European Union: Advocate General Bot Finds The CETA Investment Court System Compatible With EU Law

Last Updated: 17 April 2019
Article by Quentin Declève

Most Read Contributor in Belgium, March 2019

On 29 January 2019, Advocate General Bot (the 'AG') delivered his long-awaited Opinion (the 'Opinion') on whether the investment court system ('ICS') in Chapter Eight, Section F, of the European Union-Canada Comprehensive Economic and Trade Agreement ('CETA') is compatible with European Union (EU) law, in particular with the autonomy of the EU legal order and fundamental rights. The next step in the proceedings before the Court of Justice of the European Union ('ECJ'), initiated by Belgium following complications in its ratification process, is for the ECJ to deliver its Opinion on the same question.

Questions at Issue

Belgium's request pursuant to Article 218(11) of the Treaty on the Functioning of the European Union ('TFEU') for an Opinion from the ECJ was broadly formulated. It asked the ECJ for an Opinion on whether Chapter Eight, Section F of CETA is 'compatible with the Treaties, including with fundamental rights'.

The AG understood that request to raise three distinct questions (para. 36), namely whether the ICS in CETA is compatible with: (i) the exclusive jurisdiction of the ECJ regarding the interpretation of EU law; (ii) the principle of equal treatment and the requirement that EU (competition) law be effective and (iii) the right of access to an independent and impartial tribunal.

He added that the request does not concern the policy decision of whether or not to include ICS in agreements with third States or the economic impact of ICS on attracting foreign investment. Those are matters falling within the discretion of the EU institutions and resulting from a democratic debate within the European Union and the Member States (paras 32-33).

ICS in CETA Does Not Undermine Autonomy of EU Legal Order and Is Compatible with Exclusive Jurisdiction of ECJ

International agreements to which the European Union seeks to become a party must respect the autonomy of the EU legal order. This concept refers to the fact that the EU Treaties establish 'a new legal order, possessing its own institutions, for the benefit of which the Member States thereof have limited their sovereign rights, in ever wider fields, and the subjects of which comprise not only those States but also their nationals' (ECJ Opinion 2/13, para. 157). One important feature is that 'it is for the national courts and for the ECJ to ensure the full application of EU law in all Member States and to ensure judicial protection of an individual's rights under that law' (ECJ Opinion 2/13, para. 175). As a result, international agreements, and the dispute settlement systems for which they provide, should not adversely affect the jurisdiction of the ECJ to interpret EU law and to give preliminary rulings on the interpretation and the validity of EU acts. In Case C-284/16 Achmea, the ECJ found that that condition was not satisfied in case of a bilateral investment agreement between two Member States providing for the possibility that an Investor-State Dispute Settlement tribunal might interpret and apply EU law (See, Van Bael & Bellis on Belgian Business Law, Volume 2018, No. 3, p. 15, available at www.vbb.com).

The AG found that the ICS in CETA does not affect the jurisdiction of the ECJ. His view was that, given the lack of direct effect of CETA (para. 62), the ICS offers judicial protection to investors through a legal system that is separate but co-existing with the judicial remedies available before the ECJ and the courts and tribunals of the Member States (para. 63). Thus, the ICS in CETA is distinct from the Investor-State Dispute Settlement mechanism at issue in Achmea in that the latter was a parallel dispute settlement mechanism with jurisdiction to interpret and apply EU law (para. 105).

He also emphasised that, in contrast to the intra-EU agreement at issue in Achmea, international agreements with non-Member States such as CETA are not based on mutual trust between the parties. Instead, they are based on reciprocity between the European Union and a third State (paras 72-85, 107-109). Without adequate and reciprocal substantive and procedural protection of investments, the European Union might not be able to promote and encourage EU investors or attract foreign investment (para. 80). He signaled that requiring prior involvement of the ECJ might be difficult to reconcile with the reciprocity governing the mutual relations of parties such as the European Union and Canada (paras 179-182). The AG therefore recognised the importance of finding a balance between protecting the autonomy of the EU legal order and enabling the European Union to exercise an effective common commercial policy which allows for external review of the actions of the European Union and of its Member States and includes the development of a rules-based international legal order (paras 87, 118, 173-178, 212).

According to the AG, CETA offers 'sufficient guarantees to safeguard, first the role of the [ECJ] as the ultimate interpreter of EU law and, second, the cooperation mechanism between the national courts and tribunals and the [ECJ], which takes the form of the preliminary ruling procedure' (para. 116). Those guarantees are as follows:

  • The ICS's jurisdiction is limited to disputes regarding a breach of non-discriminatory treatment obligations and investment protection obligations (para. 120);
  • In resolving disputes, the ICS may apply CETA and other rules and principles of international law applicable between the European Union and Canada, but not EU law (paras 110, 121, 122);
  • The ICS may only review whether acts of either party comply with CETA with a view to granting compensation to investors. It has no jurisdiction to decide on the legality of an act adopted by a Member State or by the European Union or to annul such acts (paras 123-126). Nor can it rule on the reciprocal relations between the European Union and its Member States, between the Member States themselves or between an investor of one Member State and the other Member States (para 160);
  • Before the ICS, EU law and the law of the Member States (which includes EU law) will be considered as a question of fact, notably in the context of assessing whether a particular measure is justified by legitimate objectives in the public interest. The ICS must take EU law as it stands and follow any ECJ interpretations of EU law. Furthermore, CETA offers the necessary safeguards in order to ensure that the ICS will interpret EU law as infrequently as possible (paras 128-136, 148-152, 154);
  • In the event that the ICS would need to interpret EU law in the absence of guidance from the ECJ in order to decide a particular dispute before it, that interpretation would, in any event, not bind the EU institutions (including the ECJ) (paras 137-143);
  • Finally, the ICS does not prevent foreign investors from using judicial remedies available under domestic law. Although national courts of the Member States must not directly apply CETA, they remain an available alternative forum for judicial protection and their role in making references for a preliminary ruling from the ECJ remains intact (paras 168-172).

ICS in CETA Complies with General Principle of Equal Treatment and Requirement that EU (Competition) Law Be Effective

The AG found that CETA treats Canadian investors in the European Union more favourably by granting them judicial remedies (i.e., allowing recourse to the ICS) that are not likewise available for EU companies investing in the European Union because these categories of investors are not comparable (para. 203). The only investors who are in a comparable situation are Canadian investors in the European Union and EU investors in Canada (paras 203-207). In any event, should the ECJ nonetheless find that Canadian and EU investors in the European Union are comparable, making the ICS available only to Canadian investors in the European Union would, according to the AG, be objectively justified by the purpose of promoting foreign investment (para. 209).

Belgium had also raised questions as to whether the ICS could nullify the effect of a competition law fine imposed by the European Commission or a competition authority of one of the EU Member States, by deciding to award damages in an amount equivalent to that fine. The analysis of the AG of those questions was limited. He took the view that several substantive and procedural guarantees in CETA (including in Chapter 17 on 'Competition Policy') in fact limit the risk of the ICS having to decide that a fine imposed under EU competition law would infringe investment protection standards laid down in Chapter 8 of CETA (paras 214-218).

ICS in CETA Respects Right of Access to Independent and Impartial Tribunal

The final part of the Opinion responds to a number of objections raised by Belgium with respect to whether the ICS respects the right of access of especially small and medium-sized enterprises or 'SMEs' to an independent and impartial court under Article 47 of the Charter of Fundamental Rights of the European Union.

In his assessment of those objections, the AG stressed the 'hybrid' character of the ICS, which he considered to be 'a form of compromise between an arbitration tribunal and an international court' (para. 242). He therefore disagreed with the premise of the objections raised by Belgium that the ICS was a genuine court (para. 244). His assessment also took into account that, pursuant to CETA, the parties (acting specifically in the context of the Joint Committee) are to adopt further detailed rules on the organisation and functioning of the ICS (para. 247).

The AG took the view that Section F of Chapter 8 of CETA 'guarantee[s] a level of protection of [the right of access to an independent and impartial tribunal] which is appropriate to the specific characteristics of the [Investor-State Dispute Settlement] mechanism provided for in that section' (para. 271). That conclusion was based on the following considerations:

  • The ICS does not have exclusive jurisdiction to decide on actions brought by foreign investors in the field of investment protection. It is merely an alternative method of dispute resolution (paras 252-253).
  • The rule according to which the costs of the proceedings should be borne by the unsuccessful disputing party (Article 8.39.5 of CETA) serves a legitimate objective. The application of the rule may be tempered in the light of the circumstances of the claim (para. 255) or as a result of supplemental rules adopted by the Joint Committee (para. 257). Furthermore, costs may be reduced provided the parties agree to their case being heard by a sole adjudicator or reach an amicable settlement (para. 256).
  • The remuneration model, comprising a fixed component and a component related to the volume and the complexity of the case-load, is consistent with the hybrid character of the ICS and the fact that the adjudicators will be working, at least initially, on a part-time basis (para. 260);

The conditions relating to the appointment and possible removal of the adjudicators offer sufficient safeguards (in particular, in terms of rules of ethics) so as to guarantee their independence and impartiality (para. 262-270).

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

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