Responsibility of the EU and the Member States under EU International Investment Protection Agreements: Between Traditional Rules, Proceduralisation and Federalisation [1st ed.] 978-3-030-04365-0, 978-3-030-04366-7

Table of contents :
Front Matter ....Pages i-xix
Introduction (Philipp Theodor Stegmann)....Pages 1-10
International Obligations of the EU and the Member States Under EU IIPAs (Philipp Theodor Stegmann)....Pages 11-77
International Responsibility of the EU and the Member States for Breaches of EU IIPAs Under Traditional Rules (Philipp Theodor Stegmann)....Pages 79-138
The Proceduralisation and Internalisation of International Responsibility Under Post-Lisbon Mixed IIPAs (Philipp Theodor Stegmann)....Pages 139-234
The Internal Allocation of Financial Responsibility Under the REG (Philipp Theodor Stegmann)....Pages 235-302
Specific Problems Caused by the Interrelation Between the Application of EU IIPAs and the Application of the REG (Philipp Theodor Stegmann)....Pages 303-333
Epilogue (Philipp Theodor Stegmann)....Pages 335-340
Back Matter ....Pages 341-368

Citation preview

EYIEL Monographs Studies in European and International Economic Law 6

Philipp Theodor Stegmann

Responsibility of the EU and the Member States under EU International Investment Protection Agreements Between Traditional Rules, Proceduralisation and Federalisation

European Yearbook of International Economic Law EYIEL Monographs - Studies in European and International Economic Law Volume 6 Series editors Marc Bungenberg, Saarbrücken, Germany Christoph Herrmann, Passau, Germany Markus Krajewski, Erlangen, Germany Jörg Philipp Terhechte, Lüneburg, Germany Andreas R. Ziegler, Lausanne, Switzerland

EYIEL Monographs is a subseries of the European Yearbook of International Economic Law (EYIEL). It contains scholarly works in the fields of European and international economic law, in particular WTO law, international investment law, international monetary law, law of regional economic integration, external trade law of the EU and EU internal market law. The series does not include edited volumes. EYIEL Monographs are peer-reviewed by the series editors and external reviewers. More information about this series at http://www.springer.com/series/15744

Philipp Theodor Stegmann

Responsibility of the EU and the Member States under EU International Investment Protection Agreements Between Traditional Rules, Proceduralisation and Federalisation

Philipp Theodor Stegmann Berlin, Germany

Dissertation zur Erlangung des Grades eines Doktors der Rechte (Dr. iur.) der Juristischen und Wirtschaftswissenschaftlichen Fakultät der Martin-Luther-Universität Halle-Wittenberg Vorgelegt von: Philipp Theodor Stegmann aus Frankfurt Erstgutachter: Prof. Dr. Christian Tietje, LL.M. Zweitgutachter: Prof. Dr. Dirk Hanschel Tag der öffentlichen Verteidigung: 26. Juni 2018, Halle (Saale) ISSN 2364-8392     ISSN 2364-8406 (electronic) European Yearbook of International Economic Law ISSN 2524-6658     ISSN 2524-6666 (electronic) EYIEL Monographs - Studies in European and International Economic Law ISBN 978-3-030-04365-0    ISBN 978-3-030-04366-7 (eBook) https://doi.org/10.1007/978-3-030-04366-7 Library of Congress Control Number: 2018964415 © Springer Nature Switzerland AG 2019 This work is subject to copyright. All rights are reserved by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, express or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Nature Switzerland AG The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland

Preface

This book is the result of a doctoral thesis accepted by the University of Halle-­ Wittenberg in Germany. It was written in large part during my time as a visiting research student at Queen Mary University of London. This book takes into account the legal situation, literature and case law until August 2018. I wish to express my sincere gratitude to my doctoral thesis supervisor, Professor Dr. Christian Tietje, for his encouragement, valuable advice and the opportunity to embark on this interesting research topic. I am also thankful to Professor Dr. Dirk Hanschel who kindly undertook the second evaluation of my doctoral thesis. I especially want to thank Dr. Angelos Dimopoulos for the many fruitful discussions we had and his insightful, critical and thought-provoking comments on earlier drafts of my thesis, which greatly helped advance my work and contour my arguments. I would also like to mention the fantastic research environment at Queen Mary University and wish to thank my fellow research students for many wonderful discussions. Moreover, I am deeply thankful to my parents and my sister, Anne, for supporting me throughout my life. Finally, I want to thank Juliane dearly for being the best support one can imagine. I dedicate this book to her. Berlin, Germany August 2018

Philipp Theodor Stegmann

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Contents

1 Introduction  ��������������������������������������������������������������������������������������������    1 1.1 Setting the Scene: Responsibility of the EU and the Member States Under EU IIPAs ��������������������������������������������������������������������     1 1.1.1 The Concept of IIPAs and ISDS: Abridged  ������������������������     2 1.1.2 The Emergence of EU IIPAs ������������������������������������������������     2 1.1.3 With Power Comes Responsibility ��������������������������������������     4 1.1.4 The Dawn of a New Responsibility Regime ������������������������     5 1.2 Aim and Structure of This Study  ����������������������������������������������������     8 2 International Obligations of the EU and the Member States Under EU IIPAs ��������������������������������������������������������������������������������������   11 2.1 Capacity to Conclude IIPAs: The EU and the Member States as Subjects of International Law ������������������������������������������������������     12 2.2 Competence to Conclude IIPAs: The EU’s and the Member States’ Treaty-Making Competence in the Field of Foreign Investment ����������������������������������������������������������������������������������������    14 2.2.1 The Link Between Treaty-Making Competences Under EU Law and the Participation of the EU and the Member States in the Conclusion of a Treaty ����������������������     15 2.2.2 The Division of Competences Between the EU and the Member States with Respect to IIPAs ����������������������������������     17 2.2.2.1 Treaty-Making Competences Regarding Foreign Investment Before Lisbon: Member State BITs and the ECT as a Treaty of ‘Shared Mixity’ ������������������������������������������������     18 2.2.2.2 Treaty-Making Competence Regarding Foreign Investment After Lisbon: EU-Only or ‘Shared Mixity’ as the Crossroads for Post-Lisbon IIPAs  ������������������������������������������������     20 2.3 International Obligations of the EU and the Member States Under EU IIPAs  ������������������������������������������������������������������������������     26 vii

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2.3.1 Apportionment of Obligations Between the EU and the Member States Under Mixed IIPAs Along Competence Lines ������������������������������������������������������������������������������������    26 2.3.1.1 Apportionment of Obligations Along Division of Competences Under Mixed Agreements Devoid of Contractual Delimitations ��������������������     28 2.3.1.2 Apportionment of Obligations Under Mixed IIPAs Along Competence Lines as Per Contractual Delimitations  ������������������������������������     48 2.3.2 International Obligations Flowing from EU-Only IIPAs �����    71 2.3.2.1 Member States Do Not Assume International Obligations Under EU-Only IIPAs Under the Law of Treaties ������������������������������������������������     72 2.3.2.2 Member States Do Not Assume International Obligations Under EU-Only IIPAs by Way of Article 216(2) TFEU ����������������������������������������     74 2.4 Conclusions Chapter 2: Obligations Under Mixed IIPAs Do Not Run Along Competence Lines ��������������������������������������������     76 3 International Responsibility of the EU and the Member States for Breaches of EU IIPAs Under Traditional Rules ����������������������������   79 3.1 International Responsibility for Breaches of EU IIPAs Under the Lex Generalis of the ILC Articles and International Case Law  ������     80 3.1.1 The ‘Organic’ Model of Attribution of Conduct Under the ARIO and ARS  ��������������������������������������������������������������     83 3.1.2 Capturing the Decentralised Implementation of EU Law by the Member States Under the Lex Generalis of the ARIO and International Case Law ��������������������������������������     84 3.1.2.1 The ARIO’s (Non-)Recognition of the Decentralised Implementation of EU Law by Member States  ������������������������������������������������     86 3.1.2.2 (Incoherent) International Case Law Regarding the Decentralised Implementation of EU Law by the Member States ������������������������     91 3.1.2.3 Result: No Uniformity Under International Case Law and the ARIO  ��������������������������������������     98 3.1.2.4 The WTO Approach Is Not Transferable to IIPAs  ����������������������������������������������������������������    99 3.1.3 Where Incumbency of Obligations and Attribution Go Astray: The Risk of Accountability Gaps Under EU-Only IIPAs Under the ILC Articles  ������������������������������  100 3.1.4 Conclusions on International Responsibility for Breaches of EU IIPAs Under the Lex Generalis of the ARS and ARIO ����������������������������������������������������������  103

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3.2 International Responsibility for Breaches of EU IIPAs Under Leges Speciales  ��������������������������������������������������������������������  104 3.2.1 Joint (and Several) Responsibility of EU and Member States Under Mixed IIPAs as Lex Specialis  ������������������������  106 3.2.1.1 Joint Responsibility as Expressly Stipulated in a Mixed Agreement ������������������������������������������  107 3.2.1.2 Joint Responsibility as the Default Rule Under a Mixed Agreement  ����������������������������������������������  110 3.2.2 The Division of Competences Between the EU and the Member States Under the EU Treaties as Lex Specialis ������  113 3.2.2.1 The Division of Treaty-Making Competences as the Criterion for International Responsibility ����� 115 3.2.2.2 The Division of Competences as Derives from the EU Treaties ������������������������������������������������������  119 3.2.2.3 Conclusions on the Competence-Based Approach as Lex Specialis  ����������������������������������������������������  122 3.2.3 The ‘What-Is-Required-by-EU-Law’-Approach as Lex Specialis Under the ECT ������������������������������������������  122 3.2.3.1 Electrabel v Hungary  ��������������������������������������������  124 3.2.3.2 AES Summit v Hungary  ��������������������������������������  126 3.2.3.3 Conclusions on the ECT-Approach ����������������������  127 3.2.4 A Federal State Analogy as Lex Specialis Under EU-Only IIPAs ��������������������������������������������������������������������  128 3.2.4.1 International Responsibility of Federal States ������  130 3.2.4.2 Applying a Federal State Analogy to the EU and the Member States Under EU-Only IIPAs ����� 133 3.2.5 Summary: The Various Leges Speciales Under EU IIPAs ����� 136 3.3 Conclusions Chapter 3: The Traditional Rules of International Responsibility Are Not Designed to Capture the Inner Workings of the EU and the Member States ����������������������������������������������������  137 4 The Proceduralisation and Internalisation of International Responsibility Under Post-­Lisbon Mixed IIPAs ����������������������������������  139 4.1 The Rationale and Motives for a Proceduralisation of International Responsibility ��������������������������������������������������������  141 4.1.1 Guaranteeing Legal Certainty  ����������������������������������������������  141 4.1.2 Protecting the Autonomy of EU Law ����������������������������������  144 4.2 The Form of Proceduralisation Under Post-Lisbon Mixed IIPAs ������������������������������������������������������������������������������������������������  150 4.2.1 The Functioning of the Respondent Determination from the Perspective of the Mixed IIPA ������������������������������  150 4.2.1.1 The Procedure for Determining the Respondent Under Post-­Lisbon Mixed IIPAs ��������������������������  151 4.2.1.2 A Single-Respondent Model  ��������������������������������  155

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4.2.1.3 The Mandatory Nature of the Respondent Determination Mechanism ������������������������������������  156 4.2.2 The Functioning of the Respondent Determination from the Perspective of the REG  ����������������������������������������  163 4.2.2.1 Applicability of the REG ��������������������������������������  163 4.2.2.2 The Respondent Determination Under the REG ����������������������������������������������������������������  168 4.2.2.3 Settlement Rights and Duties Under the REG ������  187 4.2.2.4 Payment Obligations Vis-à-Vis the Investor Under the REG ������������������������������������������������������  190 4.3 The Constitutive Effect of the Respondent Determination Under Post-Lisbon Mixed IIPAs on the International Responsibility of the Determined Respondent ��������������������������������������������������������  190 4.3.1 The Precondition to a Constitutive Effect of the Respondent Determination: ‘Respondent’ or Mere ‘Representative’?  ����������������������������������������������������������������  192 4.3.2 The Scope of the Constitutive Effect: The ‘EU-Member State Responsibility Window’ ����������������������������������������������  194 4.3.3 The Interpretation of the Respondent Determination Mechanism Under Post-Lisbon Mixed IIPAs with Respect to a Constitutive Effect ��������������������������������������������������������  195 4.3.3.1 Textual Interpretation of Article 8.21(6)(7) CETA ��������������������������������������������������������������������  198 4.3.3.2 Possible Accountability Gaps and a Denial of Justice  ��������������������������������������������������������������  213 4.3.3.3 Protection of the Autonomy of EU Law  ��������������  216 4.3.3.4 Result on Interpretation: The Respondent Determination Mechanism Under CETA Has a Constitutive Effect on International Responsibility  ������������������������������������������������������  216 4.3.4 Capturing the Constitutive Effect Under the ILC Articles ������ 217 4.3.4.1 The Respondent Determination as Adoption and Acknowledgment of Conduct Under Article 11 ARS and Article 9 ARIO ����������������������  217 4.3.4.2 The Respondent Determination Mechanism as a Lex Specialis of International Responsibility Under Article 55 ARS and 64 ARIO ��������������������  219 4.4 Excursus: Proceduralisation of International Responsibility Under EU-Only IIPAs ����������������������������������������������������������������������  221 4.4.1 No Consent to Arbitration of Member States Under EU-Only IIPAs per se ����������������������������������������������������������  223 4.4.2 No International Responsibility of Member States Under EU-Only IIPAs per se  ����������������������������������������������  224 4.4.3 Article 35 VCLT and Member State International Responsibility ����������������������������������������������������������������������  225

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4.4.4 Article 62 ARIO and Member State International Responsibility ����������������������������������������������������������������������  226 4.4.5 Drafting Proposals for EU-Only IIPAs that Enable Member State Participation ��������������������������������������������������  229 4.4.6 Result: Member States Are Free to Enter the Fray Under EU-Only IIPAs ����������������������������������������������������������  230 4.5 Conclusions Chapter 4: A New Responsibility Regime Under Post-­Lisbon Mixed IIPAs ����������������������������������������������������������������  231 5 The Internal Allocation of Financial Responsibility Under the REG ����������������������������������������������������������������������������������������������������  235 5.1 The Case of Germany: Internal Allocation of Financial Responsibility Between the Bund and the Länder ��������������������������  238 5.1.1 Applicability of Article 104a(6) GG and the LastG ������������  240 5.1.2 The Internal Reimbursement Claim of the Bund Against the Länder ��������������������������������������������������������������  242 5.1.3 The Allocation Criteria: Financial Responsibility Lies with the Originator of the Breach ����������������������������������������  242 5.1.4 The Apportionment of a Financial Burden Into a Bund and a Länder Share ��������������������������������������������������������������  245 5.1.5 Summary on Germany’s Allocation System ������������������������  251 5.2 Internal Allocation of Financial Responsibility Between the EU and the Member States Under the REG ������������������������������������  251 5.2.1 The Limited Value of Drawing Analogies from the EU State Responsibility Regime for Interpreting and Complementing the Allocation Criteria Under the REG ��������������������������������������������������������������������������������  253 5.2.2 The Allocation Criteria Pursuant to Article 3 REG  ������������  256 5.2.2.1 Article 3(1)(a) and (b) REG: Financial Responsibility Lies with the Originator of the Treatment That Led to the Financial Burden ������������������������������������������������������������������  257 5.2.2.2 Financial Responsibility of the EU Pursuant to Article 3(1)(c) REG for Member State Treatment ‘Required by Union Law’ ��������������������  257 5.2.2.3 The Exception to Article 3(1)(c) REG ������������������  270 5.2.2.4 The Exception Provisions of Allocation Pursuant to Article 3(3) and (4) REG  ������������������  272 5.2.3 The Reimbursement Claim Pursuant to Article 19 REG in Conjunction with Article 3 REG: The Ex Post Facto Allocation of Financial Responsibility ��������������������������������  273 5.2.3.1 Conditions for the Reimbursement Claim Under Article 19 REG ������������������������������������������  273 5.2.3.2 The Exclusive Right of the EU to Recover from the Member States Creates Accountability

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Gaps Under the REG When Member States Act as Respondent  ������������������������������������������������������  275 5.2.4 The Binding Effect of Arbitral Awards and Settlements on the Ex Post Facto Allocation of Financial Responsibility Under the REG ��������������������������������������������  280 5.2.4.1 The Binding Effect of the Amount of Damages as Awarded or Agreed Upon  ��������������������������������  280 5.2.4.2 The Binding Effect of the Content of the Award or Settlement as to the Illegality of the Treatment(s) Under the EU IIPA ����������������  282 5.2.5 Apportionment of a Financial Burden Into a EU and a Member State Share Under the REG  ������������������������  290 5.2.5.1 Scenarios Under the REG Requiring the Apportionment of a Financial Burden Into a EU and a Member State Share ��������������������  290 5.2.5.2 The REG Foresees the Scenarios Where an Apportionment Is Required But Provides No Modus Operandi on How to Split a Financial Burden Into a EU and a Member State Share  ������  295 5.2.5.3 Possible Apportionment Criteria and Methods Under the REG for Splitting a Financial Burden Into a EU and a Member State Share ��������������������  296 5.3 Conclusions Chapter 5: Significant Steps Towards Federalisation Under EU IIPAs  ������������������������������������������������������������������������������  300 6 Specific Problems Caused by the Interrelation Between the Application of EU IIPAs and the Application of the REG ������������  303 6.1 The Commission Incorrectly Decides to Confer Respondent Status to the EU  ������������������������������������������������������������������������������  304 6.1.1 The Various Solutions to Accommodate Under the EU IIPA Challenges to the CJEU with Respect to the Commission’s Decision on Respondent Status ����������  306 6.1.1.1 Deferment or Stay of Arbitral Proceedings ����������  306 6.1.1.2 Parallel Proceedings and Co-Respondents in the Arbitration  ��������������������������������������������������  307 6.1.1.3 Parallel Proceedings and a Single Respondent in the Arbitration  ��������������������������������������������������  307 6.1.2 Discussion: What Is Viable and Realistic? ��������������������������  311 6.1.3 The Right to Effective Legal Protection Under EU Law Prevails over the Integrity of the Arbitration Proceedings and Their Smooth Functioning ������������������������  313 6.1.4 Final Drafting and Interpretation Proposals to Accommodate Arbitration Proceedings Under a EU

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IIPA with CJEU Proceedings on the Commission Decision on Respondent Status ��������������������������������������������  316 6.2 The Content of the Decision on Respondent Status Under the REG Might Unduly Influence the Arbitral Tribunal’s Finding on Illegality of the Challenged Treatment Under the EU IIPA ��������  318 6.2.1 The Test Under Article 9(2)(a) REG in Conjunction with Article 3 REG Does Not Require an Assessment Whether the Actual Treatment Challenged by the Investor Breaches the EU IIPA ����������������������������������������������������������  318 6.2.2 The Outcome of the Hypothetical Causation-Test Under the REG Might Influence an Arbitral Tribunal in Its Own Assessment on Illegality of the Challenged Treatment Under the EU IIPA ����������������������������������������������  320 6.3 The Mandate of the Commission and the CJEU to Look into the Merits of the Arbitral Case for Allocating Financial Responsibility ����������������������������������������������������������������������������������  322 6.3.1 What Does the REG Imply? ������������������������������������������������  322 6.3.2 Risk of Inequitable Results ��������������������������������������������������  324 6.3.3 Threats to the Validity of Awards and Settlements Versus Risks of Disruptions in the Allocation and Reimbursement Procedure ��������������������������������������������  328 6.3.4 Result: The Commission and the CJEU Should Have the Mandate to Look into the Merits of an Unclear Award or Settlement in Order to Find Out Which Treatment Is Illegal Under the EU IIPA ������������������������������  331 6.4 Conclusions Chapter 6: The Interrelation Between EU IIPAs and the REG Is Not Invulnerable to Frictions ����������������������������������  332 7 Epilogue  ��������������������������������������������������������������������������������������������������  335 7.1 The ECT and the Application of Traditional Responsibility Rules ������������������������������������������������������������������������������������������������  335 7.2 Post-Lisbon Mixed IIPAs and the Proceduralisation of International Responsibility ��������������������������������������������������������  336 7.3 The Federalisation of Responsibility Under EU IIPAs ��������������������  337 7.4 Challenges Ahead  ����������������������������������������������������������������������������  338 Table of Cases ��������������������������������������������������������������������������������������������������  341 Table of Treaties and Legislative and Policy Instruments ��������������������������  349 Bibliography ����������������������������������������������������������������������������������������������������  355

About the Author

Philipp Theodor Stegmann  was born in 1984 in Frankfurt am Main, Germany. He studied Law at the Goethe-University Frankfurt and the University Paris Nanterre between 2005 and 2011. After his studies, he conducted his legal traineeship at the Higher Regional Court in Frankfurt. From 2014 until 2015, he was a visiting research student at Queen Mary University of London. Since 2016, he works as a lawyer at an international law firm in Berlin.

xv

Abbreviations

AETR AG ALF ARIA ARIO ARS BGB BTransnatlWR BVerfGE BYULRev CalLRev CCP CDTransnatl CETA CJEU CJIntlL CMLRev CLEER CWRJIntlL CYELP CYELS EC ECHR ECLRev ECT ECtHR EdLRev EFARev EJIntlL

Accord Européen sur les Transports Routiers Advocate General Amsterdam Law Forum American Review of International Arbitration ILC Articles on the Responsibility of International Organizations of 2011 ILC Articles on the Responsibility of States for Internationally Wrongful Acts of 2001 Bürgerliches Gesetzbuch, German Civil Code Beiträge zum Transnationalen Wirtschaftsrecht Entscheidungen des Bundesverfassungsgerichts Brigham Young University Law Review California Law Review Common Commercial Policy Cuadernos de Derecho Transnacional Comprehensive Economic and Trade Agreement with Canada Court of Justice of the European Union Chinese Journal of International Law Common Market Law Review Centre for the Law of the EU External Relations Case Western Reserve Journal of International Law Croatian Yearbook of European Law and Policy Cambridge Yearbook of European Legal Studies European Communities European Convention on Human Rights European Constitutional Law Review Energy Charter Treaty European Court of Human Rights Edinburgh Law Review European Foreign Affairs Review European Journal of International Law xvii

xviii

ELJ ELRev EPL ESIL EU EUI EuZW FDI FET FIntlLJ FPI FTA GARNET GG GYIntlL HarvIntlLJ HastIntlCLRev HitoJLP HJDipl HYIntlL ICJ ICSID ICSIDRev ICSIDRev-FILJ IEUDS IIPA ILA ILC ILC Articles IntlALRev IntlCLQ IntlOrgLRev ISDS JERL JIntlA JIntlDS JIntlEcoL JIntlPOrg JWIT LastG LIEcoI LIEuropIntg McGillLJ

Abbreviations

European Law Journal European Law Review European Public Law European Society of International Law European Union European University Institute Europäische Zeitschrift für Wirtschaftsrecht Foreign Direct Investment Fair and Equitable Treatment Fordham International Law Journal Foreign Portfolio Investment Free Trade Agreement Global Governance, Regionalisation and Regulation: the Role of the EU Grundgesetz, German Constitution German Yearbook of International Law Harvard International Law Journal Hastings International and Comparative Law Review Hitotsubashi Journal of Law and Politics The Hague Journal of Diplomacy The Hague Yearbook of International Law International Court of Justice International Centre for Settlement of Investment Disputes ICSID Review ICSID Review—Foreign Investment Law Journal Investor-to-EU Dispute Settlement International Investment Protection Agreement International Law Association United Nations’ International Law Commission ARS and ARIO International Arbitration Law Review International and Comparative Law Quarterly International Organization Law Review Investor-to-State Dispute Settlement Journal of Energy & Natural Resources Law Journal of International Arbitration Journal of International Dispute Settlement Journal of International Economic Law Journal of International Peace and Organization Journal of World Investment and Trade Lastentragungsgesetz, German Financial Responsibility Act Legal Issues of Economic Integration Legal Issues of European Integration McGill Law Journal

Abbreviations

MFN MJIntlL MPUNYB NIntlLRev NordicJIntlL NT NwJIntlLB NYIntlL NVwZ NZLRev OECD OLRev PELRev PPA REG

xix

Most-Favoured-Nation Treatment Michigan Journal of International Law Max Planck Yearbook of United Nations Law Netherlands International Law Review Nordic Journal of International Law National Treatment Northwestern Journal of International Law and Business Netherlands Yearbook of International Law Neue Zeitschrift für Verwaltungsrecht New Zealand Law Review Organisation for Economic Co-operation and Development Ottawa Law Review Pace Environmental Law Review Power Purchase Agreements Regulation 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 RFS Regional & Federal Studies RevBDIntl Revue belge de droit international SCJIntlLB South Carolina Journal of International Law and Business SIEL Society of International Economic Law SIEPS Swedish Institute for European Policy Studies SELJ Stanford Environmental Law Journal StClJIntlL Santa Clara Journal of International Law STransnatlLP Studies in Transnational Legal Policy TEC Treaty on the European Communities TEU Treaty on European Union TFEU Treaty on the Functioning of the European Union TDM Transnational Dispute Management TTIP Transatlantic Trade and Investment Partnership ULRev Utrecht Law Review UMIntlCLRev University of Miami International and Comparative Law Review UNCLOS United Nations Convention on the Law of the Sea VandJTransnatlL Vanderbilt Journal of Transnational Law VCLT Vienna Convention on the Law of Treaties of 1969 VCLT-IO Vienna Convention on the Law of Treaties between States and International Organizations and between International Organizations of 1986 WHI Walter Hallstein-Institut WTO World Trade Organization YEL Yearbook of European Law

Chapter 1

Introduction

1.1  S  etting the Scene: Responsibility of the EU and the Member States Under EU IIPAs The responsibility of the European Union (EU) and its Member States for breaches of International Investment Protection Agreements to which the EU is a party (EU IIPAs) is a highly topical and, to a large degree, unexplored subject. This is due to recent developments: The entry into force of the Lisbon Treaty in 2009 that shifted treaty-making competences for IIPAs to the EU, the imminent conclusion of the first post-Lisbon EU IIPAs and the adoption of internal EU legislation, which deals both with the management of disputes under EU IIPAs and the internal allocation of financial responsibility flowing from these disputes between the EU and its Member States. The subject is further of significant importance to its stakeholders: Arbitral awards and settlements arising out of disputes under EU IIPAs can and most certainly will, as experience has shown, churn out tremendous sums payable to aggrieved investors. Financial responsibility arising from these disputes can cut into the budgets of both the EU and the Member States depending on who is responsible; financial responsibility of the EU is practically shared by all Member States. A clear, fair and balanced delineation of responsibility between the EU and the Member States for breaches of EU IIPAs is, hence, crucial for a successful post-­ Lisbon EU international investment policy.

© Springer Nature Switzerland AG 2019 P. T. Stegmann, Responsibility of the EU and the Member States under EU International Investment Protection Agreements, European Yearbook of International Economic Law 6, https://doi.org/10.1007/978-3-030-04366-7_1

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1.1.1  The Concept of IIPAs and ISDS: Abridged IIPAs are international treaties concluded usually between two or more contracting states. They aim at protecting investments made in the jurisdiction of a contracting state (host state) by foreign investors, which are nationals of another contracting state (home state), against adverse and unduly conduct of the host state. To this end, IIPAs stipulate protection standards addressed at the host state. For example, the host state shall not expropriate foreign investors without compensation, shall not discriminate them against domestic or other foreign investors and shall afford protection and security and fair and equitable treatment. In case of a breach, IIPAs predominantly provide for compensation to be paid by the host state to the aggrieved investor. The contracting parties under IIPAs do not only assume obligations towards each other but also towards eligible investors of the contracting parties, which— though not parties to the treaty—obtain direct substantive rights under the IIPAs. In order to vindicating these rights, investors do not have to rely on diplomatic protection and the willingness of their home state to pursue their claims. Rather, IIPAs give investors procedural standing so that they can directly enforce their substantive rights against the host state by means of international arbitration proceedings. This enforcement mechanism is called investor-to-state dispute settlement, or just ‘ISDS’, a term which must be coined differently in the event the EU is at the respondent end, i.e. ‘IEUDS’. ISDS or IEUDS is made possible by the arbitration clause contained in IIPAs, whereby the contracting parties waive their right to immunity from jurisdiction vis-à-vis eligible investors and agree to submit future disputes to arbitration. The jurisdiction of Arbitral Tribunals derives from the arbitration clause, which vests them with the competence to decide all matters related to their own jurisdiction (so-called Kompetenz-Kompetenz). Importantly, the substantive and procedural obligations kick in once a foreign investment is admitted and established. IIPAs cover the post-establishment phase. They may come in the form of stand-alone bilateral or multilateral IIPAs, international investment agreements that additionally cover the admission and establishment of foreign investment or they may be part of broader free trade agreements (FTAs) with an investment protection chapter.

1.1.2  The Emergence of EU IIPAs The multilateral Energy Charter Treaty (ECT), concluded in 1998 by the European Communities (EC), the Member States and several extra-EU States, is to date the only IIPA to which the EU is a contracting party. Until 2009, the conclusion of IIPAs was under Member State competence. This explains the large web of BITs that Member States concluded with third states. As the ECT combines an investment protection chapter with rights and obligations concerning the admission and establishment of foreign investment, which was under the competence of the EU,

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the ECT had to be concluded as a mixed agreement. The Lisbon Treaty marks a turning point. With its entry into force in 2009, the EU gained exclusive competence for Foreign Direct Investment (FDI) as part of its Common Commercial Policy (CCP). Whether IIPAs are fully covered by the EU’s newly gained competence, and thus, whether IIPAs can be concluded by the EU alone or whether they have to be concluded together with its Member States, is subject of much debate and controversial. In Opinion 2/15, however, the Court of Justice of the European Union (CJEU) ruled that the investment protection chapter and the ISDS provisions of the former EU-Singapore FTA do fall under exclusive competence of the EU with respect to FDI but fall under shared competence when it comes to non-direct investments.1 The CJEU decision can be seen as a signal that the participation of the Member States alongside the EU in the conclusion of benchmark IIPAs with third countries that cover all forms of investment will be the norm in future treaty-­making. As a result, in April 2018 the EU-Singapore FTA was split into two separate agreements, one on trade and one on investment, allowing the trade agreement to go forward without the Member States’ participation in the ratification procedure. In the same vein, the investment chapter of the EU-Vietnam FTA will also become a stand-alone IIPA concluded by the EU and its Member States. By now, several post-Lisbon EU IIPAs have emerged. The Comprehensive Economic and Trade Agreement with Canada (CETA) and the EU-Singapore IIPA have surpassed the negotiation stage and entered the ratification processes. The EU-Vietnam IIPA awaits signature and ratification.2 The fate of the Transatlantic Trade and Investment Partnership with the US (TTIP) is, with the new US administration that entered the White House in 2016, more uncertain than ever. Whether the other post-Lisbon EU IIPAs, just mentioned, will eventually enter into force is far from certain too—pending ratification in the Member States. However, they all have publicly accessible draft versions; with the exception of TTIP these versions are final. Most importantly, they will likely serve as the blueprint for post-Lisbon EU IIPAs. Subject to this study are the latest draft versions of CETA, the EU-Vietnam FTA, the EU-Singapore IIPA and TTIP.3 It should be noted that these EU IIPAs contain

 Opinion 2/15 EU-Singapore Free Trade Agreement (16 May 2017), para. 305.  As the text of the EU-Vietnam IIPA is not yet available, this study will focus on the investment chapter of the EU-Vietnam FTA. The provisions will likely be the same. 3  CETA is subject to this study in its September 2016 version. It is available at: http://data.consilium.europa.eu/doc/document/ST-10973-2016-INIT/en/pdf. Accessed 26 August 2018. The EU-Singapore IIPA is subject to this study in its April 2018 version. It is available at: http:// trade.ec.europa.eu/doclib/press/index.cfm?id=961. Accessed 26 August 2018. The Investment Chapter of the EU-Vietnam FTA is subject to this study in its January 2016 version. It is available at: http://trade.ec.europa.eu/doclib/press/index.cfm?id=1437. Accessed 26 August 2018. The Investment Chapter of TTIP is subject to this study in its November 2015 version. It is available at: http://trade.ec.europa.eu/doclib/docs/2015/november/tradoc_153955.pdf. Accessed 26 August 2018. 1 2

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changes to the traditional system of ISDS.4 Most notably, these EU IIPAs establish a permanent and institutionalised Dispute Settlement Tribunal, which will be appointed by the contracting parties in advance. When a dispute arises, it is no longer the investor and the respondent appointing arbitrators of their liking. Furthermore, these EU IIPAs establish an Appellate Tribunal comparable to Appeal Courts in domestic legal systems that may look at errors in law and in fact allegedly made by the Dispute Settlement Tribunal. It is beyond the scope of this study to analyse all the facets of this newly and recently introduced system and all its deviations to the traditional ISDS system. However, the features of the new system are addressed whenever it is appropriate for this study. More importantly the Dispute Settlement Tribunals competent under these post-Lisbon EU IIPAs remain to be called ‘Arbitral Tribunals’ throughout this study. It is submitted that most of the core features of arbitration and ISDS remain intact under post-Lisbon EU IIPAs. To name a few, dispute settlement remains conditional upon an agreement by the investor claimant and the respondent. The disputing parties remain free to agree to the rules conducting the dispute and are free to agree to the procedural outfit applicable to the dispute settlement procedure. Most importantly, verdicts of the Dispute Settlement Tribunals continue to be considered arbitral awards in the sense of the International Centre for the Settlement of Investment Disputes (ICSID) Convention and the New  York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 (New York Convention).

1.1.3  With Power Comes Responsibility As the EU has gained competence to conclude EU IIPAs, it necessarily enters the realm of international responsibility for breaches of these treaties. For almost 20 years the EU has not yet faced a single claim by an investor under the ECT, the only EU IIPA to date to which it is a party. However, as investors can sue the EU under the ECT and as the number of post-Lisbon EU IIPAs will mushroom in the future and eventually replace the existing Member State extra-EU BITs, the question of international responsibility of the EU and its Member States is pre-eminent. The issue of international responsibility of the EU and its Member States has been subject of debate and controversy for a long time. The difficulties surrounding the topic can be ascribed, for one, to the unique power-sharing arrangements set forth in the EU Treaties that divide treaty-making as well as regulatory competences between the EU and the Member States. On the other hand, the fact that the Member States regularly implement EU law—leaving sometimes more and sometimes less leeway to the Member States—causes complications when looking for the author of the breach of an international obligation. The debate and controversy has played out in

4  See for an overview, European Commission (2017) A Multilateral Investment Court. http://trade. ec.europa.eu/doclib/docs/2017/september/tradoc_156042.pdf. Accessed 26 August 2018.

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doctrine and in international adjudication under the treaties of the World Trade Organization (WTO) and the European Convention of Human Rights (ECHR), and it still causes headaches. In the meantime, the United Nations’ International Law Commission (ILC) has issued, arguably, the most authoritative legal document on that subject yet: the ILC Articles on the Responsibility of States for Internationally Wrongful Acts of 2001, with Commentaries (ARS and ARS Commentary),5 and the ILC Articles on the Responsibility of International Organizations of 2011, with Commentaries (ARIO and ARIO Commentary).6 Though the ARS are applicable to states and, thus, to the Member States of the EU, the drafting history and final conception of the ARIO indicates that the EU has less in common with classical international organisations that the drafters of the ARIO had in mind when writing these rules.

1.1.4  The Dawn of a New Responsibility Regime The EU has taken it in its own hands to create and shape a special responsibility framework applicable to EU IIPAs. In 2010, the Commission published a Communication regarding the EU’s international investment policy. It wrote that ‘[i]n line with the Commission’s aim to develop an international investment policy at EU level, the issue of the international responsibility between the EU and the Member States in EU investment agreements needs to be addressed [emphasis added]’, and ‘in developing its new international investment policy, the Commission will address this issue, and in particular that of financial compensation, relying on available instruments, including, possibly, new legislation [emphasis added].’7 The EU soon addressed the issue of international responsibility and internal financial compensation. On 23 July 2014 it finally adopted Regulation 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 (REG).8 The Commission proposed a first version of the

5  ILC Articles on Responsibility of States for Internationally Wrongful Acts, with Commentaries, in ILC Report of the 53rd session (2001), UN Doc A/56/10 (2001). 6  ILC, Articles on the Responsibility of International Organizations, with Commentaries, in ILC Report of the 63rd session (2011), UN Doc A/66/10 (2011). 7  Communication from the Commission to the Council, the European Parliament, the European Economic and Social Committee and the Committee of the Regions, Towards a comprehensive European international investment policy, Brussels 7 July 2010, COM (2010) 343, p. 10. 8  Regulation (EU) No 912/2014 of the European Parliament and of the Council of 23 July 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 [2014] OJ L 257, p. 121.

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REG on June 21, 2012 (Proposal REG).9 The European Parliament amended the REG and adopted it on April 16, 2014, followed by the Council on July 23, 2014. Finally, on September 17, 2014 the REG entered into force. As to its scope and subject matter, the REG applies to ISDS disputes under IIPAs to which the EU is a party, which will include post-Lisbon EU-IIPAs in EU-only and mixed form as well as the pre-Lisbon ECT. The REG deals with the allocation of financial responsibility arising out of ISDS proceedings, namely arbitral awards and settlements. The allocation is internal between the EU and the Member States and is to be strictly distinguished from international responsibility. The Explanatory Memorandum to the Proposal REG (Explanatory Memorandum to the REG) underscores this distinction.10 Contrary to what the name of the REG suggests, the REG also covers external aspects related to ISDS disputes. In this regard, it governs whether the EU or a Member State shall act as respondent in an ISDS dispute. It further stipulates conditions under which the EU may and must settle a dispute with an investor and who has to pay the investor in the end. The REG is a piece of secondary EU law and not part of the applicable law in disputes both under the ECT and post-Lisbon EU IIPAs. The question arises: How do the external aspects of the REG gain effect under international law and in ISDS disputes under a given EU IIPA? The question of respondent status, i.e. whether a respondent can be a respondent and whether a respondent is the correct one, is typically determined by the arbitration clause and the law of international responsibility. A respondent in an arbitral dispute is free to enter into a settlement with an investor; a respondent does neither have to obtain anyone’s approval nor can it be compelled to entering into one. In a similar vein, it is only the respondent that has payment obligations towards an investor under international law. Thus, for the external aspects of the REG to gain effect in ISDS proceedings, EU IIPAs require a specific drafting and modelling. To this end, CETA,11 the EU-Singapore IIPA,12 the EU-Vietnam FTA13 and TTIP14 provide for a ‘mandatory respondent determination mechanism’ that docks into the REG and thereby renders its provisions on respondent status effective under international law. Such modelling of post-Lisbon EU IIPAs represents a novel approach of proceduralising and internalising responsibility issues. This study goes even one step further and asserts that the determination

9  Proposal for a Regulation of the European Parliament and of the Council establishing a framework for managing financial responsibility linked to investor-state dispute settlement tribunals established by international agreements to which the European Union is party, Brussels, 21 June 2012, COM (2012) 335. 10  Explanatory Memorandum to the Proposal for a Regulation establishing a framework for managing financial responsibility linked to investor-state dispute settlement tribunals established by international agreements to which the European Union is party, Brussels, 21 June 2012, COM (2012) 335, p. 5. 11  See Article 8.21 CETA. 12  See Article 3.5 EU-Singapore IIPA. 13  See Article 6 Section 3 Investment Chapter EU-Vietnam FTA. 14  See Article 5 Section 3 Investment Chapter TTIP.

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of the respondent under the determination mechanism of post-Lisbon EU IIPAs has a constitutive effect on the international responsibility of the determined respondent: The determined respondent—being either the EU or a Member State—is internationally responsible for the conduct brought by the investor within the ‘EU-Member State responsibility window’.15 The ECT does not have a system that docks into the REG and provides for a binding respondent determination mechanism. Interestingly, however, a Statement made by the EC on 17 November 1997 and submitted to the ECT Secretariat (ECT Statement)16 offers investors a procedural avenue to ask the EU and the Member States for the determination of the proper respondent in case of an alleged breach of the ECT. In 2016, a proposal was made to replace the ECT Statement with a revised version (Proposal Revised ECT Statement).17 It states that the EC—not to much surprise—is now replaced by the EU18 and mentions the adoption of the REG and its application to extra-EU disputes under the ECT. It further explains how the provisions on respondent status function.19 A crucial difference to the ECT Statement is that the Proposal Revised ECT Statement shall also be signed, and thus adopted, by the Member States. The Proposal Revised ECT Statement has not been sent to the ECT Secretariat yet. It even seems now rather unlikely that it ever will—due to either insufficient Member State support or the realisation that for the REG to fully gain force in an international investment dispute, the EU IIPA must provide welcoming provisions to that effect (which is not the case in the ECT). Be that as it may, the mechanism enshrined in both ECT Statements demonstrates that the external  For a description of the term ‘EU-Member State responsibility window’ and a definition of the scope of the constitutive effect on international responsibility, see Sect. 4.3.2. The term is inspired by the term ‘responsibility window’ coined by Pieter Jan Kuijper in the context of the EU and the Member States in Pieter Jan Kuijper (2010) International Responsibility for EU Mixed Agreements. In: Christophe Hillion and Panos Koutrakos (eds.) Mixed Agreements Revisited – The EU and its Member States in the World. Hart Publishing, p. 224. 16  Statement submitted by the EC to the Secretariat of the Energy Charter pursuant to Article 26(3) (b)(ii) of the Energy Charter Treaty made on 17 November 1997 [1998] OJ L 69, p. 115. The relevant part of the ECT Statement reads: ‘[…] The European Communities are a regional economic integration organisation within the meaning of the Energy Charter Treaty. The Communities exercise the competences conferred on them by their member states through autonomous decisionmaking and judicial institutions. The European Communities and their member states have both concluded the Energy Charter Treaty and are thus internationally responsible for the fulfilment of the obligations contained therein, in accordance with their respective competences. The Communities and the member states will, if necessary, determine among them who is the respondent party to arbitration proceedings initiated by an Investor of another Contracting Party. In such case, upon the request of the Investor, the Communities and the member states concerned will make such determination within a period of 30 days. [Footnote:] This is without prejudice to the right of the investor to initiate proceedings against both the Communities and their member states […]’. 17  Proposal for a Statement submitted to the Secretariat of the ECT pursuant to Article 26(3)(b)(ii) ECT replacing the Statement made on 17 November 1997 on behalf of the EC. For the Proposal text, see https://www.parlament.gv.at/PAKT/EU/XXV/EU/09/88/EU_98816/imfname_10619760. pdf. Accessed 26 August 2018. 18  See para. 1 Proposal Revised ECT Statement. 19  See paras. 3, 4 Proposal Revised ECT Statement. 15

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aspects of the REG, such as who acts as respondent, can gain relevance and may even apply in disputes under the ECT. Provided of course, an ECT investor wishes to go down that route.

1.2  Aim and Structure of This Study The aim of this study is to identify how the EU and its Member States bear international responsibility under EU IIPAs vis-à-vis investors and how they bear internal financial responsibility under the REG towards each other. Is there a common thread? Does the law of international responsibility, as epitomised by the ILC Articles and international case law, capture the complexities and complications of executive federalism under EU law? What are the idiosyncrasies of international responsibility under EU IIPAs as opposed to let’s say, under the WTO or ECHR frameworks? The study further focuses on the functioning of the framework of the REG and whether it is a viable approach to governing responsibility issues under EU IIPAs. This pertains to the external system of proceduralisation of responsibility under EU IIPAs that requires a close-knit interplay between the EU IIPA and the rules on respondent status of the REG and to the internal system of financial allocation and redress. What are the challenges for the Commission and the CJEU in applying the REG and where do they lie for Arbitral Tribunals that apply EU IIPAs? The study aims at illuminating both the advantages and the shortfalls of the system created by the REG and how it can and should be improved. As regards structure, in Chap. 2 it is discussed as a preliminary question whether and if so, to what extent the EU and the Member States assume international obligations under EU IIPAs. To this end, this chapter looks at the division of treaty-making competences between the EU and the Member States with respect to IIPAs before the Lisbon Treaty and after the Lisbon Treaty. Under mixed IIPAs, the question arises whether the EU and the Member States are only internationally bound to the extent of their competences. If so, what are the conditions for that? Can the treaty parties contractually provide for such delimitation along competence lines? What is the state of affairs under the ECT and post-Lisbon mixed IIPAs? Chapter 3 analyses the criteria according to which the EU and the Member States bear international responsibility for breaches of EU IIPAs under the ILC Articles and international case law. International responsibility implies a breach of international law, and a breach implies a conduct, i.e. an action or an omission, which has led to the breach. Member State conduct might breach international law, so can EU conduct. Therefore, the question of attribution of conduct to the EU and the Member States becomes relevant. Which criteria drive attribution? The ILC Articles stipulate general rules on international responsibility and further provide for the possibility of a lex specialis to govern international responsibility. Can the division of competences as derives from the EU Treaties serve as a lex specialis? Regarding mixed EU IIPAs, is there a lex specialis rule positing a rule of joint responsibility? Finally, can

1.2 Aim and Structure of This Study

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an analogy be drawn to federal states for purposes of international responsibility of the EU under EU-only IIPAs? After having set out the framework governing international responsibility for breaches of EU IIPAs, Chap. 4 is dedicated to examining another special framework that sets itself apart from and, if applicable, supersedes the framework discussed in Chap. 3. It is the approach of proceduralisation and internalisation of international responsibility under post-Lisbon mixed IIPAs, worded after CETA.  Under this approach, a procedure kicks in where the EU determines the respondent to the dispute. The outcome is binding on the parties and the Tribunal. It is this procedural set-up and modelling of post-Lisbon mixed IIPAs that breathes life into the REG on the international plane. As this study argues, the determination of the respondent affects the international responsibility of the respondent. Chapter 4 analyses the driving forces for this new approach to international responsibility. The chapter continues addressing how the system functions externally in a dispute under a mixed IIPA, and whether and if yes, to what extent the system works under the ECT. Chapter 4 further examines the criteria and functioning of the respondent determination under the REG and how the REG deals with settlement rights and payment obligations. Then, by interpreting the wording, purpose and objective of the respondent determination mechanism under post-Lisbon mixed IIPAs, namely under CETA, the chapter argues for the constitutive effect of the respondent determination on the international responsibility of the determined respondent. Throughout the chapter, comparisons will be drawn to another new form of proceduralisation under mixed agreements: the ‘co-respondent mechanism’ under the envisioned mixed ECHR framework. In the end, Chap. 4 finishes with an excursus into whether, and if so, how proceduralisation as provided under the REG and reflected under post-Lisbon EU IIPAs is possible under EU-only IIPAs. The question is more than warranted given that Member States a priori neither agree to dispute settlement nor assume international obligations under EU-only IIPAs. Chapter 5 analyses the allocation of internal financial responsibility between the EU and the Member States under the REG. It explores the justifications for an internal allocation system and how it is different from a system of liability, appeal or review. The chapter examines the allocation criteria under the REG and how the REG addresses the scenarios where Member States implement EU law and thereby cause a financial burden. The chapter continues discussing the binding effect of awards and settlements on the internal allocation of financial responsibility. Specifically, does the question of illegality of treatment as found in an award or settlement have any relevance for the internal allocation? It follows a discussion on how under the REG a financial burden could and should be shared by the EU and the Member States when both are responsible for it. As a similar system to the REG exists in the federal state of Germany that allocates financial responsibility arising out of international law verdicts between the central state (Bund) and its constituent subdivisions (together Länder and separately Land), the study will venture into a comparative analysis. Finally, the chapter discusses the functioning of the reimbursement mechanism under the REG and how it should be improved.

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Chapter 6, finally, discusses three specific problems caused by the interrelation between the application of EU IIPAs by Arbitral Tribunals and the disputing parties (in a settlement) and the application of the REG by the Commission and the CJEU. The chapter first discusses the dilemma of not being able to reconcile smooth arbitration proceedings with an effective legal protection before the CJEU against the Commission decision on respondent status pursuant to the REG. Second, this chapter addresses the risk that Arbitral Tribunals might be influenced in their own assessment on the merits by the application of the REG by the Commission. The third problem concerns the question whether the Commission and the CJEU, when allocating financial responsibility arising out of an award or a settlement, should look into the factual matrix underlying the arbitral case in order to find out which treatment is in breach of the EU IIPA where awards or settlements are unclear or silent on that issue.

Chapter 2

International Obligations of the EU and the Member States Under EU IIPAs

This chapter seeks to set out the incumbency of the international obligations under mixed and EU-only IIPAs. This issue is ultimately important for the international responsibility of the EU and the Member States: Being bound by an international obligation is a constituent element of international responsibility to arise. As Article 1 ARS and Article 3 ARIO make clear, international responsibility of a state or an international organisation requires an internationally wrongful act. Pursuant to Article 4(b) ARIO an internationally wrongful act of an international organisation consists of conduct attributable to an international organisation and ‘in breach of an obligation of that international organization’.1 Article 2(b) ARS equally requires a ‘breach of an international obligation of the state’. Thus, without the existence of an international obligation incumbent upon either the EU or a Member State there is, generally, no case for international responsibility for either one. The ARS and the ARIO understand treaty obligations as one form of international obligations that can be incumbent upon international organisations and states.2 In the same vein, the International Court of Justice (ICJ) noted in its advisory opinion on the Interpretation of the Agreement of 25 March 1951 between the

1  Pieter Jan Kuijper and Esa Paasivirta (2005) Does one size fit all?: The European Community and the responsibility of international organizations. 36(1) NYIntlL, p.  184; Mirka Möldner (2012) Responsibility of International Organizations  – Introducing the ILC’s DARIO. 16 MPUNYB, p. 295; ARIO Commentary, pre-Article 6: ‘According to article 4 of the present articles, attribution of conduct under international law to an international organization is one condition for an international wrongful act of that international organization to arise, the other condition being that the same conduct constitutes a breach of an obligation that exists under international law for the international organization [emphasis added]’. 2  ARS Commentary, Article 2, para. 7: ‘The terminology of breach of an international obligation of the State is long established and is used to cover both treaty and non-treaty obligations’; ARIO Commentary, Article 4, para. 2: ‘The obligation may result either from a treaty binding the international organization or from any other source of international law applicable to the organization’.

© Springer Nature Switzerland AG 2019 P. T. Stegmann, Responsibility of the EU and the Member States under EU International Investment Protection Agreements, European Yearbook of International Economic Law 6, https://doi.org/10.1007/978-3-030-04366-7_2

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WHO and Egypt that international organisations ‘are bound by any obligations incumbent upon them under general rules of international law, under their constitutions or under international agreements to which they are parties [emphasis added]’.3 The ARS and ARIO, however, do no tackle the question of incumbency of obligations under treaties. This is the realm of the Vienna Convention on the Law of Treaties of 1969 (VCLT),4 and the Vienna Convention on the Law of Treaties between States and International Organizations and between International Organizations of 1986 (VCLT-IO).5 The VCLT is recognised as mirroring customary international law.6 The VCLT-IO is not in force. It requires pursuant to Article 86 VCLT-IO the consent of 35 states, which it has not yet obtained. However, as it is verbatim to the VCLT, as international organisations are in a similar situation as states when it comes to the conclusion and implementation of treaties and because there is no other source governing treaty law with respect to international organisations, one can at least seek guidance from it in addition to the VCLT.7 The main avenue for assuming international obligations under treaties is their conclusion by signing and ratifying them. The first part of this chapter will briefly explain the EU’s and the Member States’ capacity to enter into IIPAs and to hold rights and obligations under them (Sect. 2.1). As the question of whether and why IIPAs are mixed or EU-only depends upon the division of treaty-making competences between the EU and the Member States with respect to the subject matter of IIPAs, the second part will, in a next step, briefly set out the division of competences regarding IIPAs pre- and post-Lisbon (Sect. 2.2). The third part will tackle the question of who is bound under mixed and EU-only EU IIPAs under international law, and to what extent (Sect. 2.3).

2.1  C  apacity to Conclude IIPAs: The EU and the Member States as Subjects of International Law States are subjects of international law vested with international legal personality.8 This means that states have the capacity to hold rights and obligations under international law, that they can agree to international treaties that create such rights and 3  The Interpretation of the Agreement of 25 March 1951 between the WHO and Egypt, 1980 ICJ Reports, pp. 89–90, para. 37. 4  Vienna Convention on the Law of Treaties of 1969, 1155 UNTS 331. 5  Vienna Convention on the Law of Treaties between States and International Organizations and between International Organizations of 1986, UN Doc A/CONF.129/15. 6  Martin Björklund (2001) Responsibility in the EC for Mixed Agreements – Should Non-Member Parties Care? 70(3) NordicJIntlL, p. 389. 7  Eva Steinberger (2006) The WTO Treaty as a Mixed Agreement: Problems with the EC’s and the EC Member States’ Membership of the WTO. 17(4) EJIntlL, p. 843. 8  Malcolm N Shaw (2017) International Law, 8th edn. Cambridge University Press, pp. 155–157.

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obligations and that they can have locus standi in disputes before Courts and Tribunals constituted under international law.9 The EU succeeded the EC (Article 1(3) TEU). Just as its predecessor pursuant to Article 281 TEC, the EU has legal personality separate from those of its Member States, which is now encapsulated in Article 47 TEU.10 Such conferral extends to the international sphere due to the conferral of external competences laid down the EU Treaties. This means that the EU Treaties provide for the conditions of the EU to be a subject of international law and to have the capacity to not only legislate in the internal sphere, with binding force on the Member States, but to conclude international agreements in accordance with its treaty-making competences creating rights and obligations under international law for the EU. It is well established that international organisations—such as the EU—can have international legal personality with the legal capacity to enter into treaties. As confirmed by the ICJ in its opinion with respect to the UN, sovereignty is not required in order to hold legal personality on the international plane.11 International legal personality does not even require the explicit consent of all states.12 Article 6 VCLT-IO confirmed that by stating that international organisations have the capacity to enter into treaties to the extent that this is allowed according to their internal rules. The internal rules of the EU, as just mentioned, explicitly grant the EU such capacity. Moreover, the international legal personality of international organisations and their capacity to conclude treaties with international law effects is widely accepted.13 With respect to the EU, this is perfectly witnessed by the vast array of international treaties concluded by the EU.14

 Ibid.  Christian Tomuschat (2002) The International Responsibility of the European Union. In: Enzo Cannizzaro (ed.) The European Union as an Actor in International Relations. Kluwer Law International, p.  177; Gleider I Hernández (2013) Beyond the Control Paradigm? International Responsibility and the European Union. 15 CYELS, p. 648. 11  Reparation for Injuries Suffered in the Service of the United Nations, 1949 ICJ Reports 174. 12  Hernández, this chapter, fn. 10, p. 648. 13  Jan Klabbers (2015) An Introduction to International Organizations Law, 3rd edn. Cambridge University Press, pp. 267 et seq. 14  A list of international agreements concluded by the EU can be found at the European Commission Treaty Office Database: http://ec.europa.eu/world/agreements/default.home.do. Accessed 26 August 2018. 9

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2.2  C  ompetence to Conclude IIPAs: The EU’s and the Member States’ Treaty-Making Competence in the Field of Foreign Investment States, in general, have the unfettered, comprehensive competence to enter into any treaty with any content.15 This does not apply with respect to the Member States of the EU. The principle of conferral of powers enshrined in Article 4(1) and Article 5(1)(2) of the Treaty on European Union (TEU) says that the Member States relinquish to the EU their external competences to conclude treaties and their regulatory competences to legislate in the internal market in those competence fields or policy areas that the Member States have passed on to the EU. Articles 2–6 of the Treaty on the Functioning of the European Union (TFEU) lay down the division of competences between the EU and the Member States and enumerate the areas of exclusive EU and Member State competences and the areas of shared competences, which the EU has the prerogative to exercise (Article 2(1)(2) TFEU). The extent of external competence of the EU and the Member States with respect to the subject matter of a treaty also determines whether a treaty is under EU law to be concluded by a Member State alone, by the EU alone, or by the EU together with its Member States (Sect. 2.2.1). As briefly laid out in the introduction, IIPAs protect investments of investors of the home state against unduly measures of the host state and grants investors a direct right to seek relief before Arbitral Tribunals in case of violations of protections standards enshrined in the IIPAs. The subject matter of IIPAs is, thus, inextricably linked to the competence for Foreign Investment. So the question arises, whether the EU and/or the Member States have the competence to conclude IIPAs protecting Foreign Investment (Sect. 2.2.2).

 Some federal states, though, divide treaty-making competences between the central state and its constituent subdivisions, which may hinder the central state to enter into a particular treaty binding on the federal state as a whole that concerns competences held by the constituent subdivisions. See Robert Schütze (2014) Federalism and Foreign Affairs, Mixity as an (Inter)national Phenomenon. In: Foreign Affairs and the EU Constitution: Selected Essays. Cambridge University Press, pp. 175–208; Gleider I Hernández (2013) Federated entities in international law: disaggregating the federal state?. In: Duncan French (ed.) Statehood and Self-Determination: Reconciling Tradition and Modernity in International Law. Cambridge University Press, pp.  491–512; Hernández, this chapter, fn. 10, pp. 655–659.

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2.2.1  T  he Link Between Treaty-Making Competences Under EU Law and the Participation of the EU and the Member States in the Conclusion of a Treaty To clarify, a EU-only agreement is a treaty, to which the EU—by signing and ratifying the treaty—is a contracting party, and not the Member States. A Member State-­ only agreement is a treaty, to which a single or multiple or all of the Member States are contracting parties, and not the EU. A mixed agreement is one, to which both the EU and the Member States are contracting parties. Now, how does the division of treaty-making competences under EU law influence the participation of the EU and the Member State in the conclusion of a treaty? Simply, whenever the EU or Member States have the exclusive external competence for a treaty, each can conclude it alone under EU law.16 Yet, whenever the EU and the Member States share the competences to conclude a treaty because it falls under a shared competence or the treaty is made up of both EU and Member State exclusive competences, both must conclude it under EU law.17 Yet ‘mixity’ is not always the result of a sharing of competences regarding the subject matter of a treaty. To use a typology used by Rosas, one has to distinguish between agreements of ‘parallel mixity’ and ‘shared mixity’18; and there are also agreements of ‘false mixity’. Under agreements of ‘parallel mixity’ the EU and the Member States act parallel in a sense that both have the comprehensive competence to conclude the treaty alone.19 In other words, the subject matter of the agreement is fully absorbed by the competences of the EU and the Member States alike. The ECHR after the EU’s accession would be an example of an agreement of ‘parallel mixity’.20 Here, ‘mixity’ is not obligatory under EU law. It is up to each and every Member State and the EU to decide whether to conclude or accede to the treaty. This is the reason why only scenarios of ‘parallel mixity’ allow for ‘partial’ mixed agreements, where only some of the Member States are parties alongside the EU. Whenever a mixed agreement is concluded despite the EU having the exclusive competence for the entire subject matter, the agreement is of so-called ‘false mixity’ since the participation of the Member States as contracting parties has no legal substance.21 Here ‘mixity’ is only formal. The reasons for Member States insisting to conclude a treaty falling under comprehensive EU competence are manifold. Member States might want to  Piet Eeckhout (2011) EU External Relations Law. Oxford University Press, p. 214.  Ibid, p. 213. 18  Allan Rosas (1998) Mixed Union – Mixed Agreements. In: Martti Koskenniemi (ed.) International Law Aspects of the European Union. Kluwer Law International, pp. 128–133. 19  Mirka Möldner (2011) European Community and Union, Mixed Agreements. In: The Max Planck Encyclopedia of Public International Law. http://opil.ouplaw.com/abstract/10.1093/ law:epil/9780199231690/law-9780199231690-e628?rskey=xJ6L12&result=1&prd=EPIL. Accessed 26 August 2018, para. 7. 20  Ibid. 21  Möldner, this chapter, fn. 19, para. 12. 16 17

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retain their veto power for important international agreements, they might want to remain visible as international actors, and they may wish to participate in the negotiations in order to influence the content of the treaty.22 Agreements of ‘shared mixity’ are the classical mixed agreements. Here, neither the EU nor the Member States have the competence to conclude the whole agreement on their own. Rather, the conclusion of the agreement falls under shared competences or under exclusive competences of both the EU and the Member States.23 In both cases, the EU and the Member States have to conclude the treaty together as a mixed agreement under EU law. It is the sharing of treaty-making competence with respect to the subject matter of a treaty, which is important to determine whether ‘mixity’ is required under EU law, not the sharing of competence to implement the treaty or comply with its terms.24 As indicated above, one can differentiate between two types of agreements of ‘shared mixity’. On the one hand, the required competences of the EU and the Member States to conclude the agreement can be ‘coexistent’ or ‘exclusive’. Here, the EU and the Member States share the competences for the subject matter in the sense that only both exclusive competences taken together suffice to conclude the agreement. Both sets of competences complement each other. The agreement could be perfectly severed into two agreements: one, for which the EU has the exclusive competences and one, for which the Member States have the exclusive competences. Here, ‘mixity’ is obligatory under EU law and the EU and the Member States both have to participate in the conclusion of the agreement.25 The United Nations Convention on the Law of the Sea (UNCLOS)26 is an example of ‘shared’ mixity with ‘coexistent’ or ‘exclusive’ competences.27 On the other hand, the required competences of the EU and the Member States to conclude the agreement can be ‘concurrent’ or ‘shared’. Here, the competence for the subject matter of the treaty falls under shared competences set forth under the EU Treaties, as opposed to e.g. exclusive competences. The agreement cannot be severed into two separate parts.28 Here ‘mixity’ is facultative since the EU could use its prerogative of exercising its shared competence, and conclude the treaty alone. However, as  See Claus-Dieter Ehlermann (1983) Mixed Agreements – A List of Problems. In: (eds.) Mixed Agreements. Kluwer Law and Taxation Publishers, p.  6; Geert De Baere (2008) Constitutional Principles of EU External Relations. Oxford University Press, p. 234; Eeckhout, this chapter, fn. 16, p. 221. 23  Möldner, this chapter, fn. 19, para. 8. 24  Rosas, this chapter, fn. 18, p.  130; Opinion 1/75 Understanding on a Local Costs Standard [1975] ECR 1361, p. 1364; Opinion 2/91 ILO Convention No 170 [1993] ECR I-1061, para. 34. But see Schmalenbach in Christian Calliess and Matthias Ruffert (eds.) (2011) EUV/AEUV Kommentar, 4th edn. CH Beck, Article 216 TFEU, para. 5; Nanette A Neuwahl (1991) Joint participation in international treaties and the exercise of power by the EEC and its Member States: Mixed agreements. 28(4) CMLRev, pp. 732 et seq. 25  Thomas Eilmansberger (2009) Bilateral Investment Treaties and EU Law. 46(2) CMLRev, p. 392. 26  United Nations Convention on the Law of the Sea, 1833 UNTS 3. 27  Möldner, this chapter, fn. 19, para. 9. 28  Rosas, this chapter, fn. 18, p. 131. 22

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with ‘false’ mixed agreements, political reasons might hinder that exercise in practice. The separation of the EU-Singapore FTA and the EU-Vietnam FTA each in a trade and an investment agreement following Opinion 2/15 could be explained by that political dimension. In the end, there are often agreements of ‘shared mixity’ that combine ‘coexistent’ and ‘concurrent’ competences. Here, again ‘mixity’ can become compulsory under EU law. One should note that the categorisation of agreements of either ‘parallel mixity’, ‘shared mixity’ or ‘false mixity’ is a necessary distinction under EU law, as it shows when an agreement under EU law has to be concluded by the EU and the Member States together, or not. In the eyes of the other treaty parties, and under public international law, however, ‘mixity’ alone only signifies that the EU and the Member States are formal contracting parties to it. Whether they are bound under international law only in accordance with the division of competences and whether they jointly or severally assume obligations under it cannot be extracted out of the categorisation of the mixed agreement under EU law, unless it is made clear under the treaty. It is true that one could feel inclined to state that under agreements of ‘parallel mixity’, the EU and each Member State is a full contracting party to the agreement assuming fully and severally all rights and obligations under it: When the EU enjoys all-encompassing competences how can it affect the rights and obligations of the Member States under the treaty, and vice versa.29 One could have a different inclination with agreements of ‘shared mixity’: The sharing of competences for the subject matter implies a joint contracting party status and some division of rights and obligations along competence lines. Yet, as already stated, the question under international law, whether the EU and the Member States are bound under any form of mixed agreement, be it of ‘parallel mixity’, ‘shared mixity’ or ‘false mixity’, either fully and severally, or jointly or only in accordance with their competences, is controversial, depends on the outfit of the treaty’s terms and is discussed further below.

2.2.2  T  he Division of Competences Between the EU and the Member States with Respect to IIPAs Since the Treaty of Lisbon brought a major competence shift in the field of Foreign Investment in favour of the EU, the following discussion distinguishes between the division of competences regarding pre-Lisbon IIPAs and post-Lisbon IIPAs.

29

 In this regard, see Möldner, this chapter, fn. 19, para. 7.

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2.2.2.1  T  reaty-Making Competences Regarding Foreign Investment Before Lisbon: Member State BITs and the ECT as a Treaty of ‘Shared Mixity’ Before the entry into force of the Lisbon Treaty in 2009, the treaty-making competence for Foreign Investment was shared between the Member States and the EC. Essentially, the division of competences ran along the lines of admission and establishment of Foreign Investment on the one hand, which was under shared competence, and the post-establishment protection of Foreign Investment on the other, which was under exclusive Member State competence.30 Before the Lisbon Treaty, Foreign Investment was neither explicitly part of the CCP nor considered implicitly part of it by the ECJ.31 However, as part of the free movement of capital provisions in Articles 56(1)32 and 57(2) of the Treaty on the European Communities (TEC),33 the EC had a treaty-making competence for admission and establishment of Foreign Investment.34 Foreign investments were seen as a subcategory of capital movements.35 Although Articles 56–60 TEC conferred internal competences to adopt legislation in the internal market, these provisions did provide concomitant external competences to conclude treaties with third states due to the ‘AETR’-doctrine established by the ECJ.36 The doctrine stated that the EC’s treaty-making competence could not only be a consequence of ‘an express conferment by the Treaty […] but may equally flow from other provisions of the Treaty and from measures adopted, within the framework of those provisions, by the Community institutions’, provided the conclusion of an international agreement is necessary to achieve the objectives stated therein.37 Thus, the EC’s treaty-making competence could be based on implied competences. However, the EC’s competence for establishment and admission of Foreign Investment was not considered  Christian Tietje (2008) The Applicability of the Energy Charter Treaty in ICSID Arbitration of EU Nationals vs. EU Member States. 78 BTransnatlWR, pp. 14–15. 31  Opinion 1/94, WTO Agreement [1994] ECR I-5267; Opinion 2/92 OECD-National Treatment Instrument [1995] ECR I-521. 32  Article 56(1) EC reads: ‘Within the framework of the provisions set out in this Chapter, all restrictions on the movement of capital between Member States and between Member States and third countries shall be prohibited’. 33  Pursuant to Article 57(2) EC, the EC can ‘adopt the measures on the movement of capital to or from third countries involving direct investment – including investment in real estate – establishment, the provision of financial services or the admission of securities to capital markets’. 34  Joachim Karl (2004) The Competence for Foreign Direct Investment: New Powers for the European Union? 5(3) JWIT, pp. 414–415; Jan Asmus Bischoff (2011) Just a Little Bit of “Mixity”? The EU’s Role in the Field of International Investment Protection Law. 48(5) CMLRev, pp. 1535, 1536; Tietje, this chapter, fn. 30, p. 14; Christoph Herrmann and Judith Crämer (2015) Foreign Direct Investment - A “Coincidental” Competence of the EU. 43 HitoJLP, pp. 87–90; Eilmansberger, this chapter, fn. 25, p. 391. 35  See with references contained therein, Herrmann/Crämer, this chapter, fn. 34, p. 88. 36  Karl, this chapter, fn. 34, pp. 414–415; Bischoff, this chapter, fn. 34, p. 1535. 37  Case 22/70 Commission v Council (AETR) [1971] ECR 263, para. 16. 30

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exclusive, but shared.38 The EU made use of its shared competence and concluded alongside its Member States several FTAs and Association agreements with third states covering the admission and establishment of Foreign Investment. As opposed to the admission and establishment, the Member States were exclusively competent to conclude international agreements for the protection of Foreign Investment.39 The competence for regulating the post-establishment phase of foreign investments as well as the competence to conclude substantive treatment standards and the procedural guarantee to vindicate and enforce the protection rights—directly conferred upon the investors—before Arbitral Tribunals rested with the Member States.40 This is the reason why before the entry into force of the Lisbon Treaty the Member States concluded a large web of BITs with third states covering purely the protection of Foreign Investment. The EU alongside its Member States became party to the multilateral ECT, which also provides for post-establishment protection of foreign energy investments (Part III and V). Since the ECT’s subject  Opinion of AG Maduro, Case C-205/06 Commission v Austria [2009] ECR I-1301; Case C-249/06 Commission v Schweden [2009] ECR I-1335, paras. 27–28; see also Tietje, this chapter, fn. 30, p. 14; Eilmansberger, this chapter, fn. 25, pp. 389–390; Lorenza Mola (2008) Which role for the EU in the development of international investment law? 26/08 SIEL Online Proceedings Working Paper. http://ssrn.com/abstract=1154583. Accessed 26 August 2018, p. 15; Jan Ceyssens (2005) Towards a Common Foreign Investment Policy?  – Foreign Investment in the European Constitution. 32(3) LIEcoI, pp. 260–262; Philip Strik (2014) Shaping the Single European Market in the Field of Foreign Direct Investment. Hart Publishing, p. 78. 39  Eilmansberger, this chapter, fn. 25, p. 391; Tietje, this chapter, fn. 30, pp. 7, 14–15; Richard Happ and Jan Asmus Bischoff (2011) Role and Responsibility of the European Union under the Energy Charter Treaty. In: Graham Coop (ed.) Energy Dispute Resolution: Investment Protection, Transit and the Energy Charter Treaty. JurisNet, p.  167; Bischoff, this chapter, fn. 34, pp.  1535–1536; Karl, this chapter, fn. 34, pp. 416 et seq; Ceyssens, this chapter, fn. 38, pp. 260, 268; Mola, this chapter, fn. 38, pp. 14–16; Michael Waibel (2013) Competence Review: Trade and Investment. Paper for Balance of EU competences review: trade and investment conducted by the Department for Business, Innovation & Skills of the government of the United Kingdom. http://ssrn.com/ abstract=2507138. Accessed 26 August 2018, p.  14; Herrmann/Crämer, this chapter, fn. 34, pp. 87–90; Thomas Roe and Matthew Happold (2011) Settlement of Investment Disputes under the Energy Charter Treaty. Cambridge University Press, p.  89; Armand de Mestral (2010) The Lisbon Treaty and the Expansion of EU Competence over Foreign Direct Investment and the Implications for Investor-State Arbitration. In: Karl P Sauvant (ed.) Yearbook on International Investment Law and Policy 2009–2010. Oxford University Press, p.  372; Anca Radu (2008) Foreign Investors in the EU – Which ‘Best Treatment’? Interactions between Bilateral Investments Treaties and EU law. 14(2) ELJ, p. 240; P Strik, this chapter, fn. 38, p. 78. Advocating that investment protection before Lisbon fell under shared competence, Angelos Dimopoulos (2011) EU Foreign Investment Law. Oxford University Press, pp. 92–94, 108, 116–119, 256; Niklas Maydell (2007) The European Community’s Minimum Platform on Investment or the Trojan Horse of Investment Competence. In: August Reinisch and Christina Knahr (eds.) International Investment Law in Context. Eleven International Publishing, pp. 80 et seq; Wenhua Shan and Sheng Zhang (2010) The Treaty of Lisbon: Half Way toward a Common Investment Policy. 21(4) EJIntlL, p. 1050. 40  Cf. Mola, this chapter, fn. 38, p. 15: ‘[…] because the post-establishment phase within the EU, or in other terms, the operation, conduct and management of company, still relies upon the national treatment rule, then the EU law lacks internal harmonization and therefore, according to the Opinion 2/92 and 1/94 case law, external competence on post-establishment’. 38

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matter covers energy aspects (materials and products),41 which was, mostly,42 under Member State exclusive competence, trade of energy resources (Part II), which fell under exclusive competence of the EU, and in addition to post-establishment investment protection (Part III and V), which was under exclusive Member State competence the admission and establishment (market access) of foreign energy investments, which fell under shared competence, the ECT had to be concluded as a mixed agreement.43 Thus, to pick the typology made above, the ECT is of compulsory ‘shared mixity’, embedded in a system of ‘coexistent’ or ‘exclusive’ and ‘concurrent’ or ‘shared’ competences. 2.2.2.2  T  reaty-Making Competence Regarding Foreign Investment After Lisbon: EU-Only or ‘Shared Mixity’ as the Crossroads for Post-Lisbon IIPAs The Lisbon Treaty in 2009 marks the starting point for the EU international investment policy, which was, and still is, mainly driven and shaped by the Commission.44 With its entry into force the EU obtained the exclusive treaty-making competence for FDI. Pursuant to Article 3(1)(e) TFEU the EU has exclusive competence in the area of the CCP. FDI is pursuant to Article 207(1) TFEU part of the CCP, which not only covers the regulatory competences to legislate in the internal market but treaty-­ making competences. The issue of the exact scope of the EU’s exclusive competence regarding FDI and, specifically, in how far it covers IIPAs determines whether post-Lisbon IIPAs should—under EU law—be concluded by the EU alone or together with its Member States. The exact demarcation of competences after the Lisbon Treaty with respect to IIPAs is certainly not the focus of this dissertation; it is furthermore highly controversial and has been discussed elsewhere extensively.45 However, since the division of competences with respect to post-Lisbon IIPAs gives insight into the question whether the Member States should partake in their

 See Article 1(4) ECT and Annex EM of the ECT.  But see Articles 154, 155, 175(2)(c) TEC. 43  With respect to the legal basis upon which the EC and the Member States became parties to the ECT, and therefore with respect to the division of competences as regards the subject matter of the ECT see: Council Decision 94/998/EC [1994] OJ L 380 p.  1, and Council and Commission Decision 98/181/EC, ECSC, Euratom [1998] OJ L 69 p. 1. See also Happ/Bischoff, this chapter, fn. 39, pp. 166–167; Tietje, this chapter, fn. 30, pp. 7, 14–15; Graham Coop (2009) Energy Charter Treaty and the European Union: Is Conflict Inevitable? 27(3) JERL, pp. 405–406, 415–416. 44  On the EU’s international investment policy and the role of the Commission in it, see Johann Robert Basedow (2018) The EU in the Global Investment Regime – Commission Entrepreneurship, Incremental Institutional Change and Business Lethargy. Routledge. 45  Citing an abundant body of literature with respect to the debate about the scope of the EU’s competence for international investment protection post-Lisbon, August Reinisch (2014) The EU on the Investment Path  – Quo Vadis Europe? The Future of EU BITs and other Investment Agreements. 12(1) StClJIntlL, p. 115. 41 42

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conclusion affecting the question of apportionment of obligations, it is necessary to give a short overview on the current state of affairs. At the centre of the debate lies the wording ‘Foreign Direct Investment’ in Article 207(1) TFEU.46 The TFEU does not define the term FDI.  The Commission has accepted that the notion of FDI is narrower than ‘Foreign Investment’ and does not encompass foreign indirect investments, or so-called ‘Foreign Portfolio Investment’ (FPI).47 IIPAs generally do not differentiate between FDI and FPI. In fact, all contemporary benchmark IIPAs, and also CETA, TTIP, the EU-Vietnam FTA and the EU-Singapore IIPA, cover and protect FDI and FPI by recurring to a so-called asset-­ based definition of ‘Investment’, without differentiating between FDI and FPI.48 The difference between FDI and FPI is acknowledged by the Commission49 and was emphasised by the ECJ in 200650 and 2008.51 In the same vein, the German Federal Constitutional Court stated that FDI does not extend to FPI, and thus IIPAs covering would have to be concluded as mixed agreements.52  See on the wording in particular, Steffen Hindelang and Niklas Maydell (2011) The EU’s Common Investment Policy – Connecting the Dots. In: Marc Bungenberg, Jörn Griebel and Steffen Hindelang (eds.) European Yearbook of International Economic Law – International Investment Law and EU Law. Springer, pp. 12 et seq. 47  Communication from the EC and its Member States to the Working Group on the Relationship between Trade and Investment, 16 April 2002, WT/WGTI/W/115, paras. 7, 14–16. 48  CETA, TTIP, the EU-Vietnam FTA and the EU-Singapore IIPA retain a broad asset-based definition of investment comprising both FDI and FPI.  See e.g. Article 8.1 CETA; Article 1.2(1) EU-Singapore IIPA. With respect to the definition of investment in CETA, see Marc Bungenberg (2014) The Scope of Application of EU (Model) Investment Agreements. 15(3–4) JWIT, pp. 414–417. 49  Explanatory Memorandum to REG, p. 3; Communication from the Commission to the Council, the European Parliament, the European Economic and Social Committee and the Committee of the Regions, Towards a comprehensive European international investment policy, Brussels 7 July 2010, COM (2010) 343, p. 8. 50  Case C-446/04 Test Claimants in the FII Group Litigation [2006] ECR I-11573, paras. 181–182: ‘[…] the concept of direct investments concerns investments […] which serve to establish or maintain lasting and direct links between persons providing the capital and the undertakings to which that capital is made available in order to carry out an economic activity. As regards shareholdings in new or existing undertakings, as the explanatory notes confirm, the objective of establishing or maintaining lasting economic links presupposes that the shares held by the shareholder enable him, either pursuant to the provisions of the national laws relating to companies limited by shares or otherwise, to participate effectively in the management of that company or in its control’. 51  The CJEU has described the notion of ‘portfolio investment’ as ‘the acquisition of shares on the capital market solely with the intention of making a financial investment without any intention to influence the management and control of the undertaking’. See Joined Cases C-282/4 and C-283/04 Commission v The Netherlands [2008] ECR I-9141, para. 19. 52  See BVerfG, 2 BvE 2/08 et al (Lisbon Treaty), 30 June 2009, para. 379: ‘The extension of the common commercial policy to ‘foreign direct investment’ (Article 207(1) TFEU) confers exclusive competence on the European Union also in this area. Much, however, argues in favour of assuming that the term ‘foreign direct investment’ only encompasses investment, which serves to obtain a controlling interest in an enterprise […]. The consequence of this would be that exclusive competence only exists for investment of this type whereas investment protection agreements that go beyond this would have to be concluded as mixed agreement’. 46

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In essence, the difference between FDI and FPI runs along the lines of short-term versus long-term interests.53 The OECD described FDI as cross-border investment with the objective of establishing a lasting interest in an enterprise located in a foreign country.54 Such lasting interest comprises a long-term relationship and a significant influence and control on the management and operation of the enterprise.55 As a result, due to the clear semantic and substantive difference between FDI and FPI, there is force in the argument that Article 207(1) TFEU does not cover FPI. In spite of this lack of express external competence of the EU relating to FPI, the Commission argues that ‘the Union has exclusive competence to conclude agreements covering all matters relating to foreign investment, that is both foreign direct investment and portfolio investment [emphasis added].’56 The Commission relies on Articles 3(2), 216(1) TFEU—the codification of the ECJ’s ‘AETR’-doctrine—that would vest the EU with an implicit external competence to enter into IIPAs covering FPI.57 Article 3(2) TFEU provides that ‘the Union shall also have exclusive competence for the conclusion of an international agreement when its conclusion is provided for in a legislative act of the Union or is necessary to enable the Union to exercise its internal competence, or in so far as its conclusion may affect common rules or alter their scope.’ Specifically, so the argument goes, the EU must have exclusive competence also for matters of FPI since the rules being envisaged, i.e. the IIPA, which would apply indistinctly to FDI and FPI, may affect the common rules on capital movements as set down in Articles 63 TFEU et seq, which provides that the movement of capital between Member States of the EU and third states is to be free of restrictions.58 In response, one can argue, first, that it is more than questionable that the EU can regulate internally all aspects covered by IIPAs based on Articles 63 TFEU et seq. Second, the assumption of an implicit external ­competence  See for the view of the Commission and the CJEU on the difference between FDI and FPI: Communication from the Commission to the Council, the European Parliament, the European Economic and Social Committee and the Committee of the Regions, Towards a comprehensive European international investment policy, Brussels 7 July 2010, COM (2010) 343, pp. 2–3. 54  OECD (2008) Benchmark Definition of Foreign Direct Investment, 4th edn. https://www.oecd. org/daf/inv/investmentstatisticsandanalysis/40193734.pdf. Accessed 26 August 2018, p.  10; see also Working Group on the relationship between trade and investment, Communication from the EC and its Member States, 16 April 2002, WT/WGTI/W/115, para. 18. 55  Eileen Denza (2013) Responsibility of the European Union in the Context of Investment. In: Malcolm D Evans and Panos Koutrakos (eds.) The International Responsibility of the European Union. Hart Publishing, p. 226. 56  Explanatory Memorandum to REG, pp.  3–4; Communication from the Commission to the Council, the European Parliament, the European Economic and Social Committee and the Committee of the Regions, Towards a comprehensive European international investment policy, Brussels 7 July 2010, COM (2010) 343, pp. 8, 10. 57  Explanatory Memorandum to REG, pp.  3–4; Communication from the Commission to the Council, the European Parliament, the European Economic and Social Committee and the Committee of the Regions, Towards a comprehensive European international investment policy, Brussels 7 July 2010, COM (2010) 343, pp. 8, 10; for a good discussion whether this is viable and legally sound, see Hindelang/Maydell, this chapter, fn. 46, pp. 23–28. 58  Explanatory Memorandum to REG, p. 3. 53

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of the EU has been interpreted and applied very restrictively by the ECJ, which is not—given the principle of conferral (Article 5(2) TEU)—going to change under the broader Article 3(2) TFEU.59 The assumption of an implicit external competence is more or less a last resort to effectively protect regulatory competences of the EU, which already have been exercised and put to use.60 So even if one would assume the EU could regulate internally all aspects covered by IIAs based Articles 63 TFEU et seq, the EU never exercised this regulatory competence.61 But in the end, why should the new CCP competence encompass FPI even implicitly when only FDI is explicitly mentioned?62 Does that not rather speak for an explicit exclusion of FPI? Consequently, due to the intentional inclusion of FDI in lieu of ‘Foreign Investment’, there is some force in the argument that the treaty-making competence for EU IIPAs covering portfolio investment cannot be based on Articles 3(2), 216(1) TFEU and is, therefore, shared.63 Additional arguments are put forward to underpin the lack of comprehensive EU competence to conclude IIPAs alone, which are, however, not convincing. For example, it is argued that the exclusive competence for FDI is limited to aspects concerning the admission and establishment of investments and does not extend to post-establishment investment protection, which remains under shared control.64 This is because the CCP was construed traditionally and developed to reduce trade barriers, because the ECJ traditionally interpreted CCP restrictively—not covering Foreign Investment—and since the EC acted traditionally only in the field of admission and liberalisation of investment and not in the field of investment protection.65 What is more, Article 206 TFEU underscores the ‘progressive abolition of restrictions on international trade and on foreign direct investment’. Hence, typical substantive protection standards, such as the fair and equitable treatment (FET) standard, protection against expropriation without compensation and procedural guarantees, such as ISDS, would not be covered by EU’s exclusive competence on FDI. It is further argued that Article 345 TFEU, which states that the EU Treaties  Dörr in Eberhard Grabitz, Meinhard Hilf and Martin Nettesheim (eds.) (2017) Das Recht der Europäischen Union: EUV/AEUV, 63rd edn. CH Beck, Article 47 TEU, paras. 44–45. 60  Cf. Opinion 2/92 OECD-National Treatment Instrument [1995] ECR I-521, para. 32; Opinion 1/94 WTO Agreement [1994] ECR I-5267, paras. 86, 100; Case C-476/98, Commission v Germany (Open Skies) [2002] ECR I-9855, paras. 82–89; Case C-266/03 Commission v Luxembourg [2005] ECR I-4805, paras. 40–45; Opinion 1/03, Lugano Convention [2006] ECR I-1145, paras. 117–128. 61  Jan Asmus Bischoff (2014) Initial Hiccups or More? About the Efforts of the EU to Find its Future Role in International Investment Law. 11(1) TDM, p. 7. 62  Reinisch, this chapter, fn. 45, p. 140. 63  In the same direction, Dimopoulos, this chapter, fn. 39, pp. 104–105; Bischoff, this chapter, fn. 34, p.  1545; Marc Bungenberg (2011) The Division of Competences between the EU and Its Member States in the Area of Investment Politics. In: Marc Bungenberg, Jörn Griebel and Steffen Hindelang (eds.) European Yearbook of International Economic Law – International Investment Law and EU Law. Springer, pp. 40–42; Hindelang/Maydell, this chapter, fn. 46, p. 13. 64  Bungenberg, this chapter, fn. 63, p. 29. 65  See Reinisch, this chapter, fn. 45, p. 117. 59

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shall in no way prejudice the rules of Member States governing the system of property ownership, limits the competence of the EU to regulate expropriations.66 This argument ignores that IIPAs do not prohibit expropriations per se but only stipulate conditions for their legality and impose compensation as a consequence. Additionally, the lack of comprehensive EU regulatory competences to implement IIPAs is put forward as a limit to the EU’s exclusive competence with respect to Foreign Investment.67 This argument ignores Article 216(2) TFEU, which makes EU international agreements binding for the Member States under EU law. At last, it is brought forward that Article 207(6) TFEU would limit the EU exclusive competence since it restricts external competences where the exercise of it would lead to a harmonisation in fields that are excluded from harmonisation such as tax, education, culture, tourism etc.68 The broad protection standards under EU IIPAs in combination with the possibility of Arbitral Tribunals to issue injunctive relief, so it is argued, could lead to the repeal of national laws in fields of exclusive Member State competence.69 This risk is countered by the fact that remedies under post-­ Lisbon EU IIPAs are limited to monetary compensation and generally exclude restitution and specific performance.70 As a result, it can be said that there are good reasons that future post-Lisbon EU IIPAs have to be mixed since the EU does not have the comprehensive exclusive competence to conclude contemporary benchmark IIPAs alone. The main reason for this lies in the fact that the EU has only shared competence with respect to FPI.71 This view is supported by Opinion 2/15 of the CJEU on the division of competences regarding the former EU-Singapore FTA, which contained an investment protection chapter and an ISDS mechanism. The CJEU ruled that the FTA falls within the exclusive competence of the EU with the exception of the rules on ‘Investment Protection’ and ‘Dispute Settlement’ that relate to non-direct investment: These

 Bischoff, this chapter, fn. 34, pp. 1543–1544.  See Angelos Dimopoulos (2012) Creating an EU Investment Policy: Challenges for the PostLisbon Era of External Relations. In: Paul James Cardwell (ed.) EU External Relations Law and Policy in the Post-Lisbon Era. Asser Press, p.  408; Christian Tietje (2009) Die Außenwirtschaftsverfassung der EU nach dem Vertrag von Lissabon. 83 BTransnatlWR, p. 17. 68  Bischoff, this chapter, fn. 34, pp.  1541–1543; Wolfgang Weiß (2013) Common Commercial Policy in the European Constitutional Area: EU External Trade Competence and the Lisbon Decision of the German Federal Constitutional Court. In: Marc Bungenberg and Christoph Herrmann (eds.) Common Commercial Policy after Lisbon. Springer, pp. 34–36. 69  See Christian Tietje, Emily Sipiorski and Grit Töpfer (2013) Responsibility in Investor-StateArbitration in the EU: Managing Financial Responsibility Linked to Investor-State Dispute Settlement Tribunals Established under EU’s International Investment Agreements. 10(2) TDM, pp. 16–17. 70  See Article 8.39 CETA, Article 3.18 EU-Singapore IIPA, Article 28 Section 3 Investment Chapter TTIP and Article 27 Section 3 Investment Chapter EU-Vietnam FTA. Under these rules the remedy of restitution of property is also possible, but only provided that the Tribunal offers the respondent to pay compensation instead of restitution of property. 71  Bischoff, this chapter, fn. 34, p. 1534; Tietje, this chapter, fn. 67, pp. 16–17; Eilmansberger, this chapter, fn. 25, pp. 394–396; Shan/Zhang, this chapter, fn. 39, pp. 1059, 1064. 66 67

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rules would fall under shared competence of the EU and the Member States.72 Hence, it is likely that future mixed IIPAs will presumably be ones of ‘shared mixity’, concluded by the EU and the Member States together and building on exclusive competences of the EU and shared competences of the EU and the Member States. Furthermore, the fact that broad FTAs with an investment chapter might contain aspects that fall under exclusive Member State competence may again require the participation of the Member States in the conclusion of the treaty.73 Is there a prospect for EU-only IIPAs? Yes, but only in theory. Arguably, ‘mixity’ is optional in cases of ‘shared mixity’. The EU could exercise its shared competences with respect to FPI and dispute settlement and conclude post-Lisbon EU IIPAs without the participation of the Member States.74 The CJEU, in Opinion 2/15, however, appears to reject that approach.75 At least with respect to EU IIPAs, such as the former EU-Singapore FTA and the EU-Vietnam FTA, that call for Member State participation in dispute settlement under the treaty, the CJEU decision is correct: Dispute settlement relies on the concept of consent. EU-only IIPAs, worded after CETA, would provide for Member State dispute settlement. Yet, Member State consent for that would be, a priori, missing. Alternatively, the EU could, in theory, conclude IIPAs alone covering merely the protection of FDI and conclude separate IIPAs together with its Member States covering the protection of FPI. By drawing the line between direct and non-direct investment the CJEU in Opinion 2/15 mapped this avenue for the EU to conclude IIPAs alone. In practice, however, such an approach will certainly face major difficulties, as the distinction between FDI and FPI is unclear. Furthermore, there is, arguably, no political will for further fragmentation. It cannot be excluded, however, that the EU eventually gains explicit exclusive competence for FPI or that the CJEU eventually decides that the EU has an implicit exclusive competence for concluding the entire breadth of future post-Lisbon EU IIPAs including FPI on the basis of Articles 3(2), 216(1) TFEU. To sum up, all options are on the table: Post-Lisbon IIPAs might be concluded by the EU alone or together by the EU and the Member States. After Opinion 2/15 of the CJEU, however, the view appears to solidify that  Opinion 2/15 EU-Singapore Free Trade Agreement (16 May 2017), para. 305. For further analysis of the judgment, its political dimension and its repercussions on EU international investment policy, see Marise Cremona (2018) Shaping EU Trade Policy post-Lisbon: Opinion 2/15 of 16 May 2017: ECJ, 16 May 2017, Opinion 2/15 Free Trade Agreement with Singapore. 14(1) ECLRev, pp. 231–259; David Kleimann, Gesa Kübek (2018) The Signing, Provisional Application, and Conclusion of Trade and Investment Agreements in the EU: The Case of CETA and Opinion 2/15. 45(1) LIEcoI, pp. 13–45; Philip Hainbach (2018) The CJEU’s Opinion 2/15 and the Future of EU Investment Policy and Law-Making. 45(2) LIEcoI, pp. 199–209. 73  For example, transport, energy or safety concerns in public health matters, see Freya Baetens, Gerard Kreijen and Andrea Varga (2014) Determining Responsibility Under the New Extra-EU Investment Agreements: What Foreign Investors in the EU Should Know. 47(5) VandJTransnatlL, p. 1224. 74  Hindelang/Maydell, this chapter, fn. 46, p. 13; to the contrary, Bischoff, this chapter, fn. 61, p. 8. 75  Opinion 2/15 EU-Singapore Free Trade Agreement (16 May 2017), see e.g. paras. 244 and 292. See also Cremona, this chapter, fn. 72, pp. 250 et seq, pp. 256, 258. 72

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‘mixity’ is at least the right approach when it comes to benchmark IIPAs covering both FDI and FPI. As a consequence, one can assert that EU IIPAs will be mixed for the foreseeable future.

2.3  I nternational Obligations of the EU and the Member States Under EU IIPAs The ECT is a mixed IIPA and since future EU IIPAs may either be mixed or EU-only, the question arises who is bound under these EU IIPAs under international law. This part addresses, first, the issue of international obligations for the EU and the Member States under the pre-Lisbon mixed ECT and under post-Lisbon mixed IIPAs (Sect. 2.3.1). In a second step, the issue of international obligations for the EU and the Member States under post-Lisbon EU-only IIPAs will be addressed (Sect. 2.3.2).

2.3.1  A  pportionment of Obligations Between the EU and the Member States Under Mixed IIPAs Along Competence Lines Treaties, such as IIPAs, create international obligations ex contractu. In this context, as opposed to a customary or non-treaty context and obligations ex delicti, the concepts of privity and pacta sunt servanda (Articles 26, 27 VCLT/VCLT-IO) gain importance. These concepts not only state that treaties have binding effects in general but also that treaties, under international law, are only binding inter partes.76 Put differently, treaties only have a relative effect, binding, with some exceptions, only the formal treaty parties to it. Pursuant to Article 2(1)(g) VCLT, a party to a treaty is ‘a state which expressed its consent to be bound […] and for which the treaty is in force’. Equally, under Article 2(1)(g) VCLT-IO ‘a party means a state or an international organisation which has consented to be bound by a treaty and for which a treaty is in force’. Articles 11–17 VCLT/VCLT-IO set out the means of consent to be bound by a treaty. Signature and ratification is the common one. In a mixed setting the EU signs and ratifies the agreement through a Council decision (Article 218 TFEU). The Member States also sign and ratify, within their national parliamentary procedures and in accordance with their constitutional

 Cf. Pieter Jan Kuijper and Esa Paasivirta (2004) Further Exploring International Responsibility: The European Community and the ILC’s Project on Responsibility of International Organizations. 1(1) IntlOrgLRev, p.  116; Stefan Talmon (2005) Responsibility of International Organizations: Does the European Community require special treatment?. In: Maurizio Ragazzi (ed.) International Responsibility Today: Essays in Memory of Oscar Schachter. Martinus Nijhoff Publishers, p. 410.

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requirements, the agreement.77 Hence, under a mixed treaty, both the EU and the Member States are formal treaty parties to it and both bear international obligations under it. ‘However, the question then becomes slightly different: who is bound to which provisions of the agreement concerned?’78 Kuijper and Paasivirta call this the ‘horizontal dimension’ of mixed agreements.79 On the one hand, agreements of ‘shared mixity’ only come into existence as a result of a sharing of treaty-making competences. On the other hand, irrespective of the type of mixed agreement (‘parallel mixity’, ‘shared mixity’ or ‘false mixity’), the EU and the Member States often share the competences to implement the treaty. So mixed agreements beg the question: Is there an apportionment of obligations under mixed agreements between the EU and the Member States along the division of their treaty-making or implementing competences? Or are they both bound, either jointly or severally, by all the obligations flowing from the mixed treaty? To underscore the importance of this issue, an apportionment of obligations under mixed agreements along competence lines can have major repercussions on international responsibility under mixed agreements. It might be the case that the apportionment leads to one entity holding the breached obligation but attribution of conduct leads to another entity, which is not bound by the breached obligation. Thus, incongruence between apportionment of obligations and attribution of conduct inherently bears the risk of causing major accountability gaps under mixed agreements.80 The section will start with exploring the default rule under public international law, whether there is an apportionment of obligations alongside the division of competences under mixed agreements, in general, and under the ECT and future mixed IIPAs, specifically, provided these agreements are silent on that issue (Sect. 2.3.1.1). The section continues exploring the conditions and techniques for contractually delimiting the obligations along competence lines and whether the ECT contains a

 Joni Heliskoski (2001) Mixed Agreements as a Technique for Organizing the International Relations of the European Community and its Member States. Kluwer Law International, pp. 86 et seq; Eeckhout, this chapter, fn. 16, pp. 200 et seq and pp. 258 et seq. 78  Klabbers, this chapter, fn. 13, p. 281. 79  Kuijper/Paasivirta, this chapter, fn. 1, p.  184: ‘There is a ‘horizontal’ dimension between the Community and its Member States, which raises another set of issues for purposes of international responsibility. International agreements in fields of shared competences between the Member States and the Community frequently result in so-called ‘mixed agreements’, to which both the EC and the Member States are contracting parties. Such a situation calls for apportionment of their respective responsibilities vis-à-vis third parties to such an agreement’. 80  See Piet Eeckhout (2006) The EU and the Member States in the WTO–Issues of Responsibility. In: Lorand Bartels and Federico Ortino (eds.) Regional Trade Agreements and the WTO Legal System. Oxford University, pp. 457–460; André Nollkaemper (2012) Joint Responsibility between the EU and Member States for Non-Performance of Obligations under Multilateral Environmental Agreements. In: Elisa Morgera (ed.) The External Environmental Policy of the European Union – EU and International Law Perspectives. Cambridge University Press, p. 333. See also below Sect. 3.1.3. 77

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delimitation and whether one will be a viable and conducive option for future post-­ Lisbon mixed IIPAs (Sect. 2.3.1.2). 2.3.1.1  A  pportionment of Obligations Along Division of Competences Under Mixed Agreements Devoid of Contractual Delimitations If a mixed agreement does not delimit the obligations of the EU and the Member States along competence lines, the EU and the Member States are internationally bound by all obligations and not just by those for which they have the treaty-making or implementing competences under EU law.81 This is supported by CJEU case law (Sect. 2.3.1.1.1), which is not binding under international law, but illustrative given that there is no explicit international jurisprudence on the matter.82 With respect to international law, this derives from the VCLT/VCLT-IO and customary international law: There is no synchronisation of international legal personality and treaty-making competence (Sect. 2.3.1.1.2). Further, a contracting party’s consent to be internationally bound by a treaty is all-­ encompassing and comprehensive (Sect. 2.3.1.1.3). Additionally, the EU’s and Member States’ international personality in the context of a mixed treaty is unfettered by a lack of comprehensive treaty-making competence (Sect. 2.3.1.1.4). Moreover, the lack of competence to conclude or implement a treaty is irrelevant under public international law and cannot be pleaded as an excuse for non-­ compliance (Sect. 2.3.1.1.5). The lack of treaty-making competence can only lead to a de facto delimitation of obligations under a treaty where the lack is ‘manifest’ at the moment of the conclusion of the treaty (Sect. 2.3.1.1.6). This, however, cannot be ascertained with respect to the ECT or future mixed IIPAs. It follows that the division of competences, when not elevated to the rank of international law through  James Crawford (2014) State Responsibility: The General Part. Cambridge University Press, p. 344; Rensmann in Oliver Dörr and Kirsten Schmalenbach (eds.) (2012) Vienna Convention on the Law of Treaties: A Commentary. Springer, para. 75 and also Schmalenbach in Dörr/ Schmalenbach, Article 26 VCLT, para. 57; Eleftheria Neframi (2002) International responsibility of the European Community and of the Member States under Mixed Agreements. In: Enzo Cannizzaro (ed.) The European Union as an Actor in International Relations. Kluwer Law International, p.  200; Albert Bleckmann (1983) The Mixed Agreements of the EEC in Public International Law. In: David O’Keeffe and Henry Schermers (eds.) Mixed Agreements. Kluwer Law and Taxation Publishers, p. 159; Tomuschat, this chapter, fn. 10, p. 185; Bischoff, this chapter, fn. 34, p. 1562; Bischoff, this chapter, fn. 61, pp. 14–15 at fn. 51, 53 with many references; Henrik Ringbom (2008) European Union Maritime Safety Policy and International Law. Martinus Nijhoff Publishers, pp. 151–152; Talmon, this chapter, fn. 76, pp. 415–517; Heliskoski, this chapter, fn. 77, p. 147; Tietje, this chapter, fn. 30, pp. 7–9. But see Christian Pitschas (2001) Die völkerrechtliche Verantwortlichkeit der europäischen Gemeinschaft und ihrer Mitgliedstaaten. Duncker & Humblot, pp. 240 et seq, arguing that the EU and the Member States are each only bound by the parts of the mixed agreement lying within their exclusive competence even where the delimitation of competences is not disclosed. Joint obligations would only arise in cases of truly shared competences or ‘parallel’ mixity. 82  Duncan B Hollis (2012) Oxford Guide to Treaties. Oxford University Press, p. 121. 81

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incorporation into the treaty, does no delimit the obligations under a mixed agreement. The remaining question is whether the EU and the Member States assume the obligations jointly or only severally (Sect. 2.3.1.1.7). 2.3.1.1.1  E  CJ Jurisprudence on Apportionment of Obligations Under Mixed Agreements Devoid of Contractual Delimitations As a starting point it should be remembered that the Commission elaborated on the question of apportionment of obligations under mixed agreements in the observations it submitted to the ILC when drafting the ARIO. In the Commission’s view the question of apportionment of obligations needs to be distinguished from the question of attribution of conduct.83 The former question needs to be answered first, and it is ‘entirely determined by the rules of the organization’.84 Specifically, the division of competences as derives from the EU Treaties would determine the apportionment of obligations.85 This view was shared by Advocate General (AG) Mischo who advocated that in cases of mixed agreements the EU bore only obligations in accordance with its competences since by the mere fact of concluding a mixed agreement it would be clear to the treaty partners that the agreement does not fall wholly under EU or, respectively, Member State competence.86 Other AGs and the ECJ did not follow that approach. As regards bilateral mixed agreements, if no delimitation of obligations can be deduced from the agreement, the EU and the Member States are both bound by the entire breadth of the treaty. The ECJ held that the EU and the Member States, ‘in the absence of derogations expressly laid down in the [Lomé] Convention, the Community and its Member States as partners of the ACP States are jointly liable to those latter States for the fulfilment of every obligation arising from the commitments undertaken […]’.87 In this regard, the ECJ concurred with the opinion of AG Jacobs who stated that under a mixed agreement ‘the Community and Member states are jointly liable unless the provisions of the agreement point to the opposite conclusion [emphasis added]’.88 As regards multilateral agreements that are devoid of delimitations, AG Tesauro equally opined in Hermès and Dior that the EU and the Member States are bound by the whole breadth of the agreement stating that the WTO Treaties ‘contain no  See ILC, Responsibility of International Organizations – Comments and Observations received from International Organizations, 56th Session, UN Doc A/CN.4/545, at paras. 13–14. 84  Ibid. 85  Ibid. 86  See Opinion of AG Mischo, Case C-13/00 Commission v Ireland [2002] ECR I-2943, paras. 29–30. 87  Case C-316/91 Parliament v Council (EDF) [1994] ECR I-625, para. 29. The case concerned the Fourth Convention between the European Economic Community and its Member States, of the one part, and the ACP States, of the other part, signed at Lomé on 15 December 1989, OJ L 229, 17 August 1991. 88  Opinion of AG Jacobs, Case C-316/91 Parliament v Council (EDF) [1994] ECR I-625, para. 69. 83

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provisions on competence and the Community and its Member States are cited as original members of equal standing’.89 Since the division of competences is an entirely internal matter ‘it should be recognized that the Member States and the Community constitute, vis-à-vis contracting non-Member States, a single ­contracting party or at least contracting parties bearing equal responsibility in the event of failure to implement the agreement.’90 The ECJ seems to have concurred with that opinion stating ‘that the WTO Agreement was concluded by the Community and ratified by its Member States without any allocation between them of their respective obligations towards the other contracting parties.’91 The same reasoning seems to underlie the infringement case Etang de Berre,92 where France was condemned by the ECJ for not complying with obligations under a mixed agreement,93 in order to avoid joint responsibility of the EU and the Member States on the international plane.94 In conclusion, in can be said that the ECJ tends towards the opinion that under both bilateral and multilateral mixed agreements the EU and the Member States are bound by all obligations and that the division of competences does not apportion obligations unless explicitly provided for that. 2.3.1.1.2  N  o Synchronisation of the EU’s and the Member States’ International Legal Personality with Their Treaty-Making Competences The question arises whether the international legal personality of the EU and the Member States in the context of a mixed agreement is limited to the extent of their treaty-making competence, making their consent to be bound by those parts of the mixed agreement invalid and ineffective for which they did not have the competence. If this were the case, the EU and the Member States could logically only be bound under a mixed IIPA in accordance with their respective treaty-making competences since—so the argument goes—with respect to those parts of the agreement  Opinion of AG Tesauro, Case C-53/96 Hermès International [1998] ECR I-3603, paras. 13–14, 20; Case C-392/98 Parfums Christian Dior [2000] ECR I-11307, para. 33. 90  Opinion of AG Tesauro, Case C-53/96 Hermès International [1998] ECR I-3603, para. 14. 91  Case C-53/96 Hermès International [1998] ECR I-3603, para. 24. 92  Case C-239/03 Commission v France (Étang de Berre) [2004] ECR I-9325, paras. 26, 29–30. 93  The case concerned the Barcelona Convention for the Protection of the Mediterranean Sea Against Pollution 1976, 1102 UNTS 27, and the Athens Protocol for the Protection of the Mediterranean Sea against Pollution from Land-based Sources 1980, 1328 UNTS 105. 94  See Kuijper, above Chap. 1, fn. 15, p.  210; Nollkaemper, this chapter, fn. 80, p.  322; Frank Hoffmeister (2010) Curse or Blessing? Mixed Agreements in the Recent Practice of the European Union and its Member States. In: Christophe Hillion and Panos Koutrakos (eds.) Mixed Agreements Revisited – The EU and its Member States in the World. Hart, pp. 264–265. But see Peter M Olson (2010) Mixity from the Outside: the Perspective of a Treaty Partner. In: Christophe Hillion and Panos Koutrakos (eds.) Mixed Agreements Revisited  – The EU and its Member States in the World. Hart Publishing, pp. 342–343. 89

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they are not competent for, they do not exist as a subject of international law and do not have international legal personality. As far as the international legal personality of the Member States is concerned, Article 6 VCLT provides that every state possesses capacity to conclude treaties. Thus, there is no issue of ‘limited’ legal personality with respect to Member States and the division of powers under mixed agreements. With respect to the EU, however, several authors advocate a limited international legal personality under mixed agreements insofar as the EU enjoyed competences for the mixed agreement.95 They refer to the EU being a derivative subject of international law that derives its existence and powers from the will and constituting acts of its members flowing from the principle of conferral of powers in Article 5 TEU.  Thus, under EU law, the international legal personality of the EU and its capacity to conclude treaties run along its treaty-making competences. Importantly, such parallelism would extend to the international plane. They find support for such a limited international legal personality of the EU from the Reparation case where the ICJ held with respect to the UN that ‘the Court has come to the conclusion that the Organisation is an international person. That is not the same as saying that […] its legal personality and rights and duties are the same as those of a State [emphasis added]’.96 Jennings and Watts seem to take a similar view: ‘To the extent that bodies other than states directly possess some rights, powers and duties in international law they can be regarded as subjects of international law, possessing international personality [emphasis added].’97 Furthermore, Article 6 VCLT-IO states: ‘International organizations have the capacity to enter into commitments to the extent that this is allowed according to their internal rules [emphasis added]’. However, the view that attempts to synchronise the international legal personality of an international organisation and, thus, its capacity to enter into international obligations to its treaty-making competence cannot stand.98 The view ignores the  Rainer Arnold (1981) Der Abschluss gemischter Verträge durch die Europäischen Gemeinschaften. 19(4) Archiv des Völkerrechts, p. 432; Martin Nettesheim (2009) Kompetenzen. In: Armin von Bogdandy and Jürgen Bast (eds.) Europäisches Verfassungsrecht: Theoretische und dogmatische Grundzüge. Springer, p. 433; Pitschas, this chapter, fn. 81, pp. 31–32; see also Dörr in Grabitz/ Hilf/Nettesheim, this chapter, fn. 59, Article 47 TEU, paras. 27–28; Rainer Arnold and Elisabeth Meindl (2018) K. Außenhandelsrecht. In: Manfred A Dauses and Markus Ludwigs (eds.) Handbuch des EU-Wirtschaftsrecht, 44th edn. CH Beck, para. 84. 96  Reparation for Injuries Suffered in the Service of the United Nations, 1949 ICJ Reports 174, p. 179. 97  Robert Jennings and Arthur Watts (eds.) (1992) Oppenheim’s International Law  – Volume I Peace: Introduction and Part 1, 9th edn. Oxford University Press, p. 16. 98  Cf. Schmalenbach in Dörr/Schmalenbach, this chapter, fn. 81, Article 6 VCLT, para. 29; Rensmann in Dörr/Schmalenbach, this chapter, fn. 81, Article 46 VCLT, para. 64; Schmalenbach in Calliess/Ruffert, this chapter, fn. 24, Article 216 TFEU, para. 7; Steinberger, this chapter, fn. 7, p. 842; Per Lachmann (1984) International Legal Personality of the EC: Capacity and Competence. 10(1) LIEuropIntg, p. 5; Dapo Akande (2014) International Organisations. In: Evans Malcolm D (ed.) International Law, 4th edn. Oxford University Press 2014, pp. 254–255; Henry G Schermers and Nielms M Blokker (2011) International Institutional Law, 5th edn. Martinus Nijhoff Publishers, paras. 1562–1570. 95

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fact that, under international law, an international organisation’s international legal personality and, thus, its capacity to conclude treaties is whole and unaffected by its internal competences or powers, which may influence or limit the organisation’s capacity to conclude treaties under its internal law. The view confuses the capacity of an international organisation to enter into treaties under international law with the internal competence or power for the subject matter of the treaty.99 Put differently, the view ‘mixes the question of mere existence as a subject of international law with the question of what this subject is allowed to do’.100 Importantly, it is widely recognised that states and international organisations can commit external ultra vires acts, i.e. conclude treaties that go beyond the extent of their competences, and yet they are fully bound by the treaty and can be held liable for its non-implementation.101 Moreover, Article 46 VCLT-IO makes only sense in case international organisations have unlimited capacity and unlimited legal personality but only limited competences.102 Article 46 VCLT-IO allows, under exceptional circumstances, to invoke the lack of treaty-making competence to invalidate a treaty. Such a provision would not make any sense if capacity and competence would run parallel. Thus, once the internal rules of an international organisation confer capacity to conclude treaties onto it, such capacity is all-inclusive and competence-­independent. To put it in the words of Akande ‘once international law ascribes personality to an organization, a subject of international law is created with its own rights and its own duties’.103 Therefore, the EU’s international legal personality is unlimited, regardless of the fact that it internally has limited powers. As a result, the EU and the Member States have the capacity to bind itself to all obligations under a mixed agreement even though they may lack the competence to conclude all parts of the agreement. 2.3.1.1.3  A  Treaty Party’s Consent to Be Bound by a Treaty Is Generally Comprehensive and All-Encompassing Under international law, a contracting party that signs and ratifies a treaty is considered to have comprehensively consented to be bound by all obligations under the treaty. This derives from the principle of the integrity of the treaty.104 If a party wants to restrict and limit its consent to be bound by a treaty and if the treaty so allows, it has to make the limitation obvious and unequivocal under the treaty. Simply signing  Akande, this chapter, fn. 98, pp. 254–255; Schermers/Blokker, this chapter, fn. 98, para. 1570.  Steinberger, this chapter, fn. 7, p. 842. 101  Cf. Boustany/Didat in Oliver Corten and Pierre Klein (eds.) (2011) The Vienna Conventions on the Law of Treaties – A Commentary. Oxford University Press, Article 27 VCLT-IO 1986, para. 13; Arnold/Meindl, this chapter, fn. 95, paras. 85–86. 102  Arnold/Meindl, this chapter, fn. 95, para. 86; Dörr in Grabitz/Hilf/Nettesheim, this chapter, fn. 59, Article 47 TEU, para. 47. 103  Akande, this chapter, fn. 98, p. 255. 104  Talmon, this chapter, fn. 76, p. 418. 99

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and ratifying the treaty is an expression of unequivocal consent to be comprehensively bound. This is demonstrated by the possibility of contracting parties to consent to be bound by only parts of the treaty pursuant to Articles 17 VCLT/VCLT-IO, and the possibility to issue reservations with respect to some obligations pursuant to Articles 19 VCLT/VCLT-IO.105 It follows that treaty law does provide for effective limitations of a contracting party’s consent to be bound by a treaty. E contrario, unless a treaty party has resorted to one of these means of limitation, their consent is deemed to be comprehensive. The fact of concluding a mixed agreement in and of itself cannot be seen as an express or even implicit limitation of consent of the EU and the Member States to be bound only in accordance with their respective competences.106 Legal certainty requires limitations to be bound by a treaty to be clear and unequivocal. One cannot deduce from the fact that the EU concludes an agreement together with its Member States or from the sharing of competences with respect to a subject matter of a treaty a limited consent to be only bound by those provisions covered by the respective competences. Rather, Articles 46 VCLT/VCLT-IO—invalidating a comprehensive consent to be bound by a treaty only in exceptional circumstances—implies the contrary. Furthermore, as discussed, ‘mixity’ has many reasons and can be the result of legal requirements or political dynamics, which are entirely decoupled from the division of competences. So the fact that both the EU and the Member States are contracting parties alongside each other does neither tell treaty partners whether ‘mixity’ was compulsory due to the division of competences regarding the subject matter of the treaty nor where the division of competences, i.e. the demarcation of obligations, lies. Hence, from the vantage point of the VCLT/VCLT-IO, the EU’s and the Member States’ consent to be bound by a mixed agreement is comprehensive and all-encompassing with the result that a priori both are bound by the entire mixed agreement. 2.3.1.1.4  The General Irrelevance of ‘Internal Law’ Under International Law Under mixed agreements that do not contain a delimitation of obligations, the EU and the Member States have full international legal personality and comprehensively consent to the full breadth of the treaty. Yet can the EU and the Member States plead ex post a delimitation of obligations along the division of competences? The answer is no. Under international law, the internal rules of states and international organisations regarding their competence to conclude treaties as well as their competence to implement treaties are of no relevance unless there are expressly elevated to international law status. This is explicitly confirmed in WTO case law, a treaty framework that does not contain a delimitation of obligations. WTO panels

 Hoffmeister in Dörr/Schmalenbach, this chapter, fn. 81, Article 17 VCLT, paras. 1–2; Walter in Dörr/Schmalenbach, this chapter, fn. 81, Article 19 VCLT, paras. 1 et seq. 106  Dimopoulos, this chapter, fn. 39, p. 256. 105

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have consistently held that internal transfers of powers do not affect the validity of WTO obligations for the Member States.107 Since they are full WTO members in their own right, they are bound by the entire WTO framework, irrespective of whatever competence the EU and the Member States may have for parts of the WTO framework as a matter of EU law. In other words, the division of competences is largely irrelevant for the question of apportioning WTO obligations. The same result can be found in the law of treaties. Article 27 VCLT debars states from invoking their ‘internal law’ as justification for the failure to perform a treaty. This especially relates to their domestic law laying down the internal division of competences that might hinder states to i­ mplement108 or conclude109 a treaty. International law dictates that international obligations are to be performed; it does not dictate how the obligations are to be performed. The how is an entirely domestic, and for purposes of public international law, irrelevant issue.110 In the same vein, Article 27 VCLT-IO debars international organisations from invoking the ‘the rules of the organisation’ as justification for the failure to perform a treaty. Article 27(1)(2) VCLT-IO explicitly equates ‘the rules of the organisation’ to the ‘internal law’ of a state pursuant to Article 27(1) VCLT.111 The rule in Articles 27 VCLT/VCLT-IO can be transferred to the EU and the Member States and their lack to implement and conclude a mixed treaty. Specifically, just as the domestic law of states is considered the ‘internal law’ of a state pursuant to Article 27 VCLT, the EU Treaties laying down the division of competences must be considered ‘rules of the organisation’ in the sense of Article 27 VCLT-IO.112 It is true that the EU Treaties constitute international law in the classical sense, which creates a paradox. However, this paradox is inevitable due to the EU’s elevation to

 WTO Panel Reports, Cases WT/DS62/R; WT/DS67/R; WT/DS68/R, EC–Customs Classification of certain computer equipment (LAN), para. 8.16; WTO Panel Reports, Cases WT/DS375/R; WT/ DS376/R, WT/DS377/R EC and MS–Tariff Treatment of Certain Information Technology, para. 8.2; WTO Panel Report, Case WT/DS316/R EC and certain MS–Measures Affecting Trade and Large Civil Aircraft, para. 7.174. 108  As regards federal states, where the treaty-making competences of the federal state are often broader than its implementing competences, which predominantly lie with the constituent subdivisions, this is long undisputed. See below Sect. 3.2.4.1. 109  Under certain conditions states and international organisations may plead their lack of treatymaking competence pursuant to Articles 46 VCLT/VCLT-IO. Thus, not only the lack of implementing, but also the lack of treaty-making competences are covered by Articles 27 VCLT/ VCLT-IO in general. 110  Tietje, this chapter, fn. 30, p. 8. 111  Pursuant to Article 1(1)(j) VCLT-IO the rules of the organisation are defined as ‘the constituent instruments, decisions and resolutions adopted in accordance with them, and established practice of the organization’. 112  Tietje, this chapter, fn. 30, pp. 8–9; Happ/Bischoff, this chapter, fn. 39, p. 169; Steinberger, this chapter, fn. 7, p. 843; Angelos Dimopoulos (2014) The Involvement of the EU in Investor-State Dispute Settlement: A Question of Responsibilities. 51(6) CMLRev, p. 1688; Dimopoulos, this chapter, fn. 39, p. 255; Schmalenbach in Dörr/Schmalenbach, this chapter, fn. 81, Article 27 VCLT, para. 10; Talmon, this chapter, fn. 76, p. 416; Neframi, this chapter, fn. 81, p. 198. 107

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a subject of international law capable of concluding internationally binding treaties. The principle that the EU and the Member States, just as states in general, cannot plead the lack of respective competences as an excuse for the failure to carry out a treaty corresponds with the interests of treaty parties in legal certainty and good faith. First, if the EU and the Member States under a mixed agreement could invoke their lack of competence to conclude or implement the treaty, they could unilaterally and ex post limit their obligations. This way they could undermine the legitimate expectations of the treaty partners, distort the contractual equilibrium manifested in the content of the treaty and counter the universally accepted principle that treaties are based on the equality of contracting parties.113 The contracting parties of the EU and its Member States cannot themselves invoke their internal law with respect to a possible lack of treaty-making or treaty-implementing competences.114 Furthermore, if obligations could change alongside competence shifts, it would be possible for the EU and the Member States to evade international obligations through the process of internal power transfers.115 Second, the corollary would be that parties would have to enquire about the division of competences to determine the obligations under a mixed agreement.116 This is untenable and does not find resonance in international law. Mixed agreements are sometimes even concluded for leaving open the exact division of competences because the division was too complicated, too controversial or is likely to shift in the future. If the EU and the Member States cannot identify the exact division of competences themselves, how should a third state be able to that? As a result, for third parties the division of competences between as laid out in the EU Treaties is res inter alios acta.117 The rule in Article 27 VCLT/VCLT-IO is reflected in Article 5 ARIO and Article 3 ARS, which state that the characterisation of an act of a state or an international organisation as internationally wrongful is governed by international law. As a result, the fact that the EU and its Member States each might lack competences to enter into all obligations under a treaty and to implement them is a priori irrelevant from the viewpoint of public international law and does not influence the comprehensive legally binding effect of the treaty for the EU and the Member States under mixed agreements.

 Cf. Boustany/Didat in Corten/Klein, this chapter, fn. 101, Article 27 VCLT-IO 1986, para. 3.  Talmon, this chapter, fn. 76, p. 417. 115  Ibid, p. 416. 116  Ibid. 117  Schmalenbach in Dörr/Schmalenbach, this chapter, fn. 81, Article 26 VCLT, para. 56; Talmon, this chapter, fn. 76, p. 417. 113 114

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2.3.1.1.5  T  he Exceptional Relevance of ‘Internal Law’ Pursuant to Article 46 VCLT/VCLT-IO The general irrelevance of the division of competences between the EU and its Member States under public international law has—alongside contractual delimitations of obligations as discussed further below—an exception: Article 46(1) VCLT. It provides that ‘a state may not invoke the fact that its consent to be bound by a treaty has been expressed in violation of a provision of its internal law regarding competence to conclude treaties as invalidating its consent unless that violation was manifest and concerned a rule of its internal law of fundamental importance [emphasis added]’. Article 46(2) VCLT-IO is almost verbatim. Underscored by the negative formulation, the provision has an exceptional character and must be construed narrowly, protecting the stability of treaties and the good faith of contracting parties.118 The ECJ cited Article 46 VCLT-IO in connection with treaties concluded by the EU and saw it as customary international law.119 Article 46 VCLT/VCLT-IO explicitly concerns the lack of treaty-making competence, not the competence to implement the treaty.120 The lack of substantive treaty-making competence may fall under Article 46 VCLT/VCLTIO,121 constituting provisions of ‘fundamental importance’.122 In particular, the lack of substantive treaty-making competences of the EU and the Member States with respect to parts of a mixed agreement may fall under Articles 46 VCLT/VCLTIO.123 Where it applies, the legal consequence is that only the provisions are invalid for which the contracting party did not have the competence.124 In essence, Articles 46 VCLT/VCLTIO can be seen as a last resort under international law to limit the assumption of rights and obligations to the extent of the EU’s and the Member States’ treaty-making competences.125  Rensmann in Dörr/Schmalenbach, this chapter, fn. 81, Article 46 VCLT, paras. 3, 22–25; Mark Eugen Villiger (2009) Commentary on the 1969 Vienna Convention on the Law of Treaties. Martinus Nijhoff Publishers, Article 46 VCLT, para. 11. 119  Case C-327/91 France v Commission [1994] ECR I-3641, para. 25; Opinion of AG Tesauro in ibid, para. 12; Opinion of AG Lenz in Case 165/87 Commission v Council [1988] ECR 5545, para. 35; Opinion of AG Alber in Case C-233/02 France v Commission [2004] ECR I-2759, para. 50; Opinion of AG Kokott in Case C-13/07 Commission v Council (withdrawn), para. 173; Joined Cases C-317/04 and C-318/04 Parliament v Council [2006] ECR I-4721, para. 59. 120  Rensmann in Dörr/Schmalenbach, this chapter, fn. 81, Article 46 VCLT, para. 34; Villiger, this chapter, fn. 118, Article 46 VCLT, para. 8. 121  Anthony Aust (2013) Modern Treaty Law and Practice, 3rd edn. Cambridge University Press, pp.  273–274; Rensmann in Dörr/Schmalenbach, this chapter, fn. 81, Article 46 VCLT, paras. 34–36 with many references. 122  Rensmann in Dörr/Schmalenbach, this chapter, fn. 81, Article 46 VCLT, para. 40; Steinberger, this chapter, fn. 7, p. 844. 123  See Steinberger, this chapter, fn. 7, pp.  844–848; Olson, this chapter, fn. 94, pp.  333–336; Arnold/Meindl, this chapter, fn. 95, para. 87; Björklund, this chapter, fn. 6, pp.  389–395; Dimopoulos, this chapter, fn. 39, pp. 265–266; Rensmann in Dörr/Schmalenbach, this chapter, fn. 81, Article 46 VCLT, para. 75. 124  Boustany/Didat in Corten/Klein, this chapter, fn. 101, Article 27 VCLT-IO 1986, para. 13. 125  Dimopoulos, this chapter, fn. 39, p. 256. 118

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The most critical part of Article 46 VCLT/VCLT-IO is whether the lack of comprehensive treaty-making competence of the EU and the Member States with respect to the whole breadth of a mixed agreement is ‘manifest’ to their treaty partners. Some scholars contend that this is always the case since mixed agreements would be concluded for precisely the objective of overcoming the division of competences and, therefore, Article 46 VCLT-IO would categorically apply.126 Others contend that this should at least be the case when the mixed agreement is bilateral since this would show a sharing of competences.127 The problem with such extreme a stance is that, as discussed, the fact that a bilateral or multilateral treaty is mixed in and of itself does not say whether there is a division of competences between the EU and the Member States as regards the subject matter of the treaty. Both bilateral and multilateral mixed treaties can be ones of ‘parallel mixity’ or ‘false mixity’.128 More importantly, even if treaty parties knew that ‘mixity’ was the result of a sharing of competences, the mere knowledge of the fact that there is a lack of comprehensive competence of the EU or the Member States is not sufficient to invoke Article 46 VCLT/VCLT-IO.129 Rather, the exact division of competences with respect to the clearly identifiable parts of a treaty must be ‘manifest’ to the treaty partners.130 One cannot deem treaty parties to a priori know the exact division of competences between the EU and the Member States regarding a mixed agreement.131 The ICJ ruled in Cameroon v Nigeria that ‘there is no general legal obligation for states to keep themselves informed of legislative and constitutional developments in other states which are or may become important for the international relations of these states’.132 The same must be true for the division of competences as laid down in the EU Treaties.133 On the exact other side of the equation, some submit that the possibility to invoke Articles 46 VCLT/VCLT-IO regarding mixed agreements is altogether excluded because the division of competences is never ‘manifest’.134 This radical contention appears problematic given the general applicability of Articles 46 VCLT/VCLT-IO, its case-by-case application and the absence of reasons why the  Arnold/Meindl, this chapter, fn. 95, para. 87; see also Opinion of AG Mischo, Case C-13/00, Commission v Ireland [2002] ECR I-2943, paras. 29–30. 127  Bischoff, this chapter, fn. 61, pp. 546–547; Bischoff, this chapter, fn. 34, p. 1563. 128  The fact that bilateral mixed agreements are of ‘shared mixity’ and not of ‘parallel mixity’ is regularly demonstrated by the fact that the EU and the Member States form a single contracting party. See below Sect. 2.3.1.1.7. 129  Steinberger, this chapter, fn. 7, p. 846; Arnold/Meindl, this chapter, fn. 95, paras. 86–87. 130  Steinberger, this chapter, fn. 7, p. 846; Björklund, this chapter, fn. 6, pp. 389–395. 131  Rensmann in Dörr/Schmalenbach, this chapter, fn. 81, Article 46 VCLT, para. 75; Neframi, this chapter, fn. 81, p. 200; Olson, this chapter, fn. 94, p. 334. 132  Land and Maritime Boundary between Cameroon and Nigeria (Cameroon v Nigeria: Equatorial Guinea intervening) 2002 ICJ Reports 275, para. 266. 133  Rensmann in Dörr/Schmalenbach, this chapter, fn. 81, Article 46 VCLT, para. 73: ‘For nonmembers, the rules of an international organization are, in principle, not more easily ascertainable than the internal law of a State. Just as States or international organizations do not have a general legal obligation to keep themselves informed of legal developments in other States’. 134  Schmalenbach in Calliess/Ruffert, this chapter, fn. 24, Article 216 AEUV, para. 7. 126

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provision should not apply to mixed agreements. Furthermore, where treaty partners offer the possibility for joint membership to the EU and its Member States, one can argue that the contracting parties at least reckoned that the EU and the Member States do not have the comprehensive competence to conclude the treaty alone.135 As a result, rather than categorically assuming or excluding a ‘manifest’ lack of treaty-making competences with respect to mixed agreements, one should recur to a case-by-case analysis. Article 46(2) VCLT and Article 46(3) VCLT-IO define ‘manifest’ as ‘if it would be objectively evident’ to any state or international organisation conducting itself in the matter in accordance with normal practice of states and in good faith. ‘Objectively evident’ means ‘without further investigation’, ‘easily ascertainable’ or ‘a matter of common knowledge’,136 as no one can expect other states to examine complicated internal power-sharing elements in detail.137 The more complicated the division of competences, the harder it becomes to meet the threshold of ‘manifest’. Let’s analyse in concreto whether the exact extent of lack of treaty-making competence was ‘objectively evident’ under the ECT and, respectively, whether it is under post-Lisbon mixed IIPAs. A separate analysis is necessary since the test in Articles 46 VCLT/VCLT-IO relies on a violation of competence rules at the moment of conclusion of the treaty,138 and post-Lisbon mixed IIPAs rely on a different set of competences, as did the pre-Lisbon ECT. Since at the time of the conclusion of the ECT, arguably, the investment protection aspects were under exclusive Member State competence, the EU could possibly be in a position to invoke Article 46 VCLT-IO with respect to the investment protection obligations. Since under future mixed IIPAs the Member States lack any competence for the protection of FDI, the Member States could possibly invoke Article 46 VCLT in respect of obligations relating to FDI. As to the modus operandi of Article 46 VCLT/VCLT-IO with respect to a mixed agreement, the conclusion of it can be an ‘objectively evident’ violation of treaty-­ making competences where it contains divisible and clearly distinguishable parts, and each concerns exclusive competences of either the EU or the Member States, as  Cf. Steinberger, this chapter, fn. 7, p.  845; Neframi, this chapter, fn. 81, p.  200; Christian Tomuschat (1983) Liability for Mixed Agreements. In: David O’Keeffe and Henry Schermers (eds.) Mixed Agreements. Kluwer Law and Taxation Publishers, p. 130. 136  See Rensmann in Dörr/Schmalenbach, this chapter, fn. 81, Article 46 VCLT, para. 48 with many references. 137  Markus Burgstaller (2011) The Energy Charter Treaty as Mixed Agreement: A Model for Future European Investment Treaties?. In: Graham Coop (ed.) Energy Dispute Resolution: Investment Protection, Transit and the Energy Charter Treaty. JurisNet, p. 145; Steinberger, this chapter, fn. 7, p. 846. 138  Articles 46 VCLT/VCLT-IO refer to the moment a treaty party expresses ‘its consent to be bound by a treaty’, which is usually the moment of conclusion, i.e. the signing and ratifying of the treaty. In general, competence shifts cannot alter the assumption of obligations under an agreement ex post facto. Otherwise, again, the rationale of Articles 27, 46 VCLT/VCLT-IO, i.e. the stability of treaties and the protection of good faith, would be undermined. See in this respect Dimopoulos, this chapter, fn. 39, p. 257; Villiger, this chapter, fn. 118, Article 46 VCLT, para. 10. 135

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in such a case the demarcation of competences is transparent within the treaty.139 Conversely, where a mixed agreement cannot be divided in divisible and clearly distinguishable parts pertaining to each one’s exclusive competences there cannot be a ‘manifest’ violation.140 Here, the division of competences is too vague, complicated and simply unrecognizable for the treaty partners. 2.3.1.1.5.1  The ECT and the Application of Article 46 VCLT-IO Given the Member States exclusive competence in the field of investment protection pre-Lisbon,141 there is some force in the argument that the EU at least in theory could invoke pursuant to Article 46 VCLT-IO its lack of treaty-making competence regarding the provisions on investment protection in Part III and V under the ECT.142 The ECT is clearly divided in different and separable chapters, Part II concerning trade and transit, Part III concerning the admission and protection of foreign investment and Part V concerning dispute settlement. The provisions on investment admission can be distinguished from the ones on investment protection in the investment chapter of the ECT. The obligations relating to investment protection (Articles 10(1)–(3), 12, 13, 14 ECT) and ISDS dispute settlement (Article 26 ECT) can be easily identified. Thus, it could be argued that the lack of EC competence under the investment chapter for investment protection is ‘manifest’. However, the premise for such argument is that it was undisputed and crystal-­ clear at the moment of conclusion of the ECT that investment protection was under exclusive Member State competence. In fact, some authors have disputed that.143 The ECJ did not issue a comprehensive opinion on the division of competences with respect to the ECT, as it did with respect to the WTO in Opinion 1/94.144 What is more, the ECT Statement145 clearly indicates that at the moment of conclusion of the ECT at least the EC had doubts, and by extension possible investor claimants could have doubts, as to the exact division of competences regarding the investment protection obligations under the ECT. The ECT Statement provides that the EC (now the EU) and the Member States are ‘internationally responsible for the fulfilment of the obligations contained therein, in accordance with their respective competences’. However, ‘if necessary’, the EU and the Member States would determine the responsible party. It is hardly conceivable that such a determination is ‘necessary’ at all in case the division of competences under the ECT would have been ‘manifest’.  Maurits J F M Dolmans (1985) Problems of Mixed Agreements: Division of Powers within the EEC and the Rights of Third States. TMC Asser Instituut, pp. 25, 39–42, 97; Rosas, this chapter, fn. 18, pp. 129–131; Steinberger, this chapter, fn. 7, pp. 846–847. 140  Ibid. 141  See again above Sect. 2.2.2.1. 142  This view presupposes that there is no contractual delimitation of obligations under the ECT along competence lines, which is in fact not the case. See in this respect below Sect. 2.3.1.2.3.1. 143  See this chapter, fn. 72. 144  Opinion 1/94 WTO Agreement [1994] ECR I-5267. 145  See again above Chap. 1, fn. 16. 139

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The corollary to be drawn from a ‘necessity’ of having to ask for the responsible party is that one must assert that it was not undisputed and crystal-clear, and therefore not ‘manifest’ that the EU lacked treaty-making competences with respect to investment protection under the ECT. Having said that, it seems that in all likelihood the EU is now precluded and estopped from invoking Article 46 VCLT-IO. If a state or an international organisation seeks to invoke its restrictions of internal law to conclude the treaty after the treaty entered into force and after it has started to carry it out, it can be precluded from invoking Article 46 VCLT/VCLT-IO.146 Specifically, the right to invoke a violation of internal law may be lost pursuant to Art. 45 VCLT/VCLT-IO, according to which a state, and respectively an international organisation, under knowledge of the ‘manifest’ violation, expressly agreed or implicitly acquiesced to the validity of the treaty.147 Such consent to the treaty’s validity already lies in the fact that the mixed agreement was concluded in full knowledge of the ‘manifest’ lack of competences.148 Member States and the EU itself can be deemed to know the lack of external competences with respect to the conclusion of a mixed agreement in the first place, especially when the division of competences follows unambiguously from the constituent treaty.149 What is more, the fact that a state or an international organisation treats the agreement as valid, the right to invoke Article 46 VCLT is considered lost.150 The ECT is in force now for over 20 years, and the Member States and the EU, which have neither pleaded Article 46 VCLT/VCLT-IO in any proceedings nor hinted at the lack of competence to conclude parts of the ECT, must, thus, be deemed to have lost the right to do so. As a result, the EU cannot invoke Article 46 VCLT-IO to invalidate its consent to be bound by the ECT with respect to a possible lack of treaty-making competence at the moment of its conclusion.151 2.3.1.1.5.2  Post-Lisbon Mixed IIPAs and the Application of Article 46 VCLT Since after the entry into force of the Lisbon Treaty the EU, undisputedly, enjoys exclusive competence for FDI pursuant to Article 3(1)(e) and 207(1) TFEU, one could argue that it is ‘manifest’ and ‘objectively evident’ to treaty parties that Member States lack competence to conclude mixed IIPAs regarding the protection of FDI.152 From that argument would follow that Member States could invoke  Aust, this chapter, fn. 121, p. 275.  Arnold/Meindl, this chapter, fn. 95, para. 87. 148  Ibid. 149  Cf. Rensmann in Dörr/Schmalenbach, this chapter, fn. 81, Article 46 VCLT, para. 74. 150  Ibid, para. 54. 151  With the same result, Dimopoulos, this chapter, fn. 39, p. 258; Happ/Bischoff, this chapter, fn. 39, pp. 169–170; Roe/Happold, this chapter, fn. 39, p. 175. 152  Arguing in this direction, Dimopoulos, this chapter, fn. 39, p.  256: ‘Irrespective of whether future EU IIPAs are concluded as pure Union agreements or as mixed agreements, it will be evident to third countries that FDI is a field of a priori exclusive EU competence and, therefore, the EU is the only responsible actor for the performance and violations of the investment obligations. 146 147

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Article 46 VCLT with respect to provisions in a mixed IIPA covering FDI, with the consequence that they would not assume obligations in relation to it. However, in spite of the EU’s exclusive competence for FDI, it is submitted that Member States cannot invoke their lack of treaty-competence with respect to FDI to invalidate their consent to be bound by mixed IIPAs pursuant to Article 46 VCLT because such lack cannot be adequately translated into obligations under these treaties. Put differently, when examining the structure and content of mixed IIPAs it is not ‘manifest’, and it cannot be distinguished, which parts and obligations relate to FDI and which parts do not. At the outset, it should be noted that the scope of FDI is still unclear and it is all but settled whether FDI covers all obligations and provisions found under typical, benchmark IIPAs.153 Such uncertainty alone, arguably, suffices to render the application of Article 46 VCLT by the Member States unfounded. However, it follows from Opinion 2/15 that the competence for concluding typical investment protection obligations is covered by the competence for ‘Foreign Investment’ and depends on whether they relate to FDI, which is under exclusive competence of the EU, or to FPI, which is under shared competence of the EU and the Member States.154 Despite these clarifications and distinctions as made by the CJEU in Opinion 2/15, it is still not ‘manifest’ to third parties, for which part or parts of post-Lisbon mixed IIPAs Member States lack competence. This has to do with two interlocked factors: First, it is not ‘manifest’ which entity has the competence for FPI if it is under shared or even implicit exclusive EU competence, and second, the distinction between FDI and FPI under post-Lisbon mixed IIPAs is blurred and unrecognizable. The result is that the portion, for which one can safely assert that Member States lack competence, namely FDI, dissolves within the matrix of the treaty’s subject matter. As to the first point, assuming that the competence for FPI is shared, one cannot reasonably expect treaty parties to identify the entity that acted under shared competence, as that would hinge upon which entity exercised the shared competence at the moment of the conclusion of the mixed EU IIPA.155 The methods of identification are controversial and the ECJ gave only little if not altogether inconclusive

[…] in case of actions brought against individual Member States, Member States could successfully invoke Article 46 [VCLT] and escape responsibility for violation [sic] of provisions resulting from their own or EU conduct’; see also Dimopoulos, this chapter, fn. 112, p. 1688. 153  See again above Sect. 2.2.2.2. 154  See Opinion 2/15 EU-Singapore Free Trade Agreement (16 May 2017). 155  Pieter Jan Kuijper and Esa Paasivirta (2013) EU International Responsibility and its Attribution: From the Inside Looking out. In: Malcolm D Evans and Panos Koutrakos (eds.) The International Responsibility of the European Union. Hart, p. 59: ‘The area of shared competences is more complex. The area of shared competences is dynamic in the sense that it requires verification whether the EU has exercised its competence’; Dimopoulos, this chapter, fn. 39, p. 257; Allan Rosas (2003) International Dispute Settlement: EU Practices and Procedures. 46 GYIntlL, p. 284; Opinion of AG Maduro in Case C-459/03 Commission v Ireland (Sellafield) [2006] ECR I-4635, para. 33. But see Heliskoski, this chapter, fn. 77, pp. 46–47, submitting that the EU cannot exercise shared competences when concluding a mixed agreement.

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guidance.156 The ECJ coupled the exercise of shared competence to the legal basis used for the conclusion of the mixed agreement.157 For all parts of the treaty where internal EU legislation exists, the EU would be deemed to have exercised its competence; for the parts of the treaty for which there are no EU rules ‘competence rests with the Member States’.158 Yet such legal bases are everything but conclusive and only give an indication as to whether the EU exercised a competence, making it too complicated for treaty partners to identify that.159 And even assuming that FPI falls under implicit EU exclusive competence, one can equally not expect treaty parties to know such competence partition.160 As to the second point, the interrelation between FDI and FPI under post-Lisbon mixed IIPAs makes it difficult, if not impossible for third parties to identify the provisions and obligations under a mixed IIPA that relate to FDI and, respectively, FPI. First, the contours between FDI and FPI appear rather blurred than clear.161 There are investments that cannot be put in a single category but share elements of both FDI and FPI. The degree of control is the primary distinctive feature distinguishing FDI from FPI and not the form of the investment (e.g. shares, bonds).162 Yet the degree of control can vary significantly among investments. There is no widely recognised rule-of-thumb or fixed threshold in international investment law determining when the degree of control is sufficient enough to amount to FDI. It is true that the OECD Benchmark Definition of FDI requires a holding of ‘10 per cent or more of the ordinary shares or voting power’ to maintain control over an investment. Yet this is only an arbitrarily established numeric threshold, which gives little  See Marise Cremona (2006) External Relations of the EU and the Member States: Competence, Mixed Agreements, International Responsibility, and Effects of International Law. 2006/22 EUI  Working Paper LAW. http://cadmus.eui.eu/bitstream/handle/1814/6249/LAW-2006-22. pdf?sequence=1&isAllowed=y. Accessed 26 August 2018, p. 17; Dimopoulos, this chapter, fn. 39, p. 257; Eeckhout, this chapter, fn. 80, p. 457. 157  See Case C-239/03 Commission v France (Étang de Berre) [2004] ECR I-9325, para. 30; Case C-459/03 Commission v Ireland (Sellafield) [2006] ECR I-4635, paras. 96–97. 158  Case C-459/03 Commission v Ireland (Sellafield) [2006] ECR I-4635, paras. 107–108. 159  Dimopoulos, this chapter, fn. 39, p. 257. 160  Cf. Dimopoulos, this chapter, fn. 39, p. 258; Steinberger, this chapter, fn. 7, pp. 847–848: ‘For third Members, this manner of [implicit] competence partition is very unpredictable and largely inscrutable’. 161  Steffen Hindelang (2009) The Free Movement of Capital and Foreign Direct Investment: The Scope of Protection in EU Law. Oxford University Press, p. 66; Friedl Weiss and Silke Steiner (2013) The Investment Regime under Article 207 of the TFEU – A Legal Conundrum: The Scope of ‘Foreign Direct Investment’ and the Future of Intra-EU BITs. In: Freya Baetens (ed.) Investment Law within International Law: Integrationist Perspectives. Cambridge University Press, p.  361; Walid Ben Hamida (2005) The Mihaly vs. Sri Lanka Case: Some Thoughts Relating to the Status of Pre-Investment Expenditures. In: Todd Weiler (ed.) International Investment Law and Arbitration: Leading cases from ICSID, NAFTA, Bilateral Treaties and Customary International Law. Cameron May, p. 47. 162  Jeswald W Salacuse (2013) The Three Laws of International Investment – National, Contractual and International Frameworks for Foreign Capital. Oxford University Press, p. 15. 156

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if no information on the factual and legal control and voting power.163 Moreover, in a dispute, the extent of control might well be unclear or even disputed, making it excruciatingly difficult for Arbitral Tribunals, and all the more for treaty partners, to classify a given investment as falling under FDI or FPI. Moreover, the concept and definition of FDI and FPI under EU law and the concept and definition of ‘investment’ under international investment law may not necessarily go hand in hand.164 Second, almost all contemporary IIPAs—including the ECT165 and, more importantly, future EU IIPAs—rely on a broad, asset-based definition of investment covering both FDI and FPI without distinguishing between the two,166 making it impossible to extract from the IIPA the respective competences for FDI and FPI-­ related obligations.167 To illustrate, the definition of investment of Article 8.1 CETA, which is found almost verbatim in TTIP, the EU-Singapore IIPA and the EU-Vietnam FTA,168 reads ‘[e]very kind of asset that an investor owns or controls, directly or indirectly, which has the characteristics of an investment, such as commitment of capital or other resources, the expectation of gain or profit, or the assumption of risk, and a certain duration’. The definition of investment then goes on to provide a non-exhaustive list or catalogue describing various investment forms that are protected under the treaty.169 Referring to ‘every kind of asset’, that can be ‘owned or controlled’ both ‘directly or indirectly’, it is clear that both FDI and FPI falls under that definition. Moreover, the constituent elements of an investment in the second part of the definition can apply to both FDI and FPI. And finally the examples listed in the non-exhaustive list can constitute both FDI and/or FPI. Thus, both FDI and FPI are covered under these broad, asset-based definitions. However, these definitions do not separate or distinguish between the two. The element of ‘control’, which is usually used to distinguish between FDI and FPI, is not defined and remains

 Weiss/Steiner, this chapter, fn. 161, p. 361.  For example, contractual rights may qualify as ‘investment’ under BITs whereas under EU law they would qualify as services. See in this regard Dimopoulos, this chapter, fn. 67, p. 406. 165  See Article 1(6) ECT defining investment as ‘every kind of asset, owned or controlled directly or indirectly by an investor’ followed by a non-exhaustive list of protected investments. 166  Dimopoulos, this chapter, fn. 67, pp. 405–406. Regarding the definition of ‘investment’ under BITs in general, see Campbell McLachlan, Laurence Shore, Matthew Weiniger (2007) International Investment Arbitration Substantive Principles. Oxford University Press, paras. 6.26–6.35. 167  Dimopoulos, this chapter, fn. 67, p. 406. 168  See again fn. 48. 169  For example, the definition of investment in Article 8.1 CETA (similar in Article 1.2 EU-Singapore IIPA, the EU-Vietnam FTA and TTIP) reads: ‘Forms that an investment may take include: a) an enterprise; b) shares, stocks and other forms of equity participation in an enterprise; c) bonds, debentures and other debt instruments of an enterprise; d) a loan to an enterprise; e) any other kinds of interest in an enterprise; f) an interest arising from: i. a concession conferred pursuant to domestic law or under a contract, including to search for, cultivate, extract or exploit natural resources, ii. a turnkey, construction, production, or revenue-sharing contract, or iii. other similar contracts; g) intellectual property rights; h) any other moveable property, tangible or intangible, or immovable property and related rights; i) claims to money or claims to performance under a contract’. 163 164

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elusive under these definitions. The distinction between FDI and FPI is altogether irrelevant for the purposes of protection of investments under these IIPAs. What is relevant is whether a certain asset can be seen as a protected investment. This can be the case with respect to investments, onto which the tag FDI or FPI cannot be applied per se or that can be categorised as both. A possible categorisation of an investment as FDI or FPI once a dispute arises is insufficient for the test in Article 46 VCLT since the lack of competence must be ‘manifest’ when the IIPA is concluded. Yet at the conclusion of the IIPA the structure of the asset-based definition investment, which absorbs both FDI and FPI, simply does not allow to extract the obligations relating to FDI and FPI respectively. As a result, the broad, asset-based definitions in post-Lisbon EU IIPAs, which neither treat FDI and FPI in isolation nor provide for their demarcation, make it impossible to undertake a distinction between obligations relating to FDI and FPI to a degree required, even remotely, for purposes of Article 46 VCLT. It follows that Member States cannot invoke Article 46 VCLT with respect to their lack of treaty-­ making competence in the field of FDI under post-Lisbon mixed IIPAs. 2.3.1.1.6  R  esult: No Apportionment of Obligations Between EU and Member States Along Competence Lines Under Mixed IIPAs That Are Devoid of Delimitations Where mixed IIPAs do not provide for a contractual delimitation of obligations, there is no apportionment of obligations between the EU and the Member States along competence lines. ‘As long as the division of competences is not reflected and part of the mixed IIPA, it is not included in the sphere of international law and only constitutes irrelevant internal law.’170 The exceptions in Articles 46 VCLT/VCLT-IO do not apply to the ECT and future mixed IIPAs. It follows that the ECT and post-­ Lisbon mixed IIPAs have a comprehensive binding effect on both the EU and the Member States in that both are internationally bound by the entire breadth of the agreement, regardless of the fact that either one lacks treaty-making or implementing competences with respect to the mixed IIPA. 2.3.1.1.7  J oint or Several Assumption of International Obligations Under Mixed IIPAs Devoid of Contractual Delimitations? After having analysed that there is no apportionment of obligations along competence lines under mixed IIPAs that are devoid of contractual tools that delimit along the partition of competences, the question arises whether the EU and the Member States jointly assume or whether the EU and each Member State severally assumes the obligations of mixed IIPAs. The answer to that question is of importance since

170

 Neframi, this chapter, fn. 81, p. 198.

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it can have, arguably, an impact on international responsibility for breaches under mixed IIPAs. In short, and as will be critically discussed further below,171 it is argued that where the EU and the Member States assume obligations under a mixed treaty jointly, the EU and the Member States—unless they exclude such an effect—incur joint international responsibility for breaches of these joint obligations.172 For joint responsibility to arise, it would suffice when the conduct breaching the joint obligation can be attributed to either the EU or a Member State, as they form together, as the ‘EU bubble’, a joint entity.173 As a consequence of that, the EU could incur (joint) responsibility for conduct of the Member States breaching the joint obligation, and a Member State could incur (joint) responsibility for conduct of the EU or another Member State breaching the joint obligation. Conversely, this is not the case where the EU and the Member States assume obligations not jointly, but severally under a mixed IIPA. In general, the pacta sunt servanda principle in Articles 26 VCLT/VCLT-IO states that the obligations under a treaty are binding upon the parties to it. As a default rule and bar any specific arrangements, the VCLT/VCLT-IO sees every contracting party to a treaty as independent and separate, each party severally assuming the obligations under it. The fact that an agreement is mixed in and of itself does not lead to an assumption of joint obligations by the EU and the Member States.174 Yet indisputably, a mixed treaty can explicitly place obligations jointly upon the EU and the Member States.175 And in case the treaty does not, there can still be an implicit assumption of joint obligations, which depends upon the specific treaty, its interpretation and whether the EU and the Member States seek to appear as a single contracting party.176 Some authors distinguish between bilateral and multilateral mixed agreements.177 Such distinction is somewhat artificial and misleading, but yet it is a good starting point. Under bilateral mixed agreements, the EU and the Member States regularly assume joint obligations, as they form a single contracting party in the framework of the treaty relationship.178 This is typically expressly reflected in the preamble of  See below Sect. 3.2.1.2.  Talmon, this chapter, fn. 76, pp. 408, 414–417; Nollkaemper, this chapter, fn. 80, pp. 328, 331; Kuijper/Paasivirta, this chapter, fn. 1, pp. 187–188; Neframi, this chapter, fn. 81, p. 201; Second Report on the Responsibility of International Organizations by Special Rapporteur Giorgio Gaja, ILC 56th session, UN Doc A/CN.4/541, 2 April 2004, para. 8. Cf. below fn. 163. 173  Talmon, this chapter, fn. 76, p.  408; Nollkaemper, this chapter, fn. 80, p.  331; Neframi, this chapter, fn. 81, p. 201. Cf. below fn. 163. 174  Nollkaemper, this chapter, fn. 80, p. 328; Talmon, this chapter, fn. 76, pp. 414–417. 175  Ibid. 176  Ibid. 177  Talmon, this chapter, fn. 76, pp.  408, 414–417; Kuijper/Paasivirta, this chapter, fn. 1, pp. 187–188. 178  Talmon, this chapter, fn. 76, pp. 408, 414–417; Kuijper/Paasivirta, this chapter, fn. 1, pp. 187– 188; Steinberger, this chapter, fn. 7, p. 840; Dimopoulos, this chapter, fn. 39, p. 253; Nollkaemper, this chapter, fn. 80, p. 328; Neframi, this chapter, fn. 81, p. 201; Bischoff, this chapter, fn. 61, pp. 546–547; Allan Rosas (2014) Exclusive, Shared and National Competence in the Context of 171 172

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the treaty, stating that the treaty is concluded between the EU and the Member States ‘on the one part’ and the third state or third states ‘on the other part’.179 Here, the bilateral nature indicates that obligations flow only between two ‘sides’, irrespective of whether one ‘side’ is made up of one legal entity or multiple legal entities. For the treaty relationship, only two contracting parties exist. If a contracting party is made up of multiple legal entities the consequence is that they assume the obligations together, thus, jointly. Moreover, the definition of ‘contracting party’ under bilateral mixed agreements treaties regularly refers to the EU and the Member States as the ‘EU Party’. What is true with respect to the EU and the Member States under a bilateral mixed treaty is also true with respect to a group of third states, which equally form a single contracting party for purposes of the treaty relationship, assuming the obligations jointly.180 For example, the Lomé Convention181 or the Economic Partnership Agreement with the CARIFORUM States182 is concluded between a group of third states ‘on the one part’ and the EU and the Member States ‘on the other part’. These bilateral agreements with a group of third states usually make clear that the group acts ‘collectively’.183 A joint assumption of obligations by the third states-group is sound since these agreements usually aim at developing a particular kind of relationship with such countries such as co-operation, free trade and association.184 The ECJ affirmed a joint assumption of obligations by the EU and the Member States under bilateral mixed agreements. In Parliament v Council it held that the EU and the Member States assumed joint obligations under the Lomé Convention, ‘in accordance with the essentially bilateral character of the [agreement]’.185 The ECJ used treaty interpretation in order to identify the obligations of the parties.186 The specific obligation of financial assistance at issue, the ECJ held, fell ‘on the EU and the Member States, considered together’.187 As a result, under post-Lisbon mixed bilateral IIPAs, the EU and its Member States form

EU External Relations: Do Such Distinctions Matter?. In: Inge Govaere, Erwan Lannon, Peter van Elsuwege, Stanislas Adam (eds.) The European Union in the World: Essays in Honour of Marc Maresceau. Martinus Nijhoff Publishers, p. 26; Marc Maresceau (2010) A Typology of Bilateral Mixed Agreements. In: Christophe Hillion and Panos Koutrakos (eds.) Mixed Agreements Revisited – The EU and its Member States in the World. Hart, pp. 13–14. 179  For a list of bilateral agreements concluded by the EU alone or together with its Member States: http://ec.europa.eu/world/agreements/searchByType.do?id=1. Accessed 26 August 2018. 180  But see Kuijper/Paasivirta, this chapter, fn. 1, p. 188. 181  Fourth Convention between the European Economic Community and its Member States, of the one part, and the ACP States, of the other part, signed at Lomé on 15 December 1989 [1991] OJ L 229, p. 3. 182  Economic Partnership Agreement between the CARIFORUM States, of the one part, and the European Community and its Member States, of the other part [2008] OJ L 289, p. 3. 183  Ibid, Article 233(2)(3). 184  Eeckhout, this chapter, fn. 16, p. 350. 185  Case C-316/91 Parliament v Council (EDF) [1994] ECR I-625, para. 29. 186  Ibid, para. 28. 187  Ibid, para. 33.

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a single contracting party and are jointly bound by the obligations of the agreement. It should be noted, however, the default rule that the EU and the Member States assume jointly the obligations under a bilateral mixed agreement and form a single contracting party under it, does not mean that the EU and the Member States cannot provide in the same bilateral mixed agreement for separate obligations and separate contracting party status, or for an apportionment of obligations along competence lines.188 This is simply a consequence of the pacta sunt servanda principle. The ECJ itself emphasised in Parliament v Council that joint obligations only come into play ‘in the absence of derogations expressly laid down by the Convention’.189 In contrast, under multilateral mixed agreements, every party, including the EU and each Member State is, in principle, a full, separate and individual contracting party to the agreement and assumes severally the full extent of rights and obligations under the agreement.190 The several assumption of obligations under these treaties follows simply from the fact that the EU and each Member State concluded the treaty individually. If a treaty does not expressly or impliedly indicate that the EU and the Member States merge into a single contracting party, then the EU and each Member States remain individual contracting parties. The result is that each contracting party owes the obligations individually and severally. Moreover, classical multilateral treaties usually establish legal effects inter partes, i.e. every party owes every obligation to every contracting party and is owed every obligation by every other contracting party. If a multilateral treaty allows international organisations, such as the EU, to become a contracting party alongside the other contracting parties and its Member States, without any preconditions, the EU and the Member States dissolve in the pool of equally and reciprocally obligated and entitled contracting parties. In such a case, nothing in the treaty implies that the EU and the Member States share competences and only wish to appear together as a single contracting party. The intra se effect applies between the Member States themselves and between the Member States and the EU, unless there are specific provisions in the treaty excluding that dynamic, such as disconnection clauses (Article 41 VCLT).191 An intra se effect already contradicts the assumption of the EU and the Member States forming a single contracting party.  Neframi, this chapter, fn. 81, p. 197. Cf. above Sect. 2.3.1.1.7.  Case C-316/91 Parliament v Council (EDF) [1994] ECR I-625, para. 29. 190  See Talmon, this chapter, fn. 76, p.  415; Pieter Jan Kuijper, James H Mathis and Natalie Y Morris-Sharma (2015) From Treaty-Making to Treaty-Breaking: Models for ASEAN External Trade Agreements. Cambridge University Press, p. 136; Nollkaemper, this chapter, fn. 80, p. 328. 191  Villiger, this chapter, fn. 118, Article 41 VCLT, para. 4; Odendahl in Dörr/Schmalenbach, this chapter, fn. 81, Article 41 VCLT, para. 1; Kamala Dawar (2010) Disconnection Clauses: An Inevitable Symptom of Regionalism? SIEL Online Proceedings Working Paper No. 2010/11. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1632433. Accessed 26 August 2018; Maja Smrkolj (2008) The Use of the ‘Disconnection Clause’. In: International Treaties: What Does it Tell us about the EC/EU as an Actor in the Sphere of Public International Law? Paper presented at the GARNET Conference ‘The EU in International Affairs’ in Brussels, 24–26 April 2008. http:// ssrn.com/abstract=1133002. Accessed 26 August 2018. 188 189

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Yet there may nevertheless be an implicit assumption of joint obligations under a multilateral mixed treaty. This is usually the case where it becomes clear that the EU and the Member States share competences for the subject matter and, thus, must conclude the treaty as single contracting party. This may for example be the case where the mixed agreement contains an unclear, ergo pathological, delimitation of obligations between the EU and the Member States along their division of competences.192 As will be discussed further below,193 the multilateral ECT does not contain a delimitation of obligations between the EU and the Member States. It does neither explicitly place joint obligations onto the EU and the Member States nor define them as a single contracting party nor contains an unclear or pathological delimitation of obligations. Hence, the EU and each Member State do not merge into a single contracting party for purposes of the ECT, but rather are independent and separate contracting parties and assume not jointly but severally all obligations under the ECT.194 2.3.1.2  A  pportionment of Obligations Under Mixed IIPAs Along Competence Lines as Per Contractual Delimitations The EU and the Member States can contractually provide for a delimitation of obligations under a mixed agreement along competence lines. In such a case, however, the division of competences determining the obligations of EU and Member States will not derive from the EU Treaties but from the treaty itself or a separate legal document annexed to the treaty.195 The possibility of a delimitation of obligations under a mixed agreement derives from the principle of sovereignty and freedom of contract in international law.196 Specifically, a contractual delimitation coupling the consent to be bound by an obligation to the respective competence can fall under Articles 17 VCLT/VCLT-IO pursuant to which consent to be bound only by part of a treaty requires permission in the treaty or the consent of the treaty partner(s).197 Alternatively, a contractual delimitation coupling the binding force of obligations under a treaty to the r­ espective

 Neframi, this chapter, fn. 81, p.  197; Nollkaemper, this chapter, fn. 80, p.  330; Talmon, this chapter, fn. 76, p. 419; Case C-13/00, Commission v Ireland [2002] ECR I-2943, para. 15. 193  See below Sect. 2.3.1.2.3.1. 194  With the same result, Roe/Happold, this chapter, fn. 39, p. 175; Happ/Bischoff, this chapter, fn. 39, pp. 174–175, 182; Markus Burgstaller (2009) European Law and Investment Treaties. 26(2) JIntlA, pp. 205–206; Coop, this chapter, fn. 43, pp. 416–417. 195  Neframi, this chapter, fn. 81, pp. 195, 198; Talmon, this chapter, fn. 76, p. 418; Tobias Lock (2015) The European Court of Justice and International Courts – International Courts and Tribunals Series. Oxford University Press, p. 120. 196  Andrès Delgado Casteleiro (2012) EU Declarations of Competence to Multilateral Agreements: A Useful Reference Base? 17(4) EFARev, p. 496; Bischoff, this chapter, fn. 34, p. 1562. 197  Cf. Steinberger, this chapter, fn. 7, p. 843; Ringbom, this chapter, fn. 81, p. 153; Talmon, this chapter, fn. 76, p. 418. 192

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competences may be classified as a reservation as expressly authorised by the treaty pursuant to Articles 19–20 VCLT/VCLT-IO.198 A contractual delimitation under mixed agreements along disclosed competence lines predominantly serves the purpose of legal certainty, transparency and good faith. Treaty partners of the EU and the Member States often require delimitations along disclosed competences in order to know which entity is responsible for compliance with and implementation of which obligations of the mixed agreement.199 Delimitations also serve the purpose of ensuring that only the party competent for complying with and implementing an obligation is bound by it and, thus, can be held responsible for its non-implementation. Consequently, the implementing competences and not the treaty-making competences—which do not necessarily coincide with the latter200—are of relevance with respect to delimitations of obligations under mixed agreements. In the past, the EU and the Member States drew on various forms to delimit their obligations under a mixed agreement along competence lines (Sect. 2.3.1.2.1). Yet importantly, one can extract from the law of treaties and the principle of good faith that for a delimitation to be effective under international law, it must be sufficiently clear and specific so that the treaty parties are able to determine the contours of the delimitation (Sect. 2.3.1.2.2). The ECT does not provide for an effective delimitation of obligations, and it is very unlikely and unconducive that post-Lisbon mixed IIPAs will contain one (Sect. 2.3.1.2.3). 2.3.1.2.1  T  he Various Contractual Delimitation Tools That Link Obligations Under a Mixed Agreements to the Division of Competences Essentially, there are three ways to delimit obligations under mixed agreements along competence lines: First, express allocations of obligations to the competent party in the mixed treaty, also called a ‘carve-up’ of the mixed treaty; second, extroverted ‘competence clauses’ referring to the division of competences as laid down in the EU Treaties; and, third, introverted ‘competence clauses’ in conjunction with declarations of competence annexed to the treaty.  Ringbom, this chapter, fn. 81, p. 152; Dolmans, this chapter, fn. 139, p. 66; Talmon, this chapter, fn. 76, p. 418; John Temple Lang (1986) The Ozone Layer Convention: A New Solution to the Question of Community Participation in “mixed” International Agreements. 23(1) CMLRev, pp. 157–176; Happ/Bischoff, this chapter, fn. 39, p. 170. 199  Cf. Joni Heliskoski (2010) EU Declarations of Competences and International Responsibility. In: Malcolm D Evans and Panos Koutrakos (eds.) Mixed Agreements Revisited – The EU and its Member States in the World. Hart Publishing, pp. 190, 205; Delgado Casteleiro, this chapter, fn. 196, pp. 492, 508; Hoffmeister, this chapter, fn. 94, pp. 259, 263; Cremona, this chapter, fn. 156, pp. 21–22; Olson, this chapter, fn. 94, p. 335; Kuijper/Paasivirta, this chapter, fn. 1, pp. 185, 219; Kuijper/Paasivirta, this chapter, fn. 155, p. 56: ‘Simply, it is relevant to know and to understand during normal international cooperation how and by whom the obligations are to be carried out’; Tomuschat, this chapter, fn. 10, p. 185; Burgstaller, this chapter, fn. 137, pp. 141–142. 200  See below Sect. 2.3.1.2.3.2.1. 198

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2.3.1.2.1.1  The ‘Carving Up’ of the Mixed Agreement Some mixed agreements, mostly bilateral, directly ascribe obligations laid down in the treaty to the competent party, the EU or the Member States and thereby ‘carveup’ the agreement.201 For example, Article 20 Association Agreement with ­ Hungary202 states ‘[t]he Community shall abolish at the date of the entry into force of this Agreement the quantitative restrictions on imports of agricultural products […].’ Article 60 provides that ‘[…] the Member States […] shall ensure the free movement of capital relating to direct investments.’ Such provisions make it unequivocal, which entity is bound by which obligation. Importantly, however, such a drafting technique necessitates that a certain obligation falls entirely under the competence of the EU or the Member States. The technique is usually not used over the entire breadth of the treaty, especially in areas under shared competence, or where the division of competence is unclear or where an area is likely to shift to the EU during the lifespan of the mixed agreement. In these instances, the all-­comprising wording ‘contracting parties’ or merely ‘parties’ is used to comprise again both the EU and the Member States as a single contracting party, binding both jointly under the treaty. 2.3.1.2.1.2  E  xtroverted ‘Competence Clauses’ Referring to the Competences Partition in the EU Treaties Some bilateral mixed agreements, especially Free Trade Agreements, Cooperation, Partnership and Association Agreements, provide for extroverted ‘competence clauses’ in order to delimit the obligations under the agreement between the EU and the Member States.203 These ‘competence clauses’ define the term ‘contracting party’ with respect to the EU and its Member States to sometimes mean the EU and sometimes the Member States, and sometimes to mean both. The answer to that lies in the division of competences as set forth in the EU Treaties with respect to each and every obligation under the agreement. Since these clauses refer to the EU Treaties for determining which entity is a contracting party with respect to which obligation, these ‘competence clauses’ may be called ‘extroverted’. For example, Article 197 EU-Chile Association Agreement (‘Definition of Parties’) provides that ‘[f]or the purposes of this Agreement, the Parties shall mean  See Kuijper/Mathis/Morris-Sharma, this chapter, fn. 190, p. 144; Neframi, this chapter, fn. 81, pp. 197–198. 202  Association Agreement with the Republic of Hungary [1993] OJ L 347, p. 2. 203  Möldner, this chapter, fn. 19, paras. 22, 35; Hoffmeister, this chapter, fn. 94, p. 263; Neframi, this chapter, fn. 81, p. 203 using the term ‘interpretive clauses’; see also Opinion 1/91 Economic Area Agreement I [1991] ECR I-6079, para. 33: ‘The expression ‘Contracting Parties’ is defined in Article 2(c) of the agreement. As far as the Community and its Member States are concerned, it covers the Community and the Member States, or the Community, or the Member States, depending on the case. Which of the three possibilities is to be chosen is to be deduced in each case from the relevant provisions of the agreement and from the respective competences of the Community and the Member States as they follow from the EEC Treaty and the ECSC Treaty’. 201

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the Community or its Member States or the Community and its Member States, within their respective areas of competence as derived from the Treaty establishing the European Community, on the one hand, and the Republic of Chile, on the other [emphasis added]’.204 Similarly, Article 2(c) of the Agreement on the European Economic Area205 provides that ‘the term ‘Contracting Parties’ means, concerning the Community and the EC Member States, the Community and the EC Member States, or the Community, or the EC Member States. The meaning to be attributed to this expression in each case is to be deduced from the relevant provisions of this Agreement and from the respective competences of the Community and the EC Member States as they follow from the Treaty establishing the European Economic Community [emphasis added]’. Such clauses clearly attempt to establish a link between the consent of the EU and the Member States to be bound by the treaty, i.e. the extent of being a ‘contracting party’ to the treaty, and the division of competences between the EU and the Member States as laid down in the EU Treaties. It further follows from these clauses that the competence with respect to parts of the treaty is sometimes shared, sometimes lies with the EU and sometimes lies with the Member States. 2.3.1.2.1.3  I ntroverted ‘Competence Clauses’ Referring to ‘Declarations of Competence’ The most prominent technique of apportioning obligations between the EU and the Member States under mixed agreements along competence lines are introverted ‘competence clauses’ in connection with so-called ‘declarations of competence’.206 This technique is typically used in multilateral mixed agreements.207 Importantly, it is often overlooked that declarations of competence in and of itself do not suffice to

 Agreement establishing an association between the European Community and its Member States, of the one part, and the Republic of Chile, of the other part [2002] OJ L 352, p. 3; see further with similar wording: Article 104 Partnership and Cooperation Agreement with Russia [1997] OJ L/327 p. 1; Article 233 Economic Partnership Agreement between the CARIFORUM States, of the one part, and the European Community and its Member States, of the other part [2008] OJ L 289, p. 3; Article 1.2 Free Trade Agreement between the European Union and its Member States, of the one part, and the Republic of Korea, of the other part [2011] OJ L 127, p. 6. 205  Agreement on the European Economic Area [1994] OJ L 1, p. 3. 206  See e.g. Delgado Casteleiro, this chapter, fn. 196, pp. 491–510; Heliskoski, this chapter, fn. 199, pp. 189–212; Rensmann in Dörr/Schmalenbach, this chapter, fn. 81, Article 46 VCLT, para. 76; Hoffmeister, this chapter, fn. 94, pp. 259–260; Möldner, this chapter, fn. 19, paras. 22, 35; Olson, this chapter, fn. 94, pp.  335–337; Kuijper/Paasivirta, this chapter, fn. 1, p.  185; Eeckhout, this chapter, fn. 16, pp. 256–257, 262; Cremona, this chapter, fn. 156, pp. 20–22; Klabbers, this chapter, fn. 13, pp.  281–282; Bischoff, this chapter, fn. 34, p.  1565; Björklund, this chapter, fn. 6, pp. 376–382; Talmon, this chapter, fn. 76, p. 417; Ringbom, this chapter, fn. 81, p. 153; Lock, this chapter, fn. 195, p. 120; Nollkaemper, this chapter, fn. 80, p. 329. 207  Heliskoski, this chapter, fn. 199, p. 209; Hollis, this chapter, fn. 82, p. 120; Delgado Casteleiro, this chapter, fn. 196, p. 492. 204

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delimit obligations.208 Rather, since the declaration—instead of the EU Treaties— only sets out the division of competences with respect to the subject matter of the treaty, a provision in the treaty is required that links the extent of obligations assumed by the EU and the Member States to the division of competence as stipulated in the declaration.209 Such provisions may be called introverted ‘competence clauses’ as they refer to the division of competences as stipulated in the declaration and not as derives from the EU Treaties. Since the division of competences derives from the declaration, and not from the EU Treaties, the division is externalised and elevated to international law status and ceases to be an exclusively internal matter.210 For the very reason of keeping an internal issue internal the ECJ initially opposed these declarations,211 a stance it gave up eventually calling them ‘a useful reference base’,212 which is further witnessed by the large number of declarations made until today.213 There are various forms of ‘competence clauses’, i.e. techniques to generate the legal effect of coupling the obligations assumed by the EU and the Member States under the treaty to the extent of their competences as laid down in the declaration.214 One technique is to couple treaty membership, and, thus, the consent of a contracting party to be bound by the treaty, to the division of competence either expressly215 or impliedly216 to be derived from the declaration of competence. Another one is to

 Heliskoski, this chapter, fn. 199, pp. 192 et seq.  Ibid, pp. 196–200. 210  Neframi, this chapter, fn. 81, p. 195; Delgado Casteleiro, this chapter, fn. 196, p. 492; Lock, this chapter, fn. 195, p. 120. 211  Opinion 1/78 [1978] ECR 2151, para. 35. The ECJ stated that ‘it is not necessary to set out and determine, as regards other parties to the Convention, the division of powers in this respect between the Community and the Member States, particularly as it may change in the course of time […] it being understood that the exact nature of that division is a domestic question in which third parties have no need to intervene’. 212  Case C-459/03 Commission v Ireland (Sellafield) [2006] ECR I-4635, paras. 104, 116. 213  A list of declarations of competences made by the EU can be found at the European Commission Treaty Office Database: http://ec.europa.eu/world/agreements/viewCollection.do. Accessed 26 August 2018. 214  Cf. Heliskoski, this chapter, fn. 199, pp. 197–200. 215  For example, pursuant to Article 4(2) Annex IX UNCLOS: ‘An international organization shall be a Party to this Convention to the extent that it has competence in accordance with the declarations, communications of information or notifications referred to in article 5 of this Annex [requiring the issuance of a declaration of competence]’. 216  For example, Article 2(j) of the United Nations Convention against Transnational Organised Crime [2004] OJ L 261, p. 70, states that ‘references to ‘States Parties’ under this convention shall apply to such organisations within the limits of their competences’. 208 209

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expressly217 or impliedly218 link the extent of obligations under the treaty, and not treaty membership, to the extent of the respective competences. Where there is a declaration of competence, there is always a requirement to issue one.219 Such requirement is voiced by so-called ‘participation clauses’ that render a declaration of competence a precondition for an international organisation to become a party to the treaty.220 Some mixed agreements reiterate the obligation to issue a declaration of competence for the Member States,221 which is, however, in light of the fact that one can extract from the international organisation’s declaration the respective competences of the Member States, not a condition to create a delimitation with respect to the Member States’ obligations under the mixed agreement.222 Declarations of competence, as unilateral statements made at the conclusion of or accession to a treaty, and usually annexed to it, provide the content as to the division of obligations under the mixed agreement. For that matter, they may be considered a tool of interpretation pursuant to Article 31(2)(b) VCLT when determining international obligations under a mixed agreement, or an authoritative statement on the scope of the parties’ commitments under the mixed agreement.223 Declarations of competence may come in different forms and use different wordings and techniques to exhibit the division of competences with respect to the subject matter of  For example, the Convention on Customs Treatment of Pool Containers used in International Transport [1995] OJ L 91, p. 46, provides in Article 14(3): ‘The organisation concerned shall, for the matters within its competence, exercise the rights and fulfil the responsibilities which this Convention confers on States which are Contracting Parties to this Convention’. 218  E.g. Article 13(2) Vienna Convention for the Protection of the Ozone Layer [1998] OJ L 297, p.  10, and Article 24(2) Kyoto Protocol to the UN Framework Convention on Climate Change [2002] OJ L 130, p. 4, state: ‘[…] the organisation and its Member States shall decide on their respective responsibilities for the performance of their obligations under [the treaty]’. 219  Delgado Casteleiro, this chapter, fn. 196, p. 494. 220  E.g. Article 2 Annex IX UNCLOS stipulates that: ‘At the time of signature an international organization shall make a declaration specifying the matters governed by this Convention in respect of which competence has been transferred to that organization by its member States which are signatories, and the nature and extent of that competence’. Article 5(1) Annex IX UNCLOS reiterates the organisation’s obligation of issuing such a declaration. Other multilateral mixed agreements have similar wordings, see Article 24(3) Kyoto Protocol to the UN Framework Convention on Climate Change [2002] OJ L 130, p. 4; Article 13(3) Vienna Convention for the Protection of the Ozone Layer [1998] OJ L 297, p.  10; Article 14(3) Convention on Customs Treatment of Pool Containers used in International Transport [1995] OJ L 91, p. 46; Article 36(3) United Nations Convention Against Transnational Organised Crime [2004] OJ L 261, p. 70. 221  See e.g. Article 5(2) Annex IX UNCLOS. 222  Moreover, this would follow e contrario from provisions, such as Article 5(3) Annex IX UNCLOS, stating that it is presumed that the members of the organisation have retained their competence to act as regards those competences, which have not been specifically declared. 223  Hoffmeister, this chapter, fn. 94, p. 260; Delgado Casteleiro, this chapter, fn. 196, p. 496; Ian MacLeod, Ian D Hendry and Stephen Hyett (1996) The External Relations of the European Communities. Clarendon Press, pp. 160–161; Phoebe Okowa (1995) The European Community and International Environmental Agreements, Yearbook of European Law. 15(1) YEL, p.  176; Happ/Bischoff, this chapter, fn. 39, p. 170. 217

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the treaty. There are generally no requirements on how declarations of competence should look like, how precise and informative they should be and what these declarations should contain.224 There are mainly three categories,225 although their contours may be blurred in certain instances. Declarations under the first category contain a general description of EU competences with regard to a specific policy area or subject matter of the treaty, for instance environmental protection, maritime protection, trade, investment.226 These declarations may sometimes additionally indicate whether a competence is exclusive or shared. Importantly, however, they usually do not stipulate which competence applies to which obligation in the treaty. Declarations under the second category disclose the existence of secondary EU legislation on issues covered by the international agreement.227 These lists of EU legislation are naturally only illustrative of EU competence, as they cannot predict future EU and Member State legislative action.228 Declarations under the third category are the most specific and similar to ‘carve-up’ provisions. They name the party competent with respect to specific provisions of the treaty.229 What all these forms have in common is that they never give a full and exhaustive picture of the distribution of competences with respect to all obligations under the treaty. Even declarations under the third category rarely cover the entire breadth of the agreement but only refer to certain provisions in the agreement leaving the rest of the agreement to general statements of competence. Overall, declarations of

 Heliskoski, this chapter, fn. 199, p. 201.  Heliskoski, this chapter, fn. 199, pp.  202–203; Delgado Casteleiro, this chapter, fn. 196, pp. 495–496; Hoffmeister, this chapter, fn. 94, p. 259. 226  E.g. the declaration to the Kyoto Protocol to the UN Framework Convention on Climate Change [2002] OJ L 130, p. 4; the declaration to the Constitution of the Food and Agriculture Organisation of the United Nations (FAO) [1991] OJ C, 16/12/1991, p. 238; the declaration to the Cartagena Protocol on Biosafety to the Convention on Biological Diversity [2002] OJ L 201, p. 50, and the declaration to the Rotterdam Convention on the prior informed consent procedure for certain hazardous chemicals and pesticides in international trade [2003] OJ L 63, p. 29. 227  Declaration to the Statute of the International Renewable Energy Agency (IRENA) [2009] OJ L 178, p. 18. 228  Heliskoski, this chapter, fn. 199, p. 203. 229  The declaration in relation to the Convention Against Transnational Organised Crime [2005] OJ L 261, p. 70, states: ‘This competence relates to Articles 7, 9 and 31 (2)(c) of the Convention’. The declaration regarding the Convention on Customs Treatment of Pool Containers used in International Transport [1995] OJ L 91, p. 46, states that the EU is competent for all matters governed by the Convention except ‘the determination of duties, taxes, fees, or other charges referred to in Article 1 (a) of the Convention’. The declaration regarding the Convention relating to temporary admission (Istanbul Convention) [1993] OJ L 130, p. 4, has a similar wording. The declaration regarding the UN Convention against Illicit Traffic and Narcotic Drugs and Psychotropic Substances [1990] OJ L 326, p. 57, provides that ‘the European Economic Community is at present competent for questions of commercial policy relating to the substances frequently used in the illicit manufacture of narcotic drugs and psychotropic substances, questions which are dealt with in Article 12 of the Convention’. 224 225

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competence are vague, incomplete, imprecise and open-ended.230 Such paradox, according to Heliskoski, can only be explained by referring to the reason for recurring to the mixed formula in the first place: ‘[T]he possibility of leaving the often difficult and controversial issues concerning the distribution of competence open at the time of the conclusion of the agreement, to be decided on a case-by-case basis in the future’.231 In the end, it is often for third parties difficult, if not impossible, to deduce from the division of competences as laid down in the declaration the apportionment of obligations under the treaty.232 2.3.1.2.2  I nternational Law Requires Delimitations to Be Clear and Specific in Order to Be Effective Treaty law, especially Articles 17 VCLT/VCLT-IO and Articles 19–20 VCLT/ VCLT-IO, makes clear that a delimitation of obligations under a mixed agreement between the EU and the Member States in accordance with the division of competences is a priori legally possible. Given the consent of all treaty parties and the permission in the treaty, all three delimitation tools can be covered by the said Articles. However, it is a different question whether their effectiveness under international law is conditional upon a certain degree of clarity and specificity. Such condition unmet, the consequence would be that there is no delimitation and that— in a residual manner—both the EU and the Member States would remain bound by the entire treaty. ‘Carve-up’ provisions do not pose a problem in this respect since the wording of the treaty clearly and unmistakeably determines the competent party for the implementation of the obligation.233 Here, the delimitation is crystal-clear. It follows a valid and effective delimitation of obligations of the EU or the Member States under the mixed agreement depending on whom the obligation has been individually ascribed. The same is true with respect to introverted ‘competence clauses’ and declarations of competence under the third category that ascribe obligations under a treaty to the competent party. Apart from that, however, the other delimitation tools might pose a particular challenge to the treaty parties since it can be difficult for them to correctly read, comprehend and deduce from the division of competences the delimitation of obligations under a mixed agreement. As to introverted ‘competence clauses’, as discussed, declarations of competence are usually vague, incomplete and utterly unhelpful to the treaty partners for linking obligations to the competent entity. As to extroverted ‘competence clauses’, by merely referring to the distribution of competences as laid down in the EU Treaties, they do not even give any assistance in determining the competent party for an obligation.  Heliskoski, this chapter, fn. 199, p. 205.  Ibid. 232  Olson, this chapter, fn. 94, p. 336; Ringbom, this chapter, fn. 81, p. 153. 233  Neframi, this chapter, fn. 81, p. 197. But see Björklund, this chapter, fn. 6, p. 377. 230 231

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It is submitted that introverted ‘competence clauses’ in combination with unclear declarations of competence cannot delimit obligations under a mixed treaty.234 Essentially, it is difficult to accommodate the principle of legal certainty with an apportionment of obligations that is impossible to identify. Moreover, treaties are to be performed in good faith. Requiring treaty partners to identify the competent party in unclear circumstances sits at odds with Article 26 VCLT/VCLT-IO.  The rationale of Article 46 VCLT/VCLT-IO—requiring a ‘manifest’ lack of competence—underpins such logic. As Talmon puts it, ‘[w]hat applies to invalidating consent should equally apply to restricting consent’.235 In the same vein, vague and unclear reservations are impermissible as they fail to accommodate the need for clarity and legal certainty of third parties to a treaty and are, thus, null and void under the law of treaties.236 This is supported by Article 2(1)(d) VCLT/VCLT-IO stating that reservations intend ‘to exclude or to modify the legal effect of certain provisions of the treaty [emphasis added]’. How can a declaration of competence exclude or modify the legal effect of certain provisions when it is unclear to which provisions it refers? Moreover, vague and unclear reservations may be incompatible with the ‘object and purpose of a treaty’ pursuant to Article 19(c) VCLT.237 Similarly, Article 17(2) VCLT requires that a state makes clear to which provisions its consent to be bound relates.238 It is submitted that the division of competences as laid down in the EU Treaties can neither function as a demarcation of obligations under mixed agreements with extroverted ‘competence clauses’.239 In addition to the arguments from general treaty law just discussed, one must bear in mind that assessing the treaty provisions in light of the scope of the competences under EU law requires a more than sophisticated understanding of EU law.240 It requires an identification of competences that apply to the implementation of specific obligations under the treaty. Obligations may depend on exclusive or shared or even overlapping and interlocking competences. Such a burden to identify a competent entity with respect to specific obligations cannot be placed upon the treaty partners of the EU and the Member  Talmon, this chapter, fn. 76, p. 419; Neframi, this chapter, fn. 81, p. 197; Björklund, this chapter, fn. 6, p.  382; Ringbom, this chapter, fn. 81, pp.  156–157; Nollkaemper, this chapter, fn. 80, pp.  321–322, 329–330; Tomuschat, this chapter, fn. 135, p.  130; Eric Stein (1990) External Relations of the European Community: Structure and Process. In: Andrew Clapham (ed.) European Union Law. Collected Courses of the Academy of European Law, Volume I – 1. Martinus Nijhoff Publishers, pp. 115, 179; Heliskoski, this chapter, fn. 77, pp. 147–153. 235  Talmon, this chapter, fn. 76, p. 419. 236  Walter in Dörr/Schmalenbach, this chapter, fn. 81, Article 19 VCLT, paras. 88–93. 237  Walter in Dörr/Schmalenbach, this chapter, fn. 81, Article 19 VCLT, para. 89. 238  Hoffmeister in Dörr/Schmalenbach, this chapter, fn. 81, Article 17 VCLT, para. 9. 239  Neframi, this chapter, fn. 81, p.  204; Stein, this chapter, fn. 234, pp.  115, 179 noting that: ‘Unless a mixed agreement provides unambiguously for a distinction between the [Union]’s and the Member State’s rights and obligations, a breach on the part of the [Union] or the Member States causes joint responsibility’; to the contrary, Hoffmeister, this chapter, fn. 94, p. 263; Opinion 1/91 Economic Area Agreement I [1991] ECR I-6079, para. 33. 240  Cf. Olson, this chapter, fn. 94, p. 336. 234

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States.241 Extroverted ‘competence clauses’ are further inherently ambiguous since it is not clear whether the link to the division of competences is a static or a dynamic reference. In other words, it is not clear whether the division of competences at the moment of the conclusion of the treaty is decisive or as it develops over time at the moment of invocation. Moreover, the task of identifying the separate obligations in accordance with the division of competences, as set forth in the EU Treaties, may not be entrusted to parties and dispute resolution bodies outside the EU legal order, as otherwise the autonomy of the EU legal order would be put at risk.242 As a result, unless the division of competences is not clearly set forth in the treaty or in a declaration of competence, allowing to connect the dots and tell which entity is competent for which obligation, the division of competences is irrelevant for the extent of obligations under a mixed agreement. Then, as a default rule, all provisions bind the EU and the Member States. 2.3.1.2.3  C  ontractual Delimitations of Obligations Under the ECT and Post-­Lisbon Mixed IIPAs The following sections will analyse whether there is a contractual delimitation of obligations along competence lines under the ECT and whether post-Lisbon mixed IIPAs should be delimited along competences lines. 2.3.1.2.3.1  N  o Delimitation of Obligations Under the ECT Along Competence Lines The ECT, although being an agreement of ‘shared mixity’, where the EU and the Member States only together had the required competences to conclude the treaty, does not contain a contractual delimitation of obligations between the EU and the Member States along competence lines.243 This was recognised by the Commission itself in the Electrabel v Hungary proceedings.244 The treaty text of the ECT does  Talmon, this chapter, fn. 76, p. 419; Olson, this chapter, fn. 94, p. 336; Heliskoski, this chapter, fn. 199, p. 205; Tomuschat, this chapter, fn. 135, p. 130: ‘If the Community and its Member States wilfully and purportedly refrain from formally publicizing the exact demarcation line between their respective areas of jurisdiction, their partners cannot be expected to make the necessary inquiries themselves’. 242  Neframi, this chapter, fn. 81, p. 204; Dimopoulos, this chapter, fn. 39, p. 255; see in this respect below Sect. 4.1.2. 243  Burgstaller, this chapter, fn. 137, p. 128; Denza, this chapter, fn. 55, p. 223; Happ/Bischoff, this chapter, fn. 39, pp. 168–170; Frank Hoffmeister (2010) Litigating against the European Union and its Member States – Who Responds under the ILC’s Draft Articles on International Responsibility of International Organizations? 21(3) EJIntlL, p.  745; Kuijper/Paasivirta, this chapter, fn. 1, pp. 207–208; Roe/Happold, this chapter, fn. 39, pp. 172, 175; Tietje, this chapter, fn. 30, p. 9. 244  See Electrabel SA v The Republic of Hungary, ICSID Case No ARB/07/19, Decision on Jurisdiction, Applicable Law and Liability, 30 November 2012, para. 5.20 (Commission Submissions, para. 45). 241

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neither ‘carve up’ the agreement ascribing obligations to the EU and the Member States nor does it contain a ‘competence clause’ that would link the EU’s and Member States’ consent to be bound or the extent of rights and obligations assumed by either one to the division of competences as either laid out in a declaration or the EU Treaties. Rather, Article 1(2) ECT makes unmistakeably clear that ‘Contracting Party’ means ‘a State or a Regional Economic Integration Organization [‘REIO’] which has consented to be bound by this Treaty and for which the Treaty is in force’. There is no other provision in the ECT itself, which would indicate a limitation of consent to be bound or a limited assumption of rights and obligations. It follows that the consent by any contracting party to be bound by the ECT was a priori comprehensive and all-encompassing. Moreover, despite being a multilateral treaty open to REIOs and defining them pursuant to Article 1(3) ECT as organisations ‘constituted by states to which they have transferred competence over certain matters a number of which are governed by this Treaty [emphasis added]’, the ECT does not have a ‘participation clause’ that would require the EU and/or the Member States to make a declaration of competence upon accession to or ratification of the ECT as to the extent of the ‘transferred competence over certain matters’ of the ECT.245 Not surprisingly, no declaration of competence is found in the Annexes of the ECT. However, upon ratification of the ECT, the EC submitted on 17 November 1997 a Statement to the ECT Secretariat reading in part that the EC and the Member States are ‘internationally responsible for the fulfilment of the obligations contained [in the ECT], in accordance with their respective competences’.246 As stated in the introduction, the ECT Statement may be replaced by a revised version sometime in the future. The competence/responsibility-part is still present in paragraph 2 of the Proposal Revised ECT Statement, only now referring to the EU instead of the EC. Be that as it may, it is worth analysing whether the ECT Statement or any other future statement made in that form and with that content affects the obligations and the responsibility of the EU and the Member States under the ECT. One could submit that the competence/responsibility-part of the ECT Statements has similarities with extroverted ‘competence clauses’ coupling consent to be bound by the treaty or the extent of obligations to the division of competences as set forth in the EU Treaties.247 Alternatively, one could assert that the part is a lex specialis provision on international responsibility.248 However, it is submitted that the part can neither be considered an effective contractual delimitation of obligations between the EU and the Member States under the ECT,249 nor can it be considered  Kuijper/Paasivirta, this chapter, fn. 1, pp. 207–208; Happ/Bischoff, this chapter, fn. 39, p. 168; Roe/Happold, this chapter, fn. 39, p. 172; Denza, this chapter, fn. 55, p. 223. 246  See again for the entire text above Chap. 1, fn. 16. 247  Cf. Denza, this chapter, fn. 55, p. 222. 248  Cf. below Sect. 3.2. 249  Cf. Happ/Bischoff, this chapter, fn. 39, p. 170; Roe/Happold, this chapter, fn. 39, p. 174; Tietje, this chapter, fn. 30, p. 9; Philippe Pinsolle (2010) Selected Nationality Issues in ECT Arbitration. In: Miguel Ángel Fernández-Ballesteros and David Arias (eds.) Liber Amicorum: Bernardo Cremades. La Ley, p. 967 at fn. 2975. 245

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to effectively introduce the division of competences, as derives from the EU Treaties, as the criterion for international responsibility of the EU and the Member States for breaches of the ECT.250 For convenience purposes, and because the reasons are largely the same, the competence/responsibility-part of the ECT Statements will be assessed here for both its presumptive effect on a delimitation of obligations and international responsibility under the ECT, even though the latter is, generally, dealt with in Chap. 3. At the outset, it is submitted that the competence/responsibility-part of the ECT Statements is more prone to cause confusion than enlightenment with respect to the issue of obligations and international responsibility under the ECT.  As just discussed, references to the division of competences as derives from the EU Treaties can hardly function as an effective delimitation due to their lack of clarity and specificity, making it untenable, if not impossible, for treaty partners to translate the division of competences into obligations under the ECT. Apart from that, however, two arguments must be made that largely render the competence/responsibility-part of the ECT Statements irrelevant for international law purposes. First, it has no international binding effect on the treaty parties of the ECT,251 and, second, it itself is unclear and ambiguous.252 As to the first point, one should recall the context in which the ECT Statement was made and the fact that competence/responsibility-part of the ECT Statement concerning international responsibility is uncalled for. The ECT Statement was made in accordance with Article 26(3)(b)(ii) ECT. The provision states that ‘for the sake of transparency, each Contracting Party that is listed in Annex ID’, in which the EC was, and now the EU is listed, ‘shall provide a written statement of its policies, practices and conditions’ with regard to the dispute settlement procedure under its own ‘Courts and administrative Tribunals’ pursuant to Article 26(2)(a) ECT. The contracting parties listed in Annex ID would not give unconditional consent to arbitration in case an investor had prior to the arbitration initiated such dispute settlement procedure before these ‘Courts and administrative Tribunals’. Thus, since Article 26(3)(b)(ii) ECT merely concerned the ‘fork-in-the-road’ provision of Article 26(2)(a) ECT, it did not require the EC to make such a Statement laying out issues of delimitation of obligations and international responsibility. So, what then is the legal nature of the competence/responsibility-part of the ECT Statement? It is a unilateral declaration made by the EC, now by the EU and the Member States under the Proposal Revised ECT Statement. Yet this does not include the third state contracting parties of the ECT that are not Member States of the EU. They did consent to be bound by this part of the ECT Statement. How can it then have a binding effect on the third sate treaty parties? One could consider it a reservation on the part  See below Sect. 3.2.2 for whether the division of competences as derives from the EU Treaties should determine international responsibility under mixed IIPAs in general and under the ECT specifically. 251  Heliskoski, this chapter, fn. 77, p. 173; Roe/Happold, this chapter, fn. 39, p. 174; Tietje, this chapter, fn. 30, p. 9. 252  Happ/Bischoff, this chapter, fn. 39, p. 170. 250

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of the EC, and now the EU and the Member States under the Proposal Revised ECT Statement, in the sense that they should only be bound by and liable for the breach of provisions of the ECT in respect of which they enjoy the respective competences for.253 However, such a reservation would be invalid pursuant to Article 19 VCLT since the ECT does not permit such a reservation.254 Pursuant to Article 46 ECT no reservations may be made to the ECT. The only other way to render the unilateral declaration binding upon the third state treaty parties and eligible investors would be if subsequent state practice had confirmed its content. Yet no such state practice is known with respect to the ECT. Besides, this would be problematic for two reasons. For one, the ECT is a multilateral treaty covering multiple state parties including non-Member States. This begs the question whether not all state parties must have demonstrated acceptance of the content of the unilateral declaration. For two, the ECT confers substantive and procedural rights upon eligible investors of the contracting state parties of the ECT. How can state practice be established with respect to investors? The silence and non-refusal on the part of the treaty parties and its investors regarding the competence/responsibility-part of the ECT Statement cannot be seen as acquiescence to its content.255 No treaty party can be deemed to know, and no party is even obliged to explicitly deny a part of a Statement, which was not even called for pursuant to the treaty. As to the second point, the competence/responsibility-part of the ECT Statements itself is everything but clear and straightforward. The ECT Statement stresses the fact that the EC and the Member States both concluded the ECT; a delimitation of obligations would rather read that both concluded the treaty or both are only bound by it in accordance with their respective competences. Also, the competence/ responsibility-part of the ECT Statements reads ‘internationally responsible for the fulfilment of obligations’, which rather sounds like a statement on liability for breaches than like a delimitation of obligations. In any case, the footnote at the end of the ECT Statement made clear that the investor retains the right ‘to initiate proceedings against both the Communities and their member states’. Similarly, the Proposal Revised ECT Statement makes clear that the EU decides on who shall be respondent in disputes under the ECT and that ‘[t]his is without prejudice to the division of competences between the European Union and the Member States for investment’.256 Both ECT Statements only make sense if there is no delimitation of obligations and if competence does not determine responsibility. This is because a priori and bar any explicit assumption of international responsibility, the EU and the Member States can only be successfully sued and found by an Arbitral Tribunal to be internationally responsible for a breach of the ECT if they are bound by the

 Cf. Bischoff, this chapter, fn. 61, p. 16.  Cf. Roe/Happold, this chapter, fn. 39, p. 175; Happ/Bischoff, this chapter, fn. 39, p. 170. 255  Dörr in Dörr/Schmalenbach, this chapter, fn. 81, Article 31 VCLT, para. 101; Odendahl in Dörr/ Schmalenbach, this chapter, fn. 81, Article 45 VCLT, paras. 14 et seq. 256  See para. 3(c) Proposal Revised ECT Statement. 253 254

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obligation that is breached, which is not fully the case under a delimitation of obligations, and if competence does not determine responsibility. To sum up, the inconclusive wording of the competence/responsibility-part of the ECT Statements alone nurtures the result that the division of competences as derives from EU law does neither delimit the obligations between the EU and the Member States under the ECT, nor determines international responsibility for breaches under the ECT. The remaining question is whether Article 1(3) ECT is sufficient to consider the EU and the Member States as a single contracting party having assumed the ­obligations under the ECT jointly.257 Article 1(3) ECT defines a REIO as an ‘organization constituted by states to which they have transferred competence over certain matters a number of which are governed by this Treaty, including the authority to take decisions binding on them in respect of those matters’. In fact, Article 1(3) ECT makes clear that the EU and the Member States shared competences over certain matters of the ECT. However, against such reasoning speaks, first, that Article 1(3) ECT by referring to ‘matters governed by the ECT’ and an ‘authority to take decisions binding on them in respect of those matters’ only implies a sharing of implementing competences, and not treaty-making competences. Yet only the latter is what makes ‘mixity’ obligatory under EU law and requires a joint assumption of obligations as a single contracting party.258 Second, the multilateral nature of the ECT, which makes it applicable to the inter se relationship of the Member States, speaks against such reasoning. The ECT does neither contain an explicit provision excluding inter se effects, such as a disconnection clause, nor can the ECT be interpreted to implicitly exclude such effects.259 Rather, the ECT creates obligations between each and every contracting party, including amongst the Member States, and, arguably, between the Member States and the EU, with the possibility of Member State’ investors to sue under Article 26 ECT other Member States,260 and arguably the EU, too.261 In cases where the EU and all the Member States form a  Cf. Neframi, this chapter, fn. 81, p. 197; see again above Sect. 2.3.1.1.7.  See this chapter, fn. 24. 259  Tietje, this chapter, fn. 30, pp. 10–14. 260  The following cases, in which investors of Member States sued other Member States, bear witness to that possibility, Charanne BV and Construction Investments SARL v Spain, SCC Case No 062/2012, Award, 21 January 2015; EDF International v Republic of Hungary, UNCITRAL Award, 4 December 2014 (not public); Electrabel SA v The Republic of Hungary, ICSID Case No ARB/07/19, Decision on Jurisdiction, Applicable Law and Liability, 30 November 2012; AES Summit Generation Ltd and Tisza Eromu Kft v The Republic of Hungary, Case No /07/22, Award, 23 September 2010. See also Tietje, this chapter, fn. 30; Burgstaller, this chapter, fn. 194, pp. 206– 210. Questioning that possibility, Angelos Dimopoulos (2011) The Validity and Applicability of International Investment Agreements between EU Member States und EU and International Law. 48(1) CMLRev, pp. 63–93. 261  Happ/Bischoff, this chapter, fn. 39, pp. 178–180; Richard Happ (2007) The Legal Status of the Investor vis-à-vis the European Communities: Some Salient Thoughts. 10(3) IntlALRev, pp.  74–81; Philippe Pinsolle (2007) The Dispute Resolution Provisions of the Energy Charter Treaty. 10(3) IntlALRev, pp.  82–91; Pinsolle, this chapter, fn. 249, pp.  965–974. But see Jan Kleinheisterkamp (2012) Investment Protection and EU Law: The Intra- and Extra-EU Dimension 257 258

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single contracting party, there cannot be obligations inter se. E contrario, and as a result, the EU and the Member States are full contracting parties under the ECT in their own right and assume severally all rights and obligations under it. 2.3.1.2.3.2  S hould There Be Contractual Delimitations Along Competence Lines Under Post-Lisbon Mixed IIPAs? Ex ante delimitations of obligations along competence lines are unsuitable for post-­ Lisbon mixed IIPAs. This has to do with the way of how EU IIPAs are implemented. There are also general uncertainties and shortfalls of delimitations. It should be noted that it is still unclear as to whether delimitations along competence lines require a sufficient amount of clarity and specificity in order to be effective under international law,262 and, if so, where the line is to be drawn, whether an objective standard such as the ‘manifest’ standard under Article 46 VCLT, or a subjective standard, shall be decisive. The only safe means to effectively delimit obligations along competence lines would be to directly name the competent party in the treaty provisions (so-called ‘carve-out’), or to name the competent party with respect to each and every obligation in a declaration of competence annexed to the treaty. Furthermore, setting out the delimitation of obligations along competence lines at the moment of the conclusion of the mixed IIPA runs counter to the conception of the EU as an evolving system.263 The EU can acquire competences both through amendments of the EU Treaties and pursuant to Articles 216(1), 3(2) TFEU through the adoption of internal EU legislation. The division of competences is, hence, fluid and dynamic. Establishing obligations under a mixed treaty in accordance with the division of competences at the moment of conclusion of the treaty means putting a dynamic system into a corset. For example, ‘carve-out’ provisions that directly ascribe obligations to the competent party would set in stone the division of competences at the international level. Adjustments to accommodate competence shifts would require an amendment to the treaty requiring the consent of all contracting parties or a new agreement altogether, which is hardly achievable. As far as declarations of competence are concerned, the consequence would be that declarations would constantly have to be updated or risk becoming hopelessly out of date. It is true that many mixed agreements that require a declaration of competence demand that changes in the division of competence shall be notified to the contracting p­ arties

of the Energy Charter Treaty. 15(1) JIntlEcoL, p. 105; Burgstaller, this chapter, fn. 194, pp. 206– 207; Christer Söderlund (2011) The Future of the Energy Charter Treaty in the Context of the Lisbon Treaty. In: Graham Goop (ed.) Energy Dispute Resolution: Investment Protection, Transit and the Energy Charter Treaty. JurisNet, p. 117. See on the notion of EU nationality and EU citizenship of Member State investors for purposes of Article 1(7) ECT and relevant for the question whether Member State investors are of another contracting party, Crina Baltag (2012) The Energy Charter Treaty: The Notion of Investor. Kluwer Law International, pp. 79–81, 101, 107. 262  See above Sect. 2.3.1.2.2. 263  Dimopoulos, this chapter, fn. 39, pp. 251–252; Delgado Casteleiro, this chapter, fn. 196, p. 499; Heliskoski, this chapter, fn. 77, pp. 161–166; Björklund, this chapter, fn. 6, p. 381.

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to the treaty and the declaration of competence shall be amended respectively. However, as Olson noted, to date no declaration of competence was ever updated, which again demonstrates the limited value of declarations of competence with respect to the apportionment of obligations under mixed treaties altogether.264 Apart from that, and reverting to the main point made above, the way in which mixed IIPAs are implemented makes delimitations along competence lines an undesirable solution for future, post-Lisbon mixed IIPAs. As stated, declarations of competence and other contractual delimitation tools primarily respond to the need for transparency and legal certainty of the treaty partners of the EU and the Member States. Their raison d’être is to clarify and elucidate ex ante, which entity is responsible under international law for the implementation of the mixed agreement.265 Yet the implementation of mixed IIPAs cannot ex ante be readily and adequately translated into a delimitation of obligations between the EU and the Member States along competence lines under the mixed IIPA.266 At the centre of the problem lies the fact that the implementation of mixed IIPAs, depending on the exercise and ­non-­exercise of regulatory competences in literally any policy field and in any combination thereof that can potentially affect foreign investments, is manifold, unpredictable and potentially infinite. Hence, it cannot ex ante be ascribed to a competent party. This makes a delimitation of obligations under mixed IIPAs impractical and unfeasible and undermines the very purpose of delimitations, i.e. to bring ex ante clarity for the treaty parties as to which entity implements which obligation. 2.3.1.2.3.2.1  N  o General Parallelism Between (External) Treaty-Making and (Internal) Implementing Competences of the EU and the Member States Regarding Mixed IIPAs The division of external treaty-making competences between the EU and the Member States does not suffice to draw any safe conclusions as to who implements the obligations of a mixed treaty. External, treaty-making competences are to be differentiated from internal, implementing competences. The CJEU acknowledged that difference.267 The former relates to the competence to conclude binding treaties of international law with other subjects of international law. The latter relates to regulatory competences, i.e. to legislate in the EU internal market in order implement the treaty. The ‘doctrine of parallelism’ under EU law cannot help identifying implementing competences with respect to a treaty. The doctrine, also called doctrine of ‘implied external powers’ or foro interno, in foro externo only establishes a parallel treaty-making competence of the EU where the EU has an internal legislative

 Olson, this chapter, fn. 94, p. 336.  See again this chapter, fn. 199. 266  Cf. Dimopoulos, this chapter, fn. 112, p. 1690; Burgstaller, this chapter, fn. 137, p. 143. 267  Opinion 1/94 WTO Agreement [1994] ECR I-5267. 264 265

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competence.268 Article 3(2) TFEU, which gives the EU ‘exclusive competence for the conclusion of an international agreement when […] its conclusion is necessary to enable the Union to exercise its internal competence’, is a reflection of that doctrine. However, the doctrine does not establish parallel internal competences where the EU is conferred an external treaty-making competence. Put differently, the doctrine of ‘parallelism’ functions from the inside out and not from the outside in. This dynamic is the result of the principle of conferral pursuant to Article 5(2) TEU269 according to which the EU may only act where the Member States have conferred competence upon it. Consequently, the exclusive EU external competence under the CCP is not fully matched by an exclusive competence to regulate internally.270 Article 207(6) TFEU encapsulates the phenomenon that the EU’s treaty-making competences can extend its regulatory competences. It makes sure that ‘[t]he exercise of the competences conferred by this Article in the field of the common commercial policy shall not affect the delimitation of competences between the Union and the Member States, and shall not lead to harmonisation of legislative or regulatory provisions of the Member States in so far as the Treaties exclude such harmonisation.’ It follows that the exercise of external competences by the EU shall not affect the internal division of competences between the EU and the Member States in the internal market.271 If the ‘doctrine of parallelism’ would be conceived foro externo, in foro interno, the EU could automatically acquire internal legislative competences in exclusive Member State fields by concluding wide-ranging international treaties, whose implementation depends upon shared or exclusive Member 268  Case 22/70 Commission v Council (AETR) [1971] ECR 263, para. 90; Opinion 2/91 ILO Convention No 170 [1993] ECR I-1061, paras. 15–17; Opinion 1/76 Draft Agreement Establishing a European Laying-up Fund for Inland Waterway Vessels [1977] ECR 741; see also Schütze, this chapter, fn. 15, pp. 195–196; Angelos Dimopoulos (2008) The Common Commercial Policy after Lisbon: Establishing Parallelism between Internal and External Economic Relations? 4 CYELP, pp. 117–119; Markus Krajewski (2005) External Trade Law and the Constitution Treaty: Towards a Federal and more Democratic Common Commercial Policy? 42(1) CMLRev, pp.  116–118; Hernández, this chapter, fn. 10, pp. 646–647; for a detailed appraisal of the ‘doctrine of parallelism’ in EU law, see Robert Schütze (2014) Parallel External Powers: from ‘Cubist’ Perspectives towards ‘Naturalist’ Constitutional Principles? In: Foreign Affairs and the EU Constitution: Selected Essays. Cambridge University Press, pp. 237–283. 269  The provision reads: ‘Under the principle of conferral, the Union shall act only within the limits of the competences conferred upon it by the Member States in the Treaties to attain the objectives set out therein. Competences not conferred upon the Union in the Treaties remain with the Member States’. 270  Gracia Marín-Durán (2015) The EU and its Member States in WTO Dispute Settlement: A ‘Competence Model’, or a Case Apart, for Managing International Responsibility?’. Presented at the joint workshop organised by EUI, ESIL Interest Group on ‘The EU as a Global Actor’ and CLEER on ‘The EU and International Dispute Settlement’, 19–20 February 2015. http://papers. ssrn.com/sol3/papers.cfm?abstract_id=2683491. Accessed 26 August 2018, pp. 8, 24–25. 271  See Krajewski, this chapter, fn. 268, pp.  116–118; Tietje, this chapter, fn. 67, p.  11; Tietje/ Sipiorski/Töpfer, this chapter, fn. 69, p.  18; Dimopoulos, this chapter, fn. 268, pp.  117–119; Dimopoulos, this chapter, fn. 67, p. 408; Burgstaller, this chapter, fn. 137, p. 134; Hahn in Calliess/ Ruffert, this chapter, fn. 24, Article 207 TFEU, paras. 119–121; Dörr in Grabitz/Hilf/Nettesheim, this chapter, fn. 59, Article 47 TEU, para. 47.

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State competences. As a result, it may be the case that there is an incongruence between external and internal competences of the EU and that an external competence of the EU is broader than its competences to implement the treaty.272 To give a first example of such incongruence: Under the WTO regime, trade as part of the CCP is under exclusive EU competence, however, the taxation of products, a measure that might constitute a prohibited discrimination under GATT, is under Member State competence.273 Equally, after the Lisbon Treaty the EU has acquired the external competence to accede to the ECHR. Yet human rights can be violated by the exercise of literally every Member State competence. The same is true with regard to FDI where the EU has obtained exclusive competence,274 which should become clearer in the following. 2.3.1.2.3.2.2  T  he Implementation of IIPAs Predominantly Relies on Negative Obligations to Not Act in a Certain Way One important feature of the implementation of IIPAs in general, similar to the WTO regime and the protection of human rights under the ECHR, is that it postulates negative obligations, i.e. to refrain from certain conduct, a duty addressed at the state not to act in a certain way, to refrain from a certain result.275 IIPAs usually aim at maintaining the status quo. Specifically, the implementation of IIPAs relies to a large extent upon the exercise, or more adequately put, the non-exercise of regulatory or expropriatory competences by the host state. To use the terminology of the law on international responsibility, the proper implementation of IIPAs usually requires an omission and, reversely, the non-implementation or violation of an IIPA is caused by an action. Certainly, there are many international treaties that establish positive obligations for the treaty parties. Implementation of these treaties requires action in order to achieve a certain result, thereby aiming at changing the status quo. Non-action leads to non-implementation, thus, a violation of the treaty. For instance, the Kyoto Protocol aims at achieving a reduction of carbon dioxide emissions, the Montreal Protocol aims at phasing out numerous substances responsible for ozone layer depletion, Free Trade Agreements aim at lifting trade barriers and enabling market access of certain products and services and many International Investment Agreements aim at enabling the admission of foreign investment. These treaties usually need implementing legislation and executive action. They are breached, if the contracting state does not act.

 Krajewski, this chapter, fn. 268, pp.  115–118; Hollis, this chapter, fn. 82, p.  119: ‘[…] the (external) capacity to conclude an international treaty does not necessarily coincide with the (internal) allocation of powers in its implementation’. 273  Eeckhout, this chapter, fn. 16, p. 264; Eeckhout, this chapter, fn. 80, pp. 460–461; Marín-Durán, this chapter, fn. 270, pp. 8–9, 24–25. 274  Tietje/Sipiorski/Töpfer, this chapter, fn. 69, p. 18. 275  Joshua Robbins (2006) The Emergence of Positive Obligations in Bilateral Investment Treaties. 13 UMIntlCLRev, p. 417. 272

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Historically, IIPAs were the answer to unduly governmental interference with the assets of the foreign investor.276 Conceptually, the protection of foreign investment kicks in once an investment is duly admitted and established in the host state.277 IIPAs aim at maintaining the investment environment and regulatory framework found at the moment of admission and establishment and which is reasonably and legitimately expectable during the lifecycle of the investment. Now, the investment environment and regulatory framework is often changed, and thereby affected to the detriment of the investor, through state and governmental action, rather than omissions. In this regard, IIPAs ‘contain cross-cutting standards that can be seen as a mere prohibition of a certain conduct, which is not limited to a certain subject matter’.278 Such standards positing negative obligations to not act in a certain way or to refrain from certain action may be divided into absolute (non-contingent) and relative (contingent) standards of treatment.279 Under the former fall the FET standard and the protection from expropriation and equivalent measures (‘indirect’ or ‘creeping expropriation’); under the latter fall the standards of ‘Most-Favoured-­ Nation Treatment’ (MFN) and ‘National Treatment’ (NT). All these standards are typically breached whenever there is state action.280 The most obvious is the provision protecting against unlawful expropriatory measures without adequate compensation.281 Expropriations, or measures leading to an indirect or creeping expropriation usually require positive state action. For instance, this can be the seizure of property, the taking of title of property, the withdrawal of licences, the revocation of  Muthucumaraswamy Sornarajah (2000) The Settlement of Foreign Investment Disputes. Kluwer Law International, p. 60; Christoph H Schreuer (2013) Investments, International Protection. In: The Max Planck Encyclopedia of Public International Law. http://opil.ouplaw.com/ abstract/10.1093/law:epil/9780199231690/law-9780199231690-e1533?rskey=HFO8B8&result= 1&prd=EPIL. Accessed 26 August 2018, para. 1. 277  Dimopoulos, this chapter, fn. 39, pp. 53 et seq. 278  Bischoff, this chapter, fn. 34, p. 1543. 279  See for a distinction of absolute and relative protection standards, McLachlan/Shore/Weiniger, this chapter, fn. 166, para. 7.19. 280  There are also positive obligations under IIPAs that require a State to act in order to protect the investment. Under those positive obligations, implementation is coupled to a certain conduct by the State and, concomitantly, a breach is coupled to an omission. For example, some forms of ‘denial of justice’ under the minimum standard of treatment (also considered part of the FET standard) or breaches under the ‘Full Protection and Security’ standard or certain promises by the host state to enable or enhance certain investments require positive action by the State. See in this respect Robbins, this chapter, fn. 275, pp.  424–431; Christoph H Schreuer and Rudolf Dolzer (2012) Principles of International Investment Law, 2nd edn. Oxford University Press, pp. 226– 227; Christoph H Schreuer (2007) Fair and Equitable Treatment (FET): Interactions with other Standards. 5(4) TDM, p. 4 with many references; with respect to the ‘Full Protection and Security Standard’, see McLachlan/Shore/Weiniger, this chapter, fn. 166, paras. 7.142 et  seq: ‘The Full Protection and Security Standard] is concerned with failures by the State to protect the investor’s property from actual damage caused by either miscreant State officials, or by the actions of others, where the State has failed to exercise due diligence’. 281  It has even been held that omissions cannot per se amount to an expropriation, Eudoro Armando Olguín v Republic of Paraguay, ICSID Case No ARB/98/5, Award, 26 July 2001. See also Robbins, this chapter, fn. 275, pp. 417–419. 276

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concessions, the reversal of rights and entitlements or even the ending of a contract or a commercial arrangement. The FET Standard equally consists mainly of an obligation on the host state’s part to refrain from a certain action.282 Under the FET Standard usually fall regulatory or legislative measures that affect the value of investments.283 The same is true with respect to the MFN and NT standards.284 As a result, it is important to note that violations of IIPAs are predominantly caused by state action, rather than non-action. Reversely, IIPAs mostly pose negative obligations. Whereas positive obligations can be predicted and ex ante determined in the treaty, this holds not true for negative obligations. 2.3.1.2.3.2.3  T  he Abstract Protection Standards Under IIPAs Can Be Breached by the Exercise of Any Regulatory Competence One feature of IIPAs is that they stipulate abstract and broad protection standards. These standards can be breached by any Member State or EU action adversely affecting protected investments and emanating from any branch of government, i.e. the judiciary, the administration and the legislator.285 Another feature is that these broad and abstract standards are complemented by broad and abstract definitions of ‘investment’, which cover literally any industry sector that is open to foreign investment.286 The bandwidth of state measures that can potentially affect investments and breach these standards is immense and can emanate from any given policy area based on any regulatory competence and carried by any public policy interest.287 It is true that states sometimes directly target foreign investments with the single purpose of depreciating or destroying its value and depriving the investor of its rights or unknowingly affect foreign investments without any public purpose in mind. However, state action affecting foreign investment is often embedded in a regulatory framework and executed to fulfil a public purpose. The notion that looming monetary arbitral awards could lead to a ‘regulatory chill’ is precisely based on the assumption that regulatory measures of the state can adversely affect foreign investment and breach IIPAs.288 For example, one feature of direct expropriations is  Schreuer, this chapter, fn. 280, p. 4.  See Dolzer/Schreuer, this chapter, fn. 280, pp. 130–160 with many examples from case law. 284  Robbins, this chapter, fn. 275, pp. 420–421. 285  Tietje/Sipiorski/Töpfer, this chapter, fn. 69, pp. 16–18; Tietje, this chapter, fn. 67, p. 17. 286  The ECT though is limited to energy investments. 287  See in general Catharine Titi (2014) The Right to Regulate in International Investment Law. Nomos and Hart Publishing; Catharine Titi (2015) Are Investment Tribunals Adjudicating Political Disputes? Some Reflections on the Repoliticization of Investment Disputes and (New) Forms of Diplomatic Protection. 32(3) JIntlA, pp.  261–288; Tietje/Sipiorski/Töpfer, this chapter, fn. 69, pp. 16–18; Tietje, this chapter, fn. 67, p. 17. 288  See Lars Markert (2011) The Crucial Question of Future Investment Treaties: Balancing Investors’ Rights and Regulatory Interests of Host States. In: Marc Bungenberg, Jörn Griebel and Steffen Hindelang (eds.) European Yearbook of International Economic Law  – International Investment Law and EU Law. Springer, pp. 145–171; Kyla Tienhaara (2011) Regulatory Chill and 282 283

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that they are performed in the public interest. Similarly, regulatory measures may also amount to indirect expropriations and violations of other obligations such as the FET standard.289 The public policy objectives that drive regulatory measures are taken into consideration when assessing under the FET standard the reasonableness of the investor’s legitimate expectations.290 Regulatory measures aimed at ­protecting inter alia the banking and financial sector,291 the environment,292 state security,293 public safety and health294 and human rights295 have already been found to violate protection standards under IIPAs. Taxation is another regulatory field that has led to investment disputes.296 It follows, that investment disputes oftentimes epitomise a conflict between the economical interests of the investor and the public policy interests of the host state. As the Saluka Tribunal stated with respect to the FET standard, the accommodation of both interests requires ‘a weighing of the legitimate and reasonable expectations of the investor on the one hand and the legitimate regulatory interests on the other.’297 It follows that, by and large, the implementation of IIPAs depends upon the non-exercise of regulatory or expropriatory measures adversely affecting the investments protected under the IIPAs. Behind the exercise of any regulatory or expropriatory measure typically lurks a competence to act. Federal states usually apportion regulatory competences amongst the central state and its constituent subdivisions. This is also true with respect to the EU and the Member States, which causes an additional layer of uncertainty with respect to the implementation of mixed IIPAs. The division of competences is set forth in Articles 2–6 TFEU. The policy area of competition and the CCP is exclusive

the Threat of Arbitration: A View from Political Science. In: Chester Brown and Kate Miles (eds.) Evolution in Investment Treaty Law and Arbitration. Cambridge University Press, pp. 606–628. 289  See Dolzer/Schreuer, this chapter, fn. 280, pp. 120–123. 290  See Jonathan Bonnitcha (2014) Substantive Protection under Investment Treaties: A Legal and Economic Analysis. Cambridge University Press, pp. 210 et seq. 291  See Alex Genin, Eastern Credit Limited, Inc and AS Baltoil v The Republic of Estonia, ICSID Case No ARB/99/2, Award, 25 June 2001. 292  See e.g. Compañía del Desarrollo de Santa Elena v Costa Rica, ICSID Case No ARB/96/1, Award, 17 February 2000, para. 71. 293  The many investment treaty cases concerning the Argentine crisis are a good example. See Titi (2015) Are Investment Tribunals Adjudicating Political Disputes? Some Reflections on the Repoliticization of Investment Disputes and (New) Forms of Diplomatic Protection, this chapter, fn. 287, pp. 267 et seq. 294  Metalclad Corporation v United States of Mexico, ICSID Case No ARB/01/7, Award, 25 May 2004; Técnicas Medioambientales Tecmed, SA v The United Mexican States, ICSID Case No ARB (AF)/00/2, Award, 29 May 2003. 295  CMS Gas Transmission Co v Argentina, ICSID Case No ARB/01/8, Award, 12 May 2005, para. 121. 296  See in general and citing arbitral case law, Ali Lazem and Ilias Bantekas (2015) The treatment of tax as expropriation in International investor–state arbitration. Arbitration International, aiv030. https://doi.org/10.1093/arbint/aiv030. Accessed 26 August 2018, pp. 1–46. 297  Saluka Investments BV v The Czech Republic, UNCITRAL, Partial Award, 17 March 2006, para. 306.

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to the EU. The policy areas of energy, agriculture, environment, consumer protection and public health are shared competences. Taxation, culture, tourism, education and property ownership are under Member State exclusive competence. In all these policy areas just mentioned the EU and the Member States can issue regulatory measures that may lead to an infringement of an obligation under mixed IIPAs.298 All the more, different regulatory competences may play together in the issuance of a measure affecting an investment. Sometimes it is not even clear which of multiple competences was exercised due to multiple legal bases when adopting a piece of legislation. In addition to the kaleidoscope of regulatory competences that might adversely affect foreign investment comes the Member State’s right to expropriate. The EU can regulate the conditions under which expropriations occur, the legality of property restrictions and the determination of compensation.299 However, the competence of Member States to nationalise and expropriate private property and to determine whether and when expropriation measures should be adopted remains untouched.300 As a result, despite the fact that the EU has the external competence for FDI and can enter into IIPAs with protection standards such as FET, these standards can be infringed through the exercise of any regulatory competence and any combination thereof, which are either exclusive to the EU, shared with the Member States or exclusive to the Member States. The obligations under IIPAs are so-called ‘interlocking’ obligations, the compliance with which relies on the entire bandwidth of competences, i.e. EU exclusive, shared or Member State exclusive competences.301 In the end, another layer of uncertainty as to who implements mixed IIPAs is created by the fact that where the EU enjoys regulatory competences most regulatory acts of the EU need to be implemented, applied and enforced by the Member States.302 2.3.1.2.3.2.4  A  ppraisal and Result: The Implementation of Mixed IIPAs Cannot Be Properly Translated into an Ex Ante Delimitation of Obligations Along Competence Lines Ex ante delimitation of obligations along competence lines might prove useful for mixed treaties aimed at achieving a certain result, requiring certain executive or legislative action. It might prove useful for mixed treaties where the respective

 See Tietje/Sipiorski/Töpfer, this chapter, fn. 69, p. 18; Ingolf Pernice (2014) Part III – Study on International Investment Protection Agreements and EU Law. EU Directorate-General for External Policies of the Union  – Investor-State Dispute Settlement (ISDS) Provisions in the EU’s International Investment Agreements, Volume 2  – Studies. http://www.europarl.europa.eu/ RegData/etudes/STUD/2014/534979/EXPO_STU(2014)534979(ANN01)_EN.pdf. Accessed 26 August 2018, p. 136; Karl, this chapter, fn. 34, p. 432; Dimopoulos, this chapter, fn. 67, p. 408. 299  Dimopoulos, this chapter, fn. 39, pp. 108–116. 300  Dimopoulos, this chapter, fn. 39, pp.  114–115; Dimopoulos, this chapter, fn. 67, p.  416; Herrmann/Crämer, this chapter, fn. 34, p. 93. 301  Björklund, this chapter, fn. 6, p. 381 with further references therein. 302  See below Sect. 3.1.2. 298

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implementing competences can be linked to the result to be achieved and even run parallel to external competences. Mixed IIPAs are no such treaties. Due to the abstract and broad protection standards stipulating negative obligations onto the state that aim not at requiring but prohibiting certain actions, a violation can stem from virtually any action, based on any imaginable regulatory competence of the EU and the Member States. On top of that, even where the EU has the regulatory competence and adopts legislation, it is often the Member States that implement, apply and enforce such EU legislation, which can in and of itself be a source for a breach of the mixed IIPA. Hence, the implementation of mixed IIPAs does not lend itself to ex ante delimit the obligations under them along competence lines.303 The outfit of IIPAs are not suitable for ex ante ascribing obligations to the party competent for implementation (‘carving up’ the mixed IIPA) because it simply depends on the case. Take the example of the FET standard. In theory, the compliance with the FET standard requires both the exercise and non-exercise of regulatory competences of the EU and the Member States. Thus, both are competent for its implementation. Yet again, knowing this is not helpful to the treaty parties. A delimitation would be utterly senseless. If the mixed IIPA would provide for an extroverted competence clause stipulating that the EU and the Member States are insofar bound by the protections standards, such as FET and non-discrimination, as they have the regulatory competences for it, would again evoke the myriad ways in which mixed IIPAs are breached, which is impossible for the treaty parties to fathom and identify. In the same vein, an introverted ‘competences clause’ with an annexed declaration of competence setting out that FDI is under exclusive competence of the EU and FPI is under shared competence is equally unhelpful since, again due to the incongruence of external and internal competences under the EU Treaties, this does not shed light on who implements the mixed IIPA. The only possible way to delimit would be a declaration of competence enumerating and setting out all the regulatory competences that might adversely affect foreign investment. Yet the success of such an endeavour will prove illusory. It would mean, at the moment of conclusion of the mixed IIPA, to fully absorb and capture each and every way, each and every exercise of regulatory competences that might breach the mixed IIPA. This would first require a casuistic survey exploring the potentially detrimental effects of regulatory measures on foreign investment, which equally might cause controversy between the EU and the Member States. Moreover, due to the vast array of possible measures based upon the myriad of regulatory competences and uncountable combination thereof that can infringe obligations under IIPAs, this would prove a herculean, if not Sisyphus-like endeavour. Furthermore, many regulatory competences are shared. It is impossible to determine ex ante whether the EU or the Member States exercise a shared competence in the future.304 Ultimately, even if it were clear ex ante that the EU would enjoy a

 Cf. Delgado Casteleiro, this chapter, fn. 196, pp. 498–499; Burgstaller, this chapter, fn. 137, p. 143; Roe/Happold, this chapter, fn. 39, p. 172. 304  Björklund, this chapter, fn. 6, p. 381. 303

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regulatory competence in a certain field that could adversely affect investments, most EU acts are implemented by the Member States. Since there are cases where only the implementation action of the Member States and not the regulatory framework of the EU act sit at odds with the EU IIPAs, it would be necessary to capture that eventuality in the delimitation as well. Yet this is impossible and again underlines that the competences for the implementation of mixed IIPAs cannot be set forth ex ante, but only on a case-by-case basis once the breach occurs. All in all, the dilemma of mixed IIPAs to accommodate the diversity of competences that can affect its implementation is addressed trenchantly by John Temple Lang: ‘The limits of exclusive competence, whatever they may be, are unlikely to correspond to any conveniently identifiable provisions of any draft convention.’305 In the end, it should be remembered that the EU and the Member States resort to the mixed formula for exactly the reason of leaving the division of competences intentionally undefined and open.306 To conclude, due to the major uncertainties and shortfalls surrounding delimitations, and the fact that the implementation of mixed EU IIPAs cannot be adequately translated into obligations along competence lines, post-Lisbon mixed IIPAs should not recur to any contractual delimitation. Rather, post-Lisbon mixed IIPAs should stick to the default rule under public international law that the EU and the Member States are bound by all obligations.

2.3.2  International Obligations Flowing from EU-Only IIPAs It is undisputed that the EU is internationally bound by all obligations under a EU-only IIPA since it is a formal treaty party to it. In contrast, Member States, in general, do not bear international obligations under EU-only treaties.307 This is because, first, under the law of treaties third parties that are not formal treaty parties—like Member States under EU-only agreements—cannot be bound under treaties unless the treaty provides for third party-effects and the third party agrees to such effects (Sect. 2.3.2.1). Second, Article 216(2) TFEU, which makes international agreements of the EU binding upon the Member States under EU law, does not establish obligations under international law (Sect. 2.3.2.2).

 Temple Lang, this chapter, fn. 198, p. 163; see also Ringbom, this chapter, fn. 81, p. 156: ‘But in theory, too, the ex ante delimitation is based on the (usually misleading) assumption that conventions and their subsequent implementation may be divided into separate and fully distinguishable parts’. 306  Joni Heliskoski (2010) Adoption of Positions under Mixed Agreements (Implementation). In: Christophe Hillion and Panos Koutrakos (eds.) Mixed Agreements Revisited  – The EU and its Member States in the World. Hart, p. 150. 307  Kuijper/Paasivirta, this chapter, fn. 155, p. 36; Kuijper/Paasivirta, this chapter, fn. 76, p. 116; Talmon, this chapter, fn. 76, p. 410; Hollis, this chapter, fn. 82, p. 108; Schmalenbach in Dörr/ Schmalenbach, this chapter, fn. 81, Article 26 VCLT, para. 55. 305

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2.3.2.1  M  ember States Do Not Assume International Obligations Under EU-Only IIPAs Under the Law of Treaties Generally, for states and international organisations that are not parties to a treaty, that treaty is res inter alios acta, i.e. the treaty leaves them unaffected.308 EU-only IIPAs, as opposed to mixed IIPAs, are not, by definition, signed and ratified by the Member States.309 Besides, the EU cannot conclude international treaties and assume international obligations on behalf of the Member States.310 Thus, Member States are no formal treaty parties to EU-only IIPAs. Rather, Member States must be considered third parties. Can Member States still be internationally bound by the obligations of a EU-only IIPA under the law of treaties, without being formal treaty parties to it? Articles 34 and 35 VCLT, which is mirrored in the VCLT-IO, codifies the principle of pacta tertiis, meaning that there can be no imposition of obligations on third parties without their consent.311 This derives from the rule of sovereignty and independence of states.312 Pursuant to Articles 34 VCLT, treaties do not create obligations for third states without the consent of that state. Pursuant to Articles 35 VCLT ‘[a]n obligation arises for a third State from a provision of a treaty if the parties to the treaty intend the provision to be the means of establishing the obligation and the third State expressly accepts that obligation in writing.’ Thus, bar any written assent of Member States to be bound by a EU-only IIPA, under the law of treaties EU-only IIPA do not directly create international obligations for Member States. One attempt to establish international obligations for Member States of international organisations under treaties to which solely an international organisation is a formal party was Article 36bis VCLT-IO.313 The provision was entitled: ‘Obligations and Rights for States members of an international organization from a treaty to  Malgosia Fitzmaurice (2002) Third Parties and the Law of Treaties. In: Jochen A Frowein and Rüdiger Wolfrum (eds.) Max Planck Yearbook of United Nations Law, Volume 6. Kluwer Law International, p. 38. 309  Cf. Article 218 TFEU; see also Eeckhout, this chapter, fn. 16, p. 258. 310  See Ramses A Wessel and Leonhard den Hertog (2013) EU Foreign, Security and Defence Policy: A Competence Responsibility Gap? In: Malcolm D Evans and Panos Koutrakos (eds.) The International Responsibility of the European Union. Hart Publishing, pp. 345–347 and citations contained therein. 311  Proelss in Dörr/Schmalenbach, this chapter, fn. 81, Article 34 VCLT, paras. 1–4, 10. 312  Shaw, this chapter, fn. 8, p. 703. 313  See in general on Article 36bis VCLT-IO, United Nations Conference on the Law of Treaties between States and International Organizations or between International Organizations, Vienna, Austria, 18 February–21 March 1986, UN Doc A/CONF.129/C.1/SR.19, 19th meeting of the Committee of the Whole. http://legal.un.org/docs/?path=../diplomaticconferences/1986_lot/docs/ english/vol_1/a_conf129_c1_sr19.pdf&lang=EF. Accessed 26 August 2018, pp.  140–145; Catherine Brölmann (2001) A Flat Earth? International Organizations in the System of International Law. 70(3) NordicJIntlL, pp. 327–330; Catherine Brölmann (2007) The Institutional Veil in Public International Law – International Organisations and the Law of Treaties. Hart Publishing, pp. 213– 225; Hollis, this chapter, fn. 82, pp.  84–86; Kuijper, this chapter, fn. 94, p.  223; Schütze, this chapter, fn. 15, pp. 196–197. 308

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which it is a party’. The provision stated that Member States of an international organisation could, under certain conditions, be internationally bound by international agreements concluded by the latter.314 The provision was intended to accommodate the independent international personality of the EU with the special status of its Member States, especially their importance during the conclusion and implementation of the treaty.315 However, Article 36bis VCLT-IO was finally deleted and did not find its way in the final version of the VCLT-IO because it was considered to be non-reflective of the general rules of public international law,316 and since some states considered it too severe an encroachment of their sovereignty.317 Instead, Article 74(3) VCLT-IO, a relict of the spurned Article 36bis VCLT-IO, was drafted, providing that ‘[t]he provisions of the present Convention shall not prejudge any question that may arise in regard to the establishment of obligations and rights for states members of an international organisation under a treaty to which that organisation is a party’. It follows that the question of whether Member States of an international organisation are internationally bound by treaties of the latter depends on the consent of the Member States in the specific circumstances and is to be resolved on a case-by-case basis.318 In conclusion, the law of treaties relies on the principle of pacta tertiis. There can be no international obligations incumbent upon Member States of an international organisation under treaties concluded by the latter without the consent of the former. This rule is premised on the principle of equality of international law subjects and that each subject is unitary, single-layered and one-dimensional.319 The Member States of international organisations remain fully sovereign and unhinged by the international agreements of international organisations they are members of. The fact that the Member States have created the organisation and vested it with treaty-­ making power does not lead to the automatic effect that the Member States are internationally bound by the organisation’s international agreements. Under the law

 Article 36bis of the ILC Draft of the VCLT-IO provided that: ‘Obligations and rights arise for state members of an international organization from the provisions of a treaty to which that organization is a party when the parties to the treaty intend those provisions to be the means of establishing such obligations and according such rights and have defined their conditions and effects in the treaty or have otherwise agreed thereon, and if (a) the states members of the organization, by virtue of the constituent instrument of that organization or otherwise, have unanimously agreed to be bound by the said provisions of the treaty; and (b) the assent of the states members of the organization to be bound by the relevant provisions of the treaty has been duly brought to the knowledge of the negotiating states and negotiating organizations’. 315  Cf. Schütze, this chapter, fn. 15, pp. 196–197. 316  See Fitzmaurice, this chapter, fn. 308, pp. 64–65. 317  Mary E Footer (2010) International Organizations and Treaties: Ratification and (Non)implementation of the Other Vienna Convention on the Law of Treaties. In: Alexander Orakhelashvili and Sarah Williams (eds.) 40 Years of the Vienna Convention on the Law of Treaties. British Institute of International and Comparative Law, pp. 193–194. 318  Shaw, this chapter, fn. 8, p. 723. 319  Brölmann (2007), this chapter, fn. 313, p. 256. 314

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of treaties, the contracting party and the addressee of the norm are one and the same party; there is no such thing as ‘secondary boundness’.320 Policy considerations lead to the same result. Automatically establishing obligations for Member States under EU-only agreements would mean to ignore the separate legal personality of the EU and the distinction between the EU and its Member States on the international plane.321 All the more, it would risk Member State interference in the decision-making processes of the EU for avoiding Member State liability.322 Specifically for smaller Member States to be held liable for obligations incumbent solely upon the EU could create an unacceptable risk,323 and under budget-­intensive remedy systems as the ones in international investment law even an existential risk. Furthermore, EU-only agreements would become de facto ‘hidden’ mixed agreements under public international law.324 2.3.2.2  M  ember States Do Not Assume International Obligations Under EU-Only IIPAs by Way of Article 216(2) TFEU Member States do not assume international obligations under EU-only IIPAs vis-à-­ vis the treaty parties of the EU by virtue of Article 216(2) TFEU (former Article 300(7) TEC), and treaty parties of the EU cannot rely on the provision to hold Member States liable under international law.325 The provision reads: ‘Agreements concluded by the Union are binding upon the institutions of the Union and on its Member States.’ Indisputably, this provision establishes an obligation for the EU institutions and the Member States to comply with and implement EU treaties, irrespective of the fact whether the treaty is concluded by the EU alone or together with its Member States. However, this provision does not and cannot establish  Ibid, p. 264.  Tomuschat, this chapter, fn. 10, p. 179; see also Klabbers, this chapter, fn. 13, pp. 278–280. 322  Cf. Björklund, this chapter, fn. 6, p. 396; Cedric Ryngaert and Holly Buchanan (2011) Member State responsibility for acts of international organizations. 7(1) ULRev, pp. 136–138. To the contrary, see Andrew Stumer (2007) Liability of Member States for Acts of International Organizations: Reconsidering the Policy Objections. 48(2) HarvIntlLJ, pp. 570 et seq. 323  Cf. Tomuschat, this chapter, fn. 10, p. 179. 324  Schütze, this chapter, fn. 15, p. 198. 325  See Eeckhout, this chapter, fn. 16, p. 325; Panos Koutrakos (2015) EU International Relations Law. Hart Publishing, pp. 211–212; Kuijper/Paasivirta, this chapter, fn. 155, p. 39; Schütze, this chapter, fn. 15, pp. 196–197; Fransesca Martines (2014) Direct Effect of International Agreements of the European Union. 25(1) EJIntlL, pp. 132–133; Klabbers, this chapter, fn. 13, pp. 279–280; Lock, this chapter, fn. 195, p. 101; Crawford, this chapter, fn. 81, p. 429; Streinz/Mögele in Rudolf Streinz (ed.) (2012) EUV/AEUV  – Vertrag über die Europäische Union und Vertrag über die Arbeitsweise der Europäischen Union, 2nd edn. CH Beck, Article 216 TFEU, paras. 45–47; Schmalenbach in Calliess/Ruffert, this chapter, fn. 24, Article 216 TFEU, paras. 25–26; leaving it open: Björklund, this chapter, fn. 6, pp. 395–400; Allan Rosas International Responsibility of EU and the European Court of Justice. In: Malcolm D Evans and Panos Koutrakos (eds.) The International Responsibility of the European Union. Hart Publishing, pp. 151–152. For an opposite view, see Stein, this chapter, fn. 234, p. 168; MacLeod/Hendry/Hyett, this chapter, fn. 223, p. 127. 320 321

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o­ bligations under international law. It solely establishes obligations for the Member States under EU law. This follows from the provision’s wording, purpose, and provenance. The provision addresses both EU institutions and the Member States. Since the EU institutions are already bound by EU-only agreements under public international law due to the principle of pacta sunt servanda, (Articles 26 VCLT/VCLT-IO), the mentioning of the EU institutions alongside the Member States demonstrates the purpose for Article 216(2) TFEU to only establish obligations under EU law.326 As the CJEU has clarified at numerous occasions, the purpose and scope of Article 216(2) TFEU is not to confer internationally enforceable rights onto the treaty parties of the EU against the Member States, but to impose a EU law o­ bligation onto the Member States vis-à-vis the EU to implement and comply with EU international agreements.327 The binding effect of EU international agreements on Member States under EU law is necessary because the implementation of many treaties for which the EU has the exclusive external competence depend upon the internal competences of the Member States and since secondary EU law is predominantly applied and enforced by the Member States.328 The internal effect of Article 216(2) TFEU facilitates, and even renders possible, the fulfilment of treaty obligations entered into by the EU and intends to avoid that the EU is being held responsible because Member States fail to act in accordance with a EU international agreement.329 If the Member States or the EU institutions fail to comply with EU international agreements, the Commission can recur to enforcement actions under EU law, such as initiating infringement proceedings under Articles 258–260 TFEU.330 Thus, Article 216(2) TFEU is a guarantee of compliance as it opens the enforcement mechanisms under EU law with respect to EU international agreements and complements the spirit of the principle of duty of cooperation enshrined in Article 4(3) TEU and Article 291(1) TFEU that postulates that Member States must comply with the obligations flowing from acts of EU institutions, including EU treaties.331 Another purpose of Article 216(2) TFEU is to clarify that the EU  Schütze, this chapter, fn. 15, p. 197; Eeckhout, this chapter, fn. 16, p. 325.  Case 12/86 Demirel [1987] ECR 3719, para. 11; Case C-327/91 France v Commission [1994] ECR I-3641, para. 25; Case C-13/00, Commission v Ireland [2002] ECR I-2943, para. 15: ‘In ensuring respect for commitments arising from an agreement concluded by the [Union] institutions, the Member States fulfil, within the [European] system, an obligation in relation to the [Union], which has assumed responsibility for the due performance of the agreement’; Case C-239/03 Commission v France (Étang de Berre) [2004] ECR I-9325, para. 26. But see Case 104/81 Kupferberg [1982] ECR 2641, para. 13, stating in addition to the above citation that: ‘Member States fulfil an obligation […] in relation to the non-member country concerned […]’. Importantly, this reference in Kupferberg to the Member States’ obligation towards the treaty parties of the EU to comply with EU-only treaties has been abandoned in the above-mentioned ECJ case law. 328  Eeckhout, this chapter, fn. 16, pp. 325–326. 329  Rosas, this chapter, fn. 325, p. 142; Martines, this chapter, fn. 325, pp. 132–133. 330  Case C-61/94, Commission v Germany [1996] ECR I-3989; Kuijper/Paasivirta, this chapter, fn. 155, p. 39; Hollis, this chapter, fn. 82, p. 111. 331  Kuijper/Paasivirta, this chapter, fn. 155, p. 39; Koutrakos, this chapter, fn. 325, p. 211. 326 327

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f­ ollows a monistic concept regarding the relation of public international law and EU law and that EU international agreements do not need a separate, transformative act of internal (EU or national) implementation to be a directly applicable, binding and integral part of the EU legal order.332 Finally, even if one would ignore the wording, purpose and the CJEU-clarified scope of Article 216(2) TFEU, which is to render EU international agreements only binding upon the Member States as a matter of EU law, treaty parties of the EU could still not use the provision to hold the Member States responsible under EU-only agreements. It must be remembered that Article 216(2) TFEU is no source of international law, at least for the treaty parties of the EU. Article 216(2) TFEU is a EU law provision and must be considered as internal law in the sense of Articles 27 VCLT/VCLT-IO.

2.4  C  onclusions Chapter 2: Obligations Under Mixed IIPAs Do Not Run Along Competence Lines This chapter has demonstrated that an apportionment of obligations under mixed IIPAs in accordance with the division of competences between the EU and the Member States depends on whether there are contractual delimitations of obligations to that effect laid down in the IIPA or not. If a mixed agreement does not contain such delimitations, the default rule under international law is that the division of competences as derives from the EU Treaties does not and cannot function as delimitation. The only exception to that is Articles 46 VCLT/VCLT-IO where a lack of treaty-making competence was ‘manifest’ to the treaty partners at the conclusion of the treaty. With respect to the ECT and post-­ Lisbon mixed IIPAs, however, this cannot be confirmed. The result is that the EU and each Member State assumes all obligations under mixed IIPAs, regardless of whether they lack the comprehensive treaty-making competences or implementing competences for them. If, however, a mixed IIPA contains a delimitation of obligations, such as a declaration of competence, a ‘competence clause’ referring to the competence partition in the EU Treaties or even ascribes parts of the IIPA or specific obligations to the ‘competent’ party, separate obligations for the EU and the Member States alongside the division of competences are legally possible. Yet uncertainties remain as to the degree of clarity delimitations must have to be effective under international law. The ECT does not contain a delimitation of obligations along competence lines. It appears that having refrained from including one was a wise decision by the drafters of the ECT. The raison d’être of delimitations in mixed agreements is to shed light  See Case 181/73 Haegeman [1974] ECR 449, paras. 2 et seq; see also Rosas, this chapter, fn. 325, p. 142; Eeckhout, this chapter, fn. 16, pp. 321 et seq; Jan Pieter Kuijper and Marco Bronckers (2005) WTO Law and the European Court of Justice. 42(5) CMLRev, p. 1314; Schütze, this chapter, fn. 15, p. 197.

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on the competent parties for the implementation of the obligations under the mixed agreement. Yet the implementation of IIPAs predominantly relies on non-action and a breach occurs whenever there is action. IIPAs can effectively be breached by the exercise of any regulatory (EU exclusive, shared or Member State exclusive) competence and any combination thereof adversely affecting protected investments under the treaty. Hence, the ways IIPAs are implemented do not reflect the competence partition under EU law. All the more, the ways IIPAs are implemented cannot be readily and adequately translated into obligations for the parties ex ante. It follows that delimitations are highly undesirable, unfeasible and an unviable solution for future post-Lisbon mixed IIPAs. If an IIPA is going to be concluded by the EU alone, only the EU assumes international obligations under it. The assumption of international obligations is comprehensive for the EU under EU-only IIPAs, and it does not stop short where the EU lacks any treaty-making or regulatory competences. Conversely, Member States, though having an obligation qua EU law to implement EU-only IIPAs, are not bound by EU-only IIPAs under international law.

Chapter 3

International Responsibility of the EU and the Member States for Breaches of EU IIPAs Under Traditional Rules

This chapter explores the international responsibility of the EU and its Member States for breaches of EU IIPAs. The answer to that question is to be found within the most authoritative rules on international responsibility to date, i.e. the ARS and the ARIO (together the ILC Articles), and in international case law. These sources of law are called here ‘traditional rules’ of international responsibility. As this study argues, they are complemented and partly superseded by the novel system of proceduralisation under post-Lisbon mixed IIPAs (not under the ECT and EU-only IIPAs), which is discussed in the next chapter. Whereas the EU IIPAs constitute the primary rules that define the content of the international obligations and the conditions and thresholds for their breach, the ARS and ARIO constitute secondary rules. They define the conditions for international responsibility to arise, the criteria for determining international responsibility and its consequences. The ARS govern the international responsibility of states. They apply to the international responsibility of the Member States of the EU, as their membership does not change their status as states under international law. The ARIO govern the international responsibility of international organisations. It is true that, as opposed to states, there is great variety of international organisations, and in particular the EU—due to its state-like features, its constitutional and supranational framework—forms a special international organisation, a so-called ‘Regional Economic Integration Organisation’.1 It can be questioned whether the ARIO apply to the EU. However, for a lack of a more specific codification tailored to the EU,2 it is assumed here for the purposes of the study. How is international responsibility defined and what are the conditions for it to arise? Article 1 ARS provides that ‘[e]very internationally wrongful act of a State 1  Bart van Vooren and Ramses A Wessel (2014) EU External Relations Law: Text, Cases and Materials. Cambridge University Press), pp. 4 et seq. 2  Kuijper/Paasivirta, above Chap. 2, fn. 155, p. 37.

© Springer Nature Switzerland AG 2019 P. T. Stegmann, Responsibility of the EU and the Member States under EU International Investment Protection Agreements, European Yearbook of International Economic Law 6, https://doi.org/10.1007/978-3-030-04366-7_3

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entails the international responsibility of that State’. In the same vein, Article 3 ARIO provides that ‘[e]very internationally wrongful act of an international organization entails the international responsibility of that organization’. It follows that international responsibility describes the legal consequences following an ‘internationally wrongful act’. These consequences are codified in Articles 28 ARS/ARIO et seq. They set out the remedies available against the internationally responsible entity. Yet the existence of international responsibility is linked to the existence of an ‘internationally wrongful act’. This is defined in Article 2 ARS and Article 4 ARIO respectively. They read: There is an internationally wrongful act of [a State/an international organization] when conduct consisting of an action or omission: (a) is attributable to [the State/that organization] under international law; and (b) constitutes a breach of an international obligation of [the State/that organization].

What derives from these provisions is the fact that the EU and the Member States owing international obligations does not automatically translate into their international responsibility in case of a breach of these obligations. Instead, international responsibility is based on the premise that a breach of an international obligation is caused by a specific conduct, ergo an international wrongful act. Hence, for international responsibility to arise, in addition to a breach of the obligation, the breaching conduct must be legally associated with, or ‘attributed’ to the incumbent of the obligation. Under the ILC Articles, generally, attribution of breaching conduct is a constituent element for international responsibility: no attribution, no international responsibility. However, attribution of conduct to one legal entity does neither exclude attributing that conduct to another entity as well, nor does it exclude attributing responsibility to another entity without attributing the breaching conduct to it. International responsibility is specifically challenging in the context of the EU and the Member States. This is due to their sharing of external (treaty-making) and internal (regulatory) powers and the fact that EU law is implemented by the Member States. The first part of this chapter will attempt to sketch the conditions and criteria under which the EU and/or the Member States are internationally responsible for conduct breaching EU IIPAs under the lex generalis of the ARS and the ARIO and international case law (Sect. 3.1). The second part will explore the effectiveness and viability of different forms of leges speciales (possible under Article 55 ARS and Article 64 ARIO) dealing with international responsibility of the EU and the Member States under EU IIPAs (Sect. 3.2).

3.1  I nternational Responsibility for Breaches of EU IIPAs Under the Lex Generalis of the ILC Articles and International Case Law As to the framework of the lex generalis, Articles 4–11 ARS and Articles 6–9 ARIO set out the rules on attribution of conduct: When can a specific conduct be considered an act of a state or, respectively, an act of an international organisation. Only

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when this is the case, the state or the international organisation directly incurs international responsibility, provided there is a breach, which is decided by the primary rules, and provided the state or international organisation is bound by the breached obligation under international law. Articles 14–17 ARIO, entitled ‘Responsibility of an international organization in connection with the act of a State or another international organization’ and Articles 58–62 ARIO, entitled ‘Responsibility of a State in connection with the conduct of an international organization’, set out rules on attribution of responsibility, instead of conduct.3 Here, an international organisation or a state can bear international responsibility even though the conduct is not attributable to it. Responsibility is secondary, derivative, ancillary since it does not exclude or even influence the international responsibility of the state or international organisation, to which the breaching conduct is attributable.4 This explicitly derives from Article 19 ARIO5 and Article 63 ARIO.6 Since Articles 6–9 ARIO do not have a comparable provision that leaves the international responsibility of the Member States untouched, one could mean that the ARIO enshrine an ‘either/or’-approach, i.e. a concept of exclusivity, meaning that when a conduct is attributable to the EU under the said Articles, they cannot be attributable to the Member States at the same time.7 However, since the ARIO enshrine a specific case—namely Article 7 ARIO8—where dual attribution is explicitly excluded,9 and as the ARIO Commentary explicitly mentions the possibility of dual attribution,10 there is some force in the

3  This becomes clear when looking at Articles 17 and 61 ARIO using the expression ‘incurs responsibility’. 4  ARIO Commentary, Chapter IV, para. 2: ‘The pertinent provisions on the responsibility of States for internationally wrongful acts are based on the premise that aid or assistance, direction and control, and coercion do not affect attribution of conduct to the State which is aided or assisted, under the direction or control, or under coercion’. 5  Article 19 ARIO reads: ‘This Chapter is without prejudice to the international responsibility of the State or international organization which commits the act in question, or of any other State or international organization’. 6  Article 63 ARIO reads: ‘This Part is without prejudice to the international responsibility of the international organization which commits the act in question, or of any State or other international organization’. 7  In this direction, Hoffmeister, above Chap. 2, fn. 243, p.  727; Pieter Jan Kuijper (2010) Introduction to the Symposium on Responsibility of International Organizations and of (Member) States: Attributed or Direct Responsibility or Both?’ 7(1) IntlOrgLRev, pp. 30–31. 8  Article 7 ARIO reads: ‘The conduct of an organ of a State […] that is placed at the disposal of another international organization shall be considered under international law an act of the latter organization if the organization exercises effective control over that conduct’. The provision emulates Article 6 ARS, which indisputably enshrines a rule of exclusive attribution. See ARS Commentary, Article 6, para. 1. 9  See Talmon, above Chap. 2, fn. 76, p. 413. 10  ARIO Commentary, Chapter II, para. 4: ‘Although it may not frequently occur in practice, dual or even multiple attribution of conduct cannot be excluded. Thus, attribution of a certain conduct to an international organization does not imply that the same conduct cannot be attributed to a State; nor does attribution of conduct to a State rule out attribution of the same conduct to an international organization’.

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argument that dual attribution is indeed possible under the ARIO.11 This means that if a single conduct is attributable to a Member State, it can also be attributable to the EU, and vice versa, triggering international responsibility of both (provided they owe the breached obligation). Coming to the international responsibility of the EU and the Member States under EU-only and mixed IIPAs, conduct of both the EU and the Member States is susceptible of breaching obligations under IIPAs.12 This provokes the question of which entity can be held internationally responsible for it. With respect to Member States this is nothing other than stating a truism that their conduct can breach EU IIPAs. With respect to EU conduct, this may not seem self-evident since EU law is usually implemented by the Member States and usually only indirectly affects investors and their investments.13 No Arbitral Tribunal so far has found a breaching conduct of the EU. Be that as it may, as an actor of international law the EU can breach IIPAs through its own conduct.14 Suffice it to refer to the broad protection standards of IIPAs, such as FET and the protection against indirect expropriations that are easily breached by legislation in general and that do not require a direct targeting of the investor and its investment in order to be infringed.15 Consider a Commission decision under the EU state aid prohibition rules requiring the reversal of certain economic incentives granted by a Member State to foreign investors. Or take the example of a EU directive prescribing plain packaging of cigarettes, standardisation of labelling, and authorizing Member States to require from tobacco companies to issue health warnings and graphic imagery on packaging.16 Or take a EU regulation prohibiting the transfer of capital, or a regulation prohibiting certain ingredients in certain goods. All these examples might infringe obligations, such as the FET standard, under IIPAs. When assessing international responsibility and attribution in the EU-Member State context one has to bear in mind the following three scenarios: First, attribution of breaching conduct by EU authorities, second, attribution of breaching conduct by Member State authorities and, third, attribution of breaching conduct by Member State authorities implementing EU law.   Advocating the possibility of dual attribution under the ARIO, Second Report on the Responsibility of International Organizations by Special Rapporteur Giorgio Gaja, ILC 56th session, UN Doc A/CN.4/541, 2 April 2004, para. 8; Nollkaemper, above Chap. 2, fn. 80, pp. 331– 332; Francesco Messineo (2014) Attribution of Conduct. In: André Nollkaemper and Ilias Plakokefalos (eds.) Principles of Shared Responsibility in International Law – An Appraisal of the State of the Art. Cambridge University, pp. 73–76; Talmon, above Chap. 2, fn. 76, p. 413. 12  Dimopoulos, above Chap. 2, fn. 39, p. 259; with respect to EU acts breaching IIPAs, see Happ, above Chap. 2, fn. 261, p. 77. 13  See Roe/Happold, above Chap. 2, fn. 39, pp. 179–180. 14  See Happ, above Chap. 2, fn. 261, pp. 77 et seq. 15  See Dolzer/Schreuer, above Chap. 2, fn. 280, pp. 98 et seq, pp. 130 et seq. 16  Cf. Directive 2014/40/EU of the European Parliament and of the Council of 3 April 2014 on the approximation of the laws, regulations and administrative provisions of the Member States concerning the manufacture, presentation and sale of tobacco and related products and repealing Directive 2001/37/EC [2014] OJ L 127, p. 1. 11

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3.1.1  T  he ‘Organic’ Model of Attribution of Conduct Under the ARIO and ARS The ARIO and the ARS follow an ‘organic’ model of attribution of conduct in order to assess whether a state or an international organisation has acted for purposes of international responsibility. Article 4(1) ARS reads ‘[t]he conduct of any State organ shall be considered an act of that State under international law […].’ Equally, Article 6(1) ARIO reads ‘[t]he conduct of an organ or agent of an international organization in the performance of functions of that organ or agent shall be considered an act of that organization under international law […].’ The criterion of an organic link between the immediate actor and the state and the international organisation respectively for attribution purposes reflects a well-established paradigm in international law that states and international organisations cannot act by themselves but need to act through organs, agents and other entities. The necessity of attributing conduct comes from the fact that states and international organisations are holistic, corporate-like actors, and need organs, natural persons, corporate entities and public institutions to act on their behalf. Kelsen remarked that the state ‘as an acting person is not a reality but an auxiliary construction of legal thinking’.17 The same is true with respect to international organisations such as the EU.  The basic justification for attributing along organic lines is the assumption that states and international organisations wield control over their own organs, agents and entities that they delegate.18 This is epitomised by the rules on attribution in Articles 4 and 8 ASR and Articles 6 and 7 ARIO, which are based on the notion of control. As Article 4(2) ARS makes clear, one has to consult the internal law of the state in order to find out whether an organ can be considered an organ of that state.19 The same is true when it comes to the organs and agents of international organisations, as follows from Articles 6(2), 2(c)(d) ARIO.  Since under EU law the European Parliament, the Council, the Commission and the CJEU are considered EU organs, the conduct of these organs is attributable to the EU pursuant to Article 6 ARIO. In the same vein, conduct of Member State organs is attributable to the Member State pursuant to Article 4 ARS. This is irrespective of whether Member States implement EU law since under the internal laws of the Member States they are considered to remain sovereign and their organs do not cease to be Member State organs only because they implement EU law.20 Whether such conduct is also attributable to the EU is discussed further below.

 Hans Kelsen (1967) Pure Theory of Law (translated from the 2nd German edn by Knight M). University of California Press, p. 292. 18  Christiane Ahlborn (2013) To Share or Not to Share? The Allocation of Responsibility between International Organizations and their Member States. 88(3–4) JIntlPOrg, pp. 50–51; Nollkaemper, above Chap. 2, fn. 80, p. 335. 19  ARS Commentary, Chapter II, para. 6. 20  Kuijper/Paasivirta, above Chap. 2, fn. 155, p. 54. 17

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The organic model of Article 4(1) ARS and Article 6(1) ARIO is complemented by rules that attribute otherwise non-attributable conduct to an international organisation in case a state organ ‘is placed under the disposal’ of the international organisation (Article 7 ARIO), or the state or the international organisation ‘adopts and acknowledges the conduct as its own’ (Article 11 ARS21 and Article 9 ARIO22). Especially the latter case can be relevant for purposes of attribution of conduct breaching EU IIPAs since it allows any conduct to be attributable to the EU or the Member States. It follows from the organic model in Article 4 ARS and Article 6 ARIO that the EU and the Member States are internationally responsible for the breaching conduct of their own organs.

3.1.2  C  apturing the Decentralised Implementation of EU Law by the Member States Under the Lex Generalis of the ARIO and International Case Law One important feature of the EU-Member State relationship is that the EU draws on the Member States to implement EU law, known under the notion ‘executive federalism’.23 Though the Commission and the Council can in a limited number of policy fields directly implement EU law,24 in general, it is the Member States’ legislator, administration and judiciary that give effect to EU law.25 Article 288 TFEU lays down the panoply of EU acts that are implemented by the Member State conduct: binding regulations, directives and decisions, and non-binding recommendations and opinions. EU regulations and decisions are directly applicable and must be applied and enforced by the Member States in their respective jurisdictions. These directly binding acts usually only contain an obligation for the Member States to act rather than an authorisation. Some regulations and decisions leave discretion to the Member States and some do not. EU Directives, on the other hand, are not directly applicable. When Member States enact legislation in order to transpose and give effect to EU directives, these directives only bind the Member States with respect to

 Article 11 ARS reads: ‘Conduct which is not attributable to a State under the preceding articles shall nevertheless be considered an act of that State under international law if and to the extent that the State acknowledges and adopts the conduct in question as its own’. 22  Article 9 ARIO reads: ‘Conduct which is not attributable to an international organization under articles 6 to 8 shall nevertheless be considered an act of that organization under international law if and to the extent that the organization acknowledges and adopts the conduct in question as its own’. 23  On the concept of ‘executive federalism’, see Robert Schütze (2010) From Rome to Lisbon: ‘Executive Federalism’ in the (New) European Union. 47(5) CMLRev, pp. 1385–1427. 24  This is the case for competition policy, trade defence, social or regional funds, and personnel matters. See Article 291(2) TFEU. 25  Article 291(1) TFEU reads: ‘Member States shall adopt all measures of national law necessary to implement legally binding Union acts’. 21

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the aims to be pursued but leave discretion as to the form and method of implementation. When speaking of the decentralised implementation of EU law by the Member States one can, thus, identify three sub-scenarios relevant for international responsibility under EU IIPAs. The first scenario concerns Member States correctly implementing a binding EU act that leaves no discretion whatsoever. The second scenario concerns Member States incorrectly implementing a EU act that leaves no discretion whatsoever. The third scenario concerns Member States correctly implementing a EU act that leaves discretion as to the way of implementation. Some authors have suggested to capture the power dynamics underlying the decentralised implementation of EU law for purposes of international responsibility in such a way that the Member States would be under the ‘normative control’26 of the EU. It was even explicitly argued that ‘normative control’ should be elevated into a criterion for attributing under international law Member State conduct to the EU.27 In short, the term and the justification for attribution to the EU is associated with the fact that the EU, as a legal entity distinct from its Member States, has gained regulatory competences from the Member States that in turn ceded sovereign powers through the process of conferral and that the EU, through its institutions, can take normative decisions. These normative decisions bind the Member States, which must carry out and implement them. Even though the Member States might have procedural, applicatory or even legislative leeway, the normative decisions provide the basis for and define the scope of Member State action. The determination of the substantive legality of the Member State action with EU law and the control over that action resides with the EU.28 And since the normative regulatory competence lies with the EU, it is EU law that governs the available remedies in case the Member  On the notion of ‘normative control’, see Andrés Delgado Casteleiro (2011) The International Responsibility of the European Union: From Competence to Normative Control. PhD thesis, European University Institute; Kuijper/Paasivirta, above Chap. 2, fn. 76, p. 127; Kuijper/Paasivirta, above Chap. 2, fn. 155, p. 55; Talmon, above Chap. 2, fn. 76, pp. 412–414; Hoffmeister, above Chap. 2, fn. 243, pp. 741–743; Nollkaemper, above Chap. 2, fn. 80, pp. 335–337; Jean d’Aspremont (2014) A European Law of International Responsibility? The Articles on the Responsibility of International Organizations and the European Union. In: Vasiliki Kosta, Nikos Skoutaris and Vassilis Tzevelekos (eds.) The EU Accession to the ECHR. Hart Publishing, p. 76; José Manuel Cortés Martín (2013) Exceptionalism in International Law? The European Union and the System of International Responsibility. In: Maurizio Ragazzi (ed.) Responsibility of International Organizations: Essays in Memory of Sir Ian Brownlie. Martinus Nijhoff Publishers, pp. 194–199; Dimopoulos, above Chap. 2, fn. 39, p. 268; Christiane Ahlborn (2011) The Rules of International Organizations and the Law of International Responsibility. 8(2) IntlOrgLRev, pp. 450–458; Arman Sarvarian (2014) The EU Accession to the ECHR and the Law of International Responsibility. In: Vasiliki Kosta, Nikos Skoutaris and Vassilis Tzevelekos (eds.) The EU Accession to the ECHR. Hart Publishing, pp. 90–91. 27  Hoffmeister, above Chap. 2, fn. 243, p. 746; Talmon, above Chap. 2, fn. 76, p. 414: ‘It is therefore suggested that attribution of conduct be based on the normative criterion of performance of functions under the rules of the organization’. 28  Hoffmeister, above Chap. 2, fn. 243, pp. 741–743, at p. 742: ‘When it is established that Union law governs both the substantive legality of and the available remedies for a measure, then the Union exercises normative control over it’; Nollkaemper, above Chap. 2, fn. 80, p. 335. 26

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State conduct is inconsistent with international law.29 Hence, the EU exercises, though in varying degree and depending on the EU act in question that leaves more, less or no leeway to the Member States, ‘normative control’ over its Member States when they implement EU law. Therefore, whenever the Member States correctly, incorrectly or even discretionarily implement EU law, the ‘normative control’approach to attribution would demand that such conduct shall be attributed to the EU. Albeit any soundness of the theoretical underpinnings of the ‘normative control’-approach that may warrant attribution of Member State implementation conduct to the EU, the following assessment will show that ‘normative control’, and any variant of Member States correctly, incorrectly or discretionarily implementing EU law, cannot be soundly captured under any rule of attribution of conduct or any rule of secondary responsibility under the lex generalis of the ARIO. Neither can it be said that there is a uniform and consistent international case law for the attribution of Member State implementation conduct to the EU. Though the EU has faced responsibility for such conduct under WTO case law, the ECtHR has categorically refused any attribution of such conduct to the EU. Moreover, as will be shown, it is difficult to transfer the rationale of the WTO case law onto the dynamics underlying the implementation of EU IIPAs. It is true that the ILC called Member State conduct implementing binding acts of the EU a possible special rule of international responsibility and thereby referred to WTO and ECHR case law.30 However, as the discrepancy of outcomes under the WTO and ECHR case law shows, there is no such overarching special rule in international law. 3.1.2.1  T  he ARIO’s (Non-)Recognition of the Decentralised Implementation of EU Law by Member States The ILC rejected the suggestion to include a provision in the ARIO that would explicitly attribute Member State conduct implementing binding EU law to the EU.31 Special Rapporteur Gaja specifically rejected the idea that Member States (or  Ibid.  ARIO Commentary, Article 64, paras. 2 et seq, and at para. 2: ‘By way of illustration, it may be useful to refer to one issue which has given rise in practice to a variety of opinions concerning the possible existence of a special rule: that of the attribution to the European Community (now European Union) of conduct of States members of the Community when they implement binding acts of the Community’. The Commentary continues citing the conflicting stances of WTO jurisprudence favouring attribution to the EU, and ECtHR case law favouring attribution to the Member States. 31  Seventh Report on the Responsibility of International Organizations by Special Rapporteur Giorgio Gaja, ILC 61st session, UN Doc A/CN.4/610, 27 March 2009, paras. 31–33, and at p. 96: ‘It seems preferable at the current stage of judicial developments not to assume that a special rule has come into existence to the effect that, when implementing a binding act of the European Communities state authorities would act as organs of the European Community’; see also D’Aspremont, above Chap. 3, fn. 26, p. 78. 29 30

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their organs) could be characterised as organs of international organisations on the international plane in general and under Article 6 ARIO specifically when implementing the acts of an international organisation.32 Moreover, the lack in the Commentary to Article 6 ARIO of contemplating whether Member States can be seen as organs or agents of the EU in certain instances and the explicit mentioning of a special rule regarding the implementation of EU law by the Member State in the Commentary to Article 64 ARIO, which enshrines the possibility for a lex specialis, strongly suggests, e contrario that Member States cannot be seen as organs or agents of the EU under the ARIO. Some scholars argue that, nevertheless, Member States should be seen as organs or agents of the EU when implementing EU law, at least when they do not have any discretion, an outcome that could be attuned with Article 6 ARIO relying on an ‘organic model’ of attribution.33 Others reject the contention that Member States and their organs implementing EU law can be considered organs or agents of the EU under Article 6 ARIO.34 Intuitively the latter seems correct, as the extent of control wielded by the EU over its Member States does not amount to the level of control wielded by states or international organisations over their own organs.35 Be that as it may, since Articles 6(2), 2(c)(d) ARIO concede to the international organisation’s  See Seventh Report on the Responsibility of International Organizations by Special Rapporteur Giorgio Gaja, ILC 61st session, UN Doc A/CN.4/610, 27 March 2009, para. 33, where Special Rapporteur Gaja invoked Bosphorus Hava Yollari Turizm v Ireland [GC] Application No 45036/98, 30 June 2005, ECHR Reports 2005-VI, para. 153; and Joined Cases C-402/05 P and C-415/05 Kadi [2008] ECR I-06351. In the Eight Report on the Responsibility of International Organizations by Special Rapporteur Giorgio Gaja, ILC 63rd session, A/CN.4/640, 14 March 2011, p. 37, Special Rapporteur Gaja invoked Kokkelvisserij v The Netherlands [GC] Application No 13645/05, 20 January 2009. Recently, Gaja noted: ‘The ILC articles on the responsibility of international organizations start from the premise that, as a rule, acts of member States are not attributable to the organization’, see Giorgio Gaja (2013) The Relations Between the European Union and its Member States from the Perspective of the ILC Articles on Responsibility of International Organizations. SHARES Research Paper 25. www.sharesproject.nl/wp-content/uploads/2013/06/ SHARES-RP-25-final.pdf. Accessed 26 August 2018, p. 5. 33  See Talmon, above Chap. 2, fn. 76, p. 412: ‘This general rule on attribution of conduct to an international organization seems wide enough to cover the relationship between the EC and the authorities of its member States. The latter may be regarded as agents of the EC’; Ahlborn, this chapter, fn. 26, p. 453; Messineo, this chapter, fn. 11, pp. 73–76, stating at p. 76: ‘If, according to EU law, certain organs of member states are assigned certain functions of the EU – namely, the implementation of EU measures under Article 291(1) of the Treaty on the Functioning of the European Union – each act of implementation becomes a situation in which the organs of the state are de jure, and not de facto, organs of the EU for the purposes of Article 5 of the ARIO [now Article 6 ARIO]’; see also Roe/Happold, above Chap. 2, fn. 39, p. 180. 34  See e.g. Kuijper/Paasivirta, above Chap. 2, fn. 155, p. 54: ‘The ‘organic model’ does not capture the core features of the EU action, since the Member States are seen as remaining sovereign and not constituting organs of the organisation in a formal sense’, and at p. 68: ‘The ILC does not admit to any significant degree to the EU’s operational realities based on executive federalism, but turns it into an example of the traditional model of international organisations acting through their organs’. 35  See Second Report on the Responsibility of International Organizations by Special Rapporteur Giorgio Gaja, ILC 56th session, UN Doc A/CN.4/541, 2 April 2004, para. 13. 32

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internal law the role of determining when an entity is considered its organ or agent, one should revert to the internal law in answering that question, which, thus, becomes directly relevant for the question of attribution. It is relatively uncontested that under attribution principles of EU law, Member State organs are not considered formal EU organs since Member State organs institutionally and functionally do not appertain to the EU administration machinery and do not loose their affiliation and dependence to the Member States when implementing EU law.36 The EU even explicitly differentiates between Member State organs and EU organs for purposes of state liability for breaches of EU law (Article 340(2) TFEU, Article 263 TFEU, Article 51(1) of the EU Charter of Fundamental Rights).37 The more compelling argument would be to consider Member States as agents of the EU, which under Article 2(d) ARIO are not organs, but ‘charged by the organization with carrying out, or helping to carry out, one of its functions, and thus through whom the organization acts’. This definition seems to fit the scenario of Member States implementing EU law, vested with authority under Article 291(1) TFEU, at least when they execute binding EU acts, which do not leave any discretion.38 However, importantly, the EU appears now to reject any attribution of Member State conduct to the EU, including the agent-scenario. Article 1(4) of the Draft Revised Agreement on the Accession of the European Union to the ECHR (Draft ECHR Accession Agreement) reads: ‘For the purposes of the Convention, of the protocols thereto and of this Agreement, an act, measure or omission of organs of a member State of the European Union or of persons acting on its behalf shall be attributed to that State, even if such act, measure or omission occurs when the State implements the law of the European Union, including decisions taken under the Treaty on European Union and under the Treaty on the Functioning of the European Union. This shall not preclude the European Union from being responsible as a co-­ respondent for a violation resulting from such an act, measure or omission, in accordance with Article 36, paragraph 4, of the Convention and Article 3 of this Agreement [emphasis added]’.39 The Draft Explanatory Report to the Agreement on  Andrès Delgado Casteleiro (2014) United We Stand: The EU and its Member States in the Strasbourg Court. In: Vasiliki Kosta, Nikos Skoutaris and Vassilis Tzevelekos (eds.) The EU Accession to the ECHR. Hart Publishing, p. 107; Schütze, this chapter, fn. 23, pp. 1419–1420. But see Kuijper/Paasivirta, above Chap. 2, fn. 76, pp. 126–127; Kuijper/Paasivirta, above Chap. 2, fn. 1, p. 192; Hoffmeister, above Chap. 2, fn. 243, pp. 739–743. 37  See Sarvarian, thischapter, fn. 26, p. 91. 38  Cf. Ahlborn, thischapter, fn. 26, p.  453; Kuijper/Paasivirta, above Chap. 2, fn. 1, p.  192; Dimopoulos, above Chap. 2, fn. 39, pp. 260–261; Hoffmeister, above Chap. 2, fn. 243, pp. 740– 741; Messineo, this chapter, fn. 11, p. 76; Joseph H H Weiler and Nicolas J S Lockhart (1995) “Taking Rights Seriously” Seriously: The European Court of Justice and its Fundamental Rights Jurisprudence. 32(1) CMLRev, pp. 73–74; René Barents (2012) The Fallacy of European Multilevel Constitutionalism. In: Matej Avbelj and Jan Komárek (eds.) Constitutional Pluralism in the European Union and Beyond. Hart Publishing, p. 165; Paul Craig and Gráinne de Búrca (2015) EU Law, Text, Cases, and Materials, 6th edn. Oxford University Press, pp.  410–411; see also the Opinion of AG Jacobs in Case C-5/88 Hubert Wachauf [1989] ECR 2609, para. 22. 39  Draft Revised Agreement on the Accession of the European Union to the Convention for the Protection of Human Rights and Fundamental Freedoms, Fifth Negotiation Meeting between the 36

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the Accession of the European Union to the ECHR (Explanatory Report to the ECHR Accession Agreement) stipulates that ‘under EU law, the acts of one or more Member States or of persons acting on their behalf implementing EU law, including decisions taken by the EU institutions under the TEU and the [TFEU], are attributed to the member State or member States concerned [emphasis added]’.40 Thus, it appears difficult to see Member States as agents of the EU, as EU law itself appears to reject that contention. Article 6 ARIO, hence, does not capture the decentralised implementation of EU law by the Member States. And even if so, the conduct would, arguably, remain attributable to the Member States pursuant to Article 4 ARS since Article 6 ARIO does not exclude dual attribution of the same conduct to two entities, namely the EU and a Member State.41 In a similar vein, Article 7 ARIO42 providing that ‘the conduct of an organ of a state which is placed at the disposal of an international organization shall be considered under international law to be conduct of the international organization if the organization exercises effective control over such conduct’, cannot be properly attuned to the relationship between the EU and its Member States when the latter implement EU law.43 The notion of ‘effective control’ was tailored to UN military and peacekeeping operations and describes an operational form of control in a ‘chain of command’-sense regarding armed forces.44 Such form of control hardly captures the regulatory-implementary relationship between the EU and the Member States.45 Moreover, the EU does not exert such operational, or factual control over its Member States. It is true that Article 9 ARIO can cover cases of ‘executive federalism’ where the Member States implement EU law. The EU must acknowledge and adopt the Member State’s conduct as it own. However, this provision only leads to EU responsibility on a case-by-case basis and does not enshrine an abstract attribution rule. Furthermore, Article 9 ARIO requires a voluntary decision by the EU to assume responsibility and leaves open instances where the EU is unwilling to do so. CDDH Ad Hoc Negotiation Group and the European Commission on the Accession of the European Union to the European Convention on Human Rights, Final Report to the CDDH, 10 June 2013, Appendix I. http://www.echr.coe.int/Documents/UE_Report_CDDH_ENG.pdf. Accessed 26 August 2018. 40  Draft Explanatory Report to the Agreement on the Accession of the European Union to the Convention for the Protection of Human Rights and Fundamental Freedoms, Fifth Negotiation Meeting between the CDDH Ad Hoc Negotiation Group and the European Commission on the Accession of the European Union to the European Convention on Human Rights, Final Report to the CDDH, 10 June 2013, Appendix V, http://www.echr.coe.int/Documents/UE_Report_CDDH_ ENG.pdf. Accessed 26 August 2018, para. 23. 41  See again this chapter, fn. 11. 42  Providing a detailed analysis of Article 7 ARIO, Messineo, this chapter, fn. 11, pp. 88–96. 43  But see Steinberger, above Chap. 2, fn. 7, pp. 850–853. 44  ARIO Commentary, Article 7, paras. 6 et seq; see also Behrami v France; Saramati v France, Germany and Norway [GC] Application No 71412/01 and 78166/01, 2 May 2007. 45  Hoffmeister, above Chap. 2, fn. 243, pp. 726–727; Dimopoulos, above Chap. 2, fn. 39, p. 262; Ringbom, above Chap. 2, fn. 81, p. 160.

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Lastly, the rules on responsibility ‘in connection with the act of the State’ under the ARIO, namely Article 15 ARIO46 and Article 17 ARIO,47 exhibit difficulties in capturing the idiosyncrasies of ‘normative control’ that underlies the EU-Member State relationship when Member States implement binding EU law.48 Article 15 ARIO, which is based on Article 17 ARS, requires an operative form of control, a factual dependency between the international organisation and the Member State and, most importantly, the organisation’s ‘knowledge of circumstances’ that led to the breach of international law.49 Equally, Article 17 ARIO requires a subjective element on the part of the international organisation, i.e. an intention to circumvent its own international obligations by instrumentalizing its Member States.50 Now, when the EU, for example, enacts a regulation leaving no room for manoeuvre and the Member States’ implementing act breaches a EU IIPA, it cannot be said that the EU had necessarily the ‘intention’ or even ‘knowledge’ of breaching the EU IIPA. In other words, when issuing binding EU acts for the Member States to implement, the EU did not order the Member State to act contrary to the EU’s international obligations.51 In any case, such ‘knowledge’ or ‘intention’ may be established in certain circumstances on a case-by-case basis, but Article 15 and Article 17 ARIO do certainly not cover categorically all cases of ‘executive federalism’. Finally, even if the said Articles 14–17 ARIO would capture ‘normative control’, this would only lead to the additional international responsibility of the EU.52 As a result, it can be said that the lex generalis of the ARIO, as it stands, does not capture the decentralised implementation of EU law by the Member States, even in  Article 15 ARIO concerns international organisations directing and controlling a state in the commission of an internationally wrongful act. It reads: ‘An international organization which directs and controls a State or another international organization in the commission of an internationally wrongful act by the State or the latter organization is internationally responsible for that act if: (a) The former organization does so with knowledge of the circumstances of the internationally wrongful act; and (b) The act would be internationally wrongful if committed by that organization’. 47  Article 17(1) ARIO concerns the international organisation’s circumvention of its international obligations through decisions addressed to its members. It reads: ‘An international organization incurs international responsibility if it circumvents one of its international obligations by adopting a decision binding member States or international organizations to commit an act that would be internationally wrongful if committed by the former organization’. 48  Cf. Cortés Martín, above, this chapter, fn. 26, pp.  193–194; Talmon, above Chap. 2, fn. 76, p.  410; Hernández, above Chap. 2, fn. 10, pp.  651–652; Sarvarian, this chapter, fn. 26, p.  98; August Reinisch (2010) Aid or Assistance and Direction and Control between States and International Organizations in the Commission of Internationally Wrongful Acts. 7(1) IntlOrgLRev, pp. 63–77. But see Dimopoulos, above Chap. 2, fn. 39, pp. 263–264; Steinberger, above Chap. 2, fn. 7, pp. 850–853; Kuijper, above Chap. 2, fn. 94, pp. 217–218; Ramses A Wessel (2011) Division of International Responsibility between the EU and its Member States in the Area of Foreign Policy, Security and Defence Policy. 3(3) ALF, pp. 37–40; Nollkaemper, above Chap. 2, fn. 80, p. 336. 49  ARIO Commentary, Article 15 ARIO, para. 4. 50  Bischoff, above Chap. 2, fn. 34, p. 1565; ARIO Commentary, Article 17, paras. 4, 6–7. 51  Bischoff, above Chap. 2, fn. 34, p. 1565. 52  See again Article 19 ARIO. 46

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cases when the Member States implement binding EU acts that do not leave any discretion to them. Such conduct is, in principle, not attributable to the EU pursuant to the ARIO, but remains attributable to the Member States pursuant to the ARS. 3.1.2.2  ( Incoherent) International Case Law Regarding the Decentralised Implementation of EU Law by the Member States There is a considerable body of international case law concerning the attribution of Member State conduct implementing EU law. Most of it stems from adjudication practice under the mixed WTO Treaties and under the Member States-only ECHR. Though there is also case law under the UNCLOS and the ECT concerning the decentralised implementation of EU law, this will not be assessed here since both treaties contain, arguably, in contrast to the WTO Treaties53 and the ECHR,54 a contractual lex specialis regarding international responsibility, which is dealt with further below. WTO and ECHR case law represent two opposing views, the former holding the EU responsible for Member State conduct in implementation of EU law, and the latter holding the Member State responsible, regardless of whether EU law is involved or not. 3.1.2.2.1  W  TO Case Law: International Responsibility of the EU for Member State Conduct Implementing EU Law At face value, WTO Panels have been receptive to the idea of attributing Member State conduct implementing EU law—regardless of discretionary freedom granted to the them or not—to the EU and holding the EU exclusively internationally responsible for such conduct.55 A first line of case law concerns the mere execution of EU law, i.e. the implementation of EU regulations binding the Member States in the EU customs and tariffs field, leaving no discretion how and no option for the Member States but to apply the relevant EU law. In the EC–LAN case,56 the EU stated to be ‘ready to assume the entire international responsibility for all measures in the area of tariff concessions, whether the measure complained about has been

 The WTO Treaties do not contain a contractually agreed lex specialis to international responsibility with respect to the EU and the Member States, such as a competence clause or a declaration of competence. See Steinberger, above Chap. 2, fn. 7, p. 840. 54  The ECHR framework will contain a lex specialis once the EU accedes to it. See below Sect. 4.1.1. 55  See for discussions of international responsibility of the EU and its Member States at the WTO, Marín-Durán, above Chap. 2, fn. 270; Andrés Delgado Casteleiro and Joris Larik (2013) The ‘Odd Couple’: The Responsibility of the EU at the WTO. In: Malcolm D Evans and Panos Koutrakos (eds.) The International Responsibility of the European Union. Hart Publishing, pp. 233–255. 56  WTO Panel Reports, Cases WT/DS62/R; WT/DS67/R; WT/DS68/R EC – Customs Classification of certain computer equipment (LAN). 53

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taken at the EU level or at the level of Member States.’57 The Panel avoided addressing the question of attribution of Member State conduct to the EU explicitly, but ruled that the EU and the Member States ‘are all bound’ under the WTO Treaties and the ‘examination will focus, […] on whether customs authorities in the EC, including those located in Ireland and the United Kingdom, have or have not deviated from the obligations assumed under that Schedule.’58 Thus implicitly, the Panel found that Member State custom authorities functionally acted as organs of the EU when implementing EU law. This is confirmed by the Appellate Panel, which found that it was the EU alone to have ‘acted inconsistently with its obligations under Article II GATT’ and addressed recommendations to the EU only.59 In a more straightforward manner, in the EC–Selected Customs Matters case, the Panel held ‘that the authorities in the Member States–including customs authorities designated for that purpose by the Member States and independent bodies, such as a judicial authority or an equivalent specialized body–act as organs of the European Communities when they review and correct administrative actions taken pursuant to EC customs law’.60 In this case, the Commission even explicitly equated the relationship of the EU to its Member States to that of a federal state to its constituent subdivisions for purposes of international responsibility.61 Similarly, in the EC– Geographic Indications case, the Panel ‘accepted the European Communities’ explanation of what amounts to its sui generis domestic constitutional arrangements that Community laws are generally not executed through authorities at Community level but rather through recourse to the authorities of its member States which, in such a situation, ‘act de facto as organs of the Community, for which the Community would be responsible under WTO law and international law in general”.62 However, in the recent EC–IT Products case, which concerned Member State tariff treatment in response to binding EU regulations, the Panel sidestepped the question of attribution of Member State conduct to the EU.  Relying on the nature of the claim, the Panel emphasised ‘the complainants have framed their claims as challenging the [EU] measures ‘as such’ and have confirmed to the Panel that they are not making claims with respect to specific applications of those measures by national customs authorities of any member States. Under the circumstances, the Panel considers that it is not required to make, and does not make,

 WTO Panel Reports, Cases WT/DS62/R; WT/DS67/R; WT/DS68/R EC – Customs Classification of certain computer equipment (LAN), para. 4.15. 58  WTO Panel Reports, Cases WT/DS62/R; WT/DS67/R; WT/DS68/R EC – Customs Classification of certain computer equipment (LAN), para. 8.16. 59  Ibid, paras. 9.1–9.2. The issue of the proper respondent was not raised again on appeal: Appellate Body Reports, Cases WT/DS62/AB/R, WT/DS67/AB/R, WT/DS68/AB/R, EC  – Customs Classification of certain computer equipment (LAN), para. 57. 60  WTO Panel Report, Case WT/DS315/R EC–Selected Customs Matters, para. 7.553. 61  WTO Appellate Body Report, Case WT/DS315/AB/R EC–Selected Customs Matters, paras. 83–84. 62  WTO Panel Report, Case WT/DS174/R EC–Protection of Trademarks and Geographical Indications for Agricultural Products and Foodstuffs, paras. 7.98, 7.725. 57

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findings with respect to member States’ application of the [EU] measures that were challenged ‘as such’ in this dispute’.63 A second line of WTO cases concerned scenarios under which the Member States acted under the scope of EU law but where not obliged to act in a certain way. In the EC–Commercial Vessels case, which concerned state aid measures by a Member State permitted under a EU regulation and specifically authorised by the Commission, the EU declared that it takes ‘full responsibility under international law’ for the Member State measures and that these measures are measures of the EC (now the EU) under the lens of WTO law.64 Without specifically discussing attribution, the EU was found internationally responsible for the Member State conduct. Similarly, the EC-Biotech case65 concerned Member State safeguard measures targeting the import of genetically modified products under the umbrella of a EU directive, which authorised but not imposed the issuance of such measures. Here, the WTO panel stated that ‘the European Communities never contested that, for the purposes of this dispute, the challenged member States measures are attributable to it and can be considered EC measures. Indeed it was the European Communities – and it alone – that defended the contested member States safeguard measure before the Panel’.66 In the EC-Asbestos case,67 the EU acted as the sole respondent and successfully defended a case concerning a Member State decree banning asbestos and asbestos-containing products for public health reasons, even though, interestingly, the EU only exercised its shared competence (on public health) and enacted a directive on that particular matter after the decree was adopted.68 In contrast to these cases stands the EC-Airbus case,69 which concerned subsidies granted separately by the EU and some of its Member States. Here, the Panel rejected the EU’s application to erase the Member States from the list of respondents and stated, albeit the EU’s full assumption of responsibility for Member State action in the proceedings,70 the absence of the Member States in the proceedings is ‘a matter entirely within their discretion’ and does ‘not affect their rights or status as respondent parties’ under WTO law.71 Going one step further, the WTO panel held that ‘[w]hatever responsibility the European Communities bears for the actions of its member States  WTO Panel Reports, Cases WT/DS375/R; WT/DS376/R, WT/DS377/R EC and MS–Tariff Treatment of Certain Information Technology, para. 8.2. 64  WTO Panel Report, Case WT/DS301/R, EC–Measures Affecting Trade in Commercial Vessels, para. 7.32. 65  WTO Panel Reports, Cases WT/DS291/R; WT/DS292/R; WT/DS293/R EC–Measures Affecting the Approval and Marketing of Biotech Products. 66  Ibid, para. 7.101. 67   WTO Panel and Appellate Body Reports, WT/DS/135/R; WT/DS/AB/135 EC–Measures Affecting Asbestos and Products containing Asbestos. 68  The EU enacted directives banning certain forms of asbestos before, yet these did not cover the form of asbestos covered by the decree. 69  WTO Panel Report, Case WT/DS316/R EC and certain MS–Measures Affecting Trade and Large Civil Aircraft. 70  Ibid, para. 7.171. 71  Ibid, para. 7.176. 63

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does not diminish [the member States’] rights and obligations as WTO Members, but is rather an internal matter concerning the relations between the European Communities and its member States’.72 In the end, the Panel determined that both the EU and the Member States had acted inconsistently with their WTO obligations and addressed remedies accordingly.73 What follows from the WTO case law is that under the WTO framework the EU is internationally responsible for Member State conduct implementing binding EU acts that leave no discretion. Following the EC–Commercial Vessels case, the EC-Asbestos case and the EC-Biotech case, this seems to be even true where Member States are not bound to implement EU law, enjoy discretion as to the implementation of EU acts and where they did not even implement EU law at all. This hints at a responsibility or attribution rule relying on the criterion of (external) competence. The WTO approach stands in contrast to the attribution approach laid down in the ARIO that does not give way to attributing conduct of the Member States implementing EU law to the EU. However, WTO adjudication is far from setting in stone a coherent rule of categorically attributing Member State conduct to the EU.74 This is demonstrated by the EC-Airbus case, the continuing practice of claimants to sue both the EU and the Member States75 and the scarcity and en-passant character of considerations of WTO Panels and Appellate Bodies with respect to attribution of Member State conduct. Moreover, one reason for the stance of WTO Panels and Appellate Bodies is that the EU was always eager to exclusively defend cases in litigation and was always ready to assume responsibility for the conduct of its Member States, both of which was accepted by Member States, third parties, Panels and Appellate Bodies alike.76 There are two consequences of such ‘pragmatism’: First, it is not entirely clear whether the international responsibility of the EU relies on a rule of attribution of conduct, the EU’s adoption and acknowledgment of Member State conduct as its own (e.g. Article 11 ARIO) or the EU’s assumption of exclusive EU responsibility. Second, if WTO case law somehow tries to formulate a rule of attribution, it is unclear on what criteria it exactly rests.77  Ibid, para. 7.175.  Ibid, para. 8.5. However, the Appellate Body only addressed recommendations at the EU only, see WTO Report of the Appellate Body, WT/DS316/AB/R EC and certain MS–Measures Affecting Trade and Large Civil Aircraft, paras. 1416 and 1418. 74  Cf. Marín-Durán, above Chap. 2, fn. 270, pp. 19–20, 23. 75  See DS409 EU and a MS–Seizure of Generic Drugs in Transit (Brazil/India 12 May 2010); DS452 EU and certain MS–Certain Measures Affecting the Renewable Energy Generation Sector (China, 5 November 2012); DS459 EU and certain MS–Certain Measures on the Importation and Marketing of Biodiesel and Measures Supporting the Biodiesel Industry (Argentina, 15 May 2013); DS476 EU and its MS–Certain Measures Relating to the Energy Sector (Russia, 20 July 2015). 76  Delgado Casteleiro/Larik, this chapter, fn. 55, pp. 238–244; Eeckhout, above Chap. 2, fn. 80, p. 456. 77  Delgado Casteleiro/Larik, this chapter, fn. 55, pp. 243–244; Marín-Durán, above Chap. 2, fn. 270, pp. 19–20; ARIO Commentary, Article 11, para. 3. 72 73

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Looking at the WTO case law from another angle, one reason for the tendency of WTO Panels to hold the EU responsible instead of the Member States is certainly the nature of WTO obligations and the system of remedies under the WTO framework.78 The WTO system prohibits discrimination against foreign products and restrictions on trade. Since the EU has the exclusive competence for customs, tariffs and trade, it is mostly EU secondary law implemented by the Member States that discriminates foreign products and restricts trade. The WTO system has a more or less homogeneous scope and meets more or less with homogenous EU competences in trade and trade-related matters.79 Now, the remedy system of the WTO relies predominantly on restitutio in integrum, an obligation to restore the status quo ante, the situation that existed before the violation, i.e. the ‘prompt’ withdrawal (or modification) of the WTO-inconsistent measure and continued performance of WTO obligations.80 When a remedy system is focused on conformity it is only logical to hold the entity responsible that is able to bring back conformity. Thus, where the EU has the competence to adopt, change and rescind secondary EU law, which violates WTO law, it is only the EU that can bring ‘laws, regulations and administrative procedures’81 in conformity with WTO law. Of course, this hypothesis changes where regulatory conduct of the Member States violates WTO obligations. As discussed earlier, there is no parallelism between the exclusive external competence of the EU under the CCP and the distribution of internal regulatory competences.82 This might explain the continued participation of Member State in WTO litigation and the few dissonant cases. 3.1.2.2.2  E  CHR Case Law: International Responsibility of the Member States for Member State Conduct Implementing EU Law In contrast to WTO case law, the ECtHR has consistently held that Member State conduct in implementation of EU law is attributable to the Member State alone, even if the binding EU act left no discretion whatsoever to the Member State. In M & Co v Germany the European Commission of Human Rights held that ‘it is in fact not competent ratione personae to examine proceedings before or decisions of organs of the European Communities […] This does not mean, however, that by  See in general on this proposition, Pieter Jan Kuijper (2013) Attribution  – Responsibility  – Remedy. Some Comments on the EU in Different International Regimes. 46(1) RevBDIntl, pp.  57–77; Hoffmeister, above Chap. 2, fn. 243, p.  745; Marín-Durán, above Chap. 2, fn. 270, pp. 21 et seq, calling the approach of determining international responsibility by looking at the nature of obligations and the remedy system the ‘(internal) competence/remedy approach’. 79  Kuijper, this chapter, fn. 78, p. 67. 80  Thomas Sebastian and Anthony Sinclair (2013) Remedies in WTO Dispute Settlement and Investor-State Arbitration: Contrasts and Lessons. In: Jorge A Huerta-Goldman, Antoine Romanetti and others (eds.) WTO Litigation, Investment Arbitration, and Commercial Arbitration. Kluwer Law International, pp. 276–279. 81  Cf. Article XVI:4 WTO Agreement. 82  See above Sect. 2.3.1.2.3.2.1. 78

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granting executory power to a judgment of the European Court of Justice the competent German authorities acted quasi as Community organs and are to that extent beyond the scope of control exercised by the conventional organs.’83 In Cantoni, the ECtHR held that even though a piece of Member State legislation ‘is based almost word for word on Community Directive 65/65 […] does not remove it from the ambit of […] the Convention.’84 In Bosphorus,85 which concerned the impoundment of an airplane in implementation of a EU regulation that in turn implemented UN Security Council sanctions, the ECtHR attributed the conduct to the Member State concerned, ‘as the addressee of the impugned act fell within the ‘jurisdiction’ of the Irish State, with the consequence that its complaint about that act is compatible ratione loci, personae and materiae with the provisions of the Convention’,86 and held ‘that a Contracting Party is responsible under Article 1 of the Convention for all acts and omissions of its organs regardless of whether the act or omission in question was a consequence of domestic law or of the necessity to comply with international legal obligations.’87 Remarkably, as became clear by the judgment of the ECJ on the same matter, the Member State concerned had no implementing legislation in place and had no room for manoeuvre regarding the execution of the EU regulation.88 In Kokkelvisserij89 the ECtHR reiterated its view that conduct of an organ of a Member State should categorically be attributed to the Member State. As is well known, to acknowledge and maintain the separate legal personality of the EU, to which the Member States have conferred sovereign powers, the ECtHR enunciated the rebuttable presumption of ‘equivalent protection’, absolving Member States from international responsibility as long as the EU maintained a level of protection equivalent to that of the ECHR and as long as the Member State ‘does no more than implementing legal obligations flowing from its membership’.90 What follows from the ECHR case law is that it resembles the ‘organic’ model of attribution of the ARS and the ARIO.91 The fact that Member States are bound under EU law to implement EU acts is ignored and irrelevant for attribution. It has been argued that the reluctance to attribute Member State conduct to the EU is the result of practical considerations of guaranteeing effective human rights protection, namely because the EU is not part of the ECHR, does not bear any obligations under  M & Co v Germany, Decision of the European Commission of Human Rights, Application No 13258/87, 9 February 1990, Decisions and Reports, Vol 64, p. 138. 84  Cantoni v France [GC] Application No 17862/91, 15 November 1996, ECHR Reports 1996-V, para. 32. 85  Bosphorus Hava Yollari Turizm v Ireland [GC] Application No 45036/98, 30 June 2005, ECHR Reports 2005-VI. 86  Ibid, para. 137. 87  Ibid, paras. 152–153. 88  Case C-84/95 Bosphorus [1996] ECR I-3978, paras. 13–18. 89  Kokkelvisserij v The Netherlands [GC] Application No 13645/05, 20 January 2009. 90  Bosphorus Hava Yollari Turizm v Ireland [GC] Application No 45036/98, 30 June 2005, ECHR Reports 2005-VI, paras. 155–156. 91  Kuijper/Paasivirta, above Chap. 2, fn. 155, pp. 66–68. 83

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it and that the ECtHR would have to decline its jurisdiction if it attributed such conduct to the EU.92 The reasons presented by the ECtHR in Matthews93 and Bosphorus94 nourished that understanding. Yet it is commonly assumed that the ECtHR will change its stance on attribution once the EU is answerable for human rights violations when it accedes to the ECHR. Interestingly, however, Article 1(4) 1st sentence Draft ECHR Accession Agreement reiterates the rule of attribution formulated by the ECtHR hitherto, namely that implementing conduct of Member States remains to be exclusively attributable to the Member States.95 The Explanatory Report to the ECHR Accession Agreement explains that rule by referring to the rule of attribution under EU law, under which Member State conduct implementing of EU law would remain attributable to the Member States, and ‘[f]or the sake of consistency, parallel rules should apply for the purposes of the Convention system as laid down in Article 1, paragraph 4, of the Accession Agreement’.96 In fact, this marks a departure from what the Commission regularly contends in WTO disputes. Another reason for adopting such a new ‘old’ approach is likely practical. To initiate proceedings before the ECHR, applicants must satisfy the procedural requirement of exhausting local remedies before Member State Courts. Now with the EU acceding to the ECHR, and the possibility of the EU and the Member States of becoming co-respondents in a dispute concerning a single alleged violation,97 the drafters of the ECHR Accession Agreement likely wanted to make sure that there is no procedural requirement to exhaust legal remedies in two legal systems, in the EU and the Member State jurisdictions.98 By attributing conduct implementing EU law to the Member States, it is clear that applicants do not have to exhaust the local remedies of the EU system as well. Moreover, by attributing all Member State con92  See for example, Hoffmeister, above Chap. 2, fn. 243, pp. 735, 739; Kuijper, above Chap. 2, fn. 94, pp. 211–212; James Crawford (2012) Brownlie’s Principles of Public International Law, 8th edn. Oxford University Press, p. 684: ‘It would be contrary to good sense if a State could avoid responsibility by creating an international organization’. 93  Matthews v The United Kingdom [GC] Application No 24833/94, 18 February 1999, ECHR Reports 1999-I, para. 32: ‘The Convention does not exclude the transfer of competences to international organisations provided that Convention rights continue to be ‘secured’. Member states’ responsibility therefore continues even after such a transfer’. 94  In Bosphorus Hava Yollari Turizm v Ireland [GC] Application No 45036/98, 30 June 2005, ECHR Reports 2005-VI, paras. 154–155, the ECtHR stated that a state could not free itself from its human rights obligations under the ECHR by transferring functions to an international organization, as ‘absolving Contracting States completely from their Convention responsibility in the areas covered by such transfer would be incompatible with the purpose and object of the Convention; the guarantees of the Convention could be limited or excluded at will, thereby depriving it of its peremptory character and undermining the practical and effective nature of its safeguards […] The State is considered to retain Convention liability in respect of treaty commitments subsequent to the entry into force of the Convention’. 95  See for the text of the provision this chapter, fn. 39 and accompanying text. 96  Explanatory Report to the ECHR Accession Agreement, para. 23. 97  Cf. below Sect. 4.1.1 on the co-respondent mechanism under the future mixed ECHR framework. 98  Kuijper, this chapter, fn. 78, pp. 73–75.

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duct, including conduct implementing EU law, to the Member States, the drafters wanted to exclude that applicants could circumvent the exhaustion of local remedies requirement in the Member States by simply submitting a claim against the EU and triggering the co-respondent mechanism.99 Another reason for attributing Member State implementation conduct to the Member States might equally concern remedies.100 The ECHR provides for both monetary compensation and restitution.101 Human rights obligations are typically not breached by the enactment of EU legislation but by implementing conduct on the part of the Member States. Here only the Member States can restore the status quo ante.102 But even if a violation originates in a piece of EU legislation it may well be that only the Member State can provide effective restitution.103 Take for instance the re-opening of national proceedings, the return or defreezing of assets, the release of persons deprived of their liberty. Holding only the EU responsible in such instances could endanger the effective enforcement of judgments. 3.1.2.3  R  esult: No Uniformity Under International Case Law and the ARIO To sum up, the ‘organic’ model of the ARIO is ignorant to the power dynamics underlying the decentralised implementation of EU law by the Member States and leaves it to the ARS to attribute such conduct to the Member States. This in line with the case law under the ECHR and corresponds to the special attribution rule found in the Draft ECHR Accession Agreement. In contrast, Member State conduct implementing EU law was found to be attributable to the EU under WTO case law. Thus, it can be said that, although the ARIO are clear to not enshrine a lex generalis attributing such conduct to the EU, there is no coherent solution in international case law with respect to that question. Again this is recognised by the ILC itself.104

 ECHR: Answers to frequently asked questions (30 April 2013) Accession by the European Union to the European Convention on Human Rights, p. 4. 100  Cf. this chapter, fn. 78. 101  Articles 41 and 45 ECHR. 102  Enzo Cannizzaro (2013) Beyond the Either/Or: Dual Attribution to the European Union and to the Member State for Breach of the ECHR. In: Malcolm D Evans M and Panos Koutrakos (eds.) The International Responsibility of the European Union. Hart Publishing, pp. 297–299; Baetens/ Kreijen/Varga, above Chap. 2, fn. 73, p. 1238. 103  Maarten Den Heijer and André Nollkaemper (2014) A New Framework for Allocating International Responsibility: the EU Accession to the European Convention on Human Rights. SHARES Briefing Paper. http://www.sharesproject.nl/wp-content/uploads/2014/01/Binder11.pdf. Accessed 26 August 2018, p. 6. 104  ARIO Commentary, Article 64, paras. 2 et seq. 99

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3.1.2.4  The WTO Approach Is Not Transferable to IIPAs Bar any lex specialis under the applicable EU IIPA, it is unlikely that Arbitral Tribunals under EU IIPAs would follow the trajectory of WTO case law and attribute Member State conduct implementing EU law to the EU.105 On the one side, the EU is less willing to assume categorical international responsibility for all Member State conduct breaching EU IIPAs, as under WTO litigation. This is signalled by the REG and post-Lisbon EU IIPAs that render effective the REG on the international plane.106 The REG provides for Member State respondent status and a concomitant international obligation to pay a settlement or an adverse monetary award in disputes under mixed IIPAs and EU-only IIPAs where an investor challenges Member State conduct that falls under regulatory competences of the EU.107 Respondent status of the EU and the concomitant international obligation of the EU to pay an adverse monetary award under the REG is linked to whether a Member State conduct was ‘required under the law of the Union’, which does not involve all Member State conduct in implementation of EU law, but only such conduct where the Member State is irreconcilably torn between a breach of EU law and a breach of the EU IIPA.108 Competence does not play a role in that equation. On the other side, the remedy system under EU IIPAs such as the ECT109 and post-Lisbon IIPAs110 only provides for monetary compensation and not restitution or specific performance.111 Though these EU IIPAs also provide for restitution of property, this is only coupled to an option offered to the award debtor to pay monetary compensation instead. It is true that the ARS112 and ARIO113 provide for restitution as an available remedy and that customary international law regarding remedies, as defined by the Chorzow factory case,114 foresees restitution as the prime remedy for internationally wrongful acts.115 Yet public international law, especially via Article 64 ARIO and Article 55 ARS, allows treaty parties to provide  See below Sect. 3.2.3 for the rare ECT case law on the matter (though concerning intra-EU disputes). 106  See below Chap. 4. 107  See for details below Sect. 4.2.2.2.3. 108  See for details below Sect. 5.2.2.2.1. 109  See Article 26(8) ECT. 110  See Article 8.39 CETA, Article 3.18 EU-Singapore IIPA, Article 28(1) Section 3 Investment Chapter TTIP, Article 27(1), Section 3 Investment Chapter EU-Vietnam FTA. 111  See Jan Kleinheisterkamp (2013) Financial Responsibility in the European International Investment Policy. 15/2013 LSE Law, Society and Economy Working Papers, pp. 17–19; Sebastian/ Sinclair, this chapter, fn. 80, pp.  280 et  seq; Anne van Aaken (2010) Primary and Secondary Remedies in International Investment Law and National State Liability: A Functional and Comparative View. In: Stephan W Schill (ed.) International Law and Comparative Public Law. Oxford University Press, p. 734. 112  Article 35 ARS. 113  Article 35 ARIO. 114  See Factory at Chorzow, Merits, 1928, PCIJ Series A, No 17, p. 47. 115  Anne van Aaken, this chapter, fn. 111, pp. 730 et seq. 105

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only for a limited set of remedies, excluding restitution as an available remedy,116 as is the case in EU IIPAs. Thus, one does not necessarily have to hold the entity responsible under EU IIPAs that has the competence to restore the status quo ante. Monetary compensation has its own implications with respect to international responsibility. It raises the spectre of moral hazard concerns. All Member States always indirectly share the EU facing liability and paying compensation because they all contribute to the EU budget. EU responsibility may provoke false incentives for Member States to encroach upon investors’ rights knowing that the EU pays and, thus, all other Member States share the financial burden.117 On the other side, it seems hardly justifiable to categorically hold the Member States liable when they implement binding EU law, rendering the approach practiced by the ECHR and enshrined in the ARIO questionable as well. So, where monetary compensation is the remedy, it is essential to find out whether EU law is at the centre of the breach or whether it is the Member State implementation conduct. In other words, it becomes pertinent to identify the origin of the breach, whether it lies in the content of EU legislation or a EU act or in the particular way the Member State i­ mplemented the EU legislation or EU act. For that to answer, questions gain importance such as to what extent a EU act binds a Member State, whether the Member State enjoyed discretion or even whether it correctly implemented EU law, or whether the Member States could have avoided the breach of the EU IIPA without disregarding a EU obligation to implement a certain EU act. For not jumping ahead, suffice it to say at this point that such questions gain relevance under the pre-Lisbon ECT and the REG in the context of the internal allocation of financial responsibility between the EU and the Member States.

3.1.3  W  here Incumbency of Obligations and Attribution Go Astray: The Risk of Accountability Gaps Under EU-Only IIPAs Under the ILC Articles When applying the lex generalis of the ILC Articles a situation can arise that incumbency of obligations and attribution of conduct goes astray. In other words, the test of attribution might churn out an entity different to the one that is bound by the

 See ARS Commentary, Article 55, para. 3.  See Dimopoulos, above Chap. 2, fn. 39, pp. 269 et seq; Dimopoulos, above Chap. 2, fn. 112, p. 1676.

116 117

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breached obligation. Even though not a new phenomenon118 this is intrinsic to EU-only IIPAs119 and evokes the spectre of accountability gaps.120 As discussed, EU-only IIPAs only bind the EU under international law. Yet under the general rules of attribution under the ARIO not each and every Member State conduct is attributable to the EU. It is true that one can argue whether Member State conduct in implementation of EU law is attributable to the EU under the ARIO, yet this is not so with respect to Member State conduct that has nothing to do with EU law, i.e. where Member States do not implement EU law, act outside the scope of EU law and draw on an Member State regulatory competence.121 What is more, in such instances the EU cannot face secondary responsibility via Articles 14–17 ARIO since in such instances, the EU does not aid or assist, direct or control, coerce or address binding decisions at the Member States.122 Moreover, Articles 14–16 ARIO require an internationally wrongful act of the Member States, which for the lack of being bound, is not the case under EU-only IIPAs. Thus, under the lex generalis of the ILC Articles, the EU does not a priori bear any international responsibility under EU-only IIPAs for conduct attributable to the Member States. The only solution would be for the EU to categorically adopt and acknowledge the conduct as its own pursuant to Article 11 ARIO. Moreover, even though some scholars advocate that the EU faces categorical international responsibility under EU-only agreements for each and every breaching conduct attributable to the Member States,123 there is no rule or international case law corroborating that. And WTO case law is all but an example for a categorical liability approach of the EU for Member State conduct.

 Under Member-State-only treaties there may equally be an incongruence between attribution of conduct (to the EU) and incumbency of obligations (on the Member State). 119  Eeckhout, above Chap. 2, fn. 80, p. 461, identifying that problem under mixed agreements under the premise that there would be a categorical apportionment of obligations along competence lines. Yet, under mixed IIPAs, this cannot happen since, as discussed, there is no apportionment of obligations between the EU and the Member States unless the treaty explicitly provides for a delimitation of obligations along competence lines. As both the EU and the Member States owes every obligation under a mixed IIPA, attribution simply functions to channel responsibility to the entity that the conduct is attributable to. In case a mixed IIPA contains an explicit delimitation, the delimitation would constitute arguably also constitute a lex specialis for international responsibility, making attribution of conduct irrelevant. See below Sect. 3.2. 120  See Peter Ratz (2017) International and European Law Problems of Investment Arbitration involving the EU. Nomos, pp. 149–151; see also Dimopoulos, above Chap. 2, fn. 112, p. 1686; Karl, above Chap. 2, fn. 34, p. 432. 121  In such cases, Articles 6 and 7 ARIO are not applicable. See Dimopoulos, above Chap. 2, fn. 112, p. 1685; Dimopoulos, above Chap. 2, fn. 39, p. 264. 122  See Talmon, above Chap. 2, fn. 76, p. 410. 123  Happ/Bischoff, above Chap. 2, fn. 39, p. 173; Bischoff, above Chap. 2, fn. 61, p. 18; Krajewski, above Chap. 2, fn. 268, p. 118; Rosas, above Chap. 2, fn. 325, p. 151. Questioning the international responsibility of the EU under EU-only agreements for each and every Member State conduct, Karl, above Chap. 2, fn. 34, p. 432; Dimopoulos, above Chap. 2, fn. 112, p. 1685; Tomuschat, above Chap. 2, fn. 10, p. 180; Talmon, above Chap. 2, fn. 76, p. 410. 118

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What can be derived from the test of attribution under the lex generalis of the ARIO is that it is conceptually neutral and static. It turns a blind eye on whether the state or the international organisation to which the breaching conduct can be attributed owes the breached obligation. This is confirmed by the fact that the ARIO and the ARS do not elevate the question of incumbency of obligations into a criterion for attribution. Attribution and incumbency of obligations are entirely different concepts and require different tests (control versus consent). Moreover, Article 17 ARIO provides for exceptional international responsibility of the international organisation in cases it circumvents one of its obligations under EU-only agreements, i.e. where the ‘international organization is bound by a treaty with a non-­ member State and the same treaty does not produce effects for the organization’s members.’124 E contrario, the rules on attribution in the ARIO remain unhinged of the question of incumbency of obligations. As a result, the EU is not internationally responsible under EU-only IIPAs for each and every conduct of its Member States under the lex generalis of the ARIO. At the same time, a Member State does not—despite the fact that the breaching conduct is attributable to it—face international responsibility under EU-only IIPAs.125 This is due to the fact that Member States do not owe any international obligations under EU-only agreements.126 Furthermore, it derives from Article 62 ARIO, which encapsulates the sole scenario under the ARIO where Member States can bear international responsibility for the breach of an obligation without being bound by it,127 that membership to an international organisation alone does not have the legal effect of imposing international responsibility for breaches of EU-only  ARIO Commentary, Article 17, para. 3.  Eeckhout, , above Chap. 2, fn. 16, p. 325; Crawford, above Chap. 2, fn. 81, pp. 344, 428–429; Schütze, above Chap. 2, fn. 15, p. 197; Krajewski, above Chap. 2, fn. 268, p. 118; Hollis, above Chap. 2, fn. 82, p. 118; Karl, above Chap. 2, fn. 34, p. 432; Kuijper/Paasivirta, above Chap. 2, fn. 155, p. 36; Dimopoulos, above Chap. 2, fn. 112, pp. 1685–1686; Chittharanjan F Amerasinghe (2005) Principles of the Institutional Law of International Organizations, 2nd edn. Cambridge University Press, pp.  414–415, 440, 446; Brölmann (2007), above Chap. 2, fn. 313, p.  265; Schmalenbach, in Dörr/Schmalenbach, above Chap. 2, fn. 81, Article 26 VCLT, para. 55; Tomuschat, above Chap. 2, fn. 10, p. 179; ARIO Commentary, Article 40, para. 1. Advocating a residuary responsibility of Member States for breaches of obligations of international organizations, Moshe Hirsch (1995) The Responsibility of International Organizations Toward Third Parties: Some Basic Principles. Martinus Nijhoff Publishers, p. 155: ‘The injured party is required to present its claim first to the international organization, and then it would be entitled to proceed against the members only if the organization were to default in providing adequate remedy’. 126  See again above Sect. 2.3.2. 127  Article 62(1) ARIO reads: ‘A state member of an international organization is responsible for an internationally wrongful act of that organization (a) if it has accepted responsibility for that act towards the injured party; or (b) it has led the injured party to rely on its responsibility’. The provision does not require that the Member State must be bound by the international obligation of the international organisation to bear international responsibility for its breach. Here, it is the international organisation holding the international obligation, not the Member State. Otherwise there would be no internationally wrongful act of the organisation (cf. Article 4(b) ARIO). Cf. Jean d’Aspremont (2007) The abuse of the legal personality of international organizations and the responsibility of Member States. 4(1) IntlOrgLRev, p. 98. 124 125

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agreements onto its Member States.128 Before the drafting of the ARIO, international jurisprudence has come to the same result and denied ‘piercing the veil’ of the international organisation and holding its Member States internationally responsible on the sole ground of their membership.129 Now, Article 62 ARIO ‘establishes the separate legal personality of an international organization as the firewall to responsibility’ of the Member States.130 The provision carries the implied negative rule that any basis of international responsibility not included in the ARIO is excluded.131 In order to be internationally responsible under Article 62 ARIO, some element of assent or positive action by the Member State towards responsibility is still required, i.e. in the form of acceptance or reliance. E contrario, bar any acceptance or reliance, under the ARS and ARIO, Member States of an international organisation are per se not internationally responsible for breaches of obligations that are solely incumbent upon the international organisation. As a result, if one applies the lex generalis of the ARS and the ARIO a problematique specific to EU-only IIPAs occurs, i.e. that of a potential incongruence between attribution and incumbency of obligations leading to accountability gaps under EU-only IIPAs.

3.1.4  C  onclusions on International Responsibility for Breaches of EU IIPAs Under the Lex Generalis of the ARS and ARIO After the assessment of the lex generalis of the ILC Articles one can say with certainty that under its ‘organic’ model, conduct of Member State organs is attributable to the Member States and conduct of EU organs is attributable to the EU.  Yet Member State conduct associated with the decentralised implementation of EU law is not attributable to the EU, remains attributable to the Member States and cannot trigger the secondary responsibility of the EU (Articles 14–17 ARIO). This is in line with ECHR case law and the specific attribution rule under the future mixed ECHR. WTO case law, by attributing the implementation of Member State conduct to the EU, stands in contrast to that. Yet it is questionable whether such an approach will find resonance before Arbitral Tribunals constituted under EU IIPAs. Therefore, bar a lex specialis laid down in mixed IIPAs and bar any special circumstances triggering Articles 14–17 ARIO, under mixed IIPAs the EU and the  ARIO Commentary, Article 62, para. 2; Crawford, above Chap. 2, fn. 81, p.  346; Ryngaert/ Buchanan, above Chap. 2, fn. 322, pp. 136–138; Brölmann (2007), above Chap. 2, fn. 313, p. 264; Roe/Happold, above Chap. 2, fn. 39, p. 178. 129  With respect to the ‘International Tin Council’ and the ‘Westland Helicopters’ litigation see: ARIO Commentary, Article 62, paras. 3–4; Crawford, above Chap. 2, fn. 81, pp. 424–427 with references. 130  Crawford, above Chap. 2, fn. 81, p. 423. 131  Ibid. 128

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Member States are only internationally responsible for breaching conduct of their own organs, regarding the latter irrespective of whether the conduct was under the umbrella of EU law. Yet under EU-only IIPAs only the EU can be held internationally responsible, not the Member States. And unless the EU-only IIPA contains a lex specialis or unless the EU adopts and acknowledges Member State conduct as its own, the EU is only internationally responsible for breaching conduct of its own organs under the lex generalis of the ARIO. This causes accountability gaps under EU-only IIPAs whenever a breaching conduct is attributable to the Member States.

3.2  I nternational Responsibility for Breaches of EU IIPAs Under Leges Speciales Article 64 ARIO provides a legal avenue for leges speciales to govern issues of international responsibility of international organisations and its members. Article 64 ARIO reads: ‘These articles do not apply where and to the extent that the conditions for the existence of an internationally wrongful act or the content or implementation of the international responsibility of an international organization, or of a State in connection with the conduct of an international organization, are governed by special rules of international law. Such special rules of international law may be contained in the rules of the organization applicable to the relations between an international organization and its members’. The provision echoes Article 55 ARS,132 and encapsulates the principle ‘lex specialis derogat legi generali’.133 This principle is equally found in the VCLT, considered part of customary international law and enshrines the principle that special rules supersede general rules.134 According to Article 64 ARIO such special rules can cover the ‘conditions for the existence of an internationally wrongful act’. This means that a lex specialis can govern rules on attribution of conduct.135 It also means that a special rule can dispense with the requirement of attribution of conduct altogether and create a basis for attribution of responsibility.136 In the same vein, this means that a special rule can create a basis for international responsibility of an entity without the requirement  Article 55 ARS reads: ‘These articles do not apply where and to the extent that the conditions for the existence of an internationally wrongful act or the content or implementation of the international responsibility of a State are governed by special rules of international law’. 133  ARS Commentary, Art. 55, para. 2; ARIO Commentary, Art. 64, paras. 1, 7. 134  ARS Commentary, Art. 55, para. 6; ARIO Commentary, Art. 64, para. 7; ILA Study Group Report (2012), Report of the International Law Association Study Group on the Responsibility of International Organizations (Sofia Conference). https://ila.vettoreweb.com/Storage/Download.asp x?DbStorageId=1446&StorageFileGuid=11415da7-ea1a-41b6-b407-aff3f8d211e5. Accessed 26 August 2018, pp. 40–41. 135  ARS Commentary, Art. 55, paras. 2–3, 5; ARIO Commentary, Art. 64, paras. 1–2. 136  Talmon, above Chap. 2, fn. 76, p. 411: States and international organisations are free to ‘agree on special conditions for the existence of an internationally wrongful act which will take precedence over the general principle’ enshrined in the ARIO and ARS. 132

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that it is bound by the breached international obligation. This reading of Article 64 ARIO is in line with the law of international responsibility as depicted by the general rules in the ARIO, which allow international responsibility of an entity without attribution of conduct to it,137 and even without it being bound by the breached international obligation.138 Thus, a lex specialis can supersede ‘where and to the extent applicable’ the general rules on attribution of conduct (Articles 6–9 ARIO), and attribution of responsibility (Articles 14–17 ARIO and Articles 58–62 ARIO). The question arises as to the source for such a special rule. Article 64(1) ARIO and Article 55 ARS underscore that such special rules are ones of ‘international law’. It follows that, first, special rules on international responsibility may emanate explicitly or implicitly from a treaty itself, from a norm constituted horizontally.139 This is because nothing prevents states and international organisations from contracting out and entering into specific arrangements that depart from the general rules of the ARS and the ARIO. Thus, a EU IIPA, mixed or EU-only, constituted between the EU and one or more States is susceptible of containing such a special rule. Second, special rules on attribution could emanate from international adjudication practice and analogies in public international law.140 The ILC hinted at that when referring to WTO and ECHR case law.141 Third, Article 64 ARIO reads that ‘[s]uch special rules of international law may be contained in the rules of the organization applicable to the relations between an international organization and its members’.142 Applied to the EU, special rules on international responsibility can, thus, emanate from the EU Treaties itself. Although the first two sources are uncontested, the latter source is controversial, and will be assessed in further detail when appropriate. There are four different lex specialis-scenarios that could be relevant for international responsibility under EU IIPAs, whose existence and viability under international law in general, and under IIPAs specifically, are going to be assessed in the following sections. The first lex specialis-scenario is one of joint responsibility of the EU and the Member States under mixed IIPAs (Sect. 3.2.1). The second lex specialis-scenario is one where the division of competences between the EU and the Member States determines international responsibility under mixed and EU-only IIPAs (Sect. 3.2.2). The third lex specialis-scenario will address Article 1(3) ECT, which, arguably, focuses on the extent of the binding force of EU acts on the Member States (Sect. 3.2.3). The fourth lex specialis-scenario concerns a federal state analogy to address international responsibility of the EU under EU-only IIPAs (Sect. 3.2.4). A fifth lex specialis-scenario, namely the proceduralisation of interna See e.g. Articles 14–17, 58–62 ARIO and Articles 16–18 ARS.  See e.g. Articles 16, 60, 62 ARIO and Article 18 ARS. 139  Sebastian/Sinclair, this chapter, fn. 80, p. 275; Talmon, above Chap. 2, fn. 76, p. 411; Report of the International Law Association Study Group on the Responsibility of International Organizations, this chapter, fn. 134, pp. 40–41. 140  D’Aspremont, this chapter, fn. 26, p. 82; Kuijper/Paasivirta, above Chap. 2, fn. 155, p. 57. 141  ARIO Commentary, Article 64, paras. 2 et seq. 142  Article 55 ARS does not refer to the internal law of states. 137 138

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tional responsibility under post-Lisbon EU IIPAs that render effective under international law the provisions on respondent status of the REG, will not be assessed here but is subject of Chap. 4. This scenario differs conceptually from the other lex specialis-scenarios and the lex generalis of the ILC Articles in that it deprives the Arbitral Tribunal from its mandate to determine international responsibility in the ‘EU-Member State responsibility window’ and outsources that determination to the EU.

3.2.1  J oint (and Several) Responsibility of EU and Member States Under Mixed IIPAs as Lex Specialis Generally, the law of international responsibility is geared towards an exclusive responsibility model, i.e. that conduct is only attributable to one actor, only triggering the responsibility of that actor.143 In this sense, joint responsibility in the sense of dual attribution where the same conduct can be attributed to a Member State via Article 4 ARS and to the EU via Article 6 ARIO and the scenarios of joint responsibility in the sense of Articles 14–17 ARIO and Articles 58–62 ARIO are exceptional to the law of international responsibility. However, in these instances joint responsibility follows from the application of the lex generalis of the ARIO and the ARS and does not constitute a lex specialis. In contrast, joint responsibility of the EU and the Member States because of ‘mixity’ in and of itself would constitute a form of lex specialis. There are two forms of joint responsibility as a consequence of ‘mixity’ that are different from the ones just described: First, it can mean joint responsibility in the sense of a rule of strict liability, in that both the EU and the Member States are jointly responsible once there is a breach of an international obligation regardless of attribution of conduct dispensing with the requirement altogether. Second, it can mean a scenario where the EU and the Member States bear joint international responsibility for a breaching conduct that is attributable to either the EU or a Member State concerned. One must also differentiate joint responsibility from joint and several responsibility. Under the former the aggrieved party has to invoke the joint responsibility of, must claim (full) remedies from and sue the EU and the Member States together.144 Whereas under the latter it suffices to invoke the joint and several responsibility of, claim (full) remedies from and sue separately either the EU or a Member State.145 In general, and under mixed agreements specifically, if there is joint responsibility, it is widely understood to mean joint and several responsibility, so that a claim can be

 Crawford, above Chap. 2, fn. 81, pp. 333, 355, 357; Messineo, this chapter, fn. 11, pp. 80–83.  Cf. Steinberger, above Chap. 2, fn. 7, pp. 859–861; André Nollkaemper and Dov Jacobs (2013) Shared Responsibility in International Law: A Conceptual Framework. 34(2) MJIntlL, pp. 422– 423; Nollkaemper, above Chap. 2, fn. 80, pp. 314–315, 325–330. 145  Ibid. 143 144

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directed against each of them separately.146 Now, to answer the question whether the EU and the Member States bear joint international responsibility as a mere result of ‘mixity’, one must differentiate between mixed agreements that expressly provide for a rule of joint responsibility, and those that do not. 3.2.1.1  J oint Responsibility as Expressly Stipulated in a Mixed Agreement The EU and the Member States are free to provide expressly for a rule of joint responsibility under any given mixed agreement. For example, Article 6(2) Annex IX UNCLOS147 and Article 19(2) Galileo agreement148 expressly provide for joint and several responsibility and Article 4(6) Kyoto Protocol149 provide for joint responsibility of the EU and the Member States.150 Although the wording might imply the contrary, these provisions do not provide for a rule of strict liability without the requirement of attribution of conduct. Rather, and as will be shown now, it is required but sufficient that the breaching conduct can be attributed to either the EU or a Member State concerned. To clarify, joint responsibility under these mixed agreements results from the fact that the division of competences as laid down in the declaration of competence or in the EU Treaties, which primarily determines responsibility under these mixed agreements, is unclear, and the EU and the Member States have not clarified the issue upon request of an aggrieved party. Take for example Article 6(1) Annex IX  Nollkaemper, above Chap. 2, fn. 80, pp. 314–315; Cremona, above Chap. 2, fn. 156, pp. 22, 25; Steinberger, above Chap. 2, fn. 7, pp.  859–861; Neframi, above Chap. 2, fn. 81, pp.  201–202; Talmon, above Chap. 2, fn. 76, pp. 416–417; Tomuschat, above Chap. 2, fn. 10, p. 185. 147  Article 6(2) Annex IX UNCLOS reads: ‘Any State Party may request an international organization or its member States which are States Parties for information as to who has responsibility in respect of any specific matter. The organization and the member States concerned shall provide this information. Failure to provide this information within a reasonable time or the provision of contradictory information shall result in joint and several liability [emphasis added]’. 148  Article 19(2) of the Agreement on the promotion, provision and use of Galileo and GPS satellite-based navigation systems and related applications between the United States of America, of the one part, and the European Community and its Member States, of the other part [2011] OJ L 348, p. 1, reads: ‘If it is unclear whether an obligation under this agreement is within the competence of either the European Community or its Member States, at the request of the United States the European Community and its Member States shall provide the necessary information. Failure to provide this information with all due expediency or the provision of contradictory information shall result in joint and several liability [emphasis added]’. 149  Article 4(6) Kyoto Protocol to the UN Framework Convention on Climate Change [2002] OJ L 130, p. 4, reads: ‘If Parties acting jointly do so in the framework of, and together with, a regional economic integration organization which is itself a Party to this Protocol, each member State of that regional economic integration organization individually, and together with the regional economic integration organization acting in accordance with Article 24, shall, in the event of failure to achieve the total combined level of emission reductions, be responsible for its level of emissions as notified in accordance with this Article [emphasis added]’. 150  Nollkaemper, above Chap. 2, fn. 80, pp. 325–327; Crawford, above Chap. 2, fn. 81, p. 344. 146

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UNCLOS. It states ‘[p]arties which have competence under article 5 of this Annex shall have responsibility for failure to comply with obligations or for any other violation of this Convention’. The provision constitutes a rule of attribution of responsibility to the competent party, regardless of whether the breaching conduct can be attributed to the competent party.151 Deviating from the rule that attribution of conduct to an entity is required for its international responsibility and that competence can determine responsibility under international law is possible via Article 64 ARIO.152 This is supported by UNCLOS case law. In the Swordfish case,153 which was finally settled, Chile brought a case exclusively against the EC for alleged violations regarding the conservation and protection of swordfish regarding vessels fishing under the Spanish flag. Then, in the Advisory Opinion Submitted by the Sub-­Regional Fisheries Commission,154 which concerned liability of an international organisation in connection with conduct of a vessel fishing under a flag of a Member State, the ITLOS cited Article 6 Annex IX UNCLOS and stated that ‘the liability of an international organization for an internationally wrongful act is linked to its competence’,155 and held that the international organisation may be held ‘liable for the violation of their fisheries laws and regulations by a vessel flying the flag of a member State of that organization’.156 However, despite stipulating a rule on attribution of responsibility along competence lines, the test of attribution of conduct is still required for international respon-

 See in this respect Heliskoski, above Chap. 2, fn. 199, pp. 196–197; Hollis, above Chap. 2, fn. 82, pp. 120–121; James D Fry(2014) Attribution of Responsibility. In: André Nollkaemper and Ilias Plakokefalos (eds.) Principles of Shared Responsibility in International Law: An Appraisal of the State of the Art. Cambridge University Press, pp. 105–106, at p. 105: ‘No reference to attribution of conduct is made here. Neither is it likely that attribution of conduct is implicitly presumed, because what matters for responsibility is competence, rather than conduct. The inclusion of the word ‘competence’ in UNCLOS is essential. […] Therefore, it does not matter who actually committed the wrongful conduct’; The ARIO Commentary, Chapter II, para. 3, explicitly refers to Article 6(1) Annex IX UNCLOS as an example of a rule on attribution of responsibility and states that: ‘Attribution of conduct to the responsible party is not necessarily implied’. But see Talmon, above Chap. 2, fn. 76, pp. 411–412: ‘Article 6 seems to deal with allocation of responsibility rather than with attribution of responsibility. [...] Article 6 thus can only be a starting point or a fork in the road on the way to establishing the international responsibility of the EC or its member States. It does not absolve States or international organizations wanting to invoke the responsibility of the EC from the need to show that the conduct in question is attributable to it.’ Talmon sees Article 6 as a mere delimitation of obligations, leaving untouched the requirement of attribution of breaching conduct for international responsibility to arise. He does not see that the provision deals with international responsibility for breaching conduct. 152  Cortés Martín, above, this chapter, fn. 26, pp. 197–198. 153  Case No 7 concerning the Conservation and Sustainable Exploitation of Swordfish Stocks in the South-Eastern Pacific (Chile v European Union). https://www.itlos.org/en/cases/list-of-cases/caseno-7/. Accessed 26 August 2018. 154  Request for an Advisory Opinion Submitted by the Sub-Regional Fisheries Commission (SRFC Advisory Opinion), Advisory Opinion of 2 April 2015, ITLOS. 155  Ibid, para. 168. 156  Ibid, para. 173. 151

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sibility to arise for either the EU or a Member State concerned under UNCLOS.157 For example under UNCLOS, neither the EU nor the Member States are internationally responsible per se for conduct attributable to non-Member States, private entities or insurrectional movements.158 Yet for purposes of international responsibility it is sufficient that the breaching conduct can be attributed to either the EU or a Member State concerned.159 If that is the case, competence apportions and determines international responsibility for the breach. The same is true with respect to the rule of joint and several responsibility stipulated in Article 6(2) Annex IX UNCLOS and the other treaties: In order to hold the EU or a Member State concerned (jointly and severally; UNCLOS, Galileo) or the EU and the Member States (jointly, Kyoto) internationally responsible, it suffices that the breaching conduct is attributable to either the EU or a Member State concerned. Now, the ECT neither contains a provision expressly providing for joint responsibility, nor will post-Lisbon mixed IIPAs contain an express rule of joint responsibility. The reason for that are the budgetary implications stemming from breaches of EU IIPAs. The remedy regime under post-Lisbon EU IIPAs provides for monetary compensation.160 The financial ramifications arising from Arbitral Awards and settlements as a consequence of international responsibility can be skyrocketing and can even be of existential threat to smaller Member States. In this respect, financial fairness and budget neutrality, i.e. the intention of the EU and each Member State to only burden its budget for breaching conduct of its own organs, gains paramount importance. In fact, it is exactly in the spirit of budget neutrality and financial fairness in which the REG, i.e. the provisions on internal allocation of financial responsibility and respondent status under EU IIPAs, was drafted.161 This spirit must be extrapolated to the drafters’ intention underlying future post-Lisbon EU IIPAs, which dock into and give effect to the REG under international law.162 Hence, it is very unlikely that the EU and the Member States could and would ever expressly agree on a rule of joint or joint and several responsibility, even less so on a rule of strict joint responsibility dispensing with the requirement of attribution of conduct altogether: Joint responsibility would effectively mean that the EU would be internationally responsible, would have to pay monetary awards and burden its own budget for breaching conduct of a Member State, and vice versa. It should be remembered that burdening the EU budget effectively means to burden the budgets  Cf. Talmon, above Chap. 2, fn. 76, p. 411.  Ibid. 159  But see again Talmon, above Chap. 2, fn. 76, pp. 411–412, who argues that attribution of conduct is wholly untouched by Article 6(1) Annex IX UNCLOS and that in order to hold the EU responsible it is still required that the breaching conduct is attributable to the EU and not the Member States, and vice versa. 160  See above Chap. 2, fn. 70 or this chapter, fn. 110. 161  The REG emphasises budget neutrality as a guiding principle of the REG, to be reflected in the responsibility regimes under post-Lisbon EU IIPAs. See Recitals 5 and 9 REG; Explanatory Memorandum to the REG, pp. 2, 5, 7. 162  See below Sect. 4.2.2.1.3 for how the REG is rendered effective under post-Lisbon EU IIPAs. 157 158

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of all 28 Member States. All the more, under a rule of joint responsibility, a Member State could even face international responsibility for conduct of another Member State. It is easily imaginable the (justifiable) political stir and national commotion that such an outcome would ignite. 3.2.1.2  J oint Responsibility as the Default Rule Under a Mixed Agreement Regarding mixed agreements that do not contain an express rule of joint responsibility, some contend that joint responsibility of the EU and the Member States is still the norm, as they would constitute a joint entity not only for purposes of the assumption of (joint) obligations under the mixed treaty but also for purposes of attribution of conduct.163 It would only be necessary to attribute the breaching conduct to either the EU or a Member State concerned and the EU and the Member States together— as the joint entity under the treaty—will incur (joint) responsibility for the breaching conduct.164 Basically, the EU and the Member States not only owe together or  Crawford, above Chap. 2, fn. 81, p.  344: ‘There may also be joint responsibility: a state as member of an international organization may be jointly responsible along with the organization (and other members) for fulfilling obligations under a mixed agreement between the organization and its member states on the one hand and non-member states on the other [emphasis added]’; Fry, this chapter, fn. 151, p 106: ‘Mixed agreements between the European Union and its member states also represent a typical example. Responsibility can be attributed without attribution of conduct to the same subject, because the European Union or member states can be held responsible for the conduct of the other [emphasis added]’; see Second Report on the Responsibility of International Organizations by Special Rapporteur Giorgio Gaja, ILC 56th session, UN Doc A/ CN.4/541, 2 April 2004, para. 8: ‘However, joint, or joint and several, responsibility does not necessarily depend on dual attribution. One can take as an example the so-called mixed agreements, to which both the European Community (EC) and its member States are parties. In case of an infringement of a mixed agreement that does not distinguish between the respective obligations of the EC and its member States—either directly, or by referring to their respective competencies— responsibility would be joint towards the non-member State party to the agreement. […] In this case attribution of conduct to the EC or a member State does not appear to be relevant when deciding who is responsible. Even if it was ascertained that conduct was attributable only to one of the actors, they would all be jointly responsible [emphasis added]’; ARIO Commentary, Article 48, para. 1: ‘Another example [of joint responsibility next to Articles 14-18 ARIO and Articles 58-62 ARIO] is provided by so-called mixed agreements that are concluded by the European Union together with its member States, when such agreements do not provide for the apportionment of the responsibility between the Union and its member States’; Nollkaemper, above Chap. 2, fn. 80, p. 331: ‘One relatively uncontested example occurs when the EU and its Member States conclude, as one party, a treaty with another party. Any action by either the EU or a Member State then is attributed to the joint entity [emphasis added]’; Talmon, above Chap. 2, fn. 76, p.  408: ‘Their conduct need not be attributed to each other but is attributed instead to the legal person consisting of the EC and its member States [emphasis added]’; Neframi, above Chap. 2, fn. 81, p.  201: ‘Indeed, the wrongful act, whether committed by the Community or by the Member States, is attributable to the Community group, which has assumed the whole breadth of obligations […]’; Kuijper/Paasivirta, above Chap. 2, fn. 1, pp. 187–188. 164  Ibid. 163

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jointly the obligations under the mixed treaty as one party. Rather, when an organ of a Member State or the EU acts, that conduct is not only attributable to the Member State or the EU but to the EU and all the Member States as one party. This legal construct is the reverse scenario of when two entities create a joint organ, whose conduct is attributable to both entities that created it.165 As Talmon points out, this contention can only hold true for bilateral mixed agreements but not for multilateral mixed agreements such as the WTO framework or the ECT, where the EU and each Member State is a separate and independent contracting party in its own right.166 Thus, under the ECT and other future multilateral mixed IIPAs where the EU and the Member States are independent contracting parties, individual and exclusive responsibility is the norm and attribution of conduct to the entity, whose international responsibility is invoked, is still required. The contention that under bilateral mixed IIPAs the EU and the Member States form a joint entity for purposes attribution of conduct and international responsibility can be criticised as well. An intention to create a joint entity for purposes of treaty obligations does not necessarily extend to attribution and international responsibility for breaches of the treaty, especially when the implementation of a treaty does not stipulate positive obligations and a result to be achieved. In such cases the responsible parties for implementation of obligations are predictable and the risks associated with non-implementation are foreseeable at the moment of the conclusion of the treaty. Conversely, where implementation rests on negative obligations and where breaches are caused by any action, as is the case under EU IIPAs,167 the responsible parties for implementation of these obligations are largely unpredictable and the risks associated with non-implementation cannot be foreseen at the moment of conclusion of the treaty. Furthermore, it is difficult to assume—bar an explicit rule of joint responsibility in the treaty—that the EU intends to be internationally responsible under a bilateral mixed IIPA for breaching conduct of its Member States and vice versa. All the more, it is unthinkable that each Member State is willing to assume international responsibility for breaching conduct of other Member States, which would the case under a rule of joint responsibility under a bilateral mixed IIPA.  An intention of wanting to be held liable for the conduct of another entity can be extracted especially where the responsibility regime under a treaty provides for monetary compensation as remedy, as do EU IIPAs.168 Due to budgetary implications it must be assumed that the EU and the Member States only want to burden their respective budgets for breaching conduct of their own organs. This cannot be said for breaching conduct of entities over which they do not hold any sway and that is not attribut Cf. Nollkaemper, above Chap. 2, fn. 80, p. 331; Crawford, above Chap. 2, fn. 81, pp. 340 et seq; Certain Phosphate Lands in Nauru (Nauru v Australia), 1992 ICJ Reports 240 (Separate Opinion Judge Shahabuddeen), p. 284. 166  Talmon, above Chap. 2, fn. 76, p. 408. 167  Cf. above Sect. 2.3.1.2.3.2.2. 168  Cf. Nollkaemper, above Chap. 2, fn. 80, p. 325; Certain Phosphate Lands in Nauru (Nauru v Australia), 1992 ICJ Reports 326 (Separate Opinion of Judge Ago), p. 328.

165

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able to it under the lex generalis of the ILC Articles. Hence, given the differences of the responsibility regimes and remedy systems under a given treaty, it appears that it is the better contention to not assume a default rule under bilateral mixed IIPAs that the EU and the Member States, if not explicitly provided otherwise, form a joint entity for purposes of attribution of conduct. Rather, the EU and each Member State remains a separate entity for attribution purposes under bilateral mixed IIPAs, thereby excluding joint responsibility. Regardless of the arguments just made, lets assume a default rule of joint responsibility under bilateral mixed IIPAs. The EU and the Member States are free to exclude being jointly bound by the obligations under a bilateral mixed agreement.169 At the same time they are able to exclude joint responsibility under a bilateral mixed IIPA, uphold their independent contracting party status and requiring separate attribution of the breaching conduct to each entity to trigger that entity’s international responsibility. Given again the budgetary implications ensuing from a rule of joint responsibility just mentioned, post-Lisbon mixed bilateral IIPAs thus might explicitly exclude joint responsibility and uphold the separate contracting party status of the EU and each Member State. If not, one might find an implicit intention to that effect. For example, bilateral mixed IIPAs, such as CETA,170 provide for dispute settlement with respect to alleged breaches of its investment protection obligations (Article 8.18 CETA). They permit to only sue and hold responsible the EU or a Member State concerned (Article 8.18 CETA), and not both of them jointly. This demonstrates, arguably, (at least with respect to the investment protection obligations as covered by the dispute settlement provisions) the implicit intention of the EU and each Member State to uphold their independent contracting status under the bilateral mixed IIPA and to not form a joint entity for purposes of liability.171 In conclusion, unless multilateral mixed IIPAs explicitly provide for joint responsibility, the international responsibility of the EU or a Member State requires attribution of the breaching conduct to the EU or the respective Member State. Under bilateral mixed IIPAs, however, it may be argued that it suffices to attribute the breaching conduct to either the EU or the Member State concerned to trigger the joint responsibility of the EU and the Member States. Yet the EU and the Member States have the possibility to exclude joint responsibility under bilateral mixed IIPAs, which is likely given the budgetary implications of a rule of joint responsibility.

 See again above Sect. 2.3.1.1.7.  See below Chap. 4. 171  When the respondent is determined under the respondent determination mechanism under CETA, this study argues that the respondent is internationally responsible for the challenged conduct within the ‘EU-Member State responsibility window’. For the purposes of attribution and international responsibility this means that the respondent becomes the composite entity comprised of the EU and the Member State concerned. See for details below Sect. 4.3. However, this effect only comes into play after the determination. Before the initiation of the mechanism the EU and the Member States remain separate entities. 169 170

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3.2.2  T  he Division of Competences Between the EU and the Member States Under the EU Treaties as Lex Specialis International responsibility under EU IIPAs, mixed and EU-only, of the EU and the Member States in accordance with the division of competences is another lex specialis approach. The Commission explicitly promulgated that view throughout the years with respect to mixed agreements in general and, specifically, with respect to the pre-Lisbon ECT and future post-Lisbon IIPAs (mixed and EU-only). Already during the negotiations and deliberations on the drafting of the ARIO it voiced the view that international responsibility under mixed treaties depends, first, on the apportionment of obligations between the EU and the Member States (as discussed in Chap. 2), and second, on attribution of conduct; both issues need to be answered by reference to the division of competences as derives from the EU Treaties.172 Then in an amicus curiae intervention in Electrabel v Hungary, a dispute under the ECT, the Commission, abandoning any specific references to the question of apportionment and attribution, expressed the view that competence for the subject matter in question determines international responsibility, which the Tribunal rejected.173 In 2010, the Commission applied its view to all post-Lisbon EU IIPAs, EU-only and mixed, stating ‘[g]iven the exclusive external competence, the Commission takes the view that the European Union will also be the sole defendant regarding any measure taken by a Member State which affects investments by third country nationals or companies falling within the scope of the agreement concerned’.174 The Commission’s view regarding post-Lisbon EU IIPAs has even found resonance in the REG.  Recital 3 of the REG reads: ‘International responsibility for treatment subject to dispute settlement follows the division of competences between the Union and the Member States. As a consequence, the Union will in principle be responsible for defending any claims alleging a violation of rules included in an agreement which fall within the Union’s exclusive competence, irrespective of whether the treatment at issue is afforded by the Union itself or by a Member State.’ Specifically regarding EU-only IIPAs, the Commission writes in the Explanatory Memorandum to the REG: ‘[W]here the agreement is one which is concluded by the Union only, then it is only the Union which may be sued by an investor. This would be the case even if the treatment accorded which is challenged in investor-state dispute settlement is treatment accorded not by the Union but by a Member State.’175 Regarding  ILC, ‘Responsibility of International Organisations  – Comments and Observations received from International Organisations’, Doc A/CN.4/545, 25 July 2004, pp. 26 et seq; see for a concise critique, Eeckhout, above Chap. 2, fn. 80, pp. 449–464. 173  Electrabel SA v The Republic of Hungary, ICSID Case No ARB/07/19, Decision on Jurisdiction, Applicable Law and Liability, 30 November 2012, paras. 4.170, 5.10 and 5.20. 174  Communication from the Commission to the Council, the European Parliament, the European Economic and Social Committee and the Committee of the Regions, Towards a comprehensive European international investment policy, Brussels 7 July 2010, COM (2010) 343, p. 10. 175  Explanatory Memorandum to the REG, p. 4. 172

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mixed IIPAs it reads ‘[s]hould it be the case that both the European Union and the Member States are parties to an agreement and it needs to be decided who is responsible as a matter of international law for any particular action, the Commission takes the view that this has to be decided not by the author of the act, but on the basis of the competence for the subject matter of the international rules in question, as set down in the Treaty. In this perspective, it is immaterial that a Member State has competence under the rules on the internal market allowing it to legislate in its domestic sphere.’176 The competence-based approach as promulgated by the Commission in Recital 3 REG and in the Explanatory Memorandum to the REG likely encapsulates a rule of attribution of responsibility, and not a special rule on attribution of conduct. Conduct of Member State organs remains attributable to the Member State and conduct of EU organs remains attributable to the EU. This derives from the fact that the Commission makes no reference to attribution of conduct or provides for a definition of what constitutes an act of a Member State or the EU. Rather, it appears that it explicitly leaves attribution of conduct untouched as it writes ‘who is responsible as a matter of international law for any particular action, the Commission takes the view that this has to be decided not by the author of the act, but on the basis of the competence for the subject matter of the international rules in question [emphasis added].’177 It follows that in the view of the Commission, competence shall substitute conduct as the criterion for international responsibility under EU IIPAs.178 Put differently, regardless of which entity acts, the EU or a Member State, international responsibility lies where competence lies. It must be stated, however, that the Commission itself expects that competence will not be the criterion for international responsibility under future, post-Lisbon EU-only and mixed IIPAs, but rather that international responsibility will be ‘proceduralised’ (which is subject of Chap. 4) and determined by criteria other than competence. In a nutshell, the Commission believes that after Lisbon the EU has the competence for all matters covered by IIPAs.179 So, even when post-Lisbon IIPAs are going to be mixed, it will be the EU alone that faces international responsibility. However, the EU believes that ‘given the potential for significant demands (even temporary) on the Union budget and on Union resources were the Union to act as respondent in all cases’, it can and should empower the Member States to defend their own conduct in certain circumstances, agree to settlements and pay monetary awards.180 Consequently, ‘rather than set up the mechanisms in a manner reflecting a strict application of the rules on competence, it is more appropriate to put forward pragmatic solutions […].’181 Therefore, the reference to competence and international responsibility rather serves as an explanation and a legal basis for the EU to  Ibid.  Ibid. 178  Baetens/Kreijen/Varga, above Chap. 2, fn. 73, p. 1242. 179  Explanatory Memorandum to the REG, pp. 3–5. 180  Explanatory Memorandum to the REG, p. 5. 181  Ibid. 176 177

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enact the REG as to who is going to be respondent under future EU IIPAs, as to who may agree to settlements and who owes payment obligations to the succeeding investor.182 Notwithstanding this caveat, it remains pertinent to critically analyse the competence-­based approach to international responsibility under EU IIPAs. This is because on the one hand there is no effective proceduralisation of international responsibility under the ECT,183 since a proceduralisation is more difficult to bring in tune with EU-only IIPAs184 than with mixed IIPAs, and since it is unclear whether all future, post-Lisbon EU IIPAs will at all embrace a proceduralisation-approach. The following critical analysis will focus, first, on the functioning of the competence-­ based approach and, second, whether and how it can have a bearing under international law. 3.2.2.1  T  he Division of Treaty-Making Competences as the Criterion for International Responsibility What derives from Recital 3 REG and the Commission’s statements in the Explanatory Memorandum to the REG is that, in general, it is the external, treaty-­ making competence that shall be decisive for purposes of international responsibility under EU IIPAs. The regulatory implementing competences, i.e. to legislate in the internal market, whose exercise might have triggered the investment protection claim in the first place, shall not play a role. Solely relevant is the competence ‘for the subject matter of the international rules in question’. This approach establishes a parallelism between treaty-making and treaty breaking. Under EU-only IIPAs this approach leads to a comprehensive international responsibility of the EU for breaching conduct of the EU and is Member States. The existence of a EU-only IIPA is premised on the fact that the Member States would have lost per definitionem any treaty-making competence and that the EU has the comprehensive competence for the IIPA. The approach would solve the conundrum of accountability gaps under EU-only IIPAs, as the lex generalis of the ARIO would attribute the breaching conduct to the Member States. The functioning of the competence-based approach under a mixed setting would be centred upon the division of external competences with respect to the content of the mixed IIPA. At the outset, an Arbitral Tribunal would have to decide which parts of the mixed IIPA are under EU competence and which parts are under Member State competence. For this to answer, the Tribunal would presumably have to rule also upon the scope of FDI, whether the investment protection provisions including  Kleinheisterkamp, this chapter, fn. 111, p.  8: ‘Put differently, the Commission claims that, because of the exclusive competence for international investment policy, it must be the EU alone who decides on who has to assume the responsibility for the treatment that allegedly caused harm to a foreign investor’; see also Marín-Durán, above Chap. 2, fn. 270, p. 26. 183  See below Sect. 4.2.1.3.3. 184  See below Sect. 4.4. 182

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ISDS are covered by the term at all, and if so, possibly, whether the EU has an implicit competence for FPI. Pending the decision of the CJEU to clarify the EU’s competence on ‘Foreign Investment’ and on the content of typical IIPAs,185 let’s assume that the division of competence regarding the content of mixed IIPAs will primarily depend on the distinction between FDI, which is under EU’s exclusive competence, and FPI, which is under shared competence. The next step for the Arbitral Tribunal would presumably be to decide whether the conduct that has led to dispute settlement and is allegedly in breach of the IIPA affected FDI or FPI.186 If FDI is affected, the EU bears international responsibility. If FPI is affected, which is under shared competence, international responsibility for a specific treatment would, arguably, depend on who exercised the competence since pursuant to Article 2(2) TFEU Member States ‘exercise their [shared] competence to the extent that the Union has not exercised its competence’. So, the Tribunal’s assessment would have to focus on whether a EU act is challenged and alleged to breach the EU IIPA, such as a EU directive, EU regulation or EU decision. In such a case, the EU can be seen to have exercised its competence resulting in the EU’s international responsibility. If a Member State act is challenged before an Arbitral Tribunal, competence and therefore international responsibility still lies with EU if the Member State implemented a EU act, which the Tribunal would have to find out. Only if a Member State act is challenged that did not implement a EU act, competence and, thus, international responsibility lies with the Member State. From a practical perspective, the application of the competence-based approach has the technical upside that an Arbitral Tribunal does not have to examine whether the Member State had a margin of appreciation or discretion when implementing EU law, whether the conduct was in conformity with EU law and whether a breach is based on EU law.187 Rather it is competence that matters. Yet, apart from avoiding the intricacies of executive federalism, one should not assert that the competence-­ based approach is simple and straightforward188 Rather, it engenders enough technical challenges of its own. For one, an Arbitral Tribunal still has to scrutinise whether FDI or FPI is affected. As discussed,189 this can be difficult if not impossible in certain cases as the contours are often blurred. For two, in case FPI is affected, the Tribunal must assess whether the Member State acted on its own accord or in response to a EU measure as an investor might only challenge the implementing act of a Member State, and not the EU act that led the Member State to act.190 Ultimately, a whole new level of complexity occurs where the division of competences with respect to mixed IIPAs does not run along the lines of FDI and FPI.191  See above Chap. 2, fn. 72.  Cf. Baetens/Kreijen/Varga, above Chap. 2, fn. 73, pp. 1241–1242. 187  Ibid. 188  But see Baetens/Kreijen/Varga, above Chap. 2, fn. 73, pp. 1241–1242. 189  See above Sect. 2.3.1.1.5.1. 190  But see Baetens/Kreijen/Varga, above Chap. 2, fn. 73, pp. 1241–1242. 191  See Dimopoulos, above Chap. 2, fn. 112, p. 1691: ‘Since the exact determination of EU exclusive competence remains a highly contentious matter, which more than 5 years after the entry into 185 186

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Conceptually, the use of competence as the criterion for international responsibility is troublesome and hardly to be brought in tune with the responsibility concept of the ARIO and ARS.192 This is first and foremost demonstrated by the fact that the rules on attribution under the lex generalis of the ARIO and the ARS are entirely unaffected by ultra vires acts.193 The ARIO and ARS entirely ignore the concept of competence for matters of attribution and international responsibility. Furthermore, it is true that the question of competence is useful when it comes to obligations of result and attributing omissions since competence implies a potential or a capacity to act. However, whenever a positive action leads to an international wrongful act, concepts of causation, influence and control wielded by a subject of international law over immediate actors, such state organs, authorities and private persons, become relevant. Competence defies factors of causation, influence and control and is not susceptible to provide a causal link between a positive action breaching an obligation and a subject of international law. Competence might be again important when it comes to remedies and the question which entity can restore the status quo ante.194 Conceptually, however, this concerns the consequences of international responsibility, and not whether there is and who bears international responsibility in the first place, a distinction sharply made by the ARS and the ARIO.195 The capacity to provide effective remedies is further no factor in the determination of international responsibility under the ARIO and the ARS. In any case, the purported benefit of relying on competence for purposes of effective remedies becomes entirely moot for liability under EU IIPAs, since they rely on monetary compensation and not on restitution.196 Finally, one must bear in mind that the EU state responsibility regime does not rely on a competence-based approach either.197 From a normative vantage point, it is equally difficult to justify a competence-­ based approach to international responsibility since it leads to awkward and implau-

force of the Lisbon Treaty has not yet been clarified, any competence-based allocation of responsibility should be avoided’. 192  See for conceptual critique of using the competence division between the EU and the Member States for determining international responsibility, Heliskoski, above Chap. 2, fn. 199, pp. 191– 196, 207–209; Cannizzaro, this chapter, fn. 102, p. 307; Eeckhout, above Chap. 2, fn. 16, pp. 262– 263; Eeckhout, above Chap. 2, fn. 80, p. 461; Piet Eeckhout (2015) Opinion 2/13 on EU Accession to the ECHR and Judicial Dialogue: Autonomy or Autarky? 38(4) FIntlLJ, pp. 982–985; Talmon, above Chap. 2, fn. 76, p. 409; Nollkaemper, above Chap. 2, fn. 80, pp. 332–333; Sarvarian, this chapter, fn. 26, pp. 90–92. 193  See Article 7 ARS and Article 8 ARIO attributing conduct to the state or an international organisation respectively despite an excess of authority (competence). 194  See Kuijper/Paasivirta, above Chap. 2, fn. 155, pp.  54 et  seq; Kuijper, this chapter, fn. 78, pp. 75–77; Heliskoski, above Chap. 2, fn. 199, pp. 191–196; Hoffmeister, above Chap. 2, fn. 243, p. 745. 195  Compare Articles 3 ARIO et seq with Articles 28 ARIO et seq; and compare Articles 1 ARS et seq with Articles 28 ARS et seq. 196  See Article 26(8) ECT and Article 8.39 CETA, Article 3.18 EU-Singapore IIPA, Article 28(1) Section 3 Investment Chapter TTIP, Article 27(1) Section 3 Investment Chapter EU-Vietnam FTA. 197  Sarvarian, this chapter, fn. 26, p. 91.

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sible results and ‘moral hazard concerns’.198 This already becomes apparent if one were to rely on internal, regulatory competences for liability. It could lead to international responsibility of the EU though the breaching legislation was enacted by the Member States ultra vires. It could further lead to international responsibility of the EU even though the legislation it has enacted did not contribute to the breach, which was rather committed by the way the Member State implemented EU legislation, though the Member States could have avoided the breach through a different use of their discretion. In both cases, the EU did not commit the breach and could not even have avoided it. It is true that the EU can bring infringement proceedings against Member States for non-compliance under mixed IIPAs.199 However, since the infringement procedure would only be ex post facto, one cannot even blame the EU for an omission, i.e. for not having prevented the breach committed by the Member States.200 The approach based on external competences as explicitly promulgated by the Commission churns out even more awkward results. As discussed, there is an incongruence between external and internal competences in the field of the CCP, generally, and FDI, specifically. The EU would be responsible for any breach relating to FDI even though Member State administrative action or the exercise of their regulatory competences constituted the breach. Here again, the EU did not commit the breach and was even less able to prevent the Member States from committing it. Article 207(6) TFEU201 protects the Member States internal competences and their exercise against overarching external competences of the EU, which, manifested in EU IIPAs, would infiltrate and encroach upon the Member States’ internal competences. In the end, a consequence of any competence-based approach is that it raises ‘moral hazard concerns’. Member States may act in breach of EU IIPAs, knowing that the financial repercussions are carried by the EU and, thereby, are shared by all the Member States through their contributions to the EU budget that compensates the investor.202 From a mere EU perspective, the competence-based approach equally raises concerns. One point is that the approach would encroach upon Article 207(6) TFEU if a Tribunal finds the EU internationally responsible under a EU IIPA for Member State legislation adopted under exclusive Member State competence and orders the  Dimopoulos, above Chap. 2, fn. 112, p.  1676; Dimopoulos, above Chap. 2, fn. 39, pp.  269 et seq; Baetens/Kreijen/Varga, above Chap. 2, fn. 73, p. 1242; Sarvarian, this chapter, fn. 26, p. 90. 199  See Hollis, above Chap. 2, fn. 82, p. 111; Alina Kaczorowska-Ireland (2016) European Union Law, 4th edn. Routledge, pp.  432–433 Case C-239/03 Commission v France (Étang de Berre) [2004] ECR I-9325; AG Opinion Mischo in Case C-13/00 Commission v Ireland [2002] ECR I-2943, paras. 29–30. 200  Baetens/Kreijen/Varga, above Chap. 2, fn. 73, p. 1242. 201  Article 207(6) TFEU provides that the competences of the EU ‘in the field of the common commercial policy shall not affect the delimitation of competences between the Union and the Member States, and shall not lead to harmonisation of legislative or regulatory provisions of the Member States in so far as the Treaties exclude such harmonisation’. 202  Dimopoulos, above Chap. 2, fn. 112, p.  1676; Dimopoulos, above Chap. 2, fn. 39, pp.  269 et seq. 198

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EU to repeal, annul or amend such legislation, which in turn would order the Member State to do so.203 However, such an order by an Arbitral Tribunal is highly unlikely, as the remedy system under EU IIPAs provides for monetary compensation and not restitution or specific performance.204 Ultimately, the possibility that an Arbitral Tribunal can assess the scope of FDI and the distribution of competences between the EU and the Member State with respect to the content of a mixed IIPA is highly problematic as it endangers the autonomy of EU law.205 All in all, one can say that the competence-based approach to international responsibility as promulgated by the Commission raises too many concerns as to justifiably replace the general rules on international responsibility of the ILC Articles. 3.2.2.2  The Division of Competences as Derives from the EU Treaties According to the Commission, it is the division of competences as derives from the EU Treaties that shall determine international responsibility for breaches of EU IIPAs.206 The Commission justifies its contention by referring to ECJ Opinion 1/91207 and Article 64 ARIO.208 Regarding the latter, the Commission notes that in the international context, the ILC ‘has recognised the possibility that special rules may apply between an international organisation and its members’ and that the general rules of the ILC Articles on responsibility ‘may not be applicable, or may be modified, in specific circumstances’.209 Yet it is questionable whether the division of competences as derives from the EU Treaties can effectively function under international law as a lex specialis for the determination of international responsibility under EU IIPAs.210  Tietje/Sipiorski/Töpfer, above Chap. 2, fn. 69, pp. 16–18.  See Article 26(8) ECT and Article 8.39 CETA, Article 3.18 EU-Singapore IIPA, Article 28(1) Section 3 Investment Chapter TTIP, Article 27(1) Section 3 Investment Chapter EU-Vietnam FTA. 205  Dimopoulos, above Chap. 2, fn. 112, pp. 1700–1702. The risk of undermining the autonomy of EU law by vesting Arbitral Tribunals with the power to assess and decide upon the division of competences between the EU and the Member States is a driving force for the proceduralisation of international responsibility that deprives the Arbitral Tribunal from assessing and deciding that question. See for details below Sect. 4.1.2. 206  See again Recital 3 REG; Explanatory Memorandum to the REG, p. 4. 207  Opinion 1/91 Economic Area Agreement I [1991] ECR I-6079, para. 33: ‘The expression ‘Contracting Parties’ is defined in Article 2(c) of the agreement. As far as the Community and its Member States are concerned, it covers the Community and the Member States, or the Community, or the Member States, depending on the case. Which of the three possibilities is to be chosen is to be deduced in each case from the relevant provisions of the agreement and from the respective competences of the Community and the Member States as they follow from the EEC Treaty and the ECSC Treaty’. 208  Explanatory Memorandum to the REG, pp. 4–5. 209  Explanatory Memorandum to the REG, p. 5. 210  But see Ratz, this chapter, fn. 120, p. 111. 203 204

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It is more or less common ground that the division of competences has such a role provided a mixed IIPA explicitly provides that competence shall determine liability and if the mixed IIPA elevates competence to international law status, e.g. by way of a declaration of competence, or by ascribing specific obligations to the competent entity.211 Yet future mixed IIPAs will neither have a provision stating that competence determines responsibility nor will they have a declaration setting out the division of competences with respect to the subject matter of the treaty, as this would be unconducive.212 In this respect, the Commission’s reference to ECJ Opinion 1/91 is unfitting because it concerned the EEA Agreement, which contained an explicit delimitation of obligations that aimed at rendering competence relevant for liability purposes. The ECT Statements, saying that the division of competences determines international responsibility under the ECT cannot, as discussed, be seen as an effective stipulation in that respect.213 And the Recital of the REG itself has very little, if any effect at all on an Arbitral Tribunal constituted under a EU IIPA unless the REG is copied into the IIPA, which is not the approach taken by future EU IIPAs, such as CETA.214 In the end, it depends on whether a competence-based approach to international responsibility based on the division of competences as derives from the EU Treaties can be effectively rooted in and accommodated with international law. At the outset, one should note that it is not corroborated by international case law that the division of competences between the EU and the Member States as derives from the EU Treaties determines international responsibility under mixed treaties that do not explicitly provide for that. Even WTO case law does not support a pure (external) competence-based approach either.215 It is questionable whether the competence-based approach can draw upon Article 64 ARIO, as the Commission suggests.216 It is true that Article 64(2) ARIO, at face value, seems to provide that the rules of an international organisation, such as the EU Treaties, might constitute a lex specialis. It reads that ‘[s]uch special rules of international law may be contained in the rules of the organization applicable to the relations between an international organization and its members’. However, the wording of Article 64(2) ARIO and the possibility deriving from it, which is to extract a special rule of international responsibility from the division of competences as laid down in the EU Treaties, is highly problematic.217 As a first observa See this chapter, fn. 151 et seq and accompanying text.  See above Sect. 2.3.1.2.3.2. 213  See Roe/Happold, above Chap. 2, fn. 39, p. 184; for details see above Sect. 2.3.1.2.3.1. 214  See Baetens/Kreijen/Varga, above Chap. 2, fn. 73, pp. 1234–1236. 215  See Marín-Durán, above Chap. 2, fn. 270, pp.  21–26, and at p.  2: ‘The approach to EU/MS international responsibility we have witnessed in the WTO dispute settlement system has not just been determined by the EU internal rules –ie, a pure ‘competence model’, whereby the exclusive (external) competence of the EU for virtually all WTO matters will implicate its exclusive responsibility in all instances’. See also above Sect. 3.1.2.2.1 for an appraisal of WTO case law. 216  But see Ratz, this chapter, fn. 120, p. 111. 217  See D’Aspremont, this chapter, fn. 26, pp. 80–82; Ahlborn, this chapter, fn. 26, pp. 433–443, 451–452; Hernández, above Chap. 2, fn. 10, pp. 652–654. 211 212

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tion, it is confusing that Article 64(2) ARIO equates international law with the rules of the organisation without distinguishing between the relationship of third states to the international organisation and its members on the one hand and the mere internal relationship between the organisations to its members on the other.218 Apart from Article 64(2) ARIO, the ARIO always delineate the rules of the organisation from international law,219 unless the mere relationship between the organisation and its members is concerned.220 So, when third states invoke the international responsibility of the organisation, the ARIO consider the rules of the organisation as merely internal. The VCLT and the VCLT-IO clearly do so.221 Be that as it may, it is submitted that in relation to third states, the rules on the division of competences as derives from the EU Treaties merely constitute internal law.222 Internal law cannot function as lex specialis since ‘[a] special rule could not prevail over a general rule unless the two rules had the same status.’223 Put differently, the rules of the EU about the distribution of competences cannot be considered to have the same status as the general rules on international responsibility under the ARIO and, therefore, cannot be considered ‘special’.224 Moreover, if the division of competences as derives from the EU Treaties could effectively determine responsibility under international law, it would allow an international organisation or its members to evade liability by referring to the division of competences. Pursuant to Articles 27 VCLT/VCLT-IO this is not possible. Article 32 ARS and Article 32(1) ARIO extend that principle to the international obligation of the internationally responsible party to provide for effective remedies. Besides, internal competence shifts, which third states are unable to influence, could alter responsibility under treaties with third states, evoking the dictate that ‘international law does not permit a State to escape its international responsibility by a mere process of international subdivision.’225 In the same vein, just as much as it is untenable for third parties to know the division of competence with respect to a delimitation of obligations, one cannot expect third parties to know it for purposes of international responsibility. In other words, if the treaty parties did not make the division of competences part of the treaty bargain, there should have every right to concentrate on the general rules of international responsibility.226 To put in the words of Nollkaemper: ‘[L]ike states, the EU is a ‘black box’, and how power is arranged within the EU is therefore largely irrelevant for

 See Ahlborn, this chapter, fn. 26, pp. 438–440.  See Articles 2(b)(c), 6(2), 32(1), 40 ARIO. 220  E contrario Articles 10(2), 32(2) ARIO. 221  See above Chap. 2, fn. 112. 222  D’Aspremont, this chapter, fn. 26, p. 81; Ahlborn, this chapter, fn. 26, p. 452. 223  Statement of Roberto Ago in United Nations (1969) Yearbook of the International Law Commission 1968, Vol I – Summary Records of the 20th Session, 27 May - 2 Aug 1968, p. 31, para. 24. 224  D’Aspremont, this chapter, fn. 26, p. 81. 225  ARS Commentary, Chapter II, para. 7. 226  Eeckhout, above Chap. 2, fn. 16, p. 264. 218 219

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international responsibility to third parties’.227 Finally, Article 17 ARIO and Article 61 ARIO demonstrate that the ARIO actually try to prevent international organisations and its members from invoking the rules of the organisation in order to avoid compliance with international law.228 In conclusion, it is highly problematic to elevate the division of competences between the EU and the Member States as derives from the EU Treaties to international law status for determining international responsibility. It is for this reason alone that Arbitral Tribunals constituted under EU IIPAs shall refrain from using competence as the determinant for international responsibility. Article 64(2) ARIO should rather be construed to only find application to the relationship between the international organisation and its members, and, when third states and the EU and its Member States explicitly elevate the division of competences to international law status in the treaty. 3.2.2.3  Conclusions on the Competence-Based Approach as Lex Specialis Strong arguments speak against the contention that international responsibility under post-Lisbon EU IIPAs and the ECT can be determined by the division of competences as derives from the EU Treaties. On the one hand, though the wording of Article 64(2) ARIO might suggest otherwise, it is questionable whether the division of competences as derives from the EU Treaties can even determine international responsibility since it must be considered internal law with respect to third states. On the other hand, the competence-based approach raises too many concerns from a practical, conceptual, normative and even from a EU law perspective to justifiably replace the general rules on international responsibility. For these reasons, it is unlikely and unviable that under post-Lisbon EU IIPAs third states and the EU (and in case of mixed agreements, the Member States) recur to treaty drafting in a way that elevates the division of competences into international law status to determine international responsibility.

3.2.3  T  he ‘What-Is-Required-by-EU-Law’-Approach as Lex Specialis Under the ECT The ECT appears to provide a lex specialis on international responsibility in instances of executive federalism. Specifically, in cases where a Member State implements EU law and thereby breaches the ECT, international responsibility for the breaching conduct appears to be exclusively attributed to the EU, and the

227 228

 Nollkaemper, above Chap. 2, fn. 80, p. 321.  Ahlborn, this chapter, fn. 26, pp. 441–443.

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Member State concerned is exempt from responsibility.229 This rule is based on Article 1(3) ECT and corroborated by arbitral case law. Article 1(3) ECT does not explicitly deal with international responsibility. Yet it submitted that it does so implicitly. The provision reads: “Regional Economic Integration Organization’ [‘REIO’] means an organization constituted by states to which they have transferred competence over certain matters a number of which are governed by this Treaty, including the authority to take decisions binding on them in respect of those matters [emphasis added].’ At the outset, the EU falls under the definition of REIO.  Article 1(3) ECT states that Member States cede regulatory powers230 to the REIO regarding certain matters governed by the ECT, and, thus, obligations under it. It further states that the REIO has the power to take decisions in respect of those obligations binding its Member States, which are—as a consequence of their membership—obliged to implement these decisions. In this sense, the ECT acknowledges the principle of conferral (Article 5 TFEU) and the vertical power structure of the EU enshrined in Article 4(3) TEU and Articles 288 and 291(1) TFEU and says that Member States have an obligation under EU law to implement EU law. The ECT also acknowledges that the exercise of the regulatory powers of the organisation and its binding decisions on its Member States can affect the obligations under the ECT and, therefore, can cause a breach of the ECT. By acknowledging the vertical and horizontal power sharing structure and its ramifications on the obligations under the ECT, Article 1(3) ECT can be considered a rule on international responsibility in cases where Member States act in implementation of EU law. The test to be extracted from Article 1(3) ECT centres on the binding nature of EU law that requires the Member States to act. This means that where Member States breach the ECT when merely implementing binding acts of EU law, exclusive international responsibility for such acts lies with the EU, and the Member States are exempt from liability. As Article 1(3) ECT does not appear to be a special rule of attribution of conduct but of attribution of responsibility, the implementation conduct remains attributable to the Member States. Yet Article 1(3) ECT and by extension EU law exempts the Member State on a primary level. In contrast, exclusive international responsibility rests with the Member States for conduct imple To clarify, the lex specialis scenario concerns certain cases where Member States implement EU law. Where Member States do not implement EU law or implement EU law in a way that does not fall under the lex specialis scenario, their breaching conduct is attributable to them, triggering their international responsibility under the ECT pursuant to the lex generalis rule of Article 4 ARS. Where EU organs breach the ECT their conduct is attributable to the EU pursuant to the lex generalis rule of Article 6 ARIO, triggering the EU’s international responsibility under the ECT. As discussed above in Sect. 3.2.1, the ECT enshrines no lex specialis rule of joint responsibility, as discussed above in Sect. 2.3.1.2.3.1 the ECT does neither effectively elevate the division of competences between the EU and the Member States into the determinant for international responsibility. And as discussed above in Sect. 3.2.2, for many reasons it is unlikely that Arbitral Tribunals would recur to the partition of competences as derives from the EU Treaties for determining international responsibility. 230  Article 1(3) ECT means regulatory ‘competences’ and not treaty-making ‘competences’. In this regard, see again above Sect. 2.3.1.2.3.1. 229

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menting EU law where the Member State concerned has a margin of manoeuvre with respect to the manner of implementation, or when it incorrectly implements EU law and thereby breaches the ECT. This reading of Article 1(3) ECT is supported by two cases adjudicated under the ECT, i.e. Electrabel v Hungary231 and AES Summit v Republic of Hungary.232 3.2.3.1  Electrabel v Hungary In general, there is little case law of Arbitral Tribunals constituted under the ECT that had to weigh in on who is responsible for Member State conduct implementing binding EU law. Yet in Electrabel v Hungary,233 a Belgian investor brought a case against Hungary in a dispute that revolved around a decision of the Commission addressed at Hungary to terminate certain power purchase agreements (PPAs). The PPAs were introduced before Hungary acceded to the EU but they constituted in the eyes of the Commission upon accession illegal state aid under EU law. Hungary, in turn, implemented the Commission decision and eventually terminated the PPAs. The investor explicitly challenged, next to conduct that had nothing to do with EU law, Hungary’s termination of the PPAs in response to the Commission decision. It did however not challenge the Commission decision itself and did not try to invoke the EU’s international responsibility.234 The Tribunal held at the jurisdictional stage that, in view of the Commission’s decision requesting Hungary to terminate the PPAs, ‘[w]here Hungary is required to act in compliance with a legally binding decision of an EU institution, recognized as such under the ECT, it cannot (by itself) entail international responsibility for Hungary. Under international law, Hungary can be responsible only for its own wrongful acts. It would be absurd if Hungary could be liable under the ECT for doing precisely that which it was ordered to do by a supranational authority whose decisions the ECT itself [via Article 1(3) ECT] recognises as legally binding on

 Electrabel SA v The Republic of Hungary, ICSID Case No ARB/07/19, Decision on Jurisdiction, Applicable Law and Liability, 30 November 2012. 232  AES Summit Generation Ltd and Tisza Eromu Kft v The Republic of Hungary, Case No ARB/07/22, Award, 23 September 2010. 233  See for an analysis of the case, Andreas Kulick (2014) Case Report: Electrabel S.A. v. The Republic of Hungary. 15(1–2) JWIT, pp. 273–284; see also Inès El Hayek and Anne Gilles (2014) The Multifaceted Settlement of International Investments Disputes: Thoughts about the Variety of Instruments Claiming Their Applicability to the Investment Dispute. 29(3) ICSIDRev, p. 586. 234  Electrabel SA v The Republic of Hungary, ICSID Case No ARB/07/19, Decision on Jurisdiction, Applicable Law and Liability, 30 November 2012, para. 4.171: ‘However, this is manifestly not what this case is all about: the European Union is not a named party to this arbitration; the Claimant here makes no complaint against the European Union or the European Commission; it does not impugn the legal validity of the Commission’s Final Decision; and its claims are not made under EU law. The Claimant’s claims under the ECT relate only to certain measures taken by the Respondent, some resulting from the Final Decision under EU law and some with no link with the Commission or EU law [emphasis added]’; and see paras. 5.10, 5.33–5.36. 231

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Hungary [emphasis added]’.235 The Tribunal then referred to former Article 10 TEC (now Article 4(3) TEU enshrining the duty of cooperation) and Article 1(3) ECT to come to the conclusion that Member States are obliged to implement EU acts under EU law and under the ECT itself.236 The Tribunal went on to apply by analogy Article 6 ARS, according to which the conduct of an organ placed at the disposal of a state by another state should be considered an act of the former state, to the relationship between EU and the Member States when the latter implement binding EU acts.237 The use of Article 6 ARS, which has its counterpart in Article 7 ARIO, is interesting since it attributes conduct away from one state to another state (or in this case the EU) and, therefore, is no basis for additional but exclusive international responsibility. Furthermore, by raising Article 6 ARS, the Tribunal appears to attribute Member State implementation conduct away from the Member State and to the EU exempting the Member State for a lack of attribution of conduct. It is very questionable whether Article 7 ARIO—the counterpart to Article 6 ARS—is applicable to the relationship between the EU and the Member States when the latter implement binding EU law.238 Moreover, as mentioned earlier, the ECT and Article 1(3) ECT do not appear to provide for a special rule of attribution of conduct but rather of responsibility, on the one hand attributing responsibility to the EU and exempting Member States from it on the primary level. Be that as it may, it can be clearly extracted from the Tribunal’s reasoning that not the Member States but rather the EU bears international responsibility for breaches of the ECT following the implementation of binding EU acts.239 Even though the Tribunal does not explicitly rule on the EU’s general responsibility in such cases, it is the corollary from the Tribunal’s invocation of Article 6 ARS and Article 1(3) ECT. The Tribunal went on specifying the test to find out in which cases of executive federalism exactly the Member State would not be liable. It stated that ‘if and to the extent that the European Commission’s Final Decision required Hungary, under EU law, prematurely to terminate Dunamenti’s PPA, that act by the Commission cannot give rise to liability for Hungary under the ECT’s FET standard [emphasis added]’.240 ‘Required’ means that the conduct of the Member State was in response to a EU law obligation. An authorisation to act under EU law would arguably not fall under the meaning of ‘required’. Neither would fall Member State treatment under this meaning where EU law stipulated an obligation, yet the conditions or thresholds for Member State action as set forth in the EU act that contained the EU law obligation to act, were not met. The meaning of ‘to the extent required’ can be extracted from the Tribunal’s assessment of what the Commission decision precisely required Hungary to do and its conclusions arising from it: It found that the  Ibid, para. 6.72.  Ibid, para. 6.73. 237  Ibid, para. 6.74. 238  See above Sect. 3.1.2.1. 239  Cf. Kulick, this chapter, fn. 233, pp. 282–283; El Hayek/Gilles, this chapter, fn. 233, p. 586. 240  Electrabel SA v The Republic of Hungary, ICSID Case No ARB/07/19, Decision on Jurisdiction, Applicable Law and Liability, 30 November 2012, para. 6.76. 235 236

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Member State enjoyed a broad margin of discretion as how to implement the Commission decision and held the Member State responsible for the implementing conduct.241 It follows that ‘to the extent required’ means the extent of the binding force of the EU act on the Member States. This finds its limit where the Member States have discretion or a margin of appreciation as to how to implement a binding EU act. Moreover, Member States incorrectly implementing a EU law obligation would equally not be ‘required’. In either case, the Member State remains internationally responsible for the conduct. In the end, it appears that the Tribunal makes Article 1(3) ECT, which makes the power dynamics of executive federalism part of the ECT, its forensic cornerstone. The crucial test for the Tribunal is to focus on the binding force of the EU act that prompted the Member States to act and breach the ECT. 3.2.3.2  AES Summit v Hungary The finding in Electrabel v Hungary was somewhat foreshadowed by a finding of the Tribunal in AES Summit v Republic of Hungary, which concerned Member State conduct in anticipation of an expected Commission state aid decision requiring the Member State to terminate its PPAs. In the Tribunal’s view, ‘[h]ad Hungary been motivated to reintroduce price regulation with a view to addressing the EC’s state aid concerns, there is no doubt that this would have constituted a rational public policy measure. However, the Tribunal notes that as long as the Commission’s state aid decision was not issued, Hungary had no legal obligation to act in accordance with what it believed could be the result of the decision and to start a limitation of potential state aid [emphasis added]’.242 Here, it seems that the Tribunal considered the binding force of the EU act on a Member State a valid legal defence on the primary level exempting the Member State from liability, and not an attribution rule exempting it from liability, like the Electrabel Tribunal did. In any case, the Tribunal equally underscored the legal obligation of the Member States to act on a binding Commission’s decision and, thus, it equally recognised the binding force of a EU act on the Member States for purposes of liability.

 Ibid, paras. 4.38, 4.52, 4.168–4.169, 6.76–6.77, 6.91–6.92; see also the merits award in Electrabel SA v Republic of Hungary, ICSID Case No ARB/07/19, Award, 25 November 2015, para. 113: ‘Although [the Commission decision and EU law] form important background materials to the decisions made by Hungary as regards its scheme for net stranded costs in regard to Dunamenti, those decisions were made within a broad discretion by Hungary, alone, consistent with EU law at that time [emphasis added]’. 242  AES Summit Generation Ltd and Tisza Eromu Kft v The Republic of Hungary, Case No ARB/07/22, Award, 23 September 2010, para. 10.3.16. 241

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3.2.3.3  Conclusions on the ECT-Approach As a result, there is some force in the argument that the ECT, via Article 1(3) ECT, enshrines a lex specialis, according to which the EU is responsible for Member State conduct implementing binding EU acts and the Member State is exempted from liability, provided the conditions and thresholds for Member State action are fulfilled. Since Article 1(3) ECT focuses on the extent of the binding force of the EU act on the Member States, it would appear that the Member States remain liable under the ECT when they enjoy discretion or a margin of manoeuvre for implementation. The same appears to be true when the how of implementation of the EU act is in violation of EU law, i.e. when they incorrectly implement an EU act. An EU act, per definitionem, never requires its incorrect implementation. In such cases, however, ‘moral hazard concerns’ can occur. Consider a Member State facing international responsibility even though a correct implementation would not have avoided the breach of the ECT.  Or consider a scenario where no exercise of a Member State’s discretion would have avoided the breach of the ECT. One solution would be to complement the test in Article 1(3) ECT with the hypothetical causation-­ test under Article 3(1)(c) REG in conjunction with Article 2(l) REG, which allocates financial responsibility in such cases to the EU.243 Article 1(3) ECT already opens the gate into the vertical dynamics of EU law. The Tribunal’s task under the lex specialis approach of Article 1(3) ECT to assess the binding force of EU law on the Member States begs the question whether an Arbitral Tribunal is indeed qualified to assess such questions. From a EU perspective and, in particular with respect to the autonomy of EU law, it is problematic that an Arbitral Tribunal could assess, interpret and decide upon such questions of scope of EU law and compatibility of Member State conduct with EU law.244 However, such concerns under EU law leaves unaffected the competence of the Tribunal under international law to decide such questions for purposes of international responsibility. The lex specialis approach under the ECT finds the middle ground of the two positions under WTO and ECHR case law and vacillates between the responsibility of the entity (the EU) holding the regulatory competence and the responsibility of the implementing entity (the Member States). The advantage of this approach is that it attempts to identify the source of the breach when Member States implement binding EU acts. It asks whether the breach of the ECT has its roots in the EU act or whether it is rather the Member State implementation conduct that was uncalled for by EU law that lies at the centre of the breach. For a remedy system that relies on monetary compensation, such as the ECT, an approach that looks for the origin of the breach is certainly the right one. Article 17(1) ARIO attests that an assessment

 See below Sect. 5.2.2.2.  Dimopoulos, above Chap. 2, fn. 112, pp.  1674, 1677, 1696 et  seq; Stephan W Schill (2015) Editorial: Opinion 2/13 – The End for Dispute Settlement in EU Trade and Investment Agreements? 16(3) JWIT, pp. 386–387. See also below Sect. 4.1.2 for details.

243 244

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of the scope of the binding force of an act of an international organisation on its Member States is nothing new to the law of international responsibility.

3.2.4  A  Federal State Analogy as Lex Specialis Under EU-Only IIPAs There might be a lex specialis to international responsibility under EU-only IIPAs: The EU incurring international responsibility for the conduct of its Member States in analogy to federal states incurring international responsibility for breaching conduct of its constituent subdivisions. As demonstrated, under the lex generalis of the ARIO the EU does neither bear international responsibility for each and every Member State conduct breaching obligations under EU-only IIPAs nor do Member States bear international responsibility for breaches of EU-only IIPAs unless they explicitly assume responsibility.245 This leads to accountability gaps under EU-only IIPAs when Member States act. The dimension of such gaps is extensive since EU-only IIPAs are mainly breached by Member State conduct either when implementing EU law or, even more so, when acting outside the realm of EU law. Member States retain a considerable breadth of competences and policy fields affecting foreign investments.246 For example, in the fields of property ownership, expropriation, tax, labour regulation, education, tourism, environmental and health protection the Member States retain competences whose exercise may infringe EU-only IIPAs. Conversely, EU action bears a relatively small impact on the implementation of EU IIPAs.247 Accountability gaps under EU-only IIPAs are certainly not a welcome result.248 It would undermine ISDS as a successful form of dispute settlement. More importantly, it would distort the equilibrium of the level of protection granted to EU investors abroad and the level of protection granted to foreign investors in the EU. Plainly, it would come as a great disadvantage to foreign investors in the EU if they would not be protected under EU-only IIPAs when Member States act. The rationale of IIPAs is to stipulate synallagmatic, reciprocal obligations. In more general terms, where sovereign states become parties to an IIPA, if not explicitly provided otherwise, the breadth and extent of commitments is clear: One state accepts the same package of rights and duties as every other state. Protection standards and procedural rights such as ISDS are equally conferred upon the investors of each treaty party. Thus, legally excluding the vindication of such rights where Member States

 See above Sect. 3.1.3.  Karl, above Chap. 2, fn. 34, p. 432. 247  Krajewski, above Chap. 2, fn. 268, p. 118. 248  See Dimopoulos, above Chap. 2, fn. 112, p. 1686. 245 246

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have breached the EU-only IIPA would distort the equilibrium of protection and the equal footing of the treaty partners under EU-only IIPAs.249 One obvious way to hold the EU responsible for Member State conduct under EU-only IIPAs is to revert to treaty drafting and configure the primary treaty provisions in such a way that the EU explicitly assumes international responsibility for breaching conduct of its Member States.250 For example, future post-Lisbon EU-only IIPAs could stipulate provisions to the effect that the EU assumes international responsibility for Member State conduct, or that Member State conduct is explicitly attributable to the EU. Such practice can be found in special treaty provisions reading that, for example, conduct of constituent subdivisions is attributable to the federal state, such as Article XXIV paragraph 13 GATT 1994,251 Article 23(1) ECT252 and Article 105 NAFTA.253 A provision in the EU-only IIPA could read: ‘[E]ach Contracting Party is fully responsible under this Treaty for the observance of all provisions of the Treaty; and regardless of the fact that measures have been taken by organs of the EU or the Member States’, or ‘for the purposes of this Treaty measures taken by Member State organs shall be attributable to the EU’. Such specific recognition of EU international responsibility would provide for legal certainty and guarantee the rights of investors under EU-only IIPAs.254 However, even without such explicit treaty drafting, it is submitted that the EU under EU-only IIPAs resembles a federal state under public international law and calls for a concomitant categorical responsibility of the EU for the conduct of its Member States. Such analogy could be acknowledged via Article 64 ARIO. Holding the EU internationally responsible like a federal state under international law is no novel concept, yet it has not been thoroughly developed yet.255 The following section will, first, briefly survey the international responsibility of federal states for the

 Cf. Talmon, above Chap. 2, fn. 76, p. 417.  Karl, above Chap. 2, fn. 34, p. 432. 251  The provision reads: ‘Each Member is fully responsible under GATT 1994 for the observance of all provisions of GATT 1994, and shall take such reasonable measures as may be available to it to ensure such observance by regional and local governments and authorities within its territory’. 252  The rule reads: ‘Each Contracting Party is fully responsible under this Treaty for the observance of all provisions of the Treaty, and shall take such reasonable measures as may be available to it to ensure such observance by regional and local governments and authorities within its Area’. See also: Roe/Happold, above Chap. 2, fn. 39, p. 166; Thomas W Wälde and Patricia K Wouters (1996) State Responsibility in a Liberalised World Economy: “State, Privileged and Subnational Authorities” under the 1994 Energy Charter Treaty: An Analysis of Articles 22 and 23. 27 NYIntlL, pp.  162–164; Monique Sasson (2010) Substantive Law in Investment Treaty Arbitration: The Unsettled Relationship between International Law and Municipal Law. Kluwer Law International, pp. 2–3. 253  The provision reads: ‘The Parties shall ensure that all necessary measures are taken in order to give effect to the provisions of this Agreement, including their observance, except as otherwise provided in this Agreement, by state and provincial governments’. 254  Dimopoulos, above Chap. 2, fn. 112, pp. 1684–1687. 255  E.g. Bischoff, above Chap. 2, fn. 61, p. 18: ’It seems pertinent to treat the EU like a federal state (and the Member States like its organs) in [the case of infringements of EU-only IIPAs]’. 249 250

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conduct of its constituent subdivisions. A second part will attempt to apply the underlying rationale to the EU and its Member States under EU-only IIPAs. 3.2.4.1  International Responsibility of Federal States Federal states do not only have a dichotomy of governments but also a duplex regimen of organs.256 The organs of constituent subdivisions often breach treaties binding on the federal state as a whole. This is due to a dual incongruence. For one, the central state on behalf of the entire federal state usually has the external-treaty-­ making competence even though the implementation of a treaty relies on the exercise of regulatory competences of the constituent subdivisions. For two, where the federal state has the regulatory competence it is often the sub-federal government that executes and applies federal law. Now, how does public international law treat this dynamic? Under public international law, federal states categorically bear international responsibility for breaching conduct of organs of their constituent subdivisions, be they called states, provinces, territories, regions, cantons.257 This applies to breaches of customary international law as much as it applies to breaches of treaties binding on federal states and is long established by international case law,258 in particular by

 See Schütze, above Chap. 2, fn. 15, p. 175.  Crawford, above Chap. 2, fn. 81, pp. 123–124; Crawford, this chapter, fn. 92, pp. 451; Shaw, above Chap. 2, fn. 8, p. 175; Chittharanjan F Amerasinghe (2008) Diplomatic Protection. Oxford University Press, pp. 238–241; Luzius Wildhaber (1971) Treaty-Making Power and Constitution: An International and Comparative Study. Helbing & Lichtenhahn, pp. 266–267; Brian R Opeskin (1996) Federal States in the International Legal Order. 43(3) NIntlLRev, p. 360; Djamchid Momtaz (2010) Attribution of Conduct to the State: State Organs and Entities Empowered to Exercise Elements of Governmental Authority. In: James Crawford, Alain Pellet, Simon Olleson and Kate Parlett (eds.) The Law of International Responsibility. Oxford University Press, pp. 241–243; Kaj Hobér (2008) State Responsibility and Investment Arbitration. 25(5) JIntlA, pp. 571–575; PierreMarie Dupuy (2006) Les émanations engagent-elles la responsabilité des Etats? Etude de droit international des investissements. 2006/07 EUI Working Paper LAW. http://cadmus.eui.eu/bitstream/handle/1814/4294/LAW%202006-07.pdf?sequence=1&isAllowed=y. Accessed 26 August 2018. 258  See ARS Commentary, Article 4, para. 9, fn. 122 et seq. 256 257

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the ICJ,259 WTO panels,260 investment treaty Tribunals261 and the CJEU.262 The international responsibility of the federal state for the conduct of its subdivisions is echoed in the law of treaties and in the ARS. The VCLT postulates that the binding force of obligations incumbent on a federal state is unaffected by its federal structure. Article 26 VCLT states that ‘[e]very treaty in force is binding upon the parties to it and must be performed by them in good faith’. In addition, Article 29 VCLT states that a treaty party is bound ‘in respect of its entire territory unless provided otherwise’. Thus, a treaty binds a federal state as a whole regardless of its federal structure. Article 27 VCLT, which complements Articles 26, 29 VCLT and enshrines a principle of state responsibility,263 provides that ‘[a treaty] party may not invoke the provisions of its internal law as justification for its failure to perform a treaty’. Applying these provisions to federal states in relation to its constituent subdivisions, it follows, first, that a treaty binds a federal state in its entirety, regardless of the fact that the implementation of the treaty is contingent upon the exercise of regulatory competences enjoyed by its constituent subdivisions or the execution and application of federal law by them. Second, in case of a breach of the treaty a federal state cannot invoke its federal structure as a justification because the implementation of the treaty falls within the regulatory competences of its constituent subdivisions or depend upon the execution and application of federal law by them.264 Furthermore, a federal state cannot brandish its lack of power and means to compel the internally competent sub-federal government to conform with and implement

 LaGrand (Germany v United States of America), Provisional Measures, 1999 ICJ Reports 9, at p. 16, para. 28; see also LaGrand (Germany v United States of America), Judgment, 2001 ICJ Reports 466, at p. 495, para. 81. 260  WTO Panel Report, Case WT/DS18/RW Australia-Salmon, para. 7.12. 261  Metalclad Corporation v United States of Mexico, ICSID Case No ARB/01/7, Award, 25 May 2004, para. 73; SD Myers Inc v Canada, UNCITRAL Partial Award, 13 November 2000, paras. 237 et seq; Compañía de Aguas del Aconquija SA and Vivendi Universal SA v Argentine Republic, ICSID Case No ARB/97/3, Award, 21 November 2000, para. 49; Loewen Group Inc and Raymond L Loewen v United States of America, ICSID Case No ARB(AF)/98/3, Award, 26 June 2003, para. 52; Glamis Gold Ltd v The United States of America, UNCITRAL, Award, 8 June 2009; Methanex Corporation v United States of America, UNCITRAL, Final Award of the Tribunal on Jurisdiction and Merits, 3 August 2005; Mondev International Ltd v United States of America, ICSID Case No ARB(AF)/99/2, Award, 11 October 2002, para. 67; Enron Corporation and Ponderosa Assets LP v Argentine Republic, ICSID Case No ARB/01/3, Decision on Jurisdiction, 14 January 2004, para. 32; Tokios Tokelés v Ukraine, ICSID Case No ARB/02/18, Decision on Jurisdiction, 29 April 2004, para. 102. 262  Case C-302/97 Konle [1999] ECR I-3099, para. 62; Case 69/81 Commission v Belgium [1982] ECR 153, para. 5; Case C-323/96 Commission v Belgium [1998] ECR I-5063, paras. 40–42; Case C-326/97 Commission v Belgium [1998] ECR I-6107, paras. 6–7: ‘A Member State may not plead provisions, practices or circumstances in its internal legal system to justify failure to comply with obligations under Community [law]’. 263  Schmalenbach in Dörr/Schmalenbach, above Chap. 2, fn. 81, Article 27 VCLT, paras. 1, 24. 264  Schmalenbach in Dörr/Schmalenbach, above Chap. 2, fn. 81, Article 26 VCLT, para. 22; Villiger, above Chap. 2, fn. 118, Article 27 VCLT, paras. 5–6; Opeskin, this chapter, fn. 257, p. 360. 259

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the treaty.265 The only way for federal states to either limit its responsibility for breaches committed by its sub-federal entities is to include into the treaty so-called territory clauses, federal clauses or federal reservations.266 These tools may exempt the federal state from liability for sub-federal conduct by specifying that the federal state only has obligations (to be breached) with regard to matters inside its sphere of influence. A territorial clause provides that a treaty only applies with respect to a specific territory. A federal clause relieves a federal state from treaty obligations in matters that fall within the competence of its constituent subdivisions. And a federal reservation is a unilateral statement expressing that the consent to be bound is contingent upon the compliance of the treaty provisions with domestic law. The ARS views the relationship between the federal state and its constituent subdivisions through the lens of attribution. The ARS treats constituent subdivisions and its organs as organs of the federal state.267 Article 4(1) ARS reads ‘[t]he conduct of any State organ shall be considered an act of that State under international law, whether the organ exercises legislative, executive, judicial or any other functions, whatever position it holds in the organization of the State, and whatever its character as an organ of the central Government or of a territorial unit of the State [emphasis added]’.268 The actual degree of control and the availability of enforcement mechanisms the federal government wields over its subdivisions to comply with the federal states’ international obligations has no impact whatsoever on the attribution of sub-federal conduct to the federal state.269 The primary reason for international responsibility of federal states for the conduct of its sub-federal entities is based on the concept of the unity of the state,270 and the tenet of sovereign equality, i.e. that all states are to be treated legally equally.271 The latter is enshrined in Article 2(1) UN Charta272 and is a principle of customary international law. The principle of sovereign equality guarantees under international law non-interference in internal matters and confers upon every state the right of  ARS Commentary, Article 4, para. 9; LaGrand (Germany v United States of America), Provisional Measures, 1999 ICJ Reports 9, at p. 16, para. 28; see also LaGrand (Germany v United States of America), Judgment, 2001 ICJ Reports 466, at p. 495, para. 81. 266  For details see Opeskin, this chapter, fn. 257, pp. 367–379. 267  ARS Commentary, Article 4, paras. 6, 9–10. 268  Under Article 7 Draft ARS, adopted by the ILC Commission on first reading in January 1997: ‘The conduct of a territorial governmental entity within a State shall also be considered as an act of that State under international law, provided that organ was acting in that capacity in the case in question [emphasis added]’. Under Article 5 Draft ARS organs of constituent subdivisions were not explicitly mentioned. Hence under this 1997 version of the ARS, organs of constituent subdivisions were not automatically considered state organs. The exercise of governmental authority was an additional requirement. 269  See Amerasinghe, this chapter, fn. 257, p. 241. 270  Ibid, p. 230. 271  See Schütze, above Chap. 2, fn. 15, p.  175; Opeskin, this chapter, fn. 257, pp.  379–384; Wildhaber, this chapter, fn. 257, pp. 268–269. 272  The provision reads: ‘The Organization is based on the principle of the sovereign equality of all its Members’. 265

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self-determination, self-government and self-organisation. The latter includes the possibility to be organised as a central state or a federal state and to divide competences between federal layers. But just as the principle of equality allows for constitutional diversity on the national plane, it claims uniformity on the international plane, hence the principle of the ‘unity of the state’. Public international law sees the state as ‘flat’ and turns a blind eye on the multilayeredness of federal states, as federal states vary widely in their structure and distribution of powers. Treaty partners of federal states and other subjects of international law should not be burdened with such a potentially highly complicated matter when concluding treaties and vindicating violated rights under them. Moreover, federal states should not escape responsibility by a mere process of internal subdivision.273 This is all the more important since constituent subdivisions do not per se—unless explicitly recognised by treaty partners—have an international personality of their own and locus standi on the international plane.274 It is true that a rule of international responsibility of the federal state for sub-federal conduct that it cannot influence or control seems harsh. However, under international law ‘the confidence of third states deserves primacy’.275 It is only the federal state that can internally provide the constitutional framework for making its constituent subdivisions compliant with international law, and that can externally—via territorial clauses and the like—exempt itself from liability for sub-federal conduct. 3.2.4.2  A  pplying a Federal State Analogy to the EU and the Member States Under EU-Only IIPAs It is submitted that the dynamics underlying and the reasons justifying the federal state’s responsibility for wrongful conduct of its constituent subdivisions under international law are transferable by analogy to the relationship of the EU vis-à-vis its Member States under EU-only IIPAs. It is true that a fully-fledged ‘federal state analogy’ has been discarded with respect to classical international organisations in relation to its member states.276 Equally, the German Federal Constitutional Court has resoundingly called the EU ‘not a State, especially not a federal State’.277 To be clear, however, the analogy drawn here is limited to the question of international responsibility of the EU under EU-only IIPAs. Analogies in international law are possible,278 and even frequent in the law of international responsibility, especially  ARS Commentary, Chapter II, para. 7.  Cf. ARS Commentary, Article 4, para. 10; Hernández, above Chap. 2, fn. 10, p. 659. 275  Christian Tomuschat (2013) Attribution and International responsibility: Direction and Control. In: Malcolm D Evans and Panos Koutrakos (eds.) The International Responsibility of the European Union. Hart Publishing, p. 11. 276  Ibid, pp. 11–12. 277  BVerfG, 2 BvL 52/71, 29 May 1974, in BVerfGE 37, p. 278. 278  Silja Vöneky (2008) Analogy in International Law. In: The Max Planck Encyclopedia of Public International Law. http://opil.ouplaw.com/abstract/10.1093/law:epil/9780199231690/law273 274

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with respect to states and international organisations.279 Yet as with any analogy, a valid analogy in international law requires a lacuna in the existing applicable law.280 Furthermore, a valid analogous application of a certain rule in a specific case requires a justification, i.e. that the regulated case and unregulated case share similarities and that the similarities warrant the analogous application of the legal rule of the regulated case to the unregulated case.281 Contrary to the international responsibility of federal states for sub-federal conduct there is no international case law as to the international responsibility of the EU for conduct of its Member States under EU-only treaties. As opposed to Article 4 ARS, the ARIO do neither attribute conduct of Member States of an international organisation to the organisation nor do the ARIO hold the organisation internationally responsible for the conduct of its Member States. And whereas the VCLT sees the state as a territorial unit and turns a blind eye on its federal structure, the VCLT and VCLT-IO explicitly differentiates between international organisations and its Member States. It follows that whilst the federal state is categorically liable for the conduct of its subdivisions, the same cannot be said with respect to the EU and the conduct of its Member States under EU-only IIPAs. Hence, there is a lacuna in the existing law. As to similarities, the first one regards implementation of treaties. The implementation of EU-only IIPAs resembles the implementation of treaties binding on federal states. Under both, there is an incongruence between treaty-making competence (lying wholly with the EU and the federal state respectively) and treaty-­ implementing competences (at least partly falling to the Member States and the constituent subdivisions respectively). And even where the EU or the federal state enjoys regulatory competences, there can even be an incongruence between regulatory and executing competences. Thus, both the EU and the federal state cannot alone guarantee compliance with the obligations of treaties depending on conduct of its Member State and constituent subdivisions respectively. Also the EU cannot always prevent its Member States and federal states cannot prevent its subdivisions from breaching the treaty. Interestingly, however, the risk that the EU might not be able to guarantee the implementation of EU-only IIPAs by its Member States is even lower in comparison to some federal states that cannot, in some instances, guarantee and enforce the implementation of its treaties by its constituent subdivisions.282 Article 216(2) TFEU and Article 4(3) TEU stipulates that treaties con9780199231690-e1375?rskey=Fyw6EN&result=1&prd=EPIL. Accessed 26 August 2018, para. 15. 279  See Christiane Ahlborn (2012) The Use of Analogies in Drafting the Articles on the Responsibility of International Organizations – An Appraisal of the ‘Copy-Paste Approach’. 9(1) IntlOrgLRev, pp.  53–66; Chittharanjan F Amerasinghe (2013) An Assessment of the ILC Articles on the Responsibility of International Organizations. In: Maurizio Ragazzi (ed.) Responsibility of International Organizations: Essays in Memory of Sir Ian Brownlie. Martinus Nijhoff Publishers, p. 73. 280  Vöneky, this chapter, fn. 278, para. 16. 281  Ibid, para. 17. 282  See Kuijper/Paasivirta, above Chap. 2, fn. 155, p.  39; Magdalena Ličková (2008) European Exceptionalism in International Law. 19(3) EJIntlL, pp. 463–466.

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cluded by the EU are directly binding on the Member States (without the requirement of formal ratification) and impose implementation duties upon them. In some federal states however, constituent subdivisions are sometimes not even bound by the treaties made by the federal state. Moreover, the possibility of infringement proceedings demonstrates that the EU has some form of control or leverage over its Member States, which federal states only seldom have. The second similarity is that, from the perspective of third states, the Member States under EU-only IIPAs disappear behind the veil of the EU just as much as constituent subdivisions disappear behind the veil of the federal state under its treaties. When a federal state concludes a treaty, the treaty is treated such that the federal state had the comprehensive competence to conclude it, no matter whether it lacks treaty-making or treaty-implementing competences (Articles 46, 27 VCLT). In the same vein, the conclusion of a EU-only IIPA is premised on the fact that the EU has the comprehensive competence to conclude it. An actual lack of treaty-­ making or treaty-implementing competences is equally irrelevant for the validity of the treaty (Articles 46, 27 VCLT-IO). Regarding liability for breaches, the Member States equally disappear behind the veil of the EU just as much as the constituent subdivisions disappear behind the veil of the federal state. The latter is due to the fact that constituent subdivisions are not internationally bound by treaties of federal states, and their lack of legal personality and standing in international law. Under EU-only IIPAs, the Member States keep their international personality but it becomes practically non-exercisable for the treaty partners of the EU since the Member States are not internationally bound and cannot, at least without their consent, be sued under them. Consequently, since third states cannot conclude IIPAs with the Member States but are rather relegated to the EU, and in case of non-­ implementation cannot turn to the Member States for vindication, they can expect that the EU is responsible for Member State conduct, just as much as the treaty partners of federal states, can expect the federal to be responsible for the conduct of constituent subdivisions since they cannot turn to the constituent subdivision for liability. Moreover, it would distort the equilibrium created by the principle of sovereign equality if a state could limit its liability under a treaty by subsequently giving itself a federal structure ceding competences and responsibilities to constituent subdivisions. The same must hold true with respect to the EU acting in an exclusive competence field on the international plane. And just like a federal state, the EU can restrict its liability under a EU-only IIPAs using reservations similar to territorial or federal clauses or reservations stating that the EU is not responsible for Member State conduct over which it holds no sway, such as in policy areas that are under exclusive regulatory Member State competence. Equally, the EU, just as a federal state, is free to adopt internal redress mechanisms—which it did in form of the REG—to claim back monies from a Member State paid due to its international responsibility for Member State conduct. Thus, with respect to liability under EU-only IIPAs, the EU is equally answerable to the dynamics underlying the tenet

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of sovereign equality and unity of state—the freedom to organise internally but irrelevance of internal organisation externally—that justifies a categorical responsibility of the federal state for the conduct of its subdivisions. As a result, it is submitted that a federal state analogy can be drawn to the EU in relation to its Member States under EU-only IIPAs for purposes of international responsibility.

3.2.5  Summary: The Various Leges Speciales Under EU IIPAs To sum up, there are four lex specialis-approaches to international responsibility that appear pivotal for EU IIPAs: the joint responsibility approach under mixed IIPAs, the competence-based approach under mixed and EU-only IIPAs, the ‘what-­ is-­required-by-EU-law’-approach under the ECT and the federal state analogy under EU-only IIPAs. Under the joint responsibility approach, the EU and the Member States are jointly liable if the breaching conduct can be attributed to either one. Joint responsibility can be the result of an express provision in the mixed IIPA,283 or implicitly the result of the bilateral nature of a mixed IIPA, under which the EU and the Member States merge into a single contracting party for purposes of attribution. Yet the parties can exclude such an effect. Due to the budget-intensive implications of investment awards and settlements, it is unlikely that the EU and the Member States will ever explicitly agree on a format of joint responsibility, and it is likely that they will opt out of joint responsibility under future mixed bilateral IIPAs. The competence-based approach uses the division of (external) competences between the EU and the Member States as derives from the EU Treaties for the subject matter in question as the determinant for international responsibility both under mixed IIPAs and EU-only IIPAs. Yet, if the treaty parties have not explicitly agreed on the division of competences to govern liability and elevated the competence partition to international law status by incorporating it into the treaty or into a declaration annexed to the treaty, this approach is not valid under international law. Because of this, and the fact that this approach entails technical, normative and conceptual deficiencies, it is unlikely that Arbitral Tribunals will ever follow such an approach. The ECT supplements the ‘organic’ approach to attribution of conduct under the ILC Articles with a lex specialis approach in instances where Member States implement EU law. Here, it explores via Article 1(3) ECT the binding force of a EU act on the Member States. Just as the competence-based approach, this approach necessitates an assessment of EU law for purposes of international responsibility, which sits at odds with the autonomy of EU law.  A strict joint liability approach that does not require attribution of conduct would require an express provision in the EU IIPA, which can be excluded due to the budget-intensive implications of arbitral awards and settlement arising out of breaches of EU IIPAs.

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Finally, one can employ there a federal state analogy to EU-only IIPAs according to which the EU would bear international responsibility for breaching conduct of its Member States. Though this result could be easily achieved through treaty drafting and a special rule on attribution in the treaty, it is submitted that due to the similarities to the international responsibility of federal states the EU should be liable for Member State conduct under EU-only IIPAs as a default rule. This approach resolves the problematique of accountability gaps under EU-only IIPAs where according to the ‘organic’ approach of the ILC Articles attribution of conduct points to the Member States.

3.3  C  onclusions Chapter 3: The Traditional Rules of International Responsibility Are Not Designed to Capture the Inner Workings of the EU and the Member States As this chapter has shown, the traditional rules of international responsibility as embodied by the ILC Articles and international case law give an incoherent picture with respect to the international responsibility of EU and the Member States. Nowhere becomes this more obvious where Member States implement EU law. Whereas the ILC Articles do not have a rule that is fully customised to handle executive federalism in the EU, international case law—most prominently under the framework of the WTO and the ECHR—gives entirely conflicting answers. A new international law codification tailored to the specifics of the EU and other supranational organisations is not to be seen on the horizon. The ‘easy’ solution of joint responsibility of the EU and the Member States requires express intent. It is not the solution the drafters of the ECT have recurred to and, given its budgetary implications, it is not the route the drafters of post-Lisbon mixed IIPAs will venture. A competence-based approach to international responsibility on the basis of the partition of competences as laid out in the EU Treaties is only supported by EU institutions. Yet it does not have a solid footing in international law. Arbitral Tribunals under the ECT, as did the judges under the WTO and ECHR framework, appear to develop their own approach, based on the idiosyncrasies of the responsibility regime they are mandated to rule upon. Under the ECT, they appear to focus on the power dynamics at play when Member States implement EU law in order to find out whether the breaching conduct is based on EU law or not. The ECT via its Article 1(3) seems to open that avenue. This approach seems warranted, given that the ECT binds both the EU and the Member States internationally and since it provides for monetary compensation as remedy: There is no ‘need’ to hold accountable one party (as under the ECHR framework), and there is no ‘need’ to hold accountable the party competent to restore the status quo ante (as under the WTO framework). Given these results, one must not be a soothsayer to predict that the determination of international responsibility of the EU and the Member States under the ECT

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and post-Lisbon EU IIPAs will be contentious, complex and likely yield inconsistent results in the future. That said, post-Lisbon mixed IIPAs, such as CETA, the EU-Singapore IIPA and the EU-Vietnam FTA, introduce a new system to the international plane, i.e. where the proper respondent to a dispute—being either the EU or a Member State—is not determined by the claimant but by the EU. It is argued in this study that the respondent determination has a constitutive effect on the determined respondent in that it bears international responsibility for the challenged conduct within the ‘EU-Member State responsibility window’. In that case, the above-mentioned predicaments are, with respect to post-Lisbon mixed IIPAs, things of the past.

Chapter 4

The Proceduralisation and Internalisation of International Responsibility Under Post-­Lisbon Mixed IIPAs

This chapter deals with the proceduralisation and internalisation of international responsibility of the EU and the Member States under post-Lisbon mixed IIPAs that provide for a mandatory respondent determination mechanism and render effective the provisions on respondent status of the REG. The proceduralisation of international responsibility under post-Lisbon mixed IIPAs joins an upcoming trend under mixed agreements,1 witnessed by the future mixed ECHR framework and the so-­ called ‘co-respondent mechanism’. What is proceduralisation and internalisation? Whenever there is a conduct breaching obligations of a EU IIPA, the law of international responsibility as enshrined in the lex generalis of the ILC Articles or an applicable lex specialis, as described in Chap. 3, determines whether the EU and/or a Member State is responsible for the breaching conduct. Considering the law of international responsibility, the aggrieved party can find out the party internationally responsible for a conduct breaching a EU IIPA. The task of determining that issue in accordance with the law of international responsibility lies, in general, with the Arbitral Tribunal constituted to decide a dispute under the EU IIPA. In contrast, under post-Lisbon mixed IIPAs, which embrace an approach of proceduralisation and internalisation, the treaty parties and investors will not know, prior to the dispute, whether the EU or a Member State is internationally responsible for a breaching conduct. In a dispute, Arbitral Tribunals are stripped of their mandate to assess and decide upon who is to bear international responsibility within the ‘EU-Member State responsibility window’.2 Rather, the determination of inter1  See on this trend Andrés Delgado Casteleiro (2013) The International Responsibility of the European Union – The EU Perspective: Between Pragmatism and Proceduralisation. 15 CYELS, pp. 563–586. 2  For a description of the term ‘EU-Member State responsibility window’ and the scope of the constitutive effect on international responsibility of the determined respondent, see Sect. 4.3.2.

© Springer Nature Switzerland AG 2019 P. T. Stegmann, Responsibility of the EU and the Member States under EU International Investment Protection Agreements, European Yearbook of International Economic Law 6, https://doi.org/10.1007/978-3-030-04366-7_4

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national responsibility of the EU and the Member State concerned for breaching conduct will be proceduralised and internalised: Under a mandatory pre-arbitration channel an investor has to ask the EU for the determination of the respondent in the arbitral dispute, being either the EU or a Member State. This mechanism docks into the REG and renders effective under the mixed EU IIPA the provisions on respondent status of the REG. The Commission—in accordance with the criteria set forth in the REG—then determines the respondent in the arbitral dispute. The mixed IIPA provides that the determination is binding for the Tribunal and the parties alike. This determination not only confers procedural rights and duties upon the determined respondent. As this study argues, it has a constitutive effect: The determined respondent, being either the EU or a Member State, bears, as far as the relationship between the EU and the Member State is concerned, international responsibility for the treatment(s) challenged by the investor under the mixed IIPA. Apart from determining responsibility within the ‘EU-Member State responsibility window’, the respondent determination leaves untouched questions of attribution of conduct and international responsibility. As regards the provisions of post-Lisbon mixed IIPAs that provide for a mandatory respondent determination mechanism that render effective the provisions of the REG regarding respondent status, the following discussion will be based on the relevant provisions of CETA, in its September 2016 version.3 The latest versions of the EU-Singapore IIPA, the EU-Vietnam FTA and TTIP have similar if not verbatim provisions to CETA regarding the mandatory respondent determination mechanism.4 The study will refer to them when appropriate. The system enshrined in these EU IIPAs is a blueprint for post-Lisbon EU IIPAs that provide for an ISDS mechanism and seek to render effective the provisions on respondent status of the REG. The mandatory respondent determination mechanism enshrined under these EU IIPAs will be compared at adequate junctures to the non-binding respondent determination mechanism under the ECT, as laid out in the ECT Statement and its proposed revision. As to the structure of this chapter, a first part briefly explores the motives for proceduralisation and internalisation under post-Lisbon mixed IIPAs (Sect. 4.1). The second part explores the functioning of the mandatory respondent determination mechanism from the perspective of the mixed IIPA, followed by the perspective of the REG (Sect. 4.2). The third part explores the constitutive effect of the respondent determination made under the mixed IIPA on the international responsibility of the determined respondent for the conduct challenged by the investor (Sect. 4.3). The last part is dedicated to the question of whether and if so, to what extent a proceduralisation of international responsibility by means of a mandatory respondent determination mechanism like the one in CETA is possible under post-Lisbon EU IIPAs that turn out to be EU-only (Sect. 4.4).

 See above Chap. 1, fn. 3.  Ibid.

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4.1  T  he Rationale and Motives for a Proceduralisation of International Responsibility Why would one want to proceduralise and internalise international responsibility for breaches under mixed IIPAs? The simplest answer is because the EU wants to influence and forge the law of international responsibility and be able to determine the instances in which the EU or the Member States are liable. Apart from that, however, the presence of the EU together with its Member States under mixed agreements has for a long time sparked controversy and confusion with respect to international responsibility for breaches of these agreements. Proceduralisation attempts to bring clarity in that respect. Furthermore, ‘mixity’ poses a problem to the EU legal order because a dispute settlement body outside the judicial authority of the EU should not rule on sensitive EU law issues, which may come to the fore when assessing international responsibility under mixed IIPAs. Two major motives can be identified for proceduralisation: legal certainty and the protection of the autonomy of EU law.

4.1.1  Guaranteeing Legal Certainty The interests of investors in legal certainty simply mean: Whom should I sue and hold accountable for breaching conduct, the EU or a Member State and how should I know? Legal certainty is explicitly acknowledged by the Commission in its Explanatory Memorandum to the REG as the driving force to introduce a respondent determination mechanism in post-Lisbon EU IIPAs that docks into the provisions of the REG on respondent status. The Commission explains: ‘[R]ather than set up the mechanisms in a manner reflecting a strict application of the rules on competence, it is more appropriate to put forward pragmatic solutions which ensure legal certainty for the investor [emphasis added].’5 Legal certainty equally fuels the approach of proceduralisation under the future mixed ECHR framework.6 Its dispute settlement framework will provide for a so-called ‘co-respondent mechanism’. In a nutshell, under certain conditions7 the EU or a Member State may become a co-respondent—which is a regular party to the dispute8—in proceedings instituted against a Member State or the EU acting as respondent. If the ECtHR finds a breach,

 Explanatory Memorandum to the REG, p. 5.  See Tobias Lock (2012) End of an Epic? The Draft Agreement on the EU’s Accession to the ECHR. 31(1) YEL, p.  166; Delgado Casteleiro, above Chap. 3, fn. 36, pp.  108–111; Delgado Casteleiro, this chapter, fn. 1, pp.  581–583; Maarten Den Heijer (2013) Procedural Aspects of Shared Responsibility in the European Court of Human Rights. 4(2) JIntlDS, p. 372. 7  See Article 3(2)(3)(5) Draft ECHR Accession Agreement. 8  See Article 3(1)(b) Draft ECHR Accession Agreement: ‘[…] a co-respondent is a party to the case […]’; Explanatory Report to the ECHR Accession Agreement, para. 45. 5 6

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the respondent and the co-respondent are, in principle, jointly responsible.9 As to the motives, the Explanatory Report to the ECHR Accession Agreement sets out: ‘The co-respondent mechanism is […] a way to avoid gaps in participation, accountability and enforceability in the Convention system. This corresponds to the very purpose of EU accession and serves the proper administration of justice’.10 Similarly, Article 1 of Protocol No 8 to the Lisbon Treaty stipulates that the ECHR Accession Agreement shall ensure that ‘proceedings by non-Member States and individual applications are correctly addressed to Member States and/or the Union as appropriate’.11 Attempting to guarantee legal certainty for the contracting parties of the EU and the Member States under mixed treaties is nothing novel. Indeed, it may be cited as a driving force for earlier attempts to proceduralise international responsibility under mixed agreements.12 One example is Article 6(2) of Annex IX UNCLOS.13 Under this provision, a treaty party can always request the EU and the Member States for information regarding the responsible party in a certain matter. When they fail to issue the relevant information, joint and several responsibility follows.14 Other provisions, mostly featured in mixed multilateral environmental agreements, attempt to proceduralise responsibility by having the EU and the Member States determine the correct respondent to dispute settlement proceedings.15 If the EU and the Member States fail to do so, these clauses treat the EU and  Article 3(7) Draft ECHR Accession Agreement reads: ‘If the violation in respect of which a High Contracting Party is a co-respondent to the proceedings is established, the respondent and the corespondent shall be jointly responsible for that violation, unless the Court, on the basis of the reasons given by the respondent and the co-respondent, and having sought the views of the applicant, decides that only one of them be held responsible’. 10  Explanatory Report to the ECHR Accession Agreement, para. 39. 11  Protocol No 8 to the Lisbon Treaty [2010] OJ C 83/273; Explanatory Report to the ECHR Accession Agreement, para. 41. 12  See Heliskoski, above Chap. 2, fn. 77, pp. 166 et seq and pp. 202–203 with further references to legal doctrine. 13  It reads: ‘Any State Party may request an international organization or its member States which are States Parties for information as to who has responsibility in respect of any specific matter. The organization and the member States concerned shall provide this information. Failure to provide this information within a reasonable time or the provision of contradictory information shall result in joint and several liability’. 14  Heliskoski referred to the provision as one of ‘optional standing’. See Heliskoski, above Chap. 2, fn. 77, p. 173. 15  The procedural ad hoc mechanism in Article 18(3) of the Convention on the Conservation of European Wildlife and Natural Habitats [1982] OJ L 38, p.  3 reads: ‘In the event of a dispute between two Contracting Parties one of which is a member State of the European Economic Community, the latter itself being a Contracting Party, the other Contracting Party shall address the request for arbitration both to the member State and to the Community, which jointly shall notify it, within two months of receipt of the request, whether the member State or the Community, or the member and the Community jointly, shall be party to the dispute. In the absence of such notification within the said time limit, the member State and the Community shall be considered as being one and the same party to the dispute for the purposes of the application of the provisions governing the constitution and procedure of the arbitration Tribunal. The same shall apply when the member State and the Community jointly present themselves as party to the dispute’. 9

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the Member States as one and the same party for purposes of the dispute. These attempts come very close to the form of proceduralisation under post-Lisbon mixed IIPAs, modelled and worded in accordance with CETA. It may come as no surprise that the other earlier examples of proceduralisation are to be found in the international investment context. A procedural ad hoc mechanism under the Draft OECD Multilateral Agreement on Investment16 would have constituted another attempt to proceduralise international responsibility. A comment on a draft version of Article D.617 reads ‘[t]his paragraph would be intended to assure that, in cases of mixed or unclear division of competence between the EC and a member state, both would be in the proceedings and responsibility would be covered, without burdening the investor with this issue [emphasis added].’18 The ECT Statement is another prominent example, as it offers investors the possibility to ask for a respondent determination.19 It is no surprise that all of the above-mentioned forms of proceduralisation are embedded in a mixed setting. A mixed setting is exactly what propels the need for legal certainty. Though Kuijper notes that thus far there is no case where a claimant sued wrongly the EU instead of a Member State, or vice versa.20 As discussed in Chap. 3, under a mixed agreement third parties and eligible claimants may indeed face difficulties in properly determining the party responsible for a breaching conduct. This is why mixed agreements inherit the risk for claimants of choosing the incorrect respondent and a dismissal of a claim because of that.21 It is true that claimants a priori always have the possibility to sue both the EU and the Member State(s) concerned under mixed agreements. However, if both are sued the conundrum of determining the responsible party is only shifted to the adjudication body. There might also be different procedural requirements such the exhaustion of local remedies, different procedural frameworks available with respect to Member States as opposed to the EU (e.g. ICSID arbitration is not open investors suing the EU under EU IIPAs) and undoubtedly an increase in time and costs. Thus one cannot shift the burden to the claimant and assert that it could have sued both parties. As Tomuschat noted: ‘Mixed agreements create no great difficulties as long as their implementation proceeds smoothly’.22 Where mixed agreements are breached,

 Draft OECD Multilateral Agreement on Investment, OECD Doc DAFFE/MAI/DS(98)7/REV1, 22 April 1998. 17  The exact language of Article D.6 is not public because the document containing the provision, Draft OECD Multilateral Agreement on Investment, Report of informal consultations on dispute settlement, OECD Doc DAFFE/MAI/DS(98)1, 23–24 February 1998, is classified. 18  See Draft OECD Multilateral Agreement on Investment, Comment, OECD Doc DAFFE/MAI/ DS(98)8/REV1, 22 April 1998, p. 39. 19  See above Chap. 1, fn. 16. 20  Kuijper, above Chap. 2, fn. 94, p. 224. 21  Hoffmeister, above Chap. 2, fn. 243, pp.  736, 747; Nikos Lavranos (2011) Member States’ Bilateral Investment Treaties (BITs): Lost in Transition? 24 HYIntlL, p. 308. 22  Tomuschat, above Chap. 2, fn. 10, p. 185. 16

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the problems that fuelled the creation of mixed agreements resurface. ‘Mixity only postpones any problem to the implementation and responsibility stage.’23 This uncertainty is exactly what a proceduralisation seeks to dispel. It follows from a basic tenet of legal certainty and access to justice that treaty partners to the EU and the Member States and eligible claimants should know whom to bring a claim against under a mixed IIPA in case they see their rights infringed.24 It is in this sense that proceduralisation attempts to alleviate the concerns regarding legal certainty that mixity brings about and may be seen as an answer to the suggestion made by Kuijper that the EU should ‘put its own house in order in respect of responsibility for mixed agreements’.25

4.1.2  Protecting the Autonomy of EU Law The protection of the autonomy of the EU legal order is the second main motive for proceduralising international responsibility under post-Lisbon mixed IIPAs.26 Also the co-respondent mechanism under the future mixed ECHR framework can be traced back to that motive.27 At face value, the correlation between the autonomy of EU law and international responsibility seems odd. To explain it in short, mixed  Delgado Casteleiro, this chapter, fn. 1, p. 573.  Stephan W Schill (2013) The Relation of the European Union and its Member States in InvestorState Arbitration. In: Leon Trakman and Nicola Ranieri (eds.) Regionalism in International Investment Law. Cambridge University Press, pp.  379, 384; Heliskoski, above Chap. 2, fn. 77, p. 202; Delgado Casteleiro, this chapter, fn. 1, p. 569; Kuijper/Paasivirta, above Chap. 2, fn. 155, p. 69; Lavranos, this chapter, fn. 21, p. 308. 25  Kuijper, above Chap. 2, fn. 94, p. 227. 26  Dimopoulos, above Chap. 2, fn. 112, pp.  1700–1702; Stephan W Schill (2013) Luxembourg Limits: Conditions for Investor-State Dispute Settlement under Future EU Investment Agreements. In: Marc Bungenberg, August Reinisch, Christian Tietje (eds.) EU and Investment Agreements: Open Questions and Remaining Challenges. Nomos, p. 48; Schill, above Chap. 3, fn. 244, pp. 384, 386–387; Ulrich Karpenstein and Matthias Kottmann (2015) Prozessführung, Haftung und Regress in Schiedsstreitigkeiten auf Grundlage von EU-Investitionsabkommen. 26(7) EuZW, p.  259; Reinisch, above Chap. 2, fn. 45, pp. 151–155; see also Explanatory Memorandum to the REG, p. 7. See also in this respect Article 1(1) 2nd sentence REG: ‘In particular, the adoption and application of this Regulation shall not affect the delimitation of competences established by the Treaties, including in relation to the treatment afforded by the Member States or the Union and challenged by a claimant in investor-to-state dispute settlement conducted pursuant to an agreement’. 27  Explanatory Report to the ECHR Accession Agreement, para. 62: ‘Apportioning responsibility separately to the respondent and the co-respondent(s) on any other basis would entail the risk that the Court would assess the distribution of competences between the EU and its member States’; ECHR: Answers to frequently asked questions (30 April 2013) Accession by the European Union to the European Convention on Human Rights, p.  4. See also Giorgio Gaja (2014) The ‘Co-Respondent Mechanisms’ According to the Draft Agreement for the Accession of the EU to the ECHR. In: Vasiliki Kosta, Nikos Skoutaris and Vassilis Tzevelekos (eds.) The EU Accession to the ECHR. Hart Publishing, pp. 345–346; Lock, this chapter, fn. 6, p. 165; Den Heijer/Nollkaemper, above Chap. 3, fn. 103, pp. 10, 18; Delgado Casteleiro, above Chap. 3, fn. 36, p. 109. 23 24

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treaties that equip an international dispute settlement body, which is constituted outside the jurisdiction of the EU Courts and has the mandate to interpret secondary EU law or assess the division of competences between the EU and the Member States under the EU Treaties for determining international responsibility, violate the autonomy of EU law. It is a basic tenet that the EU legal order constitutes an autonomous legal order that is independent from domestic and public international law.28 In order to protect it, there must be a uniform and effective interpretation and application of EU law throughout the EU.  This can only be guaranteed by conferring to the CJEU the exclusive competence for the binding and authoritative interpretation of EU law.29 This explains why the CJEU is installed as the guardian of the EU legal order pursuant to Article 19(1)(2) TEU.30 The preliminary ruling mechanism pursuant to Article 267 TFEU ensures that decisions by Member State Courts applying and interpreting EU law can be reviewed and rectified by the CJEU. This avenue may be blocked with respect to adjudication bodies established under international treaties. The risk of these bodies circumventing the preliminary ruling mechanism pursuant to Article 267 TFEU and, thus, the sheer impossibility for the CJEU to rectify a wrong interpretation of EU law appears to constitute the primary concern with respect to the compatibility of the autonomy of EU law with international adjudication bodies.31 The risk of bypassing the CJEU and the preliminary ruling procedure is well and alive with regard to Arbitral Tribunals established under mixed IIPAs. Arbitral Tribunals are not considered ‘Courts’ or ‘Tribunals’ in the sense of Article 267 TFEU that can and, in certain circumstances, must refer questions of interpretation of EU law to the CJEU.32 Furthermore, whilst Member State Courts in annulment  Case 26/62 Van Gend en Loos [1963] ECR 1; Case 6/64 Costa ENEL [1964] ECR 593.  Steffen Hindelang (2012) Circumventing Primacy of EU Law and the CJEU’s Judicial Monopoly by Resorting to Dispute Resolution Mechanisms Provided for in Inter-se Treaties? The Case of Intra-EU Investment Arbitration. 39(2) LIEcoI, pp. 183, 195–199. 30  Case C-459/03 Commission v Ireland (Sellafield) [2006] ECR I-4635, paras. 122 et  seq; Christoph Herrmann (2014) The Role of the Court of Justice of the European Union in the Emerging EU Investment Policy. 15(3–4) JWIT, p. 573; Hindelang, this chapter, fn. 29, pp. 183, 195–199; Steffen Hindelang (2011) Der primärrechtliche Rahmen einer europäischen Investitionsschutzpolitik: Zulässigkeit und Grenzen von Investor-Staat Schiedsverfahren aufgrund künftiger EU-Abkommen. WHI-Paper 01/11. www.whi-berlin.eu/tl_files/documents/whipaper0111.pdf. Accessed 26 August 2018, pp. 12–13; Schill, this chapter, fn. 26, p. 40. 31  Opinion 2/13 EU Accession to ECHR [2014] ECR I-2454, paras. 196–200 and in para. 198: ‘[…] thus creating a risk that the preliminary ruling procedure provided for in Article 267 TFEU might be circumvented, a procedure which […] is the keystone of the judicial system established by the Treaties’; see also Schill, this chapter, fn. 24, pp. 388 et seq; Markus Burgstaller (2012) InvestorState Arbitration in EU International Investment Agreements with Third States. 39(2) LIEcoI, p. 217; Hindelang, this chapter, fn. 30, p. 17. 32  Case C-284/16 Slovak Republic v Achmea BV [2018] ECR 158, para. 55. See also Konstanze von Papp (2013) Clash of “autonomous legal orders”: Can EU Member State courts bridge the jurisdictional divide between investment tribunals and the ECJ? A plea for direct referral from Investment Tribunals to the ECJ. 50(4) CMLRev, pp.  1039–1082; Markus Burgstaller (2014) Dispute Settlement in EU International Investment Agreements with Third States: Three Salient Problems. 15 JWIT, pp. 561–565; Schill, this chapter, fn. 24, pp. 395–398. But see Jürgen Basedow (2015) 28 29

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and/or enforcement proceedings retain the possibility to refer questions to the CJEU, this legal avenue is blocked in arbitrations under ICSID, as ICSID awards are directly enforceable without the need of enforcement proceedings before Member State Courts. Consequently, there is a risk that an Arbitral Tribunal’s decision covering a question of EU law remains unchecked by the CJEU. Hence, the existence of Arbitral Tribunals in disputes under mixed IIPAs that are able to interpret EU law and whose decisions cannot be rectified by the CJEU seems to sit at odds with the interpretation monopoly of the CJEU. However, the CJEU decided that the existence of international dispute settlement bodies established under international agreements and outside the jurisdiction of the CJEU are not per se incompatible with the autonomy of the EU legal order and the interpretation monopoly of the CJEU.33 In fact, their existence and legitimacy follows as a corollary from the EU’s international legal personality, its treaty-making power and its competence in the field of external relations.34 The submission of the EU to dispute settlement bodies under the WTO, the ECT, UNCLOS and the future ECHR framework underscore that corollary. However, there are limits to this general compatibility, flowing from a combined reading of Articles 263, 267, 344 TFEU, Article 19(1)(2) TEU and CJEU jurisprudence.35 With respect to the context of the determination of international responsibility under mixed IIPAs by Arbitral Tribunals there are two specific limits rendering mixed IIPAs incompatible with the autonomy of the EU legal order. One limit concerns international adjudication bodies having to apply and interpret secondary EU law.36 In Opinion 1/09 the CJEU ruled that the European and Community Patents Court that would have regularly applied and interpreted secondary EU law, and would have replaced the Member State Courts, and whose decisions would not be subject to the CJEU’s supervision, would violate the autonomy of EU law.37 The CJEU recently reiterated that position in its Advisory Opinion on the Draft ECHR Accession Agreement (Opinion 2/13) saying that ‘[i]f the Court of Justice were not allowed to provide the definitive interpretation of secondary law, […] there EU Law in International Arbitration: Referrals to the European Court of Justice. 32(4) JIntlA, pp.  367–386, advocating the status of Arbitral Tribunals constituted under IIPA as ‘Courts’ or ‘Tribunals’ under Article 267 TFEU. 33  Opinion 2/13 EU Accession to ECHR [2014] ECR I-2454, para. 182; Opinion 1/09 European and Community Patents Courts [2011] ECR I-0000; Opinion 1/91 Economic Area Agreement I [1991] ECR I-6079, paras. 39–40. 34  Opinion 2/13 EU Accession to ECHR [2014] ECR I-2454, para. 182; Opinion 1/91 Economic Area Agreement I [1991] ECR I-6079, para. 40. 35  See Schill, this chapter, fn. 26, pp. 37–54; Inge Govaere (2010) Beware the Trojan Horse: Dispute Settlement in (Mixed) Agreements and the Autonomy of the EU Legal Order. In: Christophe Hillion and Panos (eds.) Mixed Agreements Revisited  – The EU and its Member States in the World. Hart Publishing, p. 192; Burgstaller, above Chap. 2, fn. 194, p. 216; Burgstaller, this chapter, fn. 32, pp. 561–565; Hindelang, this chapter, fn. 29, pp. 183, 195–199; Hindelang, this chapter, fn. 30, pp. 16–17. 36  See Schill, above Chap. 3, fn. 244, pp. 386–387. 37  Opinion 1/09 European and Community Patents Courts [2011] ECR I-0000, paras. 80–84, 89.

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would most certainly be a breach of the principle that the Court of Justice has exclusive jurisdiction over the definitive interpretation of EU law’.38 Thus, a situation as painted under the ECT,39 in which an Arbitral Tribunal could—for ­purposes of international responsibility—indulge into an assessment of whether a Member State implementation conduct in breach of the ECT was covered by a EU law obligation stipulated in a piece of secondary EU law, whether the conditions or thresholds for Member State action under the piece of secondary EU law were met, whether the EU act left discretion to the Member States, and whether the Member State acted in accordance with EU law is likely to infringe the autonomy of EU law.40 Another limit set by the CJEU addresses cases where international adjudication bodies were to apply and interpret the division of competences between the EU and the Member States under the EU Treaties.41 In Opinion 2/13 the CJEU reiterated that position stating ‘to permit the ECtHR’ to rule upon the division of powers between the EU and the Member States ‘would be tantamount to allowing it to take the place of the Court of Justice in order to settle a question that falls within the latter’s exclusive jurisdiction.’42 This would have ‘an adverse effect on the autonomy of EU law’.43 The division of competences between the EU and the Member States as laid down in the EU Treaties concerns primary EU law and is a direct expression of the principle of conferral of powers. It is considered so sacrosanct and central to the integrity of the EU legal order that it may not be touched upon by any adjudication body whose decision cannot be rectified by the CJEU. It appears that the CJEU, if asked to decide that question—which has not been the case yet—would find that there would be a risk that Arbitral Tribunals under mixed IIPAs could assess and decide upon the division of competences between the EU and the Member States in order to determine international responsibility. With respect to the future mixed ECHR framework, the CJEU stated in Opinion 2/13 that ‘a decision on the apportionment as between the EU and its Member States of responsibility for an act or omission constituting a violation of the ECHR established by the ECtHR is also one that is based on an assessment of the rules of EU law governing the division of powers between the EU and its Member States and the attributability of that act or omission. Accordingly, to permit the ECtHR to adopt such a decision would also risk adversely affecting the division of powers between the EU and its Member States’.44 Apart from the CJEU’s stance that the division of competences is decisive for determining international responsibility for a breach  Opinion 2/13 EU Accession to ECHR [2014] ECR I-2454, paras. 246–247.  See above Sect. 3.2.3. 40  Cf. Schill, above Chap. 3, fn. 244, pp. 386–387; Hindelang, this chapter, fn. 29, pp. 195–199. 41  Opinion 1/91 Economic Area Agreement I [1991] ECR I-6079, paras. 34–36; Opinion 2/91 ILO Convention No 170 [1993] ECR I-1061; Opinion 1/00 European Common Aviation Area [2002] ECR I-3498, para. 12, 16, 21; Case C-459/03 Commission v Ireland (Sellafield) [2006] ECR I-4635. For a discussion of that case law, see Schill, this chapter, fn. 26, pp. 37–54. 42  Opinion 2/13 EU Accession to ECHR [2014] ECR I-2454, para. 234. 43  Ibid. 44  Ibid, paras. 230–231. 38 39

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under a mixed treaty, Article 64(2) ARIO even explicitly mentions the ‘rules of the organization applicable to the relations between an international organization and its members’ as a possible lex specialis for determining international responsibility. Thus, an Arbitral Tribunal constituted under a mixed IIPA could well delve into the division of competences as laid down in the EU Treaties—as opposed to the division as laid down in a declaration of competences annexed to the mixed treaty45—in order to find out who, the EU or the Member State, is internationally responsible for a treatment allegedly in breach of the mixed IIPA.46 It is true that, as analysed,47 such an approach is unlikely to resonate with an Arbitral Tribunal constituted under a mixed IIPA since it is not a legally sound approach. Be that as it may, what becomes clear from Opinion 2/13 is that the likeliness that an adjudication body will recur to the division of competences as derives from the EU Treaties as the criterion for international responsibility under a mixed treaty or the soundness of such an approach is not decisive. Rather, it is the mere possibility that a dispute settlement body can determine the division of competences as derives from the EU Treaties for liability purposes. To illustrate, the co-respondent mechanism under the future mixed ECHR framework and the legal consequence of joint responsibility of the respondent and the co-respondent48 was introduced to safeguard the autonomy of the EU legal order.49 Yet the CJEU did not find these arrangements sufficient to safeguard the autonomy of EU law. The non-mandatory nature of the co-respondent mechanism coupled with certain exceptions to the rule of joint responsibility would have allowed the ECtHR to decide on international responsibility, and, thus, the division of powers between the EU and the Member States.50 Specifically, Article 3(5) Draft ECHR Accession Agreement provides that a request to become co-respondent must be well reasoned, and that the ECtHR must review the plausibility of such reasons. Furthermore, Article 3(7) Draft ECHR Accession Agreement gives the ECtHR the power to deviate from the rule of joint responsibility on the basis of reasons given by the respondent and co-respondent. The ensuing judicial power, the CJEU found, that both provisions confer upon the ECtHR to look into the division of competences between EU and Member States runs counter to the principle of the autonomy of the EU legal order.51 The quintessence of Opinion 2/13 is that the mere judicial power or mandate, infinitesimal as it may be, of an international adjudication body that is established outside the framework of the EU,  If a mixed treaty, such as UNCLOS, provides for a delimitation of obligations by means of a declaration of competence, international responsibility for a breach equally derives from the division of competences as laid down in the declaration. See above Chap. 3, fn. 151 et seq and accompanying text. 46  Dimopoulos, above Chap. 2, fn. 112, p.  1701; Baetens/Kreijen/Varga, above Chap. 2, fn. 73, p. 1242. 47  See above Sect. 3.2.2. 48  See Article 3(7) Draft ECHR Accession Agreement. For the text, see this chapter, fn. 9. 49  See this chapter, fn. 27. 50  Opinion 2/13 EU Accession to ECHR [2014] ECR I-2454, paras. 218–231. 51  Ibid, paras. 225, 230. 45

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to rule on the division of competences between the EU and Member States is a priori inconsistent with the autonomy of the EU legal order.52 The CJEU has confirmed the above-cited CJEU case law on autonomy in its recent judgment of 6 March 2018 in Slovak Republic v Achmea BV,53 in which it declared certain provisions of an intra-EU (i.e. Dutch-Slovakian) BIT to violate the autonomy of EU law.54 The intra EU-BIT in the case provided the application by the Arbitral Tribunal of ‘the law in force of the contracting party concerned’ and ‘relevant agreements between the Contracting parties’ to solve the dispute. This included the application and interpretation of EU law as part and parcel of the relevant contracting party’s law and as agreed between the two Contracting Parties.55 The Court observed that by being called upon to rule on a violation of the BIT, the Arbitral Tribunal could, for example, interpret the EU provisions on the free movement of capital.56 To the Court, such mandate of the Tribunal was inconsistent with the autonomy of EU law. As opposed to the extra-EU IIPAs considered in this study, under the intra-EU BIT considered by the Court, EU law formed part of the applicable law. Yet it can be seen as another confirmation that the Court rejects any mandate of an Arbitral Tribunal constituted under EU-IIPAs (intra or extra-EU) to rule upon questions of EU law. What follows from CJEU case law is that the protection of the autonomy of EU law requires a precise and rigorous drafting of the mixed IIPA: The mixed IIPA must exclude any mandate of the Arbitral Tribunal to look into the question of international responsibility of the EU and/or the Member States for breaching conduct.57 It is submitted that the form of proceduralisation under post-Lisbon mixed IIPAs that are modelled and worded after CETA and provide for a mandatory respondent determination mechanism under which the determination of international responsibility in the ‘EU-Member State responsibility window’ is entirely internalised and outsourced to the EU, can safeguard the autonomy of the EU legal order.58  Heliskoski, above Chap. 2, fn. 77, p. 202.  Case C-284/16 Slovak Republic v Achmea BV [2018] ECR 158. For an in-depth analysis of the judgment, see Andrej Lang (2018) Die Autonomie des Unionsrechts und die Zukunft der InvestorStaat-Streitbeilegung in Europa nach Achmea. 156 BTransnatlWR and Steffen Hindelang (2018) The Limited Immediate Effects of CJEU’s Achmea Judgement. VerfBlog, 2018/3/09. https://verfassungsblog.de/the-limited-immediate-effects-of-cjeus-achmea-judgement/. Accessed 26 August 2018. 54  Case C-284/16 Slovak Republic v Achmea BV [2018] ECR 158, paras. 57–59. 55  Ibid, para. 41. 56  Ibid, para. 42. 57  Cf. Schill, above Chap. 3, fn. 244, p. 384; Schill, this chapter, fn. 26, p. 48; Dimopoulos, above Chap. 2, fn. 112, pp. 1689, 1696, 1700–1702. 58  Cf. with respect to the compliance of the proceduralisation approach under the Energy Charter Treaty with the autonomy of EU law, Dimopoulos, above Chap. 2, fn. 112, p. 1702; Schill, above Chap. 3, fn. 244, p. 384; Schill, this chapter, fn. 24, pp. 384–390; Schill, this chapter, fn. 26, p. 48; Herrmann, this chapter, fn. 30, p. 583; Reinisch, above Chap. 2, fn. 45, p. 155; with respect to proceduralisation under mixed treaties in general, see Heliskoski, above Chap. 2, fn. 77, pp. 161– 166, 200–202. 52 53

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In the Explanatory Memorandum to the REG, the Commission made an interesting remark—foreshadowing Opinion 2/13—in which it compared the co-­respondent mechanism under the future mixed ECHR framework to the single-respondent determination mechanism envisaged in the REG and implemented in future post-­ Lisbon mixed IIPAs. Having the EU or a Member State act as co-respondents, the Commission writes, ‘could result in the Tribunal having to make a pronouncement on the division of competences between the Union and Member States, in circumstances where the two co-respondents present divergent positions on this issue to the Tribunal; a scenario where a third party gives an opinion on a purely internal EU matter is to be avoided’.59 Thus, the Commission itself considers that the respondent determination mechanism introduced in the REG and reflected in future post-­ Lisbon mixed IIPAs answers international responsibility for breaches of the mixed IIPA—whilst at the same time depriving an Arbitral Tribunal to look at that issue— not only for the sake of legal certainty but to preserve the autonomy of the EU legal order.

4.2  T  he Form of Proceduralisation Under Post-Lisbon Mixed IIPAs The proceduralisation of international responsibility under post-Lisbon mixed IIPAs will take the form of a mandatory respondent determination mechanism. This part seeks to set out how it functions under the mixed IIPA (Sect. 4.2.1) and under the REG (Sect. 4.2.2).

4.2.1  T  he Functioning of the Respondent Determination from the Perspective of the Mixed IIPA When exploring the functioning of the mandatory respondent determination mechanism under post-Lisbon mixed IIPAs, the focus will be put on CETA.60 Article 8.21 CETA enshrines the core provisions of the mechanism. Comparisons will also be drawn to the voluntary respondent determination mechanism under the ECT Statement and the Proposal Revised ECT Statement. Article 8.21 CETA reads: 1. If the dispute cannot be settled within 90 days of the submission of the request for consultations, the request concerns an alleged breach of the Agreement by the European Union or a Member State of the European Union and the investor intends to submit a claim pursu-

 Explanatory Memorandum to the REG, p. 7.  See also Article 3.5 EU-Singapore IIPA, Article 6 Section 3 Investment Chapter EU-Vietnam FTA and Article 5 Section 3 Investment Chapter TTIP, all containing the same mechanism.

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ant to Article 8.23, the investor shall deliver to the European Union a notice requesting a determination of the respondent. 2. The notice under paragraph 1 shall identify the measures in respect of which the investor intends to submit a claim. 3. The European Union shall, after having made a determination, inform the investor as to whether the European Union or a Member State of the European Union shall be the respondent. 4. In the event that the investor has not been informed of the determination within 50 days of delivering its notice requesting such determination: (a) if the measures identified in the notice are exclusively measures of a Member State of the European Union, the Member State shall be the respondent. (b) if the measures identified in the notice include measures of the European Union, the European Union shall be the respondent. 5. The investor may submit a claim pursuant to Article 8.23 on the basis of the determination made pursuant to paragraph 3, and, if no such determination has been communicated to the investor, on the basis of the application of paragraph 4. 6. If the European Union or a Member State of the European Union is the respondent, pursuant to paragraph 3 or 4, neither the European Union, nor the Member State of the European Union may assert the inadmissibility of the claim, lack of jurisdiction of the Tribunal or otherwise object to the claim or award on the ground that the respondent was not properly determined pursuant to paragraph 3 or identified on the basis of the application of paragraph 4. 7. The Tribunal shall be bound by the determination made pursuant to paragraph 3 and, if no such determination has been communicated to the investor, the application of paragraph 4.

4.2.1.1  T  he Procedure for Determining the Respondent Under Post-­ Lisbon Mixed IIPAs There is a regular procedure and a default procedure for determining the respondent under post-Lisbon mixed IIPAs. 4.2.1.1.1  The Regular Procedure Article 8.21 CETA entitled ‘Determination of the respondent for disputes with the European Union or its Member States’ represents the core provision, which enshrines the mandatory respondent determination mechanism. In a nutshell, the mechanism follows a simple three-step déroulement: First, the claimant notifies the EU that it wishes to initiate arbitration proceedings against the EU or a Member State. Then, the EU informs the investor as to who acts as respondent. Third, the investor proceeds on that premise and officially initiates arbitration proceedings against the determined respondent. From the investor’s perspective, the respondent determination mechanism under the CETA functions as a pre-litigation channel. The respondent determination takes place before the proceedings have legally commenced and before the dispute is

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formally pending. Pursuant to Article 8.21(1)(2) CETA, the claimant must send a notice to the EU requesting a determination of the respondent and must identify the measures, in respect of which it intends to initiate arbitration proceedings, upon which it bases its claims and which it alleges to breach the IIPA. The identification of measures by the claimant is quintessential for the functioning of the respondent determination mechanism. After having received the notice of the investor, the EU is supposed to determine the respondent. This is where the REG becomes relevant and the Commission in accordance with the provisions of respondent status under the REG determines the respondent on the basis of the treatment identified by the claimant investor.61 The EU must then inform the investor about the determined respondent within a timeframe of 50 days pursuant to Article 8.21(3)(4) CETA, which start running after having received the notice of arbitration from the investor and its request for a respondent determination. Once the EU has informed the investor about the respondent, the investor can proceed on that premise pursuant to Article 8.21(5) CETA and submit its claim to arbitration pursuant to Article 8.23 CETA.  It is now that the arbitration formally commences. The investor can now select the arbitral institution that administers and oversees the arbitration and the arbitral legal framework that governs the arbitration. Article 8.23(2) CETA provides for arbitration under the ICSID Convention, the ICSID Additional Facility Rules, the UNCITRAL Arbitration Rules and any rules agreed upon between the parties. It is also only now—after the determination of the respondent has taken place—that the formal procedure for establishing the Arbitral Tribunal commences. Importantly, Article 8.21(3) CETA speaks of the ‘EU’ informing the investor about the respondent. This provision implements and renders effective under CETA the initial Commission decision on respondent status pursuant to the REG. Article 8.21(3) CETA ignores the fact that the initial Commission decision is challenged before the CJEU. Without going into much detail here, a Member State concerned, in lieu of which the EU acts as respondent, and, possibly investors, can challenge the Commission’s decision on respondent status before the CJEU pursuant to Article 263 TFEU.62 The statute of limitations to go to the CJEU in this matter is two months upon publication of the Commission decision on respondent status pursuant to Article 263(6) TFEU. It is true that Article 8.21(3) CETA—and CETA overall— does not mention the Commission but only refers to the ‘EU’, which is entrusted with informing the investor about the determined respondent. Yet this does not mean that Article 8.21(3) CETA is a dynamic reference in that ‘EU’ includes the correct respondent determination as follows from a CJEU’s ruling or as follows from the legal effect of the Commission decision because the statute of limitations has expired to seek legal protection against it. Rather, Article 8.21(3) CETA must be seen as a static reference referring to the Commission’s decision in its original form. The time frame of 50 days (Article 8.21(4) CETA) granted under CETA to the EU to determine the respondent under Article 8.21(3) CETA coincides with the time 61 62

 See below Sect. 4.2.2.2.  See below Sect. 4.2.2.2.5.

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frame of 45 days granted to the Commission to decide on respondent status pursuant to Article 9(1) REG. Pursuant to Article 8.21(5) CETA, an investor can initiate arbitration proceedings against the respondent as determined within 50 days by the EU pursuant to Article 8.21(3) CETA. And if the EU does not inform the investor on the identity of the respondent pursuant to Article 8.21(3) CETA, the investor can pick the respondent pursuant to Article 8.21(4) CETA under the default procedure, which will be discussed below. Hence, the impossibility that the statute of limitations against the Commission decision expires or even that the CJEU renders a decision within that short time frame of 50 days, makes clear that Article 8.21(3) CETA can only be static reference to the initial Commission decision on respondent status. As a result, CETA is structured to give preference to the Commission determination of the respondent over any conflicting decision by the CJEU. Chapter 6 deals with the question whether this is a desirable outcome.63 As a side note it should be mentioned that under the respondent determination mechanism under the ECT Statement it was long unclear according to what ­procedure or criteria64 the respondent would be determined.65 Presumably, given the content of the ECT Statement that competence would determine international responsibility, the EU would have used the division of competences between the EU and the Member States to determine the respondent. With the entry into force of the REG, however, it is now clear that the EU would determine the respondent in disputes under the ECT pursuant to the REG.66 4.2.1.1.2  The Default Procedure In the event the EU fails to inform the claimant in due time (50 days) as to who acts as respondent in the arbitral proceedings, the default mechanism in Article 8.21(4) CETA kicks in.67 Importantly, under the default mechanism it is the investor that determines the respondent. CETA does neither provide for a residual rule vesting categorically either the EU or the Member State concerned with respondent status. Nor does CETA provide for a residual rule of co-respondent status. Nor does CETA follow a determination method where the investor can choose the respondent of its choice. Rather, Article 8.21(4) CETA lays down criteria, according to which the investor can determine the respondent. The criteria are calibrated in the following way: Where the  See Sect. 6.1.  Since the ECT Statement containing the respondent determination mechanism mentions the division of competences as the criterion for international responsibility under the ECT, it is likely that the division of competences would have been the criterion for determining the respondent. See fn. 16 for the text of the ECT Statement. 65  Burgstaller, above Chap. 2, fn. 194, p. 206. 66  See para. 3 Proposal Revised ECT Statement. 67  Article 3.5(3) EU-Singapore IIPA contains the same default mechanism and exhibits the same wording except that the EU has two months to inform the claimant about the respondent in lieu of 50 days as under CETA. 63 64

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investor in the notice of intention to arbitrate sent to the EU exclusively identified measures of a Member State, respondent status falls upon the Member State pursuant to Article 8.21(4)(a) CETA. Where the notice included measures of the EU, either exclusively or together with measures of the Member States, the EU shall act as respondent pursuant to Article 8.21(4)(b) CETA. Importantly, as Article 8.21(1)(2)(4) (a)(b) CETA make clear, the investor is bound to use the measures it identified in the notice of intention to arbitrate to determine the respondent under the default criteria. The question arises what is meant with ‘measures of the EU’ and ‘measures of a Member State of the EU’ pursuant to Article 8.21(4) CETA? On the one hand, it could mean that a measure is one of the EU or a Member State concerned if an organ of the EU or a Member State issued the measure. Under this approach, one would have to ask for the formal author, issuer and originator of the measure. Under such a reading, the EU would be respondent if a EU act such as a Commission decision, a EU directive or EU regulation is identified by the investor in the notice of intention to arbitrate pursuant to Article 8.21(2) CETA. A Member State would be respondent if a Member State act is challenged regardless of the fact that the conduct implements EU law. On the other hand, ‘measures of the EU’ and ‘measures of a Member State of the EU’ could be understood in a different sense. For example, a measure could be one of the EU if a Member State implemented EU law. Alternatively, the criterion of competence could determine whether a measure is one of the EU or a Member State. In favour of the first reading that concentrates on the formal author or issuer of the treatment speaks the plain wording of Article 8.21(4) CETA and its telos: to set forth simple, straightforward criteria that make it possible and easy for the investor to correctly determine the respondent. As to the wording, Article 8.21(4) CETA only refers to the originator of the measure (‘measures of the EU or a Member State’), not to its legal basis (EU law or Member State law), nor to the competence for the subject matter (FDI etc.). As to the telos, under Article 8.21(2) CETA the investor has to identify the measures in respect of which it intends to initiate arbitration proceedings. The investor has to apply these measures to the criteria of Article 8.21(4) CETA to find out the correct respondent. Now, it can be the case that an investor might identify solely Member State measures pursuant to Article 8.21(4)(a) CETA, which, the investor does not know, implement a EU directive, a EU regulation or a EU decision or which are under EU exclusive competence. Applying these measures to Article 8.21(4)(b) CETA could lead to an incorrect application of Article 8.21(4) CETA and would further create a risk of suing the incorrect party. The corollary would be to burden an investor with identifying any EU involvement with respect to a Member State measure and knowing the division of competences between the EU and Member States. This cannot be the case. An investor is not supposed to know whether a Member State measure is under EU competence or based on EU law. Importantly, such an uncertainty for the investor would reflect back on the Tribunal that would have to elaborate on the EU involvement and might use the division of competences between the EU and the Member States to assess whether a certain measure is one of the EU or the Member State.68 Good reasons speak for  Hannes Lenk (2015) Investor-State Arbitration under TTIP – Resolving Investment Disputes in an (Autonomous) EU Legal Order. 2015:2 SIEPS Report. http://www.sieps.se/en/publica-

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the assumption that the author, formal issuer or originator of a measure determines whether a measure is one of the EU or the Member State under Article 8.21(4) CETA. Thus, if a Member State organ issues a measure, it is of Member State origin, if a EU organ issues a measure, it is of EU origin. It follows that Article 8.21(4) CETA adopts the concept of attribution as enshrined in Article 4 ARS and Article 6 ARIO. Competence is irrelevant for Article 8.21(4) CETA. When Member States implement EU law, it remains an act of the Member State. Only where EU and Member State measures are impugned, respondent status of the EU pursuant to Article 8.21(4)(b) CETA sets itself apart from Article 4 ARS. Article 9 ARIO does not help restoring congruence since it is difficult to see the investor’s determination of the EU as respondent under Article 8.21(4)(b) CETA as an adoption and acknowledgment of conduct by the EU.69 Article 8.21(4) CETA provides that each party defends its own treatment. The consequence is that in cases where a Member State measure implemented EU law, an investor can still gauge its claims in a way to avoid the EU as respondent, which would not necessarily be the case if the EU would determine the respondent pursuant to Article 8.21(3) CETA.70 The principle that respondent status falls upon the entity whose own measures have been challenged has one major exception: Pursuant to Article 8.21(4)(b) CETA, where both EU and Member State measures are identified by the investor, it is the EU and not the Member State that acts as respondent. In these instances, it is the EU that defends Member State measure(s).71 The existence of a default mechanism such as under Article 8.21(4) CETA and Article 9.15(3) EU-Singapore IIPA is crucial to avoid an abuse of the system and a denial of justice. At least in theory, the EU would have the possibility to delay the proceedings by simply not determining the respondent. It must be noted that the EU-Vietnam FTA and TTIP do not contain a default mechanism in case the EU fails to determine the respondent in due time. The lack of such a default system under the ECT Statement is no problem, as the investor can always sue the party of its choice. 4.2.1.2  A Single-Respondent Model Post-Lisbon mixed IIPAs that are drafted in accordance with CETA enshrine a single-­respondent model, and thereby emulate the REG. The respondent determination mechanism in Article 8.21(3)(4) CETA enables an investor to only bring a claim against one party, i.e. the EU or a Member State. CETA adopts an ‘either/

tions/2015/investor-state-arbitration-under-ttip-resolving-investment-disputes-in-an-autonomouseu-legal-order-20152/Sieps_2015_2. Accessed 26 August 2018, p. 76. 69  Cf. below Sect. 4.3.4.1. 70  If instead of the default mechanism in Article 8.21(4) CETA the EU were to determine the respondent in due time pursuant to Article 8.21(3) CETA, the EU could have acted as respondent pursuant to Article 9(2)(a) REG in conjunction with Article 3(1)(c) REG in these instances. 71  This conforms to Article 9(2)(b) REG.

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or’-approach. There is no possibility of joining the proceedings as a co-respondent. Besides, the definitions catalogue in Article 8.1 CETA defines the disputing parties as the investor and the respondent; a disputing party is either the investor or the respondent; and the respondent is either Canada, or the EU or a Member State. The single respondent-model is reflected in the provisions on respondent status in the REG that seeks to identify and designate a single respondent for the arbitration proceedings.72 The possibility of establishing a system of co-respondents was rejected by the Commission for its presumptive inaptitude to deal with ISDS.73 This puts the respondent determination mechanism in contrast to the future ECHR system, which adopts a co-respondent mechanism. It should be noted, however, that the ECT does not explicitly exclude the possibility of suing both the EU and a Member State together.74 Even though the Proposal Revised ECT Statement seems to exclude that possibility, its lack of binding force on the treaty parties and on their eligible investors leaves their procedural right to sue both untouched.75 4.2.1.3  T  he Mandatory Nature of the Respondent Determination Mechanism 4.2.1.3.1  The Mandatory Activation of the Respondent Determination Mechanism Why would an investor request the EU to determine the respondent and why would an investor relinquish its right to sue the respondent of its choice, especially since suing a Member State entails many presumptive practical benefits, such as arbitration under the ICSID Convention? The answer lies in the mandatory nature of the pre-litigation channel in the mixed IIPA that excludes the investor’s right to sue the respondent of its choice, makes the respondent’s consent to arbitration conditional upon compliance with the respondent determination mechanism and thereby couples the investor’s right to submit a claim to arbitration to its request for a respondent determination. At this point it is worth memorising how an arbitration agreement is concluded generally under IIPAs. Arbitration as a form of dispute settlement is based and premised on an agreement between the disputing parties. No consent, no arbitration. In the ISDS context there are several ways of reaching an agreement to arbitrate.76 One way is a direct submission agreement (‘compromis’) between an investor and the  Cf. Tietje/Sipiorski/Töpfer, above Chap. 2, fn. 69, pp.  19–20; Baetens/Kreijen/Varga, above Chap. 2, fn. 73, p. 1225. 73  Explanatory Memorandum to the REG, p. 7. 74  Burgstaller, above Chap. 2, fn. 194, p. 206; Roe/Happold, above Chap. 2, fn. 39, pp. 174–175, 185; Happ, above Chap. 2, fn. 261, p. 78. 75  See above Sect. 2.3.1.2.3.1. 76  See Dolzer/Schreuer, above Chap. 2, fn. 280, pp. 254 et seq. 72

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host state. Another one is for the host state to offer its consent to arbitrate in national legislation or an investment contract. Finally, consent to arbitration can be reached by including an arbitration clause in a IIPA, in which the contracting parties offer their consent to arbitrate to nationals of the other contracting state party or parties. Bilateral treaties usually contain language such as ‘each Contracting Party hereby consents to arbitration’. The ECT provides in Article 26(3)(a) ECT that ‘each Contracting Party gives its unconditional consent to the submission of a dispute to international arbitration or conciliation in accordance with the provisions of this Article’.77 Such clauses are yet incomplete. They only constitute a standing offer to arbitrate by the host state.78 The consent is only perfected by the acceptance of the offer by the investor in a separate document. Such acceptance is usually effectuated when the investor institutes proceedings.79 Thus, the way to reach consent under this method is not based on a specific single agreement with the two signatures of the two disputing parties. Rather, it is, as Paulsson called this avenue of consenting to arbitration, ‘arbitration without privity’.80 This avenue was controversial, but no longer is.81 CETA, though containing a typical arbitration clause and a standing offer to arbitrate addressed at eligible investors, deviates from typical arbitration clauses found in bilateral or multilateral IIPAs and the one in the ECT. Under CETA, the consent to arbitration by the Member States and the EU is conditional upon the compliance of the investor with the respondent determination mechanism in Article 8.21 CETA.82 Article 8.25(1) CETA states that the ‘[t]he respondent consents to the settlement of the dispute by the Tribunal in accordance with the procedures set out in this Section.’ The respondent determination mechanism under Article 8.21 CETA is part of these ‘procedures’ and, thus, forms part of the consent to arbitration. Moreover, the right of the investor to initiate arbitration proceedings pursuant to Article 8.23 CETA (‘Submission of a Claim to the Tribunal’) is contingent upon the procedural requirement that the investor activates the respondent determination mechanism in Article 8.21 CETA. This follows from Article 8.21(1) CETA stating that ‘if […] the investor intends to submit a claim pursuant to Article 8.23 (Submission of a Claim to the Tribunal), the investor shall deliver a notice requesting a determination of the respondent’. It further follows from Article 8.22(1)(a) and (c) CETA—setting forth procedural requirements for a submission of a claim for arbitration—stating that ‘an investor may only submit a claim pursuant to Article 8.23 if the investor: (a) delivers to the respondent, with the submission of a claim, its consent to the settlement of the dispute by the Tribunal in accordance with the procedures set out in this Section;’ and ‘(c) has fulfilled the requirements of the  Similar language can be found in Article 1122(1) NAFTA and Article 10.17 CAFTA.  See McLachlan/Shore/Weiniger, above Chap. 2, fn. 166, pp. 52–55. 79  Dolzer/Schreuer, above Chap. 2, fn. 280, pp. 258–259. 80  Jan Paulsson (1995) Arbitration without Privity. 10(2) ICSIDRev-FILJ, pp. 232, 240–241. 81  McLachlan/Shore/Weiniger, above Chap. 2, fn. 166, p. 55. 82  Cf. Articles 6(3), 7(1), 10(1)(2) Section 3 Investment Chapter EU-Vietnam FTA, Article 3.6(2) EU-Singapore IIPA; Articles 5(4), 6(1), 7(1)(3) Section 3 Investment Chapter TTIP. 77 78

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notice requesting a determination of the respondent’. As a result, the compliance with respondent determination mechanism directly affects the consent to arbitration under CETA. Only if the investor complies with Article 8.21 CETA and requests the EU to determine the respondent while identifying the measures it intends to challenge, the investor has the right to go to arbitration. If an investor were not to comply with the respondent determination mechanism and sue the respondent of its choice, the Arbitral Tribunal would automatically be stripped of its jurisdiction because, simply, the EU or the Member States concerned only consent to arbitration provided the investor complies with the respondent determination mechanism. In a declaratory manner, Article 8.22(4) CETA makes clear that upon request of the respondent, the Arbitral Tribunal must decline jurisdiction in case the investor did not comply with the respondent determination mechanism. The respondent determination mechanism becomes mandatory by making it part of the primary treaty provisions of CETA and its compliance a condition for the consent to arbitration by the EU and the Member States. Only insofar is the jurisdiction of an Arbitral Tribunal established. All treaty parties agree upon complying with the respondent determination mechanism since it is part of the primary treaty text that all parties sign and ratify. And by accepting the offer to arbitrate under CETA, given by the EU and the Member States upon concluding CETA, the investor becomes bound by the treaty text as well. The way in which CETA configures the respondent determination mechanism is an effective method to make it mandatory for the investor and to breathe life into the REG and its provisions on respondent status. The mandatory respondent determination mechanism under CETA stands in contrast to the voluntary respondent determination mechanism under the ECT Statement83 and the Proposal Revised ECT Statement.84,85 The mechanism under the ECT is non-mandatory for a number of reasons. Starting with the first ECT Statement, it does not require but provide investors with a mere option to ask for a respondent determination. Second, as discussed, the ECT Statement is not binding on the treaty parties and eligible investor claimants.86 It is not part of the primary treaty provisions of the ECT. No extra-EU contracting party to the ECT agreed, and by extension no extra-EU investor agreed or must agree, to complying with the respondent determination mechanism as enshrined in the Statement. Article 26(3) (b)(ii) ECT, on which the ECT Statement is based, does neither require that the EU and/or the Member States issue a Statement as to the allocation of international  For the text of the relevant part of the ECT statement, see Chap. 1 fn. 16.  For the text of the Proposal Revised ECT Statement, see Chap. 1 fn. 17. 85  For a detailed discussion of why the respondent determination mechanism both under the ECT Statement and the Proposal Revised ECT Statement does not bind investors, see Philipp T Stegmann (2017) The Application of the Financial Responsibility Regulation in the Context of the Energy Charter Treaty – Case for Convergence or “Square Peg, Round Hole”? 145 BTransnatlWR, pp. 12 et seq. See also Roe/Happold, above Chap. 2, fn. 39, p. 174; Keller/Schmitt in Horst G Krenzler, Christoph Herrmann and Marian Niestedt (eds.) (2018) EU-Außenwirtschafts- und Zollrecht, 11th edn. CH Beck, Article 4 Reg (EU) No 912/2014, para. 11. 86  See above Sect. 2.3.1.2.3.1. 83 84

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responsibility under the ECT between the EU and the Member States. Neither does it stipulate or mention any form of a respondent determination mechanism. Nor does it require the EU and/or the Member States to establish one. Finally, the consent to arbitration under the ECT by the EU and the Member States is not conditional upon compliance with the mechanism enshrined in the ECT Statement. The Proposal Revised ECT Statement would not make the mechanism a mandatory one. The revision would only replace the part of the ECT Statement stating that ‘the Communities and the member states will, if necessary, determine among them who is the respondent party to arbitration proceedings initiated by an Investor of another Contracting Party’ with the provisions of the REG regarding respondent status and provided that the EU will inform the investor within 60 days of the determination of the respondent.87 It does not derive from the Proposal Revised ECT Statement that an investor must ask the EU for a determination. And even if so, it still does not affect the rights and obligations under the ECT and the consent of the contracting parties to arbitration, which is unconditional upon compliance with the respondent determination mechanism under the Proposal Revised ECT Statement. If the Proposal Revised ECT Statement were to be seen as an implicit reservation to the ECT by the EU and the Member State to the effect that they henceforth only consent to arbitration in case investors activate the respondent determination mechanism, such reservation would be invalid: Article 46 ECT prohibits reservations. As a result, an investor wishing to sue the EU and/or a Member State for violations of the investment protection standards under the ECT has no obligation to use the pre-­litigation channel enshrined in the Proposal Revised ECT Statement. 4.2.1.3.2  The Mandatory Outcome of the Respondent Determination Mechanism Requiring the investor to deliver a notice to the EU requesting a determination of the respondent is not the only condition to an effective respondent determination mechanism under future mixed IIPAs. The second condition is that the respondent determination by the EU must be binding on the investor, the respondent and the Tribunal. If the respondent determination would not be binding on the parties and the Tribunal, the entire mechanism would be reduced to a formality and its purpose—to guarantee legal certainty, protect the autonomy of EU law and render effective the provisions on respondent status of the REG—undermined. The claimant could simply await the determination and then sue the party it intended to sue in the first place. In the same vein, the respondent determined through the mechanism could object to the claim on the ground that it was the incorrect respondent. And most importantly, a Tribunal could look into and decide the question whether the respondent determined through the mechanism is the correct one.

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 See paras. 3, 4 Proposal Revised ECT Statement.

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Under future mixed IIPAs, however, that follow the drafting approach of CETA, the outcome of the respondent determination pursuant to Article 8.21(3) and (4) CETA will bind the investor, the respondent and the Tribunal.88 As regards the investor, it directly derives from the conditional character of the arbitration agreement that the investor is bound by the determination of the respondent by the EU pursuant to Article 8.21(3) CETA or, if the EU fails to determine the respondent in due time, by the default mechanism in Article 8.21(4) CETA. This is because only the respondent determined by the EU in accordance with Article 8.21(3) CETA or determined by the investor in accordance with Article 8.21(4) CETA consents to arbitration. If the investor would ignore the determination of the respondent by the EU under Article 8.21(3) CETA and sue the other party that was not determined or sue the wrong party under Article 8.21(4) CETA, an Arbitral Tribunal would lack jurisdiction since the respondent would not have consented to arbitration. In a declaratory manner, Article 8.21(5) CETA states: ‘The investor may submit a claim pursuant to Article 8.23 on the basis of the determination made pursuant to paragraph 3, and, if no such determination has been communicated to the investor, on the basis of the application of paragraph 4’. In contrast to that, under the ECT Statement, even in case the investor chooses to ask the EU for a respondent determination and the EU were to determine a respondent, the investor retains the right to sue whoever it deems appropriate.89 This is even acknowledged by a footnote to the ECT Statement saying that ‘[t]his is without prejudice to the right of the investor to initiate proceedings against both the Communities and their Member States’.90 Under the Proposal Revised ECT Statement, this possibility seems to be excluded.91 However, due to the non-binding nature of a respondent determination made by the EU under the ECT, an investor can still choose to sue a different respondent as the one determined. As regards the determined respondent in a dispute under CETA, it equally derives from the arbitration agreement that the determined respondent is bound by its determination and cannot effectively plead in the proceedings that its determination was incorrect.92 The jurisdiction of the Tribunal and the admissibility93 and the merits of the claim are unaffected by an invocation that it was incorrectly determined. Essentially, a determined respondent claiming that it is the incorrect one would undermine the arbitration clause and procedure to which it consented. Moreover,  For the extent of the binding effect of the respondent determination on the international responsibility of the determined respondent, see below Sect. 4.3. 89  Heliskoski , above Chap. 2, fn. 77, p. 173; Roe/Happold, above Chap. 2, fn. 39, p. 174. 90  See again for the entire text above Chap. 1, fn. 16. 91  See para. 3 Proposal Revised ECT Statement. 92  Cf. Tietje/Sipiorski/Töpfer, above Chap. 2, fn. 69, pp. 22–23. 93  See David A R Williams (2008) Jurisdiction and Admissibility. In: Peter Muchlinski, Federico Ortino and Christoph H Schreuer (eds.) Oxford Handbook of International Investment Law. Oxford University Press, p. 919: ‘There has been no consistent approach to the distinction between jurisdiction and admissibility by investment treaty Tribunals’. 88

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the binding character of the determination on the respondent follows from the principle of estoppel, which is recognised as principle of public international law.94 The principle is an expression of the prohibition of contradictory conduct (venire contra factum proprium) and that a treaty is to be performed consistently and in good faith by the parties. It would be contradictory if the respondent attacked its status, as it was himself that consented to the procedure and, in case of the EU, even made the determination itself (Article 8.21(3) CETA). It follows that the determined respondent is barred from asserting at any stage of the proceedings and after an award was rendered or a settlement reached that it was the incorrect respondent. In a declaratory manner, Article 8.21(6) CETA bars the respondent—being the EU or the Member State concerned—to ‘assert the inadmissibility of the claim, lack of jurisdiction of the Tribunal or otherwise object to the claim or award on the ground that the respondent was not properly determined’ in accordance with Article 8.21(3)(4) CETA.95 Under the ECT, if an investor decides to ask the EU for a determination of the respondent and sues the EU as determined by the EU, one could argue that the determination binds the EU due to the principle of estoppel as well.96 The same might be true for Member States under a future revised ECT Statement to which the Member States might subscribe as well in the future. As regards the Tribunal, it also derives from the arbitration agreement that the Tribunal is bound by the respondent determination and cannot assess and decide in its own right whether the respondent was correctly determined. The arbitration agreement simultaneously establishes and limits the mandate of the Arbitral Tribunal.97 It determines the issues that can be examined and decided by the Arbitral Tribunal and the issues that cannot. Put differently, the extent of the arbitrators’ mandate to resolve a dispute coincides with the scope and limits of the arbitration agreement.98 This is inasmuch true for commercial arbitration as it is for investment  In general on the concept of estoppel in international law, see Crawford, above Chap. 3, fn. 92, pp.  153, 643–645; Thomas Cottier and Jörg Paul Müller (2007) Estoppel. In: The Max Planck Encyclopedia of Public International Law. http://opil.ouplaw.com/view/10.1093/ law:epil/9780199231690/law-9780199231690-e1401. Accessed 26 August 2018; Megan L Wagner (1986) Jurisdiction by Estoppel in the International Court of Justice. 74(5) CalLRev, pp.  1777–1804; Hector A Mairal (2013) Legitimate Expectations and Informal Administrative Representations. In: Stephan W Schill (ed.) International Investment Law and Comparative Public Law. Oxford University Press, pp.  413–452; Anthony d’Amato (2010) Consent, Estoppel, and Reasonableness: Three Challenges to Universal International Law. Northwestern University School of Law Scholarly Commons  – Working Paper 102. http://scholarlycommons.law.northwestern.edu/cgi/viewcontent.cgi?article=1101&context=facultyworkingpapers. Accessed 26 August 2018. 95  Article 6(4) Section 3 Investment Chapter EU-Vietnam FTA, Article 3.5(4) EU-Singapore IIPA and Article 5(5) Section 3 Investment Chapter TTIP have an almost verbatim language. 96  Roe/Happold, above Chap. 2, fn. 39, p. 174. 97  Emmanuel Gaillard and John Savage (1999) Fouchard, Gaillard, Goldman on International Commercial Arbitration. Kluwer Law International, pp.  393–394; Nigel Blackaby, Constantine Partasides, Alan Redfern and J Martin Hunter (2015) Redfern and Hunter on International Arbitration, 6th edn. Oxford University Press, pp. 313, 340. 98  Ibid. 94

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treaty arbitration.99 Now, the parties can tinker the procedural outfit of the arbitration as they see fit,100 including a mandatory respondent determination mechanism. An Arbitral Tribunal that does not comply with the arbitration agreement and ignores the outcome of the mandatory respondent determination mechanism would violate its mandate under the terms of the arbitration agreement and render an award invalid and constitute a ground for annulment and unenforceability. In a declaratory manner, Article 8.21(7) CETA explicitly stipulates that ‘[t]he Tribunal shall be bound by the determination’ pursuant to Article 8.21(3)(4) CETA.101 As Article 8.28 CETA—just as much as the EU-Singapore IIPA, the EU-Vietnam FTA and TTIP102—introduces an Appellate Tribunal under the EU IIPA that is competent to review awards rendered by the Arbitral Tribunal, one might question whether the Appellate Tribunal is equally bound by the determination. Article 6(5) EU-Vietnam FTA and Article 5(6) TTIP, in contrast to Article 8.21(7) CETA, unmistakably stipulate a binding effect of the respondent determination on the Appellate Tribunal. However, even though it does not derive directly from the wording of Article 8.21(7) CETA it is submitted that this is equally the case. This due to the risk of conflicting outcomes between the respondent determination made by the EU under Article 8.21(3) CETA and an appraisal by the Appellate Tribunal, which would endanger the validity of any award made by the Tribunal. Under the ECT however, if an investor decides to ask the EU for a respondent determination and sues the respondent as determined by the EU, such determination would not bind an Arbitral Tribunal.103 The Tribunal could still decide whether the respondent is the correct one, and if it finds that this is not the case, it could decline its jurisdiction or dismiss the claim on the merits. 4.2.1.3.3  Result: The Mandatory Mechanism Under Post-Lisbon Mixed IIPAs Versus the Voluntary Mechanism Under the ECT Post-Lisbon mixed IIPAs that are worded like CETA will provide for a mandatory respondent determination mechanism. For one, CETA provides that an investor must request the EU for a respondent determination in order to be able to submit a claim to arbitration. The initiation of the mechanism is a procedural requirement to submit a claim. The respondent’s consent to arbitration is coupled to the investor’s compliance with the mechanism. For two, the outcome of the determination binds the investor, the determined respondent and the Tribunal. The mandatory nature  Sornarajah, above Chap. 2, fn. 276, p. 207.  Blackaby/Partasides/Redfern/Hunter, this chapter, fn. 97, pp. 325–326. 101  The EU-Singapore IIPA does not have a similar provision on the binding effect of the respondent determination on the Tribunal. Yet, as discussed, this is not necessary as the binding effect derives from the arbitration agreement. 102  See Article 3.10 EU-Singapore IIPA, Article 13 Section 3 Investment Chapter EU-Vietnam FTA, Article 10 Section 3 Investment Chapter TTIP. 103  Roe/Happold, above Chap. 2, fn. 39, p. 185. 99

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ensures that the provisions on respondent status in the REG gain full effect in every dispute under CETA.  This is the major difference to the voluntary mechanism enshrined in the ECT Statements. An investor can but does not have to ask the EU for a respondent determination, and if it does, it can still sue a different respondent and a Tribunal is equally not bound by a determination. For these reasons, it is not surprising why the mechanism in the ECT Statement almost fell into oblivion and still remains unused for almost twenty years. The non-mandatory nature risks rendering the provisions on respondent status under the REG moot and leaving them unapplied in future disputes under the ECT.  Why would an investor rely on the respondent determination made by the EU when the Tribunal is not bound by it and can dismiss the claim? Moreover, under the REG the EU may act as respondent in cases where the challenged conduct is attributable to the Member States both under the lex generalis of the ARIO and under the lex specialis of Article 1(3) ECT. Apart from risking a dismissal of the claim, many practical reasons speak for suing the Member States: E.g. ICSID arbitration is not available in disputes against the EU, as the ICSID Convention is only open to states. The only panacea to perfectly render effective the provisions on respondent status under the REG in disputes under the ECT would be to amend the treaty text of the ECT and introduce a mandatory respondent determination as the one enshrined in CETA, the EU-Vietnam FTA, the EU-Singapore IIPA and TTIP.104

4.2.2  T  he Functioning of the Respondent Determination from the Perspective of the REG We have seen how the respondent determination works from the perspective of the EU IIPA. Now, provided that the EU manages to determine the respondent in due time pursuant to Article 8.21(2)-(4) CETA, the important question arises which party exactly can an investor expect to face as respondent. The answer lies in the provisions on respondent status in the REG. 4.2.2.1  Applicability of the REG Pursuant to Article 1(1) REG the REG applies ‘to investor-to-state dispute settlement conducted pursuant to an agreement to which the Union is party, or the Union and its Member States are parties, and initiated by a claimant of a third country’. Article 2(a) REG defines ‘agreement’ as ‘any international agreement covering provisions on foreign direct investment to which the Union is party, or the Union and its Member States are parties, and which provides for investor-to-state dispute settlement’. The REG applies to international agreements covering provisions on  See Article 42 ECT. An amendment, however, would require a ¾ majority amongst the treaty parties pursuant to Article 42(4) ECT.

104

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FDI. If an agreement goes beyond FDI covering additionally e.g. portfolio investment, the agreement would, bar any provision in the REG to the contrary, still be covered by the scope of the REG. The international agreement must further provide for ISDS, which is—albeit the very broad definition of ISDS in Article 2(d) REG— widely understood to mean arbitration as dispute settlement method instead of state court adjudication. The REG applies to disputes under EU-only IIPAs and mixed IIPAs and does not apply to Member State-only IIPAs.105 Next to post-Lisbon EU IIPAs, the REG applies to the pre-Lisbon ECT. Furthermore, the REG applies to extra-EU disputes where an investor of a third state brings a claim against the EU or the Member State. Pursuant to Article 1(1) REG the claim must be ‘initiated by a claimant of a third country’. Thus, the REG does not apply in an intra-EU setting,106 e.g. under the ECT, where an investor of a Member State brings a claim against the EU or a Member State. 4.2.2.1.1  The Hybrid Subject Matter of the REG The REG has a wide subject matter and covers a range of issues, which can be grouped into external ones attempting to govern issues of international law and internal ones governing issues of EU law. As to the former, the REG attempts to govern respondent status in disputes under EU IIPAs, the conditions under which the EU may or must settle a dispute with an investor and which party shall pay monetary awards or settlements to an investor in case the EU acted as respondent. In general, respondent in a dispute under a EU IIPA is whomever an investor sues. Whether a respondent can be sued depends on whether it has consented to arbitration. Whether it is the correct respondent in the proceedings depends on whether the respondent is internationally responsible for the conduct alleged to be in breach of the EU IIPA.107 With respect to settlements, a respondent in an arbitral dispute is always free and unfettered to enter into a settlement with an investor, it does neither have to obtain the approval of another subject of international law nor can it be compelled to entering into one. In a similar vein, it is only the respondent that has payment obligations towards an investor under international law when it is found internationally responsible for a breaching conduct (either by a Tribunal in an award or by the parties in a settlement).108 Hence, the external issues of the REG,  Keller/Schmitt in Krenzler/Herrmann/Niestedt this chapter, fn. 85, Article 1 Reg (EU) No 912/2014, para. 3. 106  Ibid, para. 4. 107  Cf. Schill, this chapter, fn. 24, p. 378. 108  It follows from the law of international responsibility that only the internationally responsible party has the international obligation to rectify the international law breach, i.e. to pay compensation to the investor. It follows from the EU IIPA and the principle of res judicata that only the respondent—if found liable—is bound by arbitral awards and settlements. Thus, a third party not part of the proceedings and that did not act as respondent has no obligation to pay an award or settlement rendered against another party. See for details below Sect. 4.3.3.2. 105

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namely respondent status, settlement, and payment obligations are usually governed by international law, i.e. the arbitration agreement, the applicable EU IIPA and the law of international responsibility. It follows that the REG attempts to create spill over-effects, regulating (though indirectly) international law issues through a EU law instrument. Finally, there is another provision in the REG, which addresses an international law issue. Recital 4 REG enshrines a ‘no-greater-rights’ provision. It reads: ‘Union agreements should afford foreign investors the same high level of protection as Union law and the general principles common to the laws of the Member States grant to investors from within the Union, but not a higher level of protection. Union agreements should ensure that the Union’s legislative powers and right to regulate are respected and safeguarded.’ Apparently, Recital 4 REG addresses the protection level of EU IIPAs granted to foreign investors. Yet the level of protection that EU IIPAs grant to investors is an intrinsic public international law matter and derives from the EU IIPA itself. Recital 4 REG states that the protection level granted to foreign investors should not be higher and more favourable as the protection level granted to investors under EU law. Recital 4 REG is an anomaly within the REG. First, the REG covers technical matters relating to arbitration proceedings, it is not an instrument to define the protection standards under EU IIPA, or to influence the negotiating mandate of the Commission.109 Second, if EU IIPAs do not mirror the no-greater-rights approach, Recital 4 REG is devoid of meaning even under EU law since EU IIPAs prevail over secondary EU law and since secondary EU law cannot affect the validity and applicability of EU IIPAs.110 Hence, and apart from the fact that it is not part of the main text of the REG, Recital 4 REG could not even impede the functioning of the REG in cases where a EU IIPA grants higher protection to foreign investors than EU law does.111 Recital 4 REG must be seen as a mere policy statement—if at all addressed at the drafters of EU IIPAs—devoid of any legal effect in and of itself. The REG further covers intrinsic EU law issues, most prominently the allocation of financial responsibility arising out of arbitration proceedings under EU IIPAs, which will be discussed in Chap. 5. The REG itself is premised on the fact that the ‘conduct and management of an investor-to-state arbitration claim’ and ‘the allocation of financial responsibility’ are separate issues, and that the latter is not dependent on the former.112

 Dimopoulos, above Chap. 2, fn. 112, p. 1706.  Case C-366/10 Air Transport Association of America v Secretary of State for Energy and Climate Change [2011] ECR I-1133, paras. 49–51; Case C-311/04 Algemene Scheeps Agentuur Dordrecht [2006] ECR I-609, para. 25. 111  But see Dimopoulos, above Chap. 2, fn. 112, p. 1706. 112  Explanatory Memorandum to the REG, p. 5. 109 110

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4.2.2.1.2  The REG Is Not Applicable per se Under EU IIPAs The effectiveness under EU IIPAs of the external aspects of the REG dealing with intrinsic issues of international law is contingent upon the configuration of the EU IIPA,113 and the arbitration clause in particular. The mere existence of the REG without a concomitant modelling of the EU IIPA or without its translation into concrete terms in the EU IIPA would render the external aspects of the REG ineffective and moot.114 In general, to an Arbitral Tribunal the REG is irrelevant and as its application is outside its mandate. Specifically, an Arbitral Tribunal does not apply the REG as a source of law to solve a dispute between an investor and a Member State or the EU.115 An Arbitral Tribunal constituted under an IIPA solves a dispute typically in accordance with international law. The applicable law to a dispute is usually the treaty itself and applicable rules of international law.116 National law, in general, does not fall under the applicable law.117 This is the case for example under Article 1131(1) NAFTA, Article 26(6) ECT, under numerous BITs and under Article 8.31(1) CETA, under Article 9.19(2) EU-Singapore IIPA, under Article 16 Section 3 Chapter 8 EU-Vietnam FTA and Article 13 Section 3 Chapter 8 TTIP. It is contentious in doctrine and investment treaty case law whether primary EU law constitutes applicable law international law to an Arbitral Tribunal.118 However, it is not contentious that the REG, as secondary EU law, does not fall under the category of international law under the applicable law clauses of the mentioned IIPAs.119 EU regulations, directives, decisions and recommendations are not to be  Keller/Schmitt in Krenzler/Herrmann/Niestedt this chapter, fn. 85, Article 4 Reg (EU) No 912/2014, para. 6; Tietje/Sipiorski/Töpfer, above Chap. 2, fn. 69, pp. 22–23; Kleinheisterkamp, above Chap. 3, fn. 111, p.  16; Baetens/Kreijen/Varga, above Chap. 2, fn. 73, pp.  1220–1221; Bischoff, above Chap. 2, fn. 61, pp. 23–24. 114  Kleinheisterkamp, above Chap. 3, fn. 111, p. 16. 115  Bischoff, above Chap. 2, fn. 61, pp. 23–24; Freya Baetens (2013) Procedural Issues relating to Shared Responsibility in Arbitral Proceedings. 4(2) JIntlDS, pp. 329–330. 116  See in general for the applicable law under IIPAs, Dolzer/Schreuer, above Chap. 2, fn. 280, pp. 288–293; Andrea K Björklund K (2014) Applicable Law in International Investment Disputes. In: Chiara Giorgetti (ed.) Litigating International Investment Disputes – A Practitioner’s Guide. Brill Nijhoff, pp. 261–286. For the applicable law regarding disputes under the Energy Charter Treaty, see Happ, above Chap. 2, fn. 261, p. 76; Tietje, above Chap. 2, fn. 30, pp. 5–7. 117  In an investment treaty arbitration concerning contractual claims (possible under an umbrella clause elevating contract claims to treaty claims) national law may become a source of law. Article 42 ICSID, Article 35(1) UNCITRAL Arbitration Rules and Article 21(1) ICC Rules give the parties the option to choose national law as applicable law. However, this only addresses claims based on a contract and not based on the treaty (without recurring to the umbrella clause). On the difference between treaty claims and contractual claims under the umbrella clause of a treaty, see Dolzer/Schreuer, above Chap. 2, fn. 280, pp. 166–178. 118  See in this respect Francisco J Pascual Vives (2014) Shaping the EU Investment Regime: Choice of Forum and Applicable Law in International Investment Agreements. 6(1) CDTransnatl, pp. 269–293. 119  Happ/Bischoff, above Chap. 2, fn. 39, p. 159. 113

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considered international law.120 To an Arbitral Tribunal it does not matter whether EU law is, from the perspective of EU law, considered as superior, equivalent or tantamount to public international law. The irrelevance of EU law for international law purposes is in line with the acknowledged principle of supremacy of international law over municipal law. According to the law on state responsibility and the law of treaties, internal law is no defence for the proper performance of international law obligations.121 Otherwise, this would permit states to circumvent international law by adopting domestic legislation.122 Surely, there are lacunae in the supremacy of international law over national law where national law becomes relevant for questions of jurisdiction or nationality.123 However, an international ­dispute settlement body must be either expressly or impliedly mandated by the relevant provisions in the treaty to take account of national law for purposes of public international law.124 Bar any such requirement, national law is usually only regarded as fact for the sake of resolving a dispute under public international law.125 The same rationale concerning the supremacy of international law over municipal law holds true for the supremacy of international law over EU law.126 Hence, for national law or EU law, at least secondary EU law, to be elevated to an applicable source of law requires that IIPAs explicitly provide for that, which neither the ECT does nor post-­Lisbon mixed IIPAs do.127 Hence, the REG in its naked form as a product of secondary EU law is a priori irrelevant to an Arbitral Tribunal. It follows that the provisions of the REG addressing intrinsic public international law questions require a reflection of its terms in the EU IIPA itself. 4.2.2.1.3  Different Ways to Render Effective the External Aspects of the REG Under Post-Lisbon EU IIPAs One avenue to render effective the provisions of the REG on respondent status is, as analysed above, the one employed by CETA, the EU-Singapore IIPA, the EU-Vietnam FTA and TTIP. These EU IIPAs provide for a mandatory respondent determination mechanism. Under this avenue, though, the provisions on settlement and payment obligations in the REG cannot be rendered effective and enforceable under international law. They are only effective and enforceable under EU law, which hinges upon the duty of cooperation set forth in Article 4(3) TEU ensuring that the EU and the Member States abide by the REG.

 Ibid.  Cf. Articles 27, 46(1) VCLT and Article 3 ARS. 122  Shaw, above Chap. 2, fn. 8, p. 100. 123  Ibid, p. 102. 124  Ibid. 125  Ibid. 126  Happ/Bischoff, above Chap. 2, fn. 39, p. 162. 127  With respect to the ECT, see Tietje, above Chap. 2, fn. 30, pp. 6–7. 120 121

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There is a way to render effective under the EU IIPA all the provisions of REG that govern intrinsic public international law issues. The EU IIPA could be drafted to the effect that EU law becomes applicable law under the EU IIPA. Specifically, the EU IIPA could be drafted in a way that the Arbitral Tribunal shall apply either EU law or the REG directly, either by incorporating the text of the REG into the EU IIPA or by referring to the REG by way of a renvoi.128 Yet these routes, which have not been picked up by post-Lisbon EU IIPAs, such as CETA, the EU-Singapore IIPA, the EU-Vietnam FTA and TTIP, are incompatible with the autonomy of the EU legal order in that the interpretation monopoly of the CJEU for questions of EU law would possibly be undermined if a Tribunal were to apply and interpret the REG and, thus, EU law.129 Moreover, the REG seeks to have the Commission and, in case of a disagreement regarding the correct application of the REG, the CJEU apply the REG, not an Arbitral Tribunal. The REG is tailored to the decision processes of the Commission as encapsulated e.g. in Article 9(2)(3) and Article 13(1) REG. These provisions would be devoid of any sense when addressed to an Arbitral Tribunal. Thus, the drafting method of the EU IIPA to have the Arbitral Tribunal apply the provisions of REG appears utterly unlikely as this entails a violation of the autonomy of EU law, is incompatible with the REG itself and is actually not the approach taken by the CETA, the EU-Singapore IIPA, the EU-Vietnam FTA and TTIP. 4.2.2.2  The Respondent Determination Under the REG The following sections discuss the functioning of the respondent determination from the perspective of the REG. 4.2.2.2.1  The Reasons Presented by the Commission for Adopting a Single-­ Respondent Model Under the REG as Opposed to a Co-Respondent Model The REG provides for a single-respondent model as opposed to a co-respondent model. The benefits of a co-respondent model are crystal-clear. Both the EU and the Member States are granted the right to be heard and the right to defend their own treatment. Conversely, under a single-respondent model only either the EU or a Member State can be a party to the arbitral proceedings. The Commission in the Explanatory Memorandum to the REG stated that a co-respondent model is ill suited for ISDS proceedings.130 In particular, the Commission opined that a co-­ respondent model could not effectively encapsulate an internal allocation system  Suggested by Baetens/Kreijen/Varga, above Chap. 2, fn. 73, p. 1221; Waibel, above Chap. 2, fn. 39, p. 19. 129  Dimopoulos, above Chap. 2, fn. 112, pp. 1674, 1677, 1696 et seq. 130  See Explanatory Memorandum to the REG, p. 7. 128

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of financial responsibility. Second, it might lead to inconsistencies in the defence of the claim, to conflicting or diverging arguments between the EU and the Member States, and, thus, endangers the unity of external representation. The unity of external representation is encapsulated in Article 4(3) REG and dictates coherence and consistency on the international plane and across the EU.131 Third, as opposed to a single-respondent model, a co-respondent model could result in a Tribunal pronouncing on the division of competences, which would violate the autonomy of EU law.132 Finally, the Commission stated that where the EU and a Member State successfully defended a claim, it is unlikely that a Tribunal would fully recover the costs to both the EU and the Member State. This would affect budget neutrality. 4.2.2.2.2  Interests of the Member States and the EU to Act as Respondent Before examining the criteria in the REG for determining the respondent in ISDS proceedings under EU IIPAs, it is important to look at the interests of EU and Member States to act as respondent. In support of Member State respondent status speaks their right to be heard and to defend their own treatment, especially when their own financial responsibility is at stake. It could be argued that such a right looses its weight where Member States, which would not defend their own treatment, would be exempt from liability. Yet under the REG this is not the case. As the REG makes clear, not being part of the arbitral proceedings does not entail an escape route of avoiding internal financial responsibility.133 Moreover, the sovereignty of the Member States and their status as subjects of international law calls for Member States to defend their own treatment before Arbitral Tribunals established under EU IIPAs. The Member States’ right to defend their own treatment is acknowledged by the Commission and constitutes a rationale of the REG.134 It goes without saying that the same reason supports EU respondent status when EU treatment is brought 131  Case C-433/03 Commission v Germany [2005] ECR I-7011, para. 64; Case C-246/07 Commission v Sweden [2010] ECR I-03317, para. 77; Case C-355/04 Segi [2007] ECR I-1662, para. 52. See in general, Christophe Hillion (2010) Mixity and Coherence in EU External Relations: The Significance of the Duty of Cooperation. In: Christophe Hillion and Panos Koutrakos (eds.) Mixed Agreements Revisited – The EU and its Member States in the World. Hart, pp. 87–115. 132  The Commission foreshadowed Opinion 2/13, in which the CJEU declared the co-respondent mechanism incompatible with the autonomy of EU law. The single-respondent model under postLisbon EU IIPAs excludes such a risk as the respondent determination has the substantive effect that the respondent automatically bears international responsibility for the treatment impugned by the investor. See below Sect. 4.3. 133  Explanatory Memorandum to the REG, p. 5: ‘It is important to separate the issue of the conduct and management of an investor-to-State arbitration claim from the issue of the allocation of financial responsibility. This is necessary in order to ensure the fair allocation of costs, so that the EU budget – and consequently the budgets of Member States not concerned with the claim in question – are not burdened with costs relating to treatment afforded by one Member State’. See also Baetens/Kreijen/Varga, above Chap. 2, fn. 73, p. 1227. 134  Explanatory Memorandum to the REG, p. 5; Recital 9 REG.

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to the fore. The Commission gave another reason why Member States should act as respondent: to not overburden the EU budget and its non-pecuniary resources if the EU would defend each and every case.135 This reason, admittedly, at least with respect to the budgetary implications, comes across quite schizophrenic given that financial responsibility is allocated internally under the REG. As regards the reasons militating for EU respondent status, the Commission has underscored the principle of unity of external representation.136 Certainly, having the EU defend cases under EU IIPAs fosters coherence, consistency and uniformity. Additionally, it helps build a successful defence strategy and technical expertise of the EU, comparable to the one built in WTO adjudication. 4.2.2.2.3  The Criteria Under the REG for Determining Respondent Status The criteria for determining respondent status in ISDS proceedings under EU IIPAs are set out in Articles 4, 5, and 9 REG. 4.2.2.2.3.1  The Principle: Respondent Is Who Afforded the Treatment In principle, the party shall be the respondent that afforded the treatment, which the investor intends to bring before the Arbitral Tribunal. Article 4(1) REG reads ‘The Union shall act as the respondent where the dispute concerns treatment afforded by the institutions, bodies, offices or agencies of the Union.’ Hence, whenever a dispute concerns treatment afforded by an organ of the EU, the EU assumes respondent status. Whenever a dispute concerns treatment ‘fully or partially’ afforded by a Member State, the Member State concerned ‘shall act as the respondent’ pursuant to Article 5 and 9(1) REG. To make it clear, Article 4(1) REG could also be formulated where the dispute only concerns treatment of EU organs.137 Hence, where the dispute concerns both EU and Member State treatment the basic rule is that the Member State ought to act as respondent. There are four main exceptions to the basic rule, providing for respondent status of the EU, as set forth in Article 9(1)(b) REG, Article 9(2)(a) REG in conjunction with Article 3 REG, Article 9(2)(b) REG and Article 9(3) REG.

 See Explanatory Memorandum to the REG, p. 5: ‘it may be possible, as provided expressly in Article 2(1) TFEU, to empower a Member State to act as respondent in appropriate circumstances given the potential for significant demands (even temporary) on the Union budget and on Union resources were the Union to act as respondent in all cases’; see also Recital 9 REG. 136  Explanatory Memorandum to the REG, p. 5; Recital 11 REG. 137  Recital 8 REG makes clear: ‘The Union should always act as the respondent where a dispute exclusively concerns treatment afforded by the institutions, bodies, offices or agencies of the Union [emphasis added]’. 135

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4.2.2.2.3.2  The First Exception: Member State Cedes Respondent Status to the EU Pursuant to Article 9(1)(b) REG the EU will act as respondent where the Member State concerned ‘has confirmed to the Commission in writing that it does not intend to act as respondent within 45 days of receiving notice or notification’ of an investor’s intention to initiate arbitration proceedings.138 This provision explicitly caters for the scenario of Member States not wanting or refusing to act as respondent. At this point, it seems pertinent to briefly discuss why a Member State would want to do that. Intuitively, avoiding the financial ramifications in the form of costs and monetary awards comes to mind. However, as already mentioned, respondent status and financial responsibility are separate and independent issues. It is true that the EU would pay any adverse award rendered against it to the claimant, regardless of whose treatment led to the award.139 A Member State could, hence, procrastinate and refuse to reimburse the EU internally.140 However, the possibility of instituting infringement proceedings against the defaulting Member State and the possibility of the Commission to require Member States to advance financial contributions beforehand pursuant to Article 20 REG makes the scenario of a Member State refusing respondent status on the sole ground to escape liability unlikely.141 Since a refusal of respondent status is no viable means to dodge internal financial responsibility, a Member State might rather prefer to partake in the proceedings, defend its case and not rely on the Commission to represent its interests. However, there are other good reasons for Member States to cede respondent status to the EU. Similar to the successful litigation practice of the EU in WTO proceedings, the EU might develop considerable technical expertise to arbitrate investment treaty disputes over time.142 Thus, the technical expertise of the EU is one reason for Member States to cede respondent status to the EU.143 Additionally, the litigation costs incurred by a Commission delegation representing the EU might be significantly lower than the costs associated with high-powered law firm representation. Furthermore, having the EU defend a case in arbitration has the benefit of dodging ICSID arbitration and its self-contained enforcement system.144 To conclude, though ceding respondent status is no avenue for Member States to escape financial responsibility, there are good reasons why Member States might want to cede respondent status to the EU and the legal representation to the Commission.

 Article 8(1)(b) Proposal REG provided that the EU shall act as respondent where ‘the Member State has not confirmed to the Commission in writing that it intends to act as respondent’. 139  Explanatory Memorandum to the REG, pp. 6–7. 140  Cf. Tietje/Sipiorski/Töpfer, above Chap. 2, fn. 69, p. 25. 141  But see Dimopoulos, above Chap. 2, fn. 112, p. 1676, arguing that Articles 258 and 260 TFEU are unsuitable and insufficient for the EU to recover monies paid in the context of the arbitration from a Member State in case the Member State is unwilling to reimburse the EU. 142  Baetens/Kreijen/Varga, above Chap. 2, fn. 73, pp. 1227–1229. 143  Recital 10 REG. 144  See Dimopoulos, above Chap. 2, fn. 112, p. 1694. 138

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4.2.2.2.3.3  The Two Exceptions Under Article 9(2)(a) and (b) REG: Definition Issues Article 9(2)(a) REG and Article 9(2)(b) REG enshrine two further exceptions providing for EU respondent status. Pursuant to Article 9(2)(a) REG in conjunction with Article 3 REG respondent status may fall upon the EU in case the ‘the Union would bear all or at least part of the potential financial responsibility arising from the dispute in accordance with the criteria laid down in Article 3’ of the REG. Pursuant to Article 9(2)(b) REG respondent status may fall upon the EU if in addition to Member State treatment ‘the dispute also concerns treatment afforded by the institutions, bodies, offices or agencies of the Union [emphasis added].’ The scope of application of Article 9(2)(a) REG and Article 9(2)(b) REG needs to be sharply defined and distinguished from each other. The crux of understanding the scope of application of Article 9(2)(b) REG lies in the meaning of the word ‘concerns’. When does a dispute ‘concern’ treatment of EU organs? The CJEU, akin to the principles of classical interpretation methods, employs a textual, systematic and teleological interpretation concept.145 Now, as regards the meaning of the term ‘concerns’, essentially, there are two readings possible. On the one hand, a dispute can ‘concern’ a treatment when it is explicitly challenged by the claimant before the Arbitral Tribunal. On the other hand, a dispute can ‘concern’ a treatment when it is connected to the claim without being directly challenged by the claimant. The difference between the two is well demonstrated by the example of a Member State implementing a EU directive: A claimant challenges the implementation treatment of the Member State but not the directive itself. Under the first narrow reading, only the implementation treatment by the Member State is ‘concerned’ by the dispute; under the second broad reading, the EU directive is ‘concerned’ by the dispute as well since, arguably, it at least prompted the Member State treatment. A textual reading of the REG strongly militates against the second broad reading. A dispute ‘concerns’ a treatment logically when it is introduced into the dispute, thus, is part of the investor’s claim. This understanding is supported by the REG.  According to Article 2(f) REG, ‘Member State concerned’ means ‘the Member State which has afforded the treatment alleged to be inconsistent with the agreement [emphasis added]’. In the same vein, pursuant to Article 8(1) REG the information duties of the Commission following a notice of an intention to arbitrate by an investor encompass ‘the treatment alleged to be in breach of the agreement’. Now, it is the investor in the arbitral proceedings that alleges a treatment to be ‘inconsistent with’ or ‘in breach of’ the EU IIPA. Thus, a dispute ‘concerns’ a treatment when it is explicitly challenged before an Arbitral Tribunal. In conclusion, Article 9(2)(b) REG covers the scenario where a claimant both explicitly challenges EU treatment (Article 4 REG) and Member State treatment (Article 5 REG) before an Arbitral Tribunal.  See Koen Lenaerts and José A Gutiérrez-Fons (2013) To Say What the Law of the EU Is: Methods of Interpretation and the European Court of Justice. 2013/9 EUI Working Papers  – Academy of European Law. http://cadmus.eui.eu/bitstream/handle/1814/28339/AEL_2013_09_ DL.pdf?sequence=1&isAllowed=y. Accessed 26 August 2018.

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It does not require much in-depth scrutiny to assess whether the test of Article 9(2)(b) REG is triggered. One merely has to look at the investor’s notice of intention to arbitrate to find out whether the investor bases its claim on both EU (Article 4 REG) and Member State treatment (Article 5 REG). As discussed, under post-­ Lisbon mixed IIPAs worded in accordance with CETA an investor must identify the treatment(s) on which it intends to base its claims.146 As to the scope of Article 9(2)(a) REG, the provision applies where the claimant only explicitly challenges Member State treatment(s) and no EU treatment,147 and the EU ‘would bear all or at least part of the potential financial responsibility’. This is the case where a Member State treatment was ‘required by Union law’ pursuant to Article 3(1)(c) REG in conjunction with Article 2(l) REG.148 Importantly, Article 3(1)(c) REG is a basis for EU financial responsibility even though no EU treatment was part of the arbitration proceedings and explicitly challenged by an investor.149 Taking again the example of a EU directive and its implementation by the Member State, respondent status can fall upon the EU pursuant to Article 9(2) (a) REG in case a claimant merely challenges the implementation treatment of a Member State and not the directive itself because the EU could—provided the investor is successful on the merits and the implementation is required by EU law pursuant to Article 3(1)(c) REG—face internal financial responsibility. The test in Article 9(2)(a) REG does not require or even mandate an assessment of the legality of the impugned treatment under international law, i.e. whether the treatment breaches an obligation under the EU IIPA, at least at this stage of determining the respondent for the arbitration proceedings.150 This question is fully  See Article 8.21(2) CETA.  See explicitly Recital 11 REG: ‘In order to ensure that the interests of the Union can be appropriately safeguarded, it is essential that, in exceptional circumstances, the Union itself act as the respondent in disputes involving treatment afforded by a Member State. Those circumstances are limited to cases where the dispute also involves treatment afforded by the Union, where it appears that the treatment afforded by a Member State is required by Union law and where similar treatment is being challenged in a related claim against the Union in the World Trade Organisation (WTO), where a panel has been established and the claim concerns the same specific legal issue and where it is necessary to ensure a consistent argumentation in the WTO case [emphasis added]’. 148  For details on the test under Article 3(1)(c) REG in conjunction with Article 2(l) REG, see below Sect. 5.2.2.2. 149  Essentially, under Article 3(1)(a) and (b) REG financial responsibility is linked to the fact that a financial burden was ‘arising from treatment’. This link is not necessary for EU financial responsibility pursuant to Article 3(1)(c) REG. The EU act that ‘required’ the Member State to act under Article 3(1)(c) REG must not have been part of the dispute. 150  See Recitals 7, 17 REG; Explanatory Memorandum to the REG, p. 5. However, after an award was rendered or a settlement agreed for purposes of the ex post facto allocation of financial responsibility, thus long after having assessed the question of respondent status, there are instances where the Commission and the CJEU must assess a given treatment for breaches of the EU IIPA. This can be the case, first, for determining whether a Member State treatment was partially required under Article 3(1)(c) REG. See for details below Sect. 5.2.2.2.6. And this can be the case, second, where an investor challenges both treatment for which eventually the EU is internally responsible (Article 3(1)(a) or (c) REG) and a Member State is responsible (Article 3(1)(b) REG), yet the award or settlement gives insufficient answer as to which treatment breached the EU IIPA. See below Sect. 146 147

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reserved to the Arbitral Tribunal and to be proven in the arbitral proceedings. This explains the wording ‘would bear all or at least part of the potential financial responsibility [emphasis added]’ in Article 9(2)(a) REG anticipating the Tribunal’s assessment of the challenged treatment against the obligations of the EU IIPA, which might turn out in the positive or in the negative. Rather, the legal assessment in Article 9(2)(a) REG explicitly refers to Article 3 REG, which concerns internal financial responsibility.151 The test in Article 9(2)(a) REG requires that the Member State treatment challenged by the investor is actually required by EU law pursuant to Article 3(1)(c) REG. The mere possibility that the treatment is required by EU law, i.e. the mere possibility that the conditions of Article 3(1)(c) REG in conjunction with Article 2(l) REG are met, is insufficient. This derives from the wording of the provision, which does not speak of the possibility that the treatment falls under Article 3(1)(c) REG. As stated, the wording ‘would’ and ‘potential’ in Article 9(2)(a) REG only refers to the possibility that the Tribunal finds a breach and awards damages or the parties agree to a settlement, which is unclear at the moment of the respondent determination. It follows that the test under Article 9(2)(a) REG necessitates a full legal assessment of Article 3(1)(c) REG in conjunction with Article 2(l) REG. In conclusion, the exceptions of Article 9(2) REG cater for EU involvement either directly, as the claimant challenged EU treatment in the dispute (Article 9(2) (b) REG), or indirectly because EU interference with Member State treatment might lead, wholly or partly, to financial responsibility of the EU (Article 9(2)(a) REG). Whereas the application of Article 9(2)(b) REG is straightforward depending on whether the claimant challenged EU treatment, the application of Article 9(2)(a) REG requires a legal (though cursory and prima facie) assessment whether Member State treatment was actually required under EU law pursuant to Article 3(1)(c) REG and Article 2(l) REG. 4.2.2.2.3.4  The Test Under Article 9(2)(a) REG, Accountability Gaps Under the REG and Possible Remedies Importantly, the test under Article 9(2)(a) REG engenders risks of accountability gaps under the REG that Member States have to face due to the one-way reimbursement system of the REG in Article 19 REG, which exclusively works for the EU.152 In short, whenever the Commission decides not to pick up respondent status for the EU pursuant to Article 9(2)(a) REG because it incorrectly comes to the conclusion 6.3 for details. Again however, this question only comes up after an award or settlement was made, and thus way after the determination of the respondent has taken place. 151  On the distinction drawn by the REG between internal financial responsibility under the REG and international responsibility under the EU IIPA, see Recital 3, Recital 5 REG and the Explanatory Memorandum to the REG, pp. 2, 5–6. 152  See below Sect. 5.2.3.2 regarding all scenarios that create accountability gaps due to the fact that under the REG only the EU pursuant to Article 19 REG can recover from the Member States and not the other way round.

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that the Member State treatment was not required by EU law pursuant to Article 3(1)(c) REG, and the Member State concerned accepts to act as respondent, the Member State has no effective legal avenue under the REG to recover the costs arising from the arbitration from the EU in case it later turns out—and is confirmed by the CJEU—that the EU bears all or part of financial responsibility pursuant to Article 3(1)(c) REG. An incorrect assessment by the Commission of Article 9(2)(a) REG in conjunction with Article 3(1)(c) REG and Article 2(l) REG can happen easily. First, the depth of scrutiny underlying the test must be reduced to a prima facie test. The legal assessment can only be cursory. This is due to the limited time window granted to the Commission to determine the respondent. Pursuant to Article 9(1)(a) REG the Commission has 45 days from receiving the investor’s notice of intention to initiate arbitration proceedings pursuant to Article 8(1) REG or the Member State’s notification of that pursuant to Article 8(2) REG to make a decision. Now, the question whether a treatment was required or not by EU law pursuant to Article 3(1)(c) REG in conjunction Article 2(l) REG can be complicated, controversial and may require lengthy proceedings. This is even acknowledged by the REG itself.153 And apart from unearthing complicated legal issues there might also be complicated and disputed factual issues. In particular, the assessment pursuant to Article 3(1)(c) REG in conjunction Article 2(l) REG might require the production of documents and evidence residing in the sphere of the Member State concerned. In 45 days it may be difficult or impossible to bring that by. The investor’s notice of intention to arbitrate may also be unclear, generic and fragmentary with respect to the treatments it alleges to breach the EU IIPA. Thus, given the possibly scarce information an investor produces, it may not even be possible to find out whether EU law required a Member State treatment at this stage. Finally, the preliminary nature of the assessment pursuant to Article 9(2)(a) REG and the fact that it can be brought before the CJEU for final decision154 attests to the likelihood that the Commission decision is incorrect. Apart from the solution advocated in Chap. 5 of creating a legal basis under the REG permitting Member States to recover from the EU, there are two solutions to avoid accountability gaps that are caused by an incorrect application of Article 9(2) (a) REG by the Commission. The first solution lies in relying on the Member States’ option to decline respondent status pursuant to Article 9(1)(b) REG. Thus, when it considers that there is a possibility that the EU bears all or at least part of internal financial responsibility pursuant to Article 3(1)(c) REG, it could always cede respondent status to the EU—with the consequence that the EU bears external liability vis-à-vis the investor—and solve any disputes with respect to internal financial responsibility before the CJEU later. This way, Member States can actively avoid accountability gaps. However, this option seems to be a poor and highly dubious solution for countering accountability gaps. In fact, the burden of assessing  See Explanatory Memorandum to the REG, p.  6: ‘The allocation of financial responsibility between the Union and a Member State may give rise to complex considerations’. 154  Recital 20 REG; Explanatory Memorandum to the REG, pp. 11–12. 153

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Article 9(2)(a) in conjunction with Article 3(1)(c) would be entirely shifted to the Member States. This is clearly not envisaged by Article 9 REG155 and thwarts the power dynamics of the REG entrusting the Commission with applying the REG. Moreover, Member States ceding respondent status to the EU only for avoiding accountability gaps would again impair the Member States’ right to defend their treatment before Arbitral Tribunals. The second solution is to lower the threshold of the test in Article 9(2)(a) REG.  Under a ‘possibly-required test’, already hinted at above, the Commission under Article 9(2)(a) REG would merely have to assess whether there is a possibility that Member State treatment was ‘required by EU law’ pursuant to Article 3(1) (c) REG.156 To meet the threshold, it would suffice that it can be derived from the investor’s notice of arbitration that the Member State treatment (challenged by the investor) was in response to a EU law obligation or even in response to an EU act enshrining a EU law obligation. Under such a test, the Commission would neither have to assess whether the Member State treatment fulfilled the conditions or thresholds for Member State action under a EU act that enshrines a EU law obligation for Member State action, nor whether the hypothetical causation-test in Article 2(l) REG is met, namely that the Member State could not have avoided the breach of the EU IIPA without disregarding its EU law obligations. To give an example, it would suffice to find out that the (challenged) Member State treatment was in response to a EU regulation, directive or decision. Such a test would exclude accountability gaps due to an incorrect assessment of Article 3(1)(c) REG in conjunction with Article 2(l) REG. The ‘possibly-required test’ is broader than the regular test under Article 9(2)(a) REG and would expand the remit for EU respondent status under Article 9(2)(a) REG tremendously. Any Member State treatment in response to a EU law obligation could lead to EU respondent status regardless of the fact that, in the end, the EU bears no financial responsibility pursuant to Article 3(1)(c) REG. Member States could only defend treatment that has nothing to do with EU law whatsoever. Against this solution again militates the Member States’ right to defend their own treatment(s), for which they bear internal financial responsibility in the end. This right would be significantly curtailed if the Commission would employ a ‘possibly-required test’. It follows that the threshold of the test under Article 9(2)(a) REG should remain intact, which means that the Commission must assess pursuant to Article 9(2)(a) REG whether the Member State treatment was actually required under Article 3(1) (c) REG in conjunction with Article 2(l) REG. The only solution to adequately and comprehensively avoid accountability gaps under the REG and ensure the Member  Recital 10 reads: ‘Member States may, nevertheless, prefer that the Union act as the respondent in this type of dispute, for example for reasons of technical expertise. Member States should, therefore, have the possibility to decline to act as the respondent […]’. 156  This test would have to be coupled with a mandatory application of Article 9(2) REG, which under the current version of the REG is only discretionary. If Article 9(2) REG remains to grant a discretionary leeway to the Commission, even a possibly-required test under Article 9(2)(a) REG could not avoid accountability gaps. 155

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States’ right to defend their own treatment before Arbitral Tribunals is to create a legal basis for reimbursement to the Member States, as is argued in more detail in Chap. 5.157 4.2.2.2.3.5  The Exception of Article 9(3) REG: Parallel WTO Proceedings The last exception pursuant to Article 9(3) REG relates to disputes that have no link to EU involvement.158 Pursuant to Article 9(3) REG the EU may act as respondent ‘where similar treatment is being challenged in a related claim against the Union in the WTO, where a panel has been established and the claim concerns the same specific legal issue, and where it is necessary to ensure a consistent argumentation in the WTO case’. The cumulative requirements significantly limit the possibility for EU respondent status under this provision. This is justified given the lack of EU involvement (either directly or indirectly) in the claim of the investor. However, claims pending under an established WTO panel against the EU are not unlikely, given the consistent EU participation in WTO matters relating to Member State conduct. The aim of consistent argumentation in WTO litigation to justify EU respondent status under Article 9(3) REG seems misplaced.159 Article 9(3) REG requires no EU involvement either directly or indirectly. Plus, Member States can face exorbitant monetary awards. Stripping the Member States of their right to defend their own treatment that has nothing to do with EU law in these cases appears disproportional. The Proposal REG provided even more possibilities for EU respondent status in cases where there was no EU involvement in the dispute. Article 8(2)(c) Proposal REG stated that the EU shall act as respondent where ‘it is likely that similar claims will be brought under the same agreement against treatment afforded by other Member States and the Commission is best placed to ensure an effective and consistent defence;’ Article 8(2)(d) Proposal REG stated that the EU shall act as respondent where ‘the dispute raises unsettled issues of law which may recur in other disputes under the same or other Union agreements concerning treatment afforded by the Union or other Member States.’ Both provisions met severe Member State resistance and were finally deleted from the REG. They were considered too vague and broad and granting the Commission with too much empowerment to unilaterally seize respondent status in favour of the EU.160 The Member States were concerned that the Commission would regularly apply these provisions and, as a consequence, the EU would replace the Member States as respondents in the long run. In conclusion, the criteria in the REG create a fine balance between the EU’s interests in defending its own treatment and in preserving unity of external representation on the one hand, and the Member States’ right to defend their own treat See below Sect. 5.2.3.2.  Baetens/Kreijen/Varga, above Chap. 2, fn. 73, p. 1226. 159  Arguing the opposite, Baetens/Kreijen/Varga, above Chap. 2, fn. 73, p. 1226. 160  Cf. Tietje/Sipiorski/Töpfer, above Chap. 2, fn. 69, p. 24. 157 158

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ment on the other. The criteria of the REG regarding respondent status follow the originator of the treatment challenged. Only where there is EU involvement, either directly or indirectly, or parallel WTO proceedings are pending, the interests of the EU trump those of the Member States. This imbalance can be levelled by giving the Commission discretion to not apply Article 9(2) REG in certain circumstances, as will become clear in the following. 4.2.2.2.4  The Commission’s Decision on Respondent Status and Accountability Gaps The Commission is vested with deciding whether a Member State concerned or the EU shall act as respondent pursuant to the REG. How does the Commission gain knowledge of an investor intending to initiate arbitration proceedings? Under Article 8.21(1) CETA an investor would have to inform the EU of its intention to arbitrate together with the request of the respondent determination. In case an investor tries to directly sue a Member State without complying with the notification and determination procedure in Article 8.21(1) CETA, the investor’s claim would be dismissed as inadmissible or for a lack of jurisdiction of the Tribunal under CETA.161 Yet future EU IIPAs may not provide for comparable procedural requirements such as under CETA.  For these cases, Article 8(1)(2) REG provides that not only the Commission has an obligation to notify the Member State of an investor’s intention to arbitrate but also Member States have an obligation to notify the Commission of such intention. Therefore, the REG caters for the scenario that irrespective of who receives the notice of an intention to arbitrate by an investor, the Commission gains knowledge of it. So how does the Commission apply and decide who shall act as respondent in a dispute at hand? One has to distinguish between the provisions on respondent status providing for a mandatory application and the ones providing for a discretionary application. Article 4 REG is of mandatory application in the sense that provided its conditions are met in that only EU treatment has been challenged by an investor the Commission has no other option but to pick up respondent status in favour of the EU. The same holds true for Article 9(1)(b) REG once the Member State concerned refuses to act as respondent. Both provisions are unambiguous in that the EU shall act as respondent. The same does not hold true for the exceptions in Article 9(2)(3) REG. In the event the conditions of Article 9(2)(3) REG are met or considered by the Commission to be met, the decision to seize respondent status in favour of the EU is not mandatory in the sense that the Commission is obligated to decide to seize respondent status in favour of the EU. Rather, it follows from the clear language of Article 9(2) REG and Article 9(3) REG that the Commission ‘may decide […] that the Union is to act as the respondent [emphasis added]’. The French version ‘peut’ and the German version ‘kann’ witness that these provisions confer discretion upon 161

 See above Sect. 4.2.1.3.1.

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the Commission. This language stands in stark contrast to the multiple use of the wording ‘the Commission shall’ in the REG.162 The discretionary character is further supported by Recital 10 Proposal REG163 and by the Explanatory Memorandum to the REG.164 Thus, the Commission enjoys discretion to seize respondent status in favour of the EU on a case-by-case basis where the conditions of Article 9(2) and (3) REG are met.165 As to what drives and guides the Commission’s discretion to seize respondent status in favour of the EU is the involvement of EU interests, such as when the EU may face financial responsibility as a consequence of arbitration proceedings or where the unity of external representation is at stake.166 What militates in favour of Member State respondent status is their right to defend their own treatment before the Arbitral Tribunal. The discretionary character of Article 9(2)(3) REG allows the Commission to weigh the interests of the EU and the Member States on a case-by-­ case basis and to renounce seizing respondent status in favour of the EU. This is sound given that Article 9(2)(3) REG already shifts the equilibrium towards the EU. As Recital 10 Proposal REG makes clear, there might be a situation, where the risk of EU financial responsibility is considerably low (Article 9(2)(a) REG) or where the challenged EU treatment is only a fraction of the treatment-matrix impugned by the investor and of minor importance to the overall claim (Article 9(2) (b) REG). Furthermore, consider a case where the financial stakes of a claim are so high (Article 9(3) REG) that they outdo any interest in WTO-consistent litigation. In such circumstances, arguably, the Member State interests in defending their own treatment seem to outweigh EU interests. However, in cases of Article 9(2)(b) REG where EU treatment in addition to Member State treatment is challenged by an investor, it is submitted that it is likely that the Commission would categorically exercise its discretion in favour of the EU to guarantee unity of external representation, given the risk that other investors active in other Member State jurisdictions might challenge under the EU IIPA the same EU treatment as well. The threat of accountability gaps under the REG is a recurring topic, and must equally be addressed here with respect to the discretionary character of Article 9(2)

 See for example Articles 6–8 REG and Article 9(4)-(7) REG.  Recital 10 Proposal REG: ‘Where a dispute concerns partially treatment afforded by the Union, or required by Union law, the Union should act as a respondent, unless the claims concerning such treatment are of minor importance, having regard to the potential financial responsibility involved and the legal issues raised, in relation to the claims concerning treatment afforded by the Member State [emphasis added]’. 164  Explanatory Memorandum to the REG, p. 10: ‘The Commission may issue a decision that the Union shall act as respondent where [emphasis added]’. 165  See also Baetens/Kreijen/Varga, above Chap. 2, fn. 73, pp. 1226–1227. 166  See Recital 11 REG; Explanatory Memorandum to the REG, p. 6: ‘The Union would act as respondent […] where the Commission decides that issues of Union law are involved such that the Union may be financially responsible [or] where the Commission takes the view that a Union position is required in order to ensure unity of external representation’; see also Recitals 10 and 11 Proposal REG. 162 163

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REG.167 As stated, a Member State cannot under the REG recover from the EU the amount it has paid as a respondent to an investor where the EU bears internal financial responsibility pursuant to Article 3(1)(c) REG. An accountability gap can arise where the Commission by virtue of its discretion decides to not seize respondent status for the EU although the criteria of Article 9(2) REG are met. Thus, in order to exclude such situations, a solution would be a mandatory application of Article 9(2) REG to categorically seize respondent status in favour of the EU when the conditions of Article 9(2) REG are met.168 Yet again, the discretionary character of Article 9(2) REG is key in maintaining the balance between the EU interests in the unity of external representation and the Member States’ right to defend their own treatment. If Article 9(2) REG was mandatory, Member States could never defend their own treatment in cases of EU involvement, however faint it may be. Thus, a mandatory application of Article 9(2) REG is not the solution to avoid accountability gaps. As discussed, the possibility of Member States declining to act as respondent under Article 9(1)(b) REG, which would defuse the risk of Member States holding the bill in the end although Article 3 REG points to the EU, equally encroaches the Member States’ right to defend their own treatment. It follows again that the solution can only be to create a legal basis for reimbursement to the Member States under the REG, which is advocated in more detail in Chap. 5. Finally, the Commission’s exercise of its discretion to seize respondent status in favour of the EU requires a ‘full and balanced factual analysis and legal reasoning provided to the Member States’ pursuant to Article 9(2)(3) REG and is embedded in the rules of comitology, i.e. the advisory and examination procedures established in Articles 4 and 5 of Regulation (EU) 182/2011.169 A decision based on Article 9(3) REG requires the consent of the Member States. Under Article 9(2) REG, the Commission can even seize respondent status in favour of the EU against resistance of the Member States. Article 9(3) REG refers to Article 22(3) REG which renders applicable the examination procedure of Article 5 Regulation (EU) 182/2011.170 Only in the event the committee, composed of the representatives of the Member States, approves, the Commission can adopt the implementing decision. In contrast, Article 9(2) REG refers to Article 22(2) REG, which renders applicable the advisory procedure of Article 4 Regulation (EU) 182/2011.171 Such an implementing decision only requires that the Commission takes ‘utmost account’ of the Member States’ position, enabling the Commission to override a dissenting opinion of the Member States regarding EU  Under Article 9(3) REG there is no risk of accountability gaps since there is no direct or indirect EU involvement to trigger this provision. Put differently, the EU cannot face financial responsibility in cases of Article 9(3) REG. 168  As regards Article 9(2)(a) REG, this would have to be coupled with the ‘possibly-required test’, as described above, to effectively avoid accountability gaps. Otherwise the risk of an incorrect application persists. 169  Regulation (EU) No 182/2011 of the European Parliament and of the Council of 16 February 2011 laying down the rules and general principles concerning mechanisms for control by Member States of the Commission’s exercise of implementing powers [2011] OJ L 55, p. 13. 170  The same is true for Art. 13(1), 14(8) and 16(3) REG. 171  The same is true for Art. 15(3) REG. 167

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respondent status. Hence, only the exceptions in Article 9(2) REG enable the Commission to unilaterally seize respondent status as only a discretionary Commission decision following the application of Article 9(2) REG enjoys primacy over any adverse opinion by the Member States. As regards Article 9(3) REG, the Member States essentially have a veto right. This distinction seems justified as under Article 9(3) REG there is no EU involvement in the dispute and no risk of EU financial responsibility. 4.2.2.2.5  Member States and Investors Can Challenge the Commission Decision on Respondent Status Before the CJEU Pursuant to Article 263 TFEU Despite the fact that the REG and the Explanatory Memorandum to the REG do not explicitly provide for or even mention it, it is submitted that the Commission decision regarding respondent status pursuant to Article 9 REG can be challenged before the CJEU under Article 263 TFEU.172 Article 263 TFEU is a legal avenue to challenge the legality of acts of EU institutions. The decision by the Commission on respondent status represents such an act whose legality can be brought before the CJEU. An exclusion of legal protection would cause a lacuna in the system of EU accountability. Now, a ground for challenge pertaining to the Commission’s decision on respondent status173 can be the incorrect application of the provisions on respondent status pursuant to Article 9 REG (because the conditions are not met), a violation of the comitology procedures and a failure to provide adequate reasons.174 Here, however, the emphasis will be put on the incorrect application of the provisions on respondent status, which could fall under the annulment ground of Article 263(2) TFEU regarding lack of competence, infringement of a procedural requirement or misuse of power.175 Both Member States and investors can challenge the decision of the Commission regarding respondent status.176 Member States are privileged applicants under Article 263(1) TFEU and they have locus standi to review any act of a EU ­institution. The Commission’s decision seizing respondent status in favour of the EU in lieu of  In the same direction, Dimopoulos, above Chap. 2, fn. 112, pp. 1707–1710; Tietje/Sipiorski/ Töpfer, above Chap. 2, fn. 69, pp.  24–25; Baetens/Kreijen/Varga, above Chap. 2, fn. 73, pp. 1257–1258. 173  It is further fathomable an annulment procedure pursuant to Article 263 TFEU in case the Commission infringes its obligation to pay due consideration to the financial interests of the Member States pursuant to Article 9(4) REG and in case the Member States disagrees with the EU’s defence strategy. See in this regard Baetens/Kreijen/Varga, above Chap. 2, fn. 73, pp. 1257–1258. 174  Dimopoulos, above Chap. 2, fn. 112, pp. 1707–1708. 175  Simply, if the REG explicitly states in Recital 20 REG that an incorrect application of the provisions on internal allocation of financial responsibility by the Commission can constitute an annulment aground under Article 263 TFEU, then the same must apply to the incorrect application of the provisions on respondent status by the Commission. 176  Dimopoulos, above Chap. 2, fn. 112, pp. 1707–1710. 172

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the Member State concerned is directly addressed at the Member States and directly affects their right to act as respondent before an Arbitral Tribunal. Specifically, Article 263 TFEU in conjunction with Article 9 REG protects the Member State’s right to be heard, the right to defend its own treatment before arbitration proceedings that lead to its own (internal) financial responsibility, and to settle the disputes as they see fit. Thus, they can challenge the Commission decision that provides for respondent status of the EU. Investors might also be entitled to challenge the Commission decision pursuant to Article 263(4) TFEU. The respondent determination is no regulatory measure of general application and is not directly addressed at the investor. However, the Commission decision is of direct and individual concern to investors pursuant to Article 263(4) REG. There is a direct concern, where, first, there is a direct causal link between the decision and the applicant and, second, the decision affects the investor’s legal position and entitlements.177 If Member State authorities were left discretion to influence or mitigate the act, there would be no direct causal link.178 However, Member States cannot influence the Commission decision based on Article 9(2) REG.179 The Commission decision directly affects the investor’s legal position by automatically determining its counterparty in the arbitration, and depriving the investor of its right to sue the correct respondent under the REG.180 The Commission decision is further of individual concern to the investor.181 The investor belongs to an affected ‘closed class’,182 i.e. an entitled group of investors protected under EU IIPAs and individualised by its claims under the ISDS mechanism that has caused the Commission’s decision on respondent status. Thus, an investor is sufficiently singled out by the Commission decision as required under the Plaumann decision of the CJEU. If the proceedings pursuant to Article 263 TFEU are successful the CJEU usually annuls the Commission decision, which then looses its legal effect. The consequence would be that not the EU as determined by the Commission is the correct respondent for purposes of the REG, but the Member State concerned. However, as discussed, an annulment of the Commission decision by the CJEU does not affect the arbitration proceedings with the respondent as initially determined by the Commission under CETA, the EU-Singapore IIPA, the EU-Vietnam FTA and TTIP, as they currently stand. To not render the legal protection of Member States  Case 123/77 UNICME [1978] ECR 845; Case C-486/01 Front National [2004] ECR I-6289; Case 11/82 Piraiki-Patraiki [1985] ECR 207. 178  Case T-262/10 Microban [2011] ECR II-7697; Case 11/82 Piraiki-Patraiki [1985] ECR 207. 179  The comitology procedures for Article 9(2) REG give the Commission the right to trump any disapproval from the Member States. 180  Dimopoulos, above Chap. 2, fn. 112, pp. 1708–1709. 181  Case 25/62 Plaumann [1963] ECR 95, requiring for the test of individual concern that an applicant (or group) is affected by a reason of certain attributes or circumstances, and that it is differentiated from all others and that it can be distinguished individually. 182  Case T-221/10 Iberdrola [2012] ECR II-0000; Case 231/82 Spijker Kwasten BV [1983] ECR 259. 177

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and investors granted under Article 263 TFEU moot and senseless, post-Lisbon EU IIPAs should be drafted, or at least interpreted, to accommodate CJEU proceedings and a possible annulment of the Commission decision in case the Commission incorrectly seized respondent status in favour of the EU, so that the arbitration is conducted with the correct respondent, i.e. the Member State concerned.183 4.2.2.2.6  The Provisions on Respondent Status Under the REG Do Not Correspond to the Rules of International Responsibility The provisions on respondent status in the REG do not correspond to the law of international responsibility as depicted in Chap. 3. In fact, there are many instances, especially when the EU acts as respondent, where the REG creates an asymmetrical situation with the law of international responsibility.184 Illustrating this asymmetry here is important. Usually, the respondent is supposed to be the party bearing international responsibility for the conduct that breaches the EU IIPA. If this is not the case, a Tribunal must dismiss the claim of the investor. As will be discussed further below, the mandatory respondent determination mechanism under post-Lisbon mixed IIPAs, giving effect to the REG on the international level, has a constitutive effect in that the determined respondent bears international responsibility for the conduct challenged by the investor within the ‘EU-Member State responsibility window’. Thus, the potential asymmetry has no repercussions on the claim of the investor. However, if a constitutive effect were to be denied, the asymmetry illustrates the potential of significant accountability gaps under EU IIPAs, as a Tribunal would have to dismiss the claim of the investor if the determined respondent does not bear international responsibility for the breaching conduct. To demonstrate this asymmetry, a distinction must be made between international responsibility under EU-only IIPAs and under mixed IIPAs. Under EU-only IIPAs, bar few exceptions,185 only the EU—with the exception of Article 62 ARIO—can be held internationally responsible since Member States do not bear any international obligations under them. It follows that the rules under the REG allowing Member State respondent status under EU-only IIPAs sit at odds with the rules of international responsibility. The provisions providing for EU respondent status under the REG correspond to the rules of international responsibility if one were to follow the leges speciales of the competence-based approach or of the federal state-analogy approach. However, the lex generalis of the ILC Articles sits at odds with the provisions on respondent status under the REG providing for EU respondent status when a dispute concerns Member State conduct, which is attributable to the Member State and not the EU. It is true that Article 9  See below Sect. 6.1.  Baetens/Kreijen/Varga, above Chap. 2, fn. 73, p. 1234; Tietje/Sipiorski/Töpfer, above Chap. 2, fn. 69, p. 21; Dimopoulos, above Chap. 2, fn. 112, pp. 1682–1683. 185  For example under Article 62 DARIO. 183 184

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ARIO could restore congruence between EU respondent status and EU international responsibility in such instances. Specifically, even without the EU having to explicitly acknowledge and adopt the challenged conduct as its own, which it is perhaps unwilling to do, the respondent determination itself under Article 8.21(3) CETA, where the EU informs the claimant that the EU will act as respondent, could be seen as an implicit adoption and acknowledgment of the EU via Article 9 ARIO.186 The problem, however, is that a Tribunal, which would not be bound to apply Article 9 ARIO in these circumstances if there were no constitutive effect of the respondent determination, might not consider the conditions of the provision met.187 Under mixed IIPAs, the competence-based approach to international responsibility does not match the rules on respondent status in the REG.188 For instance, the rules on competence—regarding FDI—would provide for EU international responsibility under mixed EU IIPAs whereas Member States retain respondent status under the REG even though EU competence is affected. And where the division of competences—for example with respect to FPI—would provide for Member State international responsibility, the rules on respondent status, most prominently Article 9(1)(b) REG, where the Member State does not wish to act as respondent, and Article 9(2)(3) REG would provide for EU respondent status. Only if one were to follow the questionable lex specialis-approach of joint responsibility under bilateral mixed IIPAs,189 there would be a partial symmetry, as the determined respondent would always bear international responsibility for breaching conduct attributable to either the EU or a Member State. However, as discussed this approach holds conceptual flaws. Moreover, it is difficult to see, especially in systems that are budget intensive and provide for monetary compensation such as EU IIPAs, an intention of the EU to be responsible for conduct of the Member States and vice versa, or of a Member State to be responsible for conduct of the EU or another Member State. The EU and the Member States have underscored their intention to maintain budget neutrality when it comes to responsibility for breaches of EU IIPAs. In this regard, it is very likely that the EU and the Member States will exclude joint responsibility under bilateral mixed IIPAs. If one were to follow the lex generalis under the ILC Articles, one finds similarities and discrepancies between these rules and the rules on respondent status in the REG. Whenever a dispute concerns exclusively either EU treatment (Article 4 REG) or Member State treatment (Article 5 REG), the provisions on respondent status of the REG correspond with the rules on attribution under Article 4 ARS and Article 6 ARIO that each state is responsible for the conduct of its own organs and that each international organisation is responsible for the

 With respect to the respondent determination under the ECT, Roe/Happold, above Chap. 2, fn. 39, pp. 174, 185. 187  Roe/Happold, above Chap. 2, fn. 39, p. 185. 188  Baetens/Kreijen/Varga, above Chap. 2, fn. 73, p. 1234; Tietje/Sipiorski/Töpfer, above Chap. 2, fn. 69, p. 21. 189  Cf. above Sect. 3.2.1.2. 186

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conduct of its own organs.190 Unsurprisingly, the first discrepancy between the lex generalis of the ILC Articles and the rules on respondent status in the REG can occur whenever shared responsibility arises and the investor challenges both EU and Member State treatment. In such a case only the EU can act as respondent pursuant to Article 9(2)(b) REG even though the Member State would possibly remain internationally responsible for its own conduct. The same is true if in such a case the Commission would not exercise its discretion pursuant to Article 9(2)(b) REG and leave respondent status to the Member State concerned. Another asymmetry occurs in cases where the investor exclusively challenges Member State treatment and the EU acts as respondent under Article 9(1)(b) REG. Furthermore, under Article 9(3) REG, the acts as respondent for Member State treatment even though under international law the treatment cannot be attributed to the EU. Whether all these cases of EU respondent status would fall under Article 9 ARIO is, as discussed, questionable. To conclude, the REG sets the ground for a mismatch between its rules on respondent status and the rules of international responsibility. 4.2.2.2.7  When the EU Defends Member State Treatment: The Importance of the Duty of Cooperation It is a likely scenario that the EU will act as respondent although the treatment(s) challenged was afforded by a Member State.191 This may pose a practical conundrum to the EU and culminates in the fact that Member State treatment is the subject matter of the dispute although the Member State is not part of the proceedings.192 The EU may face impediments to properly build its defence strategy. For example, the EU needs to have access to perhaps confidential and privileged information and data, documents and witnesses for evidentiary purposes, which all reside in the sphere of the Member State. The EU does not have direct access to such information but requires the cooperation of the Member State concerned.  Cf. Article 4 ARS and Article 6 ARIO.  This can be the result of the respondent determination made by the Commission pursuant to Article 9(1)(b), (2) and (3) REG and rendered effective under EU IIPA (e.g. Article 8.21(3) CETA) or, where the Commission does not determine the respondent in due time, this can be the result of the respondent determination made by the investor (Article 8.21(4)(b)). It can also be the case that a Member State might defend EU treatment in case the EU does not exercise its discretion to seize respondent status for the EU pursuant to Article 9(2)(b) REG. Yet this scenario is unlikely as in all likelihood, where EU treatment is challenged, the Commission would exercise its discretion in such a case and confer respondent status onto the EU. 192  It is not so much a problem for the investor since, as will be shown, the EU is internationally responsible for all conduct impugned, including the treatment afforded by the Member State. If the EU fails to provide information relevant for the dispute residing in the sphere of the Member State concerned, the Arbitral Tribunal can draw consequences that the absence of such information not adversely affects the claimant. For example, the Tribunal can draw adverse inferences from the fact that the EU is unable to provide relevant information and it can issue provisional measures against the EU to requiring it to provide relevant information and evidence. 190 191

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This concern is, however, not as severe as it seems at face value. EU respondent status does not prevent Member States from incurring internal financial responsibility. It seems illogical that a Member State would refuse to cooperate in the defence of the EU when this would only contribute to the EU’s external and the Member State’s internal liability. It is true that Article 9(2)(a) REG in conjunction with Article 3(1)(c) REG provides a scenario under which the EU, defending Member State treatment, may bear both external and internal liability.193 So in this scenario there is no risk for the Member State of bearing internal financial responsibility. Why would a Member State then cooperate with the EU in the defence? Essentially, the REG establishes a ‘system of checks and balances’,194 which is based on the duty of cooperation pursuant to Article 4(3) TEU.195 This obligation to cooperate rests on both the EU and the Member States regardless of who bears internal financial responsibility.196 Most importantly, Article 6(1)(2) REG states that ‘[i]n accordance with the principle of sincere cooperation referred to in Article 4(3) TEU, the Commission and the Member State concerned shall take all necessary steps to defend and protect the interests of the Union and of the Member State concerned’ and ‘[t]he Commission and the Member State concerned shall enter into consultations on the management of disputes pursuant to this Regulation, bearing in mind any deadlines laid down in this Regulation and in the agreement concerned, and shall share with each other information where relevant to the conduct of disputes’. In addition, Article 11(1)(b)(d) REG provides that ‘the Member State concerned shall provide all necessary assistance to the Commission’ and ‘the Commission and the Member State concerned shall prepare the defence in close cooperation’. If the Member State were still reluctant to cooperate with the EU, which would result in a violation of the duty to cooperate, this has no bearing on internal financial responsibility.197 However, the EU has the possibility to institute infringement proceedings pursuant to Article 260 TFEU.198 In the end, it is not a novel scenario in international dispute resolution that the EU defends Member State treatment. It can be stated that the EU has successfully defended Member State treatment in WTO proceedings based on a successful cooperation between the EU and the Member States.199 In conclusion, even though the possibility exists that a Member State refuses to cooperate with the EU in the defence of the case, the probability appears slim due to the procedural safeguards in the REG, the non-evasion of internal financial responsibility and the avenue for the  The EU bears financial responsibility pursuant to Article 3(1)(c) REG where the Member State treatment was required by EU law. This can form a basis for the Commission to seize respondent status pursuant to Article 9(2)(a) REG. 194  Dimopoulos, above Chap. 2, fn. 112, p. 1680. 195  See Hillion, this chapter, fn. 131. 196  Dimopoulos, above Chap. 2, fn. 112, p. 1681. 197  Ibid, p. 1682. 198  Ibid, p. 1707. 199  Cf. Baetens/Kreijen/Varga, above Chap. 2, fn. 73, pp.  1228–1229; Tietje/Sipiorski/Töpfer, above Chap. 2, fn. 69, pp. 21–22. 193

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Commission to sanction violations of the duty to cooperate with infringement proceedings. The problem for the Member State concerned is that it cannot defend its own treatment before the Arbitral Tribunal although it may nevertheless face internal financial responsibility for it.200 The prospect of facing internal financial responsibility makes it likely that a Member State wishes to influence the defence strategy in the arbitral proceedings and that there might emerge a disagreement between the EU and the Member State as to the exact calibration of the defence strategy.201 Hence, it is important that the REG contains safeguards that protect not only the EU but also the interests of the Member States. The REG appears to be drafted in that spirit.202 The reciprocal duty to cooperate is enshrined in Article 6 REG and complemented by Article 9(4)(6) REG. Both underscore the obligation of the Commission to take into appropriate consideration the Member States’ interests, focusing in particular on the financial interests of the Member States when defending the case. Furthermore, the duty of cooperation enshrined in Article 4(3) TEU cuts both ways and ensures that the Commission adequately represents the interests of the Member State before the Arbitral Tribunal. 4.2.2.3  Settlement Rights and Duties Under the REG Articles 13–16 REG deal with settlement203 rights and duties of the EU and the Member States in arbitral proceedings under EU IIPAs in cases where the EU is the respondent. The REG does not deal with settlements in cases where a Member State  To clarify, this is not a problem of jurisdiction of the Tribunal for violating the fair trial rights of the Member State. As discussed above, where the respondent determination extends to the merits and answers international responsibility of the determined respondent for the challenged conduct, a violation of fair trial rights of the Member State is avoided since an Arbitral Tribunal only decides on the international responsibility of the EU (being the respondent) and a monetary award only has binding force upon the EU and not on the (absent) Member State. Only where the determination has no constitutive on the merits, the question arises whether granting the EU the right to be respondent in such cases violates the fair trial rights of the Member State concerned because it cannot defend its case. See below Sect. 4.3.3.1.2.3. 201  Baetens/Kreijen/Varga, above Chap. 2, fn. 73, pp. 1227–1229. 202  As the Explanatory Memorandum to the REG makes clear in pp.  6–7: ‘It is evident for the Commission that, where the Union acts as respondent concerning treatment afforded by a Member State, it will be necessary to ensure a high degree of co-operation with the Member State concerned. This will involve close co-operation in the preparation of the defence, from the beginning to the end of the procedure. Thus, documents will need to be shared and representatives of the Member States should form part of the Union’s delegation. However, legislating for a specific role for such representatives in the hearings or permitting the filing of individual briefs, would introduce too rigid a system and might lead to difficulties in ensuring the unity of external representation of the Union. For that reason, while the Commission is keen to ensure close and effective co-operation, this Regulation should not contain details of such elements and should only specify the principle of close co-operation between the Union and Member States [emphasis added]’. 203  Pursuant to Article 2(h) REG: ‘‘Settlement’ means any agreement between the Union or a Member State, or both, of the one part, and a claimant, of the other, whereby the claimant agrees 200

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is respondent. Thus, where a Member State acts as respondent, its right to settle is unimpaired and does not require the consent of the EU. Pursuant to Article 13(1) REG, where a dispute concerns treatment exclusively afforded by the EU, the EU can settle if it wishes to do so. This is the scenario where the investor exclusively challenges and bases its claim on a measure of the EU. In this instance, the EU will always act as respondent pursuant to Article 4 REG and incur financial responsibility pursuant to Article 3(1)(a) REG. Article 14 REG governs the EU’s right to settle disputes concerning treatments afforded in full or in part by a Member State. This is the scenario where an investor challenges Member State treatment exclusively or together with EU treatment and the EU is the respondent pursuant to Article 9 REG. In case the EU is respondent pursuant to Article 9(1)(b) REG because the Member State declined to act as respondent, the EU can settle pursuant to Article 14(4) REG without having to receive the consent of the relevant Member State. Apart from that, the settlement rights of the EU under Article 14 REG depend on the allocation of financial responsibility under Article 3 REG. Generally, where a Member State would incur ­financial responsibility (alone or together with the EU), the EU can only settle with the consent of the Member State concerned, thus effectively enshrining a veto right for the Member States. Specifically, pursuant to Article 14(3) REG, where there is no EU financial responsibility at stake, the EU cannot settle at all. Conversely, pursuant to Article 14(5) REG where there is no Member State financial responsibility, the Commission may settle the dispute without the consent of the Member State. Cases of shared financial responsibility require the EU to seek the consent of the Member State pursuant to Article 14(6) REG. If the Member State refuses to give its consent in such a case, Article 14(6) REG empowers the Commission to overcome the Member State’s refusal. However, in such an event, the EU according to Article 14(6) REG last sentence waives its right to seek reimbursement from the Member States under Article 19 REG. It is overall sound to couple the EU’s settlement rights to the consent of the Member States where their financial interests are involved. Under the Proposal REG, ‘overriding interests of the Union’ gave the Commission a considerable leeway to override the veto of a Member State, without excluding reimbursement.204 It is submitted that the preclusion of the EU to claim reimbursement under Article 19 REG also encompasses settlements brokered by the EU based on Article 14(5) REG where there is ‘no Member State financial responsibility involved’. Article 14 REG should have been clearer in this regard. Article 14(5) REG necessarily concerns financial responsibility of the EU pursuant to Article 3(1)(c) REG because Article 13 REG already covers the EU’s settlement rights in instances of Article 3(1)(a) REG, where the investor has exclusively challenged EU treatment. At the centre of the problem lies the fact that it is well disputable at this stage of the arbitral not to pursue its claims in exchange for the payment of a sum of money or action other than the payment of money, including where the settlement is recorded in an award of an arbitration Tribunal’. 204  See Article 13(3) Proposal REG.

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proceedings whether there is ‘no Member State financial responsibility involved’ pursuant to Article 14(5) REG in conjunction with Article 3(1)(c) REG.  If there would be no waiver to reimbursement when the EU invokes Article 14(5) REG and settles on that basis, the Commission, either if it was uncertain or if it was certain whether there is potential Member State liability, could use Article 14(5) REG to circumvent the requirement of consent of the Member States for settlement. Later the EU could claim reimbursement pursuant to Article 19 REG when it comes to the conclusion that all or part of the financial burden is to be borne by the Member State. Put differently, the Commission might feel compelled to rely on Article 14(5) REG first, and sort out later any controversy regarding the exact application of Article 3(1)(c) REG. Article 3(1)(c) REG harbours an elevated potential for controversy.205 The requirement of consent—encapsulated in Article 14 REG—would be undermined altogether. Moreover, extending the waiver to Article 14(5) REG reflects the spirit and guiding principle of Article 14(3) and (6) REG: Whenever there is a ‘possibility’ of Member State financial responsibility, the Member State should have a say in whether to adjudicate or settle the dispute, or at least, when the EU insists on a settlement, should be exempt from financial responsibility and any reimbursement claims made by the EU under the REG. This is supported by Recital 18 REG, stating that ‘[w]here the case also concerns treatment afforded by a Member State, it is appropriate that the Union would only be able to settle a dispute if the settlement would not have any financial or budgetary implications for the Member State concerned’. In consequence, the Commission will employ a careful standard in assessing whether the EU and/or the Member State concerned bears potential financial responsibility for purposes of Article 14 REG. Whereas Articles 13 and 14 REG enshrines the EU’s right to settle, Articles 15 and 16 REG enshrine the Member State’s right to propose to the EU a settlement of the dispute. The Member State can only ‘propose’ a settlement instead of settling the dispute in its own right since the Member State is not the respondent in the arbitration proceedings. Article 15 REG addresses disputes concerning treatment afforded exclusively by a Member State whereas Article 16 REG addresses disputes concerning treatment afforded in part by a Member State. Under Article 15 REG the Commission must under certain conditions abide by the Member State’s proposal to settle the dispute.206 In contrast, Article 16 REG requires the consent of the Commission. Where the EU acts as respondent, the possibility of the EU to settle a dispute and the possibility of a Member State to effectively propose a settlement to the EU is, just as much as the Commission decision to seize respondent status in favour of the EU, embedded in the provisions on comitology: Article 13(1) REG, Article 14(8)

 Explanatory Memorandum to the REG, p. 6.  Which are pursuant to Article 15(1) REG: ‘(a) the Member State concerned accepts any potential financial responsibility arising from the settlement; (b) any settlement arrangement is enforceable only against the Member State concerned; and (c) the terms of the settlement are compatible with Union law’.

205 206

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REG, and Article 16(3) REG require an examination procedure and Article 15(3) requires an advisory procedure. To sum up, where the financial responsibility of both the EU and a Member State is at stake, an agreement of the Commission and the Member State concerned is required, not only for the EU to agree to a settlement but also for the Member State to propose a settlement to be concluded by the EU. This takes into account the sovereign rights of the Member States to have a say in the outcome of the proceedings that involves Member State treatment and its financial responsibility.207 4.2.2.4  Payment Obligations Vis-à-Vis the Investor Under the REG Articles 17 and 18 REG address the obligation of the EU and the Member State to pay monetary sums arising out of arbitral awards and settlements to the succeeding investor claimant under the arbitration proceedings. Article 17 REG deals with the scenario where the EU acts as the respondent. The REG does not govern the scenario where the Member State acts as respondent. Yet the Explanatory Memorandum to the REG states that the Member States is responsible for paying any adverse award or settlement rendered against it where it acted as respondent.208 Now, Article 18(1) REG provides that the EU generally pays an award except where the Member State has accepted financial responsibility pursuant to Article 12 REG. By a similar token, Article 18(2) REG stipulates that the EU pays a settlement. The allocation of financial responsibility does not alter the payment obligations of the EU to the claimant. Recital 20 REG makes clear ‘[w]here the Commission determines that a Member State is responsible, and the Member State does not accept that determination, the Commission should pay the award, but should also address a decision to the Member State requesting it to provide the amounts concerned to the budget of the Union, together with applicable interest [emphasis added]’. Thus, a disagreement with respect to the allocation of financial responsibility does not go to the detriment of the investor claimant.

4.3  T  he Constitutive Effect of the Respondent Determination Under Post-Lisbon Mixed IIPAs on the International Responsibility of the Determined Respondent This section explores the constitutive effect of the respondent determination under mixed IIPAs, which are structured and worded in accordance with CETA, on the international responsibility of the determined respondent. It is argued here that the respondent determination has the effect that the determined respondent, being either 207 208

 Cf. Baetens/Kreijen/Varga, above Chap. 2, fn. 73, p. 1249.  Explanatory Memorandum to the REG, p. 11.

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the EU or a Member State, is internationally responsible for the treatment(s) challenged by the investor—only and insofar as the relationship between the EU and the Member States is concerned. Some scholars have expressed—in varying depths, most of the time implicitly and in less categorical terms—similar views to that effect.209 As preliminary remark, it should be noted that the constitutive effect of the respondent determination under mixed IIPAs on international responsibility is what the Commission precisely envisaged when drafting the REG. The Commission is of the opinion that, generally, the division of competences between the EU and the Member States determines international responsibility of the EU and the Member States under EU IIPAs, mixed and EU-only.210 Recital 3 REG reiterates that view. However, what can be inferred from the Commission’s comments in the Explanatory Memorandum to the REG, once the REG gains effect on the international plane by equipping a EU IIPA, mixed or EU-only,211 with a mandatory respondent determination mechanism, the respondent determination mechanism replaces competence as the determining factor for international responsibility. The Commission itself emphasised the considerable implications on the EU budget and resources following a competence-based approach on international responsibility, which would lead to comprehensive EU liability under EU IIPAs, mixed or EU-only, for Member State treatment.212 This in view, the Commission noted that ‘rather than set up the mechanisms in a manner reflecting a strict application of the rules on competence, it is more appropriate to put forward pragmatic solutions which ensure legal certainty for the investor and provide all the necessary mechanisms to allow for the smooth conduct of arbitration [emphasis added]’.213

 In this direction rather clearly with respect to future EU IIPAs, see Luca Pantaleo (2016) Respondent Status and Allocation of International Responsibility under EU Investment Agreements. 1(3) European Papers, p. 857; also in that direction, Kleinheisterkamp, above Chap. 3, fn. 111, p. 8; Dimopoulos, above Chap. 2, fn. 112, p. 1702; with respect to mixed IIPAs, see Eilmansberger, above Chap. 2, fn. 25, p. 396; in this direction with respect to the ECT, see Heliskoski, above Chap. 2, fn. 77, p. 173; Reinisch, above Chap. 2, fn. 45, p. 155; Hoffmeister, above Chap. 2, fn. 243, pp. 735–736; Burgstaller, above Chap. 2, fn. 137, pp. 128, 148; Roe/Happold, above Chap. 2, fn. 39, p. 174; Dimopoulos, above Chap. 2, fn. 39, pp. 251, 271. Claiming that the respondent determination under the ECT would determine the apportionment of obligations under it, Kuijper/ Paasivirta, above Chap. 2, fn. 1, p. 186; Kuijper/Paasivirta, above Chap. 2, fn. 76, p. 121; Arguing that the respondent determination under CETA does not have a constitutive effect on the international responsibility of the determined respondent, Hannes Lenk (2016) Issues of Attribution: Responsibility of the EU in Investment Disputes under CETA. 13(1) TDM, p. 21. 210  Explanatory Memorandum to the REG, pp. 4–5. 211  Though the Commission does not differentiate between mixed and EU-only IIPAs, the respondent determination under a EU IIPA in and of itself can only have a constitutive effect under mixed IIPAs. Under EU-only IIPAs, at least the international responsibility of a Member State requires more than the EU’s determination of a Member State as the respondent. For details, see below Sect. 4.4. 212  Explanatory Memorandum to the REG, p. 3. 213  Ibid, p. 5. 209

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As to structure, this part will first identify the meaning of the term ‘respondent’ under mixed IIPAs that are structured and modelled in accordance with CETA, and whether the term ‘respondent’ only means representative of the party whose liability is at stake or whether respondent means the party whose own liability is at stake (Sect. 4.3.1). Only in the latter case there can be a constitutive effect of the respondent determination on the international responsibility of the determined respondent. The second part will describe the scope of the constitutive effect of the respondent determination on the international responsibility of the respondent, showing that it affects the ‘EU-Member State responsibility window’ (Sect. 4.3.2). The third part will engage in an interpretation of the mandatory respondent determination mechanism under mixed IIPAs that are structured and modelled in accordance with CETA in order to find out whether the respondent determination not only confers procedural rights onto the respondent to defend itself but also has the said constitutive effect (Sect. 4.3.3). In this regard, the wording, the object and purpose of the respondent determination mechanism under the mixed IIPA will be considered. The fourth part attempts to conceptualise the constitutive effect of the respondent determination on international responsibility and discusses how it can and should be reflected in the ILC Articles (Sect. 4.3.4).

4.3.1  T  he Precondition to a Constitutive Effect of the Respondent Determination: ‘Respondent’ or Mere ‘Representative’? The meaning of the term ‘respondent’ under mixed IIPAs is essential for a constitutive effect.214 The term ‘respondent’ can have various meanings. For one, ‘respondent’ can be understood to mean the entity that merely ‘represents’ the party whose international responsibility is at stake in the arbitral proceedings. Respondent status would only confer procedural rights and an investor could still choose to sue the EU, the Member State concerned or both. Such an amalgamation of respondent status and representation would decouple respondent status entirely from international responsibility.215 The consequence of such a reading would be that the respondent determination under the mixed IIPA could not have any constitutive effect on international responsibility of the respondent. For two, ‘respondent’ can be understood to mean the entity or party whose international responsibility is at stake, i.e. the party that defends the treatment brought before the Tribunal by the investor in an effort to avoid a finding of its international responsibility under the mixed IIPA. Under such a reading, the respondent determination could have an effect on the international responsibility of the respondent.

214 215

 See Baetens/Kreijen/Varga, above Chap. 2, fn. 73, pp. 1231–1232.  Ibid.

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It is argued here that the term ‘respondent’ under future mixed IIPAs that are worded in accordance with CETA must be construed in the latter sense, i.e. ‘responding party’ and not ‘representative’ or ‘representing entity’. This derives from the provisions of mixed IIPA. All provisions in relation to disputes against the EU or a Member State under CETA use the unequivocal term of ‘respondent’ in lieu of ‘representative’ or ‘representing party’.216 Black’s Law Dictionary, an accepted source of definition by the ICJ,217 defines ‘respondent’ as the ‘party against whom an appeal is filed’ or the ‘party against whom a motion or petition is filed’.218 In the same vein, ‘defendant’—another term for ‘respondent’—is a ‘person sued in a […] proceeding’.219 As opposed to that, a ‘representative’ is ‘who stands for or acts on behalf of another’.220 Thus, a respondent is the party who is required to answer in order to protect his or her interests and defend and pleads against its own liability. The mere use of the term ‘respondent’ in CETA makes clear that ‘respondent’ cannot be reduced to a mere ‘representing function’. Moreover, Article 8.1 CETA defines the respondent as a disputing party, which can either be the EU or the Member State concerned. It does not speak of a delegation of the EU Commission or a delegation of a Member State as a disputing party. Additionally, if ‘respondent’ would mean ‘representative’, Article 8.25 CETA would not make any sense. The provision makes clear that the respondent consents to dispute settlement under the condition that the respondent determination mechanism under Article 8.21 CETA is complied with. Now, to be representative of a party in arbitration proceedings does not require its consent to arbitration, but having power of attorney. Furthermore, Article 8.21 CETA speaks of disputes—that can be brought before an Arbitral Tribunal—concerning ‘an alleged breach of the EU or a Member State’. And under Article 8.18 CETA, an investor may submit a claim to arbitration on the basis that ‘the respondent has breached an obligation’. A representative does not breach obligations under a EU IIPA. Finally, under CETA an Arbitral Tribunal may only award remedies, an award has only res judicata effect is only enforceable against the respondent.221 This underscores again that the respondent under CETA is not a representative of an allegedly responsible party but that the respondent, and only the respondent, faces—if found internationally responsible under the mixed IIPA— binding awards. As a result, the term ‘respondent’ under mixed IIPAs that are worded in accordance with CETA describes the party whose international responsibility is adjudicated before the Arbitral Tribunal. It does not mean ‘representative’ of ‘representing party’. Consequently, the respondent determination under EU IIPAs can have a con-

 See Articles 8.1, 8.21, 8.22 and 8.25 CETA.  Applicability of the Obligation to Arbitrate under Section 21 of the United Nations Headquarters Agreement of 26 June 1947, Advisory Opinion, 1988 ICJ Reports 63. 218  Bryan A Garner (ed.) (2014) Black’s Law Dictionary, 10th edn. West, p. 1505. 219  Ibid, p. 508. 220  Ibid, p. 1494. 221  See Articles 8.39 and 8.41(1) CETA. 216 217

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stitutive effect on the international responsibility of the determined respondent for the conduct challenged by the investor.

4.3.2  T  he Scope of the Constitutive Effect: The ‘EU-Member State Responsibility Window’ The constitutive effect of the respondent determination on the respondent’s international responsibility under mixed IIPAs worded after CETA is limited in its scope. It is confined to the ‘EU-Member State responsibility window’. This window represents the entire realm, the infinite number of possibilities, in which the EU and the Member States are internationally responsible for conduct violating the mixed IIPA.  Within that realm, the EU and Member States remain separate entities for purposes of international responsibility. This means that the EU bears international responsibility for its own conduct, and not, generally, for Member State conduct. The same is true for Member States: They bear responsibility for their own conduct, not for the EU’s. So in a dispute, the EU can deflect responsibility by pointing to a Member State and a Member State can do so by pointing to the EU. For example, a Member State might well challenge its own responsibility by arguing that it acted upon a binding EU regulation and thus its action is only attributable to the EU. The EU might do the same by arguing that the impugned conduct is attributable only to a Member State that acted entirely outside the purview of EU law. Such finger pointing, however, ends with the respondent determination under post-Lisbon mixed IIPAs. Put differently, the ‘EU-Member State responsibility window’ ‘closes’ once the respondent has been determined under the mandatory respondent determination mechanism. Once the respondent, being either the EU or a Member State, has been determined under the mechanism of the mixed IIPA, the respondent (and only the respondent) bears international responsibility for the impugned conduct within the ‘EU-Member State responsibility window’, i.e. the realm in which the EU and the Member States can bear international responsibility under the mixed IIPA. For purposes of the dispute the determined respondent is, therefore, not only responsible under the mixed IIPA for its own conduct. Instead it is responsible for the conduct of the single, composite entity that now consists of the EU and the Member State concerned.222 Following the determination, the respondent acts on behalf of the composite entity in the dispute and implicitly accepts to bear responsibility for the composite entity vis-à-vis the claimant.223 Now, the determined respondent can, for purposes of defence, only point outside of the window, not inside it. And to pick up the examples made above, the EU is barred from arguing that the conduct is attribut-

222 223

 Cf. Cannizzaro, above Chap. 3, fn. 102, pp. 308–312.  See Pantaleo, this chapter, fn. 209, p. 857.

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able not to itself but to a Member State and a Member State is barred from arguing that the conduct is attributable not to itself but to the EU. The respondent determination leaves untouched all that is outside of the ‘EU-Member States responsibility window’. For purposes of international responsibility, this means that the impugned treatment still must be attributable to the determined respondent (consisting now of the EU and the Member States). The question of the distinction between private and sovereign conduct (‘the act of the State’) as part of attribution of conduct is, thus, still pertinent. Also the respondent determination leaves untouched the question of illegality (breach of the mixed IIPA), justification, causation, quantum and other items of the merits that might come to the fore. The Arbitral Tribunal has to review and decide all this—with the exception of the international responsibility of the determined respondent within the ‘EU-Member State responsibility window’.

4.3.3  T  he Interpretation of the Respondent Determination Mechanism Under Post-Lisbon Mixed IIPAs with Respect to a Constitutive Effect This section seeks to lay bare, by way of treaty interpretation, that the respondent determination, as per Article 8.21(3) or (4) CETA, has the constitutive effect that the determined respondent bears international responsibility for the conduct challenged by the investor within the ‘EU-Member State responsibility window’. The determined respondent cannot plead that it is the incorrect respondent and does not bear international responsibility for the challenged conduct under CETA.  In the same vein, the Arbitral Tribunal constituted under CETA must respect the constitutive effect and may not assess and decide in its own right whether the determined respondent is internationally responsible for the challenged conduct. Again, the constitutive effect only covers the ‘EU-Member State responsibility window’. For example, the effect does not exclude any assertion that no breach occurred and that the challenged conduct is neither attributable to the EU nor a Member State. For purposes of arguing the constitutive effect, it is assumed that CETA will be a mixed IIPA. As will be discussed at the end of this chapter, it is submitted that the respondent determination mechanism under EU-only IIPAs that are structured and worded like CETA cannot engender in and of itself a constitutive effect, at least in cases where a Member State is determined respondent. This is due to the fact that the Member States do not consent to be bound under EU-only IIPAs under international law and generally do not bear international responsibility under EU-only IIPAs.224 Coming back to mixed IIPAs, at the outset, it must be stated that a constitutive effect of a respondent determination on the international responsibility of the respondent is a priori counter-intuitive. Under the conventional paradigm a respon224

 Cf. below Sect. 4.4.

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dent becomes whomever a claimant brings a claim against in a dispute.225 Such determination by a claimant does not answer whether the respondent bears international responsibility for the conduct brought before a Tribunal, e.g. whether the challenged conduct is attributable to it. Respondent status can neither be equated with international responsibility, nor does respondent status, as Heliskoski put it, ‘prejudge the attribution of responsibility’.226 It is the very essence of a dispute that it is disputed and disputable whether responsibility can be established. Equally, wherever a claimant institutes proceedings against multiple respondents, this does not lead to joint attribution or joint responsibility. Rather it must be seen as a procedural strategy to address ‘difficulties inherent in defining each respondent’s liability’ and avoid the risk of suing the incorrect respondent since, when suing both, the correct respondent is always covered.227 In fact, respondent status under IIPAs and international responsibility under IIPAs are wholly distinct categories; the former is a matter of procedure and depends on the consent to arbitration, the latter is a matter of substance and depends on a conduct breaching an international obligation, which is attributable to a subject of international law.228 They also have different effects. Respondent status or procedural standing (locus standi) imposes a procedural obligation to participate in the dispute and thereby confers procedural rights onto the respondent. Such rights include making oral and written submissions, calling witnesses and experts, appointing and challenge arbitrators, instituting counterclaims, lodging applications for provisional measures and entering into settlements with the claimant. International responsibility, on the other hand, requires the respondent to make good the international wrongful act. If a respondent lacks standing, the adjudication body will decline jurisdiction. In contrast, international responsibility concerns the merits of a case. If the respondent is not responsible for an internationally wrongful conduct, the adjudication body will dismiss the claim on the merits with res judicata effect, precluding the dispute from being raised again against the same party.229 It follows from this understanding, that, under the traditional paradigm, the legal status of being respondent does not have any constitutive effect on its international responsibility. If the respondent is of the opinion that it is not internationally responsible for the challenged conduct alleged by the investor to breach the EU IIPA, the respondent can object and assert that it is the incorrect respondent. It is the claimant that bears the risk of suing the incorrect respondent. As Heliskoski succinctly put it, confounding respondent status and international responsibility for a specific conduct ‘risks understating the procedural

 See Baetens, this chapter, fn. 115, pp. 327–328.  Heliskoski, above Chap. 2, fn. 77, p. 197. 227  Ibid. 228  See Pavel Stûrma (2013) The responsibility of international organizations and their member states. In: Maurizio Ragazzi M (ed.) Responsibility of International Organizations: Essays in Memory of Sir Ian Brownlie. Martinus Nijhoff Publishers, p.  323; Schill, this chapter, fn. 24, pp. 378, 383; Heliskoski, above Chap. 2, fn. 77, p. 194. 229  Schill, this chapter, fn. 24, pp. 378, 383. 225 226

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dimension of any regime designed to address issues of responsibility’.230 It is submitted that the respondent determination mechanism under mixed IIPAs, designed after CETA, is a regime ‘designed to address’ international responsibility of the respondent. The mechanism introduces a new paradigm that coalesces respondent status and international responsibility for the conduct challenged by the investor. It is true that CETA neither explicitly stipulates that the determined respondent (pursuant to Article 8.21(3) or (4) CETA) carries international responsibility for the treatment(s) challenged by the investor. Nor does CETA contain a rule stipulating joint and several responsibility of the EU and the Member States, which would also make the determined respondent automatically internationally responsible for the challenged conduct.231 Article 3(7) Draft ECHR Accession Agreement232 explicitly provides for joint responsibility of both respondent and co-respondent, thereby ‘equating the co-respondent system […] with a co-responsibility system’.233 CETA even lacks the clarity of the mechanism under the ECT Statement that links international responsibility to the determination of the respondent.234 Under the ECT, a respondent determination by the EC and the Member States would only be ‘necessary’ in case it is unclear whether the EU or the Member State in internationally responsible for a breaching conduct. So why does CETA and other post-Lisbon EU IIPAs do not explicitly say that determined respondent bears international responsibility for the challenged conduct? One reason is that international responsibility implies a breach of an international obligation. Yet at this stage at the beginning of the dispute it is still for the Tribunal to assess and decide that question. Thus the absence of such language can be linked to the attempt to not cause any confusion with respect to that matter and to not influence the Tribunal’s assessment on the merits regarding the illegality of the challenged treatment(s) under the EU IIPA. Another reason is that such language is not necessary. As will be shown, it is the direct consequence of an interpretation of the respondent determination mechanism under CETA, i.e. of letting the EU and the Member State themselves via Article 8.21(3) CETA, and by default the investor via Article 8.21 (4) CETA, bindingly decide who shall be respondent in a dispute, that the decision has a constitutive effect on determining the ‘EU-Member State responsibility window’ for challenged conduct. The common provision on interpretation of treaties is Article 31 VCLT. Article 31(1) VCLT reads: ‘A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.’ The interpretation of CETA will, first, focus on the ordinary meaning of the terms of the treaty, namely Article 8.21(6)(7) CETA. The ordinary meaning can only be understood in the sense that the determined respondent bears international responsibility for the challenged conduct.  Heliskoski, above Chap. 2, fn. 77, p. 196.  Cf. Dimopoulos, above Chap. 2, fn. 112, p. 1691. 232  For the text of the agreement, see this chapter, fn. 9. 233  Kuijper, above Chap. 3, fn. 78, p. 75. 234  See again above Chap. 1, fn. 16. 230 231

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The ordinary meaning of the text of the treaty is widely considered to be the centrepiece of every interpretation.235 Then, the interpretation will take into account the object and p­urpose of the respondent determination mechanism under CETA. The object and purpose of the treaty adds a teleological element to the interpretative process.236 To this end, it is submitted that the object and purpose of the respondent determination mechanism under CETA is to provide legal certainty. If there were no constitutive effect, there would be no legal certainty, as accountability gaps and a denial of justice become possible. Third, one could even argue that under the lens of an Arbitral Tribunal the autonomy of the EU law pleads for the said constitutive effect. 4.3.3.1  Textual Interpretation of Article 8.21(6)(7) CETA The wording of Article 8.21(6)(7) CETA already strongly militates towards the understanding that the respondent determination pursuant to Article 8.21(3) or (4) CETA has the constitutive effect that the respondent bears international responsibility for the treatment(s) challenged by the investor. Article 8.21(6) CETA states: ‘Where either the European Union or the Member State is the respondent, pursuant to paragraph 3 or 4, neither the European Union, nor the Member State may assert the inadmissibility of the claim, lack of jurisdiction of the Tribunal or otherwise object to the claim or award on the ground that the respondent was not properly determined pursuant to paragraph 3 or identified on the basis of the application of paragraph 4’.237 To recall, the EU determines the respondent pursuant to Article 8.21(3) CETA and the investor determines the respondent pursuant to Article 8.21(4) CETA in case the EU does not determine the respondent in due time. On that basis, pursuant to Article 8.21(5) CETA, the investor may bring a claim to arbitration. It follows from Article 8.21(6) CETA that the determined respondent may not challenge its determination and, even if it does, goes unheard of any assertion that is was incorrectly determined pursuant to Article 8.21(3) or (4) CETA.  So, essentially Article 8.21(6) CETA stipulates a binding effect of the determination on the deter  J Romesh Weeramantry (2012) Treaty Interpretation in Investment Arbitration. Oxford University Press, para. 3.32. 236  Ibid, para. 3.70. 237  Article 3.5(4) EU-Singapore IIPA has a similar wording: ‘Where either the Union or a Member State acts as respondent, neither the Union nor the Member State concerned shall assert the inadmissibility of a claim, or otherwise assert that a claim or award is unfounded or invalid, on the ground that the proper respondent should be or should have been the Union rather than the Member State or vice versa’. Article 5(5) Section 3 Investment Chapter TTIP and Article 6(4) Section 3 Investment Chapter EU-Vietnam FTA equally read: ‘Where either the European Union or the Member State is respondent following a determination made pursuant to paragraph […], neither the European Union, nor the Member State concerned may assert the inadmissibility of the claim, lack of jurisdiction of the Tribunal or otherwise assert that the claim or award is unfounded or invalid on the ground that the proper respondent should be the European Union rather than the Member State or vice versa’. 235

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mined respondent. Article 8.21(7) CETA extend that effect to the Tribunal. It reads: ‘The Tribunal shall be bound by the determination made pursuant to paragraph 3 and, if no such determination has been communicated, the application of paragraph 4’.238 Thus, an Arbitral Tribunal may not assess and decide under CETA in its own right whether the respondent is correctly determined. The question is, what is covered by the binding effect of the respondent determination? As discussed, Article 8.21(6) and (7) CETA is only declaratory. The binding effect of the outcome of the respondent determination on the parties and the Tribunal already flows from the arbitration agreement under CETA.239 However, the key for understanding the constitutive effect of the respondent determination under Article 8.21(3) and (4) CETA on the international responsibility of the determined respondent is to look at the grounds that the determined respondent is—though only in a declaratory manner—barred from invoking under Article 8.21(6) CETA and which, simultaneously, are—again in a declaratory manner—excluded from the scrutiny mandate of the Arbitral Tribunal pursuant to Article 8.21(7) CETA. In other words, if the respondent determination were not binding on the respondent, what ground would a respondent invoke if it were of the opinion that it was incorrectly determined and what would an Arbitral Tribunal examine to find out whether the respondent was incorrectly determined under CETA? Article 8.21(3) CETA—merely referring to the determination of the respondent by the EU—and Article 8.21(4) CETA—referring to the determination of the respondent by the investor240—give no answer whatsoever. Article 8.21(6)(7) CETA can neither concern the ground that a respondent did not consent to arbitration under CETA.  Consent to arbitration only implies whether one can be respondent, not whether one is the correct respondent in instances where there is a choice of possible respondents—the EU or a Member State concerned.241 Moreover, under mixed IIPAs, both the EU and the Member States consent to arbitration. If Article 8.21(6) (7) CETA would intend to cover the ground that the respondent did not consent to arbitrate the provision would be devoid of any practical use. If a provision is stripped of all practical effect by one interpretation it will not be permitted to prevail over equally plausible interpretations that bestow some effect or function to that provi-

 Article 5(6) Section 3 Investment Chapter TTIP and Article 6(5) Section 3 Investment Chapter EU-Vietnam FTA equally read: ‘The Tribunal and the Appeal Tribunal shall be bound by the determination’. 239  See again above Sect. 4.2.1.3. 240  In case the investor misapplies the criteria in Article 8.21(4) CETA and sues the incorrect respondent, there would be no consent to arbitration by the respondent, which consents only under the condition that the respondent determination mechanism is correctly applied pursuant to Articles 8.21(1), 8.22(1)(c), 8.23, 8.25 CETA. 241  Schill, this chapter, fn. 24, p. 378: ‘[International responsibility] goes to the question of which public entity is the right party in an investor-state arbitration, the Union or its Member States. Procedural Status, by contrast, concerns issues of jurisdiction, admissibility, and procedure, and goes to the question of which public entity is a potential party to an investor-state arbitration [emphasis added]’. 238

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sion.242 Thus, Article 8.21(6)(7) CETA must refer to a test for the determination of the correct respondent that neither concerns a correct application of provisions under CETA nor the consent to arbitration. 4.3.3.1.1  Article 8.21(6)(7) CETA and the Ground of the Correct Application of the REG by the Commission Article 8.21(6)(7) CETA could mean to cover the correct application of the provisions on respondent status pursuant to the REG.243 If interpreted in this sense, Article 8.21(6) CETA, though in a declaratory manner,244 would bar the determined respondent from invoking that it should not act or should not have acted as respondent by virtue of the provisions on respondent status under the REG. In a complementary manner, Article 8.21(7) CETA, though in a declaratory manner,245 would bar the Tribunal from assessing and deciding that the respondent is incorrect by virtue of the provisions of the REG. A discrepancy between the respondent as determined under Article 8.21(3) CETA or Article 8.21(4) CETA and the respondent as follows from the application of the REG can easily occur. On the one hand, the criteria for respondent status under Article 8.21(4) CETA do not always match those under the REG. Specifically, when a Member State is respondent under Article 8.21(4)(a) CETA, this may not be the case under Article 9(1)(b), Article 9(2)(a) and Article 9(3) REG. Hence, the respondent determined under Article 8.21(4) CETA might challenge its status on the ground that it should not act or should have acted as respondent by virtue of the REG—to be determined by the Tribunal—or on the ground that the Commission determined a different respondent pursuant to Article 9 REG.  On the other hand, under Article 8.21(3) CETA, which gives effect to the Commission decision on respondent status and ignores any differing decision by the CJEU,246 the Commission may have incorrectly seized respondent status for the EU pursuant to Article 9 REG.247 Hence, for one, the respondent determined under Article 8.21(3) CETA might challenge its status as respondent on the ground that it should not act or should not have acted as respondent by virtue of the REG—to be determined by the Tribunal—or, for two, on the ground that it should not act or should not have acted as respondent by virtue of a decision of the CJEU overriding the Commission’s decision on respondent status. Now, in case these challenges could come to fruition in case the respondent determination was not binding on the respondent, Article 8.21(6)(7) CETA could indeed— though in a declaratory manner—be interpreted to cover the ground that the respondent is incorrect pursuant to the REG. If not, Article 8.21(6)(7) CETA is likely meant to cover a different ground as regards the correctness of the determined respondent.  Weeramantry, this chapter, fn. 235, para. 3.24.  Dimopoulos, above Chap. 2, fn. 112, p. 1709. 244  This would already flow from the arbitration clause. 245  This would equally already flow from the arbitration clause. 246  See above Sect. 4.2.1.1.1. 247  See above Sect. 4.2.2.2.3. 242 243

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An Arbitral Tribunal under CETA has no mandate to apply the REG. So, even if the respondent determination were not binding on the determined respondent, it would go unheard of any assertion that the REG points to a different respondent, and a Tribunal would be barred from taking into account the REG. The REG, and EU law in general, is not part of the applicable law in disputes under CETA nor does CETA contain a provision that makes the respondent determination under Article 8.21(3)(4) CETA conditional upon the correct application of the REG. CETA does not even once mention the REG. The corollary of that absence is that the REG and EU law is for the parties to a dispute under CETA and the Tribunal established under it res inter alios acta. A Tribunal would neither ex officio nor if invoked by the respondent look at the REG as a binding source of law for purposes of the dispute. A Tribunal would only look at whether the EU did make a determination pursuant to Article 8.21(3) CETA in due time (50 days), and in case it did not, whether the investor applied correctly the criteria of Article 8.21(4) CETA. And on that basis, the investor claimant can initiate arbitration proceedings pursuant to Article 8.21(5) CETA. Whether the respondent determined under Article 8.21(3) or (4) CETA is correct by virtue of the provisions on respondent status under the REG, is irrelevant for the arbitration. Therefore, the provisions on respondent status of the REG in and of itself can neither endanger the jurisdiction of the Tribunal, the admissibility of the investor’s claim nor put an award at risk of invalidity (cf. Article 8.21(6) CETA). This is even true from a perspective of EU law, as under the hierarchy of norms under EU law international treaties concluded by the EU prevail over secondary EU law.248 CETA does not make respondent status conditional upon the correct application of the REG as determined by the CJEU.  The decision by the CJEU regarding respondent status under the REG would only concern secondary EU law. Hence, the jurisdiction of a Tribunal or the validity of an award could not even be challenged in EU courts on the grounds of being incompatible with the REG.249 Furthermore, a decision by the CJEU overruling and annulling the Commission’s decision on respondent status, which has lead to a respondent determination pursuant to Article 8.21(3) CETA, does neither affect the jurisdiction of the Tribunal, the admissibility of the investor’s claim nor the validity of an award rendered against the respondent as determined pursuant to Article 8.21(3) CETA. Apart from the fact that the REG is res inter alios acta under CETA, this, again, derives from Article 8.21(3)(5) CETA.  Article 8.21(3) CETA is a static reference to the Commission decision, and Article 8.21(5) CETA allows the investor to submit a claim to arbitration against the respondent as determined pursuant to Article 8.21(3) CETA (which again reflects the initial Commission decision on respondent status). As a result, even in case the respondent determination pursuant to Article 8.21(3) and (4) CETA were not binding on the investor, the respondent and the Tribunal, and if the investor were to sue the determined respondent, the latter could not assert that  Case C-366/10 Air Transport Association of America [2011] ECR I-1133, paras. 49–51; Case C-311/04 Algemene Scheeps Agentuur Dordrecht [2006] ECR I-609, para. 25; see Martines, above Chap. 2, fn. 325, pp. 132–133; Dimopoulos, above Chap. 2, fn. 112, pp. 1709–1710. 249  Dimopoulos, above Chap. 2, fn. 112, pp. 1709–1710. 248

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and the Tribunal could not assess whether the determined respondent is correct pursuant to the REG. Equally, a differing CJEU decision overruling the Commission decision on respondent status would not have any effect on the jurisdiction of the Tribunal, the admissibility of the claim and the validity of the award. It follows that Article 8.21(6)(7) CETA does not intend to cover the correct application of the REG regarding respondent status. Importantly, there is another interpretation of Article 8.21(6)(7) CETA that exhibits the scope of the binding effect of the respondent determination under Article 8.21(3) and (4) CETA. 4.3.3.1.2  Article 8.21(6)(7) CETA and the Ground That the Respondent Lacks International Responsibility for the Conduct Impugned by the Investor If the respondent determination under Article 8.21(3) and (4) CETA would not be binding on the parties and the Tribunal, what would a respondent typically invoke when it deems that it was incorrectly determined, and what would a Tribunal typically assess? The answer to that question is that a respondent would typically assert that the rules on international responsibility fully or partly point to another party (the EU instead of the Member State or vice versa) and a Tribunal would consult the rules of international responsibility for assessing whether such assertions are substantiated.250 This can be for example, when the respondent asserts that it does not owe any substantive obligations under the EU IIPA or does not owe those obligations that are alleged to be breached, or that the allegedly wrongful conduct is not attributable to it, and even that it otherwise (without attribution of conduct) does not bear international responsibility for the breaching conduct. This interpretation of Article 8.21(6)(7) CETA is in line with the wording of Article 8.21(6) CETA that bars the determined EU or the determined Member State concerned in a dispute under CETA from invoking any ground affecting the correctness of its determination that can affect the ‘jurisdiction of the tribunal’, the ‘admissibility of the claim’ or ‘otherwise […] the claim or the award’. First, the lack of international responsibility of the respondent for the challenged conduct undoubtedly affects the merits of the claim. Second, it is submitted that the lack of international responsibility of the respondent for the challenged conduct equally affects the ‘jurisdiction of the tribunal’ and the ‘admissibility of the claim’. Third, it is submitted that if the dispute concerns the international responsibility of a party that is not part of the proceedings, this might equally affect the ‘jurisdiction of the tribunal’ and the ‘admissibility of the claim’.

250

 Ibid, p. 1702; cf. Schill, this chapter, fn. 24, p. 378.

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4.3.3.1.2.1  Article 8.21(6)(7) CETA Bars the Respondent from Invoking and the Tribunal from Assessing at the Merits Stage That It Is Not Internationally Responsible for the Challenged Conduct As to the merits, it is true that Article 8.21(6) CETA explicitly excludes objections to ‘jurisdiction’ and ‘admissibility’ that are based on an incorrect respondent determination. However, in addition to that, Article 8.21(6) CETA excludes any further grounds on which a respondent would ‘otherwise object to the claim’.251 Since ‘otherwise’ cannot mean the already-mentioned ‘jurisdiction’ and ‘admissibility’, it must e contrario mean the merits of the claim that can be affected by an incorrect respondent determination. Now, the international responsibility of the respondent for the conduct challenged by the claimant and allegedly in breach of an international obligation is indisputably part of the merits of a claim.252 Thus, Article 8.21(6) CETA intends to cover every ground on which the determined respondent might argue that it does not bear international responsibility for the challenged conduct. In the same vein, pursuant to Article 8.21(7) CETA a Tribunal may not assess and decide whether the respondent bears international responsibility for all or part the challenged conduct. 4.3.3.1.2.2  Article 8.21(6)(7) CETA Bars the Respondent from Invoking and the Tribunal from Assessing at the Jurisdictional and Admissibility Stage That It Is Not Internationally Responsible for the Challenged Conduct The question remains why Article 8.21(6) CETA bars the respondent from invoking grounds based on the respondent determination that could affect the ‘jurisdiction of the Tribunal’ and the ‘admissibility of the claim’. The answer lies in the fact that the lack of international responsibility under a EU IIPA, EU-only or mixed, of the respondent for the challenged conduct even affects the jurisdiction of a Tribunal and the admissibility of a claim. To illustrate, one must merely look into the function of international responsibility for challenged conduct for the jurisdiction of a Tribunal.253 This becomes especially clear when looking at the function of attribution of conduct. In disputes under any treaty, attribution of the challenged conduct to the respondent is usually required to establish the jurisdiction of a Tribunal and the admissibil-

 Article 3.5(4) EU-Singapore IIPA does not even refer to the jurisdiction of a Tribunal and, similarly, reads: ‘otherwise assert that a claim or award is unfounded or invalid’. 252  Instead of many, Schill, this chapter, fn. 24, p. 378. 253  Attribution may undoubtedly determine a respondent’s international responsibility for a certain conduct under a EU IIPA. As the ILC Articles witness, a respondent can also be internationally responsible for a certain conduct without the challenged conduct attributable to it and even without being bound by the international obligation that is allegedly breached. Thus, not only attribution, but also international responsibility in general for a certain conduct (possible without attribution) may have a bearing on jurisdiction. For present purposes however, the focus is put on attribution of conduct. 251

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ity of the claim.254 In general, there is no coherent approach as to the localisation of the test of attribution in a dispute on the international plane. However, that attribution of conduct is a part of jurisdiction or admissibility255 is in line with international investment jurisprudence256 and ECHR jurisprudence.257 It is true that the ILC Articles exhibit some bias towards treating attribution as matter of the merits, not least because according to the chronology of the ARS and the ARIO, attribution is dealt with after the violation of a material rule, which is indisputably part of the merits.258 However, the ILC Articles do not deal with jurisdictional questions and any view limiting the role of attribution of conduct to international responsibility  Hoffmeister, above Chap. 2, fn. 243, pp. 735–736, 738, 747; Heliskoski, above Chap. 2, fn. 77, p. 173; El Hayek/Gilles, above Chap. 3, fn. 233, pp. 585, 588; Happ, above Chap. 2, fn. 261, p. 77, at fn. 34; Reinisch, above Chap. 2, fn. 45, p. 155; Stûrma, this chapter, fn. 228, pp. 323–324. 255  In international law, the difference between jurisdiction and admissibility is blurred; in any case, the international court would decline its jurisdiction. See El Hayek/Gilles, above Chap. 3, fn. 233, p. 585; see also Crawford, above Chap. 3, fn. 92, p. 475: ‘Objections to jurisdiction, if successful, stop all proceedings in the case since they strike at the competence of the Tribunal to give rulings as to the merits or admissibility of the claim. An objection to the substantive admissibility of a claim invites the Tribunal to reject the claim on a ground distinct from the merits […]’; Hochtief Aktiengesellschaft v The Argentine Republic, ICSID Case No ARB/07/31, Decision on Jurisdiction, 24 October 2011, para. 90: ‘Jurisdiction is an attribute of a Tribunal and not of a claim, whereas as admissibility is an attribute of a claim but not of a Tribunal’. 256  See e.g. Emilio Agustin Maffezini v The Kingdom of Spain, ICSID Case No ARB/97/7, Decision on Objections to Jurisdiction, 25 January 2000, paras. 51 et  seq; Salini Costruttori SpA and Italstrade SpA v Kingdom of Morocco, ICSID Case No ARB/00/4, Decision on Jurisdiction, 31 July 2001, paras. 28–31; Salini Costruttori SpA. and Italstrade SpA v The Hashemite Kingdom of Jordan, ICSID Case No ARB/02/13, Decision on Jurisdiction, 9 November 2004, paras. 31, 157; Nykomb Synergetics Technology Holding AB v The Republic of Latvia, SCC, Arbitral Award, 16 December 2003, para. 4.2; Generation Ukraine Inc v Ukraine, ICSID Case No ARB/00/9, Award, 16 September 2003, paras. 10.1 et  seq; Compañía de Aguas del Aconquija SA and Vivendi Universal SA v Argentine Republic, ICSID Case No ARB/97/3, Award, 21 November 2000, para. 49; Niko Resources Ltd. v People’s Republic of Bangladesh, Bangladesh Petroleum Exploration & Production Company Limited and Bagladesh Oil and Mineral Corporation, ICSID Case No ARB/10/11 and ARB/10/18, Decision on Jurisdiction, 19 August 2013, paras. 242–247; Tokios Tokelés v Ukraine, ICSID Case No ARB/02/18, Decision on Jurisdiction, 29 April 2004, para. 102; CMS Gas Transmission Company v Argentina, ICSID Case No ARB/01/8, Decision of the Tribunal on Objections on Jurisdiction, 17 July 2003, para. 108; Toto Costruzioni Generali SpA v Republic of Lebanon, ICSID Case No ARB/07/12, Decision on Jurisdiction, 11 September 2009, paras. 43 et seq. 257  See e.g. Behrami v France; Saramati v France, Germany and Norway [GC] Application No 71412/01 and 78166/01, 2 May 2007, at paras. 29–33; Blagojevic and Galic v The Netherlands, Application 22617/07, 9 June 2009; Bosphorus Hava Yollari Turizm v Ireland [GC] Application No 45036/98, 30 June 2005, ECHR Reports 2005-VI, para. 137: ‘In such circumstances the applicant company, as the addressee of the impugned act fell within the ‘jurisdiction’ of the Irish State, with the consequence that its complaint about that act is compatible ratione loci, personae and materiae with the provisions of the Convention’. Pursuant to the ECHR guide, attribution of conduct, or imputability, how it is called in the guide, is even classified as a criterion of admissibility, or jurisdiction ratione personae. See ECHR, Practical Guide on Admissibility Criteria, 2011, www.refworld.org/docid/4f16c1482.html. Accessed 26 August 2018, pp. 34–38 with many examples. 258  El Hayek/Gilles, above Chap. 3, fn. 233, pp. 584–585. 254

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and the merits of a case misrepresents its function.259 In fact, from a mere practical viewpoint of a dispute, it makes no sense to adjudicate the existence of a breach of primary rules if it is not clear whether the respondent (by virtue of attribution of conduct) is internationally responsible for the conduct challenged and alleged to breach international law. As to the function of attribution of conduct, it is a legal mechanism and intellectual operation that attempts to link certain acts or omissions and, thus, a certain set of facts, to someone or something.260 For the purposes of public international law, such a linkage becomes important whenever one has to determine whether the state or an international organisation is involved, i.e. whether a certain conduct is one of a state or an international organisation.261 It is submitted that such determination is required as much for jurisdiction or admissibility as it is for purposes of international responsibility as part of the merits. Concerning international responsibility as parts of the merits, attribution attempts to answer whether the treatment challenged by the claimant—that is allegedly in breach of an international obligation—can be linked to the incumbent of the international obligation, as both Article 2 ARS and Article 4 ARIO make clear. Hence, it can be said that international responsibility comprises a substantive element, i.e. the existence of an international obligation and its breach, and a procedural element, i.e. the linking of the breaching conduct to the bearer of the obligation, which for purposes of the dispute should be the respondent to the case.262 Concerning jurisdiction and admissibility, attribution attempts to answer whether the conduct challenged by the claimant can be linked to the respondent, as an entity that has consented to international adjudication under the treaty provided that it is internationally responsible for the challenged conduct.263 This linkage is required  See Christian Tomuschat (2013) The European Court of Human Rights and the UN. In: Andreas Føllesdal, Birgit Peters and Geir Ulfstein (eds.) Constituting Europe: The European Court of Human Rights in a National, European and Global Context. Cambridge University Press, p. 351, saying in fn. 59 it is erroneous to contend ‘that attribution is exclusively a concept of international responsibility’. 260  Shaw, above Chap. 2, fn. 8, p. 595; Petrochilos (2010) Attribution. In: Katia Yannaca-Small (ed.) Arbitration under International Investment Agreements  – A guide to the key issues. Oxford University Press, p. 287; ARS Commentary, Article 2, para. 12. 261  Cf. ARS Commentary, Article 2, para. 12; Crawford, above Chap. 2, fn. 81, p. 113; Messineo, above Chap. 3, fn. 11, p. 65; Amerasinghe, above Chap. 3, fn. 257, p. 226: ‘Attribution is the result of an intellectual operation necessary to bridge the gap between an individual or a group of individuals and the State […]’; Electrabel SA v The Republic of Hungary, ICSID Case No ARB/07/19, Decision on Jurisdiction, Applicable Law and Liability, 30 November 2012, para. 7.61; Gustav F W Hamester GmbH & Co KG v Republic of Ghana, ICSID Case No ARB/07/24, Award, 18 June 2010, para. 143. 262  El Hayek/Gilles, above Chap. 3, fn. 233, p. 585. 263  Rutsel Silvestre Jacinto Martha (2013) Attribution of conduct after the Advisory Opinion on the Global Mechanism. In: Maurizio Ragazzi (ed.) Responsibility of International Organizations: Essays in Memory of Sir Ian Brownlie. Martinus Nijhoff Publishers, p. 275: ‘For jurisdictional purposes, attribution is only concerned with establishing whether an act of the responding party is involved’; Amerasinghe, above Chap. 3, fn. 257, p. 2: ‘The attribution or imputation to the respon259

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under international law regimes that do not provide for a compulsory adjudication body but provide only for judicial bodies that have limited jurisdiction ratione personae.264 This is for example the case before the ICJ, the ECtHR and, importantly, Arbitral Tribunals constituted under IIPAs. Their jurisdiction relies on consent. Taking the example of Arbitral Tribunals under IIPAs, to establish jurisdiction over a dispute requires, first, that the respondent is a party that consented to arbitration under the treaty and second, that the conduct that the investor brings before the Tribunal is attributable to the respondent (or the respondent is otherwise responsible for the conduct). It is true that suing a respondent that consented to arbitration gives a Tribunal the general jurisdiction over the case. Yet where the conduct challenged by the investor cannot be attributed to the respondent (and the respondent is not otherwise responsible for the conduct without attribution) the Tribunal cannot exercise its jurisdiction, even if there is a breach of an international obligation.265 A party only consents to arbitration under a treaty provided that its own conduct is challenged or provided that it is otherwise responsible for the conduct. Put differently, a respondent that is a treaty party and generally consented to arbitration under it does not consent to take a dispute into the merits stage if it is not internationally responsible for it. Hypothetically, this would mean to adjudicate the existence of a breach at the merits stage, even though the respondent is not even responsible for the conduct leading to the alleged breach. Thus, attribution of conduct and international responsibility for the conduct challenged by the claimant should be rightly dealt with at the jurisdictional stage. For example, take a claim exclusively based on conduct of private companies that cannot be attributed to the respondent state. Indisputably, an Arbitral Tribunal has no jurisdiction to arbitrate a dispute between two private parties.266 In such cases, arguably, there is no ‘dispute between an investor of a contracting party and another contracting party’, required for the jurisdiction ratione personae of the Tribunal under the IIPA.267 And the respondent, though consenting to arbitration, did not consent to take this dispute into the merits’ stage. Coming to EU IIPAs, the same is true where a claimant sues the EU under a EU-only IIPA but all the challenged acts are exclusively attributable to a Member State and the EU is not otherwise responsible for the conduct. Or a claimant sues a Member State under a dent State of acts or omissions by persons or organs, constituting the violation of international obligations which may be regarded as part of the primary rules, relate also in a sense to objective or passive capacity or the capacity to be sued or be at the receiving end of the exercise of diplomatic protection’, p. 226: ‘The element of attribution may be said to relate to the ‘objective’ capacity of the respondent State to be cited as respondent in the case’. 264  Martha, this chapter, fn. 263, p. 275. 265  El Hayek/Gilles, above Chap. 3, fn. 233, p. 585. 266  Cf. Amerasinghe, above Chap. 3, fn. 257, p. 227; see in this respect in more detail, Jaemin Lee (2015) State Responsibility and Government-Affiliated Entities in International Economic Law: The Danger of Blurring the Chinese Wall between ‘State Organ’ and ‘Non-State Organ’ as Designed in the ILC Draft Articles. 49(1) JWIT, pp. 117–151. 267  Cf. Claudia Annacker (2011) Protection and Admission of Sovereign Investment under Investment Treaties. 10(3) CJIntlL, pp. 556–557.

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Member State-only IIPA but all the challenged acts are exclusively attributable to the EU and the Member State is not otherwise responsible for the conduct. Even if attribution and the rules of international responsibility do not lead to the respondent (e.g. a Member State) but to a third party outside the proceedings (e.g. the EU) that has generally consented to dispute settlement under the treaty, as under a mixed IIPA, a Tribunal would have to decline jurisdiction. Again, this is because the respondent only consents to the jurisdiction of the Tribunal insofar that it is responsible for the conduct challenged by the claimant. That attribution is part of jurisdiction is even explicitly recognised in the ECT. Article 23(2) ECT268 extends a specific rule on attribution of conduct laid down in Article 23(1) ECT to the scope of arbitration, ergo defining the jurisdiction of a Tribunal.269 It is true that most Arbitral Tribunals apply only a prima facie test of attribution at the jurisdictional level and reserve the full test for the merits in cases where the claimant has brought the claim directly against the party that has consented to arbitration, it is not manifest that the conduct involved has no link whatsoever with the respondent, and the respondent did not explicitly invoke an absence of such an link at the jurisdictional stage.270 One reason for this approach is the alleged interrelation between attribution and legality of treatment, which, again, is indisputably part of the merits. The Electrabel and Hamester Tribunal noted: ‘The question of ‘attribu Article 23(2) ECT reads: ‘The dispute settlement provisions in Parts II, IV and V of this Treaty may be invoked in respect of measures affecting the observance of the Treaty by a Contracting Party which have been taken by regional or local governments or authorities within the Area of the Contracting Party’. 269  See Wouters/Wälde, above Chap. 3, fn. 252, pp. 161, 182–184, 186; Roe/Happold, above Chap. 2, fn. 39, p. 166. 270  Jan de Nul NV and Dredging International NV v Arab Republic of Egypt, ICSID Case No ARB/04/13, Decision on Jurisdiction, 16 June 2006, paras. 83–89; Saipem SpA v The People’s Republic of Bangladesh, ICSID Case No ARB/05/07, Award, 30 June 2009, paras. 144 et  seq; Gustav F W Hamester GmbH & Co KG v Republic of Ghana, ICSID Case No ARB/07/24, Award, 18 June 2010, para. 145; Electrabel SA v The Republic of Hungary, ICSID Case No ARB/07/19, Decision on Jurisdiction, Applicable Law and Liability, 30 November 2012, para. 5.35; United Parcel Service of America Inc v Government of Canada, UNCITRAL, Decision on Jurisdiction, 22 November 2002, paras. 33–37; Siemens AG v The Argentine Republic, ICSID Case No ARB/02/8, Decision on Jurisdiction, 3 August 2004, para. 180; Bayindir Insaat Turizm Ticaret Ve Sanayi AS v Islamic Republic of Pakistan, ICSID Case No ARB/03/29, Decision on Jurisdiction, 14 November 2005, paras. 185–200; El Paso Energy International Company v The Argentine Republic, ICSID Case No ARB/03/15, Decision on Jurisdiction, 27 April 2006, paras. 40–45; Telenor Mobile Communications AS v The Republic of Hungary, ICSID Case No ARB/04/15, Award, 13 September 2006, paras. 34, 53, 68, 80; Helnan International Hotels A/S v Arab Republic of Egypt, ICSID Case No ARB/05/19, Decision of the Tribunal on the Objections to Jurisdiction, 17 October 2006, paras. 82–95; Salini Costruttori SpA and Italstrade SpA v The Hashemite Kingdom of Jordan, ICSID Case No ARB/02/13, Decision on Jurisdiction, 9 November 2004, paras. 31, 151. In general on the prima facie test of attribution at the jurisdictional stage, see Audley Sheppard (2008) The Jurisdictional Threshold of a Prima-Facie Case. In: Peter Muchlinski, Federico Ortino and Christoph H Schreuer (eds.) Oxford Handbook of International Investment Law. Oxford University Press, pp. 932–961; Jan Ole Voss (2010) The Impact of Investment Treaties on Contracts between Host States and Foreign Investor. Martinus Nijhoff Publishers, p. 152; Annacker, this chapter, fn. 267, pp. 557–558. 268

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tion’ does not, itself, dictate whether there has been a violation of international law. Rather, it is only a means to ascertain whether the State is involved. As such, the question of attribution looks more like a jurisdictional question. But in many instances, questions of attribution and questions of legality are closely intermingled, and it is then difficult to deal with the question of attribution without a full enquiry into the merits’.271 Despite this, it is submitted that there is no intermingling of the question of illegality and attribution.272 As derives from the ARS and ARIO, attribution and illegality are two distinct elements constituting an internationally wrongful act. Not only different sets of rules apply to attribution (secondary rules) and illegality (primary rules) but they are also not mutually dependent in that the one is contingent upon the other.273 As a result, the jurisdiction ratione personae of an Arbitral Tribunal under a IIPA requires that the conduct challenged by the claimant is attributable to the respondent,274 or at least that the respondent is otherwise internationally responsible for the conduct. It follows that attribution of the challenged conduct to the respondent and any other form of international responsibility of the respondent for the challenged conduct is rightly dealt with at the jurisdictional stage. This is true regardless of the fact whether the IIPA is EU-only, mixed or Member State-only. The short survey into the function of attribution of conduct and international responsibility has demonstrated that it can affect the jurisdiction of an Arbitral Tribunal under a EU-only IIPA or a mixed IIPA. This explains why Article 8.21(6)  Electrabel SA v The Republic of Hungary, ICSID Case No ARB/07/19, Decision on Jurisdiction, Applicable Law and Liability, 30 November 2012, para. 7.61; Gustav F W Hamester GmbH & Co KG v Republic of Ghana, ICSID Case No ARB/07/24, Award, 18 June 2010, para. 143. 272  Cf. Amerasinghe, above Chap. 3, fn. 257, pp. 226–228; Martins Paparinskis (2013) Investment Treaty Arbitration and the (New) Law of State Responsibility. 24(2) EJIntlL, pp. 627–628; Martha, this chapter, fn. 263, p. 275: ‘Attribution does not imply any characterization of the act attributed, and must be distinguished from the subsequent operation, which consists of ascertaining whether the act is wrongful’. 273  Cf. Paparinskis, this chapter, fn. 272, p. 628. 274  See Clifford Larsen (2004) ICSID Jurisdiction: The Relationship of Contracting States to SubState Entities. In: Stefan Michael Kröll and Norbert Horn (eds.) Arbitrating Foreign Investment Disputes: Procedural and Substantive Legal Aspects. Kluwer Law International, p. 357; Srilal M Perera (2005) State Responsibility: Ascertaining the Liability of States in Foreign Investment Disputes. 6(4) JWIT, p. 509; Dolzer/Schreuer, above Chap. 2, fn. 280, p. 249; Zachary Douglas (2009) The International Law of Investment Claims. Cambridge University Press, p. 154; Annacker, this chapter, fn. 267, pp. 556–557. To clarify, attribution of conduct for purposes of jurisdiction ratione personae is required where the international responsibility of the host state for treaty breaches is invoked. Conversely, an Investment Treaty Tribunal does not have jurisdiction ratione personae over the host state where the claimant invokes the breach of a contractual obligation (which cannot be elevated to a treaty obligation under an umbrella clause of the treaty) engaged into by the investor and a state enterprise with separate legal standing. For this enquiry, one does not have to indulge into the operation of attribution of conduct, but one has to determine the source of the obligation. See in this respect Andrew Newcombe and Lluís Paradell (2009) Law and Practice of Investment Treaties: Standards of Treatment. Kluwer Law International, p.  465; in general on the distinction between treaty claims and contractual claims, see Sasson, above Chap. 3, fn. 252, pp. 151–172. 271

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CETA excludes any assertions regarding the correctness of the identity of the respondent that can affect the ‘jurisdiction of the tribunal’ and the ‘admissibility of the claim’. 4.3.3.1.2.3  The ‘Monetary Gold’ Principle as a Bar to a Tribunal’s Jurisdiction Another reason why Article 8.21(6) CETA mentions the jurisdiction of a Tribunal and the admissibility of a claim could be that without a constitutive effect of the respondent determination on the international responsibility of the determined respondent for the challenged conduct, an Arbitral Tribunal might decline its jurisdiction or declare a claim inadmissible based on an application of the Monetary Gold principle,275 as established by the ICJ.276 Specifically, but for the constitutive effect, the determined respondent, being the EU or a Member State, could assert that the dispute would concern fully or partly the international responsibility of the EU or a Member State, which is not part of the proceedings. The applicability of the principle to arbitral disputes under EU IIPAs is assumed for present purposes.277 As a caveat, it should be noted that the Monetary Gold principle is ‘surrounded by an aura of uncertainty’.278 It would overstretch the scope of this study to meticulously discuss its specific scope and content and how the principle was formed by ICJ case law.279 However, the mandatory single-respondent determination mechanism under EU IIPAs, modelled after CETA, raises issues associated with the Monetary Gold principle, making a brief analysis inevitable. Specifically, an Arbitral Tribunal might see violated the fair trial rights of a party that is not part of the proceedings.280 Such a violation can likely occur where the EU is the sole respondent in a dispute under a mixed IIPA concerning Member State conduct and the determination of the EU as  Cf. Baetens, this chapter, fn. 115, pp. 336–340; Baetens/Kreijen/Varga, above Chap. 2, fn. 73, pp. 1230–1231. 276  Monetary Gold Removed from Rome in 1943 (Italy v France, UK and US), 1954 ICJ Reports 19. 277  The ICJ established the Monetary Gold principle in relation to States. However, in absence of a lex specialis there is no reason why an Arbitral Tribunal would not consider it as lex generalis. See Baetens, this chapter, fn. 115, pp.  336–340; André Nollkaemper (2013) Procedural Aspects of Shared Responsibility in International Adjudication: Introduction. 4(2) JIntlDS, pp. 289–290; see also Chevron Corporation and Texaco Petroleum Corporation v The Republic of Ecuador, UNCITRAL, PCA Case No 2009-23, Third Interim Award on Jurisdiction and Admissibility, 27 February 2012, paras. 4.59–4.71; Larsen v Hawaiian Kingdom, Permanent Court of Arbitration, Award, ICGJ 378 (PCA 2001), 5 February 2001, para. 11.17. 278  Crawford, above Chap. 2, fn. 81, p. 657. 279  Provoked by case law of the ICJ that hovered between broad and narrow understandings, its interpretations and legal ramifications are controversial. For a distinct discussion of the ICJ case law on the Monetary Gold principle, see Martins Paparinskis (2013) Procedural Aspects of Shared Responsibility in the International Court of Justice. 4(2) JIntlDS, pp.  295–318; Alexander Orakhelashvili (2011) The Competence of the International Court of Justice and the Doctrine of the Indispensable Party: from Monetary Gold to East Timor and Beyond. 2(2) JIntlDS, pp. 373–392. 280  Cf. Baetens/Kreijen/Varga, above Chap. 2, fn. 73, pp. 1230–1231. 275

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respondent according to Article 8.21(3) or (4) CETA would not have the argued constitutive effect on the EU’s international responsibility for the challenged conduct. The Monetary Gold principle concerns the ‘judicial competence’ of an adjudication body and should not be confounded with a ‘substantive determinant of responsibility’ in that the compliance with the principle is a requirement for responsibility to arise.281 Its rationale is to prevent an international court from ruling on the legal position of third parties that are absent in the proceedings without their consent and protects their ‘legal interests’ and ‘rights and obligations’.282 A finding of an international court on the international responsibility of an absent third party forms part of their protected ‘legal interests’. The Monetary Gold principle states that where ‘the vital issue to be settled concerns the international responsibility of a third State, the Court cannot, without the consent of that third State, give a decision on that issue binding upon any State, either the third State, or any of the parties before it [emphasis added].’283 The threshold for triggering the protection is that the international responsibility of a third state is the ‘vital issue’ to be settled. This is tantamount to ‘the very subject matter of the decision.’284 A decision merely ‘affecting’ a third’s state liability or only having remote implications for it falls short of this threshold.285 In a dispute under a mixed EU IIPA against the EU as respondent as determined in accordance with Article 8.21(3) or (4) CETA, it is very likely that the Member State’s international responsibility is the ‘very subject matter of the dispute’286 if the respondent determination does not have the argued constitutive effect on the international responsibility of the determined EU. The reason for that lies in the incongruence between respondent status pursuant to Article 8.21(3) and (4) CETA and the rules of international responsibility.287 The most vivid example with respect to the lex generalis of the ILC Articles is where the EU picks up respondent status via the route of Article 8.21(3) CETA where the Member State declines to act as respondent (Article 9(1)(b) REG) in regard of a Member State conduct that is neither under EU competence nor was in any way mandated under EU law. Another vivid example is where the EU is respondent via Article 8.21(4) CETA where an investor has  Crawford, above Chap. 2, fn. 81, p. 657.  Monetary Gold Removed from Rome in 1943 (Italy v France, UK and US), 1954 ICJ Reports 19, at p. 32; Certain Phosphate Lands in Nauru (Nauru v Australia), 1992 ICJ Reports 240, at p. 261, para. 54; East Timor (Portugal v Australia), 1995 ICJ Reports 90, at p. 105. 283  Monetary Gold Removed from Rome in 1943 (Italy v France, UK and US), 1954 ICJ Reports 19, at p. 33. 284  Monetary Gold Removed from Rome in 1943 (Italy v France, UK and US), 1954 ICJ Reports 19, at p. 32; Certain Phosphate Lands in Nauru (Nauru v Australia), 1992 ICJ Reports 240, at p. 261, para. 54; East Timor (Portugal v Australia), 1995 ICJ Reports 90, at p. 105. 285  Certain Phosphate Lands in Nauru (Nauru v Australia), 1992 ICJ Reports 240, at p.  296 (Separate Opinion of Judge Shahabuddeen); Frontier Dispute (Burkina Faso v Mali), 1986 ICJ Reports 554, at p. 579; Land and Maritime Boundary between Cameroon and Nigeria (Cameroon v Nigeria), Preliminary Objections, 1998 ICJ Reports 275, at pp.  311–312; Armed Activities (Democratic Republic of Congo v Uganda), 2005 ICJ Reports 168, at pp. 237–238. 286  Cf. Baetens/Kreijen/Varga, above Chap. 2, fn. 73, pp. 1230–1231. 287  See above Sect. 4.2.1.1.2 and above Sect. 4.2.2.2.6. 281 282

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challenged Member State treatment in addition to EU treatment. CETA, by allowing only one party, either the EU or a Member State, to become party to arbitral proceedings, sets the very procedural prerequisite for a Tribunal’s finding on an absent party’s international responsibility. This would not be the case if a claimant could sue both the EU and the Member State concerned. For the purposes of the Monetary Gold principle it does not matter whether the third party’s absence from the proceedings is voluntary or based on procedural restrictions,288 as under CETA. Does the Member State’s consent to arbitration under mixed IIPAs upon signing and ratifying the IIPA translate into its consent to have its international responsibility adjudicated in a dispute with the EU as the sole respondent?289 It is submitted that it does not. As discussed, a party only consents to have its international responsibility adjudicated in case it is part of the dispute. Consent to adjudication encompasses the right to fair trial, due process, and an opportunity of a party to defend its case and to be part of the proceedings in which its responsibility is at stake.290 If the Member States’ international responsibility could be adjudicated in a dispute against the EU, their right to fair trial would be violated. They would have to stand idle by without being able to defend themselves before the Tribunal. In this sense the Monetary Gold principle is understood as an ‘indispensable third party rule’.291 There is a ‘limitation on the Court’s jurisdiction following from the absence from the litigation of essential parties’,292 whenever the absent third party’s international responsibility becomes the very subject matter of the proceedings and the ICJ does not have ‘the power to compel that state’s participation in the proceedings’.293 As a result, the potential transgression of the fair trial rights of Member States that have their international responsibility adjudicated in a dispute with the EU as the sole respondent might compel an Arbitral Tribunal—if one were to deny a constitutive effect—to not exercise its jurisdiction and reject to hear the claim on the merits, or even have the Arbitral Tribunal consider the Monetary Gold principle a bar to the proceedings and its jurisdiction per se.294 The question arises as to whether a narrow reading of the Monetary Gold principle would still allow an Arbitral Tribunal to rule upon the merits on the ground that the principle is actually not required to protect the rights of third parties from adverse findings of responsibility.295 In fact, it is argued that Article 59 ICJ Statute, stating that a decision is only binding between the parties to the dispute, would  Shabtai Rosenne (2006) The Law and Practice of the International Court, 1920–2005, 4th edn. Martinus Nijhoff Publishers, p. 539. 289  But see Baetens/Kreijen/Varga, above Chap. 2, fn. 73, pp. 1230–1231. 290  Crawford, above Chap. 2, fn. 81, p. 657. 291  Ibid, p. 669. 292  Rosenne, this chapter, fn. 288, pp. 546–547. 293  Crawford, above Chap. 2, fn. 81, p. 661. 294  Cf. Baetens/Kreijen/Varga, above Chap. 2, fn. 73, pp. 1230–1231; Chevron Corporation and Texaco Petroleum Corporation v The Republic of Ecuador, UNCITRAL, PCA Case No 2009-23, Third Interim Award on Jurisdiction and Admissibility, 27 February 2012, para. 4.60. 295  Cf. Crawford, above Chap. 2, fn. 81, pp. 664–665. 288

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effectively always protect a third state not party to the dispute.296 Arbitration relies on the same principle in that an arbitral award only binds the disputing parties. Article 8.39 CETA, entitled ‘Final Award’, makes clear that an Arbitral Tribunal can only impose remedies against the respondent. Therefore, one can make an argument saying that an Arbitral Tribunal deciding on the international responsibility of a Member State, which was not part of the proceedings, does not infringe the Member State’s rights since the Tribunal’s decision is only binding upon the EU. However, in some instances, a rule stating that a decision only binds the parties to the dispute might prove insufficient to protect the rights of third parties.297 This may be the case where the decision would require a party to the dispute to renege on its obligations under a treaty with an absent state.298 If a Tribunal would proceed to the merits in a case against the EU in which the international responsibility of the Member State is at stake and award damages against the EU, this directly triggers the internal financial obligations of the Member State towards the EU under the REG. Thus, the res judicata rule falls short of protecting rights of Member States that are not part of the proceedings. Yet it is questionable whether an Arbitral Tribunal would be receptive of such an internal matter. In conclusion, it does not seem a remote possibility that an Arbitral Tribunal in a dispute under a mixed IIPA against the EU as respondent would decline its jurisdiction or refuse to hear a case on the merits because it would have to pronounce on the international responsibility of the absent Member State, infringing the Member State’s right to fair trial. This scenario is likely to arise in case the respondent determination under CETA would not have the argued constitutive effect that the determined respondent automatically bears international responsibility for the conduct challenged by the investor. To come back to the textual interpretation of Article 8.21(6)(7) CETA, the risks to the jurisdiction of the Tribunal due to the Monetary Gold principle helps explaining the wording of Article 8.21(6)(7) CETA, which again underscores the said constitutive effect. 4.3.3.1.3  Result: The Textual Interpretation of Article 8.21(6)(7) CETA Underscores the Constitutive Effect of the Respondent Determination on International Responsibility The textual interpretation of Article 8.21(6)(7) CETA has yielded that the respondent is precluded from invoking at the jurisdictional, admissibility and merits stage that it does not bear international responsibility (again, within the ‘EU-Member State responsibility window’) for the treatment(s) challenged by the investor. As a consequence, Article 8.21(6)(7) CETA demonstrates the reverse constitutive effect of the respondent determination pursuant to Article 8.21(3) and (4) CETA that the  Rosenne, this chapter, fn. 288, pp. 1585–1598, 1605.  Cf. Crawford, above Chap. 2, fn. 81, pp. 664–665. But see Orakhelashvili, this chapter, fn. 279, pp. 390–391. 298  Cf. Crawford, above Chap. 2, fn. 81, p. 665. 296 297

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respondent is internationally responsible for the treatment(s) challenged by the claimant. 4.3.3.2  Possible Accountability Gaps and a Denial of Justice The possibility of significant accountability gaps under mixed IIPAs, worded after CETA, and an ensuing denial of justice to protected investors strongly militate for the constitutive effect that the respondent is internationally responsible for the treatment(s) challenged by the investor. If not, international responsibility of the respondent would still depend on the law of international responsibility as discussed in Chap. 3, and the respondent could still invoke the ground that it lacks international responsibility and a Tribunal would still have the mandate to assess that issue. This can create accountability gaps under the mixed IIPA. This is due to the fact that, as analysed, there is neither congruence between the rules on respondent status in the REG—determinative for the respondent determination pursuant to Article 8.21(3) CETA—and the law of international responsibility299 nor congruence between the rules on respondent status pursuant Article 8.21(4) CETA and the law of international responsibility.300 Only the lex specialis approach of joint responsibility would avoid an incongruence between respondent status under Article 8.21(3) and (4) CETA and international responsibility for the challenged conduct. Yet, as discussed, the approach itself has conceptual flaws and given the emphasis on budget neutrality, it is likely that the EU and the Member States would exclude joint responsibility under bilateral mixed IIPAs.301 As a consequence of the incongruence, an Arbitral Tribunal could find that not the respondent (i.e. the EU) but a party (i.e. a Member State) not part of the proceedings is internationally responsible for the treatment challenged by the claimant under the law of international responsibility. In such a scenario, an Arbitral Tribunal could not award damages, neither against the respondent (the EU) nor against the absent party (the Member State). First, an Arbitral Tribunal cannot award damages against a party, which was not part of the proceedings, even if this party is internationally responsible for the challenged conduct in breach of an international obligation.302 As goes without saying, the jurisdiction of an Arbitral Tribunal and its competence to award damages is only established vis-à-vis the respondent. Once a Tribunal has affirmed its jurisdiction and declared the claim admissible to proceed to the merits stage, it has done so with respect to the parties of the dispute, the claimant and the respondent. The competence to award damages—if a breach can be established—is limited vis-à-vis the respondent. Therefore, an Arbitral Tribunal lacks the competence to award remedies against any party with respect to whom a Tribunal has not established jurisdiction and which was absent from the proceedings. If it would do so, an Arbitral Tribunal  See above Sects. 4.2.2.2.6 and 4.3.4.1.  See above Sects. 4.2.1.1.2 and 4.3.4.1. 301  See above Sect. 3.2.1.2. 302  Baetens/Kreijen/Varga, above Chap. 2, fn. 73, p. 1232. 299 300

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would exceed its mandate, leading to annulment and invalidity of the award. A Tribunal’s mandate to only award damages against the respondent is reflected in the binding nature of the award. An award is final and binding only amongst the parties to the arbitration proceedings, meaning the claimant and the respondent. This is enshrined in Article 53 ICSID Convention,303 Article 26(8) ECT, Article 59 ICJ Statute, in Article 59 PCIJ Statute, in Article 35(1) and 36(1)(a)(v) UNCITRAL Model Law and in almost every set of arbitration rules.304 CETA305 acknowledges the binding effect on the parties to the disputes in Article 8.39 CETA stating ‘if a Tribunal makes a final award against the respondent’ and in Article 8.41(1) CETA stating ‘[a]n award issued by a Tribunal pursuant to this Section shall be binding between the disputing parties and in respect of that particular case’. Pursuant to Article 8.1 CETA the disputing parties are only the investor and the respondent. The binding nature of the award on the parties to the dispute is a general principle of international law and international arbitration and based on the res judicata principle.306 Res judicata has a positive and a negative effect. As regards the latter, a claimant is barred from litigating the same case again. The former concerns the use of the award to enforce its terms. What is required for both effects is a three-pronged test relating to the same subject matter, the same cause of action and, most importantly for our purposes, the same parties.307 The ‘same parties’-requirement of res judicata means that the decision has only a mandatory effect on those parties that took part in the proceedings.308 This corollary results from the principles of fair trial, due process and right to be heard and to defend its case.309 Hence, an arbitral award binds only parties to the dispute and has no binding force upon a party outside the dispute. Second, an Arbitral Tribunal cannot award damages against the respondent in a dispute under a EU IIPA where it has found that the respondent is not internationally responsible for the challenged treatment, even if the treatment constitutes a breach of the treaty. In general, only the entity responsible for an international wrongful act must face the consequences of it.310 Article 31(1) ARS states ‘[t]he responsible State is under an obligation to make full reparation for the injury caused by the  Article 53(1) ICSID reads: ‘The Award shall be binding on the parties […]’.  See e.g. Articles 34(6) or 28(6) ICC Rules of Arbitration; Articles 32 or 34(2) UNCITRAL Arbitration Rules; Article 40 SCC Rules. 305  Similarly, see Article 3.22 EU-Singapore IIPA; Articles 27, 29 Section 3 Investment Chapter EU-Vietnam FTA and Articles 28, 30 Section 3 Investment Chapter TTIP. 306  See Christoph H Schreuer, Loretta Malintoppi, August Reinisch and Anthony Sinclair (2009) The ICSID Convention: A Commentary, 2nd edn. Cambridge University Press, Art. 53 ICSID, paras. 10, 14; Crawford, above Chap. 3, fn. 92, pp. 59–61. 307  Also referred to as the ‘triple-identity test’. See Pedro J Martinez-Fraga and Harout Jack Samra (2012) The Role of Precedent in Defining Res Judicata in Investor–State Arbitration. 32(3) NwJIntlLB, p. 421. 308  Stavros Brekoulakis (2005) The Effect of an Arbitral Award and Third Parties in International Arbitration: Res Judicata Revisited. 16(1) ARIA, pp. 185–188. 309  Ibid. 310  Chorzow Factory (Jurisdiction), PCIJ Series A No 9, p. 21. 303 304

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internationally wrongful act’. Similarly, Article 31(1) ARIO states that ‘[t]he responsible international organization is under an obligation to make full reparation for the injury caused by the internationally wrongful act’. What these rules make unequivocally clear is that the obligation to make reparation is to be performed by the internationally responsible entity.311 In other words, only the party bearing international responsibility has to make reparation. This requirement would be breached if a Tribunal were to award damages against the respondent party despite the finding that not the respondent, and maybe another party—which is not part of the proceedings—is internationally responsible for the breach of the EU IIPA. As a result, if one were to reject a constitutive effect of the respondent determination under a mixed IIPA, which is worded and structured in accordance with CETA, an investor with a valid claim—a breach of the EU IIPA can be established—and who was not able to sue the respondent or respondents of its choice is left without any remedy (or an incomplete remedy in cases of shared responsibility) due to the incongruence of respondent status under CETA and the law of international responsibility. The respondent determination mechanism enshrined under CETA would cause accountability gaps that not only run counter to the legitimate expectations of investors and general principles of fairness but also undermine the protection conferred to investors under the EU IIPA. This is a result that is unacceptable and unintended under any interpretation of a treaty. The only aim of the EU IIPA is to grant investors protection against unlawful treatment towards its investments by the host entities (the Member States and the EU). Blocking any avenue for the investor to seek legal redress and vindicate its rights under the EU IIPA is nothing other than a blunt denial of justice. The only way to bring the respondent determination mechanism in accord with the legitimate interests of the investor is to interpret it in a way that the respondent determined by the mechanism is automatically internationally responsible for the treatment(s) impugned by the investor within the ‘EU-Member State responsibility window’.312 This resonates with the EU’s understanding of the new co-respondent system under the future mixed ECHR framework: ‘The co-respondent mechanism is therefore not a procedural privilege for the EU or its member States, but a way to avoid gaps in participation, accountability and enforceability in the Convention system. This corresponds to the very purpose of EU accession and serves the proper administration of justice [emphasis added]’.313

 ARS Commentary, Article 31, para. 4: ‘The general obligation of reparation is formulated in article 31 as the immediate corollary of a State’s responsibility, ie as an obligation of the responsible State resulting from the breach’. 312  Cf. Explanatory Memorandum to the REG, p. 5: ‘[…] rather than set up the mechanisms in a manner reflecting a strict application of the rules on competence, it is more appropriate to put forward pragmatic solutions which ensure legal certainty for the investor […]’. 313  Explanatory Report to the ECHR Accession Agreement, para. 39. 311

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4.3.3.3  Protection of the Autonomy of EU Law The protection of the autonomy of EU law is another factor one might consider in the interpretation of the respondent determination mechanism under CETA with respect to a constitutive effect on international responsibility. An interpretation that would allow the respondent to question its international responsibility for the challenged conduct and would leave room to the Tribunal to determine that question by reviewing secondary EU law or the division of competences between the EU and the Member States as derives from the EU Treaties violates the autonomy of the EU legal order.314 As analysed at the beginning of this chapter, this is settled under EU law. From the perspective of a dispute settlement body established under CETA or any other EU IIPA, the consideration of the autonomy of EU law is less self-evident. As analysed in this study, the settlement bodies are constituted under international law and mandated to apply international law to solve the dispute. As EU law, at least in an extra-EU setting as considered in this study, does not qualify as international law, they are not mandated to consider the autonomy of EU law when interpreting the treaty. However, the possibility of considering the autonomy argument with respect to the constitutive effect might nevertheless gain relevance if one can extract an intention of the drafters of the mixed IIPA, predominantly of the Commission on behalf of the EU, to interpret the mandatory respondent determination mechanism under CETA in a way to eliminate any theoretical possibility for a Tribunal to look into the ‘EU-Member State responsibility window’. The extraction of such an intention should not be excluded, as there might be clear indications in the drafting history of the treaty. But given that Canada is not part of the EU, this seems a bit of a stretch. 4.3.3.4  R  esult on Interpretation: The Respondent Determination Mechanism Under CETA Has a Constitutive Effect on International Responsibility As a result, the interpretation of CETA has yielded that the respondent determination pursuant to Article 8.21(3) and (4) REG has the effect that the determined respondent—being either the EU or the Member State—bears international responsibility for the conduct challenged by the investor under CETA within the ‘EU-Member State responsibility window’.315 This derives clearly from a textual interpretation of Article 8.21(6) and (7) CETA, which says the Tribunal and the par Dimopoulos, above Chap. 2, fn. 112, pp. 1700–1702; Schill, above Chap. 3, fn. 244, p. 384: ‘Any dispute settlement mechanism under an EU IIPA would need to make sure that the decisionmaking body does not, directly or indirectly, review the distribution of competences between the EU and Member States, for example by making determinations as to the proper respondent or the distribution of responsibility’. 315  Since the EU-Singapore IIPA and TTIP have a similar if not identical wording, the same is true with respect to the respondent determination in disputes under these EU IIPAs. 314

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ties are bound by the determination in every stage of the proceedings and above and beyond. It further flows from the object and purpose of the investor protection provisions of CETA, which is to provide effective investor protection. Without a constitutive effect, there is a real possibility of a denial of justice and severe accountability gaps, as there are constellations in which the determined respondent is not the one bearing responsibility under international law—leading to a dismissal of the claim. Moreover, in these constellations the purpose of the respondent determination mechanism to provide legal certainty to the investor would be rendered ad absurdum: Not only that the investor was unable to choose the respondent as it wished, the respondent that was presented to him was the wrong one all along.

4.3.4  Capturing the Constitutive Effect Under the ILC Articles This section seeks to set out how the constitutive effect of the respondent determination under CETA can and should be captured under the ILC Articles. 4.3.4.1  T  he Respondent Determination as Adoption and Acknowledgment of Conduct Under Article 11 ARS and Article 9 ARIO The physical act of a respondent determination under a mixed IIPA worded and structured after CETA could be seen as adoption and acknowledgement of conduct under Article 11 ARS and Article 9 ARIO, leading to the attribution of the challenged conduct to the respondent and its international responsibility under the mixed IIPA.316 Under Article 8.21(2) CETA, the investor must inform the EU about the treatment(s), which it intends to base its claim upon and which it alleges to constitute a breach. The investor is bound by that choice according to CETA. Thus, an identification of the conduct in question has taken place.317 This is a necessary condition for Article 9 ARIO and Article 11 ARS.  Now, in case the EU informs the claimant pursuant to Article 8.21(3) CETA that the EU shall be respondent, there is no problem in seeing this as an act of adoption and acknowledgement of the impugned conduct by the EU pursuant to Article 9 ARIO, leading to the EU’s international responsibility (as the EU is internationally bound by the mixed CETA). The fact that the adoption and acknowledgment occurs immediately before or during the dispute is no stumbling block. The act of adoption and acknowledgement can occur

 With respect to mixed EU IIPAs in general, Dimopoulos, above Chap. 2, fn. 112, p. 1692; with respect to the ECT, see Roe/Happold, above Chap. 2, fn. 39, p. 174; Happ/Bischoff, above Chap. 2, fn. 39, p. 172. 317  See ARS Commentary, Art. 11, para. 6; ARIO Commentary, Article 9, paras. 1–2. 316

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at any time subsequent to the wrongful act and it can take any, express or implied, form provided that it is clear and unequivocal.318 Yet it is submitted, that there are some difficulties associated with relying on Article 9 ARIO with respect to the EU and on Article 11 ARS with respect to the determined Member State to capture the constitutive effect of the respondent determination under CETA. Why? Because for the respondent determination to have a constitutive effect means that if the respondent determination mechanism was duly observed there should no other outcome than the respondent’s international responsibility. To this end, Article 9 ARIO and Article 11 ARS cannot pass muster. These provisions are unchartered territory and have not been used very often. It is all but clear whether the respondent determinations made by the EU, which can come in different shapes and styles and with different content, can fall categorically under their purview. One difficulty addresses the scenario where the EU informs the investor that a Member State is going to be respondent. It is questionable whether the EU’s determination of a Member State as respondent can even fall under Article 11 ARS and amount to an acknowledgment and adoption of certain conduct by the Member State. An acknowledgment and adoption implicates that the international organisation or the State itself must a make a declaration or endorsement of the conduct impugned.319 There is no such thing as an adoption or acknowledgement of conduct by one subject of international law on another’s behalf. Another difficulty concerns the default scenario under Article 8.21(4) CETA, under which an investor can determine the respondent after the EU has failed to do so within 50 days. Article 8.21(4) CETA appears to be inconsistent with the idea of acknowledgement and adoption of certain conduct. When the investor determines the respondent pursuant to Article 8.21(4) CETA, there is simply no act by the EU or a Member State that could be seen as adoption and acknowledgment. Furthermore, acknowledgment and adoption pursuant to Article 9 ARIO and Article 11 ARS are always ex post facto, meaning after the alleged wrongful conduct has occurred.320 Even if the act of signing and ratifying CETA, including Article 8.21(4) CETA, is seen as an act of adoption and acknowledgment, the EU and the Member States would ex ante, upon signing and ratifying, adopt and acknowledge all future conduct falling under the criteria of Article 8.21(4) CETA. This is not possible since in order to adopt and acknowledge a State and an international organisation must know which conduct is alleged to breach an international obligation. Finally, the attempt to fit the constitutive effect of the respondent determination under Article 11 ARS and Article 9 ARIO is doomed as it relies on the premise that an Arbitral Tribunal still has the mandate to apply the law of international responsibility as contained in the ILC Articles. Article 11 ARS reads ‘[c]onduct which is not attributable to a State under the preceding articles shall nevertheless be considered […]’ and Article 9 ARIO equally reads ‘[c]onduct which is not attributable to an  See ARS Commentary, Art. 11, paras. 1, 8–9; ARIO Commentary, Article 9, paras. 1–2.  Messineo, above Chap. 3, fn. 11, p. 66. 320  Ibid. 318 319

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international organization under articles 6 to 8 shall nevertheless be considered’. Thus, Article 11 ARS and Article 9 ARIO assume that attribution of conduct cannot be established through other criteria and equally leaves open whether international responsibility on another basis (e.g. Articles 14–17, 57–62 ARIO) can be established. As discussed, for the sake of avoiding accountability gaps under CETA, a Tribunal under CETA shall be deprived of assessing and determining the ‘EU-Member State-responsibility window’. As a result, as there are cases in which the respondent determination by the EU can fall under Article 9 ARIO, neither Article 9 ARIO nor Article 11 ARS can capture the constitutive effect of the respondent determination under CETA. 4.3.4.2  T  he Respondent Determination Mechanism as a Lex Specialis of International Responsibility Under Article 55 ARS and 64 ARIO The mandatory respondent determination mechanism under mixed EU IIPAs that are designed in accordance with CETA should be conceived as a lex specialis of international responsibility of the EU and the Member States for breaching conduct.321 Article 64 ARIO and Article 55 ARS provide the legal avenue for such a lex specialis. The source for the special rule is here unproblematic since, as discussed, a special rule can stem from a provision in a treaty, to which all treaty parties agreed. For the lex specialis to apply, the special law and the general law must deal with the same subject matter, and there must be an inconsistency between them or a discernible intention that one regime excludes the other, which is a question of interpretation.322 As was discussed in detail, the interpretation of the provision on the respondent determination mechanism under CETA has yielded that the determined respondent shall bear international responsibility for the conduct challenged by the investor, which in many instances sits at odds with the lex generalis of the ILC Articles. This exhibits a discernible intention that the application of the general law of international responsibility as derives from the ILC Articles shall be excluded. Thus, the conditions of same subject matter, inconsistency and a discernible intention are fulfilled. The question remains how to conceptualise the effect of the respondent determination on the respondent’s international responsibility under mixed IIPAs, worded like CETA. Two options present themselves: a special rule on attribution of conduct or a special rule on attribution of responsibility. It appears from the intention of the drafters that the respondent determination mechanism shall not create a special rule of attribution of conduct. As opposed to Article 1(4) Draft ECHR Accession

321  Considering the respondent determination mechanism under the ECT as a lex specialis rule of international responsibility: Cortés Martín, above, Chap. 3, fn. 26, pp.  197–198; Denza, above Chap. 2, fn. 55, p. 242; Heliskoski, above Chap. 2, fn. 77, pp. 172–173. 322  ARS Commentary, Art. 55, para. 4; ARIO Commentary, Art. 64, para. 7.

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Agreement,323 CETA does not contain an explicit special rule on attribution of conduct. There is no provision in CETA stipulating that the effect of the respondent determination is that the challenged conduct is attributable to the respondent. Rather, CETA appears to follow the classical conception of attribution of conduct under Article 4 ARS and Article 6 ARIO. This is depicted by Article 8.21(4)(a) and (b) CETA referring to ‘measures of a Member State’ and ‘measures of the EU’. As discussed, in order to enable the investor to sue the correct respondent under this provision, a ‘measure of a Member State’ corresponds to what constitutes an act of a state under Article 4 ARS and a ‘measure of the EU’ corresponds to what makes an act of the EU under Article 6 ARIO.324 It follows that the respondent determination mechanism leaves the general rules of attribution of conduct under ARS and ARIO intact. The respondent determination mechanism should rather be conceived as a special rule on attribution of responsibility in the sense that regardless of whether the challenged conduct is attributable to the EU, to a Member State or to both, the respondent incurs international responsibility for the challenged conduct, provided that the conduct can be attributed to either the EU or a Member State. This is line with the special rules on attribution of responsibility of Article 6 Annex IX UNCLOS Convention325 and Article 3(7) Draft ECHR Accession Agreement,326 which dispense with the requirement of attributing the challenged conduct to the respondent. As to the latter, Article 1(4) Draft ECHR Accession Agreement stipulates that EU law implementation conduct of Member States remains attributable to the Member States while at the same time this does not prevent the EU from becoming a co-­ respondent. Since Article 3(7) Draft ECHR Accession Agreement provides for joint responsibility of the respondent and the co-respondent, the provision enshrines a rule on attribution on responsibility, rendering superfluous for responsibility the process of attribution. It follows that the respondent determination mechanism under mixed EU IIPAs, worded like CETA, enshrines a special rule on attribution of responsibility. What does this mean for the Arbitral Tribunal? If a treaty contains a special rule on international responsibility, the competent international court that is called upon to rule upon international responsibility is barred from applying the general rules of international responsibility as derives from the ILC Articles and must apply the special rule. As Crawford put it: ‘The ILC Articles are residual articles and an adjudicator must first look at the treaty under review and see what it says on the subject. If the treaty covers the field of the issue at stake, the ILC Articles have no role to play.’327  See for the text of the provision above Chap. 3, fn. 39 and accompanying text.  See above Sect. 4.2.1.1.2. 325  See fn. 151 and accompanying text. 326  Kuijper, above Chap. 3, fn. 78, pp. 16–17, 19; Den Heijer/Nollkaemper, above Chap. 3, fn. 103, pp. 5–7; Cannizzaro, above Chap. 3, fn. 102, pp. 308–312. 327  James Crawford (2010) Investment Arbitration and the ILC Articles on State Responsibility. 25(1) ICSIDRev, p. 131. See also United Parcel Service of America Inc. v Canada, Award on the Merits (NAFTA Chapter 11 Arbitration, June 11, 2007), paras. 59–63. 323 324

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For an Arbitral Tribunal constituted under a mixed EU IIPA designed after CETA this means that it cannot consult the lex generalis of the ILC Articles. It also means that since the mixed IIPA does not explicitly provide for that, the Tribunal cannot use Article 64(2) ARIO to look into the distribution of competences under the EU Treaties to decide upon international responsibility of the EU and the Member States under the mixed EU IIPA. This is because a lex specialis as enshrined in a treaty prevails over leges speciales to be found outside a treaty. In conclusion, the respondent determination mechanism under mixed EU IIPAs designed after CETA should be conceived a special rule of attribution of responsibility of the EU or a Member State pursuant to Article 64 ARIO and Article 55 ARS. In order for the respondent to incur international responsibility, it is not necessary that the breaching conduct is attributable to it. Yet since the lex specialis only covers the ‘EU-Member State responsibility window’, the breaching conduct must still be attributable to either the EU or a Member State.

4.4  E  xcursus: Proceduralisation of International Responsibility Under EU-Only IIPAs Post-Lisbon EU IIPAs might turn out at one point to be concluded by the EU alone.328 In that case they may contain a mandatory respondent determination mechanism like CETA, as described and analysed in this chapter. In fact, the former EU-Vietnam FTA and the former EU-Singapore FTA were drafted in anticipation of a EU-only Scenario and contain such a mechanism, which is more or less verbatim to Article 8.21 CETA.329 What is more important, the REG, and its provisions on respondent status, is applicable to EU-only IIPAs as well.330 In this respect, the Commission expects that a proceduralisation of international responsibility under EU-only IIPAs is possible. However, one might question the effectiveness under international law of a mandatory respondent determination mechanism under EU-only IIPAs that provides for Member State respondent status.331 Problematic in this respect is that the Member States do not consent to arbitration under EU-only IIPAs and that they are generally

 See above Sect. 2.2.2.2.  Cf. Article 6 Section 3 Investment Chapter EU-Vietnam FTA and Article 9.15 of the former EU-Singapore FTA in its May 2015 version. 330  See Article 1(1) REG: ‘[…] this Regulation applies to investor-to-state dispute settlement conducted pursuant to an agreement to which the Union is party, or the Union and its Member States are parties, and initiated by a claimant of a third country [emphasis added]’. 331  Questioning the effectiveness under international law of a respondent determination mechanism enshrined in EU-only IIPAs providing for Member State respondent status and, thus, the possibility of a proceduralisation under EU-only IIPAs, Dimopoulos, above Chap. 2, fn. 112, p.  1683; Kleinheisterkamp, above Chap. 3, fn. 111, p.  7; Burgstaller, above Chap. 2, fn. 137, p.  152; Bischoff, above Chap. 2, fn. 61, pp. 18, 22–23. 328 329

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not internationally responsible for breaching conduct under EU-only IIPAs.332 Without a Member State’s consent to dispute settlement under a EU-only IIPA, a dispute settlement body has no jurisdiction to entertain a dispute with a Member State as the respondent.333 This is because just as with the binding effects of ­substantive obligations flowing from treaties, the possibility of dispute settlement under those treaties is based on the concept of privity, party autonomy and the maxim of pacta sunt servanda. And provided there was Member State consent to dispute settlement, if a Member State cannot be held internationally responsible under a EU-only IIPA, an investor cannot successfully claim damages against the Member State.334 An Arbitral Tribunal can only award remedies against a respondent that bears international responsibility for the alleged breach of an international obligation.335 This excursus attempts to discuss the conditions for a proceduralisation under EU-only IIPAs, whether and under what conditions Member States can appear as respondents in disputes under EU-only IIPAs that provide for a mandatory respondent determination mechanism and whether and under what conditions they can be held responsible under them. The answer to these questions will answer whether the provisions providing for and stipulating Member State respondent status under EU-only IIPAs are effective under international law and, as follows from that, whether the provisions on Member State respondent status in the REG will have any bearing in disputes under EU-only IIPAs. In order to identify the conditions for a proceduralisation and answer the question of effectiveness of a mandatory respondent determination mechanism with respect to Member State respondent status under EU-only IIPAs one must distinguish between Member States that wish to act as respondent and Member States that do not. The reason why a Member State would not want to act as respondent is immediately evident. Where a party does not participate in proceedings, these proceedings cannot lead to international responsibility of that party. The reason for the former is not so evident. Why would a Member State want to consent to arbitration and possibly face international responsibility under a EU-only IIPA? Essentially, it is the same reason why a Member State would want to act as respondent under a mixed EU IIPA. Under the realm of the REG, which applies to mixed and EU-only IIPAs, Member States cannot avoid internal financial responsibility. This is why they might have an interest to appear before an Arbitral Tribunal in the first place.

 Under mixed IIPAs this poses no problem as both the EU and the Member States consent to arbitration upon conclusion of the mixed IIPA, and as both can be held internationally responsible under them for they both assume international obligations under them. 333  Lock, above Chap. 2, fn. 195, p. 101: ‘[…] if a member state brought a case against another member state before an international court based on a pure Union agreement, that international court would not have jurisdiction ratione personae’; Dimopoulos, above Chap. 2, fn. 112, pp.  1684–1687; in general, see Shaw, above Chap. 2, fn. 8, p.  798; Eric de Brabandere (2014) Investment Treaty Arbitration as Public International Law – Procedural Aspects and Implications. Cambridge University Press, p. 23. 334  Dimopoulos, above Chap. 2, fn. 112, pp. 1684–1687. 335  See above Sect. 4.3.3.2. 332

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4.4.1  N  o Consent to Arbitration of Member States Under EU-Only IIPAs per se Coming to the question of consent to arbitration, under EU-only IIPAs, the EU—by signing and ratifying the IIPA, which contains an ISDS clause—consents to arbitration and compliance with the respondent determination mechanism. It follows that an investor can sue the EU before an Arbitral Tribunal under EU-only IIPAs. Conversely, Member States are no formal treaty parties under EU-only IIPAs, as they do not sign and ratify them. Hence, Member States do not automatically consent to arbitration under the ISDS clause contained in the EU-only IIPA for a lack of signing and ratifying the treaty. It follows that, in general, an investor cannot sue a Member State before an Arbitral Tribunal under a EU-only IIPA containing an ISDS clause.336 It is true that consent to arbitration does not need to derive from an ISDS clause under a EU IIPA. Consent to arbitration may be given ad hoc in a form other than signing and ratifying an IIPA containing an ISDS clause.337 This can be for example a compromis or a submission agreement concluded between a State and a private investor subjecting n dispute under an IIPA to international arbitration.338 According to the severability doctrine an arbitration agreement is separate from the underlying contract, or, in investment treaty arbitration, from the underlying treaty.339 Thus, the conclusion and termination of an arbitration agreement is independent from the conclusion and termination of the investment treaty. It follows that consent to arbitration can be expressed in a document separate from the EU IIPA and can be made after the EU-only IIPA is concluded and even after a dispute has been initiated. As a result, Member States can agree to arbitration under a EU-only IIPA if they wish to do so. However, Member States have no obligation under international law or EU law to consent to arbitration ad hoc, even if the EU-only IIPA explicitly provides for Member State respondent status in ISDS proceedings.340 Article 34 VCLT makes clear that treaties do no create any international obligations for third parties without  Schill, this chapter, fn. 24, p. 378.  Christopher Dugan, Don Wallace, Noah Rubins and Borzu Sabahi (2011) Investor-State Arbitration. Oxford University Press, pp. 219–246; Andrea Marco Steingruber (2012) Consent in International Arbitration. Oxford University Press, paras. 5.20 et seq; Dimopoulos, above Chap. 2, fn. 112, pp. 1683, 1686; Dolzer/Schreuer, above Chap. 2, fn. 280, p. 254; UNCTAD (2003) Course on Dispute Settlement International Centre for Settlement of Investment Disputes, (2.3. Consent to Arbitration), United Nations, New  York and Geneva, Doc UNCTAD/EDM/Misc.232/Add.2. http://unctad.org/en/docs/edmmisc232add2_en.pdf. Accessed 26 August 2018, pp. 6–9. 338  Dugan/Wallace/Rubins/Sabahi, this chapter, fn. 337, pp. 220, 242–246; Dolzer/Schreuer, above Chap. 2, fn. 280, p. 254. But see Steingruber, this chapter, fn. 337, paras. 5.45–5.48. 339  Schreuer/Malintoppi/Reinisch/Sinclair, this chapter, fn. 306, Article 25 ICSID, paras. 620–624; Steingruber, this chapter, fn. 337, para. 5.60. See on the differences between the conception of the doctrine of severability in international commercial arbitration and investment treaty arbitration, Voss, this chapter, fn. 270, pp. 73–81. 340  Dimopoulos, above Chap. 2, fn. 112, p. 1686. 336 337

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their consent. This rule is considered customary international law.341 Neither does an obligation for Member States to consent to arbitration ad hoc flow from EU law, i.e. from Article 216(2) TFEU or the REG itself. The REG does not impose such an obligation onto the Member States.342 The REG, via Article 9(1)(b) REG, rather enshrines the Member State’s right to surrender respondent status altogether and bindingly cede it to the EU. Article 216(2) TFEU merely creates a EU law obligation for Member States to implement EU Treaties. This does not encompass the obligation to consent to arbitration under a treaty of public international law. If this were the case, Article 216(2) TFEU would, in fact, create a (procedural) obligation under international law, since third parties could sue the Member States in a dispute under the EU-only IIPA. Yet Article 216(2) TFEU does not create international obligations for the Member States.343 As a result, Member States cannot be compelled to act as respondents under EU-only IIPAs. Rather, it entirely hinges on their willingness to consent to arbitration ad hoc and participate in arbitration proceedings under EU-only IIPAs. It is submitted that the provisions on respondent status in the REG providing for Member State respondent status in disputes under EU-only IIPAs should be understood in exactly that way: Pursuant to Article 2(1) TFEU the EU can empower the Member States to act as respondent in disputes under EU IIPAs.344

4.4.2  N  o International Responsibility of Member States Under EU-Only IIPAs per se Member States cannot, generally, be held internationally responsible under EU-only IIPAs, even if the breaching act is attributable to a Member State. This is because Member States do not sign and ratify EU-only IIPAs, do not agree to be bound by them under international law and, thus, do not assume substantive obligations under them.345 International responsibility of a party without the party being internationally bound by the breached obligation requires more than merely attribution of the breaching conduct to that party. Article 16 ARS and Articles 18, 60 and 62 ARIO, which will be analysed below in more detail, attest to that. The lack of being bound under international law is the reason why a determination of a Member State to act as the respondent under a EU-only scenario, either under Article 8.21(3) or (4) CETA, in and of itself cannot have a constitutive effect on the Member State’s international responsibility, even though the text of the provisions containing the mechanism, and the object and purpose of the mechanism may be interpreted in that  Proelss in Dörr/Schmalenbach, above Chap. 2, fn. 81, Article 34 VCLT, para. 4.  Dimopoulos, above Chap. 2, fn. 112, p. 1686. 343  See above Sect. 2.3.2.2. 344  Explanatory Memorandum to the REG, p. 5. 345  For details, see above Sect. 2.3.2. 341 342

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direction. Article 64 ARIO and Article 55 ARS can only establish international responsibility of a party and, thus, a constitutive effect under a treaty insofar as the general law of international responsibility permit that. However, Article 35 VCLT and Article 62 ARIO may provide another avenue for Member States to assume international responsibility under EU-only IIPAs, and, therefore, render possible a proceduralisation of Member State international responsibility under EU-only IIPAs.

4.4.3  A  rticle 35 VCLT and Member State International Responsibility Article 35 VCLT gives Member States the opportunity to become bound by a EU-only IIPA without becoming formal treaty parties to it.346 It requires the formal treaty parties’ intention to create obligations for the Member States and the Member States must expressly accept the obligations in writing. The text of a treaty is the primary source containing the intention to create obligations for third parties.347 It is questionable whether a text in a EU-only IIPA providing for Member State respondent status is sufficient to express an intention of the formal treaty parties to extend the substantive obligations of the EU-only IIPA to the Member States. A procedural obligation to participate in arbitration proceedings is fundamentally different from substantive obligations under EU IIPAs. Thus, if the EU-only IIPA does not explicitly extend the substantive obligations onto the Member States, it might be difficult to establish an intention of the EU and the other treaty parties to create substantive obligations for the Member States. What is more problematic and would speak against the intention of the EU to create substantive obligations for the Member States is that perhaps not all Member States accept these obligations, which would create a partial mixed agreement and complicate the issue of liability under the EU-only IIPA. Apart from that, the question arises why Member States would even accept obligations under a EU-only IIPA when such acceptance can be the ground for future disputes and future liabilities. The Member States would not have any benefits apart from being able to defend their own actions. On the other side, if Member States incur internal financial responsibility anyway pursuant to the REG, there might be good reasons to accept the obligations under a EU-only IIPA. Be that as it may, it would appear as a more favourable deal for a Member State if it could accept obligations under a EU-only IIPA for the sole purpose of a dispute. Acceptance under Article 35 VCLT can be given in a variety of ways including notes, memoranda, and declarations,348 and only for a limited period of time.349  Schmalenbach in Dörr/Schmalenbach, above Chap. 2, fn. 81, Article 26 VCLT, para. 55.  Proelss in Dörr/Schmalenbach, above Chap. 2, fn. 81, Article 35 VCLT, para. 11. 348  Villiger, above Chap. 2, fn. 118, Article 35 VCLT, para. 4. 349  Fitzmaurice, above Chap. 2, fn. 308, p. 56; see also Article 37(1) VCLT: ‘When an obligation has arisen for a third State in conformity with article 35, the obligation may be revoked or modified only with the consent of the parties to the treaty and of the third State, unless it is established that they had otherwise agreed [emphasis added]’. 346 347

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Acceptance can even be given retroactively, for a time in the past, as Article 28 VCLT makes clear.350 The only difficulty remains that the acceptance must be communicated to all the treaty parties,351 and not only to the claimant investor. However, it would follow from that a Member State, in principle, could accept the breached obligation under a EU-only IIPA for the sole purpose of the dispute. Undoubtedly, a mere consent to arbitrate is insufficient, given that according to Article 35 VCLT the acceptance must be made expressly. Thus, a Member State should accompany its ad hoc consent to arbitration with a simple declaration stating that it accepts to be bound by the EU-only IIPA for the sole purpose of the dispute. It follows that Article 35 VCLT offers Member States the possibility to accept obligations under EU-only IIPAs. Holding Member States internationally responsible for breaching conduct under EU-only IIPAs is, therefore, via Article 35 VCLT possible, if the challenged conduct can be attributed to the Member State. This would appear to follow from Article 9 ARS. Yet it is submitted that there is another option, which is more easily implementable under EU-only IIPAs. Even without accepting the substantive obligations under EU-only IIPAs, Member States can face international responsibility for breaches of them. In general, the ILC Articles demonstrate that a State or an international organisation can bear international responsibility without being bound by the obligation that is breached. This is witnessed by Article 18 ARS, Article 16 ARIO and Article 60 ARIO that do not require that the coercing State or the coercing international organisation is bound by the breached international obligation in order to bear international responsibility.352 Yet as these provisions require an act of coercion, they do not fit the scenario of Member States responsibility for breaches under EU-only IIPAs.

4.4.4  A  rticle 62 ARIO and Member State International Responsibility Another provision—more fitting for our purposes—that dispenses with the requirement that the internationally responsible party must be bound by the breached obligation is Article 62 ARIO.353 Pursuant to Article 62(1) ARIO a ‘State member of an  Article 28 VCLT: ‘Unless a different intention appears from the treaty or is otherwise established, its provisions do not bind a party in relation to any act or fact which took place or any situation which ceased to exist before the date of the entry into force of the treaty with respect to that party [emphasis added]’. 351  Villiger, above Chap. 2, fn. 118, Article 35 VCLT, para. 4; Proelss in Dörr/Schmalenbach, above Chap. 2, fn. 81, Article 35 VCLT, para. 15. 352  ARS Commentary, Article 18 ARS, para. 1; ARIO Commentary, Article 16 ARIO, paras. 2–3; ARIO Commentary, Article 60, paras. 1–2. 353  Cf. D’Aspremont, above Chap. 3, fn. 127, p. 98, arguing—even before the adoption of Article 62 ARIO—that it is undisputed that a Member State can expressly or impliedly accept international responsibility for an act that can formally be attributed to an international organisation, with the consequence that ‘this state is to be considered internationally responsible’. 350

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international organization is responsible for an internationally wrongful act of that organization if: (a) it has accepted responsibility for that act towards the injured party; or (b) it has led the injured party to rely on its responsibility’. As discussed, Article 62(1) ARIO does not require that the Member State is bound by the international obligation of the international organisation that is breached.354 The co-­ respondent system under the future mixed ECHR framework demonstrates an equal understanding that an entity can be internationally responsible for breaching conduct even though that entity is not bound by the international obligation that is breached. Under Article 1(3) Draft ECHR Accession Agreement355 the EU would only assume obligations under the ECHR for acts of its own organs, ergo not for conduct of Member States that implements EU law.356 Such EU law implementation conduct would be attributable to the Member State pursuant to Article 1(4) Draft ECHR Accession Agreement.357 The same provision states that the attribution of such acts to the Member States ‘shall not preclude the European Union from being responsible as a co-respondent for a violation resulting from such an act’. By virtue of Article 1(7) Draft ECHR Accession Agreement, the respondent and the co-­ respondent bear, in principle, joint responsibility when a breach is established.358 It follows that under the future mixed ECHR framework the EU can bear international responsibility not only without attribution of breaching conduct to the EU, but also without being bound by the breached obligation.359 As to the conditions of Article 62 ARIO, acceptance of international responsibility under Article 62(1)(a) ARIO can be expressed either explicitly or implicitly and can be made before or after responsibility arises for the international organisation.360 It is important that the acceptance produces legal effects vis-à-vis the injured party,

 Article 62 ARIO speaks of an international wrongful act of the international organisation, and not of an international wrongful act of the Member State. An international wrongful act of the international organisation requires pursuant to Article 4(b) ARIO a breach of an international obligation of the international organisation, and not the Member States. See also Commentary to ARIO, Article 62, paras. 6–7. 355  The provision reads: ‘Accession to the Convention and the protocols thereto shall impose on the European Union obligations with regard only to acts, measures or omissions of its institutions, bodies, offices or agencies, or of persons acting on their behalf. Nothing in the Convention or the protocols thereto shall require the European Union to perform an act or adopt a measure for which it has no competence under European Union law’. 356  See Explanatory Report to the ECHR Accession Agreement, para. 22. 357  See for the text of the provision above Chap. 3, fn. 39 and accompanying text. 358  The provision reads: ‘If the violation in respect of which a High Contracting Party is a corespondent to the proceedings is established, the respondent and the co-respondent shall be jointly responsible for that violation, unless the Court, on the basis of the reasons given by the respondent and the co- respondent, and having sought the views of the applicant, decides that only one of them be held responsible’. 359  Kuijper, above Chap. 3, fn. 78, pp. 17, 19; Den Heijer/Nollkaemper, above Chap. 3, fn. 103, pp. 5–6. 360  ARIO Commentary, Article 62, para. 6. 354

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which is the case when the Member State accepts responsibility towards it.361 Article 62(1)(b) ARIO protects the good faith of third parties.362 Reliance in the sense of Article 62(1)(b) ARIO may arise from circumstances which cannot be taken as an expression of an intention of the Member States to bind themselves or assume responsibility for a breaching conduct.363 As just discussed, Member States may not wish to bind themselves to EU-only IIPAs by virtue of Article 35 VCLT. So, what is the threshold for Article 62 ARIO to be fulfilled? Whether the mere ad hoc consent to arbitration by the Member State without an explicit acceptance of responsibility towards an investor amounts to an implicit acceptance of international responsibility pursuant to Article 62(1)(a) ARIO, or alternatively, could cause the investor to rely on the Member State’s international responsibility pursuant to Article 62(1)(b) ARIO cannot be answered here, as it would depend on the case at hand. Yet one can say that a Member State’s consent to arbitrate in a dispute under a EU-only IIPA would be senseless if it would not assume international responsibility for the conduct challenged by the investor. Moreover, under EU-only IIPAs, the ad hoc consent to arbitration by a Member State is entirely voluntary, which at least implies that the Member State intends to defend the conduct challenged, and thus, takes responsibility for it. Hence, there are good reasons to suggest that a Member State’s consent to arbitrate in a dispute under EU-only IIPA without explicitly assuming responsibility could nevertheless be seen as implicit assumption of responsibility under Article 62(1)(a) ARIO. In the same vein, in such a case the investor may rely on the responsibility of the Member State under Article 62(1)(b) ARIO. Be that as it may, it is safe to say that when a Member State accompanies its ad hoc consent to arbitration with a statement addressed at the investor, in which it accepts unequivocally, fully and unconditionally the international responsibility for the conduct allegedly in breach of the EU-only IIPA, the Member State’s international responsibility is established under Article 62(1)(a) ARIO. However, there are some structural complications with holding Member States responsible under a EU-only IIPA pursuant to Article 62 ARIO. Article 62 ARIO requires an ‘international wrongful act’ of the international organisation, which in turn requires that the conduct alleged to breach the EU-only IIPA must be attributable to the EU. As discussed, there are instances where Member State conduct is not attributable to the EU, especially in cases of conduct entirely unrelated to EU law. Only under a lex specialis approach to international responsibility that is analogous to federal states or exclusively based on competence is Member State conduct always attributable to the EU under a EU-only IIPA. Hence, the risk remains that an Arbitral Tribunal finds that the challenged conduct is not attributable to the EU. Then, a Member State could not be held liable under Article 62 ARIO even if the conditions of acceptance or reliance are fulfilled. It is questionable whether one would want to be left with such a legal uncertainty regarding international responsibility under EU-only IIPAs and, therefore, an uncertainty regarding the effective  ARIO Commentary, Article 62, para. 7.  Möldner, above Chap. 2, fn. 1, pp. 321–322. 363  ARIO Commentary, Article 62, para. 10. 361 362

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guarantee of investor rights under EU-only IIPAs. Granting Arbitral Tribunals the mandate to assess whether a breaching conduct can be attributed to the EU runs afoul of the aim of the respondent determination mechanism, which is to protect the autonomy of EU law.

4.4.5  Drafting Proposals for EU-Only IIPAs that Enable Member State Participation A specific modelling of the EU-only IIPA can safeguard both legal certainty and the autonomy of EU law. ISDS clauses in EU-only IIPAs should ‘be accompanied by an explicit assumption of EU international responsibility for all violations of its provisions, including those resulting from Member State conduct’.364 Alternatively, the EU-only IIPA could provide for a special rule of attribution of conduct in that ‘Member State conduct is attributable to the EU for purposes of this treaty’. If this is not possible, the EU should provide the investor with a statement to that effect upon initiation of the dispute of the investor. Either way, it is ensured that the EU bears exclusive and comprehensive international responsibility under the EU-only IIPA for Member State conduct. Whenever the EU acts as respondent, the investor faces no accountability gaps. It further ensures that the Tribunal does not look into the question of international responsibility of the EU in its own right. It further ensures that Member States that wish to act as respondent in a dispute under a EU-only IIPA, can bear international responsibility pursuant to Article 62(1)(a) ARIO because there would be an ‘internationally wrongful act of the international organization’, i.e. of the EU. Of course, leaving it to the Member State concerned to formulate its wish to go to arbitration could provoke shortcomings with respect to the conditions of Article 62(1)(a) and (b) ARIO since a mere ad hoc consent to arbitrate might prove insufficient. An Arbitral Tribunal could be left wondering whether the threshold of Article 62(1)(a) and (b) ARIO is met. In order to exclude that risk, the EU-only IIPA and the ISDS clauses should provide that if a Member State wishes to act as respondent, the ad hoc consent to arbitration must be equipped with an ‘unequivocal, full and unconditional acceptance of international responsibility by the Member State for the conduct challenged by the investor and allegedly in breach of the EU-only IIPA’. Such an acceptance must be seen to fall under Article 62(1)(a) ARIO. As neither the EU or a Member State wishes to be responsible for conduct that can neither be attributed to the EU nor a Member State (e.g. because the conduct is private), the provision to be added in the EU-only IIPA could read that the acceptance is contingent upon attribution of the challenged conduct to either the EU or a Member State, or only covers the ‘EU-Member State responsibility window’.

364

 Dimopoulos, above Chap. 2, fn. 112, pp. 1686–1687.

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4.4.6  R  esult: Member States Are Free to Enter the Fray Under EU-Only IIPAs As a result of this excursus, under EU-only IIPAs Member States cannot be compelled to participate in arbitration proceedings and, in general, do not face international responsibility. This is because they have no obligation to agree to arbitration, no obligation to accept to be bound by the substantive obligations and no obligation to accept international responsibility for breaching conduct. That said, Member State can effectively participate in arbitration proceedings under EU-only IIPAs if they give their ad hoc consent to arbitration. They can also face international responsibility under them if they wish to do so. Article 35 VCLT and, more so, Article 62(1)(a) ARIO provide a window to that effect. Yet to provide legal certainty and protect the autonomy of EU law, EU-only IIPA should be drafted, as discussed, in a way that the EU bears categorical international responsibility for EU and Member State conduct, and if the Member State wishes to act as respondent, the EU-only IIPA should be drafted that the Member State upon consenting to arbitration ad hoc is obliged to provide the investor with an unequivocal acceptance of international responsibility for the challenged conduct. What are the consequences of this analysis on the effectiveness of provisions providing for a mandatory respondent determination mechanism under a EU-only IIPA, assuming that its provisions reflect those of Article 8.21 CETA? At the outset, Article 8.21 CETA can remain effective since, as discussed, Member States can act as respondents under EU-only IIPAs and bear international responsibility for breaches of them. Specifically, the provisions requiring an investor to seek a respondent determination from the EU (Articles 8.21(1)(2)(5), 8.22(1)(a)(c), 8.25 CETA) are still fully effective, since at this point it is unclear whether a Member State wishes to act as respondent and assumes international responsibility for the challenged conduct or not. In the event that a Member State does not wish to act as respondent, which is possible under Article 9(1)(b) REG, respondent status would fall upon the EU under the REG. In such a case, the EU would inform the claimant under Article 8.21(3) CETA that it will act as respondent. In the case that the EU would—against the will of the Member State—determine the Member State as respondent, Article 8.21(3)(5)(6)(7) CETA would be moot and ineffective since the Member State cannot be compelled to act as respondent. This scenario is, however, unlikely because the Member States can always bindingly cede respondent status to the EU under the REG. In the same vein, if a Member State does not wish to act as respondent and the EU does not determine the respondent in due time, Article 8.21(4) CETA in conjunction with Article 8.21(5)(6)(7) CETA providing for Member State respondent status would be ineffective and moot. In contrast, where a Member State wishes to act as respondent, the effectiveness of the respondent determination mechanism requires, as discussed above, the EU assuming responsibility for Member State conduct, the Member State’s ad hoc consent to arbitration and its acceptance of responsibility for the breaching conduct. To guarantee that this

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is the case in every dispute where the Member State wishes to act as respondent, the EU-only IIPA should contain provisions to that effect, as suggested above.

4.5  C  onclusions Chapter 4: A New Responsibility Regime Under Post-Lisbon Mixed IIPAs As this chapter has demonstrated, post-Lisbon mixed IIPAs, worded like CETA, proceduralise and internalise international responsibility of the EU and the Member States. Proceduralisation will take the form of a mandatory respondent determination mechanism. In order to vindicate its rights in a dispute against the EU or a Member State, an investor is required to request a determination of the respondent from the EU (and if the EU lies idle the investor must pick the respondent according to pre-defined criteria). The consent to arbitration of the EU and the Member States is coupled to complying with that procedure. Then follows an element of internalisation: The determination of the correct respondent is ‘outsourced’ to the EU, where the Commission applies the REG to that effect. At the same time, the Arbitral Tribunal is deprived of its (classical) mandate to look into whether the EU or Member State is the correct respondent. The respondent determination made by the EU then binds the parties and the Arbitral Tribunal alike. The mandatory respondent determination mechanism enshrined in these post-Lisbon mixed IIPAs breathes life into the provisions on respondent status of the REG, whereas the other external aspects of the REG, i.e. the effectiveness of the provisions on settlement and payment obligations to the investor depends on the duty of cooperation enshrined in EU law. What works smoothly under post-Lisbon mixed IIPAs becomes problematic under the ECT and EU-only IIPAs. As to the former, though the ECT, arguably, via a Statement made by the EU, offers investors to let the EU determine the respondent, this avenue is entirely voluntary: An investor remains free—even after it asked the EU for a determination and received an answer to that effect—to sue the respondent of its choice and a Tribunal is mandated to assess whether the respondent is the correct one. Thus, the provisions on respondent status in the REG lack a dovetailing provision in the ECT to render them fully effective. For that matter, one can safely assume that they will not often—if at all—be applied in disputes under the ECT. As to EU-only IIPAs, the effectiveness of a proceduralisation by means of a mandatory respondent determination mechanism that is incorporated into the treaty and provides for Member State respondent status remains largely in limbo: Member States are bound neither by an arbitration clause nor by the substantive obligations in EU-only IIPAs unless they agree to be bound by them. Under international law, the EU cannot agree these obligations for them. Without such agreement by the Member States, the provisions on respondent status in the REG will remain ineffective and unapplied under EU-only IIPAs as well.

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Coming back to post-Lisbon mixed IIPAs, this study has argued in this chapter that the respondent determination under mixed IIPAs, worded like CETA, has a constitutive effect on the international responsibility of the determined respondent: The determined respondent, being either the EU or a Member State, is internationally responsible for the challenged conduct within the ‘EU-Member State responsibility window’. It is true that the connection between respondent status and international responsibility for breaching conduct appears a priori counter-intuitive. Picking a respondent to a dispute is no self-fulfilling prophecy. An Arbitral Tribunal must come to the conclusion that the claim has merit and the respondent bears international responsibility. However, under post-Lisbon mixed IIPAs, not the investor determines the respondent but the ones whose responsibility is at stake—the EU and the Member States. It is this fundamental difference to classical dispute settlement systems that allows for contemplating a correlation between respondent status and responsibility. More importantly, the constitutive effect of the respondent determination on international responsibility is bolstered by an interpretation of the provisions and the purpose of the mixed IIPA that is structured and worded in accordance with CETA: First, the mixed IIPA bars the respondent from invoking and the Tribunal from assessing at every stage of the proceedings whether the determined respondent is the correct one, as concerns the relationship between the EU and the Member State concerned. This includes the question of attribution of conduct as part of international responsibility within that relationship. Second, denying a constitutive effect as claimed in this study has the consequence of causing major accountability gaps and an outright denial of justice: There are constellations where the respondent determined via the mechanism in the mixed IIPA does not bear international responsibility under the ILC Articles or other applicable rules of international responsibility. If a Tribunal were to come to that conclusion it would have to dismiss the claim. Depriving an investor of its choice of respondent on the one hand and not aligning respondent status with responsibility under the treaty on the other cannot be the purpose of any dispute settlement provision. Inasmuch as the outfit of the respondent determination mechanism under post-­ Lisbon mixed IIPAs, worded like CETA, underpins its constitutive effect on international responsibility it lays out its limits: The EU or a Member State, as the case may be, only bears international responsibility within the ‘EU-Member State responsibility window’. Simply speaking, the EU cannot wiggle itself out of responsibility by pointing to the Member States, and the Member State cannot evade responsibility by evoking the EU spectre. With the exception of that window, the respondent determination leaves untouched issues of international responsibility and attribution: e.g. whether the impugned conduct breached the IIPA, whether the impugned conduct constitutes attributable State conduct and is not merely private in nature. The constitutive effect of the respondent determination finds resonance in Article 55 ARS and Article 64 ARIO that enable treaty parties to horizontally agree on a lex specialis governing international responsibility for breaches under it. The consequence of the constitutive effect is that the EU or a Member State can be internationally responsible for conduct that is otherwise—under the lex generalis of the ILC Articles or an otherwise applicable lex specialis governing international

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r­esponsibility—not attributable to itself but to a Member State or the EU, respectively. For example, the REG provides several exceptions to the rule that the EU bears responsibility for its conduct under Article 6 ARIO and that the Member States bear responsibility for their conduct under Article 4 ARS. Where an investor challenges Member State conduct under Article 4 ARS, the REG provides for EU respondent status, and thus ultimately EU international responsibility, in the cases where, first, a Member State renounces to act as respondent, second, an investor both challenges EU and Member State conduct, third, where the EU might face internal financial responsibility under the REG and, fourth, where a similar claim is pending in WTO litigation. If one were to deny the constitutive effect, as argued in this study, the international responsibility of the EU in the above-mentioned scenarios would most likely follow from Article 9 ARIO, i.e. adoption and acknowledgment of conduct. Given the case-by-case nature of this rarely used norm, its conditions and thresholds and the Tribunal’s free assessment in that respect, this outcome is, however, not guaranteed. Against the backdrop of the rules in Article 6 ARIO and 4 ARS that would generally guide an investor in its decision whom to sue, the REG enlarges the prospect of the EU appearing as respondent in disputes under post-Lisbon mixed IIPAs. This appears to be based on the principle of unity of external representation and the rules on financial responsibility under the REG. The EU does not consider it desirable or even possible under EU law that a Member State being held internationally responsible should recover internally the amount it paid to an investor from the EU pursuant to the REG. Be that as it may, it must be stated that the REG manages to create a fair balance between EU and Member State interests in acting as respondent. Though one feels inclined to see the pendulum swinging more favourably to the EU, the REG provides for certain safeguards: The exceptions under the REG conferring respondent status to the EU where Member State treatment is challenged are limited to cases of EU involvement and confined to the Commission’s fair use of discretion and a case-by-case analysis. And where there is no EU involvement but a parallel WTO case pending, the comitology procedures provide for a right of the Member States to effectively veto EU respondent status. The lex specialis model of proceduralisation of international responsibility under post-Lisbon mixed EU IIPAs may be criticised by the fact that the treaty partners of the EU (and the Member States) and its eligible investors do not know before initiating a dispute and before having received a respondent determination, which party is internationally responsible for a conduct in breach of the EU IIPA.365 This is because international responsibility of the EU and the Member States depends upon the respondent determination mechanism and the respondent determination depends upon the provisions on respondent status of the REG, whose application is all but predictable and depends on a case-by-case basis. Another point of critique is that by superseding the otherwise applicable law of international responsibility and depriving the Arbitral Tribunal from determining the issue of international responsibility in the ‘EU-Member State responsibility window’, proceduralisation may hamper 365

 Cf. Dimopoulos, above Chap. 2, fn. 39, p. 252.

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the development in that field. Such criticisms must be countered by the fact that proceduralisation ensures legal certainty for the treaty partners of the EU and their investors. They do not have to worry whether they sue the correct party in the ‘EU-Member State responsibility window’. More importantly, proceduralisation safeguards the autonomy of the EU legal order, and thereby guarantees that the EU’s and the Member States’ international responsibility can be adjudicated without interference in EU internal matters. As demonstrated in Chaps. 2 and 3, the exact demarcation of the ‘EU-Member State responsibility window’ under EU-only and mixed IIPAs may depend not only on the horizontal partition of (both treaty-making and treaty-implementing) competences between the EU and the Member States but also on the vertical power dynamics underlying the implementation of EU law by the Member States. It is submitted that it seems appropriate to have the EU and the Member States assess and decide these sensitive issues rather than Arbitral Tribunals. Again, such rationale is not entirely novel to international law: The horizontal and vertical power dynamics underlying the relationship between a federal state and its constituent subdivisions is an entirely internal matter under the lens of international law.

Chapter 5

The Internal Allocation of Financial Responsibility Under the REG

When the EU or a Member State abides by its external payment obligations flowing from an arbitral award or settlement to an investor that succeeded in a dispute under a EU IIPA, this is not necessarily the end of the financial flows. With the adoption of the REG, the EU has created a system that allocates financial responsibility between the EU and the Member States internally. It may not come as a surprise that some federal states equally provide for such an allocation system between the federal state (that bears external financial responsibility) and its constituent subdivisions. Importantly, such systems are not rooted in international law but in EU law with respect to the REG and in national constitutional law with respect to federal states and its constituent subdivisions. The first part of this chapter will look at the system in Germany that allocates financial responsibility arising out of international verdicts and settlements between the Bund and the Länder (Sect. 5.1). The second part will assess the allocation system of the REG (Sect. 5.2). Before doing so, a few remarks on the constitutional premises and possible justifications for adopting an internal allocation system.1 One such premise is that the constituent subdivisions of federal states and the Member States of the EU are respectively bound under national constitutional law and EU law respectively to implement international obligations incumbent on the federal state, and the EU respectively. If this were not the case, there is no constitutional basis for allocating financial responsibility internally. Pursuant to Article 216(2) TFEU and Article 4(3) TEU Member States are bound under EU law to implement treaties of the EU. In Germany, the Länder are obliged to implement treaties of the Bund even in areas

1  See for an excellent discussion (in German): Ulrich Stelkens (2012) Die Haftung zwischen Bund und Ländern. In: Ines Härtel (ed.) Handbuch Föderalismus  – Föderalismus als demokratische Rechtsordnung und Rechtskultur in Deutschland, Europa und der Welt  – Band II: Probleme, Reformen, Perspektiven des deutschen Föderalismus. Springer, pp. 433–442.

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where the Länder have exclusive competences.2 This is not necessarily the case with respect to each and every federal state and can become problematic where the constituent subdivisions have exclusive competences that are required to implement a treaty. As to justifications, an obvious argument for allocating financial responsibility is asset protection. If the assets of both federal layers are strictly separated from each other, as is the case between the EU and its Member States, an allocation of financial responsibility becomes important and serves the purpose of correcting and compensating financial losses. Conversely, the closer interlinked the assets of both federal layers are, as is the case with respect to the Bund and the Länder, asset protection is less important as justification for allocating financial responsibility internally.3 An internal allocation system can further be considered as a sanction for international law breaches and a means to guarantee compliance with international law throughout the federal structure. The allocation system is seen to have a preventive and deterring function. The sanctioning idea would guarantee under internal constitutional law the comprehensively binding effect of international obligations on all federal layers. The German Federal Administrative Court seems to partly justify the German allocation system in that way. It stated that ‘without the risk of being held accountable by the Bund, the Länder could neglect their EU law obligations; they would be exempt from responsibility for their own breaches of EU law if the Bund would exclusively and definitely bear the financial ramifications’.4 The EU equally assumes that sanctioning can help to have its Member States comply with EU obligations. Articles 260(2) and 126(11) TFEU attest to that. Article 260(2) TFEU initially was a legislative reaction to Member States not complying with ECJ decisions.5 Furthermore, Member State liability towards individuals for incorrect implementation or non-implementation of EU acts as established by the Brasserie du pêcheur and Francovich decisions is based on the sanctioning idea.6 Similarly, an intra-­ 2  The Bund and the Länder have found a modus operandi in the form of the so-called Lindau Accord, which gives the Bund a comprehensive treaty-making power in areas of exclusive competence of the Länder. See in this respect Schütze, above Chap. 2, fn. 15, p. 188: ‘The federal state concludes the entire agreement under its plenary powers but subjects the exercise of its treatymaking power to the consent of the member states. The member states, in turn, consent to implement the treaty on behalf of the federation by exercising their exclusive legislative competences’. 3  Stelkens, this chapter, fn. 1, pp. 434–435. 4  German Federal Administrative Court, 3 A 1/01, 8 May 2002, in NVwZ 2002, p 1129: ‘Ohne das Risiko eines Regresses nämlich besäßen die Länder gleichsam einen Freibrief zum „großzügigen” Umgang mit ihren europarechtlichen Pflichten; sie wären der Verantwortung für eigene Verstöße gegen gemeinschaftsrechtliche Regeln enthoben, wenn die finanziellen Folgen ausschließlich und endgültig beim Bund anfielen’. 5  Monica Claes (2006) The National Courts’ Mandate in the European Constitution. Hart Publishing, p.  284; Pål Wennerås (2012) Sanctions against Member States under Article 260 TFEU: Alive, but not kicking? 49(1) CMLRev, pp. 145–175. 6  Joined Cases C-6 and 9/90 Francovich and Bonifaci [1991] ECR I-5373; Joined Cases C-46/93 and C-48/93 Brasserie du Pêcheur [1996] ECR I-1029. See Philipp Gasparon (1999) The Transposition of the Principle of Member State Liability into the Context of External Relations.

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federal allocation system could be seen as a means to link the financial burden to the entity that is able to comply with the obligation, thus, has the capacity and competence to avoid the breach in the first place. An alternative to use internal financial responsibility in order to guarantee compliance with international law obligations are substitution mechanisms that give federal states the power to act in competence fields reserved to its constituent subdivisions in case the latter fail to observe international law.7 However, such a mechanism is not open to the EU since Article 207(6) TFEU makes clear that the conferral of EU competence with regard to the CCP shall not lead to harmonisation of legislative or regulatory provisions of the Member States in so far as the EU Treaties exclude such harmonisation. The justifications just mentioned are reminiscent of justifications underlying liability systems. Intra-federal allocation models that are understood as sanction and deterrent, serving the purpose of asset protection and targeting the entity capable of avoiding the breach strongly imply elements of fault and negligence. Here, these elements appear useful in calibrating the allocation of financial responsibility. In contrast to such justifications, a system that allocates financial responsibility internally between federal layers could simply be seen as a materialisation of administrative risks. Put differently, the allocation would only reflect the competence partition—the exercise or non-exercise of which affecting the implementation of international law obligations. Under this justification model, elements of fault or negligence are irrelevant to drive the allocation criteria. Rather, the competence partition or the origin of the treatment drive the allocation, as such elements are reflective of the administrative risks that each federal layer carries. In the same vein, fixed responsibility keys or quotients that allocate financial responsibility in accordance with fixed percentages can drive an allocation model that is merely based on the idea of a materialisation of administrative risks. It will be interesting to see in the following on which ideas and justifications the allocation systems in Germany and under the REG are based.

10(3) EJIntlL, p. 606; Julio Baquero Cruz (2010) Francovich and Imperfect Law. In: Luis Miguel Poiares Pessoa Maduro and Loic Azoulai (eds.) The Past and Future of EU Law: The Classics of EU Law Revisited on the 50th Anniversary of the Rome Treaty. Hart Publishing, p. 421. 7  See Article 169 Belgian Constitution: ‘Afin de garantir le respect des obligations internationales ou supranationales, les pouvoirs visés aux articles 36 et 37 peuvent, moyennant le respect des conditions fixées par la loi, se substituer temporairement aux organes visés aux articles 115 et 121. Cette loi doit être adoptée à la majorité prévue à l’article 4, dernier alinéa’, and Article 16, section 3, para. 1, Belgian Special Law on Institutional Reform of 8 August 1980 as amended by the Special Law of 5 May 1993 on the International Relations of the Communities and Regions: ‘Après avoir été condamné par une juridiction internationale ou supranationale du fait du nonrespect d’une obligation internationale ou supranationale par une Communauté ou une Région, l’Etat peut se substituer à la Communauté ou à la Région concernée, pour l’exécution du dispositif de la décision aux conditions suivantes […]’; 19 USC § 3312(b)(2): ‘No State law, or the application thereof, may be declared invalid as to any person or circumstance on the ground that the provision or application is inconsistent with the Agreement, except in an action brought by the United States for the purpose of declaring such law or application invalid’.

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5.1  T  he Case of Germany: Internal Allocation of Financial Responsibility Between the Bund and the Länder Under public international law, it is the federal state as a whole, comprised by the central state and the constituent subdivisions, that bears international responsibility for the conduct of its subdivisions and it is the federal state that has the international obligation to pay the monetary sums following an international verdict or settlement.8 Yet federal states are free to internally regulate the allocation of financial responsibility between the central state and the constituent subdivisions. For example, federal states such as Germany, Belgium,9 Austria10 and the UK11 provide for internal allocation systems. Some systems are very narrow. For example, the Austrian system only concerns the internal allocation of monetary sums arising

 See above Sect. 3.2.4.1.  Article 16, section 3, para. 3, Belgian Special Law on Institutional Reform of 8 August 1980 as amended by the Special Law of 5 May 1993 on the International Relations of the Communities and Regions (loi spéciale de réforme institutionnelles, tel qu’introduit par la loi spéciale du 5 mai 1993 sur les relations internationales des Communautés et des Régions): ‘L’Etat peut récupérer, auprès de la Communauté ou de la Région concernée, les frais du non-respect par celle-ci d’une obligation internationale ou supranationale […]’. 10  See Section 3(2) Austrian Fiscal Equalisation Law (Bundesgesetz, mit dem der Finanzausgleich für die Jahre 2008 bis 2016 geregelt wird und sonstige finanzausgleichsrechtliche Bestimmungen getroffen werden, Fassung vom 25.01 2016): ‘Darüber hinaus sind die jeweils betroffenen Länder zur Tragung jener Kosten verpflichtet, die der Republik Österreich im Zusammenhang mit Verfahren vor dem Gerichtshof der Europäischen Gemeinschaften wegen eines EG-rechtswidrigen Verhaltens der Länder erwachsen’. 11  Memorandum of Understanding and Supplementary Agreements Between the UK Government, the Scottish Ministers, the Cabinet of the National Assembly for Wales and the Northern Ireland Executive Committee (Concordats on Co-ordination of EU Policy Issues between the UK government and the devolved administrations), Cm 5240, December 2001, https://www.gov.uk /government/uploads/system/uploads/attachment_data/file/316157/MoU_between_the_UK_and_ the_Devolved_Administrations.pdf. Accessed 26 August 2018; D4.14 of the Concordat on International Relations reads: ‘The devolved administrations will be responsible for the payment of any compensation and costs awarded against the UK by international courts or Tribunals and for payment of Counsel’s fees, to the extent that these arise from the failure of the devolved administration to implement or enforce an obligation or failure to meet their share of an international quota.’ The Explanatory Memorandum, para. 21 reads: ‘The devolved administrations [of the UK Government, the Scottish Ministers, the Welsh Ministers and the Northern Ireland Executive Committee] are responsible for observing and implementing international, European Court of Human Rights and European Union obligations which concern devolved matters. In law, UK Ministers have powers to intervene in order to ensure the implementation of these obligations. If the devolved administrations wish, it is open to them to ask the UK Government to extend UK legislation to cover their EU obligations. The devolved administrations are directly accountable through the domestic courts, in the same way as the UK Government is, for shortcomings in their implementation or application of EC law. It is agreed by all four administrations that, to the extent that financial penalties are imposed on the UK as a result of any failure of implementation or enforcement, or any damages or costs arise as a result, responsibility for meeting them will be borne by the administration(s) responsible for the failure’. 8 9

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from judgments of the CJEU. The UK system is non-binding.12 The Belgian System has, apparently, never been used in practice.13 Other federal states, most prominently the US,14 Canada15 and Australia16 do not provide for an internal allocation system in cases where the US, Canada or Australia has been held accountable on the international plane for breaches of international obligations committed by the constituent States (US), the constituent Provinces (Canada) or, respectively, the constituent Territories (Australia). It is true that the federal government of Canada has sometimes recurred to so-called ‘indemnity agreements’, agreed between the central state and its Provinces to govern an internal allocation and a reimbursement if the Provinces breach treaties binding on the federal state of Canada. Yet these agreements are agreed on a case-by-case basis and, importantly, cannot be forced upon a Province.17 Whether the non-existence of domestic legislation providing for an  It follows from para. 2 of the Explanatory Memorandum that the Memorandum is non-binding. It follows from para. 3 of the Explanatory Memorandum that Concordats are not intended to be legally binding either, but serve as working documents. See also: Andrew Scott (2001) The Role of Concordats in the New Governance of Britain: Taking Subsidiarity Seriously? 5(1) EdLRev, p. 32. But see Daniel Kenealy (2012) Concordats and International Relations: Binding in Honour Only? 22(1) RFS, pp. 61–85, pp. 61–85, arguing for a binding effect. 13  Jan Wouters and Leen De Smet (2001) The Legal Position of Federal States and their Federated Entities in International Relations – The Case of Belgium. 7/2001 Institute for International Law Working Paper  – Catholic University of Leuven. https://www.law.kuleuven.be/iir/nl/onderzoek/ working-papers/WP07e.pdf. Accessed 26 August 2018, pp. 27–28; Joe Verhoeven (1996) Belgique/ Belgium. In: Pierre Michel Eisemann (ed.) L’intégration du Droit International et Communautaire dans L’ordre Juridique National. Kluwer Law International, p. 132. 14  Matthew C Porterfield (2004) International Expropriation Rules and Federalism. 23(3) SELJ, p. 69; Vicki Been (2003) NAFTA’s Investment Protections and the Division of Authority for Land Use and Environmental Controls. 20(1) PELRev, pp. 11,001, 11,012: ‘Nothing in the legislation passed to implement NAFTA clearly authorizes the federal government to sue a state or locality to recover damages imposed upon the federal government for a state or locality’s violation of NAFTA’; David I Spector (2004) Trade Treaty Threats and Sub-National Sovereignty: Multilateral Trade Treaties and Their Negligible Impact on State Laws. 27(2) HastIntlCLRev, pp. 383–384, 388–390, 395–396; Renée Lettow Lerner (2001) International Pressure to Harmonize: The U.S. Civil Justice System in an Era of Global Trade. 2001(1) BYULRev, pp. 279–281 discussing possibilities of the federal US government to sue its constituent states for indemnification for NAFTA violations under federal common law principles. 15  Peter Hogg (2007) Constitutional Law of Canada, 5th edn. Carswell, para. 6.9; Mark A Luz and C Marc Miller (2002) Globalization and Canadian Federalism: Implications of the NAFTA’s Investment Rules. 47(4) McGillLJ, p.  984; Mark A Luz (2000) NAFTA, Investment and the Constitution of Canada: Will the Watertight Compartments Spring a Leak? 32(1) OLRev, p. 76; Barry Leon, Andrew McDougall and John Siwiec (2011) Canada and Investment Treaty Arbitration: Three Prominent Issues  – ICSID Ratification, Constituent Subdivisions, and Health and Environmental Regulation. 8(1) SCJIntlLB, pp. 76–80; Stéphane Paquin (2010) Federalism and Compliance with International Agreements: Belgium and Canada Compared. 5(1–2) HJDipl, p.  195; Patrick Fafard and Patrick Leblond (2012) Twenty-First Century Trade Agreements: Challenges for Canadian Federalism. The Federal Idea. http://ideefederale.ca/documents/challenges.pdf. Accessed 26 August 2018, pp. 6, 21. 16  Brian R Opeskin and Donald R Rothwell (1995) The Impact of Treaties on Australian Federalism. 27(1) CWRJIntlL, pp. 56–59; Paquin, this chapter, fn. 15, p. 195. 17  Maurice Copithorne (2003) National Treaty Law and Practice: Canada. 33(1) STransnatlLP, 12

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internal allocation system in many federal states is due to constitutional limitations,18 lack of political will or a lack of perceived relevance must be left unanswered in this study. In the following, the German allocation system will be examined.19 This is because, with respect to federal states, the German system constitutes the most detailed system, has been used in practice and has churned out a considerable amount of case law on the subject. Hence the German system constitutes a good object of comparison to the REG.  The German system that allocates internally between the Bund and the Länder the financial responsibility arising out of international verdicts and settlements is found in Article 104a(6) of the German Constitution (Grundgesetz, GG) and in the Financial Responsibility Act (Lastentragungsgesetz, LastG),20 which was adopted as an implementing law to Article 104a(6) GG.

5.1.1  Applicability of Article 104a(6) GG and the LastG Article 104a(6) GG and the LastG apply to financial repercussions ensuing from breaches of any obligation of public international law or supranational law (EU law) binding on the federal state of Germany. § 1(1) LastG covers every state action from all the three branches of government, including executive, legislative and judicial acts. Article 104a(6) GG and § 1(1) LastG make further clear that they apply only to the relationship of the Bund and the Länder. Violations by municipalities are attributed to the Länder. Furthermore, Article 104a(6) GG and § 1(1) LastG apply to verdicts of any international adjudication body competent to rule on violations of international law or supranational law. Bolstered by the legal aim to cover any

p. 12: ‘Various ad hoc arrangements are entered into to permit provinces to achieve recognized objectives. They include ‘indemnity agreements’ in which the federal Government enters into an agreement with the Government of another State on a matter of interest to a particular province. The agreement is supplemented on the Canadian side by an agreement between the federal Government and the province under which the province undertakes to provide such legislative authority as may be necessary to enable the discharge within its territory of the obligations under the agreement. The province also undertakes to indemnify the federal Government for any liability that may arise by reason of provincial default [emphasis added]’. 18  As indicated above, a major justification for an internal allocation system is that federal subdivisions bear an obligation under national constitutional law to implement treaties of the federal state even though it affects regulatory competences of the federal subdivisions. 19  See in general on the German allocation system, Stelkens, this chapter, fn. 1, pp. 448–461; Inken Sabine Knief (2009) Der Regreß im Bundesstaat  – Zur innerstaatlichen Haftung für gemeinschaftsrechtliche Sanktionen. PhD thesis, Rheinische Friedrich-Wilhelms-Universität Bonn; Matthias Mitsch (2008) Bund-Länder-Regress nach Verhängung von EU-Zwangsgeldern. Köhler Druck. 20  Gesetz v 5 September 2006 zur Lastentragung im Bund-Länder-Verhältnis bei Verletzung von supranationalen oder völkerrechtlichen Verpflichtungen (Lastentragungsgesetz – LastG), BGBl I, p. 2098.

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international and supranational law infringement,21 it follows that financial repercussions ensuing from any international or supranational law violation found by any international adjudication body can trigger the application of Article 104a(6) GG and the LastG. This includes judgments of the CJEU, judgments of the ECtHR and arbitral awards by international Tribunals. The Federal Administrative Court has ruled that Article 104a(6) GG and the LastG do not only apply to international verdicts but also apply in analogy to settlements agreed between the Bund and the international law claimant.22 The Court opined that this would bridge unintended regulatory gaps and boost the willingness of the Bund to agree to settlements.23 Otherwise, if the Bund would categorically bear the financial responsibility arising out of settlements, the Bund would rather take the case to trial, subduing its willingness to agree to settlements in the first place. The existence of an international verdict against the German state or the existence of an agreed settlement fulfils the condition that there is a violation of an international obligation for matters of Article 104a(6) GG and the LastG, triggering the internal allocation mechanism.24 There is no requirement of an objective breach of international law. This means that, in principle, no further inquiries by the German allocation court, such as a review of the findings of the international court as to the existence of an international obligation and whether the international obligation was actually breached, are admissible.25 This derives from the telos and purpose of Article 104a(6) GG and the LastG, constituting a derivative allocation system, and no liability regime or appeal mechanism.26 It may also be added that it should be avoided that the allocation court questions the international verdict or the settlement, decides not to allocate the financial burden after all and thereby disrupts the functioning of the allocation system. Another reason is that the allocation court should not be burdened with making difficult inquiries into the merits of an international case and having to apply international law.27 However, as will be shown further below, in cases where both conduct of the Bund and a Land or the Länder led to an international verdict or settlement, and the latter are silent as to which conduct was illegal under international law, the illegality of each conduct can become again relevant for the allocation court in order to apportion the financial burden.

 BT-Drucks 16/813, p. 19.  BVerwG, 3 A 7/05, 26 April 2007, in NVwZ 2007, p. 1201. 23  Ibid. 24  BVerwG, 3 A 7/05, 26 April 2007, in NVwZ 2007, p. 1201; Stelkens, this chapter, fn. 1, p. 457. 25  Ibid. 26  Ibid. 27  Ibid. 21 22

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5.1.2  T  he Internal Reimbursement Claim of the Bund Against the Länder Pursuant to § 5(1) LastG the Bund has a direct reimbursement claim against the Land concerned in case financial responsibility lies with a Land, and the Bund has paid the monetary amount as required under an international verdict or a settlement. The claim is due pursuant to § 5(2) LastG once the Bund fulfils its external payment obligations to a succeeding claimant. The reimbursement claim exclusively granted to the Bund against the Länder in § 5 LastG is a response to the divergence between international responsibility (that exclusively lies with the Bund) and the internal financial responsibility (that may lie with a Land or multiple Länder).

5.1.3  T  he Allocation Criteria: Financial Responsibility Lies with the Originator of the Breach The basic criteria for the allocation are enshrined in Article 104a(6) GG and § 1(1) LastG. Article 104a(6) GG first sentence reads: ‘In accord with the internal allocation of competencies and responsibilities, the Federation and the Länder shall bear the costs entailed by a violation of obligations incumbent on Germany under supranational or international law […]’.28 And § 1(1) LastG reiterates: ‘Financial payment obligations incumbent Germany due to infringements of supranational or public international law obligations caused by the legislative, executive or judicial branch are borne by the level of the federal state [level of the Bund or the Länder], under whose internal competences and responsibilities the infringement of the obligation occurred that led to a financial burden’.29 Article 104a(6) GG and § 1(1) LastG are based on the originator principle (‘Verursacherprinzip’). That means that whoever violates the international obligation—meaning the entity to which the breaching conduct can be attributed pursuant to German administrative law—bears the financial responsibility for it.30 Under the German federal system, the entity that caused the breach usually coincides with the partition of competences and general tasks between the Bund and the Länder, found

 Article 104a(1)(1) GG: ‘Bund und Länder tragen nach der innerstaatlichen Zuständigkeits- und Aufgabenverteilung die Lasten einer Verletzung von supranationalen oder völkerrechtlichen Verpflichtungen Deutschlands’. 29  § 1(1) LastG: ‘Verpflichtungen der Bundesrepublik Deutschland zu finanzwirksamen Leistungen wegen der Verletzung supranationaler oder völkerrechtlicher Verpflichtungen im Bereich der Gesetzgebung, der Verwaltung oder der Rechtsprechung werden im Verhältnis von Bund und Ländern von derjenigen staatlichen Ebene getragen, in deren innerstaatlichen Zuständigkeits- und Aufgabenbereich die lastenbegründende Pflichtverletzung erfolgt ist’. 30  BT-Drucks 16/813, p. 19; Knief, this chapter, fn. 19, pp. 224–226; Mitsch, this chapter, fn. 19, pp. 196–197. 28

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in Article 30, Articles 70 et seq, Articles 83 et seq and Article 92 et seq GG.31 Article 30 GG states that except otherwise stipulated by the GG, the exercise of state powers and the discharge of state functions is a matter for the Länder. Thus, as a default rule, the Länder act. Articles 70 et seq GG govern the division of legislative competences between the Bund and the Länder. Articles 83 et seq GG govern the administration, execution and application of federal laws. The Länder do not only execute their own state laws but, pursuant to Article 83 GG the Länder, unless otherwise provided, execute federal laws. Articles 92 et seq GG set out the judicial authority between the Bund and the Länder, the federal courts only functioning as courts of last instance. It follows from all that that the entity that has the legislative, executory or judicial competence as derives from the GG for the matter that caused the financial burden on the international plane, bears financial responsibility under Article 104a(6) GG and § 1(1) LastG. To illustrate, If a claimant succeeds on a claim targeting a law, Articles 70 et seq GG must be consulted for the division of competences regarding regulatory action; if a claimant succeeds on a claim targeting the execution of a law, Articles 83 et seq GG must be consulted for the division of executory and administrative action; and if a claimant succeeds on claim targeting the application of the law by the courts, Articles 92 et seq GG must be consulted for the division of judicial competences. What becomes obvious is that originator principle of the German allocation system does not prioritise regulatory or legislative competences over executive, applicatory or judicial competences.32 This means that in cases where the Länder breach international law and cause a financial burden by (correctly) executing, applying or enforcing a federal law, it is the Länder that remain financially responsible. The Bund is exempt from liability unless the federal law was challenged as well and found to breach international law. This way, the German allocation court is—for purposes of the internal allocation—absolved from looking into the binding effect of a federal law on the Länder, whether the conditions and thresholds for Länder action as stipulated in the federal law are met, whether a Land correctly applied and enforced a federal law and whether the federal law granted some margin of manoeuvre or discretion to act. Such a reading illustrates that Article 104a(6) GG and § 1(1) LastG is based on the understanding that a breach of international obligations and an ensuing financial burden can exclusively flow from administrative or judicial acts even though they are based on (federal) legislation, which not only potentially is in breach of an international obligation as well but which may have indirectly caused the breach by the administrative or judicial action of the Land in the first place. That a breaching conduct is based on a federal law is irrelevant for financial responsibility unless the federal law was equally found illegal under international law. This again shows that financial responsibility under Article 104a(6) GG and § 1(1) LastG is seen as a materialisation of administrative risks. As will become apparent further below, this is a major difference to the allocation under the REG. Under Article 3(1) (c) REG the regulatory competence of the EU trumps, under certain conditions, the 31 32

 Ibid.  BT-Drucks 16/813, p. 19.

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Member State implementation of the EU legislative act, triggering the internal financial responsibility of the EU, in cases where solely the Member State implementation action was challenged and found to breach the EU IIPA.33 This is one indication that the allocation under the REG is based on asset protection and budget neutrality. Back to the German allocation system, there are instances where the originator of the breach is not necessarily the one vested with the competence to act.34 This is particularly true as regards ultra vires acts, where the Bund or the Länder act even though not vested with the respective competence and cases where the Bund bindingly instructs the Länder to act.35 The divergence between the originator of the breach and the competence holder needs to be solved by way of corrective interpretation.36 Under the latter scenario it is not problematic to hold the Bund financially responsible as bindingly instructing the Länder is part of its administrative competences.37 The following apportionment pursuant to § 1(2) LastG should then allocate financial responsibility fully to the Bund.38 The ultra vires scenario necessitates the application of the originator principle instead of the division of competences by means of a teleological reduction of Article 104a(6) GG.39 This seems warranted given that the financial burden is caused by the action. Furthermore, § 1(1) LastG emphasises the causal link between the treatment and the financial burden and privileges, in contrast to Article 104a(6) GG, the originator principle over the division of competences. The allocation of financial responsibility under Article 104a(6) GG and § 1(1) LastG is irrespective of actual fault, negligence or other requirements that might exist for a successful claim of state responsibility under German law.40 The German Federal Supreme Court stated that the internal allocation of financial responsibility concerns the objective and neutral allocation of causes and risks that led to the financial burden.41 If one were to rely on the additional criteria of fault or negligence this would mean to undermine the system under which liability was established (public international law) without any substantive justification for it and to confuse  See below Sect. 5.2.2.2.  Knief, this chapter, fn. 19, pp. 226–229. 35  Norbert Janz (2003) Das Weisungsrecht nach Art. 85 Abs. 3 GG: Inhalt, Grenzen und haftungsrechtliche Dimensionen. Duncker & Humblot, pp.  502 et  seq; Thomas Schmitt and Sebastian Wohlrab (2015) “Richtiger” Klagegegner bei Maßnahmen im Rahmen der Auftragsverwaltung nach Art. 85 GG am Beispiel des “Moratoriums” für Kernkraftwerke. 2015(4) NVwZ, pp. 193– 197; Knief, this chapter, fn. 19, pp. 226–229. 36  Knief, this chapter, fn. 19, p. 228. 37  BVerfG, 2 BvG 1/88, 22 May 1990, in NVwZ 1990, p. 955. 38  Knief, this chapter, fn. 19, pp. 228–229. For how an apportionment of a financial burden functions, see below Sect. 5.1.4. 39  Knief, this chapter, fn. 19, p. 228. 40  BVerfG, 2 BvG 1/04, 17 October 2006, in NVwZ 2007, pp. 196–197; incidentally confirmed by the German Federal Administrative Court: BVerwG, 3 A 7/05, 26 April 2007, in NVwZ 2007, p. 1199; see also Stelkens, this chapter, fn. 1, p. 456. 41  BVerfG, 2 BvG 1/04, 17 October 2006, in NVwZ 2007, pp. 196–197. 33 34

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an allocation system with a liability system. To illustrate the practical repercussions, not only that the liability system under public international law might be strict and does not require fault or negligence; but even where it is based on such requirements, the threshold for liability must not necessarily be the same than under German domestic law. Adding domestic state liability requirements would render the internal allocation ineffective and moot, the financial burden resting, to a large extent, on the shoulders of the Bund.

5.1.4  T  he Apportionment of a Financial Burden Into a Bund and a Länder Share In some instances under the German allocation system, a financial burden cannot be fully allocated to one entity, but to both the Bund and a Land, or to multiple Länder. Then, an apportionment of the financial burden into share for the Bund and into a share for the Land or Länder concerned has to take place. Specifically, an apportionment is to be performed whenever it derives from Article 104a(6) GG and § 1(1) LastG that both the Bund and the Länder bear internal financial responsibility for a single, undivided financial burden. Put differently, the criteria of Article 104a(6) GG and § 1(1) LastG allocate a financial burden to both the Bund and the Länder, and since the criteria do not translate into a share of the financial burden for each to carry, an apportionment has to take place. This requires additional criteria to split the financial burden. Here, the question arises when does the need for an apportionment occur, i.e. when does an international verdict or a settlement churn out a single, undivided financial burden for which both the Bund and the Länder bear internal financial responsibility? This is usually not the case in the context of international verdicts based on conduct of the Bund and a Land that independently breached an international obligation and independently caused damages and each conduct was part of a separate damages claims. Then, the international court in a verdict will usually calculate and allocate a specific amount of damages to be paid to each conduct based on each separate claim. Here, according to the above-mentioned criteria each amount can be allocated to either the Bund or the Land concerned. There is no need for an apportionment. Conversely, there is a need for an apportionment in cases of international verdicts that are based on a single damages claim successfully challenging conduct for which the Bund is internally responsible and successfully challenging conduct for which the Länder are internally responsible. Such cases can occur where the Bund and a Land or multiple Länder cumulatively or independently breach international law and together caused a financial loss. Here, the international court will only calculate a single amount of damages to be paid as originally claimed by the claimant. An apportionment is required. The need for an apportionment also regularly arises in cases of settlements, even though separate conduct of the Bund and a Land or

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multiple Länder was subject of the international proceedings, and even though each conducts is subject of a separate damages claim. Parties to a settlement usually do not allocate specific sums to specific claims or specific conduct, which could be allocated separately to the Bund and the Land or Länder concerned. Rather, it is the gist of settlements that the parties agree on a single amount to be paid by the respondent against the promise of the claimant to not further pursue its claims.42 The German legislator predicted that a financial burden and a violation of supranational or international obligations might be the product of conduct of both the Bund and one or more Länder and that an international verdict or settlement only churns out a single, undivided financial burden to be divided between the Bund and Länder by virtue of the allocation criteria. The German legislator adopted the LastG to precisely address the issue of apportionment of a financial burden into a share to be borne by the Bund and into a share to be borne by the Land or the Länder concerned.43 Even before the adoption of Article 104a(6) GG and the LastG, the German Federal Supreme Court found that an undivided financial burden could be shared between the Bund and the Länder. Specifically, an apportionment could be based on the principle of ‘Mitverschulden’,44 to be translated as ‘contributory cause’ or ‘contributory negligence’, a principle borrowed from tort law, precisely from § 254 German Civil Code (Bürgerliches Gesetzbuch, BGB)45 that is equally applicable in German public law.46 This suggestion met resistance as it was argued that the legal nature of an allocation mechanism is incompatible with an apportionment mechanism that would require the injection of elements such as fault, negligence and causation, which are typical elements or factors in establishing liability.47 The German Federal Supreme Court countered such concerns by referring to the adaptable nature of § 254 BGB.  The norm would even be applicable in strict liability regimes that are devoid of fault or negligence and the norm epitomises the principle that whoever causes damages shall carry responsibility.48 Moreover, the principle of allegiance to the federal government (‘Prinzip der Bundestreue’ or ‘Prinzip des bundesfreundlichen Verhaltens’), which is comparable to the principle of duty of cooperation enshrined in Article 4(3) TEU, justifies an apportionment.49 Indeed, apportionment is now explicitly enshrined in § 1(2) LastG.  Cf. below Sect. 5.2.4.2.3.  BT-Drucks 16/814, p. 22. 44  Mitsch, this chapter, fn. 19, p. 200. 45  § 254(1) BGB reads: ‘Hat bei der Entstehung des Schadens ein Verschulden des Beschädigten mitgewirkt, so hängt die Verpflichtung zum Ersatz sowie der Umfang des zu leistenden Ersatzes von den Umständen, insbesondere davon ab, inwieweit der Schaden vorwiegend von dem einen oder dem anderen Teil verursacht worden ist’. The English translation reads: ‘Where fault on the part of the injured person contributes to the occurrence of the damage, liability in damages as well as the extent of compensation to be paid depend on the circumstances, in particular to what extent the damage is caused mainly by one or the other party’. 46  BVerfG, 2 BvG 1/04, 17 October 2006, in NVwZ 2007, p. 197. 47  Stelkens, this chapter, fn. 1, pp. 440–441. 48  BVerfG, 2 BvG 1/04, 17 October 2006, in NVwZ 2007, p. 197. 49  BVerfG, 2 BvG 4/98, 27 June 2002, in NVwZ 2003, 595. 42 43

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§ 1(2) LastG sets forth the conditions and criteria for an apportionment. The provision reads ‘[w]here breaches of obligations have been found that fall under the competences and responsibilities of both the Bund and the Länder, the Bund and the Länder concerned shall bear financial responsibility to the extent that the respective breaches have contributed to the financial burden, unless otherwise provided by this law’.50 It follows from the wording that an apportionment is conditioned on the fact that conduct of both the Bund and the Länder have been found to breach international obligations and that both have contributed to the financial burden.51 The Federal Administrative Court confirmed that the allocation of financial responsibility to an entity pursuant to § 1(2) LastG for a particular action is contingent upon a finding that its conduct constitutes a breach of an international obligation.52 This means in concreto that, first, there is no apportionment where a claimant challenges actions for which only the Bund or only a Land is internally responsible. Hence, in cases where only conduct of a Land was challenged before the international court and found to breach an international obligation, yet, for example, the Land only correctly applied or executed binding federal law enacted by the Bund, which was not specifically challenged before the international court, only the Land incurs financial responsibility, and not the Bund, and there is no apportionment.53 As will be further below, under the REG, an apportionment of a financial burden into a EU and a Member State share is possible even where only Member State treatment was challenged before an Arbitral Tribunal.54 Second, there is no apportionment where a claimant did challenge actions for which both the Bund and the Länder are internally responsible, but the international adjudication body (in a verdict) or the parties (in a settlement) explicitly and clearly only found conduct of either the Bund or the Länder to be in breach of international obligations.55 This follows from §1(2) LastG that, in principle, couples financial responsibility for a conduct to the finding that such conduct has breached an international obligation. In such cases, the entire financial burden is allocated to the entity whose conduct was found in breach of the international obligation. Importantly, however, in cases where a claimant challenged actions of both the  § 1(2) LastG: ‘Bei festgestellten Pflichtverletzungen im innerstaatlichen Zuständigkeits- und Aufgabenbereich sowohl des Bundes als auch der Länder, tragen Bund und Länder die Lasten in dem Verhältnis des Umfangs, in dem ihre Pflichtverletzungen zur Entstehung der Leistungspflicht beigetragen haben, soweit dieses Gesetz nicht etwas anderes bestimmt’. 51  BT-Drucks 16/814, p. 22. 52  BVerwG, 3 A 7/05, 26 April 2007, in NVwZ 2007, p. 1201. 53  Landgericht Marburg, 2 O 63/13, 8 July 2014, in BeckRS 2015, 07833. 54  See below Sect. 5.2.5. 55  The German Federal Administrative Court ruled that in a case where the claimant impugned both actions of the Bund and the Länder there is no need for an apportionment of the financial burden where the international verdict or the settlement of the parties clearly indicates that only actions of the Bund or the Länder breached the international obligation. See BVerwG, 3 A 7/05, 26 April 2007, in NVwZ 2007, p.  1201 (a settlement was exclusively based on Länder action); Bundesverwaltungsgericht, 3 A 5/05, 26 April 2007, in NVwZ 2008, p. 88, the ECtHR only saw organs of the Länder to be in breach and a settlement was exclusively based on Länder action. 50

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Bund and a Land or multiple Länder but it does not derive from the verdict or the settlement whether all actions actually breached international law, it is assumed that all actions breached international law for purposes of the internal allocation of financial responsibility.56 The reason lies again in the fact that the allocation court shall not be burdened with such a task.57 In order to find out whether conduct of both the Bund and the Länder are challenged in the international proceedings and whether both were found to breach international law, the German allocation court must consult the findings of the international court or the facts established in its decision, or in case of a settlement, where there are no facts established by the international court, the court must revert to the undisputed facts agreed upon by the parties in their submissions, briefs and memoranda.58 Now, in case it derives from that inquiry that both the Bund and the Länder have caused a financial burden, for which both are financially responsible pursuant to Article 104a(6) GG and § 1(1) LastG, the question arises how an apportionment of the financial burden functions. How much of the financial burden is to be allocated to the Länder and how much to the Bund and according to which criteria. §§2-4 LastG provide for specific criteria according to which an apportionment is to be performed. §§2-4 LastG are leges speciales to §1(2) LastG, as the latter only applies ‘unless otherwise provided by this law’. § 2 LastG governs the special case of ‘financial corrections’ of the EU. § 3 LastG governs the special case of EU ‘sanctions’ pursuant to Article 260 TFEU caused by the actions of multiple Länder. § 4 LastG governs the special case of international law violations by judicial bodies and was specifically intended to cover verdicts by the ECtHR.59 § 2 LastG apportions financial responsibility according to fixed percentages. As to § 3 LastG where the CJEU has sanctioned Germany for EU law-infringing actions of multiple Länder, only a percentage of the amount to be paid will be carried by each according to a special apportionment system called the Königsteiner Schlüssel. According to this system, the amount that each Land pays is calculated yearly: two-thirds according to the tax income and one-third according to its population. Pursuant to § 4(1) LastG60 ‘in the event that the international verdict concerned a breach of an obligation by a judicial court, the allocation of financial responsibility follows the court of the instance that took the respective decision. Where a federal court confirmed the decision of state court, the Bund and the Land concerned share the financial burden  BVerwG, 3 A 7/05, 26 April 2007, in NVwZ 2007, p. 1201; Stelkens, this chapter, fn. 1, p. 457. See also this chapter, fn. 24 and accompanying text. 57  Ibid. 58  BVerwG, 3 A 7/05, 26 April 2007, in NVwZ 2007, p. 1201; 2 BvG 1/04, 17 October 2006, in NVwZ 2007, p. 197; BT-Drucks 16/814, p. 22. 59  Stelkens, this chapter, fn. 1, p. 456; cf. BVerwG, 3 A 7/05, 26 April 2007, in NVwZ 2007, p. 1201. 60  § 4(1) LastG: ‘Erfolgt die Verurteilung wegen einer Verletzung von Verpflichtungen durch die Gerichte, ist für die Lastenzuordnung nach § 1 das Gericht der Instanz maßgeblich, das die beanstandete Entscheidung getroffen hat. Hat ein Gericht des Bundes die Entscheidung des Gerichts eines Landes bestätigt, tragen der Bund und das betroffene Land die Lasten je zur Hälfte’. 56

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in equal parts’. Thus, the financial burden is split 50/50. Pursuant to § 4(2) LastG61 ‘where the breach of an obligation concerned an excessive duration of proceedings which were pending both before federal and state courts, the extent of financial responsibility borne by each the Bund and the Land is proportional to the respective duration of proceedings’. Interestingly, § 2-4 LastG establish special criteria for an apportionment that leaves the allocation court no leeway or discretion for how to split the financial burden into a share for the Bund and a share for the Land or Länder concerned to carry. Pursuant to §§2-3 LastG the apportionment functions according to fixed percentages. Pursuant to § 4(1) LastG the financial burden is shared in equal parts; pursuant to § 4(2) LastG the financial burden is apportioned proportional to the duration of judicial proceedings. This way, the pre-established apportionment criteria in §§ 2-4 LastG facilitate the task of the court. The court does not have to establish its own criteria and does not have to weigh the contributions of the respective actions of the Bund and the Länder, and must not find the critical elements that drive such an assessment. Where the special regimes in §§ 2-4 LastG do not apply, the functioning of an apportionment is governed by §1(2) LastG according to which the Bund and the Land concerned ‘shall bear financial responsibility to the extent that the respective breaches have contributed to the financial burden’. How the allocation precisely functions, has not been dealt yet by a German court. What is certain though is that §1(2) LastG does not adopt the default procedure of compensation between joint and several debtors under § 426(1) BGB according to which ‘the joint and several debtors are obliged in equal proportions in relation to one another unless otherwise determined’.62 Rather, the term ‘contributed’ in §1(2) LastG alludes to the mechanism found it the law of torts pursuant to §254 BGB that enshrines the principle of ‘contributory cause’ or ‘contributory negligence’ according to which a claim can be reduced where the injured person contributed to the damage.63 The German Federal Supreme Court has hinted at that mechanism as well.64 Applying the legal operation to be performed in cases of ‘contributory cause’ or ‘contributory negligence’ to § 1(2) LastG, the German allocation court would have to weigh the contributions of each action on its own in order to split the overall financial burden into two adequate parts for each internally responsible entity to carry. Elements, intrinsic to the law of torts, such as intent, fault, ordinary or gross negligence, causation, avoidability, an excessive assumption of risk or the severity and gravity of the respective breaches become relevant. The basis for such an assessment is the factual matrix as established by the Tribunal or as laid down in the settlement and the undisputed submissions by the parties in the international proceedings.  § 4(2) LastG: ‘Bei Verurteilungen wegen überlanger Verfahrensdauer und Anhängigkeit sowohl bei Gerichten des Bundes als auch eines Landes werden die Lasten im Verhältnis der Anteile der beteiligten Gerichte an der Verfahrensdauer getragen’. 62  § 426(1) BGB reads: ‘Die Gesamtschuldner sind im Verhältnis zueinander zu gleichen Anteilen verpflichtet, soweit nicht ein anderes bestimmt ist’. 63  Mitsch, this chapter, fn. 19, p. 200. 64  BVerfG, 2 BvG 1/04, 17 October 2006, in NVwZ 2007, p. 197. 61

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No doubt, the way of performing an apportionment pursuant to §1(2) LastG creates unpredictability, as it is up to the court’s discretion how to apportion the financial burden between the Bund and the Länder, and as to which elements are decisive. Moreover, the weighing of each contribution according to the principle of ‘contributory cause’ and ‘contributory negligence’ opens an avenue into the merits of the international case. In that respect, the assessment required under §1(2) LastG might, arguably, introduce through the backdoor an assessment of whether the conduct of the Bund and the Länder actually breached international law in the rare cases where the verdict or settlement is silent or unclear on that. This is because the elements used to weigh each conduct are necessarily premised on the fact that the conduct breached international law. Elements such as fault, negligence and avoidability, for example, appear in a different light when the conduct was perfectly legal under international law. So, where a conduct did not breach international law, it shall significantly lower its contribution to the financial burden, and thus, the share of responsibility it entails, or even exempt the entity wholly from internal financial responsibility. The assumption, as briefly mentioned earlier that all the treatments challenged by the claimant breached international law can, thus, be reversed under the assessment pursuant to §1(2) LastG. This is not possible under §2-4 LastG or § 426(1) BGB. Thus, §1(2) LastG might nevertheless burden the allocation court with the task of assessing the legality of conduct under international law where this does not follow from the verdict or the settlement. This was, arguably, not intended by the legislator that attempted to free the allocation court from such inquiries. Furthermore, such mandate of the allocation court to look into questions of legality might lead to disruptions in the allocation and a dismissal of the reimbursement claim of the Bund against the Länder in case the court does not find any breach of international law at all. As to the benefits, §1(2) LastG enables the allocation court to find a fair result on a case-by-case basis and to take into account the fact that the contribution of one entity to the financial burden or breach was only marginal. This would not be the case if the Bund and Länder would categorically share the financial burden in equal parts, on a pro rata basis or according to fixed percentages as under §2-4 LastG and § 426(1) BGB. Moreover, §1(2) LastG alleviates the risk that the Bund abuses its prerogative to agree to settlements—which does not depend on the approval of the Länder—in cases where conduct of the Länder only marginally or not at all breached international law but which would lead the Länder to carry the financial burden in pre-determined or equal parts. In the end, the risk of disruptions in the allocation in case the verdict or settlement is unclear as to illegality of the challenged conduct and the allocation court did not find a breach of international law could be countered by reverting to aa apportionment of the financial burden in equal parts in such instances.

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5.1.5  Summary on Germany’s Allocation System The German system allocates financial responsibility arising out of international verdicts and settlements to the originator of the breach, which usually coincides with the division of competences and general tasks under German law. This leads to financial responsibility of the Länder even when they correctly implement a federal law. That the federal law equally breached international law and required the Land to act in the first place is irrelevant if the federal law itself was not challenged on the international plane. This demonstrates that the allocation is understood as materialisation on administrative risks. The German system further wisely provides for solutions on how to perform an apportionment, where actions of both the Bund and the Länder breached international law and both ought to carry a financial burden according to the allocation criteria, yet the financial burden arising out of the international verdict or settlement is undivided. The solutions vary between allocating fixed percentages to a case-by-­ case analysis that takes into account the contributions of each conduct to the breach and the financial burden. The latter approach reintroduces elements such as fault and negligence and opens a backdoor into the merits of the international case.

5.2  I nternal Allocation of Financial Responsibility Between the EU and the Member States Under the REG Article 3 REG governs the internal allocation between the EU and the Member States of financial responsibility resulting from international proceedings in form of monetary awards and settlements arising out of disputes under EU IIPAs. Article 3 REG stands at the core of the REG. It sets out the criteria for allocation as a matter of EU law. Yet allocation criteria alone are quite toothless. Enforcing the allocation requires a redress and reimbursement mechanism. This is why Article 19 REG establishes a basis for reimbursement where the debtor of external financial responsibility vis-à-vis an investor is not the one who bears internal financial responsibility under Article 3 REG. Article 2(g) REG defines financial responsibility as an ‘obligation to pay a sum of money awarded by an arbitration Tribunal or agreed as part of a settlement and including the costs arising from the arbitration’. It follows that a financial burden can arise from a compensation sum awarded by an Arbitral Tribunal or agreed as part of a settlement. The ‘costs arising from the arbitration’ pursuant to Article 2(b) REG, arguably, comprise the fees and expenses of the Tribunal, the fees and costs of an arbitral institution (if used) and the costs of representation. Recital 5 establishes the rationale and guiding principles for the allocation: [A]n adverse award may potentially flow either from treatment afforded by the Union itself or from treatment afforded by a Member State. It would as a consequence be inequitable if awards and the costs of arbitration were to be paid from the budget of the Union where the

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treatment was afforded by a Member State, unless the treatment in question is required by Union law. It is therefore necessary that financial responsibility be allocated, as a matter of Union law, between the Union itself and the Member State responsible for the treatment afforded on the basis of criteria established by this Regulation [emphasis added].

The Explanatory Memorandum to the REG echoes: It is important to separate the issue of the conduct and management of an investor-to-State arbitration claim from the issue of the allocation of financial responsibility. This is necessary in order to ensure the fair allocation of costs, so that the EU budget – and consequently the budgets of Member States not concerned with the claim in question – are not burdened with costs relating to treatment afforded by one Member State. Therefore, regardless of whether the Union or a Member State acts as respondent to a claim, the financial ­responsibility for any costs should follow the origin of the treatment of which the investor complained [emphasis added].65

It follows that the allocation under the REG shall be based on budget neutrality and financial fairness. As all Member States pay financial contributions to the budget of the EU, it is important that the allocation functions in a way that the EU budget is only burdened where the EU acts or where the EU requires its Member States to act in a certain manner. Where, on the other hand, a particular Member State conduct leading to a financial burden has nothing to do with EU law, the EU budget shall not be affected. Moreover, the REG establishes allocation criteria as a matter of EU law that are not only independent and separate from public international law and international responsibility but also, importantly, independent and separate from the external aspects of the REG, i.e. respondent status, settlement rights and external payment obligations. As to structure, this part will first explain why it makes little sense to draw analogies from the EU State responsibility regime for interpreting the allocation criteria under the REG (Sect. 5.2.1). An analysis of the allocation criteria under the REG criteria will follow (Sect. 5.2.2). The part will continue with examining the reimbursement mechanism under the REG (Sect. 5.2.3). Then, the binding effect of the content of the award or settlement for the allocation will be analysed (Sect. 5.2.4), followed by a discussion of how under the REG a financial burden for which both the EU and a Member State bear financial responsibility pursuant to Article 3(1) REG shall be apportioned, i.e. split into a EU and a Member State share (Sect. 5.2.5).

65

 Explanatory Memorandum to the REG, p. 5.

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5.2.1  T  he Limited Value of Drawing Analogies from the EU State Responsibility Regime for Interpreting and Complementing the Allocation Criteria Under the REG Article 3 REG establishes the criteria for the allocation of financial burdens stemming from an arbitral award or settlement, and Article 19 REG provides for a reimbursement mechanism for enforcing the allocation. Article 3 REG and Article 19 REG is no autonomous legal basis for liability.66 The attempt of drawing analogies from the EU state responsibility regime to interpret the allocation system under Article 3 REG should be treated with utmost caution.67 This is because, for one, liability systems and allocation systems are conceptually different. The former requires a breach of obligations and rely on conditions and thresholds. The latter are derivate systems. They merely allocate the financial burden that arises as a consequence of the aforementioned liability systems. For two, the criteria that establish EU or Member State liability for breaches of EU law are different to the criteria of the REG that allocates financial responsibility. Put differently, what determines State responsibility of the EU or a Member State for EU law breaches does not necessarily determine internal financial responsibility for breaches of EU IIPAs. To illustrate the first point, as opposed to allocation and reimbursement systems, non-contractual liability claims against the EU or the Member States for breaches of EU law are contingent upon certain requirements and thresholds. A distinction can be drawn between acts that are illegal under EU law and acts that are legal under EU law. Non-contractual liability claims of private individuals against Member States for EU law infringements,68 which can follow from administrative acts or legislative acts, require that (i) the rule of law infringed must confer individual rights, (ii) that the breach must be sufficiently serious and (iii) that there must be a direct causal link between breach and damage sustained.69 The test to meet the ‘sufficiently serious breach’-threshold requires that the Member State ‘manifestly or gravely disregarded’ the limits of its discretion.70 Here, elements to be taken into consideration are whether the infringement and the damage caused was intentional, and whether and to what extent any error of law was excusable.71 State responsibil Dimopoulos, above Chap. 2, fn. 112, p. 1705.  But see Kleinheisterkamp, above Chap. 3, fn. 111, p. 15; Jan Kleinheisterkamp (2014) Financial Responsibility in the European International Investment Policy. 63(2) IntlCLQ, p. 459; Dimopoulos, above Chap. 2, fn. 112, p. 1703; Karpenstein/Kottmann, above Chap. 4, fn. 26, p. 257. 68  As established by CJEU jurisprudence, see precedent judgment: Joined Cases C-6 and 9/90 Francovich and Bonifaci [1991] ECR I-5373, para. 35: ‘It is a principle of Community law that the Member States are obliged to make good losses and damage caused to individuals by breaches of Community law for which they can be held responsible’. 69  Joined Cases C-46/93 and C-48/93 Brasserie du Pêcheur [1996] ECR I-1029, para. 51. 70  Ibid, para. 55. 71  Ibid, para. 56. 66 67

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ity for breaches of EU law, thus, introduces subjective elements of ‘fault’ or ‘negligence’.72 Non-contractual liability claims of private individuals against the EU for EU law infringements, which can follow from administrative acts or legislative acts,73 committed by EU institutions pursuant to Article 340(2) TFEU, largely depend on the same requirements and thresholds.74 As regards non-contractual liability of the EU for rules or acts that are legal under EU law, the wording of Article 340(2) TFEU does not exclude such liability of the EU in general. However, the CJEU, after first having left open such possibility stating that ‘in the event of the principle of [EU] liability for a lawful act being recognized in [EU] law, a precondition for such liability would in any event be the existence of ‘unusual’ and ‘special’ damage’,75 now rejects such EU liability altogether.76 As opposed to the EU State responsibility regime just described, the allocation and reimbursement system under the REG must be free from additional requirements and thresholds. It is derivate in the sense that it is only triggered whenever there is a financial loss ensuing from a dispute under a EU IIPA. Most importantly, it is the EU IIPA and applicable international law that sets the conditions and thresholds for liability under the EU IIPA. It is solely the Arbitral Tribunal, or the parties for that matter in form of a settlement, that have the mandate to assess whether an obligation under a EU IIPA is breached, whether the conditions and thresholds for liability under the EU IIPA are met and whether the investor has incurred recoverable damages and to what extent. If one would inject the conditions and thresholds of the EU state responsibility regime into the system of allocation under the REG by way of analogy, the functioning of the allocation system would deteriorate altogether. The financial burden could not be allocated to the party liable pursuant to Article 3 REG because the requirements and thresholds of the EU state responsibility regime are not met. The allocation system under the REG would transform into a ‘false’ liability system. Put differently, the allocation system would be (ab)used to settle disputes of possible infringements of EU law. This is precisely not the function of the REG. Just as the German Federal Constitutional Court stated, an alloca Ibid, para. 78.  Case C-352/98 Bergaderm [2000] ECR I-5291, para. 44. 74  See e.g. Irmgard Marboe (2010) State Responsibility and Comparative State Liability for Administrative and Legislative Harm to Economic Interests. In: Stephan W Schill (ed.) International Law and Comparative Public Law. Oxford University Press, pp.  399–402; and at p.  405: ‘The result is that, today, the two systems run in parallel. There should no longer be any difference between EU liability and Member State liability as far as the applicable principles and criteria are concerned. This is so despite of [sic] fact that only the former has its legal basis in the founding Treaty itself while the latter has no written basis and has only been developed by the jurisprudence of the ECJ.  This has not been changed by the recent reforms in the draft Constitution of the European Union and the Treaty of Lisbon’. 75  Case C-237/98 Dorsch Consult [2000] ECR I-4549, para. 18, with citations therein. 76  Joined Cases C-120/06 P and C-121/06 P FIAMM and Fedon [2008] ECR I–6513, para. 176: ‘As Community law currently stands, no liability regime exists under which the Community can incur liability for conduct falling within the sphere of its legislative competence in a situation where any failure of such conduct to comply with the WTO agreements cannot be relied upon before the Community courts’. 72 73

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tion system can only function properly if the internal allocation system does not contain additional conditions or thresholds.77 As a result, the allocation of Article 3 REG must be held free of any additional conditions or thresholds that may be required for EU or Member State liability under the EU state responsibility regime. As to the second point, drawing analogies from the criteria of the EU state responsibility regime that determine whether the EU and or the Member State is liable for EU law infringements in order to interpret the allocation criteria in Article 3 REG can prove troublesome in some constellations of the decentralised implementation of EU law by the Member States.78 This is mainly due to the fact that the allocation under the REG, as will be analysed in more detail below, takes into account the EU’s and the Member State’s contribution to the breach of the EU IIPA and, thus, the test for the allocation requires an assessment of public international law.79 In contrast, the test under the EU state responsibility regime for EU law infringements lacks the layer of public international law. Without going into much detail here, suffice it to refer to the example where a Member State breaches an obligation under the EU IIPA whilst implementing a EU act. Where a Member State had a margin of manoeuvre to act or even did not act in compliance with the EU act, one tends to allocate liability to the Member State under the criteria of the EU state responsibility regime. However, what about the EU’s contribution to the breach of the EU IIPA? Cases are conceivable where every way to exercise the margin of manoeuvre or even a EU law-compliant behaviour by the Member States would not have avoided the breach of the EU IIPA. In these cases, it is clear that the EU content that is necessarily reflected in the Member State implementing act is at the centre of the breach of the EU IIPA. This demonstrates that the criteria for EU state responsibility on the one hand and the criteria for allocating financial responsibility arising out of international law breaches do not necessarily run along synchronic lines. In conclusion, the criteria established by the EU state responsibility regime cannot adequately and exhaustively deal with the allocation of financial responsibility arising from breaches of EU IIPAs since they turn a blind on the EU’s and Member State’s contribution to the breach of the EU IIPA. As a result, Article 3 REG should be conceived as a self-contained and autonomous allocation system. Article 3 REG should be insulated from any parallels and analogies to the EU state responsibility regime.

 BVerfG, 2 BvG 1/04, 17 October 2006, in NVwZ 2007, pp. 196–197.  But see Kleinheisterkamp, above Chap. 3, fn. 111, p. 15; Kleinheisterkamp, above this chapter, fn. 67, p. 459; Dimopoulos, above Chap. 2, fn. 112, p. 1703; Karpenstein/Kottmann, above Chap. 4, fn. 26, p. 257. 79  See Article 2(l) REG and below Sect. 5.2.2.2.1. 77 78

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5.2.2  The Allocation Criteria Pursuant to Article 3 REG Article 3 REG sets out the criteria for the allocation of financial responsibility between the EU and the Member States: 1. Financial responsibility arising from a dispute under an agreement shall be apportioned in accordance with the following criteria: (a) the Union shall bear the financial responsibility arising from treatment afforded by the institutions, bodies, offices or agencies of the Union; (b) the Member State concerned shall bear the financial responsibility arising from treatment afforded by that Member State; (c) by way of exception to point (b), the Union shall bear the financial responsibility arising from treatment afforded by a Member State where such treatment was required by Union law. Notwithstanding point (c) of the first subparagraph, where the Member State concerned is required to act pursuant to Union law in order to remedy the inconsistency with Union law of a prior act, that Member State shall be financially responsible unless such prior act was required by Union law. 2. Where provided for in this Regulation, the Commission shall adopt a decision determining the financial responsibility of the Member State concerned in accordance with the criteria laid down in paragraph 1. The European Parliament and the Council shall be informed of such a decision. 3. Notwithstanding paragraph 1 of this Article, the Member State concerned shall bear the financial responsibility where: (a) it has accepted potential financial responsibility pursuant to Article 12; or (b) it enters into a settlement, pursuant to Article 15. 4. Notwithstanding paragraph 1 of this Article, the Union shall bear the financial responsibility where the Union acts as the respondent pursuant to Article 4.

The allocation under Article 3 REG is premised on the fact that it is clear which treatment has caused a specific financial burden (‘financial responsibility arising from treatment’).80 For having a sound discussion of the allocation criteria, the following discussion is based on the premise that a particular monetary amount (financial burden) can be fully allocated to a particular treatment. The question whether awards or settlements are always clear as to which treatment out of multiple treatments impugned caused the financial burden, is dealt with further below.81 The problems for the allocation of financial responsibility when it is unclear, which treatment out of multiple treatments has caused the financial burden, are dealt with in Part V.82

 Kleinheisterkamp, above Chap. 3, fn. 111, p. 15.  See below Sect. 5.2.4.2.3. 82  See below Sect. 6.3. 80 81

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5.2.2.1  A  rticle 3(1)(a) and (b) REG: Financial Responsibility Lies with the Originator of the Treatment That Led to the Financial Burden Pursuant to Article 3(1)(a) and (b) REG the allocation follows the principle that the financial burden lies with the formal issuer or originator of the treatment that has caused the financial burden.83 Simply, if an organ of the EU (‘institutions, bodies, offices or agencies of the Union’) afforded the treatment that has led to a financial burden, the EU is internally responsible pursuant to Article 3(1)(a) REG. If an organ of a Member State afforded the treatment that has led to a financial burden, the Member State is internally responsible pursuant to Article 3(1)(b) REG. 5.2.2.2  F  inancial Responsibility of the EU Pursuant to Article 3(1)(c) REG for Member State Treatment ‘Required by Union Law’ Article 3(1)(c) REG introduces an exception to the financial responsibility of the Member States pursuant to Article 3(1)(b) REG where Member State treatment was ‘required by Union law’. Before coming to its scope, it should be noted that financial responsibility of the EU pursuant to Article 3(1)(c) REG does not require that an investor has brought the EU treatment that ‘required’ the Member State to act before the Arbitral Tribunal and that the EU treatment was found to breach the EU IIPA and caused the financial burden. This derives e contrario from Article 3(1)(a) and (b) REG, where financial responsibility is ‘arising from treatment’, which can only be the case if treatment is brought before an Arbitral Tribunal. Conversely, Article 3(1)(c) REG is formulated as an exception to Article 3(1)(b) REG and does not share the wording of Article 3(1)(a) and (b) REG. As to the scope of Article 3(1)(c) REG, the terms ‘required’ and ‘Union law’ become crucial for the understanding of Article 3(1)(c) REG.  Article 2(k) REG reads: ‘Union law’ means the TFEU and the TEU, as well as any legal acts of the Union referred to in the second, third and fourth paragraphs of Article 288 TFEU and any international agreements to which the Union is party or the Union and its Member States are parties; for the sole purposes of this Regulation ‘Union law’ shall not mean the investment protection provisions in the agreement.

Article 288 TFEU lists regulations, directives, decisions, recommendations and opinions as acts of the institutions of the EU. ‘Union law’, hence, comprises EU law  Cf. Explanatory Memorandum to the REG, p.  2: ‘The central organising principle of this Regulation is that financial responsibility flowing from investor-state dispute settlement cases should be attributed to the actor which has afforded the treatment in dispute. This means that where the treatment concerned is afforded by the Union institutions then financial responsibility should rest with the Union institutions. Where the treatment concerned is afforded by a Member State of the European Union, then financial responsibility should rest with that Member State’.

83

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strictu sensu, such as the primary law of the EU Treaties and secondary EU law in the form of regulations, directives, decisions, recommendations and opinions. Additionally, international agreements to which the EU is contracting party might also constitute ‘Union law’ for purposes of the REG.  The investment protection provisions of the applicable EU IIPA are excluded, as this would cause a paradox to the allocation of financial responsibility. As to the question when Member State treatment is ‘required’, Article 2(l) REG provides: ‘required by Union law’ refers to treatment where the Member State concerned could only have avoided the alleged breach of the agreement by disregarding an obligation under Union law such as where it has no discretion or margin of appreciation as to the result to be achieved.

This definition introduces a test to assess whether a Member State treatment was required by EU law or not. There was no Article 2(l) REG under the Proposal REG. Article 2(l) REG establishes a ‘hypothetical causation’-test that aims at dissecting the EU’s from the Member State’s contribution to the breach of the EU IIPA. 5.2.2.2.1  T  he Hypothetical Causation-Test Under Article 3(1)(c) in Conjunction with Article 2(l) REG The test in Article 2(l) REG can only be properly understood by dissecting its individual elements. First, Member State treatment can only be ‘required by Union law’ pursuant to Article 3(1)(c) REG where the Member State acts in response to ‘an obligation under Union law’. Generally, EU obligations flow from the EU Treaties. Moreover, EU obligations flow from international agreements concluded by the EU, as pursuant to Article 216(2) TFEU Member States must implement the international agreements concluded by the EU. Secondary EU law equally create obligations for the Member States. Pursuant to Article 288(2) TFEU Member States must enforce and apply EU regulations; pursuant to Article 288(3) TFEU Member States must implement and transpose EU directives; pursuant to Article 288(4) TFEU Member States must implement Commission decisions. Opinions and recommendations, however, are not binding on the Member States and do not create a EU obligation for the Member States. The same is true for regulations, directives and decisions that authorise or give Member State the right to act in a certain way, but do not impose an obligation on the Member States. Importantly, many EU regulations couple the Member State’s obligation to act in a certain way to certain conditions and thresholds. Put differently, the ‘if’ or ‘whether or not’ to act under a regulation sometimes hinges upon the fulfilment of certain requirements or thresholds, as set forth in the regulation. This means that in order to find out whether a Member State acted in response to ‘an obligation under Union law’, it does not suffice to find out whether a regulation, or any other EU act, stipulated an obligation to act. Rather, one must first find out whether the regulation, or any other EU act, made the obligation to act contingent upon certain requirements or thresholds, and if so, whether the conditions or thresholds as set forth in

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the regulation, or the other EU act, were met. It should be noted here that the scenario where a Member State acted in response to a EU act although the conditions to act were not fulfilled or the threshold not reached is to be distinguished from the scenario where the conditions or thresholds were met, yet the Member State incorrectly implemented the regulation, or another EU act. Under the former there was no EU law obligation to act in the first place; the Member State treatment cannot fall under Article 3(1)(c) REG. Under the latter there was a EU law obligation to act, only the ‘how’ or outcome of the implementation of the EU law obligation was incorrect pursuant to EU law; here the Member State treatment can still fall under Article 3(1)(c) REG provided the test in Article 2(l) REG is fulfilled.84 The mere existence of a EU obligation vis-à-vis the Member States that required and prompted it to act is, however, not sufficient to determine that a Member State treatment is ‘required by Union Law’. Article 2(l) REG makes clear that this is only the case ‘where the Member State concerned could only have avoided the alleged breach of the agreement by disregarding an obligation under Union law [emphasis added]’. As follows from the wording ‘could only have avoided’,85 Article 2(l) REG employs a hypothetical causation-test. This test requires an assessment whether there was another way for the Member State to comply with the EU IIPA without disregarding a EU obligation. Such an assessment requires the identification of alternative Member State treatments and an assessment of theses treatments against the backdrop of the obligations under the EU IIPA.  Now, if the hypothetical causation-­test, after having found in a first step that the Member State acted in response to a EU law obligation, yields in a second step that alternative treatment could have avoided the breach of the EU IIPA, the test continues in a third step to analyse whether the alternative treatment would or would not have disregarded a EU obligation. The hypothetical causation-test under Article 2(l) REG avoids directly interfering with the Tribunal’s mandate to assess whether the actual treatment—challenged by the investor and brought before the Tribunal—constitutes a breach of the EU IIPA. However, the test might require an assessment of the content of the treatment standards under the EU IIPA, their interpretation and thresholds in order to find out whether alternative Member State treatment could have avoided a breach of the EU IIPA. The scope of Article 2(l) REG enters, thus, the substantive side of investment treaty law and can influence its development. This might open the Pandora’s Box given the vast and conflicting investment treaty arbitral case law, e.g. with respect to the contours of FET standard, indirect expropriation etc. A whole new set of disputes can emerge between the EU and the Member States as to when treatment standards are violated and whether alternative Member State treatment would have avoided a breach. The Commission and more so the CJEU would most certainly voice its own opinions on what constitutes a breach of treatment standards and

 See below Sect. 5.2.2.2.3.  The German version of the REG reads: ‘hätte vermeiden können’ and the French version reads ‘aurait pu éviter’.

84 85

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thereby not only influence the arbitral case law, in general, but might have an impact on the decision of the Tribunal on the merits.86 Conceptually, the hypothetical causation-test in Article 2(l) REG pitches the obligations of Member States to comply with the EU IIPA against the obligations of the Member States under EU law as defined in Article 2(k) REG.87 Thus, ‘required by Union law’ pursuant to Article 3(1)(c) REG visualises a scenario under which a Member State faces an irreconcilable normative conflict to simultaneously comply with two conflicting obligations. If the Member State could not have complied with the obligations flowing from the EU IIPA without disregarding a EU law obligation, liability shifts to the EU. Conversely, if the Member State could have complied with the EU IIPA and at the same time would have complied with its EU law obligations, liability remains with the Member States. Now, when does such a conflict occur? As the example in Article 2(l) REG makes clear (‘such as’), it occurs where a Member State has ‘no discretion or margin of appreciation as to the result to be achieved’ regarding the EU law obligation. Generally, this is the case when Member States implement EU regulations, directives and decisions pursuant to Article 288 TFEU. Member States are obliged under EU law to implement directives, regulations and decisions. There is no choice for the Member States whether or not to implement. Now if there was no other way for the Member State to avoid the breach of the EU IIPA apart from simply not implementing the EU act, then the obligations under the EU IIPA and the obligations under EU law would be irreconcilable. The rationale of Article 2(l) REG can be understood that in case of an irreconcilable clash of obligations, the EU law obligation stands at the core of the alleged breach of the EU IIPA and not the Member State treatment that physically caused the alleged breach. It is ‘the result to be achieved’ by the EU rule or act that is considered to stand at the centre of the breach of the EU IIPA, only that it was committed by and materialised through the Member State treatment. It is only sound that in such a case the EU incurs financial responsibility pursuant to Article 3(1)(c) REG. On an interesting note, the test in Article 2(l) REG, which shifts financial responsibility to the EU in case the Member State was in an irreconcilable normative conflict, is reminiscent of the test that triggers the co-respondent mechanism in disputes under the future mixed ECHR framework and would lead to joint responsibility of both the EU and the Member State concerned.88 Article 3(2) Draft ECHR Accession Agreement reads that ‘[w]here an application is directed against one or more member States of the European Union, the European Union may become a co-respondent to the proceedings in respect of an alleged violation notified by the  See below Sect. 6.2.  Member States are obliged to comply with mixed EU IIPAs as matter of public international law and EU law pursuant to Article 216(2) TFEU. EU-only IIPAs also establish obligations for the Member States. Here, however, the obligation exclusively flows from EU law pursuant to Article 216(2) TFEU. In a strict sense the conflict of obligations is one of EU law. 88  Explanatory Report to the ECHR Accession Agreement, para. 48; see also Den Heijer/ Nollkaemper, above Chap. 3, fn. 103, p. 11; Lock, above Chap. 4, fn. 6, p. 176; ECHR: Answers to frequently asked questions (30 April 2013) Accession by the European Union to the European Convention on Human Rights, p. 4. 86 87

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Court if it appears that such allegation calls into question the compatibility with the rights at issue defined in the Convention or in the protocols to which the European Union has acceded of a provision of European Union law, including decisions taken under the Treaty on European Union and under the Treaty on the Functioning of the European Union, notably where that violation could have been avoided only by disregarding an obligation under European Union law [emphasis added]’. 5.2.2.2.2  A  voiding a Breach of the EU IIPA Without Disregarding a EU Law Obligation The question arises: When ca Member States avoid breaching a EU IIPA without disregarding the EU law obligation? EU regulations and EU decisions, as opposed to EU directives, may sometimes not even give Member States any discretion or margin of appreciation with respect to the ‘form and method’, i.e. the ‘how’ of their implementation. In those cases, and given that the conditions of the EU act to act in the first place were met (thus creating an obligation under EU law to act), and given that the Member State correctly implemented the EU act, it seems clear from the beginning that there was no other way to comply with the EU IIPA without disregarding the EU obligation. The rationale of Article 3(1)(c) REG fully applies. There is an irreconcilable normative conflict in that the Member State could only have avoided the breach by not implementing the EU rule. Again, in this case it is ‘the result to be achieved’ by the EU rule that is at the core of the breach of the EU IIPA. Oftentimes however, Member States enjoy discretion or margin of appreciation with respect to the ‘form and method’, i.e. the ‘how’ of the implementation of EU acts. For example, when a Member State transposes a directive, it is always—as Article 288(3) TFEU makes clear—left with a ‘choice of form and methods’ to achieve the aim of the directive. There is no single standard of how to transpose a directive into domestic law. One form can be a simple incorporation of the wording and terms of a directive into domestic law. Another form can be the adoption of domestic legislation that only loosely absorbs the aim of a directive. EU regulations can equally confer discretion or a margin of appreciation as to their application and enforcement, as infinitesimal as the margin may be. For example, regulations may contain undefined legal terms and concepts and give the Member States various options to act. Decisions may as well vest the Member States with a margin of manoeuvre. Now, where Member States enjoy discretion or margin of appreciation with respect to the ‘form or method’ of implementation of a EU law obligation, there is room for an assessment whether there was a way that the Member States could have avoided the alleged breach of the EU IIPA without disregarding the EU obligation pursuant to Article 2(l) REG. Strictly speaking, with respect to the ‘how’ of implementation, there is no EU obligation that can be disregarded. It opens the possibility that there was no irreconcilable conflict and that the alleged breach of the EU IIPA is not based on ‘the result to be achieved’ reflected in the EU act, but on the ‘form or method’ of implementation freely chosen by the Member State.

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If the test under Article 2(l) REG yields that there was a way for the Member State concerned—a ‘form or method’ of exercising the discretion or margin of appreciation—to implement a EU rule or act in a manner that would have avoided the alleged breach of the EU IIPA, there is no financial responsibility of the EU under Article 3(1)(c) REG. For instance, if a Member State could have transposed a directive in a way that would not have breached the EU IIPA, there is no EU liability because there was no irreconcilable conflict. The Member State had various options to implement the EU directive including the one not breaching the EU IIPA. Therefore, the Member State could not only have complied with the obligation to implement the directive but also it could have complied with the EU IIPA. It follows that the breach of the EU IIPA and the financial burden—as expressed in the verdict or settlement—is fully rooted in the implementation act of the Member State and is entirely disconnected from the EU rule or act. The rationale of Article 3(1)(c) REG that the EU should be liable where it brings its Member State in a ‘catch-22’ situation to either breach a EU obligation or an obligation under the EU IIPA does not apply here since the Member State had a choice to comply with both. In contrast, if the test under Article 2(l) REG yields that there was no way for the Member State concerned, i.e. no ‘form or method’ of exercising the discretion or margin of appreciation in order to implement a EU rule or act in a manner that would have avoided the alleged breach of the EU IIPA, liability of the EU under Article 3(1)(c) REG is warranted. This is because in such a scenario the Member State is equally faced with an irreconcilable conflict between the EU IIPA and the EU law obligation since the Member State is in the same situation as when it has ‘no discretion or margin of appreciation as to the result to be achieved’. If every other way to implement the EU rule or act breaches the EU IIPA, the choices of the Member State boil down to non-implementation. The breach of the Member State directly translates into a breach by the EU. The Member State treatment cannot be disconnected from the EU act that required the Member State to act. It follows that Member State treatment can be ‘required under Union law’ pursuant to Article 3(1) (c) REG even when it enjoys discretion or a margin of appreciation with respect to the implementation of a EU obligation.89 5.2.2.2.3  M  ember States ‘Incorrectly’ Implementing EU Law Obligations and Article 3(1)(c) REG How is a scenario to be treated where a Member State had an obligation under EU law to act, yet the ‘how’ of the Member State implementation, the implementation itself violated EU law? It is true that the term ‘required’,90 if read in isolation, implies that Member State treatment that incorrectly implements a EU law obliga Karpenstein/Kottmann, above Chap. 4, fn. 26, pp. 257–258; Tietje/Sipiorski/Töpfer, above Chap. 2, fn. 69, pp. 18, 19. But see Kleinheisterkamp, above Chap. 3, fn. 111, p. 15; Dimopoulos, above Chap. 2, fn. 112, p. 1703. 90  In the German version it reads: ‘vorgeschrieben’, and in the French version it reads: ‘réquis’. 89

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tion or that is non-compliant or in violation with EU law cannot be ‘required’ by EU law. EU law never calls for treatment that violates EU law. However, the hypothetical causation-test in Article 2(l) REG has a different understanding of ‘required’. For Member State treatment to fall under Article 2(l) REG, it is irrelevant whether the actual Member State treatment violated EU law or incorrectly implemented a EU obligation. The definition of ‘required’ pursuant to Article 2(l) REG does not look at whether the actual Member State treatment that caused the breach of the EU IIPA but whether alternative Member State treatment is compliant with EU law. The financial responsibility rules of the REG aim at targeting the author of the breach of the obligation of the EU IIPA and do not aim at sanctioning the Member States for behaviour that violates EU law.91 As a consequence, Member State treatment that is non-compliant with EU law can a priori be qualified as ‘required by Union law’ pursuant to Article 3(1)(c) REG as long as the Member State treatment passes the hypothetical test: That there was no other way, including EU law-compliant treatment, to avoid the alleged breach of the EU IIPA.92 If on the other hand EU law-­ compliant Member State treatment would have avoided the breach of the EU IIPA, the Member State treatment does not fall under Article 3(1)(c) REG. 5.2.2.2.4  T  he Hypothetical Causation-Test Under the REG and the Proportionality Test Under EU Law The hypothetical causation-test brings to mind the proportionality test under EU law (Article 5(4) TEU) employed to protect against excessively restrictive EU measures.93 One part of the test concerns ‘necessity’ where one must assess whether there would have been alternative EU measures available that could have achieved the legitimate aim of the measure but were less harmful and onerous. If there was a measure less onerous than the one actually selected and performed, the EU measure is unproportional and, therefore, unlawful. It appears, that the same rationale applies to the test of Article 2(l) REG. So at least when it comes to the test in Article 2(l) REG, there is a tradition in EU law to search for less onerous measures that can equally fulfil the legitimate aim of the measure.

 Recital 7 REG: ‘Financial responsibility should be allocated to the entity responsible for the treatment found to be inconsistent with the relevant provisions of the agreement’; Explanatory Memorandum to the REG, pp. 4–5. 92  Karpenstein/Kottmann, above Chap. 4, fn. 26, pp. 257–258. But see Kleinheisterkamp, above Chap. 3, fn. 111, p.  15; Dimopoulos, above Chap. 2, fn. 112, p.  1703; Tietje/Sipiorski/Töpfer, above Chap. 2, fn. 69, pp. 18–19. 93  For the proportionality test under EU law, see Alexander H Türk (2010) Judicial Review in EU law. Edward Elgar Publishing, pp.  135–138; Michael Wimmer (2014) The Dinghy’s Rudder: General Principles of European Union Law through the Lens of Proportionality. 20(2) EPL, pp.  337 et  seq; Kaczorowska-Ireland, above Chap. 3, fn. 199, pp.  125–126; Paul Craig (2010) Proportionality, Rationality and Review. 2010(2) NZLRev, p. 268. 91

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5.2.2.2.5  C  omparison of Article 3(1)(c) REG with the EU State Responsibility Regime Financial responsibility of the EU for the mere implementation of EU law by the Member States pursuant to Article 3(1)(c) REG resonates ECJ jurisprudence on non-contractual liability for breaches of EU law. Here, the criteria of the allocation under Article 3 REG and the criteria of the EU state responsibility regime run along synchronic lines. The ECJ consistently held that, where Member States merely implement unlawful EU acts, the EU bears liability.94 The rationale is that material damages are usually not the direct consequence of EU law but regularly materialise upon the administrative act of Member States that transpose, implement, execute, enforce and apply EU law.95 Hence, where the Member State act is merely the continuation of the unlawful EU act and rule, the Member State act must be attributed to the EU. Moreover, such a stance is in line with ECJ jurisprudence according to which EU law obliges Member States to effectively implement and enforce EU rules and acts until the rules or acts are formally declared null and void by the ECJ, even though the Member State has serious doubts as to the lawfulness of the rules or acts.96 Furthermore, the ECJ held that non-binding opinions or other acts, which might prompt but do not oblige Member States to act and thereby violating EU law, does not make the EU liable, which is in line with the criteria of Article 3(1)(c) REG.97 However, financial responsibility of the EU for the unlawful or discretionary implementation of EU law by a Member State pursuant to Article 3(1)(c) REG differs from ECJ jurisprudence. The ECJ held that the Member States bear liability for the unlawful implementation of lawful EU rules and acts. This can occur either where Member States do not implement a EU act in due time or where a Member State unlawfully uses its discretion or margin of appreciation or where Member States incorrectly apply EU law or incorrectly enforce EU acts, such as interpreting EU law in an inconsistent manner.98 This shows, again, that an analogy to the EU state responsibility regime would have proven unhelpful.  Case 5/71 Schöppenstedt [1971] ECR 975; Case 101/78 Granaria II [1979] ECR 623; Case 238/78 Ireks-Arkady [1979] ECR 2955, para. 6; Case 59/83 Biovilac [1984] ECR 4057, paras. 5 et seq; Case 175/84 Krohn [1986] ECR 753, paras. 28, 19; Case 81/86 De Boer Buizen [1987| ECR 3677, para. 8; Joined Cases C-106-120/87 Asteris [1988] ECR 5515, para. 18; Joined Cases C-104/89 and C-37/90 Mulder [1992] ECR 3061, para. 9; Case C-282/90 Vreugdenhil [1992] ECR 1937; Case T-18/99 Cordis [2001] ECR II-913, para. 26. 95  Joined Cases C-46/93 and C-48/93 Brasserie du Pêcheur [1996] ECR I-1029; Case C-445/06 Danske Slagterier [2009] ECR I-2119, para. 26. 96  Case 101/78 Granaria II [1979] ECR 623, paras. 4–6; Case 314/85 Foto-Frost [1987] ECR 4199. 97  Case 99/74 Société de Grands Moulins des Antilles [1975] ECR 1531; Case 12/79 Wagner [1979] ECR 3657; Case 133/79 Sucrimex [1980] ECR 1299; Case 217/81 Interagra [1982] ECR 2233. 98  Joined Cases C-106-120/87, Asteris [1988] ECR 5515, para. 20; Cases 5, 7, 13-24/66 Kampffmeyer [1967] ECR 245; Case 319/96, Brinkmann Tabakfabriken [1998] ECR 5255; Case 99/74, Société de Grands Moulins des Antilles [1975] ECR 1531. 94

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5.2.2.2.6  A  Single Member State Treatment Can ‘Partly’ Fall Under Article 3(1)(c) REG So far, it is clear that a Member State treatment can fully fall under Article 3(1)(c) REG in conjunction with Article 2(l) REG or fully fall under Article 3(1)(b) REG. Either the treatment was required by EU law—because there was no way to comply with EU law without breaching the EU IIPA—or it was not required— because there was a way to comply with EU law without breaching the EU IIPA. Upon closer examination of the REG though, it becomes clear that a single Member State treatment can partly fall under Article 3(1)(c) REG. This is clearly indicated by Recital 7 REG stating that where the EU, for example, adopts a directive ‘[…] the Union itself should bear financial responsibility in so far as the treatment concerned is required by Union law [emphasis added]’. ‘In so far as’ is different from ‘if’, ‘in the event’, ‘in the case’ or ‘provided that’ and is synonymous with ‘to the extent that’ or ‘inasmuch as’. The French and the German versions of the REG exhibit a similar meaning.99 This implies that Article 3(1)(c) REG is not necessarily an ‘either/or’-road. Rather, a single Member State treatment can be partly ‘required’ under Article 3(1)(c) REG and partly fall under Article 3(1)(b) REG. What is the scenario where a particular Member State treatment was only partly required by EU law pursuant to Article 3(1)(c) REG? Clearly, it cannot be a scenario where the test in Article 2(l) REG yields that the Member State could have avoided the alleged breach without disregarding a EU obligation. In such a scenario, the conditions for Article 3(1)(c) REG in conjunction with Article 2(l) REG are not met and the Member State treatment—though perhaps prompted by EU law—was not required by EU law. Thus, the Member State is responsible under Article 3(1)(b) REG. This is a sound outcome since there was no irreconcilable normative conflict for the Member State. There was de facto a way to comply with the EU IIPA and the EU obligation. Here, it is clear that the alleged breach of the EU IIPA is exclusively based on the implementing act of the Member State. Member State treatment can only be partly required by EU law in a scenario where the Member State could not have avoided the alleged breach of the EU IIPA without disregarding a EU law obligation. Here, the test of Article 2(l) REG is fulfilled. In this case it is clear that the EU bears financial responsibility pursuant to Article 3(1)(c) REG for the Member State treatment. However, the Member State may equally bear financial responsibility for the same treatment pursuant to Article 3(1)(b) REG.  The key for understanding that the EU and the Member State can simultaneously bear financial responsibility for one and the same Member State treatment lies in understanding the functioning of the test in Article 2(l) REG. 99  The German version of Recital 7 REG reads: ‘[...] so sollte der Union selbst die finanzielle Verantwortung insofern zufallen, als die betreffende Behandlung nach dem Unionsrecht vorgeschrieben ist [emphasis added]’; and the French version reads: ‘[...] l’Union elle-même devrait assumer la responsabilité financière dans la mesure où le traitement en cause est requis par le droit de l’Union [emphasis added]’.

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The test in Article 2(l) REG juxtaposes the obligation under the EU IIPA against obligations under EU law. Where there is no normative conflict between the two obligations, the question of liability is evident: It is borne by the Member State. Where there is a normative conflict, the question of liability is equally evident—it is borne by the EU. It is clear that part of EU law is at the centre of the breach of the EU IIPA, caused by the Member State implementation conduct. However, the test in Article 2(l) REG is incomplete. It gives no answer whether there is a case for Member State liability pursuant to Article 3(1)(b) REG for a part or fraction of the Member State treatment that goes beyond the scope and limits of the EU obligation that required the Member State to act. Put differently, even though the Member State concerned could not have avoided the breach of the EU IIPA without disregarding its EU law obligations, it could still have exacerbated or contributed to the breach of the EU IIPA or independently breached the EU IIPA in way that had ­nothing to do with its EU law obligations. Article 3(1)(c) REG in conjunction with Article 2(l) REG is merely a test to identify whether the EU contributed to the breach of the EU IIPA.  If this is the case, however, it is silent as to whether the Member State independently contributed to the breach of the EU IIPA. In a sense the test in Article 2(l) REG functions as a cap or ceiling for EU liability, only without showing whether above that cap or ceiling there is room for Member State liability as well. The test only covers that part of the Member State treatment that was in conflict with the EU IIPA and EU law; it fills the space where both obligations meet. It does not cover those parts that go beyond what EU law requires. In this respect, the test in Article 2(l) REG is incomplete. The independent contribution to the breach of the EU IIPA by Member State treatment beyond what was required can occur in two ways: First, where the Member State incorrectly implements EU law and, second, which is the more likely scenario, where the Member State enjoys some form of leeway and freedom to act, i.e. where it has discretion or a margin of appreciation.100 Take the example of the implementation of a directive by a Member State. If the test in Article 2(l) REG yields that the Member State could not have avoided the alleged breach without disregarding the obligation to implement the directive, it becomes clear that the result to be achieved by the directive forms part of the alleged breach of the EU IIPA. Yet the test cannot answer whether the Member State implemented the directive in a way that in and of itself breached the EU IIPA that goes beyond the result to be achieved by the directive. Second, take the example of a Member State incorrectly implementing a EU regulation. If the test in Article 2(l) REG yields that the Member State could not have avoided the alleged breach without disregarding the obligation to implement the regulation, it becomes clear that the regulation forms part of the alleged breach of the IIPA. Yet again, the test cannot answer whether the Member State by incorrectly implementing the regulation in and of itself breached the IIPA or contributed to the breach that goes beyond the scope of the REG. As a consequence, the test in  It cannot occur where a Member States correctly implements EU law and has no discretion whatsoever. In such a case the EU fully bears financial responsibility pursuant to Article 3(1)(c) REG.

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Article 2(l) REG is insufficient. It follows that in order to allocate full financial responsibility for Member State treatment to the EU pursuant to Article 3(1)(c) REG an additional test is required to exclude a Member State contribution to the alleged breach of the EU IIPA. Such an additional test needs to focus on the actual (and not hypothetical) Member State treatment in order to find out whether the Member State independently breached the EU IIPA or at least exacerbated or contributed to the alleged breach of the EU IIPA. In a first step, the test requires an extraction and isolation of the actual Member State treatment that was not mandated by EU law. It is clear that this step may cause complications and controversy: As Tietje et al indicated, mostly under directives (and their ‘gold-plating’ by the Member States), it might be ‘complicated to identify those areas of a respective domestic law that are based on EU law and those that derive out of an autonomous decision of the MS’ in order to find out whether certain treatment is required by EU law or not.101 That notwithstanding, there may be straightforward cases. Take the example of a EU directive requiring Member States to enact legislation requiring tobacco companies to introduce plain packaging on cigarettes and the Member State implementing legislation additionally requires tobacco companies to attach health warnings and graphic deterrents. Here the extraction is simple. Take another example of Member States incorrectly applying a regulation or a decision of the EU. Here, the identification of the part that was incorrect is straightforward. In a second step, the extracted and isolated actual treatment must be assessed against the backdrop of the obligations under the EU IIPA.  If the extracted and isolated Member State treatment does not constitute a breach of the EU IIPA, the EU bears full financial responsibility pursuant to Article 3(1)(c) REG. Then it is clear that the alleged breach has its origin in a EU rule or act and the Member State did not independently breach the EU IIPA or exacerbate or contribute to the breach. In the affirmative, however, the EU and the Member State concerned must share the financial burden, leading to an apportionment. Even though EU law clearly is at the origin of the breach, such an outcome is sound and just. As far as a Member State enjoys the freedom to mitigate a breach it should do so. Certainly it should not exacerbate the breach of the EU IIPA. As a result, it must be stated that Article 3(1)(c) REG is no one-way street and does not encapsulates an ‘either/or’-approach. There may be parts of a single Member State treatment that fall under Article 3(1)(c) REG and parts that fall under Article 3(1)(b) REG. If this is the case an apportionment of the financial burden into a EU and a Member State share has to take place, which will be discussed further below.

101

 Tietje/Sipiorski/Töpfer, above Chap. 2, fn. 69, p. 19.

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5.2.2.2.7  A Critique of the Hypothetical Causation-Test Under the REG The hypothetical causation-test in Article 3(1)(c) REG in conjunction with Article 2(l) REG attempts to capture the dynamics of the decentralised implementation of EU law by the Member States. When a Member State implements a EU obligation and thereby causes a breach of the EU IIPA, the Member State should not bear the financial burden for that. An irreconcilable normative conflict between obligations flowing from EU law and obligations flowing from a EU IIPA should not go to the detriment of the Member States. Interestingly enough, such a view is not consistent with the hierarchy of norms under EU law that obligations flowing EU international treaties take precedence over those flowing from secondary EU law.102 So when e.g. a regulation is inconsistent with a EU treaty it is illegal under EU law and, thus, it is questionable whether Member States should implement that regulation in the first place.103 However, Member States when implementing EU law usually do not know and cannot assess whether their action has any negative repercussions on the EU’s international obligations, or any adverse effects on foreign investments. The same, but perhaps to a lesser extent, is true when the EU passes and adopts legislation and takes decisions to be implemented by the Member States.104 Moreover, Member States are obliged under EU law to implement secondary EU acts as long as the EU acts have not been declared unlawful. Holding the Member States financially responsible in these instances would mean to shift the risk of knowing whether a conduct is in breach of an international obligation to the Member States, even though the root is clearly to be located within the EU sphere. It was the EU that chose to act in the first place. Therefore, holding the EU financially responsible for creating an irreconcilable normative conflict for the Member States to simultaneously comply with obligations flowing from a EU IIPA and those flowing from EU law, is legally sound and justified. The deficiencies and complications of the hypothetical causation-test begin where EU law mandates Member State action but the Member State was left with a margin of appreciation or discretion as to the implementation or incorrectly implemented EU law. In such a case, the Commission and the CJEU have to assess whether the Member State could have avoided the breach of the EU IIPA without disregarding a EU obligation. By looking whether alternative treatment is compliant with the obligations under the EU IIPA, the assessment necessarily permeates into the sphere of international law, i.e. the substantive obligations of the EU IIPA. It was a wise decision to draft the test in a way that avoids looking into the actual treatment challenged before the Arbitral Tribunal, which could, via the respondent determination pursuant to Article 9(2)(a) in conjunction with Article 3(1)(c) REG,  See again above Chap. 4, fn. 248.  Nollkaemper, above Chap. 2, fn. 80, p. 337. 104  By the way, this is why the dynamics of executive federalism do not fit into the system of the ARIO, which via Articles 15 and 17 ARIO require some form of knowledge or intention on the part of the international organisation that a certain cause of action breaches an international obligation. 102 103

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directly affect the examination of the Tribunal on the merits. However, as will be discussed in Chap. 6 even looking into alternative treatment can influence the assessment of an Arbitral Tribunal of the merits of the case. Furthermore, it can be difficult to assess whether an alternative treatment could have avoided a breach of the EU IIPA without disregarding a EU law obligation and, therefore harbours great potential for disputes between the EU and the Member State concerned. It is questionable whether the Commission and the CJEU is equipped to properly assess breaches of EU IIPAs. Certainly, the protection of foreign investment granted under the EU system will have a remarkable influence on that assessment. Furthermore, it should be noted that Recital 4 REG makes clear, however from a pure EU law standpoint, that ‘Union agreements should afford foreign investors the same high level of protection as Union law and the general principles common to the laws of the Member States grant to investors from within the Union, but not a higher level of protection [emphasis added]’. This provokes the question: Will the Commission and the CJEU rely on established arbitral case law or will it develop its own approach and deviate from protection standards more favourable to foreign investors than the level of protection granted under EU law? Another difficulty is that the hypothetical test in Article 2(l) REG is insufficient and incomplete in cases where it yields that a Member State could not have avoided the breach of the EU IIPA without disregarding a EU law obligation. If it could have avoided the breach, it is clear that the Member State treatment in breach of the EU IIPA was not required by EU law and that Article 3(1)(b) REG applies. However, if it could not have avoided the breach, it is clear that Article 3(1)(c) REG applies and that the breach of the EU IIPA is at least partly based on EU law, the content of which is somewhat reflected in the Member State treatment. Yet the hypothetical causation-test gives no answer as to whether the Member State independently breached the EU IIPA or exacerbated or contributed to the breach in a way that had nothing to do with its EU law obligations. To find that out, essentially, one needs to perform an additional test to rule out that a Member State acted outside of what was required by EU law and thereby contributed to the breach of the EU IIPA. Such a test produces additional hurdles as one needs to revert to the actual Member State treatment requiring the extraction and isolation of the bits and pieces of Member State treatment that are based on EU law and those that are based on an independent decision of the Member States. Then the latter must be scrutinised for breaches of the EU IIPA.105 Only in the negative, the EU is fully financially responsible pursuant  Yet it should be noted that an assessment of the actual treatment under Article 2(l) REG would not risk unduly influencing an Arbitral Tribunal in its own assessment on illegality of the treatment in a dispute under the EU IIPA. This is because such an assessment under Article 2(l) REG is only required for the ex post facto allocation of financial responsibility when the arbitral proceedings have already churned out a monetary award or settlement. The only way in which an Arbitral Tribunal could be influenced is when the Commission decides on respondent status pursuant to Article 9(2)(a) REG in conjunction with Article 3(1)(c) REG.  Yet here it is sufficient for the Commission to find out that at least part of the Member State treatment falls under Article 3(1)(c) REG. The hypothetical causation-test based on alternative Member State treatment is fully sufficient for deciding on respondent status. See below Sect. 6.2.1.

105

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to Article 3(1)(c) REG. An outcome in the positive though calls for an apportionment of a financial burden into a EU and a Member State share. It follows that the hypothetical causation-test in Article 2(l) REG is incomplete and all but flawless. The question is, what are the alternatives? One is to rely on a test assessing whether EU law mandated the actual Member State treatment and if so whether it was in compliance with EU law. Any errors in the implementation of EU law, or any margin of appreciation or discretion would cause the financial responsibility of the Member State. This test has the advantage that it can be easily applied because it rests exclusively on an assessment of the scope and binding effect of EU law. On the other hand, the test may cause unfair and inequitable results. Imagine a Member State, left with no discretion, incorrectly implementing a EU regulation or decision. Allocating financial responsibility for breaches of the EU IIPA to the Member State here would mean to ignore the fact that, though a EU law violation, the Member State did not at all or only marginally contributed to the breach of the EU IIPA. In other words, it could not have avoided the breach of the EU IIPA even if it would have complied with EU law. Imagine a Member State, left with discretion, transposing a EU directive into national law. If a Member State would categorically bear financial responsibility would equally mean to ignore the EU contribution to the breach. It may be the case that each and every way in which the Member State could have transposed the directive would not have avoided the breach of the EU IIPA. Due to these inequitable and unfair allocations of financial responsibility, this alternative test should not be advocated. As a result, even though the application of the hypothetical causation-test may prove difficult and opens an avenue for the Commission and the CJEU into the application of the EU IIPA, the test is well calibrated to generate a fair and equitable allocation of financial responsibility. The hypothetical test is most in line with the guiding principle of the REG that an allocation should be based on financial fairness and provide for budget neutrality. 5.2.2.3  The Exception to Article 3(1)(c) REG Article 3(1) last sentence REG introduces another exception to the exception that Article 3(1)(c) REG is to Article 3(1)(b) REG. It reads: where the Member State concerned is required to act pursuant to the law of the Union in order to remedy the inconsistency with the law of the Union of a prior act, that Member State shall be financially responsible unless the adoption of such prior act was required by Union law.

The provision governs a scenario where there are two Member State acts. The initial, or chronologically first Member State act (‘prior act’) must be inconsistent with EU law at the moment of adoption of the subsequent, or chronologically second Member State act. The second act must have been adopted in order to remedy that inconsistency. The way of causing the inconsistency of the initial, chronologically first Member State act with EU law is pivotal to understanding the provision.

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Member States can cause the inconsistency in two ways. Either it can legislate or act in a way that infringes EU law right from the start. To illustrate, if a Member State issues investment incentives to an investor that amount to illegal state aid pursuant to Article 107 TFEU (inconsistency with EU law), the withdrawal of such incentives (which is required under EU law to remedy the inconsistency) would trigger the financial responsibility of the Member State concerned since the EU did not require (even explicitly prohibits) the issuance of state aids. Alternatively, a Member State can bring EU law-inconsistent legislation or acts into the acquis communautaire upon accession to the EU. To use the same example, if a State issues investment incentives to an investor that amount to illegal state aid pursuant to Article 107 TFEU before it accedes to the EU and upholds the incentives while acceding to the EU, the withdrawal of such incentives would also trigger the financial responsibility of the Member State concerned. EU law never requires the issuance of illegal state aid and similarly does not require a not-yet Member State to issue illegal state aid before accession. It should be remembered, that ‘required’ in the sense of Article 3 REG necessitates a EU obligation. Such an obligation does not exist, of course, with respect to non-Member States. To take the example of ­secondary EU law, imagine an acceding Member State that has to bring its national legislation in line with a EU consumer protection directive. All in all, it is reasonable to burden the Member State with financial responsibility for remedying inconsistencies resulting from their own treatment. The same may not be true where the EU causes the inconsistency, which will become apparent in the following. Changes within the EU legal order can also bring about an inconsistency of Member State treatment with EU law. Either the EU can change legislation in a field it has regulated before. Or the EU can gain new competences and adopt legislation in a field that was regulated by the Member States before. Under the former it appears that financial responsibility falls on the EU since the adoption of the prior act of the Member State in response to EU legislation was required by EU law. Under the latter, however, it appears that financial responsibility lies with the Member State pursuant to Article 3(1) last sentence REG since the prior act was not required by EU law as it was not part of the acquis. It is questionable whether Member State liability for EU-wide legislation following a newly acquired competence of the EU is legitimate and fair.106 One could support the approach arguing that treaties, which shift competences to the EU are consensual acts, to which all Member States agree. The potential extension of Member State financial responsibility pursuant to Article 3(1) last sentence REG is brought about by the Member States themselves and, therefore, intentional and not accidental. Furthermore, competence shifts regularly entail the risk for Member States to incur state responsibility for the improper implementation of EU law in fields of newly acquired competences. As opposed to the arguments bolstering Member State financial responsibility in these instances, the question arises whether Member States’ consent encompasses the exercise of newly acquired EU competences in a fashion that breaches a EU IIPA and provokes liability. Moreover, Member State liability pursu106

 Baetens/Kreijen/Varga, above Chap. 2, fn. 73, pp. 1253, 1260.

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ant to Article 3(1) last sentence REG is accidental and arbitrary in the sense that a particular Member State is faced with liability for EU-wide legislation, potentially placing every other Member State under the risk of liability. The exact interpretation of Article 3(1) last sentence REG will, arguably, cause frictions between the EU and the Member States in the future. 5.2.2.4  T  he Exception Provisions of Allocation Pursuant to Article 3(3) and (4) REG Article 3(3) and (4) REG are special rules of allocation superseding the allocation rules in Article 3(1) REG. Article 3(3) and (4) REG read: 3. Notwithstanding paragraph 1 of this Article, the Member State concerned shall bear the financial responsibility where: (a) it has accepted potential financial responsibility pursuant to Article 12; or (b) it enters into a settlement, pursuant to Article 15. 4. Notwithstanding paragraph 1 of this Article, the Union shall bear the financial responsibility where the Union acts as the respondent pursuant to Article 4.

Article 3(3) REG allocates the financial burden to the Member State concerned where it has accepted potential financial responsibility pursuant to Article 12 REG or where it has entered into a settlement pursuant to Article 15 REG.  Article 12 REG relates to a dispute where the EU acts as respondent and the Member State concerned may bear full or partial financial responsibility (Article 9(2)(3) REG). With respect to arbitral awards, it seems unlikely that a Member State will ever accept financial responsibility before the arbitration has come to an end and before knowing the actual amount of the financial burden to be paid to the investor. By accepting potential financial responsibility, it would deprive itself of the right to challenge the allocation before the CJEU in case of a disagreement with the Commission regarding the precise allocation of financial responsibility. In fact, one cannot identify any benefit that an acceptance of potential financial responsibility would entail for the Member State concerned, when it comes to the issuance of an arbitral award. One cannot identify any disadvantage for the Member State ensuing from not accepting financial responsibility arising out of an arbitral award. It follows that Article 3(3)(a) REG—with respect to arbitral awards—will in all likelihood remain largely unapplied in practice. One advantage from accepting financial responsibility for a Member State would be if it could instigate a settlement in return for the acceptance. This is what Article 3(3)(b) REG apparently has in mind. Article 15 REG concerns a settlement agreed by the EU where the Member State proposed to settle in a constellation where there is no room for EU financial responsibility because the Member State concerned has accepted financial responsibility arising from the settlement and the settlement is only enforceable against the Member State. Article 3(3)(b) REG will apply more often in practice as Member States have the opportunity of agreeing to a settlement and possibly reducing the

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amount to be paid to an investor for a breach of the EU IIPA and to be borne the Member State pursuant to Article 3(1) REG. Article 3(4) REG allocates the financial burden to the EU where the EU has acted as respondent pursuant to Article 4 REG. Article 4 REG deals with the very specific scenario where an investor claimant exclusively brings EU treatment before an Arbitral Tribunal.

5.2.3  T  he Reimbursement Claim Pursuant to Article 19 REG in Conjunction with Article 3 REG: The Ex Post Facto Allocation of Financial Responsibility Article 19 REG provides a legal basis for reimbursement and a procedure upon which the Commission—on behalf of the EU—can claim the monetary amount that the EU paid to an investor in accordance with an award or settlement from a Member State for which it bears financial responsibility according to Article 3 REG.  The allocation of financial responsibility the Commission performs under Article 19 REG in conjunction with Article 3 REG is ex post facto, as it takes place after the arbitration proceedings have ended and churned out a monetary award or settlement to be paid by the respondent to an investor. This stands in contrast to the ex ante facto allocation of financial responsibility the Commission performs for purposes of respondent status pursuant to Article 9 REG in conjunction with Article 3 REG. 5.2.3.1  Conditions for the Reimbursement Claim Under Article 19 REG The conditions for claiming reimbursement are laid down in Article 19(1)-(5) REG. Pursuant to Article 19(1) REG: [w]here the Union acts as the respondent pursuant to Article 9, and the Commission considers that the award or settlement or costs arising from the arbitration in question should be paid, in part or in full, by the Member State concerned on the basis of the criteria laid down in Article 3(1), the procedure set out in paragraphs 2 to 5 of this Article shall apply.

It follows for Article 19 REG to apply that, first, the EU must have acted as respondent pursuant to Article 9 REG. If the EU acted as respondent pursuant to Article 4 REG there is no basis for reimbursement since respondent status of the EU coincides with its financial responsibility pursuant to Article 3(1)(a) and (4) REG. Second, there must be either a monetary arbitral award against the EU or a settlement agreed by the EU, to which the Member State either co-agreed or internally signalled its consent to the EU pursuant to Article 14(6) REG.107 Finally, the  See above Sect. 4.2.2.3 for why the EU can only seek reimbursement from a Member State pursuant to Article 19 REG for monetary amounts flowing from settlements to which the Member State has consented.

107

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Member States concerned bears full or part of the financial burden arising out the award or settlement on the basis of the criteria laid down in Article 3 REG. If these conditions are met, the procedure in Article 19(2)-(5) REG kicks in. Article 19(2) REG prescribes a period of consultation between the EU and the Member State concerned regarding the amount of compensation to be paid to the EU by the Member State concerned. Pursuant to Article 19(3) REG, within three months of receipt of the request for the payment of the award or settlement arising from the arbitration pursuant to Article 18 REG, the Commission shall adopt a decision addressed to the Member State concerned, determining the amount to be paid by that Member State. Article 19(4) and (5) REG gives the Member State the right to object to the decision of the Commission. Finally, in case the Commission and the Member State concerned have not agreed to the exact allocation of financial responsibility and the amount to be paid by the Member State, the Member State can bring the matter before the CJEU pursuant to Article 263 TFEU.108 In essence, there can be three grounds for d­ isagreement between the Commission and the Member State concerned regarding the amount to be paid by the Member State concerned pursuant to Article 19 REG in conjunction with Article 3 REG that can be brought before the CJEU for final resolution. One ground concerns the correct application of the criteria in Article 3(1) REG where the award and settlement clearly links a specific financial burden to specific treatment. Another ground concerns apportionment and the way the Commission has precisely split a financial burden, for which both EU and a Member State bear financial responsibility pursuant to Article 3(1) REG, in a EU and Member State share.109 Last but not least, where the award or settlement churned out an undivided financial burden to be paid to the investor, on the basis of multiple treatments for at least one of which the EU and for at least one of which the Member State concerned bears financial responsibility, but is silent or unclear as to which treatment breached the EU IIPA, there can be a disagreement as to which treatment actually was in breach of the EU IIPA and thus constitutes the basis for the allocation of financial responsibility.110 When faced with a reimbursement claim from the EU on the basis of Article 19 REG in conjunction with Article 3 REG, the Member States cannot plead as defence the international responsibility of the EU for the treatment under the EU IIPA as found by the Tribunal or as follows implicitly from a settlement. This is because the reimbursement claim is based on EU law and not international law and Article 19 REG in conjunction with Article 3 REG provides a legal basis independent from the EU IIPA. The Member States are bound by the REG by virtue of EU law.  See Recital 20 REG: ‘Article 263 TFEU is available in cases where a Member State considers that the decision [of the Commission pursuant to Article 19(3) REG] falls short of the criteria set out in this Regulation’. See also Explanatory Memorandum to the REG, pp.  11–12; Tietje/ Sipiorski/Töpfer, above Chap. 2, fn. 69, pp. 28–29; Baetens/Kreijen/Varga, above Chap. 2, fn. 73, p. 1258. 109  See for details on apportionment under the REG below Sect. 5.2.5. 110  See for details below Sect. 6.3. 108

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5.2.3.2  T  he Exclusive Right of the EU to Recover from the Member States Creates Accountability Gaps Under the REG When Member States Act as Respondent Article 19 REG encapsulates a redress mechanism and equips the EU with a reimbursement claim against the Member States where the EU acted as respondent and paid to a successful investor and the Member State is internally financially responsible pursuant to the criteria in Article 3 REG. The provision aims at rectifying the imbalance between external financial responsibility and internal financial responsibility. Importantly, and as the wording of Article 19 REG makes unmistakeably clear, the right to seek reimbursement pursuant to Article 19 REG is only granted to the EU and not to the Member States.111 Apart from Article 19 REG there is no other legal basis in the REG that would allow Member States to claim monies it paid to a succeeding investor from the EU in case the EU bears partial or full financial responsibility pursuant to Article 3 REG. 5.2.3.2.1  R  easons (Not) Given for One-Sided Redress Mechanism Under the REG It appears there are two reasons why the drafters of the REG did not provide the Member States with a legal basis for reimbursement against the EU. One reason is that the Commission is of the opinion that Member States claiming back monies from the EU is undesirable and impractical from a EU law standpoint. When the Commission addressed the (finally-dismissed) option of adopting a co-respondent model in lieu of the single-respondent model, it stated in the Explanatory Memorandum to the REG the following: ‘[A] Member State paying any eventual award and then seeking to recover from the European Union by itself seeking to determine which elements are required by the law of the Union would be neither consistent nor effective as regards budgetary procedures, nor would it recognise the Commission’s role in the implementation of Union law.’112 The soundness and veracity of this reason will be discussed further below after having presented and discussed the second reason. The second reason is that it appears that the drafters of the REG and the Commission were of the opinion, and Article 19 REG based on the premise, that there is no procedural scenario conceivable under the REG in which a Member State bears external payment obligations to a succeeding investor as a consequence of its respondent status and international responsibility for a breaching conduct, whereas the EU bears internal financial responsibility pursuant to Article 3 REG. If that premise were correct, Article 19 REG would be sound and sufficient— there would be no need for adopting a legal basis for reimbursement to the Member  Explanatory Memorandum to the REG, pp. 11–12; Tietje/Sipiorski/Töpfer, above Chap. 2, fn. 69, p. 20; Dimopoulos, above Chap. 2, fn. 112, p. 1710; Keller/Schmitt in Krenzler/Herrmann/ Niestedt above Chap. 4, fn. 85, Article 19 Reg (EU) No 912/2014, para. 7. 112  Explanatory Memorandum to the REG, p. 7. 111

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States. Yet it is submitted that such a premise is plainly incorrect and bears the risk of creating significant accountability gaps under the REG to the detriment of the Member States: Even though the EU bears all or part of financial responsibility pursuant to Article 3 REG the Member States do not have a legal basis to enforce that allocation. At the outset, it should be noted that under the Proposal REG, Article 3(3)(b) Proposal REG provided that the Member State concerned shall automatically bear financial responsibility where it acts as respondent.113 Due to the Explanatory Memorandum to the REG, the Member State would ‘accept full financial responsibility in such cases [emphasis added]’.114 This provision, however, has been deleted from the REG. Hence, Member States do not automatically accept and, hence, bear financial responsibility under the REG when they act as respondent. 5.2.3.2.2  P  rocedural Scenarios Where Member States Can Be Internationally Responsible Towards an Investor and the EU Bears Internal Financial Responsibility Pursuant to the REG There are at least four distinct procedural scenarios in disputes under EU IIPAs where Member States can bear external liability vis-à-vis an investor under a EU IIPA whereas internal financial responsibility exclusively or partially lies with the EU pursuant to Article 3(1)(c) REG. In these scenarios there are accountability gaps under the REG.115 The first scenario concerns disputes under mixed IIPAs that do not provide for a mandatory respondent determination mechanism and where an investor can sue a respondent as it deems fit without recurring to or following upon a respondent determination by the EU. As discussed above, this is the state of affairs under the ECT, even under a revised ECT Statement to which the Member States might subscribe as well.116 Now, it cannot be excluded that an investor successfully sues a Member State under the ECT for treatment that falls under Article 3(1)(c) REG triggering the EU’s full or partial financial responsibility. First, it is not unlikely that an investor would sue in a dispute under the ECT a Member State instead of the EU in constellations where Article 3(1)(c) REG might be fulfilled. In this respect, however, one can cite the Electrabel, EDF, AES, or Charanne ECT arbitrations only cum grano salis, as these cases concerned intra-EU scenarios, in which it is all but undisputed

 It reads: ‘Notwithstanding paragraph 1, the Member State concerned shall bear the financial responsibility where: […] the Member State concerned acts as respondent pursuant to Article 8’. Article 8(1) Proposal REG reads: ‘Provided the agreement provides for the possibility, the Member State concerned shall act as respondent’. 114  Explanatory Memorandum to the REG, p. 6. 115  For a detailed discussion of the various procedural scenarios in disputes under the ECT that can cause accountability gaps under the REG, see Stegmann, above Chap. 4, fn. 85, pp. 21–23. 116  See Sect. 4.2.1.3. 113

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and clear whether investors can sue the EU under the ECT at all.117 It follows that the Member State investors presumably deemed it more difficult to sue the EU in such cases. With respect to third country investors, however, it might not be so clear that Member State treatment falls fully or partly under Article 3(1)(c) REG.  What is clearer though for the investor is that Member State treatment falls under the classic attribution rule of Article 4 ARS. Besides, arbitration under ICSID is only available against the Member States and not against the EU and the EU as a respondent is a novel phenomenon in investment treaty arbitration and enforcement of awards against Member States might be easier than enforcement of awards against the EU. Second, after an investor has sued a Member State for a treatment falling fully or partly under Article 3(1)(c) REG, it cannot be excluded that an Arbitral Tribunal finds the Member State internationally responsible for the treatment breaching the ECT.  It is true that the Electrabel-Tribunal considered a scenario that would fall under Article 3(1)(c) REG—namely where Member States have no option but to implement a EU act—to trigger the international responsibility of the EU, and not that of the Member States. Similarly, the lex specialis of Article 1(3) ECT, which as discussed, focuses on the binding effect of EU law on the challenged Member State treatment, could lead to the international responsibility of the EU, and not the Member States, in cases of Article 3(1)(c) REG. In such a situation no accountability gap would arise since the Tribunal would dismiss the claim against the Member State. Yet, as discussed, the test of Article 1(3) ECT is not the same as the one of Article 3(1)(c) REG in conjunction with Article 2(l) REG. Whereas the former leads to the responsibility of Member States in cases they incorrectly or discretionarily implement EU law, the same must not be true under Article 2(l) REG. Moreover, Arbitral Tribunals in future disputes under the ECT might follow the lex generalis of Article 4 ARS and the approach of the ECtHR and attribute Member State treatment implementing EU law categorically to the Member States. This possibility alone creates the risk of a Member State being liable externally whereas the EU is liable internally. The second scenario, where a Member State can bear external liability but the EU internal financial responsibility, is where an investor brings a claim against a Member State pursuant to Article 8.21(4)(a) CETA, or a verbatim rule under other post-Lisbon EU IIPAs, even though the Member State treatment is required by EU law pursuant to Article 3(1)(c) REG. As discussed, Article 8.21(4)(a) CETA, which kicks in as a default rule whenever the EU fails to determine the respondent in due time, allows investors to sue a Member State if the claim is exclusively based on Member State treatment.118 Such Member State treatment can lead to the Member State’s international responsibility and at the same time fall under Article 3(1)(c) REG triggering the EU’s financial responsibility. The third and fourth scenario concern instances under post-Lisbon EU IIPAs with a mandatory respondent determination mechanism where the Commission 117 118

 See fn. 261.  See above Sect. 4.2.1.1.2.

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applies the REG and determines a Member State as respondent. As to the third scenario, only in a perfect world would the Commission always correctly apply Article 9(2)(a) REG in conjunction with Article 3(1)(c) REG.119 Hence, it cannot be excluded that the Commission wrongly decides to not seize respondent status in favour of the EU because it deems that the treatment was not required by EU law although it actually was. As to the fourth scenario, Article 9(2) REG confers discretion upon the Commission to seize respondent status in favour of the EU, even where the conditions of Article 9(2)(a) and (b) REG are clearly met.120 The discretionary non-application of Article 9(2) REG could lead to a Member State ending up as respondent in arbitration proceedings and having to pay a successful investor even though financial responsibility falls upon the EU pursuant to Article 3(1)(c) REG. Under the second, third and fourth scenario the risk of Member States being successfully held liable internationally and the EU bearing internal responsibility is even augmented if one holds, as is argued here, that the mandatory respondent determination under post-Lisbon EU IIAs has a constitutive effect on the international responsibility of the respondent for the challenged conduct within the ‘EU-Member State responsibility window’. Both the third and the fourth scenario can not only occur in disputes under post-­ Lisbon EU IIPAs enshrining a mandatory respondent determination mechanism. They can also occur in disputes under the ECT if an investor chooses to ask the EU for a respondent determination under the voluntary determination mechanism,121 the EU then determines a Member State as respondent and the Tribunal finds it internationally responsible. As all four procedural scenarios demonstrate, a Member State can be internationally responsible to a successful investor under the ECT, under post-Lisbon mixed IIPAs and under EU-only IIPAs without being able under the REG to recover from the EU although the EU bears internal financial responsibility pursuant to Article 3(1)(c) REG. One can therefore conclude that accountability gaps exist under the REG.122

 As discussed above in Sect. 4.2.2.2.3, the legal assessment under Article 9(2)(a) REG can only be conducted prima facie, as it is restricted to the short time frame of 45 days pursuant to Article 9(1)(a) REG. On top of that, it is inherent to the assessment of Article 3(1)(c) REG in conjunction with Article 2(l) REG to unearth complicated legal issues. It also requires the production of documents and evidence residing in the sphere of the Member State concerned. In 45 days it may be difficult to bring that by. Furthermore, there is a possibility that the investor only communicates insufficient or incomplete information as to the treatment it intends to challenge and on which it intends to base its claim. 120  See above Sect. 4.2.2.2.4. 121  For a discussion of the advantages and disadvantages for an investor of using the voluntary determination mechanism under the ECT Statement and the Proposal Revised ECT Statement, see Stegmann, above Chap. 4, fn. 85, pp. 19–20. 122  Another scenario that can create an accountability gap under the REG is when a Member State agrees to a settlement according to Article 16 REG and the EU bears partial financial responsibility. See in this respect Keller/Schmitt in Krenzler/Herrmann/Niestedt above Chap. 4, fn. 85, Article 19 Reg (EU) No 912/2014, para. 7. 119

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5.2.3.2.3  R  esult: The REG Should Be Amended to Give Member States a Right to Recover from the EU Accountability gaps are inconsistent with the rationale of the REG that aims at establishing an internal mechanism of allocating financial responsibility. If there is no effective legal avenue for the Member States to recover costs it wrongfully assumed vis-à-vis an investor, the rules on allocating financial responsibility become nothing other than an empty shell. Article 3(1)(c) REG, pointing to the EU where the Member State was the respondent, would be deprived of practical importance since the REG lacks the means for its enforcement. It is more than questionable whether Member States could possibly base a claim for reimbursement against the EU on Article 340 TFEU on the ground that the discretionary or incorrect non-application of Article 9(2)(a) in conjunction with 3 REG by the Commission constitutes a violation of EU law.123 At the outset, the statue of limitations can be a stumbling block. After the Commission has decided upon respondent status, it can take several years until an arbitral award is rendered. At the time it is clear that there is a financial burden, a Member State may be time-barred to rely on Article 340 TFEU. Furthermore, it is more than questionable that Member State could successfully vindicate their reimbursement claim under Article 340 TFEU given the high thresholds for EU non-contractual liability. Most importantly, how is a Member State to prove a violation of EU law by the Commission when Article 9 REG leaves discretion to the Commission. In such a case there is no wrongfulness on the side of the Commission and, therefore, no violation of EU law. In the end, Article 340 TFEU is no solution, where the Commission had no chance to decide on respondent status in the first place, like under the ECT (1st scenario) and Article 8.21(4) CETA (2nd scenario). As discussed further above, the possibility of Member States to decline respondent status pursuant to Article 9(1)(b) REG and the adoption of a possibly-required test under Article 9(2)(a) REG coupled with a mandatory reading of Article 9(2) REG are solutions to avoid accountability gaps.124 Yet these approaches unduly and unnecessarily encroach upon the Member States’ right to defend their own treatment, which is a recognised guiding principle under the REG, and are, thus, no viable options to avoid accountability gaps. Moreover, these approaches would not avoid accountability gaps under the ECT (1st scenario) and the default mechanism under Article 8.21(4)(a) CETA (2nd scenario). The only other approach to avoid accountability gaps under the REG would be to draft post-Lisbon EU IIPAs—an amendment to the ECT is unlikely—in a way to categorically provide for EU respondent status. Yet this would not only render the provisions on respondent status under the REG providing for Member State respondent status moot and unapplied, but would again seriously encroach upon the Member States’ right to defend their own treatment.

123 124

 Dimopoulos, above Chap. 2, fn. 112, p. 1710.  See above Sect. 4.2.2.2.3.

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Consequently, only an amendment to the REG or a new piece of secondary EU legislation de lege ferenda that provides a legal basis and entitles the Member States to recover from the EU would comprehensively avoid accountability gaps in the REG and at the same time accommodate the Member States’ right to defend their own treatment before Arbitral Tribunals. In regard of the just-mentioned massive accountability gaps in the REG to the detriment of the Member States, the first reason brought forward by the Commission that Member States recovering from the EU is impractical and undesirable from a EU law standpoint becomes utterly unproportional. Moreover, the concern that the Member State would by itself seek ‘to determine which elements are required by the law of the Union’ could be easily remedied in reversing the burden of proof in the reimbursement proceedings. Once a Member State would have initiated reimbursement proceedings against the EU, the Commission on behalf of the EU would have to substantiate and prove that a treatment was not required by EU law, and not the other way around. This way even ‘the Commission’s role in the implementation of Union law’ would be recognised. The Commission does not give any other reason why a reimbursement claim granted to the Member States would be ‘inconsistent or ineffective as regards budgetary procedures’. It follows that there is no adequate reason that justifies depriving Member States from a possible reimbursement claim against the EU in case the EU is liable under Article 3 REG.

5.2.4  T  he Binding Effect of Arbitral Awards and Settlements on the Ex Post Facto Allocation of Financial Responsibility Under the REG When arbitration proceedings have churned out an award or a settlement requiring the respondent to pay an amount of money, the question arises to what extent the award or settlement has binding effects on the Commission and the CJEU for the ex post facto allocation of financial responsibility pursuant to Article 19 REG in conjunction with Article 3 REG. 5.2.4.1  T  he Binding Effect of the Amount of Damages as Awarded or Agreed Upon When allocating financial responsibility ex post facto as a preparation for a reimbursement claim, the Commission (and the CJEU via Article 263 TFEU) is bound by the precise amount of compensation and costs awarded to the investor by a Tribunal or agreed upon in a settlement by the parties. The Commission cannot question that amount and reassess whether the calculation of the damages is correct and whether the findings underlying the damages award or the settlement are correct with respect to illegality of treatments (in case that clearly derives from the award

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or settlement). In the same vein, the Commission and the CJEU cannot question the amount of damages to be allocated and assess whether the arbitration suffers from an error possibly leading to an annulment ground. The reason for that lies in the purpose and rationale of the REG and the mandate given to the Commission and the CJEU under Article 19 REG. The rationale and purpose of the REG is to allocate financial responsibility emanating from an award or settlement and to provide a legal basis for reimbursement. For that matter, Article 19 REG (subject to approval by the CJEU) gives the Commission the mandate to claim on behalf of the EU the amount of money paid to a successful investor from the Member State, caused by a treatment, for which the Member State bears financial responsibility pursuant to Article 3 REG. As Recital 5 REG125 and Recital 7 REG,126 the title of Chapter II of the REG127 and Article 3 I REG make clear, financial responsibility is to be allocated or apportioned.128 Under the REG, the liability on the international plane is assumed, and not established. In fact, it is the quintessence of an allocation and reimbursement system that it is derivative and that the amount to be allocated is already established. The contrary would be outright counter-­intuitive, as it could not affect the investor’s compensation under the EU IIPA but would only exclude the EU’s reimbursement claim or reduce the amount the EU can claim back from the Member State concerned. An award or settlement is further not to be reviewed, questioned, challenged or appealed. An allocation and reimbursement system is no stage of appeal, annulment or review that can put into question the basis upon which a financial burden is to be allocated. As a result, the Commission and the CJEU may not use the REG for reviewing or questioning the amount to be paid but must apply the REG only for allocation and reimbursement purposes. Therefore, the Commission and the CJEU is bound by the amount to be paid to the investor as laid down in the award or settlement. It must be noted however, that the above-mentioned is predicated on the fact that the award or settlement gives sufficient information required for the ex post facto allocation of financial responsibility and that a financial burden can be exactly traced to a particular treatment or to multiple treatments for which either the EU or a Member State is financially responsible pursuant to Article 3 REG. When this is not the case, there are good arguments, as will be shown below, that the Commission and the CJEU can reassess the merits and factual matrix underlying an award or settlement to find out whether, and if so how each treatment contributed to the financial burden. One example are cases of apportionment where an undivided financial burden, which is to be borne by both the EU and the Member States pursuant to  The important part reads: ‘It is therefore necessary that financial responsibility be allocated, as a matter of Union law, between the Union itself and the Member State responsible for the treatment afforded on the basis of criteria established by this Regulation [emphasis added]’. 126  The important part reads: ‘Financial responsibility should be allocated to the entity responsible for the treatment found to be inconsistent with the relevant provisions of the agreement [emphasis added]’. 127  Chapter II is titled: ‘Apportionment of Financial Responsibility’. 128  See also Explanatory Memorandum to the REG, pp. 2, 5–6, 9. 125

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Article 3(1) REG, is to be divided into a share for both to carry.129 Another is a case where the award or settlement is unclear or silent as which treatment out of multiple treatments impugned, for at least one of which the EU and for at least one of which a Member State bears financial responsibility, is illegal under the EU IIPA.130 5.2.4.2  T  he Binding Effect of the Content of the Award or Settlement as to the Illegality of the Treatment(s) Under the EU IIPA The question arises as to whether in addition to the amount to be paid in an award or settlement the findings of the Tribunal in an award or the findings of the parties in a settlement whether a treatment is in breach of the EU IIPA have any binding effects on the Commission and the CJEU for the ex post facto allocation of financial responsibility. The issue is of importance since the allocation system under the REG requires treatments to apply its criteria to. The allocation works smoothly, and the question of illegality of treatment is irrelevant, whenever an award or a settlement, in the operative part, specifically and explicitly couples a specific monetary amount of damages or compensation to be paid by the respondent to a specific treatment. In such a case, Article 3(1) REG, which assumes that a financial burden is caused by and, thus, can be traced or linked to (‘arising out of’) a specific treatment, can be easily applied to each treatment that caused an identifiable monetary amount to be paid. However, Arbitral Tribunals usually hand down awards and parties usually agree to settlements where the ‘operative part’ does not specifically and explicitly link a monetary amount to be paid to a specific treatment. In other words, it is not readily apparent from the ‘operative part’ of the award or settlement with respect to a specific successful claim, on which treatment or treatments it is based—the ‘operative part’ will usually only stipulate that a single amount of damages or compensation is to be paid by the respondent with respect to a specific claim. For the ex post facto allocation however, this becomes a problem whenever a claimant investor as part of single damages claim challenges before an Arbitral Tribunal treatments for at least one of which the EU and for at least one of which the Member State is financially responsible pursuant to Article 3 REG. The question now arises whether the ex post facto allocation of the financial burden arising from the successful claim shall be based on all the treatments challenged by the investor or whether it shall be based only on the treatment or treatments found by the Tribunal in the award or found by the parties in a settlement to breach the EU IIPA.  Under the former approach, a categorical sharing of the financial burden would be the result, leading to the conundrum of an apportionment under the REG. Under the latter approach, it may derive from the award or settlement that not all treatments breached the EU IIPA. If that were the case, the consequence could be that instead of being based on all treatments impugned which were originally part of the damages claim, the financial 129 130

 See below Sect. 5.2.5.  See below Sect. 6.3.

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burden is only based on those treatment(s) in breach, possibly avoiding the need for an apportionment if it appears that only treatment for which only one entity is internally responsible breached the EU IIPA. 5.2.4.2.1  T  he Allocation System Under the REG Is Not a Self-Sufficient System The allocation of the financial burden pursuant to Article 3 REG functions by allocating treatments, i.e. measures, conduct, i.e. any action or omission, to the EU or the Member States. Article 3 REG is not self-sufficient in managing financial responsibility. It does neither categorically allocate shares of the financial burden to the EU and the Member State concerned on a 50/50 basis, nor according to fixed percentages, regardless of which treatment has caused the financial burden. Article 3 REG is based on the premise that a financial burden can be caused by (‘arising out of ’) a treatment. Now, the treatment or treatments used for the allocation ­necessarily emanate from the arbitration proceedings. However, there are two approaches for the precise provenance of the treatment to be used for purposes of Article 3 REG. On the one hand, the treatment for the purposes of the ex post facto allocation can stem from the treatment introduced by the claimant in the arbitral proceedings, on which it bases its claim and which it alleges to be in breach of obligations under the EU IIPA. Such treatment is called ante-scrutiny treatment since neither the parties nor the Arbitral Tribunal has scrutinised such treatment for breaches of the EU IIPA. On the other hand, the treatment for the purposes of the ex post facto allocation can stem from the treatment that underwent the scrutiny of the Arbitral Tribunal, or the parties for that matter in the context of a settlement, and which the Tribunal found or the parties declared to be in breach of the EU IIPA and formed the basis of a successful compensation claim in an award or settlement. Here the treatment is called post-scrutiny treatment. Let’s see first, in what instances there would be a difference between financial responsibility based on treatment ante-scrutiny and financial responsibility based on treatment post-scrutiny. 5.2.4.2.2  T  he Conundrum of Shared Responsibility: Where Illegality of Treatment Under the EU IIPA Becomes Relevant for the Ex Post Facto Allocation of Financial Responsibility Usually, the distinction between ante-scrutiny treatment and post-scrutiny treatment is a distinction without a difference for the ex post facto allocation of financial responsibility. This is because, in most cases, the same party is financially responsible pursuant to Article 3 REG ante- and post-scrutiny. This is the case (i) where a claimant only challenges a single treatment, (ii) where a claimant challenges multiple treatments for which exclusively the EU or a Member State bears financial responsibility, and (iii) where a claimant challenges multiple treatments for some of which the EU and for some of which a Member State bears financial responsibility

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and all claims based on all treatments are successful.131 Under those three scenarios where the party incurring financial responsibility is identical ante- and post-­scrutiny, it is of no relevance for the ex post facto allocation whether the treatments challenged by the investor constituted a breach of the EU IIPA or not. The identity of liable parties ante- and post-scrutiny is clear to the Commission (and the CJEU) because the liable party cannot (i and ii) or did not (iii) change post-scrutiny. However, there is a scenario where the parties bearing financial responsibility ante- and post-scrutiny are not identical. This is the case where a claimant challenges before an Arbitral Tribunal both treatment(s) for which the EU bears financial responsibility under Article 3(1)(a) and/or 3(1)(c) REG and treatment(s) for which a Member State bears financial responsibility under Article 3(1)(b) REG: i.e. classical cases of shared responsibility. Now, the claimant is awarded damages or agreed to a settlement not on the basis of all treatments challenged but on the basis of only a few treatments or only a single treatment. In other words, the Arbitral Tribunal did not find all treatments impugned to constitute a breach of the EU IIPA, or the parties did not base their settlement on all treatments impugned. The most drastic deviation of financial responsibility ante- and post-scrutiny is where the award or settlement is based on treatments for which exclusively one party is financially responsible. Here, ante-scrutiny, the EU and the Member States would both bears financial responsibility; post-scrutiny, however, only one party would bear financial responsibility. But even where an award or settlement is based on treatments for which both parties are financially responsible there can be a deviation between the share or ratio of financial responsibility the EU and the Member States bear ante- as opposed to post-scrutiny. Consider a claimant impugning a single EU treatment falling under Article 3(1)(a) or (c) REG and multiple Member State treatments falling under Article 3(1)(b) REG and the award or settlement is only based on the EU treatment and one Member State treatment. Ante-scrutiny, the allocation of financial responsibility would take into account multiple Member State treatments, whereas post-scrutiny it would only put one Member State treatment into the equation. As a result, in the cases of shared responsibility just mentioned, the question arises whether the ex post facto allocation pursuant to Article 19 REG in conjunction with Article 3 REG should be based on all the treatments challenged by the claimant (ante-scrutiny) or only on those treatments found to be in breach of the EU IIPA by the Arbitral Tribunal in the arbitral award or by the parties in a settlement (post-scrutiny). A preliminary question to that discussion is, however, whether the findings in arbitral awards and settlements are always sufficiently clear as to whether all treatments challenged, and if not, which treatment is in breach of the EU IIPA.132

 Of course, where no claim of the investor was successful and therefore no award or settlement requiring the EU or the Member State to pay an amount to money to the investor, the difference between ante- and post-scrutiny is irrelevant since there is no financial burden to be allocated. 132  See Tietje/Sipiorski/Töpfer, above Chap. 2, fn. 69, p. 28. 131

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5.2.4.2.3  A  re Awards and Settlements Always Clear as to Which Treatment Breached the EU IIPA in Cases Where Multiple Treatments Are Challenged? As regards arbitral awards, the first condition is that a Tribunal assesses every treatment challenged by the claimant for breaches of the EU IIPA.  The statement of claim introduces the treatment(s) alleged to breach the EU IIPA and to be scrutinised by the Arbitral Tribunal. Provided a Tribunal has jurisdiction and all claims brought by the claimant are admissible, the scope of scrutiny exercised by a Tribunal is determined by and limited to the treatments challenged by a claimant. It follows that a Tribunal must assess every treatment challenged by the claimant against the backdrop of the provisions of the EU IIPA, whether they constitute a breach of the EU IIPA, or not. It is true that where a Tribunal does not assess every treatment for breaches of the EU IIPA the award would not risk invalidity, annulment or unenforceability for excess of mandate infra petita.133 The Tribunal would only have to issue an additional award creating additional costs and room for liability for the arbitrators. The second condition for answering whether an arbitral award produces sufficient information is that the Tribunal, when it has found a breach of the EU IIPA, links such breach to a specific treatment. Considering the mostly non-waivable obligation of a Tribunal under applicable arbitration rules available under CETA and the ECT to ‘render a reasoned award’, i.e. to state on which reasons the award is based, it is likely that an Arbitral Tribunal, in case it finds a breach of the EU IIPA, specifies which treatment constitutes a breach.134 The ICSID Convention even provides for an annulment ground where an award lacks reasons.135 It is even considered that the possibility of annulment of awards for a failure to state the reasons is a principle of international law.136 Furthermore, the international law character of investment treaty arbitration, involving state practices and policy choices, generally imply a greater need for rendering a reasoned award.137 Finally, the ICC even justifies such an obligation for Arbitral Tribunals in order to allow and guarantee the proper scrutiny of the award by the International Court of Arbitration.138 Since CETA, TTIP, the EU-Vietnam FTA the EU-Singapore IIPA introduce an Appellate Tribunal, and since a proper ex post facto allocation of financial responsibility according to the  See Article 52(1)(b) ICSID Convention; Article 34(2)(a)(iii) UNCITRAL ML; Article V(1)(c) New York Convention. 134  See Article 31(2) ICC rules and Articles 47(1)(i), 48(3) ICSID Convention (non-waivable obligation); Article 43(3) UNCITRAL Arbitration rules, Article 26.1 LCIA Arbitration Rules, Article 36 SCC Rules (waivable). 135   Article 52(1)(e) ICSID Convention; see also Dolzer/Schreuer, above Chap. 2, fn. 280, pp. 307–308. 136  De Brabandere, above Chap. 4, fn. 333, p. 90. 137  Ibid, p. 91. 138  Yves Derains and Eric A Schwartz (2005) A Guide to the ICC Rules of Arbitration, 2nd edn. Kluwer Law International, p. 309. 133

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REG would, arguably, necessitate a reasoned award with respect to which treatment is in breach of the EU IIPA, such an argument equally gains weight here. Surely, where the parties can discharge of such obligation according to selected arbitration rules, a Tribunal will not equip its decision with reasons. Equally, it cannot be excluded that a Tribunal simply omits to specify or is unclear as to which of the multiple treatments challenged by claimant constitute a breach of the EU IIPA. However, where multiple treatments are challenged and the Tribunal finds a breach, it is likely that an award contains a finding of the Tribunal linking the breach to a specific treatment or treatments. As regards the scope of scrutiny underlying settlements, it is likely that settlements will not contain a finding, declaration or statement by the parties as to whether all treatments challenged are in breach of the EU IIPA and if not, which treatment is in breach of the EU IIPA and which treatment is not. The definition of settlement in Article 2(h) REG reads: “[S]ettlement’ means any agreement between the Union or a Member State, or both, of the one part, and a claimant, of the other, whereby the claimant agrees not to pursue its claims in exchange for the payment of a sum of money [emphasis added]’. The general quid you pro quo underlying a settlement, which resonates with Article 2(h) REG, is a negative obligation assumed by the claimant, i.e. a ‘waiver and release’, to not pursue its claims and sue the other party in exchange for some form of consideration, such as the payment of money. The Tribunal in Eureko accepted that investors and host states can settle disputes through mutual agreement with the effect that the investor waives its procedural right to exercise its substantive rights in the future.139 Now, when a claimant agrees ‘not to pursue its claims’, such agreement usually includes all claims based on each and every treatment that is challenged. It is submitted that it is the essence of settlements that the respondent and the claimant agree to an outcome of the dispute that pleases and contains concessions from both sides. Regarding the claimant, it usually obtains less than the original damages claim although it might have been fully successful when adjudicated. At the same time, it excludes the risk that the Tribunal finds all claims to be unfounded or awards a lesser amount to the investor than settled upon. Regarding the respondent, it must reimburse some amount of money even though the damages claim(s) might not gain full fruition when adjudicated. Yet the respondent excludes the risk that all treatments are in breach of the EU IIPA, and consequently that all claims founded and the amount of damages substantiated. As a result, part of that bargain between the parties is that the settlement leaves open whether all treatments are in breach of the EU IIPA, only a few of them or none. Hence, a settlement usually covers all treatments that have been impugned by an investor because the parties to a settlement typically intend to leave it open whether at all and if, which treatment is in breach of the EU IIPA. As a result, settlements  Eureko BV v Republic of Poland, Partial Award 19 August 2005, para. 175: ‘International law thus recognizes that an investor may, after a claim against a State has arisen, enter into a settlement agreement with that State and commit to a final waiver of those claims. The State can subsequently rely on that waiver and assert it as a defense against the investor, should such investor attempt to raise those claims again’.

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naturally contain no findings as to whether all, a few, or no treatment is in breach of the EU IIPA. To sum up, whereas the Commission and the CJEU will, usually, be able extract from the content of arbitral awards which treatment out of multiple treatments challenged breached the EU IIPA, it is likely that settlements leave this issue unanswered. 5.2.4.2.4  D  iscussion: Should the Ex Post Facto Allocation Be Based on the Treatment(s) Challenged by the Claimant or on the Treatment(s) Found by the Tribunal or Agreed by the Parties to Breach the EU IIPA? Based on the premise that an award or a settlement contains findings as to which treatment out of multiple treatments challenged for some which the EU and for some which a Member State concerned bears financial responsibility is illegal under the EU IIPA, the Commission and the CJEU must base the ex post facto allocation of financial responsibility on the treatment or treatments, which were found to be in breach of the EU IIPA (post-scrutiny), and not on the treatments challenged by the claimant (ante-scrutiny). In other words, the Commission and the CJEU is bound by the findings in an award and the statements in a settlement as to illegality of treatment under the EU IIPA. This derives from an analysis of the provisions and the rationale of the REG. Recital 7 REG delivers the clearest indication in that respect. It reads: ‘Financial responsibility should be allocated to the entity responsible for the treatment found to be inconsistent with the relevant provisions of the agreement [emphasis added]’. It is the Arbitral Tribunal in an arbitral award that has the mandate given by the parties under the EU IIPA and it is the parties in a settlement that can find a treatment to be inconsistent with the provisions of a EU IIPA. It is certainly not for the investor, on the basis of its statement of claim, or for the Commission or the CJEU to make findings on the illegality of treatments under the EU IIPA, which are binding on the parties in the arbitration. Thus, it follows from Recital 7 REG that financial responsibility shall be allocated on the basis of the treatment(s) found by the Arbitral Tribunal or deemed by the parties to breach the EU IIPA. In the same vein, the concept of the REG of how financial responsibility arises demonstrates the same understanding that the financial burden arising out of an award or settlement should only be allocated on the basis of the treatment(s) found to breach the EU IIPA. Article 2(g) REG defines financial responsibility as ‘an obligation to pay a sum of money awarded by an arbitration Tribunal or agreed as part of settlement’. Recital 5 REG makes clear that ‘an adverse award may potentially flow from treatment afforded by the Union itself or from treatment afforded by a Member State’. Equally, Article 3 REG creates a connection between financial responsibility and the treatment challenged by the investor before the Arbitral Tribunal. Article 3(1)(a) and (b) REG reads ‘financial responsibility arising from

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treatment’.140 Logically speaking, financial responsibility can only arise in that sense if and to the extent the treatment challenged by the investor was found by the Tribunal in an award or deemed by the parties in a settlement to breach the EU IIPA. If there would be no breach, the Arbitral Tribunal would have dismissed the claim and the parties would not have agreed to a settlement, with the consequence that there would be no financial burden to allocate. In case the Arbitral Tribunal only finds one treatment out of multiple treatments challenged to breach the EU IIPA, the financial burden can only logically flow from that treatment. Similarly, in case the parties specify which treatment out of multiple treatments impugned breached the EU IIPA, the financial burden as agreed in the settlement can only flow from the treatment specified. Otherwise, the parties would have specified all treatments challenged or would have left the issue of illegality open. It follows that where the award or settlement is clear as to which treatment breached the EU IIPA, under the REG the financial burden should only be allocated on that treatment. However, it must be stated that the Commission has several times in the Explanatory Memorandum to the REG mentioned the treatment challenged by the claimant (ante-scrutiny) as the basis for allocating financial responsibility.141 As much as the Commission’s statements are accurate when it comes to the three scenarios, where the party or the parties bearing financial responsibility are identical ante- and post-scrutiny, it cannot stand in cases where financial responsibility arising out of awards or settlements based on treatment ante- and post-scrutiny goes astray. Actually, it is submitted that the statements of the Commission can be well interpreted in the sense that financial responsibility must only be based on post-­ scrutiny treatment, i.e. on the treatment(s) found to be in breach of the EU IIPA. The statement could be understood to mean that every party bears financial responsibility arising out of an award or settlement for treatment attacked by the claimant under the condition that the treatment breached the EU IIPA and, hence, led to an award or settlement. When only one out of three treatments is illegal under the EU  Article 3(1) REG reading ‘financial responsibility arising from a dispute’ appears to suggest that the treatment brought by the investor can equally be the basis for allocating financial responsibility. However, upon a closer look, Article 3(1) REG is held more generic due to the fact that a dispute can hold numerous treatments challenged, which all cause separately a financial burden, and because under Article 3(1)(c) REG the EU can hold indirectly financial responsibility even though only Member State treatment is challenged before the Arbitral Tribunal. Recital 5 REG supports that view. 141  Explanatory Memorandum to the REG, pp. 5–6: ‘Regardless of whether the Union or a Member State acts as respondent to a claim, the financial responsibility for any costs should follow the origin of the treatment of which the investor complained. Therefore, should the treatment attacked by an investor exclusively originate in a Member State, the Member State in question should be liable for the costs flowing from the dispute settlement. Similarly, where the treatment of which an investor complained originates in the institutions of the Union (including where the measure in question was adopted by a Member State as required by Union law), financial responsibility should be borne by the Union. Equally, the decision on whether to settle a dispute settlement claim and the responsibility for the payment of a settlement award should normally follow the origin of the treatment [emphasis added]’; and p. 9: ‘The main criterion for the allocation will be the origin of the treatment of which the investor has complained [emphasis added]’. 140

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IIPA, only that treatment has caused the financial burden, and only on the basis of that treatment the financial burden shall be allocated. Besides, if one would categorically allocate financial responsibility on the basis of the treatments impugned by the claimant (ante-scrutiny), financial responsibility would risk being decoupled from the award and settlement. One would assume that all treatments impugned by the investor are illegal under the EU IIPA whilst in fact the Arbitral Tribunal in an award or the parties in a settlement did not see it that way. The basis for the exact allocation of financial responsibility would not be the award or settlement anymore, but the statement of claim of the investor. This leads to ­inequitable results. Take, for example, an investor challenging treatment afforded by a Member State (Article 3(1)(b) REG) and treatment afforded by the EU (Article 3(1)(a) REG). And the Tribunal finds that only the Member State treatment is in breach of the EU IIPA and not the EU treatment. Relying on the treatment challenged by the claimant (ante-scrutiny) leads to untenable financial repercussions for the EU since the EU would bear part of the financial burden even though it did not breach the EU IIPA and did not cause the award or settlement. Parties could possibly end up with (internal) payment obligations that are not based upon the international award or settlement but upon the mere, partly random, identification of treatments by the investor. Another effect of relying on ante-scrutiny treatment for the allocation of financial responsibility is that one could cause the need for an apportionment, even though this would not be required if one were take into account only the treatment post-scrutiny, under which only the EU or a Member State would exclusively bear financial responsibility. In a nutshell, apportionment, which will be discussed further below, describes the need to split a financial burden arising out of an award or a settlement, for which both the EU and a Member State bear financial responsibility, into a Member State share and into a EU share. The problem is that the REG, as opposed to the German allocation system, does not contain a modus operandi according to which an apportionment is to be performed. Hence, the fact that the need for an apportionment under the REG should be reduced to a minimum due to its pitfalls and uncertainties speaks finally against relying on ante-scrutiny treatment for the ex post facto allocation of financial responsibility. As a result, where an award, which is likely, or a settlement, which is unlikely, spells out and is clear as to which treatments out of multiple treatments challenged under the EU IIPA, for at least one of which the EU and one the Member State concerned is internally liable, are illegal under the EU IIPA, the ex post facto allocation of financial responsibility pursuant to Article 19 REG in conjunction with Article 3 REG must be based only on such treatments (post-scrutiny). The content of the award and settlement, with respect to the breach of the EU IIPA has, thus, a binding effect on the Commission (and the CJEU). Yet settlements are typically silent as to whether and if so which treatment out of multiple treatments is illegal under the EU IIPA. It cannot be excluded that arbitral awards are equally silent. Whether in such cases the Commission (and the CJEU) can look into the merits of the case underlying an award or settlement in order to find out which treatment is in breach of the EU IIPA and, hence, caused the financial burden, is discussed in Chap. 6.

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5.2.5  A  pportionment of a Financial Burden Into a EU and a Member State Share Under the REG Just as much as under the German allocation system, there are cases under the REG where a financial burden must be apportioned between the EU and a Member State concerned. The allocation of financial responsibility under the REG runs smoothly whenever it is clear that either the EU or a Member State concerned bears exclusive financial responsibility for a particular financial burden. This is the case where a financial burden can be fully allocated to either the EU or a Member State concerned: Either the treatment or treatments that caused the financial burden on the international plane fall fully under Article 3(1)(a) and/or (c) REG or fully under Article 3(1)(b) REG. However, where an award or settlement churns out an undivided financial burden, which is to be allocated to the EU pursuant to Article 3(1)(a) and/or (c) REG and to a Member State pursuant to Article 3(1)(b) REG, one enters the realm of apportionment. Apportionment under the REG signifies the attempt to split a financial burden arising out of an award or settlement in a EU and a Member State share. It poses a major challenge to the allocation of financial responsibility between the EU and the Member States under the REG.142 Why? Because even though the REG foresees the event that a financial burden might be borne by both the EU and a Member State under Article 3 REG and, thus, that an apportionment might be necessary, it is silent on how it should function, which criteria should be used and what elements or factors might determine the apportionment. Hence, additional criteria and methods are required to split an undivided financial burden in appropriate shares to be borne by the EU and by the Member State concerned. 5.2.5.1  S  cenarios Under the REG Requiring the Apportionment of a Financial Burden Into a EU and a Member State Share The raison d’être for the need of an apportionment under the REG is the fact that arbitral awards and settlements arising out of disputes under EU IIPAs can churn out single, undivided monetary amounts (financial burden) to be paid by the respondent to the successful claimant investor, which according to Article 3 REG shall be borne by both the EU and the Member State. The question is: When do such scenarios occur? For that to answer one must make a distinction between awards and settlements that are based on a single treatment and awards and settlements that are based on multiple treatments.

142

 Cf. Dimopoulos, above Chap. 2, fn. 112, p. 1703.

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5.2.5.1.1  A  pportionment Based on a Single Treatment ‘Partly’ Required by EU Law In cases where an arbitral award or settlement is based on a single Member State treatment for which both the EU and a Member State concerned (scenario of partially required under Article 3(1)(c) REG) are financially responsible, it is only logical and it derives from the nature and structure of the claim of the investor that the Tribunal in an award or the parties in a settlement will never split the amount of damages into a EU and a Member State share. Rather, there will always be a single, undivided amount of damages to be paid by the respondent to the investor. This is because, simply, the investor challenged only the Member State treatment as part of a single damages claim and if the claim is successful, the award or settlement is based solely on the single damages claim based on the single (Member State) treatment. The EU treatment that has partially required the Member State to act pursuant to Article 3(1)(c) REG is not part of the damages claim of the investor and, therefore, could not cause the award or settlement. Here, Article 3(1)(c) REG itself, which does not require that the EU treatment that required the Member State to act must be challenged before an Arbitral Tribunal in order for the EU to bear internal liability, causes the need for an apportionment of a financial burden into a EU and a Member State share. 5.2.5.1.2  Apportionment Based on Multiple Treatments In cases where an arbitral award is based on multiple treatments for at least one of which the EU and for at least one of which a Member State is liable under Article 3(1) REG, the award in its operative part regularly stipulates a single, undivided amount of damages or compensation to be paid by the respondent without explicitly saying on which treatment it is based. However, sometimes it derives from the content of the award which treatment caused which amount of compensation or damages, or caused which quantifiable part of the overall sum awarded. This depends on the prayer for relief and the structure of the claim(s) made by the investor claimant. Specifically, a link of a specific treatment and a financial burden may derive from the content of an award where a claimant investor successfully submitted multiple claims each for a separate amount of damages and each claim is based on a separate treatment, each treatment constituting in and of itself a separate breach and each causing in and of itself a separate financial loss. For example, an investor might bring a claim for damages for the amount x on the basis of treatment falling entirely under Article 3(1)(a) or (c) REG for an alleged breach of the FET standard and a separate claim for damages for the amount y on the basis of treatment falling under Article 3(1)(b) REG for an alleged breach of the non-discrimination standard. In the case that both treatments are illegal under the EU IIPA, the Tribunal has the obligation as derives from the prayer for relief of the claimant to separately calculate and determine the recoverable damages and amount of compensation arising out of each illegal treatment with respect to each damages claim and make the results clear in

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the part of the award regarding the quantum of damages. In that case a link between a treatment and a financial burden can be established upon looking into the content of the award and each financial burden can be allocated pursuant to Article 3(1) REG. An apportionment is not required. The same might happen under settlements where each treatment is based on a separate breach and a separate claim for damages. It is true that it is the essence of settlements that the parties typically agree on a single, monetary amount payable by the respondent in exchange for the investor not pursuing its claims based on all treatments any further, without ascribing individual amounts to each claim and, thus, each treatment. Parties can structure their settlement as they deem fit and do not have to pronounce on all the issues submitted under the prayer of relief. Rather, the parties are likely to agree on one amount to be paid even though separate claims for separate amounts of damages were originally submitted. On the other side, since the Member State concerned must consent to the settlement if the EU does not want to loose its reimbursement claim against the Member State concerned,143 and, thus, the Member State might condition its consent on that it is clear how much it incurs internal liability for its own treatment, the investor might nevertheless bargain with the EU, subject to the Member State’s approval, for each separate claim (and thus for each separate treatment) an specific amount payable. In these cases, the conundrum of having to apportion a financial burden into a EU and a Member State share does not arise either because each successful claim of damages is linked to a specific treatment and can be separately allocated. However, where an award or settlement is based on multiple treatments, for at least one of which the EU and for at least one of which a Member State is liable under Article 3(1) REG, there are many scenarios conceivable, where it does not derive from the content of the award or settlement what particular financial burden each treatment has caused but rather that multiple treatments caused a single undivided monetary sum to be paid by the respondent. The reason, again, lies in the structure of the statement of claim and the prayer for relief submitted by the investor claimant. Where a single successful claim for damages is based on multiple treatments that together (cumulatively) or separately (independently) breached the EU IIPA, it is simply a consequence of the structure of the claim and the prayer for relief that the Tribunal in an award and the parties in a settlement will only calculate and determine a single amount of damages payable by the respondent with respect to that single damages claim. That the Tribunal or the parties for that matter do not split the damages into a EU and Member State share or ascribe individual amounts payable to each treatment simply derives from the principle of party disposition— the investor’s statement of claim, plea and prayer for relief determines the scrutiny mandate of the Tribunal and serves as an orientation for the parties in a settlement.144 Thus, due to the structure of claims, i.e. where multiple treatments are part of one and the same damages claim, there are cases where treatments of both the EU  See Article 14(6) REG.  Yet, as just discussed, with respect to claims based on separate treatments, the parties in a settlement may bargain individual amounts to each treatment.

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and the Member State caused a financial burden together, which cannot be allocated fully to either the EU or the Member State, but have to be apportioned to both. 5.2.5.1.3  E  xamples of EU-Member State Interaction Requiring Apportionment Under the REG It is submitted that where multiple treatments are impugned for at least one of which the EU and for at least one of which a Member State bears financial responsibility, it will occur in practice often that they are part of one and the same damages claim, requiring an apportionment. To give an example, a claimant will often impugn treatments of both the EU and a Member State as part of a single damages claim in instances of executive federalism. Take a claim based on the one hand on EU legislation (Article 3(1)(a) REG) and on the other hand on Member State treatment implementing the EU legislation, which falls under Article 3(1)(b) REG since it was not required by EU law because e.g. the Member State had a considerable amount of discretion and used it in a way that breached the EU IIPA even though it could have avoided the breach without disregarding the obligation to adequately implement the EU legislation. Depending on the case, a claimant might allege either that both treatments together (cumulatively) or separately (independently) breached the EU IIPA. In any case, due to the interrelatedness of both treatments, their probable cumulative causation of a financial loss and the difficulty or impossibility of dissecting the individual contributions to the financial loss caused by each treatment, it is likely that a claimant will combine both treatments in one single claim for damages. Yet even outside executive federalism, it can occur in practice often that a claimant will impugn as part of a single damages claim multiple treatments, for at least on which the EU and for at least on which a Member State is internally liable, requiring an apportionment of a financial burden under the REG. This has to do with the way of how IIPAs are generally breached, which can be the result of a series of EU and Member State treatments.145 Take for example the concept of legitimate expectations, which is pivotal for the interpretation and threshold of the FET standard and the protection from (indirect) expropriations.146 An investor can have legitimate expectations in the stability of the legal framework of the host state in which its investment is embedded. A piece of EU legislation in its pure form or as transposed and implemented by a Member State might adversely affect the investment of a protected investor. Now, of particular importance in the creation of legitimate expectations are specific assurances and representations made by the host state in order to induce or reassure investors to make investments in the first place.147 Such assurances and representations come often in the form of executive statements, undertakings, contracts or licences.148 Member States are the direct benefactors of  Dimopoulos, above Chap. 2, fn. 112, p. 1703.  Dolzer/Schreuer, above Chap. 2, fn. 280, pp. 115 et seq, pp. 145 et seq. 147  Ibid, p. 149. 148  Ibid, p. 145. 145 146

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investments and typically are in contact with foreign investors. So it is the Member State government that typically makes such assurances and representations to the investor. Another part of protecting the legitimate expectations under the FET standard is the obligation to be transparent and to guarantee due process and procedural propriety to foreign investors.149 It is again usually the Member States, which are the benefactors of foreign investment and which are usually in contact with the foreign investors that ought to be transparent regarding looming regulation adversely affecting foreign investors, and guarantee due process and procedural propriety. So, in a constellation where already a EU legislation falling under Article 3(1)(a) REG or a Member State legislation based on a EU directive (Article 3(1)(c) REG) sits at odds with the legitimate expectations of the investor in the legal framework, it is the Member State that creates or sustains the legitimate expectations by making assurances or representations or by being intransparent. Thus, in such instances, both EU and Member State treatment might be in breach of the EU IIPA, yet only both treatments together caused the financial loss. An indirect or creeping expropriation, where a series of cumulative steps, which, taken together, have the same effect on the foreign investor as a direct, outright expropriation,150 constitute another example where both EU and Member State treatments might easily form together a breach of the EU IIPA, causing together a financial loss. Hence in cases where both EU and the Member State treatment constitute a breach of the FET standard or constitute together an indirect expropriation, it is likely that a claimant combines these treatments as part of a single damages claim. This is because either both treatments cause together not only the breach of the EU IIPA but the financial loss. 5.2.5.1.4  A  rbitral Tribunals Have No Obligation to Render Awards That Can Be Perfectly Apportioned Under the REG Where a single damages claim is structured in such way that comprises multiple treatments, for at least one of which the EU and for at least one of which a Member State bears financial responsibility, and the treatments constitute a breach of the EU IIPA, a Tribunal in the quantum phase of the proceedings is not obliged under international law to artificially split the single damages claim and ascribe an exact amount payable to each particular treatment or to the EU and the Member State concerned respectively in order to enable or facilitate the ex post facto allocation of financial responsibility. An Arbitral Tribunal is neither obliged nor even mandated under the EU IIPA to allocate financial responsibility between the EU and the Member State concerned pursuant to the REG—the REG is res inter alios acta to the Tribunal.151 An Arbitral Tribunal would perhaps allocate separate shares of the overall damages claim to the EU and the Member State concerned if both would be seen as different entities under public international law for the purposes of the  Ibid, pp. 149 et seq, pp. 154 et seq.  Ibid, pp. 125 et seq. 151  See above Sect. 4.2.2.1.2. 149 150

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dispute, if both were be part of the arbitration proceedings and if both bore international responsibility for their own treatment. However, under the single-respondent and responsibility system of post-Lisbon EU IIPAs, structured in accordance with CETA,152 an investor can only sue one party and that party is automatically internationally responsible for all treatments impugned, regardless of whether both EU and Member State treatment is impugned. As a solution, one could draft future post-Lisbon EU IIPAs in a way that an Arbitral Tribunal must separately ascribe recoverable damages to each treatment in cases where multiple treatments breach the EU IIPA for one of which at least the EU and for one of which at least the Member State is internally responsible pursuant to Article 3 REG. Yet such a drafting approach is utterly impractical, unconducive and unviable. What shall be the criteria and method for splitting a single successful damages claim into a EU and a Member State share? If one were to require the Tribunal to do just that would mean to divide an organic claim submitted by the investor under international law based on arbitrary criteria and random methods. In fact, it would mean that an Arbitral Tribunal would assume the role of the Commission and the CJEU, which are alone competent for the internal allocation of financial responsibility. So it is also the for EU law to provide and for the Commission and the CJEU to create methods and criteria in order to split a financial burden into a EU and a Member State share. Most importantly, the result of that division by a Tribunal would not be challengeable under EU law. It would deprive the third party (being the EU or the Member State concerned) that was not the respondent in the proceedings and could not influence the apportionment made by the Tribunal, of the possibility to challenge before the CJEU the amount allocated to it. To sum up, there are scenarios where awards or settlements churn out a financial burden, which according to Article 3(1) REG cannot be allocated to either the EU or a Member States, but to both. In these situations, the Commission and the CJEU is faced with the same conundrum as the German allocation court: to come up with methods or criteria—additional to the criteria in Article 3(1) REG—to apportion a share of the financial burden to the EU and a share of the financial burden to the Member State concerned. The question arises: How, by employing which criteria and methods, is the financial burden to be apportioned under the REG? 5.2.5.2  T  he REG Foresees the Scenarios Where an Apportionment Is Required But Provides No Modus Operandi on How to Split a Financial Burden Into a EU and a Member State Share The REG was not oblivious of the fact that there can be cases that a financial burden is to be allocated to both the EU and a Member State, requiring an apportionment. Articles 9(2)(a), 11(1), 12 and 19(1) REG speak of the EU only bearing part of the financial responsibility. Furthermore, in the Explanatory Memorandum to the REG  EU IIPAs that are modelled in accordance with CETA, the EU-Singapore IIPA, the EU-Vietnam FTA or TTIP.

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the Commission explained that the section on allocation of financial responsibility in the REG ‘sets out the basis on which the financial responsibility arising from a dispute settlement claim will be allocated to the Union, a Member State or both [emphasis added]’.153 The REG foresees the two scenarios, described above, where an apportionment is warranted: The first part of Recital 7 REG,154 as discussed, acknowledges that an apportionment of a financial burden can follow from a single Member State treatment, which was partly required by EU law pursuant to Article 3(1)(c) REG and partly falling under Article 3(1)(b) REG. The second part of Recital 7 REG reads ‘[t]his Regulation should also provide for the possibility that individual cases concern both treatment afforded by a Member State and treatment required by Union law and should cover all actions taken by Member States and by the Union. In such cases, the Member States and the Union should bear financial responsibility for the specific treatment afforded by either of them [emphasis added]’. This part of Recital 7 REG acknowledges that an apportionment of the financial burden can also follow from multiple treatments for one of which at least the EU is liable pursuant to Article 3(1)(a) or (c) REG and for one of which at least a Member State concerned is liable pursuant to Article 3(1)(b) REG.  This is the case, as discussed above, where an investor successfully brings a single damages claim based on multiple treatments before an Arbitral Tribunal, which all constitute a breach of the EU IIPA, and the award or settlement only churns out a single, undivided amount of damages to be paid. As a result, the REG foresees that there might be an undivided financial burden to be shared by the EU and the Member State, and hence the need for an apportionment. Only that the REG does not provide for a modus operandi for it. 5.2.5.3  P  ossible Apportionment Criteria and Methods Under the REG for Splitting a Financial Burden Into a EU and a Member State Share Since the REG—as opposed to the German allocation legislation—does not provide for any criteria, methods or guiding principle as how to perform an apportionment of a financial burden arising out of an award or settlement, it is ceded to possible future EU legislation de lege ferenda to enact apportionment criteria and methods or it is up to the Commission and the CJEU to select and employ their own method and criteria to split the financial burden in a EU and a Member State share for purposes of the ex post facto allocation of financial responsibility under the REG.

 See Explanatory Memorandum to the REG, p. 9.  The first part of Recital 7 REG reads: ‘Where the Member State acts in a manner required by Union law, for example in transposing a directive adopted by the Union, the Union itself should bear financial responsibility in so far as the treatment concerned is required by Union law [emphasis added]’. 153 154

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5.2.5.3.1  Shared Responsibility Under EU Law Intuitively, one would first turn to the case law of the CJEU on shared responsibility for EU law breaches in order to find out how the CJEU splits a financial burden in cases where both EU and Member States have contributed to the breach of EU law.155 The CJEU has recognised that shared responsibility may arise in the following scenarios: Where the EU fails to adequately supervise Member States and fails to prevent Member States from infringing EU law,156 where the EU adopts a measure approving an illegal Member State action157 or where Member States incorrectly implement unlawful EU rules or acts or where the Member States implement illegal EU rules or acts in a compromising way although it could have opted for a non- or less compromising way due to a margin of discretion.158 Unfortunately however, the CJEU never has solved issues of shared responsibility and allocated specific shares of liability to the EU and the Member State concerned. This, arguably, is the result of a procedural peculiarity: The national courts are competent for ruling on Member State liability for breaches of EU law, whereas the CJEU is exclusively competent for ruling on EU liability for breaches of EU law.159 Thus, before a claimant can claim the share of EU liability for an alleged breach, it is a precondition to first exhaust local remedies regarding the Member State share of liability.160 Now, only the CJEU can bindingly rule on the share of liability to be borne by the EU. Thus, a claimant, for vindicating its full rights would first have to exhaust local remedies before the Member State courts and then would have to initiate proceedings before the CJEU. As of now, no claimant went thus far. A reason for that peculiarity is that claimants should not be overcompensated either on the national or the EU level.161 It follows that CJEU jurisprudence on shared responsibility for EU law  See for a short overview on shared responsibility under the EU state responsibility regime, Craig/De Búrca, above Chap. 3, fn. 38, pp. 600–603; Alexander H Türk (2009) Judicial Review of Integrated Administration in the EU. In: Herwig C H Hofmann and Alexander H Türk (eds.) Legal Challenges in EU Administrative Law: Towards an Integrated Administration. Edward Elgar Publishing, pp. 250–255; see for a more detailed analysis, Maartje de Visser (2004) The Concept of Concurrent Liability and its Relationship with the Principle of Effectiveness: A One-way Ticket into Oblivion? 11(1) MaastrichtJEur&CompL, pp. 47–71; Wouter Wils (1992) Concurrent liability of the Community and a member state. 17 ELRev, pp.  191–206; Trevor C Hartley (1977) Concurrent Liability in EEC Law: A Critical Review of the Cases. 2 ELRev, pp. 249–265. 156  Case 4/69 Alfons Lütticke GmbH [1971] ECR 325. 157  This concerned binding EU acts such as EU decisions and instructions, Cases 5, 7, 13-24/66 Kampffmeyer [1967] ECR 245; Case C-55/90 Cato [1992] ECR I-2533, in which the claimant sought damages arising from a Commission Decision approving the unlawful implementation of a EU directive by the United Kingdom. 158  Cases 5, 7, 13-24/66 Kampffmeyer [1967] ECR 245; Joined Cases C-106/90, C-317/90, C-129/91 Emerald Meats [1993] ECR I-209. 159  De Visser, this chapter, fn. 155, pp. 50–52; Craig/De Búrca, above Chap. 3, fn. 38, pp. 600–601. 160  Cases 5, 7, 13-24/66 Kampffmeyer [1967] ECR 245. 161  Cases 5, 7, 13-24/66 Kampffmeyer [1967] ECR 245, p. 266: ‘[The] applicants have informed the Court that the injury alleged is the subject of two actions for damages, one against the Federal Republic of Germany before a German court and the other against the Community before the 155

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breaches cannot offer any guidance as how to apportion a financial burden in a EU and a Member State share. 5.2.5.3.2  How Specific Can You Get? One approach for apportionment would be to create criteria for specific forms of breaches. For example, the German allocation law pursuant to §4(2) LastG avails itself of the criterion of duration of judicial proceedings in cases where state and federal courts have both caused a breach of international law through overlong and excessive proceedings. Here the factor time can be adequately and proportionally translated into a financial share. It must be stated that this might constitute a viable apportionment criterion for breaches of EU IIPA caused by Member State and EU courts or other authorities in cases where the duration of a measure caused a breach of the EU IIPA. However, this is a very special case. Apart from the element of time, it is almost impossible to create criteria that adequately translates the contribution of a treatment to a breach into a financial share. And where breaches of EU IIPAs are caused by administrative and legislative treatment, how do you value an administrative act as opposed to a legislative act? Even if one could put a price tag on it, such a ratio cannot react to individual circumstances where e.g. the administrative action only marginally breached the EU IIPA as opposed to the legislative action. 5.2.5.3.3  Pre-Determined Allocation Keys The easiest way for apportioning a financial burden into a EU and a Member State share is to provide for fixed liability quotients as is the case under § 3 LastG and § 4(1) LastG, or even § 426(1) BGB.  For example, the EU and the Member State concerned could categorically share a financial burden in equal parts (50:50). Or, where multiple treatments of EU and a Member State caused an award or settlement each party could bear financial responsibility in the proportion of the treatments that were found in breach of the EU IIPA. Admittedly, such a configuration of apportionment would enhance legal certainty and significantly facilitate the task of the Commission and the CJEU to split the financial burden in a EU and Member State share. It would also nip in the bud any potential for controversy regarding the exact method of allocating the financial burden. Conversely, as much as such an approach may be well suited for allocation systems (such as the German one) that rely predominantly on an understanding that financial responsibility is borne by the Court of Justice. It is necessary to avoid the applicants’ being insufficiently or excessively compensated for the same damage by the different assessment of two different courts applying different rules of law. Before determining the damage for which the Community should be held liable, it is necessary for the national court to have the opportunity to give judgment on any liability on the part of the Federal Republic of Germany. This being the case, final judgment cannot be given before the applicants have produced the decision of the national court on this matter’.

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competent entity where the administrative risk materialises, it may not be the proper approach for allocation systems (such as the REG) that rely on asset protection, budget neutrality and financial fairness. Such systems rather call for a case-by-case assessment. There are countless scenarios conceivable where the contribution of one party (the EU or the Member State concerned) to the breach of the EU IIPA and to the financial burden is so marginal that it cannot justify a splitting of the financial burden in equal parts. It would follow that an approach relying on equal parts or providing for fixed liability quotients is not appropriate to handle an apportionment under the REG. 5.2.5.3.4  C  ase-By-Case Analysis and the Use of Legal Principles Such as ‘Contributory Negligence’ Another approach for an apportionment would be to recur to a case-by-case analysis as does the German allocation system under its default rule in § 1(2) LastG. Basically, the Commission and the CJEU would assess how each treatment contributed to the breach of the EU IIPA and the financial loss and weigh the contributions against each other. This way the Commission and the CJEU could assess whether it is appropriate to allocate a bigger share to the EU or the Member State concerned due to the gravity and seriousness of the breach caused by the individual treatments. Where an apportionment is based on a single Member State treatment partially required under Article 3(1)(c) REG the EU treatment that prompted the Member State to act could in and of itself not be the focus of the assessment since it was not introduced into the arbitration. Rather, here, the focus would shift to the EU law portion reflected in the Member State implementation treatment and how that portion contributed to the breach. When weighing the contributions against each other, one could recur to principles of ‘contributory cause’ and ‘contributory negligence’ and ‘mitigation’ enshrined in §1(2) LastG and § 254 BGB and borrowed from the law of torts with respect to the apportionment of liability between joint tortfeasors or where the victim failed to mitigate the damage or contributed to it. It is submitted that these principles can be found in almost all Member State jurisdictions and can even be seen as part of the general principles of EU law.162 The ECJ held that ‘[i] ndeed, it is a general principle common to the legal systems of the Member States that the injured party must show reasonable diligence in limiting the extent of the loss or damage, or risk having to bear the damage itself’.163 The Commission and the CJEU could also look at elements such as ‘intent’, ‘fault’, ‘gross negligence’, the assumption of risk, the duty of care, the seriousness and gravity of the respective breaches and the causal link of each contribution to the financial loss. Regulatory  Cees van Dam (2013) European Tort Law, 2nd edn. Oxford University Press, pp. 375–380; see in general on general principles of EU law, Takis Tridimas(2007) The General Principles of EU Law, 2nd edn. Oxford University Press. 163  Joined Cases C-46/93 and C-48/93 Brasserie du Pêcheur [1996] ECR I-1029, para. 85, with reference to Joined Cases C-104/89 and C-37/90 Mulder [1992] ECR 3061, para. 33. 162

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motives and public policy considerations could also play a role as well as the avoidability of the breaching conduct. It should be noted, however, that the use of such criteria and elements to weigh the contributions against each other with respect to the breach of the EU IIPA and the causation of the monetary loss could lead to a de facto allocation of a financial burden to one entity in cases of apportionment. This would sit at odds with Article 3(1) REG, pointing not at one but at two entities. However, the apparent advantages in recurring to a case-by-case analysis is that the Commission and the CJEU can be receptive to circumstances that warrant burdening one party with a higher share of financial responsibility than the other. This is impossible under pre-determined quotients or percentages. As a result, in cases of apportionment the Commission and the CJEU should resort to a case-by-case assessment by using methods found in tort law such as ‘contributory negligence’ that help weighing the contributions with respect to the breach of the EU IIPA and the causation of the monetary loss. This approach to apportionment is most in line with the guiding principles underlying the allocation of financial responsibility under the REG: asset protection, budget neutrality and financial fairness.

5.3  C  onclusions Chapter 5: Significant Steps Towards Federalisation Under EU IIPAs The system of allocating financial responsibility under the REG shows many resemblances with the allocation system in Germany enshrined in Article 104a(6) GG and the LastG. First and foremost, both systems establish criteria that determine when an entity is internally responsible for a treatment that causes a financial burden. Second, both systems are derivative systems and no review systems, meaning that the German allocation court and the Commission and the CJEU are bound by the amount of damages awarded or agreed upon (financial burden) and cannot question or reassess that amount or the basis for that amount (merits of an award or settlement). Specifically, when an award or settlement is clear as to which treatments are in breach of international law and the EU IIPA respectively, they cannot assess in their own right whether these treatments are actually illegal under the EU IIPA, and they have to allocate financial responsibility only on the basis of these treatments. As to the allocation criteria, both systems generally allocate financial responsibility to the originator of the treatment that caused the financial burden. The REG contains some exceptions to this principle that are not present in the German allocation system. One is that Member States can always accept financial responsibility. Another one is that Member States under certain conditions are not responsible under Article 3(1)(c) REG when they implement binding EU law. In these cases, the regulatory competence of the EU trumps the administrative competence of the Member States to implement EU law. The EU act that mandated and prompted the

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Member State to act, breach the EU IIPA and cause a financial burden, does not have to be part of the claim brought before the Arbitral Tribunal in order to lead to the EU’s financial responsibility. In Germany, however, the Länder still bear financial responsibility in cases when they only have correctly enforced or applied binding federal law. If the federal law has not been the object of the claim on the international plane and has not been found to breach an international obligation, the federal law cannot be a basis for financial responsibility. There is no comparable provision to Article 3(1)(c) REG in the German allocation model. The reason for that most probably lies in the fact that the German system is conceived as a system of risk allocation, concentrating on where the administrative risk of breaching international law materialises. As both budgets of the Bund and the Länder are more closely interlinked with each other than the strictly separated budgets of the EU and the Member States, there is less need to find the origin and cause of the breach of international law, which may lie in the vertical power structure between the Bund and the Länder. In contrast, the allocation system of the REG is based on asset protection, budget neutrality and financial fairness. When allocating financial responsibility, it is much more important under the REG to take into account the binding effect of EU law on the Member States when they breach international law. Article 2(l) REG establishes a hypothetical causation-test to find out whether a Member State treatment is required by EU law pursuant to Article 3(1)(c) REG. This is a sound approach to capture the power dynamics of executive federalism in the EU.  The test aims at identifying an irreconcilable normative conflict faced by a Member State to simultaneously comply with the EU IIPA and its EU law obligations. The test rightfully includes the question of whether (alternative) Member State treatment could have avoided the breach of the EU IIPA without disregarding EU obligations. If the test would have exclusively focused on the extent of EU law obligations, i.e. whether the Member State acted in compliance with EU law and whether it did have a margin of manoeuvre, this would have led to inequitable results. One could think here of Member States incorrectly implementing EU law but where no alternative Member State treatment—including EU law-compliant behaviour—could have avoided the breach of the EU IIPA. There is no justification to fully allocate financial responsibility to the Member State in these instances because apparently EU law is at the core of the breach. In these instances, unfortunately, the hypothetical causation-test is incomplete and requires an additional test. Though it is clear that EU law, manifest in the Member State implementation act, stood at the centre of the breach of the EU IIPA, it remains unclear whether the Member State itself contributed to the breach in a way uncalled for by EU law. In order to find that out, a dissection of the Member State implementation treatment into the part that is based on EU law and those parts that rely on an autonomous decision of the Member States is required. Then the latter is to be assessed for breaches of the EU IIPA. Admittedly, such a dissection will be difficult to make. What the hypothetical causation-test and its deficits show is that an allocation system that, rightly, takes into account numerous layers of law (public international law, EU law, national law) in the causation of a EU IIPA breach is highly challenging and perhaps forged best by jurisprudence and legal practice.

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The system under the REG has another major deficiency, or rather, lacuna. The REG predicts scenarios where the criteria in Article 3(1) REG point to allocating a (undivided) financial burden to both the EU and a Member State concerned. However, the REG provides no modus operandi, no criteria and no method as how to split the financial burden in a EU and Member State share. As discussed, the Commission and the CJEU can and should adopt models used in the German allocation system. The models range from fixed liability quotients to case-by-case assessments whilst taking into account the weight of the individual contributions to the breach of the EU IIPA and the monetary loss. Legal instruments such a ‘contributory negligence’ borrowed from the law of torts can further assist with the allocation. Finally, and most importantly, the way in which the REG is currently structured causes major accountability gaps. Under Article 19 REG only the EU may seek redress from the Member States in case the EU paid investors due to an award or settlement although a Member State bears partial or full financial responsibility pursuant to Article 3(1) REG. Not surprisingly, under the German allocation legislation only the Bund can recover from the Länder. This merely reflects the fact that the Länder cannot incur a financial burden on the international plane due to their lack of international standing and their incapacity to bear international responsibility for international law breaches. Therefore, the Länder do not need a legal basis for reimbursement. The same does not hold true with respect to Member States under the REG.  There are many scenarios under which a Member State, which acted as a respondent in a dispute under post-Lisbon EU IIPAs or the ECT, bears international responsibility and is faced with an ensuing monetary award or settlement vis-à-vis an investor whilst the EU bears partial or full financial responsibility under the REG.  Thus, Article 19 REG causes accountability gaps under the REG. The only solution is to amend the REG or adopt a new piece of EU legislation and create a legal basis that enables the Member States to recover from the EU as well.

Chapter 6

Specific Problems Caused by the Interrelation Between the Application of EU IIPAs and the Application of the REG

This chapter discusses three specific problems caused by the interrelation between the Arbitral Tribunal’s and the disputing parties’ application of the EU IIPA and the application of the REG by the Commission and the CJEU. The analysis is again based on the assumption that future post-Lisbon EU IIPAs will be worded and modelled in accordance with CETA, the EU-Singapore IIPA, the EU-Vietnam FTA, or TTIP, which all provide for a mandatory respondent determination mechanism,1 as described in Chap. 4. The interrelation describes the binding and non-binding effects the application of the REG—in form of the Commission decision on respondent status—has upon the application of the EU IIPA, and the application of the EU IIPA—in form of an award or settlement—has upon the application of the REG. There is a twofold interface between both regimes, where the application of one bindingly affects or might influence the application of the other. On the one side, the REG deals with respondent status of the EU and the Member States in disputes under EU IIPAs. To complement the REG, EU IIPAs are structured in a way to render effective under international law the application of the provisions of the REG on respondent status. As discussed, the Commission decides who shall act as respondent and that decision is binding on the determined respondent, the investor claimant and the Tribunal in the dispute under the EU IIPA. Since the Commission decision can be challenged before the CJEU, yet the Commission decision remains binding for the arbitral dispute, a CJEU decision annulling and overruling the Commission has no effect on the arbitral dispute. Thus, the first problem to be discussed is whether, and if so, how the EU IIPA can be altered or amended in order to accommodate a CJEU decision correcting an incorrect Commission decision on respondent status (Sect. 6.1). At the heart of this issue stands the conflict between the interests in a smooth and uninhibited functioning of the arbitration and 1  Article 8.21 CETA, Article 3.5 EU-Singapore IIPA, Article 6 Section 3 Investment Chapter EU-Vietnam FTA and Article 5 Section 3 Investment Chapter TTIP.

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the interests in an effective legal protection against the Commission decision regarding respondent status. The second problem concerns the possibility that the Commission and the CJEU, when deciding on the identity of respondent, might unduly influence the Tribunal in its own assessment on the merits of the case, especially regarding the illegality of challenged treatments under the EU IIPA (Sect. 6.2). On the other side, the REG deals with the allocation of financial responsibility arising out of awards and settlements flowing from disputes under EU IIPAs. Now, as discussed, there are instances where an investor challenges treatments for which the EU and treatments for which a Member State bears financial responsibility under the REG, yet an award, which is unlikely, or a settlement, which is likely, is silent or unclear as to which treatment is in breach of the EU IIPA.2 Whether in such a case the Commission and the CJEU, when allocating financial responsibility, have the mandate to look into the merits of the arbitral case to find out whether all and if not, which treatment is in breach of the EU IIPA, in order to only base the allocation of financial responsibility on the treatment(s) in breach, is discussed as the third specific problem arising from the interrelation (Sect. 6.3).

6.1  T  he Commission Incorrectly Decides to Confer Respondent Status to the EU As analysed, the respondent determination under post-Lisbon EU IIPAs, such as under Article 8.21 CETA, has the binding effect on the parties to the arbitration, the Arbitral Tribunal and the Appellate Tribunal that the determined respondent is the correct respondent. The jurisdiction of the Tribunal, the admissibility and the merits of a claim are unaffected by any objections that the respondent is the incorrect one. One of those ineffective objections is that the Commission, which determines the respondent by having the EU inform the investor about the respondent under the regular determination procedure under Article 8.21(3)(5) CETA, has incorrectly applied the provisions on respondent status under the REG and, hence, wrongly seized respondent status for the EU. Specifically, as analysed, the Member State concerned, whose treatment is arbitrated and subject of the dispute, and possibly investors can bring annulment proceedings before the CJEU pursuant to Article 263 TFEU in conjunction with Article 9 REG regarding the correctness of the Commission decision on respondent status. If the CJEU finds as a result of the proceedings pursuant to Article 263 TFEU that the Commission incorrectly applied Article 9 REG and thus incorrectly assigned respondent status to the EU, the CJEU is bound to overrule and annul the decision of the Commission. The Commission decision no longer has any legal effect under EU law. However, the EU IIPA (Article 8.21(3)(5) CETA) renders the Commission  See above Sect. 5.2.4.2.3.

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decision binding for purposes of the dispute, regardless of the fact that it has not gained legal effect under EU law, regardless of the fact that it has been challenged before the CJEU, and regardless of the fact that it has been annulled by the CJEU.3 Moreover, there is no requirement in the EU IIPA that the Tribunal upon gaining knowledge of the fact that there are pending CJEU proceedings halts or stays the arbitration proceedings. There is further no requirement in the EU IIPA that the Tribunal declines jurisdiction in the event the CJEU has annulled the Commission decision. Hence, under a EU IIPA, worded like CETA, there are no threats to the jurisdiction of the Tribunal and to the validity of awards and settlements made against the respondent as determined by the Commission on the ground that the CJEU found that the Commission applied the REG incorrectly.4 Importantly, the consequence of the current set-up is that by allowing parallel proceedings—before the Arbitral Tribunal and before the CJEU—yet rendering irrelevant under international law a CJEU annulment of an incorrect Commission decision, the right of Member States and investors under EU law to legal protection against the Commission decision becomes moot and factually non-existent. Put differently, the make-up of the EU IIPA renders a legal avenue granted under Article 263 TFEU senseless and Member States and eligible investors are factually deprived of their right to effective legal protection against an act of a EU institution. In the following, first, several solutions will be identified and presented how in disputes under EU IIPAs the right to legal protection against the Commission decision under EU law and a CJEU decision overruling an incorrect Commission decision on respondent status can be accommodated (Sect. 6.1.1). The second part will weigh and discuss, which solution is most the viable and realistic under EU IIPAs (Sect. 6.1.2). Afterwards, the most viable and realistic solution will be pitched against the Member States’ right to legal protection against the Commission’s decision on respondent status (Sect. 6.1.3). As this study argues that the latter outweighs the investors’ interests in smooth and swift arbitration proceedings, this part ends with a concrete drafting proposal and, in case current draft EU IIPAs like CETA, TTIP, the EU-Vietnam FTA and the EU-Singapore IIPA maintain their wording, an interpretation and application proposal of the EU IIPA directed at the disputing parties and the Arbitral Tribunal will be made (Sect. 6.1.4).

 See above Sect. 4.3.3.1.1.  Dimopoulos, above Chap. 2, fn. 112, p. 1709.

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6.1.1  T  he Various Solutions to Accommodate Under the EU IIPA Challenges to the CJEU with Respect to the Commission’s Decision on Respondent Status There are three solutions to draft the EU IIPA in a way that accommodates the dispute under the EU IIPA with a CJEU judgment overruling a Commission decision on respondent status. 6.1.1.1  Deferment or Stay of Arbitral Proceedings The first solution would effectively exclude parallel proceedings and would mandatorily defer or postpone the formal commencement of the arbitration until the question of respondent status is finally adjudicated with binding effect under EU law. In this respect, a provision could be inserted into the EU IIPA to the effect that an investor can only submit a claim to arbitration under the EU IIPA whenever the CJEU has finally decided upon respondent status or whenever the Commission decision has gained legal force under EU law and cannot be challenged anymore due to the statute of limitations. As another variant of the first solution, it has been argued that a provision could be inserted into the EU IIPA requiring an Arbitral Tribunal to stay or halt the (already initiated) arbitral proceedings when legal protection has actually been sought against the Commission decision.5 In the case that the CJEU confirms the Commission decision, the arbitral proceedings continue; in the case that the CJEU annuls the Commission decision, the Tribunal would have to decline jurisdiction and new proceedings with a new Tribunal with a new respondent would have to be initiated. It is submitted that the variant under the first solution to have the Tribunal halt or stay the proceedings makes, compared to the variant that defers or postpones the commencement of the arbitration proceedings, little if any sense. This is simply because the process for establishing the Arbitral Tribunal only begins under EU IIPAs, worded like CETA, when the claimant submits its claim for arbitration. Yet this only happens after the respondent is determined under the determination mechanism. Given the short statute of limitations against the Commission decision on respondent status of 2 months pursuant to Article 263(6) TFEU and the considerable time for constituting the Tribunal, it is likely that CJEU proceedings are already sought or even long running before the Tribunal is finally established. So why bother commencing with the proceedings under the EU IIPA and establishing the Tribunal (which would immediately have to halt the proceedings), when CJEU proceedings are ongoing that can deprive the Tribunal quickly from its shortly lived jurisdiction? What about time and costs is not only what the investor but also the determined respondent might think about.

 Dimopoulos, above Chap. 2, fn. 112, p. 1709.

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6.1.1.2  Parallel Proceedings and Co-Respondents in the Arbitration A second solution would be to draft the EU IIPA in a way to allow the EU and the Member State concerned to act in the arbitration as co-respondents until the Commission decision has gained legal force either as a consequence of the expiration of the statute of limitations of Article 263 TFEU or the CJEU has ruled on respondent status. Then, in the former case the arbitration continues with the respondent as determined by the Commission, and under the latter case the arbitration continues with the respondent as determined by the CJEU. 6.1.1.3  Parallel Proceedings and a Single Respondent in the Arbitration The third solution would be to draft the EU IIPA in a way that would allow the investor to initiate arbitration proceedings against the respondent as determined by the Commission. Yet it would condition the jurisdiction of the Tribunal upon the correct determination of the respondent under the REG. Precisely, a provision could be inserted in the EU IIPA to the effect that the determination of the respondent by the EU shall be made ‘in accordance with EU law’ or ‘in accordance with the REG.’6 In addition the EU IIPA would read that ‘this is without prejudice to the investor’s right to initiate arbitration against the respondent as first determined by the EU’. Under such a set-up under the EU IIPA, the investor can save time and proceed with the arbitration but at the same time assumes the risk that the CJEU rules that the Commission decision was incorrect or illegal under the REG. The lack of jurisdiction would hang over the head of the investor like the Sword of Damocles. In the event that the CJEU finds that the respondent determination by the Commission falls short of the criteria under the REG and, thus, the Commission incorrectly determined the respondent, the investor would risk that the Arbitral Tribunal would subsequently render a jurisdictional award declining its jurisdiction. And if the Tribunal decides to ignore the CJEU effectively annulling and overruling the Commission decision, or in case the CJEU decision is rendered after an award or settlement was made, any award rendered against and settlement agreed with the incorrect respondent would risk annulment or refusal of enforcement for a lack of jurisdiction.

6  This way it is clear that the jurisdiction of the Tribunal is dependent upon the correct respondent determination pursuant to the REG, which only the CJEU has the competence to rule upon. This way it is also clear that if the Commission decision has gained legal effect and cannot be challenged anymore before the CJEU, then the Commission decision must be deemed correct. If the EU IIPA would be structured in such a way, the jurisdiction of the Tribunal would always remain in limbo until the CJEU has made a ruling either confirming or overruling the Commission decision or until the Commission decision gains legal effect due to the statute of limitations of Article 263 TFEU. Alternatively, the EU IIPA could be even more precise stipulating that ‘the respondent determination shall be made by the Commission with legal effect or, if the Commission decision is challenged, shall be made by the CJEU’.

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In this respect, to fully show the repercussions under the third solution, it makes sense to briefly illustrate how an award or a settlement in a dispute under a EU IIPA can face annulment or refusal of enforcement on the ground that the respondent was the incorrect one. In the scenario described here, it is an award rendered against the EU or a settlement entered into by the EU that risks annulment or refusal of enforcement, since there is no scenario where respondent status of a Member State is challenged before the CJEU. Under Article 9(1)(b) REG a Member State can always refuse to act as respondent, thereby mandatorily vesting the EU with respondent status. Also, in the scenario described here, the ground for annulment or refusal of enforcement is that the Tribunal lacked jurisdiction since under the third solution described above, the jurisdictional mandate of the Tribunal is contingent upon the correct application of the REG. Under future EU IIPAs, which will take the shape of CETA and the like, the ground of a lack of jurisdiction is enshrined as a ground for annulment. Pursuant to Article 8.28(2)(c) CETA the grounds for annulment under the ICSID Convention are applicable to disputes under CETA. Article 52(1) (b) ICSID Convention enshrines the annulment ground based on a lack of jurisdiction of the Tribunal.7 In international arbitration, generally, the validity of arbitral awards and settlements that are recorded or ‘rubber-stamped’ in an award can only put into question in annulment proceedings. Arbitral awards cannot, generally, be appealed. Annulment differs greatly from appeal. On the one hand, the annulment procedure for arbitral awards forbids a de novo review of the merits of the case and is only possible on a limited number of grounds,8 aiming at protecting the legitimacy of the arbitration procedure.9 Conversely, appeal has broader application, usually entails a full review of the merits of the case and concerns the substantive correctness of the decision in law and in fact.10 In investment treaty arbitration a further difference must be drawn between ICSID and non-ICSID arbitration. ICSID arbitration is wholly delocalised and does not have a legal seat of arbitration, which would render the law of the seat applicable to the arbitration procedure and ensuing arbitral awards. The ICSID Convention forms a self-sufficient regime; only the ICSID Ad Hoc Annulment Committee on the limited grounds set forth in the ICSID Convention can annul an award handed down by an Arbitral Tribunal under the auspices of ICSID.11 Awards flowing from non-ICSID arbitrations can be annulled by State courts in the country of the legal seat of arbitration on the basis of annulment grounds set forth in the lex arbitri. In many countries, including many Member States of the EU, the lex arbitri including the annulment grounds are modelled after 7  Article 52(1)(b) ICSID reads: ‘Either party may request annulment […] on the ground […] that the Tribunal has manifestly exceeded its powers […]’. See also Schreuer/Malintoppi/Reinisch/ Sinclair, above Chap. 4, fn. 306, Article 52 ICSID, paras. 155–190. Cf. Article 34(2)(a)(iv) and Article 36(1)(a)(iv) UNCITRAL Model Law. 8  Cf. Article 52 ICSID Convention, Article 34 UNCITRAL Model Law. 9  Dolzer/Schreuer, above Chap. 2, fn. 280, pp. 300–308. 10  Ibid. 11  Ibid.

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Article 34 UNCITRAL Model Law, which in contrast to the grounds under the ICSID Convention, give room to public policy considerations under the law of the seat.12 Importantly, future EU IIPAs, such as CETA, the EU-Singapore IIPA and the EU-Vietnam IIPA and TTIP, will, apparently, break with arbitration tradition and introduce a self-contained appeal mechanism.13 Specifically, arbitral awards will be open to review by an Appellate Tribunal on grounds enshrined in Article 52 ICSID Convention, and more importantly, on the grounds of an Arbitral Tribunal’s misapplication or misinterpretation of the applicable law and errors in the appreciation of facts and of domestic law.14 Any other form of appeal, review, set aside, annulment and any other remedy is excluded.15 Thus, the Appeal mechanism under future EU IIPAs not only introduces grounds typical to state court appeal; it entirely replaces the annulment options before the ICSID Ad hoc Annulment Committee and before Member State courts in non-ICSID arbitrations. Regarding enforcement of arbitral awards, one must equally make a distinction between ICSID and non-ICSID arbitrations. Non-ICSID awards require exequatur proceedings before State courts in the country where enforcement is sought. This is regularly governed by the New  York Convention. Article V of the New  York Convention enshrines narrow grounds to refuse enforcement. For example, the lack of jurisdiction of the Tribunal is a ground to refuse enforcement.16 Thus, enforcement of an arbitral award rendered against a Member State must be sought before the Member State courts under application of the New  York Convention. This equally derives from CETA.  Under Article 8.41(1)(2) CETA awards are binding between the claimant and the respondent and a respondent shall recognise and comply with an award without delay. Pursuant to Article 8.41(3) CETA an investor can seek enforcement when the award has gained legal effect or annulment proceedings have been completed. Pursuant to Article 8.41(4) CETA enforcement is governed by the lex arbitri where enforcement is sought. Article 8.41(5) CETA makes clear that awards rendered in disputes under CETA are awards in the sense of the New York Convention. As opposed to non-ICSID awards, ICSID awards are final and directly enforceable in all the jurisdictions of contracting parties to the ICSID Convention, making exequatur proceedings there unnecessary.17 This circumvents the slightly more comprehensive grounds to refuse enforcement under the New York Convention, which equally gives room to public policy considerations.18 This is acknowledged under Article 8.41(6) CETA.  Ibid.  See Article 8.28 CETA, Articles 13, 28 Section 3 Investment Chapter EU-Vietnam FTA, Articles 10, 29 Section 3 Investment Chapter TTIP. 14  See Article 8.28(2) CETA, Article 28(1) EU-Vietnam FTA, Article 29(1) TTIP. 15   See Articles 8.28(9)(d)(e), 8.41(3) CETA, Article 10(3) Section 3 Investment Chapter EU-Vietnam FTA, Article 30(1) Section 3 Investment Chapter TTIP. 16  Cf. Article V(1)(d) New York Convention. 17  Dolzer/Schreuer, above Chap. 2, fn. 280, pp. 300–308. 18  See Article V(2)(b) New York Convention. 12 13

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It should be noted, however, that the EU is no party to the ICSID Convention, and is not eligible to become a party to it either,19 as the ICSID Convention is only open to States.20 Hence, when the EU is respondent, the arbitration will not be conducted under the auspices of the ICSID Convention. Yet this does not mean that investors must or even can seek enforcement of awards against the EU before Member State courts.21 Article 8.41 CETA, which governs enforcement, gives no indication whatsoever that enforcement of awards against the EU follows a different trajectory than enforcement of awards against Member States. Yet the enforcement of awards against the EU follows a different trajectory. At the outset, the EU has no lex arbitri that governs the enforcement of arbitral awards. However, as derives from the REG22 and the Explanatory Memorandum to the REG,23 the EU will honour any payment obligations vis-à-vis a succeeding investor arising from an award rendered against it or arising from a settlement entered into by the EU. Thus, the EU makes the impression that enforcement proceedings against the EU are not needed after all. However, what happens if ‘against all odds’ the EU refuses to abide by its payment obligations? Pursuant to Article 1, 3rd sentence of Protocol No 7 on the Privileges and Immunities of the European Union ‘[t]he property and assets of the Union shall not be the subject of any administrative or legal measure of constraint without the authorisation of the Court of Justice’.24 Following that, it appears that the enforcement of an award against the EU must be sought before the CJEU, similar to bringing a claim for enforcement before Member State courts. The Commission hinted at that in the Explanatory Memorandum to the REG as well.25 In other words, though the EU waived its right to immunity from jurisdiction of Arbitral Tribunals, it did not waive its right to immunity from enforcement.26 In such enforcement proceedings, the CJEU might refuse enforcement on the grounds enshrined in the New York Convention, including the ground of a lack of jurisdiction, and possibly on grounds beyond the confines of the New  York Convention, as the New  York Convention does not bind the CJEU. As a result, awards rendered against the EU risk annulment by the Appellate Tribunal enshrined in the EU IIPA, such as CETA, and risk a refusal of enforcement before the CJEU in cases where the CJEU has found that the Commission incorrectly seized respondent status pursuant to the REG.

 See Dimopoulos, above Chap. 2, fn. 112, pp. 1692–1694.  See Article 67 ICSID Convention. 21  Cf. Explanatory Memorandum to the REG, p. 8. 22  See Article 18(1) REG and Recital 19 REG: ‘Where an award has been rendered against the Union, that award should be paid without delay’. 23  Explanatory Memorandum to the REG, p. 7: ‘[…] the European Union will be under an international obligation to accept any award made against it. The European Union would honour such obligation’. 24  Protocol No 7 on the Privileges and Immunities of the European Union [2012] OJ C 326, p. 266. 25  Cf. Explanatory Memorandum to the REG, p. 8. 26  Cf. Baetens/Kreijen/Varga, above Chap. 2, fn. 73, pp. 1256–1257. 19 20

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The question now arises which of the three solutions presented should be used to accommodate disputes under post-Lisbon EU IIPAs with a CJEU decision annulling and overruling a Commission decision on respondent status.

6.1.2  Discussion: What Is Viable and Realistic? All three solutions presented that safeguard investors’ and Member States’ right to effective legal protection against the Commission decision on respondent status entail negative repercussions. The downsides of the first solution that defers the commencement of or halts the arbitration proceedings are readily apparent. In general, awaiting the outcome of CJEU proceedings might significantly delay the arbitration proceedings. Proceedings before the CJEU generally and pursuant to Article 263 TFEU specifically can be time-consuming and can drag on for years.27 It is true that a special judicial review mechanism providing for expedited proceedings before the CJEU with regard to the correct application of the REG could ease the concerns of substantially delaying the arbitration. However, such an arrangement was not adopted in the REG, which is even silent on the possibility to challenge the Commission decision on respondent status altogether. Another concern of the solutions that defer or halt the arbitral proceedings is that there would be an increased risk of abusing the procedural option to challenge the respondent determination before the CJEU.28 The mere prospect of deferring or halting the arbitration proceedings upon initiation of CJEU proceedings might give a Member State concerned (that faces internal financial responsibility) an incentive to merely challenge the Commission decision in order to delay the arbitration proceedings. Such a risk runs afoul of the interests in legal certainty, due process and fair proceedings. At the same time, such an opening into guerrilla tactics would have the potential to undermine ISDS as an effective dispute resolution mechanism under international investment law. To sum up, the first solution that defers the initiation or halts the arbitration proceedings in order to accommodate a CJEU decision has the potential of undermining the integrity of ISDS proceedings and inhibiting its smooth functioning. The second solution that allows parallel proceedings under the EU IIPA with both the EU and a Member State acting as co-respondents until the CJEU has decided upon the issue of respondent status safeguards the right to legal protection under Article 263 TFEU and at the same time dispel concerns of intentionally delaying the arbitration proceedings. However, that solution might cause other problems. Since the proceedings would continue with both the EU and the Member States, it could lead to inconsistencies in the defence of the claim, undermining the principle of unity of external representation.29 This is a guiding principle of the EU in inter Tietje/Sipiorski/Töpfer, above Chap. 2, fn. 69, p. 25.  Dimopoulos, above Chap. 2, fn. 112, p. 1709. 29  See Explanatory Memorandum to the REG, p. 7. 27 28

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national litigation and its violation can hardly be justified. Another problem is that investors could never arbitrate under the auspices of the ICSID Convention, at least in cases where the Commission decision is challenged before the CJEU. Here the EU would always be a co-respondent alongside a Member State, yet the ICSID Convention is not available in disputes against the EU.  Moreover, the EU and Member States may disagree with respect to the choice of their party-nominated arbitrator, the procedural agenda (e.g. a possible bifurcation of the proceedings, details concerning the submissions, evidence and hearing phase), the applicable arbitration rules and the arbitral institution to administer the arbitration. In the end, the autonomy of EU law would be endangered in case the Arbitral Tribunal is ready to render a decision on the merits before the CJEU has rendered a decision on respondent status. Therefore, this solution was rightfully not followed by the REG and CETA and the other draft EU IIPAs. The third solution would safeguard the Member States’ and investors’ right to effective legal protection against the Commission decision on respondent status but would create the risk that the Tribunal could be later stripped of its jurisdiction. The jurisdiction would be pending until the CJEU has finally decided on respondent status. The risk is borne by the investor since it is his right and his decision to initiate arbitration proceedings albeit CJEU proceedings and potentially seeing the jurisdiction of the Tribunal declined and an ensuing award annulled or refused enforcement. Hence, it can almost be excluded that the investor would assume such risk. The consequence is that a prudent and well-advised investor would almost never initiate arbitration proceedings in case itself or a Member State has sought legal protection before the CJEU. Thus, the same concerns regarding the integrity of the arbitration and its smooth and uninhibited functioning underlying the first solution resurface here. Moreover, even though the investor has, in contrast to the first solution, the option to initiate and continue with the arbitration albeit CJEU proceedings, it is questionable whether a EU IIPA should provide for such an option at all. Due to the obvious prospect and chance that the Tribunal is subsequently stripped of its ­jurisdiction, it makes little sense to have the arbitration commence in the first place. It certainly does not promote arbitration as an effective dispute settlement system if the jurisdiction of a Tribunal would be left in limbo. This is all the more true against the backdrop that the EU emerges as a major player in the international investment protection arena. Such a procedural set-up in the EU IIPA would certainly not enhance legal certainty and the first post-Lisbon EU IIPAs would not be off to a good start and forfeit its role as a blueprint for other IIPAs. It follows that the third solution is not viable for EU IIPAs. As a result, the first solution—i.e. mandatorily deferring the commencement of the arbitration proceedings until the CJEU has decided upon respondent status—is the only viable solution for EU IIPAs to accommodate CJEU proceedings reviewing the Commission decision on respondent status. However, the first solution poses risks to the integrity of the arbitration proceedings, which would have to be suspended until the CJEU has decided upon the issue. The question is, what interests shall be given priority?

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6.1.3  T  he Right to Effective Legal Protection Under EU Law Prevails over the Integrity of the Arbitration Proceedings and Their Smooth Functioning It is submitted that the integrity of the arbitration and its smooth functioning, which, apparently, drives the current set-up of CETA and the other EU IIPAs, does not justify the deprivation of the Member States’ right to effective legal protection against the Commission decision on respondent status. It even causes risks to the validity of the EU IIPA and the enforceability of awards and settlement rendered under it. At the outset, it must be noted that the spirit of the REG speaks in support of the current set-up of CETA and the other EU IIPAs that puts the smooth and uninhibited functioning of the arbitration above Member States’ and investors’ right to effective legal protection against the Commission decision on respondent status. First, the REG does not mention the possibility to seek legal protection against the Commission decision, but does so explicitly as concerns the Commission decision regarding the internal allocation of financial responsibility.30 Moreover, the REG puts great emphasis on the ‘smooth conduct of arbitration’ and the principle of ‘legal certainty for the investor’.31 In the same vein, Recital 19 REG states that ‘[w]here an award has been rendered against the Union, that award should be paid without delay [emphasis added]’. Moreover, as the allocation of financial responsibility can give rise to ‘complex considerations’, the REG is based on the guiding principle that ‘the investor bringing the claim should not be adversely affected by any disagreement between the Union and the Member State’.32 Since such ‘complex considerations’ arising out of Article 3(1)(c) REG are equally part of the Commission decision on the respondent pursuant to Article 9(2)(a) REG in conjunction with Article 3(1)(c) REG such guiding principle should equally apply here. Thus, the REG favours swiftness and efficiency of the arbitral procedure over any disagreement on the correct application of the REG, especially regarding respondent status. However, on the other side of the aisle, in support of the first solution that defers the commencement of the arbitration until the CJEU decided on respondent status strongly militates the Member States’ and investors’ right to effective legal protection against the Commission decision on respondent status. As analysed, the current set-up of EU IIPAs renders the legal protection against the Commission decision senseless. The arbitration continues unabated and the jurisdiction of a Tribunal is unaffected by a CJEU decision overruling the Commission. Consequently, Member States and investors are deprived of their right to effective legal protection under EU law. This constitutes a severe encroachment of the right to effective legal protection against EU acts under EU law. Article 47 European Charter of Fundamental Rights,  See Recital 20 REG.  Explanatory Memorandum to the REG, p. 5. 32  Ibid, p. 6. 30 31

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which is part of the EU legal order pursuant to Article 6(1) TEU, and especially Article 263 TFEU protect the right of due process, effective legal remedies and guarantees legal protection against all acts of EU institutions. The importance of effective legal protection under EU law resonated prominently in the Kadi case.33 Here, the ECJ ruled that a EU regulation, which implemented UN sanctions to the detriment of individuals, and which did not give the sanctioned an opportunity for judicial review of their matter, infringed the individuals’ fundamental rights under EC law. Specifically, the regulation—by not granting any judicial review before Member State or EU courts—encroached upon the right to be heard before a court of law, the right of effective judicial review and the right to an effective legal remedy. The ECJ held that ‘the Community judicature must ensure the review, in principle the full review, of the lawfulness of all Community acts in the light of the fundamental rights forming an integral part of the general principles of Community law, including review of Community measures’.34 And importantly, ‘the review by the Court of the validity of any Community measure in the light of fundamental rights must be considered to be the expression, in a community based on the rule of law, of a constitutional guarantee stemming from the EC Treaty as an autonomous legal system which is not to be prejudiced by an international agreement [emphasis added]’.35 It is submitted that the rationale of the Kadi case can be applied to arbitration proceedings under a EU IIPA whose set-up makes futile any legal protection sought under Article 263 TFEU. It is true that Member States can still formally challenge the Commission decision. However, the right to effective judicial review and effective legal remedy is compromised because a CJEU decision overruling a Commission decision has no influence whatsoever on the arbitration proceedings. Apart from that, the mere fact of rendering futile an avenue of legal protection against acts of EU institutions under EU law could lead the CJEU to declaring the EU IIPA invalid on the ground of a violation of primary EU law and EU public policy. As to the procedural set-up here, as discussed, if the EU refuses to pay an award, investors must seek enforcement before the CJEU.  At this occasion, the CJEU might consider the compatibility of EU public policy and primary EU law with a EU IIPA that does not accommodate the right to effective legal protection against the Commission decision on respondent status pursuant to Article 263 TFEU.  Even worse, Member State courts in enforcement proceedings regarding awards rendered against a Member State might refer a question to the CJEU for a preliminary ruling pursuant to Article 267 TFEU addressing the same compatibility question.36 In contrast to the ground of an incorrect application of the REG, being secondary EU law, the right to effective legal protection under EU law as enshrined in the European Charter of Fundamental Rights and Article 263 TFEU concerns primary EU law. Primary EU law takes precedence over EU IIPAs in the hierarchy

 Joined Cases C-402/05 P and C-415/05 Kadi [2008] ECR I-06351.  Ibid, para. 326. 35  Ibid, para. 316. 36  Craig/De Búrca, above Chap. 3, fn. 38, p. 317. 33 34

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of norms under EU law.37 Therefore, the CJEU could declare the EU IIPA invalid for being inconsistent with primary EU law and European public policy. It is true that irrespective of its incompatibility with EU law, the EU IIPA would remain valid under international law and continue to bind the EU, the Member States and their treaty partner(s) until its modification, termination, denunciation or withdrawal under international law.38 Yet the CJEU and Member State courts could still declare unenforceable any award based on arbitration proceedings under the EU IIPA that— in abstract or in concreto—did not accommodate a ruling by the CJEU on respondent status. It is true that the concern of compromising the Member States’ rights to effective legal protection could be alleviated in case the EU, to which the Commission has given incorrectly respondent status, would incur full (internal) financial responsibility arising out of the award or settlement. Yet this is not the case. An incorrect application of the provisions on respondent does neither influence the allocation of financial responsibility nor the EU’s right to seek reimbursement. In a similar vein, the arguable possibility39 of Member States to bring proceedings before the CJEU pursuant to Article 263 TFEU regarding an insufficient or inadequate representation in the arbitration proceedings of the Member State’s financial interests by the Commission (Article 9(4) REG) does probably not lead full financial responsibility of the EU. In the end, the concerns of inhibiting the smooth functioning of ISDS proceedings that follow from the first solution are not as severe as they seem. Investors might have a legitimate interest as well to sue a Member State and, hence, are equally willing to bear a suspension of the arbitration proceedings, either in case they themselves or the Member State concerned sought legal protection before the CJEU against the decision to equip the EU with respondent status. For example, ICSID arbitration, which is the most preferred option for any investor, as it circumvents enforcement proceedings before Member State courts and, thus, the grounds to refuse enforcement under the New York Convention, only works with Member States as respondents. Moreover, the enforcement of awards against Member States might be easier as it circumvents the CJEU as the enforcement court. In this regard, it might be easier to execute into assets of the Member States than into those of the EU.40 It is unclear whether the CJEU insists on absolute immunity regarding enforcement, which makes it impossible for the investor to execute in EU assets, or whether it grants relative immunity, leaving those assets for enforcement, which are not used for public functions. Arguably, the EU has less commercially used and, thus, seizable assets than the Member States.41 Hence, the concerns regarding a smooth and uninhibited functioning of ISDS proceedings are counterbalanced or at  Van Vooren/Wessel, above Chap. 3, fn. 1, p. 211; Rosas, above Chap. 2, fn. 325, p. 146.  Dimopoulos, above Chap. 2, fn. 112, p. 1697; Case C-327/91 France v Commission [1994] ECR I-3641, paras. 13–17. 39  Baetens/Kreijen/Varga, above Chap. 2, fn. 73, p. 1258. 40  Ibid, pp. 1256–1257. 41  Ibid. 37 38

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least strongly alleviated because the suspension of proceedings works equally, at least in most of the cases, for the interests of the investor claimant. Second, the statute of limitations to go to the CJEU is 2 months upon publication of the Commission decision on respondent status pursuant to Article 263(6) TFEU. This means after 2 months an investor knows already whether it can proceed with the arbitration against the ‘old’ respondent or whether it has to await a CJEU decision. It must be stated that the CJEU only has to rule upon one legal question, either whether the conditions of Article 9(2)(b) REG, Article 9(2)(a) REG in conjunction with 3(1)(c) REG or Article 9(3) REG are met. The procedure before the CJEU can also be streamlined in that a claimant could directly appeal to the Grand Chamber of the CJEU under an expedited procedure. Finally, it should be recalled that a suspension of proceedings and a time delay in the arbitration is nothing novel to ISDS and international adjudication in general. Many BITs contain the procedural requirement of general waiting periods before a claimant can initiate arbitration proceedings or the requirement to exhaust local remedies, seek consultations, negotiations and mediation first, before submitting a dispute to arbitration.42 As a result, it is argued here that the integrity and smooth functioning of the arbitration does not enjoy preference over Member States’ and investors’ right to effective legal protection against the Commission decision on respondent status. It follows that the current version of CETA and other post-Lisbon EU IIPAs should be amended or interpreted after the first solution in order to accommodate the arbitration proceedings under the EU IIPA with a CJEU decision on respondent status.

6.1.4  F  inal Drafting and Interpretation Proposals to Accommodate Arbitration Proceedings Under a EU IIPA with CJEU Proceedings on the Commission Decision on Respondent Status As discussed, post-Lisbon EU IIPAs should follow a drafting approach that defers the commencement of the arbitration proceedings until the Commission decision has gained legal force, which is the case when the statute of limitations has expired under Article 263(6) TFEU or when the Commission decision is challenged and the CJEU has decided upon the issue. In other words, the right of an investor to initiate arbitration proceedings and submit a claim to arbitration under the EU IIPA shall be conditional upon the binding legal force of the Commission decision under EU law.

 See for a presentation and discussion of such procedural requirements, Christoph H Schreuer (2004) Travelling the BIT Route – Of Waiting Periods, Umbrella Clauses and Forks in the Road. 5(2) JWIT, p. 231; Lars A Markert and Catharine Titi (2015) States Strike Back – Old and New Ways for Host States to Defend against Investment Arbitrations. In: Andrea K Björklund (ed.) Yearbook of International Investment Law & Policy 2013–2014. Oxford University Press, pp. 406–413.

42

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With respect to drafting, Article 8.21(3) CETA could be changed as follows: ‘The Commission of the European Union, which decides who shall act as respondent under the REG but whose decision can be challenged before the CJEU, shall inform the investor as to whether the European Union or a Member State of the European Union shall be the respondent [changes underlined].’ Article 8.21(5) CETA could be amended as follows: ‘The investor may submit a claim to arbitration on the basis of the determination made pursuant to paragraph 3 provided the Commission’s decision on respondent status has gained legal effect, or, if the Commission decision has been challenged before the CJEU, against the respondent as determined by the CJEU, and, if no such determination pursuant to paragraph 3 has been communicated, on the basis of the application of paragraph 4 [amendment underlined].’ This way, an investor can only submit a claim to arbitration in case the CJEU has rendered a decision on respondent status or in case the Commission decision cannot be challenged anymore because the statute of limitations of Article 263 TFEU has expired. Of course, in cases where not the investor has challenged the Commission decision, the Commission and the Member State concerned would have the obligation to notify the investor of any challenge pursuant to Article 263 TFEU by the Member State. It is true that the time delay caused by awaiting the CJEU decision might sit at odds with deadlines and the status of limitations an investor has to abide by in order to secure its claim under the EU IIPA.43 Yet this concern can easily be dissipated by interpreting or inserting into the EU IIPA special rules that suspend limitation at the moment the investor seeks a determination of the respondent by the EU. If Article 8.21(3)(5) CETA is the final version of CETA, without the possibility of making changes or amendments, and other EU IIPAs, such as the EU-Singapore IIPA, the EU-Vietnam IIPA and TTIP, will contain similar provisions, investors should wait with initiating arbitration proceedings until the 2-months statute of limitations of Article 263 TFEU has expired. When it is informed or gets knowledge about proceedings pending before the CJEU regarding the Commission decision on respondent status, the investor should wait with submitting a claim to arbitration until the CJEU has decided upon the issue. When it is informed after it has initiated arbitration proceedings, it should request a stay of the proceedings. If an investor— despite pending proceedings CJEU proceedings—continues with the arbitration against the respondent as initially determined by the Commission, an Arbitral Tribunal should stay the proceedings until the CJEU has decided upon the question. Arbitral Tribunals have the obligation to render an enforceable award. Yet continuing with the proceedings could lead, as discussed, to an award being declared unenforceable on the ground that the arbitration proceedings thwarted a Member State’s right to effective legal protection under Article 263 TFEU. In any case, if the CJEU decided that a Member State concerned should act as respondent and not the EU as determined by the Commission, it is important that the investor, the EU and the Member State concerned accept in writing the jurisdiction of the Tribunal with respect to the new respondent. 43

 Tietje/Sipiorski/Töpfer, above Chap. 2, fn. 69, p. 25.

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6.2  T  he Content of the Decision on Respondent Status Under the REG Might Unduly Influence the Arbitral Tribunal’s Finding on Illegality of the Challenged Treatment Under the EU IIPA To be clear, the respondent determination under Article 8.21(3) CETA does have any binding effect on an Arbitral Tribunal as to whether the treatment impugned by the investor claimant constitutes a breach of a EU IIPA, or not. The issue of illegality of the challenged treatment under the EU IIPA is only for the Arbitral Tribunal to assess and decide. This simply derives from the arbitration agreement contained in the EU IIPA that mandates the Tribunal with that issue and that does not vest the Commission or the CJEU with such a mandate. However, the reasons given by the Commission (and the CJEU) justifying a decision on respondent status pursuant Article 9 REG might nevertheless unduly influence the Tribunal’s assessment on the illegality of treatments challenged under the EU IIPA.44 Specifically, the reasons given by the Commission in its respondent decision of whether a Member State treatment is ‘required by Union law’ pursuant to Article 9(2)(a) REG in conjunction with Article 3(1)(c) REG, might influence an Arbitral Tribunal in its assessment on illegality. If so, this would seriously compromise the integrity of the arbitration and the Tribunal’s impartiality and independence since the Tribunal would already be confronted with an assessment of the legality of treatments under the EU IIPA.45 Though the hypothetical nature of the test in Articles 9(2)(a), 3(1)(c), 2(l) REG ensures that the Commission and the CJEU does not assess whether the actual treatment challenged by the investor is illegal under the EU IIPA (Sect. 6.2.1), the test in certain scenarios nevertheless harbours the potential to influence a Tribunal in its assessment and decision on the merits (Sect. 6.2.2).

6.2.1  T  he Test Under Article 9(2)(a) REG in Conjunction with Article 3 REG Does Not Require an Assessment Whether the Actual Treatment Challenged by the Investor Breaches the EU IIPA At the outset, it is worth noting that the hypothetical causation-test in Article 3(1) (c) REG in conjunction with Article 2(l) REG, which can become important for respondent status pursuant to Article 9(2)(a) REG, is geared towards looking at alternative Member State treatments and avoids assessing whether the actual treatments challenged by the investor constitute a breach of the EU IIPA. To that extent, 44 45

 Dimopoulos, above Chap. 2, fn. 112, p. 1710.  Ibid.

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the scope of scrutiny that the treatment impugned by the investor undergoes pursuant to Articles 3(1)(c), 2(l) REG does not overlap with the scope of scrutiny the same treatment undergoes under the EU IIPA. This demonstrates that the REG itself intends to shield the Arbitral Tribunal from any assessment under the REG that could influence the Tribunal on the merits regarding illegality of challenged treatment(s) under the EU IIPA.  Recital 17 REG also shows this. The provision makes clear that a decision by a Member State to accept financial responsibility vis-­ à-­vis the EU pursuant to Article 12 REG in conjunction with Article 3(3)(a) REG is ‘without prejudice to the outcome of the arbitration’ and ‘does not imply that the Member State accepts that the claim under dispute is well founded’. Recital 17 REG thus maintains the strict separation between international responsibility and internal responsibility and makes clear that any acceptance by the Member State does not intend to prejudice the international proceedings. However, as pointed out, the hypothetical causation-test is insufficient when it comes to the question whether a treatment was only partially required because the Member State independently contributed to the breach.46 Here, an assessment of the actual treatment for breaches of the EU IIPA would have to be reintroduced into the equation of Article 3(1)(c) REG. An overlap between the assessment under Article 3(1)(c) REG and the assessment under the EU IIPA is, hence, possible. However, when determining the respondent for the arbitral proceedings pursuant to Article 9(2)(a) REG, the Commission will not undertake an assessment of the actual treatment in order to find out whether a treatment was only partially required under Article 3(1)(c) REG.  This assessment is only required for the final ex post facto allocation of financial responsibility after an award has been issued or after a settlement has been entered into. For purposes of deciding respondent status, however, the Commission only has to assess pursuant to Article 9(2)(a) REG whether the EU would bear potential financial responsibility. To find that out, the hypothetical causation-­test in Article 3(1)(c) REG in conjunction with Article 2(l) REG is fully sufficient. This is because if a Member State could not have avoided the breach without disregarding a EU obligation, the EU bears financial responsibility anyway (even though it is not clear whether to the full extent or only partially). Moreover, given the complexity of the test whether a Member State treatment was only partially required, and given the short time window of 2 months under the REG and the EU IIPA in which the Commission has to make the respondent decision, it is hardly fathomable that the Commission would even be able to conduct such an assessment for purposes of respondent status. It follows that it can almost be excluded that the Commission when deciding on respondent status pursuant to Article 9 REG will look at whether the actual treatment challenged by the investor constitutes a breach under the EU IIPA and, therefore, the Commission decision is unlikely to influence the Tribunal in that regard.

46

 See above Sect. 5.2.2.2.6.

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6.2.2  T  he Outcome of the Hypothetical Causation-Test Under the REG Might Influence an Arbitral Tribunal in Its Own Assessment on Illegality of the Challenged Treatment Under the EU IIPA When applying the hypothetical causation-test in Article 3(1)(c), 2(l) REG to decide on respondent status pursuant to Article 9(2)(a) REG, the Commission (and CJEU) might influence the Tribunal in a more indirect way. In the case that the Commission has identified alternative Member State treatment that would have avoided a breach of the EU IIPA without disregarding a EU obligation pursuant to Articles 3(1)(c), 2(l) REG, such identification would have the potential to influence the Tribunal in its assessment on the merits. For example, an assessment could yield that a Member State could have enforced a EU regulation or directive in a more transparent manner as part of the FET standard under a EU IIPA.47 Or a Member State could have applied a EU regulation in a non-­discriminatory manner,48 or it could have refrained from making specific representations in light of looming EU legislation that did have adverse effects on foreign investments.49 Such findings by the Commission might indirectly permit conclusions with respect to the actual treatment(s) challenged by the investor before the Tribunal and might suggest their illegality under the EU IIPA.  Therefore, such findings, caused by the scope of Articles 3(1)(c), 2(l) REG, could seriously influence a Tribunal’s assessment on the merits and provoke a decision against the Member State respondent. However, such a risk of unduly influencing the Tribunal will not materialise because, simply, the Commission does not issue a decision in such a case, which could give a Tribunal compromising food for thought. In case the Commission finds pursuant to Article 9(2)(a) REG that Member State treatment is not required by EU law pursuant to Article 3(1)(c) REG, the default rule pursuant to Article 9(1) REG applies that the Member State acts as respondent. Here, the Commission does not even issue a decision with ‘a full and balanced factual analysis and legal reasoning provided to the Member States’ pursuant to Article 9(2) REG. Thus, the Commission conclusion and reasons for it that a Member State treatment was not required is not even made public, so that a Tribunal could draw any conclusions from it for its own assessment. In contrast, in the case that the assessment does not yield an alternative treatment that could have avoided the breach of the EU IIPA without disregarding a EU obligation, the Commission could seize respondent status in favour of the EU and issue a decision with ‘a full and balanced factual analysis and legal reasoning provided  On transparency as a specific application of the ‘Fair and Equitable Treatment Standard’, see McLachlan/Shore/Weiniger, above Chap. 2, fn. 166, paras. 7.119 et seq; Dolzer/Schreuer, above Chap. 2, fn. 280, pp. 149–152. 48  On protection against non-discrimination, see McLachlan/Shore/Weiniger, above Chap. 2, fn. 166, paras. 7.116 et seq; Dolzer/Schreuer, above Chap. 2, fn. 280, pp. 195–197. 49  See McLachlan/Shore/Weiniger, above Chap. 2, fn. 166, paras. 7.108 et seq. 47

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to the Member States’ pursuant to Article 9(2) REG. Such a decision could unduly influence the Tribunal and could even be magnified if the Commission decision were to be confirmed by the CJEU before the Arbitral Tribunal hands down its decision on the merits. Though addressed at the Member State concerned, and though Article 9 REG indicates that the decision shall not be published in the Official Journal of the European Union,50 it could nevertheless be introduced into the public domain and made available to the Tribunal. Moreover, since the Member States can challenge the Commission decision, the content of the Commission decision might find its way to the public domain via the proceedings and the final decision of the CJEU pursuant to Article 263 TFEU. As discussed, the assessment whether alternative treatment could have avoided the alleged breach of the EU IIPA under Article 2(l) REG may set out the content, conditions and thresholds of the investment protection standards of the EU IIPA that the investor alleges to be breached by the EU and/or the Member States. In its decision, the Commission could highlight a narrow scope of the treatment standard alleged to be breached, underscore its high threshold, refer to liability-averse case law and may emphasise public policy reasons underlying or even justifying the challenged treatment. Consequently, if such a decision were brought to the attention of the Tribunal it might cause it to negate a breach and refuse liability altogether. Since the EU’s international and internal liability is at stake, under strategic considerations, the decision on respondent status could even become an incentive for the Commission to influence the Tribunal in the just-mentioned manner. Conversely, if the Commission decision would be successfully challenged before the CJEU, which would not share the views of the Commission, the CJEU decision, if rendered before the merits’ decision of the Tribunal, could even influence the Tribunal in holding the EU liable. The main problem is that the Commission and the CJEU look at a subject matter, which is reserved to the Arbitral Tribunal and thereby could seriously influence the latter’s impartiality and independence. The problem is that the submissions and findings made by the Commission (and possibly reassessed by the CJEU) on the content of the EU IIPA and on the impact of alternative treatment on the obligations under the EU IIPA remain unchallenged by the investor claimant since they are not part of the arbitral proceedings. Also, it should be borne in mind that the Commission issues a decision on respondent status within the short period of 45 days pursuant to Article 9(1) REG. Moreover, it must base its decision on the few, investor-biased facts underlying the investor’s notice of arbitration. These facts and allegations are equally unchecked and lack the complexity and neutrality of an evidence and hearing phase. This alone proves that the Commission (or the CJEU)—at that stage of the proceedings in contrast to the ex post facto allocation of financial responsibility—cannot make a detailed assessment of alternative treatment against the backdrop of the obligations under the EU IIPA.

50

 E contrario Article 19(6) REG.

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In the end, in light of these risks, it is submitted that the Tribunal should not give any weight to the decision of the Commission (and CJEU) and should actually ignore it for its own assessment on the merits when it is brought to its attention.

6.3  T  he Mandate of the Commission and the CJEU to Look into the Merits of the Arbitral Case for Allocating Financial Responsibility As examined, there are instances where arbitral awards, which is the exception, and settlements, which is the rule, are silent as to which treatment out of multiple treatments challenged by the investor, for one of which at least the EU and for one of which at least a Member State is liable pursuant to Article 3(1) REG, is in breach of the EU IIPA.51 In these instances, it does not derive from the content of the award or settlement on which treatment the financial burden arising out of the award or settlement is based. The question arises as to whether the Commission and the CJEU have the mandate for the ex post facto allocation of financial responsibility pursuant to Articles 19, 3(1) REG to assess in their own right the factual matrix underlying the award or settlement in order to find out which treatment was in breach of the EU IIPA and to allocate the financial burden only on the basis of such treatment. In order to find out whether the Commission and the CJEU has or should have such mandate under the REG, one can, first, look at it from the perspective of the REG, whether it gives any indications as to such mandate (Sect. 6.3.1). Second, one can elaborate what a lack of such mandate would entail, namely inequitable results in the allocation of financial responsibility (Sect. 6.3.2). And third, one can look at whether such a mandate would entail any risks either with respect to the validity of awards and settlements or with respect to the proper functioning of the internal allocation and the financial reimbursement obligations under the REG (Sect. 6.3.3).

6.3.1  What Does the REG Imply? At the outset, there would be no overburdening of the Commission and the CJEU by granting or imposing such a mandate. As demonstrated, the test in Article 3(1)(c) REG in conjunction with Article 2(l) REG whether a treatment afforded by a Member State is required by EU law already opens the gate into the merits of the arbitral case. Specifically, under Article 2(l) REG the question arises whether alternative Member State treatment would have breached the EU IIPA, and in order to find out whether a Member State treatment was only partially required by EU law, it is even necessary to assess whether the actual Member State treatment breached 51

 See above Sect. 5.2.4.2.3.

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the EU IIPA. This a major difference to the German allocation system, which, in order to not overburden the German allocation court, tries to avoid having it look into the merits of the international case for purposes of the allocation of financial responsibility. The REG neither explicitly provides for such a mandate nor explicitly excludes it. Article 19 REG only refers to the allocation of financial responsibility under Article 3(1) REG.  In the same vein, Recital 20 REG provides that ‘Article 263 TFEU is available in cases where a Member State considers that the decision [of the Commission regarding the ex post facto allocation of financial responsibility under Article 19 REG] falls short of the criteria set out in this Regulation [emphasis added]’. Neither Article 19 REG nor Article 3 REG provides for or even mentions an assessment of whether an actual treatment challenged by the investor breaches the EU IIPA, or not. Upon a closer look, however, such a mandate, regarding arbitral awards, may flow implicitly from the REG. As discussed, the concept under the REG is such that financial responsibility arises only out of a treatment pursuant to Article 3(1) REG if it was found by the Arbitral Tribunal to breach the EU IIPA.52 Arbitral Tribunals do not award damages for treatment that did not breach the EU IIPA. Thus, if an award is silent or unclear as to which treatment(s) out of multiple treatments impugned breached the EU IIPA, it is for the Commission and the CJEU to find that out, in order to know which treatment(s) caused the financial burden.53 Otherwise, financial responsibility would possibly be based on treatment that was not illegal under the EU IIPA and did not cause the arbitral award, an outcome that would encroach upon the concept under Article 3(1) REG, which relies on causation when it comes to arbitral awards. In case of settlements, however, this is different. Where a settlement is unclear or silent as to which treatment or treatments out of multiple treatments impugned are illegal under the EU IIPA, one can safely imply that the parties intended to abstain from deciding whether these treatments constitute a breach or not, or that the parties deemed that all treatments breach the EU IIPA. In any case, where the settlement does not contain any indication as to which treatment is in breach, or not in breach, one must assume that all treatments caused the financial burden as agreed upon by the parties in the settlement. As a result, whereas under the viewpoint of the REG it would make sense to let the Commission and the CJEU look into the merits of and factual matrix underlying an award to find out which treatment or treatments challenged by the investor are in breach of the EU IIPA, under settlements that are silent on that issue this does not make sense under the viewpoint of the REG since all treatments ‘caused’ the financial burden.

 Recital 7 REG reads: ‘Financial responsibility should be allocated to the entity responsible for the treatment found to be inconsistent with the relevant provisions of the agreement [emphasis added]’. 53  See Tietje/Sipiorski/Töpfer, above Chap. 2, fn. 69, pp. 28–29. 52

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6.3.2  Risk of Inequitable Results If there were no mandate to look into the factual matrix underlying an award or settlement the allocation of financial responsibility would be necessarily based on the treatments challenged by the claimant. This can lead to inequitable results, as a party might end up holding the bill, or part of the bill, even though its own treatments did not breach the EU IIPA and, in case of awards, did not even cause or contribute to the damages award. The statement of claim and the treatments selected by the claimant would determine or at least influence the allocation of financial responsibility, even though such choice is driven by strategic motives, often includes treatments that have few or no chances at all of substantiating, corroborating and proving a breach and such choice is unchecked by the Tribunal. The risk of inequitable results is even increased since denying such a mandate to the Commission and the CJEU would necessarily lead to an apportionment of a financial burden into a EU and a Member State share, a legal operation still unclear under the REG.54 The REG—as opposed to the German allocation system—does not contain any methods, criteria or elements according to which an apportionment is to be performed. Thus, before it is clear how an apportionment functions under the REG, apportionments should be reduced to minimum, and avoided if possible. This is all the more true for an allocation system that is based on asset protection, budget neutrality and financial fairness (the REG) rather than on a materialisation of administrative risks (German system). Granting such mandate to the Commission and the CJEU could avoid an apportionment altogether if the assessment would yield that only treatment(s) breached the EU IIPA for which either exclusively the EU or a Member State concerned is liable pursuant to Article 3(1) REG. It is true that provided the Commission and the CJEU had such a mandate, they could equally find that all treatments are in breach of the EU IIPA or treatments are in breach for which both the EU and a Member State bear financial responsibility, which would equally lead to the need for an apportionment. However, in such case financial responsibility would be based at least on treatment in breach of the EU IIPA. It follows that under the viewpoint to exclude the risk of creating inequitable results for financial responsibility under arbitral awards and settlements, it would make sense for the Commission and the CJEU to assess which treatments breached the EU IIPA and which did not. Regarding settlements that leave it open whether all treatments are in breach of the EU IIPA, the question arises whether the risk of inequitable results is expressly intended and assumed by the EU and the Member States. Such an intention might derive from the fact that the EU and the Member States have a say and effectively have a veto right under the REG whether to settle arbitration proceedings in case they would bear financial responsibility for the treatment challenged by the claimant pursuant to Article 3(1) REG. If that would be so, there would be some force in 54  See above Sect. 5.2.5.3 for a discussion on possible criteria and methods to perform an apportionment under the REG, i.e. to split a financial burden into a EU and a Member State share.

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the argument that at least in cases of settlements the Commission and the CJEU would be barred from looking into the merits for finding out which treatment was in breach of the EU IIPA and would be required to base the allocation on all treatments that are part of the settlement, leading again to an apportionment of the financial burden into a EU and a Member State share. Importantly, such a question does not emerge under arbitral awards, as, in such cases, the parties to the arbitration let it come down to the issuance of a verdict with respect to all treatments impugned by the claimant, and the EU and the Member State concerned did not acquiesced beforehand—under the REG—to bear financial responsibility arising out of the treatments challenged by the claimant, regardless of whether they constitute a breach of the EU IIPA, or not. To come back to the issue of settlements, it is important to visualise the procedural set-up here. It is neither the scenario where a Member State settles, as in such a case financial responsibility is categorically borne by the Member State and no allocation or reimbursement takes place under the REG.55 Nor is it the scenario where the EU settles on behalf of the Member State where the Member State has accepted financial responsibility pursuant to Articles 14(3), 15 REG in conjunction with Article 3(3)(a) REG, as in such a case financial responsibility is borne by the Member State. Nor is it the scenario where the EU settles and no Member State financial responsibility is at stake pursuant to Article 14(5) REG, as in such a case there is no reimbursement, as financial responsibility is categorically borne by the EU.56 Rather, it is the scenario where the EU concludes a settlement—to which the Member State concerned has agreed—where both financial responsibility of the EU and the Member State is at stake pursuant to Article 14(6) REG. The REG is structured in a way that if there is a chance that a Member State might bear financial responsibility alongside the EU, a settlement between a claimant and the EU in arbitration proceedings under a EU IIPA requires the Member State’s consent pursuant to Article 14(6) REG.  Specifically, under Article 14(6) REG last sentence, where there is a risk that a Member State incurs financial responsibility but the Member State refuses to settle, the EU may settle the dispute but is precluded from seeking reimbursement pursuant to Article 19 REG.  The consequence is that the EU alone incurs the entire financial burden arising out of the settlement. Importantly, if the reimbursement claim of the EU against a Member State in the context of settlements brokered by and finally paid by the EU would not be coupled to the Member State’s consent to settle, it would be outright justified to give the Commission and the CJEU the mandate to assess whether all treatments impugned—including the Member State treatment(s)—breach the EU IIPA. This is because in such a case, the EU could, by agreeing to a settlement without the consent of the Member State regarding a dispute comprising treatments for which both bear responsibility, shift a part of the financial responsibility to the Member State  Cf. Explanatory Memorandum to the REG, p. 11: ‘Where the Member State concerned has acted as respondent to a claim, it shall be responsible for the payment of final awards and settlements relating to that claim’. 56  See above Sect. 4.2.2.3. 55

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and thereby abuse its unfettered right to agree to settlements. Just imagine the EU agreeing to a settlement in a dispute where the claimant challenged treatment for which the EU is liable pursuant to Article 3(1)(a) REG and treatment for which the Member State bears liability pursuant to Article 3(1)(b) REG. Perhaps the former constitutes a flagrant breach ensuing a considerable amount of damages and, on the other side, it is very likely that the Member State treatment would turn out to comply with the EU IIPA if adjudicated before the Tribunal. In such a case, it would be logical for a Member State to decide to take its own treatment to trial before the Tribunal, since the chances are high that the Tribunal would exempt it from liability for that treatment. Or it would be logical for the Member State to broker a deal with the EU that it would only consent to a settlement if it would not incur any liability from it, or if it could determine beforehand the amount of liability linked to that treatment. Now, if the EU could in such a case, just described, ignore the Member State and nevertheless settle the dispute and claim reimbursement on the basis of an apportionment, it cannot be excluded that the Member State incurs liability even though it would not have incurred any if it had vetoed the settlement and taken the case to trial or incur a higher share of financial responsibility than it would if it had vetoed the settlement and taken the case to trial. However, as stated, the EU has no such option under the REG to pass the buck of financial responsibility to the Member States since the reimbursement claim of the EU under Article 19 REG for payments arising out of settlements is coupled to the Member State’s consent to settle. Let’s come back to the question of whether the EU and the Member States intended and assumed the risk of possible inequitable results under the internal allocation of financial responsibility in case of settlements that leave it open which treatments are in breach of the EU IIPA. One could argue that because both the EU and the Member States have the possibility to consent to a settlement or veto it, they also have the possibility to weigh and calculate the risk of a successful claim found by a Tribunal in a final award based on their own treatments for which they eventually bear financial responsibility. And if they do consent to a settlement in full knowledge of the fact that the claimant has challenged treatment for which they both potentially bear financial responsibility, without specifying which treatments are covered by the settlement and which treatments are in breach of the EU IIPA, they—so the argument goes—acknowledge their own internal financial responsibility on the basis of the treatments challenged (ante-scrutiny) and not on the basis of whether the treatments are in breach of the EU IIPA (post-scrutiny). Simply put, the consent to settle based on all treatments would translate into a willingness to base the internal allocation of financial responsibility equally on all treatments. The consequence of that would be a waiver such that the EU and the Member State under the ex post facto allocation would be estopped from raising the argument that their own treatment did not breach the EU IIPA. However, it seems questionable whether the consent of the EU and the Member State concerned under the REG to settle a dispute on the basis of all treatments impugned translates into their willingness to have the internal allocation of financial responsibility based on all treatments, regardless of whether they are illegal under the EU IIPA, or not. Generally, the motive for settling a dispute is, in the words of

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the REG, to ‘avoid costly and unnecessary arbitration’57 by paying a monetary amount—usually less than the amount of damages claimed by the investor—in exchange for a waiver of the investor to not pursue its claims anymore.58 Hence, the intention to settle primarily concerns the arbitral proceedings, the question of international responsibility and the amount of liability borne by the respondent vis-à-vis the investor. But does such intention also encompass how the EU and the Member States intend to bear internal financial responsibility arising out of the settlement? It is true that under the REG the question of internal financial responsibility determines whether the EU’s or the Member State’s consent to a settlement is required. Equally, the fact that the EU and the Member State later risk bearing internal financial responsibility might be a trigger or a reason for each to consent to the settlement in order to keep the overall financial burden lower than it would be if the investor were to successfully adjudicate all its claims. Yet importantly, the consent to settle the dispute on the basis of all treatments impugned regards the settlement that the EU enters into with the investor. The consent does not amount to an agreement between the EU and the Member State to allocate financial responsibility on all the treatments that are covered by the settlement. Again the REG clearly differentiates between international responsibility, faced by a respondent in the arbitration vis-à-­ vis an investor to which the consent to settle refers, and internal financial responsibility to be allocated between the EU and the Member State concerned. Regarding the latter, the EU and the Member State have every interest to be able to plead in the proceedings regarding the ex post facto allocation of financial responsibility that their own treatment did not breach the EU IIPA. The respective decisions and reasons for not letting the Arbitral Tribunal adjudicate the treatment for illegality under the EU IIPA does not imply that the Commission and the CJEU should not look at that issue for the internal allocation. Moreover, if they could not raise the issue of legality of their own treatments in the allocation proceedings, the willingness of both the EU and the Member States to settle or to give their consent to settle would be seriously subdued, and thus, the likeliness of settlements altogether reduced. Every time a treatment is likely to be legal under the EU IIPA, the EU and the Member State would rather take that treatment to trial before the Arbitral Tribunal than to consent to a settlement fearing that they incur a bigger of share of financial responsibility than they would have if adjudicated before the Tribunal. As a result, it cannot be said that by consenting to a settlement based on all treatments impugned that the EU and the Member State concerned simultaneously agree between each other that the internal allocation of financial responsibility shall be based on all treatments, regardless of whether the treatments constitute a breach of the EU IIPA, or not. Thus, the risk of inequitable results warrants a mandate of the Commission and the CJEU to look into the merits of a settlement, just as much as of arbitral awards, to find out whether all and, if not, which treatment breached in the EU IIPA in order to only base the allocation of the financial burden on such treatments. 57 58

 Recital 18 REG.  Cf. Article 2(h) REG.

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6.3.3  T  hreats to the Validity of Awards and Settlements Versus Risks of Disruptions in the Allocation and Reimbursement Procedure If the Commission and the CJEU had the mandate to look into the merits of an arbitral award and settlement in order to find which treatment is in breach of the EU IIPA, they would have to assess the treatments challenged by the investor against the backdrop of the obligations under the EU IIPA, whilst taking into account the findings of the Tribunal or the parties for that matter. In this assessment, they could possibly find that no treatment breached the EU IIPA. Alternatively, with respect to arbitral awards, they could find that the Arbitral Tribunal made an error in law or in fact, and, finally, they could find an annulment ground or a ground to refuse enforcement. In this respect, it should be noted that the New  York Convention and the ICSID Convention, which only admit a review for an annulment or enforcement of an award under very narrow grounds, do not bind the CJEU in a strict sense. This is because both codifications only address States and its courts, and not the EU. Thus, the CJEU would not be limited in its scope of review to the narrow grounds enshrined in the said Conventions. Rather, it is possible that the CJEU finds an award or settlement, its content, the findings or the underlying proceedings to violate EU law or European public policy. In all these cases, it is possible that the CJEU—though not competent to annul an award—holds that the award or settlement should not stand or is to be considered invalid. This alone, irrespective of its practical repercussions, stand at odds with the overarching principle in international arbitration positing a prohibition of a révision au fond and a de novo review of the merits. By looking into the merits of the case, the Commission and the CJEU would assume a role that is reserved for the Arbitral Tribunal, the Appellate Tribunal (under CETA and other EU IIPAs), the ICSID Ad Hoc Annulment Committee and the Member State courts. At the outset, it should be noted that such a finding of the CJEU that an award or settlement should not stand would not entail any negative repercussions for the investor. This is simply due to the fact, that at this point of the proceedings—the ex post facto allocation of financial responsibility pursuant to Article 19 REG in conjunction with Article 263 TFEU—the investor has already obtained the monetary amount awarded by the Tribunal against the EU or agreed as part of a settlement by the EU. As derives from Article 19(4)(5) REG59 and the Explanatory Memorandum to the REG,60 when the decision of the Commission, addressed at the Member State to compensate the EU budget as a result of the ex post facto allocation of financial responsibility, is brought before the CJEU via Article 263 TFEU, the EU has already paid the amount awarded or agreed in a settlement to the investor. Thus, the award  Article 19(4) REG reads: ‘[…] the Member State concerned shall compensate the budget of the Union for the payment of the award or settlement or costs [emphasis added]’, and Article 19(5) REG reads: ‘[…] a decision […] requiring the Member State concerned to reimburse the amount paid by the Commission [emphasis added]’. 60  Explanatory Memorandum to the REG, p. 11.

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or settlement is already enforced. Awards against the EU are generally directly enforceable against the EU without the need of exequatur proceedings before Member State courts. Only the CJEU might refuse enforcement of an award rendered against the EU. So possibly the CJEU, after the EU first refused to pay the award or settlement, already confirmed enforcement against EU.61 There are, thus, no risks of refusal of enforcement. Moreover, there is no risk of annulment that could possibly require the investor retroactively to pay back the money received from the EU.  CETA and the other EU IIPAs, such as the EU-Vietnam FTA, the EU-Singapore IIPA and TTIP provide for a self-contained Appellate Tribunal replacing any other form of appeal or annulment. Again the ex post facto allocation only comes into play when the award has already gained legal effect or the Appellate Tribunal has upheld the Tribunal’s award because otherwise the EU would not have compensated the investor yet. Though a CJEU finding, such as mentioned above, does not entail any risks for the investor and the validity of awards and settlements, such a finding might entail the risk that the CJEU dismisses the financial obligations between the EU and the Member States under the REG. This would disrupt the internal allocation and reimbursement system established under the REG.62 As Tietje et  al put it, such an ­outcome ‘would seriously impair the integrity of the international arbitral system and in turn compromise the use of the system by the EU and Member States’.63 In case where the CJEU found that the award or settlement should not stand and consequently dismissed the reimbursement claim brought by the EU under Article 19 REG, the EU would end up with the financial burden even though the allocation criteria under Article 3 REG point at the Member State. And, given that de lege ferenda Member States might acquire a legal right under the REG to recover from the EU in the future, the Member States might share the same fate. It should be remembered that the provisions of respondent status under the REG, which give respondent status to the EU in many instances where Member State treatment breached the EU IIPA, are based on the premise that the EU can recover from the Member States under the REG. This premise would be seriously undermined. So even the prospect that the CJEU might dismiss the internal financial obligations of the Member State towards the EU might lead the Commission to not confer respondent status onto the EU under REG or to not inform the investor in due time on the identity of the investor,64 with the consequence that the investor sues the Member State. As a result, the whole system of the REG regarding the determination of  See Explanatory Memorandum to the REG, p. 8: ‘If enforcement is sought of an award made against the Union, Article 1 of Protocol (No 7) on the Privileges and Immunities of the European Union would apply: ‘The property and assets of the Union shall not be the subject of any administrative or legal measure of constraint without the authorisation of the Court of Justice.’ This means that the investor may need to go to the Court of Justice of the European Union if enforcement against Union assets is requested’. See also Tietje/Sipiorski/Töpfer, above Chap. 2, fn. 69, p. 29. 62  Tietje/Sipiorski/Töpfer, above Chap. 2, fn. 69, p. 29. 63  Ibid. 64  See e.g. Article 8.21(4) CETA. 61

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respondent status and ex post facto internal allocation of financial responsibility would be compromised. Be that as it may, it is not clear whether such a risk that the CJEU finds that the award or settlement should not stand, and subsequently dismisses the financial obligations under the REG, materialises after all. In the context of Article 263 TFEU in conjunction with Articles 19, 3 REG, the CJEU is not called upon by the Member State concerned to review the merits of the award for any legal or factual error of the Tribunal, or to find and pronounce upon annulment grounds. No party has pleaded an annulment ground, and the CJEU will not look ex officio for that. Rather, it is called upon to address the ex post facto allocation of financial responsibility. For that matter, Article 263 TFEU in conjunction with Articles 19, 3 REG in and of itself limits the CJEU’s scope of review. The only risk is that the CJEU might actually find that no treatment at all has breached the EU IIPA. However, even that risk can be excluded. In the name of legal certainty it would be prudent to amend the REG or for the CJEU to authoritatively interpret the REG in a way that clearly establishes the limits of the scope of review of the Commission under Articles 19, 3 REG and the CJEU under Article 263 TFEU in conjunction with the REG.65 The Commission and the CJEU should neither be allowed to look for annulment grounds nor to reassess and review the findings of the Tribunal that are not required for the proper ex post facto allocation of financial responsibility. And the extent of their mandate should be clarified as well. They should not have the authority to declare or find that an award or settlement should not stand. It should be clarified that pursuant to Article 19 REG, the Commission can only formulate its reimbursement claim on the basis of Article 3(1) REG and that pursuant to Article 263 TFEU the CJEU can only annul the Commission’s decision and reallocate the financial burden. Most importantly, it should be clarified that in the event that the Commission and the CJEU were unable to find out which treatment constitutes a breach of the EU IIPA or did not find a breach at all, the consequence, as a default rule, should not be to dismiss the financial obligations of the Member State and the reimbursement claim of the EU—thus compromising the whole allocation system66—but to assume that all treatments impugned breached the EU IIPA and to base financial responsibility on all these treatments, requiring an apportionment of the financial burden into a EU and a Member State share. To sum up, acknowledging the Commission’s and CJEU’s mandate to look into the merits underlying an award or settlement brings about a risk of disruptions within the internal allocation of financial responsibility if they were to find on that occasion an annulment ground, a factual or legal error made by the Tribunal or were simply to come to the conclusion that no treatment at all breached the EU IIPA. However, the risk can be adequately avoided by clarifying the CJEU’s mandate and by introducing the default rule that, if the Commission and the CJEU did not find a breach, the financial burden is to be allocated on the basis of all treatments 65 66

 Tietje/Sipiorski/Töpfer, above Chap. 2, fn. 69, p. 29.  Ibid.

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impugned, leading again to an apportionment of a financial burden into a EU and a Member State share.

6.3.4  R  esult: The Commission and the CJEU Should Have the Mandate to Look into the Merits of an Unclear Award or Settlement in Order to Find Out Which Treatment Is Illegal Under the EU IIPA To conclude, in case arbitral awards or settlements do not set out whether all treatments challenged—for which the EU and the Member States both bear financial responsibility—are in breach of the EU IIPA, there are good arguments that the Commission and the CJEU may review the merits of the case and reassess the facts to find out which treatment(s) is in breach of the EU IIPA to only base the ex post facto allocation of financial responsibility on such treatment(s). As a final note, if one would deny, for whatever reason discussed in this section or anywhere else, the Commission and the CJEU the mandate to look into the merits underlying an award or settlement in order to find out which treatment is in breach of the EU IIPA, one should bear in mind that the question of such mandate resurfaces through the backdoor when the REG requires an apportionment of a financial burden into a EU and a Member State share. An apportionment would have to be categorically performed if one were to deny such mandate with respect to awards or settlement that are silent or unclear as to which treatment out of multiple treatments impugned, for at least one of which the EU and at least one of which the Member State bears financial responsibility, breached the EU IIPA. Under the REG it is still unclear as to how an apportionment is to be performed, whether the EU and the Member State should incur liability in equal parts, fixed liability quotients or whether one should assess to what extent each treatment contributed to the breach of the EU IIPA and the financial loss. The later approach, which takes into account the weight of each contribution on a case-by-case basis and lends itself to fairer results than relying on fixed percentages, relies on elements of fault, negligence, causation, avoidability etc. Now if the award or settlement is silent on the question of illegality, it arguably becomes relevant again for finding out whether the treatment breached the EU IIPA in order to adequately weigh the contributions of each treatment. Solely from that perspective and given that the REG has not provided for a default mechanism of conducting an apportionment it appears justified to let the Commission and the CJEU look into the merits of an unclear award or settlement to find out whether all treatments impugned, and if not, which treatment is in breach of the EU IIPA.

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6.4  C  onclusions Chapter 6: The Interrelation Between EU IIPAs and the REG Is Not Invulnerable to Frictions The three specific problems presented in this chapter underscore some of the frictions and challenges caused by the interlocked application of the EU IIPA on the one side and the REG on the other. As the first problem shows, there is an irreconcilable friction between the smooth functioning of the arbitration under EU IIPAs and the right to effective legal protection against the Commission decision on respondent status under the REG. The current set-up of CETA and other EU IIPAs favour the former over the latter: The dispute is kicked off by the initial Commission decision on respondent status regardless of any subsequent challenges to that decision under EU law. It is submitted here that CETA and other EU IIPAs should be amended or interpreted to the effect that an investor can only initiate a dispute once the Commission decision has gained legal effect under EU law. The current set-up not only thwarts the right of Member States to effective legal protection; the relevant provisions in CETA and the other EU IIPAs run the risk of being declared incompatible with primary EU law by the CJEU. And there is a risk that awards are refused enforcement or annulled before Member State courts for a violation of European public policy. Moreover, the valid concerns that legal recourse against the Commission decision on respondent status might be abused and thereby the smooth functioning of the arbitration inhibited can be alleviated by streamlining the CJEU proceedings and tightening the thresholds for legal recourse. As to the second problem, Arbitral Tribunals have to make sure to remain unaffected by the content of the Commission’s respondent determination decision— which might contain assessments as to the merits of the arbitral case—in respect of their own assessment regarding the legality of challenged treatments under the EU IIPA. As to the third problem, arbitral awards and settlements might leave it open or are unclear as to which treatment out of multiple treatments impugned actually breached the EU IIPA. This might cause the Commission and the CJEU, both mandated to allocate financial responsibility, to review the factual matrix underlying the award or settlement in order to find out which treatment actually breached the EU IIPA and caused the financial burden. As discussed, there are solid arguments that the Commission and the CJEU should have the mandate to review the award or settlement to avoid inequitable results. It is true that one might question whether the Commission and the CJEU are adequately equipped to do that, given that one of the parties of the arbitral proceedings is absent: the investor. It also entails the risk that they do not find a breach after all, turning the allocation procedure upside down. This can potentially lead to disruptions in the allocation and redress procedure under the REG. However, in that case the Commission and the CJEU—in case they do not find a breach after all—could base the allocation of financial responsibility on all treatments impugned regardless of whether they breach the EU IIPA or not. This would lead to an apportionment of the financial burden into a EU and Member State share.

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The frictions and challenges caused by the interrelation are likely the price for fully protecting the autonomy of the EU legal order and guaranteeing legal certainty to eligible investors under EU IIPAs. As discussed, letting investors choose the correct respondent in the ‘EU-Member State responsibility window’ and letting an Arbitral Tribunal decide whether the respondent is internationally responsible for the challenged conduct risks violating the autonomy of the EU legal order and creates legal uncertainty for eligible investors. Having the EU and the Member States provide the responsible party to a dispute and sort out the dynamics of executive federalism with respect to an (alleged) international law breach is the right approach. The only viable alternative to the REG and its interrelated system is to have the EU categorically act as respondent and assume international responsibility under EU IIPAs. Even though this, as discussed, is the right approach under EU-only IIPAs, under mixed EU IIPAs, however, where the Member States remain full international law actors this would seriously encroach upon the Member States’ right to defend their own treatment for which they hold the bill in the end under the REG.

Chapter 7

Epilogue

As this study nears the end, this is the moment for some concluding remarks on how responsibility under EU IIPAs is currently structured and what challenges lie ahead for the responsibility regimes under EU IIPAs and the application of the REG. The international responsibility of the EU and the Member States under EU IIPAs is, as has been laid out throughout this study, contingent upon the make-up of the EU IIPA in question. At the moment, one can observe three different trends to responsibility under EU IIPAs: a traditional regime under the ECT embedded within traditional rules, a system of proceduralisation under post-Lisbon mixed IIPAs and a trend towards federalisation under EU-only IIPAs, specifically, and all EU IIPAs, more generally.

7.1  T  he ECT and the Application of Traditional Responsibility Rules International responsibility of the EU and the Member States under the ECT follows the traditional rules of international responsibility, as embodied by the ILC Articles and international jurisprudence. These rules point to the EU and the Member States bearing international responsibility for breaching conduct of their own organs. Yet when Member States implement binding EU law and thereby breach the ECT, Article 1(3) ECT can be seen as a lex specialis under Article 64 ARIO attributing responsibility in such instances to the EU.  Interestingly, this approach strongly resembles the rule in Article 3(1)(c) REG, which generally allocates financial responsibility to the EU in cases of executive federalism. This shows that both regimes—the ECT and the REG—seek to find the material originator of the breach. With a responsibility systems that is based on monetary compensation and with the

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budgets of the potential debtors—the EU and the Member States—strictly separated, this approach makes perfectly sense. In contrast, the division of competences under the EU Treaties, though promulgated by the Commission, is no criterion for attributing responsibility under the ECT. The ECT neither effectively elevates competence into the realm of the applicable law nor is such an approach soundly rooted in the law of international responsibility. Finally, under the traditional responsibility model of the ECT, it is the Tribunal that is mandated to apply the applicable rules of international responsibility in disputes under the ECT for determining the international responsibility of the EU and the Member States. In other words, a Member State respondent in proceedings under the ECT can still assert that the impugned treatment is attributable to the EU and not to itself, and the Tribunal must review that assertion. One does not have to be a soothsayer to predict that these questions will likely keep the Commission busy and cause quite some headaches for Tribunals and disputing parties alike.

7.2  P  ost-Lisbon Mixed IIPAs and the Proceduralisation of International Responsibility International responsibility of the EU and the Member States under post-Lisbon mixed IIPAs is proceduralised and internalised. How? Via a mandatory respondent determination mechanism: As a precondition to initiate a dispute under the IIPA an investor must ask the EU for a determination of the respondent, being either the EU or a Member State. The Commission then determines the respondent pursuant to the rules on respondent status in the REG. The determination binds the parties and the Tribunal in the dispute under the IIPA. This mechanism establishes a special regime of international responsibility. As this study has argued, the determination of respondent goes beyond conferring procedural rights: It has the constitutive effect that the respondent bears international responsibility for the challenged conduct as regards the inter se relationship between the EU and the Member States, i.e. the ‘EU-Member State responsibility window’. This means that the determined respondent can no longer point to the EU or a Member State, as the case may be, for evading international responsibility. Effectively, the Arbitral Tribunal is deprived from determining international responsibility in that relationship. For the proceedings this means that the Tribunal, for purposes of determining international responsibility, must treat the determined respondent as a composite entity comprised of the EU and the Member State concerned. The constitutive effect does not, however, mean that the respondent cannot still argue that the conduct is neither attributable to the EU nor a Member State (because e.g. the conduct was private in nature), that there is no breach, that the infringement was perfectly justified and so on. The Tribunal must assess these issues as well. The system of proceduralisation works under post-Lisbon mixed IIPAs. Here, the provisions on respondent status of the REG become fully effective. However, the system does neither function properly under the ECT, as ECT-investors are free

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to sue the respondent of their choice and ECT-Tribunals are free to look into the ‘EU-Member State responsibility window’ in every case that is before them. Nor does it function properly under EU-only IIPAs, as Member States cannot be coerced into arbitrating cases and assuming responsibility under them without their consent. ECT investors will likely shun the respondent mechanism at least until it has proved helpful in practice. Member States on the other hand are perhaps more willing to stand as respondent in disputes under EU-only IIPAs given that they may hold the bill in the end anyway (under the REG). The system of proceduralisation leaves at least two visible marks on the law of international responsibility under post-Lisbon mixed IIPAs: First, the EU more and more acts as respondent and incurs responsibility in cases where the general law of international responsibility would have pointed to the Member States. Second, the conundrum for extra-EU investors and Tribunals to find the right party within the ‘EU-Member State responsibility window’ disappears from the international law sphere and is outsourced to the EU. This will simplify matters and provide legal certainty. And it is certainly warranted, given that the ‘EU-Member State responsibility window’ and the dynamics of executive federalism continue to float unresolved through the universe of international law. It is another question (and likely one of faith) whether resolving these difficult but important legal issues regarding the relationship between supranational organisations and its members in the context of international responsibility should be an internal matter or front and centre of international law developments. Searching for answers, one can look inside: The adoption of the system of proceduralisation under EU IIPAs is fuelled by the angst of impediments to the EU legal order by Arbitral Tribunals looking too deep into the EU law ecosystem. From the perspective of international law this concern is unlikely to cause pity. However, resolving the ‘EU-Member State responsibility window’ becomes less relevant under international law the more the Member States disappear behind the veil of the EU. Hence, one could see proceduralisation as a reflection of the transition to full integration. And if proceduralisation is there to stay because there is no door or willingness to full integration, then, proceduralisation could be seen as the international law answer to an incomplete integration where both the EU and the Member State remain internationally visible and responsible actors.

7.3  The Federalisation of Responsibility Under EU IIPAs The third trend of international responsibility under EU IIPAs is one of federalisation. If the EU alone concludes EU IIPAs, there is some force in the argument that the EU will fully take responsibility not only for its actions, but also for the actions of its Member States. Even if the EU-only IIPA does not contain provisions to that effect, one should treat the EU, as per analogy, like a federal state and the Member States like its subdivisions. The structural similarities are all there: The EU has the comprehensive competence to conclude the IIPA alone (and the Member States

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disappear from the international plane accordingly), the EU-only IIPA binds the Member States internally and the implementation of the EU-only IIPAs depends on Member State conduct. Certainly, the submission to treat the EU like a federal state under EU-only IIPAs will bring up the notorious case of the International Tin Council and the need of a residual responsibility of the Member States. One might counter: How solvent are States these days and are the treaty parties of the EU not free to enter into special payment arrangements? The provisions of the REG on allocating financial responsibility further underpin the trend towards federalisation under EU IIPAs. Under the REG only the EU can recover from the Member States. This set-up is based on the premise that it is the EU that will one day fully assume international responsibility towards investors whereas the internal allocation might point to a Member State. Such an internal allocation and redress mechanism can be found in some federal states, most prominently in Germany. Yet the comparison of the REG to the German allocation system has demonstrated that it is still a long way towards full federalisation in the EU. This is best shown by the rule of allocation regarding executive federalism. Whereas the German system allocates financial responsibility to the subdivisions when they implement binding federal law and thereby breach international law, the REG allocates financial responsibility to the EU when Member States implement binding EU law and thereby breach a EU IIPA. One characteristic of a federal system, like the one in Germany, is that the federal budget and the sub-federal budgets are closely interlinked. Here it is less important to allocate responsibility to the ‘real’ originator of the breach. It is merely a realisation of administrative risks. Thus the rule under the German system. In the EU the budgets of the EU and the Member States are still strictly separate. Here, it is a highly sensitive which budget is burdened with a financial obligation. Thus the highly differentiated rule of Article 3(1)(c) REG in conjunction with Article 2(l) REG, which attempts to lay bare the extent of EU law complicit in the breach of the EU IIPA when Member States implement EU law.

7.4  Challenges Ahead This study has touched upon a myriad of issues that are relatively new to the law of international responsibility and have by and large not been much discussed yet. This is especially true with respect to EU-only IIPAs and the analogy to federal states under international law as well as the submission that the determination of the respondent by the EU under post-Lisbon mixed IIPAs has a constitutive effect on the international responsibility of the determined respondent within the ‘EU-Member State responsibility window’. These submissions must weather the storm of legal practice, jurisprudence and doctrine. Furthermore, this study has attempted to expose the deficits and challenges that come with the new system of proceduralisation under post-Lisbon EU IIPAs and the REG. Some of the more pressing challenges are worth repeating at this concluding juncture.

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One major issue is the fact that a seamless and comprehensive application of the provisions on respondent status of the REG can only be guaranteed under post-­ Lisbon mixed IIPAs. Under the ECT their application depends on the willingness of investors to venture that road. To render their application obligatory requires nothing other than an amendment of the ECT primary treaty text, which is unlikely. EU-only IIPAs would require an ad hoc consent to arbitrate by the Member States concerned and an explicit assumption of responsibility. This does not sound like an easy way forward. A fragmented system of responsibility regimes under EU IIPAs, as depicted at the outset of this epilogue, is the more realistic prospect. Another challenge revolves around the conflict under post-Lisbon EU IIPAs between the interests of the extra-EU claimant in a smooth functioning of the arbitration on the one hand and the Member States’ interests in legal protection against the Commission decision on respondent status on the other hand. Currently, CETA and the like are structured in a way to turn a blind eye on any recourse lodged against the Commission decision. This study argues that a challenge to the CJEU should have an effect on the proceedings under the EU IIPA. In this respect, the EU IIPA should be amended, interpreted or applied by Tribunals in a way that defers the investor’s right to initiate arbitration proceedings until the Commission decision on respondent status has gained legal effect under EU law. Otherwise, there is a real possibility that the provisions on respondent determination under the EU IIPA are declared by the CJEU to infringe primary EU law. The next challenge concerns the fact that the Commission decides on respondent status prior to the Arbitral Tribunal’s decision on the merits. The respondent determination under the REG may touch upon substantive issues relevant to the merits of the case in the dispute under the EU IIPA, for example whether alternative Member State treatment could have avoided a breach. Thus, Tribunals should shield themselves from that decision in order to maintain their impartiality and independence. The allocation of financial responsibility under the REG equally entails challenges and yet unresolved issues. First, it is unclear how under the REG an apportionment is to be performed, i.e. how a financial burden is to be split into a EU and Member State share where both the EU and a Member State concerned bear ­responsibility for that burden under the REG. Though the REG sets out criteria to allocate a financial burden fully to either the EU or a Member State, the REG does not spell out criteria how a financial burden is to be shared. This study has argued that an apportionment under the REG shall be based on a case-by-case analysis taking into account how each treatment contributed to the breach of the EU IIPA and the financial loss. One should additionally borrow from the law of torts and use legal criteria such as contributory cause, fault, intent, negligence, causation, gross misconduct and avoidability. The use of such criteria is warranted, given that the budgets of the EU and its Member States are separate and since the REG emphasises financial fairness. A further challenge concerns cases in which an investor challenged treatments for at least one of which the EU and for at least one of which a Member State bears internal financial responsibility, yet the award (which is unlikely) or the settlement (which is likely) is silent or unclear as to which treatment breached the EU IIPA and

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caused the financial burden. Here, it is questionable whether the Commission and the CJEU have the mandate to look into the merits of the award or settlement in order to find out which treatment caused the financial burden and breached the EU IIPA. This study has argued for granting such mandate in the name of financial fairness and avoiding arbitrary and unfair results. Last, this study has identified various scenarios where Member States act as respondent under EU IIPAs and bear international responsibility towards an investor, whilst the EU bears full or partial financial responsibility under the REG. As the REG only gives the EU a right to recover from the Member States and not vice versa, this study has argued to provide a legal basis for the Member States de lege ferenda to recover from the EU as well. Otherwise, accountability gaps abound under the REG. Member States will, certainly, not be amused. All in all, the system of proceduralisation under post-Lisbon mixed IIPAs represents a promising solution do deal with the difficult and still controversial issues regarding the responsibility of the EU and the Member States under international law. It provides legal certainty to investors, as they do not have to cope with identifying the party responsible for a particular conduct. The provisions on respondent status in the REG create a fine balance between the EU’s and the Member States’ interests in acting as respondents. It may become, or is already, a blueprint for further IIPAs and, possibly, other international agreements where monetary compensation is the primary remedy. That said, the new system must still prove its worth in practice and still has many challenges to overcome.

Table of Cases

Court of Justice of the European Union • • • • • • • • • • • • • • • • • • • • • • • • • •

Case 25/62 Plaumann [1963] ECR 95 Case 26/62 Van Gend en Loos [1963] ECR 1 Case 6/64 Costa ENEL [1964] ECR 593 Cases 5, 7, 13-24/66 Kampffmeyer [1967] ECR 245 Case 4/69 Alfons Lütticke GmbH [1971] ECR 325 Case 22/70 Commission v Council (AETR) [1971] ECR 263 Case 5/71 Schöppenstedt [1971] ECR 975 Case 181/73 Haegeman [1974] ECR 449 Case 99/74 Société de Grands Moulins des Antilles [1975] ECR 1531 Case 123/77 UNICME [1978] ECR 845 Case 101/78 Granaria II [1979] ECR 623 Case 238/78 Ireks-Arkady [1979] ECR 2955 Case 12/79 Wagner [1979] ECR 3657 Case 133/79 Sucrimex [1980] ECR 1299 Case 69/81 Commission v Belgium [1982] ECR 153 Case 104/81 Kupferberg [1982] ECR 2641 Case 217/81 Interagra [1982] ECR 2233 Case 11/82 Piraiki-Patraiki [1985] ECR 207 Case 231/82 Spijker Kwasten BV [1983] ECR 259 Case 59/83 Biovilac [1984] ECR 4057 Case 175/84 Krohn [1986] ECR 753 Case 314/85 Foto-Frost [1987] ECR 4199 Case 12/86 Demirel [1987] ECR 3719 Case 81/86 De Boer Buizen [1987] ECR 3677 Case 165/87 Commission v Council [1988] ECR 5545 Case C-5/88 Hubert Wachauf [1989] ECR 2609

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Case C-55/90 Cato [1992] ECR I-2533 Case C-282/90 Vreugdenhil [1992] ECR 1937 Case C-316/91 Parliament v Council (EDF) [1994] ECR I-625 Case C-327/91 France v Commission [1994] ECR I-3641 Case C-61/94 Commission v Germany [1996] ECR I-3989 Case C-84/95 Bosphorus [1996] ECR I-3978 Case C-53/96 Hermès International [1998] ECR I-3603 Case C-319/96 Brinkmann Tabakfabriken [1998] ECR 5255 Case C-323/96 Commission v Belgium [1998] ECR I-5063 Case C-302/97 Konle [1999] ECR I-3099 Case C-323/96 Commission v Belgium [1998] ECR I-5063 Case C-326/97 Commission v Belgium [1998] ECR I-6107 Case C-237/98 Dorsch Consult [2000] ECR I-4549 Case C-352/98 Bergaderm [2000] ECR I-5291 Case C-392/98 Parfums Christian Dior [2000] ECR I-11307 Case C-476/98 Commission v Germany (Open Skies) [2002] ECR I-9855 Case T-18/99 Cordis [2001] ECR II-913 Case C-13/00 Commission v Ireland [2002] ECR I-2943 Case C-486/01 Front National [2004] ECR I-6289 Case C-233/02 France v Commission [2004] ECR I-2759 Case C-239/03 Commission v France (Étang de Berre) [2004] ECR I-9325 Case C-266/03 Commission v Luxembourg [2005] ECR I-4805 Case C-433/03 Commission v Germany [2005] ECR I-7011 Case C-459/03 Commission v Ireland (Sellafield) [2006] ECR I-4635 Case C-311/04 Algemene Scheeps Agentuur Dordrecht [2006] ECR I-609 Case C-355/04 Segi [2007] ECR I-1662 Case C-446/04 Test Claimants in the FII Group Litigation [2006] ECR I-11573 Case C-205/06 Commission v Austria [2009] ECR I-1301 Case C-249/06 Commission v Sweden [2009] ECR I-1335 Case C-445/06 Danske Slagterier [2009] ECR I-2119 Case C-13/07 Commission v Council (withdrawn, opinion AG Kokott of 26 March 2009) Case C-246/07 Commission v Sweden [2010] ECR I-03317 Case C-366/10 Air Transport Association of America [2011] ECR I-1133 Case T-262/10 Microban [2011] ECR II-7697 Case T-221/10 Iberdrola [2012] ECR II-0000 Case C-284/16 Slovak Republic v Achmea BV [2018] ECR 158 Joined Cases C-106-120/87 Asteris [1988] ECR 5515 Joined Cases C-6 and 9/90 Francovich and Bonifaci [1991] ECR I-5373 Joined Cases C-104/89 and C-37/90 Mulder [1992] ECR 3061 Joined Cases C-106/90, C-317/90, C-129/91 Emerald Meats [1993] ECR I-209 Joined Cases C-46/93 and C-48/93 Brasserie du Pêcheur [1996] ECR I-1029 Joined Cases C-317/04 and C-318/04 Parliament v Council [2006] ECR I-4721 Joined Cases C-120/06 P and C-121/06 P FIAMM and Fedon [2008] ECR I–6513

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343

• Joined Cases C-282/4 and C-283/04 Commission v The Netherlands [2008] ECR I-9141 • Joined Cases C-402/05 P and C-415/05 Kadi [2008] ECR I-06351 • Opinion 1/75 Understanding on a Local Costs Standard [1975] ECR 1361 • Opinion 1/76 Draft Agreement Establishing a European Laying-up Fund for Inland Waterway Vessels [1977] ECR 741 • Opinion 1/78 [1978] ECR 2151 • Opinion 1/91 Economic Area Agreement I [1991] ECR I-6079 • Opinion 2/91 ILO Convention No 170 [1993] ECR I-1061 • Opinion 2/92 OECD-National Treatment Instrument [1995] ECR I-521 • Opinion 1/94 WTO Agreement [1994] ECR I-5267 • Opinion 1/00 European Common Aviation Area [2002] ECR I-3498 • Opinion 1/03 Lugano Convention [2006] ECR I-1145 • Opinion 1/09 European and Community Patents Courts [2011] ECR I-0000 • Opinion 2/13 EU Accession to ECHR [2014] ECR I-2454 • Opinion 2/15 EU-Singapore Free Trade Agreement (16 May 2017)

European Commission and Court of Human Rights • M & Co v Germany, Decision of the European Commission of Human Rights, Application No 13258/87, 9 February 1990, Decisions and Reports, Vol 64 • Cantoni v France [GC] Application No 17862/91, 15 November 1996, ECHR Reports 1996-V • Matthews v The United Kingdom [GC] Application No 24833/94, 18 February 1999, ECHR Reports 1999-I • Bosphorus Hava Yollari Turizm v Ireland [GC] Application No 45036/98, 30 June 2005, ECHR Reports 2005-VI • Kokkelvisserij v The Netherlands [GC] Application No 13645/05, 20 January 2009 • Behrami v France; Saramati v France, Germany and Norway [GC] Application No 71412/01 and 78166/01, 2 May 2007 • Blagojevic and Galic v The Netherlands, Application 22617/07, 9 June 2009

WTO Panel and Appellate Body Reports • WTO Panel Report, Case WT/DS18/RW Australia–Salmon • WTO Panel and Appellate Body Reports, Cases WT/DS62/R; WT/DS67/R; WT/ DS68/R, WT/DS62/AB/R, WT/DS67/AB/R, WT/DS68/AB/R EC–Customs Classification of certain computer equipment (LAN) • WTO Panel and Appellate Body Report, WT/DS/135/R; WT/DS/AB/135, EC– Measures Affecting Asbestos and Products containing Asbestos

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• WTO Panel Report, Case WT/DS174/R EC–Protection of Trademarks and Geographical Indications for Agricultural Products and Foodstuffs • WTO Panel Reports, Cases WT/DS291/R; WT/DS292/R; WT/DS293/R EC– Measures Affecting the Approval and Marketing of Biotech Products • WTO Panel Report, Case WT/DS301/R, EC–Measures Affecting Trade in Commercial Vessels • WTO Panel and Appellate Body Report, Cases WT/DS315/R; WT/DS315/AB/R EC– Selected Customs Matters • WTO Panel and Appellate Body Report, Case WT/DS316/R; WT/DS316/AB/R, EC and certain MS–Measures Affecting Trade and Large Civil Aircraft • WTO Panel Reports, Cases WT/DS375/R; WT/DS376/R, WT/DS377/R EC and MS–Tariff Treatment of Certain Information Technology

International Court of Justice • The Factory at Chorzów (Germany v Poland), Judgment (Jurisdiction), 26 July 1927, PCIJ Series A, No 9 • The Factory at Chorzów (Germany v Poland), Judgment (Merits), 13 Sept. 1928, PCIJ Series A, No 17 • Reparation for Injuries Suffered in the Service of the United Nations, 1949 ICJ Reports 174 • Monetary Gold Removed from Rome in 1943 (Italy v France, UK and US), 1954 ICJ Reports 19 • The Interpretation of the Agreement of 25 March 1951 between the WHO and Egypt, 1980 ICJ Reports 73 • Frontier Dispute (Burkina Faso v Mali), 1986 ICJ Reports 554 • Applicability of the Obligation to Arbitrate under Section 21 of the United Nations Headquarters Agreement of 26 June 1947, Advisory Opinion, 1988 ICJ Reports 12 • Certain Phosphate Lands in Nauru (Nauru v Australia), 1992 ICJ Reports 240 • East Timor (Portugal v Australia), 1995 ICJ Reports 90 • Land and Maritime Boundary between Cameroon and Nigeria (Cameroon v Nigeria), Preliminary Objections, 1998 ICJ Reports 275 • LaGrand (Germany v United States of America), Provisional Measures, 1999 ICJ Reports 9 • LaGrand (Germany v United States of America), Judgment, 2001 ICJ Reports 466 • Land and Maritime Boundary between Cameroon and Nigeria (Cameroon v Nigeria: Equatorial Guinea intervening) 2002 ICJ Reports 275 • Armed Activities (Democratic Republic of Congo v Uganda), 2005 ICJ Reports 168

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345

International Tribunal for the Law of the Sea • Request for an Advisory Opinion Submitted by the Sub-Regional Fisheries Commission (SRFC Advisory Opinion), Advisory Opinion of 2 April 2015, ITLOS • Case No 7 concerning the Conservation and Sustainable Exploitation of Swordfish Stocks in the South-Eastern Pacific (Chile v European Union). https:// www.itlos.org/en/cases/list-of-cases/case-no-7/. Accessed 26 August 2018

German Case Law • Bundesverfassungsgericht, 2 BvL 52/71, 29 May 1974. In BVerfGE 37, 271 • Bundesverfassungsgericht, 2 BvE 2/08, 2 BvE 5/08, 2 BvR 1010/08, 2 BvR 1022/08, 2 BvR 1259/08, 2 BvR 182/09, 30 June 2009. In BVerfGE 123, 267 • Bundesverfassungsgericht, 2 BvG 1/88, 22 May 1990. In NVwZ 1990, 955 • Bundesverfassungsgericht, 2 BvG 1/04, 17 October 2006. In NVwZ 2007, 190 • Bundesverfassungsgericht, 2 BvG 4/98, 27 June 2002. In NVwZ 2003, 595 • Bundesverwaltungsgericht, 3 A 1/01, 8 May 2002. In NVwZ 2002, 1127 • Bundesverwaltungsgericht, 3 A 5/05, 26 April 2007. In NVwZ 2008, 86 • Bundesverwaltungsgericht, 3 A 7/05, 26 April 2007. In NVwZ 2007, 1198 • Landgericht Marburg, 2 O 63/13, 8 July 2014. In BeckRS 2015, 07833

Investment Treaty Case Law • Metalclad Corporation v United States of Mexico, ICSID Case No ARB/01/7, Award, 25 May 2004 • SD Myers Inc v Canada, UNCITRAL Partial Award, 13 November 2000 • Electrabel SA v The Republic of Hungary, ICSID Case No ARB/07/19, Decision on Jurisdiction, Applicable Law and Liability, 30 November 2012 • Electrabel SA v Republic of Hungary, ICSID Case No ARB/07/19, Award, 25 November 2015 • AES Summit Generation Ltd and Tisza Eromu Kft v The Republic of Hungary, Case No ARB/07/22, Award, 23 September 2010 • Charanne BV and Construction Investments SARL v Spain, SCC Case No 062/2012, Award, 21 January 2015 • EDF International v Republic of Hungary, UNCITRAL Award, 4 December 2014 (not public) • Eudoro Armando Olguín v Republic of Paraguay, ICSID Case No ARB/98/5, Award, 26 July 2001

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• Alex Genin, Eastern Credit Limited, Inc and AS Baltoil v The Republic of Estonia, ICSID Case No ARB/99/2, Award, 25 June 2001 • Compañía del Desarrollo de Santa Elena v Costa Rica, ICSID Case No ARB/96/1, Award, 17 February 2000 • Técnicas Medioambientales Tecmed, SA v The United Mexican States, ICSID Case No ARB (AF)/00/2, Award, 29 May 2003 • Bayindir Insaat Turizm Ticaret Ve Sanayi AS v Islamic Republic of Pakistan, ICSID Case No ARB/03/29, Decision on Jurisdiction, 14 November 2005 • CMS Gas Transmission Co v Argentina, ICSID Case No ARB/01/8, Award, 12 May 2005 • Saluka Investments BV v The Czech Republic, UNCITRAL, Partial Award, 17 March 2006 • Compañía de Aguas del Aconquija SA and Vivendi Universal SA v Argentine Republic, ICSID Case No ARB/97/3, Award, 21 November 2000 • Loewen Group Inc and Raymond L Loewen v United States of America, ICSID Case No ARB (AF)/98/3, Award, 26 June 2003 • Glamis Gold Ltd v The United States of America, UNCITRAL, Award, 8 June 2009 • Methanex Corporation v United States of America, UNCITRAL, Final Award of the Tribunal on Jurisdiction and Merits, 3 August 2005 • Mondev International Ltd v United States of America, ICSID Case No ARB (AF)/99/2, Award, 11 October 2002 • Enron Corporation and Ponderosa Assets LP v Argentine Republic, ICSID Case No ARB/01/3, Decision on Jurisdiction, 14 January 2004 • Tokios Tokelés v Ukraine, ICSID Case No ARB/02/18, Decision on Jurisdiction, 29 April 2004 • Hochtief Aktiengesellschaft v The Argentine Republic, ICSID Case No ARB/07/31, Decision on Jurisdiction, 24 October 2011 • Emilio Agustin Maffezini v The Kingdom of Spain, ICSID Case No ARB/97/7, Decision on Objections to Jurisdiction, 25 January 2000 • Salini Costruttori SpA and Italstrade SpA v Kingdom of Morocco, ICSID Case No ARB/00/4, Decision on Jurisdiction, 31 July 2001 • Salini Costruttori SpA and Italstrade SpA v The Hashemite Kingdom of Jordan, ICSID Case No ARB/02/13, Decision on Jurisdiction, 9 November 2004 • Nykomb Synergetics Technology Holding AB v The Republic of Latvia, SCC, Arbitral Award, 16 December 2003 • Generation Ukraine Inc v Ukraine, ICSID Case No ARB/00/9, Award, 16 September 2003 • Niko Resources Ltd v People’s Republic of Bangladesh, Bangladesh Petroleum Exploration & Production Company Limited Bangladesh Oil and Mineral Corporation, ICSID Case No ARB/10/11 and ARB/10/18, Decision on Jurisdiction, 19 August 2013 • CMS Gas Transmission Company v The Republic of Argentina, ICSID Case No ARB/01/8, Decision of the Tribunal on Objections on Jurisdiction, 17 July 2003

Table of Cases

347

• Toto Costruzioni Generali SpA v Republic of Lebanon, ICSID Case No ARB/07/12, Decision on Jurisdiction, 11 September 2009 • Jan de Nul NV and Dredging International NV v Arab Republic of Egypt, ICSID Case No ARB/04/13, Decision on Jurisdiction, 16 June 2006 • Saipem SpA v The People’s Republic of Bangladesh, ICSID Case No ARB/05/07, Award, 30 June 2009 • United Parcel Service of America Inc v Government of Canada, UNCITRAL, Decision on Jurisdiction, 22 November 2002 • Siemens AG v The Argentine Republic, ICSID Case No ARB/02/8, Decision on Jurisdiction, 3 August 2004 • El Paso Energy International Company v The Argentine Republic, ICSID Case No ARB/03/15, Decision on Jurisdiction, 27 April 2006 • Telenor Mobile Communications AS v The Republic of Hungary, ICSID Case No ARB/04/15, Award, 13 September 2006 • Helnan International Hotels A/S v Arab Republic of Egypt, ICSID Case No ARB/05/19, Decision of the Tribunal on the Objections to Jurisdiction, 17 October 2006 • Larsen v Hawaiian Kingdom, Permanent Court of Arbitration, Award, ICGJ 378 (PCA 2001), 5 February 2001 • Chevron Corporation and Texaco Petroleum Corporation v The Republic of Ecuador, UNCITRAL, PCA Case No 2009-23, Third Interim Award on Jurisdiction and Admissibility, 27 February 2012 • Eureko BV v Republic of Poland, Partial Award 19 August 2005

 able of Treaties and Legislative and Policy T Instruments

Treaties Concluded by the EU • Agreement on the European Economic Area [1994] OJ L 1, p. 3 • Agreement on the promotion, provision and use of Galileo and GPS satellite-­ based navigation systems and related applications between the United States of America, of the one part, and the European Community and its Member States, of the other part [2011] OJ L 348, p. 1 • Agreement establishing an association between the European Community and its Member States, of the one part, and the Republic of Chile, of the other part [2002] OJ L 352, p. 3 • Association Agreement with Republic of the Hungary [1993] OJ L 347, p. 2 • Athens Protocol for the Protection of the Mediterranean Sea against Pollution from Land-based Sources 1980, 1328 UNTS 105 • Barcelona Convention for the Protection of the Mediterranean Sea Against Pollution 1976, 1102 UNTS 27 • Cartagena Protocol on Biosafety to the Convention on Biological Diversity [2002] OJ L 201, p. 50 • Constitution of the Food and Agriculture Organisation of the United Nations (FAO) [1991] OJ C, 16/12/1991, p. 238 • Convention on the Conservation of European Wildlife and Natural Habitats [1982] OJ L 38, p. 3 • Convention on Customs Treatment of Pool Containers used in International Transport [1995] OJ L 91, p. 46. • Convention relating to temporary admission (Istanbul Convention) [1993] OJ L 130, p. 4 • Draft of the Comprehensive Economic and Trade Agreement between Canada and the European Union (and the Member States), version September 2016.

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http://data.consilium.europa.eu/doc/document/ST-10973-2016-INIT/en/pdf. Accessed 26 August 2018 Draft of the Investment Protection Agreement between the European Union and its Member States, of the one part, and the Republic of Singapore, of the other part, version April 2018. http://trade.ec.europa.eu/doclib/press/index. cfm?id=961. Accessed 26 August 2018 Draft of the Free Trade Agreement between Vietnam and the European Union (and the Member States), version January 2016. http://trade.ec.europa.eu/doclib/ press/index.cfm?id=1437. Accessed 26 August 2018 Draft Transatlantic Trade and Investment Partnership between the United States and the European Union (and the Member States), Investment Chapter, version November 2015. http://trade.ec.europa.eu/doclib/docs/2015/november/tradoc_153955.pdf. Accessed 26 August 2018 Economic Partnership Agreement between the CARIFORUM States, of the one part, and the European Community and its Member States, of the other part [2008] OJ L 289, p. 3 Energy Charter Treaty and the Energy Charter Protocol on energy efficiency and related environmental aspects [1998] OJ L 69, p. 1 Fourth Convention between the European Economic Community and its Member States, of the one part, and the ACP [African, Caribbean, and Pacific] States, of the other part, signed at Lomé on 15 December 1989 [1991] OJ L 229, p. 3 Free Trade Agreement between the European Union and its Member States, of the one part, and the Republic of Korea, of the other part [2011] OJ L 127, p. 6 Kyoto Protocol to the UN Framework Convention on Climate Change [2002] OJ L 130, p. 4 Partnership and Cooperation Agreement with Russia [1997] OJ L 327, p. 1 Rotterdam Convention on the prior informed consent procedure for certain hazardous chemicals and pesticides in international trade [2003] OJ L 63, p. 29 Statute of the International Renewable Energy Agency (IRENA) [2009] OJ L 178, p. 18 United Nations Convention against Illicit Traffic and Narcotic Drugs and Psychotropic Substances [1990] OJ L 326, p. 57 United Nations Convention against Transnational Organised Crime [2004] OJ L 261, p. 70 United Nations Convention on the Law of the Sea, 1833 UNTS 3 Vienna Convention for the Protection of the Ozone Layer [1998] OJ L 297, p. 10

EU Secondary Acts, Statements and Policy Instruments • Communication from the Commission to the Council, the European Parliament, the European Economic and Social Committee and the Committee of the Regions, Towards a comprehensive European international investment policy, Brussels, 7 July 2010, COM (2010) 343

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• Communication from the European Community and its Member States to the Working Group on the Relationship between Trade and Investment, 16 April 2002, WT/WGTI/W/115 • Council Decision 94/998/EC [1994] OJ L 380, p. 1 • Council and Commission Decision 98/181/EC, ECSC, Euratom [1998] OJ L 69, p. 1 • Directive 2014/40/EU of the European Parliament and of the Council of 3 April 2014 on the approximation of the laws, regulations and administrative provisions of the Member States concerning the manufacture, presentation and sale of tobacco and related products and repealing Directive 2001/37/EC [2014] OJ L 127, p. 1 • Explanatory Memorandum to the Proposal for a Regulation establishing a framework for managing financial responsibility linked to investor-state dispute settlement tribunals established by international agreements to which the European Union is party, Brussels, 21 June 2012, COM (2012) 335 • Proposal for a Regulation of the European Parliament and of the Council establishing a framework for managing financial responsibility linked to investor-state dispute settlement tribunals established by international agreements to which the European Union is party, Brussels, 21 June 2012, COM (2012) 335 • Proposal Revised Statement submitted by the EU to the Secretariat of the ECT pursuant to Article 26(3)(b)(ii) ECT replacing the Statement made on 17 November 1997 on behalf of the European Communities, version April 2016. https://www.parlament.gv.at/PAKT/EU/XXV/EU/09/88/EU_98816/imfname_10619760.pdf. Accessed 26 August 2018 • Protocol No 7 on the Privileges and Immunities of the European Union [2012] OJ C 326, p. 266 • Protocol No 8 to the Lisbon Treaty [2010] OJ C 83, p. 273 • Regulation (EU) No 182/2011 of the European Parliament and of the Council of 16 February 2011 laying down the rules and general principles concerning mechanisms for control by Member States of the Commission’s exercise of implementing powers [2011] OJ L 55, p. 13 • Regulation (EU) No 912/2014 of the European Parliament and of the Council of 23 July 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 [2014] OJ L 257, p. 121 • Statement submitted by the European Communities to the Secretariat of the Energy Charter pursuant to Article 26(3)(b)(ii) of the Energy Charter Treaty made on 17 November 1997 [1998] OJ L 69, p. 115

Other Treaties and Documents • ECHR: Answers to frequently asked questions (30 April 2013) Accession by the European Union to the European Convention on Human Rights

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• Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York) 21 UST. 2517, 330 UNTS 38, ILM 1046 (1958) • Council of Europe: European Court of Human Rights, Practical Guide on Admissibility Criteria, 2011, www.refworld.org/docid/4f16c1482.html. Accessed 26 August 2018 • Draft Explanatory Report to the Agreement on the Accession of the European Union to the Convention for the Protection of Human Rights and Fundamental Freedoms, Fifth Negotiation Meeting between the CDDH Ad Hoc Negotiation Group and the European Commission on the Accession of the European Union to the European Convention on Human Rights, Final Report to the CDDH, 10 June 2013, Appendix V. http://www.echr.coe.int/Documents/UE_Report_ CDDH_ENG.pdf. Accessed 26 August 2018 • Draft OECD Multilateral Agreement on Investment, Comment, OECD Doc DAFFE/MAI/DS(98)8/REV1, 22 April 1998 • Draft OECD Multilateral Agreement on Investment, OECD Doc DAFFE/MAI/ DS(98)7/REV1, 22 April 1998 • Draft OECD Multilateral Agreement on Investment, Report of informal consultations on dispute settlement, OECD Doc DAFFE/MAI/DS(98)1, 23–24 February 1998 • Draft Revised Agreement on the Accession of the European Union to the Convention for the Protection of Human Rights and Fundamental Freedoms, Fifth Negotiation Meeting between the CDDH Ad Hoc Negotiation Group and the European Commission on the Accession of the European Union to the European Convention on Human Rights, Final Report to the CDDH, 10 June 2013, Appendix I. http://www.echr.coe.int/Documents/UE_Report_CDDH_ ENG.pdf. Accessed 26 August 2018 • Eight Report on the Responsibility of International Organizations by Special Rapporteur Giorgio Gaja, ILC 63rd session, A/CN.4/640, 14 March 2011 • European Commission (2017) A Multilateral Investment Court. http://trade.ec. europa.eu/doclib/docs/2017/september/tradoc_156042.pdf. Accessed 26 August 2018 • General Agreement on Tariffs and Trade 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1A, 1897 UNTS 187 • ILA Study Group Report (2012), Report of the International Law Association Study Group on the Responsibility of International Organizations (Sofia Conference). https://ila.vettoreweb.com/Storage/Download.aspx?DbStorageId= 1446&StorageFileGuid=11415da7-ea1a-41b6-b407-aff3f8d211e5. Accessed 26 August 2018 • ILC Articles on Responsibility of States for Internationally Wrongful Acts, with Commentaries. In ILC Report of the 53rd session (2001), UN Doc A/56/10 (2001) • ILC Articles on the Responsibility of International Organizations, with Commentaries. In ILC Report of the 63rd session (2011), UN Doc A/66/10 (2011) • ILC, ‘Responsibility of International Organisations  – Comments and Observations received from International Organisations’, ILC 56th session, Doc A/CN.4/545, 25 July 2004

Table of Treaties and Legislative and Policy Instruments

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• International Centre for Settlement of Investment Disputes Convention, 575 UNTS 159 • List of bilateral agreements concluded by the EU alone or together with its Member States. http://ec.europa.eu/world/agreements/searchByType.do?id=1. Accessed 26 August 2018 • List of declarations of competences made by the EU, http://ec.europa.eu/world/ agreements/viewCollection.do. Accessed 26 August 2018 • List of international agreements concluded by the EU, http://ec.europa.eu/world/ agreements/default.home.do. Accessed 26 August 2018 • Memorandum of Understanding and Supplementary Agreements Between the UK Government, the Scottish Ministers, the Cabinet of the National Assembly for Wales and the Northern Ireland Executive Committee (Concordats on Co-­ ordination of EU Policy Issues between the UK government and the devolved administrations), Cm 5240, December 2001. https://www.gov.uk/government/ uploads/system/uploads/attachment_data/file/316157/MoU_between_the_UK_ and_the_Devolved_Administrations.pdf. Accessed 26 August 2018 • North American Free Trade Agreement, 32 ILM 289, 605 (1993) • OECD (2008) Benchmark Definition of Foreign Direct Investment, 4th edn. https://www.oecd.org/daf/inv/investmentstatisticsandanalysis/40193734.pdf. Accessed 26 August 2018 • Second Report on the Responsibility of International Organizations by Special Rapporteur Giorgio Gaja, ILC 56th session, UN Doc A/CN.4/541, 2 April 2004 • Seventh Report on the Responsibility of International Organizations by Special Rapporteur Giorgio Gaja, ILC 61st session, UN Doc A/CN.4/610, 27 March 2009 • UNCTAD (2003) Course on Dispute Settlement International Centre for Settlement of Investment Disputes, (2.3. Consent to Arbitration), United Nations, New York and Geneva, Doc UNCTAD/EDM/Misc.232/Add.2. http://unctad.org/ en/docs/edmmisc232add2_en.pdf. Accessed 26 August 2018 • United Nations Conference on the Law of Treaties between States and International Organizations or between International Organizations, Vienna, Austria, 18 February – 21 March 1986, UN Doc A/CONF.129/C.1/SR.19, 19th meeting of the Committee of the Whole. http://legal.un.org/docs/?path=../diplomaticconferences/1986_lot/docs/english/vol_1/a_conf129_c1_sr19. pdf&lang=EF. Accessed 26 August 2018 • United Nations (1969) Yearbook of the International Law Commission 1968, Vol I – Summary Records of the 20th Session, 27 May - 2 Aug 1968 • Vienna Convention on the Law of Treaties between States and International Organizations and between International Organizations of 1986, UN Doc A/ CONF.129/15 • Vienna Convention on the Law of Treaties of 1969, 1155 UNTS. 331

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