Both the decisions confirm that investment arbitration is not affected by the argument - pursued by the EU Commission and the Court of Justice of the European Union (“CJEU”) - whereby arbitration clauses contained in intra-EU BITs are invalid and/or ineffective because jurisdiction was assumed in violation of the rules of the Treaty on the Functioning of the European Union providing for the exclusiveness of the CJEU role in interpreting EU law. The US Court of Appeal for the District of Columbia Circuit also clarified that the obligation to enforce intra-EU ICSID awards as if they are a final judgment of a domestic court in that State (Art. 54 of the ICSID Convention) prevails over the European arguments on the unenforceability of arbitral awards due to the doctrine of State immunity, whose application at the enforcement stage in the USA would allegedly derive from the wrong assumption of jurisdiction by arbitrators.

On 3 April 2024, in the context of the challenge to an intra-EU investment award issued against Spain by an Arbitral Tribunal seated in Geneva, the Swiss Tribunal Federal (hereinafter, also “Federal Tribunal” or “Supreme Court”) confirmed that the (majority of the) arbitral tribunal correctly assumed jurisdiction in an investment case based on the arbitration clause contained at Art. 26 of the Energy Charter Treaty (ECT).

This decision was followed by a similar ruling by the US Court of Appeal for the District of Columbia Circuit, issued on 14 May 2024. According to the US Judges, an ICSID award against Romania was enforceable notwithstanding the arguments sustained by the EU and the Respondent State that (i) the agreement to arbitrate in the Sweden-Romania bilateral investment treaty (BIT) became void when Romania joined the EU; and (ii) such voidness also involved the applicability of the doctrine of state immunity from execution and/or affected the validity of the arbitral award.

Even if issued in different contexts (an ECT arbitration seated in Switzerland, in the first case, and a truly international ICSID arbitration based on a BIT, in the second case), these two decisions are of particular relevance as they both affirm the principles that: (i) investment arbitration is subject to international law; and (ii) the obligations assumed through pre-existing international treaties shall prevail over the obligations subsequently assumed by States who joined the EU. Moreover, the two judgments are somehow complementary, considering that while the decision by the Swiss Supreme Court deals with the validity of the arbitration clause of the ECT in intra-EU cases, the US ruling concerns the enforceability of resulting awards, even if in the specific context of ICSID.

The Swiss decision

Starting from the decision by the Swiss Tribunal Federal, its most interesting point is that it affirms the full validity of arbitration clauses contained in intra-EU BITs from the perspective of rules on interpretation set forth in the international law of treaties.

According to the Swiss Supreme Court, interpretation in international law is mainly based on the textual, contextual and teleological criteria and, notwithstanding the “crusade” (par. 7.6.5.) started by the EU against investment arbitration, cannot be affected by EU law.

Starting from a textual interpretation, the Court affirmed that the arbitration clause contained at art. 26 ECT is to be considered as a standing offer by the States parties to the treaty, which, once accepted by an investor, is binding on both parties. According to the Court, this is what happened in the arbitration preceding the annulment proceedings, in which a French investor legitimately accepted the offer to arbitrate made by Spain through art. 26(3) ECT whereby “each Contracting Party hereby gives its unconditional consent to the submission of a dispute to international arbitration or conciliation in accordance with the provisions of this Article” (emphasis added). The Swiss Federal Tribunal also rejected the Spanish argument – based on the well-known Achmea and Komstroy rulings issued by the CJEU – that the arbitration clause contained in the ECT was invalid starting from the entry into force of the Lisbon Treaty, which provides for the EU competence over foreign investments and allegedly confers to the CJEU the exclusive authority to interpret the law on foreign investment. According to the Federal Tribunal, the Achmea and Komstroy ruling are res inter alios acta from a Swiss perspective and cannot bind Swiss judges (who are, instead, bound by international law rules governing the arbitration). Relatedly, the Swiss Federal Tribunal did not consider itself bound by the principle of primacy of EU law, but considered that the issue had to be solved only on the basis of the relevant rules of international law.

Moving to the contextual - i.e. inspired by the other provisions and the preamble of the same treaty - and teleological - i.e. looking at the goals of the treaty - interpretation of the ECT, the Swiss Federal Tribunal looked at Art. 2 ECT (on the object of the treaty) and noted that the goal of this treaty is exactly to improve the flow of international investments in the energy field. In this regard, it would not be in line with the spirit of the ECT to deprive an investor of the possibility to make recourse to international arbitration for (alleged) violations of its investment.

Finally, the Swiss Federal Tribunal also rejected the argument according to which jurisdiction of arbitral tribunals would be precluded by the Declaration issued by a number of EU Member States in 2022 (“2022 Declaration”) and affirming the binding nature of the Achmea ruling also in arbitral proceedings. In this respect, the Swiss Federal Tribunal noted that the 2022 Declaration only concerned the effects of the Achmea ruling within the EU, but had nothing to do with the interpretation of the ECT. In any case, and moreover, the Swiss Court recalled that the 2022 Declaration was not signed by all EU Member States and, thus, cannot be considered as a form of ius superveniens binding EU States in the interpretation of the ECT.

By way of provisional conclusion, it is worth noting that the political effects of the Swiss decision have been immediate. It is not by chance that, few days after the ruling (i.e. on 16 April 2024), Spain gave written notice of its decision to withdraw from the ECT and, on 14 May 2024, the withdrawal was published in the Spanish Official Gazette. The denunciation shall take effect for Spain on 17 April 2025 (one year after the date of receipt of Spain’s notification to the Treaty’s depository).

The U.S. decision

The Decision by the Court of Appeal for the District of Columbia pertains to the well-known affaire Micula, which already brought to a decision by the CJEU (overturning a previous ruling by the General Court of the EU), whereby the fulfilment of an ICSID intra-EU award (such as the one in favour of the Claimants against Romania) by EU Member States constitutes a form of illegal state aid (“2022 CJEU Decision”), notwithstanding the clear wording of art. 54 of the ICSID Convention that equalizes ICSID awards to domestic res judicatae judgments.

According to the US Court of appeal – who confirmed the previous District Court’s decision – international law prevents US Court from refusing the enforcement of the Micula award.

More in detail, Romania tried to argue that it enjoyed sovereign immunity from enforcement in the US, considering that – while usually the Federal Sovereign Immunity Act (“FSIA”) excludes state immunity in the case of claims concerning the enforcement of ICSID arbitral awards, which are immediately binding in States adhering to ICSID – this exception does not apply if the ICSID arbitrators lacked subject matter jurisdiction. In Romania’s view, this would allegedly be the case, because the arbitration clause in the Sweden Romania BIT should be treated as void as of Romania’s 2007 accession to the EU, because EU law prohibits intra-EU investment disputes.

The District Court, in 2019, refused Romania’s argument and enforced the award.

The Court of Appeal confirmed that it had to give “full faith and credit” to the text of the arbitral award and, based on the text of the Sweden-Romania BIT, confirmed the District Court’s conclusion that the award did not relate to the interpretation or application of EU law. Indeed a “close inspection” of the award, confirms that its legal source was the Sweden-Romania BIT, and that EU law did not apply because the dispute predated Romania’s EU membership. Furthermore, according to the Court of Appeal, the 2022 CJEU Decision, on which Romania relies, does not support the interpretation that its 2007 accession to the EU retroactively rendered the preexisting agreement to arbitrate with Swedish investors void ab initio.

According to the Court of Appeal, under the FSIA arbitration exception, the relevant jurisdictional question is the existence of a valid agreement to arbitrate and the US Court’s jurisdiction did not anyway depend on the 2022 CJEU Decision.

Moreover, the District Court rejected Romania’s argument that the ICSID award was rendered invalid by the lack of jurisdiction of the arbitrators based on the rulings by the CJEU. In this regard, under the ICSID Convention, the “only route for setting aside an ICSID Arbitral Tribunal’s award is through the . . . annulment process, which Romania unsuccessfully pursued”.

Finally, the Court of Appeal also refused Romania’s argument based on comity, according to which US Courts should pay due respect to the 2022 CJEU Decision. However, in the Court of Appeal’s words, “‘Comity’ summarizes in a brief word a complex and elusive concept — the degree of deference that a domestic forum must pay to the act of a foreign government not otherwise binding on the forum. (…) Neither a “matter of absolute obligation” nor of “mere courtesy and good will,” (…) the “obligation of comity expires” when it is in conflict with “the strong public policies of the forum [including the one favouring the enforcement of ICSID arbitral awards]”.

Next steps

In light of the above decisions, it can be argued that the never-ending saga of intra-EU investment arbitration is far from seeing its end. While, within the EU, it is likely that intra-EU award will continue to be successfully challenged and difficultly enforced (notwithstanding the clear obligation set forth, at least in ICSID cases, to treat these awards as final decisions of domestic courts), the situation is entirely different when intra-EU investment awards are challenged or enforced before courts located in non-EU countries.

In this regard, some useful tips for investors could be the following:

• Always prefer ICSID arbitration, considering that it is an international treaty whose terms are clear in providing for the immediate enforceability of awards;

• In case ICSID arbitration is not possible, the best solution – if practicable – would be to have an arbitration non-EU seated;

• Try enforcement, as far as possible, outside the EU;

Overall, and regardless the current existence of a dispute, start restructuring investments by involving non-EU companies as shareholders of the company materially carrying out the investment in the host State. This could render the possibility of starting a successful arbitration easier if and when a dispute arises.

Authored by Andrea Atteritano and Giovanni Zarra.