The Landesbank Decision

January 2022 Melissa Balıkçı Sezen
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Introduction

It is well known that following a decision of the Court of Justice of the European Union (“CJEU”), problems arose related to arbitration of intra-EU disputes, and particularly arbitration under the Energy Charter Treaty (“ECT”).

The ECT, which entered into force in 1998, provides a multilateral framework for energy cooperation with an aim to protect foreign investments.[1] It also sets out a dispute resolution mechanism dealing with disputes between participating states, as well as disputes between investors and host states.

The source of the problems are the Achmea judgment and the Komstroy decision, both of which have been addressed in previous newsletters.[2]

Put briefly, in Achmea in 2018, the CJEU ruled that the investor-state arbitration clause in the Netherlands-Slovakia Bilateral Investment Treaty was incompatible with EU law. The importance of this decision is that it dealt with the compatibility with EU law of the arbitration provision in a bilateral investment treaty between two EU member states.

Following this decision, uncertainties arose in terms of the scope of the decision – more particularly whether the decision applied only to intra-EU bilateral investment treaties, or extended to multilateral investment treaties where EU member states are also a party. An important example of the latter is the ECT.

In Komstroy, the CJEU found that an arbitration clause in a multilateral treaty, such as the ECT, could not be applied to intra-European investment disputes. This resulted in EU-based investors reviewing their investments to ensure they had the possibility of obtaining and enforcing future arbitral awards.

Despite these decisions, tribunals tend to reject intra-EU jurisdictional objections.[3] One of the first decisions that dealt with the effect of the Achmea decision was an International Centre for Settlement of Investment Disputes (“ICSID”) case based on a claim against Spain: Landesbank Baden-Württemberg and others v Kingdom of Spain (“Landesbank”) – a case explained below. After Komstroy, on 11 November 2021, following from an application made by Spain, the tribunal declined to reopen this decision, which found EU law did not prevent it from hearing an intra-EU claim under the ECT, as reported.[4] This newsletter deals with Spain’s application as well as the findings of the Tribunal in its decision related to the jurisdictional objection.

Decision on the “Intra-EU” Jurisdictional Objection

A tribunal rendered its decision in Landesbank on 25 February 2019.[5] This was a case brought by four German banks (namely Landesbank Baden-Württemberg, HSH Nordbank AG, Landesbank Hessen-Thüringen Girozentrale and Norddeutsche Landesbank-Girozentrale (collectively the “Claimants”)) against Spain. The Claimants maintained that, in reliance on what they saw as a commitment from Spain, had made an investment, between 2006 and 2011 they financed 78 renewable energy plants through 225 loans with an overall value of approximately 1.76 billion euros.[6]

The Claimants complained that Spain subsequently enacted substantial changes to the special regime, culminating in its abolition, as a result of which there was a serious negative impact on their investments. They claimed that Spain’s actions violated its obligation)s under various articles of the ECT, which were rejected by Spain.[7]

Among other objections, Spain raised a jurisdictional objection based on Achmea claiming that intra-EU BITs were incompatible with EU law. The Claimants maintained that the jurisdiction of the arbitration Tribunal was derived from the ECT and the ICSID Convention.

In its decision, in addressing the question as to whether or not ECT conferred jurisdiction to itself, the tribunal dealt with the following: (i) principles of interpretation, (ii) the provisional interpretation of Article 26 of the ECT (iii) whether it is contrary to EU law for an EU member state to make an offer of arbitration under the ECT to an investor from another EU member state, (iv) the effect on the interpretation of Article 26 of the ECT of a prohibition under EU law of arbitration in an intra-EU dispute and (v) whether EU law takes priority over the ECT for the purposes of determining the jurisdiction of the tribunal.

The tribunal concluded that it was of the view that there was no conflict between EU law and a finding that Article 26 of the ECT constitutes an offer of arbitration by an EU member state to an investor from another EU member state.[8] Yet, the tribunal did not ignore the fact that the EC and the majority of the EU member states have reached a different conclusion. Nevertheless, the tribunal found that if EU law was incompatible with the Tribunal’s interpretation of Article 26 ECT, then the tribunal should accord priority to the ECT, the legal instrument which is the basis for the Tribunal’s jurisdiction.[9]

The tribunal rejected Spain’s jurisdictional objection and decided that the case would proceed to the next phase.

Following Komstroy, on 1 October 2021, Spain filed a request for reconsideration of the tribunal’s decision of 25 February 2019. On 18 October 2021, the Claimants filed their observations on Spain’s request and the tribunal rendered its decision on 11 November 2021.[10]

Spain requested the tribunal to reconsider its decision arguing that, in light of Komstroy, the decision was “manifestly wrong.”[11]

In reviewing Spain’s application, the tribunal declined to reopen the case as it considered that, in addition to the decision being res judicata, the Komstroy case did not alter its conclusions, as international law principles prevail, even if intra-EU ECT related arbitration is contrary to EU Law. The tribunal found that “regardless of whether the Komstroy decision amounted to a new fact, it would not have decisively affected the outcome.” [12]

Conclusion

It is important for investors to consider that, under current circumstances, they face issues relating to the enforcement of their final awards. There is a risk that the relevant EU member states may seek to challenge the registration of final awards, yet this risk is lower for arbitrations not seated in the EU.

Source

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