Perceptions of Corruption and Corporate Mobility: Malta as a real-time case study

This blog post is by Justin Borg-Barthet, a lecturer in EU law and Private International Law. Dr Borg-Barthet is the author of The Governing Law of Companies in EU Law (Hart/Bloomsbury 2012) and several other publications on corporate mobility. He recently formed part of a steering committee overseeing an extensive study for the European Commission on the law applicable to companies.

It is fairly well-established that cost is the primary driver for corporate choice of law and the choice of the physical location of a company’s business. Becht et al, for example, note that entry cost is the primary consideration for choice of corporate law. These authors also note that non-price factors in choice of law have been minimised through the intervention of intermediaries. Recent developments in Malta, however, suggest that non-price factors have some bearing on choices of establishment destinations in the internal market, at least insofar as they concern physical location as opposed to mere choice of law.

By way of background, following the publication of the Panama Papers, allegations concerning kickbacks have emerged involving the current Maltese Prime Minister, his chief of staff, a close aide, and a senior minister. I make no comment here on specific allegations. I am concerned, rather, with the effects of perception on inter-jurisdictional competition for incorporation and physical relocation of businesses.

Anecdotal evidence has emerged suggesting the some companies seeking to relocate from the United Kingdom to an EU-27 jurisdiction are influenced in their choices by the reputation of regulators. Hiscox Ltd, in particular, has chosen to situate its EU business in Luxembourg, having weighed up Malta and Luxembourg as its final shortlist. This cannot be explained with reference to entry cost. Operational costs in Malta are significantly lower than those in Luxembourg. Nor can it be explained with reference to familiarity with laws. Relevant Maltese laws are closely modelled on UK acts, whereas Luxembourg is of a civilian tradition. The key, instead, appears to be in Hiscox’s reference to Luxembourg’s “well-respected regulator”. It is not beyond reasonable interpretation to read this statement in its broader context; that is to say that the alternative regulator is no longer as well-respected, and that this affected choice.

Of course, this could be an isolated example. But it is consistent with the notion that choices of law and physical location are motivated by more than cost; or, more accurately, more than direct pricing. As noted by Devrim Dumladag, among others, ‘corruption in the political system is a threat to foreign investment’. It constitutes a risk which cannot be measured accurately, and which therefore cannot be accounted for with any degree of precision. Perception, therefore, is important. In 2017, Malta dropped ten places in the international Corruption Perception Index. Risk, therefore increased.

What is more, further evidence is emerging of a direct correlation between the ability to exploit the internal market and political reputation. It emerged on 14 May 2017 that, as a consequence of money laundering concerns, Commerzbank AG will no longer accept at face values audits conducted by branches of international firms situated in Malta. There have been no legislative changes in Malta which could have informed Commerzbank’s decision. The motivator appears instead to be political and administrative developments. It seems, therefore, that political branding matters.

Indeed, branding could, in principle affect not only physical corporate mobility, but also the legal fiction of mobility in the form of choice of corporate law. Drury argues, albeit in a quite different context, that a choice of corporate law – and with it the national suffix attached to a company name – affects public perception of a company. ‘Such labels give that company a distinctive national flavour in the minds of the public.’ Clearly then, it is not just the price of entry that would affect incorporation decisions, but also the associations arising from the national label which comes with incorporation.

This suggests that further evidence may emerge of downturns in the establishment of legitimate businesses under Maltese law. In other words, it is quite likely that both de facto and de jure mobility in the internal market may be affected by perceptions of corruption. While any evidence will likely be anecdotal in the absence of sustained academic investment, there is certainly some scope to qualify assumptions concerning price as a driver for corporate mobility.

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Syrian Refugees in Europe: what’s happening?

The following is the text of remarks made by our Dr Justin Borg-Barthet at a panel discussion organised by the Aberdeen University Yad’am Society on 6 February 2017.

Introductory remarks

To begin with, it is worth considering why we in Europe should be concerned about the Syrian refugee crisis.  Syria, after all, is not a European state and Syrians do not traditionally consider Europe to be their most immediate cultural hinterland.  It is arguable, therefore, that Syria and Syrian refugees are not European problems.

But let’s be clear that since the end of the Second World War, at least, we have all embraced the principle of a common humanity.  This is not merely a political statement, but is a principle entrenched in international law – like the 1951 Refugee Convention – and in the human rights law of the European Union and the European Convention on Human Rights (ECHR).

In the spirit of a broader humanity, I will not confine my comments to matters solely pertaining to the Syrian crisis.  That crisis is simply the most recent in a series of developments which have seen the European Union fall short of its humanitarian and human rights obligations in respect of refugees and asylum seekers.  It illustrates, in stark terms, an ongoing systematic and systemic problem in the EU’s relations with its neighbourhood.

In these brief remarks, I will address two main points.  First, I wish to highlight a failure to comply with obligations.  Secondly, I will consider briefly the constitutional policy implications of this failure, and make modest recommendations about how the Union could seek to address persistent problems.

Humanitarian and human rights obligations

EU human rights law has come a long way since the first steps towards European integration in the 1950s.  This is most clearly seen in recent judgments of the Court of Justice of the European Union (CJEU) regarding relocation of asylum seekers.  In the NS case, Afghan asylum seekers in the UK were to be returned to Greece, which was their point of entry into the EU.  Under the Dublin Regulation, Greece was responsible for processing the asylum claim.  It was found, however, that the applicants’ right to be free from inhuman and degrading treatment would be at risk due to systemic problems in Greece.  It followed that the UK could not return the asylum seekers.

The decision of the CJEU is, of course, to be applauded.  It demonstrated a shift in emphasis from the rights of states to those of individuals.  However, that judgment did nothing to alter the facts on the ground for most asylum seekers in Europe.

Reception conditions

Greece, Italy and Malta are the main ports of entry for refugees and asylum seekers from Africa, the Middle East and further afield.  Each of those states has been found to be in breach of the European Convention on Human Rights due to their inadequate treatment of refugees (e.g. M S S v Belgium and Greece (2011) 53 EHRR 2; Aden Ahmed v Malta ECHR App No 55352/12 (23 July 2013); Hirsi Jamaa v Italy (2012) 55 EHRR 21).  In particular, reception conditions have been found to breach the prohibition of the right to liberty (due to forced detention) and, consequently, the prohibition of torture (due to the adverse effects of detention on mental health).

The problems in these three states are compounded by the fact that they bear the brunt of responsibility for dealing with migration to the EU.  Whatever lofty declarations are made in the north and west of Europe, and despite images of hundreds of people trekking across a continent, the fact remains that pressures are concentrated in a small number of member states, which brings us to another problem of so-called burden sharing.

Burden sharing

A number of EU member states have long argued that there should be a system of compulsory burden sharing.  In other words, the responsibility for hosting and processing asylum seekers should be shared between the Member States rather than being concentrated in border-states.  The Geneva Convention arguably requires burden sharing as a matter of international law.  EU law itself is founded on the principle of solidarity between states and people.

But still, wealthier states which are geographically insulated from the crisis have resisted compulsory burden sharing.  Instead, they initially accepted a voluntary system.  Latterly, a system of agreed relocation has been put into place, but the Member States have been very slow in taking any practical steps to ensure that pressures are distributed.

This is important to member states which face significant financial and social burdens.  And because of those burdens, it is also important to asylum seekers.  No member state is able single-handedly to accommodate and welcome the numbers that have been crossing the Mediterranean Sea.  In the absence of collective action, asylum seekers remain vulnerable to the inadequacies of ill-equipped states.

Relocation to third countries

Following repeated failures in seeking compulsory burden-sharing within Europe, southern EU member states have changed their strategies.  Rather than advocating relocation of asylum claimants within the EU, they have successfully argued for the externalisation of problems through so-called reception centres in Turkey and Libya.  An agreement with Turkey is now fully operative.

Of course, there is nothing wrong, in principle, with supporting Turkey in its own efforts to provide reception to migrants, or in discouraging dangerous sea-crossings.  But the fact is that, for all the failures of EU member states, the treatment of asylum seekers in Turkey and Libya leaves far more to be desired.

You may recall that I mentioned the judgment in NS earlier.  In that case, it was decided that Member States could not return migrants to other EU States if there were systemic problems in the destination state.

There is no logical reason why that principle should not be applied between the EU and third countries in the same manner as it is applied within the EU.  Fundamental rights, after all, bind the member states whether they are acting unilaterally or collectively.  The principle of non-return in the judgment in NS should preclude the return of asylum seekers to Turkey.  Yet, just last week, the informal council meeting in Malta concluded that the Turkey agreement should be replicated in Libya.  Far from questioning the strategy, the Member States are seeking instead to entrench and extend it to ever more questionable destinations.

Tellingly, humanitarian corridors were not addressed in the council conclusions, but were determined to be a matter for the future.  We will deal with that once we have secured the border.  Now where have we heard that before?

Constitutional observations

The refugee and migrant crises expose cracks in the institutional architecture of the European Union.  There has been a consistent failure to act according to constitutional principles due to the stranglehold that the member states hold over law and policy-making processes.  If they refuse to act, the Union’s principles are meaningless in practice.  While the EU rightly baulks at President Trump, its own record of treatment of refugees has not been pristine.

Of course, it is difficult for the Union and Member States to act when public opinion is unsupportive.  But let’s not forget that public opinion is divided.  It is far from unanimous in its opposition to migration.

And there is equally a great danger in failing to uphold and defend principles.  If constitutional principles are not upheld, this lends an air of legitimacy to the ideologies that are threatening the EU’s collective model itself.  By reducing the stranglehold of states, and focusing instead on representation of people and rights of people, the Union could ensure that collective action remains possible, and that it is given further effect in future.

In other words, far from the answer being less Europe; far from the answer being the dismantling of Schengen; and far from the answer being border fences between states; the answer is a more principled Europe – a more meaningful European Union that is capable of acting internationally in accordance with its founding principles.

Dr Borg-Barthet is the co-author (with Carole Lyons) of an analysis article in the 2016 Edinburgh Law Review. ‘The European Union Migration Crisis’ is currently the ‘Most Read’ article online.

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The poster for the recent event hosted by the Yad’am Society

The Brexit Case: The Reasoning, Implications and Potential Consequences of the High Court’s Judgment

This post is by Dr Robert Brett Taylor. It is an expanded version of his note that appeared in the Press & Journal on Friday 4 November 2016.

Following the decision of 52% of the UK electorate to exit the European Union (EU) on 23 June 2016, Prime Minister Theresa May has been steadfast in her belief that the power to initiate the UK’s exit from the EU lay with the Government under the ‘royal prerogative’ and not with Parliament. On Thursday 3 November 2016, however, the High Court of Justice in England gave its highly anticipated judgment in the Brexit Case (R (Miller) v Secretary of State for Exiting the European Union [2016] EWHC 2768 (Admin)), ruling that the UK Government must seek parliamentary approval before exiting the EU. This blog post will briefly outline the reasoning of the High Court in reaching its decision, as well as its implications and potential consequences.

Justiciability and the Irrevocability of Article 50

Before considering the reasoning of the High Court, two points must be stressed.

Firstly, all parties to the case, including the Government, accepted that the matter before the Court was entirely justiciable. In other words, that it concerned a legal matter that the courts are best placed to decide.

Secondly, the case proceeded on the basis that Article 50 – the legal mechanism by which a Member State may formally leave the EU – once triggered, could not be revoked.  In other words, the UK will be unable to change its mind and stop Brexit once notice has been given under the provision. Although the accuracy of this interpretation has been questioned on this blog, it must be stressed that the Court did not have to make a ruling on this matter as both parties were in agreement that Article 50 was irrevocable.

The High Court’s Reasoning

The central question before the Court was whether the UK Government can use the royal prerogative to give notice of the UK’s intention to exit the EU under Article 50 as it claimed. The royal prerogative is the body of executive powers held by the Monarch but which is now mostly exercised in practice by Government Ministers.

The High Court rejected the Government’s argument, deciding that the royal prerogative could not be used without parliamentary approval.  According to the Court, triggering Article 50 without Parliament’s approval would have the effect of removing the rights currently enjoyed by UK citizens by virtue of the UK’s membership of the EU both at home and abroad.  Examples include workers’ rights, freedom of movement across the other EU Member States, and the right to vote in elections to the European Parliament. When the UK joined the EU in 1973, Parliament first had to pass the European Communities Act 1972, which gave domestic effect to EU law.  As a result, EU law became part of UK law, and citizens could thereafter bring actions for breach of EU law, including their EU rights, in the domestic courts. The Court decided that, in passing the 1972 Act, Parliament did not intend to allow the UK Government to take away these rights unilaterally.  To do otherwise would be to change the domestic law of the UK as enacted by Parliament, and only Parliament had the power to do so because it was legally sovereign.

The Court’s decision therefore makes it clear that the Prime Minister now needs Parliament’s consent before Article 50 can be triggered.  The implication of the decision is that this approval must take the form of primary legislation, thus making a one-off vote in the House of Commons insufficient.  Unsurprisingly, the decision of the High Court, and the necessity for legislation, could have potentially far reaching consequences.

The Future of Brexit

The High Court’s decision represents a serious setback for the UK Government, and the Prime Minister is already under considerable pressure to concede and comply with the decision. Although the Prime Minister had said that she would trigger Article 50 in March 2017, this looks to be in doubt should she be compelled to put the matter before Parliament for legislative approval.  Whilst this may only result in a delay in the triggering of Article 50, Parliament could also decide to block the UK’s exit from the EU altogether.  Whether or not Parliament would do so, however, is unclear.  Although not legally required to follow the referendum result, political forces both within and outwith Parliament may compel members to go ahead with Brexit, albeit perhaps on terms different from what the current Government wants.

Even if the elected House of Commons consents to any Bill authorising the triggering Article 50, however, Theresa May will likely face strong opposition from the unelected House of Lords.  Because leaving the EU was not a manifesto commitment of Theresa May’s newly-formed Government, the Salisbury Convention will not be engaged, and the Lords will not be compelled constitutionally to approve the legislation as a result. (It will be recalled that conventions are very important to the House of Lords, as I explored in a post on this blog and a related post for the UK Constitutional Law Association.) This may necessitate, therefore, the use of the Parliament Acts 1911 and 1949 to ensure the Bill’s passage through Parliament, which will further delay Brexit.

The UK Supreme Court

Whether or not Parliament will ever be given a say, however, is still far from settled, as the UK Government have said that they will appeal the decision to the UK Supreme Court in the hope that it will be overturned. The case is expected to be heard in December before a panel of 11 Justices for the very first time in history. A judgment is expected sometime in the New Year.  Although the case was heard in England and concerned a matter of English Law, Nicola Sturgeon and the Scottish Government may formally intervene in the legal proceedings. The Welsh Counsel General has indicated his intention to apply to intervene, in accordance with the Government of Wales Act 2006. Withdrawal from the EU will unquestionably impact upon the UK’s devolutionary settlement, and the UK Supreme Court has jurisdiction to decide devolutionary matters.

An Early General Election

Although there is speculation in the media that the Prime Minister could call an early General Election to try and receive a mandate from the public on pursuing her vision of Brexit, it must be stressed that she does not in fact have the power to do so. The Fixed-term Parliaments Act 2011 abolished the prerogative power of the Crown, exercised by the Prime Minister, to call a general election, and gave that power to the House of Commons.  In order to have an election before 2020, therefore, Theresa May must lose a vote of no confidence, or two-thirds of the Commons must agree to call one. Should the Government lose their appeal at the UK Supreme Court, a vote of no confidence in the Prime Minister is possible given the Conservative party’s narrow majority in the House of Commons.

What next?

That is a good question. As noted by my colleague Dr. Justin Borg-Barthet, the one thing we can be sure of is we still cannot be quite sure what Brexit means.

On Tuesday 8 November at 18:00 the University of Aberdeen will be hosting a free guest lecture by Dr. Holger Hestermeyer, How will Brexit Happen? Legal Questions Faced by the UK. Details can be found here.

Yeah but, no but: why the High Court was right and wrong in the Brexit case

This blog post is by Dr. Justin Borg-Barthet.

The High Court decision in Miller (the ‘Brexit case’) was essentially a public law case.  The judgment (PDF) addresses the question of whether the royal prerogative can be exercised to repeal vested statutory rights.  As is well known, the Court found in the negative.  In the Court’s view, therefore, notice of the UK’s intention to withdraw from the European Union requires parliamentary consent.

But the judgment turns on a question of EU law, namely whether revocation of notice of intention to withdraw from the EU is possible.  Here too the Court found in the negative.  Both the claimants and government were of the view that once notice is given under Article 50 TEU, that notice is irrevocable.  In other words, once the UK notifies the European Council that it wishes to withdraw, the UK cannot change its mind and withdraw notification.  Rights derived from the European Communities Act 1972 will be repealed whether Parliament consents or otherwise.

But is the Court correct in its findings regarding Article 50 TEU?  If it is not, its public law findings rest on a false premise and are therefore potentially unfounded.

Article 50 TEU provides as follows:

1) Any Member State may decide to withdraw from the Union in accordance with its own constitutional requirements.

2) A Member State which decides to withdraw shall notify the European Council of its intention. In the light of the guidelines provided by the European Council, the Union shall negotiate and conclude an agreement with that State, setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the Union. That agreement shall be negotiated in accordance with Article 218(3) of the Treaty on the Functioning of the European Union. It shall be concluded on behalf of the Union by the Council, acting by a qualified majority, after obtaining the consent of the European Parliament.

3) The Treaties shall cease to apply to the State in question from the date of entry into force of the withdrawal agreement or, failing that, two years after the notification referred to in paragraph 2, unless the European Council, in agreement with the Member State concerned, unanimously decides to extend this period.

4) For the purposes of paragraphs 2 and 3, the member of the European Council or of the Council representing the withdrawing Member State shall not participate in the discussions of the European Council or Council or in decisions concerning it.

A qualified majority shall be defined in accordance with Article 238(3)(b) of the Treaty on the Functioning of the European Union.

5) If a State which has withdrawn from the Union asks to rejoin, its request shall be subject to the procedure referred to in Article 49.

There is nothing in that article which addresses the question of a change of mind (or heart, as the case may be).  Once Article 50 is invoked, it seems, the process of withdrawal is inexorable.

Yeah but

The High court was correct in its findings, or so it appears at first blush.  Surely if the Member States wished the Treaty to provide for revocation of notice under Article 50, they would have done so.  What is more, if the withdrawing Member State were at liberty unilaterally to revoke its notification of withdrawal from the Union, this would have the practical effect of enabling that State unilaterally to extend the two-year period for withdrawal.  It could revoke notice and start the two-year period afresh at a later date of its own choosing.  Surely, then, unilateral revocation of notice is not allowed.

But it does not necessarily follow that the revocation of notice is impossible.  The Member States are at liberty, should they agree unanimously, to extend the two-year period.  Art 50(3) does not establish a ceiling for the extension of that period.  In the absence of any such limits, it follows that the Member States may extend the period indefinitely.  Effectively, they can agree unanimously to suspend the withdrawal of the Member State.  It would be absurd in such circumstances to argue that the Member States could not formalise an informal suspension of notice to withdraw from the Union.

No but

It appears, therefore, that the High Court was not entirely correct in its findings.  The basic premise that Article 50 is irrevocable is not unimpeachable.  But it does not follow that the rest of the Court’s reasoning is wrong.  The public law reasoning concerns the potential usurpation by government of Parliament’s sovereign right to retain or repeal rights conferred by the European Communities Act 1972.  The power to revoke notification under Article 50 does not reside in the sovereign Parliament of the United Kingdom.  Instead it resides with every other Member State of the Union.  Malta, for the sake of the argument, could choose whether rights conferred on British citizens by the European Communities Act 1972 are to be repealed.

The High Court’s findings are therefore unaffected by the potential flaw in its (and the parties’) reasoning.  If the Court is correct in its reasoning as to the public law question, the judgment remains sound notwithstanding the potential flaw in the interpretation of Art 50 TEU.  Any notification by government of the UK’s intention to withdraw from the European Union divests Parliament of its right to retain or repeal rights conferred by the European Communities Act 1972.

But but

Prof Steve Peers argues, persuasively it is submitted, that the question of revocability of Article 50 is not settled.  Indeed, contrary to the High Court’s ruling and to my own reasoning above, Lord Kerr, the author of Article 50, argues that unilateral revocation of notice is possible. Where there is a question as to the interpretation of EU law, Article 267 TFEU requires a supreme court of a Member State (and the Supreme Court of the United Kingdom still plays that role) to seek interpretative guidance from the Court of Justice of the European Union. If the Supreme Court fails to refer the question, the United Kingdom could be liable to damages under the Kobler doctrine.

There could yet, therefore, be many twists in the tale of Brexit.  All that is certain at this juncture, is that we cannot be quite certain of the meaning of Brexit (means Brexit).

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Image credit – BBC

Exploring and combining the Human Rights Act 1998, intellectual property and EU competition law – while we still can

This blog post is by Dr Abbe Brown, Reader.

The prospect of the UK leaving the EU has, as already explored elsewhere on this blog, significant legal implications. So too would the possible repeal of the Human Rights Act 1998, perhaps to be replaced by a Bill of Rights.  One implication relates to proposals I put forward in my 2012 monograph Access to Essential Innovation and Technology: Intellectual Property, Human Rights and Competition.

These three legal fields of intellectual property (“IP”), human rights and competition were combined in the book as they can be relevant to questions of access to technologies from different perspectives.

Taking access to medicines as an example:

  • IP encourages the developing of new medicines by conferring exclusive rights and the ability to charge licensing fees;
  • the right to life indicates that there should be access to medicines, without money being an obstacle; and
  • competition law, in its prohibition on abuse of a dominant position, objects to an IP owner having too much power.

It is of course possible for these three fields to co-exist and complement each other: IP develops medicines to further the right to life and rewards the activities of innovators, and the ultimate goal of both IP and competition has been argued to be to encourage innovation. Yet conflict is possible; and this can be entrenched by the fact that within the UK jurisdictions there are significant differences in the extent to which each field can be the base of an action.

The book developed a means of enabling these three legal fields to be combined in judicial decision making in the UK, to deliver greater access to technology while still respecting the contribution which IP can make to developing innovation. At the heart of the book’s proposals are firstly a Human Rights Emphasis, which is a framework for enabling courts to consider the wide range of human rights relevant to a dispute to establish what is meant by delivering decisions (in light of the Human Rights Act 1998 and also EU fundamental rights) which are “consistent with human rights”; and secondly there is a new, human rights influenced, approach to the “Euro-defence” (a term explored in this resource from the law firm Slaughter and may (PDF)) and the case law on when refusal to license IP could be an abuse of a dominant position.  These two approaches could lead to courts, in some cases, finding that what seemed to be IP infringement from a pure IP law perspective was not in fact so.  The book then went on to argue that this approach was consistent with UK’s responsibilities to IP owners under the European Convention on Human Rights, and also obligations to protect IP under TRIPS, the IP element of the World Trade Organization  (“WTO”) Agreement. As a result, the approach and the UK would not be vulnerable to challenge at the European Court of Human Rights and through WTO dispute settlement.

The book develops its arguments through several scenarios, across health, communications, and the environment, with a range of outcomes depending on the facts. The proposals have been well reviewed (and also termed “possibly heretical” (Stothers 2013)) and stimulated wide interest among lawyers and IP owners, notably at the Licensing Executive Society International Conference in 2011.

Looking forward it does seem possible that there will be some sort of a Bill of Rights and also be some sort of competition law framework in post-Brexit UK, yet  in these new regimes human rights and competition may not have their present special legal status that has enabled the societal objectives (other than short term reward of innovation) to prevail.

My ongoing work (including blog posts of 26 November 2015, 2 May 2016, and 26 July 2016) explores how the interaction between legal fields can be further developed, including by looking beyond the Human Rights Act 1998 and EU competition law. (This could be serendipitous, given the current political situation.)  For now, the arguments developed remain a valuable tool for experimentation by lawyers and activists who are faced with IP obstacles to using technologies to pursue important goals.

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A positive approach to Investor-State Dispute Settlement? IP and Climate Change

This blog post is by Dr. Abbe Brown

Introduction

Intellectual Property (“IP”) and climate change laws operate in different legal spaces.

For the former, the World Trade Organization’s TRIPS agreement imposes obligations on states to have IP laws. States pass IP laws which confer private rights, which are enforceable in national court.

For the latter, the UN’s Framework Convention on Climate Change provides that states should reduce emissions. There have been varying attempts to bring this about, notably the Kyoto Protocol of 1997 which imposed targets on states (which were not met) and the Paris Agreement of 2015, when states agreed to targets but it is left to states as to how this may come about. Technology, and transfer of technology, is mentioned repeatedly in all these documents, and there is now the Technology Mechanism.

Yet all this does not really engage directly with (to the extent to trying to solve) the fact that some of the technologies relevant to reducing emissions may be the subject of IP rights. Thus states have two obligations which are potentially inconsistent. Further, private entities have rights in respect of IP, which can enable them to control technologies, and private entities have no obligation to transfer technologies.

I explored some elements of this issue in a previous post on this blog on 2 May 2016. This post will develop this theme through the lens of national court actions, trade agreements and investor-state dispute settlement (“ISDS”).

National action

What if a US company which owns a UK patent for a wind turbine technology (which has proven very effective and is the best means of harnessing the wind, which is the most reliable means of delivering renewable energy), raises an infringement action when a competitor seeks to use this technology without consent? In other work (namely my book from 2012), I have argued that human rights and competition law could be used (in specific limited cases) such that there is no infringement.  A court in the UK jurisdictions might decide to follow this very novel argument, (subject to the slight caveat that both of these depend a great deal on the UK being a member of the EU and a party to the ECHR working alongside the Human Rights Act 1998).

I also argue in my book that if the court does so, this outcome could also be argued to be consistent with the UK’s obligations under the ECHR and TRIPS. Yet the link between the proposed national approach and another international agreement, the proposed Transatlantic Trade and Investment Partnership (“TTIP”), should also be considered.

TTIP

TTIP is a proposed trade agreement between the USA and the EU. Negotiations started in 2013. At the time of writing, its prospects of coming into effect might seem slim. From a US perspective, whilst Obama has been supportive, Trump is not, and Clinton’s enthusiasm is waning. In the EU, the finer points of EU law mean that support of both the EU and also Member States would likely be required for the agreement to come about. The EU Parliament is supportive at present, however France does not support it and Germany is uncertain. A further complexity comes, of course, from the fact that the UK now seems likely not to be part of TTIP, however the points which will be made below are also of potential relevance to the possible new swathe of international trade agreements which the UK might negotiate in the coming years.

So what is the problem with TTIP? Firstly, the secrecy of its negotiations (although Greenpeace and to an extent the EU have leaked some drafts and position papers: see here (PDF), here, and here). Secondly, and of interest to this post, concerns that trade is treated as more important than climate change and the environment (a view that continues after the July 2016 meeting and leaking of climate change (PDF),  sustainable development (PDF) and energy drafts). Thirdly, and a common theme across more recent trade agreements, if there is state interference with a private investment, the investor could complain and raise an ISDS claim that could lead to the state paying money to it.  This is an opportunity for direct private action, rather than the investor needing, for example, to persuade the USA to raise a WTO action.

TTIP and national action

Draft investment dispute proposals put forward by the EU provide that IP is a covered investment. If a state does not treat an investment fairly and equitably, or indirectly expropriates it, then the IP owner (in this example, a US patent owner) could raise an action. Would this innovative national court decision be fair and equitable treatment or indirect expropriation?

An analogy for the impact of a trade agreement on national IP decisions is being explored in a challenge by Eli Lilly to a decision of Canadian courts, in a dispute under the North American Free Trade Agreement. There, the Canadian court took what is said to be a new approach to the meaning of a term in patent law, which led to patents being revoked. Eli Lilly challenged Canada on the basis of expropriation and the lack of a minimum standard of treatment, including fair and equitable treatment (amongst other things). This dispute is ongoing and the interpretation of minimum standard of treatment under NAFTA is already unclear (as illustrated by the Bilcon dispute).

Two key issues are: the basis on which the national decision could be challenged: and also who would hear the challenge. The EU’s proposals (PDF) regarding investment are of interest here.

Firstly, how could a decision be challenged? The proposals provide that the court shall not affect the rights of parties to regulate within their territories through measures necessary to achieve legitimate policy objectives such as protection of the environment (art 2(1)), and that the availability of the process does not involve a commitment that the legal framework will not be changed (art 2(2)).  The parties are (again) to accord fair and equitable treatment to covered investments, and a list is provided as to what this means, which seems to be exhaustive. In particular, there shall not be fair and equitable treatment if a measure:

  • denies justice, is a fundamental breach of due process, is manifestly arbitrary or an abuse of power (art 3(2) (a)—(c), (e));
  • is in breach of a specific representation to induce an investment which was relied on and which created legitimate expectation, (art 3(4)); or
  • is in breach of what the services and investment committee might otherwise agree to be covered (art 3(2)(f), 3(3)).

Further a breach of any other international agreement (say TRIPS or the UNFCCC) does not mean that there is a breach of the provision of fair and equitable treatment (art 3(6)). In addition, parties shall not indirectly expropriate by a process whereby investors are substantially deprived of the fundamental attributes of property, including the right to use and enjoy, with this to be assessed on a case by case basis with regard to economic impact, object and content and duration (article 5 and Annex 1). There is no specific reference to human rights or competition here, although, speaking very broadly, many of the themes explored are similar to those which would be involved in the human rights and competition analysis at national level.

Secondly, process. One base for criticism of ISDS is that these disputes are heard before arbitration panels of trade lawyers and that decisions often conflict. The EU proposal includes a new type of court (section 3 art 1). There are detailed rules of procedure for security for costs, unfounded claims, consideration of ethics and arrangements for appeal and third party intervention and interestingly, qualifications of the judges (although there will still only be experts in international trade and public international law – there are no references to IP, climate change, human rights or competition) (section 3, arts 5, 6, 9, 10, 11, 17, 21, 23). The tribunal would apply TTIP and other rules of international law applicable between the parties (here, this may cover TRIPS and the UNFCCC agreements), as interpreted in line with the Vienna Convention on the Law of Treaties, and is to adopt prevailing approaches on national law (art 13 (1)-(4)). There are also proposals for how to arrange a system of precedent if difficulties arise (art 13(5)).

Criticisms continue. The EU proposal has been termed a zombie ISDS (PDF), whilst being critiqued for the noted narrow breadth of expertise of judges and also for basically trying to improve something which should not exist in any event.  Yet this final argument draws from the premise that national courts should determine national issues, whereas the IP and climate change discussion proceeds from the premise that this cannot work, because of the different allocations of power between states and private entities. Indeed, because of this it could be argued that ISDS – or perhaps a new form of ISDS – might provide an exciting model for a more holistic approach to dispute resolution.

Some rose-tinted foresighting

How could TTIP be further improved – both for itself and for other agreements? Substantively, it could provide that states and also investors must take steps to pursue protection of the environment and action against climate change, and that this is to be of equal (or greater?) importance than trade and economic gain –  or at least, that trade and environment policies should be mutually supportive . It could also provide that states should meet obligations imposed under UNFCCC instruments and that investors must assist them in  doing this – rather than refuse to share their IP.  It could be argued that this is highly unlikely to come about, but then again there has been significant innovation in the EU and US negotiations and also elsewhere, with for example tobacco based activity being excluded from ISDS in the Trans-Pacific Partnership (art 29.5).

From a different perspective, the agreement could provide that it would not be in breach of the minimum treatment and fair and equitable treatment obligation, or indirect expropriation provision, if decisions are made which are consistent with constitutions and with all or certain international obligations of a state. This would mean that decisions which national courts might properly make in a dispute could not be challenged by ISDS. This could support national courts in taking innovative but legitimate approaches to combining different sets of obligations which their country has accepted. Importantly it would also enable public and private perspectives to be considered together.  The approach does involve significant power being held by courts. Yet as long as they are permanent courts, with relevant diversity of expertise, this is perhaps preferable to parallel negotiations leading to results which can be ignored, as set out at the start of this blog post. It is also preferable to a trade panel being able to find that compensation should be paid to an investor for a human rights based decision of a national court. In the times of Brexit, the possibility of more trade agreements, and increasing concerns about climate change, this is, at the very least,  a useful thought experiment.

These thoughts were developed for “Warnings (?) from elsewhere: intellectual property, trade, climate change and the Transatlantic Trade and Investment Partnership” presented at the conference “Intellectual Property and Innovation Law Research Program Symposium: The Trans-Pacific Partnership: Intellectual Property and Trade” at the State Library of Queensland, Brisbane, Australia in June 2016. Many thanks to all involved and to all at Queensland University of Technology Intellectual Property and Innovation Law, in particular Matthew Rimmer, Angela Daly, Nic Suzor and Brooke Lee.

Inheritance law and the European Union: the impact of ‘authentic instruments’

This blog post is by Dr. Jonathan Fitchen.

Aunt Jemima died last week. She was 102. She lived in Belgium and was so very fond of you – now her only surviving relative – that you went to stay with her on many happy family holidays. Jemima always promised that you would be left her money and property by her Belgian will. You heard of Jemima’s death from her neighbour, Jacques, who you phoned to find out why Jemima was not answering her phone. When you travel to Belgium to Jemima’s funeral you also learn from Jacques that as well as her Belgian will, Jemima entered into various other arrangements via a type of document called an authentic instrument. There are three authentic instruments, one each from Bulgaria, Italy and Spain. You don’t know what an authentic instrument is, and nor do you know if such things can affect your entitlement to Aunt Jemima’s money and property under the Belgian will.

An expert team from the Law School of the University of Aberdeen (consisting of Professor Paul Beaumont, Dr. Jonathan Fitchen and Ms Jayne Holliday) has worked for the European Parliament to address some of these questions by producing a comparative survey of the law concerning a special type of legal document called an ‘authentic instrument’ that is used in 22 of the 28 EU Member States in matters concerning wills and succession (‘succession’ being the word lawyers tend to use for ‘inheritance’). (The six Member States that do not are the UK, Ireland, Denmark, Sweden, Finland and Cyprus.) The matter has become more important because of a law called the European Succession Regulation (Regulation 650/2012).

Authentic instruments are formal documents created by public officials, such as notaries, from some civil law legal systems. They provide strong evidence of any officially verified facts that they contain.

The Succession Regulation applies directly in every EU Member State (except in the UK, Ireland and Denmark – but it can still affect their citizens in situations such as that in the example above). It determines issues such as: what the testator can do in a will to choose a law for the will before his death; or what law and procedures apply after his death if his estate is spread across different legal systems.

The Succession Regulation was created to deal with the problems of uncertainty arising from very different laws of succession across the legal systems of the EU. The worry was that the estate of an EU citizen from one EU Member State who then lived and worked in (or retired to) another EU Member State might be very much complicated by a patchwork quilt of different succession laws that could ALL be applicable to this single estate. The legal complexity would entail delays and extra costs many of which would be paid by the estate.

An important provision of the new Regulation is Article 59. Article 59 obliges the authorities in one Member State to accept an authentic instrument from another EU Member State by giving that document the same or very similar evidence effects to those that it would produce in the Member State from which it originated. To comply with Article 59 it is necessary to know what the evidentiary effects of authentic instruments in each of the 22 EU Member States that allow their creation are. This is what our Study does (PDF). We have explained what the domestic evidence effects of authentic instrument are in matters of succession so that lawyers and courts in other countries can properly comply with Article 59 of the Succession Regulation.

What does this mean for your entitlement to Aunt Jemima’s money and property? Well, if the authentic instruments from Bulgaria, Italy and Spain fall within Article 59 of the Succession Regulation they will (in nearly all imaginable circumstances) produce the same evidential effects in Belgium (or any of the other relevant EU Member States) as they produced domestically (with these points being covered in our Study): you may not get all of Aunt Jemima’s money after all!

Further details of this (and other) work undertaken by the Centre for Private International Law can be found here. An earlier blog post by Jayne Holliday looking at another aspect of Private International Law’s relationship with the EU is available here.