In the now infamous case of Achmea, the Grand Chamber of the Court of Justice of the European Union (“CJEU” or “Court”) found that an arbitration agreement in an intra-EU bilateral investment treaty (“BIT”) had an adverse effect on the “autonomy” of, and was therefore incompatible with, EU law. Subsequent jurisprudence extended this finding to arbitration agreements in intra-EU BITs generally.

It has remained unclear, however, whether individually negotiated, as opposed to treaty-based, investor-Member State arbitration agreements are also incompatible with EU law. In PL Holdings, the Court has taken a step towards addressing this question.

The case of PL Holdings

On 26 October 2021, the CJEU handed down its judgment in PL Holdings (i.e. Republic of Poland v. PL Holdings Sàrl (Case C-109/20)). The Court found that an ad hoc arbitration clause could not form a valid basis for an intra-EU investor-State arbitration where said ad hoc clause was effectively identical to, and assuming the position of, an intra-EU BIT arbitration clause that was incompatible with EU law.


PL Holdings, a company incorporated under Luxembourg law, was forced to sell shares as a result of a decision taken by the Polish Financial Supervision Authority. PL Holdings disagreed with this decision and brought an arbitration against Poland, relying on the arbitration clause in the 1987 BIT between Belgium and Luxembourg, and Poland (“BLEU – Poland BIT).

By its partial and final awards, the arbitral tribunal concluded that it had jurisdiction to settle the dispute, rejecting Poland’s defence based on the incompatibility between the BLEU – Poland BIT and EU law, and ordered Poland to pay PL Holdings damages in respect of Poland’s failure to comply with its obligations under the BLEU – Poland BIT.

Poland sought to have these arbitral awards set aside by the Svea Court of Appeal (Sweden), however, its application was dismissed. The Court of Appeal concluded that the arbitral awards could not be set aside on the grounds they were not covered by a valid arbitration agreement, as Poland did not raise such an objection in a timely manner. In coming to this conclusion, the Court of Appeal reasoned that even if the BLEU – Poland BIT was invalid under EU law, nothing prevented the parties from concluding an equivalent ad hoc arbitration agreement via their conduct. In this case, such an agreement could have been evidenced by PL Holding’s offer of arbitration via its initiation of arbitral proceedings, and Poland’s acceptance of that offer through its implicit conduct (by appointing counsel, etc., without raising any objection).

This decision was appealed to the Swedish Supreme Court, which sought clarification from the CJEU as to whether:

Articles 267 and 344 of FEUF, as they were interpreted in Achmea, mean that an arbitration agreement is invalid if it has been entered into between a member state and an investor – when there is an arbitration clause in the investment agreement that is invalid because the agreement was entered into between two member states – because the member state, of its own free will has refrained, since the time the investor offered the arbitration proceedings, from making valid objections to competence?

The key findings of the CJEU

First, the Court confirmed that the arbitration agreement at Article 9 of the BLEU – Poland BIT (“BIT AA”) was contrary to EU law and could not serve as the basis for arbitration proceedings between the parties. Two grounds were given:

  • The BIT AA could lead to disputes concerning the application or interpretation of EU law being ruled on by arbitral bodies outside the EU court system. Accordingly, the BIT AA called into question (i) the principle of “mutual trust between the Member States”, and (ii) the preservation of the particular nature of EU law, ensured by the preliminary ruling procedure provided for in Article 267 TFEU. As such, it was incompatible with the principle of “sincere cooperation” set out in the first subparagraph of Article 4(3) TEU and had an adverse effect on the autonomy of EU law enshrined, inter alia, in Article 344 TFEU [PL Holdings at 46]; and
  • As confirmed by Article 4(1) of the Agreement for the termination of Bilateral Investment Treaties between the Member States of the European Union, Article 9 of the BLEU – Poland BIT could no longer serve as the basis for arbitration proceedings [PL Holdings at 46].

Second, the Court found that to allow a Member State to submit a dispute to arbitration on the basis of an ad hoc arbitration agreement with the same content as that of an arbitration agreement from an invalid BIT, akin to that discussed in its first finding, would entail a circumvention of the obligations arising for that Member State under Article 4(3) TEU and Articles 267 and 344 TFEU, as interpreted in Achmea [PL Holdings at 47].

The Court confirmed that in such circumstances, (i) it would be for national courts to uphold applications seeking to set aside arbitration awards made upon the basis of such arbitration agreements, and (ii) Member States would be required to challenge, before the relevant arbitration body or court with jurisdiction, the validity of such arbitration agreements [PL Holdings at 52 and 55].

Third, the Court refused to grant PL Holding’s request that the temporal effects of its ruling be limited so as not to affect arbitrations initiated in good faith before the Achmea ruling had been rendered. The Court refused, noting that the interpretation the Court gives to a rule of EU law clarifies and defines the meaning and scope of that rule, as it must be or ought to have been understood and applied, from the date of its entry into force. Only in exceptional cases could temporal effects be limited, and this was not such a case [PL Holdings at 58 and 69].

Finally, the Court held that the individual rights which PL Holdings derived from EU law had to be protected within the framework of the judicial system of the Member States. In PL Holdings, that meant within the Polish judicial system. Any lacuna in the protection of those rights was to be addressed within that system [PL Holdings at 68].


What is the significance of PL Holdings?

On its face, PL Holdings is a limited judgment, stating only that investor-Member State proceedings cannot be sustained before an arbitral tribunal on the basis of an ad hoc arbitration agreement whose content is equivalent to that of an arbitration clause in an intra-EU BIT (which is incompatible with EU law, as per Achmea) and whose purpose is, effectively, to enable the parties to circumvent Achmea.

However, it may be that the results of this case will reach further than this finding. In particular, while the CJEU carefully stated that “the interpretation of EU law provided in the present judgment refers only to ad hoc arbitration agreements concluded in circumstances such as those at issue in the main proceedings” [PL Holdings at 67], there is a real possibility that individual arbitration agreements between Member States and investors from other Member States will, going forward, be found to be incompatible with EU law.

The logic underlying this theory is that:

  • Member States cannot remove disputes which could concern the application and interpretation of EU law from the judicial system of the European Union [PL Holdings at 52]; and
  • arbitral tribunals (with some exceptions), are often outside of the judicial system of the European Union; therefore
  • Member States cannot conclude arbitration agreements that send disputes to arbitral tribunals outside of the judicial system in cases where such disputes could concern the application and interpretation of EU law – regardless of whether those agreements are negotiated with other Member States or with individual investors.

This position accords with the Opinion of CJEU Advocate General Juliane Kokott (“AG Kokott”) in PL Holdings.

This position remains subject to contest. Most notably, commentators have relied upon the Court’s statement that commercial arbitration proceedings are to be treated differently than those arising from BITs, as they “originate in the freely expressed wishes of the parties” [Achmea at 55], to suggest that individually negotiated investor-State arbitration agreements should not be incompatible with EU law – in fact, PL Holdings advanced this position in this case.

However, this rebuttal suffers from two principal difficulties. First, per the Court in PL Holdings, under EU law, Member States lack the legal capacity to validly conclude such intra-EU investor-State arbitration provisions [PL Holdings at, e.g. 51]; they have already ceded their ability to make such a “free wish“. Second, in the relied upon passage of Achmea, the Court expressly referred to “commercial” arbitration proceedings, and not individually negotiated arbitrations as a whole. AG Kokott opines that, from a ratione materiae standpoint, it makes sense that commercial arbitration proceedings between private parties may be differentiated: as Article 344 TFEU does not apply to disputes between private parties, such parties may conclude arbitration agreements which remove relevant disputes from the judicial system of the European Union [Opinion of AG Kokott at 58]. On the other hand it is not clear how individually negotiated investment arbitration agreements and treaty-based arbitration agreements may be so differentiated.

In addition, and as observed by AG Kokott: if EU investors were to be forced to take their disputes with Member States to national courts, despite non-EU investors retaining access to arbitral tribunals, this would represent unequal treatment, which would need to be objectively justified in order to survive Article 20 of the Charter of Fundamental Rights of the European Union [Opinion of AG Kokott at 67-68].

AG Kokott noted that the required justification might be found where differing rights to arbitration resulted from agreements made between Member States and investors prior to disputes which embodied a balance between the legitimate interests of both sides [Opinion of AG Kokott at 69-71 / Duncan Gorst at final bullet].

In practice, what does this mean for investor-State disputes involving Member States?

PL Holdings leaves both Member States and investors in a difficult position.

On the one hand, Member States must guard against the fact that arbitral tribunals continue to recognise their own jurisdiction in relation to intra-EU investor-State disputes, and non-EU courts have continued to show willingness to enforce awards. As such, it is not open to Member States to simply refuse to engage with such intra-EU investor-State disputes.

On the other hand, investors are in a position where, even if they prevail in an investor-State dispute against a Member State (even one to which the Member State appeared to consent), any award may be vulnerable to being set aside, and/or rendered practically unenforceable, due to the invalidity of their arbitration agreement under EU law. Furthermore, substitutive recourse to certain national courts may be hopeless due to a lack of independence or impartiality.

As such, prior to concluding an arbitration agreement with a Member State, it is advisable for investors to consider:

  • designating arbitral seats as those of non-EU Member States (in non-ICSID scenarios), to reduce the chance that enforcement, outside of the EU and pursuant to the New York Convention, is refused on the basis of Articles V(1)(a) or V(1)(e) of the Convention;
  • providing for recourse to ICSID arbitration to ensure that, outside the EU, awards will be enforceable pursuant to the ICSID Convention;
  • where possible, structuring any transaction such that the investor is acting through a non-EU entity, thereby ensuring that if said entity’s home State has a BIT with a relevant Member State, valid BIT arbitration provisions should remain accessible; and
  • assessing whether enforcement against a Member State will be at all possible outside of the EU. As non-immune assets may be more difficult to locate outside the EU, sovereign immunity waivers from execution should preferably be included in contracts with EU Member States.


On its wording, the CJEU’s decision in PL Holdings is a niche verdict, confined to closing down a loophole by which the judgment in Achmea could have been circumvented. However, there is also a real possibility that it may represent a precursor to a finding that intra-EU investor-State arbitration agreements are to be deemed incompatible with EU law, even where individually negotiated prior to any dispute.

This conclusion would arguably be consistent with the European Commission’s stated intent to replace the current patchwork system of intra-EU investment protection mechanisms with a unified intra-EU investment protection and facilitation framework. This is further evidenced by its recent opening of infringement proceedings against Austria, Sweden, Belgium, Luxembourg, Portugal, Romania and Italy for failing to effectively remove from their legal orders the intra-EU BITs to which they are contracting parties, so that they cease to produce any legal effects.

As a result, investors considering entering into agreements with Member States will need to carefully consider the structure of both their agreements, and the arbitration provisions therein, to ensure that they have the greatest possible chance of attaining enforceable remedies.

Rhys Morgan is an Associate at Mayer Brown. He represents parties in commercial, investment and construction disputes before major arbitral institutions such as the ICC, SCC, DIAC and ICSID, as well as under the UNCITRAL Arbitration Rules and before dispute adjudication boards.