Source: http://arbitrationblog.kluwerarbitration.com/2019/01/16/2018-in-review-the-achmea-decision-and-its-reverberations-in-the-world-of-arbitration/
Timestamp: 2019-04-22 05:09:05+00:00

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Very rarely would a single arbitration-related decision produce as significant an impact as the judgment of the Court of Justice of European Union (“EU” and “CJEU” respectively) in the Achmea case did during 2018. We should not doubt that Achmea will remain a cornerstone issue in the world of arbitration for a long period of time. This post attempt to summarize the Achmea debate thus far.
What the CJEU Reasoned in Achmea?
The CJEU succinctly ruled on a number of issues that were important for the supremacy of EU law and, indirectly, the role of EU institutions. The investment treaty arbitration system (“ITA”) had long been, if not rejected, at least not heartily welcomed by the EU. The clash could have been foreseen and cracks appeared long ago before Achmea, especially in the context of the Micula case against Romania. So, an Achmea judgment was something inevitable – it had to come to the scene.
However, the actual decision did not say much. It approached the issue of clash/overlap between ITA and EU law from the standpoint of EU law. In para 33, the CJEU reiterated the autonomy and supremacy of EU law. In para 34, the CJEU stressed the mutual trust between EU Member States. In para 42, the CJEU considered that an arbitral tribunal may have to apply EU law to questions such as freedoms provided in the Treaty on the Functioning of the European Union. According to para 54, the outcome of commercial arbitration may be subject to review by Member State courts for the purpose of enforcement. In para 56-58, the CJEU reasoned that the effectiveness of EU law may be undermined as EU-related disputes are referred to bodies that are outside the EU jurisdiction. Hence, concluded the Court, the Netherlands-Slovakia BIT in particular, is not compatible with EU law.
What Achmea Was Silent About?
The CJEU did not usher a word regarding the Vienna Convention on the Law of Treaties (“VCLT”), although it is the international treaty governing the conclusion, interpretation, validity and invalidity of treaties. Neither did it mention the New York Convention, although it is the treaty governing the Achmea judgment. This left a number of questions unanswered.
Firstly, if EU law precludes ITA, what happens with the ITA itself, i.e., does it make it invalid altogether? However, the invalidity of international treaties is regulated by the VCLT, yet, the CJEU did not refer to it. Moreover, if EU law precludes ISDS, what happens with the arbitration clause? How should it be treated in the course of attempted enforcement or setting aside of the arbitral award – as invalid? On what grounds of invalidity?
The next line of questions concerns the scope of the Achmea decision. What is the ambit of Achmea, i.e., does it encompass all ITA, or should it be read only strictu sensu regarding the particular dispute under the Netherlands-Slovakia BIT? Does Achmea refer to all BITs, if it is read expansively, or should be even wider and encapsulate also multilateral agreements such as the Energy Charter Treaty (“ECT”), which is the basis for a significant number of arbitration proceedings? How does Achmea sit with ICSID arbitration, as the ICSID system is based on a multilateral treaty? Should there be any difference between an EU-seated tribunal that is bound by the CJEU and EU law, and a non-EU-seated one? In other words, how far does the Achmea go – from being a specific and idiosyncratic ruling to a global condemnation on ITA in the way it currently is?
The questions posed would in effect delimit the perimeter of Achmea – and its ultimate significance. As these questions were not answered by the CJEU, we can expect that the answers will be given by other stake-holders in the near future: states, EU Member States, institutions like ICSID, EU institutions, national courts of EU Member States and non-EU Member States alike, investors, and others. These questions are the tidal wave, and the reality of investor-State relations and disputes is the shoreline this wave has been hitting since Achmea appeared on the stage.
Achmea has already been interpreted and reflected upon by a number of stakeholders.
In Masdar Solar v. Spain (ICSID Case No. ARB/14/1), the tribunal considered that Achmea decision is merely silent on the relevance of ECT. It can be inferred that the tribunal deemed Achmea not applicable to multilateral agreements like ECT.
Another tribunal, in UP and C.D Holding Internationale v. Hungary (ICSID Case No. ARB/13/35) where a BIT is applicable, considered that Achmea cannot excuse non-compliance with public international law. It can be inferred that the tribunal reasoned that issues of EU law should not stand against treaty obligations of States and an ITA tribunal applies the particular treaty at hand, without regard of other legal regimes such as EU law.
The most comprehensive ruling of an ITA tribunal thus far is in the Vattenfall v. Germany (ICSID Case No. ARB/12/12) case. First, the tribunal rejected application of Art. 31 of VCLT as the tribunal accepted that EU law is not part of general international law and cannot constitute principles applicable as between the parties. The tribunal’s primary purpose was that the treaty at hand is applied without reading into it other laws/agreements/international obligations. Moreover, the ECT could even be assumed as a later concluded treaty (lex posterior) or a special regime (lex specilis). On whichever of these grounds, the tribunal unflaggingly assumed that the Achmea decision is not relevant to ECT-based cases. Moreover, Art. 16 of the ECT should be directly applied to preclude the relevance of other international agreements/obligations. Further, the more favourable regime to an investor is the ECT in terms of dispute resolution, so the tribunal accepted EU law should not be overriding the ECT.
Finally, it is worth mentioning that a number of national courts reviewed Achmea thus far.
The German court reviewing the application for setting aside of the Achmea award took CJEU’s words verbatim and set aside the Achmea award. The German court accepted that EU law precludes arbitration and the tribunal seated in Germany did not have jurisdiction to render award. The EU obligations did obstruct Slovakia to provide relevant consent for validity of arbitration.
The issue remains in flux: Currently, a plea to this extent is pending in two courts – in Sweden, and in New York. In the context of an action to set aside the award under the Novenergia v Spain award in Swedish courts, Spain requested that the court seeks preliminary ruling from the CJEU with focus on ECT. The same award is also resisted in US courts, as in the court of District of Columbia Spain has put forward Achmea opposition as well.
Achmea has two potential outcomes – either to dramatically change the world of ITA, or to have very limited impact and gradually fade away. It seems that Achmea is and will be an important factor in the world of arbitration. Arbitral tribunals apparently struggle to restrict its significance and find a way to pass it by. However, the Achmea decision is the flag that the EU Commission needed to reinvigorate its campaign against intra-EU ITA. The EU Commission is currently very active to request participation in pending ITA cases and the Commission, along with states, raises Achmea-based challenge to the jurisdiction of arbitral tribunals. The matter had reached national courts, too – inside and outside the EU. Hence, Achmea reminds us once more of the ancient curse of living in interesting times.

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