Source: https://blog.cpradr.org/tag/eu/
Timestamp: 2019-04-20 04:13:40+00:00

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This is the third post of a new CPR Speaks feature, “The European View,” offering valuable insights and perspectives from CPR’s European Advisory Board (EAB).
On 31 May 2018, CPR held its annual European Congress on Business Dispute Management in London. Organized by CPR’s European Advisory Board (the “EAB”) and kindly hosted by SwissRe in the incredible Gherkin building, the event convened European and American practitioners for a successful day of discussion led by four interesting panels.
This blog piece reports on two panel discussions that took place in the afternoon of the European Congress on Business Dispute Management on 31 May 2018 in London, in the Gherkin Building, kindly hosted by SwissRe.
The afternoon session started with the keynote address of MasterCard Europe President Javier Perez who shared with the audience the important role of ADR in MasterCard’s business worldwide. In a thought-provoking speech, Mr. Perez emphasized MasterCard’s partnership approach with its clients according to which MasterCard does not initiate disputes (litigation or arbitration) against its clients, and rather uses ADR as a means to save the trust relationship.
Moderated by Daniel Schimmel (CPR EAB member, Foley Hoag), the first panel of the European Congress’ afternoon session had four speakers: Kate Cook (Matrix Chambers); Dr. Karl Mackie CBE (CEDR); Nicola Peart (Three Crowns LLP); and Peter Stewart (Interfax Global Energy). Starting from the 2015 Paris Agreement, the panelists discussed how climate change may affect ADR.
The 2015 Paris Agreement signals a significant change and represents concrete actions and timeframes to reduce emissions and adapt to the impact of climate change. It contains strong procedural rules and verification obligations and tells States what to do in respect to climate change. Things have evolved in recent years and changes have been implemented. All States recognize nonetheless that there is a significant gap between where we are and where we should be.
The risk of investment-treaty claims. Under the Paris Agreement, States must each year implement measures towards the overall long-term objective of stabilization of the temperature; also known as the 2o C global temperature target. The means to maintain the average temperature increase well below 2o C are multiple and include, g., low carbon, no carbon, renewable energyand new building standards.
These measures and changes in legislation may affect investments and lead to investment treaty claims by foreign investors. The measures may also create incentives for foreign investment such as when a State implements incentives on renewable energy. The arrival of foreign renewable energy firms may not please everyone and if the State subsequently takes a step back and imposes a moratorium on foreign investment, this policy change may constitute a breach of the doctrine of legitimate expectations and lead to a fair and equitable treatment claim by the foreign investor (subject to an applicable treaty). This was the case in the NAFTA case Windstream Energy LLC v. Government of Canada (PCA Case No. 2013-22, 27 September 2016).
New contracts with ADR clauses. The obligations imposed upon States by the Paris Agreement and the 1997 Kyoto Protocol have led to new contracts, many of which contain ADR clauses. One example of this is an international emission system developed under the Kyoto Protocol, whereby parties that exceeded their emission reduction commitments may sell the excess so-called “assigned amount units” (AAUs). Disputes arising out of this system are resolved by arbitration under the Permanent Court of Arbitration (PCA)’s Optional Rules for Arbitration of Disputes Relating to the Environment and/or Natural Resources (“Environmental Rules”). For example, a dispute could arise in respect to a carbon emission registered project if, after the investor has invested, it turns out that the carbon credit was miscalculated, which could affect the value of the investment.
Investment funds. Several investment funds are dedicated to climate change, including the Green Climate Fund (GCF). States, corporations and individuals who contribute to such a ‘green planet’ fund sign a contribution agreement with ADR clauses. In turn, the fund enters into contracts for its investments and these transactions contain arbitration clauses.
Data available to the panelists show that not all companies have reacted to climate change in the same manner. The measures required can be important and may give management the feeling that they are losing the agenda. The panelists praised certain companies, including CPR members in the oil & gas industry, for their efforts in lowering emissions from both their own operations as well as from the plants they operate on.
The entire panel agreed that climate-related disputes involve complex issues that ordinary state courts cannot deal with and require a very thoughtful and structured process. In this context, mediation is here again an efficient solution able to address the specificities of climate-change cases, such as the need for a fast resolution, the political implications, the status of the parties (NGOs, multinationals, government), etc.
Climate change is one of the new fields to watch and learn about, for ADR practitioners.
The last panel of the day was moderated by Mark McNeil (EAB member, Sherman & Sterling) and composed of two lawyers, Matthew Bate (Winston & Strawn) and Robert Wheal (White & Case), along with a representative of litigation finance and funding providers, Leeor Cohen (Burford Capital).
Starting with a short reminder of the origin of disputes financing, the panel then discussed the important aspects to consider when working with third party funders, the advantages and downsides of financing of claims, the impact on arbitration and the concept of portfolios of claims.
Initially, ADR financing was developed for parties who could afford the costs of “access to justice.” The concept has evolved and increased in many respects and all claimants now have the option to consider whether they wish their claim to be funded, insured, or otherwise monetarized. More and more well-financed companies use third party funders who have become a risk management tool, most particularly in so-called fee-shifting jurisdictions where court and arbitrators apply the loser-pays rule.
From the perspective of the lawyer trialing the case, the success of ADR financing depends on the good relationship with the funder; a good collaboration is important to avoid the risk that the funder withdraws its funding.
Financing of ADR is a complex world and the panelists described funding contracts as a “nightmare.” Getting to a funding contract also takes significant time and involves lengthy due diligence, questionnaires and the signing of NDAs. Third party beauty contests quickly multiply the work as funders have different approaches and hence different sets of questions.
The use of a party funder often limits the party’s ability to negotiate a settlement. By the time the parties reach a settlement, the funder will have spent money and will often want to be involved and approve any settlement amount. A so-called “waterfall provision,” according to which the funder gets first a portion of any settlement amount and the client receives something only if anything is left, impacts on settlement negotiation.
A funder may influence the conduct of the proceedings. Some funding agreements contain language reserving the funder’s right participate in decisions relating to the conduct of the proceedings, including with a right to agree to finance the case only as long as it is satisfied that it is worth pursuing. According to the panelists, this could translate negatively on the conduct of the proceedings and the claim must remain 100% with the claimant.
The financing of claims affects the arbitral proceedings in various ways. Respondents have sought disclosure of third party funding agreements, or applied for security for cost on the ground that the claimant’s need for funding suggests that it will not have the necessary funds to pay the costs of the arbitration if it is ordered to. Claimants have sought in their statement of costs recovery of funding costs, which the panelists confirmed, under most arbitration rules the arbitrators have the power to award.
Finally, the panel discussed the debated concept of portfolios of claims, i.e., the financing of multiple claims together. Under this structure, the funder calculates its return based on the performance of the entire portfolio and not each individual claim. Portfolio financing brings down the cost of financing by grouping several claims of a single claimant; it also secures the availability of financing throughout the proceedings. Several law firms have preferred to stay away from portfolios of claims and favor the financing of claims individually.
The European Advisory Board will share the date of 2019 CPR European Congress on Business Dispute Management within the coming months.
Vanessa Alarcon Duvanel is a member of White & Case’s international arbitration group and is based in the firm’s Geneva office. She is also the Secretary of CPR’s European Advisory Board. She can be reached at vanessa.alarcon@whitecase.com.
This is the second post of a new CPR Speaks feature, “The European View,” offering valuable insights and perspectives from CPR’s European Advisory Board (EAB).
This blog piece reports on the exchanges and discussions heard at the European Congress. Summarizing this full day and four panels into one blog article would have deprived the readers of too many insightful views and ideas shared at the Congress. Therefore, we have split this reporting in two parts: a Part I sharing the morning panel sessions, and a Part II covering the afternoon panels.
The event kicked off with welcoming remarks by Maurice Kuitems, (EAB Chair, Fluor Corporation) and Olivier André (CPR), following by Elena Jelmini Cellerini, (EAB Member, SwissRe), and Nicola Parton (Swiss Re). Ms. Parton offered an inspiring message on the role of ADR and the importance of sustainable dispute resolution mechanisms, a goal that requires full respect of transparency principles and responsiveness to issues raised by our counterparts.
Kenneth B. Reisenfeld (BakerHostetler) moderated the first panel of the day, which was exclusively composed of in-house counsels: James Cowan (CPR EAB Member, Shell International Ltd); Noah J. Hanft (CPR); Isabelle Robinet-Muguet (EAB Vice-Chair, Orange); and Gill Mansfield (Media Law Services).
The first question put to the panelists was whether there was a past renaissance about ADR, or has the ADR process gotten off track. The industry has come a long way since its early years. Many concepts have developed and there are now growing concerns that arbitration is not fulfilling its promises of being fast, confidential and efficient. These criticisms are legitimate and impossible to ignore in light of the high costs and duration of certain arbitral proceedings or the inclusion of U.S.-style disclosures in arbitral proceedings.
All speakers agreed that involving their colleagues from the “business side” is certainly not an easy step, yet it is important and a critical task of the legal department. When a dispute arises, the company’s business does not freeze and the project team has little time to devote to a dispute. The business team’s approach to the dispute will be different from that of the litigators and their early involvement can help define the ADR process in a more business sensitive manner, as opposed to a pure litigation proceeding.
For the panel, an early case assessment (ECA) is a critical element to any dispute resolution mechanism. It should be the first step in any dispute and is fundamental to understanding the business needs. A good ECA will serve in many ways: it will help shape the ADR process; guide the relationship with outside counsel; and highlight the skills and expertise to look for in the designation of a mediator or arbitrator, or in the selection of experts.
According to the panel, using mediation and appointing a commercially minded neutral can improve the efficiency of the dispute resolution mechanism. The financial savings can be significant, particularly in cases where the appointment of a neutral with relevant skills allows the parties to negotiate entirely (or partially) without having to involve outside counsel.
The speakers briefly touched upon multi-tier dispute resolution clauses, whereby in case of a dispute the parties undertake to take certain steps prior to commencing arbitration in an attempt to amicably settle the dispute. Some of the panelists view such clauses as a thoughtful way of bringing mediation into the process early, and a means to facilitate the involvement of the business people. Other panelists do not consider mandatory mediation as an efficient tool. Every dispute is different and settlement negotiations and/or mediation may sometimes be more appropriate at a later stage. An ADR-friendly corporate culture should also render multi-tier clauses unnecessary.
All panelists concurred that a lot of work has been done but so much remains to be accomplished in order to bring more diversity to the ADR process—particularly with respect to age and geographical location. From the panel’s perspective, the in-house counsels have a central role to play in this issue. They can, for example, ask the lawyers to “dig deeper” and present new names on the list of arbitrators, to encourage new appointments, which in turn will contribute to broadening the existing pool of experienced arbitrators for large and complex commercial disputes and will consequently increase the efficiency of arbitral proceedings.
The panel was composed of mediation experts from various European horizons: Alexander Oddy (EAB Member, Herbert Smith Freehills) who served as moderator; Vanja Bilić, PhD (Ministry of Justice of the Republic of Croatia); Professor Pablo Cortés (Leicester Law School, University of Leicester; Martin Brink, PhD (Van Benthem & Keulen); Ivana Gabrić (Končar – Electrical Industry, Inc.); and Tsisana Shamlikashvili (President, Russian National organization of Mediators, Founder of the Center for Mediation and Law, Head of Federal Institute of Mediation).
The European Union has enacted two “mediation” directives, namely: (1) the “European Directive 2005/52/EC on the facilitation and access to ADR and the promotion of amicable settlement” (the “EU Directive on mediation”), following which some member States have amended their domestic rules to impose mediation prior to litigation; and (2) the “Directive 2013/11/EU of the European Parliament and of the Council of 21 May 2013 on alternative dispute resolution for consumer disputes” (the “Consumer Directive on ADR”) which imposes mandatory mediation to all businesses with consumers.
The panelists extended the scope of their discussion beyond its title and the impact of the EU Directive on mediation to include private initiatives taken by corporations to impose mandatory mediation, independently from legislation.
Both the European Mediation Directive and the Consumer Directive on ADR have had a positive impact on ADR. There is, however, still room for improvement. As with any major change, it will take time. All speakers agreed that improving the use of mediation requires increasing awareness of the benefits of mediation. The potential to save money and time and to salvage the business relationship is significant with mediation, and users need more knowledge of these advantages. One avenue mentioned by different speakers to raise awareness about mediation consists of allowing the management to witness a mediation proceeding in order to understand concretely how it works and how it deploys its benefits for the company.
Ivana Gabrić shared Končar’s success story of imposing mandatory mediation. In 2005, unrelated to any legislative action, the company decided to introduce a mandatory mediation policy for all of its contracts. Within a few years, the policy led to the elimination of all court litigation. Today, Končar has no pending litigations. In light of the success, the management extended the policy to labor disputes.
The EU Mediation Directive also triggered changes beyond the borders of the EU, such as in Russia where—Tsisana Shamlikashvili reported—mediation represents a big cultural change. In a country where courts are very busy and obtaining a judgment has become part of the ordinary business (regardless of the time it takes and any ability to enforce upon such judgement), introducing mediation is equivalent to changing mentalities and requires significant effort. But, the progress is on-going and the efforts deployed to convince the users of the benefits of mediation are starting to pay off.
Welcome to the inaugural post of a new CPR Speaks feature, “The European View,” offering valuable insights and perspectives from CPR’s European Advisory Board (EAB).
The compatibility of investment protection treaties with the regulatory framework of European Union law has been a controversial issue for quite some time. A recent decision of the Court of Justice of the European Union in Achmea (formerly Eureko) v. Slovakia clarifies the matter and raises several concerns with respect to the future of intra-EU investment protection treaties. This article aims to shed a light on the potential implications of the decision on foreign investors engaging in the European market and the foreign direct investment protection system in the European Union.
On March 6, 2018, the Court of Justice of the European Union (CJEU) ruled that the investor-State dispute settlement (ISDS) clause in the Slovakia-Netherlands bilateral investment treaty (BIT) had an adverse effect on the autonomy of European Union (EU) law. Accordingly, the CJEU declared that the clause was incompatible with EU law.
Slovakia challenged the Arbitration Tribunal’s award in Achmea (formerly Eureko) v. Slovakia and applied to the Higher Regional Court in Frankfurt to set the award aside. After the Court rejected its application, Slovakia turned to the Federal Court of Justice in Germany with a motion to set aside the award.
Slovakia claimed that the Tribunal lacked necessary jurisdiction in the dispute because the Slovakia-Netherlands BIT, providing for the ISDS mechanism, violated several provisions of the Treaty on the Functioning of the European Union (TFEU).
Germany’s Federal Court of Justice (Federal Court) in Achmea v Slovak Republic turned to the CJEU with a request for a preliminary ruling to resolve as a matter of principle the issue of compatibility of investment protection treaties between Member States and the law of the European Union. In particular, the Federal Court asked whether Art. 267 and 344 TFEU precludes ISDS clauses in intra-EU BITs.
On Sept. 19, 2017, Melchior Wathelet, the Advocate General (AG) to the CJEU, issued its opinion with regard to issues raised in the request for a preliminary ruling. The AG demonstrated interesting reasoning, which, however, was not followed by the CJEU. The AG concluded that the ISDS clauses in intra-EU BITs are compatible with EU law.
As stipulated in the AG’s opinion, arbitral tribunals constitute courts or tribunals within the meaning of Art. 267 TFEU, which implies that arbitral tribunals can, and in fact have the obligation to, accept the supremacy of the EU law and, thereby use the preliminary ruling procedure in appropriate situations.
in order to be considered courts or tribunals under Art. 267 TFEU.
While the list is not absolute and the jurisprudence of the CJEU is not consistent, it is clear that parties to a dispute are under no legal obligation to settle it through arbitration. In principle, arbitral tribunals do not have a compulsory jurisdiction. Although, it may be argued that investment treaty tribunals, contrary to tribunals in commercial arbitration disputes, can be considered as having compulsory jurisdiction conferred by a treaty, or domestic legislation implementing a treaty. Nonetheless, arbitral tribunals are established by parties for the purpose of settling a particular dispute and therefore do not have a permanent character, which prevents them from using the procedure envisaged under Art. 267 TFEU.
The CJEU stated that disputes before arbitral tribunals based on intra-EU BITs may relate to matters of interpretation and/or application of the EU law. Nonetheless, while a preliminary ruling procedure under Art. 267 TFEU enables courts and tribunals of Member States to file a request pertaining to the interpretation and application of the EU law, arbitral tribunals do not constitute a court or tribunal within the meaning of the provision and, therefore, cannot request a preliminary ruling.
As decisions of arbitral tribunals are final and, therefore, in principle, cannot be appealed to the national courts, a threat now exists to the proper interpretation and application of the EU law, which in turn has an adverse effect on the autonomy of the EU law.
The CJEU concluded that the ISDS mechanism in the Slovakia-Netherlands BIT is incompatible with the EU law since the mechanism prevents investment treaty disputes from being decided within the judicial system of the EU.
On June 18, 2015, the European Commission (EC) initiated infringement proceedings against Austria, the Netherlands, Romania, Slovakia and Sweden. The EC asked Member States to terminate their intra-EU BITs with the aim of resolving the conflict between the intra-EU BITs and European treaties.
It is yet to be seen whether the EC will decide to bring the matter before the CJEU. Nonetheless, considering the approach of Poland, which is likely to terminate its intra-EU BITs, as well as that of Romania, Italy and Ireland, which already terminated their intra-EU BITs, it is probable that Member States, especially given the position of the CJEU, will cooperate with the EC.
In light of Art. 351 TFEU, Member States are required to resolve any incompatibilities between their international agreements and EU treaties. Failure to fulfil this obligation may lead to the initiation of infringement proceedings by the EC under Art. 258 TFEU.
While it would be favourable to foreign investors to maintain the extra-level of protection by merely removing ISDS mechanism but preserving the substantive protection of investors under the BIT, it is apparent that the EC would prefer Member States to terminate intra-EU BITs entirely.
Art. 54(a) and 54(b) of the Vienna Convention on the Law of Treaties (VCLT) provide that an international treaty can be terminated unilaterally or by mutual consent of the contracting parties. While termination by mutual consent, unless otherwise specified in a treaty, leads to the immediate cessation of any effects of the agreement, unilateral termination often requires a notice period. Treaties provide for different notice periods; and some agreements provide for a waiting period upon expiry of which notice may be given. Because unilateral termination of intra-EU BITs may not have immediate effect, it likely will not be a desirable termination method because it does not mitigate the risk of infringement proceedings during the notice period.
Even termination of intra-EU BITs by mutual consent may not lead to the immediate cessation of protection of already existing investments. The existence of the so-called sunset clauses guarantees the continued protection of investments existing prior to the termination of the relevant BIT. In this sense, for a period of time specified in a relevant sunset clause the effectiveness of intra-EU BITs in general and ISDS clauses in particular will not be affected by termination. Accordingly, the termination as such will not resolve the issue and might not prevent the EC from initiating infringement proceedings against relevant Member States.
However, it seems possible to either terminate intra-EU BITs together with sunset clauses by mutual consent of contracting parties, or to modify the agreements with the aim of removing the sunset clauses from the legal framework and, subsequently, terminating the agreement. This method would enable the immediate termination of intra-EU BITs without the waiting period established by sunset clauses. While the effectiveness of such a termination or modification may be debatable (in particular by affected investors), the reading of Art. 70 (1) VCLT indicates that the parties’ (EU Member States) consent may prevail over the guarantees contained in sunset clauses.
The CJEU based its reasoning on the argument that arbitral tribunals cannot refer a question on the interpretation and application of the EU law to the CJEU under Art. 267 TFEU. Nonetheless, the CJEU had the opportunity to decide on the request for a preliminary ruling in the Achmea case.
While it was the Federal Court that relied on Art. 267 TFEU, the argument that ISDS clauses have an adverse effect on the autonomy of the EU law and prevent investment treaty disputes from being decided within the judicial system of the EU is misguided. The CJEU may issue a preliminary ruling in the context of arbitration if it is approached by a court exercising supervision over arbitral proceedings, or a court enforcing or annulling the arbitral award (as in Achmea), which demonstrates that ISDS clauses do not entirely prevent investment treaty disputes from being decided within the judicial system of the EU.
The Achmea decision has important implications for investors engaging on the European market. The incompatibility of the ISDS clauses with the EU law deny investors the recourse of investment treaty arbitration.
In particular, the decision indicates that the domestic judicial system of Member States is the only appropriate forum for the settlement of their disputes. This raises several concerns associated with the potential bias of national judges, political pressure exerted by governments, corruption and malfunctioning of domestic courts in general. Depriving investors of the benefits of the ISDS mechanism will also likely affect their decision to invest in the European market and limit the FDI capital flow, which may be disadvantageous for the European economy. Accordingly, it is apparent that the domestic judiciary for various reasons attributable to a given Member State may not provide a desirable alternative to the ISDS mechanism contained in intra-EU BITs.
As the CJEU in the Achmea decision referred to the incompatibility of ISDS clauses in intra-EU BITs only, one may consider that such clauses contained in BITs with non-EU States will be deemed as compatible with EU law. For that reason, investors may decide to engage in “treaty shopping” through, for instance, corporate restructuring with the aim of changing corporate nationality in order to benefit from BITs concluded between non-EU and EU States. Depending on the wording of a relevant BIT, treaty shopping may relate to a transfer of the seat or place of incorporation of investor to a non-EU State. While investment protection treaties provide for prevention mechanisms against treaty shopping through denial of benefits clauses or determination of corporate nationality on the basis of the nationality of the entity exercising direct or indirect control, treaty shopping is, in principle, permissible for legitimate purposes.
While treaty shopping could potentially mitigate the negative consequences of the Achmea decision, two issues may impair the effectiveness of such practice.
In certain situations, treaty shopping may constitute abuse of process which may deprive an investment tribunal of jurisdiction ratione temporis and, thereby, prevent an investor from resolving a dispute through investment arbitration. In light of the Pac Rim and Philip Morris cases, abuse of process will arise if an investor engaged in treaty shopping in order to obtain access for a dispute that is foreseeable, even if it has not yet materialised. A dispute must be foreseeable before the restructuring and there must be a reasonable prospect that it will in fact arise. Tribunals, therefore, take into consideration matters such as the degree of foreseeability of a dispute, the timing of investment and restructuring.
The restructuring of investment must be legitimate and justified independent of the possibility of occurrence of a BIT dispute in order for a tribunal to accept its jurisdiction. This leads to a conclusion that depending on a number of factors, restructuring of investments by European investors with the aim of obtaining access to protection granted under investment protection treaties concluded with non-EU States may pose a risk of denial of jurisdiction by an investment tribunal.
In addition, the Achmea decision raises a concern with respect to enforcement of arbitral awards in the EU Member States. While the CJEU focused on the incompatibility of ISDS clauses in intra-EU BITs, the approach of the CJEU may be adopted in relation to clauses in BITs concluded by Member States with non-EU States. The issue may be particularly relevant in case of enforcement of awards issued in arbitrations concerning disputes between foreign investors engaging on the European market, and the EU Member States in the matters relating to the EU law. The argument of the CJEU and the approach of the EU Commission may apply to such situations as well, thereby preventing enforcement of such awards within the EU.
The above raises a risk that the EU Commission or the CJEU, faced with a request for a preliminary ruling, may intervene in the enforcement proceedings of such awards and claim that the arbitration between a foreign investor and EU Member State adversely affects the autonomy of the EU law and, therefore, domestic courts of EU Member States should refuse the enforcement of such awards. This would have a devastating impact on the effectiveness of guarantees contained in investment protection treaties.
In particular, if a dispute relates to a benefit obtained by an investor and such benefit constitutes state aid, based on the Ioan Micula, Viorel Micula and others v Romania case and position adopted by the EC, it is most likely that exclusive jurisdiction of the EC in such matters will constitute an argument against ISDS clauses, no matter which States would be parties to a given BIT.
The same issue arises with respect to arbitrations initiated under the Energy Charter Treaty (ECT) by investors engaging on the EU market against a host Member State. It is possible that the reasoning demonstrated in the Achmea decision would apply due to the fact that such disputes will, essentially, constitute intra-EU arbitrations, which in turn raises a concern as to the enforcement of arbitral awards on the territory of the EU as well as to the effectiveness of the ECT.
One may only speculate on the future of settlement of investor-State disputes and investment protection treaties in general. But recent developments in the mega-regional treaties indicate the direction in which the issue is developing. The Investment Court System (ICS), initially proposed in the context of the negotiations on the Transatlantic Trade and Investment Partnership (TTIP), adopted in Comprehensive Economic and Trade Agreement (CETA), may provide a foundation for the creation of a European or Multilateral Investment Court. Such a system would need to be specifically designed to ensure the final and ultimate authority of the CJEU over the EU law as well as to enable the Investment Court to request binding preliminary rulings within the meaning of Art. 267 TFEU. However, the very structure and design of the ICS in CETA, which is a transparent two-tier body with quasi-permanent adjudicators chosen by a joint committee consisting of representatives of contracting States, could operate as a model for the establishment of European investment court, which could offer an effective and desirable alternative to the existing ISDS mechanism.
The CJEU’s decision in the Achmea case has important repercussions for the intra-EU BITs and functioning of the ISDS mechanism. ISDS clauses in intra-EU BITs are now considered incompatible with the EU law, which necessitates that Member States take appropriate actions with the aim of ensuring compatibility. Member States may choose to terminate their intra-EU BITs, rather than modify them in order to delete the ISDS clauses.
The decision rendered will likely reduce the level of the investor protection in intra-EU relations, which in turn could weaken investor’s perception of legal certainty and the rule of law in the EU and affect the FDI capital flows.
Looking forward, some investors may seek protection under existing BITs other than intra-EU ones. Paradoxically, perception of a broader (or at least recognized) protection enjoyed by non-EU investors can weaken the competitive position of EU investors. Such imbalance in protection of EU-based and non-EU based investors may adversely affect the functioning of one of the cornerstones of the EU: the free and non-discriminatory flow of capital.
It would be difficult to expect investors to sue any of the EU Member States under an applicable intra-EU BIT. While they could reasonably predict the time necessary to obtain an award and assume the cost of arbitration, which could amount to tens of millions of euros, at the end, the award would not be enforceable. Similarly, it is difficult to assume that there would be any developments with respect to third-party funding of such matters.
Some investors may engage in treaty shopping by changing the nationality of an entity that once was protected by an intra-EU BIT to a non-EU State so as to benefit from protection granted under a BIT concluded between that State and EU Member State.
Finally, while developments contained in mega-regional treaties, such as CETA, may provide a model for the creation of the European investment court, the institutional design of the body must comply with the EU law in order to provide an effective alternative to domestic courts and ISDS mechanism currently in place.
 Krzysztof Wierzbowski is the senior partner at Wierzbowski Eversheds Sutherland. He is also a member of CPR’s European Advisory Board (EAB).
 Aleksander Szostak LL.M., LL.B. is a trainee lawyer at Wierzbowski Eversheds Sutherland.
 Case C 284/16 Slowakische Republik (Slovak Republic) v. Achmea BV  par. 59-60.
 Case C 284/16 Slowakische Republik (Slovak Republic) v. Achmea BV  par. 6-23.
 Case C 284/16 Slowakische Republik (Slovak Republic) v. Achmea BV  par.23 and 31.
 Case C 284/16 Slowakische Republik (Slovak Republic) v. Achmea BV , Opinion of AG Wathelet  par. 84-89, 134.
 E.g. Case C-54/96 Dorsch Consult Ingenieurgesellschaft v Bundesbaugesellschaft Berlin  par. 23; Case C-125/04 Guy Denuit and Betty Cordenier v. Transorient-Mosaique Voyages et Culture SA  par.12-17; Case C-416/96 Nour Eddline El-Yassini v Secretary of State for the Home Department  par.17-22.
 E.g. Case C-377/13 Ascendi Beiras Litoral e Alta, Auto Estradas das Beiras Litoral e Alta SA v Autoridade Tributária e Aduaneira  par.27.
 See. E.g. Case C-125/04 Guy Denuit and Betty Cordenier v. Transorient-Mosaique Voyages et Culture SA  par.14-17; Case C-126/97 Eco Swiss China Time Ltd v Benetton International NV  par.28,34.
 Case C 284/16 Slowakische Republik (Slovak Republic) v. Achmea BV  par. 55-59.
 European Commission – Press release: Commission asks Member States to terminate their intra-EU bilateral investment treaties Brussels, 18 June 2015.
 See. E.g. Tania Voon, Andrew Mitchell and James Munro, ‘Parting Ways: The Impact of Mutual Termination of Investment Treaties on Investor Rights’  29(2) ICSID Review, 461-463 and 465-467.
 Pac Rim Cayman v. The Republic of El Salvador, ICSID Case No. ARB/09/12  Decision on the Respondent’s Jurisdictional Objections par. 2.96-2.100; Philip Morris Asia Limited v. The Commonwealth of Australia, PCA Case No. 2012-12  Award on Jurisdiction and Admissibility par.566, 570, 584, 585-588.
During the 2018 Proskauer International Arbitration Lecture, renowned international arbitrator Sophie Nappert took some of the industry’s leading lawyers to task. Her address, cheekily titled “Disruption Is the New Black”, examined what she identified as “blind spots” in the field of international arbitration (IA). Branding disruptive innovation as the poster child for progress, Nappert opined that it will inevitably impact the legal field, during these times of tectonic change and revolution, in a way that forays the very heart of international arbitration – a self-governed justice system that derives its jurisdiction from party consent.
Nappert opened with the current IA landscape. She painted a rather gloomy picture, revealing the sobering fact that in-house counsel consider external lawyers to be the primary obstacle to achieving collaborative, adjudicative and non-adjudicative dispute resolution.
In pondering her own question, Nappert praised the unprecedented expansion of IA into areas once considered non-arbitrable but cautioned that “It has made us oblivious to some substantial blind spots, focused as we are on driving the IA chariot forward towards the next development.” She identified three such blind spots, though undoubtedly there are others: diversity, corruption and artificial intelligence.
“Current voices in scholarship posit that the above disruptive phenomena present an important opportunity to address shortcomings, and notably as regards the diversity in composition of panels, as a vector towards a better and more legitimate decision-making in investment and commercial arbitration,” Nappert said.
The 2018 Queen Mary/White & Case International Arbitration Survey showed that respondents were generally ambivalent as to whether there is a causal connection between a diverse panel of arbitrators and the quality of that panel’s decision-making. Nappert argued that this might be the wrong query to make altogether. In her opinion, “At a time where the legitimacy of IA is in crisis, in the eyes of others a more diverse tribunal is a more representative, and thus more legitimate, tribunal; and from the prism of enhanced legitimacy the desirability for diversity in tribunal composition is undebatable.” She stressed that the quest for more diversity ought not to be made at the expense of quality and competence.
How can IA promote diversity?
Accepting that diversity among panelists is the goal, Nappert believes this issue should be championed at the institutional level. “Institutions have a powerful statement to make by enshrining diversity in their rules as a factor for consideration in the nomination and appointment of arbitrators, alongside and to the same extent as other credentials,” she stated. Chastising the “lip-service” treatment currently afforded diversity, Nappert called for institutional rules to anchor this value in the field. She suggested that institutional rules should consider enshrining diversity as a factor in considering appointment, to the same extent as nationality is currently accepted as such a factor.
Nappert next considered IA’s approach to allegations of corruption in the field, calling for greater self-reflection in the wake of Belokon v Kyrgyzstan, where the Paris Court of Appeal famously annulled an Award as infringing public policy, after reconsidering the case on its merits and finding sufficient evidence of money laundering. She warned, “That a state court in a country famous for its respect for, and deference to, arbitration tribunals should consider it necessary to reopen the merits of a matter should be a cause for concern, and immediate action on our part, lest we are failing to put our house in order in the eyes of others.” She added that between the ICCA, the IBA, and the ILA, there is no lack of fora to host an open discussion about corruption in the field. Nappert seemed to imply that in failing to have such a discussion with the goal of establishing best practices, IA is missing an opportunity to improve public perception and strengthen its legitimacy.
She postured that the introduction of AI into IA could create a dispute settlement system tendering predictability and speed for users, and even the ability to suggest commercial solutions to their disputes to prevent reoccurrence — a tool she ventures would speak powerfully to users.
If this is the inevitable future of dispute resolution, how can IA fight to stay not only relevant, but valuable? To no one’s surprise, IA’s strongest asset is its fundamental value – the notion that parties have a stake in selecting the decision-makers who will ultimately decide their fate. Though an algorithm could eliminate human unpredictability, the ability to select the decision makers in one’s own dispute is what makes arbitration appealing at a basic – and yes, emotional – level.
Nappert ceded that these blind spots – diversity, allegations of corruption and artificial intelligence – are not the only ones IA possesses. But, while they need to be addressed as soon as possible, reacting to these blind spots is no longer enough, in Nappert’s opinion. “In the face of rapidly-paced and seismic disruption, we need to be proactive lest we become the Kodak and Blockbusters of dispute resolution,” she cautioned.
Sara Higgins is a legal intern at CPR and a third-year law student at Northeastern University School of Law. Sara recently completed the New York State Bar Association Commercial Arbitration Training for Arbitrators and Counsel and previously worked for the United States Attorney’s Office in Boston, Massachusetts.
The EU Mediation Blues: Is there a way to resolve the EU Mediation “Paradox”?
Almost ten years have elapsed since the European Union adopted the Mediation Directive (2008/52/EC) in civil and commercial matters, and four years since the European Parliament acknowledged the so-called “EU Mediation Paradox”  in its study “‘Rebooting’ the mediation directive”. The study drew attention to the lack of significant development of mediation, utilized only in less than an average 1% of the cases in courts of Member States in the EU, despite its high success and satisfaction rates when used.
As rightly pointed out in the Report from the Commission to the European Parliament, the Council and the European Economic and Social Committee on the application of Directive 2008/52/EC (Aug 2016), due to the “unofficial” nature of mediation compared to formal court proceedings, it is very difficult to obtain comprehensive statistical data on mediation such as the profile of companies using mediation, number of mediated cases, the average length and success rates of mediation processes.
In what seems to be a fresh verse in the EU Mediation blues song, a new Resolution of 12 September 2017 on the implementation of the EU Mediation Directive (2008/52/EC) issued by the European Parliament notes that certain difficulties exist in relation to the functioning of the national mediation systems in practice. These difficulties are mainly rooted in the adversarial tradition and the lack of a “mediation culture” in the Member States, the low level of awareness of mediation in most Member States, insufficient knowledge of how to deal with cross-border cases and the functioning of the quality control mechanisms for mediators.
EU Member States should boost awareness of how useful mediation is and step up their efforts to encourage the use of mediation in civil and commercial disputes, such as through information campaigns, improved cooperation between legal professionals and an exchange of best practices in the different local jurisdictions of EU.
The Commission should assess the need to develop EU-wide quality standards for the provision of mediation services, especially in the form of minimum standards ensuring consistency, while considering the fundamental right of access to justice.
The Commission should assess the need for Member States to create national registers of mediated proceedings as useful sources of information for Commission and mediators across Europe.
The Commission should undertake a detailed study on the obstacles to the free circulation of foreign mediation agreements in the Union and on various options to promote the use of mediation as a sound, affordable and effective way to solve conflicts in internal and cross-border disputes in the Union, considering the rule of law and ongoing international developments in this field.
Lastly, in an apparent call for new rules, the Parliament requests that the Commission offer solutions to extend the scope of mediation to other civil or administrative matters in future regulation and highlights that, despite the voluntary nature of mediation, further steps must be taken to ensure the enforceability of mediated agreements in a quick and affordable manner.
On the brighter side, there are some less worried notes to the EU Mediation blues tune since the Parliament also welcomes the Commission’s dedication to co-financing various projects aimed at the promotion of mediation and training for judges and practitioners in the Member States. It appears that, after ten years’ investment in civil and commercial mediation since the Directive has been adopted, the perseverance will pay off.
The International Institute for Conflict Prevention and Resolution (CPR) through its European Advisory Board is working hard to fulfill the agreed-upon objectives and has recently published a guide for European corporates and organizations on the use of mediation and other ADR processes  that includes resources and practices to help identify disputes suitable for ADR and make the most out of them. The Guide also includes several successful case studies. There is no doubt that such efforts will eventually turn the moody blues of EU mediation into a happier upbeat melody.
Javier Fernández-Samaniego is the Managing Director of the IberoAmerican law firm SAMANIEGO LAW with offices in Madrid and Miami (for Latin America) and head of its Commercial, Dispute Resolution and Tech & Comms team. He regularly serves as an arbitrator and mediator of complex international disputes and he is a member of the Institute’s CPR Panel of Distinguished Neutral and of CPR European Advisory Board. He can be reached at javier.samaniego@samaniegolaw.com.
The Court of Justice of the European Union, which rules on cases between members of the European Union often involving treaties, issued a significant opinion on compulsory consumer ADR earlier this year.
Advocate General Henrik Saugmandsgaard Øe, who prepared the ruling, supported an Italian national law that compels consumers to mediate as a precondition for bringing legal proceedings in the Italian courts.
At the same time, the opinion suggests that parties may determine their own fate without a lawyer, overruling an Italian law requiring that a litigant use an attorney to mediate their case.
The EU Court of Justice opinion was based on a request for a preliminary ruling from the District Court in Verona, Italy. Menini v. Banco Popolare – Società Cooperativa, Case C-75/16 (February 16, 2017)(Available at http://bit.ly/2usImgu).
In the case, a dispute arose between a bank and two clients concerning the performance of a mortgage contract. The bank obtained a court order against the consumers to pay the required sum.
The consumers appealed the order to the Verona district court and sought to have its provisional enforcement suspended. The district court found that the parties making the appeal must, in order for the appeal to be admissible, use a mediation procedure in accordance with the national law.
But questions arose whether the national law that forces consumers to mediate as a pre-condition to judicial proceedings; mandates legal representation of consumers in a mediation, or penalizes a party from withdrawing from a mediation without valid reason, was incompatible with the EU consumer ADR directives.
The District Court decided to stay its proceedings and to refer the questions to the Court of Justice for a preliminary ruling.
The EU court mostly backed the mediation requirements.
According to the 2013 EU directives, the opinion noted, consumer ADR mechanisms are voluntary. But they do not preclude “any national rules making the participation of [parties] in such procedures mandatory or subject to incentives or sanctions or making their outcome binding on parties, provided that such legislation does not prevent the parties from exercising their right of access to the judicial system.” Recital No. 49, Directive 2013/11/EU of the European Parliament and of the Council of 21 May 2013 on alternative dispute resolution for consumer disputes and amending Regulation (EC) No. 2006/2004 and Directive 2009/22/EC)(available at http://bit.ly/2jv7LjA).
Accordingly, Advocate General Saugmandsgaard, in his ruling, held on one hand, that the Italian law was compatible with the EU directives to the extent it does not deny the consumers access to the judiciary and that the limitation period does not expire during such mediation process.
On the other hand, however, the ruling precludes national legislation which mandates consumers to be assisted by lawyers, or penalizes consumers who withdraw from the mediation process without valid grounds (unless the concept of “valid grounds” includes the party simply being dissatisfied with the ADR procedure).
The author is an attorney in Nigeria who has just completed her L.L.M. in Dispute Resolution at the University of Missouri-Columbia School of Law. She is a CPR Institute 2017 summer intern.
The United Kingdom’s recent referendum vote to leave the European Union (EU) is just a few weeks old, and dealmakers are rightfully concerned about its ramifications. The falling pound, the most immediate consequence, is just one of many factors that could affect pending deals with British companies. Many parties entered into contracts with UK-based companies with certain assumptions based upon the country’s membership in the EU. Now, with the UK’s situation uncertain, the lawyers are lining up to figure out next steps.
On July 18, CPR’s arbitration committee convened a panel on the topic of Brexit’s impact on cross-border arbitration and litigation involving the UK, hopefully clearing up some of the mystery. The panel was moderated by Jean-Claude Najar (France) of Lazareff Le Bars, and featured Tim Hardy (UK) of CMS Cameron McKenna LLP, Vanessa Alarcon Duvanel (Switzerland) of White & Case LLP, and Clifford J. Hendel (Spain) of Araoz & Rueda Abogados, S.L.P.
As explained by Mr. Hardy, Brexit’s main immediate impact on cross border litigation in the EU is the uncertainty as to what will happen post-exit to the existing unified regime for dispute resolution applying to all Member States. Since 1973, the UK has been required to adopt unifying arrangements to avoid duplicate litigation in different States through a series of rules intended to determine that the court of only one State can have jurisdiction and that the decision of that court should be respected by all other courts of Member States. Initially, the incorporation of these reciprocal arrangements into the legal framework of Member States was undertaken through a series of treaties – each requiring each State to approve, ratify and implement each Treaty. As this was extremely cumbersome and slow, subsequently, EU Regulations were implemented directly applying the rules into the law of each member state.
As for the practice of international arbitration in the UK or London, Mr. Hendel explained, there is no reason to think that Brexit will have any legal effect because the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”), which is the lifeblood of international arbitration, is immune from what will happen with Brexit. The situation is different, however, in the world of judicial dispute resolution. Mr. Hendel referenced the falling away of important EU regulations concerning the automatic recognition and enforcement of judgments throughout the EU, jurisdiction and choice of courts, as well as choice of law, in two years’ time or so, unless the UK takes action before then through negotiation with the EU or unilateral action to keep these legal mechanisms in place. These regulations currently provide an important degree of harmonized certainty on how to deal with everyday issues that arise in EU cross-border disputes, and Brexit will inevitably undermine this certainty. Mr. Hendel noted that the UK might have an incentive to preserve this framework one way or another in order to preserve its perceived supremacy in the financial and legal industries.
Ms. Duvanel examined how Switzerland has managed in the years since it voted in 1992 not to join the European Economic Area (EEA) to overcome isolationism vis-à-vis the EU. Although it took several decades, Switzerland managed to negotiate and ratify bilateral agreements with the EU to harmonize its legislation with that of the EU. For example, the Lugano Convention addresses the issues relating to jurisdiction and recognition and enforcement of judicial decisions between Switzerland and the EU. In the end, she explained that Switzerland has its own set of legislation, but that much of it is inspired by the EU, “fully harmonized but always a bit later.” The harmonization of the two legislative systems has been long and difficult for Switzerland, and it is likely to be difficult for the UK as well. She stressed, however, that all of that had no effect on international arbitration in Switzerland. Switzerland remains very attractive. Swiss arbitrators are among the most nominated in the world in international arbitration cases. Switzerland is the second most chosen seat for international arbitration and Swiss law is one of the most chosen applicable law due to the stability of the Swiss legal system.
From an in-house perspective, explained Mr. Najar (who held various senior legal positions in GE for close to 24 years), companies must analyze the potential consequences of Brexit on their contracts governed by English law, particularly long-term contracts, and determine how to best mitigate the uncertainty related to the impact of Brexit. There is a wide array of potential issues to consider, such as currency fluctuation, access to the EU market, organization setups, employees’ rights, corporate governance, and specific regulations. Dispute resolution clauses will also need to be reviewed closely. Najar pointed out that some companies had already started to opt out of the UK, in favor of jurisdictions such as France and Switzerland, several years ago out of other concerns, such as costs or being closer to a civil law environment. Najar stressed that English law enjoys a longstanding and solid reputation as the governing law in many contracts. However, it incorporates many elements of EU law, and Brexit will therefore create some uncertainty as these elements are being pulled out of English law. Since businesses do not like uncertainty, Brexit might deter companies from choosing the UK as a seat or English law as the applicable law.
For anyone involved in business in the UK, CPR’s European Advisory Board (EAB) is an excellent resource for efficient dispute prevention and resolution. The EAB, a highly experienced and distinguished group of sophisticated practitioners and users from Europe’s leading law firms and corporations, has recently released a European Mediation and ADR Guide. Developed under the leadership of CPR’s EAB, the Guide provides a valuable overview of the most widely used alternative dispute resolution processes (particularly mediation) and when they might be suitable, with practical suggestions on how to make use of them.
While Brexit may seem like an ugly divorce, the fallout for companies doesn’t have to be messy.
Mediation was first introduced as a prerequisite to litigation in the Italian legal system in 2011, when the government issued a decree to implement the EU Mediation Directive of 2008. This legislative measure sparked a mix of enthusiastic reactions and harsh criticisms that culminated with lawyer strikes against its implementation. In 2012, the mandatory provision of the mediation regulation was declared unconstitutional, but the Constitutional Court’s decision was based on the government’s lack of legislative legitimacy to impose the mandatory requirement, rather than on the illegitimacy of the mandatory requirement itself.
The heated debate on the mediation regulation continued inside and outside the rooms of policymakers and led the Italian Parliament to enact a law in 2013 re-introducing mandatory mediation for certain civil and commercial actions in a mitigated form. The new mediation law, which is not affected by the constitutionality issue of the previous regulation, aims to address the concerns brought by a sector of the legal community claiming that the prerequisite of participating in mediation prior to bringing a legal action unjustly burdens and restricts disputants’ rights to access to justice. Unlike the previous regulation, the new Italian mediation law mandates that parties in certain civil and commercial disputes attend only an initial information session with the mediator; it does not require parties to participate in an actual mediation process as a prerequisite to litigation. The parties remain free to opt out of the mediation before the actual process starts and without any consequence for refraining to continue in mediation.
Through the initial information session, the parties have an opportunity to learn about the mediation process and make an informed decision regarding whether to attempt an out-of-court resolution through mediation or to initiate litigation. The information session is free of charge, and parties who refuse to attend the session are subject to sanctions in the subsequent trial. Only if all the parties agree to proceed with mediation will the mediator formally commence the procedure and begin to facilitate discussions of the disputed issues. With the new Italian mediation law, the parties’ participation in the actual mediation process is fully voluntary. The parties’ only mandatory requirement is to educate themselves about the option of mediation through the initial information session.
Recent statistical data available from the Ministry of Justice regarding the first six months of 2014 demonstrates that more than 22 percent of all disputes for which the initial information meeting is mandatory and more than 50 percent of disputes mediated by deliberate initiative of the parties are resolved without recourse to court litigation. In a little over a year since enactment of the law, the benefits of the new law are tangible, not only for those parties who resolved their disputes without litigation, but also—and especially—for the overwhelmed Italian judicial system as a whole, and ultimately for all taxpayers.
Most important, each of the numerous information sessions and mediations that took place but did not result in settlement created a concrete opportunity for parties and attorneys to familiarize themselves with the mediation process and educate users about mediation, thus contributing to the development of the culture of mediation throughout the country.
If we believe that the principle of voluntariness is of fundamental value to the mediation process and if we agree that the need for user education is a critical element in the development of a culture of mediation, the Italian mediation law could represent a balanced solution to the question of how to promote the use of mediation through legislation. The next few years’ statistics will reveal whether the number of parties who choose to continue in mediation past the initial information session, and the concomitant overall settlement percentage, will grow thanks to an increased level of awareness and sophistication among mediation users.
Giulio Zanolla is an attorney, a mediator, an ADR instructor, and the author of the blog The Case for Mediation: An ADR Blog by Giulio Zanolla. This article was first published in the The Weinstein JAMS International Fellow Newsletter, Fall 2015. Mr. Zanolla can be reached at giulio@zanollamediation.com.

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