MARKET COMMENTARY 15
INDIRECT EXPROPRIATION IS CLARIFIED AND LIMITED While investors remain protected in the sense that prompt, adequate and effective compensation is payable in the event of direct or indirect expropriation, CETA clarifies what constitutes indirect expropriation in order to prevent claims against legitimate public policy measures (Article X.11): • Legitimate public policy measures to protect public health, safety or the environment do not constitute indirect expropriation, except where manifestly excessive in light of their objective; and • The investor must be substantially deprived of the fundamental attributes of property such as the right to use, enjoy or dispose of the investment. PROCEDURAL INNOVATIONS INTRODUCED CETA provides an investor with a choice of several procedural routes to redress: ICSID; ICSID Additional Facility Rules; UNCITRAL Arbitration Rules or any other rules agreed by the parties (Article X.22). Before an arbitration can be commenced, there is a six-month mandatory consultation phase, similar to the “cooling off” period common to many investment treaties (Article X.21). A further step is required (of a Canadian investor) to determine the respondent – i.e. whether it is the EU or a particular Member State. A notice must be served by the Canadian investor and the EU then decides whether the measures complained of shall be answered by the EU or
IS CETA SUCH A BAD EXAMPLE TO FOLLOW? Despite the backlash against investor-state arbitration and heavy lobbying in the context of this agreement, CETA appears well-balanced, providing some clarity in certain areas previously left to tribunal discretion where specific criticisms, such as those referred to above, have been directed at the system . For those states and nationals concerned that the inclusion of ISDS provisions opens sovereign states up to challenge and/or an erosion of their sovereignty, CETA specifically safeguards the issue of a state’s capacity to govern in the public interest in certain key policy areas. For those investors concerned that CETA is an erosion of their rights as previously protected by BITs, while the definition of investor is narrower, and while certain substantive protections have been curtailed, in this author’s view, on balance the agreement gives them a good level of protection from legal and political risk when investing. IMPROVING THE IMAGE OF ISDS The populist and often ill-informed rhetoric against ISDS threatens a system which it is up to the informed arbitration community to seek to defend. The arbitration community must accept the scrutiny and analyse the criticism levelled at ISDS and seek ways to make it more acceptable, through education as to its benefits and the rigours of the process, and by continuing to increase its democratic legitimacy. The ISDS landscape is changing and we must make sure changes are based on constructive dialogue, innovation and informed decision-making.
by the Member State in question (Article X.20). Other noteworthy procedural innovations include:
• Specific provisions on arbitrator conflicts of interest and states that arbitrators shall comply with the IBA Guidelines on Conflicts of Interest in International Arbitration; • A list of arbitrators pre-agreed by the EU and Canada so that they have their say on the standards expected of arbitrators hearing such cases (Article X.25); • Introduction of transparency into the dispute resolution process by requiring that all documents will be available to the public online and that all hearings will be held in public (Article X.33); • Prohibition of parallel proceedings, e.g., through other international tribunals or domestic courts (Article X.21, X.23); • Statutory limits (usually 3 years) to bring a claim. Of all the BITs and MITs in existence, only NAFTA currently has such a provision (Article X.18); • Detailed provisions on the consolidation of two or more claims which have a question of law or fact in common and arise out of the same events or circumstances (Article X.41); • A fast track for throwing out frivolous claims, which lack legal merit or are unfounded as a matter of law (Articles X.29 and X.30); and • Provision for the payment of costs by the losing party (except in exceptional circumstances). This is a first; in all other BITs and MITs, the matter is left to the discretion of the tribunal (Article X.36).
PROTECTING INVESTORS RIGHTS
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