In its recent trade agreements, the EU has introduced a new mechanism to resolve disputes arising between investors and states which may herald the beginning of a move away from the traditional use of investor-state arbitration.[1] 

The Commission has recently consulted stakeholders on whether it should go a step further in its retreat from investor-state arbitration and incorporate a “multilateral investment court system” into its existing and future investment agreements, together with those of its Member States.[2] Current indications suggest that this investment court system may replicate in many ways the two-tier dispute resolution process which is already found in the CETA. While the EU continues to develop its thinking with regard to the practical operation of the investment court, it is open to question  whether the proposed investment court system is compatible (either practically or legally) with EU law.[3]  One aspect of this debate concerns the threat created by the investment court to the CJEU’s role in ensuring the consistent application of EU law.

The EU may conclude international agreements which provide for the creation of a court or body which is responsible for the interpretation and enforcement of the provisions in that agreement and the decisions of which are binding on the EU institutions, including the CJEU.[4]  However, if questions of EU law may be raised before and ruled on by that court or body, there is an inherent conflict with the CJEU’s exclusive competence under the EU Treaties to give a final and authoritative interpretation of EU law.

The EU’s proposed investment court will have jurisdiction to determine whether a respondent state (or, depending on the international agreement, the EU), has violated the substantive protections set out in the relevant international agreement. EU law may well form a part of that analysis. The domestic law of a respondent EU Member State which forms the basis of the investor’s claim may implement, or purport to implement, EU law. Furthermore, where the EU is a party to an investment agreement (or trade agreement with an investment chapter), the fundamental purpose is to enable an investor to be able to challenge acts of EU institutions which are purportedly in accordance with, and seeking to implement, EU law. This is clearly acknowledged in the CETA, in which the EU makes a determination as to whether it or a Member State should be the respondent to the claim, based on whether the measures complained about include measures of the EU.[5]  

The EU appears to have retreated from its position that the CJEU has exclusive jurisdiction over issues of EU law and that EU law issues cannot be determined by an investment tribunal.[6] Yet from the EU’s perspective, the need to protect the CJEU’s position as ultimate guardian of EU law remains.

The EU is expected to adopt a number of procedural safeguards. It is anticipated that the investment court[7] will not have jurisdiction to determine the legality of a measure under the domestic law of the disputing state party (domestic law may be EU law, and/or the laws of a Member State, or the law of a third party contracting state or states, depending on who was the respondent party).[8] In determining whether the measure is inconsistent with the treaty, the investment court may consider the domestic law as a “matter of fact”. The idea, it may be understood, is that the only binding element of the investment court’s decision is the dispositif as to the legal rights and obligations of the investor and the respondent state under the treaty itself.

Yet calling a decision on an issue of EU law merely a “finding of fact” does not necessarily delimit its practical impact. Assuming it follows the CETA model, the EU’s proposed system envisages a possibility of appeal to an appellate court on grounds including a “manifest error in the appreciation of the facts, including the appreciation of relevant domestic law”.[9] A decision of an appellate body agreeing with a first instance interpretation of EU law as a “finding of fact” will give weight to that interpretation. Furthermore, that decision may also have precedential value in other cases heard under the same treaty (and potentially other treaties). In particular, in a situation where that particular issue of EU law may never have been referred to or interpreted by the CJEU itself, the body of jurisprudence produced by the investment court may have greater weight than the EU might like.  As a creation of the EU, the decisions of the investment court surely become part of the EU legal order in a way that the decisions of an ad hoc investment arbitration tribunal do not. 

A further safeguard which is anticipated is that “any meaning given to domestic law by the Tribunal shall not be binding upon the courts or the authorities of that Party”.[10] But by expressly limiting the lack of binding impact to a specific “Party”, the implications are not clear for a court or authority which is not “of that Party”. The investment court may make an interpretation of EU law in an award which an investor may seek to enforce in a different Member State to the respondent Member State. Supposing that the investor could do so under the New York Convention,[11] is the enforcing Member State court bound by the tribunal’s finding on the meaning of EU law? This issue raises the spectre of difficulties at the enforcement stage. For example, the investor may find that a non-respondent party Member State refuses to recognise and enforce the award on the basis that EU law forms part of public policy.[12]

To narrow the risk that the investment court makes a ruling which is incompatible with interpretation of EU law by the EU institutions, including the CJEU, it is likely that the EU would also require that the investment court follow the “prevailing interpretation given to the domestic law by the courts or authorities of that party”.  However, this assumes that there is a “prevailing interpretation” of the EU law in question. A huge swathe of EU law has not been interpreted at all and certainly not by the CJEU. This issue has been recognised by the CJEU before: ”The interpretation of a provision of EU law, including secondary law, requires, in principle a decision of the Court of Justice where that provision is open to more than one plausible interpretation…”.[13] There is no preliminary reference procedure whereby the investment court can refer questions of EU law to the CJEU.

The Commission will clearly endeavour to safeguard the role of the CJEU[14] and is likely to adopt the same approach to doing so in any investment court as that shown in CETA. Indeed, it is required to do so under the CJEU’s own Opinion 2/13 which requires that ”an international agreement may affect [the ECJ’s] own powers only if the indispensable conditions for safeguarding the essential character of those powers are satisfied and, consequently, there is no adverse effect on the autonomy of the EU legal order”. The question is whether the safeguards implemented and proposed by the Commission are enough.


[1] See the final text EU-Canada Comprehensive Economic and Trade Agreement (CETA) and the agreed text of the EU-Vietnam Free Trade Agreement.

[2] Indeed, the EU envisages that, in due course, the ICS would determine investor-state disputes under treaties entered into between countries outside the EU.

[3] Throughout this article, Section F (Resolution of investment disputes between investors and states) of the CETA is used as a guide to the EU’s likely approach to the Investment Court System. Quotations referenced herein are to that CETA text.

[4] See Opinion 2/13 of the ECJ, at paragraph 182.

[5] Article 8.21. This is also the position under the Energy Charter Treaty. A framework for the allocation of financial responsibility in relation to those claims has been established under Regulation (EU) No 912/2014.

[6] This position was rejected by tribunals in a number of cases including Eastern Sugar B.V. v The Czech Republic, SCC Case No. 088/2004, Achmea B.V. v The Slovak Republic (formerly Eureko B.V. v The Slovak Republic), UNCITRAL, PCA Case No. 2008-13, and Electrabel S.A. v The Republic of Hungary, ICSID Case No. ARB/07/19.

[7] Note, that the CETA text refers to “tribunal” rather than court.

[8] See Article 8.31(2) of the CETA.

[9] See Article 8.28(2) of the CETA.

[10] See Article 8.31 of the CETA.

[11] Enforcement under the New York Convention is envisaged by Article 8.41(5) of the CETA.

[12] See, Eco Swiss v Benetton International (Case C-126/97).

[13] Opinion 2/13 of the ECJ, para 245 – thereafter advocating the prior involvement of the CJEU before the ECtHR reaches an opinion based on a consideration of EU law.

[14] Indeed, the “informal” opinion of the European Parliament’s Legal Service on the compatibility of the investment dispute settlement provisions in the CETA issued on request by the INTA suggests that it has done enough.  The European Parliament voted against requesting an opinion of the European Court of Justice under Article 218(11) TFEU on the compatibility of the CETA with the EU treaties.