Intra-EU Claims as an Objection to Jurisdiction

Disputes based on an intra-EU Bilateral Investment Treaty (“BIT”) are at the forefront of policy and legal discussion. An intra-EU BIT is a bilateral investment treaty concluded between two EU Member States. It is juxtaposed to "extra-EU BITs", namely BITs concluded between an EU Member State and a third State.

The vast majority of intra-EU BITs emerged post-EU enlargement (primarily in 2004, but also in 2007 and 2013) when new Member States (predominantly Eastern-European countries) acceded to the EU. In many instances, the conclusion of agreements (BITs) for the promotion and protection of investments was encouraged by the EU as part of the pre-accession process.¹ This requirement could be viewed as a reflection of mistrust towards the legislative and judicial systems of these countries.

The Energy Charter Treaty is an international treaty concluded by both the EU and its Member States (mixed agreement). It contains similar provisions (substantive and procedural) to a BIT. The EU (as a Regional Economic Integration Organisation, “REIO”) is also a party to the ECT. However, the EU has not introduced an explicit disconnection clause (i.e. a clause that would exclude the application of the ECT in intra-EU relations).² The respondents in intra-EU ECT cases as well as the European Commission have argued that the ECT was never meant to apply inter se and have thus challenged the jurisdiction of the tribunals.³ 

Respondent EU Member States argue that arbitral tribunals lack jurisdiction in intra-EU cases.⁴ The European Commission has intervened as a non-disputing party (amicus curiae) on a number of intra-EU cases before arbitral tribunals in order to support this claim of lack of jurisdiction.⁵ Among the first cases in which the European Commission sought to intervene were Electrabel v. Hungary⁶ and AES v. Hungary.⁷

Generally, the main claims brought in support to the objection to jurisdiction can be summarized as follows:

1. Under EU law (Articles 267 and 344 TFEU, as well as Article 19 TEU), the arbitration clauses of intra-EU BITs are not compatible with the principle of autonomy of the EU legal order and the exclusive jurisdiction of the CJEU.⁸ They are also discriminatory (principle of equal treatment article 18 TFEU) and are against the principle of mutual trust (investors’ claims shall be brought before the courts of the EU Member States).⁹ Therefore, they are inapplicable and cannot be deemed as the basis for a valid arbitration agreement.
2. Pursuant to Article 59 of the VCLT (“Termination or suspension of the operation of a treaty implied by conclusion of a later treaty” – general incompatibility), intra-EU BITs were automatically terminated after the accession of the respondent State to the EU.¹⁰ The EU Treaties and the BITs are competing legal frameworks with the same subject-matter. The BITs are thus superseded by the intra-EU regime.
3. Pursuant to Article 30 of the VCLT (“Application of successive treaties relating to the same subject-matter” – partial incompatibility), the provisions of the earlier treaties (intra-EU BITs) such as the ISDS clauses, are not compatible with EU law (EU Treaties) and are thus no longer applicable.¹¹ The issue of partial incompatibility has also arisen in cases where the applicable intra-EU BIT included a specific clause concerning its compatibility with the EU acquis.¹²

Similar intra-EU jurisdictional objections have been raised in intra-EU ECT cases. In both intra-EU BIT and intra-EU ECT cases, they have been consistently rejected by arbitral tribunals with one exception.¹³ For the first time, a tribunal upheld a State’s intra-EU objection in the Green Power v. Spain case, an intra-EU ECT case.¹⁴

The intra-EU objection is also raised before the domestic courts where recognition and enforcement of arbitral awards is sought.¹⁵ In relation to intra-EU awards enforced under the New York Convention, States argue that they shall not be enforced because (i) the intra-EU ISDS clause is incompatible with EU law and thus inapplicable – it does not incorporate a valid consent to arbitration and a valid arbitration agreement (Article V(1)(a));¹⁶ (ii) intra-EU disputes are no longer an arbitrable subject matter (Article V(2)(a));¹⁷ and (iii) intra-EU awards breach EU public policy (Article V(2)(b)).¹⁸

The Achmea judgment – The Court of Justice of the EU (“CJEU”), following a request for a preliminary reference ruling by the German Federal Court (Bundesgerichtshof, BGH), was called to rule upon the compatibility of Article 8 of the Netherlands-Slovakia BIT with EU law. The CJEU decided that the intra-EU ISDS mechanism provided therein is incompatible with EU law, and in particular with Articles 267 and 344 TFEU and 19 TEU.¹⁹ Arbitral tribunals might be called to interpret and apply EU law. However, they are not courts or tribunals ‘of the Members States’ and thus they cannot submit requests for preliminary reference rulings to the CJEU. In addition, this intra-EU ISDS provision calls into question the principle of mutual trust between EU Member States.²⁰

In the aftermath of the CJEU’s ruling in Achmea, there was a new wave of intra-EU objections on the basis of Achmea often coupled with a combined invocation of international comity.²¹

In January 2019, twenty-two EU Member States signed a declaration which contained their understanding of the legal consequences of Achmea (the January 2019 Declaration). In this declaration, they agreed to a set of actions, including importantly terminating all their intra-EU BITs by 6 December 2019. Notably, the remaining six EU Member States disagreed on the impact of the Achmea judgment on the intra-EU face of the ECT and this led to two separate declarations, one issued solely by Hungary²² and one signed by five Member States (Finland, Malta, Luxembourg, Slovenia and Sweden).²³ Respondent states have attempted to draw legal consequences from the January 2019 Declaration arguing in some cases that pursuant to Article 31 of the VCLT (“General rule of interpretation” – subsequent agreement as a means for interpretation), the Declaration is a subsequent agreement that renders intra-EU BITs inapplicable between EU Member States.²⁴ 

Following the January 2019 Declaration, a copy of the draft “Agreement for the Termination of Bilateral Investment Treaties between the Member States of the European Union” became public in October 2019. The final text of the plurilateral termination agreement was signed in May 2020 by all EU Members States, except for Austria, Ireland, Finland and Sweden.²⁵ Notably, the signed termination agreement excludes from its scope the intra-EU disputes under Article 26 ECT. Furthermore, it provides for the termination of the sunset clauses included in all intra-EU BITs (Article 2(2) and 3). Arbitration proceedings that were initiated after the CJEU’s judgment in Achmea (that is, March 6, 2018) are considered ‘new arbitration proceedings’ and, according to the agreement, arbitral tribunals lack jurisdiction (Article 5). 

The termination agreement was set to enter into force 30 calendar days after the receipt of the second instrument of ratification, approval or acceptance by the Depositary (Article 16(1)). Accordingly, it entered into force on 29 August 2020²⁶ following its ratification by Denmark and Hungary. Two EU Member States, Slovakia and Spain, have applied it provisionally.²⁷