Slovak Republic v Achmea BV

• Jurisdiction: European Union
• Judge: Wathelet,Biltgen,Vilaras,Borg Barthet,Juhász,Lenaerts,Regan,Jürimäe,von Danwitz,Bay Larsen,Bonichot,Levits,Ilešič,Tizzano,Lycourgos,Malenovský
• Court: Court of Justice of the European Union
• Docket Number: (Case C-284/16)
• Date: 06 March 2018

Court of Justice of the European Union (Grand Chamber)

(Lenaerts, President; Tizzano(Rapporteur), Vice-Presiden; Ilešič, Bay Larsen, von Danwitz, Malenovský and Levits, Presidents of Chambers; Juhász, Borg Barthet, Bonichot, Biltgen, Jürimäe, Lycourgos, Vilaras and Regan, Judges; Wathelet, Advocate General)

(Case C-284/16)

Slowakische Republik (Slovak Republic)

and

Achmea BV1

Arbitration — Jurisdiction — Bilateral investment treaty — Treaty between two Member States of the European Union — Whether provision for investor — State arbitration compatible with European Union law — Applicable law — Whether including European Union law — Nature of arbitration tribunal — Relationship with national courts and with Court of Justice of the European Union

Economics, trade and finance — Investment — Bilateral investment treaty — Treaty between two Member States of the European Union — Arbitration provision — Whether provision for arbitration of investor — State dispute compatible with European Union law

Treaties — Bilateral investment treaty — Agreement on Encouragement and Reciprocal Protection of Investments between the Kingdom of the Netherlands and the Czech and Slovak Federal Republic, 1991 — Whether investor — State dispute resolution provision providing for arbitration compatible with Treaty on the Functioning of the European Union, 2007

Relationship of international law and municipal law — European Union law — Double nature of European Union law as part of the law in force in every Member State and as deriving from an international agreement between the Member States — Relationship between rights accorded to investors under bilateral investment treaty and principles of European Union law — The law of the European Union

Summary:2The facts:—The Slovak Republic (“the claimant”) brought an action before the German courts to set aside the arbitral award obtained against it by Achmea (“the defendant”) finding a breach of the Agreement on Encouragement and Reciprocal Protection of Investments between the Kingdom of the Netherlands and the Czech and Slovak Federal Republic, 1991 (“the BIT”) and ordering the claimant to pay damages to the defendant.3

The claimant challenged the arbitral award on the basis that the arbitration agreement contained in Article 8 of the BIT4 was invalid and that the recognition and enforcement of the arbitral award was contrary to public policy. In this context, the claimant advanced three arguments.5 First, it argued that Article 8 of the BIT was contrary to Article 344 of the Treaty on the Functioning of the European Union, 2007 (“the TFEU”), which provided that “[EU] Member States undertake not to submit a dispute concerning the interpretation or application of the [EU] Treaties to any method of settlement other than those provided for therein.” Secondly, it alleged that Article 8 of the BIT was contrary to Article 267 of the TFEU6 because the arbitral tribunal constituted under the BIT was not a court or tribunal of a Member State in the sense of Article 267 of the TFEU and was, therefore, precluded from referring questions of validity or interpretation of European Union law to the Court of Justice of the European Union (“the Court of Justice”). Thirdly, it contended that the right granted by Article 8 of the BIT to Dutch investors to submit disputes against the Slovak Republic to arbitration constituted discrimination against other European Union investors on the basis of their nationality, prohibited by Article 18 of the TFEU.7

The German Bundesgerichtshof (Federal Court of Justice) stayed its proceedings on the matter and sought a preliminary ruling from the Court of Justice.

Opinion of the Advocate General

Held:—Investor–State arbitration under Article 8 of the BIT was not incompatible with Articles 18, 267 and 344 of the TFEU.

(1) Article 8 of the BIT did not constitute discrimination on the basis of nationality, as prohibited by Article 18 of the TFEU, even if it granted Dutch

investors in Slovakia and Slovak investors in the Netherlands treatment which was not available to other European Union investors.

(a) The prohibition of discrimination under Article 18 of the TFEU did not include most-favoured-nation treatment. The Court of Justice had refused to extend to a German resident preferential tax treatment granted by the Netherlands to Belgian residents under the Netherlands–Belgium double taxation convention because the benefit in question was not separable from the remainder of the double taxation convention, but was instead an integral part thereof, contributing to its overall balance (paras. 66–72).

(b) The analogy between tax treatment afforded under a double taxation convention and a bilateral investment treaty could be made because, just as with double taxation conventions, the BIT created reciprocal rights and obligations that applied only to investors of the Contracting Member States. This was inherent in the bilateral nature of the BIT. In addition, Article 8 of the BIT was not a benefit separable from the remainder of the BIT but an integral part thereof to such an extent that a BIT without an investor–State dispute settlement mechanism would have been meaningless since it would not have achieved its aim of encouraging and attracting foreign investment (paras. 74–82).

(2) The arbitral tribunals constituted in accordance with Article 8 of the BIT were courts or tribunals of a Member State within the meaning of Article 267 of the TFEU.

(a) A “court or tribunal” of a Member State for the purposes of Article 267 of the TFEU was a body that met the following criteria: it was established by law; it was permanent; its jurisdiction was compulsory; its procedure was inter partes; it applied rules of law; and it was independent. A court or tribunal was “of a Member State” for the purposes of the same provision if it was common to a number of European Union Member States (paras. 86 and 129).

(b) The arbitral tribunal was established by law because it derived its jurisdiction not from a contractual arbitration agreement entered into freely by the parties but from an international treaty which was ratified by the Netherlands and Slovakia, therefore acquiring the force of law in those Member States. In addition, the Slovak Republic was involved in the choice to settle the dispute by arbitration and in the arbitral proceedings themselves as respondent (paras. 92–6).

(c) The criterion of permanence did not relate to the composition of the arbitral tribunal as such but to the institutionalization of arbitration as a dispute settlement method. In other words, it was by reference to the arbitral institution which administered the arbitral proceedings, and not to the arbitral tribunal, the composition of which was ephemeral, that the criterion of permanence had to be assessed (para. 101).

(d) Even if the composition of the arbitral tribunal was ephemeral and its activity ended once it had rendered its award, the arbitral tribunal was permanent because, through Article 8 of the BIT, the Netherlands and Slovakia had established arbitration as a permanent means of settling disputes between one of them and an investor from the other State (paras. 102–5).

(e) The jurisdiction of the arbitral tribunal was compulsory even if recourse to arbitration by the defendant was optional; the tribunal's decisions were binding on the parties and its jurisdiction stemmed directly from the provisions of a law and was not subject to the prior expression of the parties' will to submit their dispute to arbitration. Once the investor had opted to submit the dispute to arbitration, the tribunal's jurisdiction was compulsory on the State (paras. 112–19).

(f) The procedure before the arbitral tribunal was inter partes because Article 8 of the BIT stipulated that the arbitral proceedings would be governed by the United Nations Commission on International Trade Law (“UNCITRAL”) Arbitration Rules which provided for adversarial proceedings (paras. 120–2).

(g) The arbitral tribunal applied rules of law because Article 8(6) of the BIT provided that the arbitral tribunal should decide on the basis of the applicable law as defined in that provision. The possibility of adjudicating ex aequo et bono was therefore precluded (para. 123).

(h) The arbitral tribunal fulfilled the requirement of independence because the UNCITRAL Arbitration Rules imposed on the arbitrators an obligation of impartiality and independence (paras. 124–5).

(i) The arbitral tribunal could be considered as a court or tribunal “of a Member State” because, like the Benelux Court, it was common to a number of Member States in the sense that it was created as part of the dispute resolution mechanism set up by the Netherlands and Slovakia (paras. 128–30).

(3) By allowing for investor–State disputes to be submitted to international arbitration in accordance with Article 8 of the BIT, the Netherlands and Slovakia had not breached Article 344 of the TFEU, which required “[EU] Member States … not to submit a dispute concerning the interpretation or application of the [EU] Treaties to any method of settlement other than those provided for therein”.

(a) Article 344 of the TFEU captured disputes between Member States, such as the MOX Plant arbitration between Ireland and the United Kingdom,8 and disputes between Member States and the European Union. By contrast, disputes between private individuals did not come within the scope of Article 344 of the TFEU because they did not involve Member States. Investor–State disputes, such as those covered by Article 8 of the BIT, did not fall within the scope of Article 344 of the TFEU because they were initiated by private individuals. Otherwise the European Union would have been unable to accede to the European Convention on Human Rights, 1950, because most of the disputes before the European Court of Human Rights were disputes between individuals and States (paras. 146–53).

(b) In addition, the disputes covered by...