Source: https://www.reedsmith.com/en/perspectives/2018/04/the-cjeu-preliminary-ruling-in-slovak-republic-v-achmea-bv
Timestamp: 2019-04-18 18:51:18+00:00

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The CJEU Preliminary Ruling in Slovak Republic v Achmea BV – what does it mean for arbitration under intra-EU BITs?
Home Perspectives The CJEU Preliminary Ruling in Slovak Republic v Achmea BV – what does it mean for arbitration under intra-EU BITs?
On March 6, 2018, the Court of Justice of the European Union (CJEU) published its preliminary ruling in Slovak Republic v Achmea BV (Ruling), which held that the application of the investor-state dispute settlement (ISDS) provision at Article 8 of the Netherlands-Slovakia bilateral investment treaty (BIT) was incompatible with EU law. In particular, the CJEU held that Articles 267 and 344 of the Treaty of the Functioning of the European Union (TFEU) must be interpreted as precluding a provision in an international agreement concluded between Member States under which an investor from one Member State may bring proceedings against another Member State before an arbitral tribunal.
The Ruling (which does not apply to commercial arbitration) gives rise to a number of questions as to how ISDS provisions in intra-EU BITs can be applied in the future and whether arbitral tribunals will be able to accept jurisdiction over disputes arising under investment treaties involving an EU Member State.
In December 2012 a Tribunal seated in Germany rendered its Award in the arbitration brought by Achmea against the Slovak Republic under Article 8 of the Netherlands-Slovakia BIT. Arbitration under the UNCITRAL Rules is a form of ad hoc arbitration, and since Germany was chosen as the place of the arbitration the arbitration proceedings were governed by German law.
precluded by Article 344 TFEU, which provides for the exclusivity of the jurisdiction of the CJEU for disputes concerning the interpretation or application of EU treaties?
precluded by Article 267 TFEU, which provides for the mechanism by which the courts and tribunals of EU Member States can refer questions of EU law to the CJEU for a preliminary ruling?
contrary to the anti-discriminatory provisions under Article 18.1 TFEU on the grounds that the protections afforded by BITs are not universally applicable to all EU Member States?
The Ruling responds in the affirmative to the first two questions and fails to consider the third.
The CJEU reasoned first that the specific wording of Article 8 of the BIT, which provides that the tribunal take into account the law in force of the contracting party (here Slovak law) and other relevant agreements between the contracting parties (to include EU Treaties), means that the Tribunal may be called on to interpret or apply EU law.
Secondly, it considered that investment treaty arbitration tribunals cannot be classified as a court or tribunal of a Member State and by virtue of not being situated within the EU judicial system are not entitled to make use of the “keystone” of the EU judicial system, the preliminary ruling procedure provided for in Article 267 (securing uniform interpretation of EU law).
Finally, the CJEU criticized the absence of a universally applicable mechanism for judicial review of an arbitral award since any such review will take place within, and be subject to, the national law of the country of the arbitration seat, which differs by jurisdiction.
The Ruling was unexpected, not least because it is contrary to Advocate General Wathelet’s opinion that ISDS was NOT incompatible with EU law. It has created discord between the EU Member States, with some coming out in solidarity with the European Commission (EC) and others supporting AG Wathelet. What is clear is that it has left the position entirely unclear.
The Ruling (which cannot be appealed) is specific to the BIT and will apply to ad hoc investment treaty arbitrations under the particular BIT, seated within an EU Member State. The position as regards other BITs and alternate arbitral fora is less clear-cut and the Ruling raises more questions than it answers. At the extreme, the consequences are far-ranging. At the very least, they are conflicting, uncertain and entirely unsatisfactory.
An intra-EU BIT that does not make reference to intra-Member State agreements may not be caught by the Ruling. However, the Ruling states that EU law forms part of the law in force in every Member State. This surely leaves the door open to jurisdictional challenges where a tribunal is tasked with interpreting or applying the law of a Member State under other intra-EU BITs and the arbitration is seated within the EU.
Ad hoc arbitral rules permit the parties to seat the arbitration outside the EU, although it may now be difficult to get the State party to the arbitration to agree. The CJEU has no jurisdiction over proceedings conducted outside of its borders.
By extension, there are arguably grounds to resist jurisdiction under an EU-non-EU BIT with an EU Member State respondent where the arbitration is seated within the EU and domestic and EU law is at stake.
ICSID is an independent dispute settlement institution governed by the Washington Convention of 1965 (ICSID Convention). ICSID tribunals derive jurisdiction under the ICSID Convention and ICSID arbitrations are seated in Washington D.C. Contracting states are obliged to disapply their domestic arbitration legislation and it follows that the Ruling will not by default bind an ICSID Tribunal.
It will be open to investors to challenge the jurisdiction of an ICSID Tribunal to hear disputes arising under intra-EU BITs in reliance on the Ruling; however, any decision in this regard will be decided by the Tribunal. The CJEU has no authority.
The incompatibility issue has been raised by respondent States in a number of ICSID arbitrations, and the EC has supported a number of the objections through the submission of amicus curiae briefs. ICSID Tribunals have without exception rejected these submissions and refused to decline jurisdiction on this basis.
At the date of publication there are 24 pending ICSID cases that relate to disputes arising under intra-EU BITs. On March 19, 2018, the ICSID Tribunal in Addiko Bank AG and Addiko Bank d.d. v. Croatia was constituted to hear claims brought under the Croatia-Austria BIT following ICSID’s appointment of Jean Kalicki as presiding arbitrator. This Tribunal may be the first ICSID tribunal to be tasked with considering a jurisdictional challenge in reliance on the Ruling, and any decision in this regard will provide guidance on the approach that may be adopted by ICSID Tribunals in the future.
The Ruling also gives rise to questions around the ISDS provisions within the ECT, which has generated more investor-state claims between EU Member States than any other treaty. Spain has already requested that a pair of arbitral tribunals reopen their proceedings so that it can submit the Ruling into evidence. It remains to be seen whether intra-EU claims under the ECT will be prohibited.
Arguably, the Ruling has the effect of rendering 196 intra-EU BITs obsolete, in circumstances where most EU Member States have taken no steps to terminate their intra-EU BITs despite directions to do so from the EC. Investors who have structured their investment within the EU in reliance on these BITs could be left exposed. This could conceivably give rise to claims for a breach of legitimate expectations under the Fair and Equitable Treatment protection typically included within BITs and could spawn a raft of claims on this basis alone. It’s very much a case of “watch this space.
What is certain is that the Ruling will be the subject of debate by arbitral tribunals in the weeks and months to come. Further guidance on the relationship between ISDS and EU Law may also be given by the CJEU when it renders its opinion on the referral from Belgium as to whether the investment protection rules set out in Chapter Eight of the EU Canada Comprehensive Economic and Trade Agreement conform to EU Treaties.

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