AS PNB Banka and others v. Latvia, Decision on the Intra-EU Objection, 14 July 2021

1.

The Claimants are AS PNB Banka (formerly AS Norvik Banka) (the “Bank”), Mr Grigory Guselnikov, Mrs Yulia Guselnikova, Mr Alexander Guselnikov, Miss Aglaya Guselnikova and Master Pyotr Guselnikov (the “Shareholder Claimants”) (together, the “Claimants”). The Bank is a joint stock company incorporated under the laws of Latvia, whereas Mr Grigory Guselnikov, Mrs Yulia Guselnikova, Mr Alexander Guselnikov, Miss Aglaya Guselnikova and Master Pyotr Guselnikov are nationals of the United Kingdom.

2.

The Respondent is the Republic of Latvia (the “Respondent or Latvia”).

3.

The Claimants and the Respondent shall be referred to together as the “Parties”.

4.

On 14 December 2017, the Claimants submitted their Request for Arbitration (“RFA”) to the International Centre for Settlement of Investment Disputes (“ICSID” or the “Centre”) in accordance with Article 36 of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, dated 18 March 1965(“ICSID Convention”) and Article 8 of the Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of Latvia for the Promotion and Protection of Investments (“UK-Latvia BIT” or “Treaty”), which was signed on 24 January 1994 and entered into force on 15 February 1995.

5.

On 28 December 2017, the Secretary-General of ICSID registered the RFA in accordance with Article 36(3) of the ICSID Convention and notified the Parties of the registration.

6.

On 14 August 2018, the Respondent filed a Request for Bifurcation (“Request for Bifurcation”).

7.

On 16 August 2018, the Tribunal held a first session by telephone conference. On 24 August 2018, the Tribunal issued Procedural Order No. 1, setting out the agreed terms for the conduct of the proceeding. The Parties' subsequent filings on the Claimants' application for provisional measures and the Claimants' request for the disqualification of Deloitte Legal ZAB as counsel for the Respondent are detailed in the respective orders addressing those issues.¹

8.

On 22 August 2018, the European Commission (“EC”) applied for leave to file a written submission in these proceedings pursuant to ICSID Arbitration Rule 37(2) (“First EC Application”). The EC requested an order from the Tribunal to:

(i) grant the Commission leave to intervene in the present proceedings;

(ii) set a deadline for the Commission to file a written amicus curiae submission;

(iii) allow the Commission access to the documents filed in the case, to the extent necessary for its intervention in the proceedings;

(iv) allow the Commission to attend hearings in order to present oral argument and reply to the questions of [the] Tribunal at those hearings, should [the] Tribunal and the parties deem that useful.

9.

On the same date, the Tribunal invited the Parties to submit their observations on the First EC Application by 29 August 2018.

10.

On 29 August 2018, the Respondent filed its observations on the First EC Application (“Respondent’s Observations”). On the same date, the Claimants requested an extension of time until 31 August 2018 to submit their observations.

11.

On 30 August 2018, the Tribunal granted the Claimants' request for an extension of time to submit their observations on the First EC Application. On the same date, the Respondent indicated that it did not object to the extension of time granted to the Claimants to submit their observations on the Application and that it requested leave to submit a brief reply to the Claimants' observations on the Application by 5 September 2018

12.

On 31 August 2018, the Claimants filed their observations on the First EC Application (“Claimants’ Observations”). On the same date, the Claimants indicated that they did not obj ect to the Respondent's request for leave to submit a brief reply to the Claimants ' Observations and that they reserved the right to request leave to respond to the Respondent’s reply.

13.

On 5 September 2018, the Respondent filed its Reply to the Claimants’ Observations (“Respondent’s Reply”).

14.

On 10 September 2018, the Tribunal invited submissions from the Parties as to what participation is essential for the Commission to make its contribution to the proceeding in this case, as well as to any confidentiality restrictions that should be placed with respect to such materials, if any.

15.

On 17 September 2018, the Claimants submitted further observations on the First EC Application.

16.

On 5 October 2018, the Respondent submitted further observations on the First EC Application.

17.

On 10 October 2018, the Claimants submitted their Response to the Respondent’s Request for Bifurcation (“Response on Bifurcation”).

18.

By letter of 10 October 2018, the Tribunal confirmed that the hearing on provisional measures and bifurcation would be held from 12 to 14 December 2018 in The Hague.

19.

On 16 October 2018, the Tribunal issued Procedural Order No. 2 which granted leave to the European Commission to file a written non-disputing party submission addressing, as a legal issue, whether the investor-State arbitration mechanism in the Treaty remains available. The Tribunal’s Order was issued expeditiously without reasons. The Tribunal’s reasons were later provided in Procedural Order No. 3 of 30 October 2018.

20.

By email of 23 October 2018, the Claimants informed the Tribunal that the Parties had agreed on a schedule for pre-hearing filings, with the Respondent’s Reply on Bifurcation and the Claimants’ Reply on Provisional Measures (Balance) being due on 16 November 2018 and the Claimants’ Memorial on the Merits being due on 30 November 2018. The Respondent confirmed its agreement by email of the same date.

21.

By letter of 25 October 2018, the Tribunal informed the Parties that the filing of the Claimants’ Memorial on the Merits was to be postponed until after the December 2018 hearing.

22.

On 5 November 2018, the EC filed its Amicus Curiae Brief (“EC Amicus Brief”).

23.

By email of 9 November 2018, the Respondent informed the Tribunal that Mr David Pawlak (who subsequently withdrew from the team as of 15 February 2019), and Ms Marie Michon had joined its legal team. By letter of the same date, the Claimants informed the Tribunal that Mr Maris Vainovskis, of Eversheds Sutherland Bitans, Riga, Latvia, had joined their legal team.

24.

On 16 November 2018, the Respondent filed its Reply on Bifurcation (“Reply on Bifurcation”).

25.

On 19 November 2018, the Respondent provided its comments on the EC Amicus Brief.

26.

On 3 December 2018, the Claimants filed their Rejoinder on Bifurcation (“Rejoinder on Bifurcation”) and their Observations on the EC Amicus Brief.

27.

The Tribunal held a hearing on the applications for provisional measures, bifurcation, and the disqualification of the Respondent’s counsel from 12 to 14 December 2018 in The Hague.

28.

By letter of 23 January 2019, the Respondent advised the Tribunal that twenty-two Member States of the European Union (“EU”), including Latvia and the UK, had signed a “Declaration of the Representatives of the Governments of the Member States of 15 January 2019 on the legal consequences of the judgment of the Court of Justice in Achmea and on investment protection in the European Union.”² (“15 January 2019 Declaration” or “Declaration”) The Respondent’s correspondence attached that declaration, and two related declarations from the other EU Member States concerning Achmea dated 16 January 2019.³

29.

By letter of 24 January 2019, the Tribunal advised the Parties that, subject to any submissions from the Claimants, it believed that the Respondent’s correspondence of 23 January 2019 should be admitted to the record on the bifurcation application, and that any further observations on the material should be made in the Parties’ post-Hearing briefs (“RPHB” or “CPHB”). The Tribunal also invited the Parties to take up a short extension to submit their post-Hearing briefs, from 28 January to 31 January 2019

30.

On 28 January 2019, the Parties consented to the extension for their post-Hearing briefs.

31.

On 31 January 2019, the Parties respectively filed their post-Hearing briefs.

32.

On 5 February 2019, the Respondent wrote to the Tribunal to object to the content of the CPHB. Latvia alleged that the Claimants had attempted to re-plead their positions beyond the scope of the Tribunal’s instructions for post-Hearing briefs, and requested that the Tribunal impose appropriate consequences on the Claimants including with respect to costs.

33.

On 6 February 2019, the Claimants wrote to the Tribunal objecting to the Respondent’s 5 February 2019 correspondence, including the Respondent’s request that unspecified consequences be meted out by the Tribunal to the Claimants. The Claimants pointed out that the RPHB had, inter alia, introduced several impermissible matters.

34.

On 1 March 2019, the Tribunal rendered its Decision on the Respondent’s Request for Bifurcation (“Decision on Bifurcation”), deciding as follows at paragraph 200:

Now, therefore, the Tribunal:

(i) decides to bifurcate the proceedings and deal with the Respondent’s objection to the Tribunal’s jurisdiction based on the alleged unavailability of the investor-State arbitration mechanism under the UK-Latvia BIT as a preliminary matter;

(ii) asks that the Parties confer and attempt to reach agreement on the dates on which the above submissions will be made;

(iii) directs the Parties to submit agreed dates to the Tribunal within two weeks of the date of this Decision and if the Parties are unable to reach agreement on such dates, each side should submit proposed dates by the same time.

35.

On 15 March 2019, the Respondent submitted a letter to the Tribunal with the proposed dates to brief the bifurcated issue. In the same letter, the Respondent also informed the Tribunal that it understood the Claimants wished to submit their Memorial on the Merits on 17 May 2019. The Respondent stated that, in principle, it did not object to the submission of the Claimants’ Memorial on that date, but indicated that it was “necessary for the Tribunal to formally suspend the proceedings on the merits thereafter and until a decision on the bifurcated issue is rendered.” The Respondent thus requested the suspension of the proceedings on the merits pursuant to the ICSID Arbitration Rules, in particular Rule 41(3).

36.

The Respondent asserted that if the case would proceed to the merits, it would need additional time to prepare a Counter-Memorial. It also noted that the Tribunal should factor in the equality of the Parties and the complexity of the case, and that the Claimants failed to meet the deadline to file their Memorial on 31 October 2018, which meant that they would have no less than 9 months between the first procedural hearing and the filing of their Memorial.

37.

The Respondent also asserted that, “pursuant to ICSID Arbitration Rule 41(4), new time limits regarding the merits proceedings are to be fixed only ‘if the Tribunal overrules the objection’.” In this regard, it noted the importance of proportionality in terms of not imposing an undue burden on a party to prepare arguments that may become entirely unnecessary. Also, the Respondent contended that it is “not to be held responsible for Claimants’ cost of preparing their Memorial, especially if the Tribunal agrees with the Respondent’s position on the bifurcated issue.”

38.

On 16 March 2019, the Claimants submitted a letter in response to the Respondent’s letter of 15 March 2019. In their letter, the Claimants confirmed that the Parties had agreed on a schedule for submissions on the bifurcated issue. They also confirmed that they would submit their Memorial on the merits on 17 May 2019. The Claimants requested that the Tribunal: (i) reject the Respondent's request for suspension of the proceedings under Rule 41(3) of the ICSID Arbitration Rules; and (ii) direct that the Parties are to file their respective submissions on the dates set out in their letter.

39.

On 16 March 2019, the Respondent filed a request for a confidentiality order (“Application for a Confidentiality Order”). The Parties' subsequent filings on the Respondent's Request for a Confidentiality Order are detailed in the Tribunal's Decision on Application for a Confidentiality Order of 3 June 2019.

40.

On 21 March 2019, the Tribunal issued Procedural Order No. 5 on the schedule for submissions on the bifurcated issue and the request for suspension of the proceeding on the merits, ordering as follows:

(i) The schedule for submissions on the bifurcated issue, as agreed by the parties, is confirmed. [...]

(iv) The Claimants shall file their Memorial on the Merits by Friday 17 May 2019.

(v) The Tribunal defers any decision on the application to suspend the proceeding on the merits for the period following the filing of the Memorial on the Merits by the Claimants.

41.

On 30 April 2019, the Respondent requested an extension to file its Memorial on the bifurcated issue from 7 May 2019 until 17 May 2019 and informed the Tribunal that the Parties agreed on a new timetable to file their submissions.

42.

Later the same date, the Tribunal granted the Respondent's request for an extension and confirmed its agreement with the new timetable.

43.

By email of 4 May 2019, the European Commission informed the Tribunal about two new developments, which “may be of relevance for the decision of the Arbitral Tribunal on its jurisdiction.” It stated that: (i) “the 28 EU Member States have issued interpretative declarations pursuant to Article 31 VCLT on the legal consequences of the judgment in Achmea and the applicable conflict rules with intra-EU BIT”; and (ii) “the most solemn formation of the Court of Justice of the EU, the full court, has, in Opinion 1/17 on CETA, re-confirmed the judgment in Achmea and clearly indicated that it has a broad scope of application, covering any intra-EU investment arbitration.” The European Commission offered to update its amicus curiae brief to take into account these new developments (“Second EC Application”).

44.

On 13 May 2019, the Tribunal invited the Parties to comment on the Second EC Application by 20 May 2019.

45.

By email of 17 May 2019, the Claimants requested a two-day extension to file their Memorial on the Merits, allegedly due to logistical delays. By email of the same day, the Respondent argued that the Claimants’ request for an extension would have an effect on the time allowed to the Respondent to prepare its Reply on the bifurcated issue.

46.

Later the same day, the Tribunal granted the Claimants’ request for an extension to file their Memorial on the Merits by 21 May 2019.

47.

On 18 May 2019, the Respondent requested an extension of time to file its Memorial on the bifurcated issue, at the latest on the following day.

48.

On 19 May 2019, the Respondent filed its Memorial on the Bifurcated Objection (“Memorial on the Bifurcated Objection”), together with the Second Expert Report on EU Law of Professor Takis Tridimas (“Second Tridimas Report”) and the accompanying exhibits and legal authorities.

49.

On 19 May 2019, the Tribunal informed the Parties that the submissions on the Second EC Application could be delayed until 24 May 2019.

50.

On 21 May 2019, the Claimants submitted their Memorial on the Merits (“Memorial on the Merits”), together with the Witness Statements of Messrs Grigory Guselnikov, Oliver Bramwell and Georgii Guselnikov, the Expert Reports of Mr James Worsnip and of Mr Charles Carr, as well as the accompanying exhibits and legal authorities.

51.

On 24 May 2019, the Parties submitted their comments on the Second EC Application.

52.

By letter of 27 May 2019, the Tribunal noted that paragraphs 83 to 225 of the Respondent’s Memorial on the Bifurcated Issue seemed to be going to the merits. It informed the Claimants that they were free to respond to these paragraphs in addressing the bifurcated issue, and added that the Tribunal did not deem it necessary, “save insofar as any paragraphs directly relate to any of the EU Regulations set out in paragraph 227. ”

53.

By another letter of the same day, the Tribunal informed the Parties and the European Commission about its decision on the Second EC Application. The Tribunal stated that “the two matters to which the Commission refers have been entered into the record of the arbitration and have been the subject of comprehensive submissions by the Respondent State” and that the Tribunal was “of the view that [the Tribunal] is unlikely to be further assisted by an update from the Commission in these respects.”

54.

On 30 May 2019, the Claimants filed an application requesting the Tribunal to reverse its Decision on Respondent's Request for Bifurcation dated 1 March 2019, and to join the Respondent's EU Law Objection to the merits (“Application to Reconsider Bifurcation”). The Claimants essentially argued that, on the basis of the Respondent's Memorial on the Bifurcated Objection dated 19 May 2019, the facts on the merits were central to the EU Law Objection, and therefore it was not possible to address the EU Law Objection separately from the merits.

55.

The Parties' subsequent filings on the Claimants' Application to Reconsider Bifurcation are detailed in the Tribunal's Decision on the Claimants' Application to Reconsider the Decision on Bifurcation of 2 July 2019.

56.

On 2 July 2019, the Tribunal rendered its Decision on Application to Reconsider the Decision on Bifurcation, ordering as follows:

(i) the decision to address as a preliminary matter the Respondent's objection to the Tribunal's jurisdiction based on the alleged unavailability of the investor-State arbitration mechanism under the UK-Latvia BIT is maintained;

(ii) the Claimants are directed to provide, with their Counter-Memorial on the bifurcated issue, a list of exhibits that they intend to rely upon during the hearing on the bifurcated issue, as the Respondent has recently done;

(iii) the Claimants are not to adduce evidence to establish it has legitimate expectations under EU law at the hearing on the bifurcated issue;

(iv) the Claimants are not to adduce at that hearing expert evidence on the content of the EU law of legitimate expectations;

(v) the Tribunal will not have regard at that hearing to any evidence by the Respondent directed to the content or existence of legitimate expectations, including the relevant sections of Professor Tridimas’ report;

(vi) the Tribunal confirms that it will hold its hearing on the bifurcated issue as scheduled on 19-21 September 2019.

57.

On 29 July 2019, the Claimants submitted their Counter-Memorial on the Bifurcated Objection (“Counter-Memorial on the Bifurcated Objection”), together with the Expert Reports of Lord Neuberger of Abbotsbury (“First Neuberger Report”) and Professor Stefan Talmon (“First Talmon Report”), as well as the accompanying exhibits and legal authorities.

58.

By letter of 30 July 2019, the President of the Tribunal made the following disclosure to the Parties:

I note that the Claimants rely on an expert opinion on EU law by David Neuberger. As he mentions, he is a member of One Essex Court. As the parties know, I am a door tenant at those chambers, although I live in Sydney.

David Neuberger and I are also both members of the Hong Kong Court of Final Appeal. As only one foreign judge sits at one time, we never sit together.

Finally, as the parties will be aware I was a member of the Tribunal in Cube Infrastructure v. Spain to which Lord Neuberger and the Claimants refer.

59.

On 7 August 2019, the Tribunal asked the Parties if they would object to the presence at the hearing of Mr Stijn Winters, a young lawyer who was working with Mr Townsend in Washington D.C. The Parties confirmed that they did not object to Mr Winters’ presence at the hearing on the bifurcated issue as an observer.

60.

On 19 August 2019, the Respondent submitted its Reply on the Bifurcated Objection (“Reply on the Bifurcated Objection”), together with the Third Expert Report of Professor Tridimas (“Third Tridimas Report”) and the accompanying exhibits and legal authorities.

61.

By letter of 20 August 2019, the Respondent informed the Tribunal that on 15 August 2019, the European Central Bank, “as a primary supervisor since 4 April 2019, made a determination that AS PNB Banka is failing or likely to fail.” It also added that “the Single Resolution Board determined that AS PNB Banka’s failure was not expected to have an adverse impact on financial stability in Latvia or other EU Member States and therefore the Bank shall not be placed under resolution.” It concluded that it did not believe that this development would have any impact on the procedural schedule for the proceedings. The Respondent relied on press releases of the European Central Bank (“ECB”), SRB and Financial and Capital Market Commission (“FCMC”),⁴ all dated 15 August 2019.

62.

By letter of 26 August 2019, the Respondent stated that it expected to cross-examine both Claimants’ experts, Lord Neuberger and Professor Talmon, at the hearing on the bifurcated issue. By letter of the same date, the Claimants stated that they intended to cross-examine Professor Tridimas.

63.

On 27 August 2019, the Tribunal held a pre-hearing organizational meeting with the Parties by telephone conference.

64.

On 28 August 2019, the Tribunal referred to its decision, in Procedural Order No. 5, “to defer any decision on the application to suspend the proceeding on the merits for the period following the filing of the Memorial on the Merits by the Claimants” and invited the Parties to indicate, “any reason why the Tribunal should not suspend the proceeding on the merits while the decision on the bifurcated issue is pending.”

65.

By letter of 4 September 2019, the Respondent requested that the Tribunal suspend the proceeding on the merits while the decision on the bifurcated issue is pending (“Second Request to Suspend the Proceedings”). It referred to the fact that (i) “Mr. Guselnikov and his family sold essentially all their shares in the Bank during the month of June 2019, after the submission of Claimants’ Memorial on 17 May 2019”; (ii) “on 15 August 2019, the ECB determined that the Bank was failing or likely to fail”; and (iii) the question whether the Bank is insolvent and is to be liquidated is before the Latvian Courts, which should render a decision in September.

66.

Based on these new facts, the Respondent argued that the Claimants' Memorial on the Merits of 21 May 2019 might need to be amended to take into account these new events that occurred after the submission of their Memorial on the Merits and that the “Respondent is not in a position to usefully respond to the claim since the Memorial, and in particular the damages analysis, was based on assumptions that have changed since.” It suggested “to wait until after any decision on the Bifurcated Issue for the Tribunal to decide on an appropriate briefing schedule on the merits, which may include requiring Claimants to provide an amended Memorial, should the case proceed to the merits stage.”

67.

By letter of 4 September 2019, the Claimants requested that the Tribunal reject the Respondent's request for suspension. It argued that “[t]he fact that the Respondent did not apply to the Tribunal to seek the suspension of the proceedings shortly after the Claimants filed their Memorial shows that there is no credible or pressing justification for suspension” and that this delay should count against suspension. The Claimants also denied that these new facts changed the Claimants' case.

68.

By letter of 5 September 2019, the Respondent noted that the Claimants took the opportunity in their letter, submitted after the Respondent's letter, to respond to the Respondent's letter on the same subject, raising issues as to the equality of the Parties and stating that it stood ready to make further submissions should the Tribunal deem it useful.

69.

By email of the same day, the Claimants noted that the Respondent's letter did not constitute an application to make further submissions and argued that “there is no reason to afford the Respondent a further opportunity to address matters which could have been responded two months ago.”

70.

On 9 September 2019, the Claimants' submitted their Rejoinder on the Bifurcated Objection (“Rejoinder on the Bifurcated Objection”), together with the Second Expert Reports of Lord Neuberger of Abbotsburry (“Second Neuberger Report”) and Professor Talmon (“Second Talmon Report”), as well as the accompanying exhibits and legal authorities.

71.

On 10 September 2019, the Tribunal issued Procedural Order No. 6 on the Second Request to Suspend the Proceedings on the Merits, ordering as follows:

19. The Tribunal rejects the Claimants’ contention that an application for suspension by a party is a condition precedent to the exercise of the Tribunal’s discretion under Rule 41(3). Further, nothing in the text suggests that a request for suspension should be contained in the Request for Bifurcation. In any event, the Respondent made a request by letter of 15 March 2019.

20. There are two critical considerations which, in the opinion of the Tribunal, guide the exercise of the discretion to suspend in the present case. First, is the justifiable concern that suspension will significantly delay the hearing on the merits. Secondly, is the waste of resources involved in preparing for a hearing in the event that the Tribunal upholds the jurisdictional objection.

21. The Tribunal has determined that in all the circumstances, including the proximity of the jurisdictional Hearing, the latter outweighs the former and orders suspension of the proceedings.

22. The Tribunal notes the Respondent’s contention that recent developments may require amendment of the Claimants’ Memorial on the Merits. That is a matter for the Claimants.

23. The Tribunal indicates that it would be favorably disposed to an application by the Claimants to lift the suspension for the limited purpose of permitting the amendment of the Memorial if the Claimants should choose to make such an application.

72.

On 13 September 2019, the Tribunal issued Procedural Order No. 7 concerning the organization of the hearing on the bifurcated objection.

73.

On 13 September 2019, the Claimants submitted legal authorities CL-251 through CL- 254 in accordance with Clause 6.2 of Procedural Order No. 7.

74.

By email of 17 September 2019, the Tribunal made the following request to the Parties: “The Tribunal notes that prior to states joining the E.U., it was the practice of the E.U. to enter an Association Agreement. The Tribunal would be grateful if the parties could indicate whether the Latvia Association Agreement contains any reference to investment treaties and, if so, whether it could be added to the record.”

75.

By email of 18 September 2019, the Claimants submitted “the 1998 Europe (Association) Agreement between the European Communities, its Member States and the Republic of Latvia, as published in the Official Journal of the European Communities on 2 February 1998.”⁵ The Claimants noted that “Article 74 of the Agreement refers to international investment treaties.”

76.

On the same day, the Claimants advised the Tribunal that the Parties agreed that the Respondent would deliver its opening statement first, and that the cross-examination would commence with Professor Tridimas’ presentation. The Claimants thus requested that the Tribunal amend Clause 5 of Procedural Order No. 7 accordingly.

77.

By letter of the same date, the Respondent informed the Tribunal that “on 12 September 2019, the Riga City Vidzeme District Court declared AS PNB Banka insolvent and appointed an insolvency administrator” and that it was “now in a position to provide a translated copy of the judgment to the Tribunal,” submitted as exhibit R-358. Mr Vigo Krastins was appointed as the Administrator of the insolvency proceedings of AS PNB Banka (the “Administrator”). The Respondent added that “this should not have any incidence on the scheduled hearing on the bifurcated issue” but requested that “this issue be addressed as a preliminary matter at the hearing, including whether the insolvency judgement has affected Quinn Emanuel Urquhart & Sullivan’s representation of the Bank.”

78.

Later the same date, the Tribunal issued the amended version of Procedural Order No. 7, taking into account the Parties’ agreement on the order of appearance at the hearing on the bifurcated objection.

79.

By email of 19 September 2019, the Tribunal informed the Parties that “[t]he issue of legal representation of the Bank should be discussed between the parties with a view to reaching an agreed position. If the matter needs to be considered by the Tribunal, it will be treated as an application by the Respondent and taken out of its allocated time.”

80.

The Hearing on the Bifurcated Objection was held in Paris from 19 to 20 September 2019 (“Hearing”). The following persons were present at the Hearing:

Tribunal
The Honourable James Spigelman QC President
H.E. Judge Peter Tomka Co-Arbitrator
Mr John M. Townsend Co-Arbitrator

ICSID Secretariat
Mr Francisco Abriani Secretary of the Tribunal

Assistant to the President of the Tribunal
Mr Adam Butt Assistant to the President of the Tribunal

For the Claimants
Dr Anthony Sinclair Quinn Emanuel Urquhart & Sullivan UK LLP
Mr Armando Neris Quinn Emanuel Urquhart & Sullivan UK LLP
Dr David Pusztai Quinn Emanuel Urquhart & Sullivan UK LLP
Mr James Mohajer Quinn Emanuel Urquhart & Sullivan UK LLP

Experts
The Rt. Hon. Lord Neuberger of Abbotsbury One Essex Court
Prof Stefan Talmon University of Bonn, University of Oxford, 20 Essex Street

For the Respondent
Mr Pierre-Olivier Savoie Savoie Arbitration
Ms Justine Touzet Savoie Arbitration
Ms Léna Kim Savoie Arbitration
Mr Lucas Mathieu Savoie Arbitration
Ms Marie-Pier Michon
Prof. Angelos Dimopoulous Queen Mary University of London

Party Representatives:
Dr Ilze Dubava The State Chancellery
Mr Dainis Pudelis The State Chancellery
Ms Nerika Lizinska The State Chancellery
Mr Gvido Romeiko Financial and Capital Market Commission
Ms Nora Dambure Financial and Capital Market Commission
Ms Daiga Birite Financial and Capital Market Commission

Expert
Prof. Takidis Tridimas King’s College, London; Matrix Chambers

Court Reporter
Ms Anne-Marie Stallard The Court Reporter

81.

On 23 September 2019, the Tribunal invited the Parties to agree on deadlines for submissions on these matters and gave three directions to the Parties for their posthearing submissions on the bifurcated objection, as follows:

The Tribunal wishes to receive post-hearing submissions on the following topics:

1. Directed to the Respondent:

Provide particulars of each specific EU law, or provision thereof, which, if the proceeding goes to the merits, there is

(i) a risk and/or

(ii) on the balance of probabilities, it is likely

that the Tribunal will have to interpret that law or, alternatively, that the Tribunal may apply the law as facts without interpreting them.

2. Directed to the Respondent: the Tribunal refers to the submission at paragraph 31 of the Counter-Memorial on the Bifurcated Objection, including specifically the assertion that the Tribunal “has directed” that the issue of the application of the EU law of legitimate expectations has been “deferred to the merits”, and to paragraph 13 of the Decision of July 2, 2019 on Reconsideration of the Decision on Bifurcation. The Tribunal invites the Respondent to reply.

3. Directed to the Claimants: the Tribunal requests a submission on the issue of inadmissibility.

82.

On 1 October 2019, the Parties informed the Tribunal of their agreement on the scheduling of post-hearing submissions on the bifurcated objection.

83.

By letter of 7 October 2019, the Claimants wrote regarding the scope of the post- hearing submissions, and requested the Tribunal to “(a.) reconsider its formulation of the first topic [...]; (b.) withdraw the second topic from post-hearing submissions; and (c.) clarify the scope of the requested submissions on the third topic”⁶ (the “Request for Clarification”).

84.

By letter of 17 October 2019, the Claimants suggested that the Tribunal vacate the deadlines for submissions of post-hearing briefs and invite the Parties to agree on new deadlines to be calculated from the date on which the Tribunal will have decided on the Claimants’ Request for Clarification on the scope of the post-hearing submissions.

85.

On 18 October 2019, the Tribunal invited the Respondent to comment on the Claimants’ letter of 7 October 2019 by 25 October 2019, and informed that the Claimants could reply to the Respondent’s comments by 1 November 2019 at the latest. The Tribunal also invited the Parties to confer on a new timetable for post-hearing submissions to commence from the date the Tribunal resolves the Request for Clarification.

86.

On 22 October 2019, Quinn Emanuel Urquhart & Sullivan requested that the Administrator be added to the distribution list as “a courtesy”.

87.

On 25 October 2019, the Respondent informed the Tribunal that the Parties had agreed to an extension for the submission of the Respondent’s comments on the Claimants’ letter of 7 October 2019 until 29 October 2019, and that the Claimants could submit their comments by 11 November 2019.

88.

By letter of 29 October 2019, the Respondent submitted its comments to the Claimants’ letter of 7 October 2019. The Respondent advised the Tribunal that it opposed the Claimants’ request that “the Tribunal reconsider, clarify or withdraw its questions for post-hearing briefs on the Bifurcated Issue.”

89.

By letter of 1 November 2019, the Respondent advised the Tribunal that on 24 October 2019 the European Commission issued a press release and statement concerning the conclusion of a plurilateral agreement to terminate intra-EU BITs. The Respondent noted that the Parties were not in a position to further comment until more information on the agreement became available and that it was investigating whether any further information relating to the agreement could be provided to the Tribunal and/or when it was expected to become public.

90.

By letter of 11 November 2019, the Claimants responded to the Respondent’s letter of 29 October 2019, and requested that the Tribunal:

a. defer question one to the merits phase;

b. withdraw question two, thus deferring all issues concerning the EU law and international law of legitimate expectations to the merits phase; and

c. confirm that the scope of the requested submissions on question three is limited to the admissibility objections previously raised in the Respondent's submissions, which have been summarised at paragraph 36 of the Claimants' letter dated 7 October.

91.

On 13 November 2019, the Respondent informed the Tribunal that the Parties had been unable to agree on a timetable for post-hearing submissions and suggested a timetable.

92.

Later the same date, the Claimants requested that “the Tribunal defer any decision on the procedural timetable for the post-hearing briefs until after it has rendered its decision” on the Claimants' application of 7 October 2019.

93.

On 15 November 2019, the Claimants notified the Tribunal that they were seeking certain disclosures and information from the Respondent regarding the plurilateral agreement between EU Member States to terminate intra-EU BITs, referred to by the Respondent in its letter of 1 November 2019, by separate correspondence.

94.

On 19 November 2019, the Tribunal amended its post-hearing questions, as follows:

i. The Tribunal amends Question 1 to read: The Tribunal invites the Respondent to reply further to the Claimants' contention that the Tribunal should treat EU law as a fact. It is a matter for the Respondent whether it wishes to do so or not.

ii. The Tribunal maintains Question 3. It is a matter for the Claimant whether it wishes to respond or not.

iii. In the case of each of i and ii, it is for the party requested to determine the content, if any, of its response. The other party's reply should be confined to the matters raised in the first submission. If the first party elects not to respond to a question, no reply will be called for.

iv. The Tribunal has reconsidered Question 2 and has determined that it does not require a submission from the Respondent. The Question is withdrawn.

95.

The Tribunal further drew the Parties’ attention to the award in Magyar Farming Company Limited and others v Hungary (ICSID Case No. ARB/17/27) (“Magyar Farming”), dated 13 November 2019, and invited the Parties to address an additional question for the post-hearing submissions: the findings of the tribunal in Magyar Farming with respect to the intra-EU objection submitted by Hungary. The Tribunal also invited the Parties to reach an agreement on the scheduling of the post-hearing submissions.

96.

On 25 November 2019, the Respondent informed the Tribunal that the Parties had agreed on a timetable for the post-hearing submissions.

97.

By letter of 26 November 2019, the Tribunal informed the Parties that their agreed schedule was approved.

98.

On 4 December 2019, the Claimants notified the Tribunal of Mr Guselnikov’s ancillary claims, arising out of the Respondent’s alleged wrongful conduct. They also informed the Tribunal that the ancillary claims, which relate to the ongoing criminal proceedings “that relate to the harassment and attempted extortion of Mr. Guselnikov by Mr. Rimsevics and his affiliates”, would be further particularised in due course.

99.

On 9 December 2019, Mr Krastins, the Administrator, requested access to the case file and informed the Tribunal that Mr Vainovskis, a former counsel for the Claimants, was no longer involved in the case and that his power of attorney had been withdrawn.

100.

On 10 December 2019, Mr Okko Behrends, a lawyer allegedly representing AS PNB Bank’s management, contacted the ICSID Secretariat via email. Mr Behrends attached a Power of Attorney dated 29 August 2019 signed by two members of the board, stating that Mr Behrends had the power “[t]o represent the interests of the Grantor in the courts and judicial institutions of the Republic of Latvia and of the European Union.” Mr Behrends also noted that the Administrator was not able to revoke the power of attorney of Mr Vainovskis.

101.

On 11 December 2019, the Tribunal invited Mr Behrends to elaborate on the scope of his power of attorney, and whether his appearance before the Tribunal in this arbitration falls within the scope of the power of attorney dated 29 August 2019.

102.

By separate letters of 11 December 2019, the Tribunal invited the Administrator and Quinn Emanuel Urquhart & Sullivan to comment on the Administrator’s request and on Mr Behrends’ email of 10 December 2019.

103.

On 17 December 2019, Mr Krastins submitted a letter in response.

104.

On the same date, Quinn Emanuel Urquhart & Sullivan informed the Tribunal that it was no longer representing AS PNB Banka, but that it would continue to represent the Shareholder Claimants.

105.

Later the same date, Mr Behrends submitted a new power of attorney, which was signed by three members of the board of AS PNB Banka. This new power of attorney, dated 17 December 2019, authorized Mr Behrends to represent AS PNB Banka “in any and all matters for which the board of AS PNB Banka is the appropriate representative of the Bank”. In the same email, Mr Behrends argued that the Administrator should not be representing the Bank.

106.

The Tribunal, by letter of 20 December 2019, invited the Administrator, the Shareholder Claimants, the Respondent and Mr Behrends to file submissions on the issue of the representation of the Bank. The Tribunal also indicated that Mr Behrends would be included on the correspondence regarding this issue.

107.

On 8 January 2020, the Shareholder Claimants notified the Tribunal of their intention to file ancillary claims arising from the declaration of insolvency of the Bank and the conduct of Latvia’s Financial and Capital Market Commission (FCMC).

108.

On 24 January 2020, the Shareholder Claimants further elaborated on their ancillary claims in their reply submission on the representation issue.

109.

The Administrator, Mr Behrends, the Shareholder Claimants and the Respondent filed submissions on the issue of representation. Following these submissions on 30 January 2020, the Tribunal issued Procedural Order No. 8 on the representation of the Bank (“Decision on Representation”). The Tribunal decided as follows:

a. The Tribunal recognises Mr. Krastins as the representative of the Bank for the purposes of completing submissions on the Bifurcated Issue in answer to the Tribunal questions.

b. Mr. Krastins will be given access to the submissions on the Bifurcated Issue.

c. Until further order, the Tribunal rejects Mr. Behrends' application to be accepted as the representative of the Bank. The parties are directed to continue to copy Mr. Behrends on any communication relating to the representation of the Bank.

d. The Tribunal accepts that both Mr. Krastins, in the exercise of his statutory powers, and the former Directors or the current shareholders, reflecting the separate legal personality of the Bank, are entitled to be heard if the Tribunal rejects the Respondent's jurisdictional challenge on the Bifurcated Issue.

e. If that occurs, further submissions will be sought at that time.

110.

On 30 January 2020, in response to the Shareholder Claimants' letter of 8 January 2020, the Tribunal informed the Parties that it took note of the Shareholder Claimants request for leave to make an ancillary claim and that it would leave this application on hold until it has decided on the bifurcated issue.

111.

Also on 30 January 2020, the Tribunal invited the Parties to address in their post-hearing submissions on the bifurcated issue, in addition to the issues indicated in the letter of 19 November 2019, the following question: “What is the impact, if any, of the UK leaving the European Union on the availability of the dispute settlement procedures under Article 8 of the UK-Latvia BIT, as this BIT will not as from February 1, 2020 be a BIT between two Member States of the European Union?”

112.

On 6 February 2020, the Administrator proposed a timetable for post-hearing submissions. By letter of 6 February 2020, the Respondent informed the Tribunal that the Parties had been unable to agree on a timetable for post-hearing submissions and that it would seek the Tribunal's leave for the Parties to file submissions on costs after the filing of the last post-hearing submission.

113.

On 11 February 2020, the Tribunal issued a timetable for the Parties' post-hearing submissions and invited the Claimants' to comment on the Respondent's proposal on costs submissions.

114.

By letter of 17 February 2020, the Shareholder Claimants confirmed that there was no pending request or application for leave before the Tribunal in relation to the Shareholder Claimants’ notification of an ancillary claim dated 8 January 2020 and requested that “the Tribunal clarify that its statement in the letter dated 3[0] January 2020 was not intended to mean that the Shareholder Claimants’ Insolvency Ancillary Claim is not properly brought before the Tribunal and that any permission to admit such a claim is required.”

115.

On 17 February 2020, Mr Behrends filed a proposal to disqualify all of the Members of the Tribunal on behalf of AS PNB Banka.

116.

On 18 February 2020, the Shareholder Claimants filed a proposal to disqualify all of the Members of the Tribunal.

117.

On 20 February 2020, the Secretary-General notified the Parties that pursuant to ICSID Arbitration Rule 9(6), the proceeding was suspended.

118.

The Parties’ subsequent filings on Mr Behrends’ and the Shareholder Claimants’ disqualification proposals are detailed in the Decision on the Proposals to Disqualify Messrs. James Spigelman, QC, Peter Tomka and John M. Townsend of 16 June 2020 (“Decision on the Disqualification Proposals”). In its Decision on the Disqualification Proposals, the Chairman of the Administrative Council decided that Mr Behrends had no standing to file a proposal for disqualification on behalf of AS PNB Banka and rejected the Shareholder Claimants’ proposal for disqualification.

119.

By letter of 16 June 2020, ICSID informed the Parties that the proceeding had resumed on the same date.

120.

By letter of 20 June 2020, the Tribunal issued its directions to the Parties regarding the schedule for the filing of the post-hearing submissions. The Tribunal advised that the Parties should file the first submission on 9 July 2020, the second submission on 30 July 2020 and the last submission on 13 August 2020. The Tribunal also noted that the proceedings had been suspended for 119 days.

121.

On 25 June 2020, the Tribunal invited the Parties to comment in their post-hearing submissions, on the Decision on Jurisdiction in the case Addiko Bank AG v. Croatia (ICSID Case No. ARB/17/37) rendered on 12 June 2020 ("Addiko v Croatia”).

122.

Also on 25 June 2020, the Centre invited the Parties to indicate whether they agreed to the publication on the ICSID website of the two decisions on provisional measures dated 30 September 2018 and 17 April 2019, respectively, as well as the Decision on the Respondent’s Request for Bifurcation dated 1 March 2019 and the Decision on the Application to Reconsider the Decision on Bifurcation dated 2 July 2019. To date, the Parties have not provided their responses to the Centre.

123.

On 9 July 2020, the Administrator filed a submission concerning the Addiko v Croatia decision. The Administrator advised the Tribunal that this submission completed the submission filed on 12 March 2020, in which he had already “addressed the three questions previously raised by the Tribunal.”

124.

On the same date, the Shareholder Claimants filed their Post-Hearing Submission dated 9 July 2020, along with a cover letter and consolidated indices of the Legal Authorities and Factual Exhibits (the “Shareholder Claimants’ First Post-Hearing Submission” or “SC PHS 1”). The Respondent also filed its Post-Hearing Submission dated 9 July 2020, along with a cover letter and indices of the Legal Authorities and Factual Exhibits (the “Respondent’s First Post-Hearing Submission” or “Respondent’s PHS 1”).

125.

On 10 July 2020, the Administrator’s submission of 12 March 2020 filed while the case was suspended was transmitted to the Members of the Tribunal.

126.

On 22 July 2020, Mr Okko Behrends submitted a “Statement for Submission in ICSID Case No. ARB/17/47”

127.

Later on the same date, the Tribunal informed the Parties that “[u]ntil the ruling on the bifurcated issue, the Tribunal has directed the Secretary of the Tribunal not to transmit to the Tribunal any communications unless they are filed by, or with the consent of, the parties to the proceeding.”

128.

By letter of 30 July 2020, the Administrator informed the Tribunal that AS PNB Banka: (i) considered that the Tribunal “has been sufficiently briefed on the [jurisdiction] issues and will be in a position to take a decision based on the Parties’ hitherto submissions”; (ii) therefore did not see the need to make further submissions at this stage, but reserved its right to do so; and (iii) maintained its position and rejected the Respondent’s objections in this matter.

129.

On the same date, the Shareholder Claimants filed their Second Post-Hearing Submission dated 30 July 2020, along with updated indices of the legal authorities and factual exhibits (the “Shareholder Claimants Second Post-Hearing Submission” or “SC PHS 2”). The Respondent also filed its Second Post-Hearing Submission on the same date, along with updated indices of the legal authorities and factual exhibits (the “Respondent’s Second Post-Hearing Submission” or “Respondent’s PHS 2”).

130.

On 8 August 2020, the Respondent's counsel informed the Parties and the Tribunal that the law firm “Savoie Arbitration” changed its name to “Savoie Laporte”.

131.

On 13 August 2020, the Administrator filed his Third Post-Hearing Submission. The Respondent also filed its Third Post-Hearing Submission, along with updated indices of the legal authorities and factual exhibits (“Respondent’s PHS 3”). The Shareholder Claimants submitted their Third Post-Hearing Submission also on the same date, along with legal authorities CL-330 to CL-335 and an updated index of the legal authorities (“SC PHS 3”).

132.

By letter of 1 September 2020, the Shareholder Claimants notified the Tribunal that the Agreement for the Termination of Bilateral Investment Treaties between the Members States of the European Union (the “Termination Agreement”), submitted as legal authority CL-336, had entered into force on 29 August 2020. They further noted that (i) the UK-Latvia BIT had not been terminated under Article 2 and Annex A; (ii) the UK was not a Contracting Party; (iii) Latvia had not terminated all of its “intra-EU” BITs; and (iv) the UK and Latvia had not sought to inform the Tribunal of “the legal consequences of the Achmea judgment” in accordance with Article 7 and the pro forma statement in Annex C of the Agreement.

133.

On 2 September 2020, the Tribunal invited the Respondent and the Administrator to comment on whether, pursuant to paragraph 16.3 of Procedural Order No. 1, the Tribunal should receive this further submission and legal authority, and if so, to indicate whether they wished to make any comments limited to the contents of the new material.

134.

By letter of 2 September 2020, the Tribunal reminded the Parties that pursuant to Administrative and Financial Regulation 14(3), the Tribunal would have no choice but to stay the proceeding for lack of payment if the required payment remained outstanding when the available funds would be exhausted.

135.

On 4 September 2020, in response to the Tribunal’s invitation of 2 September 2020, the Respondent informed the Tribunal that it did not object to the inclusion of the submission and additional exhibit into the record, to the extent such addition did not further disrupt the proceedings. It also added that, should the Tribunal admit the submission into the record, it would request a right to provide a brief response.

136.

On the same date, the Shareholder Claimants argued that there was no basis or need for further submissions by virtue of paragraph 16.3 of Procedural Order No. 1. They also took note of the Partial Award on Jurisdiction in Strabag, Raiffeisen Centrobank & Syrena Immobilien Holding v. Poland, ICSID Case No. ADHOC/15/1 dated 4 March 2020 (“Strabag”), which was made publicly available on 3 September 2020.

137.

By letter of 7 September 2020, the Tribunal invited the Respondent and Mr Krastins to file a document, within three days of the date hereof (i.e., by no later than 10 September), drawing the Tribunal’s attention to any other pertinent aspects of the Termination Agreement and commenting (if at all) on the submission in the third paragraph of the Shareholder Claimants’ letter. In the same letter, the Tribunal requested the Parties to file a submission, if they wished to do so, within three days (i.e., by no later than 10 September) and in less than five pages, on any aspect of the Strabag decision that they believed to be sufficiently different from previous decisions to merit the Tribunal’s attention.

138.

By respective letters of 10 September 2020, the Administrator and the Respondent submitted their comments on the Termination Agreement and the Strabag decision (“Respondent’s PHS 4”). The Shareholder Claimants also submitted their comments on the Strabag decision, together with legal authority CL-337 and a consolidated index of legal authorities (“SC PHS 4”).

139.

On 21 September 2020, the Centre informed the Parties that pursuant to ICSID Administrative and Financial Regulation 14(3)(d), the Secretary-General had moved the Tribunal to stay the proceeding for non-payment and that the Tribunal had stayed the proceeding as of 21 September 2020.

140.

By letter of 4 January 2021, the Shareholder Claimants informed the Centre and the Tribunal that they would pay the outstanding amount and commented on the Administrator’s failure to pay the Bank’s share of the requested advance.

141.

On 6 January 2021, the Administrator sought leave to comment on the Shareholder Claimants’ letter of 4 January 2021.

142.

By letter of 7 January 2021, the Respondent submitted comments on the Shareholder Claimants’ letter of 4 January 2021 and the Administrator’s email of 6 January 2021. It also requested an indication from the Tribunal as to when a decision or award on the bifurcated issue was expected to be issued.

143.

On the same date, the Centre informed the Parties that it was in receipt of the outstanding amount.

144.

By letter of 8 January 2021, the Tribunal informed the Parties that the proceedings had resumed on the same date. It also informed them that it was not in a position to give precise dates for the ruling on the bifurcated issue. Further, the Tribunal invited: (i) the Administrator to comment on the Shareholder Claimants’ letter by no later than 15 January 2021; and (ii) the Parties to submit their submissions on costs by 12 February 2021 and any comments on the costs submissions of the other party by 26 February 2021.

145.

On 15 January 2021, the Administrator of the Bank commented on the Shareholder Claimants’ letter of 4 January 2021, and explained, inter alia, that all the previous advances on behalf of the Claimants were paid exclusively by the Bank and that the Shareholder Claimants did not contribute.

146.

On 12 February 2021, the Respondent and the Shareholder Claimants filed their respective Submissions on Costs. The Administrator also filed his Submission on Costs, together with Appendix 1.

147.

On 26 February 2021, the Respondent and the Administrator filed their respective Reply Submissions on Costs. On the same date, the Shareholder Claimants submitted their Reply Submissions on Costs, together with legal authorities CL-338 to CL-342.

148.

On 16 March 2021, Mr Kristof Vizy of VP Arbitration informed the Secretary General that he and his firm had taken over the representation of the Shareholder Claimants from Quinn Emanuel. Quinn Emanuel confirmed the change of counsel by email dated 17 March 2021. VP Arbitration submitted a power of attorney on 23 March 2021.

149.

Latvia's challenge to the jurisdiction of this Tribunal turns in large measure on the decision of the Court of Justice of the European Union (“CJEU”) in Achmea and its CETA Opinion⁷ It is appropriate to summarise these two decisions at the outset.

150.

Achmea concerned a request by the Bundesgerichtshof (Federal Court of Justice, Germany) for a preliminary ruling from the CJEU with respect to the interpretation of Articles 18, 267 and 344 Treaty on the Functioning of the European Union (“TFEU”).

151.

The context of the request was an arbitral proceeding involving the Slovak Republic and Achmea BV concerning an arbitral award of 7 December 2012 rendered by the arbitral tribunal constituted under the Slovakia-Netherlands BIT. The Netherlands- Czech and Slovak BIT (the “Slovakia-Netherlands BIT”) entered into force on 1 January 1992. The Slovak Republic succeeded to that BIT on 1 January 1993. Article 8 of the Slovakia-Netherlands BIT provides:

1. All disputes between one Contracting Party and an investor of the other Contracting Party concerning an investment of the latter shall if, possible, be settled amicably.

2. Each Contracting Party hereby consents to submit a dispute referred to in paragraph 1 of this Article to an arbitral tribunal, if the dispute has not been settled amicably within a period of six months from the date on which either party to the dispute requested amicable settlement.

3. The arbitral tribunal referred to in paragraph (2) of this Article will be constituted for each individual case in the following way: each party to the dispute appoints one member of the tribunal and the two members thus appointed shall select a national of a third State as Chairman of the tribunal. Each party to the dispute shall appoint its member of the tribunal within two months, and the Chairman shall be appointed within three months from the date on which the investor has notified the other Contracting Party of his decision to submit the dispute to the arbitral tribunal.

4. If the appointments have not been made in the abovementioned periods, either party to the dispute may invite the President of the Arbitration Institute of the Chamber of Commerce of Stockholm to make the necessary appointments. If the President is a national of either Contracting Party or if he is otherwise prevented from discharging the said function, the Vice-President shall be invited to make the necessary appointments. If the Vice-President is a national of either Contracting Party or if he too is prevented from discharging the said function, the most senior member of the Arbitration Institute who is not a national of either Contracting Party shall be invited to make the necessary appointments.

5. The arbitration tribunal shall determine its own procedure applying the United Nations Commission on International Trade Law (UNCITRAL) arbitration rules.

6. The arbi[tral] tribunal shall decide on the basis of the law, taking into account in particular though not exclusively:

- the law in force of the Contracting Party concerned;

- the provisions of this Agreement, and other relevant agreements between the Contracting Parties;

- the provisions of special agreements relating to the investment;

- the general principles of international law.

7. The tribunal takes its decision by majority of votes; such decision shall be final and binding upon the parties to the dispute.⁸

152.

On 1 May 2004, the Slovak Republic acceded to the EU. During 2004, it opened up its market to private health insurance services. Achmea (Netherlands) set up a subsidiary in Slovakia offering such services. By a law of 25 October 2007, the Slovak Republic prohibited the distribution of profits generated by private health insurance activities. Subsequently, the Slovak Constitutional Court held that the prohibition was unconstitutional. Later the Slovak Republic again allowed the distribution of the profits.

153.

In October 2008, Achmea commenced arbitration proceedings against the Slovak Republic under Article 8 of the Slovakia-Netherlands BIT and the UNCITRAL Arbitration Rules for damages caused by its legislative measures. The tribunal determined Frankfurt am Main to be the place of the arbitration. The Slovak Republic objected to the tribunal’s jurisdiction on the basis that, due to its accession to the EU, recourse to arbitration provided for in Article 8(2) of the Slovakia-Netherlands BIT was incompatible with EU law.

154.

On 26 October 2010, the tribunal dismissed the objection. Set aside applications before the courts of Germany, the place of arbitration, were unsuccessful at first instance and on appeal. By an award of 7 December 2012, the tribunal ordered that the Slovak Republic pay Achmea damages of EUR 22.1 million. The Slovak Republic brought a further set aside action before the Frankfurt Higher Regional Court which dismissed the action.

155.

The Slovak Republic then appealed to the Bundesgerichtshof On 3 March 2016, it requested a preliminary ruling from the CJEU under Article 267 of the TFEU. Given the numerous BITs still in force between Member States with similar arbitration clauses to the one in question, the Bundesgerichtshof sought a ruling on the following questions:

(1) Does Article 344 TFEU preclude the application of a provision in a bilateral investment protection agreement between Member States of the European Union (a so-called intra-EU BIT) under which an investor of a Contracting State, in the event of a dispute concerning investments in the other Contracting State, may bring proceedings against the latter State before an arbitral tribunal where the investment protection agreement was concluded before one of the Contracting States acceded to the European Union but the arbitral proceedings are not to be brought until after that date?

If Question 1 is to be answered in the negative:

(2) Does Article 267 TFEU preclude the application of such a provision?

If Questions 1 and 2 are to be answered in the negative:

(3) Does the first paragraph of Article 18 TFEU preclude the application of such a provision under the circumstances described in Question 1?

156.

The CJEU ultimately answered the first two questions affirmatively. Consequently, it did not need to, or proceed to, address the third question. In essence the CJEU had been asked to assess whether Articles 267 and 344 of the TFEU must be interpreted as precluding a provision in an international agreement concluded between Member States, such as Article 8 of the Slovakia-Netherlands BIT, under which an investor from one of those States may in the event of a dispute concerning investments in the other Member State, bring proceedings against the latter Member State before an arbitral tribunal whose jurisdiction that Member State has undertaken to accept. In addressing that question, the CJEU first emphasised the principle enshrined in Article 344 of the TFEU, that international agreements cannot affect the allocation of powers fixed by the EU Treaties or the autonomy of the EU legal system. It was significant to the CJEU that:

EU law is characterised by the fact that it stems from an independent source of law, the Treaties, by its primacy over the laws of the Member States, and by the direct effect of a whole series of provisions which are applicable to their nationals and to the Member States themselves.⁹

157.

The CJEU reasoned that EU law is based on the fundamental premise that each EU Member State shares with the other Member States a set of common values on which the EU is founded (Treaty on European Union (“TEU”) Article 2), implying and justifying the existence of mutual trust between Member States that those values will be recognised and respected. In that context, Member States must, by reason, inter alia, of the principle of sincere cooperation set out in Article 4(3) of the TEU, ensure in their territories the application of, and respect for, EU law.

158.

The CJEU explained that to ensure that the autonomy of the EU legal order is preserved, the EU Treaties have established a judicial system which is intended to ensure consistency and uniformity in interpreting EU law.¹⁰ Pursuant to Article 19 of the TEU, national courts, tribunals and the CJEU, are to ensure the full application of EU law in all Member States and the judicial protection of the rights of individuals. The “keystone” of this judicial system is the preliminary ruling procedure provided for in Article 267 of the TFEU, which intends to secure uniform interpretation of EU law.¹¹

159.

The CJEU assessed whether the disputes which the arbitral tribunal was called on to resolve are liable to relate to the interpretation or application of EU law.¹² While the tribunal was being called on to rule on possible infringements of the Slovakia-Netherlands BIT, in order to do so pursuant to Article 8(6), it had to “take account” of the law in force of the contracting party concerned and other relevant agreements between the contracting parties.

160.

According to the CJEU, the characteristics of EU law mean that EU law had to be regarded both as forming part of the law in force in every Member State and as deriving from an international agreement between the Member States. On that “twofold basis,” the arbitral tribunal could be called on to interpret or to apply EU law, particularly the provisions concerning the fundamental freedoms including freedom of establishment and free movement of capital.¹³ However, with no links with the judicial systems of the Member States,¹⁴ the arbitral tribunal could not be classified as a court or tribunal “of a Member State” within the meaning of Article 267 of the TFEU. It followed that a tribunal “such as” that referred to in Article 8 of the Slovakia-Netherlands BIT could not be regarded as a “court or tribunal of a Member State” under Article 267 of the TFEU, and therefore is not entitled to make a reference to the Court for a preliminary ruling.¹⁵

161.

This finding was reinforced by the notion that any award would not meet the requirements of Article 19 of the TEU, i.e., being subject to review by a court of a Member State. Within this framework, under Article 8(7) of the Slovakia-Netherlands BIT, the decision of the arbitral tribunal provided for in that Article is final. Further, under Article 8(5), the tribunal was also to determine its own procedure applying the UNCITRAL rules, including choosing its seat and consequently the law applicable to the procedure governing judicial review of the validity of the award by which it puts an end to the dispute before it.

162.

The CJEU observed that any judicial review of the validity of the arbitral award by the tribunal on 7 December 2012 was limited to the validity of the arbitration agreement under applicable law and the consistency with public policy of the recognition or enforcement of the award.¹⁶ The system of dispute resolution set up by the relevant Member States removed from their own courts’ jurisdiction, and hence from the system of judicial remedies which Article 19(1) of the TEU requires them to establish in the fields covered by EU law, disputes which may concern the application or interpretation of EU law.¹⁷ This could prevent the full effectiveness of EU law.¹⁸ Article 8 thus called into question the principle of mutual trust between the Member States and the preliminary ruling procedure. This was deemed to be incompatible with the principle of sincere cooperation and to adversely affect the autonomy of EU law.¹⁹

163.

Having made these findings, the CJEU held that the answer to the referral was that:²⁰

Articles 267 and 344 TFEU must be interpreted as precluding a provision in an international agreement concluded between Member States, such as Article 8 of the [Slovakia-Netherlands BIT], under which an investor from one of those Member States may, in the event of a dispute concerning investments in the other Member State, bring proceedings against the latter Member State before an arbitral tribunal whose jurisdiction that Member State has undertaken to accept.

164.

In the present matter, the parties rely on the CETA Opinion (or Opinion 1/17) in competing and detached ways. Latvia submits that the CETA Opinion is authority for the proposition that the incompatibilities between EU law and the BIT are more wide-ranging than that which can be established from Achmea alone. Taken together, it is said, Achmea and the CETA Opinion establish that essentially all provisions of the Treaty are incompatible with EU law.

165.

For the Claimants, the CETA Opinion is authority for the notion that if the Tribunal has to consider EU law as fact here, then that will not render the BIT incompatible with EU law.

166.

The CETA Opinion is a CJEU Opinion which post-dates Achmea. It concerned a request for an opinion by the Kingdom of Belgium in the following terms:

Is Section F (‘Resolution of investment disputes between investors and states') of Chapter Eight (‘Investment') of the Comprehensive Economic and Trade Agreement between Canada, of the one part, and the European Union and its Member States, of the other part, signed in Brussels on 30 October 2016 (OJ 2017 L 11, p. 23; ‘the CETA') compatible with the Treaties, including with fundamental rights?²¹

167.

The Comprehensive Economic and Trade Agreement (“CETA”) is a free trade agreement that contains rules relating to, inter alia, investment. Section F of Chapter Eight of CETA contains Articles 8.18 to 8.45 which pertain to the establishment of a mechanism for the resolution of investment disputes between investors and States (“ISDS mechanism”). Article 8.27 provides for the creation of a Tribunal (“CETA Tribunal”) upon the entry into force of the CETA. Article 8.28 provides for the creation of an Appellate Tribunal (“CETA Appellate Tribunal”). Article 8.29 provides for the eventual establishment of a multilateral investment tribunal and appellate mechanism, the establishment of which will end the operation of the CETA Tribunal and the CETA Appellate Tribunal.²²

168.

In the CETA Opinion, the CJEU found that Section F of Chapter 8 of the CETA is compatible with EU primary law.²³ The Opinion centred on the compatibility of the ISDS mechanism with: (1) the autonomy of EU law; (2) the general principles of equal treatment and the requirement of effectiveness; and (3) the right of access to an independent tribunal.

169.

In the present proceeding, the parties' reliance focuses on points (1) and (3) above.

170.

The CJEU indicated that an international agreement providing for the creation of a court responsible for the interpretation of its provisions and whose decisions are binding on the EU, is, in principle, compatible with EU law. The CETA, in so far as it provides a process of submitting to judicial adjudication the resolution of disputes between investors and States by means of establishing a Tribunal, Appellate Tribunal and a later multilateral investment Tribunal, may be compatible with EU law if it has no adverse effect on the autonomy of EU law.²⁴

171.

In order to ensure that the autonomy of the EU legal order is preserved, the EU Treaties established a judicial system intended to ensure consistency and uniformity in the interpretation of EU law (see Article 19 of the Treaty on the European Union). That system includes the preliminary ruling procedure in Article 267 of the TFEU.

172.

The high watermark of the CETA Opinion for current purposes is that the CJEU stated that in order to determine that the envisaged ISDS mechanism was compatible with the autonomy of the EU legal order, it was necessary to be satisfied (which it was) that:²⁵

- Section F of Chapter Eight of the CETA does not confer on the envisaged tribunals any power to interpret or apply EU law other than the power to interpret and apply the provisions of that agreement having regard to the rules and principles of international law applicable between the Parties, and

- Section F of Chapter Eight of the CETA does not structure the powers of those tribunals in such a way that, while not themselves engaging in the interpretation or application of rules of EU law other than those of that agreement, they may issue awards which have the effect of preventing the EU institutions from operating in accordance with the EU constitutional framework.

173.

The CJEU explained that, by reference to Articles 8.6-8.14, 8.18 and 8.31.1-8.31.2 of the CETA, the power of interpretation and application conferred on the CETA Tribunal in determining investment claims, is confined to the provisions of the CETA, and that such interpretation or application must be undertaken in accordance with the rules and principles of international law applicable between the Parties (but not under a Party’s domestic law: Article 8.31.2).

174.

The CJEU distinguished Section F of Chapter Eight CETA from the investment agreement in Achmea. Two main differences were noted: first, in Achmea, the agreement established a tribunal that would be called on to give rulings on disputes that might concern the interpretation or application of EU law;²⁶ and, second, Achmea concerned an agreement between Member States in contrast to the CETA Opinion which concerned the creation of a tribunal by agreement between the EU and a non-Member State.²⁷ The principle of mutual trust with respect to compliance with the right to an effective remedy before an independent tribunal under Article 47 of the Charter is not applicable in relations between the EU and a non-Member State.

175.

The CJEU clarified that the power of interpretation and application conferred on the CETA Tribunal was confined to the CETA provisions, and “undertaken in accordance with the rules and principles of international law applicable between the Parties”, was not invalidated by Article 8.31.2 of the CETA, which provides that:²⁸

“in determining the consistency of a measure with [CETA], the Tribunal may consider, as appropriate, the domestic law of a Party as a matter of fact” and further states that, “in doing so, the Tribunal shall follow the prevailing interpretation given to the domestic law by the courts or authorities of that Party,” adding that “any meaning given to domestic law by the Tribunal shall not be binding upon the courts or the authorities of that Party.”

176.

Commenting on the significance of Article 8.31.2, the CJEU notably said that:²⁹

Those provisions serve no other purpose than to reflect the fact that the CETA Tribunal, when it is called upon to examine the compliance with the CETA of the measure that is challenged by an investor and that has been adopted by the investment host State or by the Union, will inevitably have to undertake, on the basis of the information and arguments presented to it by that investor and by that State or by the Union, an examination of the effect of that measure. That examination may, on occasion, require that the domestic law of the respondent Party be taken into account. However, as is stated unequivocally in Article 8.31.2 of the CETA, that examination cannot be classified as equivalent to an interpretation, by the CETA Tribunal, of that domestic law, but consists, on the contrary, of that domestic law being taken into account as a matter of fact, while that Tribunal is, in that regard, obliged to follow the prevailing interpretation given to that domestic law by the courts or authorities of that Party, and those courts and those authorities are not, it may be added, bound by the meaning given to their domestic law by that Tribunal.

The fact that there is no jurisdiction to interpret the rules of EU law other than the provisions of the CETA is also reflected in Article 8.21 of that agreement...

Nor will the CETA Appellate Tribunal be called upon to interpret or apply the rules of EU law other than the provisions of the CETA. (see Article 8.28.2(a)).

177.

The CJEU's key relevant finding was that Section F of Chapter Eight does not confer on the tribunals any jurisdiction to interpret or apply EU law other than that relating to the agreement's provisions.

178.

Further, the CJEU addressed a concern that the CETA Tribunal might, in the course of examining relevant facts, which may include the primary law on the basis of which the contested measure was adopted, weigh the investor claimant's freedom to conduct business against public interests set out in the EU Treaties and Charter relied on by the EU in its defence. This would entail making findings on secondary acts of EU law as to whether EU measures are ‘fair and equitable' (Article 8.10), or constitute indirect expropriation (Article 8.12), or unjustly restrict the freedom to make payments and capital transfers (Article 8.13). Tribunal decisions would result in binding conclusions on the EU. The question is whether this would adversely affect the autonomy of the EU legal order.³⁰

179.

In response, the CJEU noted inter alia features in the CETA which prevent the agreement from adversely affecting the capacity of the EU to operate autonomously within its constitutional framework. This includes provisions regarding the choice of the respondent,³¹ setting parameters for awards,³² exceptions provided in Article 28.3.2 of CETA,³³ the right to regulate,³⁴ the obligation not to lower standards,³⁵ the annex on indirect expropriation³⁶ and the exhaustive definition of ‘fair and equitable treatment’.³⁷

180.

Regarding the compatibility of the ISDS mechanism with the right of access to an independent tribunal, the CJEU conveyed that a consequence of Article 47 of the Charter is that the EU must ensure that Section F of Chapter Eight of the CETA, and any other provisions that determine the effect of Section F, guarantee that, once the agreement is implemented, the tribunals will be accessible and independent. The CJEU stated that that outcome is not invalidated by the fact that the envisaged ISDS mechanism is ‘hybrid’ in nature, containing characteristics of both judicial bodies and arbitration mechanisms.³⁸

181.

In the CJEU’s view, the rules establish independent, impartial and permanent investment Tribunals. For instance, Article 8.27 provides for the establishment of a permanent tribunal of 15 Members with a division of 3 Members hearing the case on a rotation basis. This ensures that the composition of divisions is random and unpredictable. Article 8.28.5 provides that the division of the Appellate Tribunal will consist of 3 randomly appointed Members. The appeal mechanism aims to ensure the “consistency of the decisions of the Tribunal of first instance.”³⁹ Such features indicate that the tribunals will essentially exercise judicial functions, in an autonomous manner, issuing final and binding decisions.

182.

On 15 January 2019, twenty-two EU Member States, including Latvia and the UK, signed the Declaration of 15 January 2019.⁴⁰

183.

The following day six other EU Member States signed substantially similar declarations in two separate documents.⁴¹

184.

The Declaration manifests the Member States’ intentions to draw all necessary consequences from the Achmea judgment pursuant to their obligations under Union law.

185.

The fundamental notion conveyed in the Declaration is that Union law takes precedence over BITs concluded between Member States.⁴² As a consequence, it is declared, all investor-State arbitration clauses contained in BITs concluded between Member States are contrary to Union law and inapplicable. The effect of this includes that an arbitral tribunal established on the basis of investor-State arbitration clauses lacks jurisdiction, due to a lack of a valid offer to arbitrate by the Member State party to the underlying BIT.⁴³

186.

The Declaration addresses fundamental freedoms. It states that when investors from Member States exercise fundamental freedoms such as the freedom of establishment or the free movement of capital, they act within the scope of Union law and thus enjoy the protection granted by those freedoms and, as the case may be, by the relevant secondary legislation, by the Charter of Fundamental Rights of the European Union (“Charter”), and by the general principles of Union law including non-discrimination, proportionality, legal certainty and protection of legitimate expectations.⁴⁴ Where a Member State enacts a measure that derogates from one of the fundamental freedoms guaranteed by Union law, that measure falls within the scope of Union law and the fundamental rights guaranteed by the Charter also apply.⁴⁵

187.

Remedies are also addressed in the Declaration. Member States must provide remedies sufficient to ensure the effective legal protection of investors’ rights under Union law.⁴⁶ Under Article 19(1) of the TEU, every Member State must ensure that its courts or tribunals, within the meaning of Union law, meet the requirements of effective judicial protection.

188.

The Declaration states that Member States and the Commission will intensify their discussions in order to better ensure complete, strong and effective protection of investments within the EU.

189.

In the Declaration, the Member States undertake that they will carry out certain actions without undue delay including:

(1) by the Declaration, informing intra-EU investment arbitration tribunals about the legal consequences of Achmea;

(2) defending Member States by requesting any court (including in third countries) which is to decide proceedings relating to intra-EU investment arbitration awards, to set the awards aside or not enforce them due to a lack of valid consent;

(3) by the Declaration, informing the investor community that no new intra-EU investment arbitration proceeding should be initiated;

(4) taking steps under national laws to withdraw pending cases where Member States control undertakings that are involved in pending investment arbitration cases against other Member States;

(5) terminating all BITs concluded between them by means of a plurilateral treaty or, if mutually more expedient, bilaterally;

(6) not challenging settlements and arbitral awards in intra-EU investment arbitration cases that can no longer be annulled or set aside and were voluntarily complied with or definitively enforced before Achmea;

(7) making best efforts to deposit their instruments of ratification, approval or acceptance of the plurilateral treaty or of any bilateral treaty terminating BITs between Member States by 6 December 2019;

(8) discussing whether any additional steps are necessary to draw all the consequences from Achmea generally or in relation to the intra-EU application of the ECT.⁴⁷

190.

In the 15 and 16 January 2019 Declarations the Member States stated, inter alia, that:

5. In light of the Achmea judgment, Member States will terminate all bilateral investment treaties concluded between them by means of a plurilateral treaty or, where that is mutually recognised as more expedient, bilaterally.

6. Member States will ensure effective legal protection pursuant to the second subparagraph of Article 19(1) TEU under the control of the Court of Justice against State measures that are the object of pending intra-EU investment arbitration proceedings.

7. Settlements and arbitral awards in intra-EU investment arbitration cases that can no longer be annulled or set aside and were voluntarily complied with or definitively enforced before the Achmea judgment should not be challenged. Member States will discuss, in the context of the plurilateral Treaty or in the context of bilateral terminations, practical arrangements, in conformity with Union law, for such arbitral awards and settlements. This is without prejudice to the lack of jurisdiction of arbitral tribunals in pending intra-EU cases.

8. Member States will make best efforts to deposit their instruments of ratification, approval or acceptance of that plurilateral treaty or of any bilateral treaty terminating bilateral investment treaties between Member States no later than 6 December 2019. They will inform each other and the Secretary General of the Council of the European Union in due time of any obstacle they encounter, and of measures they envisage in order to overcome that obstacle.⁴⁸

191.

Subsequently on 5 May 2020, an agreement was reached for the termination of bilateral investment treaties between the member states of the EU⁴⁹ (“Termination Agreement”).

192.

The Preamble to the Termination Agreement emphasised inter alia:

(1) That the CJEU held in Budëjovickÿ Budvar⁵⁰ that provisions laid down in an international agreement between two Member States cannot apply in the relations between them if the provisions are found to be contrary to the EU Treaties.

(2) That Member States must draw the necessary consequences from Union law as interpreted in Achmea.

(3) That investor-State arbitration clauses in intra-EU bilateral investment treaties are contrary to the EU Treaties and cannot be applied after the date on which the last of the parties to an intra-EU bilateral investment treaty became a Member State.

(4) That there is a common understanding between the parties to the EU Treaties and intra-EU bilateral investment treaties that such a clause cannot serve as legal basis for Arbitration Proceedings.

(5) That the Termination Agreement should cover all investor-State arbitration proceedings based on intra-EU bilateral investment treaties under any arbitration convention or set of rules, including inter alia under the ICSID Convention.

(6) That the Termination Agreement was without prejudice to the question of compatibility with the EU Treaties of substantive provisions of intra-EU bilateral investment treaties.

(7) That the Termination Agreement addresses intra-EU bilateral investment treaties but not intra-EU proceedings on the basis of Article 26 of the Energy Charter Treaty.⁵¹

(8) That Member States are obliged under the Article 19(1) TEU to provide remedies sufficient to ensure effective legal protection of investors' rights under Union law. In particular, every Member State must ensure that its courts/tribunals, within the meaning of Union law, meet the requirements of effective judicial protection.⁵²

193.

As to the main provisions in the Termination Agreement:

(1) Article 2 provides that Annex A lists the bilateral treaties which are terminated under the Termination Agreement.

(2) Article 4 confirms that investor-State arbitration clauses in intra-EU bilateral investment treaties are contrary to the EU Treaties and inapplicable. As a result of this incompatibility, as of the date on which the last of the parties to a relevant bilateral investment treaty became a Member State, the arbitration clause cannot serve as a legal basis for Arbitration Proceedings.

(3) Article 6 provides that the Termination Agreement shall not affect concluded arbitration proceedings or an agreement to settle an applicable arbitral proceeding.

(4) Article 7 provides that contracting parties which are parties to BITs on the basis of which pending or new arbitration proceedings were initiated, must inter alia cooperatively inform arbitral tribunals about the legal consequences of Achmea.⁵³

(5) Article 8 sets out transitional measures related to pending arbitration proceedings.

(6) Article 9 sets out a settlement procedure for pending arbitration proceedings.

(7) Article 10 sets out investors’ entitlements to access national courts in pending arbitration proceedings.

(8) Article 17 enables contracting parties to apply the Termination Agreement provisionally.

194.

Annex A of the Termination Agreement lists the bilateral investment treaties that are terminated. The UK-Latvia BIT is not among the list of treaties that Latvia has terminated.

195.

Nor for that matter have the UK and Latvia terminated the BIT.

196.

It is common ground that the law applicable to the Tribunal’s jurisdiction includes Article 25 of the ICSID Convention, Article 8 of the BIT if in force, and general international law. Latvia asserts, and the Claimants deny, that the applicable law includes EU law.

197.

It is also common ground that this Tribunal only has jurisdiction if Latvia had consented to refer a dispute such as this to arbitration under Article 25 of the ICSID Convention and under Article 8 of the BIT. It is also common ground, for purposes of the bifurcated objection to jurisdiction (“Bifurcated Objection”), that the consent had to be extant as at the time Latvia’s offer to arbitrate was accepted by the Claimants by expressing their consent under Article 8 of the BIT by submitting their Request for Arbitration on 14 December 2017. Thereafter there is little common ground.

198.

The parties are also agreed that the Tribunal can consider EU law insofar as it is necessary for the assessment of the Bifurcated Objection.⁵⁴

199.

On the basis of the CJEU’s decision in Achmea,⁵⁵ as reinforced by that Court’s Opinion 1/17, Latvia submits that EU law requires this Tribunal to find that it has no jurisdiction and/or to declare the claim inadmissible, because there was no valid arbitration offer to accept when the Claimants purported to do so in December 2017. Latvia’s offer to arbitrate under the BIT became precluded by its accession to the EU on 1 May 2004.⁵⁶

200.

By “preclusion,” the Respondent, quoting Professor Tridimas, means “a conflict between two rules...in a way that not both of them can be applied.”⁵⁷ The Tribunal must resolve the conflict that has existed between the BIT (1994) and the EU Treaties between the UK and Latvia since 2004.

201.

Latvia submits that the law applicable to the Tribunal’s jurisdiction includes the ICSID Convention, the BIT and general international law. The Tribunal is required to take into account all relevant rules of international law applicable in UK-Latvia relations, including EU law, on the issue of jurisdiction.⁵⁸

202.

The EU law which is required to be taken into account encompasses EU Treaties, EU Regulations, EU Directives and CJEU judgments interpreting them.⁵⁹ These are sources of international law as conventional norms or as part of the relevant rules of international law stemming from the EU Treaties. Latvia submits that the BIT is incompatible with, and is superseded by, EU law.

203.

The BIT is incompatible with EU law as determined by Achmea and Opinion 1/17, in at least four ways:

(1) Article 8 of the BIT is precluded by EU law as a matter of principle and specifically by Articles 267 and 344 TFEU, as authoritatively interpreted by the CJEU.

(2) Article 8 of the BIT is precluded by EU law as a matter of fact since this Tribunal will necessarily have to interpret or apply EU law in the present case.

(3) The entire BIT is precluded by EU law since the BIT has insufficient safeguards in its substantive provisions to ensure that the EU Member States' right to regulate and obligation to apply EU law will be sufficiently protected.

(4) The entire BIT is precluded because its interpretation and application can lead to a change in the division of powers of EU institutions within the EU's constitutional framework.

204.

Furthermore, Latvia asserts that the principle of primacy of EU law is an international conflict rule. EU law must prevail in any conflict with the BIT. The same conclusion arises from the application of the principles of lex specialis, lex posterior (EU law by virtue of Latvia's 2004 accession prevails over the 1994 BIT) and lex superior (EU law prevails over incompatible inter se international obligations between Member States), as well as comity and the principle of systemic integration of different international legal orders.

205.

Alternatively, Article 8 of the BIT is suspended by Articles 59(2) and 30(3) of the Vienna Convention on the Law of Treaties (“VCLT”), since the EU Treaties and the BIT are on the “same subject matter” because the BIT covers EU law's four freedoms (free movement of goods, services, labor and capital).

206.

In relation to consent to jurisdiction, Latvia insists that the Tribunal must look not only to the ICSID Convention, but to the BIT as well. There are “two consents” which have to be considered in this context; one under Article 25 of the ICSID Convention, the other under Article 8 of the BIT. These present distinct issues. While the Respondent does not question that the UK and Latvia are parties to the ICSID Convention, as of the Respondent's accession to the EU in 2004, there was no offer to arbitrate, nor was there an offer to accept, under the BIT, once EU law had been brought in.⁶⁰

207.

Latvia submits that the “irrevocability of consent” which is contemplated by Article 25 of the ICSID Convention operates only after that consent has been perfected, which it never was in this case.⁶¹ Although there was an offer to arbitrate open by both Latvia and the UK as of 1995, by Latvia's accession to the EU there was no longer an offer to accept. By December 2017, the offer was precluded or vitiated by Latvia’s accession to the EU.

208.

The Claimants maintain that, by their submission of the RFA on 14 December 2017, they accepted Latvia’s standing offer of arbitration which had never been withdrawn or suspended up until that time. At that point in time, they submit, “consent to ICSID arbitration had been perfected”.⁶²

209.

Under Article 25 of the ICSID Convention, “no party may withdraw its consent unilaterally.” Under, Article 26 of the ICSID Convention, the parties’ consent to ICSID arbitration shall, unless otherwise stated, be deemed consent to such arbitration to the exclusion of any other remedy.

210.

The Claimants contend that EU law is a sui generis and autonomous sub-system that does not touch upon the law and legal system by which this investment Tribunal was constituted.⁶³ Instead, the nature of “consent” is to be determined in accordance with the terms of the ICSID Convention against the backdrop of general international law. Ascertaining “consent” requires interpreting and applying Article 25 of the ICSID Convention.

211.

Because it applies to all ICSID Convention Contracting States, the Claimants state, the meaning of “consent” must be given an autonomous interpretation under the Convention. It does not have a malleable meaning that turns on whether the Contracting Parties are EU Member States or not. Only rules of international law that apply to all ICSID Convention Contracting States should be taken into account in interpreting the ICSID Convention under Article 31(3)(c) of the VCLT.

212.

The Claimants maintain that Latvia does not appear to assert that there is any conflict between the ICSID Convention (cf the BIT) and EU law. In the Claimants’ submission, this should dispose of the Bifurcated Objection. Latvia would have to show for its purposes not only that EU law applies (which it is assumed to do arguendo), but also that EU law invalidates the express permission of the ICSID Convention for ICSID Contracting States to make ICSID offers in the manner adopted by Latvia. The point is not addressed by the Respondent.

213.

The core of the issue before the Tribunal is: “Can EU law principles be invoked to defeat consent to arbitration?”⁶⁴ In the Claimants’ submission, the answer is no, because the Tribunal derives its existence from the BIT (Article 8) and from the ICSID Convention (Article 25)⁶⁵ - the “Instruments of Consent” - and not from the legal orders of the UK, Latvia or the EU. The applicable lex arbitri, and the law applicable to the Tribunal’s jurisdiction, is the Instruments of Consent, in addition to such applicable rules of international law as may be necessary to apply to interpret those instruments. That is a legal order of public international law different from the EU legal order.⁶⁶

214.

The Claimants emphasise that Latvia had the capacity to enter into the BIT pursuant to Article 6 of the VCLT. Latvia’s consent was never impeached, withdrawn or suspended pursuant to the procedures that must be followed under the VCLT. Nor was the BIT terminated when the Respondent’s consent was perfected (cf Article 42(2) of the VCLT).

215.

The Claimants also contend that when Latvia gave its consent in Article 8 of the BIT, it was not an EU Member State, such that there can be no question of incompatibility with EU law.⁶⁷ Moreover, by the terms of the BIT itself, Latvia’s consent is not expressed to be revocable outside the B1T’s termination provision in Article 14. The language of consent in Article 8 - “hereby consents” - is present tense, reflecting a continuing consent. Article 14 then provides that the BIT’s provisions continue in force until one Contracting State gives written notice to the other that the BIT is terminated, which neither Contracting State has ever done. Article 14, it is submitted, defines the period for which consent is deemed to continue to be given under Article 8.⁶⁸

216.

Latvia submits that EU law is international law.⁶⁹ By EU law, Latvia means not only EU treaties, but EU law generally too. EU law is a source of international law⁷⁰ as it stems from particular or regional conventions mentioned in Article 38(1) of the ICJ Statute. Latvia accepts that EU law has a dual nature and is considered as domestic law as well, notably because of its incorporation in the domestic legal system of Member States. At the same time, in respect to Latvia, EU law remains international law distinct from Latvian law, including the Latvian Constitution, as is the case in Germany.

217.

The status of EU law as international law is asserted to be shown by EU treaties themselves and confirmed by arbitral decisions and publicists. EU law includes EU regulations, directives, decisions and the CJEU's judgments. The latter are binding sources of EU law under Article 19 of the TEU and Article 267 of the TFEU.

218.

In addition: (a) EU law is international law because it creates obligations binding on EU Member States and on individuals;⁷¹ (b) CJEU judgments are international law;⁷² and (c) the most qualified publicists confirm that acts of organs of an international organization are sources of international law.⁷³

219.

EU law, as a subset of public international law, interacts with the general normative environment through the “master key” of Article 31(3)(c) of the VCLT. “Special” regimes of international law do not exist in clinical isolation, but they interact with each other, as confirmed by the ILC⁷⁴ and by publicists.⁷⁵

220.

Latvia asserts that international law must be interpreted in its social context.⁷⁶ Hence, the BIT is not isolated from everything else. As seen in the CJEU’s Wightman decision, for example, with respect to Brexit, the CJEU referred to provisions of the VCLT which would be considered applicable if or when the UK leaves the EU.⁷⁷ Latvia’s core submission is that the EU treaties interact with the rest of international law.

221.

Latvia argues that, having established the necessary principles leading to this submission, the Tribunal must, when interpreting Article 8 of the BIT, take into consideration EU law, notably CJEU judgments, in order to interpret and apply the BIT. The Tribunal must do so on the basis of what EU law conceives itself to be.⁷⁸ The Achmea and Opinion 1/17 judgments show that there is a conflict between EU law and the BIT.

222.

The Respondent’s case on jurisdiction invokes the fact that, as of 1992, Latvia was in the process of becoming part of the EU. At that time, Latvia states, the Baltic countries, including Latvia, were included in the EU’s PHARE enlargement program. Subsequently, the following events ensued:

(1) in 1994, Latvia and the UK signed the BIT, which entered into force in 1995;

(2) on 12 June 1995, Latvia signed the EU Association Agreement which entered into force in 1998;

(3) in 1998, Latvia’s progress report on EU accession confirmed that it had signed BITs with all EU Member States except Ireland;

(4) on 1 May 2004, Latvia acceded to the EU.

223.

Latvia says that the significance of its accession to the EU is that, while there was an offer to arbitrate open by both Latvia and the UK as of 1995 when the BIT entered into force, after 1 May 2004, when Latvia acceded to the EU, there was no longer an offer to accept. As to whether consent was perfected in December 2017 when the Claimants submitted their RFA, Latvia’s response is that there was no consent at that time. This argument is predicated on Latvia’s trajectory towards accession commencing in 1992, and by factoring in the international law which bound the UK and Latvia at the material time.⁷⁹

224.

The Claimants submit that EU law is a sui generis and autonomous sub-system that does not touch upon the law and legal system by which this investment Tribunal was constituted.⁸⁰ EU law is not applicable to jurisdiction or to merits. At most, EU law should be taken into account, but that is distinct from applying it as the applicable law.

225.

The Claimants reject, in each respect, Latvia’s submissions on the scope of applicable law. Specifically, they rely on an expert opinion of Lord Neuberger that the decision in Achmea is wrong, that it is not binding on the Tribunal, alternatively that it is distinguishable, that it is inapplicable because this case will not involve interpretation of EU law as distinct from applying EU law as fact, relying on Opinion 1/17 and, finally that it should not be given retroactive effect.

226.

Alternatively, insofar as EU law is otherwise applicable to the merits for purposes of Achmea, or to jurisdiction, that application is precluded by Article 11 of the BIT or the MFN Clause in Article 3.

227.

In the Claimants’ submission, Achmea does not evidence any general principle or rule of international law on the conflict of treaties. As Professor Talmon explains, Achmea purports only to preclude recourse to dispute resolution mechanisms as a matter of EU law.⁸¹ It is an EU law rule. It is not an international law rule.

228.

The Claimants contend that EU law is not applicable to, and cannot affect, the Tribunal's jurisdiction or admissibility, and this applies in a post-Achmea context.⁸² Achmea does not bind this Tribunal as it is a decision rendered by a court within the EU legal order, which does not sit in the same hierarchy as this Tribunal.

229.

Even if Achmea is correct and applies, by continuing to make its standing offer of arbitration to UK investors in Latvia by Article 8 of the BIT, the Respondent was, from its accession to the EU in 2004, in breach of Article 344 of the TFEU and can be held responsible by the EU and its fellow Member States for such breach.⁸³

230.

The Claimants invoke Articles 27 and 46 of the VCLT for the purposes of preserving the validity of Latvia's consent to ICSID arbitration. The Claimants contend that Latvia consented to arbitration and that that consent was relied on by them. A State cannot invoke its internal laws to invalidate its consent (Article 46) or to justify its non-performance of a treaty obligation (Article 27).

231.

For the purposes of Article 27 of the VCLT, the decisive question is not whether EU law is international law or domestic law, but whether EU law is “internal law” of Latvia. It plainly is, the Claimants say, and that is precisely the consequence of EU law having primacy over the domestic law of Latvia for the purposes of Latvian law. It must follow that EU law operates as law that is internal to the legal system of the Member States, qualifying as internal law for the purposes of Article 27 of the VCLT.

232.

The Claimants cite Cube Infrastructure for the notion that EU law has no supremacy over international law:⁸⁴

The EU treaties are, certainly, international agreements of a kind familiar in international law, binding as between the States Parties; but they also function as the constitution of an autonomous community. The rules established by EU secondary legislation are essentially supra-national regulations rather than part of the corpus of international law as such... Within the system of international law, EU law does not have supremacy, and has no hierarchical priority over the laws of non-Member States, or over rules of international law.

233.

Article 46 of the VCLT received less attention from the parties in their pleadings. During the Hearing, however, Judge Tomka raised the question whether, in the context of Article 46, consent to be bound by the BIT relates only to the BIT’s entry into force. Dr Sinclair said that it is open to the Tribunal to interpret Article 46 of the VCLT such that it is not limited in time.⁸⁵

234.

In contrast to the Claimants, the Respondent maintains that EU law is not a supranational autonomous body of law which is equivalent to domestic law for the purposes of Articles 27 and 46 of the VLCT.

235.

The Respondent describes the Claimants’ approach to Article 27 of the VCLT as follows: because EU law would be implemented into, or directly applicable into, domestic law, EU law could not be international law.

236.

The Respondent rejects this approach because, on this reasoning, any international treaty implemented into a domestic system would not be international law anymore, as it has been implemented.

237.

Regarding the Tribunal’s questioning on Article 27 of the VCLT, specifically, whether EU law could be treated as Latvia’s “internal law” for the purposes of Article 27 of the VCLT, Latvia’s position is that EU law is not a supra-national “autonomous” body of law which is equivalent to domestic law for relevant purposes. Latvian law and EU law are distinct.⁸⁶ EU law cannot be treated as “internal law” under Article 27 of the VCLT.⁸⁷ In this context, the Respondent relies on Article 5 of the VCLT to argue that the EU is an international organisation and EU law is international law. The Respondent cites Eskosol⁸⁸ and Vattenfall⁸⁹ to confirm its position that EU law is recognised as international law. In Vattenfall, the Tribunal said:⁹⁰

Since the ECJ is empowered by the EU Treaties to give preliminary rulings on the interpretation of EU law, including the EU Treaties (see Article 19 TEU and Article 267 TFEU), the Tribunal considers the ECJ Judgment’s interpretation of the EU Treaties likewise to constitute a part of the relevant international law.

238.

To the extent that the Claimants cite Cube Infrastructure in the Article 27 of the VLCT context, the Respondent says that they miss the fundamental point from that case. The point was that EU law stems from international treaties to which not all ECT Members are a party. The Claimants are alleged to have omitted part of the paragraph being relied on:

Any such claim to priority [of EU law over the ECT] would challenge the basis of the ECT as a multilateral treaty, unilaterally asserting for the EU and its Member States a right to be treated differently from all other ECT Contracting Parties.⁹¹

239.

Here, it is argued, the only parties to the BIT are two EU Member States, which does not raise any issues related to third parties.

240.

As to Article 46 of the VCLT, Latvia contends that that Article is irrelevant.

241.

The Respondent submits that Article 42 of the ICSID Convention applies to the question of the Tribunal’s jurisdiction, as well as to merits, and requires the Tribunal to apply EU law to this case. Latvia cites various matters in support of this assertion, including the Declaration, certain ICSID tribunals decisions,⁹² and leading commentary.⁹³

242.

EU law is said to apply as follows:

(1) it is agreed by the UK and Latvia that EU law is part of the law applicable to an intra-EU BIT;⁹⁴

(2) EU law applies under Article 42 of the ICSID Convention on the basis of applicable principles of international law⁹⁵ (e.g. Articles 31(3)(c) and 5 of the VCLT and conflicts rules); and

(3) EU law applies on the basis of Latvia's conflict-of-law rules (e.g. constitutional rules requiring that EU law prevail over other legal norms).

243.

In respect of the question of merits, Latvia contends that EU law qualifies under one of the two prongs of Article 42 of the ICSID Convention. The two ‘prongs' are:

(1) the “law of the Contracting State party to the dispute (including its rules on the conflict of laws);” or

(2) “such rules of international law as may be applicable”.⁹⁶

244.

The Tribunal addressed a question to the parties on the first prong above. In response to it, Latvia stated inter alia that the terms of the first prong could include the rule of primacy of EU law incorporated into Latvian law. In this manner, and as per EU law's dual aspect as international law and domestic law, EU law can be considered as “laws of the Contracting State” including its rules on the conflict of laws.

245.

Latvia contends that EU law is international law within the meaning of Article 42(1) of the ICSID Convention because:

(1) EU law is part of the law “agreed” to by Latvia and the UK to be applicable to a BIT dispute. Under Article 31(3)(c) of the VCLT, in interpreting the BIT, this Tribunal “shall” take into account international agreements in force between the UK and Latvia. Such international agreements include EU law as derived from the EU Treaties. In this dispute, it is argued, EU law will include EU regulations and directives on banking law.

(2) The Declaration confirms that EU law applies to the determination of this dispute. For the same reasons, says Latvia, EU law necessarily comes within the text of “such rules of international law as may be applicable” in the Article 42(1) definition.

246.

The Claimants submit that the law applicable to jurisdiction is derived from Article 8 of the BIT and Article 25 of the ICSID Convention, not from Article 42 of the ICSID Convention.

247.

Article 42 of the ICSID Convention is said to expressly govern the law applicable to the merits, and not jurisdiction.⁹⁷ Article 42 applies to the “dispute”. The term “dispute” in Articles 25(1) and 42 of the ICSID Convention means the same thing, and Article 25(1) makes clear that what is in contemplation is the substantive dispute.

248.

The Claimants submit that Article 42 of the ICSID Convention is a choice of law rule for the purposes of determining the law applicable to the merits, not jurisdiction.

249.

On Latvia’s theory, say the Claimants, the default law applicable to the Tribunal’s jurisdiction would be the host State’s law. Here that is Latvian law under the second sentence of Article 42(1). On Latvia’s theory, host states could unilaterally regulate the law applicable to the jurisdiction of ICSID tribunals. Latvia’s theory, if correct, would defeat the object and purpose of the ICSID Convention, which is the delocalisation of investment arbitration. It follows that the law applicable to the Tribunal’s jurisdiction is not determined by Article 42.

250.

Latvia maintains that, as there is no applicable law clause in the BIT, the BIT must be interpreted in accordance with international law. Article 31(3) of the VCLT is specifically applicable to interpret the entire BIT. It requires that “any relevant rules of international law” must be “taken into account.”⁹⁸ Just as with Slovakia and the Netherlands BIT in Achmea, the “relevant rules of international law” applicable to UK-Latvia relations include the EU Treaties and thus EU law. It follows that this Tribunal should arrive at the same result as in Achmea.

251.

Latvia submits that EU law, as a subset of public international law, interacts with the general normative environment through the “master key” of Article 31(3)(c) of the VCLT. Latvia contends that Article 31(3)(c) of the VCLT must import the principle of primacy to this case. The principle to be imported is referenced in the Declaration,⁹⁹ namely, that the provision of a bilateral agreement between two Member States that is incompatible with EU law is precluded and thus inapplicable. Latvia cites not only Achmea and Opinion 1/17 in support of the principle to apply, but three cases concerning intra-EU bilateral treaties (albeit not investment treaties): Matteucci¹⁰⁰ Exportur¹⁰¹ and Ravil¹⁰² The proposition being advanced is that EU Member States cannot circumvent the fundamental rules of the treaties and contract with each other to avoid them.

252.

According to the Claimants, Article 31(3)(c) of the VCLT cannot import EU law in the way that Latvia seeks to do in order to revoke its consent. Article 31(3)(c) is not an applicable law clause or a conflict clause.¹⁰³ Rather, it is concerned with the interpretation of a specific treaty term or provision. If it were an applicable law clause or a conflict clause, the Claimants say, then the treaty conflict rules in the VCLT would be superfluous. However, that Article states that, together with “context,” as defined in Article 31(2), “relevant rules of international law” shall be “taken into account” in interpreting the treaty. Article 31 sets out the principles that the Tribunal should take into account in ascertaining meaning through interpretation.

253.

Yet far from asking the Tribunal to merely “take into account” EU law as a relevant rule of international law as part of the interpretive process, the Respondent seeks to effectively invalidate or give no meaning to Article 8 of the BIT and to Article 25 of the ICSID Convention, by applying EU law. This is an attempt to re-write a provision,¹⁰⁴ not an attempt to “interpret” a provision. Latvia's construction is impermissible as it would directly invalidate the provisions purportedly being interpreted. That is not a good faith interpretation in accordance with the ordinary meaning given to the BIT's terms.

254.

Nor does Article 31(3)(c) give primacy to other rules of international law.¹⁰⁵ The Tribunal need only “take into account” other rules of international law. The Respondent cannot “interpret away” its consent to ICSID arbitration by application of Article 31(3)(c) of the VCLT.

255.

Latvia addresses the Declarations in connection with inter alia Magyar Farming.¹⁰⁶ In Magyar Farming, it says, the tribunal's reasoning which rejected the intra-EU objection rests essentially on two grounds: (1) that the 15 January 2019 Declarations cannot be considered to retroactively withdraw Hungary’s consent to arbitration; and (2) that the conditions of Article 30 VCLT are not met in that case.

256.

Contrary to this, Latvia asserts that the Declarations are authentic interpretations of intra-EU BITs¹⁰⁷ as subsequent agreements on the interpretation and application of intra-EU BITs, and subsequent practice on their interpretation pursuant to VCLT Article 31(3)(a)-(b). This explains the treaty law consequences of Achmea.

257.

The Declaration is said to be an agreement on the interpretation and application of Article 8 of the BIT because it concerns the consequences of Achmea for “all” investor- state arbitration clauses contained in BITs concluded between Member States, and because the Declaration is signed by both Latvia and the UK.¹⁰⁸ In this context, EU law takes precedence over intra-EU BITs because EU law, pursuant to CJEU case law,¹⁰⁹ trumps provisions of international agreements applicable as between EU Member States.

258.

Latvia accepts that the Declarations do not directly impact the interpretation or application of EU law.¹¹⁰ However, it submits that the CJEU is the authoritative interpreter of EU law. Factoring in this reasoning, Latvia submits that the Magyar Farming tribunal, by considering whether the Declarations “terminate[d]”¹¹¹ the offer to arbitrate under the Hungary-UK BIT in January 2019, failed to grasp that under EU law the Declarations could not have such an effect. Rather the Declarations reflect the existence, since 1 May 2004, of the preclusion of the offer to arbitrate under the intra-EU BITs of Member States that acceded to the EU on that date (such as Latvia). The Declarations did not themselves retroactively extinguish Latvia’s consent to ICSID arbitration.

259.

As will appear, Latvia relies on the Declarations, the Termination Agreement and the EC’s notices of infringement, to assert the existence of an EU Public Policy which allegedly precludes intra-EU BIT claims on the basis of an investor-State arbitration mechanism.

260.

The Claimants contend that the Declaration was not a subsequent agreement on the application of the BIT. The Declaration was an “inter-governmental political declaration of the governments of the 22 Member States which signed it,”¹¹² as confirmed in Eskosol.¹¹³ Eskosol imparts that the Declarations cannot be given such weight so as to retroactively extinguish Latvia’s consent to arbitration.¹¹⁴ Member States are not competent to provide conclusive interpretations of EU law notwithstanding what may be purported or how they intend to apply Achmea ‘in the future. ’ Referring to Article 43 of the Statute of the Court it submits that the prerogative to issue authoritative interpretations of EU law is conferred on the CJEU.¹¹⁵

261.

In contending that the Declaration cannot extinguish Latvia’s consent to ICSID arbitration, the Claimants also rely on Professor Talmon’s report¹¹⁶ in addition to the Magyar Farming tribunal. In Magyar Farming, the claimants had accepted Hungary’s offer to arbitrate prior to Achmea (as is the case here), finding that it was not open for Hungary to renege on its consent.¹¹⁷ The tribunal also said that even if the Declaration could be regarded as an agreement to terminate the BIT, the consent to arbitrate, which is perfected by the investor’s acceptance of the State’s offer to arbitrate expressed in the BIT, could not be retroactively invalidated by a later termination of the BIT.¹¹⁸ In doing so, say the Claimants, the Magyar Farming tribunal concurred with the finding in Eskosol.¹¹⁹

262.

To the extent that Latvia relies on the Termination Agreement for its purposes, the Claimants contend that the UK’s failure to sign it reinforces that the BIT is in full force and effect. Moreover, the Termination Agreement is not relevant for the purposes of Article 31(3)(c) of the VCLT.

263.

Latvia contends that the Termination Agreement confirms that effective legal protection of EU investors with ongoing intra-EU BIT claims is a matter for domestic courts of EU Member States, not for arbitral tribunals.

264.

Latvia emphasises that on 14 May 2020, a notice of infringement was issued by the EC to the UK for failing to remove the intra-EU BITs from its legal order. The infringement notice allegedly confirms that EU law continues to apply to the UK during the transition period in respect of intra-EU BITs, and so continues to preclude the application of the BIT. The notice also confirms that the UK's related obligation to remove intra-EU BITs from its legal order will survive Brexit since the UK's obligation to formally terminate already incompatible intra-EU BITs is, for the UK, a “legal situation of the parties [EU Member States] created through the execution of the treaty [EU Treaties] prior to its termination” (Article 70(1)(b) of the VCLT).

265.

Latvia notes that it has signed the Termination Agreement.¹²⁰ The fact that the UK did not sign the Agreement, just like Austria, Finland and Sweden, does not mean that such States are not subject to their ongoing EU law obligations in respect of intra-EU BITs. While the BIT is not per se “terminated,” it is precluded by EU law from applying.

266.

In Latvia's submission, there is currently a consensus amongst EU Member States including the UK, as reflected by the 15 and 16 January 2019 Declarations, the Termination Agreement and the EC's notices of infringement, that there is an EU Public Policy precluding intra-EU BIT claims on the basis of an investor-State arbitration mechanism. Such public policy requires EU Member States and the UK to take steps to remove those intra-EU BITs from their legal order.

267.

In so far as the Claimants rely on Latvia's failure to terminate the BIT under Article 14 for their purposes, Latvia contends that triggering that termination is superfluous and contrary to the intentions of the parties to the BIT, which both signed the Declaration. Ultimately, says Latvia, the BIT is precluded by EU law.

268.

The Claimants highlight that Latvia has not terminated all of its intra-EU investment treaties, for instance its treaties with Sweden and Finland remain in full force. The Claimants submit that the state parties’ failure to terminate the BIT should be conclusive on the Bifurcated Issue; by deciding not to terminate the BIT - albeit that the draft of the Termination Agreement envisaged that the BIT would be terminated¹²¹ - the UK and Latvia have in fact expressed their intention that the BIT will remain in full force and effect. This is despite the fact that Latvia has at its disposal the unilateral termination mechanism under Article 14 of the BIT which it has not triggered.

269.

The Claimants assert that the fact that the UK has not signed the Termination Agreement reinforces that the BIT remains in full force and effect. They say further that:

(1) The Termination Agreement is not a relevant source of law under Article 31(3)(c) of the VCLT.

(2) The EC’s notice of infringement recognises that the BIT remains in force.

(3) The signatories of the Termination Agreement recognise that Achmea did not have the effect of terminating the intra-EU BITs.

(4) Several EU Member States, including the UK, did not agree to terminate their intra-EU BITs.

(5) All non-EU States continue to enforce international arbitration awards based on intra-EU BITs, showing that there is no international consensus on Achmea as alleged.

(6) The BIT is now an extra-EU BIT, thus any comparison with Achmea is inapposite.

270.

Latvia submits that the Tribunal must apply international conflict rules of lex posterior, lex specialis and lex superior. EU law is contended to be, in respect of the BIT, posterior,¹²² more special¹²³ and superior.¹²⁴

271.

Latvia contends that the principle of primacy of EU law over international agreements is a conflict rule of public international law. Latvia defines the principle as “any provision of an inter se international agreement between two Member States that is incompatible with EU law, for example, its principle of autonomy, will be precluded and thus inapplicable.” The principle was established in a line of authority prior to Achmea..¹²⁵

272.

The principle of primacy should apply to this Tribunal’s interpretation of Article 8 and to the rest of the BIT on the basis of Article 31(3)(c) of the VCLT and on the agreement of the parties to the BIT. Specifically, Latvia relies on that Article and/or on primacy itself.

273.

Latvia submits that there is no real distinction between “interpretation” and “conflicts.” It highlights that the European Court of Human Rights (“ECHR”) has used Article 31(3)(c) of the VCLT to preclude the application of certain norms of the ECHR in light of the international law rules of state immunity.¹²⁶ There, says Latvia, the ECHR concluded that it could use other aspects of international law outside the relevant convention that it was interpreting to conclude that certain provisions could not apply.

274.

The end result, says Latvia, is that Article 8 and the rest of the BIT must be interpreted in light of the EU Treaties. The ultimate end result is that this Tribunal has no jurisdiction.

275.

The principle to be imported is referenced in the Declaration,¹²⁷ namely, that the provision of a bilateral agreement between two Member States that is incompatible with EU law is precluded and inapplicable. Latvia says the Declaration should be taken into account by the Tribunal under Article 31(3)(a)-(b) of the VCLT, as an agreement on the interpretation or application of the BIT by the UK and Latvia. The Declaration is also said to confirm that both the UK and Latvia accept the consequences of Achmea.

276.

Latvia says that Professor Tridimas' evidence at the Hearing confirmed that the addressees of primacy include any organ competent to consider or take into account EU law, including this Tribunal.

277.

In addition to applying EU law primacy as its own international law rule of conflict, Latvia submits that it should apply in this case via the general international law principle of lex superior¹²⁸. The EU Treaties set up a system whereby the international legal order established on the basis of the EU Treaties takes precedence over international obligations of the Member States among themselves.¹²⁹ As lex superior, primacy of EU law is absolute and cannot be derogated from in the relationship between Member States.

278.

Furthermore, Latvia contends that the primacy principle applies to the BIT as lex specialis in the context of Article 5 of the VCLT, in favour of more generalised rules of conflict such as Articles 30 or 59 of the VCLT.¹³⁰

279.

Latvia’s position is that, in the context of these proceedings which involve inter-se international agreements between Member States, and by virtue of Article 5 of the VCLT, EU law and its primacy rule is a special law that takes priority over general law.¹³¹ On the sole basis of the lex specialis principle, the principle of EU law primacy must be applied to the BIT instead of other more general rules of conflict such as Articles 30 or 59 of the VCLT.

280.

The Claimants submit that the so-called EU “principle of primacy” is not an applicable treaty conflict norm, but a judge-made rule. The rule governs the applicability of conflicting rules by national authorities of EU Member States, primarily by national courts.¹³² There is no authority under EU law to the effect that international courts or tribunals are the addressees of the principle of primacy, let alone that they are bound by such a principle. For the Tribunal to rule otherwise would be a first.

281.

The principle of primacy is an internal constitutional principle of the EU legal order.¹³³ The principle does not override conflict provisions under general international law, and Latvia has not produced any decisions to the contrary.

282.

The Claimants reject the proposition that the primacy principle, as incorporated into Latvia’s domestic legal system, can qualify as a “conflict of laws” norm for the purposes of Article 42.¹³⁴

283.

There is no inconsistency when, for example, the ECHR does not decline jurisdiction when adjudicating claims against EU Member States, notwithstanding the “primacy” of EU law. The ECHR determines claims under the Convention pursuant to its mandate and finds that EU law cannot be a defence to violations of the European Convention on Human Rights.¹³⁵

284.

The Claimants characterise the Respondent's invocation of the lex specialis principle as an attempt to circumvent the “same subject matter”¹³⁶ threshold which should be rejected by the Tribunal.

285.

In the Claimants' submission, Article 11 governs any conflicts with EU norms and is the lex specialis found in the BIT's express terms which prevails over EU law on primacy.¹³⁷ Lex specialis governs only derogation from a dispositive norm (i.e. a norm that permits derogation).¹³⁸ The Claimants contend that Article 11 does not permit derogation, or, alternatively, it takes precedence as the relevant conflict norm within the BIT. In any event, EU law is not more specific than the BIT. According to the Claimants, it remains a mystery as to what “specificity” Latvia claims EU law has over the BIT.

286.

The Claimants contend that under Article 11 of the BIT, they can, and have, opted to elect to have the BIT provisions apply to the exclusion of other conflict rules.¹³⁹ In this context, the Claimants reject Latvia's assertion that the applicability of Article 11 is in the hands of the State-appointed insolvency administrator (Mr Krastins),¹⁴⁰ insisting instead that their prior invocation of Article 11 is unaffected by his appointment.

287.

By its terms, it is contended, Article 11 excludes the application of EU law to Article 8 of the BIT if the Claimants regard the BIT as providing more favourable treatment, which they do on Latvia's stance that Article 8 is precluded by EU law. The Claimants argue that the word “treatment” in Article 11 extends to Article 8 of the BIT, the dispute resolution mechanism.¹⁴¹ Article 11 is said to be equivalent to Article 16 of the ECT.

288.

The Claimants invoke Article 11 to exclude any alleged “rules of EU law” that would allegedly deprive them of their rights under the BIT and the ICSID Convention. Their position is that Article 11 applies not only to jurisdictional issues in Article 8 of the BIT, but it excludes EU law from applying to the merits as well. The result is the full compatibility of the BIT with Achmea.

289.

It is the Claimants’ submission that the effect of Article 11 was never addressed in Achmea in relation to the equivalent clause there, namely, Article 3(5) of the Slovakia-Netherlands BIT. The CJEU was asked to only rule on a narrowly defined question which specifically concerned the compatibility of the dispute settlement provision of the Slovakia-Netherlands BIT with EU law.¹⁴² The CJEU never addressed Article 3(5).

James J. Spigelman	President
John M. Townsend	Appointed by the investor
Peter Tomka	Appointed by the State

AS PNB Banka and others v. Latvia

Documents of the case

Lawyers, other representatives, expert(s), tribunal’s secretary

Decision on the Intra-EU Objection

I. PARTIES

II. PROCEDURAL HISTORY

III. LATVIA’S INTRA-EU OBJECTION

A. Introduction

B. Achmea

C. CETA Opinion

(1) Compatibility with EU Legal Order

(2) Right of Access to Independent Tribunal

D. The Declarations

E. The Termination Agreement

F. The Tribunal's Jurisdiction

(1) Respondent’s Submissions

(2) Claimants’ Submissions

G. Applicable Law

(1) EU Law as International Law

a. Respondent’s submissions

b. Claimants’ submissions

(2) Articles 27 and 46 of the VCLT

a. Claimants’ submissions

b. Respondent’s submissions

(3) Article 42 of the ICSID Convention

a. Respondent’s submissions

b. Claimants’ submissions

(4) Article 31(3) of the VCLT

a. Respondent’s submissions

b. Claimants’ submissions

(5) The Declarations

a. Respondent’s Submissions

b. Claimants’ Submissions

(6) The Termination Agreement

a. Respondent’s Submissions

b. Claimants’ Submissions

H. Conflict Rules

(1) CJEU Doctrine of Primacy

a. Respondent’s submissions

b. Claimants’ submissions

(2) Articles 8 and 11 of the BIT

a. Claimants’ submissions