The Achmea Judgment and its Repercussions

On January 15, 2019, a group of distinguished arbitrators, practitioners, and academics got together at American University Washington College of Law to discuss the most important decisions involving States in 2018. While the event consisted of two panels — one on disputes between States and the other on investor-State disputes — there was a decision that was mentioned repeatedly for its relevant effects: the Achmea decision.

In Slovak Republic v. Achmea B.V. the Court of Justice of the European Union (CJEU) held that the arbitration clause contained in the Bilateral Investment Treaty (BIT) between Netherlands and Slovakia is incompatible with European Union (EU) law. The reasoning of the CJEU was that since the arbitral tribunal is not part of the Dutch or the Slovak judicial system, no reference to the CJEU for a preliminary ruling can be made, and therefore the mechanism for settling investment disputes in the BIT is not capable of guaranteeing the proper application and effectiveness of EU law.

As a consequence of this judgment, EU Member States issued a declaration by which they informed the investor community that no new intra-EU investment arbitration proceedings should be initiated. The Member States also informed the community that they would terminate all BITs concluded between the Member States and pledged to request European courts to set aside intra-EU investment arbitration awards, or not enforce them. However, not all Member States agreed on the application of the Achmea ruling to the Energy Charter Treaty (ECT), resulting in two separate declarations on this matter being issued in January 2019. One by Finland, Luxembourg, Malta, Slovenia, and Sweden and another by Hungary.

The first effects of the Achmea decision have already been seen in local Europeans courts. For example, in the NovEnergia arbitration, Spain was held liable for €53 million as a result of breaching the ECT’s fair and equitable treatment standard. In May 2018, Spain requested a Swedish court to formally refer to the CJEU the question of whether the arbitration clause is valid and compatible with EU law.

There are other Achmea-related repercussions that have not yet been resolved, such as the legal effects given to arbitral awards in countries that are not part of the EU. On this issue, the decision of the US District Court for the District of Columbia regarding the enforcement action brought by the Micula brothers against Romania will be particularly noteworthy. Other issues that have yet to be resolved include the application of Achmea to the ECT, the posture of arbitrators in intra-EU BIT disputes when facing jurisdictional objections, and how protections for investors will be affected within the EU.

By Francisco Sepúlveda

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