Report on EFILA’s Annual Conference

by  Blazej Blasikiewicz and Juan Pablo Valdivia Pizzaro

Maison du Barreau, Paris

February 5th 2016

I. Introduction

The European Federation for Investment Law and Arbitration (EFILA) set out for a promising year with its Inaugural Conference in London in January of 2015. Last year proved to be full of notorious developments in the area of investment arbitration, especially as the TTIP negotiations and proposals evolved and materialized regarding the implementation of specific Investor State Dispute Settlement (ISDS) mechanisms. The ensuing months were characterized by a rich and often polarized debate on both specific aspects of investment arbitration and on the fundamentals, nature and aims of ISDS mechanisms.

In this context of agitated waters and contrasting ideas, once again EFILA brought together world-class dispute resolution practitioners, prominent arbitration experts, European government officials, leading scholars and representatives from market participants and international organizations in its 2016 Annual Conference entitled “Investment Arbitration 2.0?” which took place on February 5th, at La Maison du Barreau, in Paris.

The framework in which ISDS is being argued is characterized by controversy, heavy criticism and an imperative necessity for an open debate and innovative ideas. Therefore, the venue served as a meeting point for such a wide array of stakeholders to join in an analytical assessment of ISDS and exchange views on the many challenges and opportunities of investment arbitration. In doing so, not only some new features of investment arbitration regarding the EU policy on International Investment Agreements were discussed, but the speakers and participants engaged in a thought-provoking debate on diverse topics such as the pros and cons of investment arbitration, the rule of law and other complex issues such as transparency, states’ right to regulate, protection of property rights and democratic deficits.

This stimulating discussion was led by four panels, which critically explored some of the roots and primary issues of investment arbitration and presented provocative views on several of the most up-to-date issues on ISDS, with the objective of setting the ground for an improved and more robust framework of investment arbitration in the future.

II. Panel 1: Setting the scene: pros and cons of Investment arbitration

Prof. Dr. Gerard Meijer, Partner and Head of Arbitration team at NautaDutilh

Andrew Cannon, Partner at Herbert Smith Freehills LLP

Prof. Dr. Hans van Houtte, President of the Iran-United States Claims Tribunal

Prof. Dr. Robert Howse, Professor of International Law, New York University School of Law

Marie Talašová, Head of International Legal Services Department, Ministry of Finance, Czech Republic

Kamil Zawicki, Partner at Kubas Kos Galkowski

The first panel, acknowledging the importance of taking a step back in order to examine the roots and analyse some of its main traits, explored the pros and cons of investment arbitration. A refreshing view of its history and development was provided through the evolution of the International Centre for the Settlement of Investment Disputes (ICSID). Important emphasis was given to the revolutionary characteristics the system presented when it was introduced – it made the general rule of international law apply also to domestic investor-state contracts and it disconnected arbitration from domestic law – and to some remarkable victories that the system has achieved. The speakers recognized that many current features of the system represent an arguably unexpected feat, such as its importance for international law, the success of the system in relation to the number of cases brought to it, and its adaptation to a truly global era where the burgeoning number of BITs has shaped much of its evolution. In this respect the panel gave an interesting insight regarding ICSID being created primarily as an op-in system to be included in contracts between States and investors, and that it was not until the mid 1970s that BITs began including ICSID clauses. This practice has become standard and one of the main sources of ICSID arbitration.

However, it was also acknowledged that the system faces several important challenges, such as the trend to move towards broader regional economic agreements, the higher number of stakeholders involved (such as NGOs and supranational or regional organizations), new states’ policies regarding investment arbitration and foreign investment, and a growing opposition from different sectors of society. These issues, among others, have lead several States – such as Indonesia, South Africa and more than one South American country – to dramatically reassess their positions on BITs due to the perceived adverse impact that certain matters – e.g. treaty and forum shopping, lack of transparency, limitations to States’ right to regulate on issues of public interest and high costs of the proceedings – have in their internal affairs. This trend of criticism has also been materialized in the adoption of Model BITs by different countries, which reflect States’ policies regarding arbitration and foreign economic investment.

Speakers analysed the issue of contradictory case law in investment arbitration and the differences in the basis and instruments upon which such decision are made. The disparities among the wording or context of certain BITs was presented as one potential explanation for the different interpretations that arbitral tribunals have on arguably similar issues. The panel also put forward the view that time is of essence in the clarification of tendencies that constantly arise in investment arbitration.

There was agreement as to the importance of reforms regarding certain standards of protection, the controversial nature of the differentiated treatment between domestic and foreign investors, and the relevance of the wording of the related instruments and the role of states in shaping their content. Nevertheless, pertinent questions were raised as to the effectiveness of current attempts to solve part of the problem, like the establishment of appeal mechanisms in ISDS. In this regard, the limited success of somewhat similar mechanisms (such as the ICSID annulment mechanism) raises valid doubts as to the effectiveness of appeal bodies or instances within the framework of ISDS.

 The panel also addressed the criticisms as to the lack of transparency and rising costs in investment arbitration, the alleged pro-investor bias and the role of the media, both from the arbitration practitioner’s and the state’s point of view. The relationship between investment arbitration, the media and public opinion, and the suggested lack of empirical evidence to support a claim for pro-investor bias gave rise to an encouraging debate among the panel and the audience. The speakers pertinently pointed out the necessity of embarking upon reforms that would not lead to “killing” a system that, being far from perfect, has proven to be of vital importance.

III. Panel 2: Rule of Law and Investment Arbitration: promoting or holding back its advancement?

Prof. Dr. Loukas Mistelis, Clive M Schmitthoff Professo of Transnational Commercial Law and Arbitration at the Queen Mery University of London

Sir David Baragwanath KNZM QC, Appellate Judge and former President of the Special Tribunal for Lebanon

John Gaffney, Senior Associate, Arbitration at Al Tamimi & Company

Dr. Richard Happ, Partner at Luther LLP

Barton Legum, Head of Investment Treaty Arbitration Practice at Dentons

Dr. Patricia Nacimiento, Partner at Norton Rose Fulbright LLP

Prof. Dr. Mathias Wolkewitz, Head of Legal Affairs, Tax and Insurance at Wintershall Holding

The second panel engaged in a fruitful discussion arising from the necessity of examining investment arbitration as a dispute resolution mechanism from three different – but equally important – perspectives: the point of view of the investors, the recipient state and the citizenship. The panel highlighted that the interplay among these actors is currently characterized by a growing gap, which is reflected in the public disquiet in seeing arbitration as an appropriate means for adjudication of issues relating to public interests. These concerns have echoed in specialized and reputable media, which has also championed the case against the necessity or convenience of using BITs at all. The panel advocated the importance of a prompt and adequate response from the investment arbitration system in order to bridge the gap between the ISDS mechanisms and the public interests from which it cannot be detached.

The panel also discussed the alleged thorny relationship between ISDS, the rule of law and public perception. Transparency, once again, was given a central role in the debate. However, the effectiveness of the mechanisms to achieve transparency was put into question, since their success is often related to the specific interests of the parties involved. Speakers also advanced views highlighting the power of the States and their influence on the media in order to impact public opinion. The current tension between the ISDS system, States and public perception was provocatively referred to as “BITs biting back”.

The panel also provided an enlightening historical account of the “international minimum standard of treatment” (IMST) as the predecessor of investment law and its protection mechanisms, as known today. The difference between standards of protection for foreign and domestic investors brought forward the complex and fundamentally undemocratic nature of investment law as a limit for state action. By putting the relationship between investment law, the IMST, state regulatory powers and the rule of law under the spotlight, a heated debate ensued as the panel presented the argument that the inherent undemocratic nature of investment law does not diminish its contribution to the rule of law. In this regard, the speakers raised an interesting comparison between the IMST, investment law and human rights, as setting the limits for sovereign regulatory power.

The panel also examined the tension between the alleged lack of legitimacy of investment arbitration and its position within a system of check and balances governed by general and legitimate legal rules. Speakers underlined the systemic need to have effective foreign investment protection, the fact that investment treaties increase legal certainty, that investment arbitration is not placed in a vacuum beyond general rules of law and the importance of applying the rule of law as an equal standard to all parties involved. In addition, they recognized the contribution of investment arbitration in levelling the playing field and ultimately upholding the rule of law.

IV. Panel 3: Evolution in dispute resolution: third party funding, the role of secretaries and security of data in investment arbitration

Dr. Daniella Strik, Partner at Linklaters LLP

Dr. Andrea Carlevaris, Secretary General, ICC International Court of Arbitration (Paris) and Director of Dispute Resolution Services of the ICC.

Anya George, Senior Associate at Schellenberg Wittmer Ltd.

Charles Nairac, Partner at White & Case LLP

Prof. Dr. Stavros Brekoulakis, Professor in International Arbitration and Commercial Law, Queen Mary University of London.

Jurriaan Braat, Partner at Omni Bridgeway

 

The following panel looked at several specific issues in investment arbitration. On third party funding, the panel carefully pointed at the main challenges this issue posts regarding matters of confidentiality, conflict of interests, security for costs, and the question of who ultimately owns the claim and makes the decisions of the funded party. Questions were raised by the speakers and participants as to the proper approach to be taken in relation to a party that is being funded on the merits, the presumptions that may arguably be placed on the funded party’s ability to pay, the difficulty in the determination of the “real party” in the arbitration and the responsibilities to be placed on the parties to the proceeding. On the specific topic of providing security for costs, it was discussed if the existence of a third party funding arrangement should affect the outcome of an application for such security and if a presumption against the funded party could be validly placed regarding its potential inability to pay. It was recognized that the current general approach to the issue is to grant such application only in specific and extreme circumstances. It was acknowledged that the increasing number of parties that have sought or secured third party funding in investment treaty claims, the unregulated nature of this issue and the difficulty to determine the content and the extent of disclosure obligations on the funded party are pressing matters in investment arbitration.

Regarding the issue of arbitral secretaries, it was recognized that the main debate revolves around the issue of tasks and duties that secretaries may fulfil without interfering with the nature of the obligations placed on the arbitrators by the parties, often cited as intuito personae. The controversial issue of the core content and scope of the arbitrators’ mandate and the issues of parties’ expectations in relation to the conduct of the arbitration tribunal and the transparency in fulfilling its duties were addressed by the speakers as well. Reference was made to seminal articles on this issue (such as Partasides’ “The Fourth Arbitrator?”), and the importance of the distinction between the decision-making process (which would arguably not be a pre-defined matter of personal mandate) and the decision-making function (which would be much more closely related to the personal mandate entrusted upon the tribunal). Cultural differences between arbitral tribunals – and among the members of the tribunals themselves – were also given a place in the debate, an aspect often overlooked when analysing this issue. The panel underlined the importance of disclosure and strict supervision of the duties of the tribunal’s secretaries. The challenges that the notably large grey area in this topic represent, were also discussed by the speakers and the audience.

Finally, on the issue of data protection, the significant practical implications of the issue were argued and recognized by the panel. The main issues set forth in the debate related to transparency, data integrity protection and data manageability. Speakers encouraged the audience to engage in proper data protection techniques within the setting of investment arbitration despite the technical challenges that this may entail. Attention was drawn into the potential conflict between data protection, confidentiality and the right of free access to information in investor-state disputes.

V. Panel 4: Towards Institutionalization and Judicialisation. The Proposal for a Permanent Court

Dr. Erhard Böhm, Partner at Baier Rechtsanwälte

Yves Derains, Founding Partner at Derains & Gharavi

David Gaukrodger, Senior Legal Advisor, Investment Division, OECD Directorate of Financial and Enterprise Affairs

Dr. Nikos Lavranos, Secretary General of EFILA

Andrea Menaker, Partner at White & Case LLP

Yasmin Mohammad, Senior Counsel at Vannin Capital

 

The final panel analysed one of the hot topics of investment arbitration nowadays in the European arena. In an energizing fashion and through a more informal and open debate among the speakers and the participants in the audience, the panel set out to touch upon many of the issues related to the EU Commission’s proposal for the creation of the Permanent Court for ISDS. The panel put forward a critical analysis of the structure, traits and alleged objectives and benefits of the creation of such a Permanent Court; of the interplay between the proposed system, EU law and the Court of Justice of European Union; and of the effectiveness of the proposed alternative in solving the problems facing the ISDS system.

The problem of recognition and enforcement of awards rendered under the proposed system was critically assessed, including the potential problems that such decisions may face in being recognized as “awards” under and as referred to in the New York Convention of 1958. The panel and the participants also examined the interplay between the proposed alternative and the ICSID system, especially in relation to issues of jurisdiction. In this regard, the proposed mechanism was elegantly criticised as a “medicine being given to the wrong patient”.

The panel also referred to a common perception of an alleged trend of investment arbitration not truly resembling arbitration after the several significant changes that the system has undergone. The perceived standardization, judicialization and lack of adaptability may be seen as drawbacks by investors and may decrease the amount of trust that economic agents may be willing to place in the system.

Also, questions were framed regarding the legitimacy of such a drastic change in the way of dealing with potential investment claims, specifically arguing that a possible cause for such significant deviation could be found in the shift in the position of several countries from usual “claimants” to potential “defendants” in investment disputes. Speakers and the audience advanced provoking arguments on the financial incentives that the judges of such court would have, as well as on possible issues on conflict of interests, political independence, level of required expertise and the challenge of legitimately having both investors and states resorting to a system that enjoys the benefit of their confidence.

VI. Conclusion

The controversial nature of many of the topics presented and discussed during the Conference gave rise to a rich variety of opinions, positions and further debates on related issues. The diversity in the background of the speakers and the participants during the session gave the all parties the opportunity to argue and analyse the most salient matters in investment arbitration from a wide range of angles. Speakers and participants agreed on the importance of strengthening the investment arbitration’s legal framework through properly founded and necessary reforms, of assuring a more transparent relationship between ISDS system and the citizenship, of reaffirming investment arbitration as a vital means for upholding the rule of law and of recognizing and confronting the challenges and drawbacks of the system that have lead to a widespread emergence of social opposition and resistance.

The current state of affairs regarding the future of investment arbitration in the European Union made it important to go back to the fundamentals of investment arbitration with a critical view in order to thoroughly assess the new trends, latest proposals and pressing matters regarding ISDS. The legitimacy and effectiveness of the proposal of the EU Commission regarding the Permanent Court under the TTIP were heavily debated and the complex relationship between investment arbitration, states’ regulatory powers, public opinion, transparency and the rule of law has proven to be a fertile field for further debate and much-needed reforms. Despite the many different positions confronted during the debate regarding the current attempts to modify the framework of investment arbitration, it was generally agreed that amendments must take place in order to reinforce the position of investment arbitration as a modern, legitimate and efficient means for the resolution of investor-state disputes.

The quality and depth of the debate during the session, the presence of many of the top investment arbitration experts, practitioners and authorities, and the wide array of topics covered, keep placing EFILA at a unique position as an open and stimulating meeting point for future debates that are to shape the policies that will impact the ISDS system, its evolution and improvement in the years to come.

Just Because State Aid Is The Best Hammer Does Not Mean That All Issues Are Nails (Part II)

by Emanuela Matei, Associate Researcher – CELS*

This article represents Part 2/2 of a larger material regarding the interaction of EU state aid rules and international investment law in the context of recent EC Decisions. Part 1/2 was published earlier this week.

B.  Selectivity

Whether a regulatory measure is selective shall be examined within the context of the particular legal system by verifying whether the measure constitutes an advantage for certain undertakings in comparison with others, which are in a comparable legal and factual situation. Since the present case concerns a regional scheme, the financial autonomy of that region may justify a differentiation[i]. However, the mere fact of acting on the basis of a regional development or social cohesion policy would be insufficient in itself to justify a measure adopted within the framework of that policy[ii]. The disfavoured regions do not enjoy fiscal autonomy, thus the regional character of the measure would be sufficient to prove the selectivity of the aid. The Commission chose nonetheless a different line of argumentation.

‘…compensation for damages will not selectively benefit an individual undertaking only insofar as that compensation follows from the application of a general rule of law for government liability which every individual can invoke, so that it excludes that any compensation granted confers a selective benefit on certain groups in society’.

The Commission affirms that the compensation does not follow from the application of a general rule of law for government liability, since the access to justice is restricted to certain groups of individuals, i.e. foreign investors covered by the BITs. It concludes that to the extent that paying compensation awarded to an investor pursuant to a BIT amounts to granting an advantage, the advantage is selective.

In my view, first and most important, it is not necessary to go so long in order to prove the selectivity of the measure, since the scheme is regional and the award does nothing more than re-establishing the facilities granted by that scheme.

Secondly, if such definition of selectivity were admitted by the CJEU, the scope of the State aid would go beyond ‘wide’. It would potentially cover all situations, where a conflict between a State and an undertaking can be solved by arbitration. It would outlaw investor-State arbitration as such. The current solution for investor protection is based on a network of BIT-agreements including an ISDS-clause together with a worldwide affiliation to the ICSID Convention. The complexity of this structure consists in its apparent bilateralism and inward transnationalism. The Micula dispute may appear to be an issue between Romania and two associated Swedish investors, but in reality, it concerns the reliability of the current system of investor protection.

Thirdly, concerning the ‘selective’ access to justice examined vis-à-vis the matter of State aid control, there is no difference between intra- and extra-EU BITs. There is nothing in the State aid law that stipulates that the prohibition of State aid only applies, if the investor-beneficiary is national of a Member State. If the definition of selectivity is derived from the application of an exceptional rule of government liability, which not every individual can invoke, the extra-EU BITs would also be deemed illegal, unless they could qualify for an exemption as stated by Article 351 TFEU.

C.  Upon an undertaking

An investor can be involved in FDI or could act as a portfolio investor. Micula brothers are direct investors with a long-term strategical approach, so normally, no distinction can be made between the legal situations of a direct investor, who is a natural person and a legal person as vehicle of direct investment[iii]. I agree with the Commission that in the present case no difference can be made depending on whether the compensation collectively awarded to all five claimants by the Tribunal is paid out to the shareholders or to the companies owned by them.

However, I must point out, an important factor. A distinction must be made between the grant upon an undertaking i.e. a single economic unit and the recovery of State aid that obviously must be applied in relation to a person. A shareholder, who is directly involved in the day-by-day management of fully owned companies will be covered by the notion of undertaking[iv]. In the present case, it is the award that states who is entitled to payment and the recovery of aid shall follow the same assessment, as long as the award does nothing more than restoring the fiscal facilities put in place by EGO 24.

The previously distinct line between the grant of aid to an undertaking as element of State aid definition, which is an abstract concept and the matter of recovery, which is a concrete device, a legal remedy, has been blurred by a recent CJEU ruling[v]. This new theory of a maintained separate legal personality of the State aid beneficiary in relation to its controlling shareholder – even if it appears to be inconsistent with the usual understanding of the doctrine of single economic unit – could support the argumentation claiming that the shareholders’ interests as natural persons would depart from the interests of the three corporate claimants[vi].

D.  Imputability

The question of imputability is theoretically the most interesting. The initial advantage is granted by Romania to investors established in a certain disfavoured region, but the enforcement of the award may be ordered by any of the ICSID-members, inside and outside the EU. Would such a payment still be imputable to Romania?

According to the Commission, the answer is affirmative, since the voluntary agreement of Romania to enter into the BIT created the conditions for the selective advantage resulting from the award. Is the act of signing a BIT five years before the accession to the EU illegal under EU law? Is there a direct causal relation between this act and the grant of State aid? If the act were illegal would the culpability be attributed to Romania alone? If Romania had chosen to terminate the BIT in January 2007, the BIT sunset clause would have nonetheless maintained the protection for investments already in place until 2027. It would not have changed anything with regard to the Micula dispute.

The adoption of EGO 24 is definitely an act of State, but the enforced payment of the award by means of seizing assets abroad ordered by foreign courts or bailiffs cannot be attributed to Romania based on the simple observation that Romania did not terminate its BIT in 2007 or because it entered into a BIT agreement in 2002. The question of imputability is extremely complex and the State aid instrument is in my opinion too blunt to be able to cope with this complexity. While a payment ordered by a Romanian court or bailiff is imputable to the Member State in line with the obligations assumed according to the Treaties, a payment ordered by a Belgian or an U.S. federal court cannot be imputable to Romania, unless it can be substantiated that the act of engaging in BIT agreements is illegal per se under EU law.

III.          Conclusions

According to the available information, the adoption of EGO 24 established a derogation from the regime of ‘normal taxation’ implying an economic advantage. This advantage is selective due to its regional character and as any other regulatory measure is imputable to the state. It is supported by state resources, as a negative advantage that consists in a derogation from generally applicable fiscal obligations. The measure has not been notified to the Commission and it has been found illegal by the Romanian Council of Competition in May 2000. According to Atzeni a compensation that restores an illegal State aid cannot be allowed under EU law, therefore the Asteris exemption is not applicable.

The Commission tries instead to prove that the enforcement of the award issued in 2013 would in itself constitute unlawful State aid. I disagree with this line of argumentation. First, it would be redundant to prove a distinct aid entailed by the enforcement of the award and secondly, it would lead to unreasonable implications. The fact that Romania signed the BIT five years before its accession to the EU and three years before even becoming an acceding country, supports the idea that Romania cannot be held culpable under EU law for the decision to engage in such agreements. If the signing of a BIT had been forbidden under EU law, the attention of the Commission should have been directed towards the other party of the agreement, Sweden, a Member State with full rights and obligations at the relevant time.

Concerning the allegeable obligation to terminate the BIT, it must be said, first that the measure would have no effect on present investments and secondly, that Romania cannot be held as solely responsible for the maintaining of a parallel system of protection that potentially could threaten the autonomy of the Union legal order. The legality of the BIT in question should not be examined in isolation, since the practicability of the present system of investor protection relies on a network structure and the privileged access to arbitration of foreign investors. By disconnecting one node from the network, the problems indicated by the Commission in its decision at point 66, namely, the fact that the current system of State liability is not applicable to any investor, will not be solved.

The applicants in the present case personify the global community of foreign investors and represent the interests pleading in favour of maintaining the system of protection that pre-existed the EU law. State aid control is the appropriate tool for treating bi-dimensional relations between States and undertakings, but it does not seem to be adequate for dealing with triangular relations between a State and the community of foreign investors represented by the web of transnational institutions established under international law. Such matters of incompatibility between the pre- and post-Lisbon system of investor protection or between pre- and post-accession State aid measures should have been addressed by making use of other more appropriate instruments.


[i] Case C-88/03, Portugal/Commission [2006] ECR I-07115 [67].

[ii] Idem [82].

[iii] Case C-222/04 Cassa di Risparmio di Firenze SpA and Others [2006] ECR I-00289 [112].

[iv] Case C-170/83 Hydrotherm [1984] ECR I-2999 [11].

[v] Case C‑357/14 P Dunamenti v Commission, not yet reported [115].

[vi] Commission Decision (EU) 2015/1470 of 30 March 2015 on State aid SA.38517 (2014/C) (ex 2014/NN) implemented by Romania, OJ L 232, 4.9.2015, p. 43–70 [59].


Emanuela Matei,  Associate Researcher at the Centre of European Legal Studies, Bucharest. Juris Master in European Business Law (Lund University, June 2012), Magister legum (Lund University, June 2010), BSc in Economics & Business Administration (Lund University, June 2009).

Just Because State Aid Is The Best Hammer Does Not Mean That All Issues Are Nails (Part I)

by Emanuela Matei, Associate Researcher – CELS*

This article represents Part 1/2 of a larger material regarding the interaction of EU state aid rules and international investment law in the context of recent EC Decisions. Part 2/2 will be published later this week.

 I.          Introduction

In May 2014, Obama defended a more relaxed foreign policy that entailed less military interventions, by stating, I cite: ‘Just because we have the best hammer does not mean that every problem is a nail[i]. The same observation can be made in relation to the Commission’s all-encompassing use of the versatile tool of State aid control. It would most probably not nail all forms of state liability. In particular with regard to regulatory measures adopted by a Member State before its accession to the EU, the application of State aid rules must be more precisely calibrated.

The Micula arbitral award established in December 2013 that by annulling an investment incentive scheme four years prior to its scheduled expiry in 2009, Romania failed to comply with its obligations assumed via the Romania-Sweden BIT, which had come into force in 2003.

In its decision of 30 March 2015, the Commission found that the compensation paid by Romania according of the named arbitral award breached the State aid prohibition. State aid is forbidden unless notified and approved by the European Commission. An extra intricacy of the present case relates to the fact that at the moment, when the notification had to be made, Romania was not yet a Member State of the Union. The standstill obligation existed according to the acquis, though the prerogatives of control were attributed to the Romanian Council of Competition.

II.      State aid Definition

According to the Commission, the revoked investment incentive scheme selectively favoured certain investors and was therefore deemed to be incompatible with the state aid rules. In order to classify a national measure as State aid, the following criteria must be examined and cumulatively fulfilled:

  • The measure must confer a selective economic advantage upon an undertaking;
  • The measure must be imputable to the state and financed through state resources;
  • The measure must distort or threaten to distort competition;
  • The measure must have the potential to affect trade between Member States.

Four conditions will be analysed in this post: the presence of an advantage, its selectivity, its imputability and the definition of an undertaking which may benefit from the aid.

A.  An economic advantage

A.1. A derogation from ‘normal taxation’ is an advantage

The concept of State aid is broader than that of a subsidy, since it comprises not merely positive benefits, such as subsidies themselves, but also interferences which, in diverse forms, mitigate the charges that are regularly included in the budget of an undertaking and which, without therefore being subsidies in the strict meaning of the word, are comparable in character and have the same effect[ii].

The concept of aid has constantly been interpreted by the CJEU as not covering measures that distinguish between undertakings in relation to charges, where that differentiation is the result of the nature and general scheme of the fiscal system. The very existence of an advantage may be established only when compared with ‘normal’ taxation’[iii].

The line of argumentation followed by the Commission asserts that ‘by repealing the EGO 24 scheme, Romania re-established normal conditions of competition on the market on which the claimants operate, and any attempt to compensate the claimants for the consequences of the revocation of the EGO 24 incentives grants an advantage not available under those normal market conditions’[iv]. I see no valid explanation for choosing the test of ‘normal market conditions’ instead of the benchmarking of ‘normal taxation’ in the present case.

In its recent negative decision in case SA.38375[v], the Commission repeats this choice while applying the ‘normal market conditions’ test (one form of it, the Market Economy Investor Principle) to a case concerning tax rulings, despite the fact that the measures concerned were administrative i.e. non-economic in nature[vi].

The Romanian legislation in Micula granted a derogation from the general regime of taxes and customs duties and the award re-established the initial economic advantage by ordering the compensation of those previously abolished fiscal facilities.

The AG Colomer[vii] has noticed in his Opinion in the Atzeni case that even if the entitlement to compensation is recognised, the amount prescribed cannot be equal to the sum that must be recovered according to the standstill prohibition enshrined in Article 108(3) TFEU and the article 14 of the Regulation No 659/1999[viii]. The Commission affirms that the Award was based on an amount corresponding to the fiscal facilities provided by EGO24 including lost profits plus interest.

The compensation provided for by the Award is based on an amount corresponding to the customs duties charged on raw materials, lost profits and interest on the total sum of damages awarded[ix].

However, the calculation of State aid cannot be based on the Award, but it must be assessed independently taking into consideration the difference between the ordinary expenses and the subsidised expenses under EGO24 with reference to the situation prior to payment of the aid[x]. In Dunamenti it has been established that even if the Article 107 TFEU became applicable on the accession date, the analysis of the measure must be done in the context of the period in which it had been granted.

The relevant factual circumstances of the grant cannot be disregarded solely because they have preceded the accession[xi]. In case, the Award exceeded the amount of aid granted under EGO24, which is the regulatory measure examined by the Romanian Council of Competition in its decision of May 2000, this excess cannot be deemed to constitute indirect State aid as established by the Atzeni Opinion.

A.2.   Compensation for damages is not an advantage

The principle of State responsibility for loss and damage caused to individuals because of breaches of European Union law for which the State can be held liable is enshrined by the system of the treaties on which the European Union is based[xii]. In Asteris, the CJEU established that State aid is fundamentally different in its legal nature from the amounts paid to individuals as compensation for the damage caused by public authorities and that, in consequence, such damages do not constitute aid for the purposes of Articles 107 and 108 TFEU[xiii].

Acknowledging the fact that EU law does not allow an unconditional permeation of obligations derived from international law, the main difference between a Micula entitlement and the Asteris right to bring an action for payment is the source of the obligations on which the claim for payment is based.[xiv] Greece was expected to implement EU law obligations, while Romania is responsible for implementing an obligation arisen from a BIT and affirmed by an ICSID-award.

The CJEU recognised a distinction between an action for damages under Article 340 TFEU and an action for payment concerning the liability of the national authorities responsible for implementing Union law, which individuals are seeking to establish before national courts[xv]. Hence, it can concluded that the Asteris liability is a distinct case, since it does not entail a sufficiently serious breach of an EU law obligation borne by the State.

On the other hand, the entitlement to payment in Micula ought to be interpreted in the light of the relevant rules of customary international law, which is part of the Union legal order and is compulsory for its institutions[xvi]. The BITs obligations go beyond the field of customary international law, ensuring a higher level of protection for the investor that can be recognised under EU law, only if it concurs with the specific characteristics and the autonomy of the Union legal order[xvii]. The Commission considered that the BIT obligations were not conform to EU law and subsequently, the action for payment could not be supported by an Asteris claim.


[i] Read more at: http://www.nationalreview.com/corner/378955/obama-west-point-because-we-have-best-hammer-does-not-mean-every-problem-nail-andrew.

[ii] Case 30/59 De Gezamenlijke Steenkolenmijnen in Limburg v High Authority [1961] ECR 1.

[iii] Case 173/73 Italy/Commission [1974] ECR I- 00709 [15].

[iv] Commission Decision (EU) 2015/1470 of 30 March 2015 on State aid SA.38517 (2014/C) (ex 2014/NN) implemented by Romania, OJ L 232, 4.9.2015, p. 43–70 [92].

[v] Commission Decision, State aid SA. 38375 (2014/NN) (ex 2014/CP) Brussels, 11.06.2014. The final decision of 21 October 2015 not yet published. Read also my commentary (click here).

[vi] Read more at: http://www.kluwertaxlawblog.com/blog/2015/10/28/the-interplay-between-the-state-aid-rules-and-other-beps-preventing-tools-sa-38375/.

[vii] AG Opinion, AG Colomer, Joined Cases C-346/03 and C-529/03 Atzeni [2006] ECR I-01875 [198].

[viii] ‘It should be noted that, if an entitlement to compensation is recognised, the damage cannot be regarded as being equal to the sum of the amounts to be repaid, since this would constitute an indirect grant of the aid found to be illegal and incompatible with the common market’.

[ix] Commission Decision (EU) 2015/1470 of 30 March 2015 on State aid SA.38517 (2014/C) (ex 2014/NN) implemented by Romania, OJ L 232, 4.9.2015, p. 43–70 [123].

[x] Case T‑473/12 Aer Lingus, not yet reported [83]. See, to that effect, C‑277/00 Germany /Commission [2004] ECR I-03925 [74-5].

[xi] Opinion AG Wathelet, Case C‑357/14 P Dunamenti Erőmű, not yet reported [121].

[xii] Joined Cases C-6/90 and C-9/90 Francovich and Others [1991] ECR I-5357 [35]; Joined Cases C-46/93 and C-48/93 Brasserie du Pêcheur and Factortame [1996] ECR I-1029 [31]; and Case C‑445/06 Danske Slagterier [2009] ECR I‑0000 [19].

[xiii] Joined cases 106 to 120/87 Asteris/Greece (Asteris III), [1988] ECR I-05515.

[xiv] Opinion 2/13 of 18 December 2014, not yet reported [201].

[xv] Asteris III [25-6].

[xvi] Case C‑179/13, Evans, not yet reported [35]

[xvii] Opinion 2/13 of 18 December 2014, not yet reported [174].


Emanuela Matei,  Associate Researcher at the Centre of European Legal Studies, Bucharest. Juris Master in European Business Law (Lund University, June 2012), Magister legum (Lund University, June 2010), BSc in Economics & Business Administration (Lund University, June 2009).

Defining International Investment Law for the 21st Century (A Reply)

by Emanuela Matei, Of Counsel – Mircea and Partners*

This post represents a reply to Horia Ciurtin’s material “The Future of Investment Treaties: Metamorphosis or Deconstruction?”, published on the EFILA Blog on 8th September. Another reply will follow from Horia Ciurtin in the following weeks.

Of Two Evils Choose Neither

We are living in a hologram designed by a very confused mind. Witnessing the 21st century we all experience a degree of restlessness and fuzziness. In this context, the choice between two evils may be no more than a false dilemma. The misconception of the limits of international law is part of this holographic picture.

In his post “The Future of Investment Treaties: Metamorphosis or Deconstruction?“, Horia Ciurtin revisits the challenging task of defining – in our not-so brave new world – the concept of international law, in general, and of investment treaties law, in particular. I both agree and disagree with the author’s concerns. I fully agree with him that international law and legal institutions can provide effective means to solve human problems. I disagree with the either-or equation though and I will describe it as a deceiving choice between two evils.

The First Evil

In a world where the interactions are multiple and ubiquitous, it is very often not possible to determine which event occurs first and define it as the cause of a subsequent event, called effect. State interests do not exist outside the social sphere and the actions of states are therefore influenced by the attitudes of non-state constituencies. In other words, the border between state and non-state has been blurred.

It is up to the observer to judge. If the observer believes that coercion is the source of order and well-being in the world, he will naturally think that international law cannot have an influence on actual state behaviour. Such an observer sees international law as a source of democratic concern, arguing against the implementation of international law norms domestically. In my view, this hostile approach is the first evil and – so far – Horia Ciurtin and I agree with each other.

The Second Evil

The affirmation that the sovereign entities are “no longer needed as ‘procedural proxies’ for aggrieved investors, being able themselves to directly involve in international litigation and be compensated for their losses” is on the other hand not immune to criticism. Having a right and being able to exercise it effectively should be seen as two sides of the same coin. A right, which is not enforceable has no legal significance. It has only a symbolic value. States comply with international law as long as the social sphere – in which their interests are continuously defined – requires them to do so.

Moreover, the author pleads for the de-politicisation of the disputes by unconditionally escaping the domestic remedies. My counterargument is that such disputes are nonetheless political in nature, so their de-politicisation would provide no more than an empty gesture.

For a legal pragmatist as I am, the ICSID-convention is a tool designed to serve a set of functions. It is nothing unexpected in the fact that this tool has been designed at a certain moment in time and that time is gone. The question that must be answered is what kind of functional design shall be chosen for the 21st century FTAs? Attention, the designer may be somebody else than before! Again, the political configuration which is part of the social sphere is different now compared with 1950!

Furthermore, the situation of intra-EU BITs is a special case. I believe that the comparison between the South America and the Central-Eastern Europe is a bit misplaced. A conflict between supra-state constitutional law and international law obligations on one side, and between individual rights derived from international law and the obligation of the state to implement supranational law, on the other, constitutes an extra-complication that must be faced by countries like Romania, Hungary or Slovak Republic.

The either-or dilemma is often projected by the advocates of arbitration as a support for the affirmation that without an ISDS-system the protection of the investor will be severely depreciated. It can be true that some strategic contrivances will no longer be available. However, it must be recognised that the accession to the EU of the Central-Eastern European countries had a positive impact on their legal systems and the socio-economic environment is now more stable than in the nineties and early noughties.

More than so, the capital is the most mobile of all factors of production. If some jurisdictions became hostile to investors, the capital would vote with its feet as it does in all other cases, where the regulatory choices of the state or supra-state give an incentive to corporations to move, stay or entry. Thus, my contemplation of the post-Westphalian field of battle is much more optimistic in this particular sense. The second evil – no protection for the investor in the 21st century – is nothing else than a false alarm!

The discussion starts to sound irresistibly interesting to me when we begin to imagine deterritorialised ideas of governance … but this is a different kind of story. This is the true and exciting post-Westphalian realm left unexplored by the mainstream despotique!


* Emanuela Matei, Jurismaster; Of Counsel – Mircea and Partners; Associate Researcher – Centre for European Legal Studies.