The EU Court ruled on Tuesday that bilateral investment protection agreements between EU member states, which provide for arbitration as a means of resolving disputes between members, are contrary to EU treaties.
The decision was made in the case of a lawsuit by the Dutch insurance company Achmea against Slovakia.
The former Czechoslovakia and the Netherlands signed a bilateral investment treaty (BIT) in 1991, which stipulated that disputes between the contracting state and investors from another contracting state should be resolved amicably or, if that is not possible, before an arbitration court.
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After the dissolution of Czechoslovakia in 1993, Slovakia inherited the rights and obligations of that state arising from the BIT. In 2004, Slovakia opened its health insurance market to private investors. Achmea then established a subsidiary in Slovakia to offer private health insurance services in that country.
However, in 2006, Slovakia partially amended its decision on the liberalization of the private health insurance market, prohibiting, among other things, the distribution of profits from private health insurance activities.
Arbitration Proceedings
In 2008, Achmea initiated arbitration proceedings against Slovakia based on the BIT, arguing that the previous prohibition was contrary to that treaty and that it had suffered financial damage as a result of that measure. The arbitration court found in 2012 that Slovakia had indeed violated the BIT and ordered it to pay Achmea approximately €22.1 million in damages.
Slovakia then appealed to German courts seeking to annul the arbitration court’s decision, claiming that the arbitration clause in the BIT was contrary to several provisions of the Treaty on the Functioning of the Union.
The German Federal Supreme Court, to which the appeal was submitted, requested a ruling from the EU Court on this matter. The EU Court concluded that the BIT “established a dispute resolution mechanism that cannot ensure that disputes will be resolved by a court that is part of the Union’s judicial system, whereby only such a court can guarantee the full effectiveness of Union law.”
– “In these circumstances, the arbitration clause in the BIT affects the autonomy of Union law and, therefore, is not in accordance with that law,” the EU Court stated in a press release.
The Court thus confirmed the position of the European Commission, which has consistently emphasized this.
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This issue was relevant in 2016 in Croatia when UniCredit, the owner of Zagrebačka Bank, announced the initiation of a lawsuit against Croatia before the International Centre for Settlement of Investment Disputes in Washington due to the conversion of CHF loans, invoking the bilateral agreement between Austria, where UniCredit is headquartered, and Croatia.
The European Commission had already initiated proceedings in June 2015 for violation of EU law against five member states, demanding that they terminate their mutual bilateral investment agreements within the EU.
