Pierre Pic, Sara Nadeau-Seguin, Margaux Vandewalle
On 5 May 2020, 23 of the European Member States signed an Agreement for the Termination of Bilateral Investment Treaties between the Member States of the European Union (the “Termination Agreement”). The Termination Agreement is available here: https://ec.europa.eu/info/files/200505-bilateral-investment-treaties-agreement_en.
The Termination Agreement provides the investment community with further clarity in the wake of the now famous Achmea decision by confirming that investors cannot rely on intra-EU BITs and that the arbitration clauses contained in these treaties cannot serve as legal basis for intra-EU arbitration proceedings.
This brief note recalls the various developments that led to this Termination Agreement before describing its main provisions and turning to some of the questions that it leaves unanswered.
The background to the Termination Agreement: the Achmea saga
The Termination Agreement implements the March 2018 European Court of Justice (“ECJ”) judgment in the now well-known case of Slovak Republic v Achmea BV (“Achmea”). In this landmark judgment, the ECJ ruled that intra-EU BITs were incompatible with EU law.
A few months later, on 19 July 2018, the European Commission issued a communication in which it reaffirmed the application of Achmea to intra-EU arbitration but also, somewhat controversially, that Achmea equally applied to the Energy Charter Treaty (“ECT”).
This was followed by three declarations issued on 15 and 16 January 2019 by the 28 Member States. The first declaration, dated 25 January 2019, was signed by all Member States except Finland, Hungary, Luxemburg, Malta, Slovenia and Sweden, and stated that all States were bound to draw all necessary consequences from Achmea in relation not only to intra-EU BITs, but also the ECT. As a result, the Member States undertook to terminate all pending intra-EU BIT and ECT arbitrations. There were two additional declarations, issued on 16 January 2019 (one by Finland, Luxembourg, Malta, Slovenia and Sweden and another by Hungary) that omitted the main declaration’s conclusions and commitments regarding the ECT.
Finally, on 24 October 2019, EU Member States announced that they had reached agreement on a plurilateral treaty for the termination of intra-EU bilateral investment treaties, in line with the main declaration of January, whereby Member States committed to terminate their intra-EU BITs. This is the agreement that was signed on 5 May 2020.
What does the Termination Agreement say ?
The Termination Agreement was signed on 5 May 2020 by all Member States except Austria, Finland, Ireland and Sweden (that is, Belgium, Bulgaria, Croatia, Cyprus, the Czech Republic, Denmark, Estonia, France, Germany, Greece, Hungary, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia and Spain).
The terms of the Termination Agreement are broadly in line with the various developments that followed the Achmea decision and paved the way for the elimination of intra-EU BITs and arbitration.
The main takeaways are:
- Articles 2 and 3 of the Termination Agreement provide for the termination of the BITs listed in Annex A, including their sunset clauses (provisions that protect investments made prior to the termination of a BIT for a certain period, usually ten or twenty years, after the termination of the BIT in question). The sunset clauses contained in BITs which have already been terminated (listed in Annex B to the treaty) shall not produce any legal affect. As a result, the Termination Agreement terminates approximately 190 intra-EU BITs.
- Article 4 confirms that the Contracting Parties hold the arbitration clauses contained in intra-EU BITs as “contrary to the EU Treaties and thus inapplicable”. As a result of this incompatibility, Article 4 states that these arbitration clauses cannot serve as a basis for arbitration proceedings as of the date on which the last of the parties to the BIT become a Member State of the European Union.
- New Arbitration Proceedings (defined as proceedings initiated on or after 6 March 2018, i.e. post-Achmea judgment) are prohibited (Article 5).
- So-called “Concluded Arbitration Proceedings” (arbitration proceedings that ended with a settlement agreement or a final award on or prior to 6 March 2018) will not be reopened (Article 6). In other words, the Termination Agreement has no retroactive effect for arbitration proceedings that have definitely been concluded with a final award or settlement agreement prior to Achmea.
- For both “Pending Arbitration Proceedings” (arbitration proceedings initiated prior to 6 March 2018) and New Arbitration Proceedings, Member States must inform arbitral tribunals about the legal consequences of the Achmea judgment, and, where they are party to judicial proceedings concerning an arbitral award issued on the basis of an intra-EU BIT, to ask the competent court to set aside, annul or refrain from recognising and enforcing arbitral awards.
- Articles 8 and 9 set out further transitional measures for pending arbitration proceedings, providing for settlement procedures (Article 9). The Termination Agreement provides for a so-called “structured dialogue”, which allows the investor to initiate a settlement procedure with the Member State concerned, but only within six months from the termination of the relevant BIT. The settlement procedure is to be overseen by an “impartial facilitator” “with a view of finding between the parties an amicable, lawful and fair out-of-court and out-of-arbitration settlement”. The facilitator must reach a settlement agreement within six months, but parties can agree to a longer period.
- Article 10 safeguards the rights of a claimant in pending arbitration proceedings by providing that investors are entitled to access the judicial remedies under national law against a measure contested in the pending arbitration proceedings, even if time limits for bringing the action have expired – provided that they withdraw the arbitration or renounce an award already issued.
The Termination Agreement is subject to ratification and will only enter in force 30 days after the secretary-general for the council of the European Union, Jeppe Tranholm-Mikkelsen, receives a second instrument of ratification. Article 17 nevertheless provides for the provisional application of the treaty, which ensures the rapid application of the terms of treaty.
Outlook: what next ?
The Termination Agreement does not apply to the ECT, and therefore leaves open the question of whether Achmea applies to the ECT, and more generally, of whether the arbitration clause contained therein is incompatible with EU law. While the Member States have had differing views on this question, there is a long-standing trend of investment tribunals rejecting challenges to their jurisdiction on that basis. The preamble of the Termination Agreement states that the “European Union and its Member States will deal with this matter at a later stage”. The negotiations for ECT modernization that are now underway may provide more clarity on this issue in the coming months.
Leaving aside the question of the ECT, the Termination Agreement in and of itself raises a number of questions, particularly concerning its conformity with the legitimate expectations of investor claimants. The termination of the sunset clauses, for instance, will have particularly drastic consequences on investors who relied on these clauses to kick-in at the termination of the BITs. It remains to be seen whether arbitral tribunals will endorse the termination of the sunset clauses.
Likewise, the Termination Agreement only provides for limited transitional measures for pending proceedings. While parties to pending arbitration proceedings are encouraged to enter into a “structured dialogue” with a view to settling their case, the Termination Agreement does not explain what happens to the proceedings when no settlement can be reached.
All in all, while the Termination Agreement does intend to put an end to the Achmea saga once and for all and put an end to the intra-EU BITs, there remain unanswered questions which will become clearer in the next months as we watch Member States implement their obligations under the Termination Agreement. Domestic courts, arbitral tribunals, and eventually the ECJ will also likely provide additional clarifications on these issues.
About TEYNIER PIC
Created in 2004 by Eric Teynier and Pierre Pic, TEYNIER PIC is the premier independent French boutique dedicated to dispute resolution. TEYNIER PIC boasts exceptional expertise in international arbitration, commercial and investment, as well as in arbitration-related litigation and the enforcement of awards. The firm’s partners are also renowned experts both in domestic and international complex commercial litigation. Additionally, the firm advises its clients in mediation.
TEYNIER PIC set up a strategic alliance with GRIFFIN LITIGATION PLLC (London and New York), another boutique firm specialised in international arbitration and in the enforcement of international arbitral awards.
The firm counts four partners, one counsel and a dozen of associates and trainee lawyers.
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