{"id":9419,"date":"2024-01-13T08:48:53","date_gmt":"2024-01-13T07:48:53","guid":{"rendered":"https:\/\/www.iisd.org\/itn\/?p=9419"},"modified":"2024-08-09T18:33:22","modified_gmt":"2024-08-09T16:33:22","slug":"espanol-another-tribunal-to-reject-the-achmea-based-jurisdictional-objection","status":"publish","type":"post","link":"https:\/\/www.iisd.org\/itn\/2024\/01\/13\/espanol-another-tribunal-to-reject-the-achmea-based-jurisdictional-objection\/","title":{"rendered":"Another tribunal to reject the Achmea-based jurisdictional objection"},"content":{"rendered":"

Adria Group B.V. and Adria Group Holding B.V. v. The Republic of Croatia, Decision on Intra-EU<\/span> Jurisdictional Objection, ICSID<\/span> Case No. ARB\/20\/6<\/h2>\n

The decision concerns preliminary objection based on the alleged incompatibility with EU law of the 1998 Croatia-Netherlands BIT<\/span><\/a> following the Achmea <\/em>decision. While there have been several arbitral decisions deciding on this objection (see, e.g., here<\/a>), with the vast majority rejecting it (the sole tribunal to uphold the objection was Green Power v. Spain<\/a>), this is the first case that was brought after 22 EU member states issued the Declaration on the Legal Consequences of the CJEU<\/span> Judgment in <\/a>Achmea <\/em><\/a>on Investment Protection in the European Union<\/a> (2019 Declaration) in January 2019 but before the Agreement for the Termination of Bilateral Investment Treaties Between the Member States of the European Union<\/a> (Termination Treaty) came into force for the parties to the BIT in March 2021. As a result, the tribunal had to deal with a set of novel arguments that had not been addressed in earlier jurisprudence. Both the European Commission and the Netherlands were permitted to intervene in the proceedings as non-disputing parties.<\/p>\n

Background and claims<\/h3>\n

The ICSID dispute concerns expropriation, fair and equitable treatment, and full protection and security claims related to the treatment of two Dutch companies\u2019 investments in the Croatian company Agrokor. Agrokor was established by Ivica Todorovi\u0107\u2014a Croatian national\u2014in 1976 as a joint stock company. Todorovi\u0107 owned 100% of the company\u2019s stock and became its CEO in 1989. Agrokor has operated in various sectors, including agriculture, food and beverages, retail, asset trading, and hospitality. Over time, Agrokor grew into a multi-billion-euro retail conglomerate, such that in 2014, it was decided to take it public. Two companies were incorporated in the Netherlands\u2014Adria Group B.V. and Adria Group Holding B.V. Todorovi\u0107 transferred his 95.52% shareholding to the former company, which in turn transferred it to the latter. In addition, Adria Group Holding B.V. invested over EUR 183 million in Agrokor, increasing its share capital. There were three IPOs, the first taking place in 2016. In the dispute, the two companies (the claimants) allege that high-level Croatian governmental officials became privy to the details of the IPO, despite them not being made public, and \u201cconspired to orchestrate a takeover of Agrokor.\u201d The claimants allege that the officials made false accusations and systematically harassed Todorovi\u0107, who remains the claimants\u2019 CEO.<\/p>\n

Objection to jurisdiction based on EU law<\/h3>\n

The disputing parties agreed to bifurcate the proceedings, such that the tribunal first deals with the preliminary objection that the arbitration offer in the BIT is not valid due to its incompatibility with EU law following the Achmea <\/em><\/a>judgment<\/a>. Specifically, Croatia argued that, first, the 2021 Termination Treaty operates ex tunc, <\/em>retroactively neutralizing the offer in Article 9 of the BIT. Second, it argued that the 2019 Declaration operates like a joint statement on the interpretation and application of the BIT under Article 31(3)(a) and (b) of the VCLT<\/span><\/a> and expresses the states\u2019 view that EU law prevails over the BIT, and, alternatively, expresses the states\u2019 agreement that Article 9 of the BIT is suspended.<\/p>\n

The claimants, in turn, argued that EU law and the Achmea <\/em>judgment are irrelevant, as the dispute\u2019s applicable law is public international law, whereas EU law forms a separate legal order. The claimants held that the arbitration agreement had been formed before the Termination Treaty came into force and the 2019 Declaration is merely a political statement of intent\u2014the EU ambassadors who had signed it lack full powers\u2014and, in any event, there is no indication in the text of the declaration that the member states intended to suspend the BIT\u2019s provisions. Additionally, the claimants thought that the treaty\u2019s sunset clause is applicable and protects the arbitration offer in Article 9 of the BIT and further argued that Croatia had not acted in good faith in bringing the EU law-based preliminary objection, knowing it could not succeed.<\/p>\n

Tribunal\u2019s analysis<\/h3>\n

The tribunal first swiftly rejected the claimants\u2019 contention of bad faith, holding that there are significant novel issues to be decided and, either way, the parties themselves agreed to bifurcate the proceedings through an agreement that specifically mentioned the EU law elements of the objection (para. 105). Then, the tribunal moved to assess the relevance of EU law to the preliminary objection. Doing so, it rejected the claimants\u2019 \u201crigid distinction\u201d and opined that EU law possesses a dual character (para. 117)\u2014on the one hand, it is based on treaties that are part of public international law and are governed by it, on the other hand, it also possesses the characteristics of constitutional law in that it includes legal principles that are derived from EU law rather than from the VCLT or general international law (among these are, e.g., the EU law principles of interpretation, and the principle of primacy and supremacy). In this sense, the tribunal noted that it is not part of this EU legal order and is not bound by the EU law constitutional-like principles.\u00a0 Consequently, a conflict between EU treaties and BIT (or the ICSID Convention<\/span><\/a>) must be judged as a matter of international law. At the same time, citing the decision in Vattenfall<\/em><\/a>, <\/em>it considered that CJEU decisions on the interpretation of EU treaties are part of relevant international law because the EU treaties entrusted the CJEU to give definitive rulings on the interpretation of those treaties (para. 122). This does not mean, nevertheless, that the tribunal must accept the CJEU\u2019s views on the primacy of EU law over other international obligations. It states that<\/p>\n[e]ven in the case of a bilateral treaty between two EU Member States, if that treaty creates rights for third parties, the question whether the third parties can be deprived of those rights because of EU law is not one which can be answered by EU law alone\u201d (para. 123).<\/p>\n

After addressing these preliminary matters, the tribunal structured its analysis in three parts. First, it dealt with the question of whether EU law, even without the 2019 Declaration and Termination Treaty, nullifies Article 9 of the BIT. Second, it asked if the Termination Treaty could be considered as negating the arbitration offer in Article 9 when the arbitration was initiated before its coming into force. Third and finally, it turned to whether the 2019 Declaration and other state practice could negate the offer in Article 9.<\/p>\n

Effects of the CJEU judgments and EU law<\/h3>\n

The tribunal first addressed the argument underpinning both Croatia\u2019s and European Commission\u2019s submissions: given the views expressed in the Achmea <\/em>judgment, <\/em>the arbitration offers in intra-EU BITs are not valid from the moment of acceding to the EU\u2014in the case of Croatia since July 31, 2013. This argument was based on Article 59 of the VCLT\u2014the termination or suspension of the operation of a treaty implied by a conclusion of a later treaty. The tribunal did not accept the view that the parties to the BIT intended the TFEU<\/span><\/a> to terminate or suspend the BIT, as the various documents confirm the EU member states\u2019 understanding that intra-EU BITs must be actively terminated, and this happened only with the Termination Treaty in 2021. As the tribunal states: \u201cOne cannot terminate something which has already been terminated\u201d (para. 161).<\/p>\n

The tribunal then goes on to answer the question of whether, after the Achmea <\/em>judgment was rendered, the TFEU assumes primacy over the BIT, so as to render Article 9 of the BIT ineffective (para. 165). While the tribunal recognized the EU law principle enunciated in the CJEU decision Bud\u011bjovick\u00fd Budvar<\/em><\/a>, <\/em>according to which EU law prevails over the treaties concluded by the member states, it viewed this principle precisely as an EU law principle of a constitutional law nature rather than a rule of international law. For the tribunal, this principle would have to rely on, for instance, the rule in Article 30 of the VCLT on the application of successive treaties relating to the same subject matter. The crux of this question was what is to be considered \u201csame subject matter\u201d under Article 30 of the VCLT. Here, the tribunal found refuge in the discussion of the BIT\u2019s substantive standards of protection and their comparison with the TFEU\u2014even though it was the BIT\u2019s dispute settlement clause that was at issue\u2014noting that the two instruments are not remotely similar. In a rather cursory manner, the tribunal rejected the argument.<\/p>\n

Effects of the Termination Treaty<\/h3>\n

The tribunal started with an observation that the Termination Treaty confirms its conclusion on the effect of the CJEU decisions and EU law discussed above, as many of the Termination Treaty\u2019s provisions would be meaningless had the intra-EU BITs already been terminated by virtue of the Achmea <\/em>judgment (para 183). The question here is, however, whether the Termination Treaty\u2019s provisions may have retroactive effects on the proceedings initiated before its entry into force. According to the tribunal, there are three potential ways this could happen. For the tribunal, none of them was, however, applicable in the present case. First, the retroactive effect on the Article 9 of the BIT, while legally possible, cannot be reconciled with the ICSID Convention and its Article 25 because the arbitration agreement, once concluded, becomes a separate agreement from the legal instrument on which it was based. Second, the Termination Treaty could be understood as a subsequent agreement or subsequent practice for the purposes of interpretation of the BIT (Article 31(3)a and b VCLT). Here, the tribunal notes that the Termination Treaty is not concerned with interpretation but with termination. For the tribunal, the Termination Treaty provides no guidance on interpretation and considers that excising a whole article from a treaty cannot be considered an act of interpretation in any manner (para. 205). The third argument (i.e., that the Termination Treaty simply confirms prior developments that deprived Article 9 of the BIT of effect) is found circular: if it was already established that Article 9 had no effect, then the Termination Treaty would be irrelevant and unnecessary; if it has not been established, then the tribunal cannot see how the Termination Treaty adopted after the arbitration agreement was created can make any difference given the rule in Article 25 ICSID.<\/p>\n

Effects of the 2019 Declaration<\/h3>\n

The issue here was whether the 2019 Declaration could\u2014together with the already rejected argument of the sole effect of EU law on Article 9 of the BIT\u2014make a difference. While the tribunal accords some legal significance to the declaration, it does not see it as swaying its overall conclusion as to the availability of the arbitration offer in Article 9 to the claimants at the time. The tribunal does not seem to be very strict as far as formalities of the instrument needed to suspend Article 9 of the BIT are concerned. It states that \u201cso long as the agreement of the parties to that treaty to suspend a provision is made clear, international law will give effect to it\u201d (para. 225). However, the tribunal does not find a clear expression to suspend Article 9 of the BIT in the 2019 Declaration. According to the tribunal, the term \u201csuspension\u201d appears nowhere, and instead, the declaration speaks about the \u201cinapplicability\u201d of intra-EU BITs\u2019 arbitration offers and that \u201cno new proceedings should be initiated.\u201d The tribunal implied that the word \u201csuspend\u201d must be used for this argument to prevail. Perhaps being aware of this highly formalistic approach, the tribunal aims to buttress its conclusion by stating that, in any event, the BIT creates rights for third parties\u2014the investors\u2014and hence the private law principle contra proferentem <\/em>should be applied (para. 227). In a peculiar sidenote on the \u201cnature of rights\u201d created by the BIT, the tribunal states that the idea that rights and obligations exist only between the parties to the treaty is an \u201capproach [that] belongs to an earlier era of international law in which States were considered to be the only \u2018subjects\u2019 of international law\u201d (para. 240).<\/p>\n

Conclusion<\/h3>\n

The decision is another addition to the growing line of jurisprudence that rejects the effect of developments at the EU level on the arbitration offers contained in intra-EU BITs. This decision can be distinguished on facts from the earlier cases due to the arbitration being initiated after the 2019 Declaration. However, this fact made ultimately no difference to the decision. The tribunal\u2019s strict approach to the interpretation of the declaration and a peculiar private law reading of the nature of the rights contained in the BIT might have a ripple effect on other cases brought before the Termination Treaty\u2019s coming into force.<\/p>\n

Tribunal\u2019s composition<\/h3>\n

Sir Christopher Greenwood (British national) \u2013 president; Charles Poncet (Swiss national) \u2013 claimant-appointed arbitrator; Christopher Thomas (Canadian national) \u2013 respondent-appointed arbitrator<\/p>\n

\n

Author<\/h3>\n

Josef Ostransky is a Policy Advisor at IISD<\/span> and Managing Editor of Investment Treaty News<\/em>.<\/p>\n