November 08, 2021
On 26 October 2021, the Grand Chamber of the Court of Justice of the European Union (CJEU) handed down its judgment in Republic of Poland v. PL Holdings Sàrl. The CJEU ruled that EU Member States are prohibited from entering into ad hoc arbitration agreements with EU-based investors, where such agreements would replicate the content of an arbitration agreement in a bilateral investment treaty (BIT) deemed incompatible with EU law following the CJEU’s 2018 judgment in Slovak Republic v. Achmea.
The key takeaways from the CJEU’s ruling are as follows:
The judgment in PL Holdings is the latest in a series of controversial decisions following the CJEU’s 2018 judgment in Achmea.
In Achmea, the CJEU established that provisions in intra-EU BITs providing for arbitration between a Member State and an investor of another Member State are incompatible with the Treaty on the Functioning of the European Union (TFEU).
The CJEU’s reasoning was that an intra-EU investment arbitration agreement would “call into question not only the principle of mutual trust between the Member States but also the preservation of the particular nature of the law established by the Treaties,” on the basis that arbitral tribunals constituted under BITs cannot use the procedure for requesting a preliminary ruling from the CJEU in respect of questions of EU law. Consequently, the EU institutions would have no way to ensure the consistent application of EU law.
Our previous briefings on Antin v. Spain and Komstroy v. Moldova detail some of the decisions of the EU institutions which applied the CJEU’s reasoning on Achmea, and which have continued to cause disquiet in this area.
In 2014, PL Holdings (a Luxembourg incorporated subsidiary of the private equity firm Abris Capital Partners) brought arbitration proceedings against Poland under the bilateral investment treaty between the Belgium-Luxembourg Economic Union (BLEU) and Poland, after a Polish regulator ordered the compulsory sale of its interests in a Polish bank.
Following arbitration proceedings conducted at the Stockholm Chamber of Commerce, the Tribunal concluded in 2017 that Poland had expropriated PL Holding’s investment and ordered Poland to pay €176 million in damages to PL Holdings.
In September 2017, Poland brought set aside proceedings before the Swedish courts, arguing that the arbitration clause in the Poland-BLEU BIT was incompatible with EU law post-Achmea.
In 2019, the Swedish Court of Appeal accepted that, in light of Achmea, the arbitration agreement in the BIT was invalid. However, the Court held that this invalidity did not prevent a Member State and an investor from another Member State from concluding an ad hoc arbitration agreement at a later date to resolve the same dispute.
In reaching this decision, the Swedish Court of Appeal relied on a distinction drawn in Achmea between investment treaty arbitration and commercial arbitration, which was confirmed by the CJEU earlier this year in Komstroy v. Moldova. Whereas the CJEU was not prepared to accept a limited review of investment treaty awards by the EU courts, the CJEU in Achmea was prepared to accept a more limited review of commercial arbitration because of the “requirements of efficient arbitration” and the fact that, in its view, commercial arbitrations “originate in the freely expressed wishes of the parties concerned,” whereas investment arbitrations do not.
The Swedish Court of Appeal relied on this distinction to conclude that an ad hoc investment arbitration agreement between Poland and PL Holdings would derive from their common intention to resolve the dispute, in the same manner as a commercial arbitration agreement. The Swedish Court of Appeal therefore upheld the Tribunal’s award on the basis that Poland had tacitly accepted PL Holding’s offer to arbitrate by failing to raise an objection based on Achmea earlier on in the proceedings, which (under Swedish law, as the law of the seat) resulted in an ad hoc arbitration agreement between Poland and PL Holdings.
Poland appealed to the Swedish Supreme Court. The question of whether this ad hoc arbitration agreement complied with EU law was referred to the CJEU for a preliminary ruling.
The CJEU confirmed that the arbitration clause in the intra-EU BIT between Poland and BLEU was not compatible with EU law post-Achmea. Turning to the ad hoc arbitration agreement, the CJEU held that to allow a Member State to enter into an ad hoc arbitration with an EU-based investor with “the same content as that clause” would result in “a circumvention of the obligations arising for that Member State under the Treaties [of the European Union].” As such, the CJEU concluded that the TFEU must be interpreted “as precluding national legislation which allows a Member State to conclude an ad hoc arbitration agreement with an investor from another Member State that makes it possible to continue arbitration proceedings initiated on the basis of an arbitration clause whose content is identical to that agreement.”
The decision in PL Holdings relates to a particular set of facts, which gave rise to a finding of a tacit agreement to arbitrate under the Swedish Arbitration Act.
For the most part, the CJEU’s judgment was careful to limit its application to this specific situation. However, in its boldest paragraph, the judgment asserts that “[a]ny attempt by a Member State to remedy the invalidity of an arbitration clause by means of a contract with an investor from another Member State would run counter to the first Member State’s obligation to challenge the validity of the arbitration clause.” This suggests that the CJEU will continue with its current approach, even if faced with a situation where a Member State and an EU-based investor expressly entered into an ad hoc arbitration agreement to resolve an investment dispute.
The decision is therefore notable in underlining the CJEU’s intention to ensure that its decision in Achmea is effective. In this respect, PL Holdings represents only the latest in a series of measures taken by the EU institutions to confirm the supremacy of EU law over intra-EU BITs, even in circumstances where the State-Respondent had failed to raise any objection as to the validity of the arbitration agreement in the underlying arbitration proceedings. In effect, the CJEU in PL Holdings overruled a basic principle of the domestic arbitration law of Sweden, an EU Member State.
Counsel for PL Holdings criticised the CJEU’s “short judgment,” stating that it “is clearly driven by EU anti-arbitration dogma and a pathological drive to uphold the ‘supremacy of EU law,’ [and] is an affront to basic rules of international law.” These comments and others suggest that PL intends to press ahead with their defence of Poland’s appeal in the Swedish Supreme Court despite the CJEU’s preliminary ruling. The Swedish Supreme Court may soon be faced with a choice between compliance with the CJEU’s ruling and applying a basic principle of its domestic arbitration law. In this respect, it is notable that Sweden was one of the countries which did not decide to terminate its intra-EU BITs following the CJEU’s decision in Achmea, and (like its Scandinavian neighbours) has not always agreed with the CJEU’s approach to arbitral awards.
Poland’s involvement may also complicate matters. Despite the CJEU’s insistence on the supremacy of EU law over Member States’ domestic laws and treaty obligations, the Polish Constitutional Court recently issued a ruling stating that the primacy of EU law was unconstitutional in Poland. Poland’s calling into question of the supremacy of EU law echoed another recent ruling by the German Federal Constitutional Court, which led the European Commission to initiate infringement proceedings against Germany on the basis that the Court “deprived a judgment of the European court of justice of its legal effect in Germany, breaching the principle of the primacy of EU law.” Tensions appear to be heightening between the CJEU and Member States’ courts—both in the arbitral context and elsewhere.
Various investment tribunals have also taken diametrically opposed views to the CJEU. Indeed, following Achmea and Komstroy, almost all arbitral tribunals constituted under intra-EU BITs have held that EU law does not deprive them of jurisdiction, and have continued to render awards on that basis.
Uncertainty as to the legal position in the EU does not benefit intra-EU investors. Whether the EU will eventually replace its prohibition on intra-EU BITs with its own multilateral investment treaty and EU investment courts remains to be seen. In the meantime, EU investors considering an investment in another Member State would be well-advised to consider structuring their investments via non-EU Member States (such as the United Kingdom, Switzerland or United States), and ensure that any subsequent arbitration proceeding are seated in a non-EU Member State.
A special thanks to James Elliott for his valuable contribution to this publication.
 Case C 109/20, Court of Justice of the European Union, available at: CURIA - Documents.pdf (lbr.cloud)
 Case C-284/16, Court of Justice of the European Union, available at: CURIA - Documents (europa.eu)
 Achmea at 
 The Belgium–Luxembourg Economic Union is an economic union between the Kingdom of Belgium and the Grand Duchy of Luxembourg. BLEU signed a BIT with Poland in 1987, and has signed a total of 100 BITs at the time of writing. Belgium and Luxembourg have also signed several BITs in their own right.
 Achmea at  and 
 PL Holdings at 
 PL Holdings at 
 PL Holdings at 
 Global Arbitration Review - ECJ prohibits ad hoc ISDS agreement
 Poland defies EU as court backs government in ‘rule of law’ battle | Financial Times (ft.com)
 EU takes legal action against Germany after tussle between courts | European Union | The Guardian