S&C Wins Ruling for Republic of Poland in Dispute Over Arbitration

November 2, 2021

The Republic of Poland prevailed in its challenge to an arbitration award issued against the nation and in favor of a private company, PL Holdings. On October 26, the Court of Justice of the European Union effectively set aside the €176 million award, finding that EU law prohibits a Member State from applying an arbitration clause in intra EU investment treaties. The judgment is of significant importance for a large number of pending investment treaty disputes.

In 2013 the Polish Financial Supervision Authority issued a decision against PL Holdings, suspending the company's voting rights over its shares in a Polish bank and requiring it to sell those shares. PL Holdings, which was incorporated in Luxemburg, initiated arbitration proceedings against Poland, relying on a bilateral investment treaty between Poland and Belgium along with Luxembourg.

In 2017 the arbitration tribunal, seated in Sweden, found that Poland had not complied with the investment treaty and ordered the Polish government to pay PL Holdings €176 million. The award was upheld by the Swedish Svea Court of Appeal. On appeal, the Swedish Supreme Court referred the case to the Court of Justice of the European Union.

The Court of Justice effectively set aside the award and the judgment of the Svea Court of Appeal.  The Court held that a national court hearing an action for annulment of an arbitration award must set aside an award made pursuant to an arbitration clause that infringes EU law. Because EU law prohibits an investor from one member state arbitrating a dispute against another member state, the arbitration award against Poland, brought by a company from Luxemburg on the basis of an arbitration clause in an intra EU investment treaty, is also violating EU law and thus invalid.

The case is now referred back to the Swedish Supreme Court for the formal ruling.