Unlawful Consent Is Still Consent: International Law Perspectives On Komstroy vs Moldova

• Published date: 25 September 2021
• Subject Matter: Government, Public Sector, Litigation, Mediation & Arbitration, Constitutional & Administrative Law, Arbitration & Dispute Resolution
• Law Firm: Schoenherr Attorneys at Law
• Author: Mr Sebastian Lukic

On 2 September 2021, the Court of Justice of the European Union (CJEU) issued the much awaited judgement in the Komstroy vs Moldova case (C-741/19). The CJEU held that intra-EU arbitrations (viz., arbitrations initiated by an EU investor against an EU Member State) based on the investor-state dispute mechanism provided for in Article 26 of the Energy Charter Treaty (ECT) are not compatible with the EU legal order. The CJEU's judgement gives rise to a long list of questions. This includes whether it is apposite for a court to resolve legal issues which are not relevant for the resolution of the dispute before it. The preliminary reference in Komstroy arose from a dispute between an Ukrainian entity and the Republic of Moldova. It concerned the interpretation of the term "investment", as laid down in Article 1(6) ECT. Nevertheless, the CJEU allots more than 50 per cent of its substantive reasoning to the question of whether intra-EU arbitration under the ECT is compatible with the EU legal order.

At present, there are close to 50 pending International Centre for Settlement of Investment Disputes (ICSID) arbitrations initiated by EU investors against the EU Member States on the basis of the investor-state arbitration mechanism set out in the ECT. EU investors primarily seek full reparation for the losses resulting from an EU Member State's breach of the fair and equitable treatment standard set forth in Article 10(1) ECT. Accordingly, in practice, the central question will be whether ICSID tribunals can still hear ECT claims raised by EU investors against the EU Member States after the CJEU's judgement in Komstroy. The unequivocal answer to this question will be: 'Yes, they can'. Komstroy is an expression of EU constitutional law. The decision may imply that EU institutions and the Member States breached their EU law duties by concluding the ECT without a disconnection clause. However, from the perspective of public international law, such breach of EU law cannot supersede or vitiate an EU Member State's consent to arbitration embodied in Article 26 ECT.

This article aims to discuss whether the CJEU's judgement Komstroy bars ICSID tribunals from hearing ECT claims brought by EU investors against the EU Member States. It argues that once a State has given consent to arbitrate disputes with investors in a binding international treaty, it cannot rely on its internal law to escape from its treaty duties. In this sense, a breach of EU constitutional law cannot...