Micula v Romania
| Jurisdiction | England & Wales |
| Judge | Lord Hodge,Lord Reed,Lady Hale,Lord Sales,Lord Lloyd-Jones |
| Judgment Date | 19 February 2020 |
| Neutral Citation | [2020] UKSC 5 |
| Date | 19 February 2020 |
| Court | Supreme Court |
[2020] UKSC 5
Lady Hale
Lord Reed
Lord Hodge
Lord Lloyd-Jones
Lord Sales
Appellant/Cross-Respondent (Romania)
Robert O'Donoghue QC
Gerard Rothschild
Emily MacKenzie
(Instructed by Thrings LLP)
1 st Respondent/Cross-Appellant
Sir Alan Dashwood QC
Patrick Green QC
Jonathan Worboys
(Instructed by Croft Solicitors)
2 nd–5 th Respondents
Marie Demetriou QC
Hugo Leith
(Instructed by White & Case LLP)
Intervener (European Commission)
Nicholas Khan QC
(Instructed by the European Commission, assisted by Langleys Solicitors LLP)
Respondents/Cross-Appellants:-
(1) Mr Viorel Micula
(2) Mr Ioan Micula
(3) SC European Food SA
(4) SC Starmill SRL
(5) SC Multipack SRL
Heard on 18 June and 7, 8 and 9 October 2019
Lord Lloyd-Jones AND( with whom Lady Hale, Lord Reed and Lord Hodge agree)
On 11 December 2013 an International Centre for Settlement of Investment Disputes (“ICSID”) tribunal made a final investment arbitration award (“the Award”) in favour of the Respondents to this appeal (“the Claimants”) against the appellant (“Romania”). The Award related to investments made by the Claimants in food production in Romania prior to Romania's accession to the European Union on 1 January 2007.
The present appeal is the latest chapter in the Claimants' extensive attempts in a number of different jurisdictions to enforce their award against Romania and the attempts of the European Commission (“the Commission”) to prevent enforcement on the ground that it would infringe EU law prohibiting unlawful State aid. More specifically, this appeal arises out of Romania's application in the Commercial Court to set aside the registration of the Award or to stay enforcement pending the determination of the proceedings in the EU courts, and out of the Claimants' application in response for security in the amount of the Award.
The First and Second Claimants are brothers born in Romania who became Swedish nationals in 1995 and 1992 respectively, having renounced their Romanian nationality. The Third to Fifth Claimants are Romanian companies incorporated by the First and Second Claimants.
In 1993 Romania entered into an association agreement with the European Community and the then 15 member states of that Community, which entered into force in 1995 (“the Europe Agreement”). The Europe Agreement included a provision on State aid and required Romania eventually to introduce State aid rules similar to the EC rules on State aid. The Europe Agreement further encouraged Romania to establish and improve a legal framework which favours and protects investment and to conclude agreements for the promotion and protection of investment.
In 1997 to 1998 the Commission was of the view that Romania did not yet meet the criteria for EU membership and recommended, inter alia, that Romania pursue rapid privatisation, secure foreign direct investment and engage in regional development.
In 1999, in the context of attempting to develop its regional policy, Romania adopted an investment incentive scheme in the form of Emergency Government Ordinance No 24/1998 (“EGO 24”). With effect from 1 April 1999 the Ştei-Nucet region of Romania was designated as a disfavoured region for a ten-year period. The designation was later extended to include Draganesti.
On 30 June 1999 Romania adopted Law No 143/1999 incorporating State aid rules into domestic law and designating the Romanian Competition Council as the competent authority for authorising the grant of State aid. On 15 May 2000 the Romanian Competition Council issued Decision No 244/2000 declaring that certain facilities provided under EGO 24 distorted competition because they constituted incompatible State aid within the meaning of Law No 143/1999 and therefore had to be eliminated unless modified. On 16 June 2000 Romania passed Emergency Government Ordinance No 75/2000 which, with effect from 1 July 2000 modified but did not eliminate EGO 24. The Claimants do not accept that the Romanian Competition Council had authority to require the revocation of the schemes or that its decision followed from EU State aid rules.
During the early 2000s, the Claimants, in reliance on the EGO 24 incentives (which required investments to be maintained for twice the period of the benefits received) invested in a large, highly integrated food production operation in that region as part of a ten-year business plan.
In 2002 Romania and Sweden negotiated the Sweden-Romania Bilateral Investment Treaty on the Promotion and Reciprocal Protection of Investments (“the BIT”). The BIT entered into force on 1 April 2003. It provided for reciprocal protection of investments and included provision for investor-State dispute resolution under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (“the ICSID Convention”). Romania had ratified the ICSID Convention in 1975 and the United Kingdom had done so in 1966.
During the formal accession negotiations between Romania and the EU from 2000 to 2004, the EU informed Romania that various Romanian government schemes, including the EGO 24 scheme, were not in line with the State aid rules of the acquis communautaire. The EU urged Romania to bring its schemes into alignment without delay. The EU in 2001 also invited Romania to identify existing schemes that Romania considered were compatible with the acquis and to provide information on the benefits of schemes to disfavoured regions. In a 2003 paper the EU proposed that Romania close existing schemes to new entrants.
On 31 August 2004 Romania passed a Government Ordinance repealing all but one of the tax incentives provided in EGO 24 subject to certain transitional periods agreed with the EU with effect from 22 February 2005. The government report accompanying these measures indicated that the repeal was effected in order to meet the criteria in the Community rules on State aid and also facilitate completion of accession negotiations.
On 28 July 2005 the Claimants filed a request for arbitration with ICSID under the terms of the BIT, claiming that the repeal of the EGO 24 incentives was a breach of the BIT. Romania contended that it was forced to revoke the incentives in order to comply with EU requirements and allow lawful accession by Romania to the EU. The Commission participated in the arbitration as amicus. Both Romania and the Commission submitted that any payment of compensation arising out of any award in the arbitration would constitute illegal State aid under EU law and render the award unenforceable in the EU.
On 1 January 2007 Romania acceded to the EU.
On 24 September 2008 the ICSID Tribunal dismissed Romania's objections on jurisdiction and admissibility and concluded that it had jurisdiction over the claims asserted by the Claimants.
On 11 December 2013 the ICSID Tribunal issued the Award. It held that Romania had breached the terms of the BIT by failing to ensure fair and equitable treatment, respect the Claimants' legitimate expectations and act transparently. Compensation of RON 376,433,229 was awarded (approximately £70m at the time) plus interest to the date of the award of RON 424,159,150 (approximately £80m at the time) plus compound interest until satisfaction of the Award. The Tribunal declined to address in the Award the effect of the EU State aid rules on its enforceability.
On 9 April 2014 Romania applied to annul the Award under the procedure set out in the ICSID Convention and to suspend its enforcement pending a decision on that application.
Following Romania purportedly implementing the Award in part by setting off tax debts owed by the Third Claimant (which set-off was later annulled by the Romanian courts), on 26 May 2014 the Commission issued an injunction under article 11(1) of Regulation 659/1999 (“the injunction decision”) ordering Romania to suspend any action which might lead to the execution or implementation of the Award until the Commission had taken a final decision on the compatibility of that State aid with the EU internal market, on the ground that the execution of the Award appeared to the Commission to constitute unlawful State aid contrary to article 107(1) of the Treaty on the Functioning of the EU (“TFEU”).
On 7 August 2014 the ICSID ad hoc Committee agreed to a continuation of the stay of enforcement of the Award, provided that Romania filed an assurance that it would pay the Award in full and subject to no conditions whatsoever if the annulment application was dismissed. Romania did not give this assurance and the stay was revoked in September 2014.
On 1 October 2014 the Commission took a decision formally opening the State aid investigation (“the initiating decision”).
On 30 March 2015 the Commission adopted Final Decision 2015/1470 (“the Commission Decision”) which was addressed to Romania. It decided that the payment of the Award by Romania constituted State aid within article 107(1) TFEU and was incompatible with the internal market. It prohibited Romania from making any payment of such State aid to the Claimants and demanded that Romania recover any payments already made under the Award. It further provided that the Claimants and five other entities directly or indirectly owned by the First and Second Claimants were jointly liable to repay any sums received by any one of them as part payment of the Award.
Proceedings seeking annulment of the Commission Decision were commenced before the General Court of the European Union (“GCEU”) by the Third to Fifth Claimants on 6 November 2015, by the First Claimant on 28 November 2015 and by...
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