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Enforcement by the UK of an arbitral award under the ICSID Convention and EU law

Mateusz Milek , 26 mars 2024

In its judgment of 14 March  2024, Commission v UK,  the Court of Justice declared that the United Kingdom infringed Article 4(3) TEU and Articles 108(3), 267 and 351(1) TFEU, read in conjunction with Article 127(1) of the Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community. The violation of these provisions resulted from the judgment of the Supreme Court of the United Kingdom of 19 February 2020 in Micula v Romania, which authorised the enforcement of an arbitral award made under the International Centre for Settlement of Investment Disputes (ICSID) (Case Ioan Micula, Viorel Micula and Others v Romania). By that arbitral award, Romania was ordered to pay Swedish investors compensation of approximately €178 million on account of the early repeal of a regional investment aid scheme. The judgment of the Supreme Court of the United Kingdom was delivered despite the fact that the European Commission, which considered that compensation to be State aid incompatible with the EU internal market, had prohibited Romania from paying it. Moreover, a dispute concerning that Commission decision was pending before the Court of Justice at the time the UK’s Supreme Court judgment was delivered (Case C-638/19 P European Food SA).

As a preliminary remark, the Court of Justice confirmed that pursuant to Article 127(1) of the Agreement on the Withdrawal, it had jurisdiction to hear infringement actions under Article 258 TFUE against the United Kingdom for possible breaches of EU law committed before the end of the transition period (31 December 2020), which the Commission brought to the Court of Justice within the four years following that date.

Turning to the substance of the case, the Court of Justice first examined the alleged infringement of Article 351(1) TFEU. Under this provision, the rights and obligations arising from international agreements before the date of accession to the European Union, concluded between one or more Member States on the one hand, and one or more third countries on the other, are not to be affected by the provisions of the Treaties. The aim of this provision is to protect the rights of third countries by permitting the Member States concerned to perform their obligations under a prior international agreement. That provision does not, however, authorise the Member States to exercise rights under such agreements in their internal relations within the European Union. Accordingly, the United Kingdom could not rely on this provision, in order to fulfil its obligation to enforce, pursuant to the ICSID Convention, an arbitral award in order to ensure compliance by another Member State (Romania), with its obligations under the bilateral investment treaty vis-à-vis a final Member State (Sweden).

In relation to the duty of sincere cooperation, laid down in Article 4(3) TEU, the Court of Justice recalled that the national courts must refrain themselves from taking decisions which conflict with a decision adopted by the European Commission. It pointed out that the Commission had adopted a decision, in which it found that the payment of the compensation granted by the arbitral award in Micula v Romania constituted State aid, within the meaning of Article 107(1) TFEU, which was incompatible with the internal market. This decision was challenged before the EU courts. Without awaiting the final decision from the EU courts, the Supreme Court of the United Kingdom delivered the judgment at issue. Consequently, it infringed Article 4(3) TEU.

Lastly, the Court of Justice has recalled that under Article 276 TFUE, a national court or tribunal against whose decisions there is no judicial remedy under national law (as is the case for the UK’s Supreme Court) is obliged to refer a preliminary reference to the Court of Justice on the interpretation of EU law. Admittedly, a national court of last instance may refrain itself from doing so, where the correct interpretation of EU law is so obvious as to leave no scope for any reasonable doubt (the so-called ‘acte clair’ doctrine). However, in the judgment at issue delivered by the UK’s Supreme Court, there was sufficient evidence to raise doubts as to the interpretation of Article 351(1) TFEU. Consequently, the Court of Justice declared an infringement of Article 267 TFEU.

In conclusion, the judgment of the Court of Justice of the European Union in Commission v UK has contributed to the post-Achmea line of case-law, according to which the principle of the autonomy of the EU legal order precludes the Member States from concluding inter se bilateral investment treaties. As the case at hand has clarified, this prohibition extends to the enforcement of arbitral awards by national courts under the ICSID Convention. That fact that a Member State ratified this Convention before acceding to the European Union may not alter this conclusion.


Reproduction autorisée avec la référence suivante : Mateusz Miłek, Enforcement by the UK of an arbitral award under the ICSID Convention and EU law, actualité n° 11/2024, publiée le 26 mars 2024, par le Centre d’études juridiques européennes, disponible sur www.ceje.ch