Further to a request for a preliminary ruling from the German Federal Court of Justice, the Court of Justice of the European Union (CJEU) rendered its decision in Slovak Republic v Achmea BV on 6 March 2018. The CJEU ruled that the arbitration clause included in the bilateral investment treaty (BIT) between the Netherlands and Slovakia is incompatible with EU law. Surprisingly, the CJEU did not follow the earlier opinion of Advocate General (AG) Wathelet. In his opinion, AG Wathelet suggested that EU law does not preclude the application of an investor-state dispute settlement (ISDS) mechanism established by a BIT.
This development is one of the latest blows to investment arbitration between EU investors and EU states. Others include the moves of the EU Commission in Micula v Romania and Eiser v Spain. In both cases, the EU Commission has strongly opposed payment on the basis of the respective awards and claimed that enforcement of the awards would constitute unlawful state aid under EU law.
This all begs the question of what the future has in stock for investment arbitration between EU investors and EU states.
While uncertainty looms on that question, there are some preliminary developments already that are worth mentioning.
On 31 October 2018 and following Achmea, the German Federal Court of Justice set aside the award in Achmea v Slovak Republic, stating that there never was a valid arbitration agreement between Achmea and the Slovak Republic.
On the contrary, the arbitral tribunals in in Masdar v Spain, Vattenfall v Germany and UP and C.D v Hungary have already heard objections based on Achmea. Although their reasonings are based on various arguments, all three tribunals have decided to dismiss such objections.
Be that as it may, EU states have begun to raise objections on the basis of Achmea. Spain has done so in setting aside proceedings in Novenergia v Spain, while Poland followed suit in the setting aside proceedings in PL Holdings v Poland. Both of these proceedings are pending before the Svea Court of Appeal. In Edenred v Hungary, Hungary is seeking to revise the award rendered in favor of an EU investor and have it annulled at the same time, pursuant to Achmea. It is also likely that Hungary has raised another similar objection in its dispute against Sodexo Pass International.
It remains to be seen what the fortune of such challenges will be. In any case, this uncertainty may make non-EU arbitral seats more attractive to EU investors that would like to set up shop in another EU country, unlike the case in Achmea, where the German seat of arbitration gave jurisdiction to the German courts to hear applications to set aside the award at hand, and to the CJEU to decide on the request for preliminary questions of the German courts. It may also incentivise EU investors to structure their investment through a non-EU subsidiary for investment treaty purposes. EU investors may also give up on investment arbitration and opt for other dispute settlement mechanisms. To wit, Airbus has recently decided to withdraw its investment arbitration claim against Poland, all due to Achmea.
Finally, enforcement of awards under an intra-EU BIT may prove difficult in the EU as a result of the aforementioned developments. A potential solution, which is already tested by investors, is enforcement in the US, as has been the case in Micula and Novenergia.
In conclusion, while Achmea is not necessarily the death knell for arbitration between EU investors and EU states, it is certain that it will affect investment arbitration in one way or another. EU investors will need to stay vigilant, explore alternatives and structure their investments in EU states through third countries in order to be able to secure maximum investment protection. Otherwise, it remains questionable whether EU investors will be able to ensure protection of their investments in EU states, as EU law may not be able to offer the same warranties as BITs do.
The views and opinions expressed in this post are those of the author and do not necessarily reflect those of Philips.