ARTICLE
14 November 2024

Stockholm Chamber Of Commerce Amends Policy On Seat Selection In Intra-EU Arbitrations To Help Ensure Enforceability Of Awards

On November 5, 2024, the Stockholm Chamber of Commerce Arbitration Institute ("SCC") announced an important change to its policy regarding seat selection...
European Union Litigation, Mediation & Arbitration

On November 5, 2024, the Stockholm Chamber of Commerce Arbitration Institute ("SCC") announced an important change to its policy regarding seat selection "to make every effort to ensure an arbitral award rendered under the SCC Rules is legally enforceable."1 Unless the parties agree otherwise, "[i]n investment treaty arbitrations between parties based in the [European Union ("EU")], and/or a state that is a candidate or potential candidate for EU membership, the Board will not decide that Stockholm, or any other city, or any other judicial district within the EU, or within a state that is a candidate or potential candidate for EU membership, shall be the seat of arbitration."2

Instead, the SCC Board will seat the arbitrations outside the EU, and outside states that are candidates or potential candidates for EU membership.3 Previously, the SCC Board tended to select Stockholm as the seat of arbitration in disputes where the parties had not agreed to an alternative location, including in intra-EU investment treaty disputes.4

Background

The SCC's move comes in response to a long-term mission by the European Commission ("EC") to end intra-EU investment treaty arbitration, defined as arbitrations between an investor of one EU Member State, against another Member State. For many years, the EC has argued that arbitral tribunals under investment treaties including the Energy Charter Treaty ("ECT") and various bilateral investment treaties ("BITs") applicable between EU Member States deprive EU courts of their jurisdiction and, thus, are inconsistent with EU law. To ensure the uniform application of EU law to EU investors within the Union, the EC has argued that intra-EU investment treaty arbitration must be ended.

As part of its campaign, the EU (and respondent Member States) have alleged that EU law provides investors with greater procedural and substantive protections than those available under investment treaties. Foreign investors have disagreed with the EU's position on this matter, as demonstrated by the substantial increase in the number of EU investors bringing investment treaty claims against other EU Member States over the past ten years, rather than bringing those claims in EU courts. Most of these disputes involved investments in the renewable energy sector, after Member States including, for example, Spain and Italy drastically altered (and in some cases entirely abrogated) the financial incentives they had guaranteed to investors to encourage them to invest in and thereby develop the local renewable energy markets in those countries.

In virtually every intra-EU arbitration, tribunals unanimously have rejected the EC's and respondent states' arguments that the tribunals did not have jurisdiction over the disputes on the basis that they were intra-EU. They reasoned that the investment treaties at issue unambiguously provided for jurisdiction over such cases, and found no basis for the argument that EU law prevailed over other international investment treaties and general international law.

While unsuccessful before the vast majority of arbitral tribunals, the EC has had more success before the European Court of Justice ("ECJ"). In 2018, the ECJ issued a judgment in Slovakia v. Achmea, which held that the BIT at issue in that dispute was contrary to EU law. The decision was based on specific language contained in the Netherlands-Slovakia BIT not found in many investment treaties, and was widely criticized for its questionable analysis. Nevertheless, the EC quickly moved to argue that the decision stood for the principle that intra-EU arbitration under any BIT was not permitted. Over the following years, most EU Member States moved to terminate their intra-EU BITs.

The next major development occurred in 2021, when the ECJ issued its decision in Moldova v. Komstroy. Despite not involving an EU party—the investor was Ukrainian—and containing dubious legal reasoning, the court stated that EU law did not permit intra-EU arbitration under the ECT. After initially attempting to renegotiate the treaty to, among other things, limit its applicability within the EU, in May 2024, the EU decided to withdraw from the treaty. Several Member States also withdrew in the months before and since.5

Notwithstanding efforts to terminate investors' rights with immediate effect, in most cases, the sunset clauses in those treaties should ensure investors' rights to pursue claims relating to investments already made during a certain period of time. For example, the ECT provides investors 20 years to pursue its claim after a contracting state withdraws from the treaty. Withdrawal under the ECT is effective one year from the date that the state submits its withdrawal notification (meaning that investors effectively have 21 years from the date of notification to bring any claims).

Notwithstanding the protection the sunset clauses provide to investors, the ECJ's decisions in Achmea and Komstroy have thrown into doubt investors' ability to defend arbitral awards issued in intra-EU disputes seated in the EU against vacatur motions by respondent states. In 2022, an SCC arbitral tribunal was the first to embrace the EU's position, finding that it did not have jurisdiction over claims brought by EU investors.6 Although that case remains an outlier, more recently the Svea Court of Appeal in Stockholm has begun vacating intra-EU arbitral awards, including in at least two cases involving arbitral awards against Italy and one involving an arbitral award against Spain.7 Whether these vacated awards nonetheless can be enforced outside the EU remains to be seen.

Implications of the SCC's Policy Change

The ECT and some other investment treaties allow investors to select the SCC as the administering institution, but do not select a seat of arbitration in such cases. For that reason, how the SCC resolves the issue is particularly important for investors. The SCC's decision to seat intra-EU arbitrations outside the EU absent party agreement to the contrary should prove a boon to investors seeking to exercise their legal rights in the future under these treaties.

The Federal Supreme Court of Switzerland, for example, has upheld intra-EU arbitral awards, rejecting in strong terms the reasoning of the ECJ and arguments of the EC and respondent Member States. Recently, the Swiss court found the ECJ had reached the wrong conclusion in Komstroy based on an erroneous reading of the ECT. And jurisdictions like the United States, United Kingdom, and Australia have proven willing to consider the enforceability of intra-EU awards, although most if not all of those matters remain pending. Safely outside the jurisdiction of the EU courts, those venues also may prove to be attractive seats in future intra-EU disputes administered by the SCC.

By strengthening the enforceability of SCC awards, the SCC also should be able to better compete with the World Bank's International Centre for Settlement of Investment Disputes ("ICSID") for intra-EU investment treaty disputes. Although formally located in Washington, D.C., and with a hearing facility in Paris, ICSID disputes do not have a seat of arbitration. Challenges to ICSID awards must be brought before an ICSID annulment committee and cannot be submitted to any court. ICSID awards also are automatically enforceable, further streamlining the enforcement process (particularly after an ICSID annulment panel has rejected any challenge to the award).

While it remains to be seen whether the SCC's decision to seat intra-EU arbitrations outside the EU will steer investors with intra-EU disputes back to the organization, at the very least, the SCC's new policy should help to ensure that future SCC awards are removed from jeopardy simply by virtue of having been seated in the EU.

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Notwithstanding this positive development, the ability of investors to vindicate their legal rights under intra-EU investment treaties is anything but certain. Tribunals in at least three cases have dismissed investors' ECT claims after determining that they did not have jurisdiction over the intra-EU disputes.8 Surprisingly, this included two ICSID tribunals.9

In light of the constantly developing legal terrain, EU investors with potential claims against EU Member States (including investors from outside the EU with investment vehicles based in the Union) should proceed carefully when deciding how to best ensure their legal rights will be protected in any investment treaty arbitration.

And just as importantly, investors in the planning stages of the investment process should carefully consider how to structure their investments to best ensure that their legal rights will be protected when investing in EU countries.

Footnotes

1.SCC Introduces New Policy on Deciding the Seat of Arbitration in Intra-EU Investment Treaty Disputes, SCC Arbitration Institute, Nov. 5, 2024; SCC Policy – Deciding the Seat in Intra-EU Investment Arbitrations Administered under the SCC Rules, SCC Arbitration Institute, adopted by the SCC Board on Oct. 16, 2024.

2. SCC Policy – Deciding the Seat in Intra-EU Investment Arbitrations Administered under the SCC Rules, SCC Arbitration Institute, adopted by the SCC Board on Oct. 16, 2024.

3. Nine states currently have EU candidate status: Albania, Bosnia and Herzegovina, Georgia, Moldova, Montenegro, North Macedonia, Serbia, Turkey, and Ukraine. The EU considers Kosovo a potential candidate.

4. The SCC states that it had no previous policy in favor of selecting Stockholm as the default seat, but acknowledged that there was a perception among arbitration users that the SCC automatically would select Stockholm absent party agreement. The SCC also acknowledges that its board does not provide reasons for its seat selections, and that "up to now its board has 'generally' selected Stockholm as the seat for SCC cases except for in 'specific circumstances.'" See Toby Fisher, SCC Adopts New Policy on Seats in Intra-EU Treaty Disputes, Global Arbitration Review, Nov. 6, 2024 (quoting the SCC).

5. Italy withdrew from the ECT far earlier than the EU and other Member States, submitting its notice on December 31, 2014. Its withdrawal became effective on January 1, 2016, although the treaty's 20-year sunset clause continues to apply.

6. See Green Power K/S and Obton A/S v. Spain, SCC Case No. V 2016/135, Award, June 16, 2022.

7. See Spain v. Foresight Lux. Solar 1 S.à.r.l. et al., Svea Court of Appeal Case No. T 1626-19, June 28, 2024; Italy v. Athena Invs. A/S et al., Svea Court of Appeal Case No. T 3229-19, June 17, 2024; Italy v. CEF Energia B.V., Svea Court of Appeal Case No. T 4236-19, May 27, 2024.

8. European Solar Farms A/S v. Spain, ICSID Case No. ARB/18/45, Award, Oct. 11, 2024 (unanimous); Sapec, S.A. v. Spain, ICSID Case No. ARB/19/23, Award, Oct. 11, 2024 (by majority); Green Power Partners K/S and SCE Solar Don Benito APS v. Spain, SCC Arb. V 2016/135, Award, June 16, 2022 (by majority).

9. Both ICSID tribunals had the same president, and different co-arbitrators dissented in each case.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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