By now, the readers of this blog will be familiar with the issues brought about by the ruling of the Court of Justice of the European Union (CJEU) in Slovak Republic v Achmea BV. In essence, that ruling declared unenforceable the arbitration mechanism contained in the bilateral investment treaty (BIT) between The Netherlands and the Czech and Slovak Federative Republic, the Dutch-Slovak BIT, for being incompatible with EU law. The CJEU stated the main reasons for this incompatibility to be as follows:
- An intra-EU investment tribunal is not bound by Article 267 of the Treaty on the Functioning of the European Union (TFEU) and hence calls into question the uniformity of EU law in proceedings before it (see Achmea, at paragraphs 37, 43, 49 and 58).
- An intra-EU tribunal is not bound by the obligation of sincere co-operation under Article 4(1) of the Treaty on European Union (TEU) and hence places at risk the relationship of mutual trust between the EU member state courts (see Achmea, at paragraphs 34 and 58).
- As a result, an intra-EU investment tribunal cannot ensure the full effectiveness of EU law in situations where there is a requirement to apply and interpret EU law (see Achmea, at paragraph 56).
- In those circumstances, an intra-EU investment tribunal will “have an adverse effect on the autonomy of EU law” (see Achmea, at paragraph 59).
Questions arise as to the proper scope of the CJEU’s ruling and whether it would reach beyond the limits of arbitration under intra-EU BITs for the resolution of disputes between investors and an individual EU member state to arbitration of disputes under multilateral investment agreements to which the EU as a whole is a party, such as the Energy Charter Treaty (ECT). I have shared some of my thoughts on this in a previous blog. However, in the light of more recent developments in the aftermath of Achmea, this topic deserves further consideration.
Before delving deeper, in my view the arbitration mechanism contained in Article 26 ECT remains enforceable despite the ruling of the CJEU in Achmea. The main reason for this is two-fold. First of all, the CJEU did not address arbitration in a multilateral context, let alone under the ECT more specifically. It only concerned itself with arbitration in bilateral scenarios in an intra-EU context. Tellingly, the CJEU’s conclusions against compatibility were premised on the fact that the Dutch-Slovak investment tribunal was constituted under “an agreement [that is, the Czech-Slovak BIT] which was concluded not by the EU but by [EU] Member States” (see Achmea, at paragraph 58). In other words, the CJEU’s conclusions were not intended to extend to agreements, like the ECT, to which the EU as a whole is a party. Second of all, the EU itself acceded to the ECT without making any reservations. This includes the EU’s submission to the dispute resolution mechanism set out in Article 26 ECT. On accession, the EU must therefore have considered that dispute resolution mechanism, including the arbitration clause that it contains, fully compatible with EU law.
This conclusion also stands confirmed by a more recent decision of an ICSID tribunal that specifically deals with the Achmea issue within the context of the ECT (see Vattenfall AB and others v Federal Republic of Germany). According to the tribunal, the CJEU’s Achmea ruling does not preclude arbitration under the ECT. Instead, the tribunal confirmed that the CJEU is “silent on the compatibility of intra-EU investor-State dispute settlement under the ECT with EU law” (see decision on the Achmea issue, at paragraph 163). In any event, pursuant to this tribunal, a literal reading of the ECT supports a conclusion in favour of investor-state arbitration involving the EU member states:
- Pursuant to Article 26(3)(a) ECT, each contracting party of the ECT provides “its unconditional consent to the submission of a dispute to international arbitration… in accordance with the provisions of this Article”, the offer to arbitrate being “unqualified by any carve-out for intra-EU investor-State arbitrations” (see decision on the Achmea issue, at paragraph 172). “Contracting Party” within the meaning of Article 26 ECT, in turn, “includes both (i) any State that signs and ratifies the ECT; and (ii) the EU (having itself also signed and ratified it)” (as above, at paragraph 177). Absent any explicit language to the contrary, the EU or any EU member state may be a respondent state in an investor-state dispute under Article 26 ECT (as above, at paragraphs 182 and 188).
- Article 26(2)(a) ECT only provides an option for an investor to submit a dispute for resolution “to the courts… of the Contracting Party party to the dispute” as an alternative to the submission of a dispute to arbitration. According to the tribunal, “it is clear that the competence of the [CJEU] does not exclude the independent dispute resolution procedure of arbitration, but is one instance of the application of that procedure, provided for in the ECT itself.” (as above, at paragraph 191) “Nor”, explains the Tribunal, “does the competence of the [CJEU] trump an investor’s right to choose arbitration against an EU Member State” (as above).
- Article 16 of the ECT protects provisions of the ECT that are more favourable for investors than provisions of prior or subsequent agreements on a related subject-matter, including the right to arbitration within the meaning of Article 26 ECT (see decision on the Achmea issue, at paragraph 192 on). So do the object and purpose of the ECT in the terms set out at Article 2 ECT by promoting “the flow of international investment in the energy field” through, among other things, the provision of investor-state arbitration in the terms of Article 26 ECT (as above, at paragraph 198).
- There is no disconnection clause in the ECT, which would ensure the application of the ECT provisions, including the right to arbitrate under Article 26 ECT, as against third parties only, and not between EU member states (as above, at paragraph 201 on).
The tribunal ultimately, and correctly in my view, concluded that:
“… it is not for this Tribunal to assume that the [CJEU]’s decision [that is, the CJEU’s ruling in Achmea] in relation to a bilateral investment treaty applies equally to a multilateral treaty with both EU and non-EU parties, under which the EU itself has consented to investor-State arbitration [that is, the ECT].” (See decision on the Achmea issue, at paragraph 213.)
For now, there can be little doubt that claims under the ECT remain arbitrable and that the right to arbitrate under Article 26 ECT remains enforceable, even as against EU member states, for all the reasons stated above. This will safeguard the viability of investor-state arbitration under the ECT within an intra-EU context for the time being. Energy investors within the EU will for now remain free to rely on their right to arbitrate against an EU member state under Article 26 ECT.