German Federal Supreme Court rejects Achmea's complaint that its right to be heard was violated

At the end of January, the German Federal Court of Justice (BGH) issued another decision in the matter of Achmea B.V. v. The Slovak Republic. As already reported, in its decision of 31 October 2018 the BGH annulled the arbitral award made in favour of Achmea against the Slovak Republic implementing the preliminary ruling of the European Court of Justice (ECJ).

Achmea then lodged a complaint that the BGH’s decision to set aside the award violated its right to be heard. In a decision of 24 January 2019, the BGH has now rejected that complaint (Case No. I ZB 2/15).

Achmea's ordinary legal remedies before the German courts exhausted

The complaint pursued by Achmea (“Anhörungsrüge”) enables a party to assert violations of its constitutional right to be heard by a court decision if no further appeal is admissible against the decision. Achmea, a company incorporated under Dutch law, based its complaint essentially on three grounds, submitting that the BGH had failed to adequately address its submissions on:

• the denial of effective legal protection and the protection of legitimate expectations,
• the state immunity of the Netherlands, and
• customary international law.

However, none of these reasons persuaded the BGH to deviate from its previous findings and to reopen the set-aside proceedings.

Denial of effective legal protection

Achmea complained that the BGH had not taken into account its submission that the ECJ's decision denied it effective legal protection and that the protection of legitimate expectations required providing transitional provisions for arbitral proceedings in which an award has already been rendered. The BGH, however, pointed to its previous ruling in October 2018 that – in line with the ECJ ruling – Achmea could obtain effective legal protection before the Slovak courts and was thereby not deprived of its substantive claims. The BGH took note of Achmea's submission on structural deficits of the Slovak judiciary but stated that this would not allow the Court to deviate from the ECJ’s assessment.

State immunity of the Netherlands

Achmea’s argument that the BGH had not sufficiently addressed its submission on the principle of state immunity under international law, according to which the courts of one state may not review the sovereign acts of another state, was equally unsuccessful. The BGH pointed out that the subject of the set-aside proceedings was not the validity of the bilateral investment treaty (BIT) concluded between the Slovak Republic and the Netherlands, but the invalidity of the arbitral award. In this context, the validity of the BIT's arbitration clause was only a preliminary question not covered by the principle of state immunity.

Customary international law

Finally, the BGH rejected Achmea’s complaint that the BGH had ignored its submission on customary international law.

In its decision of 31 October 2018, the BGH had already addressed Achmea's argument that the ECJ ruling amounted to a general rule of international law, which – as a component of federal law pursuant to the German Constitution – could be the subject of a referral to the German Federal Constitutional Court. It held that, due to its territorially limited effect, a decision of the ECJ lacks the universal quality of customary international law.

The BGH further rejected Achmea’s complaint that the Court had disregarded its submission that the ECJ ruling violated the customary international law principle of pacta sunt servanda (“treaties must be kept”) enshrined in Article 26 of the Vienna Convention on the Law of Treaties. The BGH held that by acceding to the EU, member states waived their rights under international law among each other when such rights are in conflict with EU law. Accordingly, there can be no customary international law between the member states that contradicts EU law.

Evaluation of the decision of the Federal Court of Justice of 24 January 2019

In its decision of 24 January 2019, the BGH made clear that it has no doubts about its decision to set aside the Achmea award based on the invalidity of the arbitration clause in the underlying intra-EU BIT. From the BGH's point of view, the last word in this case has been spoken. With Achmea having exhausted all ordinary legal remedies before the German courts, the only remaining option is a constitutional complaint to the German Federal Constitutional Court, which reportedly is already pending.

Controversy about the ECJ’s Achmea ruling continues at international level

There has been a lively debate about the consequences of the ECJ's Achmea ruling amongst various actors such as the European Commission, national courts and international arbitration tribunals (see here for a previous post on that subject). Two recent developments deserve to be highlighted:

Emerging position of the European Commission and member states on the scope of the Achmea ruling

In three declarations published on 15/16 January 2019, member states declared, inter alia, that they are terminating their intra-EU BITs by 6 December 2019, drawing the attention of arbitral tribunals in ongoing intra-EU arbitral proceedings initiated by “their” investors to the consequences of the Achmea decision and pursuing annulment or non-enforcement of existing intra-EU arbitral awards contrary to EU law. While 22 member states (including Spain, Italy and Germany) assumed these obligations also with regard to intra-EU arbitral proceedings on the basis of the multilateral Energy Charter Treaty (ECT), Finland, Luxembourg, Malta, Slovenia, Sweden and Hungary issued two separate declarations stating that they did not wish to anticipate an assessment by the ECJ in this regard.

On 18 March 2019, the D.C. District Court in the US approved the European Commission’s request to file an amicus curiae brief in the US enforcement proceedings in Eiser v. Spain. In these proceedings, the Commission has now stated that it is the official EU position that the ECJ's Achmea ruling also applies to intra-EU arbitral proceedings based on the ECT. The EU Council, made up of ministers from all member states, unanimously endorsed the Commission’s view as the official position of the EU. The six member states, which had made divergent declarations in January, referred to their respective declarations.

Annulment proceedings before the Swedish courts

Poland and Spain applied to the Swedish Court of Appeal in Stockholm (Svea hovrätt) for the annulment of the arbitral awards in PL Holdings v. Poland and Novenergia v. Spain.

In the first case, the Court of Appeal, in a judgment on 22 February 2019, refused to set aside the two arbitral awards rendered in this case, holding that Poland’s objection to the tribunal’s jurisdiction in the arbitration proceedings was belated. The Swedish court stated that it was not obliged to review, on its own motion, the validity of the arbitration agreement between PL Holdings and Poland. Furthermore, the arbitral awards are not contrary to Swedish public policy (as influenced by EU law) since the content of the arbitral awards does not violate fundamental principles of EU law. According to the court, any invalidity of the arbitration agreement would not render the awards manifestly incompatible with Swedish public policy.

The annulment proceedings in Novenergia v. Spain are likely to lead to a second referral to the ECJ in which the Court would then have to rule on the compatibility of the arbitration clause in the ECT with EU law.

Outlook for the future

Recent developments show that a year after the ECJ's Achmea ruling with member states having officially announced the end of intra-EU BITs, many outstanding issues remain to be clarified regarding existing intra-EU awards and ongoing arbitral proceedings. The controversy appears to be shifting towards the enforcement level, with member states challenging arbitral awards rendered against them in various forums. Even though the Achmea case has come to an end before the German courts (save for the possibility of a deviating decision by the German Federal Constitutional Court), the discussion will surely continue in other proceedings.

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