1
Arbitration under the Energy Charter
Treaty (ECT): jurisdictional objections and
enforcement difficulties in light of the
Achmea judgment
Viktor Radev
E-mail:
viktor.r.radev@gmail.com
Student Number: 12725854
Track: International Trade and Investment Law
Supervisor: Vid Prislan
2
Abstract
International investment arbitration has in recent years seen a clash of interests and an immense struggle for power between the regimes of public international and European constitutional law. Through the decision in Achmea the latter has attempted to make the process as cumbersome and unappealing as possible in its own domain – the European Union. When it comes to Intra-EU investments, European institutions are frustrating
proceedings at every single procedural stage they have influence over, from the jurisdictional phase to enforcement and recognition of awards. This work seeks to analyze the procedural challenges without dwelling into the merits of the disputes. In doing so it attempts to side with investors and provide sustainable argumentation for them to utilize in encountering the challenges laid down by the Union. In order to additionally narrow scope, the paper is focused on the interplay between these obstacles and a multilateral treaty in the face of the Energy Charter Treaty (ECT). Understandably, international tribunals, being creatures of international law, favour the public international law approach whilst European courts are more akin to side with European law. Each of these approaches is stronger at a different stage of proceedings. Jurisdictional objections are dealt with by tribunals at the plain of international law. It is thus easier for the public international law conception of international arbitration to prevail at that stage of proceedings. This is evident by the multiple rejections of the Achmea jurisdictional objection, ranging from fact-specific findings, through generally flat considerations of the CJEU’s language, all the way to carefully reasoned analyses of the relationship between European and international law. On the contrary, it is the Union courts which are the “home grounds” for the enforcement and recognition of intra-EU arbitration awards in the majority of cases. Thus, actions such as the classifications of the payment of arbitration awards as notifiable state aid, prove to be an almost insurmountable obstacle to most investors. The paper shows that it is still possible to obtain enforcement, however, this is usually due to an extremely specific timeline of events or factual scenario, as in Micula, or outside the boundaries of the Union. A problematic aspect for investors is that there is
significant uncertainty even beyond the boundaries of Europe as third states have through the usage of various doctrines enabled defendants to rely on annulment decisions rendered abroad unless specific high-threshold conditions are met. In order to prevent the uncertainty associated with foreign enforcement, the paper moves on to explore the options for
circumventing the challenges through different means such as enforcement under the ECHR. It is unfortunately concluded that despite being available, these “exotic” options are of limited usage due to their general undesirability, conditionality based on high-thresholds, or uncertainty. The paper refrains from making conclusion due to the recency of developments and the ongoing status of most cases discussed but entertains the possible end of traditional investment arbitration in Europe, despite the bright rays coming from the application of the public international approach.
3
Contents
Abstract ... 2
Arbitration under the Energy Charter Treaty (ECT): jurisdictional objections and enforcement difficulties in light of the Achmea judgment ... 4
Introduction ... 4
What happened in Achmea and what are the consequences? ... 6
How does Achmea apply to arbitration under a multilateral treaty?... 8
What are the challenges at the enforcement stage? ... 17
Can investors completely avoid the obstacles before obtaining and enforcing intra-EU awards? ... 23
Conclusion ... 27
4
Arbitration under the Energy Charter Treaty (ECT):
jurisdictional objections and enforcement difficulties in
light of the Achmea judgment
Introduction
It is no secret that ISDS between a European state and an European investor is a thorn in the eye of the European Union at both the institutional and member state levels. European States are moving towards terminating their BITs. Participants in this process are both exporting states (within the European market) such as the Netherlands, as well as capital-importing states like Romania.1 This has been regarded by some to demonstrate the
worldwide withdrawal from globalism and the rise of nationalism.2 These tendencies are expressed in the recently developed Achmea jurisdictional objection and the increasing difficulties surrounding the enforcement of intra-EU awards.3 The key question at the core of this work is essentially “How can investors deal with and respond to the challenges laid before them in an intra-EU ISDS proceeding?”. In particular, I will focus on arbitration proceedings initiated under a multilateral treaty. The multilateral treaty of choice will be the Energy Charter Treaty (ECT). This is for two reasons. First, whilst member states seem to be moving towards terminating the BITs amongst themselves, the amendment and termination of a multilateral treaty such as the ECT is a lot more difficult due to the involvement of non-EU parties. Thus, given the policy of the Union, it is likely that debates surrounding the legitimacy of ISDS under the ECT will only escalate in the future. Second, it is precisely the ECT which is the ground for a large number of the currently ongoing intra-EU investment arbitration processes.
The question will be answered in four substantive sections. The first one will attempt to provide the context for the rest of the paper with a discussion of the case of Achmea and its consequences. This part will be mainly focused on a comparison of the different approaches taken by the Court of Justice of the European Union and the Advocate General. The second section will discuss the applicability of Achmea to a multilateral treaty. In doing so it will showcase the so-called “international” approach to investment arbitration most clearly evidenced in the reasoning of the tribunals in Vattenfall and Eskosol when compared to the
1 C Baltag, “Green Light for Romania to Terminate its Intra-EU Bilateral Investment Treaties”, Kluwer
Arbitration Blog, 14th of March 2017, available at
http://arbitrationblog.kluwerarbitration.com/2017/03/14/green-light-for-romania-to-terminate-its-intra-eu-bilateral-investment-treaties/ (accessed 04.05.2020)
2 M Davoise and M Burgstaller, “Another one BIT the Dust: Is the Netherlands’ Termination of Intra-EU
Treaties the Latest Symptom of a Backlash Against Investor-State Arbitration”, Kluwer Arbitration Blog, 11th
of August 2018, available at http://arbitrationblog.kluwerarbitration.com/2018/08/11/another-one-bit-dust-netherlands-termination-intra-eu-treaties-latest-symptom-backlash-investor-state-arbitration/ (accessed 04.05.2020)
5 logic of the arbitrators in Masdar.4 It is my view that investment arbitration is approached
through an international lense by arbitration tribunals and through a European constitutional lense by Union courts and institutions. Thus, the entirety of the conflict is one of primacy. There is no correct approach to resolving the conflict, it is a matter of perspective. As a student versed in international law I am siding with investors and the public international law approach and the core of this work is an attempt to justify its prevalence over European constitutional values. This, however, should not be understood as saying that the European constitutional side is inferior or without its merits. It is a side that will surely be and has been convincingly supported by scholars of European law and its constitutional regime. My
emphasis is that the problem at hand is not black and white, but falls in the grey area. There is not one correct approach to it or a right side to take, the matter is one of perspective, policy considerations, proportionality, and a weighing of interests.
The most interesting aspect of this debate are the different “battlefields” existing in the skirmish between international and European law. In order to better illustrate the idea, I would like to reader to imagine a two-legged sports game where both teams share the
advantage of playing in front of their own fans in one of the legs. One team is represented by the claimant investor and one by the defendant member state. Jurisdictional objections are dealt with by the tribunal who is a creation of international law. It is in this regard that the jurisdictional phase happens at the international level or on the home ground of investors which makes it easier for the international perspective to prevail. On the contrary, as will be shown in section III, the enforcement and recognition process would be the away game in the match-up when it happens to take place before a court of the Union. This would be
demonstrated through an analysis and contextualization of the Micula saga.5 The last section will see the possibilities for investors to shift the balance of powers in their favour by
avoiding the “away game” and attempting to play the match at a neutral field. This
examination will commence with a consideration of the merits of the other arbitration option provided in the ECT - a procedure before domestic courts. Seeing that it is the purpose of investment arbitration to enable investors to avoid domestic court systems, my findings of undesirability will perhaps not come as a surprise. The external possibilities which I will consider are enforcement in third states and enforcement before the European Court of Human Rights (ECtHR). It will be concluded that both options are available and may prove to be useful, however, they are both lacking to some extent and fail in providing the ultimate and generally applicable solution desired by investors and their counsel.
4 Vattenfall AB and Others v. Federal Republic of Germany, ICSID Case No.ARB/12/12, Eskosol S.p.A. in
liquidazione v. Italian Republic, ICSID Case No. ARB/15/50, and Masdar Solar & Wind Cooperatief U.A. v. Kingdom of Spain, ICSID Case No. ARB/14/1
5Ioan Micula, Viorel Micula, S.C. European Food S.A, S.C. Starmill S.R.L. and S.C. Multipack S.R.L. v.
6
What happened in Achmea and what are the consequences?
Prior to commencing the substantive part of this work and attempting to answer the question that is at its core, a brief section providing context is required. One cannot initiate an analysis and theoretize on the application and effects of the ruling of the CJEU in Achmea on
multilateral treaties without first familiarizing themselves with the dispute and its general consequences. The dispute in Achmea concerned the compatibility of the dispute settlement clause contained in the Dutch-Slovak Bilateral Investment Treaty (BIT) with the general provisions of European Union law.6 The conflict was about a partial reversion of
liberalisation of the Slovakian insurance market. The legislative measures had supposedly caused harm to Achmea which brought arbitration proceedings under article 8 of the BIT. The proceedings were carried out under the arbitration rules of the United Nations
Commission on International Trade Law (UNCITRAL) with the seat of arbitration being Frankfurt am Main, Germany. Following its defeat on the merits, Slovakia attempted to set aside the award on the basis of a lack of jurisdiction of the arbitral tribunal. The Slovak arguments were based on the idea that the relationship between Slovakia and Netherlands is governed by the treaties of the EU and not by the BIT. Through its accession, “the Slovak Republic became part of a specific system of law which creates a much more complex, wide-reaching and elaborate framework of investment protection and human rights than that provided by the BIT”.7
Slovakia based its setting aside application on the incompatibility of article 8 of the BIT with articles 18, 267 and 344 of the TFEU.8 The articles are respectively, a prohibition on any discrimination based on the grounds of nationality, the ability of the CJEU to give a
preliminary ruling and of courts to request such rulings, and lastly, a commitment to submit disputes concerning application or interpretation of the Treaties to methods provided therein. The Higher Regional Court of Frankfurt rejected Slovakia’s arguments.9 The ruling was
appealed to the German Federal Court of Justice which submitted a preliminary ruling request to the CJEU. In doing so, it presented its opinion that the BIT clause is not incompatible with the European treaties. In its decision, however, the CJEU drastically departed from both the opinion of the Advocate General and the German court and ruled the dispute settlement provision incompatible with EU law. Judges commenced with a reminder on the primacy of EU law and the structure and purpose of the judicial system of the Union. The Treaties had, according to the court, “created a judicial system intended to ensure consistency and uniformity in the interpretation of EU law”.10 The keystone of this judicial
system is the preliminary ruling procedure which enables judicial dialogue and secures
6 Bilateral Investment Treaty concluded in 1991 between the Kingdom of the Netherlands and the Czech and
Slovak Republic
7 Achmea B.V v. The Slovak Republic, UNCITRAL, PCA Case No. 2008-13 (formerly Eureko B.V v. The Slovak
Republic), Award on Jurisdiction, Arbitrability and Suspension, 26 October 2010, para 58
8 Treaty on the Functioning of the European Union, 1957
9 Oberlandesgericht Frankfurt, Decision of 18 December 2014 - Case 26 Sch 3/13 10 Achmea (n1) para 35
7 uniformity, consistency, and full effect of the Treaties.11 Seeing that the arbitral tribunal was
called on to interpret and apply provisions of EU law, it was important to ascertain its position in the judicial system of the Union. The importance of an arbitral tribunal being situated in the judicial system of the EU is that its decisions are subject to mechanisms, such as the preliminary ruling procedure, which ensure the full and uniform application of Treaty law.12 As provided in the text of article 267 TFEU, recourse to this procedure is available to a
“court or tribunal of a Member State”. Being neither a court nor a tribunal of a Member State, the arbitration tribunal of the present case was logically deemed not to have access to the procedure. Furthermore, the Award of the tribunal was final and not subject to an appeal on the merits. The only possible form of judicial review in the present scenario were the limited review provisions of German arbitration law.13 In light of these findings it was concluded that
the dispute settlement mechanism established in the BIT was incapable of ensuring the uniformity in application and full effect of EU law. The two Member States had removed the dispute from the jurisdiction of their own courts, and hence the judicial system of the
European Union. Seeing that the clause enabled a tribunal to interpret and apply EU law without recourse to the judicial remedies provided by the European treaties, the clause was held to be incompatible.14
The judgment was impactful and groundbreaking, but in no way surprising. It should be read in the political context characterized by a public backlash against investor-state dispute settlement, a continuous opposition of the European Commission against intra-EU BITs.15 The effects of the decision are far-reaching and will have a great effect on arbitration under intra-EU BITs. Every dispute to be carried out under such a BIT can in one way or another be concluded to engage in a binding interpretation of EU law falling outside of the oversight of the CJEU. Thus, every award would in principle, be incompatible with EU law by definition. The revolutionary finding of the court creates obligations for arbitral tribunals, member states, and the domestic judiciary.16 Arbitration tribunals now have to reconsider their
jurisdiction under intra-EU BITs. Member States are under an obligation to eradicate any incompatibilities between the BITs in force and EU law. Thus, they would have to either amend them or terminate them. Lastly, domestic judges are also burdened with the task of refusing to enforce or recognize arbitral awards granted by tribunals falling within the scope of Achmea. The entirety of these developments taken together signify a grim future for investor-state arbitration amongst members of the EU with potential claimants being
11 ibid. para 37 12 ibid. para 43 13 ibid. para 53 14 ibid. paras 55-60
15 C Fouchard and M Krestin, “The Judgment of the CJEU in the Slovak Republic v Achmea - A Loud Clap of
Thunder in the Intra-EU BIT Sky!”, Kluwer Arbitration Blog, 7th of March 2018, available at
http://arbitrationblog.kluwerarbitration.com/2018/03/07/the-judgment-of-the-cjeu-in-slovak-republic-v-achmea/
(accessed 12.04.2020)
16 A Dimopolous, “Achmea: The Principle of Autonomy and its Implications for Intra and Extra-EU BITs”,
European Journal of International Law, 27th of March 2018, available at https://www.ejiltalk.org/achmea-the-principle-of-autonomy-and-its-implications-for-intra-and-extra-eu-bits/ (accessed 12.04.2020)
8 incapable of resorting to dispute settlement clauses due to insurmountable obstacles at every level of the process, from jurisdiction to enforcement.
The decision of the CJEU and the desirability of the consequences it would bring to investor-state arbitration have been heavily disputed ever since the ruling was delivered. The
divergence of opinions can most clearly be observed in the extreme differences between the ruling of the Court and the Opinion of AG Wathelet.17 The Advocate General embarked on an eager defence of ISDS and firmly concluded that the BIT in question and its dispute settlement mechanism are compatible with EU law. However, joyful hailing of this opinion as supportive of ISDS would be a premature step for investors and practitioners to take as it is hardly a ray of light. It was arbitration that emerged victorious in the Opinion of the
Advocate General, but that victory was in reality pyrrhic. According to the Advocate General, tribunals - being similar to domestic courts of Member States, are fully bound by the
jurisprudence of the CJEU. It was upon this principle of equality that Wathelet concluded tribunals are free to request preliminary rulings and found compatibility between the dispute settlement provisions of the BIT and EU law. The conclusion was met immediately with a fierce backlash, arbitration practitioners called it a “poison pill”, “political”, and claimed to have spotted a hidden agenda pertaining to the “Europeanisation” of investor-state
arbitration.18 Even if the approach of the Advocate General was to be adopted, it would still be the European institutions who will emerge victorious from the dispute with arbitral tribunals being effectively subordinated to the case law of the CJEU. The consequences of a decision following this approach would have been even more destructive as neutrality would have been destroyed with the Union being capable of pushing tribunal decisions in a desired direction in pursuit of political goals. Whilst the judges seek to destroy investment claims under those BITs at the jurisdictional stage, the alternative argumentation of Wathelet enables restrictions in the application of the law on the merits.
How does Achmea apply to arbitration under a multilateral
treaty?
In order to present the background for further discussion, I have so far presented and analyzed the decision of the Court and the accompanying Opinion in respect of intra-EU BITs. However, the essence of this paper seeks to address the challenges investors are facing in multilateral treaty arbitration. Prior to engaging with the fundamental question of this work, and the workings of the Energy Charter Treaty (ECT), however, some further background on the treaty and its importance in the world of international arbitration is 17 ECLI:EU:C:2017:699
18 See for example N Lavranos, “The Poison Pill for Maintaining Intra-EU BITs Arbitration”, Thomson Reuters
Practical Law Arbitration Blog, 28th of September 2018, available at
http://arbitrationblog.practicallaw.com/the-poison-pill-for-maintaining-intra-eu-bits-arbitration/ (accessed 18.04.2020) and I Dimitrov, “Digesting the AG Wathelet Opinion in Case C-284/16 Slowakische Republik v
Achmea BV. Is it a Trap?”, Kluwer Arbitration, October 7th 2018, available at
http://arbitrationblog.kluwerarbitration.com/2017/10/07/digesting-ag-wathelet-opinion-case-c-28416-slowakische-republik-v-achmea-bv-trap/ (accessed 18.04.2020)
9 required. The ECT has consistently been, since the registration of its first case in 2001, one of the leading instruments for requesting arbitral proceedings. As of 2019, there had been 121 different disputes invoked under the ECT.19 The treaty is unique due to the fact that it contains investment provisions.20 These provisions are covered by the Dispute Settlement articles contained in Chapter V. Thus, the ECT is a multilateral treaty which enables the commencing of an investment dispute. If debates regarding the application of the Achmea jurisdictional objection in the bilateral domain are a hotpot, the “dialogue” regarding its application at the multilateral level is a boiling cauldron. The jurisdictional defence of primacy of EU law is time-limited in the context of BITs, that is, the problem will disappear once intra-EU BITs are eventually terminated. On the other hand, the situation is drastically different with multilateral treaties where conflict of law issues will persist. In particular, amendments of the ECT, which is the one being examined in this work, are notoriously difficult. Amendments are submitted to the Energy Charter conference where they are being voted on by the parties. Adoption requires three-quarters of the parties to vote in favour and amendments are only binding to those who ratify or approve. The potential consequences of
Achmea on multilateral treaties, amongst which the ECT, would be much more lasting and
challenging to overcome.
The usage of EU law as a jurisdictional objection to the competence of arbitral tribunals established under the ECT is no innovation.21 Respondent states have long relied on the EU jurisdictional challenge in intra-EU disputes between a Member State and a national of another Member State.22 Prior to Achmea respondents were attempting to argue the existence
of an implied disconnection clause.23 Even where parties have been reluctant to address the tribunal’s competence, the European Commission has advanced the argument through amicus briefs.24 Observation shows that this argument does not hold very well and is dismissed by tribunals. It is difficult to find an intention to include a disconnection clause following the treaty interpretation methods provided by the Vienna Convention on the Law of Treaties.25
The fact that the Union and Member States have signed many other mixed treaties in which they had included disconnection clauses shows that there is no general practice of not
19 “The Energy Charter Treaty (ECT) Remains the Most Frequently Invoked IIA” Energy Charter Treaty
Website, 11th of January 2019, available at https://www.energycharter.org/media/news/article/the-energy-charter-treaty-ect-remains-the-most-frequently-invoked-iia/ (accessed 18.04.2020)
20 Energy Charter Treaty Part III
21 M Happold and M De Boeck, “The European Union and the Energy Charter Treaty: What Next After
Achmea?” in M Andenas, M Happold and L Pantaleo (eds), “The European Union as an Actor in International Economic Law” (T.M.C. Asser Press, 2019, 1st edn)
22 For further discussion see G Bermann, “European Union Law as a Jurisdictional and Substantive Defense in
Investor-State Arbitration”, (2017) 5(2) European International Arbitration Review and K Maxwell, “The intra-EU Objection” and the ECT: a consistent pattern of decision making?”, Thomson Reuters Practical Blog, July
26 2016, available at http://arbitrationblog.practicallaw.com/the-intra-eu-objection-and-the-ect-a-consistent-pattern-of-decision-making/ (accessed 25.04.2020)
23 An example of such an argument can be found in Rockhopper Italia S.p.A., Rockhopper Mediterranean Ltd,
and Rockhopper Exploration Plc v Italian Republic ICSID Case No. ARB/17/14, Decision on the Intra-EU
Jurisdictional Objection from the 29th of June 2018, para 70
24 See for example RREEF Infrastructure (G.P.) Limited and RREEF Pan-European Infrastructure Two Lux
S.a.r.l. v Kingdom of Spain, ICSID Case No. ARB/13/30
10 including disconnection clauses when intended and is yet another persuasive argument
against the finding of an implicit one. Furthermore, a recent academic study of the travaux
preparatoires of the ECT conducted by Johann Robert Basedow focused precisely on
whether a disconnection clause could be implied to exist in the treaty based on the
negotiations preceding its conclusion.26 The observations carried out by him evidence that the applicability of the ECT intra-EU was discussed and negotiated by contracting parties. Some of these parties were hesitant of limiting the application of the treaty and eventually the EU yielded and dropped its demands for a disconnection clause. These findings show that a disconnection clause cannot be found to exist in the ECT under any of the analytical methods provided by the VCLT. On the contrary, historical analysis even demonstrates that a
disconnection clause was discussed and discarded. The approach to the issue has been well affirmed and applied consistently by panels of arbitrators. In fact, the raising of a
jurisdictional objection and its subsequent dismissal by the arbitrators has become something akin to an ECT arbitration tradition.
Another popular objection based on EU law is that the language of article 26(1) of the ECT precludes intra-eu arbitration.27 The basis for this argument is that any dispute brought by a
EU national against an EU national concerns an investment made by a European legal or natural person on European territory. Thus, the international element is lacking and the proceedings are to be governed by EU law. Much like the previous jurisdictional challenge, this has also been routinely rejected by tribunals. The EU is before all an international organization - a creation of its Member States. As of now, no formal role for international organizations has been recognized in the consideration of nationality of claims. Furthermore, even if investors are to be recognized to also carry the nationality of the Union rather than that of their home states alone, it will still be easy to warrant a claim under traditional principles of dual nationality in arbitration. Demonstrating that the dominant nationality of the investor is in fact the one of its home member state should be no difficult task.28 Prior to
Achmea investors were generally in a very safe position regarding the hearing of their claims
by tribunals established under the dispute settlement provisions of the ECT.
The CJEU’s ruling in Achmea provides a different opportunity for respondent states. They now have an authoritative and binding interpretation of EU law on top of which they
construct jurisdictional objections when faced with investor claims. This is most certainly the case in arbitral proceedings under BITs and respondents have attempted to extend its
application to investor-state arbitration arising under multilateral treaties. Thus, ECT
tribunals have been forced into charting the familiar yet vastly different uncanny valley of EU law jurisdictional objections in the post-Achmea intra-EU arbitration. The dispute settlement provision of the ECT is very similar in its structure and content to those found in modern day BITs. Tribunals established under a BIT operate in the same way as tribunals established 26 J. Robert Basedow, “The Achmea Judgment and the Applicability of the Energy Charter Treaty in Intra-EU
Investment Arbitration”, 23 Journal of International Economic Law (2020) 271.
27 See for example PV Investors v Kingdom of Spain, PCA Case No 2012-14, Preliminary Award on Jurisdiction
from the 13th of October 2014
11 under a multilateral treaty. Just like BIT tribunals, ECT tribunals operate outside of the
European legal order and are unable to request preliminary rulings.29 Thus, the attempts at expanding the net, cast by the CJEU, are not unforeseen or surprising. The European Union is walking the path towards a relinquishing of investor-state arbitration amongst its members, however, there are many thorns in its heels and of the largest and most painful ones is the ECT - the treaty which has for years been the source of more investor-state claims amongst members than any other treaty.30 In delivering its judgment in Achmea the CJEU was addressing BIT arbitration, but its constitutionalist approach and background policy
considerations were surely also eyeing the ECT. The approach to the application of the new development taken by institutions is not surprising and is in line with the broader political goals of the Union.31 As previously stated, the Commission has frequently raised
jurisdictional objections to ECT intra-EU arbitration. Furthermore, if this was not sufficient, it has made its position crystal clear by stating that “ECT does not apply to investors from other Member States initiating disputes against another Member States”.32 This reasoning has
also been endorsed by traditionally capital-exporting states such as the Netherlands which has endeavoured to terminate all of its remaining intra-EU BITs and acknowledged the
application of Achmea to ECT arbitration.33
Despite the similarities, however, there are several elements which are drastically different between the ECT and a traditional BIT and which might theoretically be argued to preclude the application of Achmea.
First and foremost, the EU is a signatory to the ECT and is bound by its provisions. Practice, however, has shown that such membership does not preclude the EU from restricting the interpretation of its law by dispute settlement bodies falling beyond the boundaries of its internal legal system. Indeed, this has been the case with the EEA court which was found to be incompatible with EU law all the way back in 1991.34 It was almost 30 years ago that the
CJEU first recognized the dangers of delegating interpretation of Community rules to a court the interpretations of which are not subject to the judicial review procedures prescribed by the European treaties. More recently, this approach has been taken in respect to the European Convention of Human Rights where the court expressly stated that “any actions by the bodies given decision-making powers by the ECHR, as provided for in the agreement envisaged, must not have the effect of binding the EU and its institutions, in the exercise of their internal
29 This has been recognized by tribunals themselves. See Novenergia II - Energy & Environment (SCA), SICAR
v Kingdom of Spain, SCC Case No. 063/2015, Final Award from the 15th of February 2018, para 461
30 For statistics see Investment Policy Hub - https://investmentpolicy.unctad.org/ (accessed 25.04.2020)
31 Communication from the Commission to the European Parliament and the Council: Protection of Intra-EU
Investment COM/2018/547
32 Decision SA.40348 (2015/NN) - Spain, Support for electricity generation from renewable energy sources,
cogeneration and waste from the 10th of November 2017, para 156
33 Statement of the Minister for Foreign Trade and Development Cooperation from the 26th of April 2018,
available at
http://res.cloudinary.com/lbresearch/image/upload/v1525256243/kamerbrief_over_investeringsakkoorden_met_ andere_eu_lidstaten_24118_1117.pdf (accessed 25.04.2020)
12 powers, to a particular interpretation of the rules of EU law”.35 The EU can be bound by
decision-making bodies created under international agreements to which it is a party, but only so far as they are limited to the interpretation and application of the relevant agreement. Another striking example of the CJEU protecting its exclusive jurisdiction over interpreting Community law can be seen in the Court’s ruling in the Mox Plant saga.36 The judges
developed a broad definition of the Court’s exclusive competence. In doing so they found that the CJEU is the final dispute settlement body regarding all aspects of Community law, including aspects of international law which have become an integrated part of the
Community’s legal order.37 It was held that an international agreement cannot affect the
exclusive jurisdiction of the Court concerning the interpretation and application of Community law.38 These findings of the CJEU are not surprising given the process of
globalization and the proliferation of a plethora of treaties providing for arbitration through both ad hoc and institutionalized tribunals. An undermining of jurisdiction could lead to a fragmentation and incoherent application of Union law.39 From this perspective, the answer appears to be clear and disappointing to investors - the ruling of Achmea is part of a long-running judicial practice and there is little reason as to why it should not apply to the ECT, given the similarity of dispute settlement under the bilateral treaty between Slovakia and the Netherlands and the multilateral energy charter.
How are the differences settled in practice?
There is nonetheless a key factor which investors can rely on and that is that the CJEU has not made a direct reference to arbitration under the ECT in the ruling. In fact, this lack of direct and express evidence, as exists in respect to other dispute settlement bodies showcased above, has been utilized by a number of ECT tribunals in order to reject an Achmea-based jurisdictional challenge. The first post-Achmea ECT dispute was Masdar v Spain.40 The respondent state in this dispute sought to immediately utilize the recent judgment against the interests of the investor by arguing that Achmea confirms an Intra-EU jurisdictional objection and that a proper analysis on behalf of the tribunal would result in a finding that an EU investor is not entitled to commence arbitration proceedings against an EU member state.41 The conclusion of the tribunal was clear - Achmea is of limited application, firstly, it only applies to the BIT between Slovakia and the Netherlands, and secondly, even if its
application was general, it ought not apply to treaties such as the ECT to which the EU is a party.42
35 ECLI:EU:C:2014:2454, para 184
36 ECLI:EU:C:2006:345
37 N Lavranos, „Protecting its Exclusive Jurisdiction: The Mox-Plant Judgment of the ECJ”, 5 The Law and
Practice of International Courts and Tribunals, 479, 492.
38 Commission v Ireland (fn36) para 132 39 N Lavranos (fn37)
40 Masdar Solar & Wind Cooperatief U.A. v. Kingdom of Spain, ICSID Case No. ARB/14/1 41 ibid. Award of 16 May 2018, para 674
13 The approach taken by the panel members in Masdar is, however, suboptimal and even if it serves its purpose of protecting investor rights, it does so in an unsatisfactory manner that is difficult to reconcile with in the long run. The argument that the CJEU has made no specific reference to ECT dispute settlement in its ruling can only last as long as the judges fail to make one, only to come crumbling down the mere second in which an enforcement or recognition proceeding is stayed in order for a EU domestic court to request a preliminary ruling on the matter. The tribunal only discusses the objection in passing and fails to provide complex and convincing reasoning that is likely to hold itself when the foreseeable future developments do in fact occur. Whether doing so is within the duties of arbitrators is a complex question pertaining to the essence of arbitration and a long-existing dispute of the existence and nature of precedents in proceedings and the role of single tribunals in the grander scheme of arbitration, and as such is far beyond the scope and subject of this paper. It is impossible, however, for a person seeking to take the viewpoint of investors and to provide sustainable arguments in their favour, to disregard the deficiencies of the approach and to not point out its flaws. Case-specific arguments and dwelling on precise wording rather than the greater conflict between public international law and EU law when so much is at stake is a demonstration of either a relief of responsibility through shifting the burden to another group of arbitrators, or an extreme demonstration of narrow-sightedness. In fact, it did not take long for a state to request a staying of enforcement proceedings and to attempt to convince the court to ask for a preliminary ruling. Immediately after Achmea came out, Spain submitted that the Novenergia tribunal should interpret its Final Award paying due consideration to the relationship between EU law and the ECT.43 The request was denied, but that did not halt the
Spanish attack which directed itself towards the Svea Court of Appeals which was
successfully persuaded to stay proceedings.44 Furthermore, it requested for the Swedish Court to refer the dispute to the CJEU for a preliminary ruling on the compatibility of EU law and dispute settlement under the ECT. This request was surprisingly denied. Regardless of whether a similar dispute is reaching the CJEU now or in the future, there is little doubt as to the contents of the opinion of the court if judges were to be granted the opportunity to
pronounce on the matter. An opinion comparable to Achmea is a certainty and a matter of time. The inevitable has successfully been delayed and the time must be wisely used in the interest of the entirety of international arbitration.
Luckily, some arbitrators have recognized the dangerous implications of Achmea in a timely manner. This is most clearly evident in the long, reasoned, and detailed procedural decision of the tribunal in Vattenfall.45 The approach taken by this tribunal is much more convincing. Firstly, it is found that EU law cannot be utilized in interpreting ECT as such action yields the danger of enabling several interpretations of the same provisions.46 The interpretation in accordance with EU law, proposed by the EC and the Respondent, would lead to one set of
43 Novenergia (n22), Procedural Order No.17 on the Request for Rectification, Clarification and Complement of
the Final Award
44 ibid. Decision of the Svea Court of Appeals Suspending the Enforcement of the Award Until Further Notice 45 Vattenfall AB and Others v. Federal Republic of Germany, ICSID Case No.ARB/12/12, Decision on the
Achmea Issue from 31st of August 2018
14 obligations applicable to intra-EU disputes and another applicable to all other. This does not ensure systemic coherence, but the exact opposite. The need for uniformity of interpretation is clearly demonstrated in VCLT, particularly in Article 31, which gives priority to textual rather than contextual interpretation.47 Furthermore, not only is such methodology
inconsistent with the object and purpose of VCLT, but it also goes against the general
principles of international law upon which the treaty is based - pacta sund servanda and good faith. The tribunal members correctly point out that these two require the terms of a treaty to have a single consistent meaning.48 The arbitrators additionally make specific reference to Article 16 of the ECT according to which when there is a conflict between a provision contained in either Part III or Part V of the ECT and a provision contained in other prior or subsequent international agreement, concerning a similar matter, the ECT provision shall be applied unless the other is more favourable to the investor. What this means is that if the EU were to prohibit intra-EU investment arbitration, Article 16 would be applicable and
arbitration would still be possible under article 26 as it is the rule more favourable to the investor. The arguments presented in the Vattenfall procedural decision strike the approach taken by European institutions at its core. The European Commission has pointed out that a correct interpretation of Article 26 of the ECT results in a finding that Achmea is applicable and that there can be no intra-EU arbitration proceedings due to the primacy of Union law.49 By finding that EU law is not an interpretation means for Article 26, the tribunal in Vattenfall provides possible arguments that move the dispute to a higher more complex level. It is clear that tribunals have remained unimpressed by Achmea, however, they now have the resources to reason their objections rather than focus on the narrow scope of the original judgment. The public international law perspective to EU law was additionally discussed and expanded in the Eskosol arbitral proceedings.50 The Tribunal mostly followed the reasoning of the arbitrators in Vattenfall when addressing the arguments on VCLT interpretation of the ECT, but it nevertheless made some interesting remarks regarding the role of Achmea on the map of public international law. The system of public international law is not a centralized one. It is comprised of multiple subsystems with customary international law sitting at the top. Each of these subsystems is governed by its own set of binding norms, is autonomous and is only connected to the other systems through the commonly applicable principles of international custom.51 These systems do not exist in a hierarchical order, for example, international trade
law does not have primacy over international environmental law. If any conflicts arise, there are not resolved through the notion of primacy, but through a careful deliberation of the conflict of laws rules and applicable provisions. In a similar fashion, from the perspective of public international law, European Union law is another subsystem located on the same plane of existence as all other subsystems functioning under the principles of customary
international law. As such, it is not possible for EU law to have primacy over other such
47 VCLT, art 31(1)
48 Vattenfall (fn40) 156
49 Communication from the Commission to the European Parliament and the Council (fn31)
50 Eskosol S.p.A. in liquidazione v. Italian Republic, ICSID Case No. ARB/15/50, Decision on Termination
Request and Intra-EU Objection from 7 May 2019
15 subsystems hierarchically located on the same level. ECT is another subsystem of public international law which cannot be displaced by other subsystems. Each subsystem may choose to vest authority into different judicial bodies. The ECT chooses do so in arbitral tribunals, whilst the EU does so to its judicial system which produced the Achmea decision. States may be affected by obligations arising from multiple subsystems, but an international tribunal or judicial body is only bound by the views emanating from its own systems. Thus, according to the arbitrators it is not possible for Achmea to bind international tribunals as it is a product of another subsystem. Tribunals not only have jurisdiction over such disputes, they are mandated to exercise it by the legal framework of ECT, outside the dictates of EU law.52
The Vattenfall and Eskosol procedural decision are a strong weapon in the hands of investors and practitioners looking to win the war rather than solitary battles which would have been the case if everybody adopted the flat reasoning of Masdar. The CJEU is now expected to address these concerns and comment on the relationship between EU law and international law in the context of international arbitration rather than provide a thumbs up or thumbs down for the ECT.53 The first request for a preliminary ruling issued by Spain has been denied, but a new one has been brought.54 The possibility of further development with the
involvement of the CJEU is not far away.
A second major difference between the BIT at question and ECT hides in the law applicable to the merits in dispute settlement. Article 26(6) ECT puts the emphasis on treaty law and rules and principles of international law. On the contrary, multiple sources, such as other treaties between the Netherlands and Slovakia, general rules and principles of international law, and the rules of the BIT itself, can be considered under the former. International law contains no rules on the hierarchy of norms, it is thus entirely possible for EU law not to take precedence over the ECT. This approach presumes the truthfulness of the classification of EU law as international law in Electrabel.55 Without dwelling too much into the specifics of this
contentious issue, for the purposes of practical discussion, I will also assume this to be the case. It was held that EU law has a multiple nature depending on the perspective from which it is looked at. An international tribunal, created under public international law, ought to consider EU law as international due to it being rooted in international treaties.56 As demonstrated in Vattenfall, a public international law perspective would consider the obligation undertaken by the signatory states to ensure that investors are granted the most favourable treatment available. This would mean that the ECT and EU law apply
52 ibid. para 180 - 186
53 K Schwedt and H Ingwersen, “Intra-EU ECT Claims Post-Achmea: Vattenfall Decision Paves the Way”,
Kluwer Arbitration, December 13th 2018, available at
http://arbitrationblog.kluwerarbitration.com/2018/12/13/intra-eu-ect-claims-post-achmea-vattenfall-decision-paves-the-way/ accessed 03.05.2018
54 J Ballantyne, “Italy Obtains Stay of Enforcement of ECT Awards”, Global Arbitration Review, 28th of May
2019, available at https://globalarbitrationreview.com/article/1193479/italy-obtains-stay-of-enforcement-of-ect-awards (accessed 15.05.2020)
55 Electrabel S.A. v. Republic of Hungary, ICSID Case No. ARB/07/19, Decision on Jurisdiction, Applicable
Law and Liability from 30th of November 2012, paras 4.118-4.119
16 simultaneously with precedence not being set in stone, but rather shifting depending on the particularities of the case and applicable rules. Such a comparative methodology results in a favourable outcome for investors as they can remain sure that the law exists to serve their best interests. Article 16 of the ECT is thus an incredible tool to ensure that investor rights, be it granted by the ECT or another treaty, are not derogated from by the operation of principles of lex posterior or lex specialis.57
In accordance, with their respective functions, dispute settlement bodies adopt distinct approaches to settling the issue at hand. The CJEU, tasked with applying and interpreting EU law, focuses on its principles in reaching a conclusion. On the contrary, arbitral tribunals, operating under international law, put a great emphasis on the mutual obligations of states under treaties. The result of this struggle for power and conflict of norms is a great
uncertainty for European investors who appear to be the biggest victims of the quest for the Europeanization of international arbitration. Despite the contrary views taken by institutions and member states alike, tribunals have been eager to dismiss Achmea and adopt an approach favouring the position of the investor and ISDS in general. As of now, investor rights are safe at the hands of arbitral tribunal constituted under the ECT. It has been demonstrated that there is sufficient legal argumentation available for future tribunals to also limit Achmea and
ensure that investors are not left in an unfavourable position. In fact, Vattenfall-like reasoning has already been utilized in disputes arising under the ECT.58Although there is no formal system of binding precedent in international law, respondents are unlikely to be capable of arguing against the mountain of rejections created by the series of consistent decisions.59
Thus, investors ought not worry about awards at the procedural stage. An Achmea-based jurisdictional objection is unlikely to hold from the perspective of public international law. It is unfortunately, impossible, however, for arbitration to work solely from a public
international law perspective as regardless of the approach taken in the jurisdictional stage, if an award is granted, the time will come for it to be enforced and recognized. In non-ICSID arbitration this is where power is taken away from tribunals and thrust into the hands of domestic courts. Unlike international tribunals, domestic courts within the European Union are bound by decisions of the CJEU. Many focus on the consequences of Achmea on
jurisdiction, but a phantom menace lurks just beyond the corner of arbitral proceedings. It is the moment of enforcement and recognition that strips all power from the hands of tribunals and leaves investors at the mercy of a system working against them. That is the hidden rock which turns the cart and which may completely subvert the expectations of an investor,
57 C Bamberger, “An Overview of the Energy Charter Treaty” in T Walde, “The Energy Charter Treaty - An
East-West Gateway for Investment & Trade” (Kluwer Law International, 1996, 1st edn) 14.
58 Landesbank Baden-Wurttemberg and others v. Kingdom of Spain, ICSID Case No. ARB/15/45, Decision on
the Intra-EU Jurisdictional Objection from the 25th of February 2019
59 F Stefan, “Intra-EU Disputes Under the Energy Charter Treaty: Quo Vadis?”, Kluwer Arbitration Blog, 18th
of August 2019, available at http://arbitrationblog.kluwerarbitration.com/2019/08/18/intra-eu-disputes-under-the-energy-charter-treaty-quo-vadis/?doing_wp_cron=1589538464.4523398876190185546875 (accessed 15.05.2020)
17 ensure that the political goals of the Union are well intact, and bring the demise of intra-EU ISDS.60
What are the challenges at the enforcement stage?
In non-ICSID arbitration proceedings, the enforcement stage removes disputes from the sphere of external public international law and puts them in the internal domestic sphere of EU law. It is thus the European perspective which prevails at this moment rather than the one provided by international law.61 Burdensome enforcement serves the purpose of limiting ISDS through discouragement. Many investors may ask themselves if a financially straining dispute is even worth commencing given that they may be unable to have the award granted recognized or enforced. Given the recency of the developments, there are currently not many disputes at this stage of proceedings which can be observed and discussed. Thus, the
following part will mostly be focused on a speculative analysis on the obstacles before enforcement and the ways investors may operate against them and seek to have their rights protected.
The European Union has not shied away from trumping interests in enforcing its goals, objectives, and general principles. The legal system of the Union is similar to that of a state with the treaties playing a constitutional role. The supranational body is reluctant to have its constitution interpreted by external dispute settlement bodies or to have it set aside due to an external obligation in the same fashion in which a state would. This has resulted in the CJEU frequently deciding that EU law prevails over international obligations.62 Having this in
mind, it is easier to fit Achmea and the other contemporary developments regarding ISDS in the greater picture. It is the broader political goal of the Union to safeguard itself from external influence and to protect the autonomy of its legal system from international law interferences.63 An exemplification of these ambitions is most clearly seen in Kadi, or the previously discussed opinions on the Union’s accession to the ECHR and the Mox Plant saga.64 The core of the European perspective is formed by the idea of EU law as the supreme law of Europe. It is thus with the concept of primacy in mind that one must approach the discussion of the place of arbitral awards in the internal European legal system. This perspective is constitutional in nature and operates in stark contrast with the public
international law perspective adopted by arbitral tribunals. Whilst tribunals have the home advantage in the jurisdictional and merits phase and are unlikely to yield from the pressure exerted by the EU by adopting a European constitutional perspective to international arbitration, the EU is still completely capable of limiting enforcement in its territory. 60 C Verburg and N Lavranos, “Recent Awards in Spanish Renewable Energy Cases and the Potential
Consequences of the Achmea Judgment for Intra-EU ECT Arbitration” 3 European Journal of International Law
(2018), 197, 214.
61 Verburg and Lavranos (n41)
62 For example see Kadi - EU:C:2008:461
63 N Lavranos, “Protecting European Law from International Law” 15-1 European Foreign Affairs Review
(2010), 265, 265.
18 When discussing enforcement an important distinction ought to be made between ICSID and non-ICSID awards. Whilst the former exist in a self-contained system, enforcement of the latter is achieved through the New York Convention and domestic arbitration laws. Whilst an ICSID award is a product of a self-contained public international law subsystem and exists solely on the plain of public international law, a non-ICSID award requires the involvement of both international and domestic judicial bodies. This permits for an intermingling and clash between the public international law perspective, applied by tribunals at the jurisdiction and merits stage, and the European constitutional perspective applicable at the enforcement stage. In addition, an Award is even likely to get set aside if the seat of arbitration is an EU state. Another important factor is the location at which enforcement and recognition is sought - a Bulgarian court will feel obliged to comply with the CJEU’s findings in Achmea and will unsurprisingly adopt a wide reading of the case expanding its application to Awards issued by ECT tribunals. On the contrary, there is little reason for a US or Swiss court to oppose
recognition and deny enforcement when it is in no way bound by the decisions of EU judicial bodies. Thus, there are two important factors which investors have to consider and which may potentially impact the success of their endeavour - the fora under which the award has been granted and the location at which enforcement is being sought.
The difficulties in enforcing non-ICSID awards in European countries are evident. However, surprisingly, even ICSID awards have been problematic. This is clear from the multiple debates and proceedings spanning across multiple courts and jurisdictions surrounding the case of Micula.65 In a demonstration of the challenges faced by investors in the European Union, the dispute commenced back in 2008 is still going on. As previously mentioned, ICSID arbitration operates in a self-contained system functioning under public international law. Enforcement is provided for in the ICSID Convention and is in principle automatic amongst signatory states who are supposed to regard the decision of tribunals formed under ICSID as if they were decisions of the domestic court of highest instance.66 The ICSID arbitration procedure is an emanation of the idea of the public international law perspective to international arbitration. It was precisely an award rendered pursuant to ICSID rules,
however, that became the unlikely battlefield between the public international law and european constitutional ideologies which occurred in the enforcement stage of Micula. It is important to note from the start that the dispute in Micula did not arise under the ECT. There is still, however, a lot to be learned from the proceedings regarding the potential problems upcoming intra-EU ECT awards will be facing at the enforcement stage. The case concerns the repeal of certain tax incentives granted to investors in underdeveloped
Romanian regions prior to the country’s accession to the EU. The tax incentives constituted illegal state aid under EU law and had to be repealed in order for the state to successfully enter the Union. A panel consisting of three arbitrators found a breach of the standard of fair 65 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, ICSID Case No. ARB/05/20
66 Convention on the Settlement of Investment Disputes Between States and Nationals of Other States article 55
19 and equitable treatment and awarded compensation to the claimants.67 What followed was an
injunction by the European Commission who prohibited Romania from paying the award whilst a state aid investigation was being conducted. The investigation resulted in a finding that the Award constituted state aid and thus the claimants were rendered incapable of enforcing it within the Union.68 The actions of the Commission and the classification of the payment award made it impossible for the claimant to seek enforcement within the EU as the domestic judiciaries of all members were bound by the finding of the Commission and a successful recognition and enforcement would have led to action against the Member State in which it had occurred. Miculas’ answer was twofold, firstly, they appealed the decision before the GCEU, and secondly, they sought to enforce the award in several states including outside of the territory of the European Union in the United States. The developments before the General Court of the European Union are what concerns the topic discussed in this paper and thus they would have to be scrutinized carefully. In 2019 Micula achieved an unexpected victory. The Commission’s decision was annulled by the GCEU.69 Unfortunately for
investors, however, the reasons supporting the findings of the court are strictly limited to the facts of the case and will not hold themselves in other similar proceedings where the Union is looking to frustrate the arbitral process. A major factor which influenced the decision was the timeline of events. The disputed actions had occurred prior to Romania’s accession to the EU which meant that the Commission was by no means competent to assess their unlawfulness in light of EU law.70 It is here where the court also differentiated the case from Achmea as the tribunal was not bound to apply EU law due to the timing of the events.71 The Commission was not competent to review neither the tribunal decision nor the events themselves. Thus, in delivering its decision, it applied its powers retroactively as regards to a dispute over which it had no competence.72
Even if the decision appears to favour the position of the investor, it can be argued to be a pyrrhic victory in the greater context of the dispute regarding the weight of duties accrued under the European treaties and international obligations. GCEU strayed away from the generally-applicable discussion of the clash between article 54 of the ICSID Convention and article 107 of the TFEU and chose to focus on the what was specific to this case alone. Thus, ultimately, its reasoning was flat and limited to the dispute at hand. Furthermore, the dispute is far from decided, as an appeal is currently pending. Whatever the decision of the CJEU, however, much like with Masdar in the jurisdictional stage, investors would have to find stronger and much more reliable arguments in their favour. One way of doing so is through adopting a similar strategy pitting the two understandings of international arbitration against each other - the first finding its roots in public international law, and the second in the European constitutional treaties. Not only is a decision to suspend enforcement due to illegal
67 Micula (fn53), Final Award from the 11th of December 2013
68 ibid. Decision of the EU Commission Prohibiting the Implementation of the Arbitral Award of 11th of
December 2013 from the 30th of March 2015
69 ECLI:EU:T:2019:423 70 ibid. para 85
71 ibid. para 86 72 ibid. paras 91-93
20 state aid consideration a violent intervention within the domain of the ECT subsystem, but it would also lead to a grave breach of the pacta sund servanda principle with states forced into violating their obligations under the ICSID Convention.73 Even though the EU is in principle not bound by the obligations contained in the Washington Convention as it is not a signatory Member, it is supposed to contribute “to the strict observance and development of
international law” under article 3(5) of the Treaty of the European Union.
As previously demonstrated, the European Union has often found that European core values and principles trump over irreconcilable international obligations. The one exception to the general principle of the European Union not being bound by agreements it is not a party to is the General Agreement on Tariffs and Trade 1947. This is due to two factors. First, there is the fact that each and every Member State has acceded to the GATT on its own initiative and has then collectively with other member states, transferred certain representative powers to the Community.74 Second, there is the great importance of the GATT in the external relations of the Union. The first is to some extent also true for the ICSID Convention, all Member States with the exception of Poland are parties to the ICSID Convention and foreign direct investment falls within the common commercial policy which is an exclusive competence of the Union.75 Whether or not the ICSID Convention is of a similar importance to the GATT in the external relations of the Union is an issue of perspective. It is however, very likely, that it can be argued to be so, given the great emphasis put on foreign direct investment in recent EU external relations strategies and the emerging role of the Union as a global rule-maker in the field. Thus, even though International Fruit Company76 is not directly applicable to the
ICSID Convention, an expansion following a similar rationale could be a reasonable argument to present in favour of the public international law perspective regarding enforcement of intra-EU ICSID awards.77
Simultaneously with these proceedings, the Micula saga had also reached the United
Kingdom. In 2019 the Supreme Court ruled that the EU duty of sincere cooperation does not affect the state’s obligations under the ICSID Convention as the EU accession happened at a later date.78 Unfortunately for investors grasping for arguments in their favour, the logic of the British Supreme Court is not generally applicable to all disputes and is applicable solely based on the timeline of events. Important was given to the fact that United Kingdom has signed the ICSID Convention prior to acceding to the European Union. Thus, the
enforcement obligations under this Convention are not affected by the European duty of since co-operation. On the bright side, however, the vast majority of European states are in the same position as the United Kingdom. In another important aspect of the judgment, the court discussed the possibility of the Commission bringing infringement proceedings against the
73 P Ortolani, “Intra-EU Arbitral Awards vis a vis Article 107 TFEU: State Aid Law as a Limit to Compliance”
6 Journal of International Dispute Settlement (2015)
74 ECLI:EU:C:1972:115 75 ECLI:EU:C:2017:376
76 ECLI:EU:C:1971:53
77 Ortolani (fn61).
21 UK due to its failure of complying with the decision classifying the award as illegal state aid. The Court found that even if proceedings happen to be brought, based on the two-fold
application of the principles of comity and sincere cooperation, the Court of Justice would be forced into ruling that the EU has no power over interpreting the Convention as it is not a party to it. Hence, interpretation would be left to the domestic courts of the member states, amongst which the UK.79 Thus, the argumentation of the five judges could potentially be
adopted by other domestic courts. Other good news for investors is that with this decision of the court of highest instance, the United Kingdom appears to open itself as fertile ground for enforcement of intra-EU awards in the future. This is even more so the case considering the upcoming withdrawal of the United Kingdom from the EU.80 It should be noted, however, that as good as this sounds, as of this moment, the solution is limited to one state alone. It would be much preferable for European investors to have the complete freedom of
enforcement envisaged by the drafters of the ICSID Convention. The UK is known for its extortionate attorney fees and there are multiple medium and small-sized enterprises in Europe which will most likely be unable to afford representation before British courts if they ever happen to have to enforce an award in the UK. Furthermore, British courts
unsurprisingly apply the so-called “English rule” with regards to the distribution of costs. According to the English rule, the losing party covers the legal costs of the party which emerged victorious. As previously mentioned, it would be difficult for many European investors to afford one set of lawyers, and completely impossible for them to afford two if they happen to lose and are forced into covering for the other party. These extreme costs may discourage many from seeking enforcement in the UK even if the conditions are favourable. In addition, at times, enforcement in the UK might be impossible due to the lack of state assets in the country, These problematic elements mean that despite being a good solution regarding the enforcement of intra-EU ICSID awards, the ruling of the Supreme Court has its drawbacks and is therefore limited. The optimal development would be an expansion of the reasoning to other jurisdictions so that investors have a complete freedom of choosing the place of enforcement.
Micula shows that even a self-contained system of public international law such as ICSID is
not safe from the long hand of the European Union. The law of the Union plays a role in the enforcement of ICSID awards. The outcome of the case and the success of the Micula
brothers is of utmost importance given that the Commission has adopted similar enforcement restrictions regarding some of the more recent Spanish disputes under the ECT.81 In its words, “any compensation which an Arbitration Tribunal were to grant to an investor on the basis that Spain has modified the premium economic scheme by the notified scheme would 79 ibid. para 116
80 G Croisant, “Micula Case: The UK Supreme Court Rules That the EU Duty of Sincere Co-operation Does Not
Affect the UK’s International Obligations Under the ICSID Convention”, Kluwer Arbitration, 20th of February
2020, available at http://arbitrationblog.kluwerarbitration.com/2020/02/20/micula-case-the-uk-supreme-court- rules-that-the-eu-duty-of-sincere-co-operation-does-not-affect-the-uks-international-obligations-under-the-icsid-convention/?doing_wp_cron=1590143792.4350810050964355468750 (accessed 22.05.2020)
81 European Commission, State Aid SA.40348 (2015/NN) - Spain, Support for electricity generation from
renewable energy sources, cogeneration and waste (10.11.2017) available at
22 constitute in and of itself State Aid”.82 The Commission further makes it clear that it is the
only institution capable of authorizing state aid. Thus, every such aid awarded by a Tribunal would be notifiable pursuant article 108(3) of the Treaty of the Functioning of the European Union. For these reasons, many investors in the European energy sector will be carefully following the future developments of Micula, including the potential infringement
proceedings against the United Kingdom and the appeal before the CJEU. If the CJEU was to confirm the findings of the Commission or if the potential infringement proceedings against the UK happen and are successful, investors would be forced to enforce their ICSID awards outside of Europe. This might have general consequences on the attractiveness of using ICSID as ISDS fora from the perspective of an investor. Many can be discouraged from investment proceedings knowing the incredible difficulties they will be facing at the
enforcement stage. After all, not all investors are the Micula brothers or a Yukos shareholder, in fact, most are unlikely to be able to afford multiple simultaneous enforcement proceedings which can be drawn out for many years.
Having considered the enforcement of ICSID awards, an analysis of enforcement of awards granted under the ECT ought to naturally move to non-ICSID awards. As previously stated, non-ICSID Awards are enforced under the New York Convention which puts great emphasis on the involvement of domestic judicial authorities. This principle can be seen in Article III of the Convention which states that awards should be enforced “in accordance with the rules of procedure of the territory where the award is relied upon”. Article V(2)(b) of the
Convention allows for recognition and enforcement of an award to be refused when it goes against public policy. An argument can be created that article 107 of the TFEU which precludes states from granting aid which distorts or threatens to distort competition is an emanation of the public policy which is to be followed by the Member States of the Union. Thus, enforcement could be denied on that basis. Scholars have attempted to furnish arguments which would preclude the application of the public policy refusal when the state aid has not been reviewed by the Commission.83 One of these arguments suggests that if the refusal was to be automatically applied to every arbitral award, without having the
Commission carry out an investigation, the task of determining whether there is state aid and the Award can be refused under V(2)(b) for the policy reasons contained in 107 TFEU. Such an analysis, however, is complex and time-consuming. It is not difficult foreseeing how different domestic judiciaries may reach different conclusions and diverging decisions as to the enforcement and recognition of the award. Another argument suggests that the New York Convention intended a more limited role to domestic courts.84 Scrutiny which entails
evaluation of the merits in order to find out whether there is a violation of article 107 goes against what was envisaged by the drafters of the treaty. Examples of such a restrictive approach to the interpretation of the New York Convention can also be seen in tribunal practice. Some arbitrators have suggested that the violation of public policy should be
82 ibid. para 165 83 see Ortolani (fn61). 84 ibid.
