Viorel Micula v Romania
| Jurisdiction | England & Wales |
| Judge | Hamblen LJ,Arden LJ,Leggatt LJ,Lady Justice Arden |
| Judgment Date | 27 July 2018 |
| Neutral Citation | [2018] EWCA Civ 1801 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A3/2017/1853, 1855, 1856 & 1903 |
| Date | 27 July 2018 |
- and -
[2018] EWCA Civ 1801
Lady Justice Arden
Lord Justice Hamblen
and
Lord Justice Leggatt
Case No: A3/2017/1853, 1855, 1856 & 1903
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM QUEEN'S BENCH DIVISION
COMMERCIAL COURT
MR JUSTICE BLAIR
Royal Courts of Justice
Strand, London, WC2A 2LL
Sir Alan Dashwood QC, Patrick Green QC & Jonathan Worboys (instructed by Shearman & Sterling (London) LLP) for the First Appellant
Marie Demetriou QC & Hugo Leith (instructed by White & Case LLP) for the Second to Fifth Appellants
Robert O'Donoghue QC & Emily MacKenzie (instructed by Thrings LLP) for the Respondent
Nicholas Khan QC for the European Commission (instructed by Commission Legal Service)
Hearing dates: 1–3 May 2018
Approved Judgment
Save where indicated below in Part F of this judgment, this is the judgment of the Court to which each member has contributed.
A. OVERVIEW OF THESE APPEALS
These appeals concern the enforcement of an arbitration award given in accordance with the procedure laid down in the International Convention on the Settlement of Investment Disputes between States and Nationals of Other States (“the ICSID Convention”), which entered into force on 14 October 1966. There are over 160 states which have signed it of which over 150 have ratified it. The UK ratified it on 19 December 1966. A particular feature of the ICSID Convention regime is that it protects awards from review by national courts at the enforcement stage by making them as enforceable as final judgments: there is thus, for example, no public policy exception as is permitted by the New York Convention and as would have applied in Romania if an award is given to which that Convention applies. Thus Article 54(1) of the ICSID Convention provides:
Each Contracting State shall recognise an award rendered pursuant to this Convention as binding and enforce the pecuniary obligations imposed by that award within its territories as if it were a final judgment of a court in that State. A Contracting State with a federal constitution may enforce such an award in or through its federal courts and may provide that such courts shall treat the award as if it were a final judgment of the courts of a constituent state.
The UK incorporated the ICSID Convention into domestic law by the Arbitration (International Investment Disputes Act) 1966 (“the 1966 Act”). Section 2 of the 1966 Act provides:
2. Effect of registration
(1) Subject to the provisions of this Act, an award registered under section 1 above shall, as respects the pecuniary obligations which it imposes, be of the same force and effect for the purposes of execution as if it had been a judgment of the High Court given when the award was rendered pursuant to the Convention and entered on the date of registration under this Act, and, so far as relates to such pecuniary obligations—
(a) proceedings may be taken on the award,
(b) the sum for which the award is registered shall carry interest,
(c) the High Court shall have the same control over the execution of the award,
as if the award had been such a judgment of the High Court.
(2) Rules of court under section 84 of the Supreme Court Act 1981] may contain provisions requiring the court on proof of the prescribed matters to stay execution of any award registered under this Act so as to take account of cases where enforcement of the award has been stayed (whether provisionally or otherwise) pursuant to the Convention, and may provide for the provisional stay of execution of the award where an application is made pursuant to the Convention which, if granted, might result in a stay of enforcement of the award.
In this case, the appellants obtained an award (Case No. ARB/05/20) against Romania on 11 December 2013 (“the Award”). However, after the award became final, the EU Commission made a decision that enforcement would constitute a new State aid under Article 107(1) of the Treaty on the Functioning of the European Union (“TFEU”) and was prohibited. The Award had already been registered in the UK. The principal issue below was, therefore, whether enforcement should be stayed pending the appellants' appeal to the General Court of the EU (“the GCEU”). In a nutshell, by his Orders dated 23 January 2017 and 16 June 2017 respectively, Blair J (to whom we refer below as “the judge”) stayed enforcement and dismissed an application for a sum to be paid into court as a condition of the grant of the stay. The appeal concerns both the grant of the stay (“the Stay Appeal”) and the refusal to order security (“the Security Appeal”).
B. EVENTS LEADING TO THE AWARD
The ICSID Convention entered into force in Romania in 1975.
In 1993 Romania applied for membership of what was then the European Community (“EC”). In 1995 the Europe Agreement between the EC and Romania entered into force, which inter alia required Romania eventually to introduce State aid rules similar to the EC rules on State aid.
In 1997 to 1998, the European Commission (“the Commission”) encouraged Romania to pursue privatisation and to secure foreign investment. In 1999, Romania adopted an investment incentive scheme in the form of Emergency Government Ordinance No. 24/1998 (“EGO 24”).
At the beginning of 2000, in preparation for eventual accession to the European Union (“EU”), Romanian Law no. 143/1999 on State aid entered into force. During the early 2000s, in reliance on the investment incentives provided for by the EGO 24 scheme, the appellants invested in a large, highly integrated food production operation as part of a 10-year business plan.
In 2002, Romania and Sweden (which was already an EU member state) signed the Sweden-Romania Bilateral Investment Treaty (“the BIT”). This came into force in 2003. The BIT provided reciprocal protections for investments, and consent to investor-state dispute resolution under the ICSID Convention.
In 2004, Romania repealed all but one of the tax incentives provided under EGO 24, effective from 22 February 2005, on the grounds that these were unlawful State aid in breach of the European Agreement.
C. ICSID ARBITRATION, AWARD AND COMMISSION'S DECISION
On 28 July 2005, the appellants filed a Request for Arbitration with ICSID under the BIT. The Commission participated as amicus in the arbitration, making submissions on EU law. Both Romania and the Commission argued that any payment of compensation arising out of the Award would constitute illegal State aid under EU law and render the Award unenforceable in the EU.
On 1 January 2007, Romania became a member state of the EU.
On 11 December 2013, the ICSID Tribunal issued the Award, finding in the appellants' favour. It declared that Romania had violated the BIT by failing to ensure fair and equitable treatment of the appellants' investments. It further:
i. ordered Romania to pay RON (Romanian Leu) 376,433,229 in damages, together with interest of RON 424,159,150 and further interest accruing until Romania satisfies the Award in full. This sum was the equivalent of the assistance which it would have received under the terms of EGO 24.
ii. found that Romania had violated the appellants' legitimate expectations and had failed to act transparently;
iii. did not deal with the issue of enforceability under the EU State aid rules, on the basis that it was not desirable to embark on predictions as to the possible conduct of various persons and authorities after the Award has been rendered, especially but not exclusively when it comes to enforcement matters.
On 9 April 2014 in accordance with ICSID procedures Romania filed an application for the annulment of the Award to the ICSID ad hoc Committee and requested a stay of enforcement of the Award, which was granted provisionally.
The Commission's position was that implementation of the Award would constitute new State aid. On 26 May 2014, the Commission issued a suspension injunction to restrain Romania from taking any action to execute or implement the Award until it had taken a final decision on the compatibility of State aid (the “Injunction Decision”).
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. On 2 October 2014 the first appellant applied to have the Award registered in the High Court of England and Wales. On 17 October 2014, the Award was registered in the High Court by Order of Burton J (the “Registration Order”) pursuant to the provisions of the 1966 Act.
On 30 March 2015, the Commission adopted Final Decision 2015/1470 (“the Commission's Decision”) in which it:
i. declared that payment of the Award by Romania constituted new State aid within the meaning of Article 107(1) TFEU;
ii. prohibited Romania from making any payment under the Award to the appellants;
iii. demanded that Romania recover any sums already paid out under the Award;
iv. provided that the appellants together with named entities directly or indirectly owned by the first and second appellants were jointly liable to repay any sums received by any one of them as part-payment of the Award.
On 28 July 2015, Romania filed its application in the Commercial Court of England and Wales to set aside, vary, or alternatively stay the Registration Order of 17 October 2017. By consent, the second to fifth appellants joined the proceedings. Shortly afterwards, the Commission decided to intervene.
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