A controversial ruling from the European Union’s highest court rejecting arbitration to settle disputes among EU countries may force foreign investors to make a wide circle around member nations in future ventures.
The European Court of Justice ruled last week that private arbitration does not guarantee that EU law will be respected and therefore is not permissible as a way to settle legal disputes. The removal of this investment protection exposes investors to litigation in countries where courts may not operate in a fair or unbiased manner.
If a company invests in a country like Bulgaria, Romania or Poland, legal experts said, it needs to determine how it can best protect itself from government intervention or expropriation. “It is hardly an option to go before the Bulgarian, Romanian or Polish courts,” said Jörg Risse at the law firm Baker McKenzie.
The ruling may benefit countries outside the EU, such as Switzerland or Britain once it exits the bloc, which will be in a position to host special purpose entities precisely to make these investments without being exposed to litigation in local courts. “That’s a realistic scenario,” said Mr. Risse.