Hannes Lenk, an Assistant Professor in Law at Aarhus University, examines a September 24, 2019 request by the French Cour d’appel de Paris. The court asked the Court of Justice of the European Union (CJEU) to interpret “investment” as used in Article 1.6 of the Energy Charter Treaty (ECT). The intersection of the ECT and EU law, especially following the Achmea judgment against investor-state dispute settlement (ISDS) provisions in bilateral investment treaties (BITs) between EU Member States, has drawn scrutiny. This post analyzes jurisdictional questions surrounding the CJEU and the ECT, focusing on its intra-EU application, in light of Advocate General Szpunar’s opinion in Case C-741/19.

CJEU Jurisdiction Over the ECT

Case C-741/19, involving two non-EU parties, highlights a unique jurisdictional issue. The dispute’s EU law aspect stems from its arbitration in Paris. The French Cour d’appel initially overturned the award in April 2016, stating the tribunal lacked jurisdiction because it misinterpreted paying a debt related to an electricity sale contract as an “investment” under Article 1.6 of the ECT. However, the Cour de cassation disagreed and returned the case to the Cour d’appel.

Article 267 TFEU allows national courts to, and in some cases mandates them to, refer questions regarding the interpretation of a legal act under the CJEU’s jurisdiction to the CJEU. This includes “mixed” agreements: international agreements enacted by EU Member States and the EU with non-EU countries. The EU and its Member States (except Italy, which withdrew in 2016) are all signatories to the ECT. The ECT, as “an integral part” of EU law (Case 181/73 Haegeman), binds the Union and its Member States per Article 216(2) TFEU. The ECT is only considered a Union agreement when its provisions fall under the EU’s exclusive competence (Case C-239/03 Commission v France).

Following Opinion 2/15 on the EU-Singapore FTA, this exclusive competence in investment encompasses all matters related to foreign direct investment (excluding ISDS provisions). Non-direct investment and provisions on their liberalization and protection fall outside the EU’s exclusive competence, as do ISDS provisions. This impacts the CJEU’s jurisdiction over mixed agreements.

The CJEU interprets its jurisdiction broadly, covering mixed agreement provisions applicable in both national and EU law (Case C-53/96 Hermès). The CJEU’s jurisdiction is justified by the Union’s interest in uniform interpretation of international agreements. This holds true for interpreting “investment” within the ECT, given that some investments fall under EU exclusive competence while others do not. Categorizing an economic transaction as one type of investment or another, or as falling outside the ECT’s scope, impacts national and EU law application. Therefore, the CJEU assuming general jurisdiction over the ECT is reasonable.

The Advocate General supports the CJEU’s broad jurisdiction over the ECT (paras. 28-29). However, the AG acknowledges that Case C-741/19, involving a Ukrainian investor and Moldova, might affect the Court’s jurisdiction (para. 30).

Uniform interpretation of the ECT in disputes with an EU dimension is important. However, it’s unclear why this should extend to the ECT’s application in disputes without a substantial connection to EU law. The CJEU, in the context of the EEA agreement, recognized it lacked jurisdiction to interpret mixed agreement provisions regarding their application in non-EU countries (Case C‑321/97 Wåkerås-Andersson; Case C‑300/01 Salzmann). Although the ECT’s “investment” concept can be applied in situations falling under both Member State and EU law, in this case, it applies to neither.

The AG differentiates the EEA context from the ECT based on two points. First, the ECT lacks a judicial body to ensure its uniform interpretation, potentially leading to divergent interpretations of core concepts like “investment” (para. 40). Second, given the ECT’s structure as a series of bilateral commitments, its application between Member States cannot be ruled out (paras. 41 and 42). The AG concludes that ensuring a uniform interpretation of ECT provisions applicable within the EU legal order is in the Union’s interest (para. 45). The Cour d’appel might be compelled to uphold its interpretation in future cases, including those involving EU or EU Member State measures. Thus, the uniform interpretation argument might be valid whenever a Member State court interprets the ECT “in order to forestall future differences in interpretation” (Joined Cases C-300/98 and C-392/98 Perfums Dior, para. 35).

According to the AG, the ECT applies within EU law if an EU investor initiates a dispute against a Member State, either before an Article 26 ECT ISDS tribunal or the Member State’s domestic courts. After discussing the intra-EU application of the ECT, the AG returns to the ECT’s application against an EU Member State before domestic courts. While acknowledging that a complete analysis of the ECT’s overlap with EU law is difficult in the abstract, the AG posits that the ECT’s substantive provisions were intended to apply within the EU legal order (para. 97). This alone would justify CJEU jurisdiction over the ECT. Nevertheless, the AG analyzes the controversial issue of the ECT’s intra-EU application.

Intra-EU Application of the ECT

This contentious issue gained political and legal weight after the Achmea judgment. The ruling created a divide among EU Member States. While most declared in February 2019 that Achmea applies mutatis mutandis to the intra-EU application of the ECT, five Member States disagreed (see here and here). This dissenting group, including Sweden, based its position on the Novenergia II set-aside proceedings pending before the Svea Court of Appeal. At the time, it was believed that the Swedish court would grant Spain’s request to refer the validity of intra-EU ECT arbitration to the CJEU. However, this request was denied in May 2019, prolonging the uncertainty surrounding the EU legal order and the ECT.

Meanwhile, Belgium requested an Opinion from the CJEU on the compatibility of the ECT modernization with EU Treaties. Opinion 1/20 directly addresses the ECT’s institutional framework and the intra-EU application of Article 26. Moreover, the issue unexpectedly arose in other CJEU cases. Advocate General Saugmandsgaard Øe recently commented on the matter, stating that “inasmuch as Article 26 of the Energy Charter … provides that such disputes may be resolved by arbitral tribunals, that provision is not applicable to intra-Community disputes.” This case, involving an Italian investor against Italy, centered on whether investors can initiate ISDS proceedings against their home state under the ECT. The intra-EU application of the ECT was irrelevant. While the AG acknowledged this (para. 93), it’s unlikely the CJEU will engage with this point.

Importantly, while the present case doesn’t directly concern the ECT’s intra-EU application, it offers some insights. During the written procedure, some Member States raised the incompatibility of the intra-EU application of Article 26 of the ECT with the Treaties. In preparation for the November 2020 hearing, all participating Member States were asked to present their views on this matter to the CJEU.

AG Szpunar links this question with the Court’s jurisdiction, arguing that the CJEU only has jurisdiction over provisions of international agreements that also apply within the EU legal order (para. 46). If, according to Achmea, Article 26 of the ECT can’t be applied between Member States, the Court lacks jurisdiction (para. 47). Highlighting differences between the ECT and intra-EU BITs (Achmea), the AG encourages the Court to address this issue (para. 48). He even asks the CJEU to address the compatibility of substantive provisions in intra-EU investment agreements with the Treaties, unaddressed in Achmea.

Reviewing the Achmea judgment, the AG differentiates commercial arbitration (generally accepted under EU law) and investment treaty arbitration. Central to Achmea but inadequately explained by the CJEU, the AG confirms that Member States systematically waiving domestic court jurisdiction over broadly defined cases undermines mutual trust, the specific character of EU law (including Article 267 TFEU’s judicial dialogue) (para. 63), and the autonomy principle.

The AG concludes that the inapplicability of intra-EU ISDS provisions has no time limit, and an arbitral tribunal’s jurisdiction based on such a provision cannot be recognized within EU law (para. 69).

Applying this to the ECT, the AG notes similarities. While the ECT doesn’t explicitly include domestic law, an ECT arbitral tribunal might address questions about interpreting, if not applying, EU law (para. 75). The AG believes that ECT investor-state tribunals, like those under intra-EU BITs, fall outside EU law (para. 76). Consequently, Achmea directly translates to the intra-EU application of Article 26 of the ECT (para. 79). The ECT’s multilateral nature and the EU’s participation don’t change this (para. 83).

Challenges and Opportunities for the CJEU in Case C-741/19

This case raises novel EU law questions that need clarity. These include the Court’s jurisdiction over incomplete mixed agreements (not all Member States are signatories) and its jurisdiction over provisions of multilateral agreements applied outside the EU.

Greater clarity regarding the Court’s distinction between commercial and investment arbitration, especially if the Achmea judgment is relevant, would be beneficial. Case C-109/20 PL Holding, pending before the CJEU, raises additional questions in light of AG Szpunar’s explanations. In 2019, the Svea Court, in annulment proceedings concerning an investment award under the Poland-Belgium/Luxembourg BIT, ruled that Poland’s lack of objection to the investment tribunal’s jurisprudence created a parallel arbitration agreement between PL Holding and Poland, independent of the BIT, resulting from the Swedish Arbitration Act.

According to AG Szpunar, commercial arbitration requires disputing parties to agree to arbitration for a specific dispute. The commercial tribunal’s limited jurisdiction comes from a specific arbitration agreement defining the dispute (para. 60). This contrasts with the systemic, permanent, and unilateral offer to arbitrate under an international investment agreement (para. 61). If domestic arbitration laws transform treaty arbitration into contractual arbitration, the distinction underlying AG Szpunar’s reasoning disappears.

The most controversial aspect of Case C-741/19 is its use by Member States to resolve political conflicts. The intra-EU application of the ECT, raised only in some Member States’ written submissions, became central, shifting focus from the dispute’s substance and preventing other Member States from fully addressing it. Member States advocating for applying Achmea to the ECT’s intra-EU aspect during negotiations for terminating intra-EU BITs effectively hijacked legal proceedings where the question of intra-EU application is of limited relevance.

While there’s nothing inherently wrong with judicializing political disputes, it is debatable whether this case is the appropriate venue. The Treaties provide ways to contest the ECT’s validity. However, Opinion 1/20 allows the Court to analyze the ECT’s institutional design. Since the ECT’s incompatibilities with the Treaties can only be resolved politically, Opinion 1/20, addressing the ECT modernization process, offers a forum to identify shortcomings and guide the Commission’s negotiations. The Court can address the jurisdictional question without evaluating Article 26 of the ECT, a possibility acknowledged by AG Szpunar in his Opinion.

AG Szpunar’s Opinion is well-written and argued. While relevant for EU law, the Court should exercise caution and limit its judgment to essential elements to answer the referred question. This does not diminish the substantive question’s importance or challenge the AG’s analysis. Rather, it ensures the integrity of the judicial process and the CJEU’s jurisdiction.