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Brexit: Impact on Intra-EU BIT Arbitration - and practical considerations

  • Legal Development 17 July 2020 17 July 2020
  • Brexit

As negotiations on the UK's future relationship with the European Union ("EU") continue, recent developments at an EU level on bilateral investment treaties (“BITs”) pose interesting practical questions for UK companies seeking to rely on the protections of BITs concluded by the UK and EU Member States.

Brexit: Impact on Intra-EU BIT Arbitration - and practical considerations

The direction of travel could also lead to treaty planning by non-UK companies seeking to avail themselves of the investor protection provisions in those treaties.

Partners Alejandro Garcia and David Hansom, and associate George Bazinas, look at some of the issues. 

Introduction

On 5 May 2020, the majority of EU Member States signed a treaty called “Agreement for the Termination of Bilateral Investment Treaties between the Member States of the European Union” (the "Agreement").

The Agreement came after political declarations by EU Members States in January 2019 to terminate all bilateral investment treaties between EU Member States ("intra-EU BITs") by 6 December 2019.  Although the UK was one of the signatories of the declaration along with 21 other EU Member States (the "Majority Declaration"), it decided not to sign the Agreement in May 2020, along with Austria, Finland, Sweden and Ireland.

The UK withdrew from the EU on 31 January 2020, and as part of the UK/EU Withdrawal Agreement, the UK is currently in an implementation/transition period. During this period the UK continues to be bound by EU law, including its commitments in the Majority Declaration, until 31 December 2020.  It is no longer possible to extend this phase under the Withdrawal Agreement, since any extension had to be agreed before 1 July 2020, and that date has now passed.

The European Commission ("EC") has recently sent the UK a letter of formal notice for its failure to terminate its intra-EU BITs. The UK has to provide a satisfactory response within four months, failing which the EC may decide to launch formal infringement proceedings against it.

While the lack of certainty on the legal implications of this decision and the position regarding intra-EU investment arbitration for the UK during the transition period will continue to persist unless and until it is ruled upon by the Court of Justice of the European Union ("CJEU"), it is clear that the UK's eleven current BITs with EU Member States remain in force.[1]

Any action by the EC will not preclude the UK from negotiating new BITs with EU Member States as and when the implementation period ends.

Brexit meets Achmea

The CJEU in Case C-284/16, Slovak Republic v Achmea B.V. ("Achmea") ruled investor-State arbitration clauses in intra-EU BITs contrary to the EU Treaties and, as a result, incompatible with EU law.

As a consequence, the CJEU concluded that such clauses could not serve as the legal basis for arbitration proceedings.  From the viewpoint of the EU, the consequence of this decision is that intra-EU BITs would need to be terminated and replaced by a new EU system of investment protection.

In respect of the UK, however, the effect of the Achmea case may become academic insofar as (a) EU law ceases to be directly effective in the UK and (b) BITs between the UK and other Member States will cease to be "intra-EU" BITs, at the end of the implementation period.

Future of Intra-EU Arbitration in the UK

Where does all of this leave intra-EU arbitration? Assuming that the UK does not implement the Agreement, one possible outcome for the future is that the UK becomes a favourable haven for investors from the EU wishing to channel their investments into the 11 EU Member States with which the UK has BITs in place, therefore ensuring access to treaty protection. 

Clyde & Co is independently recognised as a market leading international arbitration law firm. Adept at conducting complex disputes on a global scale, we manage major arbitrations and work across our network of 50+ international offices.

For more information or advice, please contact the authors or your usual contact at Clyde & Co.

[1] These are: Bulgaria-UK BIT (1995); Croatia-UK BIT (1997); Czech Republic-UK BIT (1990); Estonia-UK BIT (1994); Hungary-UK BIT (1987); Latvia-UK BIT (1994); Lithuania-UK BIT (1993); Malta-UK BIT (1986); Romania-UK BIT (1995); Slovakia-UK BIT (1990); Slovenia-UK BIT (1996). The Poland-UK BIT (1987) was terminated unilaterally by Poland on 22 November 2019.  This treaty contains a "sunset" clause that provides investments made before termination with protection for 15 years.

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