On 24 October 2019, the European Commission announced that EU member states have reached agreement on a plurilateral treaty for the termination of all of the approximately 190 intra-EU bilateral investment treaties (BITs). The agreement follows the political declarations of member states, issued in January this year, in which they recognised the consequences from the Achmea judgment of the Court of Justice of the European Union (CJEU).
It will be recalled that on the black Tuesday of 6 March 2018, the CJEU ruled in Achmea that the investment arbitration clause contained in intra-EU BITs is incompatible with EU law, which effectively put an end to the intra-EU BITs. More specifically, the Achmea judgment means that European investors cannot bring claims against EU member states for compensation in cases of expropriation, unfair or discriminatory treatment.
Since the Achmea judgment was issued, the European Commission has been pushing member states to terminate all of their intra-EU BITs as soon as possible. Whereas some member states, in particular in central and eastern Europe, have already been in the process of terminating some of their intra-EU BITs, the truth is that most of the approximately 190 treaties are still in force today.
In the three political declarations issued in January, all member states announced their intention to terminate all their intra-EU BITs by 6 December 2019. In addition, most member states extended the effect of Achmea to intra-EU disputes within the context of the Energy Charter Treaty (ECT). A handful of member states argued that it would be more appropriate to wait until the CJEU has explicitly ruled on the compatibility of the ECT arbitration clause with EU law. In a separate declaration, Hungary rejected Achmea’s application to the ECT altogether.
In essence, the agreed plurilateral treaty, which followed in October this year, regulates two issues:
- How existing intra-EU BITs, including their sunset clauses are to be terminated.
- How to deal with new, pending and concluded arbitration proceedings.
The text of the termination agreement has not yet been officially published, but a draft agreement has been leaked, which I use for the analysis below.
Termination of all intra-EU BITs, including sunset clauses, in one go
The termination agreement simply states that all intra-EU BITs, which are listed in an annex, are terminated by this agreement. In addition, it also states that the sunset clauses contained in the intra-EU BITs “shall not produce legal effects”. Sunset clauses are provisions which protect investments made prior to the termination of the BIT in question for a certain period, usually for an additional ten to 20 years after the termination. The purpose of sunset clauses is to protect the legal expectations of investors who made their investments based on the existence of the respective BITs.
Moreover, the termination agreement further states that the BITs and their arbitration clauses are “inapplicable” from the date on which the last member state joined the EU, that is, 1 January 2007. Interestingly, the termination agreement only requires two ratifications in order to enter into force. Furthermore, a provisional application of the termination agreement is envisaged. Consequently, it can be expected that the termination agreement will enter into force within the next months.
Concluded arbitrations remain untouched
The termination agreement states that all intra-EU BIT arbitrations which were concluded before the Achmea judgment (6 March 2018) will remain untouched. In other words, it does not foresee a retroactive effect for arbitration proceedings that have definitely been concluded with a final award or settlement agreement prior to Achmea.
The fate of pending disputes
The situation is completely different for pending disputes, meaning arbitration proceedings that were initiated prior to the Achmea judgment (6 March 2018) and which have not yet been concluded.
For these pending disputes, the termination agreement provides for a so-called “structured dialogue”. This structured dialogue allows the investor to initiate a settlement procedure with the member state concerned, but only within six months from the termination of the respective BIT.
The settlement procedure is to be overseen by an “impartial facilitator” “with a view of finding between the parties an amicable, lawful and fair out-of-court and out-of arbitration settlement”. The facilitator shall be selected by common agreement between the investor and the member state concerned. Interestingly, besides being independent and impartial, the facilitator must explicitly possess in-depth knowledge of EU law, but not in-depth knowledge of investment law. If the disputing parties fail to agree on a facilitator, an appointing authority, which in the draft text has been left open in brackets, shall appoint the facilitator.
The facilitator shall reach a settlement agreement within six months, but parties can agree to a longer period. It is noteworthy that any settlement agreement must take into account the rulings of the CJEU as well as definitive decisions of the European Commission. The latter apparently aims to ensure that Commission state aid decisions, such as the famous Micula case, are not ignored by the facilitator.
Finally, the termination agreement provides that the settlement procedure shall be impartial and confidential. Interestingly, the termination agreement does not explain what happens with the dispute if no settlement agreement has been reached. Is the investor allowed to continue the arbitration proceedings or is the dispute suddenly terminated as well?
Besides the access to a facilitator, the termination agreement also mentions access to the national courts of member states within six months of the termination of the respective BIT, even if the time limits for bringing actions under domestic law has expired. However, and at the same time, the termination agreement stresses that this possibility shall not be construed as creating “any new judicial remedies, which would not be available to the investor under the applicable national law”. Consequently, bringing a claim before member state domestic courts appears to be a very limited option for investors, which they could have done in any event but have deliberately chosen not to do in the first place.
No “new” intra-EU disputes
The termination agreement simply states that “arbitration clauses [in intra-EU BITs] shall not serve as legal basis for new arbitration proceedings”. New arbitration proceedings are defined as proceedings initiated on or after 6 March 2018, that is, post Achmea. This apparently means that dozens of intra-EU BIT proceedings that were initiated post-Achmea are qualified as null and void by this termination agreement, despite the fact that most intra-EU BITs are still in force and legally binding on member states. In other words, the termination agreement imposes a retroactive effect on arbitration proceedings that have been initiated up to almost two years ago.
One can seriously question whether such a retroactive effect is compatible with the rule of law and the jurisprudence of the European Court of Human Rights. Indeed, some months ago (albeit in a slightly different context), in its opinion on the investment court system (ICS) as contained in CETA, the CJEU explicitly prohibited any retroactive effect of joint binding interpretations of the CETA parties. Therefore, it would have been more appropriate and reasonable to qualify “new” arbitration proceedings as those that are initiated after this termination agreement has entered into force.
Not yet game over for intra-EU ECT cases
It is noteworthy that this termination agreement explicitly states in the preamble that it does not apply to intra-EU ECT disputes. Instead, the termination agreement states that member states will deal with this issue at a later stage, presumably in the context of the on-going modernisation process of the ECT.
As is well known, Spain and many other EU member states are facing dozens of intra-EU ECT claims. Their efforts to convince ECT arbitral tribunals to decline their jurisdiction or to toss out pending cases have not yet been successful. It can therefore be expected that member states will try to find ways to escape their legal obligations under the ECT.
This termination agreement marks the culmination of the efforts of the European Commission and several member states over the past decade to abolish intra-EU investment arbitration proceedings from the European legal order. Prima facie, the agreement indeed puts a definite end to all pending and new arbitration proceedings that have been initiated post-Achmea, with only very limited transitional measures which, in addition, are designed to be particularly unattractive to investor-claimants.
However, the question must be asked whether the legal expectations of investors and their rights as contained in those BITs are sufficiently respected. In particular, the way the sunset clauses and all post-Achmea disputes are simply declared null and void as of 2007 is hardly in conformity with the rule of law and the Vienna Convention on the Law of Treaties. After all, the very purpose of the sunset clause is to kick in when the BIT is terminated. If member states want to avoid that, they must first take out the sunset clauses in all BITs and then terminate the modified treaties. Indeed, this has been done before on a few occasions.
In sum, this termination agreement, when it enters into force, will put an end to intra-EU BITs disputes within the next few months. However, several legal aspects raise a number of serious questions as to the conformity with the rule of law and the legitimate expectations of investors-claimants, which probably will have to be clarified by domestic courts and eventually the CJEU.