REUTERS | Yves Herman

Better get EU-sed to it: the “new normal” for investors navigating intra-EU dispute resolution

On 5 May 2020, over two years after the fateful Achmea ruling, 23 EU member states signed an agreement to terminate all intra-EU bilateral investment treaties (BITs) (termination agreement).

This step does not come as a surprise, in light of the fact that the vast majority of EU member states issued a joint declaration, on 15 January 2019, on the legal consequences of the judgment of the Court of Justice of the European Union (ECJ) in Achmea and on investment protection in the EU. The declaration proclaimed the intention to terminate their existing intra-EU BITs. The member states reportedly agreed on a draft in October 2019, which was later published by the EU in November 2019.

The termination agreement accomplishes the EU’s long-standing goal of terminating intra-EU BITs. The treatment afforded to arbitration proceedings under the termination agreement depends on the date of commencement of the proceedings. This distinction, as well as a number of other terms, merit further discussion, particularly with respect to the transitional provisions introduced for pending arbitration proceedings.

The EU announced on its website that the majority of its member states signed the termination agreement. Austria, Finland, Sweden and the Republic of Ireland have not signed the termination agreement; neither has the UK, despite signing the declaration last year. In its press release, the EU claims that the termination agreement:

“… implements the March 2018 European Court of Justice judgment (Achmea case), where the Court found that investor-State arbitration clauses in intra-EU bilateral investment treaties (intra-EU BITs) are incompatible with the EU Treaties.”

Decisions of many investment treaty tribunals that ruled on the impact of Achmea on their arbitration proceedings are at odds with this statement, given that most tribunals rejected the EU’s interpretation that Achmea automatically rendered all intra-EU BITs incompatible with the EU treaties.

When does it come into effect?

The termination agreement is subject to ratification. It will enter into force for each member state 30 calendar days after the delivery of the second instrument of ratification to the secretary-general of the Council of the European Union (Jeppe Tranholm-Mikkelsen holds this office until 30 June 2020).

What are the main provisions and effects of the termination agreement?

Termination

The termination agreement plainly terminates the intra-EU BITs listed in Annex A. It also expressly terminates any sunset clauses, which would ordinarily extend the life of intra-EU BITs for a specified period after the BIT is terminated. The EU is loath to leave any uncertainties in the wording of these termination clauses, given the inclusion of its unequivocal statements that the sunset clauses “shall not produce legal effects” (articles 2(2) and 3).

Duties imposed on the member states

The termination agreement imposes a duty on to the contracting parties of intra-EU BITs to “inform, in cooperation with each other… arbitral tribunals about the legal consequences of the Achmea judgment.” In practice, the “legal consequences” comprise the fact that:

  • Arbitration clauses in intra-EU BITs no longer apply to intra-EU disputes, due to the incompatibility between arbitration clauses and the EU treaties.
  • Intra-EU BITs will be terminated.

If a particular member state is a respondent in an investment treaty arbitration under an intra-EU BIT, the member state must ask its national courts or the courts of any other country to set aside or annul the award.

No new intra-EU BIT arbitrations

There is little ambiguity in the provisions concerning “new arbitration proceedings”; even if they can be described as controversial and retroactive in their effect, arbitration clauses in intra-EU BITs can no longer serve as a legal basis for new arbitration proceedings. New arbitration proceedings are defined as those that commenced on or after 6 March 2018, the date of the Achmea judgment.

No effect on concluded arbitration proceeding

The termination agreement defines “concluded arbitration proceedings” as those that ended with a settlement agreement or a final arbitral award, where that award had been duly executed before 6 March 2018.  Concluded arbitration proceedings will not be reopened.

Transitional provisions for pending arbitration proceedings

The real uncertainty stems from the provisions made for “pending arbitration proceedings”. They are defined as proceedings that were initiated before 6 March 2018, but do not fall within the scope of the “concluded arbitration proceedings” definition, irrespective of what stage these pending proceedings might be at on the date of entry into force of this agreement.

Simply put, even if an award in proceedings had been rendered, but had not been enforced before 6 March 2018, the proceedings are classified as pending instead of concluded.

An investor involved in pending proceedings has two options:

  • Pursue a “structured dialogue” with the respondent member state.
  • Access the judicial remedies available to it under national law.

Both options are subject to conditions, which primarily prevent the investor from instigating new arbitration proceedings.

Structured dialogue

This option to pursue a “structured dialogue” with the respondent state is available to the investor only if:

  • It suspends the pending arbitration proceedings.
  • It undertakes not to start enforcement proceedings in the event that the award has been issued (that is, any intra-EU BIT award not enforced before 6 March 2018).

There is a cut off point for initiating this procedure: it must be done within six months of the BIT being terminated.

The termination agreement prescribes the settlement procedure in high-level terms. It provides that the procedure be overseen by an “impartial facilitator”. The facilitator will be appointed by agreement of the parties; if the parties fail to agree, the facilitator will be appointed by a former member of the CJEU, who is designated by the Director General of the Legal Service of the European Commission. The facilitator will oversee the parties’ settlement process. If an amicable settlement is not reached within eight months, the facilitator will make the final written settlement proposal. Both the investor and the respondent member state have the option not to accept the facilitator’s final proposal.

Access to national courts

The termination agreement opens up the possibility of pursuing an action in the national courts, even if the time limits for bringing proceedings have expired. The investor must refrain from new arbitration proceedings. The agreement effectively extends the national limits, by providing that they will run from the date on which the investor withdraws from its pending arbitration proceedings or renounces the execution of an award that has already been issued in its favour.

No effect on proceedings under Energy Charter Treaty

Crucially, the termination agreement expressly provides that it does not cover intra-EU proceedings on the basis of article 26 of the Energy Charter Treaty (ECT). Instead, the agreement states that the EU and its member states “will deal with this matter at a later stage”. The decision to carve out the ECT from the termination agreement is undoubtedly related to the EU’s ongoing discussions pertaining to the renegotiation and modernisation of the ECT, which commenced last year.

What does this mean in practice?

After a two-year period of uncertainty caused by the Achmea decision, the termination agreement does provide some clarity. That is not to say that its terms are without controversy: by choosing to provide different treatment to arbitration proceedings based on the date of their initiation by reference to the Achmea ruling date, instead of the effective date of the agreement itself, the termination agreement has effectively enacted retroactive measures with severe consequences for the investors engaged in ongoing proceedings.

Furthermore, while the termination agreement is a concrete step towards what the EU had wanted, its transitional measures are inadequate. Intra-EU investment protection is effectively gone; there is no alternative framework to take its place. While the EU is in discussions to establish a multilateral investment court, it is still in early stages. The next working group sessions are scheduled for October 2020.

The investors are left to pursue an unknown settlement process, or alternatively, they are forced to rely on the member states’ domestic courts, whose abilities to take on additional workloads in the form of investor-state disputes is questionable.

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