November 28
2021
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Trajan Shipley
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26th October 2021
External Relations & Trade Internal Market Justice & Litigation

Member States cannot conclude separate arbitration agreements to avoid Achmea, Court of Justice rules

The Court of Justice, sitting in its Grand Chamber, delivered its judgment today in PL Holdings v Poland (C-109/20), ruling that Member States cannot conclude separate, individual arbitration agreements with identical content to an arbitration clause in a bilateral investment treaty between Member States that is invalid pursuant to its Achmea case law.

The Swedish Supreme Court had referred a preliminary ruling in the context of annulment proceedings against an arbitral award rendered in the context of an investor-state arbitration brought pursuant to the dispute resolution provisions of a bilateral investment treaty (BIT) entered into by Belgium, Luxembourg and Poland. The Svea Court of Appeal had held that while the arbitration clause in the BIT was invalid, such invalidity did not prevent a Member State and an investor from another Member State from concluding an ad hoc arbitration agreement at a later stage in order to settle that dispute. 

The referring court specifically asked whether such agreement is invalid by virtue of the fact that the Member State, after arbitration proceedings were commenced by the investor, refrains, by the free will of the State, from raising jurisdictional objections. As explained by Gilian Cahill here, Advocate General Kokott’s Opinion suggested that the agreement might be able to escape the rule in Achmea and be compatible with the duty of sincere cooperation and autonomy of EU law, subject to the condition that national courts are able to ‘comprehensively review the arbitration award for its compatibility with EU law’ by way of the preliminary reference procedure.

In its judgment delivered today, the Court of Justice did not follow Advocate General Kokott’s Opinion and held that Member States not only are precluded from entering into such ad hoc arbitration agreements, but that they also have a positive obligation to challenge the validity of an arbitration clause or an ad hoc arbitration agreement where such a dispute is brought by an investor. The Court reasoned that the possibility for Member States to conclude ad hoc arbitration agreements that are identical to invalid arbitration clauses in BITs entail a circumvention of their obligations under the Treaties, namely the principles of sincere cooperation and autonomy of the EU legal order under Articles 4(3) TEU and 344 TFEU.

It further noted that any attempt by a Member State to remedy the invalidity of an arbitration clause by means of an ad hoc agreement contract with an investor would run counter to the obligation to challenge the validity of the arbitration clause and would thus be liable to vitiate the very cause of that agreement, since it would be contrary to fundamental provisions and principles governing the EU legal order (sincere cooperation and autonomy). Consequently, it held that national courts must set aside arbitral awards made on the basis of an arbitration agreement that infringes such principles and provisions of EU law.

An Op-Ed on the judgment by Dániel Dózsa will be published soon.

The judgment is available here (not available in English at the time of publication).

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