The Court of Justice of the European Union finds the arbitration provision in The Netherlands-Slovakia BIT incompatible with EU law

by Allen & Overy LLP

Allen & Overy LLP

On 6 March 2018, the Court of Justice of the European Union (the Court) delivered its judgment in Case C-284/16, Slovakia Republic v Achmea B.V., declaring that the investor-State arbitration provision in the bilateral investment treaty between The Netherlands and Slovakia (the BIT) is incompatible with EU law.  The Court did not follow the Advocate General’s Opinion issued on 19 September 2017, which reached the opposite conclusion. This was previously reported on here.


The case considered by the Court relates to Slovakia’s application before the German courts to set aside a EUR 22.1 million award rendered in December 2012, in an arbitration under the BIT, in favour of the Dutch insurance investor, Achmea B.V.  The seat or legal place of the arbitration was Frankfurt-am-Main and the proceedings were conducted under the UNCITRAL Arbitration Rules.  Slovakia unsuccessfully challenged the jurisdiction of the arbitral tribunal arguing that the basis for the tribunal’s jurisdiction (the arbitration provisions in Art. 8 of the BIT) was incompatible with EU law.  Once the award was rendered, Slovakia sought to challenge the award before the German courts.  The Higher Regional Court of Frankfurt-am-Main dismissed the challenge and Slovakia appealed to the German Federal Court of Justice, the Bundesgerichtshof (BGH).

In May 2016, the BGH suspended the proceedings and made a request for a preliminary ruling to the Court as to the compatibility of the arbitration provision of the BIT with EU law.  In the BGH’s view, however, none of the provisions of the Treaty on the Functioning of the European Union (the TFEU) represented an obstacle to arbitrations between an EU investor and an EU Member State.

Questions referred to the Court

The BGH referred three questions to the Court, concerning whether Art. 8 of the BIT was compatible with certain provisions of the TFEU:

  1. Whether Art. 344 TFEU precludes the application of an investor-State arbitration provision in a BIT between Member States of the EU, where the BIT was concluded before one of the Contracting States (Slovakia) acceded to the EU, but arbitral proceedings are not commenced until after that date. 

    Art. 344 provides that “Member States undertake not to submit a dispute concerning the interpretation or application of the [EU] Treaties to any method of settlement other than those provided for therein”.

  2. If the first question is to be answered in the negative, whether Art. 267 TFEU precludes the application of the same provision. 

    Art. 267 regulates referrals by “any court or tribunal of a Member State” to the Court to give a ruling on questions regarding “the interpretation of the Treaties; or the validity and interpretation of acts of the institutions, bodies, offices or agencies of the Union”.

  3. If both the first and second questions are answered in the negative, whether Art. 18 precludes the application of the investor-State provision in the BIT in the circumstances set out in (1).

    Art. 18 prohibits “any discrimination on grounds of nationality”.

The Court finds the arbitration provision under the BIT incompatible with EU law

The Court found that Arts. 344 and 267 TFEU must be interpreted as precluding a provision in an international agreement concluded between Member States, such as Art. 8 of the BIT (Case C-284/16, Slovakia Republic v Achmea B.V., para. 60).  The crux of the Court’s analysis was that investor-State arbitration is a mechanism that cannot ensure that disputes in which the interpretation or application of EU law is engaged will be decided by, or will be able to be reviewed by, a competent court within the EU judicial system.  The Court’s reasoning is summarised below.

The arbitration provision in the BIT is contrary to the autonomy of the EU legal system

The Court considered Arts. 344 and 267 together and found that, pursuant to Art. 344, an international agreement cannot affect the allocation of powers fixed by the EU Treaties or, therefore, the “autonomy of the EU legal system” (Ibid., para. 32).  Art. 344 provides that Member States must not submit a dispute concerning the interpretation or application of EU Treaties to any method of settlement other than those provided therein.  With respect to Art. 267 TFEU, the Court noted that this provision establishes the preliminary ruling procedure – a mechanism described by the Court as a “keystone” of the EU judicial system (Ibid., para. 37).  This mechanism, in the Court’s view, enables a “dialogue” between EU Member State courts and, more specifically, between the courts and tribunals of the Member States and the Court (Ibid.).  The Court observed that this system serves to ensure the consistency and autonomy of EU law.

Investor-State tribunals cannot make requests for a preliminary ruling to the Court

The Court then analysed the wording in Art. 8(6) of the BIT, which provides that an arbitral tribunal is called on to apply, amongst others, the law of the “Contracting Party Concerned” and which may therefore require an arbitral tribunal to apply or interpret EU law.  Yet such an arbitral tribunal could not “be classified as a court of tribunal ‘of a Member State’ within the meaning of [Art.] 267 TFEU” (Ibid., para. 56) as it is not part of the judicial system of either The Netherlands or Slovakia.  The Court concluded that an arbitral tribunal did not have the power to make a reference to the Court for a preliminary ruling on issues of interpretation or application of EU law that might arise.

Limited scope of judicial review

The Court then analysed the procedure governing judicial review of the validity of awards made under intra-EU BITs.  In short, such review can only be exercised by the national court of the seat, to the extent that the national law permits.  In the present case, German law provided only for a limited scope of review concerning the validity of the arbitration agreement under the applicable law and the consistency with public policy of the recognition or enforcement of the award.  The Court was concerned that the lack of possibility for judicial review, in instances where issues of EU law might be engaged, in turn prevents the “full effectiveness of EU law” (Ibid., para. 56).  At the same time, the Court considered that there was a distinction to be made between commercial and investment-treaty arbitration, as commercial arbitrations “originate in the freely expressed wishes of the parties” while the latter “derive from a treaty by which Member States agree to remove from the jurisdiction of their own courts disputes which may concern the application or interpretation of EU law” (Ibid., para. 55).  The Court did not cite any authority in support of this proposition, nor did it consider a situation where a Member State is a party to a commercial contract containing an arbitration clause. 

In light of its findings on Arts. 344 and 267, the Court did not consider it necessary to explore whether intra-EU BITs are compatible with the principle of anti-discrimination in Art. 18.

The Court distinguishes the BIT from other treaties to which the EU is a party

The Court also stated in its judgment that “according to settled case-law of the Court, an international agreement providing for the establishment of a court responsible for the interpretation of its provisions and whose decisions are binding on the institutions, including the Court of Justice, is not in principle incompatible with EU law.  The competence of the EU in the field of international relations and its capacity to conclude international agreements necessarily entail the power to submit to the decisions of a court which is created or designated by such agreements as regards the interpretation and application of their provisions, provided that the autonomy of the EU and its legal order is respected” (Ibid., para. 57). 

The Court therefore distinguished the BIT from other agreements that provide for “the possibility of submitting those disputes to a body which is not part of the judicial system of the EU” (Ibid., para. 58), provided the EU was party to them.  The Energy Charter Treaty, to which the EU itself is a Contracting Party, would be an example of such an agreement.


The implication that this judgment might have for the investor-State arbitration mechanisms present in almost 200 intra-EU BITs or the arbitrations currently pending under such BITs remains to be seen.  This is because the Court did not draw any consequences from its findings; it only established that the TFEU must be interpreted as precluding a provision in an intra-EU BIT such as Art. 8 of the BIT under consideration, but it did not offer any guidance as to the consequences of that finding. 

In particular, the Court did not engage in any analysis of the Vienna Convention on the Law of Treaties (VCLT) and whether the TFEU and the BIT in fact cover the same subject matter.  Art. 30(3) of the VCLT states that when all parties to the earlier treaty (the BIT) are parties also to the later treaty (the TFEU) but the earlier treaty is not terminated or suspended, the earlier treaty applies to the extent that its provisions are compatible with those of the later treaty.  Arguably, given that there is no provision in the TFEU providing for investor-State arbitration, no incompatibility arises, and Art. 8 may be considered effective.

The public international law implications of the Court’s judgment will thus have to be considered and determined by the BGH and potentially other national courts, as well as the many arbitral tribunals sitting on or called upon to decide disputes under intra-EU BITs.  However, the BGH already indicated in its request for a preliminary ruling that should the Court find that Art. 8 violates EU law, this would be a ground for setting aside the award rendered in favour of Achmea B.V., and is therefore likely to set aside the award.  Further, many of the arbitrations under intra-EU BITs are conducted under the autonomous system established by the ICSID Convention (Convention on the Settlement of Investment Disputes between States and Nationals of Other States (1966)), which adds further complexity to the analysis.

In the meantime, respondent EU States will inevitably seek to rely on the Court judgment in on-going and future arbitrations of intra-EU investment treaty disputes to challenge the jurisdiction of tribunals hearing such disputes and to resist the enforcement, or to challenge the validity, of awards. 

The Court’s judgment will also add further pressure on Member States to terminate intra-EU BITs (or at least replace the arbitration provisions contained in them) and lend further support to the European Commission in the pending infringement proceedings against certain Member States refusing to terminate their intra-EU BITs (previously reported on here).

Investors investing in the EU, on the other hand, will likely be advised and seek to structure and restructure their investments through a vehicle incorporated outside of the EU and thus be protected by a BIT between a Member State (or the EU) and a third State not affected by the Court’s judgment.  This may be one of the more perverse consequences of the Achmea judgment. 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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