Article from: TDM 3 (2023), in Editorial
The Energy Charter Treaty (ECT) offers investors the choice between three fora for the resolution of disputes: national courts or tribunals, previously agreed methods of dispute resolution, or arbitration. In its Komstroy judgement, the Grand Chamber of the Court of Justice of the European Union (CJEU) considered that the ECT formed part of EU law, since the EU had ratified the ECT, and that in intra-EU disputes arbitration would be incompatible with primary EU law. The Court did not consider the ECT as such to be incompatible with EU law. Consequently, and leaving aside the question of the relevance of the judgement for arbitrations conducted under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention), investors from one EU Member State may still submit disputes with another EU Member State to the national courts of those Member States. Those courts then could and would have to submit questions relating to EU law to the CJEU in accordance with the preliminary reference procedure.
There is little case law on how such proceedings work and virtually no literature. The ECT itself gives little guidance, as its provisions on procedure, applicable law and enforcement only pertains to arbitration proceedings. Questions emerge. Is the ECT applicable at all before national courts and tribunals? The role of international law before national courts and tribunals may be different in each contracting party to the ECT, depending on, for example, whether it adopts a monist or dualist approach. While Understanding No. 16 to the ECT clarifies that the investment protection provisions of the ECT need not be transformed into national law to be applicable, this provision might or might not be binding on national courts. Do investors have standing before the courts and tribunals of contracting parties? Where investors have aborted arbitration proceedings under the ECT, can they initiate court proceedings in respect of the same claims? Do national rules on time bars for initiating proceedings apply to ECT claims? Which courts and tribunals have competence? Do the courts of the home state have competence? How are such claims to be initiated? Is it necessary to amend national statutory and/or judicial rules and procedures to enable such claims to be brought (to the extent that they are not already competent to receive them)? What remedies are available to investors? What rank does the ECT have in national court (or tribunal) proceedings? Do ECT court judgements (or decisions of tribunals of Member States) enjoy special treatment as regards recognition and enforcement? What role does EU law and its instruments play in the context of the above questions?
This special issue addresses these questions from the perspective of the ECT and applicable international law and, especially, from the perspective of individual legal systems of EU Member States. The special issue starts with contributions on the international perspective, before turning to EU Member States and focusing on the national approaches.
In 'The EU legal order's struggle for autonomy leaves investors stranded after Komstroy', Ioana Bratu argues that the procedural gap between international investment law and EU law is widening and this affects the CJEU's legitimacy. For the author, this gap is created both because of the fact that arbitral tribunals cannot refer preliminary references to the CJEU and because of the autonomy of the EU legal order. The author explains that, in order to retroactively cancel the investors' rights, the CJEU would have to adopt the derivative rights theory. According to the latter, investment treaty protections are offered to states, rather than to investors, which would signal a return to diplomatic protection. The author argues that from the viewpoint of the general systems theory, the derivative rights approach would be a consequence of the EU legal order's 'struggle for autonomy'. For her, the better view is the direct rights theory, which is incompatible with both Achmea and Komstroy.
In his contribution, Dano Brossmann, discusses investors' right to full reparation under EU law after Komstroy. The author argues that Komstroy has reduced the availability of arbitration for intra-EU disputes. Under international law, investors are entitled to full reparation for the prejudice suffered in case of wrongful acts. The author argues that EU law contains a de facto identical standard to full reparation. This standard entitles investors to compensation for the damage suffered and for future lost profits and accumulated interests. The author concludes that intra-EU energy investors are not necessarily at a disadvantage under EU law but shows that enforcement of their EU-law-based rights to compensation cannot easily be asserted before the CJEU when Member States fail to adhere to the EU standard of compensation.
In his contribution, Éamonn Conlon SC discusses Irish courts as a forum for resolution of disputes under the ECT. He notes that Ireland takes a dualist approach to international law, but automatically gives effect in its domestic legal system to EU law having direct effect. Noting that Article 26(2)(a) of the ECT is part of EU law, the author suggests that it seems to pass the tests for direct effect. Therefore, it should be possible to invoke it before the Irish courts. However, as he notes, it is a hollow remedy unless the domestic courts also give effect to the substantive provisions in part III ECT. The author proposes that Irish courts should give effect to part III as the applicable substantive law, the lex causae, in an Article 26(2)(a) claim before the Irish courts. But, as he notes, this has not yet happened. The author suggests that several issues of principle and practice would need to be resolved . This is complicated by the need to identify the extent to which they are procedural or substantive, and therefore governed by Irish (forum) law or the ECT itself and international law respectively. Notably, in his view, the most apt remedy seems to be Francovich damages, which is a significantly more limited remedy than the full reparation principle found in international law which is usually applied in treaty arbitration.
In respect of the position in Hungary, Máté Csernus, Zolta Buda and Veronika Korom note in their contribution that while Hungry takes a dualist approach to international treaties, instruments that transpose international treaties into Hungarian law will have primacy over any other domestic legislation. Given its transposition into Hungarian law by virtue of the ECT Act, the ECT is therefore directly applicable before the Hungarian courts. In principle, this ought to allow investors to bring claims for damages based on the ECT Act. However, the authors explain that this course of action is untested in practice and there are several factors that may cause the local courts to apply the more stringent system of state liability under the Hungarian Civil Code, which requires the exhaustion of local remedies or declaration of unconstitutionality in case of legislative acts. Whether investors succeed in claiming damages directly under the ECT Act therefore depends on whether the Hungarian courts recognize the ECT Act as establishing a new, sui generis State liability regime separate from that under the Civil Code. The authors also note that the ECT may be directly applicable in Hungary as an instrument of EU law, for breach of which Francovich damages may be available. Given the maxim that Hungarian law must conform to international law, the authors further note that judicial review and constitutional review proceedings ought to be considered to challenge the incompatibility of domestic legislation with the ECT.
Deyan Draguiev explains in his contribution that, as a monist state, Bulgaria directly applies international law and international treaties, subject to a ratification procedure, which was followed with respect to the ECT. He discusses various instances in which international treaties were directly applied by the Bulgarian courts, drawing parallels in particular with the European Convention on Human Rights. In one specific case discussed by Draguiev, the court specifically acknowledged that the ECT was directly applicable although not on the particular facts of the case. Solar investors in Bulgaria claiming compensation for damages caused by the belated abolishment of a fee on the applicable feed-in-tariff that was later held to be unconstitutional also based some of their arguments on the ECT. Although the court's reasoning resorted to the more familiar national law, Draguiev considers that the persuasive effect of ECT-based arguments cannot be underestimated. Given the history of direct application of international treaties, Draguiev is optimistic that Bulgarian courts would enable claims by investors in direct reliance on the ECT, especially for breaches arising out of an act or omission of an organ of the government (as opposed to a legislative act, which would have to be challenged before the Constitutional Court), though he considers the level of damages would be significantly lower than investors are accustomed to in investment treaty proceedings.
Otakar Hájek in his contribution explores the application of the ECT in the Czech Republic. He explains that the ECT is treated as directly applicable in the Czech Republic (which now follows the monist system) as part of its domestic law and is given priority over conflicting domestic statutes. It is also self-executing such that, in principle, investors can rely on its substantive protections. As other contributors, he also explores the ECT as an instrument of EU law. He considers that, while the direct application of the ECT by the Czech courts has been limited, there have been instances of Czech courts directly applying other investment treaties and mixed agreements, taking into account both their international character as well as their status as part of EU law. At the same time, Hájek considers that the currently applicable procedural framework in the Czech Republic is, for the most part, ill-equipped to offer investors a procedure equivalent to that found in investment treaty arbitration. In particular, he considers that the most viable route for bringing an ECT claim in the domestic courts is a Frankovich action. The question of attribution and the entitlement to compensation, Hájek says, would likely be addressed through the prism of the domestic law governing state responsibility rather than international law. While seeking damages for the state's incorrect official procedure (which includes a legislative act) in breach of the ECT may be a viable option, Hájek considers that damages for the state's administrative acts or decisions could only be sought if the relevant act was held to be illegal or the decision reversed and all other domestic remedies exhausted, which could be a lengthy process. He submits that while many of the procedural obstacles can be resolved through appropriate case law, only a systemic reform at the EU level would ensure an effective, coherent and predictable protection of investors' rights.
Finally, David Premelč and an Klobasa discuss the position in Slovenia. They first explore the status and application of international treaties in the Slovenian legal order, which may be described to follow a monist or moderate dualist approach , as further internal regulation needs to be passed in addition to ratification before an international treaty can enter into force. Premelč and Klobasa further explain that, having been ratified, the ECT (and in particular its part III) is directly applicable and takes precedence over national legislation, except for Slovenia's constitution. They consider that investors claiming under the ECT would have standing in the Slovenian courts, and be entitled to rely on domestic law remedies, such as the rules governing administrative disputes and civil procedure, which would have to be interpreted in accordance with the purpose and aim of Articles 10 and 26 of the ECT. They discuss two potential routes available to an investor seeking to rely on the ECT before the national courts - an action before the administrative court or the regular civil courts, depending on the subject matter of the dispute and the relief sought. They explain that the administrative court would be better suited to cases where an administrative act or decision (which have to be final) is challenged and restitution (rather than damages) is sought. They conclude by considering various procedural issues that are likely to apply to ECT-based claims in the Slovenian courts, including the effect of the ECT's fork-in-the-road provision on domestic proceedings, statutory limits and time bars, the taking of evidence as well as the standard and burden of proof (which differ before civil and administrative courts).