What will be the impact of the Beheer Decision on the Future of the ECT?

Selim Can Bilgin

On 11 February 2022, an ICSID tribunal rendered its decision in Sevilla Beheer v. Spain and rejected the respondent’s jurisdictional objection based on the European Court of Justice’s (ECJ) Komstroy decision. This decision has been another addition to the discussion regarding the allocation of competences between the investment tribunals and the EU institutions when application of investment treaties involving EU member states is at stake.

This debate has first started (or heated up) with the ECJ’s Achmea decision where the Court found that the arbitration clauses in the intra-EU BITs are not compatible with the EU law. The investment tribunals did not follow this decision and continued to establish jurisdiction in similar cases in terms of the jurisdictional basis. To ensure implementation of the Achmea approach, 23 EU member states concluded the Agreement for the Termination of Bilateral Investment Treaties (Termination Agreement). Now, there is a similar problem with respect to the Energy Charter Treaty (ECT) which is a multilateral investment treaty having both EU and non-EU party States following conflicting Komstroy and Beheer decisions. The question of how the EU will deal with the ECT may be even more important because it is the most used investment treaty, it concerns more states and also it arguably affects the EU’s energy policy.  In this piece, I will explain the background to this debate and explore the possible response by the EU to the recent Beheer decision. For the EU, dealing with the ECT will probably be much more challenging than handling the issues arising out of intra-EU BITs.

Achmea Decision and the Emergence of the Problem

As mentioned above, the debate regarding the EU’s approach to the investment treaties has picked up steam following the ECJ’s decision Slovak Republic v. Achmea BV in 2018. This case had come before the ECJ through the referral by the German Supreme Court in the course of the set-aside proceedings of an UNCITRAL award. Germany was the seat of the arbitration, and this paved the way to the ECJ through the referral mechanism.

In this decision, the Court found that the dispute settlement clause under the Dutch-Slovakia BIT cannot be applied by virtue of the principle of autonomy of EU law, as provided for under Articles 344 and 267 TFEU. According to the Court, the principle of autonomy of the EU law from the domestic laws of the member States and from international law enshrined in the said articles must be preserved by ensuring a uniform interpretation and application of EU law. The dispute settlement clauses in the intra-EU BITs allow the investment tribunals to have a say over the EU law despite that they are not part of the judicial system subject to the interpretative authority of the ECJ. Therefore, the EU law precludes the application of the arbitration clauses in such BITs.

Following the Achmea decision, various tribunals examined jurisdictional objections based on the findings of the ECJ. The objection by the host states was that there is no consent to arbitrate an EU member State to an investor of another EU member State because the dispute settlement clauses in the intra-EU BITs are devoid of effect under the EU law. The tribunals rejected such objections in such cases as Adamakopoulos (intra-EU BIT case), Magyar Farming (intra-EU BIT case) or Vattenfall (intra-EU ECT case) relying on traditional interpretation rules and stating that the EU law does not have any inherent superiority over an investment treaty which is also a part international law between the parties. In other words, the ECJ’s reasoning and decision fell short of altering the application and interpretation of the international law by the investment tribunals.

European Union’s Reaction – The Termination Agreement

In response to decisions disregarding Achmea and to prevent any further intra-EU BIT disputes, EU member states decided to conclude the Termination Agreement. The Termination Agreement provides for the termination of the intra-EU BITs, termination of the sunset clauses in the intra-EU BITs and withdrawal of the consent for pending arbitration proceedings. In short, EU member states aimed at ending any current arbitration and preventing such future proceedings under the intra-EU BITs. It raised questions with respect to the second and third objectives of the agreement as they would possibly affect acquired rights of the investors and contains elements of retroactivity. However, this debate is outside the scope of this piece. It is still possible for investment tribunals to accept their jurisdiction under the intra-EU BITs rejecting the immediate effect of the Termination Agreement. Nevertheless, there will most probably be fewer disputes under the intra-EU BITs in the future. Additionally, in any event, it will be harder to implement the arbitrations under the intra-EU BITs when the seat is, or the enforcement efforts take place, in an EU member State.

Similar Problem under the Energy Charter Treaty; Komstroy and Beheer Decisions

Achmea sparked a debate not only with respect to the intra-EU BITs but also with respect the to the Energy Charter Treaty whose 53 parties include EU member States and the EU itself. There was a discussion primarily about the impact of Achmea on the intra-EU application of the ECT’s dispute settlement clause. However, the next ECJ decision giving direction to this debate came in relation to a case where neither the host state nor the investor was from the EU. The Komstroy decision, ECT version of Achmea, derived from an award in a case involving the Republic of Moldova and Komstroy LLC, a Ukrainian investor.

This case was referred to the ECJ by virtue of its seat, France. After the tribunal ruled in favour of the investor, Moldova applied to set-aside the judgment before the Paris Court of Appeal. Following contradicting decisions by the Paris Court of Appeal and the Court of Cassation, the former referred the case to the ECJ and asked three questions revolving around the definition of investment under the ECT. Possible interference by the ECJ to an arbitration that involved no EU related party was unexpected and caused some controversy. Hungary, Sweden, Finland, and the Council of the EU made submissions to the Court that the ECJ should decline its jurisdiction. Yet, the ECJ found that it has jurisdiction to interpret the international treaties such as the ECT ratified by the EU. The Court has also relied on the seat of the arbitration being a member State.

Substantively, the Court found that claims to money under an agreement for the supply of electricity does not constitute investment. The Court has also stated, in obiter, that the offer to arbitration in the ECT (Article 26) should be without an effect for the disputes between intra-EU parties. The matter is now again before the Paris Court of Appeal. With this decision the Court has once again applied the principle of the autonomy of the EU law disregarding the treaty interpretation rules and broader international law.

As also mentioned above, there have been cases under the ECT where respondents relied on the Achmea to deny jurisdiction of the investment tribunals. This has always been unsuccessful. The first instance that a tribunal has rendered a decision on its jurisdiction in a case involving intra-EU parties following the ECJ’s Komstroy decision was the Beheer case. The tribunal did not follow the approach adopted by the ECJ and instead, relying on the Vienna Convetion on the Law of Treaties, it found that the EU law does not preclude it from establishing jurisdiction. In doing so, the tribunal found Achmea irrelevant and Komstroy unpersuasive. Looking at the relevant case law since 2018, the tribunals adjudicating similar cases will likely follow Beheer rather than Komstroy.

Possible Response to the Beheer

As previously discussed, the EU and the member States concluded the Termination Agreement to ensure implementation of the Achmea decision. The EU member states had already started to take steps to revise the ECT prior to the Beheer decision. An EU proposal also contained a possible replacement of the ECT dispute settlement clause for the parties that are subject to another multilateral investment court (with the anticipation of the establishment of one).

The EU and its member States will possibly accelerate their attempts to revise the ECT however, as opposed to the situation with respect intra-EU BITs, there is need for other parties to the ECT to give their consent for a change. If non-EU parties to the ECT remain reluctant to revise the ECT in line with the EU’s proposals, we may see withdrawals of the member states as well as the Union itself from the Treaty. Indeed, Italy had already withdrawn in 2016 and France signalled such possibility in February 2021. It will be interesting to follow the reactions by the EU member states in the upcoming months and years. Considering that the ECT has a 20-year-long sunset clause (the EU is already concerned with it), its significance for the EU will not disappear anytime soon.

Key words: Achmea, ECT, Fragmentation, Investment Treaties, EU