The Decision of the Svea Court of Appeal in PL Holdings v Poland: A Mutiny against Achmea?

It has been over one year since the Court of Justice of the European Union (CJEU) rendered its judgment in Achmea (C-284/16), yet only recently have its legal consequences over the future of intra-EU investment arbitration started fully to unfold. In the aftermath of the CJEU’s ruling, arbitral tribunals have consistently and on various grounds rejected the Achmea-based objection to their jurisdiction. However, another ruling has recently been added to this saga, this time rendered by a national court of an EU Member State. In the context of PL Holdings S.a.r.l v Republic of Poland (SCC Case No V 2014/163), the Swedish Court of Appeal (Svea Court) rejected the Achmea-based jurisdictional objection put forward by Poland and upheld the awards rendered by an arbitral tribunal under the Poland-Belgium/Luxembourg Bilateral Investment Treaty (BIT). Even though the Svea Court appears to have based its reasoning on the CJEU’s rationale in Achmea, a closer look at the Svea Court’s ruling shows that it rather constitutes a disguised mutiny against Achmea.

The Background of the Case

On 26 November 2014 PL Holdings, a company incorporated under the laws of the Grand Duchy of Luxembourg, initiated arbitral proceedings against Poland under the Stockholm Chamber of Commerce (SCC) rules based on the Poland – Belgium/Luxembourg BIT, claiming damages. On 28 June 2017 the arbitral tribunal rendered a partial award in the case, finding Poland to have been in breach of its obligations under the applicable intra-EU BIT. Based on that award, on 28 September 2017 the arbitral tribunal issued a final award on damages in favour of PL Holdings for PLN 653,639,384 (approx. EUR 150,337,058).

Following these awards, Poland proceeded before the Swedish Courts, Stockholm being the seat of arbitration, requesting their annulment. Inter alia, Poland argued that, because of Achmea, there was no valid offer of consent to the initiation of arbitral proceedings and, therefore, no valid arbitration agreement between the parties to the dispute. On 13 June 2018, the Svea Court decided to suspend the enforcement of the final award until the issuance of its final judgment in the case, which followed on 22 February 2019.

A Mutiny in Disguise

In rendering its decision, the Svea Court examined the relevant provisions of the Swedish Arbitration Proceedings Act as well as the applicability of Achmea to the case at issue. The Svea Court found the dispute resolution clause of the applicable intra-EU BIT to be identical to the one in question in Achmea. Yet, it ended up rejecting the Achmea-based jurisdictional objection, as in its view there was a crucial differentiating factor between Achmea and the case before it. That was the binding nature of the intra-EU BIT’s dispute settlement mechanism.

In Achmea, the Member States had provided their consent to the initiation of arbitral proceedings by an investor through the investor-state arbitration clause of the applicable intra-EU BIT. By bringing a claim before the arbitral tribunal, the investor accepted the Member State’s (standing) offer of consent to arbitration, thus perfecting an arbitration agreement therewith. According to the Svea Court, Achmea clarified that EU law precludes such a dispute resolution agreement. Insofar as an investor-state arbitration clause in an international agreement between Member States is incompatible with Articles 267 and 344 of the Treaty on the Functioning of the European Union (TFEU), the Member States’ offer of consent included therein is invalid and, therefore, no valid arbitration agreement could have been concluded on that basis.

By contrast, to the Svea Court Achmea is not relevant in cases of commercial arbitration, characterising as such any case where the disputing parties enter into an arbitration agreement based on their freely expressed will. Reiterating the CJEU’s reasoning in Achmea, the Svea Court held that the TFEU does not preclude the parties to an investment dispute directly to agree on proceeding to arbitration, insofar as the Member States’ national judiciary could still consider EU law after the award was issued. To the Svea Court this was the case here; Poland’s omission to object in a timely manner to the tribunal’s jurisdiction in the course of the arbitral proceedings had resulted in it having entered directly into a new, tacit arbitration agreement with the investor. The tribunal’s jurisdiction was, therefore, not based on the -incompatible with EU law- arbitration clause of the Poland-Belgium/Luxembourg BIT, but on the common will of the parties to the dispute, expressed in the arbitration agreement which they directly concluded inter se.

Against that background, the Svea Court seems to have accepted the CJEU’s rationale that EU law precludes the Member States from concluding inter se agreements, under which a Member State is obliged to accept any subsequent arbitration with an investor. It also concurred with the German Federal Court of Justice, which interpreted Achmea as invalidating arbitration agreements concluded based on intra-EU BIT arbitration clauses. In fact, in rejecting the Achmea-based jurisdictional objection, the Svea Court attempted to build on Achmea itself, following its perception of the CJEU’s distinction between commercial and investment treaty arbitration. Insofar as there was a tacit arbitration agreement between the investor and Poland on the basis on their common will, according to the Svea Court this case fell within the scope of commercial arbitration and, therefore, outside that of Achmea.

Yet, despite these efforts, the Svea Court’s ruling actually constitutes a mutiny against Achmea. In fact, the Svea Court assumes that Poland is in the position to consent to the conclusion of an arbitration agreement directly with the investor, enabling it to arbitrate a claim under the intra-EU BIT. However, this assumption is not in conformity with EU law. The fact that, in this case, Poland offered its (tacit) consent to arbitration directly to the investor does not alter another fact, namely that the arbitration agreement thus concluded still enabled a tribunal outside of the EU judicial system to consider and apply EU law for the adjudication of claims under an intra-EU BIT. Under such a scenario, the autonomy of the EU legal system, the protection of which was essential to the CJEU in Achmea, may equally be hampered. Regardless of how it was offered, a Member State’s consent to the conclusion of such an arbitration agreement would be incompatible with EU law and, therefore, inapplicable. This lack of consent would consequently translate into an invalid arbitration agreement.

In a similar vein, the Svea Court’s ruling raises yet another question, this time going beyond Achmea. If one were to accept that intra-EU BITs are incompatible with EU law as a whole (and, therefore, implicitly terminated under Article 59 of the Vienna Convention on the Law of Treaties or inapplicable under Article 30(3) VCLT and the EU law principle of supremacy as a special conflict rule) Poland would not be in a position to agree with an investor to arbitrate any dispute arising thereunder in the first place. In such a case, the BIT’s conflict with EU law would be reflected in the Member State’s consent to the arbitration agreement, which would become inapplicable and the lack of consent as a result thereof would, thus, render the arbitration agreement invalid.

The decision of the Svea Court has been challenged and is now pending before the Swedish Supreme Court, which will decide on whether to uphold or reject the Svea Court’s reasoning. Should the question on the compatibility of the substantive provisions of intra-EU BITs and those of EU law arise in the course of those proceedings, the Swedish Supreme Court will be under the obligation to refer a relevant preliminary question to the CJEU under Article 267 TFEU. However, until this case becomes final, the ruling of the Svea Court has equipped investors with an additional argument in the effort to recognise and enforce intra-EU BIT arbitral awards in the post-Achmea era.

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