With all the dreary news we’ve seen this week, could you stand some good news? The battle against investor-state dispute settlement (ISDS) got a huge boost in March when the Court of Justice of the European Union (CJEU) ruled in Slovak Republic v. Achmea B.V. (“Achmea”) that ISDS is contrary to EU law. The decision was something of a surprise because the preliminary analysis (“opinion,” in EU-speak) of Advocate General* Melchior Wathelet had suggested that the CJEU rule that ISDS is consistent with EU law.
As you may recall from the Trans-Pacific Partnership negotiations, ISDS is private arbitration of investment disputes between governments and foreign investors. Completely untethered from precedent and with no appeal, arbiters decide if a government has “expropriated” an investment, complied with its duties under a bilateral investment treaty (BIT) or “trade agreement” such as NAFTA, while these establishing mechanisms place no requirements on the investor. The imbalance of requirements under ISDS as well as its actual procedures present numerous opportunities for corporate abuse and, as Professor Susan Sell laid out in her guest post here in 2015, there is no shortage of examples of such abuse.
In Achmea, the Dutch insurer Achmea B.V. took the Slovak government to arbitration under the Dutch-Slovak bilateral investment treaty after the government decided to reverse liberalization of its health care system, ultimately deciding to create a single national health insurance program. The arbitrators ruled in favor of Achmea and awarded € 22.1 million to the company Three other cases were filed against the Slovak Republic’s action, including a second case from Achmea B.V. (Achmea II), but their respective tribunals all ruled they did not have jurisdiction. In Achmea, the government sought annulment of the award first from the Higher Regional Court of Frankfurt, which ruled against it, and then from the German Federal Court of Justice, which referred the case to the CJEU for a ruling on the relevant EU law (this is standard procedure in EU law).
A number of EU Member States, as well as the European Commission, filed briefs in this case. According to Reuters, “The Czech Republic, Estonia, Greece, Spain, Italy, Cyprus, Latvia, Hungary, Poland, Romania and the European Commission submitted observations in support of Slovakia’s arguments.Germany, France, the Netherlands, Austria and Finland contended that such clauses were valid.”
The CJEU ruled, contrary to the Advocate General’s opinion, that ISDS tribunals are not part of the EU legal system, not national courts, and yet might be called on to apply EU law. Moreover, since no appeal is possible, there is nothing to ensure that EU law is applied properly by these tribunals. Given that EU law supersedes all national law, ISDS threatens to undermine the autonomy of EU law. Therefore, the Court ruled that ISDS is not compatible with EU law.
In the first instance, this ruling applies to bilateral investment treaties between two EU Member States. These BITs all involve former Communist states that started becoming EU members only in 2004. As Lucia Bizikova noted on the Kluwer Arbitration blog, all these new Member States signed BITs immediately after the fall of Communism, and the requirements placed on them were much more demanding than under EU investment law. As she puts it, Achmea is “finally bringing justice to the most recent members of the EU.” There are at present 196 intra-EU BITs, and ISDS has now been knocked out of all of them.