Arbitration : The Achmea case

Very rarely would a single arbitration-related decision produce as significant an impact as the judgment of the Court of Justice of European Union (“EU” and “Court” respectively) in the Achmea case did in 2018. 

The Achmea sets a cornerstone case in the world of arbitration and this aricle purports to dig into the issues arising from the Court's reasoning.

The investment treaty arbitration system (“Investment Treaty”) had long been accepted with some degree of suspicion by the EU. The Achmea case and judgment dealt with the issue ofoverlap between the Investment Treaty and EU law from the standpoint of EU law. In para 33, the Court underlined the autonomy and supremacy of EU law and in para 42 it considered that an arbitral tribunal may have to apply EU law to questions such as freedoms provided in the Treaty on the Functioning of the European Union. According to para 54, the outcome of commercial arbitration may be subject to review by Member State courts for the purpose of enforcement. In para 56-58, the Court held that the effectiveness of EU law may be undermined as EU-related disputes are referred to bodies that are outside the EU jurisdiction. Hence, concluded the Court, the Netherlands-Slovakia billateral investment treaty is incompatible with EU law.

But, if EU law precludes Investment Treaty, what happens with the ivestment treaty itself? The invalidity of international treaties is regulated by the Vienna Convention and if EU law precludes ISDS, what happens with the arbitration clause? How should it be treated in the course of attempted enforcement or setting aside of the arbitral award?

The questions that arise were not addressed by the judgment and this creates some ambiguity of how the Member States will deal with the relating issues

The EU Commission took a different stance altogether : in its 19 July 2018 Communication, the Commission made reference to the Achmea and it suggested that it should be extended to multilateral agreements such as the Energy Charter Treaty: “The Achmea judgment is also relevant for the investor-State arbitration mechanism established in Article 26 of the Energy Charter Treaty as regards intra-EU relations. This provision, if interpreted correctly, does not provide for an investor-State arbitration clause applicable between investors from a Member States of the EU and another Member States of the EU. Given the primacy of Union law, that clause, if interpreted as applying intra-EU, is incompatible with EU primary law and thus inapplicable. Indeed, the reasoning of the Court in Achmea applies equally to the intra-EU application of such a clause which, just like the clauses of intra-EU BITs, opens the possibility of submitting those disputes to a body which is not part of the judicial system of the EU. The fact that the EU is also a party to the Energy Charter Treaty does not affect this conclusion: the participation of the EU in that Treaty has only created rights and obligations between the EU and third countries and has not affected the relations between the EU Member States.”

Although a number of national courts reviewed Achmea case so far, the issues arisen are far from decided. The German court for instance accepted that EU law precludes arbitration and the tribunal seated in Germany did not have jurisdiction to render award. The EU obligations did obstruct Slovakia to provide relevant consent for validity of arbitration.

Will the Achmea have a limited impact is not clear yetm but its significance is undisputed and it sets the cornerstone for the EU Commission to challenge intra-EU investment treaties targeting the jurisdiction of arbitral tribunals.