“Romania’s actions, both before this litigation and during it, undermine its assertion that the court’s exercise of jurisdiction is unjust. Before the ICSID tribunal, Romania had the opportunity to press the jurisdictional arguments it has made here but it did not so do… It was not until the annulment proceedings, which commenced years later on April 9, 2014, that the issue of the tribunal’s jurisdiction arose based on Romania’s accession to the EU, and even then it was raised by the European Commission as amicus, not Romania.”
These are the words of United States District Judge Amit P. Mehta, who, in his 22 December 2022 decision, denied Romania’s motion for relief from the Court’s earlier decision to enforce the ICSID arbitration award issued in December 2013 in favour of Ioan Micula, Viorel Micula (and their related entities) against the Government of Romania.
In this latest instalment of “the seemingly never-ending saga” between the Miculas and Romania [Micula et al v Government of Romania, Civil Action No. 17-cv-02332 (APM)], Judge Mehta concluded “it cannot be unjust” to deny Romania’s motion given its inaction before the ICSID Tribunal, the Annulment Committee and before the US Courts, where it chose to assert its argument that “Romania’s accession to the EU nullified the agreement to arbitrate and thereby deprived this court of jurisdiction” for first time in a reply brief filed well into the proceedings to enforce the arbitration award in the United States.
Romania had asked the Court to set aside its decisions to enforce the ICSID arbitration award based on two recent CJEU decisions which Romania claimed “vitiate[d] this court’s subject matter jurisdiction and thus entitle[d] it to relief” from the enforcement decisions. However, in doing so, Romania did not allege any due process violation and instead tried to characterise the CJEU’s decisions as “the rare instance of a judgment involving a certain type of jurisdictional error, one signifying the kind of fundamental infirmity that may be raised even after the judgment becomes final.”
However, Judge Mehta did not see it that way. Noting that because Romania had had a full and fair opportunity, in the lead up to the enforcement decisions, to contest the court’s jurisdiction on the basis that Achmea rendered the arbitration agreement in the Sweden-Romania BIT void, the Court could not engage in a de novo review (a standard that was only appropriate “when a foreign sovereign that has not appeared seeks relief from a default judgment”.)
Instead, Judge Mehta concluded that the “arguable basis” standard applied. This forced Romania to argue that because the court “elected to carefully consider Achmea and predict how the CJEU would rule with respect to its application to the [Sweden-Romania] BIT – and was wrong in its prediction – there was never a valid agreement to arbitrate as required by the FSIA arbitration exception and, accordingly, there was never an arguable basis for jurisdiction.”
Judge Mehta, however, found that contention to be disingenuous. In his view, “it cannot be true that this court lacked a total want of jurisdiction when Romania itself conceded on appeal that the court’s exercise of jurisdiction was proper and the D.C. Circuit disagreed with the jurisdictional argument raised by the European Commission.”
That jurisdictional argument – which the court observed had been raised solely by the European Commission – was that Romania’s agreement to arbitrate “was nullified by its ascension to the European Union. ”
According to Judge Mehta, the CJEU’s recent rulings do not alter the fact that Romania did not join the EU until after the events underlying the arbitration occurred and the arbitration itself was commenced. In addition, according to the judge the CJEU’s recent rulings say very little about that arbitration agreement. Instead, they “held that the European Commission possessed the authority to determine whether Romania’s satisfaction of an arbitration award against Romania that issued after Romania acceded to the EU would violate the prohibition on state aid.”
Therefore, Judge Mehta concluded that the CJEU’s recent rulings could have no impact on the “jurisdictional facts” that led the court to enforce the ICSID arbitration award. In particular, the rulings “did not invalidate or nullify Romania’s consent to arbitrate at the time it entered the treaty with Sweden or when [the Miculas] filed for arbitration” – and so neither CJEU ruling “upends the arguable basis upon which the court exercised jurisdiction.”
Although Romania also tried to argue that the court’s subject matter jurisdiction finding that led to its decision to enforce the ICSID arbitration awards “depend[ed] on the General Court Decision that the [CJEU’s recent rulings] overturned,” Judge Mehta was once again not persuaded.
“Romania’s arguments are based on a mischaracterization of the role the General Court Decision played in this court’s subject matter jurisdiction finding. The court relied on the General Court Decision as the third of three reasons why Achmea did not render the arbitration exception inapplicable” and the “the fact that this court cited the General Court Decision to buttress its reading of Achmea does not mean that the [decision to enforce the arbitral award was] based on the General Court Decision.”
In support of that finding, Judge Mehta reiterated that the CJEU’s recent rulings only addressed the authority of the European Commission to determine whether Romania’s satisfaction of the Award would constitute state aid. They did not question the merits of the arbitration award, which rested primarily on the ICSID Tribunal’s interpretation of the Sweden-Romania BIT.
“All that has changed since the D.C. Circuit affirmed this court’s first two judgments” Judge Mehta explained “is that the CJEU has ruled (1) that the European Commission had the authority to evaluate the Award under the EU’s state aid rules, and (2) because the European Commission has held that Romania’s satisfaction of the Award would violate state aid rules, the courts of Member States cannot enforce the Award.
“Those developments are not extraordinary: they are the rulings of Europe’s high court about matters of EU law that do not change the jurisdictional fact that, at the time [the Miculas] filed for arbitration, Romania had agreed to arbitrate under the Sweden-Romania BIT. The fact that EU law, as interpreted by the CJEU, bars EU Member State courts from enforcing the Award because payment by Romania would violate the EU’s state aid rules is not a ruling that strips a United States federal court of jurisdiction.”
This, however, is not the end of the saga. On 19 January 2023, Romania formally notified the Miculas of their appeal against Judge Mehta’s decision to deny Romania’s motion for relief. So, it remains to be seen whether the United States Court of Appeals for the District of Columbia Circuit grants Romania the requisite leave.
Beginning in December 1989, Romania adopted a series of measures to attract and promote investment, including a measure called Emergency Government Ordinance No. 24/1998. The Ordinance provided certain tax incentives to invest in Romania and, relying on those incentives, Swedish nationals Viorel and Ioan Micula began investing in Romania in 1998.
In 2002, Romania entered into a bilateral investment treaty with the Kingdom of Sweden, which “granted certain protections to each country’s investors who invested in the other country.” However, two years later, as part of the process of joining the European Union, Romania announced that it would repeal Emergency Government Ordinance No. 24/1998 and the relevant tax and investment incentives as they were considered state-sponsored investment incentives and unlawful “state aid” contrary to EU law.
In response, the Miculas initiated arbitration proceedings against Romania before an ICSID tribunal pursuant to the Sweden-Romania BIT. In December 2013, the ICSID tribunal ruled in favour of the Miculas and awarded them monetary damages plus interest.
However, in January 2007, while the arbitration proceedings were pending, Romania formally joined the EU. And so, soon after the ICSID tribunal issued its award, “the European Commission advised Romania that implementing or executing the Award would constitute impermissible new state aid” and issued a “suspension injunction” that prohibited Romania from fulfilling the award until the European Commission “reached a final decision on whether the Award constituted state aid.”
Then, on 30 March 2015, the European Commission issued a decision finding that the arbitration award constituted state aid in violation of EU law and instructed Romania to cease payment.
The Miculas appealed against that decision to the General Court of the Court of Justice of the European Union. On 18 June 2019, the General Court issued a ruling annulling the European Commission’s State Aid Decision explaining that “that EU law became applicable to Romania only upon its accession to the EU on January 1, 2007,” and thus the European Commission “lacked the ‘competence’ to declare that the investment incentives – which Romania offered before acceding to the EU – violated EU rules on state aid.”
Romania, in turn, appealed the General Court Decision to the CJEU.
On 11 September 2019, while Romania’s appeal before the CJEU was pending, the United States District Court for the District of Columbia granted the Miculas’ petition to confirm the arbitration award even though Romania had argued that jurisdiction was improper under the FSIA arbitration exception because the arbitration clause in the Sweden-Romania BIT was invalid based on the CJEU’s decision in Achmea.
In the first of two decisions, the CJEU reversed the General Court Decision on 25 January 2022. In doing so, it reasoned that (1) the European Commission had the “competence” to review measures taken by Romania which might constitute state aid as of January 1, 2007, the date of Romania’s accession to the EU; and (2) “in order to determine whether the Commission was competent to adopt the [State Aid Decision]… it was necessary to define the date on which” the Award was “granted.” While the General Court had concluded that the Award was “granted” in 2005 when Romania repealed the incentives, and because this occurred before Romania joined the EU, the European Commission was not competent to render the State Aid Decision, the CJEU held that the Award “was actually granted after [Romania’s] accession [to the EU], by the adoption of the arbitral award” by the ICSID tribunal in 2013.
The CJEU’s second ruling, issued on 21 September 2022, held that, under EU law, the Award could not be enforced in the courts of Member States. The CJEU reasoned that Romania’s accession to the EU meant that it had withdrawn its consent to resolve matters pertaining to EU law through arbitration under the Sweden-Romania BIT and, because the “dispute before the arbitral tribunal cannot be regarded as being confined in its entirety to” the period before Romania acceded to the EU, the Award – which was determined to constitute state aid by the European Commission – could not be enforced by the court of a Member State.