EU states agree treaty to terminate bilateral investment treaties

The treaty was negotiated in response to a decision by the Court of Justice of the EU (CJEU), which ruled that dispute resolution clauses in intra-EU BITs which require the parties to refer their disputes to arbitration are incompatible with EU law. The Commission said that it was considering infringement proceedings against those member states which had not endorsed the text, unless they took action to terminate their BITs separately.

BITs are international agreements signed between two states which establish the terms and conditions for private investment by nationals and companies of one state in the other state. They usually incorporate alternative dispute resolution mechanisms. For example, a BIT may provide that any disputes be referred to arbitration under the auspices of an international arbitration institution such as the International Centre for the Settlement of Investment Disputes (ICSID), rather than allowing the state to be sued in its own courts.

In March 2018, the CJEU found that an investor-state arbitration clause contained in the Netherlands-Slovak BIT had an adverse effect on the autonomy of EU law, and was therefore incompatible with EU law. The CJEU had been asked to rule on a question which had been referred to it by the German Federal Court of Justice, the Bundesgerichtshof, arising out of an award which had been issued in an arbitration between Achmea, a Dutch investor, and the Slovak Republic.

Although the CJEU's decision dealt with the application of a single BIT, the European Commission had already signalled its desire that EU member states ultimately terminate any BITs in favour of the exclusive application of EU law to investor-state disputes. In January, EU member states committed to agreeing a treaty allowing them to terminate their BITs in a coordinated manner, in a series of declarations on the legal consequences of the Achmea judgment and on EU investment protection.

The treaty agreed by the member states was developed by an ad hoc group of member states, coordinated by the European Commission. It provides for the coordinated termination of intra-EU BITs, unless bilateral terminations are considered mutually more expedient in individual cases.

International arbitration expert Clea Bigelow-Nuttall of Pinsent Masons, the law firm behind Out-Law, said that EU member states were likely to act quickly to ratify the termination treaty agreed last week, "in order to bring clarity and certainty to an area which will remain legally ambiguous until such time as all intra-EU BITs are brought to an end".

"In the meantime, the question – and one of particular importance to European investors – remains: what will replace them?" she said.

"Imaginative lawyers may also be contemplating a future in which a post-Brexit UK – should such a thing materialise - may consider positioning itself as a jurisdiction falling outside the reach of the Achmea decision, and thus a base for European investments" comments Bigelow-Nuttall.

In a statement, the Commission said that it welcomed the endorsement of the treaty by member states. It said that the treaty "fulfils the commitment to coordinate termination of intra-EU bilateral investment treaties, while taking account of the different interests involved and ensuring legal certainty and compliance with EU law".

"The Commission encourages the EU member states to ensure a smooth and swift ratification process," it said.

The Commission acknowledged in its statement that further work was required to fully understand the effect of the Achmea judgment on the application of the international Energy Charter Treaty as between EU member states and on ensuring "complete, strong and effective protection of investments within the European Union" following the termination of intra-EU BITs. The Commission would facilitate further discussion between member states on these issues "without undue delay", it said.