From the moment eastern Europe joined the EU club, Brussels has been chafing at the 'BITs' – bilateral investment treaties – signed between eastern and western European countries. The European Commission (EC) has argued since 2006 that BITs between EU members undermine European law.

In the long-awaited Achmea judgment of March 6, the European Court of Justice (CJEU) finally agreed. In the broad name of autonomy, it denied arbitrators the power to judge a spat between a Dutch investor and Slovakia.

Advertisement

“The EU’s entire identity is predicated on full and complete autonomy as concerns the internal market,” says Columbia law professor George Bermann. “It hasn’t ceded authority to anybody – not to the UN, not to the European Court of Human Rights, not to the German Constitutional Court. All of a sudden, it met a private law regime that has given it a run for its money.”

Arbitrators are unanimous that international law trumps European law. “This is a regression of the rule of law for ideological reasons,’ says Emmanuel Gaillard, head of the international arbitration practice at law firm Shearman & Sterling. “It's a form of parochialism. It’s a mixture of ignorance and a power grab.”

The rule of law is implicated because foreign investors mistrust national courts. Judges in Bratislava did not magically transform when Brussels spread its umbrella. “There are few countries where the courts are completely independent in a dispute between the state and a foreigner – and the countries of eastern Europe certainly aren’t among them,” says Mr Gaillard. “Alas, the EU has no federal judiciary, so Achmea is likely to drive disputes into national courts."

How far will Achmea reach? “I wouldn’t necessarily say Achmea is a backlash to investment arbitration as such,” says attorney Markus Burgstaller of Hogan Lovells, cautiously. “It’s certainly a backlash to intra-EU BIT arbitration that has its seat in a member state.”

Perhaps Achmea will not apply to investment pacts signed by the EU itself, such as the European Charter Treaty. Perhaps it will not apply to agreements between countries in and out of Europe. Maybe European investors will go outside the EU (London anyone?) to exploit extra-EU treaties. Or maybe they can find shelter from hostile courts in the self-contained system of the International Centre for Settlement of Investment Disputes. 

But the principle of legal autonomy has no logical stopping point – and the EC has many levers of power. It can narrow the definition of 'investor', to stop EU companies that have no foreign arm from setting one up for the purpose of suing; it can sue members who keep intra-EU treaties for infringing EU law; or it can order states not to pay awards to investors issued by those it sees as powerless. In the notorious Micula case, Brussels did just that, forbidding Romania to obey uppity arbitrators. If investors try to seize assets abroad, non-EU courts will likely defer to the CJEU after Achmea.

Having counselled the investors in Micula, Mr Gaillard is fatalistic about Achmea. “I think it's quite far-reaching,” he says. “Once courts decide, it’s hard for states to resist. This is the way EU law was built in every field.”

Michael D Goldhaber serves as US correspondent for the International Bar Association. He has been tracking the world’s largest disputes since the turn of the millennium. Email: michael.goldhaber@gmail.com