Thought Leadership

Enforcement of ICSID Awards in the UK and EU State Aid: The Judgment of the English Court of Appeal in Micula v. Romania (Micula v. Romania [2018] EWCA Civ 1801), November 2018

Client Updates
The 27 July 2018 judgment of the English Court of Appeal (the “Court of Appeal”) is the latest chapter in the Micula saga.

This judgment is the latest development in a long-running enforcement saga which started in December 2013, when the Micula brothers obtained an ICSID award against Romania (the “Award”). Romania was ordered to compensate the investors for breaching the 2002 Sweden-Romania Bilateral Investment Treaty (the “BIT”) as a result of the withdrawal of certain tax incentives extended to the investors before Romania’s accession to the EU.

In March 2015, the European Commission issued a decision (the “Decision”) stating that enforcement of the Award would constitute new State aid and was therefore prohibited under the State aid provisions of the Treaty on the Functioning of the European Union (“TFEU”). By that point, the Award had already been registered in the UK (the “Registration Order” dated October 2014).

The investors challenged the Decision before the General Court of the European Union (the “General Court”). These challenge proceedings are currently pending.

In parallel, Romania sought to set aside the Registration Order before the English courts. The investors filed a cross-application for security for damages in those proceedings, pending the outcome of the General Court proceedings. By two orders dated 23 January 2017 and 16 June 2017, the High Court judge (Blair J) (i) rejected Romania’s application to set aside the Registration Order, but (ii) stayed enforcement of the Award and (iii) dismissed the investors’ security application. The investors appealed both the stay of enforcement and the decision denying security.

The proceedings before the Court of Appeal involved a challenging interplay between the UK’s international law obligations under the ICSID Convention and EU law. The Court struck a fine balance between those competing obligations by upholding the stay of enforcement but ordering Romania to provide security.

The Court of Appeal’s judgment is not the end of the English chapter of this long-running saga. The stay of enforcement is only temporary and is subject to a further order in the event of a material or unforeseen change of circumstances warranting the lifting or variation of the stay.

Stay of enforcement

The Court of Appeal unanimously found that the enforcement of the Award should be stayed pending the determination by the General Court of the challenge against the European Commission’s Decision. While the outcome was unanimous, the three judges (Leggatt LJ, Arden LJ and Hamblen LJ) took somewhat different routes in reaching this result.

First, the Court of Appeal rejected the appellant’s arguments based on the so-called Kapferer principle, i.e. the principle that final judicial decisions should not be reviewed and set aside on the basis that those decisions are contrary to EU law. The Court agreed with the High Court judge that an ICSID award becomes binding and thereby res judicata when it is rendered (as opposed to when the ICSID ad hoc committee renders its decision on annulment), and that, therefore, the Award became final before the European Commission’s Decision.

Notwithstanding, the Court of Appeal rejected the application of the Kapferer principle in this case, as that principle cannot be used to circumvent the EU State aid rules. Accordingly, the Court found that the stay was required to ensure the effective application of EU State aid law. Allowing enforcement of the Award while the Decision was in force and the General Court proceedings were pending would have effectively enabled payment of unlawful State aid to be made, and would thereby “directly frustrate, obstruct and circumvent the Commission’s Decision and undermine its effectiveness.” Thus, as an exception to Kapferer, the principle of res judicata finds its limits where it would undermine the effectiveness of a European Commission’s decision in the field of State aid.

Second, the Court of Appeal considered the significance of the analogy between an ICSID award and a High Court judgment under Section 2(1) of the Arbitration (International Investment Disputes) Act 1966 (the 1966 Act), i.e. the statute which incorporated the ICSID Convention into the UK domestic legal order. Section 2(1) of the 1966 Act provides that the effect of registration of an ICSID award is to confer upon such award, “as respects the pecuniary obligations which it imposes, … the same force and effect for the purposes of execution as if it had been a judgment of the High Court.

The significance of this analogy with a High Court judgment was construed differently by the three judges. The majority (formed by Arden LJ and Leggatt LJ) rejected Romania’s “equivalence” argument, finding that the analogy with a High Court judgment was limited to “defining the force and effect of a registered award for the purpose of execution.” Subject to the State immunity defense (which is also recognized under Article 55 of the ICSID Convention), this analogy does not bestow the power upon the High Court to “refuse to enforce an award for a reason that would justify staying enforcement of an ordinary domestic judgment.” While thus a refusal to enforce an ICSID award was held to be incompatible with the UK’s obligations under the ICSID Convention, the majority found that the ICSID Convention did not prevent the national court charged with executing the award from exercising its power to stay enforcement, so long as such stay is consistent with the overall purposes of the ICSID Convention.

Incidentally, the Court of Appeal considered the parties’ submissions on the CJEU’s Achmea judgment (rendered a few months before the appeal was heard). However, the Court found that there was no need to rule on this issue in this case. (Several investment arbitration tribunals have recently ruled that Achmea did not apply to ICSID arbitrations, both under bilateral investment treaties and the Energy Charter Treaty – see UP and CP Holding Internationale v. Hungary, Vattenfall v. Germany, Marfin Investment Group v. Cyprus, and Masdar v. Spain.)

Third, the Court of Appeal considered the effect of Article 351 TFEU. Article 351 TFEU resolves conflicts between EU treaties and the EU Member States’ obligations under pre-accession treaties by effectively giving precedence to the latter over EU law. In this case, the ICSID Convention was the relevant pre-accession treaty entered into prior to the UK’s accession to the EU.

The majority found that, if there were a conflict between UK’s international obligations under the 1966 Act and EU law, the High Court judge would be right to order a stay. The application of Article 351 TFEU was “a central issue” in the General Court proceedings and, therefore, the stay was justified to avoid the risk of conflicting decisions.


On the second prong of the appeal, the Court of Appeal granted security in the amount of £150 million as a term of the stay on enforcement, but refused to condition the stay upon compliance by Romania with this security order. This disavows the decision of the High Court judge who found that granting security would potentially be in breach of the Decision.

The Court of Appeal found that making an order allowing the stay to be lifted if Romania fails to provide security was not appropriate as this would be incompatible with the Court’s duty of sincere cooperation under EU law. The order of security, however, would not itself be in breach of the Decision since it would not entail any payments to the investors at all, let alone payment of the compensation awarded by the arbitral tribunal. The purpose of a security order is not to pay compensation to the investors, but rather to ensure that there are funds available against which execution could take place immediately if the Decision is overturned. The Court of Appeal found that the security order would put the investors in the “next best” possible position to recover under the award if they were to prevail in the proceedings before the General Court.


While this judgment is certainly not the last chapter in the Micula saga, it is noteworthy for several reasons, including because:

  • It is a useful reminder that ICSID awards are subject to a special enforcement regime under the 1966 Act. In particular, under this special regime, the public policy exception is not an available basis for refusing enforcement, but sovereign immunity might be (see, for example, the discussion in the recent judgment in PAO Tatneft v. Ukraine [2018] EWHC 1797 (Comm)).

  • It shows that, even for ICSID awards, enforcement may be a challenging endeavor before EU Member State courts where EU State aid issues are involved. As the Court of Appeal judgment indicates, the Kapferer principle is unlikely to offer protection in this context. Such enforcement raises a host of complex issues of interplay between EU law and international treaty obligations of the EU Member States, as evidenced by the split among the three Court of Appeal judges sitting in this case. The status of New York Convention awards is likely to be even more fragile given the availability of the public policy exception for such awards. For example, the public policy exception has recently been invoked by Spain in the US enforcement chapter of the SCC award rendered in Novenergia v. Spain (along with other arguments such as lack of jurisdiction).

  • The litigants should nevertheless be aware of the Kapferer principle which, in certain circumstances, may justify giving precedence to the finality of judicial decisions over considerations of EU law. While this principle was found to be inapplicable in this particular case, it might be an effective tool for resolving conflicts between final judgments and awards with res judicata effects and EU law in other circumstances.

  • In a manner favorable to investors, the grant of security in this case contrasts with another recent case in which the Supreme Court found, in respect of a New York Convention award, that it had no power to order security in the amount of the award as a pre-condition for the determination of a defence to enforcement (see IPCO (Nigeria) Ltd v. Nigerian National Petroleum Corporation (NNPC) [2017] UKSC 16).

After Brexit, the UK might become a more attractive place for enforcement, assuming that EU State aid rules cease being applicable in the UK. If EU law is no longer a part of the UK law, the English courts might potentially give less weight to the proceedings before and judgments of the EU courts (such as Achmea) and/or State aid decisions of the European Commission when deciding on the enforcement of international arbitral awards. However, comity arguments would continue to apply and might prompt the English courts to take into consideration matters of EU law.

More generally, in light of Achmea and Micula, investors should consider restructuring their investments to ensure that they continue to benefit from treaty protections and do not fall foul of the EU State aid rules. The investors are also advised to make inquiries into the availability and location of assets of the counterparty as part of their disputes and enforcement strategies.

Related Professionals