Dr Ewelina Stobiecka

Attorney at law

I’ve been supporting entrepreneurs for almost twenty years in resolving commercial disputes in and out of court. I represent my clients as an attorney and negotiator and also act as a commercial mediator...
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The end of BITs in Europe is the end of investment arbitration. Facilitation or “investment mediation” as an alternative?

Ewelina StobieckaComments (0)

BIT and investment mediationThe effects of the pandemic will be felt globally. Lawyers of different jurisdictions, counting the losses of their clients, are considering the possibilities of claiming damages, for which there are different legal grounds.

It appears that investors from non-EU countries may soon be able to protect their investments in the EU better than intra-EU investors. Why?

Well, on 5 May 2020, 23 EU Member States have concluded an Agreement on the termination of Bilateral Investment Treaties (BITs) between the Member States of the European Union (“the Agreement”).

Thus, investment arbitration based on intra-EU bilateral agreements will soon be impossible. Of course, EU investors will be able to look for other grounds for their claims, not least the Agreement recently concluded by most EU Member States ends an era in investor relations.

As mentioned above, however, the Agreement does not apply to all EU countries, the other four countries that “broke out” are: Austria, Finland, Ireland and Sweden. Their intra-EU bilateral agreements therefore remain intact.

The signed agreement is still to be ratified and is due to enter into force 30 calendar days after the date on which the Secretary-General of the Council of the European Union receives an instrument of ratification, approval or acceptance from two Member States (it therefore takes effect for each third and subsequent Member State 30 calendar days after the deposit of its instrument of ratification, approval or acceptance).

It all started in Slovakia

The decision to dissolve the intra-EU BITs concluded by the Member States follows the judgment of 6 March 2018 in the case of the Slovak Republic vs Achmea BV (C-284/16). The Court of Justice of the European Union concluded in this judgment that a system where different types of State-investor protection existed throughout the EU is incompatible with EU law.

The Court considered that the possibility of arbitration on matters which may concern the application of EU law undermines the primacy of EU law and the role that the Court plays in its interpretation. The Court has consistently found that EU law prevents individual Member States from agreeing on investor and state protection bilaterally.

Following the Achmea judgment, all EU Member States signed on 15-16 January 2019 declarations (whereby Finland, Hungary, Luxembourg, Malta, Slovenia and Sweden refused to sign the Energy Charter Treaty “ECT” commitment) in which they committed to terminate all bilateral investment agreements concluded between them under a multilateral treaty or, if more favourable to both parties, bilateral.

The Agreement is one of the main steps in implementing these declarations. In addition, it also covers those BITs that have already been dissolved but, due to so-called ‘sunset clauses’ – still valid. The expiry clause is a provision which extends the protection of investments made before the date of BIT termination for another period.

Among other things, Poland started to terminate its intra-EU investment agreements already in 2017.

What about pending arbitration proceedings
or those with a judgment?

The Agreement provides that arbitration clauses in terminated bilateral agreements can no longer serve as a legal basis for initiating new proceedings. As a result, investors who have not yet initiated proceedings will no longer be able to do so.

However, the question remains open as to what will happen to ‘pending’ proceedings. Certain categories of cases are proposed here, i.e. “Arbitration Proceedings in progress” and “New Arbitration Proceedings”.

The former are proceedings initiated before 6 March 2018, which is the date of the Achmea judgment, and are not completed, while the latter are proceedings initiated on or after 6 March 2018.

Where one of the signatories to the Agreement is a party to pending or new arbitration proceedings, the Agreement provides that it must inform the arbitration tribunal that the arbitration clause contained in the relevant BIT does not apply.

In addition, the signatory must ask the competent national court to set aside, annul or refrain from recognising and enforcing any arbitration award already made in the context of such arbitration proceedings.

Lawyers of different jurisdictions express their concerns about these requirements.

It is argued that these requirements are intended to retroactively (and unilaterally) remove rights that one party has decided to exercise. They may also conflict with certain conventions, such as the International Centre for Settlement of Investment Disputes (ICSID).

There are now more questions than answers, including, for example, how national courts will deal with arguments based on the unilateral termination of an arbitration agreement, in particular where recognition and enforcement is sought outside the European Union.

Structured dialogue in ongoing arbitration proceedings /
facilitation or “investment mediation”?

The agreement between EU countries also provides that both parties – investor and state – may, under certain conditions, engage in a so-called “structured dialogue” with a view to launching a settlement procedure.

Thus, it may turn out that the arbitration procedures used so far (sometimes very complicated and formalised) will be replaced by a “dialogue”, which in the case of such disputes may be classical mediation or economic facilitation.

Or maybe it is worth to start talking about “investment facilitation” or “mediation”?

As proposed in Article 9 of the Agreement, an investor who is a party to arbitration proceedings in progress may request the ‘Contracting Party’ participating in those proceedings to enter into a settlement in accordance with the procedure set out in that Article, provided that:

(a) the arbitration proceedings in progress have been suspended at the request of the investor, and
(b) if an award has already been given in the course of arbitration proceedings but has not yet been finally enforced or enforced, the investor undertakes not to seek its recognition, enforcement, enforcement or payment in a ‘Member State’ or in a third country or, if such proceedings have already begun, to seek its suspension.

The Agreement provides for time-limits and a procedure for this dialogue, but it is important that the settlement procedure can only be initiated within six months of the termination of the PCA concerned.

The agreement also provides that the settlement procedure is supervised by an impartial facilitator to determine whether it is amicable, legal and fair between the parties.

The facilitator shall be appointed by common agreement between the investor and the “Contracting Party” concerned acting as respondent in the relevant arbitration proceedings. He shall be chosen from persons whose independence and impartiality are beyond doubt and who possess the necessary qualifications, including a thorough knowledge of Union law.

He may not be a national of the Member State in which the investment took place or the investor’s home Member State and may not be in a position of conflict of interest. The Agreement also provides for an indicative schedule of facilitator fees as set out in Annex D to the Agreement.

If an agreement is reached, the parties to the proceedings are obliged to accept it in a legally binding manner and without undue delay. The terms of the settlement must include: (i) an undertaking by the investor to withdraw the arbitration claim or to waive enforcement of an existing award or, where applicable, an undertaking to take into account any compensation paid previously in the course of the arbitration proceedings in order to avoid double compensation, and (ii) an undertaking to refrain from initiating new arbitration proceedings.

Whether it will be a classic facilitation or investment mediation, we will probably find out not only by learning the names of the indicated experts, but also the fate of the first proceedings using this procedure.

The signed Agreement opens a completely new chapter in bilateral relations between the EU countries, related to the protection of mutual investments. Of course, a lot of questions arise, including those indicated above. In addition, given the different dispute resolution cultures in different European countries, only the first experience of the ‘structured dialogue’ will show how strong and effective it will be.

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Dr Ewelina Stobiecka

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