Frankfurt Court of Appeals Upholds Arbitration Clause in BIT Arbitration – Eureko v. Slovak Republic

In a judgment last week, the Frankfurt Court of Appeals (Oberlandesgericht) found against the Slovak Republic, and confirmed an arbitral award in favour of the validity of an arbitration clause in a bi-lateral investment treaty (BIT). The court held that a Dutch health insurance provider was entitled to commence arbitration proceedings against the Slovak Republic in relation to alleged breaches of the BIT.  Both the tribunal and the court dismissed the Slovak’s argument that its membership in the EU deprived the tribunal of jurisdiction.

In line with the German tradition of anonymous case reporting, the Frankfurt court’s press release does not give away the parties’ names, but the judgment is in the matter of Eureko B.V. v. The Slovak Republic, an UNCITRAL arbitration under the Netherlands/Czech and Slovak Republic BIT. In the arbitration, Eureko was seeking damages caused by an alleged “systematic reversal of the 2004 liberalisation of the Slovak health insurance market that had prompted Eureko to invest in the Slovak Republic’s health insurance sector.”

In the arbitration proceedings, the Slovak Republic had argued, in the words of the award, that the tribunal lacked jurisdiction, “because, inter alia: (i) the European Community treaty governs the same subject matter as the BIT and therefore the BIT should be considered terminated and/or inapplicable pursuant to Articles 59 and 30 of the Vienna Convention on the Law of Treaties, (ii) the arbitration clause in the BIT cannot apply because it is incompatible with the EC Treaty, as the ECJ has exclusive jurisdiction over Eureko’s claims, and (iii) clauses such as Article 4 of the BIT relating to free transfer of capital have been held by the European Court of Justice  to be incompatible with EU law, which is supreme.”

The tribunal was not persuaded. It found it had jurisdiction and issued an “Award on Jurisdiction, Arbitrability and Suspension” to that effect. The Frankfurt Court of Appels concurred with that opinion and did not set the award aside.

It held that the Slovak Republic could not rely on Art. 344 of the Treaty on the Functioning of the European Union. This article provides that members states shall not “submit a dispute concerning the interpretation or application of the Treaties to any method of settlement other than those provided for therein.” The court found that Art. 344 did only apply to disputes amongst member states, but not to disputes between a member state and a private party. The possibility of violations of EU law by an arbitral tribunal did also not give rise to immediate jurisdiction of the European Court of Justice (ECJ). Any such violations would need to be addressed by seeking judicial review in the courts of the member states. These, in turn, had authority to submit questions of EU law to the ECJ. Finally, the court stated that the position of the Slovak Republic was not supported by the ECJ’s own case law.

The tribunal’s award dated October 26, 2010, which the Slovak Republic had challenged and which was now confirmed by the Frankfurt Court of Appeals, has been published - so much for transparency in treaty arbitration. It contains a full description and analysis of the parties’ arguments on the “intra-EU jurisdictional objection.”

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