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The end of investment arbitrations against the Czech Republic?

8.3. 2018

On 6 March 2018, the Court of Justice of the European Union (CJEU) ruled that the arbitration clause contained in the Agreement on the Promotion and Reciprocal Protection of Investments concluded between the Czech and Slovak Federative Republic and the Kingdom of the Netherlands is incompatible with European Union law, i.e. that the arbitration clause is inapplicable.

It is to be expected that the CJEU may come to a similar conclusion with other similarly formulated investment protection agreements concluded by the Czech Republic, and that in case of a dispute, investors from the contracting states would therefore lose the opportunity to use international arbitration under the given clause.

The CJEU justified its decision by the fact that with the arbitration clause the parties established a dispute settlement mechanism which is incapable of ensuring that potential disputes will be heard by a court belonging to the European Union's judicial system. The Arbitral Tribunal cannot be regarded as a "court of a Member State" within the meaning of Article 267 of the Treaty on the Functioning of the European Union and is therefore not entitled to request a preliminary ruling from the CJEU. The Member States thus excluded from the jurisdiction of their own courts, and thus also from the systems of judicial remedies required under Article 19 of the EU Treaty in the areas covered by Union law, disputes which might concern the application or interpretation of Union law and, therefore, have made it impossible for the CJEU to exercise its power as regards resolving issues of EU law.

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