The Tribunal has bifurcated the Respondent's preliminary objections for separate consideration (the Preliminary Objections). The main issue in this Preliminary Objection phase is whether, as Croatia contends, the Tribunal lacks jurisdiction of this dispute under the ICSID arbitration clause in Article 9 of the Austria-Croatia BIT by operation of Article 11(2) of the BIT because Article 9 and substantive protections of the BIT are incompatible with the European Union acquis communautaire (the EU and the acquis). Article 11(2) of the Austria-Croatia BIT provides in full:

The Contracting Parties are not bound by the present Agreement insofar as it is incompatible with the legal acquis of the European Union (EU) in force at any given time.⁴

Much of the Parties' focus, and hence the Tribunal's focus, is on the direct and indirect import of the 6 March 2018 Judgment of the Court of Justice of the European Union (the CJEU) in the highly-publicized intra-EU BIT case of Slowakische Republik v. Achmea B.V. (the Achmea Judgment) on the proper application of Article 11(2) of the Austria-Croatia BIT.⁵

… the Claimants take particular note of Mr. Tomov's assurances that his responsibility as co-counsel [for Bulgaria] does not affect his independence and impartiality. The Claimants also take note of his assurances that he has no involvement in Bulgaria's decision to make this objection or in the preparation of Bulgaria's written and oral pleadings related to it.
The Claimants assume that should any of these circumstances change,
Mr. Tomov will promptly inform the parties.

On 14 December 2018, RBI and RBHR filed their Response to Croatia's Preliminary Objections (the Claimants' Response), together with Exhibits C-237 to C-239 and Legal Authorities CLM-129 to CLM-161. In their Response, the Claimants referred to a 12 October 2018 Decision on Jurisdiction in UniCredit Bank Austria AG and Zagrebačka Banka d.d. v. Republic of Croatia (ICSID Case No. ARB/16/31) (the UniCredit Decision), involving the Austria-Croatia BIT.

a) the Respondent's Preliminary Objections—that (i) the BIT is not incompatible with the EU acquis and (ii) the Claimants do not qualify as "investors" and hold qualifying "investments" under the BIT—were bifurcated for preliminary resolution;

b) the Claimants' request to proceed with the bifurcated preliminary issues without suspension of the proceedings on the merits was denied;

c) the Parties were ordered to consult to attempt to agree on the length of the hearing on the Preliminary Objections and to identify possible hearing dates, with the Claimants' request for an accelerated timetable deemed denied;

d) the Claimants' request that the Respondent be ordered to raise all preliminary objections, whether going to jurisdiction, competence, or admissibility, for inclusion in the bifurcated Preliminary Objections phase was granted;

e) by 7 January 2019, the Respondent was either to provide to the Tribunal and the Claimants a copy of the UniCredit Decision on a confidential basis or to provide information as to the specific procedures preventing this step;

f) the Respondent's requests either to strike all references to the UniCredit Decision from the Claimants' Response or to give no weight to those references were denied as premature, with leave to reapply; and

g) the Claimants' request for adverse inferences in relation to the import of the UniCredit Decision was denied as premature, with leave to reapply.

a) the EC was invited to file a written submission limited to the legal consequences for this arbitration of the Achmea Judgment by 14 January 2019;

b) the Parties were invited to include observations on the EC's submission in their respective memorials on jurisdiction;

c) absent the Parties' agreement, the EC would not have access to the record or any documents pertaining to this arbitration;

d) the Tribunal reserved its decision on further procedural steps, if any;

e) the Tribunal reserved any decision on the allocation of costs and fees related to the EC's submissions; and

f) Procedural Order No. 3 was to be communicated to the EC, which should not communicate it to third parties or make use of it outside this arbitration.

a) the Respondent would be allowed to raise its Illegality Objection in the merits phase, should the arbitration proceed past the bifurcated preliminary phase;

b) the Claimants' request that the Tribunal join the Illegality Objection to the merits phase or, in the alternative, include the Illegality Objection in the Preliminary Objections phase was denied;

c) the issue of costs was reserved; and

d) pursuant to paragraph 73(c) of Procedural Order No. 2, the Parties were to return to their consultations to attempt to agree on the length of the hearing for the Preliminary Objections, and to revert to the Tribunal on the same by 15 February 2019.

In accordance with the Tribunal's direction of 28 May 2019, the Respondent confirms that the authorities on which it relies in support of the requirement for express written permission from the European Commission to produce the 48 documents listed in the Respondent's Privilege Log filed on 1 May 2019 are those set out in the Privilege Log and in subsequent correspondence. That is, each of the 48 documents listed in the Respondent's Privilege Log qualify as diplomatic archives, documents or official correspondence which are inviolable under Articles 24 and 27 of the 1961 Vienna Convention on Diplomatic Relations (to which both the Republic of Croatia and the Republic of Austria are parties), as well as under customary international law. The inviolability of diplomatic archives, documents and official correspondence is a cornerstone of the efficient performance of the functions of diplomatic missions, as set out in the Preamble to the Vienna Convention on Diplomatic Relations and as confirmed by the widespread practice of both States and the European Union itself.

[T]he Respondent offers no legal basis whatsoever for its entirely new claim (not raised previously with its Privilege Log or in its letter of 14 May 2019) that the European Commission's consent is required to allow the Respondent to produce the 48 documents listed in its Privilege Log, as directed by the Tribunal in Procedural Order No. 6. In fact, instead of addressing the alleged consent requirement, the Respondent merely repeats the baseless arguments invoking the Vienna Convention on Diplomatic Relations, customary international law and Protocol No. 7 to the Treaty on the Functioning of the European Union that it had previously presented and that the Tribunal had already rejected as a purported legal basis for privilege in Procedural Order No. 6.

Tribunal :
Professor Lucy Reed President
Professor Stanimir Alexandrov Arbitrator
Mr. Lazar Tomov Arbitrator

ICSID Secretariat :
Mr. Alex Kaplan Secretary of the Tribunal

For the Claimants :

Counsel
Mr. Gary Born Wilmer Cutler Pickering Hale and Dorr LLP
Mr. Franz Schwarz Wilmer Cutler Pickering Hale and Dorr LLP
Mr. Naboth van den Broek Wilmer Cutler Pickering Hale and Dorr LLP
Ms. Danielle Morris Wilmer Cutler Pickering Hale and Dorr LLP
Mr. Daniel Costelloe Wilmer Cutler Pickering Hale and Dorr LLP
Mr. Nikolaus Vavrovsky Vavrovsky Heine Marth Rechtsanwälte
Mr. Florian Stefan Vavrovsky Heine Marth Rechtsanwälte

Parties
Mr. Christian Michal Raiffeisen Bank International AG
Mr. Werner Mörth Raiffeisen Bank International AG

For the Respondent :

Counsel
Mr. Robert G. Volterra Volterra Fietta
Mr. Graham Coop Volterra Fietta
Ms. Angela Ha Volterra Fietta
Mr. Govert Coppens Volterra Fietta
Ms. Patricija Biškupić Volterra Fietta

Court Reporter :
Ms. Dawn K. Larson B&B Reporters

On behalf of the Claimants :
Experts
Sir Francis Jacobs KCMG, QC Fountain Court Chambers/King's College London
Mr. Alexander Milner Fountain Court Chambers

On behalf of the Respondent :
Expert Professor Paul Craig (Hon QC) University of Oxford, Faculty of Law

I write to inform you that my appointments as Professor on the Law Faculty and Director of the Centre for International Law at the National University of Singapore ended on 31 December 2019. Going forward, I will work only as an independent arbitrator.

Effective today (6 January 2020) I have become a member of Arbitration Chambers, which has now opened an office in New York (in addition to Hong Kong and London). All members of Arbitration Chambers are independent arbitrators who operate entirely separately from one another. Members have no financial interest in the chambers, and Arbitration Chambers takes the necessary steps to maintain confidentiality and data security.

I bring this to your attention for the sake of good order. My new affiliation has no effect on my ongoing independence and impartiality.

On 8 June 2020, the Tribunal Secretary transmitted to the Parties Ms. Reed's Further Disclosure of 6 June 2020, set out below. The Parties made no comments.

I write to disclose that, following the passing of VV Veeder QC, I have been appointed as Presiding Arbitrator in the Ad Hoc arbitration of Strabag SE, Raiffeisen Centrobank AG and Syrena Immobilien Holding AG v Republic of Poland (Ad Hoc/15/1) (Strabag v Poland), administered by ICSID. The co-arbitrators who appointed me are Professor Albert Jan van den Berg and Professor Stephan Schill, who replaced Professor Dr Karl-Heinz Boecksteigel.

I do not consider that this appointment raises any actual or apparent conflict with the instant case of Raiffeisen v Croatia. Although the Strabag v Poland arbitration is not public, I am able to disclose that the relevant treaty is the Austria-Poland BIT and the Tribunal issued its Partial Award on jurisdictional objections in early March 2020. There is no overlap between the arbitrators or the counsel in Strabag v Poland and the instant case.

a. declaring that it lacks jurisdiction over the Claimants' claims;

b. ordering the Claimants to pay all of the Respondent's costs and fees incurred in this arbitration, including the Tribunal's and ICSID's fees and expenses, and all reasonable legal fees and expenses incurred by the Respondent (including, but not limited to, the fees and expenses of legal counsel and experts); and

c. ordering any other relief the Tribunal determines to be appropriate.⁸

a. dismissing all of Croatia's preliminary objections;

b. directing Croatia to pay all of RBI's and RBHR's costs associated with responding to Croatia's preliminary objections, including attorneys' fees;

c. directing the European Commission to pay all of RBI's and RBHR's costs associated with responding to the European Commission's Amicus Curiae Brief, including attorneys' fees;

d. directing Croatia and the European Commission to pay pre-award and post-award interest on all sums due; and

e. granting such additional and other relief as may be just.⁹

The Austria-Croatia BIT:¹⁰

Article 2: Promotion and Protection of Investments

(1) Each Contracting Party shall in its territory, promote, as far as possible, investments of investors of the other Contracting Party, admit such investments in accordance with its legislation and in any case accord such investments fair and equitable treatment. …

Article 9: Settlement of Investment Disputes

(1) Any dispute arising out of an investment, between a Contracting Party and an investor of the other Contracting Party shall, as far as possible, be settled amicably between the parties to the dispute.

(2) If a dispute according to paragraph 1 of this Article cannot be settled within three months of a written notification of sufficiently detailed claims, the dispute shall upon the request of the Contracting Party or of the investor of the other Contracting Party be subject to the following procedures:

(a) to conciliation or arbitration by the International Centre for Settlement of Investment Disputes established by the Convention on the Settlement of Investment Disputes between States and Nationals of other States, opened for signature in Washington on 18 March 1965. In case of arbitration, each Contracting Party, by this Agreement irrevocably consents in advance, even in the absence of an individual arbitral agreement between the Contracting Party and the investor, to submit any such dispute to this Centre. This consent implies the renunciation of the requirement that the internal administrative or juridical remedies should be exhausted …

Article 11: Application of the Agreement

…

(2) The Contracting Parties are not bound by the present Agreement insofar as it is incompatible with the legal acquis of the European Union (EU) in force at any given time.

(3) In case of uncertainties concerning the effects of paragraph 2 of this Article the Contracting Parties will enter a dialogue.

Article 12: Entry into Force and Duration

…

(3) In respect of investments made prior to the date of termination of the present Agreement the provisions of Article 1 to 11 of the present Agreement shall continue to be effective for a further period of 10 years from the date of termination of the present Agreement.

The ICSID Convention:

Article 25(1)

The jurisdiction of the Centre shall extend to any legal dispute arising directly out of an investment, between a Contracting State … and a national of another Contracting State, which the parties to the dispute consent in writing to submit to the Centre. When the parties have given their consent, no party may withdraw its consent unilaterally.

The Vienna Convention on the Law of Treaties (the VCLT):¹¹

Article 31: General Rule of Interpretation

1. A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.

2. The context for the purpose of the interpretation of a treaty shall comprise, in addition to the text, including its preamble and annexes:

(a) Any agreement relating to the treaty which was made between all the parties in connection with the conclusion of the treaty …

3. There shall be taken into account, together with the context:

(a) Any subsequent agreement between the parties regarding the interpretation of the treaty or the application of its provisions …

Article 18

Within the scope of application of the Treaties, and without prejudice to any special provisions contained therein, any discrimination on grounds of nationality shall be prohibited.

The European Parliament and the Council, acting in accordance with the ordinary legislative procedure, may adopt rules designed to prohibit such discrimination.

Article 49

Within the framework of the provisions set out below, restrictions on the freedom of establishment of nationals of a Member State in the territory of another Member State shall be prohibited. Such prohibition shall also apply to restrictions on the setting-up of agencies, branches or subsidiaries by nationals of any Member State established in the territory of any Member State.

Freedom of establishment shall include the right to take up and pursue activities of self-employed persons and to set up and manage undertakings, in particular companies or firms within the meaning of the second paragraph of Article 54, under the conditions laid down for its nationals by the law of the country where such establishment is effected, subject to the provisions of the Chapter relating to capital.

Article 63

1. Within the framework of the provisions set out in this Chapter, all restrictions on the movement of capital between Member States and between Member States and third countries shall be prohibited.

2. Within the framework of the provisions set out in this Chapter, all restrictions on payments between Member States and between Member States and third countries shall be prohibited.

Article 267

The Court of Justice of the European Union shall have jurisdiction to give preliminary rulings concerning:

(a) the interpretation of the Treaties;

(b) the validity and interpretation of acts of the institutions, bodies, offices or agencies of the Union;

Where such a question is raised before any court or tribunal of a Member State, that court or tribunal may, if it considers that a decision on the question is necessary to enable it to give a judgement, request the Court to give a ruling thereon.

Where any such question is raised in a case pending before a court or tribunal of a Member State against whose decisions there is no judicial remedy under national law, that court or tribunal shall bring the matter before the Court.

If such a question is raised in a case pending before a court or tribunal of a Member State with regard to a person in custody, the Court of Justice of the European Union shall act with the minimum of delay.

Article 344

Member States undertake not to submit a dispute concerning the interpretation or application of the Treaties to any method of settlement other than those provided for therein.

The Court points out that the establishment or otherwise of jurisdiction is not a matter for the parties but for the Court itself. Although a party seeking to assert a fact must bear the burden of proving it, this has no relevance for the establishment of the Court's jurisdiction, which is a "question of law to be resolved in the light of the relevant facts."

That being so, there is no burden of proof to be discharged in the matter of jurisdiction. Rather, it is for the Court to determine from all the facts and taking into account all the arguments advanced by the Parties, "whether the force of the arguments militating in favour of jurisdiction is preponderant, and to 'ascertain whether an intention on the part of the Parties exists to confer jurisdiction on it.'"

The Respondent's main argument is that Article 11(2) is a specific conflict clause that directs the Tribunal to give precedence to the EU acquis over the BIT. The Respondent states:

Like any treaty, an intra-EU treaty has no self-standing legal basis under public international law independently from the legal effect given to it by the consent of its two contracting parties. If both contracting parties to an intra-EU treaty agree in the EU Treaties that the latter will take precedence over the former, there is no basis under public international law for a tribunal established under the bilateral treaty to ignore such a conflict rule.¹⁶

The Claimants' primary position is that text of Article 11(2) of the BIT refers to incompatibility, and, therefore, Article 11(2) requires the same test of compatibility between treaties as Article 30(3) of the VCLT. Accordingly, the cases analyzing Article 30(3) of the VCLT, or which otherwise apply a test of compatibility, remain relevant and persuasive in interpreting Article 11(2) of the BIT.²⁰ Croatia implicitly concedes this, says Raiffeisen, by invoking Article 30(3) of the VCLT as an alternative argument in the context of the import of the Achmea Judgment and the 15 January 2019 Declaration (discussed in Section VI.A(2)a below) and accepting that an Article 30(3) analysis would lead to the same result as direct application of Article 11(2).²¹

RBI and RBHR find little utility in Croatia's attempt to differentiate Article 11(2) of the BIT from Article 30(3) of the VCLT on the basis that Article 11(2) refers not just to conflicting treaty norms but also expressly to the EU acquis. This is because the additional sources of the EU acquis cited by Croatia (discussed in Section VII.A(3) below) are irrelevant in the context of this case: the Achmea Judgment does not address ICSID arbitration and in any event cannot retroactively deprive the Tribunal of jurisdiction, and neither the 15 January 2019 Declaration nor the General Agreement on Trade and Services (the GATS) is part of the EU acquis.²²

Should the Tribunal not accept Article 11(2) of the BIT as the controlling lex specialis conflict clause, Croatia argues in the alternative that the residual conflict rules in Article 30 of VCLT lead to the same result – lack of jurisdiction.²³ Croatia relies on Article 30(2), which stipulates that "[w]hen a treaty specifies that it is subject to, or that it is not to be considered as incompatible with, an earlier or later treaty, the provisions of that other treaty prevail," and Article 30(3), which specifies that "the earlier treaty applies only to the extent its provisions are compatible …."²⁴ In this respect, as discussed below, Croatia denies that the relevant treaties must share the same subject matter; rather, it is sufficient if the earlier treaty and later treaty cannot be applied simultaneously without breach of one or the other.²⁵ In the instant case, because the Tribunal's exercise of jurisdiction under Article 9 of the BIT would lead to Croatia and Austria violating their obligations under the TFEU, the BIT and the TFEU are necessarily incompatible under Article 30(3) of the VCLT.²⁶

Even if Article 11(2) of the BIT does not preclude the Tribunal's jurisdiction, the Respondent argues in the alternative that Article 4(3) of Treaty on the European Union (the TEU, and, together with the TFEU, the EU Treaties) contains a dovetailing conflict clause giving the EU Treaties primacy over other intra-EU treaties, including the Austria-Croatia BIT.²⁷

The Conference [of EU Member States] recalls that, in accordance with well settled case law of the Court of Justice of the European Union, the Treaties and the law adopted by the Union on the basis of the Treaties have primacy over the law of Member States, under the conditions laid down by the said case law.³²

The Claimants disagree. They contend that the principle of the primacy of EU law set out in Declaration 17—which expressly refers to "primacy over the law of Member States"— concerns the primacy of EU law over domestic law, not over extraneous treaties that exist and operate outside EU law.³⁶ Given that Declaration 17 accompanied the 2009 Treaty of Lisbon, which amended the EU Treaties already in force, the Claimants highlight that it cannot accurately be said that Declaration 17 was made in connection with the "conclusion" of the EU Treaties.³⁷ In any event, say the Claimants, there is no basis for extending the principle of EU law primacy to the level of general international law.³⁸ Even if there were, the primacy principle would not alter the substantially similar legal analysis under Article 11(2) of the BIT or Article 30(3) of the VCLT,³⁹ because Croatia would still need to meet the test of incompatibility and "[i]f there is no incompatibility, there is nothing in relation to which the primacy of EU law can operate."⁴⁰

In its Amicus Curiae Brief, the EC takes the position that EU law prevails over all possible conflict rules applicable to Article 9 of the BIT and, because Article 9 is incompatible with EU law, the Tribunal must decline jurisdiction.⁴¹ In the alternative, relying on Article 30 and 59 of the VCLT, the EC argues that the Tribunal lacks jurisdiction because the Austria-Croatia BIT has been impliedly terminated.⁴²

The Parties firmly disagree as to the methodology for determining whether the BIT is incompatible or compatible with the EU acquis for the purposes of Article 11(2).

RBI and RBHR contend that because the BIT and the EU Treaties do not address the same subject matter, the threshold requirement is not met and thus the treaties are not incompatible. Therefore, Article 9 of the BIT, the investor-state arbitration clause, remains applicable. The Claimants emphasize that many investment treaty tribunals have consistently found that intra-EU BITs and the Energy Charter Treaty (the ECT) do not have the same subject matter as the EU Treaties.⁴⁴

The Parties also disagree on how to interpret the phrase "in force at any given time" in Article 11(2) of the BIT, invoking arguments that they essentially reprise in connection with the retroactive applicability of the Achmea Judgment (discussed at Section VII.A(1)c below).

Raiffeisen's position is that the phrase "in force at any given time" cannot mean in force "at any time in the past, present or future."⁵⁴ The phrase must instead refer to a specific moment in time as relevant to a particular issue, thus calling upon applicable rules of international law, including, most importantly, the critical date doctrine.⁵⁵ In this case, for purposes of Article 9 of the BIT, the critical date is when an irrevocable agreement to arbitrate was formed, which was 15 September 2017, the date on which ICSID registered the Claimants' Request for Arbitration.⁵⁶

The Claimants emphasize the importance of the words "in force" in Article 11(2):

The words "in force," which immediately follow the words "legal acquis of the European Union (EU)," can only refer to the acquis as a body of law as it stood – was "in force" – at a given point in time. Article 11(2) refers to the state of the acquis "in force" at a point in time – which is also the only logical and natural reading: one can assess compatibility only against a concrete state of law, not against a fluid and indeterminate notion of legal rules that are ever subject to subsequent change and so can never be captured at the point in time when jurisdiction is established.⁵⁷

According to Raiffeisen, this interpretation properly accounts for the necessarily evolving nature of the EU acquis :

The acquis is by its nature and in its context something that changes from time to time. When Article 11(2) refers to the acquis "in force at any given time," it refers to the body of EU law that is in force at that time – the given time – not at some future (or past) time. The term "acquis" does not refer to a future body of law, let alone a future body of law capable of producing retroactive legal effects.⁵⁸

To the extent that the Contracting Parties intended these words to add anything to the meaning of Article 11(2), they manifestly intended to give Article 11(2) as broad an application in time as possible. In the words of Sir Francis, the Claimants' legal expert at the Hearing, the term "at any given time" is "not always a very precise formula." Sir Francis confirmed that "it could be the date on which the judgment was given. It could be some other date which would be relevant for the purposes of these proceedings."⁶²

Croatia argues precisely that any event, regardless of when it occurs – such as the CJEU's judgment in Achmea or the 15 January Declaration – that purports to clarify the legal position at the critical date is capable of triggering Article 11(2) and depriving the Tribunal of jurisdiction. Croatia seems to admit as such when it says that the reference to the acquis "'at any given time' precisely accommodates the present situation in which the CJEU has … divined, clarified and confirmed the law as it stood at the critical date."⁶⁵

Croatia charges the Claimants with misrepresenting its position, which "does not depend on the terms 'at any given time' in Article 11(2)" nor "on Article 11(2) of the BIT being read as if it constitutes an 'embedded conditionality' in the sense that it can be triggered after an agreement to arbitrate has been established."⁶⁷

Croatia further contends that the Claimants "confuse the irrevocable nature of a Party's consent to arbitration with the limits of that consent,"⁶⁸ arguing that because its consent to arbitration has always been subject to the requirement of compatibility with the EU acquis as per Article 11(2) of the BIT, this consent no longer existed as of 1 July 2013, when Croatia acceded to the EU. Croatia therefore insists that "vitiation [of consent] has never been the issue."⁶⁹ In the words of Croatia's counsel at the Hearing:

As I have submitted previously, the scope of Austria and Croatia's mutual offers in the BIT of ICSID Arbitration were explicitly limited by agreement to circumstances where ICSID Arbitration, under the BIT, was compatible with the EU acquis. Thus, from the moment that Croatia acceded to the EU on 1 July 2013, ICSID Arbitration, by an Austria[n] investor against Croatia under the BIT, and a Croatian investor against Austria under the BIT, was no longer compatible with the EU acquis, and, therefore, no irrevocable consent to ICSID Arbitration could have been created or could have existed under the BIT.⁷⁰

The Claimants assert that there is little difference between impermissible revocation or withdrawal of consent to arbitration, on the one hand, and Croatia's assertion that a purported condition can be triggered by post-consent events, on the other hand. The Claimants reject the Respondent's attempt to characterize Article 11(2) as somehow being a "condition precedent" to consent.⁷¹ According to Raiffeisen, "[t]he critical element in both contexts is that once consent is perfected, it cannot subsequently be altered or negated."⁷² RBI and RBHR add:

The implication of Croatia's position is that any decision or award by the Tribunal would eternally be susceptible to challenge. Croatia could arguably even claim restitution of any moneys paid pursuant to a pecuniary obligation under a final award, if at some undetermined point its "conditional" consent may retroactively no longer amount to consent. This would be an absurd result that completely undermines notions of legal certainty.⁷³

The Claimants conclude that, ultimately, their interpretation of Article 11(2) is the only interpretation that is consistent with: first, the irrevocable consent extended by Croatia in Article 9 of the BIT and Article 25(1) of the ICSID Convention; second, the treaty interpretation principle of effectiveness, and; third, the object and purpose of the BIT to promote and protect investment through protection of legal certainty.⁷⁴ It is also the only interpretation, the Claimants say, that "recognizes the changing content of EU law, rather than freezing the content of the acquis as it stood on the date the [BIT] entered into force – while at the same time safeguarding the Tribunal's jurisdiction once the proceedings have been initiated and consent has been crystallized."⁷⁵

There can be no question of the Tribunal's power to determine its own jurisdiction pursuant to Article 9 of the BIT and Article 41(1) of the ICSID Convention. Where jurisdiction is found, the Tribunal has not only the right but also the affirmative responsibility to exercise that jurisdiction. It follows that the Tribunal has the power and responsibility to interpret Article 11(2) of the BIT, which is at the very core of the jurisdictional dispute.

The Tribunal has benefitted in particular from the Parties' observations on the UniCredit and Addiko Decisions, and from those decisions themselves, but without compromising its responsibility to interpret Article 11(2) of the BIT independently.

The Tribunal agrees with the Respondent that Article 11(2) is a lex specialis conflict clause. It is undisputed that the Article 11(2) text is unique and does not appear in the ECT or in the other intra-EU BITs underlying the series of jurisdiction decisions cited by the Parties.⁷⁶ To date, only the UniCredit and Addiko ICSID tribunals have interpreted Article 11(2), both holding in favor of jurisdiction.

In light of this finding, the Tribunal need not address the Parties' extensive arguments based on the residual conflict rules in Articles 30 and 59 of the VCLT and on the application of the primacy of the EU Treaties to resolve conflicts. The conflict rule applicable in this case is Article 11(2) of the BIT.

As noted, the Parties effectively agree that the test of incompatibility is whether the obligations in the two treaties are such that compliance with one obligation would put a state in non-compliance with another.⁷⁷ The Tribunal adopts this test and applies it below in its analysis of incompatibility under Article 11(2) of the BIT.

As noted above, the Parties disagree as to whether the proper application of Article 11(2) includes a threshold requirement, namely that the treaties to be compared have the same subject matter. Regardless of whether such a requirement exists under Articles 30 and 59 of the VCLT, the Tribunal cannot accept the Claimants' argument that the same prerequisite would apply in the context of Article 11(2) of the BIT. That position is not supported by the text of Article 11(2); unlike Articles 30 and 59 of the VCLT, it contains no reference to treaties "relating to the same subject-matter."

At this juncture, the text of Article 11(2) of the BIT merits repeating:

The Contracting Parties are not bound by the present Agreement insofar as it is incompatible with the legal acquis of the European Union (EU) in force at any given time.⁷⁸

In broad brush, Article 11(2) is a negotiated conflict clause reflecting the agreement of Austria and Croatia that the EU Treaties will prevail over the BIT. The consequence of any incompatibility between the treaties is that Austria and Croatia will not be bound by the incompatible provisions in the BIT.

The Tribunal considers that, whether looking to ordinary meaning in context under Article 31 of the VCLT or to the critical date doctrine under international law, the words "at any given time" cannot reasonably mean "at any time whatsoever." The words "at any given time" must refer to the specific point in time that is relevant to the issue in dispute. The issue in dispute here is the Tribunal's jurisdiction or, more accurately, whether the Parties have effectively and irrevocably consented to ICSID arbitration for purposes of Article 9 of the BIT, the ICSID arbitration provision.

In the present case, Croatia provided its standing future consent to ICSID arbitration as of 1 November 1999, the date the Austria-Croatia BIT entered into force. RBI and RBHR consented to ICSID arbitration and engaged Croatia's consent on 15 September 2017, the date the ICSID Secretary-General registered their Request for Arbitration. Accordingly, as recognized by the Parties, the critical date against which to measure jurisdiction for purposes of Article 9 of the BIT is 15 September 2017.⁸⁰

The interpretive inquiry does not stop here. The text in Article 11(2) of the BIT goes beyond a reference to the EU acquis "at any given time." The full operative phrase in Article 11(2) covers the acquis "in force at any given time" (emphasis added). In the face of this full operative phrase "in force at any given time," the Tribunal finds the critical interpretive question to be whether Article 9 of the BIT was incompatible with the EU acquis in force as at the ICSID registration date of 15 September 2017.

The Tribunal pauses to address the assertion in the Introduction to the Respondent's Post-Hearing Brief:

Article 11(2) means what it says: neither Austria nor the Respondent is bound by anything in the BIT insofar as it is incompatible with the EU acquis. Nothing more; nothing less.⁸¹

This assertion is not correct. There is more in Article 11(2) – the temporal qualification. Article 11(2) says that neither Austria nor Croatia is bound by BIT provisions that are incompatible with the EU acquis "in force at any given time."

The temporal qualification requires interpretation, along with the rest of the text of Article 11(2). In this regard, the Tribunal finds persuasive the Addiko tribunal's interpretation of the temporal phrase, that "the latter point about a 'given time' qualifies the former point about the scope of the relevant acquis (that it be the acquis then 'in force')."⁸² In their Observations on UniCredit and Addiko, the Claimants note that the Addiko tribunal "underscored the distinction between the actual wording of Article 11(2) and the interpretation that might result "if the phrase 'at any given time' were to qualify the reference to incompatibility, rather than the reference to the acquis," in this way:

The question in that case might be whether the acquis, as it has evolved in toto by the date of the Tribunal's assessment, compels a finding of incompatibility such as to release the Parties from obligations otherwise imposed by the BIT. By contrast, under the actual placement of the phrase "at any given time" (referring to "the legal acquis … in force at any given time"), the temporal inquiry must be into the state of the acquis itself (i.e., what elements were or were not in force as part of the acquis, as of a particular date).⁸³

Returning to the touchstone of the VCLT, the Tribunal finds that Raiffeisen's interpretation is consistent with the words "in force at any given time" used in Article 11(2), when read "in their context and in the light of [the treaty's] object and purpose."⁸⁴ The object and purpose of the BIT is the promotion and protection of investments of parties such as Raiffeisen made in the territory of Croatia.⁸⁵ In the words of Raiffeisen, "[c]reating and maintaining legal certainty is part of what it means to promote and protect investment."⁸⁶ The Tribunal does not accept the Respondent's charge that the Claimants have made "a generic incantation" of such principles to "create consent where none has ever crystallized."⁸⁷ Croatia's interpretation of Article 11(2) is patently inconsistent with the fundamental international law principles of legal certainty and good faith. Although the EU acquis, like all bodies of law, must and does evolve over time, it is critically important for those subjected to the law, to be able to know the law in force at any given time. This is particularly the case for purposes of fixing jurisdiction for resolution of compliance disputes.

Finally, in similar vein, the Tribunal cannot accept Croatia's position, repeated at the Hearing, that compatibility with the acquis under Article 11(2) is a condition precedent or precondition to Croatia's consent to arbitration under Article 9.⁸⁸ As stated by the tribunal in UniCredit :

Article 9 can be reconciled fully with Article 11 if the "at any given time" language of Article 11 means that incompatibility with the EU acquis is measured for purposes of Article 9 at the time the request for arbitration is submitted and the State's consent becomes operative. … The Tribunal therefore concludes that the only conditionality that Article 11(2) of the BIT could bring to bear on Article 9 would be if, at the time a claim is submitted, there is demonstrated inconsistency between the irrevocable offer made by the Respondent for arbitration and the EU acquis by virtue of decisions or conduct that has occurred prior to that date.⁸⁹

Article 25(1) of the ICSID Convention is very clear. The jurisdiction of the Centre is to be assessed at the time that jurisdiction is invoked, which is when the investor's Request for Arbitration is registered by the Centre. When jurisdiction has crystallized, "no Party may withdraw its consent unilaterally," says plainly Article 25(1).

As the Egypt-US Treaty and its Protocol must be read in the light of the ICSID Convention, the Tribunal finds that there cannot be an embedded conditionality in the Treaty which could be triggered after the submission of the dispute to arbitration.⁹⁰

For these reasons, the Tribunal finds that the analysis of incompatibility under Article 11(2) must take into account the EU acquis as it was in force as at the ICSID registration date of 15 September 2017.

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 [Netherlands-Slovak Republic 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.⁹¹

First, there is the risk that an arbitral tribunal established under intra-EU BITs may misinterpret an EU Member State's obligations under the EU Treaties and render a binding award that is incompatible with the respondent State's international legal obligations under the EU Treaties. Second, there is the risk that the case law of such tribunals may snowball into a body of perceived authority on the international legal obligations under the EU Treaties that is used to contravene even the binding interpretations of the CJEU itself.⁹³

Croatia accordingly urges the Tribunal to disregard the intra-EU BIT tribunal decisions cited by Raiffeisen and to abide by the CJEU's Achmea Judgment instead.

remarkably terse and superficial in its reasoning and does not engage in any reasoned, detailed analysis of important countervailing principles of EU law (such as legal certainty, proportionality, or the protection of existing and fundamental rights). Further, it all but ignores the much more comprehensive and careful reasoning of the Advocate General, who reached the opposite conclusion.¹⁰¹

Whether or not the Claimants find the Achmea Judgment convincing is irrelevant. The interpretation of Articles 267 and 344 of the TFEU by the CJEU is binding on both Contracting Parties to the BIT as a matter of public international law.¹⁰⁴

a provision in an international agreement concluded between Member States, such as Article 8 of the [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.¹⁰⁷

The Netherlands-Slovak Republic BIT affirmatively mandated the application of the EU Treaties and EU law to investor-State disputes. The Austria-Croatia BIT, in contrast, contains no such provision. Instead, the parties have chosen the specialized regime of the BIT itself and other rules of international law to govern their investment disputes. At most, EU law will have to be considered as a factual predicate, which according to the CJEU itself does not create any incompatibility.¹⁰⁹

Instead, the Austria-Croatia BIT prescribes a special body of international law rules applicable to investment disputes, and limits the Tribunal's jurisdiction under Article 9 of the [BIT] to the resolution of those disputes pursuant to the terms of the Treaty. The Austria-Croatia BIT therefore neither requires, nor indeed permits, application of national law to resolve investment disputes; rather, such disputes are to be resolved exclusively by reference to the Austria-Croatia BIT's international standards regarding expropriation, fair and equitable treatment and discrimination.¹¹¹

The Claimants urge the Tribunal to consider the reasoning of the Eskosol v. Italy tribunal, which, as described by Raiffeisen, accepted that applying EU law "as an accessory relevant not in its own right but only as a predicate question, analogous to a factual finding, for the application of international law standards" is consistent with Article 344 of the TFEU.¹¹³ The Eskosol tribunal referred to the Opinion of the Council Legal Services in the CJEU case Commission v. Ireland :

[I]t is not sufficient, in order to establish a breach of Article 344 TFEU, that an arbitration tribunal takes account of EU law as a criterion for interpreting a provision not forming part of EU law. There could be an infringement of Article 344 TFEU only if the subject-matter of the decision of the arbitration tribunal were the interpretation and application of provisions of EU law themselves.¹¹⁴

Although the Tribunal may need to consider the Croatian courts' deficiencies in applying Croatian consumer protection law, which incorporates EU law in certain respects, to decide the Claimants' fair and equitable treatment claim, any such consideration of EU law would be as a matter of fact.¹¹⁵

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 [Netherlands-Slovak Republic 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 accept¹¹⁷.

Accordingly, says Croatia, it would be "entirely illogical" to assume that the CJEU meant to include by implication all the characteristics of Article 8 of the Netherlands-Slovak Republic BIT, including irrelevant criteria such as the number of arbitrators, and the Claimants "have failed to give any remotely plausible reason why the CJEU, having explicitly included multiple essential characteristics of general application" in the dispositif, should be understood to have done so.¹¹⁸

The Respondent charges the Claimants with seeking "to create a false equivalence between tribunals under this BIT and the CETA Tribunal in an attempt to establish that the CJEU retreated from its position in the Achmea Judgment …."¹³¹ Croatia argues that Raiffeisen cannot credibly group together ICSID tribunals and the CETA Tribunal and then distinguish them from the Achmea tribunal on grounds that they merely "assess the content of EU law" only as a matter of fact:

The untenable nature of the Claimants' position is demonstrated once more by its internal contradictions. It is impossible for any tribunal established under Article 9 of the BIT to "assess the content of EU law" as a mere fact while being free to disregard CJEU case law, an essential part of EU law, at any rate without giving rise to precisely the risk of a failure to apply or misapplication of EU law which is incompatible with the EU acquis.¹³²

for binding determination. The ICSID system, which, unlike the UNCITRAL regime, is subject to no supervision by national courts at all, risks splintering EU law by allowing tribunals to apply their own interpretations of EU law without any potential reference to the CJEU, thus threatening the autonomy of the EU legal order.¹³³ As for mutual trust and sincere cooperation, the CJEU found in the Achmea Judgment that this requires trust between Member States in their respective national legal systems, as well as ensuring that the CJEU referral mechanism is not jeopardized by carve-outs of certain dispute categories from the national courts and thus from the CJEU. Intra-EU ICSID arbitration is such a carve-out, and hence violates the EU principles of mutual trust and sincere cooperation.¹³⁴

The Respondent bases its position on the allegedly settled law that CJEU interpretations of the EU acquis have an ab initio effect, clarifying and defining where necessary "the meaning and scope of that rule as it must be or ought to have been understood and applied from the time of its coming into force" and consequently affecting even legal relationships that arose before the specific judgment ruling on the request for interpretation.¹³⁸ According to Croatia, rather than raising a question of retroactive application, this means that Article 9 of the Austria-Croatia BIT has been incompatible with the EU acquis since the date of Croatia's accession to the EU on 1 July 2013. This is especially so, because the "ab initio or ex tunc effect of the CJEU's interpretation is itself a principle of the EU acquis and thus equally integrated into the BIT through Article 11(2) of the BIT."¹³⁹

the legal basis for this latter incompatibility is not the Achmea Judgment as such but Articles 267 and 344 of the TFEU. The Achmea Judgment, like any exercise in statutory interpretation, merely clarified the already existing obligations under these provisions in the specific context of intra-EU investment treaties.¹⁴²

It is an elementary principle of international adjudication that jurisdiction is determined by reference to the law in force at the date on which proceedings are instituted – the "critical date" – and that, once established, it is unaffected by subsequent events.¹⁴⁹

Even if there is ex tunc application of an EU judgment by virtue of a subsequent interpretation, that application is by virtue of a subsequent event – the time of the EU judgment.¹⁵¹

has always made it expressly clear that the BIT did not bind the Contracting Parties to anything contained therein … to the extent that it was incompatible with the EU acquis in force at any given time. Since the BIT is incompatible with the EU acquis, which has been in force between the Contracting Parties to the BIT from the moment when Croatia joined the EU on 1 July 2013, both the investor-State arbitration clause and the substantive treatment provisions of the BIT have since this date been incompatible with the EU acquis.¹⁶³

The Claimants put particular emphasis on a 14 February 2018 meeting, called by Croatia in connection with Article 11(3) of the BIT, which calls for a dialogue to discuss "uncertainties concerning the effects of [Article 11(2)]." The Minutes of that meeting record what the Claimants describe as Austria's unequivocal views on the compatibility – before the Achmea Judgment – of the BIT and EU law:

Austria reiterate[s] its previously expressed position that it considers BITs valid and that it does not deem them incompatible with EU law. Austria follows this position diligently also in the infringement proceedings brought against it by the European Commission. Austria considers that BITs fulfil their function and give additional assurances to investors. Austria points out that even DG FISMA admits that BITs provide useful additional protection [for investors].

Austria interprets Article 11(2) of the Agreement in [a – sic] way that incompatibility with the EU law only affects such individual provisions. Still Austria contends incompatibility with the EU law should be determined by the CJEU, even in case of individual provisions. In any event, individual provisions' incompatibility should not result in the whole BIT invalidity. Further, incompatibly should have effect as of the time when it is established, that is without retroactive effect.

Austria considers that arbitral tribunals could lack competence should the CJEU decide that the dispute resolution provision is incompatible with the EU law. If so, Austria considers that such decision would not change the dispute resolution provision and would have no impact on the pending proceedings.

…

Austria and Croatia concluded this meeting by stating once the CJEU decides on the Achmea dispute further steps may be discussed.¹⁷⁹

The Respondent argues that the 15 January 2019 Declaration, signed by all 28 EU Member States, confirms that Article 9 of the BIT is incompatible with the EU acquis, on the basis of the text:

[A]ll investor-State arbitration clauses contained in bilateral investment treaties concluded between Member States are contrary to Union law and thus inapplicable … 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 bilateral investment Treaty.¹⁸⁰

Croatia then asserts that the Declaration is part of the EU acquis as one of the "declarations and resolutions adopted by the Union" and, by virtue of Article 11(2) of the BIT, the Tribunal is bound to apply it.¹⁸¹ Additionally, Croatia describes the 15 January 2019 Declaration as the result of a dialogue between Austria and Croatia as per Article 11(3) of the BIT, which clarifies any uncertainty arising from the effects of Article 11(2) and should be respected by the Tribunal.¹⁸² Croatia also argues that the Declaration constitutes a subsequent agreement between Austria and Croatia as to the authoritative and binding interpretation of both the TFEU and the BIT, as per Article 31(3)(a) of the VCLT.

Moreover, even if the Member States could be taken to represent the EU for these purposes, they would not have the power to issue any authoritative interpretation of the EU Treaties or to alter or extend the meaning of a judgment of the CJEU. The CJEU is the supreme authority within the EU with regard to the interpretation of the Treaties, and its interpretations are authoritative and binding on the Member States and the EU institutions.¹⁸⁵

Third, the Declaration cannot evidence an EU level dialogue between Austria and Croatia concerning interpretation of Article 11(2) of the BIT for purposes of Article 11(3) of the BIT, as the Declaration makes no reference to the BIT.¹⁸⁶ In this connection, the Claimants emphasize that the EU has threatened infringement proceedings against any Member State unwilling to make a public commitment in favor of terminating intra-EU BITs by signing the Declaration, thereby bringing into question whether the Declaration can be considered the result of a "dialogue."¹⁸⁷ Finally, in similar vein, the Claimants argue that the Declaration is not relevant to a treaty interpretation exercise under Article 31(3)(a) of the VCLT, given that it is not an agreement regarding interpretation of the Austria-Croatia BIT and the provisions of the BIT.¹⁸⁸

In its Observations on the Termination Treaty, the Respondent takes the position that, despite Austria's not being a signatory, the May 2020 Termination Treaty confirms the "consensus view of all EU Member States" that Article 9(2) of the BIT has been incompatible with the EU acquis since Croatia acceded to the EU on 1 July 2013.¹⁹² Croatia contends that the Preamble of the Termination Treaty makes this "abundantly clear" in providing as follows:

Investor-State arbitration clauses in bilateral investment treaties between the Member States of the European Union (intra-EU bilateral investment treaties) are contrary to the EU Treaties and, as a result of this incompatibility, cannot be applied after the date on which the last of the parties to an intra-EU bilateral investment treaty became a Member State of the European Union.¹⁹³

This inquiry does not, in the Tribunal's view, require interpretation or application of the acquis. Instead, it requires the Tribunal to take account of the relevant acquis, as a necessary component of the comparative analysis mandated in Article 11(2) of the BIT. The Tribunal likens its role, in this respect, to that of the anticipated CETA Tribunal, which was vetted as compliant with Article 344 of the TFEU in the CETA Opinion relied upon by Raiffeisen. In the words of that Opinion:

[T]he 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.²⁰⁴

[T]he autonomy of EU law with respect both to the law of the Member States and to international law is justified by the essential characteristics of the EU and its law, relating in particular to the constitutional structure of the EU and the very nature of that law. 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.²⁰⁵

The CJEU operates on the level of the EU legal order, and its judgments are binding within the bounds of that order. In contrast, international arbitration tribunals constituted under investment treaties operate on the level of the international legal order. Investor-state tribunals have confirmed this principle many times over, for example, in Electrabel v. Hungary and RREEF v. Spain.²⁰⁶ This Tribunal operates on the plane of the international legal order, with authority from the instruments pursuant to which it was constituted, specifically the Austria-Croatia BIT and the ICSID Convention. In assessing questions of its jurisdiction, the Tribunal is bound to apply those instruments in accordance with international law.

The Tribunal will need to assess the effect of the CJEU's Achmea Judgment for the purpose of Article 11(2) of the BIT. This does not mean, however, that the Tribunal must defer or should defer—or even responsibly could defer—to the Achmea Judgment as to the interpretation or application of the BIT. Just as this Tribunal is not empowered to issue authoritative interpretations of EU law, which properly lies within the legal prerogative of the CJEU, the CJEU is not empowered to issue authoritative interpretations of provisions in the Austria-Croatia BIT, whether directly or indirectly.

The Tribunal finds dispositive the first step in Croatia's argument, namely the acknowledgement that the Achmea Judgment was not part of the acquis as of 15 September 2017. Put simply, the then-future Achmea Judgment could not have been in force within the meaning of Article 11(2) of the BIT as of 15 September 2017.

Here, it is important to recall that the Claimants commenced this arbitration on 15 September 2017 based on the express statement in Article 9(2) of the BIT that Croatia had "irrevocably consent[ed] in advance" to ICSID arbitration. At that point, even with the public debate that preceded the Achmea Judgment on 6 March 2018, no one could say which way that judgment would go. As discussed in detail below, the record reflects that, at that given time, neither Austria nor Croatia understood Article 9 of the BIT to be definitively incompatible with the acquis. Nor did Advocate General Wathelet. Nor did the EU institutions responsible for the 2005 Association Agreement and the 2013 Treaty of Accession. Accordingly, the Tribunal finds persuasive the analysis of the Addiko tribunal:

[T]he BIT must be read as a whole, including not only its Article 11(2) reference to the acquis "in force at any given time" (which recognizes that the acquis evolves and that the state of the acquis at a particular critical date is important), but also its Article 9 commitment to the irrevocability of Austria and Croatia's advance offer of consent to arbitrate. Both of these provisions moreover must be read in light of the general principles of international law which are inherently part of the applicable law of the BIT. In these circumstances, the Tribunal is unable to accept that, whatever EU law may provide regarding the ex tunc or ex nunc effect of the Achmea Judgment, Article 11(2) of the BIT mandates that this judgment be applied to international effect contrary to the basic propositions of both Article 9 of the same BIT and the generally accepted principles [in Articles 46 and 69] of the VCLT regarding good faith reliance on treaty validity prior to the invocation of invalidity, so long as the grounds for invalidity were not already manifest at the time of such reliance.²⁰⁹

Croatia may wish to avoid pleading "retroactive application" of the Achmea Judgment, but the Claimants are correct in stating that "Croatia effectively requests the Tribunal to apply the purported acquis as it stands now [post- Achmea Judgment], with the benefit of hindsight."²¹⁰ Irrespective of whether the Achmea Judgment has an ex tunc effect under EU law, Croatia's approach must be rejected based on the text of Article 11(2) of the BIT, read together with Article 9(2) and as a matter of international law.

In sum, the Tribunal finds that the Achmea Judgment, which post-dates the registration of the Claimants' Request for Arbitration, cannot factor into the analysis of incompatibility under Article 11(2) of the BIT.

On Croatia's case, the Achmea Judgment per se is not necessary to prove that Article 9 of the BIT was already incompatible with Articles 276 and 344 of the TFEU upon Croatia's accession to the EU in 2013 and, therefore as at 15 September 2017, leaving Croatia unable validly to consent to ICSID (or UNCITRAL) arbitration with Raiffeisen. The Tribunal now turns to this question of inherent incompatibility under Article 11(2) of the BIT.

1. Cooperation between the Parties shall be aimed at establishing a favourable climate for private investment, both domestic and foreign.

2. The particular aim of cooperation shall be:

— for Croatia to improve a legal framework which favours and protects investment;

— the conclusion, where appropriate, with Member States of bilateral agreements for the promotion and protection of investment ;

— the improvement of investment protection.²¹¹

This encouragement necessarily covered the full scope of investment treaties, including international arbitration clauses as well as substantive protections.

The Tribunal considers that this requirement, a treaty obligation imposed by the EU and its then-Member States on Croatia in 2005, carries substantial weight in applying Article 11(2) of the BIT. The purpose of the Association Agreement was to provide a transition period, during which Croatia had to adopt and implement the EU acquis. The EU Member States, at that time, evidently understood expansion of BITs with EU Member States to be part of Croatia's adoption and implementation of the acquis. The Tribunal cannot accept Croatia's argument that, in effect, Croatia should have understood that any BITs it entered into with EU Member States with the encouragement of the Association Agreement would immediately become incompatible with the acquis upon Croatia's successful accession in 2013. As Sir Francis testified at the Hearing, Article 85 "comes very close to an assurance" of compatibility.²¹²

The Tribunal considers the conclusion to be inescapable that intra-EU BITs, including their arbitration provisions, were reasonably understood in (at least) September 2017 to be compatible with the acquis, as would be the 1999 Austria-Croatia BIT once Croatia acceded to the EU in 2013 and the BIT became an intra-EU BIT. With this background, the Tribunal cannot accept that Croatia was in breach of the EU acquis on 15 September 2017 as a consequence of the Claimants' accepting its standing consent to arbitrate in Article 9 of the BIT. Thus, there was no incompatibility within the meaning of Article 11(2) on that date.

The Tribunal finds it significant that Austria expressed these views with full knowledge that the CJEU judgment in Achmea —whichever way it might go on the compatibility question—was imminent. The Tribunal also finds it significant that the context for these views was a meeting called by Croatia expressly in connection with Article 11(3) of the BIT. To recall, Article 11(3) provides:

In case of uncertainties concerning the effects of paragraph 2 of this Article the Contracting Parties will enter a dialogue.²¹⁵

The Tribunal considers it apparent, from the Minutes of the 14 February 2018 bilateral meeting, that Austria perceived no "uncertainties" to be resolved, at least before the CJEU rendered the Achmea Judgment. Further, for Austria's part, if the CJEU were to find incompatibility in Achmea, that finding would apply only prospectively and not affect existing proceedings, such as this arbitration. Even assuming that Croatia's views—which are not recorded—were directly contrary, the Minutes do not reflect any agreement by the Croatian and Austrian representatives that arbitration under Article 9 of the BIT was incompatible with the EU acquis then in force, for purposes of triggering Article 11(2) of the BIT.

In sum, in applying Article 11(2) of the Austria-Croatia BIT, the Tribunal finds that Article 9 of the BIT was not incompatible with TFEU Articles 276 and 344 of the EU acquis in force as at 15 September 2017, when ICSID registered the Claimants' Request for Arbitration. Absent such incompatibility, Croatia's standing consent to arbitrate in the 1999 BIT was valid and binding, and the Claimants' acceptance of that offer perfected the consent required by the ICSID Convention.

1. A State may not invoke the fact that its consent to be bound by a treaty has been expressed in violation of a provision of its internal law regarding competence to conclude treaties as invalidating its consent unless that violation was manifest and concerned a rule of its internal law of fundamental importance.

2. A violation is manifest if it would be objectively evident to any State conducting itself in the matter in accordance with normal practice and in good faith.²¹⁶

The general rule in Article 46 applies to the issue of binding consent to arbitration under Article 9 of the BIT. Insofar as Croatia argues that, due to inherent incompatibility with the acquis and operation of Article 11(2), it was never bound by Article 9, any such incompatibility certainly was not "manifest" or "objectively evident."

all investor-State arbitration clauses contained in bilateral investment treaties concluded between Member States are contrary to Union law and thus inapplicable … 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 bilateral investment Treaty.²¹⁷

In light of its interpretation of Article 11(2) of the BIT, the Declaration does not change the Tribunal's conclusion that it has jurisdiction under Article 9. The Tribunal cannot accept the Respondent's panoply of arguments based on the Declaration. First, the Parties' legal experts agree that the Declaration, which was not adopted by the EU itself but by certain Member States, is not a part of the acquis.²¹⁸ The Tribunal notes the EC's definition of the acquis as including "declarations and resolutions adopted by the Union."²¹⁹ Second, even if it were, the Declaration was not part of the acquis in force in September 2017 when Croatia consented to arbitration, and so is irrelevant to demonstrate incompatibility for purposes of Article 11(2) of the BIT. Third, insofar as Croatia describes the Declaration as an authoritative interpretation of Articles 267 and 334 of the TFEU with effect in September 2017, only the CJEU is empowered to issue such an interpretation and, in any event, the title itself identifies the Declaration as a statement on the "legal consequences" of the Achmea Judgment. Fourth, that Austria and Croatia signed the Declaration cannot transform the multilateral process leading to the Declaration into either, first, a bilateral dialogue under Article 11(3) of the BIT concerning "uncertainties concerning the effects of" Article 11(2)  or, second, a "subsequent agreement between the parties regarding the interpretation of the [BIT] treaty or the application of its provisions" for purposes of Article 31(3)(a) of the VCLT.

Arbitrator Tomov considers that, pursuant to Article 11(2) of the Austria-Croatia BIT, Austria and Croatia have agreed that if the BIT or any part of it is incompatible with the EU acquis in force in any given time, they are not bound by it. The term EU acquis is shorthand for the EU legal system as a whole. Consequently, Austria and Croatia have agreed that incompatibility is to be determined not only by reference to the elements of the EU legal system taken separately and in isolation, but also by reference to its rules governing which court has the power to interpret authoritatively the meaning of these elements, and the temporal and personal scope of the court's decisions. In other words, in Article 11(2) of the BIT, Austria and Croatia have agreed that the rules of the EU legal system will govern the temporal effect and the relevance of the CJEU's Achmea Judgment for assessing the content of the EU acquis in force on 15 September 2017, the moment in time when the Claimants filed their Request for Arbitration.

In addition to its main arguments of incompatibility between Article 9 of the BIT and Articles 276 and 344 of the TFEU, on grounds of precluding the CJEU's exclusive role in the EU legal order, the Respondent contends that Article 9 and the substantive protections in the BIT are also incompatible with the EU acquis key principles of mutual trust and non-discrimination.²²³ The relevant acquis provisions, all indisputably in force as at 15 September 2017, are Articles 18, 49 and 63 of the TFEU. In brief, Article 18 of the TFEU prohibits "any discrimination on the grounds of nationality;" Article 49, "restrictions on the freedom of establishment of nationals of a Member State in the territory of another Member State;" and Article 63(1), "all restrictions on the movement of capital between Member States and between Member States and third countries."²²⁴ Professor Craig describes these rules as "form[ing] the cornerstone of the single market, which is the economic core of the EU."²²⁵

In practice, the combined effect of the BIT and EU law is that Croatia is required to treat investors from all EU Member States as favourably as it treats investors from Austria – and therefore as favourably as it treats investors from any non-Member State. I can see nothing problematic about that. There would only be a conflict between the BIT and EU law if the BIT required Croatia to treat Austrian investors more favourably than investors from other Member States, but it does not do that.²³¹

This does not detract from the indisputable fact that, in direct violation of the EU acquis, the BIT creates advantages (both procedural and in terms of substantive treatment standards) for investors of one other EU Member State that it does not extend to investors from other EU Member States. The Claimants' position merely means that extant discrimination could hypothetically be removed.²³⁶

The Claimants do rely on the Achmea Wathelet Opinion, which, in light of the silence on discrimination in the Achmea Judgment, they say still stands as part of the relevant acquis. Although Advocate General Wathelet addresses the investor-state arbitration provision in the Netherlands-Slovak Republic BIT, the Claimants consider that his opinion is equally applicable to substantive protections in BITs.²³⁸ That opinion is that BITs are not incompatible with EU law on the basis of discrimination:

[T]he fact that the reciprocal rights and obligations created by the BIT apply only to investors from one of the two Contracting Member States is a consequence inherent in the bilateral nature of BITs. It follows that a non-Netherlands investor is not in the same situation as a Netherlands investor so far as an investment made in Slovakia is concerned.

…

[An investor-state dispute settlement] mechanism such as that established by Article 8 of the BIT, which confers on Netherlands investors the right to have recourse to international arbitration against the Slovak Republic, does not constitute discrimination on the ground of nationality, prohibited by Article 18 TFEU.²³⁹

never suggested that it was the mere bilateral character of tax treaties that rendered them analogous for present purposes to BITs. Rather, it is the fact that the nationals of the parties to the treaty are, by virtue of the treaty, in a different situation from other EU nationals.²⁴⁴

With respect to any measure covered by this Agreement, each Member shall accord immediately and unconditionally to services and service suppliers of any other Member treatment no less favourable than that it accords to like services and service suppliers of any other country.²⁵⁰

The Tribunal finds it clear that Article 9 of the BIT operates to make ICSID or UNCITRAL arbitration available to qualified Croatian and Austrian investors, without affecting the dispute resolution avenues available—whether the same as, or different and perceived as more or less favorable than ICSID or UNCITRAL arbitration—to investors from other EU Member States.

The Tribunal finds it similarly clear that the substantive provisions of the BIT, including the FET protection provided in Article 2(1), do not require Croatia to treat Austrian investors more favorably than investors from other EU Member States. The Tribunal is persuaded by Sir Francis' opinion that "the combined effect of the BIT and EU law is that Croatia is required to treat investors from all EU Member States as favourably as it treats investors from Austria – and therefore as favourably as it treats investors from any non-Member State," which is not problematic.²⁵⁷

Assuming for the sake of argument that the GATS is part of the acquis for purposes of Article 11(2) of the BIT, the Tribunal agrees with the Claimants that the two treaties are not incompatible given that the BIT does not require Austria and Croatia to provide less favorable "investment incentives or restrictions" to other WTO members than they provide to each other. It is compelling that a contrary interpretation would leave all WTO Member States that are parties to BITs in violation of the GATS.

In its Statement of Costs, first submitted on 6 March 2010 and updated on 6 July 2020, the Respondent seeks an award of its full costs of arbitration in connection with its Preliminary Objections, including all legal fees, expenses and other costs in the combined amount of HRK 20,000.00, EUR 2,371,183.45 and GBP 17,435.60. These costs, which do not include Tribunal and ICSID fees, break down as follows:

In their Submission on Costs dated 6 March 2020, the Claimants seek their full costs of arbitration, including all legal fees, expenses and other costs incurred in connection with the Preliminary Objections. Based on tables of the total hours and fees for each attorney and law firm employee and other costs by category, the total amount in the Claimants' Submission on Costs is EUR 1,743,177.58,²⁷³ broken down as follows:

(1) Denies by majority the Respondent's Preliminary Objections that the Tribunal lacks jurisdiction based on incompatibility of the Austria-Croatia BIT with the EU acquis ;

(2) Decides unanimously that the Respondent shall pay the Claimants their full arbitration costs of EUR 1,478,695.58 and USD 277,493.74 for this phase of the proceedings, subject to interest on appropriate terms should the Respondent not pay the interim decision on costs within three months of the date of this Decision; and

(3) Directs unanimously that this arbitration will now move forward for consideration