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The Internal Allocation of Financial Responsibility Under the REG

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Responsibility of the EU and the Member States under EU International Investment Protection Agreements

Part of the book series: European Yearbook of International Economic Law ((EYIELMONO,volume 6))

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Abstract

When the EU or a Member State abides by its external payment obligations flowing from an arbitral award or settlement to an investor that succeeded in a dispute under a EU IIPA, this is not necessarily the end of the financial flows. With the adoption of the REG, the EU has created a system that allocates financial responsibility between the EU and the Member States internally. It may not come as a surprise that some federal states equally provide for such an allocation system between the federal state (that bears external financial responsibility) and its constituent subdivisions. Importantly, such systems are not rooted in international law but in EU law with respect to the REG and in national constitutional law with respect to federal states and its constituent subdivisions. The first part of this chapter will look at the system in Germany that allocates financial responsibility arising out of international verdicts and settlements between the Bund and the Länder (Sect. 5.1). The second part will assess the allocation system of the REG (Sect. 5.2).

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Notes

  1. 1.

    See for an excellent discussion (in German): Ulrich Stelkens (2012) Die Haftung zwischen Bund und Ländern. In: Ines Härtel (ed.) Handbuch Föderalismus – Föderalismus als demokratische Rechtsordnung und Rechtskultur in Deutschland, Europa und der Welt – Band II: Probleme, Reformen, Perspektiven des deutschen Föderalismus. Springer, pp. 433–442.

  2. 2.

    The Bund and the Länder have found a modus operandi in the form of the so-called Lindau Accord, which gives the Bund a comprehensive treaty-making power in areas of exclusive competence of the Länder. See in this respect Schütze, above Chap. 2, fn. 15, p. 188: ‘The federal state concludes the entire agreement under its plenary powers but subjects the exercise of its treaty-making power to the consent of the member states. The member states, in turn, consent to implement the treaty on behalf of the federation by exercising their exclusive legislative competences’.

  3. 3.

    Stelkens, this chapter, fn. 1, pp. 434–435.

  4. 4.

    German Federal Administrative Court, 3 A 1/01, 8 May 2002, in NVwZ 2002, p 1129: ‘Ohne das Risiko eines Regresses nämlich besäßen die Länder gleichsam einen Freibrief zum „großzügigen” Umgang mit ihren europarechtlichen Pflichten; sie wären der Verantwortung für eigene Verstöße gegen gemeinschaftsrechtliche Regeln enthoben, wenn die finanziellen Folgen ausschließlich und endgültig beim Bund anfielen’.

  5. 5.

    Monica Claes (2006) The National Courts’ Mandate in the European Constitution. Hart Publishing, p. 284; Pål Wennerås (2012) Sanctions against Member States under Article 260 TFEU: Alive, but not kicking? 49(1) CMLRev, pp. 145–175.

  6. 6.

    Joined Cases C-6 and 9/90 Francovich and Bonifaci [1991] ECR I-5373; Joined Cases C-46/93 and C-48/93 Brasserie du Pêcheur [1996] ECR I-1029. See Philipp Gasparon (1999) The Transposition of the Principle of Member State Liability into the Context of External Relations. 10(3) EJIntlL, p. 606; Julio Baquero Cruz (2010) Francovich and Imperfect Law. In: Luis Miguel Poiares Pessoa Maduro and Loic Azoulai (eds.) The Past and Future of EU Law: The Classics of EU Law Revisited on the 50th Anniversary of the Rome Treaty. Hart Publishing, p. 421.

  7. 7.

    See Article 169 Belgian Constitution: ‘Afin de garantir le respect des obligations internationales ou supranationales, les pouvoirs visés aux articles 36 et 37 peuvent, moyennant le respect des conditions fixées par la loi, se substituer temporairement aux organes visés aux articles 115 et 121. Cette loi doit être adoptée à la majorité prévue à l’article 4, dernier alinéa’, and Article 16, section 3, para. 1, Belgian Special Law on Institutional Reform of 8 August 1980 as amended by the Special Law of 5 May 1993 on the International Relations of the Communities and Regions: ‘Après avoir été condamné par une juridiction internationale ou supranationale du fait du non-respect d’une obligation internationale ou supranationale par une Communauté ou une Région, l’Etat peut se substituer à la Communauté ou à la Région concernée, pour l’exécution du dispositif de la décision aux conditions suivantes […]’; 19 USC § 3312(b)(2): ‘No State law, or the application thereof, may be declared invalid as to any person or circumstance on the ground that the provision or application is inconsistent with the Agreement, except in an action brought by the United States for the purpose of declaring such law or application invalid’.

  8. 8.

    See above Sect. 3.2.4.1.

  9. 9.

    Article 16, section 3, para. 3, Belgian Special Law on Institutional Reform of 8 August 1980 as amended by the Special Law of 5 May 1993 on the International Relations of the Communities and Regions (loi spéciale de réforme institutionnelles, tel qu’introduit par la loi spéciale du 5 mai 1993 sur les relations internationales des Communautés et des Régions): ‘L’Etat peut récupérer, auprès de la Communauté ou de la Région concernée, les frais du non-respect par celle-ci d’une obligation internationale ou supranationale […]’.

  10. 10.

    See Section 3(2) Austrian Fiscal Equalisation Law (Bundesgesetz, mit dem der Finanzausgleich für die Jahre 2008 bis 2016 geregelt wird und sonstige finanzausgleichsrechtliche Bestimmungen getroffen werden, Fassung vom 25.01 2016): ‘Darüber hinaus sind die jeweils betroffenen Länder zur Tragung jener Kosten verpflichtet, die der Republik Österreich im Zusammenhang mit Verfahren vor dem Gerichtshof der Europäischen Gemeinschaften wegen eines EG-rechtswidrigen Verhaltens der Länder erwachsen’.

  11. 11.

    Memorandum of Understanding and Supplementary Agreements Between the UK Government, the Scottish Ministers, the Cabinet of the National Assembly for Wales and the Northern Ireland Executive Committee (Concordats on Co-ordination of EU Policy Issues between the UK government and the devolved administrations), Cm 5240, December 2001, https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/316157/MoU_between_the_UK_and_the_Devolved_Administrations.pdf. Accessed 26 August 2018; D4.14 of the Concordat on International Relations reads: ‘The devolved administrations will be responsible for the payment of any compensation and costs awarded against the UK by international courts or Tribunals and for payment of Counsel’s fees, to the extent that these arise from the failure of the devolved administration to implement or enforce an obligation or failure to meet their share of an international quota.’ The Explanatory Memorandum, para. 21 reads: ‘The devolved administrations [of the UK Government, the Scottish Ministers, the Welsh Ministers and the Northern Ireland Executive Committee] are responsible for observing and implementing international, European Court of Human Rights and European Union obligations which concern devolved matters. In law, UK Ministers have powers to intervene in order to ensure the implementation of these obligations. If the devolved administrations wish, it is open to them to ask the UK Government to extend UK legislation to cover their EU obligations. The devolved administrations are directly accountable through the domestic courts, in the same way as the UK Government is, for shortcomings in their implementation or application of EC law. It is agreed by all four administrations that, to the extent that financial penalties are imposed on the UK as a result of any failure of implementation or enforcement, or any damages or costs arise as a result, responsibility for meeting them will be borne by the administration(s) responsible for the failure’.

  12. 12.

    It follows from para. 2 of the Explanatory Memorandum that the Memorandum is non-binding. It follows from para. 3 of the Explanatory Memorandum that Concordats are not intended to be legally binding either, but serve as working documents. See also: Andrew Scott (2001) The Role of Concordats in the New Governance of Britain: Taking Subsidiarity Seriously? 5(1) EdLRev, p. 32. But see Daniel Kenealy (2012) Concordats and International Relations: Binding in Honour Only? 22(1) RFS, pp. 61–85, pp. 61–85, arguing for a binding effect.

  13. 13.

    Jan Wouters and Leen De Smet (2001) The Legal Position of Federal States and their Federated Entities in International Relations – The Case of Belgium. 7/2001 Institute for International Law Working Paper – Catholic University of Leuven. https://www.law.kuleuven.be/iir/nl/onderzoek/working-papers/WP07e.pdf. Accessed 26 August 2018, pp. 27–28; Joe Verhoeven (1996) Belgique/Belgium. In: Pierre Michel Eisemann (ed.) L’intégration du Droit International et Communautaire dans L’ordre Juridique National. Kluwer Law International, p. 132.

  14. 14.

    Matthew C Porterfield (2004) International Expropriation Rules and Federalism. 23(3) SELJ, p. 69; Vicki Been (2003) NAFTA’s Investment Protections and the Division of Authority for Land Use and Environmental Controls. 20(1) PELRev, pp. 11,001, 11,012: ‘Nothing in the legislation passed to implement NAFTA clearly authorizes the federal government to sue a state or locality to recover damages imposed upon the federal government for a state or locality’s violation of NAFTA’; David I Spector (2004) Trade Treaty Threats and Sub-National Sovereignty: Multilateral Trade Treaties and Their Negligible Impact on State Laws. 27(2) HastIntlCLRev, pp. 383–384, 388–390, 395–396; Renée Lettow Lerner (2001) International Pressure to Harmonize: The U.S. Civil Justice System in an Era of Global Trade. 2001(1) BYULRev, pp. 279–281 discussing possibilities of the federal US government to sue its constituent states for indemnification for NAFTA violations under federal common law principles.

  15. 15.

    Peter Hogg (2007) Constitutional Law of Canada, 5th edn. Carswell, para. 6.9; Mark A Luz and C Marc Miller (2002) Globalization and Canadian Federalism: Implications of the NAFTA’s Investment Rules. 47(4) McGillLJ, p. 984; Mark A Luz (2000) NAFTA, Investment and the Constitution of Canada: Will the Watertight Compartments Spring a Leak? 32(1) OLRev, p. 76; Barry Leon, Andrew McDougall and John Siwiec (2011) Canada and Investment Treaty Arbitration: Three Prominent Issues – ICSID Ratification, Constituent Subdivisions, and Health and Environmental Regulation. 8(1) SCJIntlLB, pp. 76–80; Stéphane Paquin (2010) Federalism and Compliance with International Agreements: Belgium and Canada Compared. 5(1–2) HJDipl, p. 195; Patrick Fafard and Patrick Leblond (2012) Twenty-First Century Trade Agreements: Challenges for Canadian Federalism. The Federal Idea. http://ideefederale.ca/documents/challenges.pdf. Accessed 26 August 2018, pp. 6, 21.

  16. 16.

    Brian R Opeskin and Donald R Rothwell (1995) The Impact of Treaties on Australian Federalism. 27(1) CWRJIntlL, pp. 56–59; Paquin, this chapter, fn. 15, p. 195.

  17. 17.

    Maurice Copithorne (2003) National Treaty Law and Practice: Canada. 33(1) STransnatlLP, p. 12: ‘Various ad hoc arrangements are entered into to permit provinces to achieve recognized objectives. They include ‘indemnity agreements’ in which the federal Government enters into an agreement with the Government of another State on a matter of interest to a particular province. The agreement is supplemented on the Canadian side by an agreement between the federal Government and the province under which the province undertakes to provide such legislative authority as may be necessary to enable the discharge within its territory of the obligations under the agreement. The province also undertakes to indemnify the federal Government for any liability that may arise by reason of provincial default [emphasis added]’.

  18. 18.

    As indicated above, a major justification for an internal allocation system is that federal subdivisions bear an obligation under national constitutional law to implement treaties of the federal state even though it affects regulatory competences of the federal subdivisions.

  19. 19.

    See in general on the German allocation system, Stelkens, this chapter, fn. 1, pp. 448–461; Inken Sabine Knief (2009) Der Regreß im Bundesstaat – Zur innerstaatlichen Haftung für gemeinschaftsrechtliche Sanktionen. PhD thesis, Rheinische Friedrich-Wilhelms-Universität Bonn; Matthias Mitsch (2008) Bund-Länder-Regress nach Verhängung von EU-Zwangsgeldern. Köhler Druck.

  20. 20.

    Gesetz v 5 September 2006 zur Lastentragung im Bund-Länder-Verhältnis bei Verletzung von supranationalen oder völkerrechtlichen Verpflichtungen (Lastentragungsgesetz – LastG), BGBl I, p. 2098.

  21. 21.

    BT-Drucks 16/813, p. 19.

  22. 22.

    BVerwG, 3 A 7/05, 26 April 2007, in NVwZ 2007, p. 1201.

  23. 23.

    Ibid.

  24. 24.

    BVerwG, 3 A 7/05, 26 April 2007, in NVwZ 2007, p. 1201; Stelkens, this chapter, fn. 1, p. 457.

  25. 25.

    Ibid.

  26. 26.

    Ibid.

  27. 27.

    Ibid.

  28. 28.

    Article 104a(1)(1) GG: ‘Bund und Länder tragen nach der innerstaatlichen Zuständigkeits- und Aufgabenverteilung die Lasten einer Verletzung von supranationalen oder völkerrechtlichen Verpflichtungen Deutschlands’.

  29. 29.

    § 1(1) LastG: ‘Verpflichtungen der Bundesrepublik Deutschland zu finanzwirksamen Leistungen wegen der Verletzung supranationaler oder völkerrechtlicher Verpflichtungen im Bereich der Gesetzgebung, der Verwaltung oder der Rechtsprechung werden im Verhältnis von Bund und Ländern von derjenigen staatlichen Ebene getragen, in deren innerstaatlichen Zuständigkeits- und Aufgabenbereich die lastenbegründende Pflichtverletzung erfolgt ist’.

  30. 30.

    BT-Drucks 16/813, p. 19; Knief, this chapter, fn. 19, pp. 224–226; Mitsch, this chapter, fn. 19, pp. 196–197.

  31. 31.

    Ibid.

  32. 32.

    BT-Drucks 16/813, p. 19.

  33. 33.

    See below Sect. 5.2.2.2.

  34. 34.

    Knief, this chapter, fn. 19, pp. 226–229.

  35. 35.

    Norbert Janz (2003) Das Weisungsrecht nach Art. 85 Abs. 3 GG: Inhalt, Grenzen und haftungsrechtliche Dimensionen. Duncker & Humblot, pp. 502 et seq; Thomas Schmitt and Sebastian Wohlrab (2015) “Richtiger” Klagegegner bei Maßnahmen im Rahmen der Auftragsverwaltung nach Art. 85 GG am Beispiel des “Moratoriums” für Kernkraftwerke. 2015(4) NVwZ, pp. 193–197; Knief, this chapter, fn. 19, pp. 226–229.

  36. 36.

    Knief, this chapter, fn. 19, p. 228.

  37. 37.

    BVerfG, 2 BvG 1/88, 22 May 1990, in NVwZ 1990, p. 955.

  38. 38.

    Knief, this chapter, fn. 19, pp. 228–229. For how an apportionment of a financial burden functions, see below Sect. 5.1.4.

  39. 39.

    Knief, this chapter, fn. 19, p. 228.

  40. 40.

    BVerfG, 2 BvG 1/04, 17 October 2006, in NVwZ 2007, pp. 196–197; incidentally confirmed by the German Federal Administrative Court: BVerwG, 3 A 7/05, 26 April 2007, in NVwZ 2007, p. 1199; see also Stelkens, this chapter, fn. 1, p. 456.

  41. 41.

    BVerfG, 2 BvG 1/04, 17 October 2006, in NVwZ 2007, pp. 196–197.

  42. 42.

    Cf. below Sect. 5.2.4.2.3.

  43. 43.

    BT-Drucks 16/814, p. 22.

  44. 44.

    Mitsch, this chapter, fn. 19, p. 200.

  45. 45.

    § 254(1) BGB reads: ‘Hat bei der Entstehung des Schadens ein Verschulden des Beschädigten mitgewirkt, so hängt die Verpflichtung zum Ersatz sowie der Umfang des zu leistenden Ersatzes von den Umständen, insbesondere davon ab, inwieweit der Schaden vorwiegend von dem einen oder dem anderen Teil verursacht worden ist’. The English translation reads: ‘Where fault on the part of the injured person contributes to the occurrence of the damage, liability in damages as well as the extent of compensation to be paid depend on the circumstances, in particular to what extent the damage is caused mainly by one or the other party’.

  46. 46.

    BVerfG, 2 BvG 1/04, 17 October 2006, in NVwZ 2007, p. 197.

  47. 47.

    Stelkens, this chapter, fn. 1, pp. 440–441.

  48. 48.

    BVerfG, 2 BvG 1/04, 17 October 2006, in NVwZ 2007, p. 197.

  49. 49.

    BVerfG, 2 BvG 4/98, 27 June 2002, in NVwZ 2003, 595.

  50. 50.

    § 1(2) LastG: ‘Bei festgestellten Pflichtverletzungen im innerstaatlichen Zuständigkeits- und Aufgabenbereich sowohl des Bundes als auch der Länder, tragen Bund und Länder die Lasten in dem Verhältnis des Umfangs, in dem ihre Pflichtverletzungen zur Entstehung der Leistungspflicht beigetragen haben, soweit dieses Gesetz nicht etwas anderes bestimmt’.

  51. 51.

    BT-Drucks 16/814, p. 22.

  52. 52.

    BVerwG, 3 A 7/05, 26 April 2007, in NVwZ 2007, p. 1201.

  53. 53.

    Landgericht Marburg, 2 O 63/13, 8 July 2014, in BeckRS 2015, 07833.

  54. 54.

    See below Sect. 5.2.5.

  55. 55.

    The German Federal Administrative Court ruled that in a case where the claimant impugned both actions of the Bund and the Länder there is no need for an apportionment of the financial burden where the international verdict or the settlement of the parties clearly indicates that only actions of the Bund or the Länder breached the international obligation. See BVerwG, 3 A 7/05, 26 April 2007, in NVwZ 2007, p. 1201 (a settlement was exclusively based on Länder action); Bundesverwaltungsgericht, 3 A 5/05, 26 April 2007, in NVwZ 2008, p. 88, the ECtHR only saw organs of the Länder to be in breach and a settlement was exclusively based on Länder action.

  56. 56.

    BVerwG, 3 A 7/05, 26 April 2007, in NVwZ 2007, p. 1201; Stelkens, this chapter, fn. 1, p. 457. See also this chapter, fn. 24 and accompanying text.

  57. 57.

    Ibid.

  58. 58.

    BVerwG, 3 A 7/05, 26 April 2007, in NVwZ 2007, p. 1201; 2 BvG 1/04, 17 October 2006, in NVwZ 2007, p. 197; BT-Drucks 16/814, p. 22.

  59. 59.

    Stelkens, this chapter, fn. 1, p. 456; cf. BVerwG, 3 A 7/05, 26 April 2007, in NVwZ 2007, p. 1201.

  60. 60.

    § 4(1) LastG: ‘Erfolgt die Verurteilung wegen einer Verletzung von Verpflichtungen durch die Gerichte, ist für die Lastenzuordnung nach § 1 das Gericht der Instanz maßgeblich, das die beanstandete Entscheidung getroffen hat. Hat ein Gericht des Bundes die Entscheidung des Gerichts eines Landes bestätigt, tragen der Bund und das betroffene Land die Lasten je zur Hälfte’.

  61. 61.

    § 4(2) LastG: ‘Bei Verurteilungen wegen überlanger Verfahrensdauer und Anhängigkeit sowohl bei Gerichten des Bundes als auch eines Landes werden die Lasten im Verhältnis der Anteile der beteiligten Gerichte an der Verfahrensdauer getragen’.

  62. 62.

    § 426(1) BGB reads: ‘Die Gesamtschuldner sind im Verhältnis zueinander zu gleichen Anteilen verpflichtet, soweit nicht ein anderes bestimmt ist’.

  63. 63.

    Mitsch, this chapter, fn. 19, p. 200.

  64. 64.

    BVerfG, 2 BvG 1/04, 17 October 2006, in NVwZ 2007, p. 197.

  65. 65.

    Explanatory Memorandum to the REG, p. 5.

  66. 66.

    Dimopoulos, above Chap. 2, fn. 112, p. 1705.

  67. 67.

    But see Kleinheisterkamp, above Chap. 3, fn. 111, p. 15; Jan Kleinheisterkamp (2014) Financial Responsibility in the European International Investment Policy. 63(2) IntlCLQ, p. 459; Dimopoulos, above Chap. 2, fn. 112, p. 1703; Karpenstein/Kottmann, above Chap. 4, fn. 26, p. 257.

  68. 68.

    As established by CJEU jurisprudence, see precedent judgment: Joined Cases C-6 and 9/90 Francovich and Bonifaci [1991] ECR I-5373, para. 35: ‘It is a principle of Community law that the Member States are obliged to make good losses and damage caused to individuals by breaches of Community law for which they can be held responsible’.

  69. 69.

    Joined Cases C-46/93 and C-48/93 Brasserie du Pêcheur [1996] ECR I-1029, para. 51.

  70. 70.

    Ibid, para. 55.

  71. 71.

    Ibid, para. 56.

  72. 72.

    Ibid, para. 78.

  73. 73.

    Case C-352/98 Bergaderm [2000] ECR I-5291, para. 44.

  74. 74.

    See e.g. Irmgard Marboe (2010) State Responsibility and Comparative State Liability for Administrative and Legislative Harm to Economic Interests. In: Stephan W Schill (ed.) International Law and Comparative Public Law. Oxford University Press, pp. 399–402; and at p. 405: ‘The result is that, today, the two systems run in parallel. There should no longer be any difference between EU liability and Member State liability as far as the applicable principles and criteria are concerned. This is so despite of [sic] fact that only the former has its legal basis in the founding Treaty itself while the latter has no written basis and has only been developed by the jurisprudence of the ECJ. This has not been changed by the recent reforms in the draft Constitution of the European Union and the Treaty of Lisbon’.

  75. 75.

    Case C-237/98 Dorsch Consult [2000] ECR I-4549, para. 18, with citations therein.

  76. 76.

    Joined Cases C-120/06 P and C-121/06 P FIAMM and Fedon [2008] ECR I–6513, para. 176: ‘As Community law currently stands, no liability regime exists under which the Community can incur liability for conduct falling within the sphere of its legislative competence in a situation where any failure of such conduct to comply with the WTO agreements cannot be relied upon before the Community courts’.

  77. 77.

    BVerfG, 2 BvG 1/04, 17 October 2006, in NVwZ 2007, pp. 196–197.

  78. 78.

    But see Kleinheisterkamp, above Chap. 3, fn. 111, p. 15; Kleinheisterkamp, above this chapter, fn. 67, p. 459; Dimopoulos, above Chap. 2, fn. 112, p. 1703; Karpenstein/Kottmann, above Chap. 4, fn. 26, p. 257.

  79. 79.

    See Article 2(l) REG and below Sect. 5.2.2.2.1.

  80. 80.

    Kleinheisterkamp, above Chap. 3, fn. 111, p. 15.

  81. 81.

    See below Sect. 5.2.4.2.3.

  82. 82.

    See below Sect. 6.3.

  83. 83.

    Cf. Explanatory Memorandum to the REG, p. 2: ‘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’.

  84. 84.

    See below Sect. 5.2.2.2.3.

  85. 85.

    The German version of the REG reads: ‘hätte vermeiden können’ and the French version reads ‘aurait pu éviter’.

  86. 86.

    See below Sect. 6.2.

  87. 87.

    Member States are obliged to comply with mixed EU IIPAs as matter of public international law and EU law pursuant to Article 216(2) TFEU. EU-only IIPAs also establish obligations for the Member States. Here, however, the obligation exclusively flows from EU law pursuant to Article 216(2) TFEU. In a strict sense the conflict of obligations is one of EU law.

  88. 88.

    Explanatory Report to the ECHR Accession Agreement, para. 48; see also Den Heijer/Nollkaemper, above Chap. 3, fn. 103, p. 11; Lock, above Chap. 4, fn. 6, p. 176; ECHR: Answers to frequently asked questions (30 April 2013) Accession by the European Union to the European Convention on Human Rights, p. 4.

  89. 89.

    Karpenstein/Kottmann, above Chap. 4, fn. 26, pp. 257–258; Tietje/Sipiorski/Töpfer, above Chap. 2, fn. 69, pp. 18, 19. But see Kleinheisterkamp, above Chap. 3, fn. 111, p. 15; Dimopoulos, above Chap. 2, fn. 112, p. 1703.

  90. 90.

    In the German version it reads: ‘vorgeschrieben’, and in the French version it reads: ‘réquis’.

  91. 91.

    Recital 7 REG: ‘Financial responsibility should be allocated to the entity responsible for the treatment found to be inconsistent with the relevant provisions of the agreement’; Explanatory Memorandum to the REG, pp. 4–5.

  92. 92.

    Karpenstein/Kottmann, above Chap. 4, fn. 26, pp. 257–258. But see Kleinheisterkamp, above Chap. 3, fn. 111, p. 15; Dimopoulos, above Chap. 2, fn. 112, p. 1703; Tietje/Sipiorski/Töpfer, above Chap. 2, fn. 69, pp. 18–19.

  93. 93.

    For the proportionality test under EU law, see Alexander H Türk (2010) Judicial Review in EU law. Edward Elgar Publishing, pp. 135–138; Michael Wimmer (2014) The Dinghy’s Rudder: General Principles of European Union Law through the Lens of Proportionality. 20(2) EPL, pp. 337 et seq; Kaczorowska-Ireland, above Chap. 3, fn. 199, pp. 125–126; Paul Craig (2010) Proportionality, Rationality and Review. 2010(2) NZLRev, p. 268.

  94. 94.

    Case 5/71 Schöppenstedt [1971] ECR 975; Case 101/78 Granaria II [1979] ECR 623; Case 238/78 Ireks-Arkady [1979] ECR 2955, para. 6; Case 59/83 Biovilac [1984] ECR 4057, paras. 5 et seq; Case 175/84 Krohn [1986] ECR 753, paras. 28, 19; Case 81/86 De Boer Buizen [1987| ECR 3677, para. 8; Joined Cases C-106-120/87 Asteris [1988] ECR 5515, para. 18; Joined Cases C-104/89 and C-37/90 Mulder [1992] ECR 3061, para. 9; Case C-282/90 Vreugdenhil [1992] ECR 1937; Case T-18/99 Cordis [2001] ECR II-913, para. 26.

  95. 95.

    Joined Cases C-46/93 and C-48/93 Brasserie du Pêcheur [1996] ECR I-1029; Case C-445/06 Danske Slagterier [2009] ECR I-2119, para. 26.

  96. 96.

    Case 101/78 Granaria II [1979] ECR 623, paras. 4–6; Case 314/85 Foto-Frost [1987] ECR 4199.

  97. 97.

    Case 99/74 Société de Grands Moulins des Antilles [1975] ECR 1531; Case 12/79 Wagner [1979] ECR 3657; Case 133/79 Sucrimex [1980] ECR 1299; Case 217/81 Interagra [1982] ECR 2233.

  98. 98.

    Joined Cases C-106-120/87, Asteris [1988] ECR 5515, para. 20; Cases 5, 7, 13-24/66 Kampffmeyer [1967] ECR 245; Case 319/96, Brinkmann Tabakfabriken [1998] ECR 5255; Case 99/74, Société de Grands Moulins des Antilles [1975] ECR 1531.

  99. 99.

    The German version of Recital 7 REG reads: ‘[...] so sollte der Union selbst die finanzielle Verantwortung insofern zufallen, als die betreffende Behandlung nach dem Unionsrecht vorgeschrieben ist [emphasis added]’; and the French version reads: ‘[...] l’Union elle-même devrait assumer la responsabilité financière dans la mesure où le traitement en cause est requis par le droit de l’Union [emphasis added]’.

  100. 100.

    It cannot occur where a Member States correctly implements EU law and has no discretion whatsoever. In such a case the EU fully bears financial responsibility pursuant to Article 3(1)(c) REG.

  101. 101.

    Tietje/Sipiorski/Töpfer, above Chap. 2, fn. 69, p. 19.

  102. 102.

    See again above Chap. 4, fn. 248.

  103. 103.

    Nollkaemper, above Chap. 2, fn. 80, p. 337.

  104. 104.

    By the way, this is why the dynamics of executive federalism do not fit into the system of the ARIO, which via Articles 15 and 17 ARIO require some form of knowledge or intention on the part of the international organisation that a certain cause of action breaches an international obligation.

  105. 105.

    Yet it should be noted that an assessment of the actual treatment under Article 2(l) REG would not risk unduly influencing an Arbitral Tribunal in its own assessment on illegality of the treatment in a dispute under the EU IIPA. This is because such an assessment under Article 2(l) REG is only required for the ex post facto allocation of financial responsibility when the arbitral proceedings have already churned out a monetary award or settlement. The only way in which an Arbitral Tribunal could be influenced is when the Commission decides on respondent status pursuant to Article 9(2)(a) REG in conjunction with Article 3(1)(c) REG. Yet here it is sufficient for the Commission to find out that at least part of the Member State treatment falls under Article 3(1)(c) REG. The hypothetical causation-test based on alternative Member State treatment is fully sufficient for deciding on respondent status. See below Sect. 6.2.1.

  106. 106.

    Baetens/Kreijen/Varga, above Chap. 2, fn. 73, pp. 1253, 1260.

  107. 107.

    See above Sect. 4.2.2.3 for why the EU can only seek reimbursement from a Member State pursuant to Article 19 REG for monetary amounts flowing from settlements to which the Member State has consented.

  108. 108.

    See Recital 20 REG: ‘Article 263 TFEU is available in cases where a Member State considers that the decision [of the Commission pursuant to Article 19(3) REG] falls short of the criteria set out in this Regulation’. See also Explanatory Memorandum to the REG, pp. 11–12; Tietje/Sipiorski/Töpfer, above Chap. 2, fn. 69, pp. 28–29; Baetens/Kreijen/Varga, above Chap. 2, fn. 73, p. 1258.

  109. 109.

    See for details on apportionment under the REG below Sect. 5.2.5.

  110. 110.

    See for details below Sect. 6.3.

  111. 111.

    Explanatory Memorandum to the REG, pp. 11–12; Tietje/Sipiorski/Töpfer, above Chap. 2, fn. 69, p. 20; Dimopoulos, above Chap. 2, fn. 112, p. 1710; Keller/Schmitt in Krenzler/Herrmann/Niestedt above Chap. 4, fn. 85, Article 19 Reg (EU) No 912/2014, para. 7.

  112. 112.

    Explanatory Memorandum to the REG, p. 7.

  113. 113.

    It reads: ‘Notwithstanding paragraph 1, the Member State concerned shall bear the financial responsibility where: […] the Member State concerned acts as respondent pursuant to Article 8’. Article 8(1) Proposal REG reads: ‘Provided the agreement provides for the possibility, the Member State concerned shall act as respondent’.

  114. 114.

    Explanatory Memorandum to the REG, p. 6.

  115. 115.

    For a detailed discussion of the various procedural scenarios in disputes under the ECT that can cause accountability gaps under the REG, see Stegmann, above Chap. 4, fn. 85, pp. 21–23.

  116. 116.

    See Sect. 4.2.1.3.

  117. 117.

    See fn. 261.

  118. 118.

    See above Sect. 4.2.1.1.2.

  119. 119.

    As discussed above in Sect. 4.2.2.2.3, the legal assessment under Article 9(2)(a) REG can only be conducted prima facie, as it is restricted to the short time frame of 45 days pursuant to Article 9(1)(a) REG. On top of that, it is inherent to the assessment of Article 3(1)(c) REG in conjunction with Article 2(l) REG to unearth complicated legal issues. It also requires the production of documents and evidence residing in the sphere of the Member State concerned. In 45 days it may be difficult to bring that by. Furthermore, there is a possibility that the investor only communicates insufficient or incomplete information as to the treatment it intends to challenge and on which it intends to base its claim.

  120. 120.

    See above Sect. 4.2.2.2.4.

  121. 121.

    For a discussion of the advantages and disadvantages for an investor of using the voluntary determination mechanism under the ECT Statement and the Proposal Revised ECT Statement, see Stegmann, above Chap. 4, fn. 85, pp. 19–20.

  122. 122.

    Another scenario that can create an accountability gap under the REG is when a Member State agrees to a settlement according to Article 16 REG and the EU bears partial financial responsibility. See in this respect Keller/Schmitt in Krenzler/Herrmann/Niestedt above Chap. 4, fn. 85, Article 19 Reg (EU) No 912/2014, para. 7.

  123. 123.

    Dimopoulos, above Chap. 2, fn. 112, p. 1710.

  124. 124.

    See above Sect. 4.2.2.2.3.

  125. 125.

    The important part reads: ‘It is therefore necessary that financial responsibility be allocated , as a matter of Union law, between the Union itself and the Member State responsible for the treatment afforded on the basis of criteria established by this Regulation [emphasis added]’.

  126. 126.

    The important part reads: ‘Financial responsibility should be allocated to the entity responsible for the treatment found to be inconsistent with the relevant provisions of the agreement [emphasis added]’.

  127. 127.

    Chapter II is titled: ‘Apportionment of Financial Responsibility’.

  128. 128.

    See also Explanatory Memorandum to the REG, pp. 2, 5–6, 9.

  129. 129.

    See below Sect. 5.2.5.

  130. 130.

    See below Sect. 6.3.

  131. 131.

    Of course, where no claim of the investor was successful and therefore no award or settlement requiring the EU or the Member State to pay an amount to money to the investor, the difference between ante- and post-scrutiny is irrelevant since there is no financial burden to be allocated.

  132. 132.

    See Tietje/Sipiorski/Töpfer, above Chap. 2, fn. 69, p. 28.

  133. 133.

    See Article 52(1)(b) ICSID Convention; Article 34(2)(a)(iii) UNCITRAL ML; Article V(1)(c) New York Convention.

  134. 134.

    See Article 31(2) ICC rules and Articles 47(1)(i), 48(3) ICSID Convention (non-waivable obligation); Article 43(3) UNCITRAL Arbitration rules, Article 26.1 LCIA Arbitration Rules, Article 36 SCC Rules (waivable).

  135. 135.

    Article 52(1)(e) ICSID Convention; see also Dolzer/Schreuer, above Chap. 2, fn. 280, pp. 307–308.

  136. 136.

    De Brabandere, above Chap. 4, fn. 333, p. 90.

  137. 137.

    Ibid, p. 91.

  138. 138.

    Yves Derains and Eric A Schwartz (2005) A Guide to the ICC Rules of Arbitration, 2nd edn. Kluwer Law International, p. 309.

  139. 139.

    Eureko BV v Republic of Poland, Partial Award 19 August 2005, para. 175: ‘International law thus recognizes that an investor may, after a claim against a State has arisen, enter into a settlement agreement with that State and commit to a final waiver of those claims. The State can subsequently rely on that waiver and assert it as a defense against the investor, should such investor attempt to raise those claims again’.

  140. 140.

    Article 3(1) REG reading ‘financial responsibility arising from a dispute’ appears to suggest that the treatment brought by the investor can equally be the basis for allocating financial responsibility. However, upon a closer look, Article 3(1) REG is held more generic due to the fact that a dispute can hold numerous treatments challenged, which all cause separately a financial burden, and because under Article 3(1)(c) REG the EU can hold indirectly financial responsibility even though only Member State treatment is challenged before the Arbitral Tribunal. Recital 5 REG supports that view.

  141. 141.

    Explanatory Memorandum to the REG, pp. 5–6: ‘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 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 [emphasis added]’; and p. 9: ‘The main criterion for the allocation will be the origin of the treatment of which the investor has complained [emphasis added]’.

  142. 142.

    Cf. Dimopoulos, above Chap. 2, fn. 112, p. 1703.

  143. 143.

    See Article 14(6) REG.

  144. 144.

    Yet, as just discussed, with respect to claims based on separate treatments, the parties in a settlement may bargain individual amounts to each treatment.

  145. 145.

    Dimopoulos, above Chap. 2, fn. 112, p. 1703.

  146. 146.

    Dolzer/Schreuer, above Chap. 2, fn. 280, pp. 115 et seq, pp. 145 et seq.

  147. 147.

    Ibid, p. 149.

  148. 148.

    Ibid, p. 145.

  149. 149.

    Ibid, pp. 149 et seq, pp. 154 et seq.

  150. 150.

    Ibid, pp. 125 et seq.

  151. 151.

    See above Sect. 4.2.2.1.2.

  152. 152.

    EU IIPAs that are modelled in accordance with CETA, the EU-Singapore IIPA, the EU-Vietnam FTA or TTIP.

  153. 153.

    See Explanatory Memorandum to the REG, p. 9.

  154. 154.

    The first part of Recital 7 REG reads: ‘Where the Member State acts in a manner required by Union law, for example in transposing a directive adopted by the Union, the Union itself should bear financial responsibility in so far as the treatment concerned is required by Union law [emphasis added]’.

  155. 155.

    See for a short overview on shared responsibility under the EU state responsibility regime, Craig/De Búrca, above Chap. 3, fn. 38, pp. 600–603; Alexander H Türk (2009) Judicial Review of Integrated Administration in the EU. In: Herwig C H Hofmann and Alexander H Türk (eds.) Legal Challenges in EU Administrative Law: Towards an Integrated Administration. Edward Elgar Publishing, pp. 250–255; see for a more detailed analysis, Maartje de Visser (2004) The Concept of Concurrent Liability and its Relationship with the Principle of Effectiveness: A One-way Ticket into Oblivion? 11(1) MaastrichtJEur&CompL, pp. 47–71; Wouter Wils (1992) Concurrent liability of the Community and a member state. 17 ELRev, pp. 191–206; Trevor C Hartley (1977) Concurrent Liability in EEC Law: A Critical Review of the Cases. 2 ELRev, pp. 249–265.

  156. 156.

    Case 4/69 Alfons Lütticke GmbH [1971] ECR 325.

  157. 157.

    This concerned binding EU acts such as EU decisions and instructions, Cases 5, 7, 13-24/66 Kampffmeyer [1967] ECR 245; Case C-55/90 Cato [1992] ECR I-2533, in which the claimant sought damages arising from a Commission Decision approving the unlawful implementation of a EU directive by the United Kingdom.

  158. 158.

    Cases 5, 7, 13-24/66 Kampffmeyer [1967] ECR 245; Joined Cases C-106/90, C-317/90, C-129/91 Emerald Meats [1993] ECR I-209.

  159. 159.

    De Visser, this chapter, fn. 155, pp. 50–52; Craig/De Búrca, above Chap. 3, fn. 38, pp. 600–601.

  160. 160.

    Cases 5, 7, 13-24/66 Kampffmeyer [1967] ECR 245.

  161. 161.

    Cases 5, 7, 13-24/66 Kampffmeyer [1967] ECR 245, p. 266: ‘[The] applicants have informed the Court that the injury alleged is the subject of two actions for damages, one against the Federal Republic of Germany before a German court and the other against the Community before the Court of Justice. It is necessary to avoid the applicants’ being insufficiently or excessively compensated for the same damage by the different assessment of two different courts applying different rules of law. Before determining the damage for which the Community should be held liable, it is necessary for the national court to have the opportunity to give judgment on any liability on the part of the Federal Republic of Germany. This being the case, final judgment cannot be given before the applicants have produced the decision of the national court on this matter’.

  162. 162.

    Cees van Dam (2013) European Tort Law, 2nd edn. Oxford University Press, pp. 375–380; see in general on general principles of EU law, Takis Tridimas(2007) The General Principles of EU Law, 2nd edn. Oxford University Press.

  163. 163.

    Joined Cases C-46/93 and C-48/93 Brasserie du Pêcheur [1996] ECR I-1029, para. 85, with reference to Joined Cases C-104/89 and C-37/90 Mulder [1992] ECR 3061, para. 33.

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Stegmann, P.T. (2019). The Internal Allocation of Financial Responsibility Under the REG. In: Responsibility of the EU and the Member States under EU International Investment Protection Agreements. European Yearbook of International Economic Law(), vol 6. Springer, Cham. https://doi.org/10.1007/978-3-030-04366-7_5

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