This post is authored by Shambhavi Sinha, a 4th-year student of B.B.A.LL.B. (Hons.) at Symbiosis Law School, Pune.

Image Credits:- Fietta International Law LLP


Bilateral Investments Agreements (“BITs”) where both the parties are nations of the European Union (“EU”) are termed as Intra – EU BITs. The fate of such agreements is doomed as 23 out of 27 members of the European Union signed the Agreement for the Termination of Bilateral Investment Treaties between the Member States of the European Union (“Termination Treaty”) on May 05, 2020. The Termination Treaty was the consequence of the decision delivered by the Court of Justice of the European Union (“CJEU”) in the landmark case of Slovak Republic v. Achmea B.V., wherein the arbitration clause present in the 1991 Netherlands-Slovakia BIT was held to be inconsistent with the EU law for undermining the autonomy of the EU legal system. Therefore, by virtue of the Termination Treaty, the members of the EU put an end to the intra- EU BITs. The termination agreement renders the arbitration clause of the intra- EU BITs void ab initio and hence such clauses cannot be considered as a valid form of consent by the state parties to enter into investor-state arbitration. When the treaty comes into force, all pending investment arbitration proceedings of any set of rules, including ad hoc arbitrations will come to an end. The treaty also abrogates the sunset clauses of the Intra-EU BITs as a result of which any future claims that might have arisen under the BITs will also be foreclosed.

Naturally, three situations may arise: firstly, the pending arbitration cases; secondly, the concluded arbitration proceedings, and thirdly, the future arbitration. Article 6 of the Termination Treaty states that arbitration proceedings executed before March 06, 2018, are to be considered as concluded arbitration and thus, the treaty will have no impact over such arbitrations. Additionally, investors cannot initiate new claims under the Intra-EU BITs so the question of future arbitration proceedings would not arise.

However, the pending investment arbitration cases get extremely complicated. The present article analyses the effect of the Termination Treaty in the context of pending arbitration. Article 10(1) of The Termination Treaty requires the measure of the host nation to be determined in accordance with the EU investment law and not according to the substantive standards of protection present in the BITs. This is problematic because this is not something that the investors agreed to, prior to making an investment in the host nation. In light of this, it is important to critically analyse the different substantive standards of protection that apply under international investment law and EU law.


A. General differences between the two regimes

International investment law is a self-standing subset of international law which is the result of crystallisation of common principles arising out of International (Bilateral/Multilateral) Investment Agreements (“IIAs”). Several awards rendered over the years by the tribunals constituted under the North American Free Trade Agreement (“NAFTA”), Association of South East Asian Nations (“ASEAN”) Comprehensive Investment Agreement, and Energy Charter Treaty have substantially influenced the regime of international investment law. EU has its own framework for cross-border investment activities and there is no doubt that the general principles of EU law and international investment law share a similar ambit roughly.

The premise of international investment law is based on creating a secure system for foreign investors in the host state and providing them with an interstate dispute mechanism free from politics and other internal factors. On the other hand, the EU investment regime seeks to create an internal market with the broad objective to ensure optimal distribution of economic resources within the member states of the European Union.[1]

The legal interest that international investment agreements seek to protect is that of asset-based investments.[2] Therefore, investment under IIAs is a static concept as a form of an asset belonging to a foreign investor. The EU law focuses more on the protection of free movement of capital and the right of establishment in pursuit of economic activities.[3] However, investments are also protected under the broad right of free movement of capital in the EU Law.

Additionally, most IIAs use the Hull formula, which requires expropriation to be always accompanied by the provision of ‘prompt, adequate, and effective compensation.’[4] In contrast to this, consider Article 17 of The Charter of Fundamental Rights of the European Union, which states that ‘no one may be deprived of his or her possessions, except in the public interest and in the cases and under the conditions provided for by law, subject to fair compensation being paid in good time for their loss’. The requirement for ‘fair compensation being paid in good time’ for the loss under EU law is less demanding than the requirement for payment of ‘prompt, adequate, and effective compensation’ under the Hull formula, common to most IIAs.[5]

B. Difference in the standard of treatment given to investors

The major incompatibility lies in the difference in the standard of treatment granted to investors under the concept of fair and equitable treatment and indirect expropriation.

The protections extended to foreign investors under IIAs include the right to fair and equitable treatment, right against expropriation, and security under umbrella causes that are wide enough to cover any kind of unjust measure taken by the host state to disentitle the foreign investors of their economic benefits. The protection is offered to the investment established in the territory of the host state. The EU investment law provides protection to investors majorly under the rubric of market access and trade liberalisation norms. However, this does not imply that EU laws do not provide protection for the post-establishment phase of investment. The only difference lies in the priorities of the two regimes. But the substantive protection offered to investors under IIAs is far wider and easily comprehensible.

The standard of protection accorded to investors is based on the premise of protection of legitimate expectations of foreign investors. These legitimate expectations are based on the general legal framework in which the investment operates. However, the latest trend in the IIAs implies that the states are given the right to take regulatory measures in the larger public interest, even if such measures are detrimental to the investments of the foreign investor. However, tribunals have held that such measures are subjected to the grant of fair compensation. The ISCID tribunals in Elena v. Costa Rica, held that states are obligated to pay compensation to the investors even in cases where the expropriation was done for environmental reasons in the interest of society.

EU law, for instance, Article 191 Treaty of Functioning of European Union (TFEU) directs the member states to have high regard for principles of environmental law such as the polluter pays principle. The member states are also directed to adopt regulatory measures in the area of antitrust laws or sectoral norms which mandate the structural separation of undertakings which are vertically combined, etc.[6] The existence of unqualified standards of treatment while deciding on the compensability of general regulatory measures may certainly give rise to questions with respect to the implementation of principles such as polluter pays.[7] On the other hand, such general regulatory measures under the international investment law regime are highly likely to be compensated. For instance, in the case of Santa Elena v. Costa Rica, the ISCID tribunal held that measures directed towards the protection of the environment need to be compensated similar to any other expropriatory measures that a state may take in order to implement its policies.[8]

C. Discrimination on grounds of Nationality

National treatment is one of the clauses present under IIAs whose purpose is to ensure that the host nation places the foreign investors and domestic investors on equal footing. This is where the nationality of investors comes into the picture. While the determination of th