The CETA Opinion of the CJEU: Right of Access to an Independent Tribunal by Emily Hay
I The CETA Opinion
On 30 April 2019, the European Court of Justice (“ECJ”) delivered its opinion on the Comprehensive Economic and Trade Agreement (“CETA”) between Canada and the EU and its Member States (the “CETA Opinion”). The CETA Opinion responded to Belgium’s questions to the Court regarding the compatibility of CETA’s dispute settlement mechanism with the EU treaties.
On 14 May 2019, the UK Law Societies’ Joint Brussels office and Flinn Law kindly hosted a Legal Breakfast Series on the CETA Opinion, at which I presented my views together with my co-panellists Mr. Colin Brown of the European Commission and Prof. Nicolas Angelet, Arbitrator and Public International Law Counsel. Mr. Leonard Hawkes of Flinn Law expertly moderated the discussion.
The CETA dispute settlement mechanism has many features typical of investor-State dispute settlement in bilateral and multilateral investment treaties. However, it deviates from common procedural practice in several ways, such as (i) the inclusion of an “Appellate Tribunal” to review first-instance awards, and (ii) the random selection of arbitrators from a standing panel (appointed by the CETA Joint Committee), rather than nomination by the parties to a dispute. CETA further contemplates that the parties will pursue the establishment of a multilateral investment tribunal (and appellate mechanism) and transition to that mechanism once it is established.
Belgium’s doubts about the dispute settlement mechanism in CETA fell into three areas:
- Doubts as to the compatibility of CETA’s dispute settlement mechanism with the autonomy of the EU legal order;
- Doubts as to the compatibility of CETA’s dispute settlement mechanism with the general principle of equal treatment and the requirement of effectiveness; and
- Doubts as to the compatibility of CETA’s ISDS mechanism with the right of access to an independent tribunal.
The ECJ found all three areas of Belgium’s doubts to be unfounded, thereby endorsing the envisaged dispute settlement mechanism. This contribution will focus on the third area of doubts discussed during the Legal Breakfast, that being the right of access to an independent tribunal.
II Right of Access
Belgium’s queries drew attention to the tension between the EU’s commitment to accessible justice, on the one hand, and the financial risks and deterrents inherent in the CETA dispute settlement mechanism, on the other.
The EU Charter of Fundamental Rights guarantees the right to an effective remedy before a tribunal, and legal aid to be made available for those without sufficient resources, to ensure effective access to justice.
Under CETA, as is the case for most international dispute settlement mechanisms, the parties to the dispute contribute to the fees and expenses of the tribunal, without prejudice to the tribunal’s ultimate decision on who will bear the costs of the proceedings. If an investor loses the case, they will in principle be ordered to bear those costs of the proceedings, and potentially also the respondent’s legal and other costs. The ECJ found that these financial risks may deter investors who are natural persons or small and medium-sized enterprises (“SMEs”) from bringing claims.
Article 8.39.6 of CETA provides that the CETA Joint Committee (made up of representatives of both Canada and the EU) “shall consider supplemental rules aimed at reducing the financial burden” on claimants who are natural persons or SMEs. Further, when signing CETA the European Commission and the Council made commitments that (i) the adoption of these supplemental rules will be expedited, and (ii) irrespective of the discussions in the CETA Joint Committee, the European Commission will propose appropriate measures of co-financing of actions for SMEs.
The ECJ held that these commitments were sufficient justification for a finding that CETA meets the accessibility requirement at this stage. However, in recognition of the fact that these are commitments only, the Court seems to anticipate that actual measures to ensure financial accessibility will have to be in place before the entry into force of the dispute resolution mechanism.
It will be interesting to see what practical measures will be proposed by the European Union to meet this requirement. Outside CETA, access to investor-State dispute settlement for investors who lack financial resources (or who choose for other reasons to seek outside funding) is typically provided by private means, such as third-party funding. Under CETA, however, the funding mechanism will be put in place by the parties to the treaty being potential respondents to such claims. While necessary to ensure the compatibility of CETA with EU law, increased accessibility could lead to a higher number of claims against the parties to CETA. How far CETA parties will be willing to go in supporting such actions remains to be seen. It will also be important to keep accessibility in mind for other EU initiatives in investor-State dispute resolution, such as the potential multilateral investment court.
III Independent Tribunal
Belgium had also queried the independence of the CETA tribunals, on the basis that the CETA Joint Committee plays a role in the remuneration, appointment and removal of members of the tribunal. The ECJ found that this role did not threaten the independence of the tribunals, in the sense of the autonomous exercise of their functions without external pressure.
Nor did the ECJ find fault with the power of the CETA Joint Committee to adopt interpretations of CETA that will be binding on a CETA tribunal, on condition that such interpretations would have no effect on prior or pending disputes. Without this protection, independence would be compromised because the CETA Joint Committee “could have an influence on the handling of specific disputes and therefore participate in the ISDS mechanism”.
As for the impartiality of the tribunal members, the ECJ found sufficient safeguards to exist in that (i) tribunals will be composed randomly and therefore will not be predictable by the parties, (ii) there will be diversity of nationality among the members, and (iii) tribunal members may not take instructions from any organisation or government regarding matters related to the dispute. The IBA Guidelines and any supplemental rules adopted will further ensure the impartiality and independence of the members throughout the proceedings.
Although the Advocate General had proposed that the CETA dispute settlement mechanism is a kind of hybrid between an arbitration tribunal and an international court, the ECJ held that the tribunals “will, in essence, exercise judicial functions”. This seems to give credence to Belgium’s objections that had relied heavily on the European Charter on the Statute for Judges for guidance on the quality of independence in a judicial institution. However, the ECJ did not measure CETA’s mechanism against a list of formal requirements. Rather, the Court took a practical approach, by assessing whether the specific features provided under CETA preserve the independence of the arbitrators and the tribunals. The CETA Opinion nevertheless flags important parameters of independence for the EU and its Member States when crafting future dispute settlement mechanisms, such as the proposed multilateral investment court.
IV Next Steps
Following the Court’s green light, the legal challenge has been overcome and it is up to individual EU Member States (who have not already ratified) to proceed with ratification of CETA. In some cases, such as Belgium, this includes not just national parliaments but also regional ones. In other words, “it ain’t over until the Walloon Parliament sings”.
Emily Hay is a Senior Associate in Hanotiau & van den Berg. She acts as counsel, tribunal secretary and assistant to the tribunal in international commercial and investment arbitrations, both ad hoc and under a wide variety of institutional rules, spanning various industry sectors (energy, banking, procurement, retail, aviation, hospitality, construction). Ms. Hay is also involved in court litigation related to the set-aside and enforcement of arbitral awards.