Arbitration SpeedRead: EU Court of Justice declares disputes clauses within intra-EU bilateral investment treaties incompatible with EU law

By Garreth Wong, Benjamin Barrat

04-2018

The Court of Justice of the European Union (CJEU) has delivered a landmark judgment, declaring investor-state dispute settlement (ISDS) clauses within intra-EU bilateral investment treaties (BIT)1 incompatible with EU law.  There are about 200 BITs between EU member states, and some of them have been – and are – the basis of significant claims against EU countries. The decision in Slovak Republic v Achmea BV (Achmea)2 has already given rise to considerable commentary and its wider implications remain to be seen.

In 2008, Achmea (a Dutch insurance provider, previously known as Eureko) brought arbitration proceedings against Slovakia under Article 8 of the 1991 BIT between the former Czechoslovakia and the Netherlands.  A tribunal was constituted under the UNCITRAL Arbitration Rules, with its seat in Germany.  Achmea claimed that various legislative measures introduced by the Slovakian government in 2006 had caused damage to investments it made in Slovakia as a result of market liberalisation. The tribunal found that Slovakia had infringed the BIT and ordered it to pay Achmea damages of approximately €22.1 million. 

Slovakia challenged the tribunal's award in the German courts, inter alia on the basis that the ISDS clause in the BIT was contrary to Articles 18, 267 and 344 of the Treaty of the Functioning of the EU (TFEU).  This action was dismissed at first instance and Slovakia appealed to the Bundesgerichtshof (German Federal Court of Justice) (BGH). The BGH stayed the proceedings and requested the CJEU to rule on the compatibility of ISDS clauses in intra-EU BITs with EU law.   

In advance of the CJEU's ruling, the EU Advocate General Wathelet issued an Opinion on 19 September 2017 stating that the relevant Articles of the TFEU did not preclude the application of ISDS clauses in BITs concluded before the accession to the EU of the relevant Member States.

The CJEU, however, took a different view.  Sitting as a Grand Chamber of 13 judges, the CJEU ruled that ISDS clauses in intra-EU BITs have an adverse effect on the autonomy of, and are therefore incompatible with, EU law. 

The Court reasoned that EU law operates on the fundamental premise that each Member State shares a series of communal values upon which the EU is founded, that the various EU Treaties have established a judicial system intended to ensure consistency and uniformity in the interpretation of EU law, and that this ensures that the specific characteristics and autonomy of the EU legal order are observed.

In relation to Articles 267 and 344, the CJEU held:

  • First, that a tribunal established under an ISDS clause in an intra-EU BIT could be called upon to interpret, and even apply, EU law.
  • Second, that such a tribunal could not be deemed to be a court or tribunal of a Member State for the purpose of Article 267 TFEU, and is not entitled to make a reference to the CJEU for a preliminary ruling.
  • Third, that arbitral awards made by such a tribunal are subject to review by a court of a Member State only to the extent that national law permits. As such, questions of EU law that an arbitral tribunal may have to address could not necessarily be submitted to the CJEU for a preliminary ruling. 

The CJEU distinguished arbitrations under intra-EU BITs from commercial arbitrations on the basis that commercial arbitrations spring from the "freely expressed wishes of the parties", whereas by concluding a BIT, Member States sought to remove from the jurisdiction of their own courts – and hence from the judicial system which TFEU requires them to establish – disputes which may concern the application or interpretation of EU law.  

Consequently the CJEU found that ISDS clauses within intra-EU BITs may preclude disputes giving rise to issues of interpretation of EU law from being decided in a manner that ensures the full effectiveness of EU law, even though they might concern the interpretation or application of that law.  Those ISDS clauses were, therefore, incompatible with EU law. 

The CJEU considered that it was not necessary to respond to the question relating to Article 18 TFEU in light of its conclusions in respect of Articles 267 and 344.  

Of interest will be how investment treaty tribunals interpret the Achmea judgment.  Commentators are already questioning how the Achmea decision will impact on intra-EU arbitrations under ICSID rules.  As of 30 April 2017, 17% of the cases registered by ICSID involved an EU Member State party.  Of these, 43% were based on the Energy Charter Treaty (ECT) (to which the EU itself is a party), while 56% relied on consent found in intra-EU BITs.3  Commentators are also speculating as to the impact of Achmea on intra-EU arbitrations under the ECT, and on tribunals or courts seated outside the EU hearing disputes or dealing with enforcement or appeal applications.

Whilst the full implications of Achmea remain unclear, what does seem almost inevitable is that the decision will result in an increase in the number of challenges to intra-EU BIT arbitration claims.

Part of Bird & Bird's series of Arbitration SpeedReads aimed at providing busy practitioners and in-house counsel with easy to read updates on topical Arbitration issues.

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1 BITs are agreements made between two countries containing reciprocal undertakings for the promotion and protection of private investments made by nationals of the signatories in each other's territories.

2 Case C-284/16.

3 ICSID, 'The ICSID Caseload – Statistics – Special Focus – European Union' (April 2017), available at: https://icsid.worldbank.org/en/Documents/resources/ICSID%20Web%20Stats%20EU(English)April%202017.pdf