You represent Romania, which objects to the Tribunal’s jurisdiction.

You are to base your

arguments exclusively on the various aspects of EU law that are raised by the fact pattern.
The issue: inconsistency between Intra-EU BITs and EU Law
Case law: Eureko BV v. the Slovak Republic, Micula v Romania, Eastern Sugar v Czech Republic, Escosol v Italy,
Achmea ECJ case
the infringement proceedings under Article 258 of the Treaty on the Functioning of the EU, commenced in 2015 by
the European Commission
There are twenty-two Intra-EU BITs in force signed by Romania and, in accordance with the EU Law, such agreements
are superfluous given the fact that the EU Law guarantees to EU investors and their investments in the EU Member
States proper and equal protection. While the Law refers to termination by consent or by unilateral termination,
issues concerning the sunset clauses in the terminated BITs should not be much debated.
EC letter: The problem with BITs is not theoretical and has very practical consequences. For instance, one recent
arbitration proceeding based on an intra-EU BIT has produced an outcome that the Commission considers
incompatible with EU law, as the arbitral award constitutes illegal state aid (reference to Micula v Romania case: the
arbitral tribunal in the Micula case ordered Romania to pay damages to a Swedish investor, ignoring the
Commission's position that such an award would infringe EU state aid rules)
Romania join the European Union (EU) on 1 January 2007

1.Althea (Dutch company) had invested in the Romanian health insurance market in 2007
2.In the fall of 2009 government change in Romania, change of policy with regard to investment
in health insurance sector
3.November 2012 Althea’s request for arbitration:
-its investments have been rendered worthless under the new policies;
-it claims damages for breach of the FET standard, as well as for an unlawful expropriation;
4.UNCITRAL 1976 arbitration, the seat of arbitration – Vienna, Austria;

Romania’s jurisdictional objections (based on the relationship between investment law and EU
law):
(i)the BIT was implicitly terminated when Romania joined the EU;
(ii)the BIT’s arbitration clause is incompatible with EU law, because it constitutes discrimination
towards EU investors that are not from the Netherlands;
(iii)the FET and expropriation provisions in the BIT are not compatible with EU law, which means
that Althea has no legitimate claim before the tribunal;

Reasoning

(i) the BIT was implicitly terminated when Romania joined the EU
Romania’s plea of lack of jurisdiction defence is based on the premise that when Romania
became a member of the EU of which the Netherlands was already a member, this changed the
relationship that it had had with the Netherlands sufficiently to terminate or limit the application
of the BIT implicitly by acquis communautaire, and as a result, to put an end to benefits and
protection enjoyed under the BIT by a Dutch investor such as Althea.
As of the date of the Accession Treaty (1 January 2007), the EC Treaty has governed the
relationship between Romania and the Netherlands. By acceding to the EU, Romania became a
part of a specific system of law which creates a much more complex, wide-reaching and elaborate
framework of investment protection and human rights than that provided by the BIT. These
treaties cannot be applied simultaneously or in parallel and that the application of the BIT is
therefore excluded.
According to lex posterior rules of Articles 59 and 30 VCLT, the BIT becomes terminated or
inapplicable after the Member States accession to the EU and EU treaties. The TFEU, the latter
treaty that the parties became part of, and the BIT, are relating to the same subject matter, which
is intra-EU cross border investment and providing protection to investors. Several provisions of
the Netherlands-Romania BIT can be considered to be incompatible with the TFEU as they
provide protection to the investors of Member States party to the BIT and not all EU Member
States (for example, arbitration clause in Article 8 of the BIT). Therefore, in accordance with
Article 59 VCLT, the earlier treaty, i.e. the BIT, should be terminated as the BIT and the TFEU
relate to the same subject matter. Moreover, the treaties are incompatible since some provisions
of the BIT are inconsistent with EU law. This is particularly with regard to the provision on
investor-state arbitration that offers protection only to investors from those Member States
party to the BIT and not to all investors from the EU, which is a violation of the non-discrimination
clause in Article 18 TFEU.
The dispute settlement procedure under the BIT could not be applied by the Member States, for
facts occurring after their accession to the EU, if the matter at hand was within the EU
competence. The dispute should therefore be resolved under the EU law, based on the principle
of prevalence of EU law from the date of a Member States’ accession. Since we consider the BIT
inapplicable, we argued that the tribunal lacked jurisdiction to hear the case if it related to the
time after the respondent’s accession to the EU.
*Requirements of Article 59 of the VCLT have been met, namely:
1.The 2 treaties relate to the same subject matter (they cover the same types of investors and investments, serve the
same purposes, offer the same standards of protection, and provide for equivalent remedies);
Investors – Articles 1(b) of the BIT and Article 48(1) of the EC Treaty, Investments – Article 1(a) of the BIT and Article
Art. 49 of the TFEU (former Article 49 of the EC Treaty), although the EC Treaty does not define “capital,” an
explanatory note to a Council Directive and decisions of the ECJ have, confirmed that the term “investments” in the
Council Directive covers the same type of investments as those covered by the BIT.
Purpose: the BIT and EC Treaty serve identical purposes, which are fundamentally to broaden and strengthen mutual
economic relationships and to promote the flow of capital and economic development of the contracting parties,
while at the same time guaranteeing fair and equitable treatment. It follows from the preamble of the BIT and
Articles 2, 3 and 12 of the EC Treaty.
Standards of protection: -With respect to the establishment of investments, the undertaking in Article 2 of the BIT
to promote the investments between the two countries and Articles 2 and 3 of the EC Treaty, in which Romania
undertook to eliminate any restrictions preventing foreign investors’ access to the market in the territory of another
Member State. Article 56 of the EC Treaty further prohibits any restrictions on the free movement of capital and
payments;
-With respect to equal treatment and non-discrimination, Article 3(1) of the BIT “not to impair, by unreasonable or
discriminatory measures, the operation, management, maintenance, use, enjoyment or disposal” of an investment,
and the principles of non-discrimination and equality of treatment fundamentally protected by EU law through
Articles 12 and 43 of the EC Treaty and under the Charter on Fundamental Rights of the European Union. Article 3(3)
of the BIT makes some exceptions to equal treatment in certain circumstances.
- In relation to free movement of payments, the “identical” protections offered by Article 4 of the BIT (guaranteeing
that payments related to an investment may be transferred) and Article 56 of the EC Treaty (prohibiting “all
restrictions on the movement of capital” and “all restrictions on payments” between Member States…”). Decisions
of the ECJ in cases brought against Austria, Sweden and Finland, relating to breaches of their obligations as EU
Member States arising from the investment treaties that they had concluded with third (i.e., non-EU) countries
(hereafter the “Extra-EU BIT Cases” confirm this position.
-The standard of “full protection and security” under Article 3(2) is similarly guaranteed under the EC Treaty, by
virtue of the rules of the internal market. The ECJ has held such internal market rules to include protection of
investment from physical interventions, impairment or neutralisation measures which might discourage investors
from other Member States. The EC Treaty in some respects goes beyond the guarantees offered by the BIT but the
EC Treaty “exhaustively covers the standard of full protection and security of investments.”
-The protection of proprietary rights is one of the fundamental rights guaranteed by both the BIT (through Article 5
on expropriation) and EU law, especially within the scope of the freedom of movement, freedom of establishment,
free movement of capital and Article 17(1) of the ECHR
Comparative table:
BIT EU LAW
Free transfer of capital (Art 4) Free movement of capital (Art 56, 58)
Fair and equitable treatment (Art 3-1) Prohibition of discrimination (Art 12)
Full security and protection (Art 3-2) Freedom of establishment (Art 43, 56)
Indirect expropriation (Art 5) Freedom of establishment (Art 43, 56)
 Arbitration Clause (Art 8) Damage claim against the state before national courts
Remedies: both the BIT and EU law provide the same system of remedies where investments have been impaired
as a result of state action. Under EU law, investors pursue their claims before national courts with involvement of
the ECJ via a preliminary ruling procedure; and under the BIT investors can have their dispute heard before an arbitral
tribunal. Both mechanisms aim at the same objective, namely the protection of investments. Under both
mechanisms, investors may seek compensation for damages from States for unlawful conduct (a right confirmed by
the ECJ in 1991 in the case of Francovich v. Italian Republic (“Francovich”)
Claimant’s approach to what constitutes the “same subject matter” for the purposes of the VCLT is too narrow. The
VCLT requires that both treaties “relate to” the same subject matter: not that they cover or regulate exactly the
same subject matter. If particular conduct is such as to attract the application of both treaties, then the treaties
relate to the same subject matter. This broader interpretation is, according to Respondent, consistent with the
position taken by the ILC and in Oppenheim’s International Law.
The EC Treaty also covers all aspects of investment protection in a manner comparable to the standards guaranteed
by the BIT, including fair and equitable treatment, full security and protection and even the possibility of dispute
resolution against the State.
2.The 2 States have intended Althea’s investment to be governed by the EC Treaty instead of the BIT;
By concluding the Accession Treaty, “the intention of the contracting parties was to replace the former treaty with
the later one.” Against the backdrop of the Romania’s efforts to join the EU, the ultimate objective of the BIT was
to help Romania accede to the EU and create a trading platform on which basis the nationals of Member States
could invest in Romania without fears of uncertainty or lack of a legal framework for foreign investments. However,
when Romania acceded to the EU on 1 January 2007, that trading platform “became obsolete”.
3.The provisions of the BIT are so far incompatible with the provisions of the EC Treaty that 2 treaties are not capable
of being applied at the same time.
(ii) the BIT’s arbitration clause is incompatible with EU law, because it constitutes
discrimination towards EU investors that are not from the Netherlands
The EC Treaty does not provide for arbitration proceedings between investors and Member
States leading to a discrimination problem.
There is serious potential for discrimination between EU investors from different Member States,
which is incompatible with EU law. That is because some investors, i.e. Dutch investors, are
covered by a BIT and granted the opportunity to resort to investor-State arbitration while others
are not. The availability of a choice of dispute resolution procedures gives some investors an
advantage over investors from other Member States, and thus constitutes forbidden
discrimination against those other EU nationals.
The arbitration clause (Article 8 of the BIT) is incompatible because it fundamentally violates the
principle of equality as stipulated in Article 12 of the EC Treaty. Article 12 prohibits discrimination
on the grounds of nationality. Investors from Member States which have not concluded BITs with
Romania would be discriminated against as a result of the Arbitration Clause. Thus the fact that
only certain EU nationals may seek compensation for damages caused by a breach of EU law
before an international arbitral tribunal is discriminatory and in violation of Article 12 of the EC
Treaty.
Because the BIT leads to unequal treatment of EU nationals, we suppose that compliance with
one treaty (the BIT) causes breach of the other treaty (the EC Treaty) and there thus exists an
incompatibility for purposes of Article 59(1)(b) of the VCLT.
The discriminatory effects of the BIT could not be removed by offering the same rights granted
under the BIT to investors from other Member States. This is because the EU has exclusive power
to govern and amend the rights relating to the free movement of goods, persons, services and
capital. As a result, the Member States do not have competence to enter BITs. Even if they did
have such competence, this would not remove the discriminatory effect of the BIT
retrospectively, as the Vienna Convention’s concept of “incompatible” provisions includes any
provision in a treaty which requires a party to act in a way which necessarily causes a breach of
a later treaty. The arbitration clause in the BIT is such a provision because its invocation by
Claimant necessarily causes discrimination against citizens from other Member States by
Romania and the Netherlands. Hence, the BIT must be deemed to have been terminated or
inapplicable because of its incompatibility with the EC Treaty.
Furthermore, EU law does not permit the creation of dispute settlement systems to interpret EU
law that are outside the “complete system” created by Article 19(1) TEU and Articles 267 and
344 TFEU.

(iii)The FET and expropriation provisions in the BIT are not compatible with EU law, which
means that Althea has no legitimate claim before the tribunal
As an alternative to a finding that the BIT was terminated by virtue of Article 59(1)(a) of the VCLT,
we argue that Article 59(1)(b) is, in any event, satisfied. That is, the provisions of the EC Treaty
are so far incompatible with those of the BIT that the two treaties are not capable of being
applied at the same time. Under Article 59(1)(b), a conflict occurs when the performance of one
treaty necessarily causes a breach of the other treaty: in other words, the obligations arising out
of the BIT and the EC Treaty cannot both be fulfilled at the same time.
The expropriation clause in Article 5 of the BIT is incompatible with the regulation of
expropriation and damages under EU law, which is derived largely from the ECHR. This is because
EU law enables possible restrictions on proprietary rights “necessary for the general interest”
which could cause a breach of Article 5 of the BIT. Article 5 of the BIT would also breach Article
10 of the EC Treaty, dealing with loyal cooperation.
Incompatibility also occurs with regard to FET provisions. Any complaint that could be made
under the fair and equitable treatment provision in the BIT (and not only those complaints
specifically raised in the present arbitration) could also be made under the provisions on equality
and the prohibition of discrimination in the EC Treaty. A flat corporate tax provisions (Article 95
of the EC Treaty or Article 110 of the TFEU) could be an example of a measure incompatible with
the BIT but permitted by EU law, and therefore a clear example of incompatibility between the
two Treaties.
* From our perspective incompatibility occurs when an act is permissible under one treaty, but not permissible under
the other.

Based on the aforementioned arguments Romania argues that the Tribunal has no jurisdiction
to consider this dispute.

Dismissal of the Claimant’s arguments:

Respondent dismisses the two “precedents” – the Binder and Eastern Sugar cases – relied upon
by Claimant. Respondent questions their binding value as there is no formal rule of precedent in
international arbitration. Respondent states that the Tribunal should in any event not follow
Eastern Sugar because: (i) the violations complained of by the claimant in Eastern Sugar occurred
before the Czech Republic’s accession to the EU, and the principle of supremacy did not therefore
come into play; (ii) the important Extra-EU BIT Cases were decided by the ECJ after the award in
Eastern Sugar; (iii) when assessing the “same subject-matter” argument, the Eastern Sugar
tribunal only took into account the EU regulation of free movement of capital and not other rules
of EU law that overlap with the BIT; (iv) the Eastern Sugar tribunal failed properly to address the
opinions of EU institutions; and (v) the Eastern Sugar tribunal incorrectly concluded that the EU
“does not provide for possibility for an investor to sue a host state directly,” despite the
possibility of investors claiming damages through a national court under the interpretative
supervision of the ECJ.

The subject matter of the EC Treaty not only relates to the same aspects of investment protection
as the BIT but in many aspects especially with regard to the area of full security and protection
and indirect expropriation, the protection granted by EU law under freedom of establishment is
substantially more extensive. Moreover, the fact that there has never been a BIT concluded
between two EU Member States confirms there is overlapping subject matter.

In response to a question about the termination provisions in Article 13(3) of the BIT, Respondent
stated that first, Claimant’s investment took place only after the Slovak Republic entered the EU,
and thus the termination occurred before the investment was made. Second, Article 13(3) should
apply only to termination by an act of a Contracting Party, and not to the termination ex lege
under the VCLT.

Respondent rejects Claimant’s suggestion that the discriminatory effects of the BIT could be
removed by offering the same rights granted under the BIT to investors from other Member
States. This is because the EU has exclusive power to govern and amend the rights relating to the
free movement of goods, persons, services and capital. As a result, the Member States do not
have competence to enter BITs. Even if they did have such competence, this would not remove
the discriminatory effect of the BIT retrospectively, as the Vienna Convention’s concept of
“incompatible” provisions includes any provision in a treaty which requires a party to act in a way
which necessarily causes a breach of a later treaty. The arbitration clause in the BIT is such a
provision because its invocation by Claimant necessarily causes discrimination against citizens
from other Member States by the Slovak Republic and the Netherlands. Hence, the BIT must be
deemed to have been terminated or inapplicable because of its incompatibility with the EC
Treaty.

From Eskosol v Italy:

Primacy of EU law within intra-EU relations is reflected in Article 351 TFEU and “reaffirmed” in
the Lisbon Treaty. The Commission considers Article 351 TFEU to prevail even over the general
conflict rules in Article 30 of the VCLT, since the latter “were conceived as residual rules,”
whereas “EU law foresees a special conflict rule” involving the primacy of EU law. The
Commission emphasizes that under Article 351 TFEU (formerly 307 EC), “in matters governed by
the EU Treaties, EU law takes precedence over international treaties concluded between
Member States, regardless of whether they were concluded before or after EU accession.” The
Commission invokes the Electrabel decision in support of this argument

EU national’s investment in Romania is not a foreign investment as such, i.e., “not an investment
in the territory of the other Contracting Party, but in the territory of the same Contracting Party”