Spotlight on intra-EU BITs in the context of Brexit (August 2019)

5 August 2019

On 6 March 2018, the Court of Justice of the European Union ruled that investor-State dispute resolution provisions in bilateral investment treaties between EU Member States (intra-EU BITs) are incompatible with EU law (Slovak Republic v. Achmea BV).  In July 2018, the European Commission issued a Communication to the European Parliament and the Council on the protection of intra-EU investment.  It stated that:

Following the Achmea judgment, the Commission has intensified its dialogue with all Member States, calling on them to take action to terminate the intra-EU BITs, given their incontestable incompatibility with EU law.  The Commission will monitor the progress in this respect and, if necessary, may decide to further pursue the infringement procedures.

The fruits of that dialogue became clear in January 2019, when EU Member States issued declarations in which they agreed to terminate all intra-EU BITs by 6 December 2019, by ratifying, approving or accepting a plurilateral or bilateral treaty.  The UK signed the declaration that was also signed by 21 other EU Member States (the “Majority Declaration”).  The Majority Declaration states that “all investor-State arbitration clauses contained in [intra-EU BITs] are contrary to Union law and thus inapplicable.”  The other two forms of declaration contain language to similar effect.  However, in contrast to the other two forms of declaration, the Majority Declaration also stated that the Achmea judgment applies to intra-EU investor-State arbitration under the Energy Charter Treaty (ECT).  The declarations are therefore likely to mark the concrete beginning of the end for intra-EU arbitration, with the Commission taking its firmest stance yet on termination of intra-EU BITs.  Both Achmea and the declarations also give rise to new challenges at the set-aside, recognition, and enforcement phases after any award has been rendered in those intra-EU arbitrations that are currently ongoing.

The timing of the UK’s withdrawal from the EU, and the means by which it does so (with or without a deal), may therefore have a significant impact on the continuation of the UK’s twelve existing intra-EU BITs and on investor-State arbitration under the ECT involving the UK and its investors, as well as on the enforcement in the UK of awards rendered in intra-EU arbitrations.  At the time of writing, the UK has not yet terminated its intra-EU BITs, nor are we aware of the text of any “plurilateral treaty or of any bilateral treaty terminating bilateral investment treaties between Member States”, as referred to in the Majority Declaration.  Given that the UK’s intra-EU BITs are still in force, there are a number of possible scenarios that may emerge over the coming months:

  1. The UK withdraws from the EU without having terminated its intra-EU BITs.  If Prime Minister Boris Johnson delivers on his promise to leave the UK by the current deadline of 31 October 2019, there is a good chance that the UK will not have terminated its intra-EU BITs by that date. After all, it has committed to do so only by 6 December 2019.  In those circumstances, there are two possible outcomes:
    1. if the UK leaves without a deal, the UK’s BITs with other EU countries would cease to be “intra-EU BITs”; the UK’s BITs with existing EU Member States would continue in force and would no longer be impacted by Achmea or by the commitments made in the Majority Declaration;
    2. if the UK leaves with a deal (and one which provides for a transition period like that set out in the current draft Withdrawal Agreement), Union law would continue to be applicable to and in the UK during the transition period and would therefore arguably still require the UK to carry out the commitments in the Majority Declaration.
  2. The UK terminates its intra-EU BITs before its withdrawal from the EU.  This outcome would almost certainly occur should the UK once again defer the date on which it is due to withdraw from the EU, and to a date after 6 December 2019.  Thereafter, the UK would (as things stand) be left with no BITs with Bulgaria, Croatia, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Romania, Slovakia, and Slovenia.  Since the negotiation of treaties relating to foreign direct investment has been an exclusive competence of the EU since 2009, any investment protections between the UK and these countries would need to be dealt with as part of the negotiations of the Future Economic Partnership between the UK and the EU as a whole.

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