On 6 March 2018, the Court of Justice of the European Union (“CJEU”) handed down its judgement regarding the compatibility of the arbitration clause contained in the bilateral investment treaty between the Netherlands and the Slovak Republic (“BIT”) with the Treaty on the Functioning of the European Union (“TFEU”). The CJEU held that the arbitration clause in the BIT is incompatible with the TFEU. The CJEU reasoned that the TFEU’s preliminary ruling procedure as well as the obligation of the Member States to resolve their disputes concerning the interpretation and application of the EU Treaties in accordance with the Treaties must be interpreted as precluding the arbitration clause.

Background

The judgement concerned a case in which the parties were the Slovak Republic and Dutch Achmea B.V. (“Achmea”). After the Slovak Republic opened its markets to national and other Member States offering private sickness insurance services, Achmea set up a subsidiary in the Slovak Republic and started to offer private sickness insurance services on the Slovak markets through it. The Slovak Republic, however, partly reversed the liberalisation of its sickness insurance market in 2006. Achmea argued that the legislative amendment caused it to suffer damage and initiated arbitration proceedings against the Slovak Republic on the basis of the arbitration clause contained in the BIT. Because the place of arbitration was Frankfurt am Main, the arbitration proceedings were governed by German law.

The arbitral tribunal ordered the Slovak Republic to pay Achmea 22.1 million euros in damages. The Slovak Republic brought an action to set aside the arbitration award before the Higher Regional Court in Frankfurt am Main (Oberlandesgericht Frankfurt am Main). The Slovak Republic argued that the arbitration clause contained in the BIT was incompatible with the TFEU. After the Higher Regional Court dismissed the Slovak Republic’s action for annulment, the Slovak Republic appealed against the dismissal to the German Federal Court of Justice (Bundersgerichtshof).

The German Federal Court of Justice did not share the view of the Slovak Republic but considered the questions to be so important that it was necessary to make a reference to the CJEU in order to decide the case before it.

Judgment

The CJEU concluded in its judgement that the arbitration clause in the BIT has an adverse effect on the autonomy of EU law.

The CJEU based its judgment, above all, on the fact that the arbitral tribunal is not a part of the judicial system of the Netherlands or the Slovak Republic, and for that reason cannot be held as a court or tribunal of a Member State within the meaning of the TFEU. Consequently, the CJEU found that the award given by the arbitral tribunal was not under such control of a Member State, which would guarantee that the questions regarding EU law could be presented in a preliminary ruling procedure to the CJEU. Due to the above-mentioned facts, the CJEU held that by containing the arbitration clause in the BIT, the Member State parties had created a mechanism for settling disputes between an investor and a Member State, which could prevent disputes related to the interpretation or application of EU law from being settled in a manner that guarantees the full effectiveness of EU law.

Views regarding the judgement

The judgement has rightly given rise to debates and has faced a lot of criticism. From the perspective of EU and international law, the judgement is understandable and consistent because its purpose is to ensure coherence, correct interpretation and consistency of EU law. However, the judgement has been criticized for endangering the functioning system of resolving disputes arising from bilateral investment treaties without proposing an alternative dispute resolution mechanism. The arbitration clause has enabled settling disputes regarding a bilateral investment treaty on a ”neutral ground” instead of resolving the dispute in the courts of the party to a bilateral investment treaty or dispute. Furthermore, the judgement has left many questions unanswered, such as what impact it will have on the settlement of numerous pending or future disputes arising from the bilateral investment treaties, as well as whether it will also have implications for arbitration clauses in other treaties between the Member States?

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