Orders of 31 July 2025 - 2 BvR 1277/23, 2 BvR 85/24
In two orders published today, the First Chamber of the Second Senate of the Federal Constitutional Court decided on two constitutional complaints directed against decisions of the Federal Court of Justice (Bundesgerichtshof) regarding the validity of arbitration clauses in investment treaties.
The constitutional complaint in proceedings 2 BvR 1277/23 concerns a decision of the Federal Court of Justice which held that ongoing ICSID arbitration proceedings initiated by the complainants – investors from EU Member States – against the Federal Republic of Germany on the basis of the Energy Charter Treaty are inadmissible. The Federal Court of Justice made reference to the so-called Achmea case-law of the Court of Justice of the European Union (CJEU), according to which Arts. 267 and 344 of the Treaty on the Functioning of the European Union (TFEU) preclude arbitration clauses in international agreements between EU Member States.
In proceedings 2 BvR 85/24, the complainant, the Republic of India, challenges the Federal Court of Justice’s failure to refer to the Court of Justice of the European Union the question of whether an arbitration clause in a bilateral investment treaty concluded between the Federal Republic of Germany and the Republic of India is compatible with EU law. In its decision, the Federal Court of Justice held that the Achmea case-law cannot be applied to a bilateral investment treaty between an EU Member State and a third country.
The constitutional complaints are unsuccessful; they are inadmissible. The complainants in both proceedings failed to sufficiently substantiate the asserted violations of rights.
Facts of the case:
I. Regarding proceedings 2 BvR 1277/23: In 1969, the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (ICSID Convention) entered into force for the Federal Republic of Germany. Art. 1 of the ICSID Convention establishes the International Centre for Settlement of Investment Disputes (ICSID Centre), whose purpose is to provide facilities for conciliation and arbitration of investment disputes between Contracting States and nationals of other Contracting States in accordance with the provisions of the Convention.
The Energy Charter Treaty of 17 December 1994 (ECT) is a mixed international agreement concluded by the European Community, its Member States (with the exception of Italy) and the European Atomic Energy Community, in particular with Eastern European states that were associated states at the time. It is a multilateral treaty designed to protect private investments in the energy sector of the Contracting States.
In 2012, new provisions entered into force for the approval of the construction and operation of wind farms in the exclusive economic zone of the Federal Republic of Germany. The previous permit procedure was replaced by a planning approval procedure. Under the new legal framework, the stage reached by the complainants in the procedure under the previous law for offshore wind farms developed by them, including the permit already granted for the operation of those wind farms, no longer had any legal significance. In its order of 30 June 2020, the Federal Constitutional Court declared the Act to Develop and Promote Offshore Wind Energy (Offshore Wind Energy Act, Windenergie-auf-See-Gesetz – WindSeeG) to be incompatible with Art. 2(1) in conjunction with Art. 20(3) of the Basic Law (Grundgesetz – GG) insofar as a compensation regime was necessary as set forth in the reasons to that order. Following this order, § 10a of the Offshore Wind Energy Act was enacted, which provides that the operators of a project that completed the approval procedure are now entitled to reimbursement of certain specified costs. The complainants made use of this possibility.
In addition, they applied to the ICSID Centre for arbitration proceedings to be instituted against the Federal Republic of Germany, asserting claims for damages inter alia. The Federal Republic of Germany unsuccessfully sought a declaration from the Berlin Higher Regional Court (Kammergericht) that the ICSID arbitration proceedings are inadmissible pursuant to § 1032(2) of the Code of Civil Procedure (Zivilprozessordnung – ZPO). Following a complaint on points of law (Rechtsbeschwerde) lodged by the Federal Republic of Germany, the Federal Court of Justice held in the challenged decision that the ICSID arbitration proceedings instituted by the complainants were inadmissible. According to the Federal Court of Justice, its international jurisdiction for the application pursuant to § 1032(2) of the Code of Civil Procedure followed from the application by analogy of § 1025(2) of the Code of Civil Procedure. The Federal Court of Justice held that the application was formally admissible. In the case at hand – which concerned the particular constellation of intra-EU investor-state arbitration proceedings – the preclusive effect of the ICSID arbitration proceedings on proceedings before domestic courts exceptionally did not apply due to the precedence of application of EU law, including over international law.
II. Regarding proceedings 2 BvR 85/24: The Federal Republic of Germany and the Republic of India – the complainant – concluded a bilateral investment treaty on 10 July 1995. The Republic of India terminated this bilateral investment treaty, which subsequently ceased to have effect on 4 June 2017.
The Berlin Higher Regional Court declared the partial enforceability of an arbitral award which ordered the complainant to pay damages and had been handed down upon application by an investor from the Federal Republic of Germany on the basis of the bilateral investment treaty. The complaint on points of law lodged against this decision was rejected by the Federal Court of Justice: The Higher Regional Court had correctly found that no grounds existed for denying the recognition and enforcement of the arbitral award at issue. According to the Federal Court of Justice, the declaration of enforceability was not precluded by the Achmea case-law of the Court of Justice of the European Union. This case-law could not be applied to bilateral investment treaties between EU States and third countries. It held that a request for a preliminary ruling from the Court of Justice of the European Union pursuant to Art. 267(3) TFEU was not necessary, as it had, in particular, already been clarified that arbitration clauses in bilateral investment treaties between an EU Member State and a third country were not incompatible with EU law.
Key considerations of the Chamber:
The constitutional complaints are inadmissible.
I. The complainants in proceedings 2 BvR 1277/23 failed to substantiate, in particular, a violation of their fundamental right under Art. 2(1) in conjunction with Art. 20(3) of the Basic Law and a violation of the prohibition of arbitrariness following from Art. 3(1) of the Basic Law. They also failed to demonstrate a recognised legal interest in bringing proceedings.
1. The considerations of the Federal Court of Justice regarding an expansive interpretation of § 1025(2) of the Code of Civil Procedure, to the extent that it makes reference to § 1032(2) of the Code of Civil Procedure, are plausible and in line with the recognised methods of statutory interpretation.
2. The complainants did not substantiate how this expansive interpretation conflicts with the principles enshrined in the Basic Law.
a) There is much to suggest that the interpretation adopted by the Federal Court of Justice creates tensions with the principle of the Basic Law’s openness to international law, because it violates Art. 41 of the ICSID Convention. Under this provision, it is the arbitral tribunal itself that decides on its own competence. In principle, a decision by a national court is ruled out once ICSID arbitration proceedings have been instituted. EU law and international law may reach different conclusions as to whether an effective arbitration agreement is in place. In any case, the question of the validity of an arbitration agreement will likely fall within the scope of application of the ICSID Convention, meaning that it is in principle for the ICSID Tribunal to answer this question.
b) That said, the Federal Court of Justice justifies its interpretation with an exception within the scope of application of EU law. Insofar as it bases its resolution of the conflict with the international law obligations arising from the Energy Charter Treaty and the ICSID Convention on the Achmea case-law of the Court of Justice of the European Union, it is not precluded from doing so on the grounds that this case-law would have to be considered an ultra vires act. In this regard, the constitutional complaint fails to meet the strict substantiation requirements applicable to an ultra vires challenge.
It is not ascertainable from the complainants’ submissions that the Achmea case-law and, in particular, its extension to the Energy Charter Treaty is not based on a tenable interpretation and application of EU law and leads to a structural reordering of competences away from the Member States and to the European Union.
c) Even though the decision of the Federal Court of Justice raises concerns regarding the question of whether the assumed obligation to declare the arbitration proceedings inadmissible follows from EU law and the case-law of the Court of Justice of the European Union, the complainants failed to demonstrate that the decision is untenable and objectively arbitrary.
The Federal Court of Justice expressly stated that its interpretation and application of the law conflicts with Art. 41 of the ICSID Convention. It thoroughly addressed the legal situation and made reference to the precedence of application and the principle of effectiveness of EU law as grounds for an exception from the preclusive effect of Art. 41 of the ICSID Convention in the particular constellation of a dispute in intra-EU investor-state arbitration proceedings. While a legal remedy like § 1032(2) of the Code of Civil Procedure does not appear mandatory under EU law, it is methodologically plausible and not untenable to apply a legal remedy that exists in German arbitration law beyond its previous scope of application, and thus in the sense of the ‘effet utile’ under EU law. It is not ascertainable that this interpretation, which focuses on the special significance and precedence of application of EU law in the legal orders of the Member States, was based on extraneous considerations.
The fundamental assumption of the Federal Court of Justice is that the dispute settlement mechanism in Art. 26(2)(c) of the Energy Charter Treaty in intra-EU investor-state arbitration proceedings violates EU law and that the case-law of the Court of Justice of the European Union must also be applied to arbitration proceedings governed by the ICSID Convention. This assumption does not appear untenable in light of the CJEU’s recent decisions in this regard.
3. Moreover, the complainants failed to substantiate a recognised legal interest in bringing proceedings.
The challenged decision does not directly impair the relevant arbitral tribunal’s exercise of its competence to decide on its own competence. It must be assumed that the arbitral tribunal will examine the question of the validity of the arbitration clause, without considering itself bound by the decision of the Federal Court of Justice. Insofar as the complainants point out that the decision rules out subsequent enforcement of a potential arbitral award in Germany, such difficulties primarily result from the provisions of EU law as interpreted by the Court of Justice of the European Union. Furthermore, the complainants did not show why, in such a case, they cannot be referred to the legal remedies available under the ICSID system.
II. The constitutional complaint in proceedings 2 BvR 85/24 likewise does not satisfy the substantiation requirements. In particular, the complainant did not sufficiently substantiate a violation of its right to one’s lawful judge under Art. 101(1) second sentence of the Basic Law. It did not demonstrate that the Federal Court of Justice, in failing to refer the matter to the Court of Justice of the European Union, acted in a manner that was objectionable under constitutional law.
1. The Federal Court of Justice did not generally fail to recognise its obligation to make a referral pursuant to Art. 267(3) TFEU, nor are there any indications that the court deliberately deviated from the case-law of the Court of Justice of the European Union and was unwilling to refer the matter. The Federal Court of Justice recognised the relevant legal issues and concluded, in line with the case-law of the Court of Justice of the European Union, that the case-law on the incompatibility with EU law of arbitration clauses in bilateral investment treaties between EU Member States cannot be applied to the case at issue, which concerns arbitration proceedings instituted by an investor from an EU Member State against a third country on the basis of a bilateral investment treaty.
2. It has neither been sufficiently substantiated nor is it otherwise ascertainable that the Federal Court of Justice untenably exceeded its margin of appreciation and assessment.
a) The Federal Court of Justice plausibly set forth that the Court of Justice of the European Union, in its Komstroy decision, distinguishes between relations of EU Member States and investors from third countries that are also Contracting States to the Energy Charter on the one hand, and relations among the Member States on the other.
b) Contrary to the complainant’s opinion, the Federal Court of Justice did not overlook the fact that the decision of the Court of Justice of the European Union did not concern bilateral investment treaties between an EU Member State and a third country, but the Energy Charter Treaty. In this context, the Federal Court of Justice particularly emphasises that the Energy Charter Treaty, despite its multilateral character, in fact serves to govern the bilateral relations of two Contracting States in a way that corresponds to a bilateral investment treaty between two Member States, like the one that was the subject matter of the Achmea Since the Court of Justice of the European Union did not find a conflict with EU law in its Komstroy decision insofar as the Member States ‘in their relations with investors from third States’ comply with arbitral mechanisms, the conclusion reached by the Federal Court of Justice – that these considerations apply ‘all the more’ to the relations between an investor from an EU Member State and a third country – appears constitutionally unobjectionable.
c) Finally, the complainant failed to substantiate a conflict between the bilateral investment treaty at issue and the provisions of EU law that would render the arbitration clause invalid in its view. The complainant generally pointed to the abstract possibility that EU law might apply by way of the reference of the arbitration clause to domestic law – in the constellation of arbitration proceedings between an Indian investor and the Federal Republic of Germany, which is not the constellation at issue here. Yet it failed to address the fact that in the present constellation – unlike in intra-EU constellations – the relations between a Member State, a third country and investors from both countries are not fully governed by EU law, because EU law does not protect investors from EU Member States in third countries.