European Union: ECJ Rules On Validity Of Investor-State Dispute Settlement Clauses In Intra-EU Bilateral Investment Treaty

On 6 March 2018, the Court of Justice of the European Union (the "ECJ") delivered its long-awaited judgment in case C-284/16, Slovak Republic v. Achmea, on whether an arbitration clause in a bilateral investment treaty concluded between two EU Member States (intra-EU BIT) is compatible with European Union (EU) law and, in particular, the autonomy of the EU legal order. Unlike the Opinion of Advocate General Wathelet delivered on 19 September 2017 (see VBB on Belgian Business Law, Volume 2017, No. 9, p. 21, available at, the ECJ's response to that question was negative. The ECJ held that Articles 267 and 344 of the Treaty on the Functioning of the European Union (the "TFEU") preclude an arbitral clause such as that found in the 1991 BIT between the former Czechoslovakia and the Netherlands (the "Czechoslovakia-Netherlands BIT"). 

The case at hand concerned Achmea, a Dutch insurance company which had established a subsidiary in Slovakia in order to market and sell private health insurance products. Achmea initiated investor-State arbitral proceedings against Slovakia following the adoption of new regulations governing the insurance sector. The proceedings were initiated on the basis of the Czechoslovakia-Netherlands BIT. In 2012, the arbitral tribunal ruled in favour of Achmea and ordered Slovakia to pay Achmea damages of approximately EUR 22 million.

Subsequently, Slovakia sought the annulment of that award before a German court (the place of arbitration was Germany) on the grounds that the arbitration clause in the Czechoslovakia-Netherlands BIT was contrary to:

  • Article 344 TFEU which prohibits EU Member States from submitting a dispute concerning the interpretation or application of EU law to any method of settlement other than those for which the EU Treaties provide.
  • Article 267 TFEU which provides for a preliminary ruling mechanism that ensures that only the ECJ gives a final legally binding interpretation on EU law issues.
  • Article 18 TFEU which prohibits discrimination on grounds of nationality.

The German court stayed the proceedings and referred these questions to the ECJ for a preliminary ruling.

In the light of a combined reading of Articles 267 and 344, the ECJ applied a three-step analysis in order to establish whether an arbitral clause such as that found in the Czechoslovakia-Netherlands BIT undermines the European Union's autonomy.

  • First step: arbitral tribunals established pursuant to the Czechoslovakia-Netherlands BIT may need to apply and interpret EU law

The ECJ first examined whether an arbitral tribunal established pursuant to the Czechoslovakia-Netherlands BIT may need to resolve disputes that are liable to involve the interpretation or application of EU law.

Although the ECJ recognised that the jurisdiction of such a tribunal is limited to making findings on infringements of the Czechoslovakia-Netherlands BIT, it focused on the provision in that treaty (i.e., Article 8.6 of the Czechoslovakia-Netherlands BIT) laying down the law to be applied by an arbitral tribunal in resolving an investor-State dispute.

The ECJ noted that the applicable law included the domestic law of the Member State concerned and other relevant agreements between the parties to the treaty. It followed that EU law (in particular, the fundamental freedoms), which forms part of the national laws of the Member States, may be part of the applicable law. As a result, an arbitral tribunal established pursuant to the Czechoslovakia-Netherlands BIT may be required to interpret and apply EU law.

Since the application and interpretation of EU law by such an arbitral tribunal could affect the autonomy of the EU legal order, it was therefore necessary for the ECJ to turn to the second step of the analysis, namely whether such an arbitral tribunal could request a preliminary ruling from the ECJ.

  • Second step: arbitral tribunals established pursuant to the Czechoslovakia-Netherlands BIT are not allowed to refer preliminary questions to the ECJ

If a tribunal is part of the judicial system of the European Union and qualifies as a court or tribunal of a Member State within the meaning of Article 267 TFEU, then it is allowed to ask the ECJ for a preliminary ruling on the interpretation of EU law. In that manner, the autonomy of the EU legal order is preserved.

Unlike Advocate General Wathelet, however, the ECJ found that an arbitral tribunal established pursuant to the Czechoslovakia-Netherlands BIT does not qualify as a "court or tribunal of a Member State". Such an arbitral tribunal is therefore precluded from referring preliminary questions to the ECJ. A specific feature of an arbitral tribunal established pursuant to the Czechoslovakia-Netherlands BIT was to be distinct from the courts of the Member States which are parties to that BIT. Therefore, such an arbitral tribunal is not allowed to refer preliminary questions to the ECJ.

  • Third step: judicial review of awards rendered pursuant to the Czechoslovakia-Netherlands BIT does not guarantee the autonomy of the EU legal order

Despite the answer to the second question, the ECJ recognised that the autonomy of EU law may nonetheless be preserved, in the context of a review of an arbitral award rendered under the Czechoslovakia-Netherlands BIT, in the event that a court of a Member State submits questions of interpretation of EU law to the ECJ by means of a reference for a preliminary ruling.

In this context, the ECJ considered it relevant that an arbitral award (such as that for which the Czechoslovakia-Netherlands BIT provides), is subject to judicial review only to the extent that the law of the place of arbitration permits. In the specific case at issue, the national law was German law which provided only for limited review. According to well-established case-law relating to commercial arbitration (Case C-126/97 Eco Swiss and Case C-168/05 Mostaza Claro), limited review of arbitral awards before the courts of the Member States is justified provided that such a review covers also fundamental provisions of EU law and that, if necessary, such questions of EU law can be referred to the ECJ.

However, according to the ECJ, this case-law cannot be transposed to the Czechoslovakia-Netherlands BIT which could prevent the resolution of disputes that concern the interpretation or application of EU law in a manner that ensures the full effectiveness of EU law.

In consequence, the ECJ concluded that Articles 267 and 344 TFEU preclude Member States from concluding agreements that contain a provision on arbitration such as Article 8 of the Czechoslovakia-Netherlands BIT. It was therefore not necessary to examine whether such a clause might also be discriminatory because investors of other Member States were precluded from having recourse to arbitration against Slovakia.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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