European Union law prohibits the conclusion by a Member State of an arbitration agreement with identical content to an invalid arbitration clause in a bilateral investment treaty between Member States, the Court of Justice of the EU ruled on Tuesday 26 October (case C-109/20).
In 2013, the Luxembourg company PL Holdings challenged the decision of the Polish Financial Supervision Authority to suspend its voting rights attached to securities held in a Polish bank and to proceed with their forced sale. To this end, it initiated arbitration proceedings against Poland on the basis of the bilateral investment treaty (BIT) concluded in 1987 between Belgium and Luxembourg on the one hand and Poland on the other.
PL Holdings won its case in the arbitration tribunal provided for by an arbitration clause in the bilateral treaty. Warsaw’s appeal to the Court of Appeal in Stockholm was rejected.
The Court, to which the Swedish Supreme Court referred the case, clarifies whether Articles 267 and 344 of the TFEU preclude the Swedish Court of Appeal’s argument that, even if the arbitration clause in the BIT is invalid, both parties may enter into an ad hoc arbitration agreement to decide the dispute.
The European judge, relying on the ‘Achmea’ judgment (case C-284/16) (see EUROPE 11975/18), confirms that the arbitration clause in the investment treaty signed by the three Member States is contrary to EU law. In his view, this clause undermines the proper character of EU law ensured by the reference for a preliminary ruling procedure (Article 267 TFEU) as well as the loyal cooperation between Member States, and undermines the autonomy of EU law (Article 344).
According to the Court, it follows from the ‘Achmea’ judgment and the principle of the primacy of Union law that Member States cannot undertake to exclude from the Union’s judicial system disputes which may concern the application and interpretation of Union law. They are also obliged to challenge the validity of the arbitration clause or the arbitration agreement if the dispute is brought before an arbitration body on the basis of a commitment contrary to EU law.
The national court is therefore obliged to annul an arbitral award made on the basis of such an arbitration agreement.
This conclusion is also confirmed by the Agreement on the termination of bilateral investment treaties between EU Member States (OJ L169 of 29 May 2020 - https://bit.ly/3CtwIkc ).
See the judgment: https://bit.ly/3mfqLSi (Original version in French by Mathieu Bion)