In a recent opinion (not yet available in English), the Advocate General of the Court of Justice of the European Union (ECJ), General Szpunar, opined that the investor-state arbitration system under the Energy Charter Treaty (ECT) is incompatible with EU law.
Despite the fact that the now infamous Achmea judgment does not refer anywhere to the ECT, the Advocate General extended the consequences of the Achmea judgment to intra-EU ECT disputes.
This is in line with the political declaration issued by a majority of member states shortly after the Achmea judgment was rendered. In this declaration, those member states effectively extended the application of the Achmea judgment to intra-EU ECT disputes.
However, the opinion of AG Szpunar is misguided for several reasons and goes far beyond the jurisdiction of the ECJ. Indeed, it is a stunning example of superimposing the principles of the autonomy and supremacy of EU law, created by the ECJ itself, over all other international treaty law obligations of the member states.
Facts of the case are completely unconnected with EU law
In short, the facts of the case are as follows. The Paris Court of Appeal has posed several questions to the ECJ regarding the ECT. These questions arose following a dispute between a Ukrainian energy producer and Moldova regarding the failure to fulfil the contractual obligations of paying for the delivery of electricity.
The dispute between the Ukrainian company and Moldova resulted in an arbitral award against Moldova. In response, Moldova initiated proceedings before the Paris court requesting the setting aside of the arbitral award by claiming that there was no investment by the investor and thus no basis for rendering the award.
The Paris court requested the ECJ to clarify whether an “investment” within the meaning of the ECT took place. To be clear, the Paris court did not ask any questions as to the applicability of the ECT within the EU, which is logical, since the underlying dispute did not involve a European investor or a EU member state.
Overstretching the jurisdiction of the ECJ
Thus, despite the fact that prima facie this case has nothing to do with EU law and did not involve any EU member state, the Advocate General argued that this case nonetheless provides the ECJ with an excellent opportunity to rule for the first time on the relationship between the ECT and EU law.
First, the Advocate General determined that the ECJ has jurisdiction to answer the questions of the Paris court (despite the fact that there is no link with EU law), simply because the outcome of this case may be relevant for the EU and its member states. In particular, the Advocate General argued that the question as to whether the conditions of an “investment” within the meaning of the ECT are fulfilled could also be relevant in the context of intra-EU ECT disputes. Therefore, the creation by the ECJ of a uniform interpretation of the ECT, for application by EU, justifies the jurisdiction of the ECJ.
That may be so from the perspective of EU law. However, this is a multilateral investment agreement, which does not grant the ECJ any jurisdiction to develop and impose a certain interpretation of ECT provisions on the contracting parties of the ECT. Indeed, Article 26 of the ECT offers the investor the choice between domestic courts of a contracting party or international arbitration under ICSID, the UNCITRAL Arbitration Rules or under the Arbitration Rules of the Stockholm Chamber of Commerce for resolving any disputes. However, there is no mention of the ECJ in this respect.
Consequently, it is up to the arbitral tribunals established under Article 26 of the ECT to develop a, preferably uniform, jurisprudence on the ECT provisions. Clearly, from the perspective of the ECT, there is no role for the ECJ in this respect.
Accordingly, claiming that the ECJ needs to render a binding judgment in a case that is entirely unconnected with EU law simply because it may be relevant for the EU member states in intra-EU ECT disputes is undoubtedly going beyond the jurisdiction of the ECJ and trespasses on the powers of arbitral tribunals.
Opinion addresses a question that was not asked
Subsequently, the Advocate General, without this being necessary for answering the questions of the Paris court, spent a considerable amount of ink on the question whether the investor-state arbitration system contained in the ECT is compatible with EU law.
Despite the fact that the Achmea judgment did not mention the ECT and concerned a bilateral investment treaty (BIT) between two EU member states rather than the multilateral ECT, the Advocate General argued that, since the ECJ ruled in Achmea that the investor-state arbitration system is incompatible with EU law, naturally, the same conclusion must be reached for the similar system contained in the ECT.
In support of this conclusion, he also referred to the political declarations of the member states mentioned above. Intriguingly, he also referred to the recently signed termination agreement in which most member states agreed to terminate their intra-EU BITs. However, this is rather misleading since the termination agreement explicitly does not apply to the ECT. Instead, the EU and the member states agreed to deal with the ECT in the context of the currently ongoing modernisation process of the ECT.
In short, despite the significant factual and legal differences between the Achmea case and this case, the Advocate General took the opportunity to conclude in rather sweeping terms that the investor-state arbitration system is incompatible with EU law in so far as disputes between European investors and EU member states (intra-EU ECT) are concerned.
Again, it is important to recall that this was not a question the Paris court has raised with the ECJ and neither is it relevant for answering the question which the Paris court did ask.
In this context, it is noteworthy that recently another Advocate General in a different case also noted in passing that the ECT arbitration provisions are incompatible with EU law. This illustrates that the prevailing view within the ECJ seems to be that the Achmea judgment is also applicable to the ECT and that this is likely to be confirmed soon by judgments of the ECJ. Indeed, recently, a Swedish court decided that it will request a preliminary ruling from the ECJ exactly on the issue of possible incompatibility of the ECT with EU law. Thus, the ECJ is now confronted within the context of a suitable intra-EU ECT dispute with the appropriate question as to the compatibility of the investment arbitration system with EU law. This means that sooner rather than later, the ECJ will express its views on the compatibility of the ECT arbitration rules with EU law.
Replacing the arbitral tribunal’s view
Subsequently, the Advocate General turned to the substantive question, which the Paris court actually had raised, that is, whether a contractual claim can qualify as an “investment” within the meaning of the ECT.
Despite the fact that the ECT contains a very broad and unlimited definition of “investment”, the Advocate General concluded that the contractual claim does not qualify as an investment within the meaning of the ECT.
This is an unusually restrictive interpretation, which is also not in line with the broad wording of the ECT nor with the jurisprudence of ECT arbitral tribunals, including the arbitral tribunal which rendered the award in this case, Energoalliance Ltd v Republic of Moldova. The arbitral tribunal in this case concluded that:
“… the ECT provides that an ‘investment’ means ‘every kind of asset, owned or controlled directly or indirectly by an Investor’, while individual categories of investments enumerated in the ECT constitute only concrete examples of some kinds of assets”. (Paragraph 226.)
It also said that its conclusion:
“… follows from a rather broad definition of the term ‘investment’ accepted under the ECT and supported by authoritative researchers, and also sustained in the whole range of arbitral awards in investment disputes, where under quite similar circumstances the presence of jurisdiction to resolve such disputes was accepted”. (Paragraph 227.)
Notwithstanding the arbitral tribunal’s clear conclusion, the Advocate General’s opinion significantly deviates from the generally accepted ECT jurisprudence regarding the broadly understood definition of “investment”. Indeed, this view creates more confusion and less uniformity, that is exactly the opposite result than the one used as a justification for overstretching the jurisdiction of the ECJ.
Gradual suffocation of the ECT
This opinion must be seen in the wider context of the increasing tension between EU law and the ECT. The European Commission, the ECJ and the EU member states are apparently all aligned against the ECT. Indeed, the number of ECT claims against EU member states continues to rise, with most notably the first case against The Netherlands.
Thus, this opinion of the Advocate General provides further arguments for the EU member states to put an immediate end to these ECT disputes. If the ECJ were to follow the Advocate General, which is very likely, this would indeed lead to the immediate inapplicability of the ECT arbitration provisions within the EU. This could even also potentially affect the recognition and enforcement of already rendered intra-EU ECT awards (at least within the EU).
In short, a judgment by the ECJ to that effect would be an elegant way out of the ECT for the EU and its member states.
