By Maria Paschou[1]
In June 2024, the European Commission (“Commission”) initiated formal infringement proceedings against Hungary—a move that underscores a deepening conflict between the Commission’s interpretation of EU law and established principles of public international law. The dispute centres on the Energy Charter Treaty (“ECT”) and, more specifically, on intra-EU investment arbitrations relying on the ECT’s arbitration clause. While the Commission frames the infringement proceedings as a necessary step to preserve the autonomy, uniformity, and primacy of Union law, the move appears to disregard international-law obligations the EU and its Member States continue to hold under the ECT as well as under the Vienna Convention on the Law of Treaties (“VCLT”). It also threatens to undermine EU’s integrity as a reliable actor on the international legal plane.
Background: The ECT, EU’s Withdrawal from the ECT, and the Majority Declaration
On 27 June 2024, the EU formally announced its withdrawal from the ECT—a decision that, in combination with earlier withdrawals by individual Member States, marked a turning point in the Union’s approach to, inter alia, investment arbitration. This decision made the EU the 10th party to officially withdraw from the ECT, following in the footsteps of Italy, France, Germany, Poland, Luxembourg, Slovenia, Portugal, Spain, the United Kingdom, and the Kingdom of the Netherlands. Later, the Kingdom of Denmark, the Republic of Lithuania, and Romania also announced their withdrawal from the ECT. Despite these departures, at the moment when this blog post is written 40 states still remain bound by the ECT (including 14 EU Member States, namely, Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Estonia, Finland, Greece, Hungary, Ireland, Malta, Slovakia, Sweden) having not yet issued formal notifications of withdrawal.
In parallel to the withdrawal, on 28 June 2024, the EU, together with 26 of its Member States, adopted a Declaration (“2024 Declaration”)addressing the legal implications of the Court of Justice of the European Union’s (“CJEU”) judgement in Komstroy, in which the CJEU held that the ECT’s arbitration clause does not apply to intra-EU disputes, i.e. disputes between EU investors and EU Member States. The 2024 Declaration proposed eliminating the ECT’s sunset clause for future intra-EU disputes and sought to retroactively invalidate its applicability to ongoing intra-EU arbitrations, reflecting pressure from certain Member States facing such cases. As a result, the 2024 Declaration established that Article 26 ECT (the ECT’s arbitration clause) was never intended to cover intra-EU disputes. Moreover, Article 47(3) (the ECT’s sunset clause, which affords investors a further 20 years of protection after an ECT contracting party terminates the treaty) should not extend to these or any other cases that investors may bring. This interpretation forms the foundation of EU’s current legal position, namely that such arbitration provisions are (and have always been) incompatible with Union law.
The 2024 Declaration, however, lacked endorsement from all EU Member States (or all ECT contracting parties, for what matters): on the same date, Hungary issued a unilateral declaration, asserting that the Komstroy judgement should only affect future intra-EU investment arbitrations, and that this effect should commence only upon the amendment of the ECT. Effectively, in Hungary’s view, the Komstroy judgement applies prospectively, and only once the ECT itself is amended.
The Commission’s Infringement Proceedings Against Hungary
The Commission viewed Hungary’s unilateral declaration as a direct contradiction to the Komstroy judgement and a breach of the duty of sincere cooperation. The Commission asserted that Hungary’s position undermines foundational principles of EU law, including autonomy, primacy, effectiveness, and uniform application. As a result, on 25 July 2024, the Commission opened an infringement procedure by sending a letter of formal notice to Hungary (INFR(2024)2206) under the EU Treaties.
At this initial stage of the infringement process, the Commission formally opens a case against a Member State, providing it with an opportunity to respond, negotiate, and/or realign its position to ensure compliance with EU law. Hungary was granted two months to address the concerns raised, failing which the Commission could decide to proceed to the next step of the infringement procedure by issuing a reasoned opinion. In Hungary’s case, this is precisely what followed: on 12 March 2025, having found that none of the considerations set forth by Hungary in its reply addressed its concerns, the Commission issued a reasoned opinion. Hungary was granted another two months to respond and take the necessary measures. Absent such compliance, the Commission could advance to the next procedural step—referral to the CJEU.
Ultimately, on 17 July 2025, the Commission determined that Hungary had failed to remedy the identified breaches and therefore referred the case to the CJEU. In doing so, the Commission concluded that “Hungary is […] in breach of the duty of sincere cooperation enshrined in Article 4(3) of the Treaty of the European Union, as well as of Articles 19 TEU, 267 TFEU and 344 TFEU and the general principles of autonomy, primacy, effectiveness, and uniform application of Union law.”
Indeed, the Commission’s infringement proceedings against Hungary followed a trajectory reminiscent of its earlier actions against the United Kingdom (“UK”) over the latter’s failure to effectively remove intra-EU Bilateral Investment Treaties (“BITs”) from its legal order. In both cases, the Commission grounded its actions in the defense of the autonomy and uniform application of Union law, invoking key principles articulated in CJEU judgements such as Achmea and Komstroy. As with the infringement against Hungary, the Commission had previously pursued a parallel line of reasoning vis-à-vis the UK.
Specifically, on 14 May 2020, the Commission sent a formal notice to the UK for failing to sign the plurilateral agreement for the termination of intra-EU BITs (“Termination Agreement”) alongside other Member States. According to the Commission, following the CJEU’s judgment in Achmea and the Member States’ Declarations of 15 and 16 January 2019, all Member States committed to terminate their intra-EU BITs in a coordinated manner by means of a plurilateral treaty, unless bilateral terminations were considered mutually more expedient; yet, the UK failed to do so. When the UK did not comply with the Commission’s directions in the latter’s formal notice, the Commission issued a reasoned opinion on 30 October 2020. The Commission granted the UK two months to “take all necessary actions to imminently remove its BITs with EU Member States from its legal order,” effectively by either signing the Termination Agreement or engaging in discussions concerning the bilateral termination of these BITs). When the UK did not reply to the Commission’s reasoned opinion, the Commission decided, on 16 December 2024, to refer the UK to the CJEU for failure to terminate its BITs with six EU Member States.
Undoubtedly, both proceedings reflect the Commission’s broader institutional commitment to ensuring the primacy and coherence of EU law across the Union, particularly in the field of investment arbitration. Yet, taken together, they also reveal the persistent and perhaps growing rift between Brussels’ expansive interpretation of Union law and Member States’ ability to navigate complex international legal frameworks in their own right.
Is the Declaration a Valid and Binding Interpretation and/or Modification of the ECT?
The infringement proceedings against Hungary seemingly underscore the Commission’s commitment to police the primacy and autonomy of EU law. However, without (at least) Hungary’s consent, the purported retroactive amendment of the ECT as between all EU Member States by way of the 2024 Declaration appears inconsistent with the VCLT. The VCLT codifies customary rules of international law to which all EU Member States (along with most members of the United Nations) have subscribed. The 2024 Declaration appears inconsistent with it because: first, the 2024 Declaration seeks to specifically interpret or modify the ECT’s provisions, without having the consent of all ECT contracting parties (or even all EU Member States), in violation of Articles 31 and 41 of the VCLT; and second, the 2024 Declaration seeks to retroactively bind investment tribunals in pending investment cases.
To the extent that the Commission considers that the 2024 Declaration constitutes an interpretation of the ECT under customary international law, then that interpretation shall be made in accordance with Articles 31 and 32 of the VCLT.
Under Article 31(2)(b) VCLT, the 2024 Declaration may be deemed as an “instrument which was made by one or more parties in connection with the conclusion of the treaty and accepted by the other parties as an instrument related to the treaty.” The “instrument” proposed by the Commission, however, has not yet been accepted as is by all ECT contracting states, or even all EU member states, and cannot, therefore, be taken into account for the purposes of a binding interpretation of the ECT (even between the EU member states only).
In turn, under Article 31(3)(c) VCLT, the Declaration could constitute a “subsequent agreement between the parties regarding the interpretation of the treaty or the application of its provisions.” But again, this “subsequent agreement” should be a common act or undertaking between all the parties to the ECT (which includes all EU M ember S tates, as well as Japan and Australia, among many other states). Subsequent agreements among a limited number of parties may (at best) constitute “subsequent practice,” under Article 31(3)(b) VCLT, only provided that such subsequent agreements, taken together, establish an agreement between all the parties regarding the interpretation of the treaty. This is, obviously, not the case here given that Hungary (without even starting to discuss the position of the other contracting parties to the ECT) has opted for a different interpretation of the ECT’s arbitration and sunset clauses. This means that the 2024 Declaration does not establish an agreement between all the parties (or even between all EU parties) regarding the interpretation of the ECT and may only be used, in principle, as a “supplementary means of interpretation” under Article 32 VCLT.
But even that seems unlikely as the 2024 Declaration does not constitute part of “the preparatory work of the [ECT] and[/or] the circumstances of its conclusion,” and can only be used under the ambit of Article 32 VCLT to confirm the meaning resulting from the application of Article 31 VCLT or to determine the meaning when the Article 31 VCLT interpretation leaves the meaning ambiguous, obscure, or leads to a manifestly absurd or unreasonable result.
As such, as a unilateral statement (in that it is not supported by all ECT contracting parties, not even all EU parties), the content of an interpretative declaration such as the one proposed by the EU is not binding without the assent of all of the other ECT states.
On the other hand, to the extent that the EU proposes that the 2024 Declaration constitutes an “agreement to modify [the ECT] between certain of the parties only” under Article 41 VCLT, Article 41 provides that the conclusion of an inter se agreement must be either expressly admitted by the main treaty, or at least be consistent with its object and purpose. But importantly, here, even if an inter se “agreement” between the EU and its Member States as to the (in)applicability of the ECT’s arbitration and sunset clauses were indeed consistent with the ECT’s object and purpose, what is missing is the fundamental element for applying Article 41 VCLT: an agreement. Hungary’s consent to be bound by the 2024 Declaration as is (that is, to invalidate the ECT’s arbitration and sunset clauses retroactively) is nowhere to be found.
Can the 2024 Declaration Be Applied Retroactively?
Even assuming that the 2024 Declaration constituted a valid and binding interpretation or inter se amendment of the ECT under the VCLT, the retroactive imposition of such an interpretation on tribunals already seised with arbitrating intra-EU investment disputes under the ECT presents a distinct and contentious issue.
The retroactive application of the 2024 Declaration to disputes that predate its issuance could unjustly jeopardise the rights of investors, as provided for in the ECT, as the 2024 Declaration’s proposed interpretation of the ECT’s arbitration and sunset clauses was neither in effect at the time the investments had been made nor when the disputes had arisen and the arbitration proceedings were initiated. Consequently, compelling a tribunal to adhere to the 2024 Declaration in such pending cases risks a significant erosion of investor protections under the ECT, thus, violating the principle of legal certainty underpinning international investment law.
The Commission’s position, therefore, appears inconsistent with these provisions of customary international law, as it attempts to unilaterally and retroactively alter the interpretation and application of the ECT without the necessary consent of all contracting parties. However, as held by the CJEU in its seminal Western Sahara judgement, the EU is “[b]ound … when exercising its powers, to observe international law in its entirety, including not only the rules and principles of general and customary international law, but also the provisions of international conventions that are binding on it.”
Broader Implications: Legal Legitimacy, EU Credibility, and the Future of Investment Arbitration
While the Commission is entitled — and arguably obligated — to uphold, and defend the integrity of, EU law, the referral raises broader concerns about the tone and trajectory of EU legal governance. Hungary’s unilateral declaration, while diverging from the Commission’s interpretation, does not reject the Komstroy judgement outright. Rather, it reflects a plausible legal position grounded in international treaty law considering the temporal limits of judicial interpretation and respects the still-operative text of the ECT.
This kind of nuance has been largely absent from the Commission’s narrative. Ironically, the Commission’s aggressive enforcement comes even as the EU is actively exiting the ECT. The Union formally notified its withdrawal in June 2024 (with the withdrawal taking effect in June 2025), citing climate policy and legal incompatibility as key reasons. Yet, while the EU distances itself from the ECT in substance, it continues to pursue infringement proceedings over its interpretation. Apparently, the ECT is no longer fit for purpose, but it is still worth litigating against Member States.
Against this background, the EU’s approach to retroactively apply the 2024 Declaration raises significant concerns about the implications behind such measures under international law. The EU has not—and indeed cannot—demonstrate that its proposed interpretation of the ECT, seeking to retroactively cancel acquired rights, is necessary to ensure the consistency and autonomy of EU law, at the expense of violating the EU’s and its Member States’ obligations under customary international law. That approach may prevail before an EU court — but at what cost to legal legitimacy, internal cohesion, and the EU’s credibility on the international stage?
This situation purportedly presents a conflict between enforcing legal uniformity within the EU and adhering to the established principles of international treaty law. However, this is a false dichotomy. There is no inherent tension between maintaining the consistency of EU law and respecting the obligations of international treaty law. The EU, if it so chooses, can uphold its fundamental principles without undermining the foundational tenets of international law, including the principles of state sovereignty, legal certainty, and the non-retroactive application of legal instruments.
By attempting to compel state consent to a flawed interpretation of international law through infringement proceedings against Hungary, the EU risks eroding the integrity of international law and setting a troubling precedent where regional interests are prioritised over universally accepted norms of customary international law. This approach not only compromises the respect for international treaties, but also undermines the EU’s standing as a trustworthy actor in the international legal order.
The Commission’s infringement proceedings against Hungary have ramifications beyond the dispute itself. They raise deeper questions about how the EU balances its central authority and autonomy with Member States’ sovereignty in complex areas like investment arbitration. Rather than using this moment to foster constructive legal dialogue on the evolving relationship between EU law and international commitments, the Commission has chosen the path of litigation and legal absolutism.
In the end, if the Luxembourg judicature sides with the Commission, the CJEU may declare that Hungary breached EU law by issuing its unilateral declaration, instead of subscribing to the 2024 Declaration. Whether the Commission would then be able to force Hungary to subscribe to the 2024 Declaration through periodic penalties or fines, if necessary, is an open question. Nonetheless, irrespective of whether the CJEU upholds the Commission’s position or not, the broader challenge remains: finding space within the Union for legal complexity, interpretive plurality, and respect for international legal traditions that do not always conform neatly to a fully autonomous concept of the EU legal order.
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[1] Maria Paschou is a Greek-qualified lawyer and an Associate at Queritius, a boutique law firm specialising in international dispute resolution. Her practice focuses on international commercial and investment treaty arbitration, with particular experience in construction, energy, and manufacturing disputes across the CEE, SEE, and EMEA regions. Before joining Queritius, Maria gained significant experience in both arbitration and litigation through positions at leading international law firms in Paris, Dubai, Brussels, and Athens. Maria has been recognised as a Future Leader (Non-Partner) for Arbitration in Greece by the Lexology Arbitration Index 2026.
***The opinions expressed in this article are the authors’ own, and do not represent the views of Queritius or its clients.***