Pursuant to the recently concluded legal review of the EU-Canada Comprehensive Economic and Trade Agreement (“CETA”), the European Commission and the Canadian Government have agreed to establish a permanent tribunal and an appellate tribunal to hear investors’ claims in relation to breaches of the agreement. 

Negotiations on the free trade deal between the European Union (“EU”) and Canada concluded in 2014.  The legal revision of the text was recently concluded, with the revised text published on 29 February 2016.  The most important elements of the revised text are examined below.

Establishment of a tribunal

One of the major results of the legal review is the establishment of a permanent tribunal of 15 members with exclusive competence to hear claims in relation to breaches of the investment protections contained in CETA.  Five of the members of this tribunal will be nationals of a Member State of the EU, five will be nationals of Canada and five will be nationals of third States.  The members of the tribunal will be appointed by the EU and Canada.  Three members of the tribunal will hear each particular case.  The tribunal must issue a final award within 24 months of the filing of the claim, although the tribunal may take additional time if it informs the parties giving reasons.

This approach can be distinguished from the dispute settlement procedure provided for by many arbitral rules, whereby an ad hoc tribunal, consisting of party-appointed arbitrators and a neutral presiding arbitrator, is established to hear a particular case.  As contained in the revised CETA, the members of the tribunal will not be appointed by the parties to the dispute, but rather will have been appointed in advance by the parties to CETA.

Establishment of an appellate tribunal

CETA will establish an appeal system that will be comparable to that of a domestic legal system, whereby awards of the permanent tribunal can be reviewed for legal correctness.  The appellate tribunal will have the power to modify or reverse an award where, inter alia, there is an error in application or interpretation of the applicable law or a manifest error in appreciation of the facts.

Applicable law

The permanent tribunal and appellate tribunal will only be able to apply CETA, in accordance with principles of international law, when adjudicating claims.  They will not be competent to decide matters of EU, Member State or Canadian law.  They will, however, be able to review EU, Member State and Canadian law as a matter of fact.

Ethics

Another notable change is that members of the tribunal and the appellate tribunal will be barred from acting as counsel or party-appointed experts or witnesses (but not arbitrators) in any other investment dispute during their appointment.  Further, the members of both tribunals shall be independent and not affiliated with any government. 

Investors funded by third-party funders will be required to disclose this information at the outset. 

Multilateral investment tribunal

The revised CETA provides that the EU and Canada shall pursue with other trading partners the establishment of a multilateral investment tribunal and appellate mechanism.  Such a multilateral mechanism, once established, would replace the permanent tribunal and appellate tribunal established by CETA.

There is no further information in the revised text as to how the multilateral mechanism would operate.  For now, the EU and Canada have simply demonstrated their commitment to create such a mechanism in the future.

Additional changes

In addition to the above-mentioned amendments, further changes were made to CETA’s substantive obligations, particulary relating to regulatory measures.  For example, the revised CETA provides that mere interference with an investor’s expectations, including expectations of profits, does not amount to a breach.  Further, a decision not to issue, renew, or maintain State aid does not in itself constitute a breach. 

As contained in the originally-negotiated text, the Parties must afford fair and equitable treatment and full protection and security to qualifying investors.  The revised version now provides that a breach of domestic law does not in itself constitute a breach of the Parties’ obligations to provide full protection and security and fair and equitable treatment.

Commentary

The latest revision of CETA confirms that the EU is taking a new approach to investor-State dispute settlement.  This approach is moving away from the typical ad hoc dispute settlement procedure that is common to investor-State disputes.  Further, the appellate tribunal to be established by CETA is a relatively novel feature in the context of investor-State dispute settlement.  Whilst some arbitral rules – such as those of ICSID – allow for annulment of an award, this is limited to reviewing the award for jurisdictional or procedural errors, rather than errors relating to the merits.

Similar dispute resolution mechanisms are contained in the recently negotiated EU-Vietnam Free Trade Agreement and in the EU’s Trans-Pacific Trade Partnership proposal.

Next steps

The revised CETA will be translated into French and the 21 other EU treaty languages and then reviewed by the European Council and European Parliament, as well as the Canadian Parliament.   It is expected to be signed in 2016 and to enter into force in 2017.

For further information see Press Release of the European Commission, Directorate-General for Trade, “CETA: EU and Canada agree on new approach on investment in trade agreement”, 29 February 2016 at: http://trade.ec.europa.eu/doclib/press/index.cfm?id=1468