On December 2, 2020, Belgium submitted a request to the Court of Justice of the European Union (CJEU) for an Opinion on the compatibility of the future modernized Energy Charter Treaty’s (ECT) arbitration provisions with EU law in settling intra-EU investment disputes. Belgium seeks clarification on whether the arbitration provisions of the draft modernized ECT impermissibly allow an arbitral tribunal to opine on the interpretation or application of EU law, in violation of the EU law principle of autonomy.
Belgium’s request is the latest chapter in the dispute about the validity of arbitration clauses involving EU Member States in the aftermath of the CJEU’s 2018 decision in Slovak Republic v. Achmea B.V., and the CJEU’s decision may have substantial implications for EU investors, EU Member States, and those investing in intra-EU disputes.
Achmea and EU Law Principles
In Achmea, the CJEU held that arbitration provisions in intra-EU bilateral investment treaties (intra-EU BITs) were incompatible with the EU law principle of autonomy and jeopardized the uniform application of EU law.
The Treaty on European Union (TEU) and the Treaty on the Functioning of the European Union (TFEU) (together, the EU Treaties) are the cornerstones of the EU legal order. The EU Treaties facilitate the autonomy and uniform application of EU law by allowing Member States to submit disputes over the interpretation or application of EU law to the CJEU. Likewise, the EU Treaties prohibit Member States from submitting disputes to courts or tribunals outside of the EU legal order. By centralizing the authority to opine on EU law in the CJEU, the EU Treaties militate against inconsistent interpretations of EU law.
In Achmea, the CJEU found that arbitral tribunals formed under intra-EU BITs were outside the EU legal order but might be called upon to interpret EU Law. The CJEU accordingly found arbitration clauses in intra-EU BITs to be incompatible with Member States’ obligations under European Union law and thus invalid. On January 15, 2019, twenty-two EU Member States issued a Declaration on the consequences of Achmea in which they formally declared that investor-State arbitration clauses in intra-EU BITs were contrary to EU law and hypothesized that the resolution of intra-EU disputes under the ECT may also be incompatible with EU law. Achmea, however, did not address intra-EU disputes brought under the multi-lateral ECT, which, unlike an intra-EU BIT that includes only EU Member States as signatories, includes both EU Members States and non-Member States as signatories as well as the EU itself.
Over the past twenty years, there have been no fewer than 100 arbitrations involving EU Member States under the ECT, resulting in numerous awards valued in the billions of dollars. With dozens of arbitrations pending, the CJEU’s Opinion will likely have far-reaching effects for EU investors pursuing investment arbitrations and EU Member States resisting investors’ claims.
Implications for EU Investors and EU Member States
If the CJEU finds that the ECT’s arbitration provisions are incompatible with EU law, investors who had relied on those provisions in undertaking an investment in an EU Member State may find themselves faced with legal hurdles in seeking recourse from arbitral tribunals. For instance, a decision by the CJEU invalidating the ECT’s arbitration provisions in intra-EU disputes might make it more difficult for an EU investor to convince an arbitral tribunal to accept jurisdiction over a dispute against an EU Member State.
If an EU investor has already obtained an award, such a decision from the CJEU might make enforcement more challenging—both within and outside of the EU. Within the EU, an investor will likely find enforcement difficult as the EU Treaties consider the CJEU’s decisions “binding” on the national courts of EU Member States. Investors may also face additional challenges in set-aside proceedings, particularly when the seat of arbitration is located within the EU.
An important question for investors is how a CJEU decision invalidating the ECT’s arbitration provisions in intra-EU disputes would be considered by dispute resolution bodies outside of the EU. For instance, it remains unclear how a CJEU decision could impact (i) a dispute with a seat of arbitration outside the EU; (ii) an ICSID annulment proceeding; or (iii) enforcement in a former EU Member State, such as the UK. Similarly, investors face uncertainty in enforcement actions in U.S. courts, which would not be bound by the CJEU’s decision.
Belgium’s request to the CJEU may result in some clarity on the future of intra-EU arbitration under the ECT, at least from an EU law perspective. A decision from the CJEU is expected in the coming months. Freshfields will report on the decision once it is issued.