I. INTRODUCTION

On 18 September 2025, the German Federal Constitutional Court (“FCC”) published two decisions addressing the intersection of investment arbitration and EU law. Both cases arose from constitutional complaints that challenged rulings by the German Federal Court of Justice (“BGH”), but dealt with fundamentally different treaties: one case concerned an intra-EU arbitration under the Energy Charter Treaty (“ECT”), and the other a bilateral investment treaty (“BIT”) between Germany and India.

The FCC dismissed both complaints, but the court’s reasoning provides valuable insight into Germany’s approach to balancing EU obligations with its commitments under international law. In the ECT-related case, the FCC rejected a challenge to a decision by the BGH in which the BGH had declared an International Centre for Settlement of Investment Disputes (“ICSID”) arbitration against Germany inadmissible, relying on the Achmea case law of the European Court of Justice (“ECJ”), which prohibits intra-EU investment arbitration. Notably, despite ultimately upholding the BGH’s decision, the FCC subtly criticized the BGH’s interpretation of German procedural law – an interpretation that, by the BGH’s own admission, conflicts with the ICSID Convention. The FCC questioned whether such a reading was genuinely mandated by EU law, expressing “concerns” about its necessity. In the case related to the India-Germany BIT, the FCC affirmed that investment arbitrations involving non-EU parties remain permissible, strengthening legal certainty regarding extra-EU investment arbitrations.

II. THE FCC’S FIRST DECISION: THE ECT (2 BVR 1277/23)

The first decision arose from a constitutional complaint challenging a decision by the BGH, which had declared an intra-EU ICSID arbitration under the ECT inadmissible. The BGH’s ruling marked a significant departure from the view of the lower court, the Higher Regional Court of Berlin, and raised complex questions about the interplay between EU law, German procedural law, and international obligations under the ICSID Convention. The FCC was asked to assess whether the BGH had overstepped constitutional limits in its interpretation of the law.

A. The Underlying Case

In the underlying case, several European investors in the wind and solar energy sector had initiated an arbitration against Germany, demanding compensation following changes in German legislation. They turned to ICSID to initiate arbitration proceedings under the ECT, a multilateral treaty aimed at protecting private investments in the energy sector. 

Germany then filed a request under German procedural law to declare the ICSID arbitration proceedings inadmissible. Specifically, this request was brought under Section 1032(2) of the German Code of Civil Procedure (“ZPO”), which provides that a party may apply to the court to have it determine the admissibility or inadmissibility of arbitral proceedings before the arbitral tribunal is constituted.¹

Germany’s request was unsuccessful before the Higher Regional Court of Berlin.² The Higher Regional Court of Berlin held that Section 1032(2) was not applicable to ICSID arbitration proceedings, reasoning that (i) the procedural rules of the ICSID Convention constitute a self-contained legal system; and (ii) under Article 41 of the ICSID Convention, the arbitral tribunal itself has the final authority to decide on its jurisdiction (principle of Kompetenz-Kompetenz).³

The BGH took a different view and declared the initiated ICSID arbitration proceedings inadmissible.⁴ It based its jurisdiction on an application of Section 1025(2) ZPO by analogy. Under Section 1025(2) ZPO, Section 1032 ZPO applies “if the seat of arbitration is abroad or has not yet been determined.”⁵ Thus, Section 1025(2) ZPO broadens the scope of application of Section 1032 ZPO to arbitrations seated outside of Germany. However, ICSID arbitrations do not have a seat, and instead operate without the supervisory jurisdiction of state courts and are therefore deemed “delocalized.”⁶ The BGH acknowledged this, but concluded that the German legislature intended to grant jurisdiction to German courts even when the arbitration is seated abroad, and held that the interest in granting German courts global jurisdiction also extends to delocalized arbitration proceedings, such as ICSID proceedings.⁷ The BGH therefore applied Section 1025(2) ZPO by analogy, affirming its applicability beyond traditionally seated arbitrations, and held that 1032(2) ZPO applies to ICSID arbitrations in principle.

The BGH then addressed Article 41 of the ICSID Convention. It acknowledged that proceedings before national courts are generally blocked by the principle of Kompetenz-Kompetenz under the ICSID Convention once an ICSID arbitration is initiated, but held that this blocking effect does not apply in the special case of intra-EU investor-state ICSID arbitration under the ECT, due to the primacy of EU law.⁸ The BGH found that according to case law of the ECJ, post-arbitration judicial review of an ICSID award is mandatory in an intra-EU context.⁹ The BGH held that therefore, the principle of effectiveness (effet utile) requires that the primacy of EU law also extend to pre-arbitration judicial review under Section 1032(2) ZPO.¹⁰ According to the BGH, this provision enables early judicial review, which in an intra-EU context can preemptively and bindingly replace the required post-arbitration review.¹¹

The BGH also found the application to be well-founded on the merits. The arbitration proceedings were inadmissible due to the lack of a valid arbitration agreement.¹² The BGH found that according to ECJ case law, the arbitration clause in the ECT violates EU law when applied to intra-EU investor-state arbitration.¹³

B. The Proceeding Before the Federal Constitutional Court

Following the BGH decision, six investors filed a constitutional complaint before the FCC, alleging, inter alia, that the contested BGH decision violated their rights under Article 2(1) in conjunction with Article 20(3) of the German Constitution (the “Basic Law”). They argued that the decision exceeded the constitutional limits of judicial development of the law and interpreted federal law in a manner that disregards the Basic Law’s commitment to international law.¹⁴

The FCC dismissed the application, finding no sufficient substantiation of a fundamental rights violation (keine hinreichende Substantiierung einer Grundrechtsverletzung) and no recognized legal interest on the part of the applicants (kein Rechtsschutzbedürfnis).¹⁵

In its decision, the FCC found that the interpretative development of the law by the BGH followed the recognized methods of statutory interpretation. The FCC held that the applicants did not substantiate how this expansive interpretation conflicts with the principles enshrined in the Basic Law.

The FCC explained that while the BGH’s interpretation may be in tension with Germany’s international obligations under the ICSID Convention, the BGH justified its interpretation by invoking an exception within the scope of EU law. Notably, the FCC concluded that, even if one might reasonably question whether the BGH was correct in assuming that EU law mandated its interpretation, it had not been convincingly demonstrated that the interpretation was wholly indefensible or arbitrary.

Here, the FCC made two noteworthy points:

First, the FCC noted that there is much to suggest that the interpretation adopted by the BGH “creates tension” with the principle of the Basic Law’s commitment to international law, because this interpretation, as the BGH itself acknowledges, violates Article 41 of the ICSID Convention.¹⁶ Under Article 41 of the ICSID Convention, the arbitral tribunal has the authority to determine its own jurisdiction, and in principle, once ICSID arbitration proceedings have been instituted, national courts are no longer permitted to rule on the matter.¹⁷

However, the FCC found that the BGH justified its interpretation by relying on the ECJ’s jurisprudence in Achmea and similar cases.¹⁸ The FCC here held that the ECJ’s jurisprudence was a tenable interpretation of EU law, and found that the applicants had failed to establish that the ECJ’s jurisprudence constituted an ultra vires act by EU institutions, and that they had further failed to demonstrate that the way in which the ECJ applied the law led to a structural reordering of competences away from the Member States and to the European Union.¹⁹

Second, the FCC acknowledged that the BGH’s approach further “raised concerns” because it seemed questionable whether EU law and the ECJ’s jurisprudence really imposed an obligation on the courts of EU Member States to declare ICSID arbitration proceedings inadmissible.²⁰ The FCC, referring to the ECJ’s ruling in PL Holdings, noted that when it comes to ongoing arbitration proceedings, ECJ jurisprudence merely obligates Member States “to challenge before that arbitration body or before the competent court the validity of the arbitration clause or the ad hoc arbitration agreement on the basis of which that body was seized.”²¹ The FCC explained that against the background of this case law, it did not appear to be out of the question that Germany had sufficiently fulfilled its obligations under EU law by challenging the jurisdiction of the arbitral tribunal in the ongoing arbitration proceedings, without it being necessary to violate the ICSID Convention at the current stage of the proceedings.²²

In this context, the FCC conducted a detailed analysis of the practice of Member States, referencing the Agreement for the Termination of Bilateral Investment Treaties between the Member States of the European Union (the “Agreement”).²³ It noted that under Article 7 of the Agreement, the Contracting Parties are obliged, with regard to pending and new arbitration proceedings, to inform the arbitral tribunals of the legal consequences of the judgment in Achmea and to request the competent national court to set aside or annul an arbitral award or to refrain from recognizing and enforcing it.²⁴ The FCC noted that “Article 7 of the Agreement thus distinguishes between the obligation to inform the arbitral tribunal in the context of ongoing arbitration proceedings and the obligation to request a competent court to set aside an arbitral award after the conclusion of arbitration proceedings.”²⁵

The FCC also held that the applicants had not sufficiently demonstrated a protected legal interest.²⁹ The FCC held that the BGH decision did not directly impair the exercise of Kompetenz-Kompetenz by the competent arbitral tribunal.³⁰ The FCC noted that to the extent that the applicants argued the decision would preclude subsequent enforcement of a potential arbitral award in Germany, such difficulties primarily result from EU law as interpreted by the ECJ.³¹ Additionally, the FCC noted that the applicants had not explained why they could not seek legal remedies under the ICSID system. The FCC found that in light of relevant statements by the arbitral tribunal (which had noted that insofar as the costs associated with the German court proceedings caused the applicants additional damage, they could possibly find a legal basis for asserting this in the ongoing arbitration proceedings), it did not appear to be out of the question that objections to any violations of the ICSID Convention in connection with the specific arbitration proceedings could be raised before the arbitral tribunal.³² According to the FCC, this would also be in line with the exclusivity of the ICSID system.³³

III. THE FCC’S SECOND DECISION: THE GERMANY-INDIA BIT (2 BVR 85/24)

In a separate decision, published on the same day, the FCC (rather unsurprisingly) confirmed that extra-EU treaty-based arbitrations do not raise concerns from an EU law perspective and that the BGH had correctly refrained from seeking a preliminary ruling from the ECJ in this regard.

A. The Underlying Case

India’s complaint arose in connection with efforts by a German investor to enforce an arbitral award of USD 132 million related to a canceled satellite agreement. The arbitration was seated in Geneva and based on the BIT between Germany and India. In 2023, the Higher Regional Court of Berlin declared the award partially enforceable in an amount up to USD 10 million.³⁴ India appealed to the BGH, arguing that the Achmea judgment might apply to investment treaties between EU Member States and third countries if there is an abstract risk that the dispute could involve aspects of EU law.

The BGH rejected the appeal in October 2023.³⁵ It held that the Higher Regional Court of Berlin had correctly found that no grounds existed for denying the recognition and enforcement of the arbitral award at issue. According to the BGH, the ECJ case law in Achmea and other cases could not be applied to bilateral investment treaties between EU Member States and third countries.

The BGH also held that a request for a preliminary ruling from the ECJ pursuant to Article 267(3) of the Treaty on the Functioning of the European Union (“TFEU”) was not necessary, as the ECJ had already clarified that arbitration clauses in bilateral investment treaties between an EU Member State and a third country were not incompatible with EU law.

B. The Proceeding Before the Federal Constitutional Court

India lodged a constitutional complaint before the FCC, arguing that the BGH should have sought a preliminary ruling from the ECJ to clarify whether the arbitration clause in the BIT between Germany and India was compatible with EU law.

The FCC dismissed the complaint, stating that India had not sufficiently demonstrated a violation of its constitutional rights.³⁶ The FCC emphasized that the BGH had thoroughly examined the relevant legal issues, considered applicable case law, and reasonably concluded that a referral to the ECJ was unnecessary. It also noted that the BGH had appropriately distinguished the ECJ’s judgments’ implications for intra-EU disputes from those involving third countries.

IV. CONCLUSION

The FCC’s two rulings reaffirm the legal distinction between intra-EU and extra-EU investment arbitration and give insights into the FCC’s stance on the role of EU law in investment arbitration as well as Germany’s commitment to international law.

In the first case, the FCC upheld the BGH’s controversial extension of German procedural law to ICSID proceedings, but not without expressing concern over its compatibility with international obligations. The FCC’s acknowledgment that the BGH’s reasoning “raises concerns” is a rare and pointed critique of the BGH. This is particularly notable given the FCC’s limited jurisdiction: unlike other supreme courts around the world, the FCC does not serve as a general appellate body but reviews decisions solely for compliance with the German constitution. That it chose to voice concern despite these constraints highlights the gravity of the issue, and may strengthen the case for Higher Regional Courts to consider seeking a preliminary ruling from the ECJ when faced with similar questions in the future. In light of the BGH’s and the FCC’s rulings, it is likely that State parties will make similar applications of this nature in the future in relation to intra-EU investment arbitrations, both in Germany and elsewhere in the EU. It remains to be seen how ICSID tribunals will respond to such applications.

In the second decision, the FCC held that EU law does not preclude arbitration under BITs with third countries, thereby confirming that extra-EU investment arbitrations remain permissible and reinforcing legal certainty in that respect. This outcome underscores the limited reach of EU law in such contexts.

Overall, the FCC’s rulings offer important guidance on the intersection of EU law and international obligations in the context of investment arbitration. While the FCC’s jurisdiction is narrowly confined to constitutional matters, its willingness to express concern about compatibility with international law is notable. This could signal that constitutional courts may play a more active role in shaping the boundaries of investment arbitration within the EU legal framework.

Footnotes:

1. ZPO, Section 1032(2) (“(2) Until the arbitral tribunal has been formed, a request may be filed with the court to have it determine the admissibility or inadmissibility of arbitral proceedings”).
2. Decision of the Higher Regional Court of Berlin, Case No. 12 SchH 6/21, dated 28 April 2022.
3. See ICSID Convention, Article 41 (“(1) The Tribunal shall be the judge of its own competence. (2) Any objection by a party to the dispute that that dispute is not within the jurisdiction of the Centre, or for other reasons is not within the competence of the Tribunal, shall be considered by the Tribunal which shall determine whether to deal with it as a preliminary question or to join it to the merits of the dispute.”).
4. Decision of the Federal Court of Justice, Case No. I ZB 43/22, dated 27 July 2023.
5. ZPO, Section 1025(2) (“(2) The provisions of sections 1032, 1033 and 1050 are to be applied also in those cases in which the place of arbitration is located abroad or has not yet been determined.”).
6. C. Schreuer et al., The ICSID Convention: A Commentary, 2nd ed., 2009, at p. 899.
7. Decision of the Federal Court of Justice, Case No. I ZB 43/22, dated 27 July 2023, at para. 48.
8. Decision of the Federal Court of Justice, Case No. I ZB 43/22, dated 27 July 2023, at paras. 54–86. The BGH also addressed Article 26 of the ICSID Convention in this context, which provides that “[c]onsent of the parties to arbitration under this Convention shall, unless otherwise stated, be deemed consent to such arbitration to the exclusion of any other remedy.” Tribunals have frequently held that Article 26 of the ICSID Convention provides for the exclusivity of ICSID proceedings, meaning that parties must refrain from initiating parallel proceedings in any other forum (see, e.g., First Majestic Silver Corp. v. United Mexican States (I), ICSID Case No. ARB/21/14, Decision on the Claimant’s Request for Provisional Measures, 26 May 2023, para. 97). However, the BGH merely noted that “[d]ue to the fact that the arbitration proceedings have already been initiated, it is not of decisive importance what the precise meaning of the provision of Article 26 sentence 1 ICSID Convention is, which stipulates that the consent of the parties to arbitration under the Convention is also deemed to be a waiver of any other remedy, unless a declaration to the contrary is made. This provision only applies directly up until such time as a request has been submitted to the Centre.” Decision of the Federal Court of Justice, Case No. I ZB 43/22, dated 27 July 2023, at para. 66.
9. Decision of the Federal Court of Justice, Case No. I ZB 43/22, dated 27 July 2023, at paras. 71–73.
10. Decision of the Federal Court of Justice, Case No. I ZB 43/22, dated 27 July 2023, at paras. 71 and 75.
11. Decision of the Federal Court of Justice, Case No. I ZB 43/22, dated 27 July 2023, at para. 77.
12. Decision of the Federal Court of Justice, Case No. I ZB 43/22, dated 27 July 2023, at para. 95.
13. Decision of the Federal Court of Justice, Case No. I ZB 43/22, dated 27 July 2023, at para. 100.
14. Article 2(1) of the Basic Law provides that “[e]very person shall have the right to the free development of his personality insofar as he does not violate the rights of others or offend against the constitutional order or the moral law.” In conjunction with Article 20(2), second sentence (“All state authority shall emanate from the people”), and Article 20(3) (“The legislature shall be bound by the constitutional order; the executive and the judiciary shall be bound by law and justice”), this provision guarantees individuals protection against arbitrary or legally untenable judicial decisions. The combination of these provisions has been interpreted to mean that courts must remain within the boundaries of tenable interpretation and permissible judicial development of the law.
15. Decision of the Federal Constitutional Court, Case No. 2 BvR 1277/23, dated 31 July 2025. These are two of the requirements necessary to have standing to file a constitutional complaint before the FCC (see Federal Constitutional Court Act, Section 90(1) and Section 93a). It is noteworthy that unlike other supreme courts around the world, the FCC does not function as a standard part of the judicial or appellate system. It does not act as a general appellate body for decisions from lower courts regarding violations of the law. Instead, its jurisdiction is strictly limited to constitutional matters, focusing on ensuring that all branches of government operate in accordance with the constitution.
16. Decision of the Federal Constitutional Court, Case No. 2 BvR 1277/23, dated 31 July 2025, at para. 77.
17. ICSID Convention, Article 41 (“(1) The Tribunal shall be the judge of its own competence. (2) Any objection by a party to the dispute that that dispute is not within the jurisdiction of the Centre, or for other reasons is not within the competence of the Tribunal, shall be considered by the Tribunal which shall determine whether to deal with it as a preliminary question or to join it to the merits of the dispute.”).
18. Decision of the Federal Constitutional Court, Case No. 2 BvR 1277/23, dated 31 July 2025, at paras. 78–82.
19. Decision of the Federal Constitutional Court, Case No. 2 BvR 1277/23, dated 31 July 2025, at paras. 89 et seq.
20. Decision of the Federal Constitutional Court, Case No. 2 BvR 1277/23, dated 31 July 2025, at para. 100.
21. PL Holdings S.a.r.l. v. Poland, SCC Case No. V 2014/163, Judgment of the Grand Chamber of the ECJ, dated 26 October 2021, at para. 52.
22. Decision of the Federal Constitutional Court, Case No. 2 BvR 1277/23, dated 31 July 2025, at para. 115.
23. Decision of the Federal Constitutional Court, Case No. 2 BvR 1277/23, dated 31 July 2025, at para. 102.
24. Decision of the Federal Constitutional Court, Case No. 2 BvR 1277/23, dated 31 July 2025, at para. 102.
25. Decision of the Federal Constitutional Court, Case No. 2 BvR 1277/23, dated 31 July 2025 , at para. 102. Agreement for the Termination of Bilateral Investment Treaties between the Member States of the European Union, Article 7 (“Where the Contracting Parties are parties to Bilateral Investment Treaties on the basis of which Pending Arbitration Proceedings or New Arbitration Proceedings were initiated, they shall: (a) inform, in cooperation with each other and on the basis of the statement in Annex C, arbitral tribunals about the legal consequences of the Achmea judgment as described in Article 4; and (b) where they are party to judicial proceedings concerning an arbitral award issued on the basis of a Bilateral Investment Treaty, ask the competent national court, including in any third country, as the case may be, to set the arbitral award aside, annul it or to refrain from recognising and enforcing it.”), dated 29 May 2020.
26. Decision of the Federal Constitutional Court, Case No. 2 BvR 1277/23, dated 31 July 2025, at para. 102. Agreement for the Termination of Bilateral Investment Treaties between the Member States of the European Union, Article 9 (“(7) The settlement procedure shall be overseen by an impartial facilitator with a view to finding between the parties an amicable, lawful and fair out-of-court and out-of-arbitration settlement of the dispute which is the subject of the Arbitration Proceedings. The settlement procedure shall be impartial and confidential. Each party to the settlement procedure shall have the right to make its views known.”), dated 29 May 2020.
27. Decision of the Federal Constitutional Court, Case No. 2 BvR 1277/23, dated 31 July 2025, at para. 103.
28. Decision of the Federal Constitutional Court, Case No. 2 BvR 1277/23, dated 31 July 2025, at para. 103.
29. Decision of the Federal Constitutional Court, Case No. 2 BvR 1277/23, dated 31 July 2025, at paras. 109–112.
30. Decision of the Federal Constitutional Court, Case No. 2 BvR 1277/23, dated 31 July 2025, at para. 110.
31. Decision of the Federal Constitutional Court, Case No. 2 BvR 1277/23, dated 31 July 2025, at para. 111.
32. Decision of the Federal Constitutional Court, Case No. 2 BvR 1277/23, dated 31 July 2025, at para. 115.
33. Decision of the Federal Constitutional Court, Case No. 2 BvR 1277/23, dated 31 July 2025, at para. 115.
34. Decision of the Higher Regional Court of Berlin, Case No. 12 Sch 7/21, dated 26 January 2023.
35. Decision of the Federal Court of Justice, Case No. I ZB 12/23, dated 12 December 2023.
36. Decision of the Federal Constitutional Court, Case No. 2 BvR 85/24, dated 31 July 2025.