The Fate of Investment Dispute Resolution after the Achmea Decision of the European Court of Justice

This article explores the contents and consequences of the Achmea judgment recently given by the European Court of Justice (6 March 2018, case C-284/16). In its first part, the article analyses the judgment from a European point of view. It notes that Achmea is primarily concerned with the autonomy of the EU legal order in international dispute resolution and only secondarily with investment arbitration. The judgment seamlessly ties in with the Court’s Opinion 2/13 on the Accession of the EU to the European Convention of Human Rights. In its second part, the article assesses the consequences of the judgment for current and future investment dispute resolution. It argues that (i) investment arbitration is over for intra-EU Bilateral Investment Treaties and (ii) most likely also for intra-EU disputes under the Energy Charter Treaty; (iii) the European Commission must be careful not to jeopardise the supremacy of the ECJ in interpreting the EU law when concluding future international dispute resolution agreements; (iv) the same holds true regarding dispute resolution under the UK Withdrawal Agreement when negotiating the Brexit.


The Arbitration Proceedings and the Challenges of the Award in the German Courts
Firstly, I will briefly summarise the facts of the case and its procedural history. 6  That is to say, Achmea is not only about investment arbitration: Its ambition goes further. If one looks at para 57 of the judgment, the Grand Chamber addresses also future dispute settlement regimes under public international law and their relationship to the adjudicative function of the ECJ.
One has to be aware that Brexit and the future dispute resolution regime regarding the Withdrawal Agreement are likely to be in the mindset of the Court. In this respect, the wording of paragraph 57 is telling. It states: It is true that, according to settled case-law of the Court, an international agreement providing for the establishment of a court responsible for the interpretation of its provisions and whose decisions are binding on the institutions, including the Court of Justice, is not in principle incompatible with EU law. The competence of the EU in the field of international relations and its capacity to conclude international agreements necessarily entail the power to submit to the decisions of a court which is created or designated by such agreements as regards the interpretation and application of their provisions, provided that the autonomy of the EU and its legal order is respected. 22 Against the background of European Union law, the Achmea judgment appears to be less surprising than the first reactions of the 'arbitration world' would otherwise lead one to believe. 23  consequence that the arbitral tribunal could be considered 'a court of a Member State' in the sense of Article 267 TFEU. As a result, any direct dialogue between a BIT arbitral tribunal and the ECJ in preliminary reference proceedings was excluded.
One might ask whether Achmea is, in this respect, a missed opportunity. On the one hand, the ECJ clearly stated that under Article 8(6) of the BIT, the task of the arbitral tribunal was also to apply EU law when interpreting and resolving disputes arising under the BIT. 39 However, the Court saw a procedural deficiency in ensuring the effective application of EU law, as the arbitral tribunal was not sufficiently integrated in the judicial system of the Member States concerned, so as it allow its decisions to be 'subject to mechanisms capable of ensuring the full effectiveness of the rules of the EU' 40 (Article 19(1) TEU). 41 Furthermore, the ECJ also considered the review by German Courts in the present case as insufficient. In this respect, the ECJ highlighted that the arbitral tribunal (on its own motion) had chosen Frankfurt as the seat of arbitration (paras 52 and 53). It was because of this choice that German and EU law applied as the lex arbitri and that annulment proceedings could be brought before German courts. However, the procedural framework of Article 8 of the Dutch-Czech-Slovakian BIT did not provide for any safeguard that the investment arbitration would take place in an EU Member State (and would be under the residual control of the courts of this Member State). Therefore, the ECJ concluded that the procedural safeguard for the efficient application of EU law was insufficient (para 53). 42 In this respect, the judgment of the ECJ seems to be contradictory: Due to the review proceedings in the German Courts, the ECJ had been invoked under Article 267 TFEU and was able to implement the precedence of EU law in the case at hand. Therefore, the effectiveness of EU law was , paras 252 f, AG Wathelet considered this risk as 'hypothetical'. 43 The procedural situation in Achmea corresponded to the constellation in Eco Swiss. In both cases, the ECJ was asked in the context of annulment proceedings about the effectiveness of EU law. 44 In this constellation, annulment proceedings cannot directly be based on EU law, but the recognition of the award in the EU might be barred by art V(1)(a) and (2) but also under the legal obligation, to render an award which is capable of being recognised and enforced. As long as arbitral awards need recognition in order to be enforced, arbitrators cannot simply disregard the changed situation following Achmea.

The Situation of ICSID Proceedings
The procedural situation is different in the context of ICSID arbitration. However, simply deciding on

The Energy Charter Treaty
The consequences of the Achmea judgment for the ECT 63 are most problematic. The ECT was concluded as a mixed agreement by the EU and the EU Member States with third states (mainly states belonging to the former Soviet Union and its former allies). Its aim is to guarantee a free market and free access to energy in Europe and Central Asia by creating a kind of European Energy Community. 64 The ECT provides for a Chapter on Investment Protection in the energy sector which largely provides for the typical guarantees in BITs. 65 However, it does not contain a disconnection clause for intra-EU disputes. 66 Despite the Commission's efforts to argue in favor of the existence of an 'implicit disconnection clause', it is hard to deny that the ECT does create an intra-EU framework for the protection of investments in the energy sectors. (1) the protection of foreign investments, based on the extension of national treatment, or most-favoured nation treatment (whichever is more favourable) and protection against key non-commercial risks; (2) non-discriminatory conditions for trade in energy materials, products and energy-related equipment based on WTO rules, and provisions to ensure reliable cross-border energy transit flows through pipelines, grids and other means of transportation; (3) the resolution of disputes between participating states, and -in the case of investments -between investors and host states; (4) the promotion of energy efficiency, and attempts to minimise the environmental impact of energy production and use.' <https://energycharter.org/process/energy-charter-treaty-1994/energy-charter-treaty/> accessed 29 March 2018. 65 Kleinheisterkamp (n 1), 89 ff (listing 'examples of conflicts between EU law and BIT provisions'). 66 By such a clause, intra-EU investment disputes are excluded from the scope of the dispute clause of the international convention. 67 Art 26 ECT reads as follows: '(4) In the event that an Investor chooses to submit the dispute for resolution under subparagraph (2)(c), the Investor shall further provide its consent in writing for the dispute to be submitted to:  As a way out of this predicament, Achmea might also be read as a roadmap for the integration of an international investment court (as foreseen by the CETA and the TTIP 91 ) into the framework of Article 19 TEU and 267 TFEU. 92 Both proposals provide for the establishment of a permanent court of arbitration. Eventually, such a permanent court might qualify as a court in the sense of these provisions and the international investment agreement (IIA) might even clarify the point. The ECJ would therefore take supremacy in interpreting the IIA with regard to EU law. However, the inclusion of such a provision in the IIA does not only depend on the willingness of the EU, but also on the consent of the other contracting party.

Brexit: Dispute Settlement Provisions in the Withdrawal Agreement
Finally, the Achmea judgment is also relevant for the Brexit negotiations, and in particular for the dispute settlement mechanism to be included in the future Withdrawal Agreement with the UK. As a starting point, there is no doubt that EU law will be potentially applicable here, so in this sense the Brexit scenario is even less dubious than the one of intra-EU BITs. Notoriously, the UK wants to escape the jurisdiction of the ECJ. However, from the perspective of EU law, excluding the ECJ seems to be impossible. The mechanism proposed by the Commission seems to be in line with the Achmea judgment, preserving the supervisory role of the ECJ. However, it seems to be of course very unlikely that the UK would accept it. In this sense, the Achmea judgment sets again a red line which the European Council has taken up: Before the text of the draft Withdrawal Agreement is tweaked and modified in the negotiations, the Court warns that its marginalisation may be not only undesirable, but also unlawful.
Moreover, it is to be expected that the ECJ will be asked under Article 218(11) TFEU about the compatibility of the Withdrawal Agreement with Union law before the Agreement enters into force.

Concluding Remark
The ECJ is and remains the guardian of the autonomy of European Union law -not only within the EU, but also with regard to third states. The Achmea judgment does not leave any doubts on the role and the self-understanding of the Court in this respect. Therefore, Achmea must be read through the lenses of European law -as a clear statement that the ECJ does not tolerate any deviation from its role as the final arbiter on matters of EU law.
The consequences for a couple of questions that arise under BITs, the ECT and future investment agreements are clear: EU Member States are not permitted to conclude investment treaties among themselves. Only a court that is sufficiently integrated in the judicial system of the EU Member States, for which Article 8 of the Dutch-Czech-Slovakian BIT was deemed not to provide, may reference a preliminary question to the ECJ. This will be a crucial aspect for future international investment agreements as well as an international investment court system.
From the ECJ's perspective, international investment law must respect the autonomy of Union law. In this respect, it is expected that the case law of investment arbitral tribunals will change to some extent. Frankly spoken, one has to go one step further -international arbitral tribunals should reconsider their attitude to European law. This is a battle they cannot win -and if they try to circumvent the political and legal realities, investment arbitration as a whole might be ruptured.