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From Washington with Love—Investor–State Arbitration and the Jurisdictional Monopoly of the Court of Justice of the European Union
Published online by Cambridge University Press: 27 October 2017
Abstract
While investor–State arbitration is to a large extent detached from the EU legal order, EU law has recently started to be invoked in investor-State arbitration proceedings. In the context of intra-EU bilateral investment treaties, the Commission has expressed the view that investor-State arbitration gives rise to a number of ‘arbitration risks’ for the EU legal order. Not only can it solicit investors to engage in forum-shopping, but it can also result in questions of EU law not being litigated in Member State or Union courts. This chapter explores the extent to which the compatibility of investor–State arbitration with the EU legal order is in issue. It examines the main features of investor-State arbitration as concerns its interplay with the EU legal order, as well as the Court of Justice’s case law on issues of compatibility between systems of international dispute settlement and the EU legal order. The chapter highlights that the way in which investor–State arbitral tribunals handle issues of EU law, as well as the involvement of interested parties, may foster the synergy between investor–State arbitration and the EU legal order.
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- Copyright © Centre for European Legal Studies, Faculty of Law, University of Cambridge 2010
References
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2 The Court of Justice has already ruled on the compatibility of the capital transfer clauses in BITs with third countries and Arts 64(2), 66 and 75 TFEU (ex Arts 57(2), 59 and 60(1) EC), under which the Council can take restrictive measures with regard to capital movements to and from third countries, in the following cases: Case C-205/06 Commission v Austria, judgment of 3 March 2009, nyr; Case C-249/06 Commission v Sweden, judgment of 3 March 2009, nyr; Case C-118/07 Commission v Finland, judgment of 19 November 2009, nyr. See the annotation by Koutrakos, P (2009) 46 CML Rev 2059 Google Scholar.
3 BITs with third countries number over 1,000. Insofar as inter-Member State BITs are concerned, all but two of these agreements acquired intra-EU status upon accession of a number of Central and Eastern European countries to the EU in 2004 and 2007. The Germany–Greece and Germany–Portugal BITs, however, pre-dated the accession of Greece and Portugal to the (then) EEC. About 190 investment agreements are now in force as international agreements between the Member States. See Annex to the ‘2009 Annual EFC Report to the Commission and the Council on the Movement of Capital and Freedom of Payments’, no 17446/09, 10 December 2009, Brussels, para 16.
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6 Annex to the 2009 Annual EFC Report, above n 3, para 17.
7 Note by European Commission, DG Markt, of November 2006 on free movement of capital, quoted in Eastern Sugar BV v Czech Republic, Partial award of 27 March 2007, SCC no 088/2004, available at <http://ita.law.uvic.ca/documents/EasternSugar.pdf>, accessed 9 July 2010, para 126.
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15 Generation Ukraine v Ukraine, Award of 16 September 2003, ICSID Case no ARB/00/9, 10 ICSID Reports 240, para 12.2: ‘… it is firmly established that an investor can accept a State’s offer of ICSID arbitration contained in a bilateral investment treaty by instituting ICSID proceedings’.
16 Paulsson, above n 13.
17 Eastern Sugar BV v Czech Republic, Partial award of 27 March 2007, SCC no 088/2004, available at <http://ita.law.uvic.ca/documents/EasternSugar.pdf>, accessed 9 July 2010.
18 Ibid, para 25.
19 Ibid, para 131.
20 Case 102/81 Nordsee v Reederei Mond [1982] ECR 1095.
21 Ibid, para 9. Cf Case C-126/97 Eco Swiss v Benetton [1999] ECR I-3055, para 40: ‘[A]rbitrators, unlike national courts and tribunals, are not in a position to request this Court to give a preliminary ruling on questions of interpretation of Community law’.
22 Case 102/81 Nordsee v Reederei Mond [1982] ECR 1095, para 11.
23 Ibid, para 12.
24 Ibid, para 13.
25 Ibid, para 14.
26 See Case C-126/97 Eco Swiss v Benetton [1999] ECR I-3055, para 40: ‘[I]t is manifestly in the interest of the Community legal order that, in order to forestall differences of interpretation, every Community provision should be given a uniform interpretation, irrespective of the circumstances in which it is to be applied …’
27 The arbitral tribunal in Eastern Sugar took the view that the reference to ‘court of a Member State’ in Art 267 TFEU (ex Art 234 EC) simply excludes voluntary arbitration in the normal sense: Eastern Sugar BV v Czech Republic, Partial award of 27 March 2007, SCC no 088/2004, available at <http://ita.law.uvic.ca/documents/EasternSugar.pdf>, accessed 9 July 2010, paras 133–35.
28 Case C-125/04 Denuit and Cordenier [2005] ECR I-923, paras 12–16.
29 Opinion 1/92 [1992] ECR I-2821, para 33.
30 See, eg, Amco v Indonesia, where the ad hoc Committee considered whether the tribunal had manifestly exceeded its powers. It took the view that it could not have found the Tribunal to have erroneously applied the law applicable, but only to have applied law other than that agreed by the parties: Amco Asia Corp et al v Republic of Indonesia, Annulment Decision of 16 May 1986, ICSID Case no ARB/81/1, 1 ICSID Reports 509.
31 Landolt, P, ‘Limits on Court Review of International Arbitration Awards Assessed in the light of States’ Interests and in particular in light of EU Law Requirements’ (2007) 23 Arbitration International 63 CrossRefGoogle Scholar.
32 Case C-126/97 Eco Swiss v Benetton [1999] ECR I-3055, para 35.
33 Ibid, para 37.
34 Cf Case C-168/05 Mostaza Claro v Centro Móvil [2006] ECR I-10412, para 24: ‘[I]n the absence of relevant Community rules, the detailed procedural rules designed to ensure the protection of the rights which individuals acquire under Community law are a matter for the domestic legal order of each Member State, under the principle of the procedural autonomy of the Member States, provided that they are not less favourable than those governing similar domestic situations (principle of equivalence) and that they do not render impossible in practice or excessively difficult the exercise of rights conferred by the Community legal order (principle of effectiveness) …’
35 Ibid.
36 Ibid, para 36.
37 Ibid, para 38.
38 Telenor Mobile Communications AS v Republic of Hungary, ICSID Case no ARB/04/15, Award of 13 September 2006.
39 Directive 2002/22/EC of 7 March 2002 on universal service and users’ rights relating to electronic communications networks and services, [2002] OJ L108/51.
40 Telenor Mobile Communications AS v Republic of Hungary, ICSID Case no ARB/04/15, Award of 13 September 2006, para 47.
41 Ibid, para 47.
42 Ibid, para 50.
43 Saluka Investments BV v Czech Republic, Partial award of 17 March 2006, available at <http://ita.law.uvic.ca/documents/Saluka-PartialawardFinal.pdf>, accessed 9 July 2010.
44 Europe Agreement establishing an association between the European Communities and their Member States, of the one part, and the Czech Republic, of the other part, [1994] OJ L360/2.
45 Saluka Investments BV v Czech Republic, Partial award of 17 March 2006, available at <http://ita.law.uvic.ca/documents/Saluka-PartialawardFinal.pdf>, accessed 9 July 2010, para 438.
46 Ibid, para 439.
47 Ibid, paras 440–44.
48 ADC et al v Republic of Hungary, ICSID Case no ARB/03/16, Award of 2 October 2006.
49 Council Directive 96/97/EC of 20 December 1996 on the implementation of the principle of equal treatment between men and women in occupational social security schemes, [1997] OJ L46/20.
50 ADC et al v Republic of Hungary, ICSID Case no ARB/03/16, Award of 2 October 2006, para 272.
51 Eastern Sugar BV v Czech Republic, Partial award of 27 March 2007, SCC no 088/2004, available at <http://ita.law.uvic.ca/documents/EasternSugar.pdf>, accessed 9 July 2010.
52 Ibid, para 239.
53 Ibid, para 236.
54 Ibid, para 112 and paras 198–202.
55 Ibid, para 290.
56 An example of an arbitration in which a tribunal has actually taken into account EU law is Maffezini v Spain, ICSID Case no ARB/97/7, Award of 13 November 2000, 5 ICSID Reports 419. In relation to a claim under the Argentina–Spain BIT in connection with an investment in an enterprise for the production and distribution of chemical products in the Spanish region of Galicia, the tribunal was in agreement with Spain that the claimant should have been aware of the need for an environmental impact analysis (EIA) under both Spanish law and Directive 85/337/EEC, [1985] OJ L175/40. Such an EIA was therefore not conducted for political reasons, as Mr Maffezini had claimed. See paras 65–70 of the report.
57 Electrabel SA v Republic of Hungary, ICSID Case no ARB/07/19; AES Summit Generation Limited and AES-Tisza Erőmű Kft v Republic of Hungary, ICSID Case no ARB/07/22; Ioan Micula ea v Romania, ICSID Case no ARB/05/20.
58 Art 42(1) ICSID Convention, first sentence, provides that ‘[t]he Tribunal shall decide a dispute in accordance with such rules of law as may be agreed by the parties’. Art 33 of the UNCITRAL Arbitration Rules stipulates that a Tribunal will apply the law designated by the parties.
59 Gaillard, E and Banifatemi, Y, ‘The Meaning of “and” in Article 42(1), Second Sentence, of the Washington Convention: The Role of International Law in the ICSID Choice of Law Process’ (2003) 18 ICSID Review—Foreign Investment Law Journal 375 CrossRefGoogle Scholar. CfIgbokwe, VC, ‘Determination, Interpretation and Application of Substantive Law in Foreign Investment Treaty Arbitration’ (2006) 23 Journal of International Arbitration 267 Google Scholar. Art 33(1), second sentence, UNCITRAL stipulates that the tribunal shall apply ‘the law determined by the conflict of law rules which [the tribunal] considers applicable’.
60 Douglas, Z, The International Law of Investment Claims (Cambridge, Cambridge University Press, 2009) 40ffCrossRefGoogle Scholar. See also Dolzer, R and Schreuer, C, Principles of International Investment Law (New York, Oxford University Press, 2008) 270 CrossRefGoogle Scholar; Sacerdoti, G, ‘Investment Arbitration Under ICSID and UNCITRAL Rules: Prerequisites, Applicable Law, Review of Awards’ (2005) 20 ICSID Review—Foreign Investment Law Journal 1 Google Scholar, 23ff.
61 Occidental v Republic of Ecuador, LCIA Case no UN 3467, Award of 1 July 2004, 12 ICSID Reports 59.
62 Ibid, paras 148–50.
63 Ibid, para 150.
64 Ibid, para 152.
65 Art 31(3)(c) of the Vienna Convention requires the taking into account of ‘any relevant rules of international law applicable in the relations between the parties’. See Saluka Investments BV v Czech Republic, Partial award of 17 March 2006, available at <http://ita.law.uvic.ca/documents/Saluka-PartialawardFinal.pdf>, accessed 9 July 2010, para 254.
66 McLachlan, C, ‘The Principle of Systemic Integration and Article 31(3)(c) of the Vienna Convention’ (2005) 54 ICLQ 279 CrossRefGoogle Scholar.
67 Wehland, above n 1, 301.
68 See Sacerdoti, above n 60, 16ff.
69 Case C-459/03 Commission v Ireland (Mox Plant) [2006] ECR I-4635.
70 For an analysis of issues arising in this context, see Govaere, I, ‘Beware of the Trojan Horse: Dispute Settlement in (Mixed) Agreements and the Autonomy of the EC Legal Order’ in Hillion, C and Koutrakos, P (eds), Mixed Agreements Revisited—The European Union and the Member States in the World (Oxford, Hart Publishing, 2010) 187 Google Scholar; Hoffmeister, F and Ondrusek, P, ‘The European Community in International Litigation’ (2008) 61 Revue Hellénique de Droit International 205 Google Scholar; Rosas, A, ‘International Dispute Settlement: EU Practices and Procedures’ (2003) 46 German Yearbook of International Law 284 Google Scholar; Azoulai, L, ‘The Acquis of the European Union and International Organisations’ (2005) 11 ELJ 196 CrossRefGoogle Scholar.
71 Opinion 1/91 [1992] ECR I-6079, para 40.
72 Ibid, para 35. For an elaborate analysis of the concept of ‘autonomy’ of EU law, as well as its foundations, see Barents, R, The Autonomy of Community Law (The Hague, Kluwer Law International, 2004)Google Scholar; Weiler, JHH, ‘The Autonomy of the Community Legal Order: Through the Looking Glass’ in Weiler, JHH, The Constitution of Europe (Cambridge, Cambridge University Press, 1999) 286 Google Scholar; Schilling, T, ‘The Autonomy of the Community Legal Order—An Analysis of Possible Foundations’ (1996) 37 Harvard International Law Journal 389 Google Scholar.
73 Opinion 1/76 [1977] ECR 744, paras 17–22. The Court observed that the draft Agreement establishing a European laying-up fund for inland waterway vessels could be interpreted so as to give rise to conflicts of jurisdiction with the envisaged Fund Tribunal over the provisions of the Agreement. The Court further observed that this was so, in particular, because the Agreement would form an integral part of the Community legal order. See Opinion 1/76, para 18, with reference to Case 181/73 Haegeman v Belgian State [1974] ECR 449.
74 Opinion 1/91 [1992] ECR I-6079, paras 41–42.
75 Ibid, para 44.
76 Opinion 1/92 [1992] ECR I-2821, above n 29.
77 Ibid, para 19.
78 Ibid, para 36.
79 Opinion 1/91 [1992] ECR I-6079, para 35.
80 Ibid, para 34.
81 Ibid, para 35.
82 Opinion 1/00 [2002] ECR I-3493.
83 Ibid, para 16.
84 Such an exclusive function of the Court of Justice in the review of acts of the Union institutions and the Member States in the light of EU law is nothing peculiar to the EU legal order. See, eg, Art 23(2) of the WTO Dispute Settlement Understanding, which provides that the Members shall ‘not make a determination to the effect that a violation has occurred, that benefits have been nullified or impaired or that the attainment of any objective of the covered agreements has been impeded, except through recourse to dispute settlement in accordance with the rules and procedures of this Understanding’.
85 Opinion 1/91 [1992] ECR I-6079, para 46.
86 Opinion 1/00 [2002] ECR I-3493, para 13.
87 Ibid, para 17.
88 For an inventory of early Community practice with respect to including arbitration clauses in both bilateral and multilateral agreements, see Kuijper, PJ, ‘The European Communities and Arbitration’ in AHSoons, A (ed), International Arbitration: Past and Present (Dordrecht, Kluwer Law International, 1990) 181 Google Scholar.
89 Statement submitted by the European Communities to the Secretariat of the Energy Charter pursuant to Article 26(3)(b)(ii) of the Energy Charter Treaty, [1998] OJ L69/115.
90 Emphasis added.
91 Case C-459/03 Commission v Ireland (Mox Plant) [2006] ECR I-4635.
92 Ibid, para 36.
93 Ibid, para 37; Directive 85/337/EEC on the assessment of the effects of certain public and private projects on the environment, [1985] OJ L175/40.
94 Case C-459/03 Commission v Ireland (Mox Plant) [2006] ECR I-4635, para 82.
95 Ibid, para 121.
96 Ibid, paras 125–33.
97 Ibid, para 59.
98 Ibid, para 149.
99 Ibid, para 152.
100 Ibid, para 154. Although ex Art 292 EC refers only to ‘the Treaty’, it may be inferred that it thus extends to secondary legislation.
101 With regard to State–State disputes over the interpretation of an investment agreement, the Commission has taken the view that ‘[i]n so far as conflicts between Member States are concerned, it follows from Article 292 EC that the Member States cannot apply the settlement procedures provided for in the BITs in so far as the dispute concerns a matter falling under Community competence’; see Eastern Sugar BV v Czech Republic, Partial award of 27 March 2007, SCC no 088/2004, available at <http://ita.law.uvic.ca/documents/EasternSugar.pdf>, accessed 9 July 2010, para 119. Cf Eilmansberger, above n 1, 404.
102 Burgstaller, above n 1, 208.
103 Söderlund, above n 1, 458; Burgstaller, above n 1, 191. Though consider the situation where a company that is owned by one of the Member States brings proceedings against another Member State under an investment agreement. This was at issue in the case of Vattenfall, the proceedings of which were suspended on 15 March 2010; see Vattenfall v Germany, ICSID Case no ARB/09/6, request for arbitration of 30 March 2009.
104 Namely, Art 259 TFEU (ex Art 227 EC). See Case C-459/03 Commission v Ireland (Mox Plant) [2006] ECR I-4635, para 128.
105 Case 102/81 Nordsee v Reederei Mond [1982] ECR 1095, above n 20.
106 Case C-126/97 Eco Swiss v Benetton [1999] ECR I-3055, above n 21.
107 Slot, PJ, ‘The Enforcement of EC Competition Law in Arbitral Proceedings’ (1996) 1 Legal Issues of European Integration 101 Google Scholar.
108 See Landolt, above n 31.
109 According to Landolt, two features of EU law have worked in favour of non-interference with arbitration, including the arbitration of EU law matters. First, EU law shows deference to Member State judicial systems with regard to the enforcement of rights originating in EU law. Secondly, EU law provides for its enforcement in large part by virtue of duties which Art 4(3) TEU places upon organs of the Member State. See Landolt, P, Modernised EC Competition Law in International Arbitration (The Hague, Kluwer Law International, 2006) 98–104 Google Scholar.
110 Eg, Art 13(3) of the Czech Republic–Netherlands BIT provides that ‘[i]n respect of investments made before the date of the termination of the present Agreement the foregoing Articles thereof shall continue to be effective for a further period of fifteen years from that date’.
111 Kingdom of Belgium v Kingdom of The Netherlands (Iron Rhine Arbitration), Award of 24 May 2005, available at <http://www.pca-cpa.org/showpage.asp?pag_id=1155>, accessed 9 July 2010.
112 Ibid, para 4.
113 Ibid, para 14.
114 Ibid, para 14.
115 Ibid, para 106.
116 Ibid, para 107.
117 Ibid, para 113.
118 Ibid, paras 129–31.
119 Ibid, para 136.
120 Ibid, para 137.
121 Ibid, para 103. The tribunal took the view that it was in a position analogous to that of a domestic court within the Community, without considering whether it actually met the criteria under the Art 267 TFEU (ex Art 234 EC) preliminary reference procedure.
122 CfLavranos, N, ‘The Mox Plant and IJzeren Rijn Disputes: Which Court Is the Supreme Arbiter?’ (2006) 19 Leiden Journal of International Law 223 CrossRefGoogle Scholar, 241, arguing that the arbitral tribunal should have declined jurisdiction because EC law was potentially relevant in the dispute.
123 EnCana v Ecuador, LCIA Case no UN 3481, Award of 3 February 2006, 12 ICSID Reports 427, in particular paras 187–200.
124 Text to n 61 above.
125 EnCana v Ecuador, LCIA Case no UN 3481, Award of 3 February 2006, 12 ICSID Reports 427, para 187.
126 Ibid, para 200.
127 Cf Poulain, above n 1, 825.
128 Kingdom of Belgium v Kingdom of The Netherlands (Iron Rhine Arbitration), Award of 24 May 2005, available at <http://www.pca-cpa.org/showpage.asp?pag_id=1155>, accessed 9 July 2010, paras 15 and 98.
129 See AES Summit Generation Limited and AES-Tisza Erőmű Kft v Republic of Hungary, ICSID Case no ARB/07/22; and Electrabel SA v Republic of Hungary, ICSID Case no ARB/07/19.
130 Investment Arbitration Reporter (hereinafter: IAReporter), vol 1, nr 16, 11 December 2008, available at <www.iareporter.com>.
131 Commission Decision of 4 June 2008 on the State aid C 41/05 awarded by Hungary through Power Purchase Agreements, [2009] OJ L225/53. See also Commission Press Release of 4 June 2008, IP/08/850. The Commission Decision has subsequently been challenged by both AES and Electrabel before the General Court in the currently pending Cases T-468/08 AES-Tisza v Commission [2009] OJ C6/37, and T-179/09 Dunamenti Erőmű v Commission [2009] OJ C167/16. See also the ad hoc arbitration under the ECT between EDF International and Hungary, which is conducted under the UNCITRAL arbitration rules, and the challenge of the same Commission Decision before the General Court in Case T-182/09 Budapesti Erőmű v Commission [2009] OJ C180/52.
132 loan Micula ea v Romania, ICSID Case no ARB/05/20.
133 IAReporter, vol 2, nr 8, 11 May 2009.