Declaration of EU member states on non-applicability of ECT arbitration provisions intra-EU

On 25 June 2024, 26 out of the 27 EU member states agreed to sign an Energy Charter Treaty (ECT) Inter Se declaration, which gives effect to the Komstroy judgment of the European Court of Justice regarding the non-applicability of ECT arbitration provisions intra-EU.

According to the Declaration on the Legal Consequences of the Judgment of the Court of Justice in Komstroy and Common Understanding on the Non-Applicability of Article 26 of the Energy Charter Treaty as a Basis for Intra-EU Arbitration Proceedings published by the EU, the signatories share a common understanding that:

1. Article 26 of the ECT cannot and never could serve as a legal basis for intra-EU arbitration proceedings. Article 26 is the clause regulating the settlement of disputes between a contracting party and an investor of another contracting party of the ECT relating to an investment of the latter in the area of the former. Under the clause, an investor has the right to submit the dispute for an international arbitral tribunal for a final and binding resolution.

• Article 47 (3) of the ECT cannot extend, and could not have been extended, to such proceedings. Article 47 (3) is a “sunset clause”, under which the ECT shall continue to apply to competent investment for a period of 20 years from the date on which the contracting party withdrawal from the ECT.

There is a lengthy preamble of the Declaration setting out other consents of the signatories, including rationale of the Declaration and concerns over the current practices for intra-EU ECT claims. Among others, the signatories recall three significant judgments:

• In Commission v Ireland (C-459/03), the Court of Justice of the European Union (CJEU) confirmed that the right of giving authorities interpretation of EU and EURATOM law is with the CJEU, and the exclusive competence extends to the interpretation and allocation of international agreements to which the EU, EURATOM and the Member States are parties, in the relationship between two Member States or the European Union or EURATOM and a Member States.

• In Achmea (C-284/16), the CJEU held that EU law precluded the application of an international agreement concluded between Member States, under which an investor from one of the Member States may bring proceedings against another Member States before an arbitration tribunal.

• In Komstroy (C-741/19), the CJEU held that international arbitration agreement (Article 26 (2) (c)) under the ECT must be interpreted as not being applicable to disputes between a Member State and an investor of another Member State concerning an investment made by the latter in the former Member State.

The signatories believe that a party may, as always, choose to submit these investment disputes in accordance with national law for resolution to the competent courts or administrative tribunals.

The signatories considered that no new intra-EU arbitration proceedings should be registered. For the pending arbitration cases, they considered that the parties to the dispute should have brought the existence of the Declaration to the tribunals’ attention.

It is worth noting that the Hungarian government issued a separate declaration in parallel with the Declaration. Hungary concurs that Article 26 (2) (c) (i.e., the international arbitration agreement) of the ECT shall be interpreted and applied in such a way that it shall no longer serve as a legal basis for disputes between an investor of one Member State and another Member State in connection with an investment in the territory of those other Member States. However, it indicates that the withdrawal of the applicability of Article 26 (2) (c) may be ensured in accordance with international law by a future amendment of the ECT through bilateral or multilateral treaty.

In addition, the Hungarian declaration does not mention its attitude towards Article 47 (3) (“sunset clause”) of the ECT. Indeed, the effect of termination of the ‘sunset clause’ is debatable. Arguably, abolishing ‘sunset clauses’ would undermine the very purpose of such clauses, which is to protect the expectations of investors from the sudden termination of BITs. On 7 June 2024, ICSID registered a case filed by two Bulgarian companies, Eurohold and EIG, against Romania under the terminated Bulgaria-Romania bilateral investment treaty (BIT), where the sunset clause was also terminated in 2022 in a wave of termination of intra-EU BITs. We will continue to follow this case, especially the discussions on jurisdiction.

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