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For the second time in two months, the EU’s highest court has issued a judgment extending the effect of its landmark 2018 decision in Slovak Republic v Achmea BV. The judgments made it clear that from the perspective of the CJEU, investor-state disputes between EU investors and EU Member States (“intra-EU” disputes) cannot be decided by investment treaty arbitration. Most investment treaty tribunals, however, have taken the opposite view. Accordingly, in practice, the impact of these judgments is particularly relevant to two areas. First, awards issued in intra-EU arbitrations seated within the EU may be open to attack, particularly within the context of a setting aside action. Second, enforcing such awards before the courts of EU Member States may also face difficulty.
On 26 October 2021, the CJEU issued another ruling on intra-EU investment disputes. In The Republic of Poland v PL Holdings Sarl (Case C-109/20), it addressed the question of whether an EU Member State could be bound by an ad hoc arbitration agreement with an EU investor. The CJEU held that the state could not be bound to such an agreement, regardless of the laws of the country where the arbitration is seated.
The dispute concerned a Luxembourgian company, PL Holdings Sarl (the Claimant), which had acquired shares in two Polish banks. In 2013, the banks merged, and the Claimant found itself owner of 99% of the resulting entity. However, later that year, the Polish Financial Supervision Authority decided to suspend the Claimant’s voting rights and forced it to sell its shares in the merged bank. The Claimant then initiated an investment treaty arbitration against Poland.
The arbitration was initially based on Article 9 of the bilateral investment treaty between Luxembourg and Poland (the BIT), and was seated in Sweden and conducted under the Swedish Chamber of Commerce (SCC) rules. Poland challenged the jurisdiction of the arbitral tribunal, first on the ground that the Claimant was not an ‘investor’ within the meaning of the BIT, and subsequently on the basis that the arbitration—involving an intra-EU dispute—breached EU law. The latter challenge was made in 2016, around the time that the request for a preliminary ruling was lodged in Slovak Republic v Achmea BV (C-284/16), in which the CJEU ultimately held that arbitration agreements in bilateral investments treaties between EU Member States are contrary to EU law.
Neither challenge succeeded before the arbitral tribunal appointed in PL Holdings v Poland. What is more, the arbitral tribunal issued a partial award concluding that Poland had breached its obligations under the BIT, and then issued a final award specifying damages of around Euros 150m (with costs).
Poland then applied to the Svea Court of Appeal, Stockholm, to have the two awards set aside. Although the Court of Appeal dismissed the application, it made two findings that were relevant to the CJEU’s subsequent analysis. First, the Court of Appeal accepted that Achmea applied in this case and that Article 9 of the BIT was therefore invalid. Second, however, it found that, under Swedish law, the parties had effectively entered into an ad hoc arbitration agreement at a later stage to settle their dispute. Despite these findings, the Court of Appeal dismissed Poland’s challenge to the validity of Article 9 of the BIT by concluding that it was time-barred.
Poland then appealed the decision of the Court of Appeal to Sweden’s Supreme Court, which in turn referred the issue on the compatibility of the ad hoc arbitration agreement with EU law to the CJEU.
The decision of the CJEU
On 26 October 2021, the CJEU decided that ad hoc arbitration agreements are not valid in these circumstances, and indeed that it is the duty of the affected EU Member State to challenge them, and for national courts to uphold an application to set aside any resulting awards. This reflects Article 7(b) of the Agreement for the Termination of Bilateral Investment Treaties, which most Member States signed in May 2020.
The CJEU took as its starting point the parties’ acceptance that Article 9 of the BIT could allow an arbitral tribunal to rule in disputes concerning the application or interpretation of EU law. Following Achmea, the CJEU concluded that Article 9 of the BIT was invalid because it undermined the principle of mutual trust between Member States and prevented relevant questions being referred to the CJEU for determination (Art 267 TFEU), ultimately endangering the autonomy of EU law. By extension, the CJEU reasoned, an ad hoc arbitration agreement with the same content as Article 9 was also invalid. To allow an EU Member State to enter into such an agreement “would in fact entail a circumvention of the obligations arising for that Member State under the Treaties”, as interpreted in Achmea. Moreover, to permit this in one case would lead to a similar approach being adopted in many others, further endangering the autonomy of EU law.
A secondary issue, but one of considerable practical importance, was the temporal effect of the CJEU’s ruling. Should it apply to all arbitration proceedings of this kind, or should it only affect those that were not initiated in good faith or which have not yet concluded? The CJEU confirmed that its rulings should apply across the board, subject to limited exceptions, which were irrelevant here. (Exceptions could be made in the interests of certainty, but only where parties acted in good faith and there was a risk of serious difficulties.)
The broader picture
The CJEU was careful to circumscribe the effects of its judgment by stating that "the interpretation of EU law provided in the present judgment refers only to ad hoc arbitration agreements concluded in circumstances such as those at issue in the main proceedings". Despite the qualification, the general direction of travel is obvious both from this decision, which builds on Achmea, and from Republic of Moldova v Komstroy LCC (C-741/19), decided only a few weeks before PL Holdings.
In Komstroy, the CJEU ruled that claims were invalid if brought by an EU investor against an EU Member State under the Energy Charter Treaty (ECT).
In practice, the impact of the Achmea, Komstroy and PL Holdings trinity is particularly relevant to two areas. First, awards issued in intra-EU arbitrations seated within the EU may be open to attack, particularly within the context of a setting aside application. Conversely, if the interpretation of most arbitral tribunals dealing with intra-EU disputes is followed, intra-EU arbitrations seated outside the EU and ICSID arbitrations (operating on public international law plane) should, in principle, face no such issues.
Second, arbitral awards resulting from intra-EU investment treaty arbitrations, even if issued by tribunals seated outside the EU or under ICSID Convention, may face difficulty if enforcement is sought before the courts of an EU Member State.
 Treaty on the Functioning of the European Union (TFEU), Articles 267 and 344.
 TFEU Article 344