On April 22, 2021 the Advocate General issued its opinion in the proceedings before the Court of Justice of the EU (“CJEU“) under case file no. C-109/20[1] (“Opinion“). The Advocate General dealt with the question whether an EU Member State can implicitly agree to investment arbitration under a BIT if the EU Member State fails to object to the jurisdiction of the Tribunal. The Advocate General concluded, taking into account the Achmea Judgment,[2] that such an implicit arbitration agreement would only be compatible with EU law if two conditions are fulfilled: firstly, the award must be subject to a comprehensive review of the award in light of EU law and the arbitration agreement must not violate the principle of equal treatment.

Background facts

The case is connected to an investment dispute between an investor from Luxembourg – PL Holdings Sàrl, and the Republic of Poland. The dispute was resolved in arbitration under the Arbitration Rules of the Arbitration Institute of the Stockholm Chamber of Commerce. The proceedings commenced in 2014 and took place in accordance with the Belgium-Luxembourg Economic Union – Poland BIT of 1987, with the seat in Stockholm, Sweden.

In the course of these proceedings Poland did not initially challenge the jurisdiction of the arbitral tribunal on the grounds that the case concerns an intra-EU BIT. Only two years later, in 2016 it raised the jurisdictional objection that due to Poland’s accession to the EU in 2004, the BIT and the offer to arbitrate included in it were terminated in light of the principles outlined in Articles 30 and 59 of the Vienna Convention on the Law of Treaties. In Poland’s view, the BIT had been terminated as it was superseded by the Accession Treaty whereby Poland acceded to the European Union in 2004. Poland argued that the offer to arbitrate included in the BIT was incompatible with the Accession Treaty, and thus, the offer was invalid. Even though, the tribunal observed that Poland’s objection was not timely,[3] it still considered it in the Partial Award of 28 June 2017, by dismissing it on its merits.[4]

The tribunal in the Partial Award[5] and the Final Award[6] found that Poland expropriated the investor’s investment and awarded the investor damages.

In these circumstances Poland initiated setting aside proceedings before the Swedish courts, among others by claiming that the BIT at the base of this dispute infringed EU Law. On 22 February 2019, the Court of Appeal in Stockholm dismissed Poland’s action.[7] The court distinguished the case at hand from the CJEU’s decision in the Achmea Judgment. The main difference was that in the case at hand, Poland did not raise an objection against the jurisdiction of the Tribunal on time. As a result, the court considered that Poland has waived its right to raise this objection. According to the court, the failure to object to the jurisdiction of the Tribunal resulted in an implicit arbitration agreement (Poland accepted PL Holding’s offer to arbitrate). The court observed that the Achmea Judgment and EU law do not preclude Member states from entering into an arbitration agreement with an investor in order to resolve a specific dispute.

Poland appealed this judgment to the Supreme Court of Sweden. The Supreme Court decided that in order to hear the case properly it is necessary to obtain a preliminary ruling from the CJEU. Thus, it asked the CJEU to rule whether, in light of the interpretation of EU law rendered in the Achmea Judgment, the fact that a Member State refrains in intra-EU investment arbitration proceedings, by its free will, from raising objections as to jurisdiction has a bearing on the validity of the arbitration agreement between the parties[8]

The Opinion

The Opinion answered the question by addressing five points.

Firstly, the Advocate General considered whether the Achmea Judgment precludes the conclusion of an individual arbitration agreement.

The Advocate General noted that the Achmea Judgment is applicable to general offers to arbitrate included in investment treaties. However, it does not address the issue of individual agreements between a Member State and an investor. Nevertheless, in the Advocate General’s view, the concerns that the CJEU voiced in the Achmea Judgment may be applicable to individual arbitration agreement between a Member State and an investor. This is because these agreements can remove disputes concerning the application and interpretation of EU law from the EU judicial system in the same way as a general offer to arbitrate in an investment treaty between Member States may. When a body outside the EU system (such as an arbitral tribunal) interprets provisions of EU law, the autonomy of EU law may be at risk. This risk could only be mitigated in so far as the national courts could ensure that arbitration awards comply with EU law.

Secondly the Advocate General then distinguished commercial arbitration from investment arbitration. The Advocate General presented a different interpretation of the Achmea Judgment in this respect. She argued that referring disputes that concern the review of the sovereign acts of the states to arbitration violates the rule in Article 344 of the Treaty on Functioning of the EU, under which Member States undertake not to submit a dispute concerning the interpretation or application of the Treaties to any method of settlement other than those provided for in the treaty. In light of this conclusion, the Advocate General once again reiterated that it is incompatible with the effectiveness of EU law for Member States to conclude with certain investors individual arbitration agreements in relation to sovereign measures for enforcing EU law, where such agreements create a risk that the arbitration award will infringe EU law. However, the Opinion also noted that the risk of an infringement of EU law can be countered if the courts of the Member States not only review the arbitration award with regard to whether it complies with fundamental provisions of EU law, but comprehensively verify compliance with EU law and refer the matter to the CJEU if necessary.

Thirdly, the Advocate General considered the issue of equal treatment. The Opinion observed that if some investors were referred to national courts for disputes with the Member State, but others could have recourse to an arbitration tribunal, there would be unequal treatment. In this respect, the Advocate General found that there may be legitimate objectives to include offers to arbitrate in treaties or to conclude an arbitration agreement with a specific investor upon the making of the investment. But the Advocate General did not see that there could be legitimate objectives that could justify concluding an implicit arbitration agreement with an investor after a dispute has already arisen. However, the issue of equal treatment should be examined by the national courts in every case.

Fourthly, the Advocate General considered whether there are any limitations as to the form of an arbitration agreement. In the Advocate General’s view, in light of the other findings of the Opinion, the form of the agreement (that is its conclusion by means of waiver of objections to jurisdiction) is irrelevant.

Fithly, the Advocate General referred to the request of PL Holdings for the temporal limitation of the effects of the judgment. PL Holdings requested that should the CJEU conclude that individual arbitration agreements in investment arbitration are incompatible with EU law, the judgment should not be applicable to the pending or already concluded arbitration proceedings. The Advocate General stated that such a limitation should not be granted as the general rules in this respect have been already set out in the Achmea Judgment, which is not subject to any temporal limitations.

In light of these considerations, the Opinion stated that the CJEU should decide that individual arbitration agreements between Member States and investors from other Member States concerning the sovereign application of EU law are compatible with EU law only if courts of the Member States can comprehensively review the arbitration award for its compatibility with EU law, if necessary after requesting a preliminary ruling under Article 267 TFEU. Such arbitration agreements must furthermore be compatible with the principle of equal treatment.

Commentary

The conclusions of the Opinion would require further clarification by the CJEU at least on some main points, should it follow the views of the Opinion.

Firstly, the Opinion seems to be based on the conclusions that in the PL Holdings v Poland arbitration there was a risk to the autonomy of application of EU law, as the tribunal referred to EU law in the award (although it did not apply it). However, the Opinion refers to the sections of the award, in which the arbitral tribunal reiterates the position of the parties, rather than those in which the tribunal makes its own findings. As such, what the CJEU should clarify is whether it is sufficient for the discussed risk to be abstract, or whether the risk has to exist in a specific case due to application of EU law by the tribunal.

Secondly, if the CJEU finds that even an abstract risk is sufficient to provide additional prerequisites for an individual arbitration agreement to be compatible with EU law, the question arises as to the understanding of the autonomy of EU law, which may be at risk.

Thirdly, the CJEU will have to deal with the question whether the Advocate General’s prerequisite for a review of an arbitral award is compatible with accepted standards of review in international arbitration. The scope of review of arbitral awards is not aimed at conducting a review de novo or an appeal of the award. This standard is recognised by the international arbitration community and embodied in such instruments as New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and the UNCITRAL Model Law. Is the General Advocate’s requirement that arbitral awards against EU states will have to be reviewed for their compatibility with EU law, a review de novo?

Irrespective of the above, it should be noted that the Opinion is not binding on the CJEU. As such, the CJEU may make different findings in its final decision.

 

[1] Opinion of the Advocate-General of 22 April 2021, case file no. C-109/20, available here.

[2] Achmea Judgement, case no. C‑284/16, available here

[3] Partial Award of 28 June 2017, point 306, available here.

[4] Partial Award of 28 June 2017, point 307-317, available here.

[5] Partial Award of 28 June 2017, available here.

[6] Final Award of 28 September 2017, available here

[7] Judgment of the Svea Court of Appeal of 22 February 2019, available here (in Swedish)

[8] Request for preliminary ruling of 27 February 2020, case no. C-109/20, available here.