Originally from The American Review of International Arbitration

PREVIEW PAGE

In recent years, the Court of Justice of the European Union (“CJEU”) has handed down a line of cases that have amazed the arbitration community. From Achmea through Micula, the CJEU has invalidated Bilateral Investment Treaties (“BITs”) that provide for arbitration proceedings among the member states of the European Union (“EU”). One question that remains open is whether Achmea applies to arbitration clauses in investment contracts to which a state and a private investor are parties. This article addresses the root of the CJEU’s antipathy towards investment arbitration by exploring different theories of arbitration and revealing the meta-reasoning—the unwritten underlying reasoning—of Achmea. This article proposes that the CJEU’s perception of investment arbitration reflects the jurisdictional theory of arbitration, namely the theory that arbitrators exercise judicial power derived from the governments of the states that are parties to the arbitration. In the eyes of the CJEU, arbitration clauses in BITs remove the EU’s judicial function from European courts. A logical extension of the meta-reasoning in Achmea is that the CJEU will decide that arbitration clauses in investment contracts between states and private investors are invalid. In contradistinction to the CJEU, the US Supreme Court, as reflected in ZF Automotive and other cases, perceives investment arbitration as compatible with the contractual theory of arbitration, namely, the theory that arbitrators are mere agents of the parties to the arbitration helping them perform their contract, and the tribunal is merely a private adjudicative body. As a result, the US Supreme Court, on the one hand, welcomes state-to-state arbitration between the different states of the United States and gives deference to investment arbitration tribunals, but on the other hand, does not consider commercial and investment arbitration tribunals as foreign or international tribunals for the purpose of document discovery.