Danish Constitutional Perspectives on Investment Arbitration

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Danish Constitutional Perspectives on Investment Arbitration

Per Vestergaard Pedersen, LETT Law Firm, Copenhagen 21 March 2017

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Investor-State Dispute Settlement (ISDS)

Examples of ISDS schemes

 International Centre for Settlement of Investment Disputes (ICSID) under the ICSID Convention

 North American Free Trade Agreement (NAFTA)

 Energy Charter Treaty (ECT)

 Comprehensive Economic and Trade Agreement (CETA) between Canada and EU

 ISDS provisions in Bilateral Investment Treaties

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Comprehensive Economic and Trade Agreement (CETA)

What is CETA?

 CETA is a comprehensive economic and trade agreement between Canada and the European Union.

 The agreement is designed to increase market access and trade between the two parties.

 CETA seeks to eliminate or reduce customs barriers and harmonize approval systems in a number of areas.

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Content of CETA (1 of 2)

 Trade in goods: 99 percent of custom duties

between the EU and Canada abolished (only a few sensitive agricultural products are still

protected with tariffs).

 Expanded access to provide services to the market of the other party.

 Public procurement: European companies will have opportunities to bid for public Canadian contracts and vice versa.

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Content of CETA (2 of 2)

 Sustainable development, environment and labour rights.

 Investment: Opportunities are facilitated and investments are protected.

 Investment dispute settlement in the form of an

investment court system (ICS) where investors can sue national authorities and demand compensation for loss suffered in relation to their investment due to legislation or acts of authorities.

 CETA generally does not remove or reduce the right to regulate of authorities in the EU and Canada.

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Investment Dispute Resolution (1 of 3)

 CETA introduces a new, independent and impartial Investment Court System (ICS) where investors may claim damages from the states in which they have invested.

 The ICS makes it possible for a foreign investor to have a matter of dispute determined at an international investment tribunal without the involvement of the national courts.

 The ICS will comprise a permanent investment tribunal with 15 members (5 from the EU, 5 from Canada and 5 from other states) and an appellate

tribunal.

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Investment Dispute Resolution (2 of 3)

 The tribunal and its members will be subject to strict rules regarding independence, impartiality and ethics.

 The tribunal will consider and determine disputes concerning claims based on alleged disregards of rules or standards of investment protection.

 A party may appeal a decision of the tribunal to the appellate tribunal. The appellate tribunal will have the power to review and change the decisions of the tribunal.

 EU and Canada are expected to adopt a decision of the CETA Joint

Committee which will include further technical elements necessary to make the appellate tribunal operational. Among other matters, the number of

members of the appellate tribunal must be decided.

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Investment Dispute Resolution (3 of 3)

 The members of the permanent investment tribunal and the appellate tribunal will be appointed by EU and Canada and will be highly qualified and meet high ethical requirements.

 CETA does not allow for parallel proceedings. Thus, it is not possible to try a case before the ICS and a national court or the European Court of Justice at the same time.

 Decisions made in the ICS are final and cannot be changed later by the EU, a member state or Canada.

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Ratification of CETA

- Investor-State Dispute Settlement (ISDS)

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A Question of Sovereignty

 There are different interpretations concerning

whether or not the ISDS procedure included in CETA involves a surrender of sovereignty

according to the Danish constitution.

 The Danish Ministry of Justice has one opinion

while others have another opinion. They include the Danish TTIP-Network of organizations which comprise among others NOAH, Greenpeace, The Ecological Council and The Information

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” ^{Section 19} (1) The King shall act on behalf of the Realm in international affairs, but, except with the consent of the Folketing, the King shall not undertake any act whereby the territory of the Realm shall be increased or reduced, nor shall he enter into any

obligation which for fulfilment requires the concurrence of the

Folketing or which is otherwise of major importance; nor shall

the King, except with the consent of the Folketing, terminate any

international treaty entered into with the consent of the Folketing.

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Content of section 19

 To understand the content of section 20 of the Constitutional Act of Denmark it is necessary to understand section 19.

 Section 19(1) of the Constitutional Act is a prerogative of the Danish

Government to act independently in foreign affairs, including entering into treaties etc. with other states.

 In accordance with section 19(2) those powers are subject to restrictions,

including the consent of the Danish Parliament (the Folketing) to enter into an obligation if concurrence of the Danish Parliament is required to fulfil the

obligation or if the obligation otherwise is of major importance.

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” ^{Section 20} (1) Powers vested in the authorities of the Realm under this Constitutional Act may, to such extent as shall be provided by statute, be delegated to

international authorities set up by mutual agreement

with other states for the promotion of international

rules of law and co-operation.

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” ^{Section 20} (2) For the enactment of a Bill dealing with the above, a majority of five-sixths of the members of the

Folketing shall be required. If this majority is not obtained, whereas the majority required for the passing of ordinary Bills is obtained, and if the

Government maintains it, the Bill shall be submitted to

the electorate for approval or rejection in accordance

with the rules for referenda laid down in section 42.

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Content of section 20

 Section 20 of the Constitutional Act regulates delegation to international authorities of powers vested in the authorities of the Kingdom of Denmark.

 Section 20 applies in cases where the Danish Government intends to delegate to an international authority powers vested in Danish authorities concerning exercise of legislative, administrative or judicial power in or concerning Denmark.

 In these cases, a simple majority in the Danish Parliament is not sufficient.

Instead section 20 requires either a qualified majority of 5/6 or a referendum with a majority voting for the ISDS procedure.

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Opinion of Danish Ministry of Justice

 CETA does not involve a delegation of powers which is covered by section 20 of the Constitutional Act.

 The ministry particularly emphasizes that the decisions of an international

dispute settlement authority of the Investment Court System (ICS) under CETA will solely be directed towards the Danish state.

 The ISDS will not have a direct effect on citizens or companies in Denmark.

 The specific ISDS is not comprised by the special procedure in section 20 but are solely subject to the procedure of section 19.

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Opinion of TTIP-network (1 of 2)

 The power to determine investor-state disputes constitutes a judicial function.

 A decision of the investment tribunal or the appellate tribunal in the

Investment Court System (ICS) under CETA is a judicial decision, and judicial power is delegated or transferred from Danish Courts to the Investment Court System (ICS) under CETA (surrender of sovereignty).

 A private investor will be entitled, as regards rights, and bound, as regards

obligations, by a decision of the investment tribunal or the appellate tribunal in the Investment Court System (ICS).

 The decisions will thus have a direct effect on private investors (citizens and companies).

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Opinion of TTIP-network (2 of 2)

 The scope of application of section 19 is related to international affairs

governing the legal relationships between states. A private party generally does not have an international legal capacity as regards section 19.

 If the Investment Court System (ICS) under CETA was subject to section 19,

only the states which are parties to the agreement would have the ability to act as parties in a dispute, and private investors would not have such ability.

 However, the Investment Court System (ICS) under CETA comprises claims made by private investors against a state, and it is comprised by section 20 of the Constitutional Act which requires either a qualified majority of 5/6 in the

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Direct effect under CETA (1 of 2)

 CETA Chapter 8, section F, article 8.23:

“1. If a dispute has not been resolved through consultations, a claim may be submitted under this

Section by:

(a) an investor of a Party on its own behalf; or

(b) an investor of a Party, on behalf of a locally established enterprise which it owns or controls directly or indirectly.”

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Direct effect under CETA (2 of 2)

 Direct effects in relation to a Danish company which is owned or controlled directly or indirectly by a Canadian company.

 Under article 8.23 (b), a claim may be submitted by a Canadian company on behalf of a Danish company owned or controlled by the Canadian company.

The Danish company will thus be entitled, as regards rights, and bound, as regards obligations, by a decision of the investment tribunal or the appellate tribunal in the Investment Court System (ICS).

 Example: The Danish state expropriates assets of a Danish company owned or controlled by a Canadian company.

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What about indirect effect? (1 of 2)

1. Distortion of competition

 In some cases, a Danish company owned or controlled by a

Canadian company will enjoy better protection than another type of Danish company, as the latter company but not the former company will be subject to Danish legislation and government acts.

 The differential treatment of local and foreign companies creates distortion of competition.

 Example: A Canadian company doing business in Denmark may not be subject to new Danish legislation regarding a more extensive

protection of the environment.

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What about indirect effect? (2 of 2)

2. Public interest

 The risk of being met with a lawsuit may cause Danish authorities to

abstain from introducing new legislating or making regulations or decisions which promote public interests and entail more extensive obligations for investors.

 The Danish companies owned or controlled by Canadian companies

may to some extent not be subject to new legislation in Denmark which promotes public interests and entails more extensive

obligations for investors.

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What happens if the ICS

under CETA is comprised by section 20?

 Section 20 requires either a qualified majority of

5/6 of the Parliament or a referendum with a majority voting for the ICS under CETA.

 If the ratification of CETA as regards the ICS is

not in accordance with the special procedure in section 20, the ICS under CETA will be

unconstitutional and without legal effect under Danish law.

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Contact information

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+45 33 34 03 48 [email protected] +45 30 35 40 34

PRACTICE AREAS

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International trade law and investment law Litigation and arbitration

Public law

INDUSTRY FOCUS Energy and utilities

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København Aarhus

Rådhuspladsen 4 DOKK1 – Hack Kampmanns Plads 2, 3.

DK-1550 København V DK-8000 Aarhus C Tlf. +45 33 34 00 00 Tlf. +45 33 34 00 00 Fax +45 33 34 00 01 Fax +45 33 34 00 01

Danish Constitutional Perspectives on Investment Arbitration