BIICL Events December 5, 2008 – Lovells LLP (London)

1. INVESTMENT ARBITRATION UNDER INTRA-EU BITS* Pierre Pic Teynier, Pic & Associés (Paris) pierre.pic@teynier.com *For a more detailed analysis, See Eric TEYNIER, « L’applicabilité des traités bilatéraux dans les investissements entre Etats membres de l’Union Européenne », Gaz. Pal., Les Cahiers de l’Arbitrage, 2008/1, p.12. BIICL Events December 5, 2008 – Lovells LLP (London) European Law and Investment Treaties: Exploring the Grey Areas

2. Introduction • In the EasternSugarcase, the question of applicability of intra-EU BITswasaddressedat the stage of the jurisdiction of the arbitral tribunal: • The basis for the arbitral tribunal’sjurisdictionwas the Claimant’sacceptance of an offer to arbitratecontained in a BIT; • If, as argued by the Respondent, the offer to arbitrate, i.e the BIT, was no longer applicable after EU accession, this acceptation could not createlegaleffect. BIICL Events December 5, 2008 – Lovells LLP (London) European Law and Investment Treaties: Exploring the Grey Areas

3. Introduction (cont’d) • One of the arguments which the arbitral tribunal has put forward in order to acceptjurisdictionwas the peculiar situation of thisarbitration: • EasternSugarfileditsrequest for arbitration in June 2004, i.eafter the entry into force of the Accession Treaty on May 1, 2004; • But EasternSugarhad made itsrequest for pre-arbitral amicablesettlement in December 2003, i.ebefore the entry into force of thisTreaty. • In otherwords, in thiscase, the offer to settle disputes as contemplated in the BIT (throughamicablesettlementand arbitration) wasacceptedat a time whenthisofferwasstillvalid (§176 of the award). BIICL Events December 5, 2008 – Lovells LLP (London) European Law and Investment Treaties: Exploring the Grey Areas

4. Introduction (cont’d) If one were to address this question under article 59 of the Vienna Convention, two conditions would have to be met. BIICL Events December 5, 2008 – Lovells LLP (London) European Law and Investment Treaties: Exploring the Grey Areas

5. Introduction (cont’d) 1) That the twotreaties relate to the samesubjectmatter; 2) That the parties intendedthat the mattershallbegoverned by the latter treatyor the provisions of the latter treaty are so far incompatiblewiththose of the earlier one that the twotreaties are not capable of beingappliedat the same time. This principleisapplied by the ECJ whichdeclaresthat « the EC Treatytakesprecedence over agreementsconcludedbetweenMember States beforeits entry into force » (Commission v. Italy, 27/02/1962; Annuziata Matteucci v. Communauté française de Belgique, 27/09/1988; Exportur v. Confiserie du Tech, 10/11/1992). Is thisruling applicable to intra-EU BITS concludedbefore EU accession? BIICL Events December 5, 2008 – Lovells LLP (London) European Law and Investment Treaties: Exploring the Grey Areas

6. Introduction (cont’d) • Approximately 180 intra-EU BITs, but: • No intra-EU BIT concluded after EU accession; • No intra-EU BIT before the 2004 enlargement(to the exeption of two BITs between Germany/Greece (1981) Germany/Portugal (1980) that were never applied following Greece’s (1981) and Portugal’s (1985) EU accession; • Founding Member States have decided not to apply preexisting BITs (See the 1956 exchange of letter between France and Germany declaring that the bilateral Convention d’établissement et de navigation would not be applied to matters governed by the CECA Treaty). BIICL Events December 5, 2008 – Lovells LLP (London) European Law and Investment Treaties: Exploring the Grey Areas

7. Introduction (cont’d) Conclusion: the situation only concerns investment made between EU Western countries and EU Eastern countries (or, to a lesser extent, to investments made amongst Eastern European countries) BIICL Events December 5, 2008 – Lovells LLP (London) European Law and Investment Treaties: Exploring the Grey Areas

8. I. Intra-EU BITs and EC law: same subject matter ? • The arbitral tribunal in EasternSugarhas decidedthatBITs do not have the samesubjectmatter as EC law (§ 159–166 of the award). • Because the onlygaranteeoffered by EC law, namely the free movement of capital, is applicable at the stage of the admission of intra-EU investmentsonly; • - By contrast, BITsprovide for protection of investments, bothsubstantially (fair and equitabletreatment, non discrimination, etc.) and procedurally (international arbitration). BIICL Events December 5, 2008 – Lovells LLP (London) European Law and Investment Treaties: Exploring the Grey Areas

9. I. Intra-EU BITs and EC law: same subject matter ? (cont’d) But EC lawalsoapplies to the investments’ protection: Substantially: Article 56 ECT (duty to abolish restriction on movements of capital) wouldbemeaningless if restricted to the admission of intra-EU investments, i.eif Member States wereobliged to admit intra-EU investment but werethen free to treatthem in a discriminatory, arbitrary or discretionarymanner (ECJ, 04/06/2002, Commission v./ France). BIICL Events December 5, 2008 – Lovells LLP (London) European Law and Investment Treaties: Exploring the Grey Areas

10. I. Intra-EU BITs and EC law: same subject matter ? (cont’d) Procedurally: There is a EU regime of protection of intra-EU investments based on (i) infrigments proceedings (logded by Member States or the EU Commission in its mission as the gardienne des traités, often following individual complaints from private investors) and (ii) duty for Member States found guilty of infringement to amend their local laws and regulations (ECJ, 12/07/1972, Commission v. Germany) and to indemnify private entities (including investors) that suffered infrigments(ECJ, 15/11/1991, Francovitch). BIICL Events December 5, 2008 – Lovells LLP (London) European Law and Investment Treaties: Exploring the Grey Areas

11. II. Intention that the matter of intra-EU investments be governed by EC law ? The arbitral tribunal in Eastern Sugar has noted that such intention was not demonstrated (§ 167 of the award). Indeed, the BIT was not explicitly terminated (as the incidentally, the Association Agreement was not explicitly terminated after EU accession). BIICL Events December 5, 2008 – Lovells LLP (London) European Law and Investment Treaties: Exploring the Grey Areas

12. II. Intention that the matter of intra-EU investments be governed by EC law ? (cont’d) Implicit intention to terminateBITs? • Article 118 of the 1993 Association Agreement providesthat« (t)his Agreement shall not, untilaquivalent right for individuals ans economicoperators have been achievedunderthis Agreement, affect right assured to themthroughexisting agreement »; • A contrario, rightsassured to economicoperatorsthroughBITswereaffected as soon as equivalentrightswereachievedthrough EU law. BIICL Events December 5, 2008 – Lovells LLP (London) European Law and Investment Treaties: Exploring the Grey Areas

13. III. Possibilty to apply simultaneously BITs and EC law ? With hindsight, the answer may be negative: an intra-EU BIT was applied in Easter Sugar without creating major instability on the EU institutions and regulations. But generalizing such situation may create a number of problems of a very concrete nature, all of which may not have been identified yet. BIICL Events December 5, 2008 – Lovells LLP (London) European Law and Investment Treaties: Exploring the Grey Areas

14. III. Possibilty to apply simultaneously BITs and EC law ? (cont’d) • A few exemples: • Discrimination: BIT betweenPoland and France, but to BIT between France and Germany. If, as wasrules in EaternSugar, BITs GRANT more protection than EC law, isit acceptable that a Polishinvestor in France betreated more favourably the Germaninvestor in the same country ? BIICL Events December 5, 2008 – Lovells LLP (London) European Law and Investment Treaties: Exploring the Grey Areas

15. III. Possibilty to apply simultaneously BITs and EC law ? (cont’d) • Arbitrability of disputes: In EasternSugar, one of the investor’shead of claims (as a matter of facts, the only one thathappened to beacceptedbt arbitral tribunal) wasthat the state would have frustatedEasternSugar’slegitimate expectation in thatitimplemented a sugarregimepurpotedlyinconcistentwith the Common Agricultural Policy. Put otherwise, a privateentitywasbringing in front of an arbitral tribunal a dispute thatamounted to an infringmentproceedingagainst a EU Member State. Yet, suchproceedingmaybelogeded by the EC Commission only(or by a EU Member State) and are of the exlusive juridiction of the ECJ, this as a matter of EU public policy. Was the matter arbitral ? May an arbitral tribunal rule on such dispute withoutinfinging EU International public policyrules and principales ? BIICL Events December 5, 2008 – Lovells LLP (London) European Law and Investment Treaties: Exploring the Grey Areas

16. III. Possibilty to apply simultaneously BITs and EC law ? (cont’d) • Forum shopping: Not all review courts consider Breaches of EU public policy rules and principles as sufficient to set aside an award: that is the case of all non. EU review courts. Would it suffice to have the arbitral tribunals to sit in washington or Geneva to freely render award that potentially violate EU public policy. • Legal uncertainty: The question as to whether intra-EU BITs are still applicable will remain uncertain, probably until the ECJ has taken a decision on their applicability, for instance by way of a request for a preliminary ruling lodged by the review courts of a Member State. The question is being asked in one annulment case currently pending before the Prague review courts. But in the meantime, a number of arbitration tribunals will have ruled on this issue, presumably in diverging directions. BIICL Events December 5, 2008 – Lovells LLP (London) European Law and Investment Treaties: Exploring the Grey Areas