Skip to content

Increased enforcement risk in intra-EU investment treaty arbitration

The availability of investment treaty claims is an important factor taken into account in mitigating foreign investment risk. The European Commission’s (EC) position on intra-EU treaty claims and the recent judgment of the Court of Justice of the European Union (ECJ) in the Achmea case1, have increased the risk of certain intra-EU investment treaty awards being unenforceable. EU investors do, however, still have several options available to bring successful treaty claims against EU Member States and to enforce favourable awards.

EC’s position on Bilateral Investment Treaties and EU law

The EC’s unfavourable position towards intra-EU investment treaties goes back to at least November 2006, when it recommended that Member States should terminate intra-EU bilateral investment treaties (BITs). The EC considered that the content of intra-EU BITs had been superseded by European Community law and it therefore saw no need for BITs in the EU single market. The majority of the Member States rejected the EC’s position and expressed their wish to maintain existing intra­EU BITs. 

In Eastern Sugar v Czech Republic2 – a case brought under the Netherlands-Czech Republic BIT, the tribunal rejected the EC’s position, adding that the EC’s reasoning was neither clear to nor binding on the tribunal.

Although the EC continued to advocate the intra-EU objection in numerous amicus curiae briefs in intra-EU investment treaty disputes that followed Eastern Sugar, no arbitral tribunal has ever upheld the intra-EU objection.

In 2015, the EC initiated infringement proceedings against five Member States for failure to terminate their intra-EU BIT.

EC relies on EU State aid rules to question intra-EU investment treaty arbitration

The EC has also used EU State aid rules to question intra-EU investment treaty arbitration. Essentially, the EC considers that compensation awarded in certain intra-EU arbitrations could amount to illegal State aid. As a consequence, the enforcement of such awards within the EU could be compromised. 

The first time EU rules on State aid came into play in intra-EU investment treaty arbitration was in October 2014, in respect of Micula v Romania,4 an arbitration brought under the Romania-­Sweden BIT and under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the ICSID Convention). The award compensated the claimants for the losses suffered as a result of Romania’s withdrawal of a tax incentive scheme. Romania abolished the scheme over four years before the scheduled expiry date in order to align its State aid scheme with EU State aid rules before its planned EU accession. After the award had been rendered, the EC issued a decision prohibiting Romania from paying out the award,5 thus preventing Romania from complying with its international obligations under the Romania-Sweden BIT and the ICSID Convention. The EC considered that paying out the award would violate EU law since it would constitute incompatible State aid by Romania. 

The EC continues its strategy of relying on EU State aid rules to question intra-EU investment treaty arbitration. The EC issued decisions on the compatibility with EU rules on State aid of: (i) the 2005 renewable energy support scheme (as amended) in the Czech Republic;6 and (ii) the renewable energy support scheme that Spain introduced in 2013.7 In those decisions, the EC made certain obiter comments regarding the ongoing investment treaty arbitrations between investors and the Czech Republic and Spain, respectively. These arbitrations involved treaty claims arising from the Governments’ changes to the regulatory regime for renewable energy projects in those countries. According to the EC, tribunals in those arbitrations had no jurisdiction to hear a treaty claim from an EU national against an EU Member State, such as the Czech Republic and Spain. The EC expressed its view that the changes that the Czech Republic and Spain introduced to the regulatory regimes for renewable energy projects did not breach the fair and equitable treatment standard under the applicable investment treaty. The EC also made it clear that any compensation awarded to investors in those arbitrations would amount to illegal State aid. Interestingly, in the decision concerning the Czech Republic, the EC has not found the support scheme to constitute incompatible aid. The EC decision concerning Spain only reaches conclusions regarding the compatibility of the new support scheme, which replaced the original regime pursuant to which the foreign investors made their investments in Spain. 

ECJ judgment in Achmea

Recently, on 6 March 2018, the ECJ decided on the compatibility of a dispute settlement provision contained in Article 8 of the Netherlands-Slovakia BIT with EU law. The ECJ concluded that Articles 267 and 344 of the Treaty on the Functioning of the European Union (TFEU) should be interpreted as precluding Article 8 of the Netherlands-Slovakia BIT, which allowed for resolution of investment disputes under that intra-EU BIT by way of arbitration. 

The ECJ seems to base its decision on its view that the dispute resolution provision in the BIT may require a tribunal to interpret or apply EU law, and this is inconsistent with Article 267 TFEU because, unlike a Member State court, a tribunal cannot refer EU law questions to the ECJ. On this basis, the ECJ found that “by concluding the BIT, [Slovakia and the Netherlands] established a mechanism for settling disputes between an investor and a Member State which could prevent those disputes from being resolved in a manner that ensures the full effectiveness of EU law”.8 The ECJ concluded that the arbitration clause in the Netherlands-Slovakia BIT has an “adverse effect on the autonomy of EU law”.9 

Interestingly, nowhere did the ECJ provide its reasons for finding that the dispute resolution provision in the Netherlands-Slovakia BIT is contrary to Article 344 TFEU. 

Impact of EU law on intra-EU investment treaty arbitrations

(a) Jurisdiction of tribunals

An arbitral tribunal may be asked to consider, regarding its jurisdiction, the interrelationship between the applicable investment treaty and Article 344 TFEU, which provides: “Member States undertake not to submit a dispute concerning the interpretation or application of the Treaties to any method of settlement other than those provided for therein”. This exercise should be carried out from a public international law perspective and the ECJ’s holding in Achmea should not be binding on investment treaty tribunals.

The interpretation of a treaty is governed by the Vienna Convention on the Law of Treaties 1969 (VCLT). Article 30(3) provides that when the earlier treaty (here the applicable investment treaty) is not terminated or suspended in operation, its provisions only apply to the extent that they are compatible with those of the later treaty (here the TFEU). On a literal reading, Article 344 TFEU applies only to disputes between two Member States, but not to proceedings involving a private investor and a Member State. Accordingly, the approach of the arbitral tribunal in Achmea 10 was to consider Article 344 TFEU as inapplicable and distinguish the Achmea arbitration from MOX Plant,11 which was a dispute submitted to arbitration by two Member States. The ECJ, however, concluded without an explanation that Article 344 TFEU applies to investor-State arbitrations and precludes the dispute settlement clause in the Netherlands-Slovakia BIT. 

It remains to be seen whether arbitral tribunals will agree with the ECJ that Article 344 TFEU precludes intra-EU investment treaty disputes. 

Three points are worth noting in respect of Achmea:

Procedural rules may affect tribunal’s adherence to ECJ decisions

The procedural rules are likely to be of importance. ICSID awards are not subject to review by national courts (they can only be reviewed by an ICSID annulment ad hoc committee, in accordance with the annulment mechanism under the ICSID Convention). That is not the case for non-ICSID awards, such as those rendered in proceedings under the UNCITRAL or SCC arbitration rules, where the courts of the seat, or legal place, of arbitration are the competent forum to hear challenges against the validity of the award, albeit on limited grounds. As explained in more detail below, those grounds include a violation of the public policy of that jurisdiction. Accordingly, non-ICSID tribunals, in proceedings seated in EU jurisdictions, might be more inclined to consider the application of EU law, including decisions of the ECJ, if the tribunal considers itself bound to render an award that is aligned with the public policy at the seat of arbitration. That is not the case of ICSID awards, as one of the unique features of ICSID arbitration is that proceedings are largely detached from a national legal order.

Consent of Member States to ongoing intra-EU BIT arbitrations is still valid under international law

There are strong arguments that the Achmea judgment should have little impact on pending arbitrations under intra-EU BITs. The Achmea judgment relates to the specific arbitration provision in the Netherlands-Slovakia BIT and cannot be automatically extrapolated to other investment treaties. Also, since investment treaties provide an open offer to investors to submit investment treaty disputes to international arbitration, consent to arbitration is established – and the arbitration agreement is formed – when the investor files a request for arbitration. With a binding arbitration agreement, the respondent State should not be allowed to renege on its consent. This is especially true in respect of ongoing ICSID arbitrations since Article 25 of the ICSID Convention states: “[w]hen the parties have given their consent, no party may withdraw its consent unilaterally”. Furthermore, as a matter of public international law, an ECJ judgment is not binding on an investment treaty tribunal.

The Achmea judgment should have even less relevance to Energy Charter Treaty arbitrations

The reasoning of the ECJ in Achmea may be considered by tribunals to be even less relevant to arbitrations under the Energy Charter Treaty (ECT). The Achmea judgment indicates that it applies only to a treaty “concluded not by the EU but by Member States” and acknowledges at the same time that “an international agreement providing for the establishment of a court responsible for the interpretation of its provisions and whose decisions are binding on the institutions, including the Court of Justice, is not in principle incompatible with EU law (…) provided that the autonomy of the EU and its legal order is respected”.12 The ECJ then distinguishes the Netherlands­Slovakia BIT from other agreements that provide for “the possibility of submitting those disputes to a body which is not part of the judicial system of the EU”13 to which the EU is a Contracting Party. This is the case of the ECT, to which the EU itself is a Contracting Party. On this point, other ECT tribunals have expressly noted that “the European Union signed the ECT, thus, accepting the possibility of arbitration between investors and Member States under Article 26” of the ECT.14

(b) Merits

Seeing that the EC decisions are part of EU law, and EU law forms part of the law of the Member States, the issue is whether arbitral tribunals in intra-EU treaty claims are required to apply EU law to the merits of the case, as envisaged by the ECJ in Achmea when discussing the relevance of Article 267 TFEU. For example, both the Czech Republic and Spain have sought to rely on EU State aid rules as a justification for potential violations of the applicable investment treaties. The relevance of EU law to investment treaty arbitrations will depend on the wording of the relevant treaty. EU law should not be part of the international law that an investment tribunal is required to apply. Even if EU law were deemed to be part of the applicable law, there are differing views on what this would mean. The Tribunal in RREEF v Spain found that “EU law does not and cannot “trump” public international law”.15 Nevertheless this opinion is not unanimous and should be contrasted with Electrabel v Hungary, where the tribunal stated that: “if the ECT and EU law remained incompatible notwithstanding all efforts at harmonisation, that EU law would prevail over the ECT’s substantive protections and that the ECT could not apply inconsistently with EU law to such a national’s claim against an EU Member State”.16

Impact of EU law on actions to set aside intra-EU investment treaty awards

The interplay between EU law and public international law is more likely to raise issues for investors at the award-recognition stage. A distinction should be made between ICSID and non-­ICSID awards.

(a) ICSID awards – less likely to be affected by EU law

It is unlikely that an ICSID award will be annulled on grounds that it departs from EU law. In particular, Article 53(1) of the ICSID Convention makes it clear that ICSID awards “shall not be subject to any appeal or any other remedy except as those provided for” in the ICSID Convention. Accordingly, a party wishing to challenge an ICSID award has no recourse under national laws; it must proceed under the provisions of the ICSID Convention for interpretation, revision or annulment of an award. ICSID awards can only be reviewed or challenged under the regime established under the ICSID Convention. There are only very limited grounds for annulment: (i) the tribunal was not properly constituted; (ii) the tribunal has manifestly exceeded its powers; (iii) there was corruption on the part of a member of the tribunal; (iv) there has been a serious departure from a fundamental rule or procedure; or (v) the award has failed to state the reasons on which it is based.17 That an ICSID award departs from EU law does not amount to a ground for annulment.

(b) Non-ICSID awards - more likely to be set aside

The risk of an investment treaty award being set aside (for being incompatible with EU law) is higher in non-ICSID arbitrations where the seat is in an EU Member State. The “seat” of the arbitration determines: (i) the applicable procedural law; (ii) the courts with supervisory and supportive jurisdiction; and (iii) the “nationality” of the award for purposes of the 1958 – New York Convention on the Recognition and Enforcement of Arbitral Awards (the New York Convention), which applies to non-ICSID awards and provides for a regime of reciprocal enforcement in its contracting states. Crucially, as noted above, the courts of the seat are also the competent forum to hear an action to challenge or set aside the validity of the award.

Importantly, as also noted above, one of the grounds on which the national courts can refuse to recognise or enforce an arbitral award under the New York Convention is the violation of public policy.18 In most EU Member States, only fundamental violations of the national legal system are deemed to be in breach of public policy. A violation of EU law could, in principle, lead to a violation of public policy in an EU Member State, as the public policy of the European Union (ordre public communautaire) is part of the national public policy of all EU Member States. Such a violation of public policy could lead to an award being successfully challenged.

Impact of EU law on award-enforcement actions before national courts in the EU

Respondent Member States may also seek to resist enforcement of arbitration awards within the EU on the ground that the award contravenes EU State aid rules and/or goes against the Achmea judgment. Unlike international arbitral tribunals, national courts of Member States are bound by EU law and need to comply with the ECJ’s jurisprudence when ruling on enforcement of awards. This applies to both ICSID and non-ICSID awards.

Article 54 of the ICSID Convention requires a contracting state to the Convention to enforce an ICSID award as if it were a final judgment of a court in that contracting state. Nevertheless, the lesson learnt from the enforcement proceedings initiated before the Member State courts by the Micula brothers is that the Member State courts will not interpret Article 54 as allowing enforcement of an ICSID award which is inconsistent with EU law. The English High Court in Micula refused to enforce an ICSID award found to be in breach of the EU State aid law. The court reasoned that ICSID awards are only required to be treated in the same way as English court judgments, which themselves are subject to EU State aid rules. The English court found that it was restrained from taking a decision which conflicted with EU law.19 This decision is being appealed by the  Micula brothers and the hearing before the English Court of Appeal is scheduled this month.

Enforcement of non-ICSID awards, which would take place under the New York Convention, may be refused if the “recognition or enforcement of the award would be contrary to the public policy of that country”.20 In Eco Swiss, the ECJ expressly held that if a Member State treats non-compliance with its public policy as a ground for annulling an arbitration award, it must equally treat non-compliance with EU public policy as such a ground.21 Since Eco Swiss recognised that EU competition law is part of EU public policy, EU rules on State aid might also be considered as falling under EU public policy.

Not all bad news for award-creditors

Not all awards rendered in intra-EU investment treaty arbitrations will be automatically unenforceable within the EU. In terms of repercussions flowing from the Achmea judgment, it is important to note that the ECJ’s ruling concerned only the Netherlands-Slovakia BIT, not other investment treaties. In particular, it remains to be seen what position the ECJ might adopt in respect of other investment treaties, such as the ECT, where the EU itself is a contracting party.

Notwithstanding the EC’s views on the relevance of State aid rules in the ongoing ECT arbitrations, for the EC to declare that an arbitral award constitutes incompatible State aid, it must in the first place open a full investigation into each individual award and assess it under Article 107 TFEU, as was the case in Micula. Comments in the decisions regarding the Spanish and Czech renewable energy support schemes as to the alleged non-compliance of future awards with EU State aid rules are merely obiter dicta, not binding on EU Member States’ courts in enforcement proceedings.

Enforcement options

Faced with the unfavourable stance of the EU towards intra-EU investment treaty awards, claimants have a number of options to enforce a favourable award.

  • Investors could seek to enforce their award outside the EU. Courts in non-EU countries are not bound by EU law and are thus significantly less likely to take into account the alleged non-compliance with EU law. In the past, courts in the U.S. and Switzerland have allowed for enforcement of awards notwithstanding the respondent State’s position that the award was inconsistent with EU law.22
  • Claimants may consider selling the awards at a discount to third parties, such as investment funds, in order to avoid enforcement risks. The amount of the discount is likely to be inversely proportional to the progress made by the original party in its enforcement efforts prior to the sale.
  • Investors holding favourable awards issued in renewable energy cases against Spain or the Czech Republic stand a chance of avoiding Micula-type State aid issues when enforcing awards in the EU. To recap, as of now the EC has not issued a decision declaring any of the awards in arbitrations against Spain or Czech Republic to constitute incompatible State aid. On the other hand, the EC has approved the respective renewable energy support schemes in Spain and the Czech Republic as existing State aid schemes. Those approvals allow award­creditors to benefit from a simplified notification procedure under EU law as long as award-creditors can push Spain or the Czech Republic to: (i) notify the award (or a bundle of awards) as a modification to the existing State aid scheme; or (ii) notify an amendment to the existing State aid scheme. The EC will then be required to process that notification within one month. Alternatively, compensation under awards that would be classified as a “minor alteration” of the approved scheme may not have to be notified at all.


1. Case C‑284/16, Slovak Republic v Achmea BV, EU:c:2018:158, 6 March 2018.
2. Eastern Sugar BV (Netherlands) v The Czech Republic, SCC Case No. 088/2004, Partial Award, 27 March 2007.
3. Eastern Sugar BV (Netherlands) v The Czech Republic, SCC Case No. 088/2004, Partial Award, 27 March 2007, paras. 125 and 129.
4. Ioan Micula, Viorel Micula, S.C. European Food S.A, S.C. Starmill S.R.L. and S.C. Multipack S.R.L. v Romania, ICSID Case No. ARB/05/20, Final Award, 11 December 2013.
5. Commission Decision (EU) 2015/1470 on State Aid SA.38517(2014/C) (ex 2014/NN) implemented by Romania – Arbitral award Micula v Romania of 11 December 2013, 1 October 2014.
6. Decision of the European Commission C(2016) 7827 final, State Aid SA.40171 (2015/NN) – Czech Republic Promotion of electricity production from renewable energy sources, 28 November 2016.
7. Decision of the European Commission C(2017) 7384 final, State Aid SA.40348 (2015/NN) – Spain, Support for electricity generation from renewable energy sources, cogeneration and waste, 10 November 2017.
8. Case C‑284/16, Slovak Republic v Achmea BV, EU:C:2018:158, 6 March 2018, para. 56.
9. Case C‑284/16, Slovak Republic v Achmea BV, EU:C:2018:158, 6 March 2018, para. 59.
10. Eureko BV v Slovak Republic, PCA case No 2008-13, Award on Jurisdiction, Arbitrability and Suspension, 26 October 2010, para 276.
11. Case C-459/03, Commission v Ireland, EU:C:2006:345, 30 May 2015.
12. Case C‑284/16, Slovak Republic v Achmea BV, EU:C:2018:158, 6 March 2018, paras. 57 58.
13. Case C‑284/16, Slovak Republic v Achmea BV, EU:C:2018:158, 6 March 2018, para. 58.
14. Charanne and Construction Investments v Kingdom of Spain, SCC Case No. V 062/2012, Final Award, 21 January 2016, para. 445.
15. RREEF Infrastructure (G.P.) Ltd & RREEF Pan-European Infrastructure Two Lux S.à r.l. v Kingdom of Spain, ICSID Case No. ARB/13/30, Decision on Jurisdiction, 6 June, 2016, para. 87
16. Electrabel S.A. v Hungary, ICSID Case No. ARB/07/19, Decision on Jurisdiction, Applicable Law and Liability, 30 November 2012, para. 4.189.
17. Article 52(1) of the ICSID Convention.
18. New York Convention, Article V.2(b).
19. Micula & ors v Romania & anr [2017] EWHC 1430 (Comm).
20. New York Convention, Article 5(2)(b).
21. Case C-126/97, Eco Swiss China Time Ltd v Benetton International NV, 1 June 1999, paras. 36-37 and 39.
22. See decision of the Southern District Court of New York in Ioan Micula, et al. v The Government of Romania, Case No. 15-CV-15 Misc. 107, Order and Judgment dated 21 April 2015. The decision has been later overturned, however not on the EU law grounds, see Ioan Micula, et al. v The Government of Romania, 15 Misc. 107, Opinion and Order, 5 August 2015. See also the decision of the Supreme Court of Switzerland in Tensacciai S.P.A v Freyssinet Terra Armata S.R.L., 4P.278/2005, 8 March 2006, para. 3.2.

Further information
This article is part of the Allen & Overy Legal & Regulatory Risk Note, a quarterly publication. For more information please contact Karen Birch –, or tel +44 20 3088 3710.

Legal and Regulatory Risk Note