Consultation on the prevention and amicable resolution of disputes between investors and public authorities within the EU Single Market

Some facts you should know…

For those unfamiliar with investment disputes, what does this proposed framework seek to achieve?

EU investors engaging in intraEU cross-border investment in another Member State are protected through local legislation on investment, the framework of legislation offered by the Single Market and, in some cases, by bilateral investment treaties and the Energy Charter Treaty. These legal frameworks for the protection of investment include the option for investors to institute court or arbitration proceedings against national authorities where their investments are located, should they feel that their rights have been breached.

By means of the new proposed framework, the EU Commission is seeking to provide an acceptable and viable option for investors as a practical means to avoid lengthy court procedures, related litigation costs and possible substantial compensatory rewards within the Single Market. Hence, this process would enable scrutiny of EU rules in the context of preventing and resolving disputes amicably between investors and public authorities, and to find consensual solutions to problems where they arise. Such an option would be available to investors on a voluntary basis.

Potential disputes between investors and national authorities could be costly and time consuming. In view of this, how could the European Commission’s proposal influence decisions by investors?

It is desirable that any investor wishing to invest in another country wants to ensure that his or her investment is safeguarded against any action that national authorities might impose. Such safeguards include seeking recourse through arbitration which is typically costly and time consuming thus creating uncertainty amongst investors. As a general principle, any uncertainty related to the investment environment, including on the resolution of potential disputes, will discourage investment across borders and in this regard, intra-EU investment is not an exception.

The aim of the Commission’s proposal is to facilitate the creation of a system that could be used at any stage in a dispute between investors and national authorities, thus avoiding high costs and time forgone in relation to court proceedings or dispute settlement. Moreover, the Commission is also considering the possibility of having national contact points that could serve to assist nationals with investments in other Member States.

The main focus of this consultation is mediation. Does the Commission believe this to be the way forward in solving disputes between investors and public authorities?

Given the emphasis on mediation in this public consultation, the Commission is making an important statement that, depending on the outcome of the consultation, it may give due consideration to mediation as a mechanism to solve disputes between investors and public authorities. However, the Commission is also making it clear that the system would not always be suitable for disputes between investors and national authorities and that the voluntary nature of the proposal is an important aspect in the conception of this idea, leaving open the possibility of some cases being resolved through court proceedings.

If mediation fails, what’s the next option?

This would depend on the full reform of the framework for the protection of intra-EU investment within the EU Single Market. However, in the current investment environment, in the event that meditation fails, the other options available to investors would be to resort to local and/or international legal arbitration.

A number of investors may feel intimidated by the high costs of court proceedings. Is this proposal aimed mainly at a system that would be more accessible to smaller claimants? Is mediation, therefore, key?

A system of amicable resolution of disputes such as mediation should serve the interests of both small and large companies respectively with equal significance and application by reducing costs and the time needed to resolve disputes. Nonetheless, SMEs should surely benefit from a lower cost system that is less lengthy as a process, whereas larger companies typically have more resources to institute arbitration proceedings against national authorities besides also having the capacity to weather such processes over longer timeframes.

What negative effects does a Member State face when the dispute ends up in court and is not settled amicably?

When an investment dispute ends up in court and is not settled amicably, a Member State may be subject to a number of possibly negative effects: • exorbitant legal fees • the lengthy and time consuming process of a legal case • significant compensation costs (in terms of payments and possible changes to national legislation) • disreputable publicity of a country as an investment destination This information was compiled by the Economic Policy Department within the Ministry for Finance and MEUSAC.