Raiffeisen Bank International AG and Raiffeisen Bank Austria d.d. v. Republic of Croatia (II)

Case summary

At a glance

Parties: Raiffeisen Bank International AG (Austria) and Raiffeisen Bank Austria d.d. (Croatia) v. Republic of Croatia
Case no.: PCA Case No. 2020-15; Federal Court of Justice I ZB 16/21
Forum and rules: UNCITRAL arbitration under Article 9(2)(b) of the BIT, seat Frankfurt am Main; German court proceedings on arbitral jurisdiction (Section 1032(2) ZPO)
Treaty: Austria–Croatia BIT of 19 February 1997
Court: German Federal Court of Justice (Bundesgerichtshof), 1st Civil Senate: Koch (Presiding), Löffler, Schwanke, Odörfer, Wille
Underlying award(s): None. The court ruled on the admissibility of the arbitration. Lower court: Higher Regional Court Frankfurt am Main, decision of 11 February 2021 (26 SchH 2/20)
Sector: Banking; insolvency law
Outcome: The banks' appeal was rejected as inadmissible. The Higher Regional Court's ruling that the arbitration was inadmissible under the Achmea case law therefore stands.
Amount: Value of the dispute: € 5,200,000. Costs of the appeal were placed on the banks.

The dispute

Raiffeisen Bank International AG is an Austrian bank. It is the sole shareholder of Raiffeisen Bank Austria d.d., a Croatian bank. By Notice of Arbitration of 14 February 2020, the two banks began UNCITRAL arbitration under the 1997 Austria–Croatia BIT. They claimed damages over Croatia's amendment of its insolvency law (the so-called Lex Agrokor) and over an alleged systematic denial of justice by Croatian courts. Croatia agreed to Frankfurt am Main as the seat but disputed jurisdiction. It then asked the German courts to declare the arbitration inadmissible, arguing that the offer to arbitrate in Article 9(2) of the BIT is incompatible with EU law under Achmea. The banks argued that EU law would only be taken into account as a fact, and that references to the CJEU were possible through Section 1050 ZPO. They also argued that structural defects in Croatia's judiciary displaced the principle of mutual trust and that Croatia was acting in bad faith.

Key holdings

The appeal on points of law was an available remedy but was inadmissible. The case had no fundamental significance and did not require a decision to develop the law or keep the case law uniform (Section 574(2) ZPO). ¶¶ 8, 45
Under Achmea, Komstroy and PL Holdings, Articles 267 and 344 TFEU preclude intra-EU investor-State arbitration clauses. Disputes under Article 9(2) of the BIT are liable to concern the interpretation or application of EU law. One reason is that Article 11(1) and (2) of the BIT require the tribunal to consider Croatian law, which includes EU law, and EU law as a standard. Another is that the Notice of Arbitration itself repeatedly referred to EU law. ¶¶ 10–18
The CETA Opinion's acceptance that a tribunal may treat EU law as a fact concerns relations with third States. In any case, the BIT has no provision like Article 8.31(2) CETA. There was therefore no basis to interpret the BIT in conformity with EU law, and no CJEU reference was needed under the CILFIT standard. ¶¶ 19–24
Post-award review does not cure the incompatibility, because it depends on the seat and on the law of the seat, and the BIT does not fix a seat in the EU. The banks' arguments about requesting a CJEU reference through a state court under Section 1050 ZPO were not material to the decision, and the right to be heard was not violated. ¶¶ 26–35
Alleged structural defects in Croatia's judiciary cannot create arbitral jurisdiction, even if they amounted to exceptional circumstances overriding mutual trust. The proper response to such defects is infringement proceedings under Articles 258 and 259 TFEU. In any event, the banks had not shown a specific risk to their own right to effective judicial protection. ¶¶ 39–43
Croatia was not barred by good faith (Section 242 Civil Code) from relying on the invalidity of Article 9(2)(b). It had created no relationship of trust and showed no abuse of rights. ¶ 44

Procedural history

21 January 2020Croatia disputes, by letter, that an arbitral tribunal has jurisdiction over the banks' claims.
14 February 2020The banks file their Notice of Arbitration under Article 9(2) of the BIT.
1 April 2020Croatia accepts the banks' offer of Frankfurt am Main as the seat of arbitration, while maintaining its objection to jurisdiction.
11 February 2021The Higher Regional Court Frankfurt am Main (26 SchH 2/20) declares the arbitration inadmissible.
17 November 2021The Federal Court of Justice (I ZB 16/21) rejects the banks' appeal as inadmissible, with costs against them.