New provisions under the EU-Canada Comprehensive Economic and Trade Agreement will bring “crucially important” changes to arbitration involving states and foreign investors, a lawyer says.
The changes to the agreement, announced earlier this week, will mean investors who are in dispute with a local government can no longer appoint one of the three arbitrators who sit on the tribunal tasked with hearing their case. Instead, the president of the tribunal will create the adjudicating panel from a roaster of arbitrators already prepared by the EU and Canada.
Gregory Tereposky, an international trade and investment lawyer at Borden Ladner Gervais LLP, says this will create much-needed consistency of tribunal decisions in investor dispute cases, an area now plagued by discrepancies. It will also improve the quality of decisions and eliminate the bias some arbitrators show towards the party that’s appointed them, he says.
Traditionally, the investor and the respondent government would appoint one arbitrator each, and a third party would select the third arbitrator.
“You think it shouldn’t happen, but you do have situations where . . . arbitrators can be very biased towards the party that appointed them. And this works both for governments and investors,” he says.
According to Tereposky, it’s also not uncommon to see arbitrators, selected from a global pool, get the law flat out wrong.
“Not all arbitrators are versed to the same level in the law and not all take a similar approach to the law,” he says. “As legal counsel on these cases, it’s very frustrating when arbitrators clearly get the law wrong but you can’t challenge them. The only time you can challenge them is . . . when there is a manifest misuse of power.”
Thanks to additional changes to CETA, lawyers can now challenge the decision of arbitrators through a newly formed appellate body.
“It will create a much more detailed and consistent body of law,” says Tereposky. “When you look at it from a systemic perspective, it’s a very positive thing.”
The changes will make the dispute resolution system work like an international court, according to EU Trade Commissioner Cecilia Malmström.
“I’m delighted with this result,” Malmström said in a press release. “CETA takes on board our new approach on investment and its dispute settlement. By making the system work like an international court, these changes will ensure that citizens can trust it to deliver fair and objective judgments. We can confidently say that we’ve met the expectations of both the member states and the European Parliament.”
Tereposky says a preamble in the updated agreement may be used to provide governments with what he calls “regulatory space.” It says the provisions will protect investors and their investments “without undermining the right of the parties [EU and Canada] to regulate in the public interest within their territories.”
This seemingly innocuous language will have “a very big effect,” says Tereposky.
“These types of provisions have already been interpreted in the [World Trade Organization] context to provide regulatory space for governments to regulate in a way which isn’t sanctioned by agreements,” he adds.