6 March 2018, the Court of Justice of the European Union (the “CJEU”) rendered a judgment in the case of the Slovak Republic v Achmea B.V., C‑284/16 (the “Achmeajudgment”). The CJEU declared that "Articles 267 and 344 TFEU must be interpreted as precluding a provision in an international agreement concluded between Member States, such as Article 8 of the Agreement on encouragement and reciprocal protection of investments between the Kingdom of the Netherlands and the Czech and Slovak Federative Republic, under which an investor from one of those Member States may, in the event of a dispute concerning investments in the other Member State, bring proceedings against the latter Member State before an arbitral tribunal whose jurisdiction that Member State has undertaken to accept.”

The Court expressly declares that its interpretation of the TFEU applies to “a provision in an international agreement concluded between Member States, such as” the one under examination in this specific case. Therefore, whilst in principle it is ruling only on the interpretational questions referred to it by the German court which focused on the Netherlands/Slovakia bilateral investment treaty (“BIT”), by its own wording this judgment is likely to have fundamental implications for prospective, on-going and even recently concluded arbitrations that involve nationals of a Member State in claims against another EU Member State.

As a result of its limited consideration of the relevant legal principles, the Achmea judgment is open to various conflicting interpretations. Its full implications only are likely to emerge after many of the issues are addressed in other investment cases brought before arbitral tribunal and following challenges before national courts.

The fundamental reasoning of the Court can be summarized as follows: the arbitration agreement under examination may give rise to an arbitration procedure where EU law would be interpreted or applied, without the ultimate control of the CJEU. That, in the eyes of the CJEU, undermines its own position under the Treaty on the Functioning of the European Union and the Treaty on European Union as the final institution called to ensure that the EU law is properly applied.

The Achmea judgment is likely to be used by respondent Member States in any arbitration cases based in similar provisions included in the 196 bilateral investment protection treaties, which are currently in force between various EU Member States, as an argument that all or the vast majority of them are incompatible with the EU law.

It could be argued that the radical effect of the Achmea Judgment may be tempered in the future by creating some form of judicial review, even if limited, of these decisions. But for now, unless such a modification is agreed by Member States (and eventually tested again before the CJEU), many intra-EU arbitration based on similar clauses may in some form be affected by the reasoning of the Achmea judgment. The Achmea judgment may also be interpreted by the national courts of EU Member States as imposing an obligation on them to annul awards rendered in previous arbitrations pursued under intra-EU treaties, if the seat of the arbitration is located in the EU; or if the seat for such arbitration is located outside the EU, to oppose their enforcement based on the argument that the dispute had not been open to a ‘full review’ by the EU courts.

It is important to note that the CJEU in the Achmea judgment did not analyse the conformity of the substantive provisions of bilateral investment treaties with the EU law, and its conclusions are limited only to dispute settlement mechanisms in such treaties. It is also notable that the Achmea judgment does not refer to the Energy Charter Treaty, BITs between EU Members States and third countries, investment treaty provisions in the treaties concluded by the EU with other states (such as CETA), nor on the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the ICSID Convention).

As a result of this judgment, individuals and corporations who have so far relied on the existence and enforceability of intra-EU BITs as a mechanism for protection of their EU-based ventures, should carefully reconsider their position in the aftermath of the Achmea judgment.

Investors whose rights have yet to be infringed such that their right to bring claims under intra EU BITs may want to consider cross-border corporate group restructuring in order to acquire protection under a non intra-EU bilateral investment treaty, if applicable, with respect to potential future infringements.

Parties that are considering entering into significant investment contracts in which governmental or municipal organs of EU Member States are direct contracting parties may consider providing for express rights in those contracts mechanisms to avoid the need to rely upon intra-EU BITs.

Parties in the early stages of arbitral disputes with EU Member States may wish to select seats and arbitral institutions based outside the European Union in order to limit the risk of setting aside future awards.

Parties with advanced ongoing arbitrations or uncollected damages awards rendered under intra-EU BITs should take into account potential difficulties with enforcement in the EU.