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.

Report on the 5th EFILA Annual Conference held on 30th January 2020 in London

by Dr. David Pusztai (Quinn Emanuel Urquhart & Sullivan, LLP

The European Federation for Investment Law and Arbitration (EFILA) held its 5th Annual Conference on 30 January 2020 in London, with a focus on Investment Arbitration in the EU: Alternatives to Intra-EU BITs”. As the Secretary-General of the International Centre for Settlement of Investment Disputes, Meg Kinnear, noted in her keynote speech, there is no small irony in alternative dispute settlement” today being understood as a reference to alternatives of investment arbitration. Arbitration has traditionally been perceived as the epitome of alternative dispute settlement mechanisms, yet today the attention shifts to its alternatives: back to domestic court proceedings, to conciliation, mediation and fact findings.

The Secretary-General stressed that ICSID responds to the call for alternatives. Kinnear discussed proposed changes to the ICSID Conciliation Rules, as well as the proposed mediation and fact-finding rules in great detail. The upshot of consultation with stakeholders at the ICSID level was that parties expect less formalism, more flexibility in procedures, and more available procedural options. These considerations have been key pointers in articulating the new rules for ADR at ICSID. The Secretary-General also highlighted the inevitable challenges of bringing a project of alternative investment dispute resolution to success. Among these challenges, Kinnear pointed to the unique combination of skills expected from an investment dispute mediator or conciliator. Both a deep understanding of investment disputes and their legal framework, and experience and suitability as a mediator will be required from individuals mediating investment disputes. As several contributors also underscored during the conference, States need to form an official position as to whether they are willing to engage in ADR processes. In most cases, this would require implementing changes to domestic regulatory and institutional frameworks which have been designed for invesment arbitrations, and cannot accomodate other forms of investment dispute resolution.

The keynote speech was followed by a discussion between Monty Taylor of Arnold & Porter, Professor Stephan Schill of the University of Amsterdam, Dr Paschalis Paschalidis of Shearman & Sterling and Arne Fuchs of McDermott Will & Emery, moderated by Lord Goldsmith QC. Whilst endorsing the development of alternatives to arbitration, the participants voiced several concerns that put into doubt the feasibility of ADR in the investment dispute resolution context. It was raised whether governmental officials tasked with decision-making in the course of investment dispute mediations can realistically be expected to undertake full responsibility for the outcome of the dispute settlement process. Incentivising both government officials and ultimate political decision-makers to approach ADR processes in an efficient manner was described as a potential hurdle for ADR to succeed as an investment dispute settlement tool. The panelists also discussed whether alternative dispute settlement procedures risk contracting out” of public law structures and accountability mechanisms, and stressed the need for adequate safeguards against corruption tainting the process. The extent to which ADR can substitute (as opposed to complement) investor-State dispute settlement for EU investors was considered doubtful as long as third State investors retain the leverage of potential investment treaty claims against European Governments.

Three further panels addressed alternatives to investment arbitration from various angles throughout the day. The panel discussions were opened by Professor Loukas Mistelis, the Chair of the Executive Board of EFILA, who commented on contours of the emerging new era of investment protection: investment law being potentially submerged in international trade law, and the potential return of contract-based investment disputes. The first panel, chaired by Judge Christopher Vajda of the Court of Justice of the EU, considered investment protection under EU law. Judge Vajda outlined the pertinent case law of the Court of Justice, and explained the Court’s interpration of the scope of the Charter of Fundamental Rights, which is expected to be a potential legal basis for investment claims pursued before courts of Member States in the future. The panelists, Alejandro Garcia of Clyde & Co, Dr. Patricia Nacimiento of Herbert Smith Freehills Germany LLP and Dr. Alexandra Diehl of White & Case addressed the status quo of investment protection post-Achmea. The discussion covered the competing theories on the nature of investor rights and whether the termination of sunset clauses can pre-empt recourse to investment tribunals; the leaked draft of the Plurilateral Agreement” being negotiated by EU Member States with a view to terminating intra-EU investment treaties; and changes required in the system of judicial protection under EU law from the perspective of investment protection.

The second panel of the day, moderated by Professor Nassib G. Ziadé (CEO of the Bahrain Chamber for Dispute Resolution (BCDR- AAA)), focussed on Alternative tools for effective investment/investor protection”. The panel, comprising Mark Appel, Mélida N. Hodgson of Jenner & Block, Eloïse M. Obadia of the International Finance Corporation and Professor Gerard Meijer of Linklaters, discussed in particular the ongoing reform process at ICSID. The central point of the debate, with several contributions from the audience, was how to reconcile the public demand for greater transparency and accountibility in investment dispute settlement with the indispensable confidentiality that mediation or conciliation processes require. A halfway house” approach was considered by the panelists, whereby the fact of the dispute settlement would be public, third party interests would be chanelled into the process, all the while preserving the confidentiality of the proceedings strictly speaking. Echoing the concerns discussed in Meg Kinnear’s keynote speech, the panelists shared the view that awareness and readiness of governments to accomodate ADR at a regulatory level is paramount for ADR to succeed.

The third and final panel discussion of the conference was dedicated to the future of the Energy Charter Treaty and energy investment disputes more broadly. Dr. José Ángel Rueda García of Cuatrecasas presided the panel, with the participation of Robin Rylander of Mannheimer Swartling, Dr. Wojciech Sadowski of KL Gates, Luciana Ricart of Curtis, Mallet-Prevost, Colt & Mosle and Quentin Declève of Van Bael & Bellis. The conversation spanned the overview of pending challenges to ECT awards (specifically SCC awards under challenge before Swedish courts), the ongoing reform of the Energy Charter Treaty (ECT), whether the current system of energy dispute settlement is broken and whether the ECT permits the termination of intra-EU ECT protections. Contributions from the audience triggered further discussion of whether the future regulation of the energy sector, in particular of fossil fuels or nuclear energy, raises public policy concerns analogous to industries where consensus recognises that it is appropriate to afford policy makers and regulators more discretion in interfering with proprietary rights (such as gambling or the tobacco industry).

The conference concluded with Professor Nikos Lavranos, Secretary General of EFILA, and Professor Loukas Mistelis, Chair of the Executive Board of EFILA, thanking the participants for their contributions, announcing the winner of the 2019 EFILA Young Practitioners and Scholars Essay Competition, and inviting submissions for the 2020 round.

EFILA 2019 Annual Conference: The EU and the future of international investment law and arbitration

Description

4th Annual EFILA Conference

The EU and the future of international investment law and arbitration

With the entering into force of the Lisbon Treaty 10 years ago the EU has become a dynamic policy actor in international investment law and arbitration. In particular, within the context of the increasing public concerns against TTIP, BITs and ISDS, the European Commission has been active in “reforming” and “reshaping” the investment law and arbitration landscape, for example with the EU-Singapore and EU-Vietnam FTAs, which contain many “innovative” features such as the investment court system (ICS). Another area in which the increasing influence and interaction between investment law and EU law is particularly visible is the Energy Charter Treaty (ECT).

The 2019 Annual Conference will take stock of these developments by discussing the EU’s external investment policy generally, by focusing specifically on the EU’s approach towards Asia and by analysing the EU’s impact on the ECT. In addition, a high profile key-note speaker will address the Conference.

As was the case in the previous very successful Annual EFILA Conferences, this Conference will again showcase many distinguished and experienced scholars and practitioners in the area of investment law and arbitration. As always, the Conference will be very interactive and allow for sufficient time for discussion between the speakers and the audience.

Click here for the detail draft programme.

Tickets can be purchased here: https://www.eventbrite.co.uk/e/the-eu-and-the-future-of-international-investment-law-and-arbitration-tickets-48123937994

Date And Time

Thu, 31 January 2019

09:00 – 18:00 GMT

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Location

Herbert Smith Freehills London

Exchange House, Primrose St

London

EC2A 2EG

United Kingdom

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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.

The Lack of Any Legal Conflict Between EU Law and Intra-EU BITs/ECT Disputes

 by Dr. Nikos Lavranos LLM, Secretary General of EFILA*

A couple of weeks ago the first award in the series of more than 25 other solar energy cases against Spain was issued.

The case was brought by two companies based in Luxembourg and the Netherlands against Spain on the basis of the Energy Charter Treaty (ECT) arguing that Spain violated its ECT obligations when it adopted measures which retroactively reduced the agreed feed-in tariff and other commitments for solar energy installations.

The majority of the arbitral tribunal concluded that there was no violation of the FET-standard, neither was there a sufficiently serious destruction of the investments of the investors. In other words, the claim was rejected.

In this blogpost I do not want to discuss the outcome of the case, but rather want to highlight one important issue, which is underlying all disputes in which European investors bring a claim against an EU Member States, namely, the relationship between EU law and the hundreds of intra-EU BITs/ECT.

The argument, which has been repeatedly and consistently advanced in all intra-EU disputes by the European Commission and various EU Member States (in particular by Spain, Czech Republic, Slovak Republic) is that there is a legal conflict between EU law and the intra-EU BITs/ECT, which would somehow render the intra-EU BITs/ECT in-applicable or would prevent European investors from using them against EU Member States.

Several arguments have been put forward in this context, which can be summarized as follows.

The first argument, which was advanced in the earlier intra-EU BITs cases, such as in the Eureko v. Slovak Rep. case, by the European Commission (but not in this one anymore), was that due to the accession of the former Central and Eastern European countries to the EU in 2004 and 2007, the existing intra-EU BITs were superseded by EU law.

The second argument, which was also used in this case, is that Art. 344 TFEU would prohibit arbitration proceedings between a private party and a Member State. However, as the arbitral tribunal in this case correctly pointed out, Art. 344 TFEU “literally refers to inter-State disputes, rather than to disputes between EU Member States and private persons”. The numerous domestic court disputes that concern the interpretation of EU legislation belie Spain’s thesis that only EU institutions should have jurisdiction over disputes concerning EU law. For the tribunal, EU Member States could agree to arbitrate disputes that “may involve” EU law issues. Moreover, relying on the EcoSwiss case, the tribunal considered it “universally accepted” that arbitral tribunals have both the ability and the duty to apply EU law. Citing the Electrabel v. Hungary award, the tribunal construed Art. 344 TFEU as a guarantee that the CJEU has the final say on EU law in order to ensure its uniform interpretation. Also, citing Electrabel again, the tribunal underscored that the EU accepted the possibility of investor-State arbitration under Art. 26 ECT when it became a party to that treaty, which does not admit reservations (Art. 46 ECT).

The third argument, which was advanced by Spain, was that the ECT would contain a so-called “implied disconnection clause” for intra-EU disputes. Some international treaties to which all EU Member States are parties indeed contain “explicit disconnection clauses”, which provide that EU Member States will apply relevant provisions of EU law in their mutual relations instead of the international treaty that contains them. However, the ECT does not contain an “explicit disconnection clause”, and neither did the arbitral award accept the artificial construction put forward by Spain and the European Commission of an “implied disconnection clause”.

The fourth argument, again advanced by Spain in this case, was that investors of an EU Member State were simultaneously investors of the EU. Since the EU is a party to the ECT Spain claimed that EU Member State investors could not be considered as “an investor of another Contracting Party”. It was also argued that the definition of “territory” encompassed the territory of all Member States and thus the investors originated in the same “area” or “territory” as they made the investment. The tribunal correctly dismissed this artificial argument. It held that EU Member States did not lose their status as ECT parties when the EU ratified the ECT. Likewise, Spanish territory constituted the relevant “area” or “territory” for jurisdictional purposes and not the EU territory as a whole.

In line with all arbitral tribunals dealing with intra-EU disputes so far, also this tribunal fully rejected all the above mentioned arguments. From a legal point of view, of course, no other solution would be acceptable, since only the explicit termination of the BITs/ECT according to the applicable rules would cease the application of those investment treaties – and only after the sunset clause has expired. A recent example is the termination of the ECT by Italy as of 1 January 2016. But neither the accession of states to the EU nor any provision of EU law stands in the way of investor-State arbitration initiated on the basis of valid investment treaties.

However, more important than the legal conclusions are the political implications. Ever since the first intra-EU disputes popped up – probably the Eastern Sugar case decided in 2007 – the attempts of the European Commission to thwart the invocation of intra-EU BITs/ECT have failed across the board. Moreover, despite the rising number of intra-EU disputes, most Member States consider them still highly necessary and thus have not terminated them yet.

Frustrated by the fact that intra-EU disputes continue to pop up, the European Commission has decided to apply a triple “bazooka approach” to wipe out the use of intra-EU BITs/ECT once and for all.

First, the European Commission launched infringement procedures against 5 Member States because their intra-EU BITs supposedly violate EU law.

Second, in an unprecedented act, the European Commission prohibited Romania to fulfil its international obligations of paying out the Micula award because that would supposedly constitute new, illegal state-aid. The Micula brothers have brought an action against the European Commission, which is currently pending before the General Court of Justice of the EU. Recently, the European Commission went as far as trying to vacate the ICSID award by appealing before US courts.

Third, the European Commission continues to actively intervene in all intra-EU BITs/ECT cases by trying to convince the arbitral tribunals that they lack jurisdiction for the above-mentioned arguments.

While the third approach has so far failed with arbitral tribunals, it is going to be extremely interesting to see whether the first two approaches before the Court of Justice of the EU (CJEU) will eventually succeed.

If this “big bazooka approach” succeeds, it will obviously mean the end of intra-EU investment arbitration proceedings. The question then arises whether the remaining option of using national courts will be of any help for investors/claimants, in particular in light of the shortcomings of the judicial system in many EU Member States.

Thus, it can be concluded that there is no legal conflict between EU law and intra-EU BITs/ECT, but that does not – necessarily – mean that one cannot create a political conflict, which would result into a significant reduction of the level of investment/investor protection within the EU.

But, ultimately, it is for the arbitral tribunals and the CJEU to decide on the basis of the Rule of Law and to deliver justice.


* Nikos Lavranos, Head of Legal Affairs at Global Investment Protection AG; Secretary-General of EFILA.

Before the Other Shoe Drops: The Current State of Renewable Energy Arbitration in Spain

by Clifford J. Hendel, Araoz & Rueda Abogados

Until three or four years ago, both the Energy Charter Treaty in general and arbitration based on it were essentially unknown in Spain. Investment arbitration itself was a rarified specialty, known only to a handful of intrepid companies and a small cadre of advisors. The experience of the few Spanish practitioners who had any typically involved claims brought by Spanish entities against recalcitrant (and often belligerently recalcitrant) states such as Venezuela and Argentina. For so long as ECT and investment arbitration involving Spain was limited to one or two exceptional cases, rather than the “typical” case in which the Spanish party was the investor claiming denial of its treaty rights, the Spanish press paid little or no attention to the issue and the Spanish public remained blithely ignorant. The recently raging debate over ISDS drew little attention in Spain.

Times have changed. The pigeons have come to roost, some have said: Spain is the new Venezuela or Argentina, others have chimed in. An avalanche of ECT cases (24, as of this writing) has been filed against the country in the past few years; ten of these were filed with ICSID in the year ending June 30, 2015. Legal and financial advisors are falling over each other in order to get in on the action. The Spanish government has created (à la Argentina) a specialized internal team of experts to coordinate the defense against these claims, rather than relying (except in the very first cases) on outside counsel.

None of the cases has reached a decision on the merits. Given the amounts at stake, the time inherent in processing claims of this sort, the jurisdictional issues typically raised and the not uncommon practice of bifurcating liability and damages, this is not surprising.

But the older cases are nearing their end, and jurisdictional objections in some of them have reportedly been rejected. The first decisions on the merits are expected during the course of 2016. Before that shoe drops, it is worth taking a look back to see how it happened that Spain has become such a frequent target of ECT claims.

In the past two decades, Spain adopted a clear and concerted policy favorable to the development of renewable energies of all types. The lynchpin of the then-government’s Renewable Energy Plan 2005-2010 was a series of incentives to long-term investment including especially a generous guaranteed feed-in tariff. The policy worked: investment in Spain renewable energies grew spectacularly, and Spain and a number of Spanish companies became leaders in the field.

But it may have worked too well: the amount of investment attracted was excessive and long-term maintenance of the feed-in tariff and generally generous remuneration system seemed a practical impossibility causing government officials to conclude after the financial crisis of 2008 hit that the country could not afford to maintain the remuneration system in place: for a variety of reasons (many having nothing to do with renewable energy and the renewable remuneration system) a gaping “tariff deficit” had opened, with revenues generated by electricity sales being vastly outweighed by the associated costs. So starting in 2010, Spanish governments (of both stripes) have had a consistent policy – evidenced in a bevy of legal and regulatory measures which have the industry up in arms, accusing the government of creating legal uncertainty and damaging the attractiveness of Spain to foreign investors – of limiting payments to renewable investors and investments so as to reduce and (finally) eliminate the tariff deficit.

An essential and highly-controversial aspect of the reforms is the implementation of a new remuneration scheme for electricity generation, based on assuring “reasonable profitability” (linked to the yield of Spanish government bonds) for renewable plants.

Countless challenges to these measures have been filed in the Spanish courts by domestic investors. But the Spanish Supreme Court’s jurisprudence in the area seems to cast a cloak of immunity on the State in its regulatory (or “re-regulatory”) activity, essentially concluding that sophisticated investors should be aware of the inherent regulatory risk involved in their investments, thus shutting the door on their claims, so long as a reasonable return was provided and subsidies or benefits already granted were not required to be returned.

The recourse of foreign investors, though, is not limited to the Spanish courts. So, what began as a trickle in late 2011 with an ECT claim brought under UNCITRAL by a series of international investors in the Spanish photovoltaic sector, has now become a barrage, with at last report twenty ECT cases pending against Spain under ICSID and three being administered under the Stockholm Chamber of Commerce, in addition to the initial UNCITRAL claim, and involving all types of renewable energy.

It remains to be seen if the arbitral panels will be as dismissive as the Spanish courts (and the Spanish government) have been in casting aside the foreign investors’ ECT-based complaints of denial of fair and equitable treatment, creeping expropriation and improperly retroactive changes in the playing field. Arguments that the reforms were necessary, that they do not discriminate versus international investors and the like may not cut the mustard (i.e., be persuasive or even particularly relevant) before arbitral tribunals with the ECT in hand as much as they do before Spanish courts with Spanish Supreme Court jurisprudence in hand.

From what can be gleaned from press reports, it would seem that Spain has failed in at least one case to have the ECJ declared as the competent body to hear these disputes, rather than (as a national newspaper reported the words of an unidentified government source) “three guys meeting in a hotel in Paris”.

Speculating on the outcome of pending cases is always a difficult exercise. This is particularly true when one has only very limited knowledge of the facts and arguments of each case.

But a reasonable and reasonably sophisticated Spanish taxpayer and consumer of electricity may have very good reason to be concerned that one, another or a whole series of the pending arbitrations may be decided adversely to Spain. If that point is reached, and before a new and even larger wave of similar claims is filed, the Spanish government may have a very difficult decision to make: find a way to “settle” with an entire industry (or, indeed, set of industries), comprising both foreign investors who have filed arbitrations and Spanish investors who cannot, without planting the seeds for the growth of a new tariff deficit; or follow Argentina’s path of resisting enforcement of adverse awards until the bitter end.

This second path seems entirely impossible. Yet the first seems to be a veritable political and economic Rubik’s Cube. The temptation for the government will be to kick the ball down the road for as long as possible. But the road may be getting shorter and shorter. The day of reckoning is fast approaching. The other shoe may be about to drop.