After the Court of Justice of the European Union (CJEU) rendered its long-awaited decision in Slovak Republic v Achmea BV (C-284/16) in March 2018, there has been significant debate regarding its implications on the future of intra-EU investment. Unlike the view expressed by Advocate General (AG) Wathelet in his Opinion in September 2017, in its decision the CJEU found the investor-state arbitration clause included in Article 8 of the Dutch-Slovak Republic Bilateral Investment Treaty (BIT) to be incompatible with Articles 267 and 344 of the Treaty on the Functioning of the European Union (TFEU). Even though the CJEU left a series of crucial questions posed both by the referring German court and AG Wathelet unanswered, most commentators seem to agree that Achmea clearly strikes a blow to the jurisdictional competence of arbitral tribunals to entertain intra-EU investment disputes. In fact, albeit this issue was not explicitly dealt with in Achmea, it has been suggested that the CJEU’s reasoning be mutatis mutand is applicable to mixed agreements, namely multilateral agreements to which both the EU and its Member States are signatories, alongside third countries.
However, in the recent Decision on the Achmea Issue rendered in the context of Vattenfall AB et als v Germany, an ICSID tribunal constituted under the Energy Charter Treaty (ECT) rejected the applicability of Achmea to cases arising thereunder and, therefore, the legal implications of Achmea over its jurisdiction to entertain the relevant claims. Even though Vattenfall is based on a factual and legal basis that differs from Achmea’s, the Vattenfall tribunal’s Decision on the Achmea Issue provides an invaluable insight on how ICSID tribunals may deal with the question of their continuing jurisdiction in the post Achmea era, in the attempt to avoid Achmea’s potentially adverse consequences thereon.
The Background of the Case
In 2012, Vattenfall AB and other investors initiated arbitral proceedings against Germany under the ICSID Convention, claiming that Germany’s decision to phase out the use of nuclear energy amounted to a breach of its obligations under the ECT. Even though the case was procedurally mature and a hearing on jurisdiction, merits and quantum had already taken place in 2016, following the release of Achmea in March 2018 and as result thereof, Germany raised an objection to the tribunal’s jurisdiction to entertain the claims pending before it. Based on Germany’s objection, the tribunal rendered its Decision on the Achmea Issue dated 29 August 2018, dismissing the objection and upholding its continuing jurisdiction to entertain the claims.
The Tribunal’s Rationale
In assessing Germany’s jurisdictional objection, the Vattenfall tribunal examined the timeliness of its submission; the applicability of EU law to the determination of the tribunal’s jurisdiction; and the implications, if any, that Achmea entailed for its jurisdiction to entertain the pending dispute.
First, the tribunal upheld the timely submission of the jurisdictional objection, considering the mere factual existence of Achmea to constitute a ‘new fact’ within the meaning of Article 41(1) of the ICSID Rules. However, the tribunal stressed that it would have exercised its power to examine the potential implications of Achmea on its jurisdiction on an ex officio basis, under Article 41(2) of the ICSID Rules, even in the absence of an (timely) objection with regard thereto.
The tribunal then proceeded to the examination of the law applicable to its jurisdiction. In order for EU law and, therefore, Achmea, to have any implications on its jurisdiction, the tribunal first examined whether it was entitled to consider and apply EU law for the determination thereof. In the absence of an explicit choice of law for its jurisdiction, the tribunal found that any questions relating thereto had to be answered by reference to the parties’ instrument of consent to arbitration, namely Article 26 ECT. As part of an international treaty, Article 26 ECT would have to be interpreted and applied in accordance with international law and the Vienna Convention on the Law of Treaties (VCLT). Even though the tribunal agreed with the Electrabel tribunal (ICSID Case No ARB/07/19) that EU law is part of international law, the Treaty on the European Union and the TFEU being international conventions in the sense of Article 38 of the Statute of the International Court of Justice, it ultimately rejected the applicability of EU law to the case before it. Its rationale for doing so was twofold; first and regardless of whether it was rooted in international law, EU law did not constitute general law applicable as such to the interpretation and application of clauses included in other international treaties, such as the ECT; second, nor could EU law have been taken into account under Article 31(3)(c) VCLT as ‘relevant rules of international law applicable in the relations between the parties’. In the tribunal’s view, excluding intra-EU disputes from the scope of Article 26 ECT through a ‘harmonious’ interpretation of the later in the light of the provisions of EU law would be too far-fetched, given that the Article’s text, in light of the ECT’s object and context, was sufficiently clear and did not seem to support such an interpretative exclusion. To accept otherwise would, in the tribunal’s view, generate a meaning of Article 26 ECT that would depart from the ordinary meaning of its terms, particularly given that any different approach could have been explicitly included within the ECT, had that been the contracting parties’ intention.
In any case and even if EU law were arguendo applicable for the purpose of determining its jurisdiction, the tribunal did not consider the CJEU’s reasoning in Achmea to be applicable to intra-EU arbitration under a mixed agreement, such as the ECT. Following the tribunal’s reasoning in Masdar v Spain (ICSID Case No ARB/14/1), the Vattenfall tribunal found that by contrast to AG Wathelet, whose Opinion explicitly distinguished between arbitration clauses under BITs and mixed agreements, the CJEU had remained silent on the issue. In the lack of an explicit reference, the tribunal refused to embark on an interpretation of Achmea that would depart from the decision’s text and stretch the CJEU’s rationale to also cover intra-EU disputes arising under a mixed agreement. Consequently, it rejected the applicability of the CJEU’s decision to ECT cases and, therefore, to the case before it. In that, it also dismissed Germany’s argument that an award rejecting its Achmea-based jurisdictional objection would ultimately be unenforceable, considering enforceability not to be an issue that could impinge upon the question of its jurisdiction.
The reasoning followed by the Vattenfall tribunal is evidence that Achmea’s impact on intra-EU investment disputes and the jurisdiction of tribunals constituted in the context thereof is anything but clear. Vattenfall confirmed that there are still many ways for intra-EU investment arbitral tribunals dealing with objections against their jurisdiction to carve out of Achmea, should they so wish. In that, the Vattenfall tribunal’s reasoning seems to have followed a three-step approach:
First, the tribunal’s willingness to examine Achmea’s impact on its jurisdiction on an ex officio basis as well as the dismissal of the future arbitral award’s non-enforceability argument reaffirm the tribunal’s Kompetenz Kompetenz to decide on the issue of its jurisdiction and prove that any jurisdictional implications potentially caused by Achmea will be dealt with on arbitral level.
As a second step, the tribunal reminded to the parties that, from an arbitral perspective, Achmea can and will only be considered insofar as EU law can be deemed applicable to the determination of the tribunal’s jurisdiction. Unless a tribunal is entitled to consider and apply EU law as part of the law applicable to its jurisdiction, it will not be able to consider the implications caused by Achmea on its jurisdictional competence to entertain intra-EU investment disputes.
The tribunal’s third step was, for the sake of argument, to examine and subsequently reject the applicability of the CJEU’s reasoning in Achmea to the factual and legal background of the particular case at issue. Based on the Vattenfall tribunal’s line of reasoning, even if EU law does indeed form part of the law applicable to the tribunal’s jurisdiction, Achmea’s relevance to intra-EU arbitral proceedings under the ECT may still be questioned since the CJEU’s decision does not explicitly refer to intra-EU investment disputes under mixed agreements. A definitive answer as to whether or not the Achmea rationale also applies to mixed agreements will be provided by the CJEU in the context of its forthcoming decision on Belgium’s preliminary reference regarding the compatibility of the ISDS mechanism provided for in CETA with EU law. In any case and based on the Vattenfall tribunal’s textual interpretation of Achmea, it remains possible that a differently-built or worded intra-EU BIT arbitration clause could also escape the application of the CJEU’s decision, given that the Court’s reasoning was based on the specific ISDS clause included in the Dutch-Slovak Republic BIT.
Konstantina Georgaki is a DPhil in Law candidate at the University of Oxford, an Editor of the Oxford University Commonwealth Law Journal and a member of the Transnational Alliance Steering Group of the Centre of Construction Law and Dispute Resolution of King's College London.