Judgment rendered in Micula v Romania enforcement proceedings ([2017] EWHC 31 (Comm))

Transcription

1 Judgment rendered in Micula v Romania enforcement proceedings ([2017] EWHC 31 (Comm)) In a case of exceptional nature, the High Court has refused Romania s application, supported by the European Commission, to set aside the High Court s Order of 17 October 2014 registering the ICSID Award but granted a stay of enforcement proceedings in the United Kingdom pending the resolution of the Claimants proceedings in the European court seeking the annulment of the Commission s Final Decision of 30 March New Square's Matthieu Grégoire is instructed on behalf of the First Claimant, led by Sir Alan Dashwood QC and Patrick Green QC, and instructed by Shearman & Sterling. BACKGROUND TO THE ENFORCEMENT PROCEEDINGS 1. On 11 December 2013, an ICSID arbitration award (the Award ) was rendered in favour of the Claimants (Messrs Viorel and Ioan Micula and three companies owned directly or indirectly by them) against Romania, for breaches of the bilateral investment treaty entered into between the Government of the Kingdom of Sweden and the Government of Romania on the Promotion and Reciprocal Protection of Investments on April 1, 2003 (the Sweden/Romania BIT ). The Award ordered Romania to pay RON 376,433,229 as damages, together with interest of RON 424,159,150 and further interest accruing until the defendant satisfies the Award in full. 2. The Claimants began enforcement proceedings in various jurisdictions, pursuant to the Arbitration (International Investment Disputes) Act 1966 (the 1966 Act ), which implemented the ICSID Convention in the UK (the ICSID Convention ). On 17 October 2014, the Award was registered in the High Court by Order of Burton J pursuant to the provisions of the 1966 Act (the Registration Order ). 3. Following an injunction addressed to Romania dated 26 May 2014, a final decision was issued by the European Commission on 30 March 2015 (Commission Decision (EU) 2015/1470 of 30 March 2015 on State aid SA.38517) (the Final Decision ). By the Final Decision, the Commission found that implementation or execution of the Award by Romania (including payment) would constitute new incompatible State aid. (In very broad terms, the European Union rules on State aid are rules which prohibit state subsidies that distort competition). The Final Decision, inter alia, prohibited Romania from making any payment under the Award to the Claimants and required Romania to recover any incompatible aid already paid out. 4. Romania applied to set aside the Registration Order, alternatively to stay the Registration Order, alternatively that the questions which arise should be submitted to the Court of Justice of the European Union (CJEU) for a preliminary ruling. 4 NEW SQUARE LINCOLN S INN LONDON WC2A 3RJ T: +44 (0) F: +44 (0) DX: LDE 1041 E: CLERKS@4NEWSQUARE.COM

2 THE CORE ISSUE IN THE CASE 5. The core issue in the case was whether, consequent on the Final Decision, the High Court was duty-bound, as a matter of domestic constitutional law which incorporates EU law, to refuse registration or execution of the Award, and therefore to set aside any Order which has already purported to register or execute the Award. This issue is particularly complex in circumstances where, reflecting the terms of the ICSID Convention, registration of an ICSID award is an entitlement under the 1966 Act. There is no equivalent in the 1966 Act of s. 103 of the Arbitration Act 1996 which incorporates the grounds for the refusal of recognition or enforcement of a New York Convention Award set out in Article V of the Convention. THE ARGUMENTS 6. Supported (on most points) by the Commission, Romania argued that: a. The Registration Order should be set aside because: i. Romania has in fact paid the Award in full; and/or ii. This court is obliged to refuse recognition (and any further enforcement) of the Award, given the terms of the Final Decision. b. Alternatively, that the High Court vary the Registration Order so as to stay proceedings until: i. The Claimants applications to annul the Final Decision are determined by the EU Courts; or ii. The CJEU issues a preliminary ruling pursuant to Art. 267 TFEU (assuming that the High Court were to make a preliminary reference, as Romania supported by the Commission submitted in the alternative that it should). 7. In support of its position, Romania (and the Commission) relied, inter alia, upon the following principles: Art. 107(1) TFEU provides that State aid is, in principle, incompatible with the internal market. The Commission s role is to examine the compatibility of aid measures with the internal market, based on the criteria laid down in Arts. 107(2) and (3) TFEU. This compatibility assessment is the exclusive responsibility of the Commission, subject to review by the EU Courts. National courts have a complementary role, and must not disregard the limits of their own jurisdiction to prejudice the effectiveness of these articles. This is based on the duty of sincere cooperation contained in Art. 4(3) TEU which provides that: Pursuant to the principle of sincere cooperation, the Union and the Member States shall, in full mutual respect, assist each other in carrying out tasks which flow from the Treaties. The Member States shall take any appropriate measure, general or particular, to ensure fulfilment of the obligations arising out of the Treaties or resulting from the acts of the institutions of the Union. The Member States shall facilitate the achievement of the Union s tasks and refrain from any measure which could jeopardise the attainment of the Union s objectives. 8. The Claimants invited the Court to assume (for the purposes of the hearing only) that the Commission s Final Decision was valid (notwithstanding that they are challenging it in annulment 2

3 proceedings in the General Court of the European Union). The Claimants argued that, even on that premise, there was not basis for setting aside the Registration Order, or for a stay, or for a reference to the CJEU, the claimants submit, because: a. The Award is res judicata; b. The terms of the 1966 Act are clear and allow for no derogation; c. Art.351 TFEU applies because the ICSID Convention imposes applicable prior multilateral international obligations on the UK owed to non-eu Member States which take precedence; d. The European Communities Act 1972 was not intended to put the UK in breach of preaccession international obligations nor confer primacy on EU law in the relevant respect; e. Rejecting the application would not infringe the UK s EU law obligations of sincere cooperation under Art. 4(3) TEU (nor any other EU law duty); f. The Award had not been paid in full. 9. The Commission also argued that upon Romania s accession to the EU in 2007, at which point both parties to the treaty were members of the EU, the Sweden-Romania BIT became invalid. The Claimants argued that the question was irrelevant to the case. THE COURT S FINDINGS Issue 1: Finality of Decisions (Res Judicata) 10. The essence of the question of res judicata was whether the Commission s Final Decision of 30 March 2015 could affect the validity of the Award issued on 11 December 2013, since it post-dated it. 11. The Claimants relied upon Case C-234/04 Kapferer [2006] ECR I-2605 and argued that: a. The content of the Award s findings as to application of State aid law to enforcement was irrelevant to the status of the Award as res judicata; b. The Award was binding and res judicata when rendered on 11 December 2013 (see ss. 1 and 2 of the 1966 Act, and CPR 40.7), which was when the obligation on States to recognise it arose; c. The assertion of EU law rights was clearly possible in this case, meeting the requirements of the principle of effectiveness. This was not a case of circumvention of State aid law (as in the cases of Case C-505/14 Klausner Holz Niedersachsen v Land Nordrhein-Westfalen, EU:C:2015:742 and Case C-119/05 Lucchini [2007] ECR I-6199 relied on by Romania and the Commission). 12. In response, Romania and the Commission submitted that the Award did not have the status of res judicata because: a. There was no res judicata because the Award expressly refused to make any findings on enforcement; b. The Commission s Injunction Decision of 26 May 2014 and Final Decision of 30 March 2015 pre-dated the res judicata of the Award, which was 26 February 2016, so that the Kapferer principles did not apply; 3

4 13. Blair J found that: c. The Klausner exception applied: in Lucchini, the CJEU ruled that EU law precluded the application of a provision of national law which seeks to lay down the principle of res judicata in so far as the application of that provision prevents the recovery of State aid granted in breach of EU law which has been found to be incompatible with the common market in a final Commission decision. a. As a matter of English law, s. 2(1) of the 1966 Act provides that as respects the pecuniary obligations which it imposes, the Award was of the same force and effect for the purposes of execution as if it had been a judgment of the High Court given when the award was rendered pursuant to the Convention and entered on the date of registration under this Act,. A judgment or order took effect from the day when it is given (CPR ). Read with Art. 54 of the ICSID Convention, this showed that finality occurs at the time of the Award, because that is the time at which a final judgment of the High Court is deemed to be given for enforcement purposes, and not at the time of the resolution of annulment proceedings under the Convention ( 107). b. the Claimants were correct to submit that, as a matter of English law, the Award became res judicata in the sense of acquiring finality on 11 December 2013, not on 26 February 2016, and so pre-dated both the Commission s Decisions ( 108). c. That if the court were to proceed to enforce the Award against the assets of Romania as if it were a judgment of the court, as the Claimants invited it to do, it would be acting in direct contradiction with the Commission s Final Decision the effect of which is to prohibit payment by Romania d. Whilst the Claimants did not raise res judicata as a ground on annulment of the Commission s Final Decision, the issue of res judicata in the context of the decisions of national courts was raised in those proceedings by the Commission. In the court s view, Romania and the Commission were correct to say that the meaning and scope of Klausner formed part of GCEU appeals, and because it formed part of the argument in these proceedings, there would be a real risk of inconsistent decisions if the High Court were to decide as a matter of European law that the Award could be enforced. 14. On that basis, Blair J considered that the final determination of the issue should be stayed pending the decision of the European Court. Issue 2: the effect of the Arbitration (International Investment Disputes) Act Issue 2 was formulated by Blair J as follows: leaving aside questions of EU law, did the High Court have a duty under the 1966 Act to register/enforce the Award? ( 113) Registration of the Award 16. The Court found that, just as there is a distinction between the giving of a judgment and the enforcement of it, so there is a distinction between registering an award, and enforcing it. Registration was not necessarily a precursor to execution, though it may lead to it. In commercial terms, there may be good reason to register an award aside from imminent enforcement, for example for reasons of priority as against other creditors, or as a precaution. Blair J found that in this case, the Claimants, who had a binding award in their favour, could be prejudiced by setting aside the registration whilst the State aid issue is resolved in the European courts. Care should be taken not to derogate from the entitlement to have an award registered as a judgment outside the confines of the 1966 Act (as to such confines, see for example the provisions as to proving authenticity (s.1(6)(b)), and where there has been prior satisfaction of the award in part or in whole (s.1(5)). 17. The Court then analysed the facts of the case, noting that the prohibited State aid measure is payment of the Award, whether by implementation or execution. Thus, the Commission s Final 4

5 Decision stipulated that Romania shall not pay any incompatible aid. The Court noted that registration of the Award was not comprehended within the Final Decision, and found that there was no reason to read it in. Registration in itself did not create a risk of conflict between decisions of domestic and EU institutions in the sense established in the case law. Stay of Enforcement Proceedings 18. The Court then turned to the question of whether enforcement proceedings should be stayed until the claimants applications to annul the Commission s Final Decision are determined by the EU Courts. 19. Blair J concluded, in relation to stay that the question was one of legality in enforcement: This court cannot therefore proceed to enforce the judgment consequent on registration of the Award in circumstances in which the Commission has prohibited Romania from making any payment under the Award to the claimants because in doing so, the court would, in effect, be acting unlawfully. This does not (in the court s view) create a conflict with the international obligations of the UK as contained in the 1966 Arbitration Act implementing the ICSID Convention in UK law, because a purely domestic judgment would be subject to the same limitation ( 132). Issue 3: Article 351 TFEU 20. The Claimants had also argued that EU law contemplates the case of a conflict arising between duties under EU law and an international agreement entered by a Member State before its accession to the Union: Art. 351 TFEU provides for the Member State s obligations under a prior international agreement with a non-member State to continue despite its subsequent accession to the EU, and in the case of the UK, the ICSID Convention is such a prior international agreement. 21. The Claimants argued that: a. The UK signed the ICSID Convention in 1965, and enacted the 1966 Act to implement the obligations contained in it. The ICSID Convention has more than 150 State parties, most of which are not EU Member States, and which were parties prior to the UK 's accession to the then European Economic Community in b. Art. 54(1) of the ICSID Convention established obligations for all parties to recognise and enforce awards: Each Contracting State shall recognize an award rendered pursuant to this Convention as binding and enforce the pecuniary obligations imposed by that award within its territories as if it were a final judgment of a court in that State. c. The 1966 Act in turn implemented this international obligation in domestic law in the provisions set out above. d. The UK s membership of the ICSID Convention and the 1966 Act both took effect in 1967, several years prior to the UK joining the EEC. e. The UK accordingly bore obligations to non-member States to recognise and enforce any award rendered under the ICSID Convention, including the Award, and had created under national law parallel duties on this court to register such awards. The existence of this obligation engaged Art The Claimants had set out their arguments as follows: a. The ICSID Convention required the court to enforce the Award as if it were a final judgment of a UK court. Such a judgment would be enforced, applying Kapferer (for 5

6 the same reasons as contended for in Issues 1 and 2). Enforcement of the Award was therefore mandatory under the ICSID Convention. b. Art. 351 applied because the ICSID Convention imposed applicable prior multilateral international obligations on the UK owed to non-eu Member States, and created an enforcement system in which all ICSID parties have a shared interest. c. EU law imposed no requirement on this court to disregard the ICSID Convention or the 1966 Act, which required enforcement in this case, even if enforcement would otherwise be incompatible with EU law duties (as to which see Issue 4 below). 23. In answer, Romania and the Commission submitted that Art. 351 did not apply because: a. The UK s ICSID obligations did not require enforcement for the same reasons as contended for under Issue 2: that is, a final judgment of a UK court would not be enforced, so that no conflict of the UK 's international obligations with EU law arises. b. Art. 351 did not apply because this was a case of intra-community relations (i.e. no third country State is involved), and EU law did not require priority to be given to the ICSID Convention in such a case (Case T-69/89, RTE v Commission, EU:T:1991:39). c. EU law requires this court to give priority to its duties under EU law, over those under the 1966 Act, so that the Registration Order must be set aside or stayed 24. Blair J considered that, even accepting that there was a difference in how the Art. 351 issue arose in the proceedings before the High Court and those before the European Courts, it was difficult to see how the risk of conflicting decisions could be avoided if the High Court were now to rule on the issue. He agreed with Romania and the Commission that, at the minimum, the GCEU would be considering the same cases and the same principles decided under Art. 351 (including the RTE case) as he was being asked to consider. In the circumstances, applying the principles set out above, the case for a stay of these proceedings while the annulment action goes forward was a strong one. Issue 4: European Communities Act 1972 ( ECA 1972 ) 25. Issue 4 was formulated as follows : did the ECA 1972, properly interpreted, mean that the High Court should give priority to its obligations under the Arbitration Act 1966 over its obligations under EU law? 26. The Court considered that the issue as formulated assumed a conflict between the provisions of the ECA 1972 and the Court s obligations under the 1966 Act, so that the question arose as to whether such obligations had primacy over its obligations under EU law. 27. However, for the reasons set out above, the Court found that the conflict did not arise in the present case. The Claimants were entitled to register the Award by way of the Registration Order of 17 October 2014, and there were no grounds for setting aside the registration. As regards enforcement, Art. 54 of the ICSID Convention required Contracting States to equate an award rendered pursuant to the Convention with a final judgment of its own courts. Blair J found that he could not enforce the judgment consequent on registration of the Award in circumstances in which the Commission has prohibited Romania from making any payment under the Award to the claimants. However, a purely domestic judgment would be subject to the same limitation, so that a stay would not put the UK in breach of pre-accession international obligations. Issue 5: EU duties, especially Art.4(3) 28. Issue 5 was formulated as follows: subject to the answers to issues 1-4, did Art. 4(3) TEU (sincere cooperation), Art. 19 TEU (effective judicial protection), and/or the principle of effectiveness require the court not to recognise/enforce the Award? 6

7 29. The Claimants argued, inter alia, that rejecting the application would not infringe the UK s EU law obligations under Art. 4(3) TEU (nor any other EU law duty) because: a. The terms of the Commission s Final Decision did not apply to execution outside Romania; b. Compulsory execution of the Award in the UK was not imputable to Romania; c. Romania s arguments would lead to an unprecedented and exorbitant application of Art. 4(3) TEU, read together with Art. 4(2), or any other provision of EU law on which Romania or the European Commission rely. 30. Romania argued that if the Registration Order were not set-aside/stayed, the UK courts would render the Commission's Final Decision ineffective by forcing Romania to do the very thing prohibited. On imputability, Romania and the Commission argued that: a. There was no need to show that payment pursuant to an order of the UK courts was imputable to Romania because sincere cooperation and effectiveness were standalone principles of EU law that could be breached independently by the UK courts. b. Any requirement of imputability was in any event satisfied by Romania entering into the BIT and creating the conditions for payment of compensation (see the Commission s Final Decision, para 118). 31. Blair J found that the issue is before the GCEU for decision in the annulment proceedings, and a decision by this court as to imputability would risk a conflict, and so did not decide the issue. Issue 6 : payment 32. Issue 6 was formulated as follows: must the Registration Order be set aside because the Award has been paid in full? On the facts, Blair J found that most of the Award remained unpaid ( 176). Issue 7 : the Romania-Sweden BIT 33. The final issue before Blair J was whether the Romania-Sweden BIT was invalid. Blair J found that the English court could not rule on the validity of a treaty between Sweden and Romania, though it perhaps could refer the question to the CJEU. However, the Court agreed with the Claimants that, reference aside, validity of the Romania-Sweden BIT was not relevant to the issues to be decided in this case. CONCLUSIONS 34. In summary, the Court decided, inter alia, that: a. Other than the amounts already received by the Claimants in Romania by way of courtordered execution, Romania had not made any payments under the Award. b. The Application of Romania to set aside the Registration Order was refused. c. Enforcement of the Award was stayed pending the resolution of the Claimants proceedings in the European Court seeking the annulment of the Final Decision of 30 March d. Bearing in mind tat a reference by a first instance court is discretionary, an Art.267 TFEU reference to the CJEU would not be made. 7

8 NEXT STEP: SECURITY 35. The Claimants had asked that, if, contrary to the claimants primary contention, the court finds that a stay should be ordered, by application issued on 29 September 2016 the Claimants asked the Court to make the grant of such stay conditional upon the grant of full or substantial security for the Award. 36. Blair J considered that, having considered at this stage the parties written submissions only, the Claimants had advanced a persuasive case for an order requiring Romania to provide security as a term of the stay. It reflected the fact that (i) the proceedings relate to an ICSID Award which predated the decisions of the Commission, (ii) the Award was to be treated as a final judgment of the English court given at the time of the Award, and (iii) the Award had been unpaid for some years. More generally, although security was not the same as enforcement or payment because the monies may never be paid to the claimants, the grant of security was at least consonant with the obligation placed on the UK under the ICSID Convention to enforce awards. Finally, as the Claimants said, should the European Court rule in their favour, security would assist in enabling them promptly to recover the sums due to them. Blair J found that this was particularly important given the long duration of this dispute. 37. However, the Court found that there were two points which the court had not yet been able to resolve: a. What was the basis upon which the Court had power to impose security in the circumstances of the case; b. Whether, if the Court were to order security to be paid, that might itself fail to respect the Commission s Final Decision in a way that violated EU law. 38. The Court hoped that the possibility of non-compliance was academic, but in the light of the history of this dispute that cannot be taken for granted. For the reasons set out above, the Court granted the parties the opportunity to make further submissions at the hearing of consequential matters subsequent to the handing down of this judgment, so as to satisfy the Court as to the two points it identified. 8