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Intra-EU disputes under intra-EU BITs
Intra-EU disputes under intra-EU BITs
The Court of Justice of the European Union (ECJ) held on March 6, 2018, in Slowakische Republik v Achmea BV, C-284/16, that articles 267 and 344 of the Treaty on the Functioning of the European Union must be construed as restricting ISDS clauses in intra-EU BITs, like the one in article 8 of the Dutch-Slovak BIT.
The German Federal Court threw down the EUR22 million arbitral judgment favouring Achmea against Slovakia on October 31, 2018. As a result of the EC J's judgment, it did so.
On the 15th and 16th of January 2019, EU member states published declarations acknowledging the implications of Achmea and promising to end all intra-EU BITs by the 6th of December. 23 EU member states signed such an agreement on May 6, 2020.
Meanwhile, on April 30, 2019, the ECJ published a ruling on the compliance of the ISDS provisions (allowing for an investment court system) in Section F of Chapter 8 of the Comprehensive Economic and Trade Agreement (CETA) with EU law. The ISDS requirements, it said, are compatible. Whereas a CETA tribunal will not be compelled to interpret EU legislation, the clauses do not jeopardise its autonomy.
Facts
Austria and Croatia signed a Bilateral Investment Treaty (BIT) on February 19, 1997, establishing investor-state arbitration under the UNCITRAL Rules. Croatia became a member of the EU on July 1, 2013. Two Austrian and Croatian banks filed for arbitration on February 14, 2020, after Croatia revised its insolvency legislation, demanding damages from the country for statutory changes and an alleged lack of legal protection by Croatian courts.
Despite Croatia's objections to the arbitral tribunal's jurisdiction, the parties decided to hold the arbitration in Frankfurt. Croatia requested that the arbitration be ruled inadmissible under section 1032(2) of the ZPO before the arbitral panel was formed, claiming that the BIT's arbitration agreement was in violation.
Croatia contended that the Achmea judgment was final in this case.
Decision
The arbitration was deemed inadmissible by the Higher Regional Court of Frankfurt because the BIT's investor-state arbitration agreement breached EU law.
Because the independent and uniform interpretation of EU law is of paramount significance, the court agreed with Croatia that the Achmea judgment was binding in this case. As a result, the court determined that there is no place to distinguish between an arbitral tribunal adopting EU law as a matter of fact and an arbitral tribunal using EU law as a matter of interpretation, as some investment arbitrations have done.
The conclusion remains the same, even in light of the CETA Opinion. Regarding third-party states, an arbitral tribunal, according to the Opinion, may decide EU law. CETA must, however, be separated from the Austria-Croatia BIT. While an arbitral tribunal under CETA is governed by national courts' interpretations of EU law, no such safeguards exist under the Austria-CETA agreement.
Furthermore, because an arbitral tribunal lacks the legal authority to obtain a preliminary decision from the ECJ, the problems cannot be quickly addressed. According to article 267 of the Treaty on the Functioning of the European Union, such a request may only be made by a member state court, and an arbitral tribunal does not fulfil this requirement, according to the ECJ's jurisprudence.
A further review of the award by a state court, which includes a preliminary ruling reference option, was similarly ruled insufficient. The outcome of the review would be determined by the arbitration seat chosen and the applicable law.
The court also ruled that the respondents could not rely on a good faith argument since the parties should have anticipated that some BIT provisions would be inapplicable.
Finally, the court flatly rejected the claimants' allegation that they were essentially denied legal protection since the Croatian courts had not adequately dealt with their claims without the prospect of arbitration. Even if this were the case, the court ruled that the ECJ's Achmea judgment could not be interpreted as allowing arbitration if domestic legal protection was denied.
Analysis
Predictably, the Higher Regional Court of Frankfurt decided that an arbitration brought under a separate intra-EU BIT, the Austria-Croatia BIT, was inadmissible, based on the ECJ and the German Federal Court of Justice's rulings in Docket No. I ZB 2/15. Defenders of intra-EU BIT arbitrations will regard this as regrettable, but it appears unavoidable given the current political atmosphere. Inter-EU BIT-based arbitration arrangements are becoming increasingly unstable. As a result, investors in EU member states where the rule of law is not respected are left with little legal protection.
Conclusion
While specific trends suggest that the Achmea decision's implications may be limited, parties depending on the arbitration clause in an intra-EU BIT will have a difficult battle.
(This Article Does Not Intend To Hurt The Sentiments Of Any Individual Community, Sect, or Religion, Etcetera. This Article Is Based Purely On The Authors Personal Views And Opinions In The Exercise Of The Fundamental Right Guaranteed Under Article 19(1)(A) And Other Related Laws Being Force In India, For The Time Being. Further, despite all efforts made to ensure the accuracy and correctness of the information published, White Code VIA Mediation and Arbitration Centre Foundation shall not be responsible for any errors caused due to human error or otherwise.)
- The Court of Justice of the European Union (ECJ) held on March 6, 2018, in Slowakische Republik v Achmea BV, C-284/16
- Austria and Croatia signed a Bilateral Investment Treaty (BIT) on February 19, 1997, establishing investor-state arbitration under the UNCITRAL Rules. Croatia became a member of the EU on July 1, 2013
- While certain trends suggest that the Achmea decision's implications may be limited, parties depending on the arbitration clause in an intra-EU BIT will have a difficult battle.
