by Claire Stockford and Julia Gontarska
The Member States of the European Union have agreed to terminate all intra-EU bilateral investment treaties (“BITs”) following the 2018 Achmea judgment in which the Court of Justice of the European Union (“CJEU”) declared investor-state arbitration clauses in BITs incompatible with EU law.
Investor protection under BITs
BITs are treaties concluded between two states, aimed at promoting and protecting private investments of foreign investors. Such agreements establish the terms and conditions under which investors from the signatory countries can make investments in each other’s territories. They provide certain minimum reciprocal protections in respect of private foreign investments, for instance by requiring the host state to treat foreign investors as favourably as its national ones and provide them with compensation in the event of expropriation. They typically provide for any disputes to be determined by an arbitral tribunal.
Main takings from Achmea
As a brief reminder, according to the Achmea decision, an arbitral tribunal constituted under a BIT will be faced with situations where it has to apply and interpret EU law whilst at the same time it cannot make a reference to the CJEU for a preliminary ruling on questions of EU law. According to the CJEU, such a tribunal cannot thus ensure the full effectiveness of EU law which in turn adversely affects the EU law autonomy.
Legal consequences of the judgment
The legal consequences of this judgment were addressed by the EU Member States in three declarations issued on 15 and 16 January 2019. Apart from undertaking to terminate all intra-EU BITs – either through a plurilateral treaty or bilateral negotiations – by 6 December 2019, all of the EU Member States agreed that arbitral tribunals have no jurisdiction to decide investor claims based on intra-EU BITs and undertook to inform sitting tribunals not to accept jurisdiction or to issue any awards. They also instructed investors not to initiate any new intra-EU investment arbitration proceedings under BITs. They further pledged to request both the Member States’ and third countries’ courts to set aside or refuse to enforce intra-EU awards. However the Member States acknowledged that awards which can no longer be annulled or set aside, or which have already been complied with or enforced, should not be challenged.
The Member States remain divided as to whether following the Achmea decision any disputes can be brought by investors under the Energy Charter Treaty (“ECT”) – a multilateral treaty relating to investments in the energy sector, to which all EU Member States (with the exception of Italy) and the EU itself are currently signatories. The majority of the Member States are of the opinion that the Achmea judgment has the same consequences with respect to both the intra-EU BITs and the ECT. However Finland, Luxembourg, Malta, Slovenia and Sweden derogated from this stance by pointing out that the judgment itself does not specifically mention the ECT and that Achmea‘s applicability to the ECT remains currently under review by the Swedish Court of Appeal in an ongoing case against Spain. Hungary went even further and issued a separate declaration stating that the Achmea decision concerns solely intra-EU BITs.
Interestingly, the declarations made by the EU Member States effectively render any sunset clauses contained in the intra-EU BITs unenforceable. Sunset provisions would usually result in a Member State being bound by its treaty obligations for a period of time notwithstanding a decision to terminate. For instance, under the Poland-Germany and UK-Estonia BITs their provisions were to continue in effect for a period of 20 years following termination in respect of investments made before that date. However it must be noted that practical implications of the sunset clauses are often limited to unilateral treaty terminations as opposed to the consensual ones. When both parties agree to terminate an agreement by consent, the signatories would typically first terminate the sunset clause and only then the treaty or amend the sunset clause itself in order to shorten the period of time when the BIT provisions remain in force post-termination.
Questions still to be answered
It remains to be seen how arbitral tribunals will react to this. For example, if an investor commences an arbitration before 6 December 2019, will they agree to hear it, although it goes against the “instruction” to investors not to commence new proceedings under the BITs in question? Certainly a number of tribunals have taken a robust view in the face of the Achmea ruling.
Finally, the question of compatibility of the intra-EU BITs with EU law and their future seems particularly interesting in the light of Brexit. Given that following the UK’s withdrawal from the EU the BITs it concluded with the remaining Member States would no longer be treated as intra-EU BITs, they could potentially survive despite the Achmea judgment. The question remains as to whether the UK will indeed terminate all of its current intra-EU BITs by 6 December 2019 as set out in the declaration.