Micula & Ors v Romania [2020] UKSC 5

Swedish-Romanian investors obtained an ICSID arbitration award against Romania for breaching a bilateral investment treaty. Romania sought to stay enforcement pending EU proceedings, arguing enforcement would constitute unlawful State aid. The Supreme Court held that the UK's pre-accession obligations under the ICSID Convention, owed to non-EU member states, were protected by Article 351 TFEU, lifting the stay on enforcement.

Facts

The Claimants, two Swedish nationals and their Romanian companies, invested in food production in Romania relying on investment incentives under Emergency Government Ordinance 24/1998 (EGO 24). Romania repealed these incentives in 2005 to comply with EU State aid requirements ahead of its 2007 EU accession. The Claimants commenced ICSID arbitration under the Sweden-Romania Bilateral Investment Treaty, and in December 2013, the tribunal awarded them approximately £150 million in compensation for breach of the BIT.

The European Commission issued a decision in March 2015 declaring that payment of the Award constituted unlawful State aid under Article 107(1) TFEU and prohibited Romania from paying. The Claimants sought to enforce the Award in England under the Arbitration (International Investment Disputes) Act 1966. Romania applied to set aside registration or stay enforcement pending EU court proceedings.

Issues

Principal Issues

1. Whether the ICSID Convention and the 1966 Act permit a stay of enforcement of an ICSID award pending EU court proceedings.

2. Whether Article 351 TFEU applies to protect the UK’s pre-accession obligations under the ICSID Convention from being affected by EU law obligations.

3. Whether the duty of sincere co-operation under Article 4(3) TEU required English courts to stay enforcement following the GCEU’s annulment of the Commission Decision.

Judgment

The GCEU Decision

On 18 June 2019, the GCEU annulled the Commission Decision, holding that the Commission had exceeded its competence by retroactively applying State aid rules to events predating Romania’s EU accession. The Court found:

“the Commission is not competent and … EU law is not applicable to the EGO scheme, to its revocation or to the compensation for that revocation, because the arbitral award, which found that there was a right to compensation in 2013, did not have the effect of triggering the applicability of EU law and the Commission’s competence to the earlier EGO tax incentives”

Duty of Sincere Co-operation

The Supreme Court held that despite the GCEU’s annulment, the Commission’s investigation remained open through the subsisting initiating decision. The Court stated that where there is “scarcely any risk” of conflict, national authorities may proceed, but the pending Commission appeal to the CJEU with real prospect of success was sufficient to engage the duty of co-operation.

Article 351 TFEU

The Supreme Court held that the UK’s obligations under Articles 54 and 69 of the ICSID Convention are owed to all Contracting States, including non-EU member states. Lord Lloyd-Jones and Lord Sales explained:

“The Convention scheme is one of mutual trust and confidence which depends on the participation and compliance of every Contracting State. The importance within this scheme of the effective recognition and enforcement of awards is apparent from the preamble which emphasises the requirement that ‘any arbitral award be complied with’.”

As the UK became party to the ICSID Convention in 1966, before its 1973 EU accession, Article 351 TFEU provides that these obligations “shall not be affected by the provisions of the Treaties.” This meant the duty of sincere co-operation could not override the UK’s Convention obligations.

Interpretation of Article 54 ICSID Convention

The Court noted uncertainty regarding whether Article 54(1) operates on a principle of “equivalence” with domestic judgments, but concluded this did not assist Romania:

“Article 351 TFEU means that this obligation cannot be affected by anything in the Treaties, which are the foundation for the legal effect of Commission rulings and for the obligation of sincere co-operation on which Romania seeks to rely.”

Implications

This judgment is significant for several reasons. It affirms that pre-accession treaty obligations owed to non-EU states are protected from being overridden by EU law under Article 351 TFEU. It clarifies that obligations under the ICSID Convention are owed erga omnes partes to all Contracting States, not merely to the investor’s state of nationality. The decision also establishes important principles regarding the relationship between international investment law obligations and EU State aid rules, with implications for investment treaty arbitration involving EU member states.

Verdict: The Supreme Court allowed the Claimants’ cross-appeal and lifted the stay on enforcement of the ICSID Award. Romania’s appeal regarding the security order was discharged as no longer necessary. The Court held that the UK’s pre-accession obligations under the ICSID Convention were protected by Article 351 TFEU and therefore the duty of sincere co-operation did not preclude enforcement.

Source: Micula & Ors v Romania [2020] UKSC 5