There are 196 bilateral investment treaties (“BITs”) currently in force between Member States of the European Union (“EU”). Are those treaties incompatible with EU law by virtue of allowing arbitral tribunals to interpret EU law without review by EU courts? If intra-EU BITs are unenforceable for this reason, does this mean investor-state arbitration in EU Member States’ external treaties is also a violation of EU law?

In the March 6, 2018 judgment of Slovak Republic v Achmea BV (“Achmea”), the Court of Justice of the European Union (“CJEU”) found that the arbitration clause contained in the 1991 BIT between the Netherlands and Slovakia is, because of an adverse effect on “the autonomy of EU law”, incompatible with EU law. Even though investment treaty tribunals are not bound by this decision, the consequences of Achmea may be far-reaching. It calls into question the investor-state arbitration mechanisms in the 196 intra-EU BITs and may signify a need for an entirely new approach to intra-EU investment arbitration. Importantly, it may also point towards difficulties in enforcing arbitral awards made in favour of Canadian investors in the context of the investor-state arbitration mechanism provided for under the Canadian-EU Comprehensive Economic and Trade Agreement (“CETA”).


The CJEU’s judgment arose out of a dispute between Achmea B.V., a Dutch insurer, and Slovakia. In 2006, Slovakia partly reversed the liberalization of its private sickness insurance market and prohibited the distribution of profits generated by private sickness insurance.[1] Achmea alleged that these changes effectively destroyed the value of its investment in Slovakia and brought arbitration proceedings under the BIT on the grounds that the prohibition was contrary to the BIT.[2]

During the proceedings, Slovakia argued that recourse to an arbitral tribunal, as provided for in Article 8(2) of the BIT, was incompatible with EU law.[3] The Tribunal dismissed the objection and, on December 7, 2012, found that Slovakia had indeed violated the BIT and ordered it to pay EUR 22.1 million in damages to Achmea.[4]

Slovakia brought an action before the German courts[5] to set aside the arbitral award, taking the position that the arbitral tribunal lacked jurisdiction to hear the claim because the BIT arbitration clause was incompatible with EU law.[6] The Higher Regional Court of Frankfurt am Main dismissed the action but Slovakia appealed to the German Federal Court of Justice.[7] The Court offered the view that the arbitration clause was not contrary to the Treaty on the Functioning of the European Union (“TFEU”) but referred questions regarding the compatibility of the BIT’s arbitration clause with EU law to the CJEU for a preliminary ruling.[8]

Advocate General Wathelet’s Opinion

On September 19, 2017, Advocate General (“AG”) Wathelet delivered his opinion on the case,[9] concluding that intra-EU BITs and the arbitration clauses contained therein were compatible with EU law. In particular, AG Wathelet found that:

  • The BIT did not constitute discrimination on grounds of nationality by granting Dutch investors the right to have recourse to international arbitration against Slovakia and, thus, did not violate TFEU Article 18;[10]
  • The arbitral tribunal constituted under the BIT was a court or tribunal within the meaning of TFEU Article 267, common to two Member States, and was therefore permitted to request the CJEU to give a preliminary ruling on questions of EU law;[11] and
  • Disputes between an investor and a Member State do not fall within the scope of TFEU Article 344 and, thus, do not raise issues of interpretation or application of the EU Treaties.[12]

The CJEU Judgment

On March 6, 2018, the CJEU departed from AG Wathelet’s opinion and the position taken by the German courts. It found that EU law precludes BIT arbitration clauses on the basis that:

  • An arbitral tribunal established under the BIT must rule on the basis of the law of the contracting parties involved, as well as other agreements between the contracting parties, which includes EU law.[13] As a result, the CJEU concluded that the arbitral tribunal could be called upon to interpret or apply EU law;[14]
  • An arbitral tribunal established under the BIT cannot be regarded as a “court or tribunal of a Member State” within the meaning of TFEU Article 267 because it cannot be classified as part of the judicial system of the Netherlands or Slovakia.[15] Accordingly, the CJEU found that the arbitral tribunal has no power to make a reference to the Court for a preliminary ruling;[16] and
  • The decision of the arbitral tribunal is, in principle, final and subject only to judicial review by the competent national courts and then only to the extent that national law permits.[17] Although the scope of judicial review of arbitral awards in the context of commercial arbitration proceedings may legitimately be limited, that limitation cannot be applied to investor-state arbitral proceedings without putting the European courts in an inferior position as regards the application of European law.[18] While commercial arbitrations originate in the freely expressed wishes of contractual parties, investor-state arbitrations derive from a treaty by which Member States remove matters from the jurisdiction of their own courts, and hence from the system of judicial remedies demanded by the TFEU in the field of EU law.[19] Thus, the CJEU found that the BIT arbitration clause imposed a mechanism for settling investment disputes which was incapable of ensuring the proper application and full effectiveness of EU law.[20]

Consequences of Achmea

The logic of this decision may escape many arbitration practitioners. Any arbitral panel in any context is called upon to base its decision on the applicable law. If that law is European, the EU courts are avoided by parties who choose to settle their dispute through arbitration. The CJEU’s decision in Achmea is, in this way, a shot across the bow of all arbitration (and arguably all litigation in a forum other than Europe) involving disputes as to the meaning and effect of EU law.

Parties are unable to appeal a judgment from the CJEU, as it is the highest court with the authority to interpret EU law. Accordingly, Achmea is likely to have far-reaching effects on the arbitral community.

Achmea may impose significant obstacles to foreign investors who wish to enforce an arbitral award made under an intra-EU BIT. Since courts of EU Member States must comply with the CJEU’s judgment when ruling on applications for enforcement of arbitral awards, investors may be forced to seek enforcement outside the EU. With regard to new disputes under intra-EU BITs, investment treaty tribunals may have to decline jurisdiction or risk that an award may be set aside or denied enforcement.

Achmea also informs the ongoing debate on the future of EU investor-state arbitration. The European Commission has actively opposed investor-state arbitration under existing intra-EU BITs, going so far as to request various EU States to terminate their intra-EU BITs.[21] Achmea may effectively remove BIT arbitration as an option for EU investors to settle disputes with EU Member States. Politically, to fill the void, the decision has set in motion the potential creation of a multi-lateral investment court (“MIC”), a permanent body to settle investment disputes that would eventually replace intra-EU arbitration proceedings.

For Canadian parties, Achmea calls into question whether CETA and its Investment Court System (“ICS”) are compatible with EU law given:

  • The CJEU’s concerns in Achmea about maintaining the autonomy and fundamental freedoms of EU law apply logically to all aspects of EU law, including all the provisions that regulate economic activities in the context of the CETA investment protection provisions;
  • The CETA Tribunal is not authorized to request a preliminary ruling from the CJEU; and
  • The CETA Tribunal’s decisions are intended to be final and are subject to review only by an appellate tribunal, which is not authorized to consider whether the decision is compatible with EU law.

In September 2017, Belgium requested an opinion from the CJEU on the compatibility of the ICS with EU law, including an opinion on the exclusive competence given by EU law to the CJEU to provide the definitive interpretation of EU law.[22] While the CJEU has yet to release its decision, there are hopes that it will clarify the legal framework in which CETA, the ICS and, by extension, the MIC, may be established.