Back from the summer months, our editors are here to provide you with an overview of some of the key events from the past quarter, which was by no means a slow period in the world of international investment law and arbitration. The EU continued to assert its stance on intra-EU arbitration, while also influencing ISDS globally. Local courts across the world have stayed busy with questions of enforcement of intra-EU awards, and the wider world of arbitration has witnessed some consequential awards and new appointments. We invite you to read all about these developments below.
The EU Update
Following the EU’s formal notification of withdrawal from the Energy Charter Treaty (ECT) on 27 June 2024, the Union has continued its efforts to safeguard its Member States against future intra-EU arbitration. On 25 July 2024, the European Commission initiated an infringement proceedings against Hungary due to its unilateral declaration on the effects of Komstroy on intra-EU arbitration under the ECT.
The Commission sent a letter of formal notice, accusing Hungary of “undermining the Union’s position on the international stage” and “contradicting the case law of the Court of Justice of the European Union”. The Hungarian declaration stated that the Komstroy judgment—commenting on the inapplicability of the ECT in intra-EU disputes—should be interpreted as having only prospective effects and that its effects will only commence once the ECT is amended. This position, according to Hungary, would allow the country to continue to participate in certain ongoing disputes without breaching EU law. The Commission rejected this interpretation, arguing that Hungary’s position fundamentally conflicts with the binding nature of CJEU case law, which should apply retroactively to all pending cases. The Commission further highlighted that such a stance risks creating a fragmented approach within the EU’s investment law framework and undermines legal certainty for EU investors. Hungary has two months to respond (and as of 30 September, it is unclear whether it has). If the Commission is not satisfied, it will issue a reasoned opinion, formally requesting Hungary to comply with EU law. If compliance is not ensured at that stage, the Commission can then refer Hungary to the CJEU.
Elsewhere the EU has been working to support greater transparency in ISDS. On 2 July 2024, following a decision by the Council of the EU (25 June 2024), the EU has signed the so-called Mauritius Convention, the UN Convention on Transparency in Investor-State Dispute Settlement. The Convention will be ratified after the approval of the European Parliament. Ratification by Member States will then follow. On 22 July 2024, the European Commission published a Report to the European Parliament and the Council in accordance with Regulation 912/2014, which determines the respondent status and governs the allocation of financial responsibility between the EU and its member states for disputes under investment treaties to which the EU is a party. The Report provides an overview of all relevant disputes. This also aligns with the EU’s broader reform initiatives, pursuing greater transparency in ISDS.
Enforcement of Intra-EU Awards
Despite the summer months, local courts around the world have been grappling with the questions of enforcement of intra-EU awards.
In the EU, we have recently finally heard from the German Constitutional Court (“BVG”) which has been faced with two high-stake constitutional complaints. In the first decision, the BVG dismissed as inadmissible the applications made by Achmea challenging the constitutionality of an earlier decision of the German Federal Supreme Court setting aside the arbitral award after the CJEU judgment. The BVG held that Achmea failed to sufficiently demonstrate a legal interest in the application since it did not adequately address the impact of the Termination Agreement of the intra-EU BITs of 5 May 2020 in its constitutional complaint. The BVG further held that Achmea also failed to demonstrate the existence of an ultra vires act with respect to the Achmea judgment issued by the CJEU in March 2018. The second decision concerned the constitutional complaint made by Achmea against Germany’s ratification of the Termination Agreement of 5 May 2020. The Court held that the Termination Agreement did not have any impact on the Netherlands-Slovakia BIT, which was terminated when Slovakia and The Netherlands ratified the Termination Treaty, not when Germany did.
Outside the EU, however, the situation has been less favourable for the EU and its Member States.
Following appeals to the NextEra, 9REN and Blasket judgments, the US Court of Appeals found, on 16 August, that US District Courts do have jurisdiction to enforce intra-EU awards pursuant to the ECT, though they should themselves determine whether such awards should be enforced on the merits. However, the Court of Appeals has dismissed the jurisdiction of US courts to issue anti-anti-enforcement conventions in this context, deferring to state sovereignty in light of comity concerns. Subsequently, on 26 September 2024, the US District Court for the District of Columbia allowed the enforcement of another intra-EU award: JCG v. Spain. The District Court held that the award should be given full faith and credit, and it dismissed Spain’s arguments based on the doctrines of the act of state, forum non conveniens and comity as not applicable to the case.
On 29 August 2024, the Federal Court of Australia denied Spain’s leave to appeal against an order directing Spain to post a security for cost seeking reconsideration of examination ordered granted with respect to executing the Antin v. Spain award. In March 2024, Justice Stewart ordered Spain to pay a security for cost for its challenge against the execution of the award in Antin v. Spain. In 2023, the Australian courts allowed the execution of the award holding that Spain was not immune for execution of the ICSID award by having signed the ECT. In his judgment Justice Stewart ruled that an order for security for costs was warranted since (i) the security did not impose an undue condition on Spain’s right to challenge the execution orders, (ii) consular privileges and immunities did not come into play at this stage of the proceedings and (iii) overall fairness favoured grating a security for costs since Spain had failed to make any payment to Antin and therefore, “deserves no sympathy.” In the August judgment the three justices hearing the application for appeal confirmed Justice Stewart’s decision and held that in reality Spain tried to file a set aside application rather than a review one and that the Vienna Convention on Consular Relations did not apply to security for cost application.
We are still awaiting the outcome of proceedings in front of the UK Court of Appeal on, inter alia, Infrastructure v. Spain. Between 17 and 20 June 2024 the UK Court of Appeal has held hearings in a combined case of Infrastructure v. Spain and Border Timbers v. Zimbabwe. The question before the Court is whether sovereign immunity precludes the registration of an ICSID arbitral award against a sovereign state under the Arbitration (International Investment Disputes) Act 1966. The lower High Court had previously held that, by being a contracting party to the ICSID Convention (and thus accepting Article 54 of the ICSID Convention) and to the ECT, Spain has concluded a “prior written agreement” and could not rely on the state immunity defence. However, in Border Timbers, a different judge in the High Court held that Article 54 does not amount to a prior agreement that unequivocally submits parties to the jurisdiction of English courts for the purpose of enforcement against other States. The judge explained that the prevailing rules are those of the State Immunity Act, not the ICSID Convention. The upcoming judgment will hopefully provide much-needed clarity on the relationship between the SIA and the UK’s corresponding obligations under (numerous) international conventions.
At the same time, it has recently been reported that the parties in NextEra v. Spain arbitration mutually agreed before the UK’s High Court to set aside the interim order allowing enforcement against Spanish assets in the UK. At the same time, the enforcement proceedings continue in the US.
Other
While the developments around the ECT and the enforcement of intra-EU awards have remained central topics, other noteworthy developments have emerged this quarter, catching the attention of our editors.
For those interested in high-stakes ISDS cases with an environmental component, the 15 billion USD arbitration concerning Keystone XL concluded on 12 July. The now published award confirms that the majority of the tribunal sided with the US, which succeeded in the bifurcated jurisdiction proceedings.
In the UK, the arbitration community welcomed the King’s Speech on 17 July during the State Opening of Parliament. The King announced the reintroduction of the Arbitration Bill to Parliament’s legislative agenda. The Bill reflects a multi-year, multi-stakeholder engagement led by the Law Commission to modernise the Arbitration Act 1996. The reintroduction follows calls for the new government to continue the Law Commission’s efforts to update the English Arbitration Act and bolster the international arbitration sector. The Bill aims to support more efficient dispute resolution, attract international business, and promote UK economic growth based on the Law Commission’s recommendations.
Finally, this quarter has also witnessed a change in leadership at ICSID. On 1 July, Martina Polasek assumed the role of ICSID Secretary-General, replacing Meg Kinnear. Kinnear served as Secretary-General from 2009 to 2024. Polasek, a dual citizen of Czechia and Sweden, joined ICSID in 2001 and became Deputy Secretary-General in 2016. We are extremely excited to have Martina Polasek deliver EFILA’s 10th Annual Lecture on 25 November in London! Make sure to book your place for this (free) event here.
***This quarterly review was prepared by Agata Daszko with assistance from
Ioana Bratu, Cristian Gallorini, Daniela-Olivia Ghicajanu, and Mark Konstantinidis ***