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Article: June 2018: International Arbitration Update

June 01, 2018
Business Litigation Reports

Where Next for Bilateral Investment Treaty Claims Within the EU? The Impact of the Achaea v. Slovakia Decision. On March 6, 2018, the European Union’s Court of Justice (“EUCJ”) handed down a decision that has provoked considerable excitement in the arbitration community. Indeed, few decisions of the EUCJ have attracted such attention recently. Some have argued that it heralds the death of investment treaty claims within the EU. While any decision of the EUCJ affecting arbitration creates excitement within the arbitral world, should users of treaty claims be unduly concerned? We think not.

The EUCJ’s decision concerned an award rendered in arbitration proceedings between Achmea BV and the Slovak Republic (Case C-284/16). Achmea BV (a
Dutch entity) had, through a local subsidiary, invested in Slovakia’s medical insurance sector following the liberalization of its private healthcare market in 2004. Two years later, the Slovak Republic partially reversed its policy, restricting the rights of a party to distribute profits generated in that area. Arguing that those measures had caused it loss, Achmea BV commenced proceedings under a 1991 Bilateral Investment Treaty between the Netherlands and the (then) Czech and Slovak Federative Republic (“the BIT”).

During the course of the arbitration proceedings, the Slovak Republic had argued that the Arbitral Tribunal lacked jurisdiction. It did so on the basis that the provision in the BIT allowing recourse to an arbitral tribunal was incompatible with EU law, following Slovakia’s accession to the European Union. That only occurred in 2004, more than a decade after the execution of the BIT.

The jurisdictional argument was rejected by the Tribunal, which went on to find in favor of Achmea on the substantive claims. In December 2012, the Slovak Republic were ordered to pay Achmea damages totaling Euro 22.1 million.

The Slovak Republic brought an action to set aside the award before the Courts of Germany. From there, the dispute worked its way to the EUCJ, which went
on to address (at least in part) the compatibility of socalled “intra-EU BIT claims” with EU law. In other words, where a dispute arises between one investor from an EU Member State with another Member State, are the BIT provisions referring the matter to arbitration compatible with EU law?

In broad overview, the EUCJ confirmed Slovakia’s submissions on two specific points. First, it agreed that the arbitration provision in the BIT (i.e. the 1991 BIT between Holland and the (then) Czechoslovakia) was contrary to Article 344 of the Treaty on the Functioning of the EU (“TFEU”; better known as the Treaty of Rome). That Article underscores the exclusive jurisdiction of the EUCJ
on the interpretation or application of EU Treaties (“Member States undertake not to submit a dispute concerning the interpretation or application of the Treaties to any method of settlement other than those provided for therein”).

Secondly, the EUCJ agreed with Slovakia’s argument that the BIT’s arbitration clause was contrary to Article 267 of the TFEU. That Article regulates “preliminary rulings” from the EUCJ, providing a mechanism for a court or tribunal of an EU Member State to request a decision from the EUCJ on the interpretation of EU law. The aim of that procedure is said to ensure “the full effectiveness of the rules of the EU” (paragraph 43 of the EUCJ

In this way, the EUCJ interpreted Articles 267 and 344 of the TFEU as precluding intra-EU BIT claims under the Dutch/Slovakian BIT, preventing (in this case) Achmea BV from bringing an arbitration claim under that instrument against the Slovak Republic.

Does this mark the death of all intra-EU arbitration claims? Should users (or potential users) be unduly concerned? In short, no. To begin with, the decision
is wrong, and palpably so. It also has no binding force on international arbitration tribunals. But putting those points to one side, even on its face it is unlikely to have broad reach, as Quinn Emanuel partners Philippe Pinsolle and Isabelle Michou discussed at 

length recently in a paper for Dalloz Actualités©.

Why? At most, the decision applies only to intra-EU arbitrations under intra-EU BITs. In particular, it has no application to ICSID arbitration (which is governed instead by the 1965 Washington Convention). It also has no application to commercial arbitration, with paragraph 55 of the EUCJ decision drawing an explicit distinction with those types of claims: “While [commercial arbitrations] originate in the freely expressed wishes of the parties, [BIT arbitrations] derive from a treaty by which Member States agree to remove from the jurisdiction of their own courts, and hence from the system of judicial remedies which... [EU law] requires them to establish in the fields covered by EU law.”

The exclusion of commercial claims and ICSID disputes from the ruling has a significant impact on the effect of the EUCJ ruling. But does it even apply to all intra-EU BIT claims? Once again, no. There is a strong argument that it is limited to the BIT under review - i.e., that between Holland and Slovakia in 1991. On its face, the EUCJ’s analysis is limited to the BIT in question.

In short, the Achmea decision is a bad decision which is almost certainly wrong. Thankfully, though, the impact of that decision is likely to be limited. Commercial and ICSID arbitrations are excluded, and there is a good argument that its ambit goes no further than the BIT in question.

It is only if the EUCJ’s decision is found to have general effect that real problems might arise. At the very least, it would call into question the sense of having an EU-seat for intra-EU BIT arbitrations. The risk of annulment proceedings at the seat, were Achmea to be held to have general application, would be real. Whilst problems would still arise should any award be enforced within the EU, the annulment risk would play to the advantage of major non-EU arbitral seats. That might even including the United Kingdom once Brexit terms are finalized next year.