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Investment Law

ISDS Reform: Designing Permanent Institutions at Working Group III

Last week, the United Nations Commission on International Trade Law (UNCITRAL) Working Group III (WGIII) turned squarely to designing permanent adjudicative institutions for the resolution of investment disputes. As readers of this blog may be aware, WGIII is charged with developing multilateral reforms to the current ad hoc system of investor-state dispute resolution (ISDS). This government-led process involves delegations from around a hundred States, with active participation by dozens of observer delegations from international organizations, arbitral institutions, NGOs, business associations, and learned societies. Beginning in WGIII’s 34th Session in 2017, this work has continued through biannual sessions in Vienna and New York. From 2017 to 2018, delegations registered substantial concerns with ISDS, relating to fragmented arbitral outcomes; arbitrator independence, impartiality, and diversity; duration and cost; multiple proceedings; and third-party funding (Phase 1). In the fall of 2018, WGIII decided to work multilaterally to reform such concerns within UNCITRAL (Phase 2). As of its 37th Session in 2019, WGIII has moved firmly into working on concrete reform options (Phase 3) (discussed here).

WGIII’s 38th Session in Vienna marked a key transition into detailed discussion of reform options. Meeting initially in October 2019, the WGIII held discussions on a series of reform options according to a pre-determined project schedule. This work was grounded in proposals by over forty-five governments, across twenty-three submissions (here); complemented by several Secretariat papers; submissions by observer delegations (here); and concept papers by the Academic Forum on ISDS Reform (here). In this initial meeting, WGIII focused on (i) developing a multilateral advisory center; (ii) a code of conduct; and (iii) reforms to third-party funding (discussed here). Discussions centered on high level values, trade-offs and prioritization, with the goal of guiding the Secretariat as it turns to developing more concrete reform options.

Resuming its 38th Session in Vienna last week (January 2020), WGIII turned squarely to designing permanent institutions: (iv) a standing appellate mechanism; and (v) a multilateral investment court (MIC); as well as the cross-cutting question of (vi) selecting and appointing adjudicators. As with the discussions last fall, the goal was to discuss each reform option at a high level, to provide guidance to the Secretariat. The Working Group is not yet taking firm decisions on the desirability or ultimate form of any reforms, although some States are already revealing their preferences. Later this year, WGIII will develop a new project schedule and begin circling back to each topic, seriatim, with the benefit of new responsive work by the Secretariat, the Academic Forum, and other organizations (such as the OECD, ICSID, the PCA, and several NGOs).READ MORE

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CJEU Expected to Rule on Notion of “Investment” in Energy Charter Treaty

On 24 September 2019, the Paris Court of Appeal handed down a judgment in which it decided to refer three questions for preliminary ruling to the Court of Justice of the European Union (the CJEU) regarding the definition of an “investment” in the Energy Charter Treaty (the ECT).

The upcoming decision of the CJEU is likely to have a great impact on the scope of future ECT based investment arbitration proceedings, which require, pursuant to Article 26(1) of the ECT, that the dispute relate to “an investment“.READ MORE

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ISDS Reform: Working Group III Gets Down to Brass Tacks

Last week, multilateral efforts to reform investor-state dispute resolution (ISDS) entered a new phase, with substantive discussions of reform options beginning in earnest. As readers of this blog are aware, delegations from around a hundred States have been working multilaterally toward reforming ISDS in the United Nations Commission on International Trade Law (UNCITRAL), Working Group III (WGIII) over the last two years.

This work began in earnest in WGIII’s 34th Session in Vienna (2017) and has continued through biannual Sessions in Vienna and New York. From 2017–2018, Delegations registered substantial concerns with ISDS, relating to fragmented arbitral outcomes; the arbitrators charged with adjudicating disputes; matters of duration and cost; the lack of a framework to address multiple proceedings; and third-party funding (Phase 1). In Vienna last year, WGIII decided to work multilaterally to reform such concerns within UNCITRAL (Phase 2) – discussed further here. Last week proved to be a key hinge in the process. WGIII has now moved firmly into working on concrete reform options (Phase 3).

WGIII’s 37th Session in New York this past Spring 2019 appeared as something of a lull in the process, but it culminated in a key compromise on working methods that preserved consensus for the time being. WGIII spent much of that week debating working procedures, ultimately adopting a compromise plan to divide working time between developing “structural reforms” (i.e., large scale institutional reform options like a standing investment court or a standalone appellate body), and “functional reforms” (i.e., specific targeted reforms on problematic aspects of ISDS, like the lack of code of conduct, the lack of a mechanism to address multiple claims and shareholder claims more generally, third party funding, and security for costs). But it deferred actually developing a concrete project schedule until the fall.

WGIII’s 38th Session in Vienna last week marked the fruition of that compromise, and a transition into detailed discussions on reform options.READ MORE

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Nord Stream 2 Investor Initiates ECT Arbitration Proceedings Against European Union

On 26 September 2019, the Russian energy giant Gazprom issued, through its Switzerland-based subsidiary Nord Stream 2 AG, a notice for arbitration against the European Union alleging that recent amendments brought to Directive 2009/73/EC concerning common rules for the internal market in natural gas and repealing Directive 2003/55/EC (the Gas Directive) damaged its investments in the Nord Stream 2 pipeline and thus violated the Energy Charter Treaty 1994 (the ECT).

The issuing of this notice for arbitration appears to mark the first time that investment arbitration proceedings under the ECT are to take place against the European Union itself and serves as the latest saga in the area of inter-mixity of investment dispute settlement and EU law.READ MORE

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CETA ISDS Mechanism Compatible with EU Law: What Implications?

This article has jointly been co-authored by Isabelle Van Damme and Quentin Declève

On 30 April 2019, the Court of Justice of the European Union (CJEU) decided in Opinion 1/17 that the chapter on investor-State dispute settlement (ISDS) in the Comprehensive Economic and Trade Agreement between Canada, of one part, and the European Union and its Member States, of the other part (CETA) is compatible with EU primary law. On 29 January 2019, Advocate General Bot had already reached the same conclusion (for an analysis, see here).

Opinion 1/17 removes a significant obstacle to the ratification of CETA by the EU Member States and the ratification of investment protection agreements with, for example, Singapore and Vietnam, which contain similar chapters on ISDS. The Opinion also significantly boosts the European Union negotiating position in the ongoing United Nations Commission on International Trade Law (UNCITRAL) negotiations on ISDS reform. At the same time, the Opinion might, to some extent, tie the hands of the European Union in negotiating in that forum.READ MORE

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Opinion 1/17 on CETA: Advocate General Bot Finds Investment Court System in CETA compatible with EU law

This article has jointly been co-authored by Quentin Declève and Isabelle Van Damme

On 29 January 2019, Advocate General Bot delivered his long-awaited Opinion (the Opinion) on whether the investment court system (ICS) in Chapter Eight, Section F, of the European Union-Canada Comprehensive Economic and Trade Agreement (CETA) is compatible with European Union (EU) law, in particular with the autonomy of the EU legal order and fundamental rights. The next step in the proceedings before the Court of Justice of the European Union (CJEU), initiated by Belgium following complications in its ratification process, is for the CJEU to deliver its Opinion on the same question (see previous post here and report of the hearing before the CJEU here).

This article discusses the key elements of the Opinion and the implications of these CJEU proceedings on the European Union’s common commercial policy and its policy of advocating reform of existing investor-State dispute settlement (ISDS) and the establishment of a multilateral investment court (MIC).READ MORE

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ISDS Reform, Intra-EU BITs and CETA: New and Upcoming Developments

On 19 January 2019, the European Union submitted new proposals to the United Nations Commission on International Trade Law (UNCITRAL) Working Group III (WGIII) tasked with examining the reform of investor-State dispute settlement (ISDS).

As we have reported before (see here, here, here and here), discussions are currently being held within WGIII on a possible reform of ISDS mechanisms. Those rounds of discussions take place twice a year (in April and in November) and were initiated in November 2017. The discussions are divided into three distinct phases: identifying concerns about ISDS (Phase I); considering whether reform of the current system is desirable in the light of any identified concerns (Phase II); and designing options for reform responding to any such concerns (Phase III).

After its 36th Session (which took place in Vienna in October-November 2018), WGIII has now almost completed Phase II of its mandate.

In order to move into Phase III and start discussing concrete reform options, the Chairman of WGIII has invited countries involved in the discussions to submit proposals regarding the content of such reform as well as the roadmap to achieve those reforms. Those proposals would then be discussed during the next meeting of WGIII in April 2019.

In light of this invitation, the EU has now submitted two papers to the WGIII Secretariat.READ MORE

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