The recent ECJ decision on the compatibility of the arbitration clause of BITs with EU law

With its recent decision of March 6th 2018, the European Court of Justice had a chance to determine if Bilateral Investment Treaties (hereinafter: BIT) are compatible with EU law. The case brought to the attention of the Court relates to a BIT concluded between the Kingdom of the Netherlands and the former Czechoslovakia and in which the Republic of Slovakia succeeded after the dissolution of that latter Country in 1993.

The liberalization of Slovakia sickness insurance market of 2004 induced the Dutch company Achmea B.V. (hereinafter: Achmea) to set up a subsidiary there. In 2006 the aforementioned liberalization was partly reversed through the introduction of certain limitations.

For such reasons, Achmea started an arbitration proceeding against the Republic of Slovakia under the BIT in order to obtain compensation for the damage suffered in reason of Slovakia reform of 2006. With its award the Arbitral Tribunal ordered Slovakia to pay damages for approximately 22.1 Million Euro.

The Republic of Slovakia brought an action before the German Jurisdiction for the award to be set aside. In that proceeding, the German Federal Court (“Bundesgerichtshof”), in reason of the argumentation of Slovakia about the fact that infra EU BITs and the arbitration clause contained therein are not compatible with EU law, asked the ECJ to determine with a preliminary ruling whether the arbitration clause contained in the BIT is compatible with EU law.

In particular, the ECJ intervention was based on three different grounds. Firstly, it was requested to determine if the arbitration clause was compatible with article 344 of TFUE. Secondly, it was requested to clarify if the aforementioned clause was compatible with art. 267 TFUE and thirdly it was requested to examine if the same clause was in conflict with art. 18 TFUE.

The Court decided to jointly analyze the first two grounds and observed that it is to be noticed that according to its constant jurisprudence, an international treaty cannot be of prejudice to the competences established within the Treaties and, consequently, the autonomy of the EU legal system that the ECJ has to safeguard (art. 344 TFUE). Now, since pursuant to EU law the arbitral tribunal cannot be considered a judicial authority,  the fact that by virtue of its jurisdiction it has to apply not only the regulation contained in the BIT but also EU law, represents a prejudice of the principles of autonomy primacy of EU law, to the extent that such authority cannot make any reference to the ECJ for a preliminary ruling pursuant article 267 TFUE.

The Court did not analyze the third ground raised by the Republic of Slovakia since the incompatibility of the BIT with EU law was already determined on the basis of the first two grounds.

The decision at hand has a huge importance in relation to the future of and international instrument that was widely used by States. In spite of the fact that the ECJ decision will affect only the specific dispute brought to its attention, the judgement arguments may be applicable to all infra EU BITs since the recourse to arbitral Jurisdiction is a distinctive feature of almost all BITs.