SPOTLIGHT #5 – Is Switzerland the Only Safe Haven for Intra-EU Arbitral Awards: Clarifying Foreign Investment Protection in The EU
At Lead up, we are committed to providing our clients with the most innovative dispute resolution solutions to fit their specific industry contexts. To do that, we have to stay on top of the recent developments in our clients’ sectors, and analyse these developments in line with our clients’ needs. Every month, in “Lead up Spotlight”, we share with you – our colleagues, clients and prospective partners – our analysis on a recent development relating to dispute resolution in an industry that matters to us and to our clients.
This month’s Lead up Spotlight focuses on the protection of foreign investment in the European Union and the impact of the recent Swiss Federal Tribunal decision in the EDF v. Spain Case.
Until 3 April 2024, and since the ECJ decision in Komstroy v. Moldavia dated 2 September 2021, the situation was clear: EU investors seeking to enforce their rights to investment protection under intra-EU bilateral (BITs) or multilateral investment protection treaties (MITs) (like the Energy Charter Treaty – or ECT) against EU States through arbitration would see any award rendered in their favour unenforceable in the EU. Indeed, the ECJ ruled in Komstroy (and earlier in Achmea v. Slovakia) that intra-EU claims were incompatible with EU law, and thus EU investors could not sue EU States on the basis of intra-EU BITs or MITs. Non-EU investors, however, remained unaffected.
Yet, on 3 April 2024, the Swiss Federal Tribunal rendered a decision which dismissed the importance of the Komstroy ruling and refused to annul an award in favour of EDF, a French investor against Spain, obtained further to an ad hoc arbitration brought on the basis of the ECT. The jurisdiction of the Swiss Federal Tribunal was based on the arbitration being seated in Geneva (Switzerland). Notably, the Swiss Federal Tribunal held that it was not bound by EU decisions interpreting EU laws and/or rendered by EU institutions because these institutions were likely to recognize – erroneously – the predominance of their own law over international law and international investment protection treaties.
What will the impact of this decision be inside the EU? Limited. The Swiss Federal Tribunal decision is unlikely to change the hostile stance of EU institutions and States towards intra-EU international investment protection treaties and related arbitration claims. Concretely, enforcement of intra-EU investment awards in the EU is likely to remain blocked because of the application of the Komstroy and Achmea decisions within the EU.
What will the impact of this decision be outside the EU? Wider. It is likely to be at least two-fold.
- It reinforces the importance of Switzerland as an arbitration friendly and neutral jurisdiction, with the Swiss Federal Tribunal decision being a reminder to other jurisdictions that, as far as the recognition and enforcement of intra-EU awards is concerned (except those rendered under the ICSID Convention), when the seat of arbitration is outside the EU, what matters as regards the validity of these awards are the requirements included in the New York Convention on the recognition and enforcement of foreign arbitral awards. Extra EU jurisdictions are not bound by ECJ decisions such as Achmea or Komstroy to decide whether to enforce an intra-EU award.
- Foreign investors, especially from EU countries, willing to invest into the EU can also consider incorporating their investment vehicle in Switzerland so as to benefit from investment protection afforded to Swiss nationals under European BITs or MITs and to avoid having their claim or award be considered intra-EU claims, and thus unenforceable in the EU.
Lastly, the Swiss Federal Tribunal decision confirms the relevance of Switzerland as an enforcement destination for international arbitral awards, including those settling intra-EU investment disputes.
For more Swiss arbitration related news, follow Lead up Partner Baptiste Rigaudeau, MCIArb who has recently been appointed as French Ambassador of Swiss Arbitration (https://www.linkedin.com/posts/baptiste-rigaudeau-mciarb-74082b24_asa-ambassadors-asa-activity-7201522686370447360-nUFE). As such, he will be one of the key port of call in Paris for all Swiss arbitration related issues and he will organize regular events in the French capital to present some of the key assets of Swiss arbitration.