Art. 1 (3), 10, 25, 26 ECT, Art. 30, 31., 41. YCLT, Art. 267, 351 TFEU, Art. 190(2) PILA
Swiss Supreme Court, Decision of 3 April 2024, Spain u. EDF,4A_244/2023
I. Case Background
ln 2007, Spain implemented various regulatory measures to incentivize foreign investment in renewable energy. Beginning in 2010, Spain retracted features of the relevant regulations.
In 2016, French company EDF, which had invested in a Spanish renewable energy project, brought a claim against Spain under the Energy Charter Treaty ("ECT"). The arbitral tribunal was seated in Switzerland.
Spain raised several jurisdictional objections, including that, under EU law, a claim brought by an investor of one EU member state against another EU member state under the ECT cannot be determined by arbitration (the "infra-EU objection"). Spain's intra-EU objection was based on the 2018 Achmea and 2021 Komstroy judgements of the European Court of Justice ("ECJ"), which found that intra-EU investment arbitration based on bilateral investment treaties and the ECT, respectively, conflict with EU law.1
In April 2023, the arbitral tribunal issued its final award (the "Award"), unanimously upholding jurisdiction and finding, by a majority, that Spain was liable for breaching the ECT.
Spain challenged the Award before the Swiss Federal Supreme Court (the "Supreme Court") on four distinct grounds. In its judgment dated 3 April 2024, the Supreme Court dismissed all four grounds for annulment raised by Spain.
II. The Swiss Supreme Court Judgment
The present case commentary focuses only on the two grounds related to the intra-EU objection, namely Spain's alleged lack of consent to arbitrate intra-EU ECT disputes and the inarbitrability of the dispute.2
1. On the Alleged Lack of Consent to Arbitrate lntra-EU ECT Disputes
The Supreme Court rejected all of Spain's arguments that its unconditional consent to arbitrate given in Article 26 ECT does not apply to intra-EU disputes and, in the alternative, that EU law takes precedence over the ECT.
a) Komstroy is lrrelevant
The Supreme Court commenced its analysis by observing that the EU had been conducting a "crusade"3 against intraEU investment arbitration for many years. It stated that was "not conuinced by the reasoning adopted by the ECJ in tbe Komstroy judgment, as it is based primarily, if not exclwsiuely, on the requirement to preserue the autonomy and specific nature of EU law, withowt in any way considering international law or the rules on treaty interpretation."4 This was why those decisions had been heavily criticized by legal commentators.5
While according to the ECJ, an arbitral seat in an EU member state entails the application of EU law and an obligation of the courts of the seat to ensure compliance with EU law, the Supreme Court held that no such obligation arises for courts of non-EU member states such as Switzerland. For them, EU law is res inter alios acta, meaning that a Swiss court considering the jurisdiction of a Swiss-seated arbitral tribunal is not bound by ECJ judgments such as Komstroy.6
Although in matters where there is a controversy as to the interpretation of foreign law, the Supreme Court usually follows the opinion of the highest court of the jurisdiction that enacted the relevant law, which is best placed to determine its scope and meaning, the Supreme Court found that this did not make sense where the question was to determine whether rules adopted by a community of states (such as the EU) prevailed over an international treaty (like the ECT). In the Supreme Court's view, the court put in place by the community of states may be tempted to affirm the primacy of its own laws over the international treaty and render a decision that is more akin to a "pleading pro domo"7 (pleading its own case), as had happened in Komstroy.8
Therefore, the Supreme Court held that it would not give any specific weight to Komstroy and would instead conduct its own analysis of Article 26 ECT, applying the relevant rules on treaty interpretation, to determine (i) whether intraEU disputes fall within its scope and (ii) if so, whether EU Iaw could invalidate Spain's consent to arbitrate given in Lrticle 26.
b) Intra-EU Disputes Are Within the Scope of Article 26 ECT
Following a thorough analysis of several ECT provisions, as well as of contemporaneous and subsequent instruments, and applying the rules on treaty interpretation of Article 31 of the Vienna Convention on the Law of Treaties ("VCLT"), the Supreme Court concluded that there were no grounds on which it could be said that Spain's unconditional consent to arbitrate, given in Article 26 ECT, did not include intra-EU disputes.9
The Supreme Court found that, il the unconditional consent had been intended to apply only to "extra-EU" disputes, this could and should have been expressed in the ECT by way of a disconnection clause - all the more so that, before it signed the ECT, the EU had inserted such clauses in other multilateral treaties, allowing its member states to disapply certain treaty provisions in their relations with each other.10 The Court considered the fact that the EU had unsuccessfully attempted to include a disconnection clause in the ECT to be a further reason why intra-EU disputes were within the scope of Arti cle 26.11
In rejecting Spain's arguments, the Supreme Court held, among other things, that:
- Articles 1(3), 10 and 25 ECT, read together, does not imply that, for the competences transferred to the EU, the EU member states are no longer bound by the ECT in their relations with each other.12
- The European Communities ("EC")'s Declaration of 17 November 1.997 pursuant to Article 26(3)(b)(ii) ECT (the "1997 Declaration"), which provides that the EC "have not giuen their unconditional consent to tbe submission of a dispute to international arbitration," is limited in effect to the ECT's fork-in-the-road clause (ArticIe 26(3) (bXi)) and applied only to the EU itself, not to its member states. Further, it draws no distinction between intra-EU disputes under the ECT and those brought by an investor from a non-member state. On the contrary, the 1,997 Declaration expressly mentions the possibility of referring disputes to arbitration without excluding intra-EU disputes.13
- The Declaration adopted by 22 EU member states in January 201"9, recognizing the legal consequences of Achmea and declaring that, as a result of Achmea, intra-EU disputes under the ECT were incompatible with EU law and that Article 26 ECT should be disapplied in intra-EU disputes (the "2019 Declaration"), cannot qualify as a subsequent agreement or practice "of the parties," within the meaning of Article 31(3) of the VCLT, as it was adopted by only 22 EU member states, as opposed to by all ECT contracting parties. Further, the purpose of the 2019 Declaration was not to interpret the ECT, but rather to specify the legal consequences of Achmea.It is a political declaration of intent, made to give a new meaning to the unconditional consent to arbitrate provided in the ECT going forward and it does not mean that the signatory member states had not initially given their consent to arbitrate intra-EU disputes. Even if it were wrong on that, the Supreme Court held that the 201"9 Declaration could not retroactively deprive an investor of the right to pursue an arbitration commenced three years earlier.14
c) EU Law Does Not Prevail Overthe ECT
Next, the Supreme Court examined whether EU law could invalidate Spain's consent to arbitrate. Although the Supreme Court held Spain's arguments on Article 30 and 41 VCLT inadmissible because they were raised in its reply brief instead of its motion to set aside, the Court nevertheless analyzed them in detail.
Considering the Lisbon Treaty as well as Articles 267 and 344 of the Treaty of the Functioning of the European Union (the "TFEU") (which were the cornerstones of the ECJ's reasoning in Achmea),15 the Supreme Court concluded that, contrary to Spain's assertion (and the ECJ's reasoning in Komstroy),16 there was no conflict between Article 26 ECT and EU law.17
In particular, the Supreme Court found that:
- If the Lisbon Treaty gives the EU exclusive competence on direct foreign investments, this does not mean that the provisions contained in earlier multilateral treaties were automatically rendered contrary to EU law.18
- If Article 267 TFEU grants jurisdiction to the ECJ to give preliminary rulings on the validity and interpretation on the acts of the EU institutions (which include the ECT), it does not provide that such jurisdiction is exclusive.19
- Since Article 344 TFEU provides that EU member states undertake not to submit a dispute concerning "the interpretation or application of the Treaties to any method of settlement other than those prouided therein", this provision (i) is addressed to member states and not their citizens; (ii) it does not prevent that member states are sued before other tribunals and (iii) it does not cover the ECT as the term "Treaties" is a defined term referring (exclusively) to the TFEU and the Treaty on European Union.20
Therefore, there is no conflict between Article 26 ECT and EU law. The Supreme Court went on to state that, even if Article 26 ECT was incompatible with EU law, there were no grounds to consider, under public international law, that EU law should prevail over the ECT.21
The Supreme Court found inter alia that:
- It is doubtful that Article 31(3Xc) VCLT, which requires to consider, when interpreting a treaty, "any relevant rules of international law applicable in the relations between the parties,"22 includes rules of international law applicable only between certain, but not all, of the parties. In any event, it does not result from Article 31(3Xc) VCLT that rules of international law adopted by certain parties to the ECT should prevail over the ECT. A multilateral treaty must be interpreted in the same manner for all contracting parties. It would be contrary to legal certainty to interpret a multilateral treaty in a different manner depending on the other agreements entered into by certain of its contracting parties.23
- The conditions for the application of Article 30 VCLT (on the application of successive treaties relating to the same subject matter) were not met because (i) the ECT and the TFEU do not relate to the "same subject matter" within the meaning of Article 30 VCLT; (ä) Articles 267 and 344 TFEU already existed with a different numbering in previous EU treaties and thus cannot be considered lex posterior to the ECT; (iii) neither the TFEU nor the ECT provide which shall prevail over the other, so that it is not possible to consider the TFEU as hierarchically superior to the ECT, and (iv) the ECT in any event contains a provision dealing specifically with the relation between the treaty and other international agreements, namely Article 1,6 ECT, which provides that no other international agreement shall be construed as derogating from, among other things, Article 26 ECT, unless the terms of that other agreement are more favorable to the investor.24
- The conditions for the application of Article 41 VCLT on agreements to modify multilateral treaties between certain parties only were not met since (i) the ECT does not provide for the possibility to modify the treaty only between certain contraöting states and (ii) in any event, any modification of Article 26 is prohibited by Article 16 ECT.25
Therefore, the Supreme Court found that Spain's unconditional consent to arbitration given in Article 26 ECT was applicable and it upheld the tribunal's jurisdiction.
To view the full article click here
Footnotes
1 ECJ, Judgment oI6 March201.8, Achmea, C-28411.6, EU: C:2018:158; ECJ, Judgment of 2 September 2021., Komstroy, C-741119, EU: C:2021,:655.
2 The other two grounds for annulment were based (i) on the alleged failure of the arbitral tribunal to deliberate on the Green Power u. Spain award (SCC case No. V2016/135), which is the only known instance of an arbitral tribunal accepting the intra-EU objection, and (ii) on the presiding arbitrator's alleged lack of impartiality because, on the intra-EU objection, the Award repeated uerbatim the reasoning of the tribunal in Triodos u. Spain (SCC case No. 20171194), which the president had also chaired and which, according to Spain, showed that the presiding arbitrator had already made up his mind on the intra-EU objection.
3 Swiss Supreme Court, Judgment of 3 April 2024, Spain u. EDF, 4A_24412023, para. 7 .6.5.
4 Id.,para.7.8.2.
5 Id.,para.7.6.5, referring to an array of leading commentators
6 Id.,para.7.6.5.
7 Id.,para.7.6.5.
8 Id.,para.7.6.5.
9 Id.,para.7.7.
10 Id.,para.7.7.2.
11 Id.,para.7.7.6.
12 Id.,para.7.7.2.
13 Id.,para.7.7.4.
14 Id.,para.7.7.5.
15 ECJ, Judgment of 6 March 201.8, Achmea, C-28411.5,EU: C:201 8:158, paras. 3 1-60.
16 ECJ, Judgment of 2 September 2021., Komstroy, C-741./1.9, EU: C:2021,:65 5, paras. 42-65.
17 Swiss Supreme Court, Judgment of 3 April 2024, Spain u. EDF, 4A_24412023, para. 7 .8.2.
18 Id.,para.7.8.2.
19 Id.,para.7.8.2.
20 Id.,para.7.8.2.
21 Id.,para.7.8.3.
22 Art.31(3)(c) VCLT.
23 Id., para. 7.8.3.1.
24 Id.,para.7.8.3.2.
25 Id.,para.7.8.3.3.
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.