Investor-State Dispute Settlement
in CETA: The Next Generation?
Andrew Newcombe
Associate Professor
Investment treaty arbitration
research website:
italaw.com
Outline

Introduction to investor-state dispute settlement (ISDS) in investment
treaties—rationales and concerns

Current ISDS state of play

EU BITs compared to Canadian Model FIPA

What CETA borrows from NAFTA/US BITs/Canadian FIPAs

Innovations in CETA ISDS

Where CETA does not boldly go …

ISDS in CETA: The next generation?
Investor-state dispute settlement

State agrees to arbitrate breaches of investment obligations under
international arbitration rules

Ad hoc tribunal of three arbitrators determines if state has breached
investment obligations

Tribunal can award damages, costs and interest

Arbitral award can only be reviewed on very limited procedural grounds

Award is enforceable under international and domestic law
Rationales for ISDS

Investment protection backed-up by ISDS promotes investment; credible
commitments lower political risk resulting in greater and cheaper FDI (BITs lower
risk premiums)

Domestic courts may not be in a position to enforce government commitments
to foreign investors: not independent and/or treaty obligations not enforceable
in domestic courts (i.e. NAFTA – no cause of action in Canadian courts)

Benefits of depoliticization of foreign investment disputes; powerful home state
of investors will/must refrain from using economic, political and forceful means
of dispute settlement to protect nationals and companies

Promotes rule of law; good governance; accountability
Concerns with ISDS

Legitimacy: ad hoc tribunal of three arbitrators assessing state conduct

Transparency: private and confidential proceedings

Nationality planning: use corporate structuring to obtain treaty benefits

Consistency of arbitral decisions regarding similar treaty provisions

Erroneous decisions cannot be corrected

Arbitrator independence and impartiality

Financial stakes
Current ISDS state of play (end of 2013)

568 known investment treaty cases involving 98 different respondent states

Respondent states by development status:
57% developing; 27% developed; 16% transition

274 concluded cases:
43% in favour of respondent state; 31% in favour of investor; 26% settled

In 2013 foreign investors initiated 57 known claims – second most active
year on record
Claims by Canadian and EU Investors
(as of end of 2013)

Claimants from EU lead: 299 cases or 53% of all cases
Netherlands (61); UK (43); Germany (32)

US is next with 127 claimants or 22% of all cases

Canada (5th place); claimants from Canada have brought 32 cases or 5.6% of
all cases

In 2013, of 57 new claims, most frequent claimants are from EU
Netherlands (7); Germany (6); Luxembourg (6)
Claims against Canada and EU member
states (I)

Most frequent respondents:
-
3rd place: Czech Republic (27 cases)
-
6th place: Canada (22 cases) (Canada has lost 3 cases, 2 settled)
-
8th place: Poland (16 cases)
-
12th place: Hungary (12 cases)
-
15th place: Slovakia (11 cases
-
16th place: Romania (9 cases)
-
18th place: Spain (9 cases)
Claims against Canada and EU member
states (II) – In 2013

24 claims against EU member states (Czech Republic (7); Spain (6))

23 claims brought by EU nationals against other EU member states based on
intra-EU BITs or the Energy Charter Treaty

3 NAFTA claims against Canada in 2013

Lone Pine: Cancellation of gas explorations permits by Quebec “fracking ban”

Windstream: Ontario moratorium on offshore wind farms

Eli Lily: Claim for invalidation of patents for two drugs
EU BITs compared to Canadian Model FIPA

EU BITs: one or two paragraph provision providing general consent to arbitrate
investment disputes under international arbitration rules

Article 9, Dutch Model BIT
Each Contracting Party hereby consents to submit any legal dispute arising between
that Contracting Party and a national of the other Contracting Party concerning an
investment of that national in the territory of the former Contracting Party to the
International Centre for Settlement of Investment Disputes for settlement by
conciliation or arbitration under the Convention on the Settlement of Investment
Disputes between States and Nationals of other States, opened for signature at
Washington on 18 March 1965. A legal person which is a national of one Contracting
Party and which before such a dispute arises is controlled by nationals of the other
Contracting Party shall, in accordance with Article 25 (2) (b) of the Convention, for the
purpose of the Convention be treated as a national of the other Contracting Party.
EU BITs compared to Canadian Model FIPA

Canadian 2004 model: expands on extensive ISDS innovations in NAFTA;
incorporates lessons from NAFTA and addresses many of the concerns with
ISDS (20 pages of legal text)

CETA Draft ISDS text (April 2014): incorporates many of the provisions
common in US and Canadian models with some additional (but relatively
minor) innovations (15 pages of legal text)
What CETA borrows from NAFTA and recent
US BITs/Canadian FIPAs

Consultations and information: requirement to request consultations and
provide information regarding claim

Time limits: request for consultations must be made within three years of
knowledge of alleged breach

Waiver: investor must waive right to submit dispute to local courts; avoids
concurrent proceedings

Consolidation: Multiple claims having a common question of law or fact
and arising out of the same events can be consolidated
What CETA borrows from NAFTA and recent
US BITs/Canadian FIPAs (II)

Arbitrators: must have experience in public international law and are
subject to a code of conduct (to be developed)

Transparency: ISDS documents to be made public, hearings open to the
public, non-disputing parties can make submissions

Remedies: limited to damages or restitution of property (no declaratory
relief, i.e. change law or policy)

Interpretations: Treaty parties can adopt binding interpretations of
investment obligations that are binding on a tribunal
ISDS innovations in CETA (I)

Mediation: express provision on mediation(only if agreement of both
disputing parties)

Extension of time: time limits for bringing claim are extended if investors
seeks remedies in local courts

Sole arbitrator: respondent state to give sympathetic consideration for
request for sole arbitrator where the investor is a small or medium-sized
enterprise or the compensation or damages claimed are relatively low

Roster of arbitrators: Appointment from roster when parties have not
agreed to constitution of tribunal
ISDS innovations in CETA (II)

Frivolous claims: Procedures to deal with claims manifestly without legal
merit and claims unfounded as a matter of law

Appellate mechanism: parties to consult on whether, and if so, under what
conditions, an appellate mechanism could be created

Arbitrator fees: subject to ICSID rates
Where CETA does not boldly go….

Mandatory alternative dispute resolution

Exhaustion of local remedies

Screening of investor claims by treaty parties

Instituting an appeals mechanism

Standing international investment court

Abandoning ISDS and return to state-to-state dispute settlement

Integrate investment protection within WTO system
ISDS in CETA: The Next Generation?

Investment Chapter of CETA provides a template for the (invisible) EU Model
BIT (2014)

Question to debate is not whether ISDS is necessary in CETA, but whether it
is in the overall interests of Canada and EU to support ISDS in international
investment agreements

Both Canada and EU have significant outward FDI; “offensive” interests in
protecting investors abroad

“Defensive” interests as a potential respondent state can be managed by
refining substantive and procedural protections