J U R I D I C U M
The Achmea Judgement of the Court of Justice Implications of Achmea for Intra-EU and Extra-EU BITs and Investment Arbitration
Ashton Papaioannou
Spring term 2020
RV600G Legal Science with Degree Project, Advanced Course, 15 Credits
Examiner: Adam Croon Supervisor: Senem Eken
Preface
I would like to thank my remarkable supervisor Senem Eken for her outstanding work and supervision that she has given me during the writing of this thesis. In my experience, she really puts her heart into her work, and does whatever she needs to, and as much as she needs to, in order for the students to learn and to succeed. In my opinion, she is a paragon of how a university teacher should be. She is inspiring, dedicated, and a truly wonderful person. I wish her all the best in her professional achievements, and I truly hope to stay in touch with her in my future career.
Additionally, I would also like to thank Adam Croon and the other teachers at the Faculty of Law (Juridicum) at Örebro University. It has been a pleasure, and a very educative journey, studying at Örebro University.
Ashton Papaioannou May 24th 2020
Abstract
This paper explores the landmark case Achmea and the significant effects and consequences that it has on intra-EU and extra-EU BITs and investment arbitration. As becomes clear from the ruling in Achmea, the position of investment arbitration in EU-related investment disputes is on the verge of significant change, since the arbitration clauses in intra-EU BITs, directing disputes to arbitration, have been found to be incompatible with EU law. Consequently, investment arbitration tribunals cannot have recourse to the preliminary ruling procedure. Linked to this, in Achmea, the CJ’s position was that since investment arbitration tribunals must, in EU-related disputes, interpret EU law while not having the competence to do so or not having access to the preliminary ruling procedure, such a tribunal has an adverse effect on the autonomy of EU law. Thus, such a tribunal was found to be incompatible with EU law. Moreover, following the ruling in Achmea, the MSs are to terminate all intra-EU BITs that were concluded before one party’s accession to the EU, which is a grave consequence in the opinion of the author. The interesting issue is, instead of terminating such BITs, whether alternative solutions could have been found. Furthermore, the EU is advocating for a new court system, Investment Court System, that seems to put the investment disputes under the EU’s control. While such a new court system may be an alternative to investment arbitration, the negative aspects of such a new system must be discussed.
Finally, the paper also investigates the possible effects that Achmea may have on extra-EU BITs. By considering the position of investment arbitration tribunals in extra-EU BITs, it is evident that these tribunals are in the same position as those in intra-EU BITs. However, for the time being, these tribunals have explicitly been left out of the assessment of compatibility with EU law by the CJ and the Commission.
Keywords: investment arbitration, EU law, preliminary ruling procedure, autonomy of EU law, Achmea, bilateral investment treaty.
List of abbreviations
BIT Bilateral Investment Treaty CCP Common Commercial Policy CETA Comprehensive Economic and Trade Agreement CJ Court of Justice EC Treaty Establishing the European Community ECHR European Convention on Human Rights ECOFIN Economic and Financial Affairs Council EU European Union EU-Singapore FTA EU-Singapore Free Trade Agreement Extra-EU Between a MS and a Third Country FDI Foreign Direct Investment FET Fair and Equitable Treatment ICJ Statute Statute of the International Court of Justice ICS Investment Court System ICSID International Centre for Settlement of Investment Disputes IIA International Investment Agreement Intra-EU Between Two MSs ISDS Investor-State Dispute Settlement MS A Member State of the EU MSs Member States of the EU MST Minimum Standard of Treatment of Aliens PCA Permanent Court of Arbitration TFEU Treaty on the Functioning of the European Union
Table of Contents
1. Introduction ...... 1 1.1 Background ...... 1 1.2 Purpose and Research Questions ...... 3 1.3 Delimitations ...... 3 1.4 Method and Material ...... 4 1.5 Outline...... 5 2. Investment Arbitration and EU Law ...... 6 2.1 Investment Arbitration and the ICSID ...... 6 2.2 Preliminary Ruling (Reference) Procedure ...... 7 2.3 Autonomy of EU Law ...... 8 2.4 Investment Regime in EU Law and the CCP ...... 9 2.5 Investment Court System and Arbitration ...... 11 2.6 Protection of Investors in General ...... 13 3. Achmea and Intra-EU BITs ...... 16 3.1 Commission v Austria ...... 16 3.2 Slovak Republic v Achmea BV ...... 17 3.3 Eastern Sugar B.V. (Netherlands) v The Czech Republic ...... 18 3.4 Analysis and Implication(s) of Achmea for Intra-EU BITs ...... 19 3.4.1 Compatibility of Arbitration Clauses in Intra-EU BITs and the Question Whether Arbitration Tribunals are “Courts” for the Purpose of Article 267 TFEU ...... 19 3.4.2 The Positions of Current Intra-EU BITs and Investment Arbitration ...... 22 3.4.3 Intra-EU BIT Termination Treaty ...... 24 4. Achmea and Extra-EU BITs ...... 26 4.1 Implications of Regulation 1219/2020 ...... 26 4.2 Implications of Achmea ...... 27 Conclusion ...... 29 Bibliography ...... 30
1. Introduction 1.1 Background The desire to create a system of adjudication for commercial matters which can function as an alternative to that of national courts began in the 1920s when businesses in different countries worked together to achieve such a system. The system slowly started to take shape but showed itself to be incredibly valuable and attractive in the 1980s, when global trade and investments increased enormously.1 Since the concept of “freedom of contract”, on a global scale, developed simultaneously, it resulted in a body of law that would function without specific reference to a national legal system nor be bound by the territorial boundaries of a nation. This enabled private entities to keep their commercial disputes of a transnational character away from national courts and local laws.2 In the 1980s, most commercial contracts started to include an arbitration clause because of the advantages that the use of arbitration in dispute resolution presented. Firstly, arbitration offered an attractiveness in speed and expense, where the approximate time to process an arbitral award (in the 1980s) was 250 days while litigation could be tied up in court procedures for years, which also resulted in significantly higher costs. Furthermore, it is also considered that the results of arbitration were qualitatively better and that the parties felt more at peace with the consequences of the award since the proceedings were more personal to them through the ability of the parties to participate in the choice of arbitrators, which also removes the fear of losing a case based on the “luck” of which adjudicator presides over the case.3 This way, the parties can be confident that the proceedings will be adjudicated by persons with great expertise in the field relative to the dispute. These advantages, among others like confidentiality of hearings etc. were, and continue to be, the deciding factors in commercial contracts to include an arbitration clause.4 As the field of commercial arbitration grew, a specific branch of arbitration oriented towards matters of investments grew along with it. The field of investment arbitration has its roots to the 1960s but had its largest growth in the 1990s when a majority of States consented to the creation of an international regime that would govern disputes concerning investments between different parties. More specifically, the international regime, which is a set of rules meant to govern international behavior composed of principles and norms5, allowed multinational corporations to
1 Alec Stone Sweet and Florian Grisel, The Evolution of International Arbitration : Judicialization, Governance, Legitimacy (OUP, 2017), 1-2. 2 ibid; Martin Shapiro and Alec Stone Sweet, On Law, Politics, and Judicialization (OUP, 2002), 297. 3 Harry T. Edwards, ‘Advantages of Arbitration Over Litigation : Reflections of a Judge’ in James L. Stern and Barbara D. Dennis (eds.), Arbitration 1982 : Conduct of the Hearing – Proceedings of the Thirty-Fifth Annual Meeting National Academy of Arbitrators (The Bureau of National Affairs, Inc., 1983), 23-26. 4 PricewaterhouseCoopers, Corporate Choices in International Arbitration – Industry Perspectives (PwC, 2013), 8. 5 Beth A. Simmons and Lisa L. Martin, ‘International Organizations and Institutions’, in Walter Carlsnaes, Thomas Risse and Beth A. Simmons, Handbook of International Relations, 1st ed (SAGE Publications Ltd., 2002), 193.
1 make and enforce claims against a State’s regulation of its investment assets.6 To tackle this issue and to establish rules to which both investor and State could rely on, international investment treaties (IIAs), which are agreements on how a State handles investments made by corporations or private individuals from another State, gained more popularity and were concluded between interested parties. Investment treaties are concluded either on a multilateral, sectoral, or bilateral basis. It can be as a separate treaty or be part of a larger free trade agreement.7 In their content, these treaties regulate the terms and conditions that will apply to investments made by investors in the territories of the contracting parties. Naturally, these treaties regulate flows of foreign direct investment (FDI) between the territories of the contracting parties. Such treaties outline the extent of a contracting party’s consent on the treatment of foreign investments. The treaties provide for investor protection, such as protection from expropriation and fair and equitable treatment.8 Moreover, the treaties offer alternative dispute mechanisms in investor-state dispute settlement (ISDS), such as arbitration, or mediation, which allows a dispute to be resolved outside a national judiciary system.9 IIAs concluded on a bilateral basis, are referred to as Bilateral Investment Treaties (BITs), which are the main focus of this thesis. These are defined as ‘An investment treaty between two states’10 with the purpose to secure and promote FDI and economic cooperation between the contracting States.11 As regard to the Member States (MSs) of the European Union (EU), it should be noted that the MSs have concluded BITs between each other (intra-EU) and between third countries (extra-EU). These intra-EU and extra-EU BITs refer to international arbitration as a dispute settlement mechanism. However, in 2018, with Achmea12, which relates to a BIT concluded between the Netherlands and Slovakia in 1991, the Court of Justice (CJ)13 has put into question the autonomy of arbitral tribunals by ruling that arbitration clauses in the BITs concluded between the MSs are incompatible with EU law. The court found that since arbitration tribunals, such as the one in Achmea, must, in disputes concerning a MS, interpret EU law, the autonomy of EU law is undermined since such tribunals are not permitted to interpret EU law on their own. The interpretation of EU law is conducted by the CJ exclusively by allowing domestic national courts to refer questions to it through the preliminary ruling procedure. Subsequently, arbitration tribunals
6 Gus Van Harten and Martin Loughlin, ‘Investment Treaty Arbitration as a Species of Global Administrative Law’ (2006) 17 European Journal of Int’l Law, 122. 7 Gus van Harten, Investment Treaty Arbitration and Public Law (OUP, 2008), 6. 8 ibid (n 6), 130. 9 ibid (n 1), 3; John T. McDermott, ‘Arbitration and the Courts’ (1986) 11 The Justice System Journal, No. 2, 248-9; Deborah R. Hensler, ‘Court-Ordered Arbitration : An Alternative View’ (1990) 1990 University of Chicago Legal Forum, 401; J. Brian Casey, Arbitration Law of Canada : Practice and Procedure (Juris Publishing Inc., 2012), 253; United Nations Conference on Trade and Development (UNCTAD), ‘Dispute Settlement : 5.1 International Commercial Arbitration’ (2005) UNCTAD/EDM/Misc.232/Add.38, 7. 10 ‘bilateral investment treaty (BIT)’ In A Dictionary of Law, edited by Law, Jonathan (OUP, 2018). 11 UNCTAD, ‘Bilateral Investment Treaties 1995-2006 : Trends in Investment Rulemaking’ (2007) UNCTAD/ITE/IIT/2006/5, 26. 12 C-284/16 Slovak Republic v Achmea EU:C:2018:158. 13 The Court of Justice (CJ), previously the European Court of Justice (ECJ), and the General Court (GC), are the judicial branch of the EU.
2 established under a BIT for the specific purpose of resolving an investment dispute are not allowed to have recourse to the preliminary ruling procedure, uniform interpretation and application of EU law is impaired. Consequently, the ruling of the CJ has posed questions regarding the compatibility of arbitration clauses in intra-EU BITs, as well as the validity of the intra-EU BITs entirely. Furthermore, Achmea has also led to the question if extra-EU BITs are affected by the court’s findings as well.14 1.2 Purpose and Research Questions The purpose of this thesis is to analyze the possible legal effects and implications of Achmea for the BITs concluded between the MSs, and between MSs and third countries. This purpose naturally involves examination of investment arbitration clauses in BITs and the position of investment arbitration tribunals in EU law. The purpose of the thesis raises the following issues:
- What is the position of arbitration tribunals and arbitration clauses in EU-related BITs? - What legal consequences does Achmea have on current intra-EU BITs and on investment dispute resolution? - Does Achmea have legal implication(s) for extra-EU BITs? 1.3 Delimitations In presentation of the investment arbitration system, the mechanism of the International Centre for Settlement of Investment Disputes (ICSID) is used as the central explanatory part as well as an example of a permanent arbitration institution, rather than other systems, due to its historical and vital impact on the development of investment arbitration. For this reason, in relation to the purpose of the thesis, other systems of a similar nature have been excluded. In examination of investor protection, the topic will be presented and analyzed only briefly and in general since it composes a substantial topic on its own, and this thesis must comply with a mandatory page limit. The chapter is presented in order to raise awareness for the reader of the complexity and importance of the topic in relation to the implications examined in this thesis. However, the implications for this topic can be seen as supplementary in relation to the purpose of the thesis since investor protection is an element of BITs that is highly affected by Achmea. For further clarification, the statement that arbitration is not part of a national judiciary system implies that arbitration tribunals and their process of adjudication is an autonomous process which is not influenced by or connected to domestic national court proceedings. It is important to highlight and understand this meaning since arbitration is connected to domestic national courts and national legislation in such a manner that national legislation and courts allow and recognize the legitimacy of arbitration tribunals and awards. Therefore, the autonomy of arbitration tribunals
14 Carola Glinski, ‘Achmea and its Implications for Investor Dispute Settlement’ (November 27, 2018), University of Copenhagen Faculty of Law Research Paper No. 2019-70, 13 CEVIA Working Paper Series, 17-21.
3 addressed in this thesis will relate to the independence of the arbitration process from influence and interference of domestic national courts. 1.4 Method and Material In order to achieve the purpose of this thesis, the legal dogmatic method will be used.
The purpose of this methodology is to provide a systematic clarification of norms, rules, and principles of a specified field of law. It continues with an analysis of the relation and connection between these concepts with the ambition to disentangle the absence of clarity or discrepancies in existing law. The methodology aims to achieve the application of a legal rule to a pre-defined research question.15 It is however inappropriate to see this process as a simplistic one which merely involves locating, applying and explaining legal rules that can be objectively verified. To correctly apply this methodology, the process entails the examination of various types of materials. These materials must be evaluated for their relevance and necessity.16 Different materials have varying status in terms of hierarchy and authority. Thus, it is important, that in assessment of materials, the hierarchical and authoritative status of the materials is kept in mind.17 In this thesis, as explained below, the sources of international law and the sources of EU law are used. However, it should be underlined that this thesis does not involve a comparative study between the EU legal system and any other system. The sources of international law are used mainly with the aim to present a particular topic for a better understanding of the issues falling within the purpose of this thesis and the research questions. In applying the legal dogmatic method, the sources of international law examined shall be in accordance with Art. 38(1) of the Statute of the International Court of Justice (ICJ Statute).18 Materials related to international law used for this thesis will be both primary sources of law19 and secondary sources of law20, keeping in mind their hierarchical and authoritative status. These sources include international conventions, international custom, general principles of law, as well as judicial decisions and published material of highly qualified publicists. In accordance with the purpose of this thesis, the main sources used are the sources of EU law. The sources of EU law that will be examined are both the primary and secondary sources of law. Primary sources of EU law, also known as “primary Union law”, are the founding treaties of the EU (currently the Treaty of Lisbon), the Charter of Fundamental Rights of the EU and the general
15 Jan Kleineman, ‘Rättsdogmatisk metod’ in Maria Nääv and Mauro Zamboni (eds.), Juridisk Metodlära (Studentlitteratur, 2018), 21; Jan M. Smits, ‘What is Legal Doctrine? On the Aims and Methods of Legal-Dogmatic Research’, in Rob van Gestel, Hans-W Micklitz and Edward. L. Rubin (eds.), Rethinking Legal Scholarship : A Transatlantic Dialogue (CUP, 2017), 5-7. 16 Ian Dobinson and Francis Johns, ‘Legal Research as Qualitative Research.’ in Mike McConville and Wing Hong Chui (eds.) Research Methods for Law (Edinburgh University Press, 2017), 37. 17 ibid, 21-2. 18 United Nations, Statute of the International Court of Justice, 18 April 1946, Art. 38(1). 19 outlined by Article 38(1)(a-c) ICJ Statute. 20 outlined by Article 38(1)(d) ICJ Statute.
4 principles of EU law.21 Secondary sources of EU law (secondary legislation) consist of binding and non-binding acts. Deriving from Article 288 of the Treaty on the Functioning of the European Union (TFEU)22, regulations, directives, and decisions are binding acts, while opinions and recommendations are non-binding acts.23 In addition to the five acts listed in Article 288 TFEU, there are several other types of acts referred to as “atypical acts”.24 These acts are specifically referred to in the provisions of the EU Treaties (e.g. inter-institutional agreements, conclusions, or guidelines), however, some have also been developed through practice (e.g. declarations and communications). In principle, such acts are not binding.25 To achieve the purpose of this thesis, secondary legislation, such as regulations and opinions, are used in this thesis.
1.5 Outline The thesis consists of five parts. The second chapter explains what international investment arbitration entails, and the topics (issues) of EU law that are relevant to the purpose of this thesis and the research questions. These topics are the preliminary ruling procedure, the autonomy of EU law, the investment regime and the Common Commercial Policy, and the Investment Court System. The third chapter of the thesis presents and examines Achmea, as well as the other case law relevant to the understanding of Achmea. The chapter also analyzes the implications of Achmea for intra- EU BITs, and how the issues of EU law explained in the second chapter are affected by Achmea. The fourth chapter investigates if and how the ruling in Achmea may have effect(s) on extra-EU BITs. In that context, the chapter analyzes whether the same implications for intra-EU BITs can arise in regard to extra-EU BITs. Finally, the main findings presented throughout the text are provided in the conclusion.
21 Catherine Barnard and Steve Peers, European Union Law (OUP, 2017), 103-4. 22 Consolidated version of the Treaty on the Functioning of the European Union (TFEU) OJ C 326, 26.10.2012 23Klaus-Dieter Borchardt, The ABC of EU Law (European Union, 2017), 89-92. 24 Henning Grosse Ruse-Khan, Thomas Jaeger and Robert Kordic, ‘The Role of Atypical Acts in EU External Trade and Intellectual Property Policy’ (2010) 21 The European Journal of International Law, No 4, 903-5. 25 ibid.
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2. Investment Arbitration and EU Law This chapter explains and examines the topics that are the key issues relevant to the ruling in Achmea. These key topics are the basics of investment arbitration and the ICSID, the preliminary ruling procedure in the EU, the autonomy of EU law, investment regime in EU law and the CCP, investment court system and arbitration, and protection of investors which is presented in general with the aim to provide a better understanding of the ruling in Achmea. 2.1 Investment Arbitration and the ICSID Investment arbitration is a branch of arbitration that became a known area of international dispute settlement in the 1960s, partly due to the World Bank initiative, which resulted in the ICSID Convention of 1966. The ICSID had a slow start but grew enormously over the next decades, housing hundreds of cases per year.26 Today, 163 States are parties to the ICSID Convention, where only 9 of these States are signatories without its ratification.27 Investment arbitration has enabled an investor to enforce fulfilment of obligations, created by IIAs, in case of non-fulfilment. Furthermore, in case of breaches of the IIAs by the State, an investor has the ability to receive monetary compensation through investment arbitration proceedings. The idea behind the ICSID Convention was to establish a multilateral legal framework on which States and investors could rely on for ISDS, but also to help avoid disputes all together by creating uniform rules in the form of a contractual relationship that would apply to all contracting parties. The ICSID itself was created as a central dispute resolution arena that presented a neutral fora where the main objective was, and remains, to arbitrate and resolve investment disputes.28
There is, however, some criticism of the ICSID that should, at least, be pointed out. ICSID, dealing with legal disputes arising from investments, specifies its jurisdiction in Article 25(1) ICSID Convention, but does not define or specify what qualifies as an investment.29 Deciding if a transaction qualifies as an investment is left to the ICSID tribunal. The absence of a specified definition of what qualifies as an investment in the Convention leaves a gap in the law which opens the possibility of submitting, more or less, any dispute regarding what can be seen, and argued for, as an investment. An additional problem evolving from the absence of such a definition is that, due to the rapid increase and development of trade, economy, and technology, it is making it more and more difficult to decide if a transaction can, should, or should not be considered as an investment, which makes it even more important for an established definition.30 A definition of
26 Karl-Heinz Böckstiegel, ‘Commercial and Investment Arbitration: How Different are they Today? – The Lalive Lecture 2012’ (2012) 28 The Journal of the London Court of International Arbitration, Iss. 4, 577-8. 27 ICSID, Database of ICSID Member States (2019) [Online]
6 what is to be considered an investment was offered in Salini et al v. Morocco31, but its definition has met criticism and opposition over the years, with claims that the requirements are too vague, or, incomplete. Nevertheless, these requirements, also known as “the Salini test” are often used by arbitration tribunals, showing that it has gained a fair amount of legitimacy32, however, as stated before, criticism and opposition remains by a fair amount of arbitration tribunals that are unable to agree with the content of the test. Thus, the question on the definition of an investment remains widely discussed.33 2.2 Preliminary Ruling (Reference) Procedure The preliminary ruling procedure, which is regulated under Article 267 TFEU, was one of the main issues analyzed in Achmea in terms of the connection between the preliminary ruling procedure and arbitration tribunals. The preliminary ruling procedure is a judicial mechanism available in the EU which is a form of a cooperation between national courts of the MSs and the CJ.34 When national courts of MSs are litigating a dispute, which involves the interpretation or application of EU law, but to which the court has doubts on how to interpret or apply EU law, the national court can rely on the preliminary ruling procedure. This process involves the national court requesting a preliminary ruling from the CJ where it interprets and applies EU law to the case. There are two types of question that the national courts can refer to the CJ; questions on validity of EU secondary legislation35, and questions on interpretation of EU law. The former entails a question whether an EU legal act might be invalid because of, e.g., a conflict with a hierarchically higher norm of EU law (e.g. fundamental rights36), while the latter involves questions on how an EU legal act is to be interpreted in the light of a dispute in question.37 If a national court questions the validity of an EU legal act, it is under obligation to refer the question to the CJ, however, the national court must have serious doubt on the validity of the EU legal act, otherwise, it is not under obligation to refer, as established in case Foto-Frost38. Questions on interpretation, however, the obligation to refer to the CJ depends on the national court in question. If the national court in question is the court of last instance39, that court is under obligation, under Article 267(3) TFEU, to refer the case to the CJ for a preliminary ruling on matters of interpretation and application of EU law.40 There are, however, three exceptions to the obligation to refer, which
31 Salini et al v. Morocco, ICSID Case No. ARB/00/4, Decision on Jurisdiction, para. 52. 32 ibid (n 29(2)), 296-7. 33 Laurence Burger, ‘The Trouble with Salini (Criticism of and Alternatives to the Famous Test)’ (2013) 31 ASA Bulletin, Iss. 3, 146-7. 34 Robert Schütze, European Union Law (CUP, 2018), 386-7. 35 Validity of the Treaties and the Charter of Fundamental Rights of the EU cannot be questioned, as being at the top of the primary sources of EU law in the hierarchy; Nigel Foster, Foster on EU Law (OUP, 2017), 202. 36 see C-293/12 Digital Rights Ireland EU:C:2014:238. 37 ibid (n 34), 388. 38 C-314/85 Foto-Frost v Hauptzollamt Lübeck-Ost EU:C:1987:452. 39 Court of last instance is the court to which judgements cannot be appealed. Such a court does not necessarily need to be the highest court. Where a decision of a lower court cannot be appealed, such a court becomes the court of last instance for the purpose of Article 267 TFEU; ibid (34(2)), 200. 40 ibid (n 34), 394.
7 were formulated by the CJ in CILFIT41; (1) if the EU law in question is deemed irrelevant, meaning that regardless of what the answer to the question on EU law would be, the result of the case in question would not be affected; (2) if a previous judgement on the same point of law exist (acte eclaire doctrine); and (3) if the law is so clear that a preliminary ruling is not necessary (acte clair doctrine).42 A system of binding precedent does not exist in the EU legal order, thus, a ruling by the CJ is binding, for the parties concerned, and effective for the specific case at hand. The CJ does, however, look to previous judgements (and will cite previous judgements) in order to maintain consistency in its interpretation of EU law.43 Under Article 267 TFEU, it is stated that question referred to the CJ for a preliminary ruling can be made by ‘any Court or Tribunal of a Member State’. However, it has been expressed by the CJ in Pretore di Saló44 and in Cartesio45 that in order for a body that is not officially considered a court to be able to use the preliminary ruling mechanism, it must meet the following six criteria: it must be established by law, it must be permanent, it must have compulsory jurisdiction, it must deal with procedures inter partes, it must apply rule of law, and, it must be independent.46 If these criteria are met, the body in question can refer a question on validity or interpretation to the CJ through the preliminary ruling procedure. However, in relation to arbitration tribunals, the CJ has been consistent in its refusal to allow arbitration tribunals the possibility to refer questions to it. This has refusal has been questioned by practitioners and scholars since it is peculiar that such an important and common area of administration of justice, which, in most cases, has the same binding power as that of a decision by a national court, does not have the ability to refer questions on EU law to the CJ.47 Nevertheless, an additional question that can be raised is whether the six criteria allowing a body to refer questions to the CJ must be met cumulatively, or not. There is a discussion that some of the criteria may carry more weight than others, but there is little to be found whether it is required that all criteria be met all-together.48 2.3 Autonomy of EU Law One of the principles developed by the EU with the purpose to ensure that EU law is applied effectively and uniformly in the entire Union is the concept of the autonomy of EU law. Autonomy of EU law was at the core of the ruling in Achmea which excluded arbitration tribunals from interpreting EU law.
41 C-283/81 CILFIT v Ministero della Sanità EU:C:1982:335. 42 ibid, para 10-6. 43 ibid (34(2)), 203-4. 44 C-14/86 Pretore di Salò v X EU:C:1987:275. 45 C-210/06 Cartesio EU:C:2008:723. 46 ibid, para 55; ibid (n 44), para 6-7. 47 Morten Broberg and Niels Fenger, ‘Arbitration cases and preliminary references to the European Court of Justice— an assessment of ‘the Danish Solution’ (2020) 36 Arbitration International, 150. 48 ibid.
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The concept of autonomy of EU law allows EU law to, independently, determine what it governs, and how it governs.49 In other words, the autonomy of EU law resulted in EU law being seen as a stand-alone, independent legal order which excludes it from being governed by any other law.50 The autonomy of EU law has two perspectives, its relation to international law, and its relation to the laws of the MSs.51 In the EU law’s relation to international law, the autonomy of the EU legal order was established in Van Gend en Loos52, where the CJ stated that EU law ‘constitutes a new legal order of international law’53. This autonomy was then seen in subsequent rulings concerning matters relative to international law. In Commission v Luxembourg54, for example, the CJ decided, on the explained basis, not to apply the principle of international law known as exceptio non adimpleti contractus55. By doing so, the EU legal order expressed that it is no longer part of the ordinary international law, but that it is its own, separate, and new legal order. In the same manner, the autonomy of EU law in relation to the law of MSs was established in Costa v ENEL56. Here, the CJ showed that the EU legal order is its own legal system created by the Treaties, and which the courts of the MSs are bound to apply. Additionally, in creating this relationship between EU law and the laws of the MSs, Costa v ENEL also established the primacy of EU law. This concept made it clear that EU law stood above the laws of the MSs, and that the sovereignty of the MSs was limited by the primacy.57 2.4 Investment Regime in EU Law and the CCP In order to understand the reasonings and background of Achmea, it is crucial to understand the underlying policies that regulate the actions of the EU. Thus, this chapter presents the investment regime and the Common Commercial Policy, which are policies regulating investments and investment agreements containing arbitration clauses. When the Lisbon Treaty58 entered into force in 2009, the EU gained a broadened, and exclusive, competence regarding FDI. It was included as part of the Common Commercial Policy (CCP) that would now give the European Commission (the Commission) the exclusive powers to negotiate
49 Damian Chalmers, Gareth Davies, and Giorgio Monti, European Union Law – Text and Materials (CUP, 2019), 208. 50 Steffen Hindelang, ‘Conceptualisation and Application of the Principle of Autonomy of EU Law – The CJEU’s Judgement in Achmea Put in Perspective’ (2019) 44 European Law Review, Iss. 3, 387. 51 Koen Lenaerts, ’The autonomy of European Union Law’ (2019) 1 Post AISDUE, 2. 52 C-26/62 Van Gend en Loos EU:C:1963:1. 53 ibid, 12. 54 C-90/63 Commission of the EEC v Luxembourg and Belgium (Commission v Luxembourg) EU:C:1964:80, 631. 55 ‘exception for an unfulfilled contract’ in Aaron X Fellmeth and Maurice Horwitz, Guide to Latin in International Law (OUP, 2009), 224. 56 C-6/64 Costa v E.N.E.L. (Costa v ENEL) EU:C:1964:66. 57 ibid (n 49), 209. 58 Treaty of Lisbon Amending the Treaty on European Union and the Treaty Establishing the European Community, OJ C 306, 13.12.2007.
9 and conclude extra-EU BITs on behalf of the entire Union.59 If a MS, on its own, wishes to negotiate an BIT, it must be empowered to do so by the Commission. This was formally established by Regulation 1219/201260 (the Regulation), where the EU explained the authority of EU law in BITs that MSs concluded before the Lisbon Treaty, as well as the guidelines on how MSs are allowed to amend current BITs and how to enter into new BITs with third countries, including the authorization requirement. The reason why the regulation of FDI in BITs was put under the CCP and thereby was made subject to the exclusivity of the EU should briefly be explained. In 2009, the CJ ruled in some cases that an international agreement which was concluded between a MS and a third country before the accession of that MS to the EU and which regulated FDI was not compatible with EU law because the agreement in question did not consider the possibilities of regulation of FDI at the EU level. In other words, the international agreement in question did not refer to the provisions in the Treaty that allow the EU to regulate FDI. If the EU would regulate a certain aspect of FDI, for example, limit the scope of liberalization, MSs are under obligation to follow the EU legislation. Consequently, lack of reference to those provisions in a BITs may lead to the contracting MS having difficulties in fulfilling its obligation arising from the BIT under international law, since the contracting MS is under obligation to comply with EU law. Considering that the MSs have concluded BITs regulating FDI with third countries themselves, a solution was that the EU would conclude such agreements on behalf of the MSs. Needless to say, putting FDI under the CCP led to an uncertainty on the validity of the BITs concluded between the MSs and third countries before the Lisbon Treaty. Accordingly, the Regulation was adopted, and it provides for guidelines for the MSs. With regard to the authorization requirement, in order for a MS to receive authorization to initiate negotiations with a third country to amend an existing, or conclude a new, BIT (pursuant to Article 7 of the Regulation), under Art 9(2) of the Regulation, certain clauses in the BIT in question might be demanded to be included, or to be removed in order to ensure that the policies on investment and the compatibility with EU law are consistent. Furthermore, the Commission must, throughout the process of negotiations, be held informed on the progress of the negotiations under Article 10 of the Regulation, and, under Article 11 of the Regulation, MSs must once again notify the Commission and receive an additional authorization to sign the finished BIT. These provisions clearly show the expanded competences of the EU in relation to investment policies granted to them by the CCP introduced with the Lisbon Treaty. It can also be said, that, more or less, all sovereign power of MSs to conclude BITs with third countries has been abolished since it is clear that any negotiations of new BITs are strictly controlled, and even dictated, by the EU.
59 Marc Bungenberg, ‘Towards a More Balanced International Investment Law 2.0?’ in Christoph Herrmann, Bruno Simma, Rudolf Streinz and Horst G Krenzler (eds.), Trade Policy between Law, Diplomacy and Scholarship : Liber Amicorum in Memoriam Horst G. Krenzler (European Yearbook of International Economic Law, 2015), 15-6. 60 Regulation (EU) No 1219/2012 of the European Parliament and of the Council of 12 December 2012 establishing transitional arrangements for bilateral investment agreements between Member States and third countries (32012R1219).
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Authorization can be refused on grounds specified in Article 9(1) of the Regulation, where such negotiations would be in conflict with EU law (not involving the allocation of competence between the EU and the MSs), would be superfluous (in cases where the Commission has already submitted, or made a decision to submit, recommendations to initiate negotiations for a BIT at the EU level with the same third country), would be inconsistent with the EU’s aims and principles for its external relations and/or policies, or if it would create a grave hindrance to the negotiations or conclusions of BITs with third countries by the Union on behalf of the MSs.61 However, it is not specified by the Regulation the consequences of the ability or inability to amend an existing BIT between a MS and a third country. Neither does it specify or address that an existing BIT between a MS and a third country should be terminated in the existence of an incompatibility with EU law, or in the case of an inability to amend such a BIT. A question that may rise is how Article 351 TFEU62 stands in relation to the Regulation. By introducing the CCP, and increasingly establishing BITs with third countries on behalf of the EU63 (which are set to replace individual BITs of MSs with the same third countries64), one might assume that the EU’s agenda is to replace all individual MS BITs with EU agreements, including those concluded by MSs before their accession to the EU. As we saw in Commission v Sweden, Commission v Austria, and Achmea (the facts of which are presented in the next chapter), the protection of BITs concluded by MSs before their accession to the EU that Article 351 para 1 TFEU provides seems, from my point of view, to not be providing any protection at all. In relation to the arbitration protection of ISDS, the EU now has the competence to refuse any BITs that include an arbitration clause, as per Achmea. In my opinion, this can be said to create an incentive for the EU to create its own permanent court system that specifically deals with investment issues, which is presented in the following subchapter. 2.5 Investment Court System and Arbitration The EU’s initiative in create a specific court system which deals with investment issues, known as the Investment Court System65 (ICS), is an initiative by to create a permanent court that would deal with ISDS issues comprising of components of traditional ISDS with those of a judicial nature.66 Today, the function of adjudication of ISDS is mostly performed by arbitration courts and tribunals empowered by arbitration clauses in IIAs. However, in 2015, the Commission expressed their desire to move away from ad hoc67 arbitration, and towards a permanent
61 ibid (n 60), Article 9(1). 62 Article 351 TFEU is the same as Article 307 of the Treaty Establishing the European Community (EC). Thus, references to Article 307 EC made by the sources used have the same reference to Article 351 TFEU. 63 ibid (n 59), 16-7. 64 Angelos Dimopoulos, EU Foreign Investment Law (OUP, 2011), 319. 65 European Commission – Press Release, ‘Trade: European Court of Justice confirms compatibility of Investment Court System with EU Treaties’ (30 April 2019) IP/19/2334 [Online]
11 investment court.68 The idea has its basis in the completed negotiations of the free trade agreements with Canada (CETA) and with Singapore (EU-Singapore FTA). The Commission stated in their paper that they have achieved, among other things, the following: key concepts such as fair and equitable treatment (FET) have been defined to prevent abuse, prevention of the concept known as “forum shopping”69, introduction of full and mandatory transparency of arbitration proceedings, interpretation of rules is given to governments70, inclusion of a code of conduct for arbitrators, the “loser principle” to pay for proceeding costs71, negotiation of an appeals mechanism, prohibition of parallel proceedings72, and more.73 These elements are considered by the EU as the inspirational characteristics of the purposed ICS. While these elements might look attractive from a litigative perspective, many of them go against the core characteristics of arbitration74. The purposed system seems to introduce a judiciary system to handle investments which resembles that of domestic national courts. Arbitration, at its core, is specifically supposed to offer an alternative dispute resolution to domestic national courts. If arbitration clauses, as per Achmea, are considered inapplicable, and the future of ISDS is directed to a system such as the ICS, it may be questioned what alternative dispute settlement methods that will be available for parties wishing to keep their disputes out of “official” courts. A further issue that should be given some attention is the fact that the EU is, and has been for some years now, developing such a specified court system for investment issues. This should raise some questions on why such a system is being created in the first place. The EU’s new investment policy (established by the Lisbon Treaty) introduced the ICS with the aim to create a more transparent, consistent, and impartial system to deal with investment disputes.75 The fact that the function of the settlement of international investment related disputes was not bestowed upon the national courts, or the CJ, can show an underlying understanding that all these courts do not have the adequate expertise to deal with such issues. How then shall the new ICS award itself with the competence required? Who shall be the competent judges assigned to this permanent institution to adjudicate the issues? Surveys have been conducted which clearly show that the majority of national judges in MSs assess their own knowledge of EU law as, ranging between, very bad and
68 European Commission, ‘Investment in TTIP and beyond – the path for reform Enhancing the right to regulate and moving from current ad hoc arbitration towards an Investment Court’ (Concept Paper, 2015), [Online]
12 moderate.76 In comparison with current ISDS, which is mostly conducted in the form of investment arbitration, the adjudicating panel is formed of individuals who not only are specific experts of the field that the dispute concerns77, but they usually also have the experience of having adjudicated a number of relevant arbitration cases beforehand, adding their experience to their expertise.78 As such, from my perspective, the arbitrators appointed in investment arbitration can be said to possess a higher level of expertise in the relevant field, which allows them to more accurately adjudicate an investment dispute. Just by looking at this factor, will be interesting to see how the ICS will, or will not, be able to accompany such expertise, but the issue has not yet been addressed. 2.6 Protection of Investors in General As stated in the delimitations, protection of investors is only presented briefly in this sub-chapter with the aim to provide a better understanding of the implications of Achmea. The act of investing in another State quite obviously involves many risks. To promote and encourage FDI, investors are offered protection for their investments under the BITs which create obligations for the host State to treat foreign investment to a certain standard. The main types of protection that FDI receives under the BITs are: freedom to invest79, national treatment80, most- favored nation81, adequate compensation for expropriation82, freedom of transfers83, full protection and security84, and protection against discriminatory and arbitrary measures85.
76 Juan A Mayoral, Urszula Jaremba and Tobias Nowak, ‘Creating EU law judges: the role of generational differences, legal education and judicial career paths in national judges' assessment regarding EU law knowledge’ (2014) 21 Journal of European Public Policy, No. 8, 1120-37; Urszula Jaremba, ' Polish Civil Judges as European Union Law Judges: Knowledge, Experiences and Attitudes’ (Doctoral Thesis, Erasmus University Rotterdam 2012), 177; Urzsula Jaremba, National Judges as EU Law Judges : The Polish Civil Law System (Martinus Nijhoff Publishers, 2013), 5. 77 as seen in Article 14(1) ICSID Convention. 78 Albert Jan van den Berg, ’Qualified Investment Arbitrators? A Comment on Arbitrators in Investment Arbitration’ in Patrick Wautelet, Thalia Kruger, and Govert Coppens (eds.) The Practice of Arbitration : Essays in Honour of Hans van Houtte (Hart Publishing, 2012), 54. 79 Freedom to invest entails the ability for investors to invest in any field in the territory of the other party, as long as it is in compliance with legislation and does not hinder national security; see Christoph Schreuer, ‘Investments, International Protection’ (2013) in Rüdiger Wolfrum (ed.), Max Planck Encyclopedia of Public International Law, para 43-8. 80 National treatment gives a foreign investor the right to be treated no less favorably than a national of that country; see ibid (n 79(2)), para 67-8. 81 Most-favored nation treatment ensures that parties to a BIT treat the other party at least as favorable as they treat third parties; see ibid (n 79(2)), para 71-3. 82 Expropriation entails actions by a government in taking over of property belonging to a foreign investor; see ibid (n 79(2)), para 85-7; Campbell McLachlan, Laurence Shore and Matthew Weiniger, International Investment Arbitration : Substantive Principles (OUP, 2017), 2 ed, 360. 83 Freedom of transfer involves a freedom for a foreign investor to transfer monetary funds to and from its investment in a host country; see ibid (n 79(2)), para 76-7. 84 Full protection and security entails the protection of the investment by the host country from physical violence, invasion of premises etc; see ibid (n 79(2)), para 53-6. 85 This protection involves the guaranteed to not be subject to discriminatory or arbitrary measures imposed by the host country. Discriminatory, meaning that the investment is treated differently (and harmfully) than others in the host country, and arbitrary, meaning that measures are imposed on the investment on the basis of unreasonable or unjustified terms; see ibid (n 79(2)), para 58-61; Geoffrey S Steward, Baiju S Vasani and Sylvia T Tonova, ‘BIT
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The protections mentioned above are the most common standards of protections granted to investors under BITs. However, in recent times, there are two main treatment standards considered as minimum treatment standards that have gained more and more significance. These two are the FET and the minimum standard of treatment of aliens (MST).86
The FET is considered by some as a protection standard that extends to and covers many areas of an investment. However, scholars argue that even though the FET is seen as a flexible and general standard of protection, it is not supposed to act as a replacement for the other standards of protection. Although, it becomes quite difficult to differentiate the FET from the other standards of protections since it is argued that, in many cases, they cover the same things.87 There is, however, an important difference. In many clauses that refer to FET, also make a reference to the FET under international law. This link between the FET standard and international law can be seen in the formulation of the treatment clauses in BITs. In the Croatia-Oman BIT from 2004, Article 3(2) states that ‘Investments or returns of investors of either Contracting Party in the territory of the other Contracting Party shall be accorded fair and equitable treatment in accordance with international law and provisions of this Agreement.’88. The same can be seen, with a slightly different formulation in the Bahrain-United States BIT of 1999, which states in Article 2(3)(a) that ‘Each Party shall at all times accord to covered investments fair and equitable treatment and full protection and security, and shall in no case accord treatment less favorable than that required by international law.’89 In disputes, such clauses refer the tribunals to the sources of international law in order to determine whether a breach of the FET has occurred, which then brings us to the MST.
The MST consists of norms regarded as customary international law regulating the treatment of aliens and is commonly used as a clause for additional protection. It is seen as a concept of broad spectrum embodying the principle of denial of justice together with additional attributes of the State responsibility law regulating injury to aliens and their property.90 The MST, in addition to providing protection against discriminatory treatment by the host State, provides an additional layer of protection by enabling the attribution of an injury caused to an alien to an injury caused to the alien’s home State, and thus enabling further protection and intervention by the home State
Protection of Foreign Investments in Times of Volatile Currency, Slow Growth, and Political Uncertainty in India’ (2013) Jones Day Commentary, 3. 86 Jean Ho, State Responsibility for Breaches of Investment Contracts (CUP, 2018), 90; Hussein Haeri, ‘A Tale of Two Standards : “Fair and Equitable Treatment” and the Minimum Standard in International Law : The Gillis Wetter Prize’ (2011) 27 Arbitration International, 27-8. 87 ibid (n 79(2)), para 49-50; Rumana Islam, ‘Interplay between Fair and Equitable Treatment (FET) Standard and other Investment Protection Standard’ (2014) 14 Bangladesh Journal of Law, 117-8. 88 Croatia-Oman BIT (2004) [Online]
14 on behalf of the investor. An important requirement, however, is that domestic remedy is either inaccessible or already exhausted.91
Consequently, the important difference between the specific standards of protection offered under the BITs and the protection offered under FET and MST can be seen in the reference to international law. If a BIT does not specifically cover a certain protection for an investor, it is possible that a breach of FET or MST can be invoked since they cover a larger specter of protections.
It is important to understand the complexity, necessity, and extent of the protections that investors are offered under the BITs between States, since the impact of Achmea has caused an indirect impact on these protections.
91 ibid (n 86(1)), 91-3.
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3. Achmea and Intra-EU BITs This chapter examines and discusses the implications of Achmea on intra-EU BITs. In addition to Achmea, some relevant cases are presented in this chapter in order to provide an understanding of the background and the road leading to Achmea. 3.1 Commission v Austria In Commission v. Austria92, the CJ examined BITs concluded between Austria and several third countries. These treaties were all concluded before Austria’s accession to the EU in 1995, and they all included a clause allowing free transfer/movement of capital related to investments between the States. The problem that had occurred was that the treaties did not contain any clause enabling the prohibition of the free movement of capital to and from third countries required under, what is now, Article 64(2) TFEU (ex Article 57(2) EC), Article 66 TFEU (ex Article 59 EC), and Articles 75 and 215 TFEU (ex Article 60(1) EC). Because of the lack of clauses that would allow restriction of free circulation of capital, the Commission started an infringement procedure against Austria on the grounds that Austria was in violation of, what is now, Article 351(2) TFEU (ex Article 307(2) EC) because, by not including clauses allowing for the restriction of free movement of capital in the text of the BITs in question, Austria had not taken enough measures to eliminate the incompatibilities of its BITs. The same situation was seen in Commission v. Sweden93. In the case, the CJ agreed with the Commission and ruled that the BITs in question were not compatible with EU law because they did not contain clauses allowing for the restriction of free movement of capital to and from third countries that can be adopted by the EU based on Article 64 (2) TFEU, Article 66 TFEU, and Articles 75 and 215 TFEU. Despite the fact that at the time of the case there was no restrictive measure in effect and the adoption of such restrictive measures were only hypothetical, the CJ stated that the MSs did not have control on the EU institutions’ choice to adopt restrictive measures and such restrictive measures could be adopted any time. Therefore, Austria had to include clauses in the text of its BITs that would allow restricting free movement of capital between Austria and the contracting third countries, in accordance with the future possible restrictive measures to be adopted by the EU institutions. Lack of such clauses would lead to a situation, when such restrictive measures would be adopted, where Austria would have to continue to apply the BITs in question under international law, which would create a conflict between the obligations of the MSs arising from international law and their obligations arising from EU law. Many comments can be made about the reasoning of the CJ. If the CJ had considered looking for international law to be applied to these BITs, then it could constitute a conflict with the non- retroactivity of treaties since the BITs in question were all concluded before Austria’s accession to the EU and the Treaties of the EU. Furthermore, as per the opinions of Germany and Hungary
92 C-205/06 Commission v Austria EU:C:2009:118. 93 C‑249/06 Commission v Sweden EU:C:2009:119.
16 in the case, it is not within the scope of Article 351 TFEU to include ‘potential future incompatibility with secondary Community legislation on the part of an agreement entered into with a third country’94.
Finally, it should be stated that if one considers the Commission’s actions and the judgments of the CJ in these two cases95, it can be argued that these cases can be interpreted as a “signal” of the EU’s move, or desire, to interfere with the BITs concluded by the MSs, before their accession to the EU, with third countries. If this argument is valid, then the judgment of the CJ in Achmea, which will be examined following this sub-chapter, can be said to have not come as a surprise. In other words, the judgment of the CJ in Achmea can be seen as a reflection of that the EU was already aiming to exercise control over the investment agreements concluded by the MSs long before Achmea. 3.2 Slovak Republic v Achmea BV In the landmark case Slovak Republic v Achmea BV96(which has been referred to as “Achmea”), a private company in the Netherlands offering private health insurance, Achmea, set up a subsidiary in the Slovak Republic (Slovakia) to offer their services on the Slovak market after it opened for private health insurers from other MSs in 2004. In 2006, the government of Slovakia reversed their decision on the liberalization of the private health insurance market. By establishing a new law in 2007, Slovakia specifically ‘prohibited the distribution of profits generated by private sickness insurance activities’97. However, in 2011, the Constitutional Court of the Slovakia deemed the 2007 prohibition as contrary to their constitution, resulting in an additional law being passed in 2011 recommencing the distribution of profits. The result of the prohibition had caused Achmea damages for several years in the form that they could not pay out their profits in dividends to their shareholders. This resulted in Achmea bringing arbitration proceedings against Slovakia under the arbitration clause of Article 8 of the BIT between the Netherlands and Slovakia. The parties agreed to have the proceedings in Germany.98 An important issue raised in the arbitration proceedings was that of jurisdiction of the arbitral tribunal, where Slovakia argued that since it was now part of the EU, recourse to the tribunal was incompatible with EU law. This is due to the fact that the tribunal would now have to also consider and interpret EU law as part of the proceedings, which, due to Article 344 TFEU, the tribunal is not allowed to. The objection was, however, dismissed, and the proceedings resulted in an award ordering Slovakia to pay damages to Achmea in the amount of 22.1 million EUR.99 Accordingly, Slovakia brought an action before a German national court to annul the award on the grounds that EU law was not observed in the proceedings by the arbitration tribunal. The German court referred
94 ibid (n 92), para 21. 95 Commission v Austria and Commission v Sweden. 96 ibid (n 12). 97 ibid (n 12), para 8; Distribution of profits is defined as ‘the amount of a company’s profit that has been paid as dividends to shareholders in a particular period’, see “distributed profit” in Cambridge Business English Dictionary by Cambridge University Press : CUP 2011. 98 ibid (n 12), para 4. 99 ibid (n 12), para 11-2.
17 to the question to the CJ under the preliminary ruling procedure and asked to assess whether the arbitration clause in the BIT in question was indeed incompatible with EU law. After examining the case, the CJ explained that since the dispute in question does in fact involve interpretation and application of EU law, the arbitration tribunal is precluded from adjudicating the case due to Article 344 TFEU. Moreover, submitting the dispute to a tribunal which is not part of the EU judicial system fails to uphold the mutual trust and sincere cooperation between MSs. Consequently, since the CJ established that the arbitration tribunal in question was not part of the judicial systems of the Netherlands or of Slovakia, the tribunal could not rely on the preliminary ruling procedure under Article 267 TFEU.100 This means that, in addition to the fact that the arbitration tribunal did not have jurisdiction for interpretation and application of EU law under Article 344 TFEU, the arbitration tribunal could not reference the case to the CJ under the preliminary ruling procedure either. The mechanism allows courts and tribunals of MSs to communicate with the EU institutions with the purpose of ensuring the consistency, full effect, and autonomy of EU law, as well as the particular nature of the law that the Treaties establish. Moreover, under Article 344 TFEU, MSs have taken on the obligation to not submit disputes concerning the interpretation or application of EU law to any methods of settlement or tribunals than those provided for by the Treaties, which did not entail the arbitration tribunal in question. Thus, the CJ concluded that ‘Article 8 of the BIT has an adverse effect on the autonomy of EU law’101, and, furthermore, the CJ ruled that that Articles 267 and 344 TFEU preclude a provision in a BIT between MSs to bring proceedings before an ad hoc arbitration tribunal established under a BIT, such as Article 8 of the BIT in question.102 3.3 Eastern Sugar B.V. (Netherlands) v The Czech Republic The case between Eastern Sugar, a Dutch company that had invested in sugar producing facilities in the Czech Republic, and the Czech Republic103 (Eastern Sugar v Czech Republic) concerned a discriminatory treatment of the Dutch company after the accession of the Czech Republic to the EU. The Czech Republic had issued three regulatory decrees which had the purpose of altering the sugar market in order to comply with the new EU regulations. The court had found that one of these decrees had breached the FET requirement, which resulted in a large compensation to Eastern Sugar. During the proceedings, the Czech Republic had challenged the jurisdiction of the arbitration tribunal with the argument that since the Czech Republic was now part of the EU, the BIT, which was concluded prior to the accession and was a “third country BIT”, should now cease to have effect.104 Furthermore, the protection’s that are offered under the BIT should now be under the investment regime of the EU.105
100 ibid (n 12), para 45. 101 ibid (n 12), para 59. 102 ibid (n 12), para 60. 103 Eastern Sugar B.V. (Netherlands) v. The Czech Republic, SCC Case No. 088/2004. 104 ibid, para 97. 105 ibid, para 127.
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The issue at hand was the question on the legality of the BIT in question, and whether its application had become limited due to the Czech Republic’s accession to the EU. In this case, the court had found that the protections offered to investors under a BIT remained unaffected by EU law, pursuant to Articles 30 and 59 of the Vienna Convention on the Law of Treaties106 (VCLT), because of the fact that the intra-EU investment regulations, and the BIT in question, did not cover the exact same subject-matters.107 Furthermore, the Commission had stated that incompatibility of intra-EU BITs with EU law does not automatically lead to termination of the BITs, but that it rather is for the MSs to terminate the BITs in question by strictly following the procedure provided for in the BITs themselves.108 3.4 Analysis and Implication(s) of Achmea for Intra-EU BITs Achmea has serious implications for the BITs concluded between the MSs which include an arbitration clause. Firstly, Achmea has created an uncertainty over the validity of arbitration clauses and thereby an uncertainty over investment arbitration in regard to intra-EU BITs. Secondly, since Achmea has posed an uncertainty on whether the current intra-EU BITs that refer to arbitration clauses are valid or not, naturally, this has an impact on the future intra-EU BITs as well. These issues will be examined below. 3.4.1 Compatibility of Arbitration Clauses in Intra-EU BITs and the Question of Whether Arbitration Tribunals are “Courts” for the Purpose of Article 267 TFEU The CJ in Achmea stated that since the arbitration tribunal established to settle the dispute in question must interpret EU law and does not have access to the preliminary ruling procedure, the existence of an arbitration clause, such as Article 8 of the BIT in question, is prohibited with regard to Articles 267 and 344 TFEU.
3.4.1.1 Compatibility of Arbitration Clauses in Intra-EU BITs The CJ ruled that arbitration tribunals are not entitled to interpret EU law and cannot have recourse to the preliminary ruling procedure. In that context, the interpretation of Article 344 TFEU is of importance as the CJ considered Article 344 TFEU when giving its judgments and stated that the MSs can only submit disputes which involve interpretation or application of EU law to a mechanism provided for in the Treaties, in accordance with Article 344 TFEU. Since an ad hoc arbitration tribunal, such as the one in question in Achmea, is not provided for by the Treaties but by the BIT, such a clause, and thereby, having recourse to arbitration, is not in compliance with EU law, according to the CJ. Accordingly, in order to agree or disagree with the outcome in Achmea what must be analyzed is the preliminary ruling procedure and Article 267 TFEU. Article 267 para 2 TFEU states, in relation to questions of validity or interpretations of EU law, ‘[w]here such a question is raised before any court or tribunal of a Member State, that court or tribunal may, if it considers that a decision on the question is necessary to enable it to give judgment, request the
106 Vienna Convention on the Law of Treaties (United Nations [UN]) 1155 UNTS 331. 107 Csongor Nagy, Investment Arbitration in Central and Eastern Europe : Law and Practice (Edward Elgar Publishing, 2019), para 4.074. 108 ibid (n 103), para 119.
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Court to give a ruling thereon.’ This paragraph allows the national courts of the MSs to make references to the CJ with questions on validity and interpretation of EU law. While the paragraph does refer to “tribunals”, it must be underlined that the tribunal that can refer to the CJ must be a tribunal ‘...of a Member State…’. This requirement means that the tribunal that can refer to the CJ must be part of the judicial system of a MS. Thus, the wording of Article 267 para 2 TFEU can be interpreted as excluding arbitration tribunals, both ad hoc tribunals established under BITs and those such as ICSID that are not linked to a MS, from the scope of the preliminary ruling procedure. From this perspective, the fact that the CJ, in Achmea, did not consider the arbitration tribunal in question as a “tribunal” falling within the scope of Article 267 para 2 TFEU can be supported as the arbitration tribunal in question was not part of the judicial systems of the Netherlands or Slovakia. Consequently, if the CJ is to apply this interpretation to all other intra-EU BITs, all those that include a similar clause, referring disputes to arbitration, will have to be amended in order to eliminate the incompatibility with EU law, as seen in Commission v Austria and Commission v Sweden. Additionally, the Commission stated in Eastern Sugar v Czech Republic that incompatibility of a BIT with EU law does not lead to automatic termination, however, following Achmea, it seems the Commission has altered its opinion and not even given a consideration to the fact that the incompatibility can, and perhaps should, be solved without the termination of the BITs in question. By making such a decision, one might ask what the Commission is focusing on protecting with its actions, whether it is the autonomy of EU law, or its own jurisdiction and the expansion of it.
3.4.1.2 Question if Arbitration Tribunals are “courts” for the Purpose of Article 267 TFEU As previously stated, according to the CJ in Achmea, in order to have access to the preliminary ruling procedure, a court or tribunal must be part of the national judiciary system of a MS. The question of whether arbitration tribunals can be considered within the scope of Article 267 para 2 TFEU is an issue that has been examined and addressed by the CJ in the past, however, the question of it remains still remains uncertain. In Nordsee v Reederei Mond109, the CJ examined the question whether arbitration tribunals may have recourse to the preliminary ruling procedure. In its judgement, the CJ stated that an arbitration tribunal established under a contract does not have sufficient characteristics in order to be awarded the status of “court or tribunal” of a MS. The reasoning is that such a tribunal does not have sufficient link to the judiciary system of a MS and can therefore not be seen as part of the judicial system of a MS.110 Consequently, such an arbitration tribunal may not have access to the preliminary ruling procedure. However, remarkably, the CJ pointed out that it is possible for arbitration tribunals to have the status of “court” or “tribunal” for the purpose of Article 267 TFEU, where such an arbitration tribunal has a permanent nature.111 Such a permanent nature is
109 C-102/81 Nordsee Deutsche Hochseefischerei GmbH v Reederei Mond Hochseefischerei Nordstern AG & Co. KG and Reederei Friedrich Busse Hochseefischerei Nordstern AG & Co. KG. (Nordsee v Reederei Mond) EU:C:1982:107. 110 ibid, 1109-11. 111 ibid, 1103.
20 established when an arbitration tribunal is not established for a specific dispute by the parties to a contract, but rather that the tribunal can preside over any number of disputes between the parties.112 Examples of such permanent arbitration institutions would be the ICSID, or the Permanent Court of Arbitration (PCA). When one applies the judgment of the CJ in Nordsee v Reederei Mond to Achmea, the following findings can be stated. The arbitration tribunal in Achmea was on a contractual basis, meaning that the tribunal was established by the BIT between the two parties to settle a dispute regarding the BIT in question. Such a contractual clause was permitted by the freedom of contract, however, it is doubtful if the tribunal in question was established by law. This issue is of importance because “being established by law” is one of the six criteria113 that the CJ uses in order to allow a body which is not designated as a court to have recourse to the preliminary ruling procedure.114 Related to this, it must be underlined whether all six criteria must be met cumulatively, or satisfying only some of the six criteria is sufficient to consider a body as “court” for the purpose of Article 267 TFEU has been uncertain in the case law of the CJ. The six criteria have been specified in numerous case law115, however, it has not been specified whether all the criteria must be met cumulatively. When one looks carefully at the wording ‘…the Court takes account of a number of factors, such as…’116 in the case law in order to decide if all of these six criteria must be met cumulatively or not, a conclusive answer is still hard to provide. On the one hand, if an emphasis is put on the wording ‘...such as...’117, these six criteria can be interpreted as not being required to be satisfied cumulatively. On the other hand, a conclusion that when a body satisfies one of these six criteria will be considered as “court” for the purpose of Article 267 TFEU may conflict with the rationale that there must be a purpose why the CJ has established these six criteria and that these six criteria are in fact characteristics of a “true” court. In my opinion, it must be examined in detail on a case to case matter in order to establish whether a body can be considered a court or tribunal for the purpose of Article 267 TFEU. Moreover, when examining such an issue, the purpose of the body and the purpose of Article 267 TFEU should be seen together. In relation to arbitration tribunals, since it is in the EU’s interest that the autonomy of EU law and the uniform application of EU law is preserved, some sort of agreement should be reached by both sides, especially since solving investment disputes in arbitration tribunals has become such a common and widespread practice. However, in order to achieve consistency of judgements at the same time, it is in my perspective that the CJ was correct in finding the ad hoc arbitration tribunals, such as the one in Achmea, to be incompatible with EU law. With that said, it is also in my view that the CJ’s and the Commission’s
112 ibid (n 109), 1103. 113 For the six criteria, see chapter 2.2. 114 ibid (n 45), para 55. 115 ibid; C-96/04 Familiensache : Standesamt Stadt Niebüll EU:C:2006:254, para 12; C-54/96 Dorsch Consult Ingenieursgesellschaft v Bundesbaugesellschaft Berlin EU:C:1997:413, para 23; C-178/99 Salzmann EU:C:2001:331, para 13; C-182/00 Lutz and Others EU:C:2002:19, para 12; and case law cited in all. 116 ibid. 117 The phrase “such as” is explained as “for example” in Oxford Dictionary of English, edited by Stevensen, Angus, OUP 2010.
21 further actions towards intra-EU BITs (which are presented in the following sub-chapter) are inconsistent with their previous judgements and statements, which further questions the reliability and motives of the EU.
3.4.2 The Positions of Current Intra-EU BITs and Investment Arbitration As has been presented in the preceding chapters, investment arbitration established under intra- EU BITs have been seen as problematic by the CJ for quite some time. With Achmea, the CJ has put a full stop on intra-EU investment arbitration as it is. Following the judgement of the CJ in Achmea, on January 15th 2019, a declaration was issued and signed by 22 MSs on the legal consequences of Achmea, and the actions those MSs agreed to take.118 The declaration informed all investment arbitration tribunals that had before them pending intra-EU investment arbitration proceedings, as well as all investment arbitration courts and tribunals in third countries that were dealing with intra-EU investment disputes, that all proceedings were to be stopped, no awards issued or enforced, and no new proceedings regarding the same were to be initiated.119 Furthermore, the declaration stated that all MSs party to the declaration, were to terminate all BITs concluded with other MSs before the accession to the EU of either party. Arbitral awards and settlements that have already been concluded before Achmea were not to be contested.120 Regarding termination, the MSs and the Commission have agreed that termination of the intra-EU BITs is to be done through a separate termination treaty. Accordingly, such an agreement was reached on October 24th 2019 when the Commission also issued a statement explaining that the MSs have endorsed a plurality treaty that will regulate the process of the termination of the existing intra-EU BITs which were concluded before a party’s accession to the EU (Termination Treaty).121 In the statement of the Commission of October 24th 2019, they also mention that there are a few MSs that remain opposed to the actions caused by Achmea and to the Termination Treaty. However, the Commission has disregard these opinions as it stated, in the same statement, that MSs that do not terminate their intra-EU BITs as will be outlined in the Termination Treaty following its entry into force (which is still to be determined), will have infringement proceedings initiated towards them.122 It is clear that Achmea has had a critical impact on intra-EU BITs as they are now to be terminated. This, however, raises a series of questions on what will happen next in relation to investment arbitration in EU-related disputes. Achmea ruled out the possibility of further investment arbitration established under intra-EU BITs. Now that these arbitration clauses have been deemed
118 Financial Stability, Financial Services and Capital Markets Union (FISMA), ‘Declaration of the Member States of 15 January 2019 on the legal consequences of the Achmea judgment and on investment protection’ (European Commission, 17 January 2019) [Online]
22 as incompatible with EU law, a question arises on where and how investment disputes are going to be resolved. However, it is important to first address the issue of Article 9(2) of Regulation 1219/2020, as mentioned before. This Article states that the Commission, in order to give authorization for a MS to initiate negotiations for the amendment of existing, or conclusion of new, BITs can require the inclusion or removal of certain clauses to ensure compatibility and consistency with EU law and the EU’s investment policy. Together with the Commission’s statement in Eastern Sugar v Czech Republic concerning the fact that an incompatibility of a clause in a BIT does not lead to the automatic termination of an intra-EU BIT, and that the termination of an intra-EU BIT is done by the MSs in accordance with the provisions in the BITs, seems to in contrary to the current situation. Moreover, in Commission v Austria and Commission v Sweden, the BITs that were in question in those cases were not terminated despite the fact that an incompatibility with EU law was found by the CJ. In Achmea, the CJ found that the arbitration clause in the BIT in question was incompatible with EU law, which has led to the termination of not only the BIT in question, but of all intra-EU BITs containing such a clause. Additionally, the Commission is ready to initiate infringement proceedings against the MSs that do not terminate their BITs in light of Achmea, and which will be regulated by the separate Termination Treaty, not by the provisions in the BITs themselves, as they had stated before in Eastern Sugar v Czech Republic. Once again, the question must be raised whether the CJ is protecting the autonomy of EU law, or, if it is protecting and expanding its own jurisdiction through these actions.
On the issue to how and where intra-EU investment disputes will be resolved following the termination of the intra-EU BITs, permanent arbitration institutions should be examined, as they might offer a solution for the survival of EU-related investment arbitration. This takes us back to the six criteria relevant to the “bodies” that can have recourse to the preliminary ruling procedure under Article 267 TFEU. As follows from Nordsee v Reederei Mond, it is the non-permanent character of the arbitration tribunals that creates one of the main problems in relation to the access of arbitration tribunals to the preliminary ruling procedure. Having said that, some arbitration tribunals can, in my opinion, have permanent character and can satisfy the six criteria. If taking the ICSID as an example, it is established by law of the ICSID Convention123, it is a permanent arbitration institution or, it allows proceedings to be held at other appropriate institutions, including the PCA, which is also of a permanent nature124. Furthermore, its jurisdiction is compulsory if the parties have agreed to it, it deals with procedures inter partes125, it applies the rule of law126, and it is neutral and independent127. By assessing these criteria in relation to the ICSID, it can be argued that the ICSID should have the ability to request a preliminary ruling from the CJ on matters of validity and interpretation of EU law when dealing with cases involving MSs, with the purpose of ensuring uniform application and interpretation of EU law. The EU is trying to create a new ICS
123 to which 163 States are parties to; See ibid (n 25). 124 See Article 63 ICSID Convention. 125 See Articles 36(3) and 45 ICSID Convention. 126 See Article 42 ICSID Convention. 127 See Articles 14(1) and 39 ICSID Convention.
23 which is fully under the control of the EU and may deter skeptical third country investors, and which is opposite to the characteristics of arbitration128. Instead, by assessing these criteria in relation, but not limited to, the ICSID, perhaps the EU should further develop relations with existing permanent arbitration institutions. This way, EU-related investment arbitration may be reformed and directed to existing and competent arbitration institutions that have already proven their expertise. By directing EU-related investment disputes into known investment dispute settlement arenas, it might retain the life of arbitration as an alternative dispute settlement method. The relation between arbitration and the judiciary of the EU will most certainly become a closer one, but, arbitration as it is intended by its characteristics may just survive. 3.4.3 Intra-EU BIT Termination Treaty On May 5th 2020, the Commission released the Termination Treaty129, which was mentioned in the previous chapter, and which outlines the rules for the termination of intra-EU BITs concluded before one of the party’s accession to the EU130, as well as the Sunset clauses131 found in them, but also for any Sunset clauses that may be in effect from already terminated intra-EU BITs132. The treaty has been signed by all MSs except Austria and Sweden133. The Termination Treaty confirms that the MSs recognize the incompatibility of the arbitration clauses in intra-EU BITs with EU law following Achmea, and that these clauses cannot serve as legal basis for arbitration proceedings. 134 Furthermore, it confirms that no new arbitration proceedings can be initiated135, and that all concluded arbitration proceedings are not to be contested by the treaty.136 The Termination Treaty does, however, address two interesting issues in relation to the purpose of this thesis. Firstly, it states that that the Termination Treaty and the issues concerned are confined to that of intra-EU BITs, meaning that any extra-EU BITs, or any other multilateral investment treaties involving third countries, are not affected by this treaty. Secondly, and most importantly for the topic of the future of investment arbitration, the Commission states in the preamble to the Termination Treaty that in light of the Economic and Financial Affairs Council (ECOFIN) conclusions of July 11th 2017 ‘…Member States and the Commission will intensify discussions without undue delay with the aim of better ensuring complete, strong and effective protection of investments within the European Union. Those discussions include the assessment of existing processes and mechanisms of
128 See chapter 1.1 and 2.1. 129 FISMA, ‘Agreement for the Termination of Bilateral Investment Treaties Between the Member States of the European Union’ (Termination Treaty) (European Commission, 5 May 2020) [Online]
24 dispute resolution as well as the need and, if the need is ascertained, the means to create new or improve relevant existing tools and mechanisms under Union law’.137 It is clear by the rulings in Commission v Austria, Commission v Sweden, and Achmea that the CJ is effectively working on expanding its jurisdiction and the reach of EU law. In the present situation, since intra-EU BITs concluded before one of the party’s accession to the EU are in the process of being terminated, the arbitration tribunals and investor protections that they provide for are disappearing along with them. Instead, these areas are being replaced by EU law. Moreover, the Termination Treaty also removes any effects that Sunset clauses of the BITs may provide. With regard to the BIT between the Netherlands and Slovakia that was in question in Achmea, the BIT provides a Sunset clause outlining that the effects of the BIT will remain in effect for investments made before its termination for an additional fifteen years from the date of termination.138 With the Termination Treaty, all these effects are terminated as well, disregarding, once again, the Commission’s statement in Eastern Sugar v Czech Republic that BIT’s should be terminated in accordance with the provisions provided for in the BITs themselves. With the statement mentioned above, the EU is explicitly mentioning the possibility of creating new tools and mechanisms under EU law for the purpose of dispute resolution in EU-related investment disputes. As discussed earlier, the ICS that the EU has been developing since 2015139, or a similar system, seems now to be even more likely to be introduced by the EU since it is plausible that these substantial changes to the intra-EU investment policies and the dispute resolution mechanism will most likely create a certain amount of disputes in itself. Moreover, since the EU has not yet been clear on who, what, or how future intra-EU investment disputes will be resolved, it may an uncertainty among investors, which the EU must address in the near future. In the meantime, the Commission has stated that the ICS under CETA is fully compatible with EU law, and does not present any issues to the autonomy of EU law, as was the case of the arbitration tribunal in Achmea140, which, in my opinion, further gives the indication that the EU will most likely announce the ICS, or a similar system, to replace intra-EU investment arbitration.
137 ibid (n 129), 8. 138 Netherlands-Slovakia BIT (1991) [Online]
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4. Achmea and Extra-EU BITs This chapter presents and discusses the possible implications of Achmea for extra-EU BITs. Regardless of the fact that the CJ has not yet addressed the issue of the (in)compatibility of arbitration clause in extra-EU BITs with EU law, some (potential) implications can be brought to light. 4.1 Implications of Regulation 1219/2020 Having examined the effects of Achmea on intra-EU BITs, it is of importance to assess whether Achmea will also have effects on extra-EU BITs. As mentioned earlier, the Lisbon Treaty gave the EU full competence of negotiation and conclusion of BITs with third countries in Regulation 1219/2020141 (the Regulation). The Regulation states in Article 3 that the BITs with third countries that MSs concluded before the Lisbon Treaty or before their accession to the EU are to continue to be in force until the EU concludes its own BIT with the same third country. This once again raises the question of how Article 351 TFEU stands in relation to this issue. The Article states in para 1 ‘The rights and obligations arising from agreements concluded before 1 January 1958 or, for acceding States, before the date of their accession, between one or more Member States on the one hand, and one or more third countries on the other, shall not be affected by the provisions of this Treaty.’ In other words, this paragraph grants a sort of immunity to extra-EU BITs concluded by MSs before their accession to the EU. The Article does, additionally, state in paragraph 2 that incompatibilities of the extra-EU BITs with the EU Treaties must be eliminated. Should that include all possible future EU created incompatibilities, such as Article 3 of the Regulation? To clarify the previous sentence, if the EU concludes a BIT with a third country that one or more MSs already have BITs with, those BITs will suddenly become incompatible with EU law, since Article 3 of the Regulation states that the BITs previously concluded by the MSs with third countries will only remain in force until the EU conclude its own BIT with the same third country. It seems that Article 3 of the Regulation, calling for a replacement of all extra-EU BITs concluded before the MSs accession to the EU, should be seen as incompatible with EU law. The reason is that requiring to replace all extra-EU BITs concluded by the MSs, before the MSs’ accession to the EU, with third countries abolishes the protection (immunity) that Article 351 para 1 TFEU provides for agreements that the MSs concluded with third countries. Consequently, the protection assured in Article 351 para 1 TFEU has become obsolete, and just “an empty promise”. A further issue should be pointed out as, depending on the how the Commission will handle the transition from MS BITs with third countries to EU BITs with those same third countries, a certain concern may arise. The CJ has addressed the purpose of Article 351 TFEU in Attorney General v Burgoa142 and several other cases143 since 1980 that ‘…the purpose of that provision is to lay down, in accordance with the principles of international law, that the application of the Treaty does not affect the
141 See chapter 2.4; ibid (n 60). 142 C-812/79 Attorney General v Burgoa EU:C:1980:231, para 8. 143 C-84/98 Commission v Portuguese Republic EU:C:2000:359, para 53; C-216/01 Budéjovický Budvar, národní podnik v. Rudolf Ammersin GmbH EU:C:2003:618, para 144-5; ibid (n 93), para 34.
26 duty of the Member State concerned to respect the rights of non-member countries under a prior agreement and to perform its obligations thereunder.’144 Thus, the very relevant question that must be raised is how Article 3 of the Regulation can state that extra-EU BITs concluded by MSs, before their accession to the EU, with third countries will only remain in force until they are replaced by EU BITs, concluded with the same third countries, without addressing the infringement of the rights of the third countries in the prior BITs. Consequently, in my opinion, it seems that, if such an issue would constitute itself, there should be some mechanism that requires mutual explicit consent from MSs and third countries between which there exist BITs that was concluded before the MSs’ accession to the EU. The consent should address the termination of the BIT that they have concluded, as well as the acceptance of the EU BIT, not to infringe on the rights of the third country concerned that originate from the prior BIT. 4.2 Implications of Achmea Achmea has brought devastating effects for intra-EU BITs after the arbitration clauses were found to be incompatible with EU law. Consequently, intra-EU BITs are to be terminated by the agreed upon Termination Treaty. It must be considered whether such an interpretation and consequence can, or will, be applied to the approx. 1200 extra-EU BITs concluded by the MSs before the entry into force of the Lisbon Treaty, and, for some MSs, before their accession to the EU.145 Firstly, it must be pointed out that Achmea deals specifically with an intra-EU BIT, and the statements by the CJ in the case are directed towards such BITs in particular. There is no mention of extra-EU BITs. Secondly, the position of arbitration clauses in extra-EU BITs seem to be the same as in intra-EU BITs. If an arbitration tribunal established under an extra-EU BIT must interpret EU law when dealing with a dispute, it should also then be seen as incompatible with EU law, and, in the same manner as arbitration tribunals in intra-EU BITs, it also cannot access the preliminary ruling procedure.146 What happens then if the tribunal is in doubt on how to interpret EU law when adjudicating a case? It seems like the same incompatibility with the autonomy of EU law, as seen in Achmea, may occur. However, this is yet to be seen, as the CJ has not yet made a ruling on such a matter. However, the recent Termination Treaty147 did confirm that the issue with intra-EU BITs at hand only concerns intra-EU BITs, at least for the time being. If an investor from a third country would seek to recognize and enforce an arbitration award granted under an extra-EU BIT at a domestic court of a MS, it is likely that that court would request a preliminary ruling on the matter, which would trigger an examination of the compatibility of extra-EU BITs with EU law by the CJ.148 In can also be added that Article 344 TFEU might be the downfall of extra-EU investment arbitration as well. Looking at the wording of the Article 344 TFEU, it does
144 ibid (n 142). 145 Piet Eeckhout, EU External Relations Law (OUP, 2011), 66. 146 Andre Janssen and Christian Johannes Wahnscaffe, ‘For Whom the Bell Tolls : Any Hope Left for Investment Arbitration After Achmea?’ in (eds.) Lei Chen and Andre Janssen, Dispute Resolution in China, Europe and World (Springer International Publishing, 2020), 281. 147 ibid (n 129). 148 ibid (n 146), 282.
27 not specify that it only applies to disputes between MSs. If the CJ was to examine the compatibility of arbitration tribunals established under extra-EU BITs, the interpretation of Article 344 TFEU might give the CJ reason to state that the EU Treaties (as in Achmea regarding intra-EU arbitration tribunals) do not provide for those tribunals, and thus, an incompatibility with EU law may be constituted.149 In the meantime, in Opinion 1/17150 (the Opinion) of the CJ, the court examined the compatibility of the ICS with EU law. In its Opinion, the court stated that an investment tribunal established under an agreement between a MS and a third country must be distinguished from the arbitration tribunal examined in Achmea.151 Moreover, the CJ stated that one of the core issues of the tribunal in question in Achmea was the principle of mutual trust, which entails an obligation for MSs to believe, in good faith, that all other MSs are complying with EU law.152 As part of the compliance with EU law stated in the previous sentence, is the expectation that MSs comply with the fundamental rights outlined in the Convention for the Protection of Human Rights and Fundamental Freedoms (ECHR).153 Article 13 ECHR gives the right to effective legal remedy, which cannot be applied to arbitration awards such as the one examined in Achmea. However, the CJ then stated that the ‘…principle of mutual trust, with respect to, inter alia, compliance with the right to an effective remedy before an independent tribunal, is not applicable in relations between the Union and a non-Member State.’154 Thus, the inapplicability of arbitration clauses on the basis of violation of the principle of mutual trust should be disregarded in relation to extra-EU BITs. Nevertheless, as explained in the previous sub-chapter, the question remains whether arbitration tribunals established under arbitration clauses in extra-EU BITs may be inapplicable on the basis of incompatibility with EU law because arbitration tribunals cannot have recourse to the preliminary ruling procedure and cannot interpret EU law. How the question will be examined, and what the outcome of such an examination will be remains to be seen, as the CJ has not yet addressed this matter. Consequently, from my point of view, it seems to be unfavorable to remove the possibility of alternative dispute settlement in EU-related investment disputes. Investment arbitration has become a very common and popular mechanism for ISDS because of its characteristics, which might be difficult to transfer to a judicial system under full EU control. Whether the EU implements the ICS (as discussed), or a similar system of adjudication, it may take time for third country investors to gain confidence to rely on such a system.
149 ibid (n 50), 5. 150 Opinion 1/17 EU:C:2019:341. 151 ibid, para 127. 152 ibid, para 128. 153 Convention for the Protection of Human Rights and Fundamental Freedoms (European Convention on Human Rights, as amended) (ECHR). 154 ibid (n 150), para 129.
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Conclusion After having examined Achmea and the ongoing situation regarding EU-related BITs, it is clear that major reforms in the fields of FDI and investment arbitration are current underway. Taking into account the influence that the Lisbon Treaty has had on investment policies through the introduction of the CCP, a pattern is showing itself of the expansion of the reach of EU law. So far, the largest impact of Achmea has shown itself on intra-EU BITs and investment arbitration tribunals established under those BITs. Following Achmea, MSs declared that they accept the fact that the arbitration clauses found in intra-EU BITs concluded between them before one party’s accession to the EU are incompatible with EU law. Thus, they are to terminate those BITs. The incompatibility with EU law is related to the fact that investment arbitration tribunals cannot have recourse to the preliminary ruling procedure under Article 267 TFEU, and must, at the same time, interpret EU law without having the competence to do so due to Article 344 TFEU. The Commission acknowledged the declaration and issued a statement endorsing the MSs in their planned actions and created the Termination Treaty that regulates the process on how the intra-EU BITs are to be terminated. However, the Commission has not specified how investment disputes between the MSs will be addressed following the termination of the BITs in question. It is clear that FDI will now fully be governed by EU law, but it is not clear what mechanism of dispute resolution that will be used in related disputes. The EU has been developing the ICS for a number of years, which might be on the agenda of the EU to have it replace the investment arbitration system. In my opinion, an alternative that could be a possible solution is the further development of relations with the permanent arbitration institutions, such as the ICSID or the PCA. If these institutions can be drawn closer to EU law by allowing them to have access to the preliminary ruling procedure under Article 267 TFEU, these permanent institutions might replace investment arbitration tribunals that were previously established under intra-EU BITs and such a replacement would be compatible EU law. With regard to extra-EU BITs, for the time being, it has been confirmed that Achmea will not be having a direct impact. However, as discussed above, the position of the investment arbitration tribunals in extra-EU BITs in fact seems to be the same as those in intra-EU BITs. Thus, it might only be a matter of time until the CJ examines the compatibility of arbitration clauses in extra-EU BITs with EU law, which may, or may not, result in the same consequences. The policy recommendation that can be drawn from this examination is that the CJ and the Commission need to be careful in their “forceful” implementation of the implications of Achmea because it is clear that there is a lot of uncertainty regarding the handling of the intra-EU BITs after Achmea. Requiring termination of all intra-EU BITs concluded before the MSs’ accession to the EU due to the arbitration clauses being incompatible with EU law seems a very strong move, especially since the Commission and the CJ have previously stated that incompatibilities of the BITs with EU law can be solved without the express termination of the entire treaties.
29
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Journal Articles
Benedetti J P C, ‘The proposed Investment Court System : does it really solve the problems?’ (2018) 42 Revista Derecho del Estado 83-115 Broberg M and Fenger N, ‘Arbitration cases and preliminary references to the European Court of Justice— an assessment of ‘the Danish Solution’ (2020) 36 Arbitration International (Iss. 1) 147-155 Burger L, ‘The Trouble with Salini (Criticism of and Alternatives to the Famous Test)’ (2013) 31 ASA Bulletin (Iss. 3) 145-160 Böckstiegel K-H, ‘Commercial and Investment Arbitration: How Different are they Today? – The Lalive Lecture 2012’ (2012) 28 The Journal of the London Court of International Arbitration (Iss. 4) 577-590 Glinski C, ‘Achmea and its Implications for Investor Dispute Settlement’ (2018) 21 ZEuS Zeitschrift für Europarechtliche Studien; University of Copenhagen Faculty of Law Research Paper No. 2019-70, 1-21; 13 CEVIA Working Paper Series (Iss. 3). Available at SSRN
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Mayoral J A, Jaremba U and Nowak T, ‘Creating EU law judges: the role of generational differences, legal education and judicial career paths in national judges' assessment regarding EU law knowledge’ (2014) 21 Journal of European Public Policy, No. 8, 1120-1141 McDermott J T, ‘Arbitration and the Courts’ (1986) 11 The Justice System Journal (No. 2) 248-256 Ruse-Khan H G, Jaeger T and Kordic R, ‘The Role of Atypical Acts in EU External Trade and Intellectual Property Policy’ (2010) 21 The European Journal of International Law, (No. 4) 901-939
Online Articles
Steward G S, Vasani B S and Tonova S T, ‘BIT Protection of Foreign Investments in Times of Volatile Currency, Slow Growth, and Political Uncertainty in India’ (2013) Jones Day Commentary Zhang J, ‘International Investment Arbitration : Development, Controversies, and Future Outlook’ (2017) SSRN [Online]
Miscellaneous European Commission, ‘Investment in TTIP and beyond – the path for reform Enhancing the right to regulate and moving from current ad hoc arbitration towards an Investment Court’ (Concept Paper, 2015), [Online]
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PricewaterhouseCoopers, Corporate Choices in International Arbitration – Industry Perspectives (PwC, 2013) [Online]
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