Achmea BV v Slovak Republic (Final Award)

JurisdictionDerecho Internacional
CourtArbitration Tribunal (International)
JudgeVeeder,Lowe,van den Berg
Date07 December 2012
Docket Number(PCA Case No 2008-13)

Arbitration Tribunal2

Final Award3

(Lowe, President; van den Berg and Veeder, Members)

(PCA Case No 2008-13)

Achmea BV (formerly known as Eureko BV)
Slovak Republic 1

Arbitration — Applicable law — Investment arbitration — Proceedings instituted by investor incorporated in one European Union State against another European Union State — Bilateral investment treaty between two European Union States — Whether compatible with European Union law — Whether European Union law forming part of the law to be applied by the tribunal — Seat of arbitration in a third European Union State — Jurisdiction of the arbitration tribunal — Costs — UNCITRAL Rules, Article 40(1)

Damages — Principle of full compensation for loss — Chorzów Factory principle — Causation — Cost of suspension of activities of investment — Valuation — Cost of borrowing — Interest

Economics, trade and finance — Investment — Bilateral investment treaty — Fair and equitable treatment — Health insurance business — Ban on profits and prohibition of sale of portfolio — Full protection and security — Free transfers

Expropriation — Investment — Bilateral investment treaty — Protection against expropriation — Requirement of deprivation of investment — Measures subsequently reversed — Whether amounting to deprivation of property

Summary: The facts:—The claimant, a Netherlands corporation formerly known as Eureko BV, offered a range of insurance products, including health insurance. Following a liberalization of the market in health insurance in the Slovak Republic (“Slovakia” or “the respondent”) in 2004, it purchased shares in Union Insurance, a Slovak company, and in 2006 incorporated Union Healthcare, another Slovak company, in which the claimant had a 100% shareholding. By 1 January 2007, Union Healthcare had approximately 8.5% of the health insurance market in Slovakia. In 2006 there was a change of government in Slovakia, following which the new government introduced into the legislature measures which, once enacted, significantly altered the legal framework for the provision of health care in Slovakia. Amongst these measures4 Act No 530/2007 Coll. introduced a ban on profits for providers of health insurance and Act No 192/2009 Coll. ended the possibility of a health insurance company selling its insurance portfolio.

The claimant maintained that the value of its investment had been destroyed by these measures and, on 1 October 2008, commenced arbitration under the Agreement on Encouragement and Reciprocal Protection of Investments between the Kingdom of the Netherlands and the Czech and Slovak Federal Republic, 1991 (“the BIT”). The claimant submitted that the Slovak Republic had violated the provisions of the BIT regarding fair and equitable treatment and full protection and security (Article 3),5 the free transfer of profits and dividends (Article 4)6 and expropriation (Article 5).7

The respondent challenged the Tribunal's jurisdiction, contending that, when Slovakia became a Member State of the European Union (“the EU”) in 2004, the BIT had ceased to be effective. The respondent argued that the BIT was incompatible with the provisions of the EU treaties, including the Treaty of Accession, and had therefore been terminated in accordance with the principle in Article 59 of the Vienna Convention on the Law of Treaties, 1969, or had been rendered inapplicable by operation of the principle in Article 30 of the Vienna Convention. In the alternative, the respondent maintained that the Tribunal lacked jurisdiction as a matter of EU law, that the case was not arbitrable under German law (the lex arbitri) and that the provisions of the BIT on transfers were incompatible with EU law. The respondent sought a ruling from the Tribunal that it lacked jurisdiction or that the dispute was not arbitrable. In the alternative it requested that the proceedings be stayed and a reference made to the European Court of Justice. The respondent also requested that the European Commission be permitted to participate in the proceedings on the jurisdictional issue. The Tribunal permitted the European Commission and the Kingdom of the Netherlands to

make written observations following the conclusion of the oral hearings. The parties filed comments on those observations.

On 26 October 2010, the Tribunal issued an Award on Jurisdiction, Admissibility and Suspension, in which it unanimously rejected the respondent's jurisdictional challenges (145 ILR 1). On 26 January 2011, the Constitutional Court of the Slovak Republic held that the ban on profits was contrary to the Constitution of the Slovak Republic.8 The claimant nevertheless maintained its claim, contending that the relevant provisions of the BIT had been breached during the period that the ban was in force and that the value of its investment had been seriously damaged, if not destroyed.

Held (unanimously):—The claimant had been the victim of a breach of the requirement of fair and equitable treatment in Article 3 of the BIT and the provisions on transfers in Article 4. There had been no violation of the provisions on expropriation in Article 5.

(1) The Tribunal possessed jurisdiction over the claim.

(a) The Tribunal had already rejected the respondent's jurisdictional objection that the BIT could not create jurisdiction in an intra-EU dispute and that matter was res judicata. By incorporating Union Healthcare, in which it had a 100% shareholding, the claimant had made an investment, within the meaning of Article 1(a) of the BIT,9 in Slovakia. Union Healthcare's portfolio was an asset within the meaning of Article 1(a) (paras. 152–61).

(b) Article 2 of the BIT10 was concerned with the duty of each State to promote inward investment and to admit investments in accordance with its laws; it did not qualify the definition of investment by requiring that only something made in accordance with the laws of the receiving State constituted an investment. Unlike many investment treaties, the BIT did not contain an express provision that investments had to be made in accordance with the laws of the host State to qualify for protection. While it was wholly unreasonable to suppose that the parties to the BIT could have intended to protect investments that violated a fundamental bar on investment, such as a provision prohibiting foreign investment in a particular sector of the economy, it was also unreasonable to read into Article 1 (a) a requirement that there must be no infraction of the laws of the host State if an investment was to qualify for protection. In the present case, such breaches of Slovak law as had been committed were not sufficient to deny the claimant's investment protection under the BIT (paras. 162–80).

(2) Although the respondent had argued that the Tribunal would be called upon to apply EU law, neither party had suggested that any particular rule of EU law bore upon the case in a manner that would affect the decision of the Tribunal under the BIT. The Tribunal was satisfied that no such question of EU law arose and that it could apply the terms of the BIT without exceeding its jurisdiction and without misapplying the applicable law (paras. 272–6).

(3) The claimant's right to fair and equitable treatment under Article 3 of the BIT had been violated. The removal of the right to generate profits, coupled with the ban on the transfer of the portfolio, had effectively deprived the claimant of access to the commercial value of its investment. The investment could neither be maintained so as to generate profits nor sold. There was no way that the claimant could recover the commercial value of its investment. It was unnecessary to consider whether there had also been a violation of the duty to accord the investor full protection and security (paras. 278–84).

(4) There had also been a violation of the claimant's right to free transfer of payments under Article 4 of the BIT. However, in view of the Tribunal's ruling on Article 3, it was unnecessary to consider the question of losses arising from that breach (paras. 285–6).

(5) There had been no violation of the provisions on expropriation in Article 5 of the BIT. Not all provisions on expropriation had the same scope and legal effect. Article 5 protected only against direct or indirect deprivation of an investor of its investment. While the ban on profits, if maintained, would have amounted to deprivation, it had been declared unconstitutional and the measure reversed. The Tribunal had to proceed on the basis of the facts as they existed at the time of the hearing. Accordingly, there had been no expropriation within the meaning of Article 5. The interference with property rights during the period of the ban was sufficiently addressed by the finding of unfair and inequitable treatment (paras. 287–95).

(6) The claimant's decision to suspend its operations was a reasonable response to the violation by the respondent and did not break the chain of causation. Nor had the claimant failed to mitigate its loss. It was therefore entitled to damages which would compensate it in full for the losses caused. The quantum of compensation should be the cost of the suspension, calculated by reference to the borrowing cost of the capital tied up in the claimant's health insurance business in Slovakia. The claimant was thus entitled to damages of 22.1 million euros (paras. 319–33).

(7) Interest was awarded at the Eurozone official rate for main refinancing operations plus 2% compounded quarterly (para. 334).

(8) No order would be made concerning future compliance with the BIT; it was not for the Tribunal to grant relief on the basis of speculation about the future conduct of the parties (para. 335).

(9) Under Article 40(1) of the UNCITRAL Rules, the unsuccessful party should bear the costs of the arbitration unless the Tribunal considered that a different apportionment was reasonable. In the present case, the costs of the jurisdiction phase should be apportioned on the basis that...

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