The impact and uncertainty caused by the Achmea case on investor state dispute settlement provisions contained in intra-EU Bilateral Investment Treaties continues. These issues are potentially far reaching and may extend further than originally envisaged, namely that this case was arguably specific to the BIT between Netherlands and Slovakia.
On 1 December 2021, Germany’s Federal Supreme Court of Justice dismissed an investor state claim (by way of an arbitration) brought against Croatia by Vienna-based Raiffeisen Bank under the country’s bilateral investment treaty with Austria.
The decision is important because it is the first time that a court in a member state of the European Union has affirmed the principles laid out in the Achmea v Slovakia decision (Achmea).
In March 2018 the Court of Justice of the European Union (ECJ) held in the Achmea case that Article 8 of the Netherlands – Slovakia bilateral investment treaty, which allowed for the resolution of disputes by way of arbitration, was incompatible with EU law. The rationale for the decision was that a tribunal may have to interpret or apply EU law and where a question of law arose, unlike a Member State court, that question of law could not be referred to the ECJ. In other words, intra-EU bilateral investment treaty arbitration provisions, as reasoned by the ECJ, deprived the EU courts of jurisdiction in respect of the interpretation of EU law.
Despite the ECJ’s decision in the Achmea case, the reaction of arbitral tribunals involved with intra-EU bilateral investment treaty arbitrations has been for the most part to reject objections to jurisdiction based upon Achmea case. Those rejections have centered on the tension between EU Law and bilateral investment treaties, which, are a matter of international law. In addition, with regards to arbitrations under the Convention on Settlement of Investment Disputes between States and Nationals of other States arbitral tribunals have rejected the Achmea case on the basis that the Convention prevents contracting parties from unilaterally withdrawing their consent to arbitrate.
Since the Achmea case, on 5 May 2020, 23 of the 27 Member States signed an agreement for the termination of intra-EU bilateral investment treaties (the Termination Agreement). Signatories of the Termination Agreement include Belgium, Bulgaria, Croatia, Republic of Cyprus, Czech Republic, Denmark, Estonia, France, Germany, Greece, Hungary, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia and Spain.
Austria, Finland, Ireland, and Sweden did not sign up to the Termination Agreement.
The Termination Agreement stemmed from the Achmea case. In other words, the EU sought to enshrine in law the conclusions of the Achmea case.
Following the Termination Agreement, some commentators argued that arbitration tribunals may continue to reject the Achmea case, and in turn the Termination Agreement, for depriving those tribunals of their jurisdiction based upon the tensions outlined above with public international law and the CSID Convention.
However, Germany’s highest court has now affirmed that an intra-EU bilateral treaty arbitration clause (between Austria and Croatia) is invalid. The Federal Supreme Court of Justice in Germany dismissed an appeal brought by Raiffeisen Bank and its Croatian subsidiary. The bank had challenged a lower court’s decision that the arbitration proceedings instituted by the banks against Croatia are inadmissible due to the principles set out in Achmea. In other words, Raiffeisen Bank was not able to rely upon the arbitration clause in the bilateral investment treaty between Austria and Croatia.
The arbitration itself related to a claim by Raiffeisen Bank against Croatia in respect of the government’s takeover and restructuring of the Agrokor Group of which the bank was a creditor.
While the decision in the Raiffeisen Bank case is the first time that the court of a member state has affirmed the principles from Achmea, the ECJ has for some time been enforcing the Achmea decision, and on that basis the decision by the German court in the Raiffeisen Bank case in not altogether surprising.
BIT’s are there to offer the investor comfort and security of fair treatment, and arbitration pursuant to these are an attractive route to resolution. There is a spanner in the works for those who may be seeking reliance on this route via an intra-EU bilateral treaty arbitration. Put simply, even if the tribunal may accept jurisdiction under an intra-EU bilateral treaty, it is likely the arbitration will be deemed invalid by the domestic court of the member state and certainly any potential award is likely to be unenforceable. .
This case re-opens many unanswered questions.
Is the ECJ seeking to reinforce its supremacy? Member states in the EU have been under pressure by the European Commission to terminate existing intra-EU BITs as evidenced by the Termination Agreement.
Will investors seeking to rely upon existing intra-EU BITs now need to turn for protection, and rely upon domestic courts of member states? That raises the unpalatable prospect of an investor having to commence proceedings against a member state in the domestic court of that member state.
Are there likely to be clashes with similar arguments of incompatibility with EU law in relation to other international trade treaties i.e. ICSID or The Energy Charter Treaty?
What’s the position with BITs between member states in the EU and non-EU counties? There may be a risk that member state courts could refuse to recognise arbitral awards made outside the EU on the basis on non-compatibility with EU law (if the underlying arbitration raised questions about the application of EU law).
While the above issues will no doubt need to be ironed out over time, in the meantime contracting parties within the EU states may need to look to their contracts. Which jurisdiction or law shall apply, should it be the laws of a country outside the EU or within; arbitration or domestic courts of the contracting state; if arbitration, the seat, the applicable law and language, and institutional rules; consideration of arbitration outside the EU; whether any other trade treaties are relevant i.e. The Energy Charter Treaty.
Going forward parties may seek to find ways to address this problem. One solution may be for an investor to set up a subsidiary in a jurisdiction that is outside of the EU to conduct business within the EU. In doing so the investor may be able to ensure that the subsidiary can rely upon a BIT that may be in place between its jurisdiction of incorporation (outside the EU) and the EU member state .Ironically, post BEXIT, a BIT between the UK and an EU member state should not be affected by the Achmea fall out making the UK an attractive option for investors to base their subsidiaries that are seeking to conduct business in the EU.
The Achmea case remains controversial within the arbitration world. Commercial parties who have agreed to submit disputes to arbitration cannot unilaterally get out of this. The Achmea case, and the endorsement by the German courts of it fundamentally offends this long enshrined principle.