Indeed, at first glance the case of Achmea consistently tells the same story as all the recent case-law on the rule of law: Article 2 of the Treaty on European Union (TEU) in combination with the idea of a unified European judiciary as expressed in Article 19(1) TEU functioning with the help of the preliminary ruling procedure and the essential principle of mutual trust is absolutely fundamental for the proper functioning of the European legal order and the full protection of its values, principles as well as rights (Rizcallah and Davio 2020; Pech and Platon 2018a, b; Adam and Van Elsuwege 2018). This context is clear-cut and convincing, but the implications which the Court of Justice draws from it are probably less so.
In fact, the case undermines judicial protection in Europe and has a devastating effect for the level of judicial protection in Europe, especially the protection of the rights of investors, which used to be covered by intra-EU BITs between the Member States, as well as the implications for the successful operation of the internal market (Nagy 2018; Gáspár-Szilágyi 2018; Sadowski 2018). The reasons essentially come down to one: the Court gives strong preference to the forceful proclamation of mutual trust in the context when all the logic above is deployed in a matter distrustful of international law rights guarantees and is oblivious of the significant substantive problems apparent in the sphere of fundamental rights protection as well as the rule of law and the independence of the judiciary throughout the Union, in particular in Poland and Hungary. Having acquired substantive jurisdiction to look into the guarantees of judicial independence,Footnote 10 it extended the scope of the rule of law jurisprudence to include strict irremovability standards applicable to judges.Footnote 11 Substantive guarantees are policedFootnote 12 with a rich palette of interim relief measures, which include ex ante restitutions in institutional structures,Footnote 13 by EU law.Footnote 14 Preliminary rulings from the judges fighting for their own independence play a crucial role in these developments.Footnote 15 All in all, however, these developments—although significantly reinforcing the position of the Court of Justice—failed to protect the judiciaries in Hungary and Poland.Footnote 16
The Pyrrhic victories in the context of the fight for the rule of law in Poland and Hungary came to be reinforced in Achmea. The Court ruled that Article 19(1) TEU and Articles 344 and 267 of the Treaty on the Functioning of the European Union (TFEU) preclude reciprocal investment protection via arbitral tribunals established under the BIT concluded between the Netherlands and the Slovak Republic. As a consequence thereof, Member States and investors are pushed to rely on the local courts of the Member States instead, Article 19(1) TEU thus emerges in quite an interesting light (Fanou 2019, at p. 322 et seq). Autonomy of EU law is undermined even when there is the slightest risk of any court or tribunal not falling within the scope of this provision applying EU law.Footnote 17 Even more, the very existence of any alternatives to the courts falling within ‘within the judicial system of the EU’ (Andenæs and Contartese 2019, at p. 174)—the scope of Article 19(1) TEU—already, by definition is viewed by the Court of Justice as potentially undermining mutual trust between the Member States.Footnote 18
The protection of the proclamation of mutual trust and the perceived integrity of EU law enjoys priority over the sober analysis of the situation with the rule of law and judicial independence on the ground and de facto—but also de jure, given the level of protection of investors’ rights under EU law—move the idea of the protection of rights to the back seat. Implications of the case in the context of the rule of law are truly dramatic: deterioration of the rule of law in some Member States, which the EU does not have the tools to effectively counter, when combined with the outlawing of the BITs results in a simple cancellation of the whole idea of judicial protection in the places where it is needed the most. Moreover, as pointed out by AG Wathelet in his Opinion in Achmea, this move contradicts the pre-accession efforts of the Commission.Footnote 19 The pre-accession Europe Agreements focused precisely on encouraging the Central and Eastern European states to conclude BITs with the then EU Member States in order to prepare them for the accession to the EU.Footnote 20 Indeed, as AG Wathelet concluded in his Opinion and as was convincingly explained before that by one of his former referendaires Paschalis Paschalidis, it would have been possible to reconcile intra-EU BIT arbitration with the preliminary ruling system.Footnote 21 Accordingly, from a strictly legal point of view, there was no need at all for the CJEU to declare intra-EU arbitration incompatible with EU law. However, suddenly these very same BITs are now mauvais ton in the problematic post-Achmea world.
The outcomes of Achmea are thus far-reaching indeed: scholars speak about an outright war waged by the Court of Justice against the BITs and arbitral tribunals (Uzelac 2019). While it may be understandable from the point of view of the Court to protect its turf and its authority as being the highest judge as far as the interpretation and application if EU law is concerned, this attitude at the same time undermines the coherence of international law.Footnote 22 In this context, it is important to recall that in contrast to the BIT that was at issue in Achmea, most intra-EU BITs do not even list EU law as one of the possible sources of applicable law for arbitral tribunals. Therefore, the risk that arbitral tribunals might systematically misapply or misinterpret EU law is very low indeed.
Despite that, should the efforts of the Court be successful—as it appears to be the case, this would render non-existent the protection of investors’ rights which are not guaranteed by EU law in all the jurisdictions as well as all the other (fundamental) rights in the backsliding Member States. This is not only because of the problems with the rule of law in some of the backsliding Member States, whose hijacked courts are now the only guardians of the rule of law remaining, as we will discuss further in some more detail.
The problem also relates to the substance of EU law rights afforded to investors, which does not at all overlap with what is offered under the BITs, as the arbitral tribunal in Achmea compellingly demonstrated.Footnote 23 This overwhelmingly prevailing view has so far only been disputed by one dissenting opinion of Marcelo Kohen.Footnote 24
Most ironically—and in line with the BITs’ traditional role of promoting the rule of law—to which we will turn to in a brief while, the standards they establish are not in any way atypical or particularly high: they are similar, as Csongor István Nagy explains, to established standards of protection corresponding to ‘the ones already part of the constitutional traditions of Western democracies’ (Nagy 2018, at p. 984). Indeed, this is also confirmed by the judgment of the German Federal Constitutional Court (Bundesverfassungsgericht) in 2016 regarding the sudden closure of nuclear power plants in Germany following the Fukushima disaster. The Bundesverfassungsgericht concluded that the expropriated owners of the nuclear power plants must be compensated by the German State due to the violation of their right to property as protected under Article 14 of the German Constitution.Footnote 25 This case is essentially similar to the Vattenfall v. GermanyFootnote 26 case brought under the Energy Charter Treaty (ECT), which reportedly has been settled by Germany agreeing to pay 2,4 billion EUR in compensation in total of which Vattenfall will receive 1,6 billion EUR.Footnote 27 Obviously, by paying such a huge amount, Germany indirectly admitted at the international law level that it violated the rights of Vattenfall under the ECT, thereby confirming the findings of the Bundesverfassungsgericht, which it reached for the domestic level.
There should be no problem getting rid of these standards then, replacing them with EU law. The trouble is that EU law, in substance and beyond the rhetoric of mutual trust, is not, objectively, at that level yet.Footnote 28 The arbitral tribunal had no difficulty to find precisely this in Achmea.Footnote 29 Besides, and equally problematic, one should not forget the antagonistic zero sum world of global constitutionalism the Court is richly painting in Achmea. The obvious investment protection perspective has not found its way into the judgement of the Court at all, while it is unquestionable, to quote Emily Sipiorski, that.
‘Through the lens of global constitutionalism it could be argued that the arbitral tribunal was upholding fundamental rights and the rule of law from the perspective of the rights and protections of investors contained in investment agreements as protected by public international law’ (Sipiorski 2019, at p 222).
The question thus remains what to do with all those rights—in backsliding Member States, but also in others—which are no more available, presumably, following the rejection of international arbitration by the Achmea Court? The introduction of the EU’s own system of rights, which would come close to what has just been slashed, could make us wait a long time (Anderer 2010, at p. 881; Lavranos 2011). In the meanwhile—and moving beyond the rights per se—the effects of Achmea on the internal market could be quite drastic, since research shows that the BITs actually do matter, when investment decisions are taken (Mistelis 2020; Brower and Blanchard 2014). In fact, they definitely mean more than the Court’s proclamations of trust backed by nothing but the deterioration of the rule of law landscape in a handful of jurisdictions.
Following Achmea, the intra-EU BITs had to go. On 15 January 2019, the Member States adopted a political Declaration stating their intention to terminate all their ca. 190 intra-EU BITs by 6 December 2019 and emphasising that there is no need for any additional protection of the investors in the EU, given the rights and freedoms offered by EU law.Footnote 30 Moreover, the political Declaration contained the following far-reaching statements and commitments.
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First, the Member States declared that as a consequence of Achmea all arbitrations based on intra-EU BITs are—ab initio—incompatible with EU law and thus all pending and future disputes must be terminated or must be considered impossible.
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Second, the Member States stated in the Declaration that they would inform all courts—whether based within or outside the EU—that no intra-EU BIT awards may be recognized or enforced any longer.
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Third, the Declaration also stated that Member States will direct any companies, which they control, to withdraw any ongoing disputes against other Member States. This seemingly is directed to apply to the Vattenfall v. Germany case since Vattenfall is owned by the Swedish State, which would mean that the Swedish Government would have to direct the Board of Directors of Vattenfall to withdraw their on-going ECT dispute against Germany, whose award in the merits is expected any moment. Clearly, this would be an unprecedented political interference in the judicial process of an on-going arbitration.
In short, the Member States seized the Achmea judgment as an opportunity and justification to bring—once and for all—an end to all intra-EU BITs and any ongoing or future intra-EU BITs (and even intra-EU ECT) cases.
These political intentions were converted into a legally-binding text in the form of the so-called Termination Agreement, which on 5 May 2020 was signed by 23 Member States.Footnote 31 For obvious reasons, the UK did not sign up to this Termination Agreement and neither did Finland, Sweden, Austria and Ireland. The Termination Agreement has entered into force since the end of August 2020 for most of the signatory EU Member States.Footnote 32
The Termination Agreement essentially replicates the main intentions of the political Declaration referred above. Thus, all intra-EU BITs and all disputes based on them are declared incompatible with EU law and thus proclaimed moot. New intra-EU BIT arbitrations are declared not to be possible any longer. The most disturbing aspect of the Termination Agreement in the context of the elimination of previously guaranteed rights concerns the declared inapplicability of the sunset clauses contained in every intra-EU BIT (Stoppioni 2020). It is important to recall that the very purpose of sunset clauses (sometimes also referred to as survival clauses) is to guarantee that all investments, which were made prior to the termination of a BIT continue to be protected for significant period of time, typically ranging from 5, 10, 15 and up to 20 years.Footnote 33 The function of the sunset clause is to protect the legal expectations of the investors who made their investments based on the protection offered by the existing investment treaties. Indeed, many investment treaties also cover investments made prior to the entry into force of the treaty.Footnote 34
The reason why States have included sunset clauses in practically all their BITs is to protect the legal expectations of their investors when making their investments. Typically, foreign investments, in particular in the oil, gas and infrastructure sectors, are made with a long-term view, which often goes beyond the standard initial period of validity of a BIT of 10 or 15 years. In those circumstances, a termination of a BIT is always a possibility and without a sunset clause existing investments would be left completely unprotected. In other words, sunset clauses aim to ensure that investors of existing investments have a transitional period in which they can take the appropriate measures to accommodate to the situation after a BIT has been terminated. Sunset clauses also ensure that investors can still use the dispute settlement provisions in order to be able to obtain compensation in cases of (in) direct expropriation by the host State. Accordingly, investment claims can be successfully initiated even after the termination of the BIT. For example, in the Marco Gavazzi and Stefano Gavazzi v. Romania case,Footnote 35 the investors initiated arbitration under the Italy-Romania BIT in 2012 after the treaty had already been terminated in 2010. In April 2019, a Dutch investor filed an ICSID claim against Tanzania six months after the termination of the Tanzania-Netherlands BIT.Footnote 36
To protect investors’ expectations in the face of a sudden termination of the BIT is thus the sole purpose of the sunset clauses. Consequently—and in contrast to the stated intention of the EU Member States in the Termination Agreement—the termination of a BIT itself clearly does not prevent the filing of claims, unless the Contracting Parties of the BIT have agreed to remove the sunset clause before terminating the BIT.Footnote 37
The sunset clauses in the intra-EU BITs have not been removed and therefore are still fully applicable. Indeed, it is important to note that it is for each and every arbitral tribunal to decide whether or not it has jurisdiction. It is submitted that they will in all likelihood accept their jurisdiction, despite the risk that their awards may not be enforceable within the EU.Footnote 38 Any other conclusion would run counter one of the most basic fundamental elements of the rule of law, namely, the prohibition to retroactively remove procedural and substantive rights granted by virtue of binding international treaties. Consequently, the Termination Agreement further exacerbates the devasting impact of the Achmea judgment by giving all Member States—including those which are backsliding on the rule of law front—a carte blanche to continue on this path. The situation arose, when the European Commission, the Member States and the CJEU are jointly contributing to this unfortunate outcome, which is far removed from the most basic legality guarantees.
The actions by the Member States, the Commission and the CJEU taken as a whole have—whether intentionally or not—resulted into watering down the rule of law in investment protection in Europe. While anarchical in nature, when approached from the vantage point of the rule of law, is also entirely oblivious of the problems experienced by investors, in particular, in the backsliding Member States. Clearly, there might not only be no EU law there, but also no courts meeting the basic criteria of the rule of law and independence established by the Court of Justice in the most recent case-law building on the potential of Article 19 TEU. Besides, the Court and the Termination Agreement fail to see that there are whole lists of rights protected by the current BITs, which have no parallels in EU law even in the cases where the latter functions as proclaimed, as the AG in Achmea also made clear.Footnote 39
In the context where—regarding the backsliding of Member States at least—mutual trust and the rule of law alongside with other values are mere proclamations and the EU has no way to enforce them (Kochenov 2017, at p. 419)—the BITs and protection rights contained therein are thus brought on the altar of coherence of EU law for nothing. Most surprisingly, the very essence of the principle of autonomy of EU law seems to be approached by the Court in Achmea through the presumption of EU law’s deeply antagonistic relationship with other legal orders. Panos Koutrakos rightly points out in this context that:
‘The judgment in Achmea, therefore, put forward a richer and broader concept of autonomy than the previous case-law had suggested. Viewed from this angle, autonomy becomes, in essence, about conflict. The main features of the principle as they emerge in the judgement (the low threshold of tolerance for arbitration tribunals dealing with EU law issues, the broad language of the judgment, the purported need of domestic courts to have their EU law role protected in any theoretical set of circumstances) enable the Court to construe the relationship between EU law and international investment law as an antagonistic one.’(Koutrakos 2019, at p. 56)
He continues only to underline that it would be a mistake to see the conflict as the only paradigm of EU law’s relationship with international investment law. Countless other, more fruitful and mutually enriching, modes of engagement are possible and have been underlined in the literature, as well as in AG Wathelet’s Opinion in the case, entirely ignored by the bellicose Court.Footnote 40