Swiss Federal Supreme Court, 3 April 2024, 4A_244/2023
In a decision of 3 April 2002, the Swiss Federal Supreme Court (“the Supreme Court“) held that an arbitral tribunal had jurisdiction to hear an intra-European dispute on the basis of Article 26 of the Energy Charter Treaty (“ECT“).
The dispute concerned a French company’s investment in photovoltaic installations in Spain. After the Kingdom of Spain amended its legislation on renewable energy in a way that was less favourable to investors, the French company initiated arbitration proceedings against the Kingdom of Spain under Article 26 of the ECT.
In an award made in Geneva on 11 April 2023, the arbitral tribunal declared that it had jurisdiction to hear the dispute. It found that Spain had breached its obligations of fair and equitable treatment under Article 10 of the ECT and ordered Spain to pay compensation of 29.6 million euros.
The Kingdom of Spain then brought an action for annulment of the award before the Swiss Federal Supreme Court, arguing, inter alia, that the arbitral tribunal lacked jurisdiction because the dispute was intra-European, that the arbitration clause in Article 26 of the ECT was incompatible with European Union (“EU“) law, and that EU law prevailed over the ECT in the event of a conflict of laws. The Kingdom of Spain based its arguments primarily on the Komstroy decision of the Court of Justice of the European Union (“CJEU“), which held that the intra-European application of the ECT’s investor-state arbitration clause was incompatible with EU law (note: Teynier Pic had argued the Komstroy case before the CJEU and then before the Paris Court of Appeal).
The Supreme Court began by pointing out that the EU institutions had been waging a “crusade” against such international arbitrations for several years.
The Supreme Court went on to say that although it was aware of the Komstroy decision, it was not “convinced” by the reasoning adopted, “since it is based essentially, if not exclusively, on the need to preserve the autonomy and specificity of EU law, without taking any account of international law or the rules of treaty interpretation“. The Supreme Court stressed that Swiss courts are not bound by ECJ rulings and declared that it would not attach “any particular value” to the Komstroy decision.
The Supreme Court added that the ECT must be interpreted in good faith, in accordance with the ordinary meaning to be given to its terms in their context and in the light of the object and purpose of the ECT. In this case, the Supreme Court held that the signatories to the ECT had given their unconditional consent to arbitration. The Supreme Court held that if their consent had been limited in any way, this would have been indicated in the ECT, as it had been in other multilateral treaties containing “disconnection clauses”, allowing EU Member States not to apply the rules of such a treaty in their mutual relations.
The Supreme Court therefore held that:
- the unconditional consent of the Kingdom of Spain to the submission of any dispute to arbitration includes intra-European disputes (paragraph 7.7.6.);
- there is no conflict between Article 26 of the ECT and EU Treaties (§ 7.8.2.); and
- there is no reason to give EU law precedence over the ECT in the light of the conflict rules between international treaties (para. 7.8.3.).
Consequently, the Supreme Court dismissed the action for annulment of the arbitral award brought by the Kingdom of Spain and ordered it to pay the costs of the proceedings.
This decision is particularly favourable for intra-European investment arbitrations seated in Switzerland. However, its scope must be put into perspective, as the enforcement of such awards within EU Member States is still likely to pose problems. In any event, the case law of the Swiss Supreme Court Tribunal adds a little more confusion to investment arbitration, which it does not need at a time when its legitimacy is increasingly being questioned.
