European Union: The European Court Of Justice Decides That It Lacks Jurisdiction To Rule In Relation To Slovenia's Violation Of Its Obligations Of Good Faith In The Maritime Boundary Arbitration Between Slovenia And Croatia And Croatia's Subsequent Refusal To Implement The Tainted Arbitral Award

On 31 January 2020, the Grand Chamber of the European Court of Justice (the "ECJ") issued the long-awaited decision in the Slovenia v. Croatia case, declaring that it lacks jurisdiction to rule on the Republic of Slovenia's action brought against the Republic of Croatia under Article 259 of the Treaty on the Functioning of the European Union (the "TFEU") (Judgment of the European Court of Justice, 31 January 2020).

The ECJ ruled that the alleged infringements of EU law pleaded by Slovenia would be merely ancillary to the claimed failure by Croatia to comply with the obligations arising from the arbitration agreement and the arbitral award, which was tainted by Slovenia's fraudulent misconduct during the arbitration itself (see below).  The ECJ concluded that the subject matter of the dispute does not fall within the EU's competence and advised the two EU Member States to "strive sincerely to bring about a definitive legal solution consistent with international law".

Background

Since the declaration of independence of Croatia and Slovenia from the Socialist Former Republic of Yugoslavia in 1991, the two States have been disputing their land and maritime boundaries.

Following its accession to the EU, Slovenia took the position that it would veto Croatia's entry into the EU unless Croatia agreed to resolve their maritime boundary dispute by binding third party dispute settlement under terms and procedures insisted upon by Slovenia.  Thus, in November 2009, Croatia and Slovenia signed the arbitration agreement proposed by Slovenia which provided, inter alia, for their maritime delimitation dispute to be submitted to arbitration.

The arbitration proceedings took place under the aegis of the Permanent Court of Arbitration in The Hague.  In 2015, the arbitration proceeding became tainted by scandal when it was uncovered that Slovenia had been secretly and illegally communicating about the case and the Tribunal's deliberations with the Slovenian national whom it had appointed as arbitrator.  In light of this bad faith misconduct by Slovenia, Croatia disavowed the arbitration.  Curiously, notwithstanding the admission by Slovenia that it had indeed communicated inappropriately with its arbitrator (and thus violated public international law), the Tribunal nevertheless issued an arbitral award on 29 June 2017 that purported to delimitate the maritime boundaries between the two States.

Croatia objected to the arbitral award on the basis of Slovenia's misconduct and the consequent violation of the procedural integrity of the arbitration.  This prompted Slovenia to raise the issue with the ECJ under Article 259 of the TFEU.  Thus, in July 2018, Slovenia brought an action before the ECJ against Croatia requesting the Court to declare that Croatia is in breach of EU law by refusing to fulfil its obligations under the arbitration agreement and the arbitral award.  In December 2018, Croatia raised an objection of inadmissibility and requested the ECJ to dismiss Slovenia's action.

By a judgment of 31 January 2020, the Grand Chamber of the ECJ held that it has no jurisdiction to rule on the boundary dispute between Croatia and Slovenia.

Key findings of the Court

In deciding that it has no jurisdiction to rule on the Croatia-Slovenia boundary dispute, the ECJ restated its position from Commission v. Belgium, in which it held that it lacks jurisdiction to rule on the interpretation of an agreement concluded between the EU Member States, whose subject matter falls outside of the areas of EU competence.

In the present case, the ECJ found that the boundary dispute falls outside the areas of EU competence set out in Articles 3-6 TFEU.  It held that the arbitral award was issued pursuant to the arbitration agreement, which was governed by international law and to which the EU was not a party.

In this context, it held that the links between the conclusion of the arbitration agreement and the process of negotiation and accession by Croatia to the European Union, in particular its offer of good offices and signing of the arbitration agreement on behalf of the EU, were insufficient to make the arbitration agreement and award an integral part of EU law.

The ECJ also made clear that the Act of Accession of Croatia to the European Union, which contained an implied reference to the arbitration award under the arbitration agreement, "cannot be interpreted as meaning that the Act of Accession incorporated into EU law the international commitments entered into by the Republic of Croatia and the Republic of Slovenia under the arbitration agreement, in particular the obligation to observe the boundary established in the arbitration award".

With regard to the delimitation and demarcation of territories between Croatia and Slovenia, the Court held that it is for each Member State to define the extent and limits of its territory in accordance with public international law in situations when treaties lack a more precise definition of the territories.  The ECJ held that it is not within the Court's powers to determine the extent and the limits of the territories of Croatia and Slovenia.

Finally, the ECJ held that Croatia and Slovenia should "strive sincerely to bring about a definitive legal solution consistent with international law" and "bring their dispute to an end by using one or other means of settling it".  The ECJ suggested the novel idea that the two EU Member States could submit their dispute to the Court under a special agreement in accordance with Article 273 of the TFEU.  According to Article 273, it is possible for the ECJ to have jurisdiction to adjudicate a dispute between EU Member States on the jurisdictional basis that such a dispute is submitted under a special agreement concluded between the Member States.

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