D.C. Circuit Decision: U.S. District Courts Can Enforce EU Investor-State Arbitral Awards

In a landmark decision, the D.C. Circuit has ruled that U.S. district courts possess jurisdiction to enforce investor-state arbitral awards resulting from disputes between EU companies and EU member states, even when the dispute takes place within the European Union. This ruling, handed down on August 16, 2024, in NextEra Energy v. Spain, clarifies the United States’ position on the enforceability of intra-EU investor-state arbitration awards and marks a significant step forward for the recognition of these awards outside of the EU. NextEra Energy Global Holdings B.V. v. Spain, No. 23-7031, 2024 WL 3837484 (D.C. Cir. Aug. 16, 2024).

For over a decade, the European Union has opposed intra-EU investor-state arbitration, with the Court of Justice of the European Union (CJEU) declaring that such arbitration clauses conflict with EU law. Nevertheless, investors who have won favorable awards through these arbitrations have sought enforcement in countries outside the EU, including the United States, the United Kingdom, and Australia. While arbitral tribunals have upheld their jurisdiction in these disputes, the EU and respondent states have consistently argued against the enforcement of these awards, claiming that the underlying arbitration agreements violate EU law.

The NextEra decision rejected Spain’s argument that the Foreign Sovereign Immunities Act (FSIA) prevented enforcement of the arbitral awards. Spain contended that there were no valid arbitration agreements because intra-EU arbitrations are not permitted under EU law. The D.C. Circuit, however, ruled that the Energy Charter Treaty (ECT), which serves as the basis for many of these arbitrations, provides a valid arbitration agreement. As a result, U.S. district courts have jurisdiction to enforce these awards under the FSIA’s arbitration exception.

Spain has petitioned for the U.S. Supreme Court to review the decision, but the Court has not agreed to hear the case. Businesses involved in similar disputes should closely monitor future developments as this case continues to unfold.

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