E-briefing: Arbitral Tribunal Rules that the ECJ Achmea Decision is not applicable to Intra-EU ECT Arbitrations

The decision: To recall, on 6 March 2018, the European Court of Justice (ECJ) in Slovak Republic v. Achmea ruled that the application of an investor-State arbitration clause in a bilateral investment treaty (BIT) between two EU Member States is incompatible with EU law. Relying on the Achmea decision, Germany objected to the jurisdiction of the tribunal in Vattenfall AB v Germany, which concerns a dispute arising under the Energy Charter Treaty (ECT) brought by claimants who were all within the EU. 

In a decision issued on 31 August 2018, the tribunal in Vattenfall AB v Germany rejected Germany’s jurisdictional objection. This is the first publicly available stand-alone decision on the applicability of the Achmea decision to arbitrations under the ECT.

Timeliness of the jurisdictional objection: ICSID Rule 41(1) provides that jurisdictional objections should be made as early as possible, unless the facts on which the objection is based are unknown to the party at the time. Relying on Rule 41(1), the claimants argued that Germany’s jurisdictional objection was raised too late. The tribunal rejected this argument. It held that the Achmea decision was a new circumstance. The tribunal also observed that it has broad powers to examine issues relating to its jurisdiction on an ex officio basis, even if the Achmea decision could not be said to constitute “new circumstances”. Interestingly, this ruling diverges from the ruling in Gavrilović v. Croatia, where the tribunal held that the facts underlying the Achmea decision “should have been known” to Croatia and rejected Croatia’s jurisdictional objection for being raised out of time.

Applicability of the Achmea decision to the present ECT arbitration: The Vattenfall tribunal held that the Achmea decision did not apply to an intra-EU investor-State arbitration under the ECT.

The tribunal noted that the Achmea decision did not determine the issue of whether investor-State dispute settlement under the ECT would be contrary to EU law. Thus, the issue falls to be determined by an interpretation of the ECT.

Germany argued that the investor-State dispute settlement provision in the ECT, i.e. Article 26, should be interpreted to exclude intra-EU disputes. The tribunal rejected this argument. It observed that if the Achmea decision was applicable to the ECT, it would create two separate regimes of investor-State dispute settlement under the ECT: one for intra-EU disputes, one for others. That runs counter to Article 26, which does not distinguish between an EU and a non-EU member State. 

Germany further argued that even if Article 26 of ECT does not exclude intra-EU disputes, EU law should nevertheless prevail over the ECT. This argument was also rejected. The tribunal did not accept Germany’s arguments that the EU Treaties are subsequent treaties that supersede or modify the ECT given that the relevant provisions in the EU Treaties were in existence even before the ECT.

For the above reasons, the tribunal held that the Achmea decision did not apply to intra-EU arbitrations under the ECT. 

Comment: The Vattenfall decision is consistent with the holding of the tribunal in the Masdar v Spain award of 16 May 2018. In Masdar, likewise an ECT arbitration, the tribunal ruled that the Achmea decision does not apply to the ECT.

After the Masdar case, the EU Commission issued a communication to the European Parliament on 19 July 2018, stating that the Achmea decision is relevant to intra-EU arbitrations under the ECT. Conscious that its decision runs counter to this communication, the Vattenfall tribunal was careful to note that if there was indeed any incompatibility between ECT arbitration and EU law, then the EU Commission must “take the necessary action to remedy that situation”, but it was not the tribunal’s task to “redraft the treaty”. This signified that the tribunal’s decision was strictly based on an interpretation of the ECT.

Parties involved in intra-EU investment arbitrations (whether they have yet to be commenced, are pending, or already have awards issued) should consider how developments flowing from the Achmea ruling may affect the jurisdiction of the arbitral tribunal and the enforcement of their awards in the EU. Parties with substantial investments in EU Member States may also wish to closely follow the political developments since Achmea: for example, following the decision, the European Council adopted directives that authorize the European Commission to negotiate a convention establishing a multilateral investment court for the settlement of investment disputes. Further, the Dutch government has released for consultation a new draft model BIT, intended to serve as the basis for renegotiation of its existing BITs, which likewise envisioned the establishment of a multilateral investment court. These developments can considerably affect how investors and States are able to protect their interests.

Eversheds Harry Elias is regularly instructed by sovereign States, State entities, international bodies and multinational corporations on a wide range of contentious matters, including disputes before international courts and tribunals. We also have extensive experience advising and successfully representing commercial enterprises with respect to international dispute resolution and the conduct of commercial and investment arbitration.

Author:

Francis Goh

Head, International Arbitration

Partner, Eversheds Harry Elias LLP