HYDRO ENERGY 1 SARL v Kingdom of Spain - United States District Court for the District of Columbia Case No 1-21-cv-02463 - Brief for the European Commission on Behalf of the European Union as Amicus Curiae in Support of the Kingdom of Spain - 17 March 2022 - 17 March 2022
Country
Year
2022
Summary
INTEREST OF AMICUS CURIAE
The European Commission is an institution of the European Union (the "EU" or "Union"), a treaty-based international organization composed of 27 Member States.1 The Commission is an independent institution and acts in the interests of the Union as a whole, rather than individual Member States. Article 17(1) of the Treaty on European Union ("TEU"), Oct. 26, 2012, 2012 O.J. (C 326) 13, provides that the Commission "shall ensure the Union's external representation"--i.e., it is responsible for, inter alia, representing the Union in proceedings outside the EU. The Commission submits this amicus brief in this function on behalf of the European Union.
The EU has a substantial interest in this case and in ensuring that this Court proceeds based on a correct understanding of the principles and questions of EU law that it raises. Petitioners Hydro Energy 1, S.À.R.L. and Hydroxana Sweden AB, entities formed under the laws of Luxembourg and Sweden respectively, and hence EU companies, seek enforcement of an investment arbitration award they have obtained against Spain, an EU Member State, on the basis of the Energy Charter Treaty ("ECT"), an investment protection treaty initiated and negotiated by the EU in the early 1990s as part of the EU's external energy policy. Because the EU is a party to the ECT, the ECT forms part of EU law.
Petitioners' award is premised on a fundamental misinterpretation of the ECT. The arbitral tribunal found--contrary to Spain's arguments--that the ECT's dispute-resolution provision, Article 26, which provides for investor-State arbitration, applies in the relationship between an investor from one EU Member State and another EU Member State. The Commission has long adhered to the position that Article 26 does not authorize intra-EU arbitration. The Court of Justice of the European Union ("CJEU") recently confirmed in its judgment in Case C-741/19, Republic of Moldova v. Komstroy, 2 September 2021, EU:C:2021:655, that Article 26 ECT does not apply to intra-EU disputes.
Under Article 344 of the Treaty on the Functioning of the European Union ("TFEU"), Oct. 26, 2012, 2012 O.J. (C 326) 47, the EU Member States, i.e., including Spain as well as Luxembourg and Sweden, have entrusted the CJEU with the task of rendering final and binding interpretations of EU law. Crucially for this case, that includes the interpretation of international agreements to which the EU and its Member States are party, insofar as their application between two EU Member States is concerned. As a result of the direct application of EU law in the legal orders of the EU Member States, the interpretation the CJEU set forth in its judgment in Komstroy is also binding on companies incorporated in the EU.
As the Commission explains in this brief, the CJEU's decision has dispelled any uncertainty as to the question at the core of this case: The CJEU held that Article 26 of the ECT must be interpreted to preclude intra-EU arbitration, and therefore the standing offer to arbitrate made by Spain in the ECT is extended only to other contracting parties to the ECT, not to EU Member States or their investors. The absence of an arbitration agreement means that the award at issue here cannot be recognized and is unenforceable anywhere in the EU. It also precludes enforcement in this Court.
INTRODUCTION AND SUMMARY OF ARGUMENT
Petitioners brought this suit to enforce an award rendered in their favor against Spain by a private investment arbitration tribunal in 2020 under the ECT, an investment protection treaty initiated, negotiated, and signed in the 1990s by the EU and its Member States, on the one hand, and third countries, in particular of the former Communist bloc, on the other hand. The Commission understands Spain's position in these proceedings to be that the ECT contains no standing offer of arbitration from the EU and its Member States to investors of other EU Member States. Rather, the standing offer from the EU and its Member States to arbitrate contained in Article 26 of the ECT applies only to investors from third countries outside the EU. That conclusion deprives this Court of subject-matter jurisdiction under the Foreign Sovereign Immunities Act ("FSIA"). It also means that the arbitral award is not entitled to full faith and credit, thus precluding enforcement under 22 U.S.C. § 1650a.
The CJEU recently issued a conclusive and authoritative judgment that leaves no doubt as to the correctness of Spain's position. In Republic of Moldova v. Komstroy, the CJEU held that Article 26(2)(c) ECT must be interpreted as not applying to disputes between a Member State and an investor of another Member State. That conclusion flowed from the unique nature of the EU legal order, as well as the need to ensure the integrity of the EU judicial system and consistency and uniformity in the interpretation and application of EU law. It is based on the premise, set out by the CJEU in its earlier judgment in Case C-284/16, Slovak Republic v. Achmea BV, 6 March 2018, EU:C:2018:158, that intra-EU arbitration is impermissible because it would violate core elements of EU law, in particular the principles of autonomy of EU law and of mutual trust between the EU Member States, as well as the fundamental tenets of the EU judicial system.
In Komstroy, the CJEU resolved the tension between the core principles of the EU legal order and intra-EU investment arbitration by applying the technique of "interpretation in conformity," i.e., by interpreting Article 26 of the ECT so as to conform with the EU Treaties (i.e., the TEU, TFEU, and the Treaty establishing the European Atomic Energy Community, Oct. 26, 2012, 2012 O.J. (C 327) 1 ("EURATOM Treaty")). That interpretation ensures respect for the hierarchy of norms within the EU legal order, in which international agreements to which the EU is a party stand below the EU Treaties and general principles of EU law.
The CJEU's judgment in Komstroy is a final and binding interpretation of the ECT as international law as it applies between EU Member States. It is also binding in the legal orders of all EU Member States. Notably, while Article 26 of the ECT is part of a multilateral international agreement, the provision creates a bundle of bilateral and reciprocal international obligations.
Thus, any dispute between an investor from one EU Member State and another EU Member State is entirely "encapsulated" within the EU legal order. The judgment in Komstroy therefore does not affect the rights or obligations of third countries that are contracting parties to the ECT. But the CJEU has left no doubt that intra-EU awards, rendered in violation of Achmea and Komstroy, are unenforceable anywhere in the EU because they violate fundamental rules of EU law.
In finding that the ECT does not permit intra-EU arbitration, the CJEU has directly answered the question at the heart of this case, i.e., whether Spain's offer of arbitration in Article 26 extended to Petitioners, who are EU companies. That is a question that this Court has the authority and obligation to consider in determining whether it has subject-matter jurisdiction under the FSIA to entertain this action. And the CJEU's answer to that question warrants the highest degree of deference as a matter of international comity. The CJEU is the highest judicial authority in the EU, with exclusive competence to issue authoritative interpretations of EU law, including the EU Treaties and the ECT as it applies between EU Member States. For this Court to second- guess the CJEU's decision on a question of immense importance to the institutional structure of the EU legal order--and to allow enforcement of awards that are now unenforceable in any EU Member State--would contradict the principles of comity and mutual respect that govern U.S. courts' approach to legal issues that affect the interests of foreign governments.
Finally, even if the Court had jurisdiction, enforcement would still be improper. The Commission, in its capacity as the entity responsible for enforcing EU competition law, has determined--applying established principles of EU law--that the arbitral award at issue here constitutes "State aid" (i.e., a public subsidy) that Spain may not pay absent the Commission's approval. The Commission has launched a formal investigation into the matter and ordered Spain to suspend any payment of the award until that investigation has concluded. An order from this Court requiring Spain to pay the award absent final approval from the Commission under EU State aid law would amount to ordering Spain to violate its EU law obligations. Rather than compel Spain to violate its EU law obligations, this Court should allow these issues to be resolved within the EU legal system.
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RELEVANT BACKGROUND
A. The nature and special characteristics of the EU legal order
B. The Energy Charter Treaty ("ECT")
ARGUMENT
I. Article 26 of the Energy Charter Treaty must be interpreted as not applying to intra-EU disputes
A. The CJEU has confirmed that intra-EU arbitration under Article 26 of the ECT conflicts with the EU Treaties and fundamental principles of EU law
B. The CJEU's judgment applies as an interpretation of international law binding on all EU Member States
II. The CJEU ' s authoritative decision regarding the incompatibility of intra-EU arbitration under the ECT with the EU Treaties merits deference
A. This Court has the authority and obligation to determine whether an arbitration agreement between Spain and Petitioners existed
B. The Court should accord deference to the CJEU's decision in Komstroy
III. Even if the Court had jurisdiction, permitting enforcement of the award would improperly intrude on EU law
CONCLUSION