On 19 September 2017, Advocate General Wathelet of the Court of Justice of the European Union delivered his Opinion in the case of Slovak Republic v Achmea BV (C-284-16).
The case concerned an arbitration clause in an investment protection agreement between the Netherlands and Slovakia, specifically whether it was compatible with certain provisions of the Treaty on the Functioning of the European Union (“TFEU”). In concluding that the arbitration clause was compatible with EU law, the Opinion delivered another blow to the European Commission’s efforts to make redundant intra-EU bilateral investment treaties.
Background to the Slovak Republic v Achmea BV case
In 1991, a bilateral investment treaty (“BIT”) was settled between Czechoslovakia and the Netherlands for the encouragement and protection of investments. Following the dissolution of Czechoslovakia in 1993, Slovakia succeeded to that country’s rights and obligations under the agreement. The agreement contained an arbitration clause.
Following the liberalisation of the Slovakian medical insurance market in 2004, a Dutch company, Achmea B.V. established a subsidiary healthcare provider in Slovakia, Union Health Insurance Company, Inc.
In 2006, Slovakia partly revoked the liberalisation, prohibiting the distribution of profits for certain activities relating to the sale of medical insurance, affecting the business activities of Union Health. An arbitration under the BIT was commenced by Achmea. In 2012, the arbitral tribunal found that Slovakia had infringed the BIT and ordered it to pay Achmea damages of approximately €22.1 million.
Slovakia brought an action before the German courts to have the arbitral tribunal’s award reversed on the basis that the arbitration clause in the BIT was contrary to the TFEU. It relied upon the following TFEU provisions:
Within the scope of application of the Treaties, and without prejudice to any special provisions contained therein, any discrimination on grounds of nationality shall be prohibited.
The European Parliament and the Council, acting in accordance with the ordinary legislative procedure, may adopt rules designed to prohibit such discrimination.
The Court of Justice of the European Union shall have jurisdiction to give preliminary rulings concerning:
(a) the interpretation of the Treaties;
(b) the validity and interpretation of acts of the institutions, bodies, offices or agencies of the Union;
Where such a question is raised before any court or tribunal of a Member State, that court or tribunal may, if it considers that a decision on the question is necessary to enable it to give judgment, request the Court to give a ruling thereon.
Where any such question is raised in a case pending before a court or tribunal of a Member State against whose decisions there is no judicial remedy under national law, that court or tribunal shall bring the matter before the Court.
If such a question is raised in a case pending before a court or tribunal of a Member State with regard to a person in custody, the Court of Justice of the European Union shall act with the minimum of delay.
Member States undertake not to submit a dispute concerning the interpretation or application of the Treaties to any method of settlement other than those provided for therein.
The Federal Court of Justice in Germany sought the direction of the European Court of Justice.
Opinion of the Advocate General
The Advocate General dismissed Slovakia’s contentions on the following bases.
First, the arbitration clause does not constitute discrimination on grounds of nationality prohibited by EU law and, therefore, does not infringe Article 18 of the TFEU. While in this instance only Dutch investors are enabled to submit a dispute relating to an investment made in Slovakia to the arbitral tribunal, the investors of most of the other Member States benefit from an equivalent protection on the basis of the BITs which their respective Member States of origin have concluded with Slovakia.
Second, the arbitration system does not fall outside the scope of the preliminary ruling mechanism established by Article 267 of the TFEU on the basis that the arbitral tribunal, constituted on the basis of the disputed clause, is a court or tribunal common to the Netherlands and Slovakia, permitted to request the Court to give a preliminary ruling. That arbitral tribunal derives from binding legal provisions, is part of a permanent arbitration system established by the two Member States concerned, has compulsory jurisdiction to determine investment disputes in the context of inter partes proceedings and takes its decisions with complete independence and impartiality, on the basis of rules of law.
Third, the system of arbitration cannot undermine either Article 344 of the TFEU, which requires the Member States to submit a dispute concerning the interpretation or application of the Treaties to a method of settlement provided for therein, or the allocation of powers determined by the Treaties and, accordingly, the autonomy of the EU legal system. Further, the requirement provided for in Article 344 of the TFEU applies only to disputes between Member States or between Member States and the Union, and not between an investor and a Member State.
The Advocate General was of the view that the arbitration clause did not undermine the TFEU or the autonomy of the EU legal system.
The Opinion, particularly if followed by the European Court of Justice, is a blow to the European Commission, whose view that intra-EU bilateral investment treaties are outdated and incompatible with EU law is well-known.
The Commission participated in the case in support of Slovakia’s position. It submitted that EU law offers investors, in particular through fundamental freedoms and the Charter of Fundamental Rights of the European Union, full protection in the field of investments.
In dismissing the Commission’s arguments, the Advocate General commented that the scope of the BIT at issue was wider than that of the TFEU and the guarantees of the protection of investments introduced by the BIT were different from those afforded in EU law, without being incompatible.