The Commission pushes forward on intra-EU investment protection | In Principle

Earlier this year, the European Commission scored an important success in its campaign against intra-EU Bilateral Investment Treaties. The CJEU’s judgment in the Achmea case¹ confirmed the Commission’s standpoint that a system that allows an investor from one EU Member State to challenge in international arbitration measures taken against its investment by another, host EU Member State, is incompatible with EU law.

The day on which the Achmea judgment was announced was labelled “Black Tuesday” by  investment arbitration practitioners. Many described it as a triumph of “capital-importing” Member States, which – as they feared – had supported the Commission at the CJEU in order to be able to pursue more freely populist and economic nationalism agendas, once the constraints applicable under the intra-EU BITs would be abolished.

Some expressed hopes, though, that the Achmea judgment, while indeed a risky move, could be a step in the right direction. Especially from the viewpoint of nationals of those capital-importing EU Member States, who are witnessing challenges in their home jurisdictions to the rule of law and the independence of the judiciary.

It was argued that the triumph of the governments that supported the Commission in the Achmea case would be short-lived, if it was, indeed, fuelled by the said ulterior motives. Having declared that EU law effectively applied by national courts, is the right tool for the protection of intra-EU investments, the Commission and the CJEU would have to take firm action to ensure that this tool does indeed work properly and effectively. The problem of challenges to the rule of law and the independence of the judiciary in EU Member States would have to be tackled head on without the safety net of intra-EU BITs.

The recent Communication from the Commission to the European Parliament and the Council on Protection of intra-EU investment² is a signal that the Commission is indeed taking this direction.

The Communication restates the principles of EU law, which protect cross-border, intra-EU investments. More importantly, however, it expresses the Commission’s determination to ensure that these principles are applied effectively by independent and impartial national courts.

The Commission reiterates forcefully in the Communication that “the independence of the national judiciary is a common principle of the constitutional traditions of the Member States and of EU law” and that respect for this principle requires that there are proper rules in place “on the composition of the judicial body and the appointment, length of service and the grounds of abstention, rejection and dismissal of its members”³.

The Commission makes clear that it “gives high priority to infringements [of EU law by the Member States] that reveal systemic weaknesses and in particular to those which affect the capacity of national judicial systems to contribute to the effective enforcement of EU law”⁴.

Hence, disappointment expressed after the Achmea judgment by many members of the investment arbitration milieu and major European investors is understandable. Undisputedly, the Commission’s campaign and the Achmea judgment can make protection of cross-border intra-EU investments more difficult for the investors, by taking away its hitherto most convenient and efficient form: the investment arbitration process. However, for EU citizens in those Member States, in which the rule of law and the independence of the judiciary are being challenged, the Commission’s policy and its recent Communication can be a beacon of hope, suggesting that they will not be left alone and that the efforts to ensure effective protection of intra-EU investments can have broader and more direct, positive effects in those Member States, than the system of intra-EU BITs could deliver.

Stanisław Drozd, Dispute Resolution & Arbitration practice, Wardyński & Partners