Clothing Investor-State Arbitration with EU Legitimacy: AG Bot in Opinion 1/17

In 2018, the ruling of the Court of Justice of the European Union (CJEU or Court) in Achmea (C-284/16) shook the world of investment arbitration to the core. By contrast to Advocate General (AG) Wathelet’s perspective, the CJEU found that a provision in an international agreement allowing investors who are nationals of an EU Member State to initiate arbitral proceedings against another EU Member State was incompatible with Articles 267 and 344 of the Treaty on the Functioning of the European Union (TFEU). To the CJEU, insofar as an arbitral tribunal may be in a position to interpret and apply EU law without being able to refer preliminary questions to the Court, the investor-state dispute resolution mechanism of intra-EU Bilateral Investment Treaties (BITs) encroaches upon the Court’s exclusive jurisdiction over the definitive interpretation of EU law, thus threatening the autonomy of the EU legal order.

Yet, almost one year later, the compatibility with EU law of another investor-state dispute settlement mechanism, this time incorporated in a mixed agreement (namely an agreement between the EU Member States, the EU itself and a third country), was addressed in a different case. On 29 January 2019, AG Bot delivered an Opinion in the context of the request for an opinion submitted to the Court by the Kingdom of Belgium regarding the compatibility with EU law of Section F of Chapter 8 (Resolution of Investment Disputes between Investors and States) of the EU-Canada Comprehensive Economic and Trade Agreement (CETA) (Opinion 1/17) (ECLI:EU:C:2019:72). There, AG Bot took the view that the Investment Court System (ICS) envisaged by the CETA is compatible with the EU Treaties, including with the CJEU’s exclusive jurisdiction to utter the final word in the interpretation of EU law. In that, he also rejected the applicability of Achmea to the case at issue, due to the differing premises guiding the CJEU’s reasoning in the examination of investor-state arbitration under intra-EU BITs.

AG Bot's Opinion

In his Opinion, AG Bot refers to settled case law of the CJEU under which it is, in principle, compatible with EU law for an international agreement to create a dispute resolution mechanism responsible for the interpretation of its provisions and whose decisions are binding on the EU institutions. A finding of incompatibility with EU law could only be supported if the powers vested in that mechanism impinged upon those of the EU judicial system, including the CJEU, relating to the interpretation and application of EU law. To AG Bot this is not the case with the ICS of the CETA, the latter containing a series of guarantees safeguarding the CJEU’s role as the ‘ultimate interpreter of EU law’. These include the CETA tribunal’s narrowly circumscribed jurisdiction (Article 8.18) that does not allow it to rule on potential breaches of EU law, but only on claims relating to breaches of Sections C and D of CETA’s Chapter 8.

An additional guarantee stems from the fact that the CETA tribunal is not vested with the power to interpret and apply EU law for the determination of a dispute, either directly, as part of the applicable law, or indirectly, though the interpretation thereof (Article 8.31.1). Even though the CETA tribunal may, in fact, consider the domestic law of a party to the dispute, in doing so it may only take it into account as a matter of fact, whereas in its consideration thereof it will be bound by ‘the prevailing interpretation given to the domestic law by the courts or authorities of that Party’. In the same vein, even if the CETA tribunal is called upon to undertake some interpretation of EU law, Article 8.31.2 of the CETA’s Chapter 8 precludes the possibility that the tribunal will be in a position to bind the courts or authorities of the EU Member States or the EU institutions with regard to that interpretation. In any case, the establishment of an appellate tribunal further warrants that any error in the appreciation of EU law as a matter of fact or in the meaning given thereto will be corrected.

Against that background, according to AG Bot the CETA tribunal’s jurisdiction does not affect, and cannot limit, the EU judicial system in hearing and determining actions with a view to ensuring that EU law is observed.

The Conditions for a Harmonious Symbiosis

AG Bot’s analysis of whether the ICS envisaged by the CETA can coexist with the CJEU’s exclusive jurisdiction on the authoritative interpretation of EU law is delineated by two crucial premises. First, by the CETA’s lack of direct effect under Article 30.6.1 of the CETA. To him, since it is not for the parties’ domestic courts to warrant the standards of protection provided under the CETA, it is consistent to establish and entrust with this task a dispute resolution mechanism lying outside the parties’ domestic judicial system. Second, by the fact that the relations between the EU and Canada are not guided by the principles of mutual trust or sincere cooperation, applicable in the inter se relations of EU Member States, but rather by the principle of reciprocity. This is also a critical feature in differentiating the ICS envisaged by the CETA from the dispute resolution mechanism at issue in Achmea. The fact that, by contrast to intra-EU relations, the EU’s external relations are premised on reciprocity calls for the creation of a dispute resolution mechanism capable of ensuring that EU nationals investing in a third country are granted protection equal to that guaranteed for foreign investors within the EU.

In essence, AG Bot’s Opinion reiterates the conditions that need to be met for a harmonious symbiosis between an alternative dispute resolution mechanism, such as investor-state arbitration, and the CJEU to be achieved, drawing arguments to that end from the CJEU’s previous relevant case-law (see, inter alia, Achmea and Opinions 1/91, 1/00, 1/09, 2/13, 2/15).

The starting point is that an international agreement may in principle provide for investor-state arbitration, unless the latter encroaches upon the powers of the EU judicial system to interpret and apply EU law. For such a finding to be avoided, it must be ascertained that (i) the arbitral tribunal established under the international agreement does not have jurisdiction to adjudicate intra-EU disputes, either between EU Member States or between the latter and the EU, in cases where their relations are governed by EU law; (ii) the tribunal does not have jurisdiction to rule on breaches of EU law or on the validity of acts of the EU institutions; (iii) the tribunal will not be called upon to decide a pending dispute in the light of EU law, the latter being applied either directly (through express renvoi, as part of international law or the parties’ domestic law) or indirectly, through an interpretation of the law directly applicable to the dispute (eg, under Article 31(3)(c) of the Vienna Convention on the Law of Treaties); (iv) if necessary to consider EU law for the adjudication of a dispute (eg, as a matter of fact), the tribunal will not be in a position to bind the EU and its institutions to a particular interpretation of EU law.

Even though an opinion expressed by an AG in the context of a case is neither binding nor prejudicial to the CJEU’s ruling that will follow (the Achmea case is exemplary in this regard), it will be interesting to see whether the CJEU will choose to concur with the AG’s reasoning in this instance. Despite the fact that the ICS of the CETA is substantially different to investor-state arbitration under both intra-EU BITs and other mixed agreements, such as the Energy Charter Treaty, the CJEU’s opinion will in any case shed further light on its perspective regarding the conditions for an alternative dispute resolution mechanism harmoniously to coexist with the CJEU’s jurisdiction.

Konstantina Georgaki is a DPhil in Law candidate at the University of Oxford, an Editor of the Oxford University Commonwealth Law Journal and a member of the Transnational Alliance Steering Group of the Centre of Construction Law and Dispute Resolution of King's College London.