The European Union's top court ruled on Tuesday that arbitration clauses common to almost 200 investment agreements between EU member countries violate EU law, casting doubt on such deals and others struck by the bloc as a whole.
The Court of Justice of the European Union (ECJ) found that an award of damages to Dutch insurer Achmea from Slovakia under a bilateral investment treaty (BIT) inherited from former Czechoslovakia breached EU law.
It said the arbitration tribunal that made the order was not a court of a member state, had no power to refer matters to the ECJ and that its decisions were final, even though disputes referred to it could concern the application or interpretation of EU law.
"The arbitration clause in the BIT has an adverse effect on the autonomy of EU law, and is therefore incompatible with EU law," the court said.
The ECJ had been asked to rule on a BIT agreed between the Netherlands and the former Czechoslovakia in 1991, before the latter split into two countries that later became EU members.
In 2012, a tribunal found that Slovakia, the successor state to Czechoslovakia, had violated that BIT and ordered it to pay €22.1 million to Achmea. The insurer had said it suffered financial damage after Slovakia partly reversed the liberalisation of its sickness insurance market.
Slovakia brought legal action in Germany, from where the case was referred to the ECJ to decide whether clauses on arbitration were compatible with EU law.
The case has been followed closely within the European Union as 196 BITs between EU members contain such clauses, some concluded between western EU countries to protect investments of their companies in eastern countries before the latter joined the EU.
The Czech Republic, Estonia, Greece, Spain, Italy, Cyprus, Latvia, Hungary, Poland, Romania and the European Commission submitted observations in support of Slovakia's arguments.
Germany, France, the Netherlands, Austria and Finland contended that such clauses were valid.
As well as impacting investment agreements between EU countries, the ruling could have a bearing on trade deals struck by the European Union, which has also involved dispute settlement by tribunals.
The European Commission has changed its model for investment protection for future deals, however, planning to set up courts to settle disputes, after vocal opposition to the existing system, which critics said gave multinationals too great a power to influence public policy.