In early January, the EU Member States announced their intention to terminate all intra-EU bilateral investment treaties (“BITs”). Their declarations come in reaction to last year’s Achmea-decision on intra-EU investor-state dispute settlement (“ISDS”). We have reported on prior developments in the Achmea-saga and their consequences for investors and states here, here, here, here and here.
Three separate declarations now outline the Member States’ view on Achmea’s scope and the path ahead: A first declaration is signed by 22 of the 28 EU Member States, a second declaration jointly by Finland, Luxembourg, Malta, Slovenia and Sweden and a third declaration was issued by Hungary alone. While sharing the same core, the declarations differ, especially with respect to the multilateral Energy Charter Treaty (“ECT”).
Termination of intra-EU BITs
All EU Member States agree that they will terminate their intra-EU BITs by the end of 2019, either by concluding a plurilateral treaty or by concluding bilateral agreements.
They further call on investors not to initiate new intra-EU investment arbitration proceedings and announce – apart from Hungary – that they “will take steps under their national laws” to ensure that investors controlled by EU Member States “withdraw pending investment arbitration cases.” The declarations are silent on which precise mechanism shall be invoked – or is indeed available – to that end. The Member States also announce that they will seek annulment and resist enforcement of any arbitral award due to a lack of a valid offer to arbitrate whenever they are respondents in intra-EU investment cases.
Even ‘sunset’ clauses contained in intra-EU BITs, maintaining protection for investments that were made prior to the termination of a BIT for a grandfathering period of up to 20 years, would “not produce effects”, according the EU Member States, considering Achmea.
Some reassurance for legacy awards: As per the declarations, intra-EU investment awards that can no longer be annulled or set aside and were already voluntarily complied with or definitively enforced before Achmea should not be challenged. The EU Member States intend to discuss “practical arrangements, in conformity with Union law, for such arbitral awards and settlements” – whatever that means.
Intention to strengthen investment protection under EU law
On the other hand, in line with an earlier communication by the European Commission (see here), the EU Member States stress the need to provide sufficient protection for intra-EU investments within the EU framework (see here) and before national courts. Accordingly, they announce their intent to intensify discussions among themselves and with the European Commission to better ensure “complete, strong and effective protection of investments within the European Union”, by improving existing or creating new tools where needed.
Diverging views on Energy Charter Treaty
In contrast, the Member States could not find common ground regarding the effects of Achmea on the ECT. All EU Member States, except for Italy which withdrew in 2016, and the EU itself are parties to this multilateral treaty. The declaration signed by 22 Member States considers the arbitration provision in the ECT to be incompatible with EU law, in the same way as for intra-EU BITs. The other two declarations admit that Achmea is silent on the ECT and thus defer to a future ruling by the Court of Justice of the European Union (“CJEU”), which may result from an annulment action against the ECT-award in Novenergia v Spain currently pending before the Swedish Svea Court of Appeal. In those proceedings, Spain has asked the Swedish court to refer the question of the ECT’s arbitration mechanism’s compatibility with EU law to the CJEU. The five Member States prefer to await such decision and “underline the importance of allowing for due process and consider that it would be inappropriate, in the absence of a specific judgment on this matter, to express views as regards the compatibility with Union law of the intra EU application of the Energy Charter Treaty.” Hungary takes a similar view.
It is not surprising that Member States are now moving to terminate their intra-EU BITs in order to comply with their obligations under EU law as interpreted by the CJEU in last year’s Achmea judgment. Yet the fact that Member States could not agree on a unitary position on the ECT re-affirms that both legally and politically, the fate of intra-EU arbitration under this multilateral treaty is more complex. Hopefully the CJEU will soon provide guidance and demonstrate its independence from the EU Commission and Member States.
Whether the implementation of the three political declarations will impact pending arbitrations, or those initiated before the Member States put in place a new regime, is an open question. Given arbitral tribunals’ approach to the intra-EU question post-Achmea, this is unlikely to happen at the arbitration stage; as we have previously reported, tribunals have not taken Achmea as a reason to decline jurisdiction to hear intra-EU claims. Since then more tribunals have followed suit and solidified that approach. Tribunals stress their authority under public international law, finding that EU law and the CJEU’s judgment do not affect their mandate. However, the divergence between the perspectives of EU law and public international law may well emerge at the annulment or enforcement stage, or similarly regarding future claims brought in reliance on ‘sunset’ clauses, after intra-EU BITs have been terminated.
Kirstin Schwedt would like to thank Hannes Ingwersen for his assistance in the preparation of this article.