CJEU jurisdiction over the Energy Charter Treaty and its compatibility with the Treaties: Opinion of AG Szpunar in Case C-741/19

 

 

 

Hannes Lenk, Assistant Professor in Law, Aarhus University

 

 

On 24 September 2019 the French Cour d’appel de Paris requested a preliminary reference from the Court of Justice of the European Union (CJEU) on the interpretation of the concept of ‘investment’ in Article 1.6 of the Energy Charter Treaty (ECT). The relationship of the ECT with the EU legal order has long been in question, but came under criticism particularly following the Achmea judgment that sent shockwaves around the arbitration community as it declared investor-state dispute settlement (ISDS) provisions in bilateral investment treaties (BITs) concluded between EU Member States inter se as incompatible with the EU Treaties (discussed here). Scholars and practitioners have since tried to ascertain the broader effects of the Achmea judgment for investment arbitration, including its impact on the intra-EU application of the ECT, i.e. in disputes brought by an investor from an EU Member State against another Member State.

 

In light of yesterday’s Opinion of Advocate General Szpunar in the case referred from the French court (Case C-741/19), this post focuses on the jurisdictional issues, ie the jurisdiction of the CJEU over the ECT, and the intra-EU application of the ECT.

 

Jurisdiction of the CJEU over the ECT

 

Case C-741/19 is peculiar because the underlying dispute involves two non-EU parties. It is only for the seat of arbitration in Paris, that the dispute ultimately developed an EU law dimension. In April of 2016, the French Cour d’appel set aside the award, ruling that the tribunal had no jurisdiction having erred in considering the payment of a debt linked to a contract for the sale of electricity as an ’investment’ under Art 1.6 ECT. Upon appeal the Cour de cassation disagreed with this narrow interpretation and reverted the case back to the Cour d’appel.

 

Article 267 TFEU furnishes national courts with an option—and in some cases an obligation — to refer to the CJEU questions over the interpretation of a legal act that falls within the Court’s jurisdiction. This includes so-called ‘mixed’ agreements, that is international agreements concluded by the Member States alongside the EU with third countries. Indeed, the EU as well as its Member States (with the exception of Italy that withdrew from the ECT in 2016) are all signatories to the ECT. As ‘an integral part’ of the EU legal order (Case 181/73 Haegeman) the ECT is binding on the Union and its Member States by virtue of Article 216(2) TFEU. Strictly speaking, the ECT is only to be viewed as a Union agreement in as far as its provisions fall under exclusive competence of the Union (Case C-239/03 Commission v France).

 

Following Opinion 2/15 on the EU-Singapore FTA, this exclusive competence extends in the field of investment to all matters concerning foreign direct investment (with the exclusion of investor-state dispute settlement provisions). Non-direct forms of investment, as well as provisions on liberalization and protection of these investments, fall outside of the EU’s exclusive competence. ISDS provisions are likewise excluded (discussed here). This delimitation of competence carries certain ramifications for the CJEU’s jurisdiction over mixed agreements.

The CJEU has nonetheless interpreted its own jurisdiction broadly, covering provisions of a mixed agreement that are liable to find application in both national law and EU law (Case C-53/96 Hermès). In these cases, the argument for CJEU jurisdiction lies with the Union’s interest in the uniform interpretation of an international agreement. This is certainly the case for an interpretation of ‘investment’ within the context of the ECT, considering that certain forms of investments fall within, while others fall outside, of the exclusive competence of the EU. The classification of an economic transaction as one or the other type of investment, or falling outside of the scope of the ECT altogether is furthermore liable to have ramifications for the application of national as well as EU law. It would not be unreasonable, therefore, for the CJEU to assume general jurisdiction over the ECT.

 

The Advocate General confirms the broad jurisdiction of the CJEU over the ECT as an agreement concluded by the EU (paras. 28-29). However, the AG is quick to acknowledge that Case C-741/19 concerns a dispute between a Ukrainian investor and the Republic of Moldavia, and that this factor might have implications on the Court’s jurisdiction (para. 30).

 

Indeed, there may be legitimate reasons for the uniform interpretation of the ECT in disputes with an EU dimension. It is not immediately clear, however, why this reasoning should be extended to the application of the ECT in disputes that have no substantive link with the Union legal order. Indeed, in the context of the EEA agreement the CJEU recognized that it had no jurisdiction to interpret the provisions of a mixed agreement in as far as its application in third countries is concerned (Case C‑321/97 Wåkerås-Andersson); Case C‑300/01 Salzmann). Although the concept of ‘investment’ under the ECT is liable to be applied in situations that fall under both Member State as well as EU law, in the present case it is being applied to neither.

 

The AG, however, differentiates the EEA context from the specific characteristics of the ECT in two respects. On the one hand, the ECT lacks a judicial institution that is capable of ensuring its uniform interpretation of the agreement. It is therefore liable to create differences in interpretation of core concepts such as ‘investment’ (para. 40). Second, considering the design of the ECT, which can be broken down in a number of bilateral commitments between the contracting parties, it cannot be excluded that the ECT finds application in relations between the Member States inter se (paras. 41 and 42). It is in the Union’s interest, so the AG concludes, to ensure the uniform interpretation of provisions of the ECT that find application within the Union legal order (para. 45). It is true, of course, that the Cour d’appel might be compelled to uphold its interpretation in future cases, including disputes involving measures adopted by the EU or an EU Member State. The argument in favour of uniform interpretation might therefore have merit in all circumstances where the ECT is interpreted by a Member State court ‘in order to forestall future differences in interpretation’ (Joined Cases C-300/98 and C-392/98 Perfums Dior, para. 35).

 

In the eyes of the AG the ECT would be applied within the EU legal order if an EU investor initiates a dispute against a Member State, be that before an ISDS tribunal established on the basis of Article 26 ECT, or the domestic courts of that Member State. Having indulged in some detail on the issue on intra-EU application of the ECT (discussed below), the AG returns towards the end of his opinion to the application of the ECT against an EU Member State before the domestic courts. Acknowledging that an exhaustive analysis as to the overlap of the ECT and EU law is nearly impossible to carry out in the abstract, the AG departs from the general proposition that the substantive provisions of the ECT were intended to be applied also within the EU legal order (para. 97). This finding alone would have justified CJEU jurisdiction over the ECT. And yet, the AG analyses in some detail the controversial issue of intra-EU application of the ECT.

 

The intra-EU application of the ECT

 

This has long been a contentious issue. However, with the Achmea judgment it has gained gravity, both politically as well as in EU and domestic courts. Politically, the Achmea judgment created a rift between EU Member States over the effect of the Court’s ruling. Whereas the majority of Member States declared in February 2019 that the Achmea judgement applies mutatis mutandis to the intra-EU application of the ECT, a group of five Member States rejected this proposition (see here and here). For this group of Member States, which included Sweden, the dissenting position was primarily based on the outcome of the set-aside proceedings in Novenergia II, which is currently pending before the Svea Court of Appeal. At the time these declarations were made there were strong reasons to believe that the Swedish court would follow Spain’s request to refer the question over the validity of intra-EU ECT arbitration to the CJEU. In May 2019, however, this request was denied, and the uncertainty over the relationship between the EU legal order and the ECT remained.

 

In the meantime, the Belgian government requested an Opinion from the Court of Justice on the compatibility of the modernization of the ECT with the EU Treaties. Opinion 1/20 thus directly concerns the institutional set-up under the ECT, and cannot ignore the issue of the intra-EU application of Article 26 of the ECT. Furthermore, the issue has already—somewhat unexpectedly—sprung up in other cases before the CJEU. Only recently, Advocate General Saugmandsgaard Øe commented on the issue, noting that ‘inasmuch as Article 26 of the Energy Charter, …, provides that such disputes may be resolved by arbitral tribunals, that provision is not applicable to intra-Community disputes’. The case, which concerned the application of the ECT by an Italian investor against Italy, turned on the central question as to whether investors can initiate ISDS proceedings against their home state under the ECT. On the contrary, the issue of intra-EU application of the ECT was entirely irrelevant to the dispute. Indeed the AG acknowledges as much (para. 93). The CJEU has yet to decide in this case but is unlikely to engage with the AG on this point.

 

More importantly, although the present case does no immediately concern the intra-EU application of the ECT, it has the potential to shed some light on the issue. During the written procedure, some Member States raised the incompatibility of intra-EU application of Article 26 of the ECT with the Treaties. In preparation for the hearing in November 2020, all intervening Member States were asked by the CJEU specifically to provide their views on this issue.

 

AG Szpunar elegantly connects this question logically with the Court’s jurisdiction, arguing that the CJEU only has jurisdiction over provisions of an international agreement that may also find application within the EU legal order (para. 46). Consequently, if in light of the Achmea judgment Article 26 of the ECT cannot be applied as between Member States, the Court cannot have jurisdiction (para. 47). Noting, the differences between the ECT and intra-EU BITs, which were at issue in Achmea, the AG then explicitly invites the Court to take this opportunity to address this controversial question in its judgment (para. 48). Going even further, the AG asks the CJEU to address the compatibility of substantive provisions in intra-EU investment agreements with the Treaties, an issue not addressed in Achmea.

 

Reviewing first the Achmea judgment, the AG provides some notable insight into the conceptual differentiation of commercial arbitration, which is generally accepted under EU law, and investment treaty arbitration. This aspect was at the heart of Achmea judgment but was insufficiently substantiated by the CJEU. The AG here confirms that it is precisely the systemic nature with which Member States have waived the jurisdiction of domestic courts over an abstractly defined class of cases, which undermines the principles of mutual trust and the specific character of the law established by the Treaties (including the judicial dialogue established under Article 267 TFEU) (para. 63), and thus the principle of autonomy.

 

Ultimately, the AG concludes that the inapplicability of intra-EU ISDS provisions has no temporal limitations and the jurisdiction of an arbitral tribunal on the basis of such a provision can simply not be recognized within the Union legal order (para. 69).

 

Applying this view to the ECT, the AG notes certain similarities. On the one hand, he observes that although the applicable law under the ECT does not include domestic law explicitly, an arbitral tribunal under the ECT might nonetheless face questions over the interpretation, if not application, of EU law (para. 75). On the other hand, the AG opines that the ECT investor-state tribunals are, like investment tribunals established under intra-EU BITs, outside of the EU legal order (para. 76). As a consequence, so the AG argues, Achmea can be directly transposed to the intra-EU application of Article 26 of the ECT (para. 79). This conclusion is not called into question by the multilateral nature of the ECT, nor the EU’s participation in the agreement (para. 83).

 

Challenge and opportunities for the CJEU in Case C-741/19

 

The case raises a number of novel questions in EU law that would undoubtedly benefit from greater clarity. This includes the Court’s jurisdiction over incomplete mixed agreements, ie mixed agreements to which not all Member States are signatories, as well as its jurisdiction over provisions of multilateral agreements in their application outside of the EU.

 

In as far as the Achmea judgment carries relevance, a more detailed explanation of the Court’s differentiation between commercial arbitration and investment arbitration would also be welcome. It should be remembered in this respect that Case C-109/20 PL Holding, which is currently pending before the CJEU, raises additional questions in light of AG Szpunar explanations in the present case. In 2019 the Svea Court in annulment proceedings concerning an investment award issued under the Poland-Belgium/Luxembourg Bilateral Investment Treaty, ruled that Poland’s failure to object to the jurisprudence of the investment tribunal led to a parallel arbitration agreement that existed between PL Holding and Poland independent of the underlying BIT. This, so the Svea Court concluded, results from the application of the Swedish Arbitration Act.

 

According to AG Szpunar, commercial arbitration presupposes the exercise of the disputing parties’ autonomy to submit to arbitration in respect of a particular dispute. Consequently, the commercial tribunal’s limited jurisdiction derives directly out of a specific arbitration agreement that defines the precise nature of the dispute (para. 60). This is juxtaposed by the systemic, permanent and unilateral nature with which an offer to arbitrate is extended under an international investment agreement (para. 61). If, however, domestic arbitration laws can have the effect of turning treaty arbitration into contractual arbitration, the differentiation underlying AG Szpunar’s reasoning would suddenly disappear.

 

Most controversial about Case C-741/19 is its instrumentalization by Member States as a venue for the settlement of political conflict. The issue of intra-EU application of the ECT was only raised in the written submissions of some of the intervening Member States. It’s now prominent role in the proceedings, shifted the focus of the substantive nature of the dispute, and deprived interested Member States’ from an opportunity to substantively engage with this issue in their written observations. Member States that have advocated the application of the Achmea judgment to the intra-EU dimension of the ECT already during the negotiation of the plurilateral agreement on the termination of intra-EU BITs, now effectively hijacked judicial proceedings where the material question over the intra-EU application is merely of latent relevance.

 

To be sure, there is nothing inherently wrong with the judicialization of political disputes. Indeed, the Treaties offer a plethora of procedural avenues to contest the validity of the ECT. It is doubtful, however, that the present case offers an appropriate venue to review this question. After all, Opinion 1/20 will allow the Court to thoroughly assess the institutional design of the ECT. Since potential incompatibilities of the ECT with the Treaties can only be resolved through political negotiation, Opinion 1/20, which addresses the ECT modernization process, offers an adequate forum to not only identify the shortcomings, but provide guidance for the Commission’s negotiations. More importantly, the Court can resolve the jurisdictional question without evaluating Article 26 of the ECT. AG Szpunar, in fact, provides for this possibility in his Opinion.

 

The Opinion of AG Szpunar is eloquently written and wittingly argued. And while its relevance for aficionados of EU law cannot be overstated, the Court should be wary to wander down this path and reserve its judgment to the essential elements that it needs to address in order to answer the question referred to it. This is not to diminish the importance of the substantive question at the heart of AG Szpunar’s reasoning, nor to challenge the correctness of his analysis. It rather goes to asserting the integrity of the judicial process and the jurisdiction of the Court of Justice.

 

Barnard & Peers: chapter 24

Photo credit: Erik Christensen, via Wikimedia commons

 

The CJEU ruling in Achmea: Death Sentence for Autonomous Investment Protection Tribunals

Von Daniel Thym, Chair of Public, European and International Law, University of Konstanz*

*See the German language version of this post on Verfassungsblog

Public debates are short-lived: the international media was thrilled by the regional parliament of Wallonia threatening to block the CETA Agreement with Canada. At the moment, free trade is more popular as a result of Donald Trump’s opposition, since few Europeans feel comfortable promoting a similar approach as the US president. We should be careful, however, not to be forget underlying structural issues besides the headline news about punitive tariffs on European steel or American orange juice. One such structural challenge is independent investment protection tribunals, which are a bone of contention during the CETA and TTIP debate. In that respect, the recent Achmea judgment by the ECJ may have more far-reaching repercussions as the public debate has recognised so far.

This judgment concerned a Slovak-Dutch Agreement on investment protection, invoked to request a tribunal to rule on compensation for a Slovakian government decision to change health insurance law. The ECJ found that the bilateral investment treaty was in violation of EU law because the tribunal could be called upon to interpet EU law in a dispute between investors and States, but its interpretation could not be effectively challenged via the court process, meaning that the ECJ’s role as the final arbiter of EU law was infringed.

While the (German) media initially focused on implications for intra-European investment protection, such as the Slovak-Dutch Agreement, it is too simple to assume, as the Frankfurter Allgemeine did, that agreements concluded by the EU with a third state follow a different script, since the EU institutions gave their consent to the investment protection regime. Such an interpretation ignores the level of abstraction of the ECJ’s argument, which appears to be a position of principle, thereby closing a gap in its argument on the EU-Singapore Free Trade Agreement when judges in Luxembourg deemed it ‘not (yet) appropriate to examine whether the dispute settlement regime … of the envisaged agreement fulfils the criteria set out (in previous case law), in particular the criterion relating to the autonomy of EU law” (para 301). They now provide an answer to the question and it is, not for the first time, a celebration of autonomy.

Luxembourg as a Serial Offender: Control of Third State Agreements

For the European Union, the law is more than an instrument to realise political objectives; it is the foundation of its existence and a precondition for its continued success. That is why deficits in the respect for the rule of law are so sensitive for the EU, with regard to monetary union and the asylum system not differently than regarding Poland. When integration through law stutters, European integration is in trouble – and it does not come as a surprise, therefore, that the ECJ defends the effective application of supranational rules vigorously. To do so may promote its institutional self-interest, if judicial ‘competitors’ are being constrained, but the defence of autonomy is more than judicial egotism: it protects the legal foundations of a supranational community based on the rule of law.

Indeed, the Achmea judgment is not the first occasion on which the ECJ cut down (quasi-)judicial competitors based on international treaties. In 2014, it infamously rejected the first attempt by the EU institutions to accede to the ECHR, although the EU Treaties sponsored that move explicitly (albeit with safeguards for autonomy). The opinion was all about the protection of the autonomy of EU law and there are plenty of references to opinion 2/13 in the general principles of the Achmea judgment (paras 32-37). Other international courts the ECJ prevented include the initial draft of the European Economic Area Agreement and the project of a pan-European patent court involving several third states.

From a doctrinal perspective, the judicial control of third country agreements is based on the assumption, confirmed by Article 218(11) TFEU, that primary EU law has a higher rank than international agreements from the perspective of the supranational EU legal order. That conclusion extends to the UN Security Council in relation to which the ECJ famously found that ‘international agreement cannot have the effect of prejudicing the constitutional principles of the (EU) Treaty’ (para 285). Ideally, such incompatibility is identified on the occasion of an opinion before an agreement is being ratified, but judges in Luxembourg do not hesitate to enforce the primacy of the EU Treaties after an agreement entered into force.

Protection of the Autonomy of Union Law

The concept of ‘autonomy’ is a catch-all phrase intended to summarise core features of the supranational EU legal order relating ‘to the constitutional structure of the EU and the very nature of that law’ and including basic features, such as direct effect, primacy and a judicial system intended to ensure consistency and uniformity in the interpretation of EU law via the ECJ and national courts (paras 33-37). That may sound abstract, but it should be read against the background of the cardinal significance of the law for the process of EU integration mentioned before. When speaking of ‘autonomy’, judges in Luxembourg are not concerned with the doctrinal small print: autonomy is a question of principle that leaves little room for compromise.

Closer inspection demonstrates that not only the general principles of the Achmea judgment are based on the rigorous defence of autonomy. The position of the ECJ on the bilateral Slovak-Dutch investment treaty (BIT) are similarly general in nature (paras 39-59), thereby indicating that the ruling is more than a decision on intra-European investment protection schemes. Its reasoning can be extended to agreements with third states as a matter of principle, also considering that the ECJ refers to several previous rulings that had considered such treaties to be in violation of the EU Treaties. Indeed, it seems to me that the arguments put forward in Achmea can be extended to extra-European investment protection regimes, such as the one foreseen in the CETA Agreement with Canada. We cannot exclude, of course, that the ECJ will distinguish the latter agreement from intra-European BITs, but the level of abstraction of the Grand Chamber’s position in Achmea indicates that we should expect the CETA rules to fall foul of the autonomy of EU law for at least four legal considerations.

Firstly, it won’t save the CETA Tribunal that its jurisdiction will be limited to the interpretation of the agreement and other international law and that it will have to interpret domestic law in line with domestic courts (Article 8.31, CETA treaty). The Achmea judgment maintained explicitly that a similar interpretation of the corresponding provision in Article 8 BIT would not remedy the Court’s concern about the indirect evaluation of domestic law (para 40-42). Indeed, it is in the nature of investment protection that a company complains with an international tribunal about domestic laws and practices, which are to be evaluated in light of international law.

Secondly, the recent ruling may have concerned a classic single market case about the access of a Dutch company to the privatised Slovak health insurance market, thereby affecting two core guarantees of Union law: the free movement of capital and the freedom of establishment. There is, however, nothing in the reasoning of the ECJ indicating that its reasoning is limited to the intra-European fundamental freedoms. The concern about the autonomy is universal (para 41, 33), covering all aspects of primary and secondary Union law as a matter of principle, including all those directives and regulations regulating economic activities which might possibly be judged in light of the investment protection provisions in CETA.

Thirdly, the CETA Tribunal won’t have the competence to send a preliminary reference to Luxembourg. Thus, it will be confronted with the same criticism the Achmea judgment put forward against the Slovak-Dutch Tribunal, which the ECJ could possibly have qualified as a court within the meaning of Article 267 TFEU (para 43-49). Yet, it did not follow down this road. Instead of integrating investment tribunals into the EU system of judicial protection, it excluded them from it, thereby laying the basis for their prohibition.

Fourthly, a final award of the CETA Tribunal (called ‘Urteilsspruch’ in the German translation) does not remain an inter-state affair, which – like in the case of the WTO – has to be settled by diplomatic means. Instead, final CETA awards are binding on all parties and can be enforced via domestic courts (Article 8.39, 8.41). The latter are not authorised to check the compatibility of the award with Union law, something the ECJ considered insufficient in its recent ruling (paras 50-53).

Consequences for Investment Tribunals

It is the primary motivation of the ECJ to ensure the continued jurisdiction of European courts over investment protection. It objects to a specialised court system based for companies at the international level, while highlighting, at the same time, that inter- and intra-state arbitration remains an option. It is permissible, within certain limits, for freely expressed wishes of individual companies to settle a dispute via private arbitration channels (para 54-55). The ECJ reaffirmed, moreover, that Union law does not generally prohibit international courts and tribunals under the condition that their structure respects the characteristics of the supranational legal order.

Dispute settlement within the WTO is such a mechanism that is unproblematic from the perspective of Union law, precisely because world trade law does not generally establish directly applicable rights and obligations for individual companies. If Donald Trump finally installs punitive tariffs against European aluminium and the EU counteracts, the dispute remains intergovernmental. Even if the WTO Appellate Body finds subsidies for Airbus to be incompatible with world trade law, Boeing will not be able to enforce the award via domestic courts. Dispute settlement within the WTO does not call into question the autonomy of Union law.

One option to save investment protection tribunals might be to allow domestic courts to control their findings in light of Union law, including the option of a reference to the ECJ – instead of limiting the judicial review at the enforcement stage on the internal coherence of the arbitral award and on compliance with the narrow public policy exception (see, for the domestic dispute which led to the Achmea case, Paragraph 1059(2) of the German Code of Civil Procedure). Such comprehensive control in light of primary and secondary Union law could possibly avoid the verdict of illegality on the part of the ECJ against investment tribunals such as the CETA model. It would, however, contravene the (controversial) raison d’être of international investment protection regimes, whose rationale is to provide independent oversight of domestic laws by an institution outside the national court structure in light of international law alone.

It is important to understand that the ECJ’s reasoning does not remain limited to agreements the Member States have concluded with third parties. A similar argument applies to treaties between the EU and third states, such as CETA or the Energy Charter Treaty, on the basis of which the Swedish company Vattenfall currently sues Germany for its decision to terminate nuclear power production. According to settled ECJ case law, the conflict between a directive and an international treaty need not be resolved to the benefit of investment protection rules. International treaties prevail over secondary legislation only if the treaty in question is capable of being directly applicable – a condition the ECJ rarely considers to be fulfilled with regard to international trade agreements.

Thus, secondary EU legislation has a higher rank than WTO law within the supranational legal order and in the case of CETA direct effect is being excluded explicitly in Article 30.6. That may sound abstract, but it has tangible consequences: primary and secondary Union law would prevail in cases of conflict between EU legislation and an arbitral award under the CETA agreement, which is based on international law alone. Within the EU legal order, democratic treaty override is a realistic option, at least for international treaties, such as the WTO or the CETA Agreements, which are not directly applicable within the supranational legal order.

My prediction for CETA and TTIP is that an opinion under Article 218(11) TFEU, which any EU institution or Member State can initiate, would be a death sentence for the investment protection provisions, since they are capable of being applied to various aspects of EU law. (Note that Opinion 1/17, quering whether the investment dispute provisions of CETA are compatible with EU law, is already pending before the CJEU). With regard to existing bilateral agreements of the Member States with third states, the finding may be more ambiguous. If, for instance, a German company complains against expropriation by Pakistan or Algeria, such a case would not usually have on EU law dimension, thus avoiding a direct conflict with the autonomy of EU law. The result may be neo-imperial: within the EU legal order, democratic legislation prevails in cases of conflict, while European companies could rely on pre-existing agreements abroad. It will be difficult, however, to convince third states to sign up to such one-sided agreements in the future. Thus, the end result of the Achmea judgment might be nothing less than a restart in international investment protection law.

Barnard & Peers: chapter 24

Photo credit: Pensionen Pro

Does Poland infringe the principle of effective judicial protection? Recent developments in the CJEU

Femke Gremmelprez, PhD Researcher and Academic Assistant, Department of European, Public and International Law, Research group Ghent European Law Institute

Despite the Court of Justice’s prominent role in the enforcement of EU law via the infringement procedure of Article 258 TFEU and the preliminary ruling procedure of Article 267 TFEU, the Court of Justice has predominantly been left out the enforcement of EU values, and the rule of law in particular. The EU Treaties remain silent with respect to an explicit competence for the Court of Justice to reinforce the rule of law in case deviant behaviour of Member States emerges. In addition, rule of law deficiencies have been prominently dealt with within the political discourse of dialogue in the context of the Rule of Law Framework and the Article 7 TEU procedure. However, the Court of Justice’s Associação Sindical dos Juízes Portugueses judgment of 2018 has been a turning point in this regard. This blogpost will comment on the hearing in the Commission v. Poland case of 8 April 2019 (C-192/18) (hereafter ‘Ordinary Courts case’) and the opinion in the Commission v. Poland case rendered on 11 April 2019 (Case C-619/18) (hereafter ‘Supreme Court case’), two infringement procedures launched by the Commission before the Court of Justice after the Associação Sindical dos Juízes Portugueses judgment.

The initial impulse of the Court of Justice

Although the outcome of the Associação Sindical dos Juízes Portugueses judgment as such cannot be considered to be ground-breaking, the reasoning of the Court of Justice, in contrast, is all the more so. The Court of Justice, after all, established in this judgment that national courts which may be called upon to apply EU law, have to guarantee an effective judicial protection in accordance with the second subparagraph of Art. 19(1) TEU (para. 40 of the judgment). This ‘may’ formulation suggests that this applies to any court within the meaning of EU law. As Pech and Platon stipulate, “most if not all national courts are, at least theoretically, in this situation”, and therefore have to fulfil the requirement of effective judicial protection (see L. Pech and S. Platon, “Rule of Law Backsliding in the EU: the Court of Justice to the rescue? Some thoughts on the ECJ ruling in Associação Sindical dos Juízes Portugueses”, on this blog).

As a consequence of the Associação Sindical dos Juízes Portugueses judgment, judicial independence has become a criterion verifiable by the Court of Justice, and as such confirmed as essential in the enforcement of the rule of law (para. 40 of that judgment; see also last year’s judgment in LM (discussed here), para. 48). The Court of Justice has thereby shown itself committed to upholding the rule of law within the EU by operationalising the rule of law as enshrined in Article 2 TEU, reinforcing this value with a reference to the principle of sincere cooperation as enshrined in Article 4(3) TEU. This is necessary in order to achieve the proper functioning of the judicial cooperation system pursuant the preliminary reference procedure under Article 267 TFEU (Associação Sindical dos Juízes Portugueses, paras. 41-43). Judicial independence not only presupposes that judges are remunerated sufficiently, but in light of the rule of law crisis, more importantly, also the protection against the removal from the office of the members of the national courts (Associação Sindical dos Juízes Portugueses, para. 45).

Poland has made several reforms regarding the functioning and organisation of the Constitutional Tribunal, the Supreme Court and the ordinary judiciary whereby the independence of these bodies has been endangered (for an extensive overview of all the measures Poland has adopted over the last two years, see the Commission’s Reasoned Proposal in accordance with Art. 7(1) of the Treaty on European Union regarding the rule of law in Poland. In particular, the Polish government has adopted a law on the basis of which the general retirement age of the Supreme Court judges and the judges of the ordinary courts is lowered from 70 to 65, entailing that all judges currently in office who attained the age of 65 years, or will attain that age within 3 months from the entry into force of the law, will be retired. Following the reasoning of the Court of Justice in Associação Sindical dos Juízes Portugueses, this measure would – to use the Court of Justice’s formulation – “impair the independence” of relevant courts and their members and as such be held incompatible with Art. 19(1) TEU, because these members of the judiciary are removed from their offices before the end of their initial term.

The revolutionary Associação Sindical dos Juízes Portugueses judgment is the initial impulse of a series of cases before the Court of Justice within the context of the compatibility of national measures concerning the national judicial system with the standards following Article 19 TEU. Both the Commission, in the form of infringement procedures pursuant to Article 258 TFEU, and the national judges, in accordance with the preliminary ruling procedures as foreseen in Art. 267 TFEU, have raised issues about developments in Poland (see for instance the infringement procedures respectively lodged by the Commission against Poland on 15 March 2018 (Case C-192/18, the Ordinary Courts case) and on 2 October 2018 (Case C-619/18, the Supreme Court case), and the preliminary questions respectively referred by Polish judges on 9 August 2018 (Case C-522/18), on 3 September 2018 (Case C-558/18) and on 5 September 2018 (Case C-563/18).

The hearing in the Ordinary Courts case

On the 8th of April 2019, the hearing of the Ordinary Courts case took place before the Grand Chamber of the Court of Justice. This case concerns, in particular, the Commission’s claims that the Polish measures lowering the retirement age applicable to the ordinary court judges, on the one hand, and granting the Minister for Justice the discretionary power to decide whether or not to extend the active service of the judge concerned, on the other hand, are contrary to Article 19 TEU, read in conjunction with Article 47 EU Charter (the right to a fair trial before an independent court). Although the Commission also raised the issue regarding the distinction between the retirement age for men and women working as a judge in its infringement action, the Court of Justice asked the parties to focus solely on the first plea during the hearing.

The Commission started with emphasising the importance of the adherence to the principle of effective judicial protection enshrined in Artilce 19 TEU, which is further clarified by Article 47 EU Charter as the right to be heard by independent and impartial judges, because the principle of effective judicial protection is not only the very essence of the rule of law, but also the very basis of the EU. Indeed, the Court decided already in the Achmea case (discussed here) that the EU judicial system, consisting of the Court of Justice and the national courts as EU courts, aims at ensuring the uniformity, effectiveness and autonomy of EU law (Achmea, para. 37).

Non-adherence to the principle of effective judicial protection would affect these key characteristics of EU law and the EU as such. Therefore, the contested measures violate the principle of judicial independence, and, thus, also the principle of effective judicial protection as foreseen by Article 19 TEU. In particular, as the Commission clarified by answering a related question posed by the Judge Rapporteur, the discretion of the Minister of Justice is problematic in the light of Article 19 TEU since he or she can decide to grant or refuse an extension of the active service of a judge beyond the retirement age without clear criteria, without motivation, without a possible appeal and without a clear time framework of the prolongation period. Referring back to the case law of the European Court of Human Rights with regard to Article 6(1) ECHR, the Commission invokes that this can be qualified as a means to put pressure on the judiciary, which constitutes an infringement of Art. 19 TEU.

Furthermore, the Commission reminded the Court of Justice of its own interim measures order of 17 December 2018 in the Supreme Court case (see also the interim measures order of November) in which it refuted that the Commission based itself on mere hypotheses and it held that the contested provisions could lead to a violation of Article 19(1) TEU (paras. 55-56 of that order). Nevertheless, the Polish representative argued that the contested provisions of the Polish law have been amended in compliance with EU law, as a consequence of which the Commission should withdraw its application of Article 258 TFEU. Moreover, the Polish representative emphasised that the Minister of Justice has no wide scope of discretion, as the Minister considers the workload of the other ordinary courts and the need for human resources in other courts when granting or refusing an extension of the activity of an ordinary court judge.

At the same time, the Polish representative acknowledged, in response to a question raised by the Judge Rapporteur, that the Minister of Justice does not have to motivate his decision and that there is no judicial review against this decision. During the hearing, the President of the Court noted that the lack of motivation makes the situation all the more suspicious. The Judge Rapporteur also appeared puzzled on how the retirement of a certain judge will remedy the workload in other courts. Instead she suggested the transfer from personnel as a possible solution. The Polish representative explicitly rejected this “opinion” of the Judge Rapporteur by stating that the Polish law does not foresee in such a possibility.

More fundamentally, the Polish representative submitted that the Commission’s infringement action is an unjustified interference in the national judicial system of a Member State, which is a purely internal affair. The lowering of the retirement age cannot be considered to be a removal of judges from their office since it would simply be an exception to the constitutional rule regarding the general retirement age, justified by the need of effective allocation of judges among the various ordinary courts in Poland.

Following this argument the President requested the Commission to divulge on whether the competences conferred on the EU by virtue of Article 19(1) TEU can be limited considering the autonomy of the Member States to organise its judicial system. The Commission conceded that it had to respect the attribution of competences and the autonomy of the Member States regarding the functioning and organisation of its judiciary but equally noted that Member States have to guarantee some minimum standards that have to be adhered to, as the Court of Justice has specified in its previous case law, such as the Associação Sindical dos Juízes Portugueses and LM judgments. The Polish representative, nevertheless, objected the use of double standards regarding the principle of judicial independence by the Court of Justice, since the renewal of a judge’s mandate at the Court of Justice for 6 years entails, similar to the extension of a Polish ordinary court judge, a decision of the governments.

Of course, the decision of Member States’ governments with regard to the (re)appointment of the Court of Justice judges can hardly be compared to the discretionary power of the Minister of Justice to grant or refuse an extension of the active service of an ordinary court judge. Admittedly, the appointment procedure for judges at the Court of Justice is not completely transparent (see for instance M. A. Simonelli, “Quod Licet Iovi non Licet Bovi. The Appointment Process to the Court of Justice and the Reform of Judiciary in Poland”, on the European Law Blog). Yet, in accordance with Article 253 TFEU and Article 255 TFEU, criteria, such as the independence beyond doubt and the right qualifications, have to be considered and a(n) (re)appointment is decided by common accord of the governments of the Member States. In addition, a decision will be taken after the consultation of an expert panel consisting of former members of the Court of Justice and the General Court, members of national supreme courts and lawyers of recognised competence.

Advocate General Tanchev’s approach on upholding the rule of law

It is now up to the Advocate General to deliver his opinion in the Ordinary Courts case, expected on the 20th of June 2019, before the Court of Justice will render a decision. However, his opinion in the Supreme Court case was released on the 11th of April 2019 and already sheds light on the outcome of his opinion in the Ordinary Courts case. The Supreme Court case deals with the Polish measures lowering the retirement age of the Supreme court judges from 70 to 65 years of age and granting the President of Poland the power to extend the active service of Supreme court judges. As a result it is very much comparable to the Ordinary Courts case.

As compellingly highlighted by Advocate General, the Supreme Court case will be the first infringement action in which the Court of Justice has to rule on the compatibility of measures adopted by Member States regarding the organisation of the national judicial system with the standards foreseen in Art. 19(1) TEU (Opinion, para. 47). According to the Advocate General, the Court’s decisions in these currently pending cases will strengthen the respect for the rule of law by Member States and will further offer guidance on the standards upon which the rule of law is based. The fact that an Article 7(1) TEU procedure has been invoked against Poland does not change the admissibility of the case. Notably, the Advocate General applied a clear delimitation between both procedures, Article 258 TFEU being a legal procedure and Article 7 TEU a political procedure, as they have a different scheme and purpose (Opinion, para. 50).

Confirming the Associação Sindical dos Juízes Portugueses case: the verification of rule of law compatibility falls within the scope of Article 19(1) TEU

The Advocate General examines the scope of application of Article 19(1) TEU and Article 47 EU Charter separately, as Advocate General Saugmandsgaard Øe also proposed in his opinion in the Associação Sindical dos Juízes Portugueses case. Yet, the Court of Justice reformulated the question in the Associação Sindical dos Juízes Portugueses case by leaving out a reference to Article 47 EU Charter. The Court of Justice merely referred to Article 47 EU Charter in order to explain that the principle of effective judicial protection requires that everyone has a right to an effective remedy before a tribunal which is independent and impartial.

By relying merely on Article 19(1) TEU, the Court of Justice refrained from opening a Pandora’s box on the discussion of the scope of application of the Charter. Although some commentators have argued to revisit the scope of application of the Charter, as set out in its Article 51, an extensive reading of this provision could be regarded as an unjustified intervention in the Member States’ national affairs endangering the sovereignty of national constitutional courts to observe the rule of law and fundamental rights enshrined in the national constitutions (T. von Danwitz, “The Rule of Law in Recent ECJ Jurisprudence” in W. Schroeder (ed.), Strengthening the Rule of Law in Europe, from a common concept to mechanisms of implementation, Hart Publishing, Portland, 2016, (155)165).

Indeed, this ‘national sovereignty’ argument has several times been repeated by the Polish representative during the hearing of the Ordinary Courts case. During the hearing however, the Commission highlighted that Article 47 EU Charter is merely called upon to help interpret the principle of effective judicial protection of Article 19(1) TEU. Moreover, the infringement action focuses on a breach of Article 19(1) TEU as a consequence of the Polish measures lowering the retirement age of the ordinary courts judges and the discretionary power of the Minister of Justice to decide on a possible extension of judicial mandates. The emphasis then is on the material scope of application of Article 19(1) TEU. In this regard, Advocate General Tanchev argues that Member States have the obligation to guarantee the full application of EU law and the judicial protection of individuals under Art. 19(1) TEU, which entails that measures impairing the independence of national courts hinder the EU Courts from carrying out their mandate under Article 19(1) TEU (Opinion in Commission v. Poland (Supreme Court case), para. 59). The Court of Justice thus has the competence to verify whether measures adopted by a Member State are in line with their obligations resulting from Art. 19(1) TEU.

As the Polish Supreme Court – mutatis mutandis the Polish ordinary courts – may rule on questions concerning the application or interpretation of EU law, and the infringement action concerns an alleged breach of the rule of law, concretised by Article 19 TEU, the infringement action brought by the Commission before the Court of Justice in the Supreme Court case – mutatis mutandis the Ordinary Courts case – should be deemed admissible according to Advocate General Tanchev (Opinion in Commission v. Poland (Supreme Court case), para. 63).

Poland infringes the rule of law as concretised by the principle of effective judicial protection

Following this finding of admissibility, Advocate General Tanchev opines that Poland infringes Article 19(1) TEU on two accounts. Firstly by violating the principle of irremovability of judges and by violating the principle of judicial independence by granting the President of Poland the discretionary power to extend the active service upon the retirement age of a judge on the other hand.

Remarkably the Commission did not raise any arguments with regard to the irremovability during the hearing of the Ordinary Courts case, as it focussed on the discretionary power of the Minister. While it considered the lowering of the retirement age of the ordinary courts judges a relevant aspect of the overall discussion, it did not consider it as a breach of Article 19(1) TEU as such. In contrast the Advocate General stressed the principle of irremovability as one of the guarantees essential to judicial independence.

It is, furthermore, noteworthy how the Advocate General in the Supreme Court case is guiding the Court of Justice in defining the principle of irremovability by referring to soft law created by other international bodies, such as the Council of Europe, the International Bar Association, and the United Nations. In addition, the Advocate General highlights the value of such non-binding norms, as they imply normative consensus of rules and principles shared by the Member States or other jurisdictions which provide a useful reference for the Court of Justice (Opinion in Commission v. Poland (Supreme Court case), footnotes 51-52).

Namely, this principle of irremovability entails that a judge should have “a guaranteed tenure until a mandatory retirement age or the expiry of their term of office, and can be subject to suspension or removal from office in individual cases only for the reasons of incapacity or behaviour rendering them unfit for office. Early retirement should be possible only at the request of the judge concerned or on medical grounds, and any changes to the obligatory retirement age must not have retroactive effect” (Opinion in Commission v. Poland (Supreme Court case), para. 72). Moreover, in Associação Sindical dos Juízes Portugueses the Court of Justice assessed the circumstances of the case, such as the impact on the composition of the court, the nature of the legislation adopted in respect of the members of the court concerned, and the duration of the application of the legislation, to verify whether the lowering of the remuneration level was violating the principle of judicial independence. Advocate General Tanchev uses these factors to verify whether the lowering of the retirement age is breaching the principle of irremovability of judges (Associação Sindical dos Juízes Portugueses, paras. 46-50; Opinion in Commission v. Poland (Supreme Court case), para. 76).

Furthermore, the Advocate General adds that a sudden and unforeseen removal of a large number of judges creates difficulties in terms of public confidence. This argument could also be used to refute the closing remark of the Polish representatives during the hearing of the Ordinary Courts case, namely that the infringement procedure brought by the Commission is counterproductive and confuses the Polish judicial system. By lowering the retirement age and obliging a large number of judges to retire before the end of the initial termination of their active service, the Polish government precisely creates public confusion and uncertainty.

In respect to the discretionary power of the Polish President to extend the term of the office upon the retirement age of the Supreme court judge, Advocate General Tanchev holds that also this Polish measure is contrary to the principle of judicial independence enshrined in Article 19(1) TEU. In particular, the external aspect of judicial independence is violated, since the measure exposes the Supreme court judges to external intervention and pressure from the Polish President considering the link between the lowering of the retirement age and the requirement to request an extension of the retirement age to the President (Opinion in Commission v. Poland (Supreme Court case), para. 89). Applying these elements mutatis mutandis to the measure granting the Minister of Justice the discretionary power to grant or refuse an extension of the retirement age of the ordinary court judges, it seems obvious that the Advocate General would come to the same conclusion in his opinion on the Ordinary Courts case. The lack of clear criteria for granting an extension and the absence of judicial review against a refusal of the extension without a persuasive explanation of the Polish representative would a fortiori lead to the existence of external intervention and pressure from the Minister of Justice, contrary to Article 19(1) TEU.

Will the assist of the Court of Justice lead to the winning goal in the rule of law crisis?

Consequently, the opinion of Advocate General Tanchev in the Ordinary Courts case will probably not come as a surprise and will most likely be comparable, if not similar, to his opinion in the Supreme Court case. Considering the outcome of the Associação Sindical dos Juízes Portugueses case, it can be expected that the Court of Justice will act upon its judgment and ultimately take a firm stance in the rule of law crisis. As the political tools to enforce the rule of law are unable to cope with the rule of law deficiencies in certain Member States, the ‘legal route’ should be further deployed by the Court of Justice in light of the pending infringement and preliminary ruling procedures. Although much more has to be done by Poland in order to restore the independence of the judiciary in compliance with Article 19(1) TEU, the Court of Justice’s intervention by means of the interim measures in the Supreme Court case led to the reinstatement of the Supreme Court judges who were forced into early retirement.

Barnard & Peers: chapter 9, chapter 10

Photo credit: France24

‘We *aren’t* the world’: the CJEU reconciles EU law with international (investment) law

Professor Steve Peers, University of Essex

Background

In recent years, investor-state dispute settlement (ISDS) has become a political minefield. Its critics argue that ISDS is a secret court system designed to allow multinational corporations to thwart any progressive legislation approved by democratically elected governments. Its defenders argue that these claims are exaggerated, and that ISDS performs a useful function attracting investment and securing property rights.

The arguments about ISDS are worldwide, but they have increasingly arisen within the particular framework of EU law. From 2009, the Treaty of Lisbon gave the EU exclusive competence over foreign direct investment as part of its common commercial (trade) policy, alongside goods, services and trade-related aspects of intellectual property. EU trade policy developed to include negotiations for ISDS as part of trade negotiations (although pre-existing investment treaties between EU Member States and non-EU countries were grandfathered, with a process in place to regulate negotiation of such treaties in future).

However, this led to political and legal difficulties in negotiating trade agreements: the former because of public concern about ISDS in both the EU and the non-EU countries, and the latter because of uncertainty about whether the EU had sole competence to negotiate treaties with ISDS provisions, or shared it with the Member States. Shared competence means that Member States have to become parties to the treaties concerned, meaning unanimity is required to agree them and there is a process of national ratification, although in practice the EU and the non-EU countries concerned often agree to provisional application of the trade-related parts of the treaty pending such national ratification.

The legal position was clarified when the CJEU ruled in 2017 that ISDS, like 'portfolio' investment (ie non-controlling shares in companies) did not fully form part of the common commercial policy (CCP), but was rather a shared competence between the EU and its Member States. (There’s EU legislation dividing up responsibility between the EU and its Member States in the event of successful investor claims.) Otherwise the Court took a broad view of the scope of the CCP. Coupled with the political concerns about ISDS, this was an opportunity to rethink the role of ISDS in trade policy, either leaving it out of talks completely (Australia and New Zealand, along with the mandate for stripped back trade negotiations with the USA), concluding a trade agreement without insisting on an investment agreement (Japan), or separating the issues into two distinct treaties (Singapore and Vietnam). This revised approach, splitting up trade and investment on a case by case basis, was confirmed more broadly by a Commission communication of 2017 and subsequent Council conclusions in 2018.

In parallel to these developments, the EU responded to concerns about the legitimacy of ISDS by seeking to reform it into a system more palatable to Main Street, rather than Bay Street, as a centre-left Canadian politician might say. A discussion paper of 2015 sums up the Commission’s approach, in particular securing greater transparency, limiting the scope of controversial provisions of investment law, confirming the ‘right to regulate’, and transforming investment tribunals into a quasi-judicial system, with the longer-term intention of establishing a multilateral investment court. Subsequently, the Commission tabled a proposal for such court, and the Council approved a negotiation mandate to that end. (For further details of the negotiations, see here).

Many EU trade and investment policy disputes came to a head early in 2017, when there was a delay in approving the Canada-EU Free Trade Agreement (CETA) because of concerns about ISDS and other issues in one Belgian region. (There were also national constitutional court proceedings challenging CETA in France and Germany, as well as an EU General Court judgment on whether a European Citizens’ Initiative could be launched to stop its ratification). This kerfuffle, coming shortly before the CJEU ruling clarifying the scope of the EU’s common commercial policy, partly prompted the move to downgrade investment objectives in EU trade policy, as discussed above. And part of the overall settlement of the dispute over CETA was the Belgian government asking the CJEU whether the CETA ISDS rules – renegotiated in light of the reformed approach to ISDS – were compatible with EU law. 

The Belgian government’s request – submitted on the basis of Article 218 TFEU, which allows the CJEU to rule on proposed international treaties – was answered by the Court of Justice this week (Opinion 1/17).  In the meantime, in its judgment in Achmea (discussed here) the CJEU had found that investment treaties between Member States were potentially incompatible with EU law.  Those treaties were duly wound up, but it remained to be seen if the Court would have the same concerns about investment treaties with non-EU countries. More generally, the Court has always had concerns about protecting the autonomy of EU law from international courts (see, for instance, Opinion 2/13 on accession to the ECHR, discussed here). Could these concerns about autonomy possibly be reconciled with the nature of ISDS tribunals?

The judgment

First of all, the CJEU ruled that the case was admissible. Although the Court only has jurisdiction to rule under Article 218 as long as a treaty has not yet entered into force, the provisional application of the trade provisions of CETA did not stand in the way of the Court’s jurisdiction. (Indeed, it appears that the Court would have found the case admissible even if the whole of CETA, including the investment disputes section, was in force provisionally).

The Court then examined the compatibility of the CETA investment provisions with EU law from three angles: the autonomy of the EU legal order; equal treatment and effectiveness; and the right of access to an independent tribunal. In each case, the Court set out the principles and then applied them to CETA.

On the the autonomy of the EU legal order, the Court first recalled its case law that in principle, the EU could sign up to an international treaty which created an international court which could give rulings binding the EU. However, the Court also recalled that any such planned international court cannot infringe the autonomy of EU law. (In practice, the Court has usually been quick to complain that such courts do raise an autonomy problem). This autonomy is, in particular, guaranteed by the EU’s judicial system, which provides for ‘national courts and tribunals and the Court to ensure the full application of that law in all the Member States and to ensure effective judicial protection, the Court having exclusive jurisdiction to give the definitive interpretation of that law’.

For the Court, the crucial factor was that ‘the envisaged ISDS mechanism stands outside the EU judicial system’. The CETA investment court system created by CETA is not part of the domestic court system of Canada, the EU or its Member States. This did not necessarily mean that the ISDS system ‘adversely affects the autonomy of the EU legal order’, because as regards international treaties, the EU judicial system ‘does not take precedence over either the jurisdiction of the courts and tribunals of the non-Member States with which those agreements were concluded or that of the international courts or tribunals that are established by such agreements’. While those treaties form part of EU law and ‘may therefore be the subject of references for a preliminary ruling’ to the CJEU, they ‘concern no less those non-Member States and may therefore also be interpreted by the courts and tribunals of those States’. The ‘reciprocal nature’ of international treaties means that the EU can sign up to treaties creating an international court that is not bound by the interpretations of that treaty given by the courts of any of its parties.

But while EU law did not prevent the creation of such courts, it did place limits on what they could do: ‘they cannot have the power to interpret or apply provisions of EU law other than those of the CETA or to make awards that might have the effect of preventing the EU institutions from operating in accordance with the EU constitutional framework’. It was therefore necessary to address two points: (a) no power for the CETA bodies ‘to interpret or apply EU law other than the power to interpret and apply the provisions of that agreement having regard to the rules and principles of international law applicable between the Parties’; and (b) no power to impact EU law indirectly, by issuing ‘awards which have the effect of preventing the EU institutions from operating in accordance with the EU constitutional framework’.

On the first point, CETA explicitly specifies that its bodies will 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’. This was different from treaties which the CJEU had criticised in the past, which would have given an international court the power to interpret EU law. In particular, it was different from an investment treaty between Member States only (which the Court criticised in Achmea), because the EU law ‘principle of mutual trust’…. ‘is not applicable in relations between the Union and a non-Member State’.

Furthermore, the Court was pleased that the CETA investment bodies could not determine the division of powers between the EU and its Member States, unlike the treaty on accession of the EU to the ECHR (on the Court’s ruling in the latter case, see my discussion here).  This distinction between the international and domestic systems was consistent with the lack of a prior role for the CJEU, or any power of the CETA bodies to send a reference for a preliminary ruling to the CJEU. It was also consistent with the lack of any national court review of an investment body decision.

On the indirect impact point, several Member States were concerned that a CETA tribunal might rely on the EU Charter ‘freedom to conduct business’ to rule on whether an EU measure is ‘fair and equitable’ under investment law, or ‘whether it constitutes indirect expropriation’, or it is ‘an unjustified restriction on the freedom to make payments and transfers of capital’ as defined in CETA. The CJEU noted that the provisions of CETA were broad and the EU could not block a decision being made against it or an obligation to pay damages, and that a challenger under the CETA investment rules could concern an EU measure ‘of general application’. There was a risk that a series of damages awards might mean that the EU decides to give up the level of protection concerned. Such an indirect impact could, in principle, be incompatible with EU law:

150    If the Union were to enter into an international agreement capable of having the consequence that the Union — or a Member State in the course of implementing EU law — has to amend or withdraw legislation because of an assessment made by a tribunal standing outside the EU judicial system of the level of protection of a public interest established, in accordance with the EU constitutional framework, by the EU institutions, it would have to be concluded that such an agreement undermines the capacity of the Union to operate autonomously within its unique constitutional framework.

In this context, the Court asserted that ‘EU legislation is adopted by the EU legislature following the democratic process defined in the…Treaties’, subject to EU ‘principles of conferral of powers, subsidiarity and proportionality’, and subject to judicial review by the CJEU ‘to ensure review of the compatibility of the level of protection of public interests established by such legislation with, inter alia, the…Treaties, the Charter and the general principles of EU law’.

However, the Court was satisfied that there were enough safeguards against this indirect impact upon EU law. One provision of CETA states that the investment rules:

…cannot be interpreted in such a way as to prevent a Party from adopting and applying measures necessary to protect public security or public morals or to maintain public order or to protect human, animal or plant life or health, subject only to the requirement that such measures are not applied in a manner that would constitute a means of arbitrary or unjustifiable discrimination between the Parties where like conditions prevail, or a disguised restriction on trade between the Parties.

So the CETA Tribunal ‘has no jurisdiction to declare incompatible with the CETA the level of protection of a public interest established by the EU’ in such cases. Therefore it could not ‘order the Union to pay damages’. The Court was also reassured by provisions that state that parties can ‘regulate within their territories to achieve legitimate policy objectives, such as the protection of public health, safety, the environment or public morals, social or consumer protection or the promotion and protection of cultural diversity’, and that regulation which ‘negatively affects an investment or interferes with an investor's expectations, including its expectations of profits, does not amount to a breach of an obligation under this Section’. It also relied upon the Joint Interpretative Instrument to CETA, which states that CETA ‘will … not lower [the standards and regulations of each Party] related to food safety, product safety, consumer protection, health, environment or labour protection’, that ‘imported goods, service suppliers and investors must continue to respect domestic requirements, including rules and regulations’, and that the CETA ‘preserves the ability of the European Union and its Member States and Canada to adopt and apply their own laws and regulations that regulate economic activity in the public interest’.

The Court summed up its view that the CETA bodies’ powers: ‘do not extend to permitting them to call into question the level of protection of public interest determined by the Union following a democratic process’. This was also confirmed by another provision confirming that ‘except in the rare circumstances when the impact of a measure or series of measures is so severe in light of its purpose that it appears manifestly excessive, non-discriminatory measures of a Party that are designed and applied to protect legitimate public welfare objectives, such as health, safety and the environment, do not constitute indirect expropriations’.

While the CETA Tribunal has jurisdiction to apply the broad ‘fair and equitable treatment’ test of investment law, the CJEU was satisfied that this power was limited, only applying to ‘inter alia, situations where there is abusive treatment, manifest arbitrariness and targeted discrimination’. So again, in the Court’s view ‘the required level of protection of a public interest, as established following a democratic process, is not subject to the jurisdiction conferred on the envisaged tribunals to determine whether treatment accorded by a Party to an investor or a covered investment is ‘fair and equitable’.’

More generally, the CETA tribunals ‘have no jurisdiction to call into question the choices democratically made within a Party relating to, inter alia, the level of protection of public order or public 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, fundamental rights.’ So they did not ‘adversely affect the autonomy of the EU legal order’.

The Court then moved on to the principle of equal treatment and effectiveness. Here, the issue was whether CETA had to be compatible with Article 20 of the Charter (‘equality before the law’) and Article 21(2) of the Charter (non-discrimination on grounds of nationality). On this point, the Court first confirmed long-standing case law that treaties which the EU signed up to had to be compatible with fundamental rights. This issue could also be examined in an Article 218 proceeding, and extended to the Charter. (Indeed, see a 2017 CJEU ruling on another treaty with Canada, concerning the exchange of passenger data, discussed here).

In the Court’s view, Article 21(2) of the Charter did not apply, since it banned discrimination on grounds of nationality only as between EU citizens. However, Article 20 could apply, as its personal scope was not limited. While Article 20 does not oblige the EU to treat all non-EU countries the same (ie, the EU has no internal equivalent to the WTO’s Most Favoured Nation rule), it could apply if there is a difference of treatment within the EU of non-EU citizens on the one hand and EU citizens on the other. As for the principle of effectiveness, it only arose where a CETA Tribunal might find that a fine implementing EU competition law was a breach of the investment guarantees.

Applying these principles, the equal treatment issue was that EU citizens and companies could not invoke the investment provisions in the EU, whereas Canadian citizens and companies could. However, the Court ruled that these two groups were not comparable. The principle of effectiveness was not breached because if the EU or national competition authorities overstepped the limits of EU competition law, their decision could be struck down by the courts anyway.

Finally, as for the right of access to an independent tribunal, the principles were that Article 47 of the Charter bound the EU when entering into international treaties. In the Court’s view, the CETA bodies were very similar to courts, and bound by similar principles of independence. Although the Court was concerned about the accessibility of ISDS for small and medium-sized businesses, it was ultimately satisfied by a statement by the Commission and Council that the issue would be addressed, given that approval of CETA by the EU depended upon that commitment. On the independence of CETA bodies, the Court was satisfied that there was sufficient protection against removal of members, and the rules on payment of members would not preclude their independence. It was unproblematic that the parties could issue a binding interpretation of CETA, since this was a usual feature of international law. In any event, the EU could only agree to interpretations that were compatible with the principles set out in the Court’s opinion, and such interpretations could not have retroactive effects.

Comments

First, the Court’s confirmation that the case was admissible is useful. This means that the EU and non-EU countries can decide to apply a treaty provisionally while an Article 218 case is pending before the CJEU. However, this does risk legal complications in the event that the CJEU ultimately finds that the treaty concerned is incompatible with EU law – by analogy with the Council’s statement (no. 20 in the list of statements for the Council minutes) that if a national constitutional court or parliament objects to ratification of CETA, provisional application must be terminated.

As for the substance of the Court’s ruling, its analysis of the equal treatment and effectiveness rules was rather brief. Like the French constitutional court ruling on CETA, there was no clear explanation of why Canadian investors in the EU were in a different position than EU investors. (Possible answers are that the ISDS offers equivalent protection for EU investors in Canada, and that EU investors in the EU can rely on EU internal market law). The assessment of effectiveness takes it for granted that an ISDS body and the EU or Member States’ national courts will reach the same conclusions about the correct application of EU competition law, which is hardly a foregone conclusion. As for the independence of the ISDS system, the Court largely follows its usual approach to defining judicial independence.

The heart of the Court’s judgment is its reconciliation of the autonomy of EU law with the ISDS system. There’s an unusually strong acceptance by the Court of the EU legal system’s co-existence with international law – rather than supremacy over it. But that acceptance is conditional upon the safeguards which the Court then sets out. Here, there is a fundamental tension between the procedural aspect of the ruling (separate court system) and the substantive aspect of preserving the ‘right to regulate’. What if an ISDS body does issue a ruling that arguably infringes the capacity of the EU to decide on the appropriate level of regulation? Given that it’s essential that the ISDS system stands outside the national and EU court systems, how can the boundaries – also essential – which the Court insists must be set upon that system be enforced? The division between ISDS and national courts systems is simultaneously part of the solution and part of the problem.

In short, in British English, the key question for the Court was whether it was willing to throw a spanner into the works of the international investment system. The Court’s answer, in Canadian English, is like having a black fly in your chardonnay.

Is there a way to square this circle? The power of the CETA Joint Committee to issue interpretative rulings would arguably not go far enough to ‘fix’ the problem of an ISDS body ‘running wild’, as such rulings cannot be retroactive and Canada might not agree to them anyway. So let’s return to the courts. The Court rules out a national court review of an ISDS decision. However, it also refers to the possibility of national courts asking the CJEU questions about CETA.  Arguably, then, it’s possible to enforce the limits on ISDS bodies by a Member State or the EU refusing to pay a damages award ordered by an ISDS body, leading to a court challenge of that refusal to pay by the winning party – which is technically not a court review of the ISDS body’s decision as such. It would be similar to the well-known case of Kadi, in which the CJEU did not rule on the validity of a UN Security Council measure as such, but on the legality of its application in the EU legal order.

Is the judgment relevant to Brexit? At first sight the judgment is encouraging for those who would like to avoid any role for the CJEU as regards the UK after Brexit, given the Court’s willingness to reconcile the EU legal order with international law. However, that was not the sole factor in the Court’s reasoning, which distinguishes (rather than overturns) prior case law on the autonomy of EU law. A key part of the Court’s reasoning is that the ISDS body, unlike previous international courts which the Court objected to, does not have power to interpret EU law. The position is quite different under the Brexit withdrawal agreement (as I discuss here), and it remains to be seen if it might also be different as regards EU/UK future relationship treaties.

Finally, given that the new ruling concerns a reformed ISDS, how can it be enforced as regards unreformed bilateral investment treaties between EU Member States and non-EU countries (see the most recent list of such treaties here), to the extent that they do not comply with the standards set out by the Court and may apply to issues falling within the scope of EU law? Here the 2012 Regulation grandfathering pre-existing treaties, which also puts in place a process to regulate negotiation of such treaties in future, may be relevant. The review of pre-existing treaties, and control of future treaties, which that Regulation provides for may be applied taking account of the criteria in the Court’s judgment, so as to coordinate updating such treaties to ensure that they are compatible with EU law. This could be similar to the earlier process of updating bilateral aviation treaties between EU Member States and non-EU countries, in light of a series of CJEU judgments on their EU law compatibility.

It's too soon to say whether the reforms of the ISDS, as endorsed by the CJEU in its ruling, will satisfy a sufficient number of critics of the system to reduce the political opposition which ISDS has attracted in the past. Maybe the Court's judgment will turn out to be a death row pardon, two minutes too late. But it's striking that unlike many prior rulings, the CJEU does not appear intrinsically hostile to an international court, but willing in principle to find a way to accommodate it. Furthermore, the constraints the Court insists upon are not justified (as is usually the case) in terms of the Court's own institutional interests in the autonomy of EU law, but in terms of the EU's political institutions' accountability to the democratic process. To adapt the Canadian term, this is a judgment for Main Street, rather than the Kirchberg plateau. 

Barnard & Peers: chapter 24

Photo credit: cbc.ca