It is a long-standing platitude that ‘history repeats itself’. Yet, like history, law sometimes evolves cyclically. Investment law in the intra-EU context is the most recent example. It has long been common ground in international investment law that the Calvo Clause, requiring foreigners to submit disputes arising in the host State to that State’s local courts, is a remnant of the past. That may no longer be true in the intra-EU investment context. There, the Calvo Clause is resuscitated. On 26 October 2021, the Court of Justice of the European Union (CJEU) issued its judgment in Pl Holdings v Poland (C-109/20). The CJEU held that an ad hoc arbitration agreement between a Member State and an investor of another Member State is incompatible with EU law if this agreement is identical to the content of the arbitration clause “at issue in the case which gave rise to the [Achmea] judgment” (PL Holdings, para 46).

The CJEU’s judgement is exclusively premised on EU law principles. No credit is given to public international law (PIL). This is not novel for CJEU judgements. The silence on PIL principles and rules of interpretation under the Vienna Convention on the Law of Treaties 1969 has been a consistent – although remarkable – feature of other recent judgements, such as Achmea or Komstroy. These judgements ostensibly sit well with the EU Commission’s vigorous and, at times, aggressive anti-arbitration policy. The upshot of this policy is that the Calvo Clause is seeing a renaissance in the EU investment protection system.

The Rise and Fall of the Calvo Clause

The Calvo Clause is an indispensable part of any textbook on investment law. The ILC defines it as “a device employed mainly by Latin American States in the late 19th century and early 20th century, to confine an alien to local remedies by compelling him to waive recourse to international remedies in respect to disputes arising out of a contract entered into with the host State.” The clause is a contrivance of the Argentinean jurist Carlos Calvo. A concept engineered as a riposte to international investment law concepts developed and propagated by the United States and European States. The purpose was to limit diplomatic interventions. Simply put, foreigners entering a State for investment purposes should not be treated more favourably than nationals.

Latin American States readily adopted the Calvo Clause in their legal systems. Some States incorporated the Calvo Clause in their constitutions. The Peruvian Constitution of 1933 is a prominent example (see Salacuse). Other States introduced the clause through legislation. A 1938 law of Ecuador, for instance, provided that “the foreigners, by the act of coming to the country, subjected themselves to the local laws without any exception and may in no case, nor for any reason, avail themselves of their status as foreigners against laws, jurisdiction and police” and subjected contractual rights of foreigners “to exclusive jurisdiction of the national judges and courts” (see Salacuse).  Most commonly perhaps, States adopted the Calvo Clause in investment contracts, compelling investors to pursue claims in local courts and relinquish the right to diplomatic protection (see, for instance, the contract at issue in the famous North American Dredging case).

The proliferation of Bilateral Investment Treaties (BITs), coupled with Article 26 of the ICSID Convention, markedly diminished the relevance of the Calvo Clause. They removed investors from the restrictions of Calvo Clauses. Of course, variations of the clause still exist. This includes BITs requiring investors to use local remedies for a certain period of time (see Maffezini v Spain) or forum selection clauses. Moreover, the notion of exhaustion of local remedies is incorporated into the substantive standard (see Waste Management v Mexico). Despite these variations, the argument that there is “little room for a resurrection of the Calvo Doctrine” (MPIL) in international investment law would face virtually no opposition.

The Renaissance of the Calvo Clause in the intra-EU context

Although inconceivable some years ago, today the proposition that the Calvo Clause is a relict of the late 19th and early 20th century must come with an asterisk, clarifying that this is no longer necessarily true in the intra-EU context. The PL Holdings judgement may have reinforced the need for an asterisk. The key issue in that case was whether Member States are precluded from concluding with investors from another EU Member State an ad hoc arbitration agreement identical to an arbitration clause embodied in a BIT (in that case, the BIT between the Belgium-Luxembourg Economic Union and Poland, BLEU – Poland BIT). The CJEU answered in the affirmative. Of course, the CJEU judgement did not come unqualified. The CJEU held that its judgement concerns ad hoc agreements identical to the arbitration clause “at issue in the case which gave rise to the [Achmea] judgment” and “capable of leading to a situation in which an arbitration body rules in disputes which may concern the application or interpretation of EU law” (PL Holdings, para 46). Like the BIT subject to the Achmea judgement, the BLEU – Poland BIT specifically requires the arbitral tribunal to apply the “national law of the Contracting Party that is a party to the dispute“.

Despite this caveat, the EU Commission will welcome the PL Holdings judgment as an endorsement of its anti-arbitration policy, which consists of two limbs. The first (substantive) limb is that intra-EU BITs confer rights only in respect of investors from one of the two Member States concerned. In the Commission’s eyes, this conflicts with the EU law principle of non-discrimination amongst EU nationals. The second (procedural) limb is that rules protecting investments must be prosecuted in domestic litigation; an absolute local remedies requirement irreconcilable with the arbitration facility commonly embodied in intra-EU BITs. Here, too, the EU Commission may seek comfort in the PL Holdings judgement. After all, it centers on Article 19(1) of the Treaty on the EU (TEU), a provision mandating Member States to “provide remedies sufficient to ensure effective legal protection in the fields covered by Union law“. In the CJEU’s view, Member States may not, as a matter of EU law, remove disputes from the jurisdiction of their own courts because they would, by implication, remove those disputes from the system of judicial remedies Article 19(1) TEU requires them to provide in areas subject to EU law (PL Holdings, para 45). Construed as such, the EU Treaties share more traits with the Peruvian Constitution of 1933 and Ecuador’s legislation in the 1930s than one might expect.

Indeed, it is hard to resist drawing a parallel between the EU’s anti-arbitration policy and the doctrine developed by Carlos Calvo. Like Calvo, the EU Commission argues that investors entering a State for investment purposes should not be treated more favourably than other EU nationals. And, like Calvo, the EU Commission argues that investors shall be required to submit disputes arising in the host State to that State’s local courts. Yet, the EU’s variation of the Calvo Clause is distinct in two respects, making it perhaps more radical.

The first is that, unlike, e.g., the Calvo Clause embodied in the Bolivian constitution (see Salacuse), the EU’s variation is absolute. No exception applies to expropriatory measures or cases of denial of justice. Simply put, the EU Commission appositely reprimands Poland or Hungary for devising legal systems inimical to core rule of law principles. Yet its advice to investors is to place trust in the judiciary of those States. The second distinction is that the EU’s variation of the Calvo Clause exclusively applies to intra-EU investments. While intra-EU investors shall be corralled to the vagaries of domestic courts, extra-EU investors may still access arbitration through extra-BITs. This inevitably creates an asymmetry, conferring extra-EU investors a competitive advantage compared to intra-EU investors. The EU seeks to protect the sovereignty of its legal order, yet at the price of enfeebling its single market. This asymmetry pressingly calls for a new investment protection system. By the end of 2021, the EU Commission may finally make good on its promise to adopt an ‘Investment protection and facilitation framework’. Unless the EU Commission puts intra-EU investors on an equal footing with extra-EU investors (substantively and procedurally), its actions (and omissions) will be instrumental in devising a fragile EU in a fragile world.


Due in no small part to the mechanics of BITs and Article 26 of the ICSID Convention, the Calvo Clause has been put aside in international investment law. That is no longer necessarily the case in the intra-EU context, where the Calvo Clause has been resuscitated by EU institutions. As a consequence, the CMS v Argentina tribunal’s famous observation that “Carlos Calvo, a distinguished Argentine jurist who fathered the Calvo doctrine and clause, will not become an honorary citizen of countries having entered bilateral investments treaties” may have lost force. The EU Commission may well grant this accolade. The more apposite course of action, however, would be to ensure adequate protection of intra-EU investors and so safeguard the vitality of the single market.


Sebastian Lukic has been with Schoenherr since 2016. Sebastian’s main areas of practice are EU law, public international law, and international arbitration.

Christoph Lindinger is a partner at Schoenherr. He has been heading the firm’s dispute resolution practice for several years, having previously been active in mergers & acquisitions.