England and Wales Court of Appeal, 27 July 2018, Viorel Micula, Ioan Micula, S.C. European Food S.A., S.C. Starmill S.R.L. and S.C. Multipack S.R.L. v. Romania, [2018] EWCA Civ 1801

In 2013, an ICSID arbitral tribunal issued an award in an investment treaty-based case opposing Romania (“Respondent”) to the Micula brothers and three companies controlled by them – S.C. European Food S.A., S.C. Starmill S.R.L. and S.C. Multipack S.R.L (“Claimants”). In this award, the arbitral tribunal recognised the violation of the FET standard due to reforms undertaken by Romania with a view to join the European Union (“EU”). In particular, Respondent withdrew tax incentives considered to be a State aid within the meaning of Article 107(1) of the Treaty on the Functioning of the European Union (“TFEU”). Once the award had become final, the European Commission (“EC”) decided that its enforcement would constitute a new State aid and prohibited Romania from enforcing it. Claimants requested the annulment of the EC’s decision before the General Court of the EU (“the GCEU”), whilst Romania filed its application in the Commercial Court of England and Wales to set aside the award, or alternatively stay the Registration Order of 17 October 2014.

Dealing with the interrelatedness of the ICSID Convention and EU law in his judgment staying proceedings, the trial judge refused to set aside the registration of the Award but granted a stay pending the determination of the GCEU on the EC’s decision. Claimants appealed.

The Court of Appeal upholds the trial judge’s decision to grant a stay until the determination of the GCEU proceedings. It rejects the first ground of appeal that the award had res judicata in the sense of acquiring finality. Among others, it notes that the “principle of res judicata is being relied upon to ask the court to facilitate the payment of unlawful State aid in clear breach of its duty of sincere co-operation”. The Court of Appeal also upholds that there is no conflict of obligations between the international obligations of the UK under the 1966 Act implementing the ICSID Convention and the courts’ obligation to apply EU law in light of the Commission Decision. Finally, it agrees with the trial judge that should a conflict exist, a stay of enforcement should be granted on the grounds that the issue of whether Article 351(1) of the TFEU applies in this case is a matter for the GCEU to decide and there is a clear risk of conflicting decisions. Under Article 351(1), the rights and duties under a treaty made by a member state prior to accession to the EU with a third country are in general not affected by EU law.

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