Investment Protection in the European Union (eBook)

Cover 1
Introduction 23
Part I: Investment protection in the European Union: the rise of potentially conflicting legal frameworks in the European Union 33
Chapter 1: The necessity of investment protection 33
Chapter 2: The ascent of investment protection through IIA / BITs 37
A. The historical development of investment protection mechanisms 37
I. From the Middle Ages until the Colonial Era: the use of force and other individual measures 37
II. The Post-Colonial Era: the gradual rise of public international law as protection mechanism 39
1. Customary international law: minimum standard of treatment 40
2. Conventional obligations: Treaties of Friendship, Commerce and Navigation 42
III. Remaining inefficiencies of the protection mechanisms leading to more specific instruments 44
1. Procedural enforcement: dependence on either the home state or the host state 44
2. Unspecific provisions and a general trend to the conclusion of more specific treaties 46
B. International Investment Agreements: investment protection through bilateral or multilateral international treaties 47
I. Conventional protection of investments through IIAs 49
II. Higher degree of clarity as to the protection standards 50
III. Direct enforcement by investors 51
IV. Enlargement of the scope of rights through the terms investment and investor 54
C. State-contracts 57
Chapter 3: The reception of modern investment protection through IIAs / BITs in the EU: doubling the protection? 58
A. Rise of the EU and the internal market: Investment protection through EU law 58
B. Rise of IIAs concluded by EU member states: EU-Investment protection through IIAs 63
I. Extra-EU IIAs 66
II. Intra-EU IIAs 67
III. Mixed agreements including the EU as contracting party 68
Chapter 4: The separate legal frameworks of investment protection in the EU 70
A. The IIA framework: investment-protection through IIAs 70
I. Guiding principles of investment protection through IIAs 70
II. Substantive protection: overview and scope of protection standards in IIAs 71
1. Fair and equitable treatment 72
2. Protection against Expropriation 77
3. Full protection and security 80
4. Non-discrimination clauses 83
(1) National treatment 83
(2) Most favoured nation treatment 86
(3) Other non-discrimination clauses 87
5. Umbrella clauses 89
6. Free transfer of funds 90
7. Admission clauses and right to establish 92
III. Legal remedies: the dispute settlement mechanism in IIAs 93
1. Investor-state arbitration governed by the ICSIDConvention 95
(1) Jurisdiction of the Centre 95
(2) Procedural rules and applicable law 97
(3) Recourse and enforcement 99
2. Investor-state arbitration in private forums: ICC / SCC, etc. 101
(1) Jurisdiction of the arbitral tribunal 101
(2) Applicable law and procedural rules 102
(3) Recourse and enforcement of arbitral awards issued in private forums 104
3. Other remedies such as inter-state and local remedies 107
B. The EU-Law framework: „investment“-protection in EU law 108
I. Guiding principles of EU law 109
II. Substantive protection and its limits under EU law 110
1. Investment protection through the fundamental freedoms 110
(1) Freedom of establishment 111
(2) Free movement of capital 118
(3) Free transfer of funds 122
(4) Free movement of goods and freedom to provide services 122
2. Charter of Fundamental Rights of the EU 123
(1) Scope of application of the Charter (Art. 51 of the Charter) 124
(2) Freedom to conduct business (Art. 16 of the Charter) 127
(3) Right to property (Art. 17 of the Charter) 129
3. Other principles, including the general principles of EU law and principles of access to justice and due process / relief 136
III. Dual provisions offering protection but also enabling interventionist measures 139
1. Competition law: Art. 101, 102 TFEU 140
2. State aid provisions: Art. 107 ff TFEU 140
3. Secondary legislation 141
IV. Legal remedies: judicial review as conceived under EU law 142
1. Proceedings before national courts and preliminary ruling procedure (Art. 267 TFEU) 142
2. Immediate proceedings before the CJEU: legal actions enumerated in the European Treaties 145
(1) Action for annulment (Art. 263, 264 TFEU) 145
(2) Infringement proceedings as inter-state remedies for violation of EU law (Art. 258 ff TFEU) 147
3. Action for damages 148
(1) Extra-contractual action for damages against the EU 149
(2) Extra-contractual action for damages against the member states 150
Chapter 5: Potential conflicts of EU law and international investment law 151
A. Preliminary remarks as to the notion of conflict regarding different legal frameworks 153
B. Potential conflicts between EU law and IIAs 156
I. Conflicting provisions between EU law and IIAs regarding substantive guarantees 156
1. State aid rules (Art. 107 ff TFEU) 158
2. European public procurement and competition law 161
3. Fundamental freedoms and their limitations in general 165
4. Non-discrimination (Art. 18 TFEU or the fundamental freedoms) 168
5. Free movement of capital 169
6. Changing legal framework 170
II. Conflicting provisions between EU law and IIAs regarding jurisdiction 170
1. Conflict between arbitration clauses and Art. 344 TFEU 171
2. Conflict between arbitration clauses and the dispatch of competencies in the EU 172
3. Conflict between arbitration clauses and the principle of non-discrimination (Art. 18 TFEU) 173
C. Potential implications of the conflict 175
I. Arbitration proceedings 176
II. ‘Setting-aside’ or ‘vacatur’ proceedings and annulment proceedings 176
1. Setting-aside an award rendered in private forums (ICC, SCC, etc.) 177
(1) Invalidity of the arbitration clause (Art. 34 (2) lit. a UNCITRAL Model Law (Lack of jurisdiction)) 177
(2) Award contrary to public policy 179
2. ICSID-Annulment proceedings 181
III. Enforcement proceedings 183
1. Enforcement in private forums (ICC, SCC, etc.) 183
2. Enforcement of ICSID-Awards 184
IV. The impact of further potential EU proceedings on the enforcement of an award 186
V. Conclusion on potential conflicts in the arbitration proceedings 187
D. Handling EU law in international investment arbitration proceedings: different scenarios but similar interests 187
I. Distinguishing different types of situations raising the conflict: intra-EU vs. extra-EU IIAs 187
II. Enjeux en question – Guiding principles which should be respected by any solution to this conflict of laws 189
Part II: Conflicts between EU Law and IIAs in the intra-EU setting 191
Chapter 6: Intra-EU IIAs in arbitration proceedings: how to address the interaction of EU law and intra-EU IIAs 193
A. Structure of the analysis 198
B. The perspective of an arbitral tribunal in an intra-EU investment dispute 200
Chapter 7: EU law as international law applicable to the dispute 204
A. The relevance of any other rule of law than the IIA in the proceedings 204
B. The qualification of EU law as international law 206
I. EU law is sourced in international law 213
1. Transferal of competencies and rights to legislate 214
2. Irrelevance of principles set forth in the European Treaties for its qualification 218
II. EU law primarily creates rights and obligations towards member states and as an auxiliary individual rights 222
III. EU law regulates rights between subjects of international law 223
Chapter 8: The relevant rule of conflict of laws regarding EU law and IIAs 225
A. Preliminary remarks how to resolve conflicts between several rules of laws 226
I. Absence of explicit provisions dealing with the conflict in IIAs and the European Treaties 228
II. Absence of conflict rule leading to the termination of an entire treaty 230
B. Art. 59 of the Vienna Convention on the Law of Treaties 231
I. Same subject matter in terms of Art. 59 VCLT 232
1. The notion of sameness in Art. 59 VLCT as interpreted by the arbitral tribunals dealing with intra-EU disputes 233
2. The misuse of the notion of “same subject matter” to eliminate conflicts ab initio 235
II. Tacit intention to terminate the IIA subsequent to a member state’s accession to the European Union (Art. 59 (1) lit. a VCLT) 240
III. Incompatibility of EU law and IIAs (Art. 59 (1) lit. b VCLT) 243
IV. Conclusions on the effect of Art. 59 VCLT on intra-EU IIAs 245
C. Conflict rules of the TFEU (Art. 350, 351 TFEU and the principle of primacy) 245
I. Ordinary meaning and scope of Art. 351 TFEU 246
II. Ordinary meaning and scope of Art. 350 TFEU 247
III. Art. 350, 351 TFEU as opposition to the (inherent) general principle of primacy 247
D. Applicable conflict rule under the principles of the Vienna Convention on the Law of Treaties 252
E. Conclusion and summary concerning the rule of conflict in the intra-EU hypothesis 254
I. First sub-hypothesis: IIA concluded before accession 254
II. Second sub-hypothesis: IIA concluded after accession 255
III. Necessity of a conflict and the legal consequences 255
Chapter 9: Jurisdiction of the arbitral tribunal: Incompatibility of the intra-EU IIA’s arbitration clause 256
A. Incompatibility of arbitration clauses with the specific characteristics and the autonomy of EU law (the exclusive jurisdiction of the CJEU) 257
I. Why the arbitral tribunal should consider the interpretation of the CJEU in its arbitration proceedings 257
II. The erroneous view on the criteria to be observed by a dispute settlement mechanism within the European Union 259
1. The irrelevance of the EU’s competencies to regulate arbitration for the question of compatibility 263
2. The scope of application of Art. 344 TFEU 264
3. The existence of a duty to respect the fundamental elements of the European Union’s legal order and judicial system 268
4. The criteria to determine the incompatibility with the general principles of the European Union’s legal and judicial order 272
III. Violation of the principles deducted by the CJEU by arbitral tribunals in investment proceedings 280
1. Quantity of cases and quality of provisions concerned (criteria n° 1 and n° 2) 280
2. Interpretative monopoly – (de facto) binding interpretation (criterion n° 3) 283
3. Circumvention of preliminary ruling procedure – disrupting the interaction of the courts (criterion n° 4) 286
4. Further safeguards to ensure the uniform application of EU law (criterion n° 5) 290
5. Contravention of the principle of mutual trust (criterion n° 6) 292
6. Overall assessment of the criteria n° 1 to n° 6 295
IV. Interim conclusions on the arbitration clause’s incompatibility with the autonomy of the EU’s legal order and its specific characteristics 295
V. Excursus for mixed agreements 296
B. Incompatibility of the arbitration clause with EU law due to the violation of competencies exclusively attributed to the EU? 297
I. The type of provisions to be affected to trigger the application of the ERTA-jurisprudence 301
II. Scope of comparison under the ERTA-Doctrine / Pringle-Case 303
III. Interim conclusion on the arbitration clause’s incompatibility due to violation of the EU’s exclusive competences 305
C. Incompatibility of the arbitration clause with the principle of non-discrimination 305
I. Violation of the principle of non-discrimination by the arbitration clause 307
1. Inbound perspective (host state discriminating non-IIA protected investors) 307
(1) Difference in treatment between investors from different nationalities 308
(2) Comparable circumstances between such investors 309
(3) Justification for the differential treatment in comparable circumstances 316
2. Outbound perspective (home state favoring its national investors towards non-national investors) 316
II. Legal consequences of the violation of the principle of nondiscrimination 319
D. Interim conclusions on conflicts between EU law and arbitration clauses contained in IIAs 321
Chapter 10: Primacy of EU law on the merits 322
A. Inconsistency with substantive guarantees provided in the IIA 322
B. How to implement EU law’s primacy on the merits 323
Chapter 11: Challenges to the results due to the particular interests and rights in question 326
A. Impact of sunset clauses on the results 326
B. Conformity of the solution with the interests in question 332
Part III: Conflicts between IIAs and EU Law in the extra-EU setting 335
Chapter 12: The current status of extra-EU IIAs under public international law and EU law 338
A. External perspective: continuous validity of extra-EU IIAs under public international law 338
I. Principle of pacta sunt servanda 339
II. No fundamental change of circumstances upon accession to the EU (Art. 62 VCLT) 340
III. Consequences for obligations arising from IIAs under public international law 342
B. Unionist perspective: primacy of EU law despite contradicting obligations under public international law 343
I. The effects of Art. 351 TFEU: grandfathering of conflicting obligations 344
II. Limits to Art. 351 (1) TFEU and its consequences for the unionist perspective on extra-EU IIAs 346
1. Limits to Art. 351 (1) TFEU regarding prior treaties 347
2. Non-application of Art. 351 (1) TFEU to substantial conflicts in posterior treaties 352
(1) Arguments against the application of Art. 351 (1) TFEU by analogy 353
(2) Limitations to the grandfathering effect of Art. 351 (1) TFEU if applied by analogy 354
III. Summary regarding the unionist perspective and the status of extra-EU IIAs 356
C. Excursus for mixed agreements and future comprehensive trade agreements 357
Chapter 13: Current perception of EU law in extra-EU arbitration proceedings 358
A. The dual nature of EU law in extra-EU arbitration proceedings: international law but also domestic law of the member state 359
B. Potential interferences of EU law with extra-EU investment proceedings 361
I. Interferences of EU law with extra-EU investment proceedings through the IIA itself 362
1. The legality requirement: investments made in accordance with the law of the host state 363
(1) The prerequisite of the investment’s legality under the law of the host state 363
(2) Consequences for interferences of investments with EU law 369
2. Interpretation of the Fair and Equitable Treatment standard 372
II. Interferences of EU law with extra-EU investment proceedings through domestic law being applicable law to the arbitration proceedings 376
1. EU law being the applicable law to the jurisdictional stage as lex loci arbitri. 376
2. EU law at the merits stage 379
C. The role of EU law in the subsequent proceedings 382
I. Setting-aside or enforcement proceedings 383
II. Potential decisions by the European Commission 384
D. Interim conclusion on the disruptive potential of ignoring EU law in extra-EU investment proceedings 387
Chapter 14: Cooperative approach: transposing Solange and Bosphorus to extra-EU investment proceedings 388
A. The reception of “similar conflicts” by other courts: Solange and Bosphorus 389
I. German Constitutional Court: Solange II 389
II. ECtHR: Bosphorus vs. Ireland 390
B. Transposing Solange and Bosphorus to extra-EU IIA investment arbitration 395
I. EU law as a mean of interpretation for obligations under an IIA 396
1. EU law as domestic law being applicable law to the investment dispute 397
2. Considering EU law by virtue of Art. 31 (3) lit. c VCLT 397
(1) Mixed agreements (e.g. Energy Charter Treaty) 398
(2) Transposing the underlying idea of the Bosphorus-Approach to extra-EU-IIAs 405
II. Interim results on the possibility to transpose the Bosphorus Approach to IIAs 406
Chapter 15: Conditions to reduce the margin of control according to the Bosphorus-Approach 407
A. Equivalence of substantive protection under EU law 408
I. Protection against (direct and indirect) expropriations 408
1. Equivalence of measures being qualified as expropriations 412
2. Equivalence of conditions for a lawful expropriation 417
(1) Public purpose / public interest 418
(2) Due process of law 418
(3) Prohibition of discrimination 419
(4) Due compensation 420
3. Equivalence of protected assets and holders of these rights 422
(1) Protected assets and difficulties arising thereof 422
(2) Implications of the chain of control: indirectly owned investments 427
II. National treatment and non-discrimination clauses 428
1. Equivalence of prohibition of national treatment under the free movement of capital 429
(1) Protected assets: “investment” and “free movement of capital” 430
(2) Exceptions and justifications to guarantees under the IIA and under EU law 432
(3) Scope of application of the free movement of capital: erga omnes protection? 440
2. Compensation of protection through application of Art. 20 of the Charter 443
III. Fair and equitable treatment 445
1. Administrative and judicial due process (element no°1) 447
(1) Due process in judicial proceedings 447
(2) Due process in administrative proceedings 450
2. Prohibition of arbitrary and discriminatory measures and measures causing intentional harm (element no°2) 452
3. Obligation to provide legality, stability and transparency in exercising legislative or regulatory powers (element no°3) 453
4. Honouring of legitimate expectations and stability of legislation (element no°4) 457
5. Principle of proportionality (element no°5) 462
6. Overall comparative assessment regarding the FET standard 462
IV. Further principles: Prohibition of arbitrary measures and umbrella clauses 463
1. Protection against arbitrary measures 463
2. Umbrella clauses 463
V. Additional protection for investors established within the EU and operating in other EU member states 465
VI. Overall assessment of substantive protection under EU law and IIAs 465
B. Equivalence of procedural guarantees under EU law 467
I. How to address the equivalence of procedural protection 468
II. The implementation of procedural investment protection by mixed arbitration 469
III. Equivalence of procedural investment protection under EU law compared to IIAs 470
1. Procedural protection through a non-national court system 471
(1) Direct actions before the CJEU 471
(2) Supplementary function of national courts under EU law 478
(3) The assisting function of secondary relief: compensation for violation of EU law 482
2. Specific performance instead of deterrence: how to ensure observance of substantive guarantees 484
3. Complementary means offered by EU law to enforce compliance with substantive guarantees 485
IV. Overall assessment of the equivalence of procedural protection under IIAs and EU law 487
Chapter 16: Implementing the Bosphorus-Approach in extra-EU investment arbitration proceedings 488
A. The presumption of lawfulness: how to determine if an act is ‘mandatory’ under EU law 488
I. Mandatory actions by the host states under EU law 489
II. The burden of proof relating to an act being “mandatory” 490
B. Rebutting the presumption: when to consider the protection to be manifestly deficient 491
I. Consequence of prior proceedings 491
II. Downgrade in the level of protection 492
III. Considerable lack of protection in the particular case depriving the investor of any protection 492
IV. Denial of justice: forcing the EU member states to grant sufficient procedural protection 493
C. The required dialogue of the judges 495
D. Conformity of the solution with the interests in question 496
Part IV: Outlook regarding the EU’s future investment policy 499
Conclusion 503
Literature 513