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Impact of the ECJ ruling on bilateral investment agreements within the European Union

In the case of the ruling of the Court of Justice of the EU in Case C-284/16 Slovakia vs. Achmea B.V., the Court discovered an arbitration clause in an international investment agreement of two EU Member States in breach of EU law. This decision will have a significant impact on investment arbitration clauses and also on future investment contracts between EU Member States.

In order to gain a deeper understanding of the Achmea case, it is necessary to understand the unique structure of the EU judicial system and the impact of investor-state disputes on its functioning.

On the basis of the Treaty on the Functioning of the European Union, courts of the Member States and the Court of Justice of the EU work closely together and establish a dialogue on dispute resolution that involves EU law. The preliminary ruling system is essential for the correct and uniform application of EU legislation. This uniformity stems precisely from the source of the law and thus from the EU Treaties, which operates independently of, and is superior to, international and national law. As the arbitration tribunals in principle exclude disputes from the jurisdiction of the courts of the Member States and thus from the EU judicial system, the decision of the Slovak Republic vs. Achmea B.V. (C-284/16) was more or less expected by the EU Court of Justice.[1]

The dispute arose from the question referred by the German Federal Court of Justice whether European Union law precluded the application of an arbitration clause in an interinstitutional agreement between EU Member States. The Slovak Republic challenged before the German courts the jurisdiction of an arbitration tribunal established under the Netherlands - Slovak Bilateral Investment Agreement. The Dutch investor Achmea B.V appealed to the Arbitration Court in partial annulment of the 2004 Slovak Government's decision to privatize the health insurance market. In 2007 it was forbidden to distribute profits from private health insurance in Slovakia. The Investment Court awarded damages of EUR 22.1 million to Achmea B.V for breach of the bilateral investment agreement.

The European Commission discontinued this proceeding against the Slovak Republic on the basis of a decision of the Constitutional Court of the Slovak Republic and subsequent legislation which again allowed the distribution of profits from private health insurance. On this basis, Achmea B.V could claim damages in the Slovak courts, but decided for an arbitration court under a bilateral investment agreement with the vision of a more favorable outcome.

According to the judgment of the Court of Justice of the European Union in Case C-284/16 Slovakia vs. Achmea BV, arbitration courts are competent to give rulings on the interpretation or application of EU law, but further investigations concluded that they are not part of the EU judicial system. The dispute settlement system through arbitration courts between investors and Member States ultimately prevents the settlement of disputes while preserving EU law and the arbitration clause may call into question the principle of mutual trust between Member States as they remove disputes from the jurisdiction of their own courts and thus from the judicial remedy system, which are required under EU law to establish in areas covered by EU law.[2]

Pursuant to the Declaration of the Representatives of the Governments of the Member States dated 15.01.2019, Member States were obliged to inform the investment community so that they will not initiate any arbitration proceedings within the EU and they shall gradually terminate all bilateral investment agreements with other EU Member States.

In October 2019, after one year of intensive preparation, the Member States reached an agreement leading to a multilateral investment agreement while abolishing almost 200 bilateral investment contracts in the EU. It remains questionable whether the United Kingdom ratifies the Investment Agreement before it´s scheduled leave from the EU, or whether the Investment Agreements will be adjusted after Brexit.[3]

The author of this article is Gabriela Petakova (Slovakia), Junior associate at Havel & Partners.

[1] Implications of Achmea: How the Achmea Judgment Impacts Investment Agreements with Non-EU Countries by The Center for International Environmental Law and ClientEarth is licensed under a Creative Commons Attribution 4.0 International License. April 2018. [2] [3]


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