According to a judgement by the European Court of Justice on Tuesday 6 March (C-284/16), the arbitration clause in the Agreement between the Netherlands and Slovakia on the protection of investments is not compatible with EU law.
A bilateral agreement between the Netherlands and Slovakia provides that disputes between one contracting state and an investor from the other contracting state must be settled amicably before a special arbitral tribunal.
In 2008, the Dutch insurance company, Achmea, working in Slovakia brought arbitration proceedings against Slovakia on the basis of this bilateral treaty to impose a decision by Bratislava to reverse the liberalisation of its sickness insurance market.
Based in Germany by the two parties, in 2012 the arbitral tribunal ordered Slovakia to pay Achmea approximately €22.1 million in damages and interest. Slovakia contested this decision and argued that the bilateral treaty arbitration clause contravened the Treaty on the Functioning of the European Union (articles 18, 267 and 344).
During the procedure, ten member states (the Czech Republic, Estonia, Greece, Spain, Italy, Cyprus, Latvia, Hungary, Poland, Romania) and the European Commission submitted observations in support of Slovakia’s arguments. Germany, France, the Netherlands, Austria and Finland, however, contend that the clause at issue and commonly used in the 196 existing bilateral treaties, was valid.
In its judgement, the Court contradicts the conclusions of the Advocate General in September 2017 (see EUROPE 11865).
The European judge firstly points out that the arbitral tribunal is called on to rule on the basis of the law in force in the contracting state concerned by the dispute and other relevant agreements between the contracting states. It may therefore be called on to interpret or indeed to apply EU law, insofar as this prevails over national laws and is part of the law in force in all member states.
The arbitral tribunal cannot be classified as a court or tribunal ‘of a Member State’ within the meaning of Article 267 TFEU and therefore has no power to make a reference to the Court for a preliminary ruling.
Is the award made by the arbitral tribunal subject to the control of a call from the member state that can approach the European Court of Justice? The European judge considers that the tribunal is to determine its own procedure and, in particular, is itself to choose its seat and consequently the law applicable to the procedure governing judicial review of the validity of the award it makes. This judicial review can only be exercised by a national court concerned. In the present case, German law provides only for limited judicial review in this field.
On those grounds, the Court finds that Slovakia and the Netherlands established a mechanism for settling disputes which is not capable of ensuring that those disputes will be decided by a court within the judicial system of the EU. The Court concludes that the arbitration clause therefore has an adverse effect on the autonomy of EU law.
Left at Parliament satisfied. The chairperson of the international trade committee in the European Parliament, Bernd Lange (S&D, Germany), was delighted by the ruling by the Court and pointed out that Parliament had been arguing since 2013 that the bilateral investment treaties within the EU should be scrapped. He added that, “This decision shows again that the ISDS-system is an unacceptable mechanism to resolve disputes between investors and states, and in particular when it concerns two Member States of the EU”.
Yannick Jadot (Greens/EFA, France) stated that he was eagerly awaiting the Court ruling on the EU/Canada trade agreement (CETA), following Belgium's appeal on the compatibility of the private arbitral courts with Union law (see EUROPE 11856). Helmut Scholz (GUE/NGL, Germany) hoped that the Court would also introduce a ruling on the incompatibility of the private arbitral courts in the context of the agreement concluded with Canada.
The Commission was pleased that the Court had followed the position it had been advocating and its spokesperson, Margaritis Schinas, highlighted the difference between the private arbitral courts contained in the agreements between the member states and in the international agreements. (Original version in French by Mathieu Bion)