On 2 September 2021, in the footsteps of the much debated Achmea case (2018), the Grand Chamber of the CJEU handed down a judgement in case C-741/19 Republic of Moldova v. Komstroy LLC, reaffirming its challenge to the validity of the intra-EU investment arbitration mechanism, and extending it to the provisions of the Energy Charter Treaty (ECT) .
The ruling of the Court derives from an interlocutory procedure introduced by the Paris Court of Appeal, in a case that involved a claim for default of payment arising from a supply of electricity contract concluded between a Moldavan public company (Republic of Moldova) and a Ukrainian company (Komstroy LLC) under the aegis of the ECT to which Moldova and Ukraine are State Parties. An arbitral award was rendered in 2013 by an ad hoc tribunal seated in Paris, which ruled that the conduct of the Republic of Moldova breached provisions of the ECT. The award was subsequently challenged before the French Courts.
The CJEU held that debt arising from a supply contract concluded between ECT’s contracting parties, for the purpose of a commercial transaction, does not amount to an investment under article 1(6) of the ECT and therefore, cannot be submitted to the investment arbitration mechanism set up in article 26 of the said Treaty.
In addition, and more importantly, the members of the Court of Luxembourg decided to rule upon the validity of article 26 within the European Union as they considered that Member States could be subject to the arbitration procedure concerning an investment made between those states. The Court found that the EU had a clear interest in this matter.
In relation to article 26 of the ECT, the CJEU held that “article 26(2)(c) ECT must be interpreted as not being applicable to disputes between a Member State and an investor of another member State concerning an investment made by the latter in the first Member State.”
The Court explained that allowing an arbitral tribunal to rule on an investment disputes between an investor of a Member State and another Member State would lead the said tribunal to interpret and even apply EU law. This goes against the fundamental principles of the EU and more precisely, against article 344 of the TFEU. According to the Court, “full effectiveness of that law is not guaranteed”.
Therefore, investor-state disputes arising from contracts concluded under the ECT involving an EU investor and an EU State must be solved through the EU judicial system rather than by arbitration.
The position of the CJEU on investor-state dispute resolution strengthens the fracture between the applicable legal framework of the EU and the one existing outside the EU and will certainly impact the future of investor-state arbitration in the European Union.