Romania loses major arbitration case

Global Legal Post | 17 December 2013

Romania loses major arbitration case

Romanian case is one of the biggest arbitration awards ever

In a victory which may have major ramifications for international law, US law firm King & Spalding has won a $250 million arbitration case for Romanian company Micula against the Republic of Romania.

The long-running investment treaty arbitration was one of the largest arbitration awards on record at the International Centre for the Settlement of Investment Disputes (ICSID). The dispute occurred after Romania revoked an incentive programme, set up to encourage investment after the fall of the country’s communist regime in 1989. Twin brothers Ioan and Viorel Micula invested in large-scale, state-of-the-art food and beverage production facilities in a remote and underdeveloped part of the country, in response to a variety of incentive programmes that Romania enacted to entice investment and to transition to a market economy. In 2005, after the Miculas effectively doubled their investments, Romania revoked the customs duties exemptions, ending that part of the incentive programme five years early. On behalf of Ioan Micula and three of his companies, King & Spalding prosecuted an ICSID arbitration under the Sweden-Romania Bilateral Investment Treaty, which is designed to protect Swedish investors from unfair treatment by the Romanian government.

Defended by the EU

Romania’s primary defense in the arbitration was that the incentive programme was incompatible with European Union law and that Romania was forced to revoke the programme in order to join the EU. Romania’s position was strongly supported by the EU Commission, which intervened in the case on behalf of Romania and conclusively established that it did, in fact, require Romania to prematurely terminate the programme. The Micula et al. v. Romania award is an important milestone in investment treaty law, because it rejects the notion that a State can rely on its EU obligations to escape liability when it has violated specific legal protections owed to foreign investors.

The King & Spalding cross-office team involved in this matter consisted of international arbitration partners Eric Schwartz (New York, Paris), Reggie Smith (Houston), Ken Fleuriet (Paris), Craig Miles (Houston), counsel Ric Toher (Houston), senior associate Amy Frey (Paris) and associate Jamie Miller (Houston).