Mit Investigate Europe sprach Dupuy darüber, wie das System der Investor-Staat-Schiedsverfahren funktioniert, warum er es für notwendig hält und wie es verbessert werden könnte.
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You have extensive experience in investment arbitration. How is the ECT different from other investor-state treaties?
It is a treaty that is specialised in the field of energy. If you compare it with the ICSID (created in 1965) which deals with every kind of investment, it is less general in scope. Whereas the ECT focuses on energy, but energy in many aspects – it goes from oil to green energy.
Historically, it is an initiative which started immediately after the collapse of the USSR with the view to integrate as much as possible the energy market within a larger European market, so that new countries from the former USSR which are extremely rich in terms of energy could be covered. The idea was to encourage private investors from Western countries to invest in these countries.
When you want to settle any kind of dispute between a private investor and another country, you have the easiest possibility, which is for this investor to raise a case before national jurisdictions. The danger of that is that foreign investors fear that the national jurisdiction of the country in which they have invested might be partial, not fair with them and align its position with the one of the government. Faced with such an issue, the investor can choose to go before an international arbitration tribunal in order to have better chances of a fair trial.
In the field of energy, the ECT has been designed to provide state parties and their international investors with the legal basis for the settlement of the dispute, together with a set of principles in order to establish the most stable legal framework for the development of such investments.
Thirty years after the collapse of the former Soviet Union, do you still think such a treaty is still relevant?
The very fact that countries like Hungary, Romania, Poland joined the European Union is part of the problem of an investor coming from an EU country and suing another EU country. Yes, it’s relevant to have such a framework because it tries to establish a market-orientated framework for such investments. . I think it is still necessary to have such a framework provided by the ECT.
How does the international arbitration system work?
Usually you have a tribunal, which is composed of three persons. Each side appoints one arbitrator, and most of the time, the arbitrators, in cooperation with the parties, choose the president of the tribunal. These tribunals are not private. They are not composed by national judges, but they are established on the basis of international treaties and with the will of sovereign countries.
Certain criticism has been developed against this kind of arbitration and I understand that. To some exteni, I share this view.
Can you elaborate?
The problem is that you have the selection of arbitrators for each case. In principle, the composition of the court should be neutral, simply based on the ability and the expertise of the judges. This is also true for international arbitration. All my colleagues, if I may say so, are very competent. But there are some differences among them, as far as their general orientation is concerned. It is well-known that some arbitrators are quite systematically investor-oriented, which means they will have difficulty accepting that, at the origin of international dispute, the investor might have some responsibility. Whereas other arbitrators are much more sensitive to the situation of a state, which is in charge of maintaining the public interest. Of course, you have to try to establish a quite balanced composition of the tribunals and most of the time, it is realised. This means the composition of the tribunals is very important in order to sometimes foresee the final answer.
As you mentioned certain arbitrators tend to be nominated by states, others by investors. Speaking of the balance, how do we keep the impartiality of arbitrators? Should something change to improve the system?
It could be improved. The mentality of arbitrators has to be to try and find a morebalanced approach when taking into account the investor’s interests and of those of the hosting State. For example, more and more arbitrators take duly into account the fact that national states, when confronted with economic difficulties, may change and modify their legislation, including the laws under which the investment was originally established.
In 2008, there was a very severe economic crisis, which provoked difficulties, in particular in the energy market. That was the case in Spain, Italy, Bulgaria, etc. In Spain, a number of photovoltaic or solar investments in general have been established under a certain legal framework. Then, Spain had to change its framework because it had become financially too muchto sustain the investment with state aid. But, at least at the beginning, some arbitrators had even difficulties to understand the right of the State to change their law and they referred to art 10 of the ECT, calling for stable legal framework for investments. Due to the accumulation of decisions – some of them contradicting the others – more balanced vision has been progressively established. Now I would hardly find an arbitrator who would not recognise that a State has the right to change its legislation under certain conditions, at least under the condition that an investor still receives a fair rate of return.
Do you think, in this particular case of economic difficulties, that taking into account estimatedfuture lostprofits is also justified?
It may depend on several elements. There is kind of a balance to be found between two theories of expectations. The investor may have some legitimate expectations of stability of the framework which will make it possible to foresee a certain amount of profit. But this may be compensated by the fact that the hosting state may expect that the investor has developed the due diligence for informing himself as much as possible about the legal situation in that country. Your question deals with what the investor has foreseen when investing. Professional investors have to foresee that in the long term, let’s say the next 25-30 years, there will be some changes, and future profit may be affected. The loss of profit will be taken into account by the Tribunal if it is clearly established that the investor’s expectation of profit was reasonable and would have been realised if the hosting State had not unduly prevented him from reaching such a profit.
It is also a question of the dimension of the loss. If the loss is too heavy, and this loss is due to some initiatives by the hosting state which damaged the investment, then it is absolutely normal that in the calculation of the compensation, future profits are taken into account.
How are compensation awards calculated?
It’s a difficult task for an arbitrator. Each party comes before the tribunals with expert reports and those expert reports are established according to international standards, which you may criticise, but there are standards. According to these standards, the tribunal might calculate a damage, including interest and lost profits. The tribunal compares the expert reports from each party. There is a very strict control on the independence of the arbitrators so as not to have any kind of conflict of interest. There are cases, for example, where an arbitrator had to leave the tribunal because earlier, as an advocate, he had worked with the same economic firm which produced this expert report. It’s very important for arbitrators to be free form any kind of former relationship with firms that are specialised in the calculation of damages.
What do the principle arbitrators take into account when compensation awards are being calculated?
There are international standards and it’s up to arbitrators to decide which standards to be used in each case. There are different methods of calculation and each has its advantages and disadvantages for each party. It very often happens that out of three arbitrators, two agree and the third does not agree. The majority takes the decision, but the dissenting arbitrator has the right to explain why he disagreed.
Some critics say that the arbitration community is a small, tight-knit group riddled with conflict of interest. How would you respond to these remarks?
I think the arbitration community is too small but it is largening now. I’m very happy personally that some of my former students have became arbitrators themselves, a sign that younger people are acceding to this community. It is absolutely necessary in my view. There are some respectable and honourable arbitrators who should perhaps accept that being above eighty, it could be a good thing to retire.
I do believe that it is not good and I can insist on that – that the two roles of counsel and arbitrator be melted. If you are becoming a great arbitrator, then you should accept to stop being an advocate at the same time in other cases.
Do you think this should be established as a rule? Now, there are some guidelines on conflict of interest but they are not legally binding.
Yes, of course. But a number of advocates who are also arbitrators who would not agree with me. After a while, when you have clearly become more of an arbitrator than an advocate, you should stop being an advocate. Or vice versa. There is an ethical dimension there.
Because isn’t that the legal definition of conflict of interest – combing two different roles?
Yes, exactly. It comes very close to it.
Challenges to arbitrators have increased recently. Why is that?
There are too many cases in which some people accept these two kinds of roles. In case an arbitrator is challenged, it is for the two other members of the tribunal to consider the arguments raised by the party which challenges and to decide whether in that case, the challenger is right. To be fair, I must say that it’s only in very few cases that the other members of the tribunal have recognised that there is a problem. It is exceptional. In that respect, one could also say that we have to reform this system. This should be decided by an independent authority — a possibility available in some cases.
There has been a heated discussion about whether the ECT should be appliedfor intra–EU cases. We are waiting for the official opinion of the European Court of Justice. When it arrives, do you think that the orientation of arbitrators might change?
You have to distinguish two problems. One being the tribunal or the legal instrument chosen — in this case the ECT — as a basis for the jurisdiction of the tribunal, and the other being the applicable rules. For instance, together with my colleagues in an Italian case — which was the Blusun case, a photovoltaic investment in Puglia — we decided we that had jurisdiction, and in that respect we opposed the arguments made by the Italian government. What we said was that the ECT is a special instrument, a “lex specialis” which established our jurisdiction for settling such disputes, completely distinct from the EU treaties. Second, we added that as an international tribunal, we could nevertheless apply European law, in particular the law which is directly in charge of state aid. We decided that we are able to apply European law under the condition that we respected the interpretation already given of the applicable rules by the European Court of Justice. On the contrary, the position, which was until now, defended by the European Commission is that there is a monopoly of jurisdiction of EU tribunals – there are two of them – for applying European law. Now, the problem has been solved since the EU member states have decided to accept the argument of the Commission and to adopt in a specific treaty the option that bilateral treaties for the protection of foreign investment would not be valid anymore among EU member states. The EU Court of Justice is currently adapting its structure for taking charge of this new dimension of its work
Is that the position of the majority of the arbitrators?
There are quite a number of arbitrators who accept that international tribunals are able to apply European law. Another question is how familiar the arbitrators are with such rules.
So, once the European Court of Justice establishes the ECT’s non compatibility with EU law, I think there won’t be Intra-EU cases anymore.
Do you expect an increase of cases under the ECT as countries are trying to phase out fossil fuels and meet their climate goals?
Yes, there should be an increase of cases, related to climate reforms under the condition, of course, that they deal with the energy sector between state parties.
Generally speaking, the number of cases is still increasing. Of course, a good part of them would be then about the efficacy and efficiency of the new European system. I think there is still a good future for the ECT.