The US Court of Appeals for the District of Columbia Circuit (DC Circuit) issued a landmark ruling on 16 August 2024 with significant implications on the jurisdiction of US courts to decide on enforcement actions of intra-EU investment treaty awards against EU Member States. This decision was rendered in the consolidated appeal of the enforcement proceedings of intra-EU awards NextEra v Spain, 9Ren v Spain, and PV Investors v Spain (also known as Blasket).
The landscape of the enforcement of intra-EU awards is well known. EU member States continue to resist enforcement of these awards on the basis of EU law and the Court of Justice of the European Union (CJEU)’s judgments in Achmea and Komstroy, arguing that intra-EU investment arbitration is incompatible with EU law and, in particular, that the arbitration agreement in the Energy Charter Treaty (ECT) is inapplicable between EU Member States. With this latest DC Circuit decision, however, EU Member States are unlikely to be able to rely on the intra-EU nature of a given investment treaty award to escape the jurisdiction of US courts.
Background and key legal issues in play
The key legal question in the current enforcement proceedings of intra-EU investment treaty awards in the US is whether US courts have jurisdiction over these actions. Pursuant to the US Foreign State Immunities Act (FSIA), US courts only have jurisdiction over an action brought against a sovereign state in limited circumstances. As applicable to these enforcement proceedings, US courts have jurisdiction against actions that concern enforcement of an award rendered pursuant to an arbitration agreement “made by the foreign state with or for the benefit of a private party” (known as the arbitration exception). The key point for US courts is therefore whether a given arbitration agreement upon which an intra-EU award is based (for example, the ECT’s arbitration clause) falls under the arbitration exception.
As we reported previously, different judges from the US District Court for the District of Columbia (DC District Court) issued contradictory decisions on this key legal question in the enforcement proceedings of the NextEra, 9Ren and PV Investors awards:
- In February 2023, Judge Tanya Chutkan dismissed Spain’s intra-EU objection and denied its motion to dismiss a petition for enforcement of the NextEra (€290 million) and 9Ren (€42 million) awards. Judge Chutkan held that establishing the existence of an agreement to arbitrate, as opposed to its validity, was sufficient to uphold jurisdiction under the FSIA and thus to allow enforcement of intra-EU investment treaty awards.
- In March 2023, Judge Richard Leon rejected the enforcement of the PV Investors award (€26.5 million) and granted Spain’s motion to dismiss the proceedings. Judge Leon agreed with Spain in that no valid arbitration agreement existed because Spain lacked legal capacity to extend an offer to arbitrate to EU investors under EU law.
These contradictory decisions were appealed and have now been decided jointly by the DC Circuit in its decision of 16 August 2024.
The landmark finding: the intra-EU nature of an award is no obstacle to exercise jurisdiction under the FSIA
In our last update, we discussed the DC Circuit’s decision of May 2024 concerning the enforcement of the Micula v Romania award. In that case, the same panel of judges as in NextEra, 9Ren and PV Investors rejected Romania’s intra-EU arguments. As we anticipated, although Micula concerned a different procedural instrument (a Rule 60(b) motion for relief from judgment), the DC Circuit followed a similar approach in the NextEra, 9Ren and PV Investors appeals and rejected Spain’s intra-EU arguments under the FSIA, thereby paving the way for the successful enforcement of intra-EU awards in US courts.
In its decision, the DC Circuit held that the arbitration exception in the FSIA is applicable in the intra-EU context for the following reasons:
- The existence of an arbitration agreement is the key question under the FSIA. Other issues, such as whether an arbitration agreement covers a particular dispute or a particular investor, concern the scope of the agreement – as opposed to its existence – and therefore are not jurisdictional questions under the FSIA.
- An arbitration agreement in an investment treaty may constitute an arbitration agreement under the FSIA because it can be “for the benefit” of a private party (i.e., the investor) or give rise to a separate agreement “with” a private party. In the case of the ECT, the arbitration agreement is “for the benefit” of the signatory states’ investors.
- The ECT offers “powerful reasons” to conclude that its arbitration clause extends to EU nationals, such as the plain reading of the arbitration clause and the lack of any express disconnection clause with respect to intra-EU disputes.
The DC Circuit thus held that US courts have jurisdiction to examine enforcement actions of intra-EU awards. However, the court clarified that this does not result in an obligation to enforce the awards, as it left open the “merits question” of whether the ECT’s arbitration clause extends to EU nationals. Accordingly, the DC Circuit remanded all three cases to the district court.
Further implications: Anti-enforcement injunctions against sovereign states go too far
The DC Circuit also ruled on the validity of anti-suit injunctions issued by the district court in NextEra and 9Ren against anti-enforcement actions filed by Spain in European jurisdictions. In this respect, the DC Circuit found that the district court failed to:
- Adequately consider that anti-suit injunctions against sovereign states could have serious diplomatic and international comity implications; and
- Identify domestic interests strong enough to warrant the anti-suit injunction.
The DC Circuit thus concluded that the district court had abused its discretion by issuing these anti-suit injunctions. This decision is in line with the recent trend observed in European jurisdictions of refusing to interfere with enforcement actions, particularly in Germany and the Netherlands, as we reported before.
Takeaways and outlook
The DC Circuit’s decision is a pivotal moment in the long-standing saga of intra-EU investment arbitration. It constitutes a major step forward for investors and other award-holders in their efforts to monetise their awards, as it offers significant insights into the operation of the US judicial system vis-à-vis the enforcement of intra-EU awards at a moment when numerous enforcement actions of this kind await in the pipeline.
As the cases are remanded to the district court for further consideration, it will be crucial to monitor how the district court – and potentially the DC Circuit again on appeal – address the question of whether the ECT’s arbitration provision extends to EU nationals from a merits perspective. Given the DC Circuit’s statement that the ECT offers “powerful reasons” to conclude that its arbitration clause extends to EU nationals, foreign investors have reason to remain optimistic about the enforceability of their intra-EU ECT awards in the US. The saga continues.
