{"id":488,"date":"2021-09-15T21:25:52","date_gmt":"2021-09-16T04:25:52","guid":{"rendered":"https:\/\/blogs.asucollegeoflaw.com\/ibt\/?p=488"},"modified":"2021-09-15T21:29:34","modified_gmt":"2021-09-16T04:29:34","slug":"arbitration-frustration-in-the-eu-energy-sector-a-ban-on-intra-eu-arbitration-under-the-energy-charter-treaty","status":"publish","type":"post","link":"https:\/\/blogs.asucollegeoflaw.com\/ibt\/arbitration-frustration-in-the-eu-energy-sector-a-ban-on-intra-eu-arbitration-under-the-energy-charter-treaty\/","title":{"rendered":"Arbitration Frustration in the EU Energy Sector: A Ban on Intra-EU Arbitration under the Energy Charter Treaty"},"content":{"rendered":"\t\t
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By BethEl Nager<\/em><\/strong>
Law Student Editor<\/p>\t\t\t\t\t<\/div>\n\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t

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On September 2, 2021, the Court of Justice of the European Union (CJEU) issued a milestone ruling\u00a0in\u00a0Republic of Moldova v. Komstroy LLC<\/a><\/em>, holding\u00a0that the Energy Charter Treaty (ECT) could no longer be used in the European Union (EU). This new order prohibits the use of the ECT\u2019s arbitration provision between EU countries, strengthening the EU\u2019s control over energy investments. In addition, the EU is concerned about the\u00a0binding nature of arbitral awards<\/a>\u00a0that have no possibility of a substantive appeal to EU courts\u00a0and their juxtaposition with EU laws.<\/span><\/p>

The Energy Charter Treaty<\/span><\/strong>\u00a0<\/span><\/h5>

The\u00a0ECT<\/a>, signed in 1994, is an international agreement that created a framework for cooperation between energy companies<\/span>\u00a0to strengthen the rule of law on energy issues and promote cross-border energy governance and international energy security. It allows\u00a0 energy entities to sue\u00a0foreign governments over government measures affecting energy resources. The ECT also provided for investment into energy-related businesses and set a baseline on\u00a0legal guarantees<\/a>\u00a0for investors. For example, governments are not allowed to\u00a0expropriate property without the permission of the owner without just\u00a0compensation. Furthermore, the treaty offers investors the option to\u00a0resolve energy-related\u00a0disputes\u00a0with other countries\u00a0in court or through international arbitration.<\/span><\/p>

Historical Background<\/span><\/strong>\u00a0<\/span><\/h5>

In the\u00a02018 Achmea decision<\/a><\/em>, the Grand Chamber of the\u00a0<\/span>CJEU\u00a0determined that international arbitral decisions fell outside of EU institutions. An international arbitration agreement involving an investor and host state, both of which are in the EU, would preclude resort to the CJEU,\u00a0even though the dispute might involve an interpretation of EU law.<\/span>\u00a0The court found that \u201ca\u00a0bilateral agreement<\/a>\u00a0between member states, under which investors from one member state can bring proceedings against another member state in an arbitral tribunal, contravene EU law.\u201d Achmea<\/em> effectively\u00a0established that international arbitration\u00a0is\u00a0not an appropriate forum for bilateral investment treaty disputes\u00a0when the dispute is between an EU member state and an investor from another EU member state, so-called \u201cintra-EU disputes.\u201d\u00a0<\/p>

After this decision, there was conflict between different countries as to whether\u00a0an international arbitral proceeding in intra-EU disputes<\/span>\u00a0violated EU law. In 2019, the Paris Court of Appeal asked for clarification regarding the application of the ECT. The\u00a0Paris\u00a0court needed direction prior to a hearing on a $49 million ECT\u00a0award\u00a0won by Komstroy, a Ukrainian organization,\u00a0against the Republic of Moldova. In this situation, none of the parties voiced an ECT concern. Instead, the European Commission and various EU member states intervened.<\/p>

The Komstroy <\/em>Ruling<\/strong><\/h5>

Between 2018 and 2021, there was great uncertainty about the applicability of the\u00a0Achmea<\/em>\u00a0decision to existing treaties. In 2020, many of the EU countries agreed to halt\u00a0implementing\u00a0their bilateral investment treaties\u00a0with other\u00a0EU countries. Despite this agreement, some EU countries emphasized that the court\u2019s ruling had \u201c\u2018legal consequences\u2019 for the ECT\u2014a multilateral treaty whose signatories include non-EU states.\u201d The goal was for the court to determine whether\u00a0Achmea<\/em>\u00a0applied to the ECT. Eventually, the court clarified that any agreement entered into by an EU company is governed by EU law and thus cannot be arbitrated internationally. <\/span><\/p>

The CJEU ruled\u00a0<\/span>in\u00a0Republic of Moldova v. Komstroy LLC<\/em><\/span>\u00a0that the ECT\u2019s arbitration process, which resolved long<\/span>–<\/span>running controversies, would\u00a0undermine the role of EU courts<\/a>. This reflects that belief that conflicts surrounding EU laws should be handled within the EU\u00a0<\/span>court system<\/span>. By\u00a0<\/span>negating the arbitration process, the CJEU invalidated the longstanding use of arbitration under the ECT in intra-EU disputes.\u00a0 Many energy investors and countries are now concerned about the costs and legal uncertainty of disputes that may arise under the ECT, because a decision of the CJEU cannot in itself negate treaty obligations such as the ECT\u2019s arbitration clause. This\u00a0<\/span>reversal of long-standing policy\u00a0represents<\/span>\u00a0one of the EU\u2019s many efforts to federalize legal procedures that might raise questions of EU law in some measure and therefore to create a unified interpretation of that law, but at some cost to the security of foreign investors in the EU energy sector, who may fear that the EU judicial system will be less impartial than an arbitral tribunal might be.<\/span><\/p>\t\t\t\t\t<\/div>\n\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t\t\t<\/div>\n\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t","protected":false},"excerpt":{"rendered":"

By BethEl NagerLaw Student Editor On September 2, 2021, the Court of Justice of the European Union (CJEU) issued a milestone ruling\u00a0in\u00a0Republic of Moldova v. Komstroy LLC, holding\u00a0that the Energy Charter Treaty (ECT) could no longer be used in the European Union (EU). This new order prohibits the use of the ECT\u2019s arbitration provision between […]<\/p>\n","protected":false},"author":110,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[8,10],"tags":[37,58,57,48],"post_mailing_queue_ids":[],"_links":{"self":[{"href":"https:\/\/blogs.asucollegeoflaw.com\/ibt\/wp-json\/wp\/v2\/posts\/488"}],"collection":[{"href":"https:\/\/blogs.asucollegeoflaw.com\/ibt\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blogs.asucollegeoflaw.com\/ibt\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blogs.asucollegeoflaw.com\/ibt\/wp-json\/wp\/v2\/users\/110"}],"replies":[{"embeddable":true,"href":"https:\/\/blogs.asucollegeoflaw.com\/ibt\/wp-json\/wp\/v2\/comments?post=488"}],"version-history":[{"count":4,"href":"https:\/\/blogs.asucollegeoflaw.com\/ibt\/wp-json\/wp\/v2\/posts\/488\/revisions"}],"predecessor-version":[{"id":492,"href":"https:\/\/blogs.asucollegeoflaw.com\/ibt\/wp-json\/wp\/v2\/posts\/488\/revisions\/492"}],"wp:attachment":[{"href":"https:\/\/blogs.asucollegeoflaw.com\/ibt\/wp-json\/wp\/v2\/media?parent=488"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blogs.asucollegeoflaw.com\/ibt\/wp-json\/wp\/v2\/categories?post=488"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blogs.asucollegeoflaw.com\/ibt\/wp-json\/wp\/v2\/tags?post=488"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}