EU Member States sign treaty to terminate intra-EU BITs
On 5 May 2020, twenty-three of the European Union’s (“EU”) twenty-seven Member States signed an Agreement for the Termination of Bilateral Investment Treaties Between the Member States of the European Union (the “Agreement”).
The Agreement is the low point of the downward trajectory of investment arbitration in the EU in recent years. While the European Commission had been expressing sharp criticism of bilateral investment treaties between EU Member States (“intra-EU BITs”) for some time – seeing them as incompatible with the EU’s common market – it was not until the Court of Justice of the European Union’s (“CJEU”) Achmea-judgment of March 2018 (see here) that the future of intra-EU BITs became earnestly uncertain. Prior to Achmea, EU Member States were divided on the issue. Some had intervened in the Achmea-proceedings arguing that intra-EU BITs should continue to operate alongside EU mechanisms. With Achmea, this changed: in January 2019, the EU Member States declared their intention to terminate intra-EU BITs (see here). The present Agreement is the result of those political declarations.
Yet not all EU Member States have signed the Agreement: Austria, Finland, Sweden and Ireland (the latter is not party to any active BITs) are not participating. Neither is the United Kingdom, having left the EU in January 2020, while – somewhat surprisingly – it had signed the declaration shortly before its exit from the Union. For these countries – except for the UK – and their BITs even with signatory Member States, the initial uncertainty post-Achmea remains.
The Agreement will enter into force once ratified by two Member States and allows signatories to provide for its provisional application.
A broad interpretation of Achmea’s consequences
The signatory Member States’ remark in the Agreement’s recitals that “they must draw the necessary consequences from Union law as interpreted in the [Achmea] judgment of the CJEU” means they adopt an arguably broad interpretation of that judgment: “investor-State arbitration clauses in bilateral investment treaties between the Member States of the European Union […] are contrary to the EU Treaties and, as a result of this incompatibility, cannot be applied […]”, thus “[sharing] the common understanding expressed in this Agreement between the parties to the EU Treaties and intra-EU bilateral investment treaties that, as a result, such a clause cannot serve as legal basis for Arbitration Proceedings”.
In this light, the signatories agree to terminate all remaining intra-EU BITs including any sunset clauses (i.e. provisions for the continued application of a BIT for often ten to twenty years after its termination).
The Agreement distinguishes between three categories of intra-EU arbitrations, with 6 March 2018 – the date of the Achmea-judgment – as the watershed:
- Concluded Arbitration Proceedings on the one hand, which ended with a final award or settlement before 6 March 2018 and where the award had either been executed and no challenge, review, set-aside, annulment, enforcement, revision or other similar proceeding in respect of such final award was pending on 6 March 2018, or where the award was set aside or annulled before the entry into force of the Agreement,
shall remain unaffected and not be reopened.
On the other hand, for both:
- Pending Arbitration Proceedings, initiated before 6 March 2018 which do not constitute “Concluded Arbitration Proceedings”, and
- New Arbitration Proceedings, initiated on or after 6 March 2018,
the Agreement prescribes that the Member States concerned shall inform arbitral tribunals of the legal consequences of the Achmea-judgment as expressed in the Agreement’s recitals, i.e. that there would be no valid basis to arbitrate. Where a signatory Member State is a party to judicial proceedings concerning such an arbitral award, it shall ask the competent national court to set the arbitral award aside, annul it or refrain from recognising and enforcing it.
Novel settlement procedure for pending cases
For Pending Arbitration Proceedings, Article 9 of the Agreement envisions a “structured dialogue”, where either party to the arbitration may, within six months of the termination of the respective BIT, ask to enter into a settlement procedure as prescribed in the Agreement. The settlement procedure shall be overseen by an impartial facilitator to be chosen by joint agreement between the investor and the respondent state, failing which the Director General of the Legal Service of the European Commission shall designate a former Member of the CJEU who shall, in turn, appoint the facilitator. This facilitator shall “possess the necessary qualifications including in-depth knowledge of Union law”.
The Agreement also reopens access to judicial remedies under national or EU law against measures contested in Pending Arbitration Proceedings, even if national time limits for bringing such actions have expired (Article 10). It, however, specifically excludes basing such claims on the substantive rights under the (terminated) BIT.
Interestingly, the Agreement is silent as to what happens if a party to Pending Arbitration Proceedings refuses to replace arbitration by a “structured dialogue” or if the parties fail to reach a final settlement.