European Union: Slovak Republic v Achmea BV: Is It Time To Re-Invent The Intra-EU BIT Wheel?

Introduction

There are 196 bilateral investment treaties ("BITs") currently in force between Member States of the European Union ("EU"). Are those treaties incompatible with EU law by virtue of allowing arbitral tribunals to interpret EU law without review by EU courts? If intra-EU BITs are unenforceable for this reason, does this mean investor-state arbitration in EU Member States' external treaties is also a violation of EU law?

In the March 6, 2018 judgment of Slovak Republic v Achmea BV ("Achmea"), the Court of Justice of the European Union ("CJEU") found that the arbitration clause contained in the 1991 BIT between the Netherlands and Slovakia is, because of an adverse effect on "the autonomy of EU law", incompatible with EU law. Even though investment treaty tribunals are not bound by this decision, the consequences of Achmea may be far-reaching. It calls into question the investor-state arbitration mechanisms in the 196 intra-EU BITs and may signify a need for an entirely new approach to intra-EU investment arbitration. Importantly, it may also point towards difficulties in enforcing arbitral awards made in favour of Canadian investors in the context of the investor-state arbitration mechanism provided for under the Canadian-EU Comprehensive Economic and Trade Agreement ("CETA").

Background

The CJEU's judgment arose out of a dispute between Achmea B.V., a Dutch insurer, and Slovakia. In 2006, Slovakia partly reversed the liberalization of its private sickness insurance market and prohibited the distribution of profits generated by private sickness insurance.1 Achmea alleged that these changes effectively destroyed the value of its investment in Slovakia and brought arbitration proceedings under the BIT on the grounds that the prohibition was contrary to the BIT.2

During the proceedings, Slovakia argued that recourse to an arbitral tribunal, as provided for in Article 8(2) of the BIT, was incompatible with EU law.3 The Tribunal dismissed the objection and, on December 7, 2012, found that Slovakia had indeed violated the BIT and ordered it to pay EUR 22.1 million in damages to Achmea.4

Slovakia brought an action before the German courts5 to set aside the arbitral award, taking the position that the arbitral tribunal lacked jurisdiction to hear the claim because the BIT arbitration clause was incompatible with EU law.6 The Higher Regional Court of Frankfurt am Main dismissed the action but Slovakia appealed to the German Federal Court of Justice.7 The Court offered the view that the arbitration clause was not contrary to the Treaty on the Functioning of the European Union ("TFEU") but referred questions regarding the compatibility of the BIT's arbitration clause with EU law to the CJEU for a preliminary ruling.8

Advocate General Wathelet's Opinion

On September 19, 2017, Advocate General ("AG") Wathelet delivered his opinion on the case,9 concluding that intra-EU BITs and the arbitration clauses contained therein were compatible with EU law. In particular, AG Wathelet found that:

  • The BIT did not constitute discrimination on grounds of nationality by granting Dutch investors the right to have recourse to international arbitration against Slovakia and, thus, did not violate TFEU Article 18;10
  • The arbitral tribunal constituted under the BIT was a court or tribunal within the meaning of TFEU Article 267, common to two Member States, and was therefore permitted to request the CJEU to give a preliminary ruling on questions of EU law;11 and
  • Disputes between an investor and a Member State do not fall within the scope of TFEU Article 344 and, thus, do not raise issues of interpretation or application of the EU Treaties.12

The CJEU Judgment

On March 6, 2018, the CJEU departed from AG Wathelet's opinion and the position taken by the German courts. It found that EU law precludes BIT arbitration clauses on the basis that:

  • An arbitral tribunal established under the BIT must rule on the basis of the law of the contracting parties involved, as well as other agreements between the contracting parties, which includes EU law.13 As a result, the CJEU concluded that the arbitral tribunal could be called upon to interpret or apply EU law;14
  • An arbitral tribunal established under the BIT cannot be regarded as a "court or tribunal of a Member State" within the meaning of TFEU Article 267 because it cannot be classified as part of the judicial system of the Netherlands or Slovakia.15 Accordingly, the CJEU found that the arbitral tribunal has no power to make a reference to the Court for a preliminary ruling;16 and
  • The decision of the arbitral tribunal is, in principle, final and subject only to judicial review by the competent national courts and then only to the extent that national law permits.17 Although the scope of judicial review of arbitral awards in the context of commercial arbitration proceedings may legitimately be limited, that limitation cannot be applied to investor-state arbitral proceedings without putting the European courts in an inferior position as regards the application of European law.18 While commercial arbitrations originate in the freely expressed wishes of contractual parties, investor-state arbitrations derive from a treaty by which Member States remove matters from the jurisdiction of their own courts, and hence from the system of judicial remedies demanded by the TFEU in the field of EU law.19 Thus, the CJEU found that the BIT arbitration clause imposed a mechanism for settling investment disputes which was incapable of ensuring the proper application and full effectiveness of EU law.20

Consequences of Achmea

The logic of this decision may escape many arbitration practitioners. Any arbitral panel in any context is called upon to base its decision on the applicable law. If that law is European, the EU courts are avoided by parties who choose to settle their dispute through arbitration. The CJEU's decision in Achmea is, in this way, a shot across the bow of all arbitration (and arguably all litigation in a forum other than Europe) involving disputes as to the meaning and effect of EU law.

Parties are unable to appeal a judgment from the CJEU, as it is the highest court with the authority to interpret EU law. Accordingly, Achmea is likely to have far-reaching effects on the arbitral community.

Achmea may impose significant obstacles to foreign investors who wish to enforce an arbitral award made under an intra-EU BIT. Since courts of EU Member States must comply with the CJEU's judgment when ruling on applications for enforcement of arbitral awards, investors may be forced to seek enforcement outside the EU. With regard to new disputes under intra-EU BITs, investment treaty tribunals may have to decline jurisdiction or risk that an award may be set aside or denied enforcement.

Achmea also informs the ongoing debate on the future of EU investor-state arbitration. The European Commission has actively opposed investor-state arbitration under existing intra-EU BITs, going so far as to request various EU States to terminate their intra-EU BITs.21 Achmea may effectively remove BIT arbitration as an option for EU investors to settle disputes with EU Member States. Politically, to fill the void, the decision has set in motion the potential creation of a multi-lateral investment court ("MIC"), a permanent body to settle investment disputes that would eventually replace intra-EU arbitration proceedings.

For Canadian parties, Achmea calls into question whether CETA and its Investment Court System ("ICS") are compatible with EU law given:

  • The CJEU's concerns in Achmea about maintaining the autonomy and fundamental freedoms of EU law apply logically to all aspects of EU law, including all the provisions that regulate economic activities in the context of the CETA investment protection provisions;
  • The CETA Tribunal is not authorized to request a preliminary ruling from the CJEU; and
  • The CETA Tribunal's decisions are intended to be final and are subject to review only by an appellate tribunal, which is not authorized to consider whether the decision is compatible with EU law.

In September 2017, Belgium requested an opinion from the CJEU on the compatibility of the ICS with EU law, including an opinion on the exclusive competence given by EU law to the CJEU to provide the definitive interpretation of EU law.22 While the CJEU has yet to release its decision, there are hopes that it will clarify the legal framework in which CETA, the ICS and, by extension, the MIC, may be established.

Footnotes

1 Slowakische Republik (Slovak Republic) v Achmea BV, Court of Justice of the European Union, Judgment, Case C-284/16 (Mar. 6, 2018) at para 8 [Slovak Republic v Achmea BV].

2 Slovak Republic v Achmea BV, supra at para 9.

3 Slovak Republic v Achmea BV, supra at para 11.

4 Slovak Republic v Achmea BV, supra at paras 11-12.

5 Since the seat of arbitration was Frankfurt am Main, German law applied and German courts had jurisdiction to review the lawfulness of the arbitral award.

6 Slovak Republic v Achmea BV, supra at para 25.

7 Slovak Republic v Achmea BV, supra at para 12.

8 Slovak Republic v Achmea BV, supra at para 14;  Slovak Republic v Achmea BV, Court of Justice of the European Union, Opinion of Advocate General Wathelet, Case C-284/16 (Sep. 19, 2017) at para 29 ["Opinion of AG Wathelet"].

9 The Advocate General's Opinion is not binding on the CJEU. It is the role of the Advocates General to propose to the CJEU, in complete independence, a legal solution to the cases for which they are responsible.

10 Opinion of AG Wathelet, supra at para 82.

11 Opinion of AG Wathelet, supra at para 85.

12 Opinion of AG Wathelet, supra at para 159.

13 Slovak Republic v Achmea BV, supra at para 40.

14 Slovak Republic v Achmea BV, supra at para 42.

15 Slovak Republic v Achmea BV, supra at para 45.

16 Slovak Republic v Achmea BV, supra at para 49.

17 Slovak Republic v Achmea BV, supra at paras 52-53.

18 Slovak Republic v Achmea BV, supra at para 54.

19 Slovak Republic v Achmea BV, supra at para 55.

20 Slovak Republic v Achmea BV, supra at para 56.

21 European Commission, "September infringements' package: key decisions" (Brussels: September 2016), URL: http://europa.eu/rapid/press-release_MEMO-16-3125_en.htm

22 Minister Reynders, "Belgian Request for an Opinion from the European Court of Justice" (Belgium: September 2017) at 2, URL: https://diplomatie.belgium.be/sites/default/files/downloads/ceta_summary.pdf

To view the original article please click here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions