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A Swedish solution to Achmea? | James Hope | CDR Article
Home Articles A Swedish solution to Achmea?
A Swedish solution to Achmea?
James Hope Erik Sjöman 24/09/2018
In light of the uncertainly created by the CJEU’s recent decision in Slovak Republic v Achmea, Jame...
In light of the uncertainly created by the CJEU’s recent decision in Slovak Republic v Achmea, James Hope and Erik Lagerlöf of Advokatfirman Vinge in Stockholm provide some alternate perspectives on how issues of competing laws can be tackled.
Much has already been written regarding the decision of the Court of Justice of the European Union (CJEU) in Slovak Republic v Achmea BV. To summarise very briefly, the CJEU decided in that case that the dispute resolution provisions of a bilateral investment treaty (BIT) between the Netherlands and the Czech and Slovak Federative Republic were ‘precluded’ by mandatory requirements of European Union law.
It remains to be seen what the impact of the Achmea decision will be, and in particular, whether that decision will effectively invalidate current intra-EU BITs, or even current intra-EU arbitration agreements or current intra-EU arbitral awards. In our opinion, much of the current uncertainty concerning this issue stems from the fact that Achmea deals with the intersection between three very different, and in several respects inconsistent, areas of law: public international law, EU law and international arbitration. The uncertainty is compounded by the fact that few lawyers, or judges, are equally well-versed in all three areas of law. Each commentator naturally approaches the issues from his or her own perspective.
We do not pretend to do any better than others in suggesting a possible way forward. We are also aware that the issues are political as well as legal, and in such circumstances it is always dangerous to offer any predictions.
However, we think it is relevant to note that some of the issues – namely, the intersection between mandatory EU law and arbitration law – have recently been the subject of consideration by the Swedish Supreme Court. We set out below a brief summary of two Swedish Supreme Court cases, before offering some limited conclusions in light of those cases.
SYSTEMBOLAGET V V&S VIN & SPIRIT (2015)
Systembolaget is a state-owned company that has a monopoly over the sale of alcohol to consumers in Sweden. This case arose out of allegations of bribery by certain individuals employed by V&S Vin & Sprit AB (V&S), the makers of Absolut Vodka, as a result of which Systembolagetterminated certain contracts which it had with V&S.
V&S brought arbitration proceedings seeking damages for breach of contract. A first arbitral award in favour of V&S was set aside by the Svea Court of Appeal on the ground that the arbitral tribunal had exceeded its mandate. V&S then brought fresh arbitration proceedings, and V&S was successful a second time. This time the arbitral tribunal awarded damages to V&S of SEK 57 million (approximately GBP 4.85 million) by reason of Systembolaget’s breach of its dominant position under EU competition law. This second arbitral award was then the subject of further set-aside proceedings.
Both the Svea Court of Appeal and the Swedish Supreme Court refused to set aside the second arbitral award. In the course of its judgment, however, the Supreme Court expanded on its view in relation to certain important principles regarding the inter-relationship between mandatory EU law and arbitration law.
The principal question before the Supreme Court was whether the arbitral tribunal had ‘over applied’ EU competition law by going further than was warranted in its award of damages. The Supreme Court used the CJEU’s 1999 judgment in Eco Swiss as its starting point and explained that, in contrast to the usual principle that there can be no appeal on the merits in respect of an arbitral award, an appeal regarding the application of mandatory EU competition law gives rise to additional considerations. In this regard, the Supreme Court distinguished between circumstances where the relevant EU competition law is clear and circumstances where the law is uncertain.
In a situation where existing EU competition law is clear, it was obvious to the court that an arbitral award which is contrary to that law is invalid. The Supreme Court did not provide conclusive guidance concerning the status of an arbitral award in the event that the underlying EU competition law is uncertain. However, referring to the EU law principles of equivalence and effectiveness, the Supreme Court indicated that an appeal should also be possible in such circumstances.
The Supreme Court went on to state that one means of ensuring that the interpretation of EU competition law would be in accordance with the principles mentioned above, would be for the court in set-aside proceedings to make a reference to the CJEU for a preliminary ruling. It stressed that the parties’ choice of dispute resolution mechanism should not affect the availability of a reference for a preliminary ruling, but stopped short of confirming the existence of an obligation to seek a preliminary ruling in relation to all such proceedings.
In the Systembolaget case itself, however, having set out these principles, the Supreme Court decided that the relevant issues in that case were clear, that the arbitral tribunal’s determination was acceptable, and accordingly that the arbitral award was valid and would not be set aside.
JO V SMART BOARD (2018)
Another case that considered these issues, JO v Smart Board, was decided by the Supreme Court on 4 May 2018.
This case concerned the enforcement in Sweden of a Norwegian arbitral award. The case concerned a non-compete provision in a contract, and it was claimed for the first time at the stage of enforcement that the non-compete provision was in breach of mandatory Swedish competition law.
The Supreme Court decided that such issues needed to be considered by the court at the enforcement stage, even though they had not been raised previously. The court went on to find that there was no breach of competition law, but in doing so the court further affirmed the principles set out in the Systembolaget case. In particular, the Supreme Court stressed that there was a need to ensure that arbitral awards did not conflict with mandatory EU competition law.
COMMENTS ON ACHMEA
There is prima facie a contradiction between the limited grounds for setting aside an arbitral award, and the need to ensure the uniform application of EU law. One means of solving this might have been to state that arbitral tribunals established under Swedish arbitration law could send questions to the CJEU by means of a preliminary reference, but this route appears to have been shut out a long time ago.
Accordingly, the question arises as to whether the court in the context of a set-aside application can review the arbitral award in light of EU law and make references for a preliminary ruling if necessary. In relation to commercial arbitration, the CJEU in Achmea confirmed that the availability of a review of arbitral awards based on “fundamental provisions of EU law” by the courts of the member states may be sufficient to ensure compliance of a member state’s arbitration laws with EU law.
However, according to the CJEU, the position was more complicated in relation to investment treaty arbitration under the particular BIT between the Netherlands and the Czech and Slovak Federative Republic that was the subject of consideration in Achmea.
In particular, the CJEU noted that, since Article 8 of that BIT did not specify the seat of arbitration and it was therefore left to the arbitral tribunal to choose the seat, this meant that disputes which might concern the application or interpretation of EU law could thereby end up being removed from the jurisdiction of the courts of the member states, and thereby from the system of judicial remedies which Article 19(1)(2) Treaty on European Union requires the member states to establish in areas of EU law. According to the Court, the considerations relating to commercial arbitration could in those circumstances not be applied to investment treaty arbitration under that BIT.
Consequently, the CJEU concluded that “it must be considered that, by concluding the BIT, the Member States parties to it established a mechanism for settling disputes between an investor and a Member State which could prevent those disputes from being resolved in a manner that ensures the full effectiveness of EU law, even though they might concern theinterpretation or application of that law” (emphasis added). The CJEU decided that a provision such as Article 8 of that BIT had an adverse effect on the autonomy of EU law and, therefore, that EU law precludes such a provision.
The Achmea judgment, alongside the extensive case law on the autonomy of EU law and the role of EU and national courts respectively that preceded it, presents Swedish arbitration law with a number of questions. However, Swedish arbitration law may also offer a potential way forward in relation to ongoing or future investment treaty arbitration based on the bilateral investment agreements already concluded by the member states. In view of these initial comments, we would like to make the following observations.
First, concerning the questions raised by Achmea, there is clearly a requirement under EU law for courts of the member states to be able to review arbitral awards in light of available EU law and, if necessary, to make a reference for a preliminary ruling to the CJEU. In Systembolaget, the Swedish Supreme Court focused on mandatory EU competition law and did not comment on EU law in general.
Moreover, the Supreme Court hesitated somewhat concerning the need for review where the relevant EU competition law is uncertain, and regarding the need for a potential reference for a preliminary ruling in such circumstances. In order to meet the requirements spelled out in Achmea, the Supreme Court is likely to have to widen its approach to the review of an arbitral award in such circumstances, in order to include arguments based on mandatory EU law more broadly.
Second, investment treaty arbitration within the framework of Swedish arbitration law and Swedish courts may not necessarily fall foul of the same hurdles as the particular BIT in Achmea. In its judgment, the CJEU did not hold that all arbitration provisions in all investment treaties concluded by Member States are contrary to EU law.
Article 8 of the BIT was problematic since the CJEU considered that it allowed the arbitral tribunal to choose a seat of arbitration outside the EU, and thus that the arbitral tribunal might be able to interpret and apply EU law without the possibility of an effective review by a court of a member state based on EU law, and without an opportunity to make a request for a preliminary ruling. Provided that the Supreme Court interprets Swedish arbitration law in accordance with the requirements set out by the CJEU, it is not evident that investment treaty arbitration under Swedish arbitration law would necessarily be considered contrary to EU law.
Admittedly, the German law applicable to the procedure governing judicial review of the arbitral award in Achmea did provide for a review based on public policy, including European public policy. However, the applicability of German law and thereby the possibility of a review in light of EU law stemmed from a discretionary choice made by the arbitral tribunal of Frankfurt as the seat of arbitration. Moreover, the CJEU was not pleased with the extent of the available review under German law, although the CJEU failed to explain what it meant in this regard. An investment treaty subject to Swedish arbitration law would not necessarily run into the same difficulties.
Third, in general, we recognise that Achmea generates a range of questions. For example, what the effect of ‘precluding’ a provision such as Article 8 of the BIT actually entails in an ongoing dispute between an investor and a member state is not clear. It remains to be seen how dispute resolution mechanisms in existing BITs, existing arbitration agreements and existing arbitral awards arising out of existing BITs will be dealt with in light of the CJEU’s judgment in Achmea. Several cases are pending, including several cases before the Swedish courts. However, it is not clear that Achmea will necessarily give rise to such drastic consequences.
We would hope that, in time, solutions can be found that respect and reconcile the fundamental principles of public international law, EU law and international arbitration law. As suggested above, the Swedish Supreme Court may be open to a possible way forward which would be acceptable to the requirements of the CJEU. Meanwhile, pending further clarity, we can be sure that these issues will continue to be debated for some time to come.
James Hope is a partner at Vinge in Stockholm. He has more than 20 years’ experience of dispute resolution, including over 10 years practising in London before moving to Sweden in 2006. He acts both as counsel and as arbitrator in international arbitrations, both in Sweden and abroad, and his recent cases have involved Swedish, English, Russian, Estonian, Danish, Ukrainian and Finnish laws, among others. He is a guest lecturer at both Stockholm University and Edinburgh University. James is a member of the Board of the Arbitration Institute of the Stockholm Chamber of Commerce, and a former member of the Executive Committee of the Swedish Arbitration Association.
Erik Lagerlöf is a manager at Vinge law firm, Adjunct Professor of law at the Stockholm School of Economics and a Visiting Fellow at St Edmund’s College (Cambridge University). Erik has an academic background from Cambridge University, EUI and Harvard Law School. He has previously worked as legal secretary to both the Swedish and British judge at the CJEU.
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