An Award rendered on 16 June 2022 by a Stockholm-seated Arbitral Tribunal unleashed a foreshadowed earthquake regarding intra-EU investment protection disputes. The Tribunal declined jurisdiction based on the intra-EU nature of the dispute, which arose after two Danish companies had invested in Spanish photovoltaic power plants. Spain had altered its regulatory framework applicable to solar energy to the detriment of investors in the aftermath.
The intra-EU objection raised by the Respondent has its origin in the CJEU’s Achmea and Komstroy saga. In Achmea, the CJEU held that Arts. 267 and 344 TFEU must be interpreted as precluding a standing offer to arbitrate in case of an intra-EU BIT dispute. In Komstroy, the CJEU declared that the findings of Achmea were also applicable to intra-EU ECT disputes. Recently the Court even reaffirmed the Komstroy Judgement in Opinion 1/20 regarding the draft of the modernised Energy Charter Treaty.
The Award rendered under the Energy Charter Treaty (ECT) and the arbitration rules of the Stockholm Chamber of Commerce (SCC) marks the first time an arbitral tribunal has denied its jurisdiction (ratione voluntatis) because of the intra-EU objection raised by the Respondent. Although the Award addresses issues of International Investment Law, it could have a far-reaching impact due to the Tribunal’s approach regarding the multi-level system of Public International Law, EU-Law, and domestic law. The arbitrators in Green Power, SCE v. Spain unanimously reached their decision in three steps.
First Step: The law applicable to the Determination of Jurisdiction
The gateway question for the intra-EU objection in an arbitral proceeding lies in the law applicable to jurisdiction. Here the Tribunal made use of its Kompetenz-Kompetenz and ex officio considered all relevant factors that affect the principle and scope of its jurisdiction.
Initially, the Tribunal denied that the Parties agreed on the law applicable to jurisdiction. In the view of the Tribunal, Art. 26 (6) ECT only determines the law applicable to the merits. This reasoning, found in an interpretation of Art 26 (1), (6) ECT, is convincing due to the wording of Art 26 (1) ECT.
In the absence of an explicit or implicit agreement, the Tribunal then used Art. 26 ECT as a starting point for determining the applicable law. However, it clarified that „[o]ther provisions of the ECT and of international law, whether customary or treaty law, may also be relevant and applicable.“
The arbitrators emphasised that an arbitral tribunal constituted under the rules of the SCC, contrary to an ICSID arbitral tribunal, has a seat. A seat enables a tribunal to apply the law of the seat of the arbitration (lex loci arbitri), which is domestic law. In the case at hand, the seat was Stockholm, thus leading to the application of Swedish arbitration law, particularly the Swedish Arbitration Act (SAA), as the applicable lex arbitri. Pursuant to Section 48 SAA, Swedish law, i.e. the law of the seat, applies to determining jurisdictional matters. The Tribunal stated – recalling Achmea and Komstroy – that the selection of the seat in an EU Member State causes EU law to apply as part of every EU Member State’s legal order.
However, the Tribunal also observed that neither international nor national law exclusively determines all questions relating to jurisdiction. Hence, to determine the Tribunal’s jurisdiction, international law, national law, and EU law are simultaneously applicable „regardless of whether […] [EU] law is characterised as part of international law or as part of domestic law“.
The Tribunal thus opened the door to applying EU law for the first time, elucidating how important the investors‘ choice of the forum becomes in hindsight. For example, the tribunal in Vattenfall v. Germany was constituted under the ICSID Convention. Such tribunals do not have a seat, so no lex loci arbitri can be applied.
Therefore, EU Member States have a clear home advantage if the Tribunal has a seat and especially when it is within the EU. It is hardly possible to criticise the Award here. After all, the approach taken by Tribunal was set by the investors‘ choice of forum. Thus, there was no real leeway.
Second Step: Interpreting Article 26 ECT without resorting to EU law is inconclusive in the circumstances of this case
The Tribunal started with a general statement that a distinction „between separate planes [(international law, EU law and domestic law)] is artificial […].“ Furthermore, in evaluating the intra-EU objection, one „must overcome the binary logic of an either ‚insider‘ or ‚outsider‘ perspective with respect to EU law […].“ These statements seem to address not only the Parties but also the CJEU, who has made this distinction regarding arbitral tribunals (Achmea, paras. 46 et seq.; Komstory, paras. 51 et seq.).
Applying its guidelines, the Tribunal first interpreted Art. 26(3)(a) ECT. According to the clause, each Contracting Party „gives its unconditional consent to the submission of a dispute to international arbitration.“ Thus, Art. 26(3)(a) ECT constitutes the unilateral offer to arbitrate, and the wording does not contain an explicit exception for intra-EU disputes. Although the wording seems unambiguous, the Tribunal’s interpretation did not end there. Instead, remarkably, it criticised other tribunals for failing to continue interpreting at this point.
Consequently, the Tribunal provided a detailed interpretation in order to identify whether consent has or has not been given for intra-EU disputes. Here, two findings attract particular attention.
First, the Tribunal held that an EU’s statement to the Secretariat of the Energy Charter at the time of ratification exposes unequivocal indications that the consent had only been granted conditionally. Therefore, it concluded: „[…] [T]he EU saw the EU legal system as the natural means of dispute settlement of investor claims, and therefore withheld its unconditional consent to arbitration.“
The second remarkable deviation of the Tribunal concerns the 2019 Achmea Declaration. This Declaration signed by 22 EU Member States stated that Art. 26 ECT should be „disapplied“ in the intra-EU context because this would be incompatible with Arts. 267, 344 TFEU. Even though the Declaration was issued after the commencement of the proceedings, the Tribunal nevertheless considered it as an authentic interpretation of the instrument of consent.
Taken in isolation, one may imply that the Declaration is an attempt at retroactive modification disguised as an authentic interpretation. Moreover, in line with InfraRed v. Spain, one could hold that the Declaration was not adopted within the EU legal order and is not an EU instrument. Additionally, not all EU Member States joined this Declaration. Thus, the statement’s significance for the interpretation would have to be assessed as marginal. On the contrary, one could evaluate the Declaration in combination with the statement at the time of ratification. Therefore, it manifests the will of at least 22 EU Member States (including Denmark and Spain).
Discussions about the value of an authentic interpretation were also raised in the context of NAFTA disputes e. g. Methanex v. United States of America. Certainly, the arguments concerning the NAFTA disputes could be used again regarding this Award.
Ultimately, questions regarding both declarations will presumably have little practical relevance regarding the ECT in the future due to its modernisation. A clarification expressis verbis was implemented (see outlook).
The Tribunal concluded that interpreting Art. 26 ECT without resorting to EU law is inconclusive in this case.
Third Step: Applying the relevant Norms of EU law
The Tribunal considered that the doubts which may have persisted after Achmea had been dispelled by the Komstroy Judgement. Hence, it saw no support for distinguishing between an intra-EU BIT dispute and an intra-EU ECT dispute. It once more stressed the fundamental difference between other intra-EU ECT ICSID arbitrations and its own case. Intra-EU ECT ICSID arbitrations did not consider the relevance of the applicable law chosen by the selection of the seat in an EU Member State for jurisdictional matters.
Finally, the Tribunal eliminated the consent as the proceeding’s fundament in para. 445 of the Award: „[…] Spain’s offer to arbitrate under the ECT is not applicable in intra-EU relations and hence there is no offer of arbitration that the Claimants could accept.“
Further below, the Tribunal supported this finding with the autonomy and primacy of EU law in the relations between the EU Member States. The conflict rule contained in Art. 16 ECT should not be applicable. The non-applicability of Art. 16 ECT is not a matter of lex specialis or posterior but one of lex superior. Thus, Arts. 267 and 344 TFEU are superior to Arts. 16, 26 ECT. Viewed in isolation, this conclusion might seem extraordinary. EU law shall be superior to a Public International Law treaty? However, due to the particularities of the case, especially the intra-EU nature as well as the referral to EU law, the conclusion could be deemed as just the application of fundamental principles of EU law. Contrary, one could have doubts concerning this conclusion because it appears to be against the wording of Art. 16 ECT. In Vattenfall v. Germany, the arbitrators had applied Art. 16 ECT as lex specialis stating that for an opposite result, the Contracting Parties would have needed to include an explicit wording to that effect in the ECT. Meanwhile, the Contracting Parties handled the matter differently (see outlook).
Conclusion: Impact and Consequences of the Award
As a consequence of the procedural specificities of the arbitration proceedings, the Award by the SCC Tribunal will unlikely mark the turning point for intra-EU disputes and their adjudication by ISDS Tribunals. However, the following conclusions can be drawn:
First, the importance of the seat and lex loci arbitri becomes a critical factor for pending intra-EU non-ICSID ECT proceedings. Having a seat, these Tribunals‘ decisions on jurisdiction will probably be subject to judicial review by national courts in setting-aside or enforcement proceedings. An example is the set-aside decision of the Paris Court of Appeal in Slot Group v. Poland. The Tribunal also noted that while the Svea Court of Appeal had not yet clearly opined on the matter, it had decided to withdraw its request for a preliminary ruling from the CJEU after the Komstroy Judgment was released – indicating that the Swedish court would agree with the CJEU’s findings. Assuming that is the situation, it is improbable that the investors will turn the tide again.
However, Investors might, in the future, circumvent the uncertainty associated with the seat and lex loci arbitri through two possibilities: ’nationality shopping‘ or initiating the proceedings under the ICSID Convention.
‚Nationality shopping‘ is the practice by which an investor channels its investment through a country other than the investor’s home State in order to gain access to the more favourable standards of protection available for investors of such third country. Firm limits on its legitimacy or illegitimacy are not yet established.
Due to ICISD tribunals’ international character, they do not have a seat, so at least here, no lex loci arbitri applies. Therefore, dissenting decisions on the jurisdiction under the ICSID Convention are still to be expected. Consequently, one could raise the question of how appropriate the reference to the lex loci arbitri is in non-ICSID arbitrations or whether the determination of the law applicable to jurisdiction should not be linked to other more appropriate connecting factors.
Second, the real innovation introduced by the decision is not the application of Achmea and Komstroy by the Tribunal but much more of a fundamental nature: The application of EU law in interpreting the ECT in an intra-EU dispute.
Regarding new intra-EU ECT disputes, a ‚public communication‚ of the Energy Charter Conference announced that a new article has been introduced in the modernised treaty. This amendment clarifies that Art. 26 ECT shall not apply among Contracting Parties that are members of the same Regional Economic Integration Organisation. The approvement and ratification will irreversibly prevent intra-EU applications under the ECT, as the European Commission declares. Hence, these news could trigger several notices of dispute.
In conclusion, the Award could guide pending cases; however, for new disputes, the contracting states have already solved the issue in a DIY manner. Whether the modernised ECT will silence the voices demanding the EU’s withdrawal from the agreement seems doubtful. Spain, for example, considers that even the modernised ECT puts the climate goals of the Paris Agreement and the European Green Deal in jeopardy.