The CJEU ruling in Achmea, C-284/16 : The Court of Justice of the EU  has consistently held that an international agreement cannot affect the allocation of powers fixed by the Treaties or, consequently, the autonomy of the EU legal system. To the extent that its decisions are not subject to mechanisms capable of ensuring the full effectiveness of the EU law, the arbitral tribunal in question violates the autonomous order of the EU.

by Philippe Vlaemminck and Lidia Dutkiewicz
Pharumlegal – EU lawyers & strategic consultants

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Introduction

The arbitration clauses in bilateral investment treaties (“BITs”) and free trade agreements (“FTAs”) have in recent years attracted a significant public attention (most notably when regional parliament of Wallonia threated to block CETA over the investor protection mechanism) and were subjects of many of the CJUE’s deliberations.

In the following article we will analyze the recent CJEU ruling in Achmea (Case C-284/16), where the Court disagreed with the AG Wathelet’s exceptional and, for some, shocking defense of the ISDSs in international investment agreements.

The CJEU ruling in Achmea, C-284/16 : Legal analysis

The main question the Federal Court of Justice referred to the Court for a preliminary ruling is to whether the Articles 334 and 267 of the Treaty on the functioning of the European Union (“TFEU”) preclude the application of the BIT’s provision under which an investor from one Member State 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.

While answering that question, the CJEU recalled its (in)famous Opinion 2/13 of December 2014 in which the Court rejected the accession of the EU to the ECHR. In that Opinion (and similarly the Opinion 1/09 of 8 March 2011 regarding the pan-European patent court), „the Court has consistently held that an international agreement cannot affect the allocation of powers fixed by the Treaties or, consequently, the autonomy of the EU legal system” (Opinion 2/13, para. 201).

Indeed, the allocation of powers and broadly speaking the autonomy of EU law as such, which, according to settled case-law of the Court[1], stems from an independent source of law, the Treaties, is the main point of contention in the case in question. In that context, it should be reminded that the judicial system of the EU has been established in order to preserve this particular autonomy of the EU legal order and ensure the consistency and uniformity in the interpretation of EU law (Opinion 2/13, para. 174).

As the Article 8 of the BIT in question (and, to that end, most of the bilateral investment treaties) requires the referred tribunal, to take into account all the law in force of the contracting party concerned, the fact that EU law forms a part of the law in force in every Member State, requires that tribunal to interpret and to apply EU law (para. 42).

In that regard it must be ascertained whether such arbitral tribunal is situated within the judicial system of the EU, and in particular whether it can be regarded as “a court or tribunal of a Member State” (para 43). In that regard it is quite clear that it is precisely because of “the exceptional nature” of the tribunal’s jurisdiction compared with that of the courts of the Member States (as it in fact constitutes a “sui generis” system, determines its own procedure, seat and the applicable law), that it is not part of the judicial system of the Netherlands or Slovakia.

There are two main consequences that steam from the conclusion that an arbitral tribunal is not regarded as a “court or tribunal of a Member State”.

  • Firstly, the arbitral tribunal as the one in question is not entitled to make a reference to the Court for a preliminary ruling within the meaning of Article 267 TFEU.
  • Secondly, an arbitral award made by such a tribunal is not subject to review by a court of a Member State; (the fact that the review of arbitral awards by the courts of the Member States is limited in scope, is indeed the raison d’être of arbitration tribunals in the first place).

However, as the CJEU reaffirmed, according to the settled case-law of the Court, international agreements that provide for the establishment of international courts and tribunals whose decisions are binding on the EU institutions, including the Court of Justice, is not in principle incompatible with EU law. “The competence of the EU in the field of international relations and its capacity to conclude international agreements necessarily entail the power to submit to the decisions of a court which is created or designated by such agreements as regards the interpretation and application of their provisions, provided that the autonomy of the EU and its legal order is respected” (C-284/16, para. 57). In that regard the reference may be made to e.g. the WTO dispute settlement, which is not being disputed from the EU law perspective.

What is, however, different in the Achmea case is the fact that: (i) the arbitral tribunal is a body which is not part of the judicial system of the EU but was established based on an agreement concluded by the Member States (and not by the EU); (ii) its interpretation of EU law cannot be the subject of a reference to the Court for a preliminary ruling. Since its decisions are not subject to mechanisms capable of ensuring the full effectiveness of the EU law, the arbitral tribunal in question violates the autonomous order of the EU.

Conclusions

The CJEU’s findings in Achmea seem to (over)emphasize the autonomy of the EU legal system vis-à-vis the external system of judicial review. Should Member States be allowed to form their own dispute settlement mechanisms, the monopoly of the EU courts to settle disputes concerning the interpretation or application of the Treaties would be endangered.

The Court’s  reasoning around the concept of the “autonomy of the EU law” has a far-reaching consequences not only in terms of the validity of the bilateral investment treaties concluded between the Member States (such as the Slovak-Dutch BIT in question), but may also be extended on extra-European investment protection settlements with third countries (e.g. as the one in CETA).

It is worth to mention that Belgium has already requested for an opinion to the Court as to whether the resolution of investment disputes between investors and state provided for in CETA is compatible with the Treaties (Opinion 1/17).

Follow up articles:

As we consider the broader context of the investor-state dispute settlement mechanisms (“ISDSs”) extremely relevant for understanding how significant consequences the Achmea judgement may have, in the future blog articles will explain in more detail the following issues:

  • The CJEU’s Opinion 2/15 concerning the EU-Singapore free trade agreement (EUSFTA);
  • Commission Recommendation of 13 of September 2017 for a Council Decision authorizing the opening of negotiations for a Convention establishing a multilateral court for the settlement of investment disputes;
  • Opinion of AG Wathelet delivered on 19 September 2017 in Achmea, C-284/16.
Background : summary of facts

The CJEU judgment concerns an agreement on investment protection signed in 1991 between the Kingdom of the Netherlands and Slovak Republic (formerly “the Czech and Slovak Federal Republic”).

In 2007 the Slovak Republic introduced a significant changes to the health insurance law and partly reversed the liberalization of the market. Achmea, an undertaking belonging to a Netherlands insurance group, considered that these legislative changes had caused it damage and it decided to brought arbitration proceedings against the Slovak Republic in October 2008 pursuant to Article 8 of the Slovak-Dutch BIT.

As Frankfurt am Main was chosen as the place of arbitration, German law applied to the arbitration proceedings concerned. Thus, the German Federal Court of Justice requested a preliminary ruling from the CJEU on the compatibility of certain provisions of the given BIT with EU law.

[1] As famously established by the CJEU already in early 60s in, inter alia, Costa v. E.N.E.L case.