Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL establishing a framework for managing financial responsibility linked to investor-state dispute settlement tribunals established by international agreements to which the European Union is party
Date: 2012-06-21
Institutions: European Commission
Subjects: agreement (EU), liability, settlement of disputes, third country, trade dispute

EUROPEAN COMMISSION 

Brussels, 21.6.2012  
COM(2012) 335 final 

2012/0163 (COD) 

Proposal for a 

REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 

establishing a framework for managing financial responsibility linked to investor-state 
dispute settlement tribunals established by international agreements to which the 
European Union is party  

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EXPLANATORY MEMORANDUM 

1. 

CONTEXT OF THE PROPOSAL 

1.1. 

Introduction 

The Treaty of Lisbon has brought foreign direct investment within the scope of the Union's 
common commercial policy and, consequently, of the Union's exclusive comptence. A central 
feature  of  international  agreements  on  foreign  direct  investment  (normally  referred  to  as 
investment protection agreements) is the possibility for an investor to bring a claim against a 
state  where  the  state  is  alleged  to  have  acted  inconsistently  with  the  investment  protection 
agreement (hereinafter referred to as "investor-state dispute settlement"). When such litigation 
takes place, the state concerned will incur costs (fees for the administration of the dispute, for 
the payment of arbitrators, for the payment of lawyers) and may, if it loses, be required to pay 
compensation. 

The  Union  is  already  party  to  one  agreement  with  the  possibility  for  investor-state  dispute 
settlement (the Energy Charter Treaty1) and the Union will seek to negotiate such provisions 
in a number of agreements currently under negotiation or to be negotiated in the future. It is 
thus necessary to consider how to manage the financial consequences of such disputes. This 
Regulation seeks to establish the framework for managing such consequences. 

The  central  organising  principle  of  this  Regulation  is  that  financial  responsibility  flowing 
from  investor-state  dispute  settlement  cases  should  be  attributed  to  the  actor  which  has 
afforded the treatment in dispute. This means that where the treatment concerned is afforded 
by the Union institutions then financial responsibility should rest with the Union institutions. 
Where the treatment concerned is afforded by a Member State of the European Union, then 
financial responsibility should rest with that Member State. It is only where the actions of the 
Member State are required by the law of the Union that financial responsibility should lie with 
the Union. Establishing this central principle also entails that consideration needs to be given 
to the issue of whether, and under what circumstances, the Union or the Member State which 
has afforded the treatment in dispute should act as respondent, how to structure co-operation 
between  the  Commission  and  the  Member  State  in  specific  cases,  how  to  deal  with  the 
possibility  for  settlements  and  finally,  the  mechanisms  necessary  to  ensure  that  any 
apportionment can be made effective.  

These additional elements also need to take into account the three other principles underlying 
this  Regulation.  The  first  is  that  the  overall  operation  of  the  allocation  must  ultimately  be 
budget  neutral  as  regards  the  Union  with  the  result  that  the  Union  only  bears  those  costs 
which are triggered by acts of Union institutions. Second, the functioning of the mechanism 
must  be  such  that  a  third  country  investor  is  not  disadvantaged  by  the  need  to  manage  the 
financial  responsibility  within  the  Union.  In  other  words,  in  the  event  that  there  is  a 
disagreement between the Union and the Member State, the third country investor would be 
paid any award, and then the internal allocation within the Union would be addressed. Third, 
the mechanism must respect the fundamental principles governing the Union’s external action 
as established by the Treaties and the case law of the Court of Justice of the European Union, 
in particular that of unity of external representation and of sincere co-operation.  

1 

OJ L 380, 31.12.1994, p. 1. 

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It  is  to  be  noted  that  the  Commission  foresaw  the  need  for  this  Regulation  in  its 
Communication "Towards a comprehensive European international investment policy"2. 

The  proposed  Regulation  has  been  explicitly  requested  by  the  European  Parliament  in  its 
resolution  on  the  future  EU  International  Investment  Policy  (para.  35  of  Resolution  A7-
0070/2011 adopted on 22 April 2011). Furthermore, the Council requested the Commission to 
study the matter in its Conclusions on a Comprehensive International Investment Policy (25 
October 2010). Subsequent discussions in the Council, notably in relation to the adoption of 
the  relevant  negotiating  directives  for  certain  agreements  currently  subject  to  negotiation, 
have confirmed the strong interest of the Council in this initiative. 

1.2. 

The Union's competence to conclude investment protection agreements and the 
Union's international responsibility under those agreements  

The  Commission  takes  the  view  that  the  Union  has  exclusive  competence  to  conclude 
agreements  covering  all  matters  relating  to  foreign  investment,  that  is  both  foreign  direct 
investment  and  portfolio  investment.3  Article  207  of  the  Treaty  on  the  Functioning  of  the 
European Union ("TFEU") provides the exclusive competence for foreign direct investment. 
The  Union’s  competence  for  portfolio  investment  stems,  in  the  Commission’s  view,  from 
Article 63 TFEU. That article provides that the movement of capital between Member States 
of the Union and third countries is to be free of restrictions. Article 3(2) TFEU provides for 
the exclusive competence of the Union whenever rules included in an international agreement 
"may  affect  common  rules  or  alter  their  scope".  In  the  Commission's  view,  the  Union  must 
have  exclusive  competence  also  over  matters  of  portfolio  investment  since  the  rules  being 
envisaged,  which  would  apply  indistinctly  to  portfolio  investment,  may  affect  the  common 
rules on capital movement set down in Article 63 of the Treaty.  

Furthermore,  the  Commission  takes  the  view  that  the  Union’s  competence  covers  all  the 
standards  provided  for  in  investment  protection  texts,  including  expropriation.  First,  the 
European Court of Justice has consistenly held that the Union’s competence for the common 
commercial  policy  includes  obligations  applying  post  entry  (i.e.  after  a  good  has  been 
imported  or  a  service  supplier  has  established)  even  where  Member  States  retain  the 
possibility to adopt internal rules4. Thus, it is well-established that the Union's competence in 
the field of trade in goods is not limited to border measures, such as tariffs or import quotas, 
but covers also post-importation matters, such as the granting of national treatment and most 

2 
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4 

COM(2010)343 final, page 10. 
Ibid, page 8. 
Opinion  1/94  of  the  European  Court  of  Justice  [1994]  ECR  I-5267  in  particular  paragraph  29  and 
paragraphs 32 and 33 

"32)  According  to  the  Netherlands  Government,  the  joint  participation  of  the  Community  and  the 
Member States in the WTO Agreement is justified, since the Member States have their own competence 
in relation to technical barriers to trade by reason of the optional nature of certain Community directives 
in  that  area,  and  because  complete  harmonization  has  not  been  achieved  and  is  not  envisaged  in  that 
field. 

33) That argument cannot be accepted. The Agreement on Technical Barriers to Trade, the provisions 
of  which  are  designed  merely  to  ensure  that  technical  regulations  and  standards  and  procedures  for 
assessment of conformity with technical regulations and standards do not create unnecessary obstacles 
to international trade (see the preamble and Articles 2.2 and 5.1.2 of the Agreement), falls within the 
ambit of the common commercial policy." 

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favoured nation treatment in respect of taxes and other internal laws and regulations5, or the 
abolition of unnecessary obstacles to trade arising from technical regulations and standards.6 
Likewise, it is generally agreed7 that the Union's competence with regard to 'trade in services' 
is not confined to issues of market access, but includes also matters such as national treatment 
and  most-favoured  nation  treatment  in  respect  of  internal  laws  and  regulations,  as  well  as 
certain obligations with regard to the administration and the content of domestic  regulation. 
Following  this  logic,  the  Union’s  competence  for  foreign  direct  investment  and  capital 
movements must also cover the standards applying post-establishment, including national and 
most-favoured  nation  treatment,  fair  and  equitable  treatment  and  protection  against 
expropriation without compensation.  

It  should  further  be  noted  that  Article  345  TFEU  provides  only  that  the  Treaties  shall  not 
affect the system of property ownership prevailing in the Member States. Treaties providing 
for investment protection do not affect the system of property ownership – rather they require 
that  expropriation  be  subject  to  certain  conditions,  including,  inter  alia,  the  payment  of 
compensation. Hence, the specific rule in Article 345 is not such as to imply that the Union 
does not have competence for the rules on expropriation included in agreements providing for 
investment  protection.  Finally,  it  is  also  established  that  the  competence  to  establish  and 
administer dispute settlement provisions runs together with the underlying competence for the 
subject matter of the rules.8  

It follows, therefore, that where the agreement is one which is concluded by the Union only, 
then it is only the Union which may be sued by an investor. This would be the case even if the 
treatment  accorded  which  is  challenged  in  investor-state  dispute  settlement  is  treatment 
accorded  not  by  the  Union  but  by  a  Member  State.  Should  it  be  the  case  that  both  the 
European Union and the Member States are parties to an agreement and it needs to be decided 
who is responsible as a matter of international law for any particular action, the Commission 
takes the view that this has to be decided not by the author of the act, but on the basis of the 
competence  for  the  subject  matter  of  the  international  rules  in  question,  as  set  down  in  the 
Treaty.  In  this  perspective,  it  is  immaterial  that  a  Member  State  has  competence  under  the 
rules on the internal market allowing it to legislate in its domestic sphere.  

This logic has been confirmed in the Court of Justice's case-law. For instance, in Opinion 1/91 
the Court held (emphasis added): 

The expression 'Contracting Parties'  is defined in Article 2(c) of the agreement.  As 
far as the Community and its Member States are concerned, it covers the Community 
and the Member States, or the Community, or the Member States, depending on the 
case. Which of the three possibilities is to be chosen is to be deduced in each case 

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Cf. Article I:1 and Article III of the General Agreement on Tariffs and Trade 1994 (GATT 1994), and 
Opinion 1/94, para. 34. 
Cf.  Article  2.2  of  the  WTO  Agreement  on  Technical  Barriers  to  Trade  (TBT)  and  Opinion  1/94, 
paragraphs. 31-33.  
In its Opinion 1/2008 the ECJ rejected Spain's contention that the Community's competence with regard 
to  trade  in  services  pursuant  to  Article  133  EC  was  limited  to services supplied  according  to  mode 2 
(i.e.  cross-border  services).  According  to  the  ECJ,  following  the  Treaty  of  Nice,  Article  133  EC  also 
covered  the  other  three  modes  of  supply  provided  in  the  GATS,  including  the  supply  of  services 
through the establishment of a 'commercial presence' (mode 3). See Opinion 1/2008, paragraphs. 120-
123.  Furthermore,  there  is  no  indication  in  Opinion  1/2008  that,  as  regards  the  sectors  where  the  EC 
was exclusively competent, such competence did not extend to the national treatment commitments.  
Opinion 1/91 of the European Court of Justice [1991] ECR I-060709 

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from the relevant provisions of the agreement and from the respective competences 
of the Community and the Member States as they follow from the EEC Treaty and 
the ECSC Treaty.9 

In the international context, the International Law Commission has recognised the possibility 
that  special  rules  may  apply  between  an  international  organisation  and  its  members.  In 
elaborating  its  draft  articles  on  the  Responsibility  of  International  Organisations,  the 
International Law Commission provides that its rules on responsibility may not be applicable, 
or may be modified, in specific circumstances.10  

While, for the reasons set out above, the Union bears, in principle, international responsibility 
for the breach of any provision within the Union's competence, it is possible, as a matter of 
Union law, to provide for the allocation of financial responsibility between the Union and the 
Member States. As discussed below in section 1.3, the Commission considers that it would be 
appropriate that each Member State bears financial responsibility for its own acts, unless such 
acts are required by Union law.  

Similarly,  while  for  the  reasons  mentioned  above,  the  Union  should,  in  principle,  act  as 
respondent  in  any  dispute  concerning  an  alleged  violation  of  a  provision  of  an  international 
agreement falling within the Union's exclusive competence, even if such violation arises from 
a Member State's action, it may be possible, as provided expressly in Article 2(1) TFEU, to 
empower  a  Member  State  to  act  as  respondent  in  appropriate  circumstances  given  the 
potential  for  significant  demands  (even  temporary)  on  the  Union  budget  and  on  Union 
resources were the Union to act as respondent in all cases. This implies that rather than set up 
the  mechanisms  in  a  manner  reflecting  a  strict  application  of  the  rules  on  competence,  it  is 
more  appropriate  to  put  forward  pragmatic  solutions  which  ensure  legal  certainty  for  the 
investor  and  provide  all  the  necessary  mechanisms  to  allow  for  the  smooth  conduct  of 
arbitration and, eventually, the appropriate allocation of financial responsibility. As explained 
in section 1.4 below, the Commission is of the view that Member States should be permitted 
to act as respondents in order to defend its own actions, except under certain circumstances 
where the Union interest requires otherwise. This has to be done while ensuring, at the same 
time, respect for the principle of unity of external representation 

1.3. 

Allocation of Financial Responsibility  

As  set  out  above,  investor-to-State  dispute  settlement  will  give  rise  to  costs  for  the  parties 
concerned, both in terms of fees and in terms of the payment of final award. It is important to 
separate  the  issue  of  the  conduct  and  management  of  an  investor-to-State  arbitration  claim 
from the issue of the allocation of financial responsibility. This is necessary in order to ensure 
the fair allocation of costs, so that the EU budget – and consequently the budgets of Member 
States  not  concerned  with  the  claim  in  question  –  are  not  burdened  with  costs  relating  to 
treatment  afforded  by  one  Member  State.  Therefore,  regardless  of  whether  the  Union  or  a 
Member State acts as respondent to a claim, the financial responsibility for any costs should 
follow  the  origin  of  the  treatment  of  which  the  investor  complained.  Therefore,  should  the 
treatment attacked by an investor exclusively originate in a Member State, the Member State 
in  question  should  be  liable  for  the  costs  flowing  from  the  dispute  settlement.  Similarly, 
where  the  treatment  of  which  an  investor  complained  originates  in  the  institutions  of  the 

9 
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Opinion 1/91, paragraph 33 
See  Article  64  Document  A/CN.4/L.778  of  30  May  2011  and  the  Report  of  the  International  Law 
Commission, Sixty First Session (A/64/10) p. 173-175. 

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Union (including where the measure in question was adopted by a Member State as required 
by Union law), financial responsibility should be borne by the Union. Equally, the decision on 
whether  to  settle  a  dispute  settlement  claim  and  the  responsibility  for  the  payment  of  a 
settlement award should normally follow the origin of the treatment.  

However,  while  the  allocation  of  financial  responsibility  between  the  Union  and  a  Member 
State may give rise to complex considerations, the investor bringing the claim should not be 
adversely affected by any disagreement between the Union and the Member State. Therefore, 
provision  should  be  made  to  ensure  that  any  final  award  or  settlement  award  is  paid  to  the 
investor promptly, regardless of the decisions on the allocation of financial responsibility. In 
addition,  and  in  order  to  avoid  unnecessary  drawings  on  the  Union  budget,  there  should  be 
provisions for periodic payments to be made into the Union budget to cover arbitration costs, 
as well as for the prompt reimbursement of the Union budget by the Member State concerned. 

1.4. 

The roles of the Union and of the Member States in relation to the conduct of 
disputes  

This  proposal  distinguishes  three  different  situations,  as  regards  the  distribution  of  roles 
between  the  Union  and  the  Member  States  in  relation  to  the  conduct  of  disputes  under 
agreements to which the Union is a party.  

In  the  first  situation,  the  Union  would  act  as  respondent  where  the  treatment  alleged  to  be 
inconsistent  with  the  agreement  is  treatment  afforded  by  one  or  several  Union  institutions. 
The Union would accept full financial responsibility in such cases.  

In the second, the Member State would act as respondent where the treatment in question is 
afforded by the Member State.The Member State would accept full financial responsibility is 
such cases. In this situation, the Member State would need to keep the Commission informed 
of  developments  in  the  case,  and  permit  the  Commission  to  give  direction  on  particular 
issues.11  

In the third situation, the Union would act as respondent in respect of treatment afforded by a 
Member State. This would occur where the Member State has opted not to act as respondent. 
It would also occur where the Commission decides that issues of Union law are involved such 
that the Union may be financially responsible, in whole or in part. It would also apply where 
the Commission takes the view that a Union position is required in order to ensure unity of 
external  representation,  because  it  is  likely  that  similar  claims  may  be  raised  in  disputes 
against  other  Member  States  or  because  the  disputes  raises  unsettled  issues  of  law  that  are 
likely  to  recur  in  other  disputes.  The  Union  will  be  represented  by  the  Commission  in 
accordance with its role in external representation established by Article 17 of the Treaty on 
European Union.  

It  is  evident  for  the  Commission  that,  where  the  Union  acts  as  respondent  concerning 
treatment  afforded  by  a  Member  State,  it  will  be  necessary  to  ensure  a  high  degree  of  co-
operation  with  the  Member  State  concerned.  This  will  involve  close  co-operation  in  the 
preparation of the defence, from the beginning to the end of the procedure. Thus, documents 
will  need  to  be  shared  and  representatives  of  the  Member  States  should  form  part  of  the 

11 

As provided in Article 13 of the Regulation of the European Parliament and of the Council establishing 
transitional  arrangements  for  bilateral  investment  agreements  between  Member  States  and  third 
countries [2010/197 COD]. 

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Union's  delegation.  However,  legislating  for  a  specific  role  for  such  representatives  in  the 
hearings or permitting the filing of individual briefs, would introduce too rigid a system and 
might lead to difficulties in ensuring the unity of external representation of the Union. For that 
reason,  while  the  Commission  is  keen  to  ensure  close  and  effective  co-operation,  this 
Regulation should not contain details of such elements and should only specify the principle 
of close co-operation between the Union and Member States.  

A  number  of  alternatives  were  examined  by  the  Commission  in  informal  consultations  in 
preparation for this proposal. One such alternative was a mechanism whereby the Union and 
the  Member  State  concerned  would  have  acted  as  co-respondents.  However,  in  the 
Commission's view, such mechanism is not well suited to investor-to-state dispute settlement. 
First,  it  does  not  adequately  provide  for  a  mechanism  for  the  allocation  of  financial 
responsibility between the Member State concerned and the Union. A Member State paying 
any eventual award and then seeking to recover from the European Union by itself seeking to 
determine which elements are required by the law of the Union would be neither consistent 
nor effective as regards budgetary procedures, nor would it recognise the Commission’s role 
in the implementation of Union law. Second, it could lead to inconsistencies in the defence of 
the claim, with each co-respondent presenting conflicting or diverging arguments. This would 
be  inconsistent  with  the  principle  of  unity  of  external  representation  as  established  by  the 
Court of Justice of the European Union. Third, it could result in the tribunal having to make a 
pronouncement  on  the  division  of  competences  between  the  Union  and  Member  States,  in 
circumstances  where  the  two co-respondents present divergent  positions on this issue to the 
tribunal; a scenario where a third party gives an opinion on a purely internal EU matter is to 
be avoided. Finally, in a scenario where a case is successfully defended, and the respondent is 
awarded  costs,  it  is  unlikely  that  a  tribunal  would  permit  the  Union  and  the  Member  State 
concerned both to recover costs. It is not acceptable that the potential costs which would be 
reimbursed to the Union be reduced in order to cover the costs incurred by a co-respondent 
Member  State  (or  vice-versa).  The  result  would  be  less  than  full  restitution  of  the  funds 
allocated  by  the  Union  and  as  a  consequence  the  budget  neutrality  of  the  operation  for  the 
Union could not be ensured. 

1.5. 

Recognition and enforcement of awards against the Union 

It is also necessary to set down rules to deal with the situation in which the EU is held liable. 
Since the European Union is or will be a party to such agreements, the European Union will 
be under an international obligation to accept any award made against it. The European Union 
would honour such obligation. 

Given  investor-state  dispute  settlement  is  based  on  arbitration,  in  most  countries,  including 
the  Member  States  of  the  European  Union,  the  recognition  and  enforcement  of  investment 
awards is based on the relevant legislation governing arbitration. This is often in turn based 
either upon the New York Convention of 10 June 1958 on the Recognition and Enforcement 
of Foreign Arbitral Awards or on the United Nations Commission on International Trade Law 
(UNCITRAL) Model Law on International Commercial Arbitration of 1985 (as amended in 
2006).12  The  Convention  on  the  Settlement  of  Investment  Disputes  between  States  and 
Nationals  of  Other  States  (the  "ICSID  Convention")  provides  a  specific  forum  for  the 
settlement of investment disputes. It provides in Article 54(1): 

12 

These instruments have many similarities.  

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Each  Contracting  State  shall  recognize  an  award  rendered  pursuant  to  this 
Convention as binding and enforce the pecuniary obligations imposed by that award 
within  its  territories  as  if  it  were  a  final  judgment  of  a  court  in  that  State.  A 
Contracting  State  with  a  federal  constitution  may  enforce  such  an  award  in  or 
through its federal courts and may provide that such courts shall treat the award as if 
it were a final judgment of the courts of a constituent state. 

The rules which apply to the recognition and enforcement of investment awards are those set 
down in the ICSID Convention when the arbitration in question is pursuant to the rules of the 
ICSID Convention and otherwise, those elaborated in the New York Convention and national 
laws on arbitration. To the Commission’s knowledge, only the United Kingdom and Ireland 
provide, in domestic law, specific procedures on the management of awards rendered under 
the ICSID Convention.13  

These  rules  would  apply,  as  appropriate,  to  arbitration  conducted  pursuant  to  Union 
agreements. While there are no recorded cases of the Union or of its Member States refusing 
to  respect  an  award,  if  an  investor  were  to  consider  it  necessary  to  seek  recognition  or 
enforcement  of  an  award,  it  would  need  to  seek  such  recognition  or  enforcement  via  the 
courts of the Member States. If enforcement is sought of an award made against the Union, 
Article 1 of Protocol (No. 7) on the Privileges and Immunities of the European Union would 
apply: 

The property and assets of the Union shall not be the subject of any administrative or 
legal measure of constraint without the authorisation of the Court of Justice. 

This means that the investor may need to go to the Court of Justice of the European Union if 
enforcement against Union assets is requested. The Commission  considers that the Court of 
Justice would apply the standard approach on sovereign immunity to such situations, with the 
result  that  the  situation  within  the  Union  would  be  comparable  to  the  situation  in  other 
countries,  including  the  Member  States  of  the  European  Union,  where  the  international 
principle of sovereign immunity would come into play.  

2. 

RESULTS OF CONSULTATIONS WITH THE INTERESTED PARTIES AND 
IMPACT ASSESSMENTS 

This  proposal  has  not  been  subject  to  an  impact  assessment.  This  is  because  the  regulation 
does not, in and of itself, include the provisions on investor-state dispute settlement which in 
turn may lead to the need to engage in arbitration or in liability to pay compensation. To the 
extent that it is possible to analyse the potential impacts of such provisions, this will be done 
in the impact assessment for the agreements in question. Section 4 below nevertheless gives 
some explanation on the likely budgetary effects. 

The  Commission  held  several  meetings  with  Member  State  representatives  and  with  the 
European  Parliament  in  the  preparation  of  this  proposal.  The  views  expressed  in  those 
meetings have been carefully taken into account in the attached proposal. 

13 

See,  for  the  UK  the  Arbitration  (International  Investment  Disputes)  Act  1966  and  for  Ireland,  the 
Arbitration Act, 1980, (Part Iv).  

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3. 

LEGAL ELEMENTS OF THE PROPOSAL 

3.1. 

Legal basis 

The  proposal  is  based  on  Article  207(2)  of  the  TFEU  which  establishes  the  exclusive 
competence  of  the  Union  for  a  common  commercial  policy,  including  for  foreign  direct 
investment. 

3.2. 

Presentation of the proposal 

The  proposed  Regulation  establishes  a  framework  for  the  allocation  of  the  financial 
responsibility  arising  out  of  investor-to-state  dispute  settlement  conducted  pursuant  to 
agreements to which the Union is a party. 

3.2.1.  Chapter I: General Provisions  

This Chapter sets out the scope of the proposed Regulation and includes the definitions of the 
terms used. The proposed Regulation applies to dispute settlement initiated by an investor of a 
third country and conducted pursuant to an agreement to which the Union is a party. It does 
not  apply  to  state-to-state  dispute  settlement  concerning  investment  protection  provisions, 
since these do not as such concern the possibility of financial compensation. A state wishing 
to seek compensation would need to be assigned the relevant claims from its investors. 

3.2.2.  Chapter II: Apportionment of financial responsibility 

This  Chapter  sets  out  the  basis  on  which  the  financial  responsibility  arising  from  a  dispute 
settlement claim will be allocated to the Union, a Member State or both.  

The main criterion for the allocation will be the origin of the treatment of which the investor 
has  complained.  If  the  treatment  originates  in  a  Union  act,  then  the  financial  responsibility 
will be borne by the Union. If the treatment originates in an act of a Member State, then the 
financial responsibility will be borne by the Member State, unless the treatment was required 
by Union law. However, the Member State should bear financial responsibility for treatment 
required by Union law, in cases where such treatment was required in order to correct a pre-
existing violation of Union law.  

In cases where financial responsibility has been allocated to a Member State, the Commission 
may adopt a decision setting out the allocation.  

Notwithstanding  these  apportionment  criteria,  if  a  Member  State  chooses  to  accept  the 
financial  responsibility  arising  from  a  claim  to  which  the  Union  is  respondent  or  acts  as 
respondent  to  the  claim  or  chooses  to  settle  the  claim,  the  financial  responsibility  will  be 
borne by the Member State. 

Should a Member State accept financial responsibility arising from a claim, the Member State 
and the Commission may agree the mechanism by which the arbitration costs and award will 
be paid. The Commission will inform the arbitration tribunal and the investor of the Member 
State's acceptance of financial responsibility. 

EN 

9 

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3.2.3.  Chapter III: Conduct of disputes  

This  Chapter  sets  out  the  principles  relating  to  the  conduct  of  disputes  relating  to  treatment 
afforded either by the Union or by a Member State, whether fully or in part. 

Section 1 of this Chapter provides that the Union shall act as respondent whenever the dispute 
concerns treatment afforded by the Union. 

Section  2  deals  with  the  sitiuation  where  the  dispute  concerns,  fully  or  partially,  treatment 
afforded  by  a  Member  State.  The  Commission  will  notify  the  Member  State  concerned  as 
soon as it becomes aware that consultations have been requested by an investor, in accordance 
with the provisions of an investment protection agreement. The Member State may participate 
in the consultations and it shall provide the Commission with all relevant information. 

As  soon  as  the  Commission  or  a  Member  State  receives  a  notice  of  arbitration  from  an 
investor  in  accordance  with  the  provisions  of  an  investment  protection  agreement,  they  will 
notify  each  other.  The  Member  State  may  act  as  a  respondent  to  the  claim,  unless  the 
Commission decides that the Union should act as respondent or the Member State itself wants 
the  Union  to  so  act.  The  Commission  may  issue  a  decision  that  the  Union  shall  act  as 
respondent where: 

(a) 

(b) 

(c) 

it  is  likely  that  the  Union  will  have  to  bear  at  least  some  of  the  financial 
responsibility of the claim; 

the dispute also concerns treatment afforded by the Union 

it  is  likely  that  similar  claims  will  be  brought  against  treatment  afforded  by  other 
Member States; or 

(d) 

it is likely that the claim will raise unsettled issues of law. 

Where  the  Union  is  acting  as  a  respondent,  the  Member  State  concerned  must  provide  all 
necessary  assistance  to  the  Commission  and  may  form  part  of  the  Union  delegation  in  the 
arbitration proceedings. The Commission will keep the Member State closely informed of all 
significant steps in the process, will work closely with the Member State and will consult with 
the Member State regularly. 

Where the Member States is acting as respondent, it must provide all documents relating to 
the  proceedings  to  the  Commission  and  shall  allow  the  Commission  to  form  part  of  the 
Member  State  delegation  in  the  arbitration  proceedings.  The  Member  State  will  keep  the 
Commission  closely  informed  of  all  significant steps  in  the  process  and  may  be  required  to 
adopt a particular position in its defence of the claim where there is a Union interest. 

3.2.4.  Chapter IV: Settlements 

If  the  Commission  considers  that  the  interests  of  the  Union  would  be  best  served  by  the 
settlement of a claim concerning treatment exclusively afforded by the Union, it may adopt a 

EN 

10 

   EN 

decision  to  approve  a  settlement.  This  decision  shall  be  adopted  in  accordance  with  the 
examination procedure created by Regulation (EU) 182/201114. 

If  the  Commission  considers  that  the  interests  of  the  Union  would  be  best  served  by  the 
settlement of a claim concerning treatment afforded by a Member State or by both a Member 
State  and  the  Union,  the  Commission  will  consult  with  the  Member  State  concerned.  If  the 
Member  State  agrees  to  a  settlement,  it  shall  endeavour  to  agree  with  the  Commission  the 
necessary  elements  for  the  negotiation  and  implementation  of  the  settlement.  The 
Commission  may  decide  to  settle  the  dispute  even  if  the  Member  State  concerned  does  not 
consent,  if  the  Commission  considers  that  there  is  an  overriding  interest  of  the  Union.  The 
terms of the settlement will be agreed in accordance with the examination procedure. 

Where a claim concerns treatment exclusively afforded by a Member State, the Member State 
may settle the dispute provided that: 

(a) 

(b) 

(c) 

(d) 

the Member State accepts any financial responsibility arising from the settlement; 

the settlement agreement is only enforceable against that Member State; 

the terms of the settlement are compatible with Union law and: 

there is no overriding Union interest. 

The  Member  State  shall  consult  with  the  Commission  which  will  decide  whether  all  of  the 
conditions set out above are met within 90 days. 

3.2.5.  Chapter V: Payment of final awards and settlements 

Where the Member State concerned has acted as respondent to a claim, it shall be responsible 
for the payment of final awards and settlements relating to that claim. 

Where  the  Union  has  acted  as  respondent  to  a  claim,  it  shall  pay  any  final  award  to  the 
investor in accordance with the rules laid down in the relevant agreement, unless a Member 
State  has  accepted  financial  responsibility  for  the  dispute.  In  cases  where  a  settlement  has 
been agreed, the Commission will pay the settlement amount in accordance with the rules laid 
down in the settlement agreement. 

Where the Commission considers that all or part of a final award or settlement amount should 
be paid by a Member State which has not accepted financial responsibility, it will consult with 
the  Member  State  concerned.  If  the  Commission  and  the  Member  State  cannot  reach 
agreement on the matter, the Commission will adopt a decision setting out the amount to be 
paid by that Member State. The Member State will compensate the Union budget, including 
interest, within three months from the date of the decision. If the Member State disagrees with 
the  Commission's  allocation  of  financial  responsibility,  it  shall  submit  an  objection.  If  the 
Commission  does  not  agree  with  the  Member  State's  objection,  it  shall  adopt  a  decision 
asking  the  Member  State  to  compensate  the  Union  budget,  including  interest.  The  Member 
State may then have recourse to Article 263 of the Treaty on the Functioning of the European 
Union  in  order  to  seek  annulment  of  the  decision  in  question.  The  matter  will  thereafter  be 

14 

Regulation  (EU)  No  182/2011  of  the  European  Parliament  and  of  the  Council  of  16  February  2011 
laying down the rules and general principles concerning mechanisms for control by Member States of 
the Commission’s exercise of implementing powers (OJ L 55, 28.2.2011, p. 13). 

EN 

11 

   EN 

                                                 
decided  by  the  Court  of  Justice  of  the  European  Union  in  accordance  with  this  Regulation. 
This procedure should not include any element for the control of the Commission's decision 
by  the  Member  States.  This  is  a  decision  which  applies  only  to  one  Member  State  and  in 
respect  of  which  the  Commission's  application  of  the  standards  set  down  by  the  regulation 
should  not  be  subject  to  a  political  control  by  the  Member  States.  It  is  key  for  the  proper 
functioning  of  the  regulation  that  the  criteria  are  strictly  applied  in  an  objective  manner. 
Should the Member State concerned seek the annulment of the Commission's decision before 
the Court of Justice of the European Union then other Member States with an interest in the 
interpretation would be able to intervene in the proceedings before the Court of Justice. 

Where the Union is acting as a respondent, arbitration costs shall be paid by the Union or the 
Member State in accordance with how the financial responsibility for the dispute is allocated. 
The Commission may adopt a decision requiring the Member State concerned with the claim 
to  make  financial  contributions  to  the  Union  budget  to  cover  any  periodic  payments  of 
arbitration costs. 

4. 

BUDGETARY IMPLICATIONS 

It is by definition not possible to give precise information on the likely costs associated with 
investor-state  dispute  settlement.  These  depend  on  a  wide  array  of  factors  including  the 
volume  of  capital  flows,  the  stabilitity  of  the  investment  environment  etc.  The  Union’s 
exposure to such liability also depends, of course, on the number of such agreements to which 
it will eventually be a party. At the time this proposal is made, the Union is only party to one 
agreement  with  investor-state  dispute  settlement,  even  if  a  number  of  other  agreements  are 
currently under negotiation. Hence, it is impossible to be specific as to the likely budgetary 
consequences in the preparation of a Regulation of this nature, intended to have a horizontal 
effect.  While  the  difficulty  of  making  accurate  estimates  should  not  be  discounted,  a  more 
accurate analysis is possible on a case-by-case basis in the impact assessments which will be 
prepared  for  specific  agreements  and  the  agreements  should  also  be  subject  to  ex  post 
evaluation. Financial Statements shall be prepared for all future agreements to be concluded 
pursuant to Article 218 of the Treaty which would fall under the scope of this Regulation. 

It is necessary to ensure that the requisite elements in the General Budget of the Union are in 
place  in  order  to  cover  any  potential  costs  arising  from  agreements  with  third  countries 
including investor state dispute settlement as implemented in this Regulation. This has three 
elements.  First,  provision  needs  to  be  made  for  the  payment  of  any  expenses  of  the  arbitral 
tribunal and any other related costs. Second, provision needs to be made for situations where 
the Union is required to pay compensation on final awards or settlement in respect of acts of 
its institutions. Third, in cases in which the Union acts as respondent, but where the Member 
State concerned is ultimately to be considered as financially responsible, it is necessary for the 
Union  to  make  any  necessary  payments  and  then  have  these  payments  reimbursed  by  the 
Member  State  concerned.  It  is  also  necessary  to  provide  for  a  mechanism  where  a  Member 
State, which has accepted the financial responsibility on a case, makes periodic payments to 
the  EU  Budget  in  order  to  compensate  the  cost  of  arbitration.  All  such  payments  and 
recoveries  would  be  made  through  the  budget  line  20  02  01  -  External  trade  relations, 
including access to the markets of third countries. The necessary provisions for this have been 

EN 

12 

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taken up in the Commission’s proposal for the 2013 budget15 in the form of an addition to the 
budgetary comments of the afore-mentioned budget line referring to: 

"Investor to state dispute settlement as established by international agreements 

The following expenditure is to support:  

– 

– 

Arbitration costs, legal expertise and fees incurred by the Union as party to disputes 
arising from the implementation of international agreements concluded under Article 
207 of the Treaty on Functioning of the European Union.  

Payment  of  final  award  or  award  settlements  paid  to  an  investor  in  the  context  of 
such international agreements." 

15 

Adopted by the Commission on 25 May 2012 (COM(2012)300). 

EN 

13 

   EN 

                                                 
2012/0163 (COD) 

Proposal for a 

REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 

establishing a framework for managing financial responsibility linked to investor-state 
dispute settlement tribunals established by international agreements to which the 
European Union is party  

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Article 207(2) thereof, 

Having regard to the proposal from the European Commission, 

After transmission of the draft legislative act to the national Parliaments, 

Acting in accordance with the ordinary legislative procedure, 

Whereas: 

(1)  With  the  entry  into  force  of  the  Lisbon  Treaty,  the  Union  has  acquired  exclusive 
competence  for  the  conclusion  of  international  agreements  on  investment  protection. 
The  Union  is  already  party  to  the  Energy  Charter  Treaty1  which  provides  for 
investment protection. 

(2) 

(3) 

Agreements providing for investment protection typically include an investor-to-state 
dispute settlement mechanism, which allows an investor from a third country to bring 
a  claim  against  a  state  in  which  it  has  made  an  investment.  Investor-to-state  dispute 
settlement  can  result  in  awards  for  monetary  compensation.  Furthermore,  significant 
costs for administering the arbitration as well as costs relating to the defence of a case 
will inevitably be incurred in any such case. 

In  accordance  with  the  case-law  of  the  Court  of  Justice  of  the  European  Union2, 
international  responsibility  for  treatment  subject  to  dispute  settlement  should  follow 
the  division  of  competence  between  the  European  Union  and  Member  States.  As  a 
consequence,  the  Union  will  in  principle  be  responsible  for  defending  any  claims 
alleging  a  violation  of  rules  included  in  an  agreement  which  fall  within  the  Union's 
exclusive competence, irrespective of whether the treatment at issue is afforded by the 
Union itself or by a Member State. 

(4)  Where the Union has international responsibility for the treatment afforded, it will be 
expected, as a matter of international law, to pay any adverse award and bear the costs 

1 
2 

OJ L 69, 9.3.1998, p. 1.  
Opinion 1/91 of the European Court of Justice [1991] ECR I-60709 

EN 

14 

   EN 

                                                 
of any dispute. However, an adverse award may potentially flow either from treatment 
afforded by the Union itself or from treatment afforded by a Member State. It would as 
a  consequence  be  inequitable  if  awards  and  the  costs  of  arbitration  were  to  be  paid 
from  the  Union  budget  where  the  treatment  was  afforded  by  a  Member  State.  It  is 
therefore necessary that financial responsibility be allocated, as a matter of Union law, 
and  without  prejudice  to  the  international  responsibility  of  the  Union,  between  the 
Union  and  the  Member  State  responsible  for  the  treatment  afforded  on  the  basis  of 
criteria established by this Regulation.  

In  its  resolution  on  the  future  EU  International  Investment  Policy3,  the  European 
Parliament has explicitly called for the creation of the mechanism provided for in this 
Regulation. Furthermore, the Council requested the Commission to study the matter in 
its  Conclusions  on  a  Comprehensive  International  Investment  Policy  of  25  October 
2010. 

Financial responsibility should be allocated to the entity responsible for the treatment 
found to be inconsistent with the relevant provisions of the agreement. This means that 
the  Union  should  bear  the  financial  responsibility  where  the  treatment  concerned  is 
afforded by an institution, body or agency of the Union. The Member State concerned 
should bear the financial responsibility where the treatment concerned is afforded by a 
Member  State.  However,  where  the  Member  State  acts  in  a  manner  required  by  the 
law  of  the  Union,  for  example  in  transposing  a  directive  adopted  by  the  Union,  the 
Union  should  bear  financial  responsibility  in  so  far  as  the  treatment  concerned  is 
required  by  Union  law.  The  regulation  also  needs  to  foresee  the  possibility  that  an 
individual  case  could  concern  both  treatment  afforded  by  a  Member  State  and 
treatment required by Union law. It will cover all actions taken by Member States and 
by the European Union. 

The Union, represented by the Commission should always act as the respondent where 
a  dispute  concerns  exclusively  treatment  afforded  by  the  institutions,  bodies  or 
agencies  of  the  Union,  so  that  the  Union  bears  the  potential  financial  responsibility 
arising from the dispute in accordance with the above criteria.  

On  the  other  hand,  where  a  Member  State  would  bear  the  potential  financial 
responsibility  arising  from  a  dispute,  it  is  appropriate,  as  a  matter  of  principle,  to 
permit such Member State to act as respondent in order to defend the treatment which 
it has afforded to the investor. The arrangements set down in this Regulation provide 
for that. This has the significant advantage that the Union budget and Union resources 
would  not  be  burdened,  even  temporarily,  by  either  the  costs  of  litigation  or  any 
eventual award made against the Member State concerned.  

(5) 

(6) 

(7) 

(8) 

(9)  Member  States  may,  nevertheless,  prefer  that  the  Union,  represented  by  the 
Commission, act as a respondent in this type of disputes, for example for reasons of 
technical expertise. Member States should, therefore, have the possibility to decline to 
act as a respondent, without prejudice to their financial responsibility.  

(10) 

In  certain  circumstances,  it  is  essential,  in  order  to  ensure  that  the  interests  of  the 
Union  can  be  appropriately  safeguarded,  that  the  Union  itself  act  as  a  respondent  in 
disputes involving treatment afforded by a Member State. This may be so in particular 

3 

Paragraph 35 of Resolution A7 0070/2011 of 22 April 2011. 

EN 

15 

   EN 

                                                 
where the dispute also involves treatment afforded by the Union, where it appears that 
the treatment afforded by a Member State is required by Union law, where it is likely 
that  similar  claims  may  be  brought  against  other  Member  States  or  where  the  case 
involves  unsettled  issues  of  law,  the  resolution  of  which  may  have  an  impact  on 
possible  future  cases  against  other  Member  States  or  the  Union.  Where  a  dispute 
concerns  partially  treatment  afforded  by  the  Union,  or  required  by  Union  law,  the 
Union should act as a respondent, unless the claims concerning such treatment are of 
minor importance, having regard to the potential financial responsibility involved and 
the legal issues raised, in relation to the claims concerning treatment afforded by the 
Member State.  

It is necessary to provide for the possibility for the Union to act as respondent in such 
circumstances  in  order  to  ensure  that  the  interests  of  the  Union  and  hence  of  the 
collectivity  of  Member  States  can  be  taken  into  account.  This  is  given  expression  in 
the  principles  of  unity  of  external  representation  and  the  duty  of  co-operation, 
established in Article 4(3) of the Treaty on European Union and in the case-law of the 
Court  of  Justice  of  the  European  Union4  which  apply  irrespective  of  the  underlying 
competence.  

It  is  appropriate  that  the  Commission  decide,  within  the  framework  set  down  in  this 
regulation,  whether  the  Union  should  be  the  respondent  or  whether  a  Member  State 
should act as respondent.  

It  is  necessary  to  provide  for  some  practical  arrangements  for  the  conduct  of 
arbitration proceedings in disputes concerning treatment afforded by a Member State. 
Irrespective  of  whether  the  Union  or  the  Member  State  acts  as  respondent  in  such 
disputes,  those  arrangements  should  aim  at  the  best  possible  management  of  the 
dispute  whilst  ensuring  compliance  with  the  principles  of  unity  of  external 
representation and the duty of co-operation, established in Article 4(3) of the Treaty on 
European Union and in the case-law of the Court of Justice of the European Union5. 
Where the Union acts as respondent such arrangements should provide for very close 
co-operation including the prompt notification  of any procedural steps, the provision 
of  documents,  frequent  consultations  and  participation  in  the  delegation  to  the 
proceedings. 

(11) 

(12) 

(13) 

(14)  Equally,  when  a  Member  State  acts  as  respondent  it  is  appropriate  that  it  keep  the 
Commission  informed  of  developments  in  the  case  and  that  the  Commission  can, 
where appropriate, require that the Member State acting as respondent takes a specific 
position on matters having a Union interest. 

(15)  A Member State may at any time accept that it would be financially responsible in the 
event  that  compensation  is  to  be  paid.  In  such  a  case  the  Member  State  and  the 
Commission may enter into arrangements for the periodic payment of costs and for the 
payment of any compensation. Such acceptance does not imply that the Member State 
accepts that the claim under dispute is well founded. The Commission should be able 
to adopt a decision requiring the Member State to make provision for such costs. In the 

4 

5 

Opinion  1/94  of  the  European  Court  of  Justice  [1994]  ECR  I-5267;  Commission  v.  Council  (FAO), 
[1996] ECR I-1469 
Opinion  1/94  of  the  European  Court  of  Justice  [1994]  ECR  I-5267;  Commission  v.  Council  (FAO), 
[1996] ECR I-1469 

EN 

16 

   EN 

                                                 
event that the tribunal awards costs to the Union, the Commission should ensure that 
any  advance  payment  of  costs  is  immediately  reimbursed  to  the  Member  State 
concerned. 

(16) 

In some cases, it may be appropriate to reach a settlement in order to avoid costly and 
unnecessary  arbitration.  It  is  necessary  to  lay  down  a  procedure  for  making  such 
settlements.  Such  a  procedure  should  permit  the  Commission,  acting  in  accordance 
with the examination procedure, to settle a case where this would be in the interests of 
the  Union.  Where  the  case  concerns  treatment  afforded  by  a  Member  State,  it  is 
appropriate  that  there  should  be  close  co-operation  and  consultations  between  the 
Commission and the Member State concerned. The Member State should remain free 
to settle the case at all times, provided that it accepts full financial responsibility and 
that any such settlement is consistent with Union law and not against the interests of 
the Union. 

(17)  Where an award has been rendered against the European Union, that award should be 
paid  without  delay.  The  Commission  should  make  arrangements  for  the  payment  of 
such awards, unless a Member State has already accepted financial responsibility  

(18)  The Commission should consult closely with the Member State concerned in order to 
reach  agreement  on  the  apportionment  of  financial  responsibility.  Where  the 
Commission  determines  that  a  Member  State  is  responsible,  and  the  Member  State 
does not accept that determination, the Commission should pay the award, but should 
address a decision to the Member State requesting it to provide the amounts concerned 
to  the  budget  of  the  European  Union,  together  with  applicable  interest.  The  interest 
payable should be that set down pursuant to [Article 71(4) of Council Regulation (EC, 
Euratom) No 1605/2002 of 25 June 2002 on the Financial Regulation applicable to the 
general budget of the European Communities as amended6]7. Article 263 of the Treaty 
is avalable in cases where a Member State considers that the decision falls short of the 
criteria set out in this Regulation.  

(19)  The  Union  budget  should  provide  coverage  of  the  expenditure  resulting  from 
agreements  concluded  pursuant  to  Article  218  of  the  Treaty  providing  for  investor-
state dispute settlement. Where Member States have financial responsibility pursuant 
to this Regulation, the Union should be able to either accumulate the contributions of 
the  Member  State  concerned  first  before  implementing  the  relevant  expenditure  or 
implement  the  relevant  expenditure  first  and  be  reimbursed  by  the  Member  States 
concerned  after.  Use  of  both  of  these  mechanisms  of  budgetary  treatment  should  be 
possible,  depending  on  what  is  feasible,  in  particular  in  terms  of  timing.  For  both 
mechanisms,  the  contributions  or  reimbursements  paid  by  the  Member  States  should 
be treated as internal assigned revenue of the Union budget. The appropriations arising 
from this internal assigned revenue should not only cover the relevant expenditure but 
they should also be eligible for replenishment of other parts of the Union budget which 
provided  the  initial  appropriations  to  implement  the  relevant  expenditure  under  the 
second mechanism. 

6 
7 

OJ L 248, 16.9.2002, p. 1. 
References  to  be  replaced  by  references  to  the  Regulation  of  the  European  Parliament  and  of  the 
Council  on  the  financial  rules  applicable  to  the  annual  budget  of  the  Union  (2010/395(COD))  once 
adopted.  

EN 

17 

   EN 

                                                 
(20) 

In  order  to  ensure  uniform  conditions  for  the  implementation  of  this  Regulation 
implementing powers should be conferred on the Commission. 

(21)  The  implementing  powers  relating  to  Articles  12(1),  13(4)  and  14(3)  should  be 
exercised  in  accordance  with  Regulation  (EU)  No 182/2011  of  the  European 
Parliament and of the Council of 16 February 2011 laying down the rules and general 
principles concerning mechanisms for control by Member States of the Commission's 
exercise of implementing powers8. 

(22)  The advisory procedure should be used for the adoption of decisions on settlement of 
disputes  pursuant  to  14(3)  given  that  those  decisions  will  have at  most  a 
merely temporary impact on the Union budget, since the Member State concerned will 
be  required  to  assume  any  financial  responsibility  arising  from  the  dispute,  and 
because  of  the  detailed  criteria  set  down  in  the  regulation  for  acceptability  of  such 
settlements,  

HAVE ADOPTED THIS REGULATION: 

CHAPTER I 

General Provisions 

Article 1 

Scope 

1. 

2. 

This Regulation applies to investor-to-state dispute settlement conducted pursuant to 
an  agreement  to  which  the  Union  is  a  party  and  initiated  by  a  claimant  of  a  third 
country. 

For information purposes, the Commission shall publish in the Official Journal of the 
European Union and keep up to date, a list of the agreements falling within the scope 
of this Regulation. 

Article 2 

Definitions 

For the purposes of this Regulation, the following definitions shall apply: 

(a) 

(b) 

“agreement”  means  any  international  agreement  to  which  the  Union  is  a  party  and 
which provides for investor-to- state dispute settlement;  

"costs  arising  from  the  arbitration"  means  the  fees  and  costs  of  the  arbitration 
tribunal and the costs of representation and expenses awarded to the claimant by the 
arbitration tribunal;  

8 

OJ L 55, 28.2.2011, p. 13. 

EN 

18 

   EN 

                                                 
(c) 

(d) 

(e) 

(f) 

(g) 

(h) 

(i) 

(j) 

"dispute"  means  a  claim  brought  by  a  claimant  against  the  Union  pursuant  to  an 
agreement and on which an arbitration tribunal will rule; 

"investor-to-state  dispute  settlement"  means  a  mechanism  provided  for  by  an 
agreement by which a claimant may initiate claims against the Union; 

“Member State” means one or more Member States of the European Union; 

"Member  State  concerned"  means  the  Member  State  which  has  afforded  the 
treatment alleged to be inconsistent with the agreement; 

"financial responsibility" means an obligation to pay a sum of money awarded by an 
arbitration  tribunal  or  agreed  as  part of a settlement and including the costs arising 
from the arbitration;  

"settlement" means any agreement between the Union or a Member State, or both, of 
the one part, and a claimant, of the other, whereby the claimant agrees not to pursue 
its  claims  in  exchange  for  the  payment  of  a  sum  of  money,  including  where  the 
settlement is recorded in an award of an arbitration tribunal;  

"arbitration  tribunal"  means  any  person  or  body  designated  under  an  agreement  to 
rule on an investor-to-state dispute; 

"claimant" means any natural or legal person which may bring a claim to investor-to-
state  dispute  settlement  pursuant  to  an  agreement  or  any  natural  or  legal  person  to 
whom the claims of the claimant under the agreement have been lawfully assigned.  

CHAPTER II 

Apportionment of financial responsibility  

Article 3 

Apportionment criteria 

1. 

Financial  responsibility  arising  from  a  dispute  under  an  agreement  shall  be 
apportioned according to the following criteria: 

(a) 

(b) 

the Union shall bear the financial responsibility arising from treatment afforded 
by the institutions, bodies or agencies of the Union; 

the Member State concerned shall bear the financial responsibility arising from 
treatment  afforded  by  that  Member  State,  except  where  such  treatment  was 
required by the law of the Union.  

Notwithstanding  point  (b)  of  the  first  subparagraph,  where  the  Member  State 
concerned is required to act pursuant to the law of the Union in order to remedy the 
inconsistency  with  the  law  of  the  Union  of  a  prior  act,  that  Member  State  shall  be 
financially responsible unless the adoption of such prior act was required by the law 
of the Union. 

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2. 

3. 

Where  provided  for  in  this  Regulation,  the  Commission  shall  adopt  a  decision 
determining  the  financial  responsibility  of  the  Member  State  concerned  in 
accordance with the criteria laid down in paragraph 1. 

Notwithstanding  paragraph  1,  the  Member  State  concerned  shall  bear  the  financial 
responsibility where:  

(a) 

the  Member  State  concerned  has  accepted  potential  financial  responsibility 
pursuant to Article 11;  

(b) 

the Member State concerned acts as respondent pursuant to Article 8 or, 

(c) 

the Member State concerned enters into a settlement pursuant to Article 12.  

CHAPTER III 

Conduct of disputes 

Section 1 

Conduct of disputes concerning treatment afforded by the Union 

Article 4 

Treatment afforded by the Union 

The  Union  shall  act  as  respondent  where  the  dispute  concerns  treatment  afforded  by  the 
institutions, bodies or agencies of the Union. 

Conduct of disputes concerning treatment afforded by a Member State 

Section 2 

Article 5 

Treatment afforded by a Member State 

The provisions of this Section shall apply in disputes concerning, fully or partially, treatment 
afforded by a Member State. 

Article 6 

Consultations 

1. 

As soon as the Commission receives a request for consultations from a claimant in 
accordance  with  the  provisions  of  an  agreement,  it  shall  notify  the  Member  State 
concerned. A Member State which has been made aware of or has received a request 
for consultations shall immediately inform the Commission.  

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2. 

3. 

Representatives  of  the  Member  State  concerned  shall  form  part  of  the  Union's 
delegation to the consultations. 

The  Member  State  concerned  shall  immediately  provide  the  Commission  with  all 
information which may be relevant to the case.  

Article 7 

Initiation of Arbitration proceedings  

As soon as the Commission receives notice by which a claimant states its intention to initiate 
arbitration proceedings, in accordance with the provisions of an agreement, it shall notify the 
Member State concerned.  

A  Member  State  which  receives  notice  by  which  a  claimant  states  its  intention  to  initiate 
arbitration proceedings, shall immediately notify the Commission. 

Article 8 

Respondent status 

1. 

Provided  the  agreement  provides  for  the  possibility,  the  Member  State  concerned 
shall act as respondent except where any of the following situations arise :  

(a) 

the Commission has taken a decision pursuant to paragraph 2; or, 

(b) 

the  Member  State  has  not  confirmed  to  the  Commission  in  writing  that  it 
intends to act as respondent within 30 days of receiving notice or notification 
referred to in Article 7. 

If  either  of  the  situations  referred  to  in  (a)  or  (b)  arise,  the  Union  shall  act  as 
respondent. 

2. 

The  Commission  may  decide,  within  30  days  of  receiving  notice  or  notification 
referred to in Article 7, that the Union shall act as respondent where one or more of 
the following circumstances arise: 

(a) 

(b) 

(c) 

(d) 

it  is  likely  that  the  Union  would  bear  at  least  part  of  the  potential  financial 
responsibility arising from the dispute in accordance with the criteria laid down 
in Article 3; 

the  dispute  also  concerns  treatment  afforded  by  the  institutions,  bodies  or 
agencies of the Union; 

it is likely that similar claims will be brought under the same agreement against 
treatment afforded by other Member States and the Commission is best placed 
to ensure an effective and consistent defence; or, 

the  dispute  raises  unsettled  issues  of  law  which  may  recur  in  other  disputes 
under  the  same  or  other  Union  agreements  concerning  treatment  afforded  by 
the Union or other Member States. 

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3. 

4. 

The Commission and the Member State concerned shall immediately after receiving 
notice  or  notification  referred  to  in  Article  7  enter  into  consultations  on  the 
management of the case pursuant to this Article. The Commission and the Member 
State  concerned  shall  ensure  that  any  deadlines  set  down  in  the  agreement  are 
respected. 

The Commission shall inform the other Member States and the European Parliament 
of any dispute in which this Article is applied and the manner in which it has been 
applied.  

Article 9 

Conduct of Arbitration proceedings by a Member State  

1. 

In the event that a Member State acts as respondent, the Member State shall 

a) 

b) 

c) 

provide the Commission with all documents relating to the proceeding; 

inform  the  Commission  of  all  significant  procedural  steps,  and  enter  into 
consultations regularly and, in any event, when requested by the Commission; 
and,  

permit  representatives  of  the  Commission,  at  its  request,  to  form  part  of  the 
delegation representing the Member State. 

2. 

3. 

The  Commission  may,  at  any  time,  require  the  Member  State  concerned  to  take  a 
particular  position  as  regards  any  point  of  law  raised  by  the  dispute  or  any  other 
element having a Union interest. 

When  an  agreement,  or  the  rules  referred  to  therein,  provide  for  the  possibility  of 
annulment, appeal or review of a point of law included in an arbitration award, the 
Commission  may  where  it  considers  that  the  consistency  or  correctness  of  the 
interpretation  of  the  agreement  so  warrant,  require  the  Member  State  to  lodge  an 
application  for  such  annulment,  appeal  or  review.  In  such  circumstances, 
representatives of the Commission shall form part of the delegation and may express 
the views of the Union as regards the point of law in question. 

Article 10 

Conduct of Arbitration proceedings by the Union  

The following provisions shall apply throughout arbitration proceedings where the Union acts 
as a respondent pursuant to Article 8:  

(a) 

(b) 

the  Commission  shall  take  all  necessary  measures  to  defend  the  treatment 
concerned; 

the  Member  State  concerned  shall  provide  all  necessary  assistance  to  the 
Commission;  

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(c) 

(d) 

the Commission shall provide the Member State with all documents relating to 
the proceeding, so as to ensure as effective defence as possible; and, 

the Commission and the Member State concerned shall prepare the defence in 
close co-operation with the representatives of the Member State concerned who 
shall be entitled to form part of the Union delegation in the proceedings.  

Article 11 

Acceptance by the Member State concerned of potential financial responsibility where the 
Union is respondent 

Where the Union acts as respondent pursuant to Article 8, the Member State concerned may, 
at any time, accept any potential financial responsibility arising from the arbitration. To this 
end  the  Member  State  concerned  and  the  Commission  may  enter  into  arrangements  dealing 
with, inter alia; 

(a)  mechanisms for the periodic payment of costs arising from the arbitration; 

(b)  mechanisms for the payment of any awards made against the Union. 

CHAPTER IV 

Settlements 

Article 12 

1. 

2. 

1. 

2. 

Settlement of disputes concerning treatment afforded by the Union 

If  the  Commission  considers  that  a  settlement  of  a  dispute  concerning  treatment 
exclusively  afforded  by  the  Union  would  be  in  the  interests  of  the  Union,  it  may 
adopt  an  implementing  decision  in  accordance  with  the  examination  procedure 
referred to in Article 20(3) to approve the settlement.  

Should a settlement potentially involve action other than the payment of a monetary 
sum, the relevant procedures for such action shall apply. 

Article 13 

Settlement of disputes concerning treatment afforded by a Member State 

Where the Union is respondent in a dispute concerning treatment afforded, whether 
fully or in part, by a Member State, and the Commission considers that the settlement 
of  the  dispute  would  be  in  the  interests  of  the  Union,  it  shall  first  consult  with  the 
Member  State  concerned.  The  Member  State  may  also  initiate  such  consultations 
with the Commission. 

If  the  Member  State  concerned  consents  to  settle  the  dispute,  it  shall  endeavour  to 
enter  into  an  arrangement  with  the  Commission  setting  out  the  necessary  elements 
for the negotiation and implementation of the settlement.  

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3. 

4. 

1. 

2. 

3. 

In  the  event  that  the  Member  State  does  not  consent  to  settle  the  dispute,  the 
Commission  may  settle  the  dispute  where  overriding  interests  of  the  Union  so 
require. 

The  terms  of  the  settlement  agreed  shall  be  approved  in  accordance  with  the 
examination procedure referred to in Article 20(3). 

Article 14 

Settlement by a Member State 

Where  the  Union  is  respondent  in  a  dispute  concerning  exclusively  treatment 
afforded  by  a  Member  State,  the  Member  State  concerned  may  settle  a  dispute 
where: 

(a) 

(b) 

the  Member  State  concerned  accepts  any  financial  responsibility  arising  from 
the settlement; 

any  settlement  arrangement  is  enforceable  only  against  the  Member  State 
concerned;  

(c) 

the terms of the settlement are compatible with the law of the Union; and, 

(d) 

there is no overriding interest of the Union against the settlement. 

The  Commission  and  the  Member  State  concerned  may  enter  into  consultations  to 
evaluate a Member State's intention to settle a dispute. 

The  Member  State  concerned  shall  notify  the  Commission  of  the  draft  settlement 
arrangement.  The  Commission  shall  be  deemed  to  have  accepted  the  settlement 
arrangement unless it decides otherwise, in accordance with the advisory procedure 
referred to in Article 20(2) and within 90 days following the notification of the draft 
settlement by the Member State, on the grounds that the settlement does not meet all 
of the conditions set out in paragraph 1.  

CHAPTER V 

Payment of final awards and settlements 

Article 15 

Scope 

The provisions of this chapter shall apply where the Union acts as respondent in a dispute.  

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1. 

2. 

1. 

2. 

3. 

4. 

5. 

Article 16 

Procedure for the payment of awards or settlements 

A  claimant  having  obtained  a  final  award  pursuant  to  an  agreement  may  present  a 
request to the Commission for payment of that award. The Commission shall pay any 
such award within the relevant time periods set down in the agreement, except where 
the Member State concerned has accepted financial responsibility pursuant to Article 
11 in which case the Member State shall pay the award.  

Where  a  settlement  approved  by  the  Union  pursuant  to  article  12  or  13  is  not 
recorded  in  an  award,  a  claimant  may  present  a  request  to  the  Commission  for 
payment of the settlement. The Commission shall pay any such settlement within any 
relevant time periods set down in the settlement agreement.  

Article 17 

Procedure where there is no agreement as to financial responsibility 

Where  the  Union  acts  as  respondent  pursuant  to  Article  8,  and  the  Commission 
considers that the award or settlement in question should be paid, in part or in full, by 
the Member State concerned on the basis of the criteria laid down in Article 3(1), the 
procedure set out in paragraphs 2 to 5 shall apply. 

The  Commission  and  the  Member  State  concerned  shall  immediately  enter  into 
consultations to seek agreement on the financial responsibility of the Member State 
concerned, and the Union where applicable.  

Within  three  months  of  receipt  of  the  request  for  payment  of  the  final  award  or 
settlement,  the  Commission  shall  adopt  a  decision  addressed  to  the  Member  State 
concerned, determining the amount to be paid by that Member State. 

Unless  the  Member  State  concerned  objects  to  the  Commission's  determination 
within one month, the Member State concerned shall compensate the budget of the 
Union for the payment of the award or the settlement no later than three months after 
the  Commission's  decision.  The  Member  State  concerned  shall  be  liable  for  any 
interest due at the rate applying to other monies owed to the budget of the Union. 

If  the  Member  State  concerned  objects,  unless  the  Commission  agrees  with  the 
Member  State's  objection,  the  Commission  shall  adopt  a  decision  within  three 
months  of  receipt  of  the  Member  State’s  objection,  requiring  the  Member  State 
concerned to reimburse the amount paid by the Commission, together with interest at 
the rate applying to other monies owed to the budget of the Union. 

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Article 18 

Advance payment of arbitration costs 

1. 

2. 

The  Commission  may  adopt  a  decision  requiring  the  Member  State  concerned  to 
make  financial  contributions  to  the  budget  of  the  Union  in  respect  of  any  costs 
arising from the arbitration where it considers that the Member State will be liable to 
pay any award pursuant to the criteria set down in Article 3. 

To the extent that the costs arising from the arbitration are awarded to the Union by 
the arbitration tribunal, and the Member State concerned has made periodic payment 
of  costs  arising  from  the  arbitration,  the  Commission  shall  ensure  that  they  are 
transferred to the Member State which has paid them in advance. 

Article 19 

Payment by a Member State 

A Member State's reimbursement or payment to the budget of the Union, for the payment of 
an award or a settlement or any costs, shall be considered as internal assigned revenue in the 
sense of [Article 18 of Council Regulation (EC, Euratom) No 1605/2002 of 25 June 2002 on 
the Financial Regulation applicable to the General Budget of the European Communities9]. It 
may  be  used  to  cover  expenditure  resulting  from  agreements  concluded  pursuant  to  Article 
218 of the Treaty providing for investor-state dispute settlement or to replenish appropriations 
initially provided to cover the payment of an award or a settlement or any costs. 

CHAPTER VI 

Final provisions 

Article 20 

The  Commission  shall  be  assisted  by  [the  Committee  for  Investment  Agreements 
established  by  Regulation  [2010/197  COD]].  That  committee  shall  be  a  committee 
within the meaning of Regulation (EU) No 182/2011. 

Where  reference  is  made  to  this  paragraph,  Article  4  of  Regulation  (EU)  No 
182/2011 shall apply. 

Where  reference  is  made  to  this  paragraph,  Article  5  of  Regulation  (EU)  No 
182/2011 shall apply. 

References  to  be  replaced  by  references  to  the  Regulation  of  the  European  Parliament  and  of  the 
Council  on  the  financial  rules  applicable  to  the  annual  budget  of  the  Union  (2010/395(COD))  once 
adopted.  

1. 

2. 

3. 

9 

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Article 21 

Report and Review 

1. 

2. 

The  Commission  shall  submit  a  report  on  the  operation  of  this  Regulation  to  the 
European  Parliament  and  the  Council  at  regular  intervals.  The  first  report  shall  be 
submitted  no  later  than  three  years  after  the  entry  into  force  of  this  Regulation. 
Subsequent reports shall be submitted every three years thereafter. 

The Commission may also submit, together with the report referred to in paragraph 1 
and based on the Commission's findings, a proposal to the European Parliament and 
the Council for the amendment of this Regulation. 

This Regulation shall enter into force on the twentieth day following that of its publication in 
the Official Journal of the European Union. 

Article 22 

This Regulation shall be binding in its entirety and directly applicable in all Member States. 

Done at Brussels,  

For the European Parliament 
The President 

For the Council 
The President 

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