The CETA: Simplifying International Investment Arbitration

by Eric van Eyken (B.A, B.C.L. / LL.B (McGill), LL.M. (Miami – Young ICCA Scholar))

The near final text (1 August 2014) of the Canada-EU Trade Agreement (CETA) is being circulated in Brussels (and leaked on the internet thanks to the German news service Tagesshau). A reading indicates that the CETA attempts to increase the accessibility of international investment arbitration. The CETA resolves current ambiguities regarding the meaning of standard provisions such as FET (Fair and Equitable Treatment) and arbitral pre-conditions. Given indications that the EU plans to use the text as a model for further trade negotiations with countries such as the United States, the CETA is relevant not only for European and Canadian international arbitration practitioners, but also to the global community.

Increased Accessibility

The CETA negotiators have adopted an approach to investment protection which privileges the streamlining of procedures and the simplification of international law concepts.

An initial indicator that CETA has increased the availability and affordability of investment protection is Article X.22(5) which provides that “the investor may … propose that a sole arbitrator should hear the claim.”  The CETA directs that “the respondent shall give sympathetic consideration to such a request, in particular where the investor is a small or medium-sized enterprise or the compensation or damages claimed are relatively low.”

Further indications that the CETA promotes accessibility to international investment arbitration are the inclusion of detailed provisions on mediation of disputes (X.19) and clear provisions that identify the “Procedural and Other Requirements for the Submission of a Claim to Arbitration” (Article X.21). Regarding the latter, the CETA circumvents the perpetual debate as to whether a certain requirement of a BIT is a jurisdictional pre-requisite or a (waivable) procedural pre-condition to arbitration.  The ambiguity is clarified by the requirement that “an investor may submit a claim to arbitration … only if the investor” meets six enumerated criteria (e.g. notice, consultations, cooling-off). For good measure, the CETA also dictates (Article X.7(4)) that clever counsel cannot seek to circumvent such mandatory requirements by making use of MFN principles to import more favourable procedures from other BITs! Both steps streamline recourse to investment arbitration by ensuring that the jurisdictional and procedural steps are known and clear.

Additionally, the CETA tolls the limitation period to initiate a claim in instances where the investor has been seeking resolution of the dispute before local courts or tribunals (Article X.18(5)(b)). In effect, an investor is no longer forced to choose, at the outset of a claim, between recourse to local courts and recourse to investment tribunals.  Rather, the investor is granted up to ten years to initiate an investment claim over measures that have been the subject of local judicial proceedings (compared to three years otherwise). Again, this greatly expands access to investment arbitration and ensures that investors are not punished by first seeking (or exhausting) domestic recourse.

Last, the CETA specifies that costs, absent exceptions, are to be borne by the losing party (Article X.36(5)). Such cost-shifting makes investment arbitration available to small and medium-sized investors.

Increased Substantive Clarity

As speculated in a previous Young-ICCA blog post, the CETA has adopted a radically different approach towards the content of FET (Article X.9). Gone are clarifications, preferred by Canada, equating FET to “the customary international law minimum standard of treatment of aliens.” Those clarifications have been replaced by a clear and understandable enumeration of what FET encompasses:

2. A Party breaches the obligation of fair and equitable treatment referenced in paragraph 1 where a measure or series of measures constitutes:

(a) Denial of justice in criminal, civil or administrative proceedings;

(b) Fundamental breach of due process, including a fundamental breach of transparency, in judicial and administrative proceedings.

(c) Manifest arbitrariness;

(d) Targeted discrimination on manifestly wrongful grounds, such as gender, race or religious belief;

(e) Abusive treatment of investors, such as coercion, duress and harassment; or

(f) A breach of any further elements of the fair and equitable treatment obligation adopted by the Parties in accordance with paragraph 3 of this Article.

This enumerated approach should significantly focus legal pleadings (and awards!) by limiting debate on the content of the FET standard. As indicated by (f), the list is subject to expansion, ensuring that FET remains an evolving standard (Article X.9(3)).

Further clarification limits the applicability of “full protection and security” to physical security (Article X.9(5)). This clarification may put a stop to expansive readings of the standard adopted in (amongst others): Azurix v Argentina, Compañia de Aguas and Vivendi v Argentina, National Grid v Argentina, Siemens v Argentina, CME v Czech Republic, Frontier v Czech Republic, Siag v Egypt, AES v Hungary, and, Biwater v Tanzania.

The CETA also clarifies that investment fraud and similar corruption or concealment are absolute bars to the jurisdiction of the tribunal (Article X.17(3)). While these principles are widely accepted, the CETA incorporates them in the text, thereby reducing the need for recourse to (arguable) jurisprudence constante.

Intellectual Property: Still TBD?

While many aspects of the CETA clarify controversies in investor-state protection, a Declaration on intellectual property expropriation indicates where future controversy may arise. The Declaration with regard to Article X.11(6) states that investment protection is “not an appeal mechanism for the decisions of domestic courts,” and that “the Parties recall that the domestic courts of each Party are responsible for the determination of the existence and validity of intellectual property rights.” There should be little doubt that this Declaration is in response to ongoing intellectual property focused disputes such as Philip Morris v Australia and Eli Lilly v Canada. The CETA Parties, however, acknowledged that the relationship between investment protection and intellectual property is evolving and, in response, the Parties are committed to reviewing this Declaration within three years.


The CETA is a significant, perhaps revolutionary, step forward in investment arbitration. The codification of international law norms marks a turning point by limiting both jurisdictional and legal disparities in awards.

Young ICCA members should be particularly interested because the provisions favouring accessibility and clarity may facilitate growth in investment arbitration work from medium-sized clients. Such smaller disputes may well be handled by young international arbitration practitioners rather than seasoned partners!

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