Section 1040, paragraph 3 of the German Code of Civil Procedure (Zivilprozessordnung, ZPO) provides:

Article 344 of the Treaty on the Function of the European Union (TFEU) reads:

The arbitration between Eureko, a Dutch insurance group, and Slovakia concerns a claim for damages under the bilateral investment treaty (BIT) between Slovakia and the Netherlands dating from 1991 (BIT). In 2004, Slovakia opened its market for private health insurers. Thereafter, Eureko was admitted to the Slovakian market and invested heavily, leading to a market share by the beginning of 2007 of approximately 8.5 %. However, due to a change of government in 2006, the liberalisation of the health insurance market was reversed and the rights of the private health insurers restricted. Eureko argued that this amounted to an expropriation and led to damages of more than €60 million. Indeed, in January 2011, the Constitutional Court of Slovakia declared the relevant legislative restrictions to be unconstitutional.

Eureko initiated arbitral proceedings in October 2008 based on the BIT and requested damages from Slovakia. An arbitral tribunal (composed of Vaughan Lowe QC, Albert Jan van den Berg and VV Veeder QC) was constituted according to the provisions of the BIT and pursuant to the UNCITRAL Arbitration Rules with the seat of arbitration in Frankfurt am Main.

In the arbitral proceedings, Slovakia objected to the jurisdiction of the arbitral tribunal, arguing that the arbitration clause in the BIT, consisting of an offer to conclude an arbitration agreement with an investor from the other contracting state, was invalid due to a violation of EU law. The arbitral tribunal solicited comments from the European Commission and the Netherlands with respect to the validity and application of the BIT.

The arbitral tribunal rendered an interim award confirming its jurisdiction and rejecting Slovakia's "intra-EU jurisdictional objection". This jurisdictional objection was based on Slovakia's membership of the EU, whereby as a matter of international law, EU law, Slovakian law and German law, Slovakia argued that its accession to the EU in May 2004 terminated the BIT or rendered its arbitration clause inapplicable and that, accordingly, the arbitral tribunal lacked jurisdiction.

Slovakia then applied to the Higher Regional Court of Frankfurt am Main, requesting the court to set aside the interim award on jurisdiction and to hold that the arbitral tribunal did not have jurisdiction according to section 1040, paragraph 3, ZPO. As a subsidiary request, Slovakia also asked the Frankfurt court to refer the matter to the European Court of Justice (ECJ) for a preliminary ruling on the EU law issues in this case. The Netherlands intervened in the Frankfurt court proceedings, arguing that the Frankfurt court had no jurisdiction to decide on Slovakia's application.

As a preliminary matter, the Frankfurt court declared the joinder of the Netherlands to the setting aside proceedings to be admissible. Further, it confirmed the jurisdiction of the arbitral tribunal and dismissed Slovakia's application to set aside the tribunal's interim award on jurisdiction. The tribunal also ordered Slovakia to bear the costs of the proceedings and determined the amount in dispute to be up to €13 million.

The court held that the arbitration clause in the BIT was not invalid on the basis of article 344 TFEU. It explained that, according to the wording of this article, as well as the prevailing view in the literature, article 344 TFEU only deals with disputes between member states and not with proceedings concerning the relationship between member states and investors.

The court explained that in its submissions, the EU Commission also had not argued that article 344 TFEU was to be applied to proceedings between an investor and a member state. Rather, the EU Commission had expressed the opinion that it was undesirable for arbitral tribunals to potentially render awards incompatible with EU law. Furthermore, the EU Commission argued that arbitral tribunals did not have the option of requesting guidance from the ECJ in a preliminary ruling pursuant to article 267 TFEU. However, the court did not consider these arguments to be valid since it was of the view that arbitral awards are subject to the control of state courts in setting aside proceedings, whereby state courts also have the option of requesting a preliminary ruling from the ECJ. On this basis, the court reasoned that arbitral proceedings are not completely outside the institutional and judicial framework of the EU.

In reaching its decision that article 344 TFEU does not apply to investor/state disputes, the court explained that it was guided mainly by the fact that the ECJ had not issued any decision whereby article 344 TFEU was to be applied directly to such disputes. Rather, the court found that, where the ECJ had considered article 344 TFEU, it had reasoned that this article only prohibits "member states" from submitting a dispute concerning the interpretation or application of the Treaties to other methods of settlement. Since the court considered that article 344 TFEU did not apply here, it argued that there was no conflict between the BIT and EU law, thereby avoiding an answer to the question on which rules apply pursuant to which legal order in the event of conflicting rules.

The court further explained that, while an arbitration clause which grants only certain investors access to arbitration might violate EU anti-discrimination provisions, this would in any event not justify the conclusion that Eureko could not rely on the arbitration clause in this case.

The court also held that the arbitration clause does not violate the principle of mutual trust in the courts of EU member states. The court explained that arbitration is an EU-wide recognised dispute resolution method with the same value as court proceedings. Furthermore, there are no indications that arbitration is questioned as such within the EU, despite the recent discussion on how investment treaties can be effectively enforced.

Finally, the court did not consider it necessary to request a preliminary ruling from the ECJ, since it considered the interpretation of article 344 TFEU to be clear.

The court took a rather pragmatic approach to Slovakia's unsuccessful article 344 TFEU argument and we understand that Slovakia has filed a notice of appeal against its decision. It is also quite possible that at some point the ECJ will consider some of the rather intricate questions of the interplay between EU law, BITs and international public law. For the time being, investment treaty arbitration under an intra-EU BIT is obviously not prepared to surrender to the EU Commission's desire to remove such disputes from this forum in order to avoid investment treaty awards potentially violating EU law.

Insofar as the court reasoned that arbitral awards are subject to the control of state courts in setting aside proceedings, whereby state courts also have the option of requesting a preliminary ruling from the ECJ, this view was certainly accurate regarding this particular UNCITRAL arbitration. However, this does not apply to approximately two thirds of all investor-state arbitrations conducted under the Articles and Rules of the ICSID Convention, which does not allow for setting aside proceedings in national courts. In any event, this ruling undermines the so-called "intra-EU jurisdictional objection" and will certainly also lend support to ICSID arbitral tribunals in their reasoning against such an objection.