Brexit. Maybe not such bad news for intra-EU investment awards after Achmea?

By Szilárd Gáspár-Szilágyi. This text was originally published on the International Economic Law and Policy Blog. 

On 29 March 2019, 11 pm, the UK will officially leave the European Union, unless by some miracle it decides to withdraw its notification to exit the Union. Everyone is anxiously awaiting the outcome of CJEU Case C-621/18 Wightman, on whether or not the UK is allowed to unilaterally withdraw its exit notification under Article 50 TEU, and whether on 11 December this year the House of Commons votes in favour of the Withdrawal Agreement. Academic writings on Brexit abound, covering topics such as the fall-back on WTO rules after Brexit or the fate of approximately 1100 international agreements to which the UK is party either by its membership to the EU or as a contracting party to a mixed agreement.

This latter issue, discussed in length by Prof. Ramses Wessel, has prompted me to ask myself what will happen to the intra-EU BITs to which the UK is a party, and more specifically, what will happen to pending investor-state arbitrations initiated by UK companies against EU member states.

The UK and intra-EU investment disputes

The UK, as a major exporter of capital, has concluded over the years 105 Bilateral Investment Treaties (BITs). Furthermore, via its EU Membership or by being a contracting party to mixed agreements, it is a party to a further 70 Treaties with Investment Provisions (TIPs), not all of which have yet entered into force. Of the 105 BITs, 12 were concluded (and are still in force) with states which have eventually become EU Member States (Bulgaria, Croatia, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Romania, Slovakia, and Slovenia). Besides the 10 intra-EU BITs, the UK is also a party to the Energy Charter Treaty (ECT).

Why is this important? Because UK investors are avid users of the investor-State dispute settlement provisions under these agreements. Of the total of 78 pending or concluded investor-state arbitrations launched over the years by UK investors, 23 were brought against other EU Member States. Currently, there are 12 pending investor-state arbitrations against:

  • Spain, 5 cases under the ECT
  • Italy, 2 cases under the ECT
  • Hungary, 1 case under the UK-HU BIT
  • Latvia, 1 case under the UK-LV BIT
  • Poland, 1 case under the UK-PL BIT
  • Romania, 1 case under the UK-RO and CA-RO BITs
  • the Czech Republic, 1 case under the UK-CZ BIT and the ECT

This means that investors can potentially win these cases - some of which will entail very significant financial compensation - and they will try to enforce the arbitral awards. This year the CJEU has delivered its Achmea ruling, which has seriously affected the enforcement of arbitral awards rendered by tribunals set up pursuant to intra-EU BITs. However, Brexit might bring them unexpected benefits.

Achmea and its immediate consequences

Without entering into too much detail, as this ruling been amply discussed (here, here, and here), in this year’s Slovakia v Achmea the CJEU decided that Articles 267 and 344 TFEU ‘precluded’ investor-state tribunals ‘such as’ the one under the Netherlands – Slovakia BIT. In other words, intra-EU investor-state tribunals and their awards are incompatible with the EU legal order and such awards cannot be enforced in EU Member States. The German Federal Court of Justice, which referred the question for a preliminary ruling in Slovakia v Achmea, decided to abide by the CJEU’s ruling and set aside the original arbitral award, which was in favour of the Dutch investor. Furthermore, I have argued that Achmea should also apply to investor-state tribunals and awards under the ECT, if an EU investor initiated the case against another EU Member State.

Thus, following Achmea it looked like awards rendered by arbitral tribunals set up under intra-EU BITs or under the ECT, but in an intra-EU context, would be unenforceable in the EU. But…

But, Brexit

As Wessel has argued, disentangling the UK from the EU does not only have an internal component, but an external component as well. Three categories of international agreements (with subcategories of course) exist to which the UK is a party, the relationship of which needs to be clarified following Brexit. First, there are the so-called EU ‘only agreements’ that were concluded by the EU alone with third states and which are binding on the UK because of its membership to the EU. Second, the so-called ‘mixed’ agreements to which both the EU and its (all or some) Member States are parties, that are binding on the UK under both international and EU law. Third, there are also those agreements that are only concluded by the UK, but might still have ‘links with EU law’ (Wessel, p. 125).  

The UK has yet to terminate its intra-EU BITs (neither have the other contracting parties) and it is highly unlikely that it will, especially following Brexit. Thus, these intra-EU BITs will remain in force after Brexit as well, with a small change: they will not be considered intra‑EU BITs anymore, since the UK will be a non-EU contracting party. It follows that the Achmea ruling of the CJEU, as a general rule, would not apply to an arbitral award rendered under a BIT between the UK and an EU Member State. Some further observations are needed:

  1. As I have previously argued, an expansive reading of Achmea could result in concluding that arbitral awards rendered under Member State BITs with third countries would also be incompatible with EU law. Until CJEU Opinion 1/17 is delivered, this remains a theoretical possibility.
  2. If we follow a narrow reading of Achmea, as only applying to intra-EU arbitral awards, then the enforcement of arbitral awards rendered under UK BITs with EU Member States could result in some interesting outcomes:
    • If the intra-EU investment tribunal delivers the award before 29 March 2019, then the courts of the EU Member States (or even the UK courts) - where investors will seek to enforce the award - could argue that the award is incompatible with EU law under Achmea, because it was rendered pursuant to an intra-EU BIT, the UK still being an EU member at the time the award was delivered.
    • If the investment tribunal delivers the award after 29 March 2019, the EU or UK courts where enforcement is sought would need to recognize that the BITs are not intra-EU anymore, therefore Achmea would not bar their enforcement.

The situation of the ECT and awards rendered under it is slightly trickier. The ECT was signed as a mixed agreement and it does not contain a ‘disconnection clause’ (a clause which ensures that the treaty’s provisions do not apply in the relationship between EU Member States). Following Brexit, the UK (possibly following some negotiated adjustments with the other contracting parties) would remain a party to the ECT under international law. Thus, if one reads Achmea so as to apply to intra-EU arbitral disputes under the ECT as well, then the enforcement of such awards will follow a similar path as described above in point (b).

In conclusion, Brexit might actually allow UK investors to enforce investor-State arbitral awards against EU Member States in both the UK and the EU, as the Achmea prohibition would not apply following the UK’s exit.   

Tags: Investment
Published Dec. 6, 2018 12:50 PM - Last modified Apr. 7, 2020 10:51 AM
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