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Respondent details

  • Company/Organisation: Veolia
  • Location: France
  • Activity: Veolia is the worldwide reference in environmental services. With 208 000 employees, the company has operations all around the world and provides tailored solutions to meet the needs of municipal and industrial customers in three complementary segments: water management, waste management, energy management. It includes the design, building and operation of high level performance infrastructure. Veolia operates in 40 countries, including Europe (mainly in France, UK, Germany, Central Europe), the USA, Asia, Latin America, Africa, and the Middle East.
  • Profile: Company
  • Transparency register: Yes
  • Prior investment in the US: Yes


A. Substantive investment protection provisions

Explanation of the issue

The scope of the agreement responds to a key question: What type of investments and investors should be protected? Our response is that investment protection should apply to those investments and to investors that have made an investment in accordance with the laws of the country where they have invested.

Approach in most investment agreements

Many international investment agreements have broad provisions defining “investor” and “investment”.

In most cases, the definition of “investment” is intentionally broad, as investment is generally a complex operation that may involve a wide range of assets, such as land, buildings, machinery, equipment, intellectual property rights, contracts, licences, shares, bonds, and various financial instruments. At the same time, most bilateral investment agreements refer to “investments made in accordance with applicable law”. This reference has worked well and has allowed ISDS tribunals to refuse to grant investment protection to investors who have not respected the law of the host state when making the investment (for example, by structuring the investment in such a way as to circumvent clear prohibitions in the law of the host state, or by procuring an investment fraudulently or through bribery).

In many investment agreements, the definition of “investor” simply refers to natural and juridical persons of the other Party to the agreement, without further refinement. This has allowed in some cases so–called “shell” or “mailbox” companies, owned or controlled by nationals or companies not intended to be protected by the agreement and having no real business activities in the country concerned, to make use of an investment agreement to launch claims before an ISDS tribunal.

The EU's objectives and approach

The EU wants to avoid abuse. This is achieved primarily by improving the definition of “investor”, thus eliminating so –called “shell” or “mailbox” companies owned by nationals of third countries from the scope: in order to qualify as a legitimate investor of a Party, a juridical person must have substantial business activities in the territory of that Party.

At the same time, the EU wants to rely on past treaty practice with a proven track record. The reference to “investments made in accordance with the applicable law” is one such example. Another is the clarification that protection is only granted in situations where investors have already committed substantial resources in the host state - and not when they are simply at the stage where they are planning to do so.

Link to reference text

Taking into account the above explanation and the text provided in annex as a reference, what is your opinion of the objectives and approach taken in relation to the scope of the substantive investment protection provisions in TTIP?

The definition proposed by the EC in the CETA text is based on a recurring definition in most investment agreements. It defines investments as “every kind of asset” and then provides an indicative list of such assets that can qualify as investment. It is thus sufficiently comprehensive to take into account all kinds of investments. However, in order to reinforce legal certainty for investors, we suggest not allowing discrimination against specific sectors and/or products. Hence the reference to infrastructure management contracts should be integrated to the non-exhaustive list developed in the CETA: European companies still have non-negligible expertise in sectors such as waste recycling, drinking water production or waste water treatment, often linked to the design and building of complex infrastructure. In case the Commission decides to maintain the exclusion of “management contract”, the indicative list should include a reference to build-operate-transfer and to design-build-operate project contracts, in which the project require a heavy initial investment, which is amortized over a long period of time. Explicitly mentioning this kind of contractual models in the definition would reinforce legal certainty for investors. Furthermore, references to “a certain duration” of investments or to “substantial business activities” should be avoided. Such limitations need to be better defined to be applicable. Otherwise, they would exclude from investment protection a number of investors, including SMEs.

Explanation of the issue

Under the standards of non-discriminatory treatment of investors, a state Party to the agreement commits itself to treat foreign investors from the other Party in the same way in which it treats its own investors (national treatment), as well in the same way in which it treats investors from other countries (most-favoured nation treatment). This ensures a level playing field between foreign investors and local investors or investors from other countries. For instance, if a certain chemical substance were to be proven to be toxic to health, and the state took a decision that it should be prohibited, the state should not impose this prohibition only on foreign companies, while allowing domestic ones to continue to produce and sell that substance.

Non-discrimination obligations may apply after the foreign investor has made the investment in accordance with the applicable law (post-establishment), but they may also apply to the conditions of access of that investor to the market of the host country (pre-establishment).  

Approach in most existing investment agreements

The standards of national treatment and most-favoured nation (MFN) treatment are considered to be key provisions of investment agreements and therefore they have been consistently included in such agreements, although with some variation in substance.

Regarding national treatment, many investment agreements do not allow states to discriminate between a domestic and a foreign investor once the latter is already established in a Party’s territory. Other agreements, however, allow such discrimination to take place in a limited number of sectors.

Regarding MFN, most investment agreements do not clarify whether foreign investors are entitled to take advantage of procedural or substantive provisions contained in other past or future agreements concluded by the host country. Thus, investors may be able to claim that they are entitled to benefit from any provision of another agreement that they consider to be more favourable, which may even permit the application of an entirely new standard of protection that was not found in the original agreement. In practice, this is commonly referred to as "importation of standards".

The EU’s objectives and approach

The EU considers that, as a matter of principle, established investors should not be discriminated against after they have established in the territory of the host country, while at the same recognises that in certain rare cases and in some very specific sectors, discrimination against already established investors may need to be envisaged. The situation is different with regard to the right of establishment, where the Parties may choose whether or not to open certain markets or sectors, as they see fit.

On the "importation of standards" issue, the EU seeks to clarify that MFN does not allow procedural or substantive provisions to be imported from other agreements.

The EU also includes exceptions allowing the Parties to take measures relating to the protection of health, the environment, consumers, etc. Additional carve-outs would apply to the audio-visual sector and the granting of subsidies. These are typically included in EU FTAs and also apply to the non-discrimination obligations relating to investment. Such exceptions allow differences in treatment between investors and investments where necessary to achieve public policy objectives.

Link to reference text

Taking into account the above explanations and the text provided in annex as a reference, what is your opinion of the EU approach to non –discrimination in relation to the TTIP? Please explain.

Veolia considers that the national treatment and most favored nation (MFN) treatment are essential to ensure a level playing field between foreign investors and local investors or investors from other countries. Therefore, Veolia is in favor of the introduction of an explicit MFN clause in BITs. However, Veolia would like to draw the attention of the Commission to 2 elements: - On “importation of standards”: Veolia is in favor of a broad application of MFN treatment, according to which investors would be entitled to benefit from any provision of another existing or future agreement, only if they are more favorable than the provisions in the treaty governing the investor-State relations. Seeking the most favorable protection offered by the BITs of a specific host State is therefore the core objective of MFN clauses. It is therefore important to clarify the link between the MFN treatment and the importation of standards, in order to avoid the legal risk that may arise from different arbitrators’ interpretation of the meaning of the MFN treatment. Nevertheless, in case the Commission decides to limit the importation of standards, these should not lead to discriminations among companies irrespective of their nature and nationality. - Same principle should apply to exceptions allowing the Parties to take measures relating to the protection of health, the environment, consumers, etc., when necessary to achieve public policy objectives: Veolia considers that the primary objective of an investment agreement is to guarantee a level playing field between all investors. As a consequence, allowing exceptions are likely to create differences in investors’ treatment. Exceptions may be allowed according to WTO GATT and GATS provisions, but only according to very strict and clear criteria making the investments’ conditions predictable for all investors (such as clear public policies concerned, scope of discrimination, duration of discrimination, etc.). It should also be noted that there is no single definition of public interest and that public policy objectives may differ from one State to another, according to subjective or discretionary choices.

Explanation of the issue

The obligation to grant foreign investors fair and equitable treatment (FET) is one of the key investment protection standards. It ensures that investors and investments are protected against treatment by the host country which, even if not expropriatory or discriminatory, is still unacceptable because it is arbitrary, unfair, abusive, etc. 

Approach in most investment agreements

The FET standard is present in most international investment agreements. However, in many cases the standard is not defined, and it is usually not limited or clarified. Inevitably, this has given arbitral tribunals significant room for interpretation, and the interpretations adopted by arbitral tribunals have varied from very narrow to very broad, leading to much controversy about the precise meaning of the standard. This lack of clarity has fueled a large number of ISDS claims by investors, some of which have raised concern with regard to the states' right to regulate. In particular, in some cases, the standard has been understood to encompass the protection of the legitimate expectations of investors in a very broad way, including the expectation of a stable general legislative framework.

Certain investment agreements have narrowed down the content of the FET standard by linking it to concepts that are considered to be part of customary international law, such as the minimum standard of treatment that countries must respect in relation to the treatment accorded to foreigners. However, this has also resulted in a wide range of differing arbitral tribunal decisions on what is or is not covered by customary international law, and has not brought the desired greater clarity to the definition of the standard. An issue sometimes linked to the FET standard is the respect by the host country of its legal obligations towards the foreign investors and their investments (sometimes referred to as an "umbrella clause"), e.g. when the host country has entered into a contract with the foreign investor. Investment agreements may have specific provisions to this effect, which have sometimes been interpreted broadly as implying that every breach of e.g. a contractual obligation could constitute a breach of the investment agreement.

EU objectives and approach

The main objective of the EU is to clarify the standard, in particular by incorporating key lessons learned from case-law. This would eliminate uncertainty for both states and investors.

Under this approach, a state could be held responsible for a breach of the fair and equitable treatment obligation only for breaches of a limited set of basic rights, namely: the denial of justice; the disregard of the fundamental principles of due process; manifest arbitrariness; targeted discrimination based on gender, race or religious belief; and abusive treatment, such as coercion, duress or harassment. This list may be extended only where the Parties (the EU and the US) specifically agree to add such elements to the content of the standard, for instance where there is evidence that new elements of the standard have emerged from international law.

The “legitimate expectations” of the investor may be taken into account in the interpretation of the standard. However, this is possible only where clear, specific representations have been made by a Party to the agreement in order to convince the investor to make or maintain the investment and upon which the investor relied, and that were subsequently not respected by that Party. The intention is to make it clear that an investor cannot legitimately expect that the general regulatory and legal regime will not change. Thus the EU intends to ensure that the standard is not understood to be a “stabilisation obligation”, in other words a guarantee that the legislation of the host state will not change in a way that might negatively affect investors. In line with the general objective of clarifying the content of the standard, the EU shall also strive, where necessary, to provide protection to foreign investors in situations in which the host state uses its sovereign powers to avoid contractual obligations towards foreign investors or their investments, without however covering ordinary contractual breaches like the non-payment of an invoice.

Link to reference text

Taking into account the above explanation and the text provided in annex as a reference, what is your opinion of the approach to fair and equitable treatment of investors and their investments in relation to the TTIP?

Veolia welcomes the Commission’s initiative to better define the standard of fair and equitable treatment (FET), since it has been subject to very broad interpretations from arbitrators, creating much legal uncertainty on the possibilities to use this provision to initiate an arbitration procedure. Nevertheless, Veolia would like to stress the importance of the FET principle. FET is a core principle of investment protections, but also an essential element of the rule of law. Therefore, any attempt to define FET is very risky, and could have unintended effects that could weakness and harm the level and quality of investment protection. First of all, FET is not a static notion. It may evolve overtime, with future cases and unforeseen circumstances. Therefore, a definition of FET requires flexibility to be able to adapt to any new elements that could emerge from international law or still not identified as being likely to cause a breach to FET principle. Therefore, any list of categories to define a breach to FET must remain indicative and non-exhaustive. Secondly, on the issue of “legitimate expectations” (upon which the investor relied to make its investments), Veolia agrees with the Commission’s approach to ensure that it is not understood to be a “stabilization obligation”, (a guarantee that the legislation of the host State will not change in a way that might negatively affect investors), unless a host State commits to a stabilization clause. However, this notion should be preserved through a specific mention. As a matter of fact, legitimate expectations is a part of the definition of a property right and any violation of this right amounts to an expropriation or an interference with the right to property as is reflected in the case-law of the European Court of Human Rights. Therefore, a specific mention according to which legitimate expectations must be “investment backed” would clarify the issue. In addition to that, Veolia supports the introduction of an “umbrella clause” (providing protection to foreign investors in situations in which the host state disregard its contractual obligations towards foreign investors or their investments), into the agreement. As a matter of fact, an umbrella clause provides for a high level of legal certainty to face situations in which the host State would disregard obligations it has assumed towards the investor, putting irremediably at stake the activities of the investor in the country.

Explanation of the issue

The right to property is a human right, enshrined in the European Convention of Human Rights, in the European Charter of Fundamental Rights as well as in the legal tradition of EU Member States. This right is crucial to investors and investments. Indeed, the greatest risk that investors may incur in a foreign country is the risk of having their investment expropriated without compensation. This is why the guarantees against expropriation are placed at the core of any international investment agreement.

Direct expropriations, which entail the outright seizure of a property right, do not occur often nowadays and usually do not generate controversy in arbitral practice. However, arbitral tribunals are confronted with a much more difficult task when it comes to assessing whether a regulatory measure of a state, which does not entail the direct transfer of the property right, might be considered equivalent to expropriation (indirect expropriation).

Approach in most investment agreements

In investment agreements, expropriations are permitted if they are for a public purpose, non-discriminatory, resulting from the due process of law and are accompanied by prompt and effective compensation. This applies to both direct expropriation (such as nationalisation) and indirect expropriation (a measure having an effect equivalent to expropriation).

Indirect expropriation has been a source of concern in certain cases where regulatory measures taken for legitimate purposes have been subject to investor claims for compensation, on the grounds that such measures were equivalent to expropriation because of their significant negative impact on investment. Most investment agreements do not provide details or guidance in this respect, which has inevitably left arbitral tribunals with significant room for interpretation.

The EU's objectives and approach

The objective of the EU is to clarify the provisions on expropriation and to provide interpretative guidance with regard to indirect expropriation in order to avoid claims against legitimate public policy measures.  The EU wants to make it clear that non-discriminatory measures taken for legitimate public purposes, such as to protect health or the environment, cannot be considered equivalent to an expropriation, unless they are manifestly excessive in light of their purpose. The EU also wants to clarify that the simple fact that a measure has an impact on the economic value of the investment does not justify a claim that an indirect expropriation has occurred.

Link to reference text

Taking into account the above explanation and the text provided in annex as a reference, what is your opinion of the approach to dealing with expropriation in relation to the TTIP? Please explain.

Veolia supports the Commission’s objectives and approach to provide clear definitions of indirect expropriations in order to avoid claims against legitimate public policy measures, such as health, safety and the environment, but would like to draw the attention of the Commission to the following points. The Commission’s objective is to avoid claims against legitimate public policy measures, by making clear that non-discriminatory measures taken for legitimate public purposes, such as to protect health or the environment, cannot be considered equivalent to an expropriation, unless they are manifestly excessive in light of their purpose. Nevertheless, there is a risk of legal certainty as the concept of legitimate public purposes may differ from one State to another. In addition to that, it must not be forgotten that the State does have the right to regulate in these areas (e.g. health, safety and environment), as long as it compensates the investor if required. Allowing exceptions would thus create a dual protection system and should be avoided. The approach taken in most investments agreements, according to which nationalization or expropriation is only possible if 4 cumulative criteria are met, is acceptable for Veolia: - The measure is taken for the public interest ; - It is non-discriminatory ; - It results from due process of law and - the expropriated investor receives a prompt, adequate and effective compensation. However, a 5th criterion on the proportionality of the measure should be added to this list, to ensure that the measure is not manifestly excessive in light of its purpose. Regarding the criteria proposed to determine the amount of compensation, Veolia considers they are satisfying. Nevertheless, in order to avoid an expropriation to be considered as nationalization, which is a very close notion, defining more accurate and specific criteria for the calculation of the amount of compensation would be relevant to strengthen legal certainty.

Explanation of the issue

In democratic societies, the right to regulate of states is subject to principles and rules contained in both domestic legislation and in international law. For instance, in the European Convention on Human Rights, the Contracting States commit themselves to guarantee a number of civil and political rights. In the EU, the Constitutions of the Member States, as well as EU law, ensure that the actions of the state cannot go against fundamental rights of the citizens. Hence, public regulation must be based on a legitimate purpose and be necessary in a democratic society.

Investment agreements reflect this perspective. Nevertheless, wherever such agreements contain provisions that appear to be very broad or ambiguous, there is always a risk that the arbitral tribunals interpret them in a manner which may be perceived as a threat to the state's right to regulate. In the end, the decisions of arbitral tribunals are only as good as the provisions that they have to interpret and apply.

 Approach in most investment agreements

Most agreements that are focused on investment protection are silent about how public policy issues, such as public health, environmental protection, consumer protection or prudential regulation, might interact with investment. Consequently, the relationship between the protection of investments and the right to regulate in such areas, as envisaged by the contracting Parties to such agreements is not clear and this creates uncertainty.

In more recent agreements, however, this concern is increasingly addressed through, on the one hand, clarification of the key investment protection provisions that have proved to be controversial in the past and, on the other hand, carefully drafted exceptions to certain commitments. In complex agreements such as free trade agreements with provisions on investment, or regional integration agreements, the inclusion of such safeguards is the usual practice.

The EU's objectives and approach

The objective of the EU is to achieve a solid balance between the protection of investors and the Parties' right to regulate.

First of all, the EU wants to make sure that the Parties' right to regulate is confirmed as a basic underlying principle. This is important, as arbitral tribunals will have to take this principle into account when assessing any dispute settlement case.

Secondly, the EU will introduce clear and innovative provisions with regard to investment protection standards that have raised concern in the past (for instance, the standard of fair and equitable treatment is defined based on a closed list of basic rights; the annex on expropriation clarifies that non-discriminatory measures for legitimate public policy objectives do not constitute indirect expropriation). These improvements will ensure that investment protection standards cannot be interpreted by arbitral tribunals in a way that is detrimental to the right to regulate.

Third, the EU will ensure that all the necessary safeguards and exceptions are in place. For instance, foreign investors should be able to establish in the EU only under the terms and conditions defined by the EU. A list of horizontal exceptions will apply to non-discrimination obligations, in relation to measures such as those taken in the field of environmental protection, consumer protection or health (see question 2 for details). Additional carve-outs would apply to the audiovisual sector and the granting of subsidies. Decisions on competition matters will not be subject to investor-to-state dispute settlement (ISDS). Furthermore, in line with other EU agreements, nothing in the agreement would prevent a Party from taking measures for prudential reasons, including measures for the protection of depositors or measures to ensure the integrity and stability of its financial system. In addition, EU agreements contain general exceptions applying in situations of crisis, such as in circumstances of serious difficulties for the operation of the exchange rate policy or monetary policy, balance of payments or external financial difficulties, or threat thereof.

In terms of the procedural aspects relating to ISDS, the objective of the EU is to build a system capable of adapting to the states' right to regulate. Wherever greater clarity and precision proves necessary in order to protect the right to regulate, the Parties will have the possibility to adopt interpretations of the investment protection provisions which will be binding on arbitral tribunals.  This will allow the Parties to oversee how the agreement is interpreted in practice and, where necessary, to influence the interpretation.

The procedural improvements proposed by the EU will also make it clear that an arbitral tribunal will not be able to order the repeal of a measure, but only compensation for the investor.

Furthermore, frivolous claims will be prevented and investors who bring claims unsuccessfully will pay the costs of the government concerned (see question 9).

Link to reference text

Taking into account the above explanation and the text provided in annex as a reference, what is your opinion with regard to the way the right to regulate is dealt with in the EU's approach to TTIP?

Veolia supports the Commission’s objective to achieve a solid balance between the protection of investors and the Parties’ right to regulate. Veolia’s corporate responsibility is to help secure a positive future for the environment. Therefore, Veolia takes health and safety very seriously in its activities, and supports high level standards in environmental regulatory developments. As a consequence, Veolia considers that TTIP should not be a “race to the bottom” and not lead to “a regulatory chill”. Health and safety standards should not be compromised and regulators on both sides of the Atlantic should be attached to maintain their right to regulate. Therefore, Veolia suggests: - to include clauses in the body of the treaty that seek to reserve policy space to regulate health and environmental matters. These clauses should defined the scope of reserved policy space, with reference to the area of regulation, and mention a non-exhaustive list of elements such as prevention or control of the release of emission of pollutants or environmental contaminants, the control of hazardous or toxic chemicals and wastes and the protection or conservation of wild flora or fauna; - to include in the agreement a clause that discourages “lowering of standards”, that is providing regulatory incentives to investors to the detriment of environmental protection. These clauses seek to ensure the respect of existing environmental standards and to avoid that States compete for investment by lowering environmental standards. However, the Commission should take the necessary safeguards to assess that the right to regulate is not misused to establish measures that constitute disguised protectionism by States, and ensure that this risk will be eliminated in TTIP.

B. Investor-to-State dispute settlement (ISDS)

Explanation of the issue

In most ISDS cases, no or little information is made available to the public, hearings are not open and third parties are not allowed to intervene in the proceedings. This makes it difficult for the public to know the basic facts and to evaluate the claims being brought by either side.

This lack of openness has given rise to concern and confusion with regard to the causes and potential outcomes of ISDS disputes. Transparency is essential to ensure the legitimacy and accountability of the system. It enables stakeholders interested in a dispute to be informed and contribute to the proceedings. It fosters accountability in arbitrators, as their decisions are open to scrutiny. It contributes to consistency and predictability as it helps create a body of cases and information that can be relied on by investors, stakeholders, states and ISDS tribunals.

Approach in most existing investment agreements

Under the rules that apply in most existing agreements, both the responding state and the investor need to agree to permit the publication of submissions. If either the investor or the responding state does not agree to publication, documents cannot be made public. As a result, most ISDS cases take place behind closed doors and no or a limited number of documents are made available to the public.

The EU’s objectives and approach 

The EU's aim is to ensure transparency and openness in the ISDS system under TTIP. The EU will include provisions to guarantee that hearings are open and that all documents are available to the public. In ISDS cases brought under TTIP, all documents will be publicly available (subject only to the protection of confidential information and business secrets) and hearings will be open to the public. Interested parties from civil society will be able to file submissions to make their views and arguments known to the ISDS tribunal. 

The EU took a leading role in establishing new United Nations rules on transparency[1] in ISDS. The objective of transparency will be achieved by incorporating these rules into TTIP.

Link to reference text

Taking into account the above explanation and the text provided in annex as a reference, please provide your views on whether this approach contributes to the objective of the EU to increase transparency and openness in the ISDS system for TTIP. Please indicate any additional suggestions you may have.

Veolia welcomes the will of the Commission to make the ISDS system more transparent by incorporating the United Nations rules on transparency in ISDS (UNCITRAL rules). Certainly, sensitive information revealed during the legal process should not be publically disclosed, to avoid revealing trade secrets or undermining the competitive position of the company involved. Investor-State arbitration has often been subject to bad press and media disinformation, the information gap being filled by rumors and speculation. Making more first-hand information available to the public will address the deficit of public trust and enhance effectiveness and public acceptance of international investment arbitration, as well as contribute to the further development of a public body of jurisprudence. Furthermore, insofar as proceedings raise important issues of public interest, it may also be desirable to allow third party participation, subject however to clear and specific guidelines to avoid any abuse or frivolous submission, and provided that a right of reply is guaranteed. Nevertheless, Veolia considers that exceptions to transparency, as defined in Article 7.2 of the UNCITRAL rules, are necessary for confidential or protected information, and the system must provide adequate safeguards to this effect. Therefore it should be ensured that information whose disclosure could harm the trade position of the investor will not be made public. To that end, documents listed in articles 3.1 and 3.2 in UNCITRAL rules (the notice of arbitration, the response to the notice of arbitration, the statement of claim, etc.) should remain confidential. As a matter of fact, such a level of transparency does not exist in the current applicable BITs. Similarly, article 6 of UNCITRAL rules should not apply. Publicity of hearings could open the door to the use of intimidation and pressure techniques, notably towards persons interviewed by the Court. Furthermore, submission by a third person, as defined in Article 4 of the UNCITRAL rules, should be authorized as long as it does not disrupt or slow down the proceedings, which are already very long and complex. Submission by a third person should be allowed according to strict criteria that justify the legitimacy of such an intervention, as mentioned in Article 4.3: - A clear and significant interest of the third person in the arbitration; - The extent to which the submission would assist the arbitral tribunal in the determination of a factual or legal issue related to the arbitral proceedings by bringing a perspective, particular knowledge or insight that is different from that of the disputing parties. The Treaty should provide clear definitions of these criteria.

Explanation of the issue

Investors who consider that they have grounds to complain about action taken by the authorities (e.g. discrimination or lack of compensation after expropriation) often have different options. They may be able to go to domestic courts and seek redress there. They or any related companies may be able to go to other international tribunals under other international investment treaties.

It is often the case that protection offered in investment agreements cannot be invoked before domestic courts and the applicable legal rules are different. For example, discrimination in favour of local companies is not prohibited under US law but is prohibited in investment agreements. There are also concerns that, in some cases domestic courts may favour the local government over the foreign investor e.g. when assessing a claim for compensation for expropriation or may deny due process rights such as the effective possibility to appeal. Governments may have immunity from being sued. In addition, the remedies are often different. In some cases government measures can be reversed by domestic courts, for example if they are illegal or unconstitutional. ISDS tribunals cannot order governments to reverse measures.

These different possibilities raise important and complex issues. It is important to make sure that a government does not pay more than the correct compensation. It is also important to ensure consistency between rulings.

Approach in most existing investment agreements

Existing investment agreements generally do not regulate or address the relationship with domestic courts or other ISDS tribunals. Some agreements require that the investor choses between domestic courts and ISDS tribunals. This is often referred to as "fork in the road" clause.

The EU’s objectives and approach

As a matter of principle, the EU’s approach favours domestic courts. The EU aims to provide incentives for investors to pursue claims in domestic courts or to seek amicable solutions – such as mediation. The EU will suggest different instruments to do this. One is to prolong the relevant time limits if an investor goes to domestic courts or mediation on the same matter, so as not to discourage an investor from pursuing these avenues.  Another important element is to make sure that investors cannot bring claims on the same matter at the same time in front of an ISDS tribunal and domestic courts. The EU will also ensure that companies affiliated with the investor cannot bring claims in front of an ISDS tribunal and domestic courts on the same matter and at the same time. If there are other relevant or related cases, ISDS tribunals must take these into account. This is done to avoid any risk that the investor is over-compensated and helps to ensure consistency by excluding the possibility for parallel claims.

Link to reference text

Taking into account the above explanation and the text provided in annex as a reference, please provide your views on the effectiveness of this approach for balancing access to ISDS with possible recourse to domestic courts and for avoiding conflicts between domestic remedies and ISDS in relation to the TTIP. Please indicate any further steps that can be taken. Please provide comments on the usefulness of mediation as a means to settle disputes.

The EU and the US are developed economies with sound legal system guaranteeing adequate investment protection. However, the ISDS mechanism in the TTIP could be used as model for BIT with other politically less stable countries. Therefore, Veolia considers that the ISDS mechanism in TTIP should provide for the highest standards of protection in order to ensure a coherent and comprehensive investment protection framework in all the bilateral agreements. Taking into account the impact of TTIP on other BITs, Veolia’s answer to this question is thus a more general approach. When a dispute arises, Veolia is in favor of seeking an amicable solution, within a specified reasonable period of time before resorting to international arbitration or domestic courts. If an amicable solution cannot be found in an investment protection-related case, then the parties may resort to conflict resolution facilities, Veolia’s approach is to favor resorts to international institutions specialized in investment arbitration, such as ICSID or UNCITRAL, and which provide an international, relatively-rapid fact-based and neutral dispute resolution mechanism. Foreign investors may suffer from a biased judgment and a partial and inequitable treatment in local courts. By and large, the reality is that separation of powers and judiciary independence and impartiality is not always evident in some countries in the world. Host States may get immunity in local courts, particularly when it comes to public acts. This may lead to partial and inequitable treatment against foreign investors, as well as long proceedings or execution of the award decision. Furthermore, local courts may be prevented from directly applying international law. In this context, the possibility to resort to ISDS provides an opportunity to seek for independent and impartial judicial decisions, based on technical and legal grounds, in compliance with international law in comparison with local courts. Resorting to an international arbitration is also a means to de-politicize investment disputes, promoting their more objective and effective treatment. Therefore, Veolia considers that ex-ante resorts to domestic courts should be avoided, without excluding ex-post resorts, notably for the execution of awards. Therefore, a state-of-the-art investment treaty should foresee an ISDS mechanism. Nevertheless, Veolia agrees with the Commission’s approach to make sure that investors cannot bring claims in front of an ISDS tribunal and domestic courts on the same matter and at the same time.

Explanation of the issue

There is concern that arbitrators on ISDS tribunals do not always act in an independent and impartial manner. Because the individuals in question may not only act as arbitrators, but also as lawyers for companies or governments, concerns have been expressed as to potential bias or conflicts of interest.

Some have also expressed concerns about the qualifications of arbitrators and that they may not have the necessary qualifications on matters of public interest or on matters that require a balancing between investment protection and e.g. environment, health or consumer protection.

Approach in existing investment agreements

  Most existing investment agreements do not address the issue of the conduct or behaviour of arbitrators. International rules on arbitration address the issue by allowing the responding government or the investor to challenge the choice of arbitrator because of concerns of suitability.

Most agreements allow the investor and the responding state to select arbitrators but do not establish rules on the qualifications or a list of approved, qualified arbitrators to draw from.

  The EU’s objective and approach

The EU aims to establish clear rules to ensure that arbitrators are independent and act ethically. The EU will introduce specific requirements in the TTIP on the ethical conduct of arbitrators, including a code of conduct. This code of conduct will be binding on arbitrators in ISDS tribunals set up under TTIP.  The code of conduct also establishes procedures to identify and deal with any conflicts of interest.  Failure to abide by these ethical rules will result in the removal of the arbitrator from the tribunal. For example, if a responding state considers that the arbitrator chosen by the investor does not have the necessary qualifications or that he has a conflict of interest, the responding state can challenge the appointment. If the arbitrator is in breach of the Code of Conduct, he/she will be removed from the tribunal. In case the ISDS tribunal has already rendered its award and a breach of the code of conduct is found, the responding state or the investor can request a reversal of that ISDS finding.

In the text provided as reference (the draft EU-Canada Agreement), the Parties (i.e. the EU and Canada) have agreed for the first time in an investment agreement to include rules on the conduct of arbitrators, and have included the possibility to improve them further if necessary. In the context of TTIP these would be directly included in the agreement.

As regards the qualifications of ISDS arbitrators, the EU aims to set down detailed requirements for the arbitrators who act in ISDS tribunals under TTIP. They must be independent and impartial, with expertise in international law and international investment law and, if possible, experience in international trade law and international dispute resolution. Among those best qualified and who have undertaken such tasks will be retired judges, who generally have experience in ruling on issues that touch upon both trade and investment and on societal and public policy issues. The EU also aims to set up a roster, i.e. a list of qualified individuals from which the Chairperson for the ISDS tribunal is drawn, if the investor or the responding state cannot otherwise agree to a Chairperson. The purpose of such a roster is to ensure that the EU and the US have agreed to and vetted the arbitrators to ensure their abilities and independence.  In this way the responding state chooses one arbitrator and has vetted the third arbitrator.

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Taking into account the above explanation and the text provided in annex as a reference, please provide your views on these procedures and in particular on the Code of Conduct and the requirements for the qualifications for arbitrators in relation to the TTIP agreement. Do they improve the existing system and can further improvements be envisaged?

Regarding the introduction of a roster, Veolia is not against it (a very similar roster already exists in the ICSID system) but doubts it will really address the concerns of independence and impartiality of arbitrators. As a matter of fact, it does not concern all the arbitrators, but only the presiding arbitrator, when the parties fail to appoint the presiding arbitrator. In case the Commission decides to introduce such a list, arbitrators should not be only appointed on the basis of a list of former judges. Indeed, arbitration practice shows that parties favor experts when it is possible, because of the technical nature of certain arbitration proceedings. However, establishing clear rules to ensure that arbitrators are independent and act ethically, with expertise in international law and experience in international trade law and international dispute resolution is fundamental to ensure an effective and efficient arbitration process. Veolia suggests using the International Bar Association Guidelines on Conflicts of Interest in International Arbitration published in July 2004 as a code of conduct arbitrators must comply with. These guidelines strive to set forth the best practice with regard to preserving the impartiality and independence of international arbitrators. They have found general acceptance within the international arbitration community and provide the necessary safeguards to ensure the proper conduct of the arbitration.

Explanation of the issue

As in all legal systems, cases are brought that have little or no chance of succeeding (so-called “frivolous claims”). Despite eventually being rejected by the tribunals, such cases take up time and money for the responding state. There have been concerns that protracted and frequent litigation in ISDS could have an effect on the policy choices made by states. This is why it is important to ensure that there are mechanisms in place to weed out frivolous disputes as early as possible.

Another issue is the cost of ISDS proceedings. In many ISDS cases, even if the responding state is successful in defending its measures in front of the ISDS tribunal, it may have to pay substantial amounts to cover its own defence.

Approach in most existing investment agreements:

Under existing investment agreements, there are generally no rules dealing with frivolous claims. Some arbitration rules however do have provisions on frivolous claims. As a result, there is a risk that frivolous or clearly unfounded claims are allowed to proceed. Even though the investor would lose such claims, the long proceedings and the implied questions surrounding policy can be problematic.

The issue of who bears the cost is also not addressed in most existing investment agreements. Some international arbitration rules have provisions that address the issue of costs in very general terms. In practice, ISDS tribunals have often decided that the investor and responding state pay their own legal costs, regardless of who wins or loses.

The EU’s objectives and approach

The EU will introduce several instruments in TTIP to quickly dismiss frivolous claims.

ISDS tribunals will be required to dismiss claims that are obviously without legal merit or legally unfounded. For example, this would be cases where the investor is not established in the US or the EU, or cases where the ISDS tribunal can quickly establish that there is in fact no discrimination between domestic and foreign investors. This provides an early and effective filtering mechanism for frivolous claims thereby avoiding a lengthy litigation process.

To further discourage unfounded claims, the EU is proposing that the losing party should bear all costs of the proceedings. So if investors take a chance at bringing certain claims and fail, they have to pay the full financial costs of this attempt.

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Taking into account the above explanation and the text provided in annex as a reference, please provide your views on these mechanisms for the avoidance of frivolous or unfounded claims and the removal of incentives in relation to the TTIP agreement. Please also indicate any other means to limit frivolous or unfounded claims.

If the idea of quickly dismissing frivolous claims seems to be a good one at first glance, Veolia would like to express some comments on that matter. The term “frivolous” has no legal meaning and may then be subject to various interpretations. In some cases, qualifying a case as “frivolous” may be quite evident. For example, “frivolous” can mean that a case is not covered under the investment agreement because the claimer is not established in one of the 2 parties of the agreement. In other cases, it may be much more difficult to quickly establish that a claim is frivolous because it has no legal merit or is legally unfounded, since many provisions in the investment agreements can be very differently interpreted. It is actually the arbitrators’ task to check and establish the legal merit of a claim. Therefore, if the parties decide to include such provisions in the text, it is fundamental to have a much more accurate definition of “frivolous” and to establish a pre-arbitration phase, during which the legitimacy and admissibility of the claim would be assessed, according to a defined set of criteria. As a consequence, “the loser pays it all” principle should be limited to cases qualified as frivolous in a pre-arbitration phase. However, if adding such an assessment phase can allow avoiding unmeritorious claims, it would also lengthen any other arbitration processes. Furthermore, ISDS mechanism should ensure an adequate use of preliminary objections. The decision to bifurcate a case should remain in arbitrators’ hands, so to avoid abusive suspension of arbitral proceedings. Hence, we suggest that bifurcation should not be mandatory for arbitrators as foreseen in CETA (Article x30: Claims Unfounded as a Matter of Law). Besides, a similar provision was deleted from the CIRDI Convention in 2006.

Explanation of the issue

Recently, concerns have been expressed in relation to several ISDS claims brought by investors under existing investment agreements, relating to measures taken by states affecting the financial sector, notably those taken in times of crisis in order to protect consumers or to maintain the stability and integrity of the financial system.

To address these concerns, some investment agreements have introduced mechanisms which grant the regulators of the Parties to the agreement the possibility to intervene (through a so-called “filter” to ISDS) in particular ISDS cases that involve measures ostensibly taken for prudential reasons. The mechanism enables the Parties to decide whether a measure is indeed taken for prudential reasons, and thus if the impact on the investor concerned is justified. On this basis, the Parties may therefore agree that a claim should not proceed.

Approach in most existing investment agreements

The majority of existing investment agreements privilege the original intention of such agreements, which was to avoid the politicisation of disputes, and therefore do not contain provisions or mechanisms which allow the Parties the possibility to intervene under particular circumstances in ISDS cases.

The EU’s objectives and approach

The EU like many other states considers it important to protect the right to regulate in the financial sector and, more broadly, the overriding need to maintain the overall stability and integrity of the financial system, while also recognizing the speed needed for government action in case of financial crisis.

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Some investment agreements include filter mechanisms whereby the Parties to the agreement (here the EU and the US) may intervene in ISDS cases where an investor seeks to challenge measures adopted pursuant to prudential rules for financial stability. In such cases the Parties may decide jointly that a claim should not proceed any further. Taking into account the above explanation and the text provided in annex as a reference, what are your views on the use and scope of such filter mechanisms in the TTIP agreement?

No comment

Explanation of the Issue

When countries negotiate an agreement, they have a common understanding of what they want the agreement to mean. However, there is a risk that any tribunal, including ISDS tribunals interprets the agreement in a different way, upsetting the balance that the countries in question had achieved in negotiations – for example, between investment protection and the right to regulate. This is the case if the agreement leaves room for interpretation. It is therefore necessary to have mechanisms which will allow the Parties (the EU and the US) to clarify their intentions on how the agreement should be interpreted.

Approach in existing investment agreements

Most existing investment agreements do not permit the countries who signed the agreement in question to take part in proceedings nor to give directions to the ISDS tribunal on issues of interpretation.

The EU’s objectives and approach 

The EU will make it possible for the non-disputing Party (i.e. the EU or the US) to intervene in ISDS proceedings between an investor and the other Party. This means that in each case, the Parties can explain to the arbitrators and to the Appellate Body how they would want the relevant provisions to be interpreted.  Where both Parties agree on the interpretation, such interpretation is a very powerful statement, which ISDS tribunals would have to respect.

The EU would also provide for the Parties (i.e. the EU and the US) to adopt binding interpretations on issues of law, so as to correct or avoid interpretations by tribunals which might be considered to be against the common intentions of the EU and the US. Given the EU’s intention to give clarity and precision to the investment protection obligations of the agreement, the scope for undesirable interpretations by ISDS tribunals is very limited. However, this provision is an additional safety-valve for the Parties.

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Taking into account the above explanation and the text provided in annex as a reference, please provide your views on this approach to ensure uniformity and predictability in the interpretation of the agreement to correct the balance? Are these elements desirable, and if so, do you consider them to be sufficient?

The inclusion of guidance by the Parties on the interpretation of the agreement may help to preclude unintended interpretations through arbitration panel from being binding on the parties over the longer term. But such mechanisms, intervening in the course of the litigation, may also add a certain degree of legal uncertainty for investors, since they will legitimately base their claims on the existing content of the investment agreement. Furthermore, binding interpretations may limit the discretion of arbitrators in a constantly evolving legal environment and annul the right to a fair trial through ISDS. Arbitrators should also keep a certain margin of maneuver to take into account all the peculiarities of the cases to be dealt with. Therefore including in the agreement annexes providing for a detailed explanation of each article is much more relevant, to avoid any misunderstanding or misinterpretation of the provisions of the text, ahead of the litigation process. In that way, investors can have legitimate expectations of the scope of investment protection they can benefit from according to the treaty provisions. In case the Commission decides to maintain the introduction of binding interpretations for the arbitrators, it should only cover general areas of the treaty and not be retroactive.

Explanation of the issue

In existing investment agreements, the decision by an ISDS tribunal is final. There is no possibility for the responding state, for example, to appeal to a higher instance to challenge the level of compensation or other aspects of the ISDS decision except on very limited procedural grounds. There are concerns that this can lead to different or even contradictory interpretations of the provisions of international investment agreements. There have been calls by stakeholders for a mechanism to allow for appeal to increase legitimacy of the system and to ensure uniformity of interpretation.


Approach in most existing investment agreements

No existing international investment agreements provide for an appeal on legal issues. International arbitration rules allow for annulment of ISDS rulings under certain very restrictive conditions relating to procedural issues. 

The EU’s objectives and approach 

The EU aims to establish an appellate mechanism in TTIP so as to allow for review of ISDS rulings. It will help ensure consistency in the interpretation of TTIP and provide both the government and the investor with the opportunity to appeal against awards and to correct errors. This legal review is an additional check on the work of the arbitrators who have examined the case in the first place.

In agreements under negotiation by the EU, the possibility of creating an appellate mechanism in the future is envisaged. However, in TTIP the EU intends to go further and create a bilateral appellate mechanism immediately through the agreement.

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Question 12. Taking into account the above explanation and the text provided in annex as a reference, please provide your views on the creation of an appellate mechanism in TTIP as a means to ensure uniformity and predictability in the interpretation of the agreement.

Veolia would like to express its reluctances to the introduction of an appellate mechanism for the following reasons: - An appellate mechanism would compromise the finality of arbitration: an arbitration award is indeed binding and not open to appeal on the merits. - The existence of an appeal mechanism would result in additional costs and delays in the resolution process, which already costly and time consuming: arbitration proceedings are expensive and can last decades before a final decision is rendered. An appellate process will lengthen the proceedings and delays the final award. For example, the claim of Compania de Aguas del Aconquija S.A. and Vivendi Universal S.A. against the Argentine Republic under the France-Argentina bilateral investment treaty (ICSID Case No. ARB/97/3) lasted not less than 13 years, before a decision rejecting Argentina's request that the second award rendered in the case be annulled and granting an award in the claimants' favor was unanimously adopted. - An appeal mechanism could result in a greater number of challenges to arbitral awards. This tendency to appeal would result in decreasing confidence in the main body of decisions and the authority of the “first instance” arbitrators. However, Veolia would be open to a system of review of awards, as it already applies in the ICSID convention mechanism or under the commercial arbitration framework established by national law, the New York convention and other relevant treaties, which provide for a list of grounds for review, strictly limited (to errors of law, irregularities in the composition of the tribunal, corruption of a member of the tribunal, etc.), excluding errors on the merits.

C. General assessment

General assessment
  • What is your overall assessment of the proposed approach on substantive standards of protection and ISDS as a basis for investment negotiations between the EU and US?
  • Do you see other ways for the EU to improve the investment system?
  • Are there any other issues related to the topics covered by the questionnaire that you would like to address?

Veolia welcomes the consultation launched by the European Commission on ISDS in TTIP, as an opportunity to draw lessons on the shortcomings of the current system and to improve it. By and large, Veolia agrees on the main principles proposed by the Commission aiming at clarifying investment protection rules so as to guarantee that the right to regulate is not undermined, as well as building a modern and efficient ISDS system. However, Veolia would like to underline that a high level of investment protection is essential to develop and secure investment. The EU and the US are developed economies with sound legal system guaranteeing adequate investment protection. However, as the TTIP might be used as a model for the design of further treaties, it also should include such an ISDS mechanism. Hence, it would also be relevant to include a mechanism that would improve execution of awards, like provided by Article 5 of the New York Convention, which allows resorting to domestic courts, in case a Party does not implement the award. Investment protection requires particular vigilance from the EU in the framework of all bilateral investments agreements that the EU will negotiate in the future. Companies, notably those which invest in the form of concessions, for instance in essential public services like Veolia, need an adequate legal protection, which is adapted to the duration and scale of their investments. If this protection can be provided by contracts and national legislations, bilateral agreements provide a complementary guarantee, whose weakening would affect long term investments in countries, which need them most.