On 16 September the European Commission published detailed draft proposals for the investment chapter in the proposed Transatlantic Trade and Investment Partnership treaty between the EU and the US (“TTIP”). The full text is available here. The chapter includes detailed investment protections and the establishment of an International Investment Court to resolve disputes under the TTIP. These proposals follow the Commission’s 5 May 2015 Concept Paper (discussed in our earlier blog here), which looked at reforming the ISDS system and proposed moving away from the current system of Investment Treaty arbitration.
The Commission has made it clear that this draft is for discussion and consideration within the EU before being put to the US as part of the TTIP text.
We explore and summarise below some of the key issues raised in the chapter.
The draft investment chapter as published contains much that is similar to the text agreed for the Comprehensive Economic and Trade Agreement between the EU and Canada (“CETA”). However, it also includes a number of significant new elements.
The proposed new Investment Court system
The Commission proposes the establishment of a new court system to resolve disputes under the TTIP, to be comprised of a Tribunal of First Instance (to be called the “Investment Tribunal”) and an Appeal Tribunal.
The Investment Tribunal would consist of 15 judges appointed jointly by the EU and US governments, with 5 EU nationals, 5 US nationals and 5 nationals of other countries. This standing body of judges would be appointed for a six-year term, renewable once. Tribunals would be appointed at random from the 15 members with no party influence over who would hear any case, although always comprised of one EU, one US and one third party tribunal member (with the third party member as chair). However, the disputing parties could agree on a sole arbitrator (to be appointed out of the 5 nationals of third countries). Once appointed, the tribunal would resolve the dispute under the rules chosen by the investor in the case in question from the ICSID rules, UNCITRAL rules or “any other rules agreed by the disputing parties”.
The permanent Appeal Tribunal would be comprised of six members, each appointed for a six year term, with two EU and two US nationals, and a further two nationals of third countries. The Appeal Tribunal would have a President and Vice-President selected only from the nationals of third countries. The composition of each Appeal Tribunal would be “random and unpredictable” (albeit that each tribunal would need an EU, US and third country national). The Appeal Tribunal would be there to ensure that there (to quote the Commission) “could be no doubt as to the legal correctness of the decisions of [first instance] tribunals“. There would be strict time limits for the parties to appeal an award (90 days from issuance) and for the appeal proceedings themselves (usually not to exceed 180 days from notification of appeal to decision, but subject to a longstop of 270 days).
All judges of the Investment and Appeal Tribunals would be required to have high technical and legal qualifications, including having demonstrated expertise in public international law. They would also be subject to strict ethical rules under Article 11 and a Code of Conduct under Annex II. In particular, Article 5 of Annex II requires that they “shall not be influenced by self-interest, outside pressure, political considerations, public clamour, loyalty to a Party or disputing party, or fear of criticism“. They would be prohibited from taking on work as counsel on any investment disputes under the TTIP or any other agreement.
Given the recent investment treaty decisions looking at third party funding, it is also interesting to note that Article 8 of the draft text requires a disputing party using third party funding to inform the other disputing party and tribunal of that funding at the time the claim is submitted, or, if the funding agreement is entered into at a later date, without delay as soon as the agreement is concluded.
Other procedural drafting points of particular note include:
- Optional mediation is included in the draft text, together with draft rules for that procedure.
- The UNCITRAL Transparency rules have been included in the drafting, and the text goes further in relation to the types of documents which are disclosable.
- The Tribunal has the right to order interim measures of protection.
- Increased provision for third party intervention, including the right of an intervener, if their application is granted, to receive a copy of every procedural document served on the disputing parties.
- The right of the Tribunal to consolidate claims under certain circumstances.
As clearly signposted in the Concept Paper, the Commission has included a new draft article, Article 2, which preserves the right of a state to regulate “through measures necessary to achieve legitimate policy objectives”. This statement is followed by certain categories of objectives which may be considered legitimate, such as the protection of public health, safety, environment or public morals. Three sub-articles then follow which are intended to bring “greater certainty“. These provisions appear intended to address certain aspects of investment treaty jurisprudence that the Commission has, from its past papers on ISDS in the TTIP, highlighted as causing concern. First, that the protections given in the TTIP do not constitute a commitment by a Party that it will not change the legal or regulatory framework, including where it impacts on an investor’s expectation of profits. Second, that, in the absence of a specific legal or contractual commitment, a Party’s decision not to issue, renew or maintain a subsidy (which the Commission flags would include state aid) will not breach investment protections. And third, that the investment protections offered do not prevent a Party from discontinuing a subsidy or requesting its reimbursement, or as requiring that Party to compensate an investor therefor, where so ordered by a “competent authority” (which under Annex III includes the Commission and Member State Courts when applying EU law on state aid).
Annex I of the draft also sets out a detailed interpretation of the definition of expropriation, clarifying that expropriation may be direct or indirect and setting out the factors for determining an indirect expropriation. Significantly, again, the draft confirms that, unless manifestly excessive, non-discriminatory measures introduced by a Party to protect legitimate public welfare objectives do not constitute indirect expropriations.
The text will be considered and debated in detail over the coming weeks and months. But followers of the ISDS debate and the Commission’s position on this subject will not be surprised by the focus and content of this draft text.
In particular, the proposed establishment of the permanent tribunals was expected, and follows strong support for this from a number of Member States. Stakeholders will welcome certain elements of the draft in this respect, including the continued use of arbitration rules by the Tribunals to govern the dispute.
However, the draft gives rise to a number of issues that will need further consideration. Throughout the draft the suggestion is that each Tribunal will be comprised of a national of the EU, US and a third country. No doubt this is intended to provide a check on partiality. Alongside this, the draft suggests that allocation to a Tribunal will be “random”. Within the Investment Tribunal, the number of Tribunal members may be sufficient to ensure a “random” choice, yet for the Appeal Tribunal (comprised, at least initially, of only 6 individuals), the chair will always be drawn from the two third country members. These two third country members will also, under Article 9, by default, be the President and Vice-President of the Tribunal, moving between the two roles on rotation every two years. This places a great deal of responsibility and sway in the hands of two individuals, whose views on Investment Protection would then be very influential in shaping jurisprudence from the TTIP dispute resolution process.
The Commission’s concerns about conflicts of interest appear also to have prompted the proposal of some potentially very broad requirements under the Code of Conduct at Annex II. There is potential for the arbitral appointments in many of the early disputes under the TTIP to become subject to challenge while the meaning of the different terms in Article 5 of Annex II (in relation to independence and impartiality of arbitrators) is clarified. When viewed alongside the high technical and legal requirements for office, it remains to be seen whether there is a sufficient pool of potential candidates able to meet these criteria.
Further scrutiny will also need to be given to the relationship between this proposed form of dispute resolution and the existing body of International/ European law. For example, the draft provides for the enforcement of Final Awards issued by the Tribunals within the EU and US, but does not address the status of such Awards under the ICSID Convention or, indeed, under the New York Convention. Similarly, it is not clear how the Commission envisages that the establishment of these Investment Tribunals will sit alongside the CJEU’s jurisdiction.
Finally, it is worth noting that the Reading Guide issued by the Commission alongside this text (available here) also mentions that, in parallel to the TTIP negotiations, “the Commission will start work, together with other like-minded countries, on setting up a permanent International Investment Court“, with the objective that it would, over time, “replace all investment dispute resolution mechanisms provided in EU agreements, EU Member States agreements with third countries and in trade and investment treaties concluded between third countries“. It is clear that the Commission sees the process set out here for the TTIP as merely a stepping stone on the way to a far more ambitious undertaking in future.