Many thanks to Marie Demetriou QC and Hugo Leith for this summary of yesterday’s Micula judgment
Yesterday the Supreme Court gave judgment in Micula v Romania, lifting a stay on the enforcement of an ICSID (International Convention for the Settlement of Investment Disputes) arbitral award. In doing so it rejected the argument that EU law requires enforcement to be stayed in circumstances where there are live proceedings in the European Court to determine whether payment of the award would constitute unlawful State aid and disagreed with both Blair J at first instance and the Court of Appeal.
The Court’s judgment grapples directly with the duties of domestic courts in circumstances where they are subject to conflicting obligations under EU law and under an international treaty. The Supreme Court found that the courts below had been wrong to refuse to decide the issue on the basis that it was before the European Courts and instead held that the effect of Article 351 TFEU in this case is that the UK’s pre-existing international law obligations to enforce an arbitral award under the ICSID Convention take priority over any conflicting duty imposed by EU law.
In 2013, pursuant to a bilateral investment treaty between Romania and Sweden, 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 affecting investments they had made in Romania. The withdrawal occurred in the context of Romania’s accession to the EU and the introduction of EU State aid rules. Shortly after the tribunal issued its award, the European Commission adopted a Decision declaring payment of the award to be unlawful State aid and prohibiting Romania from paying the award. The Micula parties challenged the Commission’s final decision in the General Court of the European Union (GCEU).
The Micula parties brought proceedings in England in 2014 to enforce the award under the Arbitration (International Investment Disputes) Act 1966 (1966 Act). Blair J stayed enforcement because of the pending European proceedings but declined to order security. The Court of Appeal upheld the stay but ordered Romania to provide security of £150 million. This was the first time the English courts had imposed a lengthy stay on an ICSID award.
Romania appealed to the Supreme Court against the security order and the Micula brothers appealed against the stay of enforcement. The European Commission intervened throughout. On the morning of the original Supreme Court hearing, the GCEU upheld the challenge to the Commission’s decision, causing the Supreme Court hearing to be adjourned. The judgment of the GCEU is under appeal by the Commission to the Court of Justice.
The Supreme Court held that, had it not been for Article 351, the UK’s EU law duty of sincere cooperation would have required a stay to be ordered despite the annulment of the Commission Decision, given the extant Commission investigation and Court of Justice appeal. However, the Supreme Court found that the stay ought to be lifted on the basis that Art. 351 TFEU applied to the ICSID Convention.
In reaching its conclusion on the Art. 351 issue, the Supreme Court construed the ICSID Convention, holding that the obligation of the UK to enforce the award was owed not just to Sweden (the state of the beneficiaries of the award and the party to the BIT) but to all contracting states, including states outside the EU. The Court considered whether the Court of Appeal had been correct to find that the EU principle of sincere cooperation precluded it from determining the ground of appeal based on Art. 351 in light of the fact that the Miculas were arguing that Art. 351 applied in the Luxembourg annulment proceedings. The Court accepted the argument of the Micula brothers that the principle of sincere cooperation did not have that effect, as the construction of the UK’s obligations under the ICSID Convention was a question of international law and not EU law and therefore the European Courts were not better placed to determine the question.
Given its conclusion that the stay ought to be lifted in light of Art. 351, the Supreme Court did not decide the security appeal and discharged the security that had been ordered by the courts below.
Supreme Court judgment:  UKSC 5
Court of Appeal judgment:  EWCA Civ 1801
Judgments of Mr Justice Blair:  EWHC 31 (Comm) and  EWHC 1430 (Comm)
Judgment of Mr Justice Phillips:  EWHC 2401 (Comm)
Judgment of the General Court: Cases T-625/15, T-694/15 and T-704/15 European Food v Commission EU:T:2019:423