27 September 2017 Julia Grothaus  -  Rupert Bellinghausen ArbitrationLinks

Advocate General Wathelet endorses intra-EU BITs

In a much anticipated opinion in Slovak Republic v Achmea BV (Case C-284/16), Advocate General (“AG”) Wathelet has fostered investor-state arbitration under bilateral investment treaties (“BITs”) between EU Member States (“intra-EU BITs”) by concluding that the arbitration clause in Article 8 of the 1991 Netherlands-Slovakia BIT is compatible with EU law, and that arbitral tribunals established thereunder may refer issues of EU law to the Court of Justice of the European Union (“CJEU”) for preliminary rulings.

Background

The proceedings follow on from a dispute between the Dutch insurer Achmea B.V. (formerly known as Eureko B.V.) and the Slovak Republic under the 1991 Netherlands-Slovakia BIT. Slovakia had partly reversed the liberalisation of the Slovak health insurance market, preventing Achmea from distributing profits to its shareholders and from selling its portfolio. In ad-hoc UNCITRAL proceedings seated in Frankfurt, the Tribunal rendered its final award in 2012. It found that Slovakia had violated the BIT and ordered Slovakia to pay damages of €22.1m to Achmea. Slovakia then brought set-aside proceedings against the award in the German courts. In those proceedings, the Higher Regional Court Frankfurt (Oberlandesgericht Frankfurt, decision of 18 December 2014 – Case 26 Sch 3/13) found the Netherlands-Slovakia BIT to be compatible with EU law, specifically with Articles 344, 267 and 18 of the Treaty on the Functioning of the European Union (“TFEU”). Slovakia appealed the decision to the German Federal Court of Justice (Bundesgerichtshof, “BGH”), which agreed with the Frankfurt court, but ultimately decided to refer the issue to the CJEU for a preliminary ruling (decision of 3 March 2016 – Case I ZB 2/15).

AG Wathelet’s opinion

In his opinion of 19 September 2017, AG Wathelet followed the position taken by the German courts.

  • No discrimination on grounds of nationality: According to AG Wathelet, the BIT does not constitute discrimination on grounds of nationality and thus does not violate Article 18 TFEU by granting preferential treatment to investors from the Netherlands. He pointed out that Slovakia has in place substantially similar BITs with most other Member States, and that the CJEU has accepted differences in treatment between nationals of two different Member States by a third Member State in the context of bilateral agreements analogous to BITs.
  • Compatibility with Article 267 TFEU: In AG Wathelet’s view the arbitral tribunal under the Netherlands-Slovakia BIT was a “court or tribunal of a Member State” within the meaning of Article 267 TFEU, and thus (in contrast to contractual arbitration) is able to ask the CJEU for preliminary rulings on questions of EU law (although whether the requirements of Article 267 TFEU – established by law, permanent, independent, compulsory jurisdiction, inter partes procedure, application of the rules of law – are fulfilled is to be measured on a case-by-case basis). This meant that even assuming that Article 344 was engaged (see below), there could be no incompatibility with it.
  • Article 344 TFEU not engaged: The provision requires Member States not to submit a dispute concerning the interpretation or application of the EU Treaties to any method of settlement other than those provided for in the Treaties (e.g. Article 267). As AG Wathelet noted, however, whilst intra Member State disputes, and disputes between a Member State and the EU, come under Article 344 TFEU, disputes between private individuals do not. Similarly, in his view, a dispute between a Member State and an investor did not fall within the scope of the Article (and in any event, such a dispute did not concern the interpretation or application of the EU Treaties; the tribunal’s concern being the rules of the BIT). Furthermore, the opportunity afforded by Article 8 of the Netherlands-Slovakia BIT to have recourse to international arbitration did not undermine either the allocation of powers fixed by the EU and FEU Treaties or the autonomy of the EU legal system.
Implications

The Achmea case is the first opportunity for the CJEU to decide on the compatibility of intra-EU BITs with EU law. Its outcome will have far-reaching consequences for investment arbitration under the 196 intra-EU BITs and cases pending thereunder. The EU is currently divided on the issue: countries that are predominantly the origin of investors, including Germany, France and the Netherlands, have intervened in support of Achmea, while 10 countries which frequently face claims by investors, including the Czech Republic, Italy and Spain, have intervened in support of Slovakia. The latter get support from the European Commission, which has brought infringement proceedings against several EU Member States for their membership in intra-EU BITs and regularly files amicus curiae briefs against the validity of these BITs in pending arbitrations.

In that regard, AG Wathelet’s opinion not only rejected the position of the latter on the law. He also made a number of preliminary observations highlighting what, in his view, were potential inconsistencies in their position on intra-EU BITs more generally, and their ability – together with the EU – to politically shape the future ISDS in the EU (The Commission’s recent initiative to take up negotiations for a permanent multilateral Investment Court System to replace arbitration in ISDS is a first step in this direction). Meanwhile, the judgment of the CJEU will be awaited with interest. It is not bound by the opinion of AG Wathelet, but often follows its AGs’ opinions.

Rupert Bellinghausen and Julia Grothaus would like to thank Hannes Ingwersen for his assistance in preparing this article.