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State aid and international investment arbitration: the Micula case – taking stock in an ongoing saga

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Abstract

The European State aid rules play an increasingly important role in investor-state arbitration, both arising as a substantive issue as well as a hurdle in enforcement proceedings. The Micula case is perceived as a front runner in this ongoing debate. However, the General Court’s judgment issued in June 2019 left many wondering whether it addressed any of these pressing issues. The facts of the Micula case are indeed particular and concern events taking place before Romania’s accession to the EU, and the General Court annulled the Commission’s State aid decision due to the Commission’s failure to take the pre-accession context into account, leaving many other questions unanswered.

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Notes

  1. For example, Spain has been particularly targeted by investor claims concerning changes in its renewable energy incentive policies. Spain was successful in some proceedings, but awards have also been rendered against it in, for example, Novenergia II - Energy & Environment (SCA) (Grand Duchy of Luxembourg), SICAR v the Kingdom of Spain, Award, SCC Case No 2015/063, IIC 1369, 15.2.2018; Infrastructure Services Luxembourg Sàrl and Energia Termosolar BV (Antin Infrastructure Services Luxembourg Sàrl and Antin Energia Termosolar BV) v Kingdom of Spain, Award, ICSID Case No ARB/13/31, IIC 1439, 15.6.2018; Masdar Solar & Wind Cooperatief UA v Kingdom of Spain, Award, ICSID Case No ARB/14/1, IIC 1375, 16.5.2018.

  2. Given the pendency of the matter and their involvement in the case, the authors have employed their best efforts to provide a neutral account of the arguments which transpired in the respective proceedings. However, bearing in mind their representation of one of the parties to the dispute, any positions offered should be taken with a pinch of salt.

  3. Case C-284/16 Slowakische Republik v Achmea BV, EU:C:2018:158.

  4. ICSID award of 11.12.2013 in Case No ARB/05/20 Micula \(a\).\(o\). v Romania.

  5. Ioan Micula, Viorel Micula and others v Romania, Final Award, Decision on Annulment, ICSID Case No. ARB/05/20 (26.2.2016).

  6. Commission Decision to initiate the formal investigation procedure on State aid SA.38517 (2014/C) (ex 2014/NN) — Implementation of Arbitral award Micula v Romania of 11.12.2013, OJ C 393, 7.11.2014, p. 27.

  7. Commission Decision (EU) 2015/1470 of 30.3.2015 on State aid SA.38517 (2014/C) (ex 2014/NN) implemented by Romania — Arbitral award Micula v Romania of 11.12.2013, OJ L 232, 4.9.2015, pp. 43–70.

  8. Cases T-624/15, T-694/15 and T-704/15 European Food SA and Others v Commission, EU:T:2019:423. When describing the arbitration proceedings the General Court ruling in paragraph 18 explicitly repeats the Tribunal’s conclusion at recital 872 (see footnote 4 above) as to the nature of the award.

  9. Case C-638/19 P, Appeal brought on 27.8.2019 by Commission against the judgment of the GC delivered on 18.6.2019 in Case T-624/15 European Food SA and Others v Commission, EU:T:2019:42, OJ 27.9.2019.

  10. Case C-284/16 Slowakische Republik v Achmea BV, EU:C:2018:158.

  11. Ibid, para. 58.

  12. Szilárd Gáspár-Szilágyi and Maxim Usynin, “The uneasy relationship between intra-EU investment tribunals and the Court of Justice’s Achmea judgment” (2019) 4 European Investment Law and Arbitration Review 29, Annex I [2].

  13. Agreement for the termination of Bilateral Investment Treaties between the Member States of the EU (“Termination Agreement”), OJ L169/1 29.5.2020.

  14. Termination Agreement, p. 2. As to the Commission’s position on intra-EU arbitration based on the ECT, s\(ee\) Commission, “Communication from the Commission to the European Parliament and the Council on the protection of intra-EU investment” COM(2018) 547 final. Belgium is seeking an Opinion from the ECJ on the compatibility under EU law of the intra-EU application of the ECT, Press release 3 December 2020, site: <https://diplomatie.belgium.be/en/newsroom/news/2020/belgium_requests_opinion_intra_european_application_arbitration_provisions> (consulted 25.1.2021).

  15. See Sect. 3 of the Termination Agreement. John I. Blanck, “European Union Member States Sign Treaty to Terminate intra-EU Bilateral Investment Treaties” (2020) 24 ASIL Insight [1].

  16. At recital 45 of his Opinion AG Wathelet states: “several Member States and the Commission have mentioned only a single example, namely the arbitration Ioan Micula and Others v Romania (ICSID Case No ARB/05/20), which resulted in an arbitral award that was allegedly incompatible with EU law. Even though that example is in my view not relevant in the present case, (49) …”. This conclusion is based on the finding in footnote 49 that “[t]his was not a dispute arising under an intra-EU BIT, since Romania had not yet acceded to the European Union in 2005, when the arbitration commenced and when the dispute crystallised. Consequently, EU law was not applicable to the facts referred to in that arbitral procedure”. Opinion of AG Wathelet in Case C-284/16 Slowakische Republik v Achmea BV, EU:C:2017:699. While the Court in its ruling did not follow the AG’s recommendation that EU law does not preclude the application of the investor-state dispute settlement mechanism in the Netherlands-Czechoslovakia BIT, this point was not contradicted by the Court’s judgment.

  17. GC ruling, para. 87.

  18. See also: Kai Struckmann, Genevra Forwood and Aqeel Kadri, “Investor-State Arbitrations and EU State aid rules: conflict or co-existence”, (2016) 15 Eur St Aid LQ 258, 269 [6].

  19. Case C-284/16 Slowakische Republik v Achmea BV, EU:C:2018:158, para. 58.

  20. Given that Achmea and Micula both concern investor-state arbitration, the discussion in this article is limited to this type of arbitration. For a more elaborate overview, see: Struckmann/Forwood/Kadri/Trichkovska, “EU State aid and arbitration”, in Leigh Hancher and Juan Jorge Piernas López, Research Handbook on European State Aid Law (Edward Elgar 2021) [8].

  21. For example, in Electrabel v Hungary, the arbitral tribunal took into account a Commission decision on State aid awarded by Hungary through Power Purchase Agreements (“PPA”). It first rejected the Commission’s claim that the tribunal was not competent because the termination of the PPA was ordered by a Commission decision, which allegedly prohibited any further assessment by the tribunal. The arbitral tribunal found that there was no inconsistency between the applied investment standards under the ECT and EU State aid law, and that the arbitral tribunal merely interpreted the Commission’s decision, without ruling on its validity. The arbitral tribunal then took into account the EC Decision when concluding that Hungary was not liable for a breach of the standard under the investment treaty. See Electrabel SA (Belgium) v Republic of Hungary, Decision on Jurisdiction, Applicable Law and Liability, ICSID Case No ARB/07/19 (30.11.2012), 4.198, 5.9, 5.32-5.38, 6.76, 6.86 and 6.91; Commission Decision of 4.6.2008 on the State aid C 41/05 awarded by Hungary through Power Purchase Agreements, OJ L 225/53 27.8.2009.

  22. Depending on the type of arbitration, awards can be enforced under the ICSID Convention or the New York Convention, resulting in different procedures, which has implications for the scope of any ex-post review of the award.

  23. See Judgment of the Warsaw Court of Appeal 26.11.2019, where the Court held that EU State aid law was part of Polish public policy and required the annulment of the arbitral award. Wojciech Sadowski, “Warsaw Court of Appeal Defines Rules for Arbitral Tribunals in Matters Involving State Aid”, Kluwer Arbitration Blog, 9.8.2020 [5].

  24. Commission Decision of 28.11.2016 in SA.40171 (2015/NN) Czech Republic Promotion of electricity production from renewable energy sources, para. 150; Commission Decision of 30.11.2017 in SA.40348 Spain - Support for electricity generation from renewable energy sources, cogeneration and waste, para. 165.

  25. See Article 1 of the operative part of the Micula Decision which states: “The payment of the compensation awarded by the arbitral tribunal established under the auspices of the International Center for Settlement of Investment Disputes (ICSID) by award of 11 December 2013 in Case No ARB/05/20 Miculaa.o.v Romania to the single economic unit comprising Viorel Micula, Ioan Micula, S.C. European Food SA, S.C. Starmill S.R.L., S.C. Multipack,European Drinks SA, Rieni Drinks SA, Scandic Distilleries SA, Transilvania General Import-Export S.R.L., and West Leasing S.R.L constitutes State aid within the meaning of Article 1 07(1) of the Treaty which is incompatible with the internal market.”

  26. For the pleas in law, see Action brought in Case T-624/15 on 6.11.2015, European Food and Others v Commission, OJ C 16/45 18.1.2016; Action brought in Case T-704/15 on 28.11.2015 Micula e.a. v Commission, OJ C 68/30 22.2.2016; Action brought in Case T-694/15 on 30.11.2015 Micula v Commission OJ C 38/69 1.2.2016.

  27. Consolidated Version of the Treaty on the Functioning of the European Union (“TFEU”) [2012] OJ C 326, Article 351.

  28. Agreement between the Government of the Kingdom of Sweden and the Government of Romania on the Promotion and Reciprocal Protection of Investments, 29.5.2002.

  29. Convention on the Settlement of Investment Disputes between States and Nationals of Other States, 18.3.1965, 575 UNTS 159 (“ICSID Convention”).

  30. EC Decision, para. 127.

  31. Ibid, para. 129.

  32. C-147/03 Commission v Austria, EU:C:2005:427.

  33. C-277/10 Martin Luksan v Petrus van der Let, EU:C:2012:65.

  34. The Berne Convention for the Protection of Literary and Artistic Works, 28.7.1979.

  35. C-147/03 Commission v Austria, EU:C:2005:427, para. 58.

  36. Micula and others (Respondents/Cross-Appellants) v Romania (Appellant/Cross-Respondent) UKSC 2018/0177.

  37. Joined Cases C-106/87-120/87 Asteris v Greece, EU:C:1988:457, para. 23.

  38. Case 61/79 Amministratiozone delle finanze dello Stato v Denkavit italiana, EU:C:1980:100, para. 31.

  39. Commission Decision of 20.11.2007 in case C 36/A/06 concerning State aid implemented by Italy in favour of ThyssenKrupp, Cementir and Nuove Terni Industrie Chimiche, OJ L 144/37, 04.06.2008, paras 74, 94.

  40. We note that this question is distinct from arbitral awards rendered in commercial arbitration which has been considered to constitute a commercial alternative to other forms of dispute resolution to which the Market Economy Operator Principle (MEOP) applies. See for example Case C-228/16 P DEI v Commission, EU:C:2017:409.

  41. EC Decision, para. 101-102.

  42. EC Decision, para. 103-104. See also Case C-119/05, Luchini, EU:C:2007:434, para. 59.

  43. This discussion inter alia turned on recital 872 of the Award, which reads as follows: “The Tribunal concludes that, by repealing the EGO 24 incentives prior to 1 April 2009, Romania did not act unreasonably or in bad faith (except that the Respondent acted unreasonably by maintaining investors’ obligations after terminating the incentives). The Tribunal, however, concludes by majority that Romania violated the Claimants’ legitimate expectations that those incentives would be available, in substantially the same form, until 1 April 2009. Romania also failed to act transparently by failing to inform the Claimants in a timely manner that the regime would be terminated prior to its stated date of expiration. As a result, the Tribunal finds that Romania failed to “ensure fair and equitable treatment of the investments” of the Claimants in the meaning of Article 2(3) of the BIT”.

  44. EC Decision, para. 133.

  45. Case C-129/12 Magdeburger Mühlenwerke, EU:C:2013:200, para. 40.

  46. Joined Cases C-399/10 P and C-401/10 P Bouygues and Bouygues Télécom v Commission and Others, EU:C:2013:175, paras 103 and 104.

  47. Case T-351/02 Deutsche Bahn, EU:T:2006:104, paras 100-102; see also Case 61/79 Denkavit, EU:C:1980:100, para. 31.

  48. GC ruling, para. 87.

  49. Ibid, paras 66-67.

  50. Ibid, para. 69.

  51. Ibid, paras 74 and 77.

  52. Ibid, para. 78.

  53. Ibid, para. 75.

  54. Ibid, para. 80.

  55. Ibid, para. 92.

  56. Ibid, paras 83-88.

  57. Ibid, paras 91 and 92.

  58. Ibid, para. 103.

  59. Ibid, para. 104.

  60. Article 54, ICSID Convention.

  61. Case C-234/04 Kapferer, EU:C:2006:17, paras 17, 20 and 21.

  62. Case C-505/14 Klausner EU:C:2015:742.

  63. Ibid, paras 42-46.

  64. Brussels Court of First Instance (French), Cases 15/7241/A and 15/7242/A (25.1.2016).

  65. Brussels Court of Appeal, Cases 2016/AR/393 and 2016/AR/394 (12.3.2019). Case C-333/19, Request for a preliminary ruling from the Cour d’appel de Bruxelles (Belgium) lodged on 24.4.2019, OJ C 220 1.7.2019. Case C-333/19, Summary of the request for a preliminary ruling pursuant to Article 98(1) of the Rules of Procedure of the Court of Justice (“Order for reference”), available at: http://curia.europa.eu/juris/showPdf.jsf?text=&docid=219988&pageIndex=0&doclang=EN&mode=req&dir=&occ=first&part=1&cid=20677932.

  66. Order for reference, para. 25

  67. This position is surprising in so far as Article 288 TFEU explicitly states “[\(a\)] decision which specifies those to whom it is addressed shall be binding only on them”.

  68. Order for reference, para. 27

  69. Ibid, para. 30.

  70. See detailed discussion in Kai Struckmann, Genevra Forwood, Aqeel Kadri and Adam Wallin, “Enforcement of Investor-State Arbitral Awards: More Questions than Answers” (2017) Eur St Aid LQ 316 [7].

  71. Court of Appeal [2018] EWCA Civ 1801. After the GC’s annulment of the Commission Decision, leapfrog appeal to the Supreme Court was also granted against the stay and security imposed by the High Court [2019] EWHC 2401 (Comm).

  72. UK Supreme Court Decision, para. 92.

  73. Ibid, paras 104, 108.

  74. Ibid, para. 99.

  75. C-344/98, Masterfoods, EU:C:2000:689.

  76. UK Supreme Court Decision, para. 112.

  77. UK Supreme Court Decision, para. 113.

  78. Ibid. paras 11-117.

  79. Hanno Wehland, “The Enforcement of Intra-EU BIT Awards: Micula v Romania and Beyond”, 17 (2016) Journal of World Investment & Trade 942, 962-963 [9].

  80. See for example Micula et al. v. Gov’t of Romania, United States Court of Appeals for the Second Circuit (23.10.2017), 15-3109-cv.

  81. Ioan Micula et al. v. Gov’t of Romania, US District Court (11.9.2019) (“District Court Judgment”), 17-cv-02332, pp. 15-21.

  82. District Court Judgment, pp. 22-26.

  83. Ibid, p.19.

  84. Ibid, p.23.

  85. Case T-1/15, SNCM, EU:T:2017:470, para. 64; District Court, p.24.

  86. District Court Judgment, p.26.

  87. Ioan Micula et al. v. Gov’t of Romania, United States Court of Appeals for the District of Columbia Circuit (19.5.2020), 1:17-cv-02332.

  88. Begoña Pérez Bernabeu, “Taxation, State Aid Rules and Arbitral Courts: A BIT of a Mess in the Micula Saga” (2020) Eur St Aid LQ 329, 337 [4]; Marija Momic, “Can an ICSID Arbitral Award for the Compensation of Damages Be Regarded as State Aid?” (2019) Eur St Aid LQ 346, 351 [3].

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    Kai Struckmann & William De Catelle

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White & Case LLP represents Mr. Ioan Micula and related corporate claimants in proceedings before the European Courts in relation to the Micula State aid Decision, and in a number of jurisdictions in relation to the enforcement of the Micula v Romania Award. Nothing in this contribution is to be attributed to White & Case LLP or any of its clients, and all opinions expressed are strictly personal. This contribution is based on a presentation given by one of the authors at the ERA Annual Conference on European State Aid Law 2019 in Trier.

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Struckmann, K., De Catelle, W. State aid and international investment arbitration: the Micula case – taking stock in an ongoing saga. ERA Forum 22, 101–117 (2021). https://doi.org/10.1007/s12027-021-00655-9

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