Post - Blog
When uncertainty does not mean an opportunity
- 5 years ago (2019-06-08)
- Junior Isles
By Deborah Ruff , Partner, and Julia Kalinina Belcher , Counsel, at Pillsbury Winthrop Shaw Pittman
EP Shanghai 2024
In January 2019, all 28 EU member states agreed to terminate all existing intra-EU bilateral investment treaties between them (“ intra-EU BITs ”) with a deadline of December 2019. Reason? The European Court of Justice’s (“ ECJ ”) ruling in Achmea v Slovak Republic , which held that EU investors can no longer rely on intra-EU BITs to advance claims against EU member states.
The ECJ, and the EU, are by no means “trail blazers” in this regard. Quite a few countries, including Indonesia, South Africa, Venezuela, Bolivia and Ecuador, went public about their intention to terminate their BITs in recent years, albeit for different reasons. In the case of the non- EU countries, because of stated concerns that the odds were stacked against them in disputes or that sovereignty was being eroded, whereas in the case of the EU countries and the ECJ’s ruling, on the basis that there is no need for separate (read “non-EU”) mechanisms to protect investments in an integrated European superstate. Besides, it is difficult to characterise the Achmea ruling as a “shocker” – it is the fruit of the European institutions’ political agenda developed over decades.
The Achmea ruling is clear that arbitrating claims under intra-EU BITs is inconsistent with EU law. However, Achmea left the door open to claims under multilateral treaties to which EU itself is party, such as, for example, the Energy Charter Treaty (the “ ECT ”). Or did it?
A silver lining for the energy sector?
ECT arbitration has spiked massively in the past few years, with the ECT being one of the most frequently invoked international investment agreements (according to Energy Charter Secretariat). To date, 122 ECT cases have been filed.
Is this apparent lack of clarity about the status of the ECT a ‘silver lining’ for the energy sector? It is hard to tell. On the one hand, the
Achmea
ruling did not expressly address its applicability to the ECT. On the other, the EU Commission took the view that, notwithstanding this, the judgment is relevant to the investor-state arbitration mechanism established under Article 26 of the ECT when applied to intra-EU relations. Twenty-two EU member states also declared that, as far as they are concerned,
Achmea
does so apply, and undertook to cooperate with each other to set the awards in intra-EU BIT (including ECT) proceedings aside or not to enforce them. Then there are the national courts which have been tasked with interpreting
Achmea’s
scope. And then, of course, there are tribunals deciding on the claims against EU Member States made under the ECT.
In the short term, this uncertainty surrounding the viability of investor arbitration under the ECT will be unlikely to deter investors from advancing their ECT claims, for as long as the tribunals are willing to hear them, which they seem to be at the moment. The position may change after the tribunals’ decisions come to enforcement in the local courts, i.e. the courts of the “debtor” states and other EU countries where the state’s assets are located. One can anticipate that respondent member states will only be too happy to rely on the Achmea decision to challenge the tribunals’ jurisdiction and/or to resist enforcement of tribunal awards. Indeed, it is doubtful whether they can now comply with the awards without such compliance being considered to constitute state aid, in light of the European Commission’s ruling in Micula v Romania . The investors themselves will also come under pressure: 22 member states have also declared that they would co-operate to procure that their state-controlled nationals withdraw pending arbitration cases against other EU member states.
Mid-to long term, investors will be thinking about re-structuring their existing investments through a non-EU incorporated entity to take advantage of the existing BITs where at least one signatory is outside the EU. Post Brexit, the UK, which has BITs with some EU member states and is a signatory to the ECT, may emerge as a preferred jurisdiction through which these investments are structured.
Giants vs states
Meanwhile, corporate giants, which now dominate almost all industries from energy to telecoms, have minds and wills of their own, wield enormous influence and ample resources to take a few risks and exploit the current uncertainty. They will also likely restructure their investments via non-EU holding vehicles sooner than later, since doing so when a claim is foreseeable or commenced will in most cases be too late to satisfy definitions of “investor”.
It will, however, be interesting to see whether these developments do or do not result in willingness by tribunals in future to rule claims as admissible and take jurisdiction in cases where such restructuring takes place late in the day with the sole purpose of overcoming the Achmea problem, given that it is not investors who have changed their minds about which treaty they want to rely on, but the EU which has shifted the ground under their feet, or whether they regard such moves as simply further instances of “treaty shopping”.
Where do we go from here?
This is a difficult question. Surely, Achmea did not extinguish investors’ rights, but only removed their ability to enforce them through arbitration. So, where can the investors enforce them? Presumably, in the national courts. However unattractive the option of suing the host state in its national courts would be to the investors, it may be that this is where they will wind up, since the courts of the investors’ domicile may not have jurisdiction over these claims. The position with the ECT is a little clearer (but not more helpful), because investors have an express option of bringing their disputes to the host state’s courts under Article 26(2).
To conclude, the European legal community has seldom seen a clearer case of a complete lack of clarity. Investors will be well advised to start thinking about their protections now.