The Court of Justice of the European Union (“CJEU”), 26 October 2021, case C-109/20

After the Achmea case of 2018 (which has put an end to the intra-EU BIT-based arbitration) and the Komstroy case of 2021 (having prohibited the ECT-based, EU-seated and EU law-related arbitration), PL Holdings comes to round out the trilogy by barring the states from entering into intra-EU implicit ad hoc arbitration agreements, which are identical to BIT arbitration clauses.

Background on the Case

The underlying dispute concerned Luxembourg-based company PL Holdings, which was forced by the Polish Financial Supervision Authority to sell its shares held in a Polish bank. Based on Article 9 of the BIT[1], PL Holdings initiated an SCC[2] arbitration against the Republic of Poland. During the three years of arbitration proceedings, the Republic of Poland raised that PL Holdings was not an “investor” and that the arbitration provision contained in Article 9 of the BIT was incompatible with the EU law.[3] By two awards of 2017, the arbitral tribunal accepted its jurisdiction, ruled that the Republic of Poland breached the BIT and ordered it to pay damages in favour of PL Holdings.

The Republic of Poland then brought an action before the Swedish Court of Appeal, raising again that Article 9 of the BIT was incompatible with EU law and requesting to set aside the award. PL Holdings contended that, even if the Republic of Poland’s “offer of arbitration” stemming from Article 9 of the BIT was invalid, an ad hoc arbitration agreement was actually concluded between the parties, in accordance with Swedish law and the principles of commercial arbitration, having regard to the conduct of those parties. By making a request for arbitration, PL Holdings would have submitted an “offer of arbitration” in accordance with the same conditions as those laid down in Article 9 of the BIT, and the Republic of Poland would have tacitly accepted that offer by refraining from validly challenging the jurisdiction of the arbitral tribunal.

The Swedish Court of Appeal confirmed this argumentation and dismissed the Republic of Poland’s request to set aside the award. The Republic of Poland then brought an appeal against this ruling before the Supreme Court of Sweden, which decided to stay the proceeding and refer the question to the CJEU, asking the latter whether, as in the Achmea case, Articles 267 and 344 TFEU also prohibited the member states from entering into implicit ad hoc arbitration agreements that would allow them to arbitrate intra-EU investment disputes.

CJEU’s Ruling

The CJEU gave a positive answer to the referred question by ruling that Articles 267 and 344 TFEU precluded national legislation that allows member states to conclude ad hoc arbitration agreements with an investor from another member state, where the content of such agreements is identical to that of the invalid arbitration clauses contained in BITs.

As the PL Holdings ruling constitutes a clarification and a definition of an existing rule of EU law by the CJEU, its temporal effects apply retroactively, i.e. from the rule’s entry into force.

Lessons Drawn From the PL Holdings Ruling

  • In case an arbitration procedure has been brought against them by an investor, member states must challenge, before the arbitration body or before the court having jurisdiction, the validity of the arbitration clause or that of the ad hoc arbitration agreement.
  • In case an arbitral award is issued on the basis of an arbitration clause contained in a BIT, the member states must request the competent national courts to set aside, annul or challenge the recognition and enforcement of the arbitral award, pursuant to Article 7(b) of the Agreement for the termination of Bilateral Investment Treaties between the member states of the European Union.
  • As for the national courts, they shall uphold any application that seeks the setting aside of an arbitration award made on the basis of an arbitration agreement infringing EU law.

 

[1] Agreement between the government of the Kingdom of Belgium, the government of the Grand Duchy of Luxembourg and the government of the People’s Republic of Poland.

[2] Arbitration Institute of the Stockholm Chamber of Commerce.

[3] In response to PL Holdings’ request for arbitration, the Republic of Poland sent a letter to the SCC’s secretariat in which it expressed its intention to challenge the claim that it had validly consented to the arbitration proceedings initiated by PL Holdings. In its later defence, the Republic of Poland challenged the jurisdiction of the arbitral tribunal on the ground that PL Holdings was not an “investor” within the meaning of the BIT. The Republic of Poland then put forward a further argument challenging the jurisdiction of the arbitral tribunal, contending that the arbitration clause in Article 9 of the BIT was contrary to EU law.