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In the Aftermath of the Achmea Judgement: How are Investor’s Rights protected under EU Law through the Doctrine of Direct Effect?

Caroline Lauk*


The 2018 Achmea judgement effectively invalidated arbitration clauses in all intra-EU BITs. This resulted in an an investment protection void within the EU, leaving investors largely dependent on the domestic courts of Member States - which do not always guarantee protection and adherence to EU principles. This paper analyzes how by virtue of the doctrine of direct effect, investors still dispose of a reactive legal mechanism to protect their rights in the aftermath of Achmea.


I.   Introduction


The relationship between European Union Law and international arbitration was drastically redefined by the Court of Justice of the European Union (hereafter CJEU) in the landmark decision in Achmea. The CJEU ruled that the arbitration clause concluded under an intra-EU bilateral investment treaty (hereafter BIT) -stipulating for UNCITRAL arbitration proceedings- was incompatible with EU law.[1] This decision by the CJEU effectively halted any non-ICSID investment arbitrations within the European Union (hereafter EU). In the wake of this decision to terminate BITs between EU Member States, concerns regarding the protection of investor’s rights have rightfully arisen. Currently, there is no EU-wide alternative to protect investor’s EU rights or to resolve disputes between investors and the host EU Member States into which they are investing. As investment treaty arbitration based on intra-EU BITs is now incompatible with EU Law, it is now up to domestic courts of the Member States to protect investor’s EU rights.[2]

However, it may occur that a Member State will fail to implement a piece of EU law, and subsequently, investors' EU rights may be infringed. Given the differences in domestic judicial systems, it is conceivable that a domestic court will fail to uphold EU principles and provisions protecting investors rights - should a dispute arise.[3] As a remedy of reactive nature, the doctrine of direct effect was designed to protect individuals’ EU rights. Direct effect “...enables individuals to immediately invoke a European provision before a national or European court.[4] In other words, when EU law confers rights on an individual, and there is a conflict between national and EU law, said individual has the right to invoke the EU provisions before a national or European Court.

This paper analyzes how by virtue of the doctrine of direct effect, investors still dispose of legal mechanisms to protect their EU rights in case of infringement. The Achmea decision and its effect on intra-EU BITs is determined, as well as how direct effect comes into play in the wake of the dissolution of protective measures enjoyed by investors under the BITs.



II.   Achmea: Reasoning and Consequences


The decision in Achmea resulted from the Slovak Republic’s attempt to set aside an investment treaty arbitration award rendered under the Slovak-Netherlands BIT in favor of the foreign investor, Achmea. After initial rejection of the application, an appeal was made to the German Federal Supreme Court.[5] The Court ultimately referred the questions of whether Articles 344, 267, and 18 TFEU precluded the application of the arbitration agreement as stipulated in the BITs at hand, to the CJEU.

The CJEU held that the arbitration clause in the intra-EU BIT is incompatible with EU law based on three considerations: (1) The Court emphasized the primacy of EU Law over all other law. Subsequently, according to Article 8(6) of the Slovakia-Netherlands BIT,[6] the dispute should have been resolved according to EU Law.[7] (2) It was found that the arbitral tribunal pursuant to the BIT at hand is not “a court or tribunal of a Member State” and does subsequently not have access to the preliminary reference pursuant to Article 267 TFEU.[8] (3) Lastly, the CJEU held that the award - due to its finality- is not subject to review by a domestic court of a Member State, and is therefore incompatible with EU Law.[9]

Given the CJEU’s decision to effectively terminate intra-EU BITs by December 6, 2019, little investment protection is now offered within the EU. Moreover, not all BITs offer sunset provisions, meaning that in some cases, treaty protections will not continue to apply post-termination of the BIT. As those protections offered no longer apply, it is now up to domestic courts of the Member States to protect investor’s rights.[10] Investors are therefore exposed to a varying degree of protection depending on their Member State, and potentially to discriminatory treatment. Whilst EU investors are in theory protected by the general EU principles as well as EU provisions, it is not always guaranteed that the Member State will adhere to EU Law. The EU justice scoreboard[11] which is published yearly by the European Commission, sheds light on the shortcomings in the judicial systems of the Member States.


III.  The Doctrine of Direct Effect


Against this background, the question arises which legal instruments are available to investors should their EU rights be infringed by the host Member State. This brings us to the doctrine of direct effect.

The principle of direct effect finds its origins in case law, particularly in the Van Gend en Loos[12] where the Court laid out that EU law does not only create obligations between different EU Member States, but it also awards rights to legal persons, which they can invoke in front of their respective courts. The principle was thenceforth validated in the Costa v ENEL[13] case.


III.a.  Content, Requirements, and Jurisdiction


Even though the doctrine of direct effect originated from case law, it is important to review the content of Article 288 of the TFEU.


To exercise the Union’s competences, the institutions shall adopt regulations, directives, decisions, recommendations and opinions. A regulation shall have general application. It shall be binding in its entirety and directly applicable in all Member States. A directive shall be binding, as to the result to be achieved, upon each Member State to which it is addressed, but shall leave to the national authorities the choice of form and methods. A decision shall be binding on its entirety. A decision which specifies those to whom it is addressed shall be binding only on them. Recommendations and opinions shall have no binding force.[14]


The content of this article dictates a duty upon all Member States to comply with all measures of European Union Law.

In order for direct effect to be invoked, the investor must show that the provision meets the three conditions set out in Grad v Finanzamt Traunstein:


1.    The EU provision is clear and specific and capable of judicial enforcement;

2.    The EU provision is certain;

3.    The EU provision is unconditional and imposes a concrete obligation to the Member State [15]


Finally, one should also pay attention to the meaning of “unconditional” in the context above: EU provisions are commonly made to be implemented within a two year time period. Once this deadline has expired, the provision will become unconditional. In that context, a 2009 Directive with a transposition deadline of September 21st 2011, does not yet have direct effect on September 15th 2011. However, on September 30th, the provision would become unconditional.[16]


III.b.  The Doctrine of Vertical Direct Effect


Within the principle of direct effect, two major distinctions are to be drawn: vertical direct effect and horizontal direct effect. Relevant to investor’s rights, is vertical direct effect, which constitutes the ability of an individual to enforce a provision directly against a Member State.[17] It deals with the relationship between national and EU law, particularly, the State’s obligation to ensure its legislation is compatible with EU law. As delineated in Foster v. British Gas,[18] a case dealing with the equal treatment of female and male workers;


It follows from the foregoing that a body, whatever its legal form, which has been made responsible, pursuant to a measure adopted by the State, for providing a public service under the control of the State and has for that purpose special powers beyond those which result from the normal rules applicable in relations between individuals is included in any event among the bodies against which the provisions of a directive capable of having direct effect may be relied upon.[19]


In other words, it is possible for citizens to bring claims against a State - or in this case, a nationalized company. It is however important to mention that it is necessary for the individual to prove that the emanation is adequately connected to the State.  In accordance with the ruling above, individuals can bring claims against emanations of a State, - this empowers a large proportion of individuals to directly enforce the content of EU law. This protects the rights of individuals despite their State having failed to implement a piece of EU law.

Therefore, should a Member State disregard EU rights conferred upon investors, during or prior to a dispute, the investor may invoke the doctrine of direct effect and bring the Member State to Court. By virtue of the principle of vertical direct effect, it is also possible for an investor to bring an emanation of the State to Court, should it infringe upon the investors EU rights.


4. Conclusion and Outlook


As discussed, an investment protection void currently hovers over the EU following the commitment of Member States to terminate all intra-EU BITs as a result of the Achmea judgement. Henceforth, investor protection is currently largely dependent on the domestic courts of the Member States. Whilst EU investors are protected by EU general principles of non-discrimination, legal certainty, and proportionality,[20] it cannot always be guaranteed that Member States will adhere to these EU provisions. The EU justice scoreboard[21] which is published yearly by the European Commission, sheds light on the shortcomings in the judicial systems of the Member States. Unfortunately it is not unheard of to have domestic judicial systems be tainted by malfunction, corruption, and political pressure or control.

Should it therefore be the case that a Member State infringes on EU provisions or principles protecting investor’s EU rights, the investor can turn to the doctrine of direct effect for protection. This will allow the investor to enforce a EU provision against his Member State in front of the CJEU. The doctrine of direct effect, more specifically vertical direct effect, offers investors an extra layer of protection of their rights under EU law.

Naturally, the doctrine of direct effect is not a viable alternative to the protections offered in the now terminated BITs, as the former are of proactive nature whilst direct effect can only be implemented in a reactive manner - once the investor’s rights have already been infringed. However, this doctrine provides a certain level of reassurance to investors.

Following the Achmea decision, it seems that the Commission’s view is that intra-EU investor-state arbitration is not necessary in the single market.[22] Whilst the EU does offer investors protection -such as those denoted in the general principles of EU Law- once a dispute arises, the protection of rights formerly offered in the intra-EU BITs will no longer be available to investors.[23] It therefore becomes apparent that the modernisation of the framework of investment protection is urgently necessary.

As an ending note, it should be brought up that in this rapidly developing scenery, the creation of a standing European investment court seems to be a possible alternative.[24]


* LLB BBA Student at IE University, Madrid. E-mail:

[1] Case C-284/16, Slovak Republic v Achmea BV EU:C:2017:699 (2018)

[2] Lavranos `After Achmea: The Need for an EU Investment Protection Regulation´ (2018, Kluwer Arbitration Blog)

[3] Bárd, Kochenov ‘Rule of Law Crisis in the New Member States of the EU´ (2018, European Commission, Reconnect Europe) (

[5] BGH, order of 3 March 2016, I ZB 2/15.

[6] Article 8 (6) Netherlands-Slovak BIT: “The arbitral tribunal shall decide on the basis of the law, taking into account in particular though not exclusively:

- the law in force of the Contracting Party concerned;

- the provisions of this Agreement, and other relevant Agreements between the Contracting parties;

- the provisions of special agreements relating to the investment;

- the general principles of international law”

[7] Case C-284, Slovak Republic v Achmea BV EU:C:2018:158 (2018) para. 42.

[8] ibid. para. 49

[9] Case C-284/16, Slovak Republic v Achmea BV EU:C:2017:699 (2018) para. 51

[10] Lavranos `After Achmea: The Need for an EU Investment Protection Regulation´ (2018, Kluwer Arbitration Blog)

[11] Press Release by the European Commission, `The 2018 EU Justice Scoreboard´(2018)

[12]NV Algemene Transport- en Expeditie Onderneming van Gend & Loos v Netherlands Inland Revenue Administration CLI:EU:C:1963:1 (1963)

[13]Flaminio Costa v E.N.E.L.ECLI:EU:C:1964:66 (1964)

[14] Art. 288, TFEU (Consolidated version of the Treaty on the Functioning of the European Union) [2012] OJ C326

[15] Franz Grad v Finanzamt Traunstein, ECLI:EU:C:1970:78 (1970)

[18]  A. Foster and others v British Gas plc. ECLI:EU:C:1990:313 (1990) para. 20

[19] ibid.

[20] Press Release by the European Commission, `Capital Markets Union: Commission provides guidance on protection of cross-border EU investments´ (2018)

[21] Press Release by the European Commission, `The 2018 EU Justice Scoreboard´(2018)

[22] `Investment Protection Post-Achmea´(2019, Norton Rose Fulbright)

[23] Sessler and Stein, `Is effective intra-EU investment protectiong ending?´(2019, Skadden Arps Slate Meagher & Flom LLP)

[24] Szostak and Wierzbowski `The Downfall of Investment Treaty Arbitration and Possible Future Developments´(2019, International Bar Association)

Recent developments in regional treaties indicate the direction in which the issue is developing. The Investment Court System (ICS), initially proposed in the context of the negotiations on the Transatlantic Trade and Investment Partnership (TTIP), adopted in the Comprehensive Economic and Trade Agreement (CETA), may provide a foundation for the creation of a standing European or multilateral investment court.



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  1. Strongly agree in regards to the urgent necessity of modernising the EU framework of investor protection. The Achmea judgment marked the beginning of a long process in which the relationship between EU law and international arbitration has been forced to be re-calibrated.

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