The interface between BIT arbitration awards and the EU State aid rules has never been an easy issue, and it came to the fore in the Micula case. The Commission’s decision in that case was adopted on 30 March 2015, and has now been published in the OJ, available here.
The facts of the case are both interesting and – in some respects – quite extraordinary. The case arose from certain exemptions from Romanian customs duties, enacted before Romania joined the EU. When Romania began accession talks with the EU, those exemptions came under scrutiny and eventually, in 2004, the disputed incentives were repealed in order to comply with the EU State aid rules.
The repeal of those incentives was the source of the dispute that the Micula brothers, investors in Romania, brought before an arbitration tribunal under the Romanian-Swedish bilateral investment treaty (BIT). The Commission intervened in the proceedings as amicus curiae, pointing out that the disputed incentives breached the State aid rules, and that any reinstatement of those incentives, as a result of the arbitration, would itself also amount to unlawful State aid.
The Commission’s protestations fell, however, on deaf ears and in December 2013 the tribunal found that by revoking the incentives Romania had breached the claimants’ legitimate expectations. The tribunal went on to award the claimants damages, and the claimants proceeded to seek the enforcement of the damages awards in the Romanian courts.
Again, the Commission intervened; and again their protestations were ignored. The Romanian courts ordered the execution of the arbitration awards, and the executor appointed by the courts issued orders to seize the accounts of Romania’s Ministry of Finance in order to make payment.
Romania then found itself stuck between a rock and a hard place. While its funds were being seized to execute the arbitration award, the Commission simultaneously initiated a formal investigation on the grounds that payment of the damages awarded by the arbitration tribunal appeared to constitute State aid.
In its final decision, the Commission confirmed that provisional conclusion, finding in particular that its State aid analysis was not precluded by the fact that the aid arose through the payment of compensation awarded by an arbitral tribunal. Indeed, the Commission says, the Commission has consistently taken the view that intra-EU BITs, such as the BIT upon which the Micula brothers had based their claim, were contrary to EU law and should be considered invalid. Furthermore:
“Where giving effect to an intra-EU treaty by a Member State would frustrate the application of Union law, that Member State must uphold Union law since Union primary law, such as Articles 107 and 108 of the Treaty, takes precedence over that Member State’s international obligations.”
Accordingly, the Commission found that the payment (however involuntarily) of the compensation awarded by the arbitration tribunal to the Micula brothers and their associated companies amounted to the granting of incompatible State aid, and the Commission ordered Romania to recover it.
This is an important decision, which is likely to be scrutinised closely in a number of the other BIT arbitrations that are currently pending, in which similar issues arise. The Commission’s decision confirms that the State aid rules will not be set aside in a case where the payment of State aid arises from an obligation under a BIT. The question is now whether, in future, BIT obligations will be construed to take account of the obligations under the TFEU. Meanwhile, the Commission’s decision will not be the last word in the Micula case – the Micula brothers, and their companies, have appealed the decision to the General Court in Case T-646/14. It will be interesting to see what the General Court makes of this very European game of thrones.