Hostname: page-component-74656f9884-g96k6 Total loading time: 0 Render date: 2026-11-09T22:57:34.702Z Has data issue: false hasContentIssue false
  • English
  • Français

INTRA-EU INVESTMENT AGREEMENTS AND ARBITRATION: IS EUROPEAN COMMUNITY LAW AN OBSTACLE?

Published online by Cambridge University Press:  24 April 2009

Hanno Wehland
Hanno Wehland
Affiliation:
Associate with the International Arbitration Group of Wilmer Cutler Pickering Hale and Dorr LLP, London.
Rights & Permissions [Opens in a new window]

Abstract

Bilateral Investment Treaties (BITs) between Member States of the EU have long been all but non-existent. However, with the two most recent rounds of EU enlargement about 190 BITs have become intra-EU. This has not only raised doubts about the conformity of these BITs with EC law, but has also prompted some (including the European Commission) to question the admissibility of arbitral proceedings brought under these Treaties. The article assesses the mechanisms through which a conflict between intra-EU BITs and EC law can become relevant from an arbitration perspective. It then analyses the principal alleged inconsistencies between BIT provisions and EC law: differing substantive standards of investment protection, unequal treatment of investors from different Member States and the lack of control by the ECJ. The discussion of these issues in the light of the relevant EC Treaty provisions shows that EC law should not, in fact, be regarded as an obstacle to intra-EU investment arbitration.

Information

Type
Article
Information
International & Comparative Law Quarterly , Volume 58 , Issue 2 , April 2009 , pp. 297 - 320
Copyright
Copyright © 2009 British Institute of International and Comparative Law

I. Introduction

Bilateral Investment Treaties (BITs) between Member States of the European Union (EU) have long been all but non-existent. Against the backdrop of an ‘ever closer union between the European people’Footnote 1 based essentially on the provisions contained in the Treaty on the European Union (TEU) and the Treaty on the European Community (TEC)Footnote 2 as well as an ever-growing body of secondary Community legislation and jurisprudence of the European courts, Member State governments appeared tacitly to agree that investment protection between them was a matter of course and additional protection for investors through BITs not necessary.Footnote 3

This situation has changed dramatically with the accession of ten new, predominantly Eastern European Member States to the EU in May 2004.Footnote 4 Many of these new Members had entered into BITs both between themselves and with old Member States in order to encourage investment during their transition from state-run to free-market economies in the early 1990s. Following accession to the EU, these 150 or so BITs became ‘intra-EU’—meaning they could now be invoked by certain EU investors with regard to investments made in other Member States. With the latest EU enlargement through the accession of Bulgaria and Romania in January 2007, the number of intra-EU BITs has risen to 191Footnote 5—a considerable amount even against the total of about 2600 BITs world-wide.

A number of these BITs have already been relied upon in arbitral proceedings in different forums, including ICSID, UNCITRAL and ad hoc arbitrations. As long as both parties to a BIT were not EU Members, this did not raise any issues with regard to European Community law (EC law).Footnote 6 However, with the accession of the new Member States and the revamped ‘intra-EU’ status of these BITs, it is arguable and it has in fact been argued that this might have changed.

First, in a note prepared in November 2006 by the European Commission's Directorate General responsible for the Internal Market and Services, the authors take the view that ‘most of the provisions of such BITs have been replaced by provisions of Community law’ and that ‘their legal character after accession is not entirely clear.’Footnote 7 The Economic and Financial Committee (EFC), a body established under the TEC and reporting to the Commission and the Council, took note of these concerns in its 2006 Annual Report and invited the Member States ‘to review the need for such BITs agreements; and inform the Commission about the actions taken in this context so that progress can be reviewed by the EFC by the end of 2007.’Footnote 8

Secondly, in at least two arbitral proceedings, the defendant Czech Republic claimed that the provisions of its BITs with other EU Members had become inapplicable following its accession to the EU.Footnote 9 In the first of these proceedings, initiated by Dutch investor Eastern Sugar BV on the basis of the Netherlands-Czech Republic BIT, the Czech Republic tried to support its contention by presenting a letter of the European Commission's Internal Market and Services Directorate General, taking the view that ‘[f]or facts occurring after accession, the BIT is not applicable to matters falling under Community Competence.’Footnote 10 The Tribunal, refuting the Czech Republic's arguments, asserted its jurisdiction in a partial award of March 2007Footnote 11 and ultimately awarded the claimant part of the requested damages.Footnote 12

Little is known regarding the second proceedings, that appear to be based on the Czech Republic-Germany BIT and the claimant of which has been referred to as RJ Binder. Footnote 13 Apparently the tribunal in this case also asserted its jurisdiction in a partial award, which the Czech Republic is now seeking to annul in the Czech courts.Footnote 14 Given this challenge as well as the stance of the European Commission, the question whether intra-EU BITs can be reconciled with EC law is bound to keep investment tribunals and the courts of the Member StatesFootnote 15 busy in the future.

The purpose of this article is to evaluate the extent to which EC law can become an obstacle for arbitral proceedings brought under intra-EU BITs, both in terms of substance and procedure.Footnote 16 The first part of this article deals with the question of procedure, by outlining the different stages of the arbitral process where putative conflicts between BIT provisions and EC law can become relevant. The second part then addresses the substantive issue whether the allegation of any such conflicts is actually justified.

II. Where can Conflicts with EC law become relevant in an investment dispute?

A first question from a practitioner's perspective is why an investment tribunal would want to take EC law into account at all. Since investment tribunals derive their authority from an international treaty rather than national law or EC law,Footnote 17 they base their decisions primarily on the provisions of the BIT in question, interpreted in accordance with applicable principles of public international law.Footnote 18 This international law perspective is clearly different from the EC law perspective that would be adopted by the ECJ. One might therefore think that investment tribunals would not have to worry about conflicts between BIT provisions and EC law even if they existed, as EC law would simply not apply to investment disputes.Footnote 19

However, if investment tribunals do not apply EC law as such, this does not mean that EC law could not be an obstacle to the arbitral process. In fact there are a number of ways in which this may be the case.Footnote 20 First, investment tribunals may have to take EC law into account insofar as it constitutes international law applicable between the signatories to the BIT.Footnote 21 Under this international law guise, EC law can play a role both for the applicability of a BIT and for the interpretation of its provisions. Secondly, the arbitral process may involve instances other than the investment tribunal (notably the national courts of the Member States), which consider themselves bound by EC law and—rightly or wrongly from an international law perspective—will apply it as a purported higher legal order. Irrespective of what an investment tribunal regards as the applicable law strictu sensu, it may thus (especially if it is seated in Europe) feel the need to anticipate such considerations and not disregard EC law in order to render an enforceable award.

A. Procedure In Case of Doubts About the Impact of EC Law

Before addressing these possibilities in more detail, a quick thought should be given to the procedure that an investment tribunal in doubt about the impact of EC law would be likely to follow.

Courts of the Member States are expected to present any question of interpretation of EC law to the ECJ for a preliminary ruling in accordance with Article 234 TEC. However, for investment tribunals this provision is (as part of EC law) not binding, so that it is possible for a tribunal to interpret EC law itself. What is more, even if an investment tribunal wanted to seek a preliminary ruling from the ECJ, it would be prevented from doing so by the latter's refusal to recognise arbitral tribunals as ‘court[s] or tribunal[s]’ within the meaning of Article 234 TEC.Footnote 22

An investment tribunal might want to suspend the proceedings and wait until an issue of EC law was decided by the ECJ. This was the decision of the tribunal in the MOX Plant case in arbitral proceedings brought by Ireland against the UK under the United Nations Convention on the Law of the Sea (UNCLOS).Footnote 23 However, the case for a suspension in investment proceedings brought under an intra-EU BIT would arguably be much weaker than it was in the MOX Plant arbitration, where Article 282 UNCLOS provided the tribunal with only subsidiary jurisdiction.Footnote 24 Also, in the MOX plant case there was no doubt that the ECJ would effectively take on the issue. In the absence of an institutional mechanism for the involvement of the ECJ, this will not be taken for granted in most investment arbitrations, and by suspending proceedings a tribunal would therefore risk to delay them indefinitely.

B. Application of EC Law As International Law By An Investment Tribunal

A first way in which EC law may potentially become an obstacle to intra-EU investment proceedings is by it being part of the international law applicable in an investment dispute. The ECJ's emphasis on EC law as an autonomous legal order notwithstanding,Footnote 25 it is clear that from a public international law perspective EC law is a subsystem of international lawFootnote 26 and that the European Treaties are public international law instruments.Footnote 27 In keeping with the distinction between the EC law and the international law perspectives described above,Footnote 28 the self-proclamation of EC law as an autonomous legal order cannot be relevant from a public international law viewpoint.Footnote 29

As a consequence, it would be premature to conclude that EC law could a priori play no role in proceedings under intra-EU BITs.Footnote 30 Rather, it would seem that a respondent Member State might want to bring forward two arguments regarding the application of EC law as international law. First, it might argue that the whole BIT or specific provisions contained therein (notably the dispute resolution clause) were inapplicable, as they had been overtaken by the European Treaties. Second, this argument failing, it might still advance that EC law should force a restrictive reading of the relevant BIT provisions.

1. Does accession to the EU render earlier intra-EU BITs inapplicable?

A respondent Member State might be tempted to argue that its ratification of the BIT preceded its accession to the EU and that the earlier treaty had effectively been terminated on ratification of the relevant Accession Treaty.Footnote 31 This was the argument brought forward by the Czech Republic in the Eastern Sugar arbitrationFootnote 32 and that is apparently also being relied on in the current annulment proceedings against the partial award in RJ Binder before the Czech courts.Footnote 33

The termination or suspension of a BIT must be assessed in accordance with the relevant provisions of the 1969 Vienna Convention on the Law of Treaties (VCLT). In most cases, both Member States will be parties to the VCLT and its provisions thus applicable to the BIT concluded between them.Footnote 34 Even where one of the parties to the BIT has not ratified the VCLT or where the VCLT cannot be applied because it was ratified after conclusion of the BIT,Footnote 35 its provisions will still apply to the extent that they represent customary international law.Footnote 36

a) Article 59 VCLT

One might think of a termination of the BIT in accordance with the lex posterior principle contained in Article 59 VCLT. Article 59 VCLT states that a ‘treaty shall be considered as terminated if all the parties to it conclude a later treaty relating to the same subject matter and […] the parties intended that the matter should be governed by that treaty; or […] the two treaties are not capable of being applied at the same time.’Footnote 37 The posteriority requirement would normally be fulfilled, as all intra-EU BITs seem to have been concluded before accession of at least one of the signatories to the EU.Footnote 38

The situation is slightly less clear when it comes to the requirement of the ‘same subject matter’. The Accession Treaties essentially extend the rights and obligations arising under the TEC and the TEU to the new Member States.Footnote 39 The question is thus whether TEC and TEU relate to the same subject matter as the BIT.

In answering this question, one has to bear in mind that, from the EC perspective, intra-EU BITs are internal affairs. As a consequence, when searching for comparable provisions in the Treaties, one has to look not at the chapter on the Common Commercial Policy (which concerns the Community's commercial relations with third countries), but at the provisions on the Internal Market.Footnote 40 A number of these are relevant, most importantly those addressing the freedom of establishment (Article 43 TEC) and the free movement of capital between Member States (Article 56(1) TEC).Footnote 41 While these concepts certainly differ from those typically found in BITs, their purpose and effect of promoting and protecting investment can hardly be disputed. One might thus indeed say that part of the TEC relates to the same subject matter that is usually covered in an intra-EU BIT.Footnote 42

Things get still more complicated when one starts to address the third and fourth criteria, ie the parties' intention and the question, whether a BIT and the TEC are capable of being applied at the same time. Given the multilateral nature and extremely broad coverage of the TEC, a BIT could be seen as a lex specialis limited to bilateral investment issues between its signatories. This would seem a strong argument against the signatories' intention to have a BIT replaced by the more general treaty.Footnote 43 Still, a tribunal would have to evaluate whether the provisions of the TEC are ‘so far incompatible with’ those of the BIT that ‘the two treaties are not capable of being applied at the same time’. The plausibility of such a suggestion is of course a matter of some complexity, and one that will be discussed below.Footnote 44

b) Article 30(3) VCLT

The argument that a BIT has been terminated or suspended under Article 59 VCLT failing, a tribunal would still have to examine the applicability of certain provisions of the BIT in accordance with Article 30(3) VCLT. It would thus have to consider whether the provisions of an intra-EU BIT relied upon by a Claimant were compatible with those of the TEC.Footnote 45

For this purpose, a tribunal would arguably not have to limit itself to a textual interpretation of the TEC provisions, but could take into account the interpretation of these provisions by the ECJ. Article 31(1) VCLT requires that a treaty ‘shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.’ Where the interpretation of a TEC provision by the ECJ predates the relevant Accession Treaty, such interpretation could arguably be considered as part of the Treaty's context.Footnote 46 In addition, Article 31(3)(b) VCLT states that ‘any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation’ shall be taken into account together with the context. Since it appears reasonable to assume that by complying with the ECJ's decisions the Member States express their agreement with its interpretation of the TEC provisions,Footnote 47 it can be argued that even post-accession case law should be taken into account.Footnote 48

If the interpretation of the TEC showed an incompatibility with certain BIT provisions, this would not necessarily render these provisions inapplicable. The non-application of the earlier treaty should not be seen as automatic, but one must take into account the intention of the parties and notably consider whether the speciality of an agreement is not a more important aspect than temporality.Footnote 49 However, in view of the ECJ's repeated emphasis on the precedence of the TEC over other agreements between the Member States,Footnote 50 and the Member States' apparent agreement with such interpretation, it would be difficult to argue that a BIT provision incompatible with Community law should apply, even from an international law perspective. Thus assessing the compatibility of BIT provisions with EC law may be indicated for an arbitral tribunal also under Article 30(3) VCLT.

2. Interpretation of intra-European BITs in the light of EC law

Once a tribunal has convinced itself of the applicability of the relevant BIT provisions, a respondent Member State may still argue that they should be interpreted restrictively in the light of the European Treaties.Footnote 51 As stated earlier, the substantive law applied in an investment arbitration is typically the BIT itself, interpreted in accordance with international law.Footnote 52 For the reasons set out above,Footnote 53 investment tribunals invariably apply the provisions of the VCLT when interpreting the provisions of a BIT.Footnote 54

The starting point for any interpretation is thus again Article 31(1) VCLT, referring to ‘the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.’ In addition, Article 31(3)(c) VCLT requires the taking into account of ‘any relevant rules of international law applicable in the relations between the parties.’Footnote 55 Similarly, a number of BITs also contain an express provision that they be interpreted in accordance with other relevant agreements between the signatory states and principles of international law.Footnote 56

As a consequence, arbitral tribunals may have to take into account potentially competing standards such as those of the TEC when interpreting an intra-EU BIT.Footnote 57 Obviously, any impact of EC law via Article 31(3)(c) VCLT would be limited to interpretation, as the provision cannot be used to solve true conflicts of norms.Footnote 58 Still, these provisions offer yet another potential gateway for EC law in intra-EU investment arbitration.

C. Application of EC Law By The Courts of the EU Member States

A completely different avenue by which EC law can find its way into the arbitral process is the involvement of the EU Member States' court systems and—at least subliminally—the anticipation of such involvement by investment tribunals. The ECJ has consistently held that EC law takes supremacy not only over the national legal systems,Footnote 59 but also over bilateral agreements concluded between the Member States.Footnote 60 As a consequence, the Member States' courts are likely to be reluctant to assist in investment arbitrations, if they have reason to regard them as incompatible with EC law.

The involvement of the Member States' national courts may occur at different stages of the arbitral process. One possibility is their involvement during the arbitration itself, eg when a respondent challenges an arbitrator, appeals against an interim award on jurisdictionFootnote 61 or applies to the courts for interim relief. In all these cases—with the exception of proceedings under the ICSID Convention—the law applicable to the procedure will be the national law of the seat of arbitration as lex arbitri, thus presumably entailing the precedence of EC law.Footnote 62

A second possibility for the involvement of the national courts is the execution and enforcement of an award. For non-ICSID awards, enforcement will usually be governed by the New York Convention.Footnote 63 In these cases, national courts may justify the refusal of enforcement of an award deemed incompatible with EC law with the public policy exception contained in Article V(2)(b).Footnote 64 For ICSID awards, Article 54(3) of the ICSID Convention determines that the ‘[e]xecution of the award shall be governed by the laws concerning the execution of judgments in force in the State in whose territories such execution is sought.’ Again, Member States' courts might take this as an invitation to rely on EC law, given the latter's precedence over their national legal systems.Footnote 65

In all these cases, conflicts between BIT provisions and EC law could arguably become an obstacle to reaching the final aim of an investment arbitration. Ultimately, by means of the preliminary procedure in Article 234 TEC most questions regarding the conformity of investment proceedings with EC law would probably end up before the ECJ.Footnote 66

III Is there a conflict between intra-European BITs and EC law?

The question then remains whether there actually is a conflict between EC law and intra-EU BITs from the EC law perspective.Footnote 67 The main concerns in this regard have been highlighted in the 2006 Commission note mentioned above: ‘[T]he risk remains that arbitration instances, possibly located outside the EU, proceed with investor-to-state dispute settlement procedures without taking into account that most of the provisions of such BITs have been replaced by provisions of Community law. […] This could lead to arbitration taking place without relevant questions of EC law being submitted to the ECJ, with unequal treatment of investors among Member States as a possible outcome.’Footnote 68

The Commission's concerns thus appear to be threefold: First, standards of investor protection provided under BITs might differ from corresponding standards under EC law. Second, BITs might lead to unequal treatment of investors from different Member States. And third, by submitting investment disputes to the jurisdiction of arbitral tribunals, the interpretation and enforcement of mandatory provisions of European law might be removed from control by the ECJ.

Each of these concerns will be assessed in turn.Footnote 69

A. Different Protection Standards Are Compatible With EC Law

The concern that standards of protection under a BIT might be in conflict with competing standards of EC law is probably the easiest to address. The main substantive rights afforded to an investor under a BIT typically comprise the following: fair and equitable treatment, national treatment, most favoured nation treatment, full protection and security, and protection from expropriation.Footnote 70 While there is a significant overlap between these rights and the protection provided under EC law, the standard of protection is not necessarily the same.Footnote 71

However, the lack of identity of protection standards does not in itself cause a conflict with EC law. As EC law only sets minimum standards for investment protection, nothing would a priori prevent a Member State from granting a higher level of protection to investors under its own legislation or in a BIT. Conversely, where the protection standard under a BIT was lower than under EC law, this would equally not be a cause for concern. Since BITs only purport to provide additional protection to what is already granted by other legal regimes,Footnote 72 the higher protection standard under EC law would not be called into question.

In other words, BITs can only make investors be better off—which is a priori in conformity with the purpose of the TEC.Footnote 73 The mere difference in protection standards can thus not, in itself, be opposed to EC law.Footnote 74

B. Unequal Treatment of Investors From Different Member States

The second concern is that intra-EU BITs may lead to unequal treatment of investors from different Member States. No matter how the substantive protection standards contained in BITs compare to those afforded under EC law, it is clear that they provide investors with at least one considerable advantage: the possibility of pursuing claims through investment arbitration rather than having to seek redress in the national court systems.Footnote 75 Since this additional forum is not available to investors who do not come under the scope of a BIT (the latter typically being restricted to investors with the nationality of one of the signatories), it can be argued that these investors are being discriminated against on grounds of their nationality.

Discrimination on grounds of nationality is prohibited by several provisions of the TEC. Article 12(1) TEC states this as a general principle: ‘Within the scope of application of this Treaty, and without prejudice to any special provisions contained therein, any discrimination on grounds of nationality shall be prohibited.’ Explicit or implicit prohibitions of discrimination are also contained in the provisions on the ‘fundamental freedoms’ destined to guarantee the functioning of the Internal Market.Footnote 76 Whether the restriction of the advantages granted by BITs to certain investors constitutes a violation of these provisionsFootnote 77 cannot be evaluated without having regard to the case law of the ECJ. While there are no ECJ decisions directly relating to BITs, a number of decisions address the limitation of benefits granted on grounds of nationality under other kinds of bilateral agreements.Footnote 78

The concern as to discrimination can present itself in two ways, depending on whether one looks at the obligations of the home state of an investor (the investment ‘export’ perspective) or at those of a host state (the investment ‘import’ perspective).Footnote 79 From the first perspective, it may be argued that, as BITs typically only provide for protection of investors that are either nationals or incorporated under the laws of the signatory Member State,Footnote 80 they discriminate against investors from other Member States.

From the second perspective, one could argue that, as BITs grant certain advantages only to investors from the other contracting state, but not to investors from third Member States, they discriminate between investors from different Member States other than the host Member State. This argument concerns the question of intra-European Most Favoured Nation (MFN) treatment.

1. The ‘export’ perspective: discrimination by reservation of protection to ‘own’ investors?

From the ‘export’ perspective, the issue of discrimination can only arise where an investor has previously exercised one of the fundamental freedoms, bringing him under the scope of the TEC provisions on the Internal Market. Such an investor will be established in the ‘exporting’ Member State, but be either a national of or incorporated under the laws of another Member State. There are a number of ECJ judgments relevant in this context: the decisions in Saint Gobain, Gottardo and Matteucci and the rulings in the Open Skies cases.

In Saint Gobain, the ECJ had to answer the question whether provisions contained in the German-Swiss and German-US bilateral agreements for the avoidance of double taxation were in conflict with EC law.Footnote 81 These provisions granted an exemption from German corporation tax for dividends received in Switzerland and the US respectively, but essentially limited this exemption to German companies. In its decision, the ECJ stated that the freedom of establishment guaranteed nationals of the Member States who had set up branches or agencies in another Member State to be treated by the latter in the same way as its own nationals.Footnote 82 Accordingly, the ECJ held that the restriction of the tax advantages to German companies was an unjustified discrimination against companies established in Germany but incorporated in other Member States and in conflict with the freedom of establishment.Footnote 83 The ECJ specifically disregarded the argument that an extension of the tax advantages to these companies would call into question the ‘balance and the reciprocity’ of the bilateral agreements. Instead, it pointed out that Germany could unilaterally extend these advantages to companies of the other Member States without any problem.Footnote 84

In the Gottardo decision, the ECJ used a similar approach to decide on a question of discrimination relating to the free movement of workers. In this case, it had to rule on the legality of a provision in the Italo-Swiss Social Security Convention, stipulating Italy's obligation to grant certain benefits to Italian workers that were not extended to workers of other EU nationalities in Italy. The ECJ referred to the general principle of non-discrimination as well as the principle of equal treatment of Community workers and found that the non-extension of the benefits was a violation of EC law.Footnote 85 As in the Saint Gobain decision, the ECJ did not accept the balance and reciprocity of bilateral conventions as a justification for the difference in treatment, as Italy could have unilaterally extended the benefits granted under the Convention to other EU nationals.Footnote 86

In Matteucci, the point of contention was a Cultural Agreement between Belgium and Germany, providing for scholarships relating to professional training to be granted by each of the signatories to nationals of the other signatory.Footnote 87 It appears that, while the scholarships to Belgian nationals were granted by the German side, the candidates were selected on the basis of a list drawn up by a Belgian authority.Footnote 88 The proceedings were not concerned with the final selection by the German side, but rather with the Belgian authority's decision that nationals of other EU Member States were not eligible to be included in the list of candidates. Basing itself on secondary EC legislation relating to the free movement of workers, the ECJ held that this violated the principle of equal treatment of Community workers.Footnote 89

Finally, in the so-called Open Skies cases,Footnote 90 the ECJ had to decide on the legality of bilateral agreements in the air transport sector that had been concluded between a number of EC Member States and the US. Each of these agreements provided that airlines substantially owned and effectively controlled by the Member State party or its nationals were eligible to obtain the necessary US operating licenses and authorizations required for flights in the US. The ECJ held that, by restricting this advantage to airlines of the Member State party, the agreements were discriminatory against airlines that were established in that Member State, but not substantially owned and effectively controlled by that State or its nationals, and therefore violated Articles 43 and 48 TEC.Footnote 91 The ECJ did not accept the argument that any discrimination would flow from a unilateral US decision, rather than from the Agreement itself.Footnote 92 It also did not address whether the US would have accepted to extend the relevant benefits to airlines of the other Member States, but it simply stated that the efforts undertaken by the contracting parties in this regard had been insufficient.Footnote 93

All these decisions show how seriously allegations of discrimination on grounds of nationality through bilateral agreements are taken by the ECJ. However, they do not necessarily imply that the ECJ would qualify the reservation of benefits under BITs to nationals and companies of the party as a violation of EC law. Notably, the situation in Saint Gobain and Gottardo was fundamentally different from that under a BIT in that the incriminated advantages in these decisions were granted by the ‘exporting’ Member States themselves. As the ECJ pointed out, the benefits could just as well have been established through the national legislation of the Member States and it was difficult to see why their inclusion in a bilateral agreement would make any difference. By contrast, under a BIT, investment protection is granted by the other signatory state. The ECJ's argument used in Saint Gobain and Gottardo that benefits could be extended unilaterally does therefore not apply.

Still, the Matteucci and Open Skies judgments imply that the difficulty of unilaterally remedying a discriminatory effect is not always a sufficient excuse. In these cases the ECJ assumed that the Member States had violated EC law even though the ultimate decision on granting the benefit (and thus arguably on the discrimination) was in the hands of the other signatory.Footnote 94 Does this then imply that EC law generally requires the extension of all benefits granted to the nationals of a Member State by another state under a bilateral agreement to other EC nationals or companies established in that Member State? It is suggested that such a reading of the Matteucci and Open Skies decisions would not be appropriate.

First, one has to stress that the consequences of such a reading would by no means be limited to intra-EU BITs or even BITs in general. By assuming a general obligation of the Member States to negotiate for an extension of benefits granted under bilateral agreements to other EC nationals (including in negotiations with non-Member States) one would considerably restrict their external competences. The ECJ's mentioning of the ‘balance and reciprocity’ of bilateral agreements as a possible justification for discriminatory effects in the Saint Gobain and Gottardo decisions indicates that this cannot have been the Court's intention.Footnote 95

Second, such a reading would provide for the extension of benefits even in situations where one would be hard pressed to establish any link with the functioning of the Internal Market. In the Matteucci and Open Skies decisions, the connection with the actual purpose of the non-discrimination provisions of the TEC was recognizable, as denying the extension of the disputed benefits would have reflected upon the situation of non-nationals vis-à-vis their national competitors in the respective Member States. A similar competitive relationship between the nationals of a Member State and the non-nationals established therein does not exist when it comes to the protection of investments in another (Member or non-Member) state. Rather, such an investment will typically be unconnected to the investor's activity in that Member State.

Third, it appears that not even the European Commission contends that the limitation of benefits granted under a BIT to national investors would be in conflict with EC law. This can be inferred from the pending Treaty infringement proceedings that were recently brought against Sweden, Austria and Finland,Footnote 96 alleging the non-conformity of a number of BITs concluded by these Members with third countries. While the Commission alleges that these BITs are incompatible with the TEC for not allowing the Member States concerned to apply restrictions on capital or payments in their dealings with the third countries, no discrimination argument has been made despite the limitation of protection to national investors.Footnote 97

As a consequence it is suggested that, from an ‘export’ perspective, EC law does not prohibit the protection granted to investors under intra-EU BITs.

2. The ‘import’ perspective: intra-European MFN-treatment?

From the ‘import’ perspective, the question is whether EC law allows a Member State to treat investors from other Member States with which it has a BIT more favourably than investors from those Member States with which it does not. A prohibition to do this could arguably result from the freedom of establishment, the free movement of capital and the general prohibition of discrimination in the EC Treaty, which have already been mentioned above.Footnote 98

As denying the possibility of different treatment would imply that investors from all Member States had to be treated equally according to the highest standard granted to any of them, one would effectively stipulate a Most Favoured Nation (MFN) obligation of the Member States. The question whether EC law contains such an obligation had extensively been discussed,Footnote 99 before two recent ECJ decisions arguably resolved the dispute.Footnote 100 This authorities, while primarily dealing with intra-EU conventions for the avoidance of double-taxation, would appear to be equally applicable in the context of intra-EU BITs.

In the ‘D’ case, the issue before the ECJ was whether a wealth tax allowance granted by the Dutch authorities under the Belgium-Netherlands Convention for the avoidance of double taxation to Belgian residents, but not to residents of other EU Member States, was in conformity with EC law.Footnote 101 Contrary to the opinion of the Advocate-General,Footnote 102 the ECJ decided that it was ‘an inherent consequence of bilateral double taxation conventions’ that the rights and obligations established thereunder only applied to residents of the contracting Member States and that therefore the situation of a Belgian resident was not comparable to that of a resident of a third Member State.Footnote 103 It also added that the allowance in question could not be regarded in isolation, but had to be seen as an integral part of the Convention, contributing to its overall balance.Footnote 104

Despite criticism from commentators,Footnote 105 the ECJ confirmed this position in the Test Claimants case, finding that a double taxation convention between the UK and the Netherlands granting certain credits on the taxation of dividends only to companies residing in the other Contracting State violated neither the freedom of establishment nor the free movement of capital.Footnote 106 In both the ‘D’ and the Test Claimants cases, the ECJ thus effectively denied an MFN treatment obligation under EC law.

While some aspects of these cases may have been specific to the field of direct taxation,Footnote 107 the ECJ's main line of argumentation should also apply to BITs. There is no question that the facilitation of investment between the Member States is as much in line with the objectives of the TEC as is the avoidance of double taxation and that there are no harmonization measures at the Community level in this regard. True, the scope of application of BITs is typically defined by nationality rather than residency—but would that be relevant for the ECJ's assessment? After all, the ECJ's reliance on the inherent incomparability of the situation of residents of a contracting state with that of the residents of a non-contracting state was not much more than an expression of the Court's unwillingness to adopt the MFN approach suggested by the Advocate-General. If this reading is correct, the ECJ could also be expected to treat the limitation of scope to a Member State's own nationals as ‘an inherent consequence’ of BITs.

As a consequence, the fact that BITs grant advantages only to investors from selected Member States would not appear to be incompatible with EC law.Footnote 108

C. Lack of Control By The ECJ

A final concern with regard to intra-EU BITs from the EC perspective is the lack of control the ECJ has over an investment tribunals' decisions and the associated risk that mandatory provisions of EC law might not be enforced.Footnote 109 One may envisage a situation where a Member State (through contract or unilateral action) has granted rights to an investor that are incompatible with mandatory provisions of EC law.Footnote 110 In such a case the approach of the ECJ (and supposedly of the courts of the Member States) would be to accord priority to EC law by rejecting the investor's rights even if they were recognized under the Member State's national laws.Footnote 111 By contrast, if an investment tribunal established under an intra-EU BIT found that the investor's rights were protected under such BIT, it could a priori not be expected to do the same.Footnote 112

The TEC aims to establish a conclusive system that allows for effective control of all matters related to the interpretation of EC law by the ECJ. This aspiration finds its positive expression in the formula of ‘a Community based on the rule of law’, in which all measures taken by the Community institutions and the Member States are subject to judicial review.Footnote 113 It is defended by Article 292 TEC, prohibiting the Member States from submitting ‘a dispute concerning the interpretation or application of this Treaty to any method of settlement other than those provided for therein’.Footnote 114

The question of the extent to which a Member State may submit issues involving the interpretation of EC law to international arbitration was addressed by the ECJ in the MOX Plant case concerning arbitral proceedings brought by Ireland against the UK under the UNCLOS Convention. The ECJ held that ‘an international agreement cannot affect the allocation of responsibilities defined in the Treaties and, consequently, the autonomy of the Community legal system’ and that thus its jurisdiction over EC law was exclusive.Footnote 115 Accordingly, the ECJ found that, by instituting arbitration proceedings against the UK, Ireland had breached Articles 292 TEC and 10 TEC.Footnote 116

It would, however, be premature to read this decision as a prohibition under EC law to submit investment disputes to international arbitration. In fact, there are two important differences between proceedings brought under an intra-EU BIT and those referred to in the MOX Plant decision. First, in the MOX Plant arbitration Ireland had explicitly relied on two EC Directives which undoubtedly were ‘rules which form part of the Community legal order’ coming under the ECJ's jurisdiction.Footnote 117 Since investment tribunals would typically not purport to interpret EC law provisions, the threat to the ECJ's interpretation prerogative appears to be small. Second, and most importantly, intra-EU investment arbitration takes place not between two Member States, but between a Member State and an investor. Article 292 TEC, which was relied on in the MOX Plant proceedings, but which only mentions disputes submitted by Member States, would thus not apply.

Finally, the lack of control over arbitration proceedings by the ECJ is largely unspecific to investment disputes, and present to a similar extent in commercial arbitration with regard to competition issues for example.Footnote 118 In non-ICSID investment disputes the ECJ has the same level of control as in commercial arbitrations, and even under the ICSID rules there is arguably some degree of control through involvement of the national courts at the enforcement level.Footnote 119 The fact that the EC itself has accepted ICSID (and other) investment arbitration through its ratification of the Energy Charter Treaty constitutes a strong indication that this form of dispute resolution is not irreconcilable with EC law.Footnote 120

IV. Conclusion

In sum, the analysis shows that EC law is potentially relevant for intra-EU investment arbitration both by having an impact on a tribunal's assessment of the applicability and interpretation of intra-EU Investment Treaties and through the possible involvement of the Member States' court systems at different stages of the arbitral process. However, it is equally clear this impact should not preclude investors from starting proceedings under intra-EU BITs. The existence of different protection standards, the unequal treatment of investors from different Member States and the autonomy of the Community legal system—in the current state of the TEC and its interpretation by the ECJ, none of these objections would justify regarding EC law as an obstacle to such arbitrations.

Given the different view of the European Commission and the likely strategy of respondent Member States in current and future arbitration proceedings, the issue nonetheless appears to be far from settled. The Lisbon Reform Treaty—if it was ultimately to enter into forceFootnote 121—could give yet another direction to the debate. The current version of the Treaty provides for the inclusion of foreign direct investment into the Common Commercial Policy and would thus subject BITs with third countries to the exclusive competence of the Community.Footnote 122

Theoretically, this should not affect the competence of the Member States with regard to intra-EU investment protection.Footnote 123 However, the loss of the Member States' external competence in foreign direct investment might well reinforce the impression of intra-EU BITs as obsolete, the argument being that if Community law already saw no need for BITs between the Member States and third countries, there would be even less need for BITs between the Member States themselves. It cannot be excluded that this would de facto lead to a reduced tolerance of any adverse effects that intra-EU BITs may be thought to have on the Internal Market.Footnote 124 Future developments both at the level of the EC institutions and in proceedings before arbitral tribunals and the Member States' national courts should therefore be watched closely.

References

1 Preamble to the Treaty on the European Union.

2 The TEU, the TEC and the Treaties on the accession of the new Member States (Accession Treaties) will also jointly be referred to as the European Treaties.

3 Before accession of ten new Member States to the European Union in 2004 only two intra-European BITs existed (Germany-Greece and Germany-Portugal)—significantly, these had been concluded before Greece and Portugal became Members of the European Communities in 1981 and 1986 respectively.

4 Cyprus, The Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia became Members of the EU with effect from 1 May 2004.

5 With the exception of Ireland (which has only one BIT with the Czech Republic) and Portugal (which does not have a BIT with Estonia), all old Member States have concluded BITs with all new Members from the former Eastern bloc. In addition, there is a considerable number of BITs between the new Members themselves. The Czech Republic takes the lead, having BITs in place with all other EU Member States. As of 1 June 2007, all but one of these BITs (the Cyprus-Italy BIT, signed on 27 April 2004, only days before Cyprus' accession to the EU) had entered into force.

6 The term of EC law will be used in the sense of the law specific to the European Community, as notably deriving from the TEC. The European Court of Justice (ECJ) has established the understanding of EC law as an autonomous ‘legal order of international law’, applying not only between Member States, but also between their nationals, Decision of the European Court of Justice Case C-26/62 Van Gend & Loos [5 February 1963].

7 The Free Movement of Capital, Note for the Economic and Financial Committee, prepared by the European Commission, Internal Market and Services DG, 26–27.

8 Annual EFC Report to the Commission and the Council on the Movement of Capital and the Freedom of Payments, 15 November 2006, 7. It does not appear that this invitation has caused any visible action by the Member States.

9 Eastern Sugar BV v Czech Republic (ad hoc arbitration under UNCITRAL rules), Partial Award of 27 March 2007, para 97.

10 Eastern Sugar BV v Czech Republic (ad hoc arbitration under UNCITRAL rules), Partial Award of 27 March 2007, para 119.

11 Eastern Sugar BV v Czech Republic (ad hoc arbitration under UNCITRAL rules), Partial Award of 27 March 2007, para 181.

12 Eastern Sugar BV v Czech Republic (ad hoc arbitration under UNCITRAL rules), Final Award of 12 April 2007.

13 See Investment Arbitration Reporter of 1 July 2008, http://www.iareporter.com/Archive/IAR-07-01-08.pdf.

14 ibid.

15 Including the possibility of a preliminary ruling by the ECJ in accordance with Article 234 TEC, see infra [p 309].

16 The question of the extent to which EC law can work in favour of an investor in proceedings brought under an intra-EU BIT will not be explicitly addressed in this article. However, the procedural analysis contained in the first part would seem to apply mutatis mutandis.

17 Each tribunal derives its legitimacy from the specific act providing for its creation—there is no a priori hierarchy between different international judicial systems, see Semmelmann, C, ‘Forum Shopping between UNCLOS arbitration and EC adjudication—And the winner … should be … the ECJ!’, in European Law Reporter 2006, 234 ff 237Google Scholar. As a consequence, from the perspective of international law, an investment tribunal is always entitled to decide on its own jurisdiction.

18 See C McLachlan, L Shore and M Weiniger, International Investment Arbitration, (OUP, Oxford, 2007) 3.66. This is true even where a BIT provides that the national law of the state in which the investment was made shall apply in arbitration proceedings initiated under its dispute resolution provision next to international law (see eg Article 7(3) of the Lithuania-Poland BIT) and in ICSID proceedings (Article 42(1) of the ICSID Convention providing that in the absence of agreement ‘the Tribunal shall apply the law of the Contracting State party to the dispute … and such rules of international law as may be applicable’). In both cases the application of national law will not extend to the interpretation of the Treaty itself, see Siemens v Argentina (ICSID), Award of 6 February 2007, paras 77–78 and A Parra, ‘Applicable Law in Investor-State Arbitration,’ draft published in November 2007 on www.transnational-dispute-management.com, 13. Regarding a potential influence of EC law on issues where national law is applicable see infra n. [20].

19 See Söderlund, C, ‘Intra-EU Investment Protection and the EC Treaty’ Journal of International Arbitration, (2007) 455 ff 457–459Google Scholar, claiming notably that the offer to arbitrate contained in the BIT's dispute resolution clause could not be ‘compromised by any purported higher legal order such as the EC Treaty’. This contention is however unconvincing. While the investment tribunal technically derives its authority from an arbitration agreement between the host state and the investor constituted by an offer in form of the BIT's dispute resolution clause and its acceptance by the investor's written request for arbitration (see C McLachlan, L Shore and M Weiniger, International Investment Arbitration (OUP, Oxford, 2007) 3.21 ff), the very validity of the offer cannot be assessed without having regard to the BIT and its regulatory content, interpreted in the light of international law. See also Decision of the English Court of Appeal of 9 September 2005 in Occidental Exploration v Ecuador, para 33, holding that the arbitration agreement between the investor and Ecuador based on the US-Ecuador BIT should be interpreted in accordance with international law, as being ‘closely connected with the international Treaty which contemplated its making.’

20 In addition to the possibilities discussed here, EC law can indirectly influence the outcome of investment proceedings where specific issues (such as the scope of protected assets or the legality of an investment) must be addressed by a tribunal under the national law of a Member State (see A Parra, ‘Applicable Law in Investor-State Arbitration,’ draft published in November 2007 on www.transnational-dispute-management.com, 9 and J Crawford, ‘Treaty and Contract in Investment Arbitration’ (2008) Arbitration International 351 ff, 352). Since the national legal systems of the Member States will (in the absence of a conflict with national norms of a constitutional character) accord prevalence to EC law, an arbitral tribunal applying such national law would arguably have to do the same. This potential impact of EC law is however neither specific to intra-EU investment proceedings nor does it necessarily represent an obstacle to them—as a consequence, this article does not attempt to deal with it.

21 There is no doubt that the European Treaties are instruments of public international law, see infra [6].

22 Decision of the European Court of Justice Case C-102/81 Nordsee Deutsche Hochseefischerei GmbH [23 March 1982] para 13; Decision of the European Court of Justice Case C-126/97 Eco Swiss China Time Ltd v Benetton International NV [1 June 1999] para 34; Decision of the European Court of Justice Case C-125/ Guy Denuit 04 [27 January 2005] para 13. The subsidiary request of the Czech Republic in the Eastern Sugar arbitration to refer the matter to the ECJ (Eastern Sugar BV v Czech Republic (ad hoc arbitration under UNCITRAL rules), Partial Award of 27 March 2007, paras 109 and 130) was consequentially refused by the Tribunal, Eastern Sugar BV v Czech Republic (ad hoc arbitration under UNCITRAL rules), Partial Award of 27 March 2007, para 131.

23 Procedural Order no 3 in the MOX Plant case (Ireland v United Kingdom), dated 24 June 2003.

24 See Procedural Order no. 3 in the MOX Plant case (Ireland v United Kingdom), dated 24 June 2003, paras 22–23. No provisions similar to Article 282 UNCLOS usually exist under BITs.

25 See Decision of the European Court of Justice Case C-26/62 Van Gend & Loos [5 February 1963].

26 See E Klein, ‘Self-Contained Regime’ Max Planck Encyclopedia of Public International Law para 15.

27 See also K Schmalenbach, ‘International Organizations or Institutions: General Aspects’ Max Planck Encyclopedia of Public International Law, para 61.

28 See supra [4].

29 It should be noted that even from the ECJ's perspective qualifying EC law as a separate legal order is not irreconcilable with acknowledging the international law character of the TEC, see Opinion of the European Court of Justice O-1/91 EEA Agreement [14 December 1991] para 1: ‘In contrast, the EEC Treaty, albeit concluded in the form of an international agreement, nonetheless constitutes the constitutional charter of a Community’ (emphasis added). The same opinion implicitly acknowledges that from a public international law perspective the TEC is subject to normal rules of treaty interpretation, see Kuijper, P, ‘The Court and the Tribunal of the EC and the Vienna Convention on the Law of Treaties 1969’ (1998) Legal Issues of European Integration, Vol 25 Issue 1, 1 ff 3.Google Scholar

30 See however the different conclusion of C Tietje with regard to the relevance of EC law in arbitration proceedings based on the Energy Charter Treaty, ‘The Applicability of the Energy Charter Treaty in ICSID Arbitration of EU Nationals vs EU Member States,’ draft published in September 2008 on www.transnational-dispute-management.com, 7.

31 It indeed appears that all existing intra-EU BITs have been concluded while at least one of the signatories was still not an EU member.

32 Eastern Sugar BV v Czech Republic (ad hoc arbitration under UNCITRAL rules), Partial Award of 27 March 2007, paras 100 ff.

33 See Investment Arbitration Reporter of 1 July 2008, http://www.iareporter.com/Archive/IAR-07-01-08.pdf.

34 The only EU Member States that have not ratified the VCLT are France, Malta and Rumania.

35 Article 4 VCLT states: ‘Without prejudice to the application of any rules set forth in the present Convention to which treaties would be subject under international law independently of the Convention, the Convention applies only to treaties which are concluded by States after the entry into force of the present Convention with regard to such States.’

36 This is the case for most of the VCLT, see International Law Commission ‘Report of the Study Group of the International Law Commission on Fragmentation of International Law’ (13 April 2006) para 194. See also C McLachlan, L Shore and M Weiniger, International Investment Arbitration (OUP, Oxford, 2007) 3.66 and Decision of the Swiss Federal Supreme Court of 7 September 2006 following appeal against the Partial Award on Jurisdiction of 17 March 2006 in Saluka Investments BV v Czech Republic, para 5.4.1 on the interpretation rules under the Vienna Convention constituting customary international law.

37 In full, Article 59 VCLT states: ‘Termination or suspension of the operation of a treaty implied by conclusion of a later treaty

  1. 1.

    1. A treaty shall be considered as terminated if all the parties to it conclude a later treaty relating to the same subject matter and:

    1. (a)

      (a) it appears from the later treaty or is otherwise established that the parties intended that the matter should be governed by that treaty; or

    2. (b)

      (b) the provisions of the later treaty are so far incompatible with those of the earlier one that the two treaties are not capable of being applied at the same time.

  2. 2.

    2. The earlier treaty shall be considered as only suspended in operation if it appears from the later treaty or is otherwise established that such was the intention of the parties.'

38 However, some intra-EU BITs may have been modified after the enlargement. This is true for example of the Germany-Poland BIT, an amendment to which became effective only in October 2005. In these cases, it would seem that the signatories had no intention of terminating their BIT and Article 59 VCLT could not be applied.

39 See notably the Treaty on the accession of the 10 new Member States (Czech Republic, Estonia, Cyprus, Latvia, Lithuania, Hungary, Malta, Poland, Slovenia and Slovak Republic) signed 16 April 2003, stating in Art. 1 that the above-mentioned states ‘hereby become members of the European Union and Parties to the Treaties on which the Union is founded as amended or supplemented.’

40 It would be systematically wrong to conclude from Article 133 TEC that the Community has no competence in the field of intra-EU investment, as the provision does not apply to such investments. See however the different opinion of Söderlund, C., ‘Intra-EU Investment Protection and the EC Treaty’ Journal of International Arbitration, 455 ff 458, 462Google Scholar.

41 For the details of these provisions see infra [15].

42 See Report of the Study Group of the International law Commission on Fragmentation of International Law of 13 April 2006, para 253, advising against a restrictive interpretation of what constitutes the ‘same subject matter’ in the context of Article 30 VCLT. According to this report, the test should be whether ‘the fulfilment of the obligation under one treaty affects the fulfilment of the obligation of another.’ (13 April 2006), ‘Report of the Study Group of the International law Commission on Fragmentation of International Law’ para 254. A more restrictive approach appears to be favoured by I Sinclair, The Vienna Convention on the Law of Treaties (1973). 68. Similarly, the Tribunal in the Eastern Sugar arbitration found that the BIT in question and the TEC did, ‘not cover the same precise subject-matter’ Eastern Sugar BV v Czech Republic (ad hoc arbitration under UNCITRAL rules), Partial Award of 27 March 2007, para 160.

43 In case of conflicts between treaties that have not been concluded with the same objective in mind, the posteriority of one of them does not necessarily express a presumption of priority, see ‘Conclusions of the work of the Study Group on the Fragmentation of International Law: Difficulties arising from the Diversification and Expansion of International Law,’ Yearbook of the International Law Commission, (2006) vol II, Part Two, para 26.

44 See infra [13 ff].

45 Art 30(3) VCLT states: ‘When all the parties to the earlier treaty are parties also to the later treaty but the earlier treaty is not terminated or suspended in operation under article 59, the earlier treaty applies only to the extent that its provisions are compatible with those of the later treaty.’ Article 30 VCLT would seem to represent customary international law, see International Law Commission ‘Report of the Study Group of the International Law Commission on Fragmentation of International Law’ (13 April 2006) para 252.

46 See Article 2 of the respective Acts concerning the conditions of accession of the new Member States, which are referred to as ‘integral part[s]’ of the Accession Treaties: ‘From the date of accession … the acts adopted by the institutions … before accession … shall be binding on [the respective new Member States].’

47 The TEC itself establishes the ECJ's exclusive competence for the interpretation of the Treaty, see Article 292 TEC and infra 22.

48 One should bear in mind, however, that the limit of any interpretation is the meaning of the words and thus anything going beyond what can reasonably be understood by the wording constitutes a possible interpretation only if one can be absolutely certain of a corresponding intention of the signatory states, see Decision of the Swiss Federal Supreme Court of 7 September 2006 following appeal against the Partial Award on Jurisdiction of 17 March 2006 in Saluka Investments BV v Czech Republic, para 5.4.1.

49 See International Law Commission ‘Report of the Study Group of the International Law Commission on Fragmentation of International Law’ (13 April 2006) paras 230, 233.

50 See Decision of the European Court of Justice Case, C-235/87 Annunziata Matteucci v Communauté francaise of Belgium and Commissariat général aux relations internationales of the Communauté francaise of Belgium [27 September 1988] para 22; Decision of the European Court of Justice Case, C-10/61 Commission v Italy [27 February 1962].

51 See the suggestion of Ireland in the MOX Plant case before an UNCLOS tribunal, referred to in Opinion of AG Maduro in C-459/03, para 49.

52 C McLachlan, L Shore and M Weiniger, International Investment Arbitration (OUP, Oxford, 2007) 3.66.

53 See supra 303.

54 See C McLachlan, L Shore and M Weiniger, International Investment Arbitration (OUP, Oxford, 2007) 3.66 with examples of awards.

55 See Partial Award in Saluka Investments BV v The Czech Republic (UNCITRAL rules) para 254.

56 See eg Article 8(6) of the Czech-Netherlands BIT.

57 See C McLachlan, et al supra n 18 3.69 and ‘Conclusions of the Work of the Study Group on the Fragmentation of International Law: Difficulties arising from the Diversification and Expansion of International Law’ Yearbook of the International Law Commission, (2006) vol II, Part Two, para 21. See also Judgment of the International Court of Justice in case concerning Oil Platforms (Islamic Republic of Iran v United States of America) [6 November 2003] paras 41–42.

58 See McLachlan, C, ‘The Principle of Systemic Integration and Article 31(3)(c) of the Vienna Convention’ International and Comparative Law Quarterly 2005, 279 ff.CrossRefGoogle Scholar

59 Decision of the European Court of Justice Case C-106/77 Simmenthal, [9 March 1978] para 17; Opinion of the European Court of Justice O-1/91, opinion EEA Agreement, [14 December 1991] para 21.

60 Decision of the European Court of Justice, Case C-235/87 Annunziata Matteucci v Communauté francaise of Belgium and Commissariat général aux relations internationales of the Communauté francaise of Belgium [27 September 1988] para 22; Decision of the European Court of Justice Case C-3/91 Exportur SA v LOR SA and Confiserie du Tech SA [10 November 1992] para 8. This claim for supremacy of EC law over other international treaties (despite the treaty character of the TEC itself) can only be explained by the ECJ's characterization as a ‘new legal order’ based on the ‘constitutional charter’ of the ECT, see Opinion of the European Court of Justice opinion O-1/91 EEA Agreement [14 December 1991] para 21. It has rightly been pointed out that the ECJ also relies on methods of interpretation different from those under public international law, see C Semmelmann, Forum Shopping between UNCLOS arbitration and EC adjudication—And the winner … should be … the ECJ!' European Law Reporter 2006, 234 ff 239. See also International Law Commission ‘Report of the Study Group of the International law Commission on Fragmentation of International Law’ (13 April 2006), para 218.

61 See eg Decision of the Swiss Federal Supreme Court of 7 September 2006 following appeal against the Partial Award on Jurisdiction of 17 March 2006 in Saluka Investments BV v Czech Republic, where the Court explicitly refused the argument that the dispute resolution clause contained in the Czech Republic-Netherlands BIT excluded its jurisdiction on appeal, para 5.

62 See C McLachlan, et al supra n 18 3.51. Only in the case of ICSID arbitrations, the lex arbitri is the ICSID Convention itself and the laws of the physical place of arbitration have no bearing on the arbitration procedure, seeibid 3.34, 3.51. A similar conclusion is reached by R Happ, ‘The legal status of the investor vis-à-vis the European Communities: some salient thoughts’ International Arbitration Law Review 2007, 74 ff 77.

63 L Reed, J Paulsson and N Blackaby, A Guide to ICSID Arbitration (Kluwer Law International, The Hague, 2004), 95.

64 They may actually have to do so as a matter of EC law to the extent that the incompatibility concerns a ‘fundamental provision which is essential for the accomplishment of the tasks entrusted to the Community and, in particular, for the functioning of the internal market’, see Decision of the European Court of Justice Case C-126/97 Eco Swiss China Time Ltd v Benetton International NV [1 June 1999] para 36.

65 Even with regard to the enforcement of an ICSID award where Article 54 of the ICSID Convention requires the Signatories to ‘enforce the pecuniary obligations imposed […] as if it were a final judgment of a court in that State’, it has been suggested that courts might have recourse to Article 31(3)(c) VCLT to interpret their obligations under the ICSID Convention in the light of international law doctrines such as ‘abuse of right’ or ‘good faith’ see E Baldwin, M Kantor and M Nolan ‘Limits to Enforcement of ICSID Awards’ (2006) 23 Journal of International Arbitration 1 7, 17.

66 The annulment proceedings in the Czech courts against the jurisdictional award in RJ Binder mentioned above could become a reason for the ECJ's involvement, see Investment Arbitration Reporter of 1 July 2008, http://www.iareporter.com/

67 The different ways in which such a conflict could become an obstacle to arbitral proceedings based on intra-EU BITs have been described above, see supra [301 ff.].

68 The Free Movement of Capital, Note for the Economic and Financial Committee, prepared by the European Commission, Internal Market and Services DG, 27 (emphasis added).

69 The argument that bilateral investment comes under the competence of the Member States would do nothing to prevent a conflict with EC law. The ECJ has repeatedly held that where Member States were at liberty to conclude bilateral agreements, this did not disband them from exercising their powers in consistency with EC law, Decision of the European Court of Justice Case C-307/97 Compagnie de Saint-Gobain Zweigniederlassung Deutschland v Finanzamt Aachen-Innenstadt [21 September 1999] para 57, and Decision of the European Court of Justice Case C-235/87 Annunziata Matteucci v Communauté francaise of Belgium and Commissariat général aux relations internationales of the Communauté francaise of Belgium [27 September 1988] para 19.

70 C McLachlan, et al supra n 18 2.20. BITs also often feature additional protection, notably through ‘umbrella clauses’ and the guaranteed free transfer of payments related to an investment, seeibid 2.20–2.24.

71 A detailed comparison of the substantive standards provided and their application in the juvisprudence of the European Courts and investment tribunals is beyond the scope of this article. However, the question to which extent EC law provides for MFN and national treatment of investors will be addressed infra III.B.

72 See eg the provision to that effect in the Czech-Netherlands BIT, Article 3(5) stating explicitly that other rules under international law more favourable to investments by investors of the Contracting Parties shall prevail.

73 See also C Söderlund, supra n 19 455 ff 461.

74 The question whether the different treatment of investors as a result of different BITs (or the lack of BITs) between Member States is compatible with EC law will be addressed below.

75 See also Eastern Sugar BV v Czech Republic (ad hoc arbitration under UNCITRAL rules), Partial Award of 27 March 2007, para 180.

76 See Article 28 TEC (‘Quantitative restrictions on imports and all measures having equivalent effect shall be prohibited between Member States’) on the free movement of goods, Article 39(2) TEC (‘freedom of movement shall entail the abolition of any discrimination based on nationality between workers of the Member States as regards employment, remuneration and other conditions of work and employment’) on the free movement of workers, Article 43 TEC (‘Freedom of establishment shall include the right to take up and pursue activities […] under the conditions laid down for its own nationals by the law of the country where such establishment is effected’) on the freedom of establishment, Article 49 TEC (‘restrictions on freedom to provide services within the Community shall be prohibited in respect of nationals of Member States who are established in a State of the Community other than that of the person for whom the services are intended’) on the freedom to provide services and Article 56(1) TEC (‘all restrictions on the movement of capital between Member States and between Member States and third countries shall be prohibited’) on the free movement of capital.

77 The freedom of establishment and the free movement of capital appear to be the most relevant principles in this regard.

78 While two of these decisions address the question of discrimination in a free movement of workers context (Article 39 TEC and Regulation 1612/68), the ECJ's reasoning with regard to the freedom of establishment should in principle not be different.

79 See Wehland, H, ‘Schiedsverfahren auf der Grundlage bilateraler Investitionsschutzabkommen zwischen EU-Mitgliedstaaten und die Einwendung des entgegenstehenden Gemeinschaftsrechts,’ (2008) SchiedsVZ, 222 ff 229.Google Scholar

80 See eg Article 1(b) of the Netherlands-Czech Republic BIT, defining as ‘investors’ either ‘natural persons having the nationality of one of the Contracting Parties’ or ‘legal persons constituted under the law of one of the Contracting Parties’.

81 Decision of the European Court of Justice Case C-307/97 Compagnie de Saint-Gobain Zweigniederlassung Deutschland v Finanzamt Aachen-Innenstadt [21 September 1999].

82 ibid para 34.

83 ibid paras 43, 47, 63.

84 ibid para 59.

85 Decision of the European Court of Justice Case C-55/00 Elide Gottardo v Istituto nazionale della previdenza sociale (INPS) [15 January 2002] para 34.

86 ibid para 37.

87 Decision of the European Court of Justice Case C-235/87 Annunziata Matteucci v Communauté francaise of Belgium and Commissariat général aux relations internationales of the Communauté francaise of Belgium [27 September 1988] para 3.

88 ibid para 17.

89 ibid para 23.

90 Decisions of the European Court of Justice Cases C-466-469/98 C-471-472/98, C-475-476/98, in infringement proceedings against Austria, Belgium, Denmark, Finland, Germany, Luxembourg, Sweden and the United Kingdom, [5 November 2002].

91 See eg Decision of the European Court of Justice Case C-471/98 Commission v Belgium [5 November 2002] paras 137–142.

92 ibid para 141.

93 ibid para 143.

94 Seeibid para 141.

95 See Decision of the European Court of Justice Case C-307/97 Compagnie de Saint-Gobain Zweigniederlassung Deutschland v Finanzamt Aachen-Innenstadt [21 September 1999] para 60; Decision of the European Court of Justice Case C-55/00 Elide Gottardo v Istituto nazionale della previdenza sociale (INPS) [15 January 2002] para 36.

96 C-205/06, C-249/06 and C-118/07.

97 See eg the definition of ‘investor’ in Article 1(2) of the BIT between Austria and the Republic of Korea as ‘any natural person who is a national of either Contracting Party’ or ‘any juridical person or commercial partnership constituted in accordance with the laws and regulations of either Contracting Party, having its seat in the territory of this Contracting Party’.

98 See supra [15]. In the Eastern Sugar arbitration, the Czech Republic limited its argument to the general prohibition of discrimination contained in Article 12 TEC, see Eastern Sugar BV v Czech Republic (ad hoc arbitration under UNCITRAL rules), Partial Award of 27 March 2007, para 106.

99 For an overview see G Kofler and C Schindler, ‘Dancing with Mr D’: The ECJ's Denial of Most-Favoured-Nation Treatment in the ‘D’ case, 45 European Taxation 2005, 530–540, 532; see also R van der Linde, ‘Some thoughts on most-favoured-nation treatment within the European Community legal order in pursuance of the D case,’ 13 EC Tax Review 2004, 10–17, 12. Those in favour of intra-European MFN treatment seemed however not to agree whether the basis for such treatment be found in the fundamental freedoms of Art. 49, 56 TEC (N Herzig, ‘Der EWG-Vertrag und die Doppelbesteuerungsabkommen,’ Der Betrieb 1992, 2519 ff 2522), the general prohibition of discrimination contained in Art. 12 TEC (see R van der Linde,ibid, at 13 EC Tax Review 2004, 10–17, 13 and Weggenmann, H, ‘EG-rechtliche Aspekte steuerlicher Meistbegünstigung im Abkommensrecht’ (2003) Internationales Steuerrecht 677 ff 679Google Scholar) or both (see Weber, D and Spierts, E, ‘The “D Case”: Most-Favoured-Nation Treatment and Compensation of Legal Costs before the European Court of Justice’ (2004) European Taxation 65–71, 67.Google Scholar

100 Decision of the European Court of Justice Case C-376/03 D v Inspecteur van de Belastingdienst/Particulieren/Ondernemingen buitenland te Heerlen. [5 July 2005], Decision of the European Court of Justice Case C-374/04 Test Claimants in Class IV of the ACT Group Litigation v Commissioners of Inland Revenue [12 December 2006].

101 Decision of the European Court of Justice Case C-376/03 D v Inspecteur van de Belastingdienst/Particulieren/Ondernemingen buitenland te Heerlen [5 July 2005] para 46.

102 Advocate General Ruiz-Jarabo Colomer stressed that residents of all Member States were entitled not to be disciminated against on grounds of their nationality and that there was nothing to prevent Community law from being applied to rectify any inequality amounting to a hindrance to the free movement of capital, see Opinion in C-376/03, para 97.

103 Decision of the European Court of Justice Case C-376/03 D v Inspecteur van de Belastingdienst/Particulieren/Ondernemingen buitenland te Heerlen [5 July 2005] para 61.

104 ibid para 62.

105 Notably, the ECJ's reasoning has been identified as circular, see G Kofler and C Schindler, supra n 99.

106 Decision of the European Court of Justice Case C-374/04 Test Claimants in Class IV of the ACT Group Litigation v Commissioners of Inland Revenue [12 December 2006] paras 91–93.

107 Notably, the ECJ referred to Article 293 TEC, which states that ‘Member States shall, so far as is necessary, enter into negotiations with each other with a view to securing for the benefit of their nationals: […] the abolition of double taxation within the Community.’

108 In any event, even if there was a conflict, its consequence would likely be the extension of BIT provisions to investors from other Member States, rather than their inapplicability, see Decision of the European Court of Justice Case C-235/87 Annunziata Matteucci v Communauté francaise of Belgium and Commissariat général aux relations internationales of the Communauté francaise of Belgium [27 September 1988] para 23, where the ECJ merely observed that the reservation of a certain advantage to nationals of a certain Member State could ‘not prevent the application of the principle of equality of treatment’.

109 This objection would in fact seem to be based on two different concerns: first, that an investment tribunal will not accord precedence to EC law over other applicable norms, and second, that an investment tribunal may, ‘misinterpret’ provisions of EC law. However, both concerns ultimately relate to the question of the effective enforcement of EC law through the ECJ.

110 For example the TEC provisions on state aid, see infra [120].

111 See Decision of the European Court of Justice of Case C-24/95 Land Rheinland-Pfalz v Alcan Deutschland GmbH [20 March 1997]: ‘Community law requires the competent authority to revoke a decision granting unlawful aid … even where such recovery is excluded by national law.’

112 However, there would likely be room for the tribunal to take into account a conflicting EC law provision when interpreting the substantive protection standards of the relevant BIT. See supra [309–310].

113 Decision of the European Court of Justice Case C-294/83 Parti écologiste ‘Les Verts’ v European Parliament [23 April 1986] para 23.

114 Article 292 TEC reads: ‘Member States undertake not to submit a dispute concerning the interpretation or application of this Treaty to any method of settlement other than those provided for therein.’ The idea of this provision is to avoid modifications to what is regarded as a coherent judicial system, see C Semmelmann, supra n 17 (2006) 234 ff 239.

115 Decision of the European Court of Justice Case C-459/03S Commission v Ireland [30 May 2006] para 123.

116 ibid para 184.

117 ibid para 121.

118 See C Söderlund, supra n 19 ff 457.

119 See supra [308].

120 See also C Söderlund, supra n 19 ff 459. Two current ICSID proceedings against Hungary, both relating to long term power purchase agreements, provide an illustration of the European institutions' limited control over the handling of EC law in investment disputes under the Energy Charter Treaty. The European Commission, which apparently takes the view that these agreements constitute illegal state aid under EC law, has (at least in one case successfully) applied to intervene as amicus curiae in these proceedings, see Investment Arbitration Reporter of 11 December 2008, http://www.iareporter.com/Archive/IAR-12-11-08.pdf. A similar scenario can also be envisaged under an intra-EU BIT.

121 The Lisbon Treaty, signed by the Member States in December 2007, could take effect from January 2009 at the earliest. However, as a result of the Irish referendum failed in June 2008, the future of the Treaty currently appears uncertain.

122 Article 207 of the consolidated version of the ‘Treaty on the Functioning of the European Union’ includes foreign direct investment into the Common Commercial Policy, while also stating that ‘[t]he exercise of the competences conferred by this Article in the field of the common commercial policy shall not affect the delimitation of competences between the Union and the Member States.’ Assuming that the latter reservation only applies to the delimitation of internal competences, the Member States, according to Articles 10 and 307 TEC, would arguably have to either terminate or at least adapt their BITs with third countries to account for Community measures.

123 Intra-EU BITs do not come under the Common Commercial Policy, see supra [8].

124 See supra at [III.B.].