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Mark Bell

On 13 June 2019, the EU Council adopted the Directive on Work-Life Balance for Parents and Carers. The Directive was proposed in 2017 and it was one of the key legislative initiatives that the European Commission presented alongside its proposal for the European Pillar of Social Rights. It contains significant enhancements to existing EU legislation, such as the introduction of 10 working days of paid paternity leave for fathers; an individual right for workers to four months of paid parental leave that exists at least until the child reaches the age of 8 (two months of which is not transferable to the other parent); and an annual right to 5 days of carers leave. Member States have a period of 3 years in which to implement the Directive’s provisions in their national laws.

One of the novelties of the Directive is the creation of a ‘right to request flexible working arrangements for caring purposes’ (Art 9). This applies to workers with children up to a specified age (which must be at least 8 years old) and to carers. ‘Carer’ is defined as ‘a worker providing personal care or support to a relative, or to a person who lives in the same household as the worker, and who is in need of significant care or support for a serious medical reason’ (Art 3(1)(d)). Workers in these categories are entitled to request adjustments to ‘their working patterns, including through the use of remote working arrangements, flexible working schedules, or reduced working hours’ (Art 3(1)(f)).

The idea of a ‘right to request’ begs the question what obligations does this entail for the employer? The Directive specifies that ‘employers shall consider and respond to requests for flexible working arrangements … within a reasonable period of time, taking into account the needs of both the employer and the worker. Employers shall provide reasons for any refusal of such a request or for any postponement of such arrangements’ (Art 9(2); see also Recital 36). This makes it clear that there are new procedural obligations for employers in relation to how they handle such requests. In principle, it should be possible for a worker to bring legal proceedings where an employer simply fails or refuses to consider a request. In relation to a failure by the employer to justify a refusal, it might be open to a court to look beyond the mere absence of justification and to review justifications that fail to show that the needs of the worker were taken into account. The implicit duty to undertake a fair process when handling requests for flexible working arrangements could encourage employers towards greater accommodation of parents and carers. In order to ensure compliance with the Directive (and implementing legislation), it would seem advisable for employers to ensure that there is a procedure at workplace level through which such requests can be formally considered. Practical guidance for employers on providing workplace adjustments has been published by the ILO.

As I have argued elsewhere, many workers will encounter situations during their working lives where, for a variety of reasons, they would benefit from a change to their existing working arrangements. Often these issues can be worked out through informal dialogue between the worker and the employer. While law is not a pre-requisite to finding solutions, it can intervene to assist the worker by requiring an employer to engage in a dialogue and to explain a refusal to accommodate. In practice, one of the challenges for for an individual worker is the imbalance of bargaining power when making such a request. In this regard, it is notable that the Work-Life Balance Directive does not ascribe a role for collective actors in the ‘right to request’ process. This is an oversight that neglects the real world dynamics of a worker asking her employer for a change to her terms and conditions. A right for workers’ representatives to participate in the process could aid workers’ bargaining position. Workers’ representatives may have access to sources of training and advice that improves their knowledge of the legal obligations on the employer. They may also possess memory of accommodations that the employer has already granted in the past to other workers.

Notwithstanding its limitations, the right to request flexible working arrangements displays a subtle understanding of the possible role for law, seeking to nudge employers towards fair process and reasoned decision-making, while exercising restraint in relation to managerial prerogative. This seems a template that could be readily extended to other types of request for accommodation. For example, the ‘right to request’ model might offer an initial mechanism by which the EU could respond to the situation of workers who are seeking accommodations from their employers related to religious practice.

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Dáire McCormack-George

Introduction

Earlier this month, I presented a paper at the Socio-Legal Studies Association Annual Conference at the University of Leeds, ‘On the Nature of Work and the Purpose of Labour Law’. A version of the paper as presented at the conference is available online here. In Part I of this two-part blog post, I concluded that all human activity is skilled and work involves using one’s skills in a particular way, namely, through productivity. In my view, productivity is the hallmark of work. Fundamental to the regulation of work, therefore, must be the right to work. For the purposes of this blog, a number of sources of the right to work are relevant.

The Right to Work The Right to Work in International Human Rights Law

Article 23(1) UDHR recognises the right to work as a fundamental right of everyone: ‘[e]veryone has the right to work, to free choice of employment, to just and favourable conditions of work and to protection against unemployment’. The right to work is also guaranteed in several other international human rights treaties, namely, in and through art 8(3)(a) ICCPR, art 6 ICESCR, art 11(1)(a) CEDAW, art 5(e)(i) CERD, art 27(1) CPRD, art 32 CRC and in arts 11, 25, 26, 40, 52 and 54 ICRMW. All member states of the European Union are parties to these respective human rights treaties (except the ICRMW, to which only a minority of member states are party) and, according to art 3 TEU, the EU is committed to the respect, protection and promotion of human and fundamental rights. It is thus essential that the EU, in its laws and policies, respect, protect and promote the right to work to ensure its compliance with international human rights law. Of the guarantees of the right to work here mentioned, only the ICESCR shall be considered in full below because the ICESCR ‘deals more comprehensively than any other instrument with this right’.[1]

Article 6 ICESCR is perhaps the most interesting instantiation of the right to work in international human rights law, which recognises in art 6(1) ‘the right to work, which includes the right of everyone to the opportunity to gain his living by work which he freely chooses or accepts’. This text may suggest, at least, a degree of consistency with the concept of work we adopted in section II which incorporates not only paid work but also unpaid forms of work. Article 6(2) ICESCR also indicates an important degree of consistency with the Skills Approach generally in holding that, to give effect to the right to work, states should adopt measures including ‘vocational guidance and training programmes, policies and techniques to achieve steady economic, social and cultural development and full and productive employment’. Further evidence of the link between the right to work and the concept of work and the Skills Approach is to be found in General Comment No 18 on the right to work by the Committee on Economic, Social and Cultural Rights (‘CESCR’). According to that Comment, ‘[t]he right to work contributes (…) to the survival of the individual and to that of his/her family, and insofar as work is freely chosen or accepted, to his/her development and recognition within the community’.[2] This underlines the fact that ‘respect for the individual and his dignity is expressed through the freedom of the individual regarding the choice of work, while emphasising the importance of work for personal development as well as social and economic inclusion’.[3]

The Right to Work in International Economic Law

Article I GATS provides that the agreement applies to measures by member states affecting trade in services, defined as the supply of a service

  • From the territory of one member into the territory of another;
  • In the territory of one member into the territory of any other another;
  • By a service supplier of one member, through commercial presence in the territory of any other member; or
  • By a service supplier of one member, through presence of natural persons of a member in the territory of any other member.

The last of these—so-called ‘Mode 4’ GATS provides for the temporary presence of a service supplier from one member state in the territory of another member state. Access by service providers of one member state to the market of another member state is a fundamental part of the GATS but is not granted automatically. To put it another way, as a matter of international economic law, service providers—on our analysis above, those who undertake paid self-employed work or their employees—are only permitted access to the market of a given state if a specific commitment in a relevant sector of the economy has been made by the host state.

The Right to Work in the European Social Charter

Article 1 of the European Social Charter guarantees the right to work and provides as follows:

“With a view to ensuring the effective exercise of the right to work, the Parties undertake:

  1. to accept as one of their primary aims and responsibilities the achievement and maintenance of as high and stable a level of employment as possible, with a view to the attainment of full employment;
  2. to protect effectively the right of the worker to earn his living in an occupation freely entered upon;
  3. to establish or maintain free employment services for all workers;
  4. to provide or promote appropriate vocational guidance, training and rehabilitation.”

As Simon Deakin has observed, ‘[l]ooking at these provisions as a whole (…) it can be argued that the unifying idea in Article 1 is that of a right to access the labour market’.[4] According to Deakin, there are three senses in which it guarantees a right to access the labour market. A first sense is the way it protects the property right—the right to sell one’s labour—in the market. It accurately acknowledges that labour is indeed a commodity in a market economy. Second, the conception of the labour market developed therein is a social one: art 1 ESC protects a social market economy. And third, art 1 ESC ‘assumes that the state and the legal system constitute the labour market not in an abstract sense, but with a particular instrumental goal in mind: this is the goal of protecting and enhancing the capabilities of market actors’[5] or, according to the analysis developed in this blog, people’s skills.

The Right to Work in EU Law

The most obvious manifestation of the basic liberty to work in EU law first emerged in the case of Case 4/73 Nold [1974] ECR 491. In that case, the applicant, a wholesaler in the coal industry, challenged a decision of the Commission concerning the establishment of conditions required for the acquisition of the status of ‘direct wholesaler’ in the industry. Those rules required, amongst other things, the acceptance of minimum purchase arrangements from a consolidated coal consortium in the Ruhr area of Germany. The applicant, however, was unable to meet these minimum requirements. In essence, the applicant’s business was too small to survive in heightened conditions of competition. As argued by the applicant, ‘the effect of the new terms of business [was] to favour the concentration of this distribution into the hands of a small number of major dealers’.[6] The Court of Justice rejected the applicant’s challenge to the decision of the Commission on the grounds of discrimination and breach of fundamental rights. For our purposes, the most interesting aspect of the Court’s judgment is that part concerning fundamental rights. According to the Court, the right to free pursuit of a business activity, as protected by the German Basic Law and in constitutions of the other member states, must be considered as a fundamental right which forms an integral part of the general principles of EU law.[7] The Court then went on to note the social nature of the right to choose and practice a trade or profession, in holding that such a right and analogue rights must be considered in the light of their social function: such rights ‘are protected by law subject always to limitations laid down in accordance with the public interest’.[8] In the instant case, while the applicant’s right to practice its profession was engaged, it was not infringed: ‘the disadvantages claimed by the applicant are in fact the result of economic change’.[9]

The Charter of Fundamental Rights of the EU also plays a foundational role in establishing the right to work in the EU. Article 15, the explanatory notes to which refer to art 1 ESC already discussed, extends to ‘everyone’ the right to work and pursue a freely chosen occupation. This general expression of the right to work is then applied, more particularly, to certain categories of person in the following sub-clauses of art 15. Thus, art 15(2) provides that Union citizens have the freedom to seek employment, to work and to exercise the right of establishment and to provide services in the territory of the member states. While the republican overtones are difficult to find here, links can be drawn with other rights in the CFREU—particularly art 5 on the prohibition on slavery and forced labour—to see the republican undertones in operation in the Charter’s schema of protection. By contrast, according to art 15(3) CFREU, third-country nationals who are duly authorised to work are merely afforded working conditions ‘equivalent’ to those of member state nationals.

Article 16 CFREU provides for the freedom to conduct a business ‘in accordance with Union law and national laws and practices’. While arts 15 & 16 thus express different rights, they must emanate from the same central basic liberty, namely, the liberty to work, be it as an employed person, or a self-employed person or service provider. In his Opinion in Alemo-Herron, AG Cruz Villalón made a number of helpful comments in relation to art 16 CFREU.[10] The AG first noted that art 16 is based not only on case law concerning the freedom to pursue an economic activity but also contractual freedom and the principle of free competition.[11] Second and relatedly, the AG made several comments on the nature of art 16 CFREU as a market norm. The AG first observed that the freedom to conduct a business ‘acts as a limit on the actions of the Union in its legislative and executive role as well as on the actions of the Member States in their application of European Union law’.[12] Second and relatedly, the AG emphasised that the freedom to conduct a business ‘protects economic initiative and the ability to participate in a market’.[13] Once again, we see the significance of the right to work in facilitating access to the labour market. Finally, AG Cruz Villalón emphasised the possibility of using art 16 CFREU as a ‘counterweight’ to other fundamental rights.[14]

Conclusion

To sum up, in this blog post, I have argued

  • The right to work is foundational in allowing people to use and deploy their skills, subject to market demand;
  • The right to work is viewed as foundation in international human rights law, international economic law and under the European Social Charter and EU law.

As mentioned at the outset, this is the first in a series of posts. The next post shall consider the role of skills in the EU’s external relations.

[1] Committee on Economic, Social and Cultural Rights, ‘The Right to Work: General Comment No 18’ (24 November 2005) 2; Ben Saul, David Kinley and Jacqueline Mowbray, The International Covenant on Economic, Social and Cultural Rights: Commentary, Cases and Materials (OUP 2016) ch 8.

[2] ‘The Right to Work: General Comment No 18’ (n 1).

[3] ibid 3.

[4] Simon Deakin, ‘Article 1: The Right to Work’ in Nikklas Bruun, Klaus Lörcher, Isabelle Schömann and Stefan Clauwaert (eds), The European Social Charter and the Employment Relation (Hart 2017).

[5] ibid.

[6] [1974] ECR 491, 499.

[7] [1974] ECR 491 [12]-[13].

[8] [1974] ECR 491 [14].

[9] [1974] ECR 491 [15].

[10] Case C-426/11 Alemo-Herron ECLI:EU:C:2013:82.

[11] ECLI:EU:C:2013:82 [48].

[12] ECLI:EU:C:2013:82 [50].

[13] ECLI:EU:C:2013:82 [51].

[14] ECLI:EU:C:2013:82 [52].

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Zheng Sophia Tang

Please find below the abstract of “Future Partnership in EU–UK Cross-Border Civil Judicial Cooperation” by Zheng Sophia Tang, published in European Foreign Affairs Review, Issue 4, Volume 23 (2018) edited by Jörg Monar and Nanette Neuwahl.

In the past forty years, the EU has established a very successful and effective civil judicial cooperation scheme that applies to reduce barriers caused by coexistence of different legal systems to smooth cross-border activities and transactions in the single market. This scheme would cease being effective between the UK and other EU Member States after Brexit. The UK government has proposed that the optimal option is to establish a special partnership with the EU to maintain the existing cooperation after Brexit, which is not ecoed by the EU. This article aims to explore the feasibility of establishing such a future partnership in civil judicial cooperation and to examine the existing models that may be followed by the UK. It suggests that neither the Denmark model nor the Lugano II model would work effectively and recommends a unique ‘UK model’ to establish the future UK–EU civil judicial cooperation partnership.

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Daan van Schaik

In its first judgment regarding the European Commission’s recent fiscal State aid decisions, the EU General Court (GC) last week annulled the Commission’s decision of 11 January 2016 on Belgium’s so-called “excess profit rulings”.

The exemption for “excess” profits

The case concerns a specific provision in Belgian tax law, which provides for the possibility to reduce the profits of Belgian entities, which form part of multinational corporate groups. According to Belgium, such reductions are justified as a means of avoiding (potential) double taxation and aim to exclude the profits of a multinational group recorded in Belgium that were realised as a result of synergies and economies of scale. On the basis of advance rulings issued by the Belgian tax authorities, such “excess” profits were exempted from corporate income tax in Belgium.

In 2016, the Commission found that these excess profit exemptions granted by Belgium constituted an unlawful State aid scheme, as they provided multinational groups with an unfair advantage vis-à-vis standalone companies. In its decision, the Commission ordered Belgium to recover approx. 700 million euros of alleged aid from a group of ca. 35 beneficiaries, amongst which were groups such as BP, BASF, Belgacom and Magnetrol International. Belgium and a number of alleged beneficiaries appealed the decision with the GC.

The General Court’s judgment (Cases T‑131/16 and T‑263/16)

In its first plea in law, Belgium argued that the Commission exceeded its powers by using the State aid rules of EU law in order to unilaterally determine matters falling within the exclusive tax jurisdiction of a Member State. It should be recalled that, unlike indirect taxes such as VAT (which have been harmonised at EU level), Member States have retained national sovereignty in direct tax matters such as corporate income tax. The GC, however, held that although it is true that, in the absence of EU rules governing direct taxation, it falls within the competence of the Member States to designate tax bases, that does not mean that every tax measure which affects the tax base falls outside the scope of the State aid rules. Since the Commission is competent to ensure compliance with the State aid rules, it cannot be accused of having exceeded its powers by examining the measures comprising the alleged scheme at issue in order to determine whether they constituted State aid. As such, Belgium’s first plea was rejected.

The GC, however, upheld the second plea in law, which alleged that the Commission incorrectly classified Belgium’s approach to granting the exemptions as an “aid scheme”. Under the relevant legislation, it is only possible to classify a measure as an “aid scheme” if, essentially, it concerns generally applicable legislation that grants individual aid to beneficiaries without further implementing measures. According to the GC, Belgium’s excess profit rulings did not constitute an “aid scheme”, as (inter alia) the Belgian tax authorities had a margin of discretion over all of the essential elements of the exemption system (such as the amount exempted and the conditions under which it was granted). On that basis, the GC held that the Commission wrongly concluded that the excess profit exemption scheme did not require further implementing measures and therefore constituted an aid scheme, and annulled the Commission decision.

What’s next for Belgium and the Commission?

The judgment means that the decision is annulled for all alleged beneficiaries covered by the Commission’s decision. It remains to be seen whether the Commission will appeal the judgment, which it can do within two months.

What does this mean for the other fiscal State aid cases?

This defeat is a clear setback to the Commission and limits its ability to open new cases by taking “shortcuts” (i.e. by attacking whole regimes at once instead of taking individual aid decisions). The GC said nothing less than that the Commission attacked a measure that was not State aid.

On the other hand, the GC did not address the other pleas in law raised by Belgium that were of relevance also in the other fiscal State aid cases concerning individual tax rulings (such as Starbucks, Apple, and Amazon). Accordingly, several key questions, including (i) whether or not tax rulings granted to the individual taxpayers in the other cases can amount to a selective advantage, (ii) whether or not the Commission’s reliance on an alleged EU “arm’s length principle” is justified, and (iii) the relevance of the current guidance published by the OECD in relation to past transfer pricing/profit attribution, remain unanswered.

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Andrew Hudson

AS THE confusion continues over whether the UK’s exit from the EU will be “hard”, “soft” or “just right”, HM Revenue & Customs (HMRC)has announced certain goods entering Britain from the EU will be allowed through without checks or payment of duty for a temporary period.

This approach is consistent with promises from the UK Treasury last year that the focus of the UK government will be to facilitate the cross – border movement of goods as opposed to collecting revenue at the point of import. In a letter from the HMRC to companies registered for VAT in the UK (similar to GST registration here), the HMRC announced the creation of a simplified process to be known as Transitional Simplified Procedures (TSP).

While the process for application has yet to be confirmed it appears that under the TSP, VAT-registered companies will be able to move goods into UK from the EU with deferral of making a full import declaration until the month after the import with duty also being deferred until the month after import. However it appears that the TSP only applies to VAT-registered companies in the UK and only applies to imports from the EU so that it will only have limited application and benefit.

Other parties are still no clearer on the approach to be taken in the UK for EU goods. While EU goods will probably still be subject to zero duty there still will be reporting and VAT requirements so the better view is that the requirements will be the same as for imports from all other countries. There is still no clarity on the approach to be taken by EU countries on goods moving from the UK into the EU.

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Simon Weber

On 19 October 2018, the European Commission concluded three agreements with Singapore that will govern the relations between the two markets.[1] In particular, the EU-Singapore Investment Protection Agreement EUSIPA, a mixed agreement that needs to be ratified not only by the European Parliament but also by each Member State, provides for substantive protection standards as well as a dispute resolution between investors and their host States.

These agreements are part of a series of new generation FTAs that include provisions on investor State dispute resolution, which are currently discussed among governments, scholars and practitioners as part of the ISDR reform project. Apart from establishing the Investment Court System, the texts of the agreements include references to small or medium sized enterprises (SMEs) investing abroad. Said provisions attempt to improve the access to justice of SMEs and can also be found in the Comprehensive and Economic Trade Agreement (CETA) and the EU-Vietnam Free Trade Agreement (EUVFTA).

1           Small or Medium Sized Enterprises

What are SMEs and why is their access to the ICS of interest? This is because, according to the Commission, SMEs represent 99% of all businesses in the EU.[2] The Commission clearly defines this term. Pursuant to Article 2 of Commission Recommendation of 6 May 2003[3] two factors are taken into account: the staff headcount and either the turnover or the annual balance sheet total:

Article 2 Staff headcount and financial ceilings determining enterprise categories

1. The category of micro, small and medium-sized enterprises (SMEs) is made up of enterprises which employ fewer than 250 persons and which have an annual turnover not exceeding EUR 50 million, and/or an annual balance sheet total not exceeding EUR 43 million.

2. Within the SME category, a small enterprise is defined as an enterprise which employs fewer than 50 persons and whose annual turnover and/or annual balance sheet total does not exceed EUR 10 million.

According to a Eurobarometer survey (2015)[4] and the European Commission, about 50% of all European SMEs have been involved in international business outside the Internal Market over the last 3 years. Moreover, the Commission deems it “crucial for Europe’s competitiveness, economic growth and innovation”[5] that SMEs increase their internationalisation. To this end, the Commission promotes a business-friendly environment. As already mentioned, provisions on investor State dispute resolution in the new generation FTAs are part of that strategy and supposed to contribute to said environment. Yet, investment arbitration can have downsides and can be disadvantageous for SMEs.

2           Perceived obstacles for SMEs

People working in the field of international dispute resolution know the common prejudices against investment arbitration. Investment arbitration is lengthy. Investment arbitration is costly. But what does reality look like? Is investment arbitration really lengthy? Is it really costly? The answer always depends on whom you ask as well as on the comparator you use.  Especially with regard to SMEs, these questions become serious concerns. This is because an SME is not able to engage in a lengthy and costly dispute since their resources are much lower than those of big international corporations such as Philip Morris, Chevron or Société Générale.

What is the average duration of an investment dispute? Pursuant to an ICSID study reviewing 63 cases, which concluded with an award in the period 1 January 2015 to 30 June 2017, the average duration of investment arbitration proceedings is about 1.336 days, i.e. 3 years and 7 months.[6] This is a long time for a small or medium sized business.

As to costs, an Allen and Overy study revealed that average claimant costs amount to USD 6,019,000 and average tribunal costs to USD 933,000.[7] If an SME with an annual turnover not exceeding EUR 50 million would have to spend over 12% of their turnover to bring a claim against their host State, the result is evident. The business is highly unlikely to survive. Of course, the enterprise could have recourse to third party funding, which has its own advantages and disadvantages.[8]

3           The Commission’s approach

The European Commission decided to attempt to address these concerns by including three provisions into their new Free Trade Agreements with Singapore, Canada and Vietnam that open the doors for SMEs to reduce time and costs.

3.1         Videoconferences

First, the agreements concluded with Singapore, Canada and Vietnam propose to the disputing parties to hold the consultations through videoconference or other means, where appropriate, such as in the case where the claimant is a small or medium-sized enterprise.[9] This is not a novelty as it is common practice to hold consultations, pre-hearing procedural meetings etc. through teleconference or videoconference. It is important to ensure that the technical aspects are dealt with before starting such a conference. Some authors see this as an argument for the requirement of an institution to administer the dispute.[10]

3.2         Sole Member Tribunals

Second, pursuant to the text of the agreements the SME may request for the case to be heard by a Sole Member of the Tribunal.[11] The Claimant shall make this request before the constitution of the division of the Tribunal (CETA) or should make the request at the same time as the filing of the claim (Vietnam & Singapore). However, there is no need for the dispute resolution body to accept this request. Neither must the Respondent accept this request. All three FTAs stipulate that the “respondent shall give sympathetic consideration” to the request. Yet, what happens if the respondent does not accept a Sole Member Tribunal?

The purpose of these provisions is to grant access to the dispute resolution body to SMEs that would not be able to have recourse to investor State dispute resolution under the current system. Hence, the relevant provisions, even if not expressly providing for a right of the SME to request for a Sole Member ICS division, should be interpreted in a favourable manner. The meaning of this term remains unclear and is not further defined in the agreements. Whereas many agreements provide for the possibility of the parties to agree to a sole arbitrator tribunal, the new generation FTAs simply ask the respondent State to give sympathetic consideration to a request from an SME. However, the language of the provision is not binding upon the State.

3.3         Supplemental Rules on Fees

A third provision contained in EUSIPA and EUVFTA hints that the Contracting Parties did indeed take into account the financial resources of a claimant, which is a natural person or an SME.[12] To this end, the Committee, a body established by the treaties comprised of State representatives, may adopt supplemental rules on fees taking into account the financial resources of an SME claimant. The text does not contain an obligation for such rules to be adopted but shows that the Contracting Parties did not forget about SMEs. It remains to be seen if and how such rules will be implemented. It would be desirable to decide on a fixed fee that does not discourage the small or medium sized businesses from bringing a claim.

4           Impact of the provisions

Both the Sole Member provision, as well as the financial resources provision attempt to improve SMEs’ access to justice. Sole Member tribunal costs will be lower and therefore the access to the dispute settlement mechanism is made easier for smaller businesses investing in Canada, Singapore, Vietnam or the EU. There is little public data on the costs of a sole member investment tribunal, yet, regular costs for a USD 5 million ICC dispute can amount to USD 87.000.[13] In comparison, as stated earlier, an Allen & Overy study revealed that average claimant costs amount to USD 6,019,000 and average tribunal costs to USD 933,000.[14] If the SME is able to avoid such high costs through a Sole Member tribunal, this is likely to have a positive impact on the situation of SMEs. Yet, the SME will still have to pay its counsel’s fees. It is not clear as to how the financial situation of SMEs will be taken into account, however, said provision evidences that the Commission is aware of the problem. The third provision on videoconferences constitutes a measure how costs can be reduced.

Furthermore, Sole Member tribunals are likely to render awards and decisions faster than tribunals of three.[15] Therefore, such tribunals would improve the access to justice of SMEs not only by reducing costs but also by speeding up the duration of the proceedings.

Unfortunately, the provisions do not provide for binding rules and it remains to be seen what actual difference they will make. Time will show if the above suffices to increase the accessibility of the Tribunal and contributes to the judicial protection of smaller businesses. If so, the latest FTAs concluded by the EU would constitute a new milestone for access to justice and rule of law considerations for SMEs.

[1] EU-Singapore Free Trade Agreement (EUSFTA), EU-Singapore Investment Protection Agreement (EUSIPA) EU-Singapore Framework Agreement on Partnership and Cooperation (EUSFAPC).

[2] http://ec.europa.eu/growth/smes/business-friendly-environment/sme-definition_en.

[3] Commission Recommendation of 6 May 2003 concerning the definition of micro, small and medium-sized enterprises (Text with EEA relevance) (notified under document number C(2003) 1422).

[4] http://ec.europa.eu/COMMFrontOffice/publicopinion/index.cfm/Survey/getSurveyDetail/instruments/FLASH/surveyKy/2090.

[5] http://ec.europa.eu/growth/smes/access-to-markets/internationalisation_en.

[6] https://icsid.worldbank.org/en/Documents/Amendments_Vol_Three.pdf, page 898.

[7] http://www.allenovery.com/publications/en-gb/Pages/Investment-Treaty-Arbitration-cost-duration-and-size-of-claims-all-show-steady-increase.aspx and http://www.allenovery.com/SiteCollectionDocuments/14-12-17_Damages_and_costs_in_investment_treaty_arbitration_revisited_.pdf.

[8] For a discussion see Jonas von Goeler , Third-Party Funding in International Arbitration and its Impact on Procedure, International Arbitration Law Library, Volume 35 (© Kluwer Law International; Kluwer Law International 2016).

[9] Article 3.3-7 EUSIPA, Article 8.19-3 CETA, Article 4.3 Chapter 8 Section 3 EUVFTA.

[10] Paul Eric Mason, ‘Visualizing a Settlement – Videoconferencing to Resolve International Commercial Disputes’, Revista Brasileira de Arbitragem, (© Comitê Brasileiro de Arbitragem CBAr & IOB; Comitê Brasileiro de Arbitragem CBAr & IOB 2006, Volume III Issue 11) pp. 91 – 98.

[11] Article 8.27(9) CETA, Article 8.23(5) CETA, Article 12.9 Chapter 8, Section 3 EUVFTA, Article 3.9(9) EUSIPA.

[12] Article 3.21-5. EUSIPA, Article 27.5 Chapter 8 Section 3 EUVFTA.

[13] https://www.ashurst.com/en/news-and-insights/legal-updates/one-arbitrator-or-three/.

[14] http://www.allenovery.com/publications/en-gb/Pages/Investment-Treaty-Arbitration-cost-duration-and-size-of-claims-all-show-steady-increase.aspx and http://www.allenovery.com/SiteCollectionDocuments/14-12-17_Damages_and_costs_in_investment_treaty_arbitration_revisited_.pdf.

[15] Yu Jin Tay, Reflections on the Selection of Arbitrators in International Arbitration, in 17 International Arbitration: The Coming of a New Age?, ICCA Congress Series 112, 113 (Albert Jan van den Berg ed., 2013) and Michael Dunmore, ‘Increased Efficiency and Lower Cost in Arbitration: Sole Member Tribunals’, Indian Journal of Arbitration Law, (© Indian Journal of Arbitration Law; Centre for Advanced Research and Training in Arbitration Law, National Law University, Jodhpur 2015, Volume IV Issue 1) p. 31.

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The post Open Doors for Small or Medium Sized Enterprises to Investor State Dispute Resolution? appeared first on Regulating for Globalization.

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Marco D'Ostuni and Andrea Mantovani

A recent ruling about electronic invoicing talks about the risks of collecting very large volumes of data under the EU’s General Data Protection Regulation (“GDPR”).

For the first time, the Italian Data Protection Authority (“DPA”) used the general warning powers granted by the GDPR. It did so to prevent the National Revenue Agency from interfering too much with citizens’ privacy when handling electronic invoices.

Should private data hoarders also take notice of the DPA’s ruling?

The facts

Italian Law No. 205/2017 made electronic invoicing mandatory from 2019 for anyone established in Italy. The law does not give much practical detail on how the new system should work.

In April and November 2018, the Italian Revenue Agency (“IAR”) adopted two decisions to regulate transmission of electronic invoices, storage and third-party access to collected data. The new rules were to apply to vast volumes of data about almost every aspect of a person’s private life. Like shopping choices, professional activities, medical expenses and private hobbies.

Reacting quickly, on November 15, 2018, the DPA struck down the system devised by the IAR to manage the incoming flood of data from invoices.

The DPA spotted several “serious issues” under the GDPR. The IAR’s storage and disclosure conditions were so wide as to be out of proportion with the scope of the law. Security measures against data breaches were weak in light of the data’s volume and nature.

The DPA warned the IAR that, without major changes, the new system would violate the GDPR. The DPA asked the IAR to clarify urgently which remedies it would adopt.

This is the first time that the DPA has used its power under Article 58.2(a) of the GDPR. It is the power “to issue warnings to a controller” that its actions are “likely to infringe” the GDPR.

The DPA addressed the IAR as a common data controller. Thus, while the ruling involves a public authority, its contents could concern all controllers, including private companies. The case (and its expected follow-up) provides useful guidance on how to process large volumes of data in compliance with the GDPR.

Limit data processing

Controllers can collect only data that is “adequate”, “relevant” and “necessary” with respect to the “purposes” pursued. This is the data minimization principle (Article 5.1(c) of the GDPR).

Controllers must also take precautions to ensure “by default” that data processing is limited to what is strictly necessary (Article 25.2 of the GDPR).

The DPA found that the IAR’s system went beyond what the law required.

The IAR would not only collect data needed for tax reasons, but also other information contained in the invoices. This could include details about health conditions or criminal offenses (for instance, in invoices issued by doctors or lawyers) and reveal all kinds of personal habits and preferences.

Thus, the IAR was violating the minimization principle. Public interest did not justify such a vast data collection.

Design effective protection

The GDPR also establishes the rule of privacy by design (Article 25.1 of the GDPR).

Controllers must adopt “appropriate technical and organizational measures” to protect personal data. They must do so both when they design the “means for processing” and in the actual processing.

The measures and the organization must adequately counter the risks of data breaches. This requires careful planning and continuous attention to operations through the whole data processing chain.

According to the DPA, the IAR system did not comply with these rules. Security measures were not enough to protect the files from data breaches. No encryption tools were in place. In other words, because the wealth of collected data was attractive to cybercriminals, the IAR should have taken stronger countermeasures.

The DPA also found that ordinary access by third parties to this massive database posed additional risks. Accountants acting as intermediaries would be able to access “an enormous bulk of information” about thousands of clients. But the IAR had not set up safeguards to prevent them from using the data for unpermitted purposes.

Compliance tools

Several tools can help design a system in compliance with the GDPR.

Public authorities have to “consult the supervisory authority” about law proposals or regulatory measures relating to data processing (Article 36.4 of the GDPR). However, the IAR had not consulted the DPA.

Additionally, when planned activities pose a “high risk” for data protection, controllers should run a prior impact assessment. They should think about “measures” to “mitigate the risk” (Article 35 of the GDPR). Then they may have to consult with the supervisory authority.

The IAR had not carried out this assessment either.

According to the Article 29 Working Party’s Guidelines, a prior data protection impact assessment is always “a useful tool to help controllers comply with data protection law”. This assessment could be required for large-scale data processing.

A list issued by the DPA in November 2018 also includes extensive processing of data “of a highly personal nature” (such as financial data) among the activities requiring an impact assessment.

A few final points

The minimization and privacy-by-design requirements apply to all data processing. Minimizing the use of large volumes of data may sound challenging. But no data controller can overlook the exercise.

Under Article 6 of the GDPR, processing must be tailored to fit its legal basis. A legal basis could be the data subjects’ consent or, like in the IAR’s case, the performance of a task in the public interest. The DPA’s ruling shows that infringements to the minimization principle can also amount to violations of Article 6.

Privacy by design is crucial to ensure compliance. The risks of data breaches (such as unauthorized access, accidental loss, damage or destruction of data) increase as the volume of processed data grows. But even when measures are badly designed, effective remedial action can still mitigate fines.

In November 2018, the supervisory authority for the Baden-Wuerttemberg region fined a social media company that had stored unencrypted data (including passwords and e-mail texts) of hundreds of thousands of customers and suffered a data breach. The fine could have gone up to the highest of €10 million or 2% of the company’s total worldwide annual turnover. But the actual fine was much lower (€20,000), because the company had cooperated effectively and reacted quickly to the data breach, with extensive improvements to its security systems.

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Jeremy Cape and Max Schofield

Please find below the journal abstract of “VAT and Brexit: The Past, Present and Future” by Jeremy Cape, published in  EC Tax Review, Volume 27, Issue 6, edited by B. J. Kiekebeld

Exact science rarely emerges during times of febrile political discourse such as that currently revolving around the withdrawal of the UK from the EU. Woody Allen once wrote of a man named C.N. Jerome, a psychic, who claimed he could guess any card being thought of … by a squirrel.1) W. Allen, The Insanity Defense (Random House, 2007), 126. Jerome may equally have professed to divine the outcome for UK VAT policy in the not-too-distant future (namely, 11 pm on 29 March 2019). Owing to this uncertainty and the possibility of up-to-date authorship becoming outdated by the time of publication, the authors have strived to cover certain topics in relation to VAT policy and Brexit with a caveated generality and occasional, hesitant prediction.

References   [ + ]

1. W. Allen, The Insanity Defense (Random House, 2007), 126.
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Gordon Anthony

Please find below the journal abstract of “Brexit and the Common Law Constitution” by Gordon Anthony published in European Public Law Issue 4, Volume 24, 2018 edited by Patrick Birkinshaw.

This article considers the implications that Brexit holds for the UK’s ‘common law constitution’ – the body of principles and norms that the courts have developed in case law on EU membership, fundamental rights, and devolution. Focusing on the Supreme Court’s ruling in Miller, it argues that Brexit may have paradoxical effects within the case law. These start with the fact that the Supreme Court rationalized EU withdrawal in terms of Parliamentary sovereignty, but did so in a manner that casts doubt on the utility of distinctions between ‘internal’ and ‘external’ law. However, it is in the context of rights and devolution that the Supreme Court’s reliance on Parliamentary sovereignty as UK law’s ‘rule of recognition’ is most problematic, and the article notes a number of tensions in the law. In relation to rights, these are a result of an apparent retreat from a line of case law that had previously indicated that the courts might impose substantive limits on the powers of the Westminster Parliament. The tensions around devolution are a result of the subordinate role that the rule of recognition accords to the devolved institutions and its inability to accommodate any conception of ‘divided sovereignty’.

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Kit Chong Ng and Mubarak Waseem

M People - Moving on Up - YouTube

Source: M People, Moving on Up music video. Copyright 1993 Sony Music BMG

I. Introduction

“You’ve done me wrong, your time is up
You took a sip from the devil’s cup
You broke my heart, there’s no way back
Move right out of here, baby, go on pack your bags”

M People, ‘Moving on Up’ (verse one).

Intra-EU investor-State dispute settlement (‘ISDS’) has had a rough few years. From the European Commission’s (‘EC’) decision to treat the payment of compensation following an investor-State arbitral award in Micula v Romania[2] as illegal state aid,[3] to the Achmea decision[4] of the Court of Justice of the European Union (‘CJEU’) earlier this year, which held that intra-EU bilateral investment treaties (‘BITs’) are incompatible with EU law. The latest development in this turbulent relationship comes in the form of the award in the UP v Hungary case,[5] decided earlier this month by an ICSID tribunal composed of Dr Karl-Heinz Böckstiegel, L. Yves Fortier QC, and Sir Daniel Bethlehem QC. This short note expounds upon the decision and discusses some of its implications for investment arbitration.

II. Achmea and the CJEU’s Treatment of Intra-EU BITs

The Achmea decision[6] was rendered following a reference from the German Bundesgerichtshof (federal court) to the CJEU.[7] Briefly, the case concerned the setting-aside of an ad-hoc investor-State arbitration, established under United Nations Commission for International Trade Law (‘UNCITRAL’) rules and seated in Frankfurt, between the Dutch insurance company Achmea BV and Slovakia. The original award in 2012[8] rejected all of Slovakia’s objections to the tribunal’s jurisdiction (paras. 152 – 180) and ordered Slovakia to pay €22.1 million in damages to Achmea (para. 352). Slovakia subsequently applied to the German courts (as Frankfurt was the seat of arbitration) to set the award aside on the ground that the dispute resolution clause of the Netherlands-Slovakia BIT was contrary to EU law. Under the dispute resolution clause, the parties agreed to submit disputes to an arbitral tribunal constituted under UNCITRAL rules, and the tribunal was to decide on the basis of law, taking into account certain factors such as law in force between the parties, provisions of the BIT, and general principles of international law. Slovakia argued that this clause contravened the following articles of the Treaty on the Functioning of the European Union (‘TFEU’):

  • Article 18 (non-discrimination on the grounds of nationality);
  • Article 267 (CJEU jurisdiction to give rulings on the interpretation or application of EU law); and
  • Article 344 (exclusive jurisdiction of the EU’s dispute resolution mechanisms in matters concerning the interpretation of EU law).

In his opinion, Advocate General (‘AG’) Wathelet[9] concluded that the BIT was not contrary to EU law because: (1) the preferential treatment given to Dutch investors did not constitute discrimination under Article 18 TFEU; (2) the tribunal was able to request preliminary rulings from the CJEU because it met the definition under Article 267 TFEU of a “court or tribunal of a Member State”; and (3) investor-state disputes did not concern the interpretation or application or the EU treaties under Article 344 TFEU.

The CJEU,[10] however, did not agree with the AG’s opinion. In particular, it held that that the arbitration clause was in violation of EU law, because:

  1. As disputes under the BIT may involve the interpretation or application of EU law, the dispute resolution clause had the effect of removing disputes concerning the interpretation or application of EU law from the EU’s mechanisms of dispute resolution, and this was contrary to Article 344 TFEU (para. 56)
  2. The ad-hoc arbitral tribunal was not a court of a member State, and therefore had no power to refer disputes to CJEU (paras. 46 – 49). As such, it would be deprived of the opportunity to ensure the uniform application of EU law.
  3. The ad-hoc Tribunal was able to choose its own procedure, and its award was final, subject only to limited review based on the law of the seat. In this case, limited review concerning the validity of the arbitration agreement and challenges on the grounds of public policy. (paras. 51 – 53). The CJEU noted that, although it has found that limited review is appropriate in the case of commercial arbitration, ISDS provisions were different as they “derive from a treaty by which Member States agree to remove from the jurisdiction of their own courts, and hence from [the system of judicial remedies they are required to establish in fields governed by EU law], disputes which may concern the application or interpretation of EU law” (paras. 54 – 55).

The CJEU found, therefore, that the ISDS provision in the Netherlands-Slovakia BIT was incompatible with the TFEU (para. 62), as the BIT established a dispute resolution mechanism which undermines “not only the principle of mutual trust between the Member States but also the preservation of the particular nature of the law established by the Treaties” (para. 58), and, accordingly, has “an adverse effect on the autonomy of EU law” (para. 59).

III. The Decision in UP v Hungary – Achmea does not apply to ICSID Tribunals

On 9 October 2018, the Tribunal in UP and CD Holding Internationale v Hungary (ICSID Case No. ARB/13/35) (‘Up’) rendered its award. The dispute concerned an alleged breach of the 1986 France-Hungary BIT. The Claimants were involved in issuing meal vouchers for use at supermarkets and restaurants. Their business plummeted when the Hungarian government introduced, in 2011, SZEP cards (a dematerialised alternative to paper vouchers) and Erzsébet vouchers (which could similarly be used to pay for food), as these new reforms benefitted from lower tax rates. Thus, the Claimants alleged that Hungary’s legislative measures indirectly expropriated their business, and that Hungary breached the standard of ‘fair and equitable treatment’ (‘FET’) to be accorded to investors under the BIT.

The Tribunal determined, in 2016, that it had jurisdiction to decide the dispute. After the CJEU rendered its Achmea decision, Hungary requested that the Tribunal hear submissions on that judgment’s impact on the arbitration, arguing that the Tribunal was bound by the decision in Achmea. In particular, Hungary argued:

  1. the tribunal was unable to “ignore interpretative decisions issued by a specific body in charge of the interpretation of the treaty in question” (citing para. 66 of the International Court of Justice (‘ICJ’)’s Diallo judgment)[11]; and
  2. the Achmea judgment formed part of the law applicable in the dispute, and was to take precedence over the BIT.

The Tribunal firmly rejected Hungary’s arguments. It began by noting that the ICSID Convention was “a multilateral public international law treaty for the specific purpose of resolving investment disputes between private parties and a State (here, Hungary). Thus, this Tribunal is placed in a public international law context and not in a national or regional context” (para. 253).

It then found that the Achmea decision was not apt to determine the outcome of Up. Whilst, Achmea, the German courts had limited competence to review the award (and in that context submitted the preliminary reference to the CJEU, the Up tribunal would not be open to review by the courts of the place of the arbitration (the English courts), which was only open to challenge through the annulment procedure in Article 52 of the ICSID Convention (Up, paras. 254 – 255). Furthermore, by virtue of Article 54 of the ICSID Convention, the Award would fall to be enforced in the territories of signatories to the ICSID Convention (many of which are not EU Member States) as if they were judgments of the courts in that State (Up, paras. 256 – 257).

The Achmea decision, according to the Tribunal, “cannot be understood or interpreted as creating or supporting an argument that, by its accession to the EU, Hungary was no longer bound by the ICSID Convention” (Up, para. 258). Hungary did not withdraw from the ICSID Convention, nor was there any implied withdrawal therefrom (Up, para. 260).

Furthermore, the Achmea decision in no way demonstrated that Hungary had retroactively withdrawn its consent to arbitration when Hungary acceded to the EU, and, even if it had, the 20-year survival clause in Article 12(2) precluded any “implicit termination” of the arbitration clause in the BIT (Up, paras. 264 – 265). Therefore, the Tribunal decided that there was no cause to disturb its finding of 2016 that it had jurisdiction to determine the dispute between the parties (Up, para. 266).

As to the substance of the dispute, the Tribunal found that Hungary had breached its obligations, and ordered it to pay the Claimants compensation for unlawfully expropriating their investment (Up, para. 419). There was no need to examine whether Hungary had also breached the FET standard since it would not lead to any damages in excess of those arising from the unlawful expropriation (Up, para. 493).

IV. Observations – Pushing back against the CJEU

The decision in Up will be welcomed by investors and proponents of ISDS. The Tribunal dealt with the question of the applicability of the Achmea decision succinctly (in three pages) by dismissing its application to the ICSID Convention and the particular dispute between the parties. It did not deal with some of the more acerbic arguments of the Claimants concerning, inter alia, the non-primacy of EU law (Up, para. 219).

The Tribunal’s decision pushes back against the broadest reading of Achmea (that all intra-EU ISDS clauses are contrary to EU law), and clarifies that the institutional nature of ICSID immunises it from the decision in Achmea, which the Tribunal read as being limited to ad hoc arbitration. Although other commentators have also read the Achmea decision as excluding ICSID arbitration,[12] there is nothing in the text of the Achmea decision which sets this out explicitly. Indeed, the CJEU’s main criticism of the ad hoc tribunal in Achmea, (i.e. that it was final, and not subject to review, and therefore that the States had chosen to remove a dispute that may concern EU law from the ambit of the EU dispute resolution system) applies equally to ICSID arbitrations. In this way, the decision in Up can be read as actively pushing back against the CJEU’s decision by carving out an exception for ICSID arbitration.

Although the European Commission attempted on 20 August 2018 to intervene in the proceedings (para. 95), the tribunal dismissed its intervention on 27 August 2018 because the case was already in its end-stages and further submissions would be unnecessary and disruptive to the proceedings.

However, the larger problem with the troubled relationship between ISDS and the EU remains. The EU does not seem to be willing to give up ground, and investor-State tribunals are still generating awards in intra-EU BIT cases. Although judicial intermingling can result in ‘decisional fragmentation’, in which different courts render contradictory judgments on the same subject-matter,[13] the Up tribunal managed to avoid this on the face of the award by carving out from the reach of Achmea a safe-space for ICSID arbitration.  Nevertheless, as the overall relationship between the EU and ISDS demonstrates, courts and tribunals overlapping in their substantive jurisdiction can result in existential problems in the regimes that they govern.

This judicial territory-marking only seems to create uncertainty, which tends to push the issue further away from resolution. There are ISDS provisions in almost 200 intra-EU BITs currently in force. As things stand, investors are unsure if they can rely on these clauses, and States are unsure what legal effect these provisions still have. Of course, ever-lurking as contextual shadows are both calls for an institutionalised investment court, and the United Kingdom’s imminent exit from the European Union. This would perhaps make post-Brexit Britain a more attractive location for investment disputes and BIT-planning, but the position for the other Member States, at the moment, remains hanging in the balance.

We will know more about the decision’s impact, and the responses from the stakeholders involved (including, of course, investors, the EU and its Member States), in due course. Going forward, it seems unlikely that either side will wholly concede to the other, and the fissures that have developed seem a long way from healing.

[1] The authors would like to thank M People for their hum-worthy 1993 smash hit ‘Moving on Up’, which inspired the title of this blog post.

[2] ICSID Case No. ARB/05/20, Award (11 December 2013). The Final Award of the Tribunal can be found here: https://www.italaw.com/sites/default/files/case-documents/italaw3036.pdf

[3] http://europa.eu/rapid/press-release_IP-15-4725_en.htm

[4] Judgment of 6 March 2018, Slovak Republic v Achmea BV, C-284/16, ECLI:EU:C:2018:158 http://curia.europa.eu/juris/document/document.jsf?docid=199968&mode=req&pageIndex=1&dir=&occ=first&part=1&text=&doclang=EN&cid=1977367

[5] ICSID Case No. ARB/13/35, Award (9 October 2018) https://www.italaw.com/sites/default/files/case-documents/italaw10075.pdf

[6] Judgment of 6 March 2018, Slovak Republic v Achmea BV, C-284/16, ECLI:EU:C:2018:158 http://curia.europa.eu/juris/document/document.jsf?docid=199968&mode=req&pageIndex=1&dir=&occ=first&part=1&text=&doclang=EN&cid=1977367

[7] BGH, I ZB 2/15, Decision (3 March 2016) http://juris.bundesgerichtshof.de/cgi-bin/rechtsprechung/document.py?Gericht=bgh&Art=en&nr=74612&pos=0&anz=1

[8] PCA Case No. 2008-13, Achmea BV v Slovak Republic, Final Award (7 December 2012) https://www.italaw.com/sites/default/files/case-documents/italaw3206.pdf

[9] Opinion of 19 September 2017, Slovak Republic v Achmea BV, C-284/16, ECLI:EU:C:2017:699 http://curia.europa.eu/juris/document/document.jsf?text=&docid=194583&pageIndex=0&doclang=en&mode=req&dir=&occ=first&part=1&cid=1978095

[10] Judgment of 6 March 2018, Slovak Republic v Achmea BV, C-284/16, ECLI:EU:C:2018:158 http://curia.europa.eu/juris/document/document.jsf?docid=199968&mode=req&pageIndex=1&dir=&occ=first&part=1&text=&doclang=EN&cid=1977367

[11]Ahmadou Sadio Diallo (Republic of Guinea v. Democratic Republic of the Congo), Merits, Judgment, I.C.J. Reports 2010, p. 639 https://www.icj-cij.org/files/case-related/103/103-20101130-JUD-01-00-EN.pdf

[12] see, for example: http://arbitrationblog.kluwerarbitration.com/2018/04/21/what-next-for-intra-eu-investment-arbitration-thoughts-on-the-achmea-decision/

[13] Philippa Webb, International Judicial Integration and Fragmentation (OUP 2013), pp.5-7.

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The post Moving on Up? Intra-EU investor-State dispute settlement following the decision in UP v Hungary appeared first on Regulating for Globalization.

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