Resolution of Investment Disputes

Within a few EU Member States, a smaller and more confined debate about investment protection and ISDS had already taken place during the late 1990s, when a possible multilateral agreement on investment was discussed under the auspices of the Organisation for Economic Cooperation and Development (OECD). This debate has however been silent since the end of the OECD negotiations in 1998, while EU Member States have continued to sign hundreds of BITs in between the end of those negotiations and the beginning of the CETA talks.

European Commission (2015).

As published in the Official Journal of the European Union, OJ L 11, 14 January 2017, pp. 23–1079.

As published in the Official Journal of the European Union, OJ L 11, 14 January 2017, pp. 3–22.

See e.g. Diel-Gligor (2017), Kaufmann-Kohler and Potestà (2016), p. 13; Gaukrodger and Gordon (2012), pp. 58–61; Van Harten (2007), pp. 164–167; Schreuer (2008), pp. 207–208.

Notable examples include several arbitral awards rendered in the aftermath of the Argentine financial and economic crisis of 2001–2002 primarily under the US-Argentina Bilateral Investment Treaty (BIT), such as the CMS and LG&E or the Enron and Continental Casualty awards. The contrast in the interpretations rendered by different ad hoc tribunals of the necessity defence and its articulation with the emergency clause (Art. XI) of the same treaty (US-Argentina BIT) in these cases has attracted much attention. For commentaries of these cases, see, e.g., Waibel (2007) and Reinisch (2007). Other examples of inconsistent interpretations of the same treaty provisions can be found in the early NAFTA jurisprudence, in particular in relation to the interpretation of the “minimum standard of treatment” under Art. 1105 NAFTA; see, e.g., Dolzer and von Walter (2007), pp. 99–116.

In a similar sense, with further references, see also Kaufmann-Kohler and Potestà (2016), p. 13.

The indeterminate formulation of the substantive investment protection rules is another cause contributing to inconsistent decisions. A discussion about such substantive rules would, however, be beyond the scope of this chapter on the procedural aspect of the CETA investment regime. Nevertheless, it should be noted that CETA also introduces changes in this respect, in particular by spelling out more precisely the content of the substantive rules of investment protection in order to achieve a higher level of consistency in their interpretation. See European Commission (2015) and Titi (2015), pp. 654–657.

See Diel-Gligor (2017), pp. 164–165.

For instance, within the WTO Appellate Body, divisions exchange views with the other Members of the Appellate Body before finalising Appellate Body Reports in order to ensure consistency and coherence in decision-making, see https://​www.​wto.​org/​english/​tratop_​e/​dispu_​e/​ab_​members_​descrp_​e.​htm (last accessed on 27 October 2017).

Cf. Diel-Gligor (2017), pp. 164, 369–372.

See also the Joint Interpretative Instrument on the Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union and its Member States (hereafter: CETA Joint Interpretative Instrument), OJ L 11, 14 January 2017, pp. 3–8, at para. 6(f), according to which the main features of the CETA investment dispute resolution mechanism are “inspired by the principles of public judicial systems in the European Union and its Member States and Canada, as well as international courts such as the International Court of Justice and the European Court of Human Rights”.

The CETA Joint Committee has the power to increase or decrease the number of adjudicators by multiples of three, see CETA, Art. 8.27(2) and (3). The CETA Joint Committee will also decide on the precise composition of the Appellate Tribunal (see CETA, Art. 8.28(3) and (7)(f)).

Cf. Diel-Gligor (2017), p. 372.

See also Schreuer (2008), p. 209: “Courts with a permanent composition are more likely to produce a consistent case law”, considering, however, that “a permanent court for investment disputes is an unlikely goal, at least for the time being”.

Some other investment treaties, such as more recent US treaties, envisage the possible later creation of bilateral appeal mechanisms, but no such mechanism has ever been established in practice. In 2004, a discussion paper of the Secretariat of the International Centre for Settlement of Investment Disputes (ICSID) considered the possible creation of an appeal mechanism within ICSID (see ICSID Secretariat (2004)), but apparently only a minority of ICSID Member States expressed support for this initiative.

“WTO adjudicators have developed a body of jurisprudence that is remarkably consistent and coherent. The role and influence of the WTO Appellate Body has been important in this regard. […] [t]he repeated quotation and citation of earlier decisions in standing tribunals will result in a jurisprudence constante which, precisely because it is repeated and constant, tends to acquire a certain natural authority and influence that even the most carefully crafted award of an ad hoc tribunal is unlikely to command.”, J. Pauwelyn, preface to Cook (2015), p. xxvii, referring to Lowe and Tzanakopoulos (2013), p. 186. See also Knahr (2010), concluding that the ICSID annulment mechanism does not seem to be an appropriate tool to solve the problems of conflicting dispute settlement outcomes, pp. 160–163.

Similar procedural elements can be found in North-American investment treaties, but they have generally been absent from most European treaties so far.

Cf. OECD (2005), p. 11, para. 42, Knahr and Reinisch (2007), p. 111, and Diel-Gligor (2017), pp. 358–363.

See also Schill (2016): “The creation of a permanent investment court system with respect to a given agreement, [such as the TTIP Tribunal], would eliminate inconsistent interpretations of that agreement” (arguing, however, that a multilateral reform would be preferable).

After CETA’s entry into force, its investment provisions will replace any investment dispute settlement mechanism established under any existing agreement between Canada and EU Member States, pursuant to Art. 30.8(1) CETA. As listed in Annex 30-A to CETA, there are seven BITs in force between Canada and seven EU Member States (Croatia, Czech Republic, Hungary, Latvia, Poland, Romania and Slovakia) and an Exchange of Notes between Canada and Malta constituting an Agreement relating to foreign investment insurance. More broadly on the positive spill over effects of mega-regionals, see UNCTAD (2016), p. 10, suggesting that these treaties “can also help manage the relationship between [International Investment Agreements] (IIAs) and help enhance the systemic consistency of the IIA regime”.

See CETA, Art. 8.28(2).

For the reference to the WTO Appellate Body as the “guardian” of the WTO legal system, see McRae (2010), pp. 378, 384.

See, e.g., CETA, Art. 8.39(7).

See, e.g., Eberhardt and Olivet (2012), p. 36. See also Van Harten (2007), pp. 167–175, speaking of “threat to judicial independence”.

Paulsson (2010), p. 340.

A hint of risk of bias can be traced in the increasing number of dissenting opinions that were found to be almost invariably issued in favour of the disputing party that appointed the dissenting arbitrator, see van den Berg (2011), pp. 824–826; Redfern (2004), p. 234. Joost Pauwelyn shows that ISDS arbitrators tend to be divided in two groups: many have either a “pro-investor” or a “pro-state” inclination, showing that the pool of investment arbitrators is highly polarised or partisan, see Pauwelyn (2015), pp. 781–782. Although not providing definitive conclusions on the bias of arbitrators, such studies highlight the problem that the typical conditions that assure independence and impartiality in the judicial sphere seem to be lacking in the current system of investment arbitration.

As reported in an OECD survey from 2012 (see Pohl et al. (2012), p. 27), only very few investment agreements deal with qualification requirements of individual arbitrators that serve on arbitration panels. In particular, it was found that only 24 bilateral treaties out of a sample of 1660 BITs and other bilateral agreements with investment chapters (i.e. 1.5% of the sample) contain clauses that address the issue of the qualifications of arbitrators and almost exclusively with regard to knowledge qualifications (i.e. experience in international law or international investment rules). It should be noted, however, that Art. 14 of the ICSID Convention contains rules on the qualifications of arbitrators, requiring “high moral character” and “recognized competence in the fields of law, commerce, industry or finance”.

However, the first seven members appointed serve for 6 years in order to prevent a disruptive effect if the Tribunal as a whole would have to be renewed at the same time. In order to ensure continuity, each adjudicator may continue to serve on a division until the final award is issued. See CETA, Art. 8.27(5).

CETA, Art. 8.27(4) continues with stating that “[i]t 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.”

CETA Joint Interpretative Instrument (n. 12), para. 6(f).

CETA, Art. 8.30 foresees that decisions on challenges to the appointment of a Member of the Tribunal will be taken by an outside person (and not by the co-arbitrators as under the current ICSID regime) in order to leave no doubt about the independence of the decision making process (see also Markert (2010), pp. 248–249). The EU and Canada have chosen to entrust the President of the International Court of Justice with deciding on such challenges.

International Bar Association’s (IBA), Guidelines on Conflicts of Interest in International Arbitration, IBA Council resolution, 23 October 2014, available at https://​www.​ibanet.​org/​ENews_​Archive/​IBA_​July_​2008_​ENews_​ArbitrationMulti​pleLang.​aspx.

See also the Joint Interpretative Instrument on CETA in which the Parties affirm that “[t]he 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, on the method and level of their remuneration and the process for their selection. The common aim is to conclude the work by the entry into force of CETA”, CETA Joint Interpretative Instrument (n. 12), at para. 6(f).

For example, it has sometimes been argued that an ISDS arbitrator may have an interest to decide a dispute in a particular way so as to help her or him sustain the position she or he defends as a legal counsel for a particular disputing party in other ISDS proceedings. See, e.g., Public Citizen’s Global Trade Watch (2015), pp. 13–14.

Under the terms of Art. 16 of the Statute of the ICJ for example, “[n]o member of the Court may exercise any political or administrative function, or engage in any other occupation of a professional nature”. On the independence of international judges more broadly, see Mackenzie and Sands (2003), esp. pp. 282–283 on the general prevention from exercising outside activities.

See CETA, Art. 8.18(3).

The provision builds on ICSID Arbitration Rules, Rule 41(5). Its incorporation into CETA ensures that it will be available in all dispute settlement cases initiated under the Agreement, i.e. also under other procedural rules than the ICSID Arbitration Rules.

See CETA, Art. 8.32. The respondent can file such an objection within thirty days from the constitution of the Tribunal’s division and in any event before its first session and the Tribunal will at its very first session or promptly thereafter decide on the objection.

See CETA, Art. 8.33.

This rule is already the principle in the UNCITRAL Arbitration Rules (see Art. 42(1)) and is also increasingly applied by arbitral tribunals under the ICSID Convention (which, however, in Art. 61(2) leaves it to the tribunal’s discretion by whom these costs are to be paid, unless the disputing parties agree otherwise).

See CETA, Art. 8.39(5).

Roberts (2017).

See CETA, Art. 8.38.

Pursuant to CETA, Art. 8.1, “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”.

While absent from the vast majority of existing investment treaties worldwide, provisions on the rights of the non-disputing Party can be found in North-American investment treaties and have also found their way into the UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration (Art. 5). CETA builds on those provisions, while partially expanding or clarifying their scope (e.g. regarding the documents to be transmitted to the non-disputing Party or the non-disputing Party’s explicit right to attend the hearings).

CETA Joint Interpretative Instrument (n. 12), para. 6(e).

It must be noted that important efforts to increase the transparency of ISDS proceedings had already been made by various countries before the conclusion of CETA. Such efforts had primarily been driven by and implemented through the investment treaty practice of North-American states (such as the US and Canada) before being brought to multilateral discussions within the UN system. These multilateral discussions have culminated in the adoption of the UNCITRAL Rules on Transparency in Treaty-based Investor State Arbitration (2013), as well as the United Nations Convention on Transparency in Treaty-based Investor-State Arbitration (opened for signature on 17 March 2015 and entered into force on 18 October 2017).

See CETA, Art. 8.36(1).

See CETA, Art. 8.36(5).

See CETA, Art. 8.36(4).

See CETA, Art. 8.36(2).

See CETA, Art.8.20.

See CETA, Art. 8.20(5).

See, e.g., CETA, Art. 8.39(7).

In line with Statement n°36 of the Commission and the Council on investment protection and the Investment Court System (ICS) entered into the Council minutes upon the signing of CETA, the EU Commission is furthermore expected to propose “appropriate measures of (co-)financing of actions of small and medium-sized enterprises […] and the provision of technical assistance”, see Statement n°36 of the Commission and the Council on investment protection and the Investment Court System (ICS), OJ L 11, 14 January 2017, pp. 20–21.

See, in particular, Weil (1969), Verdross (1959), Leben (2003), Jennings (1961) and Hyde (1962).

See, in particular, Gaillard and Banifatemi (2003), Reisman (2000), Parra (2001) and Schreuer et al. (2009).

The controversial discussions conducted before arbitral tribunals and in academia about the distinction between so-called “contract-claims” and “treaty-claims”, so-called “umbrella clauses”, the functioning of “fork-in-the-road” provisions, or the question if domestic remedies shall be pursued prior to international adjudication all relate, in some respects, to the more general question of the interplay between domestic and international law in the field of international dispute resolution.

See, e.g., Art. 8 of the French Model BIT, reprinted in Dolzer and Schreuer (2008), pp. 360–365, referring to “Tout différend relatif aux investissements entre l’une des Parties contractantes et un investisseur de l’autre Partie contractante”.

See, e.g., Art. 11 of the German Model BIT, reprinted in Dolzer and Schreuer (2008), pp. 368–372, referring to “Divergencies concerning investments between a Contracting State and investors of the other Contracting State”.

See CETA, Art. 8.18(5): “The Tribunal constituted under this Section shall not decide claims that fall outside of the scope of this Article”.

For a more general analysis of the status of domestic law within the international legal order, see in particular Santulli (2001).

See, e.g. Art. 9(5) of the BIT signed on 18 May 2001 between the Belgium-Luxembourg Economic Union and Benin: “Le tribunal arbitral statuera sur la base du droit interne de la Partie contractante partie au différend sur le territoire de laquelle l’investissement a été réalisé, y compris les règles relatives aux conflits de lois, ainsi que sur la base des dispositions du présent Accord, des termes de l’accord particulier éventuellement conclu au sujet de l’investissement et des principes de droit international”, available at http://​investmentpolicy​hub.​unctad.​org/​IIA/​country/​19/​treaty/​461 (last accessed on 27 October 2017).

See ICSID Convention, Art. 42(1): “The 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.”

See CETA, Art. 30.6(1): “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.”

See CETA, Art. 8.22(1)(f) and (g): “An investor may only submit a claim pursuant to Art. 8.23 if the investor: […] (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.”

To the contrary, under a so-called “fork-in-the-road” approach, which requires investors to make an exclusive choice between domestic and international proceedings, it is assumed that investors will rather directly resort to international proceedings.

See CETA, Art. 8.24: “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.”

A very similar reformed approach to investment dispute resolution has also been included in the EU-Vietnam FTA (the pre-scrubbed texts have been made public and are available at http://​trade.​ec.​europa.​eu/​doclib/​docs/​2016/​february/​tradoc_​154210.​pdf (last accessed on 27 October 2017)) and is currently under discussion in several other on-going EU trade and investment negotiations.

While it is true that the precise drafting of the investment protection provisions often differ from treaty to treaty, many investment treaties either contain identical provisions or provisions that are composed of identical core elements (such as “national treatment”, “most favoured treatment”, “indirect expropriation”, “fair and equitable treatment”, etc.).

CETA Joint Interpretative Instrument (n. 12), para 6(i). The Joint Instrument further sets out the Parties commitment to “work expeditiously towards the creation of the Multilateral Investment Court […] [that] 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.”

A list of meetings, roundtables and other events that have been co-sponsored by the EU and Canada throughout 2016 to 2017 on the proposal of multilateral ISDS reform, as well as related documents, can be found online at http://​trade.​ec.​europa.​eu/​doclib/​press/​index.​cfm?​id=​1608.

Report of the United Nations Commission on International Trade Law, Fiftieth session (3-21 July 2017), General Assembly, Official Records, Seventy-second session, Supplement No. 17, p. 46, para 264.

See European Commission, Annex to the Recommendation for a Council Decision authorising the opening of negotiations for a Convention establishing a multilateral court for the settlement of investment disputes, Brussels, 13 September 2017, COM(2017)493final, p. 2, para. 1 and 4.

Report of the United Nations Commission on International Trade Law, Fiftieth session (3-21 July 2017), General Assembly, Official Records, Seventy-second session, Supplement No. 17, p. 46, para 264.

See von Walter (2011).