Micula & Ors v Romania & Anor, Court of Appeal - Commercial Court, January 20, 2017, [2017] EWHC 31 (Comm),[2017] WLR(D) 35

Resolution Date:January 20, 2017
Issuing Organization:Commercial Court
Actores:Micula & Ors v Romania & Anor

Case No: CL-2014-000251

Neutral Citation Number: [2017] EWHC 31 (Comm)





Royal Courts of Justice, Rolls Building

Fetter Lane, London, EC4A 1NL

Date: 20/01/2017



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Sir Alan Dashwood QC, Patrick Green QC, and Matthieu Grégoire (instructed by Shearman & Sterling (London) LLP) for the First Claimant

Marie Demetriou QC and Hugo Leith (instructed by White & Case LLP) for the Second to Fifth Claimants

Robert O'Donoghue and Emily MacKenzie (instructed by Thrings LLP) for the Defendant

Nicholas Khan for the European Commission

Hearing dates: 1-3 November 2016

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Mr Justice Blair:


  1. The 1st and 2nd claimants are nationals of Sweden, and the 3rd to 5th claimants are Romanian companies owned directly or indirectly by them. The defendant/applicant is Romania, and the intervening party is the European Commission.

  2. This application arises out of an ICSID arbitration award (Case No. ARB/05/20) rendered against Romania in favour of the claimants on 11 December 2013 (the ``Award''). ICSID is the International Centre for Settlement of Investment Disputes set up under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the ``ICSID Convention''). According to the claimants, as at 31 August 2016 and including interest, the outstanding amount of the Award converted into sterling is about £173m.

  3. The Arbitral Tribunal that rendered the Award was established pursuant to the bilateral investment treaty entered into between the Government of the Kingdom of Sweden and the Government of Romania on the Promotion and Reciprocal Protection of Investments on April 1, 2003 (the ``Sweden/Romania BIT'').

  4. On 17 October 2014, the Award was registered in the High Court by Order of Burton J pursuant to the provisions of the Arbitration (International Investment Disputes) Act 1966, which implemented the ICSID Convention in the UK (the ``Registration Order'').

  5. By this application, Romania (supported by the European Commission) applies to set aside the Registration Order, alternatively to stay the Registration Order, alternatively that the questions which arise should be submitted to the Court of Justice of the European Union (CJEU) for a preliminary ruling.

  6. In summary, the issue that arises is as follows. Reflecting the terms of the ICSID Convention, registration of an ICSID award is an entitlement under the 1966 Act. There is no equivalent in the 1966 Act of s. 103 of the Arbitration Act 1996 which incorporates the grounds for the refusal of recognition or enforcement of a New York Convention Award set out in Article V of the Convention. Accordingly, the claimants argue that the court should dismiss the application and enforce the Award as a judgment in the normal way.

  7. The complication in the present case is most easily shown by decisions issued by the European Commission. Following an injunction addressed to Romania dated 26 May 2014, a final decision was issued by the European Commission on 30 March 2015 (Commission Decision (EU) 2015/1470 of 30 March 2015 on State aid SA.38517) (the ``Final Decision''). By the Final Decision, the Commission found that implementation or execution of the Award by Romania (including payment) would constitute new incompatible State aid. (In very broad terms, the European Union rules on State aid are rules which prohibit state subsidies that distort competition.)

  8. Supported by the European Commission, Romania argues that consequent on the Final Decision, this court is duty-bound, as a matter of domestic constitutional law which incorporates EU law, to refuse registration or execution of the Award, and therefore to set aside any Order which has already purported to register or execute the Award.

  9. In summary, Romania's case supported by the Commission (except as to paragraph (1)(i) below in respect of which the Commission does not take a position) is that:

    (1) The Registration Order be set aside because:

    (i) Romania has in fact paid the Award in full; and/or

    (ii) This court is obliged to refuse recognition (and any further enforcement) of the Award, given the terms of the Final Decision.

    (2) Alternatively, that the court vary the Registration Order so as to stay proceedings until:

    (i) The claimants' applications to annul the Final Decision are determined by the EU Courts; or

    (ii) The CJEU issues a preliminary ruling pursuant to Art. 267 TFEU (assuming that this court makes a preliminary reference, as Romania supported by the Commission submits in the alternative that it should).

  10. On their part, the claimants invite the court to assume for the purposes of this hearing that the Commission's Final Decision is valid (though they are challenging it in annulment proceedings (equivalent to an appeal) in the General Court of the European Union, the ``GCEU''). They submit that, even on the premise of the decision's validity, the court is under a duty to recognise and enforce the Award. There is no basis for setting aside the Registration Order, or for a stay, or for a reference to the CJEU, the claimants submit, because:

    (1) The Award is res judicata.

    (2) The terms of the 1966 Act are clear and allow no derogation.

    (3) Art.351 TFEU applies because the ICSID Convention imposes applicable prior multilateral international obligations on the UK owed to non-EU Member States which take precedence.

    (4) The European Communities Act 1972 was not intended to put the UK in breach of pre-accession international obligations nor confer primacy on EU law in the relevant respect.

    (5) Rejecting the application would not infringe the UK's EU law obligations of ``sincere cooperation'' under Art. 4(3) TEU (nor any other EU law duty).

    (6) The Award has not been paid in full.

  11. The Commission further argues that upon Romania's accession to the EU in 2007, at which point both parties to the treaty were members of the EU, the Sweden-Romania BIT became invalid. It submits that this issue should be included in a reference to the CJEU. The claimants say that the question is irrelevant to this case.

  12. In this regard, it is to be noted that the question of the validity of BITs entered into between Member States of the EU (as in the present case between Sweden and Romania) has a wider significance for the Commission, raising questions as to the proper discharge of its duties in this situation. On 3 March 2016, in the case of Achmea B.V. v Slovak Republic, the Bundesgerichtshof (the Federal Court of Justice of Germany) requested a preliminary ruling from the CJEU on the compatibility of investor-state arbitration clauses in investment treaties between EU Member States. The Commission has recently issued a reasoned opinion under the infringement procedure under Article 258 TFEU to a number of EU Member States to the effect that they must terminate their intra-EU bilateral investment treaties.

  13. The key issues that arise on the parties' submissions have been agreed in a joint table submitted by the parties after the close of the hearing.

  14. If contrary to the claimants' primary contention, the court finds that a stay should be ordered, by application issued on 29 September 2016 the claimants ask the court to make the grant of such stay conditional upon the grant of full or substantial security for the Award.

    The facts

  15. The facts are largely not in dispute, though the parties interpret them differently.

  16. The claimants maintain that they have made investments in Romania which were and still are protected by the Sweden/Romania BIT, and that they have a valid arbitration award in their favour which has been subject to an ex post attempt to nullify it. They maintain further that in its dealings towards them Romania has not behaved in good faith.

  17. Romania denies bad faith on its part, and maintains that its actions are dictated by the necessity to comply with the legal regime of the European Union of which the claimants have at all times been aware.

  18. The facts up to the date of the Award are set out fully and carefully in the ICSID Award of 11 December 2013 which is available on the internet. What is set out below is an outline. It is not for present purposes usually necessary to distinguish between the claimants.

  19. In 1975, the ICSID Convention came into force in Romania. This was during the Communist period, which came to an end at the end of 1989.

  20. Following Romania's application for membership in 1993, in 1995 the Europe Agreement between the European Community and Romania entered into force. This required the eventual adoption of the European rules on State aid.

  21. In 1997, Romania was urged by the Commission to pursue ``rapid privatisation'', secure foreign direct investment and restructure the industrial and agricultural sectors. The Commission's 1998 Annual Report also emphasised the importance of regional development for Romania.

  22. In 1998, Romania adopted an investment incentive scheme in the form of Emergency Government Ordinance No. 24/1998 (``EGO 24'').

  23. In 1999, the ªtei-Nucet region of Romania was designated as a disfavoured region for a 10-year period commencing 1 April 1999. It was later extended to include Drãgãneºti.

  24. At the beginning of 2000, and in preparation for eventual accession to the EU, Romanian Law no. 143/1999 on State aid entered into force.

  25. During the early 2000s, and (as explained in the Award) in reliance on the investment incentives, the claimants heavily invested in a large, highly integrated food production operation in the ªeti-Nucet-Drãgãneºti region as part of a 10-year business plan.

  26. In 2002, Romania and Sweden (which was an existing member of the EU) signed the...

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