In February 2020 the Supreme Court had to decide whether enforcement of an ICSID award against Romania should wait for EU state-aid proceedings. Registration had already taken place in England. The dispute was whether the English court could continue to suspend enforcement and require Romania to give security in the meantime.
The investment, the treaty and the award
Viorel and Ioan Micula, brothers born in Romania who later became Swedish nationals, and three Romanian companies they had incorporated, invested in food production in a region Romania had designated as disfavoured. They relied on incentives introduced in 1999. Romania and Sweden then concluded a bilateral investment treaty, in force from 1 April 2003, which protected investments and provided for arbitration under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, the ICSID Convention. While preparing to join the EU, Romania repealed most of the incentives with effect from 22 February 2005. It acceded on 1 January 2007.
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The tribunal found that withdrawing incentives breached the investment treaty and awarded compensation and interest. It did not determine the separate question of enforcement under EU state-aid rules.
The European Commission argued that paying the award would itself be unlawful State aid. In May 2014 it ordered Romania not to implement the award pending investigation, and in October 2014 it formally opened that investigation. On 30 March 2015 it decided that payment was incompatible State aid, prohibited payment and required recovery of anything already paid. Romania failed to have the award annulled under the Convention. On 18 June 2019 the General Court of the European Union annulled the Commission’s final decision: the Commission had applied its powers retroactively to events before accession and had not distinguished compensation for the pre-accession period from compensation afterwards. The Commission appealed to the Court of Justice, and that appeal was still pending.
Registration, the stay and security
The United Kingdom has been party to the ICSID Convention since 1966. The Arbitration (International Investment Disputes) Act 1966 permits an award to be registered and then enforced, so far as it awards money, as if it were a High Court judgment. The award was registered on 17 October 2014. Romania asked the Commercial Court to set the registration aside or stay enforcement. The claimants asked for security if a stay was granted. Security, in this setting, was protection for the unpaid award while enforcement was paused.
Blair J refused to set aside registration but stayed enforcement pending the General Court proceedings. He held that several EU issues were already before that court, so deciding them risked conflicting decisions. He also held that the Commission’s prohibition would equally prevent enforcement of an ordinary English judgment, and therefore saw no conflict with the Convention. He later refused security because an order which could lead to payment would contradict the Commission’s decision, while leaving open whether security might be ordered later.
The Court of Appeal upheld the stay but ordered £150 million security, without providing that failure to provide it would lift the stay. Arden and Leggatt LJJ held that registration does not make an ICSID award equivalent for all purposes to an ordinary domestic judgment, although execution may be stayed temporarily if that is just and consistent with the Convention. Hamblen LJ disagreed on equivalence: a registered award had the same status as a final domestic judgment, which would not be enforced where payment conflicted with EU law. After the General Court annulled the Commission’s decision, the earlier stay lapsed. Phillips J stayed enforcement pending the Court of Justice appeal and again ordered £150 million security.
Why EU co-operation did not maintain the stay
Lord Lloyd-Jones and Lord Sales gave the Supreme Court’s judgment, with which Lady Hale, Lord Reed and Lord Hodge agreed. EU law imposes a duty of sincere co-operation: national courts must not undermine the work of the Commission and the EU courts. The Court rejected the claimants’ new argument that annulment of the final decision removed that duty. The decision opening the investigation remained in effect because the investigation had not been closed. The Commission might be able to recast it, including by limiting it to the period after accession or by using accession arrangements which allow objection to certain aid granted from 1 September 2004. The Court did not decide whether the May 2014 injunction had revived. The pending appeal also had a real prospect of success and created a substantial risk of conflict. Taken alone, EU law would therefore have required the stay to continue.
The Convention led the other way. An ICSID award is binding and is not open to appeal or any remedy except the Convention’s own procedures, which Romania had exhausted. A national court may not re-examine the merits or refuse enforcement on ordinary public-policy grounds. The Court of Appeal had divided over whether the obligation to enforce an award “as if it were a final judgment” imports every domestic defence to enforcement or only supplies the machinery of execution. The Supreme Court did not resolve that division. It said that only the International Court of Justice could do so authoritatively, and that Romania failed either way.
If the domestic power is limited to a temporary procedural delay consistent with the Convention, this stay exceeded it. It halted enforcement for a substantive EU reason and, if the Commission ultimately succeeded, would have continued indefinitely. If instead the award had to be treated like a final English judgment, that judgment would have been enforced once the EU Treaties were left aside. Article 351 provides that obligations in a pre-accession agreement with third countries are not affected by the Treaties. The United Kingdom ratified the Convention in 1966, before joining the European Communities in 1973. Its duties to enforce awards and to make the Convention effective are owed to all other contracting states, including non-EU states, not only to Sweden. Article 351 therefore applied, and Romania could not rely on sincere co-operation to create an EU obstacle which that article excludes.
The Court also rejected the argument that EU law required the Convention to be read so as to give the Commission’s position effect. Article 351 must be considered first, and the Convention is interpreted under international law. A further argument based directly on the European Communities Act 1972 did not independently help the claimants: the 1966 Act is not a fundamental constitutional statute, and the treaties given effect by the 1972 Act already preserved pre-accession obligations.
The Supreme Court considered that it could determine the UK’s obligations under the earlier convention. It distinguished the question before the EU courts about Romania’s obligation to pay. On the proceedings then before it, the Court considered that the duty of sincere co-operation did not require it to await a further ruling.
Verdict: The Supreme Court unanimously allowed the investors’ cross-appeal and lifted the stay. That made it unnecessary to decide Romania’s appeal about security. The £150 million security order was discharged.
