The Contents of the European Investment Law and Arbitration Review, Vol. 5 (2020)

Prof. Nikos Lavranos & Prof. Loukas Mistelis (Co-Editors in Chief)

We are very pleased and proud to present the fifth issue of the European Investment Law and Arbitration Review (EILA Rev) 2020.

As of 23 December 2020, all articles of this volume can be ordered online at Brill Publishers:

The stormy developments of the past years regarding international investment law and arbitration broadly understood, which to a large extent were driven by various EU institutions – European Commission, Court of Justice of the EU and the European Parliament – have confirmed the need for a legal journal such as this Review that exclusively tracks these developments and provides a forum for debate on the current state of affairs and future developments.

The Achmea judgment, the termination agreement regarding intra- EU BITs, CETA, Opinion 1/17, Brexit, the ISDS reform efforts in the UNCITRAL Working Group III and the ECT, are just a few of the topics that have been featured and continue to feature in a broad range of different contexts in this Review.

This issue opens with an article by Sarah Vasani and Nathalie Allen, which highlights the need of effective investment protection in order to ensure that the Paris Climate targets are reached by an increase in foreign direct investments in renewable energy. Often investment protection and environmental protection are presented as opposing, mutually exclusive interests; however, the authors convincingly argue that the contrary is true.

Elizabeth Chan’s article turns to Brexit and its potential for post- Brexit UK to design its foreign investment policy anew – independent from the EU.

Subsequently, Alexander Leventhal and Akshay Shreedhar analyze the practice of the European Commission intervening in arbitration proceedings by way of using amicus curiae briefs. They discuss the question whether, and if so, to what extent the European Commission can be considered a neutral friend of the tribunal or rather must be considered a third party with a particular interest – usually in support of the Member State concerned – which would have to be qualified as a potential abuse of the amicus curiae briefs tool.

Brady Gordon’s article provides a critical and sceptical analysis of the CJEU’s case law regarding CETA.

This is followed by David Sandberg and Jacob Rosell Svensson’s article regarding the implications of Achmea for national court challenge proceedings. They highlight the huge impact of Achmea for many on- going proceedings before domestic courts in various jurisdictions.

Samantha Rowe and Nelson Goh (former Managing Editor of this Review) explain how perceived norm conflicts regarding the January 2019 EU Member States Declarations on the consequences of the Achmea judgment can be resolved through principles of treaty interpretation.

Nikos Lavranos concludes this series of Achmea related articles by offering his analysis on the recently signed termination agreement, which would effectively terminate most intra-EU BITs.

As in the past years, we also run an Essay Competition, which resulted in many outstanding submissions. Indeed, this year the quality was so high that the Editorial Team decided to award, next to the first prize winner, two joint second prize winners rather than a second and third prize winner.

Crawford Jamieson is the first prize winner of the Essay Competition 2020 with his submission, which assesses the CJEU’s decisions in Achmea and Opinion 1/ 17 regarding CETA in light of the proposed Multilateral Investment Court (MIC). He shows that there are considerable flaws and inconsistencies in the CJEU’s jurisprudence, which can only be explained by political motivations in order to lend support to the MIC.

Joint second prize winner, Robert Bradshaw, illustrates with his submission that international investment law is in need of a proportionality test. The other joint second prize winners, Florence Humblet and Kabir Duggal, provide an extensive analysis for using Article 37 of the EU Charter as a defence for Climate Change and environmental measures in Investor-State arbitration disputes.

The case-note section is opened by Cees Verburg who analyses the Hague Court of Appeals’ decision, which overturned the lower courts’ decision to annul the USD 50 billion Yukos award. This decision reinstated the award, while at the same time triggered an appeal by the Russian Federation before the Dutch Supreme Court. Thus, there will be another, final, round.

Bianca McDonnell examined the Adamakopoulos v. Cyprus Decision on Jurisdiction by the ICSID arbitral tribunal. This decision is particularly interesting regarding the dissenting opinion of one arbitrator concerning the alleged incompatibility of the bit s and the EU Treaties as well as regarding the aspect of the mass claim nature of the proceeding.

Finally, Alesia Tsiabus and Guillaume Croisant discuss the lessons learned from the Micula saga for the relationship between international investment law and EU competition law.

The focus section on the Young ITA event on investment arbitration and the environment continues the theme, that was initiated by the first article in this Review. The focus section encompasses several written contributions of the presentations given at the Young ITA event held on 5 November 2019 in London.

This section is opened by an extensive analysis of Laura Rees-Evans in which she explains the recent developments and prospects of reform regarding the protection of the environment in international investment agreements.

Crina Baltag looks at the doctrine of police powers in relation to the protection of the environment, while Anna Bilanova explains the option of using environmental counterclaims. This is followed by a discussion of Guarav Sharma on environmental claims by States in investment treaty arbitration.

Finally, Nikos Lavranos, the other Co- Editor-in-Chief of this Review, looks at the (ab)use of third- party submissions in investment treaty arbitration proceedings.

The EFILA focus section contains a summary of the keynote delivered by Meg Kinnear at the 5th EFILA Annual Conference with a particular focus on using ADR tools in investment disputes.

This is followed by the text of the 5th EFILA Annual Lecture delivered by Prof. Laurence Boisson de Chazournes on navigating multiple proceedings in the light of the proliferation of courts and tribunals.

Finally, three book reviews wrap up this issue. Nikos Lavranos looks at the new Practical Commentary on the ICSID Convention, while Nelson Goh (former Managing Editor of this Review) reviews a Case Book on International Law in Domestic Courts and Trisha Mitra (Co- Managing Editor of this Review) examines the book on the future of Investment Treat Arbitration in the EU.

We are confident that this year’s 480 page volume underscores again the raison d’être for publishing this Review, which covers such a dynamic field of law.

In order to produce an interesting volume next year yet again, we invite unpublished, high-quality submissions (long and short articles as well as case notes) that fall within the scope of this Review.

The Call for Papers and the house style requirements are published on the Review’s website:

In addition, we will also again run an Essay Competition. All information regarding the 2021 Essay Competition will be published on the Review’s website:

Table of Contents of the European Investment Law and Arbitration Review 2020

Articles

1 No Green without More Green: The Importance of Protecting FDI through International Investment Law to Meet the Climate Change Challenge 3

Sarah Z. Vasani and Nathalie Allen

2 The UK’s Post- Brexit Investment Policy: An Opportunity for New Design Choices 40

Elizabeth Chan

3 The European Commission: Ami Fidèle or Faux Ami? 70

Alexander G. Leventhal and Akshay Shreedhar

4 A Sceptical Analysis of the Enforcement of ISDS Awards in the EU Following the Decision of the CJEU on CETA 92

Brady Gordon

5 Achmea and the Implications for Challenge Proceedings before National Courts 146

David Sandberg and Jacob Rosell Svensson

6 Resolving Perceived Norm Conflict through Principles of Treaty Interpretation: The January 2019 EU Member State’s Declarations 167

Samantha J. Rowe and Nelson Goh

7 The World after the Termination of intra-EU BITs 196

Nikos Lavranos

Essay Competition 2020

8 Assessing the CJEU’s Decisions in Achmea and Opinion 1/ 17 in Light of the Proposed Multilateral Investment Court – Winner of the Essay Competition 2020 215

Crawford Jamieson

9 Legal Stability and Legitimate Expectations: Does International Investment Law Need a Sense of Proportion? – Joint 2nd Prize Winner of the Essay Competition 2020 240

Robert Bradshaw

10 If You are not Part of the Solution, You are the Problem: Article 37 of the EU Charter as a Defence for Climate Change and Environmental Measures in Investor- State Arbitrations – Joint 2nd Prize Winner Essay Competition 2020 265

Florence Humblet and Kabir Duggal

Case- Notes

11 The Hague Court of Appeal Reinstates the Yukos Awards 299

Cees Verburg

12 Theodoros Adamakopoulos and Others v. Republic of Cyprus, ICSID Case No Arb/15/49, Decision on Jurisdiction, 7 February 2020 315

Bianca McDonnell

13 Investment Arbitration and EU (Competition) Law – Lessons Learned from the Micula Saga

Alesia Tsiabus and Guillaume Croisant 330

Focus section on the Young ITA Event: Investment Arbitration and the Environment – Emerging Themes

14 The Protection of the Environment in International Investment Agreements – Recent Developments and Prospects for Reform 357

Laura Rees- Evans

15 Investment Arbitration and Police Powers: Emerging Issues 392

Crina Baltag

16 Environmental Counterclaims in Investment Arbitration 400

Anna Bilanová

17 Environmental Claims by States in Investment Treaty Arbitration 412

Gaurav Sharma

18 The (ab)use of Third- Party Submissions 426

Nikos Lavranos

Focus Section on EFILA

19 ADR in Investment Disputes: The Role of Complementary Mechanisms – Keynote to the 5th EFILA Annual Conference 2020 439

Meg Kinnear

20 The Proliferation of Courts and Tribunals: Navigating Multiple Proceedings – 5th EFILA Annual Lecture 2019 447

Laurence Boisson de Chazournes

Book Reviews

21 The ICSID Convention, Regulations and Rules – A practical Commentary 471

Nikos Lavranos

22 International Law in Domestic Courts: A Case Book 473

Nelson Goh

23 The Future of Investment Treaty Arbitration in the EU: intra-EU BITs, the Energy Charter Treaty, and the Multilateral Investment Court 475

Trisha Mitra

Taking Investors’ Rights Seriously: The Achmea and CETA Rulings of the European Court of Justice do Not Bar Intra-EU Investment Arbitration

Prof. Dr. Alexander Reuter *

The ECJ’s Achmea and CETA rulings [1]; as well as the entire debate conducted on the issue so far, disregard one legal factor, that is, the binding legal effect of investors’ rights under investment treaties. That factor is, however, at the heart of the matter and decisive. Under EU procedural law that factor can be raised at any time as a “fresh issue of law”. Thus, the Achmea and CETA rulings of the European Court of Justice do not bar intra-EU investment arbitration.

This proposition is not to contribute to the voluminous debate on Achmea and on the compatibility of intra-EU investment arbitration with TFEU art. 344, 267 and 18 or other EU governance principles such as the “principle of mutual trust”. In contrast, that proposition is based on investors’ rights under public international law as third parties, and the binding effect on the EU, its institutions and its member states of such rights. In addition, under the criteria developed by said ECJ rulings, intra-EU ISDS under the ECT fares better than the CETA.

The above propositions are set out in more detail by the author in the Heidelberg Journal of International Law (HJIL) (Zeitschrift für ausländisches öffentliches Recht und Völkerrecht; ZaöRV). [2]

A)   Third party rights under public international law

In Achmea the European Court of Justice (”ECJ“) found intra-EU investment arbitration under the bilateral investment treatybetween Slovakia and the Netherlands to violate the principles of mutual trust and sincere cooperation amongst EU member states, the supremacy of EU law and the protection of the ECJ’s own competence to ensure the uniform application of EU law. All of these principles concern the internal governance of the EU, its member states and its institutions, not investors’ rights. On the other hand, in the last years a great many arbitral tribunals dealt with intra-EU investment arbitrations, most of them under the Energy Charter Treaty (“ECT”), a multilateral investment treaty to which the EU has acceded. None of these tribunals found the proceedings to be incompatible with EU law. [3] The tribunals refer to the general interpretation rules of the Vienna Convention on the Law of Treaties (VCLT) and, as one tribunal has worded it, a carve-out for intra-EU conflicts would be “incoherent, anomalous and inconsistent with the object and purpose of the ECT”, the rules of international law on treaty interpretation, in particular the universal recognition of “the principles of free consent and of good faith and the pacta sunt servanda rule”. [4]

This is in line with the intent of the EU institutions involved with the accession by the EU to the ECT. The internal documents preparing the accession demonstrate that the EU did not intend the ECT to distinguish between intra-EU and extra-EU disputes. In line therewith, the ECT, as adopted not only by all EU member states, but by both the European Commission and the European Council, does not contain any indication that differing rules should apply “intra-EU” on the one hand and in respect of non-EU parties on the other hand. In contrast, by a declaration made when acceding to the ECT (see Annex ID to the ECT) [5] , the European Communities did not only set forth that the “European Communities and their Member States” are “internationally responsible” for the fulfillment of the ECT, it also expressly mentions the “right of the investor to initiate proceedings against both the Communities and their Member States”. Additionally, the declaration expressly deals with the role of the ECJ and documents that the EU acceded to the ECT in full cognizance of the fact that the ECJ can be involved in such proceedings only (1) “under certain conditions” and in particular only (2) “in accordance with art. 177 of the Treaty” [now TFEU art. 267]. Hence, the declaration expresses the acceptance by the EU of the curtailment to the competences of the ECJ resulting from investment arbitration under the ECT.

B)   Taking investors’ rights seriously: Their binding effect within the EU

The reason for this discrepancy between the findings of the ECJ and those of the arbitral tribunals can already gleaned from the above: While the tribunals deal with investors’ rights under the relevant investment treaties, the ECJ is concerned with intra-EU governance issues. [6] However, governance issues do not do away with the fact that investment treaties form part of public international law and bestow private investors with the rights (1) that the host state comply with the treaty’s protection standards and (2) to take the host state to arbitration. Such private enforcement is even one of the essential features of investment treaties. [7] Which consequences does this have within the EU?

Even the ECJ concedes that public international law treaties must be interpreted in accordance with the VCLT, notably “in good faith in accordance with the ordinary meaning to be given to its terms in their context and in the light of its object and purpose”. Thus, for purposes of public international law, the ECJ must be taken to recognize (1) that investment treaty rights vest with the investors and (2) the fact that all arbitral tribunals involved have affirmed the ECT, under public international law, to cover intra-EU investments. There is no indication that such a long, uniform and unequivocal line of arbitral holdings does not constitute an interpretation of the ECT “in good faith in accordance with the ordinary meaning to be given to its terms in their context and in the light of its object and purpose”.

In turn, under TFEU art. 216(2) “Agreements concluded by the Union are binding upon the institutions of the Union and on its Member States”. Admittedly, the ECJ makes an internal exception to TFEU art. 216 (2), that is, an exception as regards the parties to the EU Treaties, the EU and its institutions: Vis-a-vis these parties the ECJ confines the binding effect of treaties under art. 216 to supremacy over secondary EU law, and carves out primary EU law. [8] However, this internal limit to the effect of public international law treaties does not apply to third parties. Vis-à-vis third parties, under public international law the EU is bound by the treaties it has concluded. [9] The ECJ has held „that the Community cannot rely on its own law as justification for not fulfilling [the international treaty at bar].“ [10] As private investors are third parties, this holds true for them as well, and all the more so as their means to analyse the internal governance rules of the EU (or a host state) for potential infringements which may impact the validity of the treaty or of obligations contained therein, are substantially lower than the means of the other state parties which negotiated, concluded, and agreed on the ratification process for, the relevant treaty. In short: Pacta sunt servanda, in particular where investors have made investments which they cannot undo. [11]

In this connection it is irrelevant that intra-EU investment arbitration is typically directed against the relevant host state, not against the EU. As a party to the ECT, the EU is bound not to obstruct the due implementation of the rights and obligations of investors and the relevant host states. In contrast, the obstruction by the EU of the due implementation of the ECT would constitute a treaty violation in itself. [12]

C)   Consequences for Intra-EU bilateral investment treaties

The above considerations do not directly apply to bilateral investment treaties (“BITs”) between EU member states, to which the EU has not acceded. However, rights vesting under a BIT are not without protection under EU law either: First, where a host state has acceded to the EU after it has entered into a BIT, TFEU art. 351 grandfathers rights of investors as third parties. Second, there may have been acts or omissions of the EU in connection with the relevant treaty. Third, while, in general, determining EU law with retroactive effect, under its case-law the ECJ may be “moved” to carve-out “existing relationships” from such effect. [13]

D)   No precedent character of Achmea and CETA

Invoking investors’ rights is not precluded by a “precedent” character of Achmea or CETA: Preliminary rulings under TFEU art. 267 only bind the national court, and thus the parties, to the main proceedings in question [14] . Nevertheless, referral procedures under TFEU art. 267 have the purpose to have EU law interpreted for the EU as a whole and thus have a factual precedent effect. [15] However, the ECJ has confirmed the right to make a (further) reference on a “fresh question of law” or “new considerations which might lead the ECJ to give a different answer to a question submitted earlier”. [16] As a result, Achmea and CETA have no binding or precedent effect beyond the considerations they have dealt with.

These considerations do not include investors’ rights: Achmea, as already mentioned, is confined to EU governance issues. CETA, in contrast, did not fail to consider the position of investors. However, these were ex ante considerations, not the protection of investors who have already made investments in reliance on a treaty. It did thus not deal with a treaty which had already been concluded, had come into force, had bestowed rights on investors, and in reliance on which investors had made investments. [17]

In contrast, the ECT is a concluded treaty which has been in force for many years and under which investors have already made a great many intra-EU investments. Thus, when making their investments, investors were entitled to have the expectation that the ECT would be respected by its parties, including the EU.

E)   Applying the criteria of the CETA Opinion

In the alternative: If one (contrary to the above) were to disregard investors’ rights under public international law, the question arises how the ECT would fare under the criteria selected by Achmea and CETA to assess the compatibility of intra-EU investment arbitration with EU law. A detailed analysis shows that the ECT does not run aful of, but meets, those criteria. [18]

F)   A matter of justice

The conclusion is: Investors are entitled to rely on their investment treaty rights. Under public international law, the EU position regarding intra-EU ISDS is, as the Vattenfall tribunal has expressed it, “unacceptable”, “incoherent”, “anomalous and inconsistent”. [19] This is corroborated by the described conduct of the EU when negotiating and acceding to the ECT. Hence, that investors should not be bereaved of their vested rights is a matter of material justice. This holds all the more true where the EU was instrumental in soliciting the investments and changed its position only at a point in time when such investments had been made. [20]


* Rechtsanwalt and Attorney-at-Law (New York)
Partner, GÖRG Partnerschat von Rechtsanwälten
Cologne

[1] ECJ, 6 March 2018, Case C‑284/16, Achmea; ECJ, ECJ, Opinion 1/17 of 30 April 2019, CETA.

[2] Issue 80 (2/2020), pp. 379 – 427.

[3] Cf. Foresight v. Spain, SCC Arbitration V 2015/150, Award, 14 November 2018, para. 221, with a list of awards affirming intra-EU arbitration; Reuter, note 2, Part B IV.

[4] Vattenfall et al. v. Germany, ICSID Case No. ARB/12/12, Decision on the Achmea issue, 17 August 2018, paras. 154/155; Reuter, note 2, Part B

[5] https://energycharter.org/fileadmin/DocumentsMedia/Legal/Transparency_Annex_ID.pdf

[6] The reasons for that stance may be institutional rather than legal: Organizations innately tend to attach high priority to their own competences and inter-institutional governance.

[7] MacLachlan/Shore/Weiniger, International Investment Arbitration, 2007, paras. 1.06, 2.20, 7.01; Reuter, note 2, Part B.

[8] ECJ, 10 January 2006, C-344/04, IATA and ELFAA, para. 35.

[9] For more details Reuter, note 2, Part D.

[10] ECJ, 30 May 2006, Joined Cases C-317/04 and C-318/04, European Parliament v Council, para. 73.

[11] For more details Reuter, note 2, Part D.

[12] As for the liability of the EU on the one hand and member states on the other hand in connection with mixed investment agreements in general Armin Steinbach, EU Liability and International Economic Law, Hart Publishing 2017, pp. 133 et seq., pp. 141 et seq.

[13] For more details Reuter, note 2, Part D; as regards the carve-out ECJ, 13 May 1981, Case 66/80, International Chemical Corporation, paras. 13/14; see also ECJ, 8 April 1976, Case 43/75, Defrenne v Sabena, paras. 71/72.

[14] ECJ, 29 June 1969, Case 29/68, Milch-, Fett- und Eierkontor GmbH v Hauptzollamt Saarbrücken, para. 3.Wegener in Calliess/Ruffert, EUV/AEUV, 5th ed. 2016, art. 267, para. 49.

[15]     ECJ, 24 May 1977, Case 107/76, Hoffmann-LaRoche/Centrafarm, para. 5; Reuter, note 2, C III.

[16] ECJ, 5 March 1986, Case 69/85, Wünsche Handelsgesellschaft GmbH & Co. v. Germany, para. 15; For more details Reuter, note 2, Part B III.

[17] For more details Reuter, note 2, Part B III 3.

[18] For more details Reuter, note 2, Part D.

[19] See note 4.

[20] Reuter, note 2, Part E.

Investment Tribunals Are Too Quick to Establish the Existence of Issue and Cause of Action Estoppel in International (Investment) Law

Alexandros-Cătălin Bakos[1]

There is no denying that there is a serious backlash against investment arbitration at the moment. The signs are everywhere: from the latest discussions occurring within UNCITRAL’s Working Group III to the more recent practice of states (see the 22 European Union Member States’ declaration concerning the termination of their intra-EU Bilateral Investment Treaties); the latest ‘battlefront’ seems to be the Energy Charter Treaty, where the investment tribunals seized of disputes on the basis of this treaty consider it immune from the effects of the Achmea decision. The causes for this backlash are manifold. For present purposes, however, I would like to focus my attention on only one of the causes: incorrect decisions. And I would like to go even further and look at a very specific example of incorrect decisions: the application of the principle of estoppel by investment tribunals. I will focus exclusively on the procedural aspect of estoppel, as a bar to a claim. This seems to be its main, although not its only (para. 831), function – at least in international investment law.

Some background information on estoppel

Generally, estoppel is a very strong mechanism which has a preclusive effect against a party contradicting itself if another party has relied (usually to the latter’s detriment) on the initial position of the former (para. 231). Essentially, the party which contradicts itself is prevented from averring the contradictory fact (the subsequent one). ‘[W]hat is relevant for estoppel is that there has been a declaration, representation, or conduct which has in fact induced reasonable reliance by a third party, which means that the State, even if only implicitly, has committed not to change its course’ (idem, para. 246). Furthermore, the element which induces reliance must be unambiguous (paras. 8.46-8.47). Other tribunals refer to the fact that representations must be ‘clear and consistent’ (for example, the Chagos Marine Protected Area Arbitration, para. 438).

In international law, the application of estoppel dates back to the days of the Permanent Court of International Justice: for example, in the Legal Status of Eastern Greenland case, Norway was precluded from asserting sovereignty over Greenland, as the former had expressly recognized the latter as part of Denmark. This form of estoppel, however, seems to heavily overlap with vaguer principles – including the principle of good faith (para. 483).

There are voices in international law which argue that estoppel as such exists in a single form in international law and not in its various iterations found in the domestic common law systems (para. 436). This view, however, is not shared by all international law practitioners. Whether due to fragmentation of international law or not, this divergence becomes obvious once one analyzes arbitral practice. One example of how arbitral tribunals have looked at estoppel in its specific iterations concerns procedural aspects. There, estoppel acts as a more specific and technical mechanism designed to prevent an already litigated claim from being pursued again (similar to res judicata, although with a few important differences which will be mentioned below). The important branches of estoppel which may preclude a claim from being relitigated are: cause of action estoppel;[2] and issue (or collateral) estoppel.[3] It is important to mention that both these doctrines ‘prevent the parties from re-litigating a question that has been determined by a Court of competent jurisdiction, between the same parties or their privies, in a previous action. Once those elements have been made out, and unless there are special circumstances, the parties are precluded from raising the issues. [footnote omitted] The special circumstances which would permit the issue to be raised again include the discovery of further material relevant to issues in the first set of proceedings [footnote omitted] or fraud’.[4] The essential difference between the two doctrines, according to Griffith and Seif, is that cause of action estoppel concerns the claim itself which is precluded, whereas issue estoppel prevents relitigation of a point of law or of fact already decided by a tribunal.[5] Wilken QC and Ghaly point out that the difference is one of specificity.[6] According to them, ‘issue estoppel bites on the facts and issues required to establish the cause of action whereas cause of action estoppel looks only at the cause of action’.[7] Sheppard equates ‘cause of action’ with ‘claim’.[8]

A very important point of difference between estoppel – in both its iterations – and res judicata is that the latter requires (at least traditionally, as Judge Anzilotti mentioned in his dissenting opinion to the Factory at Chorzów case) a three-element identity between the concerned claims (the same person, the same claim and the same legal grounds); also known as the ‘three-element test’. Moreover, estoppel extends to the privies of the relevant parties, while res judicata – if interpreted strictly – does not.[9] Without going into the details of how the three elements of res judicata have been interpreted, especially in investment arbitration (as this is another subject for another date), it can be reasonably stated that estoppel is a stronger tool (than res judicata) in the arsenal of investment tribunals which can be used to prevent abusive re-litigation. The problem, however, is that the existence of such an instrument in international law is not clearly evident and tribunals seem to have taken its existence for granted.

The problems with the investment tribunals’ application of estoppel

Although not a general principle of law,[10] some arbitral tribunals seem to have applied estoppel as such. As will be seen below, however, there is at best inconclusive evidence as to the existence of a general principle of estoppel and at worst clear attempts to disregard this non-existence and apply a principle out of nothing.

At the same time, there are arbitral tribunals which may suggest or clearly determine that estoppel is a principle of law,[11] although this is usually not explained clearly and the reasoning is incomplete. As such, one is left wondering how did the tribunal uncover such a principle and whether it really exists.

For example, the Petrobart tribunal mentioned that ‘while the doctrine of collateral estoppel seems to have primarily developed in American law, other legal systems have similar rules which in some circumstances preclude examination of an issue which could have been raised, but was not raised, in previous proceedings. A doctrine of estoppel is also recognised in public international law’ (at pp. 66-67).

The tribunal, however, was unclear whether this amounted to a principle of law or not. The fact that there exist rules which establish preclusion of issues which could have been raised but were not raised and that these rules occur outside of the American legal system, as well, does not transform estoppel into a principle of law. At the same time, the tribunal did not mention in what form is estoppel recognised in public international law. It may have suggested that this would be applied as a principle, but it stopped short of fully clarifying whether such a principle indeed exists. The alternative may have been the customary law nature of estoppel, but the tribunal neither identified the underlying state practice and opinio juris nor referred to awards/ judgements in which such a custom was established. In the end, the claim preclusion argument was anyway rejected, since – among others – there was no identity between the legal grounds relied on in the relevant proceedings (at pp. 67-68).

Another example is RSM v. Grenada. There, the tribunal explicitly endorsed collateral estoppel as a general principle of law (para. 7.1.2). The tribunal noted ‘that the doctrine of collateral estoppel is now well established as a general principle of law applicable in the international courts and tribunals such as this one. [footnote omitted] (ibid.). However, it did not come to this conclusion itself, but rather relied on other tribunals’ conclusions.[12] What is surprising after looking at the cited cases is that neither of them clearly endorses estoppel as a principle of law.

For example, the Amco v. Indonesia tribunal referred to res judicata as a principle of law (paras. 26-46). One cannot exclude the possibility of this encapsulating estoppel as well, but such a conclusion is not clear. This lack of clarity is further compounded by the fact that the Amco v. Indonesia tribunal mentioned that ‘it is by no means clear that the basic trend in international law is to accept reasoning, preliminary or incidental determinations as part of what constitutes res judicata’ (idem, para. 32). As issue/collateral estoppel necessarily implies the fact that the reasoning of an award must be considered for this mechanism to arise,[13] the finding of the Amco v. Indonesia tribunal raises serious doubts as to the conclusion that estoppel was part of the principle to which that tribunal referred.

As regards the other relevant case (Southern Pacific Railroad Co. v. United States, which arose before the Supreme Court of the United States) it is true that what the cited tribunal referred to was issue estoppel (pp. 48-49). It mentioned that a general principle existed which mandated ‘that a right, question, or fact distinctly put in issue, and directly determined by a court of competent jurisdiction as a ground of recovery cannot be disputed in a subsequent suit between the same parties or their privies, and, even if the second suit is for a different cause of action, the right, question, or fact once so determined must, as between the same parties or their privies, be taken as conclusively established so long as the judgment in the first suit remains unmodified’ (ibid.). What the tribunal does not mention, however, is whether this general principle is a general principle common to all nations or whether this was a general principle specific only to the common law system.

There are tribunals which even seem to rely on estoppel, although, in reality, they are applying res judicata. This was the case with the Marco Gavazzi and Stefano Gavazzi v. Romania tribunal (paras. 164-166). In the first place, the tribunal analyzed whether an initial decision (which was alleged to preclude the claims before the forum) had ‘conclusive effects on the Parties to the present proceedings under the doctrine of res judicata or issue estoppel’ (idem, para. 164). Subsequently, it went on to mention that ‘under international law, three conditions need to be fulfilled for a decision to have binding effect in later proceedings: namely, that in both instances, the object of the claim, the cause of action, and the parties are identical’ (idem, para. 166). Although it did expressly refer to issue estoppel at one point, the tribunal referred to the conditions which were necessary to be fulfilled in order for res judicata to operate (the three-element test, as mentioned above). Moreover, it conflated issue estoppel with cause of action estoppel. As shown earlier, identity of cause of action is only necessary in the case of cause of action estoppel and not in the case of issue estoppel.

All the above examples demonstrate that estoppel as such is not applicable in investment arbitration (by virtue of international law, at least) and that tribunals seem to ignore this. There is no general principle – as understood by Article 38 (1) (c) of the Statute of the International Court of Justice, as an authoritative reflection of the sources of international law – of estoppel. At least no principle which could cover cause of action or issue estoppel. There is no evidence of a customary rule encapsulating estoppel either.[14] Moreover, not even investment treaties seem to contain this mechanism. For example, the 2012 US Model BIT – selected for being relevant to a common law jurisdiction – does not make any reference to estoppel. Neither does one of the latest UK BITs (the UK-Colombia BIT) contain any reference to estoppel – although it does allow the tribunal to address abuse of process; however, this is different than estoppel.


[1] Editor at avocatnet.ro and Associate Expert at DAVA | Strategic Analysis. This post is based on part of my thesis, submitted for the completion of an LL. M. in Law and Economics at Utrecht University. I would like to express my gratitude to Dr. Yulia Levashova, for her continuous support and for an in-depth and comprehensive feedback. In any case, I take full responsibility for the opinions and they are exclusively mine, not reflecting anyone else’s or any other institution’s.

[2] Audley Sheppard, ‘Chapter 8. Res Judicata and Estoppel’ in Bernardo M. Cremades Sanz-Pastor and Julian D.M. Lew (eds.), Parallel State and Arbitral Procedures in International Arbitration, p. 225 (hereinafter referred to as ‘Sheppard’).

[3] Ibid.

[4] Sean Wilken QC, Karim Ghaly, The Law of Waiver, Variation and Estoppel. Third Edition (Oxford University Press 2012), para. 14.08 (hereinafter referred to as Wilken QC, Ghaly).

[5] Gavan Griffith; Isabella Seif, ‘Chapter 8: Work in Progress: Res Judicata and Issue Estoppel in Investment Arbitration’, in Neil Kaplan and Michael J. Moser (eds), Jurisdiction, Admissibility and Choice of Law in International Arbitration: Liber Amicorum Michael Pryles (Kluwer Law International 2018), p. 124 (hereinafter referred to as ‘Griffith; Seif’).

[6] Wilken QC, Ghaly, para. 14.09.

[7] Ibid..

[8] Sheppard, p. 225.

[9] Griffith; Seif, p. 126.

[10] Charles T. Kotuby Jr. and Luke A. Sobota, General Principles of Law and International Due Process. Principles and Norms Applicable in Transnational Disputes (Oxford University Press 2017), footnote 262, p. 200. Such a conclusion (that estoppel is not a general principle of law) is in accordance with one of the major views in international legal relations as to what constitutes a general principle of law: one ‘which can be derived from a comparison of the various systems of municipal law, and the extraction of such principles as appear to be shared by all, or a majority, of them [emphasis added]’, Hugh Thirlway, The Sources of International Law. Second Edition (Oxford University Press, 2019), p. 108.

[11] Stating that estoppel is a principle of law serves two aims: firstly, the tribunal justifies the application of estoppel by reference to a source of international law (usually, part of the applicable law). Secondly, this gives the tribunal legitimacy, as the tribunal grounds its decision to rely on estoppel on a widely-applicable source of law (whether objectively true or not is not as important).

[12] The cases to which the RSM tribunal referred were mentioned at page 27, footnote 34 of the award: Amco Asia Corporation v Republic of Indonesia, ICSID Case No. ARB/81/1, Decision on Jurisdiction (Resubmitted Case), 10 May 1988, para. 30; Company General of the Orinoco Case, 10 R.I.A.A. 184 (1905); and Southern Pacific Railroad Co. v. United States, 168 U.S. 1 (1897). The second tribunal quoted in turn the third one. As such, I will refer only to the first and third tribunals in the remainder of this part.

[13] Sheppard, p. 234; Griffith, Seif, p. 121.

[14] Christopher Brown, ‘A Comparative and Critical Assessment of Estoppel in International Law’, University of Miami Law Review [Vol. 50:369 1996], pp. 384-385;Pan Kaijun, ‘A Re-Examination of Estoppel in International Jurisprudence’, 16 Chinese Journal of International Law (2017), p. 761.

Schrödinger’s Investment: the EU’s General Court Considers that the Compensation Ordered by the Micula Tribunal is Not a Form of State Aid (Although it Might as Well Have Been)

Alexandros Catalin Bakos, LL.M. Candidate, Utrecht University

In a somewhat fortunate turn of events for the stability (or what is left of it in any case) of the intra-European Union (intra-EU) investment treaty system, the General Court of the European Union (GCEU) has annulled the EU Commission’s decision rendered against Romania for illegal state aid concerning the enforcement of the Micula arbitral award. Although the GCEU’s decision may be good news for the investors themselves, it does nothing to allay fears regarding the future of intra-EU ISDS. In the grand scheme of things, the effects which culminated with the Achmea judgement are still there.

This latest installment in the long-running saga of intra-EU investment treaties and their conflict with the EU legal order does not substantially change the paradigm. In fact, one may argue that it complicates the matters: the only certain conclusion that can be derived from the General Court’s decision is the fact that there can be no conflict between EU State Aid rules and intra-EU Bilateral Investment Treaties (BITs)/awards based on such treaties if the compensation ordered by the tribunal relates to measures which were taken prior to the entry into force of EU law. However, the Court did not analyze what is the situation of compensation which needs to be paid for measures adopted after the entry into force of EU law.

In any case, before continuing with the decision’s analysis, a short recap of the major developments in this situation is in order.

How did we get here? 

Prior to joining the EU, the Romanian state offered the Micula brothers and the companies controlled by them (the investors) certain custom duty exemptions and other tax breaks (the GCEU’s decision, paras. 5-6). Later, in 2004 and 2005, those exemptions and breaks were suddenly repealed, in an effort to ensure compliance with the EU laws on State Aid – which would become effective from 1 January 2007 (the GCEU’s decision, para 12). Because of this, the investors began ICSID arbitration proceedings, challenging the compliance of the measure with the applicable BIT (the 2002 Sweden-Romania BIT). The arbitral tribunal found in the investors’ favour and ordered Romania to pay compensation amounting to approximately €178 million. The court’s finding was based on a violation of the fair and equitable treatment standard. More specifically, on behaviour contrary to the legitimate expectations of the investors. This is of utmost importance, as what was considered to be in breach of the treaty was not the repealing of the exemptions itself, but the manner in which this occurred. The arbitral tribunal expressly found that ‘by repealing the […] incentives prior to 1 April 2009, Romania did not act unreasonably or in bad faith […] [H]owever […] Romania violated the Claimants’ legitimate expectations that those incentives would be available, in substantially the same form, until 1 April 2009. Romania also failed to act transparently by failing to inform the Claimants in a timely manner that the regime would be terminated prior to its stated date of expiration. As a result, the Tribunal finds that Romania failed to “ensure fair and equitable treatment of the investments” of the Claimants in the meaning of Article 2(3) of the BIT’ (para. 872 of the award).

Subsequently, the investors sought the enforcement of the award. However, this proved difficult because the EU Commission intervened and tried to prevent Romania from enforcing the award. The former argued that an enforcement would constitute a form of illegal state aid. After Romania, nonetheless, partially paid the award, the EU Commission officially adopted a decision against the Romanian state for breach of State Aid rules. The Commission’s argument was that this payment would, in essence, favour the investors in the same way in which the exemptions favoured them in the first place. Romania, thus, was under an obligation to stop paying the award and to recover the amount which had been paid so far. This was eventually challenged by the investors before the GCEU and the judgement analyzed here is the European Court’s decision regarding that challenge.

This turn of events determined other courts where enforcement of the award was sought to stay the proceedings until the European Court will have rendered an award concerning the challenge to the EU Commission’s decision on illegal state aid (see here for an example).

What does the GCEU’s decision entail and what does it not entail?

The GCEU found that the compensation rendered by the Micula arbitral award could not be considered illegal state aid, at least as it regards events which took place before Romania’s accession to the EU (para. 109 of the GCEU’s decision).

The essence of the GCEU’s arguments is based on a clear establishment of the temporal nexus to which the arbitral award referred (paras. 71-93 of the GCEU’s decision). To this end, the Court clarified that all the relevant issues (including the events which gave rise to the right to compensation) arose and produced effects before Romania’s accession to the EU (para. 71). In that respect, even if the arbitral tribunal’s award was rendered after EU law became applicable to Romania, it merely ‘retroactively produced definitively acquired effects which it merely ‘stated’ for the past, that is to say, effects which, in part, were already established before accession’ (para. 84 of the GCEU’s decision). Accordingly, even if the award was rendered after Romania’s accession to the EU, ‘the Commission retroactively applied the powers which it held under Article 108 TFEU and Regulation No 659/1999 to events predating Romania’s accession to the European Union. Therefore, the Commission could not classify the measure at issue as State aid within the meaning of Article 107(1) TFEU’ (para. 92 of the GCEU’s decision).

What is interesting, though, is that the GCEU referred only to a part of the compensation as not being under the Commission’s power of review. It did not exclude the entirety of the award from the Commission’s reach: ‘as regards the amounts granted as compensation for the period subsequent to Romania’s accession to the European Union, namely, the period from 1 January 2007 to 1 April 2009, even assuming that the payment of compensation relating to that period could be classified as incompatible aid, given that the Commission did not draw a distinction between the periods of compensation for the damage suffered by the applicants before or after accession, the Commission has, in any event, exceeded its powers in the area of State aid review’ (para. 91 of the GCEU’s decision). In other words, had the Commission distinguished between the pre-accession and the post-accession periods, the decision may not have been annulled after all (or may have been only partially annulled).

Clearly, the GCEU left open the possibility of finding an incompatibility between State Aid rules and the observance of an arbitral award rendered for acts which occurred after EU law became applicable. And this is what the decision does not entail: it does not clarify whether compensation payable on the basis of an arbitral award is contrary to EU State Aid rules.

It is true that the Court began an analysis of whether compensation offered on the basis of an arbitral award can be considered State Aid, but it stopped short of drawing any relevant conclusions. It limited itself to referring to the general conditions necessary for State Aid to arise (paras. 100-103 of the GCEU’s decision) and concluded that it cannot be considered that the compensation amounted to a form of illegal State Aid, at least not until the accession period. However, after the accession period, the analysis would advance to the issue of whether the objective elements of illegal State Aid were present: this, however, was not undertaken by the Court. It never determined whether the measure was imputable to Romania. And one can clearly see why the Court avoided this. It would be very hard to argue that the compensation ordered by the arbitral award can amount to illegal state aid.

Firstly, how can one impute an investment tribunal’s award to Romania? This would mean that Romania had control over the arbitrators, which is clearly not the case. Quite the opposite, as otherwise arbitration would not have been used so often in the settlement of investor-state disputes. Neutrality is one of the reasons ISDS exists. Additionally, for state aid to exist, one needs to demonstrate effective control of the state over the body which adopts the decision alleged to constitute such state aid (para. 52 of the Stardust case – France v. Commission, Case C-482/99). As shown earlier, this is clearly not the case with an investment arbitral tribunal.

Moreover, the GCEU mentioned that ‘compensation for damage suffered cannot be regarded as aid unless it has the effect of compensating for the withdrawal of unlawful or incompatible aid’ (para. 103 of the GCEU’s decision). This must be read together with the Court’s earlier judgment in the Asteris case. The basis of this case-law is that ‘State Aid […] is fundamentally different in its legal nature from damages which the competent national authorities may be ordered to pay individuals in compensation for the damage which they have caused to those individuals’ (para. 23 of the Asteris judgment). In this context, one must tread carefully before concluding that the subsequent compensation is, in fact, a hidden form of State Aid. Given the evident difference between the two, it is of utmost importance to demonstrate in-depth that in a specific case this difference is diluted.

One underlying premise for this difference to be able to disappear is for the EU Member State to actually be the one which formally re-institutes the illegal aid through the formal measure of compensation. The two measures – the initial state aid and, subsequently, the compensation for the withdrawal of the unlawful measure – must be seen as a whole, as having one purpose and as being able to be imputed to one entity – in this case, the Romanian state. In the Micula case, though, this was not present. The initial measure was indeed adopted by the Romanian state. The compensation, though, was decided by an objective and neutral tribunal. They are related, but they do not constitute one whole. Not to mention the fact that it can be very hard to argue that compensation on the basis of an award could offer unjustified economic advantages.

Secondly, one other condition for the compensation to be considered as re-instituting the illegal State Aid is for the compensation to be structured so as to replace the illegal measure itself. Nonetheless, this was not the case with the Micula award. One aspect must be taken into consideration in order to understand the difference between the customs and tax incentives themselves (the illegal State Aid) and the arbitral award. As mentioned at the beginning of this post, it was not the withdrawal of the incentive schemes that was considered to be the basis of compensation. What led to the present outcome was the manner in which the withdrawal took place, essentially leading to an infringement of legitimate expectations. Those are different and it is clear that, in any case, this would not be a case of re-instituting said state aid through the backdoor.

As such, the GCEU’s award is clearly not a silver lining for intra-EU ISDS, as it does not clarify – in the end – the most important aspect: can compensation rendered by an arbitral award be considered illegal state aid? In this context, when one thinks about the general scheme of things, it becomes evident that nothing has really changed: Achmea is alive (the effects have come sooner rather than later). Additionally, nobody knows its scope, especially when it comes to the Energy Charter Treaty’s (ECT) arbitration mechanism. Although arbitral practice seems to insist that Achmea does not preclude intra-EU ISDS on the basis of the ECT, what is eagerly waited is the CJEU’s position on this. After this, the CETA opinion – although reconciling ISDS with EU law when there is a third party (a party outside the EU) involved – does not mean the endorsement of intra-EU ISDS; it can clearly be seen that the EU’s position within UNCITRAL’s Working Group III is still the one we have been used to for so long: ISDS must be replaced with a standing court.


[1] LL. M. candidate in Law and Economics at Utrecht University.

A New And Improved Investment Protection Regime: Truth Or Myth!

Shilpa Singh Jaswant, LLM (Hamburg)

The proposed investment court system by the European Commission aims to limit criticism revolved around Investor-State Dispute Settlement due to its lack of legitimacy, transparency and appellate mechanism. The investment regime under Comprehensive Economic and Trade Agreement with Canada (hereinafter “CETA”) and European Union-Viet Nam Free Trade Agreement (hereinafter “EUVFTA”) could be a solution by bringing transparency, consistency and institutionalisation in investment protection. The blog addresses the compatibility of the new system with EU law as any violation to autonomy of EU law as laid down in the previous judgments would not be optimistic to its future and followed by other blog in future would address the features of the Tribunal system and its difference from arbitration. Meanwhile Member states of the EU seek opinion from the Court of Justice (hereinafter “the CJEU”) though it is promising and would lay down stepping stones of an improved investment protection.

Achmea ruling and its effect to jurisdiction of the Tribunal under CETA and EUVFTA

Achmea ruling confirms that intra-EU BITs are incompatible with EU law while its effects reverberate to agreements entered by the EU with third countries. As per the CJEU in Achmea in para 58 (also in Opinion 1/09 of 08.03.201, para 89), arbitral tribunals under investment agreements, when entered between Member states, are outside the judicial system of the EU and incompatible with autonomy of EU law since arbitral tribunals were empowered under the principle of lex loci arbitri to include and interpret EU law (the Community treaties and secondary laws). However, the ruling may not be applicable in full since investment protection in CETA and EUVFTA are concluded as mixed agreements meaning the EU and its Member states are parties to them.

A logical conclusion is that the Tribunal established under CETA and EUVFTA would not fall within judicial framework of the EU since its jurisdiction is limited to claims related to breaches of investment agreements and to determine if a measure of a Member state and/ or of the EU is in violation of the standards set in the agreements. It can only resolve a dispute under the applicable law i.e., the provisions of investment agreement.

The CJEU places responsibility on arbitral tribunal to protect autonomy of EU law by not giving inconsistent interpretation to it. In the past the CJEU in Opinion 2/13 of 18.12.2014 and Opinion 1/09 in para 65 has protected autonomy of EU in many cases and call it as the “essential” characteristics originating from an independent source of law, i.e., the Treaties. Further saying that standard of review to protect autonomy of EU law is a matter of these tribunals and Member states too. Since the CJEU has never been eager to open doors of interpretation to a tribunal which is out of the EU judicial framework and Member states are obligated to bring issues related to EU law to the CJEU.

On the contrary, if the CJEU finds that the Tribunal under CETA and EUVFTA is part of judicial framework of the EU and that it could send for preliminary ruling under Article 267 TFEU departing from its previous judgments, even then it has responsibility to protect autonomy of EU law along with uniform and consistent interpretation and application of EU law. In both situations, an interpretation of EU law done by the tribunals may affect the consistency. However, by looking at the features (as discussed below) of the Tribunal assure that autonomy of EU law is protected, at least in theory.

Ensure jurisdiction of domestic courts and CJEU

CETA in Article 8.22(1)(f) & (g) and EUVFTA in Article 3.34 (1) preclude parallel proceedings at a domestic or international court or tribunal so as to not to undermine the authority of tribunals which could mean taking away exclusive jurisdiction of the CJEU.  Even when the agreements do not allow parallel proceedings for disputes related to an alleged measure which is inconsistent with agreements, the Tribunal is under obligation by Article 8.24 CETA and Article 3.34(8) EUVFTA to stay its proceedings or take into account proceedings under international agreement which may affect the findings of the Tribunal or the compensation awarded due to the use of “shall”. Article 8.28 CETA and Article 3.42 (1) EUVFTA assure that in case the Tribunal fail to do so, appellate body has authority to modify or reverse award on “manifest errors in the appreciation of facts, including….. relevant domestic law”. It is important that the tribunals under agreements take into consideration decisions of the CJEU and domestic courts effectively and importantly, ensure supremacy of EU law and full respect to decisions of the CJEU.

Perhaps the limited scope of disputes of the Tribunal done by the drafters of the agreements, especially interpretation and application of EU law is a solution to it. The tribunals under Article 8.31 CETA and Article 3.42(3) EUVFTA are not allowed to interpret and apply the provision of EU Treaties including prevailing domestic laws and shall follow the prevailing interpretation given to the domestic law. While determining consistency of measures, it has to consider the domestic law as matter of fact which also includes EU law.

Issue of competence and international responsibility

After the opinion of the CJEU on EU-Singapore FTA, it is important to look at nature of agreement concluded: CETA and EUVFTA are concluded as mixed. It is clear that the question of competence would not affect the interpretation of the investment agreements done by the tribunals. The question of determining obligation arising from the agreements whether it would be responsibility of the EU or Member states requires interpretation of the agreements and due to their drafting it would be within the jurisdiction of the CJEU. The agreements have placed obligation of international responsibility on the EU to determine respondent.

In other words, the right to access tribunal as per the rules to determine respondent by the EU in both agreements would allow foreign investors to initiate proceedings without affecting the autonomy of EU law, supremacy of EU law and would promote legal certainty. This conclusion would also put away any future doubts on competences, inter alia on law making and concluding the agreement between Member states and the EU which would be mutually exclusive of the determination of respondent done to fix international responsibility. The issue of competence would however justify the reason to conclude the agreements as mixed agreements since some areas are shared between the EU and its Member states.

Unique features of the Investment court system

The institutionalization would ensure legitimacy and consistency to decisions after introducing an appellate body. While allowing participation of non-disputing third parties and interpretations of provisions to the agreements from scholars and person of interest, having compulsory resolution through amicable mechanism like conciliation and mediation and transparency are front runners. The members of tribunals are appointed by a committee as per the agreement while cases are allotted on random basis to a roster of judges much like done in WTO panel. After the award, the Tribunal would be dissolved and question of sending back to the same tribunal after appellate body’s decision is still unanswered. Moreover, it does not contribute to ‘permanent structure’ since members are paid retainer fees and not salary, and are allowed to take up other occupation unless otherwise decided. It can still be said that the system is not balanced out and independent, instead it seems semi-permanent or hybrid.

Due to proliferation of investment agreements, the tribunals organized may give arise to different conclusions relating to similar commercial situation and similar investment rights to the similar in the provisions of these agreements questioning procedural fairness. None of the agreements deal with correlation of the tribunals. Also another procedural flaw observed that both the agreements do not directly deal with a question on jurisdiction and thus the parties have to wait until the final award is issued to appeal a positive or mixed jurisdiction award.

In sum, the investment protection in the agreement has room for improvement and that can be done by creating a new regime of investment protection with a multilateral investment court which would be permanent in nature with full tenured and impartial judges for the problem of coherence and determinacy. The consistency would be ensured with a permanent appellate mechanism and the treaties would be considered at par with one another. As concluding remarks, the present system in the agreements are a way forward to institutionalise investment protection but this optimism should not be taken blindly and hinder improvement and develop a better system.

Post-Achmea Energy Charter Treaty Coherence and Stability: Upheld or Hindered?

Alexandros Catalin Bakos, LL. M.*

[…] but this is not where or how it ends. Fate promises more twists before this drama unfolds…completely (in-game dialogue from the intro scene of the video game Soul Reaver 2).

The EU’s backlash against intra-EU (Bilateral?) Investment Treaties – intra-EU (B)ITs – reached its peak when the CJEU issued its decision in the Achmea (C-284/16) case. According to the CJEU, intra-EU BITs such as the one analysed in the Achmea case are contrary to EU Law because they created a parallel jurisdiction (that of investment arbitration tribunals) to that of the domestic judicial courts. Such a jurisdiction may impair especially the consistency, full effect and autonomy of EU Law because investment arbitration tribunals are not able to rely on instruments such as the preliminary question (§§ 35-60 of the Achmea decision). Although the Achmea decision has been criticised (here and here), the present analysis is not concerned with the merits of the decision itself. The object of this analysis regards the effects of the Achmea decision on the Energy Charter Treaty’s (ECT) provisions on investment. This is of high practical importance since the International Investment Agreement which is most commonly invoked in intra-EU investment disputes is the ECT. An analysis of this issue raises the following questions:

Firstly, what are the immediate effects of the CJEU’s judgement on Article 26 (3) (a) of the ECT (the ECT’S Investor-State Dispute Settlement  – ISDS – provision)? Any analysis should begin with an analysis of the meaning of intra-EU BITs and if that meaning shall extend to the ECT – a treaty to which the EU is a formal party –, as well. As will be seen, the fact that the EU is a formal party to the ECT is of high importance (1).

Secondly, if it is to be considered that the Achmea decision does refer to the ECT, as well, and, as such, that it is conflicting with the ECT ISDS provision as regards EU Member States parties to the ECT, it must be seen whether the practice of terminating the intra-EU BITs between EU Member States can be undergone in the case of the ECT, as well. As such, could EU Member States – only as between themselves – denounce – partially or in its entirety – the ECT (2)?

The last point of this analysis is whether the EU’s international responsibility under Public International Law could be engaged for the Achmea decision – provided it is considered that the Achmea decision does refer to the ECT, as well. This question arises since the EU is a formal party to the ECT and an analysis needs to be made as regards the compliance of such an act – the Achmea decision – with the ECT (3).

Before concluding, I will address a less evident but very important issue generated by the Achmea decision – again, provided it is considered to refer to the Energy Charter Treaty, as well. The issue regards the systemic effects of the decision on the International Legal Order (4).

  1. What is the meaning of intra-EU BITs? If it covers the Energy Charter Treaty – as between EU Member States –, how does it affect the ISDS provision therein?

The departing point of analysis is the Achmea decision itself. The CJEU expressly made a differentiation, within the decision between investment treaties to which the EU was a formal party and those to which it was not (see §§ 57-58 of the Achmea decision). Essentially, this differentiation was made in the context of describing the characteristics of the BIT which was thought to conflict with the EU legal order (§58). Moreover, the EU pointed out that an international agreement which sets up a dispute resolution mechanism and is binding on the EU institutions is not in principle incompatible with EU law (§57).  It is hard to conceive that the CJEU made this differentiation by accident. In fact, it can be reasonably derived from here that the CJEU wanted to limit the scope of the decision’s effects by referring expressly to treaties to which the EU was not a formal party.

As the CJEU itself referred to international agreements to which the EU was a formal party and as the ECT is such an agreement, it follows that the CJEU considers that a different legal treatment shall be applied to such agreements – in this particular situation, to the ECT – than to intra-EU BITs – to which the EU is not a formal party. It can reasonably be inferred that this differentiation is based the principle of pacta sunt servanda (Article 26 of the 1969 Vienna Convention on the Law of Treaties – VCLT) which binds the parties to an international treaty. This principle is doubled within the EU legal sphere by Article 216 (2) of the TFEU: agreements concluded by the Union are binding upon the institutions of the Union and on its Member States. As such, for the Achmea decision to be compatible with the obligations deriving from the ECT – especially the obligation contained in Article 26 (3) of the ECT – and those incumbent on the EU institutions by virtue of Article 216 (2) of the TFEU, any interpretation of the Achmea decision, in order not to be unreasonable and self-contradictory, must be made to the extent that the CJEU did not refer to the ECT in its decision. If the CJEU had wanted the Achmea decision to refer to the ECT, it would have expressly mentioned this so as not to create confusion as regards a possible infringement of Article 216 (2) TFEU – in addition to the infringement of the ECT. In other words, the CJEU must have been aware that it was under a duty, if it had wanted the Achmea decision to refer to the ECT, to actually explain why such a decision would not have contradicted Article 26 (3) of the ECT and Article 216 (2) of the TFEU. Not doing this, the CJEU basically concluded that the ISDS provision in the ECT is not contrary to the EU legal order. Moreover, in this context, it is hard to envision that the EU would have entered into ECT negotiations and would have subsequently become a party to the ECT had it considered the ECT as contrary to EU Law (RREEF Infrastructure (G.P.) Limited and RREEF Pan-European Infrastructure Two Lux S.à r.l. v. Kingdom of Spain (ICSID Case No. ARB/13/30). Decision on Jurisdiction, § 76).

At this point, although the previous conclusion seems logical and necessary, there are analyses that accept the possibility that the Achmea decision referred to the ECT, as well (here and here). Moreover, it has been argued, constantly, before arbitral tribunals applying the ECT that the ISDS provision contained within the ECT is incompatible with EU Law (RREEF v. Kingdom of Spain. Decision on Jurisdiction, §§ 40 – 50; Charanne B.V., Construction Investments S.A.R.L. v. The Kingdom of Spain. Final Award, Court of Arbitration of the Chamber of Commerce, Industry and Services of Madrid (Arbitration No.: 062/2012), unofficial translation by Mena Chambers, §§ 207 – 224; Masdar  Solar & Wind Cooperatiff U.A. v. Kingdom of Spain. Award (ICSID Case No. ARB/14/1), §§ 296 – 300, § 305 and § 325). In all the cited cases, jurisdiction was upheld by the arbitral tribunals. It was considered that there was no conflict under Public International Law between the ECT and the EU Law. However, there are some arguments relied on to support the contention that a tribunal does not have jurisdiction over intra-EU disputes based on the ECT which I would like to mention here – not exhaustively, but only as examples – in order to clarify the debate. For example, it was argued that there existed an implicit disconnection clause within the ECT as regards intra-EU ECT disputes, because of the nature of the EU Legal Order. The effect of such a clause would be that in intra-EU investment disputes EU Law would derogate from the ECT, rendering the latter inapplicable. Moreover, it was argued that there was no difference between the territory of the home state and that of the host state when both were EU parties. As such, the condition that the territories of the host state and of the home state must be different (Article 1 (10) (a) and (b) of the ECT) was not satisfied (the Charanne Award, § 214).

The argument that the ECT impliedly included a disconnection clause which rendered the ECT inapplicable as between EU Member States is flawed on different levels:

Firstly, an implied disconnection clause would run contrary to the pacta sunt servanda principle – the implied disconnection clause is nothing more than a speculation relied on to avoid treaty obligations. Moreover, the same pacta sunt servanda principle is contrary to an implied disconnection clause if such clause is not expressly contained in the ECT. This is because obligations must be observed as agreed by the parties and supposing the existence of an implied disconnection clause would actually be contrary to Article 31 (1) of the VCLT, which sets up an interpretation of the treaty according to the ordinary meaning to be given to the terms of the treaty. This latter point regarding interpretation on the basis of Article 31 of the VCLT was reinforced by the Charanne tribunal (§ 437).

Secondly, the negotiating history of the ECT shows that, although a disconnection clause was proposed by the European Community bloc and expressly rejected, the EU still became a party to the ECT. This essentially means that the parties rejected the disconnection clause and any interpretation to the contrary would be unjustified under Article 32 of the VCLT, which in this case would mean reliance on the negotiating history to confirm the initial interpretation (see, for the use of Article 32 of the VCLT as a means to confirm the interpretation made under Article 31 of the VCLT, Mark E. Villiger, Commentary on the 1969 Vienna Convention on the Law of Treaties, Martinus Nijhoff Publishers, Leiden, Boston (hereinafter referred to as Villiger), 2009, pp. 446-447).

As regards the territorial identity in the case of the host and the home state of the investor, this argument was rebutted, as well. It was found that being a state party to a Regional Economic Integration Organization (REIO) and party to the ECT while that REIO (the EU, in the present case) is a party to the ECT, as well, does not create an identity between the territory of the state and that of the REIO. This is true as long as the REIO and the state party to the REIO can both have individual standing as respondents under the ECT (Novenergia II – Energy & Environment (SCA) (Grand Duchy of Luxembourg), SICAR v. The Kingdom of Spain. Final Arbitral Award, Arbitration Institute of the Stockholm Chamber of Commerce (2015/063), § 453).

Notwithstanding all the above arguments, there was even an arbitral tribunal which ruled expressly that the Achmea decision did not apply to the ECT: the Masdar tribunal (§§ 678 – 683) effectively ruled that the Achmea decision is limited to intra-EU BITs, excluding, thus, multilateral investment treaties such as the ECT.

  1. Could EU Member States – only as between themselves – terminate – partially or in its entirety – the ECT?

If it was considered that the Achmea decision, in spite of the above, would apply to the ECT, as well, this would raise another practical issue: could the EU Member States terminate the ECT between themselves, similarly to what has been done regarding intra-EU BITs? How would this work? Would this be a partial termination – only as regards Article 26 (3) of the ECT – or a complete termination? Such questions raise issues of treaty termination by reference, especially, to the object and purpose of that treaty. In order to answer the previous questions, the analysis is divided in two parts: firstly, the issue of treaty termination as regards the possibility of only certain parties to the treaty to proceed to this end shall be addressed (a). Subsequently, it must be seen whether a partial termination of the ECT – as regards Article 26 (3) only – is indeed a real possibility when tested against the object and purpose of the Energy Charter Treaty (b).

  • The possibility of certain parties to a multilateral treaty to denounce it only as between themselves:

The ECT provides in Article 47 (1) that […] a Contracting Party may give written notification […] of its withdrawal from the Treaty. While this clarifies the general issue of withdrawal, the question remains whether the EU Parties can denounce the ECT as between themselves only. It is considered that a partial withdrawal vis-à-vis several, but not all of the other parties, is possible (Thomas Giegrich in Oliver Dörr, Kirsten Schmalenbach (editors), Vienna Convention on the Law of Treaties. A Commentary, Springer – Verlag Berlin Heidelberg, 2012, pp. 952-953, § 25). However, while this may seem possible, generally, serious issues may arise when attempting to terminate the ECT as between certain parties to it only. This can be seen when interpreting Article 47 (1) of the ECT according to Article 31 of the VCLT – in the light of the object and purpose of the ECT. As will be demonstrated within (b) of this part of the analysis, a partial termination of the ECT would effectively create micro-regimes within the ECT and this would be against the object and purpose of the ECT. Would termination between certain EU parties not have the same effects? More specifically, coherence as to measures in the energy sector would be affected if what is applied under the ECT between EU and non-EU parties would not be applicable between EU parties. Any policies, in this context, lose their cogency, because of lack of (even legal) coherence. In effect, this would defeat the object and purpose of the ECT, since coherent policies are incredibly important in the energy sector – for example, major infrastructure projects, such as pipelines, usually span over several states. Because of all this, it can be argued that Article 47 (1) of the ECT must be interpreted as precluding termination between EU Member States only.

  • Is it possible to partially terminate the ECT as regards the ISDS provision?

Partially terminating the treaty, while possible (Villiger, p. 685), is more problematic, in the present context. Article 44 (1) of the VCLT provides that withdrawal from a treaty, where provided expressly by that treaty, may be undertaken only with respect to the whole treaty unless the treaty otherwise provides or the parties otherwise agree. Accordingly, since there is no express provision as to partial termination within the ECT, the only legal basis for partially terminating the ECT as between the EU Member States would be if the ECT parties agreed. Nonetheless, even if there is no provision as to partial termination in Article 47 (1) of the ECT, an analysis of the remainder of Article 44 (2) – (4) of the VCLT – which sets out, exceptionally, the legal regime of severability, especially when there is no express provision as to partial termination – can still be undertaken (Villiger, p. 563). In this respect, Article 44 (3) provides a series of conditions which must be met – cumulatively (see the term and at the end of indent (b)) – for separability to be possible.

A problem with such an outcome is that one of the conditions provided for in Article 44 (3) of the VCLT is not met: that the clause which is sought to be terminated does not hold a high importance in the general architecture of the treaty. Or, in the words of Article 44 (3), that acceptance of the clause – which is sought to be terminated – was not an essential basis of the consent of the other party or parties to be bound by the treaty as a whole. This is essentially an indirect reference to the object and purpose of the treaty.

The importance of the ISDS provision – which is the clause which the EU Member States would want to terminate –, in this context, is fundamental. Firstly, an investment treaty lacking an ISDS mechanism would be devoid of all practical effect (Opinion of Advocate General Wathelet in the Achmea case, § 207; although the AG referred to BITs in the context of this statement, the reasoning can easily apply to any investment agreement since the importance of ISDS is the same). Secondly, it can be seen that a proper investment framework is an important element needed to attain the object and purpose of the Energy Charter Treaty. This is demonstrated by the ECT’s preamble, which repeatedly mentions the importance of a proper investment regime to the attainment of the ECT’s goals.

In this context, in order to understand the impact of a partial termination of the ECT as between EU Member States in the case of the ISDS provision of the ECT and the relationship of the ISDS provision to the object and purpose of the ECT, consider the following: if EU Member States were able to denounce the ISDS clause of the ECT as between them and leave the treaty in effect between them and the other parties – from outside the EU –, this would, effectively, create micro-regimes within the ECT system – especially since energy investment in the EU by investors from within the EU would not be covered by the ECT anymore or, at least, not by the ISDS clause. Would this not defeat the object and purpose of the treaty, since such a fragmentation would hinder the possibility of attaining the objectives the treaty was supposed to achieve? Perhaps the most important objective the ECT set out to achieve was a “level playing field for investment in the energy industry, which is notoriously complex, expensive and long-term in nature (Norah Gallagher, The Energy Charter Treaty (1994) (ECT), WORLD ARBITRATION REPORTER 2d Edition, p. 3). Additionally, proper investment in the energy sector is needed for attaining security of supply (Sanam S Haghighi, Energy Security. The External Legal Relations of the European Union with Major Oil- and Gas-Supplying Contracts, Hart Publishing, Oxford and Portland, Oregon, pp. 24-25).This is because investments in the energy sector are characterised by a Return of Investment spanning sometimes even several decades. Thus, an investor wants to be assured that the protections will be in place over such a time-span. However, lack of such protections – which refers to the existence of ISDS, as well – may disincentivise a potential investor to invest in the energy sector. And this is how security of supply may be compromised, in addition to compromising the object and purpose of the ECT, in the first place.

The previous considerations can reasonably lead to a conclusion that any termination as regards the ISDS provision of the ECT is not possible owing to the provisions of Article 44 (3) of the VCLT, because of the importance of ISDS to the object and purpose of the ECT. What this means, effectively, is that EU Parties have only one choice: termination of the ECT as between themselves – whether in its entirety or only partially – only by agreement between all the parties to the ECT. Such an outcome is hard to imagine: non-EU ECT parties’ companies have subsidiaries registered in the EU. If the intra-EU investment regime in energy matters governed by the ECT were to be affected (or even the ECT in its entirety as between EU Member States), this would effectively affect such companies. Because of this, it is highly unlikely that the other ECT Parties would agree to partial termination of the ECT as between EU Member States – either as to the entire treaty or only regarding Article 26 (3) of the ECT.

As such, it has to be concluded that EU Member States which are parties to the ECT cannot, only on the basis of their own will, terminate the ECT as between themselves – neither completely nor partially. And since it is practically very hard to envision acceptance by the non-EU parties – among them existing energy-exporting states which hold negotiating power – as regards intra-EU ECT termination, the answer must be that, for practical purposes, it is more likely that the EU Member States cannot terminate the ECT.

  1. Could the EU’s international responsibility be engaged for the Achmea decision?

Whatever the answers to the previous enquiries are, the EU is bound by the provisions of the ECT which it accepted when it signed and ratified the treaty. As such, if the Achmea decision refers to the ECT, it is  contrary to the provisions of the latter. In this context, an analysis must be undertaken regarding the responsibility of the EU for internationally wrongful acts. However, such an analysis implies two different steps: firstly, it needs to be seen whether the responsibility of international organisations for internationally wrongful conducts exists under International Law (a). If it can be demonstrated that such responsibility indeed exists, it must be seen if the Achmea decision can lead to engaging the responsibility of the EU (b).

  • Does responsibility for internationally wrongful acts exist in the case of International Organisations?

The idea behind the existence – or lack – of responsibility for internationally wrongful acts committed by IOs is a complex one and it is not my attempt, within the present analysis, to exhaustively address it. However, for clarity of the argument, before analysing the issue of the Achmea case, the following need to ascertained: firstly, is there any legal basis for responsibility of IOs? Secondly, what is the scope of such responsibility in the case of the IOs and, specifically, in the case of the EU?

It is accepted in legal literature that there exists a legal basis for the responsibility of IOs (Mirka Möldner, Responsibility of International Organizations – Introducing the ILC’s DARIO, in A. von Bogdandy and R. Wofrum (eds.), Max Planck Yearbook of United Nations Law, Volume 16, 2012, pp. 286-287; Konrad Ginther, International Organizations, Responsibility, in Rudolf Bernhardt (ed.), Max Planck Encyclopedia of Public International Law. International Organizations in General. Universal International Organizations and Cooperation, Elsevier Science Publishers B.V., Amsterdam, The Netherlands, 1983, p. 162). Whether this is based on custom, principle or even the international legal personality of the IO is not important for present purposes (although it is accepted that the legal source for responsibility of IOs for internationally wrongful acts could be any of the previously-mentioned sources). However, what must be mentioned, here is that it can hardly be argued that there exists a single unified regime regarding the framework of international responsibility of IOs for internationally wrongful acts (see p. 5 of the linked article). The difference between IOs, their legal characteristics – such as the principle of speciality – do not justify a single legal regime (Ibid.). As such, I will not pursue this analysis by relying on the general framework set by the International Law Commission’s Draft Articles on Responsibility of International Organizations (DARIO). They are not considered to reflect customary international law (p. 9 of the linked article) and, at the same time, they offer a general framework whereas I referred earlier to the fact that hardly any general regime can be considered to exist to this end. What I will do, instead, is look for any legal elements which could justify the responsibility of  the EU for internationally wrongful acts.

A solution can be found in one of the EU’s internal acts themselves: EU Regulation No. 912/2014 establishing a framework for managing financial responsibility linked to investor-to-state dispute settlement tribunals established by international agreements to which the European Union is party. It is provided there that financial responsibility arising from a dispute under an agreement (IIA) shall be apportioned to the Union when such financial responsibility arises from treatment afforded by the institutions, bodies, offices or agencies of the Union (a) or when such financial responsibility arises from treatment afforded by a Member State where such treatment was required by Union law (Article 3, 1. of Regulation No. 912/2014). It is true that this provision refers to financial responsibility – which entails an obligation to pay a sum of money awarded by an arbitration tribunal or agreed as part of a settlement and including the costs arising from arbitration (Article 2 (g) of Regulation No. 912/2014) – and not exactly to what is commonly understood as responsibility for internationally wrongful acts. However, such financial responsibility cannot exist in a void. Unless a violation of an IIA occurred (under Public International Law, this is a violation of the primary norms which triggers the secondary norms on responsibility and, specific to the present regulation, the norms on reparation – financial responsibility), financial responsibility would not exist. Moreover, the premises for engaging the financial responsibility of the Union is that the Union was actually the catalyst to the infringement of the IIA (under Public International Law, this would actually refer to attribution of the acts to the EU). It is doubtful that the EU would have adopted such a legally binding document on itself unless it had considered that there existed an obligation under Public International Law to provide reparation for internationally wrongful acts which could be attributed to it (this being a sign that the EU acted out of a sense of obligation when it bound itself to the triggering of its financial responsibility for internationally wrongful acts caused by it – essentially, this would be the opinio juris of the customary norm on responsibility). And because the secondary norms on responsibility for internationally wrongful acts are inextricably linked to the primary obligations of the States/ International Organisations under Public International Law and, in all actuality, cannot exist if the primary ones are not breached, one can only analyse the law on responsibility of IOs for internationally wrongful conducts in this context. As such, the entire procedure would be: firstly, an analysis of the breach of the primary norm would be made; secondly, attribution of the initial violation would be undertaken, which would result in engaging the responsibility of the perpetrator; finally, reparation would occur – which is what the financial responsibility actually means. Because of this procedure, there cannot exist reparation – financial responsibility – without attribution and, continuing the reasoning, without a breach of the primary norm. Thus, the EU actually conceded within Regulation No. 912/2014 that it considered itself bound by the customary norm on responsibility of IOs for internationally wrongful acts – and, implicitly, that this is part of International Law.

One must admit the possibility that a counterargument can be brought as regards the previous argument along the following lines: Regulation No. 912/2014 is a legally binding instrument for intra-EU relations and, as such, it does not reflect opinio juris as regards a customary norm on responsibility of IOs for wrongful acts on part of the EU. While prima facie this could seem true, a look at the context and language of the Regulation would render such a counterargument moot. Firstly, the Regulation is concerned with the EU’s external relations with other subjects of International Law. This means that it reflects the EU’s perspective on the international law of Multilateral Investment Treaties, which is, in the end, concerned with primary obligations of Public International Law. Secondly, it is expressly provided within the Regulation what shall happen when the EU is a respondent in arbitration proceedings initiated by a claimant (Article 4 of Regulation No. 912/2014). Both the previous considerations clearly state that the Regulation reflects the EU’s opinion as to its legal relations under Public International Law. Because of this, the conclusion that the Regulation No. 912/ 2014 reflects the EU’s opinio juris as regards responsibility of an IO for internationally wrongful conducts – at least those in breach of a Multilateral Investment Treaty, if it is considered that different customary rules apply (or do not exist) when different regimes are concerned – is valid.

Another counterargument which could be brought against the international responsibility of the EU is that a  custom as the one mentioned earlier is hard to ascertain due to lack of clarity regarding the practice element of a custom. In any case, the legal basis for engaging the EU’s responsibility for internationally wrongful acts does not even have to be a custom. As mentioned earlier, the source of such responsibility could be a principle of law. Moreover, an unilateral act could give rise to obligations under International Law (Wilfried Fiedler,  Unilateral Acts in International Law, Rudolf Bernhardt (ed.), Encyclopedia of Public International Law. History of International Law. Foundations and Principles of International Law. Sources of International Law. Law of Treaties, Elsevier Science Publishers B.V., 1984, pp. 517-518 and 522). Regulation No. 912/2014 is such an unilateral act  (from an International Law point of view, as it concerns the EU as a single entity) for purposes of ascertaining an obligation of reparation on the part of the EU – an obligation which could not logically exist without engaging the responsibility of the EU. What is relevant, however, is that Regulation No. 912/2014 demonstrates more than the EU’s opinion juris as regards its international responsibility for internationally wrongful acts in investment matters. The position of the EU is that there indeed is a legal obligation (this can be ascertained from the mandatory language employed within Regulation No. 912/2014 and from its binding character) and not just a sense of a legal obligation to provide reparation for internationally wrongful acts attributed to the EU in the sphere of investment agreements to which the EU is a party. In other words, the source of the legal obligation must not necessarily be the custom; it can be any of the previously-mentioned sources. And, continuing the reasoning, this demonstrated the existence of international responsibility on the part of the EU for such internationally wrongful acts.

As for the legal forum where the responsibility of the EU for violations of the ECT could be engaged: that would be an arbitral tribunal which shall rule upon issues concerning the ECT – this is supported by Regulation No. 912/2014 and was reinforced by an arbitral tribunal (Electrabel S.A. v. The Republic of Hungary (ICSID Case No. ARB/07/19). Decision on Jurisdiction, Applicable Law and Liability, § 3.21).

  • Can the Achmea decision be considered a breach of the ECT and, as such, entail the responsibility of the EU?

It was demonstrated that the EU’s responsibility can be engaged for breaches of international investment agreements and, moreover, that the EU itself acknowledges this by undertaking the obligation to repair the harm caused by its acts or by those of EU Member States generated by it. This means that there is legal basis for attribution and reparation of the wrongful act. As such, is the Achmea decision such an act? At this point in time, it is too early to tell clearly. The premise of this part is that the Achmea decision refers to the ECT. Thus, the effects would be that EU Member States, sitting as respondents in intra-EU arbitration on the basis of Article 26 (3) of the ECT, would be in breach of EU Law. Contrariwise, respecting the Achmea decision would entail breaching Article 26 (3) of the ECT. As such, if an arbitral tribunal found such a breach, attributed it to the EU and, moreover, found that such breach gave rise to an obligation of reparation (financial responsibility), this would demonstrate that the EU’s responsibility for the Achmea decision could be engaged. However, this would not be a typical investment arbitration as the tribunal would not be judging a violation of investment standards of protection. It would be effectively analysing a violation of the arbitration clause in the ECT. Nonetheless, there is the possibility that this violation could give rise to a claim based on the Fair and Equitable Treatment standard, for violation of legitimate expectations as regards dispute settlement. But even if the claim is based only on a violation of Article 26 (3), legal cause for such a claim would still exist. This is because the applicable law would be the ECT in its entirety, not only the investment standards of protection (Article 26 (7) of the ECT). What remains to be seen is whether the Achmea decision itself is enough for a claim against the EU or if EU Member States need to act on the basis of the Achmea decision in order to generate a claim against EU. Practically, it is more likely that the latter would be the case, since harm would be easier to assess in that context.

In conclusion, the Achmea decision – if it is considered that it refers to the ECT, as well – can potentially give rise to the engaging of the EU’s international responsibility for internationally wrongful acts.

  1. Systemic effects of the Achmea decision:

As mentioned in the beginning, this point of analysis is applicable only if it is considered that the Achmea decision refers to the Energy Charter Treaty, as well.

When I analysed the applicability of the Achmea decision to the Energy Charter Treaty, I referred to the negotiating history of the ECT. I mentioned, in that context, that the negotiating parties rejected a proposal by the European Commission to derogate from the rules of the ECT – even those concerning the dispute-settlement clause in Article 26 (3) – as between the EU Parties. Nonetheless, the EU still signed and ratified the ECT, essentially admitting under Public International Law that the ECT shall be applicable to the EU parties.

This has strong implications, from a systemic point of view: if the EU is concerned about rule of law standards – especially coherence –, it has to take into account the obligation under Article 26 (3) of the ECT taken together with the representations it made during negotiations to the ECT. The issues of coherence regard the relations between the EU and the other parties to the ECT – even EU Member States which, under Public International Law, are different formal parties to the ECT than the EU and their interests may not always converge. Here, coherence is a fundamental aspect of the liberal doctrine within International Relations which comes to explain the functioning of the Public International Law mechanism (Andrea Bianchi, International Law Theories. An Inquiry into Different Ways of Thinking, Oxford University Press, Oxford, United Kingdom, 2016, pp. 113-114). In other words, coherence is a fundamental pillar of the rules-based international order on which especially the Western Powers seek to rely. Since the rules-based international order manifests itself within an anarchic world where a central executive agency which could guarantee the enforcement of the rules does not exist, coherence has a special meaning in this context. And since the liberal theory of international relations which I mentioned earlier and which underpins a great number of arguments regarding the effectiveness of international law as a part of a rules-based international order, is based, among others, on international cooperation and mutual benefits, coherence is, effectively, necessary for such cooperation and trust to exist. Because of this, without coherence there would hardly be any stable international legal order. In other words, when one of the major economic actors in this system – the EU – is not coherent in its approach to its international obligations and is actually trying to enforce its views regarding the supremacy of EU Law to the detriment of International Law upon its member states, any feeling of mutual benefits and international cooperation is eroded. Trust in the actions of the major international actors becomes scarce and incentives actually appear which determine the other actors to start ignoring international rules, as well. This is basically the prisoner’s dilemma after one of the parties deflected. One can easily imagine the future responses of the other parties after experiencing the real risk of deflection and wondering whether such deflection is recurrent. And this is how cracks appear in the current international law architecture. As such, the most important actors of such an international order – the EU being among them – have a special duty to ensure that this order is maintained and that the mechanism which underpins the effectiveness of this order is properly functioning. Thus, the EU – a proponent of the rules-based international order – should reassess its approach to its international obligations and, in this specific case, to the ISDS provision within the ECT.

  1. Conclusion:

There is no clear and predictable answer as to what will happen after the Achmea decision as regards the Energy Charter Treaty. The variables are numerous and they are generated by decisions adopted by different actors: the ECJ – in its future decisions and opinions on the issue of ISDS, such as the opinion requested by Belgium regarding investment provisions contained in CETA; the EU Member States – who have yet to decide what will their approach to the ECT be after some of them decided to terminate intra-EU BITS; and, finally, arbitral tribunals who are faced with challenges to their jurisdiction, requests to reopen proceedings or to review their decisions or simply the fact that such tribunals are faced with an additional element which must be accounted for when adopting decisions to the ECT cases which are still pending before them. However, what is certain is that the whole issue has gone past the point where the catalyst to future evolutions was the CJEU. While the CJEU still plays an important role in this whole issue – perhaps the most important one –, it is not alone anymore in influencing the final outcome. Nonetheless, it can still find a way to balance the interests and recreate a framework of relative predictability. But in order to do this it must account for several considerations: it must understand that the EU legal regime is not a self-contained one and any future decision on the part of the CJEU as regards ECT Arbitration has several implications which are, in essence, produced under the framework of Public International Law and not only under the framework of EU Law. Ignoring those aspects may lead to severe hidden consequences which nobody would desire: weakening of the ECT and more unpredictability in the energy sector; questions of responsibility under Public International Law for internationally wrongful acts; and, perhaps most important, problems of coherence both at International and EU regional level. In the end, all the above create problems of legitimacy and one can ask himself: are the consequences really bringing more benefit than harm?


* I am aware of the European Commission’s latest Communication on Protection of intra-EU investment (19.7.2018). And while it is true that the Commission expressly referred to the Energy Charter Treaty investor-State arbitration mechanism established in Article 26 of the Energy Charter Treaty as being covered by the Achmea decision (pp. 3-4 and 26 of the cited Communication), the present analysis is still relevant, as are the arguments herein. This is because of two reasons: firstly, the aforementioned Communication is, essentially, the EU Commission reinforcing its traditional position as regards intra-EU investment arbitration. However, this is not a new position on the part of the EU Commission, as it has repeatedly argued against the incompatibility between intra-EU Investment Treaties (including the investment provisions of the Energy Charter Treaty) and the EU Legal Order. Secondly, the EU Commission’s Communication does not clarify the Achmea decision itself. Unless the CJEU expressly and unambiguously considered the Energy Charter Treaty as being contrary to the EU Legal Order, the questions regarding the scope of the Achmea decision and its applicability to the Energy Charter Treaty would still exist.

UK post-Brexit cannot escape the impact of EU law and of the Court of Justice of the EU  

 

Prof. Dr. Nikos Lavranos, LLM (Secretary General of EFILA)

In recent weeks, the UK has published several papers explaining its aims of leaving the EU and how it intends to shape its future trade relationship with the EU.

One of the aims repeatedly publicly stated by the UK will be “to end the direct jurisdiction of the Court of Justice of the EU (CJEU)” as declared in the UK’s paper on ‘Enforcement and dispute resolution’.

Moreover, in another UK paper on the ‘Future customs arrangements’, the UK stated that the “exit from the EU will provide considerable additional opportunities for UK business through ambitious new trade arrangements and comprehensive trade deals that play to the strengths of the UK economy”. In order to achieve that, the paper argues that “the UK will need an independent trade policy, with the freedom to set for ourselves the terms of our trade with the world”.

In other words, the UK is hoping that by leaving the EU it can escape the impact of EU law and of the Court of Justice of the EU (CJEU).

But is this really possible and realistic?

From the outset, the UK already admitted that EU law and the jurisprudence of the CJEU will continue to play an important role in the domestic legal order of the UK. Indeed, in the ‘Enforcement and dispute resolution’ paper, the UK explicitly admits that the “Repeal Bill will give pre-exit CJEU case law the same binding, or precedent, status in UK courts as decisions of our own Supreme Court to ensure a smooth and orderly exit”.

If that is taken as a starting point and one examines what will happen in the field of trade and investment law before the CJEU until March 2019 when Brexit is envisaged, it becomes crystal clear that the room for manoeuvre for the UK is highly limited.

The CJEU will shape the EU’s future trade and investment law

  1. Achmea case

The first case in line, is the Achmea (formerly known Eureko) case. This case concerns the preliminary ruling questions of the German Supreme Court (Bundesgerichtshof) in which it essentially asks the CJEU to rule whether investor-state dispute settlement (ISDS) proceedings based on an intra-EU BIT are compatible with EU law. Achmea had won an arbitration award of about 20 million EUR against the Slovak Republic, which the Slovak Republic is trying to set aside before German courts. Although, the German courts so far have rejected the efforts of the Slovak Republic, the Bundesgerichtshof decided to put this matter before the CJEU.

On 19 September 2017, Advocate General Wathelet delivered his Opinion in the Achmea case. Interestingly, he opined that intra-EU BITs and ISDS under these BITs are in full conformity with EU law. At the same time, he argued that international arbitral tribunals are to equalized with domestic courts/tribunals of EU Member States. Consequently, arbitral tribunals established on the bases of intra-EU BITs should be allowed to ask preliminary questions to the CJEU, while at the same time they are fully bound by EU law and CJEU jurisprudence.

It remains to be seen whether the CJEU will follow this rather innovative approach. However, if the CJEU were to decide in mid-2018 that arbitration on the basis of intra-EU BITs is incompatible with EU law, this would be the end of the ca. 190 intra-BITs. This would also affect the 10 intra-EU BITs, which the UK currently has with other EU Member States (i.e., with Bulgaria, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia and Slovenia). In this context, it is interesting to note that a UK investor has just brought a case against Poland based on their intra-EU BIT. That may soon not be possible anymore, if this and the other intra-EU BITs are judged by the CJEU to be incompatible with EU law. On the other hand, if the UK is able to maintain its intra-EU BITs after Brexit, it could become an interesting location for foreign investors to structure investments through the UK in order to benefit from them. The additional advantage would be that these BITs are based on the “Dutch gold standard” model BIT and thus provide a significantly higher level of protection that the so-called new general investment treaties such as CETA.

  1. Micula case

The other case, which will be of significant importance is the Micula case. This case concerns the enforcement of a 250 million USD ICSID award by Swedish investors against Romania. While Romania was ready to pay out the award, the European Commission has prohibited Romania to do so because the payment of the award would – according to the Commission – constitute illegal state aid to the Micula brothers. Romania – being forced to give priority to EU law – has thus stopped paying the award. The Micula’s have brought an annulment case before the CJEU. If the CJEU were to follow the European Commission, this could mean that ICSID awards may not be so easily and automatically enforceable within the EU as they are supposed to be in accordance with the ICSID Convention. In order to avoid such insecurity, which is caused by the Commission for its own policy interests, the UK post-Brexit may become the preferred place to enforce awards against other EU Member States.

  1. The Belgium questions on the compatibility of the Investment Court System (ICS)

Another very recent development concerns the questions, which Belgium has put to the CJEU as regards the compatibility of the Investment Court System (ICS) with EU law. It will be recalled, that Belgium had promised Wallonia to request an Opinion of the CJEU on this matter in return for Wallonia’s agreement to agree on CETA. As is well known, the ICS is already included in CETA and the FTA between the EU and Vietnam. Indeed, the European Parliament has repeatedly stated that it will only accept EU FTAs with the ICS included. However, the EU-Singapore FTA does not yet include the ICS because the negotiations were concluded long before the ICS proposal came out. Due to the position by the European Parliament, the European Commission has no choice but to re-open the negotiations with Singapore. However, it remains to be seen whether Singapore will accept the ICS.

If that is the case and the EU-Singapore FTA, which the UK has signed, would enter into force, it would replace all the BITs between the EU Member States and Singapore. This would also include the UK-Singapore BIT, which dates from the 1970s.

Consequently, if the EU-Singapore FTA would enter into force before the UK leaves the EU, the UK would lose its BIT with Singapore and would also have to leave the EU-Singapore FTA. In other words, the UK would be left with no investment treaty, unless the UK is able to delay the entering into force of the EU-Singapore FTA until after Brexit. In that case, the UK could maintain its BIT with Singapore and would not be affected by the EU-Singapore FTA – whether or not it has to include the ICS.

Either way, the Opinion of the CJEU on the compatibility of the ICS with EU law will be important for the UK post-Brexit.

Firstly, because the UK Government has already publicly admitted that it does not have the capacities to negotiate many new trade agreements on its own. Instead, it will – as far as possible and as far as the third countries agree – copy and paste the EU’s FTA texts.

Secondly, if the CJEU were to conclude that the ICS is compatible with EU law and this Opinion comes out before March 2019, it will also be binding on the UK.

Consequently, the UK may be forced to accept the ICS proposal in CETA, EU-Vietnam FTA and EU-Singapore FTA – whether or not it agrees with it.

In fact, it may very well be that third states will push the UK to copy and paste as much as possible the EU FTAs texts in order to reduce the degree of potential inconsistencies.

In this context, it should also be mentioned that CETA will provisionally enter into force on 21 September 2017, which means it will also be binding on the UK as of that date. Even though the ICS provisions are excluded from the provisional application, once the CJEU gives its green light on the ICS question, the ICS provisions will be applicable also to the UK – if the UK is still member of the EU. But even if these provisions become applicable only post-Brexit, Canada, Vietnam, Singapore and other states such as Australia and New Zealand are very likely to demand the inclusion of the ICS provisions in their new investment treaties with the UK.

The new dispute settlement body for the post-Brexit UK-EU trade relations

Another important and unresolved issue regarding the future relationship between the post-Brexit UK and the EU concerns the issue of who should settle any disputes between the two and their respective citizens and companies?

For the EU the only acceptable and obvious solution would be the CJEU. However, for the UK that would be an unbearable solution because it would prevent it from achieving its stated aim of “ending the direct jurisdiction of the CJEU”.

Arbitration, which the UK had suggested, is probably an untenable solution in light of the recent backlash against arbitration within the EU.

Equally, the International Court of Justice (ICJ) would not be a practical option for the EU.

Consequently, the only possible option seems to be the EFTA court or a new court similar to it. Prima facie, this would be an acceptable compromise for both parties. The UK could argue that this is not an EU court anymore and that it would no longer be under the “direct” jurisdiction of the CJEU. The EU could agree to it because the CJEU has accepted the EFTA court as the only other international court that is allowed to interpret and apply EU law – all be it by being required to copy and paste the CJEU case-law, which means that the CJEU “indirectly” exercises jurisdiction over the EFTA countries. Accordingly, while the EFTA court could be a workable solution, it would at the end of the mean that the CJEU would continue to have an “indirect” but nonetheless significant impact on the domestic courts of the UK, which is not what the Brexiteers promised.

A reality check: The UK cannot escape the impact of EU law and the CJEU

The only realistic conclusion from the above is that the UK cannot escape the impact of EU law and of the CJEU – long after it has left the EU. In fact, the next 18 months will be of paramount importance for the UK’s future trade and investment policy.

However, so far it seems that this reality has not yet fully been accepted by the UK Government and its negotiators. But a precondition for successful negotiations is to have a full and realistic understanding of one own’s position and the position of the other party in order to achieve an optimal result. Ignoring the impact which the above-mentioned CJEU decisions will have on the EU’s and UK’s trade and investment policy would be a costly mistake.

The Helping Hand of the MFN for the Intra-EU Bilateral Investment Treaties

Rimantas Daujotas, Motieka & Audzevicius PLP*

As it was recently announced, Slovakia has succeeded in referring the legality of intra-EU bilateral investment treaties to the European Court of Justice, as part of its bid to stop Dutch insurer Achmea from enforcing a €22 million UNCITRAL award. In a decision on 3 March 2016, Germany’s Federal Court of Justice ruled that it would make a preliminary reference to the ECJ on the question of whether the arbitration clause in the Slovakia-Netherlands bilateral investment treaty conflicts with EU law.

Achmea won the award in 2012 from a tribunal at the Permanent Court of Arbitration in The Hague. The tribunal found the state had breached the Slovakia-Netherlands BIT when it adopted measures prohibiting private health insurers from distributing profits to shareholders. Those measures were overturned by Slovakia’s Constitutional Court in 2010.

But Slovakia argued that the tribunal lacked jurisdiction because the BIT’s offer to arbitrate disputes expired when the state acceded to the European Union. It also contended that the tribunal failed to apply EU law, which the state argued forbids arbitration of investor-state disputes under intra-EU BITs where questions of EU law are involved.

In 2014, the Higher Regional Court of Frankfurt am Main dismissed Slovakia’s argument, ruling that the EU law in question merely prevents member states from submitting EU law disputes with one another to arbitration. Disputes between states and EU national private investors, the court said, could still go to arbitration. Based on the decision of 3 March 2016 by Germany’s Federal Court of Justice, that question will now go to the European Court of Justice to be decided.

The preliminary reference asks the ECJ to consider whether the BIT’s arbitration clause is consistent with Article 344 of the EU Treaty, which provides that “member states undertake not to submit a dispute concerning the interpretation or application of the [EU] Treaties to any method of settlement other than those provided for therein.” It also asks whether the arbitration clause in the Netherlands-Slovakia BIT constitutes discrimination against EU nationals whose home states do not have such a treaty with either the Netherlands or Slovakia, and therefore cannot benefit from the treaty’s arbitration clause. It notes, however, that should the clause be ruled discriminatory, that would not necessarily make it a dead letter: rather, the court suggests, any EU national might be able to access the arbitration clauses of any intra-EU BIT.

The last point of the Germany’s Federal Court ruling is particularly interesting, as it potentially argues on the possibility of any EU national to be able to access the arbitration clauses of any intra-EU BIT. Scholars and practitioners, such as Nikos Lavranos, secretary general of ISDS think tank EFILA, said that EU discrimination law might open the BITs’ arbitration provisions up to all EU nationals – “All EU investors should be treated the same, even if formally the BITs only apply to the signatory parties and their nationals, they should under EU law be open to all EU investors. We all have EU nationality, and discrimination on grounds of nationality is clearly prohibited under the treaties. The BITs have to be interpreted in light of that aspect of the EU treaties”.

The argument that all EU companies have EU nationality is particularly relevant. Similar issue was raised by the respondent in Poštová banka and Istrokapital v. Greece where the Respondent argued that as a societas europeas (“SE”), Istrokapital was formed and existing under the law of the EU and not under Cypriot law. In view of the fact that the EU is not a Contracting State of the ICSID Convention, Istrokapital allegedly did not qualify as an investor under Article 25(1) of the ICSID Convention. In addition, the Respondent contended that if, due to its SE nature, Istrokapital was considered to have been incorporated in Cyprus, as Claimants claimed, it had to be equally considered as incorporated in any of the other EU Member States, including Greece, and would therefore bear Greek nationality as well.

Claimants, on the other hand, argued that the nationality of a juridical person under Article 25(1) of the ICSID Convention is determined by its place of incorporation or registered office. Thus Claimants contended that the Respondent’s arguments to the effect that Istrokapital was not deemed a “national of another Contracting State” under Article 25 of the ICSID Convention mischaracterized and disregarded applicable EU law. Claimants asserted that pursuant to the European Company Regulation, SEs must be treated as public limited-liability companies of the Member State in which they have their registered office. Moreover, Claimants sustained that, per the European Company Regulation, SEs are domiciled in one single State and the fact that they can transfer their registered office within the EU did not mean that they had multiple nationalities or no nationality because such transfer was subject to registration in a Member State at a time.

Unfortunately, the tribunal firstly concluded that it lacked jurisdiction ratione materiae to entertain the dispute and deemed not necessary to examine the remaining objections to jurisdiction concerning absence of jurisdiction ratione personae and ratione temporis.

However, arguments of both sides seem particularly relevant when discussing whether all EU companies have EU nationality and any EU national might be able to access the arbitration clauses of any intra-EU BIT. Notwithstanding the problem concerning EU not being signatory to ICSID Convention (which may be rebutted by the fact that tribunal’s jurisdiction is firstly derived from the relevant BIT or that it would not work in non-ICSID arbitrations), another important aspect should be considered when discussing assess to any intra-EU BIT by EU nationals and that is – the MFN clause.

It is clear that all or most of the intra-EU BITs include the MFN clause which particularly prohibits discrimination on grounds of nationality. Thus, due to the MFN clause, distinctions based on nationality or additional requirements concerning nationality which are not allowed at the merits stage of the dispute, should also be prohibited when considering the jurisdictional phase of the dispute.

For example, if the MFN clause is also applied to the definition of the investor, i.e. to the requirements the investor should possess in order to be afforded protection granted under the basic treaty, does it mean that treatment afforded under the third party treaty (also intra-EU BIT) which is more favourable (e.g. less nationality based requirements) should also be applied to the investor bringing its claim under the basic treaty? In particular, could the investor use more favourable intra-EU BIT in order to be afforded protection under the basic treaty (also intra-EU BIT)? It is clear that this is a question of the scope of the MFN clause and since the definitions of “investor” and “investment” are pre-conditions of the investment-treaty tribunal’s jurisdiction, these questions could only be answered while analyzing the basis for the tribunal’s jurisdiction and relationship of the MFN clause thereof.

The view, as it stands right now on the scope and applicability of the MFN clause for jurisdictional purposes, is very divergent. Some practitioners had fiercely denied the possibility to apply MFN clause to either ratione personae or ratione materiae requirements.

However, applicability of the MFN clause to the jurisdictional provisions of the BITs was confirmed by the tribunals in Bayindir v Pakistan, MTD Equity v Chile were they argued that access to these procedural mechanisms is a part of the protection afforded under the treaty. The tribunal in Siemens v Argentina which considered the applicability of the MFN clause to dispute resolution provision had stated that “dispute settlement is as important as other matters governed by the BIT and is an integral part of the investment protection”. In RosInvestCo UK Ltd v Russia the tribunal held that the MFN clause in the UK-Russia BIT extended to dispute resolution provisions, however, the tribunal found that the UK claimant’s claims alleging breaches of the BIT’s expropriation provisions fell outside the scope of the BIT’s arbitration clause, which limited arbitration to a determination of the amount of compensation once expropriation had been established. Notwithstanding the latter, the tribunal concluded that it had jurisdiction over the expropriation claims because the Denmark-Russia BIT contained an arbitration clause broad enough to encompass the claims. Therefore, the UK-Russia BIT’s most-favored-nation clause allowed the claimant to expand jurisdiction ratione materiae.

Thus, taking into account the above, it seems that there are legitimate grounds to analyze the application of the MFN clause to the definition of investor or the ratione personae as well.

Since the prevailing view is that the appropriate comparator for the aggrieved investor are other investors in the same sector or who are competitors, a hypothetical scenario may be construed where two investors, legal persons, both from the EU invest in similar business sectors in other EU host-states. In this sample scenario, it is clear that the MFN clause would prohibit to impose heavier burdens for such similar investors coming from different EU Member states.

The result is that if one the EU investors is incorporated in the EU Member state or is incorporated as a societas europeas (“SE”) coming from other EU member state, it would only need to prove that it is constituted under the laws of any EU member state and nothing more, similarly as to the investor coming from other EU member state. Since Recital 6 and Article 1(1) of SE Regulation confirms that a SE derives its existence and legal personality from EU law, it could be claimed that such an investor is the EU national for the purposes of tribunal’s jurisdiction. That implies that other EU investors may not be afforded treatment less favourable than any other investor coming from the EU.  Now, if due to its SE nature, EU investor would be considered to have been incorporated in EU as a whole, it would be equally considered as incorporated in any of the other EU Member States, including the host-state. However, this does not seem a problem since most of the BITs also require to accord national treatment, that is, treatment no less favorable than that accorded to its nationals. Thus the result is the same as in the case of the MFN.

Effectively, based on this example, it could be argued that any intra-EU BITs, which provide any additional nationality requirements, in addition to the one which requires establishment in the EU Member state, would be contradictory to the MFN clause. Such a theoretical approach is confirmed by the analogous practice of investment treaty tribunals’ addressing the relationship between dispute resolution clauses or substantive protection clauses and the MFN clause referred to above.


Rimantas Daujotas – PhD Scholar at the Queen Mary University, Senior associate at Motieka & Audzevicius PLP