European Commission issues procedural proposals for the Investment Court System envisaged under CETA

In October 2019, the European Commission (the "Commission") presented four proposals (the "Proposals") to the Council of the European Union (the "Council") with specific rules to establish the Investment Court System ("ICS") envisaged under the EU-Canada Comprehensive Economic and Trade Agreement ("CETA"). If the Council and the EU Member States approve the Proposals, the EU will seek to agree them with Canada. The Proposals would enter into force upon the ratification of the CETA by all EU Member States.

Background

On 30 October 2016, the EU and Canada signed the CETA, which is to be implemented and applied through the CETA Joint Committee. While some of the provisions in the CETA have started applying in advance of the CETA's ratification, some substantive investor protections and the ICS do not apply yet. Please see our previous PIL Notes posts for further information about the negotiations and background of the CETA, as well as the compatibility of the CETA's ICS provisions with EU law (read more here and here).

The ICS is a new approach to investment-related disputes, which, according to the EU, eliminates the risk of abuse and safeguards the right to regulate in the public interest. The same dispute resolution approach has been taken in the agreements which the EU has negotiated with Singapore, Vietnam and Mexico. In addition, the EU has committed to this approach at a multilateral level as well, as it is seeking to attract international support for the establishment of a Multilateral Investment Court, as part of the discussions which are currently taking place in Working Group III ("WG III") of the United Nations Commission on International Trade. For further information about the EU's position in WG III, please see our previous PIL Notes post here. We have also published about the background of these WGIII discussions here and here.

The Commission's Proposals concern four issues in relation to the ICS: (i) the administrative and organisational framework on the proposed Appellate Tribunal; (ii) the code of conduct applicable to adjudicators; (iii) the adoption of mediation rules; and (iv) interpretations to be adopted by the CETA Joint Committee.

The Appellate Tribunal

According to Article 8.28.7 of the CETA, the CETA Joint Committee shall decide certain administrative and organisational matters with regard to the Appellate Tribunal. The relevant Proposal sets out the EU's position on these matters, which include the selection of Appellate Tribunal members and the conduct of appeals.

In terms of the structure of the Appellate Tribunal, the Proposal suggests the following:

1. The Appellate Tribunal shall comprise six Members appointed by the CETA Joint Committee for a nine-year non-renewable term "with a view to principles of diversity and gender equality";
2. The President and Vice-President shall be selected by the Chair of the CETA Joint Committee for a two-year term from among the Members who are nationals of third countries. They shall serve on a rotation basis;
3. The division of the Appellate Tribunal constituted to hear each case would consist of three Members, as established by the President of the Appellate Tribunal on a rotation basis. In certain cases, such as those raising a serious question affecting the interpretation or application of Chapter 8 of the CETA (which concerns investment), the Appellate Tribunal may sit in a division of six Members (in such cases, the President of the Appellate Tribunal would preside over the division); and
4. The Secretariat of ICSID shall act as the Secretariat of the Appellate Tribunal.

The Proposal provides that appeal proceedings shall not exceed 180 days from the date a disputing party notifies its decision to appeal. In some cases, this period can be extended, but "every effort" should be made to avoid an appeal lasting longer than 270 days. The Appellate Tribunal can either render a final award or refer the matter back to the first instance Tribunal. In addition, the Appellate Tribunal must reject an appeal where it is unfounded. Where an appeal is manifestly unfounded, the Appellate Tribunal has the power to reject it on an expedited basis.

A notable feature of the Proposal is that the disputing party who lodges an appeal is required to provide security for the costs of the appeal as determined by the division of the Appellate Tribunal constituted to hear the case.

The Code of Conduct for Adjudicators

This Proposal relates to Article 8.44.2 of the CETA, and addresses issues such as: (i) disclosure obligations; (ii) the independence and impartiality of the adjudicators; and (iii) confidentiality. As an overarching principle, the adjudicators "shall avoid impropriety and the appearance of impropriety, and shall observe high standards of conduct so that the integrity and impartiality of the dispute settlement mechanism is preserved". The Proposal suggests the imposition of certain obligations on former adjudicators as well. These obligations include a duty to avoid actions which may create the appearance of bias during the proceedings the adjudicators acted on and a prohibition to represent any disputing parties in the ICS for three years after the end of the former adjudicators' term. Notably, the Proposal suggests the application of this code of conduct to mediators and former mediators as well.

Mediation Rules

This Proposal relates to Article 8.20 and Article 8.44.3(c) of the CETA, and sets out proposed mediation rules for the resolution of investment disputes. Some notable features of this Proposal include the following: (i) the disputing parties can elect to appoint a Member of the Tribunal or Appellate Tribunal as their mediator; (ii) no information relating to a mediation under Article 8.20 of the CETA may be used in dispute resolution proceedings before a Tribunal; and (iii) as mentioned above, the code of conduct applicable to Members of the Tribunal and Appeal Tribunal shall apply to mediators as well.

CETA Joint Committee Interpretations

This Proposal relates to Article 8.31.3 and Article 8.44.3(a) of the CETA, according to which one of the committees set up under the CETA, the Committee on Services and Investment, may recommend to the CETA Joint Committee the adoption of certain interpretations of the CETA.

Under this Proposal, where serious concerns arise regarding matters of interpretation that may affect investment, a CETA party (i.e. the EU, an EU Member State or Canada) may refer the matter in writing to the Committee on Services and Investment. The CETA parties would then enter into consultations within the Committee on Services and Investment, which should decide the matter as soon as possible. The Committee on Services and Investment may recommend to the CETA Joint Committee the adoption of a particular interpretation to be given to a provision under Chapter 8 of the CETA. The CETA Joint Committee's decision on such a proposed interpretation would be binding on the Tribunals and Appellate Tribunal established under the ICS framework.

Comment

The Proposals directly address a number of issues currently being considered in the context of reform of the traditional investor-state dispute resolution mechanism. There is a strong focus on efficiency of proceedings, as the Proposals impose strict time limits and allow for the Appellate Tribunal's rejection of manifestly unfounded appeals on an expedited basis. In addition, values of diversity and gender equality appear to be a key consideration in the constitution of the Appellate Tribunal. It remains to be seen how the Proposals will be received by the Council and Canada. In addition, it will be interesting to follow the impact, if any, which these Proposals might have in the concurrent WG III discussions on similar issues.

For more information, please contact Andrew Cannon, Partner, Iain Maxwell, Of Counsel, Helin Laufer, Associate or your usual Herbert Smith Freehills contact.