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Poland considers terminating its Bilateral Investment Treaties

On 25 February 2016, Poland’s State Treasury announced its intention to terminate its Bilateral Investment Treaties (“BITs”). Poland currently has around 60 BITs in force, all of them signed between 1987 and 1998. Poland concluded BITs with almost every EU Member State (“intra-EU BITs”). It remains, however, the only EU Member State that is not a party to the ICSID Convention. The State Treasury indicated its intention to terminate all 60 BITs. Shortly thereafter a new announcement recommended that the Polish Government take the step of terminating intra-EU BITs only.

Over the past years there have been more than 20 known investment arbitration cases against Poland. 11 cases with a total amount in dispute of more than EUR 2 billion are currently pending against Poland. The actual amount in dispute may be even higher because the majority of cases against Poland remain confidential. Based on publicly available information in a number of cases investors (from Germany, France and the US) were successful in claims under BITs and Poland was ordered to pay compensation.

In its earlier statement the State Treasury said that Poland’s BITs were concluded to incentivize foreign investment in the early 1990s. According to the State Treasury since then the legal framework in Poland became sufficiently stable and “the courts can now rule on cases independently of politics so there is no need to retain investors’ privileges.” It also mentioned that investment arbitrations would be costly, and even when Poland prevailed, it would often be difficult to enforce awards on costs against unsuccessful claimants. The State Treasury concluded that BITs pose a threat to the country’s interests and should be terminated promptly.

In its later statement the State Treasury appears to have taken a less radical position as it now seeks to focus on intra-EU BITs only. It said that BITs are controversial from an EU law perspective and that Poland considered terminating intra-EU BITs already in 2011. Although there is an on-going discussion with regard to the future of intra-EU BITs, to date only three EU Member States (Czech Republic, Ireland, and Italy) decided to proceed with terminating all or selected intra-EU BITs.

Any termination of BITs by Poland will unlikely have immediate effect.  Most BITs contain so-called “sunset clauses” which guarantee investment protection for several years after termination. For example, under both the UK’s and France’s BIT with Poland investments continue to be protected for 15 years after termination whereas under Germany’s BIT with Poland investments continue to be protected for even 20 years after termination. Although the Polish Government may endeavour to shorten the length of post-termination investment protection, it cannot do so unilaterally but would need to obtain the consent of the other contracting party to the BIT.

Notably, the announcement by Poland’s State Treasury comes at a time when the new Polish Government has also taken other measures that are of concern to international investors. For example, the Government planned to introduce a bank tax and legislation regarding the conversion of foreign currency loans, mostly at the expense of banks.

Investors in Poland should carefully follow events and make sure that their investments continue to be covered, to the extent possible, by investment protection guarantees, including by existing investment treaties.