A new Micula-type case on the horizon?
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Arbitration Blog | 25 January 2018

A new Micula-type case on the horizon?

by Nikos Lavranos, Secretary General at EFILA

In November 2017, the European Commission (EC) issued its decision on the Spanish support measures for renewable energy sources.

As will be recalled, Spain is currently facing about 30 investment treaty disputes based on the Energy Charter Treaty (ECT) and various bilateral investment treaties (BITs) for the retroactive withdrawal of its support measures for the production of renewable energy.

While Spain won the first case, it lost in Eiser Infrastruture Ltd and another v Spain, where the International Centre for Settlement of Investment Disputes (ICSID) tribunal ordered it to pay EUR €128 million compensation to the investor.

As usual in intra-EU arbitration disputes, the EC intervened as amicus in the case, arguing that the ECT is not applicable between EU investors and EU member states, and that therefore the arbitral tribunal lacked jurisdiction.

So far, the EC has unsuccessfully made this argument in numerous intra-EU disputes. Frustrated by its failure to stem the flood of intra-EU arbitration disputes, it has changed strategy.

Notably, in the context of Ioan Micula, Viorel Micula and others v Romania, in which a Swedish investor obtained a US $250 million ICSID award against Romania, the EC prohibited Romania from paying out the ICSID award, thus preventing Romania from fulfilling its international obligations which stemmed from the BIT and the ICSID Convention. The EC argued that paying out the award would violate EU law because it would constitute new unnotified (and therefore illegal) state aid by Romania. In other words, the EC turned an investment treaty arbitration dispute between an EU investor and an EU member state into a state aid case between the investor and the EC.

While the Micula case is still pending before the Court of Justice of the EU (CJEU), the EC applied the same strategy again with Spain. It has essentially prohibited Spain from paying the compensation to Eiser, as this would constitute new unnotified and thus illegal EU state aid in vioaltion of EU law.

In addition, the EC explicitly disagreed with the arbitral tribunal in Eiser by claiming that there was no violation of the fair and equitable treatment standard of the ECT, and that, in any case, intra-EU investment treaty arbitration is in breach of EU law and therefore not available for EU investors.

If the CJEU were to confirm the decision of the EC, the negative consequences would be very significant indeed.

Essentially, it would mean that ICSID awards could not effectively be executed automatically within the EU, which is the very purpose of the ICSID Convention. As a consequence, practitioners need to reconsider whether ICSID is still a useful dispute settlement system when it concerns cases against EU member states. Furthermore, EU member states may no longer be considered appropriate places for the recognition and execution of ICSID awards. This could have major implications for the attractiveness of the ICSID system.

In short, the application of the ICSID Convention within the EU is seriously endangered by the EC. This is particularly troubling because it undermines the ICSID system, which has been functioning so well for the past 50 years.