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CETA investment court rules reflect wider multilateral dispute settlement reform goals

The European Union and Canada agreed on joint rules for their planned Investment Court System which is to become part of CETA.  Any such court won’t see the light for a long time, but its rules reflect EU ambitions in other areas, namely hopes for a multilateral investment court and WTO Appellate Body reform, writes Nikos Lavranos.

Appellate Tribunal comparable to WTO Appellate Body

According to the agreed rules, the CETA Investment Court will consist of a tribunal of first instance with 15 members and an appellate tribunal with six members: two EU nationals selected by the EU, two Canadians selected by Canada and two selected by the EU and Canada who shall not be nationals of either of the two parties.

They are appointed for a nine-year non-renewable term, although the first three members will be appointed only for six years. The appellate tribunal will hear cases in two chambers of three members, although for important questions the appellate tribunal may sit as a full tribunal. The cases are managed by the Secretariat of ICSID, the Washington-based International Centre for the Settlement of Investment Disputes, a major venue for the settlement of international investor-state arbitration cases.

Initially, the investment court members will not be employed but shall make themselves available and will receive a monthly retainer fee, which still needs to be determined.

As to the scope of appeal, the appellate tribunal – much like the WTO Appellate Body – can in whole or in part modify or reverse the findings of the tribunal of first instance. It can also apply its own findings and render a final award or, if that is not possible, send it back to the tribunal of first instance.

The appellate tribunal is expected to render its decision within 180 days with a maximum of 270 days.

The planned appellate tribunal is very similar to the WTO Appellate Body, although there are some important differences. In particular, the long non-renewable term of appointment contrasts with the much shorter renewable terms of appointment of WTO appeals mechanism. By choosing a long, non-renewable term, the EU and Canada appear to want to avoid a scenario akin to the one prevailing in the current paralysis of the WTO Appellate Body.

Joint binding interpretations

Another set of agreed rules essentially provides procedural details for adopting joint binding decisions relating to the interpretation of the CETA provisions.

Such joint binding interpretations can become particularly important as regarding ongoing investor-state disputes, since they bind the tribunal of first instance and the appellate tribunal.

In themselves, joint binding interpretations in free trade agreements are not new. Such interpretations have for instance been applied by the NAFTA parties as early as in 2001.

But there is a problematic aspect of the EU Canada decision. It concerns the fact that the CETA text as well as the recent new rules explicitly provide for the possibility to adopt binding interpretations with retroactive effect. As a result, the CETA parties could directly influence the outcome of ongoing disputes before the Investment Court and even prevent the recognition and enforcement of already rendered decisions.

The CETA parties reiterated the possibility of giving retroactive effect to joint binding decisions – despite the fact that in its Opinion on the CETA court, the European Court of Justice explicitly rejected the notion of retroactive effect of joint binding decisions.

Code of conduct for Investment Court members and mediators

The agreed rules further involve a code of conduct for the Investment Court members and for mediators. These rules mirror to a large extent the draft code of conduct which has been jointly proposed by the Secretariats of ICSID and UNCITRAL to UNCITRAL Working Group III.

The main focus of the proposed code is disclosure and confidentiality obligations – including for the period following the end of the judges’ terms.  Investment Court members must disclose any direct or indirect conflicts of interests or relationships with any of the parties that cover at least five years prior to their appointment.

In addition, Investment Court members are obliged to appear independent and impartial at all times and must avoid direct and indirect conflicts of interest.

Of note is that this code also applies to assistants of the Investment Court members.

Mediation procedure

Finally, Canada and the EU agreed on procedural rules for mediation proceedings under CETA. The fact that the CETA parties adopt specific mediation rules illustrates the desire to put mediation into the spotlight as an alternative dispute resolution tool to arbitration.

The mediation procedure is much faster and significantly cheaper. It comes in complement to the recently adopted Singapore Convention on Mediation, which facilitates the formal recognition and enforcement of mediation agreements similar to judgments.

The CETA decisions are necessary building blocks for the creation of the CETA Investment Court. The court itself will not see the light before all EU member states have ratified the agreement.

 

Nikos Lavranos is Guest Professor at Free University Brussels. He regularly contributes to Borderlex.

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