English Courts Stay Enforcement of ICSID Award

by Latham & Watkins LLP
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On 20 January 2017, the English Commercial Court handed down an important judgment addressing the intersection of a State’s public international law obligations in investment treaty arbitration and its obligations under European Union law. In Micula & Ors v. Romania,[i] Mr Justice Blair stayed enforcement of an ICSID arbitration award on the basis that the court could not, under its EU law obligations, enforce an award in circumstances where the European Commission had prohibited Romania from making any payment under that award to the claimants, and a challenge to that decision was pending before the EU courts.

Background

The underlying dispute concerned the premature withdrawal by Romania of tax incentives introduced to attract investment into certain disadvantaged regions. The withdrawal of the incentives was done as part of Romania’s preparations for accession to the EU, on the basis that the incentives were deemed incompatible with EU rules on State aid. The Micula brothers and their associated companies (the Claimants) – who had invested heavily in Romania in reliance on the tax incentives – alleged that the scheme’s premature termination and other conduct of the State amounted to a breach of Romania’s obligation to treat investors fairly and equitably as required by the Sweden-Romania bilateral investment treaty. On 11 December 2013, an arbitral tribunal established in accordance with the International Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the ICSID Convention) agreed and awarded the Claimants in excess of Romanian Leu 750 million in damages and pre-award interest.[ii]

The EC has, from the outset, taken the view that the payment of damages to the Claimants would constitute new, unlawful State aid as a matter of EU law.[iii] Following the 2013 ICSID award in the Claimants’ favour, the EC issued an injunction obliging Romania to suspend any enforcement action. This was followed in March 2015 by a Final Decision of the EC which concluded that execution of the ICSID award, including payment of damages, would constitute new (unlawful) State aid.[iv] The Claimants have challenged that Decision in annulment proceedings before the General Court of the European Union (the GCEU). As at the date of this article, that challenge is pending.

Enforcing ICSID Awards in England & Wales

ICSID Member States are obliged to recognise and enforce a pecuniary award rendered pursuant to the ICSID Convention “as if it were a final judgment of a court in that State” (Article 54(1) of the ICSID Convention). This international obligation has been incorporated into domestic law in the United Kingdom by virtue of the Arbitration (International Investment Disputes) Act 1966 (the Act).[v] Importantly, the court does not have any discretion to refuse to recognise (i.e. register) or enforce an ICSID award if all formal, procedural requirements for its registration have been met.

The Judgment

The Claimants registered their ICSID Award in the High Court in accordance with the Act in October 2014;[vi] following the Final Decision of the EC, Romania applied to have that registration set aside or enforcement stayed pending the outcome of the GCEU proceedings.[vii]

The application prima facie presented a conflict between two obligations: under the Act and the ICISD Convention, the court is obliged to recognise and enforce an ICSID award as if it were a judgment of the High Court.[viii] However, as a matter of EU law, the EC has exclusive responsibility for assessing the compatibility of measures with EU rules on State aid,[ix] and “the national courts must refrain from taking decisions which conflict with a decision of the Commission”[x] or stay proceedings where there is a risk of conflict with a decision of a European Court.[xi]

In light of the clear obligation on the court articulated in the Act to register ICSID awards, Blair J refused Romania’s application to have registration of the ICSID award set aside. He reasoned that registration of the award was in this instance a precursor to, and distinct from, its enforcement and not prohibited by the Final Decision. Accordingly, registration of the award did not create a risk of conflict between the domestic and EU institutions.[xii]

However, in order to prevent a risk of conflict between a judgment of the English court and a European court, Blair J stayed enforcement of the ICISD award pending resolution of the GCEU proceedings. In reaching this decision, Blair J further attempted to resolve the apparent conflict between the UK’s international law obligations as articulated in the Act and its EU law obligations. In his view, there was no conflict as the Act required only that the Claimants be in the same position as if there was a judgment of the High Court in their favour,[xiii] and a purely domestic judgment would similarly be subject to the determination of related proceedings of the GCEU.[xiv]

The decision to stay enforcement seems to lay the foundation for the English courts to refuse to enforce ICSID awards where execution would place the UK in breach of its EU law obligations, however this is unlikely to be the last word on the subject. The court may yet have to tackle the issue head on following a final decision of the GCEU and, whatever the result, it remains to be seen how the court would approach the relationship between international law and EU law following a UK exit from the EU.

[i] [2017] EWHC 31 (Comm).

[ii] Ioan Micula, Viorel Micula, S.C. European Food S.A, S.C. Starmill S.R.L. and S.C. Multipack S.R.L. v. Romania, ICSID Case No. ARB/05/20, Final Award dated 11 December 2013. See Romania’s EU Catch-22 by Tom Lane for further details of the underlying dispute.

[iii] Supra note 1, para. 28, noting the EC’s participation as amicus curiae in the ICSID proceedings. See also  Romania’s EU Catch-22 by Tom Lane for further details of the underlying dispute and the EC’s response.

[iv] Commission Decision (EU) 2015/1470 of 30 March 2015 on State aid SA.38517 (2014/C) (ex 2014/NN) implemented by Romania — Arbitral Award Micula v Romania of 11 December 2013.

[v] See Article 2(1) of the Act. The Act applies to England & Wales, Scotland and Northern Ireland (Articles 7 and 8), and has been extended by Statutory Instrument to Guernsey (SI No. 1199 dated 26 July 1968), Jersey (SI No. 572 dated 23 May 1979), Bermuda, the British Virgin Islands, the Falkland Islands and their dependencies, Gibraltar, Islands of Alderney, Island or Sark, Monserrat, Anguillan, St Helena and its dependencies and the Turks and Caicos Islands (SI No. 159 dated 10 February 1967).  In the Isle of Man, the State’s international obligations are incorporated into domestic law by virtue of the Arbitration (International Investment Disputes) Act 1983 (an Act of Tynwald).

[vi] Supra note 1, para. 37.

[vii] Supra note 1, para. 9.

[viii] Supra note 1, para. 119.

[ix] Supra note 1, paras. 62-67.

[x] Supra note 1, para. 68, citing in particular the principle of sincere cooperation enshrined in Article 4(3) of the Treaty on European Union.

[xi] Supra note 1, paras. 71-76 and 109-111.

[xii] Supra note 1, para. 126.

[xiii] Supra note 1, para. 54.

[xiv] Supra note 1, paras. 135, 152 and 160.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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