International Arbitration, Investment Protection And EU State Aid Rules: The General Court Of The EU Annuls The European Commission's State Aid Decision In The Micula Case

In a long-awaited ruling of June 18, 2019, the General Court of the European Union ("GCEU") annulled the European Commission's 2015 State aid decision in the Micula case (joined cases T-624/15, T-694/15 and T-704/15). The ruling provides valuable clarifications regarding the relationship between intra-EU bilateral investment treaties ("BIT") and EU State aid rules.

In sum, the GCEU confirmed that the European Commission lacked jurisdiction to apply EU law in a situation where all relevant events took place before accession to the EU. The validity of intra-EU BITs was not at issue because, during the relevant time period, the BIT in question (the 2002 Sweden-Romania BIT) was between a Member State (Sweden) and a third country (Romania).

Factual background

Romania was in a difficult economic, financial and social situation following the collapse of the communist regime in 1989. In its efforts to boost regional development, in 1998 and 2000, Romania adopted various incentives to induce investors to invest in certain economically challenging regions of the country. Enticed by these incentives, Swedish citizens Viorel and Ioan Micula made substantial investments in Romania.

In 2000, when Romania began accession talks with EU, the Commission identified the incentives as possibly inconsistent with EU State aid rules. In order to successfully conclude the accession negotiations, Romania repealed the incentive programs as of February 2005. As a consequence, the Micula brothers suddenly found themselves without the benefit of the incentives that had induced them to invest in the first place.

The arbitration proceedings

In the summer of 2005, the Micula brothers and three of their companies ("claimants") filed a request for arbitration under the rules of the International Centre for the Settlement of Investment Disputes (ICSID: case ARB/05/20 Micula and Others v Romania). Claimants argued successfully that Romania's premature revocation of the incentives in the manner that it took place breached the fair and equitable treatment principle under the Sweden-Romania BIT. Claimants further argued that the premature revocation caused them damage for which they must be compensated.

On 11 December 2013, the arbitral tribunal awarded the claimants approximately 80 million Euros plus interest, i.e., approximately 178 million Euros at the time of the award. The award was upheld by an ICSID annulment committee in 2016. The Commission intervened as amicus curiae...