Mila Georgievska International and European Law: International Trade and Investment Law Ms. Hege Elizabeth Kjos Date: 27 July 2018
The Hierarchy Between Intra-EU Bilateral Investment Treaties and European Union Law: An Analysis of the Achmea Judgment and the Implications and Consequences it has for the
Abstract
The interaction between public international law and EU law has been one ongoing debate between the regimes throughout the years. This debate is often surrounded by legal controversies, specifically in matters when two regimes offer their perspective and provide their own rules in situations where similar legal and factual patterns arise. As there is no one clear winner, the legal controversies keep reappearing.
This thesis analyses such a controversy – one between the EU legal system and the international investment law regime. Moreover, the thesis provides us with a case, whereby the highest court of the European Union, has once again stricken down possible recourse to international courts and tribunal, solidifying its role as the sole court able to contribute to uniformity and full application of its laws. Hence, the thesis seeks to provide a comprehensive overview of the current legal issues surrounding the Achmea ruling. The thesis offers the stance of the EU on the investment arbitration regime, and vice versa. Throughout this work, the concept of compatibility of international investment agreements with EU law will be examined. And, in the analysis of the Achmea judgment through different lenses, many questions will emerge over the issue, yet no definite answer is available. The thesis concludes that for the time being possible reconciliation must be found by allowing the two regimes to engage themselves into a discussion over the future and development of investment protection across the Union, and perhaps beyond.
Table of Contents
1 INTRODUCTION, OUTLINE AND METHODOLOGY...4
2 SETTING THE SCENE...5
2.1 BILATERAL INVESTMENT TREATIES (INTRA AND EXTRA-EU)...6
2.2 THE EU SYSTEM AND ITS STANCE ON THE COMPATIBILITY OF BITS WITH ITS OWN LEGAL SYSTEM...7
2.3 THE ACHMEA CASE...10
3 TREATY CONFLICT AND CONFLICT OF RULES FROM THE PUBLIC INTERNATIONAL LAW’S (VCLT) PERSPECTIVE: AN ANALYSIS...13
3.1 CLASH OF TREATIES...13
3.2 Article 59 VCLT...14
3.2.1 “SAME SUBJECT-MATTER” UNDER ARTICLE 59 VCLT...14
3.2.2 “INTENTION” REQUIREMENT UNDER ARTICLE 59 VCLT...16
3.2.3 “INCOMPATIBILITY” REQUIREMENT UNDER ARTICLE 59 VCLT...16
3.3 ARTICLE 30 (3) VCLT...17
3.4 DISCUSSION AND INTERIM CONCLUSION...19
4 THE DISCRIMINATION ISSUE IN MATTERS OF TREATY INCOMPATIBILITY...21
4.1 CONFLICT OF TREATIES LEADS TO DISCRIMINATION?...21
4.2 PERSPECTIVE OF THE REGIMES...22
4.3 DISCUSSION AND INTERIM CONCLUSION...23
5 IMPLICATIONS AND CONSEQUENCES OF THE ACHMEA JUDGMENT....23
5.1 THE INTERNATIONAL INVESTMENT REGIME...23
5.2 THE EU LAW REGIME...25
5.3 FINAL WORDS: RECONCILING THE REGIMES AND DEVELOPMENT POSSIBILITIES...26 6 BIBLIOGRAPHY...27 6.1 CASES...27 6.2 BOOKS...27 6.3 SECONDARY LITERATURE...28 6.4 OTHER...29
1 INTRODUCTION, OUTLINE AND METHODOLOGY
International investment law’s role is considered two-fold. For one, investment law is regarded as a tool for attracting and securing foreign investments, but also as a threat to the host state’s sovereign powers to regulate in the public interest1. The rise in the number of international investment agreements (IIAs) has been followed an increase of disputes, due to the breach of obligations contained in IIAs by host states. Hence, this increase in disputes has created a “new branch of international law – the law of investment treaties”.2 However, this is not the sole regime established. The European Union (EU) has its own regime concerning foreign investment. As such, by virtue of covering similar aspects of cross-border investments, these two regimes overlap as they both prescribe rules that may apply to the same factual situation. Their application may not always be harmonious, but may also prima
facie appear to lead to diverging results.3 In other words, their parallel application may in certain situations give rise to genuine conflict of rules.
Currently, the investment climate across Europe has been under intense scrutiny by the international (investment) community. One part of it is due to the European Commission’s (EC) infringement proceedings against five Member States over their “incompatible” intra-EU bilateral investment treaties (BITs).4 Another part of the scrutiny is focused on the recent
Achmea judgement, whereby the highest court of the EU (the CJEU) reached a decision on
the question of compatibility a clause between BITs concluded between two EU MS (intra-EU BITs) and (intra-EU law. In its analysis the Court concluded that arbitration clauses contained in such BITs are incompatible with its own law. This landmark ruling has detrimental implications and consequences for the development of EU law in relation to foreign investments, especially foreign direct investment (FDI), as part of the exclusive competence of the EU, and for the international investment arbitration regime. In addition, the judgment raises the question of what will happen with previously concluded BITs and those that are in their negotiation/implementation phase. In the International Law Commission’s (ILC) Report on the Fragmentation of International Law, it was noted that the situation of international law consists of splitting up the law into highly specialized ‘boxes’ that claim relative autonomy from each other and from general law.5 Bearing this statement in mind, it might be the case that the EU is trying to achieve just that with this particular judgment.
1 Jan Kleinheisterkamp, ‘Rethinking EU Law Governing International Investment Treaties – Impact Case Study’ < http://www.lse.ac.uk/Research/research-impact-case-studies/Rethinking-EU-law-governing-international-investment-treaties> accessed 25 July 2018.
2 Jeswald W. Salacuse, The Law of Investment Treaties, (2nd edn, OUP 2015).
3 Tom Fecak, ‘Chapter 5: International Investment Agreements and EU Law’ in Tom Fecak, International Investment Agreements and EU Law, (Kluwer Law International; Kluwer Law International 2016) 371 – 534. 4 European Commission, Press Release: Commission asks Member States to terminate their intra-EU bilateral investment treaties, IP/15/5198, 18 June 2015.
5 United Nations General Assembly, ‘Fragmentation of International Law: Difficulties Arising from the Diversification and Expansion of International Law – Report of the Study Group of the International Law Commission, (13 April 2006) UN Doc A/CN.4/L.682.
In consideration of that, this thesis seeks to analyse the decision rendered by the CJEU in light of the two regimes. Furthermore, it shall describe and analyse relevant arguments connected to the alleged (in-) compatibility of intra-EU BITs with EU law. By analysing the complexities that arise in these regimes, the research question of this thesis is: in which ways does the (in-) compatibility cause issues of conflict of rules and issues of discrimination within the EU. In addition, discussion on sunset clauses will be provided, where their role in treaty termination will be called into question. Furthermore, the thesis will discuss the implications and consequences the Achmea decision might have on the regimes, including the stance that investors have on the matter, and the EU’s stance for the discontinuance of the current regime. Finally, it will look into possible suggestions from academics for developing the regime of EU’s investment law regime law and/or maintaining the currently in place. Concerning the methodology, in the first part (Sections 1 and 2) this thesis will adopt a descriptive/explanatory approach that aims to frame the narrative and introduce the problem statement. Hence, section 2 of the thesis shall elaborate upon BITs, including intra and extra-EU BITs, and provide an overview of the extra-EU legal order and its competences regarding foreign investment. It will then summarize the Achmea proceedings whilst explaining the relevance of it for both the EU legal regime and the investment regime. The purpose of this section is to put into perspective the arguments that will arise in the following sections. Those arguments specifically address the sub-questions that examine the main research question. Section 3, will then adopt a legal analysis on questions of law though analysis of jurisprudence and literature. More specifically, section 3 will analyse the conflict of rules between the treaties, through the Vienna Convention on the Law of Treaties (VCLT). The reason for this is to inspect whether the treaties (intra-EU BITs and EU laws) are compatible or not from one legal point of view, namely the public international law one. Furthermore, the section will offer additional arguments concerning VLCT’s articles on incompatibility from arbitral tribunals’ point of view (though case law) and offer the EU’s perspective as well. The following section 4, will consider the argument which is that intra-EU BITs are discriminatory under EU’s non-discrimination obligations contained in the primary sources, in light of the Achmea judgment. Both these sections will include a discussion of the arguments brought forward and an interim conclusion. Such discussions may include the relevance of sunset clauses and how they may limit the outcome of the judgment, as they are mechanisms that have not been addressed and could play a significant role in whether or not intra-EU BITs may actually be terminated. Section 5 shall offer a comparative point of view, through an analysis of the implications and consequences the decision might have for both regimes. It will highlight the effects for the future development of both the EU legal order and the investment legal order. Finally, the thesis will add on some final concluding words.
2 SETTING THE SCENE
As stated previously, this section will offer an explanation of the developments that caused the CJEU to deliver its judgment in Achmea. It will discuss BITs, BITs that EU MS have between themselves and BITs that EU MS have with other non-EU states. The section will
make remarks on the EU legal order and its stance on the matter concerning incompatibility of intra-EU BITs with its own laws. Finally, this section will provide a detailed overview of the Achmea proceedings, firstly during the initial arbitration proceedings, then at the German national level, and finally before the Court of Justice of the European Union.
2.1 BILATERAL INVESTMENT TREATIES (INTRA AND EXTRA-EU)
Bilateral investment treaties, as opposed to multilateral investment treaties, deal with two-party relationships between two sovereign states. What they offer is a guarantee of protection of foreign investments and investors, as well as grant procedural and substantive provisions for the sake of the promotion and expansion of foreign investment on the world stage, from capital-exporting states to capital-importing states. BITs are favoured among foreign investors, as they address the “typical risks of a long-term investment project, and thereby provide for stability and predictability in the sense of an investment-friendly climate”.6 Overall these type of treaties are concluded by states that have different intentions and interests. As such, BITs are fragmented and divergent in their structure and scope. However, they often share similar characteristics, thereby providing a similar standard of protection to the investors on the world stage. More specifically, those standards of protection include clauses prohibiting and compensating expropriation, offer other standards of treatment in the form of national and most-favoured-nation treatment (NT and MFN), fair and equitable treatment (FET), full protection and security (FPS), and transfer of funds among some.7 The standards offered in BITs go beyond the rules of minimum standards of protection as part of customary international law.8 Prior to the increase in BITs adoption, which occurred around the 1990s, the common practice between states was to conclude FCN (Friendship, Commerce and Navigation) Treaties to offer diplomatic protection. One example of this kind of treaty is the one concluded between the United States and Germany.9 However, FCN treaties eventually evolved into BITs that altered the way protections are offered to the investors. Namely, increasingly BITs included an investor-state dispute settlement (ISDS) clause that ensured that investors have an appropriate and depoliticized place to resolve disputes that arise due to a breach of obligations contained in such an agreement. This type of dispute resolution grants investors the chance to file suits outside the jurisdiction of the host state, either by providing investors the option to file a suit before the International Centre for Settlement of Investment Disputes (ICSID) or through United National Commission on International Trade Law (UNCITRAL) constituted arbitral tribunals.10 Through these systems of dispute resolution, the investors prevent the host state from having a ‘home court 6 Stephan W. Schill, The Multilateralisation of International Investment Law (Cambridge University Press 2010), 22.
7 A more detailed overview of BITs (on how they operate, the different substantive and procedural standards that they offer) can be found in Chester Brown, (ed), Commentaries on Selected Model Investment Treaties, OUP 2013.
8 Rudolf Dozer and Christoph Schreuer, Principles of International Investment Law (2nd edn), OUP 2012, 21.
9 Andreas Paulus, ‘Treaties of Friendship, Commerce and Navigation’, Max Planck Encyclopaedia of Public International Law, 2012; Treaty of Friendship, Commerce and Navigation (with Protocol and Exchange of Notes) (United States of America-Federal Republic of Germany) (signed 29 October 1954, entered into force 14 July 1956) 273 UNTS 3.
advantage’.11 In addition, by submitting their disputes to institutional or ad hoc arbitration, foreign investors can ensure that the decisions rendered are handled efficiently by arbitrators who are experts in the investment field, and additionally ensure that the decisions are impartial and not subject to an appeal.12 Currently, the number of BITs is more than 2500 – making almost every country in the world a party to several of such treaties13.
The first type of treaty relevant for this thesis is the extra-EU BIT. Essentially, it refers to the same type of treaty aforementioned. Basically, they are public international law treaties concluded between EU MS and third countries, not members of the EU. There are approximately 1200 extra-EU BITs that account for approximately half of the investment agreements currently in force around the world.14 As stated previously, the procedural and substantive provisions contained in these treaties allow for foreign investors, either from the Union or from the non-EU MS, to bring a claim in the host state with which they are parties with in the BIT if a breach of obligations has occurred.
On the other hand, the term intra-EU BITs refers to treaties concluded among the EU MS themselves, either prior to their accession to the Union, or during their time as a member. The standards offered in them are similar to general BITs or extra-EU BITs. The phenomenon of intra-EU BITs traces its origins to the 2000s. After the 2004 and 2007 EU enlargement, the BITs number grew considerably.15 While most treaty conclusion occurred with third countries around that time, including IIAs with the United States and Canada, there were already some intra-EU BITs in place, i.e. Germany’s BITs with Greece and Portugal.16
2.2 THE EU SYSTEM AND ITS STANCE ON THE COMPATIBILITY OF BITS WITH ITS OWN LEGAL SYSTEM
Considering the above, there is an important difference between the intra and extra-EU BITs. That difference relates to the EC’s perception on their compatibility with EU law and the different treatment accorded to them depending on their status. However, before that difference is analysed in detail, this sub-section will elaborate on the EU’s legal system and remark on the ways the Union distinguishes itself from other regimes of law. Only then, it
10 Ahmad Ghouri, ‘Resolving Incompatibilities of Bilateral Investment Treaties of the EU Member States with the EC Treaty: Individual and Collective Options’ [2010] Vol.16(6) European Law Journal, 2.
11 George M. von Mehren, Navigating Through Investor-State Arbitrations – An Overview of Bilateral Investment Treaty Claims, 59 DISP. RESOL. J. 69, 70 (1994).
12 Salacuse, supra (n.2).
13 Investment Policy Hub, IIA Navigator <http://investmentpolicyhub.unctad.org/IIA > accessed 27 July 2017.
14 Volterra Fietta, ‘New EU Regulation addressing the transition of extra-EU Bilateral Investment Treaties enters into force’ (Volterra Fietta E-newsletter, Winter 2013) < http://www.volterrafietta.com/new-eu-regulation-addressing-the-transition-of-extra-eu-bilateral-investment-treaties-enters-into-force/> accessed 27 July 2018.
15 Tom Fecak, ‘Chapter 1: Introduction in Tom Fecak, International Investment Agreements and EU Law, (Kluwer Law International; Kluwer Law International 2016) 2.
will explain the EC’s stance on the compatibility of the BITs with its own legal system – thus framing the main issue that this thesis seeks to answer into perspective.
The EU system, in the similar manner that investment law regime does, provides regulation on investment matters. Yet, both systems display self-centred tendencies, primarily aiming at effective application of their own rules.17 The EU regime excels in this as it combines multiple institutions and corresponding legislation, namely the founding treaties, the Council, the Parliament, and most notably the Commission and CJEU. Essentially, the EU law enjoys supremacy over MS’ national legal order and reigns supreme within its own institutions. In the Costa/ENEL case, EU law was defined as an ‘independent system taking precedence over national legal provisions’.18 In addition, the Van Gend & Loos case established the principle of direct effect, stipulating that EU law is directly applicable in the national courts of the MS.19 As such, the CJEU ensures that EU law has primacy over national legislation. Moreover, the CJEU aims to interpret and enforce EU norms uniformly, an undertaking which is carried out primarily through the preliminary reference procedure pursuant to Article 267 TFEU. This procedure entails the obligation of MS courts to refer questions to the CJEU concerning the interpretation of EU Treaties. This procedure aims to ensure the uniform applicability of EU law throughout the Union and provides the basis for determining the autonomous nature of the EU legal system. With these elements, the EU system and its laws distinguish themselves as sui generis from the general public international law. Other examples of this include the MOX Plant and Kadi cases, in which the Court rejected the idea that international law obligations could supersede or modify existing Community law obligations of the EU MS.20
In 2009 the Lisbon Treaty entered into force with the purpose of amending and reforming the pre-existing legislative framework of the Union.21 One particular reform brought by this treaty was the expansion of EU’s competence of the common commercial policy (CCP) according to Article 207 (1) of the Treaty on the Functioning of the European Union (TFEU).22 With the prior commercial policy, FDI was in the hands of the MS, while the EU could exercise its exclusive competence solely for matters of trade, but not investment. However, when the Lisbon reform occurred, the EU, as a whole, gained exclusive competence over the investment field. In other words, the EU acquired the ability to adopt measures and policies in the particular investment area. This translates to the point that the Union’s competence in the FDI field pre-empts the MS from adopting their own measures
17 Fecak, supra (n.14).
18 Case 6-64 Flamino Costa v E.N.E.L. [1964] ECLI:EU:C: 1964:66.
19 Case 26-62 NV Algemene Transport – En Expeditie Onderneming van Gend & Loos v Netherlands Inland Revenue Administration [1963] ECLI; EU: 1963:1.
20 Case C-459/03 Commission v Ireland [2006] ECR I-04635 (MOX Plant case); Joined Cases C-402&415/05 P Abudllah Kadi and Al Barakaat International Foundation v Council and Commission of the European Union [2008] ECR I-6351 CJ.
21 Treaty of Lisbon amending the Treaty on European Union and the Treaty establishing the European Community [2007] OJ C306/01.
and policies, especially treaty conclusion with third states.23 This change has had a considerable impact on the manner in which the EU intuitions and MS contribute to international rulemaking in the field of foreign investment – specifically intra and extra-EU BIT treaty conclusion. The EU inspects their compatibility with its own laws and imposes limitations on how far its MS can go when concluding such treaties.
Concerning the extra-EU BITs, the Commission stipulated that such treaties remain in force as long as their obligations do not go contrary to EU law. With that, the Commission introduced a regulation that established a transitional arrangement for BITs between MS and third countries.24 Primarily, this regulation’s focus is to regulate the transition for extra-EU BITs, which allows for their continued existence on a number of conditions, until the EU has concluded equivalent investment protection treaties with the respective third states as part of its new competence. Should a conflict exist between obligations contained in an extra-EU BIT to that of EU law, the MS should abide by Article 351 TFEU and eliminate their conflicting treaty obligations. Hence, extra-EU BITs continue to remain in force and fall under the scope of the ‘Grandfathering’ regulation. To do so, the MS have to provide the Commission with information concerning which extra-EU BITs they have and then it is the EC’s task to screen whether they are compatible with EU law.25 This exemplifies the previous notion, that EU law has in its own right precedence over the international obligations of EU MS. It also cements the CJEU’s position as the body responsible of interpreting and applying EU laws and norms, and one capable of limiting its MS’ actions.
The Commission offers a different outlook on the compatibility of intra-EU BITs with its own laws, as compared to extra-EU BITs. In short, the EC has requested that certain MS terminate all their pre-existing intra-EU BITs due to them being incompatible with EU law. The legal basis for this incompatibility is, one, the intra-EU BITs breach the principle of non-discrimination, and two, that they breach the exclusive jurisdiction of the CJEU.26 These legal bases will be further examined in the analytical part of the thesis. However, originally the issue of compatibility stemmed from the high arbitral awards rendered such as Micula, that in the EU’s view, constituted illegal state aid.27 In addition, this situation again questions the relationship between public international law and EU law, specifically the applicable law in arbitral proceedings. Furthermore, the EC considered that like-situations of large awards being awarded to foreign investors create legal uncertainty for cross-border investments.28 Supporting the Commission’s approach, the MS acting as respondents in arbitral proceedings argued that with their accession to the EU, their intra-EU BITs have been automatically terminated or have been superseded by the supremacy of EU law and thus have become 23 Fecak, supra (n.3).
24 Regulation (EU) No. 1219/2012 of 12 December 2012 establishing transitional arrangements for bilateral investment agreements between Member States and third countries.
25 Ibid, Article 8, 10.
26 Pekka Niemelä, ‘The Relationship of EU Law and Bilateral Investment Treaties of EU Member States’ (Doctoral dissertation, University of Helsinki 2017) 3.
27 Ioan Micucla, Viorel Micula, S.c. European Food S.A, S.C Starmill S.R.L. and S.C.Multipack S.R.L. v Romania, ICSID Case No. ARB/05/20, Final Award, 11 December 2013.
inapplicable.29 However, the MS, against whom the infringement proceedings were commenced, considered that intra-EU BITs were compatible and did not denounce their existing intra-EU BITs.30 Thus, the Commission initiated infringement proceedings against these MS, requesting that they terminate their investment agreements with other MS. The tensions between the EC, its MS and arbitral tribunals have been evident for a while. However, with Achmea, the CJEU was finally consulted to render a preliminary ruling of the compatibility of intra-EU BITs (and their clauses) with its own laws. The next section will provide the relevant background to the issue at hand in this thesis.
2.3 THE ACHMEA CASE
The Achmea case in its entirety exemplifies the numerous complexities that arise when two diverging opinions form concerning the investment regime. On one side, the supporters of the current investment regime consider that EU law and intra-EU BITs are compatible, and on the other, the EU law critics vehemently claim the opposite.
The origins of this case can be traced back to UNCITRAL arbitration proceedings stemming from a dispute settlement clause contained in a BIT. Specifically, the dispute concerned the Dutch insurer Achmea B.V. and Slovakia, the host state. In 2004, the Slovak government reformed the state’s health insurance system by initiating changes to open the market to private sickness insurance providers.31 As a result, Achmea set up a wholly owned subsidiary in Slovakia offering private sickness insurance services. However, in 2006, Slovakia retracted its policy, reversing the previous liberalization of its health insurance market, thereby prohibiting the distribution of profits to shareholders generated by Achmea’s Slovak insurance activities.32 As this governmental decision had negative financial consequences for the Dutch investor, Achmea decided to initiate UNCITRAL arbitration against Slovakia in 2008, pursuant to Article 8 of the Agreement on encouragement and reciprocal protection of investments between the Kingdom of the Netherlands and the Czech and Slovak Federative Republic (‘the BIT’). In the proceedings, Achmea claimed a violation of substantive treaty standards, and the arbitral tribunal declared that Slovakia had violated the BIT and awarded Achmea 22.1 million euros in damages.33
29 Nikos Lavranos, ‘Member States' Bilateral Investment Treaties (BITs): Lost in Transition? [2012], Hague Yearbook of International Law, 281-311.
30 The MS in question are: Austria, The Netherlands, Romania, Slovakia, Sweden.
31 Lucia Bizikova, ‘The CJEU in Slovakia v Achmea or Is Justice Best Served Cold?’ (Kluwer Arbitration Blog, 11 March 2018) < http://arbitrationblog.kluwerarbitration.com/2018/03/11/cjeu-slovakia-v-achmea-justice-best-served-cold/> accessed 27 July 18.
32 Clément Fouchard and Marc Krestin, ‘The Judgment of the CJEU in Slovak Republic v. Achmea – A Loud Clap of Thunder on the Intra-EU BIT Sky!’(Kluwer Arbitration Blog, 7 March 2018)
<http://arbitrationblog.kluwerarbitration.com/2018/03/07/the-judgment-of-the-cjeu-in-slovak-republic-v-achmea/> accessed 27 July 2018.
33 Dr. Szilárd Gáspár Szilágyi, ‘The CJEU Strikes Again in Achmea. Is this the end of Investor-State arbitration under intra-EU BITs?’ (International Economic Law and Policy Blog, 7 Marc 2018) <
http://worldtradelaw.typepad.com/ielpblog/2018/03/guest-post-the-cjeu-strikes-again-in-achmea-is-this-the-end-of-investor-state-arbitration-under-intr.html > accessed 27 July 2018.
Unsatisfied with the tribunal’s decision, Slovakia initiated legal proceedings against the award rendered in favour of Achmea. It submitted an application to set aside the award before the Oberlandesgericht Frankfurt am Main (Higher Regional Court, Frankfurt am Main, Germany) on the grounds that the arbitral tribunal lacked jurisdiction to hear the claims because the arbitration clause, Article 8, was incompatible with EU law including Articles 18, 267, and 344 TFEU.34 This Court dismissed the action. With that, the Slovak Republic appealed on a point of law against the dismissal to the Bundesgerichtshof (Federal Court of Justice, Germany). The Bundesgerichtshof, in turn, accepted the appeal and referred the three question of compatibility between the BIT and EU law (TFEU provisions) to the CJEU.35 It considered that it was important to refer these questions to the CJEU because they “are of considerable importance because of the numerous bilateral investment treaties still in force between Member States which contain similar arbitration clauses”.36 Hence, the first question referred to the CJEU was whether Article 344 precluded the application of a provision providing for investor-state arbitration under an intra-EU BIT, in the situation where an investor from one contracting state brings proceedings against the host state before an arbitral tribunal where the BIT was concluded before one of the Contracting States acceded to the European Union, but the arbitral proceedings have not to be brought until after that date. Second, it inquired that in the case of a negative answer to the first question, whether Article 267 would preclude the application of such a provision. Finally, the third question is whether Article 18 (1) preclude the application of such a provision under the circumstances described in the first question.
However, prior to the final CJEU decision given on March 6th 2018, the Advocate General (AG) Wathelet, released an opinion where he offered his stance on the matter37. In this opinion, Wathelet offered a defence on the intra-EU BITs, and in particular the ISDS mechanism. He suggested that the UNCITRAL tribunal was not a rival to the EU’s judicial system, but part of it, as it was common to two MS.38 In addition, he addressed the discrimination argument, citing that there was no discrimination contrary to EU law 34Article 344: Member States undertake not to submit a dispute concerning the interpretation or application of
the Treaties to any method of settlement other than those provided for therein;
Article 267: The Court of Justice of the European Union shall have jurisdiction to give preliminary rulings
concerning: (a) the interpretation of the Treaties; (b) the validity and interpretation of acts of the institutions, bodies, offices or agencies of the Union; Where such a question is raised before any court or tribunal of a Member State, that court or tribunal may, if it considers that a decision on the question is necessary to enable it to give judgment, request the Court to give a ruling thereon. Where any such question is raised in a case pending before a court or tribunal of a Member State against whose decisions there is no judicial remedy under national law, that court or tribunal shall bring the matter before the Court. If such a question is raised in a case pending before a court or tribunal of a Member State with regard to a person in custody, the Court of Justice of the European Union shall act with the minimum of delay;
Article 18: Within the scope of application of the Treaties, and without prejudice to any special provisions
contained therein, any discrimination on grounds of nationality shall be prohibited. The European Parliament and the Council, acting in accordance with the ordinary legislative procedure, may adopt rules designed to prohibit such discrimination.
35 Bizikova, supra (n.31).
36 Case C-284/16, Slowakische Republik (Slovak Republic v Achmea BV, [2018] ECLI:EU:C:2018:158, para 14.
37 Case C-284/16, Slowakische Republik (Slovak Republic v Achmea BV, [2018] ECLI:EU:C:2018:158, Opinion of AG Wathelet.
provisions (Article 18 TFEU). Also, that the arbitral tribunal, constituted by Article 8 of the BIT, could make a preliminary reference (Article 267 TFEU), and that the allocation of powers for determining disputes was not undermined (Article 344 TFEU).39 The reasoning given by the AG is pro-arbitration and consistent with rulings of arbitral tribunals concerning the compatibility of intra-EU BITs with EU law, as well as being consistent with the previous German courts that inspected the issue. These rulings of arbitral tribunals, followed by the opinions of the MS which Wathelet referred to as the “countries of investors”, and the AG’s opinion on compatibility will be mentioned in the following section concerning the clash between the treaties. In addition, this AG’s opinion contrasts the EC/MS acting as respondents in arbitral proceedings, that are on the pro-side of the argument of incompatibility of intra-EU BITs with EU law.
Moving on, since the AG’s opinions only advisory and non-binding to the CJEU, the Court rendered a decision that was in polar opposition of the Wathelet’s opinion. Before providing a concrete answer on the first and second questions submitted to it, the CJEU made some preliminary observations. From paragraph 30-37, it considered the characteristics of EU law – as an independent source of law, noting its primacy over the laws of the MS, and the principle of direct effect.40 In addition, it made reference to the shared values (Article 2 TEU) and mutual trust in ensuring that those common values will be recognized and respected. Furthermore, it noted that MS are obliged to ensure the fulfilment of the obligations arising out of the Treaties.41 Hence, it noted that the treaties have put in place the judicial system of the EU, tasked with ensuing the consistency and uniformity in the interpretation of EU law.42 The Court, then mentioned that the preliminary ruling procedure (Article 267) which creates a dialogue of courts of the EU (national MS courts or tribunals and the CJEU itself). As such, that procedure secures the uniform interpretation of EU law, ensuring the: consistency, full effect and autonomy, as well as the particular nature of the law established by the Treaties.43 So, upon examining whether Articles 267 and 344 preclude a provision, such as Article 8 of the BIT, to bring proceedings before an arbitral tribunal, the CJEU came to the decision that those arbitral institutions are not common to a number of MS.44 It also said that the arbitral tribunal concerned does not have any links with the judicial systems of the MS. Hence, it set out that such a tribunal, “cannot be regarded as a ‘court of a tribunal of a Member State’ within the meaning of Article 267 TFEU, and is not therefore entitled to make a reference to
38 Andrea Carta and Laurens Ankersmit, ‘AG WATHELET IN C-284/16 ACHMEA: SAVING
ISDS?’(European Law Blog, 8 January 2018) < http://europeanlawblog.eu/2018/01/08/ag-wathelet-in-c-28416-achmea-saving-isds/> accessed 27 July 2018.
39 Allen and Overy News, ‘Investor-State arbitration under intra-EU investment treaties not contrary to EU law, says Court of Justice's Advocate General’ (Allen and Overy, 30 March 2018)
< http://www.allenovery.com/news/en-gb/articles/Pages/Investor-State-arbitration-under-intra-EU-investment-treaties-not-contrary-to-EU-law,-says-Court-of-Justice's-Advocate-Gene.aspx > accessed 27 July 2018.
40 Achmea case, supra (n. 35) para 33.
41 Ibid, para 35.
42 Ibid, para 35.
43 Ibid, para 37.
the Court for a preliminary ruling”.45 Hence, the CJEU came to the conclusion that the ISDS mechanism of the BIT could not ensure that disputes were solved in a manner that safeguarded the full effectiveness of EU law and that it would also question the principle of mutual trust between the Member States, as well as the preservation of the specific characteristics of the EU legal system and its autonomy.46
For some, this decision of the Court was expected, yet for others like the proponents of the investment law regime, it was not. In the following part analytical part, the focal point will turn to analyse some specific arguments concerning validity and application of treaties (intra-EU BITs and the (intra-EU Treaties) from the public international law perspective.
3 TREATY CONFLICT AND CONFLICT OF RULES FROM THE PUBLIC
INTERNATIONAL LAW’S (VCLT) PERSPECTIVE: AN ANALYSIS
The CJEU’s decision in Achmea is short and to the point. It concluded that the intra-EU BITs and the ISDS provision (Article 8) is incompatible with its own regime. This section, aims to answer the first sub-question of this thesis, namely – whether the incompatibility between the treaties can be substantiated from the standpoint of public international law, specifically the 1969 VCLT’s rules on treaty incompatibility and termination. Attention will also be placed on previous arguments raised by “representatives” of both regimes in investment arbitration case law (Eureko, Eastern Sugar and Oostergetel) and as maintained by the EU institutions such as the Commission and the Court.3.1 CLASH OF TREATIES
Firstly, the issue in this section is among the conflicting intra-EU BITs and the EU Treaties. According to one definition, a treaty conflict can be defined as a conflict that arises between successive treaties when “both deal with the same subject-matter in a different manner”.47 The conflict (resolution) rule applies whenever a situation with treaty conflict becomes apparent. One particular conflict rule is enshrined in the VCLT, namely the lex posterior rule, which is a doctrine that states that if there should be inconsistencies between domestic statutes, treaties, or customary international laws, the later law repeals the earlier law.”48 The
lex posterior rule can be found in Article 59 and Article 30(3) of the VCLT by giving
priority to the later treaty.49 As the successive treaties, namely intra-EU BITs and EU Treaties, are essentially dealing with the same-subject matter, the articles provide certain rules regarding the “validity, primacy and parallel application of treaties falling under their scope.”50 Here, it is important to note that there have been instances, where EU MS acting as respondents in investment arbitration cases, have used the treaty conflict argument as 45 Ibid, para 49.
46 Szilágyi, supra (n.32).
47 Hans Aufricht, 'Supersession of Treaties in International Law', 37 Cornell Law Quarterly (1952), 655- 700, at 655-656.
48 Aaron X. Fellmeth and Maurice Horwitz, Guide to Latin in International Law, (OUP 2009).
49 Article 59(1) and Article 30(3) VCLT
jurisdictional objections before arbitral tribunals. In other words, MS respondent states have stipulated that the tribunals before they were at lack jurisdiction over their disputes because the relevant BITs under which the claim was brought had been superseded by EU law through the respondent state’s EU accession.51 The following part will inspect whether that is the case under pubic international law (VCLT) under the given articles and will later discuss in the interim conclusion whether that applies for the Achmea case.
3.2 Article 59 VCLT
Article 59 of the VCLT deals with “termination or suspension of the operation of a treaty implied by conclusion of a later treaty” and reads as follows:
“A treaty shall be considered as terminated if all the parties to it conclude a later treaty relating to the same subject-matter and:
(a) it appears from the later treaty or is otherwise established that the parties intended that the matter should be governed by that treaty; or
(b) the provisions of the later treaty are so far incompatible with those of the earlier one that the two treaties are not capable of being applied at the same time.”
Hence, in order for the Article to apply certain conditions must be satisfied. Firstly, that both treaties relate to the same subject-matter. If this is the case, then the parties to the treaty must either have intended for this matter to be governed by the latter treaty and/or the treaties must be so incompatible that they are not capable of being applied at the same time, and only then implied termination will follow. The following sub-parts will elaborate on these three conditions.
3.2.1 “SAME SUBJECT-MATTER” UNDER ARTICLE 59 VCLT
Turning to the first criteria, the phrase “same subject-matter” constitutes an independent precondition of application that has to be met before all the other criteria are considered.52 Therefore, if the intra-EU BIT and EU treaties do not relate to the same subject-matter, the VCLT articles in question would not apply, even if the supplementary conditions are subsequently met. This argument is followed by an affirmative and a negative position. Firstly, the side that agrees that the treaties do, in fact, relate to the same subject-matter are the MS, the respondents in arbitral proceedings. Their claim is that intra-EU BITs had been superseded by EU law, and as such the treaties cover the same subject-matter. Namely, the respondents in Eureko (later on Achmea), Eastern Sugar and Jan Oostergetel, have been of the opinion that the substantive provisions contained in their intra-EU BITs could relate to the ‘four freedoms” as guaranteed by the EU. They also considered that their BITs could be consistent with the protection of property guarantees in the Charter of Fundamental Freedoms
51 ibid 39.
(Charter)53. Hence, in the first example the Czech Republic in Eastern Sugar, the respondent did not argue that the BIT had been expressly terminated through the same subject-matter. But, what it did was argue that the BIT became inapplicable with the country’s accession to the EU. Furthermore it claimed that the relationship between the intra-EU BITs and the EU law had changed sufficiently so as to allow implicit termination of the BIT.54 Upon determining its jurisdiction, the arbitral tribunal produced an EC Letter (non-binding) where Mr. Schaub of the EC Internal Market and Services commented on the effect EU law has over existing BITs. He stipulated that even though EU law prevails over the treaties, it does not mean that they are automatically terminated or non-applicable.55 Furthermore, he noted that in order for the BITs to be terminated MS would have to follow the procedure provided within.56 Subsequently, the Czech Republic continued its stance that the intra-EU BITs relate to the same subject-matter in the meaning of the two VCLT articles. In another case, Jan
Oostergetel and Theodora Laurentius, the Slovak Republic acting as respondent raised
jurisdictional objections before the UNCITRAL tribunal. It claimed that the tribunal lacks jurisdiction due to the fact that no arbitral agreement existed due to the Dutch-Slovak BIT's invalidity as a result of its incompatibility with EC law.57 It noted that, with the country’s accession to the union, the BIT in question is terminated pursuant to Article 59 VCLT. The final case relevant for this termination argument pursuant to Article 59 is the Eureko v Slovak
Republic, currently known as Achmea. In the case, the respondent followed the EC’s
perspective, and claimed that ‘the BIT and EC Treaty serve identical purposes, which are fundamentally to broaden and strengthen mutual economic relationships and to promote the flow of capital and economic development of the contracting parties, while at the same time guaranteeing fair and equitable treatment.’58 Hence, stipulating before the tribunal that the treaties do relate to the same-subject matter, rendering them inapplicable.
This clash between the treaties has turned itself into a clash of opinions between the parties, as the opposing side constituted of arbitral tribunals and most (non-respondent) MS, do not share the viewpoint that the treaties cover the same-subject matter. They are of the opinion that the substantive guarantees offered in intra-EU BITs are “broader and more specific than those available in EU law59”. In addition, the tribunal in Oostergetel made another point which was that ISDS mechanism is not offered as a protection under EU law. Accordingly, the tribunals reject the view that the two treaties cover the same subject-matter.60 For instance, in Eastern Sugar, the tribunal said that they do not cover the same precise subject-53 Ursula Kriebaum, ‘The Fate of Intra-EU BITs from an Investment Law and Public International Law Perspective’, Elte Law Journal 2015/1, 27-35, 30.
54 Eastern Sugar B.V. (Netherlands) v. The Czech Republic, UNCITRAL, SCC Case No. 088/2004, Partial Award, 27 March 2007, para 97, 117.
55 Letter of the European Commission, Internal Market and Services of 13 January 2006 quoted in Eastern Sugar B.V. v. Czech Republic, Partial Award, 27 March 2007 at pp. 24–26;
56 ibid.
57 Jan Oostergetel & Theodora Laurentius v. The Slovak Republic, Decision on Jurisdiction, 30 April 2010, 41.
58 Achmea B.V. v. The Slovak Republic, UNCITRAL, PCA Case No. 2008-13 (formerly Eureko B.V. v. The Slovak Republic), para 68.
59 Kriebaum, supra (n. 54), reference omitted.
matter and that the right contained in EU law, namely the free movement of capital, could not be regarded in the same way that the fair and equitable treatment standard is. That tribunal also considered that the arbitration clause is in practice the most essential provision of BITs and that EU law does not provide for such a guarantee that the investment will be protected against infringements made by the host state.61 This position between the two parties is difficult to harmonize, as both views put forward carry merit to them. The following parts will inspect the similar clash concerning the supplementary conditions of Article 59.
3.2.2 “INTENTION” REQUIREMENT UNDER ARTICLE 59 VCLT
Concerning the supplementary conditions set forth by Article 59, the first relevant question is whether the parties intended that the earlier treaty be terminated upon the adoption of the later treaty. Again, this question is examined by following the two arguments submitted before arbitral tribunals from the proponents and critics of the (in)- compatibility issue. For example, the Eureko tribunal concluded that “no clear intention that the BIT should be terminated” was found in the text of the Association Agreement, the Accession Treaty or the Lisbon Treaty62. In addition to this, due to the different subject-matter between the treaties, there was no intention by the parties of the dispute that EU law should entirely displace the BIT.63 Yet, this matter could also concern if the method of interpretation of termination was one of implicit or explicit nature. Basically, if there had to be a clear signal or notification that the treaties would cease to exist. In addition, in Eureko, the claimant defended the stance that there had been no intention to terminate the treaties was brought up. Furthermore, as mentioned in Eastern Sugar, the Commission letter expressly recognized that intra-EU BITs could only be terminated by following “the relevant procedure provided” in the BITs.64 This particular argument works in favor of the claimants, and the investment regime defenders, as it follows the analogy of their lack of intent to terminate, as they would suffer loss of the remedies available to them through the BIT.
On the other side, in Eureko, the Respondent claimed that ‘so long as the intention of the Parties is to terminate the earlier treaty, an explicit intention to terminate the former treaty is not required for purposes of Article 59 of the VCLT.’65 Additionally, the respondent state argued that the intention for the termination of the BIT between the Netherlands and the then Czech and Slovak Republic was implied by three elements. Firstly, the termination of the BIT was implied through the accession treaties of the country to the EU. Next, the implied termination of the BIT occurred though the overall legal framework and purpose of the internal market which safeguards and guarantees similar provisions of the BIT in its own law. And finally, implied termination took place by virtue of the EU legal system itself, which asserts its primacy and direct effect of its own laws over others. As such, according to that 61 Eastern Sugar v. Czech Republic, (supra n. 54) para 165.
62 Ibid, para 244.
63 Ibid, para 245.
64 Eastern Sugar, supra (n. 54) para 119(b).
side it followed that there had been no intention of the parties to govern the BIT matters/provisions solely by EU law.
3.2.3 “INCOMPATIBILITY” REQUIREMENT UNDER ARTICLE 59 VCLT
As a final condition regarding Article 59 VCLT, the incompatibility test firstly assumes that the treaties relate to the same subject-matter, however that the provisions of the later treaty “are so far incompatible” with the earlier treaty that the two “are not capable of being applied at the same time”, hence terminating the conflicting treaty. Again, the two perspectives emerged from the arbitral tribunal and the respondent states.
The respondent states that claim that the treaties cannot be applied at the same time, hence arguing for the sole application EU law. In addition, they have listed several reasons on the ways in which EU provisions, covering the same subject-matter, would come before the BIT provisions, thus applying exclusively. In the Eureko instance, the Respondent submitted a ‘comparative table’ tasked with emphasizing and describing the intra-BIT provisions to the EU laws on how they are not as incompatible as the claimants consider them to be. For example, Article 4 of the NL-SLO BIT on ‘free transfer of capital’ has an equivalent in Article 56 of the EC Treaty. Or, that Article 3(1) of the BIT on ‘fair and equitable treatment’ could find an equivalent in the EU’s prohibition on discrimination.
The arbitral tribunals and claimants do not agree with the previous reasoning provided on the precedence of the EU Treaties over the intra-EU BITs. If, hypothetically, those agreements related to the same subject-matter, they should not be considered incompatible, but rather complementary and be able to apply simultaneously. As stated in section 1, BITs offer broad standards of protection and as such they offer more rights to investors. The tribunal in
Eastern Sugar was the one that rendered such provisions complementary to EU law66. Specifically, the Eureko tribunal held that the NL-SLO BIT and EU law were not in conflict under Article 59(1)(b) of the VCLT. The tribunal affirmed that some of the provisions such as fair and equitable treatment, most-favored-nation treatment, and investor-state dispute settlement clauses could not be relied upon within the EU legal order67. Furthermore, the
Eureko tribunal concluded that the BIT assigns investors much broader rights and there
should “no reason why those rights should not be fulfilled and upheld in addition to the rights protected by EU law68”. It was also in the case of Eastern Sugar that the tribunal was of the view that the BIT and the EU Treaty are not incompatible.69
3.3 ARTICLE 30 (3) VCLT
66 Eastern Sugar, supra (n. 54) para 169.
67 Niemela, supra (n.26).
68 Eureko, supra (n.60) para 263.
Article 30 (3) of the VCLT deals with “application of successive treaties relating to the same subject-matter” and reads as follows:
“'When all the parties to the earlier treaty are parties also to the later treaty but the earlier treaty is not terminated or suspended in operation under Article 59, the earlier treaty applies only to the extent that its provisions are compatible with those of the later treaty.”
One of the arguments of respondent states that have invoked Article 30(3) VCLT in investment arbitration is that intra-EU BIT and their ISDS clauses breach the autonomy of the CJEU to preside over disputes involving questions of EU law. This relates to the fact that those parties do not consider the ISDS mechanism as compatible with the later treaty. What is more is that the respondent states claim that the clauses breach the principle of non-discrimination, as the nationals of the contracting states remain the sole individuals able to bring claims under BITs. Yet, arguments concerning such discrimination will be addressed in detail in the following section. This part focuses on Article 30 (3) VCLT regarding treaties with the same subject-matter, in instances where the previous treaty had not been terminated by Article 59 VCLT70. The rule for the application of this provision is that in situations of treaty conflicts of the same subject-matter, the relevant clause in paragraph 3 provides that the earlier treaty only applies to the extent that its provisions are compatible with those of the later treaty. Once more, the opposing views emerge from the regimes concerning the application of Article 30 (3) and in relation to the advantage of ISDS contained in BITs. Firstly, the EC maintains the position that EU law would succeed the BITs in case of applicability of Article 30(3) of the VCLT. But, since intra-EU BITs contain dispute settlement clauses, the argument of the EC is that those mechanisms are contrary to its laws. Instead, the available remedy under EU law comes through the existence of direct effect across the territory of the EU. Therefore, investors can submit their claims in national courts who are acting as community courts within their power, and ensure the application of EU law and norms. Furthermore, individuals have a right to draw the Commission’s attention to the breach of Member State’s obligations, so it can pursue the claim under Article 226 and 228 of the EC Treaty71. A final remedy, and in cases of incorrect or “questionable” EU law application, the court could ask the CJEU for a preliminary ruling under Article 267 TFEU. For those reasons, it could be argued that in the case of the incompatibility between investor-state arbitration and EU law, the EU rules would prevail over the BITs. In addition, the arbitration mechanism in the intra-EU BITs, go contrary to the to the principle of mutual trust72, because investment arbitration in intra-EU relations signals a mistrust in the ability of MS courts to act in accordance with the foundational values of the EU when they implement
70 M. JeŜewski, ‘The EU law and BITs clash: impact on the Polish practice’
<https://www.biicl.org/files/4251_m__jezewski______eu-bits_clash-summary_outline.pdf > accessed 27 July 2018.
71 Kriebaum, supra (n. 53).
EU law73. Thus, the EU should be seen as a comprehensive system that allows investors to claim remedies through it. This is possible, not through arbitration clauses and alternative dispute settlement, but through the EU legal order. As such, the application of the later treaty should follow because the mechanisms of dispute settlement provided by EU law are equivalent to those found in the BITs, making them compatible under Article 30(3).
However, the aforementioned tribunals that dealt with Article 59, also explored Article 30(3). According to the tribunals in Eastern Sugar, Eureko and Oostergetel, the fact that the treaties do not relate to the same subject-matter in the first place, and dismiss Article 59, it is to assume Article 30 (3) VCLT may not be applicable. Additionally, the tribunals concluded that there was no incompatibility, rather a situation of complementarity of the substantive norms. For example, the Eureko tribunal pronounced that the arbitration clause can be extended to all EU investors74.
3.4 DISCUSSION AND INTERIM CONCLUSION
The above conflicting views that re-emerge again throughout the thesis between the concerned actors showcase that there is no clear winner of one particular side. If one considers the arguments brought forward by the parties in the so-far mentioned proceedings, as well as consider the deliberations of the tribunal, they certainly bring out valid points. Yet, with all the arguments in mind, a loophole regarding the termination may still exist. It is one particular point up for discussion, one that neither the VCLT articles nor the arbitral tribunals have addressed in their argumentation on the issues of compatibility of the treaties and it has the potential to challenge the argumentation provided above, known as the “sunset clauses” contained in BITs.
Sunset clauses are provisions within a BIT that allow it to remain in force even after it has been terminated. These withdrawal clauses make the investment agreements effective in respect of investments made before the date of termination for a further specified period (usually ten or fifteen years). Certain treaties, such as the South Africa – UK BIT contain a sunset clause that extends the application of the treaty to 20 years after the termination. A characteristic of these clauses, one that relates to the issue this thesis is focusing on, is that they may hold the ISDS mechanism in place for foreign investors that have incurred harm from host states, or EU MS. Basically, even in situations where the proceedings have not yet commenced, a state can remain liable for treaty violations committed prior to or during the notice period where a sunset clause is in place. For instance, the investor in Gavazzi v.
Romania was able to initiate arbitration under the terminated Italy-Romania BIT, as the
sunset period was not yet expired.75 Hence, a series of questions arise concerning the effect of sunset clauses to the termination of intra-EU BITs. Since the respondent states in arbitral proceedings have raised the argument that the intra-EU BITs and the EU Treaties are invalid, 73 Niemela, supra (n.26) 33.
74 Eureko, supra (n. 60) para 184.
75 Lucian Ilie (Lazareff Le Bars), ‘What is the Future of Intra-EU BITs?’ (Kluwer Arbitration Blog, 21 January 2018) < http://arbitrationblog.kluwerarbitration.com/2018/01/21/future-intra-eu-bits/ > accessed 27 July 2018.
what could be the procedure with regard to sunset clauses. More specifically, what would be their effect on the termination by the parties implicit or explicit in nature?
For instance, if a party, like the Czech Republic considered that their intra-EU BITs are terminated, implicitly, under Article 59 (same subject-matter), how are those sunset clauses “disapplied” in such situations? Have the MS terminated their obligations in relation to their intra-EU BITs, without specifying when and how that termination occurred. If it is through unilateral termination by the host state on the basis of the same subject-matter test, that would leave the door open for abuse of termination process that may create legal uncertainty between the parties. In addition, if the treaty is terminated unilaterally, the legal uncertainty is strengthened as there would be lack of notification that a BIT between two MS might not be in force. In the case where EU MS would explicitly wish to terminate their intra-EU BITs, they must declare and notify the other party to the treaty. This leaves two options: firstly, if the termination is mutual, the parties to the BIT, should relevant procedure to terminate. Secondly, they must attempt to amend the treaty, so as to allow them to exclude the sunset clauses and only after initiate termination proceedings.
Furthermore, another un undetermined aspect of the application on conflict rules with regard to termination is the narrow and broad interpretation concerning the same subject-matter of the treaties. The actors of the regimes adopt an either/or approach, and offer no mention of Article 31 of the VCLT which deals with treaty interpretation. With that, it can be said that there is no definitive approach to interpretation concerning this issue. For example, the respondent in Eureko claimed that its opponent’s approach on what constitutes the “same subject-matter” for the purposes of the VCLT as too narrow.76 Thus, it argued for a broad, all-encompassing interpretation on the same subject-matter point. According to the Slovak Republic, the “VCLT requires that both treaties “relate to” the same subject-matter: not that they cover or regulate exactly the same subject-matter.”77 As for the arbitral tribunals and MS, they hold on to the narrow interpretation as it allows them to safeguard the treaty provisions that they have so long adhered to. Moreover, they have opposed more general, all-encompassing treaties like the EU ones, that do not have “detailed and particularised provisions on the protection to be afforded to investments”. Eureko concluded that the while the EC Treaty offers protections of investments, this does not mean the BIT and the EC Treaty relate to the same subject-matter.
These arguments are compelling for two reasons, first, with their unwavering stance on the matter, and two that in principle they are both legally solid. However, I find that the arguments raised by the arbitral tribunal and claimants concerning the narrow interpretation of the same subject-matter test in BITs more persuasive. The reason for this is because, given the history of the BITs and the way they operate, the provisions contained in them are “unique” and solely guaranteed in conventions such as those. Given the previous case law, by ICSID or UNCITRAl, their interpretation substantive and procedural provisions found in BITs, which has been used to protect foreign investors against arbitrary uses of power. In my 76 Eureko, supra (n. 60) para 72.
opinion, the investment law regime is distinctive to that of the EU. Those narrow rights, such as FET, MFN are synonymous protections found in BITs and safeguarded by investment tribunals. However, it is not to say that the EU regime does not offer similar protections. The regulation of EU’s internal market by EU’s legal order is unique in its own way as well. Yet, having the investor-state mechanism in place is more beneficial for the investments of foreign investors, as a sole regime, rather than the more general EU one. Perhaps, I consider that having those regimes act complementary with one another would enlarge the scope of protections to investors, and create a reliable system of investment law across the EU.
4 THE DISCRIMINATION ISSUE IN MATTERS OF TREATY
INCOMPATIBILITY
One of the cornerstones of the EU regime is its prohibition of discrimination on grounds of nationality through Article 18 TFEU. As noted in the Achmea judgment, that particular article was submitted to the CJEU for the preliminary reference, however since the CJEU effectively determined that the ISDS mechanism was incompatible with its own legal regime through the analysis of Articles 344 and 267, it concluded that there is no need to expand on discrimination. However, that is not to say that there is no controversy surrounding it. This section will continue with the legal doctrine analysis of Article 18 in relation to the incompatibility of the intra-EU BITs and EU law. As previously, the section will place focus on the perspectives of both regimes illustrated in case law (Eureko, Eastern Sugar, and Jan
Oostergetel). Finally, it will offer a discussion on the impact and relevance and follow up
with an interim conclusion.
4.1 CONFLICT OF TREATIES LEADS TO DISCRIMINATION?
The sub-question that this section of the thesis asks: in which way does the conflict between intra-EU BITs and EU law lead to discrimination? In addition, how does it relate to the arguments relevant in Achmea and the development of EU (investment) law? Furthermore, what does it mean for the application and interpretation of EU law – namely, does it hinder the CJEU’s supervision and control of the EU legal regime?
To begin with, the issue starts with the treatment the intra-EU BITs accord to their parties. They add substance and procedure rules that give the foreign investors a protection mechanism. In the case at hand, the NL-SLO BIT gave the Dutch investors an opportunity to receive a variety of substantive rights (FET, MFN, NT) as well as procedural rights (investor-state arbitration clause) guaranteed by the Slovak Republic, and allow foreign investors to utilize that particular one to initiate proceedings before the Permanent Court of Arbitration (PCA). However, in the Union’s eyes, this treatment accorded to investors of one contracting state in relation to the host state of investments is discriminatory. The different treatment is thus evident due to ‘the bilateral character of the treaty’78, meaning that two parties of a treaty could conclude one that may offer a particular set of protections to their counterpart, but there
would be no guarantee of that treatment being granted to other MS or investors from other MS. Hence, the EU’s argument is that those intra-EU BITs provide a different, discriminatory treatment and as such are incompatible with EU laws. What is more, is that due to the system of international investment law in place, the overlapping scope between the regimes and the existence of the ISDS clause providing for arbitration, may lead to additional conflicts79. In particular, investors from other MS who are not party to the treaty may claim that they are disadvantaged, as they would not enjoy the same protections offered by it. In its observations made in Eureko, the Commission concluded that it was not convinced that arbitration is a more effective redress than a national court of a MS is, or through its own mechanisms.80 Secondly, those investors would not have access to arbitrate disputes with the MS because the treaties are between the two parties themselves, and not open to the others. Hence, the application of intra-EU BITs could lead to a more favourable treatment of certain investors and investments covered by the BITs and consequently discriminate against other MS, a situation which would not be in accordance with the relevant Treaty provisions.81 Furthermore, the EC in Eureko was opposed to resolving the discrimination issue positively by extending the ISDS mechanism to other investors. Relying on previous case law, namely the MOX case, it is opposed to outsourcing the disputes that involve EU law to arbitral tribunals falling outside the premise of the Union.82 With all this, it can be noted that different treatment is accorded to some, whether by choice or de jure, however it remains to be seen if it can be justified or remedied.
4.2 PERSPECTIVE OF THE REGIMES
In order to further develop the discrimination arguments, this part will turn on a particular CJEU judgment which received a lot of criticism. In the D. v Inspecteur van de
Belastingdienst case, the CJEU, did, accept a differential treatment accorded to a person
which resulted from a double taxation treaty.83 Which raises concerns on why that would be appropriate under that kind of treaty, but not intra-EU BITs. The facts of the case were as follows: Mr. D, a German resident in the Netherlands, owned taxable real estate property but was not entitled to wealth tax allowance. The issue with the wealth tax allowance was that under the double taxation treaty between the Netherlands and Belgium, German residents – such as Mr. D, were not able to claim those rights. So, in the proceedings against, the CJEU analysed the facts of the case and reaffirmed that “in the absence of the common rules, MS were at liberty to determine in the framework of double taxation treaties the connecting factors for the purposes of allocating powers in taxation, and accepted that the differential treatment resulting from that allocation could not constitute unlawful discrimination.” In addition, the CJEU declined to extend the rights of the BIT to other EU residents. The 79 Ibid, 4.
80 Eureko, supra (n.60) para 183.
81 EC Letter MR. Schaub wrote in https://www.italaw.com/sites/default/files/case-documents/ita0259_0.pdf
para 119.
82 Eureko, supra (n.60) para 184.
83 Case C-376/03, D. v Inspecteur van de Belastingdienst/Particulieren/Ondernemingen buitenland te Heerlen, [2005] I-05821.
reasoning behind it was that it could alter the overall balance of the bilateral treaty, one that was based on “reciprocal rights and obligations.”84 The criticism on this case included the placement of the double taxation treaties over the the fundamental rules and principles of EU law. 85
Furthermore, arbitral tribunals have responded that in instances of unjustified discrimination, the remedy available would be to resolve the matter ‘positively’- or to extend the rights to other EU MS. The BGH, has been of the similar opinion as it considered that access to investment arbitration should be granted to investors from all MS instead of sacrificing intra-EU BITs.86 Likewise, the AG’s attempt in declaring that there was no incompatibility between the treaties is another way of reading that there is no issue with discrimination. In the AG’s opinion, he notes that the TFEU does not provide for an MFN clause. The MFN serves the purpose of extending preferential treatment to other investors of other MS, in the same way that it is offered to the parties of the treaty. It is noted in the AG’s opinion, that there is no discrimination where a MS does not afford the nationals of another MS the treatment which it affords, by convention, to the nationals of a third MS.87
4.3 DISCUSSION AND INTERIM CONCLUSION
Given the options of resolving discrimination, the positive way of extending the rights and the negative way to eliminate the conflicting provisions, I side with the ‘positive’ method offered. The reason for this is just because the rights in the BIT are unequal, it does not render them incompatible.88 The existing framework would be easier to amend and make it new, attractive and competent, rather than opting for the elimination of an entire regime of intra-EU BITs. Without a framework, there are bound to be difficulties in securing and enforcing the foreign investors’ rights. The following part will also touch upon possible new forms of discrimination (ones between EU MS and their remaining BITs with non-EU MS) that may arise if the intra-EU BITs are terminated.
5 IMPLICATIONS AND CONSEQUENCES OF THE ACHMEA
JUDGMENT
After elaborating on the arguments in the analytical sections 3 and 4, this part will offer a comparative assessment on the implications and consequences these two viewpoints of the regime have. It will note the relevance that they carry, especially for the future development 84 Fecak, supra (n.3) 479.
85 Ibid, reference omitted.
86 Anne-Karin Grill and Sebastian Lukic, ‘The End of Intra-EU BITs: Fait Accompli or Another Way Out?’ (Kluwer Arbitration Blog, 16 November 2016) < http://arbitrationblog.kluwerarbitration.com/2016/11/16/the-end-of-intra-eu-bits-fait-accompli-or-another-way-out/ > accessed 27 July 18.
87 Anna de Luca, ‘The Intra EU-BITs in the Opinion of AG Wathelet between Light and Shadow’ (Kluwer Arbitration Blog, 4 February 2018) < http://arbitrationblog.kluwerarbitration.com/2018/02/04/intra-eu-bits-opinion-ag-wathelet-light-shadow/ > accessed 27 July 2018.
