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 love-hate story of arbitral jurisdiction over claims against states in the EU

by Emanuela Matei, Associate Researcher – CELS*

Staging the scene

In October 2013 the European Commission issued a note entitled ‘Platform for Good Tax Governance: Addressing the remaining cases of double taxation in the single market: means to foster arbitration’ in which it exposed the limitations of the EU Arbitration Convention 90/463/EEC. It affirmed that whenever a case covered a situation where no DTC was applicable, the domestic rules have been proven insufficient in regard of the pursuit to eliminate double taxation. The Commission recommended the renegotiation of the existent intra-EU DTCs in order to introduce an arbitration clause. Another option would be the adoption of a directive providing for an arbitration clause. On the other hand, the harmonisation of the rules applicable in the context of DTCs has been regarded as too invasive vis-à-vis the tax autonomy of the Member States.

In the meanwhile, the Commission has been fighting a whole different battle in the field of intra-EU BITs, where actually the elimination of the arbitration clause is one of the main issues. Since the Member States have not acted in order to displace the alleged incompatibilities, the Commission envisages a discussion with the Member States and all interested parties regarding the further improvement of investment protection within the EU.

In the OECD setting, the BEPS project that mainly addresses the risk of double non-taxation would have been incomplete if the elimination of double taxation had been left outside. The question of effective dispute resolution has been addressed in Action 14 of the BEPS. The main topic relates to supplementing the existing provisions of the tax treaties with a mandatory and binding arbitration provision. Exactly as the Commission, the OECD remarks that many DTCs do not contain such a clause and some other DTCs do not guarantee that the access to arbitration is actually recognised.

As it stands now, the EU law does not provide protection against double taxation beyond the scope of the principle of non-discrimination and the four economic freedoms. On the other hand, the issue of double non-taxation is caught under the scope of State aid prohibition[1]. Disfavouring investors is allowed under EU law, as long as the tax measure is not discriminatory. If the tax measure distorts competition, the Commission should react as mentioned above in accordance with the provisions of Article 116 TFEU.

The division of competences in taxation matters reminds you of a quantum system existing in a combination of multiple states that may lead to different outcomes. The multitude of states collapses into a state or another as soon as the system interacts with the external world. In a similar manner, the limits of the national tax autonomy are not predetermined, but only determinable through interpretation, so the matter of jurisdiction to resolve a question entangled with taxation will never be a definitely closed file.

The parallel universe of international investment law

External investment may fall either under the provisions of Articles 206-207 TFEU, if the investment comes from a third country or within the scope of internal market rules, if the investment comes from another Member State. Intra-EU investments fall within an area of shared legislative competence. Taxation measures may attract investments from abroad or put the investor off the idea to move to a different Member State.

The substantive protection derived by investors from the network of BITs is clearly superior, since it includes protection against measures which are not discriminatory in the meaning of Article 18, 49 or 63 TFEU. However, the remarkable difference in favour of the BIT regime can be noticed in the field of procedural rights. The fact that individuals do not have locus standi before the CJEU is the biggest impairment in this context.

The effectiveness of the protection granted by EU law to the intra-EU investor depends on the sincere cooperation of each Member State to take any action that might be necessary in order to achieve the expected results. In Cilfit, the CJEU affirmed that if the correct application of EU law is so obvious as to leave no scope for any reasonable doubt as to the way in which the question raised is to be resolved, the national court may refrain from submitting that question for a preliminary ruling and take upon itself the responsibility for resolving it. Furthermore, it must be established in detail that there is no such doubt[2].

[A] court against whose decisions there is no judicial remedy under national law is required, when a question of EU law is raised before it, to fulfil its obligation to bring the matter before the Court of Justice, unless it has established that the correct application of EU law is so obvious as to leave no scope for any reasonable doubt and that the existence of such a possibility must be assessed in the light of the specific characteristics of EU law, the particular difficulties to which its interpretation gives rise and the risk of divergences in judicial decisions within the European Union[3].

The obligation to refer for a preliminary ruling is strict in the case of courts of last resort, though in practice, national courts may still make use of Cilfit in order to avoid a request for a preliminary ruling. I would also dare to affirm that generally in any domain of science, less you know about a subject, clearer things appear to be. In case that certain national courts still do not dispose of human resources with sufficient knowledge of EU law, the intricacy of a certain question of EU law would not be easily accessible to them. It is very probable that in such a case, the plaintiff will not be able to obtain damages by making use of Köbler doctrine, since the infringement will not be manifest[4]. The Commission as well does not have an outstanding record of starting infringement proceedings in order to discourage the  practice of making use of a broader interpretation of the Cilfit-exception.

Since 2010 the overall number of infringement procedures has decreased, while the number preliminary rulings under Article 267 TFEU has significantly increased[5]. However, these numbers do not say anything about compliance with the duty to refer for a preliminary ruling and they do not provide any guarantee that the interpretation given by the CJEU has been applied correctly in practice by the national courts. The inability of EU law to effectively defend the implied right of an individual to have a question referred to the CJEU for a preliminary ruling invites the question whether international investment law should provide legal protection via its traditional means i.e. through investor-state arbitral proceedings.

As discussed above, the source of conflict is often the reverse coin of a certain competence. It is not the right to impose taxation, but the decision to abstain from it that may cause problems. It is not the right to allow free movement of capital from and to third countries, but the ability to impose restrictions on it that generated a number of infringement proceedings in EU law. It appears obvious that EU law allows Member States to restrict the protection of the foreign investor in cases where the IIA standard would not. In other cases, the EU law itself contains restrictions that the Member State must apply.

The judicial system of the European Union has nonetheless been created as a complete system of legal remedies and procedures designed to ensure review of the legality of acts of the EU institutions. The Member States are not allowed to confer the jurisdiction to adjudicate disputes between individuals on ‘a court created by an international agreement which would deprive those courts of their task, as ordinary courts within the European Union legal order, to implement European Union law and, thereby, of the power provided for in Article 267 TFEU, or, as the case may be, the obligation, to refer questions for a preliminary ruling in the field concerned[6].

Concerning disputes between Member States in relation to the application of the ECHR within the scope ratione materiae of EU law, the CJEU held that only an explicit exclusion of the ECtHR’s jurisdiction would be compatible with EU law[7]. The tasks attributed to the national courts and the CJEU are deemed indispensable for the preservation of the very nature of the law established by the Treaties[8]. It must be underlined that the Commission has been in favour of establishing a system of external judicial control in many occasions including the adhesion to the ECHR, and agreed with the adoption of an arbitration clause in CETA, TTIP and FTAS[9]. The answer provided by the CJEU until now has been different from the opinion of the Commission.

In a recent request for preliminary ruling the Bundesgerichtshof asked the CJEU whether the application of an ISDS provision in an intra-EU bilateral investment protection agreement would be precluded by Article 344 TFEU or Article 267 TFEU or Article 18 TFEU[10].  Article 344 TFEU merely prohibits Member States from submitting a dispute concerning the interpretation or application of the Treaties to any method of settlement other than those provided for in the Treaties[11]. The theory projected by the Commission in Micula is that by abiding by the rules of the BIT, the Member State in question endorses the submission of disputes concerning the interpretation or application of the Treaties to the arbitral tribunal[12]. The Bundesgerichtshof in Achmea expresses the opposite opinion, namely that only if the plaintiff is a Member State, then the Article 344 TFEU would apply[13].

Article 267 TFEU aims to avoid divergences in the interpretation of European Union law which the national courts have to apply[14]. In Achmea, the arbitral decision has been adopted under the UNCITRAL rules and therefore it shall be enforced in accordance with the New York Convention that allows the domestic court to take into consideration the issue of public policy. The domestic court would have thus the opportunity to refer for a preliminary ruling in this context. The situation is different under the ICSID convention though. In any case, the Bundesgerichtshof finds in its referral no case of incompatibility with Article 267 TFEU.

The Bundesgerichtshof reasoned on the other hand that the application of the ISDS clause might be precluded by Article 18 TFEU. The Bundesgerichtshof proposed in this case to extend the higher level of protection to all investors in a similar position. Apparently, this solution seems to be elegant and certain, however in my view the issue of potential incompatibility is more intricate than it may look at first sight. A higher level of investor protection may potentially counteract the effective application of a provision of Union law protecting a specific interest of the EU[15]. Because the risk of such conflicts exists, the exercise of balancing effectiveness against investor protection must be performed by the competent court or tribunal. The role of the CJEU is to ascertain that the court that performs the assessment does not rely on an erroneous or divergent interpretation of EU law. As I mentioned before, the Cilfit doctrine does not provide a sufficient insurance that national courts apply Union law consistently with the interpretation adopted by CJEU, but at least Member States may be brought to Court for not complying with EU law obligations.

However, the investor has no means to bring a case against the Member State before the CJEU, even if an instance of unfair unequitable treatment under the BIT-rules also implied an infringement of EU law. It could be argued that the arbitral proceedings do not constitute alternative means in relation to proceedings established under EU law. The path paved by Köbler does not constitute a genuine alternative to the system of international arbitration, since it fully relies on domestic remedies and the general principle of state liability for breaches of international law obligations[16].

The protection offered by Köbler jurisprudence is limited to serious infringements of individual rights conferred by EU law, thus its scope is far narrower than under IIA law. The state liability established by CJEU in Köbler aims to fill the gap left behind by the authors of the Treaties and it employs the notion of common legal traditions of Member States that enshrines a set of rules regarding a minimum standard of protection[17]. Moving beyond this minimum standard would require an amendment of the Treaties in the sense of extending the locus standi of individuals under EU law.

The opinion of Bundesgerichtshof that the higher standard imposed by the arbitration clause should be extended to cover all similar situations may be attuned with the principle of equivalence imposed on the domestic system of remedies in matters where the protection of rights derived from EU law is at stake. The CJEU held that ‘in the absence of [EU] rules governing the matter, it is for the domestic legal system of each Member State to designate, with due observance of the requirements stemming from [Article 47 of the Charter] and the principles of effectiveness and equivalence, the courts and tribunals with jurisdiction and to lay down the detailed procedural rules governing actions brought to safeguard rights which individuals derive from [EU] law[18].

However, even if the unfair treatment would in certain instances amount to an infringement of EU law, it is doubtful that the access to arbitral proceedings would constitute the benchmark for determining the equivalent treatment in matters of judicial protection of EU rights. It all comes down to one thing. The scope of a BIT is per definition limited to the natural or legal persons referred to in it. The Commission views this limitation as a reason to conclude that the intra-EU BITs – all of them – are not compatible with EU law, since by acceding to the EU, a Member State is obliged to grant the same advantages related to individual rights comprised within the scope of internal market law to all the other Member States.

In relation to the substantive rights guaranteed by a BIT and their wider application ratione personae adopted in order to cover the investors who are nationals of other Member States than the signatories of the BIT, one can suppose that this extension is – in theory – possible. However, in consideration of the procedural rights and the assessment of compatibility with EU law of a certain obligation derived from the enhanced version of the BIT, the possibility to extend the scope in order to cover natural persons not covered by the BIT is doubtful.

It is doubtful not only for reasons very well-established by the CJEU in its Opinions pursuant to Article 218(11) TFEU, but also because the access to arbitral proceedings is provided under the premise that based on the principle of reciprocity, the counterparty will match this benefit by assuming an identical obligation. The extension of the benefit must be matched by the extension of the obligation to guarantee the access to arbitral proceedings on all other Member States. It would definitely require harmonisation measures.

Moving from reciprocity towards the unconditional duty to carry out tasks flowing from the supranational law entails a big psychological stride in regard of sensitive domains, such as taxation or judicial remedies. It requires that the governments of the Member States refrain from (ab)using blue pills – false impressions of intact autonomy – and start to realise that harmonisation may offer a better way to maintain control over an issue, since this method would allow them to actually define in more concrete terms the limits of their duties under EU law. If the Commission plans to adopt a directive replacing the Arbitration Convention in order to enhance the protection of taxpayers, I see no reason why it could not consider a similar step in order to improve the protection of economic freedoms in general.


[1] Mc Donald’s SA 38945, 2016/C 258/03 and GDF Suez SA 44888, not published yet.

[2] Case C‑379/15 Association France Nature Environnement EU:C:2016:603 paragraph 52.  Under ECHR law, the national courts must state the reasons why they consider it unnecessary to seek a preliminary ruling. A refusal to refer a question for a preliminary ruling may constitute in itself a violation of Article 6 § 1 of the ECHR. However, again if the decision of the national court not to refer is based on an erroneous application of Cilfit, the ECtHR does not have jurisdiction to examine this question. In practice, a simple reference to Cilfit  finding that there was no reasonable doubt may be sufficient in order to avoid a breach of the right to a fair hearing within the meaning of Article 6 § 1. See Ullens de Schooten and Rezabek v. Belgium, nos. 3989/07 and 38353/07, § 62, 20 September 2011, and Dhahbi v. Italy, no. 17120/09, §§ 31-34, 8 April 2014.

[3] Case C‑379/15 Association France Nature Environnement EU:C:2016:603 paragraph 50.

[4] Case C-224/01 Köbler EU:C:2003:513 paragraphs 53 and 124.

[5] Report from the Commission on the Monitoring the application of Union law, 2014 Annual Report. COM/2015/0329 final.

[6] Opinion 1/09 EU:C:2011:123 paragraph 80.

[7] Opinion 2/13 EU:C:2014:2454 paragraph 213.

[8] Opinion 1/09 EU:C:2011:123 paragraph 85.

[9] Opinion 2/15, still pending, date of hearing 13 September 2016.

[10] Case C-284/16, Achmea, pending.

[11] Opinion 1/09 paragraph 63.

[12] Commission Decision 2015/1470 Micula points 102, 104, 112, 114.

[13] Bundesgerichtshof I ZB 2/15 Achmea ECLI:DE:BGH:2016:030316BIZB2.15.0.

[14] Opinion 1/09 paragraph 83.

[15] By analogy Joined Cases C-402/05 P and C-415/05 P Kadi EU:C:2008:461 paragraphs 353, 371-3. Case C‑105/14 Tarrico EU:C:2015:555 paragraphs 54-55, Case C‑237/15 PPU Lanigan EU:C:2015:474 paragraph 63.

[16] Köbler, supra footnote 4, paragraph 48.

[17] Lenaerts and Gutiérrez-Fons, 2010. The Constitutional Allocation of Powers and General Principles of EU Law, Common Market Law Review 47, pp 1635-6.

[18] Case C-583/11 P Inuit Tapiriit Kanatami and Others v Parliament and Council EU:C:2013:625 paragraphs 100 and 102.


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).