Today’s blog post has been sent to UKSALA by Emily MacKenzie, Brick Court Chambers, who appeared as junior counsel for Romania in the latest instalment of the Micula saga.
On 27 July 2018, the Court of Appeal (Arden, Hamblen and Leggatt LLJ) handed down its judgment in Micula and others v Romania  EWCA Civ 1801, a case concerning the intersection of international law rules for investment arbitration with EU law rules on State aid.
In 2013, an ICSID Tribunal awarded the Micula brothers and associated companies substantial damages against Romania in respect of Romania’s withdrawal of an investment incentive programme. The withdrawal occurred in the context of Romania’s accession to the EU and the introduction of EU State aid rules.
The European Commission issued first an injunction and later a final decision declaring that implementation or execution of the ICSID award by Romania (including payment) would constitute new State aid, incompatible with the internal market. The Claimants have applied to the EU Courts for the final decision to be annulled in proceedings that remain pending.
In January 2017, Blair J ordered a stay of enforcement of the ICSID Award pending the resolution of the Claimants’ proceedings in the European courts. In June 2017, Blair J refused to order Romania to pay security.
The Claimants appealed both of these rulings.
The Appellants’ first ground of appeal asserted that Blair J had failed to have regard to the fact that the ICSID Award was res judicata under UK law. Relying on Case C-234/04 Kapferer, the Appellants argued that domestic law principles of res judicata are to be applied where any conflict arises between a final domestic court decision (or, as in this case, arbitral award, which under the applicable statute was to be given the same force and effect as a final judgment of the High Court) and a rule of EU law.
The Respondents, supported by the European Commission intervening, argued that the principle of res judicata is subordinate to concerns about the circumvention of fundamental aspects of State aid rules, relying on Case C-505/14 Klausner.
In short, the Court of Appeal agreed that Klausner laid down general principles as to when the principle of res judicata must yield to the effective application of EU State aid law (§87). The Court found that, effectiveness being context-dependent, it was relevant that control of State aid is a “fundamental principle” of EU law and that the assessment of the compatibility of State aid is an exclusive competence of the Commission (§91). The Court reasoned that if it was to permit enforcement on the basis of the Kapferer principle it would be permitting the Appellants to be paid the very aid which the Commission has declared to be unlawful and would be compelling Romania to infringe the Commission’s Decision (§97), which would be a “clear example of the effective application of EU state aid law being “circumvented” or “frustrated” or significantly obstructed by the application of the principle of res judicata” (§98). Therefore, res judicata “must yield to the need for the effective application of EU State aid law” (§100).
In relation to the other grounds of appeal raised by the Appellants, all members of the Court of Appeal agreed that the enforcement of the Award should be stayed pending the determination by the General Court of the annulment proceedings or further order. However, they each gave different reasons for this conclusion and, in the course of doing so, touched on important issues, including the interaction between investment treaties and the EU treaties, the interpretation of the ICSID Convention and the enforcement of ICSID awards in domestic law.
However, the Court of Appeal overturned Blair J’s findings on security and ordered Romania to pay security of £150 million into court. Although the Court found that it could not make continuation of the stay of enforcement of the ICSID Award dependent on the payment of security, it accepted the Appellants’ submission that there were a number of other measures the Court could take if necessary in order to enforce the security order. However, on 31 October 2018, the Supreme Court granted Romania permission to appeal against the security order and continued the stay of it put in place by the Court of Appeal.