Following the much debated judgment by the CJEU in Achmea, arbitration clauses in bilateral investment treaties between Member States under which an investor in one of those Member States may bring proceedings against the other Member State are considered incompatible with EU law. However, the judgment in Achmea seemed to leave it open whether an arbitration agreement between a Member State and an investor from another Member State not based on such a clause would be considered acceptable by the CJEU. Yesterday’s ruling by the Court in the Swedish case PL Holdings (Case C-109/20) dealt with one aspect of this question, resulting in further limits to investment arbitration in the EU.
In Achmea (case C-284/16), the CJEU held that EU law precludes a provision in an international agreement concluded between two Member States 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 arbitration tribunal whose jurisdiction that Member State has undertaken to accept. Thus, the judgment in Achmea concerned a general provision in an investment treaty between Member States that permitted recourse to an arbitration tribunal in certain cases. In contrast, the question to referred to the CJEU in PL Holdings (case C-109/20) was if EU law precludes an ad hoc arbitration agreement between a Member State and an investor in another Member State that makes it possible to continue arbitration proceedings initiated on the basis of an arbitration clause whose content is identical to an invalid arbitration clause in an international agreement between those two Member States.
PL Holdings arose from a dispute between PL Holdings Sàrl, a limited company registered in Luxembourg, and Poland before the Stockholms Handelskammares Skiljedomsinstitut (Arbitration Institute of the Stockholm Chamber of Commerce) on the basis of an investment treaty entered into by Poland, of the one part, and Luxembourg and Belgium, of the other. The arbitration tribunal rejected the objection that the arbitration clause in the investment treaty was invalid and awarded damages to PL Holdings. Poland subsequently brought an action before the Swedish courts in which it sought to have the awards set aside.
Svea Hovrätt (Court of Appeal, Stockholm) dismissed Poland’s action. The Court considered that the arbitration clause of the investment treaty was invalid following the judgment by the CJEU in Achmea, but found that this invalidity did not prevent a Member State and an investor from concluding an arbitration agreement in respect of the same dispute at a later stage. According to Svea Hovrätt, Poland had entered into an ad hoc arbitration agreement with the investor by appearing in the arbitration proceedings without raising the objection that the arbitration clause was invalid in due time. The arbitration agreement was therefore based on the common intention of the parties and concluded in accordance with the same principles as commercial arbitration proceedings. The Swedish court took the view that Achmea did not prevent such an arbitration agreement. Following an appeal by Poland, Högsta domstolen (the Swedish Supreme Court) referred a question to the CJEU regarding the compatibility of the ad hoc arbitration agreement between PL Holdings and Poland.
In its judgment, the CJEU repeated its conclusions in Achmea and underlined that an arbitration clause in an international agreement between two Member States, which is capable of leading to a situation in which an arbitration body rules in disputes which may concern the application or interpretation of EU law, is contrary to Articles 267 and 344 TFEU as well as Article 4(3) TEU. To allow a Member State, which is a party to a dispute which may concern the application and interpretation of EU law, to conclude an ad hoc arbitration agreement with the same content as that clause would, according to the Court, entail a circumvention of the obligations under the Treaties as interpreted in Achmea. Moreover, the CJEU underlined that the consequences of that circumvention were no less serious because it concerned an isolated case, since, such an approach could be adopted in a multitude of disputes which may concern the application and interpretation of EU law, thus allowing the autonomy of that law to be undermined repeatedly.
Further, in view of the requirements of Articles 267 and 344 TFEU, the CJEU stated that the validity of the legal basis of an arbitration body’s jurisdiction cannot depend on the conduct of the parties to the dispute.
In addition, the CJEU emphasised that it follows from the principles of primacy of EU law and of sincere cooperation, not only that a Member State cannot agree to remove from the EU judicial system disputes which may concern the application and interpretation of EU law, but also that if such a dispute is brought before an arbitration body on the basis of undertaking which is contrary to EU law, the Member State is required to challenge the validity of the arbitration clause or the ad hoc arbitration agreement before the arbitration body or before a court with jurisdiction.
The CJEU concluded that Articles 267 and 344 TFEU preclude national legislation which allows a Member State to conclude an ad hoc arbitration agreement with an investor from another Member State that makes it possible to continue arbitration proceedings initiated on the basis of an arbitration clause whose content is identical to the ad hoc arbitration agreement, where that arbitration clause is contained in an international agreement between the two Member States concerned and is invalid on the ground that it is contrary to those articles.
Although the result was not unexpected in view of the Court’s position in Achmea, the CJEU’s judgment in PL Holdings represents a further restriction of the possibility for a Member State to enter into an arbitration agreement with a private party. However, the CJEU limited its examination to the specific question of whether EU law hindered an ad hoc arbitration agreement that would make it possible to continue arbitration proceedings that had been initiated on the basis of an invalid arbitration clause in a bilateral investment agreement between Member States. It could be argued that the Court left open whether an arbitration agreement between a Member State and an investor in another Member State, which does not reflect an invalid arbitration clause in an international investment agreement, is contrary to EU law. This limitation is likely to generate much discussion amongst both EU law lawyers and arbitration specialists. At some point in the not too distant future, the Court may well have to deal directly with the broader question of whether, in general, an arbitration agreement between a Member State and an investor in another Member State, if capable of leading to a situation in which the arbitration body rules in disputes which may concern the application or interpretation of EU law, is compatible with EU law.
The judgment can be found here.
Contacts: Martin Johansson, Erik Lagerlöf and Ebba Thoms.
