The Micula saga unconvincing decision of the US District Court

Lexology | 17 September 2020

The Micula saga unconvincing decision of the US District Court

by Mauro Rubino-Sammartano

The Micula Saga is characterized by the ICSID award (and its review by the ad hoc Committee) being just the beginning rather than the conclusion of the dispute, since after such two decisions the litigation has travelled to New York (2015), Brussels (2016), the Fourth Chamber of the General Court (CJEU) (2016), London (2017), New York (2017), London (2018), Stockholm (2019), Brussels (2019), the General Court of the European Union (2019) and has now stopped (for a while?) in Washington.

The US District Court Case

The US District Court for the District of Columbia has been seized by the Micula brothers, and by three entities controlled by them, by a Petition to Confirm the ICSID arbitration award and Enter Judgment, which has been opposed by the Government of Romania’s Motion for Stay, which was based on two grounds: a challenge of the District Court’s jurisdiction and the Act of State and Foreign Sovereign Compulsion doctrines.

Romania’s argument was that the District Court lacked jurisdiction due to the invalidity of the arbitration clause resulting from the decision of the Court of Justice of the European Union in Achmea 1 , which has ruled that European law “preclude[s] a provision in an international agreement concluded between Member States … under which an investor from one of those Member States may, in the event of a dispute concerning investments in the other Member State, bring proceedings against the latter State before an arbitral tribunal”.

Based on such a ruling, Romania has argued that the arbitration clause in the Sweden-Romania BIT was invalid from the time of Romania’s accession to the European Union.

Romania further argued that the Act of State and the Foreign Sovereign Compulsion doctrines forced the District Court not to confirm the Award.

The District Court’s Decision on Jurisdiction

The District Court has affirmed its jurisdiction, rejecting the argument on three grounds that the arbitration clause, on which the ICSID award was based, was invalid due to the Achmea decision. First, the District Court found that the facts of Micula were different from those of Achmea, since all the various facts, based on which Romania had taken the action which has been challenged, were prior to its accession to the European Union, and therefore not based on the law of the European Union, while in Achmea, they had all occurred when the Slovak Republic was already a Member State of the European Union and European Union’s law was then applying.

Second, Micula had not, as its object, a decision on an issue of European law, which was the grounds on which, in Achmea, the arbitration clause was not held to be valid.

Third, the decision of the General Court of the Court of Justice of the European Union, which overturned the State Aid Decision of the European Commission and held that Romania’s payment of the award to the Miculas would not have constituted an illegal State aid, found that the ICSID award was not in conflict with European Union’s law, since the Arbitral Tribunal “was not bound to apply EU law to events occurring prior to the accession”.

The Act of State

The District Court has also rejected Romania’s argument that the doctrines of the Act of State and of Foreign State Compulsion did not allow to confirm the award.

The Court has held, based on the above referred to decision of the General Court - which Romania had appealed - that Romania was not subject to the European Union’s law until it had acceded to it, that its repeal of the economic incentives granted to the Micula was consequently its free decision and the Award had simply remedied such wrong Romanian decision.

The Court concluded that the European Commission’s decision being invalid, Romania was not prevented by the law of the European Union from paying the Award, and the two doctrines advocated by it were not preventing the confirmation of the award.

Comments to the District Court Decisions as to Jurisdiction

The District Court’s affirmation of its jurisdiction, since the arbitration clause in the BIT - on which the Award was based - was valid, is – with respect – not convincing.

In fact, the arbitration clause, which was valid when the BIT was entered into by Sweden and Romania, has become invalid when both States, being Members of the European Union, became subject to the ruling of its Court of Justice, which found that all the arbitration clauses in intra-EU States were invalid. The law of Sweden and Romania has then caused the invalidity of their arbitration clause.

When the ICSID Tribunal decided the proceedings, instituted by the investors under that arbitration clause, that clause was no more valid.

It is suggested that the premise for a confirmation of that award is not there.

It is submitted that this point is decisive and that it is not necessary to deal with the three arguments on which District Court decision is based.

As to the Act of State and Foreign Sovereign Compulsion

The District Court’s decision on these two issues is based on the decision of the first instance of the Court of Justice, even if it has been appealed, arguing that it should base itself on the legal landscape as it presently stands.

With respect, this conclusion cannot be shared, since it grants - to that effect - finality to a decision which is still sub judice.

The Congress’ wish that actions to enforce awards “need not be protracted” does not seem to imply that a decision to confirm be based on a judgment which is still being reviewed by an upper Court.

The District Court has then opined that the Award was compatible with EU law. It is not convincing that this conclusion – even if correct – helps to overcome not only the obstacle provided by the fact that the Award was based on an arbitration clause which had become invalid, but also by the two doctrines.

In fact, Achmea, being a decision of the supranational court of the European Union, which binds all its Member States, the District Court was facing - it is submitted – an Act of State.

The District Court seems then – with respect – to have disregarded the doctrine, which it has itself recognised by quoting Republic of Austria v. Altmann 2

“the courts of one state will not question the validity of public acts (acts jure imperii) performed by other sovereigns within their own borders, even when such courts have jurisdiction over a controversy”.

as well as Mannington Mills, Inc. v. Congoleum Corp. 3 under which Foreign Sovereign Compulsion

“shields from … liability the acts of parties carried out in obedience to the mandate of a foreign government”.

It is submitted that both doctrines then apply, to say nothing of the widely accepted doctrine of “comity of nations”

source: Lexology