Rimantas Daujotas, Motieka & Audzevicius PLP*
As it was recently announced, Slovakia has succeeded in referring the legality of intra-EU bilateral investment treaties to the European Court of Justice, as part of its bid to stop Dutch insurer Achmea from enforcing a €22 million UNCITRAL award. In a decision on 3 March 2016, Germany’s Federal Court of Justice ruled that it would make a preliminary reference to the ECJ on the question of whether the arbitration clause in the Slovakia-Netherlands bilateral investment treaty conflicts with EU law.
Achmea won the award in 2012 from a tribunal at the Permanent Court of Arbitration in The Hague. The tribunal found the state had breached the Slovakia-Netherlands BIT when it adopted measures prohibiting private health insurers from distributing profits to shareholders. Those measures were overturned by Slovakia’s Constitutional Court in 2010.
But Slovakia argued that the tribunal lacked jurisdiction because the BIT’s offer to arbitrate disputes expired when the state acceded to the European Union. It also contended that the tribunal failed to apply EU law, which the state argued forbids arbitration of investor-state disputes under intra-EU BITs where questions of EU law are involved.
In 2014, the Higher Regional Court of Frankfurt am Main dismissed Slovakia’s argument, ruling that the EU law in question merely prevents member states from submitting EU law disputes with one another to arbitration. Disputes between states and EU national private investors, the court said, could still go to arbitration. Based on the decision of 3 March 2016 by Germany’s Federal Court of Justice, that question will now go to the European Court of Justice to be decided.
The preliminary reference asks the ECJ to consider whether the BIT’s arbitration clause is consistent with Article 344 of the EU Treaty, which provides that “member states undertake not to submit a dispute concerning the interpretation or application of the [EU] Treaties to any method of settlement other than those provided for therein.” It also asks whether the arbitration clause in the Netherlands-Slovakia BIT constitutes discrimination against EU nationals whose home states do not have such a treaty with either the Netherlands or Slovakia, and therefore cannot benefit from the treaty’s arbitration clause. It notes, however, that should the clause be ruled discriminatory, that would not necessarily make it a dead letter: rather, the court suggests, any EU national might be able to access the arbitration clauses of any intra-EU BIT.
The last point of the Germany’s Federal Court ruling is particularly interesting, as it potentially argues on the possibility of any EU national to be able to access the arbitration clauses of any intra-EU BIT. Scholars and practitioners, such as Nikos Lavranos, secretary general of ISDS think tank EFILA, said that EU discrimination law might open the BITs’ arbitration provisions up to all EU nationals – “All EU investors should be treated the same, even if formally the BITs only apply to the signatory parties and their nationals, they should under EU law be open to all EU investors. We all have EU nationality, and discrimination on grounds of nationality is clearly prohibited under the treaties. The BITs have to be interpreted in light of that aspect of the EU treaties”.
The argument that all EU companies have EU nationality is particularly relevant. Similar issue was raised by the respondent in Poštová banka and Istrokapital v. Greece where the Respondent argued that as a societas europeas (“SE”), Istrokapital was formed and existing under the law of the EU and not under Cypriot law. In view of the fact that the EU is not a Contracting State of the ICSID Convention, Istrokapital allegedly did not qualify as an investor under Article 25(1) of the ICSID Convention. In addition, the Respondent contended that if, due to its SE nature, Istrokapital was considered to have been incorporated in Cyprus, as Claimants claimed, it had to be equally considered as incorporated in any of the other EU Member States, including Greece, and would therefore bear Greek nationality as well.
Claimants, on the other hand, argued that the nationality of a juridical person under Article 25(1) of the ICSID Convention is determined by its place of incorporation or registered office. Thus Claimants contended that the Respondent’s arguments to the effect that Istrokapital was not deemed a “national of another Contracting State” under Article 25 of the ICSID Convention mischaracterized and disregarded applicable EU law. Claimants asserted that pursuant to the European Company Regulation, SEs must be treated as public limited-liability companies of the Member State in which they have their registered office. Moreover, Claimants sustained that, per the European Company Regulation, SEs are domiciled in one single State and the fact that they can transfer their registered office within the EU did not mean that they had multiple nationalities or no nationality because such transfer was subject to registration in a Member State at a time.
Unfortunately, the tribunal firstly concluded that it lacked jurisdiction ratione materiae to entertain the dispute and deemed not necessary to examine the remaining objections to jurisdiction concerning absence of jurisdiction ratione personae and ratione temporis.
However, arguments of both sides seem particularly relevant when discussing whether all EU companies have EU nationality and any EU national might be able to access the arbitration clauses of any intra-EU BIT. Notwithstanding the problem concerning EU not being signatory to ICSID Convention (which may be rebutted by the fact that tribunal’s jurisdiction is firstly derived from the relevant BIT or that it would not work in non-ICSID arbitrations), another important aspect should be considered when discussing assess to any intra-EU BIT by EU nationals and that is – the MFN clause.
It is clear that all or most of the intra-EU BITs include the MFN clause which particularly prohibits discrimination on grounds of nationality. Thus, due to the MFN clause, distinctions based on nationality or additional requirements concerning nationality which are not allowed at the merits stage of the dispute, should also be prohibited when considering the jurisdictional phase of the dispute.
For example, if the MFN clause is also applied to the definition of the investor, i.e. to the requirements the investor should possess in order to be afforded protection granted under the basic treaty, does it mean that treatment afforded under the third party treaty (also intra-EU BIT) which is more favourable (e.g. less nationality based requirements) should also be applied to the investor bringing its claim under the basic treaty? In particular, could the investor use more favourable intra-EU BIT in order to be afforded protection under the basic treaty (also intra-EU BIT)? It is clear that this is a question of the scope of the MFN clause and since the definitions of “investor” and “investment” are pre-conditions of the investment-treaty tribunal’s jurisdiction, these questions could only be answered while analyzing the basis for the tribunal’s jurisdiction and relationship of the MFN clause thereof.
The view, as it stands right now on the scope and applicability of the MFN clause for jurisdictional purposes, is very divergent. Some practitioners had fiercely denied the possibility to apply MFN clause to either ratione personae or ratione materiae requirements.
However, applicability of the MFN clause to the jurisdictional provisions of the BITs was confirmed by the tribunals in Bayindir v Pakistan, MTD Equity v Chile were they argued that access to these procedural mechanisms is a part of the protection afforded under the treaty. The tribunal in Siemens v Argentina which considered the applicability of the MFN clause to dispute resolution provision had stated that “dispute settlement is as important as other matters governed by the BIT and is an integral part of the investment protection”. In RosInvestCo UK Ltd v Russia the tribunal held that the MFN clause in the UK-Russia BIT extended to dispute resolution provisions, however, the tribunal found that the UK claimant’s claims alleging breaches of the BIT’s expropriation provisions fell outside the scope of the BIT’s arbitration clause, which limited arbitration to a determination of the amount of compensation once expropriation had been established. Notwithstanding the latter, the tribunal concluded that it had jurisdiction over the expropriation claims because the Denmark-Russia BIT contained an arbitration clause broad enough to encompass the claims. Therefore, the UK-Russia BIT’s most-favored-nation clause allowed the claimant to expand jurisdiction ratione materiae.
Thus, taking into account the above, it seems that there are legitimate grounds to analyze the application of the MFN clause to the definition of investor or the ratione personae as well.
Since the prevailing view is that the appropriate comparator for the aggrieved investor are other investors in the same sector or who are competitors, a hypothetical scenario may be construed where two investors, legal persons, both from the EU invest in similar business sectors in other EU host-states. In this sample scenario, it is clear that the MFN clause would prohibit to impose heavier burdens for such similar investors coming from different EU Member states.
The result is that if one the EU investors is incorporated in the EU Member state or is incorporated as a societas europeas (“SE”) coming from other EU member state, it would only need to prove that it is constituted under the laws of any EU member state and nothing more, similarly as to the investor coming from other EU member state. Since Recital 6 and Article 1(1) of SE Regulation confirms that a SE derives its existence and legal personality from EU law, it could be claimed that such an investor is the EU national for the purposes of tribunal’s jurisdiction. That implies that other EU investors may not be afforded treatment less favourable than any other investor coming from the EU. Now, if due to its SE nature, EU investor would be considered to have been incorporated in EU as a whole, it would be equally considered as incorporated in any of the other EU Member States, including the host-state. However, this does not seem a problem since most of the BITs also require to accord national treatment, that is, treatment no less favorable than that accorded to its nationals. Thus the result is the same as in the case of the MFN.
Effectively, based on this example, it could be argued that any intra-EU BITs, which provide any additional nationality requirements, in addition to the one which requires establishment in the EU Member state, would be contradictory to the MFN clause. Such a theoretical approach is confirmed by the analogous practice of investment treaty tribunals’ addressing the relationship between dispute resolution clauses or substantive protection clauses and the MFN clause referred to above.
Rimantas Daujotas – PhD Scholar at the Queen Mary University, Senior associate at Motieka & Audzevicius PLP