Validity of Arbitration Clauses in Intra-EU BITs – Some Thoughts on AG Wathelet’s Opinion in Achmea (Part 1)
On 19 September 2017, Advocate General Wathelet (AG Wathelet)* handed down a long-awaited, surprising and potentially far-reaching opinion (the Opinion) on the compatibility, with respect to EU law, of an arbitration clause contained in an intra-EU bilateral investment treaty.
The dispute at hand concerned a Dutch insurance company, Achmea (Achmea), which had established a subsidiary in Slovakia in order to market private sickness insurance products in this country. In 2008, following a change of legislation in the insurance sector in Slovakia, Achmea initiated investor-State arbitral proceedings against that State on the basis of a bilateral investment treaty (a BIT) entered into in 1991 between the former Czechoslovakia and the Netherlands (the Czechoslovakia-Netherlands BIT). Essentially, Achmea alleged that Slovakia’s legislative amendments violated certain provisions of the BIT.
In 2012, the arbitral tribunal sided with Achmea and issued an award ordering Slovakia to pay Achmea damages of approximately EUR 22 million.
Subsequently, and since the place of arbitration was in Germany, Slovakia brought an action before the German Courts seeking the annulment of the award rendered against it. In those proceedings, Slovakia argued that:
– The arbitration clause contained in the Czechoslovakia-Netherlands BIT infringed the prohibition of discrimination on grounds of nationality contained in Article 18 of the Treaty on the Functioning of the European Union (TFEU). More particularly, Slovakia argued that the arbitration clause contained in the Czechoslovakia-Netherlands BIT was discriminatory since it only offered Dutch investors the possibility to recourse to arbitration to solve their dispute with Slovakia whereas investors of the Member States which had not concluded any BIT with Slovakia were precluded from benefiting from a similar treatment.
– The award rendered against Slovakia was contrary to public policy since the arbitral tribunal established in accordance with the Czechoslovakia-Netherlands BIT – being unable to request the Court of Justice of the European Union (CJEU) to give a preliminary rulings on the interpretation of EU law – failed to take account of fundamental principles of EU law (such as rules on the free movement of capital or the rights of defence). This argument was based on the fact that, pursuant to Article 267 of the TFEU, only courts and tribunals of Member States are entitled to request the CJEU to give a preliminary ruling on a matter pending before them. However, the arbitral tribunal established pursuant to the Czechoslovakia-Netherlands BIT was not a “court or tribunal of a Member State” and it was therefore not entitled to request preliminary rulings from the CJEU.
– The arbitration clause contained in the BIT infringed Article 344 TFEU which prohibits EU Member States from submitting a dispute concerning the interpretation or application of EU law to any other method that those provided for in the EU treaties.
Uncertain as to the answers to those issues, the German court stayed the proceedings and referred the matter to the CJEU for a preliminary ruling. Prior to the judgment of the CJEU (which will be delivered in the coming weeks/months), AG Wathelet handed down his independent Opinion.
The objective of the present post is to analyse and comment the answers brought by AG Wathelet to the first and second of those questions. We will then examine the answer to the third question in an upcoming article.
With respect to the first question: discrimination based on nationality
With respect to the first question, AG Wathelet found that the arbitration clause at issue in this case did not constitute discrimination on grounds of nationality. Relying essentially on an interpretation of Article 18 TFEU and on the judgment of the CJEU of 5 July 2005 in D., AG Wathelet found that the TFEU did not contain a most favoured nation clause and that there was “no discrimination where a Member State does not afford the nationals of another Member State the treatment which it affords, by convention, to the nationals of a third Member State” (para. 71).
With respect to the second question: arbitral tribunals as judicial bodies
With respect to the second question, AG Wathelet found that arbitral tribunals established in accordance with the Czechoslovakia-Netherlands BIT must be regarded as courts or tribunals of one of the Member States and were therefore entitled to refer questions to the CJEU for preliminary rulings on a matter pending before them. This finding is particularly surprising since the CJEU has already ruled that arbitral tribunals established pursuant to commercial contracts between private companies were not entitled to ask preliminary rulings to the CJEU.
To reach his surprising conclusion, AG Wathelet relied on the case-law of the CJEU according to which “in order for a judicial body to be a ‘court or tribunal’ for the purposes of Article 267 TFEU, it is necessary to take a number of factors into account, such as ‘whether the body is established by law, whether it is permanent, whether its jurisdiction is compulsory, whether its procedure is inter partes, whether it applies rules of law and whether it is independent” (para. 86). According to AG Wathelet, all those criteria are fulfilled in the case at hand by an arbitral tribunal established in accordance with the Czechoslovakia-Netherlands BIT.
First, with respect to the “established by law” criteria, AG Wathelet found that such tribunal “derives its jurisdiction not only from an international treaty but also from the Netherlands and Czechoslovakian statutes ratifying the BIT by virtue of which the BIT became part of the legal orders of those Member States” (para. 96). Therefore, according to AG Wathelet, such tribunal is indeed established by law.
Second, with respect to the permanence of the arbitral tribunal, AG Wathelet recalled that “the ‘permanence’ criterion does not relate to the composition of the arbitral tribunal as such but to the institutionalisation of arbitration as dispute settlement method” (para. 101). More particularly, AG Wathelet found that, in the case at hand, certain aspects of the institutionalisation of arbitration could actually be identified, notably the fact that (i) the Czechoslovakia-Netherlands BIT conferred power to appoint arbitrators on the Stockholm Chamber of Commerce (which is a permanent arbitral institution); (ii) the UNCITRAL rules are applicable to the arbitral proceedings; and (iii) the proceedings took place under the auspice of the Permanent Court of Arbitration in the Hague (paras 107 and 108).
Third, with respect to the compulsory nature of the jurisdiction of the arbitral tribunal, AG Wathelet recalled that, in investment arbitration, investors remain in principle free to opt either to bring their disputes before the courts of the Member State concerned or before the arbitral tribunal established in accordance with the BIT at stake. Relying on a precedent by the CJEU in Ascendi Beiras Litoral e Alta (a case in which the recourse to arbitration was also optional but did not preclude the arbitral tribunal from falling within the concept of “court or tribunal of a Member State” within the meaning of Article 267 TFEU), however, AG Wathelet found that, in the case at hand, the option which was left to the investors did not affect the compulsory nature of the jurisdiction.
Four, with respect to the proceedings conducted before the arbitral tribunal, AG Wathelet had no difficulties to establish, on the basis of (among other things) the UNCITRAL arbitration rules, that the procedure was indeed interpartes, independent and complied with the rule of law.
My (preliminary) personal thoughts on AG Wathelet’s answers to the first and second questions
Although I have been a supporter of AG Wathelet’s opinions in Gazprom (C-536/13) and Genentech (C-567/14) and although I thought that he had (in both cases) carried out some persuasive analysis and delivered some interesting food for thought, I am far less convinced by the views that he expressed in the present Opinion.
First question: discrimination based on nationality
With respect to the first question, I do not wish to discuss AG Wathelet’s reasoning too much. I only want to say that, in my view and ideologically speaking, the Opinion is highly surprising since, if one takes seriously the EU’s basic objectives (i.e. the creation of a common market where all economic agents, irrespective of their country of origin, residence or establishment, enjoy similar opportunities and freedom), then it is hard not to argue that an intra-EU BIT fundamentally violates those basic objectives.
AG Wathelet himself seems to anticipate the limits of his own reasoning when he admits that “[t]hat said, there is nothing to prevent intra-EU BITs being replaced by a single multilateral BIT or an act of the Union, according to the allocation of powers between the Union and its Member States, which would be applicable to investors from all Member States […]” (para. 81).
Second question: arbitral tribunals as judicial bodies
With respect to the second question, I am not opposed to the idea that arbitral tribunals should be able to refer issues relating to the application or interpretation of EU law to the CJEU. I am, however, disappointed with the lack of in-depth analysis and coherence in the Opinion.
First of all, while I admit that the case-law of the CJEU seems to support AG Wathelet’s reasoning, I am not particularly convinced with the argument relating to the permanent and compulsory nature of the arbitral tribunals. In particular, I believe that the fact that a party is allowed to choose the way it will litigate its claim (either through arbitral or court proceedings) excludes the possibility to hold that the jurisdiction of a tribunal is compulsory.
Secondly, it must be highlighted that all the arguments put forward by AG Wathelet with respect to arbitral tribunals established in accordance with the Czechoslovakia-Netherlands BIT, are also equally applicable in the case of arbitral tribunals established in accordance with non-intra-EU bilateral investment treaties**. Therefore, such arbitral tribunal should also be considered as a “court or tribunal of one of the Member States” within the meaning of Article 267 CJEU and such tribunal should also be entitled to refer questions (if need be) of interpretation of EU law to the CJEU by means of preliminary rulings. AG Wathelet, however, does not seem to address this issue at all in his Opinion.
Thirdly (and more crucially), AG Wathelet does not mention anything as to whether the arbitral tribunals established in accordance with the BIT should be considered as courts or tribunals against whose decisions there is no judicial remedy.
This question is, however, crucial as the answer to it determines whether the arbitral tribunals are obliged to refer a question of interpretation of EU law pending before them to the CJEU. Indeed, pursuant to Article 267 TFEU, “[w]here [a question concerning the interpretation or validity of EU law] 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“. However, “[w]here 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“).
I personally believe that the answer to the question above is that arbitral awards are not subject to any form of judicial remedy (since arbitral awards are, in principle, not subject to appeal)***. Consequently, if (as AG Wathelet seems to suggest), arbitral tribunals established in accordance with an intra-EU BIT are equivalent to courts or tribunals of one of the Member States, then such tribunals should be under an obligation to refer to the CJEU questions of interpretation of EU law pending before them.
However, if one takes a different view, meaning that arbitral tribunals will then only have the possibility (but not the obligation) to refer questions to the CJEU for preliminary rulings, then a sub-issue will arise with respect to cases for which the parties have chosen a place of arbitration located outside the European Union (this can be the case even if the dispute is based on an intra-EU BIT). In such cases, the courts before which the annulment proceedings will be pending (i.e. the courts of a third State) will not be in a position to refer questions of interpretation of EU law to the CJEU (since they cannot – by definition – be considered as courts or tribunals of Member States). Therefore, unless the arbitrators would have themselves requested a preliminary ruling to the CJEU, the parties will be precluded from receiving a final interpretation by the CJEU on a question of interpretation of EU law arising in their dispute. This option would, however, remain available for parties in arbitral disputes with a place of arbitration located within the European Union. Such discrepancy may very well lead to a discriminatory situation.
Fourthly and finally, I must highlight that the arguments put forward by AG Wathelet in his Opinion (according to which arbitral tribunals established on the basis of an intra-EU BIT should be entitled to refer questions to the CJEU for preliminary rulings) are also equally applicable in the case of the (proposed) future multilateral investment court****. The judgment that the CJEU will hand down in the coming weeks in the Achmea case will therefore be interesting to read having this issue in mind as well.
In the following posts, I will report on the final question addressed by AG Wathelet in his Opinion, namely the validity, with regard to Article 344 TFEU, of an arbitration clause contained in an intra-EU BIT.
* 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.
** For instance an arbitral tribunal established in accordance with a bilateral investment treaty concluded between a EU Member State and a third State is also “established by law”, is also permanent and compulsory and also applies the rule of law.
*** Admittedly, a party against whom an arbitral award has been rendered may still seek to have the award set aside at the place of arbitration on specific grounds (for instance if the award is contrary to public policy); I, however, doubt that such annulment proceedings can technically be assimilated to a “judicial remedy” (given the limited scope of such review).
**** Technically this issue should be answered in the opinion that CJEU will give on the conformity with EU law of the investment court system contained in the CETA.