International Arbitration Alert
In 2018, the Court of Justice of the European Union (“CJEU”) rendered a judgment in the Achmea case, which has led to much controversy and concern in the European investor-state arbitration community. On 5 May 2020, 23 of the current 27 EU-Member States signed an Agreement for the termination of BITs between the Member States of the EU (the “Termination Agreement” or “TA”). In its press release, the European Commission stated that “the [Termination Agreement] implements the March 2018 European Court of Justice judgment (Achmea case), where the Court found that investor-State arbitration clauses in intra-EU bilateral investment treaties (“intra-EU BITs”) are incompatible with the EU Treaties.” Leaving aside whether this view of the Achmea case is accurate, it is true that, following Achmea, and considerable pressure by the European Commission, most Member States had announced that they would terminate their intra-EU BITs. This has now become reality.
The TA affects some 130 intra-EU BITs. It will enter into force 30 calendar days from receipt of the second ratification instrument, which can be expected to happen soon.
The Energy Charter Treaty, to which many EU Member States and the European Union itself are parties, is expressly excluded from the scope of the TA. The latter remains, however, silent about the ICSID Convention, to which the EU-Member States are also parties, and which is frequently provided as a dispute resolution mechanism in intra-EU BITs. To date, none of the signatories of the TA have denounced the ICSID Convention, which in any event does not allow a Contracting State to unilaterally withdraw its consent to arbitration once given.
For different reasons, Austria, Finland, Sweden and Ireland have not signed the TA. To the extent that they are signatories of intra-EU BITs (which Ireland is not), it may be expected that they will terminate their intra-EU BITs on a bilateral basis in the future. As the UK is no longer an EU-Member State, it has not signed the TA either, although EU law still applies during the current transition period. It remains to be seen whether the European Commission will make good its threat to launch proceedings against the UK if it does not terminate its BITs with EU-Member States on a bilateral basis. Incidentally, a similar threat was made against Finland, which appears to be waiting for a vote by its parliament before taking any further action.
The TA addresses the fate of “concluded”, “pending” and “new” arbitrations. It imposes expressly retroactive effect by considering the date of the Achmea judgment, that is 6 March 2018, as the threshold date. On that basis, it distinguishes three situations:
EU investors have only few weeks at best left to start arbitrations based on an intra-EU BIT and the automatic consent of the EU Member State concerned to arbitration. It is highly questionable that arbitral tribunals will consider the consent given to arbitration proceedings after 6 March 2018 and prior to the coming into force of the TA to be affected by it, although States will no doubt seek to rely on the TA to renege on their consent. For those who might wish to start an arbitration even after the TA will have entered into force, they will have to consider whether they can still take advantage of so-called sunset clauses contained in the relevant BITs, even though the TA declares them no longer to have any effect. Such parties could invoke arguments based on principles of public international law to challenge the TA in this regard, but that goes beyond the scope of this alert.
For future EU investors, the landscape has surely irremediably changed. While few will want to see their disputes with States becoming the subject of local courts in those very States, not all will find it possible to structure their investment as originating from outside the EU. With the UK having left the European Union, using Britain as the point of origin for foreign direct investment into the EU, and taking advantage of the BITs it has signed with EU Member States, particularly in Central and Eastern Europe, would certainly be an unintended effect of the EU’s aggressive and debatable policymaking when it comes to investor-state arbitrations.
Finally, seeking the recognition and enforcement of awards rendered based on intra-EU BITs in national courts of the EU will undoubtedly continue to be a challenge, although not necessarily one that is unsurmountable. Interestingly, the Achmea saga before the German courts is not over, as Achmea has filed a constitutional complaint before the Federal Constitutional Court of Germany against the judgement of the German Supreme Court that annulled the award following the ruling of the CJEU.