One more episode of quest for competence as investor seizes Spanish school in London

The clash between international legal order and the autonomy of the EU law makes Spanish government disregard its international obligations as English courts continue attaching government owned buildings. Instituto Vicente Cañada Blanch building on Portobello Road was provisionally arrested on 4 August 2023 following the ICSID arbitration decision in Antin case.

The Lisbon Treaty granted the European Union exclusive competence in matters of direct foreign investment. Communication from the Commission of 7 July 2010 COM(2010)343 final called “Towards a comprehensive European international investment policy” stressed among other issues the need to develop an international investment policy at EU level, and addressed the question of responsibility between the EU and Member States. According to the Communication, the Union, represented by the Commission, will defend all actions of EU institutions. Given the exclusive external competence, the Commission took the view in this document 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. The Commission also undertook to address this issue, and the one of financial compensation, relying on available instruments, including if necessary new legislation. See more in our managing partner Rytis Satkauska’s comment for TDM.

This ambition is yet to materialize, however the member states are prevented from honoring their obligation towards investors by the principle of the autonomy of the EU law, as interpreted by the EU institutions. In July 2021 the Commission opened the investigation to assess whether the arbitration award, to be paid by Spain in favour of Antin as compensation for the  modification of a renewable electricity support measure, is in line with EU rules on State aid. The doubts concerned inter alia the compliance of the arbitration award with the principles of mutual trust and autonomy of EU Law. Since the basis of the award were the investor-to-State provisions of the ECT and since in its judgment on the Achmea case (C-284/16), the Court of Justice of the European Union ruled that investor-to-State arbitration, when applied in an intra-EU context, undermines the system of legal remedies foreseen in the EU Treaties for resolving such disputes, it therefore poses a threat to the autonomy of EU law and the principle of mutual trust between the Member States.

The Spanish government has refused to pay any outstanding compensation arguing that the payments “may be contrary to EU law and constitute illegal state aid”. Detailed background is found in EU amicus curiae. Following the CJEU line of thought explained earlier in Micula decision, since the arbitration agreement could not be legal under the EU law, any resulting payments must be treated as such state aid.

This reasoning is one step too far for the courts outside EU. By rejecting the set-aside application of the Spanish government the English High Court underlined in May 2023 the importance of effect of treaty obligations in international law: “Any state that becomes a party to any treaty, by definition, becomes subject to the obligations contained in that treaty” (160). “The entire purpose of the ICSID Convention and the 1966 Act would be undermined if lengthy and complex arguments of the type advanced by Spain in this case were routinely advanced.” – it added (163). It was observed that the CJEU “is not the ultimate arbiter under the ICSID Convention, nor under the ECT”, and “Spain – or any other Member State … – cannot rely upon the Achmea and/or the Komstroy cases to dilute the United Kingdom’s own multilateral international treaty obligations”.

Government assets are not immune from arrest in situations of prior written waiwer. According to the English Hight court Article 54 of the Convention and Article 26 of the ECT both constitute a “prior written agreement” for the purpose of the SIA 1978. The court had reasoned ad absurdum that “if Spain’s reasoning were correct, section 1(1) of the 1966 Act would only apply to awards in which the United Kingdom was a party, which would be an absurd result.” (95).




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