On March 6, 2018, the Court of Justice of the European Union
(CJEU) published its preliminary ruling in Slovak Republic v.
Achmea BV (the Ruling), which held that the application of the
investor-state dispute settlement (ISDS) provisions under Article 8
of the Netherlands-Slovakia bilateral investment treaty (BIT) was
incompatible with EU law.
This alert is the third in our series of updates on the Ruling.
Our previous two alerts can be found here:
In a rare move the European Commission issued a communication to
the European Parliament and Council on the "protection of
intra-EU investments" on July 19, 2018 (the
Communication).1
With reference to the Ruling, the Communication notes that the
CJEU has "confirmed that investor-State arbitration clauses in
intra-EU BITs are unlawful." This finding is stated to be
consistent with the CJEU's view that "intra-EU BITs are
incompatible with Union law" for the following reasons:
(i) The application of BITs between
EU member states has created a parallel treaty system overlapping
with single market rules and thereby preventing the full
application of EU law (i.e., contrary to article 344 of the Treaty
on the Functioning of the European Union (TFEU), which provides for
the exclusivity of the jurisdiction of the CJEU in disputes
concerning the interpretation or application of EU treaties).
(ii) Intra-EU BITs confer rights only
in respect of investors from one of the two member states
concerned, in conflict with the principle of non-discrimination
among EU investors within the single market under EU law (i.e.,
contrary to the anti-discriminatory provisions under article 18.1.
TFEU).
(iii) Intra-EU BITs "take away
from the national judiciary" litigation concerning national
measures and involving EU law, and entrust this litigation to
private arbitrators who cannot properly apply EU law and,
importantly, cannot refer questions of EU law to the CJEU for a
preliminary ruling pursuant to article 267 TFEU, which is said to
be the "keystone" of the EU judicial system.
In many respects, the Communication goes much further than the
Ruling and provides answers to at least some of the questions
previously left open by the Ruling:
Arbitrations under the Energy Charter Treaty (the
ECT): The Ruling had failed to address the question of
whether intra-EU arbitrations under the ECT were permissible as a
matter of EU law – many commentators considered such
arbitrations did not fall foul of the Ruling, on the basis that the
EU was itself a party to the ECT. In stark (and surprising)
contrast, the Communication confirms that article 26 of the ECT
"if interpreted correctly," does not provide for an
investor-State arbitration clause applicable between investors from
one EU member state and another, and further that "[t]he fact
that the EU is also a party to the Energy Charter Treaty does not
affect this conclusion: the participation of the EU in that Treaty
has only created rights and obligations between the EU and third
countries and has not affected the relations between the EU Member
States."
Ad hoc arbitrations under intra-EU BITs seated within
and outside of the EU: In the Ruling, the CJEU reasoned
that the specific wording of article 8 of the Netherlands-Slovakia
BIT, which provides that the arbitration tribunal must take into
account the law in force of the contracting party (here, Slovak
law) and other relevant agreements between the contracting parties
(to include EU treaties), means that the tribunal may be called on
to interpret or apply EU law. It was accordingly thought that the
Ruling might be specific to the Netherlands-Slovakia BIT or to
other intra-EU BITs that contain similar references to EU treaties.
However, the Communication states that, absent recourse to the
preliminary ruling procedure under article 267 TFEU, "all
investor-State arbitration clauses in intra-EU BITs are
inapplicable and that any arbitration tribunal established on the
basis of such clauses lacks jurisdiction due to the absence of a
valid arbitration agreement."
It follows that it is likely that tribunals in ad hoc
arbitrations seated within the EU will no longer have jurisdiction
to hear disputes arising under intra-EU BITs. This also leaves the
door open for challenges to jurisdiction of tribunals appointed to
hear such disputes and seated outside of the EU, but the CJEU has
no jurisdiction over proceedings conducted outside of its
borders.
Enforcement of arbitral awards under intra-EU
BITs: The Ruling raised questions as to the validity and
therefore enforceability of previous awards rendered under intra-EU
BITs. In this regard, the Communication states that "national
courts are under the obligation to annul any arbitral award
rendered on that basis and to refuse to enforce it." Of
course, the European Commission does not have the power to enforce
this "obligation" on national courts outside of EU member
states.
The Communication concludes with the explicit statement
that:
"EU investors cannot invoke intra-EU BITs, which are
incompatible with Union law and no longer necessary in the single
market. They cannot have recourse to arbitration tribunals
established by such intra-EU BITs or, for intra-EU litigation, to
arbitration tribunals established under the Energy Charter
Treaty."
The Communication advances the argument that EU law is itself
sufficient to "protect ... all EU cross-border investments
throughout their lifecycle." However, both the substantive
protections and the remedies available to EU investors are confined
to those that are available under EU law. It follows that many of
the protections typically provided for in investment treaties are
not covered. For example, the most commonly invoked protection
under investment treaties, fair and equitable treatment, is not
replicated in EU law.
At the same time, there is no uniform standard approach by
domestic courts toward investment protection, as is recognized by
the EU in the proposal to introduce an EU investment court.
ICSID arbitrations under intra-EU BITs
As previously noted, the International
Centre for Settlement of Investment Dispute (ICSID) is an
independent dispute settlement institution governed by the
Washington Convention of 1965 (the ICSID Convention). ICSID
tribunals derive jurisdiction under the ICSID Convention and ICSID
arbitrations are seated in Washington, D.C. Contracting states are
obliged to disapply their domestic arbitration legislation and it
follows that the Ruling (and any subsequent EU directives) will not
by default bind an ICSID tribunal.
It will be open to investors to challenge the jurisdiction of an
ICSID tribunal to hear disputes arising under intra-EU BITs in
reliance on the Ruling; however, any decision in this regard will
be decided by the tribunal. The CJEU technically has no authority
over ICSID arbitrations, even if they are intra-EU, because the
seat will always be Washington, D.C. and the tribunal takes its
jurisdiction from the relevant BIT and the ICSID Convention, not
from the EU or any domestic law. If an intra-EU BIT has not been
terminated by the EU member state parties, there is an argument
that it remains a valid instrument on which investors can rely and
from which a tribunal derives jurisdiction to determine disputes
under it. An EU member state respondent would be forced to argue
that there was no valid submission to arbitration on the basis
that, as a matter of EU law, the BIT is invalid and therefore the
standing offer to arbitrate contained within it is ineffective.
In our last client alert, we reported that the position in
respect of ICSID arbitrations remained unclear, but clarification
may come from pending ICSID cases under intra-EU BITs, including
Addiko Bank AG and Addiko Bank d.d. v. Republic of Croatia (ICSID
Case No. ARB/17/37) and the annulment proceedings underway in Dan
Cake (Portugal) S.A. v. Hungary (ICSID Case No. ARB/12/9).
In this regard, and since our last client alert, the award in
Marfin Investment Group v. The Republic of Cyprus (ICSID Case No.
ARB/13/27) under the Cyprus-Greece BIT was rendered on July 26,
2018. The award was not made public, but the authors understand
that the tribunal dismissed Cyprus' jurisdictional objections
made in reliance on the Ruling. The award may be the first ICSID
award to consider intra-EU BIT objections since the Ruling, and may
provide an indication of how ICSID tribunals will view the Ruling
and its applicability to ICSID arbitration.
Other developments
Since our last client alert, it has been reported that Airbus
has withdrawn its claim against Poland over a canceled US$3.5
billion helicopter deal under an intra-EU BIT, allegedly pointing
to the Ruling as the basis for the withdrawal.2
In other news, the Svea Court of Appeal has granted both
Spain's application for a stay of enforcement of an award
rendered under the ECT in Novenergia v. Spain (SCC Case No.
063/2015) as well as Poland's application for a stay of
enforcement of an award under the BLEU-Poland BIT in PL Holdings
S.a.r.l. v. Poland (SCC Case No. 2014/163). The Ruling was cited by
both Spain and Poland in their applications for a stay of
enforcement.
Spain will no doubt welcome the Communication's
clarification of the position as regards the ECT, not least because
the overwhelming majority of the solar energy cases brought against
Spain are pursued under the ECT.
Meanwhile, the enforcement proceedings arising out of the award
in Ioan Micula, Viorel Micula, S.C. European Food S.A, S.C.
Starmill S.R.L. and S.C. Multipack S.R.L. v. Romania (ICSID Case
No. ARB/05/20) are ongoing in a number of jurisdictions, including
Washington, D.C., England and Wales, Romania and Sweden.
About Reed Smith's investment treaty arbitration team
Reed Smith's investment treaty arbitration team advises
investor and state clients on pre- and post-contract investment
strategy and on disputes that arise under bilateral and
multilateral investment treaties.
- ec.europa.eu
- prokuratoria.gov.pl
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