Micula v Romania: The Next Chapter

In the latest episode of the long-running Micula saga, the UK Supreme Court has today finally closed the English chapter of a 15-year long investment treaty dispute, by allowing for the enforcement of this infamous ICSID award against Romania in the UK. While this is just one piece of the global jigsaw, with enforcement proceedings still ongoing in Romania, Belgium, France, Luxembourg, Sweden and the United States, it nevertheless constitutes an important milestone in the Micula case and recognises, more widely, the very high level of deference and respect paid by the English Courts to the parameters set upon them by the ICSID Convention.

Background ICSID arbitration (ICSID Case No. ARB/05/20) The Micula brothers commenced ICSID arbitration proceedings against Romania in 2005, under the 2002 Sweden-Romania bilateral investment treaty ("BIT"), seeking compensation for Romania's premature revocation of a number of tax incentives that had been previously granted to promote investment in underdeveloped regions of the country. The brothers claimed that, in reliance on those incentives, and in reliance on the expectation that these incentives would be maintained during a ten-year period, they made substantial investments in the Ştei-Nucet-Drăgăneşti disfavoured region located in Bihor County in north-western Romania. Those investments consisted contributions of over €200 million through the purchase or importation of machinery, raw materials, lands, buildings, equipment and means of transportation for food production facilities. They further claimed that Romania's premature repeal of those incentives, in the context of Romania's accession to the EU, was in breach of its obligations under the Sweden-Romania BIT and caused damages to them.

In December 2013, a majority ICSID tribunal held that the withdrawal of the tax incentives constituted a breach of the fair and equitable treatment standard and ordered Romania to pay €178 million in compensation ("ICSID Award"). This was despite the claim of the European Commission, intervening as amicus curiae during the arbitration proceedings, that any ruling of the ICSID tribunal reinstating the privileges abolished by Romania, or compensating the brothers for the loss of those privileges, would lead to the granting of new aid incompatible with EU State aid rules.

In 2014, Romania subsequently made a partial payment of the ICSID Award of approximately €76 million by offsetting a tax debt owed by one of the claimants to the ICSID arbitration.

European Commission Decision 2015/1470 In 2015, following Romania's partial payment of the award, the European Commission ruled that such payment constituted illegal State aid, and precluded any further payment by Romania, ordering it to recover the partial payment that had been made ("2015 Commission Decision").

ICSID annulment proceedings Romania requested the annulment of the ICSID Award before an ad hoc ICSID Committee on the basis of, among other things, the 2015 European Commission Decision. The ad hoc Committee unanimously rejected Romania's application for annulment and found that none of the grounds for annulment of Article 52 of the ICSID Convention invoked by Romania had been met, namely that (1) the ICSID Tribunal manifestly exceeded its powers, (2) there was a serious departure from a fundamental rule of procedure and (3) the award failed to state the reasons upon which it was based. In addition, the ad hoc Committee expressly rejected the State aid arguments put forward by the European Commission, who had also intervened in the annulment proceedings.

English Commercial Court proceedings In October 2014, the Micula brothers successfully registered the ICSID Award in the UK, by way of a registration order from the English High...