By Vijay Bange and Chris Recker
The developments in the cyber world are moving at a rapid pace, and at times the challenge in keeping up from a regulatory perspective is relentless. Below are the some of the recent topical/discussive issues in this space, particularly focussing on digital assets: Continue reading “The Cyber Universe: Recent Developments”
Glasgow and COP26 resulted in various commitments from global economies to work towards targets in the reduction of greenhouse gas emissions. The UK is to target the reduction of greenhouse emissions to net zero by 2050.
However, even prior to COP26 there were already legislative changes afoot to have cleaner air. The Finance Bill 2021, and the associated secondary legislation, as part of the government’s plans to reduce carbon emissions, has the effect of restricting the usage of red diesel after April 2022.[1]
What is red diesel? In short it is regular (white) diesel that is dyed to make it identifiable. Why? It is taxed at a much lower rate, making it almost 50 pence a litre cheaper than white diesel. That discount will end for those industry sectors that have used it, but are now restricted from its usage post April 2022.
Construction and manufacturing industries cannot use red diesel after April 2022. These are sectors that use the rebated red diesel. In the construction industry, site electricity generators along with heavy plant, machinery and heavy vehicles will all now be forced to run on white diesel to a much higher cost.
There is pressure on all industry sectors to adopt green measures. This is now increasingly becoming the norm, and is affecting virtually all businesses and sectors. By way of illustration, Lloyds Bank has announced that in relation to green homes, when looking at affordability there will less stringent stress testing.[2]
The governments stated aim is to encourage businesses affected by the red diesel restrictions to use less fuel, or eventually to adopt greener alternatives. However, few in the construction industry would use more fuel than absolutely necessary, so in order to avoid cost inflation, there needs to be alternative options that the construction and engineering sectors must have.
So have we got the alternative technology to give viable options? For example, electric powered plant or cleaner fuels such as hydro treated vegetable oil. Is there scope for future use of Hydrogen power? As we have previously discussed in this blog, significant strides have been made in this area to date and there are a number of construction vehicle suppliers now providing a broad range of electrically-powered construction machinery. However, despite this, diesel power is still dominant in the sector and in some areas there are few, if any, alternatives available.
For the construction, engineering and energy sectors, the following points arise for consideration and debate:
[1] Rail transport, agricultural, fishing and water freight, amateur sports clubs, golf courses, non-commercial power generation, traveling funfairs and circus.
[2] The Sunday Telegraph, 23 January 2022. This on basis that green homes are more efficient to run, and there will be lower outgoings.
[3] BBC News 24/01/2022-Red Diesel loss ‘could cost businesses millions’
At the end of last year we wrote an article about the impact and uncertainty caused by the Achmea case on investor state dispute settlement provisions contained in intra-EU Bilateral Investment Treaties. We wrote about the likelihood of further cases that would either give clarity or create further uncertainty. The saga continues.
In the Achmea case the Court of Justice of the European Union (ECJ) held that Article 8 of the Netherlands – Slovakia bilateral investment treaty, which allowed for the resolution of disputes by way of arbitration, was incompatible with EU law. The rationale for the decision was that a tribunal may have to interpret or apply EU law and where a question of law arose, unlike a Member State court, that question of law could not be referred to the ECJ. In other words, intra-EU bilateral investment treaty arbitration provisions, as reasoned by the ECJ, deprived the EU courts of jurisdiction in respect of the interpretation of EU law.
We raised the prospect that the ramifications from the decision were potentially far reaching and were not, it seemed, confined to the BIT between Netherlands and Slovakia.
We reasoned that the possible conclusion for intra-EU investment treaty arbitrations, it seems, is that tribunals may have to begin to accept the inevitable, which is to say that they may no longer have jurisdiction to deal with disputes arising from claims under intra-EU investment treaties. Even if the tribunal concludes that it has jurisdiction to hear a dispute, following the Raiffeisen Bank case it is likely that there will be a real risk that the arbitration will either be dismissed by a domestic court of a member state of the EU, or possibly that any potential award is likely to be unenforceable within the EU, albeit that questions remain regarding enforceability of awards in jurisdictions outside the EU in say, the US or the UK.
However, less obvious is the impact of the Achmea case on multinational or multilateral investment treaties which may involve signatories from various EU member states as well as countries outside of the EU. For example, can an investor from an EU member state commence an arbitration against another EU member state pursuant to the dispute resolution provisions of multinational investment treaty simply because that treaty has signatories that include countries from jurisdictions outside of the EU.
This particular issue has been playing out over the past few years in the context of the Energy Charter Treaty (ECT) and in two particular cases.
Background
The Rockhopper Case
In 2015 the Italian Parliament re-introduced a ban on oil and gas exploration within 12 miles of the Italian coastline. The ban had previously been introduced in 2010 but revoked in 2012.
In 2017, Rockhopper Exploration Plc (based in the United Kingdom), along with its Italian subsidiary, filed a claim for compensation alleging violations of the investor protection provisions of the Energy Charter Treaty. The case is Rockhopper Italia SpA, Rockhopper Mediterranean Ltd. and Rockhopper Exploration Plc v. Italian Republic in the International Centre for Settlement of Investment Disputes (Rockhopper).
The claim concerned interests of the Rockhopper Corporation in the Ombrina Mare oil rig, for which it was hoping to obtain a production concession from the Italian Government prior to the introduction of the ban. The company is claiming compensation both for funds spent and for anticipated profits, which may run to USD $200-300 million.
Around June 2019, Italy invited the tribunal to recuse itself on the basis that it lacked jurisdiction following the Achmea decision, which barred in intra-EU arbitration emanating from bilateral investment treaties. The tribunal rejected Italy’s position on the basis that the Achmea decision had no application to the ECT (in other words it was limited to the specific circumstances of that case) which is a multinational or multilateral investment treaty that includes nations outside of the EU. The tribunal concluded that in any event, the dispute involved Italy’s alleged breaches of the ECT and the application of public international law. EU law, the tribunal reasoned, had no application to the present dispute.
Moldova
Fast forward two years to September 2021, and the issue of the Achmea case and the ECT resurfaced in the case of Moldova v Komstroy LLC (Moldova) which was referred to the ECJ. Initially the case was about the interpretation of the term “investment” under the ECT. However, several member states urged the ECJ to also rule on the issue as to whether the arbitration provisions in the ECT are compatible with EU law.
Unsurprisingly the ECJ ruled that the ECT’s arbitration provisions fall foul of EU law to the extent that the dispute involves an investor from an EU member state suing an EU member state. The ECJ relied once again on the rationale of the Achmea case i.e. that such tribunals deprived the EU courts of jurisdiction in respect of the interpretation of EU law.
Rockhopper 2.0
Following the ECJ’s decision in the Moldova case, towards the end of 2021, Italy urged the tribunal in the Rockhopper case to reconsider its previous 2019 decision (as above) and recuse itself for lack of jurisdiction.
The tribunal once again rejected Italy’s position although the reasons for the decision are not yet available. One suspects that the tribunal may have continued to rely upon the fact that the dispute does not involve the application of EU law and that the ECT, which forms part of public international law, cannot simply be ignored by Italy.
Comment
The ECJ’s position is problematic and to some extent devoid from reality.
For example, one of the main issues with the ECJ’s conclusion in Moldova is the creation of a two tier system in respect of the ECT. Where the dispute involves an EU member state and the investor is from outside the EU, that investor can rely upon the full benefit of the arbitration provisions in the ECT whereas an investor from within the EU cannot (according to the analysis of the ECJ). No such two tier system has been expressly provided for in the ECT.
Secondly, treaties such as the ECT amount to something that is akin to an international contract. The signatories are required to perform their obligations in accordance with the rules of such treaties and the arbitration provisions provide a mechanism for investors to enforce their rights. A dispute of this nature involves the application of international law and the terms of the ECT.
At present it appears that arbitral tribunals appointed pursuant to the ECT seem to agree and will for the time being reject any arguments, based upon the Achmea case, regarding their jurisdiction as evidenced by Rockhopper.
While that may give some degree of the comfort to investors, questions remain about the enforceability of the awards. It is no good for an investor taking the time and no doubt significant expense in concluding an arbitration under the ECT only to find that the award will not be enforced. Based upon the position adopted by the ECJ in Achmea and the German Supreme Court in Raiffeisen Bank it seems inevitable that an investor will not be able to enforce the award within a member state of the EU.
However, it remains to be seen how jurisdictions outside of the EU will react, most notably the US. If a tribunal has concluded that it has jurisdiction under a multinational treaty like the ECT and an award is issued, on what basis should jurisdictions outside of the EU concern itself with decisions of the ECJ, like Achmea, when enforcing awards. International treaties such as the ICSID and the New York Convention suggest that decisions of the ECJ should have little baring and the award should be enforced. This remains an open ended issue and only time will tell how jurisdictions outside of the EU will react to the enforcement of awards.
Looking at the Achmea decision in the context of the global energy crisis, the cost of fuel and other energy prices for industry and the public has been in the news over many months. The effect of these fluctuations in energy prices may have contributed to the super-inflation in prices impacting various sectors including construction. It’s not surprising that there will inevitably be disputes or referrals to arbitration concerning energy tariff agreements and the like. The importance of the ECT is ever more relevant for global trade deals in this sector. Preserving the ability of parties to rely on ECT to resolve disputes is an international trade issue, and any decision that effects the ECT may have serious ramifications for EU trade. For reasons of international trade relations there may also be good policy reasons for distinguishing international trade agreements, such as the ECT, from intra- EU treaties.
The Achmea decision continues to cause uncertainty. At this stage it seems a step too far that the decision can impact upon multilateral treaties such as the ECT by removing the jurisdiction of tribunals in intra-EU disputes. In the author’s view that is to be applauded, parties who have agreed to submit disputes to arbitration should not be able to unilaterally retract that agreement. Nonetheless this is unlikely to be the end of the saga, and it will be interesting to see how this issue continues to unravel.
Vijay K. Bange (Partner)
Matthew Friedlander (Senior Associate)
By Vijay Bange and Tanya Chadha
The global pandemic continues to challenge us, with various measures ranging from further lockdowns to restrictions on in-person meetings. The judicial machinery, including that in the arbitration world, has continued to function throughout the pandemic notwithstanding the difficulties of embracing innovative processes and new technology.
In January 2021, Vijay Bange wrote an article examining the challenges of using technology in formal dispute resolution proceedings. Whilst technology has of course been used in international arbitration and high court litigation (particularly in the Technology & Construction Court) for quite some time, that use has been somewhat limited with parties, their legal counsel, and the tribunal often preferring in-person hearings and hard copy papers. 2021 however saw a dramatic rise in the use of technology in dispute resolution proceedings. This was almost certainly borne out of necessity as a result of the COVID-19 pandemic, rather than necessarily by choice or organic progression. If disputes were to continue to be resolved, parties had no option but to get to grips with remote hearings, electronic bundles and virtual breakout rooms. Whilst some inevitably faced technological and logistical stumbling blocks, the move to virtual hearings and electronic working proved largely successful with many disputes being resolved expeditiously along the way. In fact, the move towards technology was so successful that many people are now opting to use technology out of choice and not simply out of necessity. Continue reading “Using Technology in Arbitration: Necessity or Choice?”
The impact and uncertainty caused by the Achmea case on investor state dispute settlement provisions contained in intra-EU Bilateral Investment Treaties continues. These issues are potentially far reaching and may extend further than originally envisaged, namely that this case was arguably specific to the BIT between Netherlands and Slovakia. Continue reading ““So long, farewell, auf Weidersehen…” Is This the End of Intra-EU BIT Arbitrations?”
It’s probably too early to deliberate whether COP26 was a success, and if progress has been made since Paris. Glasgow will be remembered for the passionate speech from the Maldives representative, which reminded us (if ever we needed reminding) of the Armageddon-esque effects of climate change to the planet as a whole, and to small island nations in particular. The target remains to aim for net-zero carbon emissions by 2050, and to keep global warming close to 1.5 degrees. Continue reading “De-carbonisation of the UK Construction Sector: Are We Ready for the Net-zero Age?”
By Vijay Bange and Tanya Chadha
Globally, notable incidents of freak weather events giving rise to destruction and death have dominated the news. The increasing frequency of these erratic climate events has undoubtedly raised awareness of global warming and, on a political level, the need for states to move quicker towards green energy and the reduction of carbon emissions. Global warming is an inescapable issue that affects us all and which has forced governments to elevate this to the top of the agenda, filtering down to economic policies that will touch upon most industry sectors.
On 31 October 2021, representatives from over 200 countries are set to descend on the Scottish city of Glasgow for the United Nations climate change conference; the 26th Conference of the Parties (COP26). During this global climate summit, world leaders are expected to talk all things climate change. Commitments have already been made to aggressively tackle global warming and the reduction of carbon emissions. Energy is therefore likely to be high on the agenda. Continue reading “Earth, Wind and Fire- Energy and the Green Agenda. The New Industrial Revolution?”
By Vijay Bange
Last week marked 20 years of the horrific terror attacks on the Twin Towers in New York. 2017 saw the atrocious attacks at the Manchester Arena, and subsequently Fishmongers’ Hall in London, and sadly there were others. Global events may create yet further security uncertainty and risks from potential terror attacks.
In February this year James Brokenshire, the Security Minister, reiterated the government’s commitment to improving public security, and to action the findings and lessons learned from the ensuing inquiries. The Home Office has commenced a public consultation on the use of a ‘Protect Duty’. In short this will require businesses, public bodies and security firms to consider risks of a terrorist attack and to ensure proportionate and reasonable measures are taken to protect the public. Continue reading “Duty to Protect- Public Consultation”
A step too far?
Large infrastructure projects are often subject to intricate contractual relationships between the relevant stakeholders, and this will also include collateral warranties to cover any potential gaps in liability to mitigate potential effects of one of the participants in the contractual matrix becoming insolvent. Parties lower down the contractual chain may engage their own designers or consultants to discharge their obligations up the contractual chain. An interesting scenario arose in the recent case Multiplex Construction Europe Ltd v Bathgate Realisations Civil Engineering Ltd (Formerly Dunne building & Civil Engineering Ltd (In administration) (2) BRM Construction LLC (3) Argo Global Syndicate 1200 (2021) , and the two issues that were heard by way of preliminary issue.
The facts:
The Guardian on Tuesday 30th March had an interesting article entitled “UK criticised for ignoring Paris climate goals in infrastructure decisions”. In summary, various luminaries, scientists, legal and environmental experts, have written a letter and to come out to say that:
Continue reading “Climate change vs infrastructure projects- Can they co-exist?”
