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The Compatibility of CETA’s Investor Court System with European Union Law: Reconciling Achmea

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The Compatibility of CETA’s Investor Court System with European Union Law: Reconciling Achmea Aquilina Law September 10, 2021

The Compatibility of CETA’s Investor Court System with European Union Law: Reconciling Achmea

Overview of CETA and the Impugned Provisions On October 30, 2016, Canada, the European Union (the “EU”), and the EU’s member states (the “Member States”) signed the Comprehensive Economic and Trade Agreement, or CETA.[i] CETA’s overarching goal is to facilitate trade between Canada and Europe by eliminating tariffs, harmonizing regulation systems, protecting geographically indicated product brands, and recognizing diplomas and professional qualifications, among many other topics. CETA entered into force, provisionally, on September 21, 2017. However, this provisional application does not apply to the Agreement’s Section F, pending ratification by Member States.

Section F of CETA creates an investment adjudication regime to protect investors from state actions, known as the investment court system, or ICS. The ICS would settle disputes between foreign investors and States and would be an arbitrating body outside of the European or Canadian court systems. In the short term, the ICS would consist of a first instance tribunal and an appellate tribunal.[ii] Eventually, the parties and their trading partners would establish a multilateral investment court (MIC) and appellate mechanism, through which any country, or any country’s investor, party to the MIC could have their case heard.[iii]

Section F is highly controversial because it would permit the ICS to impose an award of damages where a State infringes CETA. It was inevitable that sooner or later the European Court of Justice would be seized with the controversy. In this article, we take a look at Opinion 1/17,[iv] which may well put an end to the debate, though we start by reviewing the Achmea decision, an earlier case dealing with a similar issue.[v]

The Achmea Decision The Achmea decision dealt with whether an arbitrator independent of the EU or its Member States’ court systems could grant awards against a State and create decisions that potentially interpret European law. After the fall of the Soviet Union, the burgeoning Slovakian state worked to liberalize its state-run health insurance, opening it to national operators and those of other Member States offering private insurance services. Two years after joining the EU, in 2006, Slovakia attempted to reverse this liberalization in a return to a more universal healthcare system.

Previously, in 1991, Czechoslovakia and the Netherlands had signed a Bilateral Investment Treaty (BIT), which permitted an investor affected by state action to bring a claim against either country before an independent arbitrator. Achmea, a Dutch private health insurance provider active in Slovakia, was negatively affected by Slovakia’s legislative healthcare changes and successfully sued the state under the BIT.[vi]

After Slovakia’s several failed attempts to appeal the award, the Court of Justice of the European Union (ECJ) was tasked with determining whether the BIT arbitration regime was incompatible with EU law. The Court held, inter alia, that the EU, within its competence of international relations and ability to create international treaties, may be bound by the decisions of a court created through such treaties, on the condition that the EU’s autonomy and effectiveness of its legal order is respected.[vii]

However, in the case at hand, the arbitral tribunal was required to interpret Slovakia’s national law and not just the provisions of the BIT. The Court therefore decided that the BIT’s arbitration provisions had an adverse effect on EU law and were thus invalid.

The Questions Raised by the Kingdom of Belgium In the wake of the principles outlined by the Court in Achmea, the ICS elements of CETA raised similar concerns as to the efficacy of EU law.[viii] In order to obtain the support of the Walloon Parliament, the Belgian government asked the ECJ to opine on whether Section F of CETA was compatible with the EU Treaties and EU fundamental rights. Specifically, the Kingdom of Belgium raised three main concerns for the Court’s consideration.

Firstly, in a similar vein to Achmea, Belgium asked whether Section F was incompatible with the EU legal order, as CETA would seemingly require the ICS to interpret and apply primary sources of EU law, general principles of EU law, or decide the scope of fundamental EU rights.[ix] Moreover, Belgium questioned whether ICS mechanisms, which could lead to monetary awards binding on the EU, were incompatible with the principle of the exclusive jurisdiction of the ECJ over the paramount interpretation of EU law.[x]

Secondly, Belgium questioned whether Section F was compatible with Article 20 of the Charter of Fundamental Rights of the European Union (the “Charter”), which states that everyone is equal under the law, and which prohibits discrimination based on nationality. In particular, Canadian enterprises would be able to bring a dispute before the ICS with respect to their EU investments; however, investors from a Member State operating in the EU would not be afforded the same right. Belgium also requested clarification on whether aspects of EU law would be rendered inefficacious in the event the ICS found that a Member State imposed a fine incompatible with CETA, and awarded damages equivalent to the fine imposed.

Finally, the ECJ was asked to examine whether the ICS regime would violate the right of access to an independent tribunal based on two grounds. Firstly, the ICS, due to the costs and expenses of a hearing, may be prohibitively expensive to small and medium-sized investors, limiting access, especially without provisions for legal aid within the current agreement. Secondly, CETA does not adequately outline remuneration for judges and the remuneration is too low, which may make them more susceptible to outside interests, thus calling into question their independence.

The ECJ’s Reasoning 1) Compatibility of the proposed ICS mechanism with the autonomy of the EU legal order In regards to the first question, the Court initially distinguished between Achmea and the decision at hand. The ECJ argued that Achmea pertained to a tribunal resulting from an agreement between two Member States, whereas CETA deals with a permanent investment court created between the EU as a whole and a Non-Member State. Moreover, the Court noted that the BIT in Achmea established a tribunal that would be called upon to give rulings that may concern interpreting or applying EU law, whereas CETA prohibits its tribunals from interpreting domestic or EU law under Article 8.31(2).[xi]

In addition, CETA ensures the ICS would have no jurisdiction to question democratic decisions relating to, inter alia, the level of protection of public order and safety, the protection of public morals, the protection of health and life of humans and animals, the preservation of food safety, protection of plants and the environment, welfare at work, product safety, consumer protection or, equally, or fundamental rights.[xii] Thus, the Court found the provisions within CETA were adequate to protect the autonomy of the EU legal order in response to the first question posed. This decision marks a departure from the approach taken in the Achmea decision. 2) Compatibility with the general principle of equal treatment and with the requirement of effectiveness In response to the second question of Member States enterprises investing in the EU not being able to petition the ICS for violations of CETA by a state, the Court stressed Canadian companies operating in the EU are not comparable to Member State investors in the EU. Rather, the comparator group of Canadian enterprises and natural persons investing in the EU is, in actuality, Member State enterprises investing in Canada.[xiii]

The Court noted that the rationale behind the difference in treatment of Canadian or Member State enterprises operating in the EU is that the Canadian investors have specific legal remedies against EU measures in their capacity as foreign investors.[xiv] Moreover, the scope of the prohibition of nationality under Article 20 of the Charter does not apply to cases where there is a possible difference in treatment between nationals of Member States and nationals of Non-Member State.[xv]

As to the potential inefficaciousness of EU law, if the ICS cancels out a fine, that had been imposed on an EU investor by the EU Commission or the authority of a Member State, the ICS’s award would not create a situation of unequal treatment of the EU investor on which a fine vitiated by a similar defect has been imposed.[xvi] This is due to the fact that EU law permits the annulment of a fine in situations where the fine is vitiated by a defect corresponding to a violation identified by bodies such as the ICS.

3) Compatibility with the right of access to an independent tribunal. In regards to the final question, the Court noted that the CETA Joint Committee was tasked with drafting supplemental rules that would reduce the financial burden on small and medium sized investors looking to avail themselves of the ICS.[xvii] The Joint Committee also has the power and ability to create rules relating to judges’ compensation.[xviii] While there are no specifics as to legal aid or remuneration measures within the current Agreement, it does not follow that these considerations will remain prohibitively indeterminate.

With this final conclusion in hand, the ECJ did not see fit to apply the principles laid out in Achmea, nor did the Court find the ICS incompatible with EU law. According to Section F of CETA, an investor-state dispute settlement mechanism that establishes a tribunal separate from the legal systems of the EU or Canada reignited a debate that seemingly settled. In the Achmea decision, the BIT, which involved a similar arbitration process to CETA’s independent of the EU and which applied decisions against Member States, was treated negatively and as incompatible with EU law by the CJEU. CETA’s ICS, reminiscent of the BIT in Achmea, remained highly controversial. The Belgian Government, on behalf of the Walloons, recently requested an Opinion ruling by the CJEU. The investor dispute mechanism within CETA was questioned by the Belgian Government on three grounds, namely its compatibility with, 1) the EU’s legal autonomy, 2) the principal of equal treatment and the requirement that EU law be effective; and 3) the right of access to an independent tribunal. However, the CJEU found that the provisions of CETA related to the establishment of an investor court were not incompatible with EU Law under any of the raised questions. This marks the clearing of a substantial hurdle by CETA and, in effect, removes a reservation held by the Belgian Government and other Member States so that they may proceed with confidence in their ratifications of CETA. _____________________________________________________________________________________________________________________________

[i] Comprehensive Economic and Trade Agreement, Canada and the European Union [and Member States], October 30, 2016, (entered into force on September 21, 2017).

[ii] Ibid at Arts 8.27-8.28.

[iii] Ibid at Art 8.29.

[iv] Opinion 1/17 pursuant to Article 218(11) TFEU , ECLI:EU:C:2019:341, European Union: Court of Justice of the European Union, 30 April 2019,

[v] Sowakische Republic v Achmea 2018 CJEU C-284/16

[vi] Ibid at paras 10-23; Initially, Achmea was granted an award by the BIT arbitrator in Frankfurt am Main. Slovakia appealed the award to the Hessian Oberlandsgericht, which dismissed its appeal. Slovakia then appealed again to the German Bundesgerichtshof, where a stay was granted pending the ECJ’s response to the questions raised by Slovakia.

[vii] Ibid at para 57.

[viii] Member States have declared that their governments would only sign the agreement if the support was unanimous among all EU States. Under the Belgian federal system, the five regional parliaments have a say in Belgium’s foreign affairs. This gave the Walloon Parliament the power to halt the Belgian Federal government from signing the deal. The Walloons were concerned that the introduction of a court system outside of the EU would adversely affect policy making in the EU as it may open Member States up to litigation in this investment court. They argued that such a system is incompatible with EU law. For more information, see Barrie McKenna’s “What’s Wallonia’s deal? A primer on its role in CETA’s Crisis”, The Globe and Mail, (24 October, 2016) online:

www.theglobeandmail.com/report-on-business/international-business/european-business/explainer-ceta-wallonia-europe-and-canada/article32489554/

[ix] Supra note iv at para 47.

[x] Supra note iv at para 50.

[xi] Comprehensive Economic and Trade Agreement, Canada and the European Union [and Member States], October 30, 2016, (entered into force on September 21, 2017) at Section F Article 8.31(2); in particular, Article 8.31(2) reads that [t]he Tribunal shall not have jurisdiction to determine the legality of a measure, alleged to constitute a breach of this Agreement, under the domestic law of a Party [… and] may consider, as appropriate, the domestic law of a Party as a matter of fact. In doing so, the Tribunal shall follow the prevailing interpretation given to the domestic law by the courts or authorities of that Party and any meaning given to domestic law by the Tribunal shall not be binding upon the courts or the authorities of that Party.

[xii] Supra note iv at para 160.

[xiii] Supra note iv at para 180.

[xiv] Supra note iv at para 181.

[xv] Supra note iv at para 169.

[xvi] Supra note iv at para 186.

[xvii] Supra note i at Art 8.39.6.

[xviii] Supra note i at Art 8.27.14; Supra note iv at para 230. ____________________________________________________________________________________________________________________________

Article by Martin Aquilina, with assistance from Alexander Krush.

This article is for informational purposes only and does not constitute legal advice. If you wish to seek legal advice, contact Martin Aquilina today.

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