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THE KOMSTROY JUDGMENT AND THE LIMITS OF INVESTMENT ARBITRATION IN EU LAW SEPTEMBER-OCTOBER 2021

Table of Contents 1. e Komstroy case: common market philosophy, the ECT and intra-EU ISDS Edoardo Stoppioni 2. Republic of Moldova v Komstroy: what next for the Energy Charter Treaty? Michael De Boeck 3. Completing the un nished Achmea business in the Komstroy case: farewell to intra-EU ECT-based investment arbitration? Alessandro Monti and Ma eo Fermeglia 4. e Komstroy judgment, the Union interest, and the autonomy of the EU legal order Andrés Delgado Casteleiro 5. Komstroy: constitutional, procedural and substantive implications Paschalis Paschalidis 6. Komstroy: What is in the seat? Gillian Cahill

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The Komstroy judgment and the limits of investment arbitration in EU law

e Komstroy case: common market philosophy, the ECT and intra-EU ISDS Edoardo Stoppioni

e solution of the Court of Justice’s Grand Chamber in the Komstroy case does not come as a surprise for the readers of the evolution of the relations between EU law and international investment arbitration, as the evolution of the European jurisprudence points towards the prohibition of any intra-EU investment arbitration. e question remained whether intra-EU arbitration based not on a bilateral investment treaty (BIT) but on the Energy Charter Treaty (ECT) were spared from the Achmea reasoning (C-284/16), according to which the fundamental principles of EU procedural law could not allow the existence of investment arbitration within the common market. It is a preliminary reference of the Paris Cour d’Appel that gave the opportunity to dispel these doubts. Indeed, in the doctrinal debate, some authors had defended the particularism of the ECT, as a multilateral treaty applying between all parties. Similarly, the Council, Hungary, Finland and Sweden argued that the Court of Justice had no jurisdiction to answer such a preliminary reference and maintained that the Achmea solution could not be transposed to arbitration carried out on the basis of Article 26 ECT. e Court of Justice has rejected all these arguments and con rmed the non-applicability of the ECT arbitration clause in an intra-EU se ing.

Asserting jurisdiction: the Court’s power awareness Investment tribunals had already been faced with the issue of the applicability of the investor-state dispute se lement (ISDS) provision in the ECT. e European Commission had intervened as an amicus curiae to defend the negative answer, notably invoking the idea of an implicit ‘disconnection clause’ by virtue of which EU Treaties instead of the ECT would apply between EU Member States. No investment tribunal had taken the EU law arguments seriously, and had not since the famous Electrabel case that had nevertheless tried to propose a harmonious interpretation approach. Much to the contrary, the Court of Justice has con rmed its Achmea position, reading in the EU law – ECT articulation in relation to ISDS with a ‘strategically created treaty con ict’, to borrow S. Ranganathan’s expression. In this context, the Court of Justice was called upon to decide a very timely and delicate issue, knowing that we are in the middle of a saga where mostly Spain as well as Italy and the Czech Republic (but to a lesser extent) have been faced with many ECT arbitrations of an intra-EU nature. While all investment tribunals have rejected the Achmea jurisdictional exception, reinstating their power to decide intra-EU disputes based on a treaty located in the international legal order, the question was even more delicate for tribunals operating under the ECT. i. Professor of public law at the University of Strasbourg.

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The Komstroy judgment and the limits of investment arbitration in EU law

e Court of Justice was obviously aware of the importance of its decision amidst this context. First, AG Szpunar’s Opinion con rmed the political importance of the Court aﬃrming its jurisdiction, because of ‘the EU interest in the uniform interpretation of the ECT’ (point 45). e Court of Justice has followed this fundamental idea: as the provision of the international agreement could apply to situations pertaining to EU law, the EU has a clear interest in avoiding future discrepancies and ensuring a uniform interpretation (paragraph 29). Second, although it had been remarked that the dispute in the original proceedings was not an intra-EU case, the Court of Justice nevertheless considered that as the parties chose Paris as the seat of arbitration and French law was applicable to the annulment proceedings, its jurisdiction to answer the question was con rmed (paragraphs 32-38). It must also be recalled that the Court of Justice will soon have to clarify its vision of intra-EU investment disputes in the PL Holdings case, where AG Koko tried to argue that Poland’s failure to raise the Achmea objection would amount to transforming an intra-EU investment arbitration into a simple investor-State dispute based on an ad hoc agreement. In my reading of her Opinion, AG Koko tried to conciliate the case law on commercial arbitration with the evolution of the jurisprudence on ISDS and maintained that EU law does not necessarily prohibit Member States from entering into individual arbitration agreements, if a comprehensive review by national courts of the compatibility of the award with EU law is ensured (see notably points 65 and 85).

Extending the Achmea reasoning to ECT arbitrations As I have argued elsewhere, the case law of the Court of Justice on the interaction between EU law and international investment adjudication is based on the variable geometrical application of two bodies of jurisprudence. e rst is the favourable case law on commercial arbitration, accepting it as a mechanism located in a separate legal sphere from EU law, as clearly put since Nordsee and Eco Swiss. e second is the very restrictive approach towards international courts and tribunals, emblematically represented by the famous Opinion 2/13. With Achmea, the Court of Justice had started applying to investment arbitration not the favourable case law on commercial arbitration, but the strict standard set for international courts and tribunals. Nevertheless, in Opinion 1/17, the Court of Justice applied a more favourable approach to the investment court established in the EU-Canada agreement, similar to the one of the Nordsee-EcoSwiss cases. In the Komstroy case, the Court kept dipping into its Achmea line, extending the refusal of any intra-EU investment arbitration to ECT-based con gurations. e Court of Justice rejected any distinguishing of cases based on an Achmea-reasoning for BITs, as opposed to ECT arbitrations based on a multilateral instrument to which the EU and its Member States are parties. It reiterated the same philosophical structure of the Achmea judgment, articulating its reasoning in three main steps. First, an international agreement cannot impact on the principle of autonomy, that is, it cannot contravene the constitutional structure of the EU, which includes its judicial system based on the central role of national judges (paragraphs 42-45). Implicitly, the Court recalled the fundamental idea according to which, while the EU judicial system is based on trust towards the national judge, investment arbitration seems to start from an opposite consideration of mistrust for that actor, that it aims at substituting, an idea that was clearly stated in Opinion 2/15’s famous paragraph 292.

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The Komstroy judgment and the limits of investment arbitration in EU law

Second, the Court of Justice clearly stated that ECT is an EU law act (paragraphs 23 and 49), and that therefore there is a clear risk that an investment tribunal is called on to interpret or apply EU law. If this point does not come as a surprise under EU law, a blatant incoherence with the position of the Court in Opinion 1/17 must be remarked upon. ere, the Court of Justice had taken advantage of a discourse of rigid dualism and unconvincing formalism, explaining that the CETA Tribunal will never risk interpreting EU law as it will only apply CETA (paragraphs 120 ﬀ). e distinguishing of AG Szpunar’s Opinion is based on this distinguishing, on the ‘express reservation with regard to the interpretation of EU law’ in the CETA and the absence of any such clause in the ECT (point 85), which nevertheless remains a rather formalistic analysis. ird, the investment tribunal lies outside of the EU judicial space (because of the ‘derogatory jurisdiction’ of the investment tribunal, paragraph 52) and the award is not subject to a full review under the legal system of a Member State (paragraph 57). Consequently, as an international agreement – a product of the international action of the EU – its provisions cannot be interpreted as impacting the autonomy of the EU legal order and therefore the ECT has to be interpreted as not applying in an intra-EU context (paragraphs 62-66). Once again, the political project of the Court of Justice is clear: investment arbitration contravenes EU philosophical principles and has to be expunged from the EU legal order. is internal rigour clearly con icts with the political will to support judicialisation of investment disputes in EU FTAs, as clearly stated in Opinion 1/17 applying the old Nordsee mindset to this la er con guration (for the moment, at least).

Concept of investment But the Court of Justice went even further and answered part of the substantial questions raised by the Paris Cour d’Appel, deciding on the classi cation of ‘investment’ under the ECT of a claim that arose from an electricity contract that did not involve any contribution on the side of the investor in the host State. e Court had already started venturing in this terrain in the Anie judgment (C-798/18 and C-799/18). ere, the Court of Justice dismissed the position of the claimants according to whom the principle of legal certainty (and its corollary, the protection of legitimate expectations) could transform the prospective advantages coming from the favourable Italian legal framework to energy investors in an established legal position, protected under the Charter (paragraph 54). It therefore followed the position of AG Øe who had considered that the right to future payment of the incentives provided for by the agreements could not be regarded as suﬃciently de nitive for their reduction to the considered an expropriation of ‘property’ (point 48). In the Komstroy case, the Court of Justice contributed to a fundamental debate of international investment law. In ICSID arbitration, the concept has been de ned in a large number of cases providing guidance to clarify the meaning under Article 25 of the ICSID Convention. In the famous Salini case, investment was de ned as a contribution, of a certain duration, implying a risk and pro t to the development of the host State. e la er criterion was highly problematic, and the Phoenix case preferred substituting it with the idea of strong connection with the economic activities of the host State. Along this line, in the Abaclat case it was debated whether nancial investment not strongly connected with the host economy but highly uctuating could be considered as such.

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The Komstroy judgment and the limits of investment arbitration in EU law

e Court of Justice reached the conclusion that the claim that arose from an electricity contract, that did not involve any contribution on the side of the investor in the host State, could not be classed as investment under Article 1(6) ECT. Apart from the literary interpretation of the provision, the Court interestingly con rmed its reasoning in light of the fundamental conceptual diﬀerence between ‘trade’ and ‘investment’, concepts used in diﬀerent parts of the ECT (paragraphs 80-82). is idea, that is rarely put forward in ISDS awards, is a fundamental one and may give rise to important future re ections. To conclude, the philosophy of the international market had been explained in a particularly Manichean way as a reaction to the surprisingly ‘pro-investment arbitration’ Opinion of AG Wathelet, a position that has been consistently rejected ever since. e Komstroy case continues this ideological reading of the relations between EU law and ISDS, in the prolongation of the Court of Justice’s case law and of Member States’ practice on intra-EU investment arbitration. Nevertheless, in terms of legal argumentation, the Komstroy judgment highlights the paradoxes of the position taken in Opinion 1/17: while there an unbearable dualism was used regarding CETA considered as located in a world apart from EU law, all the reasoning in Komstroy is based on the fact that the ECT is part and parcel of EU law. Despite all the possible technical distinguishing and a clear (and maybe somewhat understandable) political design, the Court’s language on international investment law might need further re nement.

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The Komstroy judgment and the limits of investment arbitration in EU law

Republic of Moldova v Komstroy: what next for the Energy Charter Treaty? Michael De Boeck

In the much anticipated Grand Chamber judgment of 2 September 2021, Republic of Moldova v Komstroy, the Court of Justice at last addressed the relationship between the EU legal order and the Energy Charter Treaty (ECT). e most striking feature of this judgment is without doubt the Court’s argumentative detour to clarify that EU law precludes the intra-EU application of investor-State dispute se lement (ISDS) under the ECT. e actual disposition of the question referred by the Paris Court of Appeal (Cour d’Appel), on an ‘investment’s’ requirement of a contribution to the host-State economy in line with the so-called ‘Salini test’ seems almost inconsequential a er that sweeping rejection of intra-EU ECT investment arbitration. is Op-ed will therefore focus on the rst point. As also noted in this Op-ed by Edoardo Stoppioni, the fact that the Court of Justice excludes the application of intra-EU investment arbitration under Article 26 of the ECT should not really come as a surprise a er the Court’s judgment in Achmea (C-284/16) and the political momentum to terminate ISDS under the intraEU BITs, which so far had excluded the intra-EU dimension of the ECT. Given that in Achmea the Court’s reasoning against the ISDS provision in an intra-EU BIT was based on a systemic-teleological interpretation of EU Treaty provisions (Article 19 TEU and Articles 267 and 344 TFEU) in light of the ‘autonomy of EU law’ and the ‘principle of mutual trust’, one could have expected that it would not make any diﬀerence whether such ISDS provision derived from a purely Member State agreement or from an EU agreement, since neither can aﬀect the primacy of the EU Treaty provisions in the EU legal order’s hierarchy of norms. e similarity between ISDS provisions under the intra-EU BITs and the ECT thus already pointed to such a conclusion in their intra-EU dimension. At the same time, certain policy reasons also support casting out the practice of intra-EU investment arbitration. Although the ECT was and is instrumental to the EU’s energy security, there are increasing concerns about the compatibility of its investment protection provisions with the EU’s progressive environmental and social policy objectives. is puts additional pressure on the EU to reform or leave the ECT. at the ECT is essentially a ‘grandchild’ of the EU of course does not absolve it of any requirement to comply with the essential conditions imposed by the autonomy of EU law, though one could wonder why it took 27 years to raise that issue, a er a disconnection clause was apparently abandoned during the negotiations.

i. Academic Doctor-Assistant at the European Legal Studies department at the College of Europe, Bruges

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The Komstroy judgment and the limits of investment arbitration in EU law

Foreclosing ECT intra-EU investment arbitration with post-haste Nonetheless, the eagerness with which the Court seems to have addressed the compatibility of the ECT’s intra-EU dimension is remarkable, since the case at hand did not actually concern an intra-EU dispute. Rather, it involved a dispute between a third-State investor (a Ukrainian company) and a third-State contracting party to the ECT (Moldova). Neither are an EU-established company or Member State. e only link between the investment arbitration and the EU legal order was that the seat of arbitration was in Paris. Despite this lack of connection to the EU, the Court of Justice states that ‘it is necessary, rst of all, to specify which disputes […] may be brought before an arbitral tribunal pursuant to Article 26 ECT’ (paragraph 40). A er subsequently reiterating the constitutional signi cance of the EU principles governing the resolution of disputes covered by EU law (paragraphs 41-46), the Court then concludes that it ‘is in the light of the foregoing considerations that the question whether a dispute between a Member State and an investor of another Member State concerning an investment made by the la er in the rst Member State may be subject to arbitration proceedings under Article 26(2)(c) ECT must be examined’ (paragraph 47). However, given the non-EU se ing, it is not very convincing to nd a need to examine the scope of the ISDS provision under Article 26(2)(c) ECT in the intra-EU se ing, in order to answer the question referred by the Paris Cour d’Appel that relates to the interpretation of the notion of an ‘investment’ in accordance with Article 1(6) ECT in the context of a dispute between a third State and a non-EU investor. e Court of Justice thus seems to have framed its own preliminary question pour les besoins de la cause which seems to have li le relevance to the actual question referred. is is all the more striking given that there is already a preliminary reference directly relevant to an intra-EU ECT dispute in the pending case Italy v Athena Investments (C-155/21). is detour into a preliminary examination of the intra-EU dimension of ECT ISDS thus appears somewhat arti cially constructed to afford the Court a – perhaps much awaited – opportunity to foreclose numerous ongoing claims in pending intra-EU ECT investment arbitration proceedings against EU Member States. Its reasoning on the intra-EU incompatibility, unsurprisingly, closely follows the three-step reasoning set out in Achmea: (i) the international tribunal is liable to interpret or apply EU law (that is in particular the case because it applies the ECT, which is in and of itself an integral part of EU law); (ii) nevertheless, such a tribunal is not a part of the EU judicial system and of the EU judicial dialogue designed to ensure the uniformity coherence and effectiveness of EU law; and (iii) nor is it subject to a sufficient degree of review by EU Courts, capable of ensuring ‘full compliance’ with EU law. Consequently, the Court of Justice concluded that: ‘it follows that, although the ECT may require Member States to comply with the arbitral mechanisms for which it provides in their relations with investors from third States who are also Contracting Parties to that treaty as regards investments made by the la er in those Member States, preservation of the autonomy and of the particular nature of EU law precludes the same obligations under the ECT from being imposed on Member States as between themselves’ (Komstroy, paragraph 65).

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The Komstroy judgment and the limits of investment arbitration in EU law

e external dimension of the ECT is naturally begs the question whether this judgment should be read as an endorsement of the extra-EU application of ISDS under the ECT. It is obvious that the ECT lacks several of the traits that were considered essential to safeguard the autonomy of EU law in Opinion 1/17 and Achmea. For instance, although the ECT’s applicable law clause does not designate domestic law of the host State as applicable law, it does not – unlike CETA (the EU-Canada Comprehensive Economic and Trade Agreement) – speci cally exclude any application of EU law, nor does it contain a disconnection clause. Unlike the CETA, it does not speci cally exclude direct eﬀect, or provide for a binding determination of the appropriate respondent, or contain more quali ed provisions safeguarding the Contracting Parties’ right to regulate for public and societal interests. e Court of Justice limited its analytical detour to the intra-EU application of the ECT, while apparently not concerning itself too much with the compatibility of the extra-EU application. Its concluding language in paragraph 65 – ‘may require’ – does not sound very determined, compared to its conclusion on the intra-EU se ing. at question on the external application of the ECT ISDS might well still come up in the pending prior Opinion 1/20 requested by Belgium in the context of the ECT modernisation process (discussed here), although any substantive changes due to the modernisation process should then be discounted from any analysis on the present applicable provisions. It is also worth paying a ention to the fact that the Court’s sweeping preclusion of intra-EU ISDS under the ECT conspicuously omits any reference to the temporal distinction between pre- and post-accession conclusion of the ECT, or the in uence of the transfer of competences a er the conclusion of an international agreement under Article 351 TFEU. Whether those arguments would indeed have changed the analysis is doubtful, since the Court of Justice had the opportunity to consider in Kadi (C-402/05 P and C-415/05 P, paragraphs 282 and 304) that even Article 351 TFEU cannot justify a derogation from the foundations of EU law, including its autonomy. Nevertheless, that the Court has not even raised them detracts from the credibility of its analysis.

Autonomy as a limit on the Court of Justice’s interpretative authority In the process of the ever-expanding scope of EU law, the Court of Justice’s domain of interpretative authority inevitably grows. However, in the external dimensions of EU and Member State action, it is not always evident that the autonomy of EU law can also constitute a limit for the interpretative power of the Court. In paragraphs 23-24 and 49-50 of the Komstroy judgment, the Court strikingly considers, on the basis of the Haegeman-rationale (C-181/73), that the ECT is in and of itself also an integral part of EU law ‘and that, in the context of that legal order the Court has jurisdiction’. It follows from this that any tribunal under Article 26(6) ECT that applies and interprets the ECT, interprets and applies EU law. e Court of Justice does not make the distinction here between an internal and external dimension, unless the reference to ‘in the context of that legal order’ in paragraph 24 is intended to signal that this reasoning only applies in the relationship between two EU Member States. By contrast, a similar reasoning was not followed in Opinion 1/17. In

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The Komstroy judgment and the limits of investment arbitration in EU law

Opinion 1/17, paragraph 133, the Court considered that ISDS in CETA was compatible with the autonomy of the EU, inter alia, because the applicable law did not include EU law ‘other than the provisions of the CETA’. It is here that the distinctions between international law and EU law blur somewhat. It seems that the Court of Justice considers that ‘in the context of the EU legal order’, it has the requisite jurisdictional authority to render a binding interpretation of the scope of the ECT ‘as between the Member States’ because it is also an EU legal act. It appears to also support that by considering that the international obligations contained in the ECT concern mere bundles of reciprocal rights (paragraph 64), which are inherently more likely to be susceptible to inter se modi cation (Article 41 of the Vienna Convention on the Law of Treaties). With that assumption, its interpretation apparently leads to a lack of jurisdiction of the arbitral tribunals in the intra-EU application of the ECT. However, that view is not consistent with the concept of interpretation under international law, the limits on inter se modi cation, and the very notion of the autonomy of EU law, exactly because that autonomy stands for the separation between the EU and international legal order. Hence, in the context of the EU legal order, the Court’s interpretation of the scope ISDS under the ECT is but an expression of successive treaty con ict between EU law and the ECT. It may impose speci c EU law obligations on the Member States, but does not bind international tribunals in their own international law interpretation of the very same ECT provisions in their intra-EU application. In his Opinion, AG Szpunar expressed this in the following way: ‘From this follows their inapplicability in the EU legal order, without temporal limitation, with the result that an arbitral tribunal cannot, on that basis, be recognised as having jurisdiction’ (emphasis added). is wording aptly recalls that the Court’s consideration of the compatibility of the ECT with the autonomy of EU law imposes EU law obligations on EU Courts not to apply or otherwise give effect to those provisions. But this, in light of the very autonomy of EU law, has no bearing on the validity of that international commitment under international law, as the Court itself recognised in Parliament v Council (C-317/04 and C-318/04, paragraph 73). Autonomy is in that sense a doubleedged sword. Moreover, if the Court of Justice endorses the extra-EU application of ISDS in the ECT while rejecting the intra-EU application, it is difficult to reconcile those different approaches with a conceptual understanding of autonomy. Again, in the understanding that the autonomy of EU law safeguards the separation of EU law from international law and national law for the purpose of maintaining its indivisible nature, its uniformity and to that end contains a centralised interpretative system, I fail to see what difference it makes whether EU law is interpreted or applied by an international tribunal in a dispute between an EU Member State and an investor from another EU Member State or between an EU Member State and a third-State investor. Both are just as clearly, and by the Court’s own reasoning, outside of the EU judicial system and risk the fragmentation of EU law. e only relevant criterion is whether the dispute is ‘covered by EU law’ and deprives an EU Court of its jurisdiction, and/or the international tribunal is liable to interpret or apply EU law. It is on the one hand the risk that such non-centralised interpretation of EU law becomes binding on the EU through its unionisation as an EU agreement, or the Member States’ disregard for the allocation of powers to EU Courts which deprives EU Courts of their jurisdiction, that presents a systemic risk to the autonomy of EU law as a structural and systemic principle of EU law. Whether that is the case here, is simply not considered by the Court of Justice.

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The Komstroy judgment and the limits of investment arbitration in EU law

Conclusion e Court’s reasoning in Komstroy indeed continues along the logical, further restricting, progression of its case law on investment arbitration in the intra-EU context, but it nonetheless fails to do so with clarity and comprehensive analysis. With respect to the external dimension, none of the essential conditions seem to have even been considered in any detail by the Court. Although its intended eﬀect is to end intra-EU ECT ISDS, it is very doubtful whether investment tribunals will change their se led jurisprudence on the rejection of the ‘intra-EU objection’. Additionally, given that neither the negotiating directives or the list of topics to be addressed during the conference adopted in November 2018 contain the inclusion of a disconnection clause, amendment of the Regional Economic Integration (REIO) clause to re ect a disconnection, or in general the topic of the intra-EU application of Article 26 ECT, it appears more likely that an inter se modi cation of the ECT will have to be a empted in line with the provisions of Article 41 of the Vienna Convention on the Law of Treaties.

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The Komstroy judgment and the limits of investment arbitration in EU law

Completing the un nished Achmea business in the Komstroy case: farewell to intra-EU ECT-based investment arbitration? i

Alessandro Monti and Ma eo Fermeglia

With the adoption, in May 2020, of the Agreement for the termination of Bilateral Investment Treaties between the Member States of the EU (Termination Agreement), the teeth of the Achmea judgment have been sharpened, reducing at the source the risk of intra-EU disputes before international investment tribunals. While killing most birds with the same stone (see here), the Termination Agreement le unaddressed the question concerning the intra-EU applicability of investment arbitration under Article 26 of the Energy Charter Treaty (ECT). e decision rendered by the Grand Chamber of the Court of Justice in the Komstroy case represents the rst (and most likely not the last) a empt by the EU’s highest judicial organ to complete the work initiated with the Achmea decision and the Termination Agreement, and pull the plug also on intraEU investor-State dispute se lement (ISDS) under the ECT. As also argued in this Op-Ed by Edoardo Stoppioni, the underlying juridical considerations upon which the Court of Justice grounds its reasoning in the Komstroy decision follow suit from the Achmea judgment, and pertain to the potential threats to the primacy of EU law. is is due to the fact that arbitral tribunals established under Article 26(6) ECT would be ‘required to interpret, and even apply, EU law’ (paragraph 50), without having the possibility to refer to the Court of Justice for a preliminary ruling (paragraph 53), not meeting the requirements provided under Article 267 TFEU. Moreover, the Komstroy pronouncement has been rendered in the context of growing political pressure for a modernisation or termination of the ECT, which has been exerted on the European Commission by the European Parliament, civil society (see here and here) and some Member States, namely France. In this connection, it is also important to remember that unilateral withdrawal from the ECT by EU Member States is always on the table, as the case of Italy in 2016 has shown. e persistent resort to intra-EU arbitration under the ECT, most recently by coal investors RWE and Uniper in two cases against e Netherlands, adds fuel to the re, posing a new threat to the achievement of the goals set under the European Green Deal (see here). In light of such arguments, we appreciate the Court of Justice’s concerns about halting the seemingly ceaseless ow of intra-EU legal disputes under the ECT. However, it occurs to us that the Court’s verdict in the Komstroy case pursues this objective in a controversial fashion from an international law perspective. Additionally, we doubt that the Komstroy judgment will concretely be able to determine the outcome of future intra-EU investor-State disputes under the ECT.

i. Postdoctoral Researcher at the University of Copenhagen, Faculty of Law, Centre for International Law and Governance. ii. Assistant Professor of International and European Environmental Law at Hasselt University.

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The Komstroy judgment and the limits of investment arbitration in EU law

An unsolicited decision: Terminating intra-EU investment arbitration at all costs? Starting from the future relevance of the judgment’s analysis on Article 26 ECT, it is noteworthy that in the dispute at stake both Advocate General (AG) Szpunar and the Court have spent considerable argumentative effort in dealing with the applicability of this provision in intra-EU disputes, while the case itself, which concerns a Ukrainian investor and the Moldovan State, is of blatantly extra-EU character. e issue as to the compatibility of ISDS arbitration under Article 26 ECT with EU law was introduced by the Commission at the hearing before the Grand Chamber, and discussed at length by AG Szpunar in his Opinion (points 7273), despite the feeble connection with the facts of the dispute. To justify its analysis on this aspect, the Court of Justice hence links the need to rule out the applicability of Article 26 ECT in intra-EU cases with its positive resolution of the question on jurisdiction (paragraph 41). Yet, as also pointed out in this Op-Ed by Michael de Boeck, the logical connection between these two aspects appears rather weak. In fact, the analysis rendered by the Court on the intra-EU applicability of Article 26 ECT does not affect the outcome of the case, thus not permeating the operative part of the judgment. In light of its character as an obiter dictum, we argue that the Court’s affirmation according to which ‘Article 26(2)(c) ECT must be interpreted as not being applicable to disputes between a Member State and an investor or another Member State concerning an investment made by the la er in the rst Member State’ (paragraph 66), will be of rather limited relevance in future intra-EU ISDS disputes. It is true that, in theoretical terms, the Komstroy judgment could entail a threefold set of consequences for ISDS in energy ma ers. Firstly, it would no longer be possible to le intra-EU ECT-grounded investor-State disputes. Secondly, ISDS panels already constituted under the ECT (such as, among others, the vast majority of those dealing with the reversal of renewable energy incentives in Spain and Italy) would have to decline their jurisdiction. irdly, Member States’ domestic courts would have to set aside, or refuse to enforce, awards rendered under the ECT. However, the experience gained in the wake of the Achmea decision unfolds ISDS tribunals’ stark resistance to give deference to such arguments when questioned upon their jurisdiction by host EU Member States. For example, in the well-known Va enfall II case the tribunal rejected Germany’s Achmea-based objection to its jurisdiction by stating that EU law was not deemed to constitute ‘applicable rules and principles of international law’ under Article 26(6) ECT, and therefore should not be regarded as ‘relevant rules of international law applicable in the relations between the parties’ under Article 31(3)(c) VCLT (paragraph 153). Furthermore, the ISDS tribunal in Eskosol v. Italy (paragraph 181) emphasised that the ECT and the EU treaties belong to separate and distinct sub-systems of international law, which co-exist ‘with no precise hierarchy’, so that ‘a given State may be subject to obligations arising from both types of decisions’. e above quotations summarise what has been referred to as ‘a splendid manifestation of intentional fragmentation of the international legal order’. As pointed out by the same Eskosol tribunal (paragraphs 125126), there is no room to argue as a ma er of international law that a judgment emi ed by the Court of Justice can automatically invalidate an international treaty such as the ECT or a part thereof (namely the consent to arbitration under Article 26 ECT). Such a decision would operate against the general principle of pacta sunt servanda, which grounds all the obligations entered into by the Parties to an international treaty, as well as Article 216 TFEU, which states that all international agreements concluded by the EU are binding upon its institutions and its Member States. Such aspect represents a speci c concern with regard to the ECT – a

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The Komstroy judgment and the limits of investment arbitration in EU law

multilateral treaty, to which the EU itself is a part – as opposed to bilateral investment treaties (BITs) between Member States. In both the Komstroy and Achmea cases, the Court of Justice openly aims at preserving the autonomy and primacy of the EU legal order. At the same time, the Court acknowledges that the EU remains bound vis-àvis third countries under the ECT, and therefore bears potential responsibility for internationally wrongful acts should it disregard Article 26 ECT. In particular, in the Komstroy case the Court recognises that ‘the ECT may require Member States to comply with the arbitral mechanisms for which it provides in their relations with investors from third States who are also Contracting Parties to that treaty as regards investments made by the la er in those Member States’ (paragraph 68). Although ISDS tribunals have consistently held that EU law ‘simply is not part of the applicable law of any ECT dispute, and therefore will be regarded as a purely ma er of fact’ according to Article 26(6) ECT (Eskosol, paragraph 69), one might envisage that ISDS tribunals could be called upon to interpret and apply EU law in those cases. In this respect, it is worth noting that ECT cases are also being led by investors directly against the EU, in response to regulatory measures adopted at EU level. e Nord Stream 2 case, in which a Swiss investor has led an arbitration against the Commission seeking compensation due to amendments made to the Gas Directive, exempli es such a situation. In these cases, EU law lies at the core of the merits, and yet, such cases would arguably withstand the Komstroy doctrine.

e way forward: Judicial and normative developments Following its decision in the Komstroy case, it is reasonable to expect that the Court of Justice will return on the issue of the intra-EU applicability of the ECT in the near future. In fact, this question has been recently raised in a request for preliminary ruling by the Court of Appeal of Svea in Sweden (Svea hovrä ) in the dispute Italy v. Athena Investments A/S (Case C-155/21), as well as in a request for an opinion by Belgium (Opinion C-1/20). It will be important to observe whether in any of these pronouncements the Court of Justice will reiterate the dictum expressed in the Komstroy decision. At the time of writing, this seems highly plausible, since the la er judgment clearly suggests that it is the Court’s intention to phase out investment arbitration in all intra-EU disputes. However, diﬀerently from the Komstroy case, in Italy v Athena the question concerning the intra-EU applicability of the arbitration clause under Article 26 of the ECT has been directly submi ed to the a ention of the Court. erefore, a decision on this ma er might be more impactful in future cases. If not directly in investment disputes, at least in annulment proceedings before Member States’ domestic courts. Leaving aside any potential further developments, the legal reasoning upon which the Court has based its decision in Komstroy is not fully convincing in addressing the fact that the EU itself is one of the signatory parties to the ECT. To this end, we maintain that an alternative solution grounded on international law, be it a ‘modernisation’ of the ECT or the EU’s unilateral withdrawal (in the Commission’s view, modernisation appears as the preferred option, see here), would be advisable. Indeed, the slow progress of negotiations does not speak in favour of a swi resolution of the challenges currently existing on the political plane. However, encouraging signs in terms of a stable and predictable regulatory framework for investors can be seen in the broader European Green Deal context. Examples in this sense are given by the planning and reporting mechanism provided under the Regulation on the Governance of the Energy Union, the framework of the

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The Komstroy judgment and the limits of investment arbitration in EU law

EU Taxonomy for sustainable activities or the recent proposal for a corporate due diligence Directive. In our view, such normative tools can provide investors with a more reliable regulatory landscape, thereby reducing their need for intra-EU protection under the ECT and realigning the two, apparently adversarial, legal orders of EU law and international investment law.

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The Komstroy judgment and the limits of investment arbitration in EU law

e Komstroy judgment, the Union interest, and the autonomy of the EU legal order Andrés Delgado Casteleiro

All the recent Op-Eds published in this online symposium on the Komstroy judgment have focused on the diﬀerent aspects of the relations between EU law and the Energy Charter Treaty (ECT): they contrasted the case against Opinion 1/17; delved into how it squares the circle drawn in Achmea (C-284/16); and explored the consequences for the negotiations for the ECT’s modernization. is Op-Ed aims to examine how to read the Komstroy judgment against the Court of Justice’s case law on mixed agreements, and more speci cally, on EU law obligations to comply with those agreements. is is particularly important for four reasons. First, the Komstroy judgment seems to have upheld that intraEU ISDS, even within a mixed agreement like the ECT, are contrary to EU law. Second, the Court of Justice has established that Member States have an EU law obligation to comply with mixed agreements. ird, the Commission is pushing for a de nition of illegal State aid that would include complying with an investment award, which the Court of Justice might con rm in the pending case Commission v European Food and Others (C-638/19 P). Fourth, there are 88 intra-EU ISDS disputes lodged and in diﬀerent procedural stages, all related to the ECT.

Autonomy of the EU legal order as an external Foto-Frost Two recurring topics run through the case law on mixed agreements. Firstly, the problems that mixed participation creates vis-à-vis the very foundations of the EU legal order and the mechanisms to protect the la er. Secondly, the question of the Union interest and how to safeguard it within an agreement where both the EU and its Member States are parties. Starting with the relation between mixed agreements and the autonomy of the EU legal order, there is no doubt that having both the EU and its Member States jointly participating in an international agreement opens the door for potential normative con icts. Since the beginning, the Court of Justice seems to have been aware of the problems that having contradictory interpretations on the same piece of EU law would create for the eﬀectiveness of the Union’s legal order. at was the rationale underpinning internally focused cases like Costa v Enel (C-6/64), Simmenthal (C-106/77) or Foto-Frost (C-314/85). Likewise, externally the Court of Justice has consistently held that ‘an international agreement cannot aﬀect the allocation of powers laid down by the Treaties and, hence, the autonomy of the EU legal system, observance of which is ensured by the Court’ (Komstroy, paragraph 42). With that reading in mind, Komstroy i. Academic Secretary at the Universidad Autónoma de Chile’s Law Faculty. His publications include Union: From Competence to Normative Control (Cambridge University Press, 2016).

e International Responsibility of the European

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The Komstroy judgment and the limits of investment arbitration in EU law

would be another case in a line of case law that goes from Opinion 1/76, Opinion 1/91, the Mox Plant case (C-459/03) and Opinion 1/09, to Opinion 2/13. In all these decisions, the Court of Justice established a sort of ‘external Foto-Frost principle’, by which it is only the EU Court that can interpret EU law. us, the Court of Justice has been always wary (others would say sel sh) when examining how other international bodies might interpret EU law. In that sense, Komstroy should not come as a surprise. What it is surprising is the context in which the Court of Justice made the analysis: a preliminary ruling on an issue that laterally touched the question of the compatibility of intra-EU ISDS, so in principle there should be no practical consequences in the speci c case at hand as a result of the Court’s ruling.

e Union interest to comply with mixed agreements Moving to the question of the Union interest and how to safeguard it within an agreement where both the EU and its Member States are parties, in another line of case law the Court of Justice has consistently held that ‘in ensuring respect for commitments arising from an agreement concluded by the [Union] institutions the Member States ful l an obligation not only in relation to the non-member country concerned but also and above all in relation to the [Union] which has assumed responsibility for the due performance of the agreement’ (Kupferberg, C-104/81, paragraph 13). ough initially this EU law obligation was aimed at safeguarding the uniform interpretation of the agreement within the EU area by granting jurisdiction to the Court of Justice, this began to change in the subsequent case law of the Court. In Commission v France (Ètang de Berre) (C-239/03), the Court of Justice understood that ‘mixed agreements have the same status in the [EU] legal order as purely [Union] agreements in so far as the provisions fall within the scope of [Union] competence’ (paragraph 25) and that ‘there is a [Union] interest in compliance by both the [EU] and its Member States with the commitments entered into under those instruments’ (paragraphs 26 and 29). Moreover, in Ireland v Commission (Berne Convention) (C- 13/00) that the Union interest created the obligation upon Ireland to conclude the Berne Convention, an agreement that fell within shared competence at best. One of the main aws that scholars pointed out in those cases was how loosely the Court of Justice had construed the notion of ‘an area that comes in large measure within the scope of Union competence’. Yet, especially a er Opinion 2/15, it would be diﬃcult to argue that there are parts of the ECT that are not covered by the scope of Union competence. us there is a Union interest in complying with all the the ECT, especially when it comes to the investment part of the agreement. How can these two lines of case law be reconciled? On the one hand, Komstroy has established that intra-EU ISDS violates EU law but, on the other hand, the Court of Justice has consistently held that there is a Union interest in the Member States complying with mixed agreements and − one might add – with the decisions of the ISDS bodies established therein.

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The Komstroy judgment and the limits of investment arbitration in EU law

No easy solutions and more cases As mentioned in the introduction, there are 88 intra-EU ISDS ECT disputes lodged. Regardless of what the Court of Justice might have said in Komstroy or what it might say in the pending case PL Holdings (C-109/20) or in Opinion 1/20, it is rather unlikely that most of those intra-EU ISDS ECT disputes will disappear, especially if one examines their position vis-à-vis the Commission’s amici briefs, or their interpretations of EU law (with some exceptions: Eskosol v Italy, Eurus Energy v Spain). What to do? Is the Commission´s litigation of each one of the awards as illegal State aid, whilst the ECT is modernized or terminated, the most eﬀective approach? e Komstroy judgment is not the watershed moment that some of the Op-Eds referred to above argue. It is unlikely that anything will change as a direct consequence of this judgment. Instead, it should be seen as another step in the building of the complex and fraught relationship between EU and international (investment) law. Whereby, the Court of Justice continues to act as a gatekeeper of international law.

Conclusion One must wonder whether we are reading too much into the Komstroy judgment. e questions posed to the Court of Justice by the Paris Court of Appeal were unrelated with the ECT’s validity under EU law. e referring court only focused on the Court of Justice’s interpretation of the term ‘investment’ under the ECT. In the absence of a massive infringement procedure against the Member States ordering them not to comply with any ECT award whatsoever, all we can do is wait. Wait to see how the Court of Justice will further deal with the compatibility of the ECT with EU law in Opinion 1/20, and wait to see how this judgment in uences the ECT’s modernization negotiations currently underway. So far, an express disconnection clause, providing that the ECT will not apply between the EU Member States, would be the easiest solution to align the ECT with the Court of Justice’s views as expressed in Komstroy.

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The Komstroy judgment and the limits of investment arbitration in EU law

Komstroy: constitutional, procedural and substantive implications Paschalis Paschalidis

In the Komstroy case, the Court of Justice was confronted with a set of questions referred by the Paris Court of Appeal regarding the issue of whether a claim arising from a contract for the supply of electricity constitutes an investment under the Energy Charter Treaty (ECT) (the ‘De nition Question’). It will however be remembered as the case in which the Court addressed the question of the intra-EU application of Article 26(2)(c) ECT (the ‘Applicability Question’) and its compatibility with EU primary law (the ‘Compatibility Question’) for the rst time. In an obiter dictum, the Court of Justice ruled that Article 26(2)(c) ECT must be interpreted as not being applicable to intra-EU investor-State disputes (paragraph 66). While Stoppioni and de Boeck may rightfully describe the Komstroy reasoning as unsurprising in light of the Achmea ruling (C-284/16), the Court’s interpretation of Article 26(2)(c) ECT gives rise to constitutional, procedural and substantive issues that go beyond the ECT and intra-EU investment treaty arbitration.

e constitutional issue: the preliminary reference procedure as judicial monologue e constitutional issue concerns the powers of the Court of Justice in the context of Article 267 TFEU, namely the keystone of the EU legal order that guarantees the eﬃcient and uniform application of EU law through a court-to-court dialogue (Komstroy, paragraph 46). As a mechanism installing a dialogue between courts, a court of a Member State submits a question that is relevant and necessary for the resolution of the dispute to the Court of Justice, and the Luxembourg-based Court provides an answer to that question. Komstroy seems however to mark the beginning of judicial monologues, whereby the Court of Justice takes the opportunity oﬀered by a preliminary reference to ask itself a question of its own despite the fact that it bears no relevance to the dispute in the main proceedings nor is necessary to resolve it. Indeed, the case concerned an award obtained by an investor of a non-EU State against another non-EU State. In this respect, the Court of Justice’s assertion that it was ‘necessary’ (paragraph 40) to de ne which disputes come within the scope of Article 26 ECT before deciding whether a claim arising from a contract for the supply of electricity constitutes an investment under the ECT fails to convince. e Court’s decision to raise the Compatibility Question is thus particularly striking as the wording of Article 267 TFEU explicitly limits the Court’s powers in preliminary references to ‘questions raised before a court or tribunal of a Member State’, which the Applicability and Compatibility Questions were not. So shortly a er the debacle between the Court of Justice and the German Constitutional Court in the Weiss case i. Associate Professor of EU Law at University Lyon III ‘Jean Moulin’.

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The Komstroy judgment and the limits of investment arbitration in EU law

(C-493/17), one would have expected the Court to be more wary of conduct that could be perceived as ultra vires.

e procedural issue: ‘justice must not only be done but must also be seen to be done’ e constitutional issue gave rise to a procedural one. As highlighted by de Boeck as well as by Monti and Fermeglia, the Court of Justice’s decision to raise the Compatibility Question on its own initiative and to respond to it is even more perplexing when bearing in mind that both the Applicability and Compatibility Questions had been properly referred to the Court in the pending Athena Investments case (C-155/21), thereby providing the Court with the opportunity to respond to these questions a er hearing all the relevant stakeholders (intra-EU investors, the Member States and the EU institutions). As a court-to-court dialogue, the preliminary reference procedure is non-adversarial. Nevertheless, the fact is that the Applicability and Compatibility Questions were posed in Athena Investments opposing a group of intra-EU investors to Italy. Unlike these investors, Italy was heard by the Court of Justice on these Questions because as a Member State it had the opportunity to address these issues at the Komstroy hearing, despite the fact that it had not led wri en observations in that case (probably also in the belief that the case did not concern the ECT’s intra-EU application). e fact that the Court of Justice pre-empted the main issue of their case in another − irrelevant − case to which they could not participate, while their own case was pending, will certainly give those investors, as well as the entire investor constituency, a strong feeling of disenfranchisement.

e substantive issue: does the Court’s reasoning contribute to the ‘strict observance of international law’ (Article 3(5) TEU)? By raising the Compatibility Question on its own initiative at the oral stage of the hearing, the Court of Justice precluded itself from bene ting from wri en observations by the Member States and the EU institutions on a very complicated ma er: does Article 26(2)(c) ECT apply to intra-EU investor-State disputes as a ma er of international law? In these circumstances, the Court departed from its established case law (Brita, C-386/08, paragraphs 4243; SECIL, C-464/14, paragraph 94) according to which the provisions of international treaties concluded by the Union must be interpreted in accordance with the rules of treaty interpretation codi ed in the Vienna Convention on the Law of Treaties (‘VCLT’). Instead, it denied the ECT’s nature as an international treaty focusing only on its nature as an act of the EU (paragraphs 49-50) and performed an interpretation of Article 26(2)(c) ECT based exclusively on EU law principles (notably the principle of autonomy) that rank higher than international law in the EU’s hierarchy of norms (paragraphs 60-65). By not a empting to interpret Article 26(2)(c) ECT pursuant to Articles 31 and 32 VCLT, the Court of Justice avoided the conclusion, reached by numerous international tribunals, that when interpreted in good faith in accordance with the ordinary meaning to be given to its terms in their context and in the light of its object and purpose, Article 26(2)(c) ECT applies to intra-EU investor-State disputes (see also AG Szpunar’s Opinion, point 99). Taking the supplementary means of interpretation (notably the travaux préparatoires)

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The Komstroy judgment and the limits of investment arbitration in EU law

into account, pursuant to Article 32 VCLT, would have con rmed that the intra-EU application of the ECT, including Article 26(2)(c) ECT, was achieved at the insistence of the non-EU Parties, notably the U.S. and Japan, that successfully resisted the Commission’s a empts to limit the intra-EU application of the ECT by rejecting a provision to that eﬀect that the Commission sought to introduce in the text of the ECT (Blusun v Italy, Award, paragraphs 280(4)). It is worth recalling that the ECT’s father, the Dutch PM Lubbers, announced the ECT as a project aiming at the creation of an ‘energy community’ (COM(91) 36 nal) through the creation of a set of rules that the Parties would apply between themselves and vis-à-vis the rest of the world (Delors OECD speech) rather than a bundle of bilateral obligations. e third States that are Parties to the ECT had and continue to have an interest in ensuring that the Member States are bound by the same rules amongst themselves. An interpretation of the ECT pursuant to the VCLT would not have allowed the Court of Justice to conclude that Article 26 ECT governs only bilateral relations (paragraphs 64-65). Indeed, the fact that Article 26 ECT governs relations between one State and the investor of another State does not mean that the provision is capable of unilateral amendment by two States. is would amount to saying that, for example, two Member States can agree to modify Article 259 TFEU in their bilateral relations. Inter se amendments are not possible for treaties that establish communities amongst a plurality of States and with respect to provisions that all Parties to the multilateral treaty have an interest in ensuring their observance. In this context, if understood literally, the Court of Justice’s interpretation of Article 26(6)(c) ECT as not being applicable to intra-EU investor-State disputes would constitute a failure to perform the ECT. e Court’s methodological approach, consisting in the invocation of the principle of autonomy to ascribe meaning to Article 26(2)(c) ECT, would breach Article 27 VCLT, which precludes the invocation of internal laws as justi cation for the failure to perform obligations created by a treaty. Furthermore, the Court of Justice’s interpretation would also constitute a unilateral a empt to modify the ECT without the consent of the third States Parties to it and hence a breach of the customary rule of pacta sunt servanda (Article 26 VCLT). As such, it would be a worrying precedent for an actor, such as the EU, whose constitutional mandate set out in Article 3(5) TEU is to contribute to the ‘strict observance of international law’. Could the Court of Justice have really wanted this result? Perhaps it did, thinking that it is preferable to disregard what was negotiated by the Contracting Parties than having to nd that a provision of an international treaty concluded by the EU is incompatible with EU primary law. In the la er case, it would have to declare the (at least partial) invalidity of the EU act approving the conclusion of the ECT (Council and Commission Decision 98/181) and rule on the temporal eﬀects of such declaration (see, for example, Commission v Council (Agreement with Armenia), paragraphs 60-64). Delgado Casteleiro may be right in arguing that Komstroy is unlikely to be the end of the road for intra-EU investor-State arbitration under the ECT. Given that the ECT does not grant the Court of Justice a monopoly of interpretation and its reading of Article 26(2)(c) ECT is not based on international law, the Komstroy reasoning is likely to be ignored both by arbitral tribunals and have no impact on the courts of third States (for a recent example of a foreign court’s unwillingness to engage with the EU principle of autonomy, see the

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The Komstroy judgment and the limits of investment arbitration in EU law

Federal Court of Australia’s decision to dismiss Spain and the Commission’s a empts to deprive Spain’s consent to arbitration given through Article 26(2)(c) ECT of its eﬀect). e EU and the Member States should renegotiate the ECT with a view to eliminate the intra-EU application of Article 26(2)(c) ECT. A unilateral a empt to change the meaning of Article 26(2)(c) ECT will not suﬃce to resolve the issues arising from its intra-EU application.

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The Komstroy judgment and the limits of investment arbitration in EU law

Komstroy: What is in the seat? Gillian Cahill

A er ve previous Op-Eds in this Symposium, the facts of the Komstroy case are clear. As are its peculiarities. e Court of Justice pursuant to Article 267 TFEU answers a question that it was not asked by the referring court nor was necessary for the resolution of the dispute before that court. Two elements that usually raise automatic admissibility/jurisdiction red ags and lead the Court of Justice to refuse to determine a case. Here though, these restrictive elements were either considered not present or simply ignored. is le the Court of Justice at liberty in Komstroy to perform some impressive contortions in order to determine, inter alia, that the investment arbitration provisions contained in Article 26 of the Energy Charter Treaty (ECT) are inapplicable as between Member States. To make this nding, the Court rst had to nd that EU law was somehow applicable to the dispute at hand which, in itself, was no mean feat. Given that the parties to the underlying arbitration agreement were Moldovian and Ukranian and that both of those national laws and international law were held to be applicable to the substantive dispute (see the Arbitral Award between Energoalliance and Moldova at paragraphs 124 and 125), EU law’s application to Komstroy would seems tenuous at rst glance. However, in the wake of the Achmea decision (C-284/16), the result is not surprising in any way. What is surprising, however, is that the Court of Justice felt compelled to decide on the issue of the intra EU applicability of investment arbitration provisions under the ECT in this particular case, where the factual matrix did not obviously support where the Court patently wanted to go. Previous Op-Eds in this Symposium have focused on why the Court of Justice might have felt compelled to go so far out of its usual comfort zone to make this nding in Komstroy and the consequences of the decision itself both at EU and international law level. is Op-Ed will move away from the decision and its reasoning in its micro context and focus on one element of the Court’s reasoning placed in the macro landscape of the Court of Justice’s jurisprudence. at is, the use by the Court of the notion of the ‘seat of the arbitration’. In Komstroy, it is the seat which the Court of Justice a aches to, in order to assert its own jurisdiction to determine the applicability of EU law to an international agreement in the context of an arbitral dispute between two non-EU Member States. us, via the seat, a clearly international law issue gets pulled into the EU law orbit. Yet this has arguably not always been the Court’s approach to the seat of arbitration. Komstroy then shows how the seat of the arbitration within an EU Member State has become for the Court of Justice a useful and evolving tool via which it applies its approach to investment arbitration. i. Barrister specialised in EU law and international arbitration. She has particular expertise in the cross-over issues arising out of these two areas of law.

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The Komstroy judgment and the limits of investment arbitration in EU law

An EU seat does not bring an intra EU investment tribunal within EU jurisdiction pursuant to Article 267 TFEU As many readers will be aware of, in order to reject the possibility of intra-EU investment arbitral tribunals being able to refer preliminary questions to the Court of Justice, the Court in Achmea (C-284/16) held, rst, that the Frankfurt seated UNCIT L investment arbitral tribunal was not part of the judicial system of either the Netherlands or of Slovakia (paragraph 45, being the EU Member States that had concluded the bilateral investment treaty at issue in that case) . Second, it held that such an intra-EU investment arbitral tribunal did not have links with the judicial systems of the EU Member States at all (paragraph 48). e choice of seat was therefore not suﬃcient to bring an intra-EU investment Tribunal within the purview of the EU legal order to the extent that such a tribunal could engage in a direct dialogue with the Court of Justice, even though such Tribunals are required to interpret and eventually apply EU law (paragraph 42). us, the Achmea ‘seat’ position is that the seat of arbitration cannot be used to extend jurisdiction to bring intra EU investment tribunals into the EU law oversight of the Court of Justice.

But an EU seat is suﬃcient to protect EU law in the commercial arbitration context e Achmea position may have found its roots in Nordsee (C-102/81) where the Court of Justice held, in relation to a commercial arbitration tribunal seated in Germany, that ‘the link between the arbitration procedure in this instance and the organization of legal remedies through the courts in the Member State in question is not suﬃciently close for the arbitrator to be considered as a “court or tribunal of a Member State” within the meaning of Article 267 TFEU’ (paragraph 13). However, where EU law questions are raised in a commercial arbitration context, then the Member State courts of the seat of arbitration may have to examine those questions, in particular during review of the arbitration award, which may be more or less extensive depending on the circumstances and the level of review available under the relevant national legislation (paragraph 14). e Court of Justice repeated its Nordsee mantra in later arbitration related cases starting with EcoSwiss (C-126/97). Accordingly, it is the back door of the Member State seat which essentially becomes the path for the Court of Justice’s jurisdiction to review EU law issues in an annulment or enforcement context.

An EU seat in an investment arbitration with no EU parties is suﬃcient Which brings us neatly back to Komstroy. Can Komstroy be seen as just another variation on the Nordsee theme? A er all, the Paris Court of Appeal referred the preliminary question in the context of annulment application there. Should that not be suﬃcient for the Court of Justice to exercise its jurisdiction? e answer to that question lies in the particular facts of the Komstroy case. Komstroy was the rst time where neither the States party to the ECT’s provisions (including its arbitration provision) upon which the investment arbitral Tribunal was constituted were EU Member States. Rather, the parties were Moldovan and Ukranian and the arbitral proceedings, conducted in Russian, were governed by aspects of Moldova, Ukranian and international law (namely, the Vienna Convention on Treaties). Indeed, one could well imagine the parties to such an arbitration wondering how their case ended up remotely near EU law, never mind being the subject of a preliminary reference before the Court of Justice. In fact, in the absence of a seat located in an EU

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The Komstroy judgment and the limits of investment arbitration in EU law

Member State, the only other element that tenuously related to EU law is that the EU and the majority of its Member States are signatories to the ECT. Despite the notable absence of an apposite factual matrix, the Court of Justice appeared to insist on using the only ‘EU related’ elements it had in order to bring this case within its jurisdictional sphere, thus permi ing it to decide the burning question it had not been asked. And so the Court, in a truly remarkable fashion, held that the freely determined choice of the parties to elect Paris as their seat of arbitration, had not only ‘the effect of rendering applicable French law as the lex fori to the dispute in the main proceedings under the conditions and within the limits laid down by that law’ but also ‘entailed, for the purposes of the proceedings brought in that Member State, the application of EU law, compliance with which the court hearing the case is obliged to ensure in accordance with Article 19 TEU’. At rst glance, this looks innocuously like what the Court of Justice had said in previous cases. A er all, Article 19 requires that the Court of Justice ‘ensure that in the interpretation and application of the Treaties the law is observed’ and that ‘Member States shall provide remedies sufficient to ensure effective legal protection in the elds covered by Union law’. Member States are not, however, obliged to provide any effective EU law legal protection in elds where EU law is not applicable. And it is this that is arguably the Komstroy context where the parties’ underlying agreement was a product of an international law treaty entered into by two non-EU Member States, and upon which an arbitral tribunal not bound to apply EU law had been constituted. Accordingly, the Court of Justice needed a bridge between situations where EU law is not applicable and the Court’s jurisdiction to rule in such cases. In his Opinion in Komstroy, AG Spuznar appeared to suggest that uniform interpretation could be that bridge, having given grounds to the eCourt of Justice in the past to assume jurisdiction to interpret a provision of an international agreement to which the EU is a party in a situation not falling within the scope of EU law (Opinion, point 37, on the basis of Hermes, C-53/96, paragraph 29). However, it is unclear whether that justi cation holds any water here. at is because on a practical level, any interpretation given by the Court of Justice on any substantive provision of the ECT, such as Article 1(6) at issue in Komstroy, can never be uniformly interpreted. Firstly because arbitral tribunals constituted without an EU seat will not be subject to the Court’s jurisdiction and cannot ask preliminary questions to the Court of Justice. Secondly, because the Court has simultaneously determined in Komstroy that intra-EU ECT investment arbitrations can no longer take place. is leaves any remaining scope of application of the principle of uniform interpretation to only one scenario; the few EU seated arbitrations with non-EU parties of which post Komstroy there will undoubtedly be less. Uniform interpretation within that category is also unlikely because just like in Komstroy it would require non-EU parties and their tribunals to be aware of and agree to apply EU law. And as we have seen post Achmea, arbitral tribunals in the intra-EU investment arbitration context have thus far whole sale refused such an application of EU law. Whilst the Court of Justice, however, accepted the need for uniform interpretation (paragraph 29), its reasoning is arguably strained. Most notably because the Court of Justice was required in order to do so to predetermine the answer to its own question in paragraph 37 by holding that, a contrario, the Komstroy scenario was one wherein the Court of Justice was being asked to apply the ECT to situations that fall within

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The Komstroy judgment and the limits of investment arbitration in EU law

the EU legal order. But of course, this is only plausible if one is within the EU legal order, which the Court of Justice then goes on to nd that was the case by virtue of the parties’ chosen EU Member State seat. Having made this link with the seat, the Court appeared to implicitly recognise that such a stark pronouncement is somewhat hard to reconcile with its previous case law concerning the interpreting an international agreement. In that regard, the Court of Justice had previously held that the fact that a preliminary question is referred from an EU Member State is ‘insufficient justi cation’ for the Court to have jurisdiction to interpret the EEA agreement (Komstroy, paragraph 36). is nding makes perfect sense. e mere fact of a reference from an EU Member State cannot in and of itself confer jurisdiction on the Court of Justice to interpret an agreement that is otherwise purely international and outside of its scope. By analogy, the choice of the seat might be sufficient to get a party into the EU legal order via a national court, but it should not be sufficient, in and of itself, to extend jurisdiction over instruments that the Court would otherwise not have jurisdiction to interpret. On that basis, one could easily have expected the Court to apply its previous case law (Andersson and Wåkerås-Andersson (C-321/97), paragraph 31, and Salzmann (C-300/01), paragraph 69). Instead, it distinguished Komstroy on the limited grounds that the facts of those cases related to a period prior to the accession to the EU of the States in which the referring courts were located. In other words, the Court in Komstroy would not be faced with the same ‘insufficient justi cation’ to establish the Court’s jurisdiction as it was in Andersson because there was no temporal issue as regards the French courts accession to the EU legal order. Accordingly, the fact that that the investment arbitration tribunal was seated in France and that a preliminary question was referred from an EU Member was considered ‘sufficient justi cation’ for the Court of justice to have jurisdiction to interpret the ECT issues raised by the Paris Court of Appeal. And this despite the obvious elephant in the room that unlike in Achmea, there were no Member State obligations to ensure the effective legal protection of EU law at issue. e lack of direct applicability of the Andersson line of case law was therefore sufficient for the Court of Justice to hold that it had jurisdiction and thereby to enter into the realm of pure international investment law offering its own interpretation of what amounts to an ‘investment’ pursuant to its EU law interpretation of the ECT.

Conclusion Komstroy therefore leaves us with two headline results. First, Article 26 ECT and the provisions on investment arbitration are not applicable on an intra EU basis. is is not a surprising nding in the post Achmea world, but the route the Court of Justice choose to make this nding is. Second, the Court made a substantive interpretation of what is an investment pursuant to its EU law interpretation of the ECT. e practical eﬀect of this is hugely signi cant because this nding must now be applied by the Paris Court of Appeal to an arbitration where both parties are non-EU Member States (and therefore without Article 19 TFEU obligations) and where the duly constituted arbitral tribunal would not, unlike in Achmea, be required to consider the Court of Justice’s interpretation of what is an investment under the ECT.

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The Komstroy judgment and the limits of investment arbitration in EU law

is creates potential for an arbitral award to be impugned for falling foul of an EU interpretation of an international legal provision that neither party nor arbitral tribunal were aware of, nor was relevant to their substantive dispute. Given these considerable legal contortions, one must query why the Court of Justice did not simply wait and answer these questions without being forced to square a circle in the factually more appropriate pending Athena Investments case (C-155/21). e practical eﬀects of Komstroy will require further consideration but for the moment one is le with the distinct view that non-EU Member States wishing to use the investment arbitration dispute resolution provisions under Article 26 of the ECT should be wary and avoid choosing an EU member state seat at all costs. Otherwise, they may nd themselves with an EU law answer to an international law issue that neither they nor their tribunal could never reasonably have been expected to know that they had. From the EU law perspective, Komstroy is perhaps now a classic example of the expected and anticipated result but in the wrong case.

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