European Court of Justice Deals Heavy Blow to “Corporate Sovereignty Clause”

Is it the beginning of the end for “Investor-State Dispute Settlement” clauses that have become toxic to democracies?

In a surprise move, the European Union’s top court has ruled that Investor-State Dispute Settlement (ISDS) clauses contained within almost 200 bilateral investment treaties (BITs) between EU member countries violate EU law, casting doubt on such deals as well as others struck by the bloc as a whole. ISDS clauses allow foreign investors or corporations to sue governments for passing laws or regulations that could undermine the value of their investments.

The Court of Justice of the European Union (ECJ) found that an award of damages to Dutch-based insurer Achmea from Slovakia under a bilateral investment treaty inherited from former Czechoslovakia contravened EU law since the arbitration tribunal that made the ruling was “not a court of a member state.” As such, it had no power to refer matters to the ECJ, the highest court of the EU.

“The arbitration clause in the BIT has an adverse effect on the autonomy of EU law, and is therefore incompatible with EU law,” the court said.

The ruling could have widespread repercussions, not only for EU-based investors seeking redress for changes in government regulation that affect their bottom line but also for investors from outside the bloc. In total 196 BITs between EU members contain such clauses, some concluded between western EU countries to protect investments of their companies in former Soviet countries before the latter joined the EU

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