Taking intra-EU investment disputes to investor home turf – new warfare of EU Member States
14. 03. 2023
When the CJEU pronounced its Achmea judgment on 6 March 2018, the European Commission and some EU Member States were in ecstasy, while scholars rushed to announce the quick and certain death of intra-EU arbitrations based on bilateral investment treaties and – with less certainty at the beginning – also the Energy Charter Treaty. In Achmea, the CJEU pronounced – in strong and sweeping terms – that such arbitrations were contrary to the EU law, and thus were inadmissible.
However, the pushback from arbitral tribunals has been considerable. With one single exception (Green Power vs. Spain), dozens of arbitral tribunals rejected the reasoning of the CJEU in Achmea and refused to give effect to that judgment. This was particularly the case in disputes held under the Energy Charter Treaty, which as a multilateral treaty to which also the EU is a party, had arguably a different legal status than the Netherlands-Slovakia treaty which provided the legal context for the Achmea arbitration.
And so, 5 years after Achmea was rendered, dozens of intra-EU arbitrations continue, either at the jurisdictional or the enforcement phase. Clearly, this 5-year period was full of developments, including the initiative to terminate all intra-EU bilateral investment treaties, modernize the Energy Charter Treaty, and lately, to abandon that treaty altogether by all EU Member States. In the meantime, the CJEU confirmed Achmea and extended its application on disputes under the Energy Charter Treaty in the Komstroy judgment. None of these actions have proven to be efficient enough to stop completely the progress of claims against Member States.
In what seems to be the latest trend in the legal defence strategy, some EU Member States, including Spain and Poland, have began to take investors to courts in their home jurisdictions, and demand state court judgments enjoining investors from pursuit of arbitral actions based on the ECT or intra-EU bilateral investment treaties. Such a legal strategy purports to take advantage of two legal mechanisms.
First, under domestic law of certain EU Member States, a state court may order that the judgment for specific performance is secured with an order imposing a periodic financial penalty upon non-conforming defendant. This is particularly true for the Netherlands and Luxembourg.
Second, state courts of the EU Member States are obliged to follow and give effect to the case-law of the CJEU, including Achmea and Komstroy.
The combination of these two factors made Spain and Poland believe that they can effectively deter corporate claimants incorporated in the Netherlands and Luxembourg from pursuing investor-state arbitrations by way of judicial proceedings, in which the state courts would be requested to order claimants to terminate the arbitrations, on the premise that claims pursued in the arbitration are against the EU law. If claimants do not comply with such judgments, they would have to pay fines accruing for each day of non-compliance, and high enough to have a deterring effect.
The judgment of 8 March 2023 issued by the Amsterdam court in the case of Poland vs. LC Corp is probably the first known ruling of a EU court in such action. Here, Poland requested the Dutch court to order a Dutch company LC Corp B.V. to terminate a pending UNCITRAL arbitration with a seat in London which is pursued based on the Netherlands-Poland bilateral investment treaty. Poland also requested a fine of EUR 1 million per each day to be ordered against investor, should it decide not to comply with the judgment. The substantive basis of the claim was a Dutch civil law provision on the abuse of right, since – according to Poland’s allegations – pursuit of a claim based on an intra-EU bilateral investment treaty did not have chances of prospect and was abusive.
The Dutch court, however, disagreed. It noted that the arbitral response to Achmea was largely negative and that the seat of this particular arbitration is placed outside the European Union. Accordingly, the Dutch court decided it could not determine, without interfering with the jurisdiction of the arbtiral tribunal and the subsequent jurisdiction of English courts under the UK Arbitration Act, if LC Corp’s claim was hopeless.
The Amsterdam judgment looks like the beginning of a new chapter of investor-state legal disputes in Europe. The decision does not settle anything, as it turns on the fact that the seat of the particular arbitration was outside the EU. It was also issued without a preliminary question being asked to the CJEU. If such question is asked, the CJEU could well decide that a court of the Member States is obliged by EU law to grant the relief requested by the plaintiff state, in order to ensure full effectiveness of EU law.
What could then investors do? One of the responses is an anti-suit injunction.
With an anti-suit injunction, the roles are reversed. Here, it is for investor to seek from a domestic court of a jurisdiction in which the arbitration is held, or enforcement of an award sought, to enjoin the state from pursuit of the actions such as those described above before Luxembourg and Dutch courts.
To that effect, on 15 February 2023, the judge in the District Court for the District of Columbia issued two anti-suit injunctions in cases NextEra and 9REN against Spain, enjoining Spain from pursuit of such judicial proceedings in, respectively, the Netherlands and Luxembourg. The US Court held it in one of the Memorandum opinions, “a preliminary injunction is an extraordinary and drastic remedy” but it was necessary here, as it was a purely defensive tool used to protect the jurisdiction of US courts which Spain attempted to eliminate by taking actions before Dutch and Luxembourg courts.
Conversely, in a decision issued earlier in 2022, and English High Court noted that as a matter of English law, anti-suit injunctions against states are not admissible. The decision was rendered in the context of a commercial (an insurance) dispute which did not include any elements of state sovereignty (except perhaps for the fact that it arose from the sinking of a Venezuelan army patrol vessel after a collision with an ice-classed cruise liner), so the state immunity defense was not available. The High Court, however, relied on Section 13(2)(a) of the 1978 State Immunity Act which stipulates that “relief shall not be given against a State by way of injunction or order for specific performance “. An anti-suit injunction as an order for specific performance was thus inadmissible against Venezuela even in a purely commercial context. By implication, it would be impossible also in the context of an ISDS dispute.
If any provisional conclusion stems today from these developments is that the legal battle between intra-EU investors and EU Members States has been moved to a new level. For claimant investors, it has become not only important to secure that the seat of the arbitration is based outside the EU, but also, to the extent the domestic law in the investor home state provides for legal measures similar to these available in the Netherlands or Luxembourg, to ensure that the seat of the arbitration is actually located in the United States (rather than in the UK).