It was the German Federal Constitutional Court‘s turn to weigh in for a second time on insurance group Achmea‘s ill-fated attempt to pursue an investment treaty claim against the Slovak Republic on the basis of a bilateral investment treaty between the Slovak Republic and the Netherlands: With two decisions dated 23 July 2024, the court rejected Achmea‘s constitutional complaints related to its pursuit.
A saga continued
More than six years ago, the Court of Justice of the European Union (CJEU) delivered its contentious Achmea judgment, declaring arbitration clauses in intra-EU bilateral investment treaties (BITs) incompatible with EU law. It later expanded this stance to the multilateral Energy Charter Treaty (ECT). Politically, the termination of intra-EU BITs followed, as well as an exodus of EU Member States from the ECT. Countless courts, arbitral tribunals, scholars and pundits have put their respective points of view on intra-EU investment treaty arbitration since 2018.
So why is the case again before the German courts? The tribunal which ordered Slovakia to pay 22.1 million euros in damages was seated in Frankfurt am Main, Germany, and the case had originally reached the CJEU by way of a preliminary reference by the German Federal Court of Justice (FCJ), which was hearing Slovakia‘s annulment application directed at the underlying arbitral award. Following the CJEU‘s ruling, the case went back to the FCJ, which consequently annulled the award in October 2018. The German Federal Constitutional Court (FCC) – which is not a court of last resort in Germany, but can only be called upon for constitutional issues and which applies strict admissibility criteria – already dealt with Achmea once before, as the company had in 2020 – unsuccessfully – sought interim relief to stop Germany‘s accession to the Treaty Terminating Intra-EU BITs.
Achmea‘s latest (and final?) attempt to enforce its claims through investment arbitration consisted of two full-scale constitutional complaints, which were directed at two different targets:
- The first complaint was aimed directly at the FCJ‘s decision to annul the award that had been rendered in favour of Achmea. The company contended a long list of putative violations, including that the CJEU had acted ultra vires, that German and EU fundamental rights had been violated (e.g. freedoms of ownership and occupation) and that it had been deprived of legitimate expectations.
- The second complaint targeted Germany‘s accession to the Treaty Terminating Intra-EU BITs, as did its previous application for interim relief.
A long story short...
Even though the FCC ultimately refused to even consider the two complaints by Achmea because of a lack of admissibility, finding that the company had failed to meet the required thresholds to substantiate its positions, it nonetheless took the opportunity to weigh in on the issues raised in quite some detail. A full summary and analysis would exceed the scope of this blog, but some points of note from the two decisions are as follows:
- Expectedly, the FCC stressed the primacy of application of EU law. The court reiterated that the uniform application of EU law was key for the success of the EU, to which Germany had committed itself. As a result, the threshold for an EU act to be considered ultra vires is and remains very high. Likewise, the complaint had failed to establish that the core of German constitutionality had been brought into question. Achmea had failed to substantiate that the CJEU's application of the law is manifestly unreasonable and leads to a structural transfer of competences to the EU at the expense of the Member States. As a result, the line of the FCC’s as-long-as reservation in the interplay between EU and German fundamental rights had not been crossed and the core of German constitutionality had not been violated. As the FCC said: “…it is not the task of the FCC to substitute its interpretation for that of the CJEU in matters of interpretation of EU law that may lead to different results even if they are dealt with correctly in the usual jurisprudential discussion framework.”
- Furthermore, Achmea lacked a legal interest in pursuing the annulment, because the Treaty Terminating Intra-EU BITs likely also would have doomed the award, finds the court. In this context, the FCC concludes that this treaty would have had retroactive effect. At the same time, because the relevant termination took place between the Slovak Republic and the Netherlands, and not in relation to Germany, the second constitutional complaint aimed at Germany‘s accession to the Treaty Terminating Intra-EU BITs was also rejected for consideration.
- The FCC expresses confidence in existing general mechanisms of legal protection for intra-EU investment matters. Investors could rely on domestic remedies and would not be deprived of their substantive rights. “In doing so, they can invoke the substantive investment protection in the European multi-level system, in particular the fundamental freedoms of the Treaty on Functioning of the European Union […]. After unsuccessful exhaustion of domestic legal remedies, an individual complaint may be considered before the European Court of Human Rights, where, in particular, a possible violation of the right to property under Article 1 of the Protocol to the Convention for the Protection of Human rights and Fundamental Freedoms can be challenged,” says the FCC.
- Notably, the FCC also declares that “[i]n arbitration awards, the damages claimed represent compensation for wasted financial outlays by the investors and thus serve economic interests alone. They are not comparable in their significance to legal positions such as real estate owned by private individuals, which often represents the only and most valuable asset for them and is crucial to their way of life.”
The FCC’s conclusions are ultimately not very surprising, given the clear stance of the CJEU and the FCC’s equally clear deference to EU law, save for very limited exceptions. The FCC’s optimism regarding the suitability of existing alternative remedies for intra-EU investment protections remains to be fully tested in these increasingly turbulent times. We have contemplated these alternatives previously, here – and are available for discussion.