Validity of Arbitration Clauses in Intra-EU BITs – Some Thoughts on AG Wathelet’s Opinion in Achmea (Part 2)
Without further delay, here is the second part of my analysis of Advocate General Wathelet (AG Wathelet*)’s opinion (the Opinion) in the Achmea case (check my previous post for a factual background on this case).
As previously discussed, the issue put before the Court of Justice of the European Union (the CJEU) in this case concerned the compatibility, with respect to EU law, of an arbitration clause contained in an intra-EU bilateral investment treaty (a BIT).
In the first part of my analysis, I have examined AG Wathelet’s answers to:
– the question regarding the alleged discriminatory character (contrary to Article 18 of the Treaty on the Functioning of the European Union (TFEU)) of an arbitration clause contained in an intra-EU BIT; and
– the possibility for arbitral tribunals established in accordance with an intra-EU BIT to refer questions to the CJEU for preliminary rulings.
As promised in my last post, this article now covers the issue of whether an arbitration clause contained in an intra-EU BIT infringes Article 344 TFEU which prohibits EU Member States from submitting a dispute concerning the interpretation or application of EU law to any other method than those provided for in the EU treaties. In his Opinion, AG Wathelet sub-divided this issue into three distinct questions:
– Does a dispute between an investor and a Member State fall under Article 344 TFEU?
– If the answer to the first sub-question is negative, then has an intra-EU BIT the effect of undermining the allocation of powers determined by the EU treaties?
– If the answer to the first sub-question is yes, then does the subject matter of investor-State dispute constitute a dispute on the interpretation or application of the EU treaties?
Does a dispute between an investor and a Member State fall under Article 344 TFEU?
With respect to the first sub-question, AG Wathelet clearly answered that a dispute between an investor and a State did not come within the scope of Article 344 TFEU.
In his reasoning, AG Wathelet relied on an interesting analogy based on the CJEU’s Opinion 2/13 on the accession of the European Union to the European Convention on Human Rights (in which the CJEU ultimately found the terms of accession to be incompatible with EU law). More particularly, he relied on the fact that in this opinion the CJEU only assessed the issue arising with respect to Article 344 TFEU in light of disputes arising either between Member States themselves or between Member States and the EU. According to AG Wathelet, the fact that the CJEU did not say anything with respect to disputes between individuals and Member States (despite the CJEU being aware that most disputes brought before the European Court of Human Rights were disputes between individuals and States) indicates that Article 344 TFEU does not concern disputes between individuals/investors and Member States (paras 151-152).
Has an intra-EU BIT the effect of undermining the allocation of powers determined by the EU treaties?
With the answer to sub-question 1 in mind, AG Wathelet then considered it appropriate to examine whether an arbitration clause contained in an intra-EU BIT had the effect of undermining the allocation of powers fixed by the Treaties and the autonomy of the EU legal system.
Very surprisingly, AG Wathelet also answered negatively to that question and found that an arbitration clause contained in an intra-EU BIT did not undermine either the allocation of powers fixed by the European Treaties or the autonomy of the EU legal system. According to AG Wathelet, the autonomy of the EU legal system is maintained since “the awards made by the arbitral tribunals cannot avoid review by the national courts. That review may be carried out in the context of an action to set aside the arbitral award before the courts of the seat of the arbitration or in the context of an objection to a request for recognition and enforcement of the award before the courts of the country in which recognition and enforcement of the award are sought in accordance with the Convention for the Recognition and Enforcement of Foreign Arbitral Awards, signed at New York on 10 June 1958” (para. 239).
Needless to say, I am not particularly convinced by this argument. Indeed, despite raising the question of what would happen to cases for which the seat of arbitration is located in a third country (meaning that the recognition and enforcement of the arbitral award could entirely be sought in a third country and the courts of the EU would then not be involved in the recognition and enforcement proceedings), AG Wathelet avoided seriously considering the issue and described such a possibility as “purely hypothetical” (sic.) (para. 253).
Does the subject matter of investor-State dispute constitutes a dispute on the interpretation or application of the EU treaties?
For the sake of completeness, and even though he had found that the first sub-question had to be answered negatively, AG Wathelet nevertheless finally examined the question of whether the subject matter of an investor-State dispute could constitute a dispute on the interpretation or application of the EU treaties.
In this respect, AG Wathelet found that “the scope of the BIT is wider than that of the EU and FEU Treaties and that the guarantees of the protection of investments introduced by the BIT are different from those afforded in EU law, without being incompatible with EU law. For that reason, a dispute between a Netherlands investor and the Slovak Republic falling under the BIT is not a dispute concerning the interpretation or application of the EU and FEU Treaties” (para. 228).
To reach this surprising conclusion, AG Wathelet developed a four-tier analysis in which he found:
– “The tribunal’s role is not to establish whether, by its conduct which is challenged by the investor, the Member State failed to fulfill its obligations under the EU and FEU Treaties or, more generally, EU law. On the contrary, its role is to establish breaches of the BIT by the host State of the investment, EU law being one of the relevant factors to be taken into account when the tribunal assesses the conduct of the State in the light of the BIT” (para. 175);
– That “[i]n the absence of express limitation, BITs cover every act or omission of the State which has an impact on a foreign investor and his investment. In that sense, they apply to situations which do not come under the EU and FEU Treaties” (para. 183);
– That “[a] number of legal rules of the BIT have no equivalent in EU law. These are the MFN clause, the clause whereby the Parties undertake to observe their contractual obligations, the sunset clause and the ISDS mechanism” (para. 199); and
– that “[a]s regards the other rules providing material protection of investments, namely full protection and security, fair and equitable treatment of investments and the prohibition of illegal expropriations, it should be emphasised that any overlap with EU law is only partial and does not render them incompatible with EU law. On the contrary, like the fundamental freedoms, those rules also encourage the movement of capital between Member States. They are a priori compatible with the internal market” (para. 210).
All in all, AG Wathelet devoted a total of 68 paragraphs to this issue (i.e. almost a third of his Opinion). Despite the length of his analysis, I must again raise doubts as to the cogency of the arguments expressed.
I do not wish to enter here into the argument raised by the Commission according to which EU law offers investors, in particular through the fundamental freedoms and the Charter of Fundamental Rights of the EU, full protection in the field of investments. However, even without examining this issue and even considering that domestic law should have the status of facts, I think that AG Wathelet’s reasoning fails to take into consideration that a breach of an intra-EU BIT may very well be caused by a Member States adopting and implementing a European secondary legislative act (such as a directive).
In such case, a European legislative act could oblige a Member State to adapt and amend its legislation in a specific industrial sector (since EU Member States are required to implement EU Directives in their national law). This change of national legislation could then potentially trigger the initiation of arbitral proceedings under an intra-EU BIT. According to AG Wathelet, such a dispute would not require the arbitrator to interpret and apply EU law. I personally do not agree: if arbitrators take their role seriously, they would then be required to examine the whole picture of the case (including the Member State’s obligation to comply with EU norms). Consequently, I do not see any reason why a dispute between an investor and a Member State falling under an intra-EU BIT would not be a dispute concerning – at least in part – the interpretation or application of the EU Treaties.
My global appreciation of the Achmea case
As apparent from the first part of my analysis, I strongly believe that the CJEU should resolve the present case by finding that intra-EU BITs (in general) and arbitration clauses contained in such intra-EU BITs (in particular) are contrary to EU rules on the prohibition of discrimination on the basis of nationality. In short, I personally believe that intra-EU BITs have no place in the EU’s sphere.
This being said, I have no particular concern with AG Wathelet’s conclusions (in particular where he finds that arbitral tribunals established in accordance with an intra-EU BIT should be entitled to refer questions to the CJEU for preliminary rulings). However, that does not mean that I agree with the reasoning he uses to reach these conclusions. Indeed, I believe that some key aspects of his Opinion lack appropriate and much-needed in-depth analysis (as shown above with respect to 2nd and 3rd sub-questions).
* In the European judicial landscape, Advocates General act in complete impartiality and independence and are requested to submit reasoned opinions on cases before the CJEU. Their opinions, however, are not binding on the CJEU, which can freely decide not to follow the opinions expressed by the Advocate Generals.