Current Developments

Alea iacta est?

Post-Achmea investment arbitration in light of recent declarations by EU-member states

Almost a year has passed since the Court of Justice of the European Union (CJEU) delivered its ground-breaking judgment– Achmea C-284/16 – concerning the incompatibility of EU law and a Dutch-Slovakian bilateral investment treaty (an intra-EU BIT) (for a discussion see here). While there have been divergent views on the potential scope of Achmea (here restrictively, here more broadly), arbitral tribunals have not yet upheld a jurisdictional challenge by respondent states based on Achmea. Last week, the 28 EU-member states published three declarations pertaining to the implications of Achmea, promising to terminate all intra-EU BITs by 6 December 2019. 22 member states, including Germany and Austria, assert that all intra-EU BITs and intra-EU disputes based on the Energy Charter Treaty (ECT) violate EU law, therefore depriving arbitral tribunals of their jurisdiction. The ECT is a multilateral treaty with 53 parties, including EU members as well as non-EU members and the EU itself (it constitutes the legal basis in the infamous case Vattenfall v. Germany). Six states, including Sweden and Hungary (in a separate declaration), also argue that intra-EU BITs are contrary to EU law, but contest the automatic transposition of that reasoning to the ECT.

Against this backdrop, this blog post analyses the declarations issued by the EU member states in order to assess whether the die has indeed been cast for investment arbitration in the EU.

Member states’ verdict

Concerning intra-EU BITs, all three declarations assert that EU law prevails over BITs making them inapplicable. Member states do not only rely on EU law to support this contention, but also on the VCLT (see footnote 1 in the declaration), which codifies the rules of interpretation of international law. However, in doing so member states directly contradict the application of the VCLT by arbitral tribunals in previous intra-EU cases. Relying on these rules of interpretation tribunals have neither been able to identify a conflict between investment treaties and EU treaties nor– assuming for the sake of argument that a conflict exists– been able to identify a rule of international law that would grant EU law precedence (see e.g. the pre-Achmea decision EURAM v. Slovakia).

According to all member states, the offer to arbitrate under the BITs is invalid given the reasoning in Achmea. The declarations fail to mention that the offer to arbitrate could at best be considered implicitly terminated at the time both contracting parties had become EU members (cf UP v. Hungary para 265). Regardless, the argument that BITs have been automatically terminated upon accession is virtually untenable under international law and has previously been rejected by tribunals (e.g. Eastern Sugar v. Czech Republic). Furthermore, member states’ express intent to terminate the BITs by 6 December 2019 rather contradicts such an argument and exposes its weakness. Thus, it is highly unlikely that a bar to jurisdiction exists prior to the actual termination of the BITs.

Given the so-called sunset clauses, which maintain BIT-protection of investments that occurred prior to termination of a BIT for a certain period (e.g. 10 years in Lithuanian-Hungarian BIT), investors might be able to resort to investment arbitration much longer. The declarations state that these sunset clauses are inapplicable. Again, it is unlikely that arbitral tribunals will accept their automatic invalidity. Yet, explicit, consensual removal of these sunset-clauses by the contracting parties to a BIT could deprive investors of their right to arbitrate after termination (see here and here; though such an understanding can be disputed in the absence of arbitral awards).

With regards to the ECT, member states have not been able to reach consensus. 22 member states argue that the ECT is inapplicable for intra-EU disputes. Six states do not subscribe to this view and point out that Achmea is silent on the ECT.  In its separate declaration Hungary explicitly holds that Achmea does not concern any pending or prospective ECT-cases. The position of these six states is quite similar to recent arbitral practice. Post-Achmea ECT-tribunals have regarded Achmea as irrelevant for questions of jurisdiction for a variety of reasons, including that the judgment does not refer to multilateral treaties (see e.g. Masdar v. Spain, Vattenfall v. Germany). In the face of these divergent interpretations by member states, it will ultimately require a ruling by the CJEU to clarify the matter.

How do the declarations then affect existing and future investment cases? The most important aspect lies in the express intention to terminate intra-EU BITs through a plurilateral treaty or bilateral treaties– a sign that the endgame for intra-EU BITs has begun. Prior to that point, the declarations arguably have little effect. Subsequent agreements between parties regarding the interpretation or application of a treaty as well as subsequent practice may certainly alter an existing interpretation of a treaty (Art 31(3) VCLT). Whether such relatively general declarations constitute such an agreement remains highly doubtful. Nearly 200 differently worded intra-EU BITs exist. Tribunals will hardly accept an attempted authoritative interpretation of these dissimilar BITs by such a general statement. Moreover, some BITs foresee the possibility for contracting parties to give (non-)binding interpretations (see e.g. CME v. Czech Republic). In the absence of such a provision, it will be difficult to argue that the interpretation in the declarations is absolutely binding. More importantly, accepting an interpretation that effectively denies jurisdiction under a BIT circumvents the provisions of the VCLT for terminating a treaty.  Lastly, subsequent agreements or practice just forms part of a contextual interpretation, but do not automatically override other forms of interpretation (Art 31(1) VCLT: ordinary meaning of the terms, context and object and purpose of a treaty). Hence, these declarations will carry little weight before tribunals. Pending investment cases and those initiated prior to the actual termination of the respective BIT are unlikely to fail on an Achmea-objection at the jurisdictional level.

Fragmentation

Unless and until member states terminate BITs and modify the ECT, arbitral tribunals will be reluctant to deny jurisdiction– even if the CJEU provides further rulings on incompatibility. While the CJEU treats the EU legal order as autonomous and protects it vis-à-vis both national and international law, arbitral tribunals view EU law merely as part of international law. Similarly, many arbitral tribunals are equally concerned about the uniform application and effectiveness of their constituent treaties, particularly tribunals based on the multilateral ECT. Here, the tribunals have also tried to limit adverse effects on the autonomy of the ECT– so to speak (see  RREEFF v. Spain: “[T]he ECT is the constitution of the Tribunal […], in case of any contradiction between the ECT and EU law, the tribunal would have to insure full application of its constitutional instrument, upon which its jurisdiction is founded”; Novenergia v. Spain: “the Tribunal is not constituted on the basis of the European legal order and it is not subject to any requirements of such legal order”). Ultimately, arbitral tribunals follow a similar thought process as the CJEU, but speak a different language– the language of public international law. These approaches by the CJEU and arbitral tribunals and the lack of judicial dialogue between them lead to further fragmentation of the international legal order.

Conclusion

Given the declarations by member states, it is evident that intra-EU BITs will face extinction rather sooner than later, but member states need to act and terminate the BITs to prevent investors from using their right to arbitrate under the treaties. The declarations themselves will have little impact on investment arbitration at the jurisdictional level. In the context of the ECT, member states disagree and will most likely only act upon a ruling by the CJEU. Hence, the die has not yet been cast for the ECT and arbitral tribunals will stick to their guns despite opposition from some EU member states.

 

Johannes Tropper is a research assistant for the project “Rule of Law and International Investment Law” at the Department of European, International and Comparative Law of the University of Vienna.

 

Cite as: Johannes Tropper, “Alea iacta est? Post-Achmea investment arbitration in light of recent declarations by EU-member states”, Völkerrechtsblog, 24 January 2019, doi: 10.17176/20190124-154417-0.

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