Editors
See all

Intra-EU Claims as an Objection to Jurisdiction

I. Introduction - Definition of intra-EU BITs

1.

Disputes based on intra-EU Bilateral Investment Treaties (“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.

II. Genesis of intra-EU BITs

2.

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.

III. The intra-EU applicability of the Energy Charter Treaty (ECT)

3.

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). 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.2 

IV. Arguments in support of the intra-EU objection to jurisdiction

4.

Respondent EU Member States argue that arbitral tribunals lack jurisdiction in intra-EU cases.3 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.4 Among the first cases in which the European Commission sought to intervene were Electrabel v. Hungary5 and AES v. Hungary.6

5.

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.7 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).8 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.9 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 thus no longer applicable.10 
6.

Arbitral tribunals so far have consistently rejected these intra-EU jurisdictional objections.11 Similar objections to the jurisdiction of arbitral tribunals have also been raised in intra-EU ECT cases, and they have also been unsuccessful with no exceptions so far.12 The intra-EU objection is also raised before the domestic courts where recognition and enforcement of arbitral awards is sought.13 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));14 (ii) intra-EU disputes are no longer an arbitrable subject matter (Article V(2)(a)); and (iii) intra-EU awards breach EU public policy (Article V(2)(b)).15 

7.

The Achmea case – 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.16 Arbitral tribunals might be called to interpret and apply EU law. However, they are not court 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. 

V. Termination of intra-EU BITs

8.

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 Hungary17 and one signed by five Member States (Finland, Malta, Luxembourg, Slovenia and Sweden).18 

9.

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.19 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). 

10.

The termination agreement will enter into force 30 calendar days after the receipt of the second instrument of ratification, approval or acceptance by the Depositary (Article 16(1)).

Select a key word :
1 /