On 06 March 2018, Court of Justice of the European Union issued a long-awaited judgment in the matter of Slovak Republic v. Achmea BV. The decision is expected to have far-reaching implications in regard to investments in Central and Eastern Europe as it de facto invalidates arbitration clauses contained in bilateral investment treaties (BITs) concluded between the EU Member States. The CJEU has decided not to follow the opinion of Advocate General Wathelet from September 2017, in which he recommended the court to consider investment arbitration as complying with EU law.

Currently, there are are up to 196 similar BITs concluded between the EU Member States that confer the power to resolve disputes between investors and the states to the arbitration tribunals and which may be directly affected by the judgment. These treaties were mostly concluded in the 1990s mainly between the states of Western Europe and the states of the post-communist Eastern Bloc in order to ensure the protection of investors in these countries. Since most of these countries have joined the EU in the meantime and become part of the single market, the question of the compatibility of these treaties (including the arbitration clauses contained therein) with European Union law has been raised.

SUMMARY OF FACTS

In 1991, Czechoslovakia concluded with the Netherlands a bilateral investment agreement (as the legal predecessor of Slovakia, which later assumed its obligations), containing an arbitration clause for the possible settlement of disputes between investors from one the countries and the other state (ISDS – investor-state dispute settlement).

In 2004, the system of health insurance in Slovakia was opened to private companies, which led to the entrance of the Dutch company Achmea BV into one of the private health insurance companies. Later on, in 2007, the Slovak Parliament adopted an act prohibiting the distribution of profit shares in private health insurance companies (this act was subsequently declared unconstitutional by the Constitutional court in 2011 in the decision PL. US 3/09).

Achmea BV considered the adoption of the abovementioned law a violation of the BIT between Slovakia and the Netherlands and sued for damages at the arbitration court in Frankfurt (within the meaning of the BIT) for the period of effectiveness of this law, and in 2012 succeeded and was awarded damages in the amount of EUR 22.1 million.

Slovakia objected the lack of jurisdiction of the arbitral tribunal, and the German Federal Court of Justice finally referred this question as prejudicial to the CJEU.

LEGAL CONSEQUENCES

The CJEU based its arguments in the decision predominantly on the fact that the arbitral tribunal had no jurisdiction to refer the case to the CJEU with a request for interpretation of EU law (since it is not a general court of a Member State), despite the fact that it had to interpret and use the EU law when deciding on the merits.
Such a situation was considered to be in conflict with primary EU law and founding treaties, as the CJEU is the only body with the competence to give a final binding interpretation of European law.

Despite the fact that the BIT in question was concluded before Slovakia's accession to the EU, it is necessary to apply EU law on these legal relationships (in particular, the standards on freedom of establishment and the free movement of services). If these norms were to be finally interpreted by arbitral tribunals (which do not possess the competence to initiate the proceedings before CJEU on prejudicial questions), such a situation would be incompatible with the European Union law. As a consequence, the CJEU noted that by concluding the BIT, Slovakia and the Netherlands created a investment dispute resolution mechanism which is not capable of ensuring the correct application and full effectiveness of EU law.

As mentioned above, this decision potentially affects nearly 200 international BITs concluded between EU Member States. The European Commission has been opposing these BITs and striving for theirs gradual abolition for a long time period, since in its opinion, they are creating diverse (and therefore discriminatory) conditions between EU Member States in the field of investment, and this judgment can be seen as another milestone in this legal contest.