12 5월 2020 Hannes Ingwersen ArbitrationLinks

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.

Comment and conclusion
 
For the most part, the Agreement closes the door on future intra-EU investment arbitration. Yet, a little crack remains:
 
First, as of now, arbitral tribunals have been unimpressed by Member States’ Achmea-based defences and universally upheld their jurisdiction (albeit in relation to the Energy Charter Treaty (“ECT”) and/or the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (“ICSID Convention”), see e.g. here and here). But the existence of the Agreement, as a newer instrument of public international law between the same parties who signed the BIT in question, will highly likely affect that analysis – not least in light of Art. 54(b) of the Vienna Convention on the Law of Treaties (“VCLT”) on the termination of treaties as well as the broad discretion signatories have regarding the effects of terminating their treaties under Art. 70 VCLT. It remains to be seen if and how arbitral tribunals in pending and new arbitration proceedings will give weight to investors’ (now frustrated) expectation of being protected under intra-EU BITs and their sunset clauses.
 
Arbitral tribunals also will have to untangle the relationship between the Agreement and the ICSID Convention. Previously, tribunals had relied on the ICSID Convention to uphold their jurisdiction (see e.g. UP and C.D Holding Internationale v. Hungary, ICSID Case No. ARB/13/35, finding that Hungary could not rely on EU law or Achmea to escape its public international law obligations under the ICSID Convention). Save for a declaration in the Agreement’s recitals that it shall also cover arbitrations under the ICSID Convention, the Agreement is silent on specific steps to be taken in respect of pending or new ICSID arbitrations, such awards not being subject to annulment or setting aside by national courts.
 
Second, the Agreement expressly does not apply to claims and proceedings under the ECT, with the signatories stating that they “will deal with this matter at a later stage”. For the time being, investors pursuing intra-EU ECT claims may refer to the express carve out of the ECT in the Agreement and even see their procedural position strengthened – while awaiting the EU’s proposal of a multilateral investment court promoted in ongoing discussions on reforming the ECT to progress.
 
Third, considerable debate is likely to ensue about the consequences of the Agreement’s termination of the sunset clauses. Investors will try to convince tribunals of the continued effect of these clauses.
 
It is pivotal that Member States deliver on their obligation under Art. 19(1) TEU to ensure effective legal protection, which includes effective protection of investors’ rights, as the Agreement recalls. The Agreement also promises that Member States and the European Commission will intensify discussions to better ensure complete, strong and effective protection of investments within the EU. It thereby seems to admit that the national and EU law protection of investors is often not (yet) equivalent to the typical rights and protections under BITs, and that their enforcement is in many cases still cumbersome, if not impossible (see here for alternative means of investment protection under EU law or the European Convention on Human Rights). The EU and its Member States would be well advised to extend and refine these alternative means of protection of investors’ rights within the EU swiftly to strengthen the common market – not only, but particularly in times of crisis.