SDP: By determining the inadmissibility of arbitration in Washington in the dispute between the state and Todorić, we protect EU law

After the SDP Parliamentary Club in the Croatian Parliament requested the Chief State Attorney to initiate proceedings before the competent Croatian court to determine that arbitration in Washington (ICSID) in the Agrokor case is not permitted, we requested an explanation for their proposal.

Namely, the president of the SDP, Peđa Grbin, cited the example of the German Supreme Court, which this summer ruled that all German courts have the right to decide at any time during the arbitration proceedings whether such legal proceedings are permitted or not. According to him, the DORH can immediately file such a lawsuit before the Commercial Court in Zagreb, in which it can, at the latest at the first hearing, request that we address the European Court to extend the application of such a decision to all EU member states.

If that request to the European Court is not part of the lawsuit, Grbin suggested that it be done immediately at the first hearing. Since the Netherlands and the European Commission have also intervened in the arbitration proceedings in Washington initiated by two Dutch companies owned by Ivica Todorić, the example of Germany was cited, which conducts such proceedings because it wants to prevent such arbitrations due to the dangers to the legal order of the entire EU. The SDP believes that in this procedure before the European Court, Croatia will not be alone, but will receive support from all EU member states.

If the DORH initiates proceedings before the Commercial Court in Zagreb, the SDP members believe that a stay should be sought in the Washington arbitration until a decision is made at the European Union level.

Authority from the European Court’s decision

However, we asked the SDP on what basis a Croatian court can decide that arbitration is not permitted, given that Croatia has an international obligation to accept the jurisdiction of the Arbitration Court in Washington?

They sent us a letter to the Chief State Attorney stating that it is a well-known fact that a case is pending before the ICSID, under number ARB/20/6, between Adria Group B.V. and Adria Group Holding B.V. and the Republic of Croatia, in which a decision on the jurisdiction of the said arbitration court was made on October 31, 2023. We are transmitting the SDP’s letter in full.

It is also a well-known fact that the European Court, in case C-284/16, Achmea, on March 6, 2018, ruled that: ‘Articles 267 and 344 TFEU should be interpreted in such a way that they are opposed to a provision of an international agreement concluded between member states, such as Article 8 of the agreement on the mutual encouragement and protection of investments between the Kingdom of the Netherlands and the Czech and Slovak Federal Republic, according to which an investor from one of those member states may initiate proceedings before an arbitration court in the event of a dispute over investments in another member state against that latter member state, whose jurisdiction that member state is obliged to accept.’

In accordance with the above, I invite you with this submission to exercise your powers arising from the positive law of the Republic of Croatia and the legal order of the European Union and to prevent harmful consequences that could arise against the Republic of Croatia in arbitration proceedings (but also in other similar proceedings) immediately, that is, before the completion of the said arbitration, to initiate proceedings before the competent court of the Republic of Croatia to determine that the conduct of this (but also other similar proceedings) is not permitted.

Below, the SDP explains its position, which we also transmit in full.

Although the Croatian Arbitration Act, in its Article 40, in connection with Article 36, does not explicitly recognize the possibility of initiating proceedings to determine that the conduct of arbitration proceedings in a specific case is not permitted, such authority arises from the decision of the European Court, in case C-213/89, Factortame, of June 19, 1990: ‘Community law must be interpreted as meaning that a national court, in a dispute before it concerning Community law, which considers that a rule of national law is the only obstacle to the determination of provisional measures, is obliged to disapply that rule.’

Thus, the case law of the European Court, which forms part of the law of the European Union and is directly applicable in the Republic of Croatia, clearly indicates that a deficiency in national legislation (in this case in the Arbitration Act) must not constitute an obstacle to the implementation of those actions necessary to protect Union law.

Risk to the budget

In this case, such a position of the European Court in the Factortame case, as well as the position in the Achmea case, requires us to initiate proceedings before the competent Croatian court to seek a determination that the conduct of arbitration proceedings no. ARB/20/6 (but also other similar proceedings) is inadmissible. When we add the fact of the financial risk of that procedure for the Republic of Croatia (which you yourself emphasized before the Parliamentary Justice Committee when you stated that the claimant’s request could amount to several billion euros), its budget, and thus its citizens, and when it is clear that that decision could be contrary to the Croatian public order, it is evident that in this case initiating proceedings to seek a determination that the conduct of the arbitration in question is not permitted does not only represent a protection of the legal order of the European Union but also a clear protection of the interests of the Republic of Croatia, which is an obligation under Article 125 of the Constitution of the Republic of Croatia.

For comparison, such a position was also taken by the Federal Supreme Court of Germany in cases I ZB 43/22, 74/22, and 75/22 of July 27, 2023, where it directly applied European law to determine that German courts have international jurisdiction over arbitration proceedings and that, in the case of investment disputes between member states, they have the authority to decide on the admissibility of arbitration even before a judgment is rendered in the specific arbitration proceedings. To avoid any doubt: this primarily concerns the application of European, not German law!

Therefore, considering the above, I call on the title to, as soon as possible:

– use your powers arising from the positive law of the Republic of Croatia and the legal order of the European Union and initiate proceedings before the competent court to determine that the conduct of arbitration proceedings in the ICSID case no. ARB/20/6 (but also other similar proceedings) is not permitted,

– to request from the competent court at the time of initiating the said proceedings to address the European Court, so that the protection arising from the initiation of proceedings to determine that the conduct of arbitration proceedings is not permitted is extended to all EU member states,

– to seek a stay of proceedings before the arbitration court until the completion of the proceedings before the European Court.

The previous content is, to reiterate, the SDP’s letter to the Chief State Attorney Zlata Hrvoj Šipek. The leader also requested a comment from the DORH on the SDP’s proposal, as well as from some prominent commercial law experts, which we will publish as soon as we receive them.