Is the end of the intra-EU investment arbitration on the horizon?
In 2021, the European Court of Justice (the Court) continued to reshape the landscape for investment treaty arbitration between EU investors and EU Member States - so-called “intra-EU arbitration” - with potentially serious ramifications for both non-ICSID and ICSID awards. With further developments anticipated in 2022, EU investors in other EU Member States should consider (re)structuring their investments through non-EU entities.
Court’s judgments undermine longstanding intra-EU investment protection regime
In its much-criticised 2018 judgment in Slovak Republic v Achmea, the Court held that dispute resolution clauses in bilateral investment treaties between EU Member States (intra-EU BITs) are invalid. In two 2021 judgments, the Court stretched this line of reasoning still further.
The case of Republic of Moldova v Komstroy LLC did not concern an intra-EU arbitration and the questions referred to the Court for determination did not raise this issue. Nevertheless, in its 2 September 2021 judgment, the Court held that intra-EU arbitration under the multilateral Energy Charter Treaty (the ECT), to which the EU itself is a party, is incompatible with EU law.
Then, on 26 October 2021, the Court gave its decision in Republic of Poland v PL Holdings, ruling that an ad hoc arbitration agreement concluded on the same terms as an intra-EU investment treaty arbitration clause would also be contrary to EU law. In other words, the Court held that parties cannot circumvent the Court’s decision on the invalidity of intra-EU investment treaty arbitration clauses by independently agreeing to submit an intra-EU investment claim to arbitration.
Judgments have serious implications for awards, ongoing arbitrations and existing investments
Despite the Court’s judgment in Achmea, to date, arbitral tribunals constituted in intra-EU arbitrations have consistently taken the position that they retain jurisdiction as a matter of public international law. Tribunals faced with jurisdictional challenges based on Komstroy and PL Holdings are likely to reach the same conclusion and, indeed, some already have. EU Member State courts, however, are expected to take the contrary position.
Any intra-EU arbitration award that comes for review by an EU Member State court (because the arbitration is seated in the EU) is, therefore, likely to be annulled.
Beneficiaries of non-ICSID intra-EU arbitration awards are also likely to face difficulties enforcing those awards in EU Member States. The New York Convention (which will apply to the enforcement of most, if not all, such awards) allows enforcement to be refused if the enforcing national court considers the tribunal did not have jurisdiction. In addition, while it is expected that the analyses of national courts outside the EU are more likely to be aligned with those of the arbitral tribunals that have considered the issue to date, this is not certain.
The future looks potentially brighter for holders of intra-EU arbitration awards rendered under the ICSID Convention and Rules. Article 52 of the ICSID Convention requires ICSID Member States, which includes all EU Member States except Poland, to enforce ICSID awards as if they were final domestic judgments. In other words, there is no power for national courts to review the substance of the tribunal’s decision.
Nevertheless, within the EU, complications are foreseeable. Indeed, following Komstroy, issues have arisen in two ICSID intra-EU arbitrations even before final awards have been rendered. In RWE v Netherlands and Uniper v Netherlands (both ECT cases), the Netherlands has commenced proceedings before the German courts (where the claimants are incorporated) seeking determinations that the claims against it are inadmissible because, applying Achmea and Komstroy, there are no arbitration agreements between the Netherlands and the claimants.
Developments in 2022 (and beyond) should be watched closely. In the meantime, both intra-EU investors seeking treaty protection, and investors outside the EU that have previously structured investments in reliance on intra-EU protection under the ECT or an intra-EU BIT, should take advice on restructuring their existing investments, and managing future investments, for protection in the EU. Read more here.