submitted by sebastian studirach institute of public

JOHANNES KEPLER UNIVERSITY LINZ Altenberger Str. 69 4040 Linz, Austria www.jku.at DVR 0093696

Submitted by Sebastian Studirach Submitted at Institute of Public International Law, Air Law and International Relations Supervisor A. Univ.-Prof. Dr. Sigmar Stadlmeier LL.M. (London) Month Year 08/2018

The Investment Court System and the Autonomy of the EU Legal Order

Diploma Thesis to obtain the academic degree of

Magister der Rechtswissenschaften in the Diploma Program

Rechtswissenschaften

August 24, 2018 Sebastian Studirach 2/35

STATUTORY DECLARATION

I hereby declare that the thesis submitted is my own unaided work, that I have not used other than the sources indicated, and that all direct and indirect sources are acknowledged as references. This printed thesis is identical with the electronic version submitted. Linz, 24 August 2018 Signature


Table of Contents

1. Introduction ................................................................................................................................ 4

2. The International Court System ................................................................................................ 5

2.1. Structure of the Investment Court ..................................................................................... 6

2.2. Personal Scope ................................................................................................................. 6

2.3. Material Scope ................................................................................................................... 7

2.3.1. Standards of Protection .......................................................................................... 7

2.4. Procedure .......................................................................................................................... 9

2.5. Transparency and Public access .................................................................................... 11

2.6. Remedies ......................................................................................................................... 12

2.7. Arbitrators ........................................................................................................................ 13

2.7.1. Appointment Procedure ....................................................................................... 13

2.7.2. Qualification .......................................................................................................... 13

2.7.3. Code of Conduct/Ethics ....................................................................................... 14

2.8. Enforcement..................................................................................................................... 14

3. The European Union and International Dispute Settlement ................................................... 15

3.1. IDS and External Policy of the EU .................................................................................. 15

3.2. The Autonomy of EU Law................................................................................................ 15

3.2.1. Opinion 1/76 ......................................................................................................... 17

3.2.2. Opinion 1/91 and 1/92 .......................................................................................... 18

3.2.3. Opinion 1/00 ......................................................................................................... 19

3.2.4. Opinion 1/09 ......................................................................................................... 20

3.2.5. Opinion 2/13 ......................................................................................................... 20

3.3. The WTO and EU law ...................................................................................................... 25

3.4. Conclusion ....................................................................................................................... 26

4. The ICS and the Autonomy of EU Law ................................................................................... 27

4.1. Slovak Republic v Achmea BV ........................................................................................ 27

4.2. Implications for the International Court System .............................................................. 29

4.2.1. Binding Effect of Arbitral Awards by the ICS ....................................................... 29

4.2.2. ICS Access to the Preliminary Questions Procedure .......................................... 31

5. Conclusion ............................................................................................................................... 32

6. References .............................................................................................................................. 33


1. Introduction

Liberalisation and proliferation of international trade and investment has long been an instrument

to enhance transnational relationships. To function international economic relationships are

dependent on the rule of law guaranteed by impartial forms and forums of dispute resolution. To

that end arbitration was perceived to be a neutral way to resolve disputes as it provided means

to exclude national jurisdictions.

But exactly this exclusion of the national judicial systems has been leading to increasing criticism

of the arbitration process. This has led to an attempt to reform the system and to regain the trust

of the public. A step in this direction is the introduction of a standing arbitration tribunal in the

form of a so-called Investment Court System (ICS) to replace ad-hoc arbitration along with

various other adjustments in the Investment Chapter of the Comprehensive Economic and Trade

Agreement (CETA).

To successfully establish the ICS the drafters of CETA had to keep in mind the relationship of

European and International law and especially the concept of the autonomy of EU law in order

for CETA to be adopted. In this thesis the traditional system of international investment

arbitration and the newly introduced International Court System will be compared. Moreover, the

concept of the autonomy of EU law and its implications on international dispute settlement

systems will be looked at. Finally, an outlook on the amendments in the investor-state dispute

settlement (ISDS) chapter of CETA and whether they were sufficient to be deemed compatible

with the EU treaties by the Court of Justice of the European Union (CJEU) will be made.


2. The International Court System

At the beginning of international investment law disputes arising from investments by foreigners

were usually settled between the host state and the investor’s home state via diplomatic

protection. Whether such protection was granted was entirely at the discretion of the home state.

Investors could only resort to domestic courts which were often seen as biased and lacking the

necessary expertise to adjudicate investment disputes. Additionally, they were required to apply

national law, which was often the source of the conceived ill treatment of the investor.1

Therefore, investors were looking for direct access to international dispute settlement. From the

late 1960ies investment treaties allowing for direct arbitration between host states and investors,

so called Investor-State dispute settlement emerged.2 Today arbitration is an established,

accepted and often used form of Investor State Dispute Settlement.3

Investment arbitration has long been subject to criticism. It was seen as lacking democratic

legitimacy, as well as having an effect of regulatory chill on states. Critics argued that investment

arbitration has led to a pricey parallel system of justice only accessible to multinationals.

According to them investment arbitration in its current form is a non-transparent, time consuming

and cost-intensive way of solving disputes.4

Arbitrators are seen as an ‘elite group’ favouring investors and interpreting treaty provisions in

favour of them. This group is interested in expanding a non-transparent system in order to profit

from it financially. The key goal is to bring a dispute outside the national judicial system and to

then profit from a non-transparent arbitration process.5

According to the theory of regulatory chill states may be discouraged from introducing legitimate

regulatory measures out of fear of investment arbitration. Commonly distinguished categories

are anticipatory chill, specific response chill and precedential chill. Anticipatory chill describes a

situation in which law makers take possible investment arbitration into account before they begin

drafting a bill. This is thought to be the most serious category as it potentially impacts all areas

which could provoke arbitration. Specific response and precedential chill on the contrast are

seen as reactions to a specific threat of arbitration.6

1 Rudolf Dolzer and Christoph Schreuer, Principles of International Investment Law (Oxford University Press 2008) 218–219 2 Lluis Paradell Andrew Newcombe, Law and Practise of invesment treaties (Kluwer Law International 2009) 44–45 3 UNCTAD, ‘UNCTAD Investment Dispute Settlement Navigator’ <http://investmentpolicyhub.unctad.org/ISDS> accessed 20 August 2018 4 EFILA, ‘A response to the criticism against ISDS’ (2015) 5 Pia Eberhardt and Cecilia Olivet, ‘Profiting from Injustice: How law firms, arbitrators and financiers are fueling an investment arbitration boom’ (November 2012) 34–50 6 Christian Tietje and Freya Baetens, ‘The Impact of Investor-State Dispute Settlement in the Transatlantic Trade and Investment Partnership’ (24 June 2014) 40–41


To meet the reservations against investment arbitration the European Union moved to establish

a new kind of dispute settlement mechanism in future Free Trade Agreements. The Commission

and Canada negotiated for their Trade and Investment Agreement to contain an Investment

Court System (ICS) which was inspired by the World Trade Organisation’s dispute settlement

and appellate bodies. The goal for the EU and Canada is for the Investment Court System to be

transformed into a multilateral entity and to supersede ad-hoc investment arbitration.7

2.1. Structure of the Investment Court

The Investment Court System will consist of a Tribunal and an Appellate Tribunal. While the

Tribunal shall be comprised of 15 members the exact constitution of the Appellate Tribunal will

be arranged by a CETA Joint Committee, consisting of representatives of the EU and Canada.8

While the name suggests otherwise neither the Tribunal nor the Appellate Tribunal will be a

standing body but a list of pre-appointed arbitrators who will convene if a dispute under CETA

arises. The administration will be handled by the International Centre for Settlement of

Investment Disputes (ICSID).9

2.2. Personal Scope

The question of who can bring claims constitutes the ratione personae of an international court.

Only investors holding an investment can bring claims to the ICS. According to CETA an

investor is either

1.) a natural person with Canadian or European Union citizenship

2.) a legal entity that is established under the law of one contracting party and has substantial

business activity in its territory

3.) a legal entity that is established under the laws of one contracting party and controlled either

by a legal entity with substantial business in its territory or by a natural person with Canadian or

EU citizenship.10

7 Laura Puccio and Roderick Harte, From arbitration to the investment court system (ICS) (EPRS 2017) 11–13 8 Comprehensive Economic and Trade Agreement, CETA Art 8.27 8.28 9 Puccio and Harte (n 7) 20 10 Comprehensive Economic and Trade Agreement (n 8) Art. 8.1


Therefore, a company owned by a third state national with no substantial business activity in one

of the contracting parties cannot bring claims to the Tribunal. This exclusion is intended to avoid

claims by letter-box companies.11

2.3. Material Scope

The material scope is defined by Article 8.18. The Tribunal has the competence to rule on

alleged breaches of investment protection under CETA. These rules are defined in sections C

and D of CETA’s investment chapter. Section C contains the national treatment and the most-

favoured-nation clauses and establishes a principle of non-discrimination. Section D contains

provisions relating to the protection of investments such as the definition of just expropriation,

fair and equitable treatment and full protection and security.12

CETA defines the term investment consistent with the conventional interpretation of the term

which generally denotes any asset meeting certain criteria under control of an investor. These

criteria are the transfer of funds, a long-term project, the purpose of generating income and the

adoption of business risk. The participation in the management of the investment is used to

distinguish between a direct and a portfolio investment. While direct investments are considered

protected under customary international law portfolio investments are only protected if stated in

the treaty covering the investment.13 Since CETA does not define the management of the

investment as a prerequisite it covers direct and portfolio investments.14

2.3.1. Standards of Protection

National treatment and most favoured nation clauses are put in investment treaties to protect the

investors from discrimination. Both clauses establish that the host state shall accord to the

investor treatment no less favourable than is accorded to other investors. In case of a national

treatment clause other investors means national investors while in case of a most favoured

nation clause other investors means third country investors.15

Fair and equitable treatment and full protection and security are two standard clauses of

investment treaties. Full protection and security relates to the physical safety of investors and

11 Puccio and Harte (n 7) 23–25 12 Comprehensive Economic and Trade Agreement (n 8) Art 8.18 13 Dolzer and Schreuer (n 1) 60–65 14 Comprehensive Economic and Trade Agreement (n 8) Article 8.1 15 Dolzer and Schreuer (n 1) 178–187


investments. Such a clause does not make the host state liable for any harm that might come to

the investor or investment but instead stipulates a principle of due diligence16.

The meaning of the standard of fair and equitable treatment is disputed. Although there is

agreement that it is meant to represent a standard independent from the host states legal

system it is unclear whether it guarantees the minimum standard of international customary law

or offers a higher standard of treatment.17 The view that a fair and equitable treatment clause

offers a higher level of protection than the minimum standard was developed in subsequent

cases by the NAFTA Tribunal. This prompted its signatory states, including Canada, to issue an

official interpretation. In it they maintained that fair and equitable treatment constitutes only the

standard of protection required by international customary law. To avoid such occurrences

CETA offers an exhaustive list of measures that constitute a breach of the standard. Additionally,

a committee establishing recommendations for new definitions is to be formed.18

The unravelling of the world order in the post WW II era influenced the established international

economic order and therefore the relationship between capital importing and exporting nations.

Socialist post-colonial and Eastern European nations specifically sought to amend the

conventional order in a series of UN resolutions such as Resolution 1803 on the Permanent

Sovereignty over Resources, Resolution 3201 on the New International Economic Order and

Resolution 3281 the Charter of Economic Rights and Duties of States. In respect to

compensation for expropriation Resolutions 3201 and 3281 called for the abolition of the

international minimum standard and for determination of compensations in accordance with

national laws. Even though the Resolutions were supported by a majority of states in the

General Assembly none of the developed states supported them and as non-binding resolutions

they had little effect on the actual practice. 19

However, the differences of opinion on the mode of compensation led to the inability of states to

conclude a multilateral investment treaty. Therefore, states sought to conclude bilateral treaties

in which the right to expropriate was enshrined.20 As a result, a state’s right to expropriate

foreign property is seen even today as fundamentally connected to its sovereignty. For this

reason, modern investment treaties do not contain clauses that forbid expropriation of covered

investments but define the circumstances under which such taking of property is legal. These

requirements are contained in the vast majority of investment treaties and are considered to be

customary international law.

16 ibid 149–153 17 ibid 122–126 18 Laura Puccio, Investment rules in trade agreements (EPRS 2015) 26–28 19 Andrew Newcombe (n 2) 26–31 20 ibid 41–43


The requirements for legal expropriation are:

▪ taking for a public purpose

▪ in a non-discriminatory manner

▪ under due process

▪ payment of prompt, adequate and effective compensation21

Out of these requirements the meaning and nature of compensation was disputed the most.

Today, the term prompt, adequate and effective compensation is defined as the payment of the

market value of the expropriated asset without undue delay in a convertible currency.22

The requirements not only cover direct expropriation, which occurs when the title to the

investment is taken, but also indirect expropriation. Here, in contrast to direct expropriation, the

title remains with the investor but he or she is deprived of the opportunity to effectively control

the investment.23 CETA follows the established model for the legality of expropriation.24

2.4. Procedure

Bringing a dispute to the Tribunal is not the only way to solve an issue under the regime of

CETA. As an alternative to the ICS an investor may choose mediation, the national judicial

system or other international courts. The exhaustion of local remedies is not a prerequisite to

bring a claim to the Tribunal. To proceed the claimant must instead waive his right to pursue the

matter at any domestic or other international court. This so called no U-turn clause was inserted

to prevent forum shopping.25

If an investor decides to bring a claim a consultation period of at least six months must first be

observed. The request for consultation must be brought within three years after the alleged

breach or within two years after ceasing to seek a remedy from a national court. The

consultation period lasts for a maximum of 18 months. If the investor fails to bring a claim to the

court after this period, the request is considered to be withdrawn and no further claim with

respect to the same measure can be brought again.

21 Dolzer and Schreuer (n 1) 91 22 ibid 90–92 23 ibid 89–92 24 Comprehensive Economic and Trade Agreement (n 8) Article 8.12 25 Puccio and Harte (n 7) 18


Due to the special properties of European Union law and the reluctance of the CJEU to permit

any other court to decide on the division of competences between member states and the EU a

mechanism to determine the respondent had to be established in Article 8.21. According to it the

claimant may request a determination of the respondent by the European Union 90 days after

the beginning of the consultation period. The EU may then decide on the respondent within 50

days by applying its internal rules. If the EU fails to inform the claimant paragraph 4 provides

default rules to which all parties of the dispute and the Tribunal are bound.26 Paragraph 4

attributes a measure either to the European Union or to a Member State. A system of joint

responsibility for shared competences is not envisioned.27 Thus, the European Union will be the

respondent for shared competences.

The respondent must consent to arbitration for the Tribunal to constitute. This consent can be

denied by a state party according to the denial of benefit clause. It allows the state party to deny

arbitration if it adopts a measure against an enterprise controlled by a third state national in

relation to international peace and security and an award by the Tribunal would circumvent this

measure.28

To mitigate the effect of frivolous lawsuits Articles 8.32 and 8.33 of CETA gives the respondent

the opportunity to submit that a claim is manifestly without legal merit or unfounded by as a

matter of law. The rules for early dismissal based on a claim being without legal merit were first

introduced by ICSID in 2006. Since then ICSID arbitration tribunals have defined the term as

requiring ‘the respondent to establish its objection clearly and obviously, with relative ease and

despatch’.29 In a further award a tribunal found that the early dismissal rules can also be applied

on jurisdiction and competence but not on facts. Given the lack of definition of ‘manifestly without

legal merit’ in CETA it is highly likely that a ICS would follow the opinion of the ICSID tribunals.30

Claims unfounded as a matter of law on the other hand are defined by CETA as ‘claims for

which an award in favour of the claimant may not be made even if the alleged facts were true’.31

Procedurally an objection on the case being manifestly without legal merit must be filed before

the first session of the Tribunal but at any rate within 30 days of its constitution. The objection

that a claim is unfounded as a matter of law may be submitted as part of the respondent’s

counter-memorial or as a preliminary question.

26 Comprehensive Economic and Trade Agreement (n 8) paras 6,7 27 Stephan Wittich, ‘International Investment Law’ in André Nollkaemper, Ilias Plakokefalos, Jessica Schechinger (ed), The Practice of Shared Responsibility in International Law (2017) 845–846 28 Puccio and Harte (n 7) 17 29 Trans-Global Petroleum, Inc. v. Jordan (2008) ARB/07/25 (ICSID) 30 John R. Crook, ‘Four Tribunals Apply ICSID Rule for Early Ouster of Unmeritorious Claims’ (2011) <https://www.asil.org/insights/volume/15/issue/10/four-Tribunals-apply-icsid-rule-early-ouster-unmeritorious-claims#_edn8> 31 Comprehensive Economic and Trade Agreement (n 8) Art. 8.33


After considering all preliminary question the Tribunal may dismiss the case or accept

jurisdiction. After the Tribunal renders the award the parties may appeal within 90 days

otherwise it is considered final.

Appeals traditionally were not part of the investment arbitration regime. The recognition of an

award could either be challenged at a national court or in case of the ICSID regime be annulled

on ground of the legitimacy of the process or revised in case of nova reperta. These are facts

that come to light after the award was rendered without the applicant neglectfully causing the

delay. Annulment renders the award invalid. Once invalid a claim can be resubmitted to a new

tribunal.32 The WTO regime on the other hand has an appellate mechanism. The WTO Appellate

Body can amend decisions of a dispute settlement panel on the grounds of false application of

the law.33 CETA’s appeal tribunal will closely resemble a national appeal instance as it will be

able to correct the Tribunal decisions on grounds of false application of the law and manifest

errors in appreciation of facts as well as procedural grounds.34

2.5. Transparency and Public access

One of the main points of criticism of investment arbitration has been the lack of opportunity for

third parties to actively or passively take part in the proceedings. This lack of transparency and

public access stems from private commercial arbitration from which many concepts were

adopted. While it is acceptable for two private enterprises to decide to settle a dispute privately

this argument cannot be so easily accepted when one side represents the interests of the

public.35

The transparency rules in CETA expand on the UNCITRAL rules on transparency in treaty-

based Investor-State arbitration and offer a wide range of opportunities for the public to take part

in proceedings. Generally, submissions by parties, hearings and awards are all to be made

public. Exceptions can only be made for confidential and protected information.36

32 Dolzer and Schreuer (n 1) 278–287 33 Dispute Settlement Understanding, DSU Article 17.6 34 Comprehensive Economic and Trade Agreement (n 8) article 8.28 35 Steffen Hindelang and Teoman M Hagemeyer, In Pursuit of an International Investment Court: Recently Negotiated Investment Chapters in EU Comprehensive Free Trade Agreements in Comparative Perspective (Directorate-General for external policies 2017) 118 36 Comprehensive Economic and Trade Agreement (n 8) Art 8.36


Public access defines the possibility of third parties and therefore the public to actively take part

in proceedings. Non-parties to the process submitting opinions to the court are called amici

curiae. Originating in common law systems the concept of amice curiae was adopted for

international public law. Although CETA does not mention submissions by third parties in its

Article dealing with transparency rules the UNCITRAL rules allow written submissions by third

parties. Article 8.38 concerning information sharing among the signatory states also mentions

written submissions by third parties as documents to be shared. In this context it is clear that

CETA considers written third-party submissions to be admissible.37

2.6. Remedies

Under customary international law on state responsibility for international wrongful acts which is

now codified in the UN Resolution 56/83 a state breaching an international obligation is still

bound to perform the duties set out in this obligation and also has to make reparation for the

breach.38 Generally the hierarchical form of reparation is restitution - that is to re-establish the

situation before the breach occurred and then monetary compensation.39

As is the case in traditional investment arbitration the Tribunal may only award monetary

damages or restitution of expropriated property. However, physical restitution may always be

substituted by the payment of monetary damages by the respondent. The primacy of monetary

compensation is contrary to the principles of reparation in public international law mentioned

above.40

This deviation from the norm is caused by a preference for monetary compensation by both

parties of the dispute, in fact it was never disputed whether compensation should be paid, but to

what this compensation should amount.41 Investors generally ask an arbitration tribunal to award

compensation and omit all other forms of reparation as this enables them to re-invest beyond the

host state.42 Host states too prefer monetary compensation as it is seen as a lesser infraction to

their sovereignty and a way to retain regulatory freedom as they can ‘buy themselves out of their

obligations’.43

37 Hindelang and Hagemeyer (n 35) 123 38 Responsibiltiy of States for International Wrongful Acts 2001, Articles 28-31 39 ibid Articles 34-36 40 Steffen Hindelang, ‘Restitution and Compensation: Restructuring the Relationship in Investment Treaty Law’ (2001) 5 41 M. Sornarajah, The International Law of Foreign Investment (3rd edn, Cambridge University Press 2010) 411–451 42 Steffen Hindelang (n 40) 2,9 43 Hindelang and Hagemeyer (n 35) 145–146


2.7. Arbitrators

2.7.1. Appointment Procedure

The established arbitration mechanism also drew criticism for its selection process for

arbitrators. A typical arbitrational tribunal usually consists of an uneven number of arbitrators.

First the parties to the dispute each appoint an even number of arbitrators. The arbitrators

appointed by the parties then proceed to select one or more neutral arbitrators in consensus.44

Neutral arbitrators are considered the most important ones as they break the tie. Consequently,

there is often a lack of consent and a third party must step in. As this third party is often ICSID it

has been argued that the process is dominated by certain states. Arbitrators also often appear

as representatives of parties in other disputes which has led to the belief that they have a vested

interest in the amount of cases brought and thereby deciding more often in favour of the

investor.45

Under CETA a joint committee will appoint the 15 arbitrators of the Tribunal. In continuation of

traditional arbitration procedures five of the arbitrators shall be European, five Canadian and five

shall be from third countries. The president and vice-president of the Tribunal shall be appointed

from among the third country members of the Tribunal.

When a dispute is brought to the Tribunal the president shall appoint three arbitrators on a

rotational basis to settle the case. The parties to the dispute can also agree for the case to be

settled by a single arbitrator who will also be assigned by the president. Due to the closed

number of arbitrators and the selection process for a dispute the Investment Court will resemble

conventional judicial review more closely.46

2.7.2. Qualification

As discussed above the selection of arbitrators is usually a matter of choice for the parties. Even

though lists of competent arbitrators exist there are no formal requirements nor is there a formal

process to appoint an ad-hoc arbitrator.

44 ICSID Convention Art 37 45 Hindelang and Hagemeyer (n 35) 86–87 46 Puccio and Harte (n 7) 15


The qualifications necessary to be appointed as an arbitrator to the ICS on the other hand are in

line with international customs. Prospective arbitrators must possess the qualifications

necessary to be appointed to judicial office in their home jurisdiction or be a jurist of recognized

competence. Furthermore, they should show expertise in public international law especially in

investment protection, trade law and dispute settlement. These requirements are identical with

the appointment regime of the CJEU and the European Court of Human Rights (ECtHR) and

thus a similar level of competence may be expected.47

2.7.3. Code of Conduct/Ethics

As arbitrators sometimes find themselves in a conflict of interests the need to administer these

situations arose. The International Bar Association (IBA) was the first body to establish ethic

guidelines in 2004.48 Though not binding they are considered best practice and are often applied

to assess an arbitrator’s possible conflict of interest.49 Based on the IBA guidelines CETA has

established its own slightly different code of conduct. This code however is not absolutely

binding as the arbitrators will have the choice to either adhere to the IBA guidelines or the CETA

code of conduct. As the IBA guidelines are already known most arbitrators will likely favour them

to the unproven CETA code.50

2.8. Enforcement

The enforcement of arbitration awards depends on the arbitration rules chosen. If the arbitration

process took place under the ICSID convention it itself offers an enforcement regime. Final

awards issued under ICSID rules are to be considered by all contracting states as final

judgements by their own courts and the pecuniary actions are to be enforced. The mode of

enforcement itself is governed by the laws of the state.51 The enforcement of arbitral

proceedings under other rules are overseen by laws of the state of enforcement and by the New

York Convention, which states an obligation to its contracting states to enforce foreign arbitral

47 Hindelang and Hagemeyer (n 35) 86–87 48 IBA, ‘IBA 'Guidelines on Conflicts of Interest in International Arbitration' now available in multiple languages’ <https://www.ibanet.org/ENews_Archive/IBA_July_2008_ENews_ArbitrationMultipleLang.aspx> accessed 4 February 2018 49 Margaret Moses, ‘http://arbitrationblog.kluwerarbitration.com/2017/11/23/role-iba-guidelines-conflicts-interest-arbitrator-challenges/’ <http://arbitrationblog.kluwerarbitration.com/2017/11/23/role-iba-guidelines-conflicts-interest-arbitrator-challenges/> accessed 4 February 2018 50 Dominik Horodyski, ‘Code of conduct for arbitrators in CETA - a step forward in investment arbitration?’ (2/2015) 15 51 ICSID Convention (n 44) Art. 54


awards arising out of disputes between natural or legal persons.52 The review of final arbitral

awards by national courts is limited by the New York Convention53 and most national laws.

CETA does not change this known regime. In contrast, it seeks to strengthen it by containing

definitions declaring an award issued by either the Tribunal or the Appellate Tribunal as an

award for which the ICSID and New York conventions are applicable.54

3. The European Union and International Dispute Settlement

3.1. IDS and External Policy of the EU

The relationship of the European Union with instruments of international dispute settlement is

characterised by the duality of its nature. On the one hand, the EU states its adherence to and

its wish to further develop international law in its founding treaty.55 On the other, the CJEU has

repeatedly denied the EU’s accession to international treaties containing dispute settlement

mechanisms for not being compatible with EU law.

3.2. The Autonomy of EU Law

The European Communities were established via international treaty by six independent states

in 1957 and subsequently integrated into the European Union in the treaties of Maastricht and

Lisbon. A treaty between independent states clearly falls into the domain of international law.

Nevertheless, it is argued that by way of its special properties, European law is sufficiently

different from international law to warrant a distinction. For example, the CJEU held in Costa v

E.N.E.L. ‘By creating a Community of unlimited duration, having its own institutions, its own

personality, its own legal capacity of representation on the international plane and, more

particularly, real powers stemming from a limitation of sovereignty or a transfer of powers from

the States to the Community, the Member States have limited their sovereign rights, (…) and

have thus created a body of law which binds both their nationals and themselves.’56 Following

this logic the CJEU argued that the member states of the EU have created a new layer of law

52 New York Convention 1959 Art. 1 53 ibid Article V 54 Comprehensive Economic and Trade Agreement (n 8) Art. 8.41 55 Treaty of the European Union Articles 3 (5); 21 56 Costa vs E.N.E.L. 6/64 ECLI:EU:C:1964:66


which can be distinguished from both international and national law. The understanding of this

layer is a pluralistic one. National and international law may still be applied as long as they do

not conflict with the law of the European Union.

The doctrine of the autonomy of the EU legal order has its origin in the CJEU’s decisions in van

Gend & Loos and Costa v E.N.E.L. where it held that ‘The Community constitutes a new legal

order of international law for the benefit of which the states have limited their sovereign

rights…’57 and ‘the law stemming from the Treaty, an independent source of law, could not,

because of its special and original nature, be overridden by domestic legal provisions’.58

The notion of the autonomy of the EU legal order was developed with respect to its relationship

to the national legal orders of the member states to ensure the uniform application of EU law

across the EU. Nevertheless, the CJEU has stated that the legal order of the European Union is

also autonomous from international law when it stated that ‘… an international agreement cannot

affect the allocation of responsibilities defined by the Treaties...’59 in Commission v Ireland or ‘An

international agreement cannot affect the allocation of powers fixed by the Treaties or,

consequently, the autonomy of the Community legal system, observance of which is ensured by

the Court by virtue of the exclusive jurisdiction conferred on it by Article 220 EC, jurisdiction that

forms part of the very foundations of the Community.’ in Kadi.60

The legal grounds of the autonomy of EU law lie in Article 19 TEU and Article 344 TFEU. Article

19 TEU reflects the internal component as it grants the CJEU the exclusive right to interpret EU

law, while Article 344 obliges the member states not to settle disputes arising out of the treaties

by external methods. The concept of the autonomy of EU law is not a strictly legal one but

stands in close connection with the notion of a European Constitution. The treaties constituting

the primary law of the European Union and its precursory organisations are often referred to as

the constitution or the quasi-constitution of the EU. Whether this concept is seen positively or not

lies in the eye of the beholder, ultimately the discussion is not about the meaning of constitution

in material sense but about the legitimacy of the European Union.61

Autonomy and legitimacy are innately linked since autonomy literally means ‘the right to give

oneself its own law’.62 The theory of autonomy in a modern sense was developed by Immanuel

Kant, who understood it as capability to act according to morality, that is to be only bound by

one’s own laws reached by reason. In extension, collective autonomy is the ability of a political 57 van Gend & Loos 26/62 ECLI:EU:C:1963:1 58 Costa vs E.N.E.L. (n 56) 59 Commission of the European Communities vs Ireland (2006) C-459/03 para. 128 60 Joint Cases C-402/05 P and C-415/05 P- Yassin Abdullah Kadi and Al Barakaat International Foundation v Council of the European Union and Commission of the European Communities (2008) para. 4 (CJEU) 61 Anne Peters, Elemente einer Theorie der Verfassung Europas (Duncker & Humblot 2001) 29–31 62 ‘Black's Law Dictionary’ <https://thelawdictionary.org/autonomy/>


body to follow its own laws. Collective autonomy relies on the normative legitimacy of its

process. Normative legitimacy describes the evaluation of a certain action and can be

categorised as democratic legitimacy derived from the public, legal legitimacy derived from the

law, procedural legitimacy derived from the process used to reach a decision and reason-based

legitimacy derived from the expectation from the public to endorse the foundations of a decision.

All forms of legitimacy can be understood in a procedural and substantial sense. A court such as

the CJEU relies on procedural and reason-based legitimacy. For the CJEU autonomy ultimately

means that it must be able to decide on the validity, reach and interpretation of EU law within its

own internal logic.63 Whether the concept of a distinct body of EU law is accepted, or it seen as

part of international law practically speaking autonomy is the monopoly of the CJEU to interpret

the law of the European Union.

The external aspect of the EU legal order’s autonomy, that is the EU’s relationship to

international law, deals with the distinction between EU and international law. The purpose of

this distinction is to negate the differences in transforming international law among the member

states, as the transformation of international law depends on the national legal order. Ultimately

the goal again is to ensure the uniform application of EU law.64

The details of the CJEU’s evaluation of the EU’s external autonomy, as it relates to international

dispute settlement was mainly developed in opinions given on the compatibility of an envisioned

international treaty including a dispute settlement mechanism with the EU treaties. Such an

opinion can be requested according to Article 218 (11) TFEU by either a member state, the

European Commission, the European Council or the European Parliament.

3.2.1. Opinion 1/76

The first of such opinions was Opinion 1/76. Dealing with the establishment of a common inland

waterway fund between Switzerland and the European Communities and a related Tribunal the

CJEU held that the Community is ‘not only entitled to enter into contractual relations with a third

country (...) but also has the power, while observing the provisions of the Treaty, to cooperate

with that country in setting up an appropriate organism’ and ‘The Community may also (..)

cooperate with a third country for the purpose of giving the organ of such an institution power of

decision and for the purpose of defining, in a manner appropriate to the objectives pursued, the

63 Christina Eckes, International rulings and the EU legal order: Autonomy as legitimacy? (Center for the law of eu external relations 2016) 64 Anne Peters (n 61) 243–248


nature, elaboration, implementation and effects of the provisions to be adopted within such a

framework’.65

In Opinion 1/76, the CJEU ruled for the first time, that the EU’s participation in international

dispute settlement is possible if the special character of European law is preserved. However,

the CJEU took issue with the possibility of national courts requesting preliminary rulings from the

new Tribunal and the intended participation of CJEU judges in the envisioned Tribunal.66

3.2.2. Opinion 1/91 and 1/92

The CJEU further elaborated on this matter in its Opinions 1/91 and 1/92. At this time, the CJEU

had to decide on the compatibility of the European Economic Area’s (EEA) proposed judicial

system with the treaties. The court reiterated the basic compatibility of IDS with the EU’s legal

order. The envisioned dispute settlement system was nevertheless declared incompatible with

the treaties due to issues that would have again threatened the autonomy of the EU’s legal

system.

The first problem in the envisioned dispute settlement system related to allocation of

competences in the European Union. According to the proposed treaty the EEA’s court would

have had jurisdiction over disputes between the contracting parties to the agreement with

‘contracting parties’ being defined as the (European) Community, its member states or both. If a

case was brought to the EEA’s court it would have needed to interpret the term contracting party

and therefore allocate competences within the EU. This competence however is reserved for the

CJEU within the EU’s system, as the CJEU has jurisdiction over the treaties. Consequently, the

CJEU found it incompatible with the autonomy of EU law to confer this jurisdiction to the EEA

court.

The CJEU also held that decisions of an international agreement incorporating its own system of

dispute resolution would be binding for the EU including the CJEU. Given that the EEA treaty

consisted of a large corpus of essentially identical rules to the existing European Community

Rules and the stated intend of uniform application the CJEU was concerned that this would lead

to a situation in which the EEA court would interpret and define Community provisions. The court

found this to be incompatible with the ‘very foundations of the Community’.67

65 Opinion 1/76 ECLI:EU:C:1977:63 para. 5 66 ibid para 17-22 67 Opinion 1/91 ECLI:EU:C:1991:490 para. 46


Finally, the CJEU found the proposed procedure for the courts of EFTA states to submit

requests for interpretation of provisions contained in the EC treaty to the CJEU to be insufficient.

Such a procedure was in the convenience of the requesting state and the CJEU’s answer to

such a request was seen as being purely advisory. The court held, that such a situation is

incompatible with the EU’s legal order as in it rulings by the court are of a binding nature.68

The CJEU accepted a revised form of the EEA treaty in its Opinion 1/92 one year later. In it the

proposed EEA court was replaced by an EFTA court and a joint committee. The joint committee

was established to ensure the uniform application of EFTA rules similar to community rules while

not affecting the case law of the CJEU.69 It was also tasked to settle disputed among the EFTA

states and the European Community via arbitration. However, the committee was bound to the

interpretations of the CJEU.70

3.2.3. Opinion 1/00

In 2000, an opinion regarding the compatibility of an European Common Aviation Area (ECAA)

with the Treaties was requested. Building on the foundations laid in the previously discussed

Opinions the CJEU stated, that such an agreement would not infringe the autonomy of the EU

legal order if, ‘the essential powers of the Community and its institutions as conceived in the

Treaty remain unaltered’71 and ‘the procedures for ensuring the uniform interpretations of the

rules of the ECAA Agreement and for resolving disputes will not have the effect of binding the

Community and its institutions, in the exercise of their internal powers, to a particular

interpretation of the rules of Community law...’72

The court found the ECAA treaty to be compatible with EU law, as only the Community and no

member state was a signatory and therefore a need for an external body to interpret ‘contracting

party would not arise’. Furthermore, it found that there was a sufficient system in place to

prevent a binding effect of interpretations of provisions similar to community law by external

bodies. Firstly, the ECAA agreement allowed courts of non-EU contracting parties to request a

preliminary ruling by the CJEU. Secondly, the provisions of the ECAA agreement similar to

Community law had to be interpreted in light of CJEU case-law. Finally, a mechanism to

coordinate with future case-law of the CJEU was established.73

68 ibid para. 54 - 61 69 Opinion 1/92 ECLI:EU:C:1992:189 para. 21-25 70 ibid paras 26-35 71 Opinion 1/00 ECLI:EU:C:2002:231 para. 12 72 ibid para. 13 73 ibid para 27 - 45


3.2.4. Opinion 1/09

The CJEU further developed the criteria for to compatibility of IDS in its Opinion 1/09 dealing

with the formation of a Unified Patent Court. In this Opinion, the CJEU remarked on Article 19

TEU. It held that CJEU and member courts together form the judicial system of the EU and

stressed the importance of the procedure to request preliminary rulings in ensuring the uniform

interpretation of EU law.

Although proposed patent court would be outside this system it would have exclusive jurisdiction

in areas formerly under the jurisdiction of member states. This situation would deprive the

national courts of the ability to ask for a preliminary ruling from the CJEU in these areas.74

The CJEU further referred on the question of responsibility for breaches of EU law. If a national

court were to violate EU law the treaties provide for a way to bring proceedings against the

member state in question. For the Patent court, such actions would not be possible.75

Furthermore, the CJEU held that the Patent Court would have the obligation to apply and

interpret EU law. The court has repeatedly held that decisions of an external dispute settlement

system set up under an international agreement could bind the CJEU, as long as it does not

interfere with the essential character of the EU legal system. This statement however was

referring to dispute settlement systems which were set up to resolve disputes arising under the

international agreement itself. Because the Patent Court would have to apply EU law, situations

in which it would have to decide a dispute relying on rules governing other areas of EU law could

occur. This could go as far as the Patent Court having to apply and interpret fundamental rights

and general principles or even examine if acts by EU institutions are valid.76

The Court ruled the Patent Court to not be compatible with the Treaties as it would alter the

judicial system of the EU and thereby change the nature of EU law.

3.2.5. Opinion 2/13

In Opinion 2/13, the CJEU had to decide whether an accession to the ECHR by the EU is

compatible with the treaties. The ECHR is a regional agreement on fundamental rights to which

74 Opinion 1/09 ECLI:EU:C:2011:123 paras 66-69 75 ibid paras 86-88 76 ibid paras 70-86


all EU member states are parties. In the European Court of Human Rights, a mechanism for

controlling alleged breaches of the Convention by its signatories is provided. The CJEU had to

ascertain whether this external mechanism was compatible with the Treaties.

The CJEU followed its settled reasoning in declaring an agreement providing for dispute

settlement by an external body to be compatible with EU law, as long as it does not affect the

autonomy of EU law. It subsequently proceeded to point out how an accession of the EU to the

ECHR would affect said autonomy.

First the CJEU discusses the effect of Article 53 of the ECHR and the EU Charter of

fundamental rights (CFR) respectively. Article 53 of the ECHR allows the contracting parties to

provide for higher standards of protection than guaranteed in the Convention. Article 53 CFR

states that the no provision of the Charter may be interpreted to curtail any standards of

protection laid down in Union law and international law and by international agreements to which

the Union, the Community or all the Member States are party, including the European

Convention for the Protection of Human Rights and Fundamental Freedoms, and by the Member

States’ constitutions. The CJEU has interpreted Art 53 CFR as preventing the member states to

establish higher standards that would adversely affect the unity of EU law. It then established

that both Articles have to be coordinated to be compatible with EU law. The power of the

member states to provide for higher standards has to be limited in so far as it does not surpass

the level of protection laid out in the Charter and thereby negatively affecting the unity of EU

law.77

Then the CJEU elaborates on the principle of mutual trust, which is of fundamental importance

for the EU, as it allows an area without internal borders to function. This principle lays down a

duty for the member states to consider all other member states to be complying with EU law,

particularly in the observance of fundamental rights. In contrast the ECHR contains a duty of

reciprocally checking the observance of human rights by other members. The CJEU found this

duty to be incompatible with the principle of mutual trust.78

Furthermore, Protocol No. 16 of the ECHR would allow for courts of member states to request

an advisory opinion on the interpretation and application of rights guaranteed by the ECHR from

the ECtHR. As the Convention would become part of the EU law this would circumvent the EU’s

own procedures for preliminary questions, particularly for rights in the ECHR which correspond

77 Opinion 2/13 ECLI:EU:C:2014:2454 paras. 187-190 78 ibid paras 191-195


to such in the Charter. As mentioned in Opinion 1/09 the CJEU sees the courts of the member

states via the procedure for preliminary questions as integral part of the EU’s judicial system.79

Subsequently, the CJEU remarked on Article 344 TFEU which provides the CJEU with a

monopoly in settling disputes arising out of the EU treaties. By way of the EU accession the

ECHR would become part of EU law and thus give the CJEU exclusive jurisdiction for disputes

between member states or between member states and the EU. The CJEU noted, that Article 33

ECHR provides for a mechanism in which contracting parties can submit an alleged breach by

another party to the ECtHR. The CJEU held, that the possibility of bringing such a dispute

between member states of member states and the EU to any other court is a violation of Article

344 TFEU.80

The CJEU then turned its attention to the co-respondent mechanism. This mechanism was

designed to avoid situation in which the ECtHR would have to decide on competences within the

EU, as it could hold both the EU and one or more member states to be responsible.81 The

mechanism allows for the EU or a member state to become a party to the dispute either by

accepting an invitation by the ECtHR or by decision of the ECtHR after a request by the EU or a

member state. Before the ECtHR grants a request, it has to check the plausibility of the reasons

given and thereby asses the division of powers in the EU. The CJEU found this to be

incompatible with EU law, as it would interfere with the division of competences within the EU.

The mechanism further is incompatible with EU law as it holds the co-respondents jointly

responsible for violations of the ECHR. This disregards that member states may have held

reservations on certain Articles of the convention. Lastly, the co-respondent mechanism allows

the ECtHR to only hold one co-respondent liable. Giving the ECtHR that decision-making power

means giving the court the opportunity to decide on the division of competences in the EU.82

The court also took issue with the envisioned prior involvement procedure for two reasons. First

it found that even the competence of deciding whether the CJEU has already given a judgement

on a certain issue would amount to giving the ECtHR the jurisdiction to interpret case-law of the

CJEU. To that amount, it suggested a mechanism of prior involvement of the EU institution

involved in a case.83 Moreover, the CJEU found that the prior involvement procedure of the

Accession Agreement did not include bringing questions regarding the interpretation of the EU

secondary law before it. 84

79 ibid paras 196-199 80 ibid paras. 201-214 81 View of Advocate General Kokott ECLI:EU:C:2014:2475 para. 176 82 Opinion 2/13 (n 77) paras. 229-234 83 ibid paras 236-241 84 ibid paras. 242-247


Finally, the CJEU held that its own jurisdiction regarding the Common Foreign and Security

Policy is limited by EU law itself. For the ECtHR, on the other hand, no such limitations exist.

Therefore, an external body would have exclusive competence to decide on the legality of

certain acts by the EU institutions in the field of the CFSP. As already stated in Opinion 1/09 the

court finds that conferring such competence exclusively to a body outside the EU’s judicial

framework is incompatible with EU law.85

Due to the delicate nature of human rights protection Opinion 2/13 was met with widespread

criticism. The overarching reaction of commentators was the feeling that the CJEU wanted to

consolidate power and therefor looked to find potential problems in order to reject the Accession

Agreement86 and that the CJEU was too risk averse.87

Firstly, it is argued that Articles 53 of the ECHR and the CFR might not pose a threat to the unity

of EU law. The CJEU bases its reservation on the Melloni judgement, restating that not even

national constitutional law may negatively affect the primacy and unity of EU law.88 Article 53

CFR only takes effect in cases of simultaneous applicability of the CFR and national

fundamental rights, which occurs when member states are implementing EU legal acts.

In those cases, the courts of the member states have to apply the CFR and thereby EU law. In

these constellations, the preliminary ruling procedure according to Article 267 TFEU does apply,

guaranteeing the uniformity of EU law.89 Furthermore, it is argued that Article 53 ECHR cannot

convey powers to signatories that they did not have before acceding to the convention and

thereby keeping the Melloni boundaries in place.90

The fears of the CJEU regarding the advisory opinion procedure of Protocol No 16

circumventing the preliminary question procedure of Article 267 TFEU are seen as too

hypothetical since the ECtHR procedure is optional while preliminary questions are obligatory for

high courts. The only danger for the unity of EU law would be the construction of an act claire

using the ECtHR by a high court of a member state.91 Other opinions hold the CJEU’s fears as

justified when viewed under a constitutional scope as the ECHR would become an integral part

85 ibid paras. 249-257 86 (n 62); Leonard F. M. Besselink, ‘Acceding to the ECHR notwithstanding the Court of Justice Opinion 2/13’ (2014) <https://verfassungsblog.de/acceding-echr-notwithstanding-court-justice-opinion-213-2/#.VJndiP9oA1A> accessed 9 July 2018; Tobias Lock, ‘Oops! We did it again – the CJEU’s Opinion on EU Accession to the ECHR’ (2014) <https://verfassungsblog.de/oops-das-gutachten-des-eugh-zum-emrk-beitritt-der-eu-2/> accessed 9 July 2018; Walther Michl, ‘Thou shalt have no other courts before me’ (2014) <https://verfassungsblog.de/thou-shalt-no-courts/> accessed 9 July 2018 87 Pieter Jan Kuijper, ‘Reaction to Leonard Besselink’s ACELG Blog’ (2015) <https://acelg.blogactiv.eu/2015/01/06/reaction-to-leonard-besselinks%E2%80%99s-acelg-blog/> 88 Stefano Melloni v Ministerio Fiscal ECLI:EU:C:2013:107 para 60 89 Walther Michl (n 86) 90 Daniel Halberstam, ‘"It's the Autonomy Stupid!" A Modest Defense of Opinion 2/13 on EU Accession to the ECHR, and the Way Forward’ (Universtiy of Michigan 2015) 22 91 Walther Michl (n 86)


of EU primary law. As an integral part of EU law, a member states court could effectively use the

Convention against secondary EU law via the advisory opinion procedure.92

The CJEU’s position on the concept of mutual trust in the area of freedom, security and justice

came under criticism as well. However, this concerns might be justified when looking at the

example of the European Asylum System. There is a stark difference between the ECtHR’s and

the CJEU’s jurisprudence regarding the Dublin System highlighted in two cases just removed by

a few months from each other. In N.S. the CJEU found that an asylum seeker may only resist

transfer to the member state of first entry based on fundamental rights if there are systemic

deficiencies which would amount to substantial grounds for believing the asylum seeker would

face a real risk of being subjected to inhuman or degrading treatment.93 In contrast, the ECtHR

established a duty for the sending state to review claims that there is a real danger of treatment

contrary to the ECHR. The ECtHR makes no mention of a need for systemic deficiencies in the

receiving member state. By requiring a strict assessment of the situation in the receiving state by

the sending one the ECtHR was challenging the concept of mutual trust in M.S.S v Belgium and

Greece.94

Given that the Area of Freedom, security and justice is a weak point in the protection of

fundamental rights in the EU the reservations by the CJEU are seen as an attempt to remove

issues from the jurisdiction of the ECtHR95 and as weakening the EU’s credibility in protecting

human rights especially to other parties such as Russia or Turkey.96

Furthermore, the CJEU’s rejection to permit the ECtHR to hold jurisdiction over measures in the

CFSP was met with opposition and astonishment. This was seen as a way for the CJEU to

establish the courts exclusive jurisdiction over an area it does not hold any yet.97 The result of

the CJEU’s concerns is a hole in the protection of human rights in an area such violations may

occur often leaving potential victims of human rights violations occurring during implementation

of the EU’s CFSP without effective protection on an international level.98

92 Daniel Halberstam (n 90) 19 93 N. S. v Secretary of State for the Home Department ECLI:EU:C:2011:865 para 94 94 M.S.S. v Belgium and Greece Application 30696/09 para 293 (ECtHR) 95 Tobias Lock (n 86) 96 Walther Michl (n 86) 97 Tobias Lock (n 86) 98 Steve Peers, ‘The CJEU and the EU’s accession to the ECHR: a clear and present danger to human rights protection’ (2014) <http://eulawanalysis.blogspot.com/2014/12/the-cjeu-and-eus-accession-to-echr.html> accessed 10 July 2018


3.3. The WTO and EU law

In contrast to the Opinions above the CJEU has not declared the WTO agreements to be

incompatible with EU law but denies direct effect of the agreements and of decisions of its

Dispute Settlement Body (DSB), which essentially means that the legality of measures by

organs of the Union are not to be evaluated in the light of the provisions of the WTO

agreements.

The CJEU does this based on the argument that WTO agreements are essentially negotiation-

based and with the purpose for the signatory states to ‘enter into reciprocal and mutually

advantageous arrangements. Due to the principle of reciprocity, the CJEU further argues that

granting direct effect to the WTO rules while other parties don’t do the same would deprive the

executive organs of the Union of their room to manoeuvre. An exception is only granted when

the Union measure intends to implement an obligation arising out of WTO rules or the measure

refers explicitly to a provision of a WTO agreement.99

Dispute Settlement under the WTO is a case of State to State arbitration and deals with disputes

arising from the GATT. The system consists of a Dispute Settlement Body and an Appellate

Body. The beginning of the process is a request for consultation. If those prove to be

unsuccessful each party can request for a Panel to be constituted. This Panel then writes a

report for the DSB to adopt. The parties to the dispute may appeal to the Appellate Body on the

grounds of false application of the law. The Appellate Body also writes a report for the DSB to

adopt. Once adopted the decisions of the report are binding to the parties and are to be

implemented. If one party does not implement the required measures the other party may start

negotiations on a settlement. If those prove to be unsuccessful the DSB may allow the wronged

party to apply trade sanctions against the other party100.

The CJEU had to decide on the direct effect of DSB decisions in Leon van Parys v Belgisch

Interventie- en Restitutiebureau. The case essentially dealt with a regulation by the EC on the

import of bananas, which was deemed incompatible with WTO law by a Panel of the DSB. By

way of a preliminary ruling procedure the CJEU had to answer whether the EC regulation was

valid given that it was deemed incompatible with GATT by the DSB. The CJEU referred to its

standing case-law regarding the denial of direct effect of WTO agreements. Additionally, it

focused on Article 22 of the DSU which allows for negotiations if DSB decisions are not

implemented within a reasonable period. The court argued that the giving the decisions of the

99 Portugal v Council ECLI:EU:C:1999:574 paras 40-47 100 Dispute Settlement Understanding (n 33) Article 22.2


DSB direct effect would deprive the executive organs of the Union of the possibility to negotiate

in context of the WTO.101

Separated from the issue of direct effect the CJEU also had to decide whether the WTO

agreements fell within the exclusive competence of the EC in its Opinion 1/94. Based on its case

law102 the CJEU considered international agreements concluded by the Union to form an integral

part of EU law. Following this, the CJEU would have the exclusive competence to interpret these

agreements within its jurisdiction according to Article 267 TFEU (ex Article 234 TEC). In the

Opinion, the CJEU found that the GATT fell within the exclusive competence of the EC while

GATS and TRIPS were mixed agreements. Due to the exclusive competence of the CJEU to

settle disputes regarding the interpretation and application of the treaties according to Article 344

TFEU (ex Article 292 TEC) and the Haegeman case the CJEU declared itself solely competent

to settle disputes among member states regarding the WTO treaties. Therefore, member states

could not use the DSB of the WTO to settle disputes among themselves. The lone exceptions

were disputes about provisions lying in the exclusive competences of the member states. After

the Treaty of Lisbon gave the EU exclusive competence for all WTO treaties103 the CJEU also

has the exclusive competence to settle disputes regarding TRIPS and GATS.104

3.4. Conclusion

The CJEU does not regard the law of the European Union as a set of substantial provisions of

international law but as a constitutional framework for a state like entity. Thus, its analysis is not

a partial one but comprehensive taking into account the fundamental characteristics of EU law.

Analysing the Opinions given by CJEU on the autonomy of EU law and its connection to

international dispute settlement it can be concluded that following criteria must be met by an

international dispute settlement system to be compatible with special features of EU law.

• Firstly, the distribution of respondents and therefore competences between members

and the Union must be decided by the CJEU.

• Secondly, interpretations of EU law or similar provisions (spill-over effects) by an external

court must not be binding for the CJEU.

101 Léon Van Parys NV v Belgisch Interventie- en Restitutiebureau ECLI:EU:C:2005:121 paras. 45-48 102 Meryem Demirel v Stadt Schwäbisch Gmünd ECLI:EU:C:1987:400; R. & V. Haegeman v Belgian State ECLI:EU:C:1974:41 103 Treaty on the Functioning of the European Union, TFEU Article 207 104 Tobias Lock, Das Verhältnis zwischen dem EuGH und internationalen Gerichten (1st edn, Mohr Siebeck 2010) 182–198


• Thirdly, reviewing the legality of acts by EU institutions must be the exclusive

competence of the CJEU.

• Finally, member state courts are part of the EU judicial system, therefore no system

compromising the preliminary question procedure may be established.105

Furthermore, this question is not a purely legal one as the connection of autonomy and

legitimacy must be kept in mind. The EU’s legal order as a legal order sui generis is under

attack, both from the perspective of international law and national law.106 The CJEU is often

criticised for taking absolute positions and not considering other facets to the problem in its

decisions107 but for the CJEU to defend the autonomy of EU law is to defend its legitimacy. Thus,

the autonomy of EU law must be ensured as an absolute value, as it essentially ensures the

functioning of the EU legal system.108 Keeping this point in mind it is not surprising that the CJEU

does not evaluate international treaties as equal to EU law but as the constitutional court of the

European Union, carefully watching over the unity of its law.

4. The ICS and the Autonomy of EU Law

The Commission has decided not to ask the CJEU for an opinion on the compatibility of the

proposed ICS system with EU law. After initial reluctance, the European Parliament has also

agreed to CETA relying on a report by its legal service.109 However, Belgium has submitted a

request for an opinion to the CJEU110 and the German Constitutional Court may submit

preliminary questions regarding the Investment chapter to the CJEU. Consequently, the CJEU

will decide on the compatibility after all.

4.1. Slovak Republic v Achmea BV

A hint as to which direction the CJEU might lean can be found in Slovak Republic v Achmea BV.

In this case, it found an arbitration clause in a Bilateral Investment Treaty between two EU

105 Stephan W. Schill, ‘Luxembourg Limits: Conditions for Investor-State Dispute Settlement under Future EU Investment Agreements’ in Marc Bungenberg, August Reinsich, Christian Tietje (ed), EU and Investment Agreements: Open Questions and Remaining Challenges (Nomos 2013) 41 106 Nikos Lavranos, ‘The CJEU's relationship with other international courts and Tribunals’ in Henning Koch and others (eds), Europe: The new legal realism (2010) 408–410; 107 Andrej Lang, ‘Autonomie „über alles“: Eine Kritik des Achmea-Urteils des EuGH’ <https://www.juwiss.de/24-2018/> 108 Eckes (n 63) 17–18 109 European Parliament - Legal Service, ‘Legal Opinion - Compatibility with the Treaties of investment dispute settlement provisions in EU trade agreements’ (6 January 2016) 110 ‘Request for an opinion submitted by the Kingdom of Belgium pursuant to Article 218(11) TFEU’ <http://curia.europa.eu/juris/document/document.jsf?text=&docid=196185&pageIndex=0&doclang=en&mode=lst&dir=&occ=first&part=1&cid=909639> accessed 20 August 2018


member states to be incompatible with EU law. To find out how the points raised might translate

to an external Investment Agreement they must first be analysed.

The Achmea case came to CJEU’s attention via a request for a preliminary ruling by the German

Federal Court. The German Court system had to deal with the issue because Slovakia

challenged the jurisdiction of an ad-hoc tribunal established in Frankfurt under German law

deciding on the violation of the Netherlands-Slovak BIT due to the liberalisation and subsequent

de-liberalisation of the Slovak health insurance market.

In its decision, the CJEU again reiterated its case-law on the autonomy of EU law. Specifically,

its distinction from international and national law and the resulting exclusive competence of the

EU judicial system to interpret and apply EU law. The court then proceeds to stress the

importance of the preliminary ruling procedure in Article 267 TFEU for the EU’s judicial

system.111

Subsequently, the CJEU declares that the arbitral tribunal constituted under the BIT specifically

must apply the law of the contracting parties and thus EU law. Following this finding the judges

hold that any court applying EU law must be able to submit preliminary questions to the CJEU in

accordance with Article 267 TFEU. To do so this court must be within the EU legal system and

therefore part of the legal system of the member states.112

The CJEU then holds that the tribunal is indeed not part of the judicial system of a member state

finding that it is precisely the point of arbitral tribunals not to be part of the judicial system of the

disputing parties.113 The CJEU then moves on establishing that an arbitral award made by a

Tribunal which may interpret EU law but is not part of the EU judicial system must be subject to

review by a court which can submit a question according to Article 267 TFEU.

The CJEU finds that first an arbitration tribunal may choose its seat itself and thereby has control

over whether its awards are subject to review. Secondly, it finds that in the concrete case the

tribunal was situated in Germany and that German Civil law only offers a limited review of

arbitral awards. Even though limited review is acceptable in private commercial arbitration, the

CJEU finds investment arbitration to be different as it ‘derive[s] from a treaty by which member

states agree to remove from the jurisdiction of their own courts, and hence from the system of

judicial remedies which requires them to establish in the fields covered by EU law, disputes

which may concern the application or interpretation of EU law ‘114

111 Achmea v Slovak Republic ECLI:EU:C:2018:158, [2018] paras 32-37 112 ibid paras 38-43 113 ibid para 45 114 ibid para 55


In conclusion, the CJEU found the BIT to be incompatible with EU law as it permits a tribunal

outside of the EU judicial system to interpret EU law without being subject to control by a court

which can submit preliminary questions according to Article 267 TFEU.115

4.2. Implications for the International Court System

Even though the CJEU dealt with an intra EU BIT in Achmea and stressed the differences

between external and internal BITs116 its decision could have implications for external investment

treaties as well. This is especially true when looking at the general arguments in the Opinion

which can be easily applied to external investment treaties.

4.2.1. Binding Effect of Arbitral Awards by the ICS

The CJEU’s first determination was that a Tribunal under the Netherlands-Slovak BIT can apply

and interpret domestic law. This is easy to determine for the BIT concerned as it is explicitly

stated in its Article 8.6. CETA on the other hand specifically stresses that its tribunal should treat

the domestic laws of the parties as a matter of fact.117 As seen in the Opinions given by the

CJEU and mentioned above an international agreement is not compatible with EU law if its

dispute settlement system can interpret EU laws and binds EU institutions to its interpretation.

First it must be said that establishing whether laws of a contracting party violate an investment

agreement is precisely the task of an arbitration Tribunal. That any Tribunal might have to decide

on the legality of an EU law and thereby having to interpret it is certainly a possibility. Having

foreseen this, Article 8.31 of CETA tries to defuse this situation by trying to declare awards by

the ICS as not binding for the CJEU, by establishing that the domestic law of a party is to be

regarded as a matter of fact and by proclaiming that the Tribunal has to follow the prevailing

interpretation by domestic courts.

On a formal level, Article 8.31 may seem to set a sufficient boundary between the provisions of

CETA and of EU law. However, one of the key questions in deciding whether investment

arbitration awards are binding for the CJEU is the existence of possible spill over effects on EU

law as discussed in Opinions 1/91 and 1/92. In Opinion 1/91, the CJEU considered the EEA

rules to be in juxtaposition to EU law as it consisted of a large corpus of laws identical to EU law.

This is not the case with CETA. However, one of the purposes of EU law is to create a common

115 ibid paras 58-60 116 ibid paras 57-58 117 Comprehensive Economic and Trade Agreement (n 8) Article 8.31


market between states. For that purpose, the provisions also include freedom of movement for

capital, ergo investment and principles of non-discrimination. While it is argued that that

Investment treaties do not intend to create a harmonised legal regime118 it remains to be seen

whether the CJEU considers the rules of the common market and those of CETA to have a

special link and thereby creating spill over effects.

Another kind of threat to the ICS might be the fact that the CJEU considers international

agreements binding for the Union to be part of the EU legal system. Operating under this logic

CETA is to be considered part of the EU legal order. An order for which the CJEU has the

monopoly for interpretation. Of course, such an interpretation is only valid within the jurisdiction

of the CJEU. However, given that the CJEU has to decide on the compatibility of CETA in the

light of the EU legal order such an argument may well be raised.119

Even if the CJEU negates a special link, the issue of the ICS declaring EU law to be in violation

of CETA and thereby creating factual spill-over effects remains. To negate possible effects on

the autonomy of EU law CETA remedies are limited to financial compensation. Thus, the CJEU

would remain in a position of exclusive competence to the determine the legality of acts by EU

institutions.120

When looking at the remedies under the ECHR, however, it can be seen that the ECtHR also

only has the possibility to award damages to its applicants.121 The CJEU nevertheless rejected

the accession based on possible binding interpretations of EU law by the ECtHR. Finally, Article

8.31 of CETA is at odds with Article 216 TFEU which states that international agreements are

binding for the Union and its institutions.

Finally, the discrepancy of Articles 8.31 and 8.41 has to be addressed. As previously stated,

8.31 establishes that interpretations of domestic law by the Tribunal are not binding for national

courts. This would also apply to the CJEU within the meaning of CETA. Nevertheless, according

to Article 8.41 the awards of the Tribunal are binding for the parties. Moreover, the case law of

the CJEU and Article 216 TFEU also supports the binding nature of international treaties by the

EU and awards by international dispute settlement mechanisms set up under them.

Subsequently, an award by the ICS is binding to the EU and thus the CJEU while a possible

interpretation of EU law within this award is not. Arguably, the CJEU does not have to follow the

118 Stephan W. Schill (n 104) 119 Szilárd Gáspár-Szilágyi, ‘A Standing Investment Court under TTIP from the Perspective of the Court of Justice of the European Union’ (2016) 17 Journal of World Investment and Trade 701 729–730 120 Stephan W. Schill (n 104) 50 121 European Convention on Human Rights Article 41


interpretation in the award as it is not binding but as seen in previous opinions the CJEU does

also consider potential threats to its autonomy to be harmful.122

4.2.2. ICS Access to the Preliminary Questions Procedure

In its decision, the CJEU declared arbitration tribunals not to be part of the EU judicial system.

This is contrary to the Opinion of Attorney General Wathelet who suggested to include them in

the judicial systems of the member states. He tries this by using criteria established by the CJEU

itself such as whether the court in question is established by law, whether it is permanent,

whether its jurisdiction is compulsory, whether it applies rules of law and whether it is

independent.123 As discussed above the CJEU rejected this reasoning out of hand. It must follow

that it would also not regard international arbitration tribunals on the basis on treaties with

external states such as the ICS to be part of the EU judicial system.

On the other hand, the CJEU has decided in Opinion 1/91 that external courts may submit

preliminary questions as long as the CJEUs answers are binding to that court. Nevertheless, the

EFTA court in Opinion 1/91 and the arbitral tribunal in the Achmea Case have different functions.

While the EFTA courts aim is to ensure the homogeneity of law in the European Economic Area,

the Arbitral Tribunal in Achmea offers an alternative way for resolving disputes to the national

judicial system. Given that the CJEU has decided to exclude the Arbitral Tribunal from the

preliminary reference procedure based on its function and that the ICS fulfils the same function,

that is to offer a different way of resolving disputes, it is likely that the CJEU will not accept

preliminary questions from the ICS.

A further point of concern is the enforceability of awards by the ICS. As mentioned above,

awards under CETA are enforceable at the courts of the contracting parties. These courts may

submit a preliminary question according to Article 267 TFEU but can only examine the

compatibility of these awards with EU law in the limited scope of the New York Convention. As

previously stated, the CJEU considers such provisions in investment treaties to be incompatible

with EU law. Not being part of the EU judicial system, the ICS can also not use the Article 267

procedure itself.

To remedy the treaty the ICS must be able to submit preliminary questions to the CJEU or the

awards might have to be declared to be not directly enforceable at national courts. Both

solutions seem unrealistic. Firstly, the procedure to submit preliminary questions is only open to

courts of the member states. As stated above, the CJEU has rejected to idea to treat arbitral 122 Szilárd Gáspár-Szilágyi (n 118), 730–731 123 C-284/16 paras 84-131 (Opinion of AG Wathelet)


tribunals as part of the member states’ judicial system. Secondly, it is doubtful that Canada will

accept a treaty with a dispute settlement system which awards are binding in Canada but not in

the EU.

5. Conclusion

When looking at the Opinions given by the CJEU on the subject of international dispute

settlement and its connection to the European judicial system some conditions to be met can be

found. Firstly, the distribution of respondents and therefore competences between members and

the Union must be decided by CJEU. Secondly, interpretations of EU law or similar provisions

(spill-over effects) by an external court must not be binding for the CJEU. Thirdly, reviewing the

legality of acts by EU institutions must be the exclusive competence of CJEU. Finally, member

state courts are part of the EU judicial system, therefore no system compromising the

preliminary question procedure may be established.

The drafters of the dispute resolution system under CETA clearly were aware of the conditions

for compatibility with EU law set by the CJEU. Nevertheless, their task was to set up an

independent tribunal for dispute resolution together with the Canadian side. Thus, they

attempted to create an independent system compatible with the case law by inserting fixes such

as Article 8.31 and the mechanism to determine the respondent on the side of the EU.

The mechanism to let the EU decide on the respondent seems to adequately address the issue

of the distribution of competences. Moreover, the conditions laid out in CETA Article 8.31 are

suitable to solve the problem of the exclusive competence of the CJEU to review acts by EU

institutions as the ICS cannot only decide on the legality of acts under CETA. As the dispute

settlement system of CETA is only an alternative to the national judicial system the preliminary

question procedure of the national courts also doesn’t seem to be affected. Still, the CJEU might

consider the possibility to bring disputes to a tribunal outside the EU’s judicial system to be de-

facto a transmission of jurisdiction as investors are most likely to use the arbitration procedure

which is perceived to be neutral.124

Additionally, the criteria of not creating binding effects of interpretations seems not to be met.

Binding effects may occur via spill-over effects due to the similarity of principles of CETA and

certain rules of the single market. The fact that the ICS can declare an act of the EU to be in

124 Konstanze Von Papp, ‘Clash of “autonomous legal orders”: Can EU Member State courts bridge the jurisdictional divide between investment Tribunals and the ECJ? A plea for direct referral from investment Tribunals to the ECJ’ (2013) 50 Common Market Law Review 1039 1069–1071


violation of CETA can also create factual spill-over effects. The careful nature of the case law of

the CJEU has repeatedly found potential effects on the autonomy of EU law to be incompatible

with the treaties.

Because the CJEU considers arbitral tribunals not to be part of the judicial system of the EU the

preliminary question procedure which could potentially solve the issue of creating binding effects

is also not accessible for the ICS. Likewise, awards by the ICS are directly enforceable and only

subject to limited review. Thus, the courts of the member states can also not use their access to

the procedure. Additionally, a reference to the CJEU should ideally be made before an award is

rendered.

The potential solution to make awards not directly enforceable in the Europe Union similar to

WTO regime seems unrealistic as it would defeat the purpose of the ICS. It is also doubtful if the

Canadian side would agree to such a one-sided system.

In its Achmea judgment the CJEU decided on the incompatibility of Investor to State arbitration

with the autonomy of EU law. It did so with general arguments on the autonomy of the EU legal

order and consistent with its case law. Given the constitutional approach the CJEU takes in

deciding on the compatibility of external treaties with EU law, an attempt to find a conciliatory

position is not probable. Thus, a negative response on the compatibility of the ICS with the

autonomy of the EU legal order can be expected. If this is indeed the case it will be for the

administrative organs of the EU to salvage the situation via re-negotiations. However, the

situation regarding the accession to the ECHR shows that such an undertaking might not be

possible if the treaty is incompatible with the EU legal order on a fundamental level.

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submitted by sebastian studirach institute of public

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