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THE MICULA JUDGMENT OF THE COURT OF JUSTICE
MAY 2022
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Table of Contents 1. Prior Intra-EU BITS A er Commission v European Foods Andrés Delgado Casteleiro 2. e Court of Justice’s Repeal of the General Court’s Ruling in Micula: A Controversial Reaffirmation of the Con ict between EU law and International Investment Law Maurizia De Bellis 3. Judgment of the Court of Justice in Commission v European Food and Others (C-638/19 P): e Micula Saga Continues… and the Possible Granting of State Aid through Arbitration Awards Comes under Closer Scrutiny Juan Jorge Piernas López 4. When Regimes Collide: Micula – and the Fragmentation of the International Legal System Holger Hestermeyer 5. e Court of Justice Dodges the Real Question in the Micula case: Can an Investment Arbitration Tribunal Grant State Aid? Johannes Fahner 6. Micula: European Food for Paschalis Paschalidis
ought
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The Micula Judgment of the Court of Justice
Prior Intra-EU BITS A er Commission v European Foods Andrés Delgado Casteleiro
i
e Court of Justice’s judgment in Commission v European Foods (C-638/19 P) is another milestone in the long winding judicial saga that initiated with the Micula v Romania ICSID case back in 2005, a decision on jurisdiction and admissibility in 2008, and an award in 2013. It also has had stops at the Tribunal de premiere instance ancophone de Bruxelles (Section Civile) in 2016; the Nacka District Court in Stockholm (Swedish) and the US Court of Appeals for the District of Columbia both in 2019; the UK Supreme Court in 2020, the General Court in 2019 and now the Court of Justice. is Op-ed focuses on the last one of these decisions, although this judgment is most de nitely not going to be the last one in the saga, since the Court of Justice decided to refer the case back to the General Court. Be that as it may, the Court of Justice le some questions undecided − for example, whether the compensation granted by an arbitral award constitutes State aid − and cast some doubts about its previous case law on agreements concluded by the EU Member States prior to their accession to the EU (prior agreements). is Op-Ed situates Commission v European Foods within that line of case law to see whether there is a departure from it, and is structured in three parts. e rst one gives a brief account of the relevant legal facts to show how this judgment would relate to the previous case law on prior agreements. e second part brie y explains the evolution of such case law. e third part places Commission v European Foods within that context.
A brief account of the relevant legal facts To be er understand Commission v European Foods it is important to understand some crucial aspects of the legal framework that applied to the Micula v Romania ICSID case. e case was brought under the 2002 Romania - Sweden Bilateral Investment Treaty. In 2017, Romania decided to terminate such an agreement in part because of the Micula case. In 2020 the termination nally took effect. In a nutshell, the agreement that gave rise to the award that is at the centre of the Court of Justice case no longer applies. It is important as well to point out that the 2002 Romania - Sweden BIT was concluded prior to Romania’s accession to the EU, and that the 2005 Bulgaria and Romania’s Accession Treaty established the obligation to withdraw from any international agreement incompatible with EU Law (Article 6(10)). is provision shows how the EU institutions were concerned with the legal tensions that Romania (and Bulgaria)’s accession could create to the EU acquis.
i. Academic Secretary of the Universidad Autónoma de Chile’s Law Faculty. His publications include Union: From Competence to Normative Control(Cambridge University Press, 2016
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e International Responsibility of the European
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The Micula Judgment of the Court of Justice
e Court of Justice case law on prior agreements Article 6(10) of the 2005 Bulgaria and Romania’s Accession Treaty mirrors Article 351 TFEU, which tries to strike a delicate balance between providing legal certainty towards third parties and protecting the primacy of EU law. More speci cally, Article 351 TFEU establishes the obligation to take ‘all appropriate steps to eliminate the incompatibilities’ between prior agreements and the Treaties. e appropriate steps include the renegotiation, adjustment, and denunciation of the prior agreement. In recent years the Court’s case-law on prior agreements has expanded the notion of what might come as an incompatibility. In Commission v Austria (C- 205/06), Commission v Sweden (C-249/06) and Commission v Finland (C-118/07), the Court expanded the notion of incompatibility to include potential incompatibilities. In Kadi (C-402/05 P) the Court of Justice was adamant that Article 351 TFEU ‘in no circumstances permit any challenge to the principles that form part of the very foundations of the [Union] legal order.’ Within this same trend, one could read the judgment in Achmea (C-284/16) where the Court of Justice established that Netherlands and the Czech and Slovak Federative Republic BIT (a prior agreement) was incompatible with such foundations of the Union legal order like the principle of mutual trust or the preliminary ruling procedure provided for in Article 267 TFEU. Even without mentioning Article 351 TFEU, the Court of Justice was applying the same rationale it had had before. Regardless of the strong wording of the Achmea judgment and the criticism it received, its implementation followed the same pa ern of previous BITs cases. In those cases, the Court established that it was ‘for the Commission to take any steps which may facilitate mutual assistance between the Member States concerned and their adoption of a common a itude.’ In the same vein a er Achmea, the Commission helped the Member States to reach a political compromise that lead to an inter-se agreement terminating those agreements. Achmea could have also been dealt with as an Article 351 TFEU case and arrived at the same outcome: an incompatibility that was dealt with an agreement terminating the intra-EU BITs.
European Foods and Article 351 TFEU: A step too far? Commission v European Foods is an appeal to a previous General Court judgment where the la er held that the Achmea precedent was irrelevant to the present case. For the Court of Justice, there is no doubt that an award like Micula v Romania is incompatible with EU law for the same reasons that Achmea B.V. (formerly known as “Eureko B.V.”) v Slovak Republic was also incompatible: e intra-EU BITS that allow these case to arise are contrary to the very foundation of the Union legal order. In that sense, European Foods treads the same path that Komstroy (C-741/19) and PL Holdings v Poland (C-109/20) walked before. However, there is a striking difference with the previous cases − not only Achmea and its progeny but also the previous case law on prior agreements. e Court of Justice argued that since Romania’s accession to the European Union, the system of judicial remedies provided for by the EU and FEU Treaties replaced that arbitration procedure.’ us the consent given to that effect by Romania in its BITs, ‘from that time onwards, lacked any force.’ is idea that the 2002 Romania – Sweden BIT ‘lacked any force’ can be considered highly debatable. At rst sight, it would seem to run against the express wording of Article 351 TFEU, which does not establish the automatic termination of prior agreements that are incompatible with EU law. Moreover, it
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would suppose a change in the previous case law where such incompatibilities led to an eventual renegotiation, adjustment, and denunciation not the automatic termination of the agreement. However, it could also be argued that the Court of Justice is adopting one of the arguments put forward by the Commission in many of its amici curia briefs to investment cases (though not in the Micula v Romania case) where it argued that accession to the EU implied the automatic termination of any prior BITs as per Article 59 1(b) VCLT. is provision establishes that a treaty shall be considered as terminated if all the parties to it conclude a later treaty relating to the same subject ma er and the provisions of the later treaty are so far incompatible with those of the earlier one that the two treaties are not capable of being applied at the same time. Following this interpretation, the 2002 Romania - Sweden BIT would lack any force since Romania’s Accession Treaty would have terminated it as the BIT was incompatible beyond any possible adjustment. us, the denunciation and withdrawal from the BIT would not have been necessary for the already terminated 2002 Romania - Sweden BIT (or even for those prior agreements terminated a er Achmea). However, how does this view relate to the express wording of the Accession Treaty which does establish an obligation of withdrawal from incompatible treaties? It could be argued that the obligation to withdraw would have a general character that would apply to any agreement incompatible with EU law signed by Romania, whereas the rule in Article 59 VCLT would apply to a more speci c situation, namely agreements incompatible with EU law where both parties are Member States. In both readings, the Court of Justice in European Foods would have gone beyond what it had already held in Achmea, establishing the automatic termination of all intra-EU BITs, including those not mentioned in the inter-se agreement.
Conclusions Is this the last nail in intra-EU Arbitration’s coffin? One could think it might be. On the one hand, Achmea, Komstroy and PL Holdings have established the incompatibility of any arrangement that would allow for any new intra-EU arbitral proceedings to arise. On the other hand, by establishing the lack of any force of those BITs since the moment a Member State entered the EU, European Foods might make their enforcement within the EU almost impossible, regardless of whether the General Court classi es an arbitral award as illegal State aid. However, as the Micula v Romania case has shown, the enforcement of investment awards can also take place outside the EU. us, it is likely that we will continue reading about intra-EU cases, yet taking place outside the EU. What a paradox!
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e Court of Justice’s Repeal of the General Court’s Ruling in Micula: A Controversial Reaffirmation of the Con ict between EU Law and International Investment law i
Maurizia De Bellis
e con ict between EU law and international investment law has been one of the most blatant cases of con ict between regulatory regimes for several years now. e Court of Justice’s judgment in Commission v. European Foods (C-638/19 P) is the most recent piece of two overlapping sagas. On the one hand, it is part of the evolution of the Court of Justice’s case law on the relation between international investment law and EU law since the Achmea judgment (C-284/16). On the other hand, it is the last episode (until now) of the judicial saga that started in 2005, when two investors, the Micula brothers – majority shareholders of the European Food and Drinks Group –, requested the institution of an ICSID tribunal claiming the breach of the Bilateral Investment Treaty (BIT) between Sweden and Romania, due to Romania’s repeal of certain economic incentives in the context of the negotiations for the accession to the EU. In extending the application of the Achmea principles to a case concerning an arbitral proceeding that started before the accession, the judgment shows the Court of Justice’s muscular a itude towards the con ict between EU law and international investment law, even at a time when recent developments point to policy solutions of the con ict. Moreover, in so doing, the Court risks weakening one of the principles at the heart of its own case law, namely the principle of mutual trust between Member States as a basis for distinguishing the compatibility of dispute resolution mechanisms with EU law. First, the analysis will situate the judgment in the evolution of the Court of Justice’s case law on the relation between international investment law and EU law, as well as of the EU policies on the ma er. Second, as the key point on which the Court of Justice found that the General Court erred in law is the one of the lack of applicability of the Achmea principles in the Micula case ratione temporis, even if not in in detail (for which see the Op-ed by Andres Delgado Casteleiro), a brief recalling of the factual background of the case will be needed. ird, the main arguments of the case will be examined and contrasted with the previous case law, in order to show their implications.
i. Tenured Assistant Professor in Administrative Law in the Department of Law, University of Rome ’Tor Vergata’. She is the author of I poteri ispe ivi dell’amministrazione europea (Giappichelli, 2021).
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EU law and international investment law: the principles in the CJEU case law and the current policies International investment law and EU law have long coexisted without colliding as if they were two separate worlds. is changed during the last two decades, mostly because of the accession process. Almost the totality of the intra-EU BITs was signed between western and eastern countries before the accession process started. e Commission argued the incompatibility of the intra-EU BITs with EU law, and in particular with the non-discrimination principle and the autonomy of EU law, already as amicus curiae within arbitral proceedings at the end of the rst decade of the years 2000. is position, however, has been constantly rejected by the arbitral tribunals. In the last decade the Court of Justice intervened on the issue. In the Achmea case, the Court did not answer to the argument concerning the breach of the non-discrimination principle, as it considered sufficient its own ndings on the autonomy of EU law. Taking what has been considered to be a narrow approach (see the Op-ed by Harm Schepel), however, the Court did not declare invalid all the intra-EU BITs. In particular, it reaffirmed that an international agreement providing for the establishment of a court responsible for the interpretation of its provisions and whose decisions are binding on the institutions, including the Court of Justice, is not in principle incompatible with EU law (as already claimed, among others, in the Opinion 2/13, concerning the accession of the EU to the ECHR). e speci c features of the BIT at stake in Achmea that made it incompatible with EU law were that the arbitral tribunal may interpret not only the international agreement, but also EU law, and that it called into question the principle of mutual trust among Member States. In the cases Komstroy (C-741/19) and PL Holdings v Poland (C-109/20), the Achmea approach has been followed as well. e Achmea judgment helped nudging 23 Member States into signing, on 5 May 2020, the so-called Termination Agreement (in addition to the UK, Finland, Sweden, Austria and Ireland did not sign the agreement). Such agreement declares all intra-EU BITs and all the sunset clauses listed in the agreement incompatible with EU law and void of any legal effects. New intra-EU BIT arbitrations are declared not to be possible any longer. It also set forth transition provisions concerning pending arbitrations. e political will to end – once and for all – all intra-EU BITs is hence clear. Investment agreements concluded by the EU, on the contrary, are compatible with the principle of autonomy of EU law, as affirmed by the Court of Justice in its Opinion 1/17, concerning the agreement with Canada (CETA). As clari ed by advocate general Bot in his Opinion, at the basis of the different evaluation on compatibility there is the principle of mutual trust between Member States, that precludes to delegate the solution of disputes among them to an organ removed from the judiciary, while such mutual trust cannot be expected with States outside the EU. On the solid ground of this affirmation of compatibility, in the last years, the EU has signed several investment agreements (Mexico, Singapore, Vietnam), all se ing up a bilateral investment court system (ICS), on the model of the one in the CETA. In the context of the UNCIT L negotiations concerning the reform of public investment law, the EU has affirmed itself as a champion of the proposal to substitute arbitral mechanisms with a multilateral investment court (MIC).
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Essential factual background: the Micula saga In 1998, Romania adopted the Emergency Government Ordinance (EGO 24), providing bene ts for investments in disadvantaged regions and in 1999 the Micula brothers obtained bene ts that should have been valid until 2009. In 2002, the BIT between Sweden and Romania was signed. In 2005, Romania repealed the economic incentives, on the basis of the ongoing accession process to the EU. In the same year, the investors requested the institution of an ICSID tribunal. e Treaty concerning the accession of Rumania and Bulgaria was signed in 2005 and came into effect in 2007. In 2013, the arbitral tribunal found that Romania’s repeal of certain economic incentives was in breach of the BIT between Sweden and Romania – in particular, the clause of the fair and equitable treatment clause (FET), the legitimate expectations of the investors and the principle of transparency were found to have been breached –, and that damages were due. In 2014, the Commission decided that the payment of the damages to the Micula brothers would constitute unlawful State aid under EU rules and ordered Romania to suspend any action intended to execute the arbitral award. e interaction between the EU and Romania does not give full account of the multipolar con icts in place, as the investors a empted to obtain the execution of the award in several other national jurisdictions.
e revision by the Grand Chamber of the General Court’s ruling: from a (limited) self-restraint to enhanced con ict e General Court’s decision in the Micula case did not reverse in any way the Achmea principles: the GC limited itself to consider EU law in general and such case law in particular not applicable to the Micula case ratione temporis. In particular, the GC argued that ‘it is apparent om the background to the disputes that all the events relating to EGO, namely Romania’s adoption of EGO, the applicant companies’ obtaining of the licences enabling them to bene t om the incentives laid down by EGO, the entry into force of the BIT, the revocation of the incentives laid down by EGO and the in ingements commi ed by Romania on that occasion and the initiation of the proceedings brought before the arbitral tribunal by the arbitration applicants, took place before Romania’s accession to the European Union on 1 January 2007’(para. 71). Hence, the Commission was considered to lack the powers to condemn Romania. In using the ratione temporis argument, the GC restrained itself from entering into a con ict with the ICSID arbitral tribunal, with the main ndings of which it implicitly adheres to. e GC stated that ‘in the arbitral award, the arbitral tribunal concluded that, by repealing the EGO incentives prior to 1 April 2009, Romania had undermined the arbitration applicants’ legitimate expectations and had failed to act transparently towards them. erefore, the repeal of the EGO incentives constitutes the event giving rise to the damage for which the compensation at issue was awarded to the applicants in the arbitral award’ (para. 72). It is therefore apparent that the GC shares the ICSID’s tribunal view that the compensation recognized through the award is a mere recognition of the damage occurred because of the repeal of the incentives and of the breach of the principles of legitimate expectations and of transparency. It excluded that the payment of the compensation could be classi ed as new aid, as it was ‘the enforcement of a right that arose in 2005’ (para. 80).
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