OPINION 1/17-THE EUROPEAN COURT OF JUSTICE, ISDS AND IMPLICATIONS FOR AUSTRALIA.

• Author: Goldsworthy, Jessie
• Position: Investor state dispute settlement

I INTRODUCTION

On 30 April 2019, the Full Court of the European Court of Justice ('ECJ' or 'the Court') delivered Opinion 1/17 ('the Opinion) in response to a request by the Kingdom of Belgium. (1) The request concerned the Comprehensive Economic and Trade Agreement ('CETA') (2) between Canada, the European Union ('EU') and EU member States. Specifically, it questioned whether Section F of Chapter Eight of the CETA (entitled 'Resolution of investment disputes between investors and states') was compatible with the European Union Treaties, including with fundamental rights. (3)

While retaining the availability of recourse to domestic courts, the CETA aimed to achieve major reform of investment dispute resolution and to lay the basis for the future development of a multilateral investment court. (4) The implementation of a multilateral investment court is a reform option that is currently being considered by UNCITRAL Working Group IIP in order to make investor-State dispute settlement ('ISDS') more transparent, predictable and consistent. (6) Some other reform implications of the Opinion, particularly in relation to Australia, will also be identified in this case note.

The Court ultimately held that the impugned Section F of Chapter Eight of the CETA was compatible with EU primary law. (7) Three main incompatibility issues were considered in the Opinion: the autonomy of the EU legal order, the principle of equal treatment, and the right of access to an independent tribunal.

II THE ENVISAGED ISDS MECHANISM

Section F of Chapter Eight of the CETA concerned the 'establishment of a mechanism for the resolution of investment disputes between investors and States ('the ISDS mechanism').' (8) The envisaged ISDS mechanism would entail the creation of a tribunal and appellate tribunal, standing outside both the EU judicial system and the domestic legal systems of the CETA parties. (9) The Court made it clear that the CETA also envisaged the establishment of an investment court system extending beyond these 'first stage' CETA tribunals. (10)

III COMPATIBILITY

1. Autonomy of the EU Legal Order

   The first of the three main doubts expressed by the Kingdom of Belgium as to the compatibility of the envisaged ISDS mechanism related to the effect that this mechanism would have on the exclusive jurisdiction of the ECJ over the interpretation of EU law. (11) In giving the Opinion, the Court recognised that there is not necessarily any adverse effect on the autonomy of the EU legal order simply by the creation of a mechanism that stands outside the EU judicial system. (12) This would still be the case even if that body were to make decisions binding the EU. (13)

   Nonetheless, it was made clear that the autonomy of the EU legal order would be adversely affected if the jurisdiction of the Tribunal could call into question the protection of a public interest that led to the introduction of EU legal restrictions. (14) If the Tribunal issued awards on the basis that a public interest-based protection was incompatible with the CETA, this might push the EU to abandon that protection in order to avoid repeatedly paying damages to investors. (15) This kind of 'factual pressure' (16) might thus indirectly affect the relevant autonomy. The Court addressed this risk by indicating that the envisaged Tribunal would have no jurisdiction to question the protections that a party to the CETA has implemented, through democratic processes, in respect of public interests and fundamental rights. (17)

   The Court also indicated that the envisaged tribunals would be able to examine EU law as a matter of fact but be unable to interpret points of EU law. (18) The Court's reasoning substantiated the assertion by some States that the CETA Tribunal and the ECJ would operate within wholly separate legal orders. (1) ' (1) However, it could be questioned whether the combination of the ECJ's jurisdictional monopoly on the interpretation of EU law (20) and the lack of provision for a question of interpretation to be referred from the CETA tribunals to the ECJ (21) might somewhat undermine the utility of the envisaged ISDS mechanism.

2. General Principle of Equal Treatment

   In addition, the Kingdom of Belgium observed that Canadian investors (whether enterprises or natural persons) would be able to bring a dispute before the CETA Tribunal with respect to investments within the EU but that EU investors, investing within the EU, would not be able to do so. (22) Clarification was sought about whether this situation was compatible with principles of equality before the law and discrimination based on nationality. (23) This concern by Belgium is consistent with a possible...