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Komstroy and its impact on intra-EU arbitration under the ECT

As the readers of this blog will be aware, since the CJEU’s decision in Achmea, there has been much discussion as to whether the principle against intra-EU arbitrations also applies to a multilateral investment treaty context, such as the Energy Charter Treaty (ECT).

In September 2021, the CJEU in Komstroy v Moldova directly addressed the question of intra-EU disputes under the ECT for the first time. This post will examine the implications of that decision for intra-EU arbitrations in light of recent ICSID cases that have addressed the issue.

The CJEU’s decision in Komstroy

In Komstroy, a Ukrainian company brought an arbitration against the Republic of Moldova under the ECT, and an award was rendered in favour of the claimant in an arbitration seated in France. Moldova sought to set aside the award under the French Code of Civil Procedure on the basis that the dispute did not involve an “investment” within the meaning of the ECT. The French courts referred the dispute to the CJEU for a preliminary ruling on that issue, among others.

Although the issue of whether the arbitration mechanism under article 26 of the ECT is applicable to intra-EU disputes was not directly referred to the CJEU, the CJEU nevertheless took the opportunity to address the question. It observed that since the ECT is an act of EU law, an arbitral tribunal constituted  under article 26 may be required to interpret, and even apply, EU law in a dispute. However, such a tribunal is not located within the judicial system of the EU, and awards rendered under article 26 are not subject to review by a court of a member state. This means that the questions of EU law involved in such a dispute cannot be submitted to the CJEU for a preliminary ruling, and so the full effectiveness of EU law would not be guaranteed.

On that basis, the CJEU determined that, by providing for recourse to an arbitral tribunal to interpret EU law outside of the EU legal order, article 26 of the ECT is not compatible with EU law. Therefore, the dispute resolution mechanism under the ECT cannot apply within the EU legal order. The fact that the ECT is a multilateral investment treaty rather than a bilateral one made no difference to this conclusion.

In adopting this approach, the CJEU has essentially clarified that its reasoning in Achmea also applies to intra-EU investment arbitration under the ECT, which many have long suspected would be the case.

Implications of Komstroy on intra-EU ECT arbitrations

That said, does the confirmation in Komstroy that the Achmea reasoning applies to multilateral investment treaties like the ECT mean that ECT tribunals will now be more likely to decline jurisdiction to hear disputes between EU investors and an EU member state?

To date, two ICSID tribunals in particular have substantively considered this question: Infracapital F1 Sarl v Spain and Kruck v Spain. These cases were determined in a context where the tribunals had already issued decisions on jurisdiction based on an intra-EU objection prior to Komstroy, and Spain was seeking to re-open the decisions on the basis that Komstroy should be taken into consideration. Both tribunals rejected the argument that Komstroy should be a basis for declining jurisdiction under the ECT. In doing so, they pointed to a number of key reasons not to apply the CJEU’s reasoning in Komstroy to each case.

First, it is international law, not EU law, that applies to determine a tribunal’s jurisdiction. Under the principles of international law, the express words of the ECT cannot have different meanings as between different configurations of EU and non-EU contracting parties and their investors. The CJEU’s premise that there should be separate treatment for intra-EU disputes and non-intra-EU disputes is unsupported by the provisions of the ECT and its objectives.

Second, where the claimant has a right to arbitration under the express terms of the ECT, nothing in the ECT gives a tribunal the authority to disregard or modify the explicit provisions of the ECT and decline jurisdiction on the basis of a contracting party’s obligations under a different legal order. Komstroy can therefore have no relevance in determining the question of jurisdiction.

Third, both the EU member states and the EU itself have acceded to the ECT. When they did so, they could have made special provision for intra-EU disputes, but did not do so. Accordingly, the contracting parties did not provide arbitral tribunals with any legal basis for refusing to interpret and apply the ECT in accordance with its plain terms.

Fourth, it would be improper to remove the tribunal’s jurisdiction to decide the claimants’ claims based on the Komstroy judgment when the judgment was issued several years after the claimants had filed their request for arbitration. Given the perfection of Spain’s consent to arbitration prior to Komstroy, that consent cannot be retroactively invalidated.

Questions left open

The contrasting positions of the CJEU in Komstroy and the tribunals in Infracapital and Kruck leave some key questions open, including in particular:

 Are future arbitral tribunals likely to continue the trend set by Infracapital and Kruck by exercising jurisdiction over any new proceedings post-Komstroy?

If tribunals do adopt this approach, will Komstroy make it more difficult to enforce an intra-EU ECT award within EU Member States, now that the CJEU has pronounced an incompatibility of Article 26 of the ECT with the EU legal order?

These are delicate questions, and it is hoped that the ongoing negotiations to modernise the ECT will eventually provide clarity on the broader issue.

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