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 treatiesrationales 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

Adhoc 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)
568known investment treaty cases involving 98 different
respondent states

Respondentstates 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
Claimants oflead:
from EU 2013)
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
24claims against EU member states (Czech Republic (7);
Spain (6))

23claims 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
Solearbitrator: 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
Rosterof 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
BothCanada 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