The European Commission recently proposed supplemental dispute resolution rules intended to facilitate small- and medium-sized enterprises' access to the investment court system envisaged in the EU's trade agreement with Canada.
Introduction
On 26 April 2024, the European Commission ("EC") published its Proposal to the European Union ("EU") Council for a decision on the position to be taken on behalf of the EU in the Comprehensive Economic and Trade Agreement ("CETA") Joint Committee regarding supplemental rules on expedited procedures for the resolution of disputes between investors and states, in particular for natural persons and small- and medium-sized enterprises ("SMEs").1
Article 1 of the proposed new rules provides that their objective is to "increase accessibility" and "reduce the costs" of investor-state dispute resolution proceedings for individual claimants and SMEs, in order to ensure that "all segments of society can take advantage of the economic opportunities flowing from trade and investment".2
These supplemental rules reflect the "tremendous uptake by SMEs of the opportunities created by CETA".3 Indeed, since CETA provisionally entered into force in 2017, more than 2,500 SMEs based in the EU have begun exporting to or investing in Canada.4 These rules also respond to concerns that the Court of Justice of the European Union ("CJEU") raised in its April 2019 decision finding that the Investment Court System ("ICS") envisaged in CETA was compatible with EU law. The CJEU noted in its decision that this "ISDS mechanism may, in practice, be accessible only to investors who have available to them significant financial resources"5 and emphasised that its approval of CETA was "dependent" on the EU Commission and Council's commitment to "rapidly and adequately…guarantee effective access" to the CETA dispute resolution system for all natural persons and SMEs.6
The Investment Court System
The dispute resolution mechanism provided for in CETA departs from the dispute resolution mechanisms found in most bilateral and multilateral investment treaties, which have been facing renewed scrutiny and criticism in recent years.7 Indeed, a number of countries have been terminating BITs,8 withdrawing from multilateral agreements such as the Energy Charter Treaty,9 or even denouncing the ICSID Convention.10
CETA envisages a unique dispute settlement mechanism through the establishment of the ICS, a permanent and multilateral system comprising a first-instance CETA Tribunal with independent adjudicators appointed by the EU and Canada, and an Appellate Tribunal, established to review decisions rendered by the first-instance Tribunal.11 The CETA Tribunal will have a permanent roster of 15 or more adjudicators, from which three members will be appointed, within 90 days of the submission of a claim, to resolve all first-instance disputes.12 Article 8.39 of CETA stipulates that tribunals shall, in principal, issue their final award within 24 months of the filing of the claim. Within 90 days of its issuing, an award may be appealed before the Appellate Tribunal, which is composed of six members appointed by the CETA Joint Committee. Appeals generally will be examined by a division of three members of the Appellate Tribunal and they will have a broad remit to uphold, modify or reverse an arbitral award, including on the basis of errors in the application or interpretation of applicable domestic law.13 While no strict time limits are imposed, Article 3 of the CETA Joint Committee decision on the functioning of Appellate Tribunals states that "[e]very effort" should be made to avoid an appeal lasting longer than 270 days.14
The Expedited Rules
The newly introduced supplemental rules on expedited procedure ("Expedited Rules") will be available to all investors, with individual persons and SMEs having "preferential access".15 According to Article 2 of the proposed Expedited Rules, in order for them to apply, the investor must submit a request for access to an expedited procedure no later than the date of the submission of a claim under CETA Article 8.23. The request must include information regarding the investor's ownership structure, financial situation and size. Although these Expedited Rules will only apply if the respondent State consents, Article 2 of the proposal asks States to give "sympathetic consideration" to any request for expedited proceedings if: (i) the investor is a natural person or an SME; and (ii) the amount of damages sought does not exceed SDR 40 million (around EUR 49 million). Article 2 further specifies that when considering whether a company qualifies as an SME, relevant factors include the size of the investor, including the number of its employees, its annual turnover and its ownership structure.16
The key differences between the traditional ICS procedure and the Expedited Rules are that expedited proceedings can be heard by a one-member, instead of a three-member, tribunal. Timelines will also be shorter, with an arbitrator appointed within 30 days of the notification of the respondent's consent to the Expedited Rules, memorials submitted within 90 days of each other, hearings held within 120 days of the respondent State's rejoinder, and an award issued at the latest 180 days from the last day of the hearing.17 Further, under Article 5.6 of the Expedited Rules, tribunals can render a final decision without conducting document production and oral hearings. Notably, awards issued under the Expedited Rules will be subject to appeal before the CETA Appellate Tribunal in the same way as an award rendered in the traditional ICS procedure.18
The proposed Expedited Rules thus share characteristics of the expedited procedures provided for in other institutional rules, such as the ICC, HKIAC, SIAC, ICDR, ICSID, UNCITRAL, NAI and SCC Rules.19
The Context of the EC Proposal
While CETA has been applied provisionally since September 2017, Chapter 8, Section F of the "Resolution of investment disputes" will enter into force only after all the 27 EU member states have ratified the treaty. Recently, however, hurdles to CETA's ratification appear to have emerged. For example, on 21 March 2024, the majority of the French Senate voted against the ratification of CETA, requiring France's lower house, the National Assembly, to consider the treaty anew.20 Unlike in 2019, however, the French Government no longer has an absolute majority in the National Assembly. Similarly, in November 2022, the Irish Supreme Court declared that the ratification of CETA would be incompatible with Ireland's Constitution, precisely because of the "parallel system of justice" created by the CETA dispute resolution framework. The Supreme Court held that the CETA ICS mechanism, in combination with the Irish Arbitration Act, would infringe the "juridical sovereignty of Ireland", and therefore the Irish Parliament could not ratify CETA unless it amended Ireland's arbitration law.21
It remains to be seen whether the EU Commission's proposed Expedited Rules increasing access to dispute resolution and speeding up the procedure will be seen as an effort to adapt to users' needs and have an impact on the ratification of CETA by EU member states. In any event, it is important to note that the proposed Expedited Rules will first have to be approved by the EU Council, after which they must then be formally agreed upon with Canada in the CETA Joint Committee.
The authors thank Sarada Nateshan, a trainee at White & Case, for her assistance in drafting this article.
1 European Commission, "Proposal for a Council Decision", (COM(2024)178), 26 April 2024.
2 European Commission, "Annex to the Proposal for a Council Decision", (COM(2024)178), 26 April 2024, pp. 2-3 [pp. 1-2].
3 European Commission (DG Trade), "Commission proposes new rules to help SMEs with dispute resolution under CETA", 26 April 2024.
4 European Commission (DG Trade), "Commission proposes new rules to help SMEs with dispute resolution under CETA", 26 April 2024.
5 Opinion 1/17 of the Court of Justice of the European Union, 20 April 2019, para. 213.
6 Opinion 1/17 of the Court of Justice of the European Union, 20 April 2019, paras. 218, 221.
7 Tai-Heng Cheng, "The Political Backlash Against Investor-State Arbitration", New York Law Journal, 12 March 2021.
8 UNCTAD, "Trends in the Investment Treaty Regime and a Reform Toolbox for the Energy Transition", IIA Issue Notes, August 2023, p. 2.
9 AP News, "UK withdraws from Energy Charter Treaty, following similar moves by EU countries", 22 February 2024.
10 White & Case, "Honduras ICSID Denunciation and Implications for Foreign Investors", 15 March 2024.
11 Comprehensive Economic and Trade Agreement – Chapter Eight: Investment, Article 8.27 & 8.28.
12 Comprehensive Economic and Trade Agreement – Chapter Eight: Investment, Article 8.27.6 & Article 8.27.7.
13 Comprehensive Economic and Trade Agreement – Chapter Eight: Investment, Article 8.28.2.
14 Decision No. 1/2021 of the CETA Joint Committee of 29 January 2021 setting out the administrative and organisational matters regarding the functioning of the Appellate Tribunal [2021/264], Article 3.5.
15 European Commission (DG Trade), "Commission proposes new rules to help SMEs with dispute resolution under CETA", 26 April 2024.
16 European Commission, "Annex to the Proposal for a Council Decision", (COM(2024)178), 26 April 2024, Article 2.
17 European Commission, "Annex to the Proposal for a Council Decision", (COM(2024)178), 26 April 2024, Article 3.2 & Article 5.1.
18 European Commission, "Annex to the Proposal for a Council Decision", (COM(2024)178), 26 April 2024, Article 3.2 & Article 5.12.
19 The LCIA Rules also contains provisions to speed up the process in case of "exceptional urgency".
20 Inti Landauro, "French Senate votes against ratification of EU-Canada free trade deal CETA", Reuters, 21 March 2024.
21 Patrick Leonard, "Patrick Costello v the Government of Ireland, Ireland and the Attorney General: Obstacles to the Ratification of CETA in the Irish Constitutional Context", ICSID Review - Foreign Investment Law Journal, Vol. 38, Issue 2, 30 June 2023.
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