In the context of mistrust towards international investment arbitration, overlap is taking place between two legal orders that tended to ignore each other in the past, international investment arbitration and EU law, creating friction between the two legal communities.
These frictions materialized in the judgment of the CJEU in Slovak Republic v. Achmea (“Achmea“), the EU Member States Declarations and recent developments in arbitral jurisprudence. The latest decision rendered by an arbitral tribunal, Eskosol,[1] explains this friction clearly. This analysis will provide first, a comparison of standards offered to foreign investors by international investment arbitration and EU law and, second, suggest methods to reconcile both legal orders.
A Comparison of Standards Offered to Foreign Investors by International Investment Arbitration and EU Law
The finality of both legal systems differs. EU law follows a logic of integration through the free movement of capital. International investment arbitration, however, has a dual objective of promotion and protection of investments through various standards offered to foreign investors.
While EU law focuses on the access of business operators to European markets, international investment arbitration focuses on the protection of investments, not their admission.[2]
In this context, it may be asked whether EU law offers the same protections to foreign investors as provided by international investment arbitration. EU law seems to offer protection against expropriation to foreign investors. Article 17 of the EU Charter of fundamental rights provides for the right to property.[3] Moreover, it appears that EU law provides similar protection against expropriation as international investment arbitration through a CJEU decision rendered on May 21, 2019,[4] concerning an action for failure to fulfill obligations directed against Hungary pursuant to Article 258 of the TFEU. In this case, Hungary was sanctioned for canceling the rights of usufruct over agricultural land held by nationals of other Member States. The CJEU held that Hungary failed to fulfill its obligations arising from the principle of the free movement of capital and the right to property guaranteed by the Charter. Hence, this decision suggests that EU law provides similar protections against expropriation as compared to international investment arbitration.
However, EU law does not appear to provide for fair and equitable treatment protection. The standard of fair and equitable treatment provided by international investment arbitration may be argued under EU law’s legal certainty or legitimate expectations standards. However, it does not appear to be provided by EU law in a similarly comprehensive way.[5]
Suggested Methods to Reconcile Both Legal Orders
The necessity of international investment arbitration may be explained for two reasons, among others.
First, it is unquestionable that international investment arbitration is useful for investor-State disputes. National jurisdictions are inadequate to hear actions brought by investors against a State because of the potential partiality of that State’s courts.
Second, EU law actions for failure to fulfill obligations directed against Member States may only be brought by other Member States or the EU Commission, but not by investors directly. It is only before national jurisdictions that investors are able to invoke EU law, which is a less attractive route than international arbitration.
International investment arbitration is a relatively fast and cost-effective way to render justice with high-quality standards, and Professor Xavier Boucobza argues in favor of reconciliation of both legal orders because of the risks involved. Defying international investment arbitration poses risks of offshoring investments through intermediaries outside the EU. Moreover, arbitral tribunals will also be located outside the EU to avoid challenges of arbitral awards within the EU. Hence, Professor Boucobza suggests two methods to reconcile both legal orders.
Integration of International Arbitration Into the European System Through Control Over Arbitral Awards
Integration of international arbitration into the European system could be accomplished through control over arbitral awards. Control on conformity with international public policy and control on jurisdiction, by determining whether the investment is legal (not made by corruption, in conformity with applicable local and environmental legislation, etc.). Recognition of international arbitration should be made through a corpus similar to the Brussels I Regulation according to Professor Boucobza.
Enacting European Principles of Arbitration
Second, Professor Boucobza suggests adopting European principles of arbitration. He suggests creating a European “Arbitration Act” to enact such principles and to build trust in arbitrators. The Arbitration Act should assert principles favorable to arbitration and establish the duties of arbitral tribunals.
Principles favorable to arbitration are all the principles that ensure the efficiency of international arbitration, such as the kompetenz-kompetenz principle and arbitrability rules. Duties of arbitral tribunals should include procedural duties such as the impartiality and independence of arbitrators and an adversarial process. It should also include substantial duties such as the obligation to examine European lois de police when their application is legitimate, the obligation that health and safety measures should be taken into consideration by arbitral tribunals and the obligation to report when a crime has been committed or is suspected to have been committed.
To conclude, Professor Boucobza argues in favor of collaboration between arbitral tribunals and EU judges that would allow a harmonious guarantee of European fundamental rights. Rather than defying international arbitration, the EU should integrate and supervise arbitral tribunals activities with common principles and, hence, integrate them into European justice. The aim would be to shift from a dual system to a duet between EU law and international investment arbitration. [6]
[1] Eskosol S.P.A In Liquidazione v Italian Republic, ICSID Case No. ARB/15/50, 7 May 2019, https://www.italaw.com/sites/default/files/case-documents/italaw10512.pdf
[2] Professor Xabier Boucobza, Conference on May 28, 2019 «Variations autour d’Achmea – Le droit de l’arbitrage à l’épreuve du droit européen»
[3] https://fra.europa.eu/en/charterpedia/article/17-right-property
[4] https://curia.europa.eu/jcms/upload/docs/application/pdf/2019-05/cp190065en.pdf
[5] Professor Xabier Boucobza, Conference on May 28, 2019 «Variations autour d’Achmea – Le droit de l’arbitrage à l’épreuve du droit européen»
[6] Professor Xabier Boucobza, Conference on May 28, 2019 «Variations autour d’Achmea – Le droit de l’arbitrage à l’épreuve du droit européen»
