World Trade Online | 23 November 2015
EU tables official TTIP investment text, with changes on parallel claims
The new European Union proposal for an investment chapter in the Transatlantic Trade and Investment Partnership (TTIP) tabled last week is mostly identical to the draft chapter Brussels released in September but makes what could be significant changes to how parallel claims are handled and tightens rules on arbitrator conduct.
The proposal was submitted to the United States on Nov. 12 and represents the official negotiating position of the EU, in contrast to the September draft, which was drafted by the European Commission but had not yet been vetted with EU member states. The new proposal was revised in consultation with member state officials.
Among the few changes to the draft is the removal of language explicitly stating that an investor could submit a claim under TTIP’s investor-state dispute settlement (ISDS) provisions relating to events that had already been litigated in domestic court or another tribunal, but only if those proceedings had already been completed. A case that was still working its way through another forum, however, could not be brought before the TTIP tribunal.
Specifically, the language that was struck was contained in Article 14.1(b) of the draft proposal and specified that the ISDS tribunal could take up such a case provided that “a final judgment, award or decision has been delivered on such claim by the domestic court or tribunal."
The revised EU proposal is now silent on the matter of whether a claimant may file a claim to the TTIP tribunal relating to events that have already been litigated to conclusion elsewhere. However, the proposal still makes clear that a claimant cannot bring challenges in a domestic court and the TTIP ISDS tribunal that proceed simultaneously.
Article 14.1 of Section 3 of the text says: “The Tribunal shall dismiss a claim by a claimant who has submitted a claim to the Tribunal or to any other domestic or international court or tribunal concerning the same treatment as that alleged to be inconsistent with the provisions referred to in Article 1(1) unless the claimant withdraws such pending claim.” Article 1(1) specifies that the provisions covered include sections on investment protection, national treatment, most-favored nation, and the liberalization of investments.
Similarly, the new proposal also drops language from the draft that required a claimant to show that a domestic court had ruled on a case alleging the same violations if it had initiated such a case before the international court was to take up the matter. Article 14.2(a) of the new proposal says a claimant must show “evidence that it has withdrawn any pending claim or proceedings before any domestic or international court or tribunal under domestic or international law concerning the same treatment as that alleged to be inconsistent with the provisions referred to in Article 1(1).”
One legal expert critical of ISDS said that the changes in the new proposal still leave open the door to an investor bringing a case to the TTIP tribunal after it has received a ruling in another forum — perhaps one with which it disagreed. This expert highlighted the fact that both articles 14.1 and 14.2 make reference only to a “pending claim” in another forum, and argued that this implies it would not apply to a claim that has been fully litigated.
In a May concept paper, the commission said that a new ISDS system should ensure that a parallel claims should not be allowed in order to avoid investors receiving double compensation. However, it was unclear then whether the commission envisioned prohibiting an investor from exhausting its options in a domestic court system before submitting a claim to ISDS.
The commission paper said one way to prevent parallel claims is to require investors to waive their right to seek redress in a domestic court once an ISDS claim has been submitted. Another way to achieve this objective is to require investors to choose between ISDS and domestic courts at the beginning of the legal process, the paper said.
A related change from the draft is contained in Article 4.5(b) of Section 3 of the proposal, which covers when a claimant must submit a request to the ISDS tribunal. The draft proposal said that a consultation must be submitted “within two years of the date on which the claimant or, as applicable, the locally established company, exhausts or ceases to pursue claims or proceedings before a tribunal or court under the domestic law of a Party."
The new proposal eliminates the word “exhaust,” but is otherwise entirely verbatim. The exact impact of this change is unclear, although the expert argued it would be limited because the rest of the language would still allow a claimant that receives a ruling in domestic courts to bring forth a claim, as long as there are not parallel cases.
The new proposal also inserts another restriction on arbitrator conduct during the time they serve on the tribunal. While the draft already precluded them from serving as counsel to investors in other ISDS cases, the proposal specifies that arbitrators on the tribunal and the appellate body cannot act as a “party-appointed expert or witness in any pending or new case.” This provision is contained in Article 11.1 of Section 3 of the text.
Both texts establish a pool of 15 arbitrators — five each from the United States, EU and third countries, respectively — from which three arbitrators will be randomly selected to hear each case. Each panel will include one arbitrator each from the U.S., EU, and a third country. The third country arbitrator will chair the panel. The appellate body will have a pool of six arbitrators with a similarly equal national distribution.
The proposal refers to these arbitrators as “judges,” and dubs the ISDS system an “International Court System.”
The final proposal also adds a paragraph that outlines how parties can remove a judge from the court or appellate body if “his behaviour is inconsistent with the obligations set out in paragraph 1 and incompatible with his continued members of the Tribunal or Appeal Tribunal,” according to Article 11.5.
Paragraph 1 relates to arbitrator impartiality. A decision to remove an arbitrator would have to be taken by a committee of officials from the U.S. and EU, the text says.
Additionally, the final text specifies that the acting president of the appeal tribunal “shall receive a fee for each day worked” on top of the daily retainer fee given to each member of the appellate tribunal. The draft proposal did not contain any such provision. The acting president is responsible for organizational issues.
The new proposal also includes language that requires officials to cap the amount of legal fees that a losing investor would be required to bear if it loses, if such a party is an individual or small or medium-sized company, within one year of the agreement going into force.
“No later than one year after entry into force of this Agreement, the [...] Committee shall adopt supplemental rules on fees for the purpose of determining the maximum amount of costs of legal representation and assistance that may be borne by an unsuccessful claimant which is a natural person or a small or medium-sized enterprise,” the text says.
“Such supplemental rules shall, in particular, take into account the financial resources of such claimants and the amounts of compensation sought,” it adds.
Both versions of the text include a “loser pays” approach, but the draft established the losing party — whether the investor or the state — would have to pay the “reasonable costs incurred by the successful disputing party … unless the Tribunal determines that such apportionment is unreasonable in the circumstances of the case.” That language is absent from the new proposal.