Courthouse News | 25 January 2022
Probe of how much EU members pay for arbitration gets liftoff
by Molly Quell
LUXEMBOURG (CN) — The European Court of Justice backed the bloc’s authority on Tuesday to challenge arbitration payments in a dispute between a pair of beverage moguls and the Romanian government.
Ordering a lower court to reconsider if Romania’s payment of a $200 million ordered by an arbitration tribunal amounts to illegal public support of a private company, the Luxembourg-based body ruled that the European Commission has the authority to investigate awards based on bilateral investment treaties.
The dispute dates back to Romania’s European Union ascension in 2007. Ten years prior, Bucharest introduced a program to encourage investment in economically disadvantaged regions of the southeastern European country. The program included reimbursement for some investments and a reduction in taxes for participating companies.
EU regulations bar governments from supporting private companies, however, to prevent market distortions across the bloc. Conforming to such state aid rules, the Romanian government phased out the program, fully ending the benefits in 2005.
One of the companies that benefited from the program was European Drinks & Foods, which is based in the economically disadvantaged western Transylvania region of Ștei-Nucet. Founded by Swedish-Romanian brothers Ioan and Viorel Micula in 1993, the company, which makes soda and energy drinks, availed itself of the tax benefits in 2000 under the promise that they would last for 10 years. When the benefits were cut short, the Miculas, who are some of Romania’s wealthiest residents, brought a flurry of legal complaints in Romania, Belgium, France, Luxembourg, Sweden, the United Kingdom and the United States in the hopes a court would turn Romanian state assets over to them to fulfill the compensation obligation.
In 2013, the brothers prevailed before the International Centre for Settlement of Investment Disputes, an arbitration institution for legal dispute resolution between investors and states. Romania and Sweden had signed a bilateral investment treaty in 2002, which allowed the brothers as well as their Swedish investors to pursue Romania before ICSID. They were awarded 178 million euros ($211 million) in compensation, which the Romanian government began to pay in 2014. This triggered a complaint by the European Commission, the EU’s executive branch, which argued that paying the award violated state aid rules.
The Miculas contested this move and prevailed before the General Court in 2019, but the commission appealed, leading to Tuesday’s decision.
"Romania’s consent to the arbitration system … became inapplicable,” once it joined the European Union, the court wrote.
The ruling echos a nonbinding opinion by a court adviser in 2021. “Arbitration proceedings, such as those at issue in the present case, are not in my view capable of adversely affecting the autonomy of EU law, even after accession,” Advocate General Maciej Szpunar wrote.
Continuing the yearslong legal battle, the high court returned the case to the General Court to reconsider the case. The brothers also have cases to recoup the arbitral award pending before courts in the United Kingdom and the United States.