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UK Supreme Court paves the way for enforcement of the Micula award

On 19 February 2020, the UK Supreme Court rendered its judgment in Micula and others v Romania. In a unanimous ruling, the court lifted a stay of enforcement of an ICSID arbitral award despite an extant state aid investigation by the European Commission. This decision is the latest stage in the claimants’ long-running attempts to enforce their award against Romania in numerous jurisdictions. The judgment concluded that while the English courts have the power to stay execution of ICSID awards in limited circumstances, the stay in this case exceeded the proper limits of that power. In particular, the EU treaties did not displace the UK’s obligations under the ICSID Convention (pursuant to which the UK had a prior (pre-EU-accession) obligation to enforce the award).

Background

In 2013, an ICSID tribunal issued an award finding Romania in breach of the Sweden-Romania BIT, and awarded the claimants compensation of approximately £150 million. Romania subsequently commenced ICSID annulment proceedings, which were ultimately rejected.

In 2014, the claimants applied for registration of the award before the English Commercial Court, pursuant to the Arbitration (International Investment Disputes) Act 1966, which implemented the ICSID Convention into domestic law. In July 2015, Romania applied for the registration to be varied or set aside; the claimants sought, by counter application, an order for security to be made in the event that a stay was ordered.

Meanwhile, in March 2015, the Commission issued a decision to Romania (the Commission decision) concluding that payment of the award constituted unlawful state aid in breach of the Treaty on the Functioning of the European Union (TFEU). Payment was therefore prohibited, and any payments made hitherto were to be recovered. The claimants applied to the General Court of the European Union (GCEU) for annulment of the Commission decision.

In 2017, the High Court refused to set aside registration, but granted a stay pending the outcome of the GCEU proceedings. It meanwhile refused the claimants’ application for security. In 2018, the Court of Appeal took a different approach. While maintaining the stay, it ordered Romania to provide security in the sum of £150 million. Romania was permitted to appeal the order before the Supreme Court. The claimants cross-appealed the stay.

On 18 June 2019, the morning the Supreme Court proceedings were scheduled to start, the GCEU annulled the Commission’s decision (the annulment decision). The GCEU found that the Commission had exceeded its competence by retroactively applying its state aid powers under the TFEU to events predating Romania’s EU accession. The GCEU’s judgment caused the Court of Appeal’s order of a stay (and conditional security) to lapse. The Supreme Court hearing was postponed.

The Commission next made clear its intention to appeal the GCEU’s decision before the CJEU. This triggered further applications by the parties for stay and security. The High Court ordered both. A leapfrog application was granted for the appeals on these issues to be heard by the Supreme Court. The Commission participated as an intervening party.

The judgment

The court essentially considered three issues in relation to the stay.

Did the annulment decision mean that the EU law duty of sincere co-operation no longer required the English courts to stay enforcement?

EU law provides for a “duty of sincere co-operation”, which includes a mutual legal obligation for the EU and its member states to assist each other in carrying out tasks which flow from the EU treaties.

The issue for the Supreme Court was whether the annulment decision also annulled, as the claimants argued, the Commission’s prior decision initiating formal state aid proceedings against Romania. If so, no requirement existed for the stay to be maintained.

The court disagreed with the claimants on this issue. While the prior decision was subject to the “same flaws” as the Commission decision, that did not prevent the Commission from relying on it as giving rise to a duty of sincere co-operation on the part of the national courts. Moreover, the annulment decision left open the state aid investigation. Absent a final decision by the Court of Justice of the European Union (CJEU) and a formal closure of the investigation, the prior decision subsisted and the duty of sincere co-operation applies.

Subject to further grounds of appeal, the court found that the grant of stay should be upheld.

Do the English courts have the power to grant the stay, and is it incompatible with the ICSID Convention?

The UK signed the ICSID Convention in 1966, prior to its accession to the EU. Article 54(1) imposes a duty on national courts to recognise an ICSID award as binding, and to enforce it “as if it were a final judgment” by a domestic court.

In the claimants’ view, while national courts have control over execution (including the power to grant a temporary stay), it may only do so:

  • For procedural (not substantive) reasons.
  • Where no inconsistency arises with the ICSID Convention duty to recognise and enforce the award.

The claimants thus argued that English courts did not have the power to grant a stay pending determination of the GCEU proceedings.

The court agreed. It first observed that “a notable feature” of the ICSID Convention was that “once the authenticity of an award is established, a domestic court… may not re-examine the award on its merits”; nor can a domestic court refuse to enforce on public policy grounds. Nevertheless, the Convention’s travaux préparatoires indicate that in “certain exceptional or extraordinary circumstances”, national law defences to enforcement may be invoked.

With that in mind, and taking into account the wording of Article 54(1), the court concluded that the power to stay execution only exists in the “limited” circumstances described above. The stay in question “exceeded the proper limits of that power”, and was inconsistent with the Convention under which the UK and its courts had a duty to recognise and enforce the award. The court held that the stay was not a limited stay on procedural grounds, but a prohibition on enforcement of the award on substantive grounds.

Do the UK’s EU law obligations require the UK to breach its pre-accession obligations under the ICSID Convention?

Article 351 of the TFEU provides that obligations arising from pre-EU-accession agreements involving third countries (that is, non-EU member states) “shall not be affected by the provisions of the EU Treaties”. In the claimants’ view, the UK’s obligations under the ICSID Convention are pre-accession obligations within the meaning of Article 351. Thus, they are unaffected by EU obligations and a stay is not required.

The court agreed with the claimants’ position. While the UK, Sweden and Romania were at all times EU member states, under the Convention, obligations are owed not just to EU member states but to Contracting States which are third-countries. Article 351 is, therefore, engaged. More specifically, the Convention confers specific dutiesowed to all other Contracting Statesto recognise and enforce awards (Article 54) and take such measures as may be necessary to implement the Convention (Article 69). Nothing in the Convention or the travaux warranted viewing those specific duties as only owed to the State of nationality of an award beneficiary (which, in this case would mean only the rights of EU-Member States are engaged, and Article 351 would not apply).

In Romania’s (and the Commission’s) view, the Article 351 issue nevertheless required a stay in accordance with the duty of sincere co-operation because of the risk of conflict with a future ruling from the CJEU.

The court, however, disagreed; it was not required to defer to the EU courts on this issue. First, questions regarding prior treaties under Article 351 are not reserved to the EU courts. Second, the Article 351 issue before the EU courts was different: it concerned Romania’s obligations, and not the UK’s. Third, the possibility that the EU courts may consider the issue in future is “contingent and remote”. The circumstances therefore did not require a stay.

Accordingly, the Supreme Court lifted the stay (“an unlawful measure in international law and unjustified and unlawful in domestic law”), and the issue of security fell away.

Comment

The Micula judgment is significant. The court concluded that English courts have the power to stay execution of an ICSID award, but only for procedural (not substantive) reasons; and in circumstances where no inconsistency arises with the Convention duty to recognise and enforce awards. This is positive news for parties looking to enforce ICSID awards in the UK. Enforcing parties will further be encouraged by the court’s comments that, under the Convention, contracting states may not refuse recognition or enforcement based on the annulment provisions in the Convention itself (which include that the tribunal was not properly constituted or manifestly exceeded its powers).

Of course, the UK State Immunity Act 1978 still applies with respect to execution of ICSID awards. This means that it will not be possible to enforce against state assets in the UK unless, among other things, there is written consent; or the commercial purposes exception applies.

So far as the relevance of Brexit is concerned, the UK currently remains bound by EU law and will do so throughout the transition period. Whether there is still a role for Commission state-aid decisions (including as regards the compatibility of ICSID awards) after the transition period is likely to be the subject of future negotiation between the UK and EU. However, any such decisions are unlikely to have an effect on enforcement in any event. In light of Micula, the effect of Article 351 is that the UK’s pre-accession obligations under the ICSID Convention to enforce awards ought to take precedence over conflicting provisions of EU law.

The reasoning in Micula ought also to apply to a conflict between the UK’s obligation to enforce ICSID awards and its obligation under EU law to give effect to the reasoning in the CJEU’s decision in Achmea. This is potentially good news for investors seeking to enforce intra-EU awards in the UK.

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