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A case before the ECJ, Micula v.
very clearly demonstrates this hypothesis. The case follows an arbitral award
of December 2013 that condemned Romania to compensate two Swedish investors, the
Micula brothers. In reaction to the arbitral award, by revoking an investment
incentive scheme in 2005, four years prior to its scheduled expiry, Romania had
infringed a bilateral investment treaty between Romania and Sweden2.
The arbitral tribunal denied the argument that when a State joined the EU, it affected
its international obligations under the BIlateral Investment Treaty, ICSID Convention
and New York Convention3.
At the enforcement stage, the European Commission challenged the arbitral award4.
The dispute was brought before the ECJ with a request determine whether an
arbitral award against Romania can be considered an illegal State aid as
supported by the Commission. In other words, if Romania complies with the
arbitral award and compensates the investors for the damages they suffered,
would it be violating EU law, and more specifically the provisions on State
aids? By enforcing the arbitral award, the Member State might act in breach its
obligation under EU law. This case demonstrates that, even when investment
related arbitral tribunals strictly apply international law, and thus they do
not take into account EU law, the autonomy of the EU law might still be infringed.

Moreover, other fundamental EU principles can be
affected. The previously examined Opinions also include among the fundamental
characteristics of the EU the principles of conferral, supremacy and direct
effect. As Micula case illustrates, EU state aid law can also become a problem
between EU and investment law. Even though under EU law the benefits given to
the investors by the Romanian authorities amount to illegal state aid, the
ICSID tribunal constituted under the Sweden-Romania BIT decided against the
host State. Some of the safeguards included in the draft text might diminish
the possibility of another Micula type case . Article 2(1) of Section 2 of the draft
text acknowledges the right of the contracting parties to regulate through
measures necessary to achieve legitimate policy objectives. Moreover, possibly
as a result of the Micula case, according to Article 2(3) of Section 2, the
decision of a contracting party not to issue, renew or maintain a subsidy shall
not constitute a breach of the provisions on investment protection. While this
might be a sufficient guarantee for state aid, the ECJ may find find an
incompatibility with general principles of EU law concerning the EU’s
constitutional architecture, and also incompatibilities could occur with
substantive provisions of EU law, such as the ones on the internal market and
competition law. This could lead to a number of possible incompatibilities.

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Furthermore, another concern
involves investment related tribunals directly applying EU law in the course of
assessing the claims brought by an investor. This situation is likely if the
future EU IIA investment chapters contain applicable law clauses providing for
treaty standards and encompass the law of the host State5.
Consequently, the IC tribunal may rule on ICS law, despite the ECJ reaffirming
in Opinion 1/09 that external jurisdictions must not call into question the
Court’s exclusive task of interpreting, applying and reviewing the legality of
acts of the EU. Another crucial area is the question of responsibility when an
act or omission has caused harm to foreign investors. In fact, to reach a determination
in such a case, an investment tribunal would clearly have “to rule on the respective
competences of the EU and the Member States as regards the matters governed by
the provisions of the agreements”6.
However, as affirmed in Opinion 1/91 and repeated in Opinion 1/09, when it comes
to powers of the EU institutions, the ECJ has first and foremost exclusive
jurisdiction. Therefore, when applied to ISDS disputes, the incorporation of an
ICS in future EU IIAs or FTAs could lead to an interference with the respective
powers of the European institution and distortion of the allocation of
jurisdiction between the EU and its Member States.

It is clear, ICS could only be
accepted insofar as it generates no adverse effect on the autonomy of those powers,
and insofar as the autonomy of the EU legal order is not altered. In the current
state of EU law after Opinion 1/09, it must be conceded that the ECJ’s interpretation
of the principle of autonomy of the EU legal order leaves little room for an Investment
Court. Apparently, the current versions of draft, propose to include provisions
stipulating that ICS should apply only the agreement and other rules and
principles of international law applicable between the Parties to the agreement,
excluding domestic law, whether of the EU or Member States7.
In this respect Article 13 entitled “Applicable law and rules of interpretation”
provides that “for greater certainty, the domestic law of the Parties shall not
be part of the applicable law”8.
Where the tribunal is required to ascertain the meaning of a provision of the
domestic law of one of the Parties as a matter of fact, it shall follow the prevailing
interpretation of that provision made by the courts or authorities of that
 Such provisions attempt to safeguard the
autonomy of the EU legal order. However, the adverse negative effects that a decision
from an ICS might have on this autonomy should not be understated.

1 Case T-646/14 Micula and Others v
Commission, see also Micula v Romania (ICSID arbitration award)(Case SA.38517)
Commission Decision C/393/2014 2014 OJ C 393/27.

2 Ibid.

3 IbId, para 169.

4 Ibid.

5 Supra note 190, p. 146.

6 Matthew Parish, International Courts and the European Legal
Order (2012) 23 EJIL 141.

7 Stephan W Schill, Luxembourg Limits: Conditions for
Investor-State Dispute Settlement Under Future EU Investment Agreements (2013)
10(2) TDM.

8 Supra note 13, draft text of

9 Ibid.

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