From Conflicts-Rules to Field Preemption: Achmea and the Relationship between EU Law and International Investment Law and Arbitration
By Harm Schepel
Investment Tribunals called upon to resolve intra-EU disputes are getting used to the European Commission showing up at their doorstep to try to convince them to decline jurisdiction. Though the range of arguments is wide and varied depending on the circumstances of the case and the underlying Investment Treaties, the overarching theme is simply that EU Law reigns supreme in relations between Member States and overrides all international law commitments that individual Member States- and the EU itself in the case of the Energy Charter Treaty- have entered into. The Commission has occasionally met with success: in Electrabel, a long learned discussion on the relationship between EU Law and the ECT was concluded with the bombshell that EU law ‘would prevail over the ECT in case of any material inconsistency’ (para. 4.191). Other times, it is summarily dismissed. ‘Should it ever be determined that there existed an inconsistency between the ECT and EU Law’, observed the Tribunal in RREEF Infrastructure, ‘the unqualified obligation in public international law of any arbitration tribunal constituted under the ECT would be to apply the former. This would be the case even were this to be the source of possible detriment to EU law. EU law does not and cannot “trump” public international law.’[i]
The most interesting point about these wide divergences between different Tribunals on rather fundamental points of EU and international law is how little they seem to matter. In both RREEF and Electrabel and numerous other intra-EU cases, the Tribunals disposed of the matter by pointing out that, in casu, there was no relevant material inconsistency, no conflict, no need to rule on matters of EU law, no incompatibility of obligations under different Treaties, and/or nothing that could not be solved by ‘harmonious interpretation.’ It might make sense to think of this Tribunal practice as devising conflicts-rules.
There are good reasons for the Court of Justice not to want to play this game. A case by case analysis of whether a particular award passes muster through national enforcement proceedings, or a Treaty-by-Treaty analysis of whether a particular dispute settlement or applicable law clause is compatible with EU law, is bound to be time consuming and labor-intensive, and will inevitably be unpredictable and lead to legal uncertainty.
In this post, I suggest that Achmea might best be read as an attempt to solve the issue through the development of a doctrine of field preemption based on Article 19 TEU, a newcomer in the Court’s ‘autonomy’ caselaw. If brought to its logical conclusion, the Court’s reasoning would not only outlaw the application of EU Law by any judicial body outside the European judicial hierarchy, but the application of any rules other than those of EU law in fields covered by EU Law. This has obvious consequences for the legality of intra-EU BITs, and only slightly less obvious consequences for the compatibility of investment chapters in EU Agreements. Even if the Court will find the Commission on its doorstep perversely arguing that CETA is perfectly fine under EU law, after Achmea it will be very hard indeed to find a plausible way of upholding any ISDS provision in EU Agreements – and that includes CETA’s Investment Court System.
Of ‘Removing’ Disputes from the Jurisdiction of Member States
In Opinion 2/15 on the EU-Singapore FTA, the Court held that the proposed investment chapter covered rather more than ‘foreign direct investment’ and hence fell beyond the scope of the common commercial policy’s exclusive competence of the EU. On the well-established doctrine of enforcement-follows-substance, that would have been enough to deny the EU exclusive competence for the chapter’s dispute settlement provisions as well.[ii] The Court, however, pointedly refused to take the easy way out and made it clear that ISDS provisions require Member States’ consent regardless of whether the substance of investment protection falls within exclusive or shared competence, because they ‘remove disputes from the jurisdiction of the courts of the Member States’ (para. 292). In the context of Opinion 2/15, where the Court was constrained to consider only issues of the division of competences between the Union and its Member States, the phrase didn’t obviously make a lot of sense. In Achmea, where it finally did have the opportunity to address issues of compatibility with EU Law of investment arbitration, the Court made clear(er) what it had meant: it is incompatible with the principle of the autonomy of EU law for Member States to
agree to remove from the jurisdiction of their own courts, and hence from the system of judicial remedies which the second subparagraph of Article 19(1) TEU requires them to establish in the fields covered by EU law (see, to that effect, judgment of 27 February 2018, Associação Sindical dos Juízes Portugueses, C‑64/16, EU:C:2018:117, paragraph 34), disputes which may concern the application or interpretation of EU law. (para. 55)
Of ‘Courts and Tribunals’
To follow what the Court is doing, it is perhaps best to follow instructions and have a look at Associação Sindical dos Juízes Portugueses, decided just a week before Achmea. This case was brought by a judicial trade union arguing that the Portuguese Court of Auditors should have been spared from the general wave of austerity salary cuts for public officials on grounds of ‘judicial independence’ being undermined. Thankfully, the Court ultimately dismissed this unseemly nonsense. On its way there, however, the Court did establish its own competence to rule on the matter. To achieve that, it had some work to do.
Article 47 of the Charter demands an ‘effective remedy’ for everyone whose rights and freedoms guaranteed by Union law are violated to be available in ‘independent and impartial tribunals.’ But the Charter applies to Member States only where they ‘implement’ Union law. To argue that the Court of Auditors had something to do with ‘rights and freedoms’ in the ‘implementation’ of EU law obviously felt like a bit of a stretch to the Court. Article 19 TEU, however, requires Member States to provide remedies sufficient to ensure effective legal protection ‘in the fields covered by Union law.’ The first task at hand, then, was to import the normative content of Article 47 of the Charter into Article 19 TEU. This the Court achieved by claiming that the principle of effective judicial protection constitutes a “a general principle of EU law stemming from the constitutional traditions common to the Member States”, enshrined in Articles 6 and 13 of the ECHR and “reaffirmed” by Article 47 of the Charter (para. 35). What this yields is the proposition that the obligation on Member States in Article 19 TEU includes a guarantee of judicial independence. That still leaves task number two: to establish that the Court of Auditors is active in “fields covered by Union law.” Since one cannot very well place different institutional requirements on bodies depending on what exactly they are up to at any given time of day, this turns out to be a question of seeing whether the Court of Auditors could potentially ever be seized of a matter involving something remotely connected to EU law (para. 39).
The import of this edifice becomes clear when it is connected to Article 267 TFEU. The newly enriched requirement of “effective judicial protection”, it turns out, demands nothing more or less than to having “courts and tribunals” in the sense that that concept has been defined in qualifying bodies entitled to send preliminary references to the Court. The hallmarks of “courts and tribunals”- independence, impartiality, permanence, connection to the constitutional structure of the Member State- are hence no longer merely a checklist to see who gets to send a question to Luxembourg but a requirement on Member States about the nature, quality and hierarchical collocation of any body that may potentially stumble on a matter covered by EU law.[iii]
Associação Sindical dos Juízes Portugueses thus advances the proposition that Member States are to set up all bodies that may potentially rule on a matter ‘covered by EU law’ (whatever else they do, or however rare the occasion may be that they actually have to have anything to do with EU law) as bona fide “courts and tribunals” safely tucked into the EU judicial hierarchy. What the Court is definitely doing in Achmea is advance the proposition that Member States are hence to ensure that all matters potentially ‘covered by EU law’ are to be resolved by bona fide “courts and tribunals” safely nested in the EU judicial hierarchy. What remains to be seen is in how far the Court is contemplating a final step: to derive from Article 19 TEU the proposition that all matters ‘covered by EU law’ are to be resolved according to EU law. With that, the Court will have turned Articles 19 TEU and 267 TFEU into a doctrine of field preemption preventing the application of any rules other than those of EU law in fields ‘occupied’ by EU law.
Of “Fields Covered by Union Law”
In Associação Sindical dos Juízes Portugueses, the Court made the rather obvious point that the material scope of ‘covered by Union law’ is wider than that of ‘implementing’ Union law.[iv] The crucial question now is whether the scope of ‘covered by Union law’ is wider than that of the (potential) ‘application and interpretation of Union law.’ In Achmea, the Court could conveniently avoid the question thanks to the particular formulation of Article 8 of the BIT concerned, which instructs the arbitration tribunal to apply, inter alia, ‘the law in force of the Contracting Party concerned’. As EU law is the ‘law of the land’ of Member States, the Court had no trouble determining that an arbitral tribunal set up according to the BIT’s ISDS provisions ‘may be called on to interpret or indeed to apply EU law, particularly the provisions concerning the fundamental freedoms, including freedom of establishment and free movement of capital’ (para. 42). And so it could hedge its bets and formulate the norm as prohibiting Member States ‘to remove from the jurisdiction of their own courts, and hence from the system of judicial remedies which the second subparagraph of Article 19(1) TEU requires them to establish in the fields covered by EU law, disputes which may concern the application or interpretation of EU law.’ But it the Court will have to decide the question soon enough.
In substance, CETA most definitely operates in a field covered by EU law, particularly the free movement provisions and bits and pieces of internal market law. It would force Member States to do things that are unlawful under EU Law- discriminate between companies from different Member States (this follows from the simple fact that it is perfectly possible to qualify as a Canadian investor under CETA at the same time as being considered a European company under EU Law). It would compel Member States to pay damages for actions that are perfectly lawful under EU Law (this follows from the simple fact of having absolute standards of protection next to non-discrimination norms).
CETA’s ISDS provisions, however, are drafted to ensure that the proposed Investment Court System stays as far away from EU Law as possible. Applicable law is limited to the Agreement itself and ‘other rules and principles of international law.’ If domestic law is to be considered, it has to be done ‘as a matter of fact.’ In so doing, the Tribunal ‘shall follow the prevailing interpretation given to the domestic law by the courts and authorities of that Party and any meaning given to domestic law by the Tribunal shall not be binding upon the courts or the authorities of that Party’ (Article 8.31 CETA).
Whether this suffices to satisfy the Court that the ICS will not, ever, partake in the ‘application and interpretation of Union law’ is debatable. It is also, in all likelihood, irrelevant to the outcome.
If it doesn’t suffice, CETA will certainly fall foul of the rule articulated in Achmea. If it does suffice, the Court has a further choice to make. It could maintain that the scope of Article 19 TEU doesn’t stretch any further than the ‘application and interpretation of Union Law,’ and that CETA doesn’t undermine the autonomy of EU Law. In that case, it will understand the concept of ‘autonomy’ as nothing more than the interpretive monopoly of the Court of Justice.
There are good reasons, both legal and pragmatic, to doubt the Court would embark on such a course. In a particularly exalted mood, the Court has held that ‘the very existence of effective judicial review designed to ensure compliance with EU law is of the essence of the rule of law.’[v] To hold that CETA’s ICS is lawful for the very reason it does not seek to ensure compliance with EU law but with another set of rules that displaces EU law would, frankly, make a mockery out of the Court’s conception of “the essence of the rule of law.” Such a ruling would also allow or even compel Investment Tribunals in intra-EU disputes and national courts seized of enforcement proceedings to save from the rule in Achmea any Treaty text that does not explicitly refer to the application of domestic and/or EU Law, and thus undermine any legal certainty that may be thought to have been established in the settlement of disputes under intra-EU BITs.
[i] RREEF Infrastructure v Spain, ICSID Case No. ARB/13/13, Decision on Jurisdiction, 6 June 2016.
[ii] This is how AG Sharpston saw it in her conclusions in Opinion procedure 2/15 of 21 December 2016, para 523 et seq.
[iii] This leads to the stunning circular reasoning whereby Member States must ensure that “courts and tribunals” that may apply EU law must be “courts and tribunals”. Associação Sindical dos Juízes Portugueses,, para 40.
[iv] Ibid., para 29.
[v] Case C-72/15 Rosneft, EU:C:2017:236, para73.