In Case C-284/16 Achmea (Achmea), the European Court of Justice (ECJ) seems to once and for all establish that the legal system of the European Union (EU law) precludes investor-state dispute settlements (ISDS) under bilateral investment treaties between the EU Member States (intra-BITs). In many ways the Court’s holding was expected, as the need for a consistent and value-driven construction of EU law has moved into the limelight after the consolidation of the basic legal framework in 2009. Notably, the Union is required to act only within the limits of the powers conferred upon it by the Member States to attain the objectives set out in the Treaties, and to ensure consistency between its policies and activities pursuant to Articles 5(2), 13, and 21 of the Treaty on European Union (TEU) and Article 7 of the Treaty on the Functioning of the European Union (TFEU). Whereas the objectives are found primarily in Articles 2 and 3 TEU and in the Charter of Fundamental Rights of the EU (EU Charter), the ECJ has emphasised the need for horizontal consistency between various fields of EU law, vertical consistency in the hierarchy of EU norms, consistency between internal and external actions, and evolutionary consistency in time and space. As explained by the ECJ in Achmea, the very autonomy of the Union legal order is justified by these essential characteristics which are safeguarded by the ECJ under Article 19 TEU. An intra-BIT ISDS where substantive EU law is applied is an anomaly in this legal system. Indeed, the European Commission has actively worked against the use of such dispute resolution mechanisms since 2006, and in 2015 it initiated infringement proceedings on those grounds against Austria, the Netherlands, Romania, the Slovak Republic (Slovakia) and Sweden.
Evidently, the reversal of the liberalisation of the Slovak market for private sickness insurance services that was the reason for the ISDS in Achmea, had caused the Dutch company economic damages. However, Slovakia called into question the provision governing the ISDS in the BIT with the Netherlands and brought legal actions in Germany where the tribunal was located and where arbitral awards can be set aside if they are invalid under German law or public policy ‘. In the light of the recognition of ISDS in approximately 200 intra-BITs and in the multilateral Energy Charter Treaty, the Bundesgerichtshof considered it necessary to refer questions to the ECJ as to whether ISDS really safeguards equal treatment, judicial cooperation and dispute resolution regarding the EU Treaties in accordance with Articles 18, 267, and 344 TFEU.
As pointed out by the German court, Article 344 TFEU may seem to address the settlement of disputes only between Member States as opposed to disputes between investors and States, and the provision should apply when interpreting or applying the EU Treaties and not international agreements. However, in Achmea the ECJ explains that Article 344 TFEU must be read in the light of the nature and scheme of EU law and should be understood as a manifestation of the principles of conferral and sincere cooperation which safeguard the autonomy of the legal system. In a lexical reading, there is nothing preventing the provision from applying also in case a Member State submits investor-State disputes to methods of settlement not recognised in the Treaties. Moreover, the interpretation of a BIT normally implies interpretation of sources of EU law. Indeed, according to Achmea, the arbitration tribunal should take into account the law in force of the law of the Contracting Party concerned including directly- and indirectly effective EU legislation. Perhaps the tribunal applied the framework for capital movements and establishments correctly. Nonetheless, the existence of an alternative enforcement mechanism challenged the constitutional structure of EU law turning on the interpretative prerogative of the ECJ and, hence, it was not necessary to investigate whether it discriminated against investors from other Member States.
Arbitration tribunals cannot refer questions to the ECJ as they do not form part of a judicial system. Indeed, the Achmea case provides evidence that an arbitral award can be appealed to a court participating in the judicial cooperation with the ECJ within the ambit of Article 267 TFEU. Quite symptomatically, however, the appeal in the case concerned merely the jurisdiction of the panel because the very purpose of ISDS is to afford investors an alternative and unbiased legal remedy. Conversely, Achmea refutes the raison d’ȇtre of ISDS since it leaves investors with no other option than protracted proceedings before national courts which may side with the Member State. In most cases, an investor cannot bring an action immediately before an EU Court and the Union’s competence to set up international investments courts is currently under the scrutiny of the ECJ with respect to the mixed comprehensive economic and trade agreement with Canada (CETA).
According to the ECJ, the line of reasoning in the Achmea ruling has no bearing on commercial arbitration. It could be argued that the obligation to cooperate sincerely should prevent Member States also from accepting arbitration agreements between private parties, but the freedom of contract is an aspect of the fundamental right to conduct a business enshrined in Article 16 of the EU Charter. Furthermore, ISDS in BITs between Member States and third countries shall (pursuant to EU Regulation No 1219/2012) remain in force until they are replaced by an EU investment protection regime. On that note, the ECJ stated in Achmea that rulings by courts established by international agreements signed by the EU should tally with EU law in so far as the autonomy of the system is respected. However, as elucidated by the reasoning in the case and by the frequent references to Opinion No 2/13 regarding the non-accession of the Union to the European Convention on Human Rights, such a distinction between agreements concluded by the EU and EU law it is often illusory. Instead, the reasoning alludes to the Union’s objective to promote its core values pursuant to Article 3 TEU such as the rule of law and to the efforts to create a multilateral investment court within the auspices of the United Nations Commission on International Trade Law (UNCITRAL). By precluding intra-BIT ISDS the ECJ promotes the creation of international investment courts and ultimately a system with a multilateral investment court replacing all ISDS in EU related trade agreements.
Claes Granmar is an associate professor (Docent) at the Faculty of Law, Stockholm University.