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The New Challenges Raised by Investment Arbitration for the Eu Legal Order

Finally, on 25 January 2022, the CJEU annulled a decision of the General Court in the case of Micula v. Romania[2] (Micula) setting aside a 2015 Commission judgment on State aid declaring that the payment of compensation to claimants constituted unlawful State aid under its ICSID award and ordering the recovery of the amounts paid to them. Unlike the Court`s decision, the CJEU considers that EU state aid rules can be triggered at the time of payment of an award, even if all the state measures for which the ICSID award compensated the claimants were taken before Romania`s accession to the EU. The CJEU has also ruled (among other things) that any consent given by an EU Member State to arbitration prior to accession is invalid in the sense that the system of judicial remedies provided for by the EU and by the Treaty on the Functioning of the EU (TFEU) replaces arbitration procedures upon accession to the EU. As Gary Born warned years ago, winter has arrived for investors and the arbitration community. At the same time, the rule of law is lagging behind – and not only in Europe. Therefore, investors still need investment protection and effective dispute settlement tools. As in the Achmea case, the CJEU underlined that an agreement to remove from the jurisdiction of its own courts disputes that may concern the application or interpretation of EU law may prevent such disputes from being settled in a way that ensures the full effectiveness of EU law. [7] According to the CJEU, any ad hoc arbitration agreement under the same conditions as the investment agreement would have the same effect, which means that the legal approach sought by PL Holdings could be chosen in a wide range of disputes that could affect the application and interpretation of EU law; “by which the autonomy of this law may be constantly compromised”. [8] It is clear that the CJEU, the European Commission and the Member States will not change their ambition to substantially modify or even abolish ISDS arbitration altogether. This research is already ongoing in UNCITRAL`s Working Group III on ISDS reforms, which proposes replacing ISDS with a permanent multilateral investment court (TRIMs).

Could the Achmea or Komstroy tribunals have seriously been in a position to jeopardise in the slightest those fundamental principles of EU law? In that regard, the General Court could avoid discussing the relationship between EU law and intra-EU investment arbitration, since `in the present case, the arbitral tribunal was not required to apply EU law to the events preceding it, unlike the case which gave rise to the [Achmea] judgment`. [14] Thus, while the number of IIAs concluded and, consequently, the number of ISDS disputes have steadily increased to more than 1,100, according to UNCTAD`s Centre for Investment Policy, significant changes have taken place within the EU legal order, which has brought the harmonious period to a rather abrupt end by initiating the current status of a permanent conflict between these two legal systems. In fact, this is precisely the solution chosen by the Court of Justice of the Andean Community, the equivalent of the CJEU. Consequently, that conflict between EU law and international investment law could easily have been avoided. In any case, the ECJ`s message is clear: ECT-based ISDS arbitration proceedings are prohibited within the EU – whether or not they are intra-EU disputes. In terms of execution, investors with existing or planned investments in the EU should also assess whether the EU Member State hosting the investment has assets in third States whose courts reliably enforce arbitral awards and would not necessarily feel bound by CJEU rulings and the Commission`s jurisdiction. The first signs of a possible conflict between these two jurisdictions emerged in the Eastern Sugar case, which was decided in 2007. In that case, the Czech Republic had raised several objections under EU law to the jurisdiction of the arbitral tribunal, all of which were rejected.

Having described at a very high level the path of emergence and escalation of the conflict between international investment law and EU law, it is equally important to take a step back and identify the cause of this dilemma. In fact, this was the time when EU member states were responsible for achieving about half of the 3,000+ IIAs in the world. It was also the time when the EU and its member states unconditionally signed the Energy Charter Treaty (ECT) and its ISDS provisions. It was also the time when the EU actively encouraged its candidate countries to sign IIAs in order to provide additional legal stability and thus attract much-needed foreign investment before joining the EU. In addition, in the event that a dispute arises in an internal EU context, investors could consider opting for arbitration, which would allow a non-EU state to be designated as the seat of arbitration, thus limiting the possible scope of EU law. In September 2017, Poland filed a closing action in the Swedish courts, arguing that the arbitration clause of the Poland-BLEU BIT under Achmea was incompatible with EU law. On 2 September 2021, the CJEU ruled in the case Republic of Moldova v. Komstroy (reported here). The CJEU adopted the political views expressed by the Commission and broadened the scope of its findings in the Achmea case, finding that intra-EU arbitration (i.e. between an EU investor and an EU Member State) under the ECT is also incompatible with EU law. This comprehensive approach is unsurprisingly in line with the political declaration signed by the majority of EU Member States in 2019, which extended the Achmea judgment to TEC disputes (see paragraphs 1 and 9). However, the political declaration was a non-legally binding declaration, while the legally binding termination agreement signed in 2020 explicitly states in the preamble that it does not apply to the ECT.

1)CONSIDERING that this Agreement concerns bilateral investment treaties within the EU, it does not apply to intra-EU procedures based on Article 26 of the Energy Charter Treaty. The EU and its Member States will address this issue at a later stage; […] Available at:eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:22020A0529(01)&from=EN Indeed, the ECT is currently being renegotiated, so EU Member States have decided not to deal with the ECT itself in the termination agreement. First of all, the most important advice is to stay out of the EU, both when structuring investments and when using European IIAs.