Tanzania) Ltd v. Tanzania, ICSID Case No. ARB/05/22, Procedural Order No. 3 (29 September 2006), para. 135. 130 Roth, ‘Interim Measures’ (2012) 2 J. Disp. Resol., 425 (428). Investment tribunals have regularly emphasized that the rights to be preserved by provisional measures are not limited to those which form the subject-matter of the dispute or substantive rights but may extend to procedural rights. See Burlington Resources Inc v. Ecuador, ICSID Case No. ARB/08/5, Procedural Order No. 1 (29 June 2009), para. 60; Sinclair and Repousis, ‘Provisional Measures in ICSID Proceedings’ (2017) 32(2) ICSID Rev., 431 (439) with further references. 131 CJEU, Opinion 1/17, 30.04.2019, EU-Canada CET Agreement, ECLI:EU:C:2019:341, paras. 133 f.; Sardinha, ‘Towards a New Horizon in Investor-State Dispute Settlement? Reflections on the Investment Tribunal System in the Comprehensive Economic Trade Agreement (CETA)’ (2016) 54 Can. YBIL, 311 (352). 132 See already Asian Agricultural Products Ltd. v. Sri Lanka, ICSID Case No. ARB/87/3, Award (27 June 1990), paras. 38 ff. For further examples: Schreuer et al., The ICSID Convention: A Commentary (2009), Article 42 ICSID Convention, mn. 173; McLachlan et al., International Investment Arbitration: Substantive Principles (2017), para. 7.85; Newcombe and Paradell, Law and Practice of Investment Treaties: Standards of Treatment (2009), 110.
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‘a cavalier attitude to treaty interpretation’133 instead of rigorously applying the principles enshrined in the Convention.134 Thus, the explicit reference to the VCLT ensures that the Tribunal is obliged to observe the entire Convention beyond its general rules reflecting international custom, regardless of its ratification status.135 Generally, when a tribunal is directed that the applicable law is international law, 55 that must be read as a reference to all sources of international law in the sense of Article 38.1 ICJ Statue without restriction.136 However, the mere enumeration of sources is of limited practical help when it comes to establishing the rules of international law applicable to a specific dispute (→ mn. 30).137 Since the emergence of modern investment law, customary standards for the treat- 56 ment of aliens in international law have always provided important guidance to tribunals in investment treaty arbitration.138 It is against this background not surprising that customary international law remains a relevant source frequently applied by tribunals.139 One of many well-known examples is the Chorzów Factory standard on the appropriate compensation for wrongful expropriation.140 While customary law is often helpful in supplementing or clarifying provisions of the investment treaty, one must be careful not to re-import standards from which the Parties to the treaty have deliberately contracted-out. 141 Relevant treaties applicable between the Parties are also an important legal source to consider. In addition to treaties and custom, general principles of law such as good faith, 57 the principle of causality, or unjust enrichment are important supplementary sources 133 Waibel, ‘International Investment Law and Treaty Interpretation’ in Hofmann and Tams (eds), International Investment Law and General International Law: From Clinical Isolation to Systemic Integration? (2011), 29. 134 McLachlan et al., International Investment Arbitration: Substantive Principles (2017), para. 7.86; Fauchald, ‘The Legal Reasoning of ICSID Tribunals—An Empirical Analysis’ (2008) 19(2) EJIL, 301; Saldarriaga, ‘Investment Awards and the Rules of Interpretation of the Vienna Convention: Making Room for Improvement’ (2013) 28(1) ICSID Rev., 197; Karton, ‘Choice of Law and Interpretive Authority in Investor-State Arbitration’ (2017), 3 CJCCL, 217 (257); United States v. Canada, LCIA Case No. 81010, Opinion by Michael Reisman with Respect to Selected International Legal Problems in LCIA Case No. 7941 (1 May 2009), paras. 7 ff. 135 While Canada is a Party to the VCLT since 1970, neither the EU, nor all of its Members are. Considering that Article 8.31-1 is ‘effectively meaningless – a missed opportunity’ and that the VCLT already applies as an expression of customary international law: Karton, ‘Choice of Law and Interpretive Authority in Investor-State Arbitration’ (2017), 3 CJCCL, 217 (254 f.). 136 McLachlan, ‘Investment Treaties and General International Law’ (2008) 57(2) ICLQ, 361 (399); Karton, ‘Choice of Law and Interpretive Authority in Investor-State Arbitration’ (2017), 3 CJCCL, 217 (243). Suggesting that a simple reference to ‘international law’ without distinguishing between principles and rules would avoid confusion and interpretive difficulties: Newcombe and Paradell, Law and Practice of Investment Treaties: Standards of Treatment (2009), 80 f. 137 Schreuer et al. (eds), The ICSID Convention: A Commentary (2009), Article 42 ICSID Convention, mn. 170. 138 Schreuer and Reinisch, International Protection of Investments: The Substantive Standards (2020), paras. 4 ff. See also Paparinskis, The International Minimum Standard and Fair and Equitable Treatment (2013), 20 ff.; Dumberry, The Formation and Identification of Rules of Customary International Law in International Investment Law (2016), 61 ff. 139 Schreuer et al. (eds), The ICSID Convention: A Commentary (2009), Article 42 ICSID Convention, mn. 177 with further references. 140 Factory of Chorzów (Germany v. Poland), Merits, Judgment No. 13, 13 September 1928, Series A, No. 17, 5 (33 f.); S.D. Myers, Inc. v. Canada, UNCITRAL, Partial Award (13 November 2000), paras. 311 ff.; Schreuer et al. (eds), The ICSID Convention: A Commentary (2009), Article 42 ICSID Convention, mn. 177; Dumberry, The Formation and Identification of Rules of Customary International Law in International Investment Law (2016), 61 ff. 141 McLachlan et al., International Investment Arbitration: Substantive Principles (2017), para. 7.95; McLachlan, ‘Investment Treaties and General International Law’ (2008) 57(2) ICLQ, 361 (383).
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of international law in treaty-based ISDS.142 General principles are recognized as a formal source which may be directly applied by adjudicators.143 Importantly, assuming or postulating the existence of such a general principle does not suffice. Instead, its existence must be shown through a comparative legal analysis.144
II. Article 8.31-2 1. Exclusion of Domestic and EU law from the Applicable Law Article 8.31-2 contains a clarification of the general principle set out in Article 8.31-1 according to which the Tribunal shall only apply the CETA and other rules and principles of international law applicable between the Contracting Parties (→ mn. 11). This implicitly excludes national law and EU law.145 For greater certainty, however, it is made abundantly clear by Article 8.31-2 that the Contracting Parties do not want the Tribunal to apply or interpret the law of the EU or any national law. 146 59 A jurisdictional carve-out therefore reaffirms Article 8.18-5 by stating that the ‘Tribunal shall not have jurisdiction to determine the legality of a measure, alleged to constitute a breach of this Agreement, under the domestic law of a Party’. In the same sense, the Contracting Parties have expressed in their Joint Declaration Concerning Article 8.12-6 (Annex 8-D) that the Tribunal was ‘meant to enforce the obligations referred to in Article 8.18.1, and is not an appeal mechanism for the decisions of domestic courts’. While being certainly of high symbolic and political value, the practical implications of this carve-out are limited. It corresponds to the traditional position of investment tribunals that they are called upon to evaluate alleged treaty breaches, not to act as international appellate courts annulling or second-guessing acts of domestic authorities.147 That the legal standard for establishing breaches of treaty 58
142 Examples for the use of these principles in arbitral practice include Inceysa Vallisoletana S.L. v. El Salvador, ICSID Case No. ARB/03/26, Award (2 August 2006), paras. 230 ff. (good faith); Señor Tza Yap Shum v. Peru, ICSID Case No. ARB/07/6, Award (7 July 2011), para. 167 (causality); Saluka Investments B.V. v. Czech Republic, PCA Case No. 2001-04, Partial Award (17 March 2006), para. 449 (unjust enrichment). See for a comprehensive overview with further references: Schreuer et al. (eds), The ICSID Convention: A Commentary (2009), Article 42 ICSID Convention, mn. 178 ff.; Dumberry, A Guide to General Principles of Law in International Investment Arbitration (2020). 143 Dumberry, ‘The Emergence of the Concept of ‘General Principle of International Law’ in Investment Arbitration Case Law’ (2020) 11(2) J. Int’l Disp. Settlement, 194 (197). 144 Schreuer et al. (eds), The ICSID Convention: A Commentary (2009), Article 42 ICSID Convention, mn. 181; Klöckner Industrie-Anlagen GmbH and others v. Cameroon, ICSID Case No. ARB/81/2, Decision on Annulment (3 May 1985), para. 69. 145 See Opinion of Advocate General Bot in Opinion 1/17, 29.1.2019, EU-Canada CET Agreement, ECLI:EU:C:2019:72, para. 122. 146 See EU Commission, Press release: ‘CETA: EU and Canada agree on new approach on investment in trade agreement’, 29 February 2016: ‘[The revised CETA text] puts in black and white that determining whether a measure of a Party is legal under domestic law remains the monopoly of the Party's competent authorities’; EU Commission, Concept paper “Investment in TTIP and beyond – the path for reform. Enhancing the right to regulate and moving from current ad hoc arbitration towards an Investment Court”, 5 May 2015, 5 f. ‘This means that [the Tribunal] cannot apply domestic law […]’); Canadian Government, Canada-European Union Comprehensive Economic and Trade Agreement – Canadian Statement on Implementation, available at: https://www.international.gc.ca/trade-commerce/trade-agreements-accords-co mmerciaux/agr-acc/ceta-aecg/canadian_statement-enonce_canadien.aspx?lang=eng#a13: ‘Domestic law is only to be considered as a factual matter, for example with respect to the scope of certain rights’. 147 With respect to EU law: Electrabel S.A. v. Hungary, ICSID Case No. ARB/07/19, Decision on Jurisdiction, Applicable Law and Liability (30 November 2012), para. 4.198. See generally EnCana Corporation v. Ecuador, UNCITRAL, LCIA Case No. UN3481, Award (3 February 2006), para. 200, fn. 138: Mamidoil Jetoil Greek Petroleum Products Societe S.A. v. Albania, ICSID Case No. ARB/11/24, Award (30
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obligations and national law greatly differs is for example illustrated in the context of NAFTA, where the tribunal in ADF v. USA observed that ‘something more than simple illegality or lack of authority under the domestic law of a State is necessary to render an act or measure inconsistent with the customary international law requirements of Article 1105(1)’148.
2. Considering Domestic and EU Law as a Matter of Fact The second sentence of Article 8.31-2 contains an important clarification, which 60 acknowledges that the Tribunal at some point needs to take account of domestic law in order to determine whether a measure in dispute breached the CETA. The possibility for the Tribunal to ‘consider, as appropriate, the domestic law of a Party as a matter of fact’ provides useful guidance on how to deal with the systemically inherent importance of domestic law. Given that a factual conception of domestic law reflects the traditional position in 61 international adjudication,149 Article 8.31-2 provides this guidance only for ‘greater certainty’.150 But especially with regard to EU law, this clarification seemed necessary since investment tribunals have qualified EU law as domestic and international law. 151 For the CJEU, this unequivocal direction was an important aspect in Opinion 1/17. Before concluding that the CETA ICS did not infringe on the autonomy of the EU legal order, the Court observed in view of Article 8.31-2 that an ‘examination cannot be classified as equivalent to an interpretation, by the CETA Tribunal, of that domestic law, but consists, on the contrary, of that domestic law being taken into account as a matter of fact’.152 As discussed above, the choice-of-law-clause contained in Article 8.31-1 does not 62 apply to jurisdictional and procedural questions (→ mn. 6 and 49). With respect to the role of domestic law, however, the Contracting Parties have made very clear in Article 8.31-2 that they do not want the Tribunal to apply domestic law under any circumstances. This clear intention suggests that Article 8.31-2 is of general applicaMarch 2015), para. 764; ADF Group Inc v. United States, ICSID Case No. ARB (AF)/00/1, Award (9 January 2003), para. 190; Mondev International Ltd. v. United States, ICSID Case No. ARB(AF)/99/2, Award (11 October 2002), para. 136; Robert Azinian, Kenneth Davitian, & Ellen Baca and others v. Mexico, ICSID Case No. ARB(AF)/97/2, para. 99; S. D. Myers, Inc. v. Canada, UNCITRAL, Partial Award (13 November 2000), para. 261; Helnan International Hotels A/S v. Egypt, ICSID Case No. ARB/05/19, Award (3 July 2008), para. 105 f.; CME Czech Republic B.V. v. Czech Republic, UNCITRAL, Preliminary Award (13 September 2001), para. 467. 148 ADF Group Inc v. United States, ICSID Case No. ARB (AF)/00/1, Award (9 January 2003), para. 190. 149 See Jennings and Watts (eds), Oppenheim's International Law: Volume 1 Peace (2008), para. 20; Certain German Interests in Polish Upper Silesia (Germany v. Poland), Merits, Judgment, 25 May 1926, Series 1, No. 7, 5 (19); Frontier Dispute (Benin v. Niger), Judgment, 12 July 2005, ICJ Reports (2005), 90 (110); Petrobart Limited v. Kyrgyzstan, SCC Case No. 126/2003, Arbitral Award (29 March 2005), para. VII.1.B.7; AES v. Hungary, ICSID Case No. ARB/07/22, Award (23 September 2010), para. 7.6.6; Newcombe and Paradell, Law and Practice of Investment Treaties: Standards of Treatment (2009), 88 f. 150 That the clarification does not merely serve symbolic purposes is i.a. illustrated by Total S.A. v. Argentina, ICSID Case No. ARB/04/01, Decision on Liability (27 December 2010), para. 39 (‘the Tribunal believes that Argentine law has a broader role than that of just determining factual matters’). 151 Electrabel S.A. v. Hungary, ICSID Case No. ARB/07/19, Decision on Jurisdiction, Applicable Law and Liability (30 November 2012), para. 4.124 (‘the fact that EU law is also applied within the national legal order of an EU Member State does not deprive it of its international legal nature. EU law remains international law’); AES v. Hungary, ICSID Case No. ARB/07/22, Award (23 September 2010), paras. 7.3.4 (‘This is also said to be so given that Community law, including Community competition law, is considered the equivalent of internal or municipal law for the purposes of this proceeding’). 152 CJEU, Opinion 1/17, 30.4.2019, EU-Canada CET Agreement, ECLI:EU:C:2019:341, para. 131.
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tion, including to jurisdictional concepts like ‘investment’ or ‘investor’.153 Thus, where the Tribunal has to consider domestic law in the context of jurisdiction, a factual appreciation of those laws is required.154 63 At times, the factual character of domestic law is also described as a legal fiction, which is not helpful.155 However, the appreciation of domestic law as fact might have practical implications on how its meaning is established. In principle, it is for the Tribunal to identify and determine the meaning of the law by all means it deems appropriate and apply it to the facts provided by the Parties (often referred to as ‘da mihi facta, dabo tibi ius’ or ‘jura novit curia’).156 The principle does, however, only concern the Tribunal’s own findings on the meaning of the applicable law.157 Considering domestic law as fact suggests that it will be up to the disputing Parties to submit relevant evidence such as domestic case law. Hence, the Tribunal would not be obliged to base its appreciation of domestic law on material beyond the sources provided by the disputing Parties.158 Consequently, when deciding questions of domestic law, the Tribunal may also take into account the burden of proof which is for the disputing Parties to discharge.159
3. Authoritative Character of Prevailing Interpretations of Domestic Law 64
The second and third sentence of Article 8.31-2 both aim at shielding the domestic legal order as much as possible from the ICS under the CETA. On the one hand, the Tribunal is directed to ‘follow the prevailing interpretation given to the domestic law by the courts or authorities of that Party’. This is in line with the widely accepted principle that investment tribunals have, whilst retaining independent powers of assessment and decision,160 a restricted margin of appreciation when it comes to assessing 153 See e.g., EU Commission, Press release: ‘CETA: EU and Canada agree on new approach on investment in trade agreement’, 29 February 2016: ‘[The Tribunal] can only look at EU or Member State law as a matter of fact, for example to make sure that the property rights in question are in fact held by the investor’. 154 Pursuant to Article 8.1, an ‘investment means […] (i) a concession conferred pursuant to the law of a Party’ and ‘an enterprise of a Party is: (a) an enterprise that is constituted or organised under the laws of that Party […]’. With respect to covered investments, Article 8.1 sets out that those must be ‘made in accordance with the applicable law at the time the investment is made’. In most cases, this will be the domestic law of the host State. 155 Southern Pacific Properties (Middle East) Limited v. Egypt, ICSID Case No. ARB/84/3, Decision on Jurisdiction (14 April 1988), para. 58. 156 See Alberti and Bigge, ‘Ascertaining the Content of the Applicable Law and Iura Novit Tribunus: Approaches in Commercial and Investment Arbitration’ (2015) 70 Dispute Resolution Journal, 1 ff.; Paulsson, ‘International Arbitration and the Generation of Legal Norms: Treaty Arbitration and International Law’ in van den Berg (ed), ICCA Congress Series No. 13 (2007), 879; Daimler Financial Services A.G. v. Argentina, ICSID Case No. ARB/05/1, Decision on Annulment (7 January 2015), para. 295; Metal-Tech Ltd. v. Uzbekistan, ICSID Case No. ARB/10/3, Award (4 October 2013), para. 287; See also Jan Oostergetel and Theodora Laurentius v. Slovakia, UNCITRAL, Final Award (23 April 2012), para. 141. 157 Newcombe and Paradell, Law and Practice of Investment Treaties: Standards of Treatment (2009), 95. 158 Brazilian Loans, Judgment No. 15, 12 July 1929, PCIJ Series A, No. 21, 93 (124): ‘the Court […] is not obliged also to know the municipal law of the various countries. All that can be said in this respect is that the Court may possibly be obliged to obtain knowledge regarding the municipal law which has to be applied. And this it must do, either by means of evidence furnished it by the Parties or by means of any researches which the Court may think fit to undertake or to cause to be undertaken.’ 159 See e.g., ELSI (United States v. Italy), Judgment, 20 July 1989, ICJ Reports 15 (1989), 15 (47): ‘In the present case, however, it was for Italy to show, as a matter of fact, the existence of a remedy which was open to the United States stockholders and which they failed to employ. The Chamber does not consider that Italy has discharged that burden.’ 160 Amco Asia Corporation and others v. Indonesia, ICSID Case No. ARB/81/1, Award (20 November 1984), para. 177; Emmis International Holding, B.V., Emmis Radio Operating, B.V., MEM Magyar Electron-
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the content of domestic law.161 The PCIJ already noted that it ‘does not, in principle, have the power to substitute its own interpretation for that of the national authorities, especially when that interpretation is given by the highest national courts’. 162 The ICJ affirmed this principle and noted in ELSI that ‘where the determination of a question of municipal law is essential to the Court's decision in a case, the Court will have to weigh the jurisprudence of the municipal courts’.163 This does not mean, however, that the Tribunal is formally bound by decisions 65 of national courts.164 Formally, the Tribunal remains independent from domestic jurisprudence and is only bound by Article 8.31-2. But since the provision directs the Tribunal to follow the prevailing interpretation, in case of doubt, either the Tribunal or the disputing Parties might appoint legal experts in order to clarify a question of domestic law. Although the wording of Article 8.31-2 is clear, there may be exceptional circum- 66 stances in which the Tribunal would have to depart from the interpretation provided by the State. This may occur in rare cases ‘where a State puts forward a manifestly incorrect interpretation of its domestic law, particularly for the purpose of gaining an advantage in a pending case’.165 In all other cases, awards departing from the prevailing interpretation would be subject to an appeal pursuant to Article 8.28-1(b) due to ‘manifest errors in the appreciation of the facts, including the appreciation of relevant domestic law’.166 The CJEU accepted the restriction to ‘manifest errors’ as consistent with the idea that the Tribunal must interpret the Parties’ domestic law ‘as little as possible’.167 Hereby, any creativity of the Tribunal in its factual appreciation of ic Media Kereskedelmi és Szolgáltató Kft. v. Hungary, ICSID Case No. ARB/12/2, Award (16 April 2014), para. 175. 161 Emmis International Holding, B.V., Emmis Radio Operating, B.V., MEM Magyar Electronic Media Kereskedelmi és Szolgáltató Kft. v. Hungary, ICSID Case No. ARB/12/2, Award (16 April 2014), para. 175; Hussein Nuaman Soufraki v. United Arab Emirates, ICSID Case No. ARB/02/7, Decision of the ad hoc Committee on the Application for Annulment of Mr Soufraki (5 June 2007), paras. 96 f.; Helnan International Hotels A/S v. Egypt, ICSID Case No. ARB/05/19, Award (3 July 2008), paras. 105 f.; Fraport AG Frankfurt Airport Services Worldwide v. Philippines, ICSID Case No. ARB/03/25, Decision on the Application for Annulment of Fraport AG Frankfurt Airport Services Worldwide (23 December 2010), para. 236. 162 Serbian Loans, Judgment No. 14, 12 July 1929, PCIJ Series A, No. 20, 6 (46 f.); Brazilian Loans, Judgment No. 15, 12 July 1929, PCIJ Series A, No. 21, 93 (124). 163 ELSI (United States v. Italy), Judgment, 20 July 1989, ICJ Reports 15 (1989), 15 (47); Ahmadou Sadio Diallo (Republic of Guinea v. Democratic Republic of the Congo), Merits, Judgment, 30 November 2010, ICJ Reports (2010), 639 (665). 164 Spiermann, ‘Investment Arbitration: Applicable Law’ in Bungenberg et al. (eds), International Investment Law: A Handbook (2015), 1373 (1388); Newcombe and Paradell, Law and Practice of Investment Treaties: Standards of Treatment (2009), 95; Robert Azinian, Kenneth Davitian, & Ellen Baca v. Mexico, ICSID Case No. ARB (AF)/97/2, Award (1 November 1999), para. 86 and Čexskoslovenská Obchodní Banka, A.S. v. Slovakia, ICSID Case No. ARB/97/4, Decision of the Tribunal on Respondent's Further and Partial Objection to Jurisdiction (1 December 2000), para. 35. 165 Ahmadou Sadio Diallo (Republic of Guinea v. Democratic Republic of the Congo), Merits, Judgment, 30 November 2010, ICJ Reports (2010), 639 (665). 166 CJEU, Opinion 1/17, 30.4.2019, EU-Canada CET Agreement, ECLI:EU:C:2019:341, para. 150; Riffel, ‘The CETA Opinion of the European Court of Justice and its Implications – Not that Selfish After All’ (2019) 22(3) J. Int’l Econ. L., 503 (516). In rendering its decision, the Appellate Tribunal is also bound by Article 8.31-2. In its opinion, AG Bot argued that since the departure from a prevailing interpretation violates Article 8.31-2, an appeal pursuant to Article 8.28.2(a) for simple and not only manifest ‘errors in the application or interpretation of applicable law’ would be admissible. Although the argument is logic, the outcome contradicts the clear wording of Article 8.28-1(b). See Opinion of Advocate General Bot in Opinion 1/17, 29.1.2019, EU-Canada CET Agreement, ECLI:EU:C:2019:72, para. 153 f. 167 CJEU, Opinion 1/17, 30.4.2019, EU-Canada CET Agreement, ECLI:EU:C:2019:341, para. 150.
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domestic law is restricted and limited to the rare instances were issues of domestic law are completely unsettled.168 Should such instances occur, the third sentence of Article 8.31-2 clarifies that ‘any meaning given to domestic law by the Tribunal shall not be binding upon the courts or the authorities of that Party’. The provision reflects the general rule in Article 30.6-1 according to which the CETA cannot be directly invoked in the domestic legal systems of the Parties. In combination, both sentences of Article 8.31-2 adopt a twofold approach. On the one hand, the Tribunal is directed to follow domestic jurisprudence. On the other hand, the domestic legal order is shielded from the CETA since factual appreciations conducted under Section F have no legal value domestically. This separates ISDS under the CETA from domestic judicial systems in terms of substantive law and complements the prohibition of parallel domestic court proceedings pursuant to Article 8.22-1(f) and (g). In sum, Article 8.31-2 is meant to provide legal security and protect the integrity of the domestic legal order.
III. Article 8.31-3 1. Joint Interpretation Mechanism 67
Article 8.31-3 introduces a joint interpretation mechanism by which the Contracting Parties may, through their representatives in the CETA Joint Committee, adopt binding interpretations pursuant to Article 8.44-3(a). Once an interpretation has been adopted, it is binding on the Tribunal. Hence, authentic interpretations of the CETA adopted under Article 8.31-3 form part of the applicable law. Neglecting its binding legal force would have the same consequences as the refusal to apply the Agreement itself (→ mn. 22). In contrast to the joint binding determination mechanism under Article 28.7-7(c) in the context of taxation, Article 8.31-3 concerns the abstract interpretation of the treaty, not its application to concrete facts for the purpose of settling specific claims.169
2. Interaction with Article 8.44-3(d) 68
The relationship between Article 8.31-3 and similar provisions is also noteworthy. Pursuant to Article 8.10-3 the Parties ‘shall regularly, or upon request of a Party, review the content of the obligation to provide fair and equitable treatment’. To do so, Article 8.44-3(d) provides a specific interpretative mechanism for ‘fair and equitable treatment’. Under this provision, the Committee on Services and Investment may ‘recommend to the CETA Joint Committee the adoption of any further elements of the fair and equitable treatment obligation pursuant to Article 8.10.3’. If such a recommendation is adopted, Article 8.10-3(f) clarifies that its content becomes integral part of the ‘fair and equitable treatment’ obligation. The focus on ‘further elements’ suggests that Article 8.44-3(d) is an instrument to expand the scope of ‘fair and equitable treatment’. In contrast, the joint interpretation under Article 8.31-3 and 8.44-3(a) may be used to expand, limit, or clarify the meaning of any CETA provision, including the obligation to provide for ‘fair and equitable treatment’ under Article 8.10. 168 See Opinion of Advocate General Bot in Opinion 1/17, 29.1.2019, EU-Canada CET Agreement, ECLI:EU:C:2019:72, para. 136. 169 See on delegation of dispute settlement to experts outside of arbitral tribunals: van Aaken, ‘Delegating Interpretative Authority in Investment Treaties: The Case of Joint Administrative Commissions’ in Kalicki and Joubin-Bret (eds), Reshaping the Investor-State Dispute Settlement System (2015), 21 (42 ff.).
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3. No Practical Implications from the ‘serious concerns’-Requirement The term ‘serious concerns’ recalls the legitimacy crisis of ISDS but should not be 69 overstated in its practical importance either (→ mn. 37). As the drafting process of Article 8.31-3 suggests, the wording may be seen as a clarification that the use of joint interpretations should be limited to critical situations (→ mn 45). 170 This suggests that the term ‘serious concerns’ is meant to introduce at least some kind of formal threshold obliging the Committee on Services and Investment to justify its recommendation by explaining what the underlying serious concerns are. It should be noted that the obligation to give a reasoned recommendation pursuant to Article 8.44-3(a) applies to the Committee on Services and Investment in the context of its duties towards the CETA Joint Committee. It is therefore a matter of formal treaty governance aiming to facilitate the decision-making process of the Joint Committee under Article 8.44-3. Consequently, it is not for the Tribunal to determine whether this condition is met. This would undermine the binding character of joint interpretations and reintroduce an unwanted limitation of the Contracting Parties’ interpretive powers through the backdoor. Therefore, the question whether ‘serious concerns’ have arisen is not to be determined by the Tribunal, but only the CETA Joint Committee.
4. Rule of law and Non-retroactivity How the Contracting Parties make use of Article 8.31-3 is not only a matter of their 70 interpretative powers as masters of the treaty, but also relevant to the rule of law in ISDS. It has been observed that provisions such as Article 8.31-3 may be beneficial to the rule of law if the interpretations are understandable and clear, in accordance with the principle of non-retroactivity, and adopted in line with fundamental procedural rights.171 The principle of non-retroactivity is of particular importance since it is the only safeguard against retroactive interferences with pending proceedings. Concerns have been raised in the context of NAFTA, where the FTC issued an interpretative note between the awards on the merits and damages in Pope & Talbot. 172 Article 8.31-3 states that the ‘CETA Joint Committee may decide that an interpretation shall have binding effect from a specific date’. Hence, the wording does not hinder the retroactive adoption of treaty interpretations.173 The point in time on which the interpretation takes effect is a crucial practical 71 matter since it determines the degree of interference with pending proceedings. Given that the CETA Joint Committee is free in choosing any specific date, the issuance of a binding interpretation potentially threatens the rule of law and the independence of the Tribunal. Against this background, the CJEU provided guidelines for the consent to be given by EU representatives. In Opinion 1/17 the Court recalled that: [i]t is important, moreover, in the light of the requirement of independence of the CETA Tribunal and Appellate Tribunal, that interpretations determined by the CETA Joint Committee have no 170 As stated above, a previous version of Article 8.31-3 suggested a mechanism, which was connected to concrete claims and was available upon request by the respondent disputing Party. 171 Kaufmann-Kohler, ‘Interpretative Powers of the Free Trade Commission and the Rule of Law’ in Gaillard and Bachand (eds), Fifteen Years of NAFTA Chapter 11 Arbitration (2011), 175 (194). 172 Pope & Talbot Inc., UNCITRAL (NAFTA), Award on the Merits of Phase 2 (10 April 2001); NAFTA Free Trade Commission, Notes of Interpretation of Certain Chapter 11 Provisions, 31 July 2001; Pope & Talbot Inc., UNCITRAL (NAFTA), Award in Respect of Damages (31 May 2002). See also Ishikawa, 'Keeping Interpretation in Investment Treaty Arbitration "on Track": The Role of State Parties' in Kalicki and Joubin-Bret (eds), Reshaping the Investor-State Dispute Settlement System (2015), 115 (142). 173 Schill, ‘Investitionsschutz in EU-Freihandelsabkommen: Erosion gesetzgeberischer Gestaltungsmacht?‘ (2018) 78 ZaöRV, 33 (74 f. and 76.).
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effect on the handling of disputes that have been resolved or brought prior to those interpretations. If it were otherwise, the CETA Joint Committee could have an influence on the handling of specific disputes and therefore participate in the ISDS mechanism. 174
In light of EU primary law and, in particular, with the right to an effective remedy enshrined in Article 47 of the Charter of Fundamental Rights of the European Union, the Court clarified that Article 8.31-3 cannot be interpreted ‘as permitting the Union to consent to decisions on interpretation of the CETA Joint Committee that would produce effects on the handling of disputes that have been dealt with or are pending.’175 73 Notably, the decision-making process leading to the adoption of a joint interpretation is based on the mutual consent of the Contracting Parties at two levels. First, any recommendation by the Committee on Services and Investment under Article 8.44-3(a) is made ‘on agreement of the Parties, and after completion of their respective internal requirements and procedures’. The findings of Opinion 1/17 constitute such ‘internal requirements’ applicable to EU representatives. Second, the CETA Joint Committee consists of ‘representatives of the European Union and representatives of Canada’ (Article 26.1-1) and makes ‘its decisions and recommendations by mutual consent’ (Article 26.3-3). Thus, EU representatives in the CETA Joint Committee must ensure that joint interpretations adopted under Article 8.31-3 are binding on the Tribunal only with respect to claims which are brought after the ‘specific date’ on which the interpretation becomes legally binding. In other words, the binding legal force of an interpretation cannot relate to pending, but only to future investment claims. 74 It has been observed that the requirements set up by Opinion 1/17 do not, however, eliminate all retroactive effects.176 An investor may be induced by the state of the law when making the decision to invest in Canada or the EU. It is, however, still possible for the Contracting Parties to subsequently lower the level of investment protection granted by the CETA between the points in time where the investment is made and a claim is brought pursuant to Article 8.23. Except for extreme cases, such a retroactive effect is in line with the rule of law because the retroactivity does not relate to a specific dispute settlement procedure.177 In addition, it is a widely accepted principle that the level of investment protection is not frozen and that ‘no investor may reasonably expect that the circumstances prevailing at the time the investment is made remain totally unchanged’.178 If the domestic legal framework may evolve, the same must apply to the investment protection standards under the treaty. 179 This seems to reflect the intention of the Contracting Parties. If they had the intention to 72
CJEU, Opinion 1/17, 30.4.2019, EU-Canada CET Agreement, ECLI:EU:C:2019:341, para. 236. CJEU, Opinion 1/17, 30.4.2019, EU-Canada CET Agreement, ECLI:EU:C:2019:341, para. 237. 176 See Stöbener de Mora and Wernicke, ‘Riskante Vorgaben für Investitionsschutz und Freihandel – Das CETA-Gutachten des EuGH’ (2019) EuZW, 970 (975 f.). 177 See for the relevance of this distinction with respect to the European Convention of Human Rights: ECtHR, Application No. 47316/99, 20.02.2003, Forrer-Niedenthal v. Germany, mn. 63 f. 178 Saluka Investments BV v. Czech Republic, PCA Case No. 2001-04, Partial Award (17 March 2006), para. 305. See also Philip Morris Brand Sàrl, Philip Morris Products S.A. and Abal Hermanos S.A. v. Oriental Republic of Uruguay, ICSID Case No. ARB/10/7, Award (8 July 2016), paras. 426 ff.; Teinver S.A., Transportes de Cercanías S.A. and Autobuses Urbanos del Sur S.A. v. Argentine Republic, ICSID Case No. ARB/09/01, Award (21 July 2017), para. 668; Greentech Energy Systems A/S and others v. Kingdom of Spain, SCC Case No. V2015/150, Final Award (14 November 2018), para. 356; Indian Metals & Ferro Alloys Ltd v. Republic of Indonesia, PCA Case No. 2015-40, Award (29 March 2019), para. 252. 179 Karton, ‘Choice of Law and Interpretive Authority in Investor-State Arbitration’ (2017), 3 CJCCL, 217 (252). 174
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eliminate any retroactive effect, they would have adopted the wording proposed by the EU in drafting process.180
E. Conclusion In contrast to what its heading suggests, Article 8.31 is more than a choice-of-law clause on applicable law and interpretation. It is a complex provision, which addresses a series of fundamental issues such as the interaction between international and domestic law or the distribution of interpretative powers between the Contracting Parties and the Investment Court System. Its understanding requires to consider general principles such as the linkage between interpretation, application, and amendment of treaty provisions. In addition, it is closely related to the autonomy of the EU legal order. It is therefore essential to read Article 8.31 in conjunction with concepts of EU law and the jurisprudence of the CJEU. The Court’s Opinion 1/17 is particularly relevant in that regard. From a policy perspective, the provision is a reaction to the backlash against ad hoc investment arbitration. It forms part of the Contracting Parties’ intention to position the CETA at the forefront of a new generation of investment protection agreements. In this sense, the provision reshapes the Tribunal’s treaty-based mandate. It makes clear that the Contracting Parties have specific expectations on how claims under Section F should be settled. By setting methodological ground rules for decision-making, the Contracting Parties recall that they expect the Tribunal to adopt a foreseeable and coherent methodology. To delimit the Tribunal’s mandate, the choice-of-law clause in Article 8.31-1 implicitly bars domestic and EU law from the set of laws potentially applicable in ISDS proceedings under the CETA. Together with the explicit reference to the VCLT, this is meant to discipline the Tribunal. In the same sense, Article 8.31-2 provides methodological guidance on how the Tribunal must consider issues related to domestic law. The employed language suggests that there is little room for interpretation when it comes to assessing the Contracting Parties’ intention. Adding clarifications for ‘greater certainty’ implies that no misunderstandings are expected in that regard. In any case, the joint interpretation mechanism under Article 8.31-3 adds an additional layer of security. Here again, the requirements set out by the CJEU in Opinion 1/17 will shape the functioning of the provision in practice. In sum, Article 8.31 contains many clarifications by narrowing down the Tribunal’s mandate in methodological terms. It provides directives and formulates expectations towards the Tribunal. In comparison to investment agreements of the past, these guidelines are precise and demanding. But with the political legitimacy of ISDS being on the line, they seem very much appropriate. It remains to be seen whether adjudicators will be able to meet these expectations in practice. If the decision-making of the Investment Court System is considered unsatisfactory, it will be up to the Contracting Parties to use their interpretative powers as a remedy. They must, however, make use of these powers responsibly and with due account to the rule of law.
180 In the consolidated draft of 15 November 2013 it was suggested that the binding force of joint interpretations should be limited to cases ‘where the treatment on which the claim is based occurred after the date on which the interpretation was adopted by the Committee’.
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Article 8.32 Claims manifestly without legal merit 1. The respondent may, no later than 30 days after the constitution of the division of the Tribunal, and in any event before its first session, file an objection that a claim is manifestly without legal merit. 2. An objection shall not be submitted under paragraph 1 if the respondent has filed an objection pursuant to Article 8.33. 3. The respondent shall specify as precisely as possible the basis for the objection. 4. On receipt of an objection pursuant to this Article, the Tribunal shall suspend the proceedings on the merits and establish a schedule for considering such an objection consistent with its schedule for considering any other preliminary question. 5. The Tribunal, after giving the disputing parties an opportunity to present their observations, shall at its first session or promptly thereafter, issue a decision or award stating the grounds therefor. In doing so, the Tribunal shall assume the alleged facts to be true. 6. This Article shall be without prejudice to the Tribunal's authority to address other objections as a preliminary question or to the right of the respondent to object, in the course of the proceeding, that a claim lacks legal merit. Reference to the Respective Provisions in Other EU Treaties: EU-Singapore Investment Protection Agreement, Article 3.14, EU-Vietnam Investment Protection Agreement, Article 3.44. Bibliography: Aurelia Antonietti, ‘The 2006 Amendments to the ICSID Rules and Regulations and the Additional Facility Rules’ (2006) 21 ICSID Rev. 427; Céline Braumann and August Reinisch, Investment Court Systems‘ in Rüdiger Wolfrum (ed), Max Planck Encyclopedia of Public International Law (online edn); Aïssatou Diop, ‘Objection under Rule 41(5) of the ICSID Arbitration Rules’ (2010) 25 ICSID Rev., 312; Ted Howes, Allison Stowell and William Choi, ‘The Impact of Summary Disposition on International Arbitration: A Quantitative Analysis of the ICSID's Rule 41(5) on Its Tenth Anniversary’ (2019) 13(1) Dispute Resolution International, 7; Lars Markert, ‘Summary Dismissal of ICSID Proceedings’ (2006) 31(3) ICSID Rev., 690); Michele Potestà, ‘Preliminary Objections to Dismiss Claims that are Manifestly Without Legal Merit under Rule 41(5) of the ICSID Arbitration Rules’ in Crina Baltag (ed), ICSID Convention after 50 Years ‑ Unsettled Issues (Kluwer Law international, 2017), 249; Michele Potestà and Marija Sobat, ‘Frivolous Claims in International Adjudication: A Study of ICSID Rule 41(5) and of Procedures of Other Courts and Tribunals to Dismiss Claims’ (2012) 3(1) J. Int’l Disp. Settlement 137; August Reinisch, ‘Will the EU’s Proposal Concerning an Investment Court System for CETA and TTIP Lead to Enforceable Awards?—The Limits of Modifying the ICSID Convention and the Nature of Investment Arbitration’ (2016) 19 J. Int’l Econ. L., 761; Christoph Schreuer, Loretta Malintoppi, August Reinisch and Anthony Sinclair, The ICSID Convention: A Commentary (2nd edn, Cambridge University Press, Cambridge 2009); August Reinisch and Lukas Stifter, ‘European Investment Policy and ISDS’ (2015) 1 ELTE Law Journal, 11; André von Walter and Maria Luisa Andrisani , ‘Resolution of Investment Disputes’ in Makane Moïse Mbengue, Stefanie Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (Springer 2019), 185.
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A. Introduction and Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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B. Spirit and Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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C. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8
D. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. The Procedure under Article 8.32 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Who can File the Objection? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. The Filing of the Objection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Initial Duties of the Tribunal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a) Suspension of the Proceedings on the Merits . . . . . . . . . . . . . . . . . . . . . . . . . . .
12 13 13 15 19 19
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Claims manifestly without legal merit b) The Schedule for Considering the Objection . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. The Ruling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a) The Time of the Ruling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . b) The Form of the Ruling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Article 8.32 in Context . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Article 8.33 CETA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Proceedings before the Appellate Tribunal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Institutional Arbitration Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a) The Screening Power of the ICSID Secretary-General . . . . . . . . . . . . . . . . . . b) The Relationship with ICSID Arbitration Rule 41(5) . . . . . . . . . . . . . . . . . . 4. Other (Preliminary) Objections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. The Notion of ‘manifestly without legal merit’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. General Observations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. When does a Claim ‘Manifestly’ lack Legal Merit? . . . . . . . . . . . . . . . . . . . . . 3. The Concept of ‘legal merit’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a) The Consideration of Facts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . b) Jurisdictional issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. The Summary Procedure in a Permanent Setting . . . . . . . . . . . . . . . . . . . . . .
21 24 24 26 34 34 37 44 45 48 51 54 54 58 70 72 78 84
E. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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A. Introduction and Overview* Institutional rules of procedure regularly endow courts with the power to dismiss 1 certain unmeritorious claims in limine litis.1 In the field of international investment law, provisions on the expedited dismissal of patently unmeritorious claims (often labelled ‘frivolous claims’ although there is no mala fide requirement) originate from treaty practice of the mid-2000 s. Such mechanisms respond to the commonly held concerns related to duration and costs in treaty-based investor-State arbitration. 2 Long and expensive proceedings become a particular concern where claims are manifestly unfounded. In the ICSID context, the 2006 amendment of the ICSID Rules and Regulations 2 introduced ICSID Arbitration Rule 41(5).3 At the same time, the similarly worded paragraphs 45(6) and (7) were added to the ICSID Arbitration Additional Facility Rules.4 Under ICSID Arbitration Rule 41(5) the disputing Party is entitled to ‘file an objection that a claim is manifestly without legal merit’ at the preliminary stage of a proceeding. The tribunal is then required to issue a ruling on this objection in * The views expressed in this chapter are exclusively those of the author and may not in any circumstances be regarded as stating a position of the Austrian government. The author wishes to thank the editors, Céline Braumann, Jose Magnaye and Petra Zeinhofer for their insightful comments on earlier drafts. 1 For a comprehensive overview, see Potestà and Sobat, ‘Frivolous Claims in International Adjudication: A Study of ICSID Rule 41(5) and of Procedures of Other Courts and Tribunals to Dismiss Claims’ J. Int’l Disp. Settlement (2012) 3(1), 137. 2 See Report of Working Group III (Investor-State Dispute Settlement Reform) on the work of its thirtysixth session, A/CN.9/964, 6 November 2018, paras. 109 ff., available at https://undocs.org/en/A/CN.9/964. 3 For details, see Antonietti, ‘The 2006 Amendments to the ICSID Rules and Regulations and the Additional Facility Rules’ (2006) 21 ICSID Rev., 427 (439 ff.). 4 In practice, 45(6) and (7) ICSID Arbitration Additional Facility Rules have been interpreted in line with ICSID Arbitration Rule 41(5). See Lion Mexico Consolidated L.P. v. United Mexican States, ICSID Case No. ARB(AF)/15/2, Decision on the Respondent’s Preliminary Objection under Article 45(6) of the ICSID Arbitration (Additional Facility) Rules (12 December 2016), para. 56: ‘45(6) and (7) ICSID Arbitration AF Rules contains effectively the same language as Rule 41(5) ICSID Arbitration Rules. Thus, the Tribunal draws guidance, as to the applicable standard, from the jurisprudence developed in the interpretation of Article 45(6).’ Accordingly, this contribution will omit a consideration of the former provisions.
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an expedited manner. A number of institutional arbitration rules provide for similar provisions.5 3 With the bulk of existing international investment agreements (IIAs) originating from the ‘Era of Proliferation’6 of 1990-2007, the inclusion of distinct provisions akin to ICSID Arbitration Rule 41(5) in IIAs is not widespread. Such mechanisms can, however, be found in an increasing number of modern investment treaties. 7 CETA Article 8.32 (and Article 8.33) and its corresponding provisions in other EU Investment Protection Agreements (IPAs) reflect this trend.
B. Spirit and Purpose Article 8.32 forms part of a number of provisions introduced for the purpose of avoiding the financial burden incurred by the litigation of patently unmeritorious or abusive claims.8 5 The procedure builds on ICSID Arbitration Rule 41(5).9 The inception of the latter in 2006 responded to recurring concerns of governments that it was impossible to dismiss claims that were clearly unmeritorious at an early stage.10 6 An objection filed under Article 8.32 seeks for the expedited summary dismissal of certain unmeritorious claims at the outset of a proceeding. To this end, the summary procedure is tied to a short timeline and, notably, omits the presentation and discussion of the facts underpinning the claim in question. The underlying rationale is that the degree of a claim’s legal defectiveness justifies the omission of a full evidentiary hearing for the sake of procedural economy. 7 The introduction of Article 8.32 as a distinct rule allows for the summary dismissal of unmeritorious claims regardless of the rules of procedure applicable to an individu4
5 See, e.g., Article 39 Arbitration Rules of the Arbitration Institute of the Stockholm Chamber of Commerce (SCC). 6 According to UNCTAD, 2.663 IIAs were concluded in that period. See UNCTAD reform package for the international investment regime (2018), available at https://investmentpolicy.unctad.org/publica tions/1190/unctad-s-reform-package-for-the-international-investment-regime-2018-edition, p. 14. 7 See, e.g., Article 3.44 EU-Viet Nam Investment Protection Agreement (2019), Article 21 India-Kyrgyzstan BIT (2019), Article 14.21 Australia-Indonesia CEPA (2019), Article 27 Argentina-Japan BIT (2018); Article 14.D.7(4) USMCA (2018); Article 3.14 EU-Singapore Investment Protection Agreement (2018); Article 21.1 Belarus-India BIT (2018); Article 9.23(4) Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) (2018); Article 8.24(4) Australia-Peru FTA (2018); Article 16 Rwanda-United Arab Emirates BIT (2017); Article 26(4) Chile-Hong Kong, China SAR BIT (2016); Article 21 Slovakia-United Arab Emirates (2016); Article 13 ASEAN-India Investment Agreement (2014); Article 21(2) New Zealand-Taiwan Province of China ECA (2013); Article 10.24(1) MalaysiaNew Zealand FTA (2009); Article 36 ASEAN Comprehensive Investment Agreement (2009); Article 10.20(3) Australia-Chile FTA (2008); Article 154(2) China-New Zealand FTA (2008); Article 28(4) United States of America-Uruguay BIT (2005); Article 11.20(6) Australia-Singapore FTA Korea-US FTA (2007). 8 See CETA Article 8.18(3), which declares claims inadmissible if they relate to an ‘investment has been made through fraudulent misrepresentation, concealment, corruption, or conduct amounting to an abuse of process’. Furthermore, Article 8.39(5) introduces the ‘loser pays’ principle. For details, see the relevant contributions in this commentary (→ Art. 8.39 mn. 96). 9 See Von Walter and Andrisiani, ‘Resolution of Investment Disputes’ in Mbengue and Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (2019), 185 (195). 10 Antonio Parra, ‘The Development of the Regulations and Rules of the International Centre for Settlement of Investment Disputes’ (2007) 1 ICSID Rev., 55 (65).
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al case (→ Art. 8.23 mn. 18 ff.).11 Consequently, the respondent is entitled to initiate a summary procedure under the UNCITRAL Arbitration Rules, too.
C. Drafting History The negotiating directives adopted by Council of the European Union refer, only in general terms, to ‘effective and state-of-the-art investor-to-state dispute settlement mechanism’.12 Accordingly, specific requirements for the dismissal of ill-founded claims are not mentioned. The drafting history of Article 8.32 reveals that a provision on ‘Claims Manifestly Without Legal Merit’ was introduced to the text on ISDS of 15 November 2013. 13 The same provision was maintained in the following draft of 4 February 2014 and served as basis for the final draft of 1 August 2014 which was part of the agreement in principle reached before the legal scrubbing. Looking at the evolution of Article 8.32, two developments stand out. First, the EU appears to have favoured a more flexible period in which the objection that a claim is manifestly without legal merit can be made. To this end, the EU put forward that the respondent be entitled to file an objection ‘30 days after the respondent became aware of the facts on which the objection is based’.14 Apparently, this proposal was deemed unnecessary15 and was not part of Article X.29 of the text of 1 August 2014. Second, the text of August 2014 Article X.29 had clearly been drafted under the assumption that, in line with the Council’s negotiating directives, CETA would entail traditional investor-State arbitration. The subsequent ‘legal scrubbing’ brought about systemic changes in the form of the two-tier investment court system (ICS). 16 This rendered linguistic changes of Article 8.32 necessary. Notably, the 30 days timeline within which an objection can be filed is no longer triggered by ‘the constitution of the tribunal’ (Article X.29) but ‘the constitution of the division of the Tribunal’ (→ Art. 8.27 mn. 18 ff.).17
11 According to Article 8.23(2) CETA, a claim may be submitted to the Tribunal under ‘(a) the ICSID Convention and Rules of Procedure for Arbitration Proceedings; (b) the ICSID Additional Facility Rules if the conditions for proceedings pursuant to paragraph (a) do not apply; (c) the UNCITRAL Arbitration Rules; or (d) any other rules on agreement of the disputing parties.’ 12 See Council of the EU, Recommendation from the Commission to the Council on the modification of the negotiating directives for an Economic Integration Agreement with Canada in order to authorise the Commission to negotiate, on behalf of the Union, on investment, 14 July 2011, para. 26 d. 13 Article x-14: Claims Manifestly Without Legal Merit, EU-Canada Comprehensive Economic and Trade Agreement, Investor-to-State Dispute Settlement Text, 15 November 2013. 14 Article X-14 EU-Canada Comprehensive Economic and Trade Agreement, Investor-to-State Dispute Settlement Text, 15 November 2013 and Article X-14 EU-Canada Comprehensive Economic and Trade Agreement, Investor-to-State Dispute Settlement Text, 4 February 2014. 15 Article X-14 EU-Canada Comprehensive Economic and Trade Agreement, Investor-to-State Dispute Settlement Text, 15 November 2013 and Article X-14 EU-Canada Comprehensive Economic and Trade Agreement, Investor-to-State Dispute Settlement Text, 4 February 2014: ‘[Canada Note: The phrase ‘or 30 days after the respondent became aware of the facts on which the objection is based’ does not work with paragraph 3 in that it is envisaged that a decision will be rendered only at or shortly after the first procedural meeting. In addition, since the Parties have agreed to include the companion Article X-15, it appears to be unnecessary. As such, we propose to remove it]’. 16 CETA: EU and Canada agree on new approach on investment in trade agreement, http://trade.ec.e uropa.eu/doclib/press/index.cfm?id=1468. 17 On this, see Article 8.27(6) and (7).
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8
9
10
11
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Claims manifestly without legal merit
D. Commentary 12
This chapter is devoted to the legal questions related to Article 8.32. Section I provides an overview of the process. Here, the intention is to offer a chronological description of the procedure under Article 8.32. Section II canvasses the position of Article 8.32 within CETA and its relation to pertinent provisions of applicable rules of procedures. Section III discusses issues pertaining to the cardinal element of Article 8.32, the notion of ‘manifestly without legal merit’. It aims at describing the material scope of summary procedures under Article 8.32. Given the resemblance with ICSID Arbitration Rule 41(5), guidance from existing tribunal practice and literature on this provision will be drawn where appropriate.
I. The Procedure under Article 8.32 1. Who can File the Objection? Article 8.32(1) sets forth that ‘the respondent’ is entitled to file an Article 8.32 objection. This wording deviates from ICSID Arbitration Rule 41(5), which theoretically encompasses either Party.18 14 This ostensible limitation will have a negligible practical impact. For the claimant, the Article 8.32 objection might be relevant for the summary dismissal of counterclaims. However, in light of the investor-centrism19 of the ICS in CETA, the permissibility of counterclaims is, if at all, hardly conceivable.20 From a procedural perspective, it is questionable whether the applicant would manage to adhere to the schedule of the summary dismissal procedure laid down in Article 8.32 for the purpose of an objection to a counterclaim. 13
2. The Filing of the Objection Building on ICSID Arbitration Rule 41(5), Article 8.32 holds the disputing Parties and the Tribunal to a tight schedule. This correlates with the overall aim to dismiss a manifestly unmeritorious claim at the outset of the proceeding. 16 To this end, Article 8.32(1) specifies that an objection must be filed ‘no later than 30 days after the constitution of the division of the Tribunal, and in any event before its first session’. In this regard, it is noteworthy that according to Article 8.27(7), the President of the Tribunal shall appoint the Members of the respective Tribunal composing the division of the Tribunal within 90 days of the submission of a claim. Under the ICSID rules, on the other hand, the first session would have to be held within 60 days upon the constitution of the Tribunal.21 17 The applicable timeline is considerably accelerated compared to other preliminary objections. In ICSID proceedings, preliminary objections pursuant to ICSID Arbitra15
18 ICSID Arbitration Rule 41(5) entitles ‘a party […] [to] file an objection that a claim is manifestly without legal merit’ (emphasis added). See Global Trading Resource Corp. and Globex International, Inc. v. Ukraine, ICSID Case No. ARB/09/11, Award (1 December 2010), para. 29. 19 See Article 8.18(1): ‘[...] an investor of a Party may submit to the Tribunal [...]’. 20 In ICSID Cases, the requirements of Article 25(1) ICSID Convention for bringing a counterclaim need to be met in addition. See, e.g., Urbaser S.A. and Consorcio de Aguas Bilbao Bizkaia, Bilbao Biskaia Ur Partzuergoa v. The Argentine Republic, ICSID Case No. ARB/07/26, Award (8 December 2016), para. 1117. 21 ICSID Rule 13(1): ‘The Tribunal shall hold its first session within 60 days after its constitution or such other period as the parties may agree’.
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tion Rule 41(1) shall be raised as early as possible but no later than the expiration of the time-limit set for the filing of the counter-memorial. 22 UNCITRAL Article 23(2) foresees that preliminary objections shall generally be raised ‘no later than in the statement of defence’. The respondent is required to ‘specify as precisely as possible the basis for the 18 objection’ (Article 8.32(3)). This requirement corresponds to the notion of ‘manifestly without legal merit’ which has been interpreted to ‘only apply to a clear and obvious case’.23
3. Initial Duties of the Tribunal a) Suspension of the Proceedings on the Merits Article 8.32(4) clarifies that ‘[o]n receipt of an objection pursuant to this Article, 19 the Tribunal shall suspend the proceedings on the merits’. This aims at facilitating a swift conclusion of the Article 8.32 proceeding. With the introduction of ‘shall’, another nuance that distinguishes Article 8.32 20 from ICSID Arbitration Rule 41(5) becomes apparent. While the suspension of the proceedings on the merits is mandatory under Article 8.32, it is only discretionary under the ICSID Arbitration Rules.24 b) The Schedule for Considering the Objection The suspension of the proceedings on the merits triggers the Tribunal’s duty to ’es- 21 tablish a schedule for considering such an objection consistent with its schedule for considering any other preliminary question’ pursuant to Article 8.32(4). The schedule gives effect to the disputing Parties’ right to ‘present their observa- 22 tions’ under Article 8.32(5). Despite the summary procedure’s general emphasis on an expeditious conclusion, it is crucial to give both Parties the opportunity to be heard. This will, in particular, require setting appropriate time limits for the filing of statements. The failure to grant sufficient time for the disputing Parties’ observations would be problematic from a rule of law perspective and may render an award prone to appeal (→ Art. 8.28 mn. 26 ff.).25 Like ICSID Arbitration Rule 41(5), Article 8.32(5) leaves it to the Tribunal whether 23 to schedule oral hearings or solely base the decision upon written statements. Tribunal practice shows, that oral arguments have been permitted in several cases. 26 However, to bring the holding of oral hearings in line with the tight timeline under Article 8.32 may prove difficult.
See, e.g., Schreuer et al., The ICSID Convention: A Commentary (2009), 543. Trans-Global Petroleum, Inc. v. The Hashemite Kingdom of Jordan, ICSID Case No. ARB/07/25, The Tribunal's Decision on the Respondent's Objection Under Rule 41(5) of the ICSID Arbitration Rules (12 May 2008), para. 92. 24 ICSID Arbitration Rule 41(3): ‘Upon the formal raising of an objection relating to the dispute, the Tribunal may decide to suspend the proceeding on the merits. […]’ (emphasis added). 25 See Article 8.28(2)c in connection with ICSID Article 52(1)(d): ‘[…] a serious departure from a fundamental rule of procedure […]’. 26 See Potestà, ‘Preliminary Objections to Dismiss Claims that are Manifestly Without Legal Merit under Rule 41(5) of the ICSID Arbitration Rules’ in Baltag (ed) ICSID Convention after 50 Years – Unsettled Issues (2017), 249 (255). 22
23
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4. The Ruling a) The Time of the Ruling After giving the disputing Parties an opportunity to present their observations, Article 8.32(5) requires the Tribunal to issue a decision or award stating the grounds therefore at its ‘first session or promptly thereafter’. In light of the arbitral practice under ICSID Arbitration Rule 41(5), one may expect the Tribunal to issue decisions or awards ‘promptly’ after the first session.27 25 In Brandes v. Venezuela,28 the tribunal disclosed the ‘dispositive’ of the tribunal’s decision first and informed the disputing Parties only later about the reasoning. In CETA proceedings, the permissibility of such shortcut appears questionable, as Article 8.32(5) explicitly requires that a decision or award on objection states the grounds therefore. 24
b) The Form of the Ruling 26 27
28
29
30
Depending upon the Tribunal’s finding in a specific case, an Article 8.32 objection will trigger the issuance of a ‘decision or award stating the grounds therefore’. 29 The rejection of the application for the summary dismissal of a claim will lead to the issuance of a decision. Here, it is on the one hand conceivable that a rejection is based on formalistic reasons, in particular in relation to the strict temporal regime applicable to the procedure. On the other hand, a rejection of the application may pertain to the substance of the objection and the respondent’s failure to demonstrate that a claim meets the applicable ‘manifestly without legal merit’ standard. An objection that prevails in its entirety leads to the issuance of an award, which disposes of the claim in question. Such award will be subject to the remedies foreseen in the Chapter F, i.e. the proceedings before the Appellate Tribunal pursuant to Article 8.28, and, eventually, to the enforcement regime under Article 8.39. Thus, final awards issued under Article 8.32(5) are capable of producing res judicata effects. Tribunal practice on ICSID Arbitration Rule 41(5) shows that the summary procedure does not always lead to a full dismissal of the claim or rejection of the objection. It is accepted that a tribunal may partially sustain a respondent’s objection and, subsequently, proceed with those parts of the claim that do not qualify for the summary dismissal.30 In view of the shared object and purpose and considering the textual similarities, the same may apply to Article 8.32 objections. Whether such partially successful objections might trigger the issuance of a decision or an (partial) award will depend upon the applicable procedural rules.31 Within the ICSID framework, the concept of partial awards is not recognized. 32 Hence, the Tribunal will have to issue a decision partially disposing of a claim under Article 8.32. This, however, reveals an apparent dilemma: Article 8.41 accords res 27 Diop, ‘Objection under Rule 41(5) of the ICSID Arbitration Rules’ (2010) 25 ICSID Rev., 312 (333); Howes et al., ‘The Impact of Summary Disposition on International Arbitration: A Quantitative Analysis of the ICSID's Rule 41(5) on Its Tenth Anniversary’ (2019) 13(1) Dispute Resolution International, 7 (22 ff.). 28 Brandes Investment Partners, LP v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/08/3 (2 February 2009), para. 7. 29 See Article 8.32(5). 30 Markert, 'Summary Dismissal of ICSID Proceedings' (2006) 31(3) ICSID Rev. 690 (708); Schreuer et al., The ICSID Convention: A Commentary (2009), 543. 31 See Article 8.23(2). 32 See, e.g., Antonietti, ‘The 2006 Amendments to the ICSID Rules and Regulations and the Additional Facility Rules’ (2006) 21 ICSID Rev., 427 (440).
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judicata effects to awards but not to decisions.33 In order to bypass this deficiency, the Tribunal may consider including a reference to the decision on the Article 8.32 objection in its award. With respect to claims submitted under the UNCITRAL rules, the Tribunal is 31 entitled to issue ‘separate awards on different issues at different times’. 34 Consequently, a partial award dismissing specific parts of a claim pursuant to Article 8.32 and capable of producing res judicata effects is conceivable. It is important to consider that decisions rejecting the application under Article 32 8.32(1) context will themselves not be subject to challenge before the Appeal Tribunal.35 Such decisions do not, however, affect the respondent’s right to raise other preliminary objections pursuant to the applicable rules of procedure or to assert that a claim lacks legal merit.36 The Tribunal is required to ‘state the grounds therefore’ for the decision or award 33 under Article 8.32(5). In particular, with respect to awards this is not a mere formality but a core duty of the Tribunal. According to Article 8.28(2)(c) 37 and Article 52(1)(e) ICSID Convention,38 the lack of reasoning constitutes a distinct ground for appeal. A failure to comply with Article 8.32(5) could, thus, lead to challenges before the Appellate Tribunal.
II. Article 8.32 in Context 1. Article 8.33 CETA By and large, both Article 8.32 and 8.33 (‘Claims unfounded as a matter of law’) 34 entitle the respondent to file objections for the purpose of obtaining an early dismissal of a claim. This raises the question on how these two provisions interrelate. Article 8.32(2) sets out that an Article 8.32 objection is not admissible ‘if the 35 respondent has filed an objection pursuant to Article 8.33’. Proceedings under Art 8.32 are, hence, subsidiary to objections under Article 8.33. 39 If an objection pursuant to Article 8.32(1) has been filed prior to an objection under Article 8.33, Article 8.33(3) entitles the Tribunal to decline to address the latter objection. 40 33 CETA Article 41(1): ‘An award issued pursuant to this Section shall be binding between the disputing parties and in respect of that particular case’. 34 See Article 34(1) UNCITRAL Arbitration Rules. 35 See Article 8.28(1) which limits the Appeal Tribunal’s mandate to the review of awards: ‘An Appellate Tribunal is hereby established to review awards rendered under this Section’. 36 See Article 8.32(6): ‘This Article shall be without prejudice to the Tribunal's authority to address other objections as a preliminary question or to the right of the respondent to object, in the course of the proceeding, that a claim lacks legal merit’. See also, e.g., Eskosol S.p.A. in liquidazione v. Italian Republic, ICSID Case No. ARB/15/50, Decision on Respondent’s Application Under Rule 41(5) (20 March 2017), para. 108 ‘Italy of course retains the right to try to convince the Tribunal otherwise at a subsequent stage of this proceeding’. 37 See Article 8.28(2): ‘The Appellate Tribunal may uphold, modify or reverse the Tribunal's award based on: [...] (c) the grounds set out in Article 52(1) (a) through (e) of the ICSID Convention, in so far as they are not covered by paragraphs (a) and (b)’. 38 Article 52(1)(e) ICSID Convention: ‘Either party may request annulment of the award by an application in writing addressed to the Secretary-General on one or more of the following grounds: […] (e) that the award has failed to state the reasons on which it is based.’ 39 See Reinisch and Stifter, ‘European Investment Policy and ISDS’‚ (2015) 1 ELTE Law Journal, 11 (16). 40 Article 8.33(3) CETA states, that ‘the Tribunal may, taking into account the circumstances of that objection, decline to address, under the procedures set out in this Article, an objection submitted pursuant to paragraph 1.’
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Claims manifestly without legal merit
The dividing nuances that set ‘claims manifestly without legal merit’ apart from ‘claims unfounded as a matter of law’ will be discussed in the contribution on Article 8.33 (→ Art. 8.33 mn. 24 ff.).
2. Proceedings before the Appellate Tribunal 37
38
39 40
41
42
Under the ICSID Convention, questions arose as to whether Rule 41(5) is applicable in ICSID annulment proceedings. Taking into account ICSID Arbitration Rule 53 which foresees that ICSID Arbitration Rules shall apply mutatis mutandis to annulment proceedings, this question has been answered in the affirmative. 41 Related questions arise in relation to Article 8.32 albeit in a different context. Rulings rendered by the Tribunal are excluded from ICSID annulment procedures. 42 The question here is whether Article 8.32 applies to appeal procedures before the CETA Appellate Tribunal. The reference to the ‘constitution of the division of the Tribunal’ in Article 8.32(1) suggests that only proceedings before the Tribunal are meant to be covered. Article 8.28 on the Appellate Tribunal does not address this issue. However, this is not the only question left open by this provision. Article 8.28 intentionally regulates only selected matters pertaining to the Appellate Tribunal. According to Article 8.28(7), ‘administrative and organisational matters’, in particular ‘procedures for the initiation and the conduct of appeals’ shall be implemented on the basis of a decision of the CETA Joint Committee. Accordingly, the CETA Joint Committee adopted a decision ‘setting out the administrative and organisational matters regarding the functioning of the Appellate Tribunal’ on 29 January 2021.43 Article 3(7) of the decision lays down which provisions ‘shall apply mutatis mutandis in respect of the appeal procedure’.44 Article 8.32 and Article 8.33 are not included. This notwithstanding, Article 3(4) of the CETA Joint Committee decision entitles the Appellate Tribunal to ‘reject the appeal on an expedited basis where it is clear that the appeal is manifestly unfounded’. The authority to reject ‘manifestly unfounded’ appeals is arguably broader than the disposal powers on claims ‘manifestly without legal merits’ envisaged in Article 8.32 as the grounds for appeal encompass manifest errors in the appreciation of facts.45 Thus, an appeal could be declared ‘manifestly 41 See Markert, ‘Summary Dismissal of ICSID Proceedings’ (2006) 31(3) ICSID Rev. 690 (700 ff.); Potestà, ‘Preliminary Objections to Dismiss Claims that are Manifestly Without Legal Merit under Rule 41(5) of the ICSID Arbitration Rules’ in Baltag (ed) ICSID Convention after 50 Years – Unsettled Issues (2017), 249 (267). 42 See CETA Article 8.28 para. 9 b: ‘a disputing party shall not seek to review, set aside, annul, revise or initiate any other similar procedure as regards an award under this Section’. 43 See Decision No 001/2021 of the CETA Joint Committee of January 29, 2021 setting out the administrative and organisational matters regarding the functioning of the Appellate Tribunal, available at https://www.international.gc.ca/trade-commerce/trade-agreements-accords-commerciaux/agr-acc/c eta-aecg/appellate-tribunal-dappel.aspx?lang=eng. 44 Ibid, Article 3(7): The provisions of Articles 8.20 (Mediation), 8.24 (Proceedings under another international agreement), 8.26 (Third party funding), 8.31 (Applicable law and interpretation), 8.34 (Interim measures of protection), 8.35 (Discontinuance), 8.36 (Transparency of proceedings), 8.38 (Non-disputing Party), 8.39 (Final award) and 8.40 (Indemnification or other compensation) of the Agreement shall apply mutatis mutandis in respect of the appeal procedure. 45 See Article 8.28(2): ‘The Appellate Tribunal may uphold, modify or reverse the Tribunal's award based on: (a) errors in the application or interpretation of applicable law; (b) manifest errors in the appreciation of the facts, including the appreciation of relevant domestic law; (c) the grounds set out in Article 52(1) (a) through (e) of the ICSID Convention, in so far as they are not covered by paragraphs (a) and (b).
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unfounded as a matter of fact’ pursuant to Article 3(4) of the CETA Joint Committee decision. While not formally applicable, it is conceivable that Members of the Appellate 43 Tribunal will draw guidance from the Article 8.32 procedure.
3. Institutional Arbitration Rules CETA Chapter 8, Sector F – Resolution of investment disputes between investors 44 and states, does not provide for a full-fledged set of procedural rules. Despite the distinctive features of the ICS, claims will still be subject to existing arbitration rules, 46 as modified by CETA.47 This provokes the question as to how Article 8.32 relates to other relevant rules. a) The Screening Power of the ICSID Secretary-General Article 36(3) ICSID Convention states that the ICSID Secretary-General shall regis- 45 ter a request for arbitration unless she finds, ‘on the basis of the information contained in the request, that the dispute is manifestly outside the jurisdiction of the Centre’. While partially overlapping in scope, this provision is distinct from Article 8.32 in the following respects. First, it operates at an earlier stage of a proceeding, namely at the registration of 46 a dispute. Article 8.32 becomes relevant ‘after the constitution of the division of the Tribunal’. Second, the Secretary-General’s screening power is limited to jurisdictional issues and does not allow for an assessment of the merits. Third, the basis of the decision is limited to the information contained in the request for arbitration. 48 By contrast, the Article 8.32 objection, applicable in lieu of Rule 41(5), would allow the Respondent to invoke ‘arguments and use supporting documents that were not made available to the Centre at the time of registration’.49 Additional evidence can, in particular, be submitted during oral hearings pursuant to the schedule adopted by the Tribunal. The tribunal in Brandes v. Venezuela has identified three possibilities for the dispos- 47 al of a claim at an early stage: ‘First by the Secretariat, and if the case passes that level, it would then be under Rule 41(5), and if it passes that level, it might still be under Rule 41(1).’50 This applies, mutatis mutandis, to CETA cases brought under the ICSID Rules.
See Article 8.23(2). See Article 8.23(6): ‘The rules applicable under paragraph 2 are those that are in effect on the date that the claim or claims are submitted to the Tribunal under this Section, subject to the specific rules set out in this Section and supplemented by rules adopted pursuant to Article 8.44.3(b).’ On the resulting ‘hybrid form’ see, e.g., Reinisch, ‘Will the EU’s Proposal Concerning an Investment Court System for CETA and TTIP Lead to Enforceable Awards? – The Limits of Modifying the ICSID Convention and the Nature of Investment Arbitration’ (2016) 19 J. Int’l Econ. L., 761. 48 See Markert, ‘Summary Dismissal of ICSID Proceedings’ (2006) 31(3) ICSID Rev., 690 (699). 49 Antonietti, ‘The 2006 Amendments to the ICSID Rules and Regulations and the Additional Facility Rules’ (2006) 21 ICSID Rev., 427 (439 ff.). 50 Brandes Investment Partners, LP v. The Bolivarian Republic of Venezuela, ICSID Case No. ARB/08/3, Decision on the Respondent's Objection Under Rule 41(5) of the ICSID Arbitration Rules (2 February 2009), para. 53. 46 47
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b) The Relationship with ICSID Arbitration Rule 41(5) ICSID Arbitration Rule 41(5) is of a residual nature. It applies ‘[u]nless the parties have agreed to another expedited procedure for making preliminary objections’. 51 49 Article 8.32 constitutes such expedited procedure and, hence, renders ICSID Arbitration Rule 41(5) inapplicable to claims brought under CETA, Chapter 8, Section F. 50 As to the UNCITRAL Arbitration Rules, it is worth mentioning that there is no dedicated mechanism for the expedited dismissal of unmeritorious claims. Article 23(3) UNCITRAL Arbitration Rules (‘Pleas as to the jurisdiction of the arbitral tribunal’) stipulates, in a discretionary manner, that a tribunal may decide jurisdictional challenges ‘either as a preliminary question or in an award on the merits’. 48
4. Other (Preliminary) Objections 51
Article 8.32(6) states that the objection raised under Article 8.32(1): shall be without prejudice to the Tribunal’s authority to address other objections as a preliminary question or to the right of the respondent to object, in the course of the proceeding, that a claim lacks legal merit.
This provision specifies that the Respondent remains entitled to advance preliminary objections under ICSID Arbitration Rule 41(1) or UNCITRAL Arbitration Rule 23 and to pursue the regular defence that a claim lacks legal merit, in case the Article 8.32 objection is not (entirely) successful. In this regard, it is noteworthy that the Tribunal would then be required to undertake a full assessment of the underlying preliminary objections and establish the facts before rendering a decision.52 53 A Tribunal’s ‘authority to address other objections as a preliminary question’ arguably encompasses the re-submission of objections that fail to meet the stringent ‘manifestly without legal merit’ threshold under Article 8.32.53 52
III. The Notion of ‘manifestly without legal merit’ 1. General Observations One commonality of Article 8.32(1) and ICSID Arbitration Rule 41(5) is the absence of a definition of the joint core element ‘manifestly without legal merit’. 55 Before considering the meaning of the scope ‘manifestly without legal merit’, it is worth looking at ICSID practice. The statistics on ICSID Arbitration Rule 41(5) suggest that the threshold for the summary dismissal of a claim is high. Since its inception in 2006, 40 awards or decisions have been rendered under ICSID arbitration Rule 41(5).54 The results of 23 are public, albeit not necessarily the decisions or awards themselves. Seven tribunals dismissed cases in their entirety due to a manifest lack 54
See ICSID Arbitration Rule 41(5). Markert, ‘Summary Dismissal of ICSID Proceedings’ (2006) 31(3) ICSID Rev., 690 (699). 53 See, e.g, MOL Hungarian Oil and Gas Company Plc v. Republic of Croatia, ICSID Case No. ARB/13/32, Decision on Respondent's Application under ICSID Arbitration Rule 41(5) (2 December 2014): ‘For the reasons given above, the Respondent’s preliminary objections are not therefore upheld under Rule 41(5), but without prejudice of any kind, as the Rule itself declares, to the Respondent’s right to raise any of them in subsequent stages of the arbitration’; Schreuer et al., The ICSID Convention: A Commentary (2009), 543 f. 54 See ICSID, Decisions on Manifest Lack of Legal Merit, available at https://icsid.worldbank.org/ca ses/content/tables-of-decisions/manifest-lack-of-legal-merit (accessed 21 July 2021). In addition, the following words were taken into account: Almasryia for Operating & Maintaining Touristic Construction Co. L.L.C. v. State of Kuwait, ICSID Case No. ARB/18/2, Award on the Respondent's Application 51
52
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of legal merit and issued awards to this effect. Three tribunals found that the claim in question was partially unfounded. 12 tribunals rejected the objections under Rule 41(5). The modest success rate of Rule 41(5) applications is intrinsically linked with 56 the narrow meaning given to ‘manifestly without legal merit’ by tribunals. For the purpose of describing the substance allocated to this central substantive element of the summary procedure of Article 8.32, two points need to be discussed: first, when does a claim ‘manifestly’ lack legal merit? Second, what is the scope of the ‘legal merit’? In the absence of travaux préparatoires shedding light on Article 8.32, the analysis 57 bellow will mainly be based on an examination of ICSID tribunal practice. Furthermore, consideration will be given to the particular court like-features’ of the ICS. To this end, the following section also refers to the pertinent principles applied by the European Court of Human Rights (ECtHR) for dismissing ‘manifestly ill-founded’ applications.
2. When does a Claim ‘Manifestly’ lack Legal Merit? The first tribunal to decide on the conditions set out in ICSID Arbitration Rule 58 41(5) was Trans-Global Petroleum Inc v Jordan.55 This decision, partially granting the objection, has come to be a landmark case. Based on an analysis of the term ‘manifest’ in other ICSID provisions, the tribunal 59 found that this term requires the respondent ‘to establish its objection clearly and obviously, with relative ease and despatch.’56 The tribunal went on to consider that ‘[t]he standard is thus set high. […] The exercise may thus be complicated; but it should never be difficult’.57 Considering the narrow time limits imposed by Rule 41(5), the Tribunal held 60 that the summary procedure was not ‘susceptible to elaborate, lengthy memorials requiring detailed preparation, presentation and deliberations’.58 In deference to due process concerns in the expedited procedure, the tribunal deemed it problematic if ‘a claimant was wrongly driven from the judgment seat by a final award under Article 41(5), with no opportunity to develop and present its case under the written and oral procedures’59. Hence, the expedited procedure could ‘only apply to a clear and obvious case’.60 under Rule 41(5) of the ICSID Arbitration Rules (1 November 2019); Lotus Holding Anonim Şirketi v. Turkmenistan, ICSID Case No. ARB/17/30, Award (6 April 2020). 55 Trans-Global Petroleum, Inc. v. The Hashemite Kingdom of Jordan, ICSID Case No. ARB/07/25, The Tribunal's Decision on the Respondent's Objection Under Rule 41(5) of the ICSID Arbitration Rules (12 May 2008). 56 Trans-Global Petroleum, Inc. v. The Hashemite Kingdom of Jordan, ICSID Case No. ARB/07/25, The Tribunal's Decision on the Respondent's Objection Under Rule 41(5) of the ICSID Arbitration Rules (12 May 2008), para. 88. 57 Trans-Global Petroleum, Inc. v. The Hashemite Kingdom of Jordan, ICSID Case No. ARB/07/25, The Tribunal's Decision on the Respondent's Objection Under Rule 41(5) of the ICSID Arbitration Rules (12 May 2008), para. 88. 58 Trans-Global Petroleum, Inc. v. The Hashemite Kingdom of Jordan, ICSID Case No. ARB/07/25, The Tribunal’s Decision on the Respondent's Objection Under Rule 41(5) of the ICSID Arbitration Rules (12 May 2008), para 90. 59 Trans-Global Petroleum, Inc. v. The Hashemite Kingdom of Jordan, ICSID Case No. ARB/07/25, The Tribunal's Decision on the Respondent's Objection Under Rule 41(5) of the ICSID Arbitration Rules (12 May 2008), para. 92. 60 Trans-Global Petroleum, Inc. v. The Hashemite Kingdom of Jordan, ICSID Case No. ARB/07/25, The Tribunal's Decision on the Respondent's Objection Under Rule 41(5) of the ICSID Arbitration Rules (12 May 2008), para. 92.
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The bulk of the subsequent case law adopted this approach.61 Elaborating upon the ‘clear and obvious’ requirement, the tribunal in PNG v. Papua New Guinea held that a Rule 41(5) objection was not appropriate if the ‘Claimant has a tenable arguable case’.62 62 In a similar vein, the tribunal in MOL v. Croatia found that the respondent’s Rule 41(5) objections could not be upheld as ‘[o]n each of them, the Respondent has advanced plausible arguments […], which in each case have been rebutted by plausible arguments from the Claimant’.63 63 To illustrate the above, the below cases of successful 41(5) objections serve as examples.64 64 The tribunal in Almasryia for Operating & Maintaining Touristic Construction Co. L.L.C. v. Kuwait,65 dealt with a Rule 41(5) objection relating to jurisdiction on the ground that the investor has, in violation of the ‘cooling off ’ provision of the applicable BIT, not attempted to settle the dispute amicably prior to initiating arbitral proceedings. The respondent claimed that the claim was, therefore, ‘manifestly without legal merit’. Taking the factual allegations submitted by the claimant at face value, the Tribunal held that it: 61
is manifest that the Claimant did not request an amicable settlement of the dispute through a written notification to the Respondent in accordance with Article 10(2) of the BIT. The Tribunal thus considers that there is a legal impediment which goes to the jurisdiction of the Tribunal. 66
In Lotus Holding Anonim Şirketi v. Turkmenistan67 the Tribunal had to assert claims based on contracts, which were entered into by a Turkish subsidiary solely owned by the claimant. Hence, Lotus Holding was not a Party to these contracts. Accordingly, the lack of standing was fatal for its claims pursuant to the applicable umbrella clause and were, subsequently, disposed of by the tribunal via ICSID Arbitration Rule 41(5).68 66 With respect to the permissibility of ‘complicated’ objections,69 as alluded to by the Tribunal in Trans-Global Petroleum Inc v. Jordan, subsequent case law appears to have shown a less permissive attitude. 65
61 RSM Production Corporation v. Grenada, ICSID Case No. ARB/05/14, Award (13 March 2009), para. 6.1.1. 62 PNG Sustainable Development Program Ltd. v. Independent State of Papua New Guinea, ICSID Case No. ARB/13/33, Decision on Respondent's Objections under Rule 41(5) (28 October 2014), para. 88. 63 MOL Hungarian Oil and Gas Company Plc v. Republic of Croatia, ICSID Case No. ARB/13/32, Decision on Respondent's Application under ICSID Arbitration Rule 41(5) (2 December 2014), para. 46. 64 See also Markert, 'Summary Dismissal of ICSID Proceedings' (2006) 31(3) ICSID Rev., 690 (693). 65 Almasryia for Operating & Maintaining Touristic Construction Co. L.L.C. v. State of Kuwait, ICSID Case No. ARB/18/2, Award on the Respondent's Application under Rule 41(5) of the ICSID Arbitration Rules (1 November 2019), para. 32. 66 Almasryia for Operating & Maintaining Touristic Construction Co. L.L.C. v. State of Kuwait, ICSID Case No. ARB/18/2, Award on the Respondent's Application under Rule 41(5) of the ICSID Arbitration Rules (1 November 2019), para. 48. 67 See Lotus Holding Anonim Şirketi v. Turkmenistan, ICSID Case No. ARB/17/30, Award (6 April 2020), para. 160. 68 See Lotus Holding Anonim Şirketi v. Turkmenistan, ICSID Case No. ARB/17/30, Award (6 April 2020), para. 197. 69 Trans-Global Petroleum, Inc. v. The Hashemite Kingdom of Jordan, ICSID Case No. ARB/07/25, The Tribunal’s Decision on the Respondent's Objection Under Rule 41(5) of the ICSID Arbitration Rules (12 May 2008), para. 88: ‘The exercise may thus be complicated; but it should never be difficult’.
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The MOL v. Croatia Tribunal, criticized that complicated objections would carry the 67 ‘tribunal into hybrid territory somewhere between Rule 41(5) and Rule 41(1)’. 70 Furthermore, it held that the summary procedure should not be used to dismiss claims that ‘“are susceptible to argument one way or the other” or where it is “necessary to engage in elaborate analysis”’.71 In this particular case, the application under Rule 41(5) was consequently dismissed, inter alia, because the legal questions at stake required a ‘detailed examination, against the limited amount of documentation publicly available, of the history and negotiation of the [Energy Charter Treaty], of a kind that would make it plainly unsuitable for summary determination under Rule 41(5).’ 72 In a similar vein, the tribunal in PNG v. Papua New Guinea held that ‘Rule 41(5) 68 is not intended to resolve novel, difficult or disputed legal issues, but instead only to apply undisputed or genuinely indisputable rules of law to uncontested facts.’ 73 In light of their complexity, the tribunal held that the relevant questions on whether there was an ‘investment’ and ‘consent’ in the sense of Article 25 ICSID Convention and on the existence of a MFN provision were unsuited for a Rule 41(5) objection. 74 Given the textual overlap between ICSID Arbitration Rule 41(5) and Article 69 8.32(1), the considerations developed by ICSID tribunals on the meaning of ‘manifestly’ constitute a viable guideline for Article 8.32(1).
3. The Concept of ‘legal merit’ The use of the term ‘legal merit’ in Article 8.32(1) makes it clear that the summary 70 procedure concerns the legal defectiveness of a claim. In this regard, it is worth noting that the applicable law in proceedings before the Tribunal is limited to this ‘Agreement […], and other rules and principles of international law applicable between the Parties’.75 Questions of domestic law are matters of fact.76 For the examination of the term ‘legal merit’, two points warrant a closer consider- 71 ation: First, to what extent can factual circumstances be considered? Second, does the notion of ‘legal merit’ encompass jurisdictional objections? a) The Consideration of Facts ICSID Arbitration Rule 41(5) does not explicitly address the role of facts in the 72 summary procedure. In the absence of such clarification, tribunals and commenta-
70 MOL Hungarian Oil and Gas Company Plc v. Republic of Croatia, ICSID Case No. ARB/13/32, Decision on Respondent's Application under ICSID Arbitration Rule 41(5) (December 2014), para. 45. 71 MOL Hungarian Oil and Gas Company Plc v. Republic of Croatia, ICSID Case No. ARB/13/32, Decision on Respondent's Application under ICSID Arbitration Rule 41(5) (December 2014), para. 45. 72 MOL Hungarian Oil and Gas Company Plc v. Republic of Croatia, ICSID Case No. ARB/13/32, Decision on Respondent's Application under ICSID Arbitration Rule 41(5) (December 2014), para. 48. 73 PNG Sustainable Development Program Ltd. v. Independent State of Papua New Guinea, ICSID Case No. ARB/13/33, Decision on Respondent's Objections under Rule 41(5) (28 October 2014)62, para. 89. 74 PNG Sustainable Development Program Ltd. v. Independent State of Papua New Guinea, ICSID Case No. ARB/13/33, Decision on Respondent's Objections under Rule 41(5) (28 October 2014), paras. 98 f. 75 See Article 8.31(1). 76 See Article 8.31(2).
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tors77 have interpreted ‘legal merit’ in contradistinction to ‘factual’.78 As Antonietti noted, the term ‘manifestly without legal merit’ was introduced to ‘avoid inappropriate discussions on the facts of the case at that stage’.79 73 In the procedure under Article 8.32, the treatment of facts is governed by Article 8.32(5) which stipulates that a ‘Tribunal shall assume the alleged facts to be true’. In other words, questions of facts shall be considered only to a limited extent: the factual premise has to be taken as alleged (by the claimant). This stands in contrast to other preliminary objections, which require a Tribunal to establish the underlying facts before rendering a decision or an award. 74 Despite the summary procedure’s focus on questions of law, a Tribunal may not manage to completely divorce its legal analysis of a claim from the underlying facts. In particular, the ‘manifestly’ requirement of Article 8.32(1) may require a Tribunal to engage in factual analyses: objections pursuant to Article 8.32 are meant for obvious and clear cases. Furthermore, it is worth bearing in mind that ‘manifest errors in the appreciation of the facts’ constitute a distinct ground for appeal pursuant to Article 8.28(2)(b). Against this background, questions of whether and how a Tribunal should consider disputed facts may arise. 75 For the purpose of discussing this point, it is worth recalling that the Tribunal in Trans-Global Petroleum held that ‘as regards disputed facts relevant to the legal merits of a claimant's claim, the tribunal need not accept at face value any factual allegation which the tribunal regards as (manifestly) incredible, frivolous, exatious or inaccurate or made in bad faith’.80 In a similar vein, the tribunal in PNG v. Papua New Guinea found that the summary procedure ought ‘to apply undisputed or genuinely indisputable rules of law to uncontested facts’.81 In Emmis v. Hungary, the tribunal held that it ‘must ordinarily presume the facts which found the claim on the merits as alleged by the claimant to be true (unless they are plainly without any foundation).’ 82
77 See, e.g., Antonietti, ‘The 2006 Amendments to the ICSID Rules and Regulations and the Additional Facility Rules’ (2006) 21 ICSID Rev., 427 (440); Potestà and Sobat, ‘Frivolous Claims in International Adjudication: A Study of ICSID Rule 41(5) and of Procedures of Other Courts and Tribunals to Dismiss Claims’ J. Int’l Disp. Settlement (2012) 3(1), 153 ff.; Markert, ‘Summary Dismissal of ICSID Proceedings’ (2006) 31(3) ICSID Rev., 690 (702); Schreuer et al., The ICSID Convention: A Commentary (2009), 543. 78 PNG Sustainable Development Program Ltd. v. Independent State of Papua New Guinea, ICSID Case No. ARB/13/33, Decision on Respondent's Objections under Rule 41(5) (28 October 2014), para. 97. See also Trans-Global Petroleum, Inc. v. The Hashemite Kingdom of Jordan, ICSID Case No. ARB/07/25, The Tribunal's Decision on the Respondent's Objection Under Rule 41(5) of the ICSID Arbitration Rules (12 May 2008), para. 97: ‘The Tribunal considers that the adjective “legal” in Rule 41(5) is clearly used in contradistinction to “factual” given the drafting genesis of Rule 41(5): see the legal materials cited above. Accordingly, it would seem that the tribunal is not concerned, per se, with the factual merits of the Claimant's three claims’. 79 Antonietti, ‘The 2006 Amendments to the ICSID Rules and Regulations and the Additional Facility Rules’ (2006) 21 ICSID Rev., 427 (440). 80 Trans-Global Petroleum, Inc. v. The Hashemite Kingdom of Jordan, ICSID Case No. ARB/07/25, The Tribunal's Decision on the Respondent's Objection Under Rule 41(5) of the ICSID Arbitration Rules (12 May 2008), para. 105. 81 PNG Sustainable Development Program Ltd. v. Independent State of Papua New Guinea, ICSID Case No. ARB/13/33, Decision on Respondent's Objections under Rule 41(5) (28 October 2014), para. 89. 82 Emmis International Holding, B.V., Emmis Radio Operating, B.V., MEM Magyar Electronic Media Kereskedelmi és Szolgáltató Kft. v. The Republic of Hungary, ICSID Case No. ARB/12/2, Decision on Respondent's Objection Under ICSID Arbitration Rule 41(5) (11 March 2013), para. 26. See also Almasryia for Operating & Maintaining Touristic Construction Co. L.L.C. v. State of Kuwait, ICSID Case No. ARB/18/2, Award on the Respondent's Application under Rule 41(5) of the ICSID Arbitration Rules (1 November 2019), para. 32.
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This shows that tribunals applying ICSID Arbitration Rule 41(5) are inclined not 76 to take the facts as alleged, in exceptional circumstances. These exceptions pertain, in particular, to facts that are ‘manifestly incredible or inaccurate’.83 In light of the textual overlaps of Article 8.32(1) and ICSID Arbitration Rule 41(5), 77 it appears appropriate to consider these findings for the purpose of examining Article 8.32. The following conclusions can be drawn: –
In accordance with Article 8.32(5), a division of the Tribunal will not determine the facts in an Article 8.32 procedure. It will, as a general rule, assume the facts alleged by the claimant to be true. Concerns presented by the respondent regarding the factual premise of a claim can, however, become relevant to the extent they are able to convince the Tribunal that the facts alleged by the claimant are ‘(manifestly) incredible, frivolous, exatious or inaccurate or made in bad faith’.84 The Tribunal should in such case reject the Article 8.32 objection on the basis that, due to the contested facts, the application of the Article 8.32 procedure is not appropriate, and address all issues in the course of the non-summary procedure.85 If, however, the factual concerns raised by the respondent do not reach the threshold described above, they will be ignored pursuant to the last sentence of Article 8.32(5).
–
–
b) Jurisdictional issues In the ICSID context, there was a debate whether the expedited procedure under 78 ICSID Arbitration Rule 41(5) extends to both matters of merits and of jurisdiction. 86 Whether intentional or not, Article 8.32, taken literally, omits to clarify this issue too. The same question may thus arise in connection with Article 8.32 objections. The first ICSID tribunal to pronounce itself on the permissibility of a jurisdictional 79 objection under ICSID Arbitration Rule 41(5) was Brandes v. Venezuela87. Placing emphasis on the object and purpose of the expedited procedure, the Tribunal held that there was: no objective reasons why the intent not to burden the parties with a possibly long and costly proceeding when dealing with such unmeritorious claims should be limited to an evaluation of the merits of the case and should not also englobe an examination of the jurisdictional basis on which the tribunal’s powers to decide the case rest.88
Markert, ‘Summary Dismissal of ICSID Proceedings’ (2006) 31(3) ICSID Rev., 690 (702). Trans-Global Petroleum, Inc. v. The Hashemite Kingdom of Jordan, ICSID Case No. ARB/07/25, The Tribunal’s Decision on the Respondent's Objection Under Rule 41(5) of the ICSID Arbitration Rules (12 May 2008), para. 105. 85 See Eskosol S.p.A. in liquidazione v. Italian Republic, ICSID Case No. ARB/15/50 (Decision on Respondent’s Application Under Rule 41(5) (20 March 2017), para. 120: ‘Moreover, it appears that the factual record here is not undisputed, making the question even less appropriate for a Rule 41(5) decision’. 86 Markert, ‘Summary Dismissal of ICSID Proceedings’ (2006) 31(3) ICSID Rev., 690 (697); Potestà, ‘Preliminary Objections to Dismiss Claims that are Manifestly Without Legal Merit under Rule 41(5) of the ICSID Arbitration Rules’ in Baltag (ed) ICSID Convention after 50 Years – Unsettled Issues (2017), 249 (256). 87 Brandes Investment Partners, LP v. The Bolivarian Republic of Venezuela, ICSID Case No. ARB/08/3, Decision on the Respondent's Objection Under Rule 41(5) of the ICSID Arbitration Rules (English) (2 February 2009). 88 Brandes Investment Partners, LP v. The Bolivarian Republic of Venezuela, ICSID Case No. ARB/08/3, Decision on the Respondent's Objection Under Rule 41(5) of the ICSID Arbitration Rules (English) (2 February 2009), para. 51. 83
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The Tribunal consequently held that the notion of ‘“legal merit” covers all objections to the effect that the proceedings should be discontinued at an early stage because, for whatever reason, the claim can manifestly not be granted by the Tribunal’. 89 81 In explicit or tacit support of this approach, subsequent arbitral practice has settled the scope of the notion of ‘manifestly without legal merit’ such that jurisdictional matters can be raised in the summary procedure.90 82 The text of Article 8.32 CETA warrants the same assessment. Jurisdictional objections are well suited for an evaluation under the summary procedure.91 This holds particularly true with respect to cases where merits and jurisdiction are closely connected.92 To put this in more tangible terms, pursuant to Article 8.18, CETA Section F (Resolution of investment disputes between investors and states) covers breaches of Section C and Section D causing loss or damage for the investors. The question whether the alleged conduct of the respondent could be considered a breach of a specific protection standard (e.g. Article 8.12 on expropriation) would be relevant for the determining jurisdiction as well as for the merits of the claim. 83 What remains clear though is that an objection on jurisdiction under Article 8.32 must raise a legal obstacle to a claim and not relate to disputed issues of facts. 80
4. The Summary Procedure in a Permanent Setting The most striking novelty of the CETA investment chapter is the establishment of a standing two-tier mechanism for the settlement of investor-State disputes. 93 Given the ‘court-like’ arrangement of the ICS, it is worth considering how other international courts filter patently ill-founded claims.94 85 Due to several parallels, the filter mechanism foreseen in the ECHR strikes as particularly conducive source of inspiration. First, both the ECtHR as well as the CETA ICS deal with disputes between natural or legal persons on the basis of public international law. Second, both adjudicative bodies are, in contradistinction to one-off arbitration, set up permanently. Third and crucially, both mechanisms are 84
89 Brandes Investment Partners, LP v. The Bolivarian Republic of Venezuela, ICSID Case No. ARB/08/3, Decision on the Respondent's Objection Under Rule 41(5) of the ICSID Arbitration Rules (English) (2 February 2009), para. 55. 90 See, e.g, Global Trading Resource Corp. and Globex International, Inc. v. Ukraine, ICSID Case No. ARB/09/11, Award (1 December 2010), paras. 30 f; RSM Production Corporation v. Grenada, ICSID Case No. ARB/05/14, Award (13 March 2009), paras. 6.1.1. f; Accession Mezzanine Capital L.P. and Danubius Kereskedöház Vagyonkezelö Zrt. v. Hungary, ICSID Case No. ARB/12/3, Decision on Respondent's Objection under Arbitration Rule 41(5) (16 January 2013), para. 77; Emmis International Holding, B.V., Emmis Radio Operating, B.V., MEM Magyar Electronic Media Kereskedelmi és Szolgáltató Kft. v. The Republic of Hungary, ICSID Case No. ARB/12/2, Decision on Respondent's Objection Under ICSID Arbitration Rule 41(5) (11 March 2013), para. 26; PNG Sustainable Development Program Ltd. v. Independent State of Papua New Guinea, para. 91; Eskosol S.p.A. in liquidazione v. Italian Republic, ICSID Case No. ARB/15/50, Decision on Respondent’s Application under Rule 41(5) (20 March 2017), paras. 34 ff.; Almasryia for Operating & Maintaining Touristic Construction Co. L.L.C. v. State of Kuwait, ICSID Case No. ARB/18/2, Award on the Respondent's Application under Rule 41(5) of the ICSID Arbitration Rules (1 November 2019), para. 31. 91 See Potestà, ‘Preliminary Objections to Dismiss Claims that are Manifestly Without Legal Merit under Rule 41(5) of the ICSID Arbitration Rules’ in Baltag (ed) ICSID Convention after 50 Years – Unsettled Issues (2017), 249 (257). 92 See Schreuer et al., The ICSID Convention: A Commentary (2009), 543. 93 See Braumann and Reinisch, ‘Investment Court Systems’ in Wolfrum (ed), Max Planck Encyclopedia of Public International Law (online edn). 94 For a detailed treatment, see Potestà and Sobat, ‘Frivolous Claims in International Adjudication: A Study of ICSID Rule 41(5) and of Procedures of Other Courts and Tribunals to Dismiss Claims’ J. Int’l Disp. Settlement (2012) 3(1), 137.
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Art. 8.32
Claims manifestly without legal merit
competent for the settlement of disputes relating to primarily one particular set of rules, the rights afforded by the ECHR and its Protocols and the investment protection standards contained in Section C and Section D of CETA Chapter 8. This is distinct from arbitral tribunals, which are not only constituted on an ad-hoc basis but apply substantive rules of various IIAs, too. 86 Article 35(3) ECHR reads, in its relevant parts, as follows: The Court shall declare inadmissible any individual application submitted under Article 34 if it considers that: (a) the application is incompatible with the provisions of the Convention or the Protocols thereto, manifestly ill-founded, […]
As to the substance of the filter mechanism, the ‘Practical Guide on Admissibility Criteria’ of the Directorate of the Jurisconsult provides for a non-binding overview over the admissibility criteria for individual applications. Article 35(3) ECHR empowers the ECtHR to declare individual applications pursuant to Article 34 that may meet the formal admissibility requirements ‘inadmissible for reasons relating to the examination on the merits’.95 This is reminiscent of Article 8.32 which operates upon registration of the respective claim.96 The following set of circumstances treated by the ECtHR in its case law may be of particular relevance for the procedure under Article 8.32. A claim under Article 34 ECHR will be considered ‘manifestly ill-founded’ if a preliminary examination of its substance suggests that there is not even an appearance of a violation of the rights guaranteed by the ECHR.97 This is akin to the ‘manifestly’ threshold under Article 8.32(1). An application may be declared inadmissible ‘where there is settled and abundant case-law of the Court in identical or similar cases, on the basis of which it can conclude that there has been no violation of the Convention in the case before it’. 98 The similarity with the reasoning used in arbitral practice on ICSID Arbitration Rule 41(5) is striking.99 In the absence of previous rulings dealing directly and specifically with the issue in question, it has even been established that the ECtHR ‘can conclude on the basis of the existing case-law that there is no appearance of a violation of the Convention’. 100
95 Directorate of the Jurisconsult, Practical Guide on Admissibility Criteria (30 April 2020) available at https://www.echr.coe.int/Documents/Admissibility_guide_ENG.pdf (accessed 25 October 2020, 67). 96 See Article 36 ICSID Convention. 97 Directorate of the Jurisconsult, Practical Guide on Admissibility Criteria (30 April 2020) available at https://www.echr.coe.int/Documents/Admissibility_guide_ENG.pdf (accessed 25 October 2020, 69 f.). 98 Directorate of the Jurisconsult, Practical Guide on Admissibility Criteria (30 April 2020) available at https://www.echr.coe.int/Documents/Admissibility_guide_ENG.pdf, 71. 99 See, e.g, MOL Hungarian Oil and Gas Company Plc v. Republic of Croatia, ICSID Case No. ARB/13/32, Decision on Respondent's Application under ICSID Arbitration Rule 41(5) (December 2014), para. 46. In particular, see Lotus Holding Anonim Şirketi v. Turkmenistan, ICSID Case No. ARB/17/30, Award (6 April 2020), para. 160: ‘A tribunal must be able to regard some legal rules and principles as so firmly established that they can serve as premises on the basis of which it can properly conclude that a particular claim will inevitably fail.’ 100 Directorate of the Jurisconsult, Practical Guide on Admissibility Criteria (30 April 2020) available at https://www.echr.coe.int/Documents/Admissibility_guide_ENG.pdf, 71.
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88 89
90
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Art. 8.32
Claims manifestly without legal merit
E. Conclusion 92 93
94
95
96
Article 8.32 provides that the objection that a claim is manifestly without legal merits can be raised regardless of the procedural rules applicable to a specific case. To a significant degree, Article 8.32 and ICSID Arbitration Rule 41(5) are identical. The incremental refinement reflected in Article 8.32, e.g. the clarification that the ‘Tribunal shall assume the alleged facts to be true’ or the mandatory suspension of the proceedings on the merits, may streamline the procedure. However, the notion of ‘manifestly without legal merit’ remains unclear. Hence, the Tribunal will need to give meaning to it on a case-by-case basis. The permanent nature of the ICS may facilitate the development of a coherent and consistent jurisprudence. Arbitral case law on ICSID Arbitration Rule 41(5) lends itself as an important source for interpreting Article 8.32. Members of the Tribunal adjudicators may also seek inspiration from summary dismissal mechanisms of other permanent international courts. Whether the ambitious timeframe for the expedited procedure can be followed in practice, remains to be seen. According to an examination by Howes, Stowell and Choi, the current time span from filing an objection pursuant ICSID Arbitration Rule 41(5) to a tribunal’s decision is 3 ½ months.101 While the majority of objections have been denied,102 it is interesting to observe that despite these additional 3 ½ months, the proceedings were, still, accelerated: cases that have undergone the Rule 41(5) examination have been ‘concluded, on average, over a year earlier than non-Rule 41(5) arbitrations’.103 Against this background, one may assume that the object and purpose of Article 8.32 to reduce the duration of proceedings concerning certain unmeritorious claims will materialise.
101 Howes et al., ‘The Impact of Summary Disposition on International Arbitration: A Quantitative Analysis of the ICSID's Rule 41(5) on Its Tenth Anniversary’ (2019) 13(1) Dispute Resolution International, 7 (16). 102 See ICSID, Decisions on Manifest Lack of Legal Merit, available at https://icsid.worldbank.org/en/ Pages/Process/Decisions-on-Manifest-Lack-of-Legal-Merit.aspx (accessed 25 October 2020). 103 Howes et al., ‘The Impact of Summary Disposition on International Arbitration: A Quantitative Analysis of the ICSID's Rule 41(5) on Its Tenth Anniversary’ (2019) 13(1) Dispute Resolution International, 7 (28).
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Article 8.33 Claims unfounded as a matter of law 1. Without prejudice to the Tribunal's authority to address other objections as a preliminary question or to a respondent's right to raise any such objections at an appropriate time, the Tribunal shall address and decide as a preliminary question any objection by the respondent that, as a matter of law, a claim, or any part thereof, submitted pursuant to Article 8.23 is not a claim for which an award in favour of the claimant may be made under this Section, even if the facts alleged were assumed to be true. 2. An objection under paragraph 1 shall be submitted to the Tribunal no later than the date the Tribunal fixes for the respondent to submit its counter-memorial. 3. If an objection has been submitted pursuant to Article 8.32, the Tribunal may, taking into account the circumstances of that objection, decline to address, under the procedures set out in this Article, an objection submitted pursuant to paragraph 1. 4. On receipt of an objection under paragraph 1, and, if appropriate, after rendering a decision pursuant to paragraph 3, the Tribunal shall suspend any proceedings on the merits, establish a schedule for considering the objection consistent with any schedule it has established for considering any other preliminary question, and issue a decision or award on the objection stating the grounds therefor. Reference to the Respective Provisions in Other EU Treaties: Article 3.45 EU-Vietnam IPA, Article 3.15 EU-Singapore IPA. Bibliography: Álvarez Zárate et al., ‘Duration of Investor-State Dispute Settlement Proceedings’ (2020) 21 JWIT, 330; Daniel Behn, Malcolm Langford and Laura Létourneau-Tremblay, Empirical Perspectives on Investment Arbitration: What Do We Know? Does It Matter?’ (2020) 21 JWIT, 188; Lars Markert, ‘Summary Dismissal of ICSID Proceedings’ (2016) 31(3) ICSID Rev., 690; Michele Potestà and Marija Sobat, ‘Frivolous Claims in International Adjudication: A Study of ICSID Rule 41(5) and of Procedures of Other Courts and Tribunals to Dismiss Claims’ (2012) 3(1) J. Int’l Disp. Settlement, 137; Christoph Schreuer, Loretta Malintoppi, August Reinisch and Anthony Sinclair, The ICSID Convention: A Commentary (2nd edn, Cambridge University Press, Cambridge 2009); Jeremy Sharpe and Lee Caplan, ‘United States’ in Chester Brown (ed), Commentaries on Selected Model Investment Treaties (Oxford University Press 2013, Oxford), 755; Audley Sheppard, 'The Jurisdictional Threshold of a Prima-Facie Case' in Peter Muchlinski, Federico Ortino, and Christoph Schreuer (eds), The Oxford Handbook of International Investment Law (2008), 932; André von Walter and Maria Andrisani, ‘Resolution of Investment Disputes’ in Makane Moïse Mbengue and Stefanie Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (Springer 2019), 185; August Reinisch and Lukas Stifter, ‘European Investment Policy and ISDS’ (2015) 1 ELTE Law Journal, 11. A. Introduction and Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
B. Spirit and Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6
C. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8
D. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. The Procedure under Article 8.33 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Who can file the Objection? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. The Filing of the Objection and Initial Steps . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. The Ruling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a) Timing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . b) Form and Scope . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Article 8.33 in Context . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Article 8.32 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13 15 15 16 19 19 20 24 24
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Art. 8.33
Claims unfounded as a matter of law
2. The Treatment as ‘preliminary question’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Other (Preliminary) Objections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. Proceedings before the Appellate Tribunal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. The Notion of ‘unfounded as a matter of law’: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
25 28 29 30 40
A. Introduction and Overview* Article 8.33 complements Article 8.32 by entitling the respondent to raise another objection aimed at the early dismissal of ‘frivolous claims’.1 While Article 8.32(1) pertains to ‘claims manifestly without legal merit’, Article 8.33(1) provides for an objection ‘that, as a matter of law, a claim, or any part thereof, submitted pursuant to Article 8.23 is not a claim for which an award in favour of the claimant may be made’. 2 Like Article 8.32, the procedure under Article 8.33 is neither new nor unique. 2 While Article 8.32 builds on ICSID Arbitration Rule 41(5), Article 8.33 can be traced back to US investment treaty practice.3 Similar provisions are contained in numerous modern investment treaties.4 3 Despite existing treaty practice, case law on provisions similar to Article 8.33 is scarce.5 Thus, the distinction between the notions of ‘manifestly without legal merit’ and ‘claims unfounded as a matter of law’ is not easy to articulate. 4 At the outset, one can discern that Article 8.33 does not only differ from Article 8.32 in terms of process but also in terms of substance. First, an objection under Article 8.33 can be filed at a later point than an objection under Article 8.32. Second, the 1
* The views expressed in this chapter are exclusively those of the author and may not in any circumstances be regarded as stating a position of the Austrian government. The author wishes to thank the editors, Céline Braumann, Karin Kizer and Petra Zeinhofer for their insightful comments on earlier drafts. 1 See Von Walter and Andrisani, ‘Resolution of Investment Disputes’ in Mbengue and Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (2019), 185 (195). 2 See Reinisch and Stifter, ‘European Investment Policy and ISDS ‘‚ (2015) 1 ELTE Law Journal, 11 (16). 3 See Article 28(4) of the 2004 US Model BIT, available at https://ustr.gov/archive/assets/Trade_ Sectors/Investment/Model_BIT/asset_upload_file847_6897.pdf: ‘Without prejudice to a tribunal’s authority to address other objections as a preliminary question, a tribunal shall address and decide as a preliminary question any objection by the respondent that, as a matter of law, a claim submitted is not a claim for which an award in favor of the claimant may be made under Article 34.’ 4 See, e.g, Article 10.19 of the 2003 USA-Chile FTA: ‘[…] a tribunal shall address and decide as a preliminary question any objection by the respondent that, as a matter of law, a claim submitted is not a claim for which an award in favour of the claimant may be made […]’. Furthermore, see, e.g., Article 27(2) Argentina-Japan BIT (2018); Article 14.D.7(4) United States-Mexico-Canada Agreement (USMCA; 2018); Article 21.1 Belarus-India BIT (2018); Article 9.23(4) Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) (2018); Article 8.24(4) Australia - Peru FTA (2018); Article 28(4) Rwanda-US BIT (2008); Article 11.20(6) Korea-US FTA (2007); Article 28(4) US-Uruguay BIT (2005); Article 10.20(4) Dominican Republic-Central America FTA (CAFTA-DR); Article 10.19 US-Chile FTA (2003). 5 See Pac Rim Cayman LLC. v. Republic of El Salvador, ICSID Case No. ARB/09/12, Decision on the Respondent's Preliminary Objections Under CAFTA Articles 10.20.4 and 10.20.5 (2 August 2010) and Railroad Development Corporation v. Republic of Guatemala, ICSID Case No. ARB/07/23, Decision on Objection to Jurisdiction CAFTA Article 10.20.5 (17 November 2008); The Renco Group, Inc. v. Republic of Peru [I], ICSID Case No. UNCT/13/1, Decision as to the Scope of the Respondent's Preliminary Objections under Article 10.20.4 (18 December 2014); Daniel W. Kappes and Kappes, Cassiday & Associates v. Republic of Guatemala, ICSID Case No. ARB/18/43, Decision on the Respondent's Preliminary Objection (13 March 2020); Mason Capital L.P. and Mason Management LLC v. Republic of Korea, Case No. 2018-55, Decision on Respondent Preliminary Objections (22 December 2019).
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Lukas Stifter
Art. 8.33
Claims unfounded as a matter of law
two objections are intended to operate under different circumstances. Thus, tribunal practice on ICSID Arbitration Rules 41(5) may help with the interpretation of Article 8.32, but does not necessarily assist in canvassing the scope of what constitutes a ‘claim unfounded as a matter of law’ under Article 8.33.6 The following contribution aims at explaining the procedure under Article 8.33 and 5 attempts to distinguish Article 8.33 from Article 8.32. In other words, it strives for a better understanding of the following: When is a claim ‘unfounded as a matter of a law’ and when is it ‘manifestly without legal merit’?
B. Spirit and Purpose Like Article 8.32, the objection under Article 8.33(1) serves procedural economy 6 such that patently unmeritorious claims are deterred from being filed. To this end, the Tribunal is entitled to dispose of such claims at the outset of the proceeding with a view to avoid costly litigation. Thus, an objection that the claim ‘is not a claim for which an award in favour 7 of the claimant may be made’7 shall be decided as a ‘preliminary question’.8 In this connection, it is worth considering that the qualification as a preliminary question does not prevent the Tribunal from issuing an award capable of producing res judicata effects.
C. Drafting History The publicly available negotiating directives do not shed light on the meaning of 8 Article 8.33.9 As indicated above, Article 8.33 is inspired by US investment treaty practice (→ 9 mn. 2). Canadian treaty practice has, if at all, only played a limited role for its inclusion.10 An initial version of Article 8.33 had been added to the text on ISDS of 15 10 November 2013 11 jointly with a provision on ‘Claims Manifestly Without Legal Merit’. 6 See the seminal decision in Pac Rim v. El Salvador on Article 10.20(4) Dominican Republic-Central America FTA CAFTA-DR, Pac Rim Cayman LLC v. Republic of El Salvador, ICSID Case No. ARB/09/12, Decision on the Respondent's Preliminary Objections under CAFTA Articles 10.20.4 and 10.20.5 (2 August 2010), para. 118: ‘The Tribunal was also not materially assisted by comparisons with NAFTA or the New ICSID Arbitration Rule 41.5, which have different wording and do not share exactly the same object and purpose’. 7 Article 8.33(1). 8 Article 8.33(1). 9 On ISDS, only a general point on ‘effective and state-of-the-art investor-to-state dispute settlement mechanism’ can be found. See Council of the EU, Recommendation from the Commission to the Council on the modification of the negotiating directives for an Economic Integration Agreement with Canada in order to authorise the Commission to negotiate, on behalf of the Union, on investment, 15. December 2015, para 26 d. 10 The 2014 Canada Model Foreign Investment Protection Agreement (FIPA) does not foresee a dedicated frivolous claims mechanism akin to Article 8.33 (or Article 8.32). In a small number of Canadian treaties, provisions on ‘Preliminary objections to jurisdiction or admissibility’ had been included. They set forth that ‘[w]here issues relating to jurisdiction or admissibility are raised as preliminary objections, a Tribunal shall, wherever possible, decide the matter before proceeding to the merits’ (see Article 834 Canada-Peru FTA [2006]). See also Article 37 Canada-Jordan BIT (2009) and Article 1034 Canada-Honduras FTA (2013). 11 Article X-15: Claims Unfounded as a Matter of Law, EU-Canada Comprehensive Economic and Trade Agreement, Investor-to-State Dispute Settlement Text, 15. November 2013.
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Art. 8.33
Claims unfounded as a matter of law
Looking at the wording of this draft provision as well as that of 4 February 2014, 12 it is worth noting that these drafts stated that ‘[t]he Tribunal may also consider any relevant facts not in dispute.’ This element is reminiscent of Article 28(4)(c) of the 2012 US Model BIT13 and treaty provisions based thereon. The rationale of such discretionary power (‘may also consider’) is to empower the tribunal to consider facts in addition to those alleged by the claimant in the notice of arbitration. This implies that additional ‘uncontested’ facts, i.e. factual allegations of the respondent not contesting the facts alleged by the claimant, would have been subject to the Tribunal’s considerations. 11 The final draft of 1 August 2014 (Article X.30), which is now enshrined in Article 8.33, does no longer contain such language. It is not entirely clear why this element of provisions on ‘claims unfounded as a matter of law’ typically found in IIAs, including EU treaty practice,14 has eventually been dropped. One may assume that limiting the scope of relevant factual allegations and, as a consequence, an increased focus on the legal merits of a claim would accelerate the proceedings. 12 Another interesting point in the genesis of Article 8.33 is the EU’s initial proposal to include an exception to the Tribunal’s duty to suspend the proceedings on the merits upon the filing of an objection. This safeguard against the abusive filing of an Article 8.33 objection would have applied in case the Tribunal deemed an ‘objection manifestly unfounded’.15 Eventually, this proposal did not find its way to the final text. In this connection, it is worth considering the ‘loser pays’ principle enshrined in Article 8.39(5) which may have contributed to the EU’s withdrawal of her request.
D. Commentary Section I aims at explaining the procedure laid down in Article 8.33. Section II locates of Article 8.33 within the procedural framework applicable to proceedings under CETA Chapter 8, Section F. Section III is devoted to the salient substantive elements of ‘claims unfounded as a matter of law’ and attempts to distinguish the two frivolous claims objections, i.e. Article 8.32 and Article 8.33. 14 In general, comparisons with Article 8.32 will be made where appropriate. To the extent the considerations regarding Article 8.32 apply mutatis mutandis, cross-refences to this commentary’s relevant parts serve to avoid repetitions. 13
I. The Procedure under Article 8.33 1. Who can file the Objection? 15
Like Article 8.32 (→ Art. 8.32 mn. 13), Article 8.33 constitutes a defence tool of the respondent. Article 8.33(1) stipulates that ‘[...] the Tribunal shall address and decide as a preliminary question any objection by the respondent […]’ (emphasis added). 12 Article X-15: Claims Unfounded as a Matter of Law, EU-Canada Comprehensive Economic and Trade Agreement, Investor-to-State Dispute Settlement Text, 4 February 2014. 13 See Article 28(4)c of the 2012 US Model BIT, available at https://ustr.gov/sites/default/files/BIT%2 0text%20for%20ACIEP%20Meeting.pdf. 14 See Article 3.15(1) EU-Singapore IPA and Article 3.45(1) EU-Vietnam IPA. 15 See Article X-15(3): Claims Unfounded as a Matter of Law, EU-Canada Comprehensive Economic and Trade Agreement, Investor-to-State Dispute Settlement Text, 4 February 2014 (‘On receipt of an objection under paragraph 1, EU [and unless it considers the objection manifestly unfounded,] the Tribunal shall suspend any proceedings on the merits, […]’) (emphasis added).
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Lukas Stifter
Art. 8.33
Claims unfounded as a matter of law
2. The Filing of the Objection and Initial Steps The procedure under Article 8.33 operates under the temporal regime applicable to 16 ‘ordinary’ preliminary objections. 16 Article 8.33(2) specifies that the objection ‘shall be submitted to the Tribunal no later than the date the Tribunal fixes for the respondent to submit its counter-memorial’. Objections under Article 8.33 can, thus, be brought at a later stage than those under Article 8.32.17 While the aim is to dispose of a claim at the outset of the proceeding, it is worth 17 noting that the schedule for filing an Article 8.33 objection is not as tight as under the expedited procedure set forth by Article 8.32. In contrast to Article 8.32 and, interestingly, other mechanisms on the dismissal of claims unfounded as a matter of law,18 the treaty Parties refrained from providing a dedicated fast track procedure for the Article 8.33 objection. It appears that the drafters deem the classification as preliminary question and the avoidance of evidentiary discussions (see below) sufficient. Upon the filing of the objection, Article 8.33(4) requires the Tribunal to ‘suspend 18 any proceedings on the merits’ and ‘establish a schedule for considering the objection consistent with any schedule it has established for considering any other preliminary question’.
3. The Ruling a) Timing Article 8.33 does not mandate the Tribunal to render a ruling on the objection pur- 19 suant to paragraph 1 within a specific timeframe. This is another striking difference to the expedited procedure under Article 8.32 and, notably, to other mechanisms on the summary disposal of claims unfounded as a matter of law that come with ambitious time limits.19 b) Form and Scope Paragraph 4 of Article 8.33 sets forth that the Tribunal shall ‘issue a decision or 20 award on the objection stating the grounds therefor’. The choice between an award or a decision depends upon the success of the objection. In this regard, Article 8.33 is in 16 In ICSID proceedings, ICSID Rule 41(1) requires the disputing parties to raise preliminary objections as early as possible but no later than the expiration of the time-limit set for the filing of the counter- memorial (see, e.g., Schreuer et al., The ICSID Convention: A Commentary (2009), 543). In disputes brought under the UNCITRAL Arbitration Rules, UNCITRAL Article 23(2) foresees that preliminary objections shall generally be raised ‘no later than in the statement of defence’. 17 See Article 8.32(1): ‘The respondent may, no later than 30 days after the constitution of the division of the Tribunal, and in any event before its first session, file an objection that a claim is manifestly without legal merit.’ 18 See, e.g., Article 9.23(4)a of the CPTPP which specifies, in line with Articles 28 (4) and (5) of the 2012 US Model BIT, that an objection, that a claim is unfounded as a matter of law, ‘shall be submitted to the tribunal as soon as possible after the tribunal is constituted, and in no event later than the date the tribunal fixes for the respondent to submit its counter-memorial’ (emphasis added). Similarly, see Article 3.15(2) EU-Singapore IPA and Article 3.45(2) EU-Vietnam IPA. 19 See, e.g., Article 29.23(5) CPTPP: ‘In the event that the respondent so requests within 45 days after the tribunal is constituted, the tribunal shall decide on an expedited basis […]. The tribunal shall suspend any proceedings on the merits and issue a decision or award on the objection, stating the grounds therefor, no later than 150 days after the date of the request. However, if a disputing party requests a hearing, the tribunal may take an additional 30 days to issue the decision or award. Regardless of whether a hearing is requested, a tribunal may, on a showing of extraordinary cause, delay issuing its decision or award by an additional brief period, which may not exceed 30 days.’
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Art. 8.33
Claims unfounded as a matter of law
substance no different to Article 8.33. The considerations pertaining to Article 8.32 apply mutatis mutandis (→ Art. 8.32 mn. 26 ff.). 21 It is, however, worth stressing that a successful objection leads to an award, which disposes of the claim in question. Such an award will be subject to the remedies foreseen in Chapter F, i.e. the proceedings before the Appellate Tribunal pursuant to Article 8.28, and, ultimately, to the enforcement regime pursuant to Article 8.39. Thus, an award rendered based on a successful objection under Article 8.33(1) is capable of producing res judicata effects. 22 Considering the object and purpose of Article 8.33, namely procedural economy, and the possibility for the objection to relate to certain parts of a claim, 20 it is conceivable that the Tribunal may only partially uphold the objection. Depending on the applicable arbitration rules (→ Art. 8.32 mn. 30 f.), the Tribunal would then render a decision or ‘partial award’ to partially dispose of the claim, whereas the proceedings would continue with respect to the parts of the claim not ‘unfounded as a matter of law’. In case a decision partially dismissing a claim is rendered, the decision would need to be incorporated or referred to in the award (→ Art. 8.32 mn. 30 f.). 23 The Tribunal’s obligation to state the ground for its decision or award under Article 33(4) is reminiscent of Article 48(3) ICSID Convention 21 and crucial in light of the possibility for appeal.22
II. Article 8.33 in Context 1. Article 8.32 24
The objection under Article 8.32 is, in principle, subsidiary to Article 8.33 (→ Art. 8.32 mn. 34 ff.). However, if an Article 8.32 objection has been filed, the Tribunal may, ‘taking into account the circumstances of that objection, decline to address, under the procedures set out in this Article, an objection submitted’ pursuant to Article 33(1) and render a decision to this effect.
2. The Treatment as ‘preliminary question’ 25
In investor-State arbitration, adjudicators are afforded a significant degree of flexibility in deciding whether to address a preliminary issue as a preliminary question (‘bifurcation’) or as part of the merits.23 By contrast, Article 8.33(1) unambiguously decides this question in favour of bifurcation. It sets forth that the ‘Tribunal shall address and decide the objection that a claim is unfounded as a matter of law as a preliminary question’. In addition, Article 8.33(4) specifies that ‘the Tribunal shall suspend any proceedings on the merits’. In accordance with Article 8.33(1), the objection may refer to a ‘claim, or any part thereof’. Article 48(3) ICSID Convention: ‘The award shall deal with every question submitted to the Tribunal, and shall state the reasons upon which it is based’. 22 See Article 8.28(2): ‘The Appellate Tribunal may uphold, modify or reverse the Tribunal's award based on: [...] (c) the grounds set out in Article 52(1) (a) through (e) of the ICSID Convention, in so far as they are not covered by paragraphs (a) and (b)’. Article 52(1)(e) ICSID Convention sets forth that ‘[e]ither party may request annulment of the award by an application in writing addressed to the Secretary-General on one or more of the following grounds: […] (e) that the award has failed to state the reasons on which it is based’. 23 See ICSID Arbitration Rule 41(3): ‘Upon the formal raising of an objection relating to the dispute, the Tribunal may decide to suspend the proceeding on the merits’; Article 23(4) UNCITRAL Arbitration Rules: ‘The arbitral tribunal may rule on a plea referred to in paragraph 2 either as a preliminary question or in an award on the merits’. 20
21
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The rationale of these clarifications is to direct the Tribunal’s focus to the objection 26 before it with a view to render subsequent stages of a proceeding (partially) superfluous and, hence, to reduce the duration and costs of a proceeding. Empirical studies suggest that bifurcation has been a cause for delay in investor- 27 State arbitration.24 It is, however, hard to conceive that these concerns would materialise in the context of Article 8.33 objections: first, the Tribunal will not entertain factual evidence when addressing the Article 8.33 objection. 25 This saves the time normally consumed by the determination of the factual basis required for a decision on an ‘ordinary’ preliminary question. This is crucial as lengthy bifurcated proceedings are attributed to the repetition of evidentiary procedures.26 Second, the mandatory bifurcation of the proceedings will streamline the process because it pre-empts discussions as to whether a bifurcation is warranted.
3. Other (Preliminary) Objections Article 8.33(1) specifies that the objection is ‘[w]ithout prejudice to the Tribunal's 28 authority to address other objections as a preliminary question or to a respondent's right to raise any such objections at an appropriate time’.
4. Proceedings before the Appellate Tribunal The plain language of Article 8.33 suggests that the objection is limited to claims 29 brought before the first instance of the Investment Court System. 27 However, the Appellate Tribunal is generally entitled to decide upon appeals in an expedited manner. Article 8.33 could provide guidance in this regard (→ Art. 8.32 mn. 37 ff.).
III. The Notion of ‘unfounded as a matter of law’: At the core of the objection under Article 8.33 is the allegation that:
30
as a matter of law, claim, or any part thereof, submitted pursuant to Article 8.23 is not a claim for which an award in favour of the claimant may be made under this Section, even if the facts alleged were assumed to be true.28
As a starting point, it is worth considering the origins of this provision, which 31 derives from US treaty practice. Article 28(4) of the 2004 US Model-BIT confers the power upon arbitral tribunals to dismiss a claim based on the assertion that as a matter of law, an award in favour of the claimant may not be made. The underlying motivation for this article’s inception appears to be founded in the US’ experience related to litigation under NAFTA. In Methanex v. USA, the US’ ‘admissibility objection’ asserting ‘that taking all of the allegations of fact made to be true, […] as a matter of law, there can be no claim, and that the claim is ripe for dismissal at this stage for
24 See the summary of existing studies provided in Behn, Langford and Létourneau-Tremblay, ‘Empirical Perspectives on Investment Arbitration: What Do We Know? Does It Matter?‘ (2020) 21 JWIT 188 (212). 25 See Article 8.33(1): ‘[…] even if the facts alleged were assumed to be true’. 26 Álvarez Zárate et al., ‘Duration of Investor-State Dispute Settlement Proceedings‘ (2020) 21 JWIT 330 (321). 27 See, e.g., Article 8.33(1): ‘[…] the Tribunal shall address and decide as a preliminary question any objection by the respondent.’ 28 Article 8.33(1).
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Art. 8.33
32
33
34
35
36
37
Claims unfounded as a matter of law
that reason’29 was rejected. The tribunal held that it had no ‘express or implied power to reject claims based on inadmissibility’.30 Furthermore, it has been remarked that this provision ‘borrows from Rule 12(b)(6) of the US Federal Rules of Civil Procedure, which permits dismissal for failure to state a claim upon which relief can be granted.’ 31 Examining the pertinent language of paragraph 1 of Article 8.33 (‘claim for which an award in favour of the claimant may [not] be made under this Section’) in light of the above allows for the conclusion that the objection relates to claims that are, based on the alleged factual circumstances, per se not capable of giving rise to legal claims under the relevant substantive provisions. They are, thus, bound to fail at the outset of the proceeding. The use of the phrase ‘even if the facts alleged were assumed to be true’ in the same paragraph supports this view. It indicates that the Article 8.33 objection concerns claims unmeritorious in abstracto: the alleged facts are not capable of constituting a breach of the treaty only. An example for ‘a claim for which an award in favour of the claimant may’ not be made pursuant to Article 8.33(1) could be the claim that the respondent infringed its obligations under a commercial contract through acta iure gestionis. In the absence of an umbrella clause in CETA,32 this would, arguably, qualify as claim for which an award in favour of the claimant may not be made, even if the violation of the contract was assumed to be true. By contrast, the Article 8.32 objection on claims ‘manifestly without legal merit’ concerns the (manifestly wrong) application of the law to a certain factual situation that falls, from an objective and abstract point of view, under the ambit of the treaty but fails, in casu, to meet the requirements for giving rise to a breach of the treaty obligation. Faced with an Article 8.33 objection, the division of the Tribunal will, hence, need to undertake two steps: First, it will scrutinize the scope of the provisions invoked by the claimant to assert the respondent’s wrongdoing. Second, it will examine whether the alleged facts, even if they ‘were assumed to be true’, 33 are capable of amounting to a breach of the treaty provisions in question. When applying this two-tier test, it is crucial to strike a balance between the interest of the respondent in the early dismissal of a claim allegedly unfounded as a matter of law and due process. In this regard, adjudicators ought to consider that evidentiary submissions are limited. This warrants a careful analysis of the Tribunal as to whether a claim is indeed ripe for dismissal at the outset of the proceeding.
29 Methanex Corporation v. United States of America, UNCITRAL, Partial Award (Preliminary Award on Jurisdiction and Admissibility) (7 August 2002), para. 109. 30 Methanex Corporation v. United States of America, UNCITRAL, Partial Award (Preliminary Award on Jurisdiction and Admissibility) (7 August 2002), para. 126. See Potestà and Sobat, ‘Frivolous Claims in International Adjudication: A Study of ICSID Rule 41(5) and of Procedures of Other Courts and Tribunals to Dismiss Claims’ (2012) 3(1) J. Int’l Disp. Settlement, (2012), 137 (164 ff.). 31 See Sharpe and Caplan, ‘United States’ in Brown (ed), Commentaries on Selected Model Investment Treaties (2013), 755 (835). 32 In an earlier phase of the negotiations, the EU proposed the inclusion of an umbrella clause. See Draft CETA Investment Text, 21 November 2013, 13: ‘EU: Article X Each Party shall observe any specific written obligation it has entered into with regard to an investor of the other Party or an investment of such an investor’. This would have been in accordance with the EU Commission’s initial position on this issue, see European Commission, Directorate General for External Policies, Communication, ‘Towards a Comprehensive European International Investment Policy’ COM(2010)343 (7 July 2010) at 8. 33 Article 8.33(1).
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Claims unfounded as a matter of law
The examination of the notion of ‘claims unfounded as a matter of law’ invites 38 comparisons to the so-called prima facie test applied by investment tribunals in the jurisdictional phase.34 The prima facie test originates from the Separate Opinion of Judge Higgins in the Oil Platforms case35 and has been employed by investment tribunal in cases where jurisdiction and merits were bifurcated for the purpose of establishing jurisdiction ratione materiae, i.e. jurisdiction over the subject matter. 36 In bifurcated cases, questions may arise as to whether it is appropriate for the tribunal to consider facts pertaining to the merits of a claim at the stage of determining jurisdiction. Under the prima facie test, tribunals examine whether it is conceivable that the alleged facts, if established, may amount to a treaty violation. The prima facie test bears striking similarities to the test under Article 8.33. One 39 ought to note, however, that both tests pursue different aims. A successful objection that a claim does not pass the prima facie test will prompt a tribunal to reject jurisdiction. By contrast, the objection under Article 8.33 will, if successful, trigger an award finally disposing of (parts of) the claim.37 This notwithstanding, the arbitral jurisprudence pertaining to the prima facie test arguably lends itself as a source of guidance when canvassing the notion of ‘unfounded as a matter of law’.
IV. Conclusion When it comes to the early dismissal of frivolous claims, the drafters of CETA envi- 40 sioned Article 8.33 as the primary avenue. The objection on ‘claims manifestly without legal merit’ provided for by Article 8.32 objection is, in principle, subsidiary to the objection under Article 8.33(1) (→ Art. 8.32 mn. 36). For reasons that relate to the procedure and the substance of the objections, it is 41 unclear to what extent this hierarchy will be followed in practice. From the viewpoint of procedural economy, it may be more attractive to file an 42 Article 8.32 objection. Under the expedited procedure for such objection, disputing parties are tied to a tight timetable. Notably, Article 8.32 determines a concrete timeframe for the Tribunal’s ruling on the objection.38 This is not the case for objections under 8.33 where the treaty Parties refrained from providing for a more expedited timeframe.
34 For a detailed treatment see Sheppard, 'The Jurisdictional Threshold of a Prima-Facie Case' in Muchlinski, Ortino, and Schreuer (eds), The Oxford Handbook of International Investment Law (2008), 932; Potestà and Sobat, ‘Frivolous Claims in International Adjudication: A Study of ICSID Rule 41(5) and of Procedures of Other Courts and Tribunals to Dismiss Claims’ (2012) 3(1) J. Int’l Disp. Settlement, (2012), 137 (159 ff.); Markert, ‘Summary Dismissal of ICSID Proceedings’ (2016) 31(3) ICSID Rev., 690 (703 f.). 35 Oil Platforms (Iran v. United States), Preliminary Objection, Judgment, Separate Opinion of Judge Higgins, 12 December 1996, ICJ Reports 1996, p. 847 at 856, para. 33: ‘The Court should thus see if, on the facts as alleged by Iran, the United States actions complained of might violate the Treaty articles’. 36 In case jurisdiction is joined with the merits, the question to what extent a tribunal can review the claimant’s factual allegation pertaining to the merits of the claim does not arise as the question of jurisdiction can be examined taking into account all the evidence. See Sheppard, 'The Jurisdictional Threshold of a Prima-Facie Case' in Muchlinski, Ortino, and Schreuer (eds), The Oxford Handbook of International Investment Law (2008), 932 (941). 37 See Sheppard, 'The Jurisdictional Threshold of a Prima-Facie Case' in Muchlinski, Ortino, and Schreuer (eds), The Oxford Handbook of International Investment Law (2008), 932 (959). 38 See Article 8.32(5): ‘The Tribunal, after giving the disputing parties an opportunity to present their observations, shall at its first session or promptly thereafter, issue a decision or award stating the grounds therefor. In doing so, the Tribunal shall assume the alleged facts to be true.’
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Claims unfounded as a matter of law
As for the substantive requirements, the delimitation of Article 8.32 on ‘claims manifestly without legal merit’ and Article 8.33 on ‘claims unfounded as a matter of law’ is not straightforward. It is difficult to foresee to what extent respondents will, in fact, face claims that do not meet the Article 8.32 threshold but may be declared ‘unfounded as a matter of law’. The cardinal requirement that the alleged facts are not capable of giving rise to a treaty breach, even if they ‘were assumed to be true’,39 will likely constitute a similarly high threshold. Article 8.33 objections will, as a consequence, presumably be filed when the objection pursuant to Article 8.32 cannot be filed within the foreseen timeframe or if the claim in question does not meet the stringent ‘manifestly without legal merit’ threshold. 44 Articles 8.32 and 8.33 bring together the responses of ICSID and of various IIAs to the interest of States in the early dismissal of patently unmeritorious claims. Both provisions, hence, incorporate and combine existing concepts and make them subject to the incremental changes examined in this commentary. To a considerable extent, it will be for the Tribunal to give meaning to this co-existence. 43
39
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Article 8.33(1).
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Article 8.34 Interim measures The Tribunal may order an interim measure of protection to preserve the rights of a disputing party or to ensure that the Tribunal’s jurisdiction is made fully effective, including an order to preserve evidence in the possession or control of a disputing party or to protect the Tribunal’s jurisdiction. The Tribunal shall not order attachment or enjoin the application of the measure alleged to constitute a breach referred to in Article 8.23. For the purposes of this Article, an order includes a recommendation Reference to the Respective Provisions in Other EU Treaties: Article 3.47 EU-Vietnam IPA; Article 19 TTIP; Article 20 EU-Mexico agreement; Article 3.7, Para. F.4 EU-Singapore IPA. Bibliography: Regis Bismuth, ‘Anatomy of the Law and Practice of Interim Protective Measures in International Investment Arbitration’ (2009) 26 J. Int.’l Arb., 773; Chester Brown, A Common Law of International Adjudication (Oxford University Press, Oxford 2007); David Caron, ‘Interim Measures of Protection: Theory and Practice in Light of the Iran-United States Claims Tribunal’ (1986) ZaöRV, 465; Jeffrey Commission and Rahim Moloo, Procedural Issues in International Investment Arbitration, (Oxford University Press, Oxford 2018); Graham Coop and Gunjan Sharma, ‘Chapter IV: Investment Arbitration, Procedural Innovations to ISDS in Recent Trade and Investment Treaties: A Comparison of the USMCA and CETA’ (2019) Austrian YB Int’l Arb., 467; Bernd Ehle, ‘Article I. Scope of Application’ in Reinmar Wolff (ed), The New York Convention (2nd edn, Beck/Hart/Nomos, Munich/Oxford/BadenBaden 2019), 25; Alejandro Escobar, ‘Chapter 4: Arbitration’ in Julien Fouret, Rémy Gerbay, Gloria Alvarez (eds), The ICSID Convention, Regulations and Rules (Elgar Publishing, Cheltenham 2019) p. 271; David Gantz, ‘The CETA Ratification Sage: The Demise of ISDS in EU Trade Agreements?’ (2017) Loy. U. Chi. L. J., 361; Nelson Goh, ‘The Power of Tribunals to Enjoin Criminal Proceedings: A Widening Power or Converging High Bar?’ (2018) 33 ICSID Rev., 88; David Goldberg, Yarik Kryvoi and Ivan Philippov, British Institute of International and Comparative Law and White & Case, Empirical study: Provisional measures in investor-state arbitration (London 2019); Richard Happ, ‘ICSID Arbitration Rule 39’ in Rolf Schütze (ed), Institutional Arbitration (forthcoming 2 nd edn Beck/Hart/Nomos, Munich/ Oxford/Baden-Baden 2021); Steffen Hindelang and Teoman Hagemeyer, Study published by the EU Directorate General for External Policies, In Pursuit of an International Investment Court: Recently Negotiated Investment Chapters in EU Comprehensive Free Trade Agreements in Comparative Perspective (2017); Daniel Kalderimis, ‘The Authority of Investment Treaty Tribunals to Issue Orders Restraining Domestic Court Proceedings’ (2016) 31 ICSID Rev., 549; Gabrielle Kaufmann-Kohler, Aurélia Antonietti, Michele Potestà, ‘Interim Relief in Investment Treaty Arbitration’ in Katia Yannaca-Small (ed), Arbitration under International Investment Agreements (Oxford University Press, Oxford 2018); Meg Kinnear, Andrea Bjorklund, John Hannaford, Investment Disputes under NAFTA: An Annotated Guide to NAFTA Chapter 11 (Kluwer Law International, Alphen aan den Rijn 2006); Benoit Le Bars and Tejas Shiroor, ‘Provisional Measures in Investment Arbitration: Wading through the Murky Waters of Enforcement’ (2017) 6 Indian J. Arb. L. of Arbitration Law, 24; Cameron Miles, Provisional Measures before International Courts and Tribunals (Cambridge University Press, Cambridge 2019); Damien Nyer, ‘The Investment Chapter of the EU-Canada Comprehensive Economic and Trade Agreement’ (2015) 32 J. Int.’l Arb., 697; Paolo Patocchi and Tilman Niedermaier, ‘Article 26’, in Rolf Schütze (ed), Institutional Arbitration (forthcoming 2nd edn, Beck/Hart/Nomos, Munich/Oxford/Baden-Baden 2021); Jan Paulsson and Georgios Petrochilos, UNCITRAL Arbitration (Wolters Kluwer, Alphen aan den Rijn 2018); Christopher Schreuer, Loretta Malintoppi, August Reinisch, Anthony Sinclair, The ICSID Convention: A Commentary (Cambridge University Press, Cambridge 2009); Anthony Sinclair and Odysseas Repousis, ‘An Overview of Provisional Measures in ICSID Proceedings’ (2017) 32 ICSID Rev., 431; Dennis Solomon, ‘§ 2 International Commercial Arbitration: The New York Convention’ in Stephan Balthasar (ed), International Commercial Arbitration (Beck/Hart/Nomos, Munich/Oxford/Baden-Baden 2016). A. Introduction and Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
B. Spirit and Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3
C. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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Interim measures
D. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. ‘The Tribunal May Order an Interim Measure of Protection’ . . . . . . . . . . . . . . 1. ‘The Tribunal’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. ‘May Order an Interim Measure of Protection’ . . . . . . . . . . . . . . . . . . . . . . . . . II. ‘To Preserve the Rights of a Disputing Party or to Ensure that the Tribunal’s Jurisdiction is Made Fully Effective, Including an Order to Preserve Evidence in the Possession or Control of a Disputing Party or to Protect the Tribunal’s Jurisdiction’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. ‘To Preserve the Rights of a Disputing Party’ . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. ‘or to Ensure that the Tribunal’s Jurisdiction is Made Fully Effective; Including an Order to Preserve Evidence in the Possession or Control of a Disputing Party; or to Protect the Tribunal’s Jurisdiction’ . . . . . . . . . a) ‘an Order to Preserve Evidence in Possession or Control of the Other Party’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . b) ‘To Protect the Tribunal’s Jurisdiction’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. ‘The Tribunal shall not Order Attachment or Enjoin the Application of the Measure Alleged to Constitute a Breach Referred to in Article 8.23.’ 1. ‘The Tribunal Shall not Order Attachment’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. ‘Or Enjoin the Application of the Measure Alleged to Constitute a Breach Referred to in Article 8.23’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV. ‘For the Purposes of this Article, an Order Includes a Recommendation.’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10 10 10 17
41
E. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
42
24 27 30 31 33 35 35 37
A. Introduction and Overview Article 8.34 deals with interim measures. That is a topic of considerable practical importance, at least for investor-state arbitration proceedings. Article 8.34 is unusual insofar as there are not many bi- and multilateral investment treaties having such a provision. It is normally unnecessary as applicable arbitration rules such as ICSID or UNCITRAL arbitration rules do contain respective provisions. Where the treaty providing for investor-state dispute settlement contains such a rule, it thus reflects the political will of the contracting states to deviate from the ‘usual rules’ and thus include a lex specialis. 2 This contribution briefly looks at the spirit and purpose of Article 8.34 and its drafting history before examining it in detail. Special attention will be given to the operation of the rule in the context of the CETA Tribunal: Article 8.34 CETA is identical to Article 1034 NAFTA, but has been introduced 20 years later in a completely different context. That has certain ramifications. 1
B. Spirit and Purpose Article 8.34 becomes part of the mandatory procedural rules applicable in any dispute brought under Section F of Chapter 8 CETA. This follows from Article 8.23(6), which says that ‘a claim may be submitted under this Section’ and Article 8.25, which states that ‘[T]he respondent consents to the settlement of the dispute by the Tribunal in accordance with the procedures set out in this Section’. In addition, Article 8.23(6) makes clear that the selected arbitration rules are ‘subject to the specific rules set out in this section’. 4 Consequently, Article 8.34 becomes the main source of jurisdiction for the Tribunal’s power to order interim measures. Like Article 1134 NAFTA, it modifies the 3
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Interim measures
applicable arbitration rules chosen under Article 8.23(2)(a) CETA1 and enjoys precedence over them. It is evident that the Parties are not free, e.g. to deviate from the last sentence of Article 8.34. The purpose of Article 8.34 thus is to restrict possible interim measures. 5 Pursuant to Article 8.23(2), the investor may submit a claim under: (a) the ICSID Convention and Rules of Procedure for Arbitration Proceedings; (b) the ICSID Additional Facility Rules if the conditions for proceedings pursuant to paragraph (a) do not apply; (c) the UNCITRAL Arbitration Rules; or (d) any other rules on agreement of the disputing parties. There are some provisions in these rules which do not apply in CETA proceedings: 6 Arbitration Rule 39(6) of the ICSID Arbitration Rules, Arbitration Rule 46(4) of the ICSID Additional Facility Rules, as well as Article 26(9) UNCITRAL Arbitration Rules do not apply since CETA is the exclusive forum for provisional measures (→ mn. 29), Additionally, Article 26(2)(c) UNCITRAL Arbitration Rules is not applicable since provisional measures to secure enforcement of the award are not possible (→ mn. 35).
C. Drafting History The drafting history does not shed much light on this provision, as only few drafts 7 have been made public. The draft text of the investor-to-state dispute settlement provisions of January 2011 already contains in Article X-31(1) a formulation nearly identical to the final wording. This wording remained unchanged in the version of 3 April 2014.2 These early drafts still presumed that the method of dispute settlement would be arbitration under a three-member Tribunal (cf. Article X-25 of the draft of 3 April).3 When the EU and Canada renegotiated the drafts to include the EU’s new ap- 8 proach of investment, as e.g. contained in the EU-Vietnam FTA, the wording of Article 8.34 does not seem to have been changed.4 As the detailed analysis below shows, this leads to certain problems in the interpretation of Article 8.34, in particular since the ‘Tribunal’ no longer is a case-specific 3-member Tribunal, but now a fifteen memberbody which operates through three member-‘divisions’ (→ Art. 8.27 mn. 1 ff.). Article 1134 NAFTA has a nearly identical wording.5 Case law and academic 9 commentary on Article 1134 thus should serve as a valuable source of guidance for the 1 Kinnear et al., Investment Disputes under NAFTA (2006), Article 1134 – Interim Measures of Protection, 1134-4. 2 CETA drafts from February and April 2014, available at https://www.transnational-dispute-manage ment.com/news.asp?key=522 (last accessed 1 July 2020). 3 For a contemporary analysis of the 2015 draft, see Nyer, ‘The Investment Chapter of the EU-Canada Comprehensive Economic and Trade Agreement’ (2015) 32 J. Int.’l Arb., 697. 4 For a review of the CETA negotiations with regard to ISDS, see Gantz, ‘The CETA Ratification Sage: The Demise of ISDS in EU Trade Agreements?’ (2017) 49 Loy. U. Chi. L. J., 361; Coop and Sharma, ‘Chapter IV: Investment Arbitration, Procedural Innovations to ISDS in Recent Trade and Investment Treaties: A Comparison of the USMCA and CETA’ (2019) Austrian YB Int’l Arb., 467. 5 Article 1134 NAFTA: ‘A Tribunal may order an interim measure of protection to preserve the rights of a disputing party, or to ensure that the Tribunal’s jurisdiction is made fully effective, including an order to preserve evidence in the possession or control of a disputing party or to protect the Tribunal's jurisdiction. A Tribunal may not order attachment or enjoin the application of the measure alleged to constitute a breach referred to in Article 1116 or 1117. For purposes of this paragraph, an order includes a recommendation.’
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interpretation of Article 8.34. Furthermore and besides literature and case law based on the other EU Free Trade Agreements (see above), a similar provision can also be found in Article 10.20(8) of the Dominican Republic-Central America-United States free trade agreement (CAFTA-DR), as well as Article XIII.8 of the Canada – Ecuador BIT of 1996 and sec. 849 of the Canada-Peru Free Trade Agreement. 6
D. Commentary I. ‘The Tribunal May Order an Interim Measure of Protection’ 1. ‘The Tribunal’ 10
11
12
13
14
Article 8.34 specifies that ‘The Tribunal’ may order an interim measure of protection. The ‘Tribunal’ is defined in Article 8.1 as ‘a tribunal established under Article 8.27 or 8.43’. That definition is not very exact, as Article 8.27 does not regulate the establishment of a number of Tribunals, but only of ‘the Tribunal’, meaning the full 15-Member Body. Once the three Members of the Tribunal who hear a case as a division have been appointed (Article 8.27 para. 7), it is evident that they are ‘the Tribunal’, in the same way as a chamber or division of a court acts as the court itself. The interesting question is whether it is possible for ‘the Tribunal’ to order interim measures before the division has been appointed (which may be up to 90 days after submission of the claim). The clear wording suggests this must be possible. As neither Article 8.34 nor Article 8.27 seem to have envisaged this, however, it seems the full Tribunal must act. It is to be expected that the Tribunal will regulate this scenario in its own working procedures which it may draw up (Article 8.27 para. 10). 7 Merely setting a briefing schedule and leaving it for the division to then set a hearing might not be sufficient to deal with urgent situations.8 It might very well be that this surprising result is just the result of sloppy ‘legal scrubbing’. As explained above, this wording seems to be copied from the EU-Vietnam FTA, which in turn might have copied it from Article 1134 NAFTA. While in NAFTA and in early CETA drafts there was always a case-specific arbitration Tribunal to be established, this changed after the negotiations were resumed in 2015 with the new model of an international investment court. What did not change was the text of what was to become Article 8.34. Nevertheless, it does not seem tenable to read ‘Tribunal’ in Article 8.34 as meaning only the case-specific division established. Such an interpretation would require taking into account the travaux preparatoires. According to Article 32(b) of the Vienna Convention on the Law of Treaties, this is only permissible when the ordinary inter6 The Dominican Republic-Central America-United States free trade agreement, 5 August 2004, T.I.A.S (entered into force 1 March 2006; amended 1 December 2006 and 6 August 2007); Agreement between the Government of Canada and the Government of the Republic of Ecuador for the Promotion and Reciprocal Protection of Investments of 29 April 1996, in force since 6 June 1997; Canada-Peru Free Trade Agreement of 29 May 2008, in force since 1 August 2009. 7 Arbitration Rule R37 of the 2017 CAS (Court of Arbitration for Sport) Procedural Rules contains a similar regulation which allow the President of the relevant Division (in CAS-terminology to be differentiated from the case- specific Panel) to make an order for provisional measures before the file is handed over the Panel. 8 Cf. ICSID Arbitration Rule 39(5), which explicitly provides for such a possibility. This was exercised in Rizzani de Eccher S.p.A., Obrascón Huarte Lain S.A., and Trevi S.p.A.v. State of Kuwait, ICSID Case No. ARB/17/8, Decision on Provisional Measures (23 November 2017).
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pretation (wording, context, object and purpose) leads to a result which is ‘manifestly absurd or unreasonable’. This can hardly be said to be the case. In the last years, several arbitration rules were amended to allow for emergency arbitrators.9 It is thus far from being absurd or unreasonable to conclude that Article 8.34 allows for the possibility of an emergency arbitrator. Different from the EU-Vietnam Free Trade Agreement, which explicitly allows for 15 interim measures before domestic courts, under CETA an investor is restricted to applying for interim measures with the CETA-Tribunal.10 This follows from Article 8.22(1)(g), which requires the investor to waive ‘its right to initiate any claim or proceeding before a tribunal or court under domestic or international law with respect to a measure alleged to constitute a breach referred to in its claim’. While CETA does not contain a provision similar to Article 26 ICSID Convention, once a claim has been submitted the State is also barred from pursuing claims against the investor insofar as they relate to the dispute. Article 8.34 corresponds to this and allows the Tribunal to order provisional measures to protect its jurisdiction. This means that Arbitration Rule 39(6) of the ICSID Arbitration Rules, 46(4) of the 16 ICSID Additional Facility Rules and 26(9) of the UNCITRAL Arbitration Rules (2010) are not applicable in CETA proceedings.
2. ‘May Order an Interim Measure of Protection’ The Tribunal may order an interim measure of protection. There are five relevant 17 aspects to be discussed: Firstly, Article 8.34 does not explicitly require that a Party files a request for an 18 interim measure. That is both different from the ICSID Arbitration Rule 39 and from UNCITRAL Arbitration Rules Article 26 (under which proceedings can be brought, see Article 8.27(2). ICSID Arbitration Rule 39 explicitly gives the Tribunal the power to order interim measures on its own, while Article 26 UNCITRAL Arbitration Rules requires a ‘request of a party’. As commentators on Article 1134 NAFTA have pointed out, it seems odd that 19 different rules should lead to different results.11 And indeed such different results are hardly compatible with the clear wording of Article 8.34. The respondent States give their consent to dispute settlement under Section F (cf. Article 8.25), including Article 8.34. Had the contracting States wished to limit the power of the Tribunal to order interim measures, they could have said so explicitly. Given that Section F contains other very detailed provisions governing what the Tribunal procedurally can or cannot do (cf. Articles 8.30-8.39), it is not tenable to read a limitation into the words of Article 8.34 which could have been there but is not there. A competence of the Tribunal to
9 See, e.g. Article 29 ICC Rules and Appendix V; Appendix II to the 2017 Arbitration Rules of the Arbitration Institute of the SCC; Schedule 1 to the 2017 SIAC Investment Arbitration Rules. 10 Cf. the 2017 study published by the EU Directorate General for External Policies by Hindelang and Hagemeyer, In Pursuit of an International Investment Court: Recently Negotiated Investment Chapters in EU Comprehensive Free Trade Agreements in Comparative Perspective (2017), 80 ff. 11 Kinnear et al., Investment Disputes under NAFTA (2006), Article 1134 – Interim Measures of Protection, 1134-12 had already pointed out that it would be interesting to see how Tribunals deal with this difference. Until today however no NAFTA Tribunal operating on the basis of the UNCITRAL Arbitration Rules seems to ordered an interim measure on its own initiative.
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20
21
22
23
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act on its own motion, however rare that may be,12 is in line with what commentators consider to be a general power of international courts.13 Secondly, the wording makes clear that ordering an interim measure is within the Tribunal’s discretion. It ‘may’ order interim measures, but it is not bound to do so. Even if the generally accepted criteria for interim measures (→ mn. 26) are found to exist, the Tribunal may still decide that an interim measure is unsuitable in the present case. Thirdly, the wording is silent whether the Tribunal is bound by the content of a request for interim measures, or whether it might issue different or less (infra petita) or more (ultra petita) than requested. This is explicitly allowed in ICSID Arbitration Rule 39(3). Article 26(5) UNCITRAL Arbitration Rules merely allows the Tribunal to modify interim measures in exceptional cases. Here again, it is relevant to recall that (i) Article 8.34 enjoys priority over the selected arbitration rules (Article 8.23(6)), that (ii) the Tribunal has full discretion and (iii) Article 8.34 even allows the Tribunal to act on its own initiative. Consequently, Article 8.34 also allows a Tribunal to order infra petita or ultra petita. This is also in line with what commentators consider to be a general power of international courts.14 Fourthly, the Tribunal would issue the interim measure on the form of an order. The last sentence clarifies that this includes a recommendation. As explained, the wording of Article 8.34 seems to be copied from Article 1134 NAFTA. The last sentence of Article 1134 NAFTA (which is identical) was introduced to clarify the at that time existing uncertainty whether ‘recommendations’ under Article 47 ICSID Convention are binding on the Parties, and to align the result under ICSID proceedings with those under UNCITRAL Arbitration Rules.15 Thus, the well-known and highly interesting discussion whether ‘recommendations’ issued by ICSID Tribunals under Article 47 ICSID Convention are binding on Parties, which anyway is today moot,16 thus has no relevance for Article 8.34 CETA. Fifth, the interim measure will be ordered in the form of an ‘order’, but not in the form of an interim award.17 This has two consequences: res judicata does not apply, so the Tribunal can revoke and modify its order. Neither do CETA’s provisions on 12 Kaufmann-Kohler et al., ‘Interim Relief in Investment Treaty Arbitration’ in Yannaca-Small (ed), Arbitration under International Investment Agreements (2018), 24.93. 13 See Brown, A Common Law of International Adjudication (2007), 151; Cf. also the detailed discussion of the practice of the Iran-United States Claims Tribunal (which operated under the UNCITRAL Arbitration Rules) by Caron, ‘Interim Measures of Protection: Theory and Practice in Light of the IranUnited States Claims Tribunal’ (1986) ZaöRV, 465 (473 ff.). 14 See Brown, A Common Law of International Adjudication (2007), 150 f. 15 Kinnear et al., Investment Disputes under NAFTA (2006), Article 1134 – Interim Measures of Protection, 1134-6; Kaufmann-Kohler et al., ‘Interim Relief in Investment Treaty Arbitration’ in Yannaca-Small (ed), Arbitration under International Investment Agreements (2018), 24.157; Miles, Provisional Measures before International Courts and Tribunals (2019), 113. 16 Clarified in Emilio Agustín Maffezini v. The Kingdom of Spain, ICSID Case No. ARB/97/7, Decision on Request for Provisional Measures (28 October 1999), para. 9: ‘While there is a semantic difference between the word “recommend” as used in Rule 39 and the word “order” as used elsewhere in the Rules to describe the Tribunal’s ability to require a party to take a certain action, the difference is more apparent than real. It should be noted that the Spanish text of that Rule uses also the word “dictación”. The Tribunal does not believe that the parties to the Convention meant to create a substantial difference in the effect of these two words. The Tribunal’s authority to rule on provisional measures is no less binding than that of a final award. Accordingly, for the purposes of this Order, the Tribunal deems the word “recommend” to be of equivalent value as the word “order”.’ See also Luttrell, in Fouret et al., The ICSID Convention, Regulation and Rules, Article 39 mn. 25.27-25.29. 17 This was relevant in the context of NAFTA. Article 26 (2) of the 1976 UNCITRAL Arbitration Rules allowed for interim awards. This has changed in the 2010 version and the 2013 version, which speak that the Tribunal may ‘order’ a Party to do something or refrain from doing something.
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enforcement of awards apply. While it is evident that the order is binding on the Parties (→ mn. 22), CETA lacks any mechanism to enforce that order. Parties would be dependent on the domestic legal system of the respective other Party they want to enforce the order against.18 It has been argued that Tribunals would be able to draw adverse inferences out of non-compliance with an interim measure of protection. 19 That is a very practically-minded and convincing argument.
II. ‘To Preserve the Rights of a Disputing Party or to Ensure that the Tribunal’s Jurisdiction is Made Fully Effective, Including an Order to Preserve Evidence in the Possession or Control of a Disputing Party or to Protect the Tribunal’s Jurisdiction’ This formulation defines what the purpose of an interim measure of protection can 24 be. As explained, it becomes part or the procedural rules governing the arbitration (→ mn. 3). Insofar as it is wider in scope Article 47 ICSID Convention or Article 26 UNCITRAL Arbitration Rules, it modifies these rules. The wording is a bit complicated. The most convincing reading is that it lists two 25 categories: (i) measures to preserve the rights of a disputing Party, and (ii) measures to ensure that the Tribunal’s jurisdiction is made fully effective, with two exemplary but not exhaustive (‘including’) subcategories. The wording does not say anything about the requirements for provisional mea- 26 sures. Thus, the generally accepted requirements under ICSID Arbitration Rules 20 and under Article 26 UNCITRAL Arbitration Rules remain unchanged.21 While the wording of the applicable rules may slightly different (e.g the 2006 ICSID Rules provisional measures do not explicitly require that the measure must be urgent and necessary or prevent inreparable harm), the actual application by Tribunals seems leads to comparable requirements.22
18 Cf. Kinnear et al., Investment Disputes under NAFTA (2006), Article 1134 – Interim Measures of Protection, 1134-14: ‘Whether a tribunal’s interim measure can be enforced by domestic courts is an extremely difficult topic’. In ICSID Arbitrations, only final awards are enforceable, and the enforceability of provisional measures rendered on the basis of UNCITRAL Arbitration Rules would be dependent on national law. For a more thorough discussion, see Le Bars and Shiroor, ‘Provisional Measures in Investment Arbitration: Wading through the Murky Waters of Enforcement’ (2017) 6 Indian J. Arb. L. of Arbitration Law, 24. On the problems of enforcing ‘interim awards’ or ‘orders’ under the New York Convention, see Ehle, ‘Article I. Scope of Application’ in Wolff (ed), The New York Convention (2019), paras. 65 ff.; Solomon, ‘§ 2 International Commercial Arbitration: The New York Convention’ in Balthasar (ed), International Commercial Arbitration (2016), § 2 paras. 65 ff. 19 Commission and Moloo, Procedural Issues in International Investment Arbitration, (2018), 3.15; Bismuth, ‘Anatomy of the Law and Practice of Interim Protective Measures in International Investment Arbitration’ (2009) 26 J. Int.’l Arb., 773 (801); Kinnear et al., Investment Disputes under NAFTA (2006), Article 1134 – Interim Measures of Protection, 1134-14. 20 For the ICSID Arbitration Rules, see Escobar, ‘Chapter 4: Arbitration’ in Fouret et al. (eds), The ICSID Convention, Regulations and Rules (2019), Article 47, 4.481; Happ, ‘ICSID Arbitration Rule 39’ in Schütze (ed), Institutional Arbitration (forthcoming 2 nd edn 2020). 21 For the UNCITRAL Arbitration Rules see Paulsson and Petrochilos, UNCITRAL Arbitration (2018), Article 26, 218 ff.; Patocchi and Niedermaier, ‘Article 26’, in Schütze (ed), Institutional Arbitration (forthcoming 2nd edn 2020). 22 Cf. eg. Dawood Rawat v. Republic of Mauritius, PCA Case No. 2016-20, Order Regarding Request for Interim Measures of 11 January 2017, para. 45, with Hope Services LLC v. Republic of Cameroon, ICSID Case No. ARB/20/2, Procedura Order No. 4 of 12 May 2021, para. 61.
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1. ‘To Preserve the Rights of a Disputing Party’ 27
This is the standard case for interim measures. It overlaps with the wording in Article 47 ICSID Convention. As the Tribunal in Plama v. Bulgaria explained: 40. It seems to the Arbitral Tribunal that the rights referred to in Article 47 of the ICSID Convention and Article 39(1) of the ICSID Arbitration Rules must be limited in some way. […], the terms cannot mean any and all rights a party may have unconnected with the ECT or vis-à-vis third parties. If the words used in Amco Asia, ‘rights in dispute’, may be too narrow, at least a limitation such as ‘rights relating to the dispute’ is reasonable and necessary. The rights to be preserved must relate to the requesting party’s ability to have its claims and requests for relief in the arbitration fairly considered and decided by the arbitral tribunal and for any arbitral decision which grants to the Claimant the relief it seeks to be effective and able to be carried out. Thus the rights to be preserved by provisional measures are circumscribed by the requesting party’s claims and requests for relief. They may be general rights, such as the rights to due process or the right not to have the dispute aggravated, but those general rights must be related to the specific disputes in arbitration, which, in turn, are defined by the Claimant’s claims and requests for relief to date. 23
In the practice of ICSID Tribunals, the ‘right of a party’ which can be protected also includes the right to exclusivity of proceedings or preservation of evidence. 24 A large extent of interim measures which ICSID Tribunals consider to ‘protect a right of a party’ would seem to clearly fall under the second category discussed below. The practical scope of this first category thus might be limited. Also, it has been suggested with respect to Article 1134 NAFTA (which, as explained, has an identical wording) that the rights forming the subject-matter of the dispute cannot form the subject-matter of interim relief.25 The reason for that is that NAFTA allows a State to maintain a measure even if it breaches substantive rights, and to pay damages in lieu of restitution.26 This reasoning also applies to CETA – the measure alleged to constitute a breach cannot be enjoined and no attachment can be made (see below), and the Tribunal may only award monetary damages or restitution of property, with the right of the State to pay monetary damages instead (see Article 8.39(1)). 29 In arbitral practice there have been diverging views and questions such as whether rights to be protected must exist or can be hypothetical 27 – or future rights such as the right for cost reimbursement in a future award – and whether and to what 28
23 Plama Consortium Limited v. Republic of Bulgaria, ICSID Case ARB/03/24, Order of 6 September 2005, para. 40; See also Churchill Mining PLC and Planet Mining Pty Ltd v. Republic of Indonesia, ICSID Cases No. ARB/12/14 and 12/40, Procedural Order No. 3 Provisional Measures (4 March 2013), paras. 48 ff.; Millicom International Operations B.V. and Sentel GSM SA v. The Republic of Senegal, ICSID Case No. ARB/08/20, Decision on the Application for Provisional Measures (9 December 2009), para. 44. 24 See Escobar, ‘Chapter 4: Arbitration’ in Fouret et al. (eds), The ICSID Convention, Regulations and Rules (2019), Article 47, 4.536 f.; Kaufmann-Kohler et al., ‘Interim Relief in Investment Treaty Arbitration’ in Yannaca-Small (ed), Arbitration under International Investment Agreements (2018), 24.62 ff.; Sinclair and Repousis, ‘An Overview of Provisional Measures in ICSID Proceedings’ (2017) 32 ICSID Rev., 431 (439 f.). 25 Thus, the finding of the Maffezini Tribunal that ‘An example of an existing right would be an interest in a piece of property, the ownership of which is in dispute. A provisional measure could be ordered to require that the property not be sold or alienated before the final award of the arbitral tribunal. Such an order would preserve the status quo of the property, thus preserving the rights of the party in the property’ would have no merit for CETA cases. See Emilio Agustín Maffezini v. Kingdom of Spain, ICSID Case No. ARB/97/7, Procedural Order No. 2 (28 October 1999), para. 14. 26 Kaufmann-Kohler et al., ‘Interim Relief in Investment Treaty Arbitration’ in Yannaca-Small (ed), Arbitration under International Investment Agreements (2019), 24.28. 27 See, e.g. Emilio Agustín Maffezini v. Kingdom of Spain, ICSID Case No. ARB/97/7, Procedural Order No. 2 (28 October 1999), para. 13: ‘The use of the present tense implies that such rights must exist at the time of the request, must not be hypothetical, nor are ones to be created in the future.’
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standard their existence, if any, must be proven.28 Given that CETA merely copies the text of NAFTA 1994, it cannot be assumed that any changes to existing case law were intended. Since Article 8.34 is completely silent on this issue, a more in-depth discussion is beyond the scope of this commentary.29
2. ‘or to Ensure that the Tribunal’s Jurisdiction is Made Fully Effective; Including an Order to Preserve Evidence in the Possession or Control of a Disputing Party; or to Protect the Tribunal’s Jurisdiction’ The second limb allows to order provisional measures ‘to ensure that the Tribunal’s 30 jurisdiction is made fully effective’. This is a rather wide term. It then lists two more specific categories of provisional measures. The term ‘including’ makes clear that these two subcategories are non-exhaustive and that there can be further measures serving a different kind.30 a) ‘an Order to Preserve Evidence in Possession or Control of the Other Party’ The Tribunal can only perform its function when it sees all the relevant evidence. 31 The possibility to preserve evidence is thus a recognized right both under the jurisprudence of ICSID Tribunals and under Article 26(2)(d) UNCITRAL Arbitration Rules. Sometimes one Party may believe that the other Party limits access to critical evidence, or proactively might destroy it to avoid it surfacing later during document production. While document production enables, in theory, access to documents, they must exist in order to be produced. This might limit one Party’s capability to prove its case. It is a potential problem for both claimant and respondent: on the one hand, the investor might not have access to his documents either still in the host state, 31 or to documents or evidence of the host state in possession of the host state. 32 On the other 28 Cf. Tethyan Copper Company v. Islamic Republic of Pakistan, ICSID Case No. ARB/12/1, Decision on Claimant’s Request for Provisional Measures (13 December 2012), para. 137: ‘At this early stage in the proceedings, the Tribunal cannot assume that Claimant does not have the rights or remedies to which it asserts it is entitled, including any right capable of enforcement by specific performance. To make this assumption would be tantamount to deciding the merits of the case in Respondent’s favor based only on the evidence and argumentation that has been presented thus far’; Occidental Petroleum Corporation v. Republic of Ecuador, ICSID Case ARB/06/11, Decision on Provisional Measures (17 August 2007), para. 64: ‘At this stage, the Tribunal reiterates that the right to be preserved only has to be asserted as a theoretically existing right, as opposed to proven to exist in fact. The Tribunal, at the provisional measures stage, will only deal with the nature of the right claimed, not with its existence or the merits of the allegations of its violation.’. 29 See Escobar, ‘Chapter 4: Arbitration’ in Fouret et al. (eds), The ICSID Convention, Regulations and Rules (2019), Article 47, 4.531 ff.; Schreuer et al., The ICSID Convention: A Commentary (2009), Article 47; Kaufmann-Kohler et al., ‘Interim Relief in Investment Treaty Arbitration’ in Yannaca-Small (ed), Arbitration under International Investment Agreements (2018), 24.37 ff. 30 Cf. Kinnear et al., Investment Disputes under NAFTA (2006), Article 1134 – Interim Measures of Protection, 1134-4. 31 See, e.g., AGIP S.p.A. v. People's Republic of the Congo, ICSID Case No. ARB/77/1, ICSID Reports Vol. I, 306-329, at paras. 7 ff., where the claimant had requested an order requiring the government to collect all the ‘books, cards and registers and accounting documents’ of its Congolese subsidiary, and to maintain them for representation before the Tribunal. See also Biwater Gauff (Tanzania) Ltd. v. Tanzania, ICSID Case No. ARB/05/22, Procedural Order No. 1 (31 March 2006). The investor’s subsidiary offices had been taken over, and the Tribunal recommend, inter alia, that ‘the UROT take all necessary steps to procure that DAWASA / DAWASCO provide an inventory with respect to (a) documents (electronic and hard copy) seized or taken over or otherwise existing at City Water’s offices at the time of the latter’s occupation on 1 June 2005 and (b) documents (as defined) relating to what was City Water’s operation that have been received subsequently.’ 32 See, e.g. Nova Group Investments B.V. v. Romania, Procedural Order No. 7 Concerning the Claimant’s Request for Provisional Measures (29 March 2017), para. 362. The claimant had requested
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hand, States might also have reasons to believe that investors hide documents or that they must be refrained from destroying them.33 Tribunals have thus issued provisional measures to preserve evidence.34 32 Witness testimony is a form of evidence. There have been cases where claimants requested Tribunals to recommend provisional measures to secure oral testimony. This sometimes includes temporary enjoinders of criminal proceedings against witnesses. 35 Such measures, however, are subject to stringent requirements as they constitute a severe interference with a State’s sovereignty.36 b) ‘To Protect the Tribunal’s Jurisdiction’ 33
Provisional Measures can be ordered to protect the Tribunal’s jurisdiction (over the dispute). Neither Article 1134 NAFTA nor Article 8.34 CETA explain in more detail what is meant by this. Case law and academic literature dealing with provisional measures in investment arbitration suggest, however, to generally categorise cases dealing with parallel / concurrent domestic proceedings under this heading.37 And indeed do parallel or concurrent domestic proceedings hold the potential to render the Tribunal’s jurisdiction fully or partially ineffective. It is therefore not a big surprise that a 2019 empirical study by the British Institute for International and Comparative
an order to request Romania to preserve or request certain electronic data. Given that Romania made a respective pledge, the Tribunal declined the necessity for recommending provisional measures. 33 See Abaclat and Others v. Argentine Republic, ICSID Case No. ARB/07/5, Procedural Order No. 11 (27 June 2012). 34 See Abdel Wahab, in Fouret et al (eds), The ICSID Convention, Regulation and Rules (2019), Article 47, 4.560-4561; see UNCITRAL Arbitration Rule 26(2)(d). 35 Sempra Energy International v. The Argentine Republic, ICSID Case No. ARB/02/16, Decision on Provisional Measures (16 January 2006), reproduced in the Award (28 September 2007), para. 37 (witness had been prohibited by an injunction to give testimony in the ICSID case), Quiborax S.A., Non Metallic Minerals S.A. and Allan Fosk Kaplún v. Plurinational State of Bolivia, ICSID Case No. ARB/06/2, Decision on Provisional Measures (26 February 2010), para. 143: ‘The Tribunal is also troubled by the effect that the criminal proceedings may have on potential witnesses’; para. 144: ’However, at least one of them – David Moscoso – is as a result of the criminal proceedings legally prevented from testifying for Claimants in the ICSID proceedings because he cannot testify against his own confession’; para. 148: ‘Thus, the Tribunal finds that Claimants have shown the existence of a threat to the procedural integrity of the ICSID proceedings, in particular with respect to their right to access to evidence through potential witnesses’. 36 See, e.g., Sergei Viktorovich Pugachev v. Russia, UNCITRAL, Interim Award, 17 July 2017, para. 272: ‘At the outset, this Tribunal notes that the standard to grant the suspension or obstruction of any criminal investigation or proceedings is very high and, in any case, higher than the threshold that Claimant must satisfy to suspend civil proceedings. This so because the relief sought by the interim measures related to criminal proceedings and investigations would interfere with Respondent’s sovereign right and duty to investigate and prosecute crime’. Only 18% of the applications were successful, cf. British Institute of International and Comparative Law and White & Case, 2019 Empirical study: Provisional measures in investor-state arbitration, Chart 15. See also EuroGas Inc. and Belmont Resources Inc. v. Slovak Republic, ICSID Case No. ARB/14/14, Decision on Requests for Provisional Measures (June 23, 2015), paras. 80 ff.; Caratube International Oil Company LLP v. The Republic of Kazakhstan, ICSID Case No. ARB/08/12, Decision on Provisional Measures (July 31, 2009), para. 67, and Hydro v. Albania, ICSID Case No. ARB/15/28, Order on Provisional Measures, March 3, 2016, paras. 3 ff. See also the Note by Goh, ‘The Power of Tribunals to Enjoin Criminal Proceedings: A Widening Power or Converging High Bar?’ (2018) 33 ICSID Rev., 88. 37 Commission and Moloo, Procedural Issues in International Investment Arbitration (2018), paras. 3.27 ff.; Kaufmann-Kohler et al., ‘Interim Relief in Investment Treaty Arbitration’ in Yannaca-Small (ed), Arbitration under International Investment Agreements (2018), 24.70 ff.
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Law (‘BIICL’) and White & Case shows that the stay of parallel proceedings was the second-highest group of provisional measures requested.38 The investor under Article 8.22 will have to waive its rights to initiate any claim 34 and withdraw existing claims in order to start a case. Consequently, risks for the Tribunal’s jurisdiction in practice will arise from parallel proceedings initiated by the State, such proceedings can relate to a variety of measures, such as bankruptcy proceedings,39 the attachment of funds40 or parallel commercial arbitrations.41 The BIICL / White & Case study shows that 76% of such requests were fully or partially granted.42 Given that the measures are of an interim nature only, Tribunals will most likely only order the stay of parallel proceedings for the duration of the CETA case.
III. ‘The Tribunal shall not Order Attachment or Enjoin the Application of the Measure Alleged to Constitute a Breach Referred to in Article 8.23.’ 1. ‘The Tribunal Shall not Order Attachment’ The term ‘attachment’ has been defined in Article 8.1 as follows: ‘attachment means 35 the seizure of property of a disputing party to secure or ensure the satisfaction of an award.’ This is not a surprising regulation and also flatly copied from Article 1134 NAFTA. Since a Tribunal can order only damages or restitution of property, and even an award for restitution must provide that the State can pay damages in lieu of restitution, there is no room for any order attaching assets to secure the enforcement of an Award. CETA presumes that States can and will pay. It is evident that this provision does not apply to requests for attachments not 36 aimed to secure or ensure the satisfaction of an award, e.g. requests falling under the categories listed above, such as the preservation of evidence. However, measures under Article 26(2)(c) UNCITRAL Arbitration Rules (‘(c) Provide a means of preserving assets out of which a subsequent award may be satisfied;’) would not be possible.
2. ‘Or Enjoin the Application of the Measure Alleged to Constitute a Breach Referred to in Article 8.23’ The term ‘enjoin’ has been defined in Article 8.1 as follows: ‘enjoin means an order 37 to prohibit or restrain an action.’ That means that the Tribunal cannot order a respondent State to prohibit (or revoke) the measures at issue, or order a State not take a certain action. What is relevant is that this only applies to the measures alleged to be in breach of CETA. These must be the same measures identified already in the request
38 British Institute of International and Comparative Law and White & Case, 2019 Empirical study: Provisional measures in investor-state arbitration, Chart 12. The biggest group (36%) were requests to refrain from ‘aggravation of the dispute’, which is ICSID-specific. For a detailed review, see Kalderimis, ‘The Authority of Investment Treaty Tribunals to Issue Orders Restraining Domestic Court Proceedings’ (2016) 31 ICSID Rev., 549. 39 See, e.g. Ceskoslovenska Obchodni Banka, A.S. v. The Slovak Republic, ICSID Case No. ARB/97/4, Procedural Orders No. 4 (11 January 1999) and No. 5 (1 March 2000). 40 See, e.g., Niko Resources (Bangladesh) Ltd. v. Bangladesh Petroleum Exploration & Production Company Limited (‘Bapex’) and Bangladesh Oil Gas and Mineral Corporation (‘Petrobangla’), ICSID Case No. ARB/10/18, Procedural Order No. 5 (6 March 2014). 41 SGS Société Générale de Surveillance S.A. v. Islamic Republic of Pakistan, ICSID Case No. ARB/01/13, Procedural Order No. 2 (16 October 2002). 42 British Institute of International and Comparative Law and White & Case, 2019 Empirical study: Provisional measures in investor-state arbitration, p. 12 and Chart 14.
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for consultations (cf. Article 8.22(1 e)). It does not prevent the Tribunal from enjoining the State to take certain other measures, e.g. to safeguard its jurisdiction (→ mn. 15). 38 The little guidance which is available on this provision can be drawn from cases dealing with Article 1134 NAFTA. In Pope & Talbot v. Canada, the export quotas for softwood lumber had been at issue. The investor in its statement of claim had requested interim measures ‘to preserve the rights of the Investor and to provide that the Investment’s annual softwood lumber allocation from Canada not be decreased pending a final award of the Tribunal.’43 In its very concise (4 paragraphs) decision of 1 January 2000, the Tribunal noted: Article 1134 of NAFTA does not confer jurisdiction on the Tribunal to enjoin the application of a measure. Since the relief requested is, in the view of the Tribunal, to enjoin the application of the measure which is the quota regime and its implementation, the Tribunal takes the view that it lacks power to grant such relief.
39
In Feldman v. Mexico, the investor had requested the Tribunal to: order the preservation of the status quo during the proceeding, and in particular to order Respondent immediately to cease and desist for the duration of this arbitration from any interference with Claimant of his property of with CEMSA’s assets or revenues, whether by embargo or any other means.
40
The Tribunal declined to grant that request, finding that ‘such an order would entail an injunction of the application of the measures which in this case are alleged to constitute a breach referred to.’44 It is furthermore of interest to note that also outside the framework of NAFTA arbitration, and without a respective provision in the underlying investment treaty, Tribunals have been reluctant to stay the execution of laws.45
IV. ‘For the Purposes of this Article, an Order Includes a Recommendation.’ 41
As explained above, this is flatly copied from 1134 NAFTA. It was a direct response to the uncertainty existing at the time whether provisional measures under ICSID would be binding, and had the purpose to ensure that the provisional measures are binding both under ICSID and UNCITRAL. Since the decision in Maffezini v. Spain the issue is considered settled in a way that under ICSID provisional measures are binding. Thus, the provision is no longer relevant.
E. Conclusion 42
It will be very interesting to follow the practical application of Article 8.34. While the wording is flatly copied from NAFTA and should not leave many questions open, whether or not the CETA Tribunal has the authority to order interim measures even before a tribunal division is appointed remains to be seen, and will impact the relevance of this provision. Pope & Talbot Inc. v. The Government of Canada, Statement of Claim (25 March 1999), p. 29. Marvin Roy Feldman Karpa v. United Mexican States, ICSID Case No. ARB(AF)/99/1, Procedural Order No. 2 (3 May 2000), paras. 3 ff. 45 See, e.g. City Oriente Limited v. Republic of Ecuador and Empresa Estatal Petróleos del Ecuador (Petroecuador) [I], ICSID Case No. ARB/06/21, Decision on Revocation of Provisional Measures and other Procedural Matters (13 May 2008), para. 57: ‘An arbitrator lacks any power whatsoever to impair Ecuador’s law-making rights or to overturn the laws enacted by the Congress of Ecuador, and the Tribunal has never intended to do so—let alone order such a thing’. 43
44
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Article 8.35 Discontinuance If, following the submission of a claim under this Section, the investor fails to take any steps in the proceeding during 180 consecutive days or such period as the disputing parties may agree, the investor is deemed to have withdrawn its claim and to have discontinued the proceeding. The Tribunal shall, at the request of the respondent, and after notice to the disputing parties, in an order take note of the discontinuance. After the order has been rendered the authority of the Tribunal shall lapse. Reference to the Respective Provisions in Other EU Treaties: Article 3.49 EU-Vietnam IPA; Article 20 TTIP Investment Chapter; Article 3.7, Para. F.4 EU-Singapore IPA. Bibliography: Bernd Ehle, ‘Article I. Scope of Application’ in Reinmar Wolff (ed), The New York Convention (2nd edn, Beck/Hart/Nomos, Munich/Oxford/Baden-Baden 2019), 25; James D. Fry, ‘Non-Participation in the International Court of Justice Revisited: Change or Plus Ca Change’ (2010) 49 Colum. J. Transnat’l L., 35; Bryan A. Garner, Black’s Law Dictionary (11 th edn, Thomson Reuters, Toronto 2019); Heiko Haller and Annette Keilmann, ‘In Claimant’s Hands? Admissibility and Consequences of a Withdrawal of Claims in International Arbitration’ (2018) 35 J. Int’l Arb., 649; Richard Happ, 'XV. Kapitel: ICSID Arbitration Rules’ in Rolf Schütze (ed), Institutionelle Schiedsgerichtsbarkeit (3 rd edn, Heymanns, Cologne 2018); Richard Happ and Sebastian Wuschka, ‘From the Jay Treaty Commissions Towards a Multilateral Investment Court: Addressing the Enforcement Dilemma’ (2017) 6 Indian J. Arb. L., 113; ICSID Secretariat, Proposals for Amendment of the ICSID Rules – Working Paper Volume 3 (2 August 2018); Benoit Le Bars and Tejas Shiroor, ‘Provisional Measures in Investment Arbitration: Wading through the Murky Waters of Enforcement’ (2017) 6 Indian J. Arb. L., 24; Sam Luttrell, ‘Chapter 25 – Particular Procedures’ in Julien Fouret, Rémy Gerbay and Gloria M Alvarez (eds), The ICSID Convention, Regulations and Rules – A Practical Commentary (Elgar, Cheltenham 2019); Alexandra Munoz and Tess Pickard, ‘Rule 43 – Settlement and Discontinuance (in Chapter 25)’ in Julien Fouret, Rémy Gerbay and Gloria M Alvarez (eds), The ICSID Convention, Regulations and Rules – A Practical Commentary (Elgar, Cheltenham 2019); Alexandra Munoz and Tess Pickard, ‘Rule 45 – Discontinuance for Failure of Parties to Act (in Chapter 25)’ in Julien Fouret, Rémy Gerbay and Gloria M Alvarez (eds), The ICSID Convention, Regulations and Rules – A Practical Commentary (Elgar, Cheltenham 2019); Sergio Puig and Chester Brown, ‘The Secretary-General’s Power to Refuse to Register a Request for Arbitration under the ICSID Convention’ (2012) 27 ICSID Rev., 172; Dennis Solomon, ‘§ 2 International Commercial Arbitration: The New York Convention’ in Stephan Balthasar (ed), International Commercial Arbitration (Beck/Hart/Nomos, Munich/Oxford/Baden-Baden 2016). A. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
B. Spirit and Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5
C. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6
D. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. Relationship to Chosen Arbitration Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Requirements for Discontinuance of Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . 1. ‘If, Following the Submission of a Claim under this Section’ . . . . . . . . . . . 2. ‘The Investor’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. ‘Fails to Take Any Steps in the Proceeding’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. ‘During 180 Consecutive Days or Such Period as the Disputing Parties May Agree’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. Legal Consequence – Discontinuance of the Proceeding . . . . . . . . . . . . . . . . . . 1. ‘The Investor is Deemed to have Withdrawn its Claim and to Have Discontinued the Proceeding’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. ‘The Tribunal Shall, at the Request of the Respondent, and after Notice to the Disputing Parties, in an Order Take Notice of the Discontinuance’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7 7 13 13 17 18
Richard Happ
20 23 23 27
779
Art. 8.35
Discontinuance 3. After the Order has been rendered, the Authority of the Tribunal Shall Lapse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. Cost Allocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
30 31
E. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
33
A. Introduction Article 8.35 CETA regulates the requirements and the procedure for the discontinuance of an investor-State proceeding before a division of the CETA tribunal 1 in case that the claiming investor does not participate in the proceedings any more. 2 Discontinuance of proceedings means the termination of a proceeding without a legally binding decision of the tribunal in form of an award according to Article 8.39 CETA. When a proceeding is discontinued in the sense of Article 8.35 CETA, no decision is taken by the tribunal with regard to the claims of the investor. Unlike the provisions in ICSID and UNCITRAL Arbitration Rules, this provision applies only to investors. It therefore can be assumed that it was included for a reason. 3 The provision contains two terms which are neither defined in CETA nor very often found in other arbitration rules (with the notable exception of the ICSID Arbitration Rules). Upon fulfilment of the conditions, the investor is deemed to have ‘withdrawn’ its claim and ‘discontinued’ the proceedings. According to Black’s Law Dictionary, ‘discontinuance’ means the voluntary termination of a lawsuit by the plaintiff.2 What is not regulated is the procedural effect of such discontinuance. Article 8.35 also does not explain what exactly the effect of a ‘withdrawal’ is, in particular whether the investor can resubmit his claim at a later stage, or not (→ mn. 26). 4 The Tribunal is to take note of the discontinuance in an order. A procedural order does not benefit of res judicata and is not enforceable (→ Art. 8.34 mn. 23), unlike the awards rendered. While the wording suggests that the order has only declaratory nature with respect to the finding of a discontinuance, it has constitutive effect with respect to the end of the proceedings (→ mn. 29). 1
B. Spirit and Purpose 5
This provision deals with the problem that arbitration proceedings do not know default awards, i.e. that non-participation is considered to be admission of the other Party’s allegations. Where an investor as Claimant might have an incentive nevertheless pursuing its claim until an award (and usually should be able to prove its case without the respondent), a State faced with an inactive investor will be forced to nevertheless spend time and money on the case until the claim at some point in time might be dismissed. The object and purpose of providing for a discontinuance option is to get rid of claims which are not pursued any longer and do not serve any participant’s legitimate interests. In short, the purpose is to accomplish judicial economy.3 1 Investor-State cases are heard before a 3-member division of the 15-member CETA tribunal, see Article 8.27(6) CETA. 2 Garner (ed), Black’s Law Dictionary (2019). 3 Cf. for Rule 45 of the ICSID Arbitration Rules Luttrell, ‘Chapter 25 – Particular Procedures’ in Fouret et al. (eds), The ICSID Convention, Regulations and Rules – A Practical Commentary (2019), mn. 25.287.
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Richard Happ
Art. 8.35
Discontinuance
C. Drafting History The drafting history does not shed much light on the content of Article 8.35. 6 The provision on discontinuance of proceedings in the case of non-participation of the investor has first been introduced in the CETA investment chapter draft of 15 November 2013 as Article X-17.4 Prior drafts did not include a comparable provision. The wording of draft Article X-17 is essentially the same as the final Article 8.35 CETA, except one difference: instead of the word ‘investor’, draft Article X-17 speaks of the ‘claimant’. In Article X-32 of the CETA investment chapter draft of 3 April 2014 on discontinuance the wording ‘claimant’ had already changed to ‘investor’.5
D. Commentary I. Relationship to Chosen Arbitration Rules While the exact legal nature of the CETA Tribunal is unclear, i.e. whether it is an 7 arbitration tribunal or an international court6, the procedural mechanism of CETA is based on the well-known ISDS model. According to Article 8.23(2) CETA, the investor may submit a claim under the 8 following rules to the Tribunal: (a) the ICSID Convention and Rules of Procedure for Arbitration Proceedings; (b) the ICSID Additional Facility Rules if the conditions for proceedings pursuant to paragraph (a) do not apply; (c) the UNCITRAL Arbitration Rules; or (d) any other rules on agreement of the disputing parties. The respondent ‘consents to the settlement of the dispute by the Tribunal in accor- 9 dance with the procedures set out in this Section’, and that consent, together with the submission of claim, is considered to ‘satisfy the requirements’ of Article 25 ICSID Convention, Chapter II of the ICSID Additional Facility Rules regarding written consent, and Article II of the New York Convention for an agreement in writing. 7 Consequently, Section F as a whole becomes the main source of jurisdiction for 10 the Tribunal’s power, since the consent of the respondent State is conditioned on the procedures in Section F of Chapter 8 CETA. That makes clear that in case of conflict between these procedures, and the applicable rules, the procedures in Section F prevail (also See Article 8.23(6)). The procedural rules in Section F of Chapter 8 CETA are designed to be the ground rules for an investor-State proceeding under CETA, regardless whether the investor submits the claim under ICSID Arbitration Rules (‘ICSID AR’) or UNCITRAL Arbitration Rules (‘UNICTRAL AR’). Consequently, the 4 Published by Transnational Dispute Settlement, available for TDM-subscribers at https://www.trans national-dispute-management.com/news.asp?key=522 (last accessed 3 August 2020). 5 Published by Transnational Dispute Settlement. 6 Happ and Wuschka, ‘From the Jay Treaty Commissions Towards a Multilateral Investment Court: Addressing the Enforcement Dilemma’ (2017) 6 Indian J. Arb. L., 113 (122 f.); German parliamentary papers (BT-Drs) 18/8024, answer to parliamentary query (18 April 2016), question 4: ‘The Federal Government considers the investment tribunal in CETA to be an international court. Both in structure and organisation it differs substantially from an arbitral tribunal’ (‘Die Bundesregierung sieht das Investitionsgericht als internationales Gericht an. Das Investitionsgericht in CETA unterscheidet sich in seiner Organisation und Struktur wesentlich von einem Schiedsgericht’). 7 Article 8.25(1) and (2) CETA.
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Art. 8.35
Discontinuance
procedural rules chosen by the investor under Article 8.23(2) CETA (ICSID, ICSID Additional Facility, UNCITRAL or other agreed rules), cannot override Article 8.35 CETA if they would contain provisions which would contradict the regulation of Article 8.35 CETA. 11 However, it is unlikely that there would be such conflict. As regards ICSID, discontinuance of proceedings is regulated in Arbitration Rule 43-45 which govern different scenarios: an agreement to discontinue (AR 43), a request by one Party to discontinue (AR 44) and both Parties’ failure to act (AR 45). There is no provision dealing specifically with one Party’s failure to act and the other Party requesting discontinuance. As explained below in more detail (→ mn. 11), the failure to act can even be seen as an implicit request for discontinuance. In any case, no conflict between Article 8.35 and ICSID AR 43-45 can be seen. The same applies with respect to ICSID Additional Facility AR 49-51. 12 Articles 30(1) and (2) of the UNCITRAL Arbitration Rules (2013) regulate consequences of default for specific failures of the Parties to act. However, default and discontinuance are different issues. None of the provisions provides for discontinuance because of non-participation of the investor. Thus, no conflict can be assumed to exist.
II. Requirements for Discontinuance of Proceedings 1. ‘If, Following the Submission of a Claim under this Section’ Article 8.35 CETA only applies after a claim under section F of Chapter 8 CETA has been submitted. That makes sense, since it is only possible to withdraw a claim once it has been submitted. 14 Article 8.18(1) CETA describes what a ‘claim’ under section F of Chapter 8 CETA is: a claim of an investor of a Party against another (CETA) Party that the other Party has breached an obligation under Section C and D of Chapter 8, with the investor having suffered a loss or damage as a result of the alleged breach. 15 The claim has to be ‘submitted’, which is regulated in Article 8.23. According to Article 8.23(7) CETA, the claim has been submitted when (a) the request for arbitration is received by the Secretary-General of ICSID or (b) in the case of the Additional Facility Rules the ICSID Secretariat, (c) received by the Respondent under Article 3 of the UNCITRAL Arbitration Rules, or, (d) if other rules are chosen, if the ‘the request or notice initiating proceedings’ is received by the respondents. 16 It is to be noted that pursuant to ICSID Institution Rule 6(2), proceedings ‘under the Convention’ are not deemed to have been instituted on the day of submission of the Request, but ‘on the date of the registration of the request’. While there might be only a few days difference, there have been cases in the past when the ICSID Secretary-General has refused registration of the Request, or has asked for additional information.8 Also, a withdrawal of the Request before registration is easily possible by mere written notice (see ICSID Institution Rule 8). Consequently, under CETA a claim submitted to ICSID is deemed to have been ‘submitted’ before the ICSID proceedings have begun.9 For the purposes of Article 8.35, this does not pose a problem, however. 13
8 Puig and Brown, ‘The Secretary-General’s Power to Refuse to Register a Request for Arbitration under the ICSID Convention’ (2012) 27 ICSID Rev., 172. 9 There are different ways to solve this apparent contradiction. The most plausible one is that a claim submitted to ICSID but on the basis of CETA is not a ‘proceeding under the Convention’, but under CETA which merely refers to ICSID.
782
Richard Happ
Art. 8.35
Discontinuance
2. ‘The Investor’ Article 8.35 CETA only regulates the discontinuance of the proceedings by the ‘in- 17 vestor’. That makes sense. Like all ISDS procedural mechanisms, CETA only provides for claims by investors against a Party, since the obligations under CETA are also limited to Parties. It is the fundamental idea of investment protection to give investors rights to remedy the disadvantage they have in relation to a sovereign State. Interestingly, however, ‘investor’ is defined in Article 8.1 CETA (Definitions) as a ‘Party, a natural person or an enterprise of a Party’, other than a branch or a representative office, that seeks to make, is making or has made an investment in the territory of the other Party. As it would be extremely unusual that a Party, (e.g. Canada) directly makes investments, this very likely will apply rather to Party-owned enterprises active in the territory of the other Party (e.g. the EU).
3. ‘Fails to Take Any Steps in the Proceeding’ The investor must fail to take any steps in the proceedings for 180 days or whatev- 18 er else is agreed. Given that in some investor-state proceedings the time limits for memorial or counter-memorial can run up to or exceed 180 days, it becomes clear that being in compliance with the procedural rules cannot amount to a withdrawal of claims. Rather, the investor must fail to take action when being required so by the applicable arbitration rules, the agreed procedural timetable or the Tribunal.10 This relates to all actions required from Parties in a proceeding, such as the filling of written submissions as such, their filling in the proper form or time ordered by the tribunal, or the appearance and active participation in an oral hearing.11 Commentators have qualified visible efforts to take required action in a proceeding as participation – thus not fulfilling the wording ‘fails to take any step’.12 The term ‘any steps in the proceedings’ refers not only to proceedings before the 19 Tribunal, but also before the CETA appellate tribunal as provided for in Article 8.28 CETA. This is indicated by the broad wording of Article 8.35 which speaks of ‘claim under this Section’ and ‘proceedings’. A claim under Section F of Chapter 8 CETA encompasses claims brought before a tribunal as provided for in Article 8.27 CETA. Encompassed are also claims on which an award has already been rendered which is challenged before the Appellate Tribunal as provided for in Article 8.28 CETA. This corresponds to the approach taken under ICSID Arbitration Rules 43 to 45 on discontinuance: As the ICSID Arbitration Rules are applicable not only to the arbitration proceedings until the award but also to proceedings for all challenges possible under the ICSID convention, e.g. annulment proceedings under Article 52 ICSID, Rules 43 to 45 would be applicable also to proceedings for all challenges possible to an ICSID 10 Cf. on ICSID Arbitration Rule 45 Happ, 'XV. Kapitel: ICSID Arbitration Rules’ in Schütze (ed), Institutionelle Schiedsgerichtsbarkeit (2018), Rule 45, para. 1; in the context of non-participation before the International Court of Justice, see Fry, ‘Non-Participation in the International Court of Justice Revisited: Change or Plus Ca Change’ (2010) 49 Colum. J. Transnat’l L., 35 (41): ‘non-participation is the failure to do whatever is expected to be done by a disputant at any point in a proceeding’. 11 Provisions in other arbitration rules such as the UNCITRAL Arbitration Rules 2013 or the SIAC Investment Rules 2017 on non-participation in proceedings name specifically the submission of written submissions and the appearance in oral hearings, cf. Article 30(1) lit a), b) and (2) UNCITRAL Arbitration Rules 2013, Rule 17.8 and 17.9 SIAC Investment Rules 2017. See also the enumeration of actions defining non-participation in Fry, ‘Non-Participation in the International Court of Justice Revisited: Change or Plus Ca Change’ (2010) 49 Colum. J. Transnat’l L., 35 (42). 12 Cf. on ICSID Arbitration Rule 45 Happ, ‘XV. Kapitel: ICSID Arbitration Rules’ in Schütze (ed), Institutionelle Schiedsgerichtsbarkeit (2018), Rule 45, para. 1: ‘und auch keine Anhaltspunkte ersichtlich sind, aus denen hervorgeht, dass die Parteien sich um den Fortgang des Verfahrens bemühen’.
Richard Happ
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Art. 8.35
Discontinuance
award.13 Furthermore, the position of Article 8.35 behind both the Articles on the first instance tribunal proceedings and the Appellate Tribunal proceedings in Section F of Chapter 8 CETA indicates that Article 8.35 shall apply for both proceedings.
4. ‘During 180 Consecutive Days or Such Period as the Disputing Parties May Agree’ Article 8.35 CETA stipulates a 180-day time period during which the investor has to be continuously inactive in the proceedings. Only upon expiration of this period does the consequence – the discontinuance of the proceeding – apply. 21 As explained, it must be a period where the investor is supposed to act and then fails to act. That may happen at the outset of the proceedings – an investor falls short of funds and does not react after having submitted a claim – or later, e.g. if the investor fails to submit a Memorial or to appear at the hearing (these are the factual situations covered by the UNCITRAL Arbitration Rules). Non-action when there is no need to take action, e.g. during 180 days of a procedural calendar where first Respondent and then the Investor has 4 months’ time limits – of course does not qualify for a discontinuance. 22 The 180-day time period resembles ICSID Arbitration Rule 45 which ties the tribunal’s power to discontinue the proceedings because of the non-participation of both the claimant and the respondent to a similar 180-day-period. Interestingly, the proposed reform to the ICSID Arbitration Rules foresees changes to the 180-day period. Draft Arbitration Rule 57 of the reform proposal divides the 180-day-period in a mandatory 150-day-period, followed by a notice by the tribunal to the Parties of the expiration of the time limit and an additional 30 days grace period. 14 Upon expiration of the grace period of 30 days, the ICSID tribunal is empowered to discontinue the proceedings. This reflects the already existing practice under current ICSID Arbitration Rule 45 that the non-participating Parties are given notice by the tribunal one month before the expiration of the 180-day-period.15 20
III. Legal Consequence – Discontinuance of the Proceeding 1. ‘The Investor is Deemed to have Withdrawn its Claim and to Have Discontinued the Proceeding’ Article 8.35 CETA stipulates that upon expiration of the 180-day-period the nonparticipating investor is deemed to have withdrawn its claim and to have discontinued the proceeding. This is a legal fiction since the investor has not in fact withdrawn the claim, but merely not acted. 24 As set out above, CETA does not explain what exactly a ‘withdrawal’ and the ‘discontinuance’ are. Its effects, however, are clear: after the Tribunal has rendered its order taking note of the discontinuance, the proceedings end and the authority of the Tribunal to decide the case lapses. 23
13 Luttrell, ‘Chapter 25 – Particular Procedures’ in Fouret et al. (eds), The ICSID Convention, Regulations and Rules – A Practical Commentary (2019), mn. 25.225 f. 14 ICSID Secretariat, Proposals for Amendment of the ICSID Rules – Working Paper Volume 3 (2 August 2018), Draft Rule 57, 250-253, available at https://icsid.worldbank.org/en/amendments/Pages/Proposals /Working-Paper.aspx (last accessed 3 August 2020). 15 See under https://icsid.worldbank.org/en/Pages/process/Discontinuance-of-Proceedings.aspx (last accessed 3 August 2020) under ‘Discontinuance for Failure of Parties to Act’.
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Richard Happ
Art. 8.35
Discontinuance
The wording of the first sentence implies that the investor unilaterally, by not doing 25 anything, could withdraw his claim and discontinue the proceedings. That would be misleading and highly irregular.16 The wording does not say that the Investor ‘has withdrawn’ the claim. After 180 days of inactivity, the investor is merely deemed to have withdrawn his claim and to have discontinued the proceeding. It is a rebuttable presumption which the investor can destroy by returning to the proceeding, and taking action, after having given notice by the Tribunal (→ mn. 27). Article 8.35 does not regulate whether the order of discontinuance is with or 26 without prejudice, i.e. whether the investor can later resubmit the claim. This is a general problem for all arbitration proceedings.17 The better arguments speak for a withdrawal without prejudice. This is not only in line with the practice under ICSID proceedings18, but also the special situation under CETA where the investor has to waive procedural rights under domestic law with respect to the measures forming the CETA claim. A withdrawal / discontinuance with prejudice, which can happen e.g. for a shortage of funds, then would amount effectively to a complete loss of any claims. It seems farfetched to read such a result into Article 8.35. 19
2. ‘The Tribunal Shall, at the Request of the Respondent, and after Notice to the Disputing Parties, in an Order Take Notice of the Discontinuance’ When the respondent requests the Tribunal to take notice of the presumed discon- 27 tinuance, the Tribunal has to give notice to both disputing Parties before rendering an order of discontinuance. The ‘notice’ must give the investor the chance to destroy the presumption of a withdrawal, take action (if still possible under the applicable rules) and return to the proceedings. The disputing Parties in their comments might also communicate any agreement on cost allocation, or request a decision on costs. If the Investor fails to do so, the presumption of withdrawal stands and the Tribunal 28 then has to render a respective order. The word ‘shall’ makes clear that the tribunal does not have any discretion to decide whether the proceeding shall be discontinued or not. Since the Tribunal is only to ‘take notice of the discontinuance’, it could be argued 29 that the order is only declaratory in nature. The correct view, however, is that it has a dual nature: while its ‘taking note’ has only declaratory effect, the order as such has the constitutive effect to terminate the proceedings. Logically, the proceedings can only end if the Tribunal says so, so that the discontinuance itself does not yet lead to the termination, but only the order itself.
3. After the Order has been rendered, the Authority of the Tribunal Shall Lapse This is evidently clear. The Tribunal is functus officio since the proceedings have 30 ended. There is no possibility to render a post-termination cost award.
16 For a general discussion, see Haller and Keilmann, ‘In Claimant’s Hands? Admissibility and Consequences of a Withdrawal of Claims in International Arbitration’ (2018) 35 J. Int.’l Arb., 649 ff. 17 Haller and Keilmann, ‘In Claimant’s Hands? Admissibility and Consequences of a Withdrawal of Claims in International Arbitration’ (2018) 35 J. Int.’l Arb., 649 (652). 18 See Munoz and Pickard, ‘Rule 43 – Settlement and Discontinuance’ in Fouret et al. (eds), The ICSID Convention, Regulations and Rules – A Practical Commentary (2019), mn. 25.230 (25.241). 19 Cf. RSM Production Corporation v. Saint Lucia, ICSID Case No. ARB/12/10, Decision on Annulment (29 April 2019), para 196: ‘Dismissing a claim with prejudice is the same as concluding that the claim has no merit. This cannot be just a matter of procedure.’
Richard Happ
785
Art. 8.35
Discontinuance
4. Cost Allocation This raises the question whether the Tribunal can include a decision on costs in its order. It would be a strange result if inaction – as the requirement for discontinuance – would give the Investor the right to leave the respondent with the costs of proceedings which the Investor has started and now does not prosecute further. That issue has been discussed in the past by other tribunals.20 The wording does not preclude this, as it merely says that the Tribunal ‘in an order’ should take notice of the discontinuance, but does not preclude that this order regulates further aspects of the proceedings. It also does not preclude that the Tribunal issues an award on costs, if the distribution of costs is still debated after the Parties’ comments (it is only the main claim which is considered to have been withdrawn). Article 8.39(5) CETA even orders that in its final award, the Tribunal should order the losing Party to pay costs. In line with this tribunals under ICSID 21 and UNCITRAL22 rules have ordered the investor to pay costs.23 32 The CETA Tribunal thus can order the discontinuing investor to reimburse the respondent for the costs of the proceedings. While it is evident that the order is binding on the Parties, CETA lacks any mechanism to enforce that order. Parties would be dependent on the domestic legal system of the respective other Party they want to enforce the order against.24 Depending on the applicable arbitration rules, the Tribunal might also be entitled to render a cost award. 31
E. Conclusion 33
Article 8.35 is an unproblematic provision. The general concepts behind Article 8.35 are conveniently clear. The article aspires judicial economy by ordering discontinuance in case the claimant investor fails to take any steps in the proceedings for 180 days. In the details, however, sloppy drafting left room for interpretation.
20 See the detailed analysis by Munoz and Pickard, ‘Rule 45 – Settlement and Discontinuance’ in Fouret et al. (eds), The ICSID Convention, Regulations and Rules – A Practical Commentary (2019), mn. 25.286 (25.293 ff.). 21 See Quadrant Pacific Growth Fund L.P. and Canasco Holdings Inc. v. Republic of Costa Rica, ICSID Case No. ARB(AF)/08/1, Order of the Tribunal Taking Note of the Discontinuance of the Proceedings and Allocation of Costs (27 October 2010), para. 71: ‘Claimants cannot expect Respondent to carry the burden of the costs of defending claims that Claimants decided to abandon’, and the detailed analysis by Munoz and Pickard, ‘Rule 45 – Settlement and Discontinuance’ in Fouret et al. (eds), The ICSID Convention, Regulations and Rules – A Practical Commentary (2019), mn. 25.282 (25.293 ff.). 22 Melvin J. Howard, Centurion Health Corp. & Howard Family Trust v. The Government of Canada, UNCITRAL, PCA Case No. 2009-21, Order for Termination of Proceedings and Award on Costs (2 August 2010), para. 75; Canfor Corporation v. United States of America & Terminal Forest Products Ltd. v. United States of America, UNCITRAL, Joint Order of the Costs of Arbitration and for the Termination of Certain Arbitral Proceedings (19 July 2007), para. 149. 23 Melvin J. Howard, Centurion Health Corp. & Howard Family Trust v. The Government of Canada, UNCITRAL, PCA Case No. 2009-21, Order for Termination of Proceedings and Award on Costs (2 August 2010), para. 75; Canfor Corporation v. United States of America & Terminal Forest Products Ltd. v. United States of America, UNCITRAL, Joint Order of the Costs of Arbitration and for the Termination of Certain Arbitral Proceedings (19 July 2007), para. 149. 24 In ICSID Arbitrations, only final awards are enforceable, and the enforceability of provisional measures rendered on the basis of UNCITRAL Arbitration Rules would be dependent on national law. For a more thorough discussion, see Le Bars and Shiroor, ‘Provisional Measures in Investment Arbitration: Wading through the Murky Waters of Enforcement’ (2017) 6 Indian J. Arb. L., 24 ff. On the problems of enforcing ‘interim awards’ or ‘orders’ under the New York Convention, see Ehle, ‘Article I. Scope of Application’ in Wolff (ed), The New York Convention (2019), 65 ff.; Solomon, ‘§ 2 International Commercial Arbitration: The New York Convention’ in Balthasar (ed), International Commercial Arbitration (2016), 65 ff.
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Article 8.36 Transparency of proceedings 1. The UNCITRAL Transparency Rules, as modified by this Chapter, shall apply in connection with proceedings under this Section. 2. The request for consultations, the notice requesting a determination of the respondent, the notice of determination of the respondent, the agreement to mediate, the notice of intent to challenge a Member of the Tribunal, the decision on challenge to a Member of the Tribunal and the request for consolidation shall be included in the list of documents to be made available to the public under Article 3(1) of the UNCITRAL Transparency Rules. 3. Exhibits shall be included in the list of documents to be made available to the public under Article 3(2) of the UNCITRAL Transparency Rules. 4. Notwithstanding Article 2 of the UNCITRAL Transparency Rules, prior to the constitution of the Tribunal, Canada or the European Union as the case may be shall make publicly available in a timely manner relevant documents pursuant to paragraph 2, subject to the redaction of confidential or protected information. Such documents may be made publicly available by communication to the repository. 5. Hearings shall be open to the public. The Tribunal shall determine, in consultation with the disputing parties, the appropriate logistical arrangements to facilitate public access to such hearings. If the Tribunal determines that there is a need to protect confidential or protected information, it shall make the appropriate arrangements to hold in private that part of the hearing requiring such protection. 6. Nothing in this Chapter requires a respondent to withhold from the public information required to be disclosed by its laws. The respondent should apply those laws in a manner sensitive to protecting from disclosure information that has been designated as confidential or protected information. Reference to the Respective Provisions in Other EU Treaties: EU-Singapore IPPA, annex 8; EU-Viet Nam IPPA, Article 3.46. Bibliography: Lucas Bastin, ‘The Amicus Curiae in Investor-State Arbitration’ (2012) 1 CJICL, 208; Nigel Blackaby and Caroline Richard, ‘Amicus Curiae: A Panacea for Legitimacy in Investment Arbitration?’ in Michael Waibel and Asha Kaushal, et al. (eds), The Backlash against Investment Arbitration (Kluwer Law International 2010), 253; N. Jansen Calamita and Ewa Zelazna, ‘Transparency in InvestorState Arbitration: Where Does Asia Stand?’ in Chester Brown and Mahdev Mohan (eds), The Asian Turn in Foreign Investment (Cambridge University Press, Cambridge 2021); N. Jansen Calamita and Ewa Zelazna, ‘The Changing Landscape of Transparency in Investor-State Arbitration: The UNCITRAL Transparency Rules and Mauritius Convention’ (2016) Austrian YB Int’l Arb., 271; N. Jansen Calamita, ‘Dispute Settlement Transparency in Europe’s Evolving Investment Treaty Policy’ (2014) 15 JWIT, 645; Barnali Choudhury, ‘Recapturing Public Power: Is Investment Arbitration’s Engagement of the Public Interest Contributing to the Democratic Deficit?’ (2008) 41 Vand. J. Transnat’l L., 775; Jack Coe, ‘Transparency in the Resolution of Investor-State Disputes – Adoption, Adaptation, and NAFTA Leadership’ (2006) 54 U. Kan. L. Rev., 1339; Dimitri Euler, Marcus Gehring and Maxi Scherer (eds), Transparency in International Investment Arbitration: A Guide to the UNCITRAL Rules on Transparency in Treaty-Based Investor-State Arbitration (Cambridge University Press, Cambridge 2015); Anthony Van Duzer, ‘Enhancing the Procedural Legitimacy of Investor-State Arbitration through Transparency and Amicus Curiae Participation’ (2007) 52 McGill L. J., 681; Meg Kinnear, ‘Transparency and Third Party Participation in Investor-State Dispute Settlement’, Paper presented at ICSID, OECD and UNCTAD Symposium on ‘Making the Most of International Investment Agreements: A Common Agenda’ (Paris, 12 December 2005); Kyla Tienhaara, ‘Third-Party Participation in Investment-Environment Disputes:
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Recent Developments’ (2007) 16 RECIEL, 230; UNCTAD, Transparency, UNCTAD Series on Issues in International Investment Agreements II (2012). A. Introduction and Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
B. Spirit and Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. The Issue of Transparency in ISDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Legitimacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Promotion of Good Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Fairness and Efficiency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Article 8.36 in International Context . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Transparency in other Investment Treaties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Transparency in arbitral rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4 5 7 9 11 16 17 22
C. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. The Development of the Canadian and EU Negotiating Positions . . . . . . . . II. The Negotiation of CETA Article 8.36 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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D. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. Scope of application (UNCITRAL Transparency Rules, Article 1) . . . . . . . . II. Publication of Information at the Commencement of Arbitral Proceedings (UNCITRAL Transparency Rules, Article 2) . . . . . . . . . . . . . . . . . III. Publication of Documents (UNCITRAL Transparency Rules, Article 3) IV. Submission by a Third Person (UNCITRAL Transparency Rules, Article 4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V. Submission by a Non-Disputing Party to the Treaty (UNCITRAL Transparency Rules, Article 5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VI. Hearings (UNCITRAL Transparency Rules, Article 6) . . . . . . . . . . . . . . . . . . . . VII. Exceptions to Transparency (UNCITRAL Transparency Rules, Article 7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VIII. Repository of Published Information (UNCITRAL Transparency Rules, Article 8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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E. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
45 49 53 56 57 60 64 65
A. Introduction and Overview Article 8.36 addresses issues related to the transparency of investor-state dispute settlement (‘ISDS’) proceedings under CETA. In so doing, Article 8.36 incorporates by reference the UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration (2014) (‘Rules on Transparency’ or ‘Transparency Rules’).1 To understand the CETA approach to transparency, therefore, it is essential to understand the approach taken in the UNCITRAL Transparency Rules. 2 The term ‘transparency’ in the context of ISDS can have various meanings depending upon the context in which the term is used, and who is using it. Transparency may refer either (or both) to increased public information with respect to investor-state proceedings or increased public participation in the proceedings themselves. This chapter uses the term ‘transparency’ as it is used in Article 8.36, namely as encompassing: 1
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Publication of information and documents with respect to the existence of an investor-state dispute, including the notice of arbitration and subsequent pleadings;
1 The finalised text of the Rules on Transparency in Treaty-based Investor-State Arbitration was released by the United Nations Commission on International Trade Law (UNCITRAL) in July 2013, and came into force on 1 April 2014. See General Assembly, Official Records of the General Assembly, Sixty-eighth Session, Supplement No. 17, 8 July – 26 July 2013, A/68/17. See also https://www.uncitral.org/ pdf/english/texts/arbitration/rules-on-transparency/Rules-on-Transparency-E.pdf.
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– – –
Publication concerning the disposition of the investor-state dispute, including the publication of the award itself; Public access to hearings; and Public participation in the dispute settlement process itself through a third-party amicus curiae mechanism.2
This chapter proceeds as follows. Part B addresses the Spirit and Purpose of Article 3 8.36, looking at the issue of transparency in ISDS both as a matter of the text of CETA and as an issue in ISDS more generally. Part C chronicles the drafting history of Article 8.36. Part D outlines the operation of the Transparency Rules under Article 8.36.
B. Spirit and Purpose The provisions on transparency contained in Article 8.36 and the UNCITRAL 4 Transparency Rules are a departure from the historical confidentiality and privacy of investor-state dispute settlement proceedings. This section discusses the spirit and purpose of transparency in investor-state arbitration, both generally and in the specific context of the Transparency Rules and CETA.
I. The Issue of Transparency in ISDS Historically, investor-state dispute settlement has taken place under the conditions 5 of confidentiality and privacy associated with commercial arbitration. Thus, there has been little or no opportunity for public participation in the proceedings or even the public disclosure of information regarding the dispute.3 Claims arising under investment treaties, however, are different than commercial 6 disputes, as they concern challenges to the state’s exercise of its sovereign power. As such, given the public character of investor-state treaty disputes, there has been a gradual move towards transparency in the practice of states over the past twenty-five years. A number of policies have driven these developments: legitimacy, governance, and fairness.4 The principal aspects of these drivers towards increased transparency are briefly noted here.5
2 The UNCITRAL Transparency Rules in their original formulation include a mechanism for the participation of non-disputing state Parties in proceedings involving claims against the other Party(ies) to the treaty. In CETA, however, the participation of non-disputing state Parties is addressed in Article 8.38, separate from the adoption of the Transparency Rules. Thus for the purposes of CETA, the concept of ‘transparency’ as contained in Article 8.36 encompasses those elements identified in the text. 3 Choudhury, ‘Recapturing Public Power: Is Investment Arbitration’s Engagement of the Public Interest Contributing to the Democratic Deficit?’ (2008) 41 Vand. J. Transnat’l L., 775; Tienhaara, ‘Third-Party Participation in Investment-Environment Disputes: Recent Developments’ (2007) 16 RECIEL, 230. 4 A number of these drivers, though not all, were identified by the UN General Assembly in its resolution commending the Mauritius Convention to UN Member States for their adoption. See UN General Assembly Resolution 69/116, United Nations Convention on Transparency in Treaty‑based Investor-State Arbitration (10 December 2014), chapeau: ‘Believing that the Rules on Transparency contribute significantly to the establishment of a harmonized legal framework for a fair and efficient settlement of international investment disputes, increase transparency and accountability and promote good governance …’. 5 For additional discussion of transparency in ISDS, see Calamita, ‘Dispute Settlement Transparency in Europe’s Evolving Investment Treaty Policy’ (2014) 15 JWIT, 645 and Calamita and Zelazna, ‘The
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1. Legitimacy As ISDS has become more prevalent and as the size of awards against states has increased, the legitimacy of ISDS has been questioned by states, by academics, and by members of civil society. Part of this critique has been the lack of transparency in ISDS, whether with respect to the existence of disputes, arguments made by the Parties, identities of arbitrators or the final disposition of claims.6 In addition, there has been criticism about the inability of interested third-parties, particularly civil society groups, to participate in proceedings as amicus curiae.7 8 The development of mandatory rules 8 on transparency – like the UNCITRAL Rules on Transparency – has been driven in part by a desire to address these criticisms about the legitimacy of ISDS. Increased public access and participation, as well as increased public information, have been seen as an important aspect of addressing arguments about the nature and conduct of the investment treaty regime. 9 Indeed, as discussed below in connection with the drafting history of Article 8.36, public criticism about the lack of transparency in ISDS has played a prominent role in the development of the EU’s investment treaty negotiating position, not just in CETA, but in EU investment treaties more widely.10 7
2. Promotion of Good Governance 9
A further driver of increased transparency in ISDS has been the belief that transparency will promote good governance in states, especially those states against which investment treaty claims are brought. Speaking in connection with the General Assembly’s endorsement of the UNCITRAL Rules on Transparency, the Chairman of UNCITRAL drew a straight line between the need for transparency in ISDS and ‘the very foundation of good governance’.11 Changing Landscape of Transparency in Investor-State Arbitration: The UNCITRAL Transparency Rules and Mauritius Convention’ (2016) Austrian YB Int’l Arb., 271. 6 See, e.g., UNCTAD, Transparency, UNCTAD Series on Issues in International Investment Agreements II (2012) 36; Blackaby and Richard, ‘Amicus Curiae: A Panacea for Legitimacy in Investment Arbitration?’ in Waibel and Kaushal, et al. (eds), The Backlash against Investment Arbitration (2010), 253-254. 7 See, e.g., UNCTAD, Transparency, UNCTAD Series on Issues in International Investment Agreements II (2012) 36; Blackaby and Richard, ‘Amicus Curiae: A Panacea for Legitimacy in Investment Arbitration?’ in Waibel and Kaushal, et al. (eds), The Backlash against Investment Arbitration (Kluwer Law International 2010), 253-254. 8 ‘Mandatory rules’ of transparency refers to rules which require transparency in ISDS rather than leaving it to the disputing Parties to determine whether and how much transparency there will be in a given proceeding. 9 See Choudhury, ‘Recapturing Public Power: Is Investment Arbitration’s Engagement of the Public Interest Contributing to the Democratic Deficit?’ (2008) 41 Vand. J. Transnat’l L., 775 (814); Kinnear, ‘Transparency and Third Party Participation in Investor-State Dispute Settlement’, Paper presented at ICSID, OECD and UNCTAD Symposium on ‘Making the Most of International Investment Agreements: A Common Agenda’ (Paris, 12 December 2005); Van Duzer, ‘Enhancing the Procedural Legitimacy of Investor-State Arbitration through Transparency and Amicus Curiae Participation’ (2017) 52 McGill L. J. 681; Jack Coe, ‘Transparency in the Resolution of Investor-State Disputes – Adoption, Adaptation, and NAFTA Leadership’ (2006) 54 U. Kan. L. Rev., 1339. 10 As stated by EU Trade Commissioner Cecilia Malmström, reforms to ISDS in European investment treaties, including the introduction of rules on the transparency of proceedings, were aimed at addressing ‘a fundamental lack of trust’ in the existing system investor-state arbitration. See European Commission, Press Release, Commission Proposes New Investment Court System for TTIP and other EU Trade and Investment Negotiations (16 September 2015). 11 UN General Assembly, Press Release, Newly Adopted Rules Play Fundamental Role in Good Governance, United Nations International Trade Law Body Tells Sixth Committee, GA/L/3459 (14 October 2013). Cf. UN General Assembly Resolution 69/116, United Nations Convention on Transparency in Treaty‑based Investor-State Arbitration (10 December 2014), chapeau: ‘Recognizing the need for provisions on trans-
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The link between good governance and transparency proceeds from liberal con- 10 cerns about accountable government. Accountable government requires that the governed have information about how they have been governed in order that they might hold those in power to account. Rules on transparency permit public consideration of whether the state has discharged its substantive international obligations under an investment treaty and, moreover, whether the conduct of the government has given rise to the possibility of state liability. By requiring that such matters be made public, the thinking goes, transparency in ISDS thus permits the public to hold the government to account.
3. Fairness and Efficiency A further driver of increased transparency in ISDS has been the view that manda- 11 tory rules on transparency can ‘contribute significantly to a harmonized legal framework for a fair and efficient settlement of international investment disputes ...’. 12 A lack of transparency in ISDS raises concerns about fairness and efficiency because the lack of public information gives rise to information asymmetries among participants in the investment treaty regime, e.g., between Parties in arbitration, among foreign investors, among states and within civil society. In the absence of transparency, concerns arise that Parties and their representatives 12 do not have the same knowledge of and access to information regarding the functioning of the regime, such as access to non-public arbitral awards and decisions. Thus, a Party represented by counsel that frequently participates in investment treaty arbitrations will have the benefit of that counsel’s knowledge of non-public proceedings in which his or her law firm has participated, whereas a Party represented by less experienced counsel will not have access to similar information. This affects not only the parties’ knowledge of arbitral jurisprudence in general, but also their knowledge about arbitrators and their decision-making in prior cases. As a result, especially with respect to the appointment of arbitrators, the parties to an investment dispute may not be operating with the same or equal information.13 A lack of transparency in ISDS can also lead to information asymmetries among 13 foreign investors. The publication of information concerning investor-state disputes provides knowledge to investors about claims raised against host states with respect to a state’s regulations and governance. Especially where the regulations under challenge are of a generally applicable nature, knowledge of the dispute and the outcome can facilitate investors’ appreciation of the host state’s law. Moreover, the publication of arbitral awards contributes to the development of a public body of jurisprudence which allows both investors and host states to understand how particular investment treaties and their terms have been interpreted and applied in other instances. While awards in arbitrations are without formal precedential value, knowledge of arguments raised parency in the settlement of treaty-based investor-State disputes to take account of the public interest involved in such arbitrations ...’. 12 See UN General Assembly Resolution 69/116, United Nations Convention on Transparency in Treaty‑based Investor-State Arbitration (10 December 2014), chapeau: ‘Believing that the Rules on Transparency contribute significantly to the establishment of a harmonized legal framework for a fair and efficient settlement of international investment disputes, increase transparency and accountability and promote good governance ...’. 13 Relatedly, the absence of transparency can also undermine the efficiency of arbitral practice. Transparency with respect to investor-state arbitration may facilitate arbitral economy by allowing for the early dismissal of frivolous claims and preventing the arbitration of the same or similar claims in multiple fora.
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and awards rendered allows investors and host states to have a better understanding of how similarly worded treaty provisions may be construed in future cases. 14 The absence of transparency in ISDS can also undermine state treaty making, especially state efforts to reform their treaties. When drafting treaty texts, states increasingly take note of awards rendered in prior arbitrations, even when they have not been involved directly.14 If ISDS is not transparent, however, it is not possible for states to take non-public awards and pleadings into account in their treaty-making practice, notwithstanding that knowledge of such awards could improve state understanding of how different treaty language is interpreted. Increased transparency ameliorates this deficiency and may serve ultimately to benefit all states generally. 15 Finally, the absence of transparency can undermine the ability of third Party amicus curiae from meaningfully participating in ISDS. Even where arbitral rules have been amended to permit the involvement of third Parties, many rules have remained silent on the ability of third parties to access documents produced in the proceedings, such as pleadings, expert reports, evidence, etc.15 As a consequence, it has not always been possible for potential third parties to gain access to the information which would allow them to determine whether to seek to participate in the first place, and, if so, to make their submissions as relevant to the issues raised in the proceedings as possible. 16
II. Article 8.36 in International Context 16
Having addressed the drivers of increased transparency in ISDS, both with respect to CETA and the UNCITRAL Transparency Rules, this section now examines where CETA Article 8.36 fits in international context.
1. Transparency in other Investment Treaties Most international investment treaties currently in force do not contain express provisions addressing transparency in ISDS. Rather, the vast majority of treaties simply incorporate various arbitration rules which do not themselves contain many, if any, mandatory transparency rules. Having said that, it is also true that one can detect a trend in certain parts of the world towards including provisions which require transparency in investor-state arbitration within the treaties themselves, regardless of the system of arbitration chosen. CETA Article 8.36 is part of that trend. 18 Beginning with the practice of Canada, Mexico and the United States under the NAFTA17 in the 1990 s and thereafter through all of the BITs and FTAs concluded by 17
14 See, e.g., European Parliament, European Parliament Resolution of 6 April 2011 on the future European international investment policy, 2010/2203(INI), para. 15, preamble G and H. 15 See, e.g., Biwater Gauff (Tanzania) Ltd. v. Tanzania, ICSID Case No. ARB/05/22, Procedural Order No. 5 (2 February 2007), paras. 62-68 (refusing to allow amicus access to the arbitral record). See also Biwater Gauff (Tanzania) Ltd. v. Tanzania, ICSID Case No. ARB/05/22, Amicus Curiae Submission (26 March 2007), para. 13: ‘noting that the tribunal’s refusal to grant access to the arbitral ‘has necessarily meant that the present submission is based on an incomplete set of factual information’. 16 See, e.g., Biwater Gauff (Tanzania) Ltd. v. Tanzania, ICSID Case No. ARB/05/22, Procedural Order No. 5 (2 February 2007). See also Biwater Gauff (Tanzania) Ltd. v. Tanzania, ICSID Case No. ARB/05/22, Amicus Curiae Submission (26 March 2007), para. 13. 17 See NAFTA (1994), Articles 1127, 1128, 1129, 1137(4). See also NAFTA Free Trade Commission, Notes of Interpretation of Certain Chapter Eleven Provisions (31 July 2001) (affirming the commitment of the NAFTA governments to the principle of transparency generally and created a presumption of public disclosure and openness); NAFTA Free Trade Commission, Statement of the Free Trade Commission on Non-disputing Party Participation (7 October 2003) (clarifying the NAFTA tribunals’ discretion to accept third party submissions); NAFTA Free Trade Commission, 2004 NAFTA Commission Meeting: Joint
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Canada18 and the US19 in the years since, a ‘North American approach’ to transparency in investor-state arbitration has been developed. Under this approach, transparency is mandatory as an express matter of the treaty text; it is a requirement of arbitration, not dependent upon the disputing parties’ agreement. Moreover, it is broad in its conception and application, usually requiring (1) publication of the notice of arbitration and subsequent pleadings, (2) publication concerning the disposition of the investorstate dispute, including the award, (3) public access to hearings and (4) the opportunity for public participation in the dispute settlement process through amicus curiae or non-disputing Party mechanisms.20 Elsewhere in the world, the trend in favour of increased transparency has not been 19 nearly as strong. On the European side, for example, the EU Member States entered into more than 1.200 investment treaties prior to the passage of negotiating competence to the EU. Almost uniformly, they did not contain any provisions requiring transparency in investor-state arbitration with the exception of a number of treaties entered into by Baltic and Eastern EU Member States with Canada in 2009–2010. 21 In Latin America, there has also been no general move towards transparency in the treaty texts of states in the region even though a considerable number of investment treaties signed between Latin American states and Canada and the United States since 2004 contain provisions requiring transparency.22 Likewise, in Africa ISDS transparency provisions have been virtually non-existent in treaty texts. Even the relatively recent, Statement (16 July 2004) (affirming the NAFTA Parties’ commitment to transparency and welcomed Mexico’s support of open hearings). 18 Canadian practice in these treaties is exemplified by the 2004 Canada Model BIT, Article 38. The only variance on this practice in the 2012 investment treaty signed between Canada and China, Agreement Between the Government of Canada and the Government of the People's Republic of China for the Promotion and Reciprocal Protection of Investments (2012). 19 U.S. practice in these treaties is exemplified by the 2004 US Model BIT 2004, Article 29 and the 2012 US Model BIT, Article 29. The US Model BIT 2012 contains no changes on transparency from the 2004 version. 20 The outlier in this practice is Canada’s investment treaty with China. In that agreement, Canada and China agree only to the mandatory publication of tribunal awards and to acceptance of amicus curiae submissions at the decision of the tribunal. Agreement Between the Government of Canada and the Government of the People's Republic of China for the Promotion and Reciprocal Protection of Investments (2012), Article 29-29. Article 28 permits, but does not require as other Canadian investment treaties do, public hearings and publication of pleadings and other documents produced in arbitration, only upon the agreement of the respondent state. 21 The provisions on transparency in these treaties are based upon Canada’s 2004 model bilateral investment treaty, the text of which is included in each with minor alterations. See, e.g., Agreement between the Government of Canada and the Government of the Republic of Latvia for the Promotion and Protection of Investments, signed 5 May 2009 (entry into force 24 November 2011), Annex C; Agreement between Canada and the Slovak Republic for the Promotion and Protection of Investments, signed 20 July 2010 (entry into force 14 March 2012), Annex B; Agreement between Canada and the Czech Republic for the Promotion and Protection of Investments, signed 6 May 2009; Agreement between the Government of Canada and the Government of Romania for the Promotion and Reciprocal Protection of Investments, signed 8 May 2009 (entry into force 23 November 2011), Annex C. Two further exceptions were the 2006 United Kingdom-Mexico BIT and the 2007 Agreement between Mexico and Slovakia on the Promotion and Protection of Investments, both of which contain far more limited provisions on transparency, providing only for the publication of awards unless the disputing Parties agree that there shall be no publication. See Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the United Mexican States for the Promotion and Reciprocal Protection of Investment, signed 12 May 2006 (entry into force 25 July 2007), Article 18(4); Slovakia-Mexico BIT, Article 21(4). 22 See, e.g., Canada-Colombia FTA (2011), Article 830; Canada-Panama FTA, (2013); Canada-Peru FTA (2009), Article 835. Canada-Honduras FTA (not yet in force); United States-Peru Trade Promotion Agreement, (2009) Article 10.21; United States-Colombia Trade Promotion Agreement (May 2012), Article 10.21; United States-Uruguay BIT (2006), Article 29; United States-Chile Free Trade Agree-
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Southern African Development Community (‘SADC’) Protocol on Finance and Investment is silent on the issue.23 20 In Asia, to the extent that one can observe an acceptance of mandatory transparency in investor-state arbitration it is principally because of the significant number of treaties that Asian states have signed with Canada and the United States – as well as more recently the EU, Australia and New Zealand.24 Outside of these treaties, however, Asian states have demonstrated little interest in including significant transparency provisions in their investment treaties.25 Thus, while agreements with Australia, Canada, New Zealand, the US (and now the EU) routinely require broad transparency of investor-state proceedings, the most that Asian treaties with other states have been willing to do is to allow a limited range of disclosure at the election of the state Party. For example, under the 2009 ASEAN Comprehensive Investment Agreement (ACIA), the public disclosure of tribunal awards and other tribunal decisions is permitted, but not required, by the defendant state.26 Recent Japanese treaties contain similar provisions,27 as do the recent treaties signed by India with East Asian states. 28 21 Most recently, Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Viet Nam concluded the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP).29 The CPTPP incorporates by reference the text of the Trans-Pacific Partnership (TPP), originally signed by those states and the United States in 2016,30 and subsequently modified31 in order to account
ment (2004), Article 10.20; Central America-Dominican Republic-United States Free Trade Agreement (2004), Article 10.21. 23 Southern African Development Community (SADC) Protocol on Finance and Investment (2006). The only significant investment agreement in Africa to address issues of transparency is the now moribund Investment Agreement for the Common Market for Eastern and Southern Africa (‘COMESA’) Common Investment Area. The COMESA Investment Agreement contains broadly applicable provisions on all aspects of transparency, including third-party participation. See, e.g., Article 28. Although signed in 2007, the Agreement has not yet come into force and shows no signs of doing so any time soon. 24 See e.g. Taiwan-New Zealand ECA (signed 2013), Article 25 and 27 (mandatory publication of award and arbitral documents, public hearings, amicus participation); Korea-Australia FTA (2014), Article 11.20-11.21 (same); China-Australia FTA (signed 2015), Article 9.17(2); Article 9.16 (mandatory publication of award; publication of other arbitral documents, public hearings at discretion of respondent state; amicus upon agreement of disputing Parties); ASEAN-Australia-New Zealand FTA (2009), Chapter 11, Article 26 (publication of awards at discretion of respondent state; silent on other matters). 25 See Calamita and Zelazna, ‘Transparency in Investor-State Arbitration: Where Does Asia Stand?,’ in Brown and Mohan (eds), The Asian Turn in Foreign Investment (2020). 26 Apparently the claimant investor does not have the same right. The ACIA contains no other provisions with respect to transparency. The approach in the ACIA is mirrored in the AANZFTA. 27 See, e.g., Japan-Mongolia Economic Partnership Agreement (2015) (not yet in force), Article 10.13(19) (disputing state Party may make documents available to the public); Japan-Mozambique BIT (2014), Article 17(12) (same); Japan-Myanmar BIT (2014), Article 18 (same); Japan-Uruguay BIT (2015) (not yet in force), Article 21(18) (same). But see Japan-Mexico Economic Partnership Agreement (2005), Article 94 (either claimant or respondent may publicly disclose documents produced in arbitration). 28 India-Malaysia FTA (2011), Article 10.14 (disputing state Party may publish awards); ASEAN-India Investment Agreement (2014) (not yet in force), Article 20 (same). 29 The final text of the CPTPP is available at https://www.mfat.govt.nz/assets/CPTPP/Comprehe nsive-and-Progressive-Agreement-for-Trans-Pacific-Partnership-CPTPP-English.pdf (hereinafter ‘CPTPP’). 30 CPTPP, Article 1(1). The final text of the TPP as originally signed is available at https://www.mfat. govt.nz/en/about-us/who-we-are/treaties/trans-pacific-partnership-agreement-tpp/text-of-the-trans-pa cific-partnership/ (hereinafter ‘TPP Final Text’). 31 CPTPP, Article 2.
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for the decision of the United States to withdraw from the TPP in 2017. 32 What is noteworthy about the final text of the CPTPP is that it reflects a willingness of the various states, including five Asian states, to agree to compulsory transparency in ISDS modelled largely on the 2012 US Model BIT, even though the United States is no longer a Party to the treaty.33
2. Transparency in arbitral rules In addition to developments in state treaty-making practice, there have been initia- 22 tives to increase transparency and clarify mechanisms for third-party participation through amendments to the arbitral rules most often referenced in investment treaties. In 2006, the ICSID Arbitration Rules were amended in an effort to address concerns about transparency. Although the amendments made modest changes to the treatment of transparency itself,34 they introduced meaningful reform with respect to tribunal control of non-disputing Party participation and amicus applications.35 Far more wide-ranging, however, have been the developments with respect to 23 the UNCITRAL Arbitration rules. Following completion of the 2010 revision of the UNCITRAL rules, UNCITRAL commenced work on the possibility of adopting special rules regarding transparency in treaty-based investor-state arbitration. After three years of work, the UNCITRAL Rules on Transparency in Treaty-based Investor state Arbitration were adopted in 2013.36 The adoption of the Transparency Rules was followed swiftly by the drafting of the Mauritius Convention, which opened for signature in 2015. The Mauritius Convention is an ambitious attempt to provide a platform for these Rules to the entire landscape of investment treaty arbitration.
C. Drafting History The drafting history of Article 8.36 is best understood in terms of (a) the evolution 24 of the EU’s position on transparency and dispute settlement generally; (b) the work of UNCITRAL on developing rules for transparency in treaty-based investor-state arbitration; and (c) the relative consistency of Canada’s position in favour of mandatory rules on ISDS transparency throughout.
32 See Letter from María Pagán, Acting US Trade Representative to Trans-Pacific Partnership Depositary (30 January 2017), available at https://ustr.gov/sites/default/files/files/Press/Releases/1-30-17%20U STR%20Letter%20to%20TPP%20Depositary.pdf. 33 See generally Calamita and Zelazna, ‘Transparency in Investor-State Arbitration: Where Does Asia Stand?’ in Brown and Mohan, The Asian Turn in Foreign Investment (2020). 34 See ICSID Arbitration Rule 48(4): ‘The Centre shall not publish the award without the consent of the Parties. The Centre shall, however, promptly include in its publications excerpts of the legal reasoning of the Tribunal’. The terms of the ICSID Convention limit the degree of transparency which may be required of the Parties short of amending the Convention. See ICSID Convention Article 48(5). 35 See, e.g., ICSID Arbitration Rules 37(2). See Bastin, ‘The Amicus Curiae in Investor-State Arbitration’ (2012) 1 CJCL, 208. 36 UN General Assembly, Resolution 68/109, United Nations Commission on International Trade Law Rules on Transparency in Treaty-based Investor-State Arbitration and Arbitration Rules (16 December 2013). The adoption of the Rules on Transparency was followed by a revision of the UNCITRAL Arbitration Rules in order to expressly incorporate the transparency provisions for the purpose of treaty-based investor-state arbitration.
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I. The Development of the Canadian and EU Negotiating Positions At the time negotiations between Canada and the EU began, the Canadian position on transparency in investor-state dispute settlement was well-settled and well-known. Following its experience under the NAFTA,37 Canada had adopted a new Model Foreign Investment Promotion and Protection Agreement (FIPA) in 2004, which included express provisions on transparency.38 Under this approach, transparency was an a priori requirement in ISDS, not dependent upon the ad hoc agreement of the disputing Parties or acquiescence of the respondent state. It was also a widely inclusive concept of transparency, requiring publication of the notice of arbitration and subsequent pleadings; publication concerning the disposition of the investor-state dispute, including the award, public access to hearings and the opportunity for public participation in the dispute settlement process through amicus curiae submissions. This approach became a cornerstone of Canada’s investment treaty policy, and was adopted in virtually every Canadian investment treaty thereafter. 39 26 On the European side, as noted above, the situation was rather different. At the time of the entry into force of the Treaty of Lisbon in 2009, the more than 1.200 existing investment treaties previously entered into by EU Member States almost uniformly did not contain any provisions requiring transparency in investor-state arbitration. The only exceptions to this consistency were a number of treaties entered into by Baltic and Eastern EU Member States with Canada in 2009–2010. 40 Nevertheless, in 25
37 See NAFTA (1994), Articles 1127, 1128, 1129, 1137(4). See also NAFTA Free Trade Commission, Notes of Interpretation of Certain Chapter Eleven Provisions (31 July 2001) (affirming the commitment of the NAFTA governments to the principle of transparency generally and created a presumption of public disclosure and openness); NAFTA Free Trade Commission, Statement of the Free Trade Commission on Non-disputing Party Participation (7 October 2003) (clarifying the NAFTA tribunals’ discretion to accept third Party submissions); NAFTA Free Trade Commission, 2004 NAFTA Commission Meeting: Joint Statement (16 July 2004) (affirming the NAFTA Parties’ commitment to transparency and welcomed Mexico’s support of open hearings). 38 Canada Model Foreign Investment Promotion and Protection Agreement (2004), Article 38-39, available at https://investmentpolicy.unctad.org/international-investment-agreements/treaty-files/2820 /download. 39 The only departure from this practice was Canada’s investment treaty with China. In that agreement Canada and China agreed only to the mandatory publication of tribunal awards and to acceptance of amicus curiae submissions at the decision of the tribunal. Agreement Between the Government of Canada and the Government of the People's Republic of China for the Promotion and Reciprocal Protection of Investments (2012), Article 29. Unlike other Canadian treaties, public hearings and the publication of pleadings and other documents produced in arbitration were not made mandatory but rather were made dependent upon the agreement of the respondent state, Article 28. 40 The provisions on transparency in these treaties are based upon Canada’s 2004 model bilateral investment treaty, the text of which is included in each with minor alterations. See, e.g, Agreement between the Government of Canada and the Government of the Republic of Latvia for the Promotion and Protection of Investments, signed 5 May 2009 (entry into force 24 November 2011), Annex C; Agreement between Canada and the Slovak Republic for the Promotion and Protection of Investments, signed 20 July 2010 (entry into force 14 March 2012), Annex B; Agreement between Canada and the Czech Republic for the Promotion and Protection of Investments, signed 6 May 2009; Agreement between the Government of Canada and the Government of Romania for the Promotion and Reciprocal Protection of Investments, signed 8 May 2009 (entry into force 23 November 2011), Annex C. Two further exceptions were the 2006 United Kingdom-Mexico BIT and the 2007 Agreement between Mexico and Slovakia on the Promotion and Protection of Investments, both of which contain far more limited provisions on transparency, providing only for the publication of awards unless the disputing Parties agree that there shall be no publication. See Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the United Mexican States for the Promotion and Reciprocal Protection of Investment, signed 12 May 2006 (entry into force 25 July 2007), Article 18(4); Slovakia-Mexico BIT, Article 21(4).
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its initial pronouncements regarding the future direction of EU investment treaties in 2010, the European Commission (‘the Commission’) declared that future EU treaties (whether bilateral investment treaties or investment chapters in free trade agreements) ‘should ensure that investor-state dispute settlement is conducted in a transparent manner (including requests for arbitration, submissions, open hearings, amicus curiae briefs and publication of awards)’.41 That position was echoed by the European Parliament in its 2011 response to the Commission’s Communication in which the Parliament stated its position even more forcefully that ‘changes must be made to the present dispute settlement regime, in order to include greater transparency … [and] the possibility to use amicus curiae briefs’.42 The Commission’s decision to embrace transparency in ISDS was not only at 27 odds with the prior treaty practice of the EU Member States. Beginning in 2010, UNCITRAL Working Group II had begun consideration of transparency in treatybased investor-state arbitration with an eye towards the preparation of a specialised set of rules. In the formal positions submitted by EU Member States to UNCITRAL in the course of the debates in 2010, not a single EU Member State came out in favour of new UNCITRAL rules on transparency. Rather, in those submissions, EU Member States voiced considerable scepticism about the need for transparency in investor-state arbitration or the desirability of making transparency a default norm in investor-state cases in the absence of specific consent from the disputing Parties. 43 Nevertheless, despite these initial protests by Member States, as the business of the Working Group began in earnest it was the European Commission which took the lead, advancing a new ‘European’ position in favour of broad, mandatory transparency.44 Indeed, so involved did the EU become in advancing UNCITRAL’s new rules on transparency that when UNCITRAL released the new rules in 2013, the Commission was quick to make a public statement not only praising the adoption of the rules, but also highlighting the Commission’s participation as an observer in the UNCITRAL debates and its advocacy of robust rules making transparency mandatory.45
II. The Negotiation of CETA Article 8.36 At the time that the CETA negotiations commenced, competence for investment 28 matters had not yet passed to the EU from the Member States. Thus, the earliest negotiating directives from the EU Council to the Commission made no reference
41 European Commission, Note for the attention of the Trade Policy Committee (Services and Investment) (5 June 2012), p. 10. See also European Commission, Follow up to the European Parliament Resolution on the Future European International Investment Policy, 5 July 2011, 5–6. 42 European Parliament, European Parliament Resolution of 6 April 2011 on the future European international investment policy, 2010/2203(INI), para. 31. 43 For examples of the negative comments submitted by EU Member States see, e.g., United Nations Commission on International Trade Law, Working Group II, Settlement of commercial disputes: Transparency in treaty-based investor-State arbitration - Compilation of comments by Governments, 53rd session, 4–8 October 2010, A/CN.9/WG.II/WP.159/Add.2, 5–6 (comments of France), 7 (comments of Germany), 8 (comments of Greece). 44 See, e.g., United Nations Commission on International Trade Law, Working Group II, Sound Recordings of the Meetings, www.uncitral.org/uncitral/audio/meetings.jsp. 45 See European Commission, Press Release, EU Backs New Transparency Standards for Investor-State Dispute Settlement, (11 February 2013), available at https://trade.ec.europa.eu/doclib/press/index.cfm?a ction=section§ionid=184.
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to investment or ISDS.46 Following the coming into force of the Lisbon Treaty in December 2009, however, negotiations between Canada and the EU began to address informally the possibility of an investment chapter, including provision for ISDS, even though the Commission had not yet received its mandate from the EU Council to negotiate on those subjects. The draft consolidated negotiating text put forward by Canada on 13 January 2010, contained proposed text on investment protection and ISDS, including provisions on the transparency of proceedings.47 Draft Article X.27 addressed ‘public access to hearings and documents’, advancing text based upon Canada’s 2004 Model FIPA. 48 Similarly, draft Article X.28 addressed the possibility of third Party submissions, granting the tribunal authority to consider and accept submissions from third Parties having ‘a significant interest in the arbitration’. Unlike the analogous provision in Canada’s 2004 Model FIPA, however, draft Article X.28 did not include detailed procedural provisions to govern the process for third Party submissions.49 Rather, the draft text suggested that those details would be contained in an annex. 50 Canada’s draft text one year later, in January 2011, contained identical text regarding the transparency of arbitral proceedings.51 Again, at this point, the Commission had still not received a formal mandate from the Council to negotiate with Canada on investment. Such formal direction came through in July 2011, when the Council modified the negotiating directives for CETA to include ‘investment protection’. While the July 2011 directive noted that the Commission should seek an agreement providing ‘for an effective and state-of-the-art investor-to-state dispute settlement mechanism’, the transparency of proceedings under that mechanism were not addressed. 52 The negotiating text on ISDS, including transparency, did not immediately change following the issuance of the Commission’s mandate to commence formal negotiations with Canada on investment. Rather, the originally proposed Canadian text continued to serve as a placeholder while the EU considered internally how investordispute dispute settlement would be treated in EU agreements going forward. 53 It seems clear that on the issue of transparency, the EU’s considerations were strongly influenced by UNCITRAL’s ongoing work on its Rules on Transparency. As noted above, already by 2011 the Commission had taken the lead in Working Group II from the EU Member States, advancing the development of comprehensive, mandatory rules on transparency in treaty-based investor-state arbitration. In June 2012, the Commission developed an internally circulated model text on ISDS ‘to be used as a basis for the upcoming negotiations with Canada, India and Singapore’.54 In that model, the EU addressed the transparency of ISDS in an annex in which it transcribed ‘almost word for word the draft UNCITRAL text on transparen46 Council of the European Union, Recommendation from the Commission to the Council in order to authorize the Commission to open negotiations for an Economic Integration Agreement with Canada (24 April 2009) (providing the negotiating directives for the Commission). 47 Draft consolidated CETA text, Canadian text (13 January 2010). 48 Compare with Canada 2004 Model FIPA, Article 38. 49 Compare with Canada 2004 Model FIPA, Article 39. 50 Draft consolidated CETA text, Canadian text (13 January 2010), Article X.28(2). 51 See ‘Draft consolidated CETA text’, Canadian text (January 2011), Article X.27 and X.28. 52 Council of the European Union, Recommendation from the Commission to the Council on the modification of the negotiating directives for an Economic Integration Agreement with Canada in order to authorize the Commission to negotiate, on behalf of the Union, on investment (14 July 2011) (providing the negotiating directives on investment for the Commission). 53 See ‘Draft Consolidated Text-December Intersessional’ (February 2012), Article X.27 and X.28. 54 European Commission, Note for the attention of the Trade Policy Committee (Services and Investment) (5 June 2012), p. 2 [hereinafter, ‘Commission Note on ISDS Model Text’].
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cy’.55 Given the ongoing development of the UNCITRAL Rules on Transparency, the EU’s model provided that the provisions on transparency contained in the annex ‘may be replaced by the UNCITRAL Rules on Transparency on Investor to State Dispute Settlement or other rules on transparency’ upon a decision of the treaty Parties. 56 As explained by the Commission in its internal commentary on the article: ‘Since the rules on transparency are still under negotiation, provision needs to be made to replace the rules on transparency [in the draft model] depending on developments in UNCITRAL’.57 Notwithstanding the Commission’s recognition that the details of the transparency rules in its model text might be subject to future modification, the Commission made clear to the Council that in its view ‘[t]he inclusion of effective rules on transparency [in future EU treaties] is unavoidable’.58 Following discussions between Canada and the EU on 15 November 2013, a con- 33 solidated draft text on ISDS emerged.59 This draft abandoned the prior reliance on the structure and text of Canada’s 2004 Model FIPA. Instead, similar to the draft model text that the Commission had developed internally in the summer of 2012, transparency was moved to an annex.60 The provisions in the annex closely followed Articles 2-4 and 6-8 of the then recently concluded UNCITRAL Rules on Transparency.61 Text from Articles 1 and 5 of the Rules on Transparency were not adopted. 62 55 ‘Commentary on draft indicative text of investor-to-state dispute settlement’, Article 11 (attached to Commission Note on ISDS Model Text). 56 ‘Draft indicative text of investor-to-state dispute settlement’, Article 11 (attached to Commission Note on ISDS Model Text). 57 ‘Commentary on draft indicative text of investor-to-state dispute settlement’, Article 11 (attached to Commission Note on ISDS Model Text). 58 Commission Note on ISDS Model Text, at p. 2. The reason for the Commission’s view that transparency provisions in future EU treaties were ‘unavoidable’ may have been based on the importance placed upon transparency in ISDS within the European Parliament. At the time CETA was being negotiated, the constitutional rules in the EU had changed dramatically with respect to the formulation of the common commercial policy and the making of treaties on the subject. See Treaty on the Functioning of the European Union (consolidated version), Official Journal C 115, 9 May 2008, 47, Article 207(1). Following the Lisbon Treaty, European Council assent to the EU’s treaties was no longer sufficient for ratification. Now, parliamentary approval of treaties involving the common commercial policy became a requirement as well. See Treaty on the Functioning of the European Union, Article 218(6)(b). Moreover, the European Parliament’s role was not limited to the ratification stage. Rather, the Lisbon Treaty established the Council and the Parliament as equals in defining the framework for implementing the common commercial policy by, among other things, concluding treaties. See Treaty on the Functioning of the European Union Article 207(2). As noted above, the European Parliament made clear in an early stage of the development of the EU’s investment treaty policy that ‘changes must be made to the present dispute settlement regime, in order to include greater transparency … [and] the possibility to use amicus curiae briefs’. See European Parliament, European Parliament Resolution of 6 April 2011 on the future European international investment policy, 2010/2203(INI), para. 31. Thus, while some members of the Council may have been sceptical about the inclusion of transparency provisions, as evidenced by the positions they had taken early on in the UNCITRAL process, see Council of the European Union, Recommendation from the Commission to the Council on the modification of the negotiating directives for an Economic Integration Agreement with Canada in order to authorize the Commission to negotiate, on behalf of the Union, on investment (14 July 2011), see supra n. 43, the Commission seems to have recognised that Parliament’s role in the conclusion of any treaty it might negotiation made ‘the inclusion of effective rules on transparency’, as the Commission advised the Council, ‘unavoidable’. 59 Canada and EU draft consolidated text on ISDS (15 November 2013). 60 Canada and EU draft consolidated text on ISDS (15 November 2013), Annex I, pp. 18-22. 61 Canada and EU draft consolidated text on ISDS (15 November 2013), Annex I, Articles 1-7, 18-22. 62 It may have been that the Parties did not think it necessary to include Articles 1 and 5, given the structure and character of their treaty. As discussed below, Article 1 of the Transparency Rules concerns a number of matters addressed to the applicability of the Rules that it might not have been thought necessary to address in the context of their incorporation into a specific treaty like CETA, e.g.,
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In February 2014, Canada and the EU again exchanged ‘without prejudice’ draft texts on ISDS.63 The draft Canadian text proposed an article in the investment chapter’s main body that would indicate that ‘the provisions in Annex I on “Rules of Transparency”’ would apply to the disclosure of information concerning investorstate disputes.64 The EU, however, proposed a text which abandoned the approach of having an annex on transparency. Rather, with the UNCITRAL Transparency Rules now finalised, the EU proposed treating transparency in the investment chapter’s main body via an article stating that the Transparency Rules as such would apply to investor-state disputes arising under the CETA with certain modifications.65 This EU text would eventually develop into CETA Article 8.36. 35 By August 2014, the text of what would be Article 8.36 had come into shape: the UNCITRAL Transparency Rules would apply to investor-state disputes arising under the CETA as modified in the chapter on investment.66 Although the Parties would make a number of minor tweaks to the article in the course of their ‘legal scrub’ of the investment chapter, the substantive content of the article would not change. 67 34
the scope of the Rules’ application to investment treaty disputes arising under different treaties; default rules on the non-derogability of the Rules; and their applicability in cases of conflict between them and any other arbitral rules. That said, Article 1(3)(b) and Article 1(4) of the Rules concern the manner in which an arbitral tribunal should exercise its discretion in applying the Rules in a given case, a matter that would still have been applicable in the CETA context. Text from Article 5 likely was not included as it addresses the participation of non-disputing state Parties in arbitration, a matter which Canada and the EU treated in a separate article of the investment chapter. See CETA Article 8.38. 63 Canada and EU draft consolidated text on ISDS (4 February 2014). 64 Canada and EU draft consolidated text on ISDS (4 February 2014), Article X-18 (proposed Canadian text), p. 13. 65 Canada and EU draft consolidated text on ISDS (4 February 2014), Article X-18, pp. 13-14. 66 CETA Consolidated Text, Article X.33(1) (1 August 2014). 67 As contained in the August 2014 consolidated text, Article X.33 provided: ‘1. The UNCITRAL Transparency Rules shall apply to the disclosure of information to the public concerning disputes under this Section as modified by this Chapter. 2. The request for consultations, the notice requesting a determination of the respondent, the notice of determination of the respondent, the agreement to mediate, the notice of intent to challenge, the decision on an arbitrator challenge and the request for consolidation shall be included in the list of documents referred to in Article 3(1) of the UNCITRAL Transparency Rules. 3. Exhibits shall be included in the list of documents mentioned in Article 3(2) of the UNCITRAL Transparency Rules. 4. Notwithstanding Article 2 of the UNCITRAL Transparency Rules, prior to the constitution of the tribunal, Canada or the European Union as the case may be shall make publicly available in a timely manner relevant documents pursuant to paragraph 2, subject to the redaction of confidential or protected information. Such documents may be made publicly available by communication to the repository. 5. Hearings shall be open to the public. The tribunal shall determine, in consultation with the disputing parties, the appropriate logistical arrangements to facilitate public access to such hearings. Where the tribunal determines that there is a need to protect confidential or protected information, it shall make the appropriate arrangements to hold in private that part of the hearing requiring such protection. 6. Nothing in this Chapter requires a respondent to withhold from the public information required to be disclosed by its laws. The respondent should endeavour to apply such laws in a manner sensitive to protecting from disclosure information that has been designated as confidential or protected information.’ See also Consolidated CETA Text (26 September 2014) (no changes).
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D. Commentary Article 8.36 provides that the UNCITRAL Transparency Rules, ‘as modified by this 36 Chapter’ shall apply to investor-state dispute settlement proceedings under CETA. 68 This section provides an overview of the content of the Transparency Rules and modifications made in CETA.
I. Scope of application (UNCITRAL Transparency Rules, Article 1) Article 1 of the UNCITRAL Transparency Rules addresses the applicability and application of the Rules, as well as the discretion and authority of the arbitral tribunal. Article 8.36 is silent with respect to the application of Article 1 under CETA. Article 1(1)-(2) contain default rules with regard to the applicability of the Transparency Rules to particular disputes. Article 1(1) addresses the default applicability of the Rules to disputes initiated under the UNCITRAL Rules pursuant to an investment treaty concluded on or after 1 April 2014. Article 1(2) concerns the applicability of the Rules to disputes initiated under the UNCITRAL Rules pursuant to an investment treaty concluded prior to that date. Given the express adoption of the Transparency Rules in Article 8.36(1), the relevance of Article 1(1)-(2) to CETA is limited. 69 Neither of these provisions are applicable in the case of CETA where the Parties have expressly adopted the Transparency Rules in their treaty text, subject to their own modifications. More relevant in this regard is Article 1(9) which clarifies that the Transparency Rules are available for use in investor-state arbitration initiated under rules other than the UNCITRAL Arbitration Rules, which is what Canada and the EU have chosen to do in CETA. Article 1(3) addresses the application of the Transparency Rules in a given dispute. Article 1(3)(a) makes clear that the Parties to an investment treaty dispute may not derogate from the Transparency Rules by agreement or otherwise, unless they are permitted to do so by the treaty through which the Transparency Rules apply. CETA contains no provisions which would permit the disputing Parties to derogate from the Transparency Rules as adopted in Article 8.36. Article 1(3)(b) addresses the application of the Transparency Rules by the arbitral tribunal. Article 1(3)(b) notes that besides its discretionary authority under certain provisions of the Rules, the tribunal shall also have the power to adapt the requirements of any of the Transparency Rules to the particular circumstances of the case, following consultation with the disputing parties, if the adaptation ‘is necessary to conduct the arbitration in a practical manner and is consistent with the transparency objectives of these Rules’. Article 1(4) concerns the tribunal’s exercise of discretion in situations in which it is granted discretionary authority under certain provisions of the Rules. In such situations, Article 1(4) provides that the tribunal must take into account the ‘public interest in transparency’ in investor-state arbitration generally and in the particular
68 CETA Article 8.36(1). The language in full is: ‘The UNCITRAL Transparency Rules, as modified by this Chapter, shall apply in connection with proceedings under this Section.’ This phrasing is a minor change from the 2014 Consolidated Text. 69 Article 1(1) contains a footnote clarifying that ‘[f]or the purposes of the Rules on Transparency, any reference to a “Party to the treaty” or a “State” includes, for example, a regional economic integration organization where it is a Party to the treaty’, UNCITRAL Transparency Rules, Article 1(1).
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dispute, as well as the ‘disputing parties’ interest in a fair and efficient resolution of their dispute. 42 Article 1(5) addresses the relationship between authority granted to the tribunal under the UNCITRAL Arbitration Rules and the Transparency Rules themselves, noting that the latter shall not affect the powers of the tribunal under the former ‘to conduct the arbitration in such a manner as to promote transparency’. Article 1(6) is a catch-all provision, empowering the tribunal to take such steps as may be necessary to ensure that the transparency objectives of the Rules prevail where there is ‘any conduct, measure or other action’ having the effect of ‘wholly undermining the transparency objectives of these Rules’. 43 Article 1(7) provides rules on the interaction of the Transparency Rules with other arbitral rules and with the treaty pursuant to which the Transparency Rules apply. Article 1(7) indicates that the Transparency Rules are meant to supplement other applicable arbitration rules, but makes clear that ‘where there is a conflict’ between the Transparency Rules and any other arbitration rules, ‘the Rules on Transparency shall prevail’. Article 1(7) further notes, however, that ‘where there is a conflict between the Rules on Transparency and the treaty [through which they are applicable], the provisions of the treaty shall prevail’. Thus, Article 1(7) expressly clarifies that where there is any conflict between CETA Article 8.36 and the Transparency Rules, the provisions of Article 8.36 will apply. 44 Finally, Article 1(8) addresses the relationship between the Transparency Rules and with other provisions of law applicable to the dispute. Under Article 1(8), where any of the Transparency Rules conflict with a provision of law applicable to the arbitration from which the Parties cannot derogate, the provision of the applicable law shall prevail.
II. Publication of Information at the Commencement of Arbitral Proceedings (UNCITRAL Transparency Rules, Article 2) Under Article 2 of the UNCITRAL Transparency Rules, upon receipt of the notice of arbitration by the respondent, each of the disputing Parties must ‘promptly communicate’ a copy of the notice to the repository selected in Article 8 of the Rules: the UNCITRAL Secretariat.70 Upon receipt of the notice of arbitration from the respondent, the repository is required to ‘promptly make available’ to the public the names of the disputing Parties, the economic sector involved in the dispute and the identity of the treaty under which the claim is made.71 46 CETA Article 8.36(4) expands the scope of documents and information that must be made publicly available at the earliest stages of the proceedings. Article 8.36(4) requires that ‘Notwithstanding Article 2 of the UNCITRAL Transparency Rules, prior to the constitution of the Tribunal, Canada or the European Union as the case may be shall make publicly available in a timely manner relevant documents pursuant to paragraph 2, subject to the redaction of confidential or protected information’. 72 Thus, prior to the constitution of the Tribunal, the respondent must make public, via communication to the repository, the following documents if they are present in the case: ‘[t]he request for consultations, the notice requesting a determination of the respondent, the notice of determination of the respondent, the agreement to mediate, 45
UNCITRAL Transparency Rules, Article 2 and Article 8. UNCITRAL Transparency Rules, Article 2. 72 CETA Article 8.36(4) (emphasis added). 70
71
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the notice of intent to challenge a Member of the Tribunal, the decision on challenge to a Member of the Tribunal and the request for consolidation. . . ’. 73 It may seem notable that the notice of arbitration is not included among the docu- 47 ments listed in Article 8.36(2) that must be made publicly available before constitution of the tribunal pursuant to Article 8.36(4). This is likely because publication of the notice of arbitration through the repository is already addressed in Article 3 of the Transparency Rules, under which the arbitral tribunal is required to communicate, inter alia, the notice of arbitration to the repository ‘as soon as possible’ for publication by the repository ‘in a timely manner’. Moreover, the phrasing of Article 8.36(4) should not be understood to remove the 48 obligation under Article 2 of the UNCITRAL Transparency Rules for the disputing Parties to ‘promptly communicate’ a copy of the notice to the repository 74 or for the repository to ‘promptly make available’ to the public the names of the disputing Parties, the economic sector involved in the dispute and the identity of the treaty under which the claim is made. Rather, Article 8.36(4) should be understood as expanding the scope of required disclosure, not eliminating the disclosure otherwise required under Article 2.
III. Publication of Documents (UNCITRAL Transparency Rules, Article 3) Article 3 of the UNCITRAL Transparency Rules requires that documents produced 49 throughout the course of arbitration must be communicated to the repository ‘as soon as possible’ for publication by the repository ‘in a timely manner’. The obligations of Article 3 are subject to certain exceptions set out in Article 7. 50 Identified in Article 3(1) for mandatory publication are: (a) (b) (c) (d) (e)
the notice of arbitration; the response to the notice of arbitration; the statement of claim; the statement of defence (and any further written submissions); a table listing all exhibits to any written submission as well as to expert reports and witness statements, if such a table has been prepared for the proceedings (but not the exhibits themselves); (f) any written submissions filed by third parties or non-disputing parties; (g) transcripts of hearings, where available; and (h) orders, decisions and awards of the arbitral tribunal.75 As noted above, CETA Article 8.36 expands the list of documents that must be 51 made public under Article 3(1). Article 8.36(2) adds the following to the list: (a) (b) (c) (d) (e)
the request for consultations; the notice requesting a determination of the respondent; the notice of determination of the respondent; the agreement to mediate; the notice of intent to challenge a Member of the Tribunal;
CETA Article 8.36(2). UNCITRAL Transparency Rules, Article 2. See also CETA, Article 8. 75 UNCITRAL Transparency Rules, Article 3(1). The cost for making these documents available to the public through the repository is borne by the parties. UNCITRAL Transparency Rules, Article 3(5). 73 74
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(f) the decision on challenge to a Member of the Tribunal; and (g) the request for consolidation.76 52
Expert reports and witness statements are not included in Article 3(1)’s list of documents subject to mandatory disclosure. Article 3(2), however, provides that these documents shall be made available upon request by any person to the arbitral tribunal.77 In its original text, Article 3(2) does not require the disclosure of the exhibits attached to expert reports and witness statements. CETA Article 8.36(3) modifies this rule and includes exhibits as among those documents ‘to be made available to the public under Article 3(2) of the UNICTRAL Transparency Rules’.78
IV. Submission by a Third Person (UNCITRAL Transparency Rules, Article 4) The UNCITRAL Transparency Rules make provision for the participation of both third persons in investor-state arbitrations. For the purposes of the transparency rules, ‘third persons’ refers to ‘a person that is not a disputing party, and not a non-disputing Party to the treaty’.79 54 Submissions by ‘third persons’ are addressed in Article 4. Under Article 4, the tribunal is given discretion to accept submissions by third persons, after consulting with the disputing Parties, ‘regarding a matter within the scope of the dispute’. 80 Applications for participation must be made in writing to the tribunal and must include a description of the third person (including its legal status, general objectives, nature of its activities and any parent organization),81 disclose any connection, direct or indirect, which the third person has with any disputing Party, 82 provide information concerning any financial or other assistance received by the third Party in preparing the submission or any substantial assistance received by the third person in either of the two years preceding the submission,83 describe the nature of the interest the third person has in the arbitration84 and identify the specific issues of fact or law in the arbitration on which the third person intends to make its submission.85 55 As with applications for participation on matters beyond interpretation by non-disputing Parties to the treaty, in determining whether to grant an application by a third person, Article 4 requires the tribunal to take into account whether the third person has a significant interest in the arbitral proceedings and the extent to which it believes the submission will assist the arbitral tribunal in deciding the claims before it. 86 In addition, Article 4 further requires that the tribunal ensures that ‘any submission 53
CETA Article 8.36(2). UNCITRAL Transparency Rules, Article 3(2). The cost of making expert reports and witness statements available is to be borne by the person granted access to those documents. UNCITRAL Transparency Rules, Article 3(5). 78 CETA Article 8.36(3). 79 UNCITRAL Transparency Rules, Article 4(1). See also Transparency Rules, Article 5 (describing the procedure for participation by a ‘non-disputing Party to the treaty’). 80 UNCITRAL Transparency Rules, Article 4(1). 81 UNCITRAL Transparency Rules, Article 4(2)(a). 82 UNCITRAL Transparency Rules, Article 4(2)(b). 83 UNCITRAL Transparency Rules, Article 4(2)(c). 84 UNCITRAL Transparency Rules, Article 4(2)(d). 85 UNCITRAL Transparency Rules, Article 4(2)(e). 86 UNCITRAL Transparency Rules, Article 4(3). 76 77
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does not disrupt or unduly burden the arbitral proceedings, or unfairly prejudice any disputing party’.87
V. Submission by a Non-Disputing Party to the Treaty (UNCITRAL Transparency Rules, Article 5) Submissions by non-disputing Parties to the treaty are addressed in Article 5 of the 56 UNCITRAL Transparency Rules. CETA, however, does not follow the Transparency Rules in this respect. Rather, Article 8.38 contains a specialised set of rules for nondisputing Party submissions under CETA. This is consistent with the general directive noted in Article 8.36(1) that the Transparency Rules apply to CETA only ‘as modified by this Chapter’.
VI. Hearings (UNCITRAL Transparency Rules, Article 6) The UNCITRAL Transparency Rules also address public access to arbitral hearings. 57 Under Article 6, ‘hearings for the presentation of evidence or for oral argument shall be public’. As with the provisions addressing publication of documents, the obligation in Article 6 is subject to certain exceptions set forth in Article 7. CETA Article 8.36(5) makes several modifications to the obligations in Article 6, 58 which broaden the transparency obligations of that article. Thus, rather than limiting public access to ‘hearings for the presentation of evidence or for oral argument’, Article 8.36(5) provides that hearings are to be open to the public generally without limitation. Further, whereas Article 6 of the UNCITRAL Transparency Rules indicates that the tribunal shall make the logistical arrangements for granting public access, Article 8.36(5) requires that the logistical arrangements shall be made ‘in consultation with the disputing parties’. A further, significant difference between CETA and the UNCITRAL Transparency 59 Rules is with respect to the situations under which public access to hearings may be curtailed. Article 6 of the UNCITRAL Transparency Rules provides that the tribunal may, after consulting with the disputing Parties, decide to hold all or part of the hearing in private where it is necessary either for logistical reasons (Article 6(3)), to protect confidential information (Article 6(2)), or to protect ‘the integrity of the arbitral process’ (Article 6(2)). CETA Article 8.36(5) limits these grounds. Under Article 8.36(5), the only identified ground on which it is permissible to limit public access is where it is necessary to protect confidential or protected information. Thus, the need to protect ‘the integrity of the arbitral process’ is not an identified ground for limiting public access to a hearing under Article 8.36(5).88 Nor are logistical reasons. Finally, it is clear that under Article 8.36(5), even where there is a legitimate ground for limiting public access, only that ‘part of ’ the hearing dealing with confidential or protected information may be held in private. Article 8.36(5) does not contemplate the possibility that all of a hearing may be held in private. 87 UNCITRAL Transparency Rules, Article 4(5) see also Article 4(6) (requiring that the tribunal ensure that the disputing Parties are given a ‘reasonable opportunity to present their observations on any submission’). 88 Note that the integrity of the arbitral proceedings continues to be a potential ground for limiting the disclosure of information under Article 7(6)-(7) of the UNCITRAL Transparency Rules.
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VII. Exceptions to Transparency (UNCITRAL Transparency Rules, Article 7) Article 7 sets out three principal exceptions to the obligations of transparency created in the UNICTRAL Transparency rules: non-disclosure of ‘confidential or protected information’,89 non-disclosure of information which a respondent state ‘considers to be contrary to its essential security interests’90 and non-disclosure in order to protect ‘the integrity of the arbitral process’.91 61 ‘Confidential or protected information’ is defined under Article 7 to consist of: (a) confidential business information, (b) information protected from disclosure under the relevant investment treaty, (c) information protected from disclosure by law, (d) information the disclosure of which would impede law enforcement. 92 In applying Article 7, the arbitral tribunal is expressly granted the discretion to determine the mechanisms for protected disclosure of confidential or protected information. 93 62 Article 7(6) addresses non-disclosure ‘where the information, if made available to the public, would jeopardize the integrity of the arbitral process’. Article 7(7) makes clear that this is meant to be limited to ‘exceptional’ grounds for non-disclosure. Thus, Article 7(7) identifies the circumstances under which non-disclosure may be permissible under this ground as being ‘where such publication would jeopardize the integrity of the arbitral process because it could hamper the collection or production of evidence, lead to the intimidation of witnesses, lawyers acting for disputing parties or members of the arbitral tribunal or in comparably exceptional circumstances’.94 This exception, it should be noted, is considerably more restricted than the approach taken by the tribunal in Biwater Gauff v. Tanzania. In that case, although the tribunal acknowledged as an initial matter that nothing in the ICSID rules ‘expressly provides for the confidentiality of pleadings, documents or other information submitted by the parties during the arbitration’,95 it went on to effectively prohibit the disclosure of any documents (except the award and the instant procedural order) on the grounds that disclosure in and of itself might threaten the integrity of the proceedings or aggravate or exacerbate the dispute.96 Such an approach would be inappropriate under the new UNCITRAL Transparency Rules given the express provisions noted above for routinely making such (and even more extensive) disclosures. 63 Article 8.36(6) adds a further provision regarding the withholding of information from public disclosure. It clarifies that ‘[n]othing in this Chapter requires a respondent to withhold from the public information required to be disclosed by its laws’. Article 8.36(6) notes further, however, that the respondent ‘should apply those laws in 60
UNCITRAL Transparency Rules, Article 7(1). UNCITRAL Transparency Rules, Article 7(5). 91 UNCITRAL Transparency Rules, Article 7(6). 92 UNCITRAL Transparency Rules, Article 7(2). 93 UNCITRAL Transparency Rules, Article 7(3)-(4). 94 UNCITRAL Transparency Rules, Article 7(7). 95 See Biwater Gauff (Tanzania) Ltd. v. Tanzania, ICSID Case No. ARB/05/22, Procedural Order No. 3 (29 September 2006), para. 125. 96 Biwater Gauff (Tanzania) Ltd. v. Tanzania, ICSID Case No. ARB/05/22, Procedural Order No. 3 (29 September 2006), paras. 151-63 (prohibiting e.g., either Party from disclosing ‘the minutes or record of any hearings; any of the documents produced in the arbitral proceedings by the opposing party, whether pursuant to a disclosure exercise or otherwise; any of the Pleadings or Written Memorials (and any attached witness statements or expert reports); and any correspondence between the parties and/or the Arbitral Tribunal exchanged in respect of the arbitral proceedings’). 89 90
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a manner sensitive to protecting from disclosure information that has been designated as confidential or protected information’.
VIII. Repository of Published Information (UNCITRAL Transparency Rules, Article 8) CETA Article 8.36 leaves Article 8 of the UNCITRAL Transparency Rules un- 64 changed. Consequently, the repository of published information under CETA Article 8.36 is ‘the Secretary-General of the United Nations or an institution named by UNCITRAL’.
E. Conclusion Article 8.36 represents the most far-reaching commitment to dispute settlement 65 transparency in investment treaty making history, going beyond the levels of transparency pioneered in the NAFTA and, indeed, even in the UNCITRAL Transparency Rules.97 For Canada, the adoption of Article 8.36 represents a continuation of its longstanding policy of ensuring dispute settlement transparency. For the EU, however, it is nothing short of revolutionary. Prior to CETA, compulsory transparency in investor-state arbitration was essentially non-existent in the practice of European states. With CETA, and the EU’s subsequent investment agreements, the EU has firmly broken with the past practice of its member states and, in a stroke, identified itself as a leading voice in favour of comprehensive transparency. The adoption of Article 8.36 further suggests the power of public sentiment in 66 shaping investment treaty policy, especially in liberal democracies. Given the nature of the disputes arising in investment treaty arbitration, concerns about government accountability and the rule of law demand transparency and a public right to know. In the end, such transparency may contribute to the legitimacy of the investment treaty regime, even as it also serves as a catalyst for the regime’s more fundamental transformation.
97 Together with the similar provisions found in the EU’s other investment treaties. See EU-Singapore IPPA, Annex 8; EU-Viet Nam IPPA, Article 3.46.
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Article 8.37 Information sharing 1. A disputing party may disclose to other persons in connection with the proceedings, including witnesses and experts, such unredacted documents as it considers necessary in the course of proceedings under this Section. However, the disputing party shall ensure that those persons protect the confidential or protected information contained in those documents. 2. This Agreement does not prevent a respondent from disclosing to officials of, as applicable, the European Union, Member States of the European Union and sub-national governments, such unredacted documents as it considers necessary in the course of proceedings under this Section. However, the respondent shall ensure that those officials protect the confidential or protected information contained in those documents. Reference to the Respective Provisions in Other EU Treaties: EU-Vietnam IPA, Article 3.46(8).1 A. Introduction and Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
B. Spirit and Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3
C. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5
D. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. Article 8.37(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Article 8.37(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11 11 13
E. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15
A. Introduction and Overview Article 8.37 establishes rules governing the sharing of confidential or protected information in the course of proceedings. Unlike Article 8.36, Article 8.37 does not have a foundation in the UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration (2014). Instead, it traces its origins to the practice of the Parties to the North American Free Trade Agreement. 2 This chapter proceeds as follows. Part B addresses the Spirit and Purpose of Article 8.37. Part C chronicles the drafting history of Article 8.37. Part D outlines the operation of the article. 1
B. Spirit and Purpose Article 8.37(1) establishes rules which facilitate the ability of a disputing Party to put forward its case by allowing a disputant to share unredacted versions of documents containing confidential or protected information with ‘other persons in connection with the proceedings’, such as experts and witnesses, ‘as it considers necessary in the course of proceedings’. 4 Article 8.37(2) is addressed specifically to the right of respondents, whether the EU, an EU Member State, or Canada to share unredacted versions of documents containing confidential or protected information with officials of relevant government units 3
1
There is no analogous provision in the EU-Singapore IPA.
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‘as it considers necessary in the course of proceedings’ under the investor-state dispute settlement section of CETA. Article 8.37(2) serves two purposes under the treaty. First, like Article 8.37(1), it facilitates the ability of a respondent to put forward its case by allowing the respondent to share unredacted versions of documents containing confidential or protected information within government ‘as it considers necessary’. Second, it addresses constitutional imperatives for the EU regarding disclosure and coordination between the EU and its Members with respect to ISDS. 2
C. Drafting History The text of Article 8.37 has its roots in the NAFTA Free Trade Commission’s 2001 5 ‘Notes of Interpretation of Certain Chapter 11 Provisions’.3 Reacting to issues arising in certain early arbitrations under the NAFTA, the Notes of Interpretation addressed, inter alia, the access to documents in the course of arbitration. In pertinent part, the Notes of Interpretation provide: i.
The Parties reaffirm that disputing parties may disclose to other persons in connection with the arbitral proceedings such unredacted documents as they consider necessary for the preparation of their cases, but they shall ensure that those persons protect the confidential information in such documents. ii. The Parties further reaffirm that the Governments of Canada, the United Mexican States and the United States of America may share with officials of their respective federal state or provincial governments all relevant documents in the course of dispute settlement under Chapter Eleven of NAFTA, including confidential information.
Canada included a similar text in Article 38(5)-(6) of its 2004 Model Foreign 6 Investment Promotion and Protection Agreement (FIPA). 4 Although formal negotiation of investment disciplines and investor-state dispute 7 settlement (‘ISDS’) in CETA did not begin until mid-2011, 5 prior to that time Canada and the EU had discussed informally the possibility of including an investment chapter in CETA. To that end, Canada shared several drafts with the EU in 2010 and 2011, based upon its 2004 Model FIPA. Those drafts included language based on Article 38(5)-(6) of the Canadian Model, addressing the sharing of confidential information within government and with other persons.6 2 See, e.g., Regulation (EU) No 912/2014 of the European Parliament and of the Council establishing a framework for managing financial responsibility linked to investor-to-state dispute settlement tribunals established by international agreements to which the European Union is Party (23 July 2014). Under this Regulation, the EU and its Member States have reciprocal obligations to share relevant documents related to an investor-state proceeding depending upon whether the EU or a Member State is the named respondent. See Article 10(a) and Article 11(c). 3 ‘Notes of Interpretation of Certain Chapter 11 Provisions’ (NAFTA Free Trade Commission, 31 July 2001). 4 Canada Model Foreign Investment Promotion and Protection Agreement (2004), available at https:/ /investmentpolicy.unctad.org/international-investment-agreements/treaty-files/2820/download. 5 Council of the EU, Recommendation from the Commission to the Council on the modification of the negotiating directives for an Economic Integration Agreement with Canada in order to authorize the Commission to negotiate, on behalf of the Union, on investment (14 July 2011) (providing the negotiating directives on investment for the Commission). 6 See Draft consolidated CETA text, Canadian text (13 January 2010), Article X.27(3)-(4); ‘Draft consolidated CETA text’, Canadian text (January 2011), Article X.27(3)-(4); ‘Draft Consolidated TextDecember Intersessional’ (February 2012), Article X.27(3)-(4).
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Following the commencement of formal negotiations on investment disciplines and ISDS in CETA, the Commission developed an internally circulated model text on ISDS ‘to be used as a basis for the upcoming negotiations with Canada, India and Singapore’.7 In that model, developed in 2012, the EU adopted an approach to the transparency of ISDS based ‘almost word for word the draft UNCITRAL text on transparency’.8 Accordingly, as the UNCITRAL text on transparency then under discussion contained no provisions addressing the sharing of confidential information within government and with other persons, the EU’s model text on ISDS did not either. 9 Nor were such rules included in the consolidated text produced ‘without prejudice’ following discussions between Canada and the EU on 15 November 2013. 10 9 Language addressing the sharing of confidential or protected information reappeared in the 4 February 2014 ‘without prejudice’ draft.11 The February 2014 draft reflected a virtual agreement between Canada and the EU on the formulation and content of the text that would become CETA Article 8.37. Only two outstanding issues remained between the Parties. First, Canada and the EU had not yet finally agreed on the title for the article. ‘Sharing of information’ – the eventually agreed title – was noted as having been ‘provisionally agreed but subject to further examination’. Second, there was disagreement as to the phrasing of the beginning of subsection (2) of the article. In Canada’s view, the right of respondents to share information should be stated directly and plainly in subsection (2): ‘A respondent may disclose to officials …’. The EU proposal, however, was that the subsection should begin ‘For greater certainty, a respondent may disclose to officials’, apparently to emphasize the Parties’ view that even without subsection (2) the disclosure of such information to government officials would be permitted. 10 The consolidated text produced in August 2014 adopted neither phrasing. Instead the beginning of Article 8.37(2) was recast in the negative: ‘Nothing in this agreement shall be construed to prevent a respondent from disclosing to officials’, a compromise formulation which similarly emphasized the Parties’ view that it would be permissible to disclose confidential information within government regardless of Article 8.37(2). 12 Following the legal scrub of the CETA text, however, the language of Article 8.37(2) changed once again to reflect its final wording, stating – still in the negative – that ‘This Agreement does not prevent a respondent from disclosing to officials’. Although a slightly different formulation, this final text continues to reflect the Parties’ view that sharing information within government is an existing right of respondents and that Article 8.37(2) is designed, in part, to clarify that CETA does not prevent the exercise of this right. 8
7 European Commission, Note for the attention of the Trade Policy Committee (Services and Investment) (5 June 2012), p. 2 [hereinafter, ‘Commission Note on ISDS Model Text’]. 8 Commentary on draft indicative text of investor-to-state dispute settlement’, Article 11 (attached to Commission Note on ISDS Model Text). 9 The final, adopted version of the UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration does not contain provisions similar to Article 38(5)-(6) of the 2004 Model Canada FIPA on the sharing of confidential information. 10 Canada and EU draft consolidated text on ISDS (15 November 2013). 11 Canada and EU draft consolidated text on ISDS (4 February 2014), Article X-18 BIS. 12 CETA Consolidated Text, Article X.34(2) (1 August 2014). See also Consolidated CETA Text, Article X.34(2) (26 September 2014) (no changes).
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D. Commentary I. Article 8.37(1) Article 8.37(1) guarantees the right of a disputing Party to share unredacted 11 versions of documents containing confidential or protected information with ‘other persons in connection with the proceedings’, such as experts and witnesses, ‘as it considers necessary in the course of proceedings’. The scope of ‘other persons’ covered by Article 8.37(1) is deliberately broad. It is left to the disputing Party itself to determine with whom ‘it considers necessary’ to share information ‘in the course of the proceedings’. The adoption of a subjective standard for identifying ‘other persons’ demonstrates an intention to insulate the decisions of disputing Parties from objective review. That said, any exercise of discretion under Article 8.37(1) should still be subject to an overriding obligation of good faith. Article 8.37(1) further requires the disputing Party that shares unredacted docu- 12 ments with confidential or protected information to ‘ensure’ that the recipients ‘protect the confidential or protected information contained in those documents’. The use of the term ‘ensure’ suggests an obligation of result rather than endeavour. Thus, it is open to question whether it would be sufficient for a disputing Party to demonstrate that it had merely taken ‘reasonable steps’ or given its ‘best efforts’ to ensure that confidential or protected information is protected by recipients.
II. Article 8.37(2) As noted above, Article 8.37(2) reaffirms the right of respondents, whether the EU, 13 an EU Member State, or Canada to share unredacted versions of documents containing confidential or protected information with officials of relevant government units ‘as it considers necessary in the course of proceedings’. As with Article 8.37(1), the adoption of a subjective standard for identifying the officials ‘it considers necessary’ demonstrates an intention to insulate the determinations of respondents from review. That said, any exercise of discretion under Article 8.37(1) should still be subject to an overriding obligation of good faith. Although Article 8.37(2) indicates that CETA ‘does not prevent’ a respondent from 14 disclosing confidential or protected information within government, Article 8.37(2) also notes that respondents have certain duties when doing so. The second sentence of Article 8.37(2) requires a respondent that shares unredacted documents with confidential or protected information to ‘ensure’ that the recipients ‘protect the confidential or protected information contained in those documents’. As with Article 8.37(1), the use of the term ‘ensure’ suggests an obligation of result rather than endeavour. Thus, it is open to question in Article 8.37(2) as well whether it is sufficient for a respondent to demonstrate that it has merely taken ‘reasonable steps’ or given its ‘best efforts’ to ensure that confidential or protected information is protected by recipients.
E. Conclusion Article 8.37 reflects the ongoing influence of Canada’s experience under the 15 NAFTA in its contemporary treaty-making, as well as the EU’s willingness to develop its investment treaty policy far beyond the historical approaches of its member states.
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Article 8.37(a) puts to rest any questions about whether the Parties to a CETA dispute settlement proceeding are entitled to share unredacted documents with witnesses and experts as they consider necessary. Article 8.37(b) similarly confirms the right of respondents in CETA proceedings to share unredacted documents within government as they consider necessary in the course of proceedings. Neither right is without limitation, however, as is made clear by the obligation placed on a disclosing Party to ensure that those receiving the documents protect confidential or protected information contained therein.
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Article 8.38 Non-disputing Party 1. The respondent shall, within 30 days after receipt or promptly after any dispute concerning confidential or protected information has been resolved, deliver to the non-disputing Party: (a) a request for consultations, a notice requesting a determination of the respondent, a notice of determination of the respondent, a claim submitted pursuant to Article 8.23, a request for consolidation, and any other documents that are appended to such documents; (b) on request: (i) pleadings, memorials, briefs, requests and other submissions made to the Tribunal by a disputing party; (ii) written submissions made to the Tribunal pursuant to Article 4 of the UNCITRAL Transparency Rules; (iii) minutes or transcripts of hearings of the Tribunal, if available; and (iv) orders, awards and decisions of the Tribunal; and (c) on request and at the cost of the non-disputing Party, all or part of the evidence that has been tendered to the Tribunal, unless the requested evidence is publicly available. 2. The Tribunal shall accept or, after consultation with the disputing parties, may invite, oral or written submissions from the non-disputing Party regarding the interpretation of the Agreement. The non-disputing Party may attend a hearing held under this Section. 3. The Tribunal shall not draw any inference from the absence of a submission pursuant to paragraph 2. 4. The Tribunal shall ensure that the disputing parties are given a reasonable opportunity to present their observations on a submission by the non-disputing Party to this Agreement. Bibliography: Charles Brower II, ‘Why the FTC Notes of Interpretation Constitute a Partial Amendment of NAFTA Article 1105’ (2006) 46 Va. J. Int’l L. 347; NAFTA Free Trade Commission, Note of Interpretation of Certain Chapter 11 Provisions, 31 July 2001; NAFTA Free Trade Commission, Statement of the Free Trade Commission on non-disputing party participation (2003); Gabrielle Kaufmann-Kohler, ‘Interpretative Powers of the Free Trade Commission and the Rule of Law’ in Frédéric Bachand (ed), Fifteen Years of NAFTA Chapter 11 Arbitration (Juris Net, New York 2011); Joanna Lam and Güneş Ünüvar, ‘Transparency and Participatory Aspects of Investor-State Dispute Settlement in the EU ‘New Wave’ Trade Agreements’ (2019) 32 Leiden J. Int’l L., 781; Loretta Malintoppi and Hussein Haeri, ‘The Non-Disputing State Party in Investment Arbitration’ in David Caron, Stephan Schill, Abby Cohen Smutny, Epaminontas Triantafilou (eds), Practising Virtue: Inside International Arbitration (Oxford University Press, Oxford 2015), 565; Nicolette Butler, ‘Non-Disputing Party Participation in ICSID Disputes: Faux Amici?’ (2019) 66 NILR 143. A. Introduction and Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
B. Spirit and Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15
C. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. 13 January 2010 Draft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. 15 November 2013 Draft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. 4 February 2014 Draft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV. 1 August 2014 Draft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19 19 23 27 30
D. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. Non-Disputing Treaty Parties as Participants in ICS Disputes . . . . . . . . . . . .
33 33
Güneş Ünüvar
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Art. 8.38
Non-disputing Party II. CETA Among its Contemporaries and Predecessors: EU and North American Treaties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. European Union FTA/IPAs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. 1994 NAFTA (1.0) and USMCA (NAFTA 2.0) . . . . . . . . . . . . . . . . . . . . . . . . . .
39 40 42
E. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
48
A. Introduction and Overview Article 8.38, entitled ‘Non-Disputing Party’, generally regulates a) access to information, and b) facilitation of third-party participation for the non-disputing (CETA) Party in the context of a CETA ICS claim filed against one of the Parties. 1 The Article contains the rules regarding the dissemination of documents and information related to an ICS case, as well as the possibility to submit oral or written submissions ’regarding the interpretation of [CETA]’. The provision aims to ensure access to information for a non-disputing Party regarding a dispute against the other CETA Party. It also allows the non-disputing Party to interject and express its position with regard to issues prescribed under the Article (i.e. interpretation of CETA as well as other issues beyond interpretative matters, pursuant to UNCITRAL Transparency Rules) in the course of these adjudicatory proceedings. 2 More specifically, its paragraph 1 details the documents and information that is to be shared with the non-disputing Party. The paragraph essentially deals with two types of documents: (a) documents to be shared automatically in every case, and (b) documents to be made available upon request. As this distinction suggests, the documents under the former category shall be delivered to the non-disputing Party by default (regardless of any request), and the latter indicates the documents that may be shared if and when a non-disputing Party requests them. A tertiary sub-category of documents to be shared upon request can be found under sub-paragraph 1(c), which indicates documents to be shared upon request and at the cost of the non-disputing Party. 3 All categories include a list of specific documents, and appear to be exhaustive. Pursuant to sub-paragraph 1(a), the documents that the respondent shall automatically share with the non-disputing Party (within 30 days) are a) a request for consultations, b) a notice requesting the determination of the respondent (in case of the EU, whether the respondent is the EU or a Member State) as well as the notice of the determination itself, c) the (statement of) claim submitted pursuant to Article 8.23 ‘Submission of a Claim to the [CETA] Tribunal’, d) a request for consolidation, and e) any documents that are appended to these documents above. For instance, these could include all charts, photographic evidence, satellite imagery, quantum reports attached to the statement of claim, and all other documents that are complementary to these main categories of documents. It should be noted that all documents that shall be shared with the non-disputing Party allude to the commencement of the dispute by the claimant, and all documents therewith concern claimant’s claim and relevant requests made from the disputing Party. 4 As for documents on demand, the focus generally appears to be on the submissions made and documentation produced after the initiation of the claim. Pursuant to sub-paragraph 1(b), documents to be produced upon request consist of a) all submissions, including memorials and pleadings, made by a disputing Party (Canada, the EU 1
1 Article 8.38 CETA defines ‘non-disputing party’ as follows: ‘non-disputing Party means Canada, if the European Union or a Member State of the European Union is the respondent, or the European Union, if Canada is the respondent’ (Article 8.1 on ‘Definitions’).
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and/or a Member State), b) written (third person or non-disputing Party) submissions made pursuant to Article 4 of the UNCITRAL Transparency Rules,2 c) documentation regarding hearings, such as minutes or transcripts, and d) all orders, awards, decisions (including interim awards, decisions on jurisdiction, as well as the final award) made by a tribunal. Finally, sub-paragraph 1(c) stipulates that all or part of the evidence that has been submitted to the tribunal shall be shared with the non-disputing Parties upon their request and at their cost, provided that the said evidence is not publicly available. Paragraph 2 of Article 8.38 concerns the acceptance and invitation of oral and written submissions by a non-disputing Party on the interpretation of CETA provisions during adjudicatory proceedings. Pursuant to this paragraph, a Tribunal shall accept such oral and written submissions by a non-disputing Party, if the non-disputing Party submits an (unsolicited) intervention. CETA, therefore, does not allow the Tribunal any negative discretion regarding the submissions by non-disputing Parties if they choose to opine on a particular interpretative issue. The paragraph further notes that, if such unsolicited intervention is absent, the Tribunal may invite submissions from a non-disputing Party following consultations with the disputing Parties (i.e., host state and the claimant investor), particularly in situations where the Tribunal (or one or all Parties) considers the home state intervention useful or necessary to the resolution of any issue relating to the interpretation of treaty provisions. The last sentence of the paragraph also notes that the non-disputing Party can attend the hearings of the dispute, if it so wishes. In connection with the foregoing paragraphs, paragraph 3 notes that the absence of a submission by the non-contracting Party should not lead to any inferences as to the position of the non-disputing Party vis-à-vis the disputing Parties or the dispute itself. This provision limits the Tribunal’s discretion in order to prevent it from attesting an implied meaning to this silence, or the absence of such submission. According to this paragraph, the silence should simply be taken as a fact, and not an indication of endorsement or support of any position per se. Last but not least, paragraph 4 notes that disputing Parties should be given a ‘reasonable opportunity’ to respond and react to the position and arguments put forth by the non-disputing Party. In addition to Article 8.38 itself, CETA makes a reference to the UNCITRAL Transparency Rules under Article 8.36 (→ Art. 8.36 mn. 36) entitled ‘Transparency of Proceedings’. It notes that ‘[t]he UNCITRAL Transparency Rules, as modified by this Chapter [8 on “Investment”], shall apply in connection with proceedings under this Section [F, “Resolution of investment disputes between investors and states”]’. 3 In particular, provisions under Article 3 (Publication of documents), Article 4 (Submission by a third person) and Article 5 (Submission by a non-disputing Party to the treaty) of the UNCITRAL Transparency Rules detail the procedure of document production (to public and to non-disputing signatories), as well as amicus curiae submissions by these two distinct groups generally eligible for third Party participation. According to the treaty language, UNCITRAL Rules are therefore modified by Article 8.38 and constitute the more general rules applicable to transparency-related issues. CETA provisions,
2 Article 4(1), UNCITRAL Transparency Rules: ‘After consultation with the disputing parties, the arbitral tribunal may allow a person that is not a disputing party, and not a non-disputing Party to the treaty (“third person(s)”), to file a written submission with the arbitral tribunal regarding a matter within the scope of the dispute.’ 3 Article 3.36 CETA.
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therefore, should be read and applied in conjunction with the UNCITRAL Transparency Rules. 10 Article 3 of UNCITRAL Rules, containing provisions on which documents shall or may be made available to public largely echoes CETA Article 8.38. The following documents shall be made available to the public, subject to exceptions under Article 7 of UNCITRAL Transparency Rules: the notice of arbitration, the response to the notice of arbitration, the statement of claim, the statement of defence and any further written statements or written submissions by any disputing party; a table listing all exhibits to the aforesaid documents and to expert reports and witness statements, if such table has been prepared for the proceedings, but not the exhibits themselves; any written submissions by the non-disputing Party (or Parties) to the treaty and by third persons, transcripts of hearings, where available; and orders, decisions and awards of the arbitral tribunal. 4
This provision adopts a dichotomy pertaining to automatic and upon-request document production vis-à-vis the public, similar to that which has been adopted under Article 8.38 CETA. However, the types of documents that shall be produced automatically vis-à-vis the public appear broader than those which have been prescribed under Article 8.38. For instance, under the UNCITRAL Rules, the statement of defense submitted by the respondent host state shall be made available to public – whereas pursuant to Article 8.38 CETA for such document to be communicated to a non-disputing Party it has to be requested. 12 Article 4 of the UNCITRAL Rules concern amicus curiae submissions by third persons other than non-disputing parties, an issue essentially unaddressed in the CETA text proper. 13 Article 5 UNCITRAL Rules notes that non-disputing Party submissions regarding interpretative matters shall be allowed, and the tribunal may, after consulting with the disputing Parties, invite such submission. This provision is affirmed under the abovementioned Article 8.38, which makes the same distinction. An issue unaddressed under Article 8.38 is the non-disputing Party submissions on ‘further matters within the scope of the dispute’. Article 5 gives the non-disputing Parties the right to make observations on matters that go beyond the interpretative conflicts; however, they are not automatically allowed and are subject to the Tribunal’s assessment. The requirements for the admission of such a submission are the same as those applicable to third persons wishing to interject. These criteria are as follows: 11
(a) Be dated and signed by the person filing the submission on behalf of the third person; (b) Be concise, and in no case longer than as authorized by the arbitral tribunal; (c) Set out a precise statement of the third person’s position on issues; and (d) Address only matters within the scope of the dispute.5 14
A significant addition here is the explicit prohibition of non-disputing Party submissions tantamount to diplomatic protection. Pursuant to Article 5(2), the tribunal shall consider ’the need to avoid submissions which would support the claim of the investor in a manner tantamount to diplomatic protection’.6
Article 3 UNCITRAL Transparency Rules. Article 4 UNCITRAL Transparency Rules. 6 Article 5 UNCITRAL Transparency Rules.
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5
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Non-disputing Party
B. Spirit and Purpose CETA Article 8.38 allows a non-disputing Party to obtain virtually all documenta- 15 tion and records of a dispute, initiated and governed pursuant to the procedure under CETA Article 8.23 and following. Unlike most FTAs with investment chapters and IIAs in force prior to CETA, it explicitly ensures access to information, and transparency of proceedings for non-disputing Parties. The details of such disputes are important to a non-disputing Party as the claimant’s home state. In addition, as signatories to CETA, the interpretative outcomes of disputes are fundamentally relevant to non-disputing Parties as potential disputing Parties (i.e. respondents) in other CETA-related disputes. In addition to providing the right to stay properly informed about a dispute where 16 its nationals are claimants, it also gives the explicit right to a non-disputing Party, narrowly defined under CETA as the non-disputing Party to CETA, to make unilateral submissions on matters related to the interpretation of treaty provisions. It clearly distinguishes unilateral, truly third Party interjections (such as NGOs or other interested, private Parties) from the interjections of contracting states that are not acting as respondents in a case (→ mn. 33). While broader tenets of transparency and access to information regarding public 17 interest have been extensively discussed elsewhere (also by the author of this contribution),7 there are more pragmatic reasons as to why they matter. For instance, such access could benefit a non-disputing Party by illustrating how vague, ambiguous, or simply untested provisions could be interpreted by the CETA Tribunal. These issues could be analogous to those that would arise under a future claim the non-disputing Party might face, allowing all CETA Parties to preemptively analyze interpretative inclinations to emerge from the CETA jurisprudence. CETA indeed allows its Parties to gradually transform its substantial provisions in light of future experience and observations (e.g. the new FET provision under Article 8.10 of CETA). 8 Therefore, this extensive leeway for non-disputing Parties to observe, have access to, and intervene in a dispute is crucial for CETA Parties to gradually transform treaty provisions (through reaffirmations, clarifications -or amendments-), particularly if they disagree with a prevalent interpretation.9 7 Lam and Ünüvar, ‘Transparency and Participatory Aspects of Investor-State Dispute Settlement in the EU ‘New Wave’ Trade Agreements’ (2019) 32 Leiden J. Int’l L, 781. 8 The ‘fair and equitable treatment’ provision under Article 8.10.4 allows the CETA Parties to include additional subsets to the meaning of this principle, beyond what has already been included under its so-called list. Pursuant to this provision, ‘[t]he Parties shall regularly, or upon request of a Party, review the content of the obligation to provide fair and equitable treatment. The Committee on Services and Investment, established under Article 26.2.1(b) (Specialized committees), may develop recommendations in this regard and submit them to the CETA Joint Committee for decision’. This task is reiterated elsewhere in CETA. Pursuant to Article 8.44.3(d), the CETA Joint Committee, akin to the NAFTA Free Trade Commission, is tasked to ‘recommend to the CETA Joint Committee the adoption of any further elements of the fair and equitable treatment obligation pursuant to Article 8.10.4’. 9 This issue has been relevant particularly in the context of the NAFTA 1.0 disputes. While not directly relevant to individual non-disputing party submissions under Article 8.38, the issue of ex post reaffirmation of the interpretation of some substantial principles, such as the minimum standard of treatment pursuant to international (customary) law, has stirred immense debate since the turn of the century. See, Free NAFTA Free Trade Commission, Note of Interpretation of Certain Chapter 11 Provisions, 31 July 2001; Brower II, ‘Why the FTC Notes of Interpretation Constitute a Partial Amendment of NAFTA Article 1105’ (2006) 46 Va. J. Int’l L. 347 (364); Kaufmann-Kohler, ‘Interpretative Powers of the Free Trade Commission and the Rule of Law’ in Bachand (ed), Fifteen Years of NAFTA Chapter 11 Arbitration (2011), available at https://www.arbitration-icca.org/media/1/13571335953400/interpretive_ powers_of_the_free_trade_commission_and_the_rule_of_law_kaufmann-kohler.pdf.
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Non-disputing Party
A caveat to the right to make oral and written submissions is that, if such submission is absent, the Tribunals are barred from drawing conclusions from it. Indeed, non-disputing Party submissions are voluntary, and thus any implied meaning attested to a non-disputing Party not using this voluntary right could eventually render these submissions de facto necessary or mandatory. In other words, if silence could be deemed to mean one thing or the other by a Tribunal, then the non-disputing Party would be compelled to explicitly and preemptively dismiss any wrong inference that the Tribunal could make. This, then, becomes a mechanism to compel the non-disputing Party to express a position – even when it is undesirable to the non-disputing Party, it would have to make its position clear so as to prevent any inaccurate inferences. Allowing arbitral tribunals to infer such arguments and positions based on inaction could lead non-disputing Parties to inaccurate conclusions.
C. Drafting History I. 13 January 2010 Draft 19
The earliest available draft of the CETA text dates back to 13 January 2010. Its Article X.25, entitled ‘Documents to, and Participation of, the Other Party’, 10 is a simpler version of the final Article 8.38. This draft provision is as follows: 1.
2.
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The respondent Party shall deliver to the other Party to this Agreement a copy of the notice of intent to submit a claim to arbitration and other documents no later than 30 days after the date that such documents have been delivered to the respondent Party. The other Party shall be entitled, at its cost, to receive from the respondent Party a copy of the evidence that has been tendered to the Tribunal, copies of pleadings filed in the arbitration, and written argument of the disputing parties. The Party receiving such information shall treat the information as if it were a respondent Party. The other Party shall have the right to attend any hearings held under this Section. Upon written notice to the disputing parties, the other Party may make submissions to a Tribunal on a question of interpretation of this Agreement.11
Despite having a certain degree of specificity, this earliest available version of Article 8.38 almost entirely lacks the precision offered under its final version. First and foremost, it should be noted that this version of CETA had not yet transformed its ISDS to ICS,12 and therefore concerned arbitral proceedings. The drafters had not yet specified the documents to be produced at the level currently available, and the abovementioned dichotomy regarding documents to be dispatched automatically and upon request had not existed. Indeed, the provision simply notes ‘the notice of intent to submit a claim to arbitration’ and then sweepingly adds ‘other documents’ to documents that shall be delivered to the non-disputing Party. The only such distinction was that whereas a group of documents were to be delivered at the cost of the Respondent Party, the Other Party was entitled to receive another group of documents only at its cost.
10 Article X.25, Draft consolidated CETA text (as of 13 January 2010). The phrase ‘non-disputing Party’ does not appear in this version of CETA either – it simply notes ‘the Other Party’. 11 Article X.25, Draft consolidated CETA text (as of 13 January 2010). Emphases added. 12 Commission Press Release, CETA: EU and Canada agree on new approach on investment in trade agreement, 29 February 2016, available at https://ec.europa.eu/commission/presscorner/detail/en/IP_16 _399.
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Its brief paragraph 2 ensured the ‘right’ of the ‘Other Party’ to attend any hearings 21 under the section and gave it the possibility to make submissions – however, only ‘upon written notice’. It should also be noted that the UNCITRAL Transparency Rules had not existed back in 2010. Thus, this version of CETA was not covered by its comprehensive and detailed framework. This version is identical with two more leaked drafts dated January 2011 and 22 February 2012, so the observations under the 2010 version apply to those newer versions, as well. One noteworthy detail, despite the identical text, comes from the February 2012 version. This leaked version adopts a color code for inserted proposals throughout the text. According to this, red texts are Canadian additions, whereas blue texts represent the proposals inserted by the EU. As Article X.25 text appears red in this version, it could be assumed that it was penned by the Canadian side.
II. 15 November 2013 Draft The relevant provision under the 15 November 2013 text of CETA was Article X-19, entitled ‘The non-disputing Party to the Agreement’. 13 This version differs markedly from its predecessors, and generally resembles the eventual version despite some important omissions. This version is the first known draft to categorize documents as automatically delivered and those to be delivered upon request. Pursuant to Article X-19, a request for consultations, the submission of the arbitral claim and any other documents appended therewith shall be delivered to the non-disputing Party. While the final version notes that any written submissions related to the consolidation of cases shall be delivered to the non-disputing Party, this earlier version included them under documents to be delivered upon request. At this phase, the ISDS was still arbitration-based. Other provisions under this version are generally identical to the final version of CETA. However, whereas the November 2013 draft noted that ‘[t]he Party receiving [all or part of the evidence that has been tendered to the Tribunal] shall treat the information as if it were a respondent’14 the final version of CETA omits it. Finally, Article X-26 on ‘Committee [on Services and Investment]’, possibly in preparation for the incorporation of the then-prospective UNCITRAL Transparency Rules, refers to the replacement of the transparency rules under CETA with this newer, multilateral framework as one of the Committee’s tasks. 15 Interestingly, this part of the provision seems to have been struck-through. A note underneath indicates that the Parties believed that this particular task of the Committee had to be reviewed in light of UNCITRAL discussions. This probably means that the Parties withheld committing to the UNCITRAL Transparency Rules until either the negotiations were completed, or the final text of this agreement were available. Whether this reluctance was shared among the negotiating Parties (or it was solely a Canadian or European concern) is unknown. Finally, this is the first draft version which bars the adjudicators from drawing any inference, if the non-disputing Party decides not to make any submissions on interpretative matters.16
Article X-19, 15 November 2013 CETA Draft. Article X-19, 15 November 2013 CETA Draft. 15 Article X-26(3)(b), 15 November 2013 CETA Draft. 16 Article X-19(3), 15 November 2013 CETA Draft.
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III. 4 February 2014 Draft The subsequent draft is dated 4 February 2014. It generally appears the same as the November 2013 draft with a few important exceptions. This version adds the ‘notice requesting a determination [of the Respondent]’ to the list of documents to be shared automatically – an addition which eventually found its way into the final version. 17 28 Furthermore, the list of documents to be shared upon request18 includes a direct reference to the Article 4 of the UNCITRAL Rules of Transparency (submissions by third persons). From the conjuncture, it therefore appears that the UNCITRAL Rules of Transparency were first added to the CETA framework between November 2013 and February 2014. 29 This is also the first draft where an overarching UNCITRAL Transparency Rules reference was included (by the EU) under Article X-18, entitled ‘Transparency of Proceedings’. Canadian treaty-makers appear to have considered an alternative to the UNCITRAL Transparency Rules in the form of an Annex on ‘Rules on Transparency’, but this was evidently ultimately scrapped and the UNCITRAL Rules prevailed. 19 27
IV. 1 August 2014 Draft The Article X.35 of the draft dated 1 August 2014 virtually reflects the eventual version in its entirety. However, it should immediately be noted that this draft was still prior to the incorporation of ICS to the CETA framework and therefore refers to ‘a claim to arbitration’.20 In the final version, this was changed to ‘a claim submitted pursuant to Article 8.23’ to reflect this critical adjudicatory change. 31 This appears to be the stage where Parties have definitively incorporated the UNCITRAL Transparency Rules as the overarching framework on transparency and access to information vis-à-vis CETA ISDS disputes.21 32 This draft was the final draft before the eventual text materialized and incorporated the ICS framework with all necessary semantic adjustments (e.g., ‘arbitration’ to ‘Tribunal’). 30
D. Commentary I. Non-Disputing Treaty Parties as Participants in ICS Disputes 33
In addition to the overall framework outlined above, Article 8.38’s exclusive focus on the non-disputing Party to CETA (as opposed to any non-disputing third Party) is its core characteristic. The distinction between a non-disputing Party and a ‘third person’ existed well before CETA and particularly in the North American context. 22 Even though third Party submissions fall outside the scope of Article 8.38, it is important to Article X-19(1)(a), 4 February 2014 CETA Draft. Article X-19(1)(b), 4 February 2014 CETA Draft. 19 Article X-18, 4 February 2014 CETA Draft. 20 Article X.35(1)(a), 1 August 2014 CETA Draft. 21 Article X.33, 1 August 2014 CETA Draft. 22 UNCITRAL Transparency Rules adopt the same dichotomy, as its Article 4 is entitled ‘Submission by a third person’ and Article 5 is entitled ‘Submission by a non-disputing party to the treaty’. See generally, Malintoppi and Haeri, ‘The Non-Disputing State Party in Investment Arbitration’ in Caron et al. (eds), Practising Virtue: Inside International Arbitration (2015), 565. 17 18
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contrast submissions made by non-disputing parties to the applicable treaty on the one hand, and third party submissions by those voicing public concerns on investment disputes with substantial public interest on the other. Several arbitral tribunals distinguished the weight of an interjection by a truly external third Party from the interjections of a home state and signatory of the agreement in question. For instance in Methanex v. United States, a NAFTA dispute, the Tribunal noted that ‘[t]he rights of the Disputing Parties in the arbitration and the limited rights of a Non-Disputing Party under Article 1128 of NAFTA are not thereby acquired by such a third person’.23 In one of its several Article 1128 (→ mn. 42 ff.) submissions in Methanex, Canada confirmed the American approach that ‘only NAFTA parties have the right to make submissions on questions of interpretation of the NAFTA, and other non-parties have no such right’.24 However, it also underscored the importance of public interest and public participation in disputes such as Methanex, and supported the admission of the third Party amicus curiae submissions made by, inter alia, the Canadian NGO, IISD. 25 It could therefore be said that third Party participation is an important addition to the overall framework constructed under CETA in order to bolster transparency and systemic legitimacy. It allows for third Parties to bring public concerns in disputes strongly intertwined with imminent or potential substantial effects of such disputes, in particular when the claimant is a foreign investor undertaking a public task, such as energy production or distribution, waterworks, garbage disposal, telecommunications, mineral extraction, and so on. The context in which such disputes arise, as well as the very outcome of such disputes, can affect the public directly. It is important that these broader concerns find a voice, during the settlement of foreign investment disputes. CETA captures that fundamental feature. What, then, is the added value of unilateral submissions made by non-disputing Parties? On whose behalf does a non-disputing Party make a submission? In other words, can a non-disputing Party be assumed to be biased towards its claimant citizen? Do such submissions represent a non-Contracting Party’s broader position on such interpretative matters, or should they only be considered relevant for the actual dispute? While CETA certainly allows a streamlined access to information regarding disputes against the other Contracting Party, what is the practical value of a non-disputing Party’s interjection to a dispute? So far, despite its symbolic and ‘legitimizing’ effects, non-disputing Party submissions appear to have been used marginally. Their impact appears to have been minimal with no consistent test or threshold to precisely pinpoint what kind of influence such submissions would have on the outcome.26 The manner in which such submissions are considered are entirely within a Tribunal’s discretion. Obviously, disputing Party submissions and positions are essential to such proceedings and will, in any 23 Methanex Corporation v. United States of America, UNCITRAL Arbitration, Decision of the Tribunal on Petitions from Third Persons to Intervene as “Amici Curiae” (15 January 2001) para. 30. Emphasis added. For a relevant decision building up on the precedent set by Methanex, also see, United Parcel Service of America Inc. v. Government of Canada, ICSID Case No. UNCT/02/1, Decision of the Tribunal on Petitions for Intervention and Participation as Amici Curiae (17 October 2001), para. 61. 24 Methanex Corporation v. United States, Submission of the Government of Canada (10 November 2001), paras. 3-4. 25 Methanex Corporation v. United States, Submission of the Government of Canada (10 November 2001), paras. 3-4. 26 Unilateral non-disputing party submissions made in the context of a single dispute differ significantly from multilateral declarations made by all contracting parties of a dispute, such as the Free Trade Commission ‘reaffirmation’ back in 2001 regarding the nature of customary international law and the minimum standard of treatment pursuant to Article 1105 of the 1994 NAFTA.
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case, be the primary point of reference for a Tribunal, vis-à-vis any third Party submission, including those made by non-disputing state Parties. 38 As Butler observes, ‘[a]micus submissions can provide new information and perspective on the case, which may affect the outcome of the dispute and lead to a fairer decision in the long run’.27 This applies to non-disputing treaty Party submissions, as well. The fact that the use of non-disputing Party submissions has so far been scarce does not necessarily mean that their use will remain as infrequent within a framework with more explicit rules on third Party participation. This is certainly the case for CETA, which includes a fully-fledged framework for non-disputing and other third Parties’ participation through unilateral submissions. In any case, it represents a feature, that is especially salient in disputes with important public interest elements. This aside, in particular with the non-disputing Party submissions within the meaning of Article 8.38 of CETA, it is not difficult to see why tribunals might evaluate such submissions with caution. According to Malintoppi and Haeri, non-disputing Party submissions, similar to unilateral disputing Party submissions, might be considered ‘self-serving’ or biased towards the claimant citizen (or, depending on the context, biased towards the state, as the non-disputing Party is always a potential respondent). 28 Thus, they ultimately appear to be secondary or tertiary points of reference.
II. CETA Among its Contemporaries and Predecessors: EU and North American Treaties 39
This section briefly outlines other contemporary IIAs that have the EU (or Canada) as a contracting Party in order to bolster the analysis laid forth above, and ultimately provide a more complete picture of drafting trends and legal framework parallel to that which exists under CETA Article 8.38.
1. European Union FTA/IPAs CETA represents but one IIA in a series of concurrent FTAs and IPAs signed with different trade and investment partners of the EU. Among them are the EU’s agreements with Vietnam (EUVIPA), Singapore (EUSIPA), and Mexico (EUMEX). 29 All three agreements contain similar language to CETA, yet their contents vary. 41 All three IIAs contain identical definitions of a ‘non-disputing party’, following CETA’s focus on signatory states not acting as respondents in a given case. 30 Therefore, submissions by third Parties other than signatory states are regulated separately, either under individual provisions (Article 3, Annex 8, EUSIPA; Article 24, EUMEX) or by reference to UNCITRAL Transparency Rules (Article 3.46, EUVIPA). All IIAs distinguish documents that shall be produced automatically and those that are to be produced upon request.31 With the exception of EUVIPA,32 they allow both oral and 40
27 Butler, ‘Non-Disputing Party Participation in ICSID Disputes: Faux Amici?’ (2019) 66 NILR 143 (148). 28 Malintoppi and Haeri, ‘The Non-Disputing State Party in Investment Arbitration’ in Caron et al. (eds), Practising Virtue: Inside International Arbitration (2015), 565 (576). 29 EUVIPA, EUSIPA, and EUMEX. 30 Article 3.28 (e), EUVIPA; Section [X], Article 1, EUMEX; Article 3.1(2)(d), EUSIPA. 31 Article 3.51, EUVIPA; Article 23, Section [X], EUMEX; Article 1, Annex 8, EUSIPA. 32 Article 3.51(2), EUVIPA. Article 5 of UNCITRAL Transparency Rules does not qualify non-disputing party submissions as ‘oral’ or ‘written’. In light of the specific mention of ‘oral submissions’ under Article 3.51, it could be inferred that EUVIPA framework only allows oral submissions. Cf. CETA Article 8.38(2).
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written submissions by non-disputing Parties, and explicitly prohibit Tribunals from drawing any inference from the absence of such submissions.33 All IIAs, except for EUMEX,34 explicitly prohibit assistance that would qualify as diplomatic protection.35
2. 1994 NAFTA (1.0) and USMCA (NAFTA 2.0) The 1994 NAFTA contains provisions analogous to the CETA framework on non- 42 disputing Parties, under its Articles 1127, 1128 and 1129. Article 1127 notes that a disputing Party shall deliver to other (non-disputing) Parties the ‘written notice of a claim that has been submitted to arbitration no later than 30 days after the date that the claim is submitted’, and ‘copies of all pleadings files in the arbitration’. 36 Its Article 1128 gives non-disputing Parties the right to make written submissions to a Tribunal ‘on a question of interpretation’.37 Finally, Article 1129 on ‘Documents’ entitles non-disputing Parties to receive the copies of ‘the evidence that has been tendered to the Tribunal; and […] the written argument of the disputing parties’. 38 NAFTA Chapter 11, which came into force 23 years before CETA (and prior to the 43 surge of ISDS claims and rise in popularity since the late 1990 s), is brief and unspecific in comparison to the latter. Whereas CETA and its abovementioned contemporaries refer to specific documents and outline actual document types, NAFTA refers to ‘all pleadings’, ‘a written notice of a claim’, the evidence presented to the Tribunal, and the written arguments of the Parties. Unlike CETA, it does not provide a list of specific documents which shall (and may) be dispatched to non-disputing Parties. It simply refers to broader features of documents to be dispatched, such as those that could be considered ‘pleadings’ and ‘written arguments’, in whatever form they may be. CETA’s Article 8.38 contains a list that is significantly more specific than NAFTA, as all documents referred to thereunder are common to virtually all investor-State disputes. In 2003, the Free Trade Commission (hereinafter ‘FTC’) of the 1994 NAFTA 44 released a Statement on ‘non-disputing party participation’.39 It notes that ‘[n]o provision of the North American Free Trade Agreement (“NAFTA”) limits a Tribunal’s discretion to accept written submissions from a person or entity that is not a disputing party (a “non-disputing party”)’.40 It further regulates the procedures to govern and regulate submissions to be made by ‘[a]ny non-disputing party that is a person of a Party, or that has a significant presence in the territory of a Party’. 41 As for the submissions by (non-disputing signatory) Parties, the 2003 Statement notes that ‘Nothing in this statement by the Free Trade Commission […] prejudices the rights of NAFTA Parties under Article 1128 of the NAFTA’.42 Particularly relevant to earlier discussions on third Party amicus curiae submissions in the context of the abovemenArticle 3.17, EUSIPA; Article 23(2), EUMEX. EUMEX simply prohibits a party from bringing ‘an international claim’ in respect of an ISDS case, and does not refer to diplomatic protection. 35 Article 3.58, EUVIPA; Article 3.23, EUSIPA. 36 Article 1127 NAFTA. 37 Article 1128 NAFTA. 38 Article 1129 NAFTA. 39 NAFTA Free Trade Commission, Statement of the Free Trade Commission on non-disputing party participation (2003). 40 NAFTA Free Trade Commission, Statement of the Free Trade Commission on non-disputing party participation (2003), para. A(1). The use of ‘non-disputing party’ here arguably captures both non-disputing contracting parties and third persons. 41 NAFTA Free Trade Commission, Statement of the Free Trade Commission on non-disputing party participation (2003), para. B(1). 42 NAFTA Free Trade Commission, Statement of the Free Trade Commission on non-disputing party participation (2003), para. A(2). 33
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tioned Methanex v. United States and UPS v. Canada disputes, this advisory note predominantly concerns non-disputing Parties who are not the non-disputing treaty Parties. 45 This framework has been significantly altered in USMCA, also known unofficially as the NAFTA 2.0.43 Despite some specifications, the framework remains vague. First and foremost, the USMCA dispute settlement mechanism is going to operate within a unique context: Canada, despite being a signatory of the USMCA, is not included in the ISDS mechanism laid forth in this agreement. It only covers disputes between investors from the United States and Mexico on the one hand, and the host signatory state (either United States or Mexico) on the other. Annex 14.D, entitled ‘Mexico-United States Investment Disputes’, defines a ‘non-disputing Annex Party’ in a manner similar to CETA and other instruments mentioned above.44 According to Article 14.D.1 of USMCA, ‘non-disputing Annex Party means the Annex Party that is not a party to a qualifying investment dispute’. 46 Articles 14.D.7 and 14.D.8 of USMCA contain the core provisions concerning, inter alia, non-disputing Annex party participation in investor-State disputes. Article 14.D.7, entitled ‘Conduct of the Arbitration’ states that ‘[t]he non-disputing Annex Party may make oral and written submissions to the tribunal regarding the interpretation of this Agreement.’45 USMCA lacks a few features captured under CETA and other EU IIAs. It does not, for instance, explicitly prohibit arbitrators from inferring meaning from the absence of any non-disputing Annex party submission. It also does not state that the tribunal should give ample time for the disputing Parties to reflect upon the non-disputing Annex Party submissions. Finally and perhaps most importantly, it does not appear to explicitly allow non-disputing Annex Party to make submissions on matters beyond the interpretation of USMCA. 47 Entitled ‘Transparency of Arbitral Proceedings’, the provision significantly improves its predecessors (Articles 1127, 1128, 1129 of NAFTA) and provides a more elaborate and explicit framework.46 As the USMCA provision covers the transparency framework including but not limited to non-disputing Annex party participation and access to information and documentation, its scope is broader than that which is provided under CETA Article 8.38. It further notes that ’[t]he tribunal shall conduct hearings open to the public’, which will also allow the non-disputing Annex party (the US or Mexico, depending on the respondent) to freely observe the proceedings – subject to limitations put forth under Article 14.D.8 and subsequent paragraphs.
E. Conclusion 48
CETA Article 8.38 builds upon earlier manifestations of non-disputing Party participation in arbitration-based ISDS. As discussions concerning non-disputing Party participation under other IIAs is limited, most debates relating to access to informaArticle 14.D.8 USMCA. It should also be emphasized that unlike CETA and the other EU IIAs, EUMEX offers arbitration as its primary method of dispute settlement – not ICS. 45 Article 14.D.7, USMCA. 46 According to Article 14.D.8(1), the respondent shall make the following available to the non-disputing Annex Party as well as the public: ‘(a) the notice of intent; (b) the notice of arbitration; (c) pleadings, memorials, and briefs submitted to the tribunal by a disputing party and any written submissions submitted pursuant to Article 14.D.7.2 and 14.D.7.3 (Conduct of the Arbitration), and Article 14.D.12 (Consolidation); (d) minutes or transcripts of hearings of the tribunal, if available; and (e) orders, awards, and decisions of the tribunal’. 43 44
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tion and third Party participation stemmed from the North American experience under NAFTA Chapter 11. The up and coming framework, which includes CETA, deals with this issue in greater detail. First of all, CETA separates third Party amicus curiae submissions from the non-disputing Contracting Party submissions. Whereas the former is still subject to adjudicatory discretion to a very large extent, the latter has more extensive rights to interfere and express its position. Non-disputing Parties have the possibility to make submissions beyond those which concern the interpretation of treaty provisions, but this is also subject to adjudicatory discretion of the Members of the CETA Tribunal. It provides for a detailed list of documents that shall be shared automatically with a non-disputing Party, whether or not non-disputing Parties request them. Furthermore, it contains a list of documents that may be shared, if requested by the non-disputing Party. The non-disputing Party can partake in hearings as an observer, and can make 49 written and oral submissions in the course of these proceedings. However, it does not have to. Indeed, a non-disputing Party can choose to remain silent on such matters if it wishes to do so. CETA further guarantees that such silence would not be interpreted to constitute a position per se – ensuring a so-called ‘right to remain silent’ allowing states to remain neutral and avoid unanticipated or undesirable consequences. Indeed, an adjudicatory leeway allowing tribunals to infer meaning from such silence would indirectly compel non-disputing Parties to voice some position, cautious against the possibility they may be attested some position involuntarily and possibly inaccurately. Finally, CETA also gives ample opportunity for disputing Parties to reflect upon, and react to, such non-disputing Party submissions.
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Article 8.39 Final award 1. If the Tribunal makes a final award against the respondent, the Tribunal may only award, separately or in combination: (a) monetary damages and any applicable interest; (b) restitution of property, in which case the award shall provide that the respondent may pay monetary damages representing the fair market value of the property at the time immediately before the expropriation, or impending expropriation became known, whichever is earlier, and any applicable interest in lieu of restitution, determined in a manner consistent with Article 8.12. 2. Subject to paragraphs 1 and 5, if a claim is made under Article 8.23.1(b): (a) an award of monetary damages and any applicable interest shall provide that the sum be paid to the locally established enterprise; (b) an award of restitution of property shall provide that restitution be made to the locally established enterprise; (c) an award of costs in favour of the investor shall provide that it is to be made to the investor; and (d) the award shall provide that it is made without prejudice to a right that a person, other than a person which has provided a waiver pursuant to Article 8.22, may have in monetary damages or property awarded under a Party's law. 3. Monetary damages shall not be greater than the loss suffered by the investor or, as applicable, the locally established enterprise, reduced by any prior damages or compensation already provided. For the calculation of monetary damages, the Tribunal shall also reduce the damages to take into account any restitution of property or repeal or modification of the measure. 4. The Tribunal shall not award punitive damages. 5. The Tribunal shall order that the costs of the proceedings be borne by the unsuccessful disputing party. In exceptional circumstances, the Tribunal may apportion costs between the disputing parties if it determines that apportionment is appropriate in the circumstances of the claim. Other reasonable costs, including costs of legal representation and assistance, shall be borne by the unsuccessful disputing party, unless the Tribunal determines that such apportionment is unreasonable in the circumstances of the claim. If only parts of the claims have been successful the costs shall be adjusted, proportionately, to the number or extent of the successful parts of the claims. 6. The CETA Joint Committee shall consider supplemental rules aimed at reducing the financial burden on claimants who are natural persons or small and medium-sized enterprises. Such supplemental rules may, in particular, take into account the financial resources of such claimants and the amount of compensation sought. 7. The Tribunal and the disputing parties shall make every effort to ensure the dispute settlement process is carried out in a timely manner. The Tribunal shall issue its final award within 24 months of the date the claim is submitted pursuant to Article 8.23. If the Tribunal requires additional time to issue its final award, it shall provide the disputing parties the reasons for the delay.
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Reference to the Respective Provisions in Other EU Treaties: In the EU-Singapore IPA 2018, the contents of the award is described in Article 3.18, entitled ‘Award’; The EU-Vietnam IPA 2019 contains very similar provisions on the contents of the award in Article 3.53 under the title ‘Provisional Award’; The TTIP draft text as of September 2015 contains a similar provision in Article 28 under the title ‘Provisional Award’. Bibliography: Marc Bungenberg, August Reinisch, and Christian Tietje (eds), EU and Investment Agreements: Open Questions and Remaining Challenges (Nomos, Baden-Baden 2013); Patrick del Duca, ‘The Rule of Law: Mexico’s Approach to Expropriation Disputes in the Face of Investment Globalization’ (2003) 51 UCLA L. Rev., 35; Leonardo Giacchino and Thomas Sturma, ‘Trends in Awards from Concluded ICSID Cases’ (2017) 4(2) JDIA, 51; John Gotanda, ‘Charting Developments Concerning Punitive Damages: Is the Tide Changing?’ (2007) 45 Colum. J. Transnat’l L., 507; John Gotanda, ‘Consistently Inconsistent: The Need for Predictability in Awarding Costs and Fees in Investment Treaty Arbitrations’ (2013) 28 ICSID Rev., 420; Steffen Hindelang, ‘Restitution and Compensation – Restructuring the Relationship in Investment Treaty Law’, in Rainer Hoffmann and Christian Tams (eds), International Investment Law and General International Law (Nomos, Baden-Baden 2011) 161; Matthew Hodgson, ‘Costs in Investment Treaty Arbitration: The Case for Reform’ in Jean Kalicki and Anna Joubin-Bret (eds), Reshaping the Investor-State Dispute Settlement System: Journeys for the 21st Century (Brill Nijhoff, 2015) 748; Rainer Hoffmann and Christian Tams (eds), International Investment Law and General International Law (Nomos, Baden-Baden 2011); Frank Hoffmeister and Gabriela Alexandru, ‘A First Glimpse of Light on the Emerging Invisible EU Model BIT’, (2014) 15 JWIT, 379; Kurt Hübner, Tugce Balik and Anne-Sophie Deman, ‘CETA: the Making of the Comprehensive Economic and Trade Agreement Between Canada and the EU’, Notes de l’Ifri, April 2016; Ursula Kriebaum, ‘Restitution in International Investment Law’, in Rainer Hoffmann and Christian Tams (eds), International Investment Law and General International Law (Nomos, Baden-Baden 2011), 201; Ursula Kriebaum, ‘FET and Expropriation in the (Invisible) EU Model BIT’ (2014) 15 JWIT, 454; Irmgard Marboe, Calculation of Damages and Compensation in International Investment Law (2nd ed, Oxford University Press, Oxford 2017); Arnaud de Nanteuil, ‘Expropriation’, in: Mbengue and Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (Springer, Cham 2019), 127; Makane Moïse Mbengue and Stefanie Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (Springer, Cham 2019); August Reinisch, ‘Putting the Pieces Together … an EU Model BIT?’ (2014) 15 JWIT, 679; Sergey Ripinsky and Kevin Williams, Damages in International Investment Law (British Institute for International and Comparative Law, London 2008); Borzu Sabahi, Compensation and Restitution in Investor-State Arbitration. Principles and Practice (Oxford University Press, Oxford 2011); Christoph Schreuer and Ursula Kriebaum, The Concept of Property in Human Rights Law and International Investment Law, in Stephan Breitenmoser et al. (eds), Human Rights, Democracy and the Rule of Law. Liber amicorum Luzius Wildhaber (Nomos, Baden-Baden 2007), 743; Christoph Schreuer, ‘Alternative Remedies’, (2016) 3(1) JDIA, 1; Christoph Schreuer, ‘Non-Pecuniary Remedies in ICSID Arbitration’, (2004) 20 Arb. Int’l, 335; Christian Tams, ‘Procedural Aspects of Investor-State Dispute Settlement’, (2014) 15 JWIT, 583; Stephan Wittich, ‘Remedies’, in Marc Bungenberg, Jörn Griebel, Stephan Hobe, August Reinisch (eds), International Investment Law. A Handbook (Nomos/Hart, Baden-Baden 2015), 1391; Stephan Wittich, ‘Awe of the Gods and Fear of the Priests: Punitive Damages and the Law of State Responsibility’ (1998) 3 ARIEL, 101; Herfried Wöss, Adriana San Román Riviera, Pablo Spiller and Santiago Dellepiane, Damages in International Arbitration under Complex Long-term Contracts (Oxford University Press, Oxford 2014). A. Introduction and Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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B. Spirit and Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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C. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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D. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. Separately or in Combination: Damages and Restitution . . . . . . . . . . . . . . . . . . 1. Monetary Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. And any Applicable Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Restitution of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Fair Market Value Instead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Applicable Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. Claims Made on Behalf of a Locally Established Enterprise . . . . . . . . . . . . . . . IV. Assessment of Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
32 32 40 42 51 55 59 60 65
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V. No Punitive Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 VI. Award on Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 VII. Reducing the Financial Burden for Small and Medium-Sized Enterprises 93 VIII. Time Limit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102 E. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
A. Introduction and Overview 1
2
3
4
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Article 8.39 entitled ‘Final award’ contains provisions on the contents of the award, which concludes an arbitral proceeding between an investor as claimant and, as respondent, Canada or, in the case of the European Union, either a Member State of the European Union or the European Union pursuant to Article 8.21 (→ Art. 8.21 mn. 17 ff.). The Article is remarkably extensive and deals with a number of issues that are not usually contained in comparable treaties, such as BITs or other FTAs. The issues addressed include the types of remedies available (monetary damages, restitution, no punitive damages), the assessment of monetary damages, details about the recipient of the award, the allocation of costs, a mechanism for dealing with the issue of costs for small and medium-sized enterprises (SMEs), and time limits for the issuance of the final award. Some of these issues are usually left to be governed by other rules, such as norms of customary international law (in the area of state responsibility) or arbitration rules, or to the discretion of the tribunal. The fact that here they are contained in CETA itself, setting up written and primary norms of international law, may help to clarify uncertainties that have contributed to some divergence in investment arbitration practice in the past. The negotiation efforts with respect to Section F of Chapter 8 have led to a text that aims at increasing consistency and predictability of arbitral awards in the context of CETA. Even though quite some discretion is – necessarily – maintained for tribunals, the formulation of guiding principles and their exceptions aims to achieve more efficient dispute settlement procedures and coherent outcomes. For example, the explicit identification of remedies the tribunal may award against the respondent – monetary damages and/or restitution of property – removes the uncertainty whether and to what extent restitution is an available remedy in a dispute between an investor and a CETA Party (→ mn. 32). Such a clarification is also contained in Article 1135 NAFTA, which in several respects was a model for Article 8.39 CETA (→ mn. 13).1 During the negotiations between Canada and the EU, additional provisions were added, but the core elements of the description of the final award remained unchanged. Another example aiming at the clarification of uncertainty with respect to a norm of the law of state responsibility is Article 8.39(3). It provides that ‘monetary damages shall not be greater than the loss suffered by the investor’ and adds several further specifications on the way the amount of damages should be calculated. This may be a reaction to the perception that investors often win large amounts of money including considerable windfalls (→ mn. 65). The guidelines for the assessment of damages shall remind tribunals to pay attention that this does not happen. Other provisions contained in Article 8.39 are usually found in arbitration rules. This includes the apportionment of costs in Article 8.39(5) and the setting of a time limit of 24 months for the issuance of the final award in Article 8.39(7). This is 1 North American Free Trade Agreement (NAFTA), signed on 17 December 1992, in force since 1 January 1994 (1993) 32 International Legal Materials, 289 and 605.
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interesting in view of the fact that, according to Article 8.23, arbitration proceedings may be carried out under a variety of arbitration rules, which may contain different rules. A notable addition to the issue of costs is the assignment of the CETA Joint 6 Committee to consider supplemental rules aimed at reducing the financial burden on claimants who are natural persons or SMEs. Such a provision is unusual in traditional BITs, but is also included in the EU-Vietnam IPA (→ mn. 93).
B. Spirit and Purpose The rather extensive Article 8.39 on the ‘Final Award’ is reflective of the essence of policy papers elaborated by various EU organs in the wake of the new competence on foreign investment in the Lisbon Treaty. It also reflects recent developments in Canada’s foreign investment policy. From the EU perspective, a ‘state-of-the-art dispute settlement chapter with investor-to-state procedures’ was one of the goals of the broad policy consensus in Brussels.2 However, the Commission, in its Communication of 2010, had also highlighted that the ‘atomisation of disputes and interpretation’ represented a challenge and that ‘consistency and predictability are key issues’.3 Against this background the details in Article 8.39 on the final award can be explained. They provide the tribunal with more specific guidance on the contents of the award than existing BITs or other FTAs. This arguably can help to improve consistency and predictability. For the Council and the Parliament it was important that EU investment agreements continue to allow the EU and Member States to adopt and enforce measures necessary to pursue public policy objectives.4 This explains why, in contrast to the Energy Charter Treaty of 1998, the remedy of restitution in Article 8.39(1) is limited to ‘restitution of property’. This limitation is in line with the goal to preserve the regulatory space of states, which was one of the key issues in the development of the EU foreign investment policy.5 In accordance with this goal, arbitral awards should not go so far and force a state to repeal a measure. Instead, it would be for the state to decide how to bring itself in compliance with an award.6 The provisions on the assessment of monetary damages in Article 8.39(3) and the prohibition of punitive damages in Article 8.39(4) may send a signal to states and civil society organisations that arbitral tribunals are not allowed to award unjustified high amounts of damages to investors. In the public debates during the negotiations of CETA, both in the EU and in Canada, the concern was raised that investor-State arbitration could prevent national governments from acting in the public interest, because they could be sued by foreign investors, or because they could fear to be sued by foreign investors, with the result to be obliged to pay high damages amounts to 2 Hoffmeister and Alexandru, ‘A First Glimpse of Light on the Emerging Invisible EU Model BIT’ (2014) 15 JWIT 379 (383). 3 Commission Communication: Towards a comprehensive European international investment policy, 7 July 2010, COM(2010) 343 final, 9-10. 4 Council of the EU, Conclusions on a comprehensive European international investment policy, 25 October 2010, para. 17; European Parliament, European Parliament Resolution of 6 April 2011 on the future European international investment policy, 2010/2203 (INI), paras. 23-26. 5 Kriebaum, ‘FET and Expropriation in the (Invisible) EU Model BIT’ (2014) 15 JWIT, 454 (457-468). 6 Hoffmeister and Alexandru, ‘A First Glimpse of Light on the Emerging Invisible EU Model BIT’ (2014) 15 JWIT, 379 (400).
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the detriment of the respective taxpayers.7 A certain rationalisation and stricter determination of the assessment of monetary damage may help to decrease this concern and the so-called ‘chilling effect’ of investor-State arbitration. 11 The request in Article 8.39(6) to the CETA Joint Committee, established according to Article 26.1 CETA, to find ways of reducing the financial burden on claimants who are natural persons or SMEs, reflects the EU policy to strengthen and support them, as they are essential for the economy.8 They should benefit from the substantive rules on investor protection and not be prevented from enforcing their rights by the high cost risk. For the CJEU, the commitment to develop such supplemental rules, which should take into account the more limited financial resources of SMEs, was very important for the accessibility of the dispute settlement system and therefore the compatibility of CETA with EU law (→ mn. 93 ff.). 12 Finally, the details in Article 8.39(7) on the time limit may be reflective of the call for an ‘effective investor-to-state dispute settlement mechanism’. 9 The duration of an investor-State arbitration may be considerable. The time limit of 24 months in CETA attempts to address this problem and may be a tool to ensure the implementation and enforcement of the agreement more effectively. A shorter duration of the proceedings would also be in the interest of preserving the rule of law in the area of foreign investment.
C. Drafting History 13
While documents on the different stages of the negotiations of the CETA text are scarce, the respective positions of the Parties are contained in policy documents, contemporary commentaries, and investment protection agreements that they have developed and negotiated earlier or in parallel. On the part of the EU, several of its organs have published statements and positions with respect to the future European international investment policy.10 In addition, Investment Protection Agreements with Singapore11 and Vietnam12 have been concluded shortly after CETA, namely in 2018 and 2019 respectively.
7 Hübner et al, ‘CETA: the Making of the Comprehensive Economic and Trade Agreement Between Canada and the EU’, Notes de l’Ifri, April 2016, 31. 8 The European Parliament noted that SME will benefit from an expected improvement of legal certainty and demanded that the voice of SMEs must be heard during negotiations. See European Parliament, European Parliament Resolution of 6 April 2011 on the future European international investment policy, 2010/2203 (INI), para. 22. 9 Council of the EU, Conclusions on a comprehensive European international investment policy, 25 October 2010, para. 18. 10 See, for example, the documents published by the EU Commission (Commission Communication, Towards a comprehensive European international investment policy, 7 July 2010, COM(2010) 343 final), by the Council of the EU (Conclusions on a comprehensive European international investment policy, 25 October 2010), and by the European Parliament (European Parliament Resolution of 6 April 2011 on the future European international investment policy, 2010/2203 (INI)). 11 European Commission, Proposal for a Council Decision on the conclusion of the Investment Protection Agreement between the European Union and its Member States, of the one Part, and the Republic of Singapore, of the other Part, Annex 1, 14 April 2018, COM(2018) 194 final. The Council adopted the decision on the signature on 15 October 2018, the signature followed on 19 October 2018. The European Parliament gave its consent on 13 February 2019. 12 Council of the EU, Decision on the signing, on behalf of the Union, of the Investment Protection Agreement between the European Union and its Member States, of the one Part, and the Socialist Republic of Viet Nam, of the other Part, 25 June 2019.
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The influence on the text from the Canadian side is remarkable. The provision 14 on the ‘Final Award’ contained in NAFTA, even though concluded with the US and Mexico already in 1994, determined the text of Article 8.39 CETA to a large extent. Article 1135 NAFTA reads: 1. Where a Tribunal makes a final award against a Party, the Tribunal may award, separately or in combination, only: (a) monetary damages and any applicable interest; (b) restitution of property, in which case the award shall provide that the disputing Party may pay monetary damages and any applicable interest in lieu of restitution. A tribunal may also award costs in accordance with the applicable arbitration rules. 2. Subject to paragraph 1, where a claim is made under Article 1117(1): (a) an award of restitution of property shall provide that restitution be made to the enterprise; (b) an award of monetary damages and any applicable interest shall provide that the sum be paid to the enterprise; and (c) the award shall provide that it is made without prejudice to any right that any person may have in the relief under applicable domestic law. 3. A Tribunal may not order a Party to pay punitive damages.
During the CETA negotiations, Canada revised its Model BIT of 2004 and published a new version in 2014.13 This text still contains the same words used in Article 1135 NAFTA and the 2004 Model BIT, but has been combined with provisions on ‘Interim Measures of Protection’.14 However, this represents a mere editorial particularity, which does not have any substantive effects.15 The provisions of Article 1135 NAFTA are almost identical to Article 8.39 with respect to the question of remedies, namely that ‘monetary damages and any applicable interest’ can be awarded ‘separately or in combination’ with ‘restitution of property’. The word ‘only’ may reflect the drafters’ intention to clarify that, in contrast to general international law and also to the previous Energy Charter Treaty (→ mn. 38 f.), investment tribunals’ powers should be more limited and not include restitution in a broader sense. Article 1135(1) NAFTA makes reference to costs only to the extent that a tribunal may also award costs ‘in accordance with the applicable arbitration rules’. It does not enter into more detail as how the costs could or should be allocated. Article 1135(2) NAFTA which addresses the situation that a claim is brought by the investor on behalf of a locally established enterprise does not provide to whom the costs should be paid. By contrast, Article 8.39(2)(d) is more specific in this respect and states that an award of costs in favour of the investor shall be made to the investor. The final paragraph of Article 1135(3) NAFTA concerns the prohibition of punitive damages, which corresponds to Article 8.39(4). It is evident that Article 1135 NAFTA is less comprehensive than Article 8.39, but it served as an important starting point for the negotiations. In the course of time, Article 8.39 was enlarged and complemented, but the core of the NAFTA provision is still recognisable.
13 See Article 44, entitled ‘Final Award’ of the Canada Model BIT of 2004. Only the reference to Article 1117(1) is replaced by Article 23(1), which corresponds to the same provision in the Model BIT. For greater clarity, an explanation is added in brackets: ‘(Claim by an Investor of a Party on Behalf of an Enterprise)’. 14 The title of Article 35 accordingly is ‘Interim Measures of Protection and Final Award’, see Canada Model BIT 2014. 15 In NAFTA, the same text appears in Article 1134, immediately preceding Article 1135 on the ‘Final Award’.
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The first consolidated draft CETA text of 13 January 2010 16 contained the identical wording of NAFTA Article 1135.17 However, the provisions on the Final Award were combined with those on ‘Interim Measures of Protection’.18 This combination was also maintained in the CETA draft text of January 2011,19 and in the version of February 2012,20 which left the number of the Article, its title and its contents unchanged. 21 21 Only in November 2013, several changes to the provisions on the Final Award occurred. After discussions on investor-State dispute settlement, a new Investor-to-State Dispute Settlement text only on that subject matter was put together on 15 November 2013.22 Firstly, the combination with ‘Interim Measures of Protection’ was removed. 23 Secondly, a new paragraph on the assessment of the amount of damages was added to give the CETA Tribunal some guidance in this respect.24 This new paragraph contained most of the elements, which ultimately became part of Article 8.39(3).Thirdly, a new paragraph on the apportionment of costs was introduced.25 It entailed quite specific guidelines for the CETA Tribunal and indicated the negotiators’ preference for the costs-follow-the event principle over the so-called American rule of equal sharing of costs. In a note, both Parties agreed to consider alternate language with respect to some formulations. One disagreement concerned the use of the word ‘reasonable’ 20
16 CETA draft text of 13 January 2010, ‘Draft Consolidated Text: Canada-EU Comprehensive Economic and Trade Agreement’, accessed via https://wiki.laquadrature.net/images/3/33/CETA_draft_jan_20 10.pdf. 17 Article X.31: Interim Measures of Protection and Final Award. 18 The contents of Article X.31(1) read: ‘A Tribunal may order an interim measure of protection to preserve the rights of a disputing party, or to ensure that the Tribunal’s jurisdiction is made fully effective, including an order to preserve evidence in the possession or control of a disputing party or to protect the Tribunal’s jurisdiction. A Tribunal may not order attachment or enjoin the application of the measure alleged to constitute a breach referred to in Article X.18 (Claim by an Investor of a Party on Its Own Behalf or on Behalf of an Enterprise). For purposes of this paragraph, an order includes a recommendation.’ The remaining Article X.31(2) to (4) replicated NAFTA Article 1135. 19 CETA draft text of January 2011, ‘Canada-EU CETA Draft Consolidated Text – Post Round VI’, accessed via https://wiki.laquadrature.net/images/6/69/CETA_draft_jan_2011.pdf. 20 CETA draft text of February 2012, ‘Draft CETA Investment Text’, accessed via https://wiki.laquadr ature.net/images/c/cc/CETA-Draft_Consolidated_text-February_2012.pdf. 21 In both texts, the Article remained unchanged as ‘Article X.31: Interim Measures of Protection and Final Award’. 22 Investor-to-State Dispute Settlement text of 15 November 2013, ‘EU-Canada Comprehensive Economic and Trade Agreement, Investor-to-State Dispute Settlement text after discussions on 15 November 2013’, accessed via https://wiki.laquadrature.net/images/. 23 It became Article X-16. In the final text of CETA, the provisions on ‘Interim measures of protection’ are contained in Article 8.34. They have only changed minimally throughout the entire negotiations. 24 See Article X-20(3) of the Investor-to-State Dispute Settlement text of 15 November 2013: ‘Monetary damages shall not be greater than the loss suffered by the claimant as a result of the breach of the relevant provisions of [Section 3 or Section 4 of this chapter], reduced by any prior damages or compensation already provided. For the calculation of monetary damages, the Tribunal shall [, at the request of the respondent or on its own initiative,] also reduce the damages to take into account any restitution of property or repeal or modification of the measure found to be inconsistent with [section 3 or 4 of this chapter].’ 25 See Article X-20(5) of the Investor-to-State Dispute Settlement text of 15 November 2013: ‘A tribunal shall order that the costs of arbitration be borne by the unsuccessful disputing party. In exceptional circumstances, a tribunal may apportion costs between the disputing parties if it determines that apportionment is reasonable [appropriate] [in the circumstance of the case]. Other reasonable costs, including costs of legal representation and assistance, shall be borne by the unsuccessful disputing party, unless the tribunal determines that such apportionment is unreasonable in the circumstances of the case. [Where only some of the claims have been successful the costs shall be adjusted, proportionately, to the number or extent of the successful claims.] [Where a claimant is partially successful on the merits, the costs shall be adjusted, proportionately, to the number or extent measures in breach of the obligations under this chapter].’
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with respect to the apportionment of costs, on the one hand, and with respect to the determination of ‘other reasonable costs’, on the other. Another disagreement concerned the formulation on the proportionate adjustment of costs, when only some of the claims were successful.26 The November 2013 draft of the CETA investment text 27 did not include any text on the Final Award but only referred, under ‘Section 6: Investor-State Dispute Settlement’, to the ‘Latest Consolidated ISDS text to be inserted here’. The draft text of 1 February 2014 on Investor-to-State Dispute Settlement, 28 left the version of 15 November 2013 almost unchanged. On one point agreement was reached, namely on the proportionate adjustment of costs, when only some of the claims have been successful.29 In the draft consolidated CETA text of 1 August 2014, 30 some minor issues were finalised.31 This means that two important paragraphs were not part of the final draft of 1 August 2014. This concerned, firstly, paragraph (6) which mandates the CETA Joint Committee to consider supplemental rules aimed at reducing the financial burden of costs on claimants who are natural persons or SMEs. Secondly, paragraph (7) on the time limit of the dispute settlement process of 24 months, was also added only after August 2014. The two paragraphs were inserted between August 2014 and February 2016, when negotiations on the investor-State dispute settlement mechanisms continued, even though this phase was actually meant only for ‘legal scrubbing’. 32 The EU Commission, in its Communication about the ‘Investment provisions in the EU-Canada free trade agreement (CETA)’ of February 2016 33 did not explain these unusual last minute changes. With respect to the issue of costs, it only highlighted that CETA contained the clear rule that the losing Party should pay the costs. The Commission did not refer to the burden, which may follow from this rule for natural persons or SMEs, but rather pointed out that otherwise governments often, even if they successfully defend themselves, would still bear all of their costs. This statement was apparently politically motivated to convince Member States of the unique achievements of CETA, despite the already existing practice of investment tribunals to award costs also against unsuccessful claimants. Similarly, the Commission’s emphasis that CETA tribunals may only award compensation to the level of the losses actually suffered with the exclusion of punitive damages may have intended to serve the same See the respective parts of the text in square brackets in the previous footnote above. CETA draft text of 21 November 2013, ‘Draft CETA Investment Text’, accessed via https://www.laq uadrature.net/files/CETA-Draft-Investment-Text-Nov21-2013-203b-13.pdf. 28 Investor-to-State Dispute Settlement text of 4 February 2014, ‘EU-Canada Comprehensive Economic and Trade Agreement, Investor-to-State Dispute Settlement Text of 4 February 2014’, accessed via https://wiki.laquadrature.net/images/. 29 See Article X-20(5) of the Consolidated CETA draft of 1 August 2014: ‘…. Where only some parts of the claims have been successful the costs shall be adjusted, proportionately, to the number or extent of the successful parts of the claims.’ 30 Consolidated CETA draft of 1 August 2014, ‘Consolidated CETA Text’, accessed via https://old.laq uadrature.net/files/ceta-complet.pdf. 31 See Article X.36(5), which makes it clear that: ‘… In exceptional circumstances, a tribunal may apportion costs between the disputing parties if it determines that apportionment is appropriate in the circumstances of the claim.’ The previous version still had some square brackets: ‘In exceptional circumstances, a tribunal may apportion costs between the disputing parties if it determines that apportionment is reasonable [appropriate] [in the circumstance of the case].’ (Article X-20(5) Investorto-State Dispute Settlement text of 4 February 2014). 32 Hübner et al, ‘CETA: the Making of the Comprehensive Economic and Trade Agreement Between Canada and the EU’, Notes de l’Ifri, April 2016, 13, 26, 30. 33 EU Commission, ‘Investment provisions in the EU-Canada free trade agreement (CETA)’, February 2016, https://trade.ec.europa.eu/doclib/docs/2013/november/tradoc_151918.pdf. 26 27
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goal, as the general rules on state responsibility under international law already set out the same. Subsequent to CETA, Canada, in its negotiations with the US and Mexico about the United States–Mexico–Canada Agreement (USMCA), removed itself from the investor-State dispute settlement mechanism entirely. 34 As a consequence, the provision in the USMCA, as similar as it is to Article 8.39 – and its predecessor Article 1135 NAFTA – will not be relevant for Canada in its relations with the United States and Mexico.35 26 On the part of the EU, the negotiations with Vietnam and Singapore continued during and after the CETA negotiations and led to the successful conclusion of the two respective Investment Protection Agreements in 2018 and 2019. 36 Article 3.18 entitled ‘Award’ of the IPA with Singapore reads in full: 1. Where the Tribunal decides that the treatment in dispute is in breach of an obligation under Chapter Two (Investment Protection), the Tribunal may award, separately or in combination, only: (a) monetary damages and any applicable interest; and (b) restitution of property, provided that the respondent may pay monetary damages and any applicable interest, as determined by the Tribunal in accordance with Chapter Two (Investment Protection), in lieu of restitution. 2. Monetary damages shall not be greater than the loss suffered by the claimant or, as applicable, its locally established company, as a result of the breach of the relevant provisions of Chapter Two (Investment Protection), reduced by any prior damages or compensation already provided by the Party concerned. The Tribunal shall not award punitive damages. 3. Where a claim is submitted on behalf of a locally established company, the award shall be made to the locally established company. 4. As a general rule, the Tribunal shall issue a provisional award within 18 months of the date of submission of the claim. When the Tribunal considers that it cannot issue its provisional award within 18 months, it shall inform the disputing parties in writing of the reasons for the delay together with an estimate of the period within which it will issue its provisional award. A provisional award shall become final if 90 days have elapsed after it has been issued and neither disputing party has appealed the award to the Appeal Tribunal.
The similarity with Article 1135 NAFTA is striking, but the IPA with Singapore does not contain any provision on costs. Similar to Article 8.39, guidelines on the assessment of monetary damages are already included. It also contains a time limit for the final award, but, in contrast to Article 8.39(7), it is only 18 months. 28 The IPA with Vietnam contains also an article with similar content to Article 8.39, but interestingly the respective Article 3.53 is entitled ‘Provisional Award’: 27
1. Where the Tribunal concludes that a measure in dispute breaches any of the provisions of Chapter 2 (Investment Protection), the Tribunal may, on the basis of a request from the claimant and after hearing the disputing parties, award, separately or in combination, only: (a) monetary damages and any applicable interest; and (b) restitution of property, in which case the award shall provide that the respondent may pay monetary damages and any applicable interest in lieu of restitution, determined in a manner consistent with the relevant provisions of Chapter 2 (Investment Protection).
34 Annex D of Chapter 14 on ‘Investment’ limits investor-State disputes to ‘Annex Parties’, which are only Mexico and the United States. See United States-Mexico-Canada Agreement, signed on 30 November 2018, Office of the United States Trade Representative, https://ustr.gov/trade-agreements/fre e-trade-agreements/united-states-mexico-canada-agreement/agreement-between. 35 The provision similar to Article 8.39 is contained in Article 14.D.13, entitled ‘Awards’ in Annex D of Chapter 14 of USMCA. 36 See European Commission, Proposal for a Council Decision on the conclusion of the Investment Protection Agreement between the European Union and its Member States, of the one Part, and the Republic of Singapore, of the other Part, Annex 1, 14 April 2018, COM(2018) 194 final; Council of the EU, Decision on the signing, on behalf of the Union, of the Investment Protection Agreement between the European Union and its Member States, of the one Part, and the Socialist Republic of Viet Nam, of the other Part, 25 June 2019.
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2. 3. 4. 5.
6.
Where the claim was submitted on behalf of a locally-established company, any award under this paragraph shall provide that: (a) monetary damages and any applicable interest shall be paid to the locally established company; and (b) any restitution shall be made to the locally established company. The Tribunal may not order the repeal of the treatment concerned. Monetary damages shall not be greater than […]. The Tribunal may not award punitive damages. The Tribunal shall order that the costs of the proceedings be borne by the unsuccessful disputing party. […] The Committee may adopt supplementing rules on fees for the purposes of determining the maximum amount of costs of legal representation and assistance that may be borne by specific categories of unsuccessful disputing parties. Such supplementing rules shall take into account the financial resources of a claimant who is a natural person or a small or medium-sized enterprise. The Committee shall endeavour to adopt such supplementing rules no later than one year after the date of entry into force of this Agreement. The Tribunal shall issue a provisional award within 18 months of the date of submission of the claim. If that deadline cannot be respected, the Tribunal shall adopt a decision to that effect, which shall specify the reasons for such delay.
The subsequent Article 3.54 then deals with the ‘Appeal Procedure’, so that Arti- 29 cle 3.55 entitled ‘Final Award’ mainly addresses the relationship of the Provisional Award and the Final Award with an emphasis on the dates at which the award becomes final and binding between the Parties. Despite some editorial changes, Article 3.54 of the IPA with Vietnam is very similar 30 to Article 8.39. This is notable in particular as far as the ‘Committee’ is concerned, which corresponds to the CETA Joint Committee, and which is tasked to ‘adopt supplementing rules on fees for the purposes of determining the maximum amount of costs of legal representation and assistance that may be borne by specific categories of unsuccessful disputing parties.’ The idea of supporting natural persons and SMEs is the same as in CETA, but the rules are more concrete and even set a deadline, namely one year after the date of entry into force of the Agreement. In the CETA negotiations the provision on the Committee’s task to find ways of 31 supporting SMEs in respect of the cost risk was only added after the ‘legal scrubbing’ procedure between 2014 and 2016 (→ mn. 24). This provision was, however, very important for the CJEU when it decided upon the compatibility of CETA with EU law in its opinion 1/17 (→ mn. 93 ff.). Without it, the accessibility of the dispute settlement system in the interpretation of the CJEU might not have been guaranteed. This means that the CETA Joint Committee must engage in this task quickly and effectively once CETA has entered into force in order to meet the Court’s expectations. In so doing it could take reference to the provision of the Vietnam ITA which identifies ‘the maximum amount of costs of legal representation’ and ‘assistance that may be borne by specific categories of unsuccessful disputing parties’ as corner stones of such rules. Also the deadline of one year could be a useful orientation.
D. Commentary I. Separately or in Combination: Damages and Restitution Article 8.39(1) makes clear that an award against a responding state may not only 32 provide for an award of ‘monetary damages and any applicable interest’, but also order ‘restitution’. However, ‘restitution’ is limited to ‘property’ and does not extend to any other form of restitution. In addition, the state must be given the choice to Irmgard Marboe
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pay monetary damages instead. It follows that an arbitral tribunal does not have the competence to oblige the state to repeal a legislative or administrative measure or to order the continued performance of a contract. 33 This provision brings clarity to the disputed question whether and to what extent a tribunal has the power to order specific performance in investor-State arbitration. 37 Generally, under the law of state responsibility, states are obliged to make ‘full reparation’ caused by the internationally wrongful act,38 which ‘shall take the form of restitution, compensation and satisfaction, either singly or in combination.’39 According to the ILC Articles on State Responsibility, restitution means ‘to re-establish the situation which existed before the wrongful act was committed’. 40 It may take the form of material restoration or return of territory, persons or property, or the reversal of some juridical act, or some combination of them.41 34 However, it is not entirely clear whether these obligations are also incumbent on states in their relationship with foreign investors.42 Article 33(1) of the ILC Articles explains that the ‘scope of international obligations set out in this part’, including the Articles addressing ‘Reparation of Injury’ in Chapter II (Articles 34 to 39), ‘may be owed to another State, to several States, or to the international community as a whole, depending in particular on the character and content of the international obligation and on the circumstances of the breach.’43 This means that, primarily, the remedies contained in Chapter II of the ILC Articles are only owed to states amongst themselves. Nevertheless, the respective obligations are ‘without prejudice to any right, arising from the international responsibility of a State, which may accrue directly to any person or entity other than a State.’44 It therefore depends on the primary norms whether and to what extent damages and/or restitution are available. 45 35 Many BITs and FTAs – representing sources of such primary norms – do not contain any provisions in this respect so that tribunals had to decide upon the question of remedies themselves. Several tribunals confirmed in principle that the remedies outlined in the ILC Articles would apply in investor-State arbitration as
37 See Hindelang, ‘Restitution and Compensation – Restructuring the Relationship in Investment Treaty Law’ in Hoffmann and Tams (eds), International Investment Law and General International Law (2011), 161 (172 ff.); Wittich, ‘Remedies’, in Bungenberg et al. (eds), International Investment Law (2015) 1391 (1420 ff.). 38 Article 31 of the ILC Articles on Responsibility of States for Internationally Wrongful Acts, UN General Assembly Resolution A/56/19, Annex (hereinafter: ILC Articles on State Responsibility). 39 Article 34 of the ILC Articles on State Responsibility. 40 Article 35 of the ILC Articles on State Responsibility. 41 See ILC, Commentary on the Articles on State Responsibility, Article 35, YBILC (2001) 2 (2) (hereinafter: ILC Commentary on the Articles on State Responsibility), para. 5. 42 Kriebaum, ‘Restitution in International Investment Law’ in Hoffmann and Tams (eds), International Investment Law and General International Law (2011), 201 (203-205). 43 Article 33(1) of the ILC Articles on State Responsibility. 44 Article 33(2) of the ILC Articles on State Responsibility. The Commentary adds in this respect: ‘The articles do not deal with the possibility of the invocation of responsibility by persons or entities other than States, and paragraph 2 makes this clear. It will be a matter for the particular primary rule to determine whether and to what extent persons or entities other than States are entitled to invoke responsibility on their own account (…). Paragraph 2 merely recognizes the possibility: hence the phrase ‘which may accrue directly to any person or entity other than a State.’’ See ILC Commentary on the Articles on State Responsibility, Article 33, para. 4 (…). 45 The Commentary mentions, by way of example, human rights treaties and bilateral or regional investment protection agreements, which provide rights for non-state entities, which can also invoke the responsibility of the state on its own account, without the intermediation of a state. See ILC Commentary on the Articles on State Responsibility, Article 33, para. 4.
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well and therefore would allow them to award specific performance in principle. 46 Only few tribunals, however, have eventually awarded restitution.47 In some cases, the obligation to specific performance was combined with the alternative to pay monetary damages instead.48 Other tribunals have hesitated to order specific performance as far as this would imply annulling legislative or administrative measures, which would represent undue interference with the respondent state’s sovereignty. 49 In contrast to this past uncertainty, CETA joins the line of those more recent 36 treaties, which actually do address the issue of reparation and remedies. The wording of Article 8.39 is almost identical with that of Article 1135(1) NAFTA (→ mn. 13). It is in accordance with the continuing policy of Canada and other countries to limit the power of the tribunal to restitution of property and not any other form of restitution in integrum. Such a limitation appears in the Canada Model BITs of 2004 and 2014, 50 as well as in a number of BITs concluded by Canada.51 This limited approach towards restitution is also maintained in the USMCA of 37 2018, which was negotiated between the United States, Canada and Mexico after CETA.52 Article 14.D.13(1)(b) USMCA provides that ‘restitution of property, in which case the award shall provide that the respondent may pay monetary damages and any applicable interest in lieu of restitution’, and explicitly adds, in a footnote, ‘for greater certainty’, that ‘in the final award the tribunal may not order the respondent to take or not to take other actions, including the amendment, repeal, adoption, or implementation of a law or regulation.’ By contrast, the Energy Charter Treaty to which the EU is a Party, is more open and 38 explicitly allows monetary damages as well as any other remedies: The awards of arbitration, which may include an award of interest, shall be final and binding upon the parties to the dispute. An award of arbitration concerning a measure of a sub-national government or authority of the disputing Contracting Party shall provide that the Contracting Party may pay monetary damages in lieu of any other remedy granted. Each Contracting Party shall 46 See, for example, Nykomb v. Latvia, SCC Case, Award (16 December 2003), section 5.1; Petrobart v. Kyrgyzstan, SCC Case 126/2003, Award (29 March 2005), point 9(a); CMS v. Argentina, ICSID Case No. ARB/01/8, Award (12 May 2005), paras. 399-407; Micula v. Romania,ICSID Case No. ARB/05/20, Decision on Jurisdiction and Admissibility (24 September 2008), para. 166; ATA Construction, International Trading Company v. Jordan, ICSID Case No. ARB/08/2, Award (18 May 2010), paras. 129-132; AlBahloul v. Tajikistan, SCC Case No. V (064/2008), Final Award (8 June 2010), para. 47; Quiborax v. Bolivia, ICSID Case No. ARB/08/2, Award (16 September 2015), para. 555. See also Hindelang, ‘Restitution and Compensation – Restructuring the Relationship in Investment Treaty Law’, in Hoffmann and Tams (eds), International Investment Law and General International Law (2011), 161 (176 ff.); Schreuer, ‘Non-Pecuniary Remedies in ICSID Arbitration’ (2004) 20 Arb. Int’l, 325 (330 ff.); Schreuer, ‘Alternative Remedies’ (2016) 3(1) JDIA, 1 (2 ff.). 47 TOPCO v. Libya, Award (19 January 1977) (1977) 53 Int’l Law Reports 389 (497-508); Antoine Goetz v Burundi, ICSID Case No. ARB/95/3, Award (10 February 1999), para. 135; Nykomb v. Latvia, SCC Case, Award (16 December 2003), para. 5.2; ATA Construction, International Trading Company v. Jordan, ICSID Case No. ARB/08/2, Award (18 May 2010), paras. 129 ff.; Arif v. Moldova, ICSID Case No. ARB/11/23, Award (3 April 2013), para. 569. 48 Antoine Goetz v. Burundi, ICSID Case No. ARB/95/3, Award (10 February 1999), para. 135; Arif v. Moldova, ICSID Case No. ARB/11/23, Award (3 April 2013), para. 569. 49 LIAMCO v. Libya, Award (12 April 1977) (1982) 62 Int’l Law Reports 140 (196); LG&E v. Argentina, ICSID Case No. ARB/02/1, Award (25 July 2007), para. 87; Occidental Petroleum Corporation v. Ecuador, ICSID Case No. ARB/06/11, Decision on Provisional Measures (17 August 2007), para. 79. 50 See also Article 44(1) of the Canada Model BIT 2004 and Article 35(2) of the Canada Model BIT 2014. 51 See, for example, Article 31(2) Canada – China BIT of 2012. 52 United States-Mexico-Canada Agreement, signed on 30 November 2018, Office of the United States Trade Representative, https://ustr.gov/trade-agreements/free-trade-agreements/united-states-me xico-canada-agreement/agreement-between.
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carry out without delay any such award and shall make provision for the effective enforcement in its Area of such awards.53
39
Since the conclusion of the Energy Charter Treaty in 1994, the trend has moved towards the limitation of available remedies for investors. The provision of Article 8.39(1) with its rather restrictive approach reflects the Canadian position since NAFTA and also the development of the respective EU policy after Lisbon. It is in line with the goal to preserve the regulatory space of states, which was one of the key issues in the development of the EU foreign investment policy. 54 In accordance with this goal, arbitral awards should not go so far and force a state to repeal a measure. Instead, it would be for the state to decide how to bring itself in compliance with an award.55
1. Monetary Damages The term ‘monetary damages’ in Article 8.39(1)(a) reflects the wording of Article 1135(1) NAFTA and has been taken up in subsequent BITs concluded by Canada, but also in the IPAs of the EU with Singapore and Vietnam. The term denotes the financial remedy, which the tribunal may award, if the investor’s claim against the respondent is successful. It makes clear that an amount of money is one possible option. Further below, in Article 8.39(3), some guidelines are given how the amount of damages should be calculated (→ mn. 65 ff.). 41 The term ‘monetary damages’ is meant to contrast ‘restitution’ which is to be understood as physical or material restitution (→ mn. 51). The term is different from the ILC Articles on State Responsibility, which use the term ‘compensation’ to distinguish the monetary remedy from the remedy of ‘restitution’.56 The term ‘monetary damages’ suits well in the present context, because it appropriately denotes the remedy for a wrongful act, which is at issue here, while ‘compensation’ can also mean the payment of an amount of money in the context of an expropriation, which is not unlawful. 57 40
2. And any Applicable Interest 42
Article 8.39 provides that monetary damages may include ‘any applicable interest’. This formulation raises the question which interest is ‘applicable’. First, it is important to distinguish between pre-award and post-award interest. Pre-award interest may form part of the damages claim and is often required to achieve full reparation. Since the principle of full reparation is confirmed in Article 8.39(3) (→ mn. 66), reference can be made to Article 38 of the ILC Articles on State Responsibility, according to which interest on any principal sum ‘shall be payable when necessary in order to
53 Article 26(8) of the Energy Charter Treaty, 17 December 1994, entered into force on 16 April 1998, UNTS 2080, 95 (emphasis added). 54 Kriebaum, ‘FET and Expropriation in the (Invisible) EU Model BIT’ (2014) 15 JWIT, 454 (457 ff.). 55 Hoffmeister and Alexandru, ‘A First Glimpse of Light on the Emerging Invisible EU Model BIT’, (2014) 15 JWIT, 379 (400). 56 ILC Commentary on the Articles on State Responsibility, Article 34, para. 2. 57 See Article 8.12 CETA. For the debate on the terminology see Ripinsky and Williams, Damages in International Investment Law (2008), 4 (stating that the terms damages and compensation can be used interchangeably); Sabahi, Compensation and Restitution in Investor State Arbitration (2011), 91 (using the term compensation for lawful and unlawful acts); Marboe, Calculation of Damages and Compensation in International Investment Law (2017), 15 (arguing for a better distinction between compensation and damages).
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ensure full reparation. The interest rate and mode of calculation shall be set so as to achieve that result.’58 The Commentary of the ILC Articles points out that the actual calculation of 43 interest on any principal sum payable by way of reparation raises a number of complex issues, which include: the decision about the starting date (date of breach, date on which payment should have been made, date of claim or demand), the terminal date (date of settlement agreement or award, date of actual payment) as well as the applicable interest rate (rate current in the respondent State, in the applicant State, international lending rates). There is no uniform approach, internationally, to questions of quantification and assessment of amounts of interest payable.59
Tribunals must assess to what extent pre-award interest is necessary to achieve full 44 reparation. The purpose of interest is ‘to compensate for the delay with which the payment to the successful party is made.’60 The valuation method applied and the valuation date chosen are important factors to determine whether and to what extent pre-award interest is required to achieve full reparation. Generally, statutory interest with fixed rates will not achieve the desired result 45 as they do not reflect economic realities.61 Interest at a rate based on alternative investment opportunities62 or costs for a loan the claimant has taken out or may have to take out are more appropriate.63 Some tribunals have also set the interest at the rate of the cost of capital of the investment concerned. 64 Relatively widespread is also the use of interbank rates, such as the London Inter-Bank Rate (LIBOR), 65 usually increased by some percentage points,66 which may come close to representing the claimant’s borrowing rate.
See also ILC Commentary on the Articles on State Responsibility, Article 38, paras. 1 f. See ILC Commentary on the Articles on State Responsibility, Article 38, para. 10. 60 McCollough & Company, Inc. v. the Ministry of Post, Telegraph and Telephone, Iran-US Claims Tribunal, Award (16 April 1986), (1986) 11 Iran-US Claims Tribunal Reports, 3. 61 See, however, Nykomb Synergetics Technology Holding v. Latvia, SCC Case, Award (16 December 2003), 40 (interest at six percent, corresponding to the prevailing interest rate in Latvia). See the extensive discussion of the choice of the interest rate in Yukos Universal Ltd. (Isle of Man) et al. v. Russian Federation, UNCITRAL, PCA Cases Nos. AA 226, 227, 228, Award (18 July 2014), paras. 1650 ff. 62 Siemens v Argentina, ICSID Case No. ARB/02/8, Award (6 February 2008), para. 396 (interest at the average rate of US six-month certificates of deposit at 2.66 percent during the relevant time); Quasar de Valores v. Russian Federation, SCC Case, Award (20 July 2012), para. 226 (interest at a rate of 6.434 percent corresponding to the yield of medium-term Russian sovereign bonds dealt in USD at the relevant time). 63 National Grid v. Argentina, UNCITRAL, Award (3 November 2008), para. 294 (awarding 5.15 percent estimating the claimant’s borrowing rate); Tidewater v. Venezuela, ICSID Case No. ARB//81/1, Award (13 March 2015), paras. 207 ff. (awarding 4.5 percent as the claimants’ average borrowing rate). 64 Philips Petroleum and Conoco Phillips v. PDVSA, ICC Case No. 16848/JRF/CA (C-16849/JRF), Award (17 September 2012), para. 295 (awarding a rate of 10.55 percent on the basis of claimants’ costs of equity, including DCF and CAPM methods). 65 See, for example, Rosinvest v. Russian Federation, SCC Case, Final Award (21 September 2010), paras. 684 ff. (using overnight LIBOR without any addition, not compounded, due to the ‘speculative nature’ of the investment by the claimant). However, by 31 December 2021 the LIBOR inter-bank rate will be abolished. Future tribunals will have to find a new reference interest rate. The European Interbank Exchange Rate (EURIBOR) may be an option. 66 Kardassopoulos v. Republic of Giorgia, ICSID Case No. ARB/0618 and ARB/07/15, Award (3 March 2020), paras. 658 ff. (interest at six-month LIBOR plus 4 percent compounded semi-annually); Lemire v. Ukraine, ICSID Case No. ARB/06/18, Award (20 March 2011), para. 350 (awarding LIBOR plus 2 percent); see also the NAFTA case Mobil Investments and Murphy Oil v. Canada, ICSID Case No. ARB(AF)/07/4, Award (20 February 2015), para. 170 (12-months Canadian dollar LIBOR plus 4 percent). 58
59
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The issue of interest is also addressed in Article 8.12 on expropriation. In that context, the payment of interest at a normal commercial rate is required in connection with prompt, adequate and effective compensation in accordance with the conditions for expropriation under CETA (→ Art. 8.12 mn. 38 ff.). According to Article 8.12, compensation: shall also include interest at a normal commercial rate from the date of expropriation until the date of payment and shall, in order to be effective for the investor, be paid and made transferable, without delay, to the country designated by the investor and in the currency of the country of which the investor is a national or in any freely convertible currency accepted by the investor.
Interest so determined arguably represents the minimum, which should also be paid in cases of unlawful expropriations and other breaches of CETA, when the valuation date lies in the past.67 48 If the principal were to be paid in the past, it is also necessary to decide whether simple or compound interest should be awarded. Article 8.39 CETA does not explicitly address this question.68 While, for a long time, compound interest has not been accepted in international jurisprudence, in particular in State-to-State disputes, 69 it is now regularly awarded in international investment arbitration as an element of damages as it is ‘more in accordance with the reality of financial transactions and a closer approximation to the actual value lost by an investor’.70 Only in exceptional cases, simple interest is awarded.71 49 With respect to post-award interest, different considerations apply. Its primary purpose is to induce rapid payment of the award.72 The law applicable to post-award interest may not necessarily be international law, as post-award interest can be treated as a question of procedure.73 Therefore, the applicable law can be national law, namely the law of the place of the arbitration, or the applicable arbitration rules. Post-award interest can be regarded as ‘default interest’ and can be based on statutory provisions. 74 47
67 As to a brief overview of potential interest rates with respect to monetary damages, see above, mn. 45. 68 This is also the case with respect to interest in cases of expropriation. See de Nanteuil, ‘Expropriation’, in: Mbengue and Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (2019), 127 (149). 69 See the rather general rejection of compound interest in the ILC Commentary on the Articles on State Responsibility, Article 38, paras. 8-9. 70 MTD v. Chile, ICSID Case No. ARB/01/7, Award (25 May 2004), para. 251; see an overview over the numerous cases in which compound interest, as opposed to simple interest, was awarded, in Marboe, Calculation of Compensation and Damages in Investment Arbitration (2017), 389 f. 71 See, for example, Rosinvest v. Russian Federation, SCC Case, Final Award (21 September 2010), paras. 689 f. (compound interest would be unjust in light of the ‘speculative nature’ of the investment); Yukos Universal Ltd. (Isle of Man) et al. v. Russian Federation, UNCITRAL, PCA Cases Nos. AA 226, 227, 228, Award (18 July 2014), para. 1689 (while recognizing that compound interest already represented a form of ‘jurisprudence constante’ in investor-State arbitration, in the circumstances of the case the tribuna it ‘just and reasonable’ to award only simple pre-award interest, but post-award interest compounded annually). 72 See on the discussion on the different purposes of interest, Marboe, Calculation of Compensation and Damages in Investment Arbitration (2017), 330 ff., 393. 73 See ILC Commentary on the Articles on State Responsibility, Article 38, para 12: ‘Article 38 does not deal with post-judgement or moratory interest. It is only concerned with interest that goes to make up the amount that a court or tribunal should award, i.e. compensatory interest. The power of a court or tribunal to award post-judgement interest is a matter of its procedure.’ 74 Within the EU, the Directive 2011/7/EU of the European Parliament and of the Council of 16 February 2011 on combating late payment in commercial transactions would be pertinent. Article 2(6) provides that ‘“statutory interest for late payment” means simple interest for late payment at a rate which is equal to the sum of the reference rate and at least eight percentage points’. Article 2(7) defines
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In practice, arbitral tribunals often do not distinguish between pre-award and post- 50 award interest precisely. They arguably consider interest as necessary to compensate for the temporary withholding of money, which continues until the award is paid in full. In some cases, post-award interest rates are higher, or the compounding intervals are shorter.75
II. Restitution of Property The tribunal has the power to award restitution of property in accordance with 51 Article 8.39(1)(b). The word ‘only’ makes clear that restitution of property is the only form of restitution, which is available under CETA, in contrast to restitutio in integrum, which would include the possibility to re-establish the pre-existing legal situation of the claimant. 76 In other words, Article 8.39(1)(b) only allows ‘material’ restitution, not ‘juridical’ or ‘legal’ restitution.77 It is therefore important to understand which type of property may be the subject 52 of restitution. International investment law normally does not speak of property but of ‘investments’.78 In the context of expropriation, the concept of ‘property’ generally covers tangible and intangible assets, such as contracts.79 However, with respect to restitution of property as a remedy, different considerations apply. In view of the restrictive approach towards restitution under CETA (→ mn. 32 ff.), ‘material restitution’ would first of all denote the return of tangible assets, including immovable and movable assets.80 It is less clear whether also intangible property is included. In view of the context and the purpose of Article 8.39(1)(b) this cannot be easily assumed. Otherwise, the restriction of restitution to (only) property would be almost meaningless and also ‘juridical restitution’ would be possible. On the other hand, the return of money on bank accounts81 or the return of taxes82 53 have been available remedies in investment arbitration. While tribunals did not refer to these remedies as restitution, commentators have regarded them as such. 83 They represent amounts of money, even though not in the form of physical coins and bills, but when they are returned they rather represent restitution of money than monetary the ‘reference’ rate, amongst others, as ‘the interest rate applied by the European Central Bank to its most recent main refinancing operations’. See OJ L48/1, 23 February 2011. 75 See, for example, Occidental v. Ecuador, ICSID Case No. ARB/06/11, Award (5 October 2012) (awarding pre-award interest at the rate of US Government Treasury Bills, compounded annually, but post-award interest at the US dollar six-months LIBOR rate, compounded monthly); see also Metalclad v. Mexico, ICSID Case No. ARB(AF)/97/1, Award (30 August 2000), para. 131 (awarding pre-award interest compounded on a yearly basis, but post-award interest on a monthly basis). 76 See ILC Commentary on the Articles on State Responsibility, Article 31. 77 Sabahi, Compensation and Restitution in Investor State Arbitration (2011), 65 ff. 78 Schreuer and Kriebaum, ‘The Concept of Property in Human Rights Law and International Investment Law’, in Breitenmoser et al. (eds), Human Rights, Democracy and the Rule of Law. Liber amicorum Luzius Wildhaber (2007), 743 (744). 79 This has been established for a long time, see Schreuer and Kriebaum, ‘The Concept of Property in Human Rights Law and International Investment Law’, in Breitenmoser et al. (eds), Human Rights, Democracy and the Rule of Law. Liber amicorum Luzius Wildhaber (2007), 743 (744). 80 Sabahi, Compensation and Restitution in Investor State Arbitration (2011), 65 ff. 81 Maffezzini v. Spain, ICSID Case No. ARB/97/7, Award (13 November 2000), paras. 95 f. 82 Occidental Exploration v. Ecuador, Award (1 July 2004), LCIA Case No UN 3467, paras. 208-209; Sociéte d’Exploitation des Mines d’Or de Sadiola SA (‘Semos’) v. Mali, ICSID Case No. ARB/01/5, Award (25 February 2003), para. 99; Nykomb Synergetics Technology Holding v. Latvia, SCC, Award (16 December 2003), section 5.2 b), 41. 83 Sabahi, Compensation and Restitution in Investor-State Arbitration (2011), 72; Schreuer, ‘Alternative Remedies’, (2016) 3(1) JDIA, 16 (18).
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damages. A similar logic could also apply to the return of shares in a company. While these are intangible assets, they could also be returned without a need to change local law or otherwise interfere with the respondent’s sovereignty. It can be concluded that restitution of intangible property is available under Article 8.39(1)(b) as long as it is not ‘legal restitution’. 54 If the tribunal chooses to award restitution, and not monetary damages, this does not mean that restitution is inevitable. Rather, the respondent must be given the right to choose to return the property or to pay an amount of money representing the fair market value of it. The term ‘monetary damages’ in this case should be understood as meaning ‘compensation’ as it is denoted in Article 8.12 (→ mn. 41).
1. Fair Market Value Instead With respect to the assessment of the property’s fair market value which may be paid instead of its restitution Article 8.39(1)(b) refers to Article 8.12, which specifies in its para. 2 that ‘[v]aluation criteria shall include going concern value, asset value including the declared tax value of tangible property, and other criteria, as appropriate, to determine fair market value.’ 56 The fair market value represents the standard of compensation contained in EU Member States’ BITs and in the Energy Charter Treaty. It is generally regarded as representing the well-known ‘Hull Formula’ of ‘prompt, adequate and effective compensation’, so that, from the perspective of the EU, this acquis should be maintained. 84 Also Article 1110(2) NAFTA and the Canadian Model BITs of 2004 and 2014 refer to the fair market value as the standard of compensation for expropriation.85 The same is true for the IPAs of the EU with Vietnam and Singapore. 86 57 With respect to the valuation method to achieve fair market value, the various treaties differ to some extent, and Article 8.12 follows the NAFTA model. The going concern value refers to an income valuation approach, such as the discounted cashflow (DCF) method, which is generally recommended for the valuation of enterprises with a proven record of profitability.87 The asset value evaluates the property on the basis of its component parts without taking into consideration future profitability or synergies. Several different methods are available to assess the value of the assets and liabilities, including historical costs, book value, replacement costs, liquidation value, and others.88 The declared tax value of tangible property is generally not regarded as appropriate for assessing fair market value, as it depends on the national tax system of the expropriating country and may not reflect economic realities. 89 Nevertheless, it is also contained in Article 2.6(2) of the IPA with Singapore, but not in Article 2.7 of the IPA with Vietnam. 55
84 Hoffmeister and Alexandru, ‘A First Glimpse of Light on the Emerging Invisible EU Model BIT’, (2014) 15 JWIT, 379 (394). 85 See Article 13(2) of the Canada Model BIT 2014 and of the Canada Model BIT 2004. 86 See Article 2.6 IPA with Singapore and Article 2.7 of the IPA with Vietnam. 87 See World Bank, ‘Guidelines on the Treatment of Foreign Direct Investment’ (1992), 2, Report to the Development Committee and Guidelines on the Treatment of Foreign Direct Investment, 42. See also the criteria developed by the tribunal in Rusoro v. Venezuela, ICSID Case No. ARB(AF)/12/5, Award (13 September 2016), para. 759. 88 See for an overview about the different methods and their application in arbitral practice, Marboe, Calculation of Compensation and Damages in Investment Arbitration (2017), 201 ff. and 278 ff. 89 This valuation criterion may turn out confiscatory as for example in Mexico, real property is recorded in the relevant registries at only 10 percent of its commercial value. The criterion is included in Article 27 of the Mexican Constitution. See Patrick del Duca, ‘The Rule of Law: Mexico’s Approach to Expropriation Disputes in the Face of Investment Globalization’ (2003) 51 UCLA L. Rev. 35 (54).
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Other criteria, as appropriate, which are not explicitly mentioned, could include the 58 market approach or the sales comparison approach, which assess the value of an asset on the basis of comparable assets in the market. Widely accepted methods include the use of stock prices, the prices of comparable companies, and the use of multiples, i.e. particular variables of an enterprise’s performance, such as cash flows, earnings, or profits.90
2. Applicable Interest The meaning of ‘any applicable interest’ in Article 8.39(1)(b) is apparently slightly 59 different from Article 8.39(1)(a), because it explicitly refers to Article 8.12, which provides for interest to be determined in the context of expropriation ‘at a normal commercial rate from the date of expropriation until the date of payment’. The provision does not give any further guidance how the normal commercial rate shall be identified, but it excludes statutory interest rates at fixed percentage points, which do not have anything to do with commercial realities. Some statutory rates do refer to central bank reference rate, such as interest rates in EU countries implementing the EU Directive on combating late payments.91 However, this rate, even though based on a bank reference rate should not be applied in this context, as it is a default rate whose purpose is to deter and punish late payments. Usually this is not the purpose of pre-award interest rates in international investment law. Other commercial rates should therefore be chosen, such as the rate of an alternative investment, the borrowing rate of the claimant or of the respondent, or some inter-bank interest rates (→ mn. 45).92
III. Claims Made on Behalf of a Locally Established Enterprise Article 8.39(2) contains a number of provisions to clarify who should be the 60 beneficiary of the award, if the successful claimant was an foreign investor who, in accordance with Article 8.23, brought the claim against the respondent on behalf of a locally established enterprise which it owns or controls directly or indirectly. This treaty provision aims at clarifying the identity of the recipient of the amount of damages, restitution, and costs in such a constellation, which may not be entirely selfevident. Furthermore, it makes clear that the right to bring a claim under domestic law remains unaffected, with the exception of the person that has waived this right in order initiate the international arbitration proceeding in accordance with Article 8.22(g), and that the award has to state this explicitly. The provision of Article 8.39(2)(a) that ‘an award of monetary damages and any 61 applicable interest shall provide that the sum be paid to the locally established enterprise’ as the recipient shall ensure that the payment of damages is made as directly as possible and avoid any international money transfers. This practical solution does not change anything in the international character of the dispute, which in the absence of this clarification may not be entirely evident. The ultimate beneficiary is the foreign investor who owns or controls the enterprise directly or indirectly and who has brought the claim. 90 See Marboe, Calculation of Compensation and Damages in Investment Arbitration (2017), 185 ff. and 214 ff. 91 See the Directive 2011/7/EU. 92 The LIBOR, plus some additional percentage points, has been used frequently by investment tribunals; it will, however, be abolished by 31 December 2021.
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Similar considerations apply to Article 8.39(2)(b) according to which an award of restitution of property shall provide that the recipient shall be the locally established enterprise. 63 On the other hand, in accordance with Article 8.39(2)(c), the award of costs must be made in favour of the investor who has brought the claim. Here the recipient must be the investor who has initiated the arbitration and followed through the proceeding, which necessarily caused costs and expenses. International transfer of money is therefore inevitable. 64 The provision in Article 8.39(2)(d) refers to the relationship of national law and international law with respect to the actions of the respondent. It reflects the situation that there might be remedies under domestic law not entirely congruent with the protection of the investor under the treaty. These may include additional forms of relief for the benefit of the locally established enterprise, or if stakes of other owners of the enterprise were not included in the representation by the foreign investor. Such rights should not be extinguished by the arbitration, and the award must state so explicitly. In the simpler formulation of Article 1135(2)(c) NAFTA, which served as a model, this means that the award shall provide that it is made without prejudice to any right that any person may have in the relief under applicable domestic law. 62
IV. Assessment of Damages Article 8.39(3) contains certain guidelines for the assessment of monetary damages. First, it provides that ‘monetary damages shall not be greater than the loss suffered by the investor’.93 This seems to reflect the drafters’ intention to protect the taxpayers of the respondent from very high amounts of damages and to send a comforting signal to governments and civil society. It can be seen as a reaction to the allegation that investors generally receive very high amounts of damages, which may even include windfalls.94 Very high damages awards may raise problems in particular for smaller countries.95 From this perspective, the formulation of Article 8.39(3) can be regarded as an attempt to limit the amount of money to an acceptable level. It reminds tribunals not to award exorbitant or speculative damages. Monetary damages shall only be compensatory. They shall not have any punitive function. 66 Nevertheless, the formulation of Article 8.39(3) actually confirms the principle of full reparation as pronounced by the PCIJ in its judgment in Factory at Chorzów 96 and taken up by the ILC in its Articles on State Responsibility, even though it does not explicitly do so (→ mn. 32).97 For the assessment of damages, it puts the loss suffered by the investor in focus. This corresponds to the current standard of custom65
93 Such specification is also contained in the IPA with Singapore, but not in Article 1135 NAFTA and the IPA with Vietnam. 94 A study of 2017 shows that investors received damages in 58 per cent of the cases that reached the merits stage and had an average recovery rate of 39.3 percent and a median recovery rate of 32.7 percent. These numbers were taken from a population of 385 cases of which 131 led to publicly available awards on the merits. See Giacchino and Sturma, ‘Trends in Awards from Concluded ICSID Cases’ (2017) 4(2) JDIA, 51 (57). 95 For Europe, the most notable case involving 270 million USD plus interest is CME v. Czech Republic, UNCITRAL, Final Award on Damages (14 March 2003), para. 620; see the Separate Opinion on the Issues at the Quantum Phase by Ian Brownlie, arguing in favour of a ‘reasonable rate of return’ and warning about ‘catastrophic economic consequences for the host State and its population’, para. 58. 96 Case Concerning the Factory at Chorzów, (Germany v Poland) (Indemnities), Judgment of 13 September 1928, PCIJ Series A No. 17, 47. 97 ILC Commentary on the Articles on State Responsibility, Article 31.
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ary international law for violations of international law, as formulated in Chorzów, according to which, ‘reparation must, as far as possible, wipe out all the consequences of the illegal act and re-establish the situation which would, in all probability, have existed if that act had not been committed.’98 This standard aims at compensating the loss suffered by the injured Party. Its purpose is to balance the negative financial consequences of the unlawful act and provide relief for the victim. It does not have a punitive character. If it is appropriately applied, it in itself is sufficient to avoid both under- and overcompensation. 99 However, if the losses are high, the award of damages may also be high. Article 8.39(3) further specifies that monetary damages shall be reduced by any 67 prior damages or compensation already provided. This is another confirmation of the principle of full reparation, according to which the sum of money should not be larger than the financial damage incurred by the investor. If payments have been made to the investor or to the respective locally established enterprise, these must be calculated as a reduction of the award of damages. While this may be self-evident and simply in accordance with the principle of full reparation, the explicit formulation of such a reduction draws attention to the possibility that prior payments have been made and that they need to be deducted from the amount that otherwise would have been awarded. The further specification that, the tribunal shall also reduce the damages to take 68 into account any restitution of property or repeal or modification of the measure has the same function. It sends the signal that restitution could have been made by the respondent before the award was rendered. Interestingly, restitution here is not limited to restitution of property, but also includes any ‘repeal or modification of the measure’. While such a ‘legal restitution’ could not be ordered by the tribunal, the respondent itself could have voluntarily repealed or modified the measure in the meantime. The possibility of a changed legal framework for the investment is particularly important, if forward-looking valuation methods, such as the discounted cash flow (DCF) method, are applied for the calculation of damages. 100 Interestingly, the specifications in Article 8.39(3) do not reduce the amount of 69 damages available, which such a treaty provision actually could have done. For example, the European Convention on Human Rights only provides for ‘just satisfaction’ for the victim of a treaty violation, ‘if necessary’.101 CETA could also have included principles of EU law in its guidance for tribunals in awarding damages. According to the jurisprudence of the CJEU, an unlawful act of a Member State or one of the EU organs does not automatically lead to a claim for damages of the victims, but only if the breach is ‘sufficiently serious’.102 Furthermore, CETA, which is a treaty between countries of similar economic and political stability, could have included some considerations of balancing the interests of the investor and those of the state
98 Case Concerning the Factory at Chorzów, (Germany v Poland) (Indemnities), Judgment of 13 September 1928, PCIJ Series A No. 17, 47. 99 Wöss et al., Damages in International Arbitration under Complex Long-Term Contracts (2014), 16. 100 With respect to the application of valuation methods, see the World Bank, ‘Guidelines on the Treatment of Foreign Direct Investment’ (1992) 2 Report to the Development Committee and Guidelines on the Treatment of Foreign Direct Investment, 33. 101 Article 41 of the European Convention on Human Rights. 102 Criteria for the ‘seriousness of the breach’ are the measure of discretion left to the relevant authorities and whether the Member State or the Union manifestly and gravely disregarded the limits of their discretion. See CJEU, Case C-352/98, 04.07.2000, Bergaderm v Commission, ECLI:EU:C:2000:361, paras. 43 f.
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when it comes to the determination of damages. Yet, this is not what the text of Article 8.39(3) says. 70 In any case, a departure of the principle of full reparation would have been a change of the existing standard of international investment protection and difficult to bring in line with an envisaged ‘state-of-the-art dispute settlement’. 103 It can be concluded that the principle of full reparation continues to be applicable under CETA as it is generally applied in international investment arbitration. Its proper application should not, and generally does not, lead to overcompensation. The appropriate use of valuation methods, the respective instruction of and the dialogue with parties and experts are needed to avoid that unreasonable or speculative damages are awarded.
V. No Punitive Damages Article 8.39(4) expliticly prohibits the awarding of punitive damages and thereby reiterates that monetary damages should only have a compensatory function. It confirms the customary law principle prevailing in the law of state responsibility that financial compensation is limited to the damage actually incurred (→ mn. 32 ff.). 104 It does not have a punitive character.105 72 The concept of punitive damages has developed in the United States, where punitive or ‘exemplary’ damages are available as an additional remedy.106 In most other states, transgressors of the law are punished in criminal or administrative proceedings, but not in civil litigation. In many countries awards of punitive damages are not enforceable.107 73 In view of the absence of criminal sanctions in public international law, experts have sometimes discussed the possibility of considering punitive damages as a sanction for unlawful behaviour by states.108 However, international practice has not taken up this proposal. Rejecting the idea of ‘punishment’ of the state, the law on state responsibility entails the concept of ‘satisfaction’ as part of the obligation to make full reparation.109 This is particularly important when the damage caused by the wrongful international act cannot be redressed adequately by mere financial compensation. There is the possibility of awarding an amount of money, unrelated to material damage,110 and other ways and means of satisfaction (such as a public apology, an international judgment or award against the respondent, the creation of a fund for 71
103 Hoffmeister and Alexandru, ‘A First Glimpse of Light on the Emerging Invisible EU Model BIT’, (2014) 15 JWIT, 379 (383). 104 The prohibition of punitive damages is also included in Article 1135(3) NAFTA, Article 35 of the Canada Model BIT 2014, as well as in Article 3.18(2) IPA EU-Singapore and Article 3.53(3) IPA EU-Vietnam. 105 See ILC Commentary on the Articles on State Responsibility, Article 36, para. 4. 106 Gotanda, ‘Charting Developments Concerning Punitive Damages: Is the Tide Changing?’ (2007) 45 Colum. J. Transnat’l L., 507. 107 Gotanda, ‘Charting Developments Concerning Punitive Damages: Is the Tide Changing?’ (2007) 45 Colum. J. Transnat’l L., 507. 108 See e.g., Arangio-Ruiz, Special Rapporteur of the ILC, ‘Second Report on State Responsibility’ 2(1), YBILC, 1 (31 ff.); see also Brower’s Concurring Opinion in Sedco Inc v. NIOC, Final Award (7 July 1987) (1987) 15 Iran–US Claims Tribunal Report, 23 (205). 109 See ILC Commentary on the Articles on State Responsibility, Article 37. 110 See New Zealand v. France (Rainbow Warrier), Award (30 April 1990), para. 115.
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individual damages, etc).111 The reason is that states would not be ready to accept the criminalisation of the law on state responsibility.112 Monetary damages for immaterial harm, so-called moral damages, must be distin- 74 guished from punitive damages. They aim at repairing, as far as money can do, mental and physical suffering of victims. While international investment protection treaties do not primarily concern such cases, moral damages are nevertheless increasingly claimed and also sometimes awarded in investment arbitration.113 If awarded, they represent damages for immaterial harm caused to a foreign investor by a host state in violation of its international obligations.
VI. Award on Costs Article 8.39(5) does not only require that the tribunal shall include, in its award, an order of costs, but also provides guidelines how the costs shall be allocated between the parties. Thereby, two different types of costs are distinguished: (1) the costs of the proceedings (i.e. the costs and expenses of the arbitral tribunal and any other administrative costs and fees) and (2) ‘other reasonable costs’, which include costs of legal representation and assistance of the parties. With respect to (1), they shall be borne by the unsuccessful disputing Party. Only in exceptional circumstances, the tribunal may apportion these costs between the disputing parties. With respect to (2), they shall also be borne the unsuccessful disputing Party in principle, but the tribunal may apportion them differently, if it determines that it would be unreasonable in the circumstances of the claim, and if only parts of the claims have been successful. This degree of precision with respect to the allocation of costs is quite unusual in comparison to existing BITs and FTAs. Article 3.18 of the EU-Singapore IPA does not have any provision on costs.114 Article 1135 NAFTA, which in many respects has served as a model for Article 8.39(5), leaves the rule in the apportionment of costs to the applicable arbitration rules.115 The arbitration rules applicable in investor-State arbitration under CETA also contain provisions on the allocation of costs and may differ from the principles on costs contained in Article 8.39(5). According to Article 8.23(2) CETA the applicable arbitration rules could be the ICSID Arbitration Rules, ICSID Additional Facility Rules, UNCITRAL Arbitration rules or any other rules agreed by the disputing parties. 116 Under the ICSID Convention arbitral tribunals enjoy almost unlimited discretion in the allocation of costs. Article 61(2) of the ICSID Convention merely provides: 111 Wittich, ‘Awe of the Gods and Fear of the Priests: Punitive Damages and the Law of State Responsibility’ (1998) 3 ARIEL, 101 (118). 112 The opinion pronounced in the Lusitania case still represents the prevailing view, namely that the ‘superimposing of a penalty in addition to full compensation and naming it damages, with the qualifying word exemplary, vindictive, or punitive, is a hopeless confusion of terms, inevitably leading to confusion of thought’. Lusitania (Germany and United States), German–American Claims Commission, Opinion (1 November 1923), 7 Reports of International Arbitral Awards, 32 (39). See also Marboe, Calculation of Damages and Compensation in International Investment Law (2017) 35 f. and 78 f., with further references. 113 See, for example, Desert Line v. Jemen, ICSID Case No. ARB/05/17, Award (6 February 2008), paras. 289 ff. (awarding US$ 1 million for ‘moral damages, including loss of reputation’). 114 On the other hand, Article 3.53(4) of the EU-Vietnam IPA, which was concluded after CETA, also has such a provision on cost allocation. 115 See Article 1135 NAFTA: ‘A tribunal may also award costs in accordance with the applicable arbitration rules.’ See also Article 35(2) of the Canada Model BIT 2014. 116 See Article 8.23(2).
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In the case of arbitration proceedings the Tribunal shall, except as the parties otherwise agree, assess the expenses incurred by the parties in connection with the proceedings, and shall decide how and by whom those expenses, the fees and expenses of the members of the Tribunal and the charges for the use of the facilities of the Centre shall be paid. Such decision shall form part of the award. 117
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The 2006 ICSID Arbitration Rules do not offer more guidance, either. Rule 28(1) just provides: Without prejudice to the final decision on the payment of the cost of the proceeding, the Tribunal may, unless otherwise agreed by the parties, decide: (a) at any stage of the proceeding, the portion which each party shall pay, pursuant to Administrative and Financial Regulation 14, of the fees and expenses of the Tribunal and the charges for the use of the facilities of the Centre; (b) with respect to any part of the proceeding, that the related costs (as determined by the SecretaryGeneral) shall be borne entirely or in a particular share by one of the parties.
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Among the broadly applied principles is the traditional, so-called American rule of equal sharing, which demands every Party to bear its own costs and share the costs of the proceeding equally.118 Its justification is that it eliminates unpredictability and removes the need for extended deliberations over costs.119 More recently, ICSID tribunals have also applied the costs-follow-the-event (or the ‘loser pays’) principle, which refers to the (relative) success of the parties.120 In addition, the behaviour of the parties with respect to the efficient and cost-effective conduct of the proceedings has been taken into consideration.121 The novelty and complexity of the legal issues discussed has also sometimes been a reason to split the arbitration costs and have each
117 This formulation is very similar to that used in Article 58 of the ICSID Additional Facility Rules as of 10 April 2006. 118 See, for example, Malaysian Historical Salvors v. Malaysia, ICSID Case No. ARB/05/10, Award (17 May 2007), para. 150; Tokios Tokelės v. Ukraine, ICSID Case No. ARB/02/18, Award (26 July 2007), para. 146; MCI Power Group LC and New Turbine, Inc. v. Republic of Ecuador, ICSID Case No. ARB/03/6, Award (31 July 2007), para. 372; Sempra Energy Int’l v. Argentina, ICSID Case No. ARB/02/16, Award (28 September 2007), para. 5 (dispositive of the award); AES Summit v. Hungary, ICSID Case No. ARB/07/22, Award (23 September 2010), para. 15.3.3; Murphy Exploration v. Ecuador, ICSID Case No. ARB/08/4, Award (15 December 2010), para. 159; Standard Chartered Bank v. Tanzania, ICSID Case No. ARB/10/12, Award (2 November 2012), para. 276; OPIC Karimum Corp v. Venezuela, ICSID Case No. ARB/10/14, Award (28 May 2013), para. 180; Emmis International Holding v. Hungary, ICSID Case No ARB/12/2, Award (16 April 2014), paras. 258 ff. 119 Hodgson, ‘Costs in Investment Treaty Arbitration: The Case for Reform’, in Kalicki and JoubinBret (eds), Reshaping the Investor-State Dispute Settlement System: Journeys for the 21 st Century (2015), 748 (750); Gotanda, ‘Consistently Inconsistent: The Need for Predictability in Awarding Costs and Fees in Investment Treaty Arbitrations’ (2013) 28 ICSID Rev., 420 (424). 120 Joseph Charles Lemire v. Ukraine, ICSID Case No. ARB/06/18, Award (28 March 2011), para. 380 (welcoming the ‘newly established and growing trend, that there should be an allocation of costs that reflects in some measure the principle that the losing party should contribute in a significant, if not necessarily exhaustive, fashion to the fees, costs and expenses of the arbitration of the prevailing party’). Similar formulations have been used by subsequent tribunals, for example, OI European Group BV v. Venezuela, ICSID Case No. ARB/11/25, Award (10 March 2015) para. 964; Marco Gavazzi and Stefano Gavazzi v. Romania, ICSID Case No. ARB/12/25, Award (18 April 2017), para. 311. For earlier cases see Plama Consortium Ltd v. Bulgaria, ICSID Case No. ARB/03/24, Award (27 August 2008), para. 316; Phoenix Action Ltd v. Czech Republic, ICSID Case No. ARB/06/5, Award (15 April 2009), para 151. 121 See, for example, Archer Daniels v. Mexico, ICSID Case No. ARB(AF)/04/5, Award (21 November 2007), para. 302; AES Summit v Hungary, ICSID Case No. ARB/07/22, Award (23 September 2010), para. 15.3.3; SGS v. Paraguay, ICSID Case No. ARB/07/29, Award (10 February 2012), para. 192; Marion and Reinhard Unglaube v. Costa Rica, ICSID Case No. ARB/09/20, Award (16 May 2012), para. 330; Ömer Dede v. Romania, ICSID Case No. ARB/10/22, Award (5 September 2013) paras. 268 ff.; Emmis International Holding v. Hungary, ICSID Case No. ARB/12/2, Award (16 April 2014), para. 259; Karkey Karadeniz v. Pakistan, ICSID Case No. ARB/13/1, Award (22 August 2017), para. 1062.
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Party bear its own costs.122 This shows that the practice of arbitral tribunals under ICSID is more varied than the principles put forward in Article 8.39(5). The UNCITRAL Arbitration Rules 2013, dealing in their Article 42(1) with alloca- 81 tion of costs, are more in line with Article 8.39(5). They put priority to costs-followthe-event, but also leave room for other considerations: The costs of the arbitration shall in principle be borne by the unsuccessful party or parties. However, the arbitral tribunal may apportion each of such costs between the parties if it determines that apportionment is reasonable, taking into account the circumstances of the case.
The ICC 2017 Arbitration Rules do not explicitly refer to the (relative) success of 82 the parties. While leaving broad discretion to the arbitrators they focus more on the conduct of the parties during the proceedings. Article 38(5) on ‘Decision as to the Costs of the Arbitration’ provides: In making decisions as to costs, the arbitral tribunal may take into account such circumstances as it considers relevant, including the extent to which each party has conducted the arbitration in an expeditious and cost-effective manner.
The 2017 Arbitration Rules of the Stockholm Chamber of Commerce, whose ser- 83 vices are also used rather frequently in investor-State arbitration, refer both to the outcome of the proceeding and the conduct of the parties, as well as other relevant circumstances. In Article 49(6) with respect to ‘Costs of the Arbitration’ they state: Unless otherwise agreed by the parties, the Arbitral Tribunal shall, at the request of a party, apportion the Costs of the Arbitration between the parties, having regard to the outcome of the case, each party’s contribution to the efficiency and expeditiousness of the arbitration and any other relevant circumstances.
According to the EU foreign investment policy, ISDS provisions should not leave 84 the decision on the allocation of costs entirely to the discretion of the tribunal. 123 Various policy goals are connected to this issue. On the one hand, frivolous claims should be discouraged. On the other hand, natural persons and SMEs should not be deterred by the high arbitration costs from bringing legitimate claims. With respect to the prevention of frivolous claims, the current text of CETA ad- 85 dresses the issue of ‘claims manifestly without legal merit’ primarily in Article 8.32 and Article 8.33.124 The allocation of costs against the unsuccessful Party is another element in this endeavour.125 122 In the first arbitrations between EU member States under the Energy Charter Treaty, this was a recurring argument. See Eiser v. Spain, ICSID Case No. ARB/13/36, Award (4 May 2017) para. 484; Masdar Solar & Wind Cooperatif UA v. Spain, ICSID Case No. ARB/14/1, Award (16 May 2018) paras. 694 ff., where the tribunal considered equal sharing of costs to be the fair and proper solution. See also Global Trading v. Ukraine, ICSID Case No. ARB/09/11, Award (1 December 2010), para. 59; Daimler Financial Service v. Argentina, ICSID Case No. ARB/05/1, Award (22 August 2012), para. 284; KT Asia Investment Group BV v. Kazakhstan, ICSID Case No. ARB/09/8, Award (17 October 2013), para. 228; Nova Scotia Power v. Venezuela, ICSID Case No. ARB(AF)/11/1, Award (30 April 2014), para. 151; Crystallex v. Venezuela, ICSID Case No. ARB(AF)/11/2, Award (2 April 2016), paras. 957 f. 123 Hoffmeister and Alexandru, ‘A First Glimpse of Light on the Emerging Invisible EU Model BIT’, (2014) 15 JWIT, 379 (400). 124 This follows the trend in international human rights law, see, for example, Article 35(3)(1) ECHR. See, ibid, 399. 125 The imposition of heavy litigation cost risks was one of the measures discussed in connection with the CETA draft text of 2013. See Article X-12(3) Applicable Law and Rules of Interpretation and Article X-26(3) Committee, ISDS Draft, EU-Canada Comprehensive Economic and Trade Agreement, Investor-to-State Dispute Settlement Text, 15 November 2013’ www.tradejustice.ca/?page_id=2; see also Reinisch, ‘Putting the Pieces Together … an EU Model BIT?’ (2014) 15 JWIT, 679 (703).
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However, Article 8.39(5) does not explicitly mention this combination, unlike the EU-Singapore IPA, which provides: Where a claim or parts of a claim are dismissed on application of Article 3.14 (Claims Manifestly without Legal Merits) or Article 3.15 (Claims Unfounded as a Matter of Law), the Tribunal shall order that all costs relating to such a claim or parts thereof, including the costs of the proceedings and other reasonable costs, including costs of legal representation and assistance, shall be borne by the unsuccessful disputing party.126
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With respect to the protection of SMEs from the costs risk, specific solutions were promised by the Commission.127 One idea was to put effective limits to the costs of arbitration,128 but the search for an appropriate solution eventually has been delegated to the CETA Joint Committee (→ mn. 93 ff.).129 The guidance for the tribunal in the apportionment of costs under Article 8.39(5) is firmly based on the principle of costs-follow-the-event or ‘loser pays’. Only in ‘exceptional circumstances’ may the tribunal decide otherwise, or if the apportionment were ‘unreasonable in the circumstances of the claim’. The conduct of the Parties and their contribution to the efficiency and expeditiousness of the arbitration are not explicitly mentioned as relevant factors to be included. The complexity or novelty of the legal issues discussed does not seem to be a relevant criterion, either. However, if such aspects reach the level of ‘exceptional’ and their disregard would be ‘unreasonable’, tribunals could include them in their considerations, but need to make a certain effort in explaining their decision. The principle of costs-follow-the-event under Article 8.39(5) does not mean that the unsuccessful Party necessarily has to bear all costs. While this may be true for the costs of the arbitration – which only in ‘exceptional circumstances’ may be apportioned differently – the costs of legal representation and assistance may have to be borne by each Party. First, only reasonable costs must be borne by the unsuccessful Party. This means that not all costs and expenses the successful Party has incurred in the course of the proceedings may be accepted as reasonable by the tribunal and be awarded against the unsuccessful Party.130 Secondly, if only parts of the claims have been successful, the costs shall be adjusted, proportionately, to the relative success of the Parties. This rule leaves quite some discretion to the tribunal. To what extent the claim was successful and unsuccessful can be evaluated in various ways. The tribunal can assess how many bases of claims on the merits were successful – such as expropriation, fair and equitable treatment, discrimination, etc. – and evaluate the relative success.131 Or it can assess the relative
Article 3.21(4) EU-Singapore IPA. The EU-Vietnam IPA does not contain a similar provision. European Commission, Follow-up to the European Parliament Resolution on the future European international investment policy, P7-TA-PROV(2011)0141; See Tams, ‘Procedural Aspects of Investor-State Dispute Settlement’ (2014) 15 JWIT, 583 (602). 128 Hoffmeister and Alexandru, ‘A First Glimpse of Light on the Emerging Invisible EU Model BIT’, (2014) 15 JWIT, 379 (400). 129 The CETA Joint Committee is tasked with the elaboration of appropriate rules. See Article 8.39(6). 130 See, for example, Karkey Karadeniz v. Pakistan, ICSID Case No. ARB/13/1, Award (22 August 2017), para. 1067. 131 See, for example, Georg Gavrilovic and Gavrilovic v. Croatia, ICSID Case No. ARB/12/39 (25 July 2018), paras. 1316 ff. (weighing of un/successful claims). 126
127
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success on the basis of the amount claimed and the amount awarded, thus emphasising quantitative aspects.132 Whether the mere success on the issue of jurisdiction justifies the splitting of costs 92 is unclear. The formulation of Article 8.39(5) puts an emphasis on the success of ‘parts of the claims’ which arguably points to the merits phase. This would mean that an investor who is successful on jurisdiction, but loses on the merits must bear all of the costs of the arbitration plus its own costs and those of the respondent. If jurisdiction is denied, the investor also has to bear all of the costs of the arbitration, its own costs and those of the respondent. Consequently, all of the costs of the jurisdictional phase remain with the claimant, unless the claimant is also successful on the merits. This seems to be in accordance with the intention of the CETA drafters to shield governments from claims, which are not well-founded on the merits or even frivolous. 133 On the other hand, it increases the cost risk for natural persons and SMEs. The concern that they are deterred from seeking justice by the high cost risk is addressed in Article 8.39(6).
VII. Reducing the Financial Burden for Small and Medium-Sized Enterprises Article 8.39(6) mandates the CETA Joint Committee to consider supplemental 93 rules aimed at reducing the financial burden on claimants who are natural persons or SMEs. These rules may, in particular, take into account the financial resources of such claimants and the amount of compensation sought. It is not explicitly mentioned, which financial burden on claimants should be addressed, but the preceding paragraph 5 of Article 8.39 dealing with the costs of the arbitration arguably represents the relevant context. 134 This leads to the conclusion that the supplemental rules should aim at reducing the financial risks of high costs and expenses of arbitral proceedings for natural persons or SMEs. This is also the interpretation of the Court of Justice of the European Union, in its 94 Opinion 1/17 on the compatibility of the ISDS system in CETA with EU law, including with fundamental rights, upon the request brought by the Kingdom of Belgium pursuant to Article 218(11) TFEU on 7 September 2017. 135 The Court highlights that Article 8.39 is important to ensure that the requirement of accessibility of the system is fulfilled. It recalls that the aim of ISDS in CETA is to ensure that the CETA Tribunal is accessible to any Canadian enterprise and any Canadian natural person that invests within the Union and to any enterprise and any natural person of a Member State of the Union that invests in Canada. It highlights that the extent of the financial risk undertaken by bringing proceedings before the CETA Tribunal may be such as to deter natural persons or a SME from initiating the proceedings. The concerns about the high litigation costs have also occupied the Commission 95 and the European Parliament in the development of an European investment policy
132 See, for example, Gavazzi v. Romania, ICSID Case No. ARB/12/25, Award (18 April 2017), para. 320 (differentiating jurisdiction, merits, and quantum). 133 See also Article 8.33 CETA addressing ‘Claims unfounded as a matter of law’. 134 Taking into account Article 31(1) VCLT, according to which a treaty is interpreted in accordance with the ordinary meaning of its terms used, ‘in their context’. 135 CJEU, Opinion 1/17 of the Court (Full Court), 30.04.2019, ECLI:EU:C:2019:341, see in particular para. 208.
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more generally.136 The Commission promised ‘concrete solutions’ for the specific difficulties of SMEs, in particular ‘given their pivotal role and immense contribution to economic development, and notably their increasing presence in overseas investment.’137 96 The financial burden consists in the costs of legal representation and assistance incurred both by the claimant investor and by the respondent Party which, according to Article 8.39(5), the investor may have to bear in their entirety, if the claim is dismissed. Furthermore, the costs of the proceedings, which consist of the fees and expenses of the Members of the Tribunal, as determined in accordance with Article 8.27(14), may also have to be borne by the investor in their entirety in accordance with Article 8.39(5). 97 This potential deterrence of natural persons or SMEs from initiating proceedings was one of the concerns voiced by the Kingdom of Belgium, which had brought the request for an Opinion to the Court of Justice of the EU.138 In a careful examination of Article 8.39(6), the Court points out that this provision represents the basis to structure the ISDS mechanism in such a way that the investors who have limited resources to pursue a costly procedure, such as natural persons and small and medium-sized enterprises, have, no less than enterprises that have greater resources, an effective access to the envisaged tribunals.139
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While Article 8.39(6) does not constitute a legally binding commitment relating to the financial accessibility of the envisaged tribunals for small or medium-sized investors, the Court puts particular emphasis on Statement No. 36 by the Commission and the Council on investment protection and the Investment Court System (‘ICS’), which was given at the occasion of the signature of CETA. 140 The respective part of Statement No. 36 reads as follows: There will be better and easier access to this new court for the most vulnerable users, namely SMEs and private individuals. To that end: –
–
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The adoption by the Joint Committee of additional rules, provided for in Article 8.39.6 of the CETA, intended to reduce the financial burden imposed on applicants who are natural persons or small and medium-sized enterprises, will be expedited so that these additional rules can be adopted as soon as possible. Irrespective of the outcome of the discussions within the Joint Committee, the Commission will propose appropriate measures of (co)-financing of actions of small and medium-sized enterprises before that Court and the provision of technical assistance.141
For the Court, this means that the Commission and the Council have given a commitment to implement Article 8.39(6) rapidly and adequately and to ensure the accessibility of the envisaged tribunals to SMEs, ‘even if work within the CETA Joint Committee were to be fruitless.’142 That commitment, forming an integral part of the 136 European Parliament, European Parliament Resolution of 6 April 2011 on the future European international investment policy, 2010/2203(INI); Commission Communication, Towards a comprehensive European international investment policy, 7 July 2010, COM(2010)343 final. 137 European Commission, Follow-up to the European Parliament Resolution on the future European international investment policy, P7-TA-PROV(2011)0141. However, the relevant documents have so far remained rather general. See Tams, ‘Procedural Aspects of Investor-State Dispute Settlement’, (2014) 15 JWIT 583, 602. 138 CJEU, Opinion 1/17, 30.04.2019, ECLI:EU:C:2019:341, paras. 56 ff. 139 CJEU, Opinion 1/17, 30.04.2019, ECLI:EU:C:2019:341, para. 206. 140 Statements to be entered in the Council minutes, 14.1.2017, OJ L11/9, 20. 141 Statement by the Commission and the Council on investment protection and the Investment Court System (‘ICS’) No 36, 14.1.2017, OJ L11/20, 21. 142 CJEU, Opinion 1/17, 30.04.2019, ECLI:EU:C:2019:341, para. 218.
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context in which the Council has adopted the decision to authorise the signature of CETA on behalf of the Union, is sufficient justification for the conclusion that the CETA is compatible with the requirement that those tribunals should be accessible. 143 The concerns about accessibility and the focus on the investors’ chances to bring 100 claims under CETA tribunals stand in contrast to earlier concerns of protecting states from ‘frivolous’ claims by foreign investors. While through implementation of Article 8.39(6) the financial burdens of natural persons and SMEs should be limited, in earlier discussions the financial burdens of states caused by investment arbitration against them were dominant. For the CETA draft of November 2013, a standing ISDS Committee was tasked with interpreting the investment chapter, inter alia preventing investors from bringing multiple or frivolous claims by imposing heavy litigation cost risks.144 It remains to be seen how the contrasting policy goals will be balanced by the CETA Joint Committee which has eventually been entrusted with this task. The rules to be decided by the CETA Joint Committee are not very clear. In 101 particular, Article 8.39(6) does not explicitly refer to a possible ‘maximum amount of costs of legal representation and assistance that may be borne by specific categories of unsuccessful disputing parties’, as is the case in the EU-Vietnam IPA. 145 Moreover, Article 8.39(6) does not set a time limit for the adoption of such rules, while the EU-Vietnam IPA provides that the respective Committee ‘shall endeavour to adopt such supplementing rules no later than one year after the date of entry into force of this Agreement’.146
VIII. Time Limit Article 8.39(7) provides for a time limit of 24 months, within which the arbitral 102 tribunal must render its final award. Any delay must be explained. The purpose of this provision is to oblige the tribunal and the Parties to carry out the dispute settlement process efficiently. This evidences the intentions of the CETA Contracting Parties for ‘efficient investor-State arbitration’.147 It is quite remarkable that a provision on the time limit of the arbitration is includ- 103 ed in the investment chapter of CETA. Generally, one would expect such provisions in arbitration rules and not in a treaty. The provision thus underlines the importance of the obligation to cooperate, and explanations of delay must not be given lightly and cursorily. The time limit of 24 months may seem rather long, in particular in comparison with other time limits. In the IPAs with Vietnam and Singapore, the time limit is only 18 months.148
CJEU, Opinion 1/17, 30.04.2019, ECLI:EU:C:2019:341, paras. 219 ff. Article X-12(3) Applicable Law and Rules of Interpretation and Article X-26(3) Committee, ISDS Draft, EU-Canada Comprehensive Economic and Trade Agreement, Investor-to-State Dispute Settlement Text, 15 November 2013 www.tradejustice.ca/?page_id=2; see also Reinisch, ‘Putting the Pieces Together … An EU Model BIT?’ (2014) 15 JWIT, 679 (703). 145 Article 3.53(5) EU-Vietnam IPA. 146 Article 3.54(5) EU-Vietnam IPA. 147 See Commission Communication, Towards a comprehensive European international investment policy, 7 July 2010, COM(2010) 343 final; Council of the EU, Conclusions on a comprehensive European international investment policy, 25 October 2010. 148 The EU-Singapore IPA provides: ‘The Tribunal shall issue a provisional award within 18 months of the date of submission of the claim. If that deadline cannot be respected, the Tribunal shall adopt a decision to that effect, which shall specify the reasons for such delay’. Article 3.18(4) EU-Singapore IPA. See also Article 3.53(5) EU-Vietnam IPA. 143
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The arbitration rules applicable to CETA disputes, according to Article 8.23(2), are the ICSID Convention and Arbitration Rules, the ICSID Additional Facility Rules, the UNCITRAL Arbitration Rules or ‘any other rules on agreement of the disputing parties’. The ICSID Convention and Arbitration Rules 2006 do not provide time limits, nor do the 2013 UNCITRAL Rules. As far as this is not changed in subsequent updates, no inconsistency arises. 105 Yet, also the ICC and the SCC could be agreed by the Parties of a dispute in the CETA context, and both of them do include time limits. The ICC Arbitration Rules 2017 contain a time Limit for the final award in Article 31, which is six months. Also the 2017 SCC Arbitration Rules have a six month time limit for the final award, in Article 43. 106 Time limits in arbitration rules are a rather recent phenomenon, and the arbitration rules of the ICC and SCC are primarily designed for commercial arbitration. It appears doubtful, whether the ambitious time limit of six months is realistic in investment arbitration. Certainly, in view of the duration of investor-State arbitration of 3.5 years on average,149 the need for more efficiency and expedition is obvious. 107 It will be interesting to see whether and how the time limit of 24 months will be implemented in investor-State arbitrations under CETA. The obligation of the tribunal to provide the disputing Parties the reasons for delay shall reinforce this endeavour, but frequently the disputing Parties themselves are the reason for the prolongation. Extensions of time limits will continue to be possible and sanctions are not provided. Yet, the 24 months-rule, contained in CETA adds authority for the need to conduct swift proceedings, both for arbitrators and disputing Parties. In addition to the deadline for the final award, deadlines for the various procedural steps in the arbitration, as they are contained in most arbitration rules, would be necessary and need to be enforced in order to achieve more efficiency and expedition. 104
E. Conclusion Article 8.39 dealing with the ‘Final award’ in ISDS under CETA is remarkably extensive in comparison to traditional BITs and other FTAs. This reflects the heated debates, which accompanied the CETA negotiations in particular in the last phase. Both Parties, Canada and the European Union, were confronted with opposition from political Parties, public interest and civil society groups as well as from the media. The Article addresses concerns raised against investor-State arbitration in general and under CETA in particular during that process. Notably, the two last paragraphs were only included between 2014 and 2016, after the formal end of the CETA negotiations, when only ‘legal scrubbing’ should have taken place. 109 Some of the concerns were not entirely new and had therefore already been addressed in NAFTA Article 1135, which served as a starting point for the negotiations. For example, the restrictive approach in respect of the remedy of ‘restitution’ was already contained in NAFTA, namely to allow only ‘restitution of property’ and not any other form of restitution, as this could be regarded as a limitation of the right to regulate. Moreover, punitive damages were also already excluded under NAFTA. While this made sense in a treaty with the United States, where punitive damages are available under national law, in a treaty between Canada and the EU, where punitive damages are not allowed at the national level, the replication of this prohibition is 108
149
901.
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See ICSID, Proposals for Amendment of the ICSID Rules – Working Paper, Volume 3 (2 August 2018,
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not entirely logical. Under public international law, punitive damages are generally not accepted. Their prohibition in CETA thus serves rather political than legal objectives, namely to send a message to governments and sceptical actors that exorbitant amounts of damages with a punitive function will not be awarded. A new paragraph even reinforces this message. Article 8.39(3) shall ensure that 110 monetary damages will not be greater than the loss suffered by the investor and that any restitution of property or repeal or modification of the measure will be taken into account in the calculation of damages. This provision is in accordance with general principles of law and the law of state responsibility as reflected in the dictum of Factory at Chorzów, which requires to re-establish the financial situation that would have existed if the unlawful act had not been committed. Overcompensation is therefore already prohibited and a special reminder for tribunals should not be necessary. The emphasis in CETA on the avoidance of overcompensation is therefore also reflective of the political pressure from various sides during the negotiation phase. With respect to the costs of investor-State arbitration, which can be quite high 111 and have been severely criticised by sceptical voices at the national level, the political motivation for the solution found by the CETA Parties is not easily discernable. One the one hand, the ‘loser pays’-principle is presented to provide comfort to governments, because it protects them against high costs for defending themselves against unmeritorious claims. On the other hand, this principle may deter meritorious claims by investors and thus represent an obstacle towards access to justice and effective enforcement of the treaty. In order to address this concern a new paragraph was inserted, which requests the CETA Joint Committee to consider supplemental rules aimed at reducing the financial burden on claimants who are natural persons SMEs. It remains to be seen, which rules and principles the CETA Joint Committee will be able to develop when the political position of the CETA Parties on the issue of costs is not entirely clear. Finally, the long duration of investor-State arbitration, which has also been fre- 112 quently criticised and which is on average more than 3.5 years, shall be reduced in the realm of CETA. An attempt is made by introducing a 24 months time limit for the issuance of the final award. The provision seems to imply that it is mainly the tribunal which takes a lot of time and which therefore must provide the disputing Parties reasons for any delay. However, in reality often the Parties themselves request extensions of deadlines and postponements of hearings. Nevertheless, the benchmark of 24 moths may provide a useful tool to request more time discipline, both from the tribunal and from the Parties.
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Article 8.40 Indemnification or other compensation A respondent shall not assert, and the Tribunal shall not accept a defence, counterclaim, right of setoff, or similar assertion, that an investor or, as applicable, a locally established enterprise, has received or will receive indemnification or other compensation pursuant to an insurance or guarantee contract in respect of all or part of the compensation sought in a dispute initiated pursuant to this Section. Reference to the Respective Provisions in Other EU Treaties: Article 3.20 EU-Singapore IPA; Article 3.56 EU-Vietnam IPA; Article 26 Chapter on Resolution of Investment Disputes EU-Mexico Global Agreement; The USMCA 2018 contains a similar provision in Article 14.D.7(8) on ‘Conduct of the Arbitration’. Bibliography: Derek Bass, ‘Approaches and Challenges to Political Risk Assessment: The View from Export Development Canada’ (2010) 12 Risk Management, 135; Pieter Bekker and Akiko Ogawa, ‘The Impact of Bilateral Investment Treaty (BIT) Proliferation on Demand for Investment Insurance: Reassessing Political Risk Insurance After “BIT Bang”’ (2013) 28 ICSID Rev., 314; Angelos Dimopoulos, ‘Foreign Investment Insurance and EU Law’ in Marc Bungenberg, August Reinisch, and Christian Tietje (eds), EU and Investment Agreements: Open Questions and Remaining Challenges (Nomos, Baden-Baden 2013), 171; Robert Ginsburg, ‘Political Risk Insurance and Bilateral Investment Treaties: Making the Connection’ (2013) 14 JWIT, 943; Kathryn Gordon, Investment Guarantees and Political Risk Insurance: Institutions, Incentives and Development (OECD, Paris 2008); Kaj Hobér and Joshua Fellenbaum, ‘Political Risk Insurance and Financing of Foreign Direct Investment’ in Marc Bungenberg et al. (eds), International Investment Law. A Handbook (Nomos, Baden-Baden 2015), 1517; Patrick Garver, ‘The Changing Face of Political Risk’, in Kevin W Lu, Gero Verheyen, and Srilal M Perera (eds), Investing With Confidence: Understanding Political Risk Management in the 21st Century (World Bank and Multilateral Investment Guarantee Agency, Washington DC 2009), 81; Tomoko Ishikawa, ‘Counterclaims and the Rule of Law in Investment Arbitration’ (2009) 113 AJIL, 33; Mark Kantor, ‘Are You in Good Hands With Your Insurance Company? Regulatory Expropriation and Political Risk Insurance’ in Theodore H. Moran, Gerald T. West, and Martin Keith (eds), International Political Risk Management: Needs of the Present, Challenges for the Future (World Bank, Washington, DC 2008), 137; MIGA, World Investment and Political Risk 2011 (World Bank and Multilateral Investment Guarantee Agency, Washington DC 2011); MIGA, World Investment and Political Risk 2013 (World Bank and Multilateral Investment Guarantee Agency, Washington, DC 2014); Joanne Palmer, ‘Looking Ahead: Will Political Risk Insurance Continue to Play a Meaningful Role in the Global Investment and Trade Environment?’ in Theodore H Moran, Gerald T West, and Martin Keith (eds), International Political Risk Management: Needs of the Present, Challenges for the Future (World Bank, Washington DC 2008), 215; Panayotis Protopsaltis, ‘Investment Guarantees and Political Risk Insurance’, in Markus Krajewski and Reha Tamara Hofmann (eds), Research Handbook on Foreign Direct Investment (Edward Elgar, Cheltenham 2019), 299; John Salinger, ‘Past and Future Predictions for the Political Risk Insurance Industry’, in Theodore Moran, Gerald West, and Martin Keith (eds), International Political Risk Management: Needs of the Present, Challenges for the Future (World Bank, Washington DC 2008), 201; Christoph Schreuer et al, The ICSID Convention. A Commentary (2nd ed, Cambridge University Press, Cambridge 2009); Ibrahim Shihata, ‘Towards a Greater Depolitization of Investment Disputes: The Roles of ICSID and MIGA’ (1986) 1 ICSID Rev., 1; Joachim Steffens, ‘InvestmentInsurance Systems- Still a Member State Business: Current Developments with regard to Investment Insurance Systems’, in Marc Bungenberg, August Reinisch, and Christian Tietje (eds), EU and Investment Agreements: Open Questions and Remaining Challenges (Nomos, Baden-Baden 2013), 193; Louis Wells, ‘The New International Property Rights: Can the Foreign Investor Rely on Them?’, in Theodore Moran and Gerald West (eds), International Political Risk Management: Looking to the Future (World Bank, Washington DC 2005), 87. A. Introduction and Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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B. Spirit and Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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C. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13
D. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. Defence, Counterclaim, Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21 21
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Indemnification or other compensation II. Locally Established Enterprise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. Insurance or Guarantee Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Multilateral Agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. National Guarantee Agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Private Insurers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV. Indemnification or other Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V. All or Part of the Compensation sought in a Dispute . . . . . . . . . . . . . . . . . . . . . . 1. Expropriation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. War and Civil Disturbance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Currency Inconvertibility Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
25 26 28 34 39 43 45 46 55 59
E. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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A. Introduction and Overview The title of Article 8.40 ‘Indemnification or other compensation’ does not immedi- 1 ately reveal the contents of the provision. Different from what one would believe at first glance, it does not deal with the determination or assessment of indemnification or compensation. Such rules are contained in Article 8.39(3) on the assessment of monetary damages (→ Art. 8.39 mn. 65 ff.) and also in Article 8.12 (→ Art. 8.12 mn. 143) and Article 8.39(1)(b) (→ Art. 8.39 mn. 55 ff.) with respect to compensation upon expropriation or as a substitute of property restitution. Instead, Article 8.40 addresses assertions or counterclaims potentially being made by the respondent, because the investor has received indemnification or other compensation by a third Party. Such assertions could have far-reaching consequences and nullify or diminish the investor’s claim against the respondent, if they were accepted. Indemnification or other compensation pursuant to an insurance or guarantee con- 2 tract are generally the result of protection granted to an investor against non-commercial or ‘political’ risk for its investment in the host state. While the term ‘political risk’ is not internationally defined, 1 it is generally understood to encompass ‘the probability of disruption of the operations of companies by political forces and events, whether they occur in host countries or result from changes in the international environment.’ 2 It can be described as uncertainty about harmful actions of governments and political institutions, but also of minority groups and separatist movements.3 Political risk can materialise in different forms. The following overview by the 3 Multilateral Investment Guarantee Agency (MIGA) gives some orientation: – –
–
Transfer and convertibility restrictions: risk of losses arising from an investor’s inability to convert local currency into foreign exchange for transfer outside the host country. Currency devaluation is not covered. Expropriation: the loss of investment as a result of discriminatory acts by any branch of the government that may reduce or eliminate ownership, control, or rights to the investment either as a result of a single action or through an accumulation of acts by the government. Breach of contract: risk of losses arising from the host government’s breach or repudiation of a contractual agreement with the investor, including non-honoring of arbitral awards.
1 Protopsaltis, ‘Investment Guarantees and Political Risk Insurance’ in Krajewski and Hofmann (eds), Research Handbook on Foreign Direct Investment (2019), 299; Hobér and Fellenbaum, ‘Political Risk Insurance and Financing of Foreign Direct Investment’ in Bungenberg et al. (eds), International Investment Law. A Handbook (2015), 1517 (1519). 2 MIGA, World Investment and Political Risk 2011 (2011), 21. 3 MIGA, World Investment and Political Risk 2011 (2011), 21.
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Indemnification or other compensation
Non-honoring of sovereign financial obligations: risk of losses due to non-compliance of government guarantees securing full and timely repayment of a debt that is being used to finance the development of a new project or the enhancement of an existing project. Terrorism: risk of losses due to politically motivated acts of violence by non-state groups. War: risk of losses due to the destruction, disappearance, or physical damage as a result of organized internal or external conflicts. Civil disturbance: risk of losses due to social unrest. Other adverse regulatory changes: risk of losses for foreign investors stemming from arbitrary changes to regulations.4
– – – –
Investors seek protection from political risk in various ways, for example by the establishment of joint ventures or investor-State agreements,5 by political/economic risk analyses combined with scenarios planning, or by engagement with the government in the host country and developing close relationship with local leaders and communities.6 5 One possibility for an investor to protect itself from political risk is to enter into an insurance or guarantee contract. Different types of institutions offer such contracts, namely (1) international agencies, (2) national state-sponsored agencies, and (3) private insurers (→ mn. 28 ff.). Indemnification or other compensation received by each of them are addressed by Article 8.40. The conditions for indemnification or other compensation are determined in detail in the respective insurance or guarantee contracts. They offer similar, but not identical protection from what is covered under Chapter Eight of CETA. 6 For example, transfer and convertibility restrictions are recognised in Article 8.13 on ‘Transfers’. Protection against uncompensated expropriation is addressed in Article 8.12 on ‘Expropriation’ and may include the non-honoring of arbitral awards,7 which under political risk insurance policies may represent a separate type of risk or be included as a breach of contract.8 ‘Breach of contract’ may also cover certain types of protection against fair and equitable treatment in accordance with Article 8.10, when the respective conditions on the ‘Treatment of investors and covered investments’ are met.9 Losses owing to armed conflict, civil strife, a state of emergency or natural disaster are to a certain extent covered under Article 8.11 on ‘Compensation for Losses’. 7 In addition to the differences in the scope of protection between insurance and guarantee contracts and the protection granted under CETA the amount of indemnification or other compensation is also calculated differently. While the rules of assessment of monetary damages in Article 8.39(3) allow for full reparation with a cap at the ‘loss suffered by the investor’, the insurance or guarantee contracts generally 4
MIGA, World Investment and Political Risk 2011 (2011), 21. Hobér and Fellenbaum, ‘Political Risk Insurance and Financing of Foreign Direct Investment in Bungenberg et al. (eds), International Investment Law. A Handbook (2015), 1517 (1521 f.). 6 Protopsaltis, ‘Investment Guarantees and Political Risk Insurance’ in Krajewski and Hofmann (eds), Research Handbook on Foreign Direct Investment (2019), 299 (302); Bekker and Ogawa, ‘The Impact of Bilateral Investment Treaty (BIT) Proliferation on Demand for Investment Insurance: Reassessing Political Risk Insurance After “BIT Bang”’ (2013) 28 ICSID Rev., 314 (318 ff.). 7 See Saipem v. Bangladesh, ICSID Case No. ARB/05/7, Award (30 June 2009), paras. 132 and 204, where the arbitral tribunal held that the non-honoring of an ICC arbitral award represented an expropriation under the applicable BIT. 8 See MIGA, World Investment and Political Risk 2011 (2011), 41. 9 See Article 8.10(7). 4
5
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do not cover the entire damage incurred, but only a percentage thereof. MIGA, for example, as a matter of principle, does not cover more than 90 percent of the loss (→ mn. 52). Article 8.40 makes clear that the receipt of indemnification or other compensation 8 should not diminish in any way the right of an investor to have its claims assessed by an arbitral tribunal under the dispute settlement procedure provided for in CETA. This is also the case, if the indemnification or other compensation was paid to a locally established enterprise in the case of Article 8.23, when an investor brings a claim on behalf of such an enterprise, which it owns or controls directly or indirectly. The same is true, if the indemnification or other compensation has not yet been paid but will be paid in the future.
B. Spirit and Purpose The purpose of Article 8.40 is to make sure that a respondent state cannot escape or diminish its responsibility for violation of CETA, only because the investor did not have to shoulder the entire loss suffered, but was indemnified, even if only partially, by a third Party. Article 8.40 shall avoid that the financial consequences of the unlawful act by the respondent are shifted to someone else, the insurer or the guarantor. At the same time, Article 8.40 supports the sustainability of political risk insurance, which has become an important pillar for the protection of foreign investment in addition to international investment protection treaties.10 Article 8.40 is related to Article 8.14 on ‘Subrogation’. The two Articles address the situation that an investor has taken precaution to manage political risk when making the investment. However, subrogation is only available to another CETA Party, or an agency of a CETA Party, which has made a payment under an indemnity, guarantee or contract of insurance. Other guarantors or insurers, such as private insurers or multilateral investment guarantee agencies, are not accepted as subrogees. Even though they may have a subrogation agreement with the investor, they must nevertheless pursue the claim in their own name, because of the lack of agreement amongst the CETA Parties to accept such subrogation. This means that guarantors or insurers are subject to distinct jurisdiction requirements than the original investor in the dispute under CETA, which may render it difficult to recoup their payment from the state. Some multilateral institutions, such as MIGA, have separate agreements with host states (→ mn. 26), for private insurers it depends on the circumstances of the case (→ mn. 46). Article 8.40 shall ensure that subrogation is actually not necessary. Rather, in the assessment of the merits of the claim and the valuation of monetary damages or compensation, any payment received from other Parties must be disregarded. If the investor is successful, it shall receive the entire amount of monetary damages representing the loss suffered irrespective of any indemnification or other compensation received from third Parties. From this amount, the investor may then reimburse the guarantor or insurer. In the situation that an investor exercises the subrogated rights by a CETA Party in accordance with Article 8.14, it is even more important for the CETA Parties that the indemnification or other compensation received is not used as a defence, counterclaim 10 Bekker and Ogawa, ‘The Impact of Bilateral Investment Treaty (BIT) Proliferation on Demand for Investment Insurance: Reassessing Political Risk Insurance After “BIT Bang”’ (2013) 28 ICSID Rev., 314 (347) (noting an increase in demand for political risk insurance, both public and private, despite the surge of bilateral investment treaties).
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10
11
12
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Indemnification or other compensation
or right of setoff in favour of the respondent, because this would shift the financial burden to the home state of the investor, which is the respective other CETA Party.
C. Drafting History From the Canadian perspective, political risk assessment has become increasingly important for the long-term strategies of Canadian investors and should be appropriately reflected in corporate decision making.11 The national export credit agency, Export Development Canada (EDC), structures its political risk assessment along the three main categories of political risk, namely (1) expropriation risk factors, (2) political violence risk factors, and (3) transfer and inconvertibility risk factors. 12 It applies a variety of ‘filters’ to gauge the level of systemic stability in the host country and the predictability of its policy environment. The respective filter includes ‘political-policy stability’ (for expropriation risk), ‘structural regimes type’ (for political violence risk), and ‘government effectiveness’ (for transfer and inconvertibility risk). 13 14 In this vein, the Canada Model BIT 2014 contains a similar provision as Article 8.40 to ensure that indemnification or other compensation received by an investor cannot be used to set off claims the investor would otherwise receive. Moreover, the title of the respective Article, ‘Receipts under Insurance or Guarantee Contracts’, presents its contents even more explicitly: 13
In an arbitration under this Section, a respondent Party may not assert as a defence, counterclaim, right of setoff, or otherwise that the investor has received or will receive, under an insurance or guarantee contract, indemnification or other compensation for all or part of its alleged damages. 14
To ensure that the rights of the national export credit agency, in particular the right to subrogation, is recognised by the respective other state Party of the BIT, the Canada Model BIT 2014 also contains a provision on ‘Subrogation’.15 16 While NAFTA has generally played an important role as a model and starting point for the negotiations of CETA, a comparable provision to Article 8.40 does not exist in NAFTA. Nevertheless, the first consolidated draft CETA text of 13 January 201016 already contained a provision similar to Article 8.40. This provision under the title ‘Receipts under Insurance or Guarantee Contracts’,17 was almost identical to the provision quoted above from the Canad Model BIT 2014, which was already contained in the Canada Model BIT 2004. This evidences the Canadian origin of the provision. 15
11 Bass, ‘Approaches and challenges to political risk assessment: The view from Export Development Canada’ (2010) 12 Risk Management, 135 (136). 12 Bass, ‘Approaches and challenges to political risk assessment: The view from Export Development Canada’ (2010) 12 Risk Management, 135 (142 f.). 13 Bass, ‘Approaches and challenges to political risk assessment: The view from Export Development Canada’ (2010) 12 Risk Management, 135 (142 f.). 14 Article 37 of the Canada Model BIT 2014. An identical provision was contained in the Canada Model BIT 2004, Article 46(3). 15 Article 13 of the Canada Model BIT 2014. An identical provision was contained in the Canada Model BIT 2004, Article 15. 16 CETA draft text of 13 January 2010, ‘Draft Consolidated Text: Canada-EU Comprehensive Economic and Trade Agreement’, accessed via https://wiki.laquadrature.net/images/3/33/CETA_draft_jan_20 10.pdf. 17 Article X.33: ‘Receipts under Insurance or Guarantee Contracts: In an arbitration under this Section, a respondent Party shall not assert as a defence, counterclaim, right of setoff, or for any other reason that the disputing investor has received or will receive, pursuant to an insurance or guarantee contract, indemnification or other compensation for all or part of its alleged damages’.
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Indemnification or other compensation
The provision remained the same in the CETA draft text of January 2011, 18 and in 17 the version of February 2012,19 which left the number of the article, its title and its contents unchanged.20 Only in November 2013, some alterations were introduced. A new text concentrating only on ISDS was put together on 15 November 2013. 21 The new formulation of the provision was more specific and did not only prohibit the respondent to assert receipts under an insurance or guarantee contract, but explicitly also addressed the tribunal not to accept such assertions.22 Furthermore, the provision received a new title, namely ‘Indemnification or Other Compensation’, which it kept until the final version. The November 2013 draft of the CETA investment text 23 did not include any text 18 with respect to the issue but only referred, under ‘Section 6: Investor-State Dispute Settlement’, to the ‘Latest Consolidated ISDS text to be inserted here’. The draft text of 1 February 2014 on Investor-to State Dispute Settlement 24 replicated the version of 15 November 2013 without any changes. Only at the last stage of the negotiations before the CETA draft consolidated text 19 of August 201425 was concluded, a few new words were added. They extended the potential recipients of payments under an insurance or guarantee contract to the locally established enterprise, as applicable, in addition to the investor itself.26 The provision then remained unchanged until the conclusion of the negotiations in 2016. Canada, in its negotiations with the United States and Mexico about the USMCA, subsequently removed itself from the investor-State dispute settlement mechanism
18 CETA draft text of January 2011, ‘Canada-EU CETA Draft Consolidated Text – Post Round VI’, accessed via https://wiki.laquadrature.net/images/6/69/CETA_draft_jan_2011.pdf. 19 CETA draft text of February 2012, ‘Draft CETA Investment Text’, accessed via https://wiki.laquadr ature.net/images/c/cc/CETA-Draft_Consolidated_text-February_2012.pdf. 20 In both texts, the Article remained unchanged as ‘Article X.33: Receipts under Insurance or Guarantee Contracts’. 21 Investor-to-State Dispute Settlement text of 15 November 2013, ‘EU-Canada Comprehensive Economic and Trade Agreement, Investor-to-State Dispute Settlement text after discussions on 15 November 2013’, accessed via https://wiki.laquadrature.net/images/. 22 See Article x-21 of the Investor-to-State Dispute Settlement text of 15 November 2013: ‘Indemnification or Other Compensation: A respondent shall not assert, and a tribunal shall not accept a defence, counterclaim, right of setoff, or similar assertion that a claimant has received, or will receive, indemnification or other compensation pursuant to an insurance or guarantee contract in respect of all or part of the compensation sought in a dispute initiated pursuant to this section’. 23 CETA draft text of 21 November 2013, ‘Draft CETA Investment Text’, accessed via https://www.laq uadrature.net/files/CETA-Draft-Investment-Text-Nov21-2013-203b-13.pdf. 24 Investor-to-State Dispute Settlement text of 4 February 2014, ‘EU-Canada Comprehensive Economic and Trade Agreement, Investor-to-State Dispute Settlement Text of 4 February 2014’, accessed via https://wiki.laquadrature.net/images/. 25 Consolidated CETA draft of 1 August 2014, ‘Consolidated CETA Text’, accessed via https://old.laq uadrature.net/files/ceta-complet.pdf. 26 See Article X.37 of the Consolidated CETA draft of 1 August 2014: ‘Indemnification or Other Compensation: A respondent shall not assert, and a tribunal shall not accept a defence, counterclaim, right of setoff, or similar assertion, that an investor or, as applicable, the locally established enterprise, has received, or will receive, indemnification or other compensation pursuant to an insurance or guarantee contract in respect of all or part of the compensation sought in a dispute initiated pursuant to this Section’.
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entirely.27 Nevertheless, the USMCA of 2018 contains a similar provision as Article 8.40 in Article 14.D.7(8) on the ‘Conduct of the Arbitration’. 28 20 The Investment Protection Agreements (IPAs) of the EU with Singapore 29 and Vietnam,30 concluded in 2018 and 2019, have similar provisions as Article 8.40. A difference is that the respective Articles 3.20 (EU-Singapore IPA) and 3.56 (EU-Vietnam IPA) do not come directly after the description of the contents of the Final Award (as in Article 8.39), because the provisions on the appeals mechanism are inserted in between. However, this change of order does not have any influence on the interpretation of the respective provisions in relation to CETA. The broader context remains the same,31 namely that indemnification or other compensation received should not be used as a setoff when it comes to determine the outcome of the proceedings, in particular the financial outcome. 32 It is therefore irrelevant whether this is set out after the description of the final award, as in CETA, or after that of the appeals procedure.
D. Commentary I. Defence, Counterclaim, Setoff Article 8.40 mentions defence, counterclaim, or right of setoff as possible means of raising the argument that the investor has received indemnification or other compensation by an insurer or guarantor. These categories have different legal bases and can be raised at different stages of the arbitral proceedings. In the context of Article 8.40, the distinction between them should not matter, even though the arguments put forward and their importance for the outcome of the case may be quite different. All of the assertions aim at the same goal, namely to diminish or nullify the claim put forward by the investor and to shift the financial burden from the respondent to a third Party. According to Article 8.40, this should not be allowed. 22 A defence may be raised both in the jurisdictional and in the merits phase of the proceedings and aims at challenging the facts, the points at issue, the relief or remedy sought, or the legal grounds or arguments supporting the claim.33 In the course of the assessment of the merits, defences of the respondent are often based on an alleged 21
27 Annex D of Chapter 14 on ‘Investment’ limits investor-state disputes to ‘Annex Parties’, which are only Mexico and the United States. See United States-Mexico-Canada Agreement, signed on 30 November 2018, Office of the United States Trade Representative, https://ustr.gov/trade-agreements/fre e-trade-agreements/united-states-mexico-canada-agreement/agreement-between. 28 See Article 14.D.7(8) USMCA: ‘A respondent may not assert as a defense, counterclaim, right of set-off, or for any other reason, that the claimant has received or will receive indemnification or other compensation for all or part of the alleged damages pursuant to an insurance or guarantee contract’. 29 Investment Protection Agreement between the European Union and its Member States, of the one Part, and the Republic of Singapore, of the other Part, Proposal for a Council Decision, 14 April 2018, COM(2018) 194 final, Annex 1. The Council adopted the decision on the signature on 15 October 2018, the signature followed on 19 October 2018. The European Parliament gave its consent on 13 February 2019. 30 Investment Protection Agreement between the European Union and its Member States, of the one Part, and the Republic of Viet Nam, of the other Part, Council of the European Union, 7 May 2019, 2018/0359 (NLE). 31 The context is important for the interpretation of treaty provisions in accordance with Article 31(1) VCLT. 32 The same can be said about Article 14.D.7(8) USMCA even though it is quite detached from Article 14.D.13 USMCA on the content of the ‘Awards’. The overall context is quite clear, despite some variances in the order of articles. 33 See, for example, Article 21(2) UNCITRAL Arbitration Rules 2013.
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misconduct by the claimant investor, for example related to a purported non-payment of taxes34 or non-compliance with obligations.35 Respondents may allege that the respective treaty standard was not breached due to that misconduct and put forward various arguments. For example, they can argue that, under the circumstances, the treatment was fair and equitable,36 causation between treaty breach and damage was not established,37 or the claimant was responsible for contributory fault, which could lead to a reduction of the amount of damages.38 Having received indemnification or other compensation by an insurer or guarantor can influence the tribunal’s assessment of the merits. For example, with respect to expropriation, it can be argued that the expropriation was not unlawful because compensation was received.39 Similarly, if the investor has received indemnification for civil unrest or terrorism, it could be argued that there was no breach of Article 8.11, if the compensation was not lower than that paid to the citizens of the host state. Counterclaims are claims of the respondent against the claimant, which may relate 23 to the main substance of the dispute or may be an incidental or additional claim. 40 They should be raised as early as possible, thus even before jurisdiction of the dispute is established.41 The tribunal would have to decide upon them, if they are under its jurisdiction.42 While investor-State arbitration is usually characterised by an investor acting as claimant and a state as a respondent, tribunals may also have jurisdiction to decide whether investors have breached the treaty and therefore adjudicate on the respective counterclaim.43 In the case envisaged in Article 8.40, it cannot easily be assumed that a CETA tribunal would have jurisdiction on such a counterclaim. However, a counterclaim can also be used as a defence in the assessment of the
34 For example, in Yukos Universal Ltd. (Isle of Man) et al. v. Russian Federation, UNCITRAL, PCA Cases Nos. AA 226, 227, 228, Award (18 July 2014), para. 109. 35 For example, in Occidental Petroleum v. Ecuador, ICSID Case No. ARB/06/11, Award (5 October 2012), paras. 251 ff.; Vivendi v. Argentina (Vivendi II), ICSID Case No. ARB/97/3, Award (20 August 2007), paras. 6.6.6 ff.; Amco Asia v. Indonesia (Amco II), ICSID Case No. ARB/81/1, Award (31 May 1990), paras. 64 ff. 36 Vivendi v. Argentina (Vivendi II), ICSID Case No. ARB/97/3, Award (20 August 2007), paras. 6.6.6 ff. 37 Occidental Petroleum v. Ecuador, ICSID Case No. ARB/06/11, Award (5 October 2012), paras.251 ff. 38 See Article 39 of the ILC Articles on State Responsiblity. See MTD v. Chile, ICSID Case No. ARB/01/7, Award (25 May 2004), para. 242; Yukos Universal Ltd. (Isle of Man) et al. v. Russian Federation, UNCITRAL, PCA Cases Nos. AA 226, 227, 228, Award (18 July 2014), paras. 1594 ff. 39 See ADC v. Hungary, ICSID Case No. ARB/03/16, Award (2 October 2006), para. 481; Tidewater v. Venezuela, ICSID Case No. ARB/10/5, Award (13 March 2015), para. 151. 40 Schreuer et al, The ICSID Convention. A Commentary (2009), Article 46, para. 64. 41 Under ICSID, the tribunal enjoys discretion in respect to the time limits for submitting counterclaims. The same is true for the SCC Arbitration Rules. By contrast, under UNCITRAL and ICC Rules, the time limit is set at 30 days. See Article 4 UNCITRAL Arbitration Rules 2013 and Article 5 ICC Arbitration Rules 2017. However, counterclaims may also be included at a later stage, unless the arbitral tribunal considers it inappropriate to allow such amendment or supplement. See Article 21 and Article 22 of the UNCITRAL Arbitration Rules 2013. 42 See Article 46 of the ICSID Convention. 43 See Schreuer et al., The ICSID Convention. A Commentary (2009), para. 14, referring to Sempra v. Argentina, ICSID Case No. ARB/02/16, Award (28 September 2007), para. 289. However, investment protection treaties generally provide for obligations of the state Parties and less for those of investors. Counterclaims are thus often outside the investment tribunals’ jurisdiction, though with some exceptions, such as Burlington v. Ecuador, ICSID Case No. ARB/08/5, Decision on Ecuador’s Counterclaims (7 February 2017); Perenco v. Ecuador, ICSID Case No. ARB/08/6, Interim Decision on the Environmental Counterclaim (11 August 2015); see also Ishikawa, ‘Counterclaims and the Rule of Law in Investment Arbitration’, (2009) 113 AJIL, 33 (37).
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merits.44 Article 8.40 makes clear from the outset that, irrespective of jurisdictional considerations, a counterclaim based on indemnification or other compensation by an insurer or guarantor shall not be accepted. 24 Setoffs are generally relevant at the end of the proceeding, when the tribunal is about to assess the amount of monetary damages.45 At this stage, jurisdiction and the merits are already decided, and the remaining question is only about quantum. The assertion that the investor has received on indemnification or other compensation by a third Party might reduce or even eliminate the claim for monetary damages. Such deductions from compensation payable are quite common in the realm of political risk insurance, both under international46 and national47 investment guarantee schemes48 in order to avoid overcompensation. Article 8.40 eliminates the possibility of such setoffs in investor-State arbitration under CETA.
II. Locally Established Enterprise 25
Article 8.40 refers to the situation in which indemnification or other compensation has been paid to a locally established enterprise. According to Article 8.23(1), the arbitral proceedings can be initiated by the foreign investor of one CETA Party against the other CETA Party either on its own behalf or in the name of a locally established enterprise, which it owns or controls directly or indirectly. In the latter case, an award of monetary damages and any applicable interest shall be paid, and any restitution of property shall be made, to the locally established enterprise in accordance with Article 8.39(2)(a) and (b). It is therefore consequent that payment of indemnification or other compensation to the locally established enterprise must be treated in the same way as payment to the claimant foreign investor itself.
44 But see, for example, Occidental Petroleum v. Ecuador, ICSID Case No. ARB/06/11, Award (5 October 2012), paras. 283 ff. and paras. 297 ff. 45 However, claims for setoffs should also be submitted as early as possible, ideally already in the response to the notice of arbitration. See Article 4 UNCITRAL Arbitration Rules 2013. Yet, they may also be presented later, see Article 21 and Article 22 UNCITRAL Arbitration Rules 2013. See also Article 29 and Article 30 of the SCC Arbitration Rules 2017. 46 The MIGA (Standard) Contract provides for deductions from any compensation payable. The Agency will ‘deduct from any compensation due […] the Guarantee Holder’s Share of any other payment, recovery, or benefit received or due to be received by or for the benefit of the Guarantee Holder, or the Project Enterprise, from any source, including the ratable portion of the Loss payable by any other insurer or guarantor, as a result of the Covered Risks which caused the Loss for which MIGA is liable to pay compensation’. See MIGA (Standard) Contract of Guarantee for Equity Investments (2016), part II, Article 8.1. See also Protopsaltis, ‘Investment Guarantees and Political Risk Insurance’ in Krajewski and Hofmann (eds), Research Handbook on Foreign Direct Investment (2019), 299 (330). 47 For example, the US Overseas Private Investment Corporation – OPIC (now: US International Development Finance Corporation – DFC), relies on such deductions: ‘Claim payments are limited by the value of the investment and the amount of current coverage in force at the time of the loss and may be reduced by the insured’s recoveries from other sources’. OPIC, 2010 Annual Report (2010), 35. See also Hobér and Fellenbaum, ‘Political Risk Insurance and Financing of Foreign Direct Investment’, in Bungenberg et al. (eds), International Investment Law. A Handbook (2015), 1517 (1536). 48 See, for example, Beckman Instruments, Inc. and Overseas Private Investment Corporation, No. 16-199-00209-87G, American Arbitration Association, Award (20 February 1988). The arbitral tribunal decided that Beckman was not entitled to any compensation because the OPIC policies required that amounts received in compensation from other insurance companies and the value of all property recovered was to be set off against the amount that would otherwise be payable by OPIC. See Case Note by Geoffrey D. Oliver (1989) 83 AJIL, 112 (113).
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III. Insurance or Guarantee Contract Indemnification or other compensation may be received by an investor, who has 26 taken out insurance or another form investment guarantee. Three different types of entities offer insurance or guarantees against non-commercial or ‘political risk’: (1) international agencies, (2) national state-sponsored agencies, and (3) private insurers. While the first two public insurers, international agencies and national state-sponsored agencies, generally issue a guarantee, private enterprises usually offer an insurance. However, the two terms are not sharply distinguished and often used interchangeably.49 They all offer protection under contracts which are individually negotiated and generally not publicly available. Several common features can however be discerned, also on the basis of publicised model contract forms, and be compared with the protection granted under Chapter Eight of CETA. Many political risk insurance providers, national and international, public and 27 private, are members of the International Union of Credit and Investment Insurers (Berne Union)50 whose aim is to promote international acceptance of sound principles in export credit and investment insurance and to exchange information relating to these activities. This may contribute to the development of more transparent and comparable conditions of political risk insurance.51
1. Multilateral Agencies One of the most important pillars in the protection against political risk is the Mul- 28 tilateral Investment Guarantee Agency (MIGA).52 Its aim is to stimulate the flow of resources between its member countries by issuing guarantees for investment against non-commercial risks and by carrying out a wide range of promotional activities. 53 It provides for coverage of four broad categories of non-commercial risk, (1) currency transfer risk which may result from host government restrictions on currency conversion or transfer, (2) risk from expropriation and similar measures with the effect of depriving the holder of a guarantee of his ownership or control of, or a substantial benefit from, his investment, (3) repudiation or breach of contract by the host government, when the investor does not have access to a competent forum, a decision by such forum is not rendered within a reasonable period of time, or a decision by a court or arbitral tribunal cannot be enforced, and (4) risks from any military action or civil disturbance.54 In addition, the Board may extend the coverage to other non-commercial risks, with the exception of the risk of devaluation or depreciation of currency. 55 It has done so in order to offer coverage for the risk of acts of terrorism and sabotage (as part of the war and civil disturbance risk), of non-honouring financial obligations 49 See also Protopsaltis, ‘Investment Guarantees and Political Risk Insurance’ in Krajewski and Hofmann (eds), Research Handbook on Foreign Direct Investment (2019), 299 (303). 50 The Berne Union was founded in 1934 and currently has 83 members. See https://www.berneunio n.org/. 51 Some of the problems related to the lack of transparency and comparability are discussed by Kantor, ‘Are You in Good Hands With Your Insurance Company? Regulatory Expropriation and Political Risk Insurance’ in Moran et al. (eds), International Political Risk Management: Needs of the Present, Challenges for the Future (2008), 137. 52 Convention Establishing the Multilateral Investment Guarantee Agency, signed on 11 October 1985, entered into force on 12 April 1988, UNTS Vol. 1508, I-26012, 99. 53 Shihata, ‘Towards a Greater Depolitization of Investment Disputes: The Roles of ICSID and MIGA’ (1986) 1 ICSID Rev., 1 (13). 54 Article 11(1)(i) – (iv) MIGA Convention. 55 Article 11(b) MIGA Convention.
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by sovereigns or state-owned enterprises, and of non-enforcement of a final arbitral award rendered pursuant to a BIT.56 29 MIGA, as a universal international organisation,57 aims at pursuing the interests of capital-importing and capital-exporting countries alike. It is therefore not only concerned with the protection of the interests of investors and their home states but also those of the host states.58 Canada and 17 EU Member States are Parties of MIGA.59 While the primary focus of MIGA projects lies in the support of projects in developing countries, it also insures investments from one EU member state in another.60 30 To qualify for coverage under MIGA, investments must meet certain requirements with respect to the type of investment, the resources to be invested, and the time of the investment.61 Generally, only new investments can be ensured; existing investments may only be covered under certain conditions, such as for modernisation, expansion or restructuring.62 The period of the guarantee is between one year and 15 years, in special circumstances up to 20 years.63 Investments are only eligible, if they (i) are economically sound and contribute to the development of the host country; (ii) comply with the host country's laws and regulations; (iii) are consistent with the declared development objectives and priorities of the host country; and (iv) enjoy legal protection in the host country, including fair and equitable treatment. 64 The last criterion is usually made dependent on the existence of an applicable investment protection treaty.65 31 Furthermore, MIGA requires that the host state approves the issuance of the guarantee by MIGA against the risks designated for cover.66 Upon payment of compensation to a holder of a guarantee, MIGA Member States agree that such rights or claims related to the guaranteed investment are subrogated to MIGA. 67 A dispute between Article 1.24(b) MIGA Operational Policies (2015). MIGA currently has 182 member countries. See the MIGA website, https://www.miga.org/member -countries. 58 Other multilateral investment agencies pursue similar goals by similar means, but are most likely not relevant in the CETA-context, as they concentrate on other regions, such as the African Trade Insurance Agency, the Asian Development Bank, the Inter-American Development Bank, the Inter-Arab Investment Guarantee Corporation, and the Islamic Corporation for the Insurance of Investments and Export Credit. The World Bank, the Asian Development Bank, and the Inter-American Development Bank also provide risk-mitigation instruments, such as partial risk guarantees. See MIGA, World Investment and Political Risk 2013 (2014), 29. 59 The following 17 EU-members are also MIGA members: Austria, Belgium, Czech Republic, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Italy, Luxembourg, Netherlands, Portugal, Slovenia, Spain, Sweden. See the MIGA website, https://www.miga.org/member-countries. 60 See, for example, the project of the Hungarian Export-Import Bank PLC, with an investor from Belgium. See MIGA website, https://www.miga.org/project/hungarian-export-import-bank-plc-0. Also Croatia, Poland and Slovakia are host states for projects insured by MIGA. 61 Article 1.01 MIGA Operational Policies (2015). 62 Article 1.14-15 MIGA Operational Policies (2015). 63 Article 2.04 MIGA Operational Policies (2015). 64 Article 12(e) MIGA Convention. 65 If MIGA is not satisfied with the legal protection, it shall endeavor to conclude agreements with prospective host countries in order to ensure that it has treatment at least as favorable as that agreed by the member concerned for the most favoured investment guarantee agency or state in an agreement relating to investment. See Article 23 (b) (ii) MIGA Convention. See also Hobér and Fellenbaum, ‘Political Risk Insurance and Financing of Foreign Direct Investment’ in Bungenberg et al. (eds), International Investment Law. A Handbook (2015), 1517 (1528). 66 Article 15 MIGA Convention. 67 Article 18(a) MIGA Convention. The contract of guarantee shall provide the terms and conditions of such subrogation. 56
57
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MIGA as subrogee and the host state in this context shall be solved by conciliation and arbitration for which rules, similar to ICSID, are provided in an Annex to the MIGA Convention.68 It follows from the above that MIGA offers investment guarantees in close collabo- 32 ration with the host state from the beginning of the investment until an eventual materialisation of the political risk. This also includes prior agreement on subrogation and dispute settlement. It depends on the circumstances of the case and the event in question, whether the investor will first (try to) receive compensation from MIGA under the guarantee contract or initiate arbitration. The choice of means will also depend on the expected duration of procedure. Under Article 8.39(7), an arbitration under CETA should not last longer than 24 months, but in reality investor-State arbitrations, for example under ICSID, last on average for more than 3.5 years (→ Art. 8.39 mn. 102 ff.). Under the MIGA Convention, an expropriation is deemed to have occurred, if the guarantee holder has been unable to exercise a fundamental covered right for a period of 365 consecutive days or such other period as the contract of guarantee may provide.69 It is quite likely that the investor will, first, try to recover the loss from MIGA and 33 then institute arbitration, mainly because the guarantee contract may have limitations in the scope of coverage and amount of compensation, different from the protection granted under CETA (→ mn. 45 ff.). This is exactly the situation Article 8.40 addresses.
2. National Guarantee Agencies Another option for investors to protect themselves against political risk are guaran- 34 tees offered by national investment guarantee agencies. National export credit agencies and investment insurance entities focus on cross-border trade and investment, generally for constituents in their own countries. 70 In Canada, it is the national export credit agency, Export Development Canada (EDC), which offers protection against political risk (→ mn. 13).71 In the EU, 18 Member States have established national investment guarantee 35 schemes.72 They are all state-sponsored, but the structures, legal bases, insurance See Article 57(b) and Annex II of the MIGA Convention. Article 1.41 (1) (ii) MIGA Operational Policies (2015). See also Hobér and Fellenbaum, ‘Political Risk Insurance and Financing of Foreign Direct Investment’ in: Bungenberg et al. (eds), International Investment Law. A Handbook (2015), 1517 (1550). 70 MIGA, World Investment and Political Risk 2013 (2014), 29. 71 Bass, ‘Approaches and challenges to political risk assessment: The view from Export Development Canada’ (2010) 12 Risk Management, 135 (136). 72 These are Austria (OEKB – Oesterreichische Kontrollbank AG), Belgium (ONDD – Office National du Ducroire/ Nationale Delcrederedienst), Czech Republic (EGAP – Export Guarantee and Insurance Corporation), Denmark (EKF – Eksport Kredit Fonden), Finland (FINNVERA PLC), France (COFACE – Compagnie Française d’Assurance), Germany (PWC – PricewaterhouseCoopers AG), Greece (ECIO – Export Credit Insurance Organisation), Hungary (MEHIB – Hungarian Export Credit Insurance), Italy (SACE – Servizi Assicurativi del Commercio Estero), Luxembourg (Office du Ducroire Grand Duché de Luxembourg), Netherlands (ATRADIUS Dutch State Business), Poland (KUKE – Export Credit Insurance Corporation Joint Stock Company), Portugal (COSEC – Companhia de Seguro de Créditos); Slovakia (EXIMBANKA SR – Export-Import Bank of the Slovak Republic), Slovenia (SEC – Slovene Export Corporation Inc), Spain (CESCE – Compañía Española de Seguros de Crédito a la Exportación), and Sweden (EKN – Exportkreditnämnden). See Dimopoulos, ‘Foreign Investment Insurance and EU Law’ in Bungenberg et al. (eds), EU and Investment Agreements: Open Questions and Remaining Challenges (2013), 171 (174); see also Gordon, Investment Guarantees and Political Risk Insurance: Institutions, Incentives and Development (2008), 111. 68
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systems as well as coverage and services are quite different. Some of the national agencies in the EU are state-owned public companies,73 others are private companies.74 Some are special purpose banks,75 others are accounting firms.76 The diversity of systems is the result of different historical developments and the different needs of investors in the EU Member States, such as industry focus and needs for insurance, as well as legal systems.77 State-sponsored schemes aim at supporting outward foreign direct investment because of their alleged positive role for national economies of host and home countries.78 The investors have to fulfil certain eligibility criteria, such as compliance with environmental and social standards, anti-corruption as well as development policies of host and home countries. Generally, the investments must be new and are only eligible if they are made in a friendly country to the home state.79 The advantage of public funding is the relatively low insurance premium and the political backing of the state. The home state may support its foreign investors abroad by diplomatic means and thereby assist already in early stages of upcoming conflicts which may help to prevent the actual occurrence of an event of loss. 80 The disadvantage of state sponsored insurance is its dependence of political choices and its usual limitation to new investments. 36 Similarly to MIGA, the national state-sponsored schemes offer investment insurance covering the political risks of nationalisation and expropriation, limitations on payments and currency transfers, war and civil disturbance, as well as breach of contract.81 However, the determination of occurrence of a risk and the respective coverage may differ considerably under the different schemes. 37 In view of the exclusive competence of the EU in Article 207 TFEU on foreign direct investment since the Treaty of Lisbon in 2009 it has been discussed whether national investment guarantee agencies are in accordance with EU law or rather to be substituted by an EU-wide investment guarantee scheme. 82 The EU Commission has communicated that it does not intend to replace the investment promotion efforts by Member States, as long as they fit with the Common Commercial Policy and remain consistent with EU law.83 However, in view of the considerable variety of Member States’ investment insurance schemes, the argument can be made that the 73 EGAP – Export Guarantee and Insurance Corporation (Czech Republic), SACE – Servizi Assicurativi del Commercio Estero (Italy), KUKE – Export Credit Insurance Corporation Joint Stock Company (Poland). 74 COFACE – Compagnie Française d’Assurance (France). 75 OEKB – Oesterreichische Kontrollbank AG (Austria). 76 PWC – PricewaterhouseCoopers AG (Germany). 77 Steffens, ‘Investment Insurance Systems – Still a Member State Business: Current Developments with regard to Investment Insurance Systems’, in Bungenberg et al. (eds), EU and Investment Agreements: Open Questions and Remaining Challenges (2013), 193 (197). 78 Protopsaltis, ‘Investment Guarantees and Political Risk Insurance’ in Krajewski and Hofmann (eds), Research Handbook on Foreign Direct Investment (2019), 299, 314 ff.; Gordon, Investment Guarantees and Political Risk Insurance: Institutions, Incentives and Development (2008) 96 ff. 79 Protopsaltis, ‘Investment Guarantees and Political Risk Insurance’ in Krajewski and Hofmann (eds), Research Handbook on Foreign Direct Investment (2019), 299, 314 ff.; Gordon, Investment Guarantees and Political Risk Insurance: Institutions, Incentives and Development (2008) 96 ff. 80 Steffens, ‘Investment Insurance Systems – Still a Member State Business: Current Developments with regard to Investment Insurance Systems’ in Bungenberg et al. (eds), EU and Investment Agreements: Open Questions and Remaining Challenges (2013), 193 (198). 81 Dimopoulos, ‘Foreign Investment Insurance and EU Law’ in Bungenberg et al. (eds), EU and Investment Agreements: Open Questions and Remaining Challenges (2013), 171 (175). 82 Dimopoulos, ‘Foreign Investment Insurance and EU Law’ in Bungenberg et al. (eds), EU and Investment Agreements: Open Questions and Remaining Challenges (2013), 171 (180 ff.). 83 Commission, Communication, Towards a comprehensive European international investment policy, 7 July 2010, COM (2010) 343 final, 6.
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existing systems have the potential to distort competition within the EU and run against the principle of uniformity of the Common Commercial Policy. 84 The exclusive competence of the EU in the area of foreign direct investment would enable the development of a uniform legal framework dealing with common principles for insurance and guarantee arrangements, for example modelled on the common export insurance regime.85 The main obstacles against such an endeavour seem to be the lack of political will and insufficient financial means at EU level. In the meantime, harmonisation of rules on foreign investment insurance based 38 on best practices may be achieved on a voluntary basis. Currently, the respective exchange of information and cooperation takes place, for example in the framework of the Berne Union (→ mn. 27). Until more uniform principles and practices are developed, indemnification or other compensation received as addressed in Article 8.40 may vary significantly from case to case.
3. Private Insurers Private insurers are able to provide insurance services and products, which fill the 39 gap public guarantee agencies leave. They have less strict eligibility requirements as they are not aligned with national or development policy objectives. The premiums are higher and coverage is generally granted for shorter periods of time, 86 but insurance is available also for existing investments and generally has simpler and quicker underwriting procedures.87 The increasing market provides considerable business opportunities and profits for private insurers.88 The private market is dominated by a group of large syndicates historically domi- 40 nated by the Lloyd’s of London, but other insurances centres have caught up, such as Bermuda, New York and Singapore.89 In addition to traditional political risk insurance for equity investment, the private market offers protection for a wide variety of payment risks in developing countries, either for political perils alone, or comprehensive non-payment cover.90 The range of risks covered by private insurers is similar to those covered by public 41 agencies, namely (1) currency inconvertibility and transfer restrictions; (2) confiscation, expropriation, nationalisation; (3) political violence; (4) default on obligations such as loans, arbitral claims, and contracts.91 Their definitions or triggering events, 84 Dimopoulos, ‘Foreign Investment Insurance and EU Law’ in Bungenberg et al. (eds), EU and Investment Agreements: Open Questions and Remaining Challenges (2013), 171 (181). 85 Dimopoulos, ‘Foreign Investment Insurance and EU Law’ in Bungenberg et al. (eds), EU and Investment Agreements: Open Questions and Remaining Challenges (2013), 171 (178 f.); see also Council Directive 70/509/EEC on the adoption of a common credit insurance policy for medium- and long-term transactions with public buyers OJ L254/1, 23.11.1970; Council Directive 70/510/EEC on the adoption of a common credit insurance policy for medium- and long-term transactions with private buyers, OJ L254/26, 23.11.1970; CJEU, Opinion 1/75, 11.11.1975, ECLI:EU:C:1975:145. 86 However, the pricing has become increasingly competitive due to large syndicates and reinsurance arrangements. Also the insurance periods have been extended over the years, reaching up to 15 years, which is already quite comparable to public investment guarantee agencies. See Bekker and Ogawa, ‘The Impact of Bilateral Investment Treaty (BIT) Proliferation on Demand for Investment Insurance: Reassessing Political Risk Insurance After “BIT Bang”’ (2013) 28 ICSID Rev., 314 (323). 87 Protopsaltis, ‘Investment Guarantees and Political Risk Insurance’ in Krajewski and Hofmann (eds), Research Handbook on Foreign Direct Investment (2019), 299 (321 f.). 88 See MIGA, World Investment and Political Risk 2013 (2014), 30 f. 89 See MIGA, World Investment and Political Risk 2013 (2014), 29. 90 See MIGA, World Investment and Political Risk 2013 (2014), 29 91 Gordon, Investment Guarantees and Political Risk Insurance: Institutions, Incentives and Development (2008), 103.
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exclusions, limitation, and qualification requirements for payment of a claim are similar to the public counterparts.92 42 Private insurance policies also provide for subrogation to enable the insurer to recoup the compensation paid to the insured investor. However, it depends on the applicable investment treaty whether the insurer can actually ‘step into the shoes’ of the insured and bring a claim against the host government.93 Under Article 8.14 of CETA, subrogation of private insurers is not explicitly accepted. It depends on the circumstances of the case, whether the insurer is nevertheless entitled to bring a claim against the other CETA Party.
IV. Indemnification or other Compensation Article 8.40 is placed directly after Article 8.39 which contains detailed provisions on the contents of the Final Award. Interpreting the provision in this context 94 means that the guidelines for the assessment of damages and compensation contained in Article 8.39(1) and (3) (→ Art. 8.39 mn. 55 ff. and mn. 65 ff.) shall be taken into consideration. According to these provisions, the overarching reference is the loss suffered by the investor, which must not be exceeded by the amount of monetary damages. If the investor has been indemnified by an insurance company or on another basis, the loss suffered by the investor is arguably diminished or even not existent. Public and private insurers being cautious to avoid overcompensation generally require that amounts received from other sources must be deducted from the compensation payable (→ mn. 45 ff.). 44 In sharp contrast to this practice, Article 8.40 makes clear that indemnification or other compensation received pursuant to an insurance or guarantee contract cannot be accepted as a reason to diminish the amount of monetary damages or compensation to be awarded by a CETA tribunal. The main reason is that, in many cases, the home state of the investor would have to bear the loss, namely when the investor has a guarantee from its national investment guarantee agency. Similar considerations apply, when the investor has received coverage by MIGA, when the home state of the investor is a member of MIGA. Even though in those cases subrogation is available, on the one hand by CETA itself (→ mn. 10) and by the agreement with MIGA on the other (→ mn. 31),95 it would be inefficient, as it would just lead to a multiplication of proceedings for one and the same triggering event. Article 8.40 aims to avoid this. 43
V. All or Part of the Compensation sought in a Dispute 45
The variations between the treaty standards contained in CETA and the conditions for compensation contained in insurance or guarantee contracts almost necessarily lead to differences in coverage. The coverage by investment guarantee agencies or insurers is regularly subject to a number of detailed prerequisites and limitations so that indemnification or other compensation received will almost inevitably be less than 92 Hobér and Fellenbaum, ‘Political Risk Insurance and Financing of Foreign Direct Investment’ in Bungenberg et al. (eds), International Investment Law. A Handbook (2015), 1517 (1540). 93 Ginsburg, ‘Political Risk Insurance and Bilateral Investment Treaties: Making the Connection’ (2013) 14 JWIT (2013) 943 (968 f.). 94 See Article 31(1) Vienna Convention on the Law of Treaties. 95 Subrogation in favour of private insurers would be difficult as it is not explicitly covered by CETA so that any claim by the subrogee would have to overcome jurisdictional hurdles (→ mn. 42).
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full reparation and less than the fair market value of the investment, which are the important benchmarks for the assessment of monetary damages and compensation under CETA pursuant to Article 8.39(1) and (3) (→ mn. 43). This is particularly true for claims based on expropriation, war and civil disturbance, and for currency inconvertibility claims.
1. Expropriation The differences in protection against expropriation in CETA and insurance or 46 guarantees contracts encompass mainly three aspects: (1) the scope of protection and elements constituting expropriation, (2) the valuation method, and (3) the valuation date. With respect to the scope of protection and elements constituting expropriation, 47 the respective clauses in political risk insurance are not public. However, they generally follow guidelines contained in state-sponsored guarantee schemes and publicly available jurisprudence.96 MIGA contains provisions on expropriation in the MIGA Convention,97 but also in the Operational Policies98 and in the (Standard) Contract of Guarantee for Equity Investments.99 A covered risk under MIGA is any ‘legislative action or administrative action or 48 omission attributable to the host government which has the effect of depriving the holder of a guarantee of his ownership or control of, or a substantial benefit from, his investment.’100 The effect of the measure is therefore decisive, not its intent. 101 Coverage is also provided against a series of measures by the host government that in their combined effect are expropriatory, even if each individual measure, taken alone, would not be considered as an expropriation.102 This means that so-called indirect or creeping expropriations are also covered, as it is the case under Article 8.12 on Expropriation. However, the deprivation must be substantial so that only ‘partial’ expropriations are not covered.103 The coverage does also not extend to a violation of fair and equitable treatment as it is generally provided for in bilateral investment
96 Kantor, ‘Are You in Good Hands With Your Insurance Company? Regulatory Expropriation and Political Risk Insurance’ in Moran et al. (eds), International Political Risk Management: Needs of the Present, Challenges for the Future (2008), 137 (139 f.); Hobér and Fellenbaum, ‘Political Risk Insurance and Financing of Foreign Direct Investment in: Bungenberg et al. (eds), International Investment Law. A Handbook (2015), 1517 (1540 f.). 97 Article 11(a)(ii) of the MIGA Convention. 98 Article 1.31 to 1.42 of the Operational Policies (2015). 99 Article 4 (Standard) Contract of Guarantee for Equity Investments. 100 Article 11(a)(ii) of the MIGA Convention. The Operational Policies and the (Standard) Contract of Guarantee for Equity Investments extend the coverage to administrative actions and even to administrative omissions, when ‘the administrative authority is under a legal obligation to act and has been notified by the investor’. However, legislative omissions or decisions of independent courts or arbitral tribunals are explicitly excluded. See Article 1.34 of the Operational Policies (2015); Article 4.1 (Standard) Contract of Guarantee for Equity Investments. 101 However, Article 4.2 (Standard) Contract of Guarantee for Equity Investments adds the criterion that the measures by the host governments must have been ‘designed’ to have a confiscatory effect. While this seems to replace the ‘effect’ of the measure by its ‘intent’, this should only add a ‘good faith test’, by which an unreasonable measure in relation to the apparent regulatory objective could be identified. See Protopsaltis, ‘Investment Guarantees and Political Risk Insurance’ in Krajewski and Hofmann (eds), Research Handbook on Foreign Direct Investment (2019), 299 (326). 102 Article 1.38 of the Operational Policies (2015). 103 Hobér and Fellenbaum, ‘Political Risk Insurance and Financing of Foreign Direct Investment’ in Bungenberg et al. (eds), International Investment Law. A Handbook (2015), 1517 (1544).
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49
50
51
52
Indemnification or other compensation
treaties and in Article 8.10. This has led to conflicting subsumptions. 104 However, for the purpose of Article 8.40 it does not matter whether an investment guarantee agency has paid compensation because it qualified the triggering event as expropriation, even though the qualification would be different under CETA. Other differences between investment insurance or guarantees and CETA protection are based on the valuation methods applied in expropriation cases. Under CETA the fair market value is used as a measure for compensation in expropriation cases 105 and the loss incurred by the investor is recognised for the assessment of monetary damages.106 Under investment insurance schemes, as a matter of principle, compensation ‘shall not cover the total loss of the guaranteed investment’. 107 This should discourage possible irresponsible conduct by investors relying on total loss cover. 108 For the determination of fair market value in ISDS, including under CETA, valuation methods are recommended that reflect the future profitability of the investment, mostly based on the discounted cashflow (DCF) method, because the market participants regularly use this method for evaluating businesses and other incoming generating assets.109 The World Bank proposes this method for going concerns.110 Article 8.12 provides that valuation criteria ‘shall include going concern value, asset value including the declared tax value of tangible property, and other criteria, as appropriate, to determine fair market value’. In contrast, the MIGA Operational Policies refer to ‘the book value or the fair market value of the guaranteed investment, or either value as adjusted’, 111 while the final determination should be made in the contract of guarantee in each case. The (Standard) Contract refers to the ‘Net Book Value of the Project Enterprise (or the portion thereof that has been expropriated)’ or ‘the Book Value of […] tangible assets (or the portion thereof that has been expropriated)’.112 The net book value represents the original purchase price less depreciation. This is generally not the price which would be agreed upon between a hypothetical willing buyer and a hypothetical willing seller, which is generally required to determine fair market value. Net book value will only compensate the investor for some of its losses. Moreover, the amount of insurance or guarantee never exceeds a certain percentage of cover, which needs to be agreed between the insurer or guarantor and the applicant.113 Under MIGA, it shall in no case exceed 99 percent for loans and other
104 See Expropriatory Action Claim of Ponderosa Assets, LP v. Argentina, OPIC Contract of Insurance No. D733, Memorandum of Determinations (2 August 2005), and Enron Corpration v. Argentina, ICSID Case No. ARB/01/3, Award (22 May 2007), para. 247 (denying expropriation and rejecting the argument that OPIC has considered the host government’s actions as an expropriation, because the ‘OPIC “Memorandum of Determinations” […] responds to a different kind of procedure and context that cannot influence or be taken into account in this arbitration’. Instead, the ICSID tribunal found a violation of fair and equitable treatment (see Enron Corpration v. Argentina, ICSID Case No. ARB/01/3, Award (22 May 2007), para. 268). 105 See Article 8.12. 106 See Article 8.39(3). 107 Article 16 of the MIGA Convention. 108 MIGA Commentary (1985), para. 10. 109 See for an overview about the different methods and their application in arbitral practice, Marboe, Calculation of Compensation and Damages in Investment Arbitration (2017), 201 ff. and 278 ff. 110 See the ‘World Bank Guidelines’, published in World Bank, ‘Legal Framework for the Treatment of Foreign Investment, vol. 2, Report to the Development Committee and Guidelines on the Treatment of Foreign Direct Investment’, Section IV(6), bullet 2 (1992) 31 ILM 1363 (1383). 111 Article 4.10(b) of the Operational Policies (2015). 112 Article 4.4(a) of the (Standard) Contract of Guarantee for Equity Investments (2016). 113 Article 2.09 of the Operational Policies (2015).
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debt instruments and 95 percent for all other investments. The (Standard) Contract provides for a 90 percent cover.114 Finally, the valuation dates may also differ between CETA protection and insurance 53 coverage. Under Article 8.12 the valuation date is ‘the time immediately before the expropriation or the impending expropriation became known, whichever is earlier’. In contrast, the MIGA (Standard) Contract provides that the compensation should be calculated ‘as of the day immediately preceding the Date of Loss’, 115 which is defined as ‘the date of the action or inaction constituting the Covered Risk for which compensation is claimed’.116 As a consequence, the guarantee holder has to bear the loss in value of the investment caused by rumours prior to the actual expropriation. It follows from the above that it is almost inevitable that the investor has only 54 received ‘part of the compensation sought in a dispute’, as formulated in Article 8.40, as indemnification or other compensation pursuant to an insurance or guarantee contract, before an arbitral award under CETA is rendered.
2. War and Civil Disturbance Under investment insurance or guarantee schemes, coverable risks include any 55 military action or civil disturbance in any territory of the host country. 117 Under CETA, investors may be protected against similar risks by Article 8.10 covering ‘full protection and security’ and Article 8.11 on ‘Compensation for losses’. Differences in the valuation of the loss recoverable are similar to those in the 56 expropriation context. While the loss incurred by the investor is recognised for the assessment of monetary damages under CETA,118 compensation under an investment insurance shall, as a matter of principle, ‘not cover the total loss of the guaranteed investment’.119 For example, compensation for loss of assets payable in case of war and civil disturbance shall be calculated on the basis of ‘the lesser of the replacement cost of such tangible assets with assets of like kind and quality and the reasonable cost of repair of such tangible assets, provided that such compensation is actually utilized for replacement or repair of such assets, as applicable.’120 If the relevant assets are neither being replaced nor repaired, the book value of the affected tangible assets, determined as of the day immediately preceding the date of loss shall be applied. 121 In case of permanent loss of use, the net book value of the project enterprise calculated as of the day immediately preceding the date of loss shall be decisive.122 Similar as in the case of expropriation, the amount of guarantee is limited by 57 the percentage of cover as agreed by the insurer and the investor in the respective insurance or guarantee contract.123 Under MIGA, the percentage cover shall in no case exceed 99 percent for loans and other debt instruments and 95 percent for all other investments. The (Standard) Contract provides for a 90 percent cover. 124
Clause 9 A of the (Standard) Contract of Guarantee for Equity Investments (2016). Article 4.4(a) of the (Standard) Contract of Guarantee for Equity Investments (2016). 116 Article 2 of the (Standard) Contract of Guarantee for Equity Investments (2016). 117 Article 11(a)(iv) of the MIGA Convention. 118 See Article 8.39(3). 119 Article 16 of the MIGA Convention. 120 Article 5.3(a)(i) of the (Standard) Contract of Guarantee for Equity Investments (2016). 121 Article 5.3(a)(ii) of the (Standard) Contract of Guarantee for Equity Investments (2016). 122 Article 5.3(b) of the (Standard) Contract of Guarantee for Equity Investments (2016). 123 Article 2.09 of the Operational Policies (2015). 124 Clause 9 A of the (Standard) Contract of Guarantee for Equity Investments (2016). 114
115
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Indemnification or other compensation
It follows that compensation received under an insurance or guarantee contract for war and civil disturbance will not cover the entire loss incurred and will only represent part of the compensation sought in a dispute initiated under CETA.
3. Currency Inconvertibility Claims 59
60
61
62
63
The difference in damage covered by CETA and a political risk insurance becomes quite evident in the case of a violation of the obligation to permit money transfers relating to a covered investment. Article 8.13 provides that ‘[e]ach Party shall permit all transfers relating to a covered investment to be made without restriction or delay in a freely convertible currency and at the market rate of exchange applicable on the date of transfer.’ This provision shall protect the investor from currency inconvertibility and other money transfer restrictions imposed by the host government. Political risk insurances or guarantees, in order to protect an investor from currency inconvertibility, contain clauses providing a right of the investor to be indemnified for losses caused by measures of the host government limiting the conversion or transfer of funds outside the country, so-called currency inconvertibility-clauses (CIclauses). The amount of indemnification received by the investor from the insurer or guarantor can be significantly different from what can be an award on monetary damages under CETA. In this context, two main factors are relevant: (1) the exchange rate, and (2) the date for the valuation of the loss.125 With respect to the relevant exchange rate, Article 8.13 refers to the market rate of exchange, which results from the trading of currencies between private and public currency holders in the market. In contrast, nearly all political risk insurances in their currency inconvertibility clauses refer to an official exchange rate, which (if available), is determined by the government. In the CETA context, official exchange rates fixed by governments are not existent, but the choice of the relevant rate in the context of an authorisation to convert and transfer a certain amount of money abroad is a governmental decision. The market rate of exchange and the rate of exchange determined by the government may thus differ from each other and cause considerable differences with respect to the amount of indemnification. With respect to the relevant valuation date, political risk insurances generally ask for a waiting period, namely a certain time between the first attempt to transfer an amount of money and the point in time, which usually is 180 days, at which the currency inconvertibility clause would recognise that a loss has occurred. 126 Its aim is to see whether the restrictions on convertibility or transfer are transitional or permanent. The government may withdraw or limit the restrictions again. Only after a certain period of time, one considers that the loss is permanent. During this delay the currency can devaluate so that the investor has to bear the burden of devaluation. In contrast, CETA requires host states to permit all transfers without delay. This formulation leaves room for interpretation, which may range from ‘immediately’ to ‘without reasonable delay’,127 but most likely not include the lapse of 180 days. In view
125 Ginsburg, ‘Political Risk Insurance and Bilateral Investment Treaties: Making the Connection’ (2013) 14 JWIT, 943 (958). 126 Ginsburg, ‘Political Risk Insurance and Bilateral Investment Treaties: Making the Connection’ (2013) 14 JWIT, 943 (955 f.). 127 See the currency restrictions imposed by the Argentine government by the Emergency Law of 6 January 2002. Tribunals decided that the free transfer of funds, which was guaranteed in Article V of the US-Argentina BIT of 1994, was violated.
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of the devaluation of currency, indemnification based on political risk insurance or guarantee will almost necessarily be less than a claim based on CETA.
E. Conclusion The provision that receipts under an insurance or guarantee contract need to be 64 disregarded in investor-State dispute settlement reflects a rather recent development. While such a provision was not contained in NAFTA, it was included in the early CETA drafts on the example of the Canadian Model BITs of 2004 and 2014. Subsequently, it was also included in the USMCA and in the EU’s IPAs with Singapore and Vietnam. Apparently, both Canada and the EU have gradually become aware of the importance of political risk insurance and the need to clarify its relationship with investment protection treaties. Article 8.40 serves various purposes, including to ensure that the rights of investors 65 under CETA are safeguarded, that the respondent cannot escape its responsibility by shifting the financial burden of the loss caused by it to a third Party, which may even be the other CETA Party, and to support political risk insurance schemes. The scope of protection of political risk insurance or guarantee contracts is similar 66 but not identical to that of Chapter Eight of CETA. In addition, the amount of indemnification or other compensation is calculated differently. The respective tools ultimately serve the same objective, namely to protect investors from political risk. However, as they operate on different premises and conditions it is important to separate them and to avoid mutual interference and weakening. This is what Article 8.40 tries to achieve.
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Article 8.41 Enforcement of awards 1. An award issued pursuant to this Section shall be binding between the disputing parties and in respect of that particular case. 2. Subject to Paragraph 3, a disputing party shall recognise and comply with an award without delay. 3. A disputing party shall not seek enforcement of a final award until: (a) in the case of a final award issued under the ICSID Convention: (i) 120 days have elapsed from the date the award was rendered and no disputing party has requested revision or annulment of the award; or (ii) enforcement of the award has been stayed and revision or annulment proceedings have been completed; (b) in the case of a final award under the ICSID Additional Facility Rules, the UNCITRAL Arbitration Rules, or any other rules applicable pursuant to Article 8. 23.2(d): (i) 90 days have elapsed from the date the award was rendered and no disputing party has commenced a proceeding to revise, set aside or annul the award; or (ii) enforcement of the award has been stayed and a court has dismissed or allowed an application to revise, set aside or annul the award and there is no further appeal. 4. Execution of the award shall be governed by the laws concerning the execution of judgments or awards in force where the execution is sought. 5. A final award issued pursuant to this Section is an arbitral award that is deemed to relate to claims arising out of a commercial relationship or transaction for the purposes of Article I of the New York Convention. 6. For greater certainty, if a claim has been submitted pursuant to Article 8.23.2(a), a final award issued pursuant to this Section shall qualify as an award under Chapter IV, Section 6 of the ICSID Convention. Reference to the Respective Provisions in Other EU Treaties: Chapter 3, Article 3.57 EU-Vietnam IPA (not in force yet); Chapter 3, Article 3.22 EU-Singapore IPA (not in force yet). Bibliography: George Bermann (ed), Recognition and enforcement of foreign arbitral awards: the application of the New York Convention by National Courts (Springer 2017); Nigel Blackaby, Constantine Partasides, Alan Redfern and Martin Hunter, Redfern and Hunter on International Arbitration (6 th edn, Oxford University Press, Oxford 2015); Freya Baetens, ‘The European Union’s Proposed Investment Court System: Addressing Criticisms of Investor-State Arbitration While Raising New Challenges’ (2016) 43(4) LIEI, 367; Gary Born, International Commercial Arbitration (Wolters Kluwer 2014); Stavros Brekoulakis, ‘The Effect of an Arbitral Award and Third Parties in International Arbitration: Res Judicata Revisited’ (2005) 16 Am. Rev. Int’l Arb., 177; Charles Brower and Jason Brueschke, The Iran-United States claims tribunal (Martinus Nijhoff Publishers, Leiden/New York 1998); Chester Brown, ‘The Inherent Powers of International Courts and Tribunals’ (2005) 76, BYIL, 195; Marc Bungenberg and Anna Holzer, ‘Potential Enforcement Mechanisms for Decisions of a Multilateral Investment Court’ in Güneş Ünüvar, Joanna Lam and Shai Dothan (eds), Permanent Investment Courts: The European Experiment (Springer 2020) 75; Marc Bungenberg and August Reinisch, From Bilateral Arbitral Tribunals and Investment Courts to a Multilateral Investment Court (Springer 2018); Jansen Calamita, ‘The (In)Compatibility of Appellate Mechanisms with Existing Instruments of the Investment Treaty Regime’ (2017) 18 JWIT, 585; Guiliana Canè, ‘The Enforcement of ICSID Awards: Revolutionary or Ineffective?’ (2004) Am. Rev. Int’l Arb., 439; David Caron and Lee Caplan, The UNCITRAL Arbitration Rules – A Commentary (2nd edn, Oxford University Press, Oxford 2013); Susan Choi, ‘Judicial enforcement of arbitration awards under the ICSID and New York Conventions’ (1995) 28 NYU JILP, 175; Georges Delaume,
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‘Enforcement of state contract awards: jurisdictional pitfalls and remedies’ (1993) 8(1) ICSID Rev.-FILJ, 29; Georges Delaume, ‘Reflections on the effectiveness of international arbitral awards’ (1995) 12(1) J. Int’l Arb., 5; Oliver Dörr and Kirsten Schmalenbach (eds), Vienna Convention on the Law of Treaties – A Commentary (2nd edn, Springer, Berlin 2018); Emmanuel Gaillard and John Savage, Fouchard Gaillard Goldman on International Commercial Arbitration (Kluwer Law International, 1999); Richard Happ, ‘The CETA-Tribunal: is it a court? Is it an arbitration tribunal? Is it something else? An analysis of a legal chimera’, in Martin Gebauer, Thomas Klötzel and Rolf Schütze (eds), Festschrift für Roderich C. Thümmel zum 65. Geburtstag am 23.10.2020 (De Gruyter 2020); Richard Happ and Sebastian Wuschka, ‘From the Jay Treaty Commissions Towards A Multilateral Investment Court: Addressing The Enforcement Dilemma’ (2017) 6(1) Indian J. Arb. L., 113; Frank Hoffmeister, ‘The EU Contribution to the Progressive Development of Institutional Aspects of International Investment Law’ (2017) 2 R.B.D.I., 566; David M Howard, ‘Creating Consistency through a World Investment Court’ (2017) 41(1) Fordham International Law Journal 1; Gabrielle Kaufmann-Kohler and Michele Potestà (2016) Can the Mauritius Convention Serve as a Model for the Reform of Investor-State Arbitration in Connection with the Introduction of a Permanent Investment Tribunal or an Appeal Mechanism? – Analysis and Roadmap (CIDS, Research Paper, 3 June 2016); Stefan Kröll, ‘Enforcement of Awards’ in Marc Bungenberg, Jörn Griebel, Stephan Hobe, August Reinisch (eds), International Investment Law: A Handbook (Beck/Hart/Nomos, München 2015), 1482; Julian Lew, Loukas Mistelis and Stefan Kröll, Comparative international commercial arbitration (Kluwer Law International 2003); Jose Magnaye and August Reinisch, ‘Revisiting Res Judicata and Lis Pendens in Investor-State Arbitration’ (2016) 15(2) LPICT, 264; Lars Markert, Helene Bubrowski, ‘National Setting Aside Proceedings in Investment Arbitration’, in Marc Bungenberg, Jörn Griebel, Stephan Hobe, August Reinisch (eds), International Investment Law: A Handbook (Beck/Hart/Nomos, München 2015), 1460; Anastasia Medvedskaya, ‘Enforcement mechanism under the TTIP Investment Court System, an appropriate tool for enforcing awards in third States?’ (2019) 35 Spain Arbitration Review, 71; Jan Paulsson, ‘Arbitration without privity’ (1995) 10(2) ICSID Rev.-FILJ, 232; Georgios Petrochilos, Procedural law in international arbitration (Oxford University Press, Oxford 2004); Michele Potestà, ‘Investment Arbitration, Challenges And Prospects For The Establishment Of A Multilateral Investment Court: Quo Vadis Enforcement?’ (2018) Austrian YB Int’l Arb., 157; August Reinisch, ‘The Use and Limits of Res Judicata and Lis Pendens as Procedural Tools to Avoid Conflicting Dispute Settlement Outcomes’ (2004) 3 LPICT, 37; August Reinisch, ‘Will the EU’s Proposal Concerning an Investment Court System for CETA and TTIP Lead to Enforceable Awards? - The Limits of Modifying the ICSID Convention and the Nature of Investment Arbitration’ (2016) 19 J. Int’l. Econ. L., 761; Stephan Schill, ‘Crafting the International Economic Order: The Public Function of Investment Treaty Arbitration and Its Significance for the Role of the Arbitrator’ (2010) 23 Leiden J. Int’l L., 401; Christoph Schreuer, Loretta Malintoppi, August Reinisch and Anthony Sinclair, The ICSID Convention: A Commentary (2 nd edn, Cambridge University Press, Cambridge 2009); Guido Tawil, ‘Binding Force and Enforcement of ICSID Awards: Untying Articles 53 and 54 of the ICSID Convention’ in Albert van den Berg (ed), 50 Years of the New York Convention (Kluwer Law International 2009), 327; Catharine Titi, ‘Res Iudicata and Interlocutory Decision under the ICSID Convention: Antinomies over the Power of Tribunals to Review’ (2018) 33 ICSID Rev.-FILJ, 358; Catharine Titi, ‘The European Union's Proposal for an International Investment Court: Significance, Innovations and Challenges Ahead’ (2017) 14(1) TDM; Stephen Toope, Mixed international arbitration (Cambridge University Press, Cambridge 1990); United Nations, Handbook on the Peaceful Settlement of Disputes between States (United Nations Publication, New York 1992), OLA/COD/2394; Albert van den Berg, The New York Arbitration Convention of 1958, Towards a Uniform Judicial Interpretation (Springer 1981); Albert van den Berg, ‘Appeal Mechanism for ISDS Awards: Interaction with the New York and ICSID Conventions’ (2019) 34(1) ICSID Rev.-FILJ, 156; Gus Van Harten and Martin Loughlin, ‘Investment Treaty Arbitration as a Species of Global Administrative Law’ (2006) 17(1) EJIL, 121; Gaëtan Verhoosel, ‘Annulment and Enforcement Review of Treaty Awards: To ICSID or Not to ICSID?’ in Albert van den Berg (ed), 50 Years of the New York Convention (Kluwer Law International 2009), 310; Mark Villiger, Commentary on the 1969 Vienna Convention on the Law of Treaties (Martinus Nijhoff Publishers, Leiden/New York 2009); Reinmar Wolff (ed), New York Convention – Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 10 June 1958 – Article-by-Article Commentary (2nd edn, Beck/Hart/Nomos, München 2019); Sebastian Wuschka, ‘Ein Investitionsgerichtshof – Der große Wurf der EU-Kommission? (2016) 19(2) ZEuS, 153. A. Introduction and Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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B. Spirit and Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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C. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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D. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. Applicability of Article 8.41 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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1. General Applicability Regarding Awards of a (First Instance) Tribunal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. General Applicability Regarding Awards of the Appellate Tribunal . . . . 3. Modalities of Enforcement and Possibilities Depending on the Rules Chosen for Arbitration Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Commentary on Paragraph 1 of Article 8.41 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. Commentary on Paragraph 2 of Article 8.41 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV. Commentary on Paragraph 3 of Article 8.41 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Paragraph 3(a) – Awards Issued under the ICSID Convention . . . . . . . . . a) Paragraph 3(a)(i) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . b) Paragraph 3(a)(ii) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Paragraph 3(b) – Awards under Non-ICSID Convention Arbitral Procedural Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a) Paragraph (3)(b)(i) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . b) Paragraph (3)(b)(ii) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V. Commentary on Paragraph 4 of Article 8.41 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Execution and/or Enforcement and Authentic Language Versions . . . . 2. Law of the State where Enforcement is Sought . . . . . . . . . . . . . . . . . . . . . . . . . VI. Commentary on Paragraph 5 of Article 8.41 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Paragraph 5 Binds CETA-Parties only . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. CETA Awards and Commercial Relationship or Transaction . . . . . . . . . . 3. Enforcing ICS Awards in Non-CETA-States: Is an Award under CETA an Award in the Sense of Article I NYC? . . . . . . . . . . . . . . . . . . . . . . . . 4. Further ‘Problems’ of Enforcement under the NYC . . . . . . . . . . . . . . . . . . . . VII. Commentary on Paragraph 6 of Article 8.41 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Article 8.41(6) as an inter se Modification of the ICSID Convention . . a) Inter se Modifications and Public International Law . . . . . . . . . . . . . . . . . . . b) Inter se Modifications and ICSID Convention . . . . . . . . . . . . . . . . . . . . . . . . . aa) Compliance with Article 41(1)(b)(i) VCLT . . . . . . . . . . . . . . . . . . . . . . . bb) Compliance with Article 41(1)(b)(ii) VCLT . . . . . . . . . . . . . . . . . . . . . . (1) Composition of the bench . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2) Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3) Appellate Tribunal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . cc) Binding Character of Paragraph 6 of Article 8.41 vis-à-vis the CETA Contracting Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . c) Conclusion on Article 8.41(6) as an inter se Modification of the ICSID Convention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. (Non-)Enforcement of ‘CETA-ICS-ICSID-Awards’ in Third States under the ICSID Convention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12 13 14 18 22 30 33 36 42 43 47 50 58 59 63 74 77 79 83 90 91 96 97 99 102 106 109 114 116 123 126 127
E. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130
A. Introduction and Overview For the efficiency of a dispute settlement mechanism it is of crucial importance that the respective decisions can be enforced and if necessary implemented against the will of the losing party. This is all the more true if a losing state does not voluntarily comply with the payment obligations arising from the final award. In this sense, Article 8.41 can be regarded as one of the central provisions of the CETA Investment Chapter. According to its formulation, Article 8.41 is applicable to the enforcement of final awards of the investment court system (ICS) under CETA, either from a (first instance) tribunal or, pursuant to Article 8.28 CETA, from the Appellate Tribunal. 2 Accordingly, Article 8.41 is divided into six Paragraphs. Paragraph 1 states that an award made under CETA Investment Chapter, Section F is binding on the disputing parties and only in relation to the case in question. Paragraph 2 provides that the disputing parties are obliged to recognise an award and to implement it without delay, subject to Paragraph 3. The latter Paragraph provides that enforcement of a final award cannot be sought unless certain periods have elapsed or certain conditions are 1
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met. According to Paragraph 4, the execution of awards shall be governed by the law of the State in which the execution takes place. Paragraph 5 seeks to ensure the applicability of the New York Convention. It 3 clarifies that an award is deemed to relate to claims arising out of a commercial relationship or transaction for the purposes of Article I of the Convention on the Recognition and Enforcement of Foreign Awards of 1958 (New York Convention or NYC). In turn, Paragraph 6 serves a similar purpose in relation to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States of 1965 (ICSID Convention). It sets out that in proceedings in which the parties have chosen to submit their claim under the ICSID Convention and Rules of Procedure for Arbitration Proceedings, a final award shall be deemed an award in terms of the ICSID Convention. It must be stressed that if enforcement under ICSID or the NYC is sought, it means that the losing party has already failed to comply with the award voluntarily as prescribed by Article 8.41(2) CETA.
B. Spirit and Purpose Enforceability of final awards/decisions could theoretically be ensured by international institutions,1 but is usually guaranteed through the support of state courts. The prevailing model in investment arbitration is the recognition and enforcement of awards through state courts. In the territory of the CETA Parties, this is a direct CETA obligation; whereas in third countries, enforcement is foreseen to take place according to the provisions of the ICSID Convention or the New York Convention. Should the losing party fail to comply with its obligations resulting from final awards, the winning party often has only a chance to successfully enforce the award if the assets of the losing party are located in a third state and can be accessed there via an enforcement procedure. Therefore, it is useful for the ICS to have its own rules aiming at making a specific existing enforcement mechanism available to permit enforcement in third countries. This is the objective of Article 8.41, which aims at making use of both the ICSID Convention as well as the NYC. Both aforementioned conventions state that arbitral awards are final and binding on the specific parties to the dispute and contain the possibility to recognise and enforce those awards in third states, which were not involved in the dispute. Article 8.41 avails itself of the ICSID Convention and NYC for the recognition and enforcement of ICS awards. This entails the advantage that ICS decisions may be directly enforceable in the numerous state parties to the two conventions. Including the EU Member States and Canada, the NYC currently counts with 167 members, 2 and the ICSID Convention with 155.3 Although both conventions are considered effective mechanisms for the enforcement of awards and they permit the review of awards to a limited extent, enforcement under the ICSID Convention has the advantage that the awards do not have to withstand a review by the enforcing court. Accordingly, qualifying decisions of the CETA ICS as arbitral awards within the meaning of the ICSID Convention or the New York Convention would be useful in terms of effective enforceability. This seems to have prompted the EU Commission to describe the decisions of the ICS – as well as the ones in the EU-Vietnam Investment 1 Article 94 para. 2 UN Charter provides powers for the UN Security Council to enforce ICJ decisions. 2 As of 10 March 2021. 3 As of 10 March 2021.
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Protection Agreement (IPA)4 and the one in the EU-Singapore IPA5 – as arbitral awards within the meaning of the ICSID Convention as well as in the New York Convention. 8 Therefore, this contribution will examine to what extent ICS decisions can be qualified as enforceable arbitral awards in the sense of the ICSID Convention or the New York Convention.
C. Drafting History 9
The question of enforcement of awards was prominently discussed from the outset of negotiations. On the EU side, ‘enforcement’ was already mentioned in the Negotiation Mandate given to the Commission in July 2011, which rather referred to the general possibilities of ISDS and SSDS and not specifically to the question of ‘recognition and enforcement’.6 Concerning the different leaked draft versions, already the one of 13 January 2010, was very similar to the version that can be found in the final version of the Agreement. Particularly, Article X.32 of the leaked 13 January 2010 draft reads: Finality and Enforcement of an Award 1. 2. 3.
4. 5.
10
An award made by a Tribunal shall have no binding force except between the disputing parties and in respect of that particular case. Subject to paragraph 3 and the applicable review procedure for an interim award, a disputing party shall abide by and comply with an award without delay. A disputing party may not seek enforcement of a final award until: (a) in the case of a final award made under the ICSID Convention: (i) 120 days have elapsed from the date the award was rendered and no disputing party has requested revision or annulment of the award, or (ii) revision or annulment proceedings have been completed; and (b) in the case of a final award under the ICSID Additional Facility Rules or the UNCITRAL Arbitration Rules: (i) 90 days have elapsed from the date the award was rendered and no disputing party has commenced a proceeding to revise, set aside or annul the award, or (ii) a court has dismissed or allowed an application to revise, set aside or annul the award and there is no further appeal. Each Party shall provide for the enforcement of an award in its territory. A claim that is submitted to arbitration under this Section shall be considered to arise out of a commercial relationship or transaction for purposes of Article I of the New York Convention.
Nothing in this wording changed in the leaked January 2011 and February 2012 drafts. In the draft of 15 November 2013, the wording of Paragraph 1 – but not the content – was modified and Paragraph 3 was extended in regard to the condition that the 21 November 2013 draft as well as the 2014 drafts did not address changes in regard to enforcement. The entire ISDS approach switched from a more or less ad hoc See Article 3.57, Chapter 3, EU-Vietnam IPA. See Article 3.22, Chapter 3, EU-Singapore IPA. 6 Council of the EU, Recommendation from the Commission to the Council on the modification of the negotiating directives for an Economic Integration Agreement with Canada in order to authorise the Commission to negotiate, on behalf of the Union, on investment, 14 July 2011, accessed 10 March 2021, para. 26 d: ‘Enforcement: the agreement shall aim to provide for an effective and state-of-the-art investor-to-state dispute settlement mechanism. State-to-state dispute settlement will be included, but will not interfere with the right of investors to have recourse to the investor-to-state dispute settlement mechanism. It should provide for investors a wide range of arbitration fora as currently available under the Member States’ bilateral investment agreements (BIT's)’. 4
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arbitration approach to an institutionalised approach – the Investment Court System as entered the finalised 2016 CETA Draft. Earlier references to the word ‘Tribunal’ in Paragraph 1 of pre-2016 drafts were deleted, as well also earlier references to ‘the applicable review procedure for an interim award’ in Paragraph 2. Furthermore, in Paragraph 5, ‘A final award issued pursuant to this Section is an arbitral award that is deemed to […]’ replaced ‘A claim that is submitted to arbitration under this chapter shall be deemed’ and a new Paragraph 6 was added, that now reads: ‘For greater certainty, if a claim has been submitted pursuant to Article 8.23.2(a), a final award issued pursuant to this Section shall qualify as an award under Section 6 of the ICSID Convention’.
D. Commentary I. Applicability of Article 8.41 Article 8.41 is applicable to the enforcement of final awards of a (first instance) 11 tribunal under CETA and also to final awards of the Appellate Tribunal. This follows from an interplay of different provisions.
1. General Applicability Regarding Awards of a (First Instance) Tribunal Article 8.39 deals with final awards as the typical outcome of (first instance) pro- 12 ceedings conducted under CETA Investment Chapter. Article 8.41 in turn takes up the notion ‘final award’ and specifies the conditions for their enforcement. Article 8.28(9) furthermore provides that an award issued by the first instance tribunal only becomes final when the time limits set out in Article 8.28(9)(a) and (c) have expired and the other conditions laid down there are fulfilled. If this is the case, enforcement can be pursued in accordance with Article 8.41.
2. General Applicability Regarding Awards of the Appellate Tribunal Article 8.28 regulates the Appellate Tribunal. Particularly, Article 8.28(9)(d) pro- 13 vides that the Appellate Tribunal may deliver final awards, which are then subject to enforcement under Article 8.41.
3. Modalities of Enforcement and Possibilities Depending on the Rules Chosen for Arbitration Proceedings Pursuant to Article 8.23(2), the claimant investor may select among different sets of 14 rules of procedure. Available for selection are (1) the ICSID Convention and Rules for Arbitration Proceedings, (2) the ICSID Additional Facility Rules, (3) the UNCITRAL Arbitration Rules or, (4) any other rules agreed upon by the disputing parties. The choice of the rules of procedure also affects in part which regulatory regime is applicable for the enforcement of the awards. If the ICSID Convention and Rules have been chosen as the applicable regime, it is 15 intended that enforcement shall be governed by the relevant rules of the ICSID Convention. Article 8.41(6) seeks to ensure that this is the case. Once again, a distinction has to be made between enforcement in the territory or under the jurisdiction of States party to CETA and third States, the latter with potential incompatibility problems (→ mn. 91 ff.).
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If the ICSID Additional Facility Rules are chosen, the law of the place of arbitration and the New York Convention will regularly govern enforcement. 7 This is so, because the ICSID Convention’s special enforcement regime does not apply for proceedings carried out under the ICSID Additional Facility Rules.8 17 If an arbitral award is made in proceedings in which the parties have chosen the UNCITRAL Rules or a similar set of rules for the procedure, a distinction must be made between enforcement in the state where the proceedings took place and enforcement in other states. In the former case, enforcement is governed by the national arbitration law.9 In the latter case, the New York Convention normally applies, opening up the possibility to seek recognition and enforcement, but also to refuse it on the grounds laid down in Article V.10 The national courts in the country where enforcement is supposed to take place nevertheless decide on the applicability of the NYC (→ mn. 74 ff.). In the CETA Member States, the enforcing courts will be bound by the CETA Text itself as accepting the ICS decisions as awards under the New York Convention. But at the same time, it is clear that third States cannot be bound in this sense by CETA as they are not parties to this agreement (→ mn. 77 f.). 16
II. Commentary on Paragraph 1 of Article 8.41 Pursuant to Paragraph 1, ‘An award issued pursuant to this Section shall be binding between the disputing parties and in respect of that particular case’. The mention of ‘an award’ refers to ICS decisions issued in accordance with Section F of Chapter 8 CETA, which is headed ‘Resolution of investment disputes between investors and states’ and which encompasses Articles 8.18 to 8.45. 19 The aim of dispute settlement proceedings in general is to reach a binding decision on the dispute at hand.11 Thus, the binding effect is a typical and necessary feature of any award.12 The legal basis for the binding effect of ICS awards is established in CETA Investment Chapter. Accordingly, there is a general obligation to comply with the ICS decisions for the Contracting Parties, which are disputing parties in the respective dispute.13 20 ICS awards are, however, binding only on the parties to the respective dispute and only in relation to that dispute. In other words, Paragraph 1 of Article 8.41 CETA merely determines an internal binding effect, i.e. relating to the participants involved 18
7 Quinke, in Wolff (ed), New York Convention (2019), Article VII, mn. 94; Blackaby et al., Redfern and Hunter on International Arbitration (2015), mn. 11.37 (especially fn. 37); Schreuer et al., ICSID Convention: A Commentary (2009), Article 53 mn. 5. 8 Schreuer et al., ICSID Convention : A Commentary (2009), Article 53 mn. 5. 9 van den Berg, ‘Appeal Mechanism for ISDS Awards: Interaction with the New York and ICSID Conventions’ (2019) 34 ICSID Rev.-FILJ, 156 (175). 10 van den Berg, ‘Appeal Mechanism for ISDS Awards: Interaction with the New York and ICSID Conventions’ (2019) 34 ICSID Rev.-FILJ,156 (175). 11 Brown, ‘The Inherent Powers of International Courts and Tribunals’ (2005) 76 BYIL, 195 (230); similarly also Schill, ‘Crafting the International Economic Order: The Public Function of Investment Treaty Arbitration and Its Significance for the Role of the Arbitrator’ (2010) 23 Leiden J. Int’l L., 401 (407). 12 Brekoulakis, ‘The Effect of an Arbitral Award and Third Parties in International Arbitration: Res Judicata Revisited’ (2005) 16 Am. Rev. Int’l Arb., 177 (179); Schreuer et al., The ICSID Convention: A Commentary (2009), Article 53 mn. 10. 13 The situation is analogous to that described by Schreuer for the ICSID Convention: Schreuer et al., The ICSID Convention: A Commentary (2009), Article 53 mn. 13.
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in the respective proceedings. At the same time, a commitment to a doctrine of precedents is thereby rejected.14 This poses a certain risk of inconsistent ICS decisions.15 The binding character of ICS awards on the disputing parties in a particular case 21 does not mean that the award has no effects at all on non-disputing parties. When it comes to the recognition and enforcement of awards in third states, an external binding effect becomes also apparent.16 Only if awards have an external effect binding third states vis-à-vis recognition and enforcement, they fulfil their function as a product of efficient dispute resolution. The recognition and enforcement is further addressed especially in the subsequent Paragraphs (→ mn. 58 ff.).
III. Commentary on Paragraph 2 of Article 8.41 Paragraph 2 of Article 8.41 CETA states that ‘[s]ubject to Paragraph 3, a disputing 22 party shall recognise and comply with an award without delay’, which is closely related to Paragraph 1. The fact that the parties to the dispute must also recognise final CETA awards and comply with them can be seen as a logical consequence of the binding effect.17 The general obligation to comply with the award also reflects the fact that no enforcement efforts should actually be required. Indeed, as in commercial or investment arbitration,18 the obligation to abide by and comply with the award is assumed by the submission to the mechanism of resolution of investment disputes set forth in CETA at the same time entails a duty for the Parties to comply with the resulting awards. Recognition and enforcement proceedings and thus invoking Article 8.41 Para- 23 graphs 3 to 6 is thus only necessary if the losing party has not complied with its obligations to abide by and comply with the award. Recognition is a process that gives certain effect to an arbitral award.19 Typically, recognition means that a national court issues a decision which confirms the award and thus its binding effect and validity. 20 However, recognition does not automatically lead to the initiation of enforcement proceedings.21 Moreover, recognition also has an effect as a protective shield.22 If an arbitral award 24 is recognised by a court or authority, it can inter alia be invoked by a party against
14 A similar provision can be found in the ICJ Statute. According to Article 59 ICJ Statute: ‘[t]he decision of the Court has no binding force except between the parties and in respect of that particular case’. Reinisch remarks that the provision entails the rejection of a concept of ‘a common law-type doctrine of binding precedent or stare decisis’, Reinisch, ‘The Use and Limits of Res Judicata and Lis Pendens as Procedural Tools to Avoid Conflicting Dispute Settlement Outcomes’ (2004) 3 LPICT, 37 (47). 15 Noting this in respect of the similar situation under the ICSID Convention: Schreuer et al., ICSID Convention: A Commentary (2009), Article 53 mn. 17. 16 Titi, ‘Res Iudicata and Interlocutory Decision under the ICSID Convention: Antinomies over the Power of Tribunals to Review’ (2018) 33 ICSID Rev.-FILJ., 358 (360), also uses the terms ‘internal binding effect’ and ‘external binding effect’ to describe the binding effect of arbitral awards. 17 In relation to the ICSID Convention, so too: Schreuer et al., ICSID Convention: A Commentary (2009), Article 53 mn. 33. 18 Kröll, ‘Enforcement of Awards’ in in Bungenberg et al. (eds), International Investment Law: A Handbook (2015), 1486, paras. 8-9. 19 Liebscher, in Wolff (ed), New York Convention (2019), Prel. Rem., mn. 22. 20 Liebscher, in Wolff (ed), New York Convention (2019), Prel. Rem., mn. 22. 21 Blackaby et al., Redfern and Hunter on International Arbitration (2015), mn. 11.19. 22 Blackaby et al., Redfern and Hunter on International Arbitration (2015), mn. 11.23; Liebscher, in Wolff (ed), New York Convention (2019), Prel. Rem., mn. 23.
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further (repetitive) legal proceedings (‘res judicata’).23 If an arbitral tribunal or a court has already made a final decision on a case, it can be used as a defence against second proceedings.24 The losing party in a dispute does not have to face an identical second procedure against it. 25 In the present context, the obligation of recognition is directed at the parties to the dispute. The main addressee of such obligation, however, is likely to be the defeated party. It is typically the party which does not want to come to terms with the consequences of a negative award. A defeated party is thus obliged to accept a final CETA award as a binding decision on the particular dispute brought forward. 26 Furthermore, compliance with the award under Paragraph 2 of Article 8.41 is qualified by the added phrase ‘without delay’. This seems deliberately broad, however, considering that each state may have different procedures for the compliance with awards, whether there is a delay or not depends on a case-by-case analysis. In other words, ‘without delay’ could be understood as such period normally required for the completion of necessary formalities for the payments of compensation or for the transfer of payments. 27 If a party to a dispute does not comply with the award, the award can be enforced under the domestic arbitration rules of all CETA Member States. In this regard, Table 1 below gives an overview of the different arbitration laws in all CETA Contracting Parties, as well whether they have ratified the ICSID Convention and the New York Convention. CETA Contracting Party
Law governing arbitration
Ratified ICSID Convention
Ratified New York Convention
Canada
The federal Commercial Arbitration Act RSC 1985, c 17 (2nd Supp) applies to arbitrations where, for instance, the federal government is a party to the dispute. However, all Canadian Provinces have different legislations for domestic and international arbitration, except for Québec.
Yes
Yes
EU
/
/
/
Austria
§§ 577-618 Austrian Code of Civil Procedure. The same provisions apply for domestic and international arbitration.
Yes
Yes
Belgium
Articles 1676 to 1722 Belgian Code of Civil Procedure. The same provisions apply for domestic and international arbitration.
Yes
Yes
Liebscher, in Wolff (ed), New York Convention (2019), Prel. Rem., mn. 23. On the concept of res judicata in international investment arbitration, see Jose Magnaye and August Reinisch, ‘Revisiting Res Judicata and Lis Pendens in Investor-State Arbitration’ (2016) 15(2) LPICT, 264. 23
24
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CETA Contracting Party
Law governing arbitration
Ratified ICSID Convention
Ratified New York Convention
Bulgaria
International Commercial Arbitration Act of 1988. The same provisions apply for domestic and international arbitration.
Yes
Yes
Croatia
Croatian Arbitration Act NN 88/2001. The same provisions apply for domestic and international arbitration.
Yes
Yes
Cyprus
Cypriot International Commercial Arbitration Law of 1987. Additionally, the Foreign Courts Judgments Law of 2000 sets the procedure for enforcement of foreign awards.
Yes
Yes
Czech Republic
Arbitration Act No. 216/1994. The same provisions apply for domestic and international arbitration.
Yes
Yes
Denmark
Arbitration Act of 2005. The same provisions apply for domestic and international arbitration.
Yes
Yes
Estonia
§§ 712-757, Part 14 “Arbitration Procedure” of the Estonian Code of Civil Procedure. The same provisions apply for domestic and international arbitration.
Yes
Yes
Finland
Finish Arbitration Act 967/1992. Sections 1 to 50 apply to arbitral proceedings seated in Finland and Sections 51 to 55 for arbitrations seated abroad.
Yes
Yes
France
French Code of Civil Procedure. Articles 1442ff regulate domestic arbitration, whereas Articles 1504ff govern international arbitration.
Yes
Yes
Germany
10th Book of the German Code of Civil Procedure. §§ 1025 to 1066 regulate arbitrations seated in Germany, without distinguishing between domestic and international arbitration.
Yes
Yes
Greece
Whilst domestic arbitration is regulated by Articles 867-903, Book VII of the Greek Code of Civil Procedure, international arbitration is governed by the Law on International Commercial Arbitration, Law 2735/1999.
Yes
Yes
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Law governing arbitration
Ratified ICSID Convention
Ratified New York Convention
Hungary
Hungarian Arbitration Act of 2017. With certain exceptions regarding international arbitration, the same provisions apply for domestic and international arbitration.
Yes
Yes
Ireland
Irish Arbitration Act 2010. The same provisions apply for domestic and international arbitration.
Yes
Yes
Italy
Sections 806 to 840 Italian Code of Civil Procedure. The same provisions apply for domestic and international arbitration, however Section 825 regulates enforcement of Italian awards, whereas Sections 839 and 840 govern the enforcement of foreign awards.
Yes
Yes
Latvia
Latvian Arbitration Law of 2014. Except for enforcement, the Law does not differentiate between domestic and international arbitration.
Yes
Yes
Lithuania
Law on Commercial Arbitration of the Republic of Lithuania of 2012. The same provisions apply for domestic and international arbitration.
Yes
Yes
Luxembourg
Luxembourgish Civil Procedure Code. The same provisions apply for domestic and international arbitration.
Yes
Yes
Malta
Maltese Arbitration Act of 1996. With certain exceptions regarding international arbitration, the same provisions apply for domestic and international arbitration.
Yes
Yes
Netherlands
Articles 1020 to 1076, Book 4 of the Dutch Code of Civil Procedure. Whilst domestic arbitration is regulated in full by Articles 1020 to 1073, Articles 1074 to 1076 lay down specific provisions on international arbitration.
Yes
Yes
Poland
Articles 1154 to 1216, Part Five, Polish Code of Civil Procedure. With certain exceptions regarding international arbitration, the same provisions apply for domestic and international arbitration.
No
Yes
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CETA Contracting Party
Law governing arbitration
Ratified ICSID Convention
Ratified New York Convention
Portugal
Voluntary Arbitration Law in conjunction with the Portuguese Civil Procedure Code. Chapter IX of the Voluntary Arbitration Law regulates international arbitration.
Yes
Yes
Romania
Romanian Civil Procedure Code regulates both domestic and international arbitration.
Yes
Yes
Slovakia
Slovak Arbitration Act No 244/2002. The same provisions apply for domestic and international arbitration.
Yes
Yes
Slovenia
Slovenian Arbitration Act. The same provisions apply for domestic and international arbitration.
Yes
Yes
Spain
Spanish Arbitration Act 60/2003. Despite certain differences between domestic and international arbitration, the same Act applies for both kinds of arbitrations.
Yes
Yes
Sweden
Swedish Arbitration Act of 1999. The same provisions apply for domestic and international arbitration.
Yes
Yes
Table 1: Overview of Arbitration Laws and Ratification Status of the ICSID Convention and New York Convention In addition to the domestic regulations listed above, Paragraph 3 of Article 8.41 28 CETA sets certain time limits and conditions for the recognition and compliance of ICS awards. Furthermore, the obligation to comply with the award owed to the other disputing 29 party is supplemented by a comparable treaty obligation towards the other States party to CETA. It can even be argued that – if this non-compliance is exercised by an EU Member State – this even is to be seen as a violation of EU law. The Commission in this case could launch Article 258 TFEU infringement proceedings against such a State for a violation of the EU Treaties, given that CETA, as any other EU agreement,25 becomes ‘an integral part of the European legal order’ as from its entry into force.26
25 This principle extends to acts adopted by institutions created by agreements as clearly established by the CJEU: see, e.g., Case C-30/88, 14.11.1989, Greece v. Commission, ECLI:EU:C:1989:422, at para. 13. 26 As stated by the CJEU: see Case C-181/73, 30.04.1974, Haegeman v. Belgian State, ECLI:EU:C:1974:41, and for customary international law Case C–162/96, 16.06.1998, Racke v. Hauptzollamt Mainz, ECLI:EU:C:1998:293.
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IV. Commentary on Paragraph 3 of Article 8.41 Paragraph 3 stipulates that a party may enforce an ICS award only if certain time limits have expired. Under Paragraphs 3 to 6 only ‘final awards’ are covered in regard to enforcement and execution. The notion of ‘final award’ is contemplated in Article 8.39 (→ Art. 8.39 mn. 32 ff.). As stated above, if enforcement – either under domestic law, ICSID or the NYC – is necessary, the defaulting party has already violated its obligation under Article 8.41(2) CETA to comply with the award voluntarily. 27 This is important to note as enforcement is the implementation of the award against the will of the defeated party. 31 Before enforcement can take place, there might still be the possibility to challenge the arbitral award. As long as this is possible, there is no violation of the treaty obligation as remedies against a decision are legitimate means of the defeated party in international dispute settlement. The means available for this purpose and the length of the deadlines depend on the procedural rules chosen by the parties in advance, under Article 8.23(2) (→ Art. 8.23 mn. 18 ff.) as it will be elaborated below. 32 However, Paragraph 3 of Article 8.41 CETA and the remedies contemplated therein seem to be available for a limited time: Only until the CETA Joint Committee decides on the functioning of the Appellate Tribunal. Accordingly, pursuant to Article 8.28(9), once there is a decision on the functioning of the Appellate Tribunal, Paragraph 3 of Article 8.41 ceases to operate. 30
1. Paragraph 3(a) – Awards Issued under the ICSID Convention Article 8.41(3)(a) is applicable ‘in the case of a final award issued under the ICSID Convention’. This means an ICS award resulting from a claim submitted as per Article 8.23 CETA in accordance with the ICSID Convention and Arbitration Rules. It can be concluded from the wording of Paragraph 3 as a whole that it links up with Article 8.23(2) and successively addresses the various options of procedural rules available to the parties.28 34 In cases where the parties have chosen to apply the ‘ICSID Convention and Rules of Procedure for Arbitration Proceedings’ in accordance with Article 8.23(2)(a), CETA assumes that the outcome is ultimately an award issued ‘under the ICSID Convention’. At this point – discussing purely the time limits of Article 8.41(3) – there is no need to further discuss the quality of the ICS – Court or Arbitration Tribunal –, this will be a question of analysis of Paragraphs 4 to 6. 35 Whether or not Non-Parties to CETA are bound by the ICSID Convention when enforcement of those ICS awards is envisaged is a question that will be addressed below (→ mn. 127 ff.). 33
a) Paragraph 3(a)(i) If the proceedings have been conducted under the ICSID Convention, enforcement is only possible 120 days after the decision’s rendering and only if none of the parties has requested revision or annulment of the award. 37 Since the ICSID Convention is applicable to the proceedings in such a case, reference may be made to Article 49(1) ICSID Convention. In sentence 2 thereof, it reads: ‘The award shall be deemed to have been rendered on the date on which 36
27 In relation to the ICSID Convention, see: Schreuer et al., ICSID Convention: A Commentary (2009), Article 53 mn. 35. 28 Article 8.23(2)(d), for example, is explicitly mentioned in Article 8.41(3)(b).
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the certified copies were dispatched’. The rule makes thereby reference to sentence 1 of Article 49(1) ICSID Convention where it states that the ‘Secretary-General shall promptly dispatch certified copies of the award to the parties’. The same should apply in proceedings under CETA where the parties have chosen the ICSID Convention according to Article 8.23(2) to be applicable. Details concerning the organisational and practical handling of time limits as well as their computing at the ICSID Secretariat can be found in Regulation 29 of the ICSID Administrative and Financial Regulations.29 Thus, the ‘date the award was rendered’ is determined by when the award is sent to the parties, not when it was completed by the tribunal. 30 The relevant date is the date of dispatch and not the date of receipt by the parties, as the date of reception would have entailed too many uncertainties.31 Moreover, after 120 days, enforcement is only possible if no disputing party has 38 requested revision or annulment of the award. ‘Revision’ and ‘annulment’ refer to the respective remedies in the ICSID Convention, which are dealt with in Article 51 32 and Article 52 ICSID Convention.33 29 ICSID Administrative and Financial Regulations, Regulation 29 – Time Limits: ‘(1) All time limits, specified in the Convention or the Rules or fixed by a Commission, Tribunal, Committee or the Secretary-General, shall be computed from the date on which the limit is announced in the presence of the parties or their representatives or on which the Secretary General dispatches the pertinent notification or instrument (which date shall be marked on it). The day of such announcement or dispatch shall be excluded from the calculation. (2) A time limit shall be satisfied if a notification or instrument dispatched by a party is delivered at the seat of the Centre, or to the Secretary of the competent Commission, Tribunal or Committee that is meeting away from the seat of the Centre, before the close of business on the indicated date or, if that day is a Saturday, a Sunday, a public holiday observed at the place of delivery or a day on which for any reason regular mail delivery is restricted at the place of delivery, then before the close of business on the next subsequent day on which regular mail service is available.’ 30 Schreuer et al., ICSID Convention: A Commentary (2009), Article 49 mn. 10. 31 Schreuer et al., ICSID Convention: A Commentary (2009), Article 49 mn. 10. 32 Article 51 ICSID Convention: ‘1. Either party may request revision of the award by an application in writing addressed to the Secretary-General on the ground of discovery of some fact of such a nature as decisively to affect the award, provided that when the award was rendered that fact was unknown to the Tribunal and to the applicant and that the applicant's ignorance of that fact was not due to negligence. 2. The application shall be made within 90 days after the discovery of such fact and in any event within three years after the date on which the award was rendered. 3. The request shall, if possible, be submitted to the Tribunal, which rendered the award. If this shall not be possible, a new Tribunal shall be constituted in accordance with Section 2 of this Chapter. 4. The Tribunal may, if it considers that the circumstances so require, stay enforcement of the award pending its decision. If the applicant requests a stay of enforcement of the award in his application, enforcement shall be stayed provisionally until the Tribunal rules on such request.’ 33 Article 52 ICSID Convention: ‘1. Either party may request annulment of the award by an application in writing addressed to the Secretary-General on one or more of the following grounds: (a) that the Tribunal was not properly constituted; (b) that the Tribunal has manifestly exceeded its powers; (c) that there was corruption on the part of a member of the Tribunal; (d) that there has been a serious departure from a fundamental rule of procedure; or (e) that the award has failed to state the reasons on which it is based. 2. The application shall be made within 120 days after the date on which the award was rendered except that when annulment is requested on the ground of corruption such application shall be made within 120 days after discovery of the corruption and in any event within three years after the date on which the award was rendered. 3. On receipt of the request the Chairman shall forthwith appoint from the Panel of Arbitrators an ad hoc Committee of three persons. None of the members of the Committee shall have been a member of the Tribunal which rendered the award, shall be of the same nationality as
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Exceptionally, a request for annulment or revision of the award can be submitted after the passing of 120 days. The special time limits provided for in Article 52(2) ICSID Convention for cases of corruption are not mirrored in Article 8.41(3). The same is the case for the general time limits for revision contained in Article 51(2) ICSID Convention. If the parties choose to apply the ICSID Convention according to Article 8.23(2)(a), Article 52(2) and Article 51(2) ICSID Convention are applicable, too, unless it would be accepted that the time limits foreseen in Article 8.41 are lex specialis or just replace those time limits in the respective ICSID articles. It therefore remains the case that the time limits for initiating annulment proceedings on the grounds of corruption are those set out in Article 52(2) ICSID Convention. 40 For revision proceedings, the deadlines in Article 51(2) ICSID Convention apply. Thus, these time limits must be distinguished from the time limit that applies according to Article 8.41(3) for determining when enforcement is permitted. Since Article 8.41(3) concerns the time limits for the admissibility of enforcement, whereas Article 52(2) and Article 51(2) ICSID Convention concern the time limits for the admissibility of revision and annulment proceedings, the provisions govern different matters. Thus, in the case of a CETA award, it may be that enforcement can already be pursued because the 120 days have elapsed, but that revision or annulment proceedings are nevertheless subsequently initiated because the time limits as set out in Article 52(2) and Article 51(2) ICSID Convention have not yet expired. 41 As mentioned above, once the Appellate Tribunal is in place, Paragraph 3 of Article 8.41 cease to operate. Considering that only that provision mentions the possible remedies foreseen under the ICSID Convention, it may be argued that such remedies cease to operate as well when the Appellate Tribunal is functioning. 39
b) Paragraph 3(a)(ii) 42
Paragraph 3(a)(ii) is intended to regulate the situation where the 120 days referred to in Paragraph 3(a)(i) do not simply elapse, but where revision or annulment proceedings under Articles 51 and 52 ICSID Convention are initiated – and have been completed. The stay of enforcement is only a step taken when revision or annulment proceedings are instituted.34 For enforcement to be allowed to take place, the stay of enforcement must already be lifted and that takes usually place with the completion of the revision or annulment procedure.35 Thus, the decisive factor in determining whether enforcement is permissible in terms of time is whether the revision or annulment proceedings have been completed.
any such member, shall be a national of the State party to the dispute or of the State whose national is a party to the dispute, shall have been designated to the Panel of Arbitrators by either of those States, or shall have acted as a conciliator in the same dispute. The Committee shall have the authority to annul the award or any part thereof on any of the grounds set forth in paragraph (1). 4. The provisions of Articles 41-45, 48, 49, 53 and 54, and of Chapters VI and VII shall apply mutatis mutandis to proceedings before the Committee. 5. The Committee may, if it considers that the circumstances so require, stay enforcement of the award pending its decision. If the applicant requests a stay of enforcement of the award in his application, enforcement shall be stayed provisionally until the Committee rules on such request. 6. If the award is annulled the dispute shall, at the request of either party, be submitted to a new Tribunal constituted in accordance with Section 2 of this Chapter.’ 34 See for example Article 52(5) and Article 51(4) ICSID Convention. 35 Schreuer et al., ICSID Convention: A Commentary (2009), Article 53 mn. 56 f.
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2. Paragraph 3(b) – Awards under Non-ICSID Convention Arbitral Procedural Rules The primary intention of this Paragraph 3(b) is the interrelation with the national 43 remedies proceedings and the enforcement of final awards of the CETA ICS. Article 8.41(3)(b) is applicable for non-ICSID awards. This means awards as the outcome of proceedings conducted under: – – –
the ICSID Additional Facility Rules, the UNCITRAL Arbitration Rules, or any other rules applicable pursuant to Article 8.23.2(d).
In these cases, the enforcement regime of the ICSID Convention does not apply. A 44 decisive aspect is that – if the proceedings are conducted under a set of the named rules – there is typically a ‘place of arbitration’ and therefore also an applicable local arbitration law (lex arbitri; → Art. 8.31 mn. 7). The sets of rules listed in Article 8.41(3)(b) do not contain provisions on the 45 annulment, setting aside or revision of awards. Only such remedies as correction 36 or interpretation37 of an award are codified therein. When it comes to the annulment, setting aside or revision of an award, the local arbitration law is applicable and decisive.38 Thus, with the choice of the seat of arbitration the parties to an investment dispute in Non-ICSID cases opt for a national system for review and setting aside of the investment award.39 This also means that the setting aside proceedings may vary according to the national jurisdiction in which the ICS is seated.40 In states that have adopted the UNCITRAL Model Law, there will be a provision 46 for setting aside proceedings that matches Article 34 of the Model Law. 41 In sum, the
36 See, for example, Article 38 UNCITRAL Arbitration Rules and Article 56 ICSID Additional Facility Rules. 37 See, for example, Article 37 UNCITRAL Arbitration Rules and Article 55 ICSID Additional Facility Rules. 38 Regarding the competent court in context of the New York Convention: Blackaby et al., Redfern and Hunter on International Arbitration (2015), mn. 11.98: ‘[T]he only national court that is competent to suspend or set aside an award is the court of the country in which, or under the law of which, that award was made. This court will almost invariably be the national court of the seat of the arbitration’ (footnote omitted). 39 Markert and Bubrowski, ‘National Setting Aside Proceedings in Investment Arbitration’, in Bungenberg et al. (eds), International Investment Law: A Handbook (2015), 1460 (1462). 40 Markert and Bubrowski, ‘National Setting Aside Proceedings in Investment Arbitration’, in Bungenberg et al. (eds), International Investment Law: A Handbook (2015), 1460 (1463). 41 Article 34 UNCITRAL Model Law – Application for setting aside as exclusive recourse against arbitral award – states that: ‘1. Recourse to a court against an arbitral award may be made only by an application for setting aside in accordance with paragraphs (2) and (3) of this article. 2. An arbitral award may be set aside by the court specified in article 6 only if: (a) the party making the application furnishes proof that: (i) a party to the arbitration agreement referred to in article 7 was under some incapacity; or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of this State; or (ii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or (iii) the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the award which contains decisions on matters not submitted to arbitration may be set aside; or
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options available for challenging an award are primarily governed by the applicable provisions of the local arbitration law. a) Paragraph (3)(b)(i) If 90 days have passed since the award was rendered and neither party has challenged it in accordance with the possibilities given by local arbitration law, enforceability of the CETA award is given. As under Article 8.41(3)(a)(i), the decisive criterion for the calculation of the time limits is when the arbitral award ‘was rendered’. CETA does not, however, specify what is to be considered the date when the award was rendered. Rather, the applicable procedural rules provide for this. In case of the ICSID Additional Facility Rules, Article 53(2) specifies which date is to be considered as the date of rendering the award: ‘The award shall be deemed to have been rendered on the date on which the certified copies were dispatched’. 48 The 90 days mentioned in Article 8.41(3)(b)(i) are to be calculated from the date stated on the award. The UNCITRAL Arbitration Rules do not use the expression ‘was rendered’ found in Article 8.41(3)(b)(i). The UNCITRAL Arbitration Rules do not provide for any other rule specifying the moment of when the award was rendered, with reference, for example, to the date of dispatch or receipt by the parties. It is therefore necessary to determine what is to be regarded as the date of rendering. Article 34 UNCITRAL Arbitration Rules stipulates that the award ‘shall contain the date on which the award was made’. It can be assumed that under the UNCITRAL Arbitration Rules, the date that the arbitrators note on the award is decisive for the calculation of time limits relevant for the enforceability.42 49 If the parties have opted for the application of another set of rules, it must be assessed as to whether a provision is contained therein specifying the date of the award’s rendering. 47
b) Paragraph (3)(b)(ii) 50
Paragraph (3)(b)(ii) stipulates that ‘[a] disputing party shall not seek enforcement of a final award until […] enforcement of the award has been stayed and a court has dismissed or allowed an application to revise, set aside or annul the award and there is no further appeal’. Similar to Paragraph (3)(a)(ii), this provision does not read smoothly either, since the impression is created that in order to be ‘enforceable’ enforcement of the award must have been stayed. However, for enforcement to be al-
(iv) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Law from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Law; or (b) the court finds that: (i) the subject-matter of the dispute is not capable of settlement by arbitration under the law of this State; or (ii) the award is in conflict with the public policy of this State. 3. An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received that award or, if a request had been made under article 33, from the date on which that request had been disposed of by the arbitral tribunal. 4. The court, when asked to set aside an award, may, where appropriate and so requested by a party, suspend the setting aside proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the arbitral tribunal's opinion will eliminate the grounds for setting aside.’ 42 Such comment on the relevance of this date for the calculation of deadlines is also found in: Caron and Caplan, The UNCITRAL Arbitration Rules – A Commentary (2013), 745.
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lowed, the stay of enforcement must already be lifted. The first part of Paragraph 3(b) (ii) is always to be read together with its second part. The first variant of the provision is that a court has dismissed an application for challenging the award. The listed options for challenging the award are those already mentioned in the previous section, Paragraph (3)(b)(i): revision, setting aside or annulment of the award. In this regard, the local arbitration laws would typically be decisive, for instance providing the conditions for the admissibility of those remedies. For the case a court has dismissed an application to revise, set aside or annul an award, the last part of Paragraph (3)(b)(ii) also applies. Thus, there must be no further appeal possible. In total, it appears reasonable that the enforcement of an award shall be permissible if an application for challenging it has been filed and then dismissed, and there is no other possibility to take action against the award. It would be futile in these circumstances to allow further time to elapse before enforcement can be pursued. The second variant of the provision is that a court has ‘allowed’ an application for challenging an award. It should be noted that this term differs to ‘granted’. The term ‘allowed’ indicates that the only important factor is that a court admits a remedy in the first step. Other language versions of CETA (for details on authentic language versions of CETA and how to interpret them, → mn. 59 ff.) also use terms which indicate that an admission of the challenge is necessary (for instance, German: ‘zugelassen’; Spanish: ‘autorizado’; French: ‘accueilli’; Dutch: ‘toe- of afgewezen’, thereby changing the order to allowed or dismissed). Thus, the challenge proceedings are typically still ongoing when enforcement is already permissible, according to Paragraph (3)(b)(ii). At first sight, it seems contradictory that an award should already be enforced while proceedings are still pending that could set it aside. However, this is explained by the functioning of the New York Convention with respect to setting aside proceedings. As it will be elaborated below (→ mn. 74 ff.), the New York Convention as well as domestic/national arbitration law will typically be applicable to the enforcement of awards that fall within the scope of Paragraph (3)(b)(ii). Under the New York Convention, it is not a ground for refusal of enforcement that setting aside or suspension proceedings are pending in the award’s country of origin. 43 Only if such proceedings have been successful, Article V(1)(e) New York Convention may take effect. Therefore, as long as such proceedings are pending, enforcement under the New York Convention is in principle possible. The New York Convention makes no restriction to the effect that enforcement would only be admissible if the competent court has allowed the application for setting aside or suspension. Rather, the only question that matters is whether the proceedings have already been successful. CETA differs from this rule since it does not permit enforcement until a remedy application, such as revision, setting aside or annulment, has been allowed. The fact that a remedy is pending is not a ground for refusal of enforcement under Article V New York Convention. However, Article VI New York Convention fills the temporal gap during which enforcement would be possible despite a pending remedy.44 The provision gives the unsuccessful and enforcement-refusing party the possibility to ‘buy’ an adjournment of enforcement by providing security. 45 This provision is also applicable under CETA in cases covered by Article 8.41(3)(b), however, with a temporal restriction (only after allowance of the remedy). Liebscher, in Wolff (ed), New York Convention (2019), Article VI, mn. 2. Liebscher, in Wolff (ed), New York Convention (2019), Article VI, mn. 2. 45 Liebscher, in Wolff (ed), New York Convention (2019), Article VI, mn. 2.
43 44
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In summary, it follows that, in the case of awards which are covered by Article 8.41(3)(b)(ii) and, complementary, by the New York Convention and domestic arbitration law, enforcement is not possible until an application for a remedy has been allowed. However, as soon as the allowance is given and enforcement is accordingly possible, the losing party may nevertheless oppose enforcement. The competent court in the state where enforcement is sought may then, in accordance with Article VI New York Convention, adjourn enforcement and, on application by the party seeking enforcement, order that the unsuccessful party provide security.
V. Commentary on Paragraph 4 of Article 8.41 58
Pursuant to Paragraph 4 of Article 8.41 CETA, ‘[e]xecution of the award shall be governed by the laws concerning the execution of judgments or awards in force where the execution is sought’. This provision is almost identical in wording to Article 54(3) ICSID Convention,46 with the only difference that in the ICSID Convention, there was no mention of the execution of awards. Here, two points are addressed: on the one hand, first and only use of the term ‘execution’ instead of ‘enforcement’; on the other hand, the respective applicable law of the enforcement state.
1. Execution and/or Enforcement and Authentic Language Versions Unlike the other Paragraphs of Article 8.41, the English version of Paragraph 4 uses the term ‘execution’ instead of ‘enforcement’. Therefore, at first glance, it seems reasonable to assume that different matters are meant. In this respect, a look at other authentic versions of the agreement proves helpful. Article 33 of the Vienna Convention on the Law of Treaties (VCLT) applies when it concerns the interpretation of a text for which several language versions are authentic. 60 Article 30.11 CETA lists all authentic language versions, including for example German, Spanish and French. The provision does not stipulate that one of the numerous authentic versions should take precedence when differences become apparent; thus, Article 33(1) VCLT becomes moot. The texts are all equally authoritative and therefore need to be compared and reconciled. For the present context, however, it should be sufficient to refer to only a few different versions. 61 In the German version, for example, the term ‘Vollstreckung’ is used throughout Article 8.41, which is most likely to be equivalent to ‘enforcement’. The Dutch version uses the same term ‘tenuitvoerlegging’ throughout the text, which is the legal term for enforcement. In the French version, too, the terms used in the individual Paragraphs of the provision do not differ. Here, the term ‘l'exécution’ appears throughout, which most closely corresponds to the term ‘execution’. In the Italian version, only the term ‘l'esecuzione’ is employed. The Spanish version, in turn, appears to be similar to the English text by using ‘la ejecución forzosa’ in the first line of Paragraph 3 of Article 8.41, but ‘la ejecución’ as a single term in Paragraph 3(a)(ii) and (b)(ii), and Paragraph 4. 62 However, since all versions are authentic, the idea is that by looking at just one version, a legal user should be able to come to the correct interpretation. 47 There is no evidence that the different wording of the CETA versions has any particular meaning 59
46 ICSID Convention, Article 54(3): ‘Execution of the award shall be governed by the laws concerning the execution of judgments in force in the State in whose territories such execution is sought’. 47 Villiger, Commentary on the 1969 Vienna Convention on the Law of Treaties (2009), Article 33 mn. 8.
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or purpose. Rather, an intent of uniformity must be assumed.48 If some language versions of CETA use the same terminology in all relevant Paragraphs of Article 8.41, it seems reasonable to assume the term in question has only one meaning. In conclusion, therefore, it can be supposed that the terms ‘enforcement’ and ‘execution’ are used synonymously in the English version of Article 8.41.49 Even if the Paragraphs differ language-wise, Paragraph 4 – just as the other Paragraphs – refers to the process of implementing a CETA award (forcibly, if necessary).
2. Law of the State where Enforcement is Sought Article 8.41(4) prescribes that the enforcement of CETA awards is governed by the law of the State where enforcement is sought. This Paragraph is thus limited to clarifying the procedures by which the ICS Award would be enforced. The law applicable is the law in force with regard to the procedure of enforcement of arbitral awards or judgments. The provision implies in particular that CETA members do not need to create new rules for the enforcement of CETA awards. Rather, existing regulations shall be used for this purpose. In spite of the reference to national procedural law, this does not detract from the obligation of every State Party to CETA to enforce awards thereunder.50 Nevertheless, the question remains whether national enforcement laws in regard to judgement or in regard to awards are relevant in a given case. This discussion will most likely remain up to the national courts being responsible for the enforcement. As will be discussed below, there are good grounds to consider that the ICS awards are not the result of arbitration, so relevant national laws to enforce foreign awards would not be applicable. The question thus remains which relevant laws would in this case be the relevant ones. As Paragraphs 5-6 of Article 8.41 make clear, even if there should be doubt in this regard, at least among the contracting States of CETA, any ICS award is to be categorised as an award fulfilling the NYC criteria and in certain cases even be seen as ICSID awards; this clarification in Paragraphs 5 and 6 can of course only bind the EU Member States, the EU and Canada, but not any third States. Nevertheless, given that this Paragraph also refers to judgments besides (pure) arbitration, it is interesting that there is no further attention given to the possibility and existing mechanisms to enforce foreign and international judgements.51 Apart from the New York Convention and the ICSID Convention, it should also be examined whether international documents governing the enforcement of judgments could be used – in third non-CETA States – for the enforcement of ICS awards in this case where national courts hold that the ICS awards are not arbitral awards. Several conventions and mechanisms exist that can be used to render judgments enforceable in foreign countries. Existing treaties and EU regulations are the Hague Convention on the Recognition and Enforcement of Foreign Judgments in Civil and
This thought can also be deducted from Article 33(3) VCLT. Coming to this conclusion with regard to Article 54 ICSID Convention where the same issue arises: Schreuer et al., ICSID Convention: A Commentary (2009), Article 53 mn. 64 ff. 50 This is similar to the situation in the ICSID Convention, see for instance Article 54 (3) ICSID Schreuer et al., ICSID Convention: A Commentary (2009), Article 54 mn. 112 ff. 51 Anastasia Medvedskaya, ‘Enforcement mechanism under the TTIP Investment Court System, an appropriate tool for enforcing awards in third States?’ (2019) 35 Spain Arbitration Review, 71; Bungenberg and Holzer, ‘Potential Enforcement Mechanisms for Decisions of a Multilateral Investment Court’ in Ünüvar, Lam and Dothan (eds), Permanent Investment Courts: The European Experiment (2020), 75 ff. 48
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Commercial Matters52 or the Brussels Regulation (Recast) for the recognition and enforcement of intra-EU court decisions.53 However, these documents are typically applicable to judgments of national (domestic) courts that are meant to be enforced in a state other than the state of origin. Within the EU, for example, the Brussels Regulation (Recast) is applicable when it comes to the recognition and enforcement of judgments in civil and commercial matters made by a court of an EU member state other than the EU member state where the recognition and enforcement of the judgment is sought. Thus, this regulation is applicable only to purely EU-internal matters and is thus of no relevance for ICS awards. An international agreement that complements the intra-EU provisions is the Lugano Convention.54 The Convention aims to ensure that judgments are equally effective in EU member states, Switzerland, Norway and Iceland. 55 It is adapted to the current EU rules on jurisdiction, recognition and enforcement of judgments in civil and commercial matters between EU countries prescribed by the Brussels Regulation (Recast). Similar rules therefore apply in the EU and Switzerland, Norway and Iceland.56 Another example is the Hague Convention on Choice of Court Agreements, 57 which now has 37 signatories58 and applies in cases of exclusive choice of court agreements.59 The Convention has entered into force in 2015 and applies momentarily to the EU and its Member States, Mexico, Montenegro, Singapore and the UK. The USA, Ukraine, China, North Macedonia and Israel have signed but not ratified it yet. The Convention provides for considerably facilitated enforcement in case of an exclusive choice of court agreement concluded in civil or commercial matters. The justification for the facilitated enforcement is likely to be that both parties to the dispute have expressly decided that courts of a particular country should rule on their dispute and, thus, explicitly accepted the chosen jurisdiction. Therefore, it seems appropriate to allow the immediate enforcement of the resulting judgments in other member states. Thus, the above-mentioned agreements apply to the recognition and enforcement of judgments issued by national courts. In some cases, this is expressly stipulated in 52 Convention on the Recognition and Enforcement of Foreign Judgments in Civil and Commercial Matters, 1 February 1971. It is notable that this convention excludes its application in case of arbitration. 53 Regulation (EU) No 1215/2012 Of The European Parliament And Of The Council Of 12 December 2012 On Jurisdiction And The Recognition And Enforcement Of Judgments in Civil And Commercial Matters (Recast). In this Convention, arbitration is explicitly excluded in paragraph 12 of the Preamble. 54 Convention on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (New Lugano Convention), U.N.T.S. Volume 2658, I-47299, entry into force: 2010/2011. 55 EU Summary of Legislation, ‘Strengthening cooperation with Switzerland, Norway and Iceland: the Lugano Convention’ accessed: 09 March 2021. 56 EU Summary of Legislation, ‘Strengthening cooperation with Switzerland, Norway and Iceland: the Lugano Convention’ accessed: 09 March 2021. 57 Hague Convention on Choice of Court Agreements, concluded: 30 June 2005, entered into force: 1 October 2015. 58 See for the current status table accessed: 09 March 2021. 59 In July 2019, a further convention (Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters – ‘Hague Judgments Convention’, 2 July 2019) has been concluded, which enables recognition and enforcement also in cases where a judgment is not based on an exclusive choice of court agreement. However, it remains a requirement here too that only judgments issued by national courts and thus having a ‘nationality’ are covered. The new Convention has not entered into force yet.
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the agreements;60 in others, such as in the Hague Convention,61 it results from the interpretation of the provisions therein. Therefore, they are principally not applicable when it comes to the enforcement of an international court’s judgments, which are not of a ‘domestic origin’ and have ‘no nationality’. Conversely, when it comes to the enforcement of judgments of international courts, 72 the situation appears different. There are not many permanent courts where private individuals can sue a state directly or even another private individual. Most examples are provided by human rights courts, such as the European Court of Human Rights (ECtHR). In general, judgments of international courts – as for example the International Court of Justice (ICJ) – constitute exceptional issues since the cases involve state parties, i.e. sovereigns, with the consequence that diplomatic means play an important role when it comes to the enforcement of the decisions. Even in the case of the ECtHR, the implementation of judgments is largely based on the states’ voluntarily given commitment to abide by the judgments.62 In case a state does not comply with an ECtHR’s decision, a special procedure may be used, which is specifically tailored to the needs of the Court and, again, involves a considerable proportion of diplomatic means and no coercive enforcement.63 However, taken as a whole, it can be stated that genuine international courts need to be supplied with their own independent mechanisms for the enforcement of judgments against states. In conclusion, ICS awards under CETA will most likely not be covered by existing 73 conventions on the recognition and enforcement of judgments.
VI. Commentary on Paragraph 5 of Article 8.41 According to Paragraph 5 of Article 8.41 CETA, ‘[a] final award issued pursuant 74 to this Section is an arbitral award that is deemed to relate to claims arising out of a commercial relationship or transaction for the purposes of Article I of the New York Convention’. The term ‘final award’ takes up the terminology used in Article 8.39 and thus includes all awards complying with the requirements mentioned there. Thus, the intention is that all awards are supposed to be governed by the provisions 75 of the New York Convention (when enforcing it in one of the current 167 64 parties to the Convention). Non-ICSID awards include awards decided via the ICSID Additional Facility,65 the UNCITRAL Arbitration Rules, or any other rules such as ICC ArbitraSee for example Article 32 Lugano Convention and Article 2(a) Brussels-Ia-Regulation. See Article 8(1) of the Hague Convention on Choice of Court Agreements where it reads: ‘A judgment given by a court of a Contracting State designated in an exclusive choice of court agreement shall be recognised and enforced in other Contracting States in accordance with this Chapter’ (emphasis added). 62 Article 46(1) ECHR. 63 In general, the Committee of Ministers is the competent organ, which supervises the execution of the judgments of the ECtHR by the member states (Article 46(2) ECHR). If a state persistently refuses to implement a judgment, so-called infringement proceedings can be launched under Article 46(4), (5) ECHR (provisions governing the procedure can be found in Rule 99-104 of the 2018 Rules of Court). However, even these exceptional infringement proceedings may only lead to the ECtHR’s decision stating that the respective state has failed to comply with the judgment. Thus, it is more of a diplomatic means to shame the state in order to persuade it to give in. Infringement proceedings were initiated for the first time in 2017 in the case Mammadov v. Azerbaijan (appl. No. 4762/05); see General Press Release of the ECtHR, ‘ECHR to use new infringement procedure in case concerning Azerbaijan opposition politician for first time’ (ECHR 390 (2017), 14.12.2017. 64 As of 09 March 2021. 65 Schreuer et al., ICSID Convention: A Commentary (2009), 1120 ff; see also Article 3 Additional Facility Rules: ‘Since the proceedings envisaged by Article 2 are outside the jurisdiction of the Centre, 60
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tion Rules,66 the SCC Arbitration Rules67 or the LCIA Arbitration Rules.68 The NYC could even apply to ICSID awards in case the ICSID enforcement system does not apply (→ mn. 127 ff.). 76 The New York Convention obliges all parties to the agreement to recognise and enforce arbitral awards.69 Enforcement may be rejected by the restrictions of sovereign immunity. In addition, Article V NYC states more far-reaching exceptions, according to which a conflict with the ordre public, the invalidity of the arbitration agreement (for instance due to legal incapacity of the parties or another lack of will), a violation of the right to be heard, lack of jurisdiction of the tribunal, a flawed constitution of the arbitral tribunal or a lack of binding legal force and/or the annulment of the arbitral award according to the lex arbitri or the law of the state of residence can lead to the refusal of enforcement.70
1. Paragraph 5 Binds CETA-Parties only 77
The provision is intended to increase the likelihood that final awards can be enforced under the New York Convention. However, Article 8.41(5) can only bind the Members of CETA and not third states. The provision is binding only on the national courts of the CETA Members and thus improves the chances that ICS awards are none of the provisions of the Convention shall be applicable to them or to recommendations, awards, or reports which may be rendered therein’. 66 ICC Rules of Arbitration of 2021 accessed 09 March 2021. 67 SCC Arbitration Rules of 2017 accessed 09 March 2021. 68 LCIA Arbitration Rules 2020 accessed 09 March 2021. 69 Article III NYC: ‘Each Contracting State shall recognize arbitral awards as binding and enforce them in accordance with the rules of procedure of the territory where the award is relied upon, under the conditions laid down in the following articles. There shall not be imposed substantially more onerous conditions or higher fees or charges on the recognition or enforcement of arbitral awards to which this Convention applies than are imposed on the recognition or enforcement of domestic arbitral awards.’ 70 Article V NYC: ‘1. Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that: (a) The parties to the agreement referred to in article II were, under the law applicable to them, under some incapacity, or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made; or (b) The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case; or (c) The award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be recognized and enforced; or (d) The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place; or (e) The award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made. 2. Recognition and enforcement of an arbitral award may also be refused if the competent authority in the country where recognition and enforcement is sought finds that: (a) The subject matter of the difference is not capable of settlement by arbitration under the law of that country; or (b) The recognition or enforcement of the award would be contrary to the public policy of that country.’
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enforced in the CETA Member States pursuant to the New York Convention. 71 EU member states courts not complying with this CETA-obligation would not only violate international obligations, but also EU law, as CETA is as an integral part of EU law and is binding on all EU member states.72 Paragraph 5 of Article 8.41 certainly binds only CETA Members, whereas the rest 78 of New York Convention member states are not bound by such CETA provision. 73 However, this does not mean that non-CETA members are prevented from enforcing ICS awards under the New York Convention. It is feasible that if non-CETA members nevertheless consider that a CETA award is an arbitral award within the meaning of the New York Convention, they are of course not prevented from enforcing it according to its provisions.
2. CETA Awards and Commercial Relationship or Transaction Article 8.41(5) creates a legal fiction by stipulating that a CETA award ‘is deemed 79 to relate to claims arising out of a commercial relationship or transaction for the purposes of Article I of the New York Convention’. Similarly, some other investment protection agreements explicitly state this interpretation.74 Thus, it is assumed that every award arises from such a relationship without the need for legal verification in each case. The rationale for the provision lies in Paragraph 3 of Article I New York Conven- 80 tion. The provision opens the possibility for Member States to declare a reservation: ‘[A State] may also declare that it will apply the Convention only to differences arising out of legal relationships, whether contractual or not, which are considered as commercial under the national law of the State making such declaration’. Both Canada and some EU Member States75 have made such a reservation to the New York Convention. The insertion of the legal fiction in Article 8.41(5) prevents these Member States’ courts from finding, in the case of CETA awards, that the New York
71 Happ, ‘The CETA-Tribunal: is it a court? Is it an arbitration tribunal? Is it something else? An analysis of a legal chimera’, in Gebauer et al. (eds), Festschrift für Roderich C. Thümmel zum 65. Geburtstag am 23.11.2020 (2020), 297 (312); Happ and Wuschka, ‘From the Jay Treaty Commissions Towards A Multilateral Investment Court: Addressing The Enforcement Dilemma’ (2017) 6(1) Indian J. Arb. L., 113 (124). 72 Article 216 TFEU: ‘1. The Union may conclude an agreement with one or more third countries or international organisations where the Treaties so provide or where the conclusion of an agreement is necessary in order to achieve, within the framework of the Union's policies, one of the objectives referred to in the Treaties, or is provided for in a legally binding Union act or is likely to affect common rules or alter their scope. 2. Agreements concluded by the Union are binding upon the institutions of the Union and on its Member States.’ 73 Happ, ‘The CETA-Tribunal: is it a court? Is it an arbitration tribunal? Is it something else? An analysis of a legal chimera’ in Gebauer et al. (eds), Festschrift für Roderich C. Thümmel zum 65. Geburtstag am 23.11.2020 (2020), 297 (312). 74 E.g. Article 1136 para. 7 NAFTA: ‘A claim that is submitted to arbitration shall be considered to arise out of a commercial relationship or transaction for purposes of Article I of the New York Convention and Article I of the Inter-American Convention.’ Article 26 para. 5 lit. b) ECT: ‘Any arbitration under this Article shall at the request of any party to the dispute be held in a state that is a party to the New York Convention. Claims submitted to arbitration hereunder shall be considered to arise out of a commercial relationship or transaction for the purposes of Article I of that Convention.’ 75 Among them for example: Cyprus, Denmark, Greece, Hungary, Poland, Romania. The status of each Member State can be looked up at: accessed 11 March 2021.
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Convention is inapplicable because of the reservation made under Article I(3) New York Convention. 81 If this provision did not exist, national courts of States which have made a reservation would have the possibility of refusing enforcement of a CETA award on that ground alone. The purpose of the provision is thus to eliminate an aspect of uncertainty given the discretion of the national courts in the interpretation of the New York Convention.76 82 The term ‘commercial’ is not defined in Article I(3) or the other provisions of the New York Convention. In principle, the reservations declared in this respect have not led to any major problems in the practice of applying the treaty anyway. 77 Instead, the term ‘commercial’ tends to be interpreted broadly by the national courts. 78 Meanwhile, it is also largely agreed that investment arbitral awards, despite their special character (which often includes a review of sovereign state activities), have to be considered as ‘commercial’ disputes for those states who have declared a corresponding reservation to the New York Convention.79 Overall, however, the interpretation of the term is typically determined by the national law of the State in which enforcement is sought and is thus in the hands of the courts there.80 In the case of CETA Members, an interpretation is omitted due to the provision in Article 8.41(5) constituting a respective legal fiction.
3. Enforcing ICS Awards in Non-CETA-States: Is an Award under CETA an Award in the Sense of Article I NYC? The question whether an ICS award is an arbitral award under the New York Convention ultimately remains within the competence of the respective national courts having jurisdiction over enforcement.81 Third-state courts are not bound by CETA; they will thus review the legal nature on their own; it is not ensured that these courts will give deference to CETA, especially its Article 8.41. 82 As was pointed out, the CETA-Parties cannot prescribe the result of the review of an ICS award by a third party court in an agreement between themselves.83 84 The determination of whether or not ICS Awards will be considered arbitral awards and will thus be enforceable under the NYC, will remain within the powers of the local 83
76 With regards to lack of uniformity in the rules of interpretation used by courts on the New York Convention, see Liebscher, in Wolff (ed), New York Convention (2019), Prel. Rem., mn. 72 ff. 77 Ehle, in Wolff (ed), New York Convention (2019), Article I, mn. 184. 78 Ehle, in Wolff (ed), New York Convention (2019), Article I, mn. 184 ff. 79 See United Mexican States v. Metalclad, Canada, Supreme Court of British Columbia, 2.5.2001, [2001] BCSC 664, 5 ICSID Reports 236; United Mexican States v. Feldman Karpa, Canada, Ontario Court of Appeal, 11.1.2005, 9 ICSID Reports 508, 516, para. 41; Czech Republic v. CME Czech Republic BV, Sweden, Svea Court of Appeal, 15.5.2003, 9 ICSID Reports 439, 493. 80 Blackaby et al., Redfern and Hunter on International Arbitration (2015), mn. 11.50; Ehle, in Wolff (ed), New York Convention (2019), Article I, mn. 182. 81 Happ and Wuschka, ‘From the Jay Treaty Commissions Towards A Multilateral Investment Court: Addressing The Enforcement Dilemma’ (2017) 6(1) Indian J. Arb. L., 113 (124); Reinisch, ‘Will the EU’s Proposal Concerning an Investment Court System for CETA and TTIP Lead to Enforceable Awards? – The Limits of Modifying the ICSID Convention and the Nature of Investment Arbitration’ (2016) 19 J. Int’l Econ. L., 761 (783); Wuschka, ‚Ein Investitionsgerichtshof – Der große Wurf der EU-Kommission?’ (2016) 19(2) ZEuS, 153 (171). 82 Happ, ‘The CETA-Tribunal: is it a court? Is it an arbitration tribunal? Is it something else? An analysis of a legal chimera’ in Gebauer et al. (eds), Festschrift für Roderich C. Thümmel zum 65. Geburtstag am 23.11.2020 (2020), 297 (312). 83 Happ and Wuschka, ‘From the Jay Treaty Commissions Towards A Multilateral Investment Court: Addressing The Enforcement Dilemma’ (2017) 6(1) Indian J. Arb. L., 113 (124).
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courts before which enforcement is sought.84 The remaining question is thus whether courts in the states of enforcement will accept ICS awards as arbitral awards under Article I NYC85 in order to fall within the material scope of application of the New York Convention.86 Several scholars are at least having doubts.87 There is no single definition of the term ‘arbitral award’ nor does it seem possible 85 to give a uniform definition of the term.88 Neither the New York Convention, nor the UNCITRAL Model Law89 contain a legal definition. However, the Paris Cour d’Appel and a US Federal Court of Appeals, for example, have each offered definitions that focus on different aspects. The Paris Cour d’Appel classified an arbitral decision captioned ‘order’ as an award with the argument that the decision purported to resolve one of the substantive issues between the parties in a definitive manner. 90 The US Seventh Circuit Court of Appeals, in turn, considered finality to be the decisive feature of an arbitral award.91 What both decisions have in common is that the courts assume in each case that substance prevails over form. These definitions nevertheless are not helpful when it comes to adequately defining the notion ‘arbitral award’. The characteristics mentioned would, for example, also apply to court judgments and characterise them – substance over form. In the present context, it is precisely a
84 Happ and Wuschka, ‘From the Jay Treaty Commissions Towards A Multilateral Investment Court: Addressing The Enforcement Dilemma’ (2017) 6(1) Indian J. Arb. L., 113 (124); Wuschka, ‘Ein Investitionsgerichtshof – Der große Wurf der EU-Kommission?’ (2016) 19(2) ZEuS, 153 (156-167). 85 Article I NYC: ‘(1) This Convention shall apply to the recognition and enforcement of arbitral awards made in the territory of a State other than the State where the recognition and enforcement of such awards are sought, and arising out of differences between persons, whether physical or legal. It shall also apply to arbitral awards not considered as domestic awards in the State where their recognition and enforcement are sought. (2) The term “arbitral awards” shall include not only awards made by arbitrators appointed for each case but also those made by permanent arbitral bodies to which the parties have submitted.’ 86 See on the contrary Petrochilos, Procedural law in international arbitration (2004), 378, para. 8.100, who considers that the classification of a decision as arbitral award by a legal order is no ratione materiae requirement for the applicability of the NYC; he disagrees expressly with Sanders by arguing that the NYC uses the term ‘awards’ in a ‘rudimentary legal manner’: 'to refer to what is commonly known as “award” and “arbitration” […] it uses autonomous terms, without reference to any law, to refer to the intrinsic characteristics of as type of proceedings.’ According to Petrochilos, the NYC should clarify explicitly, that ‘awards’ are defined pursuant to a certain legal order like in other provisions of the NYC (e.g. Article V NYC). 87 Titi, ‘The European Union's Proposal for an International Investment Court: Significance, Innovations and Challenges Ahead’ (2017) 14(1) TDM, 32; Happ, The CETA-Tribunal: is it a court? Is it an arbitration tribunal? Is it something else? An analysis of a legal chimera’ in Gebauer et al. (eds), Festschrift für Roderich C. Thümmel (2020), 297 (297 ff.); Potestà, ‘Investment Arbitration, Challenges And Prospects For The Establishment Of A Multilateral Investment Court: Quo Vadis Enforcement?’ (2018) Austrian YB Int’l Arb., 157 (167); Bungenberg and Holzer, ‘Potential Enforcement Mechanisms for Decisions of a Multilateral Investment Court’ in Ünüvar, Lam and Dothan (eds), Permanent Investment Courts: The European Experiment (2020), 75 ff. 88 Blackaby et al., Redfern and Hunter on International Arbitration (2015), para. 9.05. Noting the absence of a uniform definition: Hill (2018), p. 591; Gaillard and Savage, Fouchard Gaillard Goldman on International Commercial Arbitration (1999), 735 ff. 89 Article 31 UNCITRAL Model Law regulates only ‘form and content of award’. Hence from it can be concluded that the awards are made by ‘arbitrators’ of an ‘arbitral tribunal’. 90 Braspetro Oil Services Company - Brasoil v. The Management and Implementation Authority of the Great Man-Made River Project, Paris Cour d'Appel [Court of Appeal], 1 July 1999, excerpts printed in: van den Berg (ed), Yearbook Commercial Arbitration (1999) Vol. XXIVa, 296 (297). 91 Publicis Communication and Publicis S.A. v. True North Communications Inc., US Court of Appeals, Seventh Circuit, US No. 338, 14 March 2000, excerpts printed in: van den Berg (ed), Yearbook Commercial Arbitration (2000) Vol. XXV, 1152 (1153 ff.).
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matter of distinguishing an arbitral award from a court judgment, since the scope of application of the New York Convention is only opened up in the former case. 86 For this reason, the context in which an arbitral award is made must be taken into account for a more purposeful definition. In the end, an arbitral award is the ultimate product of a certain procedure, which is not a classical court procedure. Although there is no uniform definition of the term,92 there are some elements which are referred to as characteristics of an arbitral award and which take account of the circumstances leading to an award. These elements are: (i) an arbitration agreement between the parties, (ii) a voluntary submission of the parties (iii) for the reaching of a legally binding final dispute settlement (iv) by a non-state decision-making mechanism, (v) which consists of arbitrators selected by the parties. 93 (i)
(ii)
(iii)
The ‘agreement to arbitrate’ between the disputing parties exists in a twofold process: a standing offer to arbitrate by all Parties to CETA that is contained in Article 8.25 CETA, on the one hand; the request for dispute settlement under Article 8.23 by which the investor accepts of the offer. 94 Article I(2) NYC states that decisions which are enforceable under the New York Convention include those ‘to which the parties have submitted’, which entails a voluntary character.95 The conclusion of CETA with a dispute settlement system fulfils the requirement of voluntary submission in regard to the state parties or the EU. If an investor would like to file a claim against a State Party to CETA or the EU on the basis of CETA Chapter 8 and not under national law, the investor submits itself voluntarily to the one offered dispute resolution mechanisms by bringing the dispute, and has the option to choose the applicable procedural rules (see Article 8.23(2) CETA).96 If this dispute settlement mechanism is the ICSID Convention, the resulting award can, according to prevailing opinion, also be enforced through the New York Convention and not just through the ICSID Convention.97 An arbitral award under the New York Convention must result in a final and binding resolution of the dispute. This condition does not present any problems in the case of ICS awards.98 The ICS fulfils the requirement that a third, neutral party renders a final resolution of a given dispute in a court-like procedure.
92 Blackaby et al., Redfern and Hunter on International Arbitration (2015), para. 9.05.; Hill (2018), p. 591; Gaillard and Savage, Fouchard Gaillard Goldman on International Commercial Arbitration (1999), 735 ff. 93 Bungenberg and Reinisch, From Bilateral Arbitral Tribunals and Investment Courts to a Multilateral Investment Court (2018), para. 502. 94 Happ and Wuschka, ‘From the Jay Treaty Commissions Towards A Multilateral Investment Court: Addressing The Enforcement Dilemma’ (2017) 6(1) Indian J. Arb. L., 113 (126). 95 Paulsson, ‘Arbitration without privity’ (1995) 10(2) ICSID Rev.-FILJ, 232 (233); van Harten and Loughlin, ‘Investment Treaty Arbitration as a Species of Global Administrative Law’ (2006) 17(1) EJIL, 121 (128 ff.). 96 Potestà, ‘Investment Arbitration, Challenges And Prospects For The Establishment Of A Multilateral Investment Court: Quo Vadis Enforcement?’ (2018) Austrian YB Int’l Arb., 157 (162 ff.). 97 Van den Berg, The New York Arbitration Convention of 1958, Towards a Uniform Judicial Interpretation (1981), 99; Canè, ‘The enforcement of ICSID awards: revolutionary of ineffective?’ (2004) Am. Rev. Int’l Arb., 439 (444 ff.); Schreuer et al., The ICSID Convention: A Commentary (2009), 1119; Tawil, ‘Binding Force and Enforcement of ICSID Awards: Untying Articles 53 and 54 of the ICSID Convention’ in Albert van den Berg (ed), 50 Years of the New York Convention (2009), 327 (335), fn. 42; Lew et al., Comparative international commercial arbitration (2003), 801; Verhoosel, ‘Annulment and Enforcement Review of Treaty Awards: To ICSID or Not to ICSID?’ in Albert van den Berg (ed), 50 Years of the New York Convention (2009), 310 (310 ff.). 98 Ehle, in Wolff (ed), New York Convention (2019), Article I, mn. 32.
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(iv)
(v)
Both national court decisions and prevailing opinion in the literature agree that an essential characteristic of arbitral tribunals is their private, non-governmental nature, which distinguishes them from courts or governmental institutions.99 Some authors draw parallels to the ICJ and ECtHR to show that while a permanent investment tribunal would not be an institution of state justice, it would certainly not be a ‘private’ entity.100 Especially the permanent judiciary might conflict with the characterisation as a private entity. Here, this element of arbitration overlaps with the fourth element – the arbitrators selected by the parties. From that perspective, as long as the investor is free to accept the standing offer but accepting as well that the arbitrators are appointed randomly from a body of 15 members would overstretch this criterion and deprive it of any value. 101 Nevertheless, the ICS is not likely to be a less private entity than the IUSCT. 102 In States, which enforce decisions of the IUSCT as arbitral awards according to the New York Convention, this element should therefore not be a problem. In general, this element cannot be evaluated independently, but rather can only be clarified from the overlap and elaboration of the other elements. Another criterion is the appointment of arbitrators by the parties to the dispute.103 The Members of the Tribunal and of the Appellate Tribunal are appointed exclusively by a Decision of the Joint Committee, while investors have no impact on that process; therefore, one could doubt the private nature of the ICS. This is similar to the situation in the IUSCT, where Iran and the US each select one third of the nine arbitrators.104 Consequently, only the states, but not the investors, have an influence on the appointment of the decision-makers in the IUSCT. If this criterion is applied strictly, the ICS is most likely not an arbitration tribunal.105 Nevertheless, it is to notice that in the rulings on the enforcement of IUSCT awards through the New York Convention, this ar-
99 Born, International Commercial Arbitration (2014), 255–258 accepts the difference between arbitration and choice of jurisdiction clauses in court proceedings: in the case of arbitral proceedings, a dispute is transferred to another, non-state level and will not be decided by state officials, whereas, in the case of choice of jurisdiction clauses, only a specific national court was chosen by the parties. Additionally, in the case of choice of jurisdiction clauses, the parties do not choose the individuals who take the decision, but the judges out of an existing judiciary, that are chosen by the court, independent from the parties’ wishes. 100 Kaufmann-Kohler and Potestà, Can the Mauritius Convention Serve as a Model for the Reform of Investor-State Arbitration in Connection with the Introduction of a Permanent Investment Tribunal or an Appeal Mechanism? – Analysis and Roadmap (2016), 36 ff.; Potestà, ‘Investment Arbitration, Challenges And Prospects For The Establishment Of A Multilateral Investment Court: Quo Vadis Enforcement?’ (2018) Austrian YB of Int’l Arb., 157 (162). 101 Happ, ‘The CETA-Tribunal: is it a court? Is it an arbitration tribunal? Is it something else? An analysis of a legal chimera’ in Gebauer et al. (eds), Festschrift für Roderich C. Thümmel zum 65. Geburtstag am 23.11.2020 (2020), 297 (308). 102 Neither Ministry of Defense of the Islamic Republic of Iran v. Gould, US District Court, C.D. Cal., No. CV 87-03673-RG, 14 January 1988; Flatow v. Islamic Republic of Iran, Corte Suprema di cassazione della Repubblica Italiana, No. 21946.99, 20 October 2015, (2016) Rivista di diritto internazionale, 293, nor Dallal v. Bank Mellat, Court of Appeal England and Wales, 16 July 1985, (1986) Q.B. 441 discuss this aspect. 103 On this inter alia Potestà, ‘Investment Arbitration, Challenges And Prospects For The Establishment Of A Multilateral Investment Court: Quo Vadis Enforcement?’, Austrian YB of Int’l Arb. (2018), 157 (163 ff.). 104 Brower and Brueschke, The Iran-United States claims tribunal (1998), 10. 105 Happ, ‘The CETA-Tribunal: is it a court? Is it an arbitration tribunal? Is it something else? An analysis of a legal chimera’ in Gebauer et al. (eds), Festschrift für Roderich C. Thümmel zum 65. Geburtstag am 23.11.2020 (2020), 297 (308).
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rangement of the arbitrator’s bench was not problematic.106 It is also frequently argued that a modern definition of arbitration does not require the arbitrators being elected by the parties, since the focus would lie on the voluntary submission of the parties, as has already been confirmed by some arbitral tribunals. 107 As Happ points out, even the NYC in Article I(2) states that the term arbitral awards shall include those made by permanent arbitral bodies to which the parties have submitted.108 A final question is whether ICS awards are non-domestic or foreign awards. 109 Foreign arbitral awards follow the principle of territoriality: an arbitral award is foreign, as long as it has not been rendered in the territory of the state of enforcement; if the state of enforcement has not declared the reservation of reciprocity in accordance with Article I(3) NYC, the New York Convention is applicable universally, irrespective of the state of origin of the arbitral award or of the parties.110 According to the prevailing view, an arbitral award is ‘made’ in the state seat of the tribunal. 111 Thus, the question arises as to whether an ICS award would be foreign in the case where the seat of the ICS is not the state of enforcement at the same time. In the context of the principle of territoriality, which only deals with the statutory geographical position of the tribunal,112 such an interpretation may well be conceivable.113 88 Arbitral awards are also non-domestic if they were rendered according to the principle of territoriality in the state of enforcement, but national law was not applied. 114 Given that CETA Chapter 8 (Article 8.31) foresees that European Law as well as domestic law will only be applied as a fact, it might be that national courts even see the award as a-national, if the ICS has its seat in the state of enforcement. Furthermore, 87
106 Neither Ministry of Defense of the Islamic Republic of Iran v. Gould, Flatow v. Iran nor Dallal v. Bank Mellat discuss this aspect. 107 Kaufmann-Kohler and Potestà, Can the Mauritius Convention Serve as a Model for the Reform of Investor-State Arbitration in Connection with the Introduction of a Permanent Investment Tribunal or an Appeal Mechanism? – Analysis and Roadmap (2016); Braspetro Oil Services Company - Brasoil v. The Management and Implementation Authority of the Great Man-Made River Project, Paris Cour d'Appel [Court of Appeal], 1 July 1999, excerpts printed in: van den Berg (ed), Yearbook Commercial Arbitration (1999) Vol. XXIVa, 296 (297). 108 Happ, ‘The CETA-Tribunal: is it a court? Is it an arbitration tribunal? Is it something else? An analysis of a legal chimera’ in Gebauer et al. (eds), Festschrift für Roderich C. Thümmel zum 65. Geburtstag am 23.11.2020 (2020), 297 (308). 109 Potestà, ‘Investment Arbitration, Challenges And Prospects For The Establishment Of A Multilateral Investment Court: Quo Vadis Enforcement?’ (2018) Austrian YB of Int’l Arb. (2018), 157 (173 ff.). 110 Ehle, in Wolff (ed), New York Convention (2019), Article I, mn. 59; Petrochilos, Procedural law in international arbitration (2004), 352, para. 8.35 concludes that it is both sufficient and necessary, if the award was made in another state than the enforcement forum, for applying the NYC. 111 Ehle, in Wolff (ed), New York Convention (2019), Article I, mn. 99. 112 Ehle in Wolff (ed), New York Convention (2019), Article I, mn. 94 ff., considers an absolute geographical interpretation as inappropriate, since the focus should be on the word ‘made’—an award would not be made where it is signed, but at the legal formal seat of the tribunal. 113 Additionally, Petrochilos, Procedural law in international arbitration (2004), 357 concludes that it is sufficient and necessary, if an arbitral award was made in another state than the enforcement forum, for applying the NYC. 114 Kaufmann-Kohler and Potestà, Can the Mauritius Convention Serve as a Model for the Reform of Investor-State Arbitration in Connection with the Introduction of a Permanent Investment Tribunal or an Appeal Mechanism? – Analysis and Roadmap (2016), 57 define anational/delocalized awards as ‘awards not made under domestic law’ and point out how much attention the possible enforcement of such awards under the NYC has gained recently.
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also delocalized awards under the ICSID Convention can be enforced under the NYC regime.115 Thus, uncertainties remain in regard to categorising ICS awards as arbitral awards 89 enforceable under the NYC. If courts in third states do not consider ICS awards as arbitral awards, they will most likely not be enforceable in those States.
4. Further ‘Problems’ of Enforcement under the NYC Enforcement under the New York Convention also has another disadvantage rooted 90 in the interpretation authority of national courts. Article V of the Convention allows the refusal of enforcement on certain grounds. According to Article V(2)(b), such a ground may be that ‘the recognition and enforcement of the award would be contrary to the public policy’ of the state in which enforcement is sought. In particular, by accepting public policy concerns, the Convention gives the national courts a considerable margin of discretion,116 which entails risks for the enforcement of ICS awards. The content of ‘public policy’ differs from jurisdiction to jurisdiction, which might undermine the enforcement prospects under CETA Investment Chapter.
VII. Commentary on Paragraph 6 of Article 8.41 Paragraph 6 of Article 8.41 sets forth that ‘[f]or greater certainty, if a claim has 91 been submitted pursuant to Article 8.23.2(a), a final award issued pursuant to this Section shall qualify as an award under Chapter IV, Section 6 of the ICSID Convention’. This provision is intended to ensure the applicability of the enforcement and recognition provisions of the ICSID Convention – Articles 53 to 55 – through a clarification: a CETA award shall qualify as an ICSID award. The ICS aims for the application of the ICSID Convention to the extent that ICS awards would be enforced within the CETA Parties as well as ‘in third States as if they were ICSID awards’. 117 ICSID awards enjoy a particularly high level of enforceability. According to the 92 ICSID Convention, ICSID awards must be recognised as binding and their monetary content (namely compensation and damages) has to be enforced equivalently to a last-instance decision of its own state courts by all (currently 163 signatories but 155 having ratified the Convention118) parties to the ICSID Convention.119 This means that a review as to whether the content of the specific ICSID award is in accordance with the ordre public or similar concepts has been omitted. The only permissible restriction of enforceability is the law of state immunity in enforcement proceedings. 120 Thus, if the parties have decided to choose the ICSID Convention and Rules for 93 their proceedings according to Article 8.23(2)(a) CETA, it is intended that the en115 Potestà, ‘Investment Arbitration, Challenges And Prospects For The Establishment Of A Multilateral Investment Court: Quo Vadis Enforcement?’ (2018) Austrian YB of Int’l Arb., 157 (174 ff.). 116 Howard, ‘Creating Consistency through a World Investment Court’ (2017) 41(1) Fordham International Law Journal 1, (16). 117 Happ and Wuschka, ‘From the Jay Treaty Commissions Towards A Multilateral Investment Court: Addressing The Enforcement Dilemma’ (2017) 6(1) Indian J. Arb. L., 113 (123). 118 Document ICSID/3, ‘List of Contracting States and other Signatories of the Convention’ as of 9 June 2020 accessed 09 March 2021. 119 Article 54 ICSID Convention: ‘Each Contracting State shall recognize an award rendered pursuant to this Convention as binding and enforce the pecuniary obligations imposed by that award within its territories as if it were a final judgment of a court in that State …’. 120 Article 55 ICSID Convention: ‘Nothing in Article 54 shall be construed as derogating from the law in force in any Contracting State relating to immunity of that State or of any foreign State from execution’.
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forcement mechanism of the ICSID Convention is also used. As Hoffmeister explains, despite the derogation from the appointment of arbitrators foreseen in the ICSID Convention, the CETA Parties wished to preserve the link to the ICSID system, by which an investor would benefit from the ICSID enforcement machinery. 121 Accordingly, pursuant to Article 54(1) ICSID Convention, the domestic courts are required to recognise such an award as binding and enforce it ‘as if it were a final judgment of a court in that State’. 94 However, Article 8.41(6), which reads like a mere clarification of an obvious fact, is in fact an inter se modification of the ICSID Convention. Through this provision, the CETA members intend to ensure that each of them considers CETA awards to be arbitral awards within the meaning of the ICSID Convention as long as the ICSID Convention and Rules were chosen for the proceedings in accordance with Article 8.23(2)(a) CETA. 95 This raises two questions in particular: do CETA awards differ from arbitral awards under ICSID in any way and is it therefore justified to speak of modification? In other words, does Article 8.41(6) CETA provide for a regulatory content which deviates from the usual understanding under the ICSID Convention? Additionally, if the first question is answered in the affirmative, the further question arises as to whether the CETA Members are from a public international law perspective legally allowed to reach such an inter se agreement. The question is not whether third States/non-CETA States but members to ICSID are bound (they are not;122 → mn. 127 ff.), but might nevertheless follow such approach.
1. Article 8.41(6) as an inter se Modification of the ICSID Convention 96
The applicability of the ICSID Convention’s enforcement and recognition provisions would be a guarantor for the enforcement of CETA awards in a most efficient manner. However, it appears doubtful whether an agreement like Article 8.41(6) is acceptable under international law, which declares that CETA awards are deemed to be awards within the meaning of the ICSID Convention and thereby seeks to bring about the applicability of the enforcement mechanism under the Convention. Such an arrangement is likely to be classified as an inter se modification, rather than a mere ‘evolutionary interpretation’.123 a) Inter se Modifications and Public International Law
97
Inter se modifications are regulated in Article 41 of the VCLT. Arguably, the VCLT is not applicable to the ICSID Convention since the ICSID Convention (1965) already existed before the VCLT (1980) came into force. 124 However, it is reasonable to assume 121 Hoffmeister, ‘The EU Contribution to the Progressive Development of Institutional Aspects of International Investment Law’ (2017) 2 R.B.D.I., 566 (582). 122 See inter alia Happ and Wuschka, ‘From the Jay Treaty Commissions Towards A Multilateral Investment Court: Addressing The Enforcement Dilemma’ (2017) 6(1) Indian J. Arb. L., 113 (130); see also Kaufmann-Kohler and Potestà, Can the Mauritius Convention Serve as a Model for the Reform of Investor-State Arbitration in Connection with the Introduction of a Permanent Investment Tribunal or an Appeal Mechanism? – Analysis and Roadmap (2016), para. 141 (for the International Tribunal for Investment) and para. 200 (for the situation of an appeals mechanism); Hoffmeister, ‘The EU Contribution to the Progressive Development of Institutional Aspects of International Investment Law’ (2017) 2 R.B.D.I., 566 (583). 123 See in this regard Hoffmeister, The EU Contribution to the Progressive Development of Institutional Aspects of International Investment Law (2017) 2 R.B.D.I., 566 (583). 124 Article 4 VCLT Non-Retroactivity of the Present Convention: ‘Without prejudice to the application of any rules set forth in the present Convention to which treaties would be subject under international
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that Article 41 VCLT – at least in its core statement – reflects customary international law,125 which can nonetheless be applied for the interpretation of the ICSID Convention. There is some evidence that there was probably no common understanding of 98 when inter se modifications should be allowed before the VCLT was concluded. 126 The applicability of the details codified in Article 41(1)(b) VCLT with the specifications as to which requirements inter se modifications must meet could therefore pose a problem. In any case, it seems very unlikely that inter se modifications should have been possible without restriction before the VCLT came into force. Rather, it is to be assumed that even at that time, certain basic ideas already existed as to the conditions under which inter se modifications should be permitted. Since the details included in Article 41 VCLT were not subsequently contradicted and have received general recognition,127 it can be assumed that they codified the basic ideas that already existed before the entry into force of the VCLT. Therefore, Article 41 VCLT expresses the (customary) standards, which are decisive for the examination of the legality of an inter se modification. b) Inter se Modifications and ICSID Convention First of all, it should be noted that inter se modifications are not mentioned in 99 the ICSID Convention. It must therefore be assumed that the ICSID Convention does not prohibit them.128 Accordingly, inter se modifications to the ICSID Convention seem permissible as long as they comply with the requirements of Article 41(1)(b) VCLT. Thus, the respective modification (i) must not affect the enjoyment by the other parties of their rights under the treaty or the performance of their obligations, and (ii) must not relate to a provision, derogation from which is incompatible with the effective execution of the object and purpose of the treaty as a whole. In the present context, the issue is whether the CETA members can declare the 100 provisions on recognition and enforcement of the ICSID Convention (Chapter IV, Section 6 of the ICSID Convention) as applicable to CETA awards. The inter se modification in this case, thus, consists of the instruction that a final CETA award shall qualify as an ICSID award. The CETA Investment Chapter contains a number of detailed provisions for the implementation of the arbitral procedure, which differ in some aspects from corresponding detailed provisions in the ICSID Convention. These deviating provisions in CETA are in turn each to be regarded as inter se modifications of the ICSID Convention and as such are to be examined for their compatibility with the VCLT. In the present context of Article 8.41(6), it must be examined if and how Articles 53 to 55 ICSID Convention are effectively modified, if CETA awards count as ICSID awards. law independently of the Convention, the Convention applies only to treaties which are concluded by States after the entry into force of the present Convention with regard to such States.’ 125 Villiger, Commentary on the 1969 Vienna Convention on the Law of Treaties (2009), Article 41 mn. 18; von der Decken, in Dörr and Schmalenbach (eds), Vienna Convention on the Law of Treaties – A Commentary (2018), Article 41 mn. 8; Reinisch, ‘Will the EU’s Proposal Concerning an Investment Court System for CETA and TTIP Lead to Enforceable Awards?’ (2016) 19 J. Int’l. Econ. L., 761 (772). 126 See regarding the history of Article 41 VCLT: von der Decken, in Dörr and Schmalenbach (eds), Vienna Convention on the Law of Treaties – A Commentary (2018), Article 41 mn. 6 ff. 127 Villiger, Commentary on the 1969 Vienna Convention on the Law of Treaties (2009), Article 41 mn. 18. 128 Reinisch, ‘Will the EU’s Proposal Concerning an Investment Court System for CETA and TTIP Lead to Enforceable Awards?’ (2016) 19 J. Int’l. Econ. L., 761 (772 f.); von der Decken, in Dörr and Schmalenbach (eds), Vienna Convention on the Law of Treaties – A Commentary (2018), Article 41 mn. 9.
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According to Article 54(1) of the ICSID Convention, ‘each Contracting State shall recognize an award rendered pursuant to this Convention as binding and enforce [it] within its territories as if it were a final judgment of a court in that State’. 129 If CETA provides for provisions on the conduct of arbitral proceedings that deviate from the ICSID Convention, the outcome of such proceedings will not be an award ‘rendered pursuant to the ICSID Convention’. Therefore, it appears justified to speak of a modification of Articles 53 to 55 ICSID Convention. The question now is whether the modifications made are permissible under Article 41 VCLT. aa) Compliance with Article 41(1)(b)(i) VCLT
Article 41(1)(b)(i) VCLT demands that the inter se modification does not affect the enjoyment by the other parties of their rights under the treaty or the performance of their obligations. As regards the meaning of this clause, the ILC simply stated: ‘[The modification] must not prejudice their [the other parties’] rights or add to their burdens’.130 This represents the general rule that an agreement cannot be concluded to the detriment of third parties, which is embodied in Article 34 VCLT. 131 According to Villiger, ‘no such prejudice will arise as long as the execution of the modified treaty can be undertaken separately and independently among the different treaty parties’. 132 103 The provisions in CETA on the settlement of disputes between investors and states differ in part from those of the ICSID Convention (→ mn. 106 ff.). Where proceedings take place under the ICSID Convention and Rules due to the parties’ choice according to Article 8.23(2)(a), the ICSID provisions apply only to the extent that CETA does not provide otherwise.133 104 However, the modified rules are applicable only to proceedings between the members of CETA but not to the other member states of the ICSID Convention. Thus, if a dispute is between a non-CETA member and a CETA-member, the provisions of the ICSID Convention apply without modification.134 On this basis, there are no (negative) consequences for the other members of the ICSID Convention if the arbitral procedure is partially regulated and implemented differently under CETA and this does only apply to other members of ICSID. Moreover, this is the case not only for the modified procedural rules but also for Article 8.41(6) ensuring that enforcement can be effected by means of the ICSID Convention. Article 8.41(6), too, binds only the CETA members and applies only to enforcement within the members, whereas non-CETA members are not bound by it. 105 Thus, the inter se modification can be applied without affecting the other members of the ICSID Convention, as long as especially enforcement under the ICSID Convention is not supposed to take place outside the CETA Parties. It can therefore be assumed that Article 8.41(6) as an inter se modification is under certain conditions compatible with Article 41(1)(b)(i) VCLT.135 102
Emphasis added. Draft Articles on the Law of Treaties with commentaries, YBILC (1966), vol. II, 187 (235). 131 von der Decken, in Dörr and Schmalenbach (eds), Vienna Convention on the Law of Treaties – A Commentary (2018), Article 41 mn. 15. 132 Villiger, Commentary on the 1969 Vienna Convention on the Law of Treaties (2009), Article 41 mn. 8. 133 Article 8.23(6) CETA. 134 Reinisch, ‘Will the EU’s Proposal Concerning an Investment Court System for CETA and TTIP Lead to Enforceable Awards?’ (2016) 19 J. Int’l. Econ. L., 761 (774). 135 This conclusion is also supported by Reinisch, ‘Will the EU’s Proposal Concerning an Investment Court System for CETA and TTIP Lead to Enforceable Awards?’ (2016) 19 J. Int’l. Econ. L., 761 (774). 129
130
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bb) Compliance with Article 41(1)(b)(ii) VCLT Article 41(1)(b)(ii) VCLT demands that the inter se modification does not relate to 106 a provision, derogation from which is incompatible with the effective execution of the object and purpose of the treaty as a whole. The wording indicates that modifications do not pose a problem if they only relate to individual, minor aspects of the object and purpose of the respective treaty.136 Rather, it ought to be a modification that calls into question the object and purpose of the treaty ‘as a whole’. In the present context, the question accordingly arises whether Article 8.41(6) impinges on the object and purpose of the ICSID Convention ‘as a whole’. What is decisive for the answer is what is to be regarded as the object and purpose of the ICSID Convention. There is no provision in the ICSID Convention that would explicitly define its 107 object and purpose. However, its preamble provides some guidance and Article 1(2) ICSID Convention explicitly codifies the purpose of the Centre: it shall provide facilities for conciliation and arbitration of investment disputes between a private investor and a member state in accordance with the provisions of the ICSID Convention. In addition, the title of the Convention already identifies the settlement of investment disputes between states and nationals of other states as its object. However, the fact that Article 1(2) ICSID Convention speaks of dispute settlement 108 ‘in accordance with the provisions of this Convention’ does not mean that only those dispute settlements that are conducted strictly in accordance with those rules are consistent with the object and purpose of the Convention as a whole. If this were the case, it would not be possible to depart from any provision of the ICSID Convention.137 Thus, it is to be continued on the basis of the understanding that individual modifications may be compatible with the object and purpose of the Convention as a whole. There are three main issues where CETA differs from the arbitration provisions in the ICSID Convention: the composition of the bench, the applicable law and the establishment of an appeal mechanism. (1) Composition of the bench The ICSID Convention provides in Article 37(2) thereof that the disputing parties 109 appoint the arbitrators according to their agreement. Only if the arbitral tribunal is not established within 90 days, the arbitrators shall be nominated alternatively by the Chairman of the Administrative Council, at the request of either party, so as not to frustrate the proceedings (Article 38 ICSID Convention). 138 In derogation therefrom, CETA provides for a pool of 15 Tribunal members (Article 8.27(2)), from which the President of the Tribunal appoints three persons on a case-by-case basis (Article 8.27(7)). Thus, the parties are not directly involved in the selection of the Tribunal members. Only the CETA Member States are involved in the selection process, as the pool is appointed by the CETA Joint Committee (Article 8.27(2)), which in turn consists of representatives of the EU and Canada according to Article 26.1(1). As mentioned above, the ICSID Convention is aimed at providing facilities for 110 conciliation and especially arbitration as means of dispute resolution. The focus on arbitration can be seen, for example, from the following provisions: Paragraph 4 and 6 136 von der Decken, in Dörr and Schmalenbach (eds), Vienna Convention on the Law of Treaties – A Commentary (2018), Article 41 mn. 7; Reinisch, ‘Will the EU’s Proposal Concerning an Investment Court System for CETA and TTIP Lead to Enforceable Awards?’ (2016) 19 J. Int’l. Econ. L., 761 (775). 137 Reinisch, ‘Will the EU’s Proposal Concerning an Investment Court System for CETA and TTIP Lead to Enforceable Awards?’ (2016) 19 J. Int’l. Econ. L., 761 (776). 138 Schreuer et al., ICSID Convention: A Commentary (2009), Article 38 mn. 1.
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of the Preamble, Article 1(2), Article 26, or Chapter VI of the ICSID Convention. Consequently, it can well be argued that the facilitation of arbitration – as distinct from the settlement of disputes through court proceedings – is an element of the fundamental object and purpose of the ICSID Convention. It is therefore to be discussed whether it is a necessary feature of arbitration that the parties are involved in the appointment of the arbitrators. 111 It can reasonably be assumed that the party-driven selection of arbitrators is one of the key characteristics that distinguishes arbitration from court proceedings. 139 This can be seen for example from the UN Handbook on the Peaceful Settlement of Disputes between States140 as well as from the 1907 Hague Convention for the Pacific Settlement of International Disputes. Indeed, both sources refer to state-to-state arbitration. However, the delimiting remarks also apply in general to the distinction between arbitration and court proceedings. In Article 37 of the named Hague Convention, it reads: ‘International arbitration has for its object the settlement of disputes between States by Judges of their own choice and on the basis of respect for law’. Even more explicitly, the UN Handbook illustrates: Arbitration, in general, is constituted by mutual consent of the States parties to a specific dispute where such parties retain considerable control over the process through the power of appointing arbitrators of their own choice. By contrast, judicial settlement relies upon pre-constituted international courts or tribunals, the composition of which is not to the same extent subject to control by the parties to the dispute.141
Thus, there are sound reasons to also argue that the party-driven selection of arbitrators is a decisive feature in order to deem an adjudicative mechanism as arbitration. Conversely, it may also be argued that the decisive factor is not the party-driven selection of the arbitrators, but rather the voluntary nature of the proceedings as a whole.142 113 Depending on which view is adopted, it follows that the way in which the appointment of arbitrators is organised can be seen as an impermissible inter se modification of the ICSID Convention. A selection of arbitrators without the participation of the parties can lead to the result that the procedure can no longer be regarded as arbitral proceedings. It may then be in breach of Article 41(1)(b)(ii) VCLT, since it is incompatible with the object and purpose of the ICSID Convention. 112
(2) Applicable Law 114
Article 42(1) ICSID Convention places the choice of applicable law primarily in the hands of the parties. Only if the parties cannot agree is the arbitral tribunal called upon to determine the applicable law. In this respect, Article 42(1) ICSID Convention provides that the national law of the State involved in the dispute shall be used and rules of international law also may be applicable. In derogation from this, Article 8.31(1) and (2) CETA provide in effect that only the substantive provisions
139 So also the characterising description in: United Nations, Handbook on the Peaceful Settlement of Disputes between States (1992), 55. Describing the party-driven selection of arbitrators as typical feature of arbitration: Liebscher, in Wolff (ed), New York Convention (2019), Prel. Rem., mn. 2. 140 United Nations, Handbook on the Peaceful Settlement of Disputes between States (1992), p. 55. 141 United Nations, Handbook on the Peaceful Settlement of Disputes between States (1992), p. 55 (footnote omitted). 142 Reinisch, ‘Will the EU’s Proposal Concerning an Investment Court System for CETA and TTIP Lead to Enforceable Awards?’ (2016) 19 J. Int’l. Econ. L., 761 (767).
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of the investment protection chapter shall apply.143 National law, on the other hand, may only be used as a matter of fact (Article 8.31(2)), but not as a source of law to be interpreted by the respective Tribunal. No choice of applicable law is left to the parties to the respective dispute. All in all, it is questionable whether Article 8.31(1) and (2) are likely to be a permis- 115 sible deviation from the ICSID Convention, as Article 8.31(1) and (2) does not leave too much of a choice of law to the disputing parties. However, many IIAs providing for investor-state arbitration foresee applicable law provisions limiting or excluding the application of national law.144 It is thus hard to imagine that investor-state arbitration based on those treaties would not be considered as ‘arbitration’ only because the applicable law was predefined in the underlying treaty rather than by agreement of the disputing parties. (3) Appellate Tribunal The CETA investment court system will have a two-tiered structure that encom- 116 passes an appeals mechanism once the conditions of Article 8.28(7) have been fulfilled and the necessary arrangements for the procedure before the Appellate Tribunal are agreed upon. This clearly contrasts with the express provision in Article 53(1) of the ICSID Convention,145 according to which ‘the award […] shall not be subject to any appeal or any other remedy except those provided for in this Convention’. There are other provisions in the ICSID Convention that explicitly open up the 117 possibility of derogating from them, such as Article 26, 43, 44 ICSID Convention where it reads ‘unless otherwise stated’ or ‘except as the parties otherwise agree’. Article 53 ICSID Convention does not contain such a wording. It can therefore be assumed that a derogation from Article 53(1) agreed upon by the parties of a dispute is not intended under the Convention.146 However, the question whether it is licit for the disputing parties to a specific case to waive an individual provision must be distinguished from the question of whether a respective inter se modification is permissible.147 For instance, Calamita argues that it is inadmissible to establish an appellate tri- 118 bunal by inter se modification, since Article 53(1) ICSID Convention expressly prohibits such a mechanism.148 Furthermore, he argues that the parties to a dispute are also prevented from agreeing on an appeal mechanism under the ICSID Convention for their individual legal dispute. This may well be true. However, the question of the admissibility of an inter se modification is governed by Article 41(1)(b)(ii) VCLT, which requires a contradiction with the object and purpose of the overall treaty.
143 Reinisch, ‘Will the EU’s Proposal Concerning an Investment Court System for CETA and TTIP Lead to Enforceable Awards?’ (2016) 19 J. Int’l. Econ. L., 761 (778). 144 See for instance: Energy Charter Treaty (1994), Article 26(6); Canada-Venezuela BIT (1996), Article XX(7); Romania-Greece BIT (1997), Article 9(4); China-Malta BIT (2009), Article 9(5); JapanColombia BIT (2011), Article 31; Canada-Benin BIT (2013), Article 35; Canada-Ivory Coast BIT (2014), Article 32(1); Austria-Kyrgyzstan BIT (2016), Article 18(1); Japan-Israel BIT (2017), Article 24(11); Myanmar-Singapore BIT (2019), Article 15(1). 145 Forwarding the similar argument: Schreuer et al., ICSID Convention: A Commentary (2009), Article 53 mn. 29. 146 Schreuer et al., ICSID Convention: A Commentary (2009), Article 53 mn. 29. 147 Reinisch, ‘Will the EU’s Proposal Concerning an Investment Court System for CETA and TTIP Lead to Enforceable Awards?’ (2016) 19 J. Int’l. Econ. L., 761 (773). 148 Calamita, ‘The (In)Compatibility of Appellate Mechanisms with Existing Instruments of the Investment Treaty Regime’ (2017) 18 JWIT, 585 (609 f.).
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The implementation of an appeals mechanism has the effect that the rules of revision and annulment provided for in Article 51 and 52 of the ICSID Convention will at least not apply to first instance decisions under CETA as foreseen in Article 8.28(9)(b) CETA. Furthermore: Article 8.41(3) CETA ceases to apply once the Appellate Tribunal is in place in accordance with Article 8.28(9)(e) CETA. The corresponding function would be performed by the Appellate Tribunal instead. The ICSID Convention contains in Article 52(1) a closed catalogue of narrowly defined grounds on which an award may be annulled. Article 8.28(2) CETA also contains a list of grounds for appeal and even refers to Article 52(1) ICSID Convention. However, Article 8.28(2)(c) not only incorporates the annulment grounds of the ICSID Convention into CETA but also includes the following two additional grounds: (a) errors in the application or interpretation of applicable law; and (b) manifest errors in the appreciation of the facts, including the appreciation of relevant domestic law. The grounds of appeal under CETA therefore go beyond what is possible under the ICSID Convention. Thus, the question arises whether an appeals mechanism in general and the extension of the grounds of appeal in particular are contrary to the object and purpose of the ICSID Convention. 120 At this point, the materials on the history of the ICSID Convention can provide some guidance. A statement by the Chairman of the Drafting Committee, for example, reads as follows: ‘The present draft [of the Convention] was designed to establish a self-contained system […] under which there would be no recourse to an outside authority against decisions of tribunals’.149 Overall, the materials contain some indications that the highly limited review regime for arbitral awards should have become a special feature of the ICSID Convention, which includes in particular the omission of a review on the merits and on the basis of public policy concerns. 150 Especially in comparison with the New York Convention, the possibilities for review should be limited.151 In the context of shaping the review regime, the term ‘innovation’ was used several times during the negotiations.152 The drafters of the Convention were thus particularly keen to allow for a review of ICSID awards in a very limited form only, in order to ensure the highest possible degree of enforceability. Only fundamental breaches of competence, procedural violations and excesses of powers should give rise to the possibility of annulment. A review of the substance of the case should be excluded. However, it is precisely such a review on the merits of the case which is made possible by the additional grounds of appeal inserted under Article 8.28(2)(a) and (b) CETA. Therefore, if it can be regarded as a principal aspect of the object and purpose of the ICSID Convention that there is a strict limitation on the possibilities of appeal in order to achieve the greatest possible enforceability, then this could well be seen as incompatible with Article 41(1)(b)(ii) VCLT.153 121 Reinisch, however, takes a different position. He refers to earlier efforts of ICSID 154 itself to establish an appeals mechanism.155 The ICSID discussion paper briefly states that an inter se modification of Article 53(1) ICSID Convention must meet the re119
History of the ICSID Convention, Volume II-1 (1968), 427. History of the ICSID Convention, Volume II-1 (1968), 161, 426, 427, 430, 519, 888 f., 901. 151 History of the ICSID Convention, Volume II-1 (1968), 426. 152 History of the ICSID Convention, Volume II-1 (1968), 427, 430. 153 Calamita, ‘The (In)Compatibility of Appellate Mechanisms with Existing Instruments of the Investment Treaty Regime’ (2017) 18 JWIT, 585 (606 ff.). 154 ICSID Secretariat Discussion Paper, Possible Improvements of the Framework for ICSID Arbitration, 22 October 2004. 155 Reinisch, ‘Will the EU’s Proposal Concerning an Investment Court System for CETA and TTIP Lead to Enforceable Awards?’ (2016) 19 J. Int’l. Econ. L., 761 (780). 149 150
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quirements of Article 41 VCLT. Reinisch concludes from the fact that this proposal existed that it is in principle compatible with the object and purpose of the ICSID Convention to establish an appeals mechanism.156 In conclusion, it remains doubtful whether the inter se modification consisting 122 of the establishment of an appeals mechanism is compatible with Article 41 VCLT. Different views may well be tenable. Thus, it remains to be seen how the provision is handled and assessed in practice. cc) Binding Character of Paragraph 6 of Article 8.41 vis-à-vis the CETA Contracting Parties A final question is whether the courts of CETA Members are strictly bound by 123 the CETA Article 8.41 Paragraph 6, or whether they are free to make their own analysis on the modification/application of the ICSID Convention. In this regard, it is the question of national courts within the EU being bound by EU law. Hoffmeister seems to be of the view that judges within at least the EU are bound by this joint EU-Canadian approach.157 On the Canadian side, the CETA would not have any effect as EU law within the EU, but only as international law conflicting with the ICSID Convention as other international law. CETA is – under EU law – to be categorised as a mixed agreement. 158 Thus, 124 Canada, on the one side, and the EU and its Member States, on the other side, act as Contracting Parties. This includes Article 8.41(6) thereof which refers to the ICSID Convention. However, the EU is not a member of the ICSID Convention. It is highly questionable whether the EU can be a party of a treaty modifying another international treaty the EU is not a member of.159 In the present context, however, it can be argued that the EU’s participation in the 125 inter se modification is not harmful. Article 8.41(6) itself makes it clear that it applies only when the claim has been submitted pursuant to Article 8.23.2(a) CETA. In turn, Article 8.23(2)(b) ensures that in proceedings in which the EU is the respondent, the claim cannot be submitted under the ICSID Convention and Arbitration Rules. According to its wording, Article 8.23(2)(b) comes into play when the ICSID Convention cannot be applied. Since, according to Article 25(1) ICSID Convention, only Member States can be sued under the ICSID Convention. Thus, one may interpret that Article 8.41(6) comes to play only for proceedings carried out under the ICSID Convention and Rules of Procedure pursuant to Article 8.23(2)(a) CETA. This, by the wording of the ICSID Convention itself, would exclude proceedings where the EU is the respondent.
156 Reinisch, ‘Will the EU’s Proposal Concerning an Investment Court System for CETA and TTIP Lead to Enforceable Awards?’ (2016) 19 J. Int’l. Econ. L., 761 (780). Criticising Reinisch’s inferences: Calamita, ‘The (In)Compatibility of Appellate Mechanisms with Existing Instruments of the Investment Treaty Regime’ (2017) 18 JWIT, 585 (606, esp. fn. 91). 157 Hoffmeister, ‘The EU Contribution to the Progressive Development of Institutional Aspects of International Investment Law’ (2017) 2 R.B.D.I., 566 (583). 158 See the explanatory footnotes 74 and 75 in Reinisch, ‘Will the EU’s Proposal Concerning an Investment Court System for CETA and TTIP Lead to Enforceable Awards?’ (2016) 19 J. Int’l. Econ. L., 761 (780). 159 Using this argument in a similar context: Titi, ‘The European Union's Proposal for an International Investment Court: Significance, Innovations and Challenges Ahead’ (2017) 14(1) TDM, 31.
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c) Conclusion on Article 8.41(6) as an inter se Modification of the ICSID Convention 126
Article 8.41(6) constitutes an inter se modification of Articles 53 to 55 ICSID Convention. Following from the analysis above, it is partly doubtful whether the inter se modification is compatible with Article 41 VCLT, especially with Article 41(1)(b)(ii) VCLT. It remains to be seen how the states deal with the enforcement of CETA awards under ICSID in practice. It has to be remembered that this section did only address enforcing awards within the jurisdiction of the CETA Parties. The EU Member States are bound by the CETA modifications as an integral part of EU law.
2. (Non-)Enforcement of ‘CETA-ICS-ICSID-Awards’ in Third States under the ICSID Convention Any inter se modification can only have binding effect on those States that actively participated in the modification.160 As Happ points out, in all other ICSID Member States, the courts charged with enforcement will have to review whether an award constitutes an ICSID award.161 Due to the specific features the CETA ICS brings in regard to the ICSID arbitration procedure, such modifications lack legal force for third States.162 Even if an inter se modification of the ICSID Convention would be considered admissible, it is questionable whether the resulting decisions could be qualified as ICSID awards. To the contrary, they are at best as ICSID awards binding for the modifying parties; only they would be obliged to enforce these awards without any possibilities of review by national courts. Article 8.41(6) binds only the CETA members and applies only to enforcement within the members. 128 Non-members and their national courts responsible for enforcement are not bound by it.163 Hoffmeister argues that courts in non-CETA States could nevertheless interpret Section 6 of the ICSID Convention dynamically by their own motion, thus, Article 8.41(6) CETA could be regarded as another ‘relevant rule’ of international law in the sense of Article 31(3) VCLT.164 Calamita to the contrary points out that ‘given the significant reworking of the ISDS process under the new EU model, it is doubtful that awards rendered pursuant to the EU’s treaties are sufficiently attached to the ICSID Convention as to be treated as ICSID awards’.165 129 Courts in third states are free to accept treating an ICS award as a final judgement or to insist that its national requirements for enforcing foreign awards have to be 127
160 Happ, ‘The CETA-Tribunal: is it a court? Is it an arbitration tribunal? Is it something else? An analysis of a legal chimera’, in Gebauer et al. (eds), Festschrift für Roderich C. Thümmel zum 65. Geburtstag am 23.11.2020 (2020), 297 (312); Potestà, ‘Investment Arbitration, Challenges And Prospects For The Establishment Of A Multilateral Investment Court: Quo Vadis Enforcement?’ (2018) Austrian YB Int’l Arb, 157 (167 ff.). 161 Happ, ‘The CETA-Tribunal: is it a court? Is it an arbitration tribunal? Is it something else? An analysis of a legal chimera’, in Gebauer et al. (eds), Festschrift für Roderich C. Thümmel zum 65. Geburtstag am 23.11.2020 (2020), 297 (312). 162 Happ and Wuschka, ‘From the Jay Treaty Commissions Towards A Multilateral Investment Court: Addressing The Enforcement Dilemma’ (2017) 6(1) Indian J. Arb. L., 113 (123); Hoffmeister, ‘The EU Contribution to the Progressive Development of Institutional Aspects of International Investment Law’ (2017) 2 R.B.D.I., 566 (583-584). 163 (See inter alia → Art. 8.28 mn. 59); Calamita, ‘The (In)Compatibility of Appellate Mechanisms with Existing Instruments of the Investment Treaty Regime’ (2017) 18 JWIT, 585 (615). 164 Hoffmeister, ‘The EU Contribution to the Progressive Development of Institutional Aspects of International Investment Law’ (2017) 2 R.B.D.I., 566 (584). 165 Calamita, ‘The (In)Compatibility of Appellate Mechanisms with Existing Instruments of the Investment Treaty Regime’ (2017) 18 JWIT, 585 (615).
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met;166 it could be treated as an award under the NYC.167 In this case, when enforcement is taking place in the territory of non-members to CETA, or when enforcement is taking place via the New York Convention, the uncertainty discussed above would come along (→ mn. 74 ff.). Certainly, there would be control by national courts over the award within the framework of the grounds for refusal of enforcement set forth in Article V NYC.168
E. Conclusion Whether Article 8.41 CETA gives sufficient enforcement options of ICS awards 130 in the hopefully exceptional case that the losing party to a dispute is not willing to comply with its obligation is the crux of the matter. In this respect, it has to be stressed that complying with ICS awards is a direct obligation of public international law for the CETA Parties. The ICS approach taken by the CETA Contracting Parties nevertheless is ambigu- 131 ous; it seeks to abandon investment arbitration, while striving to use its enforcement instruments. At the outset, in case of enforcement under the ICSID Convention as well as the New York Convention, the enforcing courts are responsible for the interpretation and application of those conventions. Most of the terms of the conventions are defined by national law. Hence, there is no consistent interpretation and enforcement practice worldwide. The national conflict-of-law rules and the lex arbitri may also have an impact on the outcome of the application of either convention through the national courts. For this reason, an attempted enforcement of an ICS award could be very different, depending on the state in which it is handed down and in which State it is to be enforced. In Canada, Section 90 of the CETA Implementation Act amends the Commercial Arbitration Act to ensure that investment dispute settlement under CETA are considered commercial arbitration for the purposes of that Act. 169 Thus, as long as enforcement outside the EU or Canada is not necessary, investment dispute settlement under CETA might work. It follows from the preceding analysis that the enforcement of ICS awards in third 132 countries will not be possible through the ICSID Convention, since its decisions do not constitute ICSID arbitration awards, due to the fact that the ICS and its procedures are designed in a manner differing from the ICSID Convention. By contrast, enforcement under the New York Convention would be legally conceivable. Nevertheless, successful enforcement depends on the perspective of the specific national court having jurisdiction over enforcement. This can lead to divergent results, depending on the legal system. The main difficulties in recognition and enforcement of ICS decisions as arbitral awards could be the issue of ‘voluntary submission’ to the dispute resolution mechanisms under CETA by both disputing parties and the controversial enforceability of ‘a-national decisions’.
166 Hoffmeister, ‘The EU Contribution to the Progressive Development of Institutional Aspects of International Investment Law’ (2017) 2 R.B.D.I., 566 (584). 167 Hoffmeister, ‘The EU Contribution to the Progressive Development of Institutional Aspects of International Investment Law’ (2017) 2 R.B.D.I., 566, at fn. 54; van den Berg, The New York Arbitration Convention of 1958, Towards a Uniform Judicial Interpretation (1994), 183; Schreuer et al., The ICSID Convention: A Commentary, 1118 at para. 5. 168 van den Berg, The New York Arbitration Convention of 1958, Towards a Uniform Judicial Interpretation (1994), 182. 169 Canadian Statement on Implementation – Chapter Eight – Investment.
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Moreover, options outside Article 8.41 CETA in regard to enforcing awards exist. On the European side, if an EU Member State is not willing to comply with an award, this could even lead to infringement proceedings under Article 258 and 259 TFEU, launched either by the Commission or other EU Member States. Moreover, if a CETA Party does not comply with its obligation under the Agreement, the possibility of State-to-State Arbitration under Chapter 29 CETA could also be triggered. 134 Awards under CETA – that resembles a community of entities with rule of law oriented common values – should not be compared with a ‘kind of ’ arbitration. However and as a final consideration, given that the awards will come from an ICS Tribunal – with Tribunal Members appointed only by the CETA Parties – it is thus very much likely that at least the CETA Members will comply with all awards. 133
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Article 8.42 Role of the Parties 1. A Party shall not bring an international claim, in respect of a claim submitted pursuant to Article 8.23, unless the other Party has failed to abide by and comply with the award rendered in that dispute. 2. Paragraph 1 shall not exclude the possibility of dispute settlement under Chapter Twenty-Nine (Dispute Settlement) in respect of a measure of general application even if that measure is alleged to have breached this Agreement as regards a specific investment in respect of which a claim has been submitted pursuant to Article 8.23 and is without prejudice to Article 8.38. 3. Paragraph 1 does not preclude informal exchanges for the sole purpose of facilitating a settlement of the dispute. Reference to the Respective Provisions in Other EU Treaties: Article 3.23 EU-Singapore IPA (Role of the Parties to the Agreement); Article 3.58 EU-Vietnam IPA (Role of the Parties to the Agreement); Article 27 EU-Mexico Trade Agreement-in-principle, in Section [X]: Resolution of Investment Disputes (Role of the Parties). Bibliography: Charles-Emmanuel Côté, ‘An Experienced, Developed Democracy: Canada and Investor-State Arbitration’ (2016) Centre for International Governance Innovation, International Arbitration Series, Paper No. 7; Donald McRae, ‘State-to-State Dispute Settlement in Megaregionals’ in Benedict Kingsbury, David M. Malone, Paul Mertenskötter, Richard B. Stewart, Thomas Streinz and Atsushi Sunami (eds), Megaregulation Contested: The Global Economic Order After TPP (Oxford University Press, Oxford 2019), 537; Stephan W. Schill, ‘Authority, Legitimacy, and Fragmentation in the (Envisaged) Dispute Settlement Disciplines in Mega-Regionals’, in Stefan Griller, Walter Obwexer and Erich Vranes (eds), Mega-Regional Trade Agreements: CETA, TTIP, and TiSA (2nd edn, Oxford University Press, Oxford 2017), 111; Christoph H. Schreuer, Loretta Malintoppi, August Reinisch, and Anthony Sinclair, The ICSID Convention: A Commentary (2nd edn, Cambridge University Press, Cambridge 2009); Christoph H. Schreuer, ‘Commentary on Article 27 of the ICSID Convention’ (1997) 12 ICSID Rev.-FILJ, 211. A. Introduction and Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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B. Spirit and Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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C. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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D. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. Paragraph 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. ‘A Party …’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. ‘… Shall not Bring an International Claim …’ . . . . . . . . . . . . . . . . . . . . . . . . . . 3. ‘… Unless the Other Party has Failed to Abide by and Comply with the Award Rendered in that Dispute …’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Paragraph 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. Paragraph 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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E. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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A. Introduction and Overview Both CETA Articles 8.42 (Role of the Parties) and 8.43 (Consolidation) are intend- 1 ed to prevent multiple dispute settlement claims based on the same measure alleged to be in breach of a Party’s obligations under Chapter Eight of the Agreement. Article 8.42, in particular, establishes the responsibility of the Parties to the Agreement to avoid bringing an international claim in respect of an ongoing claim submitted by an investor under CETA’s investment dispute settlement mechanism.
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This Chapter reviews the origins of Article 8.42 in the ICSID Convention and its intended purpose for depoliticising and limiting overlapping claims. This Chapter further provides an assessment of the ambiguities raised on the scope of an ‘international claim’ which may not be brought by a Party. Finally, this Chapter reviews the provision’s safeguards against an overly strict application that could hinder a negotiated settlement of a dispute or that undermine potential efficiencies that may be gained through State-to-State dispute settlement.
B. Spirit and Purpose As is common under many IIAs, CETA offers both investor-State dispute settlement, as well as State-to-State dispute settlement, which opens the possibility for multiple venues for settling a single claim under Chapter Eight of the Agreement. Article 8.42 therefore requires a Party to refrain from bringing an identical claim under the State-to-State dispute settlement mechanism, where it has already been brought under the investor-State mechanism. 4 As Article 8.42 limits the possibility of pursuing an identical claim in multiple dispute settlement fora, it further provides the benefit of avoiding competing tribunal interpretations of the same claim under the Agreement. 1 While it is pointed out that parallel proceedings brought under State-to-State dispute settlement mechanisms do not strictly compete with each other since they involve different parties, conflicting decisions on the same question, conceivably involving the same set of facts, are possible and are ‘clearly undesirable.’2 5 Article 8.42 is modelled after Article 27 of the ICSID Convention, 3 which is mainly concerned with depoliticizing the investment dispute resolution, by ensuring that host States are not subject to additional claims based on the same issues brought under an investor-State arbitration, including claims of diplomatic protection, by the investor’s home State.4 CETA Article 8.42 offers the same benefit of ensuring that an investor’s home State does not interfere in an investor’s claim against a host Party. 3
1 Schill. ‘Authority, Legitimacy, and Fragmentation in the (Envisaged) Dispute Settlement Disciplines in Mega-Regionals’, in Griller et al. (eds), Mega-Regional Trade Agreements: CETA, TTIP, and TiSA (2017), 28. 2 Schreuer et al., The ICSID Convention: A Commentary (2009), p. 421 at para. 21. 3 Article 27 of the ICSID Convention falls under Chapter II – Jurisdiction of the Centre and provides: ‘(1) No Contracting State shall give diplomatic protection, or bring an international claim, in respect of a dispute which one of its nationals and another Contracting State shall have consented to submit or shall have submitted to arbitration under this Convention, unless such other Contracting State shall have failed to abide by and comply with the award rendered in such dispute. (2) Diplomatic protection, for the purposes of paragraph 1, shall not include informal diplomatic exchanges for the sole purpose of facilitating a settlement of the dispute.’ 4 See e.g. Banro American Resources, Inc. and Société Aurifère du Kivu et du Maniema S.A.R.L. v. Democratic Republic of the Congo, ICSID Case No. ARB/98/7, Award of the Tribunal (1 September 2000), paras. 16 ff.: ‘This objective of taking disputes between host States and foreign private investors out of the political and diplomatic realm in order to submit them to legal settlement mechanisms was emphasized several times during the course of the travaux préparatoires of the Washington Convention: Once an investor had been given the right to direct access to a foreign State, he should not have the right to seek the protection of his own State, and his State should not have the right to intervene on his behalf. The purpose…was to remove disputes from the realm of diplomacy and bring them back to the realm of law. (History of the ICSID Convention, vol. II, p. 464). The Convention would…offer a means of settling directly, on the legal plane, investment disputes between the State and the foreign investor and insulate such disputes from the realm of politics and diplomacy. (History of the ICSID Convention, vol. II, p. 273). The Chairman…explained that one of the purposes of the Convention was to remove disputes from the atmosphere of inter-State relations… (History of the ICSID Convention, vol. II, p. 527). This
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Role of the Parties
C. Drafting History The ‘Role of the Parties’ Article was added by the November 15, 2013 version of the 6 Investor-to-State Dispute Settlement negotiation text, which has been highlighted as ‘text provisionally agreed but subject to further examination.’5 It provides: Article x-24 Role of the Parties to the Agreement 1.
2.
No Party shall bring an international claim, in respect of a dispute submitted pursuant to Article x- (Submission of a Claim to Arbitration), unless the other Party has failed to abide by and comply with the award rendered in such dispute. This shall not exclude the possibility of dispute settlement under the Dispute Settlement Chapter in respect of a measure of general application even if that measure is alleged to have violated the agreement as regards a specific investment in respect of which a dispute has been initiated pursuant to Article x- (Submission of a Claim to Arbitration) and is without prejudice to Article x- (The non-disputing Party to the Agreement). Paragraph 1 does not preclude informal exchanges for the sole purpose of facilitating a settlement of the dispute.
Subject to a few changes made during the legal review, such as separating para- 7 graph 1 into 2 separate paragraphs and minor language adjustments, the 2013 draft text is substantively reflected in CETA’s Article 8.42.
D. Commentary I. Paragraph 1 1. ‘A Party …’ Paragraph 1 usefully introduces a uniform rule for all Parties in CETA investment 8 arbitration that prohibits an identical claim from proceeding between the Parties, where it has already been initiated by an investor, since most of the applicable bodies of arbitral rules to CETA investment arbitration do not contain a rule similar Article 27 of the ICSID Convention.6 Moreover, as a supra-national organisation, the European Union is not a Contracting State to the ICSID Convention, and therefore the rules set out in the ICSID Convention may be of limited relevance for investor-State claims involving as respondent the European Union, or any of its Member States that are not State Parties to the ICSID Convention.7 ‘depoliticization’ of relations arising from overseas private investment is expressed in Article 27 of the ICSID Convention… Only in instances where the host State does not comply with the award can the State of which the investor is a national take diplomatic action with respect to the host State and bring back the dispute to an inter-State level [ …].’ See also, Gas Natural SDG, S.A. v. Argentine Republic, ICSID Case No. ARB/03/10, Decision of the Tribunal on Preliminary Questions on Jurisdiction (17 June 2005), para. 29 [commentary related to Article 27 ICSID Convention]. 5 CETA Negotiating Text, version of 15 November 2013, p. 1. 6 Article 8.23.2 (Submission of a claim to the Tribunal) CETA: ‘A claim may be submitted under the following rules: a. the ICSID Convention and Rules of Procedure for Arbitration Proceedings; b. the ICSID Additional Facility Rules if the conditions for proceedings pursuant to paragraph (a) do not apply; c. the UNCITRAL Arbitration Rules; or d. any other rules on agreement of the disputing parties.’ 7 ICSID Convention, Article 25(1): ‘The jurisdiction of the Centre shall extend to any legal dispute arising directly out of an investment, between a Contracting State (or any constituent subdivision
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2. ‘… Shall not Bring an International Claim …’ CETA Article 8.42 prohibits a Party from bringing an ‘international claim’, which is not a defined term under the Agreement, and leaves some room for interpretation as to the precise scope of paragraph 1. It is argued that the term ‘claim’ may be a ‘limiting factor’ to the types of claims within paragraph 1’s scope (i.e. limited to a claim for damages).8 Therefore a State-to-State dispute brought under CETA Chapter 29, which involves the ‘interpretation or application’9 of a provision of CETA, may not be viewed as the same as an investor’s claim for damages.10 That said, a contextual read of the provision suggests an ‘international claim’ under paragraph 1 is more than a claim for damages similar to what an investor brings, as the Parties also refer to making ‘claims’ in the context of State-to-State dispute settlement under CETA Chapter 29 (Dispute Settlement).11 10 It is also evident from a contextual reading of paragraph 1 that the Parties intended more than State-to-State dispute settlement under the Agreement, given that paragraph 2 of the same Article, expressly refers to ‘dispute settlement under Chapter Twenty-Nine Dispute Settlement’. Therefore, it may be argued that ’international claims’ includes other types of claims than those brought under Chapter 29. 11 To bring clarity to the scope of claims subject to CETA Article 8.42, the approach under Article 27 of the ICSID Convention concerning State-to-State dispute settlement is instructive, whereby it is understood that abstract questions of interpretation of an investment treaty might be arbitrated between the State Parties to the agreement but that the outcome of any such arbitration would not affect the decision in the investor’s case before ICSID. Thus, pursuant to Article 27 of the ICSID Convention: 9
a tribunal in an inter-State arbitration may be expected to decline jurisdiction if the claim brought before it is… designed to avoid, obstruct or influence ICSID arbitration or if they are designed to affect the implementation of an ICSID award or revise its outcome. 12
Likewise, an international claim submitted by a CETA Party that is designed to avoid, obstruct or influence a claim submitted by an investor pursuant to the CETA’s investment dispute settlement mechanism is not permitted under Article 8.42.1. An international claim designed to affect the implementation of a CETA investment tribunal’s award, or revise its outcome, are also not permitted under Article 8.42.1. 13 It is notable that unlike Article 27 of the ICSID Convention and the EU’s IPAs with Singapore13 and Vietnam,14 Article 8.42 CETA does not expressly refer to claims of diplomatic protection as prohibited under the Article. That said, the term ‘international claim’ is not viewed as a concept that is separate and distinct from diplomatic protection under Article 27 of the ICSID Convention, but rather may be understood 12
or agency of a Contracting State designated to the Centre by that State) and a national of another Contracting State, which the parties to the dispute consent in writing to submit to the Centre (…).’ 8 For example, when contrasted with Article 27 of the ICSID Convention’s reference to ‘disputes’ that the author argues is a broader term: McRae, ‘State-to-State Dispute Settlement in Megaregionals’ in Kingsbury et al., Megaregulation Contested: The Global Economic Order After TPP (2019), 545. 9 Article 29.2 (Scope) CETA – ‘Except as otherwise provided, this Chapter applies to any dispute concerning the interpretation or application of the provisions of this Agreement.’ 10 McRae, ‘State-to-State Dispute Settlement in Megaregionals’ in Kingsbury et al., Megaregulation Contested: The Global Economic Order After TPP (2019), 545. 11 Article 29.3(2) (Choice of forum) CETA ‘…once a dispute settlement proceeding has been initiated under one agreement, the Party shall not bring a claim seeking redress for the breach of the substantially equivalent obligation under the other agreement…’. 12 Schreuer, et al., The ICSID Convention: A Commentary (2009), p. 421 at paras. 20-22. 13 Article 3.23 EU-Singapore IPA (Role of the Parties to the Agreement). 14 Article 3.58 (EU-Vietnam IPA Role of the Parties to the Agreement).
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as a ‘typical element of diplomatic protection.’15 One may reach a similar conclusion regarding Article 8.42 CETA.
3. ‘… Unless the Other Party has Failed to Abide by and Comply with the Award Rendered in that Dispute …’ Paragraph 1 further clarifies that the prohibition on a Party from bringing an inter- 14 national claim in respect of an investor’s claim does not apply when the respondent Party has failed to execute the tribunal’s award in the investor-State claim. Allowing the international claim to proceed is on the basis of the other State’s non-compliance with the initial investor-State award and would presumably not undermine the underlying goal of depoliticising the initial trade dispute.16 Ultimately, it acknowledges that execution of an award may be difficult and thus there are limits to complete de-politicisation in investor-State arbitration.17
II. Paragraph 2 Paragraph 2 of Article 8.42 creates an exception to the prohibition on international 15 claims by a Party set out in paragraph 1. It clarifies that a dispute initiated under Chapter 29 of the Agreement concerning a measure of general application may proceed even if it concerns the same measure that is alleged in an investor-State claim. This exception supports the provision’s underlying rationale of limiting overlapping claims given that it creates an incentive for investors to refrain from initiating multiple investor-state claims as their home state pursues a general claim on the measures alleged to be in breach of the Agreement, thereby shifting the costs risks to their home state.18 In general, dispute settlement under Chapter 29 applies ‘to any dispute concern- 16 ing the interpretation or application of the provisions of this Agreement.’ 19 This is separate and distinct from the investor-State claims that concern the interpretation of substantive rights and guarantees in the treaty for individual investors. Therefore, such State-to-State claims are designed not to infringe on investor-State jurisdiction. 20 However, as noted above (→ mn. 12) an international claim submitted by a CETA 15 Schreuer, ‘Commentary on Article 27 of the ICSID Convention’ (1997) 12 ICSID Rev.-FILJ, 211 at para. 15: ‘The reference to an international claim separated by “or” from the phrase dealing with diplomatic protection, would indicate that an international claim in this context is something distinct from or additional to diplomatic protection. In actual fact, bringing an international claim is a typical element of diplomatic protection’. 16 Banro American Resources, Inc. and Société Aurifère du Kivu et du Maniema S.A.R.L. v. Democratic Republic of the Congo, ICSID Case No. ARB/98/7 (1 September 2000), paras. 16 f.: ‘… one of the purposes of the Convention was to remove disputes from the atmosphere of inter-State relations. "This 'depoliticization' of relations arising from overseas private investment is expressed in Article 27 of the ICSID Convention...Only in instances where the host State does not comply with the award can the State of which the investor is a national take diplomatic action with respect to the host State and bring back the dispute to an inter-State level…’ (History of the ICSID Convention, vol. II, p. 527). 17 Côté, ‘An Experienced, Developed Democracy: Canada and Investor-State Arbitration’ (2016) Centre for International Governance Innovation, International Arbitration Series, Paper No. 7, 25. 18 Schill, ‘Authority, Legitimacy, and Fragmentation in the (Envisaged) Dispute Settlement Disciplines in Mega-Regionals’, in Griller et al. (eds), Mega-Regional Trade Agreements: CETA, TTIP, and TiSA (2017), p. 111. 19 Article 29.2 (Scope) CETA. 20 Ecuador v. United States of America, UNCITRAL, Opinion with Respect to Jurisdiction in the Interstate Arbitration Initiated by Ecuador against the United States, W. Michael Reisman (24 April 2012).
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Party that is designed to avoid, obstruct or influence a claim submitted by an investor pursuant to the CETA’s investment dispute settlement mechanism, or the eventual award by the tribunal, is not permitted under Article 8.42. 17 Finally, the prohibition on international claims under paragraph 1 and any State-toState claim that is permitted to proceed under paragraph 2 does not preclude a Party from making a non-disputing Party submission regarding the interpretation of CETA in an investor-State claim (under Article 8.38 CETA).
III. Paragraph 3 18
Paragraph 3 expressly provides that State action or intervention that might lead to settlement of the dispute is permitted. It recognises that informal State action that facilitates negotiated settlements are useful and should not be discouraged as a result of an overly strict interpretation of the prohibition set out under paragraph 1. 21 It is also recognised that diplomatic negotiation may allow more effective settlement of massive, complex or highly political claims.22 Further, allowing informal exchanges under paragraph 3 is consistent with other provisions of CETA’s investor-State dispute resolution mechanism encouraging resolving disputes through negotiated settlement or through alternative means.23
E. Conclusion 19
Article 8.42 (Role of the Parties) is not commonly found in IIAs outside EU practise. It provides a useful addition to limiting overlapping claims. As a result of Article 8.42 and other provisions, CETA has been characterised as ‘stricter and more systematic when it comes to limitations on parallel, overlapping and subsequent proceedings’ than other ISDS mechanisms in modern FTAs.24
21 This was recognized in the context of Article 27 of the ICSID Convention, Commentary at para. 39: ‘Some delegates from developed countries expressed the view that informal diplomatic contacts might actually be useful and might facilitate negotiated settlements (History, Vol. II, pp. 433, 434, 576, 763, 764). A British proposal to retain the possibility of diplomatic assistance in the friendly settlement of a dispute (at pp. 667, 763 f.) was endorsed by the Chairman (at p. 764) and accepted by a majority in a show of hands (at pp. 764, 767, 880, 937). Therefore, para. 2 does not establish an exception to para. 1 of Art. 27 but is merely designed to avoid an overly strict interpretation of the basic rule. The espousal of a national's claim and the presentation of a formal international claim are not permitted under the conditions of Art. 27. Less formal international contacts are allowed.’ 22 Côté, ‘An Experienced, Developed Democracy: Canada and Investor-State Arbitration’ (2016) Centre for International Governance Innovation, International Arbitration Series, Paper No. 7, 26. 23 See e.g., Articles 8.19 (Consultations) and 8.20 (Mediation) CETA. 24 Schill, ‘Authority, Legitimacy, and Fragmentation in the (Envisaged) Dispute Settlement Disciplines in Mega-Regionals’, in Griller et al. (eds), Mega-Regional Trade Agreements: CETA, TTIP, and TiSA (2017), p. 111.
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Article 8.43 Consolidation 1.
2. 3.
4.
5. 6.
7.
8.
When two or more claims that have been submitted separately pursuant to Article 8.23 have a question of law or fact in common and arise out of the same events or circumstances, a disputing party or the disputing parties, jointly, may seek the establishment of a separate division of the Tribunal pursuant to this Article and request that such division issue a consolidation order (‘request for consolidation’). The disputing party seeking a consolidation order shall first deliver a notice to the disputing parties it seeks to be covered by this order. If the disputing parties notified pursuant to paragraph 2 have reached an agreement on the consolidation order to be sought, they may make a joint request for the establishment of a separate division of the Tribunal and a consolidation order pursuant to this Article. If the disputing parties notified pursuant to paragraph 2 have not reached agreement on the consolidation order to be sought within 30 days of the notice, a disputing party may make a request for the establishment of a separate division of the Tribunal and a consolidation order pursuant to this Article. The request shall be delivered, in writing, to the President of the Tribunal and to all the disputing parties sought to be covered by the order, and shall specify: (a) the names and addresses of the disputing parties sought to be covered by the order; (b) the claims, or parts thereof, sought to be covered by the order; and (c) the grounds for the order sought. A request for consolidation involving more than one respondent shall require the agreement of all such respondents. The rules applicable to the proceedings under this Article are determined as follows: (a) if all of the claims for which a consolidation order is sought have been submitted to dispute settlement under the same rules pursuant to Article 8.23, these rules shall apply; (b) if the claims for which a consolidation order is sought have not been submitted to dispute settlement under the same rules: (i) the investors may collectively agree on the rules pursuant to Article 8.23.2; or (ii) if the investors cannot agree on the applicable rules within 30 days of the President of the Tribunal receiving the request for consolidation, the UNCITRAL Arbitration Rules shall apply. The President of the Tribunal shall, after receipt of a consolidation request and in accordance with the requirements of Article 8.27.7 constitute a new division (‘consolidating division’) of the Tribunal which shall have jurisdiction over some or all of the claims, in whole or in part, which are the subject of the joint consolidation request. If, after hearing the disputing parties, a consolidating division is satisfied that claims submitted pursuant to Article 8.23 have a question of law or fact in common and arise out of the same events or circumstances, and consolidation would best serve the interests of fair and efficient resolution of the claims including the interest of consistency of awards, the consolidating division of the Tribunal may, by order, assume jurisdiction over some or all of the claims, in whole or in part.
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10.
11. 12.
13.
14.
Consolidation
If a consolidating division of the Tribunal has assumed jurisdiction pursuant to paragraph 8, an investor that has submitted a claim pursuant to Article 8.23 and whose claim has not been consolidated may make a written request to the Tribunal that it be included in such order provided that the request complies with the requirements set out in paragraph 4. The consolidating division of the Tribunal shall grant such order where it is satisfied that the conditions of paragraph 8 are met and that granting such a request would not unduly burden or unfairly prejudice the disputing parties or unduly disrupt the proceedings. Before consolidating division of the Tribunal issues that order, it shall consult with the disputing parties. On application of a disputing party, a consolidating division of the Tribunal established under this Article, pending its decision under paragraph 8, may order that the proceedings of the division of the Tribunal appointed under Article 8.27.7 be stayed unless the latter Tribunal has already adjourned its proceedings. The division of the Tribunal appointed under Article 8.27.7 shall cede jurisdiction in relation to the claims, or parts thereof, over which a consolidating division of the Tribunal established under this Article has assumed jurisdiction. The award of a consolidating division of the Tribunal established under this Article in relation to those claims, or parts thereof, over which it has assumed jurisdiction is binding on the division of the Tribunal appointed under Article 8.27.7 as regards those claims, or parts thereof. An investor may withdraw a claim under this Section that is subject to consolidation and such claim shall not be resubmitted pursuant to Article 8.23. If it does so no later than 15 days after receipt of the notice of consolidation, its earlier submission of the claim shall not prevent the investor's recourse to dispute settlement other than under this Section. At the request of an investor, a consolidating division of the Tribunal may take such measures as it sees fit in order to preserve the confidential or protected information of that investor in relation to other investors. Those measures may include the submission of redacted versions of documents containing confidential or protected information to the other investors or arrangements to hold parts of the hearing in private.
Reference to the Respective Provisions in Other EU Treaties: Article 3.24 EU-Singapore IPA (Consolidation); Article 3.59 EU-Vietnam IPA (Consolidation). Other Agreements: North American Free Trade Agreement (‘NAFTA’), Article 1126 (Consolidation). Bibliography: Lee M. Caplan and Jeremy K Sharpe, ‘U.S. Model BIT’, in Chester Brown (ed), Commentaries on Selected Model Investment Treaties (Oxford University Press, Oxford 2013); Julie Chiu, ‘Consolidation of Arbitral Proceeding and International Arbitration’ (1990), 7:2 J. Int’l Arb., 53; Armand de Mestral, ‘Lessons of Chapter 11: Procedural Integrity and Systematic Integrity’, in Emmanuel Gaillard and Frédéric Bachan (eds), Fifteen Years of NAFTA Chapter 11 Arbitration (Juris Publishing Inc., New York 2011); Rudolf Dolzer and Christoph Schreuer, Principles of International Investment Law, (2nd edn, Oxford University Press, Oxford 2012); Christopher F. Dugan, Don Wallace, Jr., Noah D. Rubins and Borzu Sabahi, Investor-State Arbitration (Oxford University Press, New York 2008); Gabrielle Kaufmann-Kohler, Laurence Boisson de Chazournes, Victor Bonnin and Makane Moïse Mbengue, ‘Consolidation of Proceedings in Investment Arbitration: How Can Multiple Proceedings Arising from the Same or Related Situations be Handled Efficiently?’ (2006) 21 ICSID Rev., 59; Meg Kinnear, Andrea Kay Bjorklund and John F.G. Hannaford, Investment Disputes under NAFTA: An Annotated Guide to NAFTA Chapter 11 (Kluwer Law International, The Netherlands 2006); Carolyn B. Lamm, Hansel T. Pham, Alexandra K. Meise Bay, ‘Consent and Due Process in Multi-Party Investor-State Arbitrations’ in Christina Binder, Ursula Kriebaum, August Reinisch and Stephan Wittich, International Investment
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Law for the 21st Century Essays in Honour of Christoph Schreuer (Oxford University Press, Oxford 2009); Céline Lévesque, ‘Inconsistency in Investor-State Awards and the Role of State interpretations’ in Andrea Bjorkland (ed), YB Int’l Inv. L. & Pol’y 2013-2014, (Oxford University Press, Oxford 2015); Lukas Vanhonnaeker, Shareholders’ Claims for Reflective Loss in International Investment Law (Cambridge University Press, New York 2020); Catherine Yannaca-Small, ‘Consolidation of Claims: a Promising Avenue for Investment Arbitration?’, in OECD, International Investment Perspectives (2006); UNCITRAL Secretariat Note, Concurrent proceedings in international arbitration, 8 April 2016, Doc.A/CN.9/881. A. Introduction and Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
B. Spirit and Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. Gains in Procedural Efficiency and Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Avoiding Inconsistent Decisions and Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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C. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10
D. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. The Request for Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. ‘… Claims, or Parts Thereof, Sought to be Covered by the Order …’ . . 2. ‘… Grounds upon which the Order is Sought …’ . . . . . . . . . . . . . . . . . . . . . . . 3. Time Limit for Submitting a Request for Consolidation . . . . . . . . . . . . . . . . II. Applicable Rules to Consolidation Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. Constitution of the Consolidating Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. ‘… Question of Law or Fact in Common and Arise out of the Same Events or Circumstances …’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a) ‘… a Question of Law or Fact in Common …’ . . . . . . . . . . . . . . . . . . . . . . . . . . b) ‘… and Arise out of the Same Events or Circumstances’ . . . . . . . . . . . . . . . . 2. ‘… and Consolidation would Best Serve the Interests of Fair and Efficient Resolution of the Claims, Including the Interest of Consistency of Awards …’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a) Time and Cost Savings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . b) Avoiding Inconsistent Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . c) Concerns over the Protection of Confidential Information . . . . . . . . . . . . . d) Due Process Concerns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . e) Party Autonomy in the Arbitral Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV. Powers of the Consolidating Division of the Tribunal . . . . . . . . . . . . . . . . . . . . . 1. Power to Stay Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Power to Assume Jurisdiction Over a Claim or Part of a Claim . . . . . . . . 3. Power to Protect Confidential Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V. Withdrawal of Claims Subject to a Request for Consolidation . . . . . . . . . . . .
25 27 30 32 34 37 38
45 48 50 52 57 58 62 62 64 66 67
E. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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40 41 44
A. Introduction and Overview While there are several provisions throughout CETA’s investment dispute settle- 1 ment mechanism that address concurrent claims,1 Article 8.43 CETA establishes the process for consolidating claims. Consolidation may be defined as a ‘procedural device which denotes the process whereby two or more claims are united into one single procedure concerning all parties and all disputes.’2 Accordingly, Article 8.43 anticipates joining two (or more) claims, or parts of claims, that were separately initi-
1 See e.g. Article 8.24 CETA (Proceedings under another international agreement) that addresses a claim brought simultaneously under CETA and another IIA. See also Article 8.22.1, sub-paragraphs (f) and (g) CETA (Procedural and other requirements for the submission of a claim to the Tribunal) where an investor must withdraw/discontinue existing proceedings before domestic or international courts when it submits a claim pursuant to CETA Section F. 2 Yannaca-Small, ‘Consolidation of Claims: A Promising Avenue for Investment Arbitration?’ in OECD, International Investment Perspectives (2006), 226.
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ated under CETA’s investment dispute settlement mechanism.3 As well, consolidated proceedings may be distinguished from aggregate proceedings or multi-party claims, which describe the situation where multiple, individual claimants bring claims in their own name ab initio in one single arbitration.4 2 Under Article 8.43 CETA, a disputing party may make a request to the President of the Investment Tribunal to establish a separate division of the Tribunal to issue an order consolidating two or more separately submitted claims. If the claims share a common question of law or fact and arise out of the same events or circumstances, the consolidating division of the Tribunal may decide that it is more efficient and effective to address the claims under a single tribunal. Upon receipt of the request, the President of the Tribunal must constitute a new division of the Tribunal to determine whether there are sufficient grounds to consolidate the claims entirely, or to consolidate certain aspects of the claims, or not to consolidate the claims at all. The consolidating division of the Tribunal established under Article 8.43 in relation to those claims, over which it has assumed jurisdiction, is binding on any division of the Tribunal that may have been constituted in the original claims. 3 This Chapter reviews the purpose for the inclusion of consolidation provisions in CETA’s investment dispute settlement mechanism as well as the legal basis upon which a consolidation order may be granted under Article 8.43 CETA. The Chapter further considers the factors that have been raised as relevant to the consideration of consolidation and serving the interests of fair and efficient resolution of the claims. Fundamentally, the desirability of consolidation clauses rests with the respondent State, which is more likely to benefit from efficiency gains and coherence through consolidated process.5
B. Spirit and Purpose 4
The need for consolidation clauses in IIAs in particular stems from the nature of an increasingly globalized economic world, as investors are developing more complex structures to carry out their investments abroad, while seeking to maximize their 3 Article 8.43(1) CETA. Separate claims may be distinguished from parallel proceedings according to the ILA Paper’s definition (i.e., those involving the same parties and substantially the same issues), or for the first category of concurrent proceedings identified by the UNCITRAL Secretariat’s Note of 8 April 2016 (i.e., those in which ‘different entities within the same corporate structure have a right of action in more than one forum against a State or state-owned entity in relation to the same investment’). See Cairn Energy PLC and Cairn UK Holdings Limited (CUHL) v. Republic of India, UNCITRAL, PCA Case No. 2016-7, Decision on the Respondent Application for a Stay of the Proceedings (Procedural Order No. 3) (31 March 2017), para. 122: ‘In these cases, the effect is that there are “various parties, claiming in various forums and under different sources of law, yet seeking substantially the same relief for the same measure.” It is particularly important to devise reasonable ways to coordinate this type of concurrent proceedings, as there is a real possibility of double recovery.’ 4 In AES Solar and others v. Spain, UNCITRAL, PCA Case No.2012-14, Preliminary Award on Jurisdiction, (14 October 2014), paras. 93 ff., the Tribunal reasoned at para. 102, ‘No valid analogy can be made between ab initio aggregate proceedings and ex post consolidation. In the former case, the offers is taken up jointly by the claimants, whereas in the latter, there are several separately concluded arbitration agreements leading to separate proceedings which are then sought to be joined. That joinder requires a specific consent.’ See also Guaracachi America, Inc. and Rurelec PLC v. The Plurinational State of Bolivia, UNCITRAL, PCA Case No.2011-17, Corrected Award, (31 January 2013), paras. 338 f. 5 Claimants benefiting from consolidating their claims have sought a consent agreement with the respondent state in consolidating their claims. See e.g. Canadian Cattlemen Claims—De Boer, et.al. v. United States, UNCITRAL, Procedural Order No. 1; Bayview Irrigation District and Others, Claimants v. United Mexican States, ICSID Case No. ARB(AF)/05/1.
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protection within a host State.6 As a result, different persons or entities within the same corporate structure may have a right of action against a State in relation to the same investment.7 Consolidation measures can address multiple proceedings that arise from shareholder claims over a single investment.8 Multiple proceedings can also result for a host State under its IIAs to the extent that its measure has an impact on a number of unrelated investors – for example, when a host State’s single policy change affects an entire industry or service sector.9 As more foreign investors become aware of the rights they may enjoy under the provisions of investment protection treaties and investment laws, certain government measures may inspire large groups of claimant investors to initiate arbitration, including so-called ‘mass claims’,10 making consolidation an effective option.11 In general, the two strongest arguments for consolidation are based upon the 5 promotion of procedural efficiency and the prevention of inconsistent interpretations and awards.12
I. Gains in Procedural Efficiency and Economy Claims arising from the same events or measures are likely to present common 6 issues of treaty breach and treaty interpretation. Where the claims are closely linked, time and financial expenditures can be reduced through a unified process, which can avoid repetition or duplication of the same evidentiary materials, and reduce overall costs associated with the arbitration, such as arbitral fees, expert costs and witness costs. While the suitability of consolidation depends on the particular claims to be consolidated, it is generally accepted that consolidating claims with similar evidentiary bases will result in significant savings of both time and money,13 especially for the respondent State that is involved in all the proceedings to be consolidated. 14
6 UNCITRAL Secretariat Note, Concurrent proceedings in international arbitration, 8 April 2016, Doc.A/CN.9/881, para. 5. 7 UNCITRAL Secretariat Note, Concurrent proceedings in international arbitration, 8 April 2016, Doc.A/CN.9/881, para. 7: ‘In short, one might have various parties, claiming in various forums and under different sources of law, yet seeking substantially the same relief for the same measure.’ 8 UNCITRAL Note by the Secretariat, Possible reform of investor-State dispute settlement (ISDS) Shareholder claims and reflective loss, 14-18 October 2019, Working Group III (Investor-State Dispute Settlement Reform), Thirty-eighth session, Vienna, para. 32. 9 UNCITRAL Secretariat Note, Concurrent proceedings in international arbitration, 8 April 2016, Doc.A/CN.9/881, para. 8. As well, when concluding agreements with investors host States sometimes use standard contracts with similar provisions so a change in host State policy relating to those provisions may affect a whole range of contracts concluded with different investors. 10 Vanhonnaeker, Shareholders’ Claims for Reflective Loss in International Investment Law (2020), 320. While there is no consensus on what entails a mass claim, two key characteristics may be discerned: (1) a high number of claimants involved and (2) the identity of the factual or legal issues raised by the claims. 11 Dugan et al., Investor-State Arbitration (2008), 89. 12 Kaufmann-Kohler et al., ‘Consolidation of Proceedings in Investment Arbitration: How Can Multiple Proceedings Arising from the Same or Related Situations be Handled Efficiently?’ (2006) 21 ICSID Rev., 59 (81 ff.). 13 Chiu, ‘Consolidation of Arbitral Proceeding and International Arbitration’ (1990), 7(2) J. Int’l Arb, 53 (55). 14 Kaufmann-Kohler et al., ‘Consolidation of Proceedings in Investment Arbitration: How Can Multiple Proceedings Arising from the Same or Related Situations be Handled Efficiently?’ (2006) 21 ICSID Rev., 59 (83).
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However, consolidation does not necessarily guarantee cost savings for all the disputing parties.15 For example, an individual arbitration may be more efficient for a claimant investor with a small or indirect claim.16 Moreover, unrelated investors will likely want to protect their confidential information from one another, leading to complicated confidentiality procedures that may meaningfully increase the costs of consolidation. This was the central consideration of the ADM/CPI consolidation tribunal, which denied consolidation on the grounds that it would be ‘extremely difficult’ to protect confidential and proprietary information of the competitor claimants. 17 It concluded that the claimants would not be ‘fully able to present their cases.’ Therefore, the tribunal held that a consolidation order could not be in the interests of a fair and efficient resolution of the claims.18 8 Ultimately, a tribunal must consider whether the relative gains in procedural efficiencies should outweigh the potential for additional costs burdening the claimants in a consolidated process. The Canfor et al. NAFTA consolidation tribunal considered the respondent State’s cost and time savings as significant to the decision to consolidate. The Canfor et al. consolidation tribunal19 noted the intended object and purpose of the consolidation article concerns: 7
procedural economy in the light of the position of State Parties in particular. That objective includes considerations of saving costs and time for a State Party, while simultaneously taking into account and balancing the interests of the disputing investors.20
II. Avoiding Inconsistent Decisions and Awards 9
A second often-cited justification for consolidation is the avoidance of inconsistent or incoherent awards. In the event of multiple claims on the same issue, ‘it is foreseeable that decisions rendered by separate tribunals may yield different outcomes’. 21 This is not only because the tribunals deciding these cases will be different, but because the issues at stake, as well as the facts surrounding each investment, might 15 Kinnear, Bjorklund and Hannaford, Investment Disputes under NAFTA: An Annotated Guide to NAFTA Chapter 11 (2006), 1126-4. 16 Yannaca-Small, ‘Consolidation of Claims: a Promising Avenue for Investment Arbitration?’ in OECD, International Investment Perspectives (2006), 234 at para. 3.1.1. The flip side is when consolidation allows investors to share the economic burdens of a claim, thereby enabling claimants to bring a claim that they otherwise would not because the transactional costs of and fees for adjudicating them would exceed their individual recovery if they would have brought the claim on their own. See Lamm, Pham and Bay, ‘Consent and Due Process in Multi-Party Investor-State Arbitrations’ in Binder et al., International Investment Law for the 21st Century Essays in Honour of Christoph Schreuer (2009), 55 ff. 17 Archer Daniels Midland Company and Tate & Lyle Ingredients Americas, Inc (‘ADM/CPI’) v. United Mexican States, ICSID Case No. ARB(AF)/4/5, Order of the Consolidation Tribunal (20 May 2005), paras. 8 ff. The question of whether the protection of the investors’ information as sufficient grounds to deny consolidation is controversial. However, see → mn. 13: ‘… grounds for the order sought …’. 18 Archer Daniels Midland Company and Tate & Lyle Ingredients Americas, Inc v. United Mexican States, ICSID Case No. ARB(AF)/4/5, Order of the Consolidation Tribunal (20 May 2005), para. 9. 19 On 7 March 2005, the United States filed a request with ICSID pursuant to Article 1126 NAFTA to consolidate three claims: Canfor Corp. v. United States of America, Terminal Forest Products Ltd. v. United States of America and Tembec Inc. et al. v. United States of America, related to losses allegedly suffered as a result of certain US antidumping, countervailing duty and material injury determinations on softwood lumber. 20 Canfor Corp. v. United States and Tembec v. United States and Terminal Forest Products Ltd v. United States, UNCITRAL, Order of the Consolidation Tribunal (7 September 2005), para. 75 (emphasis added). 21 UNCITRAL Secretariat Note, Concurrent proceedings in international arbitration, 8 April 2016, Doc.A/CN.9/881, para. 8.
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also be different, thus yielding different results.22 Consolidation aims to ensure that issues of public interest in investor-State arbitration are treated consistently, under a single decision-making body. The limited grounds for review23 available in investment arbitration in general24 make consolidation an appealing option for minimizing the opportunity for inconsistent or incoherent decisions up front.25
C. Drafting History The 2010 negotiating text provides Canada’s model approach to consolidation, 26 10 which generally replicates the NAFTA’s consolidation article.27 The 15 November 2013 version of the negotiation text provided many changes from the Canadian proposal that was largely agreed text between the Parties at that point. The Parties agreed to a threshold test ‘[w]hen two or more claims that have been 11 submitted separately to arbitration under Article x- (Submission of a Claim to Arbitration) have a question of law or fact in common.’ Canada further proposed that the threshold test include the phrase ‘and arise out of the same events or circumstances,’ with the following explanatory note: Canada maintains its proposal to include the phrase ‘and arise out of the same events or circumstances’ because it is possible that a question of law could arise out of entirely different circumstances or events (e.g. two unrelated cases). We would not want to capture such circumstances, so view this limitation to be necessary. Otherwise, the scope for consolidation would be broader than our intent.28
The EU would agree to this proposed inclusion by Canada by the 4 February 2014 12 text,29 which would later form Article 8.43.1 CETA. The Parties agreed by the 15 November 2013 version of the text that the disputing 13 Party seeking consolidation shall deliver the request (‘request for consolidation’) to the disputing parties, specifying the following first and third elements: ‘a) the names and addresses of the disputing parties to be covered by the order; …and c) the grounds for the order sought.’ However, the Parties could not agree on the second element to be specified in the request for consolidation, which was bracketed according to each Party’s proposal, as follows: ‘b) EU [the claims in respect of which the consolidation order is sought] CAN [nature] EU [scope] of the order sought.’ 30 Canada provided the following explanatory note in relation to its proposal to 14 maintain ‘nature’ and reject the EU’s proposed ‘scope’:
22 Cairn Energy PLC and Cairn UK Holdings Limited (CUHL) v. Republic of India, PCA Case No. 2016-7, Decision on the Respondent Application for a Stay of the Proceedings (Procedural Order No. 3) (31 March 2017), para. 122. 23 See Article 8.28(2) CETA. 24 Yannaca-Small, ‘Consolidation of Claims: a Promising Avenue for Investment Arbitration?’ in OECD, International Investment Perspectives (2006), 234 para. 3.1.2. 25 See also Lévesque, ‘Inconsistency in Investor-State Awards and the Role of State Interpretations’ in Bjorkland (ed), YB Int’l Inv. L. & Pol’y, 2013-2014 (2015), 363 f. 26 Canada’s Model Foreign Investment Protection Agreement (2004), Article X-20 (Consolidation). 27 The main difference between the NAFTA model and the Canadian model FIPA approaches is with respect to the institutions created under the NAFTA, such as a roster and involvement of the NAFTA Secretariat, which are not similarly replicated under Canada’s FIPAs. 28 CETA Negotiating Text, version of 15 November 2013, Article x-25.1 (Consolidation), ‘Canada Note’, p. 15. 29 CETA Negotiating Text, version of 4 February 2014, Article x-25.1 (Consolidation). 30 CETA Negotiation Text, version of 15 November 2013, Article x-25.1.3(b) (Consolidation).
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Canada maintains its proposal for ‘nature’ as we view the term ‘scope’ to be ambiguous. ‘Scope’ could be synonymous with ‘nature’ of the order sought, as in the objective of the disputing party seeking consolidation. On the other hand, it could pertain to one or more of the disputing investors are to be covered by the order. As such, ‘nature’ is the more precise of the terms. The alternative EU proposal is more problematic, in our view, since it is not clear whether the intent here is to refer to a claim in the sense of specific allegation in a Claim, e.g. national treatment or whether it refers to more than one submission of a claim to arbitration. 31
15
16
17
18
19
20
By 4 February 2014, the Parties had further developed their respective proposals on the second element they sought to include in the request for consolidation, as follows: ‘b) EU [the claims in respect of which the consolidation order is sought] CAN [the claims, or part thereof, sought to be covered by the order] CAN [nature].’ 32 The final agreed text of 1 August 2014 reflects the following compromise reached by the Parties on the eventual second element to a request for consolidation under Article 8.43.4: ‘(b) the claims, or parts thereof, sought to be covered by the order’. 33 The 15 November 2013 negotiation text sets out as agreed text a thirty-day window for the disputing parties to first agree on a consolidation order, failing which a disputing party may then submit the request to the Secretary General of ICSID. 34 (Article 8.43.3 would later replace the Secretary-General of ICSID as the administrative authority with the President of the CETA Investment Tribunal.) The requirement that a request for consolidation involving more than one respondent must have the agreement of all respondents to proceed was added as agreed text between the Parties by the 1 August 2014 final text, 35 eventually becoming Article 8.43.5. The Parties agreed in the 15 November 2013 negotiation text to the mechanism for determining the applicable arbitration rules,36 replacing Canada’s original proposal that the UNCITRAL Rules governs all consolidation claims.37 The 2013 text is substantively replicated in the final text, at Article 8.43.6 CETA. The text setting out the process to constitute the consolidating tribunal would be drastically altered as a result of the Parties’ agreement to set up a CETA Investment CETA Negotiation Text, version of 15 November 2013, Article x-25.1 (Consolidation). CETA Negotiation Text, version of 4 February 2014, Article x-25.3(b) (Consolidation). 33 CETA Final Text, 1 August 2014, Article x-41.3(b) (Consolidation). 34 CETA Negotiation Text, version of 15 November 2013, Article x-25.3 (Consolidation): ‘Where the disputing parties which have been notified pursuant to paragraph 2 have not reached agreement on consolidation within 30 days of the request, a disputing party may make a request for a consolidation order under this Article and shall deliver it, in writing, to the Secretary-General of ICSID and to all the disputing parties sought to be covered by the order […].’ 35 CETA Final Text, 1 August 2014, Article x-41.3 (Consolidation), the following chausette was added: ‘A request for consolidation involving more than one respondent shall require the agreement of all such respondents.’ 36 CETA Negotiation Text, version of 15 November 2013, Article x-25.4 (Consolidation): Article x-25: Consolidation ‘4. A Tribunal established under this Article shall conduct its proceedings in the following manner: a) when all of the claims for which a consolidation order is sought have been submitted to arbitration under the same arbitration rules pursuant to article x-[8] (Submission of a Claim to Arbitration), the Tribunal shall proceed under the same arbitration rules; b) when the claims for which a consolidation order is sought have not been submitted to arbitration under the same arbitration rules: i. the investors may collectively agree on the arbitration rules pursuant to paragraph 1 of Article x-[8] (Submission of a Claim to Arbitration) which shall apply to the consolidation proceedings; or ii. if the investors cannot agree on the arbitration rules within 30 days of the Secretary of General of ICSID receiving the request for consolidation, the UNCITRAL Arbitration Rules shall apply to the consolidation proceedings.’ 37 CETA Negotiation Text, version of 13 January 2010, Article X.24.1 (Consolidation). 31
32
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Court which occurred after the publication of the 2014 ‘final’ CETA text. The Secretary General of ICSID is replaced by the President of the CETA’s Investment Court as the administrative authority of consolidation claims, which constitutes a consolidating division of the court to hear and decide the claim (pursuant to Article 8.43.7 CETA). The authority of the consolidation tribunal was initially proposed by Canada in 21 2010, as follows: 2.
Where a Tribunal established under this Article is satisfied that claims submitted to arbitration under Article X.20 (Submission of a Claim to Arbitration) have a question of law or fact in common, the Tribunal may, in the interest of fair and efficient resolution of the claims and after hearing the disputing parties, by order: (a) assume jurisdiction over, and hear and determine together, all or part of the claims; or (b) assume jurisdiction over, and hear and determine one or more of the claims, the determination of which it believes would assist in the resolution of the others. 38
By the 15 November 2013 text, two elements were added to the chapeau of the 22 paragraph, namely that the claims must arise out of the same events or circumstances (→ mn. 40 ff.) and an express mention that consolidation may be in the interest of consistency of awards (→ mn. 45 ff.): 6.
If, after hearing the disputing parties, a Tribunal established under this Article is satisfied that claims submitted to arbitration under Article x- (Submission of a Claim to Arbitration) have a question of law or fact in common [and arise out of the same events or circumstances], and consolidation would best serve the interests of fair and efficient resolution of the claims including the interest of consistency of arbitral awards, the tribunal may, by order: a) assume jurisdiction over, and hear and determine together, all or part of the claims; or b) (CAN [assume jurisdiction over, and hear and determine one or more of the claims, the determination of which it believes would assist in resolving the other claims.] 39
Subparagraph b) was not accepted by the EU and would be removed by the final 23 version. The phrase in subparagraph a) was simplified to ‘assume jurisdiction over some or all of the claims, in whole or in part’ which would eventually be the authority set out under Article 8.43.8 CETA.
38 39
CETA Negotiation Text, version of 13 January 2010, Article X.24.2 (Consolidation). CETA Negotiation Text, version of 15 November 2013, Article x-25.6 (Consolidation).
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Articles 8.43.9 through 8.43.14 CETA appear by the 15 November 2013 negotiating text as agreed text between the Parties.40 These provisions of the negotiating text remained stable through the remaining negotiations and would substantively be replicated subject to minor modifications during the legal review.
D. Commentary 25
CETA’s provisions on consolidation are modelled after Article 1126 NAFTA (Consolidation),41 which was the first IIA to formalize a consolidation process.42 The absence of specific provisions on consolidation in the applicable arbitral rules in investor-State dispute settlement43 meant the only way in which consolidation of separately initiated claims could occur would normally be through a consent agreement of the disputing
40 CETA Negotiation Text, version of 15 November 2013, Article x-25.7 through x-25.12 (Consolidation): ‘7. Where a Tribunal has been established under this Article, and has assumed jurisdiction pursuant to paragraph 6 an investor that has submitted a claim to arbitration under Article x- (Submission of a Claim to Arbitration) and that has not been made subject to a consolidation order pursuant to paragraph 6 may make a written request to the Tribunal that it be included in such order provided that the request complies with the requirements set out in paragraph 2. The Tribunal shall grant such order where it is satisfied that the conditions of paragraph 6 are met and that granting such a request would not unduly burden or unfairly prejudice the disputing parties or unduly disrupt the proceedings. Before a Tribunal issues such an order, it shall consult with the disputing parties. 8. On application of a disputing party, a Tribunal established under this Article, pending its decision under paragraph 5, may order that the proceedings of a Tribunal established under Article x- (Submission of a Claim to Arbitration) which is hearing claims in respect of which request for consolidation has been made be stayed unless the latter Tribunal has already adjourned its proceedings. 9. A Tribunal established under Article x- (Submission of a Claim to Arbitration) shall cede jurisdiction in relation to the claims, or parts thereof, over which a tribunal established under this Article has assumed jurisdiction. The proceedings of such tribunals shall be stayed or adjourned, as appropriate, in respect of those claims or parts thereof over which the tribunal has assumed jurisdiction. 10. The award of the Tribunal established under this Article in relation to those claims over which it has assumed jurisdiction, in whole or in part, shall become binding on the tribunals established under Article x- as regards those claims once the conditions of Article 23(3) have been fulfilled. 11. A claimant may withdraw the claim or the part thereof subject to consolidation from arbitration under this Article and such claim or part thereof may not be resubmitted to arbitration under Article x- (Submission of a Claim to Arbitration). If it does so no later than 15 days after receipt of notice of consolidation, its earlier submission of the claim to that arbitration shall not prevent the claimant's recourse to dispute settlement other than under this Chapter. 12. At the request of one of the claimant, the Tribunal established under this Article may take such measures as it sees fit in order to preserve the confidentiality of protected information of that claimant vis-à-vis other claimants. Such measures may include the submission of redacted versions of documents containing protected information to the other claimants or arrangements to hold parts of the hearing in private.’ 41 Article 1126(2) NAFTA provides: ‘Where a Tribunal is established under this Article is satisfied that claims have been submitted to arbitration under Article 1120 that have a question of law or fact in common, the Tribunal may, in the interests of fair and efficient resolution of the claims, and after hearing the disputing parties, by order: (a) assume jurisdiction over, and hear and determine together, all or part of the claims; or (b) assume jurisdiction over, and hear and determine one or more of the claims, the determination of which it believes would assist in the resolution of the others.’ 42 The UNCITRAL Secretariat explains, IIAs before NAFTA did not take into consideration the potential for multiple claims resulting from a wide definition of protected investors and investments, nor did the negotiators of those IIAs foresee the potential for multiple claims: UNCITRAL Secretariat Note, Concurrent proceedings in international arbitration, 8 April 2016, Doc.A/CN.9/881, para. 11. 43 Article 1120 NAFTA sets out the ICSID Convention, the Additional Facility Rules or the UNCITRAL Arbitration Rules apply in NAFTA Chapter 11 arbitration. Article 8.23.2(d) CETA further provides the disputing parties with the opportunity to agree on a different set of applicable rules.
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parties.44 The NAFTA set out a mandatory process for consolidation to address this gap in the rules.45 Likewise under CETA, the named applicable arbitration rules under Article 8.23.2 26 for CETA investment claims46 do not provide for a process for the consolidation of claims. Therefore, additional rules specific to consolidation under Article 8.43 CETA ensures a process could be followed where disputing parties cannot agree to consolidate their claims.
I. The Request for Consolidation The process for a consolidation order is initiated through a disputing party’s re- 27 quest for consolidation.47 Consolidation may be requested by any disputing party (the claimant(s) or the respondent(s)) to the claim. If there is more than one respondent to the claim, however, they must all agree to the request for consolidation, 48 which avoids any potential for conflict between the respondents on this issue, specifically where the European Union and/or one or more of its Member States are acting as respondents in the claims to be consolidated. In advance of submitting the request to the President of the Tribunal, the petition- 28 ing party must first deliver notice to the disputing parties it seeks to be covered by the consolidation order.49 All disputing parties that are notified must then attempt to reach an agreement on a consolidation order. If an agreement among the disputing parties is reached within 30 days of receiving the notice, they may make a joint 44 ‘[A]ll parties the must consent to consolidation.’ AES Solar and others v. Spain, Preliminary Award on Jurisdition, para. 120. In practice, claimants have chosen to proceed with consolidating their claims on a voluntary basis. Under the NAFTA, see e.g. Canadian Cattlemen Claims—De Boer, et.al. v. United States, UNCITRAL, Procedural Order No. 1 (Oct. 20, 2006) (‘Cattlemen’), para. 12. The Cattlemen case was commenced by numerous claimants who filed 107 individual notices of intent and notices of arbitration between March and June 2005. Their claims were with respect to the U.S. measures banning the sale of live cattle imported from Canada over concerns about bovine spongiform encephalopathy (‘BSE’). Similarly, under the ICSID rules, which do not expressly provide rules on consolidation, see Bayview Irrigation District and Others, Claimants v. United Mexican States, ICSID Case No. ARB(AF)/05/1, in which 17 irrigation districts initiated a claim against Mexico for breach of NAFTA. Mexico would agree to the named claimants in the Notice of Arbitration, but not additional unnamed claimants. See Mexico’s Memorial on Jurisdiction, ICSID Case No. ARB(AF)/05/1 (19 April 2006), para. 126: ‘…the consodlitation may be carried out by agreement between the disputing parties, as occurred in the present case, or pursuant to the procedure provided in Article 1126 ff.’ Sempra Energy International v. Argentina, ICSID Case No. ARB/02/16, Decision on Objections to Jurisdiction (May 11, 2005) para. 4 and Camuzzi International A.A. v. Argentina, ICSID Case No. ARB/03/2, Decision on Objection to Jurisdiction (May 11, 2005), para. 5. In the aftermath of the Argentine financial crisis, parties to these claims agreed that a single tribunal hears both cases. See also Dugan et al., Investor-State Arbitration (2008), 89 f. 45 At the time, the NAFTA’s provisions on consolidation were considered ground-breaking. As described by Alvarez, ‘The idea of the appointment of a “super tribunal” to consolidate claims on a mandatory basis is novel and bold!’, in ‘Arbitration Under the North American Free Trade Agreement’ (2000) 16 Arb. Int'l., 393 (413 f.). All three NAFTA Parties have since included consolidation provisions in their IIAs, and model investment agreements. See de Mestral, ‘Lessons of Chapter 11: Procedural Integrity and Systematic Integrity’, in Gaillard and Bachan (eds), Fifteen Years of NAFTA Chapter 11 Arbitration (2011), 60 and related footnote 9. 46 Namely, the UNCITRAL Arbitration Rules, the ICSID Convention, and the ICSID Additional Facility Rules. Article 8.23.2(d) further provides the arbitration rules could be ‘any other rules on agreement of the disputing parties.’ 47 Article 8.43(1) CETA. 48 Article 8.43(5) CETA. 49 Article 8.43(2) CETA.
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request for the establishment of a separate division of the Tribunal and a consolidation order under Article 8.43.50 If the disputing parties are unable to reach an agreement on a consolidation order within 30 days, however, any of the disputing parties may make a request for the establishment of a separate division of the Tribunal to make a consolidation order. 29 A request for consolidation must be made in writing to the President of the Tribunal and to all the disputing parties, and must specify: (a) the names and addresses of the disputing parties sought to be covered by the order; (b) the claims, or the parts thereof, sought to be covered by the order; and (c) grounds for the order is sought.51
1. ‘… Claims, or Parts Thereof, Sought to be Covered by the Order …’ Article 8.43 CETA does not limit the types of claims that may be consolidated or heard by the consolidating tribunal. Therefore, a CETA consolidating tribunal has wide berth in deciding the types of claims to be consolidated and whether that entails consolidating the claims in their entirety or only part of the claims. For example, a consolidating tribunal may rule on a respondent’s jurisdictional objection that it intends to raise in two separate cases, but once that jurisdictional objection is decided, the disputing parties may proceed with their substantive claims separately under different tribunals. 31 The Canfor et al. consolidating tribunal, in its review of the term ‘claims or parts of claims’ in the context of the NAFTA’s consolidation clause, expressly rejected the argument that consolidation did not include jurisdiction objections.52 As the Canfor et al. tribunal put it, a consolidation tribunal: 30
can order many forms of consolidation … For example, [a consolidation] Tribunal can order the consolidation of all issues relating to liability, leaving damages to the Article 1120 Tribunals. [A consolidation] Tribunal may also order consolidation of a National Treatment claim […] and/or a Most Favored-Nation Treatment claim […] and/or a Minimum Standard of Treatment claim […] and leave an Expropriation claim […] to the Article 1120 Tribunals. Further, [a consolidation] Tribunal may consolidate issues relating to objections to jurisdiction (and/or admissibility) alone, and, to the extent that it rejects those objections, leave the remainder of the dispute to the Article 1120 Tribunals.53
2. ‘… Grounds upon which the Order is Sought …’ 32
The requirement to set out the grounds for which the order is sought in the request for consolidation is procedural. The Canfor et al. consolidation tribunal’s assessment of this requirement to the request for consolidation in the NAFTA context determined that this element to the request for consolidation does not impose a specific burden of proof on the party seeking a consolidation order, but rather only the elements required for putting the process in motion.54 Article 8.43(3) CETA. Article 8.43(4) CETA. 52 Canfor Corp. v. United States and Tembec v. United States and Terminal Forest Products Ltd v. United States, UNCITRAL, Order of the Consolidation Tribunal (7 September 2005), para. 107. 53 Canfor Corp. v. United States and Tembec v. United States and Terminal Forest Products Ltd v. United States, UNCITRAL, Order of the Consolidation Tribunal (7 September 2005), para. 108. NAFTA Article numbers omitted. 54 Canfor Corp. v. United States and Tembec v. United States and Terminal Forest Products Ltd v. United States, UNCITRAL, Order of the Consolidation Tribunal (7 September 2005), para. 94. 50 51
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That said, the petitioning disputing party will ultimately be required to demon- 33 strate throughout the course of the consolidation proceedings to the satisfaction of the Tribunal that there is a question of law or fact in common and arise out of the same events or circumstances, and that consolidation would best serve the interests of fair and efficient resolution of the claims (→ mn. 40 ff.).55
3. Time Limit for Submitting a Request for Consolidation While there is no prescribed time limit for submitting a request for consolidation 34 under Article 8.43 CETA, the request must be made at a time that ‘would best serve the interests of fair and efficient resolution of the claims.’56 A request that is made too far into the process of a claim, for example, may be rejected on the grounds that it would result in unreasonable delay to the resolution of the proceedings for one or more of the disputing parties. In its consideration of the issue, the Canfor et al. tribunal confirmed that the simi- 35 larly phrased Article 1126(2) NAFTA does not impose a specific time limit. However, procedural economy – one of the intended goals of consolidation – dictates that the more advanced the separate proceedings are, the less likely it is that consolidation will be ordered.57 This does not, however, require that the petitioner make a request for consolidation at the earliest possible moment. Rather, the principle of procedural economy is preserved as long as the request to consolidate is made at a time that the original claims are not advanced to such a stage that it would no longer be procedurally efficient to consolidate.58 The ADM/CPI consolidation tribunal specifically found that procedural misalign- 36 ment of the respective investors’ claims that were the subject of Mexico’s consolidation request to be relevant to its decision to reject a petition for consolidation. It noted that one of the investors (CPI) was at an advanced stage of its arbitration and ‘the necessary result would be a very substantial delay in decision making’ which undermines a fair and efficient resolution of the claims.59
II. Applicable Rules to Consolidation Proceedings The CETA’s consolidation article provides some flexibility when determining the 37 rules applicable to the consolidation proceedings.60 If all the claims to which the request for consolidation is made are submitted to dispute settlement under the same rules under Article 8.23, those rules will govern the consolidation request. Alternatively, when the rules have not been submitted under the same rules under Article 8.23, then the investors may first attempt to agree on the applicable rules, or failing agreement within 30 days of submitting the request, the UNCITRAL Rules apply. These flexibilities in determining the applicable rules directly respond to criticisms 55 Canfor Corp. v. United States and Tembec v. United States and Terminal Forest Products Ltd v. United States, UNCITRAL, Order of the Consolidation Tribunal (7 September 2005), para. 94. 56 Article 8.43(8) CETA. 57 Canfor Corp. v. United States and Tembec v. United States and Terminal Forest Products Ltd v. United States, UNCITRAL, Order of the Consolidation Tribunal (7 September 2005), para. 118. 58 Canfor Corp. v. United States and Tembec v. United States and Terminal Forest Products Ltd v. United States, UNCITRAL, Order of the Consolidation Tribunal (7 September 2005), para. 210. 59 Archer Daniels Midland Company and Tate & Lyle Ingredients Americas, Inc (‘ADM/CPI’) v. United Mexican States, ICSID Case No. ARB(AF)/4/5, Order of the Consolidation Tribunal (20 May 2005), para. 19. 60 Article 8.43(6) CETA.
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of the earlier generation of consolidation provisions, such as Article 1126 NAFTA, that did not provide for any flexibility for determining the applicable rules, which is anathema to the principle of autonomy of the parties in arbitration.61
III. Constitution of the Consolidating Division Once the request for consolidation is submitted, the President of the Tribunal must constitute a new division. There is no discretion for the President to refuse the request, as long as it is submitted in the proscribed form.62 39 The new division shall have jurisdiction ‘over some or all of the claims, in whole or in part’63 when it is satisfied, after hearing the disputing parties: 38
1) the claims, or parts thereof, possess a question of law or fact in common and arise out of the same event or circumstances; and 2) consolidation would best serve the interests of fair and efficient resolution of the claims.
1. ‘… Question of Law or Fact in Common and Arise out of the Same Events or Circumstances …’ 40
This requirement has been referred to as one of connexity – or the requirement to identify a connection or of an identity between the proceedings that are consolidated.64 Article 8.43.1 requires two elements to establish connexity: (a) a question of law or fact in common; and (b) arise out of the same events or circumstances. a) ‘… a Question of Law or Fact in Common …’
The requirement to establish ‘a question of law or fact in common’ was explored in the NAFTA context by the Canfor et al. consolidation tribunal. In that tribunal’s view, the mere invocation of the same provision of the NAFTA, for example, is insufficient to find that consolidation would best serve the interests of fair and efficient resolution of the claims.65 Furthermore, the mere invocation of a fact in common is also insufficient. There should also be an issue concerning that fact that is in common. To find a justification for consolidation, it means a factual or legal issue that requires a finding to dispose of a claim.66 42 Another question is whether one or several questions of law or fact in common are necessary to justify consolidated process. That is, whether there is a quantitative test that should be met when deciding whether consolidation is in the best interest of a fair and efficient resolution of the claims. The text of Article 8.43(8) CETA (i.e. ‘a question of law or fact in common’) provides that a single issue to be determined is sufficient. The Canfor et al. consolidation tribunal correctly noted that the determination of a question of law or fact in common is not purely a quantitative one, but a qualitative 41
61 See Alvarez, ‘Arbitration Under the North American Free Trade Agreement’ (2000) 16 Arb. Int'l., 393 (413 f.). Article 1126(1) NAFTA provides that the UNCITRAL Arbitration Rules applies to consolidated proceedings. 62 Article 8.43(4) CETA. 63 Article 8.43(7) CETA. 64 Vanhonnaeker, Shareholders’ Claims for Reflective Loss in International Investment Law (2020), 295. 65 Canfor Corp. v. United States and Tembec v. United States and Terminal Forest Products Ltd v. United States, UNCITRAL, Order of the Consolidation Tribunal (7 September 2005), para. 110. 66 Canfor Corp. v. United States and Tembec v. United States and Terminal Forest Products Ltd v. United States, UNCITRAL, Order of the Consolidation Tribunal (7 September 2005), paras. 109 ff.
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one as well. The determination that one question of law or fact is in common, requires a further determination that resolution of that question is in the interests of fair and efficient resolution of the claims.67 It is not always possible, nor should it be expected, that a disputing party have its 43 claim or its defence fully mapped out in its request for consolidation and tribunal briefings. Rather, the disputing party may have a general sense of the facts it wishes to raise, arguments that it wishes to make and the defences it wishes to raise in the claims it seeks to consolidate. However, a ‘mere anticipation or expectation’ of commonality between claims was determined to be insufficient for satisfying the condition of whether there exists ‘a question of law or fact in common.’ In the Canfor et al. consolidation tribunal’s view ‘a degree of certainty’ as to the common issues to be addressed was necessary, especially where the claims are not procedrually aligned: Where an issue has been raised in one or more proceedings that a party shows with a degree of certainty to raise in [the other] proceedings that are the subject of the request for consolidation, [a consolidation] Tribunal may legitimately take such anticipated issue into account. That result should particularly apply where the stages of the proceedings are not fully aligned. 68
b) ‘… and Arise out of the Same Events or Circumstances’ The phrase ‘…and arise out of the same events or circumstances…’ is a feature of 44 some post-NAFTA consolidation clauses.69 On its plain terms, the requirement that the claims ‘arise out of the same events or circumstances’ is cumulative, adding an additional element to the threshold test on whether claims ought to be consolidated. This point was raised by Canada during the CETA negotiations, that the additional language was necessary and intended to avoid situations where two (or more) unrelated cases are consolidated.70 That is, there must be a shared event or circumstance that unites the claims to be consolidated.
2. ‘… and Consolidation would Best Serve the Interests of Fair and Efficient Resolution of the Claims, Including the Interest of Consistency of Awards …’ Once it is established that the claims possess a question of fact or law in common 45 and arise out of the same events or circumstances, the central consideration for consolidation under CETA is whether it would ‘best serve the interests of fair and efficient resolution of the claims’.71 The Canfor et al. consolidation Tribunal noted
67 Canfor Corp. v. United States and Tembec v. United States and Terminal Forest Products Ltd v. United States, UNCITRAL, Order of the Consolidation Tribunal (7 September 2005), paras. 113 f. 68 Canfor Corp. v. United States and Tembec v. United States and Terminal Forest Products Ltd v. United States, UNCITRAL, Order of the Consolidation Tribunal (7 September 2005), paras. 118 ff. 69 See e.g. CPTPP, Article 9.28(1) (Consolidation); US Model BIT (2012), Article 33(6) (Consolidation); Notably, NAFTA-era clauses provided for consolidation where an investor initiates a claim on its own behalf and a claim on behalf of its investment ‘out of the same events that gave rise to the claim(s)’. See e.g. NAFTA, Article 1117(3): ‘Where an investor makes a claim [on behalf of its investment] and makes a claim [on its own behalf] out of the same events that gave rise to the claim [on behalf of its investment] … the claims should be heard together by a Tribunal established under [the Consolidation Article], unless the Tribunal finds that the interests of a disputing party would be prejudiced thereby.’ 70 CETA Negotiating Text, version of 15 November 2013, Article x-25.1 (Consolidation), ‘Canada Note’, p. 15. 71 Both ADM/CPI and Canfor et al. consolidation tribunals considered this criterion as central under the NAFTA. de Mestral, ‘Lessons of Chapter 11: Procedural Integrity and Systematic Integrity’, in Gaillard and Bachan (eds), Fifteen Years of NAFTA Chapter 11 Arbitration (2011), 70.
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that the NAFTA’s consolidation article did not give specific guidance on the phrase, though procedural economy was the ultimate goal to be served in a consolidation: The Tribunal is of the view that efficiency in the sense of procedural economy is the operative goal of consolidation... That is basically an objective, fact-driven standard which [a consolidation] Tribunal can apply as it deems appropriate under the circumstances. Determining what is efficient … is not an accounting exercise of drawing up a matrix of comparative advantages and disadvantages and applying relative weighing factors. It suffices that the [consolidation] tribunal is convinced that efficiency in the resolution of the claims will, under the circumstances before it, be served by a consolidation.72
The standard of what is ‘fair’ under the consolidation article was singled out by the Canfor et al. consolidation Tribunal, which viewed that gains from procedural economy must be balanced with fairness to all disputing parties.73 47 Some of the most important factors relevant in determining the interests of fair and efficient resolution of the claims raised by tribunals and commentators include (a) time and cost savings; (b) avoiding inconsistent awards (c) concerns over the protection of confidential information (d) due process concerns and (e) party autonomy in the arbitral process.74 46
a) Time and Cost Savings Whether time and cost savings results in the fair and efficient resolution of the claims is an objective determination. The guiding test is a comparison with the situation as it exists, and would continue to exist, if no consolidation were ordered. 75 Whether or not there is economy of time gained by a consolidated process includes consideration of the status of original arbitrations and of the delay, if any, that might result in the resolution of the claims. In ADM/CPI, ‘a very substantial delay’ in the resolution of the claim for one of the investors was adjudged as not meeting the test of fair and efficient resolution of the claims.76 49 Evaluation of costs, involves an assessment of the costs to all disputing parties involved. While it may be assumed that a respondent State would save costs in a consolidated process, the same benefit to investor claimants is debatable. 77 Where 48
72 Canfor Corp.v United States and Tembec v. United States and Terminal Forest Products Ltd v. United States, UNCITRAL, Order of the Consolidation Tribunal (7 September 2005), para. 124. 73 Canfor Corp.v United States and Tembec v. United States and Terminal Forest Products Ltd v. United States, UNCITRAL, Order of the Consolidation Tribunal (7 September 2005), para. 125. 74 Kaufmann-Kohler et al., ‘Consolidation of Proceedings in Investment Arbitration: How Can Multiple Proceedings Arising from the Same or Related Situations be Handled Efficiently?’ (2006) 21 ICSID Rev., 59 (83). The Canfor et. al. consolidation tribunal considered ‘the avoidance of conflicting decisions’ as an element of ‘the interests of fair and efficient resolution of the claims’ under NAFTA see Canfor Corp. v. United States and Tembec v. United States and Terminal Forest Products Ltd v. United States, UNCITRAL, Order of the Consolidation Tribunal (7 September 2005), para. 126. Article 8.43(7) CETA makes this an express requirement of ‘fair and efficient resolution of the claims’. 75 Canfor Corp. v. United States and Tembec v. United States and Terminal Forest Products Ltd v. United States, UNCITRAL, Order of the Consolidation Tribunal (7 September 2005), para. 126. 76 Archer Daniels Midland Company and Tate & Lyle Ingredients Americas, Inc v. United Mexican States, ICSID Case No. ARB(AF)/4/5, Order of the Consolidation Tribunal (20 May 2005), para. 19. 77 Kaufmann-Kohler et al., ‘Consolidation of Proceedings in Investment Arbitration: How Can Multiple Proceedings Arising from the Same or Related Situations be Handled Efficiently?’ (2006) 21 ICSID Rev., 59 (83): ‘It is obvious that consolidation saves time and costs for the party that is involved in all the proceedings being consolidated—in other words, the respondent state in investment arbitration. Indeed, with consolidation, every disputed matter is litigated only once. This applies to the allegations of facts, the production of evidence, and the presentation of legal arguments. The extent that consolidation benefits investors is debatable. In terms of costs, the investors may share certain expenses, such as expert or legal fees. Such sharing implies, however, that they can agree on a common strategy. In
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consolidation is more efficient for an individual disputing party, and may be costlier to another disputing party, a consolidating division must still continue to strive to establish what is ‘fair’ for all involved parties. These competing positions require a consolidation tribunal to balance the interests of all parties when considering the issuance of a consolidation order.78 b) Avoiding Inconsistent Awards Article 8.43(7) CETA explicitly provides that the fair and efficient resolution of the 50 claims includes avoiding inconsistent awards. In the context of investment arbitration, inconsistencies are problematic because they drastically impact the legitimacy of a given dispute settlement mechanism by depicting it as unable to ensure a necessary degree of predictability and legal certainty.79 The concern over inconsistent or contradictory awards gains a heightened impor- 51 tance because of the public interest issues raised and the grounds for review of arbitral awards are narrow and generally do not allow much latitude for the re-examination of questions of law or fact.80 Ultimately, a State’s interest in receiving coherent rulings regarding its measures is a significant factor in determining efficiency in the resolution of claims under a consolidated process.81 c) Concerns over the Protection of Confidential Information Some commentators and investment treaty arbitration tribunals have expressed 52 concern that consolidation could give rise to due process concerns relating to confidentiality, and in effect would neither permit a fair, nor efficient, resolution to the claims.82 This concern is legitimate, especially if the consolidated proceedings involve direct competitors, as a joined party is granted access to protected information, such as business secrets and other business confidential information.83 The ADM/CPI NAFTA consolidation tribunal in particular determined that the 53 additional procedural steps and requirements to protect the confidential information from the claimants in a competitive relationship were not in the interests of fair and efficient resolution of the claim. As such, the tribunal denied Mexico’s request for
terms of time, consolidated proceedings are bound to last longer than a separate arbitration.’ (footnotes omitted). 78 Canfor Corp. v. United States and Tembec v. United States and Terminal Forest Products Ltd v. United States, UNCITRAL, Order of the Consolidation Tribunal (7 September 2005), para. 126. 79 Vanhonnaeker, Shareholders’ Claims for Reflective Loss in International Investment Law (2020), 208. 80 Yannaca-Small, ‘Consolidation of Claims: a Promising Avenue for Investment Arbitration?’ in OECD, International Investment Perspectives (2006), 234 at para. 3.1.2. 81 The Canfor et al. consolidation tribunal considered ensuring consistent awards as an inherent part of the effective administration of justice, and therefore a required element to consider for ensuring efficiency under the consolidation order. Canfor Corp.v United States and Tembec v. United States and Terminal Forest Products Ltd v. United States, UNCITRAL, Order of the Consolidation Tribunal (7 September 2005), para. 131. 82 Lamm, Pham and Bay, ‘Consent and Due Process in Multi-Party Investor-State Arbitrations’ in Binder et al., International Investment Law for the 21st Century Essays in Honour of Christoph Schreuer (2009), 72. 83 Vanhonnaeker, Shareholders’ Claims for Reflective Loss in International Investment Law (2020), 312 f. Like all considerations, the protection of confidential information may not be relevant in all claims: ‘In the specific context of shareholders claims for reflective loss, confidentiality is not a major concern and should not act as a bar to the consolidation of proceedings’, p. 313 f.
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consolidation despite the significant commonalities between the claims identified by Mexico.84 54 Whether the ADM/CPI tribunal’s determination that confidentiality of investors’ information was sufficient grounds to deny consolidation has been an issue of some controversy in the literature as it seemingly placed investors’ concerns in higher priority to the State’s concerns for efficiency and coherence. As described by Professor de Mestral: The [ADM/CPI] tribunal appears to have opted for this position [to decline consolidation] as a result of its concern to protect the investors’ rights to due process over the interest of procedural integrity and the State’s interest in receiving coherent rulings regarding the legality of its challenged measures.85
55
The Canfor et al. Tribunal86 categorically rejected that protection of confidential information between competitors was relevant to the determination of what is in the best interests of a fair and efficient resolution of the claims. In that tribunal’s view, only very exceptionally would such a consideration be relevant such as when consolidation would defeat all other relevant considerations of efficiency of process or due process to one of the disputing parties would be wholly undermined.87 Otherwise, the modern tribunal is well-equipped to deal with any confidentiality issues that may arise between the disputing parties in a consolidated process: There are sufficient measures available to arbitral tribunals to ensure confidential treatment of information (including: protective orders; imposition of confidentiality undertakings; partially separate hearings in camera; classifying submissions, documents and testimony; appointment of a confidentiality advisor; redaction of award for public access), while ensuring that each party is afforded a full opportunity of presenting its case. In many international arbitrations, parties negotiate and execute an appropriate confidentiality agreement among themselves. The fact that confidentiality issues may increase if the Article 1120 arbitrations are consolidated is inherent in the consolidation process, but that factor is not in and of itself a reason not to consolidate. The fact that confidentiality measures may make the proceedings more complex is not a reason not to conduct consolidated proceedings either. Tribunals operating at a level of the NAFTA and of other multilateral or bilateral investment treaties should be, and are as a rule, capable of dealing
84 Archer Daniels Midland Company and Tate & Lyle Ingredients Americas, Inc. v. The United Mexican States, ICSID Case No. ARB (AF)/04/5, Order of the Consolidation Tribunal (20 May 2005), paras. 9 f.: ‘The tribunal hearing the claims should not have to require separate procedures to accommodate the competitive sensitivity of the evidence and submissions of the different claimants. Under such circumstances, a consolidation order cannot be in the interests of fair and efficient resolution of the claims. Two tribunals can handle two separate cases more fairly and efficiently than one tribunal where the two claimants are direct and major competitors, and the claims raise issues of competitive and commercial sensitivity … Competitors who file Article 1120 claims should not be compelled to risk (a) not being able fully to present their cases; or (b) having to share confidential and sensitive business information with their competitor; or (c) a parallel proceeding within one arbitral process that will necessarily be far slower and less efficient than proceedings before separate tribunals.’ 85 de Mestral, ‘Lessons of Chapter 11: Procedural Integrity and Systematic Integrity’, in Gaillard and Bachan (eds), Fifteen Years of NAFTA Chapter 11 Arbitration (2011), 76 f.; Kaufmann-Kohler et al., ‘Consolidation of Proceedings in Investment Arbitration: How Can Multiple Proceedings Arising from the Same or Related Situations be Handled Efficiently?’ (2006) 21 ICSID Rev., 59 (84 f.). 86 The Canfor et.al tribunal comprised Professor Armand L. C. de Mestral (arbitrator), Davis R. Robinson, Esq. (arbitrator), Professor Albert Jan van den Berg (presiding arbitrator). 87 'Such a situation may be present in the event that clearly identified and significant confidentiality issues are bound to arise in the proceedings, if consolidated; that these issues outweigh all three factors (time, cost and avoidance of conflicting results); and that these issues are such that, if the proceedings are consolidated, they are manifestly counterproductive to an effective administration of justice.’ Canfor Corp.v United States and Tembec v. United States and Terminal Forest Products Ltd v. United States, UNCITRAL, Order of the Consolidation Tribunal (7 September 2005), para. 147.
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with procedurally complex cases with difficult confidentiality issues without an appreciable decline in efficiency or without any impairment of due process.88
In this regard, the CETA consolidation article expressly provides a consolidating 56 division of the Tribunal with the discretionary power to make any measures necessary to preserve the confidential or protected information of an investor in relation to other investors under Article 8.43.14. As such, the CETA implicitly recognizes that maintaining confidentiality between the disputing parties is attainable and confidentiality considerations, even if they increase the complexity of the arbitration, do not necessarily eliminate efficiency gains of consolidation. d) Due Process Concerns The fundamental principle of judicial procedure requires that parties be treated 57 equally and that each disputing party is afforded a reasonable opportunity to present its case.89 A consolidated process may compromise a party’s due process rights, for instance, where multiple claimants with competing claims prejudice a specific claimant’s right to present its case and be heard because it is buried by the numerous other arguments presented. On the other hand, the respondent(s)’ defence may be compromised by having to face multiple claimants, and is thus denied the opportunity to develop a line of defence calibrated to the specific circumstances related to each of the claimants.90 Ultimately, as emphasized by the Canfor et al. Tribunal: the interests of all parties involved should be balanced in determining what is the procedural economy in the given situation. … The necessary balancing… includes the consideration that all parties shall continue to receive the fundamental right of due process. 91
e) Party Autonomy in the Arbitral Process It is universally recognized that party consent provides the foundation for arbitral 58 jurisdiction.92 In light of the significance of consent to arbitration, there is a concern that employing consolidation, which might be against the will of a disputing party, undermines the principle of party autonomy in the arbitral process.93 The ADM/CPI consolidation tribunal pronounced party autonomy to be a relevant consideration in evaluating the fairness of the proposed consolidation.94
88 Canfor Corp. v. United States and Tembec v. United States and Terminal Forest Products Ltd v. United States, UNCITRAL, Order of the Consolidation Tribunal (7 September 2005), paras. 138 and 144 ff. 89 As enshrined in the UNCITRAL Arbitration Rules, Article 17(1): ‘…, the arbitral tribunal may conduct the arbitration in such manner as it considers appropriate, provided that the parties are treated with equality and that at an appropriate stage of the proceedings each party is given a reasonable opportunity of presenting its case. The arbitral tribunal, in exercising its discretion, shall conduct the proceedings so as to avoid unnecessary delay and expense and to provide a fair and efficient process for resolving the parties’ dispute.’ 90 Vanhonnaeker, Shareholders’ Claims for Reflective Loss in International Investment Law (2020), 313 f. 91 Canfor Corp. v. United States and Tembec v. United States and Terminal Forest Products Ltd v. United States, UNCITRAL, Order of the Consolidation Tribunal (7 September 2005), para. 125. 92 Lamm, Pham and Bay, ‘Consent and Due Process in Multi-Party Investor-State Arbitrations’ in Binder et al., International Investment Law for the 21st Century Essays in Honour of Christoph Schreuer (2009), 55. 93 Lamm, Pham and Bay, ‘Consent and Due Process in Multi-Party Investor-State Arbitrations’ in Binder et al., International Investment Law for the 21st Century Essays in Honour of Christoph Schreuer (2009), 55. 94 Archer Daniels Midland Company and Tate & Lyle Ingredients Americas, Inc v. United Mexican States, ICSID Case No. ARB(AF)/4/5, Order of the Consolidation Tribunal (20 May 2005), para. 12.
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However, party autonomy in the arbitral process, was thoroughly rejected as relevant to the test on whether consolidation would best serve the interests of fair and efficient resolution of the claims by the Canfor et al. tribunal. 95 Relying on Henri Alvarez’s observation: Although mandatory consolidation is not widely accepted in private commercial arbitration, it makes good sense in the case of Chapter 11 of NAFTA, which is not the usual private, consensual context of international commercial arbitration. Rather, Chapter 11 creates a broad range of claims which may be brought by an equally broad range of claimants who have mandatory access to a binding arbitration process without the requirement of an arbitration agreement in the conventional sense nor even the need for a contract between the disputing parties. In view of this, some compromise of the principles of private arbitration may be justified.96
In this regard, party consent to the consolidation procedure by all disputing parties is implied, and there is no additional consent required to consolidation, except if there are more than one respondent (which are all required to agree on proceeding with consolidation under Article 8.43.5). In other words, by giving consent to arbitrate under the CETA, the disputing parties implicitly consent to the process regarding consolidation under the agreement. 61 The issue of implied consent may be held differently in the context where consolidation is sought under more than one IIA, each containing its own consolidation procedure and requirements. In Sastre and others v. Mexico, six claimants brought a single claim involving alleged breaches under four separate IIAs.97 Mexico has raised an objection to the tribunal’s jurisdiction ratione voluntatis on the basis that it did not consent to ‘auto-consolidation’98 of the arbitration.99 The Tribunal has yet to determine the merits of the issue, though it may be difficult to reconcile Mexico’s objection should significant procedural efficiency gains be realised through a joined process. 60
IV. Powers of the Consolidating Division of the Tribunal 1. Power to Stay Proceedings 62
Article 8.43.10 provides that a consolidating division of the Tribunal has the power to stay the proceedings subject to the consolidation request that is being considered. For the tribunals that are subject of the consolidation request, there is no additional procedural guidance pending a consolidation award, and therefore a stay of 95 See also Canfor Corp. v. United States and Tembec v. United States and Terminal Forest Products Ltd v. United States, UNCITRAL, Order of the Consolidation Tribunal (7 September 2005), paras. 134 ff. 96 Canfor Corp. v. United States and Tembec v. United States and Terminal Forest Products Ltd v. United States, UNCITRAL, Order of the Consolidation Tribunal (7 September 2005), para. 78 (citing to Alvarez). 97 The four IIAs are the France-Mexico BIT, the Argentina-Mexico BIT, the Mexico-Portugal BIT and the NAFTA. 98 Carlos Sastre and others v. United Mexican States, ICSID Case No. UNCT/20/2), Procedural Order No.2, Decision on Bifurcation (13 August 2020), para.15. The claimants, on the other hand, argue that this is a multi-party proceeding, which describes a process that has been initiated by multiple claimaints ab initio. 99 The Sastre Tribunal noted from Mexico’s application to bifurcate its jurisdictional objections, the 'Respondent submits that the Treaties prohibit self-consolidation, which conflicts with the concepts of pacta sunt servanda and pacta tertiis, and such self-consolidation is de jure inadmissible and involves fundamental questions of international law and treaty interpretation.‘ Carlos Sastre and others v. United Mexican States, ICSID Case No. UNCT/20/2), Procedural Order No.2, Decision on Bifurcation (13 August 2020), para. 8.
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proceedings by the consolidating division will ensure that any issue over which it may eventually seek to assume jurisdiction is not decided by another constituted tribunal in the interim. Article 8.43.11 articulates that all tribunals that are the subject of a consolidation request must cede its jurisdiction in relation to the claims, or parts of claims, over which a consolidating division of the Tribunal has assumed jurisdiction. Thus, once a stay of proceedings has been ordered by the consolidating division, a previously established tribunal has no further authority to decide any claim or any part of a claim over which the consolidation tribunal has assumed jurisdiction.100 Article 8.43.10 CETA relates only to the power of the consolidating division of 63 tribunal appointed under Article 8.43.7 CETA and does not address the tribunals appointed under Article 8.27.7 CETA. In Corn Products, Mexico requested the tribunal suspend its proceedings under the NAFTA’s parallel provision (Article 1126(9)) 101 pending the consolidation tribunal’s decision in ADM/CPI. While the tribunal found that Article 1126(9) gave it discretion to suspend proceedings pending a decision of the consolidation tribunal, it was not required to do so. In exercising this discretion the tribunal determined that it should be guided by two principles: the efficient conduct of the proceedings and fairness to both disputing parties.102 The Tribunal dismissed Mexico’s request for a suspension and moved to set the procedural schedule in that case, instead.
2. Power to Assume Jurisdiction Over a Claim or Part of a Claim A consolidation tribunal confirms its own jurisdiction through a finding of claims 64 with a question of law or fact in common and that arise out of the same events and circumstances.103 Article 8.43.12 CETA ensures that consolidating division’s awards are binding on any other division that may have been appointed under the original claims. The Canfor et al. consolidation tribunal rejected that ‘assume jurisdiction’ in the 65 context of the consolidation provision amounts to waiving the right to object to jurisdiction, since it asks the tribunal to assume jurisdiction over the claims. 104 The tribunal rejected the argument, correctly interpreting ‘assume jurisdiction’ in this context to mean that the consolidation tribunal takes over the proceedings, in the capacity of an arbitral tribunal, to hear and to determine the disputes from the respective original tribunals. It is a procedural action, in which two or more arbitral tribunals are replaced by one arbitral tribunal with respect to the same disputes.105
100 Caplan and Sharpe, ‘U.S. Model BIT’ in Brown (ed), Commentaries on Selected Model Investment (2013), 843. 101 Article 1126(9) NAFTA ‘On application of a disputing party, a Tribunal established under this Article pending its decision under paragraph 2, may order that the proceedings of a Tribunal established under Article 1120 be stayed, unless the latter Tribunal has already adjourned its proceedings.’ 102 Corn Products Int'l v. Mexico, ICSID (W. Bank) ARB/(AF)/04/1, 4 (Procedural Order No. 2) (14 January 2005) as described in ‘Article 1126 - Consolidation', in Kinnear, Bjorklund, and Hannaford, Investment Disputes under NAFTA: An Annotated Guide to NAFTA Chapter 11 (2006), 1126-9 f. 103 Caplan and Sharpe, ‘U.S. Model BIT’ in Brown (ed), Commentaries on Selected Model Investment (2013), 843. 104 Canfor Corp. v. United States and Tembec v. United States and Terminal Forest Products Ltd v. United States, UNCITRAL, Order of the Consolidation Tribunal (7 September 2005), para. 98 (citing to Tembec Submission of 10 June 2005 at 25 f.; Motion to Dismiss at 4-12; PHB at 3-7; RPHB at 5 ff.). 105 Canfor Corp. v. United States and Tembec v. United States and Terminal Forest Products Ltd v. United States, UNCITRAL, Order of the Consolidation Tribunal (7 September 2005), para. 98.
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3. Power to Protect Confidential Information 66
At the request of an investor, further to Article 8.43.13 CETA, a consolidating division of the Tribunal may take such measures as it sees fit in order to preserve the confidential or protected information of that investor in relation to other investors. Those measures may include the submission of redacted versions of documents containing confidential or protected information to the other investors or arrangements to hold parts of the hearing in private. The consolidating division of the tribunal may institute many measures and procedures to ensure confidential treatment of information (→ mn. 52 ff.).
V. Withdrawal of Claims Subject to a Request for Consolidation 67
Paragraph 13 addresses the situation where an investor may seek to withdraw from the investment dispute settlement process under CETA, when its claim is subject of a request for consolidation. The investor may proceed with withdrawing its claim, but is then barred from resubmitting the claims under CETA in the future. If the investor withdraws its claim within 15 days of receiving the notice of the request for consolidation, it is free to pursue dispute settlement in another forum.
E. Conclusion 68
The general practise of Canada, and more recently the EU, has been to include provisions that provide for the consolidation of claims where they share a question of law or fact in common. The economic and political realities on the ground paired with the unilateral offers of consent to arbitrate by host Parties make this a desirable option for States to ensure coherence in tribunal decisions where identical issues of law and fact are presented in multiple claims. The infrequency with which the consolidation clause has been invoked belies its importance at ensuring overall coherence in the treaty’s interpretation and application. With the modern proliferation of IIAs, it will be interesting to see how tribunals will balance the issue of implied consent with multiparty proceedings initiated under different IIAs.
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Article 8.44 Committee on Services and Investment 1. The Committee on Services and Investment shall provide a forum for the Parties to consult on issues related to this Chapter, including: (a) difficulties which may arise in the implementation of this Chapter; (b) possible improvements of this Chapter, in particular in the light of experience and developments in other international fora and under the Parties' other agreements. 2. The Committee on Services and Investment shall, on agreement of the Parties, and after completion of their respective internal requirements and procedures, adopt a code of conduct for the Members of the Tribunal to be applied in disputes arising out of this Chapter, which may replace or supplement the rules in application, and may address topics including: (a) disclosure obligations; (b) the independence and impartiality of the Members of the Tribunal; and (c) confidentiality. The Parties shall make best efforts to ensure that the code of conduct is adopted no later than the first day of the provisional application or entry into force of this Agreement, as the case may be, and in any event no later than two years after such date. 3. The Committee Services and Investment may, on agreement of the Parties, and after completion of their respective internal requirements and procedures: (a) recommend to the CETA Joint Committee the adoption of interpretations of this Agreement pursuant to Article 8.31.3; (b) adopt and amend rules supplementing the applicable dispute settlement rules, and amend the applicable rules on transparency. These rules and amendments are binding on the Tribunal established under this Section; (c) adopt rules for mediation for use by disputing parties as referred to in Article 8.20; (d) recommend to the CETA Joint Committee the adoption of any further elements of the fair and equitable treatment obligation pursuant to Article 8.10.3; and (e) make recommendations to the CETA Joint Committee on the functioning of the Appellate Tribunal pursuant to Article 8.28.8. Reference to the Respective Provisions in Other EU-Treaties: Article 4.1 EU-Vietnam IPA, Artilce 4.1 EU-Singapore IPA. Bibliography: Emanuel Castellarin, ‘The joint committees established by free trade agreements and their impact on EU law’ in Isabelle Bosse-Platière and Cécile Rapoport (eds), The Conclusion and Implementation of EU Free Trade Agreements (Edward Elgar Publishing 2019) 203; Manuel Kellerbauer, Marcus Klamert, and Jonathan Tomkin (eds), The EU Treaties and the Charter of Fundamental Rights (Oxford University Press, 2019); Gesa Kübek and Isabelle van Damme, ‘Facultative Mixity and the European Union’s Trade and Investment Agreements’ in Merijn Chamon und Inge Govaere (eds) EU External Relations Post-Lisbon - The Law and Practice of Facultative Mixity (Brill Nijhoff, 2020) 137; Anthea Roberts, ‘Power and Persuasion in Investment Treaty Interpretation: The Dual Role of States’ (2010) 104 AJIL 179; Geir Ulfstein, ‘Treaty Bodies and Regimes‘ in Duncan Hollis (ed), The Oxford Guide to Treaties (2nd edn, Oxford University Press, Oxford 2020), 414; André von Walter and Maria Luisa Andrisani, ‘Resolution of Investment Disputes’ in Makane Moïse Mbengue and Stefanie Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (Springer, 2019), 185.
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A. Introduction and Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
B. Spirit and Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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C. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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D. Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. Institutional Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. The Committee on Services and Investment and the CETA Joint Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Organizational Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Membership to the Committee on Services and Investment . . . . . . . . . . . 4. The Legal Nature of the Committee on Services and Investment . . . . . . II. Tasks of the Committee on Services and Investment . . . . . . . . . . . . . . . . . . . . . . 1. The Relevance of ‘internal requirements and procedures’ . . . . . . . . . . . . . . 2. Consultations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Decision-Making Competences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a) The Code of Conduct for Members of the Tribunal . . . . . . . . . . . . . . . . . . . . b) Rules on Mediation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . c) Other Areas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. Preparatory Work . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9 11 11 15 18 29 31 31 38 39 39 42 44 45 46
A. Introduction and Overview* The main purpose of treaties under public international law is to set out obligations between treaty parties. The conclusion of a treaty can, however, also entail the establishment of institutions, such as international organizations, international courts and tribunals. Other treaty organs that do not possess legal personality and do not exercise judicial functions may be referred to as ‘treaty bodies’.1 2 The administrative and institutional provisions of CETA Chapter 26 establish such intergovernmental treaty bodies. Among them, the CETA Joint Committee is set up as the principal body responsible for ‘for all questions concerning trade and investment and the implementation and application of this Agreement’.2 Notably, the tasks vested in the CETA Joint Committee under Article 26(4) and Article 26(5) encompass specific decision-making competences3 as well as the supervision of ‘the work of all specialised committees and other bodies established under this Agreement’. 4 3 Article 26.2 establishes nine specialised committees.5 The Committee on Services and Investment is one of them. In accordance with Article 26.2(1)b, it addresses ‘mat1
* The views expressed in this chapter are exclusively those of the author and may not in any circumstances be regarded as stating a position of the Austrian government. The author wishes to thank Marcus Klammert for his insightful comments. 1 See Ulfstein, ‘Treaty Bodies and Regimes’ in Hollis (ed), The Oxford Guide to Treaties (2020), 414 (414). 2 See Article 26.1(3). 3 Pursuant to Paragraph 4 of Article 26.1, the ‘CETA Joint Committee shall: […] (d) adopt its own rules of procedure; (e) make decisions as set out in Article 26.3’. According to Paragraph 5 of Article 26.1, it ‘may: (a) delegate responsibilities to the specialised committees established pursuant to Article 26.2; […] (c) consider or agree on amendments as provided in this Agreement; […] (e) adopt interpretations of the provisions of this Agreement, which shall be binding on tribunals established under Section F of Chapter Eight (Resolution of investment disputes between investors and states) and Chapter Twenty-Nine (Dispute Settlement); […] (g) change or undertake the tasks assigned to specialised committees established pursuant to Article 26.2 or dissolve any of these specialised committees; (h) establish specialised committees and bilateral dialogues in order to assist it in the performance of its tasks; and (i) take such other action in the exercise of its functions as decided by the Parties’. 4 See Article 26.1(4)b. 5 Article 26.2(1) establishes the Committee on Trade in Goods, the Committee on Services and Investment, the Joint Customs Cooperation Committee (JCCC), Joint Management Committee for
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ters concerning cross-border trade in services, investment, temporary entry, electronic commerce, and intellectual property rights related to services’.
B. Spirit and Purpose Generally, treaty bodies aim at retaining control over the treaty after its entry into 4 force. In the field of international investment protection, this aspect is often connected to balancing powers between treaty parties and arbitral tribunals with respect to the interpretation and application of investment agreements.6 The Committee on Services and Investment’s specific purpose is to improve and 5 facilitate the implementation and application of Chapter 8 on investment. To this end, it provides for a forum for Parties to consult and, to a certain extent, to decide to amend or supplement the agreement.
C. Drafting History As regards the institutional architecture of CETA, the negotiating directives adopt- 6 ed by the Council of the European Union contemplate that ‘[t]he Agreement will set up a specific Trade Commission to monitor the implementation of the Agreement. Committees on specific areas may be established as appropriate and will operate under the framework of the Trade Commission’.7 The specialised committees under Article 26.2, among them the Committee on Services and Investment, constitute such ‘Committees on specific areas’. The decision of the Council of the European Union to extend the negotiating directives to investment8 does not shed further light on this element. Initial provisions on the Committee on Services and Investment can be found 7 in the texts of 15 November 2013,9 4 February 201410 and 1 August 201411. These earlier versions of Article 8.44 had encompassed two noteworthy elements that were, eventually, left out after the introduction of the two-tier Investment Court System (ICS). First, joint Paragraph 1 c stipulated that the Parties should consult over the possible 8 introduction of an appellate mechanism to review awards rendered under the perti-
Sanitary and Phytosanitary Measures, the Committee on Government Procurement, the Financial Services Committee, Committee on Trade and Sustainable Development, the Regulatory Cooperation Forum and the CETA Committee on Geographical Indication. 6 See, e.g., Anthea Roberts, ‘Power and Persuasion in Investment Treaty Interpretation: The Dual Role of States’ (2010) 104 AJIL, 179 (179): ‘In theory, treaty parties are supreme when creating the law and tribunals are supreme when applying it in particular cases’. 7 See Council of the EU, Recommendation from the Commission to the Council in order to authorize the Commission to open negotiations for an Economic Integration Agreement with Canada, 24 April 2009, para. 44. 8 Council of the EU, Recommendation from the Commission to the Council on the modification of the negotiating directives for an Economic Integration Agreement with Canada in order to authorise the Commission to negotiate, on behalf of the Union, on investment, 14 July 2011. 9 Article x-26: Committee, EU-Canada Comprehensive Economic and Trade Agreement, Investor-toState Dispute Settlement Text, 15 November 2013. 10 Article x-26: Committee, EU-Canada Comprehensive Economic and Trade Agreement, Investment Text, 1 August 2014. 11 Article X.42: Committee, EU-Canada Comprehensive Economic and Trade Agreement, Investment Text, 1 August 2014.
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nent investor-State arbitration provisions.12 Second, the Committee on Services and Investment was required to ‘establish and maintain the list of arbitrators’.13 This roster was to be used by the Secretary General of ICSID to appoint, upon request of a disputing party, remaining arbitrators in case the constitution of the tribunal could not be accomplished within the stipulated timeframe.14
D. Commentary This chapter is devoted to institutional and legal questions arising in connection with the Committee on Services and Investment. Sub-chapter I. aims at locating the Committee within the institutional framework of other joint bodies under CETA. Furthermore, organizational matters are addressed and an attempt to delimitate the legal nature of the Committee is made. Sub-Chapter II examines the Committee’s specific tasks. 10 To the extent it raises questions for the functioning of the Committee on Services and Investment, the division of competence between of the European Union and its Member States will be examined. 9
I. Institutional Issues 1. The Committee on Services and Investment and the CETA Joint Committee The relationship between the CETA Joint Committee and the Committee on Services and Investment is defined by their respective tasks. 12 The CETA Joint Committee ‘supervise[s] the work of all specialised committees and other bodies established under this Agreement’.15 In turn, Article 26.2(6) as well as the CETA Joint Committee’s rules of procedure, which are applicable to specialised committees mutatis mutandis require the Committee on Services and Investment to share relevant information.16 11
12 See Article X.42(1)c, EU-Canada Comprehensive Economic and Trade Agreement, Investor-toState Dispute Settlement Text, 4 February 2014: ‘The Committee on Services and Investment shall provide a forum for the Parties to consult on issues related to this Section, including: (…) whether, and if so, under what conditions, an appellate mechanism could be created under the Agreement to review, on points of law, awards rendered by a tribunal under this Section, or whether awards rendered under this Section could be subject to such an appellate mechanism developed pursuant to other institutional arrangements. Such consultations shall take into account the following issues, among others: (i) the nature and composition of an appellate mechanism; (ii) the applicable scope and standard of review; (iii) (iv)the effect of decisions by an appellate mechanism; (v) the relationship of review by an appellate mechanism to the arbitration rules that may be selected under Article X.22 (Submission of a Claim to Arbitration); and (vi) the relationship of review by an appellate mechanism to domestic laws and international law on the enforcement of arbitral awards’. 13 See Article X.42(2)a, EU-Canada Comprehensive Economic and Trade Agreement, Investment Text, 1 August 2014. 14 See Article X.25: Constitution of the Tribunal, EU-Canada Comprehensive Economic and Trade Agreement, Investment Text, 1 August 2014. 15 See Article 26.1(4)b. 16 See Rule 14(2) of Decision 001/2018 of the CETA Joint Committee of 26 September 2018 adopting its Rules of Procedure and of the Specialised Committees: ‘The CETA Joint Committee will be informed in writing of the Contact Points designated by specialised committees or other bodies established under the Agreement. All relevant correspondences, documents and communications between the Contact Points of each specialised committee regarding the implementation of the Agreement will be forwarded to the Secretariat of the CETA Joint Committee simultaneously’) and Article 26.2 (‘6. The specialised
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It is possible for the CETA Joint Committee to delegate responsibilities to the 13 Committee on Services and Investment pursuant to Article 26.1(5)(a). Furthermore, it may change or undertake its tasks or dissolve it in accordance with Article 26.1(5)(g). Article 26.2(6) sets forth that ‘[t]he creation or existence of a specialised committee does not prevent a Party from bringing any matter directly to the CETA Joint Committee.’ The Committee on Services and Investment serves as preparatory body for the 14 CETA Joint Committee. Notably, it may make recommendations for the adoption of interpretations pursuant to Article 8.31(3), the adoption of further elements of the fair and equitable treatment obligation pursuant to Article 8.10.3, and it may propose rules on the functioning of the Appellate Tribunal.
2. Organizational Matters Article 26(4) sets out the general operational rules for specialised committees:
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Unless otherwise provided under this Agreement, or if the co-chairs decide otherwise, the specialised committees shall meet once a year. Additional meetings may be held at the request of a Party or of the CETA Joint Committee. They shall be co-chaired by representatives of Canada and the European Union. The specialised committees shall set their meeting schedule and agenda by mutual consent They shall set and modify their own rules of procedures, if they deem it appropriate. […].
In the absence of its own rules of procedure, the Rules of Procedure adopted by 16 the CETA Joint Committee apply mutatis mutandis to the Committee on Services and Investment.17 The meetings of the Committee on Services and Investment are not public unless 17 the co-chairs decide otherwise.18 However, both the European Commission19 as well as the Government of Canada20 make certain documents, including the agenda, joint reports and decisions, publicly available.
3. Membership to the Committee on Services and Investment With respect to the Parties’ representation at meetings of the Committee on Ser- 18 vices and Investment, Article 26.2(5) sets forth that ‘[e]ach Party shall ensure that […] all the competent authorities for each issue on the agenda are represented, […] and that each issue can be discussed at the adequate level of expertise’. This provision mirrors the technical orientation of the Committee on Services and Investment. By
committees shall inform the CETA Joint Committee of their schedules and agenda sufficiently in advance of their meetings and shall report to the CETA Joint Committee on results and conclusions from each of their meetings […]’. 17 See Rule 14(4) of Decision 001/2018 of the CETA Joint Committee of 26 September 2018 adopting its Rules of Procedure and of the Specialised Committees: ‘Unless otherwise decided by each specialised committee pursuant to Article 26.2.4 of the Agreement, the present Rules of Procedure will apply mutatis mutandis to the specialised committees and other bodies established under the Agreement.’ 18 See Rule 11(1) of Decision 001/2018 of the CETA Joint Committee of 26 September 2018 adopting its Rules of Procedure and of the Specialised Committees. 19 See European Commission, CETA – Meetings and documents, available at http://trade.ec.europa.eu/ doclib/press/index.cfm?id=1811. 20 See Government of Canada, Canada-European Union Comprehensive Economic and Trade Agreement (CETA) – Governance and committees, available at https://www.international.gc.ca/trade-commerce/trad e-agreements-accords-commerciaux/agr-acc/ceta-aecg/committees-comites.aspx?lang=eng.
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contrast, the CETA Joint Committee foresees the possibility of meetings at the ministerial level.21 19 While the representation of Canada appears straightforward, the situation is more complex when it comes to the European Union and its Member States. In particular, the use of the term ‘Party’ in Article 26.2(5) gives rise to the question whether the participation of the Member States is encompassed. Article 26.2(5) does not provide for an unequivocal answer, considering that it was drafted under the assumption that CETA would be concluded as an ‘EU-only agreement’.22 20 Article 1.1 specifies that: Parties means, on the one hand, the European Union or its Member States or the European Union and its Member States within their respective areas of competence as derived from the Treaty on European Union and the Treaty on the Functioning of the European Union (hereinafter referred to as the 'EU Party'), and on the other hand, Canada.
This built-in flexibility with respect to the ‘EU Party’ considers the division of competence over matters under the European Union’s Common Commercial Policy. Its precise delimitation had been debated since the entry into force of the Lisbon Treaty and led to Opinion 2/15 of the Court of Justice of the European (CJEU). 23 22 In Opinion 2/15, the CJEU held with respect to institutional provisions that ‘[t]hose provisions are of an ancillary nature and therefore fall within the same competence as the substantive provisions which they accompany’.24 23 It follows that the exercise of the European Union’s rights under Article 8.44 and, thus, the participation at meetings of the Committee on Services and Investment is linked to the existence of external competences over the matters dealt within that Committee. 24 In accordance with Opinion 2/15, most of the provisions of CETA fall within the exclusive competence of the European Union pursuant to Article 207(1) of the Treaty on the Functioning of the European Union (TFEU). However, different considerations apply as regards investment protection and investor-State dispute settlement (ISDS). 21
21 See Article 26.1(1): ‘[…] The CETA Joint Committee shall be co-chaired by the Minister for International Trade of Canada and the Member of the European Commission responsible for Trade, or their respective designees’. 22 The European Commission formally proposed to the Council of the EU the signature and conclusion of CETA as ‘mixed agreement’ on 6 July 2016. Then, the EU Trade Commissioner Cecilia Malmström held that ‘[…] the political situation in the Council is clear, and we understand the need for proposing it as a 'mixed' agreement, in order to allow for a speedy signature’ (see Press Release of the European Commission, European Commission proposes signature and conclusion of EU-Canada trade deal, 5 July 2016, available at https://ec.europa.eu/commission/presscorner/detail/en/IP_16_2371). This position is also reflected in Explanatory Memorandum contained in the Commission’s proposal for a Council Decision on the signing on behalf of the European Union of the Comprehensive Economic and Trade Agreement between Canada of the one part, and the European Union and its Member States, of the other part, of 6 July 2016, Document st10968/16, available at https://data.consilium.europa.eu /doc/document/ST-10968-2016-INIT/en/pdf, 4: ‘In case A -2/15 the Commission has expressed the view that the Union has exclusive competence to conclude EUSFTA alone and, in the alternative, that it has at least shared competence in those areas where the Union's competence is not exclusive. Many Member States, however, have expressed a different opinion. In view of this, and in order not to delay the signature of the Agreement, the Commission has decided to propose the signature of the Agreement as a mixed agreement. Nevertheless, this is without prejudice to the views expressed by the Commission in Case A – 2/15. Once the Court issues its opinion in case A-2/15, it will be necessary to draw the appropriate conclusions’. 23 CJEU, Opinion 2/15, 16.05.2017, Free Trade Agreement between the European Union and the Republic of Singapore, ECLI:EU:C:2017:376., para. 243. 24 CJEU, Opinion 2/15, 16 May 2017, Free Trade Agreement between the European Union and the Republic of Singapore, ECLI:EU:C:2017:376, para. 276.
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With respect to investment protection, the CJEU distinguished foreign direct investment from other types of investment (‘portfolio investments’). While the Court considered provisions on investment protection an exclusive competence of the European Union in the sense of Article 3(1) TFEU, it held that ‘commitments fall within a competence shared between the European Union and the Member States pursuant to Article 4(1) and (2)(a) TFEU in so far as they concern other types of investment’. 25 In this regard, it is worth noting that the CJEU has clarified that external competences in the field of ‘shared competence’ in the sense of Article 4(1) TFEU can be exercised by the EU alone.26 In other words, the conclusion of agreements covering matters of such ‘shared competence’ does not, as a matter of law, require the approval by the relevant organs of the Member States in addition to the approval by European Union (‘facultative mixity’27). The CJEU’s explicit reference to Article 4(1) TFEU, thus, implies that the European Union can exercise its external competence on portfolio investment without the participation of the Member States. With respect to ISDS, the Court opined that a ‘regime, which removes disputes from the jurisdiction of the courts of the Member States, […] cannot, […] be established without the Member States’ consent’.28 In contrast to paragraph 243 of Opinion 2/15 on portfolio investment, the Court refrained from referring to Article 4(1) TFEU when deliberating upon ISDS. It follows that provisions pertaining to ISDS fall ‘within a competence shared between the European Union and the Member States’ 29 and, thus, can only be exercised by the European Union and its Member States (‘obligatory mixity’).30 Against this background, the representation of the European Union and its Members varies according to the division of competence on investment issues. If the Committee on Services and Investment on Services and investment discusses matters pertaining to ISDS, the delegation of the ‘EU Party’ to the relevant meetings would be comprised of the ‘European Union and its Member States’ in the sense of Article 1.1. In this connection, it is worth noting that the principle of unity in external representation would come into play.31
25 CJEU, Opinion 2/15, 16 May 2017, Free Trade Agreement between the European Union and the Republic of Singapore, ECLI:EU:C:2017:376, para. 243. 26 See CJEU, Case C–600/14, 5 December 2017, Germany v. Council, ECLI:EU:C:2017:935, para. 68. 27 For a detailed treatment, see, e.g., Kübek and van Damme, ‘Facultative Mixity and the European Union’s Trade and Investment Agreements’ in Chamon und Govaere (eds) EU External Relations Post-Lisbon – The Law and Practice of Facultative Mixity (2020), 137. 28 CJEU, Opinion 2/15, 16.05.2017, Free Trade Agreement between the European Union and the Republic of Singapore, ECLI:EU:C:2017:376, para. 292. 29 CJEU, Opinion 2/15, 16.05.2017, Free Trade Agreement between the European Union and the Republic of Singapore, ECLI:EU:C:2017:376, para. 292. 30 In the aftermath of Opinion 2/15, the Council of the European Union endorsed the ‘Commission’s intention to recommend draft negotiating directives for FTAs covering exclusive EU competence on the one hand and separate mixed investment agreements on the other’. See Council of the European Union, The negotiation and conclusion of EU trade agreements – Council conclusions of 22 May 2018, Doc no. 9120/18, available at https://data.consilium.europa.eu/doc/document/ST-9120-2018-INIT/en/pdf. 31 See, e.g., CJEU, Opinion 1/94, 15.11.1994, WTO Agreement, EU:C:1994:384, para. 108: ‘[W]here it is apparent that the subject-matter of an agreement or convention falls in part within the competence of the Community and in part within that of the Member States, it is essential to ensure close cooperation between the Member States and the Community institutions, both in the process of negotiation and conclusion and in the fulfilment of the commitments entered into. That obligation to cooperate flows from the requirement of unity in the international representation of the Community [...]’.
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4. The Legal Nature of the Committee on Services and Investment The Committee on Services and Investment is created by an international agreement and exhibits certain institutional features insofar as it holds meetings on a regular basis and follows rules of procedure. It does, however, not possess legal personality. 30 Rather, Article 8.44 suggests that the Committee on Services and Investment provides for an institutional forum ‘within which Parties jointly exercise their powers.’ 32 This is supported by the use of the terms ‘on agreement of the Parties’ and ‘after completion of their respective internal requirements and procedures’ in Paragraph 2 and Paragraph 3 of Article 8.44. 29
II. Tasks of the Committee on Services and Investment 1. The Relevance of ‘internal requirements and procedures’ As mentioned above, the Committee’s ability to adopt decisions or to make recommendations to the CETA Joint Committee under Article 8.44 depends upon the ‘agreement of the Parties’, and the ’completion of their respective internal requirements and procedures’.33 Thus, the Committee’s tasks cannot be exercised against the will of one of the Parties. 32 In light of the peculiar definition of the ‘EU Party’ in Article 1.1 34, it is worth examining the ‘internal requirements and procedures’ of that party. 33 From an EU law perspective, the relevant ‘internal procedure’ for decisions 35 of treaty bodies,36 and, thus, the Committee on Services and Investment is laid down in Article 218(9) TFEU which reads in its relevant part: 31
The Council, on a proposal from the Commission […] shall adopt a decision […] establishing the positions to be adopted on the Union's behalf in a body set up by an agreement, when that body is called upon to adopt acts having legal effects […].
Accordingly, the Council of the European Union is called upon to determine the ‘common position’ of the European Union to be taken in the Committee on Services and Investment on the basis of a proposal from the Commission of the European Union. 35 Whether a decision pursuant to Article 218(9) TFEU is in itself sufficient for the completion of ‘internal requirements and procedures’ under Article 8.44 or whether 34
32 See Castellarin, ‘The joint committees established by free trade agreements and their impact on EU law’ in Bosse-Platière and Rapoport (eds), The Conclusion and Implementation of EU Free Trade Agreements (2019), 203 (210). 33 See Article 8.44(2) and (3). 34 See Article 1.1, ‘Parties means, on the one hand, the European Union or its Member States or the European Union and its Member States within their respective areas of competence as derived from the Treaty on European Union and the Treaty on the Functioning of the European Union […]’. 35 It is not entirely clear whether recommendations under Article 8.44(3) would qualify as ‘acts having legal effects’ and would, thus, require a decision pursuant to Article 218(9) TFEU. In Federal Republic of Germany v. Council of the European Union, the CJEU considered it relevant that the recommendations in question were ‘decisively influencing the content of the legislation adopted by the EU legislature’ (see CJEU, Case C-399/12, 07.10.2014, Federal Republic of Germany v. Council of the European Union, ECLI:EU:C:2014:2258). Arguably, recommendations of the Committee on Services and Investment have such effect on decisions to be taken in the CETA Joint Committee. 36 It is worth noting that Article 218(9) TFEU does not apply to positions to be expressed on behalf of the EU before an international judicial body set up by an international treaty (see Erlbacher in Kellerbauer, Klamert and Tomkin (eds), The EU Treaties and the Charter of Fundamental Rights, Article 218 TFEU, mn. 27; CJEU, Case C-73/14, Council v Commission (ITLOS), EU:C:2015:663, paras 66 ff.).
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additional acts of the Member States are required, depends on the respective subject matter of the contemplated decision of the Committee on Services and Investment. In this context, the division of competence over investment issues comes into play again (→ mn. 22 ff.). On the one hand, a Council decision pursuant to Article 218(9) TFEU meets the 36 ‘internal requirements and procedures’ threshold of Article 8.44 when it relates to matters that fall within an exclusive or shared competence of the European Union. 37 Thus, to the extent the Committee on Services and Investment addresses substantive investment protection issues pertaining to foreign direct investment or portfolio investments, the EU is entitled to exercise its external competences on the basis of such decision. This is relevant for recommendations for ‘[…] the adoption of interpretations of this Agreement pursuant to Article 8.31.3.’38 On the other hand, if a matter falls within the competence of Member States, a 37 decision pursuant to Article 218(9) TFEU would not suffice. This requires an act of all Member States in their capacity as distinct legal entities under public international law. In practice, Council decisions pursuant to Article 218(9) TFEU are, thus, accompanied by a ‘Decision of the Representatives of the Governments of the Member States’.39
2. Consultations The Committee on Services and Investment provides for a forum for consultations 38 on issues related to Chapter 8 on Investment. Notably, difficulties arising in the implementation of Chapter 8 and possible improvements may be considered. 40
3. Decision-Making Competences a) The Code of Conduct for Members of the Tribunal Article 8.30 already lists a number of obligations to ensure the independence and 39 impartiality of adjudicators and incorporates the International Bar Association’s (IBA) Guidelines on Conflicts of Interest in International Arbitration. In addition, paragraph 2 of Article 8.44 provides for the adoption of a code of conduct for the Members of the Tribunal ‘to be applied in disputes arising out of this Chapter, which may replace or supplement the rules in application’. On 29 January 2021, the Committee on Services adopted ‘a code of conduct for 40 Members of the Tribunal, Members of the Appellate Tribunal and mediators’.41 At the outset, one can observe that the code of conduct is not limited to Members 41 of the Tribunal, as suggested by Article 8.44(2). It extends to Members of the Appellate Tribunal and mediators. The decisions sets out, inter alia, disclosure obligations, See Article 3(1) and Article 4(1) TFEU. See Article 8.44(3)d. 39 See Decision of the Representatives of the Governments of the Member States as regards the adoption by the CETA Committee on Services and Investment of a code of conduct for Members of the Tribunal, the Appellate Tribunal and mediators Adoption, doc. no. 7242/20, 7134/1/20 REV 1 and 6966/20 7; Decision of the Representatives of the Governments of the Member States as regards the adoption by the CETA Committee on Services and Investment of rules for mediation for use by disputing parties in investment disputes Adoption, doc. no. 7243/20, 7135/1/20 REV 1 and 6967/20. 40 See Article 8.44(1). 41 See Decision No 001/2021 of the Committee on Services and Investment of 29 January 2021 adopting a code of conduct for Members of the Tribunal, Members of the Appellate Tribunal and mediators, available at https://www.international.gc.ca/trade-commerce/trade-agreements-accords-co mmerciaux/agr-acc/ceta-aecg/code-conduct-conduite.aspx?lang=eng. 37
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safeguards pertaining to independence, impartiality, as well as obligations of former members. Article 8 of the code of conduct stipulates that ‘the provisions of this code of conduct shall be applied together with the obligations set out in Article 8.30.1 of the Agreement and the procedures provided for in Articles 8.30.2, 8.30.3 and 8.30.4 of the Agreement shall apply to violations of this code of conduct’. b) Rules on Mediation In accordance with Article 8.44(3)c, the Committee on Services and Investment ‘may […] adopt rules for mediation for use by disputing parties as referred to in Article 8.20’. The Committee on Services adopted rules on mediation on 29 January 2021. 42 43 Notably, the rules stipulate provisions on the appointment of the mediator, rules of the mediation procedure, provisions regarding the implementation of a mutually agreed solution as well as clarifications pertaining to the relationship to dispute settlement. 42
c) Other Areas 44
In addition, the Committee on Services and Investment may adopt and amend rules supplementing the applicable dispute settlement rules and it may amend the applicable rules on transparency.43
4. Preparatory Work 45
The Committee on Services and Investment serves to prepare decisions of the CETA Joint Committee by making recommendations. In specific, it may ‘recommend […] the adoption of interpretations of this Agreement pursuant to Article 8.31.3’, 44 ‘the adoption of any further elements of the fair and equitable treatment obligation pursuant to Article 8.10.3’45 and ‘make recommendations to the CETA Joint Committee on the functioning of the Appellate Tribunal pursuant to Article 8.28.8’. 46
III. Conclusion 46
The establishment of the Committee on Services and Investment resembles the ‘living nature’ of CETA. To date, its decisions adopting rules for meditation and a code of conduct have clarified important aspects of the ICS. Depending on the Parties’ ambitions, the Committee may prove a valuable forum for further improvements of Chapter 8.
42 See Decision No 002/2021 of the Committee on Services and Investment of 29 January 2021 adopting rules for mediation for use by disputing parties in investment disputes, available at https://ww w.international.gc.ca/trade-commerce/trade-agreements-accords-commerciaux/agr-acc/ceta-aecg/rules -mediation-regles.aspx?lang=eng. 43 Article 8.44(3)b. 44 Article 8.44(3)a. 45 Article 8.44(3)d. 46 Article 8.44(3)e.
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Article 8.45 Exclusion The dispute settlement provisions of this Section and of Chapter Twenty-Nine (Dispute Settlement) do not apply to the matters referred to in Annex 8-C. Bibliography: Kevin Ackhurst, Stephen Nattrass and Erin Brown, ‘CETA, the Investment Canada Act and SOEs: A Brave New World for Free Trade’ (2016) 31 ICSID Rev. 58; Philip Hainbach, ‘The EU’s Approach to Investor-State Arbitration in the Comprehensive Economic and Trade Agreement (CETA)’ (2016) 13(1) TDM, 32; Céline Lévesque and Andrew Newcombe, ‘Canada’ in Brown (ed), Commentaries on Selected Model Investment Treaties (Oxford University Press, Oxford 2013), 53; Piergiuseppe Pusceddu, ‘State-to-State Dispute Settlement Provisions in the EU-Canada Comprehensive Economic and Trade Agreement’ (2016) 13(1) TDM, 15; Elsa Sardinha, ‘The New EU-Led Approach to InvestorState Arbitration: The Investment Tribunal System in the Comprehensive Economic Trade Agreement (CETA) and the EU–Vietnam Free Trade Agreement’ (2017) 32(3) ICSID Rev., 625. A. Introduction and Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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B. Spirit and Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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C. Drafting History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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D. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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A. Introduction and Overview Article 8.45 gives the Parties the possibility of excluding certain matters from the 1 scope of application of the dispute settlement provisions of Chapter Eight, Section F, and of Chapter Twenty-Nine. Section F of Chapter Eight governs the resolution of investment disputes between investors and states (ISDS). Chapter Twenty-Nine ‘applies to any dispute [between the Parties] concerning the interpretation or application of the provisions of [CETA]’.1 The excluded matters are those the Parties included in Annex 8-C. Canada’s first BITs, that is, those signed in the late 1980 s and early 1990 s, con- 2 tained no provision allowing for general exclusions specifically from the treaty’s dispute settlement provisions.2 As from the BIT with Croatia, however, signed in February 1997, Canada started to include in some of its BITs, among other exceptions, exclusions from the application of ISDS provisions (particularly in respect of measures relating to the establishment of new investments) and specific rules for the application of ISDS provisions as regards certain kinds of state measures.3 More recent BITs enCETA, Article 29.2. However, some of Canada’s early BITs excluded or limited the application of the substantive obligations of the treaty to certain matters, such as taxation measures, which also affected the application of the dispute settlement provisions to such matters. See, for instance, the Agreement between the Government of Canada and the Government of the Republic of Trinidad and Tobago for the Reciprocal Promotion and Protection of Investments, signed on 11 September 1995, Article XII; Agreement between the Government of Canada and the Government of the Republic of the Philippines for the Promotion and Reciprocal Protection of Investments, signed on 10 November 1995, Article XII. 3 Agreement between the Government of the Republic of Croatia and the Government of Canada for the Promotion and Protection of Investments, signed on 3 February 1997, Annexes I.VI, II; Agreement between the Government of Canada and the Government of the Lebanese Republic for the Promotion and Protection of Investments, signed on 11 April 1997, Annexes I.VI, II; Agreement between the Government of Canada and the Government of the Eastern Republic of Uruguay for the Promotion and Protection of Investments, signed on 29 October 1997, Annexes I.VI, II; Agreement between the Government of Canada and the Government of the Republic of Costa Rica for the Promotion and Protection of Investments, signed on 18 March 1998, Annexes I.VI, II. These treaties are included in 1 2
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tered into by Canada, starting with the Canada-Peru BIT, which was signed on 14 November 2006, contained a provision on exclusions from the dispute settlement provisions that was very similar to Article 8.45 of CETA, in terms of both its wording and structure (i.e., a short article providing for the possibility of exclusions from the dispute settlement provisions, with the excluded matters detailed in an annex). 4 Further, similar to Article 8.45, these more recent exclusions provisions in Canada’s BITs include, as a matter excluded from the application of the dispute settlement provisions, a review under the Investment Canada Act, as discussed further below. 3 The EU also included provisions excluding the application of the dispute settlement provisions of the treaty to certain matters in some of its free trade agreements. 5 However, its more recent investment protection agreements with Singapore and with Vietnam contain no exclusions provision applicable specifically to the dispute settlement arrangements similar to Article 8.45.6 Canada’s second generation BITs, signed after NAFTA came into force. See Lévesque and Newcombe, ‘Canada’ in Brown (ed), Commentaries on Selected Model Investment Treaties (2013), 53 (58). 4 Agreement between Canada and the Republic of Peru for the Promotion and Protection of Investments, signed on 14 November 2006, Article 51 and Annex E.51. See also Agreement between Canada and the Hashemite Kingdom of Jordan for the Promotion and Protection of Investments, signed on 28 June 2009, Article 47 and Annex IV; Agreement between Canada and the State of Kuwait for the Promotion and Protection of Investments, signed on 26 September 2011, Article 40 and Annex 3; Agreement between the Government of Canada and the Government of the People’s Republic of China for the Promotion and Protection of Investments, signed on 9 September 2012, Article 15, Part C and Annex D.34; Agreement between the Government of Canada and the Government of the Republic of Benin for the Promotion and Reciprocal Protection of Investments, signed on 9 January 2013, Article 51 and Annex IV; Agreement between the Government of Canada and the Government of the United Republic of Tanzania for the Promotion and Reciprocal Protection of Investments, signed on 17 May 2013, Article 39 and Annex III; Agreement between Canada and the Republic of Cameroon for the Promotion and Protection of Investments, signed on 3 March 2014, Article 40 and Annex IV; Agreement between Canada and the Republic of Serbia for the Promotion and Protection of Investments, signed on 1 September 2014, Article 41 and Annex IV; Agreement between Canada and the Federal Republic of Senegal for the Promotion and Protection of Investments, signed on 27 November 2014, Article 41 and Annex III; Agreement between Canada and Mali for the Promotion and Protection of Investments, signed on 28 November 2014, Article 40 and Annex IV; Agreement between the Government of Canada and the Government of the Republic of Côte d’Ivoire for the Promotion and Reciprocal Protection of Investments, signed on 30 November 2014, Article 40 and Annex IV; Agreement between the Government of Canada and the Government of Burkina Faso for the Promotion and Protection of Investments, signed on 20 April 2015, Article 42 and Annex V; Agreement for the Promotion and Reciprocal Protection of Investments between Canada and the Republic of Guinea, signed on 27 May 2015, Article 41 and Annex III; Agreement between the Government of Canada and the Government of the Hong Kong Special Administrative Region of the People’s Republic of China for the Promotion and Protection of Investments, signed on 10 February 2016, Article 37 and Annex IV; Agreement between Canada and Mongolia for the Promotion and Protection of Investments, signed on 8 September 2016, Article 40 and Annex III; Agreement between the Government of Canada and the Government of the Republic of Moldova for the Promotion and Protection of Investments, signed on 23 August 2019, Article 40 and Annex III. 5 See, for instance, Trade Agreement between the European Union and its Member States, of the one part, and Colombia and Peru, of the other part, signed on 26 June 2012, Articles 42, 47, 266, 285, and 293; Agreement Establishing an Association between Central America, of the one part, and The European Union and its Member States, of the other part, signed on 29 June 2012, Articles 98, 103, and 283; Agreement between the European Union and Japan for an Economic Partnership, signed on 17 July 2018, Articles 5.9, 5.11, 6.16, 11.9, 12.10, 14.55, 15.7, 16.17, 18.19, 19.18, and 20.4. 6 See Investment Protection Agreement between the European Union and its Member States, of the one part, and the Republic of Singapore, of the other part, signed on 15 October 2018; Investment Protection Agreement between the European Union and its Member States, of the one part, and the Socialist Republic of Viet Nam, of the other part, signed on 30 June 2019. For a comparison between the ISDS provisions of CETA and those of the EU–Vietnam FTA see Sardinha, ‘The New EU-Led Approach to Investor-State Arbitration: The Investment Tribunal System in the Comprehensive Economic Trade Agreement (CETA) and the EU–Vietnam Free Trade Agreement’ (2017) 32(3), ICSID Rev., 625 ff.
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Section B discusses the text of both Article 8.45 and Annex 8-C and describes 4 the matters that are excluded from the application of dispute settlement provisions as a result of the interplay of both provisions. It also analyses the exclusions or modifications to the general dispute settlement regime in other provisions of CETA and the history and object of the specific exclusion contained in Annex 8-C. Section C describes the evolution of the text of both Article 8.45 and Annex 8-C during the CETA negotiations since they were first proposed by Canada. Section D concludes.
B. Spirit and Purpose According to the text of Article 8.45, only the dispute settlement provisions of 5 Section F of Chapter Eight and of Chapter Twenty-Nine do not apply to the matters referred to in Annex 8-C. The substantive obligations arising from CETA are not affected by the exclusion and may thus be applicable to such matters. However, even if it applies only to jurisdiction and procedural provisions, the exclusion allowed by Article 8.45 is significant. As regards investments specifically, CETA is supposed to represent a ‘break with the past’ both in the terms of ‘clearer and more precise’ substantive standards and of improved dispute settlement proceedings.7 More generally, dispute settlement provisions have been considered investment treaties’ ‘most essential’ provisions.8 As noted, Article 8.45 excludes the application of CETA’s provisions on ISDS and 6 on disputes between the Parties concerning the interpretation or application of CETA to the matters referred to in Annex 8-C. Exclusions from the dispute settlement provisions are also contained in Article 3.7 (Chapter Twenty-Nine not applicable to Trade Remedies), Article 7.9 (consultations on certain subsidies and government support not subject to the dispute settlement provisions of CETA), and Article 17.4 (nothing in Chapter Seventeen, relating to competition policy, is subject to any form of dispute settlement pursuant to CETA). Other provisions of CETA do not completely exclude the application of dispute settlement provisions, but rather modify certain aspects of the general regime, as in the case of Article 13.20 (which introduces modifications to the dispute settlement regime between the parties for disputes relating to financial services), or create ad hoc dispute settlement rules, as in the case of Article 23.11 (which governs disputes between the Parties relating to trade and labour) and Article 24.16 (which governs disputes between the Parties relating to trade and the environment). 9
7 European Commission, Investment provisions in the EU-Canada free trade agreement (CETA), February 2016, p. 1. From early on in the negotiations, one of the EU’s goals was that CETA should ‘provide for an effective and state-of-the-art investor-to-state dispute settlement mechanism’. See Council of the EU, Recommendation from the Commission to the Council on the modification of the negotiating directives for an Economic Integration Agreement with Canada in order to authorise the Commission to negotiate, on behalf of the Union, on investment, 14 July 2011, para. 26 d. See also Ackhurst et al., ‘CETA, the Investment Canada Act and SOEs: A Brave New World for Free Trade’ (2016) 31 ICSID Rev. 58 (59) (referring to the ISDS provisions as ‘[o]ne of the most important aspects of CETA’, which could also ‘be its most novel and controversial’); Hainbach, ‘The EU’s Approach to Investor-State Arbitration in the Comprehensive Economic and Trade Agreement (CETA)’ (2016) 13(1) TDM, 32 (arguing that CETA’s proposed creation of an investment court system ‘provides a historical turning point in international investment law’). 8 Eastern Sugar B.V. (Netherlands) v. The Czech Republic, SCC Case No. 088/2004, Partial Award, 27 March 2007, paras. 165 f. 9 See Piergiuseppe Pusceddu, ‘State-to-State Dispute Settlement Provisions in the EU-Canada Comprehensive Economic and Trade Agreement’ (2016) 13(1) TDM, 15.
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Annex 8-C details the exclusions from dispute settlement to which Article 8.45 applies and contains one paragraph, which reads thus: A decision by Canada following a review under the Investment Canada Act, R.S.C. 1985, c. 28v(1st Supp.), regarding whether or not to permit an investment that is subject to review, is not subject to the dispute settlement provisions under Section F, or to Chapter Twenty-Nine (Dispute Settlement). For greater certainty, this exclusion is without prejudice to the right of a Party to have recourse to Chapter Twenty-Nine (Dispute Settlement) with respect to the consistency of a measure with a Party’s reservations, as set out in the Party’s Schedule to Annexes I, II or III, as appropriate.
The Investment Canada Act (ICA)10 is a successor to the more restrictive Foreign Investment Review Act,11 which had been enacted in 1974 following concerns about the increasing participation of foreigners in different sectors of the Canadian economy.12 The purpose of ICA is to ‘provide for the review of significant investments in Canada by non-Canadians in a manner that encourages investment, economic growth and employment opportunities in Canada and to provide for the review of investments in Canada by non-Canadians that could be injurious to national security’.13 Investments by non-Canadians to establish a new Canadian business or to acquire control of a Canadian business are subject to notification and, in certain cases, review according to the terms of ICA, except for those exempt transactions. 14 Whether a review is required ‘depends on the structure of the transaction and the value and nature of the Canadian business being acquired’.15 The purpose of the review is to determine whether ‘the investment is likely to be of net benefit to Canada’, 16 without prejudice to a separate national security review that may be performed in respect of some transactions.17 9 The combined effect of Article 8.45 and Annex 8-C is that a decision by Canada under ICA not to authorize an investment that is subject to review may not be challenged, either by the investor concerned through Section F of Chapter Eight or by any of the Parties through the dispute settlement mechanism of Chapter Twenty-Nine. However, Annex 8-C clarifies that the exclusion does not affect recourse to Chapter Twenty-Nine (i.e., only by a CETA Party) to challenge a measure in light of the adopting Party’s reservations, as set out in the Party’s Schedule to Annexes I, II or III. In Annex I, Reservation I-C-1, on the one hand, Canada commits to a significantly higher review threshold under ICA for EU investors.18 On the other hand, Canada also reserves the right to impose requirements, commitments, or undertakings relating to technology or knowledge transfer in connection with a review under ICA. As 8
Investment Canada Act (ICA), RSC, 1985, c 28 (1st Supp). SC 1973–74, c 46. 12 Lévesque and Newcombe, ‘Canada’ in Brown (ed), Commentaries on Selected Model Investment Treaties (2013), 53. 13 ICA, Sec. 2. 14 ICA, Sec. 10. 15 Ackhurst et al., ‘CETA, the Investment Canada Act and SOEs: A Brave New World for Free Trade’ (2016) 31 ICSID Rev., 58 (67). 16 ICA, Sec. 21. 17 Ackhurst et al., ‘CETA, the Investment Canada Act and SOEs: A Brave New World for Free Trade’ (2016) 31 ICSID Rev., 58 (67). 18 See Ackhurst et al., ‘CETA, the Investment Canada Act and SOEs: A Brave New World for Free Trade’ (2016) 31 ICSID Rev., 58 (59 f.) (arguing that ‘[g]iven most-favoured-nation (MFN) clauses in other FTAs, many of Canada’s other trading partners are poised to benefit from this provision as well’). 10
11
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clarified by Annex 8-C, compliance by Canada with these reservations is subject to the dispute settlement provisions of Chapter Twenty-Nine.19
C. Drafting History The text of what is now CETA Article 8.45 was already present, almost verbatim, 10 in the treaty’s draft consolidated text of 13 January 2010. It remained virtually unchanged in the drafts of January 2011, February 2012, 15 November 2013, 4 February 2014, and 1 August 2014. The text was proposed by Canada and appears as agreed by the EU only in the final draft of 1 August 2014. 20 The 13 January 2010 draft contained a draft annex that, similar to Annex 8-C, also included a review under ICA within the exclusions from the application of dispute settlement provisions. This draft did not contain the clarification as regards a Party’s reservations contained in Annex 8-C, discussed above, which was only included in the final draft of 1 August 2014. However, the 13 January 2010 draft contained a second paragraph that read as follows: A decision by a Party to prohibit or restrict the acquisition of an investment in its territory by an investor of the other Party, or its investment, pursuant to Article [X.02] (Exceptions – National Security) shall not be subject to the dispute settlement provisions of Section B of this Chapter or of Chapter [XY] (Dispute Settlement).
This second paragraph was present in the drafts of January 2011 and February 11 2012, but was not included as from the 15 November 2013 draft. As with the provision that eventually became Article 8.45, the drafts of February 2012, 15 November 2013, and 4 February 2014 also indicate that the text of what became Annex 8-C was a Canadian proposal. Notably, the second paragraph quoted above, which was dropped from the most recent drafts, would have exempted the EU’s (and Canada’s) foreign investments screening mechanisms from CETA’s dispute settlement provisions, similar to the exclusion applicable to review decisions under ICA as per Article 8.45.
D. Conclusion Article 8.45 derives from a Canadian proposal seeking to exclude from the appli- 12 cation of provisions on dispute settlement between investors and CETA Parties or among the CETA Parties themselves, certain matters included in an annex to the treaty (Annex 8-C). At present, the exclusion applies only to a Canadian screening mechanism of foreign investments. Yet in times of a significant backlash against globalisation generally and against ISDS in particular, the exclusion of international supervision over state controls to foreign investments is significant. The concerns that states may have over certain foreign investments are understandable. Yet it would be desirable that in the coming years international institutions and in particular international tribunals regain some of the lost legitimacy, including through some of the reforms that are currently under discussion. Exclusions similar to that contained in Article 8.45 could then become less necessary in the eyes of states, perhaps also assuming that supervision by international tribunals were subject to precise legal standards and afforded states a reasonable margin of appreciation where appropriate. 19 See also Reservation I-C-18 (relying on ICA for the definition of ‘non-Canadians’ and ‘Canadian controlled’). 20 The drafts of 15 November 2013 and 4 February 2014 expressly indicate that it is a ‘Canadian draft text not provisionally agreed by the EU’. The February 2012 draft also suggests that the text was proposed by Canada, given that it appears in red, which was the colour used for the Canadian proposals.
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An Overview of the CETA – Investment Chapter (Chapter 8) Trade Agreement (Routledge 2016); Koen Lenaerts, ‘The autonomy of European Law’ (2019) 1 I Post di Aisdue; Céline Lévesque and Andrew Newcombe ‘Canada’ in Chester Brown (ed), Commentaries on Selected Model Investment Treaties (Oxford University Press, Oxford 2013), 53; Romain Laugier, ‘CETA’s Investment Chapter: Blueprint for a Global Investment Reform?’, Le Petit Juriste, 2.1.2018; Cheol Liu and John Mikesell, ‘The Impact of Public Officials’ Corruption on the Size and Allocation of US State Spending’ (2014) 74(3) Public Adm. Rev., 346; Johannes Masing, Die Mobilisierung des Bürgers für die Durchsetzung des Rechts (Humboldt, Berlin 1997); Franz Mayer, Stellt das geplante Freihandelsabkommen der EU mit Kanada (Comprehensive Economic and Trade Agreement, CETA) ein gemischtes Abkommen dar?, Expert Opinion for the German Federal Ministry for Economic Affairs and Energy, published on 22 September 2014; George Monbiot, ‘This transatlantic trade deal is a full-frontal assault on democracy’, The Guardian, 4 November 2013; Peter Muchlinsky, Federico Ortino and Christoph Schreuer (eds), The Oxford Handbook of International Investment Law (Oxford University Press, Oxford 2008); Till Müller-Ibold and Christoph Herrmann, ‘Die Entwicklung des europäischen Außenwirtschaftsrechts’ (2016) EuZW, 646; Eric Neumayer, ‘Do Countries Fail to Raise Environmental Standards? An Evaluation of Policy Options Addressing “Regulatory Chill”’ (2001) 4(3) Int’l J. Sustain. Dev., 231; Suzy Nikièma, ‘Performance Requirements in Investment Treaties’, IISD Best Practices Series, December 2014; Stratos Pahis, ‘Corruption in Our Courts: What It Looks Like and Where It Is Hidden’ (2009) 118 Yale L. J., 1900; Ingolf Pernice, ‘Politisierung der EU nach der Europawahl – Politik zwischen TTIP und TTU’ (2014) EuZW, 521; August Reinisch, ‘From a “Salini-light” Test and New Disagreement on Waiting Periods to Clarifications on Expropriation and Fair and Equitable Treatment – ICSID Arbitration in 2013’ in Giuliana Capaldo (ed), The Global Community. Yearbook of International Law and Jurisprudence 2014: Volume II (Oxford Scolarship Online, 2015), 837; August Reinisch, ‘Putting the Pieces Together … an EU Model BIT?’ in Marc Bungenberg and August Reinisch (guest eds), The Anatomy of the (Invisible) EU Model BIT in (2014) 15 JWIT, 679; August Reinisch, ‘The Division of Powers between the EU and its Member States “after Lisbon”’ in Marc Bungenberg, Jörn Griebel, Steffen Hindelang (eds), Internationaler Investitionsschutz und Europarecht (Nomos, Baden-Baden 2010), 99; August Reinisch, ‘The EU on the Investment Path – Quo Vadis Europe? The Future of EU BITs and other Investment Agreements’ (2013) 12 SCJIL, 111; August Reinisch (ed), Standards of Investment Protection (Oxford University Press, Oxford 2008); August Reinisch, ‘Will the EU’s Proposal Concerning an Investment Court System for CETA and TTIP Lead to Enforceable Awards? — The Limits of Modifying the ICSID Convention and the Nature of Investment Arbitration’ (2016) 19(4) J. Int’l Econ. L., 761; Christian Riffel, ‘The CETA Opinion of the European Court of Justice and its Implications – Not that Selfish After All’ (2019) 22(3) J. Int’l Econ. L., 503; Berthold Rittberger, Building Europe’s Parliament (Oxford University Press, Oxford 2015); Karl Sauvant and Michael Chiswick-Patterson (eds), Appeals Mechanism in International Investment Disputes (Oxford University Press, Oxford 2008); Stefanie Schacherer, ‘TPP, CETA and TTIP Between Innovation and Consolidation — Resolving Investor-State Disputes under Mega-regionals’ (2016) 7(3) J. Int’l Disp. Settlement, 628; Jan Schäfer, ‘Investitionsschutzklausel in Freihandelsabkommen zwischen USA und EU?’ (2014) 5 ZRP, 154; Stephan Schill, ‘Do Investment Treaties Chill Unilateral State Regulation to Mitigate Climate Change?’ (2007) 24(5) J. Int’l Arb., 469; Christoph Schreuer, ‘Fair and Equitable Treatment in Arbitral Practice’ (2005) 6 JWIT, 357; Ibrahim Shihata, ‘Towards a Greater Depoliticization of Investment Disputes: The Roles of ICSID and MIGA’ (1986) 1 ICSID Rev.–FILJ, 1; Daniel Thym, ‘Verhinderte Rechtsanwendung: deutsche Gerichte, CETA/TIIP und Investor-Staat-Streitigkeiten’ Verfassungsblog, 4 January 2015; Kyla Tienhaara, ‘Regulatory chill and the threat of arbitration: A view from political science’ in Chester Brown and Kate Miles (eds), Evolution in Investment Treaty Law and Arbitration (Cambridge University Press, Cambridge 2011), 606; Christian Tietje, ‘Die Außenwirtschaftsverfassung der EU nach dem Vertrag von Lissabon‘ (2009) 83 BTW, 16; Catharine Titi, ‘International investment law and the European Union: Towards a New Generation of International Investment Agreements’ (2015) 26(3) EJIL, 639; Leon Trakman and Nicola Ranieri, Regionalism in International Investment Law (Oxford University Press, Oxford 2013); Maxim Usynin and Szilárd Gáspár-Szilágyi, ‘The Growing Tendancy of Including Investment Chapters in PTAs’ in Fabian Amtenbrink, Prévost Denise, Ramses Wessel (eds), NYIL 2017 (Springer 2017), 267; Kenneth Vandevelde, Bilateral Investment Treaties (Oxford University Press, Oxford 2010); Anthony Van Duzer, ‘Investor-State Dispute Settlement in CETA: Is It the Gold Standard?’ (2016) C.D. Howe Institute Commentary No. 459; Ottawa Faculty of Law Working Paper No. 2016-44; Gus Van Harten, ‘ISDS in the Revised CETA: Positive Steps, But Is It a ‘Gold Standard’?’ (2016) CIGI Investor-State Arbitration Commentary Series No. 6; Stephan Wilske, Raeesa Rawal and Geetanjali Sharma, ‘The Emperor’s New Clothes: Should India Marvel at the EU’s New Proposed Investment Court System?’ (2018) 6(2) Indian J. Arb. L., 79; Stephen Woolcock, ‘The EU Approach to International Investment Policy after the Lisbon Treaty’, Study for the EP Committee on International Trade 2010.
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An Overview of the CETA – Investment Chapter (Chapter 8) A. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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B. The Economic Background: Benefits of a CETA Investment Chapter . . . . . .
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C. The EU and Canada Investment Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. EU Investment Policy after the Treaty of Lisbon . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. The Question of Competences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. (New) EU Investment Policy Approaches . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Clarifications on the Compatibility of the CETA Investment Chapter with the EU’s Constitutional Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Canadian Investment Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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D. Negotiation and Outcome of CETA’s Investment Chapter . . . . . . . . . . . . . . . . . . I. The Necessity of ISDS in CETA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Future Termination of EU Member States – Canada Investment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17 30 34 40 52
E. The CETA Substantive and Procedural Framework – A Paradigm Change? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 I. The CETA Substantive Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 1. The Scope of Application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 2. Extension of Scope of Application to Admission/Market Access . . . . . . . 62 3. The Standards of Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 4. Exemptions, Reservations and Denial of Benefits . . . . . . . . . . . . . . . . . . . . . . 80 5. Interim Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 II. The CETA Procedural Framework (Investor-State Dispute Settlement) . . 82 1. General Considerations and Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 2. Scope of Application and Jurisdiction of the ICS . . . . . . . . . . . . . . . . . . . . . . . 89 3. Establishment of the ICS – A General Overview . . . . . . . . . . . . . . . . . . . . . . . 92 4. Applicable Law, Content of Awards and their Enforceability . . . . . . . . . . . 99 5. Interim Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108 F. Conclusion: The New EU Approach – A Change of Paradigms? . . . . . . . . . . . 109
A. Introduction With the entry into force of the Treaty of Lisbon,1 the European Union (EU) has 1 gained new competences in the area of international investment law and politics. Article 207 Treaty on the Functioning of the European Union (TFEU) provides for an external treaty-making power in the field of foreign direct investment. 2 Overall, the inclusion of investment protection in the common commercial policy is seen as a ‘step forward’ from an EU law perspective.3 After the entry into force of the Treaty of Lisbon on 1 December 2009, investment 2 protection chapters have become part of the negotiation of new economic agreements 1 Treaty of Lisbon Amending the Treaty on European Union and the Treaty Establishing the European Community [2007] OJ C306/01. 2 Article 207(1) Consolidated version of The Treaty on the Functioning of the European Union [2008] OJ C115/47 reads: ‘The common commercial policy shall be based on uniform principles, particularly with regard to changes in tariff rates, the conclusion of tariff and trade agreements relating to trade in goods and services, and the commercial aspects of intellectual property, foreign direct investment, the achievement of uniformity in measures of liberalisation, export policy and measures to protect trade such as those to be taken in the event of dumping or subsidies. The common commercial policy shall be conducted in the context of the principles and objectives of the Union’s external action.’ 3 Specifically in the field of direct investment, see Herrmann and Müller-Ibold, ‘Die Entwicklung des europäischen Außenwirtschaftsrechts’ (2016) EuZW, 646 (646 f.); Bungenberg, ‘Europäischer Internationaler Investitionsschutz’, in von Arnauld (eds), Europäische Außenbeziehungen, EnzEuR Bd. 10 (2014), 743; Reinisch, ‘The EU on the Investment Path – Quo Vadis Europe? The Future of EU BITs and other Investment Agreements’ (2013) 12 SCJIL, 111 (115 f.); Dimopoulos, EU Foreign Investment Law (2011), 66 f.; Bungenberg, ‘Going Global? The EU Common Commercial Policy After Lisbon’, in Herrmann and Terhechte (eds), EYIEL 2010 (2010), 123 (143 f.).
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An Overview of the CETA – Investment Chapter (Chapter 8) with third countries. A negotiating mandate was promptly issued on investment protection for the agreements with Canada, India, and Singapore.4 Until the Court of Justice of the European Union’s (CJEU) Singapore Opinion (→ mn. 10) it was a matter of debate whether the EU had the exclusive competence to negotiate and conclude ‘stand-alone investment agreements’ – comparable to international investment agreements (IIAs) that were concluded by the EU Member States ‘before’ the entry into force of the Treaty of Lisbon on 1 December 2009 – as well as Free Trade Agreements (FTAs) comprising chapters on investment law.5 In its Singapore Opinion, the CJEU found a fairly clear answer to this question,6 insisting on the limitation of the EU’s power to foreign ‘direct’ investment (FDI) and holding that agreements comprising portfolio investment and dispute settlement fall under the shared powers of the EU and its Member States.7 The EU-Canada Comprehensive Economic and Trade Agreement (CETA) is an exception to this, as this agreement was already signed before the Singapore Opinion was rendered.8 3 The EU is currently negotiating9 investment agreements with China and Myanmar, as well as investment chapters as part of larger FTAs with India, Libya, Egypt, Jordan, Morocco, Tunisia, Malaysia and Thailand. Besides the negotiation with Canada leading to CETA, also those agreements with Singapore,10 Vietnam11 and Mexico12 have already been concluded. 4 The outcome of the negotiations between the EU and Canada is likely to set the stage for the conclusion of subsequent treaties with other partners. Together with Canada the EU shaped a new template of international investment treaties that is 4 See the leaked negotiating mandate ‘EU-Canada (CETA), India and Singapore FTAs - EC negotiating mandate on investment (2011)’, available at: http://www.bilaterals.org/spip.php?article20272&la ng=en (For an overview of FTA and Other Trade Negotiations). Also negotiation directives for CETA are partially published, for instance, Council of the EU, Recommendation from the Commission to the Council in order to authorize the Commission to open negotiations for an Economic Integration Agreement with Canada, 15 December 2015. 5 See Hoffmeister and Ünüvar, ‘From BITs and Pieces towards European Investment Agreements’ in Bungenberg et al. (eds), EU and Investment Agreements (2013), 57 (65 f.); Tietje, ‘Die Außenwirtschaftsverfassung der EU nach dem Vertrag von Lissabon‘ (2009) 83 BTW, 16; Reinisch, ‘The Division of Powers between the EU and its Member States “after Lisbon”’ in Bungenberg et al. (eds), Internationaler Investitionsschutz und Europarecht (2010), 99 (107); Mayer, Stellt das geplante Freihandelsabkommen der EU mit Kanada (Comprehensive Economic and Trade Agreement, CETA) ein gemischtes Abkommen dar? (‘Is the planned free trade agreement of the EU with Canada (Comprehensive Economic and Trade Agreement, CETA) a mixed agreement?’), Expert Opinion for the German Federal Ministry for Economic Affairs and Energy, published on 22 September 2014, 10 f., available at . 6 CJEU, Opinion 2/15, 16.05.2017, ECLI:EU:C:2017:376. 7 See further on this, Bungenberg, ‘The Common Commercial Policy, Parliamentary Participation and the Singapore Opinion of the CJEU’ (2017) 4 ZEuS, 383; Hindelang and Baur, Stocktaking of investment protection provisions in EU agreements and Member States’ bilateral investment treaties and their impact on the coherence of EU policy, Committee on International Trade (INTA) – European Parliament (2019); Usynin and Szilárd, ‘The Growing Tendency of Inducing Investment Chapters in PTAs’ in Amtenbrink et al. (eds), NYIL 2017 (Springer 2017), 267. 8 CETA Agreement OJ L 11/25, signed 30 October 2016; CJEU, Opinion 2/15, 16.05.2017, Singapore FTA, ECLI:EU:C:2017:376. 9 The Overview of FTA and other Trade Negotiations of the Commission shows the current state of negotiations of international agreements currently negotiated by the EU, available at: https://ec.europa.e u/trade/policy/countries-and-regions/negotiations-and-agreements/. 10 EU-Singapore Investment Protection Agreement (IPA), signed 15 October 2018 (not in force). 11 EU-Vietnam Investment Protection Agreement (IPA), signed 30 June 2019 (not in force). 12 New EU-Mexico Agreement 23 April 2018: The Agreement in Principle (Investment), available at: https://trade.ec.europa.eu/doclib/docs/2018/april/tradoc_156791.pdf.
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An Overview of the CETA – Investment Chapter (Chapter 8) likely to influence a new generation of IIAs in regard to ISDS as well as substantive standards of investment protection, and thus also promote the rule of law via international agreements. Irrespective of the multiple ongoing negotiations and already concluded agreements, the CETA Investment Chapter is seen as the blueprint on both sides of the Atlantic for future trade as well as investment agreements. 13 The EU has not adopted a model investment agreement, but the CETA standard will likely provide a template also for future negotiations.14 In relation to dispute settlement, the question of the past decade has been how to 5 achieve a balance between investor and State interests and to ensure that tribunals do not extend their jurisdiction beyond the scope of the ISDS clause explicitly agreed to by treaty Parties. Accordingly, CETA Chapter 8 features the following elements intended to limit the powers of ISDS tribunals. The more precise determination of the applicable standards as well as a potential, proactive and/or corrective interpretative function of the Contracting Parties, and the creation of an appellate mechanism are all intended to enable such balance. The CETA text integrates all of these aspects. CETA’s investment dispute settlement mechanism will most probably set the standard for future agreements to which the EU is Party. This is already evident in the EU-Singapore and EU-Vietnam Investment Protection Agreements. This introduction to the CETA Investment Chapter will highlight its background 6 – with regard to treaty-making powers as well as conditions stemming from the EU’s ‘constitutional framework’, outlining the paradigm change of EU investment law.
B. The Economic Background: Benefits of a CETA Investment Chapter The EU is Canada’s second most important trading partner after the US. In 2018, 7 the EU’s outward FDI in Canada amounted to EUR 392.2 billion, on the flip side, Canadian FDI in the EU was valued at EUR 397.3 billion. 15 While bilateral investment flows did already represent a notable share of Canada’s, the EU’s and the EU Member States’ total FDI, the CETA Parties recognised opportunities in increasing bilateral investment flows through the introduction of an investment chapter in the CETA. 16 In assessing the costs and benefits of a closer EU-Canada Economic Partnership, a joint study between the EU and Canada, released in 2008, indicated a desire to remove existing barriers to trade and investment.17 Another study on the impact of the CETA Investment Chapter pointed out that 8 economic benefits including trade-stimulating effects and fostering intangible busi13 Banks, ‘Justin Trudeau: CETA could be bluebrint for all future deals’, The Parliament Magazine, 16.02.2017, available at: https://www.theparliamentmagazine.eu/news/article/justin-trudeau-ceta-coul d-be-blueprint-for-all-future-trade-deals; Laugier, ‘CETA’s Investment Chapter: Blueprint for a Global Investment Reform?’, Le Petit Juriste, 02.01.2018, available at: https://www.lepetitjuriste.fr/cetas-inve stment-chapter-blueprint-for-a-global-investment-reform/; German Federal Ministry for Economic Affairs, ‘CETA – The European Canadian Economic and Trade Agreement’, available at: https://www.b mwi.de/Redaktion/EN/Dossier/ceta.html. 14 See Reinisch, ‘Putting the Pieces Together … an EU Model BIT?’ in Bungenberg and Reinisch (guest eds), The Anatomy of the (Invisible) EU Model BIT in (2014) 15 JWIT, 679. 15 European Parliament, ‘Transatlantic Relations: The USA and Canada’, Fact Sheets on the European Union – 2021, p. 6, available at: https://www.europarl.europa.eu/ftu/pdf/en/FTU_5.6.1.pdf. 16 Joint Report on the EU-Canada Scoping Exercise, 5 March 2009, p. 5. 17 Global Affairs Canada, ‘Assessing the costs and benefits of a closer EU-Canada economic partnership: A Joint Study by the European Commission and the Government of Canada’, see https://www.inte rnational.gc.ca/trade-agreements-accords-.
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An Overview of the CETA – Investment Chapter (Chapter 8) ness linkages in Canada could be encouraged, although the significance of these would likely be only minor. It found that impact in the EU would likely follow these trends, but on an even lower level of significance. Positive environmental impacts would result from increased investment in green technologies, yet negative impacts would likely result from increased FDI in the oil, sand and mining sectors in Canada. 18
C. The EU and Canada Investment Policy 9
By reason of their constitutional framework, economic policymaking in both the EU and Canada is quite complex. At the heart of this complexity is the issue of competences. Constitutionally, legislative competence in both the EU and Canada is granted either as an exclusive or shared competence between different levels of government. In the EU, legislative competence can be exclusive or shared between the EU and its Member States, while in Canada a similar situation applies as legislative competence can be exclusive or overlapping between the Federal and Provincial governments.
I. EU Investment Policy after the Treaty of Lisbon 1. The Question of Competences With the entry into force of the Treaty of Lisbon,19 the EU has gained new treaty-making powers in the area of international investment law and politics. It was initially unclear which competences in the field of external trade actually belong to the European Union, i.e. which areas of competence are so-called exclusive competences, and which are shared competences of the European Union and its Member States. 20 It was widely discussed which investment aspects are covered by the EU’s now enlarged, external ‘trade competences’ and thus are exclusive competences of the European Union.21 In its partly ambiguous Singapore Opinion published on 16 May 2017, the CJEU decided that the EU’s exclusive competence in the field of investment is limited to the area of FDI. 11 In the area of so-called portfolio investments, in which foreign investors do not have controlling interests, but merely want to participate in the form of returns on economic success, the CJEU rejected an exclusive competence of the EU. 22 Thus, whenever an agreement also includes investment protection relating to portfolio in10
18 Chapter 7.3 in ‘A Trade SIA Relating to the Negotiation of a Comprehensive Economic and Trade Agreement (CETA) Between the EU and Canada’, Final Report, June 2011, published as part of the Directorate General of Trade of the European Commission’s Trade Sustainability Impact Assessment Series. Full report available at the following link: http://trade.ec.europa.eu/doclib/docs/2011/september/ tradoc_148201.pdf. 19 Treaty of Lisbon Amending the Treaty on European Union and the Treaty Establishing the European Community [2007] OJ C306/01. 20 See for instance Herrmann and Müller-Ibold, ‘Die Entwicklung des europäischen Außenwirtschaftsrechts’ (2016) EuZW, 646 (646 f.); Herrmann, ‘Die Zukunft der mitgliedstaatlichen Investitionspolitik nach dem Vertrag von Lissabon’ (2010) EuZW, 207 (207 f.); Hoffmeister, ‘Aktuelle Rechtsfragen in der Praxis der europäischen Außenhandelspolitik’ (2013) ZEuS, 385 (385 f.); Dimopoulos, EU Foreign Investment Law (2011), 94 f. 21 Cf. Herrmann and Müller-Ibold, ‘Die Entwicklung des europäischen Außenwirtschaftsrechts’ (2016) EuZW, 646 (646 f.); Herrmann, ‘Die Zukunft der mitgliedstaatlichen Investitionspolitik nach dem Vertrag von Lissabon’ (2010) EuZW, 207 (207 f.); Hoffmeister, ‘Aktuelle Rechtsfragen in der Praxis der europäischen Außenhandelspolitik’ (2013) ZEuS, 385 (385 f.); Dimopoulos, EU Foreign Investment Law (2011), 94 f. 22 CJEU, Opinion 2/15, 16.05.2017, Singapore FTA, ECLI:EU:C:2017:376, para. 238.
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An Overview of the CETA – Investment Chapter (Chapter 8) vestment, it partly falls within the area of ‘shared competences’. The CJEU also found a shared competence in the case of investor-State dispute settlement. 23 The CJEU thus found that the agreement with Singapore could not be concluded by the EU alone, particularly because of the chapter on investment protection.24 As a result of the Singapore Opinion of the CJEU,25 the EU’s investment policy is 12 now separated from its trade policy. Hence, investment protection is removed from ‘comprehensive’ treaty texts and transposed into separate investment protection agreements. The aim is to prevent trade aspects that are indisputably the exclusive competence of the European Union from becoming infected by the ‘confused’ distribution of competences in the area of investment protection, which requires the participation of the Member States of the European Union in the ratification process. This is certainly the case with the agreements with Vietnam 26 and Singapore.27 Only in the CETA Agreement with Canada and the FTA with Mexico, the investment protection chapter as part of the overall agreement has been preserved. This is explained by the fact that the agreement with Canada was already in the ratification process at the time the CJEU rendered its Singapore Opinion, and that the EU-Mexico Agreement 28 modernised a 2000 Global Agreement. Nevertheless, it should be noted that although there is a shared competence in 13 some areas, this does not necessarily lead to a mixed agreement. 29 Whether an ‘EUonly’ or a mixed agreement will be concluded is a political decision to be taken jointly by the Commission and the Council.30 In fact, this process also decides whether national parliaments should participate in the ratification process or not. The approach of ‘facultative mixity’ thus also remains after the Singapore Opinion. The CJEU did not clarify in what way the Member States should participate as a consequence of shared competences. Subsequent rulings were needed to clarify that the EU can conclude EU-only agreements in fields of shared competences.31 It should be noted that in the future, the EU may conclude trade and investment protection agreements without the consent of the Member States if the investment protection only covers foreign direct investment and no provisions on dispute settlement. But so far no EU IIA or investment chapter as part of a broader FTA has entered 14 into force; the 1200 Member States’ bilateral investment treaties (BITs) 32 therefore still form the basis for international investment protection of EU investors abroad. 33 CJEU, Opinion 2/15, 16.05.2017, Singapore FTA, ECLI:EU:C:2017:376, para. 304. CJEU, Opinion 2/15, 16.05.2017, Singapore FTA, ECLI:EU:C:2017:376, para. 305. 25 CJEU, Opinion 2/15, 16.05.2017, Singapore FTA, ECLI :EU:C:2017:376. 26 EU-Vietnam Investment Protection Agreement (IPA), signed 30 June 2019 (not in force). 27 EU-Singapore Investment Protection Agreement (IPA), signed 15 October 2018 (not in force). 28 EU-Mexico Modernisation Agreement, available at: http://trade.ec.europa.eu/doclib/press/. 29 See for instance Opinion of Advocate General Kokott in joined cases C-626/15 and C-659/16, 31.05.2018, Commission v. Council, ECLI:EU:C:2018:362, para. 105. 30 Bungenberg and Reinisch, ‘From Arbitral Tribunals to a Multilateral Investment Court: The European Union Approach’ in Chaisse et al. (eds), Handbook of International Investment Law and Policy (2020), 1 (7). 31 CJEU, Case C-600/14, 05.12.2017, Germany v. Council, ECLI:EU:C:2017:935, para. 68; CJEU, joined cases C‑626/15 and C‑659/16, 20.11.2018, Commission v. Council, ECLI:EU:C:2018:925, para. 126. 32 Commission, Investment Protection and Investor-to-State Dispute Settlement in EU Agreements – Fact Sheet (November 2013), p. 4, available at https://www.italaw.com/sites/default; See also the UNCTAD database with a list of all known IIAs worldwide available at: https://investmentpolicy.unctad.org/i nternational-investment-agreements; for detailed numbers see also UNCTAD, Investor-State Dispute Settlement: An Information Note on The United States and the European Union, IIA Issues Note 2/2014, p. 3, available at: http://unctad.org/en/PublicationsLibrary. 33 See in this regard Regulation (EU) No 1219/2012 of the European Parliament and of the Council of 12 December 2012 establishing transitional arrangements for bilateral investment agreements between 23
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An Overview of the CETA – Investment Chapter (Chapter 8) 2. (New) EU Investment Policy Approaches 15
After the transfer of competences from the EU Member States to the EU, the EU Commission’s first statements seemed to suggest to ‘reproduce’ the European ‘gold standard’ in Member States’ BITs.34 Shortly after, it was made clear by different actors involved in EU policy-making that they considered that the time was ripe for new approaches. The European Parliament is very often seen as the advocate of innovative and more policy-oriented approaches. The Commission initiates all negotiations and generally is responsible for all negotiations, and the Council finally has to adopt the agreements. Because the European Parliament has to ratify international agreements, it stressed that it wanted new approaches to be introduced in economic agreements, and thus also into the one under negotiation with Canada. Therefore, all three institutions were involved in the treaty negotiations and ratifications. From the onset, the EU outlined its policy approaches in various papers, communications, resolutions, background papers, such as: – – –
Commission, Towards a European international investment policy, 7 July 2010. 35 Council (Foreign Affairs), Conclusions on a comprehensive European international investment policy, 25 October 2010.36 European Parliament, Resolution on the future European international investment policy, 6 April 2011.37
Member States and third countries [2012] OJ L351/40. On the EU Member States’ approach to international investment law, see, inter alia, Gaffney and Akçay, ‘European Bilateral Approaches’ in Bungenberg et al. (eds), International Investment Law – A Handbook (2015), 186 (186 f.); Trakman and Ranieri, Regionalism in International Investment Law (2013). 34 See on this Titi, ‘International investment law and the European Union: Towards a New Generation of International Investment Agreements’ (2015) 26(3) EJIL 639 (640). 35 Commission Communication, Towards a comprehensive European international investment policy, 7 July 2010, COM(2010) 343 final: ‘In order to ensure effective enforcement, investment agreements also feature investor-to-state dispute settlement, which permits an investor to take a claim against a government directly to binding international arbitration [footnote: The Energy Charter Treaty, to which the EU is a party, equally contains investor-state dispute settlement.]. Investor-state dispute settlement, which forms a key part of the inheritance that the Union receives from Member State BITs, is important as an investment involves the establishment of a long-term relationship with the host state which cannot be easily diverted to another market in the event of a problem with the investment. Investor-state is such an established feature of investment agreements that its absence would in fact discourage investors and make a host economy less attractive than others. For these reasons, future EU agreements including investment protection should include investor-state dispute settlement. This raises challenges relating, in part, to the uniqueness of investor-state dispute settlement in international economic law and in part to the fact that the Union has not historically been a significant actor in this field. Current structures are to some extent ill-adapted to the advent of the Union. To take one example, the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the ICSID Convention), is open to signature and ratification by states members of the World Bank or party to the Statute of the International Court of Justice. The European Union qualifies under neither. In approaching investor-state dispute settlement mechanisms, the Union should build on Member State practices to arrive at state-of-the art investor state dispute settlement mechanisms.’ 36 Council of the EU, Conclusions on a comprehensive European international investment policy, 25 October 2010: ‘[…] stresses, in particular, the need for an effective investor-to-state dispute settlement mechanism in the EU investment agreements […]’. 37 European Parliament, European Parliament Resolution of 6 April 2011 on the future European international investment policy, (2010/2203 (INI)), para. 32: ‘Takes the view that, in addition to state-to-state dispute settlement procedures, investor-state procedures must also be applicable in order to secure comprehensive investment protection’.
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Council, Negotiating Directives of 12 September 2011 concerning the negotiations with Canada, India and Singapore.38 Council, Directives for the negotiation on the Transatlantic Trade and Investment Partnership between the European Union and the United States of America, 17 June 2013.39 Common blueprint by the EU and the US for future open and stable investment climates, 10 April 2012.40 Resolutions adopted by the European Parliament in regard to specific negotiations demanding the implementation of an effective investor-state-dispute settlement mechanism.41 Resolution by the European Parliament calling for the establishment of a permanent Investment Court System (ICS) with a built-in appellate structure. 42 Commission Concept Paper “Investment in TTIP and beyond – the path for reform, enhancing the right to regulate and moving from current ad hoc arbitration towards an Investment Court”, May 2015.43 Council of the European Union mandate to the EU Commission to negotiate a Multilateral Investment Court (MIC).44
38 See the leaked negotiating mandate ‘EU-Canada (CETA), India and Singapore FTAs - EC negotiating mandate on investment (2011)’, available at: http://www.bilaterals.org/spip.php?article20272& lang=en: ‘Enforcement: the agreement shall aim to provide for an effective investor-to-state dispute settlement mechanism. State-to-state dispute settlement will be included, but will not interfere with the right of investors to have recourse to the investor-to-state dispute settlement mechanism. It should provide for investors a wide range of arbitration fora as currently available under the Member States’ bilateral investment agreements (BIT’s).’ 39 Council of the EU, Directives for the negotiation on the Transatlantic Trade and Investment Partnership between the European Union and the United States of America, 9 October 2014, available at: http://data.consilium.europa.eu/doc/document/ST-11103-2013-DCL-1/en/pdf: ‘[…] Enforcement: the Agreement should aim to provide for an effective and state-of-the-art investor-to-state dispute settlement mechanism, providing for transparency, independence of arbitrators and predictability of the Agreement, including through the possibility of binding interpretation of the Agreement by the Parties. State-to-state dispute settlement should be included, but should not interfere with the right of investors to have recourse to the investor-to-state dispute settlement mechanisms. It should provide for investors as wide a range of arbitration fora as is currently available under the Member States' bilateral investment agreements. The investor-to-state dispute settlement mechanism should contain safeguards against manifestly unjustified or frivolous claims. Consideration should be given to the possibility of creating an appellate mechanism applicable to investor-to-state dispute settlement under the Agreement, and to the appropriate relationship between ISDS and domestic remedies […].’ 40 Statement of the European Union and the United States on Shared Principles for International Investment, 10 April 2012, available at: https://2009-2017.state.gov/p/eur/rls/or/2012/187618.htm, ‘Fair and Binding Dispute Settlement: Governments should provide access to effective dispute settlement procedures, including investor-to-State arbitration, and ensure that such procedures are open and transparent, with opportunities for public participation.’ 41 See, for example, European Parliament, European Parliament Resolution of 9 October 2013 on the EU–China negotiations for a bilateral investment agreement (2013/2674(RSP)), para 42, available at: http://www.europarl.europa.eu/sides/getDoc.do?type=TA&language=EN&reference=P7-TA-20 13-411: ‘Considers that the agreement should include, as a key priority, effective state-to-state and investor-to-state dispute settlement mechanisms in order, on the one hand, to prevent frivolous claims from leading to unjustified arbitration, and, on the other, to ensure that all investors have access to a fair trial, followed by enforcement of all arbitration awards without delay.’ 42 European Parliament, A new forward-looking and innovative future strategy for trade and investment, Resolution of 05.07.2016, P8_TA-PROV 2016/0299, para. 68. 43 European Commission, ‘Investment in ttip and beyond – the path for reform, Enhancing the right to regulate and moving from current ad hoc arbitration towards an Investment Court’, May 2015, p.11. 44 Council of the EU, Negotiating directives for a Convention establishing a multilateral court for the settlement of investment disputes, 20 March 2018.
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European Union and its Member States – ‘Establishing a standing mechanism for the settlement of international investment disputes’, submission to UNCITRAL, 18 January 2019.45 EU Proposal for WTO disciplines and commitments relating to investment facilitation for development, 25 February 2020.46 New Investment Protection Agreements, 31 July 2020. 47 European Union text proposal for the modernisation of the Energy Charter Treaty, 27 May 2020.48 European Union text proposal for the modernisation of the Energy Charter Treaty, 15 February 2021.49
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These EU documents and negotiation mandates indicated a move from the traditional investment law policy inspired by the so-called European ‘gold standard’, a new investment policy approach which reformulated the old standards with new substantive and procedural standards, intending to offer more clarity and certainty with respect to the regime governing the promotion and protection of foreign investment between the EU and third states. The compatibility of the new EU investment policy approach with the EU legal order was subsequently confirmed by the CJEU when seised to clarify the compatibility of the CETA Investment Chapter with the EU constitutional framework.
3. Clarifications on the Compatibility of the CETA Investment Chapter with the EU’s Constitutional Framework Before the CJEU rendered its CETA Opinion, it was unclear whether the CETA Investment Chapter, as well as other negotiated dispute settlement mechanisms, would fulfil the conditions defined by the CJEU in the EEA-, ECHR- and Patent-Court-Opinions as well as in the Achmea-Judgement. The decisive element was the principle of autonomy of EU Law – with the CJEU being the only competent institution to give a final and binding interpretation to EU Law. The autonomy of EU law is used to deny an international court jurisdiction for a binding interpretation of EU law. Thus, it precludes the EU or its Member States from concluding agreements that allow the final interpretation of EU law by a forum other than the CJEU.50 Member States and the EU itself are therefore prevented from negotiating agreements that confer jurisdiction to a court or tribunal which have the effect of depriving national courts of their task to apply and interpret EU law or abrogate their power to seek preliminary rulings under Article 267 TFEU.51 18 In the case of the planned accession of the EU to the European Convention on Human Rights (ECHR), this principle of the autonomy of EU law also presented itself as an insurmountable obstacle. In particular, the planned accession agreement was incompatible with Article 344 TFEU because it did not exclude the European Court of Human Right’s (ECtHR) jurisdiction under Article 33 of the ECHR over disputes between Member States or between Member States and the EU. 52 17
https://undocs.org/en/A/CN.9/WG.III/WP.159/Add.1. WTO INF/IFD/RD/46, February 2020, https://trade.ec.europa.eu/doclib/docs. 47 Commission, https://trade.ec.europa.eu/doclib/docs/2020/july/tradoc_158908.pdf. 48 https://trade.ec.europa.eu/doclib/docs/2020/may/tradoc_158754.pdf. 49 Commission, https://trade.ec.europa.eu/doclib/docs/2021/february/tradoc_159436.pdf. 50 CJEU, Opinion 2/13, 18.12.2014, ECLI:EU:C:2014:2454, paras. 201 f.; CJEU, Case C-459/03, 30.05.2006, Commission v. Ireland, para. 177. 51 CJEU, Opinion 1/09, 08.03.2011, ECLI:EU:2011:123. 52 CJEU, Opinion 2/13, 18.12.2014, ECLI :EU:C:2014:2454, paras. 201 f. 45
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An Overview of the CETA – Investment Chapter (Chapter 8) In the context of ad hoc investment arbitration tribunals, the CJEU’s Achmea judgment53 also provides guidance. Therein, the Court ruled in March 2018 that so-called intra-EU investment agreements were fundamentally not in line with EU law. Arbitration would call into question the autonomy of EU law. The CJEU noted that investment arbitration tribunals adjudicating intra-EU disputes might be required to rule on the basis of domestic law as well as international agreements applicable between the Contracting Parties, which included EU law, but that they could not make a referral to the CJEU under Article 267 TFEU, and were subjected to only limited judicial review before competent national courts. The limited review of arbitral awards provided, for example, by German Arbitration Law, was considered to be insufficient to guarantee the autonomy of EU law.54 Thus, the CJEU found that intra-EU investment arbitration bypassed the preliminary ruling mechanism foreseen in Article 267 TFEU, which was necessary for the autonomy, proper application, and full effectiveness of EU law. In 2019, the CJEU confirmed the application of these principles to the Investment Court System (ICS) introduced under CETA. In its Opinion dated 30 April 2019, the CJEU stresses that the Union or its Member States might only submit disputes to a mechanism that respected the autonomy of the EU legal order and met the conditions that emanated from this autonomy.55 The CJEU pointed out that the final objective of the other EU institutions was to seek a multilateral dispute settlement solution after the interim stage of the bilateral investment court system. 56 According to the CJEU, ‘the competence of the EU in the field of international relations and its capacity to conclude international agreements necessarily entail the power to submit to the decisions of a court that is created or designated by such agreements as regards the interpretation and application of their provisions.’57 However, the CJEU made it clear that such submission to an international jurisdiction was possible only under certain conditions. From an EU law perspective, the CETA Opinion is remarkable in at least two respects: First, its discussion on the constitutional principles and framework that guide the EU in its external action, such as when the Union concludes international agreements that must be consistent with the Charter of Fundamental Rights, and notably Article 47 of the Charter. Second, it implies that what the Kadi Judgment58 meant for outside acts ‘entering’ the internal EU legal order, the CETA Opinion outlines for the EU’s participation in international dispute settlement, which is possible as long as a set of conditions are met. In the CETA Opinion, the CJEU specifically stated that investment courts were under no circumstances entitled to interpret EU law,59 meaning that such an international judicial body must respect the CJEU’s monopoly in interpreting EU law. 60 This principle of autonomy exists both towards the law of the Member States as well as towards international law.61 Therefore, neither the CETA ISDS mechanism nor the future Multilateral Investment Court (MIC) should prevent the Union from operating
CJEU, C-284/16, 06.03.2018, Slovak Republic v. Achmea BV, ECLI:EU:C:2018:158. CJEU, C-284/16, 06.03.2018, Slovak Republic v. Achmea BV, ECLI:EU:C:2018:158, para. 53. 55 CJEU, Opinion 1/17, 30.04.2019, ECLI:EU:C:2019:341. 56 CJEU, Opinion 1/17, 30.04.2019, ECLI:EU:C:2019:341, paras. 108 and 118. 57 CJEU, Opinion 1/17, 30.04.2019, ECLI:EU:C:2019:341, para. 106. 58 CJEU, Joined Cases C-402/05 P and C-415/05 P, 03.09.2008, Kadi & Al Barakaat International Foundation v. Council and Commission. 59 CJEU, Opinion 1/17, 30.04.2019, ECLI:EU:C:2019:341, paras. 120 f. 60 CJEU, Opinion 1/17, 30.04.2019, ECLI:EU:C:2019:341, paras. 107 f. 61 CJEU, Opinion 1/17, 30.04.2019, ECLI:EU:C:2019:341, para. 109. 53
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according to its own constitutional framework. The CJEU considered that all these points were fulfilled with the ICS. A further condition resulted from the fact that the Union has its own constitutional framework, including the values set out in Article 2 TEU, namely respect for human dignity, freedom, democracy, equality, the rule of law and respect for human rights, the general principles of EU law, the provisions in the Charter of Fundamental Rights and the rules of the Treaties,62 in particular, that the envisaged ISDS mechanism must ensure the right of access to an independent court.63 The CETA Opinion also took up the debate about the ‘level of protection of the public interest’, or in other words the right to regulate. The starting point for the discussion was Article 2 of the TEU. Systems of institutionalised dispute settlement to which the EU wanted to adhere had to be in conformity with the EU’s ‘constitutional framework’ and ‘principles’. Concerning the discussion about the legitimacy of investment law and ISDS in particular, the CJEU underlined that the CETA standards of protection respect state sovereignty and the right to regulate. 64 It is important to highlight that regulatory space is part of all negotiated EU IIAs. 65 In addition, even in arbitration, tribunals are increasingly mindful of the States’ right to regulate. 66 It is also significant that under CETA, tribunals may impose compensation, but they are not empowered to enjoin States to ‘amend or withdraw legislation’.67 Thus, they do not undermine States’ capacity to ‘operate autonomously’ (as per the CJEU’s dicta). 68 Article 28.3.2 CETA provides that nothing in the Agreement can be interpreted in a manner to prevent a Party from adopting and applying measures necessary to protect public interests. The CETA Opinion further made it clear that the applicable law in IIAs must be only international law.69 If domestic law came into play, it could present a direct threat to the autonomy of EU law. Tribunals set up under international agreements with binding effect on the EU cannot be entrusted to interpret EU law – only the agreement itself. But they can apply EU law as a fact. 70 Moreover, the ICS cannot have the competence to decide on the legality of an EU measure. Another issue of a more general and systemic interest concerns the lessons to be drawn from the CJEU’s CETA Opinion in relation to the Charter of Fundamental Rights. The CJEU underlined that the Charter was binding on the EU also in regards to its external relations and therefore any agreement that the EU wished to ratify needs to comply with it. The analysis in the CETA Opinion concerned only the compatibility of the treaty’s ISDS provisions with Article 47 of the Charter. These conditions mirror the fundamental rights guarantees developed by the CJEU in the past 45 years as an internal component of the rule of law within the EU, 71 now also laid down – for clarification – in the Charter of Fundamental Rights. Article 47 relates CJEU, Opinion 1/17, 30.04.2019, ECLI:EU:C:2019:341, para. 110. CJEU, Opinion 1/17, 30.04.2019, ECLI:EU:C:2019:341, paras. 189 f. 64 CJEU, Opinion 1/17, 30.04.2019, ECLI:EU:C:2019:341, para. 17. 65 Bungenberg and Titi, ‘CETA Opinion – Setting Conditions for the Future of ISDS’, EJIL:Talk!, 5 June 2019, available at: https://www.ejiltalk.org/ceta-opinion-setting-conditions-for-the-future-of-isds/. 66 Bungenberg and Titi, ‘CETA Opinion – Setting Conditions for the Future of ISDS’, EJIL:Talk!, 5 June 2019. 67 Bungenberg and Titi, ‘CETA Opinion – Setting Conditions for the Future of ISDS’, EJIL:Talk!, 5 June 2019. 68 CJEU, Opinion 1/17, 30.04.2019, ECLI:EU:C:2019:341, para. 150. 69 CJEU, Opinion 1/17, 30.04.2019, ECLI:EU:C:2019:341, paras. 121 f. 70 CJEU, Opinion 1/17, 30.04.2019, ECLI:EU:C:2019:341, para. 130. 71 See, Lenaerts, ‘The autonomy of European Union Law’ (2019) 1 I Post di Aisdue, available at: http:// www.aisdue.eu/web/wp-content/uploads/2019/04/001C_Lenaerts.pdf. 62
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An Overview of the CETA – Investment Chapter (Chapter 8) to the Right to an effective remedy and to a fair trial, including access to an independent and impartial tribunal and legal aid for those without sufficient resources to access justice. For the time being, the CJEU has made important points in relation to (a) the access to justice and (b) the neutrality and independence of adjudicators. Therefore, the issue of cost apportionment and funding possibilities especially for natural persons and small and medium-sized enterprises has to be kept in mind when considering to go beyond CETA’s ICS, e.g. by designing a future MIC. In addition, it will be useful to review the Charter carefully in order to determine whether other fundamental rights, beyond those in Article 47 of the Charter, may become relevant. To summarise, the CJEU held that the following conditions have to be fulfilled to 27 allow the EU to participate in an international dispute settlement mechanism: –
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the principles of autonomy and primacy of EU law do not permit the creation of dispute settlement mechanisms that may issue decisions preventing the EU institutions (including the CJEU) from operating or realising their functions in accordance with the EU constitutional framework. it is the autonomous right of the EU to define the level of public interests it seeks to secure under the autonomous EU legal order, this right cannot be undermined by any international legal obligation.72 the substantive investment protection standards of IIAs must leave enough room for the Contracting Parties to regulate within their territories to achieve legitimate policy objectives. Its investment protection standards cannot call into question the level of protection of public interest determined by the Union following a democratic process.73 whenever the EU enters into an international agreement encompassing the establishment of judicial bodies, the EU is subject to Article 47 of the EU Charter on Fundamental Rights.74 This refers especially to respecting the rules governing access to judicial bodies and their independence. Any dispute settlement system must be financially accessible.75
If these conditions are not respected by a future agreement, the CJEU will not 28 allow the EU to become a Party to such an agreement on dispute settlement. It will be interesting to see at the multilateral level, whether the EU will be able to convince other states to endorse all these aforementioned conditions, notably in the context of prospective negotiations for a MIC Statute. Therefore, although the CJEU only dealt with the narrow question of whether CETA’s ICS was compatible with EU primary law, its Opinion will likely have consequences well beyond this context, including in relation to a future MIC. When the CJEU decided on CETA’s compatibility with EU law, the MIC was the elephant in the room: first, because in CETA, the EU commits to pursuing the establishment of a MIC; second, because the European Commission in its contributions to UNCITRAL’s WG III promotes this option as the only possible future for ISDS involving the EU.76 A similar question, involving the compatibility of the CETA ISDS mechanism 29 with the German Constitution is currently pending before the German Constitutional
72 Riffel, ‘The CETA Opinion of the European Court of Justice and its Implications – Not that Selfish After All’ (2019) 22(3) J. Int’l Econ. L., 503 (with reference to CETA Opinion, paras. 148, 160). 73 CJEU, Opinion 1/17, 30.04.2019, ECLI:EU:C:2019:341, para. 160. 74 CJEU, Opinion 1/17, 30.04.2019, ECLI:EU:C:2019:341, para. 190. 75 CJEU, Opinion 1/17, 30.04.2019, ECLI:EU:C:2019:341, para. 206. 76 See on this Article 8.29 CETA.
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An Overview of the CETA – Investment Chapter (Chapter 8) Court (BVerfG).77 While the CJEU stressed the constitutional foundations of the EU in its CETA Opinion, the BVerfG discusses the (German) constitutional identity. 78
II. Canadian Investment Policy Canada is one of the countries with a model BIT that guides its investment policy towards third states. Canada’s model BIT is known as the ‘Model Foreign Investment Promotion and Protection Agreement (FIPA)’, with the latest update published in May 2021.79 At present, Canada has concluded 47 FIPAs – out of these, 37 are in force, four are signed (but not in force), one suspended and five terminated. 80 Furthermore, Canada is recorded to have in force 15 FTAs, with another nine under negotiation. 81 Canada has been a respondent state in about 30 ISDS cases, all of which except one has been initiated on the basis of NAFTA Chapter 11. The ISDS tribunals have decided against Canada in at least five of these cases, while the rest is either pending, discontinued, settled or dismissed.82 31 From the multiple FIPAs and FTAs that Canada is a Party to, it is accurate to state that Canada is one of the main advocates of international agreements on the promotion and protection of foreign trade and investment. However, due to its constitutional framework, it is impossible for the federal government of Canada to implement international agreements without the approval of the provincial governments if the international agreement touches on areas of provincial competence. According to the Canadian Constitution (British North America Act 1867), the federal government has competence to legislate over matters concerning trade and commerce, 83 this includes entering into international trade agreements concluded between Canada and another Party.84 However, the provincial governments have competence over matters concerning property and civil rights,85 which includes the regulation of ‘contracts’ on the basis of which international trade is conducted.86 This division of power limits the federal autonomy to enter into international trade agreements since provincial approval will ultimately have to be sought for the successful implementation of an international agreement such as the CETA. 32 The EU-Canada negotiations have demonstrated how difficult it is to successfully negotiate an agreement such as CETA without including the Canadian provinces in the discussions. In an earlier attempt to improve the trade and investment relationship between the Parties, negotiations on an ‘EU-Canada Trade Investment Enhancement 30
77 See, German Constitutional Court, ‘Applications for a preliminary injuction in the “CETA” proceeding unsucessfull’, Press Release No. 71/2016 of 13 October 2016, available at: https://www.bundesve rfassungsgericht.de/SharedDocs/Pressemitteilungen/EN/2016/bvg16-071.html;jsessionid=633DB1C391 D93AEC0A343F2CD3711354.2_cid361. 78 BVerfG, 13.10.2016 - 2 BvR 1368/16, paras. 1-73, available at https://www.bundesverfassungsgerich t.de/e/rs20161013_2bvr136816en.html. 79 On the 2021 Model FIPA, see https://www.international.gc.ca/trade-commerce/trade-agreements; See also, https://www.international.gc.ca/trade. 80 For details, see https://treaty-accord.gc.ca/result-r. 81 For details, see https://www.international.gc.ca/trade-commerce/trade-agreements. 82 For details, see https://investmentpolicy.unctad.org/; https://www.international.gc.ca/. 83 Article 91(2) British North America Act 1867. 84 Hübner et al., CETA: the Making of the Comprehensive Economic and Trade Agreement between Canada and the EU, Notes de l’Ifri (2016), 19 f. 85 Article 92(13) British North America Act 1867. 86 Kukucha, ‘Provincial pitfalls: Canadian Provinces and the Canada-EU trade negotiations’ in Hübner (ed), Europe, Canada and the Comprehensive Economic Partnership Agreement (2016), 130 (133).
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An Overview of the CETA – Investment Chapter (Chapter 8) Agreement (TIEA)’ were commenced in 2004. 87 Like the CETA, some of the sectors covered by the TIEA extended into areas of Canadian provincial competence, but the provinces were not brought in until the final stages of negotiations. This ultimately led to the failure of the TIEA, two years into the process. 88 As a result of this experience, prior to the commencement of CETA negotiations, the EU through its then Trade Commissioner, Peter Mandelson, made it clear that Canada should not bother to talk about the CETA if its provinces were not on board.89 Thus, clearly from the EU position, the participation of Canadian provincial territories was a precondition to be met before the CETA negotiations could commence, even though the provinces were not direct signatories like the EU Member States. In general, Canada’s investment law policy can be considered as centred around 33 its Model FIPA after taking into consideration the critical role played by its provincial territories towards its international treaty commitments. However, the difference between the policy standards set in its Model FIPA and the policy standards finally agreed upon in the CETA, for example with respect to Investor-State dispute settlement, suggests that Canada is equally open to new approaches, particularly those inspired by the current EU preferences on investment policy lawmaking.
D. Negotiation and Outcome of CETA’s Investment Chapter Soon after the shift of competences from its Member States to the EU in 2009, 34 the EU made clear that it would start to take advantage of this. A first negotiating mandate given to the Commission to include investment law protection into a Free Trade Agreement did concern the negotiations with Canada, India and Singapore. 90 Investment law has become an almost permanent topic of negotiations of interna- 35 tional agreements in economic matters as the examples of TTIP, CPTPP, USMCA or ASEAN show. In North America, the North American Free Trade Agreement (NAFTA)91 concluded in 1992 between Canada, the US and Mexico provided for ISDS in its Chapter 11 and was frequently used as a legal basis for arbitral proceedings against the US as well as against Canada.92 NAFTA can be seen as the first broad Mega Regional Trade Agreement containing an investment chapter. An investment chapter was also included in Part III of the Energy Charter Treaty (ECT) that entered into force in April 1998 and that the EU is also a Party to. 93 Since early 2014, it was discussed whether ISDS should be made part of the FTA under negotiation
For details on the TIEA, see https://www.international.gc.ca/trade-agreements-. Hübner et al., CETA: the Making of the Comprehensive Economic and Trade Agreement between Canada and the EU, Notes de l’Ifri (2016), 16. 89 Hübner et al., CETA: the Making of the Comprehensive Economic and Trade Agreement between Canada and the EU, Notes de l’Ifri (2016), 16. 90 See the leaked negotiating mandate ‘EU-Canada (CETA), India and Singapore FTAs - EC negotiating mandate on investment (12 September 2011)’, available at: http://www.bilaterals.org/spip.php?arti cle20272&lang=en: ‘Enforcement: the agreement shall aim to provide for an effective investor-to statedispute settlement mechanism. State-to-state dispute settlement will be included, but will not interfere with the right of investors to have recourse to the investor-to-state dispute settlement mechanism. It should provide for investors a wide range of arbitration fora as currently available under the Member States’ bilateral investment agreements (BIT’s).’ 91 See, Chapter 11 NAFTA, available at: https://investmentpolicy.unctad.org. 92 Details on NAFTA Investor-State Arbitrations available at: http://www.state.gov/s/l/c3439.htm. 93 See, Chapter Part III Energy Charter Treaty, available at: https://investmentpolicy.unctad.org/inter national-investment-agreements/treaty-files/3281/download. 87
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An Overview of the CETA – Investment Chapter (Chapter 8) between the EU and the US (Transatlantic Trade and Investment Partnership, TTIP) or whether it should be excluded from the negotiation agenda.94 36 In May 2009 Canada and the EU announced the launch of trade negotiations at the Canada-EU Summit in Prague, Czech Republic.95 During the CETA negotiations, the first version of an investment chapter was already ‘leaked’ as part of a Consolidated CETA Draft of 13 January 2010,96 so only a few weeks after the entry into force of the Lisbon Treaty and well before a mandate was given to the Commission to start negotiations on this issue. Here, investment arbitration was retained as the mechanism for settling Investor-State disputes. On the European side, the Council adopted Negotiating Directives on investment issues on 12 September 2011 concerning the negotiations with Canada, India and Singapore.97 37 Further leaked versions were circulated inter alia in 2011,98 2012,99 on 15 and 21 November 2013,100 on 1 August 2014,101 and September 2014.102 The September 2014 version was the released agreement’s text completed at Canada-EU Summit in Ottawa. 94 See, for example, the EU Commission President Jean Claude Juncker ‘[…] Nor will I accept that the jurisdiction of courts in the EU Member States is limited by special regimes for investor disputes. The rule of law and the principle of equality before the law must also apply in this context’, in Juncker, A New Start for Europe: My Agenda for Jobs, Growth, Fairness and Democratic Change (15 July 2014), p. 8, available at: https://www.eesc.europa.eu/resources/docs/jean-claude-juncker---political-guidelines.pdf; In Germany, the German Federal Council rejected the inclusion of a specific ISDS-mechanism in TTIP in its Resolution of 11 July 2014, BR-Drs. 295/14, available at: http://www.bundesrat.de/SharedDocs/ drucksachen/2014/0201-0300/295-14(B).pdf?__blob=publicationFile&v=1: ‘[…] 9. Der Bundesrat hält spezielle Investitionsschutzvorschriften und Streitbeilegungsmechanismen im Verhältnis Investor und Staat zwischen der EU und den USA für verzichtbar und mit hohen Risiken verbunden. Gründe dafür sind insbesondere: – Beide Partner gewährleisten für Investoren einen hinreichenden Rechtsschutz vor unabhängigen nationalen Gerichten. – Durch Investor-Staat-Schiedsverfahren können allgemeine und angemessene Regelungen zum Schutz von Gemeinwohlzielen, die in demokratischen Entscheidungen rechtsstaatlich zustande gekommen und rechtmäßig angewandt wurden, ausgehebelt oder umgangen werden. […].’ 95 Kellogg, ‘NAFTA unplugged?: Canada’s three economies and free trade with the EU, in Hübner (ed), Europe, Canada and the Comprehensive Economic Partnership Agreement (2011),107 (108). 96 Investment Chapter, leaked version of the CETA draft text of 13 January 2010, ‘Draft Consolidated Text: Canada-EU Comprehensive Economic and Trade Agreement’, available at: https://wiki.laquadratu re.net/images/3/33/CETA_draft_jan_2010.pdf. 97 See the leaked negotiating mandate ‘EU-Canada (CETA), India and Singapore FTAs - EC negotiating mandate on investment (2011)’, available at: http://www.bilaterals.org/spip.php?article20272&l ang=en: ‘Enforcement: the agreement shall aim to provide for an effective investor-to state- dispute settlement mechanism. State-to-state dispute settlement will be included, but will not interfere with the right of investors to have recourse to the investor-to-state dispute settlement mechanism. It should provide for investors a wide range of arbitration fora as currently available under the Member States’ bilateral investment agreements (BIT’s).’ 98 Article X.18 (Investment/Establishment Chapter), leaked version of the CETA draft text of January 2011, ‘Canada-EU CETA Draft Consolidated Text – Post Round VI’, available at: https://wiki.laquadrat ure.net/images/6/69/CETA_draft_jan_2011.pdf. 99 Article X.18 (Investment/Establishment Chapter), leaked version of the CETA draft text of February 2012, ‘Draft CETA Investment Text’, available at: https://wiki.laquadrature.net/images/c/cc/CETA -Draft_Consolidated_text-February_2012.pdf. 100 Article X.-1 (Investor-to-State Dispute Settlement Text), leaked version of the CETA draft text of 15 November 2013, available at: https://www.laquadrature.net/files/Draft-CETA-DisputeSettlement-no v-15.pdf. 101 Article X.17(3) (Investor-State Dispute Settlement Text), leaked version of the consolidated CETA draft of 1 August 2014, ‘Consolidated CETA Text’, available at: https://old.laquadrature.net/files/ ceta-complet.pdf; Article X.17(4) (Investor-to-State Dispute Settlement Text), leaked version of the consolidated CETA draft of 1 August 2014, ‘Consolidated CETA Text’, available at: https://old.laquadrat ure.net/files/ceta-complet.pdf. 102 Article 8.18(5) (Resolution of Investment Disputes), Finalised CETA Draft Text September 2014, available at: http://trade.ec.europa.eu/doclib/docs/2014/september/tradoc_152806.pdf.
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An Overview of the CETA – Investment Chapter (Chapter 8) In August 2014, Canada and the EU announced the complete text of the Canada-EU Trade Agreement, marking the conclusion of negotiations. The most dramatic change then took place between the 2014 and 2016103 versions. In a public consultation held by the EU Commission in 2014,104 an overwhelming lack of support for ISDS by European stakeholders was revealed, this later culminated in the European Parliament (EP) issuing a resolution to the Commission containing a number of stipulations directing the reform of the investment protection provisions under the CETA. 105 With the EP’s competences strengthened by the Treaty of Lisbon, 106 it became imperative that the EU Commission negotiating on behalf of EU Member States approaches its Canadian counterpart to address the recommendations set out in the EP’s resolution. Although this EP Resolution was primarily directed towards the TTIP negotiations, its adverse effects on the CETA Investment Chapter were obvious. In February 2016, Canada and the EU announced the completion of the legal 38 review of the agreement’s English text. The outcome of the legal review saw the previous Article X.17 evolved into Article 8.18 reflecting the new EU approach for settling Investor-State disputes through an Investment Court System (ICS), as opposed to ad-hoc arbitration contemplated in earlier CETA Drafts pre-dating 2016. After over seven years of intensive negotiations, the finalised CETA Draft was even- 39 tually signed by the Parties on 30 October 2016.107 The European Council President Donald Tusk and the Canadian Prime Minister Justin Trudeau signed the agreement. By February 2017, the European Parliament approved the CETA, while on the other side of the Atlantic, the Canadian bill to implement the CETA was granted royal assent in May 2017. On 21 September 2017, the CETA provisionally entered into force, with the exception of some parts of the Investment Chapter. The agreement will take full effect once all EU member states have formally ratified it. 108 This process is ongoing.
I. The Necessity of ISDS in CETA While it has been widely accepted that both substantive and procedural protection 40 for enterprises investing in developing countries or emerging markets offers substantial benefits109 and respond to the actual need to correct deficiencies of the legal 103 CJEU, Press Release No 52/19, 30 April 2019 (Opinion 1/17); Hübner et al., CETA: the Making of the Comprehensive Economic and Trade Agreement between Canada and the EU (2016). 104 Commission Staff Working Document, Online public consultation on investment protection and investor-to-state dispute settlement (ISDS) in the Transatlantic Trade and Investment Partnership Agreement (TTIP), 13 January 2015, SWD(2015) 3 final, available at: https://trade.ec.europa.eu/doclib/docs/2015/ja nuary/tradoc_153044.pdf. 105 See in this regard, European Parliament, European Parliament Resolution of 8 July 2015 containing the European Parliament’s recommendations to the European Commission on the negotiations for the Transatlantic Trade and Investment Partnership (TTIP), 2014/2228(INI). See, ‘Regarding the Rules, para. (xv)’. 106 Treaty of Lisbon Amending the Treaty on European Union and the Treaty Establishing the European Community, signed 13 December 2007, OJ C306/01 of 17 December 2007; On the strengthening of the EP by the Treaty of Lisbon see, Craig and Búrca, EU Law: Text, Cases, and Materials (2015), 50; Rittberger, Building Europe’s Parliament (2005); Judge and Earnshaw, The European Parliament (2008); Corbett et al., The European Parliament (2011). 107 CJEU, Press Release No 52/19, 30 April 2019 (Opinion 1/17); Hübner et al., CETA: the Making of the Comprehensive Economic and Trade Agreement between Canada and the EU (2016). 108 See, https://eur-lex.europa.eu/content/news/eu_canada_trade_agreement-ceta.html. 109 UNCTAD, ‘The Role of International Investment Agreements in Attracting Foreign Direct Investment to Developing Countries’ in UNCTAD Series on International Investment Policies for Development (2009), available at: http://unctad.org/en/docs/diaeia20095_en.pdf; For a summary of different argumentation on the effects of BITs see Vandevelde, Bilateral Investment Treaties (2010), 115-120.
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An Overview of the CETA – Investment Chapter (Chapter 8) protection available in some host states, the current debate about ISDS questions the necessity of investment protection and especially of Investor-State arbitration between developed OECD countries.110 41 However, it has to be stressed that there have been about 250 investment disputes against EU Member States until the end of 2020; 60 of these known cases involve non-EU investors claiming against an EU Member State, and 25 of these cases are specifically transatlantic, with Poland having the highest share of the disputes at seven cases, Romania and Spain with five cases respectively, Estonia three cases, Croatia and the Czech Republic two cases respectively, and Slovakia in one case. 111 Out of these 25 investment disputes against EU Member States, 20 have been initiated by US or Canadian investors with only a very low success rate. This high aggregate number of claims especially against Central and Eastern European countries appears to show the mistrust in the judicial system of these countries. 42 Legal protection is necessary when obligations are not complied with; the fact that certain types of obligations are habitually complied with, e.g. because the domestic legal system of a host state conforms to rule of law requirements and offers adequate rule of law guarantees in case of violations, does not mean that there should not be a fall-back protection option available in the rare instances where this is not the case. It is a fact that even in OECD countries the legal protection of foreign investors does not always live up to the demands of the rule of law. 43 In the 2020 ‘Rule of Law Index’ of the World Justice Project (WJP), Canada is ranked in the 9th position globally, while the US is ranked 21st.112 Nevertheless, there is also evidence that US courts, especially civil juries, can show prejudice against foreign investors. The most frequently cited example in this context is the Loewen-case, 113 where a foreign investor was faced with punitive damages awarded by a jury in a civil litigation. But, as is clear from the facts of this NAFTA decision, the problem was not the fact that ‘excessive’ punitive damages (four times the amount of the actual damage) were awarded, but that in the course of the jury trial the court failed to provide a fair trial.114 Thus, foreign investors may be subject to discrimination,115 may not receive a fair trial in the domestic courts,116 or may otherwise be deprived
110 See, e.g., Schäfer, ‘Investitionsschutzklausel in Freihandelsabkommen zwischen USA und EU?’ (2014) 5 ZRP, 154 (154 f.); Pernice, ‘Politisierung der EU nach der Europawahl – Politik zwischen TTIP und TTU’ (2014) EuZW, 521 (521 f.). 111 For details, see the UNCTAD database, available at: https://investmentpolicy.unctad.org/. 112 See, WJP Rule of Law Index 2020, p. 16 available at: https://worldjusticeproject.org/our-work/rese arch-and-data/wjp-rule-law-index-2020. 113 Loewen Group v. USA, ICSID Case No. ARB(AF)/98/3, Award (26 June 2003). 114 Loewen Group v. USA, ICSID Case No. ARB(AF)/98/3, Award (26 June 2003), para. 119: ‘By any standard of measurement, the trial involving O’Keefe and Loewen was a disgrace. By any standard of review, the tactics of O’Keefe’s lawyers, particularly Mr Gary, were impermissible. By any standard of evaluation, the trial judge failed to afford Loewen the process that was due’. 115 S. D. Myers v. Canada, UNCITRAL (NAFTA), Award (13 November 2000), para. 252: ‘The Tribunal takes the view that, in assessing whether a measure is contrary to a national treatment norm, the following factors should be taken into account: - whether the practical effect of the measure is to create a disproportionate benefit for nationals over non nationals; - whether the measure, on its face, appears to favour its nationals over non-nationals who are protected by the relevant treaty’; see also in regard to favoritism in decisions of government officials, The Global Competitiveness Report 2013–2014 (2013), 416; on this index the US lists as No. 54 – behind Turkey, Iran Costa Rica or Serbia. 116 Loewen Group v. USA, ICSID Case No. ARB(AF)/98/3, Award (26 June 2003), para. 137: ‘[…] [T]he whole trial [before a Mississippi court] and its resultant verdict were clearly improper and discreditable and cannot be squared with minimum standards of international law and fair and equitable treatment.’
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An Overview of the CETA – Investment Chapter (Chapter 8) of fundamental rule of law guarantees even in highly developed OECD countries. 117 Furthermore, corruption is taking place not only in developing countries, but also in OECD Member States.118 As reflected in the ‘Corruption Perceptions Index 2020’ (CPI) of Transparency International, some of the EU Member States still score below 50% in the corruption perception index.119 In fact, several EU Member States are listed low in different indexes on corruption, 44 the rule of law and judicial independence. While it may be politically expedient to consider all EU States to conform to the rule of law and to provide sufficient legal protection to their own citizens and to foreigners (including foreign investors), it is a fact that a number of them do not fully live up to the standard of good governance and the rule of law expected from an OECD country: Especially judicial independence is a requirement stemming from the right to an effective remedy (also enshrined in Article 47 of the Charter of Fundamental Rights of the EU 120) assuring the fairness, predictability, certainty and stability of the legal system in which businesses operate. 121 In the WJP rule of law index, 2020 report, the ‘civil justice’ system of a number of EU Member States ranked above 50, with Croatia being ranked at 52, Italy at 54, Bulgaria at 56 and the poorest rank been Hungary at 96.122 According to the ICSID database at the time of writing, these EU Member States are respondents in approximately 49 ISDS disputes either pending or concluded before ICSID, with Croatia and Hungary each involved in 15 cases respectively, while Italy is a respondent in ten cases and Bulgaria in nine cases.123 This data clearly suggests that foreign investments in these EU Member States are subject to a high risk of future disputes compared to the other Member States with lesser or no record of Investor-State dispute. With a below-par record of access to justice in the aforementioned EU States, the availability of ISDS as a means to an efficient justice system for foreign investors cannot be overemphasised. On adherence to the rule of law, the WJP rule of law index, 2020 report, 124 lists 128 countries in total, of which Bulgaria ranked as number 53, Croatia 39, Romania 32, Greece 40, Hungary 60, Italy 27 and Slovenia 24. It is also worth mentioning that in the 2020 EU Justice Scoreboard, one of the 45 core findings noted is the ‘persistent challenges regarding the perception of judicial independence’.125 Therein, it is further reported that political and governmental interference followed by economic pressure and other specific interests has resulted in a perceived lack of judicial independence in about two-fifths of EU Member States.
117 See references and examples for misconduct Pahis, ‘Corruption in Our Courts: What It Looks Like and Where It Is Hidden’ (2009) 118 Yale L. J., 1900. 118 Liu and Mikesell, ‘The Impact of Public Officials’ Corruption on the Size and Allocation of US State Spending’ (2014) 74(3) Public Adm. Rev., 346. 119 Transparency International’s ‘Corruption Perceptions Index 2020’, available at: https://www.trans parency.org/en/news/cpi-2020-western-europe-eu. 120 Article 47, Charter of Fundamental Rights of the EU [2000] OJ C364/01: ‘(1) Everyone whose rights and freedoms guaranteed by the law of the Union are violated has the right to an effective remedy before a tribunal in compliance with the conditions laid down in this Article. (2) Everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal previously established by law. Everyone shall have the possibility of being advised, defended and represented […].’ 121 Commission Communication, The 2015 EU Justice Scoreboard, 9 March 2015, COM(2015) 116 final, 37, available at: http://ec.europa.eu/justice/effective-justice/files/justice_scoreboard_2015_en.pdf. 122 See, WJP Rule of Law Index 2020, p. 29. 123 See ICSID Case Database, available at: https://icsid.worldbank.org/cases/case-database. 124 See, WJP Rule of Law Index 2020, p. 7. 125 Commission, 2020 EU Justice Scoreboard – Questions and Answers, available at: https://ec.europa.eu /commission.
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46
47
48
49
Furthermore, the CPI 2020 of Transparency International126 lists the CPI score of Latvia at 57, Italy and Malta at 53, Greece at 50, Slovakia at 49, Croatia at 47, Bulgaria, Hungary and Romania at 44. Among the accession candidates, Serbia ranks at number 38, Montenegro at number 45, Macedonia at 35, Turkey at 40, and Albania at 36. Different mechanisms of dispute settlement strengthen the degree of compliance in general, and the availability of any means of legal recourse for the individual serves the protection of legal rights. Ideally, such availability alone will contribute to compliance.127 This is also one of the main ideas of strong individual (subjective) rights in EU economic law, as they are also found in procurement or state aid law as well as in the entire area of fundamental freedoms and their enforcement. 128 Furthermore, the fact that obligations are usually complied with in Canada and most EU Member States as well as the EU itself does not mean that an additional compliance mechanism would be irrelevant. Finally, even sophisticated legal systems in Canada and most parts of the EU alone do not guarantee that non-commercial risk will be dealt with in a non-discriminatory and fair manner before national courts. Therefore, ISDS can serve as a last option for foreign investors. The availability of particular legal remedies is of importance when disputes emerge. The large amount of EU investments in Canada and vice versa indicates that investment provisions in FTAs are not a one-way street in favour of either Party. ISDS therefore performs a protective function by helping to reduce non-commercial risks for European investors. The size and complexity of the EU and its Member States, as well as the Canadian government with multiple functions (legislative, executive/administrative and judicial) on different levels (municipal, state/provincial and federal), can act in a number of combinations to the detriment of foreign investors. All political sub-units such as states/provinces and municipalities are bound by investment agreement terms, though. Furthermore, domestic courts enforce domestic rights, but they often do not have jurisdiction to enforce international law directly. In this context, it has to be noted that CETA just like the EU-Singapore FTA explicitly excludes the direct applicability of the agreement.129 This is particularly noticeable because in many European legal systems – such as those of Germany, the Netherlands and Austria – treaties normally do not only become part of domestic law but can also be directly applied and enforced by domestic courts and tribunals as long as they are sufficiently clear and precise. Thus, such legal orders would generally permit the direct invocation of investment protection standards before their courts. However, the possibility of such direct invocation is explicitly excluded in the CETA by the ‘no direct effect’ rule. Therefore, because the direct applicability of CETA is excluded, chapters including substantive investment 126 Transparency International’s ‘Corruption Perceptions Index 2020’, available at: https://www.trans parency.org/en/cpi/2020/index/nzl. 127 See also Gaukrodger and Gordon, ‘Investor-State Dispute Settlement: A Scoping Paper for the Investment Policy Community’, OECD Working Papers on International Investment, 2012/03 (2012), 10, available at . 128 Masing, Die Mobilisierung des Bürgers zur Durchsetzung des Rechts (1997); Everling, ‘Durchführung und Umsetzung des europäischen Gemeinschaftsrechts im Bereich des Umweltschutzes’ (1993) NVwZ, 209 (215). 129 Article 30.6 CETA: ‘Nothing in this Agreement shall be construed as conferring rights or imposing obligations on persons other than those created between the Parties under public international law, nor as permitting this Agreement to be directly invoked in the domestic legal systems of the Parties’; similar, Article 16.16 EU-Singapore FTA ‘No Direct Effect’: ‘For greater certainty, nothing in this Agreement shall be construed as conferring rights or imposing obligations on persons, other than those created between the Parties under public international law.’
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An Overview of the CETA – Investment Chapter (Chapter 8) protection standards are – from an investor’s perspective – almost useless without a corresponding ISDS mechanism. In the absence of domestic courts and tribunals being able to directly apply such standards, only recourse to ISDS will effectively permit the invocation and enforcement of investment protection standards. At the same time, the exclusion of direct applicability of CETA standards makes clear that no national court can set aside national legislative measures even if these are not in conformity with CETA’s substantive investment protection standards. Thus, the direct relevance of CETA for the national lawmaker is only a limited one.130 As already mentioned, the ICS cannot set aside national law that is not in conformity with CETA Chapter 8, but can only award compensation. In regard to attracting foreign investment from the EU as well as from Canada, 50 investment protection is at least to be seen as a neutral factor, many economists even argue in favour of a FDI-stimulating effect of ISDS. 131 Thus, in a competition of governments and economic systems, ISDS has to be seen as one (out of many) factor(s) to promote economic activity and attractiveness; more efficient and effective protection will most likely increase FDI into the EU.132 Often the mere availability of legal recourse for individual investors will deter host states from acting in violation of basic due process principles and will thus contribute to compliance (→ mn. 46). A functioning legal system complying with basic rule of law criteria will in turn be more attractive to foreign investors than a system devoid of such attributes. Furthermore, it is most questionable if in a regulatory competition between the 51 economic superpowers, i.e. the EU, China and the US, the EU can afford to exit the negotiating floor and leave the shaping of a future ISDS mechanism to other players. With a global economic weight equal to one-quarter of global GDP and nearly half of global FDI outflows,133 the EU’s potential in investment negotiations is more than evident. Currently, there is the unique possibility for the EU to influence the development of an ISDS Model Chapter with other countries following suit.
II. Future Termination of EU Member States – Canada Investment Agreements Canada has concluded seven BITs with EU Member States (Croatia, the Czech 52 Republic, Hungary, Latvia, Poland, Romania and the Slovak Republic).134 Based on these EU Member States-Canada IIAs, there have been approximately seven arbitral
130 Thym, ‘Verhinderte Rechtsanwendung: deutsche Gerichte, CETA/TIIP und Investor-Staat-Streitigkeiten‘, Verfassungsblog, 4 January 2015, available at: http://www.verfassungsblog.de/verhinderte-recht sanwendung-deutsche-gerichte-cetatiip-und-investor-staat-streitigkeiten. 131 For a positive effect within North-South-relations, see UNCTAD, ‘The Role of International Investment Agreements in Attracting Foreign Direct Investment to Developing Countries’ in UNCTAD Series on International Investment Policies for Development (2009). 132 On this Bungenberg, ‘Internationaler Investitionsschutz im Wettbewerb der Systeme’ (2011) KSzW, 116. 133 UNCTAD, World Investment Report 2012 – Towards a New Generation of Investment Policies (2012), 85. 134 Canada – Croatia BIT (1997), entered into force January 2001; Canada – Czech Republic BIT (2009), entered into force January 2012; Canada – Hungary BIT (1991), entered into force November 1993; Canada – Latvia BIT (2009), entered into force November 2011; Canada – Poland BIT (1990), entered into force November 1990; Canada – Romania BIT (2009), entered into force November 2011; Canada – Slovakia BIT (2010), entered into force March 2012.
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An Overview of the CETA – Investment Chapter (Chapter 8) proceedings up to date, two of which are against Romania,135 two against Croatia,136 then one each against Poland,137 Slovak Republic138 and the Czech Republic.139 There have been no arbitral proceedings from EU investors against Canada. Notably, as an outcome of the finalised CETA text in Chapter 8, the existing EU Member StatesCanada BITs will have to be terminated once the CETA Investment Chapter enters into force. 53 Following the rules of customary international law as codified in Article 54 of the Vienna Convention on the Law of Treaties (VCLT): The termination of a treaty or the withdrawal of a party may take place: (a) in conformity with the provisions of the treaty; or (b) at any time by consent of all the parties after consultation with the other contracting States.
54
As far as the existing EU Members States-Canada IIAs are concerned, the consent of all Parties involved to terminate the existing agreements between them is already foreseen in the CETA. According to Article 30.8 (1) CETA: The agreements listed in Annex 30-A shall cease to have effect, and shall be replaced and superseded by this Agreement. Termination of the agreements listed in Annex 30-A shall take effect from the date of entry into force of this Agreement.
Annex 30-A CETA lists the existing BITs between Canada and the EU Member States identified above, and including the ‘Exchange of Notes between Canada and Malta Constituting an Agreement Relating to Foreign Investment Insurance, done at Valletta on 24 May 1982.’140 56 Although the CETA has been provisionally applied since 21 September 2017, this provisional application of Chapter 8 is limited to specific provisions which in particular do not include the ISDS provisions.141 The ISDS provisions along with other provisions of the CETA will only fully and definitively come into force upon final ratification of the agreement by all the EU Member States. 57 Notably, a sunset clause is provided in Article 30.8(2) CETA which guarantees that notwithstanding the termination of the agreements listed in Annex 30-A, a claim may still be submitted under the defunct BITs if the ‘challenged treatment’ occurred before the agreement was terminated, and not more than three years have elapsed since the termination. Consequently, this provision preserves existing claims pending before ISDS tribunals arising under the BITs listed in Annex 30-A, including future claims provided they meet the aforesaid conditions. 55
135 Edward and Jak Sukyas v. Romania, UNCITRAL Ad-Hoc (legal basis, Canada – Romania BIT 2009, case pending); Gabriel Resources Ltd. and Gabriel Resources (Jersey) v. Romania, ICSID Case No. ARB/15/31 (legal basis: Canada – Romania BIT, case pending). 136 Haakon Korsgaard v. Croatia, UNCITRAL (legal basis, Canada – Crotia BIT 1997, case pending); Mr. Nedjeljko Ulemek v. Croatia, UNCITRAL (legal basis: Canada-Croatia BIT 1997, Award of May 25, 2008 (not public, IAReporter 16/2011 states that all claims were dismissed). 137 Lumina Copper v. Republic of Poland, UNCITRAL (legal basis Canada – Poland BIT 1990, case pending). 138 EuroGas Inc. and Belmont Resources Inc. v. Slovak Republic, ICSID Case No. ARB/14/14 (legal basis: Slovak Republic/Czechoslovakia-US BIT; Canada-Slovak Republic BIT, case pending). 139 Frontier Petroleum Services Ltd. v. The Czech Republic, UNCITRAL (legal basis: Canada-Czech Republic BIT; all of claimants’ claims were dismissed). 140 See, Annex 30-A CETA. 141 Notice Concerning the Provisional Application of the CETA, OJ L 238/9, 16 September 2017.
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E. The CETA Substantive and Procedural Framework – A Paradigm Change? I. The CETA Substantive Framework During the negotiation of CETA, it has been argued by some that this agreement 58 and especially its Investment Chapter would undermine democratic principles of the participating States, especially the right to regulate. An overly-broad investment protection which could be enforced by investors themselves would lead to a ‘regulatory chill’,142 whereby sovereign states would be deprived of their right to act and to implement their public policy considerations.143 During negotiations, all actors and thus also the negotiating teams were obviously constantly reminded that any investment protection should reflect a more balanced approach between public and private interests, and thus limit the Contracting Parties in the exercise of their sovereign ‘right to regulate’ as little as possible. This ‘more balanced approach’ that was also pointed out by the CJEU in the CETA Opinion (→ mn. 24) is reflected throughout the entire investment chapter, be it the scope of application, the substantive standards or the dispute settlement system. Already Article 8.2 discussing the general scope of application of the Investment Chapter is a balancing exercise between guaranteeing the protection of investors in as many sectors as possible, while ensuring that national interests in sensitive industries, such as entertainment and aviation, are protected and local regulations could continue to determine their functioning. Furthermore, a broad exception for ‘activities carried out in the exercise of governmental authority’ from market access provisions, performance requirements, and key investment protection standards such as national treatment and most-favoured nation treatment indicates that the Parties wanted to protect their right to regulate and ensure a wide leeway in performance of
142 In this vein, see, e.g., the Seattle to Brussels Network in a brief from January 2014, entitled ‘Seattle to Brussels Network refutes European Commission’s defense of controversial investor-to-state dispute settlement’ available at: http://www.tni.org/sites/www.tni.org/files/download/s2b_response_to_dg trade_long.pdf: ‘There is clear evidence that proposed and even adopted laws on public health and environmental protection have been abandoned or watered down because of the threat of corporate claims for damages. […] Through regulatory chill effects and the cost of arbitration and awards, ISDS provisions constitute a considerable and growing policy and financial risk. The exponential growth in the number of ISDS cases spurred on by international trade lawyers; frivolous claims; and pressures to shelve regulation under threat of investment claims are systemic flaws’; further on this issue, see Neumayer, ‘Do Countries Fail to Raise Environmental Standards? An Evaluation of Policy Options Addressing “Regulatory Chill”’ (2001) 4(3) Int'l. J. Sustain. Dev., 231; Schill, ‘Do Investment Treaties Chill Unilateral State Regulation to Mitigate Climate Change?’ (2007) 24(5) J. Int’l Arb., 469; Tienhaara, ‘Regulatory chill and the threat of arbitration: A view from political science’ in Brown and Miles (eds), Evolution in Investment Treaty Law and Arbitration (2011), 606 (607). 143 See, e.g., a report released on 6 March 2015 by the Sierra Club, Issue Brief, ‘No fracking way: how the EU-US trade agreement risks expanding fracking’, 5, available at: http://action.sierraclub.org/site/ DocServer/FoEE_TTIP-ISDS-fracking-060314.pdf?docID=15241: ‘The proposed investment chapter in the TTIP is expected to include far-reaching rights for foreign investors that could undermine government decisions to ban and regulate fracking. US companies investing in Europe could directly challenge fracking bans or regulations at private international tribunals – potentially paving the way for millions of euro in compensation, paid by European taxpayers’; further on this issue, see The Council of Canadians, ‘The CETA Deception 2.0 – How the Trudeau government is misrepresenting CETA’ available at: https://canadians.org/sites/default/files/publications/ceta-deception.pdf; see also Eberhardt et al., ‘The right to say no: EU–Canada trade agreement threatens fracking bans’, The Council of Canadians, Issue Brief (May 2013) available at: http://corporateeurope.org/sites/default/files/publication s/ceta-fracking-briefing.pdf.
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An Overview of the CETA – Investment Chapter (Chapter 8) any actions, which are normally considered a part of sovereign functions (→ Art. 8.2 mn. 127).
1. The Scope of Application CETA Chapter 8 contains multiple clarifications and also limitations to the scope of its application compared to previous generations of investment agreements. One of the central issues concerning the scope of application is the question to what extent an IIA should cover different types of investments. On the one hand, CETA retains the broad asset-based definition found, for example, in German and Austrian BITs comprising both portfolio and FDI.144 Albeit unsurprising, it is an interesting inclusion given the above mentioned limited exclusive competences as regards internal EU powers to negotiate and conclude agreements. 60 Remarkable is the fact that the introductory ‘chapeau’ of the investment definition contains language reminiscent of the so-called Salini elements,145 but only in a reduced way, the ‘contribution to the development of the host State’ is left out, in line with recent investment jurisprudence.146 Chapter 8 thus can be regarded as a manifestation of the political will of the negotiating Parties to create an additional hurdle ensuring that only a more limited number of ‘true’ investments will be protected. On the other hand, bondholder claims as controversially discussed since the Abaclat147 and subsequent Argentinian bondholder cases148 are not excluded. At the same time, Chapter 8 excludes Investor-State claims for debt restructuring.149 61 Regarding the scope of application ratione personae, Chapter 8 refers to an investor as ‘a Party, a natural person or an enterprise of a Party, that seeks to make, is making or has made an investment in the territory of the other Party.’ 150 As regards natural persons, the text refers to citizenship; concerning enterprises the main criterion appears to be incorporation. With respect to the latter, Chapter 8 makes clear that mere shell companies incorporated in either of the Parties should not benefit from the investment protection under the agreement. This is done by a definitional clarification excluding enterprises without any ‘substantial business activities’ in either of the Parties.151 Notably, Article 8.1 CETA expressly states that an investor also means a ‘Party’, which suggests that a CETA Party (i.e. Canada, EU or any of its Member States) may also come under the ratione personae scope of Chapter 8. However, unlike a ‘natural person’ or an ‘enterprise of a party’, the CETA has not clarified the circumstances that must exist for ‘a Party’ to qualify as an investor within the scope of Chapter 8. In the absence of a clear meaning, the most probable hypothesis is that a Party may qualify 59
Article 8.1 CETA (Definition of Investment). See Bungenberg, ‘The Scope of Application of EU (Model) Investment Agreements’ (2014) 15(3-4) JWIT, 402 (415). 146 See Reinisch, ‘From a “Salini-light” Test and New Disagreement on Waiting Periods to Clarifications on Expropriation and Fair and Equitable Treatment – ICSID Arbitration in 2013’ in Capaldo (ed), The Global Community. Yearbook of International Law and Jurisprudence 2014: Volume II (2015), 837. 147 Abaclat and Others v. Argentina, ICSID Case No. ARB/07/5, Decision on Jurisdiction and Admissibility (4 August 2011). 148 Giovanni Alemanni and others v. Argentina, ICSID Case No. ARB/07/8, tribunal constituted on 3 July 2008; Ambiente Ufficio S.p.A. and others v. Argentina, ICSID Case No. ARB/08/9, Decision on Jurisdiction and Admissibility (8 February 2013). 149 Annex 8-B CETA, para. 2. 150 Article 8.1 CETA (Definition of Investor). 151 Article 8.1 CETA: ‘For the purposes of this definition, an enterprise of a Party is: (a) an enterprise that is constituted or organised under the laws of that Party and has substantial business activities in the territory of that Party; or […]’. 144
145
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An Overview of the CETA – Investment Chapter (Chapter 8) as an investor if it concerns a State-Owned Enterprise (SOE) driven by purely commercial objectives (→ Art. 8.18 mn. 51 ff.).
2. Extension of Scope of Application to Admission/Market Access While it was clear that the EU institutions were generally determined to continue a 62 policy of market liberalisation,152 it was less clear which course to adopt for the future: whether to have separate provisions on market access or to extend national treatment to the pre-investment stage.153 The CETA text shows that it is primarily the Canadian approach that was pursued. Its national treatment obligation extends to ‘establishment, acquisition (and possibly expansion) of investments’.154 Explicit provisions on market access and the extension of the scope of application of IIAs to the pre-establishment phase is not the norm in international investment law. In this regard, the CETA thus stands in sharp contrast with traditional IIAs by not only extending the scope of application of its non-discrimination standards of protection to the pre-establishment phase but also by including an explicit provision on market access in its investment chapter (→ Art. 8.4 mn. 53). The EU and Canada are prepared to extend market access clauses to the pre-investment phase of foreign investment, and the ‘negative list’ approach adopted by Article 8.4, in particular, can be interpreted as a strong signal that the Parties seek to achieve rapid and broad market access for their respective investors. Nevertheless, market access remains closely linked to the economic sovereignty of states, which the Parties want to protect. This is especially apparent from the second paragraph of Article 8.4 as well as from its exclusion from the scope of ISDS under the CETA (→ Art. 8.4 mn. 54). The extensive prohibition of mandatory performance requirements in relation to 63 both goods and services is also an innovative step.155 Moreover, advantage conditioning requirements/non-mandatory performance requirements are prohibited. Article 8.5 of the CETA thus has the features of a so-called ‘TRIMS+’ Clause pre- and postestablishment.156 This article clearly reduces the scope of the Parties’ possible use of regulatory powers and limits the possible obligations which may be imposed on foreign investors (→ Art. 8.5 mn. 52). 157 Nevertheless, the prohibition of performance requirements is seen as less problematic when an agreement is concluded between Par-
152 See only Commission Communication, Towards a comprehensive European international investment policy, 7 July 2010, COM(2010) 343 final, 4 f., ‘[…] our trade policy will seek to integrate investment liberalisation and investment protection’. 153 See also the discussion in Stephen Woolcock, ‘The EU Approach to International Investment Policy after the Lisbon Treaty’, Study for the EP Committee on International Trade 2010, 31 f. 154 See, Article 8.6 CETA; See also, Article 4 Canada 2014 Model FIPA, available at: https://www.itala w.com/sites/default/files/files/italaw8236.pdf. 155 See, Article 8.5 CETA (Performance Requirements). 156 For further reference on the different types of prohibition of performance requirements see Nikièma, ‘Performance Requirements in Investment Treaties’, IISD Best Practices Series, December 2014, 7 f. As regards Article 8.5 of the CETA particularly see Bernasconi-Osterwalder and Mann, ‘CETA and Investment: What Is It About and What Lies Beyond?’ in Mbengue and Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (2019), 339 (354): ‘[...] Art. 8.5 imposes an extensive series of prohibitions on governments to impose performance requirements on foreign investors. While some of these are already contained in the WTO Agreement on Trade related Investment Measures (TRIMS), they are reiterated and broadened here [...]’. 157 See also, Bernasconi-Osterwalder and Mann ‘CETA and Investment: What Is It About and What Lies Beyond?’ in Mbengue and Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (2019), 339 (353).
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An Overview of the CETA – Investment Chapter (Chapter 8) ties with equal economic strength.158 Furthermore, the text foresees carve-outs where certain sectors are explicitly exempted from the prohibition of performance requirements such as governmental procurement; air-services; cultural industries (Canada) and audio-visual industries (EU); the Parties’ regulatory space can be increased in a tailor-made way (→ Art. 8.5 mn. 55).159 64 Finally, Article 8.5 is only subject to State-to-State dispute settlement and not to ISDS. Investors thus cannot claim a violation of Article 8.5 before a CETA tribunal.This is also likely to attenuate the effects of the – substantively – far-reaching performance requirements in Article 8.5 accordingly.
3. The Standards of Protection The very purpose of BITs is to eliminate certain unwelcome State measures, like uncompensated, discriminatory and arbitrary expropriation of foreign investments, violations of basic notions of fairness and equity, as well as a lack of basic protection of foreigners, as they are laid down in the typical IIA provisions of fair and equitable treatment (FET) and full protection and security (FPS), or discriminatory action outlawed by most-favoured-nation (MFN) and national treatment (NT). 160 66 Every treaty obligation entails some limitation on the actual exercise of sovereignty.161 But it is also true that investment tribunals have so far emphasised the sovereign right to regulate of host States and held that changes in the regulatory environment or legitimate regulatory actions as such do not normally constitute violations of FET 162 65
158 See respectively → Art. 8.5 mn. 54; Bernasconi-Osterwalder and Mann, ‘CETA and Investment: What Is It About and What Lies Beyond?’ in Mbengue and Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA) (2019), 339 (354). 159 See also, Nikièma, ‘Performance Requirements in Investment Treaties’, IISD Best Practices Series, December 2014, 16. 160 Generally on these protection standards, see, e.g., Schreuer, ‘Fair and Equitable Treatment in Arbitral Practice’ (2005) 6 JWIT 357; Reinisch (ed), Standards of Investment Protection (2008); Muchlinski et al. (eds), The Oxford Handbook of International Investment Law (2008), 259 ff., 363 f.; Dolzer and Schreuer, Principles of International Investment Law (2012), 130 f.; Kläger, ‘Fair and Equitable Treatment’ in International Investment Law (2013); Bungenberg et al. (eds), International Investment Law – A Handbook (2015). 161 See Case of The S.S. 'Wimbledon', United Kingdom and ors v. Germany, Judgment, 17 August 1923, PCIJ Series A no 1, (PCIJ 1923), 35: ‘The Court declines to see in the conclusion of any Treaty by which a State undertakes to perform or refrain from performing a particular act an abandonment of its sovereignty. No doubt any convention creating an obligation of this kind places a restriction upon the exercise of the sovereign rights of the State, in the sense that it requires them to be exercised in a certain way. But the right of entering into international engagements is an attribute of State sovereignty.’ 162 See, e.g., Parkerings v. Lithuania, ICSID Case No. ARB/05/8, Award (11 September 2007), para. 332: ‘It is each State’s undeniable right and privilege to exercise its sovereign legislative power. A State has the right to enact, modify or cancel a law at its own discretion. Save for the existence of an agreement, in the form of a stabilisation clause or otherwise, there is nothing objectionable about the amendment brought to the regulatory framework existing at the time an investor made its investment. As a matter of fact, any businessman or investor knows that laws will evolve over time. What is prohibited however is for a State to act unfairly, unreasonably or inequitably in the exercise of its legislative power’; Plama v. Bulgaria, ICSID Case No. ARB/03/24, Award (27 August 2008), para. 177: ‘The stability of the legal framework has been identified as "an emerging standard of fair and equitable treatment in international law.” However, the State maintains its legitimate right to regulate, and this right should also be considered when assessing the compliance with the standard of fair and equitable treatment’; Impregilo v. Argentina, ICSID Case No. ARB/07/17, Award (21 June 2011), para. 290: ‘[…] In the Tribunal’s understanding, fair and equitable treatment cannot be designed to ensure the immutability of the legal order, the economic world and the social universe and play the role assumed by stabilization clauses specifically granted to foreign investors with whom the State has signed investment agreements’; Mobil Investments Canada Inc & Murphy Oil Corporation v. Canada, ICSID Case No. ARB(AF)/07/4, Decision on Liability and on Principles of Quantum (22 May 2012), para. 153: ‘This applicable [FET] standard
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An Overview of the CETA – Investment Chapter (Chapter 8) or indirect expropriation. This public policy emphasis is now underlined by the wording of the substantive standards of protection together with an explicit article on the right to regulate.163 Article 8.9 CETA ‘sets the tone’ (→ Art. 8.9 mn. 2) for the application and interpretation of the investment protection standards, especially Article 8.9 paras. 1 and 2 CETA operating as a reaffirmation of the sovereign right of States to regulate in the public interest. Although Article 8.9(1-2) CETA does not prevent liability for regulatory measures, it makes simply clear that governments may adopt and maintain the measure – but are obliged to pay compensation if they violate any of the investment protection standards (→ Art. 8.9 mn. 38). The core standards of investor rights may impede regulation where it would lead 67 for example to uncompensated (indirect) expropriation. But they merely restate what host States owe to foreign investors under general international law, especially what is owed under customary international law. The current limited scope of investment protection standards in the CETA is not likely to seriously affect the ‘right to regulate’ of the states Parties to this agreement. As also the CJEU has confirmed, it is in general unlikely that these standards will compromise the ‘right to regulate’ of host States. In the unlikely case that an individual investment award could be regarded as such 68 an encroachment on the States Parties’ right to regulate, the CETA provides for an immediate treaty remedy, the possibility to correct such an interpretation either by the appellate instance164 in the specific case or via an agreed interpretation of the Contracting Parties.165 The core of any IIA or BIT concluded by EU Member States in the past has always 69 been a rather similarly phrased set of substantive treatment standards, that are also all more or less part of CETA Chapter 8: the obligations of FET as well as FPS, the two non-discrimination obligations of NT and MFN, the prohibitions of arbitrary or discriminatory treatment, a guarantee that investors are not expropriated – directly or indirectly – except in the public interest, in a non-discriminatory way, according to due process and under the condition that they receive adequate, prompt and effective compensation. Finally, a ‘free transfer of funds’ guarantee is also found in Chapter 8, but not the so-called umbrella clause. The Draft CETA contained an EU suggestion 166 on an umbrella clause; however, in the final version, there was no agreement on such
does not require a State to maintain a stable legal and business environment for investments, if this is intended to suggest that the rules governing an investment are not permitted to change, whether to a significant or modest extent. Art. 1105 may protect an investor from changes that give rise to an unstable legal and business environment, but only if those changes may be characterized as arbitrary or grossly unfair or discriminatory, or otherwise inconsistent with the customary international law standard. In a complex international and domestic environment, there is nothing in Art. 1105 to prevent a public authority from changing the regulatory environment to take account of new policies and needs, even if some of those changes may have far-reaching consequences and effects, and even if they impose significant additional burdens on an investor. Art. 1105 is not, and was never intended to amount to, a guarantee against regulatory change, or to reflect a requirement that an investor is entitled to expect no material changes to the regulatory framework within which an investment is made.’ 163 Article 8.9 CETA. 164 See Article 8.28 CETA. 165 See Article 8.31(3) CETA. 166 EU: Inserted in square brackets after Article X.9 (Treatment of Investors and of Covered) in the Draft CETA Investment Text of 21 November 2013, see leaked version of the CETA draft text, available at: https://www.laquadrature.net/files/CETA-Draft-Investment-Text-Nov21-2013-203b-13.pdf. The EU has proposed what may have been intended a rather limited umbrella clause, according to which: Article X, ‘[e]ach Party shall observe any specific written obligation it has entered into with regard to an investor of the other Party or an investment of such an investor’.
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An Overview of the CETA – Investment Chapter (Chapter 8) a clause. This is not surprising given Canada’s general policy not to include umbrella clauses in its IIAs.167 70 Nevertheless, the substantive protection standards in CETA’s Investment Chapter embody a paradigm shift away from the traditional European BIT text, with almost no explanations, towards a very detailed specification of core concepts of investment protection, such as indirect expropriation, FET, FPS and MFN. Thus, also in this respect, CETA Chapter 8 displays a very cautious approach to investment protection, extending only a low level of protection which inversely implies a large freedom of host States to act and regulate, as will be summarised in this section. Thus, the entire chapter is an interesting example of the potential feedback between treaty-makers and investment tribunals. It is evident that the CETA drafters have incorporated many elements found in arbitration practice, and clarified to which extent they would like to see this practice to be followed – or not – in ISDS cases under CETA. 71 National Treatment:168 With regard to the formulation of the national treatment clause, the CETA text evidences a clear departure from the traditional European national treatment clauses, limited to the so-called post-establishment phase 169 and extends the scope of the national treatment obligation to establishment, acquisition (and eventually expansion) of investments.170 This clearly shows an attempt to ensure market access/admission obligations by adopting the Canada/US approach to extend national treatment to the establishment phase (→ Art. 8.6 mn. 63). The CETA national treatment clause also departs from the European tradition in so far as it is not fully unqualified, but rather incorporates language, triggering the non-discrimination obligation only ‘in like situations’. This also follows US/Canadian BIT traditions171 and is in line with the wishes of the European Parliament.172 While useful, this addition will probably not change much, since many investment tribunals adopt a ‘like circumstances’ or ‘like situations’ test even in the absence of specific wording. 173 However, Investor-State dispute settlement with respect to breaches of national treatment is only available for the post-establishment phase. The inclusion of the pre-investment phase may have a ‘liberalisation’ effect, re-enforcing the effects expected from the inclusion of access to the national treatment obligation.
167 See Lévesque and Newcombe, ‘Canada’ in Brown (ed), Commentaries on Selected Model Investment Treaties (2013), 53 (60 f.). 168 See Article 8.6 CETA. 169 See in general Baetens, ‘Discrimination on the Basis of Nationality: Determining Likeness in Human Rights and Investment Law’ in Schill (ed), International Investment Law and Comparative Public Law (2010), 279; Bjorklund, ‘National Treatment’ in Reinisch (ed), Standards of Investment Protection (2009), 29. 170 Article X.7: National Treatment in the Draft CETA Investment Text of 21 November 2013: ‘1. Each Party shall accord to investors of the other Party and to covered investments, treatment no less favourable than the treatment it accords, in like situations to its own investors and to their investments with respect to the establishment [EU: and], acquisition [EU: of an enterprise], [CAN: expansion], conduct, operation, management, maintenance, use, enjoyment and sale or disposal of their investments in its territory.’ 171 See e.g. Article 3(1) of the Canadian Model FIPA 2004. 172 European Parliament, European Parliament Resolution of 6 April 2011 on the future European international investment policy, (2010/2203 (INI)), para. 19: ‘non-discrimination (national treatment and most favoured nation), with a more precise wording in the definition mentioning that foreign and national investors must operate “in like circumstances”.’ 173 See, e.g. Consortium RFCC v. Morocco, ICSID Case No. ARB/00/6, Award (22 December 2003), para. 53; see also Reinisch, ‘National Treatment’ in Bungenberg et al., International Investment Law – A Handbook, 846.
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An Overview of the CETA – Investment Chapter (Chapter 8) Most favoured Nation Treatment:174 The CETA text clearly limits the scope of the 72 agreement’s MFN clause. In the past, non-discrimination clauses requiring host states to extend to foreign investors treatment not less favourable than that given to investors of any third Party have been interpreted by some tribunals to also include procedural or even jurisdictional issues under the so-called Maffezini doctrine, with the result that investors could avoid waiting periods before instituting investment claims 175 or even access ISDS by ‘importing’ the required jurisdiction from third country BITs. 176 While the jurisprudence is unclear in this regard,177 clarification of the intended scope of MFN clauses in the CETA text gives guidance to dispute settlement under the CETA’s ICS. It is clarified that MFN treatment ‘does not include investor-to-state dispute settlement procedures provided for in other international investment treaties and other trade agreements.’178 This clarification will have an important practical impact and, from the perspective of predictability and certainty, will help avoid unnecessary litigation. The CETA MFN text179 furthermore states that ‘[s]ubstantive obligations in other international investment treaties and other trade agreements do not in themselves constitute ‘treatment’, and thus cannot give rise to a breach of this article, absent measures adopted by a Party pursuant to such obligations.’180 Thus, the provision ensures that tribunals cannot ‘import’ more favourable substantive treatment obligations from other IIAs.181 The specifically negotiated limitations of the scope of FET, FPS and indiSee Article 8.7 CETA. Emilio Agustín Maffezini v. Kingdom of Spain, ICSID Case No. ARB/97/7, Decision on Jurisdiction (25 January 2000), para. 54: ‘[…] if a third party treaty contains provisions for the settlement of disputes that are more favorable to the protection of the investor’s rights and interests than those in the basic treaty, such provisions may be extended to the beneficiary of the most favored nation clause […].’; several tribunals have adopted this approach, see, e.g., Gas Natural SDG, S.A. v. The Argentine Republic, ICSID Case No. ARB/03/10, Decision of the Tribunal on Preliminary Questions on Jurisdiction (17 June 2005); Camuzzi International S.A. v. The Argentine Republic, ICSID Case No. ARB/03/2, Decision on Objection to Jurisdiction (11 May 2005); National Grid plc v. The Argentine Republic, UNCITRAL, Decision on Jurisdiction (20 June 2006) or AWG Group Ltd. v. The Argentine Republic, UNCITRAL, Decision on Jurisiction (3 August 2006); Teinver S.A., Transportes de Cercanías S.A. and Autobuses Urbanos del Sur S.A. v. The Argentine Republic, ICSID Case No. ARB/09/1, Decision on Jurisdiction (21 December 2012). 176 RosInvestCo UK Ltd. v. The Russian Federation, SCC Case No. Arb. V079/2005, Award on Jurisdiction (1 October 2007). 177 See e.g. Wintershall Aktiengesellschaft v. Argentine Republic, ICSID Case No. ARB/04/14, Award (8 December 2008), para. 168: ‘In the absence of language or context to suggest the contrary, the ordinary meaning of ‘investments shall be accorded treatment no less favourable than that accorded to investments made by investors of any third State’ is that the investor’s substantive rights in respect to the investments are to be treated no less favourable than under a BIT between the host State and a third State. It is one thing to stipulate that the investor is to have the benefit of MFN treatment but quite another to use a MFN clause in a BIT to bypass a limitation in the settlement resolution clause of the very same BIT when the Parties have not chosen language in the MFN clause showing an intention to do this’; see also Plama Consortium Limited v. Republic of Bulgaria, ICSID Case No. ARB/03/24, Decision on Jurisdiction (8 February 2005); Daimler Financial Services AG v. The Argentine Republic, ICSID Case No. ARB/05/1, Decision on Jurisdiction (22 August 2012). 178 Article 8.7(4) CETA: ‘For greater certainty, the “treatment” referred to in Paragraph 1 and 2 does not include procedures for the resolution of investment disputes between investors and states provided for in other international investment treaties and other trade agreements’. 179 The EU-Singapore Investment Chapter does not contain a MFN-clause at all. 180 Article 8.7(4) CETA. This clarification was added to an earlier CETA version which did not contain such language. Apparently, it was the Commission’s explict intention to deprive an MFN clause of this standard-importing function that investment tribunals have usally attributed to it. See on this issue, Reinisch, ‘Putting the Pieces together … an EU Model BIT?’ in Bungenberg and Reinisch (guest eds), The Anatomy of the (Invisible) EU Model BIT in (2014) 15 JWIT 679 (696). 181 It should be noted that this is contrary to the ordinary understanding of MFN clauses in BITs and multilateral IIAs by investment tribunals. See e.g. Berschader v. Russian Federation, SCC Case No. 174
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An Overview of the CETA – Investment Chapter (Chapter 8) rect expropriation discussed below cannot be circumvented by reliance on more favourable provisions in Third-Party IIAs.182 Furthermore, MFN will also be applicable in the pre-investment phase.183 With this, CETA’s MFN clause departs from the MFN provisions traditionally found in bilateral and multilateral investment treaties: the inclusion of the pre-investment phase may have a ‘liberalisation’ effect, re-enforcing the effects expected from the inclusion of access to the national treatment obligation. However, the explicit exclusion of the ‘importation’ of more favourable procedural treatment and better substantive treatment will considerably limit the practical use of CETA’s MFN clause. Only a standard ensuring that de facto treatment of investors of the other Party be no less favourable than that enjoyed by investors from third states is left (→ Art. 8.7 mn. 64). 73 Expropriation:184 Similarly, the right to regulate has been emphasised in the CETA’s approach to indirect expropriation. The CETA definition of expropriation expressly acknowledges the ‘right to regulate’ and makes clear that non-discriminatory measures designed to protect legitimate public welfare objectives, such as health, safety and the environment, do not constitute indirect expropriations. 74 The agreement contains a novelty for European investment treaty practice in so far as it includes – like the Model BITs of the US185 and Canada186 - an annex on expropriation,187 which expressly specifies that an indirect expropriation occurs only if ‘it substantially deprives the investor of the fundamental attributes of property in its investment.’188 Additionally, the annex specifically reserves the right to regulate by stating the Parties’ shared understanding that: […] except in the rare circumstance where the impact of the measure or series of measures is so severe in light of its purpose that it appears manifestly excessive, non-discriminatory measures of a Party that are designed and applied to protect legitimate public welfare objectives, such as health, safety and the environment, do not constitute indirect expropriations. 189
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This CETA understanding sets out that a finding of indirect expropriation requires a case by case, fact-based inquiry and provides a number of relevant factors, such as the economic impact of the measure, its duration, the extent to which it interferes with ‘distinct, reasonable investment-backed expectations’, and the character of the 080/2004, Award (21 April 2006), para. 179: ‘It is universally agreed that the very essence of an MFN provision in a BIT is to afford to investors all material protection provided by subsequent treaties.’; MTD Equity v. Chile, ICSID Case No. ARB/01/7, Award (25 May 2004), para. 100: ‘[…] [T]he Tribunal considers it appropriate to examine the MFN clause in the BIT and satisfy itself that its terms permit the use of the provisions of the Denmark BIT and Croatia BIT as a legal basis for the claims submitted to its decision.’ But it is clearly within the power of the treaty-making Parties to agree on an alternative meaning. 182 See Hoffmeister and Alexandru, ‘A First Glimpse of Light on the Emerging Invisible EU Model BIT’ in Bungenberg and Reinisch (guest eds), The Anatomy of the (Invisible) EU Model BIT in (2014) 15 JWIT 379 (388): ‘Accordingly, while looking restrictive at first sight, excluding the incorporation of other normative standards into the operation of an MFN clause is actually preserving the political freedom of the EU to strive for the best available standards on the basis of full reciprocity with all its treaty partners.’ 183 In the November 2013 version of the leaked CETA text, it is indicated that the current formulation is ‘[s]ubject to agreement by EU on inclusion of an MFN obligation regarding “establishment, acquisition, expansion of an investment”.’ Article X.8: Most-Favoured-Nation Treatment in the Draft CETA Investment Text of 21 November 2913. 184 See Article 8.12 CETA and Annex 8-A CETA. 185 Annex B of the US Model BIT 2012. 186 Annex B.13(1) of the Canada Model BIT 2004. 187 Annex 8-A CETA. 188 Annex 8-A(1)(b) CETA. 189 Annex 8-A(3) CETA.
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An Overview of the CETA – Investment Chapter (Chapter 8) measure or series of measures, notably their object, context and intent, in order to determine whether specific measures constitute indirect expropriation. Finally, the understanding contains police powers doctrine-inspired language, trying to ensure that bona fide regulation in the public interest should not be considered expropriatory. 190 This is in line with the November 2013 Commission Factsheet on ‘Investment Protection and Investor-to-State Dispute Settlement in EU agreements’ which specifically stated that: future EU agreements will provide a detailed set of provisions giving guidance to arbitrators on how to decide whether or not a government measure constitutes indirect expropriation. In particular, when the state is protecting the public interest in a non-discriminatory way, the right of the state to regulate should prevail over the economic impact of those measures on the investor. 191
But it seems that not only the Canadian approach was adopted, but at the same 76 time, the wishes of the European Parliament to find a ‘clear and fair balance between public welfare objectives and private interests’ in defining indirect expropriation were taken into consideration.192 As a consequence, the CETA adopts an approach on indirect expropriations that allows for a certain balancing between the interests of the investor and the State, which implies a proportionality test (→ Art. 8.12 mn. 152). Fair and Equitable Treatment:193 The novel definition of FET makes this standard 77 more predictable. It ensures that only a low-intensity scrutiny will be performed and that states retain broad regulatory freedom. The CETA Investment Chapter contains a clarification of the meaning of FET which is based on past investment awards, but emphasises those elements that give host states greater regulatory freedom. The usual short FET clause stipulating that ‘[e]ach Party shall accord in its territory to investors and to covered investments of the other Party fair and equitable treatment’ 194 is accompanied by a paragraph defining a breach of the FET obligation. This provision underlines that only egregious violations of basic rule of law obligations by host States, such as: Denial of justice in criminal, civil or administrative proceedings; Fundamental breach of due process, including a fundamental breach of transparency, in judicial and administrative proceedings; Manifest arbitrariness; Targeted discrimination on manifestly wrongful grounds, such as gender, race or religious belief; [or] Abusive treatment of investors, such as coercion, duress and harassment,
will qualify as breaches of FET.195 Similar to the annex on indirect expropriation, these specifications of FET are supposed to make the standard more predictable. States at the same time retain large regulatory freedom and are also subjected to only a low rule of law-scrutiny as regards their judicial and administrative acts. The fact that the notion ‘stability’, an element usually found in attempts to define the content of FET, 196 is 190 Annex 8-A(3) CETA: ‘For greater certainty, except in the rare circumstance where the impact of the measure or series of measures is so severe in light of its purpose that it appears manifestly excessive, non-discriminatory measures by a Party that are designed and applied to protect legitimate public welfare objectives, such as health, safety and the environment, do not constitute indirect expropriations.’ 191 Commission, Investment Protection and Investor-to-State Dispute Settlement in EU Agreements - Fact Sheet (November 2013), p.2, available at https://www.italaw.com/sites/default. 192 European Parliament, European Parliament Resolution of 6 April 2011 on the future European international investment policy, 2010/2203 (INI), para. 19, calling for ‘protection against direct and indirect expropriation, giving a definition that establishes a clear and fair balance between public welfare objectives and private interests’. 193 See Article 8.10 CETA. 194 See Article 8.10(2) CETA. 195 Article 8.10(2) CETA. 196 Dolzer and Schreuer, Principles of International investment Law (2008), 145 f.
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An Overview of the CETA – Investment Chapter (Chapter 8) missing in the CETA text could be viewed as an indication that the Parties intended not to make the CETA’s FET version too ‘investor-friendly’. It seems to underline the intention, expressed in the November 2013 Commission Factsheet, to ‘reaffirm the right of the Parties to regulate to pursue legitimate public policy objectives’ and to ‘set out precisely what elements are covered and thus prohibited’ by FET in EU investment agreements.197 Such mutual interdependence of treaty-makers and investment tribunals is also emphasised by a provision in the CETA FET clause that offers the Contracting Parties a possibility to review and clarify the specific content of FET by adding further elements.198 Thus, under the CETA FET clause, the FET ‘evolution’ has effectively been stopped with the specific enumeration of elements contained in the FET clause (→ Art. 8.10 mn. 34). Especially, the establishment of a permanent Tribunal of first instance and an Appellate Tribunal199 will ensure that the same adjudicators decide on every case, thereby allowing for a more consistent and coherent jurisprudence with regards to the FET standard (→ Art. 8.10 mn. 35). 200 78 Full Protection and Security:201 CETA’s FPS standard has limiting elements as well. ‘Full protection and security’ is limited to ‘physical security’,202 apparently countering jurisprudence according to which some tribunals held that the standard would go ‘beyond physical security.’203 It is questionable though whether this will imply a significant reduction of protection for investors since most non-physical interferences often constitute violations of the FET standard. 79 Transfer Provisions:204 There has always been a broad consensus that EU investment treaties should include free transfer of funds-provisions.205 Thus, Chapter 8 197 Commission, Investment Protection and Investor-to-State Dispute Settlement in EU Agreements - Fact Sheet (November 2013), p. 2, 7 f. 198 See Article 8.10(3) CETA: ‘The Parties shall regularly, or upon request of a Party, review the content of the obligation to provide fair and equitable treatment’, in conjunction with Article 8.44(3)(d) CETA. 199 Articles 8.27, 8.28. See, Schacherer, ‘TPP, CETA and TTIP Between Innovation and Consolidation—Resolving Investor–State Disputes under Mega-regionals’ (2016) 7(3) J. Int’l Disp. Settlement, 628 (631); Van Harten, ‘ISDS in the Revised CETA: Positive Steps, But Is It a ‘Gold Standard’?’ (2016) CIGI Investor-State Arbitration Commentary Series No. 6; Van Duzer, ‘Investor-State Dispute Settlement in CETA: Is It the Gold Standard?’ (2016) C.D. Howe Institute Commentary No. 459; Ottawa Faculty of Law Working Paper No. 2016-44. 200 See on this also Schacherer, ‘TPP, CETA and TTIP Between Innovation and Consolidation—Resolving Investor–State Disputes under Mega-regionals’ (2016) 7(3) J. Int. Dispute Settlement, 628 (631). 201 See Article 8.10(1),(5) CETA. 202 Article 8.10(5) CETA: ‘For greater certainty, “full protection and security” refers to the Party’s obligations relating to physical security of investors and covered investments.’ 203 See, e.g., Siemens A.G. v. Argentina, ICSID Case No. ARB/02/08, Award (6 February 2007), para. 303: ‘the obligation to provide full protection and security [was] wider than “physical” protection and security’ because it was ‘difficult to understand how the physical security of an intangible asset would be achieved’; Compañía de Aguas del Aconquija S.A. and Vivendi Universal v. Argentina, ICSID Case No. ARB/97/3, Award (20 August 2007), para. 7.4.15: ‘If the parties to the BIT had intended to limit the obligation to “physical interferences”, they could have done so by including words to that effect in the section. In the absence of such words of limitation, the scope of the Article 5(1) protection should be interpreted to apply to reach any act or measure which deprives an investor’s investment of protection and full security, providing, in accordance with the Treaty’s specific wording, the act or measure also constitutes unfair and inequitable treatment. Such actions or measures need not threaten physical possession or the legally protected terms of operation of the investment.’ 204 See Article 8.13 CETA. 205 Commission Communication, Towards a comprehensive European international investment policy, 7 July 2010, COM(2010) 343 final, 4, 9, ‘EU clauses ensuring the free transfer of funds of capital and payments by investors should be included.’; see also Council Negotiating Directives (Canada, India and Singapore), ‘EU-Canada (CETA), India and Singapore FTAs - EC negotiating mandate on investment (2011)’, available at: http://www.bilaterals.org/spip.php?article20272&lang=en.
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An Overview of the CETA – Investment Chapter (Chapter 8) contains a standard transfer clause according to which ‘[e]ach Party shall permit all transfers relating to a covered investment to be made without restriction or delay and in a freely convertible currency.’206 Compared with other transfer clauses found in BITs and IIAs, the CETA provision contains a number of exceptions that have become more widespread in recent times,207 such as those exempting measures relating to bankruptcy, trading in securities, criminal offences and administrative and adjudicatory proceedings.208
4. Exemptions, Reservations and Denial of Benefits Furthermore, reservations, exceptions and denial of benefits clauses can be seen as 80 proof for the ‘Return of the State’ in International Investment Law. Also, CETA’s Reservations and exceptions article ensures the right to regulate. A Party is able to reserve for itself any regulatory space it needs for its own policy planning, recognises and maintains the flexibilities found in the TRIPS Agreement and further exempts procurement and subsidies from the Investment Chapter’s non-discrimination disciplines (→ Art. 8.15 mn. 69). Finally, the CETA’s denial of benefits clause in Article 8.16 stands out in a number of ways when compared to the ones included in key agreements that Canada and the EU have entered into (→ Art. 8.16 mn. 83). The CETA Parties were willing to let go of the benefits of a discretionary mechanism in favour of a clear right to deny investor protection under the treaty if the enterprise is owned or controlled by investors from a third country, not one of the Contracting Parties and/or if the Party has security or other measures in place against the third country that ‘prohibit transactions’ (e.g. no diplomatic relations, embargo).
5. Interim Conclusion Thus, it can be summarised that the still existing relative indeterminacy of invest- 81 ment protection standards in other IIAs, which might give rise to a broad discretion of investment tribunals, has been reduced in the CETA text (as well as the EU-Singapore IPA, which contains clarifications of the meaning of expropriation as well as FET). All this will limit the discretion of the adjudicators in future disputes. CETA thus witnesses significant changes at least compared to the previous EU Member States’ approaches. Thus, the question is not whether investment chapters and ISDS reduce the sovereign discretion of States to act as they see fit; but the question rather is whether they do so to a degree that unduly limits the legitimate interests of states to exercise their right to regulate. As pointed out above (→ mn. 24), the CJEU denied such an effect.
206 207
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Article 8.13(1) CETA. UNCTAD, Bilateral Investment Treaties 19952006: Trends in Investment Treaty Rulemaking (2007),
208 Article X.12(5): Transfers in the Draft CETA Investment Text of 21 November 2013: Notwithstanding paragraphs 1, 2 or 3, nothing in this article shall be construed to prevent a Party from applying in an equitable and non-discriminatory manner and not in a way that would constitute a disguised restriction on transfers, its laws relating to: (a) bankruptcy, insolvency or the protection of the rights of creditors; (b) issuing, trading or dealing in securities; (c) criminal or penal offences; (d) financial reporting or record keeping of transfers when necessary to assist law enforcement or financial regulatory authorities; (e) ensuring the satisfaction of judgments in adjudicatory proceedings.
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An Overview of the CETA – Investment Chapter (Chapter 8)
II. The CETA Procedural Framework (Investor-State Dispute Settlement) 1. General Considerations and Background ISDS has long been considered a crucial ingredient of effective investment protection. The direct access of private Parties to seek remedies for violations of substantive investment treatment standards has been regarded as an important contribution to enhancing the effectiveness of investment protection209 by eliminating the need for an espousal of claims under the traditional diplomatic protection paradigm. At the same time, avoiding the political harassment factor of such inter-State claims is considered to lead to a general de-politicisation of investment disputes.210 ISDS has de-politicised the traditional protection of foreign investments through diplomatic protection on the inter-State level and contributed to the legalisation and judicialisation of such disputes. Instead of depending on the political discretion of States which, once they espouse the claims of their national investors, may exercise very intensive pressure on host States, investors have the option to enforce their rights directly through ISDS. 83 Despite the general recognition of these advantages, it was initially, i.e. after the entry into force of the Lisbon Treaty’s new investment powers of the EU, unclear whether the EU would strive for ISDS or rather settle for inter-State dispute settlement, along the trade law paradigm to which the Commission has become accustomed over years of GATT and WTO experience. After an initial orientation phase, the EU institutions finally came out in favour of adopting ISDS, 211 though the European Parliament, in particular, voiced concern against it.212 Coupled with increased pressure from various NGOs, lobbying against ISDS in 2013, this led to a political momentum that in early 2014 the EU Commissioner called for a reflection period to consult the European public on investment and ISDS.213 84 The charges against ISDS are not new and consist of a mix of serious concerns and irrational assumptions. Among the standard points of criticism are the lack of transparency of ISDS procedures, the impossibility to appeal against investment decisions, the alleged pro-investor bias of tribunals, and overly broad investor rights 82
209 See e.g. Eastern Sugar B.V. v. Czech Republic, SCC Case No. 088/2004, Partial Award (27 March 2007), para. 165: ‘Whereas general principles such as fair and equitable treatment or full security and protection of the investment are found in many international, regional or national legal systems, the investor’s right arising from the BIT’s dispute settlement clause to address an international arbitral tribunal independent from the host state is the best guarantee that the investment will be protected against potential undue infringements by the host state’; National Grid plc v. Argentina, UNCITRAL, Decision on Jurisdiction (20 June 2006), para. 49: ‘[…] assurance of independent international arbitration is an important – perhaps the most important – element in investor protection.’ 210 See already Shihata, ‘Towards a Greater Depoliticization of Investment Disputes: The Roles of ICSID and MIGA’ (1986) 1 ICSID Rev.–FILJ, 1. 211 See e.g., Commission Communication, Towards a comprehensive European international investment policy, 7 July 2010, COM(2010) 343 final, 4, 10: ‘ISDS is such an established feature of investment agreements that its absence would in fact discourage investors and make a host economy less attractive than others.’ 212 European Parliament, European Parliament Resolution of 6 April 2011 on the future European international investment policy, (2010/2203 (INI)), para. 24: ‘Expresses its deep concern regarding the level of discretion of international arbitrators to make a broad interpretation of investor protection clauses, thereby leading to the ruling out of legitimate public regulations; calls on the Commission to produce clear definitions of investor protection standards in order to avoid such problems in the new investment agreements.’ 213 See Commission, ‘Commission to consult European public on provisions in EU-US trade deal on investment and investor-state dispute settlement’, Press Release, 21 January 2014, available at: https://ec. europa.eu/commission/presscorner/detail/en/IP_14_56.
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An Overview of the CETA – Investment Chapter (Chapter 8) which would lead to a chilling effect on legitimate regulation by sovereign States. 214 This debate questioning the need for ISDS in future EU IIAs is surprising since EU Member States have a long-standing practice of concluding BITs. What the critics of Investor-State arbitration appear to overlook are the multiple 85 developments in investment arbitration over the past years. In 2006, the ICSID Arbitration Rules were amended to provide more transparency, now permitting amicus curiae participation and more general publication of awards.215 In a similar effort, UNCITRAL adopted Rules on Transparency in Investor-State Arbitration in 2013. 216 Though the lack of an appellate structure is typical in international dispute settlement as well as in transnational arbitration, much time and effort have been spent on considering whether some form of appeal would be feasible. While grand designs of amending the ICSID Convention have not been pursued,217 many small steps have been taken to ensure the ultimate goal of more consistency, such as appellate mechanisms in individual IIAs and the use of joint commissions consisting of representatives of the Contracting Parties empowered to give authoritative interpretations of IIAs. 218 Already the CETA draft chapter on investment before the change towards an 86 Investment Court System was a good example of this tendency. The November 2013 Draft CETA text on ISDS219 clearly demonstrated mutual efforts of the negotiators to agree on a balanced and modern version of investment dispute settlement, including alternative dispute resolution mechanisms like mediation, non-disputing Party participation through amicus curiae briefs, a standing ‘ISDS Committee’,220 tasked with interpreting the investment chapter, preventing investors from bringing multiple or frivolous claims by imposing heavy litigation cost risks, and introducing a binding code of conduct for arbitrators in order to reduce conflicts of interest. 221 Further, all official documents published by the EU have included ISDS as an inte- 87 gral part of future investment chapters to be concluded by the EU. Since CETA and the EU-Singapore IPA explicitly exclude their direct applicability, the rights contained therein cannot be invoked before national courts and tribunals. Thus, an investment chapter without a corresponding ISDS mechanism is, from an investor’s perspective, of limited use.
214 See e.g., Monbiot, ‘This transatlantic trade deal is a full-frontal assault on democracy’, The Guardian, 4 November 2013, available at: http://www.theguardian.com/commentisfree/2013/nov/04/us -trade-deal-full-frontal-assault-on-democracy. 215 Amendments to the ICSID Rules and Regulations and the Additional Facility Rules, effective 10 April 2006, available at http://www.worldbank.org/icsid/basic doc/CRR_English-final.pdf (17 February 2014). See also Antonietti, ‘The 2006 Amendments to the ICSID Rules and Regulations and the Additional Facility Rules’ (2006) 21 ICSID Rev.–FILJ, 427. 216 UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration, adopted by UN GA Res. 68/109, 16 December 2013, available at: https://uncitral.un.org/sites/uncitral.un.org/files/media-do cuments/uncitral/en/rules-on-transparency-e.pdf. 217 See ICSID Secretariat, ‘Possible Improvements of the Framework for ICSID Arbitration’, Discussion Paper, 22 October 2004; Sauvant and Chiswick-Patterson (eds), Appeals Mechanism in International Investment Disputes (2008). 218 See e.g. NAFTA Article 1131 or Article 31 of the 2012 US Model BIT. 219 CETA ‘Investor-to-State Dispute Settlement Draft Text’, leaked version of the CETA draft text of 15 November 2013, available at: https://www.laquadrature.net/files/Draft-CETA-DisputeSettlement. 220 CETA ‘Investor-to-State Dispute Settlement Draft Text’, leaked version of the CETA draft text of 15 November 2013, Article X-12(3) Applicable Law and Rules of Interpretation and Article X-26(3) Committee, ISDS Draft Text. 221 See also Commission, Investment Protection and Investor-to-State Dispute Settlement in EU Agreements - Fact Sheet (November 2013), p. 2, evidencing the Commission’s intention to continue this course of action.
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As mentioned above, since late 2015, the EU Commission has included in all proposals for Investment Protection and Resolution of Investment Disputes (TTIP, 222 CETA,223 EU-Vietnam224) an ICS which is a two-tier mechanism for ISDS, combining elements of traditional ISDS with judicial features.225 In CETA, the ICS was included only during the ‘legal scrubbing’ and was found the first time in the very final version of CETA Chapter 8. Preceding that, the classical arbitration based ISDS was the negotiated CETA option.
2. Scope of Application and Jurisdiction of the ICS Article 8.18 sets out the scope of the CETA Investor-State dispute settlement regime, expressly limiting actionable investment claims to specific treaty breaches. This approach differs from the ISDS clause found in older IIAs like the ECT. 226 An investor cannot bring claims relating to the acquisition or establishment of an investment.227 Having a business activity in the territory of a Party is a critical condition to qualify as a protected ‘investor’.228 A ‘shell’ or ‘mailbox’ company cannot bring a claim under Chapter 8, and an investor who seeks access to the ICS for a claim must come with ‘clean hands’, as investments tainted by fraudulent misrepresentation, concealment, corruption or conduct amounting to an abuse of process, may not be submitted under Article 8.18.229 The scope of actionable investment claims curtails the discretionary power of CETA tribunals in exercising jurisdiction over unintended claims falling outside the scope of Article 8.18 CETA.230 90 The mediation provisions were inserted in order to respond to a growing desire for settling Investor-State disputes and, more generally, disputes arising under CETA through alternative settlement mechanisms (→ Art. 8.20 mn. 78). Article 8.20 CETA serves the purpose of facilitating the finding of a mutually agreed solution of a dispute between an investor and a State through a comprehensive and expeditious procedure with the assistance of a mediator.231 91 Article 8.25 states explicitly the Parties consent to ISDS via the ICS, thus, it attempts to ensure that the respondent’s consent in Paragraph 1 and the matching consent of the investor meet the respective criteria for arbitration agreements under the ICSID Convention and the New York Convention (NYC). 89
222 Bungenberg and Reinisch, From Bilateral Arbitral Tribunals and Investment Courts to a Multilateral Investment Court (2020), para. 42. 223 See Article 8.29 CETA, Establishment of a multilateral investment tribunal and appellate mechanism. 224 See Article 3.41 EU-Vietnam IPA (Final Text as on 2 April 2019). 225 Reinisch, ‘Will the EU’s Proposal Concerning an Investment Court System for CETA and TTIP Lead to Enforceable Awards? — The Limits of Modifying the ICSID Convention and the Nature of Investment Arbitration’ (2016) 19(4) J. Int’l Econ. L., 761. 226 Article 26(1) ECT provides for the submission of disputes ‘relating to an Investment’, this is a broad term without specifiying particular treaty claims. 227 Canada’s statement on the implementation of CETA, Chapter 8 (Section f), available at: https://w ww.international.gc.ca/trade-commerce/trade-agreements-accords-commerciaux/agr-acc/ceta-aecg/ca nadian_statement-enonce_canadien.aspx?lang=eng#a13. 228 Article 8.1 CETA (See: Definition, an enterprise of a Party). 229 Article 8.18 para. 3 CETA. 230 Article 8.18 para. 5 CETA, confirms that a CETA tribunal shall not decide a claim that falls outside the scope of Article 8.18. 231 Article 1, Annex 29-C CETA.
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An Overview of the CETA – Investment Chapter (Chapter 8) 3. Establishment of the ICS – A General Overview The ICS is composed of the ‘Tribunal’ as a tribunal of first instance232 and the ‘Appellate Tribunal’233 or ‘Appeal Tribunal’.234 Members of these tribunals are selected in a manner different from that in traditional investor-State arbitration (ISA), with investors losing their influence on the appointment of adjudicators. Article 8.27(2) CETA stipulates that the 15 Members of the Tribunal shall be appointed by the bilateral high-level CETA Joint Committee,235 for a renewable five-year term. Five of the Members of the Tribunal shall be nationals of EU Member States, five shall be nationals of Canada, and the other five shall be third-country nationals. Similar mechanisms are foreseen in the EU-Singapore,236 and EU-Vietnam-Agreements,237 only that there we find a different number of adjudicators. Qualifications for appointment resemble those of other international courts and tribunals by requiring specific knowledge in the field. In particular, Article 8.27(4) CETA warrants that the Members of the Tribunal shall possess ‘qualifications required in their respective countries for appointment to judicial office, or be jurists of recognised competence’, and they shall have demonstrated expertise in the field. The adjudicators should especially be capable of balancing public and private interests.238 Similar provisions are contained in the EU–Vietnam IPA and are suggested for TTIP. 239 In recent years ethical issues emerged in ISDS. In the CETA, adjudicators are prevented from having any governmental affiliation and from taking instructions from others concerning matters related to disputes. Tribunal Members are to avoid conflicts of interest and are explicitly required to comply with the ethical rules derived from the IBA Guidelines on Conflicts of Interest and supplemental rules such as a CETA Code of Conduct; similarly, ‘double hatting’ is excluded240. Notably, including the IBA Guidelines in the CETA framework ‘is a kind of daring experiment, which has rarely been replicated within the investment regulatory field.’ (→ Art. 8.30 mn. 113). Individual cases shall be adjudicated by ‘divisions’ of three Members of the Tribunal with third-country nationals presiding over such tribunals.241 These three Members of the Tribunal are to be appointed by the President of the Tribunal on a yet-to-be specified ‘random and unpredictable’ rotation system.242 This case-allocation mechanism is a truly novel feature and is similar to that found in some domestic judicial systems. 243 It is clearly different from the traditional ISA approach where the disputing Parties are See Article 8.27 CETA. See Article 8.28 CETA. 234 See Article 3.39, Section B - EU–Vietnam IPA. 235 Pursuant to Article 26.1 CETA, the CETA Joint Committee shall be composed of ‘representatives of the European Union and representatives of Canada’ and ‘co-chaired by the Minister for International Trade of Canada and the Member of the European Commission responsible for Trade, or their respective designees’. 236 Article 3.9 para. 2, EU-Singapore IPA, available at https://eur-lex.europa.eu/resource.html?uri=/D OC_2&format=PDF#page=29. 237 Article 3.38 para. 2, EU-Vietnam FTA. 238 See Article 8.28 CETA. 239 Article 3.38 para. 4, Section 3 EU–Vietnam IPA; Article 9(4), Section 3, Commission draft text TTIP – Investment, 16 September 2015, available at:https://trade.ec.europa.eu/doclib/docs/2015/septem ber/tradoc_153807.pdf. 240 See Article 8.30 para. 1 CETA. 241 See Article 8.27(6) CETA. 242 See Article 8.27(7) CETA. 243 Reinisch, ‘Will the EU’s Proposal Concerning an Investment Court System for CETA and TTIP Lead to Enforceable Awards? — The Limits of Modifying the ICSID Convention and the Nature of Investment Arbitration’ (2016) 19(4) J. Int’l Econ. L., 761 (764). 232
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An Overview of the CETA – Investment Chapter (Chapter 8) free to select ‘their’ arbitrators,244 partly subject to the condition that they should not be nationals of the disputing Parties.245 96 The ICS also incorporates the 2013 UNCITRAL Rules on Transparency in Treatybased ISA.246 Under these Rules, the repository promptly makes ‘available to the public information regarding the name of the disputing Parties, the economic sector involved and the treaty under which the claim is being made’ upon commencement of the arbitration proceedings. 247 A broad range of documents relating to the case should be published, including the statement of claim and defence, any written submission and the award.248 Canada aimed for a high degree of transparency already in the past, while the EU Member States have always showed more reluctance (→ Art. 8.36 mn. 18 f.). The ICS also provides for Third-Party and amicus curiae participation. This permits, for instance, a non-disputing Party to the treaty (i.e. usually the home State of the investor) to participate, 249 and also ‘any natural or legal person which can establish a direct and present interest in the result of the dispute (the intervener) to intervene as a third party.’250 Further, tribunals may allow NGOs to submit amicus curiae briefs.251 Overall, such transparency may contribute to the legitimacy of the investment treaty regime, even as it also catalyses the regime’s more fundamental transformation (→ Art. 8.36 mn. 66). There is an obligation to disclose Third-Party-Funding (TPF) as well.252 97 Awards rendered by the Tribunal (of first instance) can be appealed to the ‘Appellate Tribunal’ within 90 days of their issuance.253 The appeal system enlarges the annulment grounds of the ICSID Convention254 with the power to review errors of law and manifest errors in the appreciation of facts.255 Based on these grounds, the Appellate Tribunal may uphold, modify or reverse the Tribunal’s award. If the Appellate Tribunal rejects the appeal, the Tribunal’s award becomes final.256 If the appeal is upheld, the Appellate Tribunal can wholly or partially modify or reverse
244 See e.g. Article 9 UNCITRAL Arbitration Rules, as revised in 2013, available at: https://www.uncit ral.org/pdf/english/texts/arbitration/arb-rules-2013/UNCITRAL-Arbitration-Rules-2013-e.pdf. 245 See e.g. Article 38, 39 Convention on the Settlement of Investment Disputes Between States and Nationals of Other States, signed on 18 March 1965, entered into force 14 October 1966, 575 UNTS 160. Section 39 ICSID provides: ‘The majority of the arbitrators shall be nationals of States other than the Contracting State party to the dispute and the Contracting State whose national is a party to the dispute; provided, however, that the foregoing provisions of this Article shall not apply if the sole arbitrator or each individual member of the Tribunal has been appointed by agreement of the parties.’ 246 UNCITRAL, Rules on Transparency in Treaty-based Investor–State Arbitration (2013), available at: https://www.uncitral.org/pdf/english/texts/arbitration/rules-on-transparency/Rules-on-Transparenc y-E.pdf; Article 18, Section 3 – Commission Draft Text TTIP; Article 8.36 CETA; Article 3.46, Section 3 - EU–Vietnam IPA. 247 Article 2, UNCITRAL Transparency Rules (2013). 248 Article 3(1), UNCITRAL Transparency Rules (2013). 249 Article 22, Section 3 - Commission Draft Text TTIP; Article 8.38 CETA. 250 Article 23(1), Section 3 - Commission Draft Text TTIP. 251 Article 23(5), Section 3 - Commission Draft Text TTIP. 252 See Article 8.26 CETA. 253 See Article 8.28(9)(a) CETA; Article 29(1), Section 3 - Commission Draft Text TTIP; Article 28(1), Section 3 – EU–Vietnam IPA. 254 See Article 52(1) ICSID Convention, in force 14 October 1966. 255 Article 8.28(2) CETA; Article 29(1), Section 3 - Commission Draft Text TTIP; Article 28(1), Section 3 - EU–Vietnam IPA. 256 Article 29(2), Section 3 – Commission Draft Text TTIP; Article 8.28(9)(c)(ii) CETA; Article 29(2), Section 3 - EU–Vietnam IPA.
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An Overview of the CETA – Investment Chapter (Chapter 8) the legal findings and conclusions in the original award.257 However, the Appellate Tribunal does not itself render a modified final award. Rather, the first instance Tribunal subsequently has to issue a revised award within 90 days of receiving the report of the Appellate Tribunal.258 Introducing a 24-month time limit in Article 8.39 for the issuance of the final 98 award may provide a useful tool to request more time discipline, from the Tribunal and the Parties (→ Art. 8.39 mn. 112).
4. Applicable Law, Content of Awards and their Enforceability The applicable law-limitations in Article 8.31 are a reaction to the backlash against ad hoc investment arbitration and the CJEU jurisprudence on the autonomy of EU law (→ Art. 8.31 mn. 75 f.). This provision makes clear that the Contracting Parties have specific expectations on how claims under Section F should be settled and implicitly bars domestic and EU law from the set of laws potentially applicable. Together with the explicit reference to the VCLT, this is meant to limit the power of the Tribunal; furthermore, it provides methodological guidance on how the Tribunal must consider issues related to domestic law (→ Art. 8.31 mn. 76). The requirements set out by the CJEU in the CETA Opinion 1/17 will shape the functioning of the provision in practice (→ Art. 8.31 mn. 77). Article 8.31 provides directives and formulates expectations towards the Tribunal. Furthermore, the Contracting Parties can always use their interpretative powers as a remedy. Also Article 8.39 - dealing with the ‘final award’ - is ‘remarkably extensive in comparison to traditional BITs and other FTAs’, again reflecting ‘the heated debates, which accompanied the CETA negotiations in particular in the last phase’ (→ Art. 8.39 mn. 108). Punitive damages are not allowed, any monetary damages must not be greater than the loss suffered by the investor, and any restitution of property, or repeal or modification of the measure will have to be taken into account in the calculation of damages. Overcompensation should thus be avoided. With respect to costs, the ‘loser pays’-principle is opted for and should provide comfort to governments when defending themselves against unmeritorious claims (→ Art. 8.39 mn. 111). Whether Article 8.41 CETA gives sufficient enforcement options of ICS awards in the hopefully exceptional case that the losing Party to a dispute is not willing to comply with its obligation is questionable and remains to be seen. Whether courts in third states are willing to regard ICS awards as being covered by at least the NYC is an open question. The ICS approach taken by the CETA Contracting Parties is ambiguous; it seeks to abandon investment arbitration, while striving to use its enforcement instruments. At the outset, in case of enforcement under the ICSID Convention as well as the NYC, the enforcing courts are responsible for the interpretation and application of those conventions. As long as enforcement is sought within the EU or Canada, investment dispute settlement under CETA might work. On the European side, if an EU Member State is not willing to comply with an award, this could even lead to infringement proceedings under Article 258 and 259 TFEU, launched either by the Commission or other EU Member States. Moreover, if a CETA Party does not comply with its
257 Article 29(2), Section 3 – Commission Draft Text TTIP; Article 8.28(2) CETA; Article 28(3), Section 3 - EU–Vietnam IPA. 258 Article 28(7), Section 3 – Commission Draft Text TTIP; Article 29(4), Section 3 - EU–Vietnam IPA; Article 8.28(7)(b) CETA.
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An Overview of the CETA – Investment Chapter (Chapter 8) obligation under the Agreement, the possibility of State-to-State Arbitration under Chapter 29 CETA could also be triggered. 103 As a step towards a totally new and innovative approach, the idea of a Multilateral Investment Court (MIC) was introduced in the spring of 2016 by the European Commission. This new international dispute settlement mechanism should provide a response to various criticisms made in recent years, especially in connection with CETA and TTIP, of international investment law in general and of ad hoc arbitration between investors and States in particular. The MIC was first mentioned by Commissioner Malmström in the INTA Committee on 18 March 2015 and at the informal Foreign Affairs Council on 25 March 2015.259 On 10 July 2017, UNCITRAL also decided to work on a reform of investment arbitration, including the possible establishment of a MIC.260 On 20 March 2018, the Council gave the EU Commission a mandate to negotiate the establishment of such a multilateral court for investment disputes. 261 104 Some of the recent trade agreements of the European Union (Canada, Mexico, Singapore, Vietnam) have already provided that the Parties are seeking a multilateral system to transfer the bilateral investment court system: The Parties shall pursue with other trading partners the establishment of a multilateral investment tribunal and appellate mechanism for the resolution of investment disputes. Upon establishment of such a multilateral mechanism, the CETA Joint Committee shall adopt a decision providing that investment disputes under this Section will be decided pursuant to the multilateral mechanism and make appropriate transitional arrangements.262
The European Parliament also ‘shares the ambition of establishing, in the medium term, a multilateral solution to investment disputes’.263 At the same time, it rejected the possibility of continuing the classic ad hoc arbitration.264 The new EU approach is currently being explained to the trading partners of the EU to convince them of an MIC. However, this task will also come to the EU Member States when civil society pressure continues to grow. Certainly, the only way to an institutionalised system is one that makes Member State investment protection agreements compatible with the EU constitutional law requirements. 106 Therefore, many discussions and publications are currently revolving around this MIC.265 However, according to the CJEU’s CETA Opinion, the EU can only participate 105
259 Malmström, Speech: Remarks at the European Parliament on Investment in TTIP, 18.3.2015, available at: https://trade.ec.europa.eu/doclib/press/index.cfm?id=1279&title=Speech-Remarks-at-the -European-Parliament-on-Investment-in-TTIP. 260 See UNCITRAL Working Group III discussions on ISDS reform, available at: https://uncitral.un.o rg/en/working_groups/3/investor-state. 261 See Council of the EU, Negotiating Directives for the Establishment of a Multilateral Court for the Resolution of Investment Disputes, 20 March 2018, available at: http://data.consilium.europa.eu/doc/do cument/ST-12981-2017-ADD-1-DCL-1/de/pdf. 262 Article 8.29 CETA. Similarly, see Article 15, Section 3 EU-Vietnam IPA; Article 3.12 EU-Singapore IPA. 263 European Parliament, European Parliament Resolution of 5 July 2016 on a new forward-looking and innovative future strategy for trade and investment, (2015/2105(INI)), available at: https://www.europarl.e uropa.eu/doceo/document/A-8-2016-0220_EN.html, para. 68. 264 European Parliament, European Parliament Resolution of 8 July 2015 containing the European Parliament’s recommendations to the European Commission on the negotiations for the Transatlantic Trade and Investment Partnership (TTIP), (2014/2228(INI)), para. 2.d)xv). 265 Kaufmann-Kohler and Potestà, ‘The Composition of a Multilateral Investment Court and of an Appeal Mechanism for Investment Awards’, CIDS Supplemental Report (2017); Bungenberg and Reinisch, Von bilateralen Schieds- und Investitionsgerichten zum multilateralen Investitionsgerichtshof (2018); Howse, ‘Designing a Multilateral Investment Court: Issues and Options’ (2017) 36 YB. Eur. L., 209; Happ and Wuschka, ‘From the Jay Treaty Commissions Towards a Multilateral Investment Court: Addressing the Enforcement Dilemma’ (2017) 6(1) Indian J. Arb. L., 113; Calamita, ‘The (In)Compati-
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An Overview of the CETA – Investment Chapter (Chapter 8) in such a MIC if this new dispute settlement mechanism fulfils certain conditions. 266 Even before this Opinion, the Court had very clearly emphasised the autonomy of EU law.267 This meant, among others, that the EU could not accede to the ECHR. 268 With the Achmea decision,269 the CJEU recently ruled against the admissibility of bilateral intra-EU investment treaties and the settlement of disputes based thereon, largely on grounds of upholding the autonomy of EU law. Consequently, approximately 150 intra-EU BITs must now be terminated by the Member States. 270 Up to now, the reform discussions in UNCITRAL WG III are still ongoing; the 107 authors of this contribution have submitted a first Draft Statute to UNCITRAL in October 2020.271 The draft Statute is meant to stimulate discussions and to demonstrate that it is possible to create a MIC on the basis of a treaty. The institutional and general legal setting of this Draft Statute advocates for the establishment of an international organisation based on a treaty, open to States as well as to international organisations. The Statute prescribes the MIC’s jurisdiction over investor-State as well as State-to-State disputes. By joining the MIC, Members recognise its international and domestic legal personality, accord it with the privileges and immunities required for its independent functioning and contribute to its budget. The Draft Statute also provides for a bench of judges (sitting as a Court of First Instance and an Appellate Court), a Secretariat, a Plenary Body and an Advisory Centre. The Statute envisages that judges will be appointed for a longer period of time, be independent as well as impartial, and highly qualified. The proposed mechanism for the selection of judges is premised on the need to ensure that all regions and major legal systems are adequately represented. The Draft Statute expressly enshrines the rule of law, transparency, efficiency, consistency and Members’ right to regulate. It contains the fundamentals of procedure and incorporates, inter alia, the UNCITRAL Rules of Transparency in Treaty-based Investor-State Arbitration. The MIC may regulate its own rules of procedure in greater detail and adapt to the specific needs of future disputes. With regard to the enforceability of MIC decisions, the Statute foresees a treaty-based obligation of all MIC Members to recognise and enforce them. Arrangements on enforcement in third States can be foreseen in a separate treaty. The new enforcement system also provides for the establishment of an enforcement fund.
5. Interim Conclusion Not only is this agreement giving a new approach by shifting from arbitration to a 108 court-like system of adjudication, but also various new elements are introduced in the ISDS Part of the Chapter, be it the general transparency obligations, including TPF, the scope of the applicable law, the content of the award and finally the cost allocation. bility of Appellate Mechanisms with Existing Instruments of the Investment Treaty Regime’ (2017) 18 JWIT, 585; Wilske et al., ‘The Emperor’s New Clothes: Should India Marvel at the EU’s New Proposed Investment Court System?’ (2018) 6(2) Indian J. Arb. L., 79. 266 See on the CJEU CETA Opinion 1/17: Bungenberg and Titi, CETA Opinion – Setting Conditions for the Future of ISDS, EJIL:Talk!, 5 June 2019, available at: https://www.ejiltalk.org/ceta-opinion-settin g-conditions-for-the-future-of-isds/#more-17254. 267 See already CJEU, Opinion 1/91, 14.12.1991, ECLI:EU:C:1991:490, paras. 30 f.; CJEU, Opinion 1/09, 8.3.2011, ECLI :EU:C:2011:123, para. 67. 268 CJEU, Opinion 2/13, 18.12.2014, ECLI:EU:C:2014:2454. 269 CJEU, Case C-284/16, 6.3.2018, Slovak Republic v. Achmea BV, ECLI:EU:C:2018:158. 270 Commission, Communication from the Commission to the European Parliament and the Council: Protection of intra-EU investment, 19 July 2018, COM(2018) 547 final. 271 Bungenberg and Reinisch, Draft Statute of the Multilateral Investment Court (2021), available at : https://www.nomos-elibrary.de/10.5771/9783748924739.pdf?download_full_pdf=1.
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An Overview of the CETA – Investment Chapter (Chapter 8) Some of these new elements can be attributed to a more ‘rule of law’-oriented system, some others can be seen as more State-friendly provisions, for instance, the explicitly limited scope of claims that may be submitted against a Party.
F. Conclusion: The New EU Approach – A Change of Paradigms? The CETA Investment Chapter may serve as an important template also for future EU investment agreements and thus deserves close scrutiny. A careful consideration of the CETA Chapter 8 text indicates that a change of paradigms did take place, that needs to take effect with the Chapter’s full entry-into-force (→ mn. 39). 110 The first EU investment chapter in a broader trade agreement is taking up a number of 2004 US/Canada Model BIT-inspired additions, as well as new features such as further details concerning the exact meaning of FET and other standards, as well as a completely new ISDS approach. The additional wording within the substantive standards will probably serve as useful guidance to adjudicators in determining whether breaches of investment standards have occurred. But whether the modifications will lead to an overall increase or decrease of investment protection and whether they will enlarge or narrow down the regulatory space of host States will ultimately depend upon the application of the agreement by individual investment adjudicators. 111 An even more drastic step would be the establishment of a MIC – but this fundamental change of ISDS is a long way down the road. 109
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DECISION No 1/2021 OF THE CETA JOINT COMMITTEE of 29 January 2021 setting out the administrative and organisational matters regarding the functioning of the Appellate Tribunal [2021/264] THE CETA JOINT COMMITTEE, Having regard to Article 26.1 of the Comprehensive Economic and Trade Agreement (CETA) between Canada, of the one part, and the European Union and its Member States, of the other part (the ‘Agreement’), Whereas Article 8.28.7 of the Agreement provides that the CETA Joint Committee is to adopt a decision setting out the administrative and organisational matters regarding the functioning of the Appellate Tribunal, HAS ADOPTED THIS DECISION:
Article 1 Definitions For the purposes of this Decision, the following definitions apply: (a) the definitions in Article 1.1 (Definitions of general application) of Chapter One (General definitions and initial provisions) of the Agreement; (b) the definitions in Article 8.1 (Definitions) of Chapter Eight (Investment) of the Agreement; (c) ‘Appellate Tribunal’ means the appellate tribunal established under Article 8.28 (Appellate Tribunal) of Chapter Eight (Investment) of the Agreement; and (d) ‘Member’ means a Member of the Appellate Tribunal established under Article 8.28 (Appellate Tribunal) of Chapter Eight (Investment) of the Agreement.
Article 2 Composition and administrative arrangements 1.
2. 3.
The Appellate Tribunal shall be composed of six Members appointed by the CETA Joint Committee with a view to the principles of diversity and gender equality. For the purposes of this appointment: (a) two Members shall be selected from nominations proposed by Canada; (b) two Members shall be selected from nominations proposed by the European Union; and (c) two Members shall be selected from nominations proposed by Canada or the European Union, and shall not be nationals of either Canada or any Member State of the European Union. The CETA Joint Committee may decide to increase the number of Members by multiples of three. Additional appointments shall be made on the same basis as provided for in paragraph 1 of this Article. Members shall be appointed for a nine-year non-renewable term. However, the terms of three of the first six Members appointed pursuant to Article 8.28.3 of the Agreement shall be limited to six years. Those three Members shall be determined by lot with one Member selected from each of the groups of Members appointed pursuant to subparagraphs 1(a), 1(b) and 1(c) of this Article. In principle, a Member serving on a division of the Appellate Tribunal when his or 961
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her term expires may continue to serve on the division until the closure of the proceedings of that division, unless the President of the Appellate Tribunal, after consulting with the other Members of the division, decides otherwise, and shall, for that purpose only, be deemed to continue to be a Member. Vacancies in the Appellate Tribunal shall be filled as they arise. The Appellate Tribunal shall have a President and Vice-President responsible for organisational issues, who shall be selected by lot by the Chair of the CETA Joint Committee for a two-year term from among the Members who are nationals of third countries. They shall serve on the basis of a rotation. The Vice-President shall replace the President when the President is unavailable. The division of the Appellate Tribunal constituted to hear each case under Article 8.28.5 of the Agreement shall consist of three Members, of whom one Member has been appointed pursuant to subparagraph 1(a) of this Article, one Member has been appointed pursuant to subparagraph 1(b) of this Article and one Member has been appointed pursuant to subparagraph 1(c) of this Article. The division shall be chaired by the Member who has been appointed pursuant to subparagraph 1(c) of this Article. The composition of the division of the Appellate Tribunal hearing each appeal shall be established in each case by the President of the Appellate Tribunal on a rotation basis, ensuring that the composition of the divisions is random and unpredictable, while giving equal opportunity to all Members to serve. The Appellate Tribunal may sit in a division of six Members where a case pending before a division raises a serious question affecting the interpretation or application of Chapter Eight (Investment) of the Agreement. The Appellate Tribunal shall sit in a division of six Members when both disputing parties so request or where a majority of Members decides that it is desirable. The President of the Appellate Tribunal shall preside over the division of six Members. The Appellate Tribunal may draw up its own working procedures. Members shall ensure that they are available and able to perform the functions set out under this Decision and under Section F (Resolution of investment disputes between investors and states) of Chapter Eight (Investment) of the Agreement. In order to ensure their availability, Members shall be paid a monthly retainer fee to be determined by the CETA Joint Committee. The fees referred to in paragraph 10 of this Article shall be paid equally by both Parties into an account managed by the ICSID Secretariat. In the event that one Party fails to pay the retainer fee, the other Party may elect to pay. Any such arrears will remain payable, with appropriate interest. The fees and expenses of Members on a division constituted to hear a claim, other than the fees referred to in paragraph 10 of this Article, shall be determined by the CETA Joint Committee and allocated among the disputing parties on the same basis as Article 8.39.5 of the Agreement. Upon a decision by the CETA Joint Committee, the retainer fee and the fees for days worked may be transformed into a regular salary. In such an event, Members shall serve on a full-time basis and the CETA Joint Committee shall fix their remuneration and related organisational matters. In that event, the Members shall not be permitted to engage in any occupation, whether gainful or not, unless exemption is exceptionally granted by the President of the Appellate Tribunal.
CETA Rules setting out the Appellate Tribunal 14. The ICSID Secretariat shall act as Secretariat for the Appellate Tribunal and provide it with appropriate support. The expenses for such support shall be met by the Parties equally.
Article 3 Conduct of appeals 1. Either disputing party may appeal before the Appellate Tribunal an award rendered by the Tribunal pursuant to Section F (Resolution of investment disputes between investors and states) of Chapter Eight (Investment) of the Agreement within the time frame established by Article 8.28.9(a) of the Agreement and the grounds set out in Article 8.28.2 of the Agreement. 2. If the Appellate Tribunal upholds the appeal in whole or in part, it shall modify or reverse the legal findings and conclusions of the Tribunal in whole or in part. The Appellate Tribunal shall specify precisely how it has modified or reversed the relevant findings and conclusions of the Tribunal. 3. If the facts established by the Tribunal so permit, the Appellate Tribunal shall apply its own legal findings and conclusions to such facts and render a final award. If that is not possible, it shall issue a decision referring the matter back to the Tribunal to render an award in accordance with the findings and conclusions of the Appellate Tribunal. If possible, the Appellate Tribunal shall refer the matter back to the same division of the Tribunal that was previously constituted to decide the matter. 4. The Appellate Tribunal shall reject the appeal where it finds that the appeal is unfounded. It may also reject the appeal on an expedited basis where it is clear that the appeal is manifestly unfounded. If the Appellate Tribunal rejects the appeal, the award rendered by the Tribunal shall become the final award. 5. As a general rule, the appeal proceedings shall not exceed 180 days from the date a disputing party formally notifies its decision to appeal to the date the Appellate Tribunal issues its decision or award. If the Appellate Tribunal considers that it cannot issue its decision or award within 180 days, it shall inform the disputing parties in writing of the reasons for the delay together with an estimate of the period within which it will issue its decision or award. Every effort should be made to ensure that the appeal proceedings should not exceed 270 days. 6. A disputing party lodging an appeal shall provide security for the costs of appeal as determined by the division of the Appellate Tribunal constituted to hear the case. The disputing party shall also provide any other security as may be ordered by the Appellate Tribunal. 7. The provisions of Articles 8.20 (Mediation), 8.24 (Proceedings under another international agreement), 8.26 (Third party funding), 8.31 (Applicable law and interpretation), 8.34 (Interim measures of protection), 8.35 (Discontinuance), 8.36 (Transparency of proceedings)1, 8.38 (Non-disputing Party), 8.39 (Final award) and 8.40 (Indemnification or other compensation) of the Agreement shall apply mutatis mutandis in respect of the appeal procedure.
1 For greater certainty, the notice of appeal, the notice of intent to challenge a Member and the decision on challenge to a Member shall be included in the list of documents to be made available to the public under Article 3(1) of the UNCITRAL Transparency Rules.
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Article 4 Authentic texts This Decision is drawn up in duplicate in the Bulgarian, Croatian, Czech, Danish, Dutch, English, Estonian, Finnish, French, German, Greek, Hungarian, Italian, Latvian, Lithuanian, Maltese, Polish, Portuguese, Romanian, Slovak, Slovenian, Spanish and Swedish languages, each version being equally authentic.
Article 5 Entry into force This Decision shall be published and shall enter into force on the date of entry into force of Section F (Resolution of investment disputes between investors and states) of Chapter Eight (Investment) of the Agreement, subject to the Parties’ exchange of written notifications, through diplomatic channels, certifying that they have completed the necessary internal requirements and procedures. Done at Brussels, 29 January 2021. For the CETA Joint Committee The Co-Chairs Valdis DOMBROVSKI Mary NG
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DECISION No 1/2021 OF THE COMMITTEE ON SERVICES AND INVESTMENT of 29 January 2021 adopting a code of conduct for Members of the Tribunal, Members of the Appellate Tribunal and mediators [2021/263] THE COMMITTEE ON SERVICES AND INVESTMENT, Having regard to Article 26.2.1(b) of the Comprehensive Economic and Trade Agreement (CETA) between Canada, of the one part, and the European Union and its Member States, of the other part (‘the Agreement’), Whereas Article 8.44.2 of the Agreement provides that the Committee on Services and Investment is to adopt a code of conduct to be applied in disputes arising out of Chapter Eight (Investment) of the Agreement, which may replace or supplement the rules in application, HAS ADOPTED THIS DECISION:
Article 1 Definitions For the purposes of this Decision, the following definitions apply: (a) the definitions in Article 1.1 (Definitions of general application) of Chapter One (General definitions and initial provisions) of the Agreement; (b) the definitions in Article 8.1 (Definitions) of Chapter Eight (Investment) of the Agreement; (c) ‘Appellate Tribunal’ means the appellate tribunal established under Article 8.28 (Appellate Tribunal) of Chapter Eight (Investment) of the Agreement; (d) ‘assistant’ means a natural person, other than a person employed by the ICSID Secretariat, who, under the terms of appointment of a Member, conducts research for or provides assistance to the Member; (e) ‘candidate’ means a natural person who has submitted an application or is otherwise aware that he or she is under consideration for selection as a Member; (f) ‘mediator’ means a natural person who conducts mediation in accordance with Article 8.20 (Mediation) of the Agreement; and (g) ‘Member’ means a Member of the Tribunal or of the Appellate Tribunal established pursuant to Section F (Resolution of investment disputes between investors and states) of Chapter Eight (Investment) of the Agreement.
Article 2 Responsibilities to the process Candidates, Members and former Members shall avoid impropriety and the appearance of impropriety, and shall observe high standards of conduct so that the integrity and impartiality of the dispute settlement mechanism is preserved.
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Article 3 Disclosure obligations 1. Candidates shall disclose to the Parties any past and present interest, relationship or matter that is likely to affect, or that could reasonably be seen as likely to affect, their independence or impartiality, that creates or could reasonably be seen as creating a direct or indirect conflict of interest, or that creates or might reasonably be seen as creating an appearance of impropriety or bias. To this end, candidates shall make all reasonable efforts to become aware of any such interests, relationships or matters. The disclosure of past interests, relationships or matters shall cover at least the last five years prior to a candidate submitting an application or otherwise becoming aware that he or she is under consideration for selection as a Member. 2. Members shall communicate matters concerning actual or potential violations of this code of conduct, in writing, to the Parties and, when relevant to a dispute, to the disputing parties. 3. Members shall at all times continue to make all reasonable efforts to become aware of any interests, relationships or matters referred to in paragraph 1 of this Article. Members shall at all times disclose such interests, relationships or matters throughout the performance of their duties by informing the Parties and, where relevant, the disputing parties. 4. In order to ensure that relevant information is provided by candidates and Members, disclosures shall be made through a standardised form with the possibility to add or enclose any document, and in accordance with any other procedures established by the Parties.
Article 4 Independence, impartiality and other obligations of Members 1. In addition to the obligations established in Article 2 of this Decision, Members shall be and shall appear to be independent and impartial, and shall avoid direct and indirect conflicts of interest. 2. Members shall not be influenced by self-interest, outside pressure, political considerations, public clamour, loyalty to a Party, disputing party or any other person involved or participating in the proceeding, fear of criticism or financial, business, professional, family or social relationships or responsibilities. 3. Members shall not, directly or indirectly, incur any obligation, accept any benefit, enter into any relationship, or acquire any financial interest that is likely to affect or appear to affect their independence or impartiality. 4. Members shall not engage in ex parte contacts concerning the proceeding. 5. Members shall perform their duties thoroughly and expeditiously throughout the course of the proceeding and shall do so with fairness and diligence. 6. Members shall consider only those issues raised in the proceeding and which are necessary for a decision or award and shall not delegate this duty to any other person. 7. Members shall take all appropriate steps to ensure that their assistants are aware of, and comply with, Articles 2 (Responsibilities to the Process), 3(2) and (3) (Disclosure Obligations), 4(1) to (5) (Independence and Impartiality and Other
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CETA Code of Conduct Obligations of Members), 5(1) and (3) (Obligations of Former Members) and 6 (Confidentiality) of this Decision mutatis mutandis. 8. Members shall take appropriate account of other dispute settlement activities under the Agreement and, in particular, of decisions or awards rendered by the Appellate Tribunal.
Article 5 Obligations of former Members 1. Former Members shall avoid actions that may create the appearance that they were biased in carrying out their duties or derived advantage from the decisions or awards of the Tribunal or the Appellate Tribunal. 2. Members shall undertake that for a period of three years after the end of their term, they shall not act as representatives of any of the disputing parties in investment disputes before the Tribunal or the Appellate Tribunal. 3. Without prejudice to the possibility to continue to serve on a division until the closure of the proceedings of that division, Members shall undertake that after the end of their term, they shall not become involved: (a) in any manner whatsoever in investment disputes which were pending before the Tribunal or the Appellate Tribunal before the end of their term; (b) in any manner whatsoever in investment disputes directly and clearly connected with disputes, including concluded disputes, which they have dealt with as Members of the Tribunal or the Appellate Tribunal. 4. If the President of the Tribunal or of the Appellate Tribunal is informed or otherwise becomes aware that a former Member is alleged to have acted inconsistently with the obligations set out in paragraphs 1, 2 and 3, or any other part of this Decision while a Member, he or she shall examine the matter, provide an opportunity to the former Member to be heard, and, after verification, inform thereof: (a) the professional body or other such institution with which that former Member is affiliated; (b) the Parties; (c) if it involves a specific dispute, the disputing parties; and (d) the President of any other relevant international court or tribunal in view of the initiation of appropriate measures. The President of the Tribunal or of the Appellate Tribunal shall make public his or her decision to take the actions referred to in subparagraphs (a) to (d) above, together with the reasons therefor.
Article 6 Confidentiality 1. Members and former Members shall not at any time disclose or use any non-public information concerning a proceeding or acquired during a proceeding, except for the purposes of the proceeding, and shall not, in any case, disclose or use any such information to gain personal advantage or advantage for others or to adversely affect the interest of others.
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CETA Code of Conduct 2. Members shall not disclose an order, decision, award or parts thereof prior to its publication in accordance with the transparency provisions of Article 8.36 (Transparency of proceedings) of the Agreement. 3. Members or former Members shall not disclose any deliberation of the Tribunal or Appellate Tribunal, or any Member’s views, except in an order, decision or award.
Article 7 Expenses Each Member shall keep a record and render a final account of their time devoted to the procedure and of their expenses incurred, as well as the time and expenses of their assistant.
Article 8 Sanctions 1. For greater certainty, the provisions of this code of conduct shall be applied together with the obligations set out in Article 8.30.1 of the Agreement and the procedures provided for in Articles 8.30.2, 8.30.3 and 8.30.4 of the Agreement shall apply to violations of this code of conduct. 2. For greater certainty, the CETA Joint Committee shall provide a Member the opportunity to be heard prior to the issuance of any decision pursuant to Article 8.30.4 of the Agreement.
Article 9 Mediators 1. The rules set out in this Decision as applying to candidates shall apply, mutatis mutandis, to natural persons who are aware that they are under consideration for appointment as mediators. 2. The rules set out in this Decision as applying to Members shall apply, mutatis mutandis, to mediators from the date on which he or she is appointed as mediator to the date on which: (a) the disputing parties adopt a mutually agreed solution; (b) the mediator provides a written declaration resigning from his or her duties as mediator; or (c) a disputing party, or both disputing parties, provide written notice by way of a letter transmitted to the mediator and the other disputing party terminating the mediator’s mandate or the mediation procedure, whichever is earlier. 3. The rules set out in this Decision as applying to former Members shall apply, mutatis mutandis, to former mediators.
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Article 10 Consultative Committees 1. The President of the Tribunal and the President of the Appellate Tribunal shall each be assisted by a Consultative Committee for ensuring the proper application of this code of conduct, of Article 8.30 (Ethics) of the Agreement and for the execution of any other task, where so provided. 2. The Consultative Committees referred to in paragraph 1 of this Article shall be composed of the respective Vice- President and of the two most senior Members of the Tribunal or of the Appellate Tribunal.
Article 11 Authentic texts This Decision is drawn up in duplicate in the Bulgarian, Croatian, Czech, Danish, Dutch, English, Estonian, Finnish, French, German, Greek, Hungarian, Italian, Latvian, Lithuanian, Maltese, Polish, Portuguese, Romanian, Slovak, Slovenian, Spanish and Swedish languages, each version being equally authentic.
Article 12 Entry into force This Decision shall be published and shall enter into force on the date of entry into force of Section F (Resolution of investment disputes between investors and states) of Chapter Eight (Investment) of the Agreement, subject to the Parties’ exchange of written notifications, through diplomatic channels, certifying that they have completed the necessary internal requirements and procedures. Done at Brussels, 29 January 2021. For the Committee on Services and Investment The Co-Chairs Carlo PETTINATO Donald McDOUGALL
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DECISION No 2/2021 OF THE COMMITTEE ON SERVICES AND INVESTMENT of 29 January 2021 adopting rules for mediation for use by disputing parties in investment disputes [2021/266] THE COMMITTEE ON SERVICES AND INVESTMENT, Having regard to Article 26.2.1(b) of the Comprehensive Economic and Trade Agreement (CETA) between Canada, of the one part, and the European Union and its Member States, of the other part (the ‘Agreement’), Whereas Article 8.44.3(c) of the Agreement provides that the Committee on Services and Investment may adopt rules for mediation for use by disputing parties as referred to in Article 8.20 (Mediation) of the Agreement, HAS ADOPTED THIS DECISION:
Article 1 Definitions For the purposes of this Decision, the following definitions apply: (a) the definitions in Article 1.1 (Definitions of general application) of Chapter One (General definitions and initial provisions) of the Agreement; (b) the definitions in Article 8.1 (Definitions) of Chapter Eight (Investment) of the Agreement; (c) ‘agreement to mediate’ means an agreement made pursuant to Article 3(4) of this Decision; and (d) ‘mediator’ means a natural person who conducts mediation in accordance with Article 8.20 (Mediation) of the Agreement.
Article 2 Objective and scope The objective of the mediation mechanism is to facilitate the finding of a mutually agreed solution through a comprehensive and expeditious procedure with the assistance of a mediator.
Article 3 Initiation of the procedure 1. Either disputing party may request, at any time, the commencement of a mediation procedure. Such request shall be addressed to the other disputing party in writing. 2. If the request concerns an alleged breach of the Agreement by the authorities of the European Union or by the authorities of the Member States of the European Union, and no respondent has been determined pursuant to Article 8.21 (Determination of the respondent for disputes with the European Union or its Member States) of the Agreement, it shall be addressed to the European Union. If the
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CETA Rules on Mediation request is accepted, the response shall specify whether the European Union or the Member State concerned will be a disputing party to the mediation 1. 3. The disputing party to which the request is addressed shall give sympathetic consideration to the request and accept or reject it in writing within 10 days of its receipt. 4. If the disputing parties agree to a mediation procedure, they shall sign an agreement to mediate, in writing, setting out rules agreed to by the disputing parties, which shall include the rules in this Decision. The agreement to mediate may include an agreement not to commence or not to continue any other dispute settlement proceedings relating to the problems or disputes that are subject to the mediation procedure: (a) while the mediation procedure is pending; or (b) if the disputing parties have reached a mutually agreed solution. An agreement pursuant to subparagraph 4(b) of this Article shall cease to apply if a disputing party, or both disputing parties, provide written notice, transmitted by way of a letter to the mediator and the other disputing party, terminating the mediation procedure.
Article 4 Appointment of the mediator 1. If both disputing parties agree to a mediation procedure, a mediator shall be appointed in accordance with the procedure set out in Article 8.20.3 of the Agreement. The disputing parties shall endeavour to agree on a mediator within 15 days from the receipt of the reply to the request. Such agreement may include appointing a mediator from the Members of the Tribunal established according to Article 8.27.2 of the Agreement or Members of the Appellate Tribunal established according to Article 8.28.3 of the Agreement. 2. The disputing parties may, by written consent, agree to replace the mediator. If a mediator resigns, is incapacitated or otherwise becomes unable to perform his or her duties, a new mediator shall be appointed pursuant to Article 8.20.3 of the Agreement and in accordance with paragraph 1 of this Article. 3. A mediator shall not be a national of either Party, unless the disputing parties agree otherwise. 4. The mediator shall assist, in conformity with the Decision of the Committee on Services and Investment on the Code of Conduct for Members of the Tribunal, Members of the Appellate Tribunal and Mediators, the disputing parties in reaching a mutually agreed solution.
1 For greater certainty, if the request concerns treatment by the European Union, the disputing party to the mediation shall be the European Union and any Member State concerned shall be fully associated in the mediation. If the request concerns exclusively treatment by a Member State, the disputing party to the mediation shall be the Member State concerned, unless it requests the European Union to be a disputing party.
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Article 5 Rules of the mediation procedure 1. Within 10 days from the appointment of the mediator, the disputing party having invoked the mediation procedure shall present, in writing, a detailed description of the problem to the mediator and to the other disputing party. Within 20 days from the receipt of this submission, the other disputing party may provide, in writing, its comments to the description of the problem. Either disputing party may include in its description or comments any information that it deems relevant. 2. The mediator may decide on the most appropriate way of bringing clarity to the problem concerned. In particular, the mediator may organise meetings between the disputing parties, consult the disputing parties jointly or individually, seek the assistance of or consult with relevant experts and stakeholders and provide any additional support requested by the disputing parties. However, before seeking the assistance of or consulting with relevant experts and stakeholders, the mediator shall consult with the disputing parties. 3. The mediator may offer advice and propose a solution for the consideration of the disputing parties who may accept or reject the proposed solution or may agree on a different solution. However, the mediator shall not make a determination on the consistency of any measure at issue with the Agreement. 4. The procedure shall take place in the territory of the Party that is a disputing Party, or by mutual agreement in any other location or by any other means. 5. The disputing parties shall endeavour to reach a mutually agreed solution within 60 days from the appointment of the mediator. Pending a final agreement, the disputing parties may consider possible interim solutions. 6. On request of the disputing parties, the mediator shall issue to the disputing parties, in writing, a draft factual report, providing a brief summary of: (a) any measure at issue in these procedures; (b) the procedures followed; and (c) any mutually agreed solution reached as the final outcome of these procedures, including possible interim solutions. The mediator shall provide the disputing parties 15 days from the issuance of the draft factual report to comment on the draft report. After considering the comments of the disputing parties submitted within this period, the mediator shall submit, in writing, a final factual report to the disputing parties within 15 days from the receipt of comments of the disputing parties. The factual report shall not include any interpretation of the Agreement. 7. In accordance with Article 8.20.5 of the Agreement, the mediation procedure shall be terminated by written notice of a disputing party, or of both disputing parties, transmitted by way of a letter to the mediator and the other disputing party, on the date that the notice is given.
Article 6 Implementation of a mutually agreed solution 1. If a mutually agreed solution is adopted by the disputing parties, each disputing party shall take the measures necessary to implement the mutually agreed solution within the agreed timeframe.
972
CETA Rules on Mediation 2. The implementing disputing party shall inform the other disputing party in writing of any steps or measures taken to implement the mutually agreed solution.
Article 7 Relationship to dispute settlement 1. The procedure under this mediation mechanism is not intended to serve as a basis for dispute settlement under other dispute settlement procedures set out in the Agreement or in another agreement. A disputing party shall not rely on or introduce as evidence in other dispute settlement procedures, nor shall any adjudicative body take into consideration: (a) positions taken, admissions made or views expressed by a disputing party in the course of the mediation procedure; (b) the fact that a disputing party has indicated its willingness to accept a solution to the problems or disputes that are subject to the mediation procedure; (c) advice given, proposals made or views expressed by the mediator; or (d) the content of a draft or final factual report by a mediator. 2. Subject to Article 3(4) of this Decision, the mediation mechanism is without prejudice to the rights and obligations of the Parties and the disputing parties under Section F (Resolution of investment disputes between investors and states) of Chapter Eight (Investment) and Chapter Twenty-nine (Dispute Settlement) of the Agreement. 3. The disputing parties’ agreement to mediate and any mutually agreed solutions shall be made publicly available. The versions disclosed to the public shall not contain any information that a disputing party has designated as confidential. Unless the disputing parties agree otherwise, all other steps of the mediation procedure, including any advice or proposed solution, shall be confidential. However, any disputing party may disclose to the public that mediation is taking place.
Article 8 Time limits Any time limit referred to in this Decision may be modified by mutual agreement between the disputing parties.
Article 9 Costs 1. Each disputing party shall bear its own expenses derived from the participation in the mediation procedure. 2. The disputing parties shall share jointly and equally the expenses derived from organisational matters, including the remuneration and expenses of the mediator. Remuneration of the mediator shall be in accordance with that foreseen for Members of the Tribunal under Article 8.27.14 of the Agreement.
973
CETA Rules on Mediation
Article 10 Authentic texts This Decision is drawn up in duplicate in the Bulgarian, Croatian, Czech, Danish, Dutch, English, Estonian, Finnish, French, German, Greek, Hungarian, Italian, Latvian, Lithuanian, Maltese, Polish, Portuguese, Romanian, Slovak, Slovenian, Spanish and Swedish languages, each version being equally authentic.
Article 11 Entry into force This Decision shall be published and shall enter into force on the date of entry into force of Section F (Resolution of investment disputes between investors and states) of Chapter Eight (Investment) of the Agreement, subject to the Parties’ exchange of written notifications, through diplomatic channels, certifying that they have completed the necessary internal requirements and procedures. Done at Brussels, 29 January 2021. For the Committee on Services and Investment The Co-Chairs Carlo PETTINATO Donald McDOUGALL
974
Index Bold numbers refer to articles, normal ones to margin numbers. Abuse of rights 8.16 3, 9 Abusive Treatment 8.10 26 Access to information 8.38 1, 15 Access to justice 8.23 9, 29 Accessibility 8.39 11, 31, 94 Accordance with the applicable law – corruption 8.1 106 Acquired rights 8.12 3 Activities carried out in the exercise of governmental authority 8.1 11 ff., 8.2 90 ff. Adjudication 8.25 50 ff. Administrative authorities 8.10 21 Administrative body 8.10 20 Administrative support 8.28 44 Admissibility 8.16 43 Agreed solution – confidentiality 8.20 71 – disclosure to public 8.20 71 Agreement in writing 8.25 80 ff. Air service agreement 8.2 85 ff. Air service sector – covered air services 8.2 88 f. Air services exception clause 8.2 8 Air transport – agreement 8.2 123 ff. – selling and marketing 8.1 302 – services 8.2 124 Aircraft Repair and Maintenance Services 8.1 44 ff. – Common Commercial Policy 8.1 47 – Opinion 2/15 8.1 47 ff. Airport Operation Services 8.1 50 ff. – Build-Operate-Transfer 8.1 57 – Civil Aviation Act 8.1 56 – Cross-Border Supply of Services 8.1 51 – Cross-Border Trade in Services 8.1 55 – PACER Plus Agreement 8.1 56 Airports 8.1 302 – ground handling services 8.1 155 ff. Alternative dispute resolution (ADR) 8.19 2 Alternative methods – settle investor-State disputes 8.20 4 Amendment – ICSID Rules 8.1 89 ff. Amendment (CETA) – joint interpretation mechanism 8.31 27 ff., 43 f. – subsequent agreements 8.31 44 – to claims 8.22 21 American Bar Association 8.14 16 Amicable consultations 8.19 47
Amicable dispute settlement 8.19 2, 40 ff., 8.22 7, 14 Ancillary claims 8.22 20 Annex 29-A – rules of procedure for arbitration 8.20 65 Annex 29-B – code of conduct for mediator 8.20 65 Annex 29-C – CETA 8.20 66 ff., 77 ff. – cost of mediation 8.20 73 – expenses of mediator 8.20 73 – remuneration of mediator 8.20 73 – rules of procedure for mediation 8.20 65 ff. Annex I reservations – ratchet 8.15 2, 32 – standstill 8.15 2, 32 – subordinate measure 8.15 34 Annex II reservations – policy space 8.15 2 Annex on Air Transport Services 8.1 70 Annnulment of appellate award 8.28 64 Appeal – division 8.28 41 – of award, grounds 8.31 22 – withdrawal 8.28 57 Appellate body 8.28 17 Appellate tribunal 8.23 7, 8.28 12 ff., 32, 8.30 1, 8.35 19 – appointment of the Members 8.28 33 – decision, binding and final nature 8.28 15 – decision, modifying findings 8.28 53 – establishment 8.28 12 ff. – implementation decisions 8.28 14 – members, judges 8.28 32 – organisation 8.28 39 – powers 8.28 51 – president 8.28 40 Applicable law 8.28 20 – and other rules and principles of international law 8.31 11 ff. – applicablility of EU law 8.31 75 – application 8.28 19 f., 8.31 33 – arbitration rules, application in conjunction with 8.31 8 – customary international law 8.31 56 – domestic and EU law, content, burden of proof 8.31 63 ff. – domestic and EU law, content, determination 8.31 64 ff. – domestic law and EU law, exclusion of 8.31 58 ff. – domestic law, application 8.31 33 – domestic law as a matter of fact 8.31 60 f. – domestic law, definition, European Union law as domestic law 8.31 4
979
Index – – – – – – –
domestic law, exclusion of 8.31 4 drafting history 8.31 45 ff. equitable and good faith 8.17 49 failure to apply correct 8.31 22 ff. general principles of law 8.31 57 identification 8.31 30 ff. international and domestic law, relationship between 8.31 19 ff. – interpretation 8.28 21, 8.31 28 f., 32, 47 – interpretation, application, and treaty amendment, distinction between 8.31 26 – investment disputes, substantive 8.31 1 – joint interpretations 8.31 67 – jurisdictional issues 8.31 7 – legal sources 8.31 11 ff. – legal sources, hierarchy 8.31 19 f. – legality requirements 8.2 71 ff. – local law 8.1 106 ff. – modification 8.31 37 – procedural issues 8.31 7 – sources of international law 8.31 54 ff. – substantive 8.31 15 ff. – when the investment was made 8.2 73 Appointment of mediator 8.20 49 – agreement between parties 8.20 56 – members of Appellate Tribunal 8.20 56 – members of Tribunal 8.20 56 Arbitral award – arbitration agreement 8.41 86 – arbitrators selected by the parties 8.41 86 – binding final dispute settlement 8.41 86 – definition 8.41 85 f. – non-state decision making mechanism 8.41 86 – voluntary submission 8.41 86 Arbitrariness 8.10 23, 8.14 34 Arbitrary conduct 8.10 23 Arbitration 8.26 1 ff. – agreement 8.25 8 – institution 8.30 2 – panel 8.20 77 – rules 8.23 1 – without privity 8.25 5, 67 Arbitration rules 8.34 6 Arbitrator 8.26 3 ff. – selection 8.25 12 Armed conflict 8.11 26 ff. – compensation 8.11 1 Atomisation of disputes 8.28 5 Attributability 8.1 24 Attribution of international responsibility 8.2 18 ff. – EU and its Member States, relationship between 8.2 23 – Nord Stream 2 AG v. The European Union 8.2 23 Audio-visual services 8.2 102 ff. Autonomy of the legal order – domestic legal order 8.31 34
980
– European legal order 8.25 35, 8.31 34 Balance of interests 8.17 39 ff. Balancing exercise 8.9 17 Banque publique d’investissement 8.14 17 Bifurcation 8.33 25 Bilateral Investment Court System 8.20 43 Bilateral Investment Treaty (BIT) 8.14 3, 8.26 26 ff. – Canada 8.19 5 – cumulative application with other standards 8.11 42 ff. Board of directors 8.18 78 – members 8.8 1 ff. – positions 8.8 15 Bolivia 8.16 42, 48, 50 Book value – MIGA Operational Policies 8.40 51 Branch office 8.1 242 ff. Breach of contract 8.40 6 Breach of obligation 8.18 80 Burden of proof 8.16 43, 53, 68, 84, 8.31 63 ff. Business secrets 8.17 28 f. Canada 8.16 22, 26, 30, 33, 56, 63, 64, 70, 78, 80, 82 – practice 8.8 10 – proposal 8.45 11 ff. – Statement of Implementation 8.16 74 – statement on Implementation for the CETA Agreement 8.24 9 f., 12 – Trade Minister Chrystia Freeland 8.30 20 Canada Model BIT 2004 8.25 38 ff., 8.39 15, 8.40 16 Canada Model BIT 2014 8.40 14 ff. – consent 8.25 17 ff. Canada-Moldova BIT 8.19 39 Canada-United States-Mexico Agreement (CUSMA) 8.10 6, 8.19 35 ff. Canadian Model FIPA 8.1 138 Caveats 8.17 45 ff. Cecilia Malmstöm 8.30 18 Central American Free Trade Agreement (CAFTA) 8.16 42, 56, 81 CETA – Annex 29-C 8.20 65 ff. CETA draft – finalised 8.18 15 CETA Joint Committee 8.1 323, 8.3 38, 8.20 77, 8.30 27, 97, 102 f., 107, 8.39 30 f., 93 ff., 98 ff. – adoption of solution 8.20 69 – Committee on Services and Investment, relationship with 8.31 69 – procedure 8.28 23 – rules of procedure 8.44 12 – specialised committees 8.44 12
Index CETA Tribunal 8.16 58, 8.23 7, 8.25 52 ff., 8.30 1, 8.34 10 ff., 8.35 1 ff. – division 8.34 11 – framework for determining applicable law 8.31 30 ff. – Investment Court System 8.25 9 ff. – law-making functions 8.31 5 – legal nature 8.35 7 – members 8.25 55 – members, appointment 8.30 60 – order of the tribunal 8.35 4 – parallel proceedings 8.24 20 ff. – president 8.30 102 f. – related proceedings, duty to take into account 8.24 32 ff. – request for withdrawal or discontinuance of related proceedings 8.24 36 – review of joint interpretation, limitations 8.31 28 f. – stay of proceedings 8.24 33 f. – stay of proceedings, parallel proceedings, obligation 8.24 33 f. CETA versions 8.30 8 ff. Chapter 29 – dispute other than investment dispute 8.20 62 ff. – Dispute Settlement 8.20 2 – Mediation Rules 8.20 55 – other dispute settlement techniques 8.20 73 – Scope 8.20 40 Charter of Economic Rights and Duties of States 8.12 4 Chilling effect 8.39 10 Choice-of-law clause 8.31 3, 6 – scope 8.31 49 ff. – scope, appellate Tribunal awards 8.31 53 – scope, decision on the merits 8.31 50 – scope, interim measures of protection 8.31 52 – scope, jurisdictional issues, exclusion of 8.31 51 – scope, procedural issues, exclusion of 8.31 51 CIETAC Investment Arbitration Rules 8.26 14 Civil disturbance – compensation 8.11 1 Civil society opposition 8.19 6 Civil strife 8.11 29 Claim 8.14 37 Claim under Section F of Chapter 8 – withdrawal 8.35 13 ff., 23 ff. Claims manifestly without legal merit – appeal proceedings 8.32 37 ff. – applicant 8.32 13 – claims unfounded as a matter of law, relationship to 8.32 34 ff. – filing of the objection 8.32 15 – form of the ruling 8.32 21 f. – other objections, relationshp to 8.32 44 ff.
– schedule 8.32 26 ff. Claims unfounded as a matter of law 8.33 1 ff. – Appellate Tribunal 8.33 29 – applicant 8.33 15 – claims manifestly without legal merit, relationship to 8.33 24 ff. – other preliminary objections 8.33 28 – ruling 8.33 21 – timeline 8.33 16 ff., 19 Clean hands 8.18 117 Code of conduct 8.30 24 f., 28, 51, 107, 8.44 40 ff. – mediator 8.20 52, 64 – member of Investment Tribunal 8.20 52 Code of conduct in investment disputes – Annex 29-B 8.20 58 ff. – confidentiality 8.20 60 – consultative committee 8.20 60 – definition 8.20 60 – disclosure obligations 8.20 60 – expenses 8.20 60 – impartiality 8.20 60 – independence 8.20 60 – mediator 8.20 58 ff. – Member of Appellate Tribunal 8.20 58 ff. – member of Investment Tribunal 8.20 58 ff. – obligation of former member 8.20 60 – responsibilities to the process 8.20 60 – sanction 8.20 60 Committee on Services and Investment 8.20 44, 60, 8.30 26, 30, 8.44 5 – decision making 8.44 31 ff. – decision making competences 8.44 39 ff. – EU Party 8.44 19 ff. – internal procedures 8.44 34 ff. – legal nature 8.44 29 f. – membership 8.44 18 ff. – relevance of internal requirements and procedures 8.44 32 ff. – rules of procedure 8.44 16 f. – transparency 8.44 17 Common Commercial Policy – political risk insurance 8.40 37 Compensation – claims 8.22 24 – for losses 8.14 20, 8.40 6, 55 – ICSID award 8.9 36 Compensation-for-losses clauses 8.11 1 ff. – AAPL v. Sri Lanka 8.11 40 – AMT v. Zaire 8.11 41 – BITs of Canada 8.11 2 – BITs of EU countries 8.11 2 – cases against Argentina 8.11 42 ff. – cases against Libya 8.11 54 ff. – cases against Zimbabwe 8.11 52 f. – cases under Italian BITs 8.11 64 ff. – compensation 8.11 37 ff. – conditions 8.11 10 ff. – drafting history 8.11 17 ff. – full protection and security 8.11 40
981
Index – – – – – –
general meaning 8.11 72 ff. lex specialis 8.11 42 ff. National treatment 8.11 36 remedial measures 8.11 32 restitution 8.11 37 ff. scope of application ratione materiae 8.11 24 – scope of application ratione personae 8.11 23 – subsidies 8.11 21 f. – territory 8.11 33 ff. – triggering event 8.11 25 Competition – like activities 8.2 94 ff. Completion of analysis 8.28 54 Comprehensive and Progessive Agreement for Trans-Pacific Partnership (CPTPP) 8.19 35 ff. – transparency 8.36 21 Computer Reservation System 8.1 64 ff. – airline reservations 8.1 72 Conciliation 8.20 11 Confidential or protected information 8.1 74, 8.17 21 ff., 34 ff. – applicable rules 8.1 88 – confidential business information, public disclosure 8.1 78 – confidential business information, trade secrets 8.1 84 – confidential information 8.17 26 ff. – confidential treatment, application for 8.17 36 ff. – confidential treatment, rebuttable presumption 8.17 38 – confidential treatment, request for 8.17 36 ff. – confidentiality 8.17 37 – confidentiality, duty of 8.17 43 – Mobil Investments Canada 8.1 82 – protection of 8.17 35 ff. – protection of, best efforts obligation 8.37 12 – protection of, obligation of result 8.37 12, 14 – sharing 8.37 1 ff. Confidentiality 8.20 55 – agreed solution 8.20 70 – of ISDS 8.36 4 ff. Conflict of interest 8.30 74 ff. – direct 8.30 46 – indirect 8.30 46 Consent 8.14 43, 8.19 20, 8.25 1, 5 – arbitral qualification 8.25 13 f. – Arbitration agreement 8.25 82 ff. – Canadian influence 8.25 26 – condition 8.25 27 ff., 59 ff. – condition precedent 8.25 18 – consolidation 8.43 58 ff. – express 8.25 66 ff. – implicit 8.25 65
982
– – – – – – – – – – –
in writing 8.25 11, 73 ff. legal qualification of 8.25 10 ff. matching of consent 8.25 82 meeting of consent of parties 8.25 75 of the investor 8.25 47, 64, 70 of the respondent 8.25 43 offer to arbitrate 8.25 48 procedural conditions 8.25 57 scope 8.25 27 ff. staggered consent 8.25 68, 75 f. unilateral consent of the respondent 8.25 47 – unilateral offer 8.25 63 Consistency 8.39 2, 8 – and predictability 8.28 5, 10 ff. Consolidation – auto-consolidation 8.43 60 – avoiding inconsistent awards 8.43 50 f. – connexity 8.43 40 ff. – consent 8.43 58 ff. – consistency of awards 8.43 45 ff. – definition 8.43 1 – due process 8.43 57 – parts of claims 8.43 30, 31 – protection of confidential information 8.43 52 ff. – question of law or fact in common 8.43 41 ff. – same events or circumstances 8.43 44 – saving time and costs 8.43 48 – tribunal 8.43 62 ff. – withdrawal 8.43 67 Consultation 8.16 17 f., 22 f., 27, 43, 56, 8.19 1 ff., 8.20 11, 48, 8.22 7, 14 – Article 29.4 8.20 75 f. – bona fide requirement 8.19 3 – condition precedent 8.20 50 – no amicable settlement 8.20 77 Contract 8.14 11, 22, 24 f. Contracting Parties 8.25 46 – arbitration laws 8.41 27 – safeguard 8.17 46 Contributions 8.1 215 Control 8.1 110 ff. – direct 8.1 101 ff., 257 ff. – indirect 8.1 101, 257 ff. – legal or de-facto 8.2 76, 8.18 103 Cooling-off period 8.19 18, 8.22 18 Corporate accountability 8.17 16 Corporate nationality – incorporation 8.2 50 ff., 8.18 41 ff. Corruption – Article 52(c) ICSID Convention 8.28 29 Costa Rica 8.16 63 Costs 8.26 7 ff., 8.28 55, 8.39 5 f., 17, 23 – allocation 8.26 27, 8.35 31 ff., 8.39 75 ff. – American rule 8.39 21, 80 – apportionment 8.39 21 – CETA Joint Committee 8.39 24
Index – – – – – – – – – –
costs-follow-the-event 8.39 21, 80 f., 88 f. legal representation 8.39 75, 96 of mediation 8.20 72 parties‘ conduct 8.39 80, 82 f., 88 policy goals 8.39 84 proceedings 8.39 75, 96 reasonable 8.39 90 recipient 8.39 63 relative success 8.39 91 f. small and medium-sized enterprises 8.39 93 ff. Council Decision (EU) 2020/680 8.20 59 Council Decision (EU) 2020/681 – Article 1 8.20 53 Council of EU – Trade Policy Committe on Services and Investment of the Council 8.20 52 Counterclaim 8.40 21, 23 – indemnification 8.40 1 Covered investments 8.1 100, 8.2 62 ff., 74 ff., 117 ff., 8.8 13, 8.17 20, 8.18 85 ff. – investment 8.1 90 ff. – reservations 8.1 96 ff. – territorial limit 8.1 103 Cross-appeal 8.28 45 Cross-border services 8.3 20, 22, 24 Cuba 8.16 11 Cultural exemption clause 8.2 8, 98 ff. – EU, Canada approach 8.2 105 ff. Currency convertibility 8.14 16 Currency inconvertibility 8.40 59 ff. – clauses 8.40 60 Currency transfer 8.14 22, 31 Damages 8.14 43, 44, 8.19 24, 8.39 4, 10, 21, 32, 40 f., 65 ff. – assessment 8.39 65 ff. – beneficiary 8.39 61 – full reparation 8.39 66 f. – immaterial harm 8.39 74 – loss suffered by investor 8.39 66 – moral 8.39 74 – payment 8.39 61 – punitive 8.39 18, 71 ff., 109 – recipient 8.39 61 De minimis test 8.19 43 Declaration No. 36 8.28 11 Definitions 8.1 2 f., 8.26 2 ff. Delay 8.10 19 Denial of benefits – Australia 8.16 1 – Austria 8.16 1 – Canada 8.16 1 f. – US 8.16 1 Denial of justice 8.10 17, 19 Depoliticisation 8.14 42
Determination of the respondent 8.18 61 ff., 8.19 27, 8.22 16, 8.25 44 – EU and any of its Member States 8.18 61 ff. – procedural step 8.18 62 ff. Development Finance Corporation (DFC) 8.14 16, 22 Diplomatic protection 8.38 14 Diplomatic relations 8.16 5, 11, 21 f., 24, 26, 54, 74, 76, 81, 84 Direct relationship 8.1 109 Disclosure 8.20 55, 8.26 2 ff., 8.30 62 ff., 8.37 4 – obligation 8.17 15 f. – public interest 8.1 88 Disclosure to public – agreed solution 8.20 70 Discontinuance 8.35 1 ff. Discounted Cash Flow (DCF) 8.40 50 Discrimination 8.10 25, 8.14 6, 30, 34 Dispute other than investment dispute – Chapter 29 8.20 61 ff. Dispute resolution 8.3 38 ff. Dispute settlement 8.4 49, 8.14 35 – initiated under other international agreements 8.24 1 – initiated under Section F of the CETA 8.24 1 – initiated under Section F of the CETA and disputes initiated under other international agreements, relationship between 8.24 1 – mechanism 8.25 50 ff. – provisional application 8.28 13 – provisions 8.45 3, 5 – techniques, variety 8.20 3 – WTO Agreement 8.20 74 Disputing parties 8.1 115 ff., 8.18 52 – mediation 8.1 120 Disqualification 8.30 59, 63, 73 ff., 104 – mechanism 8.30 78 Division of Competence in the EU 8.44 21 – institutional provisions 8.44 22 f. – Investor-State dispute settlement 8.44 27 – mixity 8.44 26 – Opinion 2/15 8.44 24 ff. – portfolio investment 8.44 25 Documents 8.38 2 ff. Domestic courts 8.10 18, 8.22 23 Domestic law 8.10 24, 8.28 25 – nationality 8.18 25 ff., 30 – relief 8.39 64 Domestic legislation 8.10 31 Dominant and effective nationality – relevant time 8.18 36, 37 Double hatting 8.30 54 ff., 69
983
Index Draft Articles on Responsibility of states for Internationally Wrongful Acts (ARSIWA) – organic model 8.2 20 ff. – state responsibility 8.1 18 ff. Draft Articles on the Responsibility of International Organizations (ARIO) – organic model 8.2 20 ff. Dual nationality 8.1 273, 8.2 42 ff. – dominant and effective nationality 8.18 33 ff. – dominant and effective nationality test 8.2 44 ff. – general rule 8.18 31 ff. Dummy corporation 8.16 8 Duration 8.1 216 Dynamic integration 8.28 4 Economic integration 8.4 14 Economic sanctions 8.16 78, 80 Economic sovereignty 8.4 46 ff. Ecuador 8.16 42 Effective and continuous link 8.16 34 Embargos 8.16 11 Emergency – arbitrator 8.34 14 – compensation 8.11 1 Energy Charter Conference – Guide on Investment Mediation 8.20 15 Energy Charter Secretariat – draft Model Instrument on Management of Investment Disputes 8.20 16 Energy Charter Treaty (ECT) 8.11 4, 8.16 3, 23 ff., 42, 45 f., 49 f., 54, 61, 76, 81, 83 – armed conflict 8.11 3 – remedies 8.39 38 f. – transit disputes 8.20 14 Energy transition – renewable energy 8.9 27 ff. Enforcement 8.1 61, 182, 8.14 42, 8.30 108, 8.41 4 ff. – agreed outcome 8.20 57 – conditions 8.28 64 – ICSID Convention 8.41 91 ff. – New York Convention 8.41 74 ff. – of appellate award 8.28 58 ff. – of judgements 8.41 66 ff. – of judgements, Brussels Regulation 8.41 68 – of judgements, Hague Convention on Choice of Court Agreements 8.41 70 – of judgements, Hague Convention on Recognition and Enforcement 8.41 67 – of judgements, Lugano Convention 8.41 69 – public policy 8.41 90 – sovereign immunity 8.41 76 – State immunity 8.41 92 Enjoin 8.1 122 ff. Enterprise 8.1 128 ff. – applicable law 8.1 140
984
– – – – –
branch office 8.1 146 ff. business association 8.1 145 non-governmental organisations 8.1 144 not-for-profit 8.1 144 of a Party 8.1 234 ff., 240, 8.2 49 ff., 8.18 40 ff. – private or government control 8.1 141 ff. – private or government ownership 8.1 141 ff. – representative office 8.1 146 ff. Entry into force 8.28 12 ff. – provisionally 8.20 45 Environmental protection – precautionary principle 8.9 6 Essential security interests 8.11 9 Establishment of investments 8.1 15 ff. Estonia 8.16 82 Ethics 8.30 1, 31 – ethical standards 8.28 36 – explosion 8.30 5 EU 8.16 27 ff., 33, 35, 54, 64, 66, 80, 82 f., 8.23 20, 8.26 2 ff. – constitutional framework 8.29 2 – infringement proceedings 8.41 29 – practice 8.8 11 EU-Japan Economic Partnership Agreement – Article 21 8.20 43 EU-Japan FTA 8.30 98 EU-Mexico Agreement 8.10 17, 19, 8.11 5, 8.30 39, 45, 76, 80, 98 – Article 13 8.30 41 – code of conduct 8.30 67 European citizenship 8.18 27 European Commission 8.2 52, 8.10 13, 8.18 13, 43, 8.20 44, 52, 8.30 1, 18 – negotiation directives 8.20 37 – public consultation 8.2 9 – trade for all communication 8.20 41 European Council 8.30 29 European Court of Human Rights (ECtHR) 8.32 85 ff. European Court of Justice 8.20 45 European Parliament 8.2 9, 52, 8.18 12 ff., 43, 8.20 45, 8.30 19 EU-Singapore Free Trade Agreement – Annex 14-A and B 8.20 43 – Article 14 8.20 43 – Article 15 8.20 65 EU-Singapore IPA (EUSIPA) 8.10 3, 8.11 5, 8.19 33 ff., 8.30 39, 45, 76, 80, 98 – Article 3.11 8.30 41 – consent 8.25 20 ff. EU-Vietnam Free Trade Agreement 8.10 17, 8.45 3 – Annex 15-B 8.20 43 – Annex 15-C 8.20 43, 65 – Article 15 8.20 43 – Article 15.4 8.20 65
Index EU-Vietnam IPA (EUVIPA) 8.11 5, 8.19 33 ff., 8.30 39, 45, 76, 80, 98 – Article 3.40 8.30 41 – Code of conduct 8.30 67 – consent 8.25 22 ff. EU–Singapore FTA(EUSFTA) 8.10 17, 8.30 16, 8.45 3 Exceptions 8.8 5 ff., 8 ff., 8.15 3, 8, 8.17 4, 8.45 2 – government support relating to trade in services 8.15 66 – procurement by a Party 8.15 51 ff. – subsidies 8.15 60 ff. Exchange rate – market 8.40 61 – official 8.40 61 Exclusion – excluded matters 8.45 1 ff. Exclusive jurisdiction – first instance awards 8.28 15 Exhaustion of local remedies 8.10 18, 8.22 10, 25 Expenses of mediator – Annex 29-C 8.20 72 Export Development Canada (EDC) 8.14 17, 8.40 13, 34 Expropriation 8.14 6, 22, 30 f., 44, 8.40 6 – advance notice of 8.12 142 – all or nothing decision 8.12 8 – compensation 8.12 4, 7 – definition 8.12 29 – direct 8.12 21 ff. – discrimination 8.12 110 ff. – domestic procedure 8.12 142 – due process 8.12 135 ff. – duration 8.12 44 ff. – gold standard 8.12 17 – guarantee 8.40 46 ff. – Hull formula 8.12 4 – indirect 8.2 17 f., 8.9 22, 8.12 11, 13, 25 ff., 38 ff. – insurance 8.40 46 ff. – intention 8.12 68 ff. – legality requirements 8.12 11 – legitimate expectations 8.12 49 ff., 89 – nationalisation 8.12 24 – police powers 8.12 34, 55 f. – proportionality 8.12 36 f., 40, 71, 81 ff. – proportionality test 8.12 57 – public purpose 8.12 95 ff. – regulation 8.12 73 ff. – right to regulate 8.12 13 – severity 8.12 30, 41 ff., 86 ff. – sole effects doctrine 8.12 33, 55 – sovereign act 8.12 86 – specific commitments 8.12 54, 62 – taking 8.12 6 – transfer of title 8.12 22 Extended war clauses – compensation 8.11 4 ff.
– military necessity 8.11 5 External activities 8.30 59 Extraterritorial application 8.2 27 Factor 8.10 29 Factual considerations 8.28 17 Failure to apply correct applicable law – grounds for appeal 8.31 22 – grounds for non-enforceability 8.31 23 Failure to state reasons – Article 52(e) ICSID Convention 8.28 31 Fair and equitable treatment 8.2 17, 8.9 22, 8.10 1, 8.14 6, 30 f., 34, 8.40 6 Fair market value 8.39 55 ff., 8.40 49 ff. – asset value 8.39 57 – declared tax value 8.39 57 – going concern value 8.39 57 – market approach 8.39 58 – multiples 8.39 58 – stock prices 8.39 58 – valuation method 8.39 57 Fair trial 8.10 19 Final award 8.39 1 ff. – binding effect 8.41 18 – date 8.41 37, 48 f. – enforcement 8.41 12 f., 58 ff. – execution 8.41 58 ff. – recognition and compliance 8.41 22 ff. – time limit 8.39 24, 27 Financial compensation 8.28 38 Financial institutions 8.3 5 ff. Financial instruments 8.3 7 ff., 20 Financial responsibility 8.2 26 Financial security 8.3 20 Financial services 8.1 94, 8.3 1 ff., 12 ff., 19, 31 ff., 38 ff. – chapter thirteen 8.3 34 – dispute resolution 8.3 27, 35 ff. Foreign control 8.23 16 Foreign Investment Promotion and Protection Agreement (FIPA) 8.16 18, 26 f., 30, 56, 76 Foreign investment review – national security review 8.45 8 For-profit funding 8.26 8 ff. Fragmentation of international law 8.24 13 Free riding 8.16 5, 8 Free Trade Agreement (FTA) 8.1 16 f. Free Trade Commission – notes of interpretation of certain Chapter 11 provisions 8.10 4 Friendship, Commerce and Navigation treaties (FCN treaties) 8.16 8, 15 Frivolous Claims 8.32 1 ff. – claims unfounded as a matter of law 8.33 1 ff. Full protection and security 8.10 33, 8.11 12, 8.40 55
985
Index Full reparation 8.39 66 ff. Functions – amicable settlement 8.19 4 – jurisdictional barrier 8.19 4 Funding arrangement 8.26 11 ff. Gender 8.30 72 General Agreement on Tariffs and Trade (GATT) 8.9 7 General Agreement on Trade in Services (GATS) 8.1 16 f., 49, 70, 8.9 7, 8.16 64 – Article XVI 8.4 16 ff. – financial services 8.1 40 ff. – governmental authority exemption 8.1 43 Good Faith 8.1 86 Good governance – transparency 8.36 9 ff. Governmental activity – in competition with other economic operators 8.2 93 Governmental authority 8.1 11 ff., 40 – airports 8.1 29, 35 ff. – armed forces 8.1 26, 27 – bribe 8.1 23 ff. – customs duties 8.1 33 – energy supply 8.1 30 – EU courts 8.1 38 – expropriation 8.1 24 – issuance of approvals 8.1 31 – land lease 8.1 37 – non-state entities 8.1 22 – private security services 8.1 39 ff. – Suez Canal 8.1 32 Grand Chamber 8.28 42 Ground handling services 8.1 149 ff. – Groundhandling Directive 8.1 157 ff. – independent ground handling companies 8.1 156 Guarantee 8.14 11, 21, 23 – contract 8.40 26 – National guarantee agency 8.40 34 ff. Harassment 8.10 26, 8.14 34 Hearing 8.10 20, 8.28 48 High threshold of gravity 8.10 21 Home State 8.14 43 Hong Kong Arbitration and Mediation Legislation (Third Party Funding) 8.26 13 Host State 8.14 43 Human rights 8.16 32, 37 ff., 54, 77 ff., 82, 84 IBA – council 8.30 47 – Guidelines on Conflicts of Interest in International Arbitration 8.26 15 ff., 8.30 45 ff., 51 ff. – rules for Investor-State Mediation 8.20 13 ICC – Arbitration Rules 8.26 14
986
– Report on Decisions on Costs in International Arbitration 8.26 20 ICSID 8.1 159 ff., 8.14 38 f., 41 f., 8.30 5, 49, 83 – Additional Facility Rules 8.1 169 ff., 8.23 18, 8.25 77 – annulment 8.41 39 ff. – annulment grounds, dynamic incorporation 8.28 26 ff. – data 8.20 9 – Mediation Rules 8.20 32 ff. – Panel of Conciliators and Arbitrators 8.20 49 – Secretary-General 8.20 49 ICSID Administrative Council – chairman 8.30 78, 100 ICSID Arbitration Rules 8.16 59 – enforcement 8.41 15 – Rule 11 8.30 100 – Rule 22 8.30 86 – Rule 41(5) 8.32 2 – Rule 45 8.35 22 – transparency 8.36 22 f. ICSID Convention 8.1 163 ff., 176 ff., 8.23 18, 8.41 6 f. – applicable law 8.41 114 ff. – Article 14 8.30 36 – Article 25 8.23 15 – Article 54(1) 8.28 59 – Article 56(3) 8.30 90 – Article 57 8.30 74 – Article 58 8.30 79 – Article 67 8.23 21 – composition of the tribunal 8.41 109 ff. – consent in writing 8.25 73 ff. – enforcement 8.41 15, 91 ff. – inter se modification 8.41 96 ff. – member 8.25 77 – revision 8.41 39 ff. ICSID Rules – proposals for amendment 8.30 79 ICSID Secretary General 8.1 166 ff., 8.30 75 f., 79, 99 – screening power 8.32 45 ff. Illegality – clean hands 8.18 107 ff. – ex-post 8.18 111 – Fraport AG v. Philippines 8.18 109 Immunity 8.1 61 Impartiality 8.30 33 Impecuniosity 8.26 20 Inadmissibility 8.19 13 Indemnification – counterclaim 8.40 1 – guarantee contract 8.40 7 – insurance contract 8.40 7 Indemnity 8.14 11, 21 Independence 8.30 33 – and impartiality 8.26 3 ff.
Index Indian Model BIT 8.10 3 Indirect relationship – link 8.1 109 Indirectly owned – investment structure 8.1 108 Information – request 8.17 50 – sharing 8.37 9 Initiation of mediation 8.20 49 Insurance 8.14 1 ff. – contract 8.40 26 – percentage cover 8.40 52, 57 – private 8.40 39 ff. – private, subrogation 8.40 42 Insurer 8.14 9 Insurrection – compensation 8.11 1 Intellectual Property Rights 8.1 184 ff. Interest 8.39 32, 42 ff. – calculation 8.39 43 – commercial rate 8.39 46, 59 – compound 8.39 48 – cost of capital 8.39 45 – default rate 8.39 59 – London Interbank Offered Rate (LIBOR) 8.39 45 – post-award 8.39 42, 49 f. – pre-award 8.39 42, 44, 50 – simple 8.39 48 – statutory rate 8.39 45, 59 Interim measures 8.28 56, 8.34 1 ff. – attachment 8.34 35 – enjoin 8.34 37 – general requirements 8.34 26 – jurisdiction 8.34 4, 15, 19 ff. – other Arbitration Rules, applicability 8.34 26 – parallel domestic proceedings 8.34 33 – preservation of evidence 8.34 31 f. – preservation of rights 8.34 27 – protected rights, existence 8.34 29 – protection of jurisdiction 8.34 33 – scope 8.34 28, 30 International Chamber of Commerce – data 8.20 6 International claim 8.42 9 ff. International Court of Justice (ICJ) 8.30 75, 79 f. – president 8.30 81, 83, 92 f., 95 f. International investment Agreement (IIA) 8.26 2 ff., 8.30 2 International Law Commission (ILC) – Articles on the Responsibility of International Organizations (ARIO) 8.2 19 ff. – Draft Articles on the Responsibility of States for Internationally Wrongful Acts (ARSIWA) 8.2 19 ff. – lex specialis rule 8.2 24 ff.
International Union of Credit and Investment Insurers (Berne Union) 8.14 4, 8.40 27 Interpretation of the law 8.28 21 Investment 8.1 99, 194 ff., 8.18 85 f. – asset 8.1 202, 209 – characteristics, Salini Test 8.1 208 – control 8.1 204 ff. – in accordance with the applicable law 8.2 72 f., 8.18 96 ff. – in the territory 8.11 34 f. – liberalisation 8.4 13 – located in the territory of a Party 8.2 65 f., 8.18 89 f. – located in the territory of a Party, Inmaris v. Ukraine 8.2 65, 8.18 89 – notion 8.14 10, 26, 29 – ownership 8.1 204 ff. – rights and claims 8.1 202 – Salini test 8.1 208, 214 ff., 219 Investment Canada Act 8.45 2 ff. Investment Court System (ICS) 8.18 1 ff., 8.19 6, 8.25 52, 8.28 6, 9, 8.38 20 – proposal 8.29 6 ff. – scope of authority 8.18 2 ff. – scope of jurisdiction 8.18 16 ff. Investment dispute – procedural requirements 8.24 4 – risk of related proceedings under another international agreement 8.24 5 Investment Protection Agreement (IPA) 8.30 31 Investment treaty practice – joint interpretation mechanisms 8.31 40 f. – related proceedings 8.24 6 ff. Investment tribunal 8.22 23 – condition precedent 8.20 50 – consultation 8.20 50 Investor 8.1 222 ff., 8.2 30 ff., 117 ff., 8.14 39, 8.17 20, 8.35 17 – branch 8.1 243 ff. – claims 8.2 108 ff. – consent 8.22 13 – enterprise 8.1 111 – nationality requirement 8.1 112 – natural person 8.1 111 – natural person of a party 8.18 23 f. – of a party 8.18 21 ff. – representative office 8.1 243 ff. Investor-State arbitration 8.3 28 ff., 8.4 2 Investor-State dispute settlement 8.4 49, 8.26 2 ff., 8.45 1 ff. – 2.0 8.30 16 – challenges 8.28 5 – mechanism 8.18 1 – scope of claims 8.2 8 Investor-State Disputes other than investment disputes 8.20 2 Investor-State Mediation – data 8.20 5
987
Index Joint interpretation mechanism 8.31 67 – CETA Joint Committee and Committee on Services and Investment, relationship 8.31 69 – consensual nature 8.31 73 – dialogue-building role 8.31 39 – joint interpretation mechanisms, applicable law and fair and equitable treatment, relationship 8.31 68 – joint interpretations, non-retroactivity 8.31 70 ff. – modification of the applicable law 8.31 37 – origin 8.31 46 – oversight role 8.31 5 – safeguarding role 8.31 27, 38 Joint interpretations – legal nature 8.31 43 – non-retroactivity 8.31 70 Joint Interpretative Declaration 8.10 34 Joint Interpretative Instrument 8.9 4, 11, 18, 8.28 10, 8.30 33 Judicial economy 8.35 5 Judicial review 8.10 22 Juridical person 8.1 255 Jurisdiction 8.16 5, 43, 45, 48, 51 f., 58 f., 83, 8.18 80 ff., 8.19 43 ff., 8.35 10 – basis of 8.25 2 – prima facie 8.1 100 ff. – ratione materiae 8.25 29, 32 f. – ratione voluntatis 8.25 36, 61 Jurisdiction to determine legality of measure – domestic laws of Member States 8.25 33 – EU law 8.25 33 Jurisdictional requirements 8.22 12, 15 Knowledge transfer 8.45 9 Labour rights – precautionary principle 8.9 6 Language – CETA 8.41 60 ff. Legal accuracy – finality of the award 8.28 17 Legal scrubbing 8.2 10, 8.39 24 f., 108 Legal standing 8.26 26 ff. Legality requirement – when the investment was made 8.18 97 Legitimate expectations 8.9 25, 8.10 11, 29 Level of protection 8.9 15, 18 ff. Lex arbitri 8.41 44 ff. Lex specialis – effective nationality doctrine 8.18 34 Liberalisation 8.7 63 Lifting of corporate veil 8.16 72 Limited jurisdiction 8.28 16 Lis pendens doctrine 8.24 11 Loan 8.14 23
988
Local company 8.22 27, 8.23 15 Locally established enterprise 8.1 247, 8.39 60, 8.40 25 Location of consultations 8.19 21 Mailbox companies 8.16 4, 12, 36, 49, 52, 66, 83 Maintenance of international peace and security 8.16 5, 15, 32, 37, 75 ff., 80, 82, 84 Maintenance of peace and security 8.16 54 Making an investment 8.1 245 Malaysia-EU FTA (MEUFTA) 8.19 32 Mandatory requirement 8.19 3 Manifest arbitrariness 8.10 23, 35 Manifest error of appreciation of facts 8.28 24 ff. Manifest excess of powers – Article 52(b) ICSID Convention 8.28 28 Manifestly without legal merit – factual questions 8.32 72 ff. – jurisdiction 8.32 78 ff. – legal merit 8.32 70 ff. – meaning 8.32 54 ff., 58 ff. Market access 8.4 1 ff. – controlled market access model 8.4 33 f. – GATS-type “negative list” approach 8.4 40 ff. – local-equity requirements 8.4 7 ff. – MFN and NT-based entry model 8.4 35 ff. – post-establishment phase 8.4 2 – pre-establishment phase 8.4 2 – sector prohibitions 8.4 7 Measure 8.2 13 ff. Measure at issue – mediator 8.20 69 Mediation 8.20 11 ff., 12 – available option 8.20 50 – decision of the Committee on Services and Investment 8.44 42 ff. – enforcement of agreed outcome 8.20 57 – objective 8.20 1 Mediation procedure for investment disputes – draft factual report 8.20 56 – final factual report 8.20 56 – reply to request for mediation 8.20 56 – request for mediation 8.20 56 – setting in motion 8.20 56 – short time limits 8.20 56 – termination 8.20 56 Mediation proceeding – termination 8.20 71 Mediation rules – CETA Chapter 29 8.20 55, 56 – for investment disputes 8.20 56, 57 – Rules for mediation procedure in other than investment disputes 8.20 65 ff. Mediator – bring clarity to measure concerned 8.20 69
Index – code of conduct in investment disputes 8.20 58 ff. – consultation with experts 8.20 69 – consultation with stakeholders 8.20 69 – in other than investment disputes 8.20 69 – offer advice 8.20 69 – organise meeting 8.20 69 – possible interim solutions 8.20 56 – propose solution 8.20 69 – provide support 8.20 69 Mediator in investment disputes – code of conduct 8.20 60 Mexico 8.16 66, 82, 8.38 40 Minimum standard of treatment 8.10 8 Mixed agreement 8.25 45 ff. Model agreement 8.30 5 – Belgium Luxembourg Model BIT 8.10 3 – Canada Model BIT 8.25 38 ff., 8.39 15, 8.40 14, 16 – India Model BIT 8.30 76 – Netherlands Model BIT 8.30 60, 63, 80 – US Model BIT 8.10 3, 4, 26, 8.16 16, 18 ff. Most-favoured-nation treatment 8.4 2, 8.6 3, 8.7 1 ff., 33, 63, 8.18 74 ff. – certain specified fields 8.18 77 – comparator 8.7 11, 27 f. – compensation 8.11 1 – de facto treatment 8.7 57 ff., 8.18 76 – drafting history 8.7 9 ff. – exceptions 8.7 12 ff., 33 ff. – exclusion of procedural privilege 8.18 75 – FCN treaties 8.7 3 – GATT 8.7 3 – ILC definition 8.7 5 – less favourable treatment 8.7 29 – limitation 8.7 64 – Maffezini 8.7 44 ff. – Maffezini doctrine 8.7 2 – multilateralization 8.7 6 – pre-investment stage 8.7 30 – procedural advantages 8.7 44, 8.25 31 – REIO exception 8.7 13 ff., 34 ff. – scope 8.7 23, 26 ff. – sector exceptions 8.7 41 – sub-federal level 8.7 31 f. – substantive advantages 8.7 51 ff. – three-step test 8.7 24 f. Multilateral Agreement on Investment 8.1 138 Multilateral Investment Court (MIC) 8.20 43, 8.28 16, 8.29 1 ff., 8.30 52 f., 71 – costs 8.29 36 ff. – decisions 8.29 47 ff. – draft statute 8.29 51 – enforcement 8.29 47 ff. – establishment 8.29 13 ff. – investment advisory centre 8.29 45 f. – judges 8.29 41 ff. – legal personality 8.29 22 ff. – opt-in convention 8.29 25 f. – organisation 8.29 22 ff.
– secretariat 8.29 44 – transition 8.29 52 – transparency 8.29 34 – two-tiered structure 8.29 28 f. Multilateral Investment Guarantee Agency (MIGA) 8.14 19, 22, 8.40 28 ff. Multilateral investment tribunal 8.29 1 ff. Multiple hatting 8.30 61, 72 National treatment 8.4 2, 8.6 1 ff., 6, 9, 13, 20, 63, 8.7 1 ff., 8.18 72 f. – Calvo 8.6 10 – comparator 8.6 2, 16, 30, 33 ff. – compensation 8.11 1 – discrimination 8.6 7 f., 18 f., 44 – drafting history 8.6 11 ff. – exceptions 8.6 38 f., 47, 55 ff., 65 – expropriation 8.6 19 – FCN treaties 8.6 4, 10 – federal 8.6 21 f. – GATS 8.6 17 – GATT 8.6 5, 38 f., 61, 65 – investment 8.6 29 – investor 8.6 29 – justification 8.6 36 f. – less favourable treatment 8.6 40 ff., 54 – like circumstances 8.6 2, 16, 30 f. – like situations 8.6 25 f., 31 ff. – most favourable treatment 8.6 54 – most-favoured-nation treatment 8.6 15 ff. – NAFTA 8.6 14 ff. – national security 8.6 62 – nationality 8.6 8 – post-entry violation 8.18 73 – post-establishment 8.6 12, 64 – pre-establishment 8.6 11 ff., 28, 45, 46, 64 – pre-investment 8.6 45 f. – procurement 8.6 60 – reservations 8.6 47, 55 ff., 65 – scope 8.6 23, 27 ff. – sub-federal 8.6 21 f., 48 ff. – subsidies 8.6 60 – taxation 8.6 62 – three-step test 8.6 24 ff. – treatment 8.6 41 – TRIPS 8.6 59 – WTO 8.6 5 Nationality 8.26 26 ff. – contrary to international law 8.18 29 – domestic law 8.2 33, 41 – domestic law, Soufraki v. UAE 8.18 28 f. – EU citizenship 8.2 34 f. – genuine connection, Nottebohm case 8.2 40, 8.18 29 – ineffective 8.2 39 f. – Nottebohm 8.2 40 – requirement 8.1 112 – SIAG v. Egypt 8.18 29, 39 f. – Soufraki case 8.2 28 f., 38 – Soufraki tribunal 8.2 36 Natural disaster 8.11 31
989
Index Natural person 8.1 233, 266 ff. Negotiating directives 8.28 8 Negotiation – transparency 8.36 28 ff. Net book value – MIGA (Standard) Contract 8.40 51 Netherlands Model BIT 8.10 3 New York Convention 8.1 276, 8.25 78 ff., 8.28 63, 8.41 6 f. – a-national awards 8.41 88 – Article V(1) 8.25 81 – delocalized awards 8.41 88 – enforcement 8.41 74 ff. – foreign awards 8.41 87 – non-CETA parties 8.41 83 ff. – non-domestic awards 8.41 87 – reservation 8.41 80 f. Non-discriminatory treatment 8.1 15 ff., 8.8 4, 8.18 69 ff. Non-disputing party 8.1 119, 281 ff., 8.16 57, 8.28 49, 8.38 1 – submission 8.42 17 Non-enforceability – failure to apply correct applicable law 8.31 23 Non-ICSID award – enforcement 8.41 43 ff. Non-monetary claims 8.22 24 Non-participation 8.35 1 ff. Non-profit organisations 8.2 57, 8.18 56 Non-retroactive rule 8.2 79 f. North American Free Trade Agreement (NAFTA) 8.16 11, 18, 22 ff., 26, 42, 56, 76, 81, 83, 8.30 48, 8.38 33 ff., 42 ff. – armed conflict 8.11 3 – Article 1135 8.39 14 – case law 8.10 9 – consent 8.25 15 ff. – joint interpretation mechanism 8.31 40 – transparency 8.36 19 – tribunals 8.10 11, 16 Not-for-profit funding 8.26 8 ff. Notice of appeal 8.28 45 Notice of challenge 8.30 83 Notice of intent 8.19 11 Opinion 1/17 8.17 41, 8.29 19 f., 8.30 42, 44, 8.39 94 ff. – applicable substantive law 8.31 11 – applicable substantive law, autonomy of the EU legal order 8.31 4 – autonomy of the European legal order 8.31 35 – discretionary power 8.9 18 ff. – domestic law 8.31 61 – joint interpretation mechanism 8.31 71 ff. – legitimate public policy objectives 8.18 83 – proportionality 8.9 21
990
Oral submissions 8.38 6 ff. Orange list 8.30 62 Overcompensation 8.40 24, 43 Overseas Private Investment Corporation (OPIC) 8.14 16 Owned or controlled 8.16 43, 53, 62 ff., 84 – burden of proof 8.18 103 – directly or indirectly 8.2 58 f., 8.18 49 f., 101 ff. – Plama Consortium Limited v. Bulgaria 8.2 75, 8.18 102 – timing 8.18 104 f. Ownership – legal or beneficial 8.2 76, 8.18 103 Panama 8.16 17 Parallel claims 8.22 22 Parallel domestic proceedings – interim measures 8.34 33 Parallel proceedings 8.22 8, 8.24 1 Party autonomy – applicable law 8.31 9 f. Party-appointed expert 8.30 58 Performance requirements 8.2 81 ff., 8.14 30 – advantage conditioning 8.5 21 ff. – carve-outs/exemptions 8.5 42 ff. – definition 8.5 2 – dispute settlement 8.5 49 ff. – domestic content 8.5 14 – exceptions 8.5 30 ff. – export promotion exception 8.5 34 – export quota 8.5 13 – financial services 8.5 41 – foreign aid programmes exception 8.5 34 – foreign exchange 8.5 16 – governmental procurement exception 8.5 35 f. – listed exceptions 8.2 84 – mandatory 8.5 2 – non-conforming measures 8.5 44 ff. – non-mandatory 8.5 2, 21 ff. – non-mandatory, domestic content 8.5 25 – non-mandatory, domestic supply 8.5 29 – non-mandatory, exceptions 8.5 32 – non-mandatory, foreign exchange inflow 8.5 28 – non-mandatory, local production 8.5 26 f. – non-mandatory, preferential tariffs and quotas exceptions 8.5 37 – non-mandatory, value 8.5 28 – non-mandatory, volume 8.5 28 – reservations 8.5 44 ff. – sales restrictions 8.5 17 – sectoral carve-outs 8.5 45 – technology transfer 8.5 18 f. – trade and investment agreements 8.5 1 – transparency 8.5 48 – value 8.5 16 – volume 8.5 16 – WTO Commitments 8.5 38 ff.
Index Periodic information 8.17 19 Permanent Court of Arbitration (PCA) 8.30 48, 76 – data 8.20 7 Permanent sovereignty over territory and natural resources 8.12 3 Permanent two-tier investment court 8.30 18 Permit 8.10 20 Piercing of the corporate veil 8.16 8 Place of consultation 8.19 9 Place of delivery of notices 8.23 32 Place of incorporation 8.1 235 Police power 8.9 23 f. Policy objective 8.9 12 ff. Political risk 8.14 31, 8.40 2 ff. – EU Common Commercial Policy 8.40 37 – forms of 8.40 3 – guarantee 8.40 5, 26 – insurance 8.40 5, 26 – insurance, private 8.40 39 ff. – Multilateral Investment Guarantee Agency (MIGA) 8.40 3, 28 ff. – protection 8.40 4 ff. Post-establishment protection 8.2 97 Post-service limitation 8.30 68 Post-service restriction 8.30 66 Preamble 8.9 3, 18 Predictability 8.39 2, 8 Pre-existing investments 8.1 114 Prejudice 8.35 26 Preliminary objections – ICSID Arbitration Rule 41(1) 8.32 17 – UNCITRAL Article 23(2) 8.32 17 Pre-service limitation 8.30 60 Principle of non-retroactivity – treaty amendment or interpretation, distinction 8.31 28 f. Private insurance company 8.14 20 Procedural requirements 8.22 5, 12, 8.25 57 ff. Procedural Rules – other Arbitration Rules, relationship to 8.35 10 Procurement 8.15 51 ff. Prohibition of mandatory performance requirements – list 8.5 11 ff. – scope 8.5 8 f. Prohibition of non-mandatory performance requirements – list 8.5 24 – scope 8.5 22 f. Prohibition of performance requirements – 2013 Draft CETA Investment Text 8.5 6 – exclusive supply 8.5 20 – mandatory 8.5 8 ff. – regulatory space 8.5 53
– territorial nexus 8.5 15 Prohibition on Governmental Affiliation and on Taking Instructions from Others 8.30 41 ff. Proper constitution of Tribunal – Article 52(a) ICSID Convention 8.28 27 Provisional application 8.28 11, 8.30 23 Prudential measures 8.3 8, 12 ff., 33 Public consultation 8.28 6 Public debt restructuring 8.18 113 ff. – issued by a party 8.18 113 ff. Public insurance 8.14 15 Public interest 8.9 15 Public policy objectives – environmental, public health and safety measures 8.2 16 ff. Public welfare 8.9 12 ff. Qualifications – profile of Members 8.28 35 Quarantine period 8.30 60 f. Ratification 8.25 45 ff., 8.30 23 Ratio 8.28 3 ratione materiae – scope 8.18 67 ff. ratione personae 8.1 109 ff., 8.18 18 ff. – enterprise of a party 8.18 39 ratione temporis 8.2 80, 8.19 19, 26 – jurisdiction 8.1 109 ff. Reasons for consolidation – avoiding inconsistent decisions and awards 8.43 9 – procedural efficiency and economy 8.43 6 ff. Reciprocal obligations 8.16 5, 8 Red list 8.30 62 Related claims – definition 8.24 12 Related proceedings 8.24 1 – avoidance of double satisfaction 8.24 30 – avoidance of double satisfaction, guarantee of reimbursement 8.24 36 – damage calculation 8.24 36 – definition 8.24 9 ff. – drafting history 8.24 16 ff. – existence, requirements of the tribunal 8.24 20 ff. – investment treaty practice 8.24 6 ff. – proceedings brought under a different Chapter of CETA, exclusion of 8.24 29 – submissions by a non-disputing party 8.24 37 – under another international agreement, CETA Tribunal, role and obligation 8.24 32 ff. – under another international agreement, risk of 8.24 23 ff.
991
Index – under another international agreement — European Convention of Human Rights (ECHR) 8.24 25 – under another international agreement — European Union law as domestic law 8.24 26 – under another international agreement — State-to-state dispute settlement 8.24 27 f. Reliance 8.10 30 Remand 8.28 54 Remedies 8.39 3, 34 ff. – ECT 8.39 38 f. – NAFTA 8.39 16 Removal 8.30 59, 63, 103 ff. Remuneration of mediator – Annex 29-C 8.20 72 Replacement 8.30 73 ff. Representations 8.10 30 Representative office 8.1 242 ff. Request – for arbitration 8.35 16 – for consultations 8.19 23, 8.22 20 – reasonable and not unduly burdensome 8.17 47 f. Res judicata 8.24 11, 8.41 24 Reservations 8.45 7 ff. – Annex I 8.15 26 ff. – Annex II 8.15 41 ff. – Joint Interpretative Instrument 8.15 20 ff. – measure 8.15 29 ff. – negative list 8.15 1, 22 Resignation 8.30 63, 89 ff., 91 Respondent 8.1 289, 8.25 46 – full protection and security 8.11 41 Restitution 8.39 32 ff., 33 ff., 68, 109 – intangible property 8.39 53 – property 8.39 51 ff. – recipient 8.39 62 – return of taxes 8.39 53 Retroactive effect 8.18 93 ff. Return of the State 8.10 36 Reversal of findings – annulment 8.28 54 Review mechanism 8.10 27 Review of functioning 8.28 66 Review threshold 8.45 9 Revolution – compensation 8.11 1 Revolving doors 8.30 58 Right to establishment 8.4 14 Right to present its case – sharing of confidential or protected information 8.37 4 Right to regulate 8.9 1 ff., 8.18 117, 8.25 35 – boundaries 8.18 84
992
– public policy objectives 8.18 81 ff. Risk 8.14 2 – investor 8.14 33 Rome Statute of the International Criminal Court – Article 46 8.30 102 Routine information 8.17 1 f., 4, 9, 18 ff. Rule of law 8.30 3, 8.39 12 – transparency 8.17 11 Rules for mediation – adopted by Committee on Services and Investment 8.20 51 – under Article 8.20, agreed by the parties 8.20 51 Rules for mediation in investment disputes – agreeent to mediate 8.20 54 – Article 8.20 8.20 54 ff. – bring clarity 8.20 54 – confidentiality 8.20 54 – consult with expert 8.20 54 – costs 8.20 54 – definition 8.20 54 – disclosure to the public 8.20 54 – draft factual report 8.20 54 – final factual report 8.20 54 – implementation of mutually agreed solution 8.20 54 – initiation of procedure 8.20 54 – mediator 8.20 54 – member of Appellate Tribunal 8.20 54 – member of Investment Tribunal 8.20 54 – mutually agreed solution 8.20 54 – offer advice 8.20 54 – organise meeting 8.20 54 – propose solution 8.20 54 – relationship to dispute settlement 8.20 54 – scope 8.20 54 – termination 8.20 54 – time limit 8.20 54 Rules for mediation in other than investment disputes – Annex 29-C 8.20 64 ff., 76 ff. – short time limits 8.20 67 Rules of arbitration 8.14 38 – Annex 29-A 8.20 64 Rules of procedure – enforcement 8.41 14 ff. Salini Test 8.1 214 ff. – Salini-light Test 8.1 219 Sanctions 8.16 11, 74, 78, 84, 8.30 107 Satisfaction 8.39 73 Scope 8.20 47 – Article 8.8 CETA 8.8 12 – legal definition 8.18 6 ff. Scope of application 8.2 1 – investment chapter 8.2 11 ff. Scope of coverage 8.2 4 ff. Scope of protection 8.40 33
Index Screening mechanism 8.45 12 Secret information 8.17 31 Sectoral exceptions 8.2 84 Security check 8.17 43 Security clauses – essential security interests 8.11 6 ff. Security for costs 8.26 2 ff. Self-judging security clauses 8.11 7 f. Senior management 8.8 1 ff., 15, 8.18 78 Seoul Convention 8.14 19 Series of settlement techniques 8.20 46 Serious departure from a fundamental rule of procedure – Article 52(d) ICSID Convention 8.28 30 Services and Investment Committee – rules 8.20 39 Set-off 8.40 21, 24 Shell companies 8.1 229, 8.16 4, 12, 36, 48, 52, 66, 83, 8.18 117 Singapore 8.16 66, 8.38 40 Small or medium-sized enterprises 8.19 22, 8.23 29, 8.39 6, 11, 24, 30 f., 84, 87 Smaller enterprises 8.20 50 Soft law 8.30 47, 50, 73 Sole arbitrator 8.23 29 Sovereign funds 8.14 39 Sovereign investors – state-owned enterprise 8.18 51 ff. Specialised committees 8.44 3 Stabilisation clause 8.9 31 Standard feature in IIAs – MFN treatment 8.11 36 Standard information 8.17 19 Standard of review 8.28 17 ff. Standstill exception 8.8 7 State agency 8.14 20, 39 State aid law 8.9 34 ff. State of emergency 8.11 30 State organ – Eureko BV 8.1 21 State responsibility 8.14 39 State-controlled organs 8.14 15 Statement of interpretation 8.16 12 State-owned enterprise 8.1 142, 8.2 31, 61 f. – as an investor of a party 8.18 51 ff. State-to-State dispute settlement 8.1 232, 8.14 37, 38, 8.45 1 ff. Statute of the International Court of Justice – Article 18 8.30 106 Statutes of limitation 8.22 18 Stockholm Chamber of Commerce – data 8.20 8
Subrogation 8.14 2 ff., 8.40 10 ff., 15 – inefficient 8.40 44 – insurance, private 8.40 42 Subrogation clause 8.2 61 f., 8.18 52 Subsequent agreement – Article 31(3)(b) VCLT 8.28 22 Subsidy 8.9 26 ff., 33, 8.15 60 ff. Substantial business activity 8.1 235, 237, 8.2 53 ff., 8.16 4, 19, 22, 24, 28, 32, 34 ff., 41, 43, 51, 53 ff., 70 ff., 8.18 44 ff. – Masdar Solar v. Spain 8.2 55 Substantive obligations 8.45 5 Sufficient specificitiy 8.19 25 Sustainable development 8.9 5 f. Technology transfer 8.45 9 Temporal application 8.18 92 ff. Temporal scope 8.2 77 ff. Tenure – non-renewable 8.28 37 Termination – mediation proceeding 8.20 71 Territorial limit 8.2 27 ff., 8.18 88 ff. Territorial link 8.1 103 ff. – investment made in the territory of a Party 8.2 64 ff. Third country or State 8.16 5, 8, 11, 15, 19, 24, 39, 53, 62, 75, 84 Third party funding 8.1 310 ff., 8.26 1 ff. Time limit 8.39 5, 12 – final award 8.39 102 ff. Time of submission 8.23 30 Timeframe for appeals 8.28 50 Trade secret 8.17 32 Transatlantic Trade and Investment Partnership (TTIP) 8.9 10, 8.30 18, 39, 45, 76, 80 Transfer restrictions 8.40 59 Transparency 8.10 22, 8.17 24 f., 39, 8.18 54, 8.20 55, 8.23 9, 32, 8.28 46 ff., 8.38 15 – accountability 8.17 12 – confidential information 8.28 47 – corporate transparency 8.17 10 ff., 17 – fairness and efficiency 8.36 11 ff. – ISDS legitimacy 8.36 7 – meaning 8.36 2 – of proceedings 8.38 9 ff. – spirit and purpose of 8.36 4 ff. Transparency rules 8.1 80 ff. – UNCITRAL 8.20 55 Treaties in armed conflict 8.11 13 ff. Treaty abuse – shell companies 8.2 51 f., 8.18 42 f. Treaty bodies 8.44 1 ff. – object and Purpose 8.44 4
993
Index Treaty on the Functioning of the European Union (TFEU) – Article 207 8.30 16 Treaty-making practice 8.8 10 Treaty-shopping 8.16 3, 9 Two-tier system 8.28 1 UN Charter 8.16 76 UNCITRAL 8.1 325, 8.14 40, 8.16 59, 8.23 18, 8.28 61 ff., 8.30 5, 48, 8.41 17 – Article 13 8.30 84 – Convention on International Settlement Agreements Resulting from Mediation 8.20 17 ff. – Mediation Rules 8.20 23 – Model Law on International Commercial Mediation and International Settlement Agreements Resulting from Mediation 8.20 17 ff. – Notes on Mediation 8.20 24 ff. – Working Group III on possible ISDS Reform 8.20 27 ff. UNCITRAL Transparency Rules 8.1 80 ff., 332, 8.20 22 ff., 55, 8.36 36 ff., 8.38 31 – applicability 8.36 38 ff. – confidential or protected information 8.36 61 – exceptions 8.36 60 ff. – hearings 8.36 57 ff. – integrity of arbitral process 8.36 62 – non-disputing party participation 8.36 56 – public disclosure of documents and information 8.36 45 ff. – repository 8.36 64 – third person participation 8.36 53 ff. UNCITRAL Working Group III 8.26 2 ff., 8.30 70 – ISDS reform 8.29 4 – mandate 8.29 4 – Multilateral Investment Court 8.29 15 UNCTAD 8.10 14, 8.14 3 United Kingdom 8.16 82 United States-Mexico-Canada Agreement (USMCA) 8.30 50 United States–Mexico–Canada Agreement (USMCA) 8.31 40, 8.38 42 ff., 8.39 25, 37, 8.40 19 – armed conflict 8.11 3
994
Unlawful subsidy 8.9 33 Unredacted documents – sharing 8.37 3 ff., 11 f. Unusual circumstance – MFN treatment 8.11 10 f. – national treatment 8.11 10 f. Upholding findings 8.28 52 US 8.16 8, 11, 23, 42, 48, 50, 55, 57 f., 63 US Model BIT 8.10 4, 6, 8.16 16, 18 ff. US Third Restatement of the Law of Foreign Relations 8.12 112, 136 Vacancy 8.30 97 f., 100 f. Validity of an investment – burden of proof 8.18 99 Valuation date 8.40 53 – insurance 8.40 62 – waiting period 8.40 62 Valuation method 8.40 49 Videoconferences 8.19 15, 22 Vienna Convention on the Law of Treaties (VCLT) 8.1 107, 8.24 37, 8.31 32, 54 – Article 41 8.23 23 Vietnam 8.16 66, 8.38 40 Waiting period 8.19 9, 10 – Ethyl Corp v. Canada 8.19 45 ff. – Mesa Power Group v. Canada 8.19 47 – Murphy Exploration and Production Company International v. Ecuador 8.19 47 – Teinver Transportes de Cercanías and Autobuses Urbanos del Sur v. Argentina 8.19 47 Waivers 8.19 12, 8.22 8, 22 War and civil disturbance 8.14 22, 31, 8.40 55 ff. Working procedures 8.28 43 Written submissions 8.38 6 ff. WTO Agreement – dispute settlement 8.20 74 WTO Appellate Body – imitatio et aemulatio 8.28 4