Client Alerts

Time to consider restructuring – The European Commission commences infringement proceedings against intra-EU BITs

Volterra Fietta Client Alert
19 June 2015

On 18 June 2015, the European Commission (the “Commission“) initiated infringement proceedings against Austria, The Netherlands, Romania, Slovakia and Sweden (the “Respondent Member States“) in relation to intra-EU bilateral investment treaties (“intra-EU BITs“) presently in force and to which the Respondent Member States are parties. The Commission has sent letters of formal notice requesting that the Respondent Member States bring the intra-EU BITs to an end.

The Commission has also requested information from and commenced an administrative dialogue with the remaining 21 Member States which still retain intra-EU BITs.

The Respondent Member States are required to reply to the letters of formal notice sent by the Commission within 2 months. The Commission will hold a meeting with all 28 EU Member States in October 2015 to provide assistance for the coordinated termination of all intra-EU BITs.

The Commission’s position

The Commission considers that intra-EU BITs are incompatible with EU law because they fragment the single market by conferring greater rights on some EU investors than on others, on the basis of their nationality. According to the Commission, such discrimination on the basis of nationality is incompatible with EU law. The Commission also argued in a recent case that the payment of compensation to an investor on the basis of an award rendered under an intra-EU BIT would, in the specific circumstances of the case, constitute illegal State aid under EU law and that such an award would be unenforceable within the EU.1

The Commission has taken a robust approach, filing (or seeking leave to file) amicus curiae briefs in a number of recent investment tribunal proceedings, in each arguing that the arbitral tribunal should decline jurisdiction.2 The Commission argues that such claims necessarily involve issues of EU law and therefore the appropriate forum for their resolution is the European Court of Justice.

The position of investment tribunals

Investment arbitration tribunals have consistently3 assumed jurisdiction over claims based on intra-EU BITs. They have uniformly held that such BITs are not incompatible with EU law and in any event remain in force until their formal termination. In particular, investment tribunals have found that BITs afford investors additional protections stemming from legal sources other than EU law, in particular the guarantee provided by the right to international arbitration.

Moreover, investment arbitration tribunals have to date unanimously concluded that there is no rule of EU law prohibiting investor-State arbitration. They have also noted that the European Court of Justice has provided guidance on how questions of EU law should be considered in the course of arbitration proceedings.4

Investment protection

It is conceivable that at some point in the future EU Member States will proceed, either voluntarily or under compulsion, to terminate their intra-EU BITs, as requested by the Commission. This may potentially leave investors who have structured their investments in reliance on such BITs without directly applicable BIT protection for their investments within the EU. It may also leave EU Member States exposed to various forms of unwelcome consequences in terms of their State responsibility under public international law (with which the Commission does not always seek to apply EU law consistently).

Investors with investments located in EU Member States (particularly such investors based themselves in the EU) that are presently relying on EU BITs are advised to consider restructuring their EU investments in such a way that a holding company based in a non-EU country, which has an appropriate BIT with a relevant EU country, is interposed at an appropriate point in the corporate ownership chain. Depending on the EU country involved, several potential holding company host states offer advantageous and substantive investor protection in addition to stable legal and political systems.

In addition, both EU Member States and non-EU Member States are advised to consider responding carefully to the challenges that this development may present to their obligations under public international law and their objectives under economic policies.

(1) Ioan Micula and others v. Romania, Award, 11 December 2013, ICSID Case no. ARB/05/20, para. 330.
(2) AES Summit Generation Limited and another v Republic of Hungary, Award, 23 September 2010, ICSID Case no. ARB/07/22, para. 8.2; Electrabel S.A (Belgium) v. Republic of Hungary, Decision on Jurisdiction, Applicable Law and Liability, 30 November 2012, ICSID Case no. ARB/07/19, para. 5.20 (cited para. 61); Ioan Micula and others v. Romania, Award, 11 December 2013, ICSID Case no. ARB/05/20, paras 316-317.
(3) AES Summit Generation Limited and AES-Tisza Erömü Kft v. The Republic of Hungary, Award, 23 September 2010, ICSID Case No. ARB/07/22, para. 16.1; Electrabel S.A (Belgium) v. Republic of Hungary (2012) ICSID Case No. ARB/07/19, Decision on Jurisdiction, Applicable Law and Liability, 30 November 2012, paras 5.31-5.38; Ioan Micula and others v. Romania, Award, 11 December 2013, ICSID Case no. ARB/05/20, paras 284-285.
(4) Eureko B.V. v. The Slovak Republic, PCA Case No. 2008-13, Interim Award on Jurisdiction, 26 October 2010, para. 274.