On 29 January 2021, the European Union (“EU”) and Canada adopted four decisions (the “Decisions”), which put in place specific rules elaborating the Investment Court System (“ICS”) agreed in the EU-Canada Comprehensive Economic and Trade Agreement (“CETA”). The Decisions set out detailed rules and procedures regarding the structure of the Appellate Tribunal and the conduct of appeals, adjudicators’ conduct, mediation, as well as the interpretations of the CETA by the CETA Joint Committee (the “Joint Committee”).
As discussed in one of our previous blog posts, the proposals for the Decisions (the “Proposals”) were presented by the European Commission to the Council of the EU (the “Council”) back in October 2019. In May 2020, the EU Member States in the Council unanimously approved the adoption of the Decisions, which largely mirror the relevant Proposals. Now that the Decisions have been agreed between the EU and Canada, they will enter into force upon the ratification of the CETA by all the EU Member States.
The CETA was signed on 30 October 2016, and is yet to be ratified by its signatories. Whereas certain provisions of the CETA are provisionally applied in advance of its ratification, substantive investor protection and the ICS provisions do not yet apply (and will enter into force together with the Decisions, upon the ratification of the CETA by all EU Member States).
The fundamentals of the ICS are already established under Section F (Resolution of investment disputes between investors and states) of Chapter 8 (Investment) of the CETA. The ICS is a permanent and multilateral system comprising a first instance CETA Tribunal and an Appellate Tribunal, established to review decisions rendered by the Tribunal. The ICS constitutes a departure from traditional investment arbitration (characterised by party-appointed arbitrators and the absence of an appeal mechanism). As discussed previously, the ICS is a new approach to investment-related disputes, which the EU has taken in agreements with a number of other countries.
The four Decisions, which set out additional rules, procedures and structures for the ICS to work, are as follows:
- Rules setting out the administrative and organisational matters regarding the functioning of the Appellate Tribunal (the “Appellate Tribunal Decision”);
- A code of conduct applicable to adjudicators (the “Code of Conduct Decision”);
- Rules for mediation (the “Mediation Decision”); and
- A procedure for the adoption of interpretations of the CETA (the “Interpretation Decision”).
The Appellate Tribunal Decision
Structure of the Appellate Tribunal
Unlike Article 8.27 of the CETA, which sets out detailed rules relating to the constitution of the first instance Tribunal, Article 8.28 of the CETA establishing the Appellate Tribunal is rather brief. The Appellate Tribunal Decision develops the CETA provisions clarifying that the Appellate Tribunal will usually comprise six members (although this number may be increased “by multiples of three”). As in the case of the Tribunal members, the Appellate Tribunal members will be appointed by the Joint Committee (albeit for a nine-year non-renewable term rather than a five-year renewable term in the case of Tribunal members). Importantly, the appointment will be made “with a view to the principles of diversity and gender equality“.
The Decision clarifies further the general rule in the CETA that the Appellate Tribunal constituted to hear each case would consist of three members, allowing the Appellate Tribunal to sit in a division of six members “where a case pending before a division raises a serious question affecting the interpretation or application of Chapter [8 of the CETA]”.
Conduct of Appeals
A particular feature of the Proposal, that the disputing party lodging an appeal is required to provide security for the costs of the appeal, was retained in the Appellate Tribunal Decision. In addition, the Appellate Tribunal Decision reiterates that the CETA mechanism is aimed at ensuring efficiency and speed of the dispute resolution process with a requirement that “[e]very effort” should be made to avoid an appeal lasting longer than 270 days, and an opportunity for the Appellate Tribunal to reject an appeal on an expedited basis where it is “manifestly unfounded”.
The Code of Conduct Decision
The Code of Conduct Decision elaborates Article 8.30 (Ethics) of the CETA and addresses the obligations of prospective, appointed and former adjudicators (including mediators) relating to disclosure, independence and impartiality as well as confidentiality. In addition, the Decision imposes a duty on adjudicators to take steps to ensure that their assistants are aware of, and comply with, the relevant conduct obligations.
The CETA already provides that, upon appointment adjudicators “shall refrain from acting as counsel … in any pending or new investment dispute under [the CETA] or any other international agreement”. A particular feature of the Code of Conduct Decision is that it takes this obligation one step further prohibiting former adjudicators from “act[ing] as representatives of any of the disputing parties in investment disputes [in the CETA ICS]” for a period of three years after the end of their term.
The Mediation Decision
The Mediation Decision sets forth the rules for mediation which the disputing parties may avail of under Article 8.20 of the CETA. In particular, it describes the procedures for the initiation of mediation, appointment of mediators, presenting the problem to mediators, suggested ways for the mediators to bring clarity to the problem and termination of the mediation procedure.
The Decision clarifies that the objective of mediation is “to facilitate the finding of a mutually agreed solution through a comprehensive and expeditious procedure”. It echoes Article 8.20.4 of the CETA reiterating that the parties shall endeavour to reach such a solution within 60 days from the mediator’s appointment.
Finally, the Mediation Decision develops Article 8.20.2 of the CETA, which provides that recourse to mediation is without prejudice to the legal position of the disputing parties. In particular, it specifies that mediation “is not intended to serve as a basis for dispute settlement under other dispute settlement procedures” and prohibits disputing parties from relying on, or introducing as evidence in other dispute settlement procedures, information relating to a mediation, such as “positions taken … or views expressed …in the course of the mediation procedure”.
The Interpretation Decision
The Interpretation Decision relates to the Parties’ commitment “to avoid and correct any misinterpretation of CETA by Tribunals” and the power of the Committee on Services and Investment (“CSI“) to recommend to the Joint Committee “the adoption of interpretations” of the CETA pursuant to Articles 8.31.3 and 8.44.3(a) of the CETA.
The Annex to the Interpretation Decision clarifies these provisions, setting forth a procedure via which a CETA Party (i.e. the EU, an EU Member State or Canada) with serious concerns regarding matters of interpretation that may affect investment may refer the matter in writing to the CSI. Such “concerns” may relate to “a specific measure for which a request for consultations has been submitted pursuant to Article 8.19 (Consultations) of the [CETA] by an investor … claiming that such measure breaches an obligation under [Chapter 8]”.
Following such a referral, the CETA Parties shall immediately enter into consultations within the CSI, which shall decide the matter as soon as possible. On agreement of the Parties, the CSI may recommend to the Joint Committee the adoption of a particular interpretation to be given to a provision under Chapter 8. Those interpretations may “address the question of whether and under which conditions a certain type of measure is to be considered as compatible with [Chapter 8]”. The Joint Committee’s decision on such interpretation will be binding on the Tribunal and Appellate Tribunal established under the ICS framework.
The four Decisions clarify the aspects of the ICS which were not described in much detail in the CETA itself. The Decisions shed light on the organisational framework of the CETA Appellate Tribunal and conduct of the appeals, set forth a guide for parties wishing to resolve their dispute by mediation, and underline the importance of a speedy resolution of disputes. The Decisions also establish high standards of conduct applicable to adjudicators and former adjudicators, emphasising that the CETA ICS will adhere to the principles of diversity and gender equality among adjudicators. Finally, the Interpretation Decision spells out the procedure by which a CETA Party may raise its concerns regarding the interpretation of a CETA provision, including at a stage when an investor-state dispute has already arisen and the disputing parties have initiated consultations. It remains to be seen how the Decisions will operate in practice once they enter into force alongside the remaining provisions of the CETA and whether they could have a “spill-over” effect on other regional trade agreements and investor-state arbitration in general.
For more information, please contact Dr. Patricia Nacimiento, Partner, Olga Dementyeva, Associate or your usual Herbert Smith Freehills contact.
 The Joint Committee is responsible for all questions concerning trade and investment, and the implementation and application of the CETA.
 Adopted by the Joint Committee pursuant to Article 8.28.7 of the CETA.
 Adopted by the Committee on Services and Investment, a special committee set up under the CETA pursuant to Article 8.44.2 of the CETA.
 Adopted by the Committee on Services and Investment pursuant to Article 8.44.3(c) of the CETA.
 Adopted by the Joint Committee, in accordance with Articles 8.31.3 and 8.44.3(a) of the CETA.
 See Article 2 (Composition and Administrative Arrangements) of the Appellate Tribunal Decision.
 See Article 8.28.5 (Appellate Tribunal) of the CETA.
 See Article 2.7 (Composition and Administrative Arrangements) of the Appellate Tribunal Decision.
 See Article 3.6 (Conduct of Appeals) of the Appellate Tribunal Decision.
 See Article 4(7) (Independence, Impartiality and Other Obligations of Members) of the Code of Conduct Decision.
 See Article 8.30 (Ethics) of the CETA.
 See Article 5.2 (Obligations of Former Members) of the Code of Conduct Decision.
 See Article 2 (Objective and Scope) of the Mediation Decision.
 See Article 7 (Relationship to Dispute Settlement) of the Mediation Decision.
 See paragraph 1 of the Annex to the Interpretation Decision.
 See paragraph 3 of the Annex to the Interpretation Decision.
 See paragraph 5 of the Annex to the Interpretation Decision.