Originally from The American Review of International Arbitration (ARIA)

PREVIEW PAGE

I. INTRODUCTION

Investment arbitration has witnessed a massive surge in the number of cases brought by foreign investors against host states  since its inception in the year 1987.  Dispute settlement mechanisms such as the ICSID  and the UNCITRAL Rules  have facilitated foreign investors to bring claims against host states for breach of their obligations under the investment treaties. Further, the limited scope of annulment and enforcement of awards has made investment arbitration a lucrative means of settlement of investor-state disputes. However, the sheer number of cases has led to numerous difficulties for the host state. Inconsistency in decision making by arbitral tribunals, payment of exorbitant compensation despite measures being regulatory have caused states to either form balanced treaties  or withdraw from the investor-state arbitration system.  Interestingly, one of the powerful blocks which have chosen to partially adopt the latter measure is the European Union (“EU”). In a series of decisions passed by the Court of Justice of European Union (“CJEU”), the CJEU has held that arbitrations of disputes arising under bilateral investment treaties  (“BIT”) or multilateral investment treaties  or even ad hoc arbitrations  “are not compatible with EU law and as such, are invalid.”  In fact, the CJEU has directed the EU to actively challenge such “Intra-EU” arbitral proceedings and has further called upon Member States to annul and/or refuse enforcement of such awards.  In this paper, the author will not analyze the correctness of the aforesaid decisions passed by the CJEU. Pursuant to such decisions by the CJEU, the EU Member States have entered into a Termination Agreement  thereby terminating its BITs including the sunset clauses  in such treaties. Owing to such anti-investment arbitration measures adopted by the European Union, the EU investors who succeeded in their investment arbitral proceedings have faced innumerable hurdles in enforcing their awards within the EU. Realizing the futility of their attempts within the EU, the EU investors have looked favourably to other jurisdictions such as the United States for enforcement of their investment awards. As a counter measure, EU Member States have actively challenged the awards on the ground that there existed no valid arbitration agreement.      

Against this backdrop, it is important to discuss the recent decision of Blasket Renewable Investment LLC v. Kingdom of Spain  (“Blasket”) wherein Judge Richard J. Leon of the United States District Court, District of Columbia, for the first time, rejected an application for enforcement of the investment award brought by the EU investor by upholding Spain’s contention that it lacked subject matter jurisdiction under the Foreign Sovereign Immunities Act. Judge Leon held that since Spain lacked the capacity to enter into a valid arbitration agreement under EU law, no valid arbitration agreement existed between the parties which entitled Spain to take the defence of sovereign immunity. This decision comes in sharp contrast to the decisions passed by coordinate District Judge Tanya S. Chutkan in 9Ren Holding S.A.R.L. v. Kingdom of Spain  (“9Ren”) and NextEra Energy Global Holdings B.V. and Nextera Energy Spain Holdings B.V. v. Kingdom of Spain  (“NextEra”). In those cases, Judge Chutkan rejected the arguments on sovereign immunity advanced by Spain and held that the “assertion that a party lacked a legal basis to enter or invoke an arbitration agreement is not a challenge to the jurisdictional fact of that agreement’s existence but rather a challenge to that agreement’s arbitrability.”  In view of the conflicting decision passed in Blasket, the EU investors now face an era of uncertainty in enforcing their investment awards in the United States. It goes without saying that the respective parties have filed an appeal before the Court of Appeals and the cases are pending adjudication.