Europe: EU member states agree to terminate the intra-EU investments protection agreement
Historically, a dense network of mutual investment protection agreements has developed among countries. Violations of investment protection are litigated before international arbitration courts, whose judgements are enforceable worldwide. Such investment protection agreements – still – exist between different states of the EU. One of the best known proceedings is the action brought by the Swedish Vattenfall Group against the Federal Republic of Germany due to the nuclear exit, which has been litigated before an arbitration court in Washington for years. So far, companies worldwide have a strong lever available in order to protect their investments abroad against state discrimination and arbitrariness.
In an agreement dated 15 January 2019, the EU Member States have now decided to cancel all intra-European bilateral investment treaties (Intra-EU-BITs) by the end of 2019. They see this as a necessary consequence of the European Court of Justice decision dated 6 March 2018 in the Achmea matter, according to which investment-state arbitration proceedings, based on such intra-EU-BITs, were ruled a violation of European law. These include also so-called sunset clauses that grant protection to the investors for a long period of time even after termination of the contracts. Investors are requested not to begin new proceedings. Existing arbitration claims are no longer to be fulfilled and enforced. Already completed arbitration claims are not to be reopened again. Disagreement exists, however, with regard to the impact of the European Court of Justice decision on the Energy Charter Treaty (ECT), based on the Vattenfall/Germany case.
The consequences for investors
This decision is initially a step back for investors. As Europe is not known to be a sacred island in terms of investment protection: Discrimination, unfair treatment and legal protection deficiencies do not just exist in the Central and Eastern European countries. Also the brutality by which the exit from nuclear energy in Germany was enforced in 2011 may have surprised many. European investors have also made their investments trusting they were protected from unfair treatment and expropriation not only by internal market law, but also by the Intra-EU-BITs and being able to enforce their rights in arbitration proceedings. Now, with the loss of this additional protection without a replacement, investors could bring their disputes locally and negatively influence the investment climate within the EU; the Council has not yet carried out the assignment of the Commission to develop an alternative legal protection instrument.
Particularly in times of oscillating appreciation for the rule of law and independent courts, the de facto abolition of the investment arbitration jurisdiction, virtually overnight, is a regrettable step backward. Even in the case of investments within the EU, the risk of lack of legal protection must now be priced in.
Author: Heiko Hellwege