The European Court of Justice in Luxembourg
The European Court of Justice in Luxembourg declared bilateral investment treaties incompatible with EU law © Blitz Agency 2015

A single case last year, between Slovakia and a Dutch insurer, effectively obliterated a collection of trade treaties that had governed relationships between EU investors and member states for decades.

Bilateral investment treaties (BITs), agreements between two states granting the investors of each rights and protections while operating in the other, have long worried the European Commission. In this case, the European Court of Justice ruled in favour of the Slovak Republic and said BITs between member states were invalid under EU law.

When Slovak Republic v Achmea reached the ECJ in 2018, it had been eight long years for London-based Hogan Lovells partner Markus Burgstaller, who represented the country against the Dutch company.

The insurer originally won a €22m award in December 2012 at an international arbitration tribunal after the Slovak Republic reformed its public health insurance market. Achmea argued that Slovakia had breached a BIT with the Netherlands because the change was to the detriment of the Dutch insurer.

Disputes over BITs are resolved at international tribunals. But the EU’s executive body had always been uncomfortable with an external institution — like an arbitration tribunal — having effective control over the dealings of EU businesses. So when, after arbitration in Germany, the dispute reached the country’s supreme court, which asked the ECJ to determine the legitimacy of such treaties, the ground was prepared for a battle royal.

Brussels has always felt that investment disputes within the EU should be settled only by courts of the member states, and legal questions referred to the ECJ, says George Bermann, director of the Center for International Commercial and Investment Arbitration at Columbia Law School in New York.

Markus Burgstaller
'Need for consistency': Markus Burgstaller represented Slovakia against Dutch insurance company Achmea

“The idea of EU law is that any EU national or company can see justice done in another EU member state,” says Prof Bermann.

“But when you have arbitrators that are external to EU law deciding on investment disputes between an EU investor and an EU member state . . . from an EU law perspective, justice might not be done.”

Proponents of BITs — and critics of the EU — take a different view, however. One aim of arbitration clauses in BITs, cited by their supporters, is to reduce the role of national courts in potentially highly political investor-state disputes, Prof Bermann says. “In principle, courts do not interfere with a tribunal’s determination of the merits as reflected in the ultimate arbitral award.”

International arbitration, he says, is seen as both a method for streamlining the process of dispute resolution and a way of avoiding domestic courts, especially those of states that are by definition parties in an investment dispute.

Mr Burgstaller at Hogan Lovells admits there is some truth to the argument that certain EU member states have “issues” with their judiciaries: “But that doesn’t undermine the argument in [the Achmea case]. In fact, it should underline the need for consistency in the EU,” he says.

“The guarantee of the rule of law is important for economic development, and this decision provides at least for the possibility that the rule of law in the EU may improve and be harmonised,” he adds.

The ECJ ultimately found that BITs between member states were invalid under EU law, and that European courts — not international tribunals, which do not answer to the ECJ — should settle disputes between European investors and member states.

The ECJ had its own interest in the debate, points out Björn Arp, who teaches at the American University Washington College of Law in Washington DC. “In light of this jurisprudence, it seems that any other intra-EU investment arbitration clause can also be declared null and void,” he says, adding that the Achmea decision led to all member states in January committing to terminate all 190-plus intra-EU BITs. Indeed, the decision initially led to a furore among legal experts.

For and against deals between EU states

Richard Chen, who teaches investment law at the University of Hawaii’s law school, says the most common type of BIT involves a lower-income country seeking to attract outside capital by making assurances to foreign investors in order to compensate for an “immature or weak domestic legal system”. Of particular concern for western investors is the risk of funding a foreign investment under favourable conditions, only for the country to change the rules.

Prof Chen says BITs typically provide two assurances: first, substantive guarantees such as non-discrimination and fair and equitable treatment; and, second, procedural guarantees of a right to arbitrate in a neutral forum.

On substantive rights, he says: “In effect BITs have sometimes provided wealthy investors with a weapon to attack a country’s legitimate exercise of regulatory authority.” He cites the strategic use of BITs in tobacco company Philip Morris’s claims against Australia and Uruguay for requiring cigarettes to be sold in plain, non-branded packaging. “Philip Morris contended that the laws were devaluing cigarette company trademarks and adversely impacting investments [there],” says Prof Chen.

While Philip Morris lost both cases, Prof Chen says the fact that foreign investors can threaten to challenge even good-faith public policy can damp governments’ inclination to write laws and regulate their economies, if they are concerned about liability and legal costs because of lawsuits from powerful multinationals.

Critics’ concerns also include unease about the competence and legitimacy of privately appointed international arbitrators reviewing domestic policies and potentially interfering with a country’s internal governance. At least in the early years of BITs, private arbitrators often came from commercial law backgrounds, with little or no experience in human rights or public policy.

“Their backgrounds may have contributed to a jurisprudence skewed in favour of investors, as such arbitrators would naturally be more sympathetic to investor claims and have less appreciation for the regulatory needs of states,” says Prof Chen.

In addition, Mr Burgstaller notes that the Achmea judgment concerns only disputes between an EU investor and another EU member state: external counterparties — such as Swiss or American investors — are not affected by the judgment; nor does it per se terminate or do away with intra-EU treaties. Instead, it says the investor-state arbitration clauses in such treaties are incompatible with EU law.

To those who say Achmea might not look like a good decision for investors, Mr Burgstaller says: “BITs and international arbitration are hardly the gold standard for dispute resolution. International tribunals have their strengths, but some people argue they can lack the foreseeability and consistency of courts.”

These are shades of grey, he adds, and one is not necessarily far better than the other.

The tables below rank law firms and in-house legal teams for the FT Innovative Lawyers Europe awards.

Managing Complexity and Scale
Rank Law firm Description Originality Leadership Impact Total
STANDOUT Paul Hastings Assisted telecommunications company Altice in the creation of an independent, regional company in the US by combining two separate debt holding groups with a combined value of $20bn. The structure enables the two sets of investors to each possess a single corporate note. The consolidation was simultaneous despite a lack of investor overlap, the assets lost less than 0.4 per cent of their market value and Altice paid out no alteration fees to holders. 9 9 8 26
STANDOUT Hogan Lovells As international counsel, represented the noteholders’ committee of Mriya Agro Holding, one of Ukraine’s largest agriculture companies, in its multiyear debt restructuring, which exceeded $1bn. The firm took the lead in designing the transaction, which balanced the need to preserve the liquidator’s litigation claims while recasting the debt of the Cypriot holding company to comply with Cypriot and Ukrainian law. Commended: Alex Kay. 8 9 8 25
STANDOUT Avellum Acted as domestic counsel to the noteholders’ committee of Mriya Agro Holding, one of the largest agriholdings in Ukraine, in its multiyear debt restructuring exceeding $1bn. The firm persuaded Ukrainian judges to apply relevant provisions of English trust law to get international bondholder claims represented by a trustee accepted as equal to local bank claims, while simultaneously settling 11 concurrent bankruptcy proceedings and reorganising assets through a Cypriot liquidation. 8 8 8 24
STANDOUT Slaughter and May Advised Rolls-Royce on a divestment of its marine business, which was struggling due to the downturn in oil and gas exploration. Pre-empting competition authority concerns, Rolls-Royce and the acquiring company, Kongsberg Gruppen, co-ordinated a plan to divest parts of Kongsberg’s business to accommodate the purchase from Rolls-Royce. 8 8 8 24
HIGHLY COMMENDED Allen & Overy Advised Danish energy company Orsted on the funding of Hornsea 1, expected to be the world’s biggest offshore wind farm, by structuring a £3.5bn debt package for its new partners Global Infrastructure Partners, an infrastructure fund. The firm attracted a pool of lenders and subsequently developed a financing package to condense a variety of debt types into a cohesive legal structure. 7 9 7 23
HIGHLY COMMENDED Arthur Cox Developed a liquidity strategy to enable Donegal Investment Group, dealing with surplus capital from a prior dispute, to return €45m in capital to its shareholders. This strategy maximised the capital returned to shareholders and eliminated the risk of shareholders, many of whom lived in rural areas, missing out on the return of capital or notification requirements. Commended: Paul Robinson. 8 8 7 23
HIGHLY COMMENDED Pinsent Masons Facilitated the housing, education, infrastructure and commercial aspects of Winchburgh Village, a 3,500-home expansion to a Scottish village. To ensure long-term viability, the firm procured unique mechanisms, such as granting a loan to local government for schools, and created an owners’ association with voting rights on the project. 7 8 8 23
HIGHLY COMMENDED Baker McKenzie Co-ordinated Japanese manufacturing company Hitachi’s multinational carve-out using simultaneous buyouts of several European companies, managing more than 30 regulatory filings with five different entities worth $11bn. Since many of these purchases dealt with infrastructure acquisitions such as power grids, lawyers developed a risk-assessment tool powered by artificial intelligence to gauge relative construction risks and costs. 7 8 7 22
HIGHLY COMMENDED Shearman & Sterling Helped guide French nuclear medicines business Advanced Accelerator Applications though a voluntary Nasdaq delisting and Securities and Exchange Commission deregistration for a future acquisition, complicated by the French company’s lack of a European stock listing. The company’s works council had to approve any binding corporate agreement and more than a simple shareholder majority was needed to delist and deregister as a foreign company. The firm developed attractive stock swap and cash buyout options to buy out existing shareholders amicably. 7 8 7 22
HIGHLY COMMENDED Slaughter and May Advised Danish energy company Orsted on its divestment of 50 per cent of the Hornsea 1 wind farm. The firm worked with the new acquiring partner, Global Infrastructure Partners, to structure a highly complex project financing package with security and intercreditor arrangements in order to obtain financing. The £3.5bn multi-tranche package is the largest single-project financing to date in the global renewable energy sector. 7 8 7 22
HIGHLY COMMENDED Stephenson Harwood After pioneering the master trust conversion schemes for pensions in the UK, the firm advised a broad range of clients in maintaining retirement funds subject to taxation and other regulation. This is particularly relevant for “hybrid” schemes composed of both defined-benefit and defined-contribution schemes, for which the firm devised a mechanism to ensure funds can be transferred to a master trust without losing valuable tax protections. 7 8 7 22
COMMENDED White & Case Devised a financing vehicle for the development of a Nigerian fertiliser plant, now one of the largest in the world, despite Nigeria’s reputation for government interference in projects related to fossil fuels. The financing was completed in two phases treated as two separate ventures. 7 7 7 21
COMMENDED William Fry When the standard route of examinership for Irish companies, focused on saving rather than closing potentially insolvent entities, would not work for its client, the firm proposed an Irish law scheme coupled with US Chapter 15 recognition to facilitate a wind-up. 7 7 7 21
COMMENDED Freshfields Bruckhaus Deringer Helped restructure insurance company AIG in preparation for Brexit, allowing its UK and European operations, which accounted for 56 per cent of its business, to run as two separate entities. Lawyers advised on a cross-border merger and transfer court process, enabling the first major insurance-related Brexit restructuring and setting a market precedent. 6 7 7 20
COMMENDED Matheson Helped ratings agency S&P Global move its EMEA headquarters out of Europe in anticipation of Brexit-related economic restrictions. Since ratings agency regulations are strict and little precedent existed, it conducted a cross-border merger of three different EMEA agencies previously based in the UK, Italy and France, and moved them to Ireland. 7 7 6 20
COMMENDED Sayenko Kharenko Advised the Ukrainian creditors of Mriya Agro Holding during insolvency proceedings. The firm helped to establish a framework for the Ukrainian creditors to surrender their claims and consent to a debt-for-equity swap, while balancing the tax implications under Ukrainian law. 6 7 7 20
COMMENDED Eversheds Sutherland Advised the UK’s Network Rail on the £1.45bn sale of its commercial estate — 5,200 properties, including railway arches, adjacent land and operational railway infrastructure. Two previous attempts at disposal had failed because of complexity. 6 7 6 19
COMMENDED Norton Rose Fulbright Advised UK-based gold miner Randgold Resources on its $18.3bn all-share merger with Canadian miner Barrick Gold. With jurisdictions in five continents and several stock listings between the two companies, the combined company created one of the world’s largest gold miners, with a combined 78m ounces of proven and probable gold reserves. 6 7 6 19
COMMENDED Cobalt Lawyers overcame regulatory hurdles to allow the client, Luminor Bank, to sell a €1bn majority stake to Blackstone. The transaction is one of the largest M&A deals in Baltic history and the largest majority stake acquisition of a universal bank by private equity in the past decade. 6 6 6 18
COMMENDED Cuatrecasas Preserved the business activity of Toys R Us’s Iberian operating company during the winding-up of the group. The firm ringfenced regional operations and petitioned for the insolvency of the two Iberian holding companies and the Iberian property company. The strategy enabled the business in Iberia to be transferred through a share deal, rather than a disruptive asset reallocation. 6 6 6 18
COMMENDED Weil, Gotshal & Manges Advised private equity group Advent International on its £742m loan facilities to finance its approximately £1.2bn take-private acquisition of Laird. A complex US syndication process was required to ensure the debt was serviceable from the target business’s US dollar revenues, while ensuring that the initial bid commitment could be met in sterling. 6 6 6 18
Managing Complexity and Scale (In-house)
Rank In-house legal team Description Originality Leadership Impact Total
STANDOUT Veon Facing an unexpected review of all contracts, products and services lines the company had with ZTE Corporation after the US Department of Commerce imposed a denial order, the legal team analysed Veon’s risk profile across its 10 operating companies in 12 jurisdictions in one week. Lawyers maintained business continuity and regulatory compliance for the company’s 60,000 staff and 230m customers. 8 8 8 24
HIGHLY COMMENDED Homebase Over 18 months, the legal team played a key role in supporting the distressed business in its sale to private equity house Hilco for £1, the subsequent restructuring and the recent acquisition of Bathstore. The team worked to realign the business’s 242 leases. Homebase is now on track to break even by the end of the year. 6 9 8 23
COMMENDED European Investment Fund Together with the European Investment Bank, the EIF granted Spanish bank BBVA a €60m guarantee for small business loans, in a transfer of risk to the EIF and EIB known as synthetic securitisation using a distributed ledger. This was the EIF’s first blockchain securitisation and facilitated the provision of further investment funds for small Spanish businesses. 7 7 6 20

Explore the Innovative Lawyers Europe rankings 2019


  • Most Innovative Law Firms in Europe
  • Most Innovative In-house Legal Teams in Europe
  • Rule of law and Access to Justice
  • Collaboration

Business of Law

  • Data, Knowledge and Intelligence
  • Managing and Developing Talent / Diversity and Inclusion
  • New Business and Service Delivery Models
  • New Products and Services
  • Strategy and Changing Behaviours
  • Talent, Strategy and Changing Behaviours
  • Technology

Legal Expertise

  • Accessing New Markets and Capital
  • Creating a New Standard
  • Dispute Resolution
  • Enabling Business Growth and Transformation
  • Managing Complexity and Scale
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