Opinion of Bundesgerichtshof of 3.03.2016, Dutch Insurance Company/Slovakia extending the jurisdiction of arbitration tribunals

Surprise... surprise... not really!

In its opinion of 3 March 2016 attached to a request for a preliminary ruling addressed to the CJEU, the German Federal Court of Justice maintains the validity of arbitration clauses in so-called intra-EU BITs. The examination of validity has been projected against the Articles 344 TFEU, 267 TFEU and 18 TFEU. The German Federal Court of Justice considers that the arbitration clauses are compatible with Articles 344 (CJEU's exclusive jurisdiction to interpret and apply the Treaties in relation to disputes submitted by Member States) and 267 TFEU (CJEU's exclusive jurisdiction to interpret the Treaties  and examine the validity of secondary law provisions in relation to disputes pending before a national court), but possibly incompatible with Article 18 TFEU (prohibition of discrimination on grounds of nationality).

Article 344 TFEU

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.

The German Federal Court of Justice argues first that an investor-State arbitration is not initiated by a Member State, but by a private person. The narrowness of the right to bring an action for annulment under Article 263 TFEU and the lack of jurisdiction of CJEU to examine an action against a Member State brought by a private person (compare with Articles 258 and 259 TFEU, the Commission and other Member States may bring such actions) or to examine actions for damages based on the non-contractual liability of a Member State (compare with Article 340 TFEU) create a void in terms of judicial protection of individual rights, in particular the judicial protection of private investors. 

The treaties offer nonetheless wide substantive protection that overlaps with the protection provided by the intra-EU BITs. This overlapping caused a tiresome arm-wrenching between the Commission and the arbitral tribunals in a series of State aid cases, where an extra-EU BIT became an intra-EU BIT following the accession of the host Contracting State to the EU. 

Since a private investor cannot submit a dispute concerning the interpretation or application of the Treaties direct to the CJEU, excepting the chilly locus standi offered by 263 TFEU, therefore the German Federal Court finds no conflict with the exclusivity of CJEU to examine such disputes.

Article 267 TFEU

The Court of Justice of the European Union shall have jurisdiction to give preliminary rulings concerning the interpretation of the Treaties...

The BIT arbitration clause is compatible with Article 267 TFEU according to the opinion of the German Federal Court. It projects a comparison between disputes solved by arbitration initiated against a private person and investor-State disputes and it finds that only in exceptional cases, the interests of the ordre public  - the coherent application of EU law ensuring the good functioning of the internal market - may weigh more than the effectiveness of the enforcement of arbitral awards.  In these exceptional cases, the national court seized with the recognition and enforcement of the award may submit a referral for a preliminary ruling.

Article 18 TFEU

Within the scope of application of the Treaties, and without prejudice to any special provisions contained therein, any discrimination on grounds of nationality shall be prohibited.

The German Federal Court considers that arbitration clauses are as a matter of principle incompatible with the prohibition of discrimination enshrined in Article 18 TFEU. However, the Court points out that the appropriate solution to eliminate discrimination is to ensure the same treatment to all investors who are situated in a similar position. The remedy against discrimination would be the extension of the judicial protection offered by arbitration clauses in intra-EU BITs to all EU investors who are situated in a comparable situation with the investor whose protection is covered by the BIT.

Comments

This solution may seem to be surprising at first sight. However, if we compare it with the solutions proposed by the CJEU in cases where certain state measures involved a disadvantage to certain competitors and an advantage granted to others, it will be clear that the double unlawfulness must be excluded.

Either the case reveals unlawful  discrimination that must be eliminated by extending the circle of the persons entitled to that advantage or the case indicates the presence of an unlawful advantage taking the form of incompatible State aid. In this case, the advantage must be withdrawn. Discrimination is unlawful unless justified and the obligation to eliminate discrimination enjoys priority over the State aid prohibition that has a conditional character. This is why in my article published in EStAL 1/2016, I concluded that State aid procedures are not the appropriate tool to eliminate unlawful discrimination in relation to arbitral disputes based on BITs concluded between acceding states and Member States or other intra-EU BITs. If discrimination is unlawful, there is an absolute obligation to eliminate it and its elimination infers the eradication of the potentially unlawful advantage (State aid).

The fact that an arbitral tribunal may fail to interpret correctly EU law and that its award relies on an erroneous interpretation of Treaty obligations and jeopardises the coherent application of EU law within the Union is a problem that can be addressed by allowing arbitral tribunals to refer for a preliminary ruling. The obligation/right to refer for a preliminary ruling must be brought into line with the unconditional recognition and enforcement of arbitral awards under those arrangements for dispute resolution that provide for such requirements.