The COVID-19 lockdown has not dented the European Union's ambitions to put an end to intra-EU bilateral investment treaties ("IntraEU BITs"). Following their Declaration of 15 January 2019, the majority of the Member States of the European Union agreed on 5 May 2020 to terminate the 124 bilateral investment treaties that exist between them and render their arbitration clauses of no effect (the "Termination Agreement"). The Termination Agreement will take effect upon the completion of the ratification process, which is currently underway.
The Declaration, and now the Termination Agreement, "implement" the ECJ's 6 March 2018 decision, which was not without controversy, in Slovak Republic v. Achmea B.V. (CJEU Case C-284/16). There, the ECJ determined that arbitration provisions in Intra-EU BITs are inconsistent with EU law as they deprive EU courts of jurisdiction to issue binding determinations of EU law when these arise in arbitration proceedings between investors and EU Member States.
The Termination Agreement adds a further layer of controversy by preventing investors from relying on international law obligations assumed by host states which were in effect at the time of making their investments. It does this, firstly, by providing that in the case of arbitral proceedings either initiated, or awaiting an award, after the date of the Achmea judgment, the EU Member States party to the Intra-EU BIT in question must "inform [the relevant] arbitral tribunals about the legal consequence of the Achmea judgment". They, together with the other signatory Member States, must also require their local courts to refrain from recognising or enforcing awards issued in such proceedings. Secondly, Article 3 of the Termination Agreement renders socalled "sunset clauses" in terminated Intra-EU BITs of no "legal effect". In other words, even where an Intra-EU BIT expressly permits investors to bring claims within a certain period following its termination – so long as the investment itself was made during the term of the BIT – the Termination Agreement renders this obligation of no effect.
Cancelling an investor's rights in this way undoubtedly has a substantial impact on the legitimate expectation it had when it made its investment that it would benefit both from the substantive protections accorded to it by any Intra-EU BIT, as well as the procedural protection of access to arbitration of disputes by a neutral tribunal in the event of a dispute arising with the host state. International law does not take the retroactive deletion of such obligations lightly. Article 28 of the Vienna Convention on the Law of Treaties articulates the customary rule of non-retroactivity, providing that: "Unless a different intention appears from the treaty or is otherwise established, its provisions do not bind a party in relation to any act or fact which took place or any situation which ceased to exist before the date of the entry into force of the treaty with respect to that party". Further, Article 30 states that in the case of any inconsistency between the two treaties, "the earlier treaty applies only to the extent that its provisions are compatible with those of the later treaty"
It may come as a surprise that the Termination Agreement's Member State signatories have elected to adopt such an extreme position by their newest treaty, but based on the express language of the Termination Agreement there should be no doubt that such was their intention. For better or worse, the Termination Agreement has teeth and is intended to bite - hard.
Of course recognition and enforcement can take place outside the Member State signatories' jurisdictions. It therefore remains to be seen whether arbitral tribunals will agree with the ECJ's reasoning and logic in the Achmea judgment or depart from it; and whether non-contracting state courts around the world will take heed of the Termination Agreement in any way when it comes to the recognition and enforcement of any awards issued in "New Arbitration Proceedings" absent any legal obligation requiring them to do so
Originally published 05 August, 2020
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