Investment and Treaty Arbitration: the CJEU’s Decisions on EUSFTA and Achmea BV, the BGH’s and Vattenfalls’ (ICSID) Follow-up, Invalidity v. Non-Application of intra EU BITs

Prof. Dr. Guido Carducci

23rd January 2019

In its last issue the ICSID Review (Vol.33, No.2, 2018, pp.582-619) published our article which analyzes four interrelated issues (a State’s capacity to conclude a treaty, the EU’s competence to conclude a treaty and to invalidate or terminate treaties or BITs concluded by Member States, a State’s “consent to be bound by a treaty” and consent to arbitration) and the important CJEU’s decisions on EUSFTA and Achmea BV.¹

1. EUSFTA

In the context of an increasing number of treaties negotiated by the EU with non-Member States on EU common commercial policy issues, which include FDI and investment arbitration, the Court decided that the EU Singapore Free Trade Agreement’s provisions (Art.9.16) on Investor-State arbitration, as they concern the consent of a Member State to arbitration, is a matter of mixed competence. It follows that for such provisions the conclusion of the treaty (the EUSFTA) requires the consent of Member States. The consent of the EU is not sufficient. The CETA and the Draft Paper on the TTIP contain similar Investor-State arbitration provisions and, if requested to provide an opinion, the ECJU could also require the consent of States Parties.

2. ACHMEA

Greater attention and concern has raised the CJEU’s decision in Achmea BV. As to facts, upon request of the Federal Court of Germany (“BGH”) by a decision of 3 March 2016 that we commented,² the Court was requested to clarify about the compatibility with EU law, specifically articles 18, 267 and 344 TFEU, of an investor-State mechanism in the intra-EU BIT between the Kingdom of the Netherlands and the Czech and Slovak Federative Republic concluded in 1991, entered into force on 1 January 1992. The BIT requires the contracting parties inter alia to ensure fair and equitable treatment to the investments of investors of the other contracting party and not to impair by unreasonable or discriminatory measures the operation, management, maintenance, use, enjoyment or disposal of those investments. On 1 January 1993 the Slovak Republic succeeded to the rights and obligations of the Czech and Slovak Federative Republic under the BIT, and on 1 May 2004 it acceded to the EU. The Slovak Republic opened in 2004 and then limited, in particular by a law of 25 October 2007, the private sickness insurance market. Achmea BV, a Dutch company, claimed to be affected by such restrictions and brought arbitration proceedings against the Slovak Republic in October 2008 pursuant to Article 8 of the BIT. The Slovak Republic raised an objection of lack of jurisdiction of the arbitral tribunal submitting that, as a result of its accession to the EU, recourse to arbitration under the BIT was incompatible with EU law. The arbitral tribunal dismissed the objection and German courts rejected a request of annulment of the interlocutory award. An award of 7 December 2012 ordered the Slovak Republic to pay Achmea damages in the principal amount of EUR 22.1 million. The attempt to annul the award before the Oberlandesgericht Frankfurt made it also, on a point of law, before the Federal Court of Justice (Bundesgerichtshof, or “BGH”). The BGH sought a preliminary ruling on interpretation and in its judgment of 6 March 2018³  the EU Court concluded that articles 267 and 344 TFEU must be interpreted as “precluding” an arbitration provision in an international agreement concluded between Member States. Such provision is Article 8 of the BIT, 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. In the above-mentioned article we proceed to a critical analysis of the Court’s interpretation of its ruling’s legal grounds, articles 267 and 344 TFEU, and conclude that neither these articles nor a reasonable and rigorous interpretation thereof could lead to the radical Court’s conclusion that articles 267 and 344 TFEU preclude any arbitration provision in any intra EU BIT. Whether one agrees or not with such interpretation of these legal grounds it remains that this kind of Court’s preliminary ruling provides the interpretation of EU law, precisely Articles 267 and 344 TFEU.

3. Update before the German Federal Court

An important update comes from the recent German Federal Court’s ruling on 31 October 2018. The Federal Court followed the Court’s interpretation of EU law and declared that the investor-State arbitration provisions in an intra EU BIT are not applicable. The interested party can no longer rely on these provisions to seek an investor-State arbitration over the dispute.

Technically speaking, the “preclusion” effect of Articles 267 and 344 TFEU that the Court declared in its preliminary ruling is, in the BGH’s application to the investor-State arbitration at stake, the non-application of the BIT arbitration provision. The BGH’s application confirms our view that EU law alone is not in the position to “invalidate” a treaty between any State, not even a treaty only between Member States. Unless the violation of EU law at stake is per se a ground of invalidity under the international law of treaties. More on this can be found in the article (ICSID Review, Vol.33, No.2, 2018, pp.582-619).

4. Update in ICSID Arbitration: Vattenfall and Ors v. Germany.

Focusing only on the question whether the CJEU’s decision in Achmea BV has an impact on the jurisdiction of an ICSID arbitral tribunal, the tribunal has denied such an impact in an award dated 31 August 2018. The Tribunal thus rejected the jurisdictional objection made by Respondent, to the effect that “all claims pending before this Tribunal be dismissed because the Tribunal has no jurisdiction in the light of ECJ’s Achmea Judgment” (Par.232). There was no doubt that the dispute, which is subject to the Energy Charter Treaty, is within the EU as all five Claimants are legal entities within the EU and Respondent is the Federal Republic of Germany.

Prof. Dr. Guido Carducci is Law Professor at University Paris-Est, Attorney-at-law (Rome), and International Tenant and Arbitrator at 4-5 Gray's Inn Square (London), Chartered Arbitrator, FCIArb. He is Vice-Chair of the International Arbitration and Litigation Committees, American Bar Association, and Former Chief of the International Standards Section, UNESCO (HQ Paris).

Guido Carducci’s monograph 'Arbitration in France: Law and Practice' will be published by Oxford University Press in 2019.

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[1] G.Carducci, A State’s Capacity and the EU’s Competence to Conclude a Treaty, Invalidate, Terminate – and ‘‘Preclude’’ in Achmea – a Treaty or BIT of Member States, a State’s Consent to be Bound by a Treaty or to Arbitration, under the Law of Treaties and EU Law, and the CJEU’s Decisions on EUSFTA and Achmea. Their Roles and Interactions in Treaty and Investment Arbitration. ICSID Review, Vol. 33, No. 2 (2018), pp. 582–619.

[2] G.Carducci, Schiedsklauseln in unionsinternen bilateralen Investitionsschutz abkommen – Vereinbarkeit mit dem EU-Recht, IWRZ, 2016, IV, p.180.

[3] Judgment of the Court, Slowakische Republik (Slovak Republic) v. Achmea BV, 6 March 2018, Case C 284/16.