Court Decisions Render Paris Less Appealing For Arbitration
On April 19, the Paris Court of Appeal simultaneously set aside two arbitral awards, finding that the tribunals lacked jurisdiction on the basis of the intra-EU nature of the disputes and the 2018 Court of Justice of the European Union, or CJEU, decision in Slovak Republic v. Achmea BV.
Consistent with the practice of other post-Achmea investment treaty tribunals, these arbitral tribunals confirmed they had jurisdiction to determine disputes on the basis of investment treaties, despite objections by Poland.
The Court of Appeal’s approach in Strabag SE, Raiffeisen Centrobank AG and Syrena Immobilien Holding AG v. Republic of Poland and Slot Group AS v. Republic of Poland is not surprising in light of the Achmea decision, but is likely to mark Paris as a less attractive seat for investor-state arbitration.
While the decision may be appealed to the French Court of Cassation, which has previously overturned such set-aside decisions by the lower court, the Court of Cassation also recently upheld another annulment of an investor-state award on public policy grounds.
Investors seeking to minimize obstacles may thus opt for non-EU arbitral seats such as London or Geneva.
Case Background and Decision
In the first case, in 2014, Strabag and Raiffeisen (and their joint venture vehicle Syren Immobilien) initiated ad hoc arbitration proceedings against Poland, administered by the International Centre for Settlement of Investment Disputes, regarding hotels in Warsaw under the Austria-Poland Bilateral Investment Treaty of 1988.
In March 2020, the tribunal rendered a partial award upholding its jurisdiction.
The tribunal rejected Poland’s objection that the arbitration clause in the treaty was inconsistent with EU law. It found that in this case EU law did not apply to the question of jurisdiction, and the parties clearly expressed their intention to submit their dispute to arbitration.
In the second case, in 2016, Slot Group, now insolvent, brought a claim against Poland under the Czech Republic-Poland 1994 Bilateral Investment Treaty, or BIT, under UN Commission on International Trade Law, for adopting a gambling law that restricted the operation of slot machines outside of casinos.
In February 2020, the tribunal upheld its jurisdiction, similarly rejecting Poland’s objections on EU law grounds and awarded Slot Group around €570,000 ($610,000).
In both cases, Poland initiated set-aside proceedings at the arbitral seat in Paris, arguing the tribunals had wrongly, and in violation of EU law, found that they had jurisdiction.
The Court of Appeal found in favor of Poland in both of these cases, setting aside the awards for lack of jurisdiction on account of the CJEU’s Achmea decision that investor state arbitration provisions in intra-EU BITs are incompatible with EU law, as summarized below.
No Subsequent Agreement to Arbitration
The Strabag claimants argued that the parties entered into a new arbitration agreement in Procedural Order 1, issued by the tribunal overriding the BIT dispute settlement provision. The court dismissed this argument on the basis that the tribunal itself found that it had jurisdiction on the basis of the BIT, rather than its procedural order, and that the purpose of the order was to specify the procedural framework of the arbitration without revoking the parties’ arbitration agreement contained in the BIT.
The court reiterated that, on the basis of the CJEU’s Poland v. PL Holdings decision in 2021, the Achmea finding of incompatibility of BIT arbitration clauses cannot be circumvented by an ad hoc clause. The court stated since the ad hoc clause would have the same effect as the BIT clause, it would be invalid on the same grounds.
No Estoppel
In both cases the Court of Appeal dismissed estoppel arguments raised by the claimants, finding that Poland had consistently objected to the tribunal’s jurisdiction, and its objection based on EU law had been debated before the tribunal. Thus, the court found that Poland’s argument on lack of jurisdiction was admissible in the set-aside proceedings.
No Denial of Justice of Disproportionality of Remedy
In both cases the investors argued that a set-aside of the award leading to the jurisdiction of the Polish courts would be a disproportionate remedy or would constitute a denial of justice.
The court rejected these arguments and recalled that setting aside an award does not deprive a party of its right to obtain justice, but only of the possibility of obtaining justice from an arbitrator.
Intra-EU BIT Dispute Resolution Provisions Incompatible With EU Law
The court cited Achmea, recalling that the CJEU “has found that a dispute settlement clause contained in a BIT between two member states is incompatible with EU law,” as confirmed and specified in PL Holdings.
In Slot Group, the court stated that following Achmea, most member states made declarations of their intention to renounce intra-EU BITs, and that in May 2020, 23 states had signed the Plurilateral Termination Agreement, putting an end to their intra EU BITs. Thus, the court found Poland’s set-aside application to be in line with the commitments taken on by the majority of member states, and that it cannot amount to an abuse of rights or violate the principle of bad faith.
In Strabag, the court found it irrelevant that Austria had not yet signed or ratified the Plurilateral Termination Agreement. The court rejected the claimants’ arguments that only some BIT investor-arbitration provisions were incompatible with EU law under Achmea. In rejecting this reasoning, the court stated that the Achmea and PL Holdings decisions were clear, and that a case-by-case analysis “entails a risk for the uniform application of EU law.”
Referring to the decisions in Achmea and PL Holdings that a BIT clause cannot serve as a basis for the tribunal’s jurisdiction and reiterating the primacy of EU law over all member states, the court found that the investors’ arguments regarding Poland’s valid consent to arbitration based on the Vienna Convention on the Law of Treaties, or the material rule of international arbitration law, are of no effect.
In both cases, the court stated that in Achmea, as confirmed by PL Holdings, the CJEU decided in general terms on the incompatibility of dispute resolution clauses in intra-EU BITs, without distinguishing whether the clause provided for the applicable law.
Significance
The approach by the Paris Court of Appeal appears to be consistent with that of the CJEU in Achmea, Republic of Moldova v. Komstroy in 2021 and PL Holdings, but is likely to continue to flag Paris as a less attractive seat for investor-state arbitration.
The CJEU’s recent decisions demonstrate attempts to assert the supremacy of EU law over international law. In this regard, it is notable that the Court of Appeal made at least passing reference to the Vienna Convention, whereas the CJEU in the Komstroy case did not, where it found jurisdiction over a dispute between Moldova and a Ukrainian investor — two non-EU parties.
The CJEU’s approach creates an unwelcome precedent for selectively extending its jurisdiction over matters governed by international law, including by direct agreement between states. This cherry-picking highlights the risks to the framework of international law as set out in conventions, charters and treaties, with the unintended effect of also undermining the EU’s role in the international legal order.
As in the Strabag and Slot cases, however, arbitral tribunals constituted under investment treaties have consistently found they continue to have jurisdiction to hear such disputes, notwithstanding Achmea-type objections by states in relation to EU law.
Looking forward, as the Court of Appeal’s decisions may still be appealed to the French Court of Cassation, it may be early to draw final conclusions. Indeed, the Court of Cassation has overturned previous set-asides, such as in Rusoro Mining v. Venezuela in 2019 and in Serafin Garcia Armas and Karina Garcia Gruber v. Venezuela in 2020.
However, the Court of Cassation recently upheld the annulment of an investor-state award on public policy grounds. In 2017, the Paris Court of Appeal upheld Kyrgyzstan’s application to annul a 2014 $15 million investor-state UNCITRAL decision awarded to Latvian businessman Valeri Belokon on the basis that it would allow him to benefit from money laundering — even where no conviction on such allegations had yet been rendered.
Moreover, the court considered evidence which had not been submitted during the arbitration, raising serious due process questions in the arbitration community and the legal world more broadly.
In March, the Court of Cassation rejected Belokon’s challenge to the annulment of the arbitral award, finding that the lower court had not engaged in an improper review of the merits of the dispute, and it was not limited to the evidence produced before the arbitral tribunal.
It was also satisfied that the lower court had legally justified its conclusions in respect of money laundering notwithstanding the absence of a criminal conviction.
While recognizing there are important distinctions between EU law and public policy objections, parties should not necessarily anticipate that the Court of Cassation will correct the course of the Court of Appeal with a pro-arbitration approach. Investors seeking to minimize obstacles in the recognition or enforcement of awards may thus opt for non-EU arbitral seats such as London or Geneva.
Tomas Vail is the founder of Vail Dispute Resolution.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.