October 30, 2018

Solar Wars Part VII: Attack of the tribunals

Previous Solar Wars articles have considered whether claims by EU investors against Spain and other EU states under the Energy Charter Treaty (ECT) would be affected by the decision of the Court of Justice of the European Union (CJEU) in Slovak Republic v Achmea (Case C-284/16). That case held that an arbitration clause in bilateral investment treaty (BIT) between two EU states contravened EU law. The decisions in Masdar Solar & Wind Cooperatief U.A. v Spain (see Solar Wars Part V) and Antin Infrastructure v Spain (see Solar Wars Part VI) indicated that ECT tribunals were taking a consistent line in rejecting the application of Achmea to intra-EU ECT claims. Two recent awards appear to confirm this trend.

Achmea: a reminder of the issues

The CJEU in Achmea reasoned:

The BIT’s arbitration clause required the tribunal to interpret and apply EU law.
The EU’s founding treaties provide that it is for EU Member State courts and the CJEU exclusively to interpret and apply EU law.
An arbitral tribunal constituted under the BIT is not a ‘court or tribunal’ of a Member State. Consequently Member States could not have agreed to submit disputes which could involve the application and interpretation of EU law to that tribunal.
The judgment implied that (a) arbitral tribunals constituted under an intra-EU BIT lack jurisdiction and (b) any award rendered by such a tribunal would not be enforced by Member State courts.

Vattenfall AB and others v Federal Republic of Germany ICSID Case No. ARB/12/12

In September 2018, a tribunal made an award on jurisdiction regarding Vattenfall’s €4.7 billion ECT claim against Germany regarding the rapid phase-out of Germany’s nuclear programme after the Fukushima disaster. Germany had argued that the tribunal lacked jurisdiction in light of Achmea.

Germany (and the European Commission (EC), which was allowed to make submissions) argued that Achmea extends to multilateral agreements to which EU Member States are party, such as the ECT, as well as BITs. Specifically, the EC argued that EU law forms part of the “relevant rules of international law applicable in the relations between the parties” which tribunals must take into account when interpreting a treaty pursuant to the Vienna Convention on the Law of Treaties (VCLT).

The tribunal rejected those submissions, and specifically said that it agreed with the Masdar Solar award. The tribunal held:

  • The ECT contains wording by which signatory states (including EU Member States and the EU itself) agreed to refer disputes to arbitration.
  • There was nothing in the ECT which indicated that the signatories had intended to carve out intra-EU disputes. It would have been simple to include a “disconnection clause” achieving this, as was the case in a number of other treaties to which the EU is party. On the contrary, there was evidence that the EU had proposed to include such a clause in the ECT but dropped this from the draft treaty before it was signed and ratified.
  • There is no principle of public international law, or indeed EU law, which requires the ECT to be interpreted so as to give priority to external EU treaties and/or a court judgment interpreting those treaties.
  • While the tribunal accepted that EU law should be considered to be international law, the VCLT’s starting point is that treaties should be interpreted in accordance with the “ordinary meaning” of their terms. It did not permit a tribunal to “rewrite the treaty being interpreted” or to substitute a plain reading of the treaty with other rules of international law that would contradict its terms.
  • Achmea had not specifically addressed ECT arbitrations. Even if EU law did prohibit intra-EU ECT arbitrations, the tribunal held that it would still have jurisdiction because the ECT provides that prior or subsequent treaties could not derogate from rights contained in the ECT that were more favourable to investors.
  • The tribunal saw no conflict between EU law and the ECT. However, if there was, the provisions of the ECT would prevail.

UP and CD Holding Internationale v Hungary ICSID Case No. ARB/13/35

Although not an ECT claim, the October 2018 award in UP and CD Holding Internationale v Hungary tends to confirm the line of reasoning adopted in Masdar Solar,  Antin Infrastructure and Vattenfall.

The case involved a claim under the France – Hungary BIT. Hungary challenged the jurisdiction of the tribunal on the basis of Achmea.  The arbitration was governed by the rules of the International Centre for the Settlement of Investment Disputes (ICSID, the World Bank’s organisation administering investment arbitrations). ICSID Rules have been adopted in many BITs and are one of the available options for rules for ECT arbitrations.

The tribunal held that it had jurisdiction notwithstanding Achmea. Articles 53 & 54 ICSID Convention provide that an award rendered by a duly constituted tribunal is binding on a signatory state party (such as Hungary), and can only be appealed to a committee constituted pursuant to the annulment procedure in the ICSID Convention. Moreover, those provisions require Hungary to recognise and enforce an award as if it were a final judgment of a Hungarian court.

The tribunal pointed out that Achmea did not refer to the ICSID Convention or ICSID arbitrations. The tribunal held that there is no rule of EU law (arising from Achmea or otherwise) which provides that Member States’ obligations under the ICSID Convention are inconsistent with EU law or were terminated/replaced when they acceded to the EU. That event did not amount to an implied withdrawal from the ICSID Convention, nor had Hungary expressly terminated its submission to arbitration pursuant to the ICSID Convention. Even if the France-Hungary BIT was retroactively terminated in 2004, it would still remain in force for 20 years (along with the submission to ICSID arbitration) due to its “survival clause”.

The reasoning in UP and CD Holding Internationale v Hungary can be argued to logically apply to any intra-EU ECT arbitration pursuant to ICSID Rules.

Conclusion

The situation seems deadlocked: arbitral tribunals consistently accept jurisdiction over intra-EU ECT claims but the EC insists that they lack jurisdiction and awards cannot be paid or enforced within the EU. Until this can be resolved, the battle will spread to non-EU jurisdictions such as New York where investors seek to enforce their awards.

First published in Energy Voice