An ISDS lobbyist in the EU Court of Justice?

EU Court of Justice’s Advocate General (AG) Melchior Wathelet finds that investor-to-state dispute settlement (ISDS) agreements between EU countries are compatible with the EU treaties. (Opinion in the Achmea v. Slovak republic, the ruling of the Court will follow later.) ISDS gives private parties access to the supranational level to challenge government decisions. The AG sees the ISDS tribunal in question as a court or tribunal common to two EU Member States.

Unfortunately, as I will explain below, in his Opinion the AG disregards known issues and options. I will argue that if the AG wouldn’t have disregarded these issues and options, he couldn’t have reached his conclusion. Specifically, the AG disregards known issues regarding independence and impartiality of ISDS tribunals.

In his Opinion, the AG follows the reasoning of his référendaire (legal secretary) Paschalis Paschalidis. The AG’s référendaire has strong ties to the arbitration industry: “Associate Shearman & Sterling LLP octobre 2009 – novembre 2012 (3 ans 2 mois) Région de Paris, France International Arbitration Group”. His reasoning suffers from the same flaw.

In my view, the AG’s Opinion reads, in part, as if it’s a lobby document. The AG disregards known issues and, as I will explain below, arguably imported an issue conflict, or worse. He should have been more careful. It is now up to the Court to find a more credible solution.

The Opinion

Some examples of shortcomings in the Opinion; Wathelet:

“44. I would add that the systemic risk which, according to the Commission, intra-EU BITs represent to the uniformity and effectiveness of EU law is greatly exaggerated. UNCTAD’s statistics (46) show that out of 62 intra-EU arbitral proceedings which, over a period of several decades, have been closed, the investors have been successful in only 10 cases, (47) representing 16.1% of those 62 cases, a rate significantly below the 26.9% of ‘victories’ for investors at the global level. (48)” (emphasis added)

Less risk for the EU than seen on the global level is a rather meaningless criterion. More relevantly, the AG skips the high damages awarded by tribunals, the high legal costs, the settlements – including a 2 billion euro one (page 7) – and the regulatory chill resulting from such high damages, costs and settlements. Furthermore, with “over a period of several decades” the AG disregards the growing popularity of ISDS and the growing coverage of foreign investments which would result from continuation and expansion of intra-EU investment agreements. The AG’s conclusion “greatly exaggerated” does not convince.

Independence and impartiality

“106. Other aspects of the institutionalisation of arbitration may also be identified in the BIT.”

“107. In fact, Article 8 of the BIT confers power to appoint arbitrators on the Stockholm Chamber of Commerce (SCC), which is a permanent arbitral institution, and Article 8(5) makes the UNCITRAL rules applicable to the arbitral proceedings.”

While this may identify institutionalisation, the Stockholm Chamber of Commerce appointing arbitrators in asynchronous supranational investor-to-state cases shows a lack of institutional safeguards for independence the AG should have noted.

“125. I note, first of all, that the Court has not questioned the independence and impartiality of the arbitrators in any of the cases before it and, next, that the UNCITRAL Arbitration Rules guarantee the independence and impartiality of the arbitrators by imposing a clear obligation on them to disclose any circumstances likely to give rise to justifiable doubts as to their impartiality or independence (96) and also by laying down a procedure for challenging arbitrators where such circumstances exist. (97)”

ISDS lacks basic institutional safeguards for independence: tenure, prohibitions on outside remuneration of the arbitrator and neutral appointment of arbitrators. Furthermore, arbitrators are paid for their task at least 3000 US dollar a day. This creates perverse incentives: accepting frivolous cases, letting cases drag on, letting the only party that can initiate cases (foreign investors) win to stimulate more cases, and pleasing the officials who can appoint arbitrators.

Also, the system does not comply with the principle of separation of powers. Both the claimants and the executive have a 50% influence on the make-up of tribunals. In a court neither the claimant nor the executive has an influence on appointments, as both parties are not neutral. An executive may dislike a law by the former legislature and appoint an arbitrator accordingly.

These issues have been noted by many, see for instance Van Harten, scholars, scholars, German judges, European judges, NGOs. As the ISDS tribunals do not pass an independence and impartiality test, they can not be seen as courts or tribunals of EU Member States (or courts or tribunals common to two EU Member States).

His référendaire dealt with the matter in an even shorter way:

“There is little doubt that investment tribunals satisfy the last three conditions: the procedure is adversarial, they apply rules of law and the arbitrators must satisfy the requirements of independence and impartiality.”

This resembles a case of issue conflict: coming from the arbitration industry, the référendaire is blind to the issues regarding independence and impartiality. Furthermore, if the court picks up his idea – that ISDS tribunals can be seen as courts or tribunals common to two member states – the référendaire will have become a go-to expert.

The AG takes an almost as narrow approach regarding independence and impartiality. He disregards known issues and arguably imported an issue conflict, or worse.


“206. Furthermore, the arbitral tribunals are the most appropriate fora for the settlement of disputes between investors and States on the basis of the BIT, since the national courts often impose conditions on investors that subject reliance on international law to conditions which in reality are impossible to meet, (159) and time limits which are difficult to reconcile with the timely treatment of cases and the amounts at stake.”

Parties can solve such issues in a bilateral agreement itself. And in a broader perspective, “a simple norm of non discriminatory legal protection and equal access to domestic courts” could solve a potential discrimination issue in a way that does not discriminate against local investors. The AG disregards known options.

If the AG wouldn’t have disregarded known issues and options, he couldn’t have reached his conclusion.

(updated 4 October 2017)

Update 8 January 2018

Andrea Carta and Laurens Ankersmit conclude:

“Taken as a whole, the Opinion of the AG appears too eager to defend the compatibility of intra-EU BITs with the EU Treaties failing to engage with the widespread criticism of the ISDS system. Perhaps even more importantly, the Opinion fails to take into account several crucial aspects of EU primary law, such as the special status of the Benelux within the EU and the context in which double taxation treaties operate. Given the constitutional importance of this case, the Opinion misses the much needed opportunity for a thorough and balanced reflection on the many challenges that ISDS, and investment disputes in general, pose to the EU legal and judicial system.”

Gus van Harten concludes:

“To avoid perceptions that the ECJ’s decision-making may have been influenced by actors with an interest in the outcome of Achmea, it would have been preferable for another Advocate General to have done the opinion in that case. Unfortunately, the ground has now been laid for criticism that the ‘revolving door’ between the ISDS industry and state decision-makers also leads into the ECJ.”