By Fatma Sassi
On September 6, Belgium officially submitted its request to the Court of Justice of the European Union (“CJEU”) for an opinion about the compatibility of the Investment Court System (“ICS”) with EU law. This request – result of a Belgian internal political compromise intended to lift Wallonia’s veto on the conclusion of the EU-Canada Comprehensive Economic and Trade Agreement (CETA) – seeks clarification and asks the CJEU to shed light on the reformed system of dispute settlement between States and investors. Needless to say, this opinion – together with the Opinion 2/15 issued last May by the CJEU – will constitute a landmark decision for the future shaping of the EU investment policy.
The present contribution will adopt a prospective approach and examine the potential legal issues raised by the ICS, especially in the light of the autonomy of the EU legal order, principle enshrined by the CJEU in previous case laws. This article will thus (1) describe the ICS system, (2) analyze the concept of autonomy of the EU legal order and (3) assess the viability of the dispute settlement system in regard to one component of this concept.
1) The ICS system – characteristics of the new investment dispute settlement
Two years ago, in the context of growing suspicion towards FTA agreements, the European Commission launched a proposal to reform the investment dispute settlement system. The stated objective was clear: to restore public confidence in the EU trade and investment policy by shifting from the proposed Investor-State Dispute Settlement (ISDS) to an Investment Court System. Indeed, the use of ad hoc arbitral tribunals to solve claims between investors and host States became more and more controversial as sensitive cases began to shake the public opinion and to raise ethical issues concerning the lack of independence of the arbitrators appointed by the parties and the alleged harm to governments’ right to regulate.
To overcome these criticisms, the European Commission introduced the ICS in the new generation of FTA’s with third countries (Canada, Vietnam). This system establishes a permanent judicial structure composed of two courts – a Tribunal of First Instance and an Appellate Tribunal. The members of these tribunals are appointed by representatives of the Parties to the Treaty and must fulfill ethical requirements set up in the agreement. Therefore, this permanent system marks a turning point. It demonstrates the European Commission’s will to increase the legitimacy of the investment dispute settlement, even though the system still presents shortcomings due to the involvement of political powers in the appointment process.
2) International agreements and autonomy of the EU legal order
The CJEU held on multiple occasions 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 institutions, including the Court of Justice, is not, in principle, incompatible with EU law”.
However, the CJEU also pointed out that “an international agreement may affect its own powers only if the indispensable conditions for safeguarding the essential character of those powers are satisfied and, consequently, there is no adverse effect on the autonomy of the EU legal order”. This principle of autonomy, established by the CJEU early 60’s, entails that the EU has an internal order composed of several essential characteristics that neither domestic law nor international law can alter.
In Opinion 2/13, the CJEU precisely relied on this latter principle to reject the EU’s accession to the European Convention of Human Rights (ECHR), considering this accession as a threat to its exclusive judicial prerogative over the interpretation of EU law. In casu, the point of contention lied in the ability for the European Court of Human Rights (ECtHR) to hear claims from individuals and in fine to declare an EU measure contrary to the ECHR. In the CJEU’s words, “if the Court of Justice were not allowed to provide the definitive interpretation of secondary law, and if the ECtHR, in considering whether that law is consistent with the ECHR, had itself to provide a particular interpretation from among the plausible options, there would most certainly be a breach of the principle that the Court of Justice has exclusive jurisdiction over the definitive interpretation of EU law”. In Opinion 1/09, the CJEU had held the same reasoning and reached a similar conclusion with regard to the creation of an European and Community Patents Court.
In light of these case laws, would the ICS constitute a breach of EU law?
3) Jurisdiction over the interpretation of EU law in the ICS
The ICS gives foreign investors the right to challenge EU or Member States acts contrary to the investment treaty provisions. In this regard, the ICS Tribunal might declare an EU measure in conflict with the investment treaty provisions and, in doing so, interpret EU law.
To mitigate potential concerns with the CJEU’s exclusive jurisdiction, article 8.31 CETA does try to introduce limits to the ICS Tribunal jurisdiction:
- The Tribunal may not determine the legality of a measure under the domestic law of the disputing Party;
- The Tribunal may only consider the domestic law of the disputing Party as a matter of fact;
- The Tribunal shall follow the prevailing interpretation given to the domestic law by the court or authorities of that Party;
- Any meaning given to domestic law by the Tribunal shall not be binding upon the courts or the authorities of that Party.
If on paper this compromise seems to safeguard the principle of autonomy and the CJEU’s prerogatives, it nonetheless raises significant practical issues.
- Article 8.28 CETA invests the Appellate Tribunal with the power to review whether “the Tribunal has manifestly erred in the appreciation of the facts, including appreciation of relevant domestic law”. As underlined by Ankersmit, in its review, the Appellate Tribunal would then have to consider whether the Tribunal assessed EU law correctly. Therefore, in concrete terms, how to draw a line between a matter of law and matter of fact? Does this distinction of status really hinder interpretation of EU law by the investment tribunals? In our view, not so much.
- Moreover, what the Tribunal should do if no prevailing interpretation of a domestic provision exists? Should the Tribunal go ahead and give a meaning to EU law?
- Finally, the CETA precises that any meaning given to domestic law by the Tribunal will not be binding upon the institutions of that Party. However, the significant financial consequences of an award combined with the possible setting of a precedent for future claims create a de facto incentive for a Member State to comply on a longer term with an award and change its legislation. Therefore, are the ICS Tribunal awards in practice truly devoid of binding effect.
Although the ICS tackles some of the criticisms suffered by the ISDS, it leaves crucial constitutional issues unanswered. Attempted accommodations in the text fail to prevent a tension with one component of the principle of autonomy – the jurisdiction of the CJEU – and raise even more interrogations. Hence, whether positive or negative, the CJEU’s opinion will definitely constitute a landmark decision for the future of the EU investment policy and the institution of Multilateral Investment Court system.