Reed Smith In-depth

On September 2, 2021, the Court of Justice of the European Union (CJEU) handed down a landmark decision in which it held that the Investor-State Dispute Settlement mechanism provided for by the Energy Charter Treaty (ECT)1 is not applicable to intra-EU disputes.2 In the same decision, the CJEU also decided that the acquisition of a claim arising from an electricity supply contract does not constitute an “investment” under Articles 1(6) and 26(1) of the ECT.

Background

The facts of the case date back to the late 1990s, against the backdrop of the liberalization of the former soviet economies. Ukrainian company Energoallians (Komstroy’s predecessor-in-interest) concluded two tripartite contracts for the supply of electricity. Under the contracts, Energoallians was to purchase electricity from Ukrenergo and resell it to Moldtranselectro, the Moldovan State-owned company in charge of operating the Moldovan power grid, via Derimen, a British Virgin Islands company. Shortly afterward, Moldtranselectro defaulted. Ultimately, Derimen assigned the contractual claim against Moldtranselectro to Energoallians.

A dispute arose between the parties regarding the payment of Moldtranselectro’s debt. Energoallians argued that certain actions taken by the Republic of Moldova – which had an impact on the recovery of the claim – constituted a violation of the State’s obligations under the ECT, as well as under the 1996 Ukraine-Moldova bilateral investment treaty (BIT). Energoallians consequently commenced arbitration proceedings in Paris.

The arbitral award rendered in 2013 ordered Moldova to pay to Energoallians US$46.5 million. Shortly thereafter, Ukrainian company Komstroy bought Energoallians, acquiring the rights to the award. Moldova challenged the award before the Paris Court of Appeal, claiming that the tribunal had wrongly declared itself competent and that the award was contrary to international public policy.