1. BIICL Events December 5, 2008 – Lovells LLP (London) European Law and Investment Treaties: Exploring the Grey Areas INVESTMENT ARBITRATION UNDER INTRA-EU BITS* Pierre P ic Teynier, Pic & Associés (Paris) pierre.pic@teynier.com * For a more detailed analysis, See Eric T EYNIER, « 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.Eric T EYNIER, « 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.

2. BIICL Events December 5, 2008 – Lovells LLP (London) European Law and Investment Treaties: Exploring the Grey Areas In the Eastern Sugar case, the question of applicability of intra-EU BITs was addressed at the stage of the jurisdiction of the arbitral tribunal: -The basis for the arbitral tribunal’s jurisdiction was the Claimant’s acceptance of an offer to arbitrate contained in a BIT; -If, as argued by the Respondent, the offer to arbitrate, i.e the BIT, was no longer applicable after EU accession, this acceptation could not create legal effect. Introduction

3. BIICL Events December 5, 2008 – Lovells LLP (London) European Law and Investment Treaties: Exploring the Grey Areas One of the arguments which the arbitral tribunal has put forward in order to accept jurisdiction was the peculiar situation of this arbitration: - Eastern Sugar filed its request for arbitration in June 2004, i.e after the entry into force of the Accession Treaty on May 1, 2004; - But Eastern Sugar had made its request for pre-arbitral amicable settlement in December 2003, i.e before the entry into force of this Treaty. In other words, in this case, the offer to settle disputes as contemplated in the BIT (through amicable settlement and arbitration) was accepted at a time when this offer was still valid (§176 of the award). Introduction (cont’d)

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

5. BIICL Events December 5, 2008 – Lovells LLP (London) European Law and Investment Treaties: Exploring the Grey Areas Introduction (cont’d) 1) That the two treaties relate to the same subject matter; 2) That the parties intended that the matter shall be governed by the latter treaty or the provisions of the latter 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. This principle is applied by the ECJ which declares that « the EC Treaty takes precedence over agreements concluded between Member States before its 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 this ruling applicable to intra-EU BITS concluded before EU accession?

6. BIICL Events December 5, 2008 – Lovells LLP (London) European Law and Investment Treaties: Exploring the Grey Areas 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). Introduction (cont’d)

7. BIICL Events December 5, 2008 – Lovells LLP (London) European Law and Investment Treaties: Exploring the Grey Areas 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) Introduction (cont’d)

8. BIICL Events December 5, 2008 – Lovells LLP (London) European Law and Investment Treaties: Exploring the Grey Areas The arbitral tribunal in Eastern Sugar has decided that BITs do not have the same subject matter as EC law (§ 159–166 of the award). -Because the only garantee offered by EC law, namely the free movement of capital, is applicable at the stage of the admission of intra-EU investments only; -By contrast, BITs provide for protection of investments, both substantially (fair and equitable treatment, non discrimination, etc.) and procedurally (international arbitration). I. Intra-EU BITs and EC law: same subject matter ?

9. BIICL Events December 5, 2008 – Lovells LLP (London) European Law and Investment Treaties: Exploring the Grey Areas I. Intra-EU BITs and EC law: same subject matter ? (cont’d) But EC law also applies to the investments’ protection: Substantially: Article 56 ECT (duty to abolish restriction on movements of capital) would be meaningless if restricted to the admission of intra-EU investments, i.e if Member States were obliged to admit intra-EU investment but were then free to treat them in a discriminatory, arbitrary or discretionary manner (ECJ, 04/06/2002, Commission v./ France).

10. BIICL Events December 5, 2008 – Lovells LLP (London) European Law and Investment Treaties: Exploring the Grey Areas 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).

11. BIICL Events December 5, 2008 – Lovells LLP (London) European Law and Investment Treaties: Exploring the Grey Areas 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). II. Intention that the matter of intra-EU investments be governed by EC law ?

12. BIICL Events December 5, 2008 – Lovells LLP (London) European Law and Investment Treaties: Exploring the Grey Areas Implicit intention to terminate BITs? Article 118 of the 1993 Association Agreement provides that « (t)his Agreement shall not, until aquivalent right for individuals ans economic operators have been achieved under this Agreement, affect right assured to them through existing agreement »; A contrario, rights assured to economic operators through BITs were affected as soon as equivalent rights were achieved through EU law. II. Intention that the matter of intra-EU investments be governed by EC law ? (cont’d)

13. BIICL Events December 5, 2008 – Lovells LLP (London) European Law and Investment Treaties: Exploring the Grey Areas 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. III. Possibilty to apply simultaneously BITs and EC law ?

14. BIICL Events December 5, 2008 – Lovells LLP (London) European Law and Investment Treaties: Exploring the Grey Areas A few exemples: Discrimination: BIT between Poland and France, but to BIT between France and Germany. If, as was rules in Eatern Sugar, BITs GRANT more protection than EC law, is it acceptable that a Polish investor in France be treated more favourably the German investor in the same country ? III. Possibilty to apply simultaneously BITs and EC law ? (cont’d)

15. BIICL Events December 5, 2008 – Lovells LLP (London) European Law and Investment Treaties: Exploring the Grey Areas Arbitrability of disputes: In Eastern Sugar, one of the investor’s head of claims (as a matter of facts, the only one that happened to be accepted bt arbitral tribunal) was that the state would have frustated Eastern Sugar’s legitimate expectation in that it implemented a sugar regime purpotedly inconcistent with the Common Agricultural Policy. Put otherwise, a private entity was bringing in front of an arbitral tribunal a dispute that amounted to an infringment proceeding against a EU Member State. Yet, such proceeding may be logeded 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 without infinging EU International public policy rules and principales ? III. Possibilty to apply simultaneously BITs and EC law ? (cont’d)

16. BIICL Events December 5, 2008 – Lovells LLP (London) European Law and Investment Treaties: Exploring the Grey Areas 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.