On October 26, 2021, the Court of Justice of the European Union (CJEU) ruled in Case C-109/20 Poland v. PL Holdings [3] that a member state’s conclusion of an arbitration agreement that includes a clause identical to a clause that was previously judged as invalid is prohibited under EU law. According to a CJEU press release [4], the CJEU further stated that, since the conclusion of such an agreement is prohibited, the national court should “set aside an arbitral award made on the basis of such an arbitration agreement.”

In 2017, an arbitral tribunal that assessed PL Holding’s application against Poland concluded that the suspension of PL Holding’s shares in a Polish Bank constitutes Poland’s failure of its obligations under the BIT and ordered Poland to pay damages to PL Holdings. Poland sought to set aside the arbitral award before the Svea Court of Appeal (Svea hovrätt), but the court dismissed the application. The court held that the arbitration clause in the BIT providing that disputes relating to the BIT must be decided by an arbitration body, is invalid. The court, however, concluded that, the invalidity does not prevent a member state and an investor from concluding an ad hoc arbitration agreement in order to settle that dispute. Following an appeal against the Court of Appeal’s decision, the Swedish Supreme Court (Högsta domstolen) asked the CJEU to clarify whether “Articles 267 [5] and 344 [6] TFEU precluded the conclusion of an ad hoc arbitration agreement between the parties to the dispute where the content of that agreement is identical to an arbitration clause that is set out in the BIT and is contrary to EU law.”

In its judgment, the CJEU confirmed that the arbitration clause in the BIT is contrary to EU law. The CJEU added that concluding an ad hoc arbitration agreement with the same content as the invalid clause is also against the EU law, reasoning that the ad hoc arbitration agreement would result in the same effects as the invalid arbitration clause. The CJEU explained “not only [can the Member States not] undertake to remove from the judicial system of the European Union disputes which may concern the application and interpretation of EU law, but also . . . where that dispute is brought before an arbitration body on the basis of an undertaking which is contrary to EU law, they are required to challenge the validity of the arbitration clause or the ad hoc arbitration agreement on the basis of which the dispute was brought before that arbitration body.” The Court concluded that “the national court is obliged to set aside an arbitral award made on the basis of an arbitration agreement that infringes EU law.”