By Adhiraj Lath and Marwan Ben Moussa
The European Union (EU) has been dismantling investor-state dispute settlement inside the Union. In Achmea, the Court of Justice of the European Union (CJEU or Court) held that arbitration clauses in bilateral investment treaties (BITs) between Member States are incompatible with EU law. In Komstroy, the Court extended that logic to the Energy Charter Treaty (ECT). Member States then terminated all intra-EU BITs and coordinated a withdrawal from the ECT. This piece attempts to explore the potential recourses and remedies available to investors in light of the dismantling of intra-EU investor-state arbitration while keeping intact Europe’s influence as a normative power.
The practical import of these rulings and the broader EU policy shift towards intra-EU BITs are far-reaching. Investors who relied on intra-EU treaty protections now face juridical hurdles to challenge purportedly arbitrary measures by EU Member states at the very moment when energy transition projects and cross-border investment are most capital intensive. The reasoning of the Court is that the autonomy of EU law prevails over parallel dispute resolution paths created by investment treaties within the EU.
Enforcement of resulting awards under such treaties has also become problematic. In Micula, the General Court upheld the European Commission’s view that Romania could not pay an arbitral award because the tribunal is not part of the EU judicial system and payment would amount to unlawful State aid. The signal to national administrations of the EU Member states is clear: paying such awards can trigger State aid scrutiny and recovery under article 107 of the Treaty on the Functioning of the European Union.
Investors have adjusted by looking outside the Union for recognition and execution. Courts in the United Kingdom, the United States, and Australia have recognized several intra-EU awards and have rejected the intra-EU objection at the recognition stage. This recourse offers leverage, yet it is not a panacea. Identifying nonimmune, commercial assets of Member States abroad is difficult, and recovery is slow and partial.
Creative settlement structures boosting recovery for investors indeed deserve attention. One option is the use of long dated bonds tied to climate or transition projects. Under this proposed solution, EU Member states can enter into certain special arrangements with these award-creditors by issuing long-term ‘climate bonds’ to be invested in clean energy and energy transition projects in their economies, while circumventing the issue of unlawful EU State aid. The bond yields can further be earmarked for sector-specific climate change mitigation projects. The model can be predicated upon Gabon’s recently issued ‘blue bonds’ to protect its diverse marine coastline. Such investment bonds also placate the need for investors to comply with their ESG targets.
The EU is simultaneously pursuing structural reform of its dispute-resolution framework. The EU has championed a Multilateral Investment Court to replace ad hoc arbitration. The proposal is a two tier permanent body with appellate review which offers predictability and coherence in its jurisprudence. The open questions of this proposed body include its jurisdiction inside the Union, interaction with the preliminary reference mechanism, and enforcement of decisions that are not arbitral awards for purposes of the ICSID or the New York Convention.If decisions of the proposed Multilateral Investment Court are not enforceable as arbitral awards, the system needs a new treaty based mechanism for execution against states.
Another potential solution sits in Strasbourg. Non enforcement of a final award can be framed as an interference with possessions under Article 1 of Protocol 1 to the European Convention on Human Rights. Investors can argue that systematic refusal to recognize and satisfy awards deprives them of property without a fair balance. The European Court of Human Rights has a long record of assessing proportionality in complex economic regulation. It will need to consider how to weigh EU law autonomy against the protection of vested rights such as property. Further, the EU’s withdrawal and denunciation of the ECT coupled with the termination of intra-EU BITs does not preclude the applicability of the sunset clauses under the Vienna Convention on the Law of Treaties. Several new intra-EU claims have been filed on that basis. The Commission’s position is that sunset clauses do not apply to intra-EU parties. However, arbitral tribunals may disagree to the effect that intra-EU arbitrations subsist while the Commission maintains its position that they are inapplicable.
Another focus for resolving investor asserting claims is through the reform agenda of the UNCITRAL Working Group III and the new ICSID mediation rules which focus on creating a framework for structured settlement. Mediation can be faster, cheaper, and more flexible than arbitration, and it can incorporate forward looking project commitments that courts cannot order. The unresolved point is State aid. A mediated settlement that reflects compromise on an award can still be reviewed if it confers selective advantage to an investor
For Member States, the policy tradeoff is stark. Preserving the primacy of EU law and the integrity of the judicial system is a core constitutional interest. At the same time, an outright refusal to honor international obligations carries reputational costs, especially for a Union that promotes the rule of law in its external policy. Investors will price that risk into capital costs for projects sited inside the Union.
For investors, the strategies for recovery and recourse are diverse: They can pursue enforcement in jurisdictions outside the EU. Investors can further restructure outstanding awards through debt instruments to be reinvested in the economy as climate friendly debt instruments. Explore the European Court of Human Rights for property claims to seek, inter alia, a declaration of violation of right to property.
If the Union rejects arbitration inside the EU, it needs to provide a judicial avenue with equivalent effectiveness and predictable enforcement. If State aid law blocks payment of awards, it should provide a clear pathway for compliant settlements that deliver finality. If sunset clauses of intra-EU BITs are inapplicable, the Union should address it through treaty practice rather than only through objections before arbitral tribunals. The consequences can’t be overlooked. Unpaid intra-EU awards already exceed two billion dollars. Delays in resolution distort incentives for both sides, and they keep capital sidelined from sectors that the Union wants to accelerate, especially energy transition. The longer the gap between legal design and workable enforcement, the higher the financing premium that projects inside the Union will carry. Investors may potentially be dissuaded from investing in the EU owing to high costs of investing with a lack of certainty in asserting rights under investment treaties.
In addition, the future of intra-EU investment protection will likely be fragmented. Arbitral tribunals will continue to test jurisdiction under survival clauses while EU courts assert the primacy of Union law. Enforcement battles will shift abroad where courts have shown willingness to enforce awards, which increases leverage but not certainty. The Commission’s consultation on intra-EU investment protection and the push for a Multilateral Investment Court point to an eventual judicial alternative, yet that model needs a credible enforcement mechanism to be more than aspirational. Strasbourg remains a pressure valve if systematic non-enforcement is framed as an interference with possessions under Article 1 of Protocol 1. Expect more structured settlements and mediation anchored in ICSID’s new rules, paired with State aid-compliant payment structures that spread value over time. The practical test is simple: can the Union deliver a forum and a settlement toolkit that investors trust while preserving EU law autonomy?
The debate is often framed as law against law. It is better understood as institutional choice and incentive design. The Union can preserve autonomy and still deliver credible protection for cross border investment. Doing so will require a realistic enforcement plan, a settlement toolkit that passes State aid review, and a dispute forum that investors and states both trust.
