Op-Ed: “The Anie judgment: a fundamental contribution to the judicial construction of the interactions between EU law and international investment law” by Edoardo Stoppioni
The recent Anie decision (C-798/18 and C-799/18) constitutes a fundamental step in the ongoing judicial construction of relations between international investment law and EU law. As I have demonstrated elsewhere (here and here), until recently the work of the Court of Justice in this field had indeed focused on structuring procedural issues concerning mainly the compatibility of investment arbitration within the internal market (Achmea) or in EU external relations law (Opinions 2/15 and 1/17).
Apart from Advocate General (AG) Wathelet’s Opinion in Achmea that tried to defend a sort of complementarity of the BITs protection with EU law (paragraph 183 ff), the main contribution concerning the substantial aspects of such an interaction consisted in the generally forgotten Article 351 TFEU cases. There, AG Maduro had illustrated a sort of axiological conflict between the BIT regime (foreseeing an absolute free transfer of capital provision) and the EU law one (allowing for restrictions to such freedom for general interest objectives).
Interestingly enough, in this case the fundamental difference that emerges between international investment law and EU law seems to be once again their approach towards the fundamental ‘right to regulate’ of the State, its possibility to set aside economic liberalisation obligations to protect other general interests. Indeed, in this judgment, the Court delves into the merits of a case that strongly looks like one of those submitted to an arbitral tribunal, on the basis of the Energy Charter Treaty (ECT), in the Spanish and Italian solar saga.
To simplify the complex context, some EU Member States (most notably Spain, Italy and the Czech Republic) had started embracing the renewable energies transition by building normative incentives for foreign investors to invest in their solar or wind energy markets. These incentives generally took the form of ‘feed-in tariffs’. Following the different economic crises that followed 2008, these advantages were progressively reduced via normative changes. These changes caused the burgeoning of national and international litigation contesting the policies curbing the investment-friendly measures. Spain was at the heart of many investment arbitration cases, where foreign investors invoked a violation of the fair and equitable treatment (FET) standard. Similarly, in the instant case, different investors were challenging the Italian normative modifications (the so-called decreto spalma incentivi) before the national administrative judge, asking it to consider the new regime inapplicable on the basis it conflicts with EU law (paragraph 15).
In this reflection we will adopt a ‘compare and contrast’ method, to highlight the particularity of the reasoning of the Court of Justice as opposed to the one of investment arbitrators in the Spanish and Italian saga. We will try to shed light on how this judgment can help rethink the ongoing fragmentation between EU law and international investment law regimes.
The scope of the right to property vs the concept of investment
The first question concerned whether the Italian normative changes constituted a violation of the right to property of the photovoltaic installation operators, under Article 17 of the Charter. To answer this question the Court verified if the protection of Article 17 was activated. To do so, it used the autonomous notion crafted in the case law of the European Court of Human Rights (ECtHR), applied via Article 52(3) of the Charter of Fundamental Rights. The legal question was therefore whether the incentives constituted ‘possessions’, within the meaning of the autonomous notions shaped under Article 1, Protocol No. 1.
The Court dismissed the position of the claimants according to whom the principle of legal certainty (and its corollary, the protection of legitimate expectation) transformed the prospective advantages in an established legal position, protected under the Charter (paragraph 54). It therefore followed the position of AG Saugmandsgaard Øe who clearly considered that the right to future payment of the incentives provided for by the agreements cannot be regarded as sufficiently definitive for their reduction to the considered an expropriation of ‘property’ (paragraph 48).
This legal reasoning recalls strongly the determination of the existence of a ‘protected investment’ in investment awards. An important debate has occurred concerning this almost philosophical notion, structuring the core of international investment law. What is interesting to compare here is the use of general principles of law to delimit the notion. This position had been encouraged in the famous ICSID award in the Phoenix case, a landmark decision deeply marked by the position of its president Brigitte Stern. According to her, principles like good faith and legality could be used to restrict the scope of protection of the investment concept. The Court of Justice here similarly accepted the use of a general principle (legal certainty) to shape the contours of the notion of protected property, therefore mirroring such a theoretical approach developed in the Phoenix case that was considered a minoritarian approach by some.
The freedom to conduct a business vs the scope of FET
The second question concerned the right to conduct a business, protected under Article 16 of the Charter. The Court dismissed the invoked violation of any freedom of contract, as the claimants had adhered to a standard form of contract leaving them no bargaining power (paragraph 60). Most importantly, the Court also dismissed any violation of a right to conduct a business (paragraph 62-65). With regard to the latter, the scope of the principle of legitimate expectations is once again crucial: no reduction of the right to use resources available to the economic operator could be established, as the feed-in tariffs did not qualify as a resource protected under Article 16 but simply as incentives subject to change.
As Hélène Ruiz Fabri showed in a dissenting opinion in the Spanish saga, the diverging interpretations of the fair and equitable treatment standard (FET) in this context gave rise to conflicting positions that have strongly different impacts on the State’s right to regulate. On the one hand, we find the Charanne’s assumption according to which ‘in the absence of a specific commitment, an investor cannot have a legitimate expectation that existing rules will not be modified’ (paragraph 499). On the other hand, the Eiser line of cases gave a much more economic results-based approach to FET according to which ‘regulatory regimes cannot be radically altered as applied to existing investments in ways that deprive investors who invested in reliance on those regimes of their investment’s value’ (paragraph 382). Doctrinal studies have increasingly shown this dichotomy in the readings of FET, between a focus on legitimate expectations and on the economic impact.
The Court of Justice’s reasoning differs from that of different investment tribunals, which ruled precisely on the conformity of the decreto spalma incentivi with international investment law. For instance, in the Greentech case it had considered that the normative framework (notably the promise of a constant rate of return for 20 years) had created stability expectations triggering the violation of the FET standard. Arbitrator Giorgio Sacerdoti dissented on this precise point and considered that the decreto spalma incentivi was a foreseeable normative modification that did not impinge on investors’ rights, following the position of the vast majority of public international law professors appointed in the Spanish and Italian saga. In this case, the theoretical analysis of the Court of Justice seems to be rather in line with the latter interpretation.
The role of the ECT in the EU legal order
In a third question, the referring court asked whether the Italian normative framework was compatible with Article 10 ECT, invoked in its status as a mixed agreement. The Court did not answer the question as it considered the ECT to be inapplicable: Article 10 provided the obligation to offer fair and equitable treatment to investors of ‘other Contracting Parties’, and an intra-EU situation does not activate such a provision.
It is interesting to note that, in the Spanish solar saga, this position was defended in relation to Article 26 ECT as a preliminary objection, both by Spain and the Commission as amicus curiae. Investment tribunals consistently rejected this objection. In Watkins, the tribunals had even considered that the rejection of such an approach could be adopted both under public international law and EU law (paragraph 188). Will future investment tribunals dealing with such a preliminary objection adapt their approach after the Court of Justice has adopted this rationale concerning a similarly worded provision?
Last but not least, the Opinion of the AG was extremely interesting on a final point that the Court did not need to assess. Even if applicable, the FET clause of the ECT cannot be considered as annulling the right to regulate of Member States: ‘the simple fact that that provision refers, in general terms, to the need to create “stable, equitable, favourable and transparent conditions” cannot prevent that Member State from altering or withdrawing a support scheme which it has adopted in its territory’ (paragraph 95). Pursuing a consistent interpretation of the ECT and of EU law, the AG concluded that the FET clause ‘is not intended, in my view, to give greater protection to investors opposing such a reform than is afforded by the guarantees already provided for by EU law, and more specifically by Articles 16 and 17 of the Charter’ (paragraph 96). Once again, in line with the experience of the Article 351 TFEU cases, EU law seems to offer an interpretation of the FET that takes into serious account the State’s right to regulate.
Both the AG’s Opinion and the Court’s judgment are a fundamental contribution to the development of the interactions between EU law and international investment law. From the point of view of international investment law, it will be interesting to see whether their reasoning will be taken into account in future investment awards or if the ongoing fragmentation logic will prevail. From the point of view of EU law, we can only but hope that the investment court system, which the Commission intensely defended in the context of Opinion 1/17, will follow this approach and reject the Eiser economic analysis of FET.
Edoardo Stoppioni is Professor of public law at the University of Strasbourg.