In the latest podcast Boris Kasolowsky, Peter Turner and Désirée Prantl discuss the status quo of intra-EU investment arbitration after the CJEU's ruling in Slovak Republic v Achmea BV (listen here). The podcast is part of Freshfields international arbitration podcast series, which was launched in July 2019 with a first episode on third party funding (listen here). The next episode on global developments in investor-state dispute settlements will follow shortly.
This blog post focuses on the impact of Achmea on intra-EU investment arbitration in terms of the jurisdiction of arbitral tribunals as well as the annulment and enforcement of arbitral awards.
CJEU's preliminary ruling in Achmea declared arbitration clauses in intra-EU Bilateral Investment Treaties (BITs) incompatible with EU law
The original case concerned a Dutch investor, Achmea BV, who initiated arbitral proceedings against the Slovak Republic under Article 8 (arbitration clause) of the Slovak-Netherlands BIT. The UNCITRAL tribunal seated in Frankfurt am Main, Germany, awarded damages to the investor. The Slovak Republic started annulment proceedings. The German Federal Court of Justice, hearing the case on appeal, requested a preliminary ruling from the CJEU regarding the question of whether Article 8 of the BIT was indeed incompatible with EU law. In its judgement of 6 March 2018 (Case C-284/16) the CJEU pointed out that an arbitral tribunal established under Article 8 may have to interpret EU law but does not qualify as a "court or tribunal of a Member State" and therefore cannot request a preliminary ruling from the CJEU. Against this background, the CJEU ruled that the arbitration clause was incompatible with EU law. In the following, the German Federal Court of Justice annulled the award on the ground of invalidity of the arbitration agreement. The European Commission welcomed this development, which is not surprising given its ongoing campaign aimed at terminating all existing intra-EU BITs (as further discussed by Boris in the podcast).
In the aftermath of Achmea, EU Member States declared to terminate intra-EU BITs by the end of 2019
In January 2019, the governments of all EU Member States expressed their intention to terminate intra-EU BITs either through a plurilateral treaty or bilateral negotiations. Since consensus regarding the impact of Achmea on the Energy Charter Treaty (ECT) could not be reached, three different Declarations were issued, reflecting the EU Member States' diverging positions in this regard.
Jurisdiction, annulment and enforcement after Achmea
Irrespective of the Declarations, the post-Achmea trend for arbitral tribunals so far has been to uphold their jurisdiction in intra-EU investment disputes based either on intra-EU BITs or the ECT (in terms of ICSID and SCC arbitrations). Arbitral tribunals have found that the CJEU's decisions exclusively operate within the legal order of the EU and, since investor-state arbitration belongs to the legal order of public international law, Achmea does not affect their jurisdiction. Notably, also from a procedural point of view, requests to re-open proceedings after Achmea were rejected (as highlighted by Peter in the podcast).
With regards to annulment proceedings, annulment of non-ICSID intra-EU awards must be sought before the domestic courts of the seat, hence EU Member States’ domestic courts are competent to hear annulment applications of non-ICSID arbitrations seated in the EU. These courts are bound by EU law and the CJEU's decisions, and may therefore follow Achmea if seized in relation to an application for annulment. ICSID awards are subject to an ad hoc annulment mechanism governed by the ICSID Convention itself, which may safeguard ICSID awards from the impact of Achmea. In terms of arbitral awards rendered under the ECT, it is still unclear whether Achmea applies to intra-EU investment arbitration under the ECT at all.
Regarding enforcement, ICSID awards are enforced as if they were final judgements of the jurisdiction where enforcement is sought. As per enforcement within the EU, a court of an EU Member State may face the conflict of either complying with the ICSID Convention by enforcing the award or following Achmea, thus refusing enforcement. In terms of enforcement outside the EU, the recent opinion of Judge Metha in the US District Court for the District of Columbia confirmed an ICSID award rendered in favor of Swedish investors (Micula et al) against Romania, which rendered the award an enforceable judgment in the US. The Court rejected Romania's contention that Achmea nullified the arbitration agreement contained in the Swedish-Romanian BIT and distinguished the Micula case from Achmea. Enforcement of non-ICSID awards is generally sought under the New York Convention, which provides for non-enforcement in the case of an invalid arbitration agreement. Achmea is therefore likely to bar enforcement of non-ICSID awards based on intra-EU BITs in EU Member States.
Achmea's ultimate impact on intra-EU investment arbitration remains to be seen
Even if EU Member States terminate all existing intra-EU BITs by the end of this year, in the short- and medium- term, intra-EU investment arbitration based on intra-EU BITs may not sharply decrease, unless sunset clauses were to become immediately ineffective as well. Indeed, even if the applicable BIT has been terminated, the effect of the sunset clause allows investors to bring arbitration against the State for a certain period of time after termination (usually 15 to 20 years) on the basis of investments made prior to such termination.
The future of intra-EU investment arbitration based on the ECT is even less clear. In the current modernization process of the ECT, the European Commission – negotiating on behalf of the EU – will presumably promote an alternative investor-state dispute settlement mechanism for intra-EU disputes, ie the establishment of a permanent multilateral investment court. The meetings scheduled to take place in the coming months will show whether the other States, who are parties to the treaty, support this approach.