Since the CJEU's 2016 decision in Slovak Republic v. Achmea B.V. (Case C-284/16) (the Achmea judgment), the prospects for EU investors bringing investment treaty claims against EU member states ("intra-EU" claims) have steadily declined. A number of dramatic recent developments (stemming from the EU's longstanding position that the resolution of investment disputes by independent tribunals infringes EU law) now lead many to speculate that intra-EU investment arbitration in its current form has no long-term future. Those developments include:

(a) the entry into force from August 2020 of an agreement terminating all intra-EU bilateral investment treaties (BITs) between 21 signatory EU member states and confirming that the arbitration clauses contained within these BITs are inapplicable (the Termination Agreement). The Termination Agreement also disapplies so-called "sunset" clauses in BITs, meaning the states' position is that protections end with immediate effect;

(b) the CJEU's decision in Komstroy v. Moldova (Case C-741-19) (Komstroy) that intra-EU investment arbitration proceedings under the Energy Charter Treaty (ECT) are also contrary to EU law;

(c) a number of domestic courts of EU member states setting aside or refusing to enforce arbitral awards issued in disputes between EU parties under BITs or the ECT; 

(d) the first known decision by an investment treaty tribunal declining jurisdiction under the ECT on the basis that intra-EU investment disputes contravene EU law; and 

(e) an agreement in principle for the modernisation of the ECT, which will reportedly contain a provision specifying that the dispute settlement provisions will not apply to members of a Regional Economic Integration Organisation such as the EU, thus expressly ruling out intra-EU claims going forward.

Investors considering intra-EU investment treaty arbitrations even as things stand will need to carefully weigh the combined risks of successful jurisdictional objections and issues on enforcement against the continued benefits of international arbitration compared to (for example) litigation in the host state's courts. The developments will leave many alarmed as to the new political risk exposure of investments they may have made in reliance upon expected investment treaty protection. 

Achmea and Komstroy 

By way of background, in Achmea, the CJEU decided that an arbitration clause in the Netherlands-Slovakia BIT effectively placed disputes that could potentially concern the interpretation or application of EU law outside the EU's judicial review mechanism, and so contravened EU law. Further discussion of the decision can be found in our earlier post.

It was widely expected that the CJEU's Achmea reasoning would be held to extend to intra-EU arbitrations under the ECT, which was confirmed in its 2021 decision in Komstroy. Although that decision involved a non-EU investor and a non-EU member state, the CJEU nevertheless took the opportunity to essentially restate its Achmea reasoning. It explained that arbitral tribunals constituted under Article 26(6) ECT may be required to interpret, and even apply, EU law, and since such tribunals (a) do not form part of the EU's judicial system and (b) their decisions are not subject to appeal or review by an EU member state court (which could refer questions to the CJEU if necessary), allowing them to hear intra-EU disputes violated the autonomy of the EU legal system and the need to preserve it.

The Termination Agreement

Following Achmea, on 15 January 2019, all then member states (including the UK) issued a declaration to the effect that they would terminate their intra-EU BITs by 6 December 2019. Following this declaration, the Termination Agreement (signed by 23 member states on 5 May 2020) terminated all intra-EU BITs between the signatories and confirmed that intra-EU BIT arbitration clauses "are contrary to the EU Treaties and thus inapplicable". What this means is investors relying on intra-EU BITs no longer enjoy treaty protection and cannot bring an investment arbitration in the case of (for instance) expropriation of their investments. As the Termination Agreement purports to disapply "sunset clauses" that would otherwise have ensured protections for existing investments would continue for a specified period of time following the termination of the BIT, the removal of protection appears to take effect immediately¹. 

The Termination Agreement also contains (in some parts controversial) provisions regarding what should happen to intra-EU investment arbitrations that have already been started (or where awards have been issued but not yet enforced), including a direction for a "structured dialogue" between the member state and investor with a view to reaching a settlement. 

It is worth noting that, although the UK issued a declaration of its intention to terminate intra-EU BITs (pre-Brexit), it is not a party to the Termination Agreement and its BITs with EU member states remain in place. We are not aware of any ongoing intention on the part of the UK government to terminate these – the issue is not, for instance, mentioned in the EU-UK Trade and Cooperation Agreement – notwithstanding that the European Commission initiated an infringement procedure against the UK (and Finland) in May 2020 for its failure to sign the Termination Agreement prior to leaving the EU at the end of 2020. It therefore appears likely that UK investors in the EU will remain protected under these BITs, although the risk of an adverse CJEU judgment and/or unpredictable EU domestic court decisions in enforcement proceedings cannot be ruled out.

Battles on jurisdiction and enforcement 

Since Achmea and Komstroy, investors bringing claims against member states have faced a barrage of legal obstacles, both in the form of jurisdictional objections by respondents and actions resisting enforcement before domestic courts. 

Jurisdictional objections before arbitral tribunals have for the most part been unsuccessful. Tribunals have generally relied upon international law grounds – such as the fact that their jurisdictional mandate comes from the relevant treaty, not the EU legal order – to arrive at such findings. However, in Green Power v. Spain (an ECT claim brought by a Danish investor over Spain’s repeal of its renewable energy incentive scheme), the tribunal reasoned differently, holding that EU law applies to the determination of the tribunal’s power to decide the dispute. The claim was brought under the Stockholm Chamber of Commerce (SCC) Rules and certain provisions of the Swedish Arbitration Act were important in the tribunal's determination, so it is possible Green Power will prove an outlier, but the decision nevertheless perpetuates the uncertainty the CJEU's decisions have created, particularly in arbitrations with an EU-seat. 

Successful claimants have also had consequent difficulties enforcing intra-EU arbitral awards in the courts of member states.  A number of courts have set aside such awards, e.g. in Poland v Strabag et al, no. RG 20/13085, and Poland v Slot et al, no. RG 20/14581 in the Paris Court of Appeal.  And in July 2022, Luxembourg's highest court refused an application for enforcement of the c.US$350 million award in the long-running Micula v. Romania dispute, notwithstanding that the award was issued under ICSID Rules and thus should in principle be automatically enforceable. 

Express exclusion of intra-EU disputes from ECT 

As explained in our separate post  regarding the modernisation of the ECT, an "agreement in principle" has been reached among the 54 signatories of the ECT. The changes are apparently largely aimed at rebalancing and modernising the ECT, responding to criticism based on protection of fossil fuel investments and making it more apt to support the global energy transition by allowing states greater policy and regulatory space to fulfil their commitments under the Paris Agreement and other international environmental instruments. 

The EU is a signatory to the ECT (along with its member states) and a large number of claims have been brought by EU-domiciled investors against member states, clearly demonstrating the conflict between the ECT’s ISDS provision and the Commission’s position that intra-EU investment arbitration agreements contravene EU law, outlined above. Following Komstroy, EU investors may think twice before bringing claims against EU member states even under the existing ECT (since the courts of member states may set aside or refuse to enforce the relevant award). 

However, it is intended that the revised ECT will go further still, and will contain a provision specifying that the dispute settlement provisions will not apply to members of a Regional Economic Integration Organisation such as the EU, thus expressly ruling out intra-EU claims going forward. The timing of entry into force of the revised ECT is, however, very uncertain: the text is due to be adopted by the contracting states in November 2022, but before coming into force must be ratified by 75% of the contracting parties (which could conceivably take a number of years). There therefore remains (at least for now) the possibility of intra-EU claims being brought pursuant to the ECT under ICSID Rules, albeit with the real risk of being unable to enforce an award within the EU. 

Announcements of withdrawals from the ECT

Separately, however, Italy, Poland, Spain, France and the Netherlands have recently announced their intention to withdraw from the ECT altogether. This is reportedly because of protections granted to fossil fuel investors and views that the revisions to the treaty do not go far enough in allowing states to reach their climate goals, but in some cases likely also due to their having faced a large number of claims in the past (e.g. in the case of Spain and Italy, the wave of claims regarding the reversal of incentives in the renewables sector). 

Such withdrawals would not take effect immediately in relation to existing investments, due to the ECT's sunset provision which would mean protection considered for 20 years. However, any new investments in states that had already terminated the ECT would not be covered. These announcements undoubtedly further add to an environment of uncertainty and exposure for future investors in the energy sector, even those outside the EU. 

What now for investors? 

The net result of these developments is that investors in EU member states who are either themselves domiciled in the EU or hold their investments via an EU company simply must carefully analyse whether it is possible to rely upon BITs or the ECT for protection. As is apparent from the above discussion, the situation is changing fast and judgments at both member state and EU levels, plus investment tribunal decisions, will continue to inform that risk analysis. 

This will come as a surprise to many businesses who have carefully planned on the basis of securing such protection at the time of making their investments. At a time of volatility across almost every economy, with states being forced to adopt sometimes extreme measures in an effort to resume stability, such a position will ring alarm bells for many reviewing their investment portfolio. It may be that simple measures such as restructuring investments (e.g. via the UK or Switzerland) can help restore treaty protection, if relevant treaties are in place. It may also be prudent to seek protection that allows claimants to avoid EU member state-seated arbitration (for instance, treaties that grant access to ICSID arbitration). If such measures are intended, however, they should be taken promptly, since when a host state shows signs of taking measures breaching a treaty, it can be too late and any consequent claim held to be an abuse of the arbitral process.

1. There is a question around whether investors have a legitimate expectation that their rights will be prolonged for the duration specified in a sunset clause, especially considering that investors may rely on the provisions (including sunset clauses) contained in the relevant BIT when deciding whether to invest in a foreign state. Investors may therefore seek to bring investor-state arbitration claims based on their rights enshrined in sunset clauses, despite their purported termination.