Authors: Christian Johannes Wahnschaffe* and Edward Rensmann**
Energy Charter Treaty (ECT)
There was turmoil amongst arbitration practitioners when the European Court of Justice (“ECJ”) rendered its Achmea decision in 2018. There, the ECJ found the dispute settlement provisions in a bilateral investment treaty between the Netherlands and the Slovak Republic to be incompatible with EU law. In the aftermath of the Achmea judgment, many considered the end of intra-EU investor-state arbitration imminent. At the same time, the judgment left crucial questions unanswered. In particular, it did not address the fate of the Energy Charter Treaty (hereafter “ECT”). In its recent judgment in Case C-741/19 of 2 September 2021, the ECJ has lifted the mist on this specific issue – much to the dismay of the arbitration community.
Background of the Case
The decision follows annulment proceedings before the Paris Court of Appeal. In its relevant parts, the background of the case is as follows: a Ukrainian company, currently operating under the name of Komstroy, and a Moldovan public undertaking, amongst others, had been involved in the performance of contracts for the sale of electricity. Allegedly, the Moldovan public undertaking had partially defaulted on the purchase price in connection with these contractual agreements. In the view of the Ukrainian company, the corresponding conduct of the Republic of Moldova infringed the ECT. For such investment disputes, Art. 26(3) ECT documents the host state’s unconditional consent to submit to international arbitration. Accordingly, the Ukrainian company commenced arbitration against the Republic of Moldova under the ECT. An ad hoc tribunal seated in Paris, France, held that it had jurisdiction to hear the matter and rendered a final award in favour of the claimant in October 2013.
In April 2016, the Paris Court of Appeal annulled the award for lack of jurisdiction, arguing that the question in dispute was beyond the scope of the ECT. The French Court of Cassation, however, disagreed with the underlying interpretation of the term “investment” and remitted the case to the court of first instance in a 2018 decision. This time around, the Paris Court of Appeal referred the task of construing the term “investment” in Art. 1(6), 26(1) ECT to the ECJ, submitting three specific questions for preliminary ruling as per Art. 267 TFEU.
In its recent decision, the ECJ has taken a decidedly narrow stance on the meaning of the term “investment.” As a mere commercial transaction, a supply contract cannot in and of itself constitute an investment as per Art. 1(6) ECT. Such an understanding would blur the line between trade and investments as set out by the ECT. These observations on the scope of the term “investment” undoubtedly entail important implications for future arbitral proceedings under the ECT. However, the main body of the ECJ’s decision focusses on a more fundamental question that, in effect, calls into doubt the very future of arbitration under the ECT within the European Union.
The Judgment’s Surprising Focus: Discussing Intra-EU Disputes Absent Any Intra-EU Investments
Notably, none of the three questions submitted by the Paris Court of Appeal expressly addressed the applicability of the ECT to intra-EU investment disputes. This is hardly surprising. Komstroy is not from the EU and the Republic of Moldova is not an EU Member State. Moreover, the dispute, sensu stricto, does not relate to EU law. It is telling that the Council of the European Union as well as the Hungarian, Finnish and Swedish Governments joined the claimant in contesting the ECJ’s jurisdiction to decide on the preliminary reference in the first place. Undaunted by their objections, the ECJ confirmed its jurisdiction, reasoning that the ECT was concluded by the Council within its authority under EU law. In the view of the Court, this rendered the provisions of the ECT an “integral part of the legal order of the European Union”. In the Court’s extensive reading, the ECT thus forms an integral part of the European legal order. For this reason, the Court deems any questions relating to its interpretation directly relevant for the future application of EU law.
This ruling allowed the Court to elaborate extensively on the general applicability of the dispute settlement mechanism established by Art. 26 ECT to intra-EU disputes. Because of Belgium’s request for an opinion on the compatibility of a modernised ECT with EU law, there was no doubt: the ECJ’s decision on this matter was imminent. It might have come as a surprise that the ECJ chose this case to formulate its answer, bearing in mind the scope of the dispute and the issues submitted by the Paris Court of Appeal. The arbitral community had been holding its breath in anticipation of this decision for some time, especially after Advocate General Szpunar had addressed this issue in his preceding opinion. Recalling the three questions referred to the ECJ in the preliminary reference procedure, this was indeed a “question that was not asked,” as put aptly by Nikos Lavranos in his commentary. Still, the ECJ decided that the time had come to “specify which disputes […] may be brought before an arbitral tribunal pursuant to Article 26 ECT.” One might wonder: Did the ECJ simply seize the first opportunity it got to finally have its say on the applicability of the ECT to intra-EU disputes?
The Less Surprising Conclusion: Reinforcement of the Court’s Findings in Achmea
In substance, the ECJ’s findings are less surprising. As expected, the Court’s reasoning resonates as a reiteration of the Achmea decision of 2018. In Achmea, the ECJ had found the European Treaties to preclude “a provision in an international agreement concluded between Member States under which an investor from one of those Member States may […] bring proceedings against the latter Member State before an arbitral tribunal.” With this decision in mind, the ECJ has now found that “Art. 26(2)(c) ECT must be interpreted as not being applicable to disputes between a Member State and an investor of another Member State concerning an investment made by the latter in the first Member State”.
To arrive at this conclusion, the Court essentially mirrored its reasoning in Achmea – notwithstanding the different backgrounds to the respective cases. Indeed, one might demur, the ECT is a mixed agreement and not a bilateral investment treaty. What is more, the European Union itself is a signatory to the former. For the tribunal in Vattenfall et. al. v. Germany, this fact distinguished the ECT from bilateral investment treaties. The Vattenfall tribunal emphasised that the European Union has “accepted the possibility of arbitration proceedings under Article 26 [ECT] […] without making a distinction between investors from EU or non-EU Member States.” Others equally consider the European Union unable to evade its commitments under the ECT, referring to the principle of pacta sunt servanda under international law. The ECJ conveniently bypasses this obstacle by assuming that “a provision such as Article 26 ECT is intended, in reality, to govern bilateral relations.” This raises the question of whether this reasoning draws upon an over-simplification of the ECT’s origin in public international law.
In addressing the core question, the Court found its leitmotif in the autonomy of the EU legal order and the corresponding effectiveness of EU law. The Treaties of the European Union have established a judicial system intended to ensure consistency and uniformity in the application of EU law. The ECJ identified the preliminary reference procedure as an integral component of this system. This process not only fosters the judicial dialogue but also guarantees the called-for uniformity in interpretation. Arbitral tribunals, as was emphasised in Achmea, generally do not form part of the judicial system of the Member States. The ECJ has now extended this finding to tribunals established under Art. 26 ECT.
While such tribunals might be required to interpret or apply EU law, they cannot be sufficiently monitored through the courts of Member States to safeguard full compliance with EU law. Arbitral tribunals render final awards, as is expressed in Art. 26(8) ECT. The scope of review is limited and governed by the varying domestic standards set out in the Member States. Such an incoherent and limited review by domestic courts may be tolerable in commercial arbitration, which follows directly from the parties’ free will. However, removing matters from the jurisdiction of the courts of a Member State through an international treaty, as per Art. 26(3)(a) ECT, irreconcilably contradicts the requirements set out in Art. 19(1) TEU.
In view of this contradiction, the ECJ considered it necessary to constrain disputes under the ECT to the EU judicial system as the bulwark for the autonomy of EU law – and it does so by interpreting the Member States’ (unlimited) consent to treaty arbitration in Art. 26(3)(a) ECT not to apply to disputes between a Member State and an investor from another Member State.
Outlook: Lights Out for the ECT – Or Any Silver Linings?
After the Achmea judgment dealt a critical blow to intra-EU ISDS, has the ECJ finally sounded the death knell for the ECT? While, strictly speaking, the judgment binds only the courts involved in this case, it will resonate with all courts called to weigh in on the ECT. This is because, arguably, for domestic courts in the EU other than those involved in the initial proceeding, a “judgment in the preliminary ruling has the ‘authority of interpretation’”.
Thus, parties seeking relief under the ECT will inevitably face difficulties in disputes connected to the EU. The ECJ has sent out a clear message to any Member State acting as respondent in any ECT arbitration. It seems highly likely that Member States will invoke the underlying reasoning to seek annulment of any award rendered by ad hoc tribunals seated in the EU under Art. 26(4)(b) ECT. This also rings true with view to awards rendered under the aegis of the SCC according to Art. 26(4)(c) ECT. It seems equally plausible that Member States will invoke this judgment to resist enforcement of any such awards within the EU. Consequently, given the limitations to their reviewability, ICSID awards under Art. 26(4)(a) should prove more resilient and, therefore, more appealing to investors.
The stance taken by the ECJ might be justified from a distinctively European perspective. Yet, it will surely find its critics in the realms of the greater international community, who might emphasise that establishing trust in international cooperation inevitably leads to a loss of autonomy on the part of regional stakeholders. The Court’s reasoning would have been reinforced if it had at least addressed alternative perspectives on the issue. As things stand, the ECJ will have to reckon with the fact that its judgment will serve as an example for countries outside the EU to apply similarly protectionist standards to the effectiveness of their national laws.
Indeed, arbitral tribunals have demonstrated in the past that they do not shy away from eluding decisions issued by the ECJ. For instance, the Vattenfall tribunal chose to distinguish its case from the Achmea decision, giving special consideration to the Vienna Convention on the Law of Treaties in its legal analysis. Taking a more reserved viewpoint, the Vattenfall tribunal confirmed the applicability of the ECT to intra-EU disputes.
Is there any silver lining for treaty arbitration in Europe? The recent decision in PL Holdings offered none. In this decision, the ECJ found that EU law precludes Member States from concluding an ad hoc arbitration agreement with an investor from another EU Member State. Still, solace might be found. The ECJ itself hints at a possible avenue of escape in the Komstroy decision, emphasising that “an international agreement providing for the establishment of a court responsible for the interpretation of its provisions and whose decisions are binding on the EU institutions […] is not in principle incompatible with EU law.” The judgment comes at a time of heated debate on the modernization of the ECT. The Komstroy judgment might expedite this process.
In this context, it is worth mentioning that the ECJ recently found the Investment Court System established by the Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union and its Member States to be compatible with EU law. This raises the question of whether the system implemented in CETA might offer guidance for future reforms of the ECT. Art. 8.31(2) CETA, for example, limits the tribunal’s interpretative powers, effectively barring the tribunal from autonomously interpreting EU law. Instead, the tribunal is required to follow the “prevailing interpretation […] by the courts or authorities.” Whilst this approach might seem commendable, the distinct differences of the respective treaties call into question its feasibility with view to the ECT. Still, provisions such as these prove that it is possible to achieve compromises between the need for decentralised conflict resolution and the autonomy of the EU legal order. The ECT could seemingly be delivered from its current predicament – hinging on the political stakeholders’ goodwill, of course. Reforming the ECT remains a distinctly complex, protracted process. The ninth round of negotiations on its modernisation will take place on December 13, 2021. It remains to be seen if the European Commission will succeed in implementing its reform proposal, which envisages an Investment Court System. It seems likely that the Komstroy judgment and its impact on the future of the ECT will bolster the Commission’s agenda.
On a final note, stakeholders in commercial arbitration – again – may breathe a sigh of relief: The ECJ recited its readiness to accept a limited scope of review by the Member States’ courts in this realm of arbitration.
* Christian Johannes Wahnschaffe is a research assistant at the Chair for Foreign and International Law of James Fowkes, LL.M., J.S.D. (Yale) and, in this capacity, Director of the Karina und Erich Schumann Centre for Advanced International Legal Studies at the University of Münster, Germany.
** Edward Rensmann is a doctoral candidate at the University of Cologne, Germany, and a law clerk with the Higher Regional Court of Hamburg, Germany.
 Case C-284/16, Slovak Republic v. Achmea BV, ECLI:EU:C:2018:141 (March 6, 2018).
 For an analysis of the Achmea decision and its background, see, e.g., Cristina Contartese & Mads Andenas, EU autonomy and investor-state dispute settlement under inter se agreements between EU Member States: Achmea, 56 Common Mkt. L. Rev. 157, 159-181; Sebastian Wuschka, Investment Protection and the EU after Achmea, 21 Zeitschrift für Europarechtliche Studien 25, 27–33 (2018). For an assessment of various aspects of its impact see, e.g., André Janssen and Christian Johannes Wahnschaffe, Year one after Achmea: a review of the state of play in investment arbitration in 2019, 22 Int’l Arb. L. Rev. 117, 122–142 (2019); Kim Talus & Katariina Särkänne, Achmea, the ECT and the Impact on Energy Investments in the EU, in The Future of Investment Treaty Arbitration in the EU: Intra-EU BITs, the Energy Charter Treaty, and the Multilateral Investment Court 9–22 (Ana Stanič & Crina Baltag eds., 2020).
 Case C-741/19, Republic of Moldova v. Komstroy LLC, ECLI:EU:C:2021:655 (September 2, 2021).
 Id. ¶¶ 8–20.
 Id. ¶ 79.
 Id. ¶ 81.
 Notably, investment tribunals in the past followed a broader understanding of the term “investment.” For an analysis, see Crina Baltag, The Energy Charter Treaty: The Notion of Investor, 179–183 (2012).
 Komstroy, ECLI:EU:C:2021:655, ¶ 21.
 Id. ¶ 23.
 Id. ¶¶ 23, 29.
 Id. ¶¶ 40–66.
 On this request, see Guillaume Croisant & Hannes Ingwersen, Belgium Seeks CJEU’s Opinion on the Future Interaction between a Modernised ECT and EU law, Kluwer Arb. Blog (December 10, 2020), http://arbitrationblog.kluwerarbitration.com/2020/12/10/belgium-seeks-cjeus-opinion-on-the-future-interaction-between-a-modernised-ect-and-eu-law/.
 Komstroy, ECLI:EU:C:2021:655, Opinion of AG Szpunar, ¶¶ 46–99. For an analysis, see Julian Scheu and Petyo Nikolov, AG Szpunar’s Opinion in Case C-741/19: Preparing the End of Intra-EU Investment Arbitration under the Energy Charter Treaty?, Kluwer Arb. Blog (May 25, 2021), http://arbitrationblog.kluwerarbitration.com/2021/05/25/ag-szpunars-opinion-in-case-c-741-19-preparing-the-end-of-intra-eu-investment-arbitration-under-the-energy-charter-treaty/.
 Nikos Lavranos, Is the Court of Justice of the EU the Ultimate Judge of the ECT?, Kluwer Arb. Blog (April 9, 2021), http://arbitrationblog.kluwerarbitration.com/2020/12/10/belgium-seeks-cjeus-opinion-on-the-future-interaction-between-a-modernised-ect-and-eu-law/.
 Komstroy, ECLI:EU:C:2021:655, ¶ 40.
 Achmea, ECLI:EU:C:2018:141, ¶ 60.
 Komstroy, ECLI:EU:C:2021:655, ¶ 66.
 Vattenfall AB et al v. Federal Republic of Germany, ICSID Case No. Arb/12/12, Decision on the Achmea Issue (August 31, 2018).
 Id. ¶ 188.
 See, e.g., Patricia Stöbener de Mora, Das Achmea-Urteil zum Intra-EU-Investitionsschutz, 29 European J. of Bus. L. 363, 367 (2018) with reference to Art. 26 of the Vienna Convention on the Law of Treaties.
 Komstroy LLC, ECLI:EU:C:2021:655, ¶ 64.
 Id. ¶ 45.
 Id. ¶ 57.
 Id. ¶ 59.
 Case 52/67, Benedetti v Munari 1977 E.C.R. 163, ¶ 26; Case C-446/98, Fazenda Pública v Câmara Municipal do Porto 2000 E.C.R. I-11462, ¶ 49.
 Deirdre Curtin & Maria Weimer, The Court of Justice of the European Union: Supranational Adjudicator and Accountability Forum, in The L. of the European Union 398 (Pieter Jan Kuijper, et. al. eds., 2019).
 See, e.g. Vattenfall, supra note 17; Masdar Solar & Wind Cooperatief U.A. v Kingdom of Spain, ICSID Case No. ARB/14/1, Award (May 16, 2018) ¶¶ 678–683; UP and C.D Holding Internationale v Hungary, ICSID Case No. ARB/13/35, Award (October 9, 2018), ¶¶ 252–267. Notably, these tribunals were all constituted under the ICSID Convention.
 Vattenfall, supra note 17, ¶¶ 211–229.
 Vattenfall, supra note 17, ¶ 229: “The Tribunal therefore finds that Article 16 ECT is lex specialis as a conflict of laws rule in the present case. In the Tribunal’s view, Article 16 poses an insurmountable obstacle to Respondent’s argument that EU law prevails over the ECT. […] If the Contracting Parties to the ECT […] intended for EU law to prevail over the terms of the ECT for EU Member States, it would have been necessary to include explicit wording to that effect in the Treaty. The need for such a provision is reinforced by the existence of Article 16 ECT, since it points to the opposite result.”
 Case C-109/20, Republic Poland v. PL Holdings Sàrl, ECLI:EU:C:2021:875 (October 26, 2021), ¶ 56: “Articles 267 and 344 TFEU must be interpreted as precluding national legislation which allows a Member State to conclude an ad hoc arbitration agreement with an investor from another Member State that makes it possible to continue arbitration proceedings initiated on the basis of an arbitration clause whose content is identical to that agreement, where that clause is contained in an international agreement concluded between those two Member States and is invalid on the ground that it is contrary to those articles.”
 Komstroy, ECLI:EU:C:2021:655, ¶ 61.
 Opinion 1/17 of the Court (April 30, 2019) (ECLI:EU:C:2019:341).
 Art. 8.31(2) CETA reads: “The Tribunal shall not have jurisdiction to determine the legality of a measure, alleged to constitute a breach of this Agreement, under the domestic law of a Party. For greater certainty, in determining the consistency of a measure with this Agreement, the Tribunal may consider, as appropriate, the domestic law of a Party as a matter of fact. In doing so, the Tribunal shall follow the prevailing interpretation given to the domestic law by the courts or authorities of that Party and any meaning given to domestic law by the Tribunal shall not be binding upon the courts or the authorities of that Party.”
 On the EU’s stance on ISDS, see, e.g., Colin M. Brown, The EU’s Approach to Multilateral Reform of Investment Dispute Settlement, in The Future of Investment Treaty Arbitration in the EU: Intra-EU BITs, the Energy Charter Treaty, and the Multilateral Investment Court 219-236 (Ana Stanič & Crina Baltag, eds., 2020); Aikaterini Florou, ECT Modernisation Perspectives: The Energy Charter Treaty and EU Law – A Cherry-Picking Relationship?, Kluwer Arb. Blog (July 26, 2020), http://arbitrationblog.kluwerarbitration.com/2020/07/26/ect-modernisation-perspectives-the-energy-charter-treaty-and-eu-law-a-cherry-picking-relationship.
 On this, see, e.g., Ylli Dautaj and Esmé Shirlow, ECT Modernisation Perspectives: An Update, Kluwer Arb. Blog (August 5, 2021), http://arbitrationblog.kluwerarbitration.com/2021/08/05/ect-modernisation-perspectives-an-update/.
 On this, see the note on the draft Article 26 of the EU text proposal fot he modernatisation of the Energy Charter Treaty (ECT), https://trade.ec.europa.eu/doclib/docs/2020/may/tradoc_158754.pdf.
 Komstroy, ECLI:EU:C:2021:655, ¶¶ 58 f.: “It is true that, in relation to commercial arbitration, the Court has held that the requirements of efficient arbitration proceedings justify the review of arbitral awards by the courts of the Member States being limited in scope, provided that the fundamental provisions of EU law can be examined in the course of that review and they can, if necessary, be the subject of a reference to the Court for a preliminary ruling. However, arbitration proceedings such as those referred to in Article 26 ECT are different from commercial arbitration proceedings. While the latter originate in the freely expressed wishes of the parties concerned, the former derives from a treaty whereby […] Member States agree to remove […] from the system of judicial remedies which the second subparagraph of Article 19(1) TEU requires them to establish in the fields covered by EU law”.