English Court of Appeal refuses Micula Appeal against stay of ICSID Award but orders Romania to provide £150m Security

12 October, 2018

In Micula & Ors v Romania [2018] EWCA Civ 1801 the English Court of Appeal (the “Court”) dismissed an appeal against the High Court’s stay of enforcement of a 2013 ICSID award in favour of Swedish investors Ioan and Viorel Micula (the “Appellants” or “claimants“) against Romania (the “Award“), but allowed an appeal against the High Court’s refusal to order Romania to provide security.

The Court’s judgment is interesting because although it reaches the same conclusion as the High Court in respect of staying enforcement of the Award, it does so for different reasons. In particular, the Court found (by majority) that:

  1. The High Court was correct to find that an ICSID award is res judicata under English law from the time of the award.
  2. Although the English Arbitration (International Investment Disputes) Act 1966 (the “1966 Act“), which implements the ICSID Convention into English law, requires that ICSID awards be treated in the same way as judgments of the High Court, this does not mean that EU law applies in the same way as it would apply to domestic judgments simply because the UK is a member state at the date of registration of the award.
  3. The principle of res judicata cannot be used to circumvent or significantly obstruct state aid rules (per the CJEU case of Klausner).
  4. Only operative terms (and not, for example, recitals) of EU Commission decisions are legally binding.

The Court’s decision is the latest in the long-running Micula saga, which began as a dispute arising out of Romania’s abolition of certain tax incentives in 2005 in order to comply with EU rules on state aid. Please see here for our blog post on the ICSID award.

The Award has been the target of decisions of the European Commission. In its final decision of 30 March 2015 (the “Final Decision“), the Commission found that payment of the Award by Romania would constitute new state aid incompatible with EU law, and was therefore prohibited. Please see here for our blog post on the Final Decision. The claimants have applied to the General Court of the European Union (the “GCEU“) to annul the Final Decision. The GCEU heard the application in March 2018 and a judgment is awaited.

In 2017, the High Court refused Romania’s application to set aside registration of the Award, but granted a stay of enforcement pending the decision of the GCEU on the annulment application. The Commission intervened in those proceedings. The High Court refused the claimants’ application for security in the meantime on the basis that it would itself risk breaching the Final Decision. The Appellants appealed against both the stay of enforcement and refusal to make the stay conditional upon payment of security. Please see here for our blog post on the High Court’s judgment, which was the subject of the present appeal.

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English Court Stays Enforcement of Micula ICSID Award Against Romania

7 July, 2017

In Micula & Ors v Romania & Anor [2017] EWHC 31 (Comm) the English High Court stayed enforcement of a 2013 ICSID award in favour of Swedish investors Ioan and Viorel Micula against Romania (the "Award"), but refused to set aside registration. Subsequently, in Micula & Ors v Romania & Anor [2017] EWHC 1430 (Comm) the English High Court gave permission to appeal the stay of enforcement but refused to make the stay conditional on the provision of security by Romania.

The English Court’s decisions in this case consider interesting aspects of the interplay between potentially conflicting obligations of national, international and EU law. In particular, the Court found that:

  1. as a matter of English law read with Article 54 of the ICSID Convention, an ICSID Convention award achieves finality, and becomes res judicata, at the time of the award; and
  2. the English Arbitration (International Investment Disputes) Act 1966 (the "1966 Act"), which implements the ICSID Convention into English law, only requires that ICSID awards be treated in the same way as judgments of the English High Court. Therefore, as a judgment of the High Court is subject to EU rules as to state aid, the Court is restrained from taking a decision which conflicts with the European Commission's decisions on state aid.

The Court's decision represents the latest development in the long-running dispute between the parties arising out of Romania’s abolition of certain tax incentives in 2005 in order to comply with EU rules on state aid. Please see here for our blog post on the ICSID award.

The Award has been subject to decisions of the European Commission. In its final decision of 30 March 2015 (the "Final Decision"), the Commission found that payment of the Award by Romania would constitute new state aid incompatible with EU law, and was therefore prohibited. Please see here for our blog post on the Final Decision. The claimants in the case invited the Court to assume that the Final Decision was valid.

Given the Court's decision, the parties will now await the outcome of (i) the claimants' application to the General Court of the European Union ("GCEU") to annul the Commission’s Final Decision, which is expected to be heard before the end of the year; and (ii) the claimants' appeal, if brought, against the English High Court's stay of enforcement of the Award.

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