Intra-EU Investment Arbitration: Frankfurt Court of Appeals Finds BIT-Based Arbitration Inadmissible

An Austrian and a Croatian bank commenced arbitral proceedings against the Republic of Croatia seeking damages on the basis of the 1999 Agreement between the Republic of Austria and the Republic of Croatia for the Promotion and Protection on Investments (BIT); the arbitral tribunal was to be seated in Frankfurt am Main. Croatia applied to the Frankfurt Court of Appeals (Oberlandesgericht) to find that the arbitral proceedings were inadmissible (Sec. 1032 para. 2 German Code of Civil Procedure, ZPO). Croatia relied on the 2018 Achmea decision of the European Court of Justice (ECJ) – the well-known case which also originated in the Frankfurt Court of Appeals and came to the ECJ via a reference from the German Federal Supreme Court (Bundesgerichtshof).

In Achmea, which involved an arbitration provision in the bi-lateral investment treaty (BIT) between the Slovak Republic and the Netherlands, the ECJ held that an arbitration clause in an intra-EU BIT has an adverse effect on the autonomy of EU law. As a consequence, Articles 267 and 344 TFEU had to be interpreted as precluding arbitration clauses in intra-EU BITs under which an investor from a member states concerned, in the event of a dispute concerning investments in the other member state, may commence arbitral proceedings against the latter member state. The Frankfurt Court of Appeals followed the reasoning in Achmea and stated in today’s press release:

“The Court of Appeals granted this application in a decision issued today. It found that there was no valid arbitration agreement between the parties. Article 9 para 2. of the BIT* violates EU law in accordance with the legal principles of the ECJ (judgment of 6 March 2018 – C-284/16 – Achmea). The ECJ decision had to be understood as a decision of principle and had significance beyond the individual case for all BIT agreements between EU Member States, hence also for this case.

According to this decision, an international agreement between EU Member States must not affect the “autonomy of the Union’s legal order and its judicial system, which serves to ensure consistency and uniformity in the interpretation of Union law”. Within this court system, it is up to the national courts and the ECJ to ensure the full application of Union law. In this context, the so-called preliminary ruling procedure plays a key role in ensuring the uniform interpretation of Union law. Pursuant to Art. 267 TFEU, national courts refer questions to the ECJ in connection with the interpretation of Union law.”

The court went on to say that in the dispute at hand, it was possible that an arbitral tribunal deciding the dispute would have to apply not only Austrian or Croatian law, but also Union law. The arbitral tribunal was however precluded from seeking a preliminary ruling under Article 267 TFEU, as an arbitral tribunals does not qualify as a court of a Member State within the meaning of Article 267 TFEU. The fact that no binding interpretation of Union law can be obtained from the ECJ is sufficient to constitute an interference with the autonomy of Union law. That the applicable national law – which would be German law as the lex arbitri governing the review of an arbitral award  – is not sufficient to render Article 9 par. 2 BIT compatible with Union law.

The Frankfurt court’s decision can be challenged in the Federal Supreme Court (Bundesgerichtshof); Croatia can file an application for judicial review (Rechtsbeschwerde), but I fail to see on what basis the Federal Supreme Court would distinguish Achmea and fail to follow the ECJ’s precedent.

***

*Article 9 Austrian-Croatian Bilateral Investment Treaty reads as follows:

“(1) Any dispute arising out of an investment, between a Contracting Party and an investor of the other Contracting Party shall, as far as possible, be settled amicably between the parties to the dispute.

(2) If a dispute according to paragraph 1 of this Article cannot be settled within three months of a written notification of sufficiently detailed claims, the dispute shall upon the request of the Contracting Party or of the investor of the other Contracting Party be subject to the following procedures:

(a) to conciliation or arbitration by the International Centre for Settlement of Investment Disputes, established by the Convention on the Settlement of Investment Disputes between States and Nationals of other States, opened for signature in Washington on 18 March 1965. In case of arbitration, each Contracting Party, by this Agreement irrevocably consents in advance, even in the absence of an individual arbitral agreement between the Contracting Party and the investor, to submit any such dispute to this Centre. This consent implies the renunciation of the requirement that the internal administrative or juridical remedies should be exhausted; or

(b) to arbitration by three arbitrators in accordance with the UNCITRAL arbitration rules, as amended by the last amendment accepted by both Contracting Parties at the time of the request for initiation of the arbitration procedure. In case of arbitration, each Contracting Party, by this Agreement irrevocably consents in advance, even in the absence of an individual arbitral agreement between the Contracting Party and the investor, to submit any such dispute to the tribunal mentioned.

(3) The award shall be final and binding; it shall be executed according to national law; each Contracting Party shall ensure the recognition and enforcement of the arbitral award in accordance with its relevant laws and regulations.

(4) A Contracting Party which is a party to a dispute shall not, at any stage of conciliation or arbitration proceedings or enforcement of an award, raise the objection that the investor who is the other party to the dispute has received in virtue of a guarantee indemnity in respect of all or some of its losses.”

Order (Beschluss), Court of Appeals (Oberlandesgericht) Frankfurt am Main, order dated 11 February 2021, file no. 26 SchH 2/20

Photo: Mylius, Gerechtigkeitsbrunnen (Fountain of Justice), Frankfurt am Main, detail of the Lady Justice, CC-BY-SA

 

Leave a Reply

Your e-mail address will not be published. Required fields are marked *


1 + = six

This site uses Akismet to reduce spam. Learn how your comment data is processed.