Annexes to COM(2024)305 - - Main contents
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This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2024)305 - . |
|---|---|
| document | COM(2024)305 |
| date | July 22, 2024 |
1. Introduction
On 23 July 2014, the European Parliament and the Council adopted Regulation (EU) No 912/2014 establishing a framework for managing financial responsibility linked to investor-to-State dispute settlement tribunals established by international agreements to which the European Union is party (the “Financial Responsibility Regulation”). The legal basis for the Financial Responsibility Regulation is Article 207 TFEU concerning the common commercial policy, of which foreign direct investment is a component.
The Commission is the Union institution in charge of administering the Financial Responsibility Regulation. Within the Commission, the responsible service is the Directorate General for Trade; the Legal Service is in charge of representing the Union during dispute settlement proceedings and the possible subsequent stages of litigation.
The Financial Responsibility Regulation sets out criteria for the determination of the respondent status and the allocation of financial responsibility between the Union and the Member States for treatment which may result in awards for monetary compensation further to investor-to-State dispute settlement proceedings.
Generally, financial responsibility is allocated to the entity responsible for the treatment that gives rise to compensation. This entails that the Union bears financial responsibility where the treatment concerned is afforded by an institution, body, agency or office of the Union, while a Member State bears financial responsibility when the treatment concerned is afforded by it. However, when a Member States acts in a manner required by EU law, for example by transposing an EU directive, the Union bears the financial responsibility insofar as the treatment concerned is required by EU law.
Concerning the respondent status, the rule is that generally the party which bears financial responsibility also acts as the respondent in a dispute. However, there are specific circumstances where the Union acts as the respondent even when the Member State bears some or all of the financial responsibility. This is for instance the case when: a Member State requests the Union to act as the respondent (for example in view of technical expertise required in the dispute); the case also involves treatment afforded by a Member State and such treatment is required by EU law; similar treatment is subject to WTO dispute settlement proceeding and it is necessary to ensure consistency of argumentation.
The Financial Responsibility Regulation sets out arrangements to ensure that, when the Union acts as the respondent in cases concerning treatment afforded by a Member State, the Member State concerned and the Union work in close cooperation in the conduct of dispute settlement proceedings, in accordance with the duty of sincere cooperation enshrined in Article 4(3) of the Treaty on European Union. This includes taking into account the defence and protection of the interests of the Member State concerned, exchanging timely information and relevant documents, engaging in frequent consultations, and participating in the delegation to the proceedings.
The Financial Responsibility Regulation also lays down procedures for Member States and the Commission to enter into arrangements for the payment of costs of litigation and of awards granting monetary compensation, in order to ensure that the resources of the EU are not, even temporarily, unduly burdened. In particular, the Commission and the Member State concerned are required to enter into an arrangement for periodic payment of costs and for the payment of any compensation. If financial responsibility is not accepted by the Member State concerned, the Commission can address a decision to it requesting it to provide the relevant amounts to the budget of the Union, together with applicable interests.
Finally, the Financial Responsibility Regulation establishes procedures and requirements for settling cases when settlements are in the interest of the Union. For cases that involve only the financial responsibility of the Union, it is the Commission that decides on the settlement. When a case concerns also treatment afforded by a Member State, settling a dispute either requires the agreement of the Member State, or it can be decided by the Commission provided it has no financial or budgetary implications for the Member State concerned.
Throughout the various stages of a dispute, the Financial Responsibility Regulation imposes information duties on the Commission vis-à-vis the European Parliament and the Council, for instance when it receives from a claimant of a third country a request for consultation or a notice of intention to initiate dispute settlement proceedings.
2. Current scope of application of the Financial Responsibility Regulation
The Financial Responsibility Regulation applies to investor-to-State dispute settlement proceedings initiated by a claimant of a third country and conducted under agreements to which the EU is a party. At present, pending the ratification and entry into force of agreements which contain an investor-to-State dispute settlement mechanism, e.g. the bilateral agreements with Canada (CETA), Singapore, Vietnam, Chile, the Financial Responsibility Regulation effectively applies only to investor-to-State dispute settlement cases initiated against the EU under the Energy Charter Treaty (ECT).
3. Cases initiated against the Union under the Energy Charter Treaty
To date, there have been two investment dispute settlement proceedings initiated against the Union under the Energy Charter Treaty. These proceeding are currently pending. In addition, there have been a few requests for consultations received by the Union pursuant to Article 26 of the ECT, which have so far not advanced to the stage of formal arbitration. All these proceedings are described in more detail below.
a. Claims by Prosisa and Risteel Corporation on the Spanish renewables support scheme (2015)
In 2015, the Commission received two requests for consultation pursuant to Article 26 of the ECT, respectively from the Swiss company Prosisa AG and the Dutch company Risteel Corporation BV. The Commission informed the European Parliament and the Council in accordance with Articles 4 and 7 of the Financial Responsibility Regulation on 7 October 2015.
Both companies had made investments in the photovoltaic and wind sectors and in the production of renewable energy with biomass in the territory of Spain, and their claims related to Spain’s decision to amend the support scheme for renewable energy. The companies had also in parallel launched proceedings against Spain. They essentially argued that the Commission had violated the fair and equitable treatment standard enshrined in Article 10 of the ECT by intervening before arbitration tribunals constituted under the ECT and by arguing that the ECT did not apply in the relationships between an EU Member State and an investor from another EU Member State.
Consultations pursuant to Article 26(1) of the ECT took place on 1 December 2015 between the investors and the Commission. The Commission clarified that it considered there was no valid legal basis allowing the companies to proceed with their disputes against the Union.
The companies did not pursue further their claims against the EU.
b. Claims by Nord Stream 2 on the amendment of the Gas Directive (2019)
On 12 April 2019, Nord Stream 2 AG, a subsidiary of Gazprom incorporated in Switzerland, addressed a letter to the Commission seeking clarification on the application of the derogation regime contained in Directive (EU) 2019/692 of 17 April 2019 amending the Gas Directive 2009/73/EC (“Amending Gas Directive”).1 In the letter, Nord Stream 2 also provided notice to the Commission of an alleged breach of the ECT, and requested the EU to attempt to reach an amicable settlement in accordance with Article 26(1) of the ECT. In accordance with Article 4 of the Financial Responsibility Regulation, the Council and the European Parliament were informed of these developments on 13 May 2019.
Nord Stream 2 AG argued that it should be entitled to a derogation under the amended Gas Directive from the rules on unbundling, third party access and tariff regulation applicable pursuant to the Gas Directive, as such derogation would allow it to recover the investment made, thus respecting its legitimate expectations. It claimed that, should it not be eligible for a derogation under the Amending Gas Directive and no other steps be taken to put it in an equivalent position, this would amount to a breach of the EU’s obligation under the ECT, in particular Articles 10 and 13 of the ECT. Nord Stream 2 AG also argued that it qualifies as an investor of a Contracting Party under the ECT being a company headquartered and having substantial business operations in Zug, Switzerland.
Consultations between the Commission and Nord Stream 2 took place on 25 June 2019. The European Commission reserved its position on whether it considers Nord Stream 2 to have standing to bring a claim under the ECT pending submission of concrete evidence by the investor of its business operations in Switzerland. It also informed the investor that it considers the Amending Gas Directive to be non-discriminatory and in line with the EU’s international obligations under the ECT. On the question of whether Nord Stream 2 would be eligible for a derogation, the Commission recalled the rules of the Amending Gas Directive, notably that the relevant Member States’ authorities will decide on the granting of derogations based on national rules transposing the Directive and upon individual applications.
The Commission had further written exchanges with Nord Stream 2 on 8 July, 26 July and 6 August 2019. On 25 July 2019, Nord Stream 2 lodged an application for annulment of the Amending Gas Directive before the General Court (Case T-526/19). The General Court dismissed the action as inadmissible by order of 20 May 2020.2 Upon appeal, the Court of Justice partially set aside the order of the General Court and declared the action for annulment brought by Nord Stream 2 AG admissible in respect of certain provisions of the Amending Gas Directive.3 The Court of Justice referred the case back to the General Court for a decision on the merits concerning the action for annulment, which is currently pending (Case T-526/19 RENV).
On 26 September 2019, Nord Stream 2 submitted a notice of arbitration against the Union pursuant to Article 26(2)(c) and 26(4)(b) of the ECT. The Commission informed the European Parliament and the Council in accordance with Articles 4 of the Financial Responsibility Regulation on 1 October 2019.
In the notice of arbitration, Nord Stream 2 AG alleges that the Amending Gas Directive and the EU’s action in connection with the Amending Gas Directive breached the EU’s obligations under the ECT, in particular Articles 10(1), 10(7) and 13 of the ECT.
On 9 December 2019, a challenge by the EU against Nord Stream 2 AG’s nominated arbitrator was upheld. Following exchanges of written submissions on questions of jurisdiction and the merits during 2020 and 2021, the proceedings were suspended in March 2022, after Nord Stream 2 AG became the subject of international sanctions and entered composition proceedings (a type of insolvency procedure under Swiss law) in Switzerland. On 3 October 2022, the EU submitted that a further suspension of the arbitration would be unwarranted, and that the Tribunal should terminate the arbitration. On 13 October 2022, the Tribunal held a procedural meeting with the parties by videoconference. Nord Stream 2 AG informed the Tribunal that the administrator appointed pursuant to the provisional composition moratorium would allow the arbitration to continue, provided that a third party ensures the financing necessary to pursue the arbitration. In response, the EU submitted that Nord Stream 2 AG failed to demonstrate a reasonable possibility of resuming the arbitration, and that the additional information provided by it did not justify a further extension of the suspension of the arbitration. The EU also submitted a Request for Security for Costs. By letter dated 24 November 2022, Nord Stream 2 informed the Tribunal that it had secured funding to continue the arbitration and asked the Tribunal to lift the suspension of the proceedings. The EU opposed and reiterated its request for an order terminating the proceedings, or in the alternative, an order rejecting the resumption of the arbitration unless Nord Stream 2 posts security for costs in an adequate manner and amount. By order of 14 July 2023, the Tribunal rejected the application for the termination of the arbitration but accepted the EU’s application for security for costs. It consequently ordered Nord Stream 2 to deposit monetary security for the EU’s costs of legal representation with the Permanent Court of Arbitration (PCA). The necessary security for costs was duly paid. The next steps will be a further exchange of written submissions and an oral hearing likely to be at the beginning of 2025.
The documents related to this arbitration are available on the website of the PCA.4
c. Claims by UK investors on behalf of AS PNB Banka against regulatory requirements established by the European Central Bank (2019)
On 2 May 2019, the Commission received a letter, pursuant to Article 26(1) ECT, from Russian investors (with UK nationality) on behalf of the Latvian bank AS PNB Bank, in relation to certain decisions of the European Central Bank (ECB) which imposed regulatory requirements on the bank and allegedly affected their investment in a wind power plant in Latvia, Winergy.
In particular, the investors claimed that a draft decision by the ECB of 17 May 2019 which imposed deadlines on AS PNB Bank to resolve its exposure to Winergy and to meet certain capital adequacy thresholds, led to the withdrawal of the bank’s licence, and to the deprivation of their investments in Winergy. The investors argued that, with its actions, the Union was threatening the continued existence and security of their investments in Winergy in breach of the EU’s obligations under Part III of the ECT, along with Latvia.
The European Parliament and the Council were informed of these allegations on 24 May 2019.
On 28 June 2019, the Commission addressed a letter to the investors setting out the view that they did not have standing to initiate proceedings against the EU under the ECT, the investors being EU nationals, and suggesting the withdrawal of the claims. The investors did not pursue further their claims against the EU.
d. Claims by Polish investors concerning lignite mining activities at the Turów mine in Poland (2022)
On 17 January 2022, the Commission received a letter, pursuant to Article 26(1) ECT, from the Polish investors PGE Polska Grupa Energetyczna S.A. and PGE Górnictwo i Energetyka Konwencjonalna S.A. (jointly referred to as “PGEs”), concerning their investments in lignite mining activities at the Turów mine in Poland. The letter purported to provide notice to the EU of a possible breach of the ECT and contained a request to reach an amicable settlement between the EU and the PGEs in accordance with Article 26(1) of the ECT. In particular, the PGEs referred to orders by the Court of Justice of the European Union (CJEU) in Case C-121/215, ordering the cessation of lignite mining activities at the Turów mine.
On 8 March 2022, the Commission addressed a letter to the investors setting out the view that they did not have standing to initiate proceedings against the EU under the ECT, the investors being EU nationals, and suggested the withdrawal of the claims. The investors did not pursue further their claims against the EU.
e. Claims by SCE Solar Don Benito APS (2022)
On 18 November 2022, the Commission received a letter from the Danish investor SCE Solar Don Benito APS, pursuant to Article 26(1) ECT. The investor is active in the solar energy market and was one of the claimants in the ECT arbitration case of Green Power K/S and SCE Solar Don Benito APS vs. Kingdom of Spain (SCC Case No. V2016/135). The Commission had intervened as amicus curiae in that arbitration, which concluded with an award dismissing the claims due to lack of jurisdiction by the arbitral tribunal. In particular, the tribunal considered that the CJEU’s Achmea and Komstroy judgments were applicable to the arbitration and that Spain’s offer to arbitrate under the ECT was not applicable in intra-EU relations. In its letter of 18 November 2022, the investor referred to the CJEU’s judgments and the Commission’s intervention in the earlier arbitration, claiming the EU had violated the ECT by preventing it from effectively asserting its legal rights in arbitration.
On 27 January 2023, the Commission addressed a letter to the investor setting out the view that it did not have standing to initiate proceedings against the EU under the ECT, the investor being an EU national, and suggested the withdrawal of the claims. The investor did not pursue further its claims against the EU.
f. Claims by Klesch Group Holdings Limited & others concerning Council Regulation (EU) 2022/1854 (2023)
On 2 October 2023, the Commission received a request for arbitration against the EU through the International Centre for Settlement of Investment Disputes (ICSID) in a dispute under the ECT by Klesch Group Holdings Limited & others (“Klesch Group”). Klesch Group is a group of companies active in the energy sector and incorporated in Jersey. Its request for arbitration follows an earlier notice of dispute and request for consultations in the same matter. The dispute concerns investments in oil refineries in Denmark and Germany, and Klesch Group contests the temporary solidarity contribution under Council Regulation (EU) 2022/1854.6 The Council Regulation sets a mandatory temporary solidarity contribution on the surplus profits of businesses in the petroleum, natural gas, coal and refinery sectors, calculated on taxable profits in the fiscal year starting in 2022 and/or in 2023 which are above a 20% increase of the average yearly taxable profits between 2018 and 2021. The Commission informed the European Parliament and the Council of the dispute under the Financial Responsibility Regulation on 20 October 2023.
Denmark and Germany received similar requests for arbitration by Klesch Group over their national legislation implementing the temporary solidarity contribution. The Commission is in close contact with Denmark and Germany to coordinate a joint defence. In particular, Denmark and Germany confirmed, within the meaning of Article 9(1)(b) of the Financial Responsibility Regulation, that they do not intend to act as respondents in the cases brought against them by Klesch Group. Therefore, the EU shall act as respondent in those cases (Article 9(1) last sentence of the Financial Responsibility Regulation).
4. Transparency in investor-to-State dispute settlement proceedings against the Union
The European Commission is committed to ensuring the highest degree of transparency in investor-State dispute settlement proceedings initiated against the Union. In recent years, the Commission has radically reformed the Union’s approach to investment dispute settlement through a number of initiatives. These include negotiating rules on transparency leading to the adoption of the UNCITRAL Transparency Rules in 2013, and the incorporation of such rules into the provisions of the Investment Court Systems established in the EU’s bilateral agreements with Canada, Singapore, Vietnam, Chile and Mexico.
The Union has also been involved in the negotiation of the United Nations Convention on Transparency in Treaty-based Investor-State Arbitration (“Mauritius Convention”, New York, 2014), which is a UN Convention providing for the application of the UNCITRAL Transparency Rules to the existing stock of over 3000 bilateral investment treaties. The Commission had sought to have the UNCITRAL Transparency rules applied to the ECT through the Mauritius Convention and has made a proposal for a Council decision authorising the signing of the Mauritius Convention by the EU in January 2015. On 25 June 2024, the Council adopted the decision on the signature of the Mauritius Convention and the EU will now formally sign it. The ratification of the Mauritius Convention by the EU will then follow, after the approval of the European Parliament. Once the EU signs and concludes the Mauritius Convention, Member States can proceed with national ratification.
In the meantime, the Commission took initiatives to ensure the fullest degree of transparency possible in the investors’ claims that have so far been brought to its attention. It has published on DG TRADE’s website the most recent exchanges between the investors and the Commission (https://ec.europa.eu/trade/policy/accessing-markets/dispute-settlement/investment-disputes/). If investors decide to submit their claims to arbitration, the Commission intends to continue applying transparency standards, by seeking agreement with the investors to publish submissions, and by organising open hearings.
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1 Directive (EU) 2019/692 of the European Parliament and of the Council of 17 April 2019 amending Directive 2009/73/EC concerning common rules for the internal market in natural gas, OJ L 117, 3.5.2019, p. 1.
2 Order of the General Court (Eighth Chamber) of 20 May 2020, Nord Stream 2 AG v European Parliament and Council of the European Union, Case T-526/19, ECLI:EU:T:2020:210.
3 Judgment of the Court (Grand Chamber) of 12 July 2022, Nord Stream 2 AG v European Parliament and Council of the European Union, Case C-348/20 P, ECLI:EU:C:2022:548.
4 https://pca-cpa.org/en/cases/239/.
5 Case C-121/21, Czech Republic v Poland (Mine de Turów). The case was removed from the register by order of the President of the Court of 4 February 2022.
6 Council Regulation (EU) 2022/1854 of 6 October 2022 on an emergency intervention to address high energy prices, OJ L 261I, 7.10.2022, p. 1–21.
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