A case before the ECJ, Micula v.

Romania1,perfectly illustrates this hypothesis. The case follows an arbitral award of December2013 that condemned Romania to compensate two Swedish investors, the Miculabrothers. According to the arbitral award, by revoking an investment incentivescheme in 2005, four years prior to its scheduled expiry, Romania had infringeda bilateral investment treaty between Romania and Sweden2.

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The arbitral tribunal rejected the argument that a State’s accession to the EU affectedits international obligations under the BIT, ICSID Convention and New York Convention3.At the enforcement stage, the European Commission challenged the arbitral award4.The dispute was brought before the ECJ with a request determine whether anarbitral award against Romania can be considered an illegal State aid assupported by the Commission. In other words, if Romania complies with thearbitral award and compensates the investors for the damages they suffered,would it be violating EU law, and more specifically the provisions on Stateaids? By enforcing the arbitral award, the Member State might act in breach itsobligation under EU law. This case demonstrates that, even when investmentrelated arbitral tribunals strictly apply international law, and thus they donot take into account EU law, the autonomy of the EU law might still be infringed.Moreover, other fundamental EU principles can beaffected. The previously examined Opinions also include among the fundamentalcharacteristics of the EU the principles of conferral, supremacy and directeffect.

As Micula case illustrates, EU state aid law can also become a problembetween EU and investment law. Even though under EU law the benefits given tothe investors by the Romanian authorities amount to illegal state aid, theICSID tribunal constituted under the Sweden-Romania BIT decided against thehost State. Some of the safeguards included in the draft text might diminishthe possibility of another Micula type case . Article 2(1) of Section 2 of the drafttext acknowledges the right of the contracting parties to regulate throughmeasures necessary to achieve legitimate policy objectives. Moreover, possiblyas a result of the Micula case, according to Article 2(3) of Section 2, thedecision of a contracting party not to issue, renew or maintain a subsidy shallnot constitute a breach of the provisions on investment protection. While thismight be a sufficient guarantee for state aid, the ECJ may find find anincompatibility with general principles of EU law concerning the EU’sconstitutional architecture, and also incompatibilities could occur withsubstantive provisions of EU law, such as the ones on the internal market andcompetition law. This could lead to a number of possible incompatibilities.

Furthermore, another concerninvolves investment related tribunals directly applying EU law in the course ofassessing the claims brought by an investor. This situation is likely if thefuture EU IIA investment chapters contain applicable law clauses providing fortreaty standards and encompass the law of the host State5.Consequently, the IC tribunal may rule on ICS law, despite the ECJ reaffirmingin Opinion 1/09 that external jurisdictions must not call into question theCourt’s exclusive task of interpreting, applying and reviewing the legality ofacts of the EU.

Another crucial area is the question of responsibility when anact or omission has caused harm to foreign investors. In fact, to reach a determinationin such a case, an investment tribunal would clearly have “to rule on the respectivecompetences of the EU and the Member States as regards the matters governed bythe provisions of the agreements”6.However, as affirmed in Opinion 1/91 and repeated in Opinion 1/09, when it comesto powers of the EU institutions, the ECJ has first and foremost exclusivejurisdiction. Therefore, when applied to ISDS disputes, the incorporation of anICS in future EU IIAs or FTAs could lead to an interference with the respectivepowers of the European institution and distortion of the allocation ofjurisdiction between the EU and its Member States. It is clear, ICS could only beaccepted insofar as it generates no adverse effect on the autonomy of those powers,and insofar as the autonomy of the EU legal order is not altered. In the currentstate of EU law after Opinion 1/09, it must be conceded that the ECJ’s interpretationof the principle of autonomy of the EU legal order leaves little room for an InvestmentCourt.

Apparently, the current versions of draft, propose to include provisionsstipulating that ICS should apply only the agreement and other rules andprinciples of international law applicable between the Parties to the agreement,excluding domestic law, whether of the EU or Member States7.In this respect Article 13 entitled “Applicable law and rules of interpretation”provides that “for greater certainty, the domestic law of the Parties shall notbe part of the applicable law”8.Where the tribunal is required to ascertain the meaning of a provision of thedomestic law of one of the Parties as a matter of fact, it shall follow the prevailinginterpretation of that provision made by the courts or authorities of thatParty”.9 Such provisions attempt to safeguard theautonomy of the EU legal order. However, the adverse negative effects that a decisionfrom an ICS might have on this autonomy should not be understated.

1 Case T-646/14 Micula and Others vCommission, see also Micula v Romania (ICSID arbitration award)(Case SA.38517)Commission Decision C/393/2014 2014 OJ C 393/27. 2 Ibid.3 IbId, para 169.4 Ibid.5 Supra note 190, p.

146.6 Matthew Parish, International Courts and the European LegalOrder (2012) 23 EJIL 141.7 Stephan W Schill, Luxembourg Limits: Conditions forInvestor-State Dispute Settlement Under Future EU Investment Agreements (2013)10(2) TDM.8 Supra note 13, draft text ofTTIP.9 Ibid.A case before the ECJ, Micula v.

Romania1,perfectly illustrates this hypothesis. The case follows an arbitral award of December2013 that condemned Romania to compensate two Swedish investors, the Miculabrothers. According to the arbitral award, by revoking an investment incentivescheme in 2005, four years prior to its scheduled expiry, Romania had infringeda bilateral investment treaty between Romania and Sweden2.The arbitral tribunal rejected the argument that a State’s accession to the EU affectedits international obligations under the BIT, ICSID Convention and New York Convention3.

At the enforcement stage, the European Commission challenged the arbitral award4.The dispute was brought before the ECJ with a request determine whether anarbitral award against Romania can be considered an illegal State aid assupported by the Commission. In other words, if Romania complies with thearbitral award and compensates the investors for the damages they suffered,would it be violating EU law, and more specifically the provisions on Stateaids? By enforcing the arbitral award, the Member State might act in breach itsobligation under EU law. This case demonstrates that, even when investmentrelated arbitral tribunals strictly apply international law, and thus they donot take into account EU law, the autonomy of the EU law might still be infringed.Moreover, other fundamental EU principles can beaffected. The previously examined Opinions also include among the fundamentalcharacteristics of the EU the principles of conferral, supremacy and directeffect.

As Micula case illustrates, EU state aid law can also become a problembetween EU and investment law. Even though under EU law the benefits given tothe investors by the Romanian authorities amount to illegal state aid, theICSID tribunal constituted under the Sweden-Romania BIT decided against thehost State. Some of the safeguards included in the draft text might diminishthe possibility of another Micula type case . Article 2(1) of Section 2 of the drafttext acknowledges the right of the contracting parties to regulate throughmeasures necessary to achieve legitimate policy objectives. Moreover, possiblyas a result of the Micula case, according to Article 2(3) of Section 2, thedecision of a contracting party not to issue, renew or maintain a subsidy shallnot constitute a breach of the provisions on investment protection.

While thismight be a sufficient guarantee for state aid, the ECJ may find find anincompatibility with general principles of EU law concerning the EU’sconstitutional architecture, and also incompatibilities could occur withsubstantive provisions of EU law, such as the ones on the internal market andcompetition law. This could lead to a number of possible incompatibilities.Furthermore, another concerninvolves investment related tribunals directly applying EU law in the course ofassessing the claims brought by an investor. This situation is likely if thefuture EU IIA investment chapters contain applicable law clauses providing fortreaty standards and encompass the law of the host State5.Consequently, the IC tribunal may rule on ICS law, despite the ECJ reaffirmingin Opinion 1/09 that external jurisdictions must not call into question theCourt’s exclusive task of interpreting, applying and reviewing the legality ofacts of the EU. Another crucial area is the question of responsibility when anact or omission has caused harm to foreign investors.

In fact, to reach a determinationin such a case, an investment tribunal would clearly have “to rule on the respectivecompetences of the EU and the Member States as regards the matters governed bythe provisions of the agreements”6.However, as affirmed in Opinion 1/91 and repeated in Opinion 1/09, when it comesto powers of the EU institutions, the ECJ has first and foremost exclusivejurisdiction. Therefore, when applied to ISDS disputes, the incorporation of anICS in future EU IIAs or FTAs could lead to an interference with the respectivepowers of the European institution and distortion of the allocation ofjurisdiction between the EU and its Member States. It is clear, ICS could only beaccepted insofar as it generates no adverse effect on the autonomy of those powers,and insofar as the autonomy of the EU legal order is not altered. In the currentstate of EU law after Opinion 1/09, it must be conceded that the ECJ’s interpretationof the principle of autonomy of the EU legal order leaves little room for an InvestmentCourt. Apparently, the current versions of draft, propose to include provisionsstipulating that ICS should apply only the agreement and other rules andprinciples of international law applicable between the Parties to the agreement,excluding domestic law, whether of the EU or Member States7.

In this respect Article 13 entitled “Applicable law and rules of interpretation”provides that “for greater certainty, the domestic law of the Parties shall notbe part of the applicable law”8.Where the tribunal is required to ascertain the meaning of a provision of thedomestic law of one of the Parties as a matter of fact, it shall follow the prevailinginterpretation of that provision made by the courts or authorities of thatParty”.9 Such provisions attempt to safeguard theautonomy of the EU legal order.

However, the adverse negative effects that a decisionfrom an ICS might have on this autonomy should not be understated. 1 Case T-646/14 Micula and Others vCommission, see also Micula v Romania (ICSID arbitration award)(Case SA.38517)Commission Decision C/393/2014 2014 OJ C 393/27. 2 Ibid.3 IbId, para 169.

4 Ibid.5 Supra note 190, p. 146.6 Matthew Parish, International Courts and the European LegalOrder (2012) 23 EJIL 141.7 Stephan W Schill, Luxembourg Limits: Conditions forInvestor-State Dispute Settlement Under Future EU Investment Agreements (2013)10(2) TDM.8 Supra note 13, draft text ofTTIP.9 Ibid.