REUTERS | Piroschka van de Wouw

From genesis to apocalypse: As Belgium heralds the end of the uncertainty on intra-EU BITs, has the UK missed an opportunity in a post-Brexit world?

The saga of the intra-EU bilateral investment treaties (intra-EU BITs) has taken many forms on different battlegrounds and its relevance goes beyond the borders of the European Union. From its genesis in Achmea v Slovak Republic, passing through many enforcement attempts outside the EU (as previously covered here and here), to its potential apocalypse with the termination of all intra-EU BITs (and an unlikely but not impossible withdrawal of the EU member states from the Energy Charter Treaty (ECT)), the legal discourse on this topic looks far from over.

In recent years, restructuring business holdings through a post-Brexit UK had been suggested by many as a practical solution to the uncertainty posed by intra-EU BITs. But following the release of the EU–UK Trade and Cooperation Agreement (TCA) in December 2020, it looks like that ship has sailed for the UK.

Genesis: The Achmea decision

On 6 March 2018, the Court of Justice of the European Union (ECJ) issued its judgment in Achmea v Slovak Republic. The ECJ found that the investor-state dispute settlement (ISDS) provisions in the Netherlands-Slovakia BIT were not compatible with EU law.

Beyond the effects of the Achmea decision on the parties to the disputes, the position of the European Commission is that ISDS provisions in any intra-EU BIT are inconsistent with EU law. According to the European Commission, as a logical consequence of the common market, investors from one EU member state must address their claims against another EU member state in national courts (with referrals to EU courts where necessary). However, investment treaty tribunals have consistently held to the contrary, concluding that they have jurisdiction over disputes under intra-EU BITs and even under the ECT.

Apocalypse, strike one: Treaty for the termination of intra-EU BITs

On 5 May 2020, 23 EU member states signed a multilateral treaty titled “Agreement for the Termination of Bilateral Investment Treaties between the Member States of the European Union” (termination agreement). The termination agreement entered into force on 29 August 2020 and, pursuant to article 2, terminated more than 100 intra-EU BITs in force at the time. The sunset clauses of those intra-EU BITs also ceased to operate.

Austria, Finland, Ireland and Sweden did not sign the termination agreement. The UK did not sign the termination agreement either as it had already left the EU on 31 January 2020. As a result, the BITs between the UK and EU member states remain in force.

The termination agreement expressly provides that it does not cover intra-EU proceedings on the basis of Article 26 of the ECT, as the EU and its member states had agreed to deal with this matter at a later stage. In practical terms, the ECT is thus the most prominent international treaty with intra-EU ISDS provisions still in force.


The ECT was signed in December 1994 and came into force in April 1998 with the aim of integrating former Soviet countries and central and eastern European states into the western European energy market. Nowadays, it provides a unique framework for energy cooperation through the promotion of more open and competitive energy markets, as well as ISDS provisions to protect foreign investments.

The EU and 26 out of its 27 members states are parties to the ECT together with another 22 states, including Afghanistan, Kazakhstan, Turkey and Ukraine. Over the last few years, there has been a spike in the number of cases against western EU member states, including dozens of claims against Italy and Spain over cuts to subsidies for renewable energy. The increasing number of cases prompted Italy to withdraw from the ECT at the beginning of 2016. Still, there are plenty more intra-EU disputes in the pipeline. At present, there are more than 40 pending intra-EU ECT arbitrations listed on the ECT’s website.

Apocalypse, strike two: Criticisms of the ECT and possible EU withdrawal

There has been growing criticism of the ECT, including suggestions that the ECT is an obstacle to climate mitigation and the construction of a “greener” economy. As a result, on 27 May 2020, the European Commission presented its own ECT modernisation proposal, whilst insisting that the ECT does not contain an investor-to-state arbitration mechanism applicable to investors from one EU member state investing in another.

The EU’s proposals for modernisation of the ECT include provisions on sustainable development, including one on climate change and clean energy transition, which makes specific reference to the 2015 Paris Agreement on climate change. In September 2020, however, European Parliamentarians called for the EU to withdraw from the treaty unless it was fundamentally reformed. Similarly, the European Commission indicated on 2 December 2020 that if core EU objectives, including alignment with the Paris Agreement, are not attained within a reasonable timeframe, it may consider proposing other options, “including the withdrawal from the ECT”.

An EU withdrawal from the ECT would not necessarily put an end to intra-EU ECT arbitration, as it would trigger the ECT’s 20-year sunset clause. The EU would need to negotiate a cessation of effects of the sunset clause vis-à-vis EU member states, which could be achieved in similar terms to the termination agreement.

Apocalypse, final innings? ECJ to consider the intra-EU application of the ECT

On 3 December 2020, Belgium submitted a request to the ECJ for an opinion on the compatibility with EU law of the intra-EU application of the arbitration provisions of a new modernised ECT. Belgium noted that the purpose of its request is “to provide clarity and legal certainty” and that it puts the question to the court “in a neutral manner”, without taking a stand on the issue.

Current Version of ECT

With respect to the current version of the ECT, the European Commission’s position remains that Achmea also applies to the arbitration mechanism under article 26 of the ECT, with respect to disputes between EU member states under the ECT. In October 2020, in the joined cases C‑798/18 and C‑799/18, Advocate General Saugmandsgaard Øe opined in a footnote that Achmea applies to the ECT and that the treaty may thus be “entirely inapplicable” to intra-EU investment disputes. Advocate General opinions are not binding on the ECJ, but often followed in practice.

Arbitral tribunals, however, have differed from the European Commission and Advocate General Saugmandsgaard Øe. In Eskosol S.p.A. in liquidazione v Italian Republic, for example, the arbitral tribunal interpreted the ECJ’s decision in Achmea as founded on a concern about the submission to arbitration of disputes requiring the application of EU law, which undermined the court’s monopoly on the interpretation of EU law (applied as a national law). Article 26(6) of the ECT, however, provides that tribunals must decide disputes in accordance with the ECT and applicable rules and principles of international law. In this vein, the Eskosol arbitral tribunal concluded that Achmea did not affect the jurisdiction of arbitral tribunals to decide disputes under the ECT given that the applicable law in disputes under the ECT, did not include EU law but, rather, general principles of international law.

Whilst the ECJ has not rendered a decision on the current version of the ECT, in its opinion 1/17, the ECJ found the dispute settlement provisions in the EU-Canada Comprehensive Economic and Trade Agreement (CETA), which referred to an “Investment Court System”, were compatible with EU law on the basis that EU law was expressly excluded from the law applicable to investment disputes arising under that treaty. It is unclear whether the ECJ considers such an express exclusion necessary. If that is the case, however, the current version of the ECT does not satisfy the criterion.

Inasmuch as Belgium’s request to the ECJ concerns a new modernised ECT, the reasoning of the ECJ with respect to CETA may provide helpful guidance on the compatibility of intra-EU application of the arbitration provisions of the current ECT with EU law. If the ECJ weighs in on the side of the European Commission, for example, that intra-EU ECT arbitration is incompatible with EU law, it is likely that investors will seek to structure investments through companies incorporated in non-EU ECT contracting parties to benefit from the dispute settlement mechanisms enshrined in the ECT. As a former EU member state, the UK would potentially have been a natural choice for such holding structures from a legal, regulatory and geographical perspective.

Has the ship sailed? The UK post-Brexit position

Before the EU and the UK announced the terms of their relationship post-Brexit, there was an expectation that they would agree on a comprehensive investment protection regime. This could have benefited the UK by attracting foreign investors wishing to restructure their investments through the UK to benefit from investment protections vis-à-vis the EU and EU member states, and avoid the uncertainties posed by intra-EU BITs.

On 24 December 2020, however, the UK and the EU signed the TCA, which sets out a limited number of substantive protections for foreign investors. Notably, the TCA contains provisions on market access, national treatment, and most-favoured-nation treatment. However, the TCA does not include substantive provisions relating to expropriation, fair and equitable treatment (FET), and full protection and security (FPS), nor does it provide for ISDS mechanisms. The TCA is, therefore, unlikely to offer the level of investor protection afforded by most BITs and it remains to be seen whether investors will instead be drawn to structure investments through other third-party states which still have BITs in force with EU member states. It is worth noting that the TCA does not terminate the existing BITs between the EU member states and the UK, but there are less than a dozen BITs in force and all but one of them are restricted to eastern European states (the exception is the BIT between Malta and the UK).

The TCA states that where the EU and the UK conclude other agreements between them, such agreements shall constitute supplementing agreements to the TCA. Whilst the TCA does not refer to negotiations between the UK and the EU for an ISDS mechanism, such an approach cannot be discounted in the future. However, in light of the TCA already in place, it is unlikely that the European Commission would authorise an EU member state to negotiate a separate BIT with the UK. Therefore, notwithstanding its quest for a “global Britain”, the UK may wish to keep the EU on its “to-do list” and re-engage with Brussels down the line to set up an ISDS mechanism supplementary to the TCA.

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