European Law and Investment Treaties: Exploring the Grey Areas

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European Law and Investment TreatiesExploring
the Grey Areas
Investment Arbitration under Intra-EU BITs

• Prof. Dr. Christian Tietje, LL.M.
• Transnational Economic Law Research Center
• University Halle-Wittenberg
• tietje_at_jura.uni-halle.de
• London, 4 December 2008

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Outline

• The Debate Background
• The Legal Issues
• Applicable Law Inevitably Different Perspectives
• Public International Law as Applicable Law
• EC law is not public international law
• MS have full competence to conclude BITs
• Conflicts between Intra-EU BITs and EC Law are
  only a matter of EC Law
• Consequence Necessity of disconnection clause
• Assuming arguendo EC Law is Applicable
• Art. 59, 30 VCLT?
• Conflicts between EC Law and BITs?
• Substantial provisions
• Conflicting jurisdiction ECJ / Tribunal

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The Debate Background (1)

• 191 BITs between EU Member States
• Mostly between old and new Member States
• Reason BITs concluded after 1989 in order to
  promote economic relations after opening up of
  Eastern Europe
• Eastern Sugar B.V. (Netherlands) v. The Czech
  Republic, UNCITRAL ad hoc Arbitration, SCC No.
  088/2004, Partial Award of 27 March 2007
• Czech Republic argued against jurisdiction
  because of EC law
• Quotes from internal EU Commission documents

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The Debate Background (2)

• EU Commission, INTRA-EU BILATERAL INVESTMENT
  TREATIES (Note for the Alternates of the Economic
  and Financial Committee) 2007
• Community law, including the jurisdiction of
  the Court of Justice, prevails from the date of
  accession. However, the transitional situation
  until the BITs are formally terminated may result
  in complex questions of interpretation with
  regard to jurisdiction in particularly with
  regard to pending arbitration procedures but also
  in relation to rules which provide for an
  extended application of the agreement in a
  certain period after termination.

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The Debate Background (3)

• EU Economic and Financial Committee see Art. 114
  (2) EC Treaty, Annual Report to the Commission
  and the Council on the Movement of Capital and
  the Freedom of Payments, 23 November 2007
• 15. Most Member States do not share the
  Commission's concern about arbitration risks and
  discriminatory treatment of investors. A clear
  majority of Member States prefers to maintain the
  existing agreements, in particular with view to
  the provisions on expropriation, compensation,
  protection of investments and investor-to-state
  dispute settlement. Still, a few Member States
  are seeking a solution for this issue. The EFC
  takes note that it remains the responsibility of
  Member States that have been informed of the
  Commission's concerns to address the issue
  through bilateral actions and therefore invites
  Member States to do what is necessary in this
  regard. The EFC will continue monitoring
  developments in this respect and will come back
  on this issue in its next report.

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Legal Issues (1)Applicable Law Inevitably
Different Perspectives

• EC law as applicable law
• Supremacy of EC law
• Even if no EC competence, MS are obliged to
  exercise remaining competences in compliance with
  EC law, namely fundamental freedoms
• Public international law as applicable law in
  investment arbitration
• Jurisdiction of Tribunal
• The question of whether the parties have
  effectively expressed their consent to ICSID
  jurisdiction is not to be answered by reference
  to national law. It is governed by international
  law as set out in Article 25(1) of the ICSID
  Convention (CSOB v. Slovakia, ICSID Case No.
  ARB/97/4, Decision on Jurisdiction of 24 May
  1999, para. 35)
• Merits
• If BIT is bases for jurisdiction, in most cases
  BIT is also applicable law concering merits
• EC law or national law applicable only as
  facts, i.e. preliminary or incidental
  questions

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Legal Issues (2)Public International Law as
Applicable Law

• EC Law as public international law?
• Original EC Treaties are public international law
  treaties
• However
• By Contrast with Ordinary International
  Treaties, the EEC Treaty has created its own
  legal system (ECJ, Case 6/64, Judgment of 15
  July 1964 Flaminio Costa v E.N.E.L.)
• Primary EC law is superior to public
  international law (see Art. 300 (6) ECT)
• Public international law may become an integral
  part of community law (ECJ, Case 181/73,
  Judgment of 30 April 1974 Haegeman)

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Legal Issues (3)Public International Law as
Applicable Law

• EC Law as public international law?
• EC Law considers itself not to be public
  international law
• For a Tribunal EC law is thus the same as
  domestic law of a State
• Consider also
• Differentiation between
• Limited competences of EC and remaining
  competences of MS (Art. 5 (1) ECT)
• EC law obligation to act in conformity with EC
  law in areas of remaining MS competences

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Legal Issues (4)Public International Law as
Applicable Law

• Limited competences of EC and remaining
  competences of MS (Art. 5 (1) ECT)
• If no EC competence in a specific subject area,
  MS remain full subjects of international law,
  thus they are capable to conclude treaties
  inter-se
• Recent Example Convention between the Kingdom
  of Belgium, the Federal Republic of Germany, the
  Kingdom of Spain, the French Republic, the Grand
  Duchy of Luxembourg, the Kingdom of the
  Netherlands and the Republic of Austria on the
  stepping up of cross-border cooperation,
  particularly in combating terrorism, cross-border
  crime and illegal migration, signed in Prüm
  (Germany) on 27 May 2005.
• External EC has (currently) not BIT competence
  with regard to third countries (only EC
  competence concerning admission of FDI)
• Internal Art. 43, 56 ECT (freedom of
  establishment and free movement of capital and
  payments) are not exclusive EC competences

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Legal Issues (5)Public International Law as
Applicable Law

• Situation is similar to double taxation
  conventions (DTAs) of MS
• It must be pointed out in that regard that, in
  the absence of any unifying or harmonising
  Community measures, Member States retain the
  power to define, by treaty or unilaterally, the
  criteria for allocating their powers of taxation,
  particularly with a view to eliminating double
  taxation. In exercising the powers of
  taxation allocated under them, the Member States
  are obliged to comply with the rules of Community
  law (ECJ, Case C-524/04, Judgment of 13 March
  2007, para. 49, 53 - Test Claimants)

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Legal Issues (6)Public International Law as
Applicable Law

• Dont get confused
• The Court has consistently held that, in
  matters governed by the EEC Treaty, that Treaty
  takes precedence over agreements concluded
  between Member States before its entry into
  force. (ECJ, Case 235/87, Judgment of 27
  September 1988, para. 22 - Annunziata Matteucci)
• This is true from the perspective of EC law
• However, EC law does not effect situation under
  public international law

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Legal Issues (7)Public International Law as
Applicable Law

• Consequences (1)
• Intra-EU BITs are within competence of MS
• EC law and public international law are separated
  legal orders
• Thus, from the perspective of international law
  the validity of intra-EU BITs can not be affected
  by EC law
• Art. 59 VCLT (Termination or suspension of the
  operation of a treaty implied by conclusion of a
  later treaty) is not applicable as there are no
  two treaties
• Art. 30 (3) VCLT (the earlier treaty applies only
  to the extent that its provisions are compatible
  with those of the later treaty) is not applicable
  for the same reason
• Incompatibilities are exclusively a matter of EC
  law (MS may violate EC law while acting under a
  BIT) but not a concern of Arbitral Tribunal

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Legal Issues (8)Public International Law as
Applicable Law

• Consequences (2)
• Necessity (from perspective of international law,
  not EC law) of disconnection clause in inter se
  agreements between MS
• Example Art. 47 (1) Prüm-Convention
• The provisions of this Convention shall apply
  only in so far as they are compatible with
  European Union law. Should the European Union in
  future introduce arrangements affecting the scope
  of this Convention, European Union law shall take
  precedence in applying the relevant provisions of
  this Convention.

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Legal Issues (9) Assuming arguendo EC Law is
Applicable

• Art. 59 VCLT (termination/suspension)
• same subject matter
• BIT treatment standards, expropriation and
  arbitration
• EC
• Freedom of establishment (Art. 43 ECT) and free
  movement of capital and payments (Art. 56 ECT) do
  probably provide same standards as BIT treatment
  standards
• However
• expropriation explicitly not EC competence (Art.
  295 ECT)
• No possibility in EC law for investor to directly
  sue MS

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Legal Issues (10) Assuming arguendo EC Law is
Applicable

• Art. 59 VCLT
• parties intended that the matter should be
  governed by the later treaty (lit. a)
• MS do not agree (see above)
• the provisions of the later treaty are so far
  incompatible with those of the earlier one that
  the two treaties are not capable of being applied
  at the same time
• (-) as EC law obligations of MS remain uneffected
  by BIT
• Art. 30 (3) VCLT (lex specialis application)
• Same problems as above

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Legal Issues (11) Assuming arguendo EC Law is
Applicable

• Conflict between EC law and BIT?
• Discrimination of EU citizens (Art. 12 ECT)
• Because rights under BIT are only available for
  own nationals (exporting perspective)
• As regards, specifically, the refusal to grant
  to permanent establishments of non-resident
  companies the international group relief provided
  for by a bilateral agreement, concluded in order
  to prevent double taxation, finds no
  justification in the fact that the Member States
  are at liberty, in the framework of such
  agreements, to determine the connecting factors
  for the purposes of allocating powers of taxation
  as between themselves. As far as the exercise of
  the power of taxation so allocated is concerned,
  the Member States nevertheless may not disregard
  Community rules, under which the national
  treatment principle requires a Member State which
  is party to the agreement to grant to permanent
  establishments of non-resident companies the
  advantages provided for thereunder on the same
  conditions as those which apply to resident
  companies. (ECJ, Case C-307/97, Judgment of 21
  September 1999 - Saint-Gobain)
• However, under BIT, rights are granted not by
  home state, but by host state

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Legal Issues (12) Assuming arguendo EC Law is
Applicable

• Conflict between EC law and BIT?
• Discrimination of EU citizens (Art. 12 ECT)
• Because rights under BIT are only granted to
  nationals of one other MS (importing
  perspective)
• Articles 56 EC and 58 EC do not preclude a rule
  laid down by a bilateral convention for the
  avoidance of double taxation which states that
  natural persons resident in one of the two States
  are entitled in the other to the personal
  allowances which are granted by it to its own
  residents from not being extended to residents of
  a Member State which is not party to that
  convention. The fact that the reciprocal rights
  and obligations flowing from such a convention
  apply only to persons resident in one of the two
  Contracting Member States is an inherent
  consequence of bilateral double taxation
  conventions. (ECJ, Case C-376/03, Judgment of 5
  July 2005, - D)
• No MFN treatment in EC law (disputed)

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Legal Issues (13) Assuming arguendo EC Law is
Applicable

• Conflict between EC law and BIT?
• Conflicting jurisdiction ECJ/Investment Tribunal?
• Art. 292 ECT (ECJ, Case C-459/03,
  Commission/Ireland, Judgment of 30 May 2006 - MOX
  plant)
• Not applicable
• Refers exclusively to disputes between MS
• Refers only to procedures as provided for in ECT
• No Investor-State procedure in ECT

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