EU’s regime to reinvent the world of international investment law


Undemocratic‘, ‘unaccountable‘, obscure are among the words commonly used by critics to criticize the current investor-state dispute settlement (ISDS) mechanism. Over the past few years, the European Union (EU), particularly the European Commission, had joined in the aforementioned bandwagon, and made clear its valiant intent to reinvent the field of international investment law as evinced through – the Court of Justice of the European Union’s (CJEU) decision in the Achmea Case (Case C-284/16, Slowakische Republik (Slovak Republic) v Achmea BV, 6 March 2018, EU:C:2018:158), as well as the European Commission’s initiative to establish a Multilateral Investment Court.

This article seeks to address these two developments, as well as to highlight the uncertainties and concerns caused by the EU’s approach in the sphere of international investment law.

The Achmea Case

Starting with Achmea, the facts essentially concerned Slovak Republic’s attempt to set aside a UNCITRAL award in Germany, by arguing that the tribunal constituted under the Netherlands-Slovakia BIT (an intra-EU BIT) is incompatible with the Treaty on the Functioning of the European Union (TFEU). Subsequently, the Federal Court of Justice in Germany asked the CJEU to make a preliminary ruling on the compatibility of the BIT in question with EU Law.

Eventually, the CJEU held that the arbitration clause in the Netherlands-Slovakia BIT is incompatible with EU Law (in effect seemingly all intra-EU BIT arbitrations are incompatible as well). Importantly, the CJEU’s reasoning is as follows (see paras 6, 31-37, 39-50, and 56-60 of the judgment):

The arbitral tribunal in question can be called upon to interpret or apply EU law (particularly laws concerning fundamental freedoms – freedom of establishment and free movement of capital) because Article 8(6) of the BIT in question required the tribunal to take into account ‘the law in force of the Contracting Party concerned’, along with ‘the general principles of international law’.

But in reference to Article 19 of the Treaty on European Union (TEU), Article 267 and Article 344 of the TFEU, to ensure consistent interpretation and application of EU law, Member States cannot submit a dispute which involves EU law to other methods of settlement other than the CJEU and national courts of Member States (who can make a preliminary reference to the CJEU under Article 267 TFEU).

With that, the CJEU concluded that the arbitral tribunal formed under Article 8 of the Netherlands-Slovakia BIT had an adverse effect upon the autonomy of the EU legal order, it is incompatible with EU law, and Member States contracting on the BIT have violated their obligations under Article 344 TFEU and Article 19(1) TEU as the arbitration clause in the agreement removes the jurisdiction of the Member States courts, as well as the CJEU’s jurisdiction (because the tribunal cannot make a preliminary reference to the CJEU) on a dispute which may concern the application and interpretation of EU law.

Uncertainties caused by Achmea

The outcome and reasoning of Achmea dropped jaws of practitioners and investors from all around the world, but perhaps the most worrying fact is that Achmea has conjured uncertainties upon the protection afforded to investors.

The CJEU in Achmea did not gave a direct conclusion on an investment tribunal’s jurisdiction to hear a dispute under an intra-EU BIT, accordingly this leaves uncertainty as to which forum is more viable and appropriate to protect investors’ rights.

These uncertainties may even have an impact on new investors who have entered the market. This is because they may be unaware of their rights concerning the stock market or other investment mediums. That is why first-time investors must be familiar with all of the terminologies and facts regarding how to select the companies they wish to purchase stocks of. To learn more about the subject, new investors can read blog posts on websites such as However, these new investors can also rely on experienced and reputed brokers to invest their money, as this could be a safer option, especially for those who have just entered the field of investing. These new investors should be aware that brokers or financial advisors rarely steal client’s money, and thus, can be trusted.

Coming back to the Achmea, there is uncertainty as to whether Achmea extends to arbitrations conducted under the Energy Charter Treaty (ECT) in which the EU itself is a party to. Ideally, the CJEU should be bound by tribunals’ decisions constituted under the ECT, however such ideal is clearly at odds with the reasoning in Achmea, as those tribunals cannot make preliminary references to the CJEU under Article 267 TFEU and again those tribunals’ decisions would still contradict Article 19(1) TEU as well as Article 344 TFEU.

Also, there are uncertainties pertaining to the enforcement of intra-EU BIT awards in courts outside the EU. Because courts can for example, rely on Article V(1)(a) of the New York Convention to refuse recognition and enforcement, if the arbitration agreement is invalid under its applicable law (law of country which the award was made). Hence, the enforcement of intra-EU BIT awards in non-EU countries may be entirely dependent upon whether courts outside the EU would want to take into account the decision of Achmea.

Multilateral Investment Court

Since 2015, the European Commission is seeking to establish a multilateral investment court (MIC) which will replace all BITs and all Investment Court Systems (ICS) in which EU Member States are parties, in order to cure the deficiencies and seemingly to regain control over the mechanism that resolves disputes between investors and Member States.

It is postulated that the MIC will have a first instance and appeal tribunal, consisting of highly qualified independent permanent judges, and it will also be transparent and open for all interested States to join.

Possible flaws with the MIC

As attractive as this pitch may seem, arguably the MIC will be far from perfect as one can still possibly raise criticisms against such establishment.

Firstly, it is possible for one to argue that the establishment of the MIC would lead to a loss of expertise. This is because the current ISDS mechanism enables parties not only to appoint arbitrators who are well-versed with the relevant laws, but they are also allowed to select arbitrators with technical knowledge of the investment in question. Hence, this suggests that with the current mechanism, parties’ technical and practical arguments would be better appreciated by the appointed arbitral tribunal.

Meanwhile as mentioned, in contrast, the MIC will be constituted with permanent judges. Given the wide variety of areas and range of investments that can be disputed, it is difficult to see how a permanent body of judges can cater to all different forms of investment disputes or show a better appreciation of technical arguments as compared to the current flexible ISDS mechanism.

Secondly, there can be questions raised against the independence of the MIC, in context of both institutional independence as well as individual impartiality of judges.

The European Commission made it clear, subject to participating states’ negotiations, that the participating states will appoint the judges who will be ‘free of any conflicts of interest or interest in the outcome of cases’ to the MIC.

As mentioned, the MIC will replace the ICS included in agreements such as the EU-Canada Comprehensive Economic and Trade Agreement (CETA), EU-Singapore FTA, EU-Vietnam FTA and the EU-Mexico FTA, which entails that non-EU States can be participating states to the MIC. Given the fact that in the MIC, it is more likely than not that there will be more judges appointed by EU Member States than those who are not, thus one can possibly doubt as to whether the MIC can truly be institutionally independent when it decides on disputes between parties from EU Member States and non-EU States.

Notably, the European Commission also criticized that there may be risks of partiality in the current ISDS system, because parties can appoint arbitrators they seek. But ironically, it recommends that it is the participating states, who could possibly be a party to an investment dispute, to appoint the judges to the MIC. With that in mind, how credible or believable is it to say that a judge in the MIC will act entirely impartial when deciding on an investment dispute involving the State who appointed him or her to the bench?


To conclude, it is argued that both Achmea and the MIC alludes in a subtle manner that the EU’s trajectory is to have a monopoly over the practice of international investment law within the EU. Some EU Member States have already terminated their BITs to support this regime.

During this transitional period, owing to the uncertainties caused by Achmea, investors in the EU are compelled to resort to other parallel means to protect their rights, for example they could rely on the European Court of Human Rights (ECtHR) to do so, or they could turn to the fundamental freedoms guaranteed under EU Law, etc.

This article also intends to remind that one should resist the temptation to draw a preordain conclusion that the establishment of a multilateral investment court is the resolution for all the problems surrounding international investment law as scepticisms can still be made against such mechanism, and the truth of the matter is that a mechanism resolving disputes involving sovereign states will always be contentious.

*Yu Jian Woon is a Penultimate LLB student at University of London