The European Commission has launched infraction proceedings against the UK over a ruling by the UK Supreme Court in 2020. The legal subject matter is complicated but its wider implications are interesting, so bear with us (or skip to the second part of this article).
Many EU nations had bilateral investment treaties with one another, or were members of multilateral investment treaties. These treaties tend to contain clauses allowing private investors to submit disputes to international arbitration.
Investors tend to like arbitration clauses: they safeguard against potential bias they may face in a national court, investment arbitrators tend to be experts in the relevant fields, the process is more flexible, and tribunals apply international law as well as potentially more unfavourable national law.
By contrast, the European Court of Justice (ECJ) dislikes investment arbitration, as it removes disputes from the Court’s oversight (so it says). This attitude is also motivated by a desire on the part of many member states to get out of onerous treaty commitments that prevent them from changing domestic regimes favourable to investors – particularly concerning deals concluded under the 1994 Energy Charter Treaty.
These factors culminated in a ruling in 2018 (Slovak Republic v Achmea), where the ECJ stated that intra-EU investor-state arbitration was illegal. The court has doubled down in subsequent rulings (Republic of Moldova v Komstroy and Poland v PL Holdings in 2021).
This is the broader context. Earlier in the decade, an investment arbitration tribunal ruled in 2011 in favour of the investor in the case of Micula v Romania, granting an award subsequently contested by Romania and the European Commission. As the UK recognises the jurisdiction of international arbitration tribunals, Micula applied to have the award enforced in UK courts, taking effect against any of Romania’s assets within the jurisdiction.
The Commission and Romania objected, arguing that a relevant case was still pending before the ECJ. The UK Supreme Court, however, considered that there was no justification for departing from UK legislation requiring it to allow the enforcement of the award. The Commission is now bringing proceedings against the UK for what it says was a violation, given that the UK still followed EU rules during the transition period.
Investment Arbitration and the CJEU: Who cares?
What is the wider significance of these proceedings? Firstly, your correspondent suspects that they are a misstep from the Commission. Doubtless, the proceedings are linked with current tensions over the Northern Ireland Protocol, but the decision to take this step now seems ill-advised.
The Supreme Court’s ruling is perfectly defensible on a legal basis, and if there was a violation of EU rules it was not particularly significant. Bringing proceedings against the UK for the independent ruling of its highest court is petty, and suggests contempt for the idea of judicial independence by holding the UK government responsible for the actions of its judiciary.
Yet this is depressingly consistent with the attitude of the Commission and the ECJ. As Professor Wolfgang Streeck suggested for Briefings in his recent article, the EU is happy to undermine judicial independence when it suits it: witness the Commission’s threat of proceedings against Germany over its defiant Constitutional Court. Pious platitudes about judicial independence in the Polish context are therefore meaningless.
Secondly, it demonstrates the EU’s two-faced attitude to international commitments and the rule of law. We have heard much in the UK press about how the UK government is bound by international law to respect the Northern Ireland Protocol. Yet the CJEU’s ruling forbidding intra-EU international arbitration itself violates Article 26 of the Energy Charter Treaty, to which the EU along with its members is a signatory. The EU has not renounced the Treaty, yet refuses to respect its provisions. It is a lesson the UK government and press should take to heart.
Thirdly, it indicates the fierce jealousy of EU institutions over their rights. While commentators often accused pro-Brexit voices of nativism and nationalism, the ECJ’s insistence on the ‘autonomy’ of EU law is far more ferocious. This was carried to extremes in the recent judgment in Komstroy, where the CJEU chose to lay down another verdict on intra-EU arbitration despite the fact that neither party was an EU investor!
The same dogmatism is at the heart of the EU’s resistance to UK proposals on relaxing checks in Northern Ireland: no threat in principle can be allowed to the integrity of the Single Market no matter how minor it may be in practical terms.
Finally, it is indicative of how seriously the Court and Commission take the supposed threat to the EU’s authority posed by investment arbitration. This is despite the fact that making arbitration harder will only dissuade EU investors from actually investing within the EU.
The EU is contemplating setting up a separate intra-EU investor-state court, but so far nothing has been agreed. If it is ever created the court is unlikely to enjoy the discretion of an arbitral tribunal, but rather like the European Patents Court will be subject to the Court of Justice.
More widely, investors may potentially be dissuaded from choosing to have even non-EU arbitrations seated in the courts of a member state, if in doing so they expose themselves to the jurisdiction of a hostile Court of Justice. If so, this will be to London’s advantage, and a concrete benefit of leaving the EU.