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Costello, Canada, CETA, and the Constitution

Seán Rainford (Dublin City University)

The judgment handed down by the Irish Supreme Court in Costello v Ireland last November was enormous by any standard – in terms of its physical length (running to over 500 pages) and its likely consequences for Irish constitutional law and our external relations. By a majority of 4-3, the Court held that CETA – the free trade agreement between Canada and the EU – could not be ratified by Ireland as it would violate important principles of the Irish Constitution. The cause of this was the agreement’s ‘Investor-State Dispute Settlement’ (ISDS) mechanism through which investors could take legal action against states for breaches of CETA. It was held that this mechanism would violate Ireland’s juridical sovereignty – the constitutionally-enshrined power of Irish courts in making final judgments on Irish law.

Background

Having first lost his case in the High Court, Patrick Costello, a Green Party TD, appealed his case against CETA to the Supreme Court. He argued that the agreement’s investor tribunal system would violate Ireland’s legislative and juridical sovereignty. It would violate the former by removing the final appeal on domestic legal rules from Irish courts (CETA’s investment rules would become effective domestically). It would violate the latter due to the ability of CETA’s Joint Committee to change the agreement’s terms, as well as by constricting the ability of parliament to make laws – especially given the threat of steep fines from tribunals against the state.

While a majority on the bench didn’t accept the argument about legislative sovereignty, they did accept that this represented a threat to Irish juridical power. It was held that because CETA’s ISDS system would not allow for appeal to Irish courts – effectively making enforcement of damages from these tribunals automatic – this was a derogation of the power of Irish courts as laid out in the Constitution. Any derogation of sovereignty can only happen through constitutional amendment by referendum, as was held in the Crotty v An Taoiseach decision of 1987.

Investor Courts

ISDS – often shortened to ‘investor courts’ or ‘investor tribunals’ – is a part of international arbitration. It provides a mechanism for aggrieved investors covered by the agreement in question to remedy an alleged breach of the agreement’s terms by a signatory state. The investor court provides an alternate system to national courts in remedying the breach by being able to make an award of damages against the state in question.

ISDS has been one of the most politically controversial aspects of free trade since it emerged. While they are not new, opposition to them has heightened since their inclusion in large multilateral and bilateral trade agreements in recent decades. This has generally been on the grounds that they constrain the ability of states to enact regulations that could financially hurt multinational corporations. It isn’t difficult to see how the threat of a hefty fine worth billions could dissuade politicians from enacting robust climate action policies, for example – as was seen in RWE’s €1.4 billion suit against the Netherlands over the state’s coal phase-out. It was this fear that motivated Patrick Costello to take this legal action against CETA, arguing that the ability of the Irish state to enact legislation would be curtailed if these investor courts were established.

Although CETA’s signatories attempted to allay these fears, the Supreme Court’s decision still stands. The consequences of the Costello decision for trade agreements is that Ireland is not constitutionally capable of ratifying a treaty that includes investor courts which have the final appeal on rules which have domestic legal effect. Such an arrangement would be, according to the Court, a derogation of the power of Ireland’s domestic judiciary. What this means for the EU generally is that full ratification of trade agreements which include ISDS will likely incur significant delays if Ireland is included.

“Constitutional Identity”

While the Supreme Court did hold that ratification of CETA would be unconstitutional as things stand, they did point out that the kernel of this unconstitutionality lay in domestic Irish law, not in the agreement itself. This is because the virtually automatic enforcement of a CETA tribunal award of damages would be due to the domestic Arbitration Act 2010. Therefore, it is suggested by Judge Gerard Hogan, a change to this Act that gave the final say on enforcement to the Irish High Court would restore juridical sovereignty to the Irish judiciary, allowing for ratification. The Supreme Court thus opened the door for CETA to be ratified without the need for a referendum. Hogan J’s proposal is that the 2010 Act could be changed to give the High Court the power to refuse enforcement of an award of damages if such an award 1) violated our “constitutional identity” or 2) violated our duty to give effect to EU law.

The phrase “constitutional identity” is novel in the Irish context but is more and more common across the EU. Article 4(2) of the Treaty on European Union guarantees to respect the “national identities […] political and constitutional” of member states. Among national apex courts, the concept has been used as a tool to challenge the automatic primacy of EU law. The German Constitutional Court (Bundesverfassungsgericht – ‘BVerfG’) has employed it extensively, especially since its Lisbon decision of 2009, locating Germany’s constitutional identity in those parts of the Constitution which are unamendable. Other countries have employed the ‘identity clause’ in more overtly political ways – including Poland, Hungary, and Latvia.

How it is used in the future by Irish courts remains to be seen. Oran Doyle has suggested that Irish courts may wish to use the concept in order to engage in dialogue with the CJEU on the limits of EU law primacy, akin to the BVerfG. If this is the case, it will likely incur the same level of condemnation that this approach has garnered in other countries. Academic commentators like Federico Fabbrini and R Daniel Keleman have raised concerns about the approach taken by the BVerfG and other courts in using the identity concept as a means of ‘nullifying’ parts of EU law that courts find objectionable – essentially allowing national courts to pick and choose which parts of EU law to enforce.

While the Costello case will undoubtedly occupy an important place in Irish constitutional law, its effect on the future of European integration may well turn out to be its lasting impact.

 

Seán Rainford is a PhD candidate at DCU and a graduate of the University of Galway. His research focuses on constitutional amendment powers and constitutional and political theory.

The views expressed in this blog reflect the position of the author and not necessarily that of the Brexit Institute Blog.