Author: Barbara Łyszczarz*
International and Transnational Law
On May 5, 2020, a majority of the EU Member States signed the Treaty terminating the intra-EU BITs (the “Treaty”). The Treaty entered into force on August 29, 2020. The EU seeks to give an immediate effect to the abolishment of the intra-EU BITs. Thus, the Treaty terminates the BITs, together with their sunset clauses – the provisions extending investment protection for a period of time after the BITs’ termination (Articles 2.2. and 3 of the Treaty).
The EU’s objective behind the Treaty is apparently to put an end, at least in part, to the situation (familiar to the readers of this Blog), which arose in the aftermath of the CJEU’s Achmea decision. The purpose of this post is to contemplate whether the Treaty might fail to fulfil this expectation on the EU’s part and instead only escalate the arguments on both sides to “another level” – as did the Achmea decision.
Section I considers the arguments that EU investors might raise after the Treaty has entered into force; Section II discusses the EU States’ likely response. It should be noted at the outset that this post considers only one version of the possible reasoning on both sides. As we have seen in many post-Achmea proceedings, the EU host States and the EU Commission often challenged tribunals with at least somewhat modified takes on their jurisdictional EU-law-related objections.
I. INVESTORS’ POTENTIAL ARGUMENT
EU investors may attempt to argue that the termination of the intra-EU BITs is ineffective as between them and the EU host States, because EU States lack powers to deprive investors, overnight, of the investment protection on which they reasonably have relied.
The Treaty is apparently based on either of the following assumptions. First, the intra EU-BITs bind only the EU States without contemplating investors as individuals. Accordingly, EU States are free to terminate the BITs together with the sunset clauses by an actus contrarius at any time. Second, even if the intra-EU BITs grant investors individual rights, the EU States have powers to terminate those rights with the Treaty.
Both of these propositions are misguided because they are squarely against the nature of the intra-EU BITs as investment treaties. First, the very purpose of investment treaties, including the intra-EU BITs, was to give investors an individual right of action against a host state for violations of the protection standards set out in the treaties. This was coupled with a (direct) access to an international arbitral tribunal independent from the host state. Without this effective enforcement avenue, any substantive guarantees are no guarantees at all.
Other than the nationality requirement, these two features (investors’ rights and access to international arbitration) distinguish investment treaties from their predecessor – diplomatic protection. Accordingly, the contention that the EU States may cancel the intra-EU BITs at any time because the BITs are concerned solely with these States’ interests—and, by implication, are not concerned with the investors’ rights—is plainly wrong.
The alternative misguided assumption underlying the Treaty is that, even if investors have been accorded individual rights under the intra-EU BITs, those rights exist only as long as the BITs (including the sunset clauses) are in force. However, such proposition too would be entirely at odds with the nature of the BITs as investment treaties. Those treaties not only accord individual rights to investors. Ultimately, they are reliance-inducing devices. States conclude investment treaties to attract investments, especially large-scale ones. Thus, the very purpose behind investment treaties is to bring investors to certain investment decisions through the treaties’ protections as incentives.
At which point can an investor be considered to have relied on an investment treaty’s protection scheme? Once it made an investment falling within the scope of a given treaty. As Professor Schreuer explains, “[t]he nature and duration of investments as well as special risks involved make stability and predictability particularly important in this area of international economic law. Once the investor has sunk its resources, it becomes vulnerable to changes in the position of the host State.”
Thus, international law must stand behind EU investors’ legitimate reliance upon the specific guarantees offered to them in the intra-EU BITs, including the (direct) access to an independent international arbitral tribunal. Given the reliance-inducing nature of the investment treaties, any other conclusion would be an offence to the rule of law,including to the principles of the legal certainty and non-retroactivity as its established elements. Under the rule of law or proper governance, states may not induce individuals’ reliance only to then betray it. Whether international law accounts for this under the heading of the rule of law or the related vested rights theory is a more theoretical discussion beyond the scope of this post.
The Treaty terminates the intra-EU BITs together with their sunset clauses. While other analytical avenues seem possible, one way to look at the sunset clauses is to treat them as a time frame for the protection standards provided by the BITs. Under this view, all the foregoing considerations are directly applicable to the sunset clauses. As a result, the law should stand behind the investors’ legitimate reliance—not only on the BITs’ substantive and procedural protections—but also on their lifespan determined by the sunset clauses. This is because the time frame is as much of essence for the investors as any other element of the investment protection framework.
The foregoing considerations apply equally—or even more forcefully—to the investors’ right to a (direct) access to international arbitration. In the words of the Eastern Sugar tribunal reiterated by several other panels, “the investor’s right arising from the BIT’s dispute settlement clause to address an international tribunal independent from the host state is the best [investors’] guarantee…”. This right, too, must arise and protect investors from the moment they sunk their resources into an investment falling within the scope of a given investment treaty.
Of note, there is no conflict between this argument and the consensual character of arbitration, nor with the principle that, in general, the host state’s standing offer to arbitrate may be withdrawn until the consent is perfected by the investor’s acceptance. Rather, the withdrawal of the offers to arbitrate through the Treaty is ineffective, because these offers may only be withdrawn in accordance with the terms the EU States themselves set forth in the BITs – including in the sunset clauses.
Finally, there is no inconsistency with the view asserted by claimant in one recent case that the right to arbitrate a specific dispute vests at the date relevant for the tribunal’s determination of its jurisdiction – with no possibility for this jurisdiction to lapse through subsequent unilateral actions of either party.
The forgoing conclusion—that the law stands behind the EU investors’ legitimate reliance—finds support in Marfin v. The Republic of Cyprus. The Marfin tribunal spoke, of course, in a different context, but it will be shown that this difference in context is not material. It is instructive to first look at the pertinent language of the Marfindecision:
Art. 12 of the Treaty [the underlying intra-EU BIT] establishes a clear procedure that Greece and Cyprus must follow if they want to be released from their obligations under the BIT … [i]n view of the Tribunal, these provisions clearly establish that, if seeking to be released from their BIT obligations, both Cyprus and Greece must follow specific procedures that are intended to ensure compliance with the principle of legal certainty. There can be no implied termination or invalidation of the Treaty to the detriment of investors who legitimately relied upon the Treaty protections … the principle of legal certainty entitles investors to legitimately rely upon the State’s written consent to arbitrate disputes as long as that consent has not been withdrawn through proper procedures included in the underlying treaty.
The Marfin tribunal’s determination (“There can be no implied termination or invalidation of the Treaty to the detriment of investors who legitimately relied upon the Treaty protections”) is—but for one word “implied”—fully consistent with the above proposition that international law should stand behind the investors’ legitimate reliance on the protections offered by the intra EU-BITs.
It is then only necessary to explain why the reasoning about implied termination of the intra-EU BITs should also apply to their express termination by the Treaty. After the forgoing analysis the answer to this seems almost self-evident. The betrayal of the investors’ legitimate reliance is equally pernicious whether the termination of the intra-EU BITs is implied or express. In other words, to stand behind the investors’ legitimate reliance, the law should not allow the EU States to withdraw from the intra-EU BITs in any manner other than the one they themselves set out in their BITs. It makes no difference whether this other manner would be implied or express.
Accordingly, the above reasoning in Marfin v. The Republic of Cyprus is applicable.
Considering the above, international law does not allow the EU Member States to simply cancel the intra-EU BITs by an actus contrarius like the Treaty. The EU States may withdraw the intra-EU investment protection only in accordance with the terms laid down in the intra-EU BITs – including their sunset clauses.
Section II will consider the arguments that EU States might raise in response to the above potential investors’ position.
II. HOST STATES’ LIKELY POSITION
In response to the potential investors’ position presented in Section I, the EU States are likely to offer, by and large, the same logic they pursued in pre- and post-Achmea jurisdictional disputes. As this reasoning is well known, it suffices to summarize it and look at how it might play out against the investors’ arguments considered in Section I.
The EU States will likely argue that the Treaty is fully effective as between them and EU investors because, first, that EU investors have not obtained any vested rights under the intra-EU BITs surviving the termination by the Treaty; second, the sunset clauses included in the intra-EU BITs would be triggered only by a unilateral termination of the BITs, while the Treaty constitutes a mutual termination agreement; third, in any event, individuals, as a matter of international law, cannot claim more rights under a treaty than the rights and obligations of their home states under that treaty. Accordingly, EU investors never had any rights under the intra-EU BITs, because the intra-EU BITs were never applicable in relations between EU States; in light of the CJEU’s Achmea decision, the latter conclusion applies in particular to the purported right to the (direct) access to international arbitration under the terminated intra-EU BITs.
To expand on the above points, first, there is nothing to suggest that the rule of law or the related vested rights doctrine under international law operate, notwithstanding the Treaty, to preserve the purported EU investors’ rights under the intra-EU BITs. The doctrine of vested rights has a very narrow scope and exceptional nature, applying “in practice to private rights of individuals accrued under municipal law and almost invariably occurred in the context of State succession, investment law apart. Its extension to other rights of individuals is highly doubtful.”
The same commentator notes that “[i]t is far from clear … under what conditions and requirements the doctrine of acquired rights indeed applies.” Incidentally, VCLT Art. 70 (1)(b) cannot lend support to the investors’ vested-rights-related contentions. This provision only preserves the rights of States-parties to treaties after the treaty termination. The International Law Commission expressly excluded individual interests from the reach of VCLT Art. 70 (1)(b). Accordingly, EU investors have not acquired any purported rights to the intra-EU investment treaty protection on the vested rights theory.
Second, EU investors’ reliance on the sunset clauses set out in the intra-EU BITs can have no success. Those clauses only apply to unilateral termination of the BITs by either contracting party. The mutual termination of the intra-EU BITs by the present Treaty does not trigger their application. At no point in time have EU States restricted their powers to mutually terminate any of their agreements, especially agreements conflicting with EU law. Such restriction cannot be read into any provisions of the abolished intra-EU BITs, including into their sunset clauses. Accordingly, EU investors were never given any assurances that intra-EU investment protection would not be terminated by mutual agreements of the EU States (in particular when such termination occurs only in execution of the duty arising for EU States under EU law). Consistent with this, the Treaty expressly terminates the sunset clauses for greater certainty only.
Third, in any event, EU investors never had any individual rights under the intra-EU BITs, which they could have obtained or legitimately relied upon. This is because, as will be shown below, the intra-EU treaty protection is incompatible with EU law, rendering it ab inito ineffective in relations between the EU States – both as a matter of EU law and as a matter of international law.
This is relevant because, under correct analysis, EU investors’ rights derived from international agreements cannot exceed the scope of the rights and obligations of their home states under the same agreements. In the words of the Elektrabel tribunal – a proper analysis “cannot disconnect the rights of individual investors from the rights of their home states…”
Both pre- and post-Achmea, the EU States and the EU Commission argued before arbitral tribunals that the intra-EU investment treaty protection is invalid or inapplicable as between the EU States – as a matter of EU law and as a matter of international law codified in the Vienna Convention on the Law of Treaties (“VCLT”). The ultimate reason for this is the fundamental conflict between the intra-EU investment treaty protection and the EU Treaties. The investment protection under the intra-EU BITs, which differed from one pair of the Contracting EU States to another, could not be reconciled with the EU’s objective to create the Single European Market and, accordingly, with the EU law regulating it.
The EU Commission has repeatedly expressed this view in relation to the substantive investment treaty protections. This was followed by proceedings against a number of the EU States for violation of the EU Treaties. The incompatibility between the EU Treaties and the ISDS provisions of the intra-EU BITs has been confirmed by the CJEU in its Achmea decision.
The fundamental doctrine of the primacy of EU law resolves the conflict between EU law and national laws of the EU States—including their inter se international agreements—in favour of EU law. This doctrine applies ab initorather than ex nunc. Accordingly, there is never a single moment of parallel application of EU law and conflicting laws of EU States, including their inter se treaties.
It follows that intra-EU BITs never applied as between EU States. Those treaties cannot then constitute the basis for any EU investors’ rights. The contention that EU investors obtained any rights under the intra-EU BITs, or that they legitimately relied upon those treaties, can have no success.
The proper determination of EU investors’ purported rights under the intra-EU investment treaty protection cannot be conducted in isolation from the foregoing fundamental doctrines of EU law. The application of international treaties in harmony with “any other relevant rules of international law applicable in relations between the parties” is mandated by VCLT Article 31 (3)(c).
Furthermore, under VCLT Article 59, the intra-EU BITs existing before the accession of a given state to the EU have been replaced by the EU Treaties. For the purpose of this provision, the intra-EU BITs constitute earlier treaties so far incompatible with the later EU Treaties that they are incapable of parallel application. Accordingly, the intra-EU BITs have been terminated in their entirety by virtue of VCLT 59 VCLT.
The foregoing, thus, shows that, as a matter of international law and as a matter of EU law, the intra-EU BITs were never applicable in relations between EU States. Consequently, there can be no legitimate EU investors’ reliance on those treaties.
Finally, even if it were correct (quod non) that, prior to the Achmea decision, EU investors were unaware of the incompatibility between EU law and the ISDS provisions of the intra-EU BITs, and that they accordingly commenced arbitrations against EU States in good faith, Article 9 of the Treaty provides for an adequate and equitable solution.
III. CONCLUDING WORDS
The purpose of this post was to consider whether the Treaty might potentially only lead to a modification of the arguments on both sides of the disputes governed by the intra-EU BITs instead of eliminating such disputes altogether. The future will show whether EU investors will test tribunals’ jurisdiction after the Treaty became effective, and what position the tribunals will take. Other than the stakeholders’ assessment of the strength of the forgoing (or similar) arguments, their decisions will likely depend on the chances of successful enforcement outside of the EU (enforcement proceedings related to the ECT are now underway in the U.S.).
 Agreement for the termination of Bilateral Investment Treaties between the Member States of the European Union, 2020 O.J. (L 169) 1.
 The Treaty does not affect the intra-EU arbitrations governed by the ECT.
 Case C-284/16, Slowakische Republik v Achmea BV, 2018 O.J. (C 161) 7.
 Campbell MacLachlan, Investment Treaties and General International Law, 57 Int’l Comp. L. Q. 361, 383 (with a further reference and citation to Diplomatic Protection: Text and the Draft Articles with Commentaries thereto in Report of the International Law Commission of its Fifty-eighth Session, Official Records of the General Assembly Sixty-first Session, Supplement No 10, UN Doc A/61/10, 89-90).
 In addition to this, EU investors’ trust may have been enhanced by the role the EU played in the creation of the treaty investment protection in Europe. For a long time, the relationship between the EU system and the investment treaty protection was an amicable one. Indeed, the EU made the conclusion of intra-EU BITs a condition for some states to accede to the EU. The EU was also the driving force behind the crown jewel of intra-EU treaty investment protection – the ECT.
 Christoph Schreuer, Investments, International Protection, Max Planck Encyclopaedias of Int’l L., June 2013, at A1.
 For more about the international rule of law, see Machiko Kanetake Interfaces Between the National and International Rule of Law: A Framework Paper, in The rule of law at the national and international levels: contestations and deference 1, 15 et. seq. (Andre Nollkaemper & Machiko Kanetake, eds. 2016).
 Stephan Wittich, Article 70: Consequences of the termination of a Treaty, in Vienna Convention on the Law of Treaties. A Commentary 1283, 1287-1288 (Oliver Dörr & Kirsten Schmalenbach, eds., 2nd ed. 2018).
 At first glance, it seems that with respect to investment treaties it is quite enough to speak about non-retroactive treaty application (thus, about the operation of the international rule of law) without recourse to the vested rights theory. This theory would then be reserved for the cases where the treaty does not directly grant rights to individuals and such individual rights are only indirectly acquired in the course of the treaty application. However, the problem is new and this position may require reconsideration upon a closer theoretical inspection. Also, the choice between the two theories seems to be secondary in the sense that it does not produce much of a practical difference.
 Eastern Sugar B.V. Netherlands v. The Czech Republic, SCC No. 088/2004, Partial Award, ¶ 165 (March 27, 2007).
 Addiko Bank AG and Addiko Bank d.d. v. Republic of Croatia, ICSID Case No. ARB/17/37, Decision on Croatia’s Jurisdictional Objection Related to the Alleged Incompatibility of the BIT with the EU Acquis, ¶ 44 (June 12, 2020).
 Marfin Investment Group v. The Republic of Cyprus, ICSID Case No. ARB/13/27, Award (July 26, 2018).
 Id. at ¶¶593-594 (emphasis added).
 Stephan Wittich, Article 70: Consequences of the termination of a Treaty, in Vienna Convention on the Law of Treaties. A Commentary 1283, 1295 (Oliver Dörr & Kirsten Schmalenbach, eds., 2nd ed. 2018).
 Draft Articles on the Law of Treaties with Commentaries, (1966) II Y.B. Int’l L. Comm’n 187, 265, art. 66.
 The language of the sunset clauses in some intra-EU BITs supports this argument more than the wording of some others (compare, e.g., Art. 16 para 2 of the Czech Republic-Denmark BIT and Art. 14 para 3 of the Netherlands-Croatia BIT). However, even in the case of the broader language of a sunset clause, such as the one used in Art. 14 para 3 of the Netherlands-Croatia BIT (“In respect of the investments made before the date of the termination of the present Agreement, the foregoing Articles shall continue to be effective for a further period of fifteen years from that date.”), an argument can be made that this provision must be read in the context of the forgoing Art. 14 para 2, which relates to a unilateral notice of termination by either state-party to the BIT (“Unless a notice of termination is given by either contracting Party …”).
 Electrabel S.A. v. The Republic of Hungary, ICSID Case No. ARB/07/19, Decision on Jurisdiction, Applicable Law and Liability, ¶4.188 (November 30, 2012).
 On June 18, 2015, the EU Commission initiated infringement proceedings against five EU States (Austria, the Netherlands, Romania, Slovakia and Sweden). See Europa.eu, Commission asks Member States to terminate their intra-EU bilateral investment treaties (Jun. 18, 2015), https://ec.europa.eu/commission/presscorner/detail/EN/IP_15_5198.
*Barbara Łyszczarz is admitted to practice law in New York (U.S.). She specializes in international commercial and investment arbitration. Barbara previously served as a research and teaching assistant at the Institute of Civil Law of the University of Vienna. She also worked with the international arbitration practice groups of two leading Viennese law firms. Barbara studied law in Poland, Germany, Austria, and the U.S. She holds an MA degree from the Jagiellonian University in Cracow and an LL.M. degree from the Harvard Law School.