Beyond Boundaries: the SCC's new policy for Intra-EU Investment Arbitration

On October 16, 2024, the Stockholm Chamber of Commerce (SCC) announced that it had introduced a new policy for selecting seats of arbitration in investment treaty arbitrations. In cases involving investment treaty arbitrations between parties based in the EU, the SCC Board will no longer designate a seat based in the EU. Instead, it will select a seat outside the EU. This policy change, sparked by recent rulings from the Court of Justice of the European Union (CJEU), is noteworthy, particularly given that the SCC is an EU-based arbitral institution.

Background and policy decision

The seat of arbitration and the SCC

The seat (or "legal place") of arbitration refers to the jurisdiction whose laws govern the procedural aspects of the arbitration, including the appointment of arbitrators and the setting aside of awards. Investment treaties rarely specify the seat of arbitration, leaving it to be resolved by agreement between the parties, or determined in accordance with the arbitral mechanism selected by the Claimant from those available under the relevant treaty.

Different arbitral rules adopt different procedures for determining the seat in default of party agreement. In UNCITRAL arbitration, for example, the seat is determined by the Tribunal once constituted. Under the Rules of Arbitration of the SCC, however, the seat is decided by the SCC's Board of directors (the Board).

Historically, when selecting a seat of arbitration, the SCC's Board would generally choose Stockholm, Sweden. The announcement explains that this was on the assumption that by choosing the SCC under the relevant treaty the parties would have anticipated that the dispute would be so seated, and thus governed by the Swedish Arbitration Act, in the absence of any relevant circumstances requiring the designation of another seat. This choice, accordingly, would give the Swedish courts supervisory jurisdiction over the dispute and, as Sweden is an EU Member State, the relevant principles of EU law and decisions of European courts would apply.

Recent CJEU Rulings and response

In recent rulings, the CJEU has held that arbitration clauses in intra-EU BITs are incompatible with EU law (in Achmea (C-284/16)), later extending this reasoning to the Energy Charter Treaty (in Komstroy (C-741/19)), which includes the possibility for disputes to be brought under the auspices of the SCC. Despite these rulings, many claims under intra-EU BITs and the ECT have continued to be filed. Some Tribunals have distinguished the CJEU's rulings or found that they do not establish a binding rule of international law precluding their jurisdiction.

New policy for determining the location for intra-EU investment arbitrations conducted under the SCC Rules

In light of the CJEU's stance on intra-EU investment treaty disputes, the choice of the seat of the arbitration and the place of enforcement of any resulting award has become increasingly significant. To reduce the possibility of a challenge to any award based on EU law at the arbitration seat, investors have sought to seat such arbitrations and enforce resulting awards outside the EU. They have also sought enforcement outside the EU for the same reasons.

The SCC explained that, taking account of its duty, according to Article 2(2) of the SCC Rules, to "act in the spirit of the SCC Rules and make every reasonable effort to ensure that any award is legally enforceable", the SCC has introduced a new policy for choosing arbitration seats where parties have not agreed on one. In cases involving investment treaty arbitrations between parties based in the EU, the SCC has now stated that its Board will no longer designate a seat based in the EU but will instead opt for a seat located outside the EU. The announcement specifies that this policy also applies to states listed as candidates or potential candidates for EU membership.¹

¹ There are currently nine candidate countries for EU membership: Albania, Bosnia and Herzegovina, Georgia, Moldova, Montenegro, North Macedonia, Serbia, Türkiye and Ukraine. Kosovo is a potential candidate which has applied to join the EU but has not yet been granted candidate status (see Europe.eu).