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CJEU judgment changes landscape for investor-State arbitration in the EU

On 6 March 2018 the Court of Justice of the European Union (“CJEU”) issued its judgment in Case C-284/16 Slovak Republic v Achmea BV.  The CJEU ruled that investor-State arbitration clauses in investment treaties concluded between EU Member States (“intra-EU investment treaties”) are incompatible with EU law.  Before this landmark judgment of the CJEU, international arbitral tribunals and courts considered such clauses to be compatible with EU law.

The underlying case

In 2012, Achmea BV, a Dutch Insurer, won a EUR 22 million arbitral award over measures taken by the Slovak Republic that in part reversed the 2004 liberalisation of the Slovak health insurance market. The seat of the arbitral tribunal was in Frankfurt, Germany. The Slovak Republic challenged the award before the German courts. Ultimately, the German Supreme Court requested a preliminary ruling from the CJEU. In particular, it asked the CJEU whether investor-State arbitration clauses in intra-EU investment treaties were compatible with EU law.

The CJEU’s landmark judgment

The CJEU held that they were not.  The CJEU considered that investor-State arbitration clauses in intra-EU investment treaties, such as the one included in Article 8 of the Slovak Republic-Netherlands Bilateral Investment Treaty (“BIT”), have an adverse effect on the autonomy of EU law.  Consequently, the CJEU found that such clauses are incompatible with EU law and in particular with Articles 267 and 344 of the Treaty on the Functioning of the European Union (“TFEU”).

The CJEU explained that the arbitral tribunal constituted under Article 8 of the Slovak Republic-Netherlands BIT may be called on to interpret or apply EU law.  Given that in the CJEU’s view the arbitral tribunal cannot be regarded as a “court or tribunal of a Member State” within the meaning of Article 267 TFEU, the arbitral tribunal has no power to make a reference to the CJEU for a preliminary ruling concerning the interpretation of EU law.  As a result, the CJEU found that by concluding the Slovak Republic-Netherlands BIT, the Slovak Republic and the Netherlands established a mechanism for settling disputes between an investor and an EU Member State which could prevent those disputes from being resolved in a manner that ensures the full effectiveness of EU law.

The implications of the judgment

The CJEU did not opine on the consequences of the incompatibility of the arbitration clause with EU law.  In particular, the CJEU did not say whether it follows from that incompatibility that the arbitral tribunal was deprived of jurisdiction.  The German Supreme Court will have to decide this question.  Principles of EU law would seem to suggest that the German Supreme Court has only limited scope in coming to its decision following the CJEU’s judgment.

The CJEU’s judgment is likely to have far-reaching consequences, not least because many arbitrations under intra-EU investment treaties are currently pending.  Arbitral tribunals will have to analyse very carefully the impact of this landmark decision on cases before them. The same is true for any investors considering and Governments of EU Member States facing such claims.