Achmea Sentence: The Beginning of the End for European Investment Arbitration?


Achmea Sentence: The Beginning of the End for European Investment Arbitration?

For a few years now, a diverse collection of foreign investors have brought more than thirty arbitration claims against Spain as a result of the changes introduced in our country to the regulatory system of electricity production through renewable energy. In effect, the economic crisis led to two significant cuts (one in 2010 and a second in 2013 and 2014) to the incentives that had originally been granted for renewable energy production. As a result of these changes, investors, under the Energy Charter Treaty, initiated arbitration proceedings against Spain, predominantly at the Stockholm Chamber of Commerce and at the ICSID, created by the Washington Treaty. Up until now, four rulings have been made. The most recent two have found against Spain, mostly because it is the arbitrators understanding that the cuts made in 2013 and 2014 violated the obligations deriving from the aforementioned Treaty.

On March 6th, the European Court of Justice issued a sentence that may be extremely favorable to Spanish interests. It found that provisions laid out in treaties that allow an investor from one Member State to bring proceedings against another State (in the event of a dispute over investments made in the latter State) before an arbitral tribunal whose jurisdictions the State has agreed to accept, are contrary to the Treaty of the European Union. Consequently, the European Court has severely limited the scope of investment arbitration in situations which involve two Member States.

The ruling originates from a lawsuit brought by a Dutch investor against Slovakia. The Netherlands and the Republic of Slovakia were linked by an Agreement on Reciprocal Promotion and Protection of Investment, which the Netherlands signed with the at-then Czechoslovakia. The Agreement established that in the event of a dispute between an investor and the host State, arbitration could be employed to find a resolution.

In essence, the Court of Justice has based its decision on the fact that an international agreement cannot violate the order of competences established by the European Treaties (Treaty of the European Union and Treaty on the Functioning of the European Union), nor the autonomy of the Law of the European Union, both in relation to the laws of the Members States and with respect to International Law. This autonomy is justified by the essential nature of the Union and its Laws. Consequently, an international agreement cannot violate the order of competences set by the European Treaties. On the other hand, an investment arbitration court is not a court of a Member State and, as such, when it has to apply EU law, it will not have the power to request a preliminary ruling from the European Court of Justice, which may put in jeopardy the interpretation and uniform application of European regulation and law.

The ruling takes care to distinguish between investment arbitration and commercial arbitration, in as much as the latter originates in the autonomy of the parties’ will, whereas the former results from an international agreement under which Member States withdraw from the jurisdiction of their own courts (and consequently from the appeal system that is designed to guarantee effective judicial protection in areas regulated by Union Law) those disputes in which the Court of Investment Arbitration must interpret and apply said Laws.

The ruling with which we are currently concerned refers exclusively to investment disputes in which only Member States of the EU are involved, so there is a degree of doubt as to what the solution would be if one of the countries involved were a non-Member. The ruling does not mention it at all, but many of its arguments could potentially be applicable to Bilateral Investment Agreements with third-party States.

This ruling is undoubtedly very favorable for Spanish interests, and legal representatives have seemingly already invoked it in ongoing arbitration proceedings. However, at least a part of the problem will remain since, in addition to reputational damage, investors who have obtained, or go on to obtain, favorable rulings and awards, may seek to redeem them against Spanish assets located outside the Unions; diplomatic conflicts might arise and the image of Spain as a destination for foreign investments may be adversely affected.

On the other hand, the fact that foreign investors cannot turn to arbitration does not mean that their claims will be systematically rejected. By turning to Courts of Member States and, where appropriate, to the European Court of Justice, they may be able to obtain favorable judgments in cases in which they can prove that there has been a violation of Union Law. This will be especially relevant in cases which relate to community liberties, and in particular the free movement of capital and freedom of establishment. In this sense, the question we must now ask is whether we are facing the beginning of the end of European investment arbitration.



José María Viñals Camallonga

Partner and Director of the Madrid Office    


José Luis Iriarte

Of Counsel



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