Jurisdiction is, well, Jurisdiction: in Up v Hungary the ICSID Arbitral Tribunal Refuses to Follow Achmea
The decision of the European Court of Justice (“CJEU”) in Slovak Republic v. Achmea BV (“Achmea”) held that intra-EU bilateral investment treaties (“BITs”) are incompatible with European Union (“EU”) law. As we reported in our previous blog post, this generated considerable controversy and consternation.
Following the CJEU’s Achmea decision, in the Up v Hungary case, an International Centre for Settlement of Investment Disputes (“ICSID”) Tribunal has explicitly held that international investment treaty tribunals are not bound by Achmea, and that the decision does not impact the binding nature of a BIT between Hungary and a French company .
Achmea Decision and its Aftermath
In March 6, 2018, the CJEU in Achmea, found that the arbitration clause contained in the 1991 BIT between the Netherlands and Slovakia is, because of an adverse effect on “the autonomy of EU law”, incompatible with EU law.
The CJEU’s judgment arose out of a dispute between Achmea B.V., a Dutch insurer, and Slovakia. In 2006, Slovakia partly reversed the liberalization of its private sickness insurance market and prohibited the repatriation of profits generated by private sickness insurance. Achmea brought arbitration proceedings under the BIT, and alleged that these changes effectively destroyed the value of its investment in Slovakia and that the prohibition was contrary to the BIT.
Slovakia argued that recourse to an arbitral tribunal, as provided for in Article 8(2) of the BIT, was incompatible with EU law and therefore the Tribunal lacked jurisdiction. The Tribunal dismissed the objection and, on December 7, 2012, found that Slovakia had indeed violated the BIT and ordered it to pay damages in the amount of EUR 22.1 million.
Slovakia’s attempt to set aside the arbitral award on the same jurisdictional grounds was then dismissed by the German lower and appellate courts. The question on the compatibility of the BIT’s arbitration clause with EU law was sent to the CJEU for preliminary ruling. The CJEU reached the following conclusion:
Articles 267 and 344 [Treaty of the Functioning of the European Union] (“TFEU”) must be interpreted as precluding a provision in an international agreement concluded between Member States, such as Article 8 of the Agreement on encouragement and reciprocal protection of investments between the Kingdom of the Netherlands and the Czech and Slovak Federative Republic, under which an investor from one of those Member States may, in the event of a dispute concerning investments in the other Member State, bring proceedings against the latter Member State before an arbitral tribunal whose jurisdiction that Member State has undertaken to accept.
The CJEU decided that EU law precludes BIT arbitration clauses on the basis that:
- an arbitral tribunal established under the BIT could be called upon to interpret or apply EU law;
- an arbitral tribunal established under the BIT cannot be regarded as a “court or tribunal of a Member State” within the meaning of TFEU Article 267 and therefore has no power to make a reference to the Court for a preliminary ruling; and
- the BIT arbitration clause imposed a mechanism for settling investment disputes that was incapable of ensuring the proper application and full effectiveness of EU law since the treaty effectively removes matters from the jurisdiction of their own courts and puts European courts in an inferior position to apply their own law.
The CJEU declined to follow Advocate General Wathlet’s opinion of 19 September 19, 2017, that intra-EU BITs and the arbitration clauses contained in them were compatible with EU law.
The Achmea decision created much controversy in international arbitration circles and brought into question the future of EU investor-state arbitration.
ICSID Tribunal in the Up v Hungary Case
A recent ICSID Tribunal’s decision, Up v. Hungary, has simply refused to be cowed by Achmea, but instead clarifies Achmea’s limited scope and utility.
Hungary, the Respondent State in the ICSID arbitration brought under a BIT between France and Hungary, objected to the Tribunal’s jurisdiction and invoked Achmea.
In a Final Award dated 9 October 2018, the Tribunal (comprised of President Bockstiegl, L. Yves Fortier and Sir Daniel Bethlehem) rejected the jurisdictional objection based on Achmea. The Tribunal’s reasons were threefold:
- The Tribunal’s jurisdiction was based on the ICSID Convention, a multilateral public international law treaty that has as its specific purpose resolving investment disputes between private parties and a State. The Tribunal makes a clear distinction between the “public international law context” in which it sees Up, and the “national or regional context” in which it sees Achmea (the Tribunal points out that Achmea “contains no reference to the ICSID Convention or to ICSID Arbitration”);
- The mere fact that Hungary is part of the EU does not oust the binding nature of the ICSID Convention. Hungary, as a party to the ICSID Convention, did not escape its ICSID obligations simply by joining the EU, and it is expressly bound by an award, cannot appeal it, and must enforce it as if it were the final judgment of a Hungarian court; and
- Even if Hungary’s membership in the EU did somehow, retroactively or otherwise, oust the binding nature of its agreement to submit to ICSID Arbitration, the survival clause in Art. 12(2) of the BIT kept the agreement to arbitrate in force for 20 years (in this case, until 2024).
Ultimately, the Tribunal found that Achmea did nothing to oust the perfected consent to arbitrate under Art. 25 of the ICISID Convention even if the claim is between an EU national and an EU Member State. Art. 25 of the ICSID Convention provides for the Centre’s jurisdiction between Contracting States and a national of another Contracting State.
The Tribunal did not find it necessary, based on its reasons, to address the awards of other tribunals that had recently taken Achmea into account. It appears the Tribunal was referring to Masdar Solar & Wind Cooperatief v Spain and Vattenfall v Republic of Germany, two awards pertaining to the Energy Charter Treaty and decided under the ICSID Convention. Both tribunals also held that they had jurisdiction, despite Achmea, and similarly held that Achmea had no bearing on a multilateral treaty.
Up v Hungary indicates that Achmea may prove to be of limited application and confirms the trend of ICSID Tribunals to exclude that decision’s application to multilateral investment treaties, even where an EU Member State is a party.
That said, the Achmea decision may still remain significant with respect to the 196 intra-EU BITs currently in force.
Neither Achmea nor Upv Hungary nor the other cases mentioned here deal with what might prove to be a more determinative distinction than that between multilateral and bilateral contexts. Any arbitration comes to an award by considering domestic law, but it does not by that process change the domestic law, or bind domestic courts as to how they go on to interpret that law. Parties who agree to submit their disputes to arbitration do so to avoid having domestic courts decide their disputes, not to deprive those domestic courts of the power to decide what the domestic law is. The concern in Achmea, that arbitral tribunals would somehow supplant or usurp EU tribunals in their determinations as to what is EU law, was and is in this sense an exaggerated concern. We may hope, therefore, that the pro-arbitration approach of Up v Hungary, in the context of arbitration under multilateral treaties, will one day also prevail in the more bilateral context considered in Achmea.
Slowakische Republik (Slovak Republic) v Achmea BV, Court of Justice of the European Union, Judgment, Case C-284/16 (Mar. 6, 2018) at para 8 [Slovak Republic v Achmea BV].
 Slovak Republic v Achmea BV, supra at para 9.
Slovak Republic v Achmea BV, supra at para 11.
Slovak Republic v Achmea BV, supra at paras 11-12.
 The Higher Regional Court of Frankfurt (Oberlandesgericht Frankfurt, decision of 18 December 2014 – Case 26 Sch 3/13) held that the BIT was not incompatible with EU law. The appellate court, the German Federal Court of Justice (Bundesgerichtshof, decision of 3 March 2016 – Case I ZB 2/15), offered a similar view but referred the issue of EU law and the question of the compatibility of the BIT’s arbitration clause to the CJEU.
Slovak Republic v Achmea BV, supra at para 62.
Slovak Republic v Achmea BV, supra at para 42.
Slovak Republic v Achmea BV, supra at para 49.
Slovak Republic v Achmea BV, supra at paras 52-56.
Slovak Republic v Achmea BV, Court of Justice of the European Union, Opinion of Advocate General Wathelet, Case C-284/16 (Sep. 19, 2017) at para 29 [“Opinion of AG Wathelet”].
 The BIT entered into force on 30 September 1987.
 The tribunal held it had jurisdiction in its decision of 3 March 2016. In the Final Award of 9 October 2018, the tribunal held that Achmea had not changed its jurisdictional conclusion in its previous ruling.
UP (formerly Le Cheque Dejeuner) and C.D. holding Internationale v. Hungary, ICSID Case No. ARB/13/35 at paras. 253, 258 [Up v Hungary].
Up v Hungary, supra at para. 257-259.
Up v Hungary, supra at para 265.
Masdar Solar & Wind Cooperatief U.A. v. Kingdom of Spain, ICSID Case No. ARB/14/1. https://www.italaw.com/sites/default/files/case-documents/italaw9710.pdf
Vattenfall v. Federal Republic of Germany, ICSID Case No. ARB/12/12. https://www.italaw.com/sites/default/files/case-documents/italaw9916.pdf
Up Hungary jurisdiction ICSID arbitration tribunals Achmea Germany EU investor-state Slovak Republic Court of Justice of the European Union Vattenfall Masdar domestic international law BIT bilateral investment treaty multilateral