Intra-EU Investment Arbitration: is resistance growing?

The Achmea saga of 6 march 2018 continues to raise multiple questions regarding its scope of application.

While some authors argue that the European judge’s willingness was “to go further than the case that was submitted to him” (free translation: Sophie Lemaire, « Incompatibilité de l’offre d’arbitrage insérée dans le TBI Pays Bas-République fédérale tchèque et slovaque avec le droit de l’Union européenne », Revue de l’Arbitrage 2018 pp. 423-441), arbitral tribunals that had to rule on this subject after the ECJ ruling did not hear it in the same way. It would also seem that national courts are following the movement initiated by arbitral tribunals consisting in restrictively interpreting the Achmea solution.

The scope of the Achmea solution limited by the narrow interpretation of arbitral tribunals

A preliminary distinction must be made between three types of investment arbitrations in which arbitral tribunals would be called upon to interpret and apply European Union law: the ones resulting from bilateral investment treaty (“BIT”), those proceeding from the Energy Charter Treaty (“ECT”) and finally ICSID arbitration.

In the Achmea decision, the ECJ ruled only on the incompatibility of an investment arbitration resulting from a Netherlands – Slovakia BIT with EU law.

As we stated in a previous article, the Achmea decision of 6 march 2018 held different arguments in order to justify the incompatibility of an arbitration offer contained in the Netherlands – Slovakia BIT with EU law, including the fact that by applying EU law, an arbitral tribunal will step in the exclusive jurisdiction of EU courts, and that control of the arbitral awards by Member states’ judges would not be sufficient to guarantee the full efficiency of EU law.

In the week that followed, on 20 March 2018, the Council of the European Union adopted directives allowing the European Commission to open negotiations to establish a multilateral court for settlement of investment dispute. In its press release, the Council specifies that “EU’s new approach to investment dispute resolution, moving away from the traditional arbitration framework towards a court system.”(Press release from 20 March 2018)

On 15 january 2019, Member States made a declaration concerning the legal consequences of the Achmea judgment (“The Declaration”) saying that they “will terminate all bilateral investment treaties concluded between them by means of a plurilateral treaty or, where that is mutually recognized as more expedient, bilaterally” with a deadline fixed on 6 December 2019. Six Member States have still not signed the Declaration, namely Sweden, Luxembourg, Finland, Hungary, Slovenia, and Malta.

In the Declaration, Member States have clarified that the Achmea solution shall apply to Intra EU investment arbitration based on ECT :

Furthermore, international agreements concluded by the Union, including the Energy Charter Treaty, are an integral part of the EU legal order and must therefore be compatible with the Treaties. Arbitral tribunals have interpreted the Energy Charter Treaty as also containing an investor-State arbitration clause applicable between Member States. Interpreted in such a manner, that clause would be incompatible with the Treaties and thus would have to be disapplied” (emphasis added)

However, this position was not the one that was adopted by the ECJ Attorney General Wathelet in his conclusions on 19 september 2017 presented during the Achmea case. The latter had stated that “I note that if no EU institution and no Member State sought an opinion from the Court on the compatibility of that treaty [The Energy Charter Treaty] with the EU and FEU Treaties, that is because none of them had the slightest suspicion that it might be incompatible.”

Some authors agree with that view, adding that ICSID arbitration is also governed by a separate and autonomous convention. Consequently its arbitration mechanism shall not be challenged by the Achmea solution.  (Philippe Pinsolle et Isabelle Michou, « l’arrêt Achmea, la fin des traités d’investissements intra-UE ? », Dalloz Actualité, 7 mars 2018)

In any event, the Achmea reasoning has not produced its full effect insofar as the arbitral tribunals have limited its scope of application.

In the case Masdar v. Spain from 16 May 2018, the arbitral tribunal thus rejected the Achmea reasoning, considering that this could not apply to an arbitral proceeding based on ECT: “The Achmea Judgment is simply silent on the subject of the ECT(ICSID Case No. ARB/14/1, Madsar Solar &  Wind Cooperatief U.A.  v Kingdom of Spain, 16 May 2018).

In an award Vattenfall v Germany from 31 August 2018, the arbitral tribunal confirmed the interpretation held in Masdar v Spain, refusing to extend the Achmea solution:

In the Tribunal’s view, legal certainty requires that any relevant rule of international law that is taken into account during interpretation be clear. It is not for this Tribunal to extrapolate from the ECJ Judgment and declare a new rule of international law which is not clearly stated therein, or to decide which other scenarios would pose the same EU law concerns as those that the ECJ found in relation to the Dutch-Slovak BIT(ICSID Case No. ARB/12/12,Vattenfall v Federal Republic of Germany, 31 august 2018).

In the case of ICSID UP and C.D Holding Internationale against Hungary dated 9 October 2018, an arbitral tribunal applying the Franco-Hungarian BIT rendered an award declaring itself competent, notwithstanding the challenges to its jurisdiction made by Hungary based on the Achmea judgment. The Arbitral Tribunal justified its choice to reject the ECJ’s solution on the grounds that (i) if the present case does indeed have a seat of arbitration in London, it remains included in the ICSID system and only the ICSID Arbitration Rules apply to the proceedings, to the exclusion of British law, (ii) the review of the award is therefore beyond the jurisdiction of the English courts as much as it is beyond the jurisdiction of any other national court, since the ICSID system provides for review of the award by an ad hoc committee whose decision is not itself subject to review.

More recently, in an award dated 28 January 2019, in a case in which a French company had filed a request for ICSID arbitration against the Hungarian State following legislative and regulatory changes, the arbitral tribunal rejected the application of the Achmea solution requested by the Hungarian State and the European Commission, although the latter had intervened at the arbitration (ICSID award dated 28 January 2019 Sodexo v. Hungary, see also Sodexo’s statement). The arbitral tribunal stated that the Achmea solution has no impact on an ICSID tribunal that holds its authority from an autonomous and independent system based on the Washington Convention.

Thus, in the absence of a clear solution from the EU case law regarding the extension of the Achmea solution to ICSID arbitrations and arbitrations based on the Energy Charter, the majority of arbitral tribunals for the time being refuse to decline jurisdiction.

However, if the Achmea decision has, for the moment, only a limited impact on arbitral tribunals’ jurisdiction, one ought to ask whether it can become an obstacle to the arbitral awards’ effectiveness?

Is there a risk to the arbitral awards’ efficiency?

In its decision of 31 October 2018, the German Federal Court drew the necessary conclusions from the preliminary question referred to the ECJ in the Achmea judgment by annulling the arbitral award, considering that the arbitral tribunal did not have jurisdiction to settle the dispute, as the offer of arbitration in the BIT was not valid.

Faced with this risk of annulment, some arbitrators then refused arbitrations cases based on intra-EU BITs and ICSIDs, notably in August and September 2018 in two cases involving Hungary. This fear is also shared by some authors who consider that “the decision is contrary to the principle of the autonomy of European Union law and is undoubtedly one of the grounds for annulment relating to the violation of a rule of public policy” (free translation, Sabrina Robert-Cuendet: l’arrêt de la grande chambre de la CJUE du 6 mars 2018 dans l’affaire Achmea: la fin des TBI européens?).

Within this climate of uncertainty, in the context of an action for annulment brought by Spain against the Novenergia v Spain award before the Court of Appeal of Svea on 14 May 2018, Spain asked the Swedish court to refer a question to the ECJ for a preliminary ruling on the compatibility of arbitration based on the Energy Charter Treaty with Union law (Respondent Kingdom of Spain’s Memorandum of law in support of motion to dismiss and to deny petition to confirm arbitral award, V. Spain’s Action to Set Aside the Award).

Such a preliminary question would permit to clarify the ECJ’s position on the scope of the Achmea reasoning.

It should be noted that the same Swedish Court of Appeal, which has not yet ruled on the action for annulment in the Novenergia v Spain case, has already had the opportunity to do so in a case between Poland and a Luxembourg investment fund on the basis of the BIT concluded between Poland and Luxembourg. Thus, on 22 February 2019, it dismissed Poland’s action for annulment of two arbitral awards rendered under the aegis of the Arbitration Institute of the Stockholm Chamber of Commerce, despite the fact that Poland was availing itself of the Achmea solution (see Official Press Release of the Svea Court of Appeal of 22 February 2019).

Are national courts joining the resistance along with arbitral tribunals…? .Or should this be seen as an individual and isolated position of Sweden, which has still not signed the Declaration…?

Watch this space…

Caroline Duclercq & Megan Ladrem Marafee


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