The implications of the green light to enforcement of the Micula brothers’ ICSID award in the UK

In February 2020, the UK Supreme Court wrote another chapter in the long-running Micula v Romania saga, unanimously lifting a stay on enforcement and finding that the Micula brothers and their investment vehicles (the “Micula parties”) can enforce an ICSID arbitration award worth approximately €300 million in the UK. 

Notably, the decision addressed the interaction between the UK’s obligations to enforce awards under the ICSID Convention and EU law. In particular, the Supreme Court held that the UK’s obligations to enforce awards under the ICSID Convention were duties which the UK had assumed to third States prior to its accession to the EU, and so, due to Article 351 TFEU, were unaffected by the EU law duty of sincere cooperation. We take a look back at this important decision.

Background

In 2005, the Micula parties commenced ICSID arbitration proceedings against Romania under the Sweden-Romania BIT (the “Treaty”). Romania had, in the lead-up to its accession to the EU, withdrawn certain investment incentives which were viewed as contrary to EU state aid rules. The Micula parties argued that Romania’s premature withdrawal of these incentives, which the Micula parties had relied upon when investing in Romania, violated the terms of the Treaty. 

In December 2013, the majority of the tribunal found that Romania had breached the fair and equitable treatment standard in the Treaty, awarding significant compensation to the Micula parties.

A lengthy battle regarding enforcement of the award, characterised by longstanding objections from Romania and the European Commission, has ensued. In that regard: 

• In 2015, the European Commission (the “EC”), which participated as amicus curiae in the ICSID proceedings, determined that satisfaction of the award by Romania would constitute illegal state aid under EU law. As reported previously, the General Court of the CJEU (the “GCEU”) annulled this decision in June 2019, finding that the EC had exceeded its powers by retroactively applying EU state aid law in respect of events predating Romania’s accession to the EU. Further, in relation to the difficulties with respect to intra-EU arbitration following Achmea, the GCEU briefly distinguished the case at hand on the basis that the tribunal was not bound to apply EU law to pre-accession events. The EC has appealed the decision to the Court of Justice (the “CJEU”)
• In parallel, the Micula parties have sought enforcement of the award in various jurisdictions, namely the UK, US, France, Belgium, Luxembourg, Sweden and Romania.
• In this context, the award was successfully registered in the UK in 2014. However, the English High Court subsequently granted an application by Romania to stay enforcement of the award pending resolution of the proceedings in the GCEU (for more detail, click here). In 2018, the English Court of Appeal upheld the stay of enforcement and ordered Romania to pay security for costs. Romania appealed the security for costs order, and the Micula parties cross-appealed the grant of a stay, to the UK Supreme Court.

The UK Supreme Court’s decision

The Micula parties argued that:

• There was no EU law duty on the English courts to stay enforcement, given the GCEU’s annulment decision. 
• There was no power to stay enforcement of the award under the Arbitration (International Investment Disputes) Act 1966 (the “1966 Act”), which implements the ICSID Convention in the UK. The stay was incompatible with the ICSID Convention and, in particular, the obligation for each contracting State to recognise and enforce ICSID awards as if they were final judgments of that State’s courts pursuant to Article 54(1) of the ICSID Convention.
• As the UK was bound by the ICSID Convention prior to its accession to the EU, EU law could not have an overriding effect. 

The UK Supreme Court unanimously allowed the cross-appeal and lifted the stay, finding that: 

• The 1966 Act must be interpreted in the context of the ICSID Convention, which does not permit domestic courts of contracting States to re-examine the merits of an authenticated ICSID award, or to refuse to enforce such an award on public policy grounds. In the Supreme Court’s view, although the UK courts may grant a stay of execution of an ICSID award in limited circumstances (on procedural grounds), the proper limits of that power were exceeded in this case because:
  
  “In substance, the Court of Appeal made use of powers to stay execution granted by domestic law in order to thwart enforcement of an award which had become enforceable under the ICSID Convention”. (para. 84)
• The duty of sincere cooperation did not apply or require the UK courts to impose a stay on enforcement of the award pending resolution of the EU state aid proceedings. In that regard, the UK’s obligations under Article 54 (to enforce ICSID awards) and 69 (to make the ICSID Convention effective in domestic law) constituted obligations under the ICSID Convention to all ICSID contracting States (including non-EU Member States) which had been assumed before the UK’s accession to the EU. Accordingly, Article 351 TFEU applied such that the provisions of the EU treaties did not affect those prior obligations.
• Accordingly, there was “…no impediment to the lifting of the stay, which is an unlawful measure in international law and unjustified and unlawful in domestic law”. (para. 118)

Impact of decision

The Micula parties, who have now been embroiled in this dispute for over 14 years and counting, will have welcomed the UK Supreme Court’s decision. It follows another enforcement victory for the Micula parties in the US District Court for the District of Columbia last year. We will need to watch this space as ongoing enforcement proceedings play out in other countries.

The bigger picture? Greater certainty for investors regarding the enforcement of ICSID awards in the UK, and the interplay between the UK’s duties under the ICSID Convention and EU law (for so long as the latter remains relevant in the UK).

Click here for the Supreme Court’s judgment.