Blow to the Energy Charter Treaty (ECT) within the EU. The EU Court of Justice has ruled that companies cannot use the ECA to sue EU governments. Something they are doing when taking action against climate change that threatens fossil fuel investments, for example.
However, the ruling only applies to lawsuits within the EU. That is, to EU-based companies that use the ECA to sue EU countries and therefore the ECA could still be used by an investor outside the EU to sue an EU Member State that you are taking weather measurements.
The case that the Luxembourg-based court has decided involves a series of chained contracts concluded in 1999.
Ukrenergo, a Ukrainian producer, sold electricity to Energoalians, a Ukrainian distributor, who in turn resold said electricity to Derimen, a company registered in the British Virgin Islands, which in turn resold said electricity to Moldtranselectro, a Moldovan public company, for export. to Moldova.
The volumes of electricity to be supplied were agreed each month directly between Moldtranselectro and Ukrenergo.
Derimen paid Energoalians in full the amounts for the electricity thus acquired, while Moldtranselectro only partially settled the amounts owed to Derimen for this electricity.
On May 30, 2000, Derimen transmitted to Energoalians the credit that he held against Moldtranselectro. It only partially paid off its debt to Energoalians, transmitting several credits that it owned. Energoalians unsuccessfully claimed the payment of the balance of this debt in the amount of US $ 16,287,185.94 (approximately 13,735,000 euros) before the Moldovan courts and, subsequently, before the Ukrainian courts.
Energolians considered that certain actions of the Republic of Moldova constituted serious breaches of the obligations derived from the Treaty on the Energy Charter, whose raison d’être is the protection of investments. Energoalians, whose rights and obligations were subsequently subrogated by Komstroy LLC, initiated the arbitration procedure envisaged by TCE.
The arbitral tribunal ad hoc constituted to resolve said controversy, based in Paris (France), declared itself competent and condemned the Republic of Moldova to pay an amount of money to Energoalians on the basis of the Charter Treaty. Following an appeal for annulment filed against the arbitration award and against a judgment of the Court of Cassation of France, the Republic of Moldova challenges the jurisdiction of said court before the Court of Appeal of Paris, alleging that the claim derived from a contract of Purchase and sale of electricity does not constitute an “investment” within the meaning of the ECA.
As a result, the Court of Appeal in Paris referred three questions for a preliminary ruling to the Court of Justice of the EU.
To answer the first question, relating to the concept of “investment” in the sense of the ECA, since this interpretation is necessary to verify the jurisdiction of the arbitral tribunal ad hoc, the Court of Justice notes, first of all, that the arbitral tribunal decides in accordance with the ECT, which is an act of European Union law, as well as in accordance with international law, so that said tribunal may be obliged to interpret and apply Union law.
Second, such an arbitral tribunal does not constitute an element of the judicial system of a Member State, in this case France. It follows that this court cannot be classified as a court of “one of the Member States” within the meaning of Article 267 TFEU, and therefore it is not empowered to request a preliminary ruling from the Court of Justice.
Third, to ensure compatibility with the principle of autonomy of the Union judicial system, the arbitration award must be subject to the control of a court of a Member State that ensures full respect for Union law, guaranteeing that the Questions of Union law may be referred, where appropriate, to the Court of Justice through a preliminary ruling procedure.
In the case at the Luxembourg-based tribunal, the parties opted for an arbitration tribunal under the UNCITRAL (United Nations Commission for International Trade Law) Rules and agreed that the seat of the arbitration should be established in Paris. , which made French law applicable to the procedure aimed at judicial control of the arbitration award.
However, such judicial review can only be carried out by the national court concerned to the extent that national law allows it. However, French law only provides for limited control, in relation, in particular, to the jurisdiction of the arbitral tribunal. Furthermore, the arbitration procedure in question differs from a commercial arbitration procedure, which has its origin in the autonomy of the will of the parties.
Indeed, this arbitration procedure results from a treaty by which the member states undertake to remove from the system of judicial recourse that must establish disputes that may refer to the application or interpretation of Union law.
“The TCE is not applicable”
“From all the characteristics of the arbitral tribunal, it follows that, if the dispute were to face Member States, a mechanism for resolving that dispute could not guarantee that the disputes would be resolved by a jurisdictional body belonging to the Union’s judicial system, taking into account that only such a court can guarantee the full effectiveness of Union law “, states the Court of Justice of the EU:” Consequently, the provision of the ECA in question does not apply to disputes between a Member State and an investor from another Member State in relation to an investment made by that Member in the first Member State “.
Next, the Court clarifies the concept of “investment” within the meaning of the ECA. In this regard, the Court considers that “it is true that a credit derived from an electricity supply contract constitutes an asset owned directly by an investor, taking into account that the term ‘investor’, defined by the ECA, designates in in particular, as regards a contracting party such as Ukraine, to any company incorporated under the law applicable in that contracting party “.
“However,” adds the CJEU, “a credit derived from a mere contract for the sale of electricity cannot be considered granted to undertake an economic activity in the energy sector. It follows that a mere contract for the supply of electricity, in the present case generated by other operators, it is a commercial operation that, as such, cannot constitute an investment “.
Background: Achmea case
In its 2018 ruling in the Achmea case, the Court of Justice of the European Union already ruled that investor-state arbitration, when applied between EU member states, undermines the system of legal remedies provided for in the Treaties of the EU to resolve these disputes.
Brussels has repeatedly pointed out that European investors “cannot resort to arbitration tribunals established in such bilateral investment treaties between EU countries or, for disputes between EU countries, to arbitration tribunals established under the Charter of the European Union. Energy”.
Brussels’ position, ratified by member states on Tuesday, follows the ruling in March of the EU Court of Justice in the Achmea case, which confirmed that arbitration agreements in bilateral treaties between member states are incompatible with the rules. community.
Following this ruling, the Commission intensified its dialogue with all Member States. As a result, they have agreed to terminate all intra-community BITs. The Commission also “welcomes the fact that the majority of Member States committed to taking action to ensure that the Energy Charter Treaty cannot be used as a basis for arbitration between investors and EU Member States. EU”.
The commitments made by the Member States provide “additional legal clarity for investors and arbitral tribunals and aim to avoid new arbitration awards and arbitration procedures incompatible with EU law”; Brussels states.