Master Thesis International and European Law:
International Trade and Investment Law
The Future of the EU’s Common Commercial Policy in
Investor-Member State Arbitration
Positioning the EU in Investor-Member State Dispute Settlement
T.M. Goudzwaard August 2015
Master Thesis International and European Law:
International Trade and Investment Law
The Future of the EU’s Common Commercial Policy in
Investor-Member State Arbitration
Positioning the EU in Investor-Member State Dispute Settlement
T.M. (Mart) Goudzwaard Student number: 6062407 Supervisor: Dr. H.E. Kjos 13 August 2015
Table of Contents
1. INTRODUCTION ... 1
2. THE EUROPEAN UNION’S REGULATORY REGIME ... 4
2.1 EU Investment Policy ... 4
2.2 The European Union’s Common Commercial Policy ... 5
2.2.1 EU Common Commercial Policy Competencies ... 6
2.2.2 EU Regulation 1219/2012 on Transitional Arrangements for BIT’s Between Member States and Third Countries. ... 9
2.3 The Position of the CJEU on dispute settlement by non-EU bodies ... 10
2.3.1 Opinion 1/91 ... 12
2.3.2 The MOX Plant Dispute ... 13
2.3.3 Opinion 1/09 ... 16
2.3.4 Opinion 2/13 ... 17
2.4 The Limitation by the German Federal Constitutional Court ... 18
2.5 Interim Conclusion and Discussion ... 19
3. INTERNATIONAL LAW ... 22
3.1 Investment Law ... 22
3.2 The EU as Non-Disputing Party ... 23
3.3 Consent to Arbitration ... 26
3.3.1 Micula v. Romania ... 27
3.3.2 Electrabel v. Hungary ... 30
3.3.3 Eureko v. Slovakia ... 32
3.4 Annulment and Enforcement ... 33
3.5 Interim Conclusion and Discussion ... 35
4. THE FUTURE OF THE EU INVESTMENT REGIME ... 37
4.1 The EU-Canada Trade and Investment Agreement ... 37
4.2 Is there still a Future for Member States IIAs? ... 39
4.3 Interim Conclusion & Discussion ... 42
5. CONCLUSION AND RECOMMENDATIONS ... 44
LITERATURE ... 46
1
1. INTRODUCTION
On 30 October 2014 the European Commission (EC) requested the Court of Justice of the European Union (CJEU) for an opinion on the EC’s competence to conclude a trade agreement with Singapore. This request was made in order to clarify whether the provisions of the proposed agreement would fall within the scope of the EU’s exclusive or shared competence or whether the Member States continue to be competent on some of these issues. An opinion of the Court on this issue could solve the difference of opinion on this topic between the EC and the Member States, could clarify the applicable procedures and could increase predictability towards other countries.1
This pending case before the CJEU will form the background of this thesis. My analysis attempts to provide a basis for a discussion on the competencies of the EU and its Member States in creating a new EU investment policy in which the EU, its Member States and third states participate. As the Singapore controversy displays, the scope of the different competencies in the Common Commercial Policy (CCP) field is still unresolved.
Since the conclusion of the Lisbon Treaty, the question of the boundaries of the European Union’s (EU) and Member States’ competence, respectively, in concluding international investment agreements (IIAs), including bilateral investment treaties (BITs), has been subject to much debate. Articles 206 and 207 of the Treaty on the Functioning of the European Union (TFEU) lay down the basis of the EU’s CCP competences.2 Article 206 TFEU prescribes that the EU shall contribute ‘to the progressive abolition of restrictions on international trade and on foreign investment’. Article 207 TFEU describes the procedures which should be followed when acting in the field of CCP. The extent of these powers of the EU, however, raise several questions, including questions about the exact scope of the powers of the different institutions and the Member States and their effects on third parties. This situation will remain until the Member States have withdrawn all their investment treaties.
In essence, there is nothing extraordinary in the relationship between Member States and non-EU investors. Like investors in non-non-EU host states, foreign investors in non-EU Member States are protected by national law, customary international law, and often also by BITs entered
1 European Commission Press Release 2014, http://europa.eu/rapid/press-release_IP-14-1235_en.htm.
2 Consolidated Version of the Treaty on the Functioning of the European Union, 26 October 2012, 2012 OJ,
2 into between the investor’s home state and the host state of the investment. Since the conclusion of the first bilateral investment treaty (BIT) between Germany and Pakistan in 1959, more than 8000 of such treaties have been concluded by Member States of the EU.3 Investment treaties typically provide for various standards of protection of investments. While these substantive standards differ per treaty, they commonly include conditions for expropriation;4 national treatment;5 most favoured nation treatment;6 fair and equitable treatment;7 full protection and security;8 non-arbitrary/discriminatory treatment;9 and the umbrella clause.10
These standards are, however, not effective if an investor is unable to enforce them. Frequently it is unattractive for investors to address the relevant national court as that court might be biased in favour of its own state. Therefore many treaties provide for investor-state arbitration, granting investors direct access to an impartial dispute resolution mechanism.11
An indispensable element of investment arbitration proceedings is that both parties consent to such dispute settlement.12 In case an investor agrees on arbitration with a Member State of the EU, a question that arises is how his or her position changes when the EU attempts to take over the role of the Member State; further, what safeguards does he or she have to ensure that their rights are sufficiently protected? An example of such a situation is the Micula case, in which the investor faced actions of the EC while being in an arbitration procedure with a Member State under a BIT.13
Ideally clarity about the possible involvement of the EU in procedures between Member States and investors should be provided as early as possible, including precise conditions for
3 Dolzer & Schreuer 2012, p. 6. 4
Provisions safeguarding investors in case of Expropriation aim at fairly compensating investors in case of expropriation and at providing the process with due legal safeguards. See: Dolzer & Schreuer 2012, p. 98-129.
5 National Treatment ensures that investors are treated not less favourable than domestic investors. See Dolzer &
Schreuer 2012, p. 198-206.
6
Most-Favoured-Nation provisions provide investors with the same level of protection as foreign investors from a different state (under a different IIA). See Dolzer & Schreuer 2012, p. 20-212.
7 Dolzer & Schreuer 2012, p. 130-160.
8 Full Protection en Security puts a positive obligation on the host state enabling the investor to actually carry
out its investment. See Dolzer & Schreuer 2012, p. 160-166.
9 Protection against Arbitrary and Discriminatory measures aim at ensuring that the host state acts according to
the rule of law. See Dolzer & Schreuer 2012, p. 191-197.
10 The Umbrella Clause elevates contractual claims into treaty claims under certain conditions. See Dolzer &
Schreuer 2012, p. 166-178.
11 Dolzer & Schreuer 2012, p. 235-236. 12 Dolzer & Schreuer 2012, p. 254.
13 ICSID Case No. ARB/05/20, Ioan Micula, Viorel Micula, S.C. European Food S.A, S.C. Starmill S.R.L. and
3 such involvement. Due to the present situation in which investment agreements concluded by Member State exist next to the CCP powers of the EU, such clarity is not yet provided. Next to providing an overview of existing practice, the aim of this thesis is to provide suggestions for how the situation can be improved, especially as concerns the legal position of non-EU investors. The main research question is formulated as follows:
How should EU interference in investor-Member State arbitration be regulated?
An answer to this question will be sought by addressing the following sub-questions.
- What is the position of the different institutions of the EU as concerns the possibility of the EU to interfere in investor-Member State arbitration?
- What is the position of arbitral tribunals on possible interference by the EU in investor-Member State arbitration?
- Should the interference in these procedures be regulated?
- In which manner can a possible interference of the EU be regulated under the current investment treaties?
- What kind of changes to the current framework are desirable?
More specifically, Section 2 will elaborate on the position of the EU on investment disputes. After an overview of general EU investment law in Section 2.1, Section 2.2 will analyse the EU’s Common Commercial Policy. Sections 2.3 and 2.4 will deal with the perspectives of the CJEU and the German Constitutional Court. Section 3 will present an international law perspective on the issue of allowing the EU to interfere with investor-Member State dispute settlement. Section 3.1 will provide an overview of general international investment law, while Section 3.2 will place the EU in this system. Section 3.3 will elaborate on the pivotal role of consent in arbitration procedures. Section 3.4 will deal with the position of the EU at the moment an award is rendered. Based on these considerations Section 4 will give suggestions for how the future of the EU investment regime should take shape, while safeguarding the rights of non-EU investors as well as those of the EU Member States. Section 5 will conclude and give recommendations on the main question.
4
2. THE EUROPEAN UNION’S REGULATORY REGIME
In order to determine the position of the EU and its policy as concerns investor-state arbitration between Member States and investors, this Section presents the relevant parts of the EU CCP.14 Following an examination of related general EU law and a discussion about the policy itself, this Section will deal with the reaction of the CJEU and the German Constitutional Court on the CCP and on investment procedures. The observation that recurs is that the EU is very reserved to dispute settlement by non-EU bodies. This viewpoint is however not necessarily shared by national courts and international tribunals.
2.1 EU Investment Policy
For a thorough understanding of the EU CCP, it is necessary to keep in mind the general context of EU law in relation to treaties, other than those that are part of the EU legal regime. As parts of this regime are discussed in other Sections, this sub-section will be rather brief. The relation between treaties such as IIAs and the EU is not extensively dealt with in the EU Treaties. The only provision is Article 351(1) TFEU providing that treaties concluded by the Member States before 1 January 1958 (the moment when the EC came into being), or before the accession of a Member State, shall be immune for the provisions of the (EU) Treaties.15 As its scope is limited to such older treaties, it does not regulate those concluded after a Member State joined the European Union.16
Article 351(2) TFEU further obliges Member States to “take appropriate steps to eliminate incompatibilities” between obligations under the EU Treaties and other treaties. In practice this means that Member States have to amend their treaties in case of “extreme incompatibility with Union law”.17 The main implications of this provision to the future of Member State IIAs are that these treaties have to comply with (1) the principle of uniform application, (2) the principle of loyalty, and (3) the principle of practical effectiveness.18 The
14 It is beyond the reach of this Section to discuss the whole Common Commercial Policy in all its aspects. For
more detail see Kuijper et al. 2013, p. 373-576.
15 Article 351(1) TFEU.
16 Klabbers 2009, p. 10. Klabbers discusses Article 307 TEC, which is the predecessor of Article 351 TFEU. 17 Terhechte 2010, p. 7.
18
5 first principle is required by Article 4(3)(2) Treaty on the European Union (TEU)19 and should prevent the possibility that Member States’ IIAs endanger the autonomy of the EU legal order.20 The second principle limits the exercise of powers of the Member States to conclude new IIAs in that these treaties should not undermine EU law.21 Practical effectiveness should refrain Member States from concluding IIAs “if it is imminent that such use would frustrate or severely impede the Union’s foreign direct investment competence”.22 Outside this framework, it is in principle not possible for Member States to operate in the field of foreign direct investment. Terhechte argues that the EU can grant ‘authorization’ to Member States to keep performing in this area and thus maintain their IIAs.23 It is however not settled how this division of competencies works out in practice. Considering disputes between non-EU investors and Member States under existing IIAs, this can raise uncertainty as to the expectations of who the opponent in the dispute is.
In its opinion regarding the Singapore Trade Agreement the CJEU could provide clarity on this point, namely whether EU law implicitly provides for this possibility to grant authorization to the Member States. While Member States would apparently be in favour of such an authorization, this should not be preferred. This can potentially lead to less protection for non-EU investors, who have to wait until the EU concludes a treaty. However, eventually this will lead to extra legislation which has to be replaced by EU legislation. In light of the enhanced role of the EU in the field of foreign investments, the EU should have the lead in this process in order to enhance legal certainty and predictability for future investment agreements.
2.2 The European Union’s Common Commercial Policy
The previous paragraph made clear that the EU has the leading legislative power in the field of foreign investment. However it was observed that these powers are not all encompassing. The following paragraphs will elaborate on how these abstract powers are explained and interpreted in further legislation and rulings from various institutions.
19
Consolidated version of the Treaty on the European Union, 26 October 2012, 2012 OJ, C-326, p. 13–390.
20 Terhechte 2010, p. 8. 21 Ibid, p. 10.
22 Ibid, p. 10. 23
6
2.2.1 EU Common Commercial Policy Competencies
Concluding rules on investment promotion and protection can increase the efficiency by which investments are made. Meanwhile this development can decrease the risk for investors of political volatility.24 Article 205 TFEU states that the external policies of the EU “shall be guided by the principles, pursue the objectives and be conducted in accordance with the general provisions laid down in chapter 1 of Title V of the Treaty on the European Union” (TEU). These objectives can be found in Article 21 TEU and contain both classical trade policy objectives and non-economic policy objectives. Article 205 TFEU illustrates the obligatory nature of the framework established by the general objectives and principles on which the EU is based.25 These policy objectives are important when considering what kind of rules are needed to safeguard the rights of investors in their investment disputes with Member States.
As mentioned in the introduction the competency of the EU to create a common commercial policy originates in Articles 206 and 207 TFEU. Since the entry into force of the Treaty of Lisbon, the CCP competencies of the EU extend to foreign direct investment and the role of the EU legislator is enhanced. The European Parliament (EP) needs to consent to the conclusion of all international agreements in the field of the common commercial policy.26 While the EP can give its consent to these agreements, it has no power to amend proposals of agreements.27 Article 207 TFEU does not give any guidance about the level of protection investors should have after the conclusion of an investment agreement. As the EP only has the option to consent or not to an IIA entering into force, the Council has the discretionary prerogative to determine the level of investor protection. Still, this presumes that the Council has the competence to regulate areas such as the setting of investment standards, investment protection and investor-Member State dispute settlement. It is, however, correctly argued that these competencies do not amount to investment liberalization and therefore fall under the exclusive competence of the Member States.28
This difference in interpretation of the Treaties by the EU and its Member States indicates a limitation on the competency of the EU. One of the gaps in the EU’s competence to conclude 24 Bungenberg 2010, p. 136. 25 Krajewski 2012, p. 296-297. 26 Brown 2013, p. 163. 27 Article 218(6) TFEU. 28 Bungenberg 2010, p. 143.
7 investment agreements is that those agreements are limited to foreign direct investment which are investments in the form of capital movements. The competence does not include portfolio investments which are investments consisting of more than pure capital movement.29 It can occur that an agreement falls partly within the exclusive competence of the EU but also partly within the competence of the Member States. In such cases, the process of concluding an investment agreement can be delayed as the Member States have to ratify agreements over which they have competence.30 It can however be argued that Member States cannot set the substantive conditions to conclude investment agreements but only have the option to decide on procedural aspects in the case of concluding agreements under mixed competencies.31 They will subsequently lose the competence to determine the scope and contents of these agreements unless, as Krajewski argues, the CCP is understood more narrowly as only referring to those aspects of investment agreements which concern investment liberalisation. This must result in the finding that the CCP does not extend to the setting of substantive investment protection norms.32
Contrarily it can be argued that this is an implicit competence which is necessary for the EU to effectively manage its external relations, a competence also found in comparable competing legal systems.33 This reveals the sometimes perceived distinction between protection and liberalization instruments as a basis for the scope of an EU investment policy. While protection instruments are mainly focussed on protecting the EU legal order and the EU citizens, liberalization instruments aim at liberalizing the EU markets, including for non-EU constituents. One can however question whether this distinction is still pertinent as both instruments are often used interchangeably.34 This is exactly the discussion in the referral to the CJEU concerning the Singapore proposal for which clarity needs to be provided.
For the purpose of this thesis it is especially important to consider the competence of the EU to include dispute settlement provisions in IIA’s. The recognition of this competence follows primarily from the recognition of the legal personality of the EU as set out in Article 47 TEU. This however can give rise to questions about the delineation between the competence of the EU and the Member States respectively in this field. In mixed agreements the EU can use various mechanisms in relation to the competence and relations with the investor, to ensure 29 Dimopoulos 2011, p. 140-143. 30 Brown 2013, p. 171. 31 Bungenberg 2010, p. 144. 32 Krajewski 2012, p. 303. 33 Bungenberg 2010, p. 137. 34 Dimopoulos 2011, p. 49.
8 legal certainty for investors who want to bring a claim in relation to an investment in the EU.35 The dispute settlement provisions concluded by the EU are primarily focussed on negotiating a settlement between the parties as the EU tries to avoid the application of EU law by non-EU institutions.36 A policy objective should be to allow investor-Member State (or investor-EU) arbitration for a majority of substantive provisions.37
Due to the fact that mixed agreements have to be agreed by both Member States and the EU, Member States can prevent an IIA from entering into force.38 Therefore it remains important to realize that currently Member States should remain participants in the process of concluding new investment agreements.39 Such a solution can account for more credibility amongst the constituents but at the same time can diminish the exclusively European content of new EU legislation in the field of foreign investment.
The next sub-section will discuss the single most relevant EU Regulation in this policy field. It should be noted that this is not the only Regulation concerning the EU investment policy but it is the one which addresses the problem of investment disputes and how they should be handled by Member States.40
35 Ibid, p. 118. 36 Ibid, p. 179. 37 Ibid, p. 191. 38 Lavranos 2013, p. 165. 39 Ibid, p. 168.
40 Two other relevant Regulations which can be addressed for further study are: L257/121, Regulation (EU) No.
912/2014 of the European Parliament and of the council of 23 July 2014 establishing a framework for managing financial responsibility linked to investor-to-state dispute settlement Tribunals established by international agreements to which the European Union is party, which addresses questions about who will have to pay compensation to investors if so ordered by a Tribunal (Regulation 912/2014); and L 55/13, Regulation (EU) No. 182/2011 of the European Parliament and of the Council of 16 February 2011 laying down the rules and general principles concerning mechanisms for control by Member States of the Commission’s exercise of implementing powers (Regulation 182/2011), which provides a general framework in relation to the division of powers between the Member States and the Commission in instances where the latter has legislative power while ensuring supervision of the Member States on these powers.
9
2.2.2 EU Regulation 1219/2012 on Transitional Arrangements for BIT’s Between Member States and Third Countries.
In 2012 the Council and the European Parliament issued a Regulation constituting transitional arrangements for bilateral investment agreements (BITs) concluded between Member States and third countries.41 This Regulation constrains the possibility for Member States to conclude new BITs as these have to be notified in advance to the Commission. Article 9 of this Regulation gives the Commission the power to authorise a Member State to enter into formal negotiations with a third country to amend or to conclude a BIT. This Article also provides the Commission with the possibility to deny the commencement of such negotiations. This is an extensive interference of the EU in these ongoing treaties and it can be questioned whether this is justified in light of the CCP powers granted by the TFEU.
Article 9 of the Regulation indicates an important power which definitely restricts the Member States in arranging agreements in the way they see fit. The capacity to conclude investment agreements has however not completely been transferred to the EU as it only has exclusive competence in the field of foreign direct investments. This competence does not include portfolio investments and such agreements need therefore still be concluded by the Member States.42 As a result the EU and the Member States have to conclude mixed agreements in these policy fields which caters the possibility for Member States to conclude BIT’s.43 This interpretation is supported by recital 3 to the Regulation which states that “this Regulation is without prejudice to the allocation of competences between the Union and its Member States in accordance with the TFEU”.44
Article 1(1) of the Regulation further elucidates that “without prejudice to the division of competences established by the TFEU, this Regulations addresses the status of the bilateral investment agreements of the Member States under Union law, and establishes the terms, conditions and procedures under which the Member States are authorised to amend or conclude bilateral investment agreements”. This terminology makes clear that the Commission made no attempt to definitely settle the question of allocation of competency
41 L 351/46, Regulation (EU) No. 1219/2012 of the European Parliament and of the Council of 12 December
2012 establishing transitional arrangements for bilateral investment agreements between Member States and third countries, (Regulation 1219/2012).
42 Krajewski 2012, p. 302. Also for a further distinction between foreign direct investments and portfolio
investments, see Dimopoulos 2011, p. 36-49.
43 Bungenberg 2010, p. 135. 44
10 between the EU and the Member States in the field of concluding investment treaties. It further indicates a pragmatic approach which avoids the settling of the division of the competencies.45
Mainly this is the result of the reluctance of the Member States to accept the fact that their influence in determining their competencies in the field of the CCP is declining due to the increasing amount of EU legislation addressing investment protection, based on Articles 206 and 207 TFEU. This can also be witnessed in the formulation of Article 5 of the Regulation which confers onto the Commission the power to ‘assess’ whether a Member State’s BIT constitutes a serious obstacle to the EU’s power to conclude an IIA. It can be questioned whether this assessment will add value as Member States are obliged to cooperate with the EU as much as possible.46
2.3 The Position of the CJEU on dispute settlement by non-EU bodies
As noted in the introduction the Commission has requested an opinion of the CJEU on the competence to conclude the EU-Singapore Free Trade Agreement.47 While this opinion could directly address the main question of this thesis this sub-section will concentrate on earlier decisions of the CJEU related to the competence of the EU to interfere with ISDS.
The role of the CJEU is not evident at first sight as investor-Member State dispute settlement is mainly conducted by arbitration tribunals and the courts of the Member States. It is generally in a later stage, when a national court refers a question relating to an arbitral procedure to the CJEU, that the latter’s role becomes significant. This is implicitly affirmed by the Commission in one of its Communications which concerns investor-state dispute settlement.48
According to the Commission, investment disputes should primarily be solved via a dispute settlement mechanism and not via a procedure before the CJEU.49 It is however argued that the treaties automatically confer the power to adjudicate and interpret such disputes on the
45
Brown 2013, p. 176.
46 Reinisch 2013, p. 120-121.
47 European Commission Press Release 2014. 48 European Commission Communication 2010, p.8. 49
11 CJEU as the CJEU enjoys full jurisdiction over international agreements of the EU both before and after their conclusion. This power cannot be ruled out for IIAs although it is unclear who is allowed to start such a procedure.50
The CJEU has long held that the European legal order is a new type of legal order, of which one of the consequences is that it created a special hierarchy of norms. Therefore EU law overrides all others sources of law, including those of international law.51 Under Article 267 TFEU the CJEU is also competent to answer questions of national courts via the so-called preliminary reference procedure. Such a procedure could also be used to interpret international agreements. If an investor can rely on an IIA before a national court, the CJEU is competent to interpret the IIA’s provisions if this procedure is used.52 It is recognized that an investor may have additional possibilities to address its claim, namely both via the CJEU after first addressing the national courts and via the arbitration system.53 This does however presume that the proceedings are fair and unbiased.
While there are certainly advantages about an increased activity of the CJEU in protecting investors’ rights, it must be recalled that in the eyes of the investor any interpretation of an investment treaty by the CJEU might seem biased as the CJEU can be seen as a court of the state in which an investor invests.54 In the end, any position on this debate will depend on the point of view one takes. For example in the Micula case, which will be discussed below, Romania argued that the CJEU ruled that EU law takes precedence over all pre-accession bilateral treaties concluded between Member States.55 This does not immediately solve our main question as it has to be questioned what the position of the CJEU is, especially in relation to general international law. It should be kept in mind that there is an inevitable tension between the CJEU’s role to control the actions of the institutions of the Union on the one side and the role it can play in ruling on disputes between investors and Member States.
50 Herrmann 2014, p. 573-574. 51 Lavranos 2013 (2), p. 205. 52
Herrmann 2014, p. 576. It might however not be possible for an investor to rely on an IIA before a national court, see Section 4.1.
53 Dimopoulos 2011, p. 304-305. 54 Herrmann 2014, p. 580. 55
12
2.3.1 Opinion 1/91
Opinion 1/91 of the Court of 14 December 1991 addresses the compatibility of a judicial review mechanism under the then proposed European Economic Area Agreement (EEA) with the EEC treaty. This opinion mainly concerned the division of powers between the Community (now: EU) and the Member States to conclude such treaties. In this context the question raised was whether the proposed system of courts (under the EEA) could undermine the autonomy of the Community legal order.56
The Court noticed that the proposed EEA Court could be in a position to “rule on the respective competences of the Community and the Member States” in regard to the application of the EEA.57 Such a competency is, according to the Court, likely to adversely affect the allocation of responsibilities and the autonomy of the Community legal order.58 This leaves only a very narrow possibility for Member States to establish judicial bodies outside the EU system, as a possibility to negatively affect the EU legal order is enough to be in violation of the division of competencies between the EU and the Member States.
Granting the possibility to Member States to establish a system of courts outside the EU system would lead to negative consequences for EU law. If such non-EU courts are able to settle disputes related to EU law, such decisions would become binding also on the courts of the European Union. This would result in the possibility for such rulings to become binding in the event that the CJEU is called upon to rule on the interpretation of the international agreement.59 Such a solution could lead to the situation in which the EEA court determines interpretations of EU law, which is the exclusive competence of the CJEU.60 The different roles of the EEA court and the CJEU could lead to different approaches, methods and concepts to solve a specific judicial problem.61
This opinion reveals that the Court is hesitant in allowing judicial settlement outside its own judicial system. In order to secure the harmonious interpretation of EU law the CJEU finds it necessary to restrict Member States from such other courts. By analogy this doctrine can be
56 Opinion 1/91, par. 30. 57 Ibid, par. 34. 58 Ibid, par. 35. 59 Opinion 1/91, par. 39. 60 Ibid, par. 45. 61 Ibid, par. 47-51.
13 applied to investment arbitration as the establishment of tribunals constitutes the establishment of a forum for dispute settlement.
2.3.2 The MOX Plant Dispute
The MOX Plant dispute is interesting as it exemplifies concurrence between jurisdiction between the ECJ (as predecessor of the CJEU) and international courts and tribunals.62 The MOX Plant dispute was initially decided by two arbitral tribunals, one under the UNCLOS Convention and one under the OSPAR Convention. The UNCLOS tribunal considered that the different dispute mechanisms concerned different legal obligations and disputes not falling under the UNCLOS Convention and therefore have a separate existence.63 It further considered that it was only allowed to apply the dispute settlement procedures under its own Convention.64 In order to grant the provisional measures at issue it considered that there could be a possibility for jurisdiction for the EU and therefore decided to stay the proceedings in order for the parties to decide on whether the ECJ had jurisdiction.65 This indicates a conviction of this tribunal that EU law should be of primary importance in deciding the dispute.
The OSPAR tribunal on the other hand did not take into account the possible relevance of EU law. Based on its Procedural Order No. 3 one could expect that the tribunal would take into account the position of the EU as it was aware of the situation in which two judicial institutions have to decide on the rights and obligations of two states in one dispute.66 It argued that it had prima facie jurisdiction as the parties are both party to the Convention; the tribunal has been duly established; Ireland apparently presented its claims on the basis of the Convention; the dispute clearly concerned the interpretation and application of the Convention; and there was no serious error in the request that could exclude the tribunal’s jurisdiction.67
62 Lavranos 2006, p. 224.
63 ITLOS Order, (MOX Plant case), Request for Provisional Measures, Order of 3 December 2001, par. 49-50. 64
Ibid, par. 52.
65 Ibid, par. 89.
66 OSPAR, Ireland v. The United Kingdom (MOX Plant Case), Procedural order No. 3.: Suspension of
Proceedings on Jurisdiction and Merits, and Request for Further Provisional Measures, 24 June 2003, par. 28.
67
14 To determine its definitive jurisdiction it further assessed whether there were no substantial doubts as to its jurisdiction.68 The tribunal noted that the Commission started an investigation into whether Ireland’s claim brought before the Tribunal was in conformity with EU law.69 However the tribunal referred to these possible problems as concerning the “internal operation of a separate legal order” which have to be decided in that respective legal framework.70
In the award the tribunal was less benevolent towards the possible applicability of EU law to the dispute. The tribunal held that its applicable regime was a ‘self-contained’ dispute settlement regime and therefore it was not competent to take into account other sources of international law. The fact that provisions under the two legal instruments contain similar language is not to create precedence of one set of legal remedies over another but merely to create uniform and consistent legal standards.71 Already on the face this indicates that different Tribunals approach the applicability of EU law in different ways.
Following the decision of the UNCLOS tribunal the Commission initiated an infringement procedure against Ireland for violating Article 292 EC (Article 344 TFEU).72 This provision provides that Member States shall settle their disputes in accordance with the provisions provided for in the Treaties and not via other means of dispute settlement. According to the Commission this is the foundation of the exclusive jurisdiction for the EU in settling disputes.73 The Commission further argued that the dispute requires an interpretation of EU law and that by not following the procedures of the EU legal order Ireland has failed to comply with its duty of cooperation. Ireland should first have consulted with the EC institutions before bringing an action.74 This argument relates to what was seen above, namely that under the current EU Regulation on Transitional Arrangements for BITs, Member States have first to address the Commission before taking action in fields in which there is possible EU jurisdiction.75
68 Ibid, par. 15. 69 Ibid, par. 21. 70 Ibid, par. 24. 71 Lavranos 2006, p. 226. 72
CJEU, Case C-459/03. Commission v. Ireland, 30 October 2003, OJ C 7/24, I-4657 (CJEU C-459/03, Commission v. Ireland).
73 CJEU C-459/03, Commission v. Ireland, par. 59. 74 Ibid, par. 59.
75
15 The CJEU found that Ireland relied simultaneously on EU law and on the law of the Convention in the proceedings before the tribunal.76 By relying on these different grounds it was obvious that Ireland recognized that significant parts of the dispute were related to EU law and thus fell within the scope of the EU competency to rule on disputes arising out of those obligations.77
The Court reiterated that “international agreements cannot affect the allocation of responsibilities defined in the Treaties […] and the autonomy of the Community legal system”.78 It further concluded that as the UNCLOS Convention provides for the possibility to avoid interpretation of EU law (by providing procedures in which EU law takes precedence), the dispute is a dispute falling within the scope of the interpretation and application of the Treaties. Subsequently, as the dispute concerns two Member States these states should use the dispute settlement procedures in the Treaty.79
The Court further ruled that Ireland had acted at variance with EU law by submitting instruments of EU law to the tribunal in order for the latter to interpret and apply those in the context of the arbitration proceedings.80 This brings the risk that the jurisdictional order of the EU will be adversely affected.81
The Court thus is of the view that disputes which have a relationship with EU law should always be decided on by the CJEU. These arguments of the Court leave little leeway for tribunals to interpret EU law in case of disputes between Member States and investors. The position of these investors can be said to be eroded as a consequence of this judgment. In particular in cases where a tribunal has to interpret relevant national legislation with an EU dimension it will become difficult to render an award which falls outside the scope of the assumed competency of the CJEU.
76 Ibid, par. 119. 77
Ibid, I-4657, par. 120.
78 Ibid, par. 123. 79 Ibid, par. 125-128. 80 Ibid, par. 151-152. 81
16
2.3.3 Opinion 1/09
On 8 March 2011 the CJEU delivered an opinion in which it opined about its vision on international courts and tribunals.82 While this opinion mainly concerned the possibility of the establishment of a patent court, it provides useful information on the position of the CJEU towards international tribunals in general. The CJEU begins with confirming the right of Member States to establish systems to settle disputes between private parties. This is however followed by stating that all such systems should be compatible with the fundamental elements of the EU legal order and its judicial system.83 It further held that conferring rights to adjudicate to any such international court or tribunal may not erode the essential character of the CJEU.84 This essentially entails the view that any international tribunal should be subordinated to the CJEU. It could be questioned whether such a view is correct but this should lead, in the vision of the CJEU, to prevent any “adverse effect on the autonomy of the European Union legal order”.85
The CJEU prohibits Member States from providing tribunals with the jurisdiction over disputes which would fall under the tasks of ‘ordinary courts within the EU legal order, such as implementing EU law and referring questions for a preliminary ruling.86 As international tribunals are not part of the judicial framework of the EU, there is a serious possibility that allowing such tribunals to decide EU-related cases would deprive individuals from their rights under EU law. This would further constitute a deviation from the essential character which the Treaties confer upon the institutions of the EU and on the Member States which are “indispensable to the preservation of the very nature of EU law”.87
This opinion of the CJEU clearly indicates that Member States have little manoeuvrability in establishing judicial bodies outside the EU system. This is directly relevant for the possibility for investors to resort to arbitration as any addressed tribunal would fall under the description of judicial bodies in the view of the CJEU. In this view a tribunal may thus not address EU law as any interpretation about EU law should be done by a competent court within the EU legal system.
82 CJEU Opinion 1/09 of the Court pursuant to Article 218(11) TFEU, 8 March 2011 (Opinion 1/09). 83 Opinion 1/09, par. 61-64. 84 Ibid, par. 75. 85 Ibid, par. 76. 86 Ibid, par. 80. 87 Ibid, par. 89.
17
2.3.4 Opinion 2/13
On 18 December 2014 the CJEU delivered Opinion 2/13 on the possibility of accession of the EU to the Convention for the Protection of Human Rights and Fundamental Freedoms (ECHR). Background of this opinion is Article 6 TEU which in relevant part states that “The Union shall accede to the ECHR”. While this might seem a clear provision the CJEU found it necessary to assess the possibility of the accession and its compatibility with EU law.
While the relevance of this opinion might not seem apparent, it does as it illustrates the relation between the CJEU and the system of adjudication under the ECHR. The CJEU held that the accession would lead to external control of the EU and its institutions, but is not in principle incompatible with EU law.88
However the CJEU also reiterated that it has declared that such an international agreement may only affect its own powers if there is no adverse effect on the autonomy of the EU legal order.89 Therefore any decision by an ECHR body may not have the effect of binding the EU and its institutions in the exercise of their internal powers.90 This indicates already that the CJEU is very reticent in allowing non-EU courts to interpret EU law. It further held that the principle of mutual trust, on which the EU is build, can be undermined if Member States of the EU have an obligation to observe the compliance by other Member States of both sets of rules.91
The current protocol on accession of the EU to the ECHR does not provide a provision which prevents the preliminary ruling procedure of Article 267 TFEU from being circumvented by a subsequent ruling of the ECHR on the same subject matter. According to the CJEU, this could undermine one of the key pillars of EU law and can adversely affect the autonomy and effectiveness of the EU legal procedures.92
Finally the CJEU voiced its concern about the interpretation of secondary EU law, on which it should have final interpretative power. If this interpretative power could be mitigated by a decision of the Court of the ECHR, the CJEU could not secure a definitive interpretation and
88 CJEU Opinion 2/13 of the Court pursuant to Article 218(11) TFEU, 18 December 2014, par. 181-182.
(Opinion 2/13). 89 Opinion 2/13, par. 183. 90 Ibid, par. 184. 91 Ibid, par. 194. 92 Ibid, par. 198-199.
18 would be undermined in its competencies.93 By rendering this opinion the CJEU strongly consolidated its position as final adjudicator in the EU.
The cases and opinions of the CJEU are clear expressions of the CJEU’s position as to other means of dispute settlement. The CJEU is inclined to be reserved to sharing dispute settlement powers with other non-EU institutions. In order to safeguard a uniform interpretation of EU law this can be seen as a valid argument. However in protecting rights of non-EU investors it is not self-evident that the CJEU sufficiently protects their rights. The safeguarding of EU law at all cost might therefore be at variance with the international law obligations of the EU.
2.4 The Limitation by the German Federal Constitutional Court
In considering EU law on investment protection it is important that these rules are based on a common core of principles found in the Member States. While this is not the place to extensively discuss positions of Member States and their courts in the field of investment law, one decision by the German Federal Constitutional Court (FCC) will be addressed here. This is done in order to place the EU interpretations into perspective as to their scope and consequences.
On 30 June 2009 the German Federal Constitutional Court (FCC) rendered a seminal decision on the Treaty of Lisbon and the EU CCP.94 It concerned mainly the limits of EU law in relation to German sovereignty. As to the CCP it limits the competence of the EU as sole legislator as it held that the EU had to respect existing investment treaties of the Member States, amongst which also those concluded after 1958, but before the entry into force of the Treaty of Lisbon. If the EU wanted to conclude new investment treaties it could authorize Member States to do so or it could cooperate with Member States in the conclusion.95 This clearly indicates that the German FCC has a restrictive view of the competencies of the EU and places the prerogative of concluding IIAs with the Member States. This is mainly the
93 Ibid, par. 246-247. 94
BVerfG, Urteil vom 30.06.2009 - 2 BvE 2/08, Gauweiler v Federal Parliament and Federal Government, Final judgment, 2 BvE 2/08, 2 BvE 5/08, 2 BvR 1018/08, 2 BvR 1022/08, 2 BvR 1259/08, 2 BvR 182/09, EuGRZ 2009, 339, JZ 2009, 890, NJW 2009, 2267, ILDC 1364 (DE 2009), 30th June 2009, Constitutional Court [BVerfG] (Lisbon Judgment).
95
19 consequence of the fact that, according to the FCC, “Die Europäische Union ist nur insoweit für einen Sachverhalt zuständig, wie sie diese Zuständigkeit von den Mitgliedstaaten übertragen bekommen hat”,96 meaning that the EU can only exercise those powers which are explicitly conferred upon it. The FCC also restrictively interprets the scope of Article 207 TFEU by insisting that Member States retain a certain influence on the subject matter of investments and especially on the definition of the differences between foreign direct investment and portfolio investment.97 This judgement has considerably limited the possibility for the EU to pursue the objectives of the CCP, at least in the view of the FCC. It further makes clear that the FCC scrupulously will follow the actions of the EU in the latter’s legislative work and may even declare EU legislation inapplicable if the FCC is of the opinion that the EU acts outside these competencies.98
The importance of this decision concerns mainly its limit on EU competencies. While the EC and the CJEU are of the opinion that the EU has exclusive competence in the field of foreign investment law, the FCC limits this to ensure sufficient overview by Member States over any new sort of European legislation. While this decision may be sound from a Member State’s perspective, it can raise uncertainty for investors who, when faced with a potential investment dispute, might still not be sure who to address and what to expect in pursuing their claims.
2.5 Interim Conclusion and Discussion
The discussion of different EU law instruments clarifies that the EU has the intention to dominate the conclusion of future IIA’s. Its actions concerned mainly the position of investment treaties concluded by Member States before the entry into force of the CCP. However this does not yet provide a definitive answer on the position of current investment treaties between Member States and non-member states of the EU.
To answer the question about when the EU can interfere in proceedings between EU Member States and investors it is important to briefly address the following situation: what is the position of the EU in case an investor acts under an existing IIA with a Member State which explicitly states that the Member State is the opponent in these procedures? In many
96 Lisbon Judgment par. 300. 97 Lisbon Judgment par. 370. 98
20 agreements this will be the normal case and the state parties concluding an IIA usually do not intend to discuss the role of the EU, which is not a party to such agreements.
It is argued that due to the shared competences it should remain possible for Member States to conclude new IIA’s as long as these do not conflict with EU competencies. If Member States would be deprived of this possibility their rights would be seriously curtailed without a sufficient legal basis.99 Such an interpretation could be derived from EU Regulation 1219/2012 which only provides for a right of approval from the Commission in case a Member State concludes an IIA. Despite the pronouncement of the Commission that it does have exclusive competencies in concluding agreements concerning foreign direct investment, this issue is not yet settled. While in the Commissions’ view Member State IIA’s may become incompatible with EU law this is not to say that these agreements can just be denounced. They are still valid agreements under international law and their existence cannot be denied by only applying EU law.100
A contribution to a proper legal framework on investment agreements concluded by the EU and its Member States could be the creation of an EU model investment agreement. The EC has indicated that this would not be feasible or desirable as it would limit its negotiation freedom.101 This could however increase the awareness of the Member States and investors about the substantive protection the Commission is willing to provide to investors.
The interpretation by the German FCC supports the argument that a competency remains with the Member States to conclude investment treaties. Still, it should be recognized that for a coherent approach the long-term objective should be to replace Member State IIAs with a single European regime under its CCP. An efficient way to accommodate this process will be to give the lead in negotiations of new IIAs to the Commission, also in cases of shared competence with the Member States.102 This can also address the issue that some Member States will be more receptive to granting investors with the right to arbitrate while others want the balance to be struck more in favour of the protection of public interest.103
For a consistent future interpretation it is important to first ensure that the Member States can agree on a common interpretation of the limitations of the competencies. On first sight it
99
Dimopoulos 2011, p. 306-308.
100 Ibid, p. 309.
101 European Commission Communication 2010, p. 6. 102 Dimopoulos 2011, p. 319-320.
103
21 might seem right to await an opinion of the CJEU, as is done in the Singapore case; however, this might not be the ideal situation. To form a policy which is acceptable for the Member States and for third countries, the EU should accept supervision by the Member States on such delicate issues, as is also recognized by the German FCC.
Overall Section 2 has revealed that the EU mainly uses a broad interpretation of its competencies. Both the EC and the CJEU are keen on emphasizing their exclusive interpretations in the field of investment law. For investors this would mean that, if it is solely up to the EU, it is the EU who would give binding interpretations in investment disputes. This could take away legal uncertainty for investors, in that these investors know who to address, but decreases the independence of the adjudicator over a dispute.
22
3. INTERNATIONAL LAW
The previous Section focussed on the viewpoints of the EU and its Member States on investment arbitration by analysing different instruments and decisions. This Section will address the main problem, concerning the role of the EU in investor-Member State arbitration, from an international law perspective. While the EU thinks of itself as an autonomous legal order,104 this does not mean that it does not have to take into account international law as will be seen in this Section.
3.1 Investment Law
Foreign investment law consists of general international law, international economic law and of domestic law. It is especially the interplay between national law and international law, in the form of IIAs and customary international law, which becomes imminent in investment disputes.105 Customary international law can become relevant as states are not under an obligation to admit foreign investment in their territory, but are empowered to conclude treaties in order to attract investments.106
Here the interplay between Member State law and EU law is self-evident as both of these systems of law can be seen as integrated and integrating due to the various legal mechanisms used in the EU to create legislation. On the one hand the IIAs of Member States are still in place; on the other hand the EU has an increasing influence in the field of CCP. As it was seen, the current IIAs of the Member States remain in force as long as they are compatible with EU law but in case of incompatibility, Member States should remove such hindrances to EU law.107
When a dispute arises, states and investors can choose different sets of rules to govern their dispute. In general the IIA governing their relations will indicate the possibilities to do so. In case of EU involvement this can however result into problems as the rules might not
104
CJEU, Judgment of the Court of 15 July 1964, Flaminio Costa v E.N.E.L. - Reference for a preliminary ruling: Giudice conciliatore di Milano – Italy, Case 6/64. (Costa/ENEL).
105 Dolzer & Schreuer, 2012, p. 12. 106 Dolzer & Schreuer 2008, p. 7. 107
23 necessarily provide for the EU to participate in the proceedings. The focus here will be on the ICSID Convention as here tensions between EU law and international law become most visible.108
Under Article 25 of the ICSID Convention only states can be party to a dispute. Contracting States are states that have deposited their instrument of ratification, acceptance or approval.109 This prevents the EU from acting as respondent in arbitration under ICSID as such. One of the main problems in determining the position of the EU in investor-Member State arbitration concerns the following. In the Micula dispute it was observed that the EU threatened Romania that it should not enforce the award as this would run counter to EU state aid law. However Article 53 ICSID provides that ICSID awards shall be binding on the parties and that each party shall comply with the terms of the award, except that enforcement may be stayed under the provisions of the ICSID Convention. Member States to the ICSID Convention are obliged to treat an award as if it is a ruling from its highest national court.110 The Convention prevents annulment other than via Article 52 ICSID, which provides that annulment may only be sought via an Annulment Committee. Under ICSID this would render any decision of the EU preventing a Member State from implementing the award, a breach of international law.
3.2 The EU as Non-Disputing Party
In recent years tribunals have increasingly allowed the interference of non-disputing parties to enter the proceedings.111 Originally amicus curiae (friends of the court) are parties who give their opinion on matters to the court (or in this case the tribunal). The doctrine however initially sees amicus curiae as impartial interveners in the dispute. They are not supposed to intervene in the proceedings on behalf of a party to the dispute. The position of the EU however is not immediately one of an independent party but much more of an intervener with often substantial interest in the outcome of the procedure.
108 Convention on the Settlement of Investment Disputes between States and Nationals of other States, 14
October 1966 (ICSID).
109 Schreuer 2009, p. 144. 110 Article 54 ICSID.
111
24 Arbitration can take place under different sets of rules, for example the ICSID Convention, the UNCITRAL Arbitration Rules, and under the ICC Arbitration Rules.112 These instruments regulate the interference of third parties in different ways. Therefore the position and role of the EU will (from an international law perspective) always depend on the applicable set of rules.
ICSID Arbitration Rule 37(2) provides for the possibility for a tribunal to allow non-disputing parties to file a written submission regarding a matter within the scope of the dispute. In relevant part it provides:
“(2) After consulting both parties, the Tribunal may allow a person or entity that is not a party to the dispute (in this Rule called the “non-disputing party”) to file a written submission with the Tribunal regarding a matter within the scope of the dispute. In determining whether to allow such a filing, the Tribunal shall consider, among other things, the extent to which:
(a) The non-disputing party submission would assist the Tribunal in the determination of a factual or legal issue related to the proceeding by bringing a perspective, particular knowledge or insight that is different from that of the disputing parties;
(b) The non-disputing party submission would address a matter within the scope of the dispute;
(c) The non-disputing party has a significant interest in the proceeding.
The Tribunal shall ensure that the non-disputing party submission does not disrupt the proceeding or unduly burden or unfairly prejudice either party, and that both parties are given an opportunity to present their observations on the non-disputing party submission.”113
This provision could assist the EU in interfering in disputes between Member States and investors. Nevertheless this provision mainly addresses impartial third parties and does not explicitly address parties who are biased in favour of one party. The interest of the EU can nevertheless fall under paragraph 2(c) which concerns parties with a significant interest in the proceedings. As Rule 37 is mainly supposed to give independent parties a position in the process, the following discussion about the Micula dispute questions the ‘impartial friend of the court’ position at which the provision is aimed. It will make clear that the EC takes an active role in this dispute.
Under EU law the Commission has the possibility to investigate and determine whether a Member State’s measure constitutes state aid under Article 108(2) TFEU. On 1 October 2014 the Commission informed Romania that it decided to initiate this procedure as result of the
112 For UNCITRAL see: http://www.uncitral.org/uncitral/uncitral_texts/arbitration.html.
For ICC see: http://www.iccwbo.org/Products-and-Services/Arbitration-and-ADR/Arbitration/Rules-of-arbitration/ICC-Rules-of-Arbitration/.
113
25 damages awarded in the Micula award.114 On 26 May 2014 the Commission issued, in accordance with EU law, a suspension injunction obliging Romania to suspend the execution and implementation of the award as such implementation would constitute unlawful state aid.115 In this decision the Commission concluded that granting damages to Micula would constitute an economic advantage under Article 107(1) TFEU. The damages which Romania had to pay according to the award did not prevent the Commission from concluding that state aid control was applicable as the payments would constitute an advantage.
The compensation is one of inherent costs of economic activities which Micula would not have obtained under normal market conditions.116 In doing so, the Commission classified the award for compensation as an economic measure resulting in state aid instead of a compensation payment. Thereby it alters the substance of the claim granted in the award. This economic advantage would be granted exclusively to the claimants (which is logical as the award only defines the legal positions of Micula and Romania) and therefore falls under the notion of state aid in Article 107(1) TFEU.117
According to the Commission, enforcement would do more than restoring Micula’s rights as the granting would not be possible under EU and Romanian law due to its classification as new state aid.118 One of the most compelling arguments of the Commission in its decision was its statement that execution of the award would be in compliance with Romania’s obligations under the ICSID Convention but that this obligation is not one of the objectives of common interest recognised under Article 107(3) TFEU.119 This interpretation suggests that Romania should disregard its international law obligations in favour of its EU obligations.
Subsequently Micula brought an action before the CJEU requesting it to annul the decision of the Commission.120 Micula argued that EU law is not applicable and therefore the Commission lacks competence to issue a decision. Furthermore the Commission’s decision “fails to acknowledge that Romania is obligated by international law to execute the ICSID
114 European Commission Decision 2014.
115 European Commission Decision 2014, par. 6. Based on: Council Regulation (EC) No 659/1999 of 22 March
1999 laying down detailed rules for the application of Article 108 of the Treaty on the Functioning of the European Union, as last amended by Council Regulation (EU) No 734/2013 of 22 July 2013, OJ L 83, 27.3.1999, p. 1.
116 European Commission Decision 2014, par. 33-40. 117
Ibid, par. 41-42.
118 Ibid, par. 61. 119 Ibid, par. 69.
120 Official Journal of the European Union, 8.12.2014 C439/29, Action brought on 2 September 2014 – Micula
26 award without delay and that Romania’s international law obligations take primacy over EU law”.121 It further argued that the Commission erred in law by wrongly classifying the execution of the award (and thus the compensation measure) as new state aid.122 These arguments precisely indicate the tension between international law obligations and EU law. While this case has not yet been decided by the CJEU its outcome can be of direct importance in deciding on the competence of the EU in interfering with investor-Member State arbitration disputes. If the Commission is allowed to review a decision of a tribunal it can be questioned whether it assumes more competences to annul a decision than is allowed under the ICSID Convention.
3.3 Consent to Arbitration
As was mentioned in Section 1, the basis of investor-state arbitration is consent.123 It is important to recall this notion as it is central to determine the parties in the procedure. While one may want to go to arbitration with one certain counterparty, it does not mean that one wants to use this form of dispute settlement in regard to another party. Consent to arbitration can be given in three ways:
“(1) A consent clause may be included in a direct agreement between the investor and the host State; (2) a provision in the host State’s national legislation may offer arbitration to foreign investors in general terms; (3) a treaty between the host State and the investor’s State of nationality may offer arbitration to the nationals of the respective States.”124
Due to these three possibilities to grant consent it is normally easy to determine the counterparty in a dispute. However this could be different if one of the possible parties is not a member to the IIA. This is in fact the situation concerning the EU, which is not a member to the IIAs concluded by the Member States. The following will elaborate on practical problems which may be encountered by this situation. It will therefore address three disputes brought before arbitration tribunals.
121 Micula v. Commission 2014, par. 1. 122 Ibid, par. 2.
123 Dolzer & Schreuer 2012, p. 254. On consent in international arbitration in detail also: Steingruber 2012. 124
27
3.3.1 Micula v. Romania
In the Micula dispute the tribunal had to address several issues concerning the involvement of the EU in a dispute between Micula and Romania.125 One of the initial claims of Micula was that the relevant BIT should prevail over Romania’s EU obligations. As the BIT predated the accession of Romania to the EU and it was superseded or terminated the relevant EU laws should not be taken into account.126 It further argued that even if Romania was obliged by EU law to repeal its legislation leading to the breach of the BIT, this would not justify this breach. The claimant supported its argument with Article 12 of the ILC Articles on State Responsibility, which stipulates that the origin or the character of the breach should not be taken into account in determining the presence of a breach.127
Romania argued that while a BIT should be interpreted autonomously it cannot be seen outside the context of other rules of international law, amongst which EU law. As the conclusion of the BIT was directly linked to Romania’s accession to the EU, the latter should be taken into account.128 EU law should further be taken into account as it is the law applicable at the moment of the interpretation.129 As the BIT is concluded in the context of Romania’s accession to the EU, the BIT should be interpreted as part of a “harmonious set of treaty obligations” which Romania has entered into.130
A systemic interpretation of all treaties entered into is of special importance in order to comply with all international law obligations.131 As the accession occurred at a moment after the initiation of the dispute it can be questioned whether legal certainty does not prevent such an application. On the other hand, an investor always has to take into account national legislation, also when this legislation changes. EU law becoming part of the Romanian legal order is such a legitimate legislative change.
In addition, Romania argued that even if Micula had sustained any damage, these damages would be mitigated as Romania’s accession to the EU was overall beneficial for Micula. As the accession raised sales and brought price stability, these factors should be taken into
125 ICSID Case No. ARB/05/20, Ioan Micula, Viorel Micula, S.C. European Food S.A, S.C. Starmill S.R.L. and
S.C. Multipack S.R.L. v. Romania (Micula).
126 Micula, Award, par. 292-293. 127
Ibid, Award, par. 298.
128 Ibid, Award, par. 304. 129 Ibid, Award, par. 305. 130 Ibid, Award, par. 306. 131
28 account in awarding damages.132 The tribunal did not accept this argument as it was unclear what legal effect the accession would have on the specific entities and how this should be calculated.133
The tribunal did not deny that the EU accession would have an effect on Micula’s investment, but as the consequences of this accession were unclear, they could not be taken into account in assessing damages.134 While perhaps not obvious at first sight this argument of Romania illustrated that, according to the tribunal, positive effects of the EU involvement in a dispute do not automatically make the claims of the claimant trivial.
Romania further asserted that if its obligations under the BIT and under EU law are irreconcilable, the latter obligations should prevail. As the intentions of the parties to the BIT were to subordinate the BIT to EU law and the fact that EU law contains more specific relevant rules, the latter should prevail on the basis of the principle of lex specialis derogat
lex generali.135 Any other interpretation would also mean that Sweden (the counterparty to the BIT with Romania) would be in breach of its EU obligations when not sufficiently exercising its legislative obligations.136
The EC, as representative of the EU, submitted comments on the law applicable in this dispute in the capacity of amicus curiae. It submitted that the tribunal should take into account the relevant EU law provisions, despite the fact that the EU treaty only entered into force (as to Romania) after the conclusion of the BIT. This follows from Article 30(3) VCLT which in relevant part provides that “when all the parties to the earlier treaty are parties also to the later treaty but the earlier treaty is not terminated or suspended […], the earlier treaty applies only to the extent that its provisions are compatible with those of the later treaty”.137 This interpretation could assist in providing a basis for the legitimacy of the EU’s claim that it is allowed to interfere in arbitration procedures between Member States and foreign investors in the following way.
If the EU is allowed to decide the relevant applicable law by stating that EU law is applicable as Romania has acceded to the EU, EU law becomes the law of the Member State regardless of the fact that the BIT was concluded earlier in time. Investors have to comply with the
132 Ibid, Award, par. 1156-1157. 133
Ibid, Award, par. 1167.
134 Ibid, Award, par. 1173. 135 Ibid, Award, par. 310. 136 Ibid, Award, par. 310. 137
29 relevant law of the state in which they invest, including EU law. Under IIAs states normally have the right to legitimately create new legislation with which investors have to comply.
The tribunal in Micula started its assessment with the notion that the BIT is the primary source of law in this dispute.138 It then reasoned that there is no real conflict of treaties as the EU treaties had not yet entered into force in respect of Romania at the time of the dispute. While Romania was negotiating the treaty, during which it declared that it accepted the applicability of EU law, it was not yet properly subject to EU law. To this effect EU law was not directly applicable to Romania before its formal accession to the EU.139
To come to a conclusion about whether EU law could play a role in the interpretation of a BIT, the tribunal discussed three points. First it noted that the BIT did not contain any reference to EU accession or to the EU in general and neither did the Accession Treaty (concerning the accession of Romania to the EU) contain any references to the BIT. It could therefore not be assumed that the parties intended to amend, modify or detract from the application of the BIT. The second point which the tribunal noted is that, in line with the good faith and ordinary meaning interpretation laid down in Article 31(1) VCLT, the BIT was part of Romania’s strategy to promote economic cooperation. In its third point the tribunal assumed that the parties were in full awareness of their legal obligations under all their signed treaties at the moment they concluded them. It should therefore be assumed that the parties had no intent to defeat their obligations under any of the applicable treaties and the tribunal should presume that intent.140 While EU law is not applicable per se it does form part of the “factual matrix” which the tribunal had to take into account when deciding the case.141
138 Ibid, Award, par. 318. 139 Ibid, Award, par. 319. 140 Ibid, Award, par. 320-326. 141
