Investment Protection in the European Union

Name: Investment Protection in the European Union | Considering EU law in investment arbitrations arising from intra-EU and extra-EU bilateral investment agreements
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Considering EU law in investment arbitrations arising from intra-EU and extra-EU bilateral investment agreements

Nico Basener(Author)

Nomos (Publisher)

1st Edition

Published on 5. October 2017

548 pages

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978-3-8452-8571-9 (ISBN)

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Cover
Introduction
Part I: Investment protection in the European Union: the rise of potentially conflicting legal frameworks in the European Union
Chapter 1: The necessity of investment protection
Chapter 2: The ascent of investment protection through IIA / BITs
A. The historical development of investment protection mechanisms
I. From the Middle Ages until the Colonial Era: the use of force and other individual measures
II. The Post-Colonial Era: the gradual rise of public international law as protection mechanism
1. Customary international law: minimum standard of treatment
2. Conventional obligations: Treaties of Friendship, Commerce and Navigation
III. Remaining inefficiencies of the protection mechanisms leading to more specific instruments
1. Procedural enforcement: dependence on either the home state or the host state
2. Unspecific provisions and a general trend to the conclusion of more specific treaties
B. International Investment Agreements: investment protection through bilateral or multilateral international treaties
I. Conventional protection of investments through IIAs
II. Higher degree of clarity as to the protection standards
III. Direct enforcement by investors
IV. Enlargement of the scope of rights through the terms investment and investor
C. State-contracts
Chapter 3: The reception of modern investment protection through IIAs / BITs in the EU: doubling the protection?
A. Rise of the EU and the internal market: Investment protection through EU law
B. Rise of IIAs concluded by EU member states: EU-Investment protection through IIAs
I. Extra-EU IIAs
II. Intra-EU IIAs
III. Mixed agreements including the EU as contracting party
Chapter 4: The separate legal frameworks of investment protection in the EU
A. The IIA framework: investment-protection through IIAs
I. Guiding principles of investment protection through IIAs
II. Substantive protection: overview and scope of protection standards in IIAs
1. Fair and equitable treatment
2. Protection against Expropriation
3. Full protection and security
4. Non-discrimination clauses
(1) National treatment
(2) Most favoured nation treatment
(3) Other non-discrimination clauses
5. Umbrella clauses
6. Free transfer of funds
7. Admission clauses and right to establish
III. Legal remedies: the dispute settlement mechanism in IIAs
1. Investor-state arbitration governed by the ICSIDConvention
(1) Jurisdiction of the Centre
(2) Procedural rules and applicable law
(3) Recourse and enforcement
2. Investor-state arbitration in private forums: ICC / SCC, etc.
(1) Jurisdiction of the arbitral tribunal
(2) Applicable law and procedural rules
(3) Recourse and enforcement of arbitral awards issued in private forums
3. Other remedies such as inter-state and local remedies
B. The EU-Law framework: "investment"-protection in EU law
I. Guiding principles of EU law
II. Substantive protection and its limits under EU law
1. Investment protection through the fundamental freedoms
(1) Freedom of establishment
(2) Free movement of capital
(3) Free transfer of funds
(4) Free movement of goods and freedom to provide services
2. Charter of Fundamental Rights of the EU
(1) Scope of application of the Charter (Art. 51 of the Charter)
(2) Freedom to conduct business (Art. 16 of the Charter)
(3) Right to property (Art. 17 of the Charter)
3. Other principles, including the general principles of EU law and principles of access to justice and due process / relief
III. Dual provisions offering protection but also enabling interventionist measures
1. Competition law: Art. 101, 102 TFEU
2. State aid provisions: Art. 107 ff TFEU
3. Secondary legislation
IV. Legal remedies: judicial review as conceived under EU law
1. Proceedings before national courts and preliminary ruling procedure (Art. 267 TFEU)
2. Immediate proceedings before the CJEU: legal actions enumerated in the European Treaties
(1) Action for annulment (Art. 263, 264 TFEU)
(2) Infringement proceedings as inter-state remedies for violation of EU law (Art. 258 ff TFEU)
3. Action for damages
(1) Extra-contractual action for damages against the EU
(2) Extra-contractual action for damages against the member states
Chapter 5: Potential conflicts of EU law and international investment law
A. Preliminary remarks as to the notion of conflict regarding different legal frameworks
B. Potential conflicts between EU law and IIAs
I. Conflicting provisions between EU law and IIAs regarding substantive guarantees
1. State aid rules (Art. 107 ff TFEU)
2. European public procurement and competition law
3. Fundamental freedoms and their limitations in general
4. Non-discrimination (Art. 18 TFEU or the fundamental freedoms)
5. Free movement of capital
6. Changing legal framework
II. Conflicting provisions between EU law and IIAs regarding jurisdiction
1. Conflict between arbitration clauses and Art. 344 TFEU
2. Conflict between arbitration clauses and the dispatch of competencies in the EU
3. Conflict between arbitration clauses and the principle of non-discrimination (Art. 18 TFEU)
C. Potential implications of the conflict
I. Arbitration proceedings
II. 'Setting-aside' or 'vacatur' proceedings and annulment proceedings
1. Setting-aside an award rendered in private forums (ICC, SCC, etc.)
(1) Invalidity of the arbitration clause (Art. 34 (2) lit. a UNCITRAL Model Law (Lack of jurisdiction))
(2) Award contrary to public policy
2. ICSID-Annulment proceedings
III. Enforcement proceedings
1. Enforcement in private forums (ICC, SCC, etc.)
2. Enforcement of ICSID-Awards
IV. The impact of further potential EU proceedings on the enforcement of an award
V. Conclusion on potential conflicts in the arbitration proceedings
D. Handling EU law in international investment arbitration proceedings: different scenarios but similar interests
I. Distinguishing different types of situations raising the conflict: intra-EU vs. extra-EU IIAs
II. Enjeux en question - Guiding principles which should be respected by any solution to this conflict of laws
Part II: Conflicts between EU Law and IIAs in the intra-EU setting
Chapter 6: Intra-EU IIAs in arbitration proceedings: how to address the interaction of EU law and intra-EU IIAs
A. Structure of the analysis
B. The perspective of an arbitral tribunal in an intra-EU investment dispute
Chapter 7: EU law as international law applicable to the dispute
A. The relevance of any other rule of law than the IIA in the proceedings
B. The qualification of EU law as international law
I. EU law is sourced in international law
1. Transferal of competencies and rights to legislate
2. Irrelevance of principles set forth in the European Treaties for its qualification
II. EU law primarily creates rights and obligations towards member states and as an auxiliary individual rights
III. EU law regulates rights between subjects of international law
Chapter 8: The relevant rule of conflict of laws regarding EU law and IIAs
A. Preliminary remarks how to resolve conflicts between several rules of laws
I. Absence of explicit provisions dealing with the conflict in IIAs and the European Treaties
II. Absence of conflict rule leading to the termination of an entire treaty
B. Art. 59 of the Vienna Convention on the Law of Treaties
I. Same subject matter in terms of Art. 59 VCLT
1. The notion of sameness in Art. 59 VLCT as interpreted by the arbitral tribunals dealing with intra-EU disputes
2. The misuse of the notion of "same subject matter" to eliminate conflicts ab initio
II. Tacit intention to terminate the IIA subsequent to a member state's accession to the European Union (Art. 59 (1) lit. a VCLT)
III. Incompatibility of EU law and IIAs (Art. 59 (1) lit. b VCLT)
IV. Conclusions on the effect of Art. 59 VCLT on intra-EU IIAs
C. Conflict rules of the TFEU (Art. 350, 351 TFEU and the principle of primacy)
I. Ordinary meaning and scope of Art. 351 TFEU
II. Ordinary meaning and scope of Art. 350 TFEU
III. Art. 350, 351 TFEU as opposition to the (inherent) general principle of primacy
D. Applicable conflict rule under the principles of the Vienna Convention on the Law of Treaties
E. Conclusion and summary concerning the rule of conflict in the intra-EU hypothesis
I. First sub-hypothesis: IIA concluded before accession
II. Second sub-hypothesis: IIA concluded after accession
III. Necessity of a conflict and the legal consequences
Chapter 9: Jurisdiction of the arbitral tribunal: Incompatibility of the intra-EU IIA's arbitration clause
A. Incompatibility of arbitration clauses with the specific characteristics and the autonomy of EU law (the exclusive jurisdiction of the CJEU)
I. Why the arbitral tribunal should consider the interpretation of the CJEU in its arbitration proceedings
II. The erroneous view on the criteria to be observed by a dispute settlement mechanism within the European Union
1. The irrelevance of the EU's competencies to regulate arbitration for the question of compatibility
2. The scope of application of Art. 344 TFEU
3. The existence of a duty to respect the fundamental elements of the European Union's legal order and judicial system
4. The criteria to determine the incompatibility with the general principles of the European Union's legal and judicial order
III. Violation of the principles deducted by the CJEU by arbitral tribunals in investment proceedings
1. Quantity of cases and quality of provisions concerned (criteria n° 1 and n° 2)
2. Interpretative monopoly - (de facto) binding interpretation (criterion n° 3)
3. Circumvention of preliminary ruling procedure - disrupting the interaction of the courts (criterion n° 4)
4. Further safeguards to ensure the uniform application of EU law (criterion n° 5)
5. Contravention of the principle of mutual trust (criterion n° 6)
6. Overall assessment of the criteria n° 1 to n° 6
IV. Interim conclusions on the arbitration clause's incompatibility with the autonomy of the EU's legal order and its specific characteristics
V. Excursus for mixed agreements
B. Incompatibility of the arbitration clause with EU law due to the violation of competencies exclusively attributed to the EU?
I. The type of provisions to be affected to trigger the application of the ERTA-jurisprudence
II. Scope of comparison under the ERTA-Doctrine / Pringle-Case
III. Interim conclusion on the arbitration clause's incompatibility due to violation of the EU's exclusive competences
C. Incompatibility of the arbitration clause with the principle of non-discrimination
I. Violation of the principle of non-discrimination by the arbitration clause
1. Inbound perspective (host state discriminating non-IIA protected investors)
(1) Difference in treatment between investors from different nationalities
(2) Comparable circumstances between such investors
(3) Justification for the differential treatment in comparable circumstances
2. Outbound perspective (home state favoring its national investors towards non-national investors)
II. Legal consequences of the violation of the principle of nondiscrimination
D. Interim conclusions on conflicts between EU law and arbitration clauses contained in IIAs
Chapter 10: Primacy of EU law on the merits
A. Inconsistency with substantive guarantees provided in the IIA
B. How to implement EU law's primacy on the merits
Chapter 11: Challenges to the results due to the particular interests and rights in question
A. Impact of sunset clauses on the results
B. Conformity of the solution with the interests in question
Part III: Conflicts between IIAs and EU Law in the extra-EU setting
Chapter 12: The current status of extra-EU IIAs under public international law and EU law
A. External perspective: continuous validity of extra-EU IIAs under public international law
I. Principle of pacta sunt servanda
II. No fundamental change of circumstances upon accession to the EU (Art. 62 VCLT)
III. Consequences for obligations arising from IIAs under public international law
B. Unionist perspective: primacy of EU law despite contradicting obligations under public international law
I. The effects of Art. 351 TFEU: grandfathering of conflicting obligations
II. Limits to Art. 351 (1) TFEU and its consequences for the unionist perspective on extra-EU IIAs
1. Limits to Art. 351 (1) TFEU regarding prior treaties
2. Non-application of Art. 351 (1) TFEU to substantial conflicts in posterior treaties
(1) Arguments against the application of Art. 351 (1) TFEU by analogy
(2) Limitations to the grandfathering effect of Art. 351 (1) TFEU if applied by analogy
III. Summary regarding the unionist perspective and the status of extra-EU IIAs
C. Excursus for mixed agreements and future comprehensive trade agreements
Chapter 13: Current perception of EU law in extra-EU arbitration proceedings
A. The dual nature of EU law in extra-EU arbitration proceedings: international law but also domestic law of the member state
B. Potential interferences of EU law with extra-EU investment proceedings
I. Interferences of EU law with extra-EU investment proceedings through the IIA itself
1. The legality requirement: investments made in accordance with the law of the host state
(1) The prerequisite of the investment's legality under the law of the host state
(2) Consequences for interferences of investments with EU law
2. Interpretation of the Fair and Equitable Treatment standard
II. Interferences of EU law with extra-EU investment proceedings through domestic law being applicable law to the arbitration proceedings
1. EU law being the applicable law to the jurisdictional stage as lex loci arbitri.
2. EU law at the merits stage
C. The role of EU law in the subsequent proceedings
I. Setting-aside or enforcement proceedings
II. Potential decisions by the European Commission
D. Interim conclusion on the disruptive potential of ignoring EU law in extra-EU investment proceedings
Chapter 14: Cooperative approach: transposing Solange and Bosphorus to extra-EU investment proceedings
A. The reception of "similar conflicts" by other courts: Solange and Bosphorus
I. German Constitutional Court: Solange II
II. ECtHR: Bosphorus vs. Ireland
B. Transposing Solange and Bosphorus to extra-EU IIA investment arbitration
I. EU law as a mean of interpretation for obligations under an IIA
1. EU law as domestic law being applicable law to the investment dispute
2. Considering EU law by virtue of Art. 31 (3) lit. c VCLT
(1) Mixed agreements (e.g. Energy Charter Treaty)
(2) Transposing the underlying idea of the Bosphorus-Approach to extra-EU-IIAs
II. Interim results on the possibility to transpose the Bosphorus Approach to IIAs
Chapter 15: Conditions to reduce the margin of control according to the Bosphorus-Approach
A. Equivalence of substantive protection under EU law
I. Protection against (direct and indirect) expropriations
1. Equivalence of measures being qualified as expropriations
2. Equivalence of conditions for a lawful expropriation
(1) Public purpose / public interest
(2) Due process of law
(3) Prohibition of discrimination
(4) Due compensation
3. Equivalence of protected assets and holders of these rights
(1) Protected assets and difficulties arising thereof
(2) Implications of the chain of control: indirectly owned investments
II. National treatment and non-discrimination clauses
1. Equivalence of prohibition of national treatment under the free movement of capital
(1) Protected assets: "investment" and "free movement of capital"
(2) Exceptions and justifications to guarantees under the IIA and under EU law
(3) Scope of application of the free movement of capital: erga omnes protection?
2. Compensation of protection through application of Art. 20 of the Charter
III. Fair and equitable treatment
1. Administrative and judicial due process (element no°1)
(1) Due process in judicial proceedings
(2) Due process in administrative proceedings
2. Prohibition of arbitrary and discriminatory measures and measures causing intentional harm (element no°2)
3. Obligation to provide legality, stability and transparency in exercising legislative or regulatory powers (element no°3)
4. Honouring of legitimate expectations and stability of legislation (element no°4)
5. Principle of proportionality (element no°5)
6. Overall comparative assessment regarding the FET standard
IV. Further principles: Prohibition of arbitrary measures and umbrella clauses
1. Protection against arbitrary measures
2. Umbrella clauses
V. Additional protection for investors established within the EU and operating in other EU member states
VI. Overall assessment of substantive protection under EU law and IIAs
B. Equivalence of procedural guarantees under EU law
I. How to address the equivalence of procedural protection
II. The implementation of procedural investment protection by mixed arbitration
III. Equivalence of procedural investment protection under EU law compared to IIAs
1. Procedural protection through a non-national court system
(1) Direct actions before the CJEU
(2) Supplementary function of national courts under EU law
(3) The assisting function of secondary relief: compensation for violation of EU law
2. Specific performance instead of deterrence: how to ensure observance of substantive guarantees
3. Complementary means offered by EU law to enforce compliance with substantive guarantees
IV. Overall assessment of the equivalence of procedural protection under IIAs and EU law
Chapter 16: Implementing the Bosphorus-Approach in extra-EU investment arbitration proceedings
A. The presumption of lawfulness: how to determine if an act is 'mandatory' under EU law
I. Mandatory actions by the host states under EU law
II. The burden of proof relating to an act being "mandatory"
B. Rebutting the presumption: when to consider the protection to be manifestly deficient
I. Consequence of prior proceedings
II. Downgrade in the level of protection
III. Considerable lack of protection in the particular case depriving the investor of any protection
IV. Denial of justice: forcing the EU member states to grant sufficient procedural protection
C. The required dialogue of the judges
D. Conformity of the solution with the interests in question
Part IV: Outlook regarding the EU's future investment policy
Conclusion
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Investment Protection in the European Union

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