REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on the operation of Regulation (EU) No 912/2014 on the financial responsibility linked to investor-to-state dispute settlement under international agreements to which the European Union is party
Date: 2019-11-19
Institutions: Directorate-General for Trade and Economic Security, European Commission
Subjects: European Energy Charter, foreign investment, international commercial arbitration, international responsibility, investment protection, liability, settlement of disputes, third country, trade agreement (EU), trade dispute

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  EN 

   EUROPEAN COMMISSION  Brussels, 19.11.2019  COM(2019) 597 final  REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on the operation of Regulation (EU) No 912/2014 on the financial responsibility linked to investor-to-state dispute settlement under international agreements to which the European Union is party  
 
 
REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND 
THE COUNCIL 

on the operation of Regulation (EU) No 912/2014 on the financial responsibility linked to 
investor-to-state dispute settlement under international agreements to which the 
European Union is party 

1.  Introduction 

On  23  July  2014,  the  European  Parliament  and  the  Council  adopted  Regulation  (EU)  No 
912/2014  establishing  a  framework  for  managing  financial  responsibility  linked  to  investor-
to-State  dispute  settlement  tribunals  established  by  international  agreements  to  which  the 
European  Union  is  party  (the  “Financial  Responsibility  Regulation”  or  “FRR”).  The  legal 
basis for the FRR is Article 207 TFEU concerning the common commercial policy, of which 
foreign direct investment is a component.  

The  Commission  is  the  Union  institution  in  charge  of  administering  the  Financial 
Responsibility Regulation. Within the Commission, the responsible service is the Directorate 
General for Trade; the Legal Service is in charge of representing the Union during the dispute 
settlement proceedings and the possible subsequent stages of the litigation.  

The  Financial  Responsibility  Regulation  sets  out  criteria  for  the  determination  of  the 
respondent  status  and  the  allocation  of  financial  responsibility  between  the  Union  and  the 
Member States for treatment which may result in awards for monetary compensation further 
to investor-to-State dispute settlement proceedings. 

Generally, financial responsibility is allocated to the entity responsible for the treatment that 
gives rise to compensation. This entails that the Union bears financial responsibility where the 
treatment concerned is afforded by an institution, body, agency or office of the Union, while a 
Member States bears financial responsibility when the treatment concerned is afforded by it. 
However,  when  a  Member  States  acts  in  a  manner  required  by  EU  law,  for  example  by 
transposing  an  EU  directive,  the  Union  bears  the  financial  responsibility  insofar  as  the 
treatment concerned is required by EU law.  

Concerning  the  respondent  status,  the  rule  is  that  generally  the  party  which  bears  financial 
responsibility  also  acts  as  the  respondent  in  a  dispute.  However,  there  are  specific 
circumstances where the Union acts as the respondent even when the Member State bears the 
financial responsibility. This is for instance the case when: a Member State prefers the Union 
to act as the respondent (for example in view of technical expertise required in the dispute); 
the case also involves treatment afforded by a Member State and such treatment is required by 
EU law; similar treatment is subject to WTO dispute settlement proceeding and it is necessary 
to ensure consistency of argumentation.  

The Financial Responsibility Regulation sets out arrangements to ensure that when the Union 
acts as the respondent in cases concerning treatment afforded by a Member State, the Member 
State concerned and the Union work in close cooperation in the conduct of dispute settlement 
proceedings, in accordance with the duty of sincere cooperation enshrined in Article 4(3) of 
the Treaty on European Union. This includes taking into account the defence and protection 
of the interests of the Member State concerned, exchanging timely information and relevant 
documents,  engaging  in  frequent  consultations,  and  participating  in  the  delegation  to  the 
proceedings. 

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The  Financial  Responsibility  Regulation  also  lays  down  procedures  for  Member  States  and 
the  Commission  to  enter  into  arrangements  for  the  payment  of  costs  of  litigation  and  of 
awards granting monetary compensation, in order to ensure that the resources of the EU are 
not, even temporarily, unduly burdened. In particular, the Commission and the Member State 
concerned are required to enter into an arrangement for periodic payment of costs and for the 
payment of any compensation. If financial responsibility is not accepted by the Member State 
concerned, the Commission can address a decision to  it requesting it to provide the relevant 
amounts to the budget of the Union, together with applicable interests.  

Finally, the FRR establishes procedures and requirements for settling cases when settlements 
are in the interest of the Union. For cases that involve only the financial responsibility of the 
Union,  it  is  the  Commission  that  decides  on  the  settlement.  When  a  case  concerns  also 
treatment afforded by a Member State, settling a dispute either requires the agreement of the 
Member  State,  or  it  can  be  decided  by  the  Commission  provided  it  has  no  financial  or 
budgetary implications for the Member State concerned.  

Throughout the various stages of a dispute, the Financial Responsibility Regulation imposes 
information duties on the Commission vis-à-vis the European Parliament and the Council, for 
instance when it receives from a claimant a request for consultation or a notice of intention to 
initiate dispute settlement proceedings.   

2.  Current scope of application of the Financial Responsibility Regulation 

The  Financial  Responsibility  Regulation  applies  to  investor-to-State  dispute  settlement 
proceedings conducted under agreements to which the EU is a party. At present, pending the 
ratification  and  entry  into  force  of  agreements  which  contain  an  investor-to-State  dispute 
settlement  mechanism,  e.g.  the  bilateral  agreements  with  Canada  (CETA),  Singapore  and 
Vietnam,  the  FRR  effectively  applies  only  to  investor-to-State  dispute  settlement  cases 
initiated  against  the  EU  under  the  Energy  Charter  Treaty  (ECT).  The  Union  has  been  a 
Contracting Party of the ECT since its ratification in 1998. 

3.  Cases initiated against the Union under the Energy Charter Treaty 

To  date,  there  has  been  one  investment  dispute  settlement  proceeding  initiated  against  the 
Union  under  the  Energy  Charter  Treaty.  In  addition,  there  have  been  a  few  requests  for 
consultations received by the Union pursuant to Article 26 of the ECT, which have not so far 
advanced to the stage of formal litigation. All these proceedings are described in more detail 
below. 

a.  Claims by Prosisa and Risteel Corporation on the Spanish renewables 

support scheme (2015) 

In 2015, the Commission received two requests for consultation pursuant to Article 26 of the 
ECT,  respectively  from  the  Swiss  company  Prosisa  AG  and  the  Dutch  company  Risteel 
Corporation  BV.  The  Commission  informed  the  European  Parliament  and  the  Council  in 
accordance  with  Articles  4  and  7  of  the  Financial  Responsibility  Regulation  on  7  October 
2015.  

Both  companies  had  made  investments  in  the  photovoltaic  and  wind  sectors  and  in  the 
production of renewable energy with biomass in the territory of Spain, and their claims related 

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to Spain’s decision to amend the support scheme for renewable energy. The companies had 
also  in  parallel  launched  proceedings  against  Spain.  They  essentially  argued  that  the 
Commission has violated the fair and equitable treatment standard enshrined in Article 10 of 
the ECT by intervening before arbitration tribunals constituted under the ECT and by arguing 
that the ECT did not apply in the relationships between an EU Member State and an investor 
from another EU Member State. 

Consultations pursuant to Article 26(1) of the ECT took place on 1st December 2015 between 
the investors and the Commission. The Commission clarified that it considered there was no 
valid legal basis allowing the companies to proceed with their disputes against the Union. 

The companies did not pursue further their claims against the EU.  

b.  Claims by Nord Stream 2 on the amendment of the Gas Directive (2019) 

On 12 April 2019, Nord Stream 2 AG, a subsidiary of Gazprom incorporated in Switzerland, 
addressed a letter to the Commission seeking clarification on the application of the derogation 
regime contained in Directive (EU) 2019/692 of 17 April 2019 amending the Gas Directive 
2009/73/EC (“Amending Gas Directive).1 In the letter, Nord Stream 2 also provided notice to 
the Commission of an alleged breach of the ECT, and requested the EU to attempt to reach an 
amicable settlement in accordance with Article 26(1) of the ECT. In accordance with Article 4 
of  the  Financial  Responsibility  Regulation,  the  Council  and  the  European  Parliament  were 
informed of these developments on 13 May 2019. 

Nord Stream 2 AG argued that it should be entitled to a derogation under the amended Gas 
Directive  from  the  rules  on  unbundling,  third  party  access  and  tariff  regulation  applicable 
pursuant  to  the  Gas  Directive,  as  such  derogation  would  allow  it  to  recover  the  investment 
made, thus respecting its legitimate expectations. It claimed that should it not be eligible for a 
derogation  under  the  Amending  Directive  and  no  other  steps  be  taken  to  put  it  in  an 
equivalent position, this would amount to a breach of the EU’s obligation under the ECT, in 
particular Articles 10 and 13 of the ECT. Nord Stream 2 AG also argued that it qualifies as an 
investor  of  a  Contracting  Party  under  the  ECT  being  a  company  headquartered  and  having 
substantial business operations in Zug, Switzerland. 

Consultations between the Commission and Nord Stream 2 took place on 25 June 2019. The 
European  Commission  reserved  its  position  on  whether  it  considers  Nord  Stream  2  to  have 
standing  to  bring  a  claim  under  the  ECT  pending  submission  of  concrete  evidence  by  the 
investor  of  its  business  operations  in  Switzerland.  It  also  informed  the  investor  that  it 
considers Directive 2019/692 to be non-discriminatory and in line with the EU’s international 
obligations under the ECT. On the question of whether Nord Stream 2 would be eligible for a 
derogation,  the  Commission  recalled  the  rules  of  the  Amending  Gas  Directive,  notably  that 
the relevant Member States’ authorities will decide on the granting  of derogations based on 
national rules transposing the Directive and upon individual applications. 

The Commission had further written exchanges with Nord Stream 2 on 8 July, 26 July and 6 
August  2019.  On  25  July  2019,  Nord  Stream  2  lodged  an  application  for  annulment  of 
Directive (EU) 2019/692 before the General Court (Case T-526/19). On 26 September 2019, 

1   Directive  (EU)  2019/692  of  the  European  Parliament  and  of  the  Council  of  17  April  2019  amending 
Directive 2009/73/EC concerning common rules for the internal market in natural gas, OJ L 117, 3.5.2019, 
p. 1. 

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Nord Stream 2 submitted a notice of arbitration against the Union pursuant to Article 26(2)(c) 
and 26(4)(b) of the ECT. The Commission informed the European Parliament and the Council 
in accordance with Articles 4 of the Financial Responsibility Regulation on 1 October 2019.  

In  the  notice  of  arbitration,  Nord  Stream  2  AG  alleges  that  Directive  (EU)  2019/692  (the 
“Amending  Directive”)  and  the  EU’s  action  in  connection  with  the  Amending  Directive 
breach the EU’s obligations under the ECT, in particular Articles 10(1), 10(7) and 13 of the 
ECT.  

c.  Claims by UK investors on behalf of AS PNB Banka against regulatory 

requirements established by the European Central Bank (2019) 

On  2  May  2019,  the  Commission  received  a  letter,  pursuant  to  Article  26(1)  ECT,  from 
Russian  investors  (with  UK  nationality)  on  behalf  of  the  Latvian  bank  AS  PNB  Bank,  in 
relation to certain decisions of the European Central Bank (ECB) which imposed regulatory 
requirements on the bank and allegedly impact on their investment in a wind power plant in 
Latvia, Winergy.  

In particular, the investors claimed that a draft decision by the ECB of 17 May 2019 which 
imposed deadlines on AS PNB Bank to resolve its exposure to Winergy and to meet certain 
capital  adequacy  thresholds,  led  to  the  withdrawal  of  the  bank’s  licence,  and  to  the 
deprivation  of  their  investments  in  Winergy.  The  investors  argued  that  with  its  actions  the 
Union was threatening the continued existence and security of their investments in Winergy in 
breach of the EU’s obligations under Part III of the ECT, along with Latvia. 

The  European  Parliament  and  the  Council  were  informed  of  these  allegations  on  24  May 
2019. 

On 28 June 2019, the Commission addressed a letter to the investors setting out the view that 
they do not have standing to initiate proceedings against the EU under the ECT, the investors 
being EU nationals, and suggesting the withdrawal of the claims.  

4.  Transparency  in  investor-to-State  dispute  settlement  proceedings  against  the 

Union 

The  European  Commission  is  committed  to  ensuring  the  highest  degree  of  transparency  in 
investor-State dispute settlement proceedings initiated against the Union. In recent years, the 
Commission  has  radically  reformed  the  Union’s  approach  to  investment  dispute  settlement 
through a number of initiatives. These include negotiating rules on transparency leading to the 
adoption of the UNCITRAL Transparency Rules in 2013, and the incorporation of such rules 
into  the  provisions  of  the  Investment  Court  Systems  established  in  the  EU’s  bilateral 
agreements with Canada, Singapore, Vietnam and Mexico. 

The  Union  has  also  been  involved  in  the  negotiation  of  the  United  Nations  Convention  on 
Transparency in Treaty-based Investor-State Arbitration (“Mauritius Convention”, New York, 
2014),  which  is  a  UN  Convention  providing  for  the  application  of  the  UNCITRAL 
Transparency  Rules  to  the  existing  stock  of  over  3000  bilateral  investment  treaties.  The 
Commission  had  sought  to  have  the  UNCITRAL  Transparency  rules  applied  to  the  ECT 
through the Mauritius Convention and has made a proposal for a Council decision authorising 
the  signing  of  the  Mauritius  Convention  by  the  EU  in  January  2015.  However,  so  far  the 

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Council  has  not  agreed  to  the  adoption  of  the  Commission’s  proposal.  This  means  that  the 
transparency rules do not currently obligatorily apply to disputes under the ECT. 

The Commission has nevertheless taken initiatives to ensure the fullest degree of transparency 
possible in the investors’ claims that have so far been brought to its attention. It has published 
on  DG  TRADE’s  website  the  most  recent  exchanges  between  the  investors  and  the 
Commission 
(https://ec.europa.eu/trade/policy/accessing-markets/dispute-
settlement/investment-disputes/). If investors decide to submit their claims to arbitration, the 
Commission intends to continue applying transparency standards, by seeking agreement with 
the investors to publish submissions, and by organising open hearings.    

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