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In this case comment, Richard Bamforth and Laura West from CMS comment on the decision handed down last month in the matter of Micula and others v Romania [2020] UKSC 5.  Richard Bamforth is a partner in the Litigation and Arbitration group of CMS, based in the London office. He specialises in international arbitration (as counsel and as arbitrator), commercial litigation and alternative dispute resolution, with a focus on cross border disputes in the media, banking, finance, insolvency, energy and telecommunications sectors.  Laura West is an associate at CMS based in Edinburgh.  She specialises in construction, engineering and energy disputes providing operational and strategic contract advice as well as representing clients through a range of dispute resolution procedures including arbitration, litigation, adjudication and mediation. Laura has a particular interest in arbitration and is the current Vice Chair of the Global Steering Committee for the Chartered Institute of Arbitrators’ Young Members Group.

The Supreme Court has overturned the lower courts’ stay of enforcement of the International Centre for Settlement of Investment Disputes (“ICSID”) award in the long-running case of Micula v Romania [2020] UKSC 5.

Background

The proceedings were brought by Swedish nationals seeking to enforce an ICSID arbitral award made against Romania under the Romania-Sweden bilateral investment treaty (“BIT”). The tribunal found that Romania had breached the terms of the BIT by failing to ensure fair and equitable treatment, respect the claimants’ legitimate expectations and act transparently. It awarded the claimants in excess of £150 million plus interest.

Following the award, the EU Commission issued a decision directing Romania not to pay on the basis that it would constitute illegal state aid. Since then, the claimants have sought to enforce the award against Romania’s assets in the United States, France, Belgium, Luxembourg and Sweden with limited success.

At first instance and on appeal, the English courts stayed enforcement of the award pending the decision of the General Court of the European Union (GCEU), a constituent court of the Court of Justice of the European Union, as to whether the Commission’s decision preventing enforcement should be annulled. In June last year, the GCEU granted annulment, finding that the Commission should not review decisions Romania had made prior to its accession to the EU.

The appeal

The Supreme Court was asked whether the stay of enforcement should be lifted. The claimants argued that:

  1. the annulment by the GCEU meant that the UK courts were no longer required by EU law to stay the enforcement; and
  2. notwithstanding any further challenge by the Commission to the annulment, a stay was incompatible with the ICSID Convention and the Arbitration (International Investment Disputes) Act 1966, which brought the Convention into effect in the UK.

The decision

The Supreme Court rejected the claimants’ first argument. Despite the GCEU’s annulment, the Commission had not closed its investigation into Romania’s implementation of the award, and so the UK still had to adhere to its duty of sincere cooperation under the Treaty on the Functioning of the European Union (TFEU). Absent a final decision by the Commission, that duty continued.

However, the court found unanimously in the claimants’ favour on the second argument. While Art.54 of the Convention gave national courts a wide discretion to stay enforcement of an award temporarily on procedural grounds, the stay granted in this case had been substantive in nature, related to a challenge by the Commission on grounds that were not recognised in the Convention, and had the potential to continue indefinitely. Since the UK’s membership of the ICSID Convention predated its EU membership, the UK’s obligation to enforce ICSID awards took priority over its duty of cooperation under the TFEU.

Implications

This decision confirms the high status accorded by the UK courts to ICSID awards. The Supreme Court placed emphasis on the purpose behind the convention, namely to limit the grounds on which national courts can hinder enforcement of a valid award out of a desire to “avoid or minimise possible embarrassment at having to enforce awards against other friendly Contracting States.” As a result, it will be welcomed by the investment arbitration community. It has more limited relevance to the enforcement of commercial arbitration awards that may be subject to substantive defences (albeit limited) at the stage of enforcement.