Achmea v. Slovakia – Shaping the future for intra-EU BITs

A bilateral investment treaty (BIT) is an international agreement concluded between two States. BITs in general lay out standards as to how States can treat investors of another State and their investments. BITs can set out investment protections such as fair and equitable treatment, full protection and security and protection from expropriation. BITs often include an arbitration clause to allow investors to initiate arbitration proceedings instead of resorting to host State courts.

Finland today has almost 70 BITs, i.e. bilateral investment treaties, in force. Of these 70 BITs, 11 have been concluded with another EU Member State. EU-wide, a total of 196 intra-EU BITs concluded between two EU Member States remain in force. The status of intra-EU BITs has been at the center of heated discussion in recent years. On 6 March 2018, the European Court of Justice (CJEU) issued a ground-breaking ruling in Achmea B.V. v. Slovakia (Case C-284/16). By this ruling, the CJEU gave a long-awaited answer to the controversial issue whether arbitration clauses in investment treaties between EU Member States are compatible with EU law.

The background of the Achmea case was as follows. In 2004, the Slovak Republic opened its market to operators offering private sickness insurance services. Achmea, an undertaking belonging to a Dutch insurance group, had established a subsidiary in Slovakia to market private health insurance products. Slovakia, however, in 2006 started adopting new legislation governing the insurance sector that partly reversed the liberalization of the private health insurance market. This, Achmea claimed, was against Slovakia’s obligations under the Netherlands-Slovakia BIT and initiated investor-State arbitration proceedings. In 2012, the arbitral tribunal ruled in favor of Achmea and ordered Slovakia to pay approximately 22 million euros in damages.

Slovakia sought annulment of the award before the courts of Germany, the seat of arbitration, on the grounds that the arbitration clause in the Netherlands-Slovakia BIT violated Articles 344, 267 and 18 of the Treaty on the Functioning of the European Union (TFEU). Article 344 TFEU prohibits EU Member States from submitting a dispute concerning the interpretation or application of EU law to any method of dispute settlement other than those provided for in the EU Treaties. Article 267 TFEU sets out a preliminary ruling mechanism ensuring that the CJEU alone gives final and binding interpretations on EU law. Finally, Article 18 TFEU prohibits discrimination on grounds of nationality. The German court decided to stay the proceedings and refer the issues to the CJEU for a preliminary ruling.

In its Achmea ruling the CJEU, contrary to the opinion of Advocate General Wathelet, adopted policy views repeatedly expressed by the European Commission. According to the CJEU, the Netherlands-Slovakia BIT and its investor-State arbitration clause in particular was incompatible with EU law. This is because the arbitration clause had an adverse effect on the autonomy of EU law. The CJEU noted that disputes leading to the constitution of an arbitral tribunal may relate to the interpretation or application of EU law by that tribunal. Because an arbitral tribunal is not a court or a tribunal of a Member State within the meaning of Article 267 TFEU, it cannot make a reference for a preliminary ruling to the CJEU. Such dispute resolution mechanism does not ensure uniform interpretation of EU law. Rather, the mechanism effectively removes investment disputes involving interpretation or application of EU law from the EU framework. Consequently, Articles 267 and 344 TFEU preclude investor-State arbitration provision in a BIT concluded between Member States.

The ruling has several possible implications for the investment regime in Europe. The principle of precedence of EU law and Article 351 (2) TFEU require that Member States take all appropriate steps to eliminate incompatibilities with EU law. Hence, EU Member States may have to take measures to ensure compliance of their intra-EU BITs with EU law. Parties are also likely to invoke the Achmea judgment in their efforts to challenge jurisdiction of arbitral tribunals and arbitral awards. It remains to be seen what the practical effect of the decision on both pending and already concluded intra-EU BIT disputes will be.

Additionally, the decision may have significance for the discussion on the Multilateral Investment Court. To respond to the legitimacy concerns faced by investor-State dispute settlement, the EU has been promoting a multilateral forum for the settlement of investment disputes. On 20 March 2018, the Council of the European Union unanimously adopted negotiating directives that authorize the European Commission to initiate talks for a convention establishing such a permanent body to adjudicate disputes under future and existing investment treaties. The exact features of the multilateral court would have to be negotiated in a way that ensures its compatibility with EU law.

The Achmea decision will undoubtedly have consequences for the protection of foreign investment within the European Union. The future of the 196 intra-EU BITs still in force remains unclear. At the end of the day, the decision seems to have raised many more questions than it provides answers to.

Thesis trainee Johanna Puukka was co-writer of the article.

Author

Mari Vanhanen 
Senior Associate
Helsinki