Supreme Court: ICSID award enforceable as state aid investigation continues

Out-Law News | 26 Feb 2020 | 9:56 am | 2 min. read

The UK Supreme Court has ruled that an arbitration award made under the International Centre for Settlement of Investment Disputes (ICSID) Convention is enforceable despite an ongoing EU state aid investigation.

In a unanimous decision, the five Supreme Court justices found that an ICSID arbitral award against Romania in favour of two businessmen and their food production companies could be enforced, as ongoing proceedings before the General Court of the EU (GCEU) meant that a state aid investigation was still open.

Litigation expert Clea Bigelow-Nuttall of Pinsent Masons, the law firm behind Out-Law, said: “The UK Supreme Court’s decision comes at a time when many will be looking closely at how our national courts engage with international arbitration awards, particularly those in the investment arbitration space which touch closely upon issues of EU law.  The Supreme Court’s judgement to lift the stay on enforcement of the Micula’s ICSID award will no doubt reassure investors that the UK is prepared to uphold its obligations as an ICSID Convention signatory and allow enforcement of ICSID awards where appropriate.”

Brothers Viorel and Ioan Micula were born in Romania but are now Swedish nationals. They set up three companies in Romania using a government-backed investment incentive scheme known as EGO 24.

During Romania’s EU accession talks, the EU told Romania that a number of its government schemes including EGO 24 were not in line with EU state aid rules. Romania repealed the majority of the tax incentives of EGO 24 so it could continue accession negotiations.

The Micula brothers filed for arbitration with ICSID under the terms of a 2002 bilateral investment treaty (BIT) between Sweden and Romania, claiming that the repeal of the EGO 24 incentives was a breach of the BIT.

In their arguments Romania and the European Commission said 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.

The arbitral tribunal decided in the Miculas' favour, issuing an award of around £70 million plus interest of about £80m and holding that Romania had breached the terms of the BIT by failing to ensure fair and equitable treatment, respect the Miculas' legitimate expectations and act transparently.

Romania applied to ICSID to annul the award, with the ICSID committee rejecting the application. Meanwhile the European Commission opened a state aid investigation, deciding that payment of the award constituted state aid to the Micula brothers and was incompatible with the internal market.

The Miculas filed proceedings in the GCEU for annulment of the commission’s decision, and the court found in their favour. The commission has appealed and proceedings are ongoing.

After the award had been registered in the Commercial Court in England and Wales, Romania was granted a stay in enforcement pending determination of the GCEU proceedings. The Court of Appeal upheld the stay in enforcement but also rejected Romania’s appeal against a security order for £150m.

The Supreme Court said the stay in enforcement should be lifted, because the GCEU judgment that annulled the commission’s decision means there is an extant investigation into state aid, in the absence of a decision closing the formal investigation procedure.

The judges also said that while the English courts have a limited power to stay the execution of an ICSID award, in this case the granting of a stay exceeded the limits of that power.