The Autonomy of the European Union Legal Order: An Analysis and Assessment of the CJEU’s approach in Achmea

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The Autonomy of the European Union Legal Order: An Analysis and Assessment of the CJEU’s approach in Achmea

Di Wang

Master’s Thesis Amsterdam Law School

Master’s Programme International and European Law Supervisor: Dr. Hege Elisabeth Kjos

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Abstract

The debate on the (in-) compatibility with European Union (EU) law of bilateral investment treaties (BITs) between EU Member States (intra-EU BITs) has fuelled controversy since the European Commission first argued in favour of such incompatibility in the Eastern Sugar case in 2004. By all accounts, the issue was settled by the ruling of the Court of Justice of the European Union (CJEU) in Slovak Republic v Achmea, according to which the dispute settlement clause in the intra-EU BIT at hand was found incompatible with Articles 267 and 344 of the Treaty on the Functioning of the European Union (TFEU) ensuring the autonomy of EU legal order. Yet, controversy remains as concerns the ruling’s implications in the field of international investment law and arbitration more generally. This paper compares and contrasts the approach adopted by the CJEU in Achmea with that of the arbitral tribunal in that case; and it demonstrates that the CJEU’s approach to Member States’ international agreements in many aspects departs from the rules of general international law. It further shows that in comparison to the CJEU’s prior case law regarding the autonomy of EU legal order, the approach chosen by the CJEU in Achmea constitutes the most radical and controversial one, especially regarding the interpretation of Article 344 TFEU. Dilemmas introduced by the CJEU’s approach in the Achmea ruling include first, how the potential conflicting obligations binding Member States which flow from an international agreement and EU law can be reconciled. A second concern is the uncertain implications of the CJEU’s approach for other cases regarding the principle of the autonomy of EU legal order.

Keywords: intra-EU BITs, investor-state arbitration, the autonomy of EU legal order, Article 344 TFEU, the primacy of EU law, CETA

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On 6 March 2018, the Court of Justice of the European Union (CJEU or Court of Justice) issued its much anticipated judgment in the case Slovak Republic v Achmea concerning the compatibility with European Union (EU) law of dispute settlement clauses in bilateral investment treaties between EU Member States (intra-EU BITs).1 Departing from the Opinion rendered by Advocate General Wathelet six months earlier,2 it ruled that the clause providing for investor-state arbitration in Article 8 of the Netherlands-Slovakia BIT3 is incompatible with Article 267 and Article 344 of the Treaty on the Functioning of the European Union (TFEU).4_{Article 267 TFEU provides for a preliminary ruling procedure that enables a}

dialogue between national courts and tribunals of EU Member States and the CJEU;5_{and this}

serves the purpose of guaranteeing the uniform interpretation of EU law.6_{Article 344 TFEU}

prohibits Member States to submit a dispute concerning the interpretation or application of the EU Treaties to any method of settlement other than those provided for in the Treaties. This entails that the CJEU has exclusive jurisdiction over inter-party cases that involve EU law.7

This thesis examines how this judgment can be seen as part of a wider development whereby the CJEU, based on the sui generis character of the EU, has developed a principle named the autonomy of EU legal order, thereby “self-declaring its independence from both domestic legal orders of the Member States and the constraints of public international law”8_.

The original focus of the autonomy of EU legal order was to enable it to withstand internal challenges which come from domestic law of Member States.9 Yet, over the years, with the EU acquiring increased external relations functions, the autonomy principle has acquired an external dimension to help it against interference originating beyond the EU.10 A landmark

1_{Case C-284/16, Slovak Republic v Achmea, ECLI: EU: C: 2018:158 (Achmea Judgment).}

2_{ibid, Opinion of AG Wathelet (Achmea AG Opinion).}

3_{Agreement on Encourage and Reciprocal Protection of Investment between the Kingdom of the Netherlands}

and the Czech and Slovak Federal Republic (Netherlands-Slovak BIT) (1992) art 8(2)

<https://investmentpolicyhubold.unctad.org/Download/TreatyFile/968> (“Each Contracting Party hereby consents to submit a dispute referred to in paragraph (1) of this Article, to an arbitral tribunal, if the dispute has not been settled amicably within a period of six months from the date either party to the dispute requested amicable settlement […].”).

4_{Consolidated Version of the Treaty on the Functioning of the European Union, [2008] OJ C 115/47 (TFEU)}

arts 267, 344.

5_{ibid art 267 (“The Court of Justice of the European Union shall have jurisdiction to give preliminary rulings}

concerning: (a) the interpretation of the Treaties; (b) the validity and interpretation of acts of the institutions, bodies, offices or agencies of the Union; Where such a question is raised before any court or tribunal of a Member State, that court or tribunal may, if it considers that a decision on the question is necessary to enable it to give judgment, request the Court to give a ruling thereon […].”).

6_{MJ Homewood, EU Law (Oxford University Press 2016), pp. 45.}

7_{TFEU (n 4) art 344. See also SØ Johansen, ‘The Reinterpretation of TFEU Article 344 in Opinion 2/13 and Its}

Potential Consequences’ (2015) 16:1 German Law Journal.

8_{R O’Sullivan, ‘Burning Bridges: The Court of Justice and the Autonomy of the EU Legal Order’ (2018) 1 17}

Hibernian L.J. 1, 1.

9_{P Koutrakos ‘What Is the Principle of Autonomy Really About?’ (2018) 43 European Law Review 1.}

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case in this regard is Opinion 2/13 concerning the incompatibility with EU law of the EU’s accession to the European Convention on Human Rights (ECHR), in which the CJEU reasoned that “an international agreement cannot affect the allocation of powers fixed by the Treaties or, consequently, the autonomy of the EU legal system”, and that this principle “is notably enshrined in Article 344 TFEU”.11

In Achmea, the CJEU took a further step to safeguard the autonomy of EU legal order in the field of investment protection; and as a result of the ruling, investor-state dispute settlement provisions in intra-EU BITs are deemed incompatible with EU law. This forms the background for the main research question of this thesis: should the ruling by the CJEU in

Achmea be seen as a positive or problematic development?

This question can be assessed in different ways, inter alia by considering the legal justifications of the ruling,12_{its possible implications,}13_{and from the point of view of the}

overall field of international investment law and arbitration.14_{The present thesis analyses the}

approach adopted by the CJEU in Achmea from two perspectives. First, it aims to answer the subquestion whether the reasoning line in Achmea can be seen as adopting a new approach towards the autonomy of EU legal order. To this end, the various cases in which the CJEU has considered external dispute settlement mechanisms will be compared and contrasted. Second, and considering the pending Opinion 1/17 initiated by Belgium,15 the thesis will examine whether and to what extent the Court’s reasoning has implications for the consistency with EU law of the Investment Court System (ICS) under the EU-Canada Comprehensive Economic

11_{Opinion 2/13, EU:C:2014:2454, para 201.}

12_{P Andrea, ‘The Incompatibility of Intra-EU BITs with European Union Law' (2018) Cahiers l’arbitrage Paris}

Journal of International Arbitration 1.

13_{For instance, Nikos Lavranos identifies five questions surrounding the consequences of the Achmea}

judgment, which include: what are the legal consequences for intra-EU BITs, for extra-EU BITs, for intra-ECT disputes, for pending intra-EU disputes, for already paid award. See Andrea (n 21). See also A Dimopoulos, ‘Achmea: The Principle of Autonomy and Its Implications for Intra and Extra-EU BITs’, EJIL: Talk!, 27 March 2018; C Fouchard and M Krestin, ‘The Judgment of the CJEU in Slovak Republic v. Achmea – A Loud Clap of Thunder on the Intra-EU BIT Sky!’, Kluwer Arbitration Blog, 7 March 2018; VD Thym, ‘EU Law Analysis: The CJEU Ruling in Achmea: Death Sentence for Autonomous Investment Protection Tribunals’, 9 March 2018 <http://eulawanalysis.blogspot.com/2018/03/the-cjeu-ruling-in-achmea-death.html>; PJ Kuijper, ‘The

Netherlands Draws Consequences from the Achmea Case. What Consequence Will the CJEU Draw?’ ACELG, 7 May 2018 <https://acelg.blogactiv.eu/2018/05/07/the-netherlands-draws-consequences-from-the-achmea-case-what-consequence-will-the-cjeu-draw-by-pieter-jan-kuijper/>.

14_{The debate includes the argument for and the critique of investment treaties and arbitration. See P Niemelä,}

The Relationship of EU Law and Bilateral Investment Treaties of EU Member Staten (2017). There is also a

discussion on the intra-EU investment policy after the Achmea judgment. See D Moskvan, ‘The Clash of Intra-EU Bilateral Investment Treaties with Intra-EU Law: A Bitter Pill to Swallow.’ (2015) 22 Columbia Journal of European Law 101.

15_{The question submitted to the Court reads as follows: “Is Chapter Eight (‘Investments’), Section F}

(‘Resolution of investment disputes between investors and states’) of the Comprehensive Economic and Trade Agreement between Canada, of the one part, and the European Union and its Member States, of the other part, signed in Brussels on 30 October 2016, compatible with the Treaties, including with fundamental rights?” Opinion 1/17, Request for an opinion submitted by the Kingdom of Belgium pursuant to Article 218(11) TFEU.

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and Trade Agreement (CETA).16 Also here, a comparative analysis will be conducted, but then between the CJEU’s approach in Achmea with that of the arbitral tribunal’s whose decision to award the investor in question damages spurred the preliminary ruling that lead to the CJEU’s judgment.

The thesis is structured as follows. Section 2 introduces the background of the

Achmea case, and then chronologically summarizes the rulings of the three institutions

involved, namely the arbitral tribunal, the Advocate General Wathelet and the CJEU, focusing on the reasoning related to Article 344 TFEU. Thereafter, Section 3 analyses in more detail the approach taken in Achmea with respect to Article 344 TFEU in light of the CJEU’s previous case law, to be specific, MOX Plant17 and Opinion 2/13.18 Section 4 considers whether other considerations beyond the legal reasoning may have influenced the approach taken in Achmea, as well as possible implications of the ruling. Section 5 concludes.

2. CASE STUDY: THE ACHMEA CASE

In order to lay a foundation for the discussion to follow, this section firstly sets out the background of the Achmea case and introduces the notion of intra-EU BITs. Secondly, it examines the approaches taken by the arbitration tribunal, Advocate General Wathelet and the CJEU as concerns the BIT’s dispute settlement clause in particular, and the relationship between EU law and intra-EU BITs more generally. In so doing, it highlights the role of Article 344 TFEU and the principle of the autonomy of the EU legal order.

2.1. Facts and Procedural History of the Achmea case

The Achmea case arose from legislative changes that the Slovak government made to its health insurance sector and that affected the investments of the Dutch company Achmea (formerly known as Eureko). Claiming that these measures constituted violations of the 1992 Agreement on Encouragement and Reciprocal Protection of Investment between the Kingdom of the Netherlands and the Czech and Slovak Federal Republic (Netherlands-Slovak BIT), Achmea instituted arbitration proceedings and was awarded EUR 22.1 million in damages.19 The

16_{Comprehensive Economic and Trade Agreement between Canada, of the one part, and the European Union}

and its Member States, of the other part, OJ L 11/23 (CETA).

17_{Case C-459/03, Commission of the European Communities v. Ireland, ECLI: EU: C: 2006: 345 (MOX Plant)}

18_{Opinion 2/13 (n 13) para 201.}

19_{Achmea B.V. v. The Slovak Republic, UNCITRAL, PCA Case No. 2008-13 (formerly Eureko B.V. v. The}

Slovak Republic), Award on Jurisdiction, Arbitrability and Suspension of 26 October 2010 (concerning jurisdictional issue raised by the Slovak Republic based on its membership of the EU) (Achmea Award on Jurisdiction); ibid, Final Award of 7 December 2012 (regarding liability and merits, namely whether the Slovak

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Slovak Republic then requested German courts to set aside the arbitral award, reasoning that the Tribunal had lacked jurisdiction. The application was rejected by the Higher Regional Court, the Oberlandesgericht, which held that Article 344 TFEU was not applicable in the context of the investor-State dispute at hand.20_{The Slovak Republic appealed that ruling to the German}

Federal Court of Justice, which by a decision on 3 March 2016 referred to the CJEU, according to the preliminary ruling procedure in Article 267 TFEU, questions on the compliance of investment arbitration clause in the Netherlands-Slovak BIT with EU law .

During the arbitration and in the annulment proceedings before the German courts, the Slovak Republic, along with the European Commission (Commission)as amicus curiae, consistently argued that the arbitration clause of the intra-EU BIT should be deemed inapplicable due to incompatibility with EU law. That argument was rejected by the arbitral tribunal, as well as by the Advocate General Wathelet in his Opinion; yet, it was supported by the CJEU in its judgment. The reasoning of each institution will be analysed in detail in the following. To facilitate that analysis, a brief examination will first be made of the long-standing legal debate on the relationship between intra-EU BITs and European Union law.

1. Legal relations of the Achmea case

Republic’s legislative measures violated Articles 3, 4 and 5 of the Netherlands-Slovak BIT) (Achmea Final Award). See also Netherlands-Slovak BIT (n 3).

20_{OLG Frankfurt am Main – 26 SchH 11/10, Higher Regional Court of Frankfurt am Main, 26 SchH 11/10, 10}

May 2012 <http://www.kluwerarbitration.com/document/kli-ka-1327834> (German text with a summary by RH Kreindler)

The Slovak Republic (host state)

Netherlands (home state)

Intra-EU BIT (earlier treaty)

Achmea (investor)

Investment (100% shareholding in Union Healthcare)

Legislative measures introduced by the new government in 2016 (ban on the distribution of profits and ban on transfers)

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2.2. The Long-Standing Debate on the Compatibility of Intra-EU BITs with EU Law

Achmea is not the first case that concerned the thorny issue of the compatibility with EU law

of BITs concluded between Member States (intra-EU BITs). Indeed, already since the 2004 case Eastern Sugar v. Czech Republic,21 the European Commission has consistently claimed that intra-EU BITs are incompatible with EU law. In addition to intervening as amicus curiae in arbitral proceedings, the Commission also initiated infringement proceedings against five Member States in 2015 requesting them to terminate their intra-EU BITs.22

The controversy can be understood as stemming from the coexistence of two parallel legal regimes covering cross-border investment within the EU. There are currently around 196 intra-EU BITs in force, most of which date back to the 1990s when one or both countries were not yet a member of the EU; and like all BITs, they aim at encouraging investments by offering reciprocal guarantees against political risks which might negatively affect those investments.23 At the same time, the EU legal order comprises internal market rules that provide a comprehensive and effective legal framework, including remedies, to intra-EU investors when they invest in another Member State. These rules can be found in the TFEU, like the right of establishment24 and the free movement of capital,25 as well as in sector-specific legislation. Hence, after the accession of the ‘EU-13’ to the EU,26_{investment relationships which was}

originally covered by the intra-EU BITs, also fell within another parallel legal regime, i.e. the internal market rules of EU law.

There are substantive overlaps as well as differences between the regimes of international investment law and EU law. For that reason, both sets of rules may apply to the same factual situation; so while their application may sometimes be harmonious, at other times

21_{This is the first case in which the Respondent, the Czech Republic, raised the argument that the arbitral}

tribunal lacked jurisdiction as the BIT between it and Netherlands had been superseded by EU law after its accession to the EU and thus that BIT was no longer applicable. SCC Case No.088/2004, Eastern Sugar v.

Czech Republic [2007] IIC 310.

22_{European Commission, ‘Commission asks Member States to terminate their intra-EU bilateral investment}

treaties’, 18 June 2015, Press Release Database <http://europa.eu/rapid/press-release_IP-15-5198_en.htm>.

23_{Achmea Opinion (n 2) para 3. See also Commission (n 32) (referring to around 200 BITs in force between}

EU Member States). The countries with which the Netherlands currently has intra-EU BITs are: Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Romania, Slovakia, and Slovenia. In addition to these States, Belgium and Luxembourg have also concluded a BIT with Cyprus. See W Geldhof and C Veerburg, ‘The Court of Justice of the European Union Rules that Intra-EU Investment Arbitration is Incompatible with EU Law: Reflections and Consequences for the Energy Charter Treaty’, Lexology, 14 March 2018, n 1 <https://www.lexology.com/r.ashx?l=8DKU5B9>.

24_{TFEU (n 4) art 49.} 25_{ibid arts 63-66.}

26_{Since 2004, 13 new countries have acceded to the EU (Bulgaria, Croatia, Cyprus, Czech Republic, Estonia,}

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it may possibly lead to diverging results.27 As will be seen, the debate on the alleged conflict between intra-EU BITs and EU law on non-discrimination is an example of this issue.28

Besides substantive rules of investment protection, intra-EU BITs generally also provide for an investor-state dispute settlement (ISDS) mechanism, under which an investor from one EU Member State can bring claims against another Member State for alleged wrongful conduct based on the dispute settlement provision of the intra-EU BIT at hand. Since there is a potential overlap between the rules of two legal regimes, investor-state arbitration tribunals may have to address questions of EU law. From the perspective of EU law, the existence of ISDS under the intra-EU BITs poses a problem vis-à-vis the exclusive jurisdiction of the CJEU on interpreting and applying EU law, as well as the autonomy of EU legal order. The Achmea case provided the CJEU with the first opportunity to engage in this discussion, and its response will be analysed in detail below.

2.3. Two perspectives adopted in Achmea on the compatibility of the arbitration clause with EU law

The key legal question facing both the arbitral tribunal and the CJEU and Advocate General in

Achmea was whether EU law had rendered inapplicable the arbitration clause in Article 8 of

the Netherlands-Slovak BIT. This question reflects a general underlying legal issue, namely how potential conflicting obligations binding Member States which flow from their inter se international agreement and EU law can be reconciled. This question can be approached differently depending on one’s perspective: from the perspective of general international law on the one hand, and from the perspective of EU law on the other hand.29 As will be seen in the following, various factors lead to the divergent findings by the institutions in this case, including the conception regarding the role of EU law in arbitration, the interpretation of Article 344 TFEU, as well as the understanding of the institutional relationship between the arbitral tribunal and the CJEU.

27_{T Fecak, International Investment Agreements and EU Law (Kluwer Law International 2016) 372-373.}

28_{In the Achmea arbitration, the legal argument based on the principle of non-discrimination was raised by the}

Slovak Republic and the Commission. Achmea (n 29), Award on Jurisdiction. It was analysed by AG Wathelet, but was not touched upon by the CJEU. There is also a wide discussion on this issue in academia. See Moskvan (n 23) 116-122; Niemelä (n 23) 69-114.

29_{One is the general international law perspective, from which the alleged incompatibility between the intra-EU}

BIT and EU law should be viewed as conflict of international treaties, and therefore be addressed under the framework of Vienna Convention on the Law of Treaties (VCLT), in casu arts 30 and 59.The other is the EU law perspective. Due to the sui generis character of the EU, the relationship between international law and EU law is dealt with differently than from the general international law perspective. Though there is no provision in the EU Treaties dealing with inter se international treaties of the EU Member States expressly and directly, according to the case law of the CJEU, this situation is governed by the principle of supremacy. In other words, the obligations of Member States under EU law shall always prevail over their obligations under their inter se international agreements, namely the intra-EU BITs in this current scenario.

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2.3.1. The Arbitral Tribunal: Within the Framework of International law

The jurisdiction of the Arbitral Tribunal in Achmea was established on the basis of Article 8 of the Netherlands-Slovak BIT, and thus the compatibility of Article 8 itself with EU law could have implications for the excise of jurisdiction of the Tribunal.

In its Decision on Jurisdiction, the Tribunal began by considered the proper framework for its analysis of the arguments raised under the so-called “intra-EU jurisdictional objection”. It found as follows: “The perspective of this Tribunal must begin with the instrument by which and the legal order within which consent originated […]. That framework is the BIT and international law, including applicable EU law”.30

Relying on the Vienna Convention on the Law of Treaties (VCLT), the Tribunal eventually held that the argument that Article 8 of the BIT is incompatible with EU law is unsustainable for three main reasons: Firstly, in the view of the Tribunal, there is no rule of EU law that prohibits investor-State arbitration.31 Also, it found remedies that could be sought in domestic courts to differ fundamentally from arbitration, which central purpose is to provide disputing parties, by their consent, with an alternative to domestic court proceedings. Moreover, and referring to the MOX Plant case, the Tribunal found inapplicable Article 344 TFEU, considering that it only applies to disputes between two Member States.32

Secondly, the Tribunal held that the fact that, at the merits stage, the Tribunal might have to consider and apply provisions of EU law did not deprive it of jurisdiction. In fact, found that far from being precluded from considering and applying EU law, the Tribunal would be bound to do so to the extent that it is part of the applicable law, if required at the merit stage, whether under Article 8 of the BIT, German law as the lex loci arbitri or otherwise.33 In reaching that decision, it noted that EU law appears to fall within the scope of the first two and the last items of Article 8, namely “the law in force of the Contracting Party concerned”; “other relevant Agreements between the Contracting Parties” and as part of “the general principles of international law”.34_{At the same time, the Tribunal noted that in the case at hand its}

jurisdiction was confined to ruling upon alleged breaches of the BIT and not alleged breaches of EU law as such.35

Finally, regarding the CJEU’s exclusive jurisdiction over the interpretation and application of EU law, the Tribunal did not accept the Slovak Republic’s argument that the

30_{Achmea Award on Jurisdiction (n 29) para 228.} 31_{ibid para 274.}

32_{ibid para 276.} 33_{ibid para 281.} 34_{ibid para 289.} 35_{ibid para 290.}

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Court’s monopoly on the final and authoritative interpretation of EU law prevented it from applying and interpreting provisions of EU law. Such conclusion was based on the observation that courts and tribunals throughout the EU interpret and apply EU law daily and, according to the well-established acte clair doctrine, they are not obliged to refer questions of the interpretation of EU law to the CJEU in all cases.36 Such finding could be seen to imply that the Tribunal viewed itself as falling within the EU judicial system.

In its award on the merits, the Achmea Tribunal held that there were no actual and specific questions of EU law arising in the present case, though it did not deny the possibility that EU law could be applicable law under Article 8 of the BIT in other cases. Finding in favour of the investor, it held that that the Slovak Republic had breached Article 3 of the BIT on fair and equitable treatment, as well as Article 4 on the free transfer of payments.37 The Tribunal obviated any further wrestling with the relationship between the BIT’s norms and those of EU law by reiterating that “[n]othing in this Award amounts to, or implies, a decision that Respondent or Claimant has acted in conformity with EU law or contrary to EU law in any respect. This Award has no bearing upon any question of EU law”.38

2.3.2. Opinion of Advocate General Wathelet: A Detailed Analysis from the Perspective of EU law

On 19 September 2017, Advocate General Wathelet (AG Wathelet) rendered his Opinion according to which investor-state arbitration as provided in Article 8 of the Netherlands-Slovakia BIT was considered compatible with EU law.39 While the Opinion discusses the compatibility of Article 8 with Articles 18, 267 and 344 TFEU, this thesis focuses on AG Wathelet’s reasoning on the latter provision as it relates to the principle of the autonomy of the EU legal order.40

AG Wathelet devoted 141 paragraphs to the interpretation of Article 344 and analysed three elements contained in this provision separately and in great detail, namely (i) the type of disputes covered, (ii) the meaning of “interpretation or application of EU law” and (iii) the provision’s purpose to preserve the autonomy of EU legal order.41

36_{ibid para 282. Such line of reasoning was followed and analysed more deeply by the following Tribunal:}

PCA CASE NO.2010-17,European American Investment AG (EURAM) v. The Slovak Republic, Award on

Jurisdiction [2012] IIC 681, Point D of Part II.

37_{Achmea Final Award (n 29) para 295.} 38_{ibid para 276.}

39_{Achmea AG Opinion (n 2) para 273.} 40_{ibid paras 132-272.}

41_{This issue was further sub-divided into three distinct questions by AG Wathelet to answer: 1. Does a dispute}

between an investor and a State come within the scope of Article 344? 2. Does the dispute at issue concern the interpretation or application of the EU treaties? 3.Having regard to its purpose, does the intra-EU BIT have the

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Regarding the first element, AG Wathelet found that a dispute between an investor and a State does not fall within the scope of Article 344. Relying on the Court’s case-law, he reasoned that the scope of Article 344 TFEU only covers disputes between Member States inter

se and between Member States and the Union; in other words, not those in which an individual

or company is one of the disputing parties.42 In terms of investor-state disputes, AG Wathelet drew an analogy with the EU’s current attempts to accede to the ECHR, under which individuals are permitted to bring claims against a Member State or an EU institution before the European Court of Human Rights (ECtHR). To him, the fact that the CJEU did not address disputes between individuals and Member States in its Opinion 2/13 indicated that Article 344 TFEU does not apply to the disputes commenced by individuals or companies.43

The Advocate General further reasoned that even if Article 344 TFEU would apply, investor-State disputes do not concern the interpretation or application of the EU Treaties.44

To this end, AG Wathelet first clarified the meaning of the “interpretation and application of EU law” by referring to the Judgment of 30 May 2006, Commission v Ireland,45 and stated as follows: “the infringement of Article 344 TFEU can be made out only if the objective of the arbitral award at issue is the interpretation and application of the provisions of EU law themselves”.46 To AG Wathelet, this would be the case if the Union is party to the agreement in question. Having analysing the facts of the case at hand, he concluded that the fact that EU law is part of the applicable law based on Article 8 of the Netherlands-Slovak BIT does not mean that these disputes concern the interpretation and application of EU law, for two reasons: one reason lies in the role of the arbitral tribunals, the jurisdiction of which is confined to primarily ruling on alleged breaches of the BIT;47_{and the other is that the scope of that BIT}

and the legal ruleswhich it introduces are not the same as those of the EU Treaties.48 While both regulate cross-border investment, AG Wathelet viewed EU law and intra-EU BITs as two distinct legal spheres the interactions of which need not threaten the functioning of either.49

effect of undermining the allocation of powers determined by the EU treaties, and therefore, the autonomy of the EU legal system? ibid para 137.

42_{ibid para 146.} 43_{ibid para 151-152.} 44_{ibid para 132-272.}

45_{C-459/03, EU: C: 2006:345.} 46_{Achmea AG Opinion (n 2) para 160.}

47_{As regards the role of the arbitral tribunal, the AG Wathelet drew his conclusion largely based on the}

observation of the relevant arbitral practice, especially that of the present case. See ibid para 174-178.

48_{Firstly, AG Wathelet found that the scope of the BIT is wider than that of the EU law (EU and FEU Treaties)}

by comparing specific provisions contained in these two legal regimes. To be specific, there are several legal rules contained in the BIT that have no equivalent in EU law, including the MFN clause, the clause whereby the Parties undertake to observe their contractual obligations, the sunset clause and the ISDS mechanism. Secondly, he noted that although there is indeed an overlap between these two legal regimes, as regards the full protection and security, fair and equitable treatment of investments and the prohibition of illegal expropriations, this is only partial and does not render them incompatible with EU law. Achmea AG Opinion (n 2) paras 199, 210.

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Finally, AG Wathelet opined that neither the allocation of powers fixed by the EU Treaties nor the autonomy of the EU legal order was undermined by the dispute settlement provision in the Netherlands-Slovak BIT. In his view, the mechanisms for recognition, enforcement and setting aside of arbitral awards all provided an opportunity for the courts to intervene where incompatibility with EU law might be a concern; and to him, this provided sufficient guarantee for the autonomy of EU legal order.50 All in all, and based on his observation of the arbitral practice under intra-EU BITs, AG Wathelet opined that the systemic risk caused by intra-EU BITs to the uniformity and effectiveness of EU law is not as serious as conceived by the Commission.51

2.3.3. The CJEU’s Ruling: a Systemic and Abstract Approach from the Perspective of EU law

On 6 May 2018, the CJEU delivered its preliminary ruling in the Achmea case in which it held that the arbitration clause contained in Article 8 of the Netherlands-Slovakia BIT is incompatible with Articles 267 and 344 TFEU.52 Compared to the Opinion of AG Wathelet, the CJEU’s interpretation of Article 344 TFEU is much more concise; only four paragraphs are devoted to the issue of the “interpretation or application of EU law” under Article 344 TFEU. The Court set out by emphasising the importance of the principle of the autonomy of the EU legal system with respect both to the law of the Member States and to international law; and the reasoning that ensued mainly followed that of Opinion 2/13.53 To the CJEU, consistency and uniformity in the interpretation of EU law is one aspect of this principle; and here it referred to Article 344 TFEU according to which EU Member States undertake not to submit a dispute concerning the interpretation or application of the Treaties to any method of settlement other than those provided for in the Treaties.54_{The Court further referred to Article}

19 TEU,55 and observed how it designed a judicial system comprising national courts and

50_{Achmea AG Opinion (n 2) para 239.} 51_{ibid para 44-45.}

52_{Achmea Judgment (n 1) (“Articles 267 and 344 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.”).

53_{ibid paras 31-37.}

54_{TFEU (n 4) art 344 (“Member States undertake not to submit a dispute concerning the interpretation or}

application of the Treaties to any method of settlement other than those provided for therein.”).

55_{Consolidated Version of the Treaty on European Union, 2010 O.J. C 83/01 (TEU) art 19 (“3.The Court of}

Justice of the European Union shall, in accordance with the Treaties: (b) give preliminary rulings, at the request of courts or tribunals of the Member States, on the interpretation of Union law or the validity of acts adopted by the institutions.”).

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tribunals as well as the CJEU, which with the preliminary ruling procedure under Article 267 TFEU enables dialogue so as to guarantee the uniform interpretation of EU law, thereby serving the object of securing the autonomy of EU law.

The Court then set out to demonstrate why the ISDS provided by Article 8 of the BIT would impair the autonomy of EU legal order; and it did so by analysing two legal issues: (i) whether the disputes which arbitral tribunals provided for in Article 8 of the BIT are called on to settle may relate to the interpretation or application of EU law; and (ii) whether those tribunals fall within or outside the EU judicial system.

Regarding the first issue, the Court held that even if the tribunals are called on to rule only on possible infringements of the BIT, in order to do so, they still will have to take account of the domestic law of the contracting party and other relevant international agreements between them. And, noted the Court, EU law can be considered either as part of domestic law or as part of international agreements.56

The second issue concerned more specifically whether an arbitral tribunal under Article 8 of the BIT can be regarded as “a court or tribunal of a Member State” within the meaning of Article 267 TFEU. If so, it can take part in the dialogue with the CJEU, and the autonomy of EU law will not be adversely affected. According to the settled case law, the status of “a court or tribunal of a Member States” can be derived from two specific situations: one is where the tribunal as a whole is part of the judicial system of a Member State.57 The other is where it is a court common to a number of Member States, like the Benelux Court of Justice, where the procedure provides a link with domestic courts.58_{Considering the exceptional}

nature of an Article 8 BIT tribunal’s jurisdiction and the lack of such link with the judicial systems of the Member States, the Court held that such arbitral tribunal cannot be considered to fall under the definition of a “court or tribunal of a Member State”.59

On this latter point, the Court disagreed with the significance AG Wathelet placed on the possibility that arbitral awards be subject to review by domestic courts. To the CJEU, such procedure does not sufficiently guarantee that matters of EU law can be submitted to the Court.60_{In so concluding, it observed that under the UNCITRAL Arbitration Rules, the seat}

of the proceedings are chosen by the disputing parties or the arbitrators, who thereby can select the standard of review to which the award should be submitted. If the seat of arbitration in an intra-EU investment dispute is located outside the EU, a reference to the CJEU by domestic

56_{Achmea Judgment (n 1), paras 39-42.} 57_{ibid para 44.}

58_{ibid paras 32-47.} 59_{ibid paras 45, 48.} 60_{ibid paras 50-53.}

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courts of a Member States is impossible. The Court found that full effectiveness of EU law was further endangered by the limited grounds for review set out in national arbitral laws.61

2.4. Interim Conclusions

The above analysis makes clear that the three institutions involved in the Achmea case adopted very different approaches to the issue of the relationship between EU law and international investment law. This is so regardless of the fact that they all accepted the fact that the jurisdiction of the Tribunal was confined to rule on alleged infringements of the BIT.

First, the Tribunal’s perspective was one of public international law, and it viewed the EU law as applicable international law between two disputing parties. Contrariwise, the perspective of the CJEU, as well as AG Wathelet, was one of EU law, and in particular the principle of the autonomy of EU law. For the Court, this implied that EU law prevails over Member States’ inter se international law.

Second, both the Tribunal and the CJEU adopted an abstract approach towards the role of EU law in the arbitration, while the AG Wathelet adopted a factual approach by comparing the substantive rules contained in both legal system and reasoning on the basis of that fact-finding. Indeed, compared to the Opinion of AG Wathelet, the CJEU reasoned solely on the basis of the wording of applicable law rules contained in the Netherlands-Slovakia BIT. It did not analyse whether or EU law was at issue in the particular case, nor did it consider the role of EU law in investment arbitration between Member States on a factual basis. In order words, the Court adopted a systemic and abstract approach, rather than on a case-by-case basis. Finally, regarding the “application and interpretation of EU law” as set out in Article 344 TFEU, both the Tribunal and the CJEU interpreted that wording relatively broadly, while AG Wathelet had a more restrictive understanding. The institutions’ understanding of the other elements contained in Article 344 TFEU, as well as the autonomy of EU legal order, are analysed more fully in the subsequent section.

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3. A RADICAL APPROACH TOWARDS SAFEGUARDING THE AUTONOMY OF THE EU LEGAL ORDER

As we saw above, the ruling of the CJEU revolved around the principle of the autonomy of EU legal order; and its conclusion on incompatibility had two main reasons. The first was the possibility that investor-state arbitration tribunals apply EU law. The second was the absence of the possibility for the CJEU to ensure the proper application of EU law by those tribunals; in other words, the CJEU considered arbitral tribunals established by intra-EU BITs as following outside of the EU judicial system.62

The reasoning of the CJEU has faced criticism by EU legal scholars,63 and this forms the backdrop for the question this section aims to answer: whether or not the approach of the CJEU in Achmea judgment is logical and reasonable when viewed from the perspective of EU law. To this end, we will compare and contrast the Achmea ruling with the CJEU’s prior case law, and then mainly the Mox Plant case and Opinion 2/13.

When examining the CJEU’s determination of what kind of interpretation or application of EU law by the external dispute settlement mechanism (courts or tribunals outside the EU judicial system) would infringe the autonomy of EU law based on Article 344 TFEU, we will bear in mind the following questions: (i) what kind of EU law is involved; (ii) in what way EU law is considered by the external dispute settlement mechanism; (iii) what effect such consideration may have on the EU internally; and (iv) whether all of the former three questions are considered relevant by the Court.64

3.1. The MOX Plant Case: EU Measures Derived from EU Treaties as Applicable Law The MOX Plant case65 followed from Ireland’s reliance on several Community provisions in a case against the United Kingdom before an arbitral tribunal set up pursuant to the United

62_{The approach taken by the CJEU in Achmea judgment regarding the second prerequisite was analysed. See}

Andrea (n 21).

63_{B Hess, ‘A European Law Reading of Achmea’}

<http://conflictoflaws.net/2018/a-european-law-reading-of-achmea/> accessed 11 July 2018; S Gáspár-Szilágyi, ‘It Is Not Just About Investor-State Arbitration: A Look at Case C-284/16, Achmea BV’ (2018) 3 European Papers 357; Dimopoulos (n 22); Thym (n 22); Fouchard and Krestin (n 22); Kuijper (n 22); Harm Schepel, ‘From Conflicts-Rules to Field Preemption: Achmea and the Relationship between EU Law and International Investment Law and Arbitration | European Law Blog’ <https://europeanlawblog.eu/2018/03/23/from-conflicts-rules-to-field-preemption-achmea-and-the-relationship-between-eu-law-and-international-investment-law-and-arbitration/> accessed 3 July 2018; P Niemelä, ‘Achmea – A Perspective from International (Investment) Law' European Law Blog,

<http://europeanlawblog.eu/2018/03/15/achmea-a-perspective-from-international-investment-law/> accessed 11 July 2018; C Eckes, ‘Don’t Lead with Your Chin! If Member States Continue with the Ratification of CETA, They Violate European Union’, ACELG <https://acelg.blogactiv.eu/2018/03/13/dont-lead-with-your-chin-if-member-states-continue-with-the-ratification-of-ceta-they-violate-european-union-law-by-christina-eckes/>.

64_{The fourth question will be considered separately in the analysis of above three questions.}

65_{MOX Plant (n 27). This case concerns the conflict between Ireland and the United Kingdom about the}

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Nations Convention on the Law of the Sea (UNCLOS). The CJEU held that by initiating these dispute-settlement proceedings against the UK, Ireland had breached its obligation derived from Article 292 EC (now Article 344 TFEU). In so ruling, the Court held first, that Ireland had failed to respect the exclusive jurisdiction vested in the Court by Article 292 EC to rule on any dispute concerning the interpretation and application of Community law.66 Second, by referring to the Arbitral Tribunal a dispute which required for its resolution the interpretation and application of measures of Community law, Ireland had violated Article 292 EC.67 The dispute between Ireland and the UK concerned the conservation and management of sea fishing resources, a field in which the EU has exclusive competence.68

As regards the above questions: (i) the EU law considered by the arbitral tribunal was a series of EU Directives implemented pursuant to the EU’s international obligations as a party to UNCLOS.69

(ii) These Directives may be seen to form part of the applicable law before the Arbitral Tribunal. Firstly, Article 293(1) of the UNCLOS, provides that arbitral tribunals shall apply this Convention and other rules of international law not incompatible with this Convention;70 and this could include the EU Directives at issue. The fact that Ireland had relied on the EU Directives before the Arbitral Tribunal could be seen to strengthen that conclusion; yet the Court pointed out that this fact was actually not a necessary element for its ruling.71

(iii) The risk conceived by the Court in this case comes from the fact that Ireland submitted a dispute concerning EU law to an external dispute settlement mechanism, rather than from how the arbitral tribunal considered EU law. In other words, the Court placed emphasis on the infringement of the jurisdictional order established by the EU Treaties.

settlement proceedings under both the United Nations Convention on the Law of the Sea (UNCLOS) and the Convention for the Protection of the Marine Environment of the North-East Atlantic (OSPAR Convention). Due to the fact that the Union itself is also a party to UNCLOS, the Commission brought an action against Ireland by claiming that, firstly, Ireland had failed to fulfill its obligations to respect the CJEU’s exclusive jurisdiction under what is now Article 344 TFEU, and secondly, it breached Article 292 EC by referring to the Arbitral Tribunal a dispute which requires for its resolution the interpretation and application of measures of Community law, both of which were upheld by the CJEU.

66_{ibid paras 80-139.} 67_{ibid paras 146-157.} 68_{ibid para 7.}

69_{ibid para 147 (Directives 85/337, 90/313, 80/836, 92/3 and 96/29).}

70_{Convention on the Law of the Sea, Dec. 10, 1982, 1833 U.N.T.S. 397, art 293(1) (UNCLOS) (“A court or}

tribunal having jurisdiction under this section shall apply this Convention and other rules of international law not incompatible with this Convention.”).

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3.2. Opinion 2/13: EU Primary Law Applicable due to Direct References to the European Convention on Human Rights

Opinion 2/13 concerned the issue whether the Draft Agreement on Accession of the EU to the

European Convention on Human Rights was compatible with EU law. The circumstances surrounding Opinion 2/13 are quite similar to that of MOX Plant: both cases concern mixed agreements with provisions on inter-party dispute resolution. But the legal questions facing the CJEU are slightly different. MOX Plant was about the legality of a specific forum shopping behaviour conducted by an EU Member State; while Opinion 2/13 related to the (in-) compatibility with EU law of certain mechanisms designed by the Draft Accession Agreement. Accordingly, in this latter case, the CJEU adopted a relatively abstract approach to rule out any potential threat to Article 344. TFEU72

The CJEU found five separate grounds for finding the Draft Accession Agreement incompatible with EU law. The first one is based on the autonomy of EU law, the CJEU stating that “any action by the bodies given decision-making powers by the ECHR, as provided for in the agreement envisaged, must not have the effect of binding the EU and its institutions, in the exercise of their internal powers, to a particular interpretation of the rules of EU law”.73_Hence,

to the Court, two elements should be considered: (a) whether rules of EU law are to be interpreted by other courts or tribunals; and (b) whether such interpretation has a binding effect for the EU internally. The CJEU concluded that “the possibility that the EU or Member States might submit an application to the ECtHR, under Article 33 of the ECHR, concerning an alleged violation thereof by a Member State or the EU, respectively, in conjunction with EU law is incompatible with Article 344”.74

As regards the above questions: (i) The field of protection of fundamental rights includes general principles of EU law, as well as the Charter of Fundamental Rights of the European Union. The overlap between EU law and European human rights law also follows from direct references to the ECHR in EU primary law. Further, one of the objectives of the EU’s accession to the ECHR was to bring an end to different standards as to the protection of fundamental rights at a European level.75

72_{Opinion 2/13 (n 13) paras 207-208 (“[…] possibility that the EU or Member States might submit an}

application to the ECtHR, under Article 33 of the ECHR, concerning an alleged violation thereof by a Member State or the EU, respectively, in conjunction with EU law […]. The very existence of such a possibility undermines the requirement set out in Article 344 TFEU.”).

73_{ibid para 184.} 74_{ibid para 206-207.}

75_{P Novak, ‘What next after Opinion 2/13 of the Court of Justice on the Accession of the EU to the ECHR? -}

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(ii) According to Article 32 ECHR, the jurisdiction of the Court (ECtHR) is confined to rulings on the interpretation and application of the ECHR.76 Still, EU law would be relevant when the disputes before the ECtHR are between Member States or between Member States and the EU. Accordingly, and as Dimopolous explains, the existence of direct references to the ECHR in the primary law of the EU in essence enables the ECtHR through the interpretation of the ECHR to shape the interpretation of relevant EU law rules.77 Thus, EU law can be considered to applicable law, although not as directly as in the MOX Plant case.

(iii) In Opinion 2/13, the CJEU expressed two concerns about the potential adverse effects on the EU legal order. First, as expressed in the MOX Plant, it feared potential infringement of the jurisdictional order provided in the Treaties. To the Court, the mere existence of a possibility that the EU or Member States might submit an application to the ECtHR concerning an alleged violation thereof in conjunction with EU law undermines Article 344 TFEU.78_{Second, the CJEU considered the effect the decisions or judgments of the ECtHR}

would have on the internal interpretation of the rules of EU law: “In particular, any action by the bodies given decision-making powers by the ECHR, as provided for in the agreement envisaged, must not have the effect of binding the EU and its institutions, in the exercise of their internal powers, to a particular interpretation of the rules of EU law”.79 According to international law, the EU would be legally bound by interpretations given by the ECtHR, had the EU acceded to the ECHR. And it is that binding effect that makes CJEU’s approach in this case justified and reasonable. As observed by Eckes:

It is essential to protect the EU’s autonomy, and ultimately legitimacy, from interference by the Member States. This is particularly true where the EU legal order commits to binding external judicial mechanisms that may be used by the (national courts of the) Member States to challenge the EU’s autonomy from within.80

3.3. The CJEU’s Approach in Achmea

In the Achmea case, the CJEU, to some extent, followed the ‘possibility’ approach of Opinion

2/13; but at the same time, it took a step further in lowering the threshold for finding an

76_{European Convention for the Protection of Human Rights and Fundamental Freedoms, as amended by}

Protocols Nos. 11 and 14 (ECHR) art 32(1) (“The jurisdiction of the Court shall extend to all matters concerning the interpretation and application of the Convention and the Protocols thereto which are referred to it as

provided in Articles 33, 34, 46 and 47.”).

77_{Dimopoulos (n 22).}

78_{Opinion 2/13 (n 13) paras 207-208.} 79_{ibid para 184.}

80_{C Eckes, ‘Autonomy as Legitimacy?’ in M Cremona and others (eds), The European Union and}

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infringement of Article 344 TFEU. Still, we note that the CJEU only briefly examined the applicable rules contained in the Netherlands-Slovak BIT without considering factors such as whether equivalent EU norms were in fact involved, whether there exist a large substantive coverage between EU law and the BIT, and what would be the legal effect of tribunal rulings for the EU internally. The relatively brief analysis can be seen to partly explain the criticism of the Achmea ruling by scholars in the field of international investment law.81 The four questions raised in this section will be analysed in the following.

3.2.1. The Existence of Field Covered by EU law Leads to Incompatibility

As concerns the kind of EU law that may be considered by the arbitral tribunal, AG Wathelet devoted 46 paragraphs to analysing the extent of coverage between the substantive provisions contained in the intra-EU BIT and relevant rules of EU law. He found that many BIT provisions do not have an equivalent in EU law; and in cases of partial overlap with EU law, those provisions are in fact in line EU law.82 It should be noted, though, that scholars have reached different conclusions in this respect. Fecak, for example, finds that there is a significant overlap between these two distinct legal orders, and that this may prima facie lead to diverging results.83 But this is not the case in the MOX Plant or Opinion 2/13 where the substantial compatibility of EU rules with the international agreement at hand was not a matter of dispute.

The key question in Achmea, however, is not whether which BIT provisions are the same or similar to EU rules are involved, but rather what role such similarity should play in the analysis. According to the CJEU, the answer is seemingly no role; it did not give any detail examination, just referring to “provisions concerning the fundamental freedoms, including freedom of establishment and free movement of capital”.84 This approach clearly expands the scope of EU law which cannot be applied or interpreted by other courts or tribunals.

3.2.2. EU Law Being Indirectly Involved Leads to Incompatibility

The CJEU in Achmea found that the arbitral tribunal may be called upon to interpret or indeed to apply EU law by examining the applicable rules contained in the Netherlands-Slovak BIT. This line reasoning is in fact supported by arbitral tribunal in the same case.

81_{Niemelä (n 80).}

82_{Achmea AG Opinion (n 2) paras 199-210.}

83_{Fecak (n 42) 372.}

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The problem lies in the reasoning of the CJEU which is based on the premise that “the arbitral tribunal is called on to rule only on possible infringements of the BIT”.85 In general, the cases concerning the EU law can be categorized into two types according to the role of EU law in investment disputes. The first type are the rare cases in which EU law forms part of the substantive law applicable to the merits of the dispute. The second type are the more frequent cases where tribunals evaluate the compatibility with a BIT of a Member State’s measure adopted according to EU law. Here, EU law would only be interpretation and applied in an indirect manner.86 In Achmea, the latter type was at issue; hence the CJEU’s ruling can be seen to expand the scope of the wording “interpret or apply EU law” in Article 344 TFEU.

2 How EU law may be involved in investment arbitration

3.3.3. Internal Binding Effect on the EU is not Required

According to Opinion 2/13, a threat to the autonomy of EU legal order arises when the EU and its institutions are bound by a particular interpretation of EU law in the exercise of their internal power. The CJEU, however, did not address the issue of the binding effect of the interpretation of EU law on the EU in Achmea. On the international plane, the arbitral tribunal established under an intra-EU BIT and the CJEU are two parallel international dispute settlement bodies. Only Member States, not the EU and its institutions, are legally bound by arbitral awards, let alone by the interpretation of EU law contained therein. Yet, without further elaboration, the

85_{ibid, para 40.}

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CJEU simply ruled that the autonomy may be affected as the potential interpretation of matters of EU law by the arbitral tribunal is not subject to the CJEU’s control.

3.4. Interim Conclusions

Originally, the CJEU insisted on its exclusive jurisdiction over disputes between the Member States or between Member States and the Union, on matters covered by EU law, to preserve the primacy of EU law over other international law in their legal relationship. In exercising this role, the CJEU acted more like a constitutional court. Over the years, the CJEU has developed the principle of the autonomy of the EU legal order to prevent the possibility that external dispute settlement bodies interpret and apply EU law, as demonstrated by the MOX Plant judgment and by Opinion 2/13.87

While it professed to be following the reasoning in Opinion 2/13, the CJEU in

Achmea applied a more restrictive, and arguably relatively radical, approach when finding

investor-state arbitration in intra-EU BITs incompatible with the principle of autonomy of the EU legal order. In so doing, however, the Court did not sufficiently elaborate on its reasoning and thus left several questions unanswered. The wording of the conclusion88 indicates an intent to solve the legal issue of investor-state dispute settlement mechanisms in intra-EU BITs once and for all, rather than considering the issue on a case-by-case or treaty-by-treaty basis. In any event, it follows from Court’s broad reading of the wording “interpretation or application of EU law” further lowers the threshold for the autonomy of the EU legal order to be endangered. Thus, to the CJEU, the fact that the EU has adopted legislation in fields related to internal market rules ‘pre-empted’ the creation of courts and tribunals by Member States that deal with disputes that may relate to those fields, regardless of whether or the CJEU would have had jurisdiction over such disputes, and regardless of whether the external dispute settlement body was applying EU law in a direct manner, binding on the EU or its institutions.89

4. THE UNCERTAIN IMPLICATIONS OF THE ACHMEA JUDGEMENT

As demonstrated above, the approach chosen by the CJEU in Achmea constitutes the most

87_{Fecak (n 42) 378.}

88_{Achmea Judgment (n 1) (“Articles 267 and 344 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.”).

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radical and controversial one the line of cases interpreting Article 344 TFEU. Considering the consistent opposition by the Commission against intra-EU BITs over years90 and the recent public backlash against ISDS within the EU, the CJEU’s decision may need to be read in a broader context beyond the legal reasoning in which it is rendered.91

Following the ruling, the Commission stated that Member States are bound to formally terminate their intra-EU BITs pursuant to the principle of legal certainty .92 The Netherlands is one of the states that have voiced its intention to do so.93 After Achmea , the era of intra-EU BITs seems to end. Yet, the question arises whether the ruling has potential implications for extra-EU investment treaties. In seeking to answer that question, this section examines two examples. One concerns the debate on whether the applicable clause designed in CETA, Article 8.31, provides sufficient protection for the autonomy of EU legal order.94 The other relates to the implications of the Achmea ruling for the intra-ECT disputes, specifically, the validity of the arbitration clause in Article 26 of the Energy Charter Treaty (ECT).95

4.1. Considerations Underlying the Achmea Case 4.1.1. Preserving the EU’s single market

One concern underlying the Achmea ruling is the goal of preserving the integrity of internal market rules, and ultimately the single market. The creation of a single internal market, with the free movement of goods, persons, services and capital, has always been at the heart of the European integration. The EU’s single market is also considered as a unique area of investment opportunities.96 The EU Treaties, however, do not envisage parallel legal regimes between the

90_{See above, Section 2.2.} 91_{Fouchard and Krestin (n 22).}

92_{Commission Communication (n 20) 3 (“This implies that all investor-State arbitration clauses in intra-EU}

BITS are inapplicable and that any arbitration tribunal established on the basis of such clauses lacks jurisdiction due to the absence of a valid arbitration agreement. As a consequence, national courts are under the obligation to annul any arbitral award rendered on that basis and to refuse to enforce it. Member States that are parties to pending cases, in whatever capacity, must also draw all necessary consequences from the Achmea judgment. Moreover, pursuant to the principle of legal certainty, they are bound to formally terminate their intra-EU BITs.”).

93_{Kuijper (n 22).}

94_{Opinion 1/17 (n 24) (Belgium has asked the CJEU for the clarification on the compatibility of Investment}

Court System (ICS) under the CETA (n 25) with EU law). On 26 June 2018, the CJEU heard legal arguments. See JRM Dona, ‘Opinion 1/17 on CETA: Hearing Report - International Litigation Blog’ <http://international-litigation-blog.com/opinion-1-17-ceta-hearing-report/>.

95_{The Energy Charter Treaty is a multilateral agreement covering energy investment which was signed by the}

EU, its Member States and several third countries. Energy Charter Treaty, 2080 UNTS 95; 34 ILM 360 (1995). (ECT). See ‘Energy Charter Treaty - Energy Charter’ <https://energycharter.org/process/energy-charter-treaty-1994/energy-charter-treaty/> accessed 15 October 2018.

96_{Commission Communication (n 20) 1 (“The European Union's single market is a unique area of investment}

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Member States (inter se) which would overlap with the internal market rules established under the founding Treaties of the Union. And there are no provisions therein dealing with this situation.97

As the design of the exclusive competence of the EU is to integrate relevant rules both internally and externally, it is understandable that the Commission views as problematic the very existence of different standards applying in relations between Member States. Intra-EU BITs are described as separate ‘islands’ of special rules and privileges within the internal market rules,98 which have adverse effect on the EU’s single market. And by providing a dispute settlement mechanism outside the EU judicial system, these BITs are seen to deprive the CJEU of the possibility of verifying the proper application of EU law over certain disputes. Thus, the Achmea case needs to be read in the context of the EU’s single market. The CJEU’s reasoning would not only aim to outlaw the application of EU Law by any courts or tribunals outside the EU, but also the application of any rules other than those of EU law in fields covered by EU law.

4.1.2. Offering Solutions to Criticisms of Investor-State Arbitration

Pinna concludes that “[t]he Achmea ruling shows a decline of trust in arbitration to apply mandatory rules as part of public policy”.99_{Indeed, the ruling should also be considering in}

light of the current discussion in EU on reforming ISDS.100 For some time, the EU has been working towards establishing a permanent body, the Investment Court System, which will replace the current ad hoc arbitration tribunals. And this system has now been incorporated in a new version of the Comprehensive Economic and Trade Agreement (CETA) concluded in 2016 between the EU and its Member States and Canada.101

One of the reasons behind this reform is the concern that an ad hoc mechanism cannot guarantee predictability and stability in terms of interpretation of legal norms. As expressed by Brown, investor-state disputes are essentially public law disputes .102_Unlike

commercial arbitration which only concerns the contractual relationship between two private

97_{E Paasivirta, ‘European Union and Dispute Settlement: Managing Proliferation and Fragmentation’, in}

Cremona and others (n 96) 32.

98_{ibid 40.}

99_{Andrea (n 21) p 12.}

100_{The European Commission has held stakeholder meeting on the reform of investor-State dispute resolution}

(ISDS) mechanisms three times. The latest one was held on 9 October 2018. See Q Decleve, ‘Report of Third EU Stakeholder Meeting on ISDS Reform - International Litigation Blog’ <http://international-litigation-blog.com/report-of-third-eu-stakeholder-meeting-on-isds-reform/>.

101_{CETA (n 25) art 8.31.}

102_{C Brown, ‘ISDS at a Crossroads: How the Settlement of Investor-State Disputes is Being Transformed’,}

video recording of panel discussion at the annual meeting of the American Society of International Law, 6 April 2018 <https://www.youtube.com/watch?v=BS9MCbHEiyQ&t=1332s>.

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parties, investment arbitration involves scrutinising government actions according to treaty provisions. Thus, predictability is crucial and can be increased by establishing a permanent body. We note in this respect that whether the judicial body is permanent is one of the criteria the CJEU uses for determining whether it is eligible to make preliminary ruling referrals.103

4.1.3. Ensuring the Primacy of EU Law

It has been observed that, “[b]eyond ensuring the ‘full effectiveness of EU law’, the goal of CJEU is to be certain of the primacy of EU law over the provisions of BIT concerned”.104 The

Achmea ruling seems to be an attempt of the CJEU to ascertain the primacy of EU law in the

relationship between Member States before any courts or tribunals outside of the EU.

In practice, the cases that raise the most concern are those involving measures Member States have taken to implement EU law. As the Commission notes, most of intra-EU BIT disputes stem from a withdrawal of state aid from the investor by the host government, as a result of the examination by the Commission considering such aid unlawful under the EU state aid rules.105 In arbitration proceedings, the Commission could only explain the system of EU’s state aid rules and remedies through amicus briefs; and this does not sufficiently ensure primacy of EU law or its correct application.

The CJEU’s insistence of on the autonomy of EU legal order in Achmea shows that the CJEU does not want EU law to be interpreted or applied by other courts and tribunals outside of the EU judicial system, even in an indirect way. Beyond that, the CJEU aims to ensure the supremacy of EU law over EU agreement as well as Member States’ inter se international agreements.

103_{Judgment in Handels- og Kontorfunktionærernes Forbund i Danmark v. Dansk Arbejdsgiverforening,}

agissant pour Danfoss, C-109/88, EU: C: 1989:383, paras 7-8. Other factors that are taken into account by the CJEU in particular are (i) whether the referring body is established by law; (ii) whether its jurisdiction is compulsory; (iii) whether its procedure is inter partes; (iv) whether it applies rules of law; and (v) whether it is independent. See above n 7 at pp. 506.

104_{Andrea (n 21).}

105_{Commission Communication (n 20) (“Some countries with which EU Member States had previously}

concluded BITs have since joined the EU. As a result of accession, the substantive rules of BITs, as applied between Member States (‘intra-EU BITs’), became a parallel treaty system overlapping with single market rules, thereby preventing the full application of EU law. This is the case, for example, when intra-EU BITs are interpreted in such a way that they constitute the basis for the award of unlawful state aid in violation of the level playing field in the single market.”). See also E Paasivirta, ‘European Union and Dispute Settlement: Managing Proliferation and Fragmentation’ in Cremona and others (n 96) 40-41; Niemelä (n 80).

The Autonomy of the European Union Legal Order: An Analysis and Assessment of the CJEU’s approach in Achmea

Table of Contents