Source: http://arbitrationblog.kluwerarbitration.com/2018/09/14/slovak-republic-v-achmea-a-disproportionate-judgment/?utm_source=feedburner&print=print
Timestamp: 2019-04-19 01:12:55+00:00

Document:
The judgment of the Court of Justice of the European Union (CJEU) in Case C-284/16, Slovak Republic v. Achmea B.V. (Achmea) has attracted much comment in many fora, including the Kluwer Arbitration Blog (See e.g., articles authored by Florian Stefan, Clement Fouchard and Marc Krestin, and Vivek Kapoor). This is not surprising. The CJEU held that the arbitration clause contained in Article 8 of the 1991 Netherlands-Slovakia BIT (BIT) is incompatible with EU law, a holding that has significant consequences for intra-EU investment arbitration.
Criticism of the Achmea judgment may have been dismissed by some as the griping of a self-interested international arbitral community (See e.g., Peter Nikitin, “The CJEU’s Achmea Judgment: Getting Through the Five Stages of Grief”, (2018)), but in this article I question whether it constitutes a violation of EU law, on the basis that it violates the principle of proportionality set forth in the Treaty on European Union, and whether its validity may thus be called into question by EU Member State courts.
“1. The limits of Union competences are governed by the principle of conferral. The use of Union competences is governed by the principles of subsidiarity and proportionality.
Thus, the principle of proportionality ought to regulate the exercise of judicial powers by the CJEU.
If the CJEU is required to “ensure constant respect” for the principle of proportionality in the performance of its judicial functions, the question arises whether its judgment in Achmea could be considered to have violated that principle.
The CJEU held that a arbitral tribunal established under Article 8 of the BIT is not part of the judicial system of the EU and since it is provided for by an agreement concluded by Member States (and not by the EU) it is such as to call into question not only the principle of mutual trust between the Member States but also the preservation of the particular nature of the law established by the Treaties ensured by the preliminary ruling mechanism provided for in Article 267 TFEU. In the CJEU’s view, it is not therefore compatible with the principle of sincere cooperation, thus having an adverse effect on the autonomy of EU law (CJEU judgment).
The CJEU judgment sharply contrasts with the carefully reasoned Opinion of Advocate General Wathelet, in which he proposed that the BIT’s arbitration clause is compatible with the preliminary ruling mechanism (and neither constituted discrimination on grounds of nationality nor undermine either the allocation of powers fixed by the Treaties or the autonomy of the EU legal system) (Opinion of Advocate General Wathelet).
“44. I would add that the systemic risk which, according to the Commission, intra-EU BITs represent to the uniformity and effectiveness of EU law is greatly exaggerated. UNCTAD’s statistics show that out of 62 intra-EU arbitral proceedings which, over a period of several decades, have been closed, the investors have been successful in only 10 cases, representing 16.1% of those 62 cases, a rate significantly below the 26.9% of ‘victories’ for investors at the global level.
Advocate General Wathelet arguably would appear to have been mindful that the CJEU’s judgement ought not to “exceed what is necessary to achieve the objectives of the Treaties”. In other words, the CJEU’s judgment ought to be that necessary for achieving the desired objectives and proportionate to any adverse consequences. He demonstrated, among other things, how arbitral tribunals established under Article 8 of the BIT could be considered as part of the judicial system of the EU – an outcome that was arguably the least invasive of the freedom of action of both EU Member States and intra-EU investors, as well as providing for appropriate judicial dialogue – but one that the CJEU ignored.
it has dramatically damaging consequences for intra-EU investment arbitration?
The CJEU judgment cannot be set aside, since it is not subject to judicial review by a higher court. However, it might be ignored.
It is possible that a Member State court – faced with a challenge to an intra-EU investment arbitration award – could decline to give effect to the Achmea judgment where it held that the CJEU exceeded the competence conferred on it by the EU Treaties in the exercise of its judicial functions in that case.
And in a judgment concerning an alleged discriminatory pension scheme in the Czech Republic, the Czech Constitutional Court (CCC) held that in its judgment in Case C-399/09 Landtová the CJEU acted ultra vires and subsequently gave Czech national law precedence over EU law, albeit in a heavily criticized judgment.[fn]See, e.g., Jan Komarek: Playing With Matches: The Czech Constitutional Court’s Ultra Vires Revolution.[/fn] It is notable that in its judgment, the CCC referred to the BVerfG’s earlier judgment to support its ruling.
Hence, there remains the possibility – admittedly remote – of a Member State court finding that the CJEU acted ultra vires in violating the principle of proportionality in its Achmea judgment and thus giving precedence to national law in the enforcement of intra-EU arbitral awards over the CJEU’s judgment. Given the stakes, and with so many extant intra-EU investment arbitrations in play, one cannot rule out the possibility of this scenario presenting itself sooner rather than later.

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