Micula v Romania

Summary:2The facts:—Messrs Viorel and Ioan Micula were Swedish nationals who had invested in three entities (together “the petitioners”) in Romania (“the respondent”). The petitioners sought confirmation and the consequent enforcement in the United States of an arbitral award rendered by a tribunal constituted under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, 1965 (“ICSID Convention”).3 The respondent objected to the confirmation of the award on a number of grounds including lack of subject matter jurisdiction under the Foreign Sovereign Immunities Act 1976 (“FSIA”).

Starting in the late 1990s and early 2000s, the petitioners had invested in the Romanian food industry in reliance on certain tax incentives provided by the Romanian Government. In August 2004, Romania announced that, as part of the process of the State becoming a member of the European Union (“EU”), it would repeal the tax incentives it had offered the petitioners. Romania took the decision to repeal the tax incentives based on advice it had received from the Commission of the EU (“EU Commission”) stating that such schemes were contrary to EU State Aid rules. Consequently, in August 2005, the petitioners brought international arbitration proceedings against the respondent under the Sweden–Romania Treaty on the Promotion and Reciprocal Protection of Investments, 2002 (“the BIT”)4 which provided for arbitration under the ICSID Convention. The petitioners alleged that they had invested in Romania on the basis of the tax incentives offered by the State and the revocation of those incentives caused the petitioners significant financial losses for which the respondent was liable.

In December 2013, the ICSID arbitral tribunal issued an award in favour of the petitioners awarding them approximately USD 116 million plus interest (“ICSID Award”).5 On 1 January 2007, whilst the arbitration proceedings were ongoing, Romania had become a member of the EU. In May 2014, the EU Commission issued an injunction ordering Romania to suspend payment of the ICSID Award whilst the Commission assessed the compatibility of such a payment with EU State aid rules. Romania subsequently sought to annul the ICSID Award under Article 52 of the ICSID Convention. In August 2014, an Annulment Committee established to review the ICSID Award agreed to stay

enforcement of the Award on the condition that Romania committed to paying the Award in full if the Annulment Committee decided not to annul the Award. Romania declined to commit unconditionally to paying the ICSID Award. Consequently, in September 2014, the Annulment Committee lifted the stay on enforcement of the Award. Subsequently in March 2015, the Commission issued its decision finding that, as the incentives offered by Romania constituted unlawful State aid, so too would payment of the ICSID Award, and ordered Romania not to make any further payments with respect to the Award and to recover any amounts that the State had already paid to the petitioners.

The petitioners appealed the Commission's Decision to the General Court of Justice of the European Union (“GCEU”). In February 2016, the Annulment Committee rendered its decision6 rejecting Romania's request for annulment of the ICSID Award and the submissions of the EU Commission, which had intervened in the annulment proceedings and argued that the Award was incompatible with EU State aid rules. In the intervening period, the petitioners had sought to enforce the ICSID Award in several jurisdictions, including before the US courts.

In November 2017, the petitioners initiated the present proceedings seeking enforcement of the ICSID Award in the District Court for the District of Columbia (“the Court”). The respondent opposed enforcement of the ICSID Award on the basis that Romania had satisfied the Award and that the foreign sovereign compulsion doctrine required the Court to deny enforcement. The respondent subsequently sought to stay the enforcement proceedings pending the outcome of the petitioners' appeal before the GCEU. The EU Commission filed an amicus curiae brief arguing that the Achmea decision7 of the European Court of Justice rendered the arbitration agreement in the BIT invalid and unenforceable and, for that reason, the Court lacked subject matter jurisdiction under the FSIA. The EU Commission also argued that the act of State doctrine and the foreign sovereign compulsion doctrine barred enforcement of the ICSID Award. The respondent subsequently invoked the Achmea decision and claimed that the District Court did not have subject matter jurisdiction over the enforceability of the ICSID Award. The respondent also reaffirmed the need to stay the proceedings until the EU courts had resolved the State aid question.

On 18 June 2019, the GCEU issued its judgment finding that the EU Commission's Decision should be annulled in its entirety as EU law became applicable to Romania only after its accession to the EU on 1 January 2007 and therefore the EU Commission lacked competence to determine that the investment incentives which predated Romania's accession to the EU violated EU State aid rules (“GCEU Judgment”). In July 2019, the EU Commission

appealed the GCEU Judgment to the Court of Justice of the European Union (“CJEU”).

The District Court denied Romania's request for the stay of the enforcement proceedings.

Held (by the District Court):—The petition to confirm the arbitral award was granted.

(1) A federal court's role in enforcing an ICSID award was limited. Congress had granted federal courts exclusive jurisdiction to enforce ICSID awards. Such awards should be enforced and given the same effect as if the award were a final judgment of a domestic court of general jurisdiction. A federal court was not permitted to review the merits of an ICSID award, its compliance with international law or the tribunal's jurisdiction to render the award. The federal court should examine the authenticity of the award and, if satisfied that it was authentic, enforce the obligations set out therein (para. 31).

(2) The Court had jurisdiction to enforce the Award.

(a) The FSIA was the sole basis for obtaining jurisdiction over a foreign State in the courts of the United States. A foreign State was presumptively immune from the jurisdiction of United States courts unless a specified exception applied. The courts had consistently held that the arbitration exception conferred subject matter jurisdiction over petitions to enforce ICSID awards (paras. 33–4).

(b) The respondent had failed to establish that the Achmea decision prevented the District Court from exercising jurisdiction under the exception to the FSIA concerning the enforcement of arbitral awards. Unlike the Achmea case, the events in the present dispute took place prior to Romania's accession to the EU (paras. 39–40).

(c) The ICSID Award itself showed that the issues in dispute therein did not relate to the interpretation and application of EU law, as had been the case in the Achmea decision. The GCEU Judgment overturning the EU Commission's State aid decision confirmed that the ICSID arbitral tribunal did not deal with substantive EU law and, for that reason, the Achmea decision did not affect the validity of the ICSID Award (paras. 41–2).

(d) The GCEU Judgment explicitly refuted the respondent's position that the Achmea decision nullified the arbitration agreement contained in the BIT at issue in the present case (para. 42).

(3) The act of State doctrine and the foreign sovereign compulsion doctrine did not apply as the EU Commission lacked competence to commence the State aid investigation.

(a) The act of State doctrine provided that the courts of one State will not question the validity of public acts (acts jure imperii) performed by other sovereigns within their own borders (para. 42).

(b) The foreign sovereign compulsion doctrine shielded from liability the acts of parties carried out in compliance with the orders of a foreign government (para. 44).

(c) The EU Commission qualified as a sovereign under...