Sunset clauses (sometimes also referred to as survival or grandfathering clauses) guarantee that all investments made prior to the termination of a treaty continue to be protected during a certain period of time, typically ranging from 5, 10, 15 and up to 20 years.1 The function of the sunset clause is to protect the legal expectations of the investors who made their investments based on the protection offered by the existing investment treaty.2 Indeed, many investment treaties also cover investments made prior to the entering into force of the treaty.3
Argentina - Qatar BIT (2016), 6 November 2016, Article 20(2); Colombia - United Kingdom BIT (2010), 17 March 2010, Article XV(3); France - Iraq BIT (2010), 31 October 2010, Article 13; Treaty between the United States of America and the Arab Republic of Egypt concerning the Reciprocal Encouragement and Protection of Investments, 29 September 1982, Article XIII(4); Agreement between the Government of the People's Republic of China and the Government of Malaysia Concerning the Reciprocal Encouragement and Protection of Investments, 21 November 1988, Article 13(4); Agreement between the Government of the Kingdom of Sweden and the Government of the Republic of Indonesia on the Promotion and Protection of Investments, 17 September 1992, Article 12(3); Agreement Between the Government of Malaysia the Government of the Republic of Albania for the Promotion and Protection of Investments, 24 January 1994, Article 12(4); Agreement between the Argentine Republic and the Kingdom of Spain on the reciprocal promotion and protection of investments, 3 October 1991, Article XI(3); Finland - Mauritius BIT (2007), 12 September 2007, Article 17(3); Croatia - Oman BIT (2004), 4 May 2004, Article 15(2); Philippines - Romania BIT (1994), 18 May 1994, Article 13(2); Japan - Morocco BIT (2020), Article 23; Hungary - Kyrgyzstan BIT (2020), Article 16(4); Japan - Georgia BIT (2021), Article 28(4); Energy Charter Treaty (1994), 47(3).
UP and C.D Holding Internationale v. Hungary, ICSID Case No. ARB/13/35, Award, 9 October 2018, para. 265; Mohamed Abdel Raouf Bahgat v. Arab Republic of Egypt, PCA Case No. 2012-07, Decision on Jurisdiction, 30 November 2017, para. 313; Magyar Farming Company Ltd, Kintyre Kft and Inicia Zrt v. Hungary, ICSID Case No. ARB/17/27, Award, 13 November 2019, paras. 222-223; BayWa r.e. Renewable Energy GmbH and BayWa r.e. Asset Holding GmbH v. Kingdom of Spain, ICSID Case No. ARB/15/16, Decision on Jurisdiction, Liability and Directions on Quantum, 02 December 2019, para. 233; Anglia Auto Accessories Limited v. The Czech Republic, SCC Case No. 2014/181, Final Award, 10 March 2017, para. 117; J.P. Busta and I.P. Busta v. The Czech Republic, SCC Case No. 2015/014, Final Award, 10 March 2017, para. 117.
Bahrain - Netherlands BIT (2007), 5 February 2007, Article 10; Croatia - Oman BIT (2004), 4 May 2004, Article 12; Agreement Between the Government of Malaysia the Government of the Republic of Albania for the Promotion and Protection of Investments, 24 January 1994, Article 10; Agreement between the Government of the People's Republic of China and the Government of Malaysia Concerning the Reciprocal Encouragement and Protection of Investments, 21 November 1988, Article 12; Portugal - Qatar BIT (2009), 21 April 2009, Article 2; Treaty between the United States of America and the Arab Republic of Egypt concerning the Reciprocal Encouragement and Protection of Investments, 29 September 1982, Article II (2)(b); Agreement Between the Federal Republic of Germany and the People's Republic of Bangladesh Concerning the Promotion and Reciprocal Protection of Investments, 6 May 1981, Article 9; Poland - Slovenia BIT (1996), 28 June 1996, Article 11.
The reason why States include sunset clauses in most BITs is to protect the legal expectations of investors when making their investments. Typically foreign investments – particularly those in the oil, gas, and infrastructure sectors – are made with a long-term view that often extends beyond the standard initial period of validity of a BIT by 10 or 15 years. In such circumstances, a termination of a BIT is always a possibility, and without a sunset clause, existing investments would be left completely unprotected.4
Hence, sunset clauses aim to ensure that investors of existing investments have a transitional period in which they can take the appropriate measures to accommodate to the situation after a BIT has been terminated. Sunset clauses also ensure that investors can continue to rely on the investment protection and dispute settlement provisions contained in a BIT in order to be able to obtain, for example, compensation in cases of (in)direct expropriation by the host State.
Accordingly, investment claims can be successfully initiated even after the termination of the BIT. For example, in the Marco Gavazzi and Stefano Gavazzi v. Romania5 case, investors initiated arbitration under the Italy-Romania BIT in 2012, after the treaty had already been terminated in 2010. Similarly, in April 2019 a Dutch investor filed an ICSID claim against Tanzania six months after the termination of the Tanzania-Netherlands BIT.6
As a result of a sunset clause, the termination of a BIT itself does not necessarily prevent the filing of claims, unless the Contracting Parties of the BIT have agreed to remove the sunset clause before terminating the BIT. For example, it was reported that when Indonesia reached a mutual agreement with Argentina to terminate their BIT, they neutralized the sunset clause by mutual agreement before withdrawing from the BIT.7 This implied that the sunset clause would not operate for existing investments following termination. The Czech Republic has earlier used the same approach and removed its sunset clauses prior to the agreed termination of several BITs with fellow EU Member States.8 However, there have been separate discussions as to the impact of the withdrawal of a State from the ICSID Convention on the filing of a claim.9
Blue Bank International & Trust (Barbados) Ltd. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/12/20, Award, 26 April 2017, paras. 108-120; Fábrica de Vidrios Los Andes, C.A. and Owens-Illinois de Venezuela, C.A. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/12/21, Award, 13 November 2017, paras. 250-296; Transban Investments Corp. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/12/24, Award, 22 November 2017, paras. 73-74, 76; Marfin Investment Group Holdings S.A., Alexandros Bakatselos and others v. Republic of Cyprus, ICSID Case No. ARB/13/27, Award (redacted), 26 July 2018, para. 193; Wiki Note on Denunciation of the ICSID Convention.
As explained above, the function of sunset clauses is to continue to protect existing investments for a certain period of time and enable them to rely on the BIT provisions. Seen from this perspective and in the EU context of the termination agreement, the envisaged removal of the legal effects of the sunset clauses contained in the intra-EU BITs10 could cause a particularly significant abrogation of the rights of investors as granted by the present intra-EU BITs.
Indeed, such a move raises questions as to the respect for the Rule of Law, as the EU termination agreement would also retroactively abrogate the right to access to justice via intra-EU BITs that have already been terminated and whose sunset clauses have already been triggered.
See also the European Commission’s position as a non-disputing party in various arbitral proceedings.
Agreement for the Termination of Bilateral Investment Treaties Between the Member States of the European Union, 05 May 2020, Articles 2, 3, 4.2; Theodoros Adamakopoulos, Ilektra Adamantidou, Vasileios Adamopoulos and others v. Republic of Cyprus, ICSID Case No. ARB/15/49, Decision on Jurisdiction, 7 February 2020, para. 142; Addiko Bank AG and Addiko Bank d.d. v. Republic of Croatia, ICSID Case No. ARB/17/37, Decision on Croatia’s Jurisdictional Objection Related to the Alleged Incompatibility of the BIT with the EU Acquis, 12 June 2020, para. 185; Strabag SE, Raiffeisen Centrobank AG, Syrena Immobilien Holding AG v. The Republic of Poland, ICSID Case No. ADHOC/15/1, Partial Award on Jurisdiction, 4 March 2020, para. 8.73; A.M.F. Aircraftleasing Meier & Fischer GmbH & Co. KG v. Czech Republic, PCA Case No. 2017-15, Final Award, 11 May 2020, para. 318; Fynerdale Holdings BV v. The Czech Republic, PCA Case No. 2018-18, Award, 29 April 2021, para. 241.
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