German Federal Court of Justice confirms that findings of Achmea do not extend to investment arbitrations under extra-EU BITs

The German Federal Court of Justice (Bundesgerichtshof – "BGH") recently allowed the enforcement of an arbitral award rendered in Deutsche Telekom v. India – an investor-State arbitration conducted under the 1995 Germany-India Bilateral Investment Treaty ("BIT"). On Deutsche Telekom's application, the amount of USD 10 million plus interest (a partial amount of the award) has been confirmed enforceable by the BGH. This follows an ongoing series of case developments in Germany stemming from the Achmea judgment (C-284/16) of the Court of Justice of the European Union ("CJEU"), which we reported on here. In this case, the CJEU expressed the view that investment arbitrations initiated under arbitration clauses in 'intra-EU BITs' (i.e., BITs between EU Member States) are incompatible with EU law.

The BGH's recent decision confirms that the CJEU's findings in Achmea do not extend to investor-State arbitrations conducted under 'extra-EU BITs' (i.e., BITs between EU Member States and third countries). The BGH confirmed that awards rendered in these cases do not give rise to an argument of non-enforceability under Articles V(1)(a), (c), V(2)(a) or V(2)(b) of the New York Convention on the Enforcement of Foreign Arbitral Awards ("NYC").

INVESTMENT ARBITRATION AND ENFORCEMENT PROCEEDINGS

The investment arbitration of Deutsche Telekom v. India was filed in 2013 before the Permanent Court of Arbitration. It concerned a German telecommunications company and its foreign investment into an Indian subsidiary, Devas Multimedia, which concluded contracts with the India-owned entity Antrix (related to the Indian Space Research Organisation), to operate and launch two satellites in the telecommunications network. This contract was terminated by the State-owned entity. Deutsche Telekom initiated an investment arbitration against India under the Germany-India BIT and the UNCITRAL Arbitration Rules.

A final award was rendered on 27 May 2020. The Tribunal, seated in Geneva, ordered India to pay USD 92.3 million in damages.

Deutsche Telekom applied successfully before the Berlin Court of Appeal to have the award declared enforceable in Germany for the partial amount of USD 10 million. In the enforcement case, India filed a legal complaint, asserting the non-enforceability of the award under the NYC, including for reasons that the arbitration clause in the Germany-India BIT was invalid due to a breach of EU law in line with the CJEU's Achmea findings and similar rulings. The Berlin Court of Appeal did not recognise any such grounds against enforceability.

This decision was appealed by India to the BGH, which has confirmed the Berlin Court of Appeal's earlier decision on the enforceability of the award in Germany.

KEY FINDINGS AND RULING OF THE BGH

The BGH reasoned that the CJEU's decision in Achmea does not extend to investment arbitrations under extra-EU BITs for reasons that:

• The Achmea decision was based on the exclusivity of EU law between EU Member States and the EU law principle of 'loyal cooperation'. These principles only apply internally between EU Member States and do not apply externally to third countries.
• The BGH noted that according to the CJEU, this system could have been circumvented by investment arbitrations under intra-EU BITs as no mechanism exists for tribunals to refer cases to the CJEU's preliminary ruling procedures under Article 267 of the Treaty on the Functioning of the European Union. The BGH held that for extra-EU BIT cases, EU law does not foresee such a 'court-to-court' dialogue.
• In the BGH's view, the CJEU's emphasis in Achmea on 'mutual trust' between EU Member States was another reason to draw a distinction between investment arbitrations under intra-EU and extra-EU BITs.

The BGH also discussed the CJEU's decision in Komstroy ( C-741/19). The investment arbitration in this case was based on an arbitration clause in the Energy Charter Treaty ("ECT") (a multilateral treaty concerning the energy sector (see our coverage here and here)).

• The BGH noted that the CJEU's Komstroy decision 'clearly confirms' that arbitration clauses in extra-EU BITs are not contrary to EU law and remain effective.
• In its view, the CJEU stated that the ECT requires EU Member States to comply with the ECT's arbitration clause in their relations with investors from third countries that are party to the ECT. The CJEU only found that where the ECT imposed the same obligation on EU Member States amongst themselves, this was considered contrary to the preservation of the autonomy of EU law. According to the BGH, the CJEU's Komstroy findings apply mutatis mutandis in an extra-EU BIT context.

Additionally, the BGH rejected an argument of non-enforceability of the award on the basis of the CJEU's opinion on the CETA between the EU and Canada ("Opinion"). Firstly, the BGH noted that the CJEU itself did not discuss its Opinion in the Komstroy decision. Secondly, the BGH explained that the CETA is structurally different, as the EU itself – not its Member States – is a party to the agreement. We discussed earlier here that the CJEU confirmed that the CETA's dispute resolution provision is compatible with EU law.

Finally, given the CJEU's existing decisions, the BGH confirmed that no referral of the case to the CJEU for a preliminary ruling was needed.

COMMENT

Regarding the enforceability of arbitral awards in Germany, the BGH clarified that arbitration clauses in extra-EU BITs remain effective under EU law and that this is sufficiently established in recent rulings of the CJEU. The BGH's decision is a continued development in understanding the reach of the CJEU's findings in Achmea and Komstroy.

For more information, please contact Patricia Nacimiento, Partner, Catrice Gayer, Partner, Bajar Scharaw, Counsel, Jacky Lui, Foreign Lawyer, Lara Panosch, Associate or your usual Herbert Smith Freehills contact.