Judgment in the Supreme Court, 14 December 2022. Case No. T 1569-19

Summary: A fund company seated in the EU prevailed against an EU member state in an arbitration under a BIT, whereby the arbitral tribunal found that the EU member state had violated the FET provisions in the BIT. The EU member state was ordered to pay approximately EUR 150m to the fund company. The seat of arbitration was Stockholm, Sweden. Following the Achmea judgment, the EU member state challenged the award at the Swedish Court of Appeal, which concluded that the original arbitration agreement derived from the BIT was invalid since it is not compatible with fundamental principles of EU law to settle intra-EU investment disputes in arbitration.

However, the Court of Appeal mistakenly concluded that the invalidity did not prevent a state and an investor from entering into an arbitration agreement in a specific case, which the parties did through their actions in the arbitration proceedings.

The Supreme Court referred a question to the EU Court of Justice under Article 267 of the Treaty of the Functioning of the European Union, seeking clarification of whether the findings in Achmea also applied to a situation where the parties had entered into an ad hoc arbitration agreement. The Court of Justice concluded in a preliminary ruling that the principles stated in Achmea also apply to ad hoc arbitration agreements. Based on the Court of Justice’s preliminary ruling, the Supreme Court declared the award invalid as it contradicts procedural ordre public (public policy) pursuant to section 33, First paragraph, Second item of the Swedish Arbitration Act. In its reasoning, the Supreme Court emphasizes that national courts in EU Member States are obliged to adhere to the Court of Justice’s preliminary rulings. The Supreme Court reiterated the Court of Justice’s statements in the applicable Court of Justice case law, entailing that intra-EU investor-State arbitration is not compatible with fundamental principles of EU law.